<PAGE>
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, 1995.
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, 1995, there were 35,853,178
shares of Common Stock $1 Par Value,
outstanding.
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ROLLINS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
Part I Financial Information PAGE NO.
--------
Statements of Financial Position -
September 30, 1995 and December 31, 1994 1
Statements of Income and Earnings Retained
- three months and nine months ended
September 30, 1995 and 1994 2
Statements of Cash Flows
- nine months ended September 30, 1995 and 1994 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
</TABLE>
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ROLLINS, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Cash and Short-Term Investments $ 27,505 $ 31,917
Marketable Securities 68,028 51,820
Trade Receivables, Net 92,369 101,900
Materials and Supplies 16,425 16,250
Deferred Income Taxes 5,473 4,445
Other Current Assets 11,404 8,567
-------- --------
Current Assets 221,204 214,899
Equipment and Property, Net 29,551 27,989
Intangible Assets 42,033 42,092
Other Assets 11,034 10,285
-------- --------
Total Assets $303,822 $295,265
======== ========
LIABILITIES
Accounts Payable $ 12,414 $ 12,002
Accrued Insurance Expenses 13,871 14,258
Accrued Payroll 13,587 12,700
Unearned Revenue 14,189 15,567
Other Expenses 12,216 12,362
-------- --------
Current Liabilities 66,277 66,889
Deferred Income Taxes 7,987 12,205
Long-Term Accrued Liabilities 17,225 22,538
-------- --------
Total Liabilities 91,489 101,632
-------- --------
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 222,062 203,582
-------- --------
263,494 245,014
Less - Common Stock In Treasury, At Cost,
5,578,636 in 1995 ; 5,605,412 shares in 1994 51,161 51,381
-------- --------
Total Stockholders' Equity 212,333 193,633
-------- --------
Total Liabilities and Stockholders' Equity $303,822 $295,265
======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES
Customer Services $ 162,333 $ 158,002 $ 480,337 $ 466,319
----------- ----------- ----------- ------------
COSTS AND EXPENSES
Cost of Services Provided 88,167 82,315 248,279 236,136
Depreciation and Amortization 2,047 1,934 5,781 5,948
Special Charge 12,000 -- 12,000 --
Sales, General and Administrative Expenses 55,972 53,450 165,665 159,353
Interest Income (1,424) (853) (3,586) (1,727)
----------- ----------- ----------- ------------
156,762 136,846 428,139 399,710
----------- ----------- ----------- ------------
INCOME BEFORE INCOME TAXES 5,571 21,156 52,198 66,609
PROVISION (CREDIT) FOR INCOME TAXES
Current 4,683 8,688 23,588 26,508
Deferred (2,566) (543) (3,753) (864)
----------- ----------- ----------- ------------
2,117 8,145 19,835 25,644
----------- ----------- ----------- ------------
NET INCOME 3,454 13,011 32,363 40,965
----------- ----------- ----------- ------------
EARNINGS RETAINED
Balance at Beginning of Period 223,565 191,077 203,582 171,862
Cash Dividends (5,019) (4,474) (15,056) (13,409)
Other 62 (113) 1,173 83
----------- ----------- ----------- ------------
BALANCE AT END OF PERIOD $ 222,062 $ 199,501 $ 222,062 $ 199,501
=========== =========== =========== ============
EARNINGS PER SHARE $ 0.09 $ 0.36 $ 0.90 $ 1.14
=========== =========== =========== ============
WEIGHTED AVERAGE
SHARES OUTSTANDING 35,852,695 35,791,806 35,847,015 35,753,872
=========== =========== =========== ============
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $32,363 $40,965
Noncash Charges (Credits) to Earnings:
Special Charge 12,000 --
Depreciation and Amortization 5,781 5,948
Deferred Income Taxes (3,753) (864)
Other, Net 4,124 1,828
(Increase) Decrease in assets:
Trade Receivables (2,418) (16,990)
Materials and Supplies (103) (965)
Other Current Assets (561) 27
Other Non-Current Assets (1,242) (514)
Increase (Decrease) in liabilities:
Accounts Payable and Accrued Expenses 678 6,907
Unearned Revenue (1,546) 1,607
Deferred Income Taxes (5,060) (2,663)
Long-Term Accrued Liabilities (5,313) (6,311)
------- -------
Net Cash Provided by Operating Activities 34,950 28,975
------- -------
INVESTING ACTIVITIES
Purchases of Equipment and Property (7,435) (5,934)
Net Cash Used for Acquisition of Companies (2,653) (527)
Proceeds from Sales of Equipment and Property 148 744
Marketable Securities, Net (15,033) (928)
------- -------
Net Cash Used in Investing Activities (24,973) (6,645)
------- -------
FINANCING ACTIVITIES
Dividends Paid (15,056) (13,409)
Treasury Stock Issued to Benefit Plans 667 1,351
------- -------
Net Cash Used in Financing Activities (14,389) (12,058)
------- -------
Net Increase (Decrease) in Cash
and Short-Term Investments (4,412) 10,272
Cash and Short-Term Investments
at Beginning of Period 31,917 18,102
------- -------
Cash and Short-Term Investments
at End of Period $27,505 $28,374
======= =======
</TABLE>
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, 1994.
