UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2001

OR

For the transition period from                                      to                                     

Commission file No. 1-4422

ROLLINS, INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (404) 888-2000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act: None.

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  .ý    No o

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. ý

The aggregate market value of Rollins, Inc. Common Stock held by non-affiliates on February 26, 2002, was $282,498,380 based on the closing price on the New York Stock Exchange on such date of $20.00 per share.

Rollins, Inc. had 30,160,062 shares of Common Stock outstanding as of February 26, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Rollins, Inc.'s Annual Report to Stockholders for the calendar year ended December 31, 2001 are incorporated by reference into Part II, Item 6.

Portions of the Proxy Statement for the 2002 Annual Meeting of Stockholders of Rollins, Inc. are incorporated by reference into Part III, Items 10-13.

PART I

Item 1. Business.

General

        Rollins, Inc. (the Company) is a national service company with headquarters located in Atlanta, Georgia, providing pest and termite control services to both residential and commercial customers. Services are performed through a contract that specifies the pricing arrangement with the customer.

        Orkin Exterminating Company, Inc. (Orkin), a wholly-owned subsidiary founded in 1901, is one of the world's largest pest and termite control companies. It provides customized services from over 400 locations to approximately 1.6 million customers. Orkin serves customers in the United States, Canada, and Mexico, providing essential pest control services and protection against termite damage, rodents and insects to homes and businesses, including hotels, food service establishments, dairy farms and transportation companies. Orkin operates under the Orkin® and PCO Services, Inc.® trademarks and the Acurid^SM service mark. The Orkin® brand name makes Orkin one of the most recognized pest and termite companies in the country. The PCO Services brand name provides similar brand recognition in Canada. The Company is the largest pest control provider in Canada.

        The Company has only one reportable segment, its pest and termite control business. Revenue, operating profit and identifiable assets for this segment, which includes the United States, Canada, and Mexico, are included in Item 8 of this document under financial statements and supplementary data on pages 15 and 16. The Company's results of operations and its financial condition are not reliant upon any single customer or a few customers or the Company's foreign operations.

        A bimonthly pest control service initiative has been recently implemented to better service our residential customers. Through this program, the Company can better conform to our customers' busy lifestyles. In addition, Acurid^SM commercial pest elimination service was introduced company-wide in 2001. This premium service includes insect control, fly control, rodent control, and odor control for commercial customers and is now available through any Orkin branch.

        The dollar amount of service contracts and backlog orders as of the end of the Company's 2001 and 2000 calendar years was approximately $16.2 million and $18.2 million, 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. The Company does not have a material portion of its business that may be subject to renegotiation of profits or termination of contracts at the election of a governmental entity.

        The Rollins Customer Care Center achieved its ISO 9002 quality certification in 2001. It is joined by seventeen dedicated commercial branches that have also completed the ISO 9002 quality certification process.

        The Company continues to expand its growth through the Orkin franchise program. This program is primarily used in secondary markets where it is not currently feasible to locate a conventional Orkin branch. There is a built-in exit strategy at the end of the franchise term that motivates the franchisee to sell their business to Orkin. There were 30 franchisees in the Company at the end of 2001.

        Another area of development for the Company was the company-wide introduction of a new proprietary branch computer system named FOCUS. This technology should enable us to better serve our customers by developing a more comprehensive customer database and better identify performance trends.

Seasonality

        The business of the Company is affected by the seasonal nature of the Company's pest and termite control services. The metamorphosis of termites in the spring and summer (the occurrence of which is

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determined by the timing of the change in seasons) has historically resulted in an increase in the revenue and income of the Company's pest and termite control operations during such periods.

Inventories

        The Company maintains a sufficient level of chemicals, materials and other supplies to fulfill its servicing needs and to alleviate any potential short-term shortage in availability from its national network of suppliers.

Competition

        The Company believes that Orkin competes favorably with competitors as one of the world's largest pest and termite control companies.

        The principal methods of competition in the Company's pest and termite control business are quality of service and guarantees, including the money-back guarantee on pest and termite control, and the termite retreatment and damage repair guarantee to qualified homeowners.

Research and Development

        Expenditures by the Company 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 Company. Some of the more recent studies that have been conducted on behalf of the Company include one on fly pathogens by the University of Florida. There is also an integrated pest management study currently being performed by the Virginia Polytechnic Institute.

Governmental Regulation

        Local governmental licenses and permits are required in order for the Company to conduct its pest and termite control services in certain localities. In view of the widespread operations of the Company's service operations, the failure of any local governments to license a facility would not have a material adverse effect on the results of operations of the Company.

        Other than the impact on the Company of governmental regulation of the use of pesticides, the Company is 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.

Employees

        The number of persons employed by the Company as of February 26, 2002 was approximately 8,000.

Item 2. Properties.

