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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-4422
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ROLLINS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0068479
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
2170 PIEDMONT ROAD, N.E., ATLANTA, GEORGIA 30324
(Address of principal executive offices)
TELEPHONE NUMBER (404) 888-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH
---------------------------------------- EXCHANGE ON WHICH REGISTERED
---------------------------------
Common Stock, $1 Par Value The New York Stock Exchange
The Pacific Stock Exchange
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 March 2, 1998 was $363,060,329, based on the closing price on
the New York Stock Exchange on such date of $20 11/16 per share.
Rollins, Inc. had 33,254,095 shares of common stock outstanding as of March
2, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Rollins, Inc.'s Annual Report to Stockholders for the calendar
year ended December 31, 1997 are incorporated by reference into Part II, Items
5-8, and Part IV, Item 14.
Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders
of Rollins, Inc. are incorporated by reference into Part III, Items 10, 11, 12
and 13.
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS.
In July 1997, the Registrant, Rollins, Inc., completed the sale of the
Plantscaping and Lawn Care divisions of its subsidiary, Orkin Exterminating
Company, Inc. (Orkin). The gross proceeds related to the sale of Orkin's
Plantscaping and Lawn Care divisions were approximately $37 million. The gain on
the sale was $15,300,000 ($9,486,000 after tax or $0.28 per share). In October
1997, the Registrant completed the sale of its Rollins Protective Services (RPS)
business segment. The gross proceeds related to the sale of RPS were
approximately $200 million. The gain on the sale was $161,000,000 ($96,600,000
after tax or $2.84 per share). Although both of these divestitures provided an
excellent return to the Company, the most significant benefit provided is the
greater focus on the core business operations of Orkin.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
As a result of the divestiture of the RPS business segment as detailed in
Item 1. (a) above, the Registrant no longer has the Rollins Protective industry
segment. Therefore, this section is no longer applicable.
(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 two primary services provided are termite and pest control.
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 1.6 million
customers through a network of 422 company-owned and franchised branch locations
serving customers in the United States, the District of Columbia, the Bahamas,
Canada, Mexico, and Puerto Rico. It provides customized pest control services to
homes and businesses, including hotels, food service establishments, dairy farms
and transportation companies. Orkin's continuous regular service provides
protection against household pests, rodents and termites.
(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) Other than the Orkin-Registered Trademark- trademark, which is material
to the company, 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 services in certain localities. In view of the widespread operations of
the Registrant's service operations, the failure of a few local governments to
license a facility would not have a material adverse effect on the results of
operations of the Registrant.
(v) The business of the Registrant is affected by the seasonal nature of the
Registrant's termite and pest control services. The metamorphosis of termites in
the spring and summer (the occurrence of which is determined by the timing of
the change in seasons) has historically resulted in an increase in the revenue
and income of the Registrant's termite and pest control operations during such
period.
(vi) Inapplicable.
2
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(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 1997 and 1996 calendar years was approximately
$12,457,000 and $12,727,000, respectively. Backlog services and orders are
usually provided within the month following the month of receipt, except in the
area of prepaid pest control where services are usually provided within twelve
months of receipt. (Backlog orders for 1996 have been restated to exclude
backlog of the Registrant's RPS business segment and Orkin's Plantscaping and
Lawn Care divisions which were divested in 1997).
(ix) Inapplicable.
(x) The Registrant believes that Orkin competes favorably with competitors
as one of the world's largest termite and pest control 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.
(xi) Expenditures by the Registrant on research activities relating to the
development of new products or services are not significant. Some of the new and
improved service methods and products are researched, developed and produced by
unaffiliated universities and companies. Also a portion of these methods and
products are produced to the specifications provided by the Registrant.
(xii) Other than the impact on the Registrant of the 1997 Provision for
Termite Contracts which was established to address the abnormal occurrence of
termite claims, and the related cost to more frequently reapply materials, the
capital expenditures, earnings and competitive position of the Registrant and
its subsidiaries are not materially affected by compliance with Federal, state
and local provisions which have been enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment.
(xiii) The number of persons employed by the Registrant and its subsidiaries
as of the end of 1997 was 8,934.
(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.
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.
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).................... 66 Chairman of the Board and Chief Executive 10/22/91
Officer
Gary W. Rollins (1)....................... 53 President and Chief Operating Officer 1/24/84
Gene L. Smith (2)......................... 52 Chief Financial Officer, 1/22/91
Secretary, and Treasurer 1/26/93
</TABLE>
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(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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information containing dividends and stock prices on page 8 and the
principal markets on which common shares are traded on page 21 of the 1997
Annual Report to Stockholders are incorporated herein by reference. The number
of stockholders of record on December 31, 1997 was 3,139.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data on page 1 of the 1997 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 9 through 11 of the 1997 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 1997 Annual
Report to Stockholders, are incorporated herein by reference.
4
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Financial Statements:
Statements of Income for each of the three years in the period ended
December 31, 1997, page 13.
Statements of Earnings Retained for each of the three years in the period
ended December 31, 1997, page 13.
Statements of Financial Position as of December 31, 1997 and 1996, page
12.
Statements of Cash Flows for each of the three years in the period ended
December 31, 1997, page 14.
Notes to Financial Statements, pages 15 through 19.
Report of Independent Auditors, page 20.
Supplementary Data:
Quarterly Information, page 8.
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 28, 1998. Additional information concerning
executive officers is included in Part I, Item 4.A. of this Form 10-K.
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 28, 1998.
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 28, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Compensation Committee Interlocks and Insider
Participation" in the Proxy Statement for the Annual Meeting of Stockholders to
be held April 28, 1998 is 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
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The following financial statements are incorporated herein by reference to
portions of the 1997 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, 1997, page 13.
Statements of Earnings Retained for each of the three years in the period
ended December 31, 1997, page 13.
Statements of Financial Position as of December 31, 1997 and 1996, page
12.
Statement of Cash Flows for each of the three years in the period ended
December 31, 1997, page 14.
Notes to Financial Statements, pages 15 through 19.
Report of Independent Auditors, page 20.
(a) 2. Financial Statement Schedule
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.
(a) 3. Exhibits
<TABLE>
<S> <C>
(3)(i) The Certificate of Incorporation of Rollins, Inc.
(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 as filed with its Form 10-K for the
year ended December 31, 1996.
(10)(a) Rollins, Inc. 1994 Employee Stock Incentive Plan is incorporated herein by
reference to Exhibit A of the March 18, 1994 Proxy Statement for the
Annual Meeting of Stockholders held on April 26, 1994.
(10)(b) Asset Purchase Agreement, dated as of October 1, 1997, by and among
Rollins, Ameritech Monitoring Services, Inc. and Ameritech Corporation is
incorporated herein by reference to Exhibit 2.1 as filed with its Form
8-K Current Report filed October 16, 1997.
(13) Portions of the Annual Report to Stockholders for the year ended December
31, 1997 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>
(b) A form 8-K Current Report was filed on October 16, 1997. The report,
dated October 3, 1997, disclosed the October 3, 1997 sale of Rollins,
Inc.'s security monitoring assets, which were operated through its
Rollins Protective Services division, to Ameritech Monitoring Services,
Inc. for approximately $200,000,000 in cash and assumed liabilities. An
asset purchase agreement dated as of October 1, 1997 was filed as Exhibit
2.1.
6
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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<S> <C> <C>
ROLLINS, INC.
