Rollins Inc · 8-K · For 2/17/04 · EX-99

Filed On 2/24/04 5:14pm ET   ·   SEC File 1-04422   ·   Accession Number 84839-4-8

Current Report   ·   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Year End Conference Call Transcript                    3      9K 
 2: EX-99       Transcript of Ye Conference Call                      16±    68K 

EX-99   ·   Transcript of Ye Conference Call

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Exhibit 99.1                                                                    
 ROLLINS, INC.
Fourth Quarter Conference Call
February 17, 2004,10:00 a.m., ET
 Financial Relations Board
 Chairperson: Marilyn Meek

Operator       Good morning,  ladies and  gentlemen,  and welcome to the Rollins
               fourth quarter conference call. At this time all participants are
               in   a   listen-only   mode.   Following   today's   presentation
               instructions  will be given for the question and answer  session.
               If anyone  needs  assistance  at any time during the  conference,
               please press the star followed by the zero.  As a reminder,  this
               conference  is being  recorded on Tuesday,  February  17, 2004. I
               would now like to turn the  conference  over to Ms.  Marilyn Meek
     with Financial Relations Board. Please go ahead, ma'am.

M. Meek        Thank you. Good morning,  everyone,  and thank you for joining us
               today for Rollins  conference  call to discuss fourth quarter and
               year end results for 2003.  By now you should have all received a
               copy of the press release.  However,  if anyone is missing a copy
               and would like one,  please contact our offices at  212-445-8453.
               We will  send one to you and make  sure you are on the  company's
distribution list.                                

               There  will be a replay  of the call  which  will  begin one hour
               after the call and run for one week.  The replay can be  accessed
               by dialing 1-800-405-2235 passcode 567293.  Additionally the call
               is being  webcast live over  www.viavid.net  and a replay will be
available for 90 days following the call.         

               On the  line  with  us  today  for the  call  are  Gary  Rollins,
               President and Chief  Executive  Officer and Harry  Cynkus,  Chief
               Financial  Officer  and  Treasurer.  Management  will  make  some
               opening remarks and then we'll open the line for questions. Gary,
would you like to begin?                          

G. Rollins     Yes. Thank you,  Marilyn.  Good morning and welcome to our fourth
               quarter  conference  call.  Harry  Cynkus  is  going  to read our
        forward-looking statement disclaimer and then we'll begin.

H. Cynkus      Thanks, Gary. In order to help you understand the company and its
               results we may make  certain  forward-looking  statements.  It is
               possible our actual  results might differ from any  statements we
               make today.  Additional  information regarding factors that could
               cause  such  differences  appear  in the  company's  SEC  filings
       including its 2002 10-K as well as today's press release.

               In the question  and answer  portion of today's call we will only
               be responding to financial  questions from analysts and portfolio
               managers  relating to the historical  information  for the fourth
               quarter  and year.  Gary will now  comment on the quarter and our
full year results.                                

G. Rollins     We are pleased to have reported  another strong quarter and year.
               This is our 16th consecutive quarter of improved earnings and our
               sixth consecutive year of improved earnings growth which reflects
               the  positive  actions  that we have  taken to  improve  Rollins'
               performance. The results that we've achieved in our forth quarter
               were  particularly  noteworthy given that this has  traditionally
been the company's slowest quarter.               

               In terms of revenue growth and net income  year-over-year  it was
               our strongest  quarter in 2003. The  improvement  overall that we
               have experienced is primarily the result of improved productivity
and improved employee and customer retention.     

               Let me take a few minutes to  highlight  some of our programs and
               what we're doing to expand our business  and improve  revenue and
profitability going forward.                      

               As most of you are aware,  we began our Every  Other Month or EOM
               service in 2000. This program  continues to gain acceptance among
               both  existing  and new  clients.  Thanks to improved  and longer
               lasting  chemicals,  we can now provide  effective  pest  control
               service while satisfying our customers' busy lifestyles with less
service frequency.                                

               As of December  31st 55% of our  residential  customers had opted
               for EOM. We expect to see further growth of this service offering
               this year and beyond.  In addition  this has resulted in improved
               technician  earnings  and  productivity,  lower  fleet cost among
other efficiencies.                               

               Recently  mosquitoes have become a much more visible health risk.
               The spread of West Nile Virus has made the public highly aware of
               the  potential  deadly  disease that these  insects can transmit.
               This past Summer,  Orkin began test marketing a mosquito  control
               program in the Northern  United States and Canada.  While working
               to address the threat of mosquitoes in select  residential  areas
               in the  U.S.,  a highly  successful  West Nile  Virus  prevention
               program was implemented  through government  agencies in Ontario,
               Canada.  Two provinces  were provided with thousands of larvicide
               treatments to mosquito  breeding  grounds reducing the population
of adult mosquitoes and their eggs.               