Certain prior year amounts have been reclassified to
conform with the third quarter 1995 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, 1995 and
December 31, 1994, and the results of operations and
cash flows for the nine months ended September 30, 1995
and 1994.
NOTE 2. SPECIAL CHARGE
A special charge of $12,000,000 ($7,440,000 after tax
benefit or $0.21 per share) was recorded in the third
quarter 1995. The charge was primarily for the write-
off of doubtful accounts receivable.
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.
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.
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ROLLINS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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, results of operations, or liquidity.
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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, 1995
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SELECTED INDUSTRY SEGMENT DATA
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
(In thousands)
<S> <C> <C> <C> <C>
1995 1994 1995 1994
---- ---- ---- ----
REVENUES
Orkin $143,302 $138,818 $425,851 $410,297
Rollins Protective 15,595 15,547 44,473 45,718
Other 3,436 3,637 10,013 10,304
-------- -------- -------- --------
$162,333 $158,002 $480,337 $466,319
======== ======== ======== ========
OPERATING INCOME
Orkin $ 17,201 $ 19,342 $ 64,170 $ 64,218
Rollins Protective 1,355 1,833 4,117 4,667
Other (11,714) 1,731 (11,327) 4,061
-------- -------- -------- --------
$ 6,842 $ 22,906 $ 56,960 $ 72,946
======== ======== ======== ========
</TABLE>
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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, 1995
GENERAL OPERATING COMMENTS
The third quarter operating results were a reflection of the
Company's decision to support major business investments in all
areas of operations to achieve its tradition of strategic
planning and investing for long-term benefits. Competition and
current business conditions support the Company's decision to
make major investments in marketing, customer service, and
division operations, in order to increase market share and
profits. In addition, third quarter earnings were negatively
impacted by a one-time special charge of $12.0 million ($7.4
million after-tax or $0.21 per share) associated with the
restructuring and realignment of the consumer finance area,
Rollins Acceptance Company (RAC). Exclusive of the special
charge, earnings per share would have been 30 cents compared to
36 cents for the same quarter last year and $1.11 per share
versus $1.14 through the same nine month period last year.
Revenues for the third quarter ended September 30, 1995 increased
2.7% or $4.3 million, to $162.3 million from the prior year
period ($14.0 million or 3.0% year-to-date). Operating income
decreased $16.1 million to $6.8 million for the quarter, and
decreased $16.0 million to $57.0 million year-to-date, primarily
due to the special charge. Net income for the quarter decreased
73.5% to $3.5 million and earnings per share were 9 cents. Year-
to-date net income was $32.4 million compared to $41.0 million;
while earnings per share were 90 cents, a 21.1% decrease from a
year ago.
For the quarter, the Orkin Group's operating income decreased
11.1% to $17.2 million on revenues of $143.3 million which grew
3.2% over 1994. Operating margins were 12.0%, compared to 13.9%
in the prior year. Rollins Protective Services' operating income
decreased 26.1% to $1.4 million on revenues of $15.6 million.
For the nine months ended September 30, 1995, the Orkin Group
revenues increased 3.8% to $425.9 million, with operating income
remaining relatively unchanged at $64.2 million. Operating
margins deteriorated to 15.1% compared to 15.7% for the same
period last year. Rollins Protective Services (RPS) revenue
declined 2.7%, along with operating income 11.8% lower, while
operating margins were 9.3% compared to 10.2% a year ago.
Detail segment information follows.