        The Company's administrative headquarters and central warehouse, both of which are owned by the Company, are located at 2170 Piedmont Road, N.E., Atlanta, Georgia 30324. The Company owns or leases several hundred branch offices and operating facilities used in its business. None of the branch offices, individually considered, represents a materially important physical property of the Company. The facilities are suitable and adequate to meet the current and reasonably anticipated future needs of the Company.

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Item 3. Legal Proceedings.

        Orkin, one of the Company's subsidiaries, is a named defendant in Helen Cutler and Mary Lewin v. Orkin Exterminating Company, Inc. et al. pending in the District Court of Houston County, Alabama. The plaintiffs in the above mentioned case filed suit in March of 1996 and are seeking monetary damages and injunctive relief for alleged breach of contract arising out of alleged missed or inadequate reinspections. The attorneys for the plaintiffs contend that the case is suitable for a class action and the court has ruled that the plaintiffs would be permitted to pursue a class action lawsuit against Orkin. The Company believes this case to be without merit and intends to defend itself vigorously at trial. At this time, the final outcome of the litigation cannot be determined. However, it is the opinion of Management that the ultimate resolution of this action will not have a material adverse effect on the Company's financial position, results of operations, or liquidity.

        On November 9, 2001, the Alabama Supreme Court rendered a final judgment of $2.3 million in the matter of The Estate of Artie Mae Jeter v. Orkin Exterminating Company, Inc. and Bill Maxwell. The following two paragraphs describe in detail the proceedings of this lawsuit.

        On May 14, 1999, a lawsuit was filed in the Circuit Court of Macon County, Alabama against Orkin alleging breach of contract and fraud. The suit asserted a failure to treat and inspect the residence of the plaintiff and to repair the termite damage and alleged that Orkin concealed alleged misconduct and misled the plaintiff as to the quality of work performed. Orkin defended itself by asserting that the plaintiff had not been misled and was told about the damages. Orkin also presented evidence that there was structural damage not attributable to termites, that there were significant conditions conducive to termites present in and around the structure and that there was no evidence of live termites found in the damaged areas since 1989. On August 18, 2000, the jury in the matter of The Estate of Artie Mae Jeter v. Orkin Exterminating Company, Inc. and Bill Maxwell, returned a verdict of $80.8 million against Orkin. The award consisted of $800,000 in compensatory damages including property damage and mental anguish and $80.0 million in punitive damages. The jury found for the plaintiff on the two counts alleged.

        Subsequent to the judgment, Orkin filed post trial motions, including a motion to reduce the judgment. On December 11, 2000, the trial judge issued an order reducing the total amount of the award to $4.4 million against Orkin. This amount consisted of $400,000 in compensatory damages and $4.0 million in punitive damages. It remained Orkin's position that it complied with its obligations and that it did not attempt to conceal any misconduct or suppress any material facts. Orkin appealed this reduced judgment to the Supreme Court of Alabama. On November 9, 2001, the Alabama Supreme Court further reduced the $4.4 million judgment rendered in the trial court to $2.3 million plus post-judgment interest. Of the $2.3 million award, $2 million was for punitive damages and $300,000 was for compensatory damages. As a result of this final judgment, this case has now been terminated and in the opinion of Management, did not have a material impact on the financial condition, results of operations or liquidity of the Company.

        Orkin is also a named defendant in Butland et al. v. Orkin Exterminating Company, Inc. et al. pending in the Circuit Court of Hillsborough County, Tampa, Florida. The plaintiffs filed suit in March of 1999 and are seeking monetary damages in excess of $15,000 for each named plaintiff and injunctive relief for alleged breach of contract, fraud and various violations of Florida State law. The attorneys for the plaintiffs contend that the case is suitable for a class action. The Court may rule in the first six months of 2002 on whether the class should be certified and their case should proceed as a class action. The Company believes this case to be without merit and intends to defend itself aggressively through trial, if necessary. At this time, the final outcome of the litigation cannot be determined. However, it is the opinion of Management that the ultimate resolution of this action will not have a material adverse effect on the Company's financial position, results of operations or liquidity.

        Additionally, 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

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personnel and equipment. The Company is actively contesting these actions. It is the opinion of Management, however, that the outcome of these actions will not have a material adverse effect on the Company's financial position, results of operations or liquidity.

Item 4. Submission of Matters to a Vote of Security Holders.

        There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2001.

Item 4.A. Executive Officers of the Registrant.

        Each of the executive officers of the Company 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 Company and their ages, offices with the Company, and the dates from which they have continually served in their present offices with the Company.

(1)

R. Randall Rollins and Gary W. Rollins are brothers.

(2)

Gary W. Rollins was elected to the office of President and Chief Operating Officer in January 1984. He was elected to the additional office of Chief Executive Officer in July 2001.

