Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Presentation

This discussion should be read in conjunction with our audited financial statements and related notes included elsewhere in this document. Discussions of 2017 items and year-to-year comparisons of 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual report on Form 10-K for the year ended December 31, 2018. The following discussion (as well as other discussions in this document) contains forward-looking statements. Please see “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of uncertainties, risks and assumptions associated with these statements.

The Company

Rollins, Inc. (the “Company”), was originally incorporated in 1948, under the laws of the state of Delaware as Rollins Broadcasting, Inc. The Company is an international service company with headquarters located in Atlanta, Georgia, providing pest and termite control services through its wholly-owned subsidiaries to both residential and commercial customers in the United States, Canada, Australia, Europe, and Asia with international franchises in Mexico, Canada, Central and South America, the Caribbean, the Middle East, Asia, Europe, and Africa. Services are performed through a contract that specifies the treatment and the pricing arrangement with the customer.

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

Overview

RESULTS OF OPERATIONS

		(in thousands)												% Better/(worse) compared to prior year
Years ended December 31,		2019				2018				2017				2019				2018
Revenues		$	2,015,477			$	1,821,565			$	1,673,957				10.6				8.8
Cost of services provided			993,593				894,437				819,943				(11.1	)			(9.1	)
Depreciation and amortization			81,111				66,792				56,580				(21.4	)			(18.0	)
Pension settlement loss			49,898				—				—				N/M				N/M
Sales, general and administrative			623,379				550,698				503,433				(13.2	)			(9.4	)
Gain on sales of assets, net			(581	)			(875	)			(242	)			(33.6	)			261.6
Interest expense/(income), net			6,917				(220	)			(259	)			N/M				(15.1	)
Income before income taxes			261,160				310,733				294,502				(16.0	)			5.5
Provision for income taxes			57,813				79,070				115,378				26.9				31.5
Net income		$	203,347			$	231,663			$	179,124				(12.2	)			29.3

General Operating Comments

2019 marked the Company’s 22nd consecutive year of improved revenues. Revenues for the year rose 10.6 percent to $2.015 billion compared to $1.822 billion for the prior year. Income before income taxes decreased 16.0% to $261.2 million compared to $310.7 million the prior year. Net income decreased 12.2% to $203.3 million, with earnings per diluted share of $0.62 compared to $231.7 million, or $0.71 per diluted share for the prior year.

All of the Company’s business lines experienced growth for the year, with residential pest control revenues up 11.3%, commercial pest control revenues up 8.9% and termite and ancillary services revenues up 11.6%, each compared to 2018.

Results of Operations—2019 Versus 2018

Overview

The Company’s revenues increased to $2.015 billion in 2019, a 10.6% increase compared to 2018. Gross margin decreased to 50.7% for 2019 from 50.9% in 2018. Service salaries and personnel related expenses for the 401(k) match were impacted by the Clark Pest Control acquisition. Sales, general and administrative expense were 30.9% of revenues in 2019 compared to 30.2% in 2018. The Company’s depreciation and amortization expense increased 21.4% to 4.0% in 2019 compared to 3.7% in 2018. Rollins’ net income of $203.3 million in 2019 was a decrease of $28.3 million or 12.2% compared to $231.7 million in 2018. Net profit margin declined to 10.1% in 2019 from 12.7% in 2018. Rollins continued to expand our global brand recognition with acquisitions in the United States and Canada as well as expanded our Orkin international franchise program in numerous countries around the globe. In our first 50 years, we have grown to over 2.4 million customers who are served in 65 countries, and those countries represent 73.6% of the world’s GDP. The Company continues to seek new international opportunities.

Revenues

Revenues for the year ended December 31, 2019 were $2.015 billion, an increase of $194 million or 10.6% from 2018 revenues of $1.822 billion. Growth occurred across all service lines with our Canadian and Australian companies being hindered by unfavorable foreign currency exchange rates. Growth and pricing accounted for approximately 4.8% of our increase, and our acquisitions contributed the remaining revenue growth. Commercial pest control represented approximately 38% of the Company’s revenue in 2019 and grew 8.9%. Acquisitions from foreign companies, which are primarily commercial, contributed to the increase, as well as increases in sales, an emphasis on closing leads, and better cancellation rates. Commercial pest control was negatively impacted by foreign currency exchange rates as our foreign companies are heavily commercial. Residential pest control, which represented approximately 43% of the Company’s revenue, increased 11.3% driven largely by the Clark Pest Control acquisition, which is mainly residential. Other factors such as increases in leads received, leads sold, a lower cancellation rate, and pricing, as well as increased TAEXX® homebuilder installations also contributed to the increase in residential pest control revenue. The Company’s termite business, which represented approximately 18% of the Company’s revenue, grew 11.6% in 2019 due to acquisitions, increases in termite baiting, and ancillary service sales (such as moisture control, insulation and deck and gutter work).

