UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 30, 2004
ROLLINS, INC.
(Exact name of registrant as specified in its charter)
1-4422
(Commission File Number.)
Delaware 51-0068479
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
2170 Piedmont Road, N.E., Atlanta, Georgia
(Address of principal executive offices)
30324
(Zip Code)
(404) 888-2000
(Registrant's telephone number, including area code)
------------------------------------------
On May 17, 2004, Rollins, Inc. filed with the Securities and Exchange Commission
(the "Commission") a Report on Form 8-K (the "Initial 8-K Report") with respect
to its acquisition on April 30, 2004, of substantially all of the assets of
Western Pest Services (the "Seller"). In accordance with Item 7(a)(4) of Form
8-K, the Initial 8-K Report did not include the historical Seller financial
statements or the unaudited pro forma combined financial information of Rollins
(collectively, the "Financial Information") and instead contained an undertaking
to file the Financial Information with the Commission in an amendment to the
Initial 8-K Report as soon as practicable, but not later than July 16, 2004.
This amendment is being filed for the purpose of satisfying the Registrant's
undertaking to file the Financial Information, and this amendment should be read
in conjunction with the Initial 8-K Report.
ITEM 7. Financial Statements and Exhibits.
The following financial statements, pro forma financial information and exhibits
were filed as part of this report:
(a) Financial Statements of Western Indutries, Inc. pursuant to Rule 3-05 of
Regulation S-X:
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Western Industries, Inc.
We have audited the accompanying consolidated balance sheet of Western
Industries, Inc. and subsidiaries as of December 31, 2003 and the related
consolidated statements of income and comprehensive income, changes in
stockholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Western Industries,
Inc. and subsidiaries at December 31, 2003 and the results of their operations
and cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ WISS & COMPANY, LLP
-----------------------
WISS & COMPANY, LLP
Livingston, New Jersey
May 10, 2004
3
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in Thousands)
December 31,
2003
-----------------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 5,476
Securities available-for-sale 2,542
Accounts receivable, less allowance for doubtful accounts of $510 6,843
Inventories 2,886
Materials and supplies 1,618
Prepaid expenses and other current assets 1,768
Advances to affiliates 379
Refundable income taxes 3
Deferred income taxes 494
-----------------------
Total Current Assets 22,009
-----------------------
PROPERTY, PLANT AND EQUIPMENT 5,130
-----------------------
OTHER ASSETS:
Cash surrender value of life insurance, less related loans of $266 4,692
Intangible assets 2,284
Deferred compensation plan 3,723
Other assets 310
-----------------------
Total Other Assets 11,009
-----------------------
Total Assets $ 38,148
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 12,799
Income taxes payable 508
Current portion of long-term debt 205
Current portion of deferred compensation 101
Deferred revenues 8,797
-----------------------
Total Current Liabilities 22,410
-----------------------
OTHER LIABILITIES:
Deferred compensation plan, less current portion 5,687
Long-term debt, less current portion 1,837
Deferred income taxes 23
Deferred revenues 532
-----------------------
Total Liabilities 8,079
-----------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 885
Retained earnings 5,089
Accumulated other comprehensive income 1,685
-----------------------
Total Stockholders' Equity 7,659
-----------------------
Total Liabilities and Stockholders' Equity $ 38,148
=======================
The accompanying notes to the financial statements are an integral part of this
statement.
4
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(in Thousands)
Year Ended
December 31,
2003
--------------------------------
REVENUES:
Net sales $ 96,906
Agency fees 1,468
--------------------------------
98,374
--------------------------------
COSTS AND EXPENSES:
Cost of services rendered and products sold 53,722
Depreciation and amortization 1,686
Selling, general and administrative 42,021
Interest and other income, net (198)
--------------------------------
97,231
--------------------------------
INCOME BEFORE INCOME TAXES 1,143
--------------------------------
INCOME TAXES:
Current 518
Deferred (205)
--------------------------------
313
--------------------------------
NET INCOME 830
================================
OTHER COMPREHENSIVE INCOME -
Unrealized gain on securities available-for-sale 633
--------------------------------
COMPREHENSIVE INCOME $ 1,463
================================
The accompanying notes to the financial statements are an integral part of this
statement.
5
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in Thousands)
Year Ended
December 31,
2003
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 830
Adjustments to reconcile net income to net cash flows from operating activities:
cash flows from operating activities:
Depreciation and amortization 1,687
Deferred income taxes (205)
Interest credited to long-term debt 94
Gain on sale of property (153)
Provision for losses on accounts receivable 398
Provision for insurance reserve 1,546
Changes in operating assets and liabilities:
Accounts receivable (954)
Inventories 775
Materials and supplies (191)
Prepaid expenses and other current assets 211
Refundable income taxes 27
Other assets 54
Accounts payable and accrued expenses 331
Deferred revenue 1,358
Income taxes payable 166
------------------
Net cash flows from operating activities 5,974
==================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (716)
Payments received on notes receivable 12
Proceeds from sale of property, plant and equipment 546
Purchase of available-for-sale securities (65)
Cash surrender value of life insurance (614)
Advances to affiliates (29)
Cost of customer lists and computer software (375)
------------------
Net cash flows from investing activities (1,241)
==================
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 47
Payments of long-term debt (522)
Payment of dividends (3,628)
------------------
Net cash flows from financing activities (4,103)
==================
NET CHANGE IN CASH AND EQUIVALENTS 630
CASH AND EQUIVALENTS, BEGINNING OF YEAR 4,846
------------------
CASH AND EQUIVALENTS, END OF YEAR $ 5,476
==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 328
Interest paid $ 206
Non-cash investing activity:
Unrealized gain on securities available-for-sale $ 633
==================
The accompanying notes to the financial statements are an integral part of this
statement.
