UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

Commission File Number 1-4422

ROLLINS, INC.

(Exact name of registrant as specified in its charter)

Delaware	51-0068479
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		ROL		NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

Rollins, Inc. had ~~327,749,009~~492,123,516 shares of its $1 par value Common Stock outstanding as of ~~October~~April 16, ~~2020.~~2021.

ROLLINS, INC. AND SUBSIDIARIES

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF ~~SEPTEMBER 30, 2020,~~MARCH 31, 2021, AND DECEMBER 31, ~~2019~~2020

(in thousands except share data)

~~(Unaudited)~~

(unaudited)

September 30, December 31,
2020 2019
ASSETS
Cash and cash equivalents $ 95,440 $ 94,276
Trade receivables, net of allowance for doubtful accounts of $15,973 and $16,699, respectively 138,392 122,766
Financed receivables, short-term, net of allowance for doubtful accounts of $1,279 and $1,675, respectively 24,091 22,267
Materials and supplies 30,386 19,476
Other current assets 43,527 51,002
Total current assets 331,836 309,787
Equipment and property, net 186,825 195,533
Goodwill 619,656 572,847
Customer contracts, net 275,366 273,720
Trademarks & tradenames, net 104,610 102,539
Other intangible assets, net 9,966 10,525
Operating lease, right-of-use assets 211,345 200,727
Financed receivables, long-term, net of allowance for doubtful accounts of $1,857 and $1,284, respectively 37,430 30,792
Benefit plan assets 1,198 21,565
Deferred income taxes 2,165 2,180
Other assets 25,669 24,161
Total assets $ 1,806,066 $ 1,744,376
LIABILITIES
Accounts payable $ 56,393 $ 35,234
Accrued insurance 31,756 30,441
Accrued compensation and related liabilities 88,566 81,943
Unearned revenues 139,734 122,825
Operating lease liabilities - current 72,197 66,117
Current portion of long-term debt 15,625 12,500
Other current liabilities 64,868 60,975
Total current liabilities 469,139 410,035
Accrued insurance, less current portion 36,164 34,920
Operating lease liabilities, less current portion 140,795 135,651
Long-term debt 154,375 279,000
Deferred income tax liabilities 15,244 9,927
Long-term accrued liabilities 57,633 59,093
Total liabilities 873,350 928,626
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, without par value; 500,000 shares authorized, 0 shares issued — —
Common stock, par value $1 per share; 550,000,000 shares authorized, 327,749,009 and 327,430,846 shares issued and outstanding, respectively 327,749 327,431
Paid in capital 99,161 89,413
Accumulated other comprehensive loss (23,153 ) (21,109 )
Retained earnings 528,959 420,015
Total stockholders’ equity 932,716 815,750
Total liabilities and stockholders’ equity $ 1,806,066 $ 1,744,376

	March 31,			December 31,
	2021			2020
ASSETS
Cash and cash equivalents	$	117,322		$	98,477
Trade receivables, net of allowance for expected credit losses of $15,731 and $16,854, respectively		122,445			126,337
Financed receivables, short-term, net of allowance for expected credit losses of $1,292 and $1,297, respectively		22,402			23,716
Materials and supplies		32,645			30,843
Other current assets		39,229			35,404
Total current assets		334,043			314,777
Equipment and property, net of accumulated depreciation of $299,170 and $299,226, respectively		143,899			178,052
Goodwill		659,795			653,176
Customer contracts, net		297,288			298,949
Trademarks & tradenames, net		108,761			109,044
Other intangible assets, net		10,198			10,777
Operating lease right-of-use assets, net		252,343			212,342
Financed receivables, long-term, net of allowance for expected credit losses of $2,078 and $1,934, respectively		38,105			38,187
Benefit plan assets		1,167			1,198
Deferred income taxes		2,649			2,222
Other assets		28,632			27,176
Total assets	$	1,876,880		$	1,845,900
LIABILITIES
Accounts payable	$	66,586		$	64,596
Accrued insurance		31,709			31,675
Accrued compensation and related liabilities		78,357			91,011
Unearned revenues		140,378			131,253
Operating lease liabilities - current		75,822			73,248
Current portion of long-term debt		18,750			17,188
Other current liabilities		96,186			63,540
Total current liabilities		507,788			472,511
Accrued insurance, less current portion		36,062			36,067
Operating lease liabilities, less current portion		178,508			140,897
Long-term debt		96,250			185,812
Deferred income tax liabilities		9,005			10,612
Long-term accrued liabilities		60,332			58,641
Total liabilities		887,945			904,540
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, without par value; 500,000 shares authorized, 0 shares issued		—			—
Common stock, par value $1 per share; 550,000,000 shares authorized, 492,123,516 and 491,612,059 shares issued and outstanding, respectively		492,124			491,612
Paid in capital		95,824			101,757
Accumulated other comprehensive loss		(11,155	)		(10,897	)
Retained earnings		412,142			358,888
Total stockholders’ equity		988,935			941,360
Total liabilities and stockholders’ equity	$	1,876,880		$	1,845,900

The accompanying notes are an integral part of these condensed consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2021 AND 2020 ~~AND 2019~~

(in thousands except per share data)

(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
REVENUES
Customer services $ 583,698 $ 556,466 $ 1,624,928 $ 1,509,492
COSTS AND EXPENSES
Cost of services provided 275,474 268,718 782,248 739,309
Depreciation and amortization 22,404 21,690 65,926 58,505
Sales, general and administrative 168,006 167,168 497,121 468,584
Accelerated stock vesting expense 6,691 — 6,691 —
Pension settlement loss — 49,898 — 49,898
Gain on sale of assets, net 1,355 27 629 (406 )
Interest expense, net 866 2,826 4,491 4,451
INCOME BEFORE INCOME TAXES 108,902 46,139 267,822 189,151
PROVISION FOR INCOME TAXES 29,323 2,078 69,617 36,569
NET INCOME $ 79,579 $ 44,061 $ 198,205 $ 152,582
NET INCOME PER SHARE - BASIC AND DILUTED $ 0.24 $ 0.13 $ 0.60 $ 0.47
DIVIDENDS PAID PER SHARE $ 0.08 $ 0.11 $ 0.28 $ 0.32
Weighted average shares outstanding - basic and diluted 327,754 327,459 327,733 327,490


	Three Months Ended
	March 31,
	2021			2020
REVENUES
Customer services	$	535,554		$	487,901
COSTS AND EXPENSES
Cost of services provided		261,552			251,152
Depreciation and amortization		23,596			21,597
Sales, general and administrative		162,208			157,862
(Gains)/losses on sale of assets, net		(32,260	)		(275	)
Interest expense, net		606			2,165
INCOME BEFORE INCOME TAXES		119,852			55,400
PROVISION FOR INCOME TAXES		27,209			12,132
NET INCOME	$	92,643		$	43,268
NET INCOME PER SHARE - BASIC AND DILUTED	$	0.19		$	0.09
DIVIDENDS PAID PER SHARE	$	0.08		$	0.08
Weighted average shares outstanding - basic and diluted		492,003			491,524

The accompanying notes are an integral part of these condensed consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2021 AND 2020 ~~AND 2019~~

(in thousands)

(unaudited)

(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
NET INCOME $ 79,579 $ 44,061 $ 198,205 $ 152,582
Other comprehensive earnings / (loss)
Pension Settlement — 45,990 — 45,990
Foreign currency translation adjustments 5,758 (4,110 ) (1,732 ) (1,283 )
Change in derivatives 252 (118 ) (312 ) (375 )
Other comprehensive earnings / (loss) 6,010 41,762 (2,044 ) 44,332
Comprehensive earnings $ 85,589 $ 85,823 $ 196,161 $ 196,914


	(In thousands)
	Three Months Ended
	March 31,
	2021			2020
NET INCOME	$	92,643		$	43,268
Other comprehensive earnings / (loss)
Foreign currency translation adjustments		(421	)		(16,868	)
Change in derivatives, net of tax		163			(734	)
Other comprehensive earnings / (loss)		(258	)		(17,602	)
Comprehensive earnings	$	92,385		$	25,666

The accompanying notes are an integral part of these condensed consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2021 AND 2020 ~~AND 2019~~

(in thousands)

(unaudited)

Common Stock Paid-in-
Accumulated Other
Comprehensive
Retained

Shares Amount Capital Income/ (Loss) Earnings Total
Balance at June 30, 2019 327,486 $ 327,486 $ 82,960 $ (68,508 ) $ 410,326 $ 752,264
Net Income — — — — 44,061 44,061
Other comprehensive income, net of tax
Pension Settlement — — — 45,990 — 45,990
Change in derivatives — — — (118 ) — (118 )
Foreign currency translation adjustments — — — (4,110 ) — (4,110 )
Cash dividends — — — — (34,394 ) (34,394 )
Stock compensation (42 ) (42 ) 3,347 — — 3,305
Employee stock buybacks (2 ) (2 ) (99 ) — — (101 )
Balance at September 30, 2019 327,442 $ 327,442 $ 86,208 $ (26,746 ) $ 419,993 $ 806,897

Common Stock Paid-in- Accumulated Other
Comprehensive Retained
Shares Amount Capital Income/ (Loss) Earnings Total
Balance at December 31, 2018 327,308 $ 327,308 $ 85,386 $ (71,078 ) $ 370,292 $ 711,908
Impact of adoption of ASC 842 — — — — 212 212
Net Income — — — — 152,582 152,582
Other comprehensive income, net of tax
Pension Settlement — — — 45,990 — 45,990
Change in derivatives — — — (375 ) — (375 )
Foreign currency translation adjustments — — — (1,283 ) — (1,283 )
Cash dividends — — — — (103,093 ) (103,093 )
Stock compensation 395 395 10,496 — — 10,891
Employee stock buybacks (261 ) (261 ) (9,674 ) — — (9,935 )
Balance at September 30, 2019 327,442 $ 327,442 $ 86,208 $ (26,746 ) $ 419,993 $ 806,897

Common Stock Paid-in- Accumulated Other
Comprehensive Retained
Shares Amount Capital Income/ (Loss) Earnings Total
Balance at June 30, 2020 327,759 $ 327,759 $ 88,640 $ (29,163 ) $ 475,594 $ 862,830
Net Income — — — — 79,579 79,579
Other comprehensive income, net of tax
Foreign currency translation adjustments — — — 5,758 — 5,758
Change in derivatives — — — 252 — 252
Cash dividends — — — — (26,214 ) (26,214 )
Stock compensation (10 ) (10 ) 10,521 — — 10,511
Balance at September 30, 2020 327,749 $ 327,749 $ 99,161 $ (23,153 ) $ 528,959 $ 932,716

Common Stock Paid-in- Accumulated Other
Comprehensive Retained
Shares Amount Capital Income/ (Loss) Earnings Total
Balance at December 31, 2019 327,431 $ 327,431 $ 89,413 $ (21,109 ) $ 420,015 $ 815,750
Impact of adoption of ASC 326 — — — — 2,484 2,484
Net Income — — — — 198,205 198,205
Other comprehensive income, net of tax
Foreign currency translation adjustments — — — (1,732 ) — (1,732 )
Change in derivatives — — — (312 ) — (312 )
Cash dividends — — — — (91,745 ) (91,745 )
Stock compensation 539 539 17,612 — — 18,151
Employee stock buybacks (221 ) (221 ) (7,864 ) — — (8,085 )
Balance at September 30, 2020 327,749 $ 327,749 $ 99,161 $ (23,153 ) $ 528,959 $ 932,716