(3)

Harry J. Cynkus joined the Company in April 1998 and, in May 1998, was elected Chief Financial Officer and Treasurer. From 1996 to 1998, Mr. Cynkus served as Chief Financial Officer of Mayer Electric Company, a $300 million wholesaler of electrical supplies. From 1994 to 1996, he served as Vice President—Information Systems for Brach & Brock Confections, the acquirer of Brock Candy Company, where Mr. Cynkus served as Vice President—Finance and Chief Financial Officer from 1992 to 1994. From 1989 to 1992, he served as Vice President—Finance of Initial USA, a division of an international support services company. Mr. Cynkus is a Certified Public Accountant.

(4)

Michael W. Knottek joined the Company in June 1997 as Vice President and, in addition, was elected Secretary in May 1998. From 1992 to 1997, Mr. Knottek held a variety of executive management positions with National Linen Service, including Senior Vice President of Finance and Administration and Chief Financial Officer. Prior to 1992, he held a variety of senior positions with Initial USA, finally serving as President from 1991 to 1992.

(5)

Glen W. Rollins is the son of Gary W. Rollins. He joined the Company in 1989 and has held a variety of positions within the organization. As Executive Vice President, he was assigned responsibility for Orkin operations in June 2001.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        The Common Stock of the Company is listed on the New York and Pacific Stock Exchanges and is traded on the Philadelphia, Chicago and Boston Exchanges under the symbol ROL. The high and low prices of the Company's common stock and dividends paid for each quarter in the years ended December 31, 2001 and 2000 were as follows:

STOCK PRICES AND DIVIDENDS
Rounded to the nearest $.01

The number of stockholders of record as of February 26, 2002 was 1,785.

Item 6. Selected Financial Data.

        The information contained under the heading, "5-Year Financial Summary", on back of the front cover of the 2001 Annual Report to Stockholders is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

General Operating Comments

        The Company's continued emphasis on customer retention along with building recurring revenues with our termite baiting program resulted in a revenue growth of 0.4% in a sluggish economy. The financial results for the fourth quarter 2001 and the year were positively impacted by the continued benefit of our recent service initiatives.

        For the fourth quarter of 2001, the Company recognized net income of $1.6 million compared to a loss of $1.7 million in the fourth quarter 2000. For the year ended December 31, 2001, the Company had net income of $16.9 million compared to the prior year amount of $9.5 million, which represents a 77.4% increase. The overall improvement in profitability is largely a result of improved Cost of Services Provided and Sales and General & Administrative expenses as a percentage of revenues, partially offset by lower interest income and higher depreciation and income taxes.

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Results of Operations—2001 Versus 2000

        The 0.4% increase in revenues for the year ended December 31, 2001 was primarily due to increased recurring revenues in both pest and termite control. Pest control benefited from improvement in customer retention and a solid increase in commercial revenues. The increased recurring revenues from termite control can be mainly attributed to the impact of our termite baiting program.

        Orkin's treatment method of directed liquid termite baiting program generates recurring monitoring revenues that are deferred to the balance sheet each month in the form of unearned revenue. This is then being recognized in future periods when the service is rendered.

        Over the past couple of years, the Company has successfully integrated several pest control companies acquired in the United States and Canada. The Company currently does not have plans to aggressively seek new acquisitions but will give consideration to any unusually attractive acquisition opportunities presented. Cost of Services Provided decreased $7.3 million compared to last year, and improved to represent 55.9% of revenues compared to 57.2% last year. This improvement as a percentage of revenues was primarily attributable to margin improvement due to increased efficiencies and a reduced workforce in service, personnel related expenses, and fleet that was partially offset by an increase in insurance expense. Depreciation and Amortization increased approximately $1.9 million or 10.2% over the prior year, due primarily to the implementation of our new proprietary branch computer system.

        Sales, General and Administrative decreased $4.0 million over last year, and improved to represent 36.9% of revenues compared to 37.6% last year. This improvement as a percentage of revenues resulted primarily from improved efficiencies and a reduced workforce in sales, decreased other personnel related costs, and decreased bad debt expense.

        Interest income declined $252,000 or 56.0% during the year primarily due to interest expense for notes payable associated with acquisitions.

        The Company's tax provision of $10.4 million as compared to $5.9 million in 2000, reflects increased income in 2001.

        The decline in the Accrual for Termite Contracts of $6.8 million or 11.8% reflects improvement in the experience rate, as well as the payment of termite claims and the cost of remediation. Accrued Insurance decreased $6.3 million or 12.9% during the year as a result of improved experience rate, attributable to the Company's proactive management of issues associated with insurance expense.

        In 2002 the Company plans to further expand its alternate service program, which is becoming a larger part of the Company's residential pest control business with its improved profit margins. The Company will also continue to emphasize its commercial pest control business featuring Acurid^SM, a new high-end service that offers businesses a customized approach to pest control.

