<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT
(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 1994
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[NO FEE REQUIRED]
For the transition period from to
COMMISSION FILE NO. 1-4422
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ROLLINS, INC.
------------
<TABLE>
<S> <C>
INCORPORATED I.R.S. EMPLOYER
IN IDENTIFICATION
DELAWARE NUMBER
51-0068479
</TABLE>
2170 PIEDMONT ROAD, N.E., ATLANTA, GEORGIA 30324
TELEPHONE NUMBER -- (404) 888-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
- --------------------------------- -----------------------------------
<S> <C>
Common Stock, $1 Par Value The New York Stock Exchange
The Pacific Stock Exchange
</TABLE>
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. / /
The aggregate market value of Rollins, Inc. common stock, held by
non-affiliates on February 28, 1995 was $514,974,078, based on the closing price
on the New York Stock Exchange on such date of $25 1/4 per share.
Rollins, Inc. had 35,838,091 shares of common stock outstanding (excluding
5,593,723 Treasury shares) as of February 28, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Rollins, Inc.'s Annual Report to Stockholders for the calendar
year ended December 31, 1994 are incorporated by reference into Part I, Item
1(b) and 1(c), Item 3, and Part II, Items 5-8.
Portions of the Proxy Statement for the 1995 Annual Meeting of Stockholders of
Rollins, Inc. are incorporated by reference into Part III, Items 10, 11, 12 and
13.
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<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
Since the beginning of the calendar year, Rollins, Inc. and its subsidiaries
have continued to operate and grow in the same principal services for homes and
businesses.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The response to Item 1.(b) is incorporated by reference from the table under
the caption "Business Segment Information," on pages 21 and 22 of the 1994
Annual Report to Stockholders.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(1)(i) The Registrant is a national company with headquarters located in
Atlanta, Georgia, providing services to both residential and commercial
customers. The four primary services provided are termite and pest control,
plantscaping, lawn care, and protective services. Additionally, the revenues by
business segment are incorporated by reference to the table under the caption
"Business Segment Information" on pages 21 and 22 of the 1994 Annual Report to
Stockholders.
Orkin Exterminating Company, Inc., a wholly owned subsidiary (Orkin),
founded in 1901, is one of the world's largest termite and pest control
companies. It provides customized services to approximately 1.5 million
customers through a network of 367 company-owned and operated branches serving
customers in 49 states, the District of Columbia, the Bahamas, Mexico, and
Puerto Rico. It provides customized pest control services to homes and
businesses, including hotels, food service and transportation companies. Orkin's
continuous regular service provides protection against household pests, rodents
and termites. Orkin's Plantscaping Division designs, installs and maintains
green and flowering plants from nine branches and services customers in 17
states and the District of Columbia. It provides services to hotels, shopping
malls, restaurants, and office buildings. Orkin's Lawn Care Division provides
fertilization, weed and insect control, seeding, aeration of lawns, and tree and
shrub care from 22 branches serving customers in 10 states.
Rollins Protective Services, a Division of the Registrant, was established
in 1969. Services are provided from 48 branches serving customers in 35 states
and the District of Columbia. A pioneer in developing customized wired and
wireless electronic security systems, it provides full-service capabilities from
system design and installation to maintenance and monitoring services.
Full-service includes guaranteed maintenance programs, 24-hour emergency
repairs, and 24-hour alarm monitoring services.
(ii) The Registrant has made no announcement of, nor did any information
become public about, a new line of business or product requiring the investment
of a material amount of the Registrant's total assets.
(iii) Sources and availability of raw materials present no particular
problem to the Registrant, since its businesses are primarily in service-related
industries.
(iv) 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 termite and pest
control, plantscaping, and lawn care and its protective services operations 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 termite and pest control, plantscaping and lawn care service
operations (Orkin Exterminating Company, Inc.). 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
2
<PAGE>
termite and pest control operations during such period. Plantscaping operations
experience seasonal increases in revenues and operating income generated by the
division's Exterior Color and Holiday programs offered during the spring and
late fall. Lawn care services are seasonal and coincide with the growing seasons
of lawns.
(vi) Inapplicable.
(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 1994 and 1993 calendar years was approximately
$16,063,000 and $12,890,000, respectively. Backlog services and orders are
usually provided within the month following the month of receipt, except in the
area of prepaid pest control and alarm monitoring where services are usually
provided within twelve months of receipt.
(ix) Inapplicable.
(x) The Registrant believes that each of its businesses competes favorably
with competitors within its respective area. Orkin Exterminating Company, Inc.
is one of the world's largest termite and pest control companies. Rollins
Protective Services is a pioneer and one of the leaders in residential and
commercial security. Orkin Plantscaping is the industry's second largest company
with operations in nine major markets. Orkin Lawn Care is one of the largest
lawn care companies.
The principal methods of competition in the Registrant's termite and pest
control business are service and guarantees, including the money-back guarantee
on termite and pest control, and the termite retreatment and damage repair
guarantee to qualified homeowners. Competition in the plantscaping and lawn care
businesses is based on providing customized services together with guarantees,
with the Registrant offering the same money-back guarantee for the services. The
principal method of competition in the residential protection business of the
Registrant is the provision of customized emergency protection services to meet
the particular needs of each customer.
(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) 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 1994 was 8,774.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Inapplicable.
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 businesses. 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.
Legal proceedings are included on page 21 of the 1994 Annual Report to
Stockholders contained in financial statement footnote No. 6 and are
incorporated herein by reference.
3
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
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.
<TABLE>
<CAPTION>
DATE FIRST
ELECTED TO
NAME AGE OFFICE WITH REGISTRANT PRESENT OFFICE
- ------------------------------ --- -------------------------------------------------- --------------
<S> <C> <C> <C>
R. Randall Rollins (1)........ 63 Chairman of the Board and Chief Executive Officer 10/22/91
Gary W. Rollins (1)........... 50 President and Chief Operating Officer 1/24/84
Gene L. Smith (2)............. 49 Chief Financial Officer, 1/22/91
Secretary, and Treasurer 1/26/93
<FN>
- ------------------------
(1) R. Randall Rollins and Gary W. Rollins are brothers.
(2) Gene L. Smith served as the Registrant's Vice President of Finance for the
period 12/30/85 to 1/21/91.
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information containing dividends and stock prices on page 12 and the
principal markets on which common shares are traded on page 25 of the 1994
Annual Report to Stockholders are incorporated herein by reference. The number
of stockholders of record on December 31, 1994 was 3,956.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data on page 24 of the 1994 Annual Report to Stockholders
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations included on pages 13 through 15 of the 1994 Annual Report to
Stockholders is incorporated herein by reference. The effects of inflation on
operations were not material for the periods being reported.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and supplementary data of
the Registrant and its consolidated subsidiaries, included in the 1994 Annual
Report to Stockholders, are incorporated herein by reference.
Financial Statements:
Statements of Income for each of the three years in the period ended
December 31, 1994, page 17.