	Common Stock						Paid-in-			Accumulated Other Comprehensive			Retained
	Shares			Amount			Capital			Income/(Loss)			Earnings			Total
Balance at December 31, 2019		491,146		$	491,146		$	89,413		$	(21,109	)	$	256,300		$	815,750
Impact of adoption of ASC 326		—			—			—			—			2,484			2,484
Net Income		—			—			—			—			43,268			43,268
Other comprehensive income, net of tax
Foreign currency translation adjustments		—			—			—			(16,868	)		—			(16,868	)
Change in derivatives		—			—			—			(734	)		—			(734	)
Cash dividends		—			—			—			—			(39,317	)		(39,317	)
Stock compensation		833			833			3,264			—			(278	)		3,819
Employee stock buybacks		(328	)		(328	)		(7,812	)		—			109			(8,031	)
Balance at March 31, 2020		491,651		$	491,651		$	84,865		$	(38,711	)	$	262,566		$	800,371


	Common Stock						Paid-in-			Accumulated Other Comprehensive			Retained
	Shares			Amount			Capital			Income/(Loss)			Earnings			Total
Balance at December 31, 2020		491,612		$	491,612		$	101,757		$	(10,897	)	$	358,888		$	941,360
Net Income		—			—			—			—			92,643			92,643
Other comprehensive income, net of tax
Foreign currency translation adjustments		—			—			—			(421	)		—			(421	)
Change in derivatives		—			—			—			163			—			163
Cash dividends		—			—			—			—			(39,389	)		(39,389	)
Stock compensation		768			768			3,153			—			—			3,921
Employee stock buybacks		(256	)		(256	)		(9,086	)		—			—			(9,342	)
Balance at March 31, 2021		492,124		$	492,124		$	95,824		$	(11,155	)	$	412,142		$	988,935

The accompanying notes are an integral part of these condensed consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STATEMENT OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2021 AND 2020 ~~AND 2019~~

(in thousands)

(unaudited)

Nine Months Ended
September 30,
2020 2019
OPERATING ACTIVITIES
Net income $ 198,205 $ 152,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 65,926 58,505
Provision for deferred income taxes 3,701 (6,972 )
Provision for bad debts 12,820 10,216
Stock-based compensation expense 18,151 10,891
Other, net 2,052 (951 )
Changes in operating assets and liabilities 39,752 19,619
Net cash provided by operating activities 340,607 243,890
INVESTING ACTIVITIES
Cash used for acquisitions of companies, net of cash acquired (79,880 ) (431,249 )
Purchases of equipment and property (17,690 ) (18,701 )
Proceeds from sales of franchises 430 612
Other 2,609 1,370
Net cash used in investing activities (94,531 ) (447,968 )
FINANCING ACTIVITIES
Payment of contingent consideration (24,168 ) (13,572 )
Repayment of term loan (20,000 ) (27,000 )
Repayment on revolving commitment (169,500 ) (45,000 )
Borrowings on term loan — 250,000
Borrowings on revolving commitment 68,000 148,000
Cash paid for common stock purchased (8,085 ) (9,935 )
Dividends paid (91,745 ) (103,093 )
Net cash (used in)/provided by financing activities (245,498 ) 199,400
Effect of exchange rate changes on cash 586 (6,445 )
Net increase/(decrease) in cash and cash equivalents 1,164 (11,143 )
Cash and cash equivalents at beginning of period 94,276 115,485
Cash and cash equivalents at end of period $ 95,440 $ 104,342
Supplemental disclosure of cash flow information:
Non-cash additions to operating lease right-of-use assets $ 67,877 $ 54,657


	Three Months Ending
	March 31,
	2021			2020
OPERATING ACTIVITIES
Net income	$	92,643		$	43,268
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,596			21,597
Deferred income tax (benefit)/provision		(2,039	)		2,999
Provision for expected credit losses		2,686			2,288
Stock based compensation expense		3,921			3,819
(Gains)/losses on sale of assets, net		(32,260	)		(275	)
Other, net		(62	)		(340	)
Changes in operating assets and liabilities		31,001			18,607
Net cash provided by operating activities		119,486			91,963
INVESTING ACTIVITIES
Cash used for acquisitions of companies, net of cash acquired		(16,978	)		(47,586	)
Purchases of equipment and property		(7,826	)		(6,674	)
Proceeds from sales of franchises		99			267
Proceeds from sales of assets		65,101			668
Other, net		(253	)		273
Net cash provided by/(used in) investing activities		40,143			(53,052	)
FINANCING ACTIVITIES
Payment of contingent consideration		(4,926	)		(2,040	)
Repayment of term loan		(21,000	)		(3,200	)
Repayment on revolving commitment		(70,500	)		(32,500	)
Borrowings on revolving commitment		3,500			64,000
Cash paid for common stock purchased		(9,342	)		(8,031	)
Dividends paid		(39,389	)		(39,317	)
Net cash (used in) financing activities		(141,657	)		(21,088	)
Effect of exchange rate changes on cash		873			(19,517	)
Net increase/(decrease) in cash and cash equivalents		18,845			(1,694	)
Cash and cash equivalents at beginning of period		98,477			94,276
Cash and cash equivalents at end of period	$	117,322		$	92,582
Supplemental disclosure of cash flow information:
Non-cash additions to operating lease right-of-use assets	$	60,389		$	27,894

The accompanying notes are an integral part of these condensed consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

NOTE 1.

BASIS OF PREPARATION AND OTHER

Basis of Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. There has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Rollins, Inc. (the “Company”, “we”, “our”) for the year ended December 31, ~~2019 other than updates related to Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments as noted below.~~2020. Accordingly, the quarterly condensed consolidated financial statements and related disclosures herein should be read in conjunction with the ~~2019~~2020 Annual Report on Form 10-K.

The preparation of interim financial statements requires management to make estimates and assumptions for the amounts reported in the condensed consolidated financial statements. Specifically, the Company makes estimates in its interim condensed consolidated financial statements for the termite accrual, which includes future costs including termiticide life expectancy and government regulations, the insurance accrual, which includes self-insurance and worker’s compensation, inventory adjustments, discounts and volume incentives earned, among others.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic, which continues to spread throughout the U.S. and the world. This has resulted in authorities implementing numerous measures to contain the virus, including, but not limited to, travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. The pest control industry was designated as “essential” by the Department of Homeland Security and the Company has been able to remain operational in every part of the world in which it operates. The Company’s consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the condensed consolidated financial statements. The Company considered the impact of COVID-19 on the assumptions and estimates used in preparing the condensed consolidated financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the Company’s financial results for the quarter have been made. These adjustments are of a normal recurring nature but complicated by the uncertainty surrounding the global economic impact of the COVID-19 pandemic. The results of operations for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of results for the entire year. The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict. Therefore, our accounting estimates and assumptions may change over time in response to COVID-19 and may change materially in future periods.

The Company has ~~only~~ one reportable segment, its pest and termite control business. The Company’s results of operations and its financial condition are not reliant upon any single customer, a few customers, or the Company’s foreign operations.

The Company reclassified certain prior period amounts in the Statement of Cash Flows from Operating Activities to Financing Activities for payment of contingent consideration to conform to the current period presentation.

NOTE 2.

RECENT ACCOUNTING PRONOUNCEMENTS

~~Recently adopted accounting standards~~

In ~~June of 2016,~~March 2020, the FASB issued ASU ~~2016-13, “Financial Instruments - Credit Losses (ASC 326)~~No. 2020-04 Reference Rate Reform (Topic 848): ~~Measurement~~Facilitation of ~~Credit Losses~~the Effects of Reference Rate Reform on Financial ~~Instruments.”~~Reporting (“ASU 2020-04”). The ~~updated~~update provides optional guidance for a limited period of time to ease the potential burden in accounting ~~guidance requires changes~~for (or recognizing the effects of) contract modifications on financial reporting, caused by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is still evaluating the impact, but does not expect the adoption of the standard to have a material impact on the Company’s consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The standard eliminates the need for an organization to analyze whether the following apply in a given period (1) exception to the ~~recognition~~incremental approach for intraperiod tax allocation (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also is designed to improve financial statement preparers’ application of ~~credit losses~~income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial ~~instruments~~statements of legal entities that are not ~~accounted for at fair value through net income.~~subject to tax, and (4) enacted changes in tax laws in interim periods. The Company adopted ASU ~~2016-13~~2019-12 effective January 1, ~~2020~~2021 and ~~recognized~~ the ~~decrease in~~adoption did not have a material impact on the ~~allowance for doubtful accounts, net of tax, as a $2.5 million increase to beginning retained earnings.~~Company’s consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

NOTE 3.

REVENUE

The following tables present our revenues disaggregated by revenue source (in thousands).

Sales and usage-based taxes are excluded from revenues. No sales to an individual customer or in a country other than the United States accounted for 10% or more of the sales for the periods listed on the following table.

Revenue, classified by the major geographic areas in which our customers are located, was as follows:

	(In thousands)
	Three Months Ended
	March 31,
	2021		2020
United States	$	494,100	$	452,346
Other countries		41,454		35,555
Total Revenues	$	535,554	$	487,901

Revenue from external customers, classified by significant product and service offerings, was as follows:

	Three Months Ending
	March 31,
(in thousands)	2021		2020
Residential revenue	$	235,179	$	204,657
Commercial revenue		188,697		183,315
Termite completions, bait monitoring, & renewals		105,694		94,227
Franchise revenues		3,459		3,417
Other revenues		2,525		2,285
Total Revenues	$	535,554	$	487,901

NOTE 4.

ALLOWANCE FOR CREDIT LOSSES

Effective January 1, 2020, the Company adopted ASC 326, the new accounting standard related to credit losses. The Company is exposed to credit losses primarily related to accounts receivables and financed receivables derived from customer services revenue. To reduce credit risk for residential pest control accounts receivable, we promote enrollment in our auto-pay programs. In general, we may suspend future services for customers with past due balances. The Company’s credit risk is generally low with a large number of entities comprising Rollins’ customer base and dispersion across many different geographical regions.

The Company manages its financing receivables on an aggregate basis when assessing and monitoring credit risks. The Company’s established credit evaluation and monitoring procedures seek to minimize the amount of business we conduct with higher risk customers. The credit quality of a potential obligor is evaluated at the loan origination based on an assessment of the individual’s Beacon/credit bureau score. Rollins requires a potential obligor to have good credit worthiness with low risk before entering into a contract. Depending upon the individual’s credit score, the Company may accept with 100% financing or require a significant down payment or turn down the contract. Delinquencies of accounts are monitored each month. Financing receivables include installment receivable amounts which are due subsequent to one year from the balance sheet dates.

ROLLINS, INC. AND SUBSIDIARIES

The Company’s allowances for credit losses for trade accounts receivable and financed receivables are developed using historical collection experience, current economic and market conditions, reasonable and supportable forecasts, and a review of the current status of customers’ receivables. The Company’s receivable pools are classified between residential customers, commercial customers, large commercial customers, and financed receivables. Accounts are written-off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible, and recoveries of amounts previously written off are recorded when collected. The Company stops accruing interest to these receivables when they are deemed uncollectible. Below is a roll forward of the Company’s allowance for credit losses for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020.

