FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1994.
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
[ ] For the transition period from _____ to _____
Commission file number 1-4422
____________________________
ROLLINS, INC.
Incorporated I.R.S. Employer
in Identification Number
Delaware 51-0068479
2170 Piedmont Road, N.E., Atlanta, Georgia 30324
Telephone Number -- (404) 888-2000
____________________________
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period
that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At September 30, 1994, there were 35,811,521 shares of
Common Stock $1 Par Value, outstanding.
ROLLINS, INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page No.
Statements of Financial Position -
September 30, 1994 and December 31, 1993 1
Statements of Income and Earnings Retained
- three months and nine months ended
September 30, 1994 and 1993 2
Statements of Cash Flows
- nine months ended September 30, 1994 and 1993 3
Notes to Financial Statements 4-5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-9
Part II Other Information 10
ROLLINS, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
(Unaudited)
September 30, December 31,
1994 1993
ASSETS
Cash and Short-Term Investments $ 28,374 $ 18,102
Marketable Securities 51,919 50,991
Trade Receivables, Net 104,607 87,518
Materials and Supplies 16,794 15,829
Other Current Assets 14,502 12,092
Current Assets 216,196 184,532
Equipment and Property, Net 28,347 28,890
Intangible Assets 42,112 42,171
Other Assets 10,647 11,601
Total Assets $ 297,302 $ 267,194
LIABILITIES
Accounts Payable $ 12,612 $ 12,279
Accrued Insurance Expenses 17,107 13,600
Accrued Payroll 16,667 15,519
Unearned Revenue 14,461 12,854
Other Expenses 14,639 12,752
Current Liabilities 75,486 67,004
Deferred Income Taxes 11,893 12,983
Long-Term Accrued Liabilities 20,508 26,699
Total Liabilities 107,887 106,686
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share; authorized
99,500,000 shares; 41,431,814 shares issued 41,432 41,432
Earnings Retained 199,501 171,862
240,933 213,294
Less--Common Stock In Treasury, At Cost,
5,620,293 in 1994 ; 5,758,619 shares in 1993 51,518 52,786
Total Stockholders' Equity 189,415 160,508
Total Liabilities and Stockholders' Equity $ 297,302 $ 267,194
The accompanying notes are an integral part of these statements.
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ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME AND EARNINGS RETAINED
(In thousands, except share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
REVENUES
Customer Services $ 158,002 $ 151,808 $ 466,319 $ 442,351
COSTS AND EXPENSES
Cost of Services Provided 82,315 77,052 236,136 223,577
Sales, General and Administrative Expenses 53,450 53,683 159,353 154,303
Depreciation and Amortization 1,934 2,213 5,948 6,064
Interest Income (853) (633) (1,727) (1,635)
136,846 132,315 399,710 382,309
INCOME BEFORE INCOME TAXES 21,156 19,493 66,609 60,042
PROVISION (CREDIT) FOR INCOME TAXES:
Current 8,688 8,720 26,508 24,785
Deferred (543) (915) (864) (1,369)
8,145 7,805 25,644 23,416
NET INCOME 13,011 11,688 40,965 36,626
EARNINGS RETAINED:
Balance at Beginning of Period 191,077 159,660 171,862 141,999
Cash Dividends (4,474) (3,921) (13,409) (11,757)
Other (113) 293 83 852
BALANCE AT END OF PERIOD $ 199,501 $ 167,720 $ 199,501 $ 167,720
EARNINGS PER SHARE $ 0.36 $ 0.33 $ 1.14 $ 1.03
WEIGHTED AVERAGE
SHARES OUTSTANDING 35,791,806 35,648,066 35,753,872 35,628,579
The accompanying notes are an integral part of these statements.
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ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30
1994 1993
OPERATING ACTIVITIES
Net Income $ 40,965 $ 36,626
Noncash Charges (Credits) to Earnings:
Depreciation and Amortization 5,948 6,064
Other, Net 2,692 825
(Increase) Decrease in:
Trade Receivables (16,990) (19,998)
Materials and Supplies (965) (29)
Other Current Assets (1,701) 2,175
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 6,907 6,011
Unearned Revenue 1,607 2,362
Non-Current Deferred Income Taxes (2,663) (2,934)
Long-Term Accrued Liabilities (6,311) 1,553
Other Non-Current Assets (514) (487)
Net Cash Provided by Operating Activities 28,975 32,168
INVESTING ACTIVITIES
Purchases of Equipment and Property (5,934) (6,107)
Net Cash Used for Acquisition of Companies (527) (416)
Proceeds from Sales of Equipment and Property 744 273
Purchases of Marketable Securities (1,479) (10,838)
Net Cash Used in Investing Activities (7,196) (17,088)
FINANCING ACTIVITIES
Dividends Paid (13,409) (11,757)
Treasury Stock Issued to Benefit Plans 1,902 1,441
Net Cash Used in Financing Activities (11,507) (10,316)
Net Increase (Decrease) in Cash
and Short-Term Investments 10,272 4,764
Cash and Short-Term Investments
at Beginning of Period 18,102 20,061
Cash and Short-Term Investments
at End of Period $ 28,374 $ 24,825
The accompanying notes are an integral part of these statements.
