UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30,
1998.
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from _____ to _____
Commission file number 1-4422
____________________________
ROLLINS, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0068479
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
2170 Piedmont Road, N.E., Atlanta, Georgia 30324
(Address of principal executive offices) (Zip Code)
Telephone Number -- (404) 888-2000
(Registrant's telephone number, including area code)
____________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At September 30, 1998, there were 30,531,581 shares of Common
Stock $1 Par Value, outstanding.
<PAGE>
ROLLINS, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Statements of Financial Position -
September 30, 1998 and December 31, 1997 1
Statements of Income and Earnings Retained
- Three months and nine months ended
September 30, 1998 and 1997 2
Statements of Cash Flows
- Nine months ended September 30, 1998 and 1997 3
Notes to Financial Statements 4-5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-8
Part II Other Information 9
<PAGE>
<TABLE>
ROLLINS, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(In thousands except share and per share data)
<CAPTION>
(Unaudited)
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and Short-Term Investments $ 5,297 $ 125,842
Marketable Securities 110,243 75,037
Trade Receivables, Net 45,142 49,166
Materials and Supplies 14,040 15,010
Deferred Income Taxes 22,968 24,826
Other Current Assets 10,402 11,737
Current Assets 208,092 301,618
Equipment and Property, Net 35,974 34,639
Intangible Assets 39,525 39,383
Deferred Income Taxes 45,082 49,072
Other Assets 7,435 7,968
Total Assets $ 336,108 $ 432,680
LIABILITIES
Capital Lease Obligations $ 3,290 $ 3,138
Accounts Payable 14,772 25,420
Accrued Insurance Expenses 17,506 21,225
Accrued Payroll 19,151 17,913
Unearned Revenue 15,381 13,831
Other Expenses 50,152 49,191
Current Liabilities 120,252 130,718
Capital Lease Obligations 6,715 9,239
Long-Term Accrued Liabilities 127,438 147,079
Total Liabilities 254,405 287,036
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share; authorized
99,500,000 shares; 30,531,581 shares issued in 1998;
33,279,281 shares issued in 1997 30,532 33,279
Earnings Retained 51,171 112,365
Total Stockholders' Equity 81,703 145,644
Total Liabilities and
Stockholders' Equity $ 336,108 $ 432,680
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME AND EARNINGS RETAINED
(In thousands except share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES
Customer Services $ 144,493 $ 140,287 $ 422,508 $ 421,609
COSTS AND EXPENSES
Cost of Services Provided 85,627 88,717 249,036 249,589
Depreciation and Amortization 2,235 2,274 6,496 6,198
Sales, General & Administrative Expenses 57,457 69,939 164,545 170,606
Interest Income (2,246) (1,509) (7,293) (3,898)
143,073 159,421 412,784 422,495
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 1,420 (19,134) 9,724 (886)
PROVISION (CREDIT) FOR INCOME TAXES
Current 219 (5,944) (1,086) 3,638
Deferred 321 (1,327) 4,781 (3,975)
540 (7,271) 3,695 (337)
INCOME (LOSS) FROM CONTINUING
OPERATIONS 880 (11,863) 6,029 (549)
DISCONTINUED OPERATIONS
Operating income, less income tax expense of
Gain on Disposal, less income tax expense of
$5,814 - 9,486 - 9,486
INCOME FROM DISCONTINUED OPERATIONS - 9,529 - 9,678
NET INCOME (LOSS) 880 (2,334) 6,029 9,129
EARNINGS RETAINED
Balance at Beginning of Period 94,728 140,565 112,365 155,696
Cash Dividends (4,583) (5,055) (14,540) (15,307)
Common Stock Purchased and Retired (40,553) 0 (53,429) (16,573)
Other 699 119 746 350
BALANCE AT END OF PERIOD $ 51,171 $ 133,295 $ 51,171 $ 133,295
EARNINGS (LOSS) PER SHARE
Continuing operations $ 0.03 $ (0.36)$ 0.19 $ (0.02)
Discontinued operations 0.29 - 0.29
EARNINGS (LOSS) PER SHARE - BASIC AND
DILUTED $ 0.03 $ (0.07)$ 0.19 $ 0.27
WEIGHTED SHARES OUTSTANDING - BASIC 31,065,305 34,081,978 32,463,179 34,117,810
WEIGHTED SHARES OUTSTANDING - DILUTED 31,087,924 34,106,687 32,486,127 34,130,940
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 6,029 $ 9,129
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 6,496 6,198
Provision (Credit) for Deferred Taxes 4,781 (7,490)
Discontinued Operations, Net of Taxes (9,678
Other, Net 788 2,082
(Increase) Decrease in Assets:
Trade Receivables 4,040 3,377
Materials and Supplies 983 (391)
Other Current Assets 1,341 1,360
Other Non-Current Assets 1,532 10,350