               The company intends to expand the mosquito  program in Canada and
other U.S. markets in the Spring of this year.    

               On the  commercial  pest  control  side  of our  business,  Orkin
               introduced the Gold Medal Protection Program in 2003. This custom
               designed pest control service program is targeted specifically to
               high-end  customers,  primarily  in the  food  manufacturing  and
               processing   industry.   The  program  provides  a  comprehensive
               reporting   system  that  meets  federal  and  state   regulatory
               requirements.  Our technical reporting capabilities are augmented
               by our  guarantee  of  free  retreatment  if the  customer's  not
               satisfied  plus  our  commitment  to pay  any  regulatory  agency
  penalties as a result of a shortfall in our service.

               These  guarantees  in part are supported by the fact that we have
               the first  commercial  pest control  program of its kind in North
America to receive the ISO 9002 certification.    

               This  past  year we also  introduced  and have  benefited  from a
               commercial pest control quality assurance  program.  This program
               helps insure consistent service while improving our personnel and
               build stronger  customer  relations.  The program  utilizes floor
               level  inspections  by Orkin QA inspectors  while  accompanied by
               branch,  region and on occasion,  division management staff. This
               initiative  is  supported  by  a  new  commercial   pest  control
               expectations  manual  that  was  developed  for our  branches  to
               clearly understand the company's  commercial service  commitment.
               Our  locations  and people who provide  this  service are audited
against this manual.                              

               The counterpart of this commercial pest control quality assurance
               program was introduced for termite control in 1997 and has proven
               very  successful  in improving  our termite  service and customer
retention.                                        

               We believe that our commercial  business  represents the greatest
               potential  for long term  growth for  Rollins  through  increased
               market penetration and longer customer relationships. Many of our
               new  sales  and  technical  initiatives,   including  a  handheld
               computer application as well as this quality control program that
           I mentioned, have been developed with that objective in mind.

               The Orkin  franchise  program has continued to expand in the U.S.
               and   internationally.   During   2003  we   added   our   second
               international   franchise   in  Panama  and  now  have  44  Orkin
               franchises.  We expect this  program to continue to grow and look
          forward to repurchasing the mature businesses in the future.

               Orkin continues to be one of the most highly  recognizable  brand
               names in the United States where seven out of 10 people  surveyed
               mentioned Orkin first when asked to name a pest control  company.
               We are committed to preserving and building this brand awareness.
               I'll  share  with you some of the work that  we've  been doing in
this regard.                                      

               This  past  year  we  introduced  our "If it  bugs  you,  bug me"
               integrated radio and local point of sales  advertising  campaign.
               This program was  supplemented  by creative point of sales pieces
               for the company's service technician.  This material was used for
               clover  leafing  for new  prospects  to build  route  density  in
               neighborhoods  where they have  existing  clients.  Orkin is also
               reaching out in big metro cities to the largest minority group in
               the U.S., the Hispanic  market,  with its new Spanish radio spots
and collateral material.                          

               In order to better  understand our customers and prospects during
               the past year,  Rollins initiated market research efforts to help
               identify specific residential pest control market segments. Three
               segments  were  determined  to be ideal new  customer  groups for
Orkin.                                            

               These are  sectors  that the  company  believes  offers  the best
               opportunity to create long and prosperous  relationships.  All of
               these  groups  were  willing  to pay a  higher  price  for a pest
               control service that meets their needs. These prospects indicated
               a desire for a company with a strong positive  reputation and one
               with the most  professional and knowledgeable  technicians.  They
               also want to do business  with a company  whose  service  will be
               safe for their children and pets and a firm that is responsive to
               their  requests.  These are all  attributes  that Orkin  delivers
               every day; however, we must do a better job communicating them to
our prospective customers.                        

               Our new local expert television and radio advertising campaign is
               a refinement from last year and conveys a message that our people
               are members of your community and your neighbors.  With Orkin you
               get all the benefits of a highly  professional  company with your
  service performed by people who live where you live.

               To  effectively  and  efficiently  achieve sales goals in today's
               highly  competitive  environment,  sales  representatives  have a
               greater  need  for new  technology  to help  them  improve  their
               productivity.  Orkin began  testing  automated  sales  management
               software this past year and will continue to work in this area in
               the new year.  This software is currently being used to track the
               sales process, allowing the sales pipelines to be easily reviewed
               by management and to capitalize on opportunities that are readily
identified.                                       

               Account  information,   sales  statistics,  contact  information,
               future tasks and events are tracked by location  with upward flow
               to  the  sales   management   organization.   The  reporting  and
               forecasting  features  also  enable  management  to have a better
   overview and expectation of the entire sales network.

