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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 1-4422
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ROLLINS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0068479
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
2170 PIEDMONT ROAD, N.E., ATLANTA, GEORGIA 30324
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 888-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
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Common Stock, $1 Par Value The New York Stock Exchange
The Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of Rollins, Inc. Common Stock, held by
non-affiliates on February 26, 1999, was $242,129,802 based on the closing price
on the New York Stock Exchange on such date of $16 1/16 per share.
Rollins, Inc. had 30,479,785 shares of Common Stock outstanding as of
February 26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Rollins, Inc.'s Annual Report to Stockholders for the calendar
year ended December 31, 1998 are incorporated by reference into Part II, Items
5-8, and Part IV, Item 14.
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders
of Rollins, Inc. are incorporated by reference into Part III, Items 10-13.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
There have been no significant changes in the business of the Registrant
since December 31, 1997.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Registrant has only one reportable segment, its pest and termite control
business.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(1)(i)The Registrant is a national service company with headquarters located
in Atlanta, Georgia, providing pest and termite control services to both
residential and commercial customers.
Orkin Exterminating Company, Inc. (Orkin), a wholly-owned subsidiary founded
in 1901, is one of the world's largest pest and termite control companies. It
provides customized services through a network of over 400 company-owned and
franchised branch locations to approximately 1.6 million customers. Orkin serves
customers in the United States, Canada, and Mexico, providing essential pest
control services and protection against termite damage, rodents and insects to
homes and businesses, including hotels, food service establishments, dairy farms
and transportation companies.
(ii) In 1998 Orkin introduced Acurid(SM), its premium brand of pest
elimination service for commercial customers; related activities included
opening additional branches dedicated to commercial customers, added service
offerings, expanded guarantees, and new vehicle and uniform identification.
(iii) The Registrant maintains sufficient quantities of chemicals and other
supplies on hand to alleviate any potential short-term shortage in availability
from its national network of suppliers.
(iv) Other than the Orkin(Registered Trademark) trademark and the Acurid(SM)
service mark, which are material to the Registrant, governmental licenses,
patents, trademarks and franchises are of minor importance to the Registrant's
service operations. Local licenses and permits are required in order for the
Registrant to conduct its pest and termite control services in certain
localities. In view of the widespread operations of the Registrant's service
operations, the failure of a few local governments to license a facility would
not have a material adverse effect on the results of operations of the
Registrant.
(v) The business of the Registrant is affected by the seasonal nature of the
Registrant's pest and termite control services. The metamorphosis of termites in
the spring and summer (the occurrence of which is determined by the timing of
the change in seasons) has historically resulted in an increase in the revenue
and income of the Registrant's pest and termite control operations during such
period.
(vi) The Registrant maintains a sufficient level of materials and supplies
to fulfill its servicing needs.
(vii) The Registrant and its subsidiaries do not have a material part of
their business that is dependent upon a single customer or a few customers, the
loss of which would have a material effect on the business of the Registrant.
(viii) The dollar amount of service contracts and backlog orders as of the
end of the Registrant's 1998 and 1997 calendar years was approximately
$14,231,000 and $12,457,000, respectively. Backlog services and orders are
usually provided within the month following the month of receipt, except in the
area of prepaid pest control where services are usually provided within twelve
months of receipt.
(ix) The Registrant and its subsidiaries do not have a material portion of
their business that may be subject to renegotiation of profits or termination of
contracts at the election of a governmental entity.
1
(x) The Registrant believes that Orkin competes favorably with competitors
as one of the world's largest pest and termite control companies.
The principal methods of competition in the Registrant's pest and termite
control business are service and guarantees, including the money-back guarantee
on pest and termite control, and the termite retreatment and damage repair
guarantee to qualified homeowners.
(xi) Expenditures by the Registrant on research activities relating to the
development of new products or services are not significant. Some of the new and
improved service methods and products are researched, developed and produced by
unaffiliated universities and companies. Also, a portion of these methods and
products are produced to the specifications provided by the Registrant.
(xii) Other than the impact on the Registrant of the 1997 Provision for
Termite Contracts which was established to address the abnormal occurrence of
termite claims, and the related cost to more frequently reapply materials, the
capital expenditures, earnings and competitive position of the Registrant and
its subsidiaries are not materially affected by compliance with Federal, state
and local provisions which have been enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment.
(xiii) The number of persons employed by the Registrant and its subsidiaries
as of the end of 1998 was 8,941.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
The Registrant and its subsidiaries do not have foreign operations which are
material to their business in terms of revenue, income (loss) from continuing
operations, or assets.
ITEM 2. PROPERTIES.
