EXHIBIT (13)
TEN - YEAR FINANCIAL SUMMARY
Rollins, Inc. and Subsidiaries
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1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
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OPERATIONS SUMMARY
(In thousands except per
share data)
Revenues $620,435 $605,327 $575,802 $527,666 $475,555 $436,398 $402,324 $380,834 $354,303 $320,030
Cost of Services Provided 325,889 311,315 293,499 271,518 247,994 230,107 211,604 193,829 180,513 158,216
Depreciation and Amortization 7,950 8,130 8,310 7,966 7,806 7,482 7,509 7,013 6,935 6,388
Special Charge 12,000 - - - - - - - - -
Sales, General and
Administrative 216,234 208,289 203,483 187,238 169,825 155,904 146,658 140,158 126,355 119,079
Interest Expense (Income), Net (4,988) (2,994) (2,390) (1,870) (2,134) (2,460) (2,215) (1,693) (781) 257
-------- -------- ------- -------- -------- -------- -------- -------- -------- --------
Income Before Income Taxes 63,350(1) 80,587 72,900 62,814 52,064 45,365 38,768 41,527 41,281 36,090
Income Taxes 24,073 31,026 28,431 24,812 20,565 17,919 15,236 16,819 19,177 18,095
-------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Net Income $ 39,277(1) $ 49,561 $ 44,469 $ 38,002 $ 31,499 $ 27,446 $ 23,532 $ 24,708 $ 22,104 $ 17,995
-------- -------- ------- -------- -------- -------- -------- -------- -------- --------
-------- -------- ------- -------- -------- -------- -------- -------- -------- --------
Earnings per Share $ 1.10(1) $ 1.39 $ 1.25 $ 1.07 $ .89 $ .77 $ .67 $ .70 $ .63 $ .51
Dividends per Share $ .56 $ .50 $ .44 $ .40 $ .39 $ .37 $ .36 $ .34 $ .33 $ .32
Cash Provided by Operations $ 46,910 $ 39,340 $ 40,034 $ 33,319 $ 31,987 $ 36,350 $ 31,955 $ 24,323 $ 29,852 $ 28,695
Capital Expenditures $ 18,026 $ 8,368 $ 7,727 $ 7,042 $ 8,536 $ 8,929 $ 9,747 $ 7,825 $ 8,864 $ 5,940
Total Assets $314,925 $295,265 $267,194 $236,291 $204,577 $177,961 $160,121 $146,526 $130,953 $112,477
Long-Term Debt - - - - - - - - - -
Stockholders' Equity $214,318 $193,633 $160,508 $129,899 $105,137 $ 86,718 $72,228 $ 61,082 $ 48,455 $ 39,074
SELECTED RATIO ANALYSIS
(As a % of revenues except
return on average equity)
Cost of Services Provided 52.5% 51.5% 51.0% 51.5% 52.1% 52.7% 52.6% 50.9% 50.9% 49.4%
Sales, General and Administrative 34.9 34.4 35.3 35.5 35.7 35.7 36.5 36.8 35.7 37.2
Net Income 6.3(1) 8.2 7.7 7.2 6.6 6.3 5.8 6.5 6.2 5.6
Net Income without Special Charge 7.5 8.2 7.7 7.2 6.6 6.3 5.8 6.5 6.2 5.6
Return on Average Equity 19.3 28.0 30.6 32.3 32.8 34.5 35.3 45.1 50.5 50.9
SHARES OUTSTANDING
(In thousands)
Average 35,849 35,770 35,638 35,569 35,510 35,465 35,438 35,418 35,232 34,929
At Year End 35,858 35,826 35,673 35,592 35,532 35,478 35,453 35,426 35,412 34,968
(1) INCLUDES A SPECIAL CHARGE OF $12,000,000 ($7,440,000 AFTER TAX BENEFIT OR
$.21 PER SHARE) AT SEPTEMBER 30, 1995.
10 11
QUARTERLY INFORMATION
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STOCK PRICES AND DIVIDENDS
(Rounded to the nearest 1/8)
Stock Prices Dividends
High Low Paid
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1995
First Quarter $ 27 1/2 $ 22 $ .14
Second Quarter 28 5/8 22 1/8 .14
Third Quarter 25 1/4 23 .14
Fourth Quarter 25 18 7/8 .14
1994
First Quarter $ 30 3/4 $ 26 3/4 $ .12 1/2
Second Quarter 28 3/8 24 3/8 .12 1/2
Third Quarter 26 1/8 23 1/4 .12 1/2
Fourth Quarter 25 1/2 22 1/8 .12 1/2
THE NUMBER OF STOCKHOLDERS OF RECORD AS OF DECEMBER 31, 1995 WAS 3,764.