               The company has also  reorganized  its  marketing  department  to
               include business  development  managers,  BDMs, for our operating
               division.  Each BDM is responsible  for linking sales activity to
               our sales  plan  creating  a market  development  plan for future
               customer growth and retention for their specific divisions.  They
               will  provide an  advocacy,  if you will,  by working  with local
               management to ensure the success of their divisions as it relates
               to  sales  training,   new  customer  marketing  and  sales  plan
achievement.                                      

               Last  year  we  successfully  launched  our  new  intranet  which
               provides for quick and efficient communications between the field
               and home office.  Significant  cost savings are being realized by
               providing  material  safety data sheets and product labels to our
               My Orkin  intranet.  This is a very  important  requirement  that
               enables  instantaneous  compliance with state and federal product
use regulations.                                  

               The Orkin training department now has a  state-of-the-arts  means
               to better  communicate the availability of a comprehensive  array
               of training  tools and reference  materials  through the My Orkin
training site.                                    

               The My Orkin  Marketplace  was created  for our  branches to more
efficiently order promotion materials.            

               Lastly,  company technician and technical forums are available to
      create a method of sharing knowledge on our new website.

               In 2003  Orkin  began  to  outsource  some of its  pesticide  and
               material  distribution  by utilizing a new branch internet system
               that  simplifies  ordering.  Test branch sites are now  receiving
               shipments from a source near their  location more  frequently and
               timely which  reduces the carrying  cost of excess  inventory and
shipping costs.                                   

               The global positioning  system, GPS technology,  first introduced
               three  years ago has  resulted  in  improved  driver  safety  and
               service  productivity.  Now newer  generation GPS units are being
               installed  that allow 24/7  monitoring  and  reporting  of speed,
               location and seatbelt usage as well as allowing  remote  updating
               of mapping software. This new technology also details the route a
               service technician takes rather than just noting stops. These new
               units create reports that are easier to read and allow data to be
               sent directly to a server with no removable  chip to be taken out
at the end of the day.                            

               Although this new equipment is being utilized in just some of our
               locations,  we are optimistic that it will be a building block to
               create a  comprehensive  routing  and  scheduling  system  in the
future.                                           

               In the Spring of 2003 Orkin was  recognized by Training  Magazine
               as one of the top 100 companies to excel in training and employee
               development.  In addition,  Orkin was one of only five  companies
               selected for the magazine's  Editor's Choice award.  The award is
               given to select  companies  that have created  positive  learning
environments for their workforce.                 

               Orkin  attained  further  recognition  this year for its training
               achievements  by winning  first  place  honors for the Best award
               given by the American Society for Training and  Development.  The
               Orkin  Training  Center  located  in  Atlanta  was   specifically
               referenced  as evidence of the  company's  dedication to employee
improvement.                                      

               The Orkin  Training  Center  has a full sized  house and  several
               other real examples of building  structures where technicians can
               see the relationship between pest and home construction. They can
               also simulate pest treatments  under the supervision of qualified
               instructors.  In the classrooms  technicians  acquire guidance in
               customer  relations,  pest problem solving and advanced technical
        skills through highly interactive instructor led training.

               In 2004 the  company  plans to  expand  the  training  center  to
               include  hands-on   instructional  areas  that  represent  actual
               customer account facilities with additional classroom space and a
media production facility.                        

               To summarize,  we have many programs introduced in 2003 that will
               only get stronger in the new year.  I'd like to now turn the call
               over to Harry who will walk you through our financial performance
for the quarter and year. Harry?                  

H. Cynkus      Thank you,  Gary. In the fourth  quarter of 2003, we grew our net
               income  by 60.6% to $6  million,  or 13 cents per  diluted  share
               compared  to net income of $3.7  million,  or 8 cents per diluted
               share for the fourth  quarter of 2002.  Net income for the fourth
               quarter  2003   included   gains  from  the  sale  of  assets  of
               approximately  $1 million net of tax, or 2 cents per share.  This
               gain was  partially  offset by a  year-to-date  adjustment in the
effective income tax rate of $300,000.            

               In terms of revenue  growth,  the fourth quarter was our best for
               2003.  Total  revenue was up 3% to $158.5  million.  For the same
               period in 2002 we  reported  revenue  of $153.9  million.  We saw
               growth  across all of our business  with higher growth in termite
and commercial.                                   

               Gross margin for the quarter was 45.3%  compared to 44.0% for the
               fourth quarter of 2002. The  improvement in gross margin reflects
               ongoing  improvement  in  technician   productivity  as  well  as
reduction in material and supply costs.           

