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Cover and table of contents
10-K 1 rol-123117x10k.htm 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
Commission file No. 1-4422
ROLLINS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 51-0068479 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) | ||
| 2170 Piedmont Road, N.E., Atlanta, Georgia | 30324 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (404) 888-2000
Securities registered pursuant to Section 12(b) of the Act:
| Name of each | ||
| Title of each class | Exchange on which registered | |
| Common Stock, $1 Par Value | The New York Stock Exchange |
Securities registered pursuant to section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ý | Accelerated filer | o | |||
| Non-accelerated filer | o | Smaller reporting company | o | (Do not check if a smaller reporting company) | ||
| Emerging growth company | ||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The aggregate market value of Rollins, Inc. Common Stock held by non-affiliates on June 30, 2017 was $3,875,558,068 based on the reported last sale price of common stock on June 30, 2017, which is the last business day of the registrant’s most recently completed second fiscal quarter.
Rollins, Inc. had 218,209,925 shares of Common Stock outstanding as of January 31, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2018 Annual Meeting of Stockholders of Rollins, Inc. are incorporated by reference into Part III, Items 10-14.
PART I
Item 1. Business
General
Rollins, Inc. (the “Company”) was originally incorporated in 1948 under the laws of the state of Delaware as Rollins Broadcasting, Inc.
The Company is an international service company with headquarters located in Atlanta, Georgia, providing pest and termite control services through its wholly-owned subsidiaries to both residential and commercial customers in North America, Australia, and Europe with international franchises in Central America, the Caribbean, the Middle East, Asia, the Mediterranean, Europe, Africa, Canada, Australia, and Mexico. Services are performed through a contract that specifies the pricing arrangement with the customer.
For a listing of the Company's Subsidiaries, see Note 1 - Summary of Significant Accounting Policies of Notes to the Financial Statements (Part II, Item 8, of this Form 10-k).
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, Australia, Central America, the Caribbean, the Middle East, Asia, the Mediterranean, Europe, Africa, and Mexico are included in Item 8 of this document, “Financial Statements and Supplementary Data” on pages 28 and 29. 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.
Common Stock Repurchase Program
All share and per share data presented have been adjusted to account for the three-for-two stock split effective March 10, 2015. At the July 24, 2012 Board of Directors’ meeting, the Board authorized the purchase of 7.5 million shares of the Company’s common stock. During the year ended December 31, 2017, the Company did not repurchase shares on the open market compared to 0.8 million shares at a weighted average price of $27.19 in 2016, respectively. In total, there are 5.1 million additional shares authorized to be repurchased under prior Board approval. The repurchase program does not have an expiration date.
Backlog
Backlog services and orders are usually provided within the month following the month of order receipt, except in the area of prepaid pest control and bait monitoring services, which are usually provided within twelve months of order 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.
| December 31, | 2017 | 2016 | 2015 | ||||||||
| Backlog | $ | 4,875 | $ | 5,303 | $ | 4,352 |
Franchising Programs
Orkin Franchises
The Company continues to expand its growth through Orkin’s franchise program. This program is primarily used in smaller markets where it is currently not economically feasible to locate a conventional Orkin branch. Domestic franchisees are subject to a contractual buyback provision at Orkin’s option with a pre-determined purchase price using a formula applied to revenues of the franchise. International franchise agreements also contain an optional buyback provision; however, the franchisee has the prior right of renewal of agreement. The Company through its wholly-owned Orkin subsidiary began its Orkin franchise program in the U.S. in 1994, and established its first international franchise in 2000 and since has expanded to Central America, South America, the Caribbean, the Middle East, Asia, the Mediterranean, Europe, Africa, and Mexico.
| At December 31, | ||||||||
| Orkin Franchises | 2017 | 2016 | 2015 | |||||
| Domestic Franchises | 47 | 50 | 51 | |||||
| International Franchises | 81 | 70 | 48 | |||||
| Total Franchises | 128 | 120 | 99 |
Critter Control Franchises
The Company expands its animal control growth through Critter Control’s franchise program. The Company has purchased several Critter Control locations from its franchise owners while renaming and converting several Trutech locations to Critter Control. The majority of Critter Control’s locations are franchised. Critter Control has franchises in the United States and two Canada as of December 31, 2017 and 2016 respectively.
| At December 31, | |||||||
| Franchises | 2017 | 2016 | 2015 | ||||
| Critter Control Franchises | 89 | 94 | 108 |
Rollins Australia Franchises
The Company has Australian franchises through Rollins Australia’s wholly-owned subsidiary, Murray Pest Control and Scientific Pest Management. The Company purchased Murray Pest Control and Scientific Pest Management in 2016.