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses (8,238) 10,346
Unearned Revenue 1,550 (777)
Long-Term Accrued Liabilities (23,641) (5,614)
Net Cash Provided by (Used in) Operating
Activities (4,339) 18,892
INVESTING ACTIVITIES
Purchases of Equipment and Property (8,090) (5,976)
Net Cash Used for Acquisition of
Companies (924) (1,432)
Net Proceeds from sale of Discontinued
Operations, net of taxes paid - 24,716
Marketable Securities, Net (34,189) (905)
Net Cash Provided by (Used in) Investing
Activities (43,203) 16,403
FINANCING ACTIVITIES
Dividends Paid (14,540) (15,307)
Common Stock Purchased and Retired (56,195) (17,495)
Payments on Capital Lease (2,372) (1,997)
Other 104 277
Net Cash Used in Financing Activities (73,003) (34,522)
Net Cash Provided by
Discontinued Operations - 58
Net Increase (Decrease) in Cash
and Short-Term Investments (120,545) 831
Cash and Short-Term Investments
at Beginning of Period 125,842 12,150
Cash and Short-Term Investments
at End of Period $ 5,297 $ 12,981
The accompanying notes are an integral part of these statements.
</TABLE>
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ROLLINS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PREPARATION
The consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission.
Footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations.
These consolidated financial statements should be read in
conjunction with the financial statements and related notes
contained in the Registrant's annual report on Form 10-K for the
year ended December 31, 1997.
Prior year amounts have been restated to reflect the 1997
divestitures of the Company's Rollins Protective Services
division and its Lawn Care and Plantscaping businesses.
In the opinion of management, the consolidated financial
statements included herein contain all normal recurring
adjustments necessary to present fairly the financial position of
the Registrant as of September 30, 1998, and December 31, 1997,
and the results of operations and cash flows for the nine months
ended September 30, 1998 and 1997. Operating results for the
quarter ended September 30, 1998 or the nine months ended
September 30, 1998 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998.
NOTE 2. PROVISION FOR INCOME TAXES
The book provision for income taxes includes the liability for
state income taxes, net of the federal income tax benefit. The
deferred provision for income taxes arises from the changes
during the year in the company's net deferred tax asset or
liability.
NOTE 3. EARNINGS PER SHARE
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," the number of weighted
average shares used in computing basic and diluted earnings per
share (EPS) are as follows (in thousands):
<TABLE>
<CAPTION>
Third Quarter Ended Sep 30 Nine Months Ended Sep 30
<S> <C> <C> <C> <C>
Basic EPS 31,065,305 34,081,978 32,463,179 34,117,810
Effect of dilutive
stock options 22,619 24,709 22,948 13,130
Diluted EPS 31,087,924 34,106,687 32,486,127 34,130,940
</TABLE>
No adjustments to net income available to common stockholders
were required during the periods presented.
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<PAGE>
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
Effective January, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," which establishes standards for the presentation and disclosure
of other comprehensive income. For the third quarter and nine months
ended September 30, 1998, comprehensive income is not materially
different from net income and, as a result, the impact is not reflected
in the attached Statements of Income and Earnings Retained or Statements
of Financial Position.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits," will be
adopted effective with the year-end financial statements dated
December 31, 1998.
In June, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The adoption of this standard
effective with the year-end financial statements dated December 31, 1999
is not expected to materially impact the results of operations or
financial conditions of the Company.
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<PAGE>
ROLLINS, INC. AND SUBSIDIARIES
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 1998
RESULTS OF OPERATIONS
The divestitures of the Orkin Lawn Care and Plantscaping divisions in
July, 1997 and Rollins Protective Services segment in October, 1997
marked the Company's return to a single operational focus. Accordingly,
the results of operations are presented on a continuing operations basis.