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PROFIT AND LOSS INFORMATION
(In thousands except per share data) First Second Third Fourth
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1995
Revenues $ 142,654 $175,350 $ 162,333 $ 140,098
Operating Income 14,901 35,217 6,842 (1) 13,233
Net Income 7,807 21,102 3,454 (1) 6,914
Earnings per share .22 .59 .09 (1) .20
1994
Revenues $ 136,443 $171,874 $ 158,002 $ 139,008
Operating Income 13,755 36,285 22,906 15,984
Net Income 6,888 21,066 13,011 8,596
Earnings per share .19 .59 .36 .25
1993
Revenues $ 127,295 $163,248 $ 151,808 $ 133,451
Operating Income 11,872 32,708 21,228 15,312
Net Income 5,867 19,071 11,688 7,843
Earnings per share .16 .54 .33 .22
(1) INCLUDES A SPECIAL CHARGE OF $12,000,000 ($7,440,000 AFTER TAX BENEFIT OR
$.21 PER SHARE) AT SEPTEMBER 30, 1995.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
SELECTED INDUSTRY SEGMENT DATA % CHANGE FROM
PRIOR YEAR
increase/ (decrease)
--------------------
(In thousands) 1995 1994 1993 1995 1994
---- ---- ---- ---- ----
- ----------------------------------------------------------------------------------------
REVENUES
Orkin $547,797 $530,099 $506,399 3.3% 4.7%
Rollins Protective 59,233 61,692 57,698 (4.0) 6.9
Other 13,405 13,536 11,705 (1.0) 15.6
------- ------- -------
$620,435 $605,327 $575,802 2.5 5.1
-------- -------- --------
-------- -------- --------
OPERATING INCOME
Orkin $ 76,754 $ 78,711 $ 70,720 (2.5) 11.3
Rollins Protective 4,476 6,579 5,896 (32.0) 11.6
Other (11,037) 3,640 4,504 N/M (19.2)
-------- -------- --------
$ 70,193 $ 88,930 $ 81,120 (21.1)% 9.6%
-------- -------- --------
-------- -------- --------
GENERAL OPERATING COMMENTS
The 1995 operating income and profit margin results were a reflection of the
Company's decision to support major business investments in all areas of
operations. Competition and current business conditions support the Company's
decision to make major investments in marketing, customer service, and division
operations, in order to increase market share and profits. Due to the decrease
in normal revenue growth rates, expense control opportunities were identified in
all segments during the year. Improvement measures were implemented in the
fourth quarter, including the reduction of certain home office and field
administrative/managerial functions.
Earnings were also negatively impacted by a one-time Special Charge of $12.0
million ($7.4 million after-tax or $.21 per share) relating to the write off of
doubtful accounts receivable in the consumer finance operation, Rollins
Acceptance Company (RAC). The charge was a result of management's actions and
assessment of the estimated realizable value of the financed receivables
portfolio versus the carrying amount at September 30, 1995. To more effectively
manage the financed receivables portfolio, the Company expanded RAC's physical
facility, acquired new computers and phone dialing equipment, and increased the
staffing of collectors. Exclusive of the Special Charge, 1995 earnings per share
would have been $1.31 compared to $1.39 in 1994 and $1.25 in 1993.
Rollins, Inc.'s consolidated revenues of $620.4 million were 2.5% higher than in
1994. Operating income decreased $18.7 million or 21.1% over the prior year.
As a result of the Special Charge, increased business investment activity, and
not reducing expenses to match the revenue growth rate decreases, operating
margins declined 23.1% (9.8% without the Special Charge) over 1994 compared to
1994's improvement over 1993 of 4.3%.
Orkin revenues increased 3.3% to $547.8 million with operating income and
operating margins decreasing 2.5% and 5.4%, respectively, over the prior
year. This compares to a 5.7% margin improvement from 1994 over 1993.
Rollins Protective Services' revenues declined 4.0%, along with operating
income 32.0% lower, while operating margins deteriorated 29.0% from 1994.
This compares to a 4.9% margin improvement from 1994 over 1993.
ORKIN 1995 VERSUS 1994
Orkin increased its pest control and termite sales dollars and customer base,
despite a second consecutive year of an unusual cold and wet spring that
negatively impacted the seasonal termite business. Orkin continues to be
encouraged by the positive results in its core business, monthly recurring pest
control. Residential pest control leads and sales, and termite renewals were up
over last year. The growing pest control business involves a coordinated
emphasis on commercial opportunities. This includes more focused leadership via
the creation of a Director of Commercial Pest Control, who will be
13
identifying opportunities and strategies to expand this business.
Orkin's 1995 strategic investments in the pest control business include
increases in sales and service personnel, training, and value marketing
programs. The million dollar Rollins Customer Service Center (RCSC) was opened
during the first quarter. The RCSC is designed to centrally and proactively
monitor customer service quality and to generate additional sales by cross-
marketing our approximately 1.7 million customers. These investments will be
ongoing, with a primary focus on the following business fundamentals: Increase
Employee Sales and Service Staffing, Enhance Training, Target Marketing Efforts,
and Improve Customer Satisfaction. Additional future growth will come from
internal and external expansion, with a plan to double the number of new,
company-owned branch openings in 1996, expansion of the Franchise program, a
growing presence in Canada, and increasing acquisition activity.
In 1995, Orkin Plantscaping continued its "back to basics" program and reviewed
its fundamental operating practices. Technical training opportunities were
identified to improve sales and retain current customers. A major training
initiative to include all sales and service personnel will be implemented in
1996. In addition, a veteran senior Orkin executive took over the Division in
the fourth quarter.