The Registrant's administrative headquarters and central warehouse, both of
which are owned by the Registrant, are located at 2170 Piedmont Road, N.E.,
Atlanta, Georgia 30324. The Registrant owns or leases several hundred branch
offices and operating facilities used in its business. None of the branch
offices, individually considered, represents a materially important physical
property of the Registrant. The facilities are suitable and adequate to meet the
current and reasonably anticipated future needs of the Registrant.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, the Registrant is a defendant in a number
of lawsuits which allege that plaintiffs have been damaged as a result of the
rendering of services by Registrant personnel and equipment. The Registrant is
actively contesting these actions. It is the opinion of Management that the
outcome of these actions will not have a material adverse effect on the
Registrant's financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
2
ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Each of the executive officers of the Registrant was elected by the Board of
Directors to serve until the Board of Directors' meeting immediately following
the next annual meeting of stockholders or until his earlier removal by the
Board of Directors or his resignation. The following table lists the executive
officers of the Registrant and their ages, offices with the Registrant, and the
dates from which they have continually served in their present offices with the
Registrant.
DATE FIRST ELECTED
TO
NAME AGE OFFICE WITH REGISTRANT PRESENT OFFICE
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R. Randall Rollins (1)............. 67 Chairman of the Board and Chief Executive Officer 10/22/91
Gary W. Rollins (1)................ 54 President and Chief Operating Officer 1/24/84
Harry J. Cynkus (2)................ 49 Chief Financial Officer and Treasurer 5/28/98
Michael W. Knottek (3)............. 54 Vice President and Secretary 5/28/98
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(1) R. Randall Rollins and Gary W. Rollins are brothers.
(2) Harry J. Cynkus joined the Registrant in April 1998 and, in May 1998, was
elected Chief Financial Officer and Treasurer. From 1996 to 1998, Mr. Cynkus
served as Chief Financial Officer of Mayer Electric Company, a $300 million
wholesaler of electrical supplies. From 1994 to 1996, he served as Vice
President-Information Systems for Brach & Brock Confections, the acquirer of
Brock Candy Company, where Mr. Cynkus served as Vice President-Finance and
Chief Financial Officer from 1992 to 1994. From 1989 to 1992, he served as
Vice President-Finance of Initial USA, a division of an international
support services company. Mr. Cynkus is a Certified Public Accountant.
(3) Michael W. Knottek joined the Registrant in June 1997 as Vice President and,
in addition, was elected Secretary in May 1998. From 1992 to 1997, Mr.
Knottek held a variety of executive management positions with National Linen
Service, including Senior Vice President of Finance and Administration and
Chief Financial Officer. Prior to 1992, he held a variety of senior
positions with Initial USA, finally serving as President from 1991 to 1992.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information regarding dividends, stock prices and number of stockholders on
page 8 of the 1998 Annual Report to Stockholders, and the principal markets on
which the Registrant's Common Stock is traded on page 21 of the 1998 Annual
Report to Stockholders, are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data on page 2 of the 1998 Annual Report to Stockholders
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Management's Discussion and Analysis of Financial Condition and Results of
Operation included on pages 9 through 11 of the 1998 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information under the caption "Market Risk" included in Management's
Discussion and Analysis of Financial Condition and Results of Operation on page
11 of the 1998 Annual Report to Stockholders is incorporated herein by
reference.
3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Registrant, the Independent
Accountants' Report and the financial statement schedule incorporated by
reference in this report are shown on the accompanying Index to Consolidated
Financial Statements and Schedule.
Quarterly Information is on page 8 of the 1998 Annual Report incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the caption "Election of Directors" included on pages
4 and 5 of the Proxy Statement for the Annual Meeting of Stockholders to be held
April 27, 1999 is incorporated herein by reference. Additional information
concerning executive officers is included in Part I, Item 4.A. of this Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "Executive Compensation" included on pages
8 through 10 of the Proxy Statement for the Annual Meeting of Stockholders to be
held April 27, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "Capital Stock" and "Election of
Directors" included on pages 2 through 3 and pages 4 through 5, respectively, of
the Proxy Statement for the Annual Meeting of Stockholders to be held April 27,
1999 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Compensation Committee Interlocks and
Insider Participation" included on page 8 of the Proxy Statement for the Annual
Meeting of Stockholders to be held April 27, 1999 is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND
EXHIBITS.
1. Consolidated financial statements listed in the accompanying Index to
Consolidated Financial Statements and Schedule are filed as part of this
report.
2. The financial statement schedule listed in the accompanying Index to
Consolidated Financial Statements and Schedule is filed as part of this
report.
3. Exhibits listed in the accompanying Index to Exhibits are filed as part of
this report.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fourth quarter of calendar year
1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ROLLINS, INC.