By: /s/ R. RANDALL ROLLINS
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R. Randall Rollins
CHAIRMAN OF THE BOARD OF DIRECTORS
(PRINCIPAL EXECUTIVE OFFICER)
March 25, 1998
</TABLE>
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.
/S/ R. RANDALL ROLLINS /S/ GENE L. SMITH
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R. Randall Rollins Gene L. Smith
CHAIRMAN OF THE BOARD OF CHIEF FINANCIAL OFFICER,
DIRECTORS SECRETARY, AND TREASURER
(PRINCIPAL EXECUTIVE OFFICER) (PRINCIPAL FINANCIAL AND
March 25, 1998 ACCOUNTING OFFICER)
March 25, 1998
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
/S/ GARY W. ROLLINS
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Gary W. Rollins, AS
ATTORNEY-IN-FACT
& DIRECTOR, PRESIDENT AND
CHIEF OPERATING OFFICER
March 25, 1998
7
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ROLLINS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS OF ROLLINS, INC. AND SUBSIDIARIES:
The Registrant's 1997 Annual Report to Stockholders, portions of which are
filed with this Form 10-K, contains on pages 12 through 20 the consolidated
financial statements for the years ended December 31, 1997, 1996 and 1995 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, 1997.
Statements of Earnings Retained for each of the three years in the period
ended December 31, 1997.
Statements of Financial Position as of December 31, 1997 and 1996.
Statements of Cash Flows for each of the three years in the period ended
December 31, 1997.
Notes to Financial Statements.
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE, PAGE 9.
SCHEDULE
<TABLE>
<CAPTION>
SCHEDULE
NUMBER
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<C> <S>
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 FINANCIAL STATEMENT SCHEDULE
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 16, 1998. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 14 of this Form 10-K is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 16, 1998
9
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ROLLINS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (2)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
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<S> <C> <C> <C> <C> <C>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (1) PERIOD
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Year ended December 31, 1997
Allowance for doubtful accounts............... $ 4,457 $ 14,531 $ -- $ 9,662 $ 9,326
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Year ended December 31, 1996
Allowance for doubtful accounts............... $ 8,879 $ 7,264 $ -- $ 11,686 $ 4,457
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Year ended December 31, 1995
Allowance for doubtful accounts............... $ 5,318 $ 21,342 $ -- $ 17,781 $ 8,879
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</TABLE>
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NOTE: (1) Deductions represent the write-off of uncollectible receivables, net
of recoveries.
(2) The above schedule is prepared reflecting the divestitures of the
Registrant's RPS business segment and Orkin's Plantscaping and Lawn
Care divisions. All prior years have been restated.
10
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
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<C> <S>
(3)(i) The Certificate of Incorporation of Rollins, Inc.
(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 as filed
with its Form 10-K for the year ended December 31, 1996.
(10)(a) Rollins, Inc. 1994 Employee Stock Incentive Plan is
incorporated herein by reference to Exhibit A to the March
18, 1994 Proxy Statement for the Annual Meeting of
Stockholders held on April 26, 1994.
(10)(b) Asset Purchase Agreement, dated as of October 1, 1997, by
and among Rollins, Ameritech Monitoring Services, Inc. and
Ameritech Corporation is incorporated herein by reference
to Exhibit 2.1 as filed with its Form 8-K Current Report
filed October 16, 1997.
(13) Portions of the Annual Report to Stockholders for the year
ended December 31, 1997 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>
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EXHIBIT 3(i)
RESTATED
CERTIFICATE OF INCORPORATION
OF
ROLLINS, INC.
PREAMBLE. This is the Restated Certificate of Incorporation of Rollins,
Inc., a corporation organized and existing under and by virtue of the laws of
the State of Delaware. It restates and integrates and does not further amend
the provisions of the corporation's Certificate of Incorporation as
theretofore amended or supplemented, and there is no discrepancy between
those provisions and the provisions of this Restated Certificate of
Incorporation, except that, in accordance with Delaware law, the provisions
naming the original incorporators have been omitted. Rollins, Inc. was
originally incorporated as Rollins Broadcasting, Inc. Rollins Broadcasting,
Inc. filed its original Certificate of Incorporation in the State of Delaware
on February 24, 1948. This Restated Certificate of Incorporation was reviewed
and duly adopted by the Board of Directors of Rollins, Inc. in accordance
with Section 245 of the Delaware General Corporation Law, as amended.
FIRST. The name of this Corporation is ROLLINS, INC.
SECOND. Its registered office in the State of Delaware is located at No. 100
West Tenth Street, in the city of Wilmington, County of New Castle, and its
registered agent in charge thereof is The Corporation Trust Company.
THIRD. The nature of the business and the objects and purposes to be
transacted, promoted and carried on are to do any or all of the things herein
mentioned as fully and to the same extent as natural persons might or could
do, and in any part of the world, viz.: To own, maintain and operate one or
more radio broadcasting stations in the State of Delaware, or elsewhere, when
and if authorized to do so, by the appropriate agencies of the United States
Government.
To purchase, take, own, hold, deal in, mortgage or otherwise lien and to
lease, sell, exchange, convey, transfer or in any manner whatever dispose of
real property, within or without the State of Delaware.
To manufacture, purchase or otherwise acquire and to hold, own, mortgage
or otherwise lien, pledge, lease, sell, assign, exchange, transfer or in any
manner dispose of, and to invest, deal and trade in and with goods, wares,
merchandise and personal property of any and every class and description,
within or without the State of Delaware.
To acquire the good will, rights and property and to undertake the whole
or any part of the assets and liabilities of any person, firm, association or
corporation, to pay for the same in cash, the stock of this company, bonds or
otherwise; to hold or in any manner to dispose of the whole or any part of
the property so purchased; to conduct in any lawful manner the whole or any
part of any business so acquired and to exercise all the powers necessary of
convenient in and about the conduct and management of such business.
To guarantee, purchase or otherwise acquire, hold, sell, assign, transfer,
mortgage, pledge or otherwise dispose of shares of the capital stock, bonds
or other evidences of indebtedness created by other corporations and while
the holder of such stock to exercise all the rights and privileges of
<PAGE>
ownership, including the right to vote thereon, to the same extent as a
natural person might or could do.
To purchase or otherwise acquire, apply for, register, hold, use, sell or
in any manner dispose of and to grant licenses or other rights in and in any
manner deal with patents, inventions, improvements, processes, formulas,
trade-marks, trade names, rights and licenses secured under letters patent,
copyrights or otherwise.
To enter into, make and perform contracts of every kind for any lawful
purpose, with any person, firm, association or corporation, town, city,
county, body politic, state, territory, government or colony or dependency
thereof.
To borrow money for any of the purposes of the corporation and to draw,
make, accept, endorse, discount, execute, issue, sell, pledge or otherwise
dispose of promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable, transferable or
non-transferable instruments and evidences of indebtedness and to secure the
payment thereof and the interest thereon by mortgage or pledge, conveyance or
assignment in trust of the whole or any part of the property of the
corporation at the time owned or thereafter acquired.
To purchase, hold, sell and transfer the shares of its capital stock.
To have one or more offices and to conduct any or all of its operations
and business and to promote its objects, within or without the State of
Delaware, without restriction as to place or amount.
To carry on any other business in connection therewith.
To do any or all of the things herein set forth as principal, agent,
contractor, trustee or otherwise, alone or in company with others.