| At December 31, | |||||
| Rollins Australia Franchises | 2017 | 2016 | |||
| Murray Pest Control franchises | 8 | 4 | |||
| Scientific Pest Management franchises | 3 | 3 | |||
| Total Franchises | 11 | 7 |
Seasonality
The business of the Company is affected by the seasonal nature of the Company’s pest and termite control services. The increase in pest presence and activity, as well as the metamorphosis of termites in the spring and summer (the occurrence of which is determined by the timing of the change in seasons), has historically resulted in an increase in the revenue of the Company’s pest and termite control operations during such periods as evidenced by the following chart.
| Total Net Revenues | |||||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||||
| First Quarter | $ | 375,247 | $ | 352,736 | $ | 330,909 | |||||
| Second Quarter | 433,555 | 411,133 | 392,150 | ||||||||
| Third Quarter | 450,442 | 423,994 | 399,746 | ||||||||
| Fourth Quarter | 414,713 | 385,614 | 362,500 | ||||||||
| Years ended December 31, | $ | 1,673,957 | $ | 1,573,477 | $ | 1,485,305 |
Inventories
The Company has relationships with a national pest control product distributor and other vendors for pest and termite control treatment products. The Company maintains a sufficient level of chemicals, materials and other supplies to fulfill its immediate servicing needs and to alleviate any potential short-term shortage in availability from its national network of suppliers.
Competition
The Company believes that Rollins, through its wholly-owned subsidiaries Orkin, Orkin Canada, HomeTeam Pest Defense, Western Pest Services, The Industrial Fumigant Company, Crane Pest Control, Waltham Services, Trutech, Permatreat, Rollins Australia, Critter Control, Safeguard Pest Control and Northwest Exterminating competes favorably with competitors as the world’s largest pest and termite control company. The Company’s competitors include Terminix, Ecolab, Rentokil and Anticimex.
The principal methods of competition in the Company’s pest and termite control markets are quality of service, customer proximity and guarantee terms, reputation for safety, technical proficiency, and price.
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.
The Company maintains a close relationship with several universities for research and validation of treatment procedures and material selection.
The Company conducts tests of new products with the specific manufacturers of such products. The Company also works closely with leading scientists, educators, industry consultants and suppliers to improve service protocols and materials.
Environmental and Regulatory Considerations
The Company’s pest control business is subject to various legislative and regulatory enactments that are designed to protect the environment, public health and consumers. Compliance with these requirements has not had a material negative impact on the Company’s financial position, results of operations or liquidity.
Federal Insecticide Fungicide and Rodenticide Act (“FIFRA”)
This federal law (as amended) grants to the states the responsibility to be the primary agent in enforcement and conditions under which pest control companies operate. Each state must meet certain guidelines of the Environmental Protection Agency in regulating the following: licensing, record keeping, contracts, standards of application, training and registration of products. This allows each state to institute certain features that set their regulatory programs in keeping with special interests of the citizens’ wishes in each state. The pest control industry is impacted by these federal and state regulations.
Food Quality Protection Act of 1996 (“FQPA”)
The FQPA governs the manufacture, labeling, handling and use of pesticides and does not have a direct impact on how the Company conducts its business.
Environmental Remediation
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as Superfund, is the primary Federal statute regulating the cleanup of inactive hazardous substance sites and imposing liability for cleanup on the responsible parties. Responsibilities governed by this statute include the management of hazardous substances, reporting releases of hazardous substances, and establishing the necessary contracts and agreements to conduct cleanup. Customarily, the parties involved will work with the EPA and under the direction of the responsible state agency to agree and implement a plan for site remediation. Consistent with the Company’s responsibilities under these regulations, the Company undertakes environmental assessments and remediation of hazardous substances from time to time as the Company determines its responsibilities for these purposes. As these situations arise, the Company accrues management’s best estimate of future costs for these activities. Based on management’s current estimates of these costs, management does not believe these costs are material to the Company’s financial condition or operating results.
Employees
The number of persons employed by the Company as of January 31, 2018 was approximately 13,000.
| December 31, | 2017 | 2016 | 2015 | |||||
| Employees | 13,126 | 12,153 | 11,268 |
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports, are available free of charge on our web site at www.rollins.com as soon as reasonably practicable after those reports are electronically filed with or furnished to the Securities and Exchange Commission.