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The Company implemented its traditional price increase program in June 2019. Around 1% of the Company’s revenue increase is attributable to pricing actions. Approximately 80% of the Company’s pest control revenue was recurring in 2019, as well as 2018.

The Company’s foreign operations accounted for approximately 8% of total revenues for each of the years ended December 31, 2019 and 2018, respectively. The Company established new franchises in several international countries around the globe in 2019 for a total of 97 Orkin international franchises, one Canadian Critter Control franchise, and ten Australia franchises at December 31, 2019, compared to 86 Orkin international franchises, two Canadian Critter Control franchises and ten Australia franchises at December 31, 2018. The Australia franchises operate under the Murray Pest Control and Scientific Pest Management names.

International and domestic franchising revenue was less than 1% of the Company’s revenues for 2019. Orkin had 147 and 133 franchises (domestic and international) at December 31, 2019 and 2018, respectively. The Company had 84 Critter Control franchises at December 31, 2019, up 4 from 2018. Revenue from franchising was up 3.2% in 2019 compared to 2018 as the Company continued to expand Orkin’s international footprint and recognition of initial franchise fees.

Cost of Services Provided

For the twelve months ended December 31, 2019, cost of services provided increased $99.2 million or 11.1%, compared to the twelve months ended December 31, 2018. Gross margin for the year decreased to 50.7% for 2019 compared to 50.9% for 2018 due to increased participation rates in our enhanced 401(k) match to employees and an increase in group insurance premiums in 2019. Integration of acquisitions resulted in slight increases in service salaries percentages.

Depreciation and Amortization

For the twelve months ended December 31, 2019, depreciation and amortization increased $14.3 million, or 21.4% compared to the twelve months ended December 31, 2018. The dollar increase was primarily due to depreciation increasing $6.3 million or 20.7% from the depreciation of acquired and purchased assets and depreciation from various IT related projects. Amortization of intangible assets increased $8.0 million or 22.1% for 2019 due to the additional amortization of customer contracts from several acquisitions over the last year, including a full year of OPC Services and Aardwolf Pestkare, acquired in early and mid-2018, respectively, and the 2019 acquisition of Clark Pest Control in April, as well as several smaller foreign and domestic companies.

Sales, General and Administrative

For the twelve months ended December 31, 2019, sales, general and administrative (SG&A) expenses increased $72.7 million, or 13.2% compared to the twelve months ended December 31, 2018. SG&A increased to 30.9% of revenues for the year ended December 31, 2019 compared to 30.2% in 2018. The Company incurred higher than normal expenses in 2019 related to acquisition preparation and integration as well as expenses related to the pension settlement activities. The enhanced 401(k) match enticed more of the Company’s workforce to save for their futures. Administrative salaries were up due to increased office headcount and wages. Medical and casualty insurance expenses were up for the year. The Company also had increased use of outside professional services in IT projects as well as other projects.

Gain on Sales of assets, Net

Gain on sales of assets, net decreased to $0.6 million for the year ended December 31, 2019 compared to $0.9 million in 2018. The Company recognized gains from the sale of owned vehicles and owned property in 2019 and 2018.

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Interest Expense, Net

Interest expense, net for the year ended December 31, 2019 was $6.9 million, driven largely by new borrowings to fund acquisitions, among other things. For the year ended December 31, 2018, the Company earned $0.2 million in net interest income on cash balances in the Company’s various cash accounts.

Taxes

The Company’s effective tax rate was 22.1% in 2019 compared to 25.4% in 2018, due primarily to state and foreign income taxes and beneficial adjustments related to the pension settlement.

Liquidity and Capital Resources

Cash and Cash Flow

Cash from operating activities is the principal source of cash generation for our businesses.

