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 ~~March 31,~~June 30, 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 ~~492,123,516~~492,079,290 shares of its $1 par value Common Stock outstanding as of ~~April~~July 16, 2021.

ROLLINS, INC. AND SUBSIDIARIES

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF ~~MARCH 31,~~JUNE 30, 2021, AND DECEMBER 31, 2020

(in thousands except share data)

(unaudited)

	June 30,			December 31,
	2021			2020
ASSETS
Cash and cash equivalents	$	128,528		$	98,477
Trade receivables, net of allowance for expected credit losses of $13,863 and $16,854 respectively		142,868			126,337
Financed receivables, short-term, net of allowance for expected credit losses of $1,635 and $1,297 respectively		25,431			23,716
Materials and supplies		29,952			30,843
Other current assets		49,546			35,404
Total current assets		376,325			314,777
Equipment and property, net of accumulated depreciation of $307,352 and $294,226, respectively		134,911			178,052
Goodwill		664,118			653,176
Customer contracts, net		291,976			298,949
Trademarks & tradenames, net		108,517			109,044
Other intangible assets, net		10,158			10,777
Operating lease, right-of-use assets		258,073			212,342
Financed receivables, long-term, net of allowance for expected credit losses of $2,706 and $1,934 respectively		43,837			38,187
Benefit plan assets		1,118			1,198
Deferred income taxes		2,653			2,222
Other assets		30,007			27,176
Total assets	$	1,921,693		$	1,845,900
LIABILITIES
Accounts payable	$	74,815		$	64,596
Accrued insurance		31,015			31,675
Accrued compensation and related liabilities		91,912			91,011
Unearned revenues		151,379			131,253
Operating lease liabilities - current		77,604			73,248
Current portion of long-term debt		18,750			17,188
Other current liabilities		73,269			63,540
Total current liabilities		518,744			472,511
Accrued insurance, less current portion		36,369			36,067
Operating lease liabilities, less current portion		182,804			140,897
Long-term debt		69,250			185,812
Deferred income tax liabilities		9,330			10,612
Long-term accrued liabilities		54,512			58,641
Total liabilities		871,009			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; 800,000,000 shares authorized, 492,079,290 and 491,612,059 shares issued and outstanding, respectively		492,079			491,612
Paid in capital		98,842			101,757
Accumulated other comprehensive loss		(10,890	)		(10,897	)
Retained earnings		470,653			358,888
Total stockholders’ equity		1,050,684			941,360
Total liabilities and stockholders’ equity	$	1,921,693		$	1,845,900

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 SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2021 AND 2020

(in thousands except per share data)

(unaudited)


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2021			2020			2021			2020			2021			2020
REVENUES
Customer services	$	535,554		$	487,901		$	638,204		$	553,329		$	1,173,758		$	1,041,230
COSTS AND EXPENSES
Cost of services provided		261,552			251,152			297,862			255,622			559,414			506,774
Depreciation and amortization		23,596			21,597			23,306			21,925			46,902			43,522
Sales, general and administrative		162,208			157,862			183,482			171,253			345,690			329,115
(Gains)/losses on sale of assets, net		(32,260	)		(275	)
Gain on sale of assets, net								(891	)		(451	)		(33,151	)		(726	)
Interest expense, net		606			2,165			506			1,460			1,112			3,625
INCOME BEFORE INCOME TAXES		119,852			55,400			133,939			103,520			253,791			158,920
PROVISION FOR INCOME TAXES		27,209			12,132			35,085			28,162			62,294			40,294
NET INCOME	$	92,643		$	43,268		$	98,854		$	75,358		$	191,497		$	118,626
NET INCOME PER SHARE - BASIC AND DILUTED	$	0.19		$	0.09		$	0.20		$	0.15		$	0.39		$	0.24
DIVIDENDS PAID PER SHARE	$	0.08		$	0.08		$	0.08		$	0.05		$	0.16		$	0.13
Weighted average shares outstanding - basic and diluted		492,003			491,524			491,999			491,645			491,950			491,585

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 SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2021 AND 2020

(in thousands)

(unaudited)



	Three Months Ending					Six Months Ending
	June 30,					June 30,
	2021			2020		2021			2020
NET INCOME	$	98,854		$	75,358	$	191,497		$	118,626
Other comprehensive earnings / (loss)
Foreign currency translation adjustments		704			9,378		283			(7,490	)
Change in derivatives, net of tax		(439	)		170		(276	)		(564	)
Other comprehensive earnings / (loss)		265			9,548		7			(8,054	)
Comprehensive earnings	$	99,119		$	84,906	$	191,504		$	110,572

(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 SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2021 AND 2020

(in thousands)

(unaudited)

										Accumulated Other
	Common Stock						Paid-in-			Comprehensive			Retained
	Shares			Amount			Capital			Income/ (Loss)			Earnings			Total
Balance at March 31, 2021		492,124		$	492,124		$	95,824		$	(11,155	)	$	412,142		$	988,935
Net Income														98,854			98,854
Other comprehensive income, net of tax:
Foreign currency translation adjustments											704						704
Change in derivatives											(439	)					(439	)
Cash dividends														(40,343	)		(40,343	)
Stock compensation		(18	)		(18	)		3,938									3,920
Employee stock buybacks		(27	)		(27	)		(920	)								(947	)
Balance at June 30, 2021		492,079		$	492,079		$	98,842		$	(10,890	)	$	470,653		$	1,050,684

										Accumulated Other
	Common Stock						Paid-in-			Comprehensive			Retained
	Shares			Amount			Capital			Income/ (Loss)			Earnings			Total
Balance at March 31, 2020		491,651		$	491,651		$	84,865		$	(38,711	)	$	262,566		$	800,371
Net Income														75,358			75,358
Other comprehensive income, net of tax:
Foreign currency translation adjustments											9,378						9,378
Change in derivatives											170						170
Cash dividends														(26,214	)		(26,214	)
Stock compensation		(6	)		(6	)		3,827									3,821
Employee stock buybacks		(2	)		(2	)		(52	)								(54	)
Balance at June 30, 2020		491,643		$	491,643		$	88,640		$	(29,163	)	$	311,710		$	862,830

