-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L78sTu99jDQQBuUaNn9jiuNrRhHZX64OFJRQgMXcDDdncTjbAwERXvwGTeDnzlbc H76q5Z4hl5TS15p2VwSZPg== 0000084839-98-000007.txt : 19980814 0000084839-98-000007.hdr.sgml : 19980814 ACCESSION NUMBER: 0000084839-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: BSE SROS: CSE SROS: NYSE SROS: PHLX SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROLLINS INC CENTRAL INDEX KEY: 0000084839 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TO DWELLINGS & OTHER BUILDINGS [7340] IRS NUMBER: 510068479 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04422 FILM NUMBER: 98684832 BUSINESS ADDRESS: STREET 1: 2170 PIEDMONT RD NE CITY: ATLANTA STATE: GA ZIP: 30324 BUSINESS PHONE: 4048882000 MAIL ADDRESS: STREET 1: 2170 PIEDMONT ROAD NE CITY: ATLANTA STATE: GA ZIP: 30324 10-Q 1 2ND QTR FORM 10-Q 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 June 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 June 30, 1998, there were 32,629,551 shares of Common Stock $1 Par Value, outstanding. ROLLINS, INC. AND SUBSIDIARIES INDEX Page No. Part I Financial Information Statements of Financial Position - June 30, 1998 and December 31, 1997 1 Statements of Income and Earnings Retained - Three months and six months ended June 30, 1998 and 1997 2 Statements of Cash Flows - Six months ended June 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 ROLLINS, INC. AND SUBSIDIARIES PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION (In thousands except share data)
(Unaudited) June 30, December 31, 1998 1997 ASSETS Cash and Short-Term Investments $ 40,756 $ 125,842 Marketable Securities 124,385 75,037 Trade Receivables, Net 47,916 49,166 Materials and Supplies 16,252 15,010 Deferred Income Taxes 27,347 24,826 Other Current Assets 12,296 11,737 Current Assets 268,952 301,618 Equipment and Property, Net 35,963 34,639 Intangible Assets 39,529 39,383 Deferred Income Taxes 44,601 49,072 Other Assets 7,533 7,968 Total Assets $ 396,578 $ 432,680 LIABILITIES Capital Lease Obligations $ 3,236 $ 3,138 Accounts Payable 17,940 25,420 Accrued Insurance Expenses 18,254 21,225 Accrued Payroll 18,988 17,913 Unearned Revenue 16,643 13,831 Other Expenses 59,366 49,191 Current Liabilities 134,427 130,718 Capital Lease Obligations 7,595 9,239 Long-Term Accrued Liabilities 127,198 147,079 Total Liabilities 269,220 287,036 Commitments and Contingencies STOCKHOLDERS' EQUITY Common Stock, par value $1 per share; authorized 99,500,000 shares; 32,629,551 shares issued in 1998; 33,279,281 shares issued in 1997 32,630 33,279 Earnings Retained 94,728 112,365 Total Stockholders' Equity 127,358 145,644 Total Liabilities and Stockholders' Equity $ 396,578 $ 432,680 The accompanying notes are an integral part of these statements.