After the December 1994 sale of the eleven Northern locations, Lawn Care
restructured its business, including management's span of control and sales and
service staffing, to fit a smaller, more tightly focused geographic market. On
a comparable unit basis, Orkin Lawn Care had revenue and customer base growth
and expects this positive momentum to carry forward into 1996 with increasing
revenue and profitability. The primary focus will be improving sales generation
activity and converting the increasing number of new customer leads, received by
the Rollins Customer Service Center.
ORKIN 1994 VERSUS 1993
Orkin revenues increased 4.7% to $530.1 million and operating income increased
11.3% to $78.7 million for the year ended December 31, 1994, compared to the
same period last year. Orkin experienced a disappointing pest season, unlike
any in its history; however Pest Control and Termite services increased their
sales dollars and customer base for the year. Orkin maintained its commitment
to expanding existing operations by entering new geographic markets with the
opening of nine new branches.
The fundamentals and financial position of the Pest Control business remained
very strong. Orkin was motivated to take full advantage of market opportunities
through alternative services such as the Agribusiness service, which produced
strong revenue gains in 1994. Success with other new marketing and service
programs also contributed to revenue and operating income improvements. These
programs included the introduction of a 24 hour 1-800-800-ORKIN service and a
neighborhood solicitation campaign. The neighborhood campaign was expanded
during the summer of 1994 in selected markets and exceeded sales expectations.
Orkin utilized its telemarketing program to make customer quality assurance
calls which provided customer satisfaction confirmation and the expansion of
Orkin services. Additionally, sales benefits of cross-marketing other Rollins'
services were achieved.
Orkin Plantscaping focused on sales and service basics in 1994, including
formalizing sales proposals, developing new sales brochures, and managing the
quality and selection of plant inventory. To address a soft year, Plantscaping
concentrated on training employees to better address the customer needs and
improve creative sales skills.
ROLLINS PROTECTIVE SERVICES (RPS) 1995 VERSUS 1994
RPS continues its investments in strategic programs that include customer
service and product development. In addition, the consolidation of the three
separate central alarm monitoring stations, and the customer support functions,
into a single, state-of-the-art, integrated, National Customer Support Center
was completed during the third quarter 1995. RPS continued to experience
difficulty in achieving an appropriate product sales mix; however, the recurring
revenue customer base continues to grow through customer service programs and
acquisitions. RPS completed seven modest acquisitions during the year which
allowed for the expansion of its services in existing markets, while providing
their customers continued access to quality service.
Future growth is planned to occur through the introduction of the new System VII
product, continuing business development activities, and enhancing the RPS
National Customer Support Center (consolidated customer service/alarm monitoring
center). System VII testing and technical training was completed and introduced
to the market in the fourth quarter 1995. Business development activities will
include additional acquisitions and
14
investigating possible strategic partnerships and alliances in response to the
ever-changing technological options and advancements in the industry.
ROLLINS PROTECTIVE SERVICES (RPS) 1994 VERSUS 1993
RPS had 1994 revenues of $61.7 million, an increase of 6.9%, and operating
income improved 11.6% to $6.6 million. Revenue growth in 1994 was driven by the
expansion of the commercial and National Accounts programs and the opening of
two new locations. RPS enjoyed one of the highest customer retention rates in
the industry. RPS secured several large National Accounts, including
Blockbuster and Discovery Zone, and enhanced relationships with existing key
account customers.
OTHER 1995 VERSUS 1994
Other businesses revenue decreased 1.0% due to revisions of the Company's credit
and internal operating policies within the consumer finance area (RAC). The
volume of Company financed sales is slightly lower than last year, as the
revised policies redirected marketing efforts toward stronger customer
demographics in conjunction with the lower than anticipated termite demand. In
addition, the Special Charge, discussed in further detail under "General
Operating Comments", negatively impacted Operating Income.
OTHER 1994 VERSUS 1993
Other business' revenue increased 15.6% while operating income decreased 19.2%.
During the fourth quarter 1994, management performed a major evaluation of the
Company's credit and internal operating policies within the credit service
center. Management instituted a revision of these credit policies which refines
marketing efforts toward stronger customer demographics, while providing a
higher average contract price. The objectives of these changes were to increase
our average dollar sales unit purchased, and reduce doubtful account exposure.
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FINANCIAL CONDITION
% CHANGE FROM PRIOR YEAR
increase/(decrease)
-------------------
(Dollars in thousands) 1995 1994 1993 1995 1994
- -----------------------------------------------------------------------------------------------
Cash and Short-Term
Investments $ 33,623 $ 31,917 $ 18,102
Marketable Securities 65,743 51,820 50,991
-------- -------- --------
$ 99,366 $ 83,737 $ 69,093 18.7% 21.2%
Working Capital $151,756 $148,010 $117,528 2.5% 25.9%
Current Ratio 3.1 3.2 2.8 (3.1)% 14.3%
Cash Provided by
Operations $ 46,910 $ 39,340 $ 40,034 19.2% (1.7)%
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. Interest income increased 66.6% due to the
increase in average funds invested in short-term investments and marketable
securities, coupled with the increase in the average rate of return.