6
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
Dollars in Thousands
Note 1 - Nature of the Business and Summary of Significant Accounting Policies:
Principles of Consolidation - The consolidated financial statements include
the accounts of Western Industries, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany transactions have been eliminated upon
consolidation.
Nature of the Business - The Company is engaged in pest control and the
distribution of pesticides and chemicals. The Company primarily operates in the
Mid-Atlantic states and Florida and is headquartered in Parsippany, New Jersey.
Revenues - The Company's revenue recognition policies are designed to
recognize revenues at the time services are performed. For certain revenue
types, because of the timing of billing and the receipt of cash versus the
timing of performing services, certain accounting estimates are utilized.
Residential and commercial pest control services are primarily recurring in
nature on a monthly or tri-monthly basis, while certain types of commercial
customers may receive multiple treatments within a given month. In general,
residential pest control customers sign an initial one-year contract, and
revenues are recognized at the time services are performed. For commercial pest
control customers, the Company offers a discount for those customers who prepay
for a full year of services. The Company defers recognition of these advance
payments and recognizes the revenue as the services are rendered. The Company
classifies the discounts related to the advance payments as a reduction in
revenues.
Termite baiting revenues are recognized on the delivery of units method. At
the inception of a new baiting services contract upon quality control review of
the installation, the Company recognizes revenue for the delivery of the
monitoring stations, initial directed liquid termiticide treatment and
installation of the monitoring services. The amount deferred for the undelivered
monitoring element is then recognized as income on a straight-line basis over
the remaining contract term, which results in recognition of revenue in a
pattern that approximates the timing of performing monitoring visits. Baiting
renewal revenue is deferred and recognized over the annual contract period on a
straight line basis that approximates the timing of performing the required
monitoring visits. Traditional termite treatments are recognized as revenue at
the time services are performed. Traditional termite contract renewals are
recognized as revenues when corresponding service is provided.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make use of
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Equivalents - The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
Securities Available-for-Sale - Securities available for sale are reported
at their fair values and consist of equity securities not classified as trading
securities or as securities to be held to maturity. Unrealized holding gains and
losses are included in other comprehensive income.
Inventories - Inventories consist principally of pesticides and are stated
at the lower of cost (last-in, first-out method [LIFO]) or market. If the
first-in, first-out [FIFO] method of inventory accounting had been used,
inventories would have been approximately $850 higher than reported at December
31, 2003, and net income for 2003 would have increased by approximately $10.
Materials and Supplies - Materials and supplies are stated at cost and are
to be used in pest control applications.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets which range from three to forty
years. Repairs and maintenance costs are expensed as incurred; major renewals
and betterments are capitalized. When assets are disposed of, the assets and
related allowances for depreciation are eliminated from the accounts and any
resulting gain or loss is reflected in operations.
7
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 is a major consideration, along with
Management's knowledge of changes in business practice and existing claims
compared to current balances. The reserve is established based on all these
factors. 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.
Accrual for Termite Contract Damages - Accrual for termite contract damages
represents the estimated costs of reapplications, repair claims, associated
labor, chemicals and other costs. 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 is a major consideration in
determining the accrual balance along with Management's knowledge of changes in
business practices, contract changes, ongoing claims and termite remediation
trends. The reserve is established based on all these factors. Management makes
judgments utilizing these operational factors but recognizes that they are
inherently subjective due to the difficulty in predicting settlements and
awards. Other factors that may impact future cost include chemical life
expectancy and governmental regulation.
Intangible Assets - Intangible assets at December 31, 2003, are stated at
cost and consist principally of customer lists, computer software and
non-compete agreements which are being amortized over fifteen, five and ten
years, respectively, and goodwill which is tested for impairment annually for
possible reduction in fair value below its carrying amount. The Company
conducted the required impairment review in 2003, and determined that no
impairment existed.
Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents and accounts receivable. In management's opinion, cash and
cash equivalents are with high credit quality financial institutions and
concentration of credit risk is limited. At times, cash balances may exceed
insured limits. The Company periodically reviews its trade receivables and
establishes an allowance for uncollectible accounts. Management feels the credit
risk beyond the established allowance is limited.
Vendor Concentration - Purchases from one unaffiliated supplier comprised
approximately 13% of the Company's net purchases in 2003.
Retirement Plan - The Company has a 401(k) retirement savings plan (the
"Plan") for all of its employees who meet certain eligibility criteria whereby
it contributes 3% of employee annual compensation. The Plan also requires the
Company to contribute 50% of employee contributions limited to 1.5% on the first
3% of employee compensation. The Plan also contains a feature allowing
additional contributions from Company profits which may be awarded each year at
the discretion of management. These amounts are allocated to participants based
on the ratio of the participant's compensation to the total compensation of all
participants.
Company 401(k) and profit sharing contributions totaled $1,920 in 2003.
Deferred Compensation Plan - The Company has a Deferred Compensation Plan
providing certain employees with the opportunity to participate in the program.