1 of 10 ROLLINS, INC. AND SUBSIDIARIES STATEMENTS OF INCOME AND EARNINGS RETAINED (In thousands except share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 REVENUES Customer Services $ 155,050 $ 154,371 $ 278,015 $ 281,322 COSTS AND EXPENSES Cost of Services Provided 86,723 88,555 163,632 160,872 Depreciation and Amortization 2,169 2,015 4,261 3,924 Sales, General & Administrative Expenses 57,434 54,943 106,865 100,667 Interest Income (2,425) (1,172) (5,047) (2,389) 143,901 144,341 269,711 263,074 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 11,149 10,030 8,304 18,248 PROVISION (CREDIT) FOR INCOME TAXES Current 2,006 5,464 (1,305) 9,582 Deferred 2,230 (1,653) 4,460 (2,648) 4,236 3,811 3,155 6,934 INCOME FROM CONTINUING OPERATIONS 6,913 6,219 5,149 11,314 DISCONTINUED OPERATIONS Operating income, less income tax expense of $61 and $91, respectively - 100 - 149 NET INCOME 6,913 6,319 5,149 11,463 EARNINGS RETAINED Balance at Beginning of Period 104,030 146,734 112,365 155,696 Cash Dividends (4,969) (5,059) (9,957) (10,252) Common Stock Purchased and Retired (11,280) (7,741) (12,876) (16,573) Other 34 312 47 231 BALANCE AT END OF PERIOD $ 94,728 $ 140,565 $ 94,728 $ 140,565 EARNINGS PER SHARE Continuing operations $ 0.21 $ 0.19 $ 0.16 $ 0.34 Discontinued operations - - - - EARNINGS PER SHARE - BASIC AND DILUTED $ 0.21 $ 0.19 $ 0.16 $ 0.34 WEIGHTED SHARES OUTSTANDING - BASIC 33,078,672 33,807,036 33,173,701 34,135,825 WEIGHTED SHARES OUTSTANDING - DILUTED 33,109,672 33,815,036 33,197,701 34,143,325 The accompanying notes are an integral part of these statements.
2 of 10 ROLLINS, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended June 30, 1998 1997 OPERATING ACTIVITIES Net Income $ 5,149 $ 11,463 Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 4,261 3,924 Provision (Credit) for Deferred Taxes 4,460 (2,648) Discontinued Operations, Net of Taxes (149) Other, Net 646 1,488 (Increase) Decrease in Assets: Trade Receivables 1,266 (3,424) Materials and Supplies (1,229) (4,330) Other Current Assets (3,553) 1,090 Other Non-Current Assets 1,258 (3,508) Increase (Decrease) in Liabilities: Accounts Payable and Accrued Expenses 665 5,182 Unearned Revenue 2,812 504 Long-Term Accrued Liabilities (19,881) 5,280 Net Cash Provided by (Used in) Operating Activities (4,146) 14,872 INVESTING ACTIVITIES Purchases of Equipment and Property (5,756) (4,930) Net Cash Used for Acquisition of Companies (870) (1,056) Marketable Securities, Net (49,306) 14,783 Net Cash Provided by (Used in) Investing Activities (55,932) 8,797 FINANCING ACTIVITIES Dividends Paid (9,957) (10,252) Common Stock Purchased and Retired (13,545) (17,495) Payments on Capital Lease (1,546) (1,264) Other 40 197 Net Cash Used in Financing Activities (25,008) (28,814) Net Cash Provided by (Used in) Discontinued Operations - (18) Net Increase (Decrease) in Cash and Short-Term Investments (85,086) (5,163) Cash and Short-Term Investments at Beginning of Period 125,842 12,150 Cash and Short-Term Investments at End of Period $ 40,756 $ 6,987 The accompanying notes are an integral part of these statements.