The most significant source of cash in Rollins’ cash flow from operations is customer-related activities, the largest of which is collecting cash resulting from services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for a wide range of material and services.

The Company’s cash and cash equivalents at December 31, 2019, 2018, and 2017 were $94.3 million, $115.5 million, and $107.1 million, respectively.

		(in thousands)
Years ended December 31,		2019				2018				2017
Net cash provided by operating activities		$	309,188			$	286,272			$	235,370
Net cash used in investing activities			(455,107	)			(101,375	)			(154,175	)
Net cash used in financing activities			127,655				(162,283	)			(130,263	)
Effect of exchange rate on cash			(2,945	)			(14,179	)			13,333
Net increase(decrease) in cash and cash equivalents		$	(21,209	)		$	8,435			$	(35,735	)

Cash Provided by Operating Activities

The Company’s operations generated cash of $309.2 million for the year ended December 31, 2019 primarily from net income of $203.3 million, compared with cash provided by operating activities of $286.3 million in 2018 and $235.4 million in 2017. The Company believes its current cash and cash equivalents balances, future cash flows expected to be generated from operating activities, 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 settled its obligations under the Rollins, Inc. Pension Plan without making any additional contributions during the years ended December 31, 2019, 2018 or 2017. The plan was fully funded with a prepaid balance. The plan assets exceeded the plan benefit obligations, and $31.8 million remained after the combination of lump sum payments to participants, the purchase of a group annuity contract, and payments to the Pension Benefit Guaranty Corporation. The Company has evaluated the ERISA allowable opportunities for utilization of the excess pension assets including funding other employee benefits. The Company used $11.0 million of the $31.8 million to fund its 401(k) match obligation during the year ended December 31, 2019, and plans to continue funding future benefit plan obligations, with a possible reversion of any remaining pension assets to the Company per ERISA regulations.

The Company has one small remaining pension in one of its wholly-owned subsidiaries and made a contribution of $0.1 million during the year ended December 31, 2019. No contributions were made during 2018 or 2017. While the Company’s management does not expect to make a contribution to its remaining pension plan during fiscal year 2020, additional Plan contributions, if any, will not have a material effect on the Company’s financial position, results of operations or liquidity.

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Cash Used in Investing Activities

The Company used $455.1 million in investing activities for the year ended December 31, 2019, compared to $101.4 million and $154.2 million during 2018 and 2017, respectively, and of that, invested approximately $27.1 million in capital expenditures during 2019 compared to $27.2 million and $24.7 million during 2018 and 2017, respectively. Capital expenditures for the year consisted primarily of property purchases, equipment replacements and technology related projects. The Company expects to invest between $28 million and $30 million in 2020 in capital expenditures. During 2019, the Company and its subsidiaries acquired Clark Pest Control as well as several other small to mid-sized companies for a total of $430.6 million compared to $76.8 million and $130.2 million in acquisitions during 2018 and 2017, respectively. The expenditures for the Company’s acquisitions were funded through existing cash balances, borrowings on our line of credit, a term loan, and other operating cash flows. The Company continues to seek new acquisitions.

Cash From Financing Activities

The Company generated cash of $127.7 million from financing activities for the year ended December 31, 2019, compared to using $162.3 million and $130.3 million during 2018 and 2017, respectively. The Company borrowed $291.5 million throughout 2019, net of repayments, primarily to fund the investing activities notes above. A total of $153.8 million was paid in cash dividends ($0.47 per share) during the year ended December 31, 2019 including a special dividend paid in December 2019 of $0.05 per share, compared to $152.7 million in cash dividends paid ($0.47 per share) during the year ended December 31, 2018, including a special dividend paid in December 2018 of $0.09 per share and $122.0 million paid in cash dividends ($0.37 per share) during the year ended December 31, 2017, including a special dividend paid in December 2017 of $0.07 per share.

The Company did not purchase shares on the open market during the years ended December 31, 2019, 2018 and 2017. There remain 7.6 million shares, adjusted for the December 10, 2018 three-for-two stock split, authorized to be repurchased under prior Board approval. The Company repurchased $10.0 million, $9.5 million, and $8.2 million of common stock for the years ended December 31, 2019, 2018 and 2017, respectively, from employees for the payment of taxes on vesting restricted shares.