Revenues for the third quarter ended September 30, 1998 increased 3.0%
to $144.5 million. Net income was $880,000 compared to a loss of $2.3
million in the prior year. Basic and diluted earnings per share were 3
cents compared to a loss of 7 cents last year.
Third quarter 1997 results included the gain on disposal of the Company's
Plantscaping and Lawn Care businesses of $15.3 million ($9.5 million
afer tax or 28 cents per share). This gain is reported in Income from
Discontinued Operations along with the operating results of these
businesses and the Company's Rollins Protective Services division which
was also divested during 1997.
Year-to-date, revenues increased 0.2% to $422.5 million with net income
decreasing 34.0% to $6.0 million for an earnings per share of 19 cents
compared to 27 cents last year.
For the quarter, pest control revenue, customer base, and contracts sold
continued their positive growth over last year. Operating income for
the quarter was favorably impacted by higher pest control revenues and
lower termite claims. The Company's pest control growth programs and
proactive termite control initiatives are showing positive results.
Revenue and operating income from discontinued operations after income
taxes for the third quarter ended September 30, 1997 were $17.9 million
and $43,000, respectively. Year-to-date revenue and operating income
from discontinued operations after income taxes for the nine months ended
September 30, 1997 were $64.7 million and $192,000, respectively.
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<PAGE>
FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(In thousands)
<S> <C> <C>
Cash and Short-Term
Investments $ 5,297 $ 125,842
Marketable Securities 110,243 75,037
$ 115,540 $ 200,879
Working Capital $ 87,840 $ 170,900
Current Ratio 1.7 2.3
Rollins, Inc.'s financial position remained solid. The
Company's operations have historically provided a strong positive
cash flow which represents the Company's principal source of funds.
Management believes that this liquidity, along with expected cash from
operations, will support the Company's continued growth, capital
expenditures, cash dividends, and share repurchases. Subsequent to
September 30, 1998, regular quarterly dividends were reduced from 15
cents per share to 5 cents per share. The new dividend rate will better
balance the relationship between earnings, dividends, and future stock
repurchases.
Interest income increased 87.1% for the nine months ended September 30,
1998 as compared to the same period in 1997 due to an increase in
short-term investments and marketable securities as a result of the 1997
divestitures and increased realized gains.
Net trade receivables decreased $4.0 million or 8.2% at September 30,
1998 compared with December 31, 1997. Trade receivables include
installment receivables which are due subsequent to one year from the
balance sheet date. These amounts were approximately $14.2 million
and $13.9 million at September 30, 1998 and December 31, 1997,
respectively. The decrease in receivables is primarily the result of
decreased financed sales in the termite business.
Over the past several years, the termite treatment division of the pest
control industry has faced great challenges in solving property owners'
termite problems. Some of the reasons for the increased difficulty in
protecting structures have been changes in building practices and
materials that have increased the property owners' potential for
termites, the loss of Chlordane from the market in 1987 which resulted
in the use of termiticides that may only last for a few years under some
conditions, and laws and regulations restricting certain retreatment
practices. All of the above factors have subjected termite service
providers to experience elevated levels of claims. The Company's
response to these industry-wide conditions is to undertake broad changes
in its own termite processes. New quality control and field training
programs, more thorough communication to customers concerning conducive
conditions, and restrictions on the sale of certain structures were
initiated during 1997. As a result of the factors described above and
new information which became available in 1997, a Provision for Termite
Contracts of $117.0 million was recorded at December 31, 1997 related to
the anticipated costs of reinspections, repair obligations, and
associated labor, chemicals, and other costs incurred relative to termite
work performed prior to December 31, 1997. The Company believes the
related accrued liabilities are still adequate at September 30, 1998.
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<PAGE>
During the nine month period ended September 30, 1998, the Company
invested $9.0 million in capital expenditures and acquisitions. The
Company made one domestic acquisition this quarter and increased its
international presence by completing two Canadian acquisitions in
Calgary and Vancouver. Also, $14.5 million was paid out in cash
dividends. The Company maintains a $40.0 million unused line of
credit. This source of funds has not been used, but is available
for future acquisitions and growth, if needed.
