UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2003.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission file number 1-4422
A. Full title of the plan and address of the plan, if different from that of
issuer named below:
ROLLINS, INC.
ROLLINS 401(k) PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive offices:
ROLLINS, INC.
2170 PIEDMONT ROAD, N.E.
ATLANTA, GA 30324
ROLLINS, INC.
ROLLINS 401(k) PLAN
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
As of December 31, 2003 and
2002 and for the Year Ended December 31, 2003
Page No.
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Report of Independent Auditors - Ernst & Young LLP 1
AUDITED Financial Statements
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULE
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) 13
INDEX TO EXHIBITS 15
Report of Independent Registered Public Accounting Firm
Plan Administrator
Rollins 401(k) Plan
We have audited the accompanying statements of net assets available for benefits
of Rollins 401(k) Plan as of December 31, 2003 and 2002, and the related
statements of changes in net assets available for benefits for the years then
ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of 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 net assets available for benefits of Rollins 401(k)
Plan at December 31, 2003 and 2002, and the changes in its net assets available
for benefits for the years then ended, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2003, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
--------------------------------------
Ernst & Young LLP
Atlanta, Georgia
June 18, 2004
1
Rollins 401(k) Plan
Statements of Net Assets Available for Benefits
December 31
2003 2002
--------------------------------------
Assets
Investment in Master Trust (Note 3) $117,707,629 $ 95,322,365
Loans to participants 5,437,132 5,112,838
Employer contribution receivable 2,149,661 2,158,914
--------------------------------------
Total Assets 125,294,422 102,594,117
Liabilities
Refunds payable to participants 55,051 -
--------------------------------------
Total Liabilities 55,051 -
--------------------------------------
Net assets available for benefits $125,239,371 $102,594,117
======================================
See accompanying notes.
2
Rollins 401(k) Plan
Statements of Changes in Net Assets Available for Benefits
For the year ended
December 31
2003 2002
--------------------------------
Additions to net assets attributed to:
Net gain from investment in Master Trust $ 19,860,055 $ -
Contributions:
Participants 11,110,825 11,572,329
Employer 2,150,323 2,170,694
Interest income from loans to participants 390,490 473,118
--------------------------------
Total additions 33,511,693 14,216,141
Deductions from net assets attributed to:
Net loss from investment in Master Trust - 3,391,785
Distributions to participants 10,866,439 9,948,274
--------------------------------
Total deductions 10,866,439 13,340,059
--------------------------------
Net increase 22,645,254 876,082
Net assets available for benefits:
Beginning of the year 102,594,117 101,718,035
--------------------------------
End of the year $125,239,371 $102,594,117
================================
See accompanying notes.
3
Rollins 401(k) Plan
Notes to Financial Statements
December 31, 2003
1. Description of the Plan
The following brief description of the Rollins 401(k) Plan (the "Plan") provides
only general information. Participants should refer to the Plan agreement for a
more complete description of the Plan's provisions.
General
The Plan, as amended and restated, is a defined contribution plan. All employees
of Rollins, Inc. (the "Company"), except those who are members of a collective
bargaining unit or PCO Services, Inc. ("the Company's Canadian subsidiary")
employees, are eligible to participate in the Plan on the first day of the
quarter following the completion of six months of service, as defined. The Plan
is subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
Contributions and Investment Options
All investment options are established by the Plan with guidelines as to the
purpose of each fund. Each of the investment funds has a custodian responsible
for the safekeeping and investment of the assets of the fund.
The Plan Administrator is responsible for the overall administration of the
Plan. The trustee of the Plan is Northern Trust Company (the "Trustee"). The
Trustee is responsible for the overall safekeeping and investment of the assets
of the Plan.
Effective January 1, 2002, the Plan was amended to reflect the Economic Growth
and Tax Relief Reconciliation Act of 2001. The amendment allows participants to
contribute, via payroll deductions, from 1% to 25% of their compensation to the
Plan with the exception of highly compensated employees, for which the allowable
contribution is 1% to 7% of their compensation, subject to certain provisions of
the Internal Revenue Code (the "Code"), into any of the seven investment fund
options or a combination thereof in multiples of 5%. Previously, participants
could elect to contribute up to 15% of their pretax compensation. Additionally,
if a participant was age 50 or older by December 31, 2003, he or she could have
made an additional contribution of $2,000 for 2003. All participant
contributions are fully vested and nonforfeitable.
4
Rollins 401(k) Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Contributions and Investment Options (continued)
Effective January 1, 2002, the Plan was also changed to increase the employer
matching contribution to 30 cents for every dollar a participant contributes up
to 6% of his or her compensation. Previously, the Plan provided for an employer
matching contribution of 30% of contributions up to 5% of a participant's
compensation. Employer contributions under this provision are made in Rollins,
Inc. common stock. In order to receive a matching contribution for the Plan
year, a participant must be actively employed on December 31.