Results of Operations—2000 Versus 1999

        The 10.7% increase in revenues for the year ended December 31, 2000 was due to increases in both pest and termite control revenues. The continuing customer acceptance of the Company's alternate service offering in conjunction with acquisitions resulted in higher residential pest control revenues in 2000. The Company's commercial pest control division was its fastest growing division, with a substantial revenue improvement over 1999. The Company's continued emphasis on its commercial pest control operations was evidenced by the growth in customer base and a higher average sales price in 2000. On July 1, 2000, the Company further expanded its commercial operations through the acquisition of the remaining 50% of its joint venture, Acurid Retail Services, L.L.C., created to sell and provide pest elimination services to customers in the retail market.

        Termite control sales significantly increased in 2000, due primarily to the success of the Company's directed-liquid termite baiting program, partially offset by a lower customer base. This treatment method

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creates monthly recurring monitoring revenues that are deferred to the balance sheet in the form of unearned revenue, which is recognized in future periods when the service is rendered.

        Cost of Services Provided increased $30.2 million over 1999, but improved to represent 57.2% of revenues compared to 58.2% in 1999. This improvement as a percentage of revenues was primarily attributable to margin improvement due to efficiencies and associated workforce reductions in service, personnel related expenses, insurance and claims and improved inventory management.

        Depreciation and Amortization increased approximately $5.0 million or 37.1% over 1999, due primarily to an increase in amortization of goodwill and other intangibles as a result of the Company's prior year acquisitions.

        Sales, General and Administrative increased $21.3 million over 1999, but improved to represent 37.6% of revenues compared to 38.1% in 1999. This improvement as a percentage of revenues resulted primarily from better leveraging of fixed costs due to higher revenues and improved efficiencies in sales salaries and other personnel related costs.

        Interest income declined $2.6 million or 85.2% during 2000 primarily due to a decrease in invested funds over the prior year. The decrease in invested funds resulted principally from the conversion of investments to cash to fund acquisitions during the last part of 1999, and to fund the recent upgrades to our management information systems.

        The Company's tax provision of $5.9 million as compared to $4.4 million in 1999, reflects increased taxable income in 2000.

        The decline in the Accrual for Termite Contracts of $11.7 million or 16.9% reflects improvement in the experience rate, as well as the payment of termite claims and the cost of remediation. Accrued Insurance decreased $5.4 million or 9.8% during the year as a result of improved experience rate, attributable to the Company's proactive management of issues associated with insurance expense.

Impact of Recent Accounting Pronouncements

        The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. The adoption of this standard, effective for the Company as of January 1, 2001, did not impact the results of operations or financial condition of the Company as the Company is not a party to any derivative transactions that fall under the provisions of this statement. In June 2001, the FASB approved SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interests method of accounting for business combinations initiated after June 30, 2001. The amortization of existing goodwill ceased on January 1, 2002. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in the Company's discontinuation of amortization of its goodwill, however, the Company will be required to test its goodwill for impairment under the new standard beginning in 2002. The expected impact from the application is a decrease in amortization expense of approximately $2.3 million. Also, per SFAS No. 142, the expected life of customer contracts was reviewed and they will be amortized over a life between 8 to 12.5 years dependent upon customer type. The expected impact of this review is an increase in amortization expense of $2.1 million. The FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" effective June 15, 2002 that addresses obligations associated with the retirement of tangible long-lived assets and associated retirement costs. The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" effective for fiscal years beginning after December 15, 2001 while addressing financial accounting and reporting for

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the impairment or disposal of long-lived assets. The Company does not believe the impact of adopting SFAS No. 143 or SFAS No. 144 will have a material impact on its financial statements.

Liquidity and Capital Resources

        The Company believes its current cash balances, future cash flows from operating activities and availability under its credit facility will be sufficient to finance its current operations and obligations, and fund expansion of the business for the foreseeable future. The Company experienced positive cash flow from operating activities during the year in the amount of $29.6 million. This increase in cash flow is an improvement over cash flow provided by operating activities of $11.4 million in 2000 and cash flow provided by operating activities of $8.2 million in 1999. The 2001 increase resulted primarily from higher net income from continuing operations in 2001, adjusted for non-cash items. The Company believes that required contributions to the Pension Plan in 2002 estimated at $12 million, will not materially impact liquidity. Additionally, the Company has adopted amendments to the Pension Plan that will reduce future expense and cash requirements. While Kmart is a customer of the Company, Kmart's recently declared bankruptcy will not have a significant impact on the Company or its liquidity.