																												Accumulated Other
	Common Stock						Paid-in-			Accumulated Other Comprehensive			Retained						Common Stock						Paid-in-			Comprehensive			Retained
	Shares			Amount			Capital			Income/(Loss)			Earnings			Total			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
Balance at December 31, 2020																				491,612		$	491,612		$	101,757		$	(10,897	)	$	358,888		$	941,360
Net Income		—			—			—			—			43,268			43,268															191,497			191,497
Other comprehensive income, net of tax
Other comprehensive income, net of tax:
Foreign currency translation adjustments		—			—			—			(16,868	)		—			(16,868	)											283						283
Change in derivatives		—			—			—			(734	)		—			(734	)											(276	)					(276	)
Cash dividends		—			—			—			—			(39,317	)		(39,317	)														(79,732	)		(79,732	)
Stock compensation		833			833			3,264			—			(278	)		3,819			750			750			7,091									7,841
Employee stock buybacks		(328	)		(328	)		(7,812	)		—			109			(8,031	)		(283	)		(283	)		(10,006	)								(10,289	)
Balance at March 31, 2020		491,651		$	491,651		$	84,865		$	(38,711	)	$	262,566		$	800,371
Balance at June 30, 2021																				492,079		$	492,079		$	98,842		$	(10,890	)	$	470,653		$	1,050,684

																												Accumulated Other
	Common Stock						Paid-in-			Accumulated Other Comprehensive			Retained						Common Stock						Paid-in-			Comprehensive			Retained
	Shares			Amount			Capital			Income/(Loss)			Earnings			Total			Shares			Amount			Capital			Income/ (Loss)			Earnings			Total
Balance at December 31, 2020		491,612		$	491,612		$	101,757		$	(10,897	)	$	358,888		$	941,360
Balance at December 31, 2019																				491,146		$	491,146		$	89,413		$	(21,109	)	$	256,300		$	815,750
Impact of adoption of ASC 842																																2,484			2,484
Net Income		—			—			—			—			92,643			92,643															118,626			118,626
Other comprehensive income, net of tax
Other comprehensive income, net of tax:
Foreign currency translation adjustments		—			—			—			(421	)		—			(421	)											(7,490	)					(7,490	)
Change in derivatives		—			—			—			163			—			163												(564	)					(564	)
Cash dividends		—			—			—			—			(39,389	)		(39,389	)														(65,531	)		(65,531	)
Stock compensation		768			768			3,153			—			—			3,921			827			827			7,091						(278	)		7,640
Employee stock buybacks		(256	)		(256	)		(9,086	)		—			—			(9,342	)		(330	)		(330	)		(7,864	)					109			(8,085	)
Balance at March 31, 2021		492,124		$	492,124		$	95,824		$	(11,155	)	$	412,142		$	988,935
Balance at June 30, 2020																				491,643		$	491,643		$	88,640		$	(29,163	)	$	311,710		$	862,830

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 ~~THREE~~SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2021 AND 2020

(in thousands)

(unaudited)


	Three Months Ending						Six Months Ending
	March 31,						June 30,
	2021			2020			2021			2020
OPERATING ACTIVITIES
Net income	$	92,643		$	43,268		$	191,497		$	118,626
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,596			21,597			46,902			43,522
Deferred income tax (benefit)/provision		(2,039	)		2,999
Provision for deferred income taxes								(1,715	)		3,055
Provision for expected credit losses		2,686			2,288			4,673			9,769
Gain on sale of assets, net								(33,151	)		(726	)
Stock based compensation expense		3,921			3,819			7,841			7,640
(Gains)/losses on sale of assets, net		(32,260	)		(275	)
Other, net		(62	)		(340	)		(62	)		(352	)
Changes in operating assets and liabilities		31,001			18,607			3,220			53,238
Net cash provided by operating activities		119,486			91,963			219,205			234,772
INVESTING ACTIVITIES
Cash used for acquisitions of companies, net of cash acquired		(16,978	)		(47,586	)		(28,385	)		(56,030	)
Purchases of equipment and property		(7,826	)		(6,674	)		(13,229	)		(12,441	)
Proceeds from sales of assets								70,414			1,330
Proceeds from sales of franchises		99			267			99			285
Proceeds from sales of assets		65,101			668
Other, net		(253	)		273			(274	)		490
Net cash provided by/(used in) investing activities		40,143			(53,052	)		28,625			(66,366	)
FINANCING ACTIVITIES
Payment of contingent consideration		(4,926	)		(2,040	)		(12,873	)		(7,862	)
Repayment of term loan		(21,000	)		(3,200	)
Repayment on revolving commitment		(70,500	)		(32,500	)
Borrowings on revolving commitment		3,500			64,000
Borrowings under revolving commitment								49,500			68,000
Repayments of term loan								(48,000	)		(7,000	)
Repayments of revolving commitment								(116,500	)		(97,500	)
Payment of dividends								(79,732	)		(65,531	)
Cash paid for common stock purchased		(9,342	)		(8,031	)		(10,289	)		(8,085	)
Dividends paid		(39,389	)		(39,317	)
Net cash (used in) financing activities		(141,657	)		(21,088	)
Net cash used in financing activities								(217,894	)		(117,978	)
Effect of exchange rate changes on cash		873			(19,517	)		115			(9,875	)
Net increase/(decrease) in cash and cash equivalents		18,845			(1,694	)
Net increase in cash and cash equivalents								30,051			40,553
Cash and cash equivalents at beginning of period		98,477			94,276			98,477			94,276
Cash and cash equivalents at end of period	$	117,322		$	92,582		$	128,528		$	134,829
Supplemental disclosure of cash flow information:
Non-cash additions to operating lease right-of-use assets	$	60,389		$	27,894		$	86,954		$	52,273

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~~(including its subsidiaries unless the context otherwise requires, “Rollins,” “we,” “us,” “our,” or the “Company”~~, “we”, “our”~~) for the year ended December 31, 2020. Accordingly, the quarterly condensed consolidated financial statements and related disclosures herein should be read in conjunction with the 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 three months ended 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 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.

Three-for-Two Stock Split

All prior year share and per share data presented have been adjusted to account for the three-for-two stock split effective December 10, 2020.

NOTE 2.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The update provides optional guidance for a limited period of time to ease the potential burden in accounting 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 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 Company adopted ASU 2019-12 effective January 1, 2021, and the adoption did not have a material impact on the Company’s consolidated financial statements.

ROLLINS, INC. AND SUBSIDIARIES

NOTE 3.

~~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 by major geographic area, and by significant product and service offerings

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
United States	$	589,935	$	517,576	$	1,084,035	$	969,922
Other countries		48,269		35,753		89,723		71,308
Total Revenues	$	638,204	$	553,329	$	1,173,758	$	1,041,230

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


	Three Months Ending				Six Months Ending
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Residential revenue	$	292,945	$	257,921	$	528,124	$	462,578
Commercial revenue		210,838		179,900		399,535		363,215
Termite completions, bait monitoring, & renewals		127,674		109,817		233,368		204,044
Franchise revenues		4,111		3,521		7,570		6,938
Other revenues		2,636		2,170		5,161		4,455
Total Revenues	$	638,204	$	553,329	$	1,173,758	$	1,041,230

See Note 8. Unearned Revenue, for disclosures related to our unearned revenue balance.