Vesting terms effective January 1, 2002 are shown below:
Vested
Percentage
----------------------
Years of service:
Less than two 0%
Two 20
Three 40
Four 60
Five 80
Six or more 100
Forfeited nonvested accounts are used to reduce employer contributions. Total
forfeitures used to reduce employer contributions for 2003 and 2002 were
$137,058 and $179,144, respectively.
The Plan's record keeper is Hewitt and Associates, LLP ("Hewitt"). Separate
accounts are maintained for each participant by Hewitt. Income and losses on
Plan investments are allocated to the participants' accounts in accordance with
the provisions of the Plan. Hewitt provides a daily valuation of participant
accounts.
5
Rollins 401(k) Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Loans Receivable From Plan Participants
The Plan provides for loans to participants of up to the lesser of 50% of the
individual participant's vested account balance or $50,000. A participant's loan
payments of principal and interest are allocated to his/her accounts under the
Plan and invested according to the participant's then current investment
elections. Loan terms range from 1 to 5 years. The loans are secured by the
balance in the participant's account and bear interest at the prime rate as of
the end of the month plus 2.0%. The loan interest rate is set on the first day
of the following processing cycle. Principal and interest are paid ratably
through monthly payroll deductions.
Payment of Benefits
Upon retirement, death, total and permanent disability, or termination for any
reason, the participant or his or her beneficiary may receive the total value of
his or her vested account in a lump sum distribution. A participant with at
least $5,000 in his or her 401(k) account may elect to defer the payment of his
or her account from the Plan to the April 1st after he or she attains age 70
1/2.
In addition, a participant may elect to withdraw all or a portion of his or her
account at any time through hardship provisions as defined by the Code and
subject to approval by the Company. In the case of a hardship, a participant may
not make any contributions for a period of six months.
Administrative Expenses
Administrative expenses of the Plan, including trustee and custodian fees, are
paid by the Company. The Company paid all expenses of the Plan for the years
ended December 31, 2003 and 2002.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100 percent vested in their accounts.
6
Rollins 401(k) Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires the Plan's management to make estimates
that affect the amounts reported in the accompanying financial statements and
accompanying notes. Actual results could differ from those estimates.
Investment Valuation
All investment fund options, excluding the employer contribution portion of the
Rollins, Inc. Common Stock Fund, are 100% participant-directed. Except for the
Fixed Income Fund, the Plan's investments are stated at fair value, which equals
the quoted market price on the last business day of the Plan year. The
participant loans are valued at their outstanding balances, which approximate
fair value.
Fixed Income Fund
The Fixed Income Fund represents deposits and interest earned thereon in this
fund managed by Connecticut General Life Insurance Company.
The group annuity contract under which these deposits have been made has been
determined to be fully benefit-responsive under the American Institute of
Certified Public Accountants' Statement of Position 94-4. Therefore, this
investment is carried at contract value in the accompanying financial
statements. At December 31, 2003 and 2002, the crediting interest rate was 4.70%
and 6.25%, respectively. This rate may be changed under the terms of the
contract, but in no case is it adjusted to less than 0%. The annual yield on the
contract for the years ended December 31, 2003 and 2002 was 4.64% and 5.9%,
respectively. The fair value of the contract at December 31, 2003 and 2002 was
approximately $34.9 million and $33.3 million, respectively. This contract is
subject to credit risk based on the ability of the insurance company to meet
interest or principal payments or both as they become due.
7
Rollins 401(k) Plan
Notes to Financial Statements (continued)
3. Master Trust
The Plan participates in the Rollins Retirement Account Master Trust (the
"Master Trust") with the 401(k) Plan of LOR, Inc., a company controlled by R.
Randall Rollins and Gary W. Rollins, executives of Rollins, Inc. The Master
Trust reinvests all dividend and interest income received on securities owned by
the Master Trust. The value of the units in the Master Trust is adjusted daily
to reflect the fair value of the investments. The Master Trust units may be
redeemed by the Plan for an amount equal to their current market values, except
for units in the Fixed Income Funds, which are redeemable at contract value. The
fair value of the Plan's interest in the Master Trust is based on the beginning
of the year value of the Plan's interest in the Master Trust plus actual
contributions, allocated investment income, less distributions and any allocated
administrative expenses.