To engage in the business of broadcasting by means of radio and any and
all other means of wireless communications including television, facsimile,
and both amplitude and frequency modulation; to own and operate a radio
station or stations; to employ, engage, train, present, or otherwise utilize
artists, performers, singers, speakers, lecturers, musicians, actors,
specialty performers, entertainers, experts, technicians or such other talent
and assistants as may be necessary, useful or advantageous in the conduct of
any business of this corporation; upon its own behalf or upon the behalf of
others, to arrange, present, produce, and to broadcast through its own radio
station or through a chain of radio stations, programs of entertainment,
amusement, education or otherwise and to make any and all contracts or
arrangements and to provide all facilities necessary, useful or advantageous
in the operation of a radio station or stations.
To manufacture, construct, purchase, sell, lease, install, own, operate,
repair, maintain and otherwise deal in and deal with radio broadcasting
apparatus, television transmitting or receiving apparatus, and equipment,
sets, accessories, parts, and instruments of all kinds and descriptions, and
any and all things used in connection with radio transmission, broadcasting,
reception and communication of any kind or description.
The objects and purposes specified herein shall be regarded as independent
objects and purposes and, except where otherwise expressed, shall be in no
way limited nor restricted by
-2-
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reference to or inference from the terms of any other clause or paragraph of
this certificate of incorporation.
The foregoing shall be construed both as objects and powers and the
enumeration thereof shall not be held to limit or restrict in any manner the
general powers conferred on this corporation by the laws of the State of
Delaware.
FOURTH. The total number of shares of stock which this corporation shall
have authority to issue is One Hundred Million (100,000,000) shares, divided
into two classes, namely, Preferred Stock and Common Stock. The number of
shares of Preferred Stock which this corporation is authorized to issue is
Five Hundred Thousand (500,000) shares without par value, and the number of
shares of Common Stock which this corporation is authorized to issue is
Ninety-Nine Million Five Hundred Thousand (99,500,000) shares of the par
value of One Dollar ($1.00) per share.
There is hereby expressly granted to the Board of Directors of the
corporation the power and authority to issue the Preferred Stock as a class
without series, or if so determined from time to time, in one or more series,
and to fix the voting rights, the designations, preferences and relative,
participating, optional or other special rights of the class of the Preferred
Stock or of one or more series thereof and the qualifications, limitations or
restrictions thereof with respect to the Preferred Stock authorized herein
in a resolution or resolutions adopted by the Board of Directors providing
for the issue of said stock. The holders of Preferred Stock shall have no
preemptive rights to subscribe for any shares of any class of stock of the
corporation whether now or hereafter authorized.
The Board of Directors is further authorized to provide that the Preferred
Stock, when issued, may be convertible into or exchangeable for shares of any
other class or classes of stock of the corporation or of any series of the
same at such price or prices or rates of exchange and with such adjustments
as shall be stated and expressed in the resolution or resolutions providing
for the issue of such Preferred Stock adopted by the Board of Directors as
hereinabove provided.
Each and every resolution adopted by the Board of Directors providing for
the issuance of the Preferred Stock as a class or in series within such class
from time to time shall be, under certificate of the proper officers of the
corporation, filed with the Secretary of State of Delaware and a certified
copy thereof shall be recorded in the same manner as certificates of
incorporation are required to be filed and recorded.
We holder of Common Stock shall be entitled as such, as a matter of right,
to subscribe for or to purchase any part of any new or additional issue of
stock of any class whatsoever.
FIFTH. The minimum amount of capital with which it will commence business is
one thousand dollars ($1,000).
SIXTH. This corporation is to have perpetual existence.
SEVENTH. The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
EIGHTH. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the board of directors is expressly authorized:
To make, alter, amend and repeal the by-laws;
-3-
<PAGE>
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to alter or
abolish any such reserve; to authorize and cause to be executed mortgages and
liens upon the property and franchises of this corporation;
To designate, by resolution passed by a majority of the whole board, one
or more committees, each to consist of two or more directors, which
committees, to the extent provided in such resolution or in the by-laws of
the corporation, shall have and may exercise any or all of the powers of the
board of directors in the management of the business and affairs of this
corporation and have power to authorize the seal of this corporation to be
affixed to all papers which may require it;
From time to time to determine whether and to what extent and at what
times and places and under what conditions and regulations the books and
accounts of this corporation, or any of them other than the stock ledger,
shall be open to the inspection of the stockholders, and no stockholder shall
have any right to inspect any account or book or document of the corporation,
except as conferred by law or authorized by resolution of the directors or of
the stockholders.
To sell, lease or exchange all of its property and assets, including its
good-will and its corporate franchises, upon such terms and conditions and
for such consideration, which may be in whole or in part shares of stock in,
and/or other securities of, any other corporation or corporations, when and
as authorized by the affirmative vote of the holders of a majority of the
stock issued and outstanding having voting power given at a stockholders
meeting duly called for that purpose.
This corporation may in its by-laws confer powers additional to the
foregoing upon the directors, in addition to the powers and authorities
expressly conferred upon them by law.
NINTH. If the by-laws so provide, the stockholders and directors shall have
power to hold their meetings, to have an office or offices and to keep the
books of this corporation (subject to the provisions of the statute) outside
of the State of Delaware at such places as may from time to time be
designated by the by-laws or by resolution of the directors.
TENTH. This corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner
now or hereafter prescribed by law and all rights conferred on officers,
directors and stockholders herein are granted subject to this reservation.
ELEVENTH. Any action required or permitted to be taken at an annual or
special meeting of stockholders shall be taken only at such a meeting and
shall not be taken by the written consent of stockholders in lieu of a
meeting.
IN WITNESS WHEREOF, Rollins, Inc. has caused this Restated Certificate of
Incorporation to be signed by R. Randall Rollins, its President, and attested
by H. Tim Crow, its Secretary, this 28 day of July, 1981.
ATTEST: ROLLINS, INC.
By: /s/ H. Tim Crow By: /s/ R. Randall Rollins
-------------------------- --------------------------
H. Tim Crow, R. Randall Rollins,
Secretary President
[SEAL]
-4-
<PAGE>
[LOGO]
State
of
DELAWARE
Office of SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of Delaware,
do hereby certify that the attached is a true and correct copy of
Restated Certificate of Incorporation
-----------------------------------------------------------------
filed in this office on August 4, 1981
-----------------------------------------
/s/ Michael Harkins
------------------------------------
Michael Harkins, Secretary of State
[SEAL]
By: /s/ S. Miller
--------------------------------
Date: March 6, 1987
------------------------------
<PAGE>
[LOGO]
State
of
DELAWARE
Office of SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of Delaware,
do hereby certify that the above and foregoing is a true and correct
copy of Certificate of Change of Location of Registered Office of
the companies represented by "The Corporation Trust Company", as it
applies to "ROLLINS, INC.", as received and filed in this office the
twenty-seventh day of July, A.D. 1984, at 4:30 o'clock P.M.
In Testimony Whereof, I have hereunto
set my hand and official seal at Dover
this sixth day of March in the year
of our Lord one thousand nine hundred
and eight-seven.
[SEAL]
/s/ Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
<PAGE>
CERTIFICATE OF CHANGE OF ADDRESS OF
REGISTERED OFFICE AND OF REGISTERED AGENT
PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE
TO: DEPARTMENT OF STATE
Division of Corporations
Townsend Building
Federal Street
Dover, Delaware 19903
Pursuant to the provisions of Section 134 of Title 8 of the Delaware code,
the undersigned Agent for service of process, in order to change the address
of the registered office of the corporations for which it is registered
agent, hereby certifies that:
1. The name of the agent is: The Corporation Trust Company
2. The address of the old registered office was:
100 West Tenth Street
Wilmington, Delaware 19801
3. The address to which the registered office is to be changed is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
The new address will be effective on July 30, 1984.