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 three and six months ended ~~March 31,~~June 30, 2021 and 2020.

ROLLINS, INC. AND SUBSIDIARIES

Schedule of Roll Forward of the ~~Company's~~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 thousands)
		Allowance for Credit Losses
		Trade			Financed			Total
		Receivables			Receivables			Receivables
Beginning Balance	Balance at March 31, 2021	$	15,731		$	3,370		$	19,101
	Provision for expected credit losses		369			1,618			1,987
	Write-offs charged against the allowance		(3,650	)		(645	)		(4,295	)
	Recoveries collected		1,413			(2	)		1,411
Ending Balance	Balance at June 30, 2021	$	13,863		$	4,341		$	18,204

		Allowance for Credit Losses
		Trade			Financed			Total
		Receivables			Receivables			Receivables
Beginning Balance	Balance at December 31, 2020	$	16,854		$	3,231		$	20,085
	Provision for expected credit losses		2,234			2,439			4,673
	Write-offs charged against the allowance		(7,749	)		(1,326	)		(9,075	)
	Recoveries collected		2,524			(3	)		2,521
Ending Balance	Balance at June 30, 2021	$	13,863		$	4,341		$	18,204

		Allowance for Credit Losses
		Trade			Financed			Total
		Receivables			Receivables			Receivables
Beginning Balance	Balance at March 31, 2020	$	11,861		$	3,053		$	14,914
	Provision for expected credit losses		6,927			554			7,481
	Write-offs charged against the allowance		(4,454	)		(593	)		(5,047	)
	Recoveries collected		2,118			—			2,118
Ending Balance	Balance at June 30, 2020	$	16,452		$	3,014		$	19,466

		Allowance for Credit Losses
		Trade			Financed			Total
		Receivables			Receivables			Receivables
Beginning Balance	Balance at December 31, 2019	$	16,699		$	2,959		$	19,658
	Adoption of ASC 326		(3,330	)		—			(3,330	)
	Provision for expected credit losses		8,480			1,288			9,768
	Write-offs charged against the allowance		(8,233	)		(1,233	)		(9,466	)
	Recoveries collected		2,836			—			2,836
Ending Balance	Balance at June 30, 2020	$	16,452		$	3,014		$	19,466

NOTE 5.

EARNINGS PER SHARE

The Company follows ASC 260, Earnings Per Share 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.

ROLLINS, INC. AND SUBSIDIARIES

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

Three Months Ending
March 31,
2021 2020
Basic and diluted earnings per share
Common stock $ 0.19 $ 0.09
Restricted shares of common stock $ 0.19 $ 0.08


	Three Months Ending				Six Months Ending
	June 30,				June 30,
	2021		2020		2021		2020
Basic and diluted earnings per share
Common stock	$	0.20	$	0.15	$	0.39	$	0.24
Restricted shares of common stock	$	0.20	$	0.15	$	0.39	$	0.23

NOTE 6.

~~NOTE 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 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, other short-term 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 March 31,~~During the quarter ending June 30, 2021, the Company invested $10.6 million of unrestricted cash in international bonds, a level 2 asset under the fair value hierarchy. The investment is recorded in other current assets. The fair market values of the bonds approximates their amortized cost.

As of June 30, 2021 and 2020, the Company had ~~$33.0~~$27.1 million and ~~$51.3~~$47.1 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						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(in thousands)	2021			2020			2021			2020			2021			2020
Beginning	$	35,744		$	49,131		$	32,976		$	51,328		$	35,744		$	49,131
New acquisitions and revaluations		2,067			4,489			1,906			1,054			3,973			5,543
Payouts		(4,926	)		(2,040	)		(7,947	)		(5,822	)		(12,873	)		(7,862	)
Interest on outstanding contingencies		279			583			258			565			537			1,148
Charge offset, forfeit and other		(188	)		(835	)		(136	)		(40	)		(324	)		(875	)
Ending balance	$	32,976		$	51,328
Ending Balance							$	27,057		$	47,085		$	27,057		$	47,085

ROLLINS, INC. AND SUBSIDIARIES

NOTE 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 six months ended ~~March 31,~~June 30, 2021 and 2020 were ~~$45.8~~$46.5 million and ~~$42.7~~$43.2 million, respectively and $92.3 million and $85.9 million respectively. Changes in unearned revenue were as follows:

Changes in unearned revenue ~~were as follows:~~

Three Months Ended
March 31,
(in thousands) 2021 2020
Balance at beginning of year $ 149,224 $ 136,507
Deferral of unearned revenue 55,379 49,552
Recognition of unearned revenue (45,837 ) (42,707 )
Balance at end of period $ 158,766 $ 143,352


	Six Months Ended June 30,
(in thousands)	2021			2020
Balance at beginning of year	$	149,224		$	136,507
Deferral of unearned revenue		116,034			105,928
Recognition of unearned revenue		(92,307	)		(85,936	)
Balance at end of period	$	172,951		$	156,499

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

~~At March 31,~~As of June 30, 2021 and December 31, 2020, the Company had long-term unearned revenue of $~~18.4~~21.6 million and $18.0million, 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 yearsor less with immaterial amounts recognized through 2029.

NOTE 9.

~~NOTE 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 ~~March 31,~~June 30, 2021, and December 31, 2020, all leases were classified as operating leases. Building leases generally carry terms of 5 to 15 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~~six months ended ~~March 31,~~June 30, 2021, the Company completed amultiple sale-leaseback ~~transaction~~transactions where it sold 1617 of its properties related to the Clark Pest Control acquisition for gross proceeds of ~~$62.1~~$67.0 million and a gain of ~~$31.1~~$31.5 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.