Under the program, participants may defer up to 20% of their base compensation
and up to 100% of bonuses earned. Amounts deferred are invested by the Company.
The assets of the plan are segregated and consists of various marketable
securities and other liquid assets as determined by the participants, and remain
the sole property of the Company until such time when the amounts are
distributed to the participants. The program is not qualified under Section 401
of the Internal Revenue Code.
In addition, the Company has certain agreements with four of its current or
retired executives whereby the Company will make or continue payments upon
retirement of the respective individual for a ten year period (Note 8).
Deferred Revenues - Deferred termite reinspection revenue of $3,504 at
December 31, 2003 relate to contracts which expire beginning after December 31,
2003. The related property is inspected annually; if infestation or
reinfestation is determined to have occurred, the Company will treat or re-treat
the property. In the opinion of management, the deferred revenues are sufficient
to cover prospective costs.
Deferred service contract revenue of $5,825 as of December 31, 2003,
resulted from the sale of service contracts payable in advance. Revenue is
recognized when contractual requirements are performed, while any portion of the
sales price applicable to succeeding years is deferred.
Income Taxes - Deferred income taxes are recognized for the tax
consequences of "temporary
8
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
The Company (except for two of its subsidiaries) has elected under Section
1361 of the Internal Revenue Code and under certain state statutes to be taxed
as an S Corporation. Under these provisions, all earnings and losses of the
Company for federal and state income tax reporting purposes are reported on the
income tax returns of the shareholders. Other than the two subsidiaries referred
to above, no provision has been made for federal income taxes. The Company is
subject to state income taxes at a reduced rate.
Advertising Costs - Advertising costs are charged to operations as incurred
and totaled approximately $2,900 in 2003.
New Accounting Standard - In January 2003, as revised in December 2003, the
Financial Accounting Standards Board issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46). Under that
interpretation, certain entities known as "Variable Interest Entities" (VIE)
must be consolidated by the "primary beneficiary" of the entity. The primary
beneficiary is generally defined as having the majority of the risks and rewards
arising from the VIE. For VIE's in which a significant (but not majority)
variable interest is held, certain disclosures are required. The measurement
principles of this interpretation will be effective for the Company's December
31, 2004 financial statements.
At December 31, 2003, the Company is a beneficiary in three entities that
were formed in connection with its operations. Due to the sale of the Company's
principal operations (Note 8) in 2004, the Company currently is evaluating the
classification of these entities under FIN 46. At December 31, 2003, the maximum
exposure to loss was approximately $9,000.
Note 2 - Securities Available-for-Sale:
Securities available-for-sale at December 31, 2003, consist of equity
securities having a cost basis of $858 and unrealized gains of $1,685.
Note 3 - Property, Plant and Equipment:
Property, plant and equipment consist of the following:
December 31,
2003
------------
Land $ 530
Buildings and improvements 4,633
Office furniture and equipment 4,080
Service equipment 3,102
------------
12,345
Less: Accumulated depreciation 7,215
------------
$ 5,130
============
Depreciation expense for 2003 totaled $1,099.
9
Note 4 - Intangible Assets:
Intangible assets consist of the following:
December 31,
2003
------------
Customer lists $ 2,348
Computer software 1,067
Non-compete agreements 819
Goodwill 120
Other 94
------------
4,448
Less: Accumulated amortization 2,164
------------
$ 2,284
============
Note 5 - Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
December 31,
2003
------------
Accounts payable $ 2,001
Accrued payroll and bonuses 5,357
Accrued insurance costs 2,221
Accrued profit sharing and 401(k) contributions 1,659
Accrual for termite contract damages 293
Other accrued expenses 1,268
------------
$ 12,799
============
10
Note 6 - Long-term Debt:
Long-term debt at December 31, 2003, consists of the following:
First mortgage payable in monthly installments plus interest,
collateralized by land and buildings:
Monthly Interest Due December 31,
Property Installment Rate Date 2003
-------------------------------------------------------------------------------
Richmond, VA $ 2 8.20% January 2009 $ 119
Wilmington, DE 1 7.6 December 2012 60
Fairfax, VA 3 8.0 March 2013 281
Paramus, NJ 2 7.75 November 2009 190
Note bearing interest at 8.5% per annum, payable
interest only to 2005, when principal is due 1,198
Other notes payable, due through 2005 194
----------
2,042
Less: Current maturities 205
----------
$ 1,837
==========
Long-term debt at December 31, 2003, matures as follows:
Year Ending December 31,
-------------------------
2004 $ 205
2005 1,332
2006 74
2007 75
2008 76
2009 and thereafter 280
------------
$ 2,042
============
Note 7 - Commitments, Contingencies and Related Party Transactions:
Leases - The Company leases office space and motor vehicles under various
operating leases, expiring through 2007, and seven offices leased on a
month-to-month basis, from companies owned by its officers and stockholders. The
leases provide for payment of real estate taxes, insurance, maintenance and
repairs. Future minimum lease payments under all noncancelable operating leases
with an initial or remaining lease term in excess of one year are as follows:
Year Ending December 31,
------------------------
2004 $ 3,442
2005 2,240
2006 1,419
2007 359
-------------
$ 7,460
=============
Rent expense totaled $4,363 in 2003, including $313 to affiliates.