Statements of Earnings Retained for each of the three years in the period
ended December 31, 1994, page 17.
Statements of Financial Position as of December 31, 1994 and 1993, page
16.
Statements of Cash Flows for each of the three years in the period ended
December 31, 1994, page 18.
Notes to Financial Statements, pages 19 through 23.
Report of Independent Auditors, page 23.
Supplementary Data:
Quarterly Information, pages 12 and 13.
4
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to Item 10, applicable to the Directors of the Registrant, is
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the Proxy Statement for the Annual Meeting of
Stockholders to be held April 25, 1995. Additional information concerning
executive officers is included in Part I, Item 4.A. of this Form 10-K.
Based solely on its review of copies of forms received by it pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended, or written
representations from certain reporting persons, Registrant believes that during
the fiscal year ended December 31, 1994 all filing requirements applicable to
its officers, directors, and greater than 10% stockholders were complied with,
except that Mr. R. Randall Rollins and Mr. Gary W. Rollins each filed a late
report on Form 5 which reported the disposition of shares by the estate of O.
Wayne Rollins, of which both are co-executors.
ITEM 11. EXECUTIVE COMPENSATION.
The response to Item 11 is incorporated herein by reference to the
information set forth under the caption "Executive Compensation" in the Proxy
Statement for the Annual Meeting of Stockholders to be held April 25, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to Item 12 is incorporated herein by reference to the
information set forth under the captions "Capital Stock" and "Election of
Directors" in the Proxy Statement for the Annual Meeting of Stockholders to be
held April 25, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Compensation Committee Interlocks and Insider
Participation" and "Executive Compensation" in the Proxy Statement for the
Annual Meeting of Stockholders to be held April 25, 1995, and related footnotes
and information are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following are filed as part of this report:
(a) 1. Financial Statements
The following financial statements are incorporated herein by reference to
portions of the 1994 Annual Report to Stockholders included with this Form 10-K:
Statements of Income for each of the three years in the period ended
December 31, 1994, page 17.
Statements of Earnings Retained for each of the three years in the period
ended December 31, 1994, page 17.
Statements of Financial Position as of December 31, 1994 and 1993, page
16.
Statement of Cash Flows for each of the three years in the period ended
December 31, 1994, page 18.
Notes to Financial Statements, pages 19 through 23.
Report of Independent Auditors, page 23.
(a) 2. Financial Statement Schedules
II Valuation and Qualifying Accounts
Schedules not listed above have been omitted as either not applicable,
immaterial or disclosed in the financial statements or notes thereto.
5
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(a) 3. Exhibits
(3)(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.
(10) Rollins, Inc. 1984 Employee Incentive Stock Option Plan is
incorporated herein by reference to Exhibit (10) filed with the
Company's Form 10-K for the year ended December 31, 1991.
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.
(13) Portions of the Annual Report to Stockholders for the year
ended December 31, 1994 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.
(b) No reports on Form 8-K were required to be filed by the Company for the
quarter ended December 31, 1994.
6
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SIGNATURES
Pursuant to the requirements of Section 13 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: R. RANDALL ROLLINS
-----------------------------------
R. Randall Rollins
Chairman of the Board of Directors
(Principal Executive Officer)
March 28, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
R. RANDALL ROLLINS GENE L. SMITH
- ------------------------------------------- -------------------------------------------
R. Randall Rollins Gene L. Smith
Chairman of the Board of Directors Chief Financial Officer, Secretary, and
(Principal Executive Officer) Treasurer
March 28, 1995 (Principal Financial and Accounting Officer)
March 28, 1995
</TABLE>
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
GARY W. ROLLINS
- ----------------------------------
Gary W. Rollins, As
Attorney-in-Fact
& Director, President and
Chief Operating Officer
March 28, 1995
7
<PAGE>
ROLLINS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS OF ROLLINS, INC. AND SUBSIDIARIES:
The Registrant's 1994 Annual Report to Stockholders, portions of which are
filed with this Form 10-K, contains on pages 16 through 23 the consolidated
financial statements for the years ended December 31, 1994, 1993 and 1992 and
the report of Arthur Andersen LLP on the financial statements for the years then
ended. These financial statements and the report of Arthur Andersen LLP are
incorporated herein by reference. The financial statements include the
following:
Statements of Income for each of the three years in the period ended
December 31, 1994.
Statements of Earnings Retained for each of the three years in the period
ended December 31, 1994.
Statements of Financial Position as of December 31, 1994 and 1993.
Statements of Cash Flows for each of the three years in the period ended
December 31, 1994.
Notes to Financial Statements.
REPORT OF INDEPENDENT AUDITORS ON SCHEDULES, Page 9.
SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
NUMBER
- ---------
<S> <C>
II Valuation and Qualifying Accounts, Page 10.
</TABLE>
Schedules not listed above have been omitted as either not applicable,
immaterial or disclosed in the financial statements or notes thereto.
8
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REPORT OF INDEPENDENT AUDITORS ON SCHEDULES
To the Directors and the Stockholders of Rollins Inc.:
We have audited, in accordance with generally accepted auditing standards,
the 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 13, 1995. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
the index to financial statements and the schedule 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.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 13, 1995
9
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ROLLINS, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS (1) PERIOD
- ------------------------------------------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994 --
Allowance for doubtful accounts................. $ 4,548 $ 7,823 $ -- $ 6,427 $ 5,944
----------- ----------- ----------- ------ -----------
Year ended December 31, 1993 --
Allowance for doubtful accounts................. $ 2,948 $ 6,734 $ -- $ 5,134 $ 4,548
----------- ----------- ----------- ------ -----------
Year ended December 31, 1992 --
Allowance for doubtful accounts................. $ 1,809 $ 5,850 $ -- $ 4,711 $ 2,948
----------- ----------- ----------- ------ -----------
<FN>
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NOTE: (1) Deductions represent the write-off of uncollectible receivables, net
of recoveries.
</TABLE>
10
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EXHIBITS
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number
--------------
<S> <C>
(3)(i) The Certificate of Incorporation of Rollins, Inc. 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.
(10) Rollins, Inc. 1984 Employee Incentive Stock Option Plan
is incorporated herein by reference to Exhibit (10) filed
with the Company's Form 10-K for the year ended December 31, 1991.
Rollins, Inc. 1994 Employee Stock Incentive Plan is incorporated
herein by reference to Exhibit A to the March 18, 1994 Proxy
Statement for the Annual Meeting of Stockholders held on
April 26, 1994.
(13) Portions of the Annual Report to Stockholders for the year
ended December 31, 1994 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.
</TABLE>
<PAGE>
EXHIBIT (13)
<PAGE>
Report Of Management
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To the Stockholders of Rollins, Inc.:
We have prepared the accompanying financial statements and related
information included herein for the years ended December 31, 1994, 1993 and
1992. The opinion of Arthur Andersen LLP, the Company's independent auditors,
on those financial statements is included herein. The primary responsibility
for the integrity of the financial information included in this annual report
rests with management. Such information was prepared in accordance with
generally accepted accounting principles, appropriate in the circumstances,
based on our best estimates and judgements and giving due consideration to
materiality.