The Company’s $94.3 million of total cash at December 31, 2019 is primarily cash held at various banking institutions. Approximately $74.1 million is held in cash accounts at international bank institutions and the remaining $20.2 million is primarily held in Federal Deposit Insurance Corporation (“FDIC”) insured non-interest-bearing accounts at various domestic banks which at times may exceed federally insured amounts.

The Company’s international business is expanding, and we intend 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. Repatriation of cash from the Company’s foreign subsidiaries is not a part of the Company’s current business plan.

Rollins maintains adequate liquidity and capital resources, without regard to its foreign deposits, that are directed to finance domestic operations and obligations and to fund expansion of its domestic business.

For Information regarding our Revolving Credit Agreement see Note 4 – Debt of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

Litigation

For discussion on the Company’s legal contingencies, see Note 15 – Commitments and Contingencies to the accompanying financial statements.

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Off Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments

The Company has no material off balance sheet arrangements.

The impact that the Company’s contractual obligations as of December 31, 2019 are expected to have on our liquidity and cash flow in future periods is as follows:

		Payments due by period
Contractual obligations (in thousands)		Total				Less than 1 year				2-3 years				4-5 years				More than 5 years
Line of credit		$	101,500			$	—			$	—			$	101,500			$	—
Revolver Term Loan			190,000				12,500				35,938				141,562				—
Acquisition contingent payments			21,434				14,005				7,429				—				—
Acquisition holdbacks			27,697				16,477				11,220				—				—
Non-cancelable operating leases			219,381				72,916				98,134				31,708				16,623
Non compete agreements			323				323				—				—				—
Other notes payable			19				19				—				—				—
Unrecognized Tax Positions (1)			844				—				844				—				—
Total (2)		$	561,198			$	116,240			$	153,565			$	274,770			$	16,623

1.	These amounts represent expected payments with interest for unrecognized tax benefits as of December 31, 2019.

2.	Minimum pension funding requirements are not included as funding will not be required.

Critical Accounting Policies and Estimates

The Company views critical accounting policies and estimates to be those that are very important to the portrayal of our financial condition and results of operations, and that require management’s most difficult, complex or subjective judgments. The circumstances that make these judgments difficult or complex relate to the need for management to make estimates about the effect of matters that are inherently uncertain. We believe our critical accounting policies to be as follows:

Accrual for Termite Contracts—The Company maintains an accrual for termite claims representing the estimated costs of reapplications, repairs and associated labor and chemicals, settlements, awards and other costs relative to termite control services. Factors that may impact future costs include termiticide life expectancy and government regulation. It is significant that the actual number of claims has decreased in recent years due to changes in the Company’s business practices. However, it is not possible to precisely predict future significant claims. Accruals for termite contracts are included in other current liabilities and long-term accrued liabilities on the Company’s consolidated statements of financial position.

Accrued Insurance—The Company retains, up to specified limits, certain risks related to general liability, workers’ compensation and vehicle liability. Risks above specified limits are managed through either high deductible insurance or a non-affiliated group captive insurance member arrangement. The estimated costs of existing and future claims under the retained loss program are accrued based upon historical trends as incidents occur, whether reported or unreported (although actual settlement of the claims may not be made until future periods) and may be subsequently revised based on developments relating to such claims. The Company contracts with an independent third-party actuary on a semi-annual basis to provide the Company an estimated liability based upon historical claims information. The actuarial study is a major consideration in establishing the reserve, along with management’s knowledge of changes in business practice and existing claims compared to current balances. Management’s judgment is inherently subjective as a number of factors are outside management’s knowledge and control. Additionally, historical information is not always an accurate indication of future events. The Company continues to be proactive in safety and risk management to develop and maintain ongoing programs to reduce claims. Initiatives that have been implemented include required pre-employment screening and ongoing motor vehicle record review for all drivers, post-offer physicals for new employees, pre-hire, random and post incident drug testing, increased driver training and post-injury nurse triage for work-related injuries.

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Revenue Recognition— the Company’s Revenue recognition policy is to recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, each of which are distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

More on the Company’s revenue recognition policy can be found in the Company’s Notes to the Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies with the heading Revenue Recognition.