Advances due from the above affiliates at December 31, 2003, totaled $379,
and bear interest at prime (4% at December 31, 2003).
Litigation - The Company is a defendant in a legal action pending in the
Supreme Court of New York, County of Bronx, under which the plaintiff is seeking
monetary damages of $1,000. The Company has filed a motion to dismiss and
intends to defend itself vigorously. The motion to dismiss and a scheduled date
for hearing are pending. The final outcome of the litigation cannot presently be
determined.
11
The Company has been served a summons and complaint in connection with a
wrongful death claim against a facility located in Florida serviced by the
Company. The plaintiff is pursuing this claim against the facility in which the
Company is presently not a named party. The final outcome of this matter and
possible loss, if any, cannot presently be determined.
The Company is subject to various other legal proceedings arising in the
ordinary course of business. It is not possible at this time to predict the
outcome of the unsettled legal actions; however, in the opinion of management,
the disposition of such matters will not have a material adverse effect on the
consolidated financial statements.
Environmental Costs - The Company expenses environmental costs related to
existing conditions resulting from past or current operations and from which no
current or future benefit is discernible. Expenditures which extend the life of
the related property or mitigate or prevent future environmental contamination
are capitalized. The Company determines its liabilities on a site-by-site basis
and records a liability at the time when it is probable and can be reasonably
estimated. The estimated liability is not discounted or reduced for possible
recoveries from insurance carriers. The Company has accrued $450 for estimated
environmental remediation costs at December 31, 2003.
Note 8 - Subsequent Event:
On April 30, 2004, the Company sold its pest-control operations and certain
other assets for approximately $110.0 million receiving cash and marketable
securities.
In conjunction with the sale of the pest-control operations, the Company
agreed to pay three of the four employees under its deferred compensation
agreement, the present value of their future retirement benefits totaling
approximately $950. The fourth employee, who retired in 2001, will be paid $101
per annum through 2022.
12
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in Thousands)
March 31,
2004
(Unaudited)
ASSETS ------------------------
CURRENT ASSETS:
Cash and equivalents $ 6,376
Securities available-for-sale 2,627
Accounts receivable, less allowance for doubtful accounts of $555 8,021
Inventories 3,213
Materials and supplies 1,755
Prepaid expenses and other current assets 1,998
Advances to affiliates 393
Refundable income taxes 126
Deferred income taxes 501
------------------------
Total Current Assets 25,010
------------------------
PROPERTY, PLANT AND EQUIPMENT
5,228
------------------------
OTHER ASSETS:
Cash surrender value of life insurance, less related loans of $266 3,954
Intangible assets 2,259
Deferred compensation plan 4,170
Other assets 309
------------------------
Total Other Assets 10,692
------------------------
Total Assets $ 40,930
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 15,536
Income taxes payable 380
Current portion of long-term debt 169
Current portion of deferred compensation 101
Deferred revenues 7,816
------------------------
Total Current Liabilities 24,002
------------------------
OTHER LIABILITIES:
Deferred compensation plan, less current portion 6,109
Long-term debt, less current portion 569
Deferred income taxes 23
Deferred revenues 576
------------------------
Total Liabilities 7,277
------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 885
Retained earnings 7,004
Accumulated other comprehensive income 1,762
------------------------
Total Stockholders' Equity 9,651
------------------------
Total Liabilities and Stockholders' Equity $ 40,930
========================
The accompanying notes to the financial statements are an integral part of this
statement.
13
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(in Thousands)
Three Months
Ended March 31,
2004
--------------------------------
REVENUES:
Net sales $ 24,330
Agency fees 312
--------------------------------
24,642
--------------------------------
COSTS AND EXPENSES:
Cost of services rendered and products sold 13,239
Depreciation and amortization 401
Selling, general and administrative 8,803
Interest and other income, net 23
--------------------------------
22,466
--------------------------------
INCOME BEFORE INCOME TAXES 2,176
--------------------------------
INCOME TAXES:
Current 40
Deferred (8)
--------------------------------
32
--------------------------------
NET INCOME 2,144
================================
OTHER COMPREHENSIVE INCOME -
Unrealized gain on securities available-for-sale 77
--------------------------------
COMPREHENSIVE INCOME $ 2,221
================================
The accompanying notes to the financial statements are an integral part of this
statement.
14
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in Thousands)
Three Months
Ended March 31,
2004
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,144
Adjustments to reconcile net income to net cash flows from operating activities:
cash flows from operating activities:
Depreciation and amortization 401
Deferred income taxes (8)
Provision for losses on accounts receivable 44
Changes in operating assets and liabilities:
Accounts receivable (1,222)
Inventories (327)
Materials and supplies (137)
Prepaid expenses and other current assets (232)
Refundable income taxes (123)
Deferrred compensation plan assets (447)
Deferrred compensation plan payable 442
Accounts payable and accrued expenses 2,736
Deferred revenue (935)
Income taxes payable (128)
------------------
Net cash flows from operating activities 2,188
==================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (462)
Payments received on notes receivable 2
Purchase of available-for-sale securities (8)
Cash surrender value of life insurance 738
Advances to affiliates (14)
Cost of customer lists and computer software (10)
------------------
Net cash flows from investing activities 246
==================
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,304)
Payment of dividends (230)
------------------
Net cash flows from financing activities (1,534)
==================
NET CHANGE IN CASH AND EQUIVALENTS 900
CASH AND EQUIVALENTS, BEGINNING OF YEAR 5,476
------------------
CASH AND EQUIVALENTS, END OF YEAR $ 6,376
==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 291
Non-cash investing activity:
Unrealized gain on securities available-for-sale $ 77
==================
The accompanying notes to the financial statements are an integral part of this
statement.