By: /s/ R. RANDALL ROLLINS
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R. Randall Rollins
CHAIRMAN OF THE BOARD OF DIRECTORS
(PRINCIPAL EXECUTIVE OFFICER)
March 19, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
By: /s/ R. RANDALL ROLLINS By: /s/ HARRY J. CYNKUS
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R. Randall Rollins Harry J. Cynkus
CHAIRMAN OF THE BOARD OF DIRECTORS CHIEF FINANCIAL OFFICER AND TREASURER
(PRINCIPAL EXECUTIVE OFFICER) (PRINCIPAL FINANCIAL AND ACCOUNTING
March 19, 1999 OFFICER)
March 19, 1999
The Directors of Rollins, Inc. (listed below) executed a power of attorney
appointing Gary W. Rollins their attorney-in-fact, empowering him to sign this
report on their behalf.
Wilton Looney, Director
John W. Rollins, Director
Henry B. Tippie, Director
James B. Williams, Director
Bill J. Dismuke, Director
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/s/ GARY W. ROLLINS
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Gary W. Rollins
AS ATTORNEY-IN-FACT AND DIRECTOR
March 19, 1999
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ROLLINS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
(ITEM 14)
CONSOLIDATED FINANCIAL STATEMENTS OF ROLLINS, INC. AND SUBSIDIARIES:
The Registrant's 1998 Annual Report to Stockholders, portions of which are
filed with this Form 10-K, contains on pages 12 through 20 the consolidated
financial statements for the years ended December 31, 1998, 1997 and 1996 and
the report of Arthur Andersen LLP on the consolidated financial statements for
the years then ended. These consolidated financial statements and the report of
Arthur Andersen LLP are incorporated herein by reference. The consolidated
financial statements include the following:
ANNUAL REPORT
(1) CONSOLIDATED FINANCIAL STATEMENTS PAGE(S)
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Consolidated Statements of Financial Position as of December 31, 1998
and 1997............................................................. 12
Consolidated Statements of Income for each of the three years in the
period ended December 31, 1998....................................... 13
Consolidated Statements of Earnings Retained for each of the three
years in the period ended December 31, 1998.......................... 13
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1998................................... 14
Notes to Consolidated Financial Statements............................. 15-19
Report of Independent Accountants on Consolidated Financial
Statements........................................................... 20
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE, Page
7 of this Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts, Page 8 of this Form 10-K.
Schedules not listed above have been omitted as either not applicable,
immaterial or disclosed in the Consolidated Financial Statements or notes
thereto.
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REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Directors and the Stockholders of Rollins, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the Consolidated Financial Statements included in Rollins, Inc.'s annual report
to stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 16, 1999. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 14 of this Form 10-K is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
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ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 16, 1999
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ROLLINS, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (1)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
ADDITIONS
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BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS (2) PERIOD
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Year ended December 31, 1998
Allowance for doubtful accounts................. $9,326 $ 4,502 $ -- $ 8,481 $5,347
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Year ended December 31, 1997
Allowance for doubtful accounts................. $4,457 $14,531 $ -- $ 9,662 $9,326
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Year ended December 31, 1996
Allowance for doubtful accounts................. $8,879 $ 7,264 $ -- $11,686 $4,457
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NOTE: (1) The above schedule is prepared reflecting the divestitures of the
Registrant's RPS business segment and Orkin's Plantscaping and Lawn
Care divisions. All prior years have been restated.
(2) Deductions represent the write-off of uncollectible receivables, net
of recoveries.
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ROLLINS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
(ITEM 14)
EXHIBIT NUMBER
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(3)(i) Restated Certificate of Incorporation of Rollins, Inc. is
incorporated herein by reference to Exhibit 3 (i) as filed with
its Form 10-K for the year ended December 31, 1997.
(ii) By-laws of Rollins, Inc. are incorporated herein by reference to
Exhibit 3(b) as filed with its Form 10-K for the year ended
December 31, 1993.
(4) Form of Common Stock Certificate of Rollins, Inc.
(10) Rollins, Inc. 1984 Employee Incentive Stock Option Plan is
incorporated herein by reference to Exhibit 10 as filed with its
Form 10-K for the year ended December 31, 1996.
(10)(a) Rollins, Inc. 1994 Employee Stock Incentive Plan is incorporated
herein by reference to Exhibit A of the March 18, 1994 Proxy
Statement for the Annual Meeting of Stockholders held on April
26, 1994.
(10)(b) Asset Purchase Agreement, dated as of October 1, 1997, by and
among Rollins, Ameritech Monitoring Services, Inc. and Ameritech
Corporation is incorporated herein by reference to Exhibit 2.1 as
filed with its Form 8-K Current Report filed October 16, 1997.
(10)(c) Rollins, Inc. 1998 Employee Stock Incentive Plan is incorporated
herein by reference to Exhibit A of the March 24, 1998 Proxy
Statement for the Annual Meeting of Stockholders held on April
28, 1998.
(13) Portions of the Annual Report to Stockholders for the year ended
December 31, 1998 which are specifically incorporated herein by
reference.
(21) Subsidiaries of Registrant.
(23) Consent of Independent Public Accountants.
(24) Powers of Attorney for Directors.
(27) Financial Data Schedule.
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