Rollins, Inc. maintains internal accounting control systems which are
adequate to provide reasonable assurance that assets are safeguarded from
loss or unauthorized use and which produce records adequate for preparation
of financial information. The system and controls and compliance therewith
are reviewed by an extensive program of internal audits and by our
independent auditors. There are limits inherent in all systems of internal
accounting control based on the recognition that the cost of such a system
should not exceed the benefits to be derived. We believe the Company's system
provides this appropriate balance.
The Board of Directors pursues its review and oversight role for these
financial statements through an Audit Committee composed of three outside
directors. The Audit Committee's duties include recommending to the Board of
Directors the appointment of an independent accounting firm to audit the
financial statements of Rollins, Inc. The Audit Committee meets periodically
with management and the Board of Directors. It also meets with
representatives of the internal and independent auditors and reviews the work
of each to ensure that their respective responsibilities are being carried
out and to discuss related matters. Both the internal and independent
auditors have direct access to the Audit Committee.
R. Randall Rollins
R. Randall Rollins
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Gene L. Smith
Gene L. Smith
CHIEF FINANCIAL OFFICER, SECRETARY, AND TREASURER
February 13, 1995
Quarterly Information
- ---------------------
<TABLE>
<CAPTION>
Stock Prices and Dividends
- ---------------------------------------------------------------------------------------------
(Rounded to the nearest 1/8) Stock Prices
--------------------------------------------------------
High Low Dividends Paid
--------------------------------------------------------
--------------------------------------------------------
<S> <C> <C> <C>
1994
First Quarter $30 3/4 $26 3/4 $.12 1/2
Second Quarter 28 3/8 24 3/8 .12 1/2
Third Quarter 26 1/8 23 1/4 .12 1/2
Fourth Quarter 25 1/2 22 1/8 .12 1/2
1993
First Quarter $26 7/8 $23 5/8 $.11
Second Quarter 25 7/8 21 1/2 .11
Third Quarter 26 22 1/2 .11
Fourth Quarter 27 3/4 21 3/4 .11
</TABLE>
THE NUMBER OF STOCKHOLDERS OF RECORD AS OF DECEMBER 31, 1994 WAS 3,956.
12
<PAGE>
Quarterly Information (CONTINUED)
- ---------------------------------
<TABLE>
<CAPTION>
Profit and Loss Information
- ---------------------------------------------------------------------------------------------
(in thousands except per share data) First Second Third Fourth
----------------------------------------------------
----------------------------------------------------
<S> <C> <C> <C> <C>
1994
Revenues $136,443 $171,874 $158,002 $139,008
Operating Income 13,755 36,285 22,906 15,984
Net Income 6,888 21,066 13,011 8,596
Earnings per Share .19 .59 .36 .25
1993
Revenues $127,295 $163,248 $151,808 $133,451
Operating Income 11,872 32,708 21,228 15,312
Net Income 5,867 19,071 11,688 7,843
Earnings per Share .16 .54 .33 .22
1992
Revenues $117,449 $150,204 $137,732 $122,281
Operating Income 10,502 28,712 18,706 12,782
Net Income 5,087 16,382 10,295 6,238
Earnings per Share .14 .47 .28 .18
</TABLE>
Management's Discussion And Analysis
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Results of Operations
- ----------------------------------------------------------------------------------------------
Selected Industry Segment Data % Change From Prior Year
increase/(decrease)
----------------------------------------------------------------
(in thousands) 1994 1993 1992 1994 1993
----------------------------------------------------------------
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Orkin $530,099 $506,399 $461,971 4.7% 9.6%
Rollins Protective 61,692 57,698 55,942 6.9 3.1
Other 13,536 11,705 9,753 15.6 20.0
-------- -------- --------
$605,327 $575,802 $527,666 5.1 9.1
-------- -------- --------
-------- -------- --------
OPERATING INCOME
Orkin $ 78,711 $ 70,720 $ 61,687 11.3 14.6
Rollins Protective 6,579 5,896 5,398 11.6 9.2
Other 3,640 4,504 3,617 (19.2) 24.5
-------- -------- --------
$ 88,930 $ 81,120 $ 70,702 9.6% 14.7%
-------- -------- --------
-------- -------- --------
</TABLE>
13
<PAGE>
Management's Discussion And Analysis (CONTINUED)
- ------------------------------------------------
GENERAL OPERATING COMMENTS
Rollins, Inc.'s consolidated revenues of $605.3 million were 5.1% higher than
in 1993. Operating income increased $7.8 million or 9.6% over the prior year.
Operating margins improved 4.3% over 1993 compared to 1993's improvement over
1992 of 5.2%.
Despite the impact of the extremely cold winter and spring on the pest
season, the Company was able to produce consistent earnings increases. These
earnings increases affirm the emphasis that management and employees place on
customer service, improved productivity, training, efficient sales and marketing
programs, and improved cost controls.
Operating profit margins for the Orkin business segment increased 5.7%
over the prior year. This compares to a 4.5% margin improvement from 1993
over 1992. Rollins Protective Services' operating margins increased 4.9% over
1993. This compares to 6.3% margin improvement from 1993 over 1992.
ORKIN 1994 VERSUS 1993
Orkin revenues increased 4.7% to $530.1 million and operating income
increased 11.3% to $78.7 million for the year ended December 31, 1994,
compared to the same period last year. Orkin experienced a disappointing pest
season unlike any in its history; however, Pest Control and Termite services
increased their sales dollars and customer base for the year. Orkin
maintained its commitment to expanding existing operations by entering new
geographic markets with the opening of nine new branches. Future growth will
come form internal and external expansion.
The fundamentals and financial position of the Pest Control business
remain very strong. Orkin is motivated to take full advantage of market
opportunities through alternative services such as the Agribusiness service,
which produced strong revenue gains again in 1994. Success with other new
marketing and service programs also contributed to revenue and operating
income improvements. These programs included the introduction of a 24-hour
1-800-34ORKIN service and a neighborhood solicitation campaign. The
neighborhood campaign was expanded during the summer of 1994 in selected
markets and exceeded sales expectations. Orkin utilized its telemarketing
program to make customer quality assurance calls which provided both customer
satisfaction confirmation and the expansion of Orkin services. Additionally,
sales benefits of cross-marketing other Rollins services were achieved.
Approximately 98% of the customers surveyed reported that they are pleased
with our service, which creates an ideal prospect for additional Rollins
services.
Orkin Plantscaping focused on sales and service basics in 1994, including
formalizing sales proposals, developing new sales brochures, and managing the
quality and selection of plant inventory. To address a soft year,
Plantscaping concentrated on training employees to better address customers
needs and improve creative sales skills. With a renewed focus and a favorable
economic outlook in 1995, management expects improved operating results.