4. The names of the corporations represented by said agent are set forth
on the list annexed to this certificate and made a part hereof by
reference.
IN WITNESS WHEREOF, said agent has caused this certificate to be
signed on its behalf by its Vice-President and Assistant Secretary this
25th day of July, 1984.
THE CORPORATION TRUST COMPANY
-----------------------------------
(Name of Registered Agent)
By /s/ Virginia Colwell
--------------------------------
(Vice-President)
ATTEST:
[ILLEGIBLE]
- ---------------------------------
(Assistant Secretary)
<PAGE>
Five-Year Financial Summary
Rollins, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(In thousands except per share data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations Summary
Revenues $ 538,639 $ 532,785 $529,788 $ 507,722 $ 479,809
Income (Loss) From Continuing Operations
After Income Taxes (104,781) 22,386 38,661 46,017 42,036
Income From Discontinued Operations
After Income Taxes 106,278 409 616 3,544 2,433
Net Income 1,497 22,795 39,277 49,561 44,469
Earnings (Loss) per Share
Continuing Operations (3.09) .63 1.08 1.29 1.18
Discontinued Operations 3.13 .01 .02 .10 .07
---------------------------------------------------------------
Basic and Diluted .04 .64 1.10 1.39 1.25
Dividends per Share .60 .58 .56 .50 .44
- ------------------------------------------------------------------------------------------------------------------
Financial Position
Total Assets $ 432,680 $ 296,656 $306,111 $ 285,922 $ 261,893
Working Capital 170,900 117,176 140,865 132,879 98,941
Long-Term Debt -- -- -- -- --
Stockholders' Equity 145,644 190,290 214,318 193,633 160,508
Shares Outstanding at Year-End 33,279 34,594 35,858 35,826 35,673
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Stockholders.......................................... 2
Termite Control................................................. 4
Pest Control.................................................... 6
Quarterly Information........................................... 8
Management's Discussion and Analysis............................ 9
Consolidated Financial Statements and Notes..................... 12
Reports of Management and Independent Auditors.................. 20
Directors, Officers, and Stockholders' Information.............. 21
</TABLE>
<PAGE>
Quarterly Information
<TABLE>
<CAPTION>
Stock Prices
And Dividends
(Rounded to the nearest 1/8)
- ------------------------------------------------------------------------------------------------
Stock Prices Dividends Stock Prices Dividends
1997 High Low Paid 1996 High Low Paid
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 19 7/8 $ 18 3/4 $.15 First Quarter $ 24 7/8 $ 20 3/4 $.14 1/2
Second Quarter 20 1/8 18 5/8 .15 Second Quarter 23 7/8 21 3/4 .14 1/2
Third Quarter 24 5/8 19 1/4 .15 Third Quarter 23 1/2 20 .14 1/2
Fourth Quarter 24 1/2 19 7/8 .15 Fourth Quarter 20 7/8 18 1/4 .14 1/2
</TABLE>
The number of stockholders of record as of December 31, 1997 was 3,139.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Profit And Loss
Information
(In thousands except per share data) First Second Third Fourth
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Revenues $ 126,951 $ 154,371 $ 140,287 $ 117,030
Operating Income (Loss) 9,042 11,332 (18,188) (169,060)
Income (Loss) From Continuing Operations 5,095 6,219 (11,863) (104,232)
Income From Discontinued Operations 49 100 9,529 96,600
Net Income (Loss) 5,144 6,319 (2,334) (7,632)
Earnings (Loss) per Share
Continuing Operations .15 .19 (.36) (3.07)
Discontinued Operations .00 .00 .29 2.84
- -------------------------------------------------------------------------------------------------
Basic and Diluted .15 .19 (.07) (.23)
- -------------------------------------------------------------------------------------------------
1996
Revenues $ 119,978 $ 153,929 $ 138,728 $ 120,150
Operating Income 12,186 21,471 6,401 652
Income From Continuing Operations 6,183 12,716 3,355 132
Income (Loss) From Discontinued Operations 204 125 (49) 129
Net Income 6,387 12,841 3,306 261
Earnings per Share
Continuing Operations .17 .36 .09 .01
Discontinued Operations .01 .00 .00 .00
- -------------------------------------------------------------------------------------------------
Basic and Diluted .18 .36 .09 .01
- -------------------------------------------------------------------------------------------------
1995
Revenues $ 120,863 $ 152,434 $ 139,170 $ 117,321
Operating Income 16,513 33,555 5,668 13,464
Income From Continuing Operations 8,806 20,072 2,726 7,057
Income (Loss) From Discontinued Operations (999) 1,030 728 (143)
Net Income 7,807 21,102 3,454 6,914
Earnings (Loss) per Share
Continuing Operations .25 .56 .07 .20
Discontinued Operations (.03) .03 .02 .00
- -------------------------------------------------------------------------------------------------
Basic and Diluted .22 .59 .09 .20
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Management's Discussion and Analysis
- -------------------------------------------------------------------------------
Results of Operations
<TABLE>
<CAPTION>
% Change From Prior Year
Increase/(Decrease)
(In thousands) 1997 1996 1995 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 538,639 $ 532,785 $ 529,788 1.1% 0.6%
Income (Loss) From Continuing
Operations After Income Taxes (104,781) 22,386 38,661 N/M (42.1)
Income From Discontinued Operations
After Income Taxes 106,278 409 616 N/M (33.6)
Net Income 1,497 22,795 39,277 (93.4) (42.0)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
General Operating Comments
The divestitures of the Orkin Lawn Care and Plantscaping divisions in July
1997 and Rollins Protective Services (RPS) segment in October 1997 marked the
Company's return to a single operational focus. Accordingly, the results
reported in the table above are presented on a continuing operations basis.
Rollins, Inc.'s consolidated Revenues From Continuing Operations of $538.6
million were 1.1% higher than in 1996. Income (Loss) From Continuing Operations
After Income Taxes was ($104.8) million, $127.2 million worse than the prior
year. Income From Discontinued Operations After Income Taxes was $106.3 million.
Net income of $1.5 million was $21.3 million worse than the prior year.
Continuing Operations -- 1997 Versus 1996
The Company's 1.1% increase in revenues over 1996 was primarily due to
increases in customer base and recurring pest control and termite renewal
revenues significantly offset by the continuing decrease in termite sales
revenue resulting from a disappointing termite season, and restrictive changes
in sales policies in response to rising termite claims. The shortfall in termite
sales, increased insurance costs and termite claims, and other operating expense
increases correspondingly impacted income.
Programs in development during 1997 were designed to address customer
retention issues and to explore alternative sales and service strategies. Test
results for those programs were favorable, and they are being expanded
nationwide in 1998. Additionally, the field management organization was
strengthened via the reorganization of three previous residential divisions into
six new geographic divisions.
Through the investments made in 1997 and the successes we have seen in
testing these new marketing, customer satisfaction, employee training, and
employee retention programs, the Company has better positioned itself for
long-term growth in revenues, profits, and customer base.
During the year, the Company recorded expenses of $15,600,000 ($9,672,000
after tax or $0.28 per share) for expenditures related to the company-wide
computer systems modification to address the year 2000 programming issue. As a
result of this project, the Company's primary financial systems are now
essentially compliant with computer system requirements necessary to address the
new millennium.