        During the year, cash used in investing activities was approximately $9.2 million compared with cash used in investing activities of $8.8 million in 2000. The increase in cash used by investing activities is the result of decreased investment in marketable securities partially offset by a decrease in capital expenditures. For the year ended December 31, 2001, the Company invested $8.5 million in capital expenditures primarily for improvement to management information systems. With the completion of FOCUS, our capital expenditures should return to more historical levels. The Company expects to invest between $6 to $8 million in capital expenditures in 2002 consisting primarily of equipment replacements and upgrades and improvements to management information systems.

        In 2001, the Company used approximately $12.1 million in cash for financing activities. Of total cash used in financing activities, approximately $6.0 million was used to pay dividends, $1.4 million was used to pay the amount outstanding on the credit facility, and approximately $1.6 million was paid for repurchases of 107,000 shares of the Company's Common Stock as part of treasury stock. Approximately 90,000 of these repurchased shares were used for the 401(k) match in January 2002.

        The capital expenditures, cash dividends, and stock repurchases were primarily funded through existing cash balances and operating activities. The full amount of borrowings under the Company's $40.0 million credit facility was available as of February 26, 2002.

Critical Accounting Policies

        We view critical accounting policies to be those policies which are very important to the portrayal of our financial condition and results of operations, and require management's most difficult, complex or subjective judgments. The circumstances that make these judgments difficult or complex relate to the need for management to make estimates about the effect of matters that are inherently uncertain. We believe our critical accounting policies to be as follows:

Accrual for Termite Contracts—The Company maintains an accrual for termite contracts representing the estimated costs of reinspections, reapplications, repair claims and associated labor, chemicals, and other costs incurred relative to termite services performed prior to the balance sheet date.    The Company contracts an independent third party actuary to provide the Company a range of estimated liability based upon historical claims information. The actuarial study, along with Management's knowledge of changes in business practices, contract changes, ongoing claims and termite remediation is used in the determination of the accrual. Management makes judgments utilizing these factors but recognizes that they are inherently subjective due to the litigious nature of settlements and awards. Other factors that may impact future cost include chemical life expectancy and governmental regulation. It is significant that the actual number of claims has decreased each year due to changes in

13

the Company's business practices. However, it is not possible to predict future catastrophic claims. These changes to our business practices include revisions made to our contracts, more effective treatment methods that include a directed-liquid baiting program, more effective termiticides, and updated training methods and techniques.

Accrued 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 Company contracts an independent third party actuary to provide the Company a range of estimated liability based upon historical claims information. The actuarial study, along with Management's knowledge of changes in business practice and existing claims is compared to current balances and the reserve is adjusted based upon the judgment of Management. Management's judgment is inherently subjective and a number of factors are outside Management's knowledge and control. Additionally, historical information is not always an accurate indication of future events. It should be noted that the number of claims has been decreasing due to the Company's proactive risk management to develop and maintain ongoing programs. However, it is not possible to predict future catastrophic claims. Initiatives which have been implemented include a driver certification program, utilization of a Global Positioning System in a large number of our company vehicles, post-offer physicals for new employees, and post-accident drug testing. The Company has improved the time required to report a claim by utilizing a "Red Alert" program that provides for 24/7 serious accident assessment and has instituted a modified duty program that enables employees to go back to work on a limited-duty basis.

Forward-Looking Statements

        This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements regarding the expected impact of the outcome of litigation arising in the ordinary course of business and the outcome of the Helen Cutler and Mary Lewin v. Orkin Exterminating Company, Inc. et al. ("Cutler") and the Butland et al. v. Orkin Exterminating Company, Inc. et al. ("Butland") litigation on the Company's financial condition, results of operations and liquidity; the Company's potential for recurring revenue; and the Company's projected 2002 capital expenditures and performance. 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, the possibility of an adverse ruling against the Company in the Cutler, Butland or other litigation; general economic conditions; market risk; changes in industry practices or technologies; the degree of success of the Company's termite process reforms and pest control selling and treatment methods; the Company's ability to identify potential acquisitions; climate and weather trends; competitive factors and pricing practices; potential increases in labor costs; 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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Market Risk

        As of December 31, 2001, the Company no longer maintains a material investment portfolio subject to interest rate risk exposure. The Company is, however, subject to interest rate risk exposure through borrowings on its $40.0 million credit facility. Due to the immaterial amount of such borrowings as of December 31, 2001 and as currently anticipated at December 31, 2002, this risk is not expected to have a material effect upon the Company's results of operations or financial position going forward.

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Item 8. Financial Statements and Supplementary Data.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Rollins, Inc. and Subsidiaries

The accompanying notes are an integral part of these consolidated financial statements.

15

CONSOLIDATED STATEMENTS OF INCOME
Rollins, Inc. and Subsidiaries

16

STATEMENT OF CHANGES IN EQUITY
Rollins, Inc. and Subsidiaries

The accompanying notes are an integral part of these consolidated financial statements.