               We enjoyed some  improvement in our insurance and claims costs as
               well. We continue to see  reductions in the number of new as well
as open termite claims.                           

               Sales,  general  and  administrative  expenses  as a  percent  of
               revenue in the quarter  increased  from 36.6% to 37%,  all due to
the true-up of some sales program costs.          

               Taking a look at results  for the full  year,  net income for the
               year increased  36.2% to $36.9  million,  or 80 cents per diluted
               share  compared to net income of $27.1  million,  or 60 cents per
               diluted  share for 2002.  Revenues  increased by $11.6 million to
          $677 million over revenues of $665.4 for the full year 2002.

               The 1.7% increased revenue for the full year and 3% in our fourth
               quarter were  primarily the result of our  continued  emphasis on
 customer retention and building recurring revenues.

               Commercial  and  residential  pest control had modest growth this
               year.  Termite  revenue  decreased  slightly  for the  full  year
               primarily as a result of the cold and wet weather in the majority
of the U.S. in the Spring of last year.           

               Gross  margin for the year was 46.5%  compared to 45.7% for 2002.
               The improvement in gross margin reflects continued improvement in
               technician  productivity  and  reduction  in material  and supply
               costs. While improving technician productivity, we have been able
               to increase average pay which leads to better employee  retention
        and, in management's opinion, improved customer retention.

               For the full year  sales,  general  and  administrative  expenses
               decreased .7% margin points, declining to 34.9% of total revenues
               compared to 35.8% for the prior year.  This  improvement  was the
               result of the home office process improvement  initiative started
               in  2002,  lower  field  administrative  costs  as  a  result  of
               technology and organizational investments and lower sales payroll
               due to lower staffing.  The formation of inbound call centers and
               lower bad debt expenses  resulting  from better  collections  and
               improvement in receivables  aging  statistics also contributed to
               this  improvement.  These were partially offset by an increase in
our sales program costs.                          

               The tax  provision of $23.1 million at December 31, 2003 reflects
               higher pretax income and a higher effective tax rate versus prior
               year periods.  Prior to the fourth  quarter of 2003 the effective
               tax rate was 38%. In the fourth quarter we had to adjust the rate
               to bring  2003's  effective  tax rate to 38.5%.  The higher  rate
               reflects an increase in state income  taxes.  This  increased the
               tax rate for the fourth  quarter to 41%. We expect the  effective
tax rate will approximate 38.5% in 2004 as well.  

               During 2003 we  continued to  strengthen  the  company's  already
               strong balance  sheet.  At December 31, 2003 Rollins had cash and
               short term investments of $59.5 million and marketable securities
               of $21.9 million for a total of cash and marketable securities of
               $81.4  million  compared to $38.3  million at the end of December
               2002,  112.5%  increase.  This strong cash position  gives us the
               ability to pursue  opportunities  to acquire  select pest control
acquisitions.                                     

               We ended the year  with $46  million  in  unearned  revenues,  up
               approximately  7% at the  end  of the  year.  Since  the  company
               recognizes  revenue  at the time  services  are  performed,  this
               balance  represents  customers who have paid us in advance.  This
               includes pest control customers who take advantage of our year in
               advance  discount  program and base monitoring  customers who are
required to pay a year in advance.                

               Our accrual for termite  contracts that  represents the estimated
               cost of  re-applications,  repair  claims and  associated  labor,
               chemicals and other costs  relative to termite  control  services
               performed  prior to the balance  sheet date totaled $43.9 million
               at year end,  a decrease  of $2.6  million  from last  year.  The
               decline  reflects the  approximately  10% fewer claims  opened in
               2003 versus the prior year as well as a 30 plus  percent  decline
in the number of open claims.                     

               Also  of  note,  we  choose  to  make  a $9.8  million  voluntary
               contribution  to our pension plan in the fourth  quarter.  Due to
               the  combination  of the  contribution  and  improved  investment
               returns, the year end fair value of pension assets now exceed the
               plan's accumulated  benefit  obligations  requiring us to reverse
               the last two years of additional  minimum pension  liability that
               had been  recorded  through  retained  earnings as  comprehensive
               expense. This increased our retained earnings by $16.1 million in
the fourth quarter but had no P&L impact.         

               On  December  31,  2003 we had total  assets of $353  million and
               stockholder's  equity of $140  million.  We are almost debt free,
with $1.7 million in debt.                        

               Lastly,  in 2003 the  company  paid a total of $9 million in cash
               dividends,  or 5 cents per quarter.  On January 27th of this year
               the Board of Directors approved a 20% increase in the dividend to
               6 cents a quarter.  This is the second  consecutive year in which
 the Board has approved an increase in the dividend.