Effective December 31, 1994, Orkin Lawn Care completed the strategic
restructuring of the operation by selling eleven Northern locations, to
strengthen the focus on the more profitable locations, principally in the
Sunbelt. Management believes that with a stronger base of recurring revenue and
a clearer focus on their markets and customers, Lawn Care will have a favorable
operating performance in 1995.
ORKIN 1993 VERSUS 1992
The Orkin business segment had 1993 revenues and operating income increases
of 9.6% and 14.6%, respectively, over the results achieved in 1992. Orkin
Pest Control's revenue increases were the result of our continued emphasis on
providing premium services, improved customer service, opening new branches,
expanding our customer base, and the successful introduction of new
services. Marketing programs included an effective, highly focused national
advertising campaign, the money-back guarantee expanded to termite control,
and our new Agribusiness service. Operating income benefited from increased
employee productivity, further improvement in the control of operating costs,
and revenue growth resulting from new customers and new services.
Orkin Plantscaping's operating results were impacted by slowdowns in
commercial real estate construction. Revenues increased primarily due to
expanded Holiday, Exterior Color, and National Accounts Programs.
Cross-marketing efforts by Orkin Pest Control and Orkin Plantscaping have
enabled Plantscaping to increase its national corporate customer list. During
1993, Plantscaping continued to improve operational efficiencies, enhance
service delivery and efficiency, and provide internal standardization among
its nine major markets.
Orkin Lawn Care sustained its improving trends with increased sales,
customer retention, better cost controls, and employee productivity.
Additionally, the Lawn Care division introduced new services during 1993
which increased revenues and operating income.
14
<PAGE>
Management's Discussion And Analysis (CONTINUED)
- ------------------------------------------------
ROLLINS PROTECTIVE SERVICES 1994 VERSUS 1993
Rollins Protective Services (RPS) had 1994 revenues of $61.7 million, an
increased of 6.9%, and operating income improved 11.6% to $6.6 million.
Revenue growth in 1994 was driven by the expansion of the commercial and
National Accounts programs and the opening of two new locations. RPS enjoys
one of the highest customer retention rates in the industry. Customer
acceptance of the new Vision 2000 system, a state-of-the-art home
surveillance security system, has been strong and should strengthen the 1995
operating results.
RPS plans to introduce several new security system products in 1995, which
should enable the Company to build on the 1994 operating results and remain a
leading provider of residential and commercial security systems. RPS will
extend several successful programs tested in 1994, targeted at customer
retention, National Accounts and residential sales. New branch openings are
also planned in 1995.
ROLLINS PROTECTIVE SERVICES 1993 VERSUS 1992
RPS had 1993 revenues and operating income increases of 3.1% and 9.2%,
respectively, over the results achieved in 1992. Operational improvements were
reported by the RPS division in 1993 primarily due to improvements made in the
third and fourth quarters with more effective sales programs and a concentration
on improved service delivery resulting in stronger customer retention.
<TABLE>
<CAPTION>
Financial Condition
- ------------------------------------------------------------------------------------------------------
% Change From Prior Year
increase/(decrease)
-----------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992 1994 1993
-----------------------------------------------------------------
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and Short-Term Investments $ 31,917 $ 18,102 $ 20,061
Marketable Securities 51,820 50,991 30,657
-------- -------- --------
$ 83,737 $ 69,093 $ 50,718 21.2% 36.2%
Working Capital $148,010 $117,528 $ 89,944 25.9 30.7
Current Ratio 3.2 2.8 2.4 14.3 16.7
Cash Provided by Operations $ 39,340 $ 40,034 $ 33,319 (1.7)% 20.2%
</TABLE>
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.
Net trade receivables increased $14.4 million or 16.4% at December 31, 1994
compared with the prior year. Trade receivables include installment
receivable amounts which are due subsequent to one year from the balance
sheet date. These amounts were approximately $33.8 million and $28.7 million
at the end of 1994 and 1993, respectively. The increase in receivables was
attributed to increased revenue and the expansion of Orkin termite and
Rollins Protective Services financed customer marketing programs. During the
fourth quarter 1994, management performed a major evaluation of the Company's
credit and internal operating policies within the credit service center.
Management instituted a revision of these credit policies which refines
marketing efforts toward stronger customer demographics, while providing a
higher average contract price. The objectives of these changes are to
increase our average dollar sales unit purchased, and reduce doubtful account
exposure. Corporate management will ensure that these operational and policy
changes are effectively implemented.
During 1994, the Company invested $9.0 million in capital expenditures and
acquisitions. Also, $17.9 million was paid out in cash dividends. The Company
has and expects to continue funding these cash requirements from operations.
In addition to a very strong cash position, 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.
15
<PAGE>
Statements Of Financial Position
- -------------------------------------------------------------------------------
ROLLINS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
------------- --------------
At December 31, (in thousands except share data) 1994 1993
------------- --------------
------------- --------------
<S> <C> <C>
Assets
- ---------------------------------------------------------
Cash and Short-Term Investments $ 31,917 $ 18,102
Marketable Securities 51,820 50,991
Trade Receivables, Net 101,900 87,518
Materials and Supplies 16,250 15,829
Deferred Income Taxes 4,445 4,980
Other Current Assets 8,567 7,112
-------- --------
Current Assets 214,899 184,532
Equipment and Property, Net 27,989 28,890
Intangible Assets 42,092 42,171
Other Assets 10,285 11,601
-------- --------
Total Assets $295,265 $267,194
-------- --------
-------- --------
Liabilities
- ---------------------------------------------------------
Accounts Payable $ 12,002 $ 12,279
Accrued Insurance Expenses 14,258 13,600
Accrued Payroll 12,700 15,519
Unearned Revenue 15,567 12,854
Other Expenses 12,362 12,752
-------- --------
Current Liabilities 66,889 67,004
Deferred Income Taxes 12,205 12,983
Long-Term Accrued Liabilities 22,538 26,699
-------- --------
Total Liabilities 101,632 106,686
-------- --------
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 203,582 171,862
-------- --------
245,014 213,294
Less -- Common Stock in Treasury, at Cost,
5,605,412 shares in 1994; 5,758,619 shares in 1993 51,381 52,786
-------- --------
Total Stockholders' Equity 193,633 160,508
-------- --------
Total Liabilities and Stockholders' Equity $295,265 $267,194
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
16
<PAGE>
Statements Of Income
- -------------------------------------------------------------------------------
ROLLINS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
------------- -------------- --------------
Years Ended December 31, (in thousands except per share data) 1994 1993 1992
------------- -------------- --------------
------------- -------------- --------------
<S> <C> <C> <C>
Revenues
Customer Services $605,327 $575,802 $527,666
-------- -------- --------
Costs and Expenses
Cost of Services Provided 311,315 293,499 271,518
Sales, General and Administrative Expenses 208,289 203,483 187,238
Depreciation and Amortization 8,130 8,310 7,966
Interest Income (2,994) (2,390) (1,870)
-------- -------- --------
524,740 502,902 464,852
-------- -------- --------