Over the past several years, the termite treatment segment of the pest
control industry has faced great challenges in solving property owners' termite
problems. Some of the reasons for the increased difficulty in protecting
structures have been changes in building practices and materials that have
increased the property owners' potential for termites, the loss of Chlordane
from the market in 1987 which resulted in the use of termiticides that may only
last for a few years under some conditions, instead of decades, and laws and
regulations restricting certain retreatment practices. All of the above factors
have subjected termite service providers to experience elevated levels of
termite claims.
The Company's response to these industry-wide conditions is to undertake
broad changes in its own termite processes. New quality control and field
training programs, more thorough communication to customers concerning conducive
conditions, and restrictions on the sale of certain structures were initiated
during 1997.
9
<PAGE>
Management's Discussion and Analysis (continued)
- -------------------------------------------------------------------------------
As a result of the factors described above and new information which became
available in 1997, a Provision for Termite Contracts of $117,000,000
($72,540,000 after tax or $2.14 per share) was recorded related to the
anticipated costs of reinspections, repair obligations, and associated labor,
chemicals, and other costs incurred relative to termite work performed prior to
December 31, 1997.
Going forward, changes to the termite protection period on new sales should
bring warranties for our customers more in line with the confirmed effectiveness
of the newer termiticide chemicals that have been used since 1987.
During the fourth quarter of 1997, an additional $15,000,000 ($9,300,000
after tax or $0.27 per share) was provided for estimated liabilities related to
the Company's self-insurance program for automobile, workers' compensation, and
general liability, and is included in Cost of Services Provided on the
Statements of Income. Additionally, reserves for bad debts were strengthened by
$8,000,000 ($4,960,000 after tax or $0.15 per share) during the fourth quarter,
with this amount being included in Sales, General and Administrative expenses.
Continuing Operations -- 1996 Versus 1995
The Company's 0.6% increase in revenues over 1995 was due to increases in
recurring pest control and termite renewal revenues in excess of the decrease in
termite sales revenue resulting from a substandard termite season. Customer base
increased over 1995 as a result of the Company's market expansion efforts. Orkin
Pest Control opened twenty-four new branches and added seven franchises in 1996.
In addition, eight business acquisitions were completed including locations in
Canada and Mexico.
The Company's pest control business strategies in 1996 were focused
primarily on commercial growth opportunities, new service technology and
employee training and development. A separate Orkin Commercial Division was
formed in 1996 to increase market share and better meet the specific needs of
commercial pest control customers. As a direct result, commercial sales and
margins as well as customer retention were all improved over 1995. The Company
plans to continue to aggressively seek growth opportunities in the commercial
market as part of its future expansion plans. In order to capitalize on these
opportunities, Orkin increased its investment in data processing and
communication technology.
Improvements in sales and service training were also initiated. The Orkin
University education program was instituted in 1996 to develop employees'
ongoing position-related knowledge through required and elective training.
Discontinued Operations
During the third quarter of 1997, the Company recorded the disposal of its
Lawn Care and Plantscaping businesses. The gain on the sale was $15,300,000
($9,486,000 after tax or $0.28 per share). These divestitures were completed as
part of the Company's shift towards a single operational focus on its core pest
and termite control business.
During the fourth quarter of 1997, the Company completed the sale of its
Rollins Protective Services (RPS) division. The gain on the sale was
$161,000,000 ($96,600,000 after tax or $2.84 per share). The divestiture of
RPS was in response to a major consolidation in the home security market,
triggered in part by deregulation permitting the regional Bell phone
companies to enter the industry. These circumstances, along with an
above-market purchase offer, made 1997 the appropriate time to exit this
segment of the consumer services market.
Revenues and Operating Income From Discontinued Operations After Income
Taxes for 1997 were $64,721,000 and $192,000, respectively. Income From
Discontinued Operations After Income Taxes for 1996 and 1995 were $409,000 and
$616,000, respectively.
10
<PAGE>
Management's Discussion and Analysis (continued)
- -------------------------------------------------------------------------------
Financial Condition
<TABLE>
<CAPTION>
% Change From Prior Year
Increase/(Decrease)
(Dollars in thousands) 1997 1996 1995 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and Short-Term Investments $ 125,842 $ 12,150 $ 33,623
Marketable Securities 75,037 84,785 65,743
----------------------------------
200,879 96,935 99,366 N/M% (2.4)%
Working Capital 170,900 117,176 140,865 45.8 (16.8)
Current Ratio 2.3 2.7 3.2 (14.8) (15.6)
Total Assets 432,680 296,656 306,111 45.9 (3.1)
</TABLE>
Rollins, Inc. maintains a strong financial position. The Company's operations
have historically provided a significant positive cash flow, which represents
the Company's principal source of funds. Interest income increased 27.2% due to
the increase in average funds invested in short-term investments and marketable
securities. These increases were largely the result of the business divestitures
which occurred during 1997.
Net trade receivables decreased $15.2 million or 23.7% compared with December
31, 1996. Trade receivables include installment receivables which are due
subsequent to one year from the balance sheet date. These amounts were
approximately $13.9 million and $19.5 million at the end of 1997 and 1996,
respectively. The decrease in receivables is primarily the result of decreased
financed sales, the increased provision for doubtful accounts, and the effect of
revisions to the Company's credit policies.
During 1997, the Company invested $10.4 million in capital expenditures and
acquisitions compared to $10.7 million in 1996. Also, $20.4 million was paid in
cash dividends and approximately 1.4 million shares of the Company's common
stock were purchased and retired in 1997. The Company maintains a $40.0 million
unused line of credit. This source of funds has not been used, but is available
for future acquisitions and growth, if needed.
During the fourth quarter of 1997, Orkin received a letter from the Federal
Trade Commission (FTC) advising of their investigation of the pest control
industry - more specifically, the termite control practices of the industry. The
FTC has requested certain information voluntarily from Orkin and they have been
advised of our intention to cooperate fully with their investigation. At this
point in time, it is too early to determine the impact, if any, of this
investigation.
Impact of Recent Accounting Pronouncements
The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1997. The adoption of these standards
effective with the year-end financial statements dated December 31, 1998 are not
expected to materially impact the results of operations or financial condition
of the Company.
Forward-Looking Statements
The Company may make forward-looking statements, as defined in the Private
Securities Litigation Reform Act of 1995, that are subject to certain risks,
trends, and uncertainties that could cause actual results to differ materially
from those anticipated. Among such risks, trends, and uncertainties are general
economic conditions, changes in industry practices or technologies, climate and
weather trends, competitive factors and pricing pressures, uncertainties of
litigation and changes in various government laws and regulations, including
environmental regulations.