15
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
Dollars in Thousands
Note 1 - Nature of the Business and Summary of Significant Accounting Policies:
Principles of Consolidation - The consolidated financial statements include
the accounts of Western Industries, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany transactions have been eliminated upon
consolidation.
Nature of the Business - The Company is engaged in pest control and the
distribution of pesticides and chemicals. The Company primarily operates in the
Mid-Atlantic states and Florida and is headquartered in Parsippany, New Jersey.
Interim Reporting - The interim financial statements included herein
reflect all adjustments, which, in the opinion of management, are necessary for
a fair presentation of the results for the interim period presented. Such
adjustments consist solely of normal recurring accruals. Results for interim
periods are not necessarily indicated of results for a full year.
Revenues - The Company's revenue recognition policies are designed to
recognize revenues at the time services are performed. For certain revenue
types, because of the timing of billing and the receipt of cash versus the
timing of performing services, certain accounting estimates are utilized.
Residential and commercial pest control services are primarily recurring in
nature on a monthly or tri-monthly basis, while certain types of commercial
customers may receive multiple treatments within a given month. In general,
residential pest control customers sign an initial one-year contract, and
revenues are recognized at the time services are performed. For commercial pest
control customers, the Company offers a discount for those customers who prepay
for a full year of services. The Company defers recognition of these advance
payments and recognizes the revenue as the services are rendered. The Company
classifies the discounts related to the advance payments as a reduction in
revenues.
Termite baiting revenues are recognized on the delivery of units method. At
the inception of a new baiting services contract upon quality control review of
the installation, the Company recognizes revenue for the delivery of the
monitoring stations, initial directed liquid termiticide treatment and
installation of the monitoring services. The amount deferred for the undelivered
monitoring element is then recognized as income on a straight-line basis over
the remaining contract term, which results in recognition of revenue in a
pattern that approximates the timing of performing monitoring visits. Baiting
renewal revenue is deferred and recognized over the annual contract period on a
straight line basis that approximates the timing of performing the required
monitoring visits. Traditional termite treatments are recognized as revenue at
the time services are performed. Traditional termite contract renewals are
recognized as revenues when corresponding service is provided.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make use of
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Equivalents - The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
Securities Available-for-Sale - Securities available for sale are reported
at their fair values and consist of equity securities not classified as trading
securities or as securities to be held to maturity. Unrealized holding gains and
losses are included in other comprehensive income.
Inventories - Inventories consist principally of pesticides and are stated
at the lower of cost (last-in, first-out method [LIFO]) or market.
Materials and Supplies - Materials and supplies are stated at cost and are
to be used in pest control applications.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets which range from three to forty
years. Repairs and maintenance costs are expensed as incurred; major renewals
and betterments are capitalized. When assets are disposed of, the assets and
related allowances for depreciation are eliminated from the accounts and any
resulting gain or loss is reflected in operations.
Insurance - The Company self-insures, up to specified limits, certain risks
related to general liability,
16
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 is a major consideration, along with Management's knowledge of changes in
business practice and existing claims compared to current balances. The reserve
is established based on all these factors. 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.
Accrual for Termite Contract Damages - Accrual for termite contract damages
represents the estimated costs of reapplications, repair claims, associated
labor, chemicals and other costs. 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 is a major consideration in
determining the accrual balance along with Management's knowledge of changes in
business practices, contract changes, ongoing claims and termite remediation
trends. The reserve is established based on all these factors. Management makes
judgments utilizing these operational factors but recognizes that they are
inherently subjective due to the difficulty in predicting settlements and
awards. Other factors that may impact future cost include chemical life
expectancy and governmental regulation.
Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents and accounts receivable. In management's opinion, cash and
cash equivalents are with high credit quality financial institutions and
concentration of credit risk is limited. At times, cash balances may exceed
insured limits. The Company periodically reviews its trade receivables and
establishes an allowance for uncollectible accounts. Management feels the credit
risk beyond the established allowance is limited.
Retirement Plan - The Company has a 401(k) retirement savings plan (the
"Plan") for all of its employees who meet certain eligibility criteria whereby
it contributes 3% of employee annual compensation. The Plan also requires the
Company to contribute 50% of employee contributions limited to 1.5% on the first
3% of employee compensation. The Plan also contains a feature allowing
additional contributions from Company profits which may be awarded each year at
the discretion of management. These amounts are allocated to participants based
on the ratio of the participant's compensation to the total compensation of all
participants.
Deferred Compensation Plan - The Company has a Deferred Compensation Plan
providing certain employees with the opportunity to participate in the program.
Under the program, participants may defer up to 20% of their base compensation
and up to 100% of bonuses earned. Amounts deferred are invested by the Company.
The assets of the plan are segregated and consist of various marketable
securities and other liquid assets as determined by the participants, and remain
the sole property of the Company until such time when the amounts are
distributed to the participants. The program is not qualified under Section 401
of the Internal Revenue Code.