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

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

Schedule of Lease Classification

(in thousands, except Other Information)
		Three Months Ended June 30,				Six Months Ended June 30,

Lease Classification	Financial Statement Classification	2021		2020		2021		2020
Short-term lease cost	Cost of services provided, Sales, general, and administrative expenses	$	60	$	57	$	125	$	133
Operating lease cost	Cost of services provided, Sales, general, and administrative expenses		22,634		21,307		46,025		42,024
Total lease expense		$	22,694	$	21,364	$	46,150	$	42,157

Other Information
Weighted-average remaining lease term – operating leases							5.59 years		3.78 years
Weighted-average discount rate – operating leases							3.75%		3.93%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases						$	45,498	$	41,599

ROLLINS, INC. AND SUBSIDIARIES

Lease Commitments

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

Schedule of Future minimum lease payments

(in thousands) Operating
Leases
2021 (excluding the three months ended March 31, 2021) $ 64,099
2022 70,231
2023 50,144
2024 27,083
2025 14,908
2026 10,803
Thereafter 48,844
Total Future Minimum Lease Payments 286,112
Less: Amount representing interest 31,782
Total future minimum lease payments, net of interest $ 254,330

(in thousands)
2021 (excluding the six months ended June 30, 2021)	$	44,958
2022		76,537
2023		56,663
2024		33,021
2025		18,425
2026		12,612
Thereafter		51,645
Total Future Minimum Lease Payments		293,861
Less: Amount representing interest		(33,453	)
Total future minimum lease payments, net of interest	$	260,408

Future commitments presented in the table above 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 $~~156.8~~163.1million for building leases and $~~129.3~~130.7million for vehicle leases. As of ~~March 31,~~June 30, 2021, the Company had additional future obligations of ~~$9.0~~$6.8 million for leases that had not yet commenced.

~~ROLLINS, INC. AND SUBSIDIARIES~~

NOTE 10.

GOODWILL AND INTANGIBLE ASSETS

The cumulative carrying amount of goodwill was ~~$659.8~~$664.1 million and $653.2 million ~~at March 31,~~as of June 30, 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. During the six months ended June 30, 2021, goodwill increased $11.7 million due to acquisitions and decreased $0.8 million due to foreign currency translation. The carrying amount of goodwill in foreign countries was ~~$81.3~~$81.1 million ~~at March 31,~~as of June 30, 2021 and $81.4 million atas of 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~~six months ended ~~March 31,~~June 30, 2021.

The carrying amount of customer contracts was $~~297.3~~292.0 million and $298.9million ~~at March 31,~~as of June 30, 2021, and December 31, 2020, respectively. The carrying amount of trademarks and tradenames was $~~108.8~~108.5 million and $109.0million ~~at March 31,~~as of June 30, 2021 and December 31, 2020, respectively. The carrying amount of other intangible assets was $10.2million and $10.8million ~~at March 31,~~as of June 30, 2021 and December 31, 2020, respectively. The carrying amount of customer contracts in foreign countries was $~~44.6~~43.1 million and $45.7million ~~at March 31,~~as of June 30, 2021 and December 31, 2020, respectively. The carrying amount of trademarks and tradenames in foreign countries was $~~3.2~~3.1 million and $3.3million ~~at March 31,~~as of June 30, 2021 and December 31, 2020, respectively. The carrying amount of other intangible assets in foreign countries was $0.9million and $1.0million ~~at March 31,~~as of June 30, 2021 and December 31, 2020, 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 indefinite-lived and amortizable intangible assetsas of ~~March 31,~~June 30, 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

Schedule of Components of Indefinite-lived and Amortizable Intangible Assets

	Carrying Value		Useful Life in Years
Amortizable intangible assets:
Customer contracts	$	291,976	3-20
Trademarks and tradenames		14,313	7-20
Non-compete agreements		4,483	3-20
Patents		1,443	3-15
Other assets		587	10
Total amortizable intangible assets		312,802
Indefinite-lived intangible assets:
Trademarks and tradenames		94,204
Internet domains		2,227
Other assets		1,418
Total indefinite-lived intangible assets		97,849
Total customer contracts and other intangible assets	$	410,651

NOTE 11.

~~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.) and Bank of America, N.A. (the “Credit Agreement”) for an unsecured revolving commitment of up to $175.0million, which includes a $75.0million letter of credit subfacility and a $25.0million swingline subfacility (the “Revolving Commitment”), and an unsecured variable rate $250.0million term loan with 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 ~~March 31,~~June 30, 2021, the Term Loan had outstanding borrowings of $~~115.0~~88.0 million and there were no borrowings under the Revolving Commitment. The effective interest rate on the debt outstanding as of ~~March 31,~~June 30, 2021 was ~~1.08%~~0.854%. The effective interest rate is comprised of the 1-month LIBOR plus a margin of 75.0 basis points as determined by ~~our~~the Company’s leverage ratio calculation. As of December 31, 2020, the Revolving Commitment had outstanding borrowings of $67.0million and the Term Loan had outstanding borrowings of $136.0million. 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 2021.

~~ROLLINS, INC. AND SUBSIDIARIES~~

NOTE 12.

~~NOTE 12.~~

~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY

During the ~~three~~six months ended ~~March 31,~~June 30, 2021, the Company paid ~~$39.4~~$79.7 million, or $~~0.08~~0.16 per share, in cash dividends compared to ~~$39.3~~$65.5 million, or $~~0.08~~0.13 per share, during the same period in 2020.

During the ~~first~~second quarter ended ~~March 31,~~June 30, 2021 and during the same period in 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 $~~9.3~~0.1 ~~million and $8.0~~ million for the quarters ended ~~March 31,~~June 30, 2021 and 2020, and $10.3 million and $8.1 million during the six-month period ended June 30, 2021 and 2020 respectively.

As more fully discussed in Note 17 of the Company’s notes to the consolidated financial statements in its 2020 Annual Report on Form 10-K, time-lapse restricted ~~shares~~awards and restricted stock units (“restricted shares”) 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 March 31,~~As of June 30, 2021, approximately 6.6 million shares of the Company’s common stock were reserved for issuance.

ROLLINS, INC. AND SUBSIDIARIES

Time Lapse Restricted Shares

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


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(in thousands)	2021			2020			2021			2020			2021			2020
Time lapse restricted stock:
Pre-tax compensation expense	$	3,921		$	3,819		$	3,920		$	3,821		$	7,841		$	7,640
Tax benefit		(886	)		(837	)		(1,039	)		(1,100	)		(1,925	)		(1,937	)
Restricted stock expense, net of tax	$	3,035		$	2,982		$	2,881		$	2,721		$	5,916		$	5,703

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

(number of shares in thousands)	Number of Shares			Average Grant- Date Fair Value		Number of Shares			Average Grant- Date Fair Value
Unvested Restricted Stock at December 31, 2020		2,870		$	20.36		2,870		$	20.36
Forfeited		(10	)		22.44		(34	)		22.62
Vested		(774	)		16.16		(826	)		16.22
Granted		778			37.04		778			37.04
Unvested Restricted Stock at March 31, 2021		2,864		$	26.02
Unvested Restricted Stock at June 30, 2021							2,788		$	26.14

~~At March 31,~~As of June 30, 2021 and December 31, 2020, the Company had $~~65.2~~60.9 million and $40.5million of total unrecognized compensation cost, respectively, related to time-lapse restricted shares that are expected to be recognized over a weighted average period of approximately 4.3 years and ~~4.5~~3.8 years,. respectively.