17

CONSOLIDATED STATEMENTS OF CASH FLOWS
Rollins, Inc. and Subsidiaries

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000, and 1999, Rollins, Inc. and Subsidiaries

1.    SIGNIFICANT ACCOUNTING POLICIES

Business Description—Rollins, Inc. (the Company) is a national service company with headquarters located in Atlanta, Georgia, providing pest and termite control services to both residential and commercial customers.

        Orkin Exterminating Company, Inc. (Orkin), a wholly-owned subsidiary founded in 1901, is one of the world's largest pest and termite control companies. It provides customized services from over 400 locations to approximately 1.6 million customers. Orkin serves customers in the United States, Canada, and Mexico, providing essential pest control services and protection against termite damage, rodents and insects to homes and businesses, including hotels, food service establishments, discount and grocery retail stores, dairy farms and transportation companies. Orkin operates under the Orkin® and PCO Services, Inc.® trademarks and the Acurid^SM service mark.

        The Company has only one reportable segment, its pest and termite control business. The Company's results of operations and its financial condition are not reliant upon any single customer or a few customers or the Company's foreign operations.

Principles of Consolidation—The consolidated financial statements of the Company include the accounts of Rollins, Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated.

Estimates Used in the Preparation of Consolidated Financial Statements—The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 consolidated 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 through a contractual pricing arrangement where collectibility is reasonably assured.

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.

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 of $13.6 million in 2001 and $11.4 million and $10.7 million for each of the years 2000 and 1999 have been reflected in the Consolidated Statements of Income in the line item entitled Depreciation and Amortization. These annual provisions for depreciation are computed using the following asset lives: buildings, ten to forty years; and furniture, fixtures, and operating equipment, three to ten 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

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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. These estimated outstanding claims have been reflected in the Consolidated Statements of Financial Position in the line item entitled Accrued Insurance.

Advertising—Advertising expenses are charged to income during the year in which they are incurred. The total advertising costs were approximately $30.2 million, $30.8 million and $28.3 million in 2001, 2000, and 1999, respectively.

Income Taxes—The Company follows the practice of providing for income taxes based on Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns.

Earnings Per Share—In accordance with SFAS No. 128, "Earnings Per Share" (EPS), the Company presents 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 is as follows:

Stock-Based Compensation—As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company accounts for employee stock compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." See Note 9 for additional information.

Comprehensive Income—For the years ended December 31, 2000, and 1999, comprehensive income was not materially different from net income and, as a result, the impact of SFAS No. 130, "Reporting Comprehensive Income," was not reflected in the those consolidated financial statements. For the year ended 2001, the Company is reporting comprehensive income due to additional minimum liabilities recorded in association with the pension plan and foreign currency translation in the accompanying Statement of Changes in Equity.

New Accounting Standards—The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. The adoption of this standard, effective for the Company as of January 1, 2001, did not impact the results of operations or financial condition of the Company as the Company is not a party to any derivative transactions that fall under the provisions of this statement. In June 2001 the FASB approved SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interests method of accounting for business combinations initiated after June 30, 2001. The amortization of existing goodwill ceased on January 1, 2002. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in the Company's discontinuation of amortization of its goodwill; however, the Company will be required to test its goodwill for impairment under the new standard beginning in 2002. The expected impact from the application is a decrease in amortization expense of approximately $2.3 million in 2002. Also, per SFAS No. 142, the expected life of customer contracts was reviewed and they will be amortized over a life between 8 to

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12.5 years dependent upon customer type. The expected impact of this review is an increase in amortization expense of $2.1 million in 2002. The FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" effective June 15, 2002 that addresses obligations associated with the retirement of tangible long-lived assets and associated retirement costs. The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" effective for fiscal years beginning after December 15, 2001 and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company does not believe the impact of adopting SFAS No. 143 or SFAS No. 144 will have a material impact on its financial statements.

Reclassifications—Certain amounts for previous years have been reclassified to conform with the 2001 consolidated financial statement presentation.

2.    ACQUISITIONS AND JOINT VENTURE

        On April 30, 1999, the Company and Johnson Wax Professional entered into a joint venture, Acurid Retail Services, L.L.C. (Acurid Retail), created to sell and provide pest elimination services to customers in the retail market and jointly contributed existing customers to the joint venture. The Company owned 50% of the joint venture, which was accounted for using the equity method. On July 1, 2000, the Company further expanded its commercial operations through the acquisition of the remaining 50% of the joint venture. The acquisition was accounted for as a purchase with the results of operations of the business acquired included from the effective date of the acquisition.

