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 March 31, 1998.
[ ] 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.
(Exact name of registrant as specified in its charter)
Delaware 51-0068479
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
2170 Piedmont Road, N.E., Atlanta, Georgia 30324
(Address of principal executive offices)
Telephone Number -- (404) 888-2000
(Registrant's telephone number, including area code)
____________________________
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 March 31, 1998, there were 33,220,491 shares of Common Stock $1
Par Value, outstanding.
ROLLINS, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Statements of Financial Position
- March 31, 1998 and December 31, 1997 1
Statements of Income (Loss) and Earnings Retained
- Three months ended March 31, 1998 and
1997 2
Statements of Cash Flows
- Three months ended March 31, 1998 and
1997 3
Notes to Financial Statements 4-5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6-8
Part II Other Information 9
ROLLINS, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(In thousands except share data)
(Unaudited)
March 31, Dec 31
1998 1997
ASSETS
Cash and Short-Term Investments $ 111,035 $ 125,842
Marketable Securities 74,945 75,037
Trade Receivables, Net 44,175 49,166
Materials and Supplies 16,455 15,010
Deferred Income Taxes 27,596 24,826
Other Current Assets 11,569 11,737
Current Assets 285,775 301,618
Equipment and Property, Net 36,121 34,639
Intangible Assets 39,533 39,383
Deferred Income Taxes 46,836 49,072
Other Assets 7,899 7,968
Total Assets $ 416,164 $ 432,680
LIABILITIES
Capital Lease Obligations $ 3,187 $ 3,138
Accounts Payable 19,736 25,420
Accrued Insurance Expenses 18,810 21,225
Accrued Payroll 15,586 17,913
Unearned Revenue 15,352 13,831
Other Expenses 59,479 49,191
Current Liabilities 132,150 130,718
Capital Lease Obligations 8,424 9,239
Long-Term Accrued Liabilities 138,340 147,079
Total Liabilities 278,914 287,036
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share; authorized
99,500,000 shares; 33,220,491 shares issued in 1998;
33,279,281 shares issued in 1997 33,220 33,279
Earnings Retained 104,030 112,365
Total Stockholders' Equity 137,250 145,644
Total Liabilities and Stockholders'
Equity $ 416,164 $ 432,680
The accompanying notes are an integral part of these statements.
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ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME (LOSS) AND EARNINGS RETAINED
(In thousands except share data)
(Unaudited)
Three Months Ended
March 31,
1998 1997
REVENUES
Customer Services $ 122,965 $ 126,951
COSTS AND EXPENSES
Cost of Services Provided 76,909 72,317
Depreciation and Amortization 2,092 1,909
Sales, General and Administrative 49,431 45,724
Interest Income (2,622) (1,217)
125,810 118,733
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (2,845) 8,218
PROVISION (CREDIT) FOR INCOME TAXES
Current (3,311) 4,118
Deferred 2,230 (995)
(1,081) 3,123
INCOME (LOSS) FROM CONTINUING
OPERATIONS (1,764) 5,095
DISCONTINUED OPERATIONS
Operating Income, Less Income Tax Expense of $30 - 49
NET INCOME (LOSS) $ (1,764) $ 5,144
EARNINGS RETAINED
Balance at Beginning of Period $ 112,365 $ 155,696
Cash Dividends (4,988) (5,193)
Common Stock Purchased and Retired (1,596) (8,832)
Other 13 (81)
BALANCE AT END OF PERIOD $ 104,030 $ 146,734
EARNINGS (LOSS) PER SHARE
Continuing Operations $ (0.05) $ 0.15
Discontinued Operations - -
EARNINGS (LOSS) PER SHARE - BASIC AND
DILUTED $ (0.05) $ 0.15
WEIGHTED SHARES OUTSTANDING - BASIC 33,269,785 34,468,268
WEIGHTED SHARES OUTSTANDING - DILUTED 33,284,705 34,474,989
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)
Three Months Ended
March 31,
1998 1997
OPERATING ACTIVITIES
Net Income (Loss) $ (1,764) $ 5,144
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 2,092 1,909
Provision (Credit) for Deferred Income 2,230 (995)
Discontinued Operations, Net of Taxes - (49)
Other, Net 106 651
(Increase) Decrease in Assets:
Trade Receivables 5,014 370
Materials and Supplies (1,437) (2,010)
Other Current Assets (2,826) 418
Other Non-Current Assets 192 (1,360)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses (164) 8,624
Unearned Revenue 1,521 (679)
Long-Term Accrued Liabilities (8,739) 2,786
Net Cash Provided by (Used in) Operating
Activities (3,775) 14,809
INVESTING ACTIVITIES
Purchases of Equipment and Property (3,516) (2,436)
Net Cash Used for Acquisition of Companies (210) (1,056)
Marketable Securities, Net 85 4,435
Net Cash Provided by (Used in) Investing
Activities (3,641) 943
FINANCING ACTIVITIES
Dividends Paid (4,988) (5,193)
Common Stock Purchased and Retired (1,678) (9,321)
Payments on Capital Lease (766) (394)
Other 41 116
Net Cash Used in Financing Activities (7,391) (14,792)
Net Cash Provided by (Used in)
Discontinued Operations - 1,179
Net Increase (Decrease) in Cash
and Short-Term Investments (14,807) 2,139
Cash and Short-Term Investments
at Beginning of Period 125,842 12,150
Cash and Short-Term Investments
at End of Period $ 111,035 $ 14,289
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, 1997.
Prior year amounts have been restated to reflect the 1997
divestitures of the Company's Rollins Protective Services division
and its Lawn Care and Plantscaping businesses.
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 March
31, 1998 and December 31, 1997, and the results of operations and
cash flows for the three months ended March 31, 1998 and 1997.