    Gary, I will now turn the discussion back over to you.

G. Rollins     Thanks,  Harry. I hope I conveyed  earlier that we are continuing
               to  invest  in our  business  in order to  provide  the very best
               customer  service  available  at a reasonable  cost.  At the same
               time,  we  remain   committed  to  increasing  sales  growth  and
               profitability through our sales and service programs all of which
          should translate into increasing value for our shareholders.

               We're now ready to open the call to any questions  that you might
have.                                             

Operator       Thank you, sir. Ladies and gentlemen,  at this time we will begin
               the question and answer session.  If you have a question,  please
               press the star followed by the one on your  pushbutton  phone. If
               you'd like to decline from the polling process,  please press the
               star  followed  by the two.  You will  hear a  three-tone  prompt
               acknowledging  your  selection.  Your questions will be polled in
               the order they are received.  If you are using speaker  equipment
               you will need to lift the handset  before  pressing  the numbers.
One moment please for our first question.         

               Our first  question  comes from Steve  Benault with  Craig-Hallum
Capital. Please go ahead with your question, sir. 

S. Benault     Good morning, everybody.                                         

G. Rollins     Good morning.                                                    

S. Benault     Would you mind  providing  a little bit more color on the true-up
of the sales program costs in the fourth quarter? 

H. Cynkus      We, at the end of each year, estimate our marketing costs as well
               as some of our sales program costs.  Last year we had a small net
               credit of under half a million dollars.  This year we had a small
               net  charge  that was a little  more than a half  million  in the
               other  direction.  It was  actually  a  little  more  than a half
               million dollar expense versus the credit we had last year, so you
have a swing in comparing the quarters.           

S. Benault     A swing of a million.  Although is there  anything  else going on
               within that line item because on an absolute  basis you guys were
               sort of realizing year-over-year declines on an absolute basis in
               terms of dollars  and it was a little bit of an uptick.  Is there
               any  incremental  spending  related to anything that we should be
aware of?                                         

H. Cynkus      No. I think the fourth quarter is somewhat  higher because of the
               true-up and the lower  revenue  that falls in the fourth  quarter
       and we would expect it to continue as it has in the past.

S. Benault     Do you feel  comfortable  providing detail regarding the segments
               if you talk in terms of residential, commercial and termite, what
sales did in the quarter?                         

H. Cynkus      Typically  the stock in  general  terms,  in the  commercial  and
               termite we had positive  gains (I don't have the numbers in front
               of me here).  The residential  you're not going to have typically
               many  customers  in your  fourth  quarter.  Termite  I think  was
               stronger  in the fourth  quarter  than we've  seen  previous  but
               that's a result of we've  been  selling  now for five plus  years
               contracts  that expire and what we're now doing is we're  cycling
               the first expiring  contracts this year. We have the  opportunity
               to resell termite customers that we didn't see in previous years.
               That has both a positive and a negative  impact;  i.e.,  you lose
               the  customers  and the contract  expired but it does give you an
               opportunity  to  resell  valuable  protection  that they need for
their home.                                       

S. Benault     But if we say residential was down and I understand  there's some
downward suppression on the residential.          

H. Cynkus      I didn't say  residential  was down.  I'm just  saying we saw the
               growth  primarily  as I mentioned  in the termite and  commercial
               side, the stronger growth there. We had 3% growth in the quarter.
        Those two sectors were over 3 and residential was under 3.

S. Benault     Okay.  The mosquito  control you  reference in the press  release
               you're  working with  various  health and  government  officials.
What's the nature of those working relationships? 

G. Rollins     Are  you  referring  to  the  comment  I  made  about  the  label
               requirements  and so forth?  Canadian,  I'm  sorry.  Canada has a
               little bit different  situation  than we have in the U.S. in that
               the  government  takes a more  active  role in pest  control  and
               there's greater funds that are available to provide pest control.

               PCO Services, our company in Canada, has responded and cultivated
               relationships  with two  provinces up there where the  government
               has  funded  in those  areas a  proactive  approach  to  mosquito
               control.  We would love to think that would  happen down here but
               the nature of just the way that the government works in Canada is
different than it is down here.                   

               What we're  doing down here is we're going to be  targeting  some
               local  municipalities  and seeing if we can  create  that kind of
interest in more affluent local municipalities.   

S. Benault     So in Canada it appears as if there's an  opportunity  to work on
               it from a  commercial  perspective  with  your  mosquito  control
program?                                          

G. Rollins     Right.  Canada just has a lot more relationships with the private
               sector as far as pest control service in general and I think it's
     just the nature of the country more than anything else.