NOTE 13.

PENSION PLAN

In September 2019, the Company settled its fully-funded Rollins, Inc. pension plan. As of ~~March 31,~~June 30, 2021, ~~$1.2~~$1.1 million of Rollins, Inc. pension assets remained in the trust with a planned reversion of the remaining pension assets to the Company per ERISA regulations before year end. The Company anticipates tax of approximately 45% of the pension plan assets to be paid upon reversion, which includes the 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,~~June 30, 2021. The Company has not made contributions to its defined benefit retirement plans since 2019.

ROLLINS, INC. AND SUBSIDIARIES

NOTE 14.

BUSINESS COMBINATIONS

The Company made 918 acquisitions during the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021, and 31 acquisitions for the year ended December 31, ~~2020, some of which have been disclosed in various press releases and related Current Reports on Form 8-K.~~2020. For the ~~nine~~18 acquisitions completed ~~so far in~~through June 30, 2021, the preliminary values of major classes of assets acquired and liabilities assumed recorded at the ~~date~~dates 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.

	March 31, 2021			June 30, 2021
Accounts receivable, net	$	354		$	504
Materials & supplies		80
Materials and supplies					128
Equipment and property		867			1,613
Goodwill		6,996			11,732
Customer contracts		10,618			17,994
Other intangible assets		38			291
Current liabilities		(54	)		(142	)
Other assets and liabilities, net		146			163
Total purchase price		19,045
Total consideration paid				$	32,283
Less: Contingent consideration liability		(2,067	)		(3,898	)
Total cash purchase price	$	16,978		$	28,385

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 ~~March 31,~~June 30, 2021, ~~$7.0~~$11.7 million of goodwill was added related to the ~~nine~~18 acquisitions noted above. The recognized goodwill is expected to be deductible for tax purposes.

NOTE 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 Credit 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 notional amounts as of June 30, 2021 and December 31, 2020 were $20.0 million and $40.0 million, respectively. The cash flows from the swap began June 30, 2019 and ~~ends~~end on December 31, 2021. As of December 31, 2020, $0.4 million had been recorded as a loss in Accumulated Other Comprehensive Income (“AOCI”). For the ~~three~~six months ended ~~March 31,~~June 30, 2021, a gain of ~~$0.2~~$0.3 million was recorded in AOCI, compared to a loss of ~~$0.7~~$0.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 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 ~~first three~~quarter and six months ended ~~March 31,~~June 30, 2021, the Company reclassified ~~nil~~ into interest expense ~~and credited~~ $0.1 million ~~as interest income during the three months ended March 31, 2020.~~and $0.3 million, respectively. The fair value of the Company’s interest rate swaps was recorded as ~~$0.2~~$0.1 million in Other Current Liabilities ~~at March 31,~~as of June 30, 2021. The fair value of the Company’s interest rate swaps was recorded as $0.2 million in Long-Term Liabilities atas of December 31, 2020. On a quarterly basis, management evaluates ~~any~~our 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.

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 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 gain of $0.2 million and a net loss of $0.3 million for the quarters ended June 30, 2021 and a2020, respectively, and net ~~gain~~gains of ~~$1.1~~$0.4 million and $0.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, respectively. The fair values of the Company’s FX Forwards were recorded as net obligations of ~~$0.4~~$0.2 million and $0.4 million in Other Current Liabilities ~~at March 31,~~as of June 30, 2021 and December 31, 2020, respectively.

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

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


Non-Designated Derivative Summary
	Number of
FX Forward Contracts	Instruments		Sell Notional		Buy Notional
Sell AUD/Buy USD Fwd Contract		7	$	700	$	522
Sell CAD/Buy USD Fwd Contract		7	$	8,000	$	6,217
Total		14			$	6,739

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

NOTE 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 ~~April~~July 27, 2021, the ~~Company announced that the~~Company’s Board of Directors declared a regular quarterly cash dividend on its common stock of $0.08 per share payable on ~~June~~September 10, 2021 to stockholders of record at the close of business ~~May~~on August 10, 2021.

ROLLINS, INC. AND SUBSIDIARIES

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this quarterly report on Form 10-Q.

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~KEY PERSONNEL CHANGES:

On ~~April 28,~~July 27, 2021, the Company’s Board of Directors appointed Julie Bimmerman to serve as the Company’s Interim Chief Financial Officer and Treasurer to assume the duties of principal financial officer and principal accounting officer. The Company’s current Chief Financial Officer and Treasurer, Paul E. Northern, transferred into an operational role as Senior Vice President focused on sustainability, also effective July 27, 2021.

COVID-19:

The global spread and unprecedented impact of the COVID-19 pandemic (“COVID-19”) continues to create significant volatility, uncertainty and economic disruption around the world. In 2020, the pest control industry was designated as “essential” by the Department of Homeland Security and as a result, the Company has been able to remain operational in every part of the world in which it operates. With the recent availability of vaccinations, many COVID-19 restrictions have been lifted; however, the discovery and increased spread of new COVID-19 variants may result in additional restrictions being imposed. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take actions that may alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and customers. We do not know when, or if, it will become practical to relax or eliminate some or all these measures entirely as there is no guarantee that COVID-19 will be fully contained.

The Company’s consolidated financial statements reflect estimates and assumptions made by management that affect the reported ~~first quarter revenues~~amounts of ~~$535.6 million, an increase~~assets and liabilities and related disclosures as of ~~9.8% over~~ the ~~prior year’s first quarter revenue~~date of ~~$487.9 million. Rollins’ net income increased 114.1% to $92.6 million, or $0.19 per diluted share~~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 ~~first~~ quarter ~~ended March 31, 2021, compared with $43.3 million, or $0.09 per diluted share~~have been made. These adjustments are of a normal recurring nature but complicated by the uncertainty surrounding the global economic impact of COVID-19. The results of operations for the ~~same period~~six months ended June 30, 2021 are not necessarily indicative of results for the entire year. The severity, magnitude and duration, as well as the economic consequences of COVID-19, are uncertain, rapidly changing and difficult to predict. Therefore, our accounting estimates and assumptions may change over time in ~~2020.~~response to COVID-19 and may change materially in future periods.