        In addition, on April 30, 1999, the Company's wholly-owned subsidiary, Orkin Exterminating Company, Inc. (Orkin), acquired the remaining pest elimination business operations of PRISM, a subsidiary of Johnson Wax Professional, for approximately twenty-four million dollars. The acquisition was accounted for as a purchase with the results of operations of the business acquired included from the effective date of the acquisition. The acquisition resulted in excess costs over net assets acquired of approximately sixteen million dollars, which were being amortized over a life of twenty years using the straight-line method through December 31, 2001.

        On October 29, 1999, Orkin acquired PCO Services, Inc. (PCO), a subsidiary of Johnson Wax Professional. Orkin acquired all the shares of capital stock of PCO for approximately twenty-five million dollars. The acquisition was accounted for as a purchase with the results of operations of the business acquired included from the effective date of the acquisition. The acquisition resulted in excess costs over net assets acquired of approximately five hundred thousand dollars, which were being amortized over a life of twenty years using the straight-line method through December 31, 2001.

        On December 3, 1999, Orkin acquired the pest control business operations of Redd Pest Control Company, Inc. (Redd) for approximately thirteen million dollars, of which approximately seven million was paid in cash. Under the terms of the agreement, Orkin acquired all the pest control customers of Redd, together with certain assets. The acquisition was accounted for as a purchase with the results of operations of the business acquired included from the effective date of the acquisition. The acquisition resulted in excess costs over net assets acquired of approximately eight million dollars, which were being amortized over a life of twenty years using the straight-line method through December 31, 2001. In addition, the Company has made other, less significant individual acquisitions.

3.    TRADE RECEIVABLES

        Trade receivables, net, at December 31, 2001, totaling $48.5 million and at December 31, 2000, totaling $50.1 million are net of allowances for doubtful accounts of $7.0 million and $8.7 million, respectively. Trade receivables include installment receivable amounts, which are due subsequent to one year from the balance sheet dates. These amounts were approximately $7.4 million and $7.2 million at the end of 2001 and 2000, respectively. The carrying amount of installment receivables approximates fair value because the interest rates approximate market rates.

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4.    EQUIPMENT AND PROPERTY

        Equipment and property are presented at cost less accumulated depreciation and are detailed as follows:

5.    GOODWILL AND OTHER INTANGIBLE ASSETS

        Goodwill represents the excess of cost over net assets of businesses acquired and is stated at cost less accumulated amortization. Goodwill arising from acquisitions prior to November 1970 is 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. Goodwill arising from acquisitions since November 1970 has been amortized over useful lives ranging from fifteen to forty years.

        Other intangible assets include trademarks, customer contracts and non-compete agreements and are being amortized over three to twenty years. Total amortization expense for intangible assets was $6.7 million, $7.0 million and $2.7 million for the years ended December 31, 2001, 2000, and 1999, respectively.

6.    INCOME TAXES

        A reconciliation between taxes computed at the statutory rate on the Income Before Income Taxes and the Provision for Income Taxes is as follows:

        The Provision for Income Taxes was based on a 38.0% estimated effective income tax rate on Income Before Income Taxes for the years ended December 31, 2001, 2000 and 1999. The effective income tax rate differs from the annual federal statutory tax rate primarily because of state and foreign income taxes. For the year ended December 31, 2001, the Company paid income taxes of $5.9 million, net of refunds received. During 2000, the Company received a refund of income taxes of $2.8 million, net of current payments. For 1999, the Company paid income taxes of $662,000, net of refunds received.

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        Components of the net deferred income tax assets (liabilities) at December 31, 2001 and 2000 include:

7.    ACCRUAL FOR TERMITE CONTRACTS

        The Company maintains an accrual for termite contracts representing the estimated costs of reinspections, reapplications, repair claims and associated labor, chemicals, and other costs incurred relative to termite services performed prior to the balance sheet date.    These costs represent management's best estimate of costs to be incurred. The related liabilities at December 31, 2001 and 2000 have been reflected in the Consolidated Statements of Financial Position in the line items entitled Accrual for Termite Contracts.

8.    COMMITMENTS AND CONTINGENCIES

        The Company has capitalized lease obligations maturing in 2002 and several operating leases expiring at various dates through 2017. 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, 2001, are summarized as follows:

        Total rental expense under operating leases charged to operations was $28.7 million, $29.4 million and $25.6 million for the years ended December 31, 2001, 2000, and 1999, respectively.

        The Company maintains a credit facility with a bank that allows it to borrow up to $40.0 million on an unsecured basis at the bank's prime rate of interest or the indexed London Interbank Offered Rate (LIBOR). No amount was outstanding under this credit facility as of December 31, 2001. As of December 31, 2000, outstanding borrowings of $1.4 million under this credit facility were reflected in the Consolidated Statements of Financial Position in the line item entitled Other Current Liabilities.