Income Before Income Taxes 80,587 72,900 62,814
-------- -------- --------
Provision (Credit) For Income Taxes
Current 30,201 30,339 25,317
Deferred 825 (1,908) (505)
-------- -------- --------
31,026 28,431 24,812
-------- -------- --------
Net Income $ 49,561 $ 44,469 $ 38,002
-------- -------- --------
-------- -------- --------
Earnings per Share $ 1.39 $ 1.25 $ 1.07
-------- -------- --------
-------- -------- --------
Average Shares Outstanding 35,770 35,638 35,569
-------- -------- --------
-------- -------- --------
</TABLE>
Statements Of Earnings Retained
- -------------------------------------------------------------------------------
ROLLINS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
------------- -------------- --------------
Years Ended December 31, (in thousands except per share data) 1994 1993 1992
------------- -------------- --------------
------------- -------------- --------------
<S> <C> <C> <C>
Balance at Beginning of Year $171,862 $141,999 $131,602
Net Income 49,561 44,469 38,002
Cash Dividends (17,887) (15,680) (14,226)
Other 46 1,074 445
Adjustment for Three-for-Two-Stock Split -- -- (13,824)
-------- -------- --------
Balance at End of Year $203,582 $171,862 $141,999
-------- -------- --------
-------- -------- --------
Dividends per Share $ .50 $ .44 $ .40
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
17
<PAGE>
Statements Of Cash Flows
- -------------------------------------------------------------------------------
ROLLINS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
------------- -------------- --------------
Years Ended December 31, (in thousands) 1994 1993 1992
------------- -------------- --------------
------------- -------------- --------------
<S> <C> <C> <C>
Operating Activities
- -----------------------------------------------------------
Net Income $ 49,561 $ 44,469 $38,002
Noncash Charges (Credits) to Earnings:
Depreciation and Amortization 8,130 8,310 7,966
Deferred Income Taxes 825 (1,908) (505)
Other, Net 2,382 3,152 3,292
(Increase) Decrease in:
Trade Receivables (14,257) (20,474) (13,966)
Materials and Supplies (421) 1,477 (2,643)
Other Current Assets (3,183) 3,473 (3,821)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (2,676) 924 3,597
Unearned Revenue 2,713 3,347 1,009
Non-Current Deferred Income Taxes 1,076 (5,767) 753
Long-Term Accrued Liabilities (4,277) 3,643 837
Other Non-Current Assets (533) (612) (1,202)
-------- -------- --------
Net Cash Provided by Operating Activities 39,340 40,034 33,319
-------- -------- --------
Investing Activities
- -----------------------------------------------------------
Purchases of Equipment and Property (8,256) (7,690) (6,645)
Net Cash Used for Acquisition of Companies (740) (397) (4,299)
Marketable Securities, Net (1,910) (20,334) (30,657)
Proceeds from Sale of Equipment and Property 1,152 288 339
-------- -------- --------
Net Cash Used in Investing Activities (9,754) (28,133) (41,262)
-------- -------- --------
Financing Activities
- -----------------------------------------------------------
Dividends Paid (17,887) (15,680) (14,226)
Treasury Stock Issued to Benefit Plans 2,116 1,820 1,000
-------- -------- --------
Net Cash Used in Financing Activities (15,771) (13,860) (13,226)
-------- -------- --------
Net Increase (Decrease) in Cash and
Short-Term Investments 13,815 (1,959) (21,169)
Cash and Short-Term Investments
at Beginning of Year 18,102 20,061 41,230
-------- -------- --------
Cash and Short-Term Investments
at End of Year $ 31,917 $ 18,102 $ 20,061
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
18
<PAGE>
Notes To Financial Statements
- -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992. ROLLINS, INC. AND SUBSIDIARIES
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Rollins, Inc. (the Company) and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.
REVENUES-Revenue is recognized at the time services are performed.
CASH AND SHORT-TERM INVESTMENTS - The Company considers all investments
with a maturity of three months or less to be cash equivalents. Short-term
investments are stated at cost which approximates fair value.
MARKETABLE SECURITIES-Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under this statement, the
Company's marketable securities are classified as "available-for-sale" and
have been recorded at current market value with an offsetting adjustment to
stockholders' equity. The adoption of this statement did not have a material
effect on the Company's financial position.
MATERIALS AND SUPPLIES-Materials and supplies are recorded at the lower of
cost (first-in, first-out basis) or market.
EQUIPMENT AND PROPERTY-Depreciation and amortization are provided
principally on a straight-line basis over the estimated useful lives of the
related assets. Annual provisions for depreciation are computed using the
following asset lives: buildings, 10 to 40 years; and furniture, fixtures,
and operating equipment, 3 to 10 years. The cost of assets retired or
otherwise disposed of and the related accumulated depreciation and
amortization are eliminated from the accounts in the year of disposal with
the resulting gain or loss credited or charged to income. Expenditures for
additions, major renewals and betterments are capitalized and expenditures
for maintenance and repairs are expensed as incurred.
INSURANCE-The Company self-insures, up to specified limits, certain risks
related to general liability, workers' compensation and vehicle liability.
The estimated costs of existing and future claims under the self-insurance
program are accrued based upon historical trends as incidents occur, whether
reported or unreported (although actual settlement of the claims may not be
made until future periods) and may be subsequently revised based on
developments relating to such claims. The non-current portion of these
estimated outstanding claims comprises most of the long-term accrued liabilities
balance shown on the Statements of Financial Position.
INCOME TAXES-Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". SFAS 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial and tax basis using enacted tax rates in effect for the year in
which the differences are expected to reverse. These differences are more
inclusive in nature than differences determined under previously applicable
accounting principles.
COMMON STOCK-Earnings per share is computed on the basis of
weighted-average shares outstanding. Stock options outstanding do not have a
significant dilutive effect.
2. TRADE RECEIVABLES
Trade receivables, net, at December 31, 1994, totalling $101,900,000 and at
December 31, 1993, totalling $87,518,000 are net of allowances for doubtful
accounts of $5,944,000 and $4,548,000, respectively. Trade receivables
include installment receivable amounts which are due subsequent to one year
from the balance sheet dates. These amounts were approximately $33,849,000
and $28,737,000 at the end of 1994 and 1993, respectively. The carrying
amount of installment receivables approximates fair value because the
interest rates approximate market rates.
3. EQUIPMENT AND PROPERTY
Equipment and property are presented at cost less accumulated depreciation
and are detailed as follows:
<TABLE>
<CAPTION>
---------------------------------------
(in thousands) 1994 1993
---------------------------------------
---------------------------------------
<S> <C> <C>
Buildings $ 9,014 $ 8,666
Operating equipment 59,168 55,932
Furniture and fixtures 10,688 11,078
------- -------
78,870 75,676
Less-accumulated depreciation 54,016 49,881
------- -------
24,854 25,795
Land 3,135 3,095
------- -------
$27,989 $28,890
------- -------
------- -------
</TABLE>
19
<PAGE>
4. INTANGIBLE ASSETS
Intangible assets represent goodwill arising from acquisitions and are
stated at cost less accumulated amortization. Intangibles which arose from
acquisitions prior to November, 1970 are not being amortized for financial
statement purposes, since, in the opinion of management, there has been no
decrease in the value of the acquired businesses. Intangibles arising from
acquisitions since November, 1970 are being amortized over forty years.