(in thousands)
Allowance for Doubtful Accounts
Trade
Receivables Financed
Receivables Total
Receivables
Balance at January 1, 2020 $ 16,699 $ 2,959 $ 19,658
Adoption of ASC 326 (3,330 ) — (3,330 )
Adjusted balance at January 1, 2020 13,369 2,959 16,328
Provision for expected credit losses 10,843 1,977 12,820
Write-offs charged against the allowance (11,735 ) (1,800 ) (13,535 )
Recoveries collected 4,154 — 4,154
Currency Conversion (658 ) — (658 )
Balance at September 30, 2020 $ 15,973 $ 3,136 $ 19,109

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (ASC 350): Simplifying the Test for Goodwill Impairment, which eliminated the requirement to calculate the implied fair valueSchedule of ~~goodwill (i.e., Step 2~~Roll Forward of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities would record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). The Company adopted ASU 2017-04 effective January 1, 2020. The adoption of this standard had no material impact on its consolidated financial statements.Company's Allowance for Credit Losses


	Allowance for Credit Losses
	Trade Receivables			Financed Receivables			Total Receivables
Balance at December 31, 2020		16,854			3,231			20,085
Provision for expected credit losses		1,865			821			2,686
Write-offs charged against the allowance		(4,099	)		(681	)		(4,780	)
Recoveries collected		1,111			(1	)		1,110
Balance at March 31, 2021	$	15,731		$	3,370		$	19,101


	Allowance for Credit Losses
	Trade Receivables			Financed Receivables			Total Receivables
Balance at December 31, 2019	$	16,699		$	2,959		$	19,658
Adoption of ASC 326		(3,330	)		—			(3,330	)
Provision for expected credit losses		1,553			734			2,287
Write-offs charged against the allowance		(3,779	)		(640	)		(4,419	)
Recoveries collected		718			—			718
Balance at March 31, 2020	$	11,861		$	3,053		$	14,914

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The updated accounting guidance modified the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements. The Company adopted ASU 2018-13 effective January 1, 2020 and the adoption did not materially impact its financial statement disclosures.

~~ROLLINS, INC. AND SUBSIDIARIES~~

~~Recently issued accounting standards to be adopted in 2021 or later~~

In December, 2019, the FASB issued ASU No. 2019-12 Income Taxes (topic 740): Simplifying the Accounting for Income Taxes. The standard eliminates the need for an organization to analyze whether the following apply in a given period (1) exception to the incremental approach for intraperiod tax allocation (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax, and (4) enacted changes in tax laws in interim periods. The standard in this update is effective for the Company’s financial statements issued for fiscal years beginning in 2021. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

~~NOTE 3.~~

~~REVENUE~~

~~The following tables present our revenues disaggregated by revenue source (in thousands).~~

Sales and usage-based taxes are excluded from revenues. No sales to an individual customer or in a country other than the United States accounted for more than 10% of the sales for the periods listed on the following table. ~~Revenue, classified by the major geographic areas in which our customers are located, was as follows:~~

(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
United States $ 540,763 $ 516,022 $ 1,510,684 $ 1,395,189
Other countries 42,935 40,444 114,244 114,303
Total Revenues $ 583,698 $ 556,466 $ 1,624,928 $ 1,509,492

~~Revenue~~ ~~from external customers, classified by significant product and service offerings, was as follows:~~

(In thousands)
Three Months Ending Nine Months Ending
September 30, September 30,
2020 2019 2020 2019
Residential revenue $ 275,581 $ 249,227 $ 738,159 $ 646,420
Commercial revenue 199,561 204,595 562,777 565,720
Termite completions, bait monitoring, & renewals 102,144 96,145 306,188 278,746
Franchise revenues 3,852 3,433 10,791 10,136
Other revenues 2,560 3,066 7,013 8,470
Total Revenues $ 583,698 $ 556,466 $ 1,624,928 $ 1,509,492

~~ROLLINS, INC. AND SUBSIDIARIES~~

NOTE 4.5.

EARNINGS PER SHARE

The Company follows ASC 260, Earnings Per Share ~~(ASC 260)~~ that requires the reporting of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to participating common stockholders by the weighted average number of participating common shares outstanding for the period.

Basic and diluted earnings per share attributable to common and restricted shares of common stock for the period were as follows:

	Three Months Ending				Nine Months Ending				Three Months Ending
	September 30,				September 30,				March 31,
	2020		2019		2020		2019		2021		2020
Basic and diluted earnings per share
Common stock	$	0.24	$	0.13	$	0.60	$	0.47	$	0.19	$	0.09
Restricted shares of common stock	$	0.24	$	0.14	$	0.59	$	0.43	$	0.19	$	0.08

NOTE 5.6.

CONTINGENCIES

In the normal course of business, certain of the Company’s subsidiaries are defendants in a number of lawsuits, claims, arbitrations, regulatory actions or investigations which allege that the subsidiaries’ services caused damage or in evaluating the Company’s practices. In addition, the Company defends employment-related cases and claims from time to time. We are involved in certain environmental matters primarily arising in the normal course of business. We are actively contesting each of these matters.

Management does not believe that any pending claim, proceeding, litigation, regulatory action (including tax) or investigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity; however, it is possible that an unfavorable outcome of some or all of the matters, however unlikely, could result in a charge that might be material to the results of an individual quarter or year.

ROLLINS, INC. AND SUBSIDIARIES

NOTE 6.7.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The ~~Company’s~~Company's financial instruments consist of cash and cash equivalents, trade receivables, notes receivable, accounts payable, ~~and~~ other short-term ~~liabilities.~~liabilities, and debt. The carrying amounts of these financial instruments approximate their respective fair values. The Company also has derivative instruments as further discussed in Note 15. Derivative Instruments and Hedging Activities.

At ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company had ~~$33.8~~$33.0 million and ~~$51.8~~$51.3 million of acquisition holdback and earnout liabilities with the former owners of acquired companies. The earnout liabilities were discounted to reflect the expected probability of payout, and both earnout and holdback liabilities were discounted to their net present value on the ~~Company’s~~Company's books and are considered level 3 liabilities. The table below presents a summary of the changes in fair value for these liabilities.

The table below presents a summary of the changes in fair value for these liabilities.


	Three Months Ending						Nine Months Ending						Three Months Ending
	September 30,						September 30,						March 31,
(in thousands)	2020			2019			2020			2019			2021			2020
Beginning	$	47,085		$	54,685		$	49,131		$	30,926		$	35,744		$	49,131
New acquisitions and revaluations		3,160			5,161			8,703			34,611			2,067			4,489
Payouts		(16,306	)		(8,339	)		(24,168	)		(13,572	)		(4,926	)		(2,040	)
Interest on outstanding contingencies		386			715			1,534			1,437			279			583
Charge offset, forfeit and other		(554	)		(387	)		(1,429	)		(1,567	)		(188	)		(835	)
Ending balance	$	33,771		$	51,835		$	33,771		$	51,835		$	32,976		$	51,328

~~ROLLINS, INC. AND SUBSIDIARIES~~

NOTE 7.8.

UNEARNED REVENUE

The Company records unearned revenue when we have either received payment or contractually have the right to bill for services in advance of the services or performance obligations being performed. Deferred revenue recognized in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were $~~43.3 million~~ ~~and $42.0 million, respectively and $129.4~~$45.8 million and ~~$122.5~~$42.7 million, respectively. Changes in unearned revenue were as follows:

Changes in unearned revenue were as follows:

For the period ended	September 30,			December 31,			September 30,

										Three Months Ended
										March 31,
(in thousands)	2020			2019			2019			2021			2020
Balance at beginning of year	$	136,507		$	127,075		$	127,075		$	149,224		$	136,507
Deferral of unearned revenue		150,510			174,404			141,867			55,379			49,552
Recognition of unearned revenue		(129,377	)		(164,972	)		(122,465	)		(45,837	)		(42,707	)
Balance at end of period	$	157,640		$	136,507		$	146,477		$	158,766		$	143,352

The Company had no material contracted, but not recognized, revenue as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had long-term unearned revenue of $~~17.9~~18.4 million and $~~13.7~~18.0 million,, respectively. Unearned short-term revenue is recognized over the next 12-month period. The majority of unearned long-term revenue is recognized over a period of five years or less with immaterial amounts recognized through 2029.

NOTE 8.9.

LEASES

The Company leases certain buildings, vehicles, and equipment in order to reduce the risk associated with ownership. The Company elected the practical expedient approach permitted under ASC 842 not to include short-term leases with a duration of 12 months or less on the balance sheet. As of ~~September 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, all leases were classified as operating leases. Building leases generally carry terms of 5 to 1015 years with annual rent escalations at fixed amounts per the lease. Vehicle leases generally carry a fixed term of one year with renewal options to extend the lease on a monthly basis resulting in lease terms up to 7 years depending on the class of vehicle. The exercise of renewal options is at the Company’s sole discretion. It is reasonably certain that the Company will exercise the renewal options on its vehicle leases. The measurement of right-of-use assets and liabilities for vehicle leases includes the fixed payments associated with such renewal periods. We separate lease and non-lease components of contracts. Our lease agreements do not contain any material variable payments, residual value guarantees, early termination penalties or restrictive covenants.

During the three months ended March 31, 2021, the Company completed a sale-leaseback transaction where it sold 16 of its properties related to the Clark Pest Control acquisition for gross proceeds of $62.1 million and a gain of $31.1 million. These leases are classified as operating leases with terms of 7 to 15 years.

ROLLINS, INC. AND SUBSIDIARIES

The Company uses the rate implicit in the lease when available; however, most of our leases do not provide a readily determinable implicit rate. Accordingly, we estimate our incremental borrowing rate based on information available at lease commencement.

~~ROLLINS, INC. AND SUBSIDIARIES~~

(in thousands)
			Nine Months Ended				Three Months Ended March 31,
Lease Classification		Financial Statement Classification	September 30, 2020			Financial Statement Classification	2021			2020
Short-term lease cost		Cost of services provided, Sales, general, and administrative expenses	$	153		Cost of services provided, Sales, general, and administrative expenses	$	60		$	76
Operating lease cost		Cost of services provided, Sales, general, and administrative expenses		63,538		Cost of services provided, Sales, general, and administrative expenses		22,634			20,717
Total lease expense			$	63,691			$	22,694		$	20,793

Other Information
Weighted-average remaining lease term - operating leases				3.70
Weighted-average discount rate - operating leases				3.94
Weighted-average remaining lease term – operating leases					Weighted-average remaining lease term – operating leases			5.66 years			3.84 years
Weighted-average discount rate – operating leases					Weighted-average discount rate – operating leases			3.85	%		3.93	%
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:				Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases		$	62,928	Operating cash flows for operating leases		$	22,457		$	20,477

Lease Commitments

Future minimum lease payments, including assumed exercise of renewal options at ~~September 30, 2020~~March 31, 2021 were as follows:

(in thousands)	Operating Leases			Operating Leases
2020 (excluding the nine months ended September 30, 2020)	$	21,071
2021		76,012
2021 (excluding the three months ended March 31, 2021)				$	64,099
2022		58,214			70,231
2023		37,926			50,144
2024		16,321			27,083
2025		8,685			14,908
2026					10,803
Thereafter		13,148			48,844
Total Future Minimum Lease Payments		231,377			286,112
Less: Amount representing interest		(18,386	)		31,782
Total future minimum lease payments, net of interest	$	212,991		$	254,330

Future commitments presented in the table above ~~exclude~~include lease payments in renewal periods for which it is reasonably certain that the Company will exercise the renewal option. Total future minimum lease payments for operating leases, including the amount representing interest, are comprised of $~~93.9~~ 156.8million for building leases and $~~137.5~~ 129.3million for vehicle leases. As of ~~September 30, 2020,~~March 31, 2021, the Company had additional future obligations of ~~$3.7~~$9.0 million for leases that had not yet commenced.

1211

ROLLINS, INC. AND SUBSIDIARIES

NOTE 9.10.

GOODWILL AND INTANGIBLE ASSETS

The cumulative carrying amount of goodwill was $659.8 million and $653.2 million at March 31, 2021 and December 31, 2020, respectively. Goodwill generally changes due to the timing of acquisitions, finalization of allocation of purchase prices of previous acquisitions and foreign currency translations. The carrying amount of goodwill in foreign countries was $81.3 million at March 31, 2021 and $81.4 million at December 31, 2020.