11
<PAGE>
Statements Of Financial Position
Rollins, Inc. and Subsidiaries
<TABLE>
<CAPTION>
At December 31, (In thousands except share data) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Short-Term Investments $ 125,842 $ 12,150
Marketable Securities 75,037 84,785
Trade Receivables, Net 49,166 64,400
Materials and Supplies 15,010 11,593
Deferred Income Taxes 24,826 4,379
Other Current Assets 11,737 9,699
--------------------------------------
Current Assets 301,618 187,006
Equipment and Property, Net 34,639 36,567
Intangible Assets 39,383 39,849
Deferred Income Taxes 49,072 --
Other Assets 7,968 10,040
Net Assets of Discontinued Operations -- 23,194
--------------------------------------
Total Assets $ 432,680 $ 296,656
--------------------------------------
--------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities
Capital Lease Obligations $ 3,138 $ 2,735
Accounts Payable 25,420 13,781
Accrued Insurance Expenses 21,225 15,053
Accrued Payroll 17,913 11,906
Unearned Revenue 13,831 11,677
Other Expenses 49,191 14,678
--------------------------------------
Current Liabilities 130,718 69,830
Capital Lease Obligations 9,239 12,163
Long-Term Accrued Liabilities 147,079 18,153
Deferred Income Taxes -- 6,220
--------------------------------------
Total Liabilities 287,036 106,366
--------------------------------------
--------------------------------------
Commitments and Contingencies
Stockholders' Equity
Common Stock, par value $1 per share; 99,500,000 shares
authorized; 33,279,281 and 34,594,481 shares issued 33,279 34,594
Earnings Retained 112,365 155,696
--------------------------------------
Total Stockholders' Equity 145,644 190,290
--------------------------------------
Total Liabilities and Stockholders' Equity $ 432,680 $ 296,656
--------------------------------------
--------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
Statements Of Income
Rollins, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, (In thousands except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Customer Services $538,639 $532,785 $529,788
----------------------------------------------
Costs and Expenses
Cost of Services Provided 362,225 302,929 272,709
Depreciation and Amortization 8,382 7,046 6,069
Provision for Termite Contracts 117,000 -- --
Sales, General and Administrative 227,622 192,669 193,641
Interest Income (7,588) (5,967) (4,988)
----------------------------------------------
707,641 496,677 467,431
----------------------------------------------
Income (Loss) From Continuing
Operations Before Income Taxes (169,002) 36,108 62,357
----------------------------------------------
Provision (Credit) for Income Taxes
Current 6,021 15,273 31,542
Deferred (70,242) (1,551) (7,846)
----------------------------------------------
(64,221) 13,722 23,696
----------------------------------------------
Income (Loss) From Continuing Operations (104,781) 22,386 38,661
----------------------------------------------
Discontinued Operations
Operating Income, Less Income Tax Expense
of $119, $250, and $377, Respectively 192 409 616
Gain on Disposal, Less Income Tax Expense
of $70,214 106,086 -- --
----------------------------------------------
Income From Discontinued Operations 106,278 409 616
----------------------------------------------
Net Income $ 1,497 $ 22,795 $ 39,277
----------------------------------------------
Earnings (Loss) per Share
Continuing Operations $ (3.09) $ .63 $ 1.08
Discontinued Operations 3.13 .01 .02
----------------------------------------------
Earnings per Share-Basic and Diluted $ .04 $ .64 $ 1.10
----------------------------------------------
</TABLE>
<PAGE>
Statements Of Earnings Retained
Rollins, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, (In thousands except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $ 155,696 $ 224,009 $ 203,582
Net Income 1,497 22,795 39,277
Cash Dividends (20,360) (20,669) (20,076)
Common Stock Purchased and Retired (24,733) (24,916) --
Common Stock in Treasury Retired -- (45,371) --
Other 265 (152) 1,226
----------------------------------------------
Balance at End of Year $ 112,365 $ 155,696 $ 224,009
Dividends per Share $ .60 $ .58 $ .56
----------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
Statements Of Cash Flows
Rollins, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, (In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Net Income $ 1,497 $ 22,795 $ 39,277
Activities Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Termite Contracts 117,000 -- --
Provision for Self-Insurance Reserves 15,000 -- --
Provision for Bad Debts 8,000 -- 12,000
Depreciation and Amortization 8,382 7,046 6,069
Provision (Credit) for Deferred Income Taxes (69,228) 1,061 (14,926)
Discontinued Operations, Net of Taxes (106,278) (409) (616)
Other, Net 7,169 3,330 5,603
(Increase) Decrease in Assets:
Trade Receivables 7,505 9,313 (536)
Materials and Supplies (3,388) (535) 887
Other Current Assets (2,034) 4,250 (859)
Other Non-Current Assets -- (3,063) (1,167)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 17,780 5,408 3,147
Unearned Revenue 2,154 525 (884)
Long-Term Accrued Liabilities 2,121 2,210 (5,528)
--------------------------------------------------
Net Cash Provided by Operating Activities 5,680 51,931 42,467
--------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Investing Purchases of Equipment and Property (8,956) (8,292) (5,377)
Activities Net Cash Used for Acquisition of Companies (1,440) (2,373) (1,475)
Net Proceeds from Sale of Discontinued Operations,
Net of Current Taxes Paid 156,469 -- --
Marketable Securities, Net 9,846 (19,661) (12,463)
--------------------------------------------------
Net Cash Provided by (Used in) Investing Activities 155,919 (30,326) (19,315)
--------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Financing Dividends Paid (20,360) (20,669) (20,076)
Activities Common Stock Purchased and Retired (26,083) (26,200) --
Proceeds from Capital Lease -- 5,500 --
Payments on Capital Leases (2,521) (1,314) --
Other 300 420 573
--------------------------------------------------
Net Cash Used in Financing Activities (48,664) (42,263) (19,503)
Net Cash Provided by (Used in)
Discontinued Operations 757 (815) (1,943)
--------------------------------------------------
Net Increase (Decrease) in Cash and
Short-Term Investments 113,692 (21,473) 1,706
Cash and Short-Term Investments
at Beginning of Year 12,150 33,623 31,917
--------------------------------------------------
Cash and Short-Term Investments
at End of Year $125,842 $ 12,150 $ 33,623
--------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
14
<PAGE>
Notes To Financial Statements
Years ended December 31, 1997, 1996, and 1995, Rollins, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Business Description - Rollins, Inc. is a national service company with
headquarters located in Atlanta, Georgia, providing pest control and termite
control services to both residential and commercial customers.
Principles of Consolidation - The consolidated financial statements include
the accounts of Rollins, Inc. (the Company) and its subsidiaries. In July 1997,
the Company sold the assets of its Lawn Care and Plantscaping divisions. In
October 1997, the Company sold the alarm monitoring assets of its Rollins
Protective Services (RPS) business segment. The results of operations for the
Company for the years ended December 31, 1997, 1996, and 1995 have been restated
for these divestitures, with the results of the RPS business segment and its
Lawn Care and Plantscaping operations being shown as discontinued operations.
All significant intercompany transactions and balances have been eliminated.
Estimates Used in the Preparation of Financial Statements - The preparation
of the financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
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 market value.
Marketable Securities - 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.
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 which includes the
amortization of assets recorded under capital leases 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 is
included in the long-term accrued liabilities balance shown on the Statements of
Financial Position.
Advertising - Advertising expenses are charged to income during the year in
which they are incurred. The total advertising costs were approximately
$27,462,000, $26,253,000, and $25,440,000 in 1997, 1996, and 1995, respectively.
Income Taxes - The Company follows the practice of providing for income
taxes based on 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.
Earnings per Share - In 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings per Share" (EPS) which
requires companies to present basic EPS and diluted EPS. Basic EPS is computed
on the basis of weighted-average shares outstanding. Diluted EPS is computed on
the basis of weighted-average shares outstanding plus common stock options
outstanding during the year which, if exercised, would have a dilutive effect on
EPS. Basic and diluted EPS are the same for all years reported. A reconciliation
of the number of weighted average shares used in computing basic and diluted EPS
are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS 33,896 35,478 35,849
Effect of dilutive stock options 137 46 55
--------------------------------------------
Diluted EPS 34,033 35,524 35,904
--------------------------------------------
--------------------------------------------
</TABLE>
15
<PAGE>
Notes To Financial Statements (continued)
Years ended December 31, 1997, 1996, and 1995, Rollins, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Stock-Based Compensation - In 1996, the Company adopted the disclosure-only
requirements of Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation." As permitted by SFAS 123, the Company
continues to account for employee stock compensation plans using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
Reclassifications - Certain amounts for previous years have been
reclassified to conform with the 1997 financial statement presentation.
