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, 1997.
[ ] 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, 1997, there were 33,711,831 shares of Common Stock $1
Par Value, outstanding.
ROLLINS, INC. AND SUBSIDIARIES
INDEX
^Page No.
Part I Financial Information
Statements of Financial Position -
September 30, 1997 and December 31, 1996 1
Statements of Operations and Earnings Retained
- Three months and nine months ended September 30,
1997 and 1996 2
Statements of Cash Flows
- Nine months ended September 30, 1997 and 1996 3
Notes to Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-7
Part IIOther Information 8
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,
1997 1996
ASSETS
Cash and Short-Term Investments $ 12,981 $ 12,150
Marketable Securities 85,863 84,785
Trade Receivables, Net 75,826 78,856
Materials and Supplies 15,488 15,006
Deferred Income Taxes 8,143 4,379
Other Current Assets 13,135 10,560
Current Assets 211,436 205,736
Equipment and Property, Net 37,984 41,042
Intangible Assets 40,346 41,931
Other Assets 15,299 20,074
Total Assets $ 305,065 $ 308,783
LIABILITIES
Capital Lease Obligations $ 3,044 $ 2,735
Accounts Payable 23,025 15,897
Accrued Insurance Expenses 16,520 15,053
Accrued Payroll 14,590 12,957
Unearned Revenue 15,219 15,614
Other Expenses 21,955 17,263
Current Liabilities 94,353 79,519
Capital Lease Obligations 9,857 12,163
Long-Term Accrued Liabilities 29,729 20,591
Deferred Income Taxes 4,119 6,220
Total Liabilities 138,058 118,493
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share;
authorized 99,500,000 shares; 33,711,831
shares issued in 1997; 34,594,481 shares
issued in 1996 33,712 34,594
Earnings Retained 133,295 155,696
Total Stockholders' Equity 167,007 190,290
Total Liabilities and Stockholders'
Equity $ 305,065 $ 308,783
The accompanying notes are an integral part of these statements.
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ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS AND EARNINGS RETAINED
(In thousands except share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
REVENUES
Customer Services $ 142,427 $ 146,489 $ 439,530 $ 435,526
COSTS AND EXPENSES
Cost of Services Provided 90,566 86,269 263,026 244,281
Depreciation and Amortization 2,292 2,110 6,510 5,542
Special Charge 300 --- 300 ---
Sales, General and Administrative Expenses 55,025 54,705 160,824 156,780
Interest Income (1,509) (1,516) (3,898) (4,297)
146,674 141,568 426,762 402,306
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (4,247) 4,921 12,768 33,220
PROVISION (CREDIT) FOR INCOME TAXES
Current (287) 1,799 8,827 13,571
Deferred (1,327) 71 (3,975) (947)
(1,614) 1,870 4,852 12,624
INCOME (LOSS) FROM CONTINUING
OPERATIONS (2,633) 3,051 7,916 20,596
DISCONTINUED OPERATIONS
Operating income, less income tax expense of
$185, $158, $744, and $1,188, respectively 299 255 1,213 1,938
NET INCOME (LOSS) $ (2,334) $ 3,306 $ 9,129 $ 22,534
EARNINGS RETAINED
Balance at Beginning of Period $ 140,565 223,722 155,696 224,009
Cash Dividends (5,055) (5,143) (15,307) (15,528)
Common Stock Purchased and Retired 0 0 (16,573) (8,762)
Common Stock in Treasury Retired 0 (45,371) 0 (45,371)
Other 119 385 350 17
BALANCE AT END OF PERIOD $ 133,295 $ 176,899 $ 133,295 $ 176,899
EARNINGS (LOSS) PER SHARE
Earnings (Loss) from continuing
operations $ (0.08) $ 0.08 $ 0.23 $ 0.58
Discontinued operations 0.01 0.01 0.04 0.05
NET EARNINGS (LOSS) PER SHARE $ (0.07) $ 0.09 $ 0.27 $ 0.63
WEIGHTED AVERAGE
SHARES OUTSTANDING 34,081,978 35,481,076 34,117,810 35,681,298
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,
1997 1996
OPERATING ACTIVITIES
Net Income $ 9,129 $ 22,534
Noncash Charges (Credits) to Earnings:
Depreciation and Amortization 7,052 6,077
Deferred Income Taxes (7,910) (1,250)
Other, Net 2,213 3,368
(Increase) Decrease in Assets:
Trade Receivables 3,301 4,199
Materials and Supplies (453) (2,097)
Other Current Assets 1,585 6,512
Other Non-Current Assets 10,350 (517)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 11,323 5,901
Unearned Revenue (466) 1,415
Long-Term Accrued Liabilities 9,138 6,889
Non-Current Deferred Income Taxes 420 2,565
Net Cash Provided by Operating Activities 45,682 55,596
INVESTING ACTIVITIES
Purchases of Equipment and Property (6,489) (8,595)
Net Cash Used for Acquisition of Companies (2,935) (6,031)
Marketable Securities, Net (905) (17,600)
Net Cash Used in Investing Activities (10,329) (32,226)
FINANCING ACTIVITIES
Dividends Paid (15,307) (15,528)
Common Stock Purchased and Retired (17,495) (9,164)
Payments on Capital Lease (1,997) (927)
Other 277 418
Net Cash Used in Financing Activities (34,522) (25,201)
Net Increase (Decrease) in Cash
and Short-Term Investments 831 (1,831)
Cash and Short-Term Investments
at Beginning of Period 12,150 33,623
Cash and Short-Term Investments
at End of Period $ 12,981 $ 31,792
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,
1996.