               We were encouraged  with the residential  testing that we did and
               we also think there's some affluent  municipalities in the United
               States  that  might take that type of  interest.  As far as going
               into any broad  territorial  areas, a state or a big metropolitan
               area,  we really  don't think that we have that same  opportunity
 from a government perspective in the United States.

S. Benault     Thank you.                                                       

Operator       Thank you. Our next question comes from James Clement with Sidoti
& Company. Please go ahead with your question.    

J. Clement     Good morning, guys, how are you?                                 

H. Cynkus      Fine, Jaimie.                                                    

J. Clement     A quick  question for you. I know that over the last I don't know
               12 to 18 months,  perhaps  even  longer,  you've  talked about in
               reasonably specific terms some sales initiatives that you have in
               place and that you commented on in the beginning.  I would assume
               that it would  take a little  while for the  initiatives  and the
               training  involved in those  initiatives  to actually  get to the
               branch level, get to the technicians,  that kind of thing. If you
               could talk about  residential and termite and commercial and give
               us a sense  of  whether  the  people  that  you need to be up and
               running on those initiatives are up and running or are we only in
        the third inning of this process? Is that a fair question?

G. Rollins     I think it's a good question.  And I think you're right,  we have
               been  playing  defense  for a long  time and only  recently  have
               really  gotten into a sales  growth mode and one that the company
      has done successfully in the past but not more recently.

               The BDMs that I referred  to earlier are  certainly  for the most
               part new. There's a couple of more  experienced  individuals that
               are involved,  but the majority of them are new and so it's going
               to take them a while to build  relationships  and start making an
impact.                                           

               I   think   you've   got   probably   a   different    situation.
               Commercial-wise  we're a little bit more nimble there  because we
               don't have as many people to  influence so I would expect that we
               could see some more positive movement there a little bit quicker.
               Harry alluded to the expired termite contracts. I would expect to
               see some good progress made in that area just by the phenomena of
               the fact that we have a fairly  significant  number of  customers
               whose  guarantee and coverage has run out. This is the first time
               that we've had that kind of a situation. Pest control is going to
               be probably the most  challenging  because it's the bigger number
               to  move  but we had a very  good  December.  We saw a lot of the
               results of these programs that I've mentioned and I would imagine
               that our progress will just continue to build throughout the year
               but it's certainly not going to leap off the starting  block,  so
 to speak, as far as the first quarter is concerned.

J. Clement     Thanks.  Harry,  let me ask you a quick question.  I know that in
               your press release you lumped your long term accrued liabilities.
               If I look  back at the  balance  sheet as of the end of the third
               quarter,   it  looks   like  that   number  is  down   reasonably
               substantially.  Are the two things  going on there the  voluntary
               pension contribution and the lower accrual for termite clients or
is there something else there?                    

H. Cynkus      No, that's primarily it, the pension payment.  Last year we had a
               liability recorded for the minimum pension liability.  Because of
               the  funding  now,  that  has to be  reversed.  The  decrease  in
               pension,  there's some reclasses between short term and long term
               on the  termite  but  there's  nothing  else  really  substantial
happening.                                        

J. Clement     Thanks.  Let me ask just one quick  question.  I know that  going
               back a year or so people  had asked you  questions  as to whether
               you would consider an Orkin brand of home pest control  products,
               that kind of thing.  I don't  think  we've  heard much about that
               from you in the last couple of quarters. Is that something that's
still being considered?                           

G. Rollins     Yes,  it's still being  considered.  We really  couldn't make the
               numbers work.  If you looked at a royalty kind of  situation,  we
               just couldn't find a situation that  economically  made that much
               sense  for  us.  We  have  to  be  very  careful  that  we  don't
               cannibalize the service that we offer.  One of our ideas was that
               we would go into the flying insect  product line which you really
wouldn't be competing with your service.          

               When we really peeled the onion back, so to speak, we did not see
               the  economics  that  offered us the kind of  benefit  that would
               warrant  some of the  other  problems  it would  create as far as
marketing our service.                            

               One of the  things  that we are very much  interested  in is some
               type of  couponing  and we have  talked  with  some of the  major
               manufacturers as far as an alliance that would position us as far
               as  acquiring  a new  customer  as a  result  of  the  consumer's
inability to get the desired results.             

               Our research has indicated that our typical customer has a couple
               of cans of  products  under their sink and what that tells you is
               that they try it but they just  can't make it work  because  they
               don't have the discipline and they don't really know exactly what
               to  do  with  it.  We  really   think   that  we  may  have  some
               opportunities  in the  future  working  with some of the  leading
               manufacturers in offering work in coupons as far as a package and
          be able to get the leads and convert those to new customers.