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        The Company is aggressively defending lawsuits filed in the District Court of Houston County, Alabama and the Circuit Court of Hillsborough County, Tampa, Florida. At this time, the final outcome of the litigation cannot be determined. In the opinion of Management the ultimate resolution of the Houston County and Hillsborough County lawsuits will not have a material impact on the financial condition, results of operations or liquidity of the Company. For further discussion of these legal proceedings, see Part I, Item 3 beginning on page 8 of this Form 10-K.

        The Company is involved in other litigation matters incidental to its business. With respect to such other suits, Management does not believe the litigation in which the Company is involved will have a material adverse effect upon its results of operations or financial condition.

9.    EMPLOYEE BENEFIT PLANS

        The Company maintains a noncontributory tax-qualified defined benefit retirement plan (the Plan) covering all employees meeting certain age and service requirements. The 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. Effective January 1, 2002 the Company has adopted amendments to the plan including a change to the benefit calculation and limiting plan participation to current participants. These amendments are reflected below in the projected benefit obligation.

        The funded status of the Plan and the resulting accrued pension expense are summarized as follows as of December 31:

        Accrued pension expense at December 31, 2001 and 2000 of $1.2 million and $3.8 million, respectively, have been reflected in the Consolidated Statements of Financial Position in the line items entitled Accrued Payroll and Long-Term Accrued Liabilities. During 2001, the Company also recognized an additional minimum liability of approximately $6.2 million as a component of other comprehensive income.

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        The weighted-average assumptions as of December 31 were as follows:

        The components of net periodic benefit cost for the past three years are summarized as follows:

        At December 31, 2001, 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, Inc. Common Stock with a market value of $6.1 million.

        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 approximately $2.0 million in 2001, $2.1 million in 2000 and $2.2 million in 1999. At December 31, 2001 approximately 17% of the plan assets consisted of Rollins Inc. stock.

        The Company has two Employee Incentive Stock Option Plans, the first adopted in January 1994 (1994 Plan) and the second adopted in April 1998 (1998 Plan) as a supplement to the 1994 Plan. An aggregate of 3.0 million shares of Common Stock may be granted under various stock incentive programs sponsored by these plans, at a price not less than the market value of the underlying stock on the date of grant. Options may be issued under the 1994 Plan and the 1998 Plan through January 2004 and April 2008, respectively, and expire ten years from the date of grant, if not exercised.

        Options are also outstanding under a prior Employee Incentive Stock Option Plan (1984 Plan). Under this plan, 1.2 million shares of Common Stock were subject to options 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.

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        Option transactions during the last three years for the 1998, 1994 and 1984 Plans are summarized as follows:

        Information with respect to options outstanding and options exercisable at December 31, 2001 is as follows:

        The Company applied APB 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 consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date of its stock options granted in 2001, 2000, and 1999 under SFAS No. 123 (See Note 1), the Company's net income, as disclosed on the Consolidated Statements of Income, would have been reduced by approximately $1.5 million in 2001, $1.4 million in 2000, and $1.2 million in 1999. Earnings per share would have been reduced by $.05 in 2001, $.05 in 2000 and $.04 in 1999.

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        The per share weighted-average fair value of stock options granted during 2001, 2000, and 1999 was $5.45, $5.62, and $4.30, respectively, on the date of grant, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

10.    Unaudited Quarterly Data

PROFIT AND LOSS INFORMATION

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        There have been no changes in or disagreements with accountants on accounting and financial disclosure.

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PART III

Item 10. Directors and Executive Officers of the Registrant.

        The information under the captions "Election of Directors" included on pages 4 and 5 and "Section 16(a) Beneficial Ownership Reporting Compliance" included on page 13 of the Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 2002 is incorporated herein by reference. Additional information concerning executive officers is included in Part I, Item 4.A. of this Form 10-K.

Item 11. Executive Compensation.

        The information under the caption "Executive Compensation" included on pages 10 through 12 of the Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 2002 is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

        The information under the captions "Capital Stock" and "Election of Directors" included on pages 2 through 3 and pages 4 through 5, respectively, of the Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 2002 is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

        The information under the caption "Compensation Committee Interlocks and Insider Participation" included on page 9 of the Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 2002 is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)

Consolidated Financial Statements, Financial Statement Schedule and Exhibits.



1.

Consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements and Schedule are filed as part of this report.



2.

The financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Schedule is filed as part of this report.



3.

Exhibits listed in the accompanying Index to Exhibits are filed as part of this report. The following such exhibits are management contracts or compensatory plans or arrangements:

(b)

Reports on Form 8-K.



1.

No reports on Form 8-K were filed or were required to be filed during the fourth quarter of calendar year 2001.

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(c)

Exhibits (inclusive of item 3 above):

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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.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

        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.

R. Randall Rollins, Director
Wilton Looney, Director
Henry B. Tippie, Director
James B. Williams, Director
Bill J. Dismuke, Director

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ROLLINS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
(Item 14)