The Company tests goodwill and indefinite-lived intangible assets as of September 30 each year, or more frequently if indicators of an impairment exist. The Company has concluded there were no indicators of impairment during the three months ended March 31, 2021.

The carrying amount of customer contracts was $297.3 million and $298.9 million at March 31, 2021, and December 31, 2020, respectively. The carrying amount of trademarks and tradenames was $108.8 million and $109.0 million at March 31, 2021 and December 31, 2020, respectively. The carrying amount of other intangible assets was $10.2 million and $10.8 million at March 31, 2021 and December 31, 2020, respectively. The carrying amount of customer contracts in foreign countries was $44.6 million and $45.7 million at March 31, 2021 and December 31, 2020, respectively. The carrying amount of trademarks and tradenames in foreign countries was $3.2 million and $3.3 million at March 31, 2021 and December 31, 2020, respectively. The carrying amount of other intangible assets in foreign countries was $0.9 million and $1.0 million at March 31, 2021 and December 31, 2020, respectively.

Customer contracts and other amortizable intangible assets are amortized on a straight-line basis over their economic useful lives. The following table sets forth the components of indefinite-lived and amortizable intangible assetsas of March 31, 2021 (in thousands):

Intangible Asset	Carrying Value		Useful Life in Years
Customer contracts	$	297,288		3-20
Trademarks and tradenames		108,761		N/A-20
Non-compete agreements		4,457		3-20
Internet domains		2,227		N/A-10
Patents		1,446		3-15
Other assets		2,068		N/A-10
Total customer contracts and other intangible assets	$	416,247

NOTE 11.

DEBT

On April 30, 2019, the Company entered into a Revolving Credit Agreement with Truist Bank N.A. (formerly SunTrust Bank N.A.~~, now known as Truist Bank N.A.,~~) and Bank of America, N.A. (the “Credit Agreement”) for an unsecured revolving commitment of up to $175.0 million,, which includes a $75.0 million letter of credit subfacility and a ~~$25.0~~$25.0 million swingline subfacility (the “Revolving Commitment”), and an unsecured variable rate $250.0 million term loan with ~~SunTrust Bank N.A., now known as~~ Truist Bank, N.A., and Bank of America, N.A (the “Term Loan”). Both the Revolving Commitment and the Term Loan (“Credit Facility”) have five-year terms commencing on April 29, 2019. In addition, the Credit Agreement has provisions to extend the term of the Revolving Commitment beyond April 29, 2024, as well as the right at any time and from time to time to prepay any borrowing under the Credit Agreement, in whole or in part, without premium or penalty. As of ~~September 30,~~March 31, 2021, the Term Loan had outstanding borrowings of $115.0 million and there were no borrowings under the Revolving Commitment. The effective interest rate on the debt outstanding as of March 31, 2021 was 1.08%. The effective interest rate is comprised of the 1-month LIBOR plus a margin of 75.0 basis points as determined by our leverage ratio calculation. As of December 31, 2020, the Revolving Commitment had no outstanding borrowings of $67.0 million and the Term Loan had outstanding borrowings of $~~170.0 million. As of December 31, 2019, the Revolving Commitment had outstanding borrowings of $101.5 million~~136.0 ~~and the Term Loan had outstanding borrowings of $~~million. ~~190.0 million~~. The Credit Agreement includes a debt covenant that requires the Company’s leverage ratio to be no greater than 3.00:1.00. The Leverage Ratio is calculated as of the last day of the fiscal quarter most recently ended. The Company remained in compliance with applicable debt covenants through the date of this filing and expects to maintain compliance throughout ~~2020.~~2021.

ROLLINS, INC. AND SUBSIDIARIES

NOTE ~~10.~~12.

~~STOCKHOLDERS’~~STOCKHOLDERS' EQUITY

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company paid ~~$91.7~~$39.4 million, or $~~0.28~~0.08 per share, in cash dividends compared to ~~$103.1~~$39.3 million, or ~~$0.315~~$0.08 per share, during the same period in ~~2019.~~2020.

During the ~~third~~first quarter ended ~~September 30, 2020~~March 31, 2021 and during the same period in ~~2019,~~2020, the Company did not repurchase shares on the open market.

The Company repurchases shares from employees for the payment of their taxes on restricted shares that have vested. The Company repurchased $~~0.0~~9.3 million and $~~0.1~~8.0 million for the ~~quarter~~quarters ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively and $8.1~~ ~~million and $9.9~~ ~~million of common stock during the nine-month period ended September 30, 2020 and 2019,~~ respectively.

As more fully discussed in Note 17 of the Company’s notes to the consolidated financial statements in its ~~2019~~2020 Annual Report on Form 10-K, time-lapse restricted shares and restricted stock units have been issued to officers and other management employees under the Company’s Employee Stock Incentive Plans. The Company issues new shares from its authorized but unissued share pool. At ~~September 30, 2020,~~March 31, 2021, approximately ~~4.9~~6.6 million shares of the Company’s common stock were reserved for issuance.

Time Lapse Restricted Shares

The following table summarizes the components of the Company’s stock-based compensation programs recorded as ~~expense~~:expense:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
(in thousands)	2020			2019			2020			2019			2021			2020
Time lapse restricted stock:
Pre-tax compensation expense	$	10,511		$	3,305		$	18,151		$	10,891		$	3,921		$	3,819
Tax benefit		(1,180	)		(982	)		(3,117	)		(2,728	)		(886	)		(837	)
Restricted stock expense, net of tax	$	9,331		$	2,323		$	15,034		$	8,163		$	3,035		$	2,982

According to the Employee Stock Incentive Plan, restricted shares automatically vest upon the death of an employee holding the unvested shares. The increase in pre-tax compensation expense for the quarter and nine months ended September 30, 2020 was the result of the accelerated vesting of unvested restricted shares held by the Company’s Chairman of the Board, R. Randall Rollins, who passed away in August, 2020.

~~ROLLINS, INC. AND SUBSIDIARIES~~

The following table summarizes information on unvested restricted stock outstanding as of ~~September 30, 2020:~~March 31, 2021:

(number of shares in thousands) Number of
Shares Average Grant-
Date Fair Value
Unvested Restricted Stock at December 31, 2019 2,310 $ 25.84
Forfeited (33 ) 24.44
Vested (923 ) 22.89
Granted 572 36.73
Unvested Restricted Stock at September 30, 2020 1,926 $ 30.51

(number of shares in thousands)	Number of Shares			Average Grant- Date Fair Value
Unvested Restricted Stock at December 31, 2020		2,870		$	20.36
Forfeited		(10	)		22.44
Vested		(774	)		16.16
Granted		778			37.04
Unvested Restricted Stock at March 31, 2021		2,864		$	26.02

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had $~~43.3~~65.2 million and $~~41.3~~40.5 millionof total unrecognized compensation cost, respectively, related to time-lapse restricted shares that are expected to be recognized over a weighted average period of approximately ~~4.0~~4.5 years ~~years.~~.

NOTE ~~11.~~13.

PENSION ~~AND POST RETIREMENT BENEFIT~~ PLAN

In September 2019, the Company settled its fully-funded Rollins, Inc. pension plan. ~~At December~~As of March 31, ~~2019, $21.6~~2021, $1.2 million of Rollins, Inc. pension assets remained ~~available to fund other employee benefits. The Company used $5.8 million and $18.0 million to fund its 401(k)-match obligation during~~in the ~~quarter and nine months ended September 30, 2020, respectively. The Company plans to fund any remaining 2020 benefit plan obligations,~~trust with a planned reversion of ~~any~~the remaining pension assets to the Company per ERISA regulations before year end. AsThe Company anticipates tax of ~~September 30, 2020,~~approximately 45% of the ~~Company had approximately $1.2~~ ~~million remaining of benefit~~pension plan assets ~~before discounting for the 45% tax~~ to be paid upon ~~reversion.~~

~~Components of Net Pension Benefit Loss / (Gain)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2020 2019 2020 2019
Interest and service cost $ 26 $ 1,762 $ 79 $ 3,524
Expected return on plan assets (29 ) (2,640 ) (88 ) (5,280 )
Amortization of net loss 25 878 75 1,756
Pension settlement loss — 49,898 — 49,898
Net periodic benefit $ 22 $ 49,898 $ 66 $ 49,898

~~During the nine months ended September 30, 2020, and the same period in 2019,~~reversion, which includes 20% excise tax. In addition, the Company has a remaining Waltham, Inc. defined benefit plan. This plan had assets of $2.1 million, a projected liability of $3.0 million and an unfunded status of $0.9 million as of March 31, 2021. The Company has not made no contributions to its defined benefit retirement plans ~~(the “Plans”). The Company made no contributions for the year ended December 31,~~since 2019.

1413

ROLLINS, INC. AND SUBSIDIARIES

NOTE ~~12.~~14.

BUSINESS COMBINATIONS

The Company made 189 acquisitions during the ~~nine-month~~three-month period ended ~~September 30, 2020,~~March 31, 2021, and 3031 acquisitions for the year ended December 31, ~~2019,~~2020, some of which have been disclosed in various press releases and related Current Reports on Form 8-K. For the 18nine acquisitions completed so far in ~~2020,~~2021, the preliminary values of major classes of assets acquired and liabilities assumed recorded at the date of acquisition, as adjusted during the valuation period, are included in the reconciliation of the total consideration as follows (in thousands):

Schedule of Assets Acquired and Liabilities assumed recorded at the date of acquisition.

	September 30, 2020			March 31, 2021
Accounts receivable, net	$	2,344		$	354
Materials & supplies		280			80
Equipment and property		4,424			867
Goodwill		44,585			6,996
Customer contracts		37,995			10,618
Other intangible assets		3,149			38
Current liabilities					(54	)
Other assets and liabilities, net		5,319			146
Current liabilities		(10,199	)
Total purchase price		87,897			19,045
Less: Contingent consideration liability		(8,017	)		(2,067	)
Total cash purchase price	$	79,880		$	16,978

Goodwill from acquisitions represents the excess of the purchase price over the fair value of net assets of businesses acquired. The factors contributing to the amount of goodwill are based on strategic and synergistic benefits that are expected to be realized. For the period ended ~~September 30, 2020, $44.6~~March 31, 2021, $7.0 million of goodwill was added related to the 18nine acquisitions noted above. The ~~cumulative carrying amount of~~recognized goodwill ~~was $619.7 million and $572.8 million at September 30, 2020 and December 31, 2019, respectively. Goodwill generally changes due~~is expected to ~~the timing of acquisitions, finalization of allocation of purchase prices of previous acquisitions and foreign currency translations. The carrying amount of goodwill in foreign countries was $74.3~~ ~~million at September 30, 2020 and $55.8~~ ~~million at December 31, 2019.~~

The Company completed its most recent annual impairment analysis as of September 30, 2020. Based upon the results of this analysis, the Company has concluded that no impairment of its goodwill or other intangible assets was indicated.

~~The carrying amount of customer contracts was $275.4~~ ~~million and $273.7~~ ~~million at September 30, 2020, and December 31, 2019, respectively. The carrying amount of trademarks and tradenames was $104.6~~ ~~million and $102.5~~ ~~million at September 30, 2020 and December 31, 2019, respectively. The carrying amount of other intangible assets was $10.0~~ ~~million and $10.5~~ ~~million at September 30, 2020 and December 31, 2019, respectively. The carrying amount of customer contracts in foreign countries was $42.2~~ ~~million and $33.5~~ ~~million at September 30, 2020 and December 31, 2019, respectively. The carrying amount of trademarks and tradenames in foreign countries was $3.2~~ ~~million and $3.4~~ ~~million at September 30, 2020 and December 31, 2019, respectively. The carrying amount of other intangible assets in foreign countries was $1.0~~ ~~million and $1.2~~ ~~million at September 30, 2020 and December 31, 2019, respectively.~~

~~ROLLINS, INC. AND SUBSIDIARIES~~

~~Customer contracts and other amortizable intangible assets are amortized on a straight-line basis over their economic useful lives. The following table sets forth the~~ ~~components of intangible assets~~ ~~as of September 30, 2020 (in thousands):~~be deductible for tax purposes.