2. Changes In Accounting Estimates
In the fourth quarter of 1997, the Company made certain changes in
accounting estimates totalling $23,000,000 ($14,260,000 after tax or $0.42 per
share) due to 1997 events and new information becoming available. The Company's
provision for its self-insurance program for automobile, workers' compensation,
and general liability was increased by $15,000,000. This provision has been
reflected on the Statements of Income in the line item entitled Cost of Services
Provided. The provision for bad debts was also increased by $8,000,000 and is
reflected on the Statements of Income in the line item entitled Sales, General
and Administrative expenses.
In the fourth quarter of 1997, a provision for termite contracts of
$117,000,000 ($72,540,000 after tax or $2.14 per share) was recorded related to
the estimated costs of reinspections, reapplications, repair claims and
associated labor, chemicals, and other costs incurred relative to termite work
performed prior to December 31, 1997. These anticipated costs reflect the
Company's response to current trends in the termite treatment segment of its
operations and the pest control industry. This provision has been reflected on
the Statements of Income in the line item entitled Provision for Termite
Contracts and on the Statements of Financial Position in Other Expenses
($26,000,000) and Long-Term Accrued Liabilities ($91,000,000) at December 31,
1997.
3. Discontinued Operations
In July 1997, the Company completed the sale of its Lawn Care and
Plantscaping divisions. The results of operations for these divisions are
reported on the Statements of Income in the section entitled Discontinued
Operations. The gross proceeds related to the sale of Lawn Care and Plantscaping
were approximately $37.0 million. The gain on the sale was $15,300,000
($9,486,000 after tax or $0.28 per share).
In October 1997, the Company completed the sale of its Rollins Protective
Services (RPS) business segment. The results of operations for RPS and the gain
on disposal are reported on the Statements of Income in the section entitled
Discontinued Operations. The gross proceeds related to the sale of RPS were
approximately $200.0 million. The gain on the sale was $161,000,000 ($96,600,000
after tax or $2.84 per share).
Summarized financial information for the discontinued operations is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 64,721 $ 94,646 $ 90,647
Income Before
Income Taxes 311 659 993
Net Income 192 409 616
Assets -- 35,321 30,784
Liabilities -- 12,127 8,814
Net Assets of
Discontinued Operations $ -- $ 23,194 $ 21,970
</TABLE>
4. Trade Receivables
Trade receivables, net, at December 31, 1997, totalling $49,166,000 and at
December 31, 1996, totalling $64,400,000 are net of allowances for doubtful
accounts of $9,326,000 and $4,457,000, respectively. Trade receivables include
installment receivable amounts which are due subsequent to one year from the
balance sheet dates. These amounts were approximately $13,930,000 and
$19,533,000 at the end of 1997 and 1996, respectively. The carrying amount of
installment receivables approximates fair value because the interest rates
approximate market rates.
16
<PAGE>
Notes To Financial Statements (continued)
Years ended December 31, 1997, 1996, and 1995, Rollins, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
5. Equipment And Property
Equipment and property are presented at cost less accumulated depreciation
and are detailed as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Buildings $ 7,584 $ 8,143
Operating equipment 42,163 37,087
Furniture and fixtures 9,790 9,604
Computer equipment under
capital leases 8,736 10,482
----------------------------
68,273 65,316
Less - accumulated
depreciation 37,002 32,011
----------------------------
31,271 33,305
Land 3,368 3,262
----------------------------
$ 34,639 $ 36,567
----------------------------
</TABLE>
6. 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.
7. Income Taxes
A reconciliation between taxes computed at the statutory rate on the Income
(Loss) From Continuing Operations Before Income Taxes and the Provision (Credit)
for Income Taxes is as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes
at statutory rate $ (64,680) $ 12,790 $ 21,861
State income taxes
(net of federal benefit) 268 1,368 2,949
Other 191 (436) (1,114)
-------------------------------------
$ (64,221) $ 13,722 $ 23,696
-------------------------------------
</TABLE>
The Provision (Credit) for Income Taxes was based on a 38.0% estimated
effective income tax rate on Income (Loss) From Continuing Operations Before
Income Taxes for the years ended December 31, 1997, 1996, and 1995. The
effective income tax rate differs from the annual federal statutory tax rate
primarily because of state income taxes.
Income taxes remitted, related to both continuing and discontinued
operations, were $85,183,000, $9,354,000, and $37,708,000, for the years ended
December 31, 1997, 1996, and 1995, respectively.
Components of the net deferred income tax assets (liabilities) at December
31, 1997 and 1996 include:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
Deferred tax assets (liabilities)
<S> <C> <C>
Termite provision $ 49,720 $ --
Insurance reserves 34,629 13,466
Safe harbor lease (14,128) (15,460)
Other 3,677 153
-----------------------
$ 73,898 $ (1,841)
-----------------------
-----------------------
</TABLE>
State income taxes payable of $12,057,000 and $8,446,000 are included in
Other Expenses on the Statements of Financial Position at December 31, 1997 and
1996, respectively.
17
<PAGE>
Notes To Financial Statements (continued)
Years ended December 31, 1997, 1996, and 1995, Rollins, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
8. Commitments And Contingencies
The Company has capitalized lease obligations and several operating leases.
The minimum lease payments under the capital leases and non-cancelable operating
leases with terms in excess of one year, in effect at December 31, 1997, are
summarized as follows:
<TABLE>
<CAPTION>
Capitalized Operating
(In thousands) Leases Leases
- -------------------------------------------------------------------------------
<S> <C> <C>
1998 $ 3,819 $ 19,746
1999 3,819 16,088
2000 3,819 10,973
2001 2,132 7,850
2002 295 6,997
Thereafter -- 44,649
--------------------------------
$ 13,884 $ 106,303
------------
------------
Amount representing interest (1,507)
-----------
Present value of obligations 12,377
Portion due within one year (3,138)
-----------
Long-term obligations $ 9,239
-----------
-----------
</TABLE>
Total rental expense under operating leases charged to operations was
$23,524,000, $22,234,000 and $21,054,000, for the years ended December 31, 1997,
1996, and 1995, respectively.
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.
9. 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) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the period $ 3,221 $ 3,141 $ 2,844
Interest cost on projected
benefit obligation 4,437 4,081 3,958
Actual return on plan assets (7,500) (5,185) (9,236)
Net amortization
of transition asset (606) (1,181) (1,181)
Deferral of net
investment gain (loss) 2,493 570 4,778
------------------------------
Net pension expense $ 2,045 $ 1,426 $ 1,163
------------------------------
</TABLE>
The funded status of the Plan is summarized as follows at December 31:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$52,923 in 1997 and
$44,420 in 1996 $ (56,893) $ (48,011)
Effect of projected future
compensation levels (10,015) (9,298)
-------------------------
Projected benefit obligation (66,908) (57,309)
Plan assets at fair value 59,741 54,876
-------------------------
Plan assets in excess of (less than)
projected obligation (7,167) (2,433)
Unrecognized net loss 5,485 3,401
Unrecognized net asset at transition
being amortized over 10 years -- (575)
Unrecognized prior service cost (262) (293)
------------------------
Accrued pension (liability) asset $ (1,944) $ 100
------------------------
</TABLE>
At December 31, 1997, 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 $6,175,000.