J. Clement     Thanks very much.  I will let other  people have some  questions.
Thanks.                                           

H. Cynkus      Thank you.                                                       

Operator       Thank you. Our next  question  comes from Michael  Freedman  with
RBC. Please go ahead with your question.          

M. Freedman    Good morning.                                                    

G. Rollins     Good morning.                                                    

M. Freedman    I had a couple of questions  for you.  Looking back over the past
               five  years,  you all have  obviously  done a  phenomenal  job of
               increasing  your  operating  income  margin,  it looks  like from
               negative to 8.6% on a kind of slow,  less than 3% revenue growth.
Just a couple of questions around that.           

               First,  where do you  think  your  operating  income  margin  can
               ultimately go? How much more room is there on this front? Second,
               you talked about the decrease in termite  claims but is there any
               way you could give me additional  comfort that we're not skimping
               at all on our accruals,  because obviously both accrued insurance
               and termite accrual have gone down  significantly over time which
has helped the margins.                           

               Lastly,  is there any  additional  warranty cost that Every Other
               Month service  creates in terms of people  thinking they see bugs
               in the second month and causing a truck roll or also is there any
    warranty accrual for the Gold Medal Guarantee? Thanks.

G.Rollins      Let me take the first one here,  operating margin. I believe that
               our  operating  margins  can return to the 14% plus level that we
               experienced in the early '90s, '93, '94 and I think '95 before we
               got into the termite  wars.  Harry talked about the trends as far
               as the claims were  concerned and of course I touched  briefly on
               our quality  assurance  efforts  there.  So we really  think that
               we've got this termite  thing behind us and that we can return to
historic margins.                                 

H. Cynkus      In terms of whether we're skimping on accruals,  and I can assure
               you I feel very  confident that the accruals are properly set. We
               do a lot of work with actuaries to develop  estimates.  They have
               now well over seven,  eight years of claim history.  They work on
               development factors,  they look as to how the claims are building
               by year that they were originally sold. It's audited  extensively
               by our auditors,  Ernst & Young. And the reduction in the reserve
               is really a  reduction,  reflects  all the work that  we've  done
               since 1997 to reduce our  liability in that area and to bring the
costs within control.                             

               I think it portends well for the business  going forward  because
               it means that as I  mentioned,  we're  seeing less new claims and
               less open  claims  and if we can  continue  to reduce  our claims
               expense,  it will certainly  have a big factor on  profitability.
               Last year our  termite  provision  was in excess of just over $20
million so it does have a big impact on earnings. 

               As to any additional  warranty cost on Every Other Month service,
               with the efficacy of the chemicals we moved from monthly to Every
               Other Month,  we look at the number of call backs  because if the
               bugs come back,  we guarantee  we'll come back.  We have not seen
               substantially  any higher  numbers on call backs with Every Other
               Month versus the monthly service.  I don't know if that's true if
               we went to  quarterly  or not but we look at our  allowances  and
               credits that we issue on the guarantees each month and those have
trended down over the last several years as well. 

               We don't see anything  particularly  at risk there.  The customer
               satisfaction  as we  measure it by  retention  is better on Every
     Other Month than we saw with other service frequencies.

M. Freedman    Great, thank you.                                                

Operator       Our next  question  comes from Louis  Corrigan  with The  Cypress
Funds. Please go ahead with your question, sir.   

L. Corrigan    Harry, I've got two questions.  The asset sale in the quarter,  I
               didn't hear what was sold. The second  question,  you have gotten
               amazing  efficiencies out of your GPS service. I'm wondering what
             inning are we in, in terms of that in helping to drive margins?

H. Cynkus      We had  some  surplus  assets  and we had a gain on one and  some
               losses  on  others.  It  wasn't  really  any ...  we broke it out
      separately because we don't expect them to be recurring.

               In terms of GPS we're at, I wouldn't  say at the front end of the
               game but we're now actually rolling out the second generation. We
               first  put  in  GPS  equipment  three  or  four  years  ago.  The
               technology has gotten better with more and more capabilities so I
think today we're seeing a refinement.            

               We will continue to dial down and use the  information to improve
               service  frequencies.  Today the ability to actually  map out the
               route that the technician is taking versus what we would like him
  to see and have a visual map of will certainly help.

               I  think  it's  an  important  part of our  continuing  to  drive
               productivity,  it's one more tool in the toolbox. The big savings
               that we saw in reduction of insurance cost and in accident claims
               we're hoping to see continued incremental  improvements there. We
               can now monitor usage 24 hours a day but I think we're looking at
incremental and not huge steps.                   

L. Corrigan    I guess  that  would mean  getting  to the 14%  operating  margin
               becomes more and more a function of driving revenue.  Is that the
right way to look at it?                          