Intangible Asset Carrying Value Useful Life
in Years
Customer contracts $ 275,366 3-12
Trademarks and tradenames 104,610 N/A-20
Non-compete agreements 4,156 3-20
Internet domains 2,227 N/A
Patents 1,454 3-15
Other assets 2,129 10
Total customer contracts and other intangible assets $ 389,942

NOTE ~~13.~~15.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain interest rate risks on our outstanding debt and foreign currency risks arising from our international business operations and global economic conditions. The Company enters into certain derivative financial instruments to lock in certain interest rates, as well as to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. dollar.

Cash Flow Hedges of Interest Rate Risk

The Company uses interest rate swap arrangements to manage or hedge its interest rate risk. Notwithstanding the terms of the swaps, the Company is ultimately obligated for all amounts due and payable under the ~~Revolving Commitment and the Term Loan (“~~Credit ~~Facility”).~~Facility. The Company does not use such instruments for speculative or trading purposes.

On June 19, 2019, the Company entered into a floating-to-fixed interest rate swap for an aggregate notional amount of $100.0 million in order to hedge a portion of the Company’s floating rate indebtedness under the Credit Facility. The Company designated the swap as a cash flow hedge. The swap requires us to pay a fixed rate of 1.94% per annum on the notional amount. The cash flows from the swap began June 30, 2019 and ends on December 31, 2021. As of December 31, ~~2019, $0.3~~2020, $0.4 million had been recorded as ana loss in Accumulated ~~Loss in~~ Other Comprehensive Income (“AOCI”). ~~An additional loss~~For the three months ended March 31, 2021, a gain of ~~$0.3~~$0.2 million was recorded in AOCI, incompared to a loss of $0.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020. Realized gains and losses in connection with each required interest payment are reclassified from AOCI to interest expense during the period of the cash flows. During the ~~quarter and nine~~first three months ended ~~September 30, 2020,~~March 31, 2021, the Company reclassified nil into interest expense ~~$0.3~~and credited $0.1 million ~~and $0.5 million, respectively. The fair value of~~as interest income during the ~~Company’s interest rate swaps was recorded as $0.7 million in Other Current Liabilities at September 30,~~three months ended March 31, 2020. The fair value of the Company’s interest rate swaps was recorded as $0.2 million in Other Current Liabilities ~~and $0.1~~at March 31, 2021. The fair value of the Company’s interest rate swaps was recorded as $0.2 million in Long-Term Liabilities ~~for a combined obligation of $0.3 million~~ at December 31, ~~2019.~~2020. On a quarterly basis, management evaluates any swap agreement to determine its effectiveness or ineffectiveness and records the change in fair value as an adjustment to AOCI. Management intends that the swap remains effective.

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ROLLINS, INC. AND SUBSIDIARIES

Hedges of Foreign Exchange Risk

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the US dollar. We use foreign currency derivatives, specifically ~~vanilla~~ foreign currency forward contracts (“FX Forwards”), to manage our exposure to fluctuations in the USD-CAD and AUD-USD exchange rates. FX Forwards involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. The FX Forwards are typically settled in US dollars for their fair value at or close to their settlement date. We do not currently designate any of these FX Forwards under hedge accounting, but rather reflect the changes in fair value immediately in earnings. We do not use such instruments for speculative or trading purposes, but rather use them to manage our exposure to foreign exchange rates. Changes in the fair value of FX Forwards were recorded in other income/expense and were equal to a net loss of ~~$0.1~~$0.3 million and a net gain of ~~$0.1~~$1.1 million for the ~~quarter ended September 30, 2020 and 2019, respectively and a net loss of $0.4 million and a net loss of $12 thousand for the nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The fair ~~value~~values of the Company’s FX Forwards ~~was~~were recorded as ~~$0.1~~net obligations of $0.4 million and $0.4 million in Other Current Liabilities at ~~September 30, 2020~~March 31, 2021 and ~~was a net obligation of $0.2 million in Other Current Liabilities at~~ December 31, ~~2019.~~2020, respectively.

As of ~~September 30, 2020,~~March 31, 2021, the Company had the following outstanding FX Forwards (in thousands except for number of instruments):


Non-Designated Derivative Summary	Non-Designated Derivative Summary							Non-Designated Derivative Summary
FX Forward Contracts		Number of Instruments		Sell Notional		Buy Notional			Number of Instruments		Sell Notional		Buy Notional
Sell AUD/Buy USD Fwd Contract			14	$	2,300	$	1,619			11	$	1,300	$	949
Sell CAD/Buy USD Fwd Contract			15	$	14,500	$	10,804			13	$	13,500	$	10,393
Total			29			$	12,423			24			$	11,342

The financial statement impact related to these derivative instruments was insignificant for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and year ended December 31, ~~2019.~~2020.

NOTE ~~14.~~16.

SUBSEQUENT EVENTS

The Company previously announced that it was pursuing corrective actions in connection with certain corporate acts involving the amendment to the Company’s certificate of incorporation that was approved by Company stockholders on April 23, 2019 (the “2019 Amendment”). In connection with the 2019 Amendment, the shareholders voted to increase the number of authorized shares of capital stock to 550,500,000 shares, including 550 million shares of common stock and 500,000 shares of preferred stock. Due to a clerical error, the Certificate of Amendment for the 2019 Amendment was not filed with the Delaware Secretary of State. The Company filed a petition with the Delaware Chancery Court to deem the 2019 Amendment to be filed on April 23, 2019, and the Court granted the petition on April 23, 2021 resulting in the correction of the technical defects.

On April 27, 2021, shareholders approved an amendment to Rollins, Inc.’s Certificate of Incorporation to increase the number of authorized shares of common stock from 550,000,000 shares to 800,000,000 shares. Rollins’ authorized preferred stock will remain the same at 500,000 shares.

On ~~October~~April 27, ~~2020,~~2021, the Company announced that the Board of Directors ~~approved a three-for-two stock split of the Company’s common shares.~~ The split will be affected by using one additional share of common stock for every two shares of common stock held. The additional shares will be distributed on December 10, 2020 to stockholders of record at the close of business on November 10, 2020. Fractional share amounts resulting from the split will be paid to shareholders in cash.

~~In addition, the Company~~ declared a regular quarterly cash dividend on its common stock of $0.08 per share ~~plus a special year-end dividend of $0.13~~ ~~per share, both~~ payable on ~~December~~June 10, ~~2020~~2021 to stockholders of record at the close of business ~~on November~~May 10, ~~2020. Dividends will be paid on pre-split shares.~~2021.

On October 27, 2020, the Company announced that the Board of Directors elected Mr. Jerry Nix as a director of the Company, effective October 27, 2020. Mr. Bill J. Dismuke, who has served as a director of the Company for 36 years is retiring as a director effective October 27, 2020. At the time of his resignation, Mr. Dismuke served as a member of the Audit Committee. Mr. Dismuke will not receive any compensation in connection with his resignation, other than compensation owed to him for services rendered as a director and member of the Audit Committee through the date of his resignation.

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ROLLINS, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On ~~October~~April 28, ~~2020,~~2021, the Company reported ~~third~~first quarter revenues of ~~$583.7~~$535.6 million, an increase of ~~4.9%~~9.8% over the prior year’s ~~third~~first quarter revenue of ~~$556.5~~$487.9 million. Rollins’ net income increased ~~80.6%~~114.1% to ~~$79.6~~$92.6 million, or ~~$0.24~~$0.19 per diluted share for the ~~third~~first quarter ended ~~September 30, 2020,~~March 31, 2021, compared with ~~$44.1~~$43.3 million, or ~~$0.13~~$0.09 per diluted share for the same period in 2019. The quarter ended September 30, 2020 was impacted by the one-time non-cash accelerated stock vesting of $6.7 million. The quarter ending September 30, 2019 was impacted by the after-tax pension settlement loss of $26.6 million.2020.

Results of Operations:

THREE MONTHS ENDED ~~SEPTEMBER 30, 2020~~MARCH 31, 2021 COMPARED TO THREE MONTHS ENDED ~~SEPTEMBER 30, 2019~~MARCH 31, 2020

~~COVID-19 Pandemic Impact~~

Going into the quarter ended September 30, 2020, we had already made numerous operational adjustments to address the economic, health and safety challenges from the COVID-19 pandemic. These included new COVID-related procedures, modified customer service and related protocols, daily health screenings before entering shared offices, and a transition to remote work locations to reduce concentrations of personnel in offices where appropriate. Cost containment efforts included furloughs, layoffs, elimination of non-essential travel, postponing capital expenditures, and temporary salary reductions for upper management, among other actions.

Customer retention during the pandemic is less predictable, and of greater immediate concern. Our residential pest control business has remained consistent with seasonal trends, especially as temperatures rise across the U.S. and pest activity increases. Through the date of this filing, our commercial pest control business has been more adversely impacted, as it crosses multiple industries such as healthcare, food processing, logistics, grocery, retail and hospitality. Each of these industries is being impacted differently by the pandemic. Many of our commercial customers continue to operate as “essential” businesses; however, unfortunately there are a notable number of others forced to temporarily close their doors. We expect this impact will persist for the remainder of 2020 and beyond, and that the degree of the impact will depend on the extent and duration of the economic contraction.

While we have a substantial amount of intangible assets on our balance sheet, based on our third quarter revenues, we do not anticipate any significant long-term loss in revenues or cash flows that would approach a level for impairment of intangible assets.

All of our critical supply-chain vendors have remained operational, and we have engaged additional new sources to supplement our existing suppliers, especially for critical PPE and other COVID-19 related items. Fleet suppliers and support vendors continue to serve our needs.

Revenue

Revenues for the ~~third~~first quarter ended ~~September 30, 2020~~March 31, 2021 increased ~~$27.2~~$47.7 million, or ~~4.9%~~9.8%, to ~~$583.7~~$535.6 million compared to ~~$556.5~~$487.9 million for the ~~third~~first quarter ended ~~September 30, 2019.~~March 31, 2020. Approximately ~~1.4~~1.9 percentage points of the ~~4.9%~~9.8% increase in revenues came from acquisitions, while growth in customers and pricing made up the remaining ~~3.5~~7.9 percentage points.

The Company has three primary service offerings: commercial pest control, residential pest control and termite, including ancillary services. During the ~~third~~first quarter ended ~~September 30, 2020,~~March 31, 2021, commercial pest control revenue approximated ~~34%~~35% of the Company’s revenues, residential pest control approximated ~~47%~~44% of the Company’s revenues, and termite and ancillary service revenue approximated ~~18%~~20% of the Company’s revenues.

~~ROLLINS, INC. AND SUBSIDIARIES~~

~~Our commercial customers’ operations were most heavily impacted by~~Comparing the ~~various governmental shelter-in-place mandates and their negative effect on small to medium size businesses. As a result, when comparing the third~~first quarter of ~~2020~~2021 to the ~~third~~first quarter of ~~2019,~~2020, the Company’s commercial pest control revenue ~~decreased 2.5%~~increased 2.9%. ~~However, the~~The Company believes the launch of its VitalClean sanitation services helped some of its commercial customers reopen and protect their employees and customers. ~~By contrast, demand~~Demand for our residential pest control service offerings ~~grew significantly during the third quarter of 2020. For example, mosquito sales grew more than 30% compared~~continues to ~~the third quarter of 2019. The Company believes with~~grow. With many people working from or confined to their homes, the awareness of unwanted pests has helped contribute to our growth in residential service revenues. Comparing the ~~third~~first quarter of ~~2020~~2021 to the ~~third~~first quarter of ~~2019,~~2020, residential pest control revenue grew ~~10.6%~~14.9%. Termite and ancillary services revenue grew ~~6.2%~~12.2%. Foreign operations accounted for approximately 8% and 7% of total revenues during the ~~third~~first quarters of ~~each of~~2021 and 2020, ~~and 2019.~~respectively.