During the quarter ended September 30, 1998, the Company repurchased and
retired 2,097,100 shares of its common stock confirming management's
and the Board of Director's confidence in the Company's future. For the
nine months ending September 30, 1998, 2,766,100 shares have been
repurchased and retired, representing 8.3% of the outstanding shares.
Since November 25, 1995, a total of 5,400,000 shares, or 15% of the
outstanding shares, have been acquired in the market place with
1,600,000 shares remaining under the current authorization.
During the fourth quarter of 1997 and the first quarter of 1998, Orkin
received letters from the Federal Trade Commission (FTC) advising of
their investigation of the pest control industry - more specifically, the
termite and moisture 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 the investigation.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. The actual results of
the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties,
including without limitation, general economic conditions, changes in
industry practices or technologies, climate and weather trends,
competitive factors and pricing pressures, uncertainties of litigation
and changes in various government laws and regulations, including
environmental regulations. All of the foregoing risks and uncertainties
are beyond the ability of the Company to control, and in many cases
the Company cannot predict the risks and uncertainties that could cause
its actual results to differ materially from those indicated by the
forward-looking statements.
YEAR 2000 ISSUES
During 1997, the Company recorded expenses of $15.6 million ($9.7 million
after tax or 28 cents 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.
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<PAGE>
ROLLINS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
With respect to the Company's annual meeting of stockholders to
be held in 1999, all stockholder proposals submitted outside the
stockholder proposal rules contained in Rule 14a-8 promulgated
under the Securities Exchange Act of 1934, as amended, which
pertains to the inclusion of shareholder proposals in a Company's
proxy materials, must be received by the Company by February 5,
1999, in order to be considered timely. With regard to such
stockholder proposals, if the date of the next annual meeting of
stockholders is advanced or delayed more than 30 calendar days
from April 28, 1999, the Company shall, in a timely manner,
inform its stockholders of the change, and the date by which such
proposals must be received. As set forth in the Company's Proxy
Statement dated March 24, 1998, shareholders who wish to avail
themselves of the provisions of Rule 14a-8 must submit their
proposals no later than November 24, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3)(i) The Company's Certificate of Incorporation is
incorporated by reference to Exhibit (3)(i) as
filed with its Form 10-K for the year ended
December 31, 1997.
(ii) By-laws of Rollins, Inc. are incorporated herein by
reference to Exhibit 3(b) as filed with its Form
10-K for the year ended December 31, 1993.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: November 12, 1998
Rollins, Inc.
(Registrant)
_________________________
Gary W. Rollins
President and Chief
Operating Officer
(Member of the Board of
Directors)
_________________________
Harry J. Cynkus
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized
Date: November 12, 1998
Rollins, Inc.
(Registrant)
Gary W. Rollins
Gary W. Rollins
President and Chief
Operating Officer
(Member of the Board of
Directors)
Harry J. Cynkus
Harry J. Cynkus
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's unaudited financial statements contained in its report on
Form 10-Q for the quarterly period ended September 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<EXCHANGE-RATE> 1.0 1.0
<CASH> 5,297 12,981
<SECURITIES> 110,243 85,863
<RECEIVABLES> 52,347 69,708
<ALLOWANCES> 7,205 6,402
<INVENTORY> 14,040 12,497
<CURRENT-ASSETS> 208,092 195,303
<PP&E> 73,914 72,910
<DEPRECIATION> 37,940 37,601
<TOTAL-ASSETS> 336,108 293,521
<CURRENT-LIABILITIES> 120,252 84,409
<BONDS> 0 0
0 0
0 0
<COMMON> 30,532 33,712
<OTHER-SE> 51,171 133,295
<TOTAL-LIABILITY-AND-EQUITY> 336,108 293,521
<SALES> 0 0
<TOTAL-REVENUES> 422,508 421,609
<CGS> 0 0
<TOTAL-COSTS> 249,036 249,589
<OTHER-EXPENSES> 163,748 172,906
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 9,724 (886)
<INCOME-TAX> 3,695 (337)
<INCOME-CONTINUING> 6,029 (549)
<DISCONTINUED> 0 9,678
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,029 9,129
<EPS-PRIMARY> .19 .27
<EPS-DILUTED> .19 .27
</TABLE>