Results of Operations:

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

Revenue

Revenues for the ~~first~~second quarter ended ~~March 31,~~June 30, 2021 increased ~~$47.7~~$84.9 million, or ~~9.8%~~15.3%, to ~~$535.6~~$638.2 million compared to ~~$487.9~~$553.3 million for the ~~first~~second quarter ended ~~March 31,~~June 30, 2020. Approximately ~~1.9~~1.7 percentage points of the ~~9.8%~~15.3% increase in revenues came from acquisitions, while growth in customers and pricing made up the remaining ~~7.9~~13.6 percentage points.

The Company has three primary service offerings: ~~commercial~~residential pest control, ~~residential~~commercial pest control, and termite, including ancillary services. During the ~~first~~second quarter ended ~~March 31,~~June 30, 2021, residential pest control approximated 46% of the Company’s revenues, commercial pest control revenue approximated ~~35% of the Company’s revenues, residential pest control approximated 44%~~33% of the Company’s revenues, and termite and ancillary service revenue approximated ~~20%~~21% of the Company’s revenues.

Comparing the ~~first~~second quarter of 2021 to the ~~first~~second quarter of 2020, the Company’s commercial pest control revenue increased ~~2.9%. The Company believes~~17.2% partially due to the ~~launch~~lifting of ~~its VitalClean sanitation services helped some of its commercial customers reopen and protect their employees and customers.~~many COVID restrictions. Demand for our residential pest control service offerings also continues to 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 ~~first~~second quarter of 2021 to the ~~first~~second quarter of 2020, residential pest control revenue grew ~~14.9%~~13.6%. Termite and ancillary services revenue grew ~~12.2%~~16.3%. Foreign operations accounted for approximately 8% and 7%6% of total revenues during the ~~first~~second quarters of 2021 and 2020, 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)	2021		2020		2019
First Quarter	$	535,554	$	487,901	$	429,069
Second Quarter		638,204		553,329		523,957
Third Quarter		—		583,698		556,466
Fourth Quarter		—		536,292		505,985
Year to date	$	1,173,758	$	2,161,220	$	2,015,477

Revenues are also impacted by the Company’s acquisitions. For the ~~first~~second quarters of 2021, 2020, and 2019, acquisitions increased revenues by ~~$9.3~~approximately $9.5 million, ~~$37.0~~$16.5 million, and ~~$4.5~~$26.2 million, respectively.

Cost of Services Provided

Cost of services provided for the ~~first~~second quarter ended ~~March 31,~~June 30, 2021 increased ~~$10.4~~$42.3 million, or ~~4.1%~~16.5%, to ~~$261.6~~$297.9 million, compared to ~~$251.2~~$255.6 million for the ~~first~~second quarter of the prior year. Gross margin for the ~~first~~second quarter of 2021 was ~~51.2%~~53.3%, ~~up 2.7~~down 0.5 percentage points from ~~48.5%~~53.8% for the ~~first~~second quarter of 2020. During the quarter, the Company’s slight margin ~~improvement~~decline was driven by expense ~~reductions~~growth in the following areas:

·●

~~Service salary and benefit savings~~Increased travel costs due to the lifting of COVID-19 restrictions;

●

Increased service salaries as a percentage of ~~revenues;~~revenues as prior year COVID-19-related government assistance was not received in the current year;

●

Increased materials cost due to the write-down of unused personal protection equipment; and

·●

~~Improved routing and scheduling efficiencies, which reduced~~Increased fleet ~~expenses.~~expenses due to increased fuel costs.

Depreciation and Amortization

Depreciation and amortization expense for the ~~first~~second quarter ended ~~March 31,~~June 30, 2021 increased ~~$2.0~~$1.4 million to ~~$23.6~~$23.3 million, an increase of ~~9.3%~~6.4% from the same period in the prior year. Depreciation increased ~~$0.9~~$0.1 million due to acquisitions and equipment purchases, while amortization of intangible assets increased ~~$1.1~~$1.3 million due to the amortization of customer contracts from several acquisitions.

Sales, General and Administrative

Sales, general and administrative expenses for the ~~first~~second quarter ended ~~March 31,~~June 30, 2021 decreased to ~~30.3%~~28.8% of revenues, increasing ~~$4.3~~$12.2 million, or ~~2.8%~~7.1%, to ~~$162.2~~$183.5 million, compared to ~~$157.9~~$171.3 million or ~~32.4%~~30.9% of revenues for the ~~first~~second quarter ended ~~March 31,~~June 30, 2020. The following factors contributed to the control of Company spending:

·●

Reduced provision for expected credit losses as outlook improved from second quarter 2020;

●

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

·●

~~Elimination of other non-essential spending reduced meeting, travel and office supply expense.~~Reduced telephone expenses due to improved contract terms.

Interest Expense, Net

Net interest expense for the ~~first~~second quarter ended ~~March 31,~~June 30, 2021 was ~~$0.6~~$0.5 million compared to ~~$2.2~~$1.5 million for the same period last year. The change was driven primarily by the lower average debt balance in 2021 compared to the same quarter in 2020.

ROLLINS, INC. AND SUBSIDIARIES

Income Taxes

The effective tax rate was ~~22.7%~~26.2% for the ~~first~~second quarter ended ~~March 31,~~June 30, 2021 compared to ~~21.9%~~27.2% for the ~~first~~second quarter ended ~~March 31,~~June 30, 2020. The rate is ~~higher~~lower in the current year due to the decrease in the amount of foreign withholding tax relative to an increase in pretax income.

SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020

Revenue

Revenues for the six months ended June 30, 2021 increased $132.5 million or 12.7% to $1.174 billion compared to $1.041 billion for the six months ended June 30, 2020. Approximately 1.8 percentage points of the 12.7% increase in revenues came from acquisitions, while growth in customers and pricing made up the remaining 10.9 percentage points.

During the six months ended June 30, 2021, residential pest control approximated 45% of the Company’s ~~restricted stock vestings~~revenues, commercial pest control revenue approximated 34% of the Company’s revenues, and termite and ancillary service revenue approximated 21% of the ~~disallowance~~Company’s revenues. Comparing the first six months of ~~tax deductions~~2021 to the first six months of 2020, the Company’s commercial pest control revenue increased 10.0%, residential pest control revenue grew 14.2%, and termite and ancillary services revenue grew 14.4%. Foreign operations accounted for ~~a portion~~approximately 8% and 7% of ~~executive compensation.~~total revenues during the first six months of 2021 and 2020, respectively.