5. INCOME TAXES
A reconciliation between taxes computed at the statutory rate on the income
before income taxes and the provision for income taxes is as follows:
<TABLE>
<CAPTION>
---------------------------------------
(in thousands) 1994 1993 1992
---------------------------------------
---------------------------------------
<S> <C> <C> <C>
Federal income taxes
at statutory rate $28,205 $25,515 $21,357
State income taxes
(net of federal benefit) 3,286 3,137 3,148
Other (465) (221) 307
------- ------- -------
$31,026 $28,431 $24,812
------- ------- -------
------- ------- -------
</TABLE>
The provision for income taxes was based on a 38.5%, 39.0% and 39.5%
estimated effective income tax rate on income before income taxes for the
years ended December 31, 1994, 1993, and 1992, respectively. The effective
income tax rate differs from the annual federal statutory tax rate primarily
because of state income taxes.
The deferred income tax debits (credits) for the three year period ended
December 31, 1994 are due to differences between financial and income tax
reporting. A summary of those deferred income tax debits (credits) is as
follows:
<TABLE>
<CAPTION>
---------------------------------------
(in thousands) 1994 1993 1992
---------------------------------------
---------------------------------------
<S> <C> <C> <C>
Self-insurance $ 1,775 $ 1,761 $ 1,752
Safe harbor lease (1,464) (1,274) (1,085)
Depreciation (335) (593) (544)
Other 849 (1,802) (628)
------- ------- -------
$ 825 $(1,908) $ (505)
------- ------- -------
------- ------- -------
</TABLE>
Income taxes remitted were $33,915,000, $25,796,000, and $24,447,000 for
the years ended December 31, 1994, 1993, and 1992, respectively.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". The
cumulative effect of the change in the method of accounting for income taxes
attributable to years prior to 1993 was not material.
The tax effect of the temporary differences which comprise the current and
non-current deferred income tax debits (credits) amounts is as follows:
<TABLE>
<CAPTION>
---------------------------------------
(in thousands) 1994 1993
---------------------------------------
---------------------------------------
<S> <C> <C>
Deferred Tax Assets (Liabilities)
Insurance reserves $ 13,801 $ 13,551
Safe harbor lease (16,955) (17,268)
Accruals (6,233) (5,685)
Payroll and related accruals 745 1,571
Other 882 (172)
-------- -------
$ (7,760) $(8,003)
-------- -------
-------- -------
</TABLE>
During 1982, the Company entered into a twenty-year "Safe Harbor" lease
agreement under the Economic Recovery Tax Act of 1981 for the purchase of
federal income tax benefits. The Company has invested $29,096,000 in the
lease. The investment in tax benefits from the safe harbor lease agreement
has been allocated between investment tax credit benefits and tax deduction
timing benefits. The investment amount has been reflected as a reduction in
non-current deferred income taxes. Amortization of timing benefits into
expense is computed at a constant rate of return.
20
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
Minimum annual rentals for non-cancelable leases with terms in excess of one
year, in effect at December 31, 1994, are summarized as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
(in thousands) Real Estate Vehicles Other Total
-----------------------------------------------------
-----------------------------------------------------
<S> <C> <C> <C> <C>
1995 $ 9,362 $ 8,491 $ 930 $18,783
1996 8,762 5,319 451 14,532
1997 8,122 1,938 50 10,110
1998 7,186 335 16 7,537
1999 6,084 -- 8 6,092
Thereafter 38,666 -- -- 38,666
------- ------- ------- -------
$78,182 $16,083 $ 1,455 $95,720
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Total rental expense charged to operations was $24,867,000, $24,274,000,
and $23,384,000 for the years ended December 31, 1994, 1993, and 1992,
respectively.
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 and will take an extended time to resolve.
In the normal course of business, the Company is a defendant in a number
of lawsuits which allege that plaintiffs have been damaged as a result of the
rendering of services by Company personnel and equipment. The Company 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
Company's financial position, results of operations, or liquidity.
7. Business Segment Information
The Company operates two major business segments. Certain information with
respect to the Company's business segments is as follows:
<TABLE>
<CAPTION>
---------------------------------------
(in thousands) 1994 1993 1992
---------------------------------------
---------------------------------------
<S> <C> <C> <C>
REVENUES
Orkin $530,099 $506,399 $461,971
Rollins Protective 61,692 57,698 55,942
Other 13,536 11,705 9,753
-------- -------- --------
$605,327 $575,802 $527,666
-------- -------- --------
-------- -------- --------
OPERATING INCOME
Orkin $ 78,711 $ 70,720 $ 61,687
Rollins Protective 6,579 5,896 5,398
Other 3,640 4,504 3,617
-------- -------- --------
88,930 81,120 70,702
OTHER
Corporate expenses, net (11,337) (10,610) (9,758)
Interest income 2,994 2,390 1,870
Income before
income taxes $ 80,587 $ 72,900 $ 62,814
-------- -------- --------
-------- -------- --------
IDENTIFIABLE ASSETS
Orkin $169,750 $161,850 $145,115
Rollins Protective 21,236 18,420 18,535
Other 104,279 86,924 72,641
-------- -------- --------
$295,265 $267,194 $236,291
-------- -------- --------
-------- -------- --------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
(in thousands) 1994 1993 1992
----------------------------------
----------------------------------
<S> <C> <C> <C>
DEPRECIATION AND
AMORTIZATION EXPENSE
Orkin $6,556 $6,992 $6,163
Rollins Protective 448 433 1,076
Other 1,126 885 727
------ ------ ------
$8,130 $8,310 $7,966
------ ------ ------
------ ------ ------
CAPITAL EXPENDITURES
Orkin $6,530 $5,919 $5,320
Rollins Protective 466 413 349
Other 1,372 1,395 1,373
------ ------ ------
$8,368 $7,727 $7,042
------ ------ ------
------ ------ ------
</TABLE>
8. Employee Benefit Plans
The Company maintains a noncontributory, tax-qualified defined benefit
retirement plan covering all employees meeting certain age and service
requirements. The qualified plan provides benefits based on the average
compensation for the highest five years during the last ten years of credited
service (as defined) in which compensation was received, and the average
anticipated Social Security covered earnings. The Company funds the Plan with
at least the minimum amount required by ERISA.