Net trade receivables decreased $13.4 million or 13.1% compared with December
31, 1994. Trade receivables include installment receivables which are due
subsequent to one year from the balance sheet date. These amounts were
approximately $26.2 million and $33.8 at the end of 1995 and 1994, respectively.
The decrease in receivables is primarily the result of the amounts written off
as doubtful accounts, including the Special Charge and the effect of the
revisions to the Company's credit and internal operating policies within the
consumer finance area.
During 1995, the Company invested $22.2 million in capital expenditures and
acquisitions compared to $9.0 million in 1994. Also, $20.1 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.
15
STATEMENTS OF FINANCIAL POSITION
Rollins, Inc. and Subsidiaries
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At December 31, (In thousands except share data) 1995 1994
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ASSETS
Cash and Short-Term Investments $ 33,623 $ 31,917
Marketable Securities 65,743 51,820
Trade Receivables, Net 88,542 101,900
Materials and Supplies 13,924 16,250
Deferred Income Taxes 7,447 4,445
Other Current Assets 13,486 8,567
------------ ------------
Current Assets 222,765 214,899
Equipment and Property, Net 37,799 27,989
Intangible Assets 42,013 42,092
Other Assets 12,348 10,285
------------ ------------
Total Assets $ 314,925 $ 295,265
------------ ------------
------------ ------------
LIABILITIES
Capital Lease Obligation $ 1,314 $ -
Accounts Payable 13,334 12,002
Accrued Insurance Expenses 14,314 14,258
Accrued Payroll 12,028 12,700
Unearned Revenue 14,695 15,567
Other Expenses 15,324 12,362
------------ ------------
Current Liabilities 71,009 66,889
Capital Lease Obligation 7,422 -
Long-Term Accrued Liabilities 15,936 22,538
Deferred Income Taxes 6,240 12,205
------------ ------------
Total Liabilities 100,607 101,632
------------ ------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share; authorized
99,500,000 shares;41,431,814 shares issued 41,432 41,432
Earnings Retained 224,009 203,582
------------ ------------
265,441 245,014
Less--Common Stock in Treasury, at Cost,
5,573,589 shares in 1995; 5,605,412 shares 51,123 51,381
in 1994 ------------ ------------
Total Stockholders' Equity 214,318 193,633
------------ ------------
Total Liabilities and Stockholders' Equity $ 314,925 $ 295,265
------------ ------------
------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
16
STATEMENTS OF INCOME
Rollins, Inc. and Subsidiaries
- -----------------------------------------------------------------------------------------------------------
Years Ended December 31, (In thousands except per share data) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
REVENUES
Customer Services $ 620,435 $ 605,327 $ 575,802
-------- --------- ---------
COSTS AND EXPENSES
Cost of Services Provided 325,889 311,315 293,499
Depreciation and Amortization 7,950 8,130 8,310
Special Charge 12,000 - -
Sales, General and Administrative Expenses 216,234 208,289 203,483
Interest Income (4,988) (2,994) (2,390)
-------- --------- ---------
557,085 524,740 502,902
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-------- --------- ---------
INCOME BEFORE INCOME TAXES 63,350 80,587 72,900
-------- --------- ---------
PROVISION (CREDIT) FOR INCOME TAXES
Current 31,919 30,201 30,339
Deferred (7,846) 825 (1,908)
-------- --------- ---------
24,073 31,026 28,431
-------- --------- ---------
NET INCOME $ 39,277 $ 49,561 $ 44,469
-------- --------- ---------
-------- --------- ---------
EARNINGS PER SHARE $ 1.10 $ 1.39 $ 1.25
-------- --------- ---------
-------- --------- ---------
AVERAGE SHARES OUTSTANDING 35,849 35,770 35,638
-------- --------- ---------
-------- --------- ---------
STATEMENTS OF EARNINGS RETAINED
Rollins, Inc. and Subsidiaries
Years Ended December 31, (In thousands except per share data) 1995 1994 1993
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Balance at Beginning of Year $ 203,582 $ 171,862 $ 141,999
Net Income 39,277 49,561 44,469
Cash Dividends (20,076) (17,887) (15,680)
Other 1,226 46 1,074
-------- --------- ---------
Balance at End of Year $ 224,009 $ 203,582 $ 171,862
-------- --------- ---------
-------- --------- ---------
DIVIDENDS PER SHARE $ 0.56 $ 0.50 $ 0.44
-------- --------- ---------
-------- --------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
17
STATEMENTS OF CASH FLOWS
Rollins, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------
Years Ended December 31, (In thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 39,277 $ 49,561 $ 44,469
Noncash Charges (Credits) to Earnings:
Special Charge 12,000 - -
Depreciation and Amortization 7,950 8,130 8,310
Deferred Income Taxes (7,846) 825 (1,908)
Other, Net 4,461 2,382 3,152
(Increase) Decrease in Assets:
Trade Receivables 1,476 (14,257) (20,474)
Materials and Supplies 2,422 (421) 1,477
Other Current Assets (622) (3,183) 3,473
Other Non-Current Assets (1,167) (533) (612)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 3,681 (2,676) 924
Unearned Revenue (1,040) 2,713 3,347
Long-Term Accrued Liabilities (6,602) (4,277) 3,643
Non-Current Deferred Income Taxes (7,080) 1,076 (5,767)
------------ ------------ ------------
Net Cash Provided by Operating Activities 46,910 39,340 40,034
------------ ------------ ------------
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of Equipment and Property (9,080) (8,256) (7,690)
Net Cash Used for Acquisition of Companies (4,373) (740) (397)
Marketable Securities, Net (12,463) (1,910) (20,334)
Proceeds from Sale of Equipment and Property 215 1,152 288
------------ ------------ ------------
Net Cash Used in Investing Activities (25,701) (9,754) (28,133)
------------ ------------ ------------
------------ ------------ ------------
FINANCING ACTIVITIES
Dividends Paid (20,076) (17,887) (15,680)
Treasury Stock Issued to Benefit Plans 573 2,116 1,820
------------ ------------ ------------