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, 1997 and December 31, 1996, and the results of operations and cash
flows for the nine months ended September 30, 1997 and 1996.
NOTE 2.SPECIAL CHARGE
In July 1997, the Plantscaping and Lawn Care divisions of Orkin
Exterminating Company, Inc., a wholly-owned subsidiary, were sold to
Tru-Green L.P. The gain on the sale was $15,300,000 ($9,486,000
after tax or $0.28 per share). Also, during the quarter, a special
charge of $15,600,000 was recorded ($9,672,000 after tax benefit or
$0.28 per share) for expenditures related to the company-wide computer
systems modification to address the year 2000 programming issue. The
net impact of the gain and the special charge have been reflected on
the income statement in the line item entitled Special Charge.
NOTE 3.DISCONTINUED OPERATIONS
Subsequent to the end of the quarter, the alarm assets of Rollins
Protective Services, formerly the electronic security segment, were
sold to Ameritech Monitoring Services, and accordingly, the results of
its operations have been reported separately as discontinued
operations. (Also see Item 6(b) on page 8).
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NOTE 4.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.
NOTE 5.EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of shares outstanding during the respective periods.
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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 ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
Subsequent to the end of the quarter, the alarm assets of Rollins Protective
Services, formerly the electronic security segment, were sold to Ameritech
Monitoring Services and accordingly, the results of its operations were
reported separately as discontinued operations. Revenues from continuing
operations for the third quarter ended September 30, 1997 were $142.4 million
as compared to $146.5 million for the same period last year. Net income
(loss) from continuing operations was $(2.6) million as compared to $3.1
million for the third quarter 1996. Earnings (loss) per share from continuing
operations were (8) cents versus 8 cents last year. Year-to-date, net income
from continuing operations decreased 61.6% to $7.9 million for an earnings per
share of 23 cents compared to 58 cents for the same period last year. Revenues
and operating income from discontinued operations were $15.7 million and $.5
million for the quarter, and $46.8 million and $2.0 million for the nine
months ended, respectively.
For the quarter, Orkin Pest Control, the primary business unit of Rollins,
Inc., had increases in pest control revenue and termite annual renewal
revenue. However, these gains were offset by a decrease in termite sales
revenue which can be attributed to the lagging effect of a disappointing
termite season and changes in sales policies in response to rising termite
claims. Operating income for the quarter was negatively impacted by the
shortfall in termite sales, higher sales and marketing expenses, increased
insurance costs and termite claims.
The divestitures of the three non-core businesses; Plantscaping, Lawn Care,
and Rollins Protective Services, were part of the Company's strategic
direction to focus its resources on Orkin Pest Control. The Company is taking
steps to reduce future termite claims through new termite marketing programs,
revised customer guarantees and proactive claims management. The Company will
continue to execute the investment and growth strategies that will affect its
future growth and profitability.
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FINANCIAL CONDITION
September 30, December 31,
1997 1996
(In thousands)
Cash and Short-Term
Investments $ 12,981 $ 12,150
Marketable Securities 85,863 84,785
$ 98,844 $ 96,935
Working Capital $ 117,083 $ 126,217
Current Ratio 2.2 2.6
Cash Provided By
Operations $ 48,153 $ 58,067
(Twelve Months Ended)
Rollins, Inc.'s financial position remained solid. The Company's operations
have historically provided a strong positive cash flow which represents the
Company's principal source of funds. Management believes that this liquidity,
along with expected cash from operations, will support the Company's
continued growth, capital expenditures, and cash dividends.
Net trade receivables decreased $3.0 million or 3.8% at September 30, 1997
compared with December 31, 1996. Trade receivables include installment
receivables which are due subsequent to one year from the balance sheet date.
These amounts were approximately $16.7 million and $19.0 million at September
30, 1997 and December 31, 1996, respectively.
During the nine month period, the Company invested $11.2 million in capital
expenditures and acquisitions. Also, $15.3 million was paid out in cash
dividends. The Company maintains a $40.0 million unused line of credit. This
source of funds has not been used, but is available for future acquisitions
and growth, if needed.
There were no stock repurchases for the quarter. The Company has repurchased
a total of 922,600 shares in 1997. At the October 1997 Board Meeting, the
Board of Directors authorized the purchase by the Company of up to an
additional 2,000,000 shares of its common stock. The purchases will be made
from time to time using funds already on hand.
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ROLLINS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
None
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 Stockholders' Meeting was held on April 22, 1997. The
results of that meeting were disclosed in the Company's Form 10-Q for
the first quarter 1997.
ITEM 5.OTHER INFORMATION
None
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1)(i) The Company's Certificate of Incorporation is incorporated
herein by reference to Exhibit (3)(a) as filed with its
Form 10-K for the year ended December 31, 1992.
(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.
(b) Reports on Form 8-K
A Form 8-K Current Report was filed on October 16, 1997.
The report,dated October 3, 1997, disclosed the October
3, 1997 sale of Rollins, Inc.'s security
monitoring assets, which were operated through its Rollins
Protective Services division, to Ameritech Monitoring
Services,Inc. for approximately $200,000,000 in
cash and assumed liabilities. An Asset Purchase Agreement
dated as of October 1, 1997 was filed as Exhibit 2.1.
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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 12, 1997
Rollins, Inc.
(Registrant)
_________________________
Gary W. Rollins
President and Chief
Operating Officer
(Member of the Board of
Directors)
_________________________
Gene L. Smith
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
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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 12, 1997
Rollins, Inc.
(Registrant)
Gary W. Rollins
Gary W. Rollins
President and Chief
Operating Officer
(Member of the Board of
Directors)
Gene L. Smith
Gene L. Smith
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
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