In addition, the Company has certain agreements with four of its current or
retired executives whereby the Company will make or continue payments upon
retirement of the respective individual for a ten year period (Note 8).
Income Taxes - Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
The Company (except for two of its subsidiaries) has elected under Section
1361 of the Internal Revenue Code and under certain state statutes to be taxed
as an S Corporation. Under these provisions, all earnings and losses of the
Company for federal and state income tax reporting purposes are reported on the
income tax returns of the shareholders. Other than the two subsidiaries referred
to above, no provision has been made for federal income taxes. The Company is
subject to state income taxes at a reduced rate.
New Accounting Standard - In December 2002, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities ("FIN 46"). The
interpretation requires that a variable interest entity be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The consolidation requirements of FIN 46 are
effective for all variable interest entities created or acquired after January
31, 2003. In December 2003, the Financial Accounting Standards Board issued a
revision to FIN 46 referred to as Interpretation No. 46(R). Among other
provisions, the revision extends the adoption date of FIN 46 (R) to the first
quarter of 2004 for variable interest entities created prior to February 1,
2003. The believes the adoption of the Interpretation, with respect to variable
interest entities created prior to February 1, 2003, will not have a material
impact on the financial position, results of operations or liquidity of the
Company. During 2003, the Company adopted FIN 46 with
17
respect to franchise entities created after January 31, 2003. The adoption did
not have a significant effect on the Company's financial position or results of
operations.
Note 2 - Property, Plant and Equipment:
Property, plant and equipment consist of the following:
March 31,
2004
(unaudited)
-----------
Land $ 530
Buildings and improvements 4,659
Office furniture and equipment 4,141
Service equipment 3,145
-----------
12,475
Less: Accumulated depreciation 7,247
-----------
$ 5,228
===========
Note 3 - Intangible Assets:
Intangible assets consist of the following:
March 31,
2004
(Unaudited)
-----------
Customer lists $ 2,294
Computer software 1,111
Non-compete agreements 819
Goodwill 121
Other 131
-----------
4,476
Less: Accumulated amortization 2,217
-----------
$ 2,259
===========
Note 4 - Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
March 31,
2004
(Unaudited)
-----------
Accounts payable $ 3,712
Accrued payroll and bonuses 5,115
Accrued insurance costs 2,447
Accrued profit sharing and 401(k) contributions 2,098
Accrual for termite contract damages 372
Other accrued expenses 1,792
-----------
$ 15,536
===========
18
Note 5 - Long-term Debt:
Long-term debt at March 31, 2004, consists of the following:
First mortgage payable in monthly installments plus interest, collateralized by
land and buildings:
March 31,
Monthly Interest Due 2004
Property Installment Rate Date (Unaudited)
-------------------------------------------------------------------------------
Richmond, VA $ 2 8.20% January 2009 $ 113
Wilmington, DE 1 7.6 December 2012 59
Fairfax, VA 3 8.0 March 2013 273
Paramus, NJ 2 7.75 November 2009 188
Other notes payable, due through 2005 105
---------
738
Less: Current maturities 169
---------
$ 569
=========
Note 6 - Subsequent Event:
On April 30, 2004, the Company sold its pest-control operations and certain
other assets for approximately $110.0 million, receiving cash and marketable
securities.
In conjunction with the sale of the pest-control operations, the Company
agreed to pay three of the four employees under its deferred compensation
agreement, the present value of their future retirement benefits totaling
approximately $950. The fourth employee, who retired in 2001, will be paid $101
per annum through 2022.
(b) Pro Forma financial information required pursuant to Article 11 of
Regulation S-X:
The pro forma financial statements give pro forma effect to the acquisition
by the Company of Western Pest Services for approximately $110.0 million (the
"Acquisition"). The Purchase Price was funded with cash on hand, the sale of
property located in Okeechobee County, Florida and a $15.0 million dollar senior
unsecured revolving credit facility with Wachovia Bank NA. The unaudited pro
forma consolidated balance sheet was prepared as if the Acquisition occurred as
of March 31, 2004. The unaudited pro forma consolidated statement of income for
the year ended December 31, 2003 was prepared as if the Acquisition occurred as
of January 1, 2003. The unaudited pro forma consolidated statement of income for
the three months ended March 31, 2004 was prepared as if the Acquisition
occurred as of January 1, 2004.
The pro forma adjustments are based upon available information and
assumptions that the Company believes are reasonable. The pro forma adjustment
to reflect the allocation of the purchase price is based upon the preliminary
information currently available, which may be revised, as additional information
becomes available. The notes to the unaudited pro forma financial statements
provide a more detailed discussion of how such adjustments were derived and
presented in the pro forma financial statements. Such financial statements have
been compiled from historical financial statements and other information, but do
not purport to represent what the Company's financial position or results of
operations actually would have been had the transactions occurred on the dates
indicated, or to project the Company's financial performance for any future
period. The pro forma statements of income do not reflect any synergies or other
operating benefits that may be realized as the Company integrates Western Pest
Services with the Company's existing operations.