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ROLLINS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PREPARATION
The consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to
the rules and regulations of the Securities and Exchange
Commission. Footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations.
These consolidated financial statements should be read in
conjunction with the financial statements and related notes
contained in the Registrant's annual report on Form 10-K for the
year ended December 31, 1993.
Certain prior year amounts have been reclassified to conform with
the third quarter 1994 presentation.
In the opinion of management, the consolidated financial statements
included herein contain all normal recurring adjustments necessary
to present fairly the financial position of the Registrant as of
September 30, 1994 and December 31, 1993, and the results of
operations and cash flows for the nine months ended September 30,
1994 and 1993.
NOTE 2. INVESTMENT IN MARKETABLE SECURITIES
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The adoption of
SFAS No. 115 did not have a material effect on the Company's
financial position, results of operations, or liquidity for the
nine months ended September 30, 1994.
NOTE 3. PROVISION FOR INCOME TAXES
The book provision for income taxes includes the liability for
state income taxes, net of the federal income tax benefit. The
deferred provision for income taxes arises from the changes during
the year in the company's net deferred tax asset or liability.
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ROLLINS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the
weighted average number of shares outstanding during the respective
periods.
NOTE 5. COMMITMENTS AND CONTINGENCIES
On May 26, 1993, the Attorney General of Missouri and several
Missouri residents who received termite treatment from Orkin, on
behalf of themselves and an alleged class, filed an action in the
City of St. Louis Circuit Court. The Attorney General has alleged
violations of the Missouri Merchandising Practices Act. The
private plaintiffs have alleged fraud and breach of certain termite
extermination contracts. The Plaintiffs' claims are based on
allegations that the Company failed to apply termiticides in
accordance with termiticide labels and its advertising. Plaintiffs
are collectively seeking restitution for claimed losses, civil
penalties, compensatory and punitive damages, and litigation
expenses, including attorneys' fees. On June 1, 1994, the Court
ruled Plaintiffs' would be permitted to pursue a class action
lawsuit against Orkin. The class was limited to those Missouri
customers who purchased termite extermination services between
January 1, 1987 and May 15, 1993, inclusively, and who have
basement or crawl space foundation walls, in which an
organophosphate termiticide was used.
The Company is vigorously defending this lawsuit. Except for the
class certification, the judicial system has not ruled
on any substantive issues in this case. Due to the preliminary
nature of this action, the final outcome of the litigation cannot
be determined at this time. However, it is the opinion of
management that the ultimate resolution of this action will not
have a material adverse effect on the Company's financial position
and results of operations and will take an extended time to resolve.
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ROLLINS, INC. AND SUBSIDIARIES
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1994
RESULTS OF OPERATIONS
SELECTED INDUSTRY SEGMENT DATA
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands)
1994 1993 1994 1993
REVENUES
Orkin $ 138,818 $ 133,776 $ 410,297 $ 390,988
Rollins Protective 15,547 14,927 45,718 42,857
Other 3,637 3,105 10,304 8,506
$ 158,002 $ 151,808 $ 466,319 $ 442,351
OPERATING INCOME
Orkin $ 19,342 $ 18,031 $ 64,218 $ 58,283
Rollins Protective 1,833 1,711 4,667 4,190
Other 1,731 1,486 4,061 3,335
$ 22,906 $ 21,228 $ 72,946 $ 65,808
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ROLLINS, INC. AND SUBSIDIARIES
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1994
General Operating Comments
Rollins, Inc. reported another quarter of record earnings. Revenues for the
third quarter ended September 30, 1994 reached $158.0 million, an increase of
$6.2 million or 4.1% from the prior year period ($24.0 million or 5.4% year-
to-date). Operating income increased $1.7 million or 7.9% to $22.9 million
for the quarter ($7.1 million or 10.8% year-to-date). Although the pest
control season was negatively impacted by the weather, the Company produced
consistent net income results. This marks the 18th consecutive quarter of
double-digit net income increases.
The Company continued its commitment to strategically expand its business
units through the combination of new marketing programs, acquisitions, and the
opening of new branches. As a whole, the Company is working hard to improve
employee productivity and increase customer growth, while maintaining tight
control of expenses. The results of investments in customer service and
recurring revenue growth during the first half of 1994 are beginning to be
realized and should continue with overall favorable earnings for the year.
Net income for the quarter grew 11.3% to $13.0 million and earnings per share
was 36 cents, compared to 33 cents a year ago, a 9.1% improvement. Year-to-
date, net income increased 11.8% to $41.0 million and earnings per share was
$1.14, an increase of 10.7% from the previous year.