The Plan's interest in the assets of the Master Trust is included in the
accompanying statements of net assets available for benefits at December 31,
2003 and 2002. A summary of the net assets of the Master Trust is as follows:
December 31
2003 2002
-----------------------------------
Investments, at fair value as determined
by quoted market prices:
Mutual funds $ 62,042,030 $ 47,573,003
Common stock - Rollins, Inc. 29,720,404 21,357,055
Money market funds 1,710,716 1,067,497
Investments, at contract value:
Group annuity contract 33,744,195 33,230,242
Accrued investment income 21,471 28,663
Accrued expenses and other liabilities (3,096) (2,964)
-----------------------------------
Net assets of Master Trust $127,235,720 $103,253,496
===================================
8
Rollins 401(k) Plan
Notes to Financial Statements (continued)
3. Master Trust (continued)
Allocations of the net assets of the Master Trust to participating plans are as
follows:
December 31
2003 2002
---------------------------------------------------------
Amount Percent Amount Percent
---------------------------------------------------------
Rollins 401(k) Plan $117,707,629 92.5% $ 95,322,365 92.3%
LOR 401(k) Plan 9,528,091 7.5 7,931,131 7.7
---------------------------------------------------------
$127,235,720 100.0% $103,253,496 100.0%
=========================================================
Master Trust income (loss) allocated to the participating plans for the years
ended December 31, 2003 and 2002 are as follows:
December 31
2003 2002
------------------------------------
Interest income $ 1,846,960 $ 2,083,036
Dividends 765,783 481,651
Net appreciation (depreciation) in fair
value of mutual funds 11,242,184 (11,605,321)
Net appreciation in fair value of
Rollins, Inc. common stock 7,215,061 4,748,903
------------------------------------
Net investment income (loss) $ 21,069,988 $ (4,291,731)
====================================
4. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
dated March 15, 2002, stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code (the "Code") and, therefore, the related trust is
exempt from taxation. Subsequent to this issuance of the determination letter,
the Plan was amended. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The Plan Administrator
believes the Plan is being operated in compliance with the applicable
requirements of the Code and, therefore, believes that the Plan, as amended, is
qualified and the related trust is tax exempt.
9
Rollins 401(k) Plan
Notes to Financial Statements (continued)
5. Nonparticipant-Directed Investments
The employer matching contribution is invested in the Rollins, Inc. Common Stock
Fund and may not be transferred by the participants. The portion of the Rollins,
Inc. Common Stock Fund that is nonparticipant-directed was $23,084,866 and
$17,429,126 at December 31, 2003 and 2002, respectively. Net assets of the
Rollins, Inc. Common Stock Fund (including both participant-directed and
nonparticipant-directed amounts) are as follows:
December 31
2003 2002
------------------------------------
Rollins, Inc. common stock $ 29,720,404 $ 21,357,055
Money market fund 1,008,107 383,592
Employer contribution receivable 2,149,661 2,158,914
Accrued income 787 503
------------------------------------
$ 32,878,959 $ 23,900,064
====================================
Changes in net assets for the year ended December 31, 2003 are as follows:
December 31
2003 2002
------------------------------------
Employer contributions, net of
forfeitures $ 2,150,323 $ 2,170,694
Participant contributions 1,170,964 852,977
Investment income 7,501,357 4,928,195
Distributions to participants (2,448,442) (1,661,486)
Interest on loans 39,811 30,083
Net transfers from (to) other funds 564,882 (206,781)
------------------------------------
Net change $ 8,978,895 $ 6,113,682
====================================
10
Rollins 401(k) Plan
Notes to Financial Statements (continued)
6. Differences Between Financial Statements and Form 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
December 31
2003 2002
------------------------------------
Net assets available for benefits per the
financial statements $125,239,371 $102,594,117
Amounts allocated to withdrawn participants 121,075 -
------------------------------------
Net assets available for benefits per the
Form 5500 $125,118,296 $102,594,117
====================================
The following is a reconciliation of distributions to participants per the
financial statements to the Form 5500:
Year ended
December 31, 2003
--------------------
Distributions to participants per the financial statements $10,866,439
Amounts allocated to withdrawn participants 121,075
--------------------
Distributions to participants per the Form 5500 $10,987,514
====================
Amounts allocated to withdrawn participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
year-end but not yet paid.
11
Rollins 401(k) Plan
Notes to Financial Statements (continued)
7. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market and credit risks. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in the statements of net
assets available for benefits.
12
Rollins 401(k) Plan
EIN: 51-0068479 Plan No.: 001
Schedule H, Line 4i
Schedule of Assets (Held at End of Year)
December 31, 2003
(b) Identity of Issue,
Borrower, (c) Description of (e) Current
(a) Lessor, or Similar Party Investment (d) Cost Value
-------------------------------------------------------------------------------------------------------------
* Participant Loans Interest rates ranging from 6.00% to
11.50% $ - $5,437,132
------------------------------
Total $ - $5,437,132
==============================
* Indicates a party-in-interest to the Plan.
13
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
ROLLINS 401(k) Plan
(Registrant)
Date: June 28, 2004 By: /s/ Harry J. Cynkus
----------------------------------------------
Harry J. Cynkus
Plan Administrator
14
INDEX TO EXHIBITS
Exhibit Number
---------------
(23.1) Consent of Ernst & Young LLP, independent auditors.
15