19
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(in thousands)
Pro Forma Pro Forma
Rollins, Inc. Western Adjustments for for the
ASSETS Historical Pest (a) the Acquisition Acquisition
---------------------------------------------------------------------
CURRENT ASSETS:
Cash and equivalents $ 97,888 $ 6,376 $ (93,836) (b,c,d,m) $ 10,428
Securities available-for-sale --- 2,627 (2,627) (m) ---
Trade receivables, net 45,549 8,021 (3,653) (k) 49,917
Note receivable --- 10 5,368 (d) 5,378
Materials and supplies 10,147 1,755 11,902
Deferred Income Taxes 20,580 3,213 (3,213) (j) 20,580
Prepaid expenses and other current assets 10,092 3,008 (1,165) (k,m) 11,935
---------------------------------------------------------------------
Total Current Assets 184,256 25,010 (99,126) 110,140
---------------------------------------------------------------------
Equipment and Property, net 34,618 5,228 10,653 (b,k) 50,499
Cash surrender value of officers' life insurance 3,954 (3,518) (m) 436
Goodwill 72,521 34,865 (b) 107,386
Customer Contracts and Other Intangible Assets 28,924 2,259 57,148 (b,m) 88,331
Deferred income taxes 17,287 17,287
Other Assets 25,350 309 (179) (m) 25,480
Other-Deferred Compensation Plan --- 4,170 4,170
---------------------------------------------------------------------
Total Assets $ 362,956 $ 40,930 $ (157) $ 403,729
=====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 15,325 3,712 (3,117) (k) 15,920
Accrued Insurance 13,050 2,447 15,497
Accrued Compensation and Related Liabilities 26,913 7,213 34,126
Unearned Revenue 50,702 7,816 58,518
Accrual for Termite Contracts 21,500 372 21,872
Other Current Liabilities 23,983 2,442 (845) (d,j,m) 25,580
Line-of-Credit Borrowing --- --- 15,000 (c) 15,000
---------------------------------------------------------------------
Total Current Liabilities 151,473 24,002 11,039 186,513
Accrued Insurance, Less Current Portion 24,764 24,764
Accrual for Termite Contracts, Less Current Portion 22,135 22,135
Long-Term Accrued Liabilities 16,741 592 (592) (m) 16,741
Deferred Compensation Plan 6,109 (952) (m) 5,157
Unearned Revenue --- 576 576
---------------------------------------------------------------------
Total Liabilities 215,113 31,279 9.494 255,886
---------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock 45,399 45,399
Additional Paid-In Capital 7,025 7,025
Western Pest Shareholders' Equity 9,651 (9,651)
Accumulated Other Comprehensive Loss (300) (300)
Retained earnings 95,719 --- 95,719
---------------------------------------------------------------------
Total Stockholders' Equity 147,843 9,651 (9,651) 147,843
---------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 362,956 $40,930 $ (157) $ 403,729
=====================================================================
20
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands, except per share data)
Pro Forma Pro Forma
Rollins, Inc. Western Adjustments for for the
Historical Pest (a) the Acquisition Acquisition
---------------------------------------------------------------------
REVENUES $ 677,013 $ 98,374 $ (25,832) (k,l) $ 749,555
COSTS AND EXPENSES:
Cost of Services Provided 362,422 53,722 (18,590) (k,l) 397,554
Depreciation and Amortization 20,179 1,686 5,469 (e,k) 27,334
Sales, General and Administrative 236,514 42,021 (5,896) (e,k) 272,639
(Gain)/Loss on Sale of Assets (1,700) (1,700)
Interest Income/expense (432) (198) 1,640 (f) 1,010
---------------------------------------------------------------------
616,983 97,231 (17,377) 696,837
---------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 60,030 1,143 (8,455) 52,718
PROVISION FOR INCOME TAXES 24,269 313 (3,219) (g) 21,363
---------------------------------------------------------------------
NET INCOME $ 35,761 $ 830 $ (5,236) $ 31,355
=====================================================================
EARNINGS PER SHARE - BASIC
Net Income $ 0.79 $ 0.70
EARNINGS PER SHARE - DILUTED
Net Income $ 0.77 $ 0.68
Average Shares Outstanding - Basic 45,069 45,069
Average Shares Outstanding - Diluted 46,206 46,206
21
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2004
(in thousands, except per share data)
Pro Forma Pro Forma
Rollins, Inc. Western Adjustments for for the
Historical Pest (a) the Acquisition Acquisition
---------------------------------------------------------------------
REVENUES $ 158,692 $ 24,642 $ (5,506) (k,l) $ 177,828
COSTS AND EXPENSES:
Cost of Services Provided 85,357 13,239 (4,225) (k,l) 94,371
Depreciation and Amortization 4,657 401 1,390 (h) 6,448
Sales, General and Administrative 54,175 8,803 (1,242) (h) 61,736
Loss on Sale of Assets 1 1
Interest Income/expense (150) 23 333 (i) 206
---------------------------------------------------------------------
144,040 22,466 (3,744) 162,762
---------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,652 2,176 (1,762) 15,066
PROVISION FOR INCOME TAXES 5,934 32 (136) (j) 6,102
---------------------------------------------------------------------
NET INCOME $ 8,718 $ 2,144 $ (1,898) $ 8,964
=====================================================================
EARNINGS PER SHARE - BASIC
Net Income $ 0.19 $ 0.22
EARNINGS PER SHARE - DILUTED
Net Income $ 0.19 $ 0.21
Average Shares Outstanding - Basic 45,298 45,298
Average Shares Outstanding - Diluted 46,643 46,643
22
WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
a) Represents the unaudited historical financial statements of Western
Industries, Inc. for the twelve months ended December 31, 2003 and as of
March 31, 2004 and for the three months then ended.