For the quarter, the Orkin Group's operating income increased 7.3% to $19.3
million on revenues of $138.8 million which grew 3.8% over 1993. These results
provided improved operating margins of 13.9%, compared to 13.5% in the prior
year. Rollins Protective Services' operating income increased 7.1% to $1.8
million on revenues of $15.5 million.
For the nine months ended September 30, 1994, Orkin revenues increased 4.9%
with operating income improving 10.2%. Operating margins grew to 15.7%
compared to 14.9% for the same period last year. Rollins Protective Services'
revenues grew 6.7%; operating income improved 11.4% over last year, with
operating margins increasing to 10.2%.
Detail segment information follows.
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ROLLINS, INC. AND SUBSIDIARIES
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1994
Orkin 1994 Versus 1993
Revenues increased 3.8% to $138.8 million and operating income increased 7.3%
to $19.3 million for the third quarter ended September 30, 1994. For the nine
months ended September 30, 1994, Orkin had revenues of $410.3 million and
operating income of $64.2 million (increases of 4.9% and 10.2%, respectively,
from the prior year). Pest Control and Termite services increased their sales
dollars and customer base for the quarter and year-to-date. The Company
maintained its commitment to expanding its existing operations by entering new
geographic markets with the opening of new branches. The fundamentals and
financial position of the Pest Control business remain very strong and the
Company is motivated to taking full advantage of market opportunities through
alternative services such as the Agribusiness service with strong revenue
gains. Success with other marketing programs also contributed to revenue and
operating income improvements such as the introduction of a 24 hour service on
its 1-800 number and a neighborhood marketing campaign, initiated in 1993, was
expanded during the third quarter and has exceeded sales expectations. Orkin
utilized it's telemarketing program to make "quality assurance calls", which
has provided confirmation on the level of customer satisfaction, in
addition to generating potential sales benefits of cross-marketing from our
customers. Of the customers surveyed, 98% reported that they are pleased with
our service, which creates an ideal prospect for additional Rollins services.
Rollins Protective Services (RPS) 1994 Versus 1993
For the third quarter, Rollins Protective Services had revenues of $15.5
million, an increase of 4.2%, and operating income improving 7.1% to $1.8
million. For the first nine months, RPS had revenues of $45.7 million, an
increase of 6.7%, and operating income of $4.7 million, an increase of 11.4%.
In the third quarter of 1993, RPS reported sales improvements due
to the benefits realized by refocusing its attention on the residential market
through the introduction of a new mid-range product (the Protector). Revenue
growth in 1994 is being driven by above-average commercial and National Accounts
program results. Customer acceptance of the Vision 2000 home surveillance
security system, introduced in the second quarter, has been strong and will
contribute into 1995.
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ROLLINS, INC. AND SUBSIDIARIES
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1994
FINANCIAL CONDITION
(In thousands) September 30, December 31,
1994 1993
Cash and Short-Term Investments $ 28,374 $ 18,102
Marketable Securities 51,919 50,991
Working Capital $ 140,710 $ 117,528
Current Ratio 2.9 2.8
Cash Provided From Operations
(Twelve Months Ended) $ 36,841 $ 40,034
At September 30, 1994 cash and short-term investments were $28.4 million, an
increase of $10.3 million from December 31, 1993, due primarily to reduced
investment activities during 1994. The investment in marketable securities at
September 30, 1994, was $51.9 million.
At September 30, 1994 the current ratio was 2.9 and working capital was
$140.7 million (an increase of $23.2 million or 19.7% compared to December 31,
1993). The Company has been debt-free since 1987. Management believes that
this liquidity, along with expected cash from operations, will support the
company's continued growth, capital expenditures, cash dividends, and
expansion plans.
Trade receivables, net increased $17.1 million or 19.5% at September 30, 1994
compared with December 31, 1993. Trade receivables include installment
receivables which are due subsequent to one year from the balance sheet date.
These amounts were approximately $34.9 million and $28.7 million at the end of
the September 30, 1994 and December 31, 1993, respectively. The increase in
receivables is attributed to the continuing effect of an Orkin termite and
Rollins Protective Services marketing programs, the increased average length
and amount of an Orkin contract, and the overall increase in Company revenues
of 4.1% for the quarter and 5.4% year-to-date.
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ROLLINS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ROLLINS, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Refer to Note Number 5 to the Financial Statements, "Commitments and
Contingencies".
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
The Annual Stockholder's Meeting was held on April 26, 1994. Results
of that meeting were disclosed in the Company's Form 10-Q filed for
the first quarter of 1994.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1994
Rollins, Inc.
(Registrant)
/s/ Gary W. Rollins
Gary W. Rollins
President and Chief
Operating Officer
(Member of the Board of
Directors)
/s/ Gene L. Smith
Gene L. Smith
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
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