Cost of Services Provided

Cost of Services provided for the six months ended June 30, 2021 increased $52.6 million, or 10.4%, to $559.4 million, compared to $506.8 million for the six months ended June 30, 2020. Gross Margin for the first six months of 2021 was 52.3%, up 1.0 percentage point from 51.3% for the first six months of 2020. Margin improvement was driven by the following:

●

Reduced COVID-19 related personnel expense related to sick leave and benefit extension during furloughs; and

●

Service management salary and benefit savings.

Depreciation and Amortization

Depreciation and amortization expense for the six months ended June 30, 2021 increased $3.4 million to $46.9 million, an increase of 7.8% from the same period in the prior year. Depreciation increased $1.0 million due to acquisitions and equipment purchases while amortization of intangible assets increased $2.4 million due to the amortization of customer contracts from several acquisitions.

Sales, General and Administrative

Sales, General and Administrative Expenses for the six months ended June 30, 2021 decreased to 29.5% of revenues, increasing $16.6 million, or 5.0%, to $345.7 million, compared to $329.1 million or 31.6% of revenues for the six months ended June 30, 2020. The following factors contributed to the control of Company spending:

●

Administrative salary and benefit savings;

●

Reduced telephone expenses due to improved contract terms; and

●

Lower provision for expected credit losses with pandemic outlook improving.

ROLLINS, INC. AND SUBSIDIARIES

Gain on sale of assets, net

During the six months ended June 30, 2021, the Company recognized a gain of $33.2 million compared to $0.7 million in the prior year. The current year gain is primarily related to multiple sale-leaseback transactions where the Company sold 17 of its Clark Pest Control acquisition properties.

Interest Expense, Net

Net interest expense for the first six months ended June 30, 2021 was $1.1 million compared to $3.6 million for the same period last year. The decrease was primarily driven by the lower average debt balance in 2021 compared to the same period in 2020.

Income Taxes

The effective tax rate was 24.5% for the six months ended June 30, 2021 compared to 25.4% for the six months ended June 30, 2020. The rate is lower in the current year due to the decrease in the amount of foreign withholding tax relative to an increase in pretax income.

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 ~~$119.5~~$219.2 million and ~~$92.0~~$234.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, respectively.

The Company invested approximately ~~$7.8~~$13.2 million in capital expenditures, exclusive of expenditures for business acquisitions, during the ~~three~~six months ended on ~~March 31,~~June 30, 2021, compared to ~~$6.7~~$12.4 million during the same period in 2020. ~~Non-essential capital expenditures for 2021 have been cancelled in response to the pandemic crisis.~~ Capital expenditures for the ~~three~~six months ended on ~~March 31,~~June 30, 2021 consisted primarily of the purchase of operating equipment replacements and technology-related projects. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, the Company made expenditures for acquisitions totaling ~~$17.0~~$28.4 million, compared to ~~$47.6~~$56.0 million during the same period in 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 ~~$39.4~~$79.7 million was paid in cash dividends ~~($0.08~~(an aggregate $0.16 per share) during the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021, compared to ~~$39.3~~$65.5 million paid in cash dividends ~~($0.08~~(an aggregate of $0.133 per share) during the same period in 2020.

On ~~April~~July 27, 2021, the Company announced that the Board of Directors declared a regular quarterly cash dividend on its common stock of $0.08 per share payable ~~June~~September 10, 2021 to stockholders of record at the close of business ~~May~~August 10, 2021, to be funded with existing cash ~~balances.~~balances and available facilities. 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 ~~three~~six months of 2021 or during the same period in 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 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, 11.4 million additional shares may be purchased under the share repurchase program. The Company repurchased ~~$9.3~~$10.3 million and ~~$8.0~~$8.1 million of common stock for the first ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, 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 ~~March 31,~~June 30, 2021 and December 31, 2020 includes short-term unearned revenues of ~~$140.4~~$151.4 million and $131.3 million, respectively, representing approximately 7% and 6% of its annual revenue as of each respective 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 ~~$117.3~~$128.5 million ~~at March 31,~~as of June 30, 2021 is held at various banking institutions. Approximately ~~$71.3~~$73.6 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.

ROLLINS, INC. AND SUBSIDIARIES

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.

~~ROLLINS, INC. AND SUBSIDIARIES~~

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.~~earnings per share (the “Investigation”). The ~~investigation~~Investigation relates to period-ends for periods beginning January 1, 2015. The Company is continuing to fully ~~cooperating~~cooperate with the SEC’s ~~investigation. The~~investigation, including providing supplemental information and current and former employees for interviews and testimony. However, as previously reported, the Company cannot predict the outcome of this ~~investigation.~~Investigation. The Company’s Audit Committee retained independent counsel to conduct an initial 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~~This internal investigation, which was originally concluded in October ~~2020.~~2020, is now being supplemented as a result of new developments in connection with the Investigation. See the Company’s Current Report on Form 8-K furnished to the SEC on July 28, 2021 for more information.

As previously reported in the Company’s 2020 Form 10-K, in connection with the Investigation, the Company has reevaluated and strengthened its internal controls over financial reporting, including improving processes and procedures and supporting documentation, including those related to management’s judgments and estimates. The Company, ~~after~~based on the preliminary findings of the supplemental internal investigation to date, and consultation with the Company’s Audit Committee and ~~the~~ independent counsel, ~~believes~~continues to believe 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. More information about the Investigation is included in the Current Report on Form 8-K furnished to the SEC on July 28, 2021, as noted above. Also see Part I, Item 1.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 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.

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, 2020.