H. Cynkus      Yes.  We  believe  we have a lot of  gains  still  to  come  from
               productivity.  Almost  half our cost is labor.  The whole name of
               the game here is managing  that labor.  Route  density,  we don't
               make any money  driving  between stops and the more we can reduce
           that drive time, the higher we can improve that productivity.

               The  sell-through  of Every  Other  Month  will  continue.  We've
               mentioned  a number of times  consistently  since the program was
               started,  70% of all new sales have been Every Other  Month.  The
               customer  base is now up to just around 55% so we still have some
               gains as the  customer  base  continues  expanding to Every Other
               Month. But to continue to drive margins,  we recognize we need to
grow revenue.                                     

L. Corrigan    Great, thank you.                                                

Operator       Thank you.  Our next  question  comes from  Thomas  DiBella  with
             Turner Investment Partners. Please go ahead with your question.

T. DiBella     Thank you. I have a question on the margins  that you're  talking
               about. You were about 11.5 this year I think on operating margins
               and it looks like historically you've been as high as over 14. Am
I correct in that?                                

G. Rollins     Yes.                                                             

T. DiBella     The question, also you had some added costs to supplies. Was that
mostly chemicals or was that fuel?                

H. Cynkus      We said our material cost was actually down.                     

G. Rollins     We had a slight  increase in fleet expense  because of converting
               to a new vendor and we had overlap.  We had vehicles that were in
               and  vehicles  that were  coming,  so there was some  overlap  of
vehicles in the transition.                       

H. Cynkus      That was in the first quarter of the year. It affected us for the
total year but that fell in the first quarter.    

T. DiBella     What percent is materials,  chemicals,  fuel and that relative to
labor after you put it all together?              

H. Cynkus      It's  typically,  and  it  varies  by  type  of  whether  it's  a
               commercial  customer or a  residential  or whatnot,  but in total
       it's approximately 6% of revenue. It's a small component.

T. DiBella     Thank you.                                                       

Operator       Thank  you.  Our next  question  comes  from Ryan  Robinson  with
   Farallon Capital. Please go ahead with your question.

R. Robinson    Good morning, gentlemen.                                         

G. Rollins     Good morning, Ryan.                                              

R. Robinson    Congratulations  on a great  quarter.  You've  done a  great  job
               generating  cash the past couple of years. I was wondering if you
               could  give us a  little  color  on your  plans  for the cash and
               specifically what we can expect in 2004 from the acquisitions and
              stock buyback lines in comparison with the past couple of years?

G. Rollins     I think from an acquisition  perspective we're willing. One thing
               that we  learned  over the last  couple  of years is that  buying
               small  companies,  really you spend a lot of effort but you don't
               get a lot of benefit.  The good news is that  there's  probably a
               dozen $20,  $50,  $70  million  companies  out  there.  These are
               typically good regional competitors,  third generation ownership.
               Some of them are going  through a thought  process  about whether
               they  really  want to stay in the  business  and we have done our
               best to stay  near  these  people  and  participate  with them on
industry events.                                  

               We very much would like,  that would be our first priority as far
               as our cash is concerned and we would hope to be successful  with
               our endeavors but you just can't make them sell.  We're trying to
encourage them to sell.                           

               As  you've  seen in the past we have  purchased  our stock and we
have the authorization, what Harry?               

H. Cynkus      We still have authorization for about 650,000 shares in our share
buyback program.                                  

G. Rollins     And I think  depending  on the  price of the  stock and so forth,
               that is  certainly  an  option  that we would  consider,  but our
               number  one  priority  would be to  acquire  some of  these  good
businesses.                                       

T. DiBella     Good, thank you very much.                                       

Operator       Thank  you.  Management,  at  this  time  there  are  no  further
               questions.  Please  continue  with any further  remarks  that you
would like to make.                               

H. Cynkus      That concludes our remarks.  We thank everyone for  participating
and we'll speak with you next quarter.            

G. Rollins     Thank you for your interest in Rollins.                          

Operator       Thank you,  gentlemen.  Ladies and gentlemen,  this concludes the
               Rollins  fourth  quarter  conference  call.  If you would like to
               listen  to a replay  of  today's  conference,  please  dial in to
               1-800-405-2236 or 303-590-3000 and use the access code of 567293.

               We thank you for your  participation.  You may now disconnect and
thank you for using ACT Teleconferencing.         

Dates Referenced Herein   and   Documents Incorporated By Reference

This 8-K Filing		Date		Other Filings
		12/31/03		10-K, 10-K/A, 11-K, 4, SC 13D/A
For The Period Ended		2/17/04		8-K
Filed On / Filed As Of		2/24/04
Top				List All Filings