Net Cash Used in Financing Activities (19,503) (15,771) (13,860)
------------ ------------ ------------
------------ ------------ ------------
Net Increase (Decrease) in Cash
and Short-Term Investments 1,706 13,815 (1,959)
Cash and Short-Term Investments
at Beginning of Year 31,917 18,102 20,061
------------ ------------ ------------
Cash and Short-Term Investments
at End of Year $ 33,623 $ 31,917 $ 18,102
------------ ------------ ------------
------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
18
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993, ROLLINS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION - Rollins, Inc. is a national company with
headquarters located in Atlanta, Georgia, providing services to both residential
and commercial customers. The four primary services provided are termite and
pest control, protective services, lawn care, and plantscaping.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Rollins, Inc. (the Company) and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.
ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation
of the financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
REVENUES - Revenue is recognized at the time services are performed.
CASH AND SHORT-TERM INVESTMENTS - The Company considers all investments
with a maturity of three months or less to be cash equivalents. Short-term
investments are stated at cost which approximates fair value.
MARKETABLE SECURITIES - Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under this statement, the Company's
marketable securities are classified as "available for sale" and have been
recorded at current market value with an offsetting adjustment to stockholders'
equity. The adoption of this statement did not have a material effect on the
Company's financial position.
MATERIALS AND SUPPLIES - Materials and supplies are recorded at the lower
of cost (first-in, first-out basis) or market.
EQUIPMENT AND PROPERTY - Depreciation and amortization are provided
principally on a straight-line basis over the estimated useful lives of the
related assets. Annual provisions for depreciation are computed using the
following asset lives: buildings, 10 to 40 years; and furniture, fixtures, and
operating equipment, 3 to 10 years. The cost of assets retired or otherwise
disposed of and the related accumulated depreciation and amortization are
eliminated from the accounts in the year of disposal with the resulting gain or
loss credited or charged to income. Expenditures for additions, major renewals
and betterments are capitalized and expenditures for maintenance and repairs
are expensed as incurred.
INSURANCE - The Company self-insures, up to specified limits, certain risks
related to general liability, workers' compensation and vehicle liability. The
estimated costs of existing and future claims under the self-insurance program
are accrued based upon historical trends as incidents occur, whether reported or
unreported (although actual settlement of the claims may not be made until
future periods) and may be subsequently revised based on developments relating
to such claims. The non-current portion of these estimated outstanding claims
comprises most of the long-term accrued liabilities balance shown on the
Statements of Financial Position.
ADVERTISING - Advertising expenses are charged to income during the year
in which they are incurred. The total advertising costs were approximately
$27,292,000, $25,834,000, and $23,517,000 in 1995, 1994, and 1993, respectively.
INCOME TAXES - The Company follows the practice of providing for income
taxes based on Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes". SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
COMMON STOCK - Earnings per share is computed on the basis of weighted-
average shares outstanding. Stock options outstanding do not have a significant
dilutive effect.
2. SPECIAL CHARGE
A special charge of $12,000,000 ($7,440,000 after tax benefit or $.21 per
share) was recorded in the third quarter 1995 to write off doubtful accounts
receivable in the consumer finance operation, Rollins Acceptance Company, (RAC),
as a result of management's actions and assessment of the estimated realizable
value of the financed receivables portfolio at September 30, 1995.
19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993, ROLLINS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
3. TRADE RECEIVABLES
Trade receivables, net, at December 31, 1995, totalling $88,542,000 and at
December 31, 1994, totalling $101,900,000 are net of allowances for doubtful
accounts of $9,991,000 and $5,944,000, respectively. Trade receivables include
installment receivable amounts which are due subsequent to one year from the
balance sheet dates. These amounts were approximately $26,209,000 and
$33,849,000 at the end of 1995 and 1994, respectively. The carrying amount of
installment receivables approximates fair value because the interest rates
approximate market rates.
4. EQUIPMENT AND PROPERTY
Equipment and property are presented at cost less accumulated depreciation
and are detailed as follows:
(In thousands) 1995 1994
- --------------------------------------------------------------------------------
Buildings $ 9,238 $ 9,014
Operating equipment 55,339 59,168
Furniture and fixtures 12,018 10,688
Computer equipment under
Capital lease 8,736 -
--------- ---------
85,331 78,870
Less - accumulated depreciation 50,715 54,016
--------- ---------
34,616 24,854
Land 3,183 3,135
--------- ---------
$ 37,799 $ 27,989
--------- ---------
--------- ---------
5. INTANGIBLE ASSETS
Intangible assets represent goodwill arising from acquisitions and are
stated at cost less accumulated amortization. Intangibles which arose from
acquisitions prior to November, 1970 are not being amortized for financial
statement purposes, since, in the opinion of management, there has been no
decrease in the value of the acquired businesses. Intangibles arising from
acquisitions since November, 1970 are being amortized over forty years.
6. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes".
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial and tax basis using enacted tax rates in effect for the year in
which the differences are expected to reverse. These differences are more
inclusive in nature than differences determined under previously applicable
accounting principles.
A reconciliation between taxes computed at the statutory rate on the income
before income taxes and the provision for income taxes is as follows:
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------
Federal income taxes
at statutory rate $ 22,172 $28,205 $25,515
State income taxes
(net of federal benefit) 3,015 3,286 3,137
Other (1,114) (465) (221)
-------- ------- -------
$ 24,073 $31,026 $28,431
-------- ------- -------
-------- ------- -------
The provision for income taxes was based on a 38.0%, 38.5%, and 39.0%
estimated effective income tax rate on income before income taxes for the years
ended December 31, 1995, 1994, and 1993, respectively. The effective income tax
rate differs from the annual federal statutory tax rate primarily because of
state income taxes.
Income taxes remitted were $37,708,000, $33,915,000, and $25,796,000 for
the years ended December 31, 1995, 1994, and 1993, respectively.
The tax effect of the temporary differences which comprise the current and
non-current deferred income tax debits (credits) amounts is as follows:
(In thousands) 1995 1994
- --------------------------------------------------------------------
Deferred Tax Assets (Liabilities)
Insurance reserves $ 11,925 $ 13,801
Safe harbor lease (16,374) (16,955)
Bad debts 2,268 1,592
Other 3,388 (6,198)
-------- --------
$ 1,207 $ (7,760)
-------- ---------
-------- ---------
During 1982, the Company entered into a twenty-year "Safe Harbor" lease
agreement under the Economic Recovery Tax Act of 1981 for the purchase of
federal income tax benefits. The Company has invested $29,096,000 in the lease.
The investment in tax benefits from the safe harbor lease agreement has been
allocated between investment tax credit benefits and tax deduction timing
benefits. The investment amount has been reflected as a reduction in non-
current deferred income taxes. Amortization of timing benefits into expense is
computed at a constant rate of return.
20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993, ROLLINS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES
The Company has a capitalized lease obligation and several operating
leases. The minimum lease payments under the capital lease and non-cancelable
operating leases with terms in excess of one year, in effect at December 31,
1995, are summarized as follows:
Capitalized Operating
(In thousands) Lease Leases
- -------------------------------------------------------------------------------
1996 $ 1,687 $18,262
1997 2,024 13,997
1998 2,024 9,582
1999 2,024 6,947
2000 2,024 5,569
Thereafter 337 39,957
------- -------
$10,120 $94,314
-------
-------
Amount representing interest (1,384)
-------
Present value of obligation 8,736
Portion due within one year (1,314)
-------
Long-term obligation $ 7,422
-------
-------
Total rental expense under operating leases charged to operations was
$25,701,000, $24,867,000, and $24,274,000 for the years ended December 31, 1995,
1994, and 1993, respectively.
During November 1995, Orkin and the Attorney General of Missouri and
private plaintiffs reached an agreement in settlement of a class action
regarding treatments for termites for residential customers with basement homes
contracted for between January 1, 1987 and May 15, 1993. The presiding judge of
the Circuit Court of the City of St. Louis approved the settlement on December
13, 1995. The resolution does not constitute an admission of wrongdoing by the
Company and did not have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
In the normal course of business, the Company is a defendant in a number of
lawsuits which allege that plaintiffs have been damaged as a result of the
rendering of services by Company personnel and equipment. The Company is
actively contesting these actions. It is the opinion of Management that the
outcome of these actions will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.
21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993, ROLLINS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
8. BUSINESS SEGMENT INFORMATION
The Company operates two major business segments. Certain information with
respect to the Company's business segments is as follows:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
REVENUES
Orkin $547,797 $530,099 $506,399
Rollins Protective 59,233 61,692 57,698
Other 13,405 13,536 11,705
-------- -------- --------
$620,435 $605,327 $575,802
-------- -------- --------
-------- -------- --------
OPERATING INCOME
Orkin $ 76,754 $ 78,711 $ 70,720
Rollins Protective 4,476 6,579 5,896
Other (11,037)(1) 3,640 4,504
-------- -------- --------
70,193 88,930 81,120
OTHER
Corporate expenses, net (11,831) (11,337) (10,610)
Interest income 4,988 2,994 2,390
-------- -------- --------
Income before
income taxes $ 63,350 (1) $ 80,587 $ 72,900
-------- -------- --------
-------- -------- --------
IDENTIFIABLE ASSETS
Orkin $167,037 $169,750 $161,850
Rollins Protective 22,618 21,236 18,420
Other 125,270 104,279 86,924
-------- -------- --------
$314,925 $295,265 $267,194
-------- -------- --------
-------- -------- --------
DEPRECIATION AND AMORTIZATION EXPENSE
Orkin $ 6,154 $ 6,654 $ 6,992
Rollins Protective 634 448 433
Other 1,162 1,028 885
-------- -------- --------
$ 7,950 $ 8,130 $ 8,310
-------- -------- --------
-------- -------- --------
CAPITAL EXPENDITURES
Orkin $ 14,413 $ 6,530 $ 5,919
Rollins Protective 1,923 466 413
Other 1,690 1,372 1,395
-------- -------- --------
$ 18,026 $ 8,368 $ 7,727
-------- -------- --------
-------- -------- --------
(1) INCLUDES A SPECIAL CHARGE OF $12,000,000 ($7,440,000 AFTER TAX BENEFIT OR
$.21 PER SHARE) AT SEPTEMBER 30, 1995.
9. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory tax-qualified defined benefit
retirement plan covering all employees meeting certain age and service
requirements. The qualified plan provides benefits based on the average
compensation for the highest five years during the last ten years of credited
service (as defined) in which compensation was received, and the average
anticipated Social Security covered earnings. The Company funds the Plan with
at least the minimum amount required by ERISA.
The Company's net pension expense for the past three years is summarized as
follows:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Service cost-benefits
earned during the period $ 2,844 $ 2,749 $ 2,345
Interest cost on projected
benefit obligation 3,958 3,524 3,248
Actual return on plan assets (9,236) 1,445 (4,218)
Net amortization
of transition asset (1,181) (1,181) (1,099)
Deferral of net
investment gain (loss) 4,778 (5,718) 227
------- ------- -------
Net pension expense $ 1,163 $ 819 $ 503
------- ------- -------
------- ------- -------
The funded status of the Plan is summarized as follows at December 31:
(In thousands) 1995 1994
- -----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation
including vested benefits of
$41,850 in 1995 and
$32,261 in 1994 $ (45,553) $(34,994)
Effect of projected future
compensation levels (9,131) (8,412)
--------- --------
Projected benefit obligation (54,684) (43,406)
Plan assets at fair value 52,056 44,837
--------- --------
Plan assets in excess of (less than)
projected obligation (2,628) 1,431
Unrecognized net loss 6,204 4,489
Unrecognized net asset at
transition being amortized over
10 years (1,725) (2,876)
Unrecognized prior service cost (325) (355)
--------- --------
Prepaid pension expense
included in other assets $ 1,526 $ 2,689
--------- --------
--------- --------
22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993, ROLLINS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
At December 31, 1995, the Plan's assets were comprised of listed common
stocks and U.S. Government and corporate securities. Included in the assets of
the Plan were shares of Rollins common stock with a market value of $6,697,000.
The expected long-term rate of return on plan assets was 9.5% in 1995, 1994, and
1993. The weighted-average discount rate used in determining the projected
benefit obligation was increased from 8.0% in 1993 to 8.5% in 1994, and
decreased to 7.5% in 1995 to more closely approximate rates on high-quality,
long-term obligations. The assumed growth rate of compensation was 5.5% in
1993 and 1994, and 4.5% in 1995.
The Company sponsors a deferred compensation 401(k) plan that is available
to substantially all employees with six months of service. The charges to
expense for the Company match were $1,627,000 in 1995, $1,465,000 in 1994, and
$1,379,000 in 1993.
The Company has an Employee Incentive Stock Option Plan (1984 Plan),
adopted in October, 1984, under which 1,200,000 shares of common stock were
subject to options to be granted during the ten-year period ended October, 1994.
The options were granted at the fair market value of the shares on the date of
the grant and expire ten years from the date of the grant, if not exercised. No
additional options will be granted under this Plan.
Option transactions during the last three years for the 1984 Plan are
summarized as follows:
(Number of shares) 1995 1994 1993
- -----------------------------------------------------------------------------
Outstanding at
January 1, 73,857 114,206 117,781
Granted - - 9,900
Exercised (6,696) (36,009) (9,965)
Cancelled (4,550) (4,340) (3,510)
------ ------- -------
Outstanding at
December 31, 62,611 73,857 114,206
Exercisable at
December 31, 50,501 46,857 70,976
------ ------ -------
Option price ranges per share:
Granted $ - $ - $ 25.50
Exercised 7.00-19.08 5.92-25.50 5.92-13.25
Cancelled 11.25-25.50 5.92-25.50 13.58-25.50
Outstanding 8.50-25.50 7.00-25.50 5.92-25.50
On January 25, 1994, the Company adopted a new Employee Stock Incentive
Plan (1994 Plan) under which 1,200,000 shares of common stock are subject to
grants through January 25, 2004 under various stock incentive programs. The
options were granted at the fair market value of the shares on the date of the
grant and expire ten years from the date of the grant, if not exercised.