~~ROLLINS, INC. AND SUBSIDIARIES~~Caution Regarding Forward-Looking Statements

~~Forward-Looking Statements~~

This ~~quarterly report~~Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the ~~Private Securities Litigation Reform Act~~federal securities laws that involve risks and uncertainties concerning the business and financial results of ~~1995. Such~~Rollins, Inc. We have based these forward-looking statements ~~include, without limitation,~~largely on our current opinions, expectations, beliefs, plans, objectives, assumptions and projections about future events and financial trends affecting 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 belief that the launch of its VitalClean sanitation services helped some of its commercial customers reopen and protect their employees and customers; 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,operating 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 Company’s expectation that the adoption of ASU 2020-04 will not have a material impact on the Company’s consolidated Financial Statements; the Company’s statement that it evaluates pending and threatened claims and establishes loss contingency reserves based upon outcomes it currently believes to 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 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~~our business. Forward-looking statements should not be read as a guarantee of future performance or results, 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 iswill not ~~a part~~necessarily be accurate indications of the Company’s current business plan; the Company’s plan to fund any remaining 2021 benefit plan obligations with reversion of any remaining pension assets to the Company in compliance with ERISA regulations during 2021; the Company’s expectation that total unrecognized compensation cost related to time-lapse restricted sharestimes at, or by, which such performance or results will be ~~recognized over a weighted average period of approximately 4.5 years;~~achieved. Forward-looking statements are based on information available at 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 2021; the Company’stime those statements are made and/or management’s good faith 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 inability to predict the outcome of 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~~that time with respect to future events, 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~~subject to 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 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; risks related to legal, regulatory and risk management matters including 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 performance or results to differ materially from those ~~indicated~~expressed in or suggested by the forward-looking statements. ~~A more detailed discussion~~In addition to those factors discussed under Item 1A., “Risk Factors,” of ~~potential risks facing the Company can be found in~~Part I of the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”), for the year ended December 31, ~~2020.~~2020 (the “2020 Annual Report”), the reader should consider the following list of general factors that, among others, could cause the Company’s actual results and financial condition to differ materially from estimated results and financial condition:

ROLLINS, INC. AND SUBSIDIARIES

●

the Company’s belief that its accounting estimates and assumptions, financial condition and results of operations may change materially in future periods in response to the COVID-19 pandemic;

●

the outcomes of any pending claim, proceeding, litigation, regulatory action or investigation filed against us, which could have a material adverse effect on our business, financial condition and results of operations;

●

the Company’s evaluation of pending and threatened claims and establishment of loss contingency reserves based upon outcomes it currently believes to be probable and reasonably estimable;

●

the Company’s reasonable certainty that it will exercise the renewal options on its operating leases;

●

risks related to 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 ability to remain in compliance with applicable debt covenants under the Credit Facility 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;

●

risks related to the Company’s ability to continue to grow its 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 ability to fund any remaining 2021 benefit plan obligations with reversion of any remaining pension assets to the Company in compliance with ERISA regulations 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 4.3 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 ($20.0 million as of June 30, 2021) in order to hedge a portion of the Company’s floating rate indebtedness under the Credit Facility remains effective;

●

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, and the Company’s inability to predict the outcome of 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 under SEC investigation 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;

●

actions taken by our franchisees, subcontractors or vendors that may harm our business;

●

exposure of certain market risks in the ordinary course of our business, including fluctuation in interest rates and foreign currency exchange fluctuations;

●

risks related to changes in industry practices or technologies;

ROLLINS, INC. AND SUBSIDIARIES

●

significant disruption in, or breach in security of our information technology systems or one of our third-party IT providers, and resultant interruptions in service or the loss of functionality of critical systems through ransomware and any related impact on our reputation;

●

risks related to the level 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;

●

risks related to legal, regulatory and risk management matters including 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.

ROLLINS, INC. AND SUBSIDIARIES

~~ITEM 3.~~
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of ~~March 31,~~June 30, 2021, the Company maintained an investment portfolio ~~(included~~included in cash and cash ~~equivalents)~~equivalents subject to short-term interest rate risk ~~exposure.~~exposure; and other short-term investments included in other current assets. 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 1516 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.

~~ITEM 4.~~
ITEM 4. CONTROLS AND PROCEDURES

~~Under~~Establishment of a Disclosure Committee and Evaluation of Disclosure Controls and Procedures

The Company has established a Disclosure Committee, consisting of certain members of management to assist our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) in preparing the ~~supervision~~disclosures required under the SEC rules and to help ensure that the Company’s disclosure controls and procedures are properly implemented. The Disclosure Committee will meet on a quarterly basis and otherwise as may be necessary.

The Disclosure Committee, 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 ~~March 31,~~June 30, 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~~

Changes in Internal Controls Over Financial Reporting

Management’s quarterly evaluation identified no changes in our internal control over financial reporting during the ~~first~~second 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.

Legal Proceedings

As previously reported in the Company’s 2020 Form 10-K, in connection with the Investigation, the Company has reevaluated and strengthened its internal controls over financial reporting, including improving processes and procedures and supporting documentation, including those related to management’s judgments and estimates. The Company, ~~after~~based on the preliminary findings of the supplemental internal investigation to date, and consultation with the Company’s Audit Committee and ~~the~~ independent counsel, ~~believes~~continues to believe 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. ~~See~~More information about the Investigation is included in the Current Report on Form 8-K furnished to the SEC on July 28, 2021, as noted above. Also see Part I, Item 1.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 related Risk Factors.

Item 1A.

Risk Factors

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

ROLLINS, INC. AND SUBSIDIARIES

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Shares repurchased by Rollins and affiliated purchasers during the ~~first~~second quarter ended ~~March 31,~~June 30, 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
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

					Total number of shares		Maximum number of
	Total number		Weighted-		purchased as part of		shares that may yet
	of shares		Average price		publicly announced		be purchased under
Period	purchased (1)		paid per share		repurchases (2)		repurchase plan
April 1 to 30, 2021		24,860	$	35.69		—		11,415,625
May 1 to 31, 2021		—		—		—		11,415,625
June 1 to 30, 2021		1,746		34.46		—		11,415,625
Total		26,606	$	35.61		—		11,415,625

(1)

Includes repurchases from employees for the payment of taxes on vesting of restricted shares in the following amounts: ~~January~~April 2021: ~~245,421; February~~24,860; May 2021: ~~4,036;~~0; and ~~March~~June 2021: ~~6,455.~~1,746.

(2)

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

ROLLINS, INC. AND SUBSIDIARIES

Item 5.6.

~~Exhibits.~~

Exhibits


(a)	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.

		(H) Certificate of Amendment of Certificate of Incorporation of Rollins, Inc. dated April 27, 2021*.

	(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 ~~February 1,~~May 24, 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 Interim 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 Interim 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)

Filed with this report

Furnished with this report

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

Date: ~~April~~July 30, 2021	By:	/s/ ~~Paul E. Northen~~	Julie K. Bimmerman
			~~Paul E. Northen~~	Julie K. Bimmerman
			~~Senior Vice President,~~Interim Chief Financial Officer and Treasurer
			(Principal Financial and Accounting Officer)


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

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

(in thousands)	Operating Leases
2021 (excluding the three months ended March 31, 2021)	$	64,099
2022		70,231
2023		50,144
2024		27,083
2025		14,908
2026		10,803
Thereafter		48,844
Total Future Minimum Lease Payments		286,112
Less: Amount representing interest		31,782
Total future minimum lease payments, net of interest	$	254,330

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


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