ROLLINS, INC. AND SUBSIDIARIES

Revenues are impacted by the seasonal nature of the Company’s pest and termite control services. The increase in pest activity, as well as the metamorphosis of termites in the spring and summer (the occurrence of which is determined by the change in seasons), has historically resulted in an increase in the Company’s revenues as evidenced by the following chart:

	Consolidated Net Revenues
	(in thousands)
	2021		2020		2019
First Quarter	$	535,554	$	487,901	$	429,069
Second Quarter		—		553,329		523,957
Third Quarter		—		583,698		556,466
Fourth Quarter		—		536,292		505,985
Year ended December 31,	$	535,554	$	2,161,220	$	2,015,477

Consolidated Net Revenues
(in thousands)
First Quarter $ 487,901 $ 429,069 $ 408,742
Second Quarter 553,329 523,957 480,461
Third Quarter 583,698 556,466 487,739
Fourth Quarter — 505,985 444,623
Year ended December 31, $ 1,624,928 $ 2,015,477 $ 1,821,565

Revenues are also impacted by the Company’s acquisitions. For the ~~third~~first quarters of 2021, 2020, ~~2019,~~ and ~~2018,~~2019, acquisitions increased revenues by ~~$7.6~~$9.3 million, ~~$37.4~~$37.0 million, and ~~$14.2~~$4.5 million, respectively.

Cost of Services Provided

Cost of ~~Services~~services provided for the ~~third~~first quarter ended ~~September 30, 2020~~March 31, 2021 increased ~~$6.8~~$10.4 million, or ~~2.5%~~4.1%, to ~~$275.5~~$261.6 million, compared to ~~$268.7~~$251.2 million for the ~~third~~first quarter of the prior year. Gross ~~Margin~~margin for the ~~third~~first quarter of ~~2020~~2021 was ~~52.8%~~51.2%, up ~~1.1~~2.7 percentage points from ~~51.7%~~48.5% for the ~~third~~first quarter of ~~2019.~~2020. During the quarter, the Company’s margin improvement was driven by expense reductions in the following areas:

Service salary and benefit savings as a percentage of revenues; and

~~Lower fuel prices and improved~~Improved routing and scheduling efficiencies, which reduced fleet expenses.

Depreciation and Amortization

Depreciation and amortization expense for the ~~third~~first quarter ended ~~September 30, 2020~~March 31, 2021 increased ~~$0.7~~$2.0 million to ~~$22.4~~$23.6 million, an increase of ~~3.3%~~9.3% from the same period in the prior year. Depreciation increased ~~$1.0~~$0.9 million due to acquisitions and equipment purchases, while amortization of intangible assets ~~decreased $0.3~~increased $1.1 million due to the amortization of customer contracts ~~being completed for certain~~from several acquisitions.

Sales, General and Administrative

Sales, general and administrative expenses for the ~~third~~first quarter ended ~~September 30, 2020~~March 31, 2021 decreased to ~~28.8%~~30.3% of revenues, increasing ~~$0.8~~$4.3 million, or ~~0.5%~~2.8%, to ~~$168.0~~$162.2 million, compared to ~~$167.2~~$157.9 million or ~~30.0%~~32.4% of revenues for the ~~third~~first quarter ended ~~September 30, 2019.~~March 31, 2020. The following factors contributed to the control of Company spending:

Administrative salary and benefit savings as a percentage of revenues;

~~Lower fuel prices reduced sales~~ and ~~administrative fleet expenses;~~

Elimination of other non-essential spending reduced meeting, travel and office supply ~~expense; and~~

~~Reduced acquisition activity compared to 2019 resulted in lower professional services~~ expense.

~~ROLLINS, INC. AND SUBSIDIARIES~~

Interest Expense, Net

Net interest expense for the ~~third~~first quarter ended ~~September 30, 2020~~March 31, 2021 was ~~$0.9~~$0.6 million compared to ~~$2.8~~$2.2 million for the same period last year. The change was driven primarily by the lower average debt balance in ~~2020~~2021 compared to the same quarter in ~~2019.~~2020.

Income Taxes

The effective tax rate was 26.9% for the third quarter ended September 30, 2020 compared to 4.5% for the third quarter ended September 30, 2019 which was low as a result of the Company’s pension settlement tax benefit. Additional increases in the effective tax rate for third quarter ended September 30, 2020 were primarily due to reductions in certain beneficial deductions.

~~NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2019~~

~~Revenue~~

Revenues for the nine months ended September 30, 2020 increased $115.4 million or 7.6% to $1.625 billion compared to $1.509 billion for the nine months ended September 30, 2019. Approximately 4.0 percentage points of the 7.6% increase in revenues came from acquisitions, while growth in customers and pricing made up the remaining 3.6 percentage points.

During the nine months ended September 30, 2020, commercial pest control revenue approximated 35% of the Company’s revenues, residential pest control approximated 45% of the Company’s revenues, and termite and ancillary service revenue approximated 19% of the Company’s revenues. Comparing the first nine months of 2020 to the first nine months of 2019, the Company’s commercial pest control revenue decreased 0.5%, residential pest control revenue grew 14.2%, and termite and ancillary services revenue grew 9.8%. Foreign operations accounted for approximately 7% and 8% of total revenues during the first nine months of 2020 and 2019, respectively.

~~Cost of Services Provided~~

Cost of Services provided for the nine months ended September 30, 2020 increased $42.9 million, or 5.8%, to $782.2 million, compared to $739.3 million for the nine months ended September 30, 2019. Gross Margin22.7% for the first ~~nine months of 2020 was 51.9%, up 0.9 percentage points from 51.0%~~quarter ended March 31, 2021 compared to 21.9% for the first ~~nine months of 2019. Margin improvement was driven by the following:~~

~~Furloughs and layoffs, which resulted in a reduction of service salaries as a percentage of revenues; and~~

~~Lower fuel prices and improved routing and scheduling efficiencies, which reduced fleet expenses.~~

~~Depreciation and Amortization~~

~~Depreciation and amortization expense for the nine months~~quarter ended ~~September 30, 2020 increased $7.4 million to $65.9 million, an increase of 12.7% from the same period~~March 31, 2020. The rate is higher in the ~~prior year. Depreciation increased $4.0 million due to acquisitions and equipment purchases while amortization of intangible assets increased $3.4 million~~current year due to the ~~amortization~~Company’s restricted stock vestings and the disallowance of ~~customer contracts from several acquisitions.~~tax deductions for a portion of executive compensation.

2017

ROLLINS, INC. AND SUBSIDIARIES

~~Sales, General and Administrative~~

Sales, General and Administrative Expenses for the nine months ended September 30, 2020 decreased to 30.6% of revenues, increasing $28.5 million, or 6.1%, to $497.1 million, compared to $468.6 million or 31.0% of revenues for the nine months ended September 30, 2019. The following factors contributed to the control of Company spending:

~~Administrative salary and benefit savings as a percentage of revenues;~~

~~Lower fuel prices reduced sales and administrative fleet expenses;~~

~~Elimination of other non-essential spending reduced meeting, travel and office supply expense; and~~

~~Reduced acquisition activity compared to 2019 resulted in lower professional services expense.~~

~~Interest Expense, Net~~

Net interest expense for the first nine months ended September 30, 2020 was $4.5 million, which was roughly equal the same period last year. The expense was driven from new financing borrowed in April 2019 to fund acquisition growth.

~~Income Taxes~~

The effective tax rate was 26.0% for the nine months ended September 30, 2020 compared to 19.3% for the nine months ended September 30, 2019 which was low as a result of the Company’s pension settlement tax benefit. Additional increases to the effective tax rate for nine months ended September 30, 2020 were primarily due to reductions in certain beneficial deductions.

~~ROLLINS, INC. AND SUBSIDIARIES~~

Liquidity and Capital Resources

The Company believes its current cash and cash equivalents balances, future cash flows expected to be generated from operating activities and available borrowings under its $175.0 million revolving credit facility and $250.0 million term loan facility will be sufficient to finance its current operations and obligations, and fund expansion of the business for the foreseeable future. The Company’s operating activities generated net cash of ~~$340.6~~$119.5 million and ~~$243.9~~$92.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The Company made no contributions to its sole remaining defined benefit retirement plan during the nine months ended September 30, 2020 and 2019, respectively, and had approximately $1.2 million of benefit plan assets remaining as of September 30, 2020.

The Company invested approximately ~~$17.7~~$7.8 million in capital expenditures, exclusive of expenditures for business acquisitions, during the ~~nine~~three months ended on ~~September 30, 2020,~~March 31, 2021, compared to ~~$18.7~~$6.7 million during the same period in ~~2019.~~2020. Non-essential capital expenditures for ~~2020~~2021 have been cancelled in response to the pandemic crisis. Capital expenditures for the ~~nine~~three months ended on ~~September 30, 2020~~March 31, 2021 consisted primarily of the purchase of operating equipment replacements and technology-related projects. During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company made expenditures for acquisitions totaling ~~$79.9~~$17.0 million, compared to ~~$431.2~~$47.6 million during the same period in ~~2019.~~2020. The Company’s proceeds from sales of assets during the three months ended March 31, 2021 of $65.1 million relate primarily to the sale of property related to the Clark acquisition. A total of ~~$91.7~~$39.4 million was paid in cash dividends ~~(an aggregate of $0.28~~($0.08 per share) during the ~~nine month~~three-month period ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$103.1~~$39.3 million paid in cash dividends ~~(an aggregate of $0.315~~($0.08 per share) during the same period in ~~2019.~~2020.

On ~~October~~April 27, ~~2020,~~2021, the Company announced that the Board of Directors approved a three-for-two stock split of the Company’s common shares. The split will be affected by using one additional share of common stock for every two shares of common stock held. The additional shares will be distributed on December 10, 2020 to stockholders of record at the close of business on November 10, 2020. Fractional share amounts resulting from the split will be paid to shareholders in cash. In addition, the Company declared a regular quarterly cash dividend on its common stock of $0.08 per share ~~plus a special year-end dividend of $0.13 per share both~~ payable ~~on December~~June 10, ~~2020~~2021 to stockholders of record at the close of business ~~November~~May 10, ~~2020,~~2021, to be funded with existing cash ~~balances and available credit facilities. Dividends will be paid on pre-split shares.~~balances. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors.

The Company did not repurchase shares of its common stock on the open market during the first ~~nine~~three months of ~~2020~~2021 or during the same period in ~~2019.~~2020. The Company has had a buyback program in place for a number of years and has routinely purchased shares when it felt the opportunity was desirable. The Board authorized the purchase of ~~11.25~~16.9 million additional shares of the Company’s common stock in July 2012. These authorizations enable the Company to continue the purchase of Company common stock when appropriate, which is an important benefit resulting from the Company’s strong cash flows. The stock buy-back program has no expiration date. In total, ~~7.6~~11.4 million additional shares may be purchased under the share repurchase program. The Company repurchased ~~$8.1~~$9.3 million and ~~$9.9~~$8.0 million of common stock for the first ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, from employees for the payment of taxes on vesting restricted shares. The acquisitions, capital expenditures, share repurchases and cash dividends were funded through existing cash balances, borrowings on our line of credit, a term loan, and operating activities.