b) To reflect the Company's acquisition of Western Pest Service for a total
purchase cost of approximately $110.0 million. The purchase price was
funded with cash on hand, the sale of property located in Okeechobee
County, Florida and a $15.0 million senior unsecured revolving credit
facility with Wachovia Bank NA. The credit facility was repaid in full by
the end of May 2004. The excess of purchase cost over the carrying amount
of the net assets acquired has been allocated as follows:
Real Estate $ 11,170
Customer Contracts 50,500
Trade Name 3,900
Patents 130
Non compete agreement 400
Goodwill 34,865
----------
$ 100,965
==========
c) To record the additional borrowing of $15.0 million senior unsecured
revolving credit facility with Wachovia Bank NA used to finance the
purchase of Western Pest Services. The credit facility was repaid in full
by the end of May 2004.
d) To record the purchase and subsequent sale of Residex Corporation to an
industry distribution group. No gain or loss was recognized on the
transaction.
Cash paid $ (5,226)
Note receivable assumed 5,368
Note payable assumed (457)
Cash received 315
-----------
Net Gain/(Loss) on Purchase and Subsequent Sale $ ---
e) To reflect additional annual depreciation and amortization on the step up
basis related to the tangible and intangible assets acquired, based upon
the following depreciation/amortization periods.
Asset Annual
Value Years Expense
--------- ----- -----------
Goodwill $ 34,865 n/a $ 0
Customer Contracts-Residential 13,200 8 1,650
Customer Contracts-Commercial 30,900 10 3,090
Customer Contracts-Termite 5,400 10 540
Customer Contracts-Fumigation 1,000 2.5 400
Trade Name 3,900 n/a 0
Patents 130 2.5 52
Non Compete Agreements 400 5 80
-----------
Total $ 5,812
In accordance with Statement of Financial Accounting Standard No. 142, goodwill
resulting from the acquisition is not amortized.
Additional annual depreciation expense based on the increase in cost for
buildings purchased is calculated as follows:
Historical carrying value, net $ 2,744
Fair market value 3,850
Increase in cost 1,106
Over 20 years 20
-----------
Additional annual depreciation expense $ 55
23
Annual rent savings on real estate acquired totals $313.
f) To reflect additional interest expense (at 4.5% for 12 months) resulting
from the acquisition related borrowings.
g) To reflect the income tax effect resulting from the Western income and pro
forma adjustments as if taxed as a C-Corporation using an applicable tax
rate of 40.5%.
h) To reflect additional depreciation and amortization for the three months on
the step up basis related to the tangible and intangible assets acquired,
based upon the following depreciation/amortization periods.
Asset Annual 3 Months
Value Years Expense Expense
--------------------------------------------------------
Goodwill $34,865 n/a $ 0 $ 0
Customer Contracts-Residential 13,200 8 1,650 413
Customer Contracts-Commercial 30,900 10 3,090 773
Customer Contracts-Termite 5,400 10 540 135
Customer Contracts-Fumigation 1,000 3 400 100
Trade Name 3,900 n/a 0 0
Patents 130 3 52 13
Non Compete Agreements 400 5 80 20
--------------------------------------------------------
Total $5,812 $1,454
In accordance with Statement of Financial Accounting Standard No. 142, goodwill
resulting from the acquisition is not amortized.
Additional depreciation expense for the 3 months is based on the increase in
basis for buildings purchased, calculated as follows:
Historical basis on Western, net $2,744
Fair market value per valuation report 3,850
Increase in basis 1,106
Over 20 years 20
-------
Additional depreciation expense $ 14 for 3 months
Rent savings on real estate acquired totals $80 for 3 months
i) To record additional interest expense of $169 (at 4.5% for 3 months)
resulting from the acquisition related borrowings and a reduction of
interest income on previously invested cash used to fund the acquisition.
j) To reflect the income tax effect resulting from the Western income and pro
forma adjustments as if taxed as a C-Corporation using an applicable tax
rate of 40.5%.
k) Assets, liabilities, revenues and expenses have been adjusted to exclude
the operations of Residex Corporation, which was purchased on April 30,
2004 and subsequently sold to an industry distribution group on April 30,
2004, with no gain or loss recognized on the transaction.
l) Revenues and Costs of Services Provided were adjusted to reflect the
discontinuation of providing services on behalf of Copesan, the nationwide
consortium of regional pest control companies that service national
accounts.
m) Certain assets and liabilities that were not purchased and assumed by the
Company as part of the purchase agreement were adjusted accordingly.
24
(c) Exhibits.
(2)(i) Asset Purchase Agreement by and among Orkin, Inc. (as assigned to
Rollins, Inc.) and Western Industries, Inc., Western Exterminating Company,
Inc. et al. dated March 8, 2004 incorporated herein by reference to Exhibit
(2) (i) as filed with its Form 10-Q for the quarter ended March 31, 2004,
as amended.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ROLLINS, INC.
Date: July 16, 2004 By: /s/ Gary W. Rollins
-------------------------------
Gary W. Rollins
Chief Executive Officer, President
and Chief Operating Officer
Date: July 16, 2004 By: /s/ Harry J. Cynkus
------------------------------
Harry J. Cynkus
Chief Financial Officer and
Treasurer
26