ORKIN 1995 VERSUS 1994
Pest Control services increased their sales dollars and customer
base for the quarter and year-to-date. Termite demand was lower
than expectations due to the lagging effect of the termite
season. However, Orkin continues to be encouraged by the
positive results in recurring pest
7 of 11
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control sales. Residential leads and sales were up solidly over last
year. Orkin's strategic investments in the pest control business segment
include increases in sales and service personnel, value marketing
programs and continued development of the customer service/telecenter
operation. These expenditures will continue into next year, but should be
instrumental in making the Company stronger. The comparisons in operating
results were also affected by the December 1994 sale of the 11 Northern Lawn
Care locations.
ROLLINS PROTECTIVE SERVICES 1995 VERSUS 1994
RPS continues its investments in strategic programs that include
customer service and product development. In addition, the
consolidation and reengineering of the customer service/alarm
monitoring center was completed during the third quarter. RPS
continued to experience some difficulty in achieving an
appropriate product sales mix; however, the recurring revenue
customer base continues to grow through customer service programs
and acquisitions. RPS completed three acquisitions during the
quarter which allowed for the expansion of its services in the
three existing markets, while providing their customers continued
access to quality service.
OTHER 1995 VERSUS 1994
Other businesses revenue decreased 5.5% and 2.8% for the quarter
and year-to-date, respectively, due to revisions of the Company's
credit and internal operating policies within the consumer
finance area (RAC). The volume of Company financed sales is
slightly lower than last year, as the revised policies redirected
marketing efforts toward stronger customer demographics
inconjunction with the lower than anticipated termite demand. A
special charge of $12.0 million ($7.4 million after tax benefit
or $0.21 per share) was recorded in the third quarter 1995. The
charge was primarily for the write-off of doubtful accounts
receivable. To more effectively manage the financed receivables
portfolio, the Company expanded RAC's physical facility, acquired
new computers and phone dialing equipment, and increased the
staffing of collectors.
FINANCIAL CONDITION
<TABLE>
<CAPTION>
(In thousands) September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Cash and Short-Term Investments $ 27,505 $ 31,917
Marketable Securities 68,028 51,820
Working Capital $154,927 $148,010
Current Ratio 3.3 3.2
Cash Provided By Operations
(Twelve Months Ended) $ 45,315 $ 39,340
</TABLE>
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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.
Net trade receivables decreased $9.5 million or 9.4% at September
30, 1995 compared with December 31, 1994. Trade receivables
include installment receivables which are due subsequent to one
year from the balance sheet date. These amounts were
approximately $30.5 million and $33.8 million at September 30,
1995 and December 31, 1994, respectively. The decrease in
receivables is primarily the result of the amounts written off as
doubtful accounts through the special charge and the effect of
the revisions to the Company's credit and internal operating
policies within the consumer finance area, as discussed on page 8
under the caption "Other 1995 versus 1994".
The deferred income tax liability decreased 34.6% from December
31, 1994, due to the reduction of certain book/tax timing
differences and payment of an income tax assessment associated
with the completion of an IRS audit spanning five years' tax filings.
Long-term accrued liabilities decreased 23.6% from December 31,
1994, primarily due to the timing of payments for claims
settlements of various general liability, workers' compensation,
and vehicle liability incidents within the Company's self-insurance program.
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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" and Part I, Item 3. Legal
Proceedings, of the Registrant's Form 10-K filed for the
year ended December 31, 1994.
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 25,
1995. The results of that meeting were disclosed in the
Company's Form 10-Q for the first quarter of 1995.
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 8, 1995
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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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND STATEMENTS OF INCOME AND
EARNINGS RETAINED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 27,505
<SECURITIES> 68,028
<RECEIVABLES> 102,844
<ALLOWANCES> 10,475
<INVENTORY> 16,425
<CURRENT-ASSETS> 221,204
<PP&E> 87,000
<DEPRECIATION> 57,449
<TOTAL-ASSETS> 303,822
<CURRENT-LIABILITIES> 66,277
<BONDS> 0
<COMMON> 41,432
0
0
<OTHER-SE> 170,901
<TOTAL-LIABILITY-AND-EQUITY> 303,822
<SALES> 0
<TOTAL-REVENUES> 480,337
<CGS> 0
<TOTAL-COSTS> 248,279
<OTHER-EXPENSES> 179,860
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 52,198
<INCOME-TAX> 19,835
<INCOME-CONTINUING> 32,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,363
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