The Company’s balance sheet as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 includes short-term unearned revenues of ~~$139.7~~$140.4 million and ~~$122.8~~$131.3 million, respectively, representing approximately 6% of its annual revenue as of each balance sheet date. This represents cash paid to the Company by its customers in advance of services that will be recognized over the next twelve months. The Company’s total cash and cash equivalents of ~~$95.4~~$117.3 million at ~~September 30, 2020~~March 31, 2021 is held at various banking institutions. Approximately ~~$62.9~~$71.3 million is held in cash accounts at foreign bank institutions and the remaining balance is primarily held in non-interest-bearing accounts at various domestic banks. The Company’s international business is expanding, and we intend to continue to grow the business in foreign markets in the future through acquisitions of unrelated companies, reinvestment of foreign deposits and future earnings. Repatriation of cash from the Company’s foreign subsidiaries is not a part of the Company’s current business plan. The Company maintains a large cash position in the United States. The Company maintains adequate liquidity and capital resources that are directed to finance domestic operations and obligations and to fund expansion of its domestic business for the foreseeable future without regard to its foreign deposits.

Litigation

In the normal course of business, the Company and its subsidiaries are involved in, and will continue to be involved in, various claims, arbitrations, contractual disputes, investigations, litigation, and tax and other regulatory matters relating to, and arising out of, our businesses and our operations. These matters may involve, but are not limited to, allegations that our services or vehicles caused damage or injury, claims that our services did not achieve the desired results, claims related to acquisitions and allegations by federal, state or local authorities of violations of regulations or statutes. In addition, we are parties to employment-related cases and claims from time to time, which may include claims on a representative or class action basis alleging wage and hour law violations. We are also involved from time to time in certain environmental and tax matters primarily arising in the normal course of business. We evaluate pending and threatened claims and establish loss contingency reserves based upon outcomes we currently believe to be probable and reasonably estimable.

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ROLLINS, INC. AND SUBSIDIARIES

~~Litigation~~

InAs previously disclosed, the ~~normal course~~SEC is conducting an investigation, which the Company believes is primarily focused on how it established accruals and reserves at period-ends and the impact of ~~business, certain~~those accruals and reserves on reported earnings. The investigation relates to period-ends for periods beginning January 1, 2015. The Company is fully cooperating with the SEC’s investigation. The Company cannot predict the outcome of this investigation. The Company’s Audit Committee retained independent counsel to conduct an internal investigation into matters related to the SEC investigation and, in particular, the Company’s subsidiaries are defendants in a number of lawsuits, claims or arbitrations which allege that the subsidiaries’ services caused damage or regulatory actions or investigations evaluating the Company’s practices. In addition, the Company defends employment-related cases and claims from time to time. We are involved in certain environmental matters primarily arisingprocesses for establishing reserves for each quarter in the ~~normal course~~relevant periods. The internal investigation was concluded in October 2020. The Company, after consultation with the Audit Committee and the independent counsel, believes that its financial statements filed with the SEC on Forms 10-K and 10-Q for the relevant periods fairly present in all material respects its financial condition, results of ~~business. We are actively contesting each~~operations and cash flows as of ~~these matters.~~their respective balance sheet dates and for the periods then ended.

Management does not believe that any pending claim, proceeding, litigation, regulatory action or investigation, either alone or in the aggregate will have a material adverse effect on the Company’s financial position, results of operations or liquidity; however, it is possible that an unfavorable outcome of some or all of the matters, however unlikely, could result in a charge that might be material to the results of an individual quarter or year.

Critical Accounting Policies

There have been no changes to the Company’s critical accounting policies since the filing of its Form 10-K for the year ended December 31, ~~2019, other than ASC 326.~~2020.

ROLLINS, INC. AND SUBSIDIARIES

~~New Accounting Standards~~Forward-Looking Statements

See Note 2 of the Notes to Condensed Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition.

~~Forward-Looking Statements~~

This ~~Quarterly Report~~quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, the Company’s belief that its accounting estimates and assumptions may change over time in response to the COVID-19 pandemic and may change materially in future periods; the Company’s expectation that the adverse impact of the COVID-19 pandemic on its commercial pest control business will persist for the remainder of 2020 and beyond, and that the degree of the impact will depend on the extent and duration of the economic contraction; the Company’s belief that with many people working from or confined to their homes, the awareness of unwanted pests has helped contribute to its growth in residential service revenues; the Company’s belief that fleet suppliers and support vendors will continue to serve its needs; the Company’s belief that it will not experience any significant long-term loss in revenues or cash flows related to the COVID-19 pandemic that would approach a level of impairment for intangible assets; the Company’s belief that the launch of its VitalClean sanitation services helped some of its commercial customers reopen and protect their employees and customers; ~~the Company’s suspension of future services for customers with past due balances;~~ statements that management does not believe that any pending claim, proceeding, litigation, regulatory action or investigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity and management’s belief that it is possible that an unfavorable outcome of some or all of the matters, however unlikely, could result in a charge that might be material to the results of an individual quarter or year; the ~~results~~Company’s expectation that the adoption of ~~the SEC’s investigation of the Company, including its belief of the primary focus~~ASU 2020-04 will not have a material impact on the establishment of accruals and reserves at period-ends and the impact of those accruals and reserves on reported earnings, its inability to predict the outcome of such investigation which could include fines, penalties or expenditure of significant costs to defend such action, and the potential for litigation from third parties related to matters under review by the SEC;Company’s consolidated Financial Statements; the Company’s ~~intention~~statement that ~~its floating-to-fixed interest rate swap for an aggregate notional amount of $100.0 million in order~~it evaluates pending and threatened claims and establishes loss contingency reserves based upon outcomes it currently believes to ~~hedge a portion of the Company’s floating rate indebtedness under the Credit Facility remains effective;~~be probable and reasonably estimable; the Company’s reasonable certainty that it will exercise the renewal options on its operating leases; the Company’s belief that its current cash and cash equivalent balances, future cash flows expected to be generated from operating activities and available borrowings under its $175.0 million revolving credit facility and $250.0 million term loan facility will be sufficient to finance its current operations and obligations, and fund expansion of the business for the foreseeable future; the Company’s expectation that it will remain in compliance with applicable debt covenants under the Credit Facility ~~through 2020;~~throughout 2021; the Company’s expectation that it will continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors; the Company’s ability to continue the purchase of Company common stock when appropriate; the Company’s intention to continue to grow the business in foreign markets in the future through reinvestment of foreign deposits and future earnings as well as acquisitions of unrelated companies and that repatriation of cash from the company’s foreign subsidiaries is not a part of the Company’s current business plan; the Company’s plan to fund any remaining ~~2020~~2021 benefit plan obligations with reversion of any remaining pension assets to the Company in compliance with ERISA regulations ~~before year end;~~during 2021; the Company’s expectation that total unrecognized compensation cost related to time-lapse restricted shares will be recognized over a weighted average period of approximately 44.5 years; the Company’s expectation that the acquisition-related goodwill recognized during the quarter will be deductible for tax purposes; the Company’s intention that its floating-to-fixed interest rate swap for an aggregate notional amount of $100.0 million in order to hedge a portion of the Company’s floating rate indebtedness under the Credit Facility remains effective; the Company’s expectation that it will forego non-essential capital expenditures for the remainder of ~~2020; the Company’s expectation that it will maintain compliance with debt covenants and~~2021; the Company’s belief that foreign exchange rate risk will not have a material effect on the Company’s results of operations going forward; the Company’s belief that it maintains adequate liquidity and capital resources that are directed to finance domestic operations and obligations and to fund expansion of its domestic business for the foreseeable future without regard to its foreign deposits; the Company’s belief that it will continue to be involved in, various claims, arbitrations, contractual disputes, investigations, and regulatory and litigation matters relating to, and arising out of, its businesses and its operations; the Company’s belief that the ongoing SEC investigation is primarily focused on how it established accruals and reserves at period-ends and the impact of those accruals and reserves on reported earnings; the Company’s ~~estimation regarding~~inability to predict the ~~reclassification~~outcome of ~~accumulated other comprehensive income related~~the SEC investigation; the Company’s belief, after consultation with the Audit Committee and independent counsel, that its financial statements filed with the SEC on Forms 10-K and 10-Q for the relevant periods fairly present in all material respects its financial condition, results of operations and cash flows as of their respective balance sheet dates and for the periods then ended; and management’s evaluation that no changes in our internal control over financial reporting during the first quarter are reasonably likely to ~~derivatives.~~materially affect our internal control over financial reporting. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation, the impact of the extent and duration of economic contraction related to COVID-19 on general economic activity for the remainder of ~~2020~~2021 and beyond; the impact of future developments related to the COVID-19 pandemic on the Company’s business, results of operations, accounting assumptions and estimates and financial condition; the possibility of an adverse ruling against the Company in pending litigation, regulatory action or investigation; general economic conditions; actions taken by our franchisees, subcontractors or vendors that may harm our business; market risk; changes in industry practices or technologies; a breach of data security; the degree of success of the Company’s termite process and pest control selling and treatment methods; damage to our brands or reputation; our ability to protect our intellectual property and other proprietary rights; the Company’s ability to identify and successfully integrate potential acquisitions; climate and weather conditions; competitive factors and pricing practices; our ability to attract and retain skilled workers, and potential increases in labor costs; ~~changes in various government laws~~risks related to legal, regulatory and ~~regulations,~~risk management matters including ~~environmental regulations;~~risks related to the ongoing SEC investigation; and the existence of certain anti-takeover provisions in our governance documents, which could make a tender offer, change in control or takeover attempt that is opposed by the Company’s Board of Directors more difficult or expensive. All of the foregoing risks and uncertainties are beyond the ability of the Company to control, and in many cases the Company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. A more detailed discussion of potential risks facing the Company can be found in Part II, Item 1A. of each of the Company’s Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission for the quarters ended March 31, 2020 and June 30, 2020, respectively, and in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, ~~2019. The Company does not undertake to update its forward-looking statements.~~2020.

2320

ROLLINS, INC. AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of ~~September 30, 2020,~~March 31, 2021, the Company maintained an investment portfolio (included in cash and cash equivalents) subject to short-term interest rate risk exposure. The Company is subject to interest rate risk exposure through borrowings on its $175.0 million revolving credit facility and $250.0 million term loan facility. The Company is also exposed to market risks arising from changes in foreign exchange rates. See Note 1315 to Part I, Item 1 for a discussion of the Company’s investments in derivative financial instruments to manage risks of fluctuations in interest and foreign exchange rates. The Company believes that this interest and foreign exchange rate risk will not have a material impact upon the Company’s results of operations going forward.

~~ROLLINS, INC. AND SUBSIDIARIES~~

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of ~~September 30, 2020~~March 31, 2021 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the Evaluation Date to ensure that the information required to be included in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

In addition, management’s quarterly evaluation identified no changes in our internal control over financial reporting during the ~~third~~first quarter that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

ROLLINS, INC. AND SUBSIDIARIES

PART II OTHER INFORMATION

Item 1. ~~Item 1.~~ Legal Proceedings

~~The Securities~~In the normal course of business, the Company and ~~Exchange Commission (“SEC”)~~its subsidiaries are involved in, and will continue to be involved in, various claims, arbitrations, contractual disputes, investigations, litigation, and tax and other regulatory matters relating to, and arising out of, our businesses and our operations. These matters may involve, but are not limited to, allegations that our services or vehicles caused damage or injury, claims that our services did not achieve the desired results, claims related to acquisitions and allegations by federal, state or local authorities of violations of regulations or statutes. In addition, we are parties to employment-related cases and claims from time to time, which may include claims on a representative or class action basis alleging wage and hour law violations. We are also involved from time to time in certain environmental and tax matters primarily arising in the normal course of business. We evaluate pending and threatened claims and establish loss contingency reserves based upon outcomes we currently believe to be probable and reasonably estimable.