The Company's net pension expense for the past three years is summarized as
follows:
<TABLE>
<CAPTION>
----------------------------------
(in thousands) 1994 1993 1992
----------------------------------
----------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the period $ 2,749 $ 2,345 $ 2,057
Interest cost on projected
benefit obligation 3,524 3,248 2,827
Actual return on plan assets 1,445 (4,218) (4,976)
Net amortization
of transition asset (1,181) (1,099) (1,099)
Deferral of net
investment gain (loss) (5,718) 227 1,255
------- ------- --------
Net pension expense $ 819 $ 503 $ 64
------- ------- --------
------- ------- --------
</TABLE>
The funded status of the Plan is summarized as follows at December 31:
<TABLE>
<CAPTION>
---------------------
(in thousands) 1994 1993
---------------------
---------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation
including vested benefits of
$32,261 in 1994 and
$31,265 in 1993 $(34,994) $(33,989)
Effect of projected future
compensation levels (8,412) (8,468)
-------- --------
Projected benefit obligation (43,406) (42,457)
Plan assets at fair value 44,837 48,153
-------- --------
Plan assets in excess of
projected obligation 1,431 5,696
Unrecognized net loss 4,489 1,574
Unrecognized net asset at transition
being amortized over 10 years (2,876) (4,026)
Unrecognized prior service cost (355) 264
-------- --------
Prepaid pension expense
included in other assets $ 2,689 $ 3,508
-------- --------
-------- --------
</TABLE>
At December 31, 1994, the Plan's assets were comprised of listed common
stocks and U.S. Government and corporate securities. Included in the assets
of the Plan were shares of Rollins common stock with a market value of
$7,000,000. The expected long-term rate of return on plan assets was 9.5%
in 1994, 1993, and 1992. The weighted-average discount rate used in determining
the projected benefit obligation was decreased from 8.5% in 1992 to 8.0% in
1993 and increased to 8.5% in 1994 to more closely approximate rates on high-
quality, long-term obligations. The assumed growth rate of compensation
decreased from 6.0% in 1992 to 5.5% in 1993 and 1994.
The Company sponsors a deferred compensation 401(k) plan that is available
to substantially all employees with six months of service. The charges to
expense for the Company match were $1,465,000 in 1994, $1,379,000 in 1993, and
$1,320,000 in 1992.
22
<PAGE>
The Company has an Employee Incentive Stock Option Plan (1984 Plan), adopted
in October, 1984, under which 1,200,000 shares of common stock were subject to
options to be granted during the ten-year period ended October, 1994. The
options were granted at the fair market value of the shares on the date of the
grant and expire ten years from the date of the grant, if not exercised. No
additional options will be granted under this Plan.
On January 25, 1994, the Company adopted a new Employee Stock Incentive Plan
(1994 Plan) under which 1,200,000 shares of common stock are subject to grants
through January 25, 2004 under various stock incentive programs. During 1994,
200,900 grant units were initially awarded under stock incentive programs at
a grant price of $28 3/8. None of these awards were exercisable nor vested as
of December 31, 1994 due to the specific progams' requirements.
Option transactions during the last three years for the 1984 Plan are
summarized as follows:
<TABLE>
<CAPTION>
-------------------------------------
(Number of shares) 1994 1993 1992
-------------------------------------
-------------------------------------
<S> <C> <C> <C>
Outstanding at
January 1, 114,206 117,781 129,915
Granted -- 9,900 9,900
Exercised (36,009) (9,965) (17,715)
Cancelled (4,340) (3,510) (4,319)
-------- -------- --------
Outstanding at
December 31, 73,857 114,206 117,781
Exercisable at
December 31, 46,857 70,976 68,671
-------- -------- --------
Option price ranges per share:
Granted $ -- $ 25.50 $ 19.08
Exercised 5.92-25.50 5.92-13.25 5.92-13.25
Cancelled 5.92-25.50 12.58-25.50 5.92-13.25
Outstanding 7.00-25.50 5.92-25.50 5.92-19.08
</TABLE>
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Directors and Stockholders of Rollins, Inc.:
We have audited the accompanying statements of financial position of Rollins,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993
and the related statements of income, earnings retained and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rollins, Inc. and
subsidiaries as of December 31, 1994 and 1993 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Atlanta, Georgia
February 13, 1995
23
<PAGE>
Five-Year Financial Summary
- --------------------------------------------------------------------------------
Rollins, Inc. and Subsidiaries
<TABLE>
<CAPTION>
------------------------------------------------------------
1994 1993 1992 1991 1990
------------------------------------------------------------
------------------------------------------------------------
Operations Summary
- -------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $605,327 $575,802 $527,666 $475,555 $436,398
Cost of Services Provided 311,315 293,499 271,518 247,994 230,107
Sales, General and
Administrative 208,289 203,483 187,238 169,825 155,904
Depreciation and
Amortization 8,130 8,310 7,966 7,806 7,482
Interest Income (2,994) (2,390) (1,870) (2,134) (2,460)
-------- -------- -------- -------- --------
Income Before
Income Taxes 80,587 72,900 62,814 52,064 45,365
Income Taxes 31,026 28,431 24,812 20,565 17,919
-------- -------- -------- -------- --------
Net Income $ 49,561 $ 44,469 $ 38,002 $ 31,499 $ 27,446
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per Share $ 1.39 $ 1.25 $ 1.07 $ .89 $ .77
Dividends per Share $ .50 $ .44 $ .40 $ .39 $ .37
Cash Provided by
Operations $ 39,340 $ 40,034 $ 33,319 $ 31,987 $ 36,350
Capital Expenditures $ 8,368 $ 7,727 $ 7,042 $ 8,536 $ 8,929
Total Assets $295,265 $267,194 $236,291 $204,577 $177,961
Long-Term Debt -- -- -- -- --
Stockholders' Equity $193,633 $160,508 $129,899 $105,137 $ 86,718
Selected Ratio Analysis
- -------------------------------------------
(As a % of revenues except return on
average equity)
Cost of Services Provided 51.5% 51.0% 51.5% 52.1% 52.7%
Sales, General and
Administrative 34.4 35.3 35.5 35.7 35.7
Depreciation and
Amortization 1.3 1.4 1.5 1.6 1.7
Interest Income (0.5) (0.4) (0.4) (0.4) (0.6)
Income Before
Income Taxes 13.3 12.7 11.9 11.0 10.5
Net Income 8.2 7.7 7.2 6.6 6.3
Return on Average Equity 28.0 30.6 32.3 32.8 34.5
Shares Outstanding
- -------------------------------------------
(In thousands)
Average 35,770 35,638 35,569 35,510 35,465
At Year End 35,826 35,673 35,592 35,532 35,478
</TABLE>
24
<PAGE>
Directors, Officers and Stockholders' Information
- --------------------------------------------------------------------------------
DIRECTORS
JOHN W. ROLLINS
Chairman of the Board and Chief Executive Officer of Rollins Truck Leasing Corp.
(vehicle leasing and transportation), Chairman of the Board and Chief Executive
Officer of Rollins Environmental Services, Inc. (hazardous waste treatment and
disposal)
HENRY B. TIPPIE+
Chairman of the Board and Chief Executive Officer of Tippie Communications, Inc.
et. al. (radio stations)
R. RANDALL ROLLINS*
Chairman of the Board and Chief Executive Officer of Rollins, Inc., Chairman of
the Board and Chief Executive Officer of RPC Energy Services, Inc. (oil and gas
field services, and boat manufacturing)
WILTON LOONEY+
Honorary Chairman of the Board of Genuine Parts Company (automotive parts
distributor)
JAMES B. WILLIAMS+
Chairman, Chief Executive Officer, and Director of SunTrust Banks, Inc. (bank
holding company)
GARY W. ROLLINS*
President and Chief Operating Officer of Rollins, Inc.