3 of 10 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 of the Registrant as of June 30, 1998 and December 31, 1997, and the results of operations and cash flows for the six months ended June 30, 1998 and 1997. Operating results for the quarter ended June 30, 1998 or the six months ended June 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 tax benefit. The deferred provision 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 averge shares used in computing basic and diluted earnings per share (EPS) are as follows (in thousands):
Second Quarter Ended June 30 Six Months Ended June 30 1998 1997 1998 1997 Basic EPS 33,078,672 33,807,036 33,173,701 34,135,825 Effect of dilutive stock options 31,000 8,000 24,000 7,500 Diluted EPS 33,109,672 33,815,036 33,197,701 34,143,325
No adjustments to net income available to common stockholders were required during the periods presented. 4 of 10 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 second quarter and six months ended June 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. 5 of 10 ROLLINS, INC. AND SUBSIDIARIES PART I. ITEM 2. FINANCIAL INFORMATION MANAGEMENT 'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SECOND QUARTER ENDED JUNE 30, 1998 RESULTS OF OPERATIONS The divestitures of the Orkin Lawn Care and Plantscaping divisions in July, 1997 marked the Company's return to a single operational focus. Accordingly, the results of operations are presented on a continuing operations basis. Revenues for the second quarter ended June 30, 1998 increased 0.4% to $155.1 million. Net income increased 9.4% to $6.9 million. Basic and diluted earnings per share were 21 cents compared to 19 cents last year, a 10.5% increase. Year-to-date, revenues decreased 1.2% to $278.0 million with net income decreasing 55.1% to $5.1 million for an earnings per share of 16 cents compared to 34 cents last year. For the quarter, pest control revenue and customer base increased substantially. The number of pest control contracts sold grew at a double-digit rate over last year. The positive trend in pest control revenue is a direct effect of the success of the Company's new marketing, sales and customer service programs. Termite revenue continues to lag due to more restrictive sales policies. The Company continues to undertake proactive measures in its termite business and believes these measures will contribute to its long-term revenue growth and profitability. Net income improved due to higher revenues and margin improvement. Revenue and income from discontinued operations after income taxes for the second quarter ended June 30, 1997 were $23.4 million and $100,000, respectively. Year-to-date revenue and income from discontinued operations for 1997 were $46.9 million and $149,000, respectively. 6 of 10 FINANCIAL CONDITION
June 30, December 31, 1998 1997 (In thousands) Cash and Short-Term Investments $ 40,756 $ 125,842 Marketable Securities 124,385 75,037 $ 165,141 $ 200,879 Working Capital $ 134,525 $ 170,900 Current Ratio 2.0 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. Interest income increased 111.3% for the six months ended June 30, 1998 as compared to the same period in 1997 due to the increase in average cash invested in short-term investments and marketable securities as a result of the 1997 divestitures. Net trade receivables decreased $1.3 million or 2.5% at June 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 $15.4 million and $13.9 million at June 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 the 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 reasonable at June 30, 1998. 7 of 10 During the six month period ended June 30, 1998, the Company invested $6.6 million in capital expenditures and acquisitions. Also, $10.0 million was paid out in cash dividends. The Company maintains a $40.0 million unused line of credit. This source of funds has not been used, but is available for future acquisitions and growth, if needed. During the quarter ended June 30, 1998, the Company repurchased 587,000 shares of its common stock, confirming management's and the Board of Director's confidence in the Company's future. For the six months ended June 30, 1998, 669,000 shares have been repurchased. 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 the investigation. MANAGEMENT CHANGES In the second quarter of 1998, the Company announced two senior management changes. Harry J. Cynkus, age 48, was appointed as the Company's new Vice President of Finance, Chief Financial Officer and Treasurer. Also, Michael W. Knottek, age 53, Vice President of Corporate Administration, was elected to the office of Vice President and Secretary. 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. 8 of 10 ROLLINS, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS The Annual Stockholders' Meeting was held on April 28, 1998. The stockholders elected Bill J. Dismuke and Wilton Looney as Class III Directors for the three year term expiring in 2001. The 1998 Employee Stock Incentive Plan was approved by shareholders. ITEM 5. OTHER INFORMATION 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 March 14, 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 by 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 herein by reference to Exhibit (3)(i) as filed with its Form 10-K for the year 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 9 of 10 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: August 13, 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) 10 of 10 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: August 13, 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) 10 of 10 EX-27 2
5 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 June 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 USD 6-MOS 6-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 JUN-30-1998 JUN-30-1997 1.0 1.0 40,756 6,987 124,385 70,108 55,429 72,424 7,513 4,357 16,252 15,952 268,952 174,532 75,957 73,805 39,994 36,083 396,578 288,878 134,427 75,978 0 0 0 0 0 0 32,630 33,708 94,728 140,565 396,578 288,878 0 0 278,015 281,322 0 0 163,632 160,872 106,079 102,202 0 0 0 0 8,304 18,248 3,155 6,934 5,149 11,314 0 149 0 0 0 0 5,149 11,463 0.16 0.34 0.16 0.34
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