As previously disclosed, the SEC is conducting an investigation, which the Company believes is primarily focused on how it established accruals and reserves at period-ends and the impact of those accruals and reserves on reported earnings. The investigation relates to period-ends for periods beginning January 1, 2015. The Company is fully cooperating with the SEC’s investigation. The Company cannot predict the outcome of this investigation. The Company’s Audit Committee retained independent counsel to conduct an internal investigation into matters related to the SEC investigation and, in particular, the Company’s processes for establishing reserves for each quarter in the relevant periods. The internal investigation was concluded in October 2020. The Company, after consultation with the Audit Committee and the independent counsel, believes that its financial statements filed with the SEC on ~~forms~~Forms 10-K and 10-Q for the relevant periods fairly present in all material respects its financial condition, results of operations and cash flows as of their respective balance sheet dates and for the periods then ended.

See ~~Note 5 to~~ Part I, Item 11.A. of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2020 for additional discussion of ~~certain litigation.~~related Risk Factors.

Management does not believe that any pending claim, proceeding or litigation, regulatory action or investigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity; however, it is possible that an unfavorable outcome of some or all of the matters, however unlikely, could result in a charge that might be material to the results of an individual quarter or year.

Item 1A.

Risk Factors

~~Item 1A. Risk Factors~~

There have been no material changes from the risk factors previously disclosed ~~in the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarters ended March 31, 2020 and June 30, 2020, respectively, and~~ in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, ~~2019.~~2020.

ROLLINS, INC. AND SUBSIDIARIES

Item 2. ~~Item 2.~~ Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

~~ROLLINS, INC. AND SUBSIDIARIES~~

Shares repurchased by Rollins and affiliated ~~purchases~~purchasers during the ~~third~~first quarter ended ~~September 30, 2020~~March 31, 2021 were as follows:

~~Total number of shares~~

~~Maximum number of~~

~~Total number~~

~~Weighted-Average~~

~~purchased as part~~

~~shares that may yet~~

~~of shares~~

~~price paid~~

~~of publicly announced~~

~~be purchased under~~

~~Period~~

~~Purchased (1)~~

~~per share~~

~~repurchases (2)~~

~~repurchase plan~~

~~July 1 to 31, 2020~~

—

~~7,610,416~~

~~August 1 to 31, 2020~~

—

~~7,610,416~~

~~September 1 to 30, 2020~~

—

~~7,610,416~~

~~Total~~

—

~~7,610,416~~

					Total number of shares		Maximum number of
	Total number		Weighted-Average		purchased as part		shares that may yet
	of shares		price paid		of publicly announced		be purchased under
Period	Purchased⁽¹⁾		per share		repurchases⁽²⁾		repurchase plan
January 1 to 31, 2021		245,421	$	36.60		—		11,415,625
February 1 to 28, 2021		4,036		35.67		—		11,415,625
March 1 to 31, 2021		6,455		33.51		—		11,415,625
Total		255,912	$	36.51		—		11,415,625

(1)

Includes repurchases from employees for the payment of taxes on vesting of restricted shares in the following amounts: ~~July 2020: 0; August 2020: 0~~January 2021: 245,421; February 2021: 4,036; and ~~September 2020: 0.~~March 2021: 6,455.

(2)

The Company has a share repurchase plan, adopted in 2012, to repurchase up to ~~11.25~~16.9 million shares of the Company’s common stock. The plan has no expiration date.

2623

ROLLINS, INC. AND SUBSIDIARIES

Item 5.	Exhibits.		~~Exhibits.~~

	(a)	~~(a)~~Exhibits		~~Exhibits~~

					(3) (i)		(A) Restated Certificate of Incorporation of Rollins, Inc. dated July 28, 1981, incorporated herein by reference to Exhibit (3)(i)(A) as filed with the Registrant’s Form 10-Q filed August 1, 2005.

						(B) Certificate of Amendment of Certificate of Incorporation of Rollins, Inc. dated August 20, 1987, incorporated herein by reference to Exhibit 3(i)(B) filed with the Registrant’s 10-K filed March 11, 2005.

						(C) Certificate of Change of Location of Registered Office and of Registered Agent dated March 22, 1994, incorporated herein by reference to Exhibit (3)(i)(C) filed with the Registrant’s Form 10-Q filed August 1, 2005.

						(D) Certificate of Amendment of Certificate of Incorporation of Rollins, Inc. dated April 25, 2006, incorporated herein by reference to Exhibit 3(i)(D) filed with the Registrant’s 10-Q filed October 31, 2006.

						(E) Certificate of Amendment of Certificate of Incorporation of Rollins, Inc. dated April 26, 2011, incorporated herein by reference to Exhibit 3(i)(E) filed with the Registrant’s 10-K filed February 25, 2015.

						(F) Certificate of Amendment of Certificate of Incorporation of Rollins, Inc. dated April 28, 2015, incorporated herein by reference to Exhibit 3(i)(F) filed with the Registrant’s 10-Q filed on July 29, 2015.

						(G) Certificate of Amendment of Certificate of Incorporation of Rollins, Inc. dated April 23, 2019, incorporated herein by reference to Exhibit 3(i)(G) filed with the Registrant’s 10-Q filed on April 26, 2019.

					(ii)		Amended and Restated By-Laws of Rollins, Inc., incorporated herein by reference to Exhibit 3.1 filed with the Registrant’s 8-K filed on ~~August 28, 2020.~~February 1, 2021.

					(4)(a)		Form of Common Stock Certificate of Rollins, Inc., incorporated herein by reference to Exhibit (4) as filed with its Form 10-K for the year ended December 31, 1998.

		(31.1)	Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		(31.2)	Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		(32.1)	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		(101.INS)	Inline XBRL Instance Document

		(101.SCH)	Inline XBRL Schema Document

		(101.CAL)	Inline XBRL Calculation Linkbase Document

		(101.DEF)	Inline XBRL Definition Linkbase Document

		(101.LAB)	Inline XBRL Label Linkbase Document

		(101.PRE)	Inline XBRL Presentation Linkbase Document

		104	Cover Page Interactive Data File (embedded with the Inline XBRL document)
	+	~~Portions of this exhibit (indicated by asterisks) have been omitted.~~

ROLLINS, INC. AND SUBSIDIARIES

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 thereunto duly authorized.

	ROLLINS, INC.
	(Registrant)

Date: ~~October 28, 2020~~April 30, 2021	By:	/s/ Gary W. Rollins
		Gary W. Rollins
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~October 28, 2020~~April 30, 2021	By:	/s/ Paul E. Northen
		Paul E. Northen
		Senior Vice President, Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)


	Common Stock						Paid-in-			Accumulated Other Comprehensive			Retained
	Shares			Amount			Capital			Income/ (Loss)			Earnings			Total
Balance at June 30, 2019		327,486		$	327,486		$	82,960		$	(68,508	)	$	410,326		$	752,264
Net Income		—			—			—			—			44,061			44,061
Other comprehensive income, net of tax
Pension Settlement		—			—			—			45,990			—			45,990
Change in derivatives		—			—			—			(118	)		—			(118	)
Foreign currency translation adjustments		—			—			—			(4,110	)		—			(4,110	)
Cash dividends		—			—			—			—			(34,394	)		(34,394	)
Stock compensation		(42	)		(42	)		3,347			—			—			3,305
Employee stock buybacks		(2	)		(2	)		(99	)		—			—			(101	)
Balance at September 30, 2019		327,442		$	327,442		$	86,208		$	(26,746	)	$	419,993		$	806,897

	Common Stock						Paid-in-			Accumulated Other Comprehensive			Retained
	Shares			Amount			Capital			Income/ (Loss)			Earnings			Total
Balance at December 31, 2018		327,308		$	327,308		$	85,386		$	(71,078	)	$	370,292		$	711,908
Impact of adoption of ASC 842		—			—			—			—			212			212
Net Income		—			—			—			—			152,582			152,582
Other comprehensive income, net of tax
Pension Settlement		—			—			—			45,990			—			45,990
Change in derivatives		—			—			—			(375	)		—			(375	)
Foreign currency translation adjustments		—			—			—			(1,283	)		—			(1,283	)
Cash dividends		—			—			—			—			(103,093	)		(103,093	)
Stock compensation		395			395			10,496			—			—			10,891
Employee stock buybacks		(261	)		(261	)		(9,674	)		—			—			(9,935	)
Balance at September 30, 2019		327,442		$	327,442		$	86,208		$	(26,746	)	$	419,993		$	806,897

	Common Stock						Paid-in-			Accumulated Other Comprehensive			Retained
	Shares			Amount			Capital			Income/ (Loss)			Earnings			Total
Balance at June 30, 2020		327,759		$	327,759		$	88,640		$	(29,163	)	$	475,594		$	862,830
Net Income		—			—			—			—			79,579			79,579
Other comprehensive income, net of tax
Foreign currency translation adjustments		—			—			—			5,758			—			5,758
Change in derivatives		—			—			—			252			—			252
Cash dividends		—			—			—			—			(26,214	)		(26,214	)
Stock compensation		(10	)		(10	)		10,521			—			—			10,511
Balance at September 30, 2020		327,749		$	327,749		$	99,161		$	(23,153	)	$	528,959		$	932,716

	Common Stock						Paid-in-			Accumulated Other Comprehensive			Retained
	Shares			Amount			Capital			Income/ (Loss)			Earnings			Total
Balance at December 31, 2019		327,431		$	327,431		$	89,413		$	(21,109	)	$	420,015		$	815,750
Impact of adoption of ASC 326		—			—			—			—			2,484			2,484
Net Income		—			—			—			—			198,205			198,205
Other comprehensive income, net of tax
Foreign currency translation adjustments		—			—			—			(1,732	)		—			(1,732	)
Change in derivatives		—			—			—			(312	)		—			(312	)
Cash dividends		—			—			—			—			(91,745	)		(91,745	)
Stock compensation		539			539			17,612			—			—			18,151
Employee stock buybacks		(221	)		(221	)		(7,864	)		—			—			(8,085	)
Balance at September 30, 2020		327,749		$	327,749		$	99,161		$	(23,153	)	$	528,959		$	932,716


	(in thousands)
	Allowance for Doubtful Accounts
	Trade Receivables			Financed Receivables			Total Receivables
Balance at January 1, 2020	$	16,699		$	2,959		$	19,658
Adoption of ASC 326		(3,330	)		—			(3,330	)
Adjusted balance at January 1, 2020		13,369			2,959			16,328
Provision for expected credit losses		10,843			1,977			12,820
Write-offs charged against the allowance		(11,735	)		(1,800	)		(13,535	)
Recoveries collected		4,154			—			4,154
Currency Conversion		(658	)		—			(658	)
Balance at September 30, 2020	$	15,973		$	3,136		$	19,109


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Interest and service cost	$	26		$	1,762		$	79		$	3,524
Expected return on plan assets		(29	)		(2,640	)		(88	)		(5,280	)
Amortization of net loss		25			878			75			1,756
Pension settlement loss		—			49,898			—			49,898
Net periodic benefit	$	22		$	49,898		$	66		$	49,898

Intangible Asset	Carrying Value		Useful Life in Years
Customer contracts	$	275,366		3-12
Trademarks and tradenames		104,610		N/A-20
Non-compete agreements		4,156		3-20
Internet domains		2,227		N/A
Patents		1,454		3-15
Other assets		2,129		10
Total customer contracts and other intangible assets	$	389,942