BILL J. DISMUKE
President of Edwards Baking Company
*MEMBER OF THE EXECUTIVE COMMITTEE
+MEMBER OF THE AUDIT AND COMPENSATION COMMITTEES
OFFICERS
R. RANDALL ROLLINS
Chairman of the Board and Chief Executive Officer
GARY W. ROLLINS
President and Chief Operating Officer
GENE L. SMITH
Chief Financial Officer, Secretary, and Treasurer
STOCKHOLDERS' INFORMATION
ANNUAL MEETING
The Annual Meeting of the Stockholders will be held at 9:30 a.m. Tuesday, April
25, 1995, at the Company's corporate offices in Atlanta, Georgia.
TRANSFER AGENT AND REGISTRAR
For inquiries related to stock certificates, including changes of address, lost
certificates, dividends, and tax forms, please contact:
Trust Company Bank
Corporate Trust Department
P.O. Box 4625
Atlanta, Georgia 30302
Telephone: 1-800-568-3476
STOCK EXCHANGE INFORMATION
The Common Stock of the Company is listed on the New York and Pacific Stock
Exchanges and traded on the Philadelphia, Chicago and Boston Exchanges under the
symbol ROL.
DIVIDEND REINVESTMENT PLAN
This Plan provides a simple, convenient, and inexpensive way for stockholders to
invest cash dividends in additional Rollins, Inc. shares. For further
information, contact Trust Company Bank at the above address or write to the
Secretary at the Company's mailing address.
FORM 10-K
The Company's annual report on Form 10-K to the Securities and Exchange
Commission provides certain additional information. Stockholders may obtain a
copy by contacting the Secretary at the Company's mailing address.
CORPORATE OFFICES
Rollins, Inc.
2170 Piedmont Road, N.E.
Atlanta, Georgia 30324
MAILING ADDRESS
Rollins, Inc.
P.O. Box 647
Atlanta, Georgia 30301
TELEPHONE
(404) 888-2000
25
<PAGE>
EXHIBIT (21)
<PAGE>
EXHIBIT 21
List of Subsidiaries
of
Rollins, Inc.
The following list sets forth subsidiaries of Rollins, Inc. Each corporation
whose name is indented is a wholly-owned subsidiary of the corporation next
above which is not indented.
NAME STATE OF INCORPORATION
---- ----------------------
Orkin Exterminating Company, Inc. Delaware
Orkin Systems, Inc. Delaware
Dettelbach Pesticide Corporation Georgia
Kinro Advertising Company Delaware
Orkin Expansion, Inc. Delaware
Orkin S.A. de C.V. Mexico
Rollins Continental, Inc. New York
Rollins Expansion, Inc. Delaware
Rollins Supply, Inc. Delaware
Red Diamond Insurance Co. Vermont
<PAGE>
EXHIBIT (23)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports, included (or incorporated by reference) in this Form 10-K, into
the Company's previously filed Form S-8 Registration Statement (No. 33-6404),
Form S-8 Registration Statement (No. 33-26056), Form S-8 Registration
Statement (No. 33-52355), and Form S-3 Registration Statement (No. 33-15360).
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 28, 1995
<PAGE>
EXHIBIT (24)
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned constitutes and
appoints R. Randall Rollins and/or Gary W. Rollins, or either of them as his
true and lawful attorney-in-fact and agent in any and all capacities to
sign filings by Rollins, Inc. of Form 10-K Annual Reports and any and all
amendments thereto (including post-effective amendments) and to file the
same, with all exhibits, and any other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney,
in the capacities indicated, as of this 23 day of February, 1995.
Wilton Looney
------------------------
Wilton Looney, Director
Witness:
Norma A. Cook
- -------------------
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned constitutes and
appoints R. Randall Rollins and/or Gary W. Rollins, or either of them as his
true and lawful attorney-in-fact and agent in any and all capacities to
sign filings by Rollins, Inc. of Form 10-K Annual Reports and any and all
amendments thereto (including post-effective amendments) and to file the
same, with all exhibits, and any other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney,
in the capacities indicated, as of this 6th day of March, 1995.
John W. Rollins Sr.
-------------------------
John W. Rollins, Director
Witness:
Cindy L. Arfano
- -------------------
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned constitutes and
appoints R. Randall Rollins and/or Gary W. Rollins, or either of them as his
true and lawful attorney-in-fact and agent in any and all capacities to sign
filings by Rollins, Inc. of Form 10-K Annual Reports and any and all
amendments thereto (including post-effective amendments) and to file the same,
with all exhibits, and any other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney,
in the capacities indicated, as of this 22 day of Feb, 1995.
Henry B. Tippie
-------------------------------
Henry B. Tippie, Director
Witness:
Linda M. Potts
- --------------------
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned constitutes and
appoints R. Randall Rollins and/or Gary W. Rollins, or either of them as his
true and lawful attorney-in-fact and agent in any and all capacities to sign
filings by Rollins, Inc. of Form 10-K Annual Reports and any and all
amendments thereto (including post-effective amendments) and to file the same,
with all exhibits, and any other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney,
in the capacities indicated, as of this 24 day of February, 1995.
James B. Williams
--------------------------------
James B. Williams, Director
Witness:
Mary H. Walden
- -------------------
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned constitutes and
appoints R. Randall Rollins and/or Gary W. Rollins, or either of them as his
true and lawful attorney-in-fact and agent in any and all capacities to sign
filings by Rollins, Inc. of Form 10-K Annual Reports and any and all
amendments thereto (including post-effective amendments) and to file the same,
with all exhibits, and any other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney,
in the capacities indicated, as of this 23 day of February, 1995.
Bill J. Dismuke
-------------------------------
Bill J. Dismuke, Director
Witness:
Janice A. Lee
- ------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 31,917
<SECURITIES> 51,820
<RECEIVABLES> 107,844
<ALLOWANCES> 5,944
<INVENTORY> 16,250
<CURRENT-ASSETS> 214,899
<PP&E> 82,005
<DEPRECIATION> 54,016
<TOTAL-ASSETS> 295,265
<CURRENT-LIABILITIES> 66,889
<BONDS> 0
<COMMON> 41,432
0
0
<OTHER-SE> 152,201
<TOTAL-LIABILITY-AND-EQUITY> 295,265
<SALES> 0
<TOTAL-REVENUES> 605,327
<CGS> 0
<TOTAL-COSTS> 311,315
<OTHER-EXPENSES> 213,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 80,587
<INCOME-TAX> 31,026
<INCOME-CONTINUING> 49,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,561
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
</TABLE>