Operating results for the quarter ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
NOTE 2. 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 3. EARNINGS PER SHARE
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," the number of weighted
average shares used in computing basic and diluted earnings per share
(EPS) are as follows (in thousands):
Three Months Ended
1998 1997
Basic EPS 33,270 34,468
Effect of dilutive
stock options 15 7
Diluted EPS 33,285 34,475
No adjustments to net income available to common stockholders were
required during the periods presented.
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NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
For the quarter ended March 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income," which establishes standards for the
presentation and disclosure of other comprehensive income. The
adoption of SFAS 130 did not have a material impact on the Company's
financial condition or results of operations and, as a result, the
impact is not reflected in the attached Statements of Income (Loss)
and Earnings Retained or Statements of Financial Position.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits -- an
amendment of FASB Statements No. 87, 88, and 106, " will be adopted
effective with the year-end financial statements dated December 31,
1998.
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PAGE>
ROLLINS, INC. AND SUBSIDIARIES
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE FIRST QUARTER ENDED MARCH 31, 1998
RESULTS OF OPERATIONS
The divestitures of the Orkin Lawn Care and Plantscaping divisions in July
1997 marked the Company's return to a single operational focus. Accordingly,
the results of operations are presented on a continuing operations basis.
Revenues for the first quarter ended March 31, 1998 decreased 3.1% to $123.0
million. Net income (loss) was $(1.8) million as compared to $5.1 million in
1997. Basic and diluted earnings (loss) per share was (5) cents (loss)
compared to 15 cents last year.
Increases in pest control revenue were more than offset by decreased termite
revenue resulting from more restrictive termite control sales policies in
response to certain building materials and construction practices. Operating
income was adversely impacted, primarily by increased payroll expenses, due to
the national implementation of key termite and pest control sales and customer
service programs. Customer retention improved in both service categories.
The Company is encouraged by its pest control revenue results along with the
proactive measures that have been initiated in its termite business. The
Company believes they are ahead of the competition with termite service
programs and look forward to the time when both of their services could make
favorable contributions.
Revenues and income from discontinued operations after income taxes for the
first quarter ended March 31, 1997 were $23.4 million and $49,000,
respectively.
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FINANCIAL CONDITION
March 31, December 31,
1998 1997
(In thousands)
Cash and Short-Term
Investments $ 111,035 $ 125,842
Marketable Securities 74,945 75,037
$ 185,980 $ 200,879
Working Capital $ 153,625 $ 170,900
Current Ratio 2.2 2.3
Rollins, Inc.'s financial position remained sound. 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.
Interest income increased 115.4% for the three months ended March 31, 1998 due
to the increase in average cash invested in short-term investments as a
result of the 1997 divestitures.
Net trade receivables decreased $5.0 million or 10.2% at March 31, 1998
compared with December 31, 1997. Trade receivables include installment
receivables which are due subsequent to one year from the balance sheet date.
These amounts were approximately $11.0 million and $13.9 million at March 31,
1998 and December 31, 1997, respectively. The decrease in receivables is
primarily the result of decreased financed sales, the increased provision
for doubtful accounts, and the effect of revisions to the Company's credit
policies.
Over the past several years, the termite treatment segment of the pest
control industry has faced great challenges in solving property owners'
termite problems. Some of the reasons for the increased difficulty in
protecting structures have been changes in building practices and materials
that have increased the property owners' potential for termites, the loss
of Chlordane from the market in 1987 which resulted in the use of termiticides
that may only last for a few years under some conditions, and laws and
regulations restricting certain retreatment practices. All of the above
factors have subjected termite service providers to experience elevated
levels of claims. The Company's response to these industry-wide conditions
is to undertake broad changes in its own termite processes. New quality
control and field training programs, more thorough communication to
customers concerning conducive conditions, and restrictions on the sale
of certain structures were initiated during 1997. As a result of the
factors described above and new information which became available in 1997,
a Provision for Termite Contracts of $117.0 million was recorded at
December 31, 1997 related to the anticipated costs of reinspections, repair
obligations, and associated labor, chemicals, and other costs incurred
relative to termite work performed prior to December 31, 1997. The Company
believes this provision is still reasonable at March 31, 1998.
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During the three month period, the Company invested $3.7 million in capital
expenditures and acquisitions. Also, $5.0 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.
During the quarter, the Company repurchased 82,000 shares of its common stock,
confirming management's and the Board of Director's confidence in the
Company's future.
During the fourth quarter of 1997, Orkin received a letter from the Federal
Trade Commission (FTC) advising of their investigation of the pest control
industry - more specifically, the termite control practices of the industry.
The FTC has requested certain information voluntarily from Orkin and they
have been advised of our intention to cooperate fully with their investigation.
At this point in time, it is too early to determine the impact, if any, of
this investigation.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. The actual results of the Company
could differ materially from those indicated by the forward-looking
statements because of various risks and uncertainties, including without
limitation, general economic conditions, changes in industry practices or
technologies, climate and weather trends, competitive factors and pricing
pressures, uncertainties of litigation and changes in various government laws
and regulations, including environmental regulations. All of the foregoing
risks and uncertainties are beyond the ability of the Company to control, and
in many cases the Company cannot predict the risks and uncertainties that
could cause its actual results to differ materially from those indicated by
the forward-looking statements.
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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 28, 1998. The
stockholders elected Bill J. Dismuke and Wilton Looney as Class III
Directors for the three year term expiring in 2001. The 1998 Employee
Stock Incentive Plan was approved by shareholders.
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)(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.
(10) Rollins, Inc. 1998 Employee Stock Incentive Plan is
incorporated herein by reference to Exhibit A to the
March 24, 1998 Proxy Statement for the Annual Meeting
of Stockholders held on April 28, 1998.
(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: May 14, 1998
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: May 14, 1998
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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