The expected long-term rate of return on Plan assets was 9.5% in 1997, 1996, and
1995. The weighted-average discount rate used in determining the projected
benefit obligation was 7.5% in 1997, 1996, and 1995. This rate closely
approximates the rate on high-quality, long-term obligations. The assumed growth
rate of compensation was 4.5% in 1997, 1996, and 1995.
18
<PAGE>
Notes To Financial Statements (continued)
Years ended December 31, 1997, 1996, and 1995, Rollins, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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 $1,665,000 in 1997, $1,592,000 in 1996, and
$1,627,000 in 1995.
The Company has an Employee Incentive Stock Option Plan (1994 Plan), adopted
in January 1994, under which 1,200,000 shares of common stock were subject to
grants through the ten-year period ended January 2004 under various stock
incentive programs. 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. Options are also outstanding under the prior Plan, (1984
Plan). Under this plan, 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 grant and expire
ten years from the date of grant, if not exercised. No additional options will
be granted under the 1984 Plan.
Option transactions during the last three years for the 1994 and 1984 Plans
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of shares under stock options:
Outstanding at beginning of year 300,132 257,611 266,957
Granted 197,600 75,000 17,000
Exercised (7,657) (5,037) (6,696)
Cancelled (130,290) (27,442) (19,650)
---------------------------------------
Outstanding at end of year 359,785 300,132 257,611
Exercisable at end of year 80,405 92,458 71,641
Weighted average exercise price:
Granted $ 19.25 $ 20.87 $ 24.25
Exercised 12.47 12.95 12.51
Cancelled 22.57 24.47 24.42
Outstanding at end of year 22.29 24.18 24.87
Exercisable at end of year 23.31 21.40 18.14
- -------------------------------------------------------------------------------
</TABLE>
Information with respect to options outstanding and options exercisable at
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
Exercise Number Average Remaining Number
Price Outstanding Contractual Life Exercisable
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
$11.25 1,350 .58 years 1,350
12.25 4,995 2.08 4,995
13.25 14,800 3.08 14,800
19.08 4,440 4.08 4,440
25.50 4,700 5.08 3,760
28.37 118,400 6.08 46,140
24.25 5,000 7.08 1,200
20.87 52,000 8.08 3,720
19.25 154,100 9.08 --
- -----------------------------------------------------------------------------
359,785 80,405
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company applied Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its stock options and,
accordingly, no compensation cost has been recognized for stock options in the
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date of its stock options granted in 1997, 1996, and
1995 under SFAS 123, "Accounting for Stock-Based Compensation," the Company's
net income would have been reduced by approximately $103,000 in 1997, $45,000 in
1996, and $9,000 in 1995, with no earnings per share effect in any of the
reported years.
The per share weighted-average fair value of stock options granted during
1997, 1996, and 1995 was $5.34, $6.37, and $7.37, respectively, on the date of
grant, using the Black Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.69% 5.63% 5.58%
Expected life, in years 8 8 8
Expected volatility 18.55% 21.44% 21.66%
Expected dividend yield 2.17% 1.99% 2.01%
- -------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Report of Management
- -------------------------------------------------------------------------------
To the Stockholders of Rollins, Inc.:
We have prepared the accompanying financial statements and related
information included herein for the years ended December 31, 1997, 1996 and
1995. 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 insure
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.
/s/ Randall Rollins /s/ Gene L. Smith
R. Randall Rollins Gene L. Smith
Chairman of the Board and Chief Financial Officer,
Chief Executive Officer Secretary, and Treasurer
Atlanta, Georgia
February 16, 1998
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, 1997
and 1996 and the related statements of income, earnings retained and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 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, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
February 16, 1998
20
<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 of Dover Downs
Entertainment, Inc. (entertainment complex)
Henry B. Tippie +
Chairman of the Board and Chief Executive Officer of Tippie Services, Inc.
(management services)
R. Randall Rollins *
Chairman of the Board and Chief Executive Officer of Rollins, Inc., Chairman of
the Board and Chief Executive Officer of RPC, 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 of the Board and Chief Executive Officer of SunTrust Banks, Inc. (bank
holding company)
Gary W. Rollins *
President and Chief Operating Officer of Rollins, Inc.
Bill J. Dismuke
Retired 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
28, 1998, 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:
SunTrust Bank, Atlanta
Stock Transfer 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 SunTrust Bank, Atlanta 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
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.
<TABLE>
<CAPTION>
State/Country of
Name Incorporation
---- ----------------
<S> <C>
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
Orkin International, Inc. Delaware
Orkin Canada, Inc. Canada
Orkin (Bahamas) Limited Bahamas
Rollins Continental, Inc. New York
Rollins Expansion, Inc. Delaware
Rollins Supply, Inc. Delaware
Red Diamond Insurance Co. Vermont
</TABLE>
<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
Atlanta, Georgia
March 25, 1998
<PAGE>
EXHIBIT 24
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 19 day of Feb., 1998.
/s/ Wilton Looney
---------------------------
Wilton Looney, Director
Witness:
/s/ 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 19th day of February, 1998.
/s/ Bill J. Dismuke
---------------------------
Bill J. Dismuke, Director
Witness:
/s/ Kirst F. Mini
- ------------------------
<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 19 day of Feb., 1998.
/s/ James B. Williams
------------------------------
James B. Williams, Director
Witness:
/s/ 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 19th day of February, 1998.
/s/ Henry B. Tippie
---------------------------
Henry B. Tippie, Director
Witness:
/s/ Terri D. Metstans
- ------------------------
<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 19 day of Feb., 1998.
/s/ John W. Rollins,
---------------------------
John W. Rollins, Director
Witness:
/s/ Cindy Ceifano
- --------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Consolidated Statements of Financial Position and Statements of Income and
Earnings Retained. This schedule contains summary financial information
extracted from the Statements of Financial Position and Statements of
Income and Earnings Retained and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 125,842 12,150 33,623
<SECURITIES> 75,037 84,785 65,743
<RECEIVABLES> 58,492 68,857 82,349
<ALLOWANCES> 9,326 4,457 8,879
<INVENTORY> 15,010 11,593 11,003
<CURRENT-ASSETS> 301,618 187,006 204,053
<PP&E> 71,641 68,578 78,989
<DEPRECIATION> 37,002 32,011 45,825
<TOTAL-ASSETS> 432,680 296,656 306,111
<CURRENT-LIABILITIES> 130,718 69,830 63,188
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 33,279 34,594 41,432
<OTHER-SE> 112,365 155,696 172,886
<TOTAL-LIABILITY-AND-EQUITY> 432,680 296,656 306,111
<SALES> 0 0 0
<TOTAL-REVENUES> 538,639 532,785 529,788
<CGS> 0 0 0
<TOTAL-COSTS> 362,225 302,929 272,709
<OTHER-EXPENSES> 345,416 193,748 194,722
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (169,002) 36,108 62,357
<INCOME-TAX> (64,221) 13,722 23,696
<INCOME-CONTINUING> (104,781) 22,386 38,661
<DISCONTINUED> 106,278 409 616
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,497 22,795 39,277
<EPS-PRIMARY> .04 .64 1.10
<EPS-DILUTED> .04 .64 1.10
</TABLE>