Grant and option transactions during the last two years for the 1994 Plan
are summarized as follows:
(Number of shares) 1995 1994
- -----------------------------------------------------------------------------
Outstanding at
January 1, 193,100 -
Granted 17,000 200,900
Exercised - -
Cancelled (15,100) (7,800)
-------- -------
Outstanding at
December 31, 195,000 193,100
Exercisable at
December 31, 21,140 -
-------- -------
Option price ranges per share:
Granted $ 24.25 $ 28.38
Exercised -- --
Cancelled 24.25-28.38 28.38
Outstanding 24.25-28.38 28.38
23
REPORT OF MANAGEMENT
To the Stockholders of Rollins, Inc.:
We have prepared the accompanying financial statements and related
information included herein for the years ended December 31, 1995, 1994 and
1993. The opinion of Arthur Andersen LLP, the Company's independent auditors,
on those financial statements is included herein. The primary responsibility
for the integrity of the financial information included in this annual report
rests with management. Such information was prepared in accordance with
generally accepted accounting principles, appropriate in the circumstances,
based on our best estimates and judgements and giving due consideration to
materiality.
Rollins, Inc. maintains internal accounting control systems which are
adequate to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and which produce records adequate for preparation of
financial information. The system and controls and compliance therewith are
reviewed by an extensive program of internal audits and by our independent
auditors. There are limits inherent in all systems of internal accounting
control based on the recognition that the cost of such a system should not
exceed the benefits to be derived. We believe the Company's system provides
this appropriate balance.
The Board of Directors pursues its review and oversight role for these
financial statements through an Audit Committee composed of three outside
directors. The Audit Committee's duties include recommending to the Board of
Directors the appointment of an independent accounting firm to audit the
financial statements of Rollins, Inc. The Audit Committee meets periodically
with management and the Board of Directors. It also meets with representatives
of the internal and independent auditors and reviews the work of each to insure
that their respective responsibilities are being carried out and to discuss
related matters. Both the internal and independent auditors have direct access
to the Audit Committee.
R. Randall Rollins Gene L. Smith
CHAIRMAN OF THE BOARD AND CHIEF FINANCIAL OFFICER,
CHIEF EXECUTIVE OFFICER SECRETARY, AND TREASURER
Atlanta, Georgia
February 12, 1996
REPORT OF INDEPENDENT AUDITORS
To the Directors and Stockholders of Rollins, Inc.:
We have audited the accompanying statements of financial position of
Rollins, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994 and the related statements of income, earnings retained and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rollins, Inc. and
subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
February 12, 1996
24
Directors, Officers and Stockholders' Information
- --------------------------------------------------------------------------------
DIRECTORS
JOHN W. ROLLINS
Chairman of the Board and Chief Executive Officer of Rollins Truck Leasing Corp.
(vehicle leasing and transportation), Chairman of the Board and Chief Executive
Officer of Rollins Environmental Services, Inc. (hazardous waste treatment and
disposal)
HENRY B. TIPPIE+
Chairman of the Board and Chief Executive Officer of Tippie Communications, Inc.
(radio stations)
R. RANDALL ROLLINS*
Chairman of the Board and Chief Executive Officer of Rollins, Inc., Chairman of
the Board and Chief Executive Officer of RPC, Inc. (oil and gas field
services, and boat manufacturing)
WILTON LOONEY+
Honorary Chairman of the Board of Genuine Parts Company (automotive parts
distributor)
JAMES B. WILLIAMS+
Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc. (bank
holding company)
GARY W. ROLLINS*
President and Chief Operating Officer of Rollins, Inc.
BILL J. DISMUKE
Retired President of Edwards Baking Company
*MEMBER OF THE EXECUTIVE COMMITTEE
+MEMBER OF THE AUDIT AND COMPENSATION COMMITTEES
OFFICERS
R. RANDALL ROLLINS
Chairman of the Board and Chief Executive Officer
GARY W. ROLLINS
President and Chief Operating Officer
GENE L. SMITH
Chief Financial Officer, Secretary, and Treasurer
STOCKHOLDERS' INFORMATION
ANNUAL MEETING
The Annual Meeting of the Stockholders will be held at 9:30 a.m. Tuesday, April
23, 1996, at the Company's corporate offices in Atlanta, Georgia.
TRANSFER AGENT AND REGISTRAR
For inquiries related to stock certificates, including changes of address, lost
certificates, dividends, and tax forms, please contact:
SunTrust Bank
Stock Transfer Department
P.O. Box 4625
Atlanta, Georgia 30302
Telephone: 1-800-568-3476
STOCK EXCHANGE INFORMATION
The Common Stock of the Company is listed on the New York and Pacific Stock
Exchanges and traded on the Philadelphia, Chicago and Boston Exchanges under
the symbol ROL.
DIVIDEND REINVESTMENT PLAN
This Plan provides a simple, convenient, and inexpensive way for stockholders
to invest cash dividends in additional Rollins, Inc. shares. For further
information, contact SunTrust Bank, Atlanta at the above address or write to
the Secretary at the Company's mailing address.
FORM 10-K
The Company's annual report on Form 10-K to the Securities and Exchange
Commission provides certain additional information. Stockholders may obtain a
copy by contacting the Secretary at the Company's mailing address.
CORPORATE OFFICES
Rollins, Inc.
2170 Piedmont Road, N.E.
Atlanta, Georgia 30324
MAILING ADDRESS
Rollins, Inc.
P.O. Box 647
Atlanta, Georgia 30301
TELEPHONE
(404) 888-2000
25