Contingency Accruals—The Company is a party to legal proceedings with respect to matters in the ordinary course of business. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 450 “Contingencies,” Management estimates and accrues for its liability and costs associated with the litigation. Estimates and accruals are determined in consultation with outside counsel. Because it is not possible to accurately predict the ultimate result of the litigation, judgments concerning accruals for liabilities and costs associated with litigation are inherently uncertain and actual liabilities may vary from amounts estimated or accrued. However, in the opinion of management, the outcome of the litigation will not have a material adverse impact on the Company’s financial condition or results of operations. Contingency accruals are included in other current liabilities and long-term accrued liabilities on the Company’s consolidated statements of financial position.

Defined benefit pension plans — The Company had two defined benefit pension plans; the Rollins, Inc. Defined Benefit Plan and the Waltham Services, LLC Hourly Employee Pension Plan.

The Company ceased all future benefit accruals under the Rollins, Inc. Defined Benefit Plan, in 2005, but remained obligated to provide employees benefits earned through June 2005. During 2018, the Company initiated the process to transition its pension plan to an insurance provider. At December 31, 2018, the Company utilized a termination liability approach. This approach reflected the estimated impact of the distribution of benefits due to a standard termination. Plan liabilities were to be settled through the purchase of annuities from an insurance provider or through the distribution of lump sum payments to eligible participants that elected to receive such a form of payment. Discount rates of 3.90% per year for participants in pay status and 4.11% per year for participants with deferred benefits were selected by the plan sponsor to determine the benefit obligation resulting from plan termination annuity purchases. The discount rates reflected the single effective interest rate that produced the same present value as that produced when the expected future cash flows for participants expected to elect an annuity were discounted with the FTSE Yield Curve (formerly Citigroup) as of the measurement date. To determine the benefit obligation resulting from plan termination lump sum payments, the expected future cash flows for lump sum eligible participants, determined with the IRC 417(e) Mortality Table for 2019, were discounted with the IRC 417(e) segment interest rates for the month of November 2018 (3.43%, 4.46%, and 4.88%). Only 50% of active, 30% of deferred vested, and 25% of retired participants that were eligible to receive a lump sum distribution of their pension benefit upon plan termination, were assumed to elect this form of payment.

The plan was settled during 2019 through a combination of lump sum payments to participants, the purchase of a group annuity contract, and payments to the Pension Benefit Guaranty Corporation.

The Company’s sole remaining defined benefit pension plan is the Waltham Services, LLC Hourly Employee Pension Plan. This Plan was amended, effective September 1, 2018, to freeze future benefit accruals for all participants. The Company accounts for these defined benefit plans in accordance with the FASB ASC Topic 715 “Compensation- Retirement Benefits,” and engages an outside actuary to calculate its obligations and costs. With the assistance of the actuary, the Company evaluates the significant assumptions used on a periodic basis including the estimated future return on plan assets, the discount rate, and other factors, and makes adjustments to these liabilities as necessary.

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The Company chooses an expected rate of return on plan assets based on historical results for similar allocations among asset classes, the investments strategy, and the views of our investment adviser. Differences between the expected long-term return on plan assets and the actual return are amortized over future years. Therefore, the net deferral of past asset gains or losses ultimately affects future pension expense. The Company’s assumption for the expected return on plan assets is 7.0% which is unchanged from the prior year.

Waltham Services, LLC Hourly Employees Pension Plan utilizes a yield curve approach. The approach utilizes an economic model whereby the Company’s expected benefit payments over the life of the plans is forecast and then compared to a portfolio of corporate bonds that will mature at the same time that the benefit payments are due in any given year. The economic model then calculates the one discount rate to apply to all benefit payments over the life of the plan which will result in the same total lump sum as the payments from the corporate bonds. The discount rate was 4.70% as of December 31, 2019 compared to 4.05% in both 2018 and 2017. A higher discount rate decreases the present value of benefit obligation.

As set forth in Note 16 to the Company’s financial statements, included among the asset categories for the Plan’s investments are real estate, tactical composite and alternative investments comprised of investments in real estate and hedge funds. These investments are categorized as investments at net asset value (“NAV”) and are valued using significant non-observable inputs which do not have a readily determinable fair value. In accordance with Accounting Standards Update (“ASU”) No. 2009-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness_._

The Waltham Services, LLC Hourly Employee Pension Plan had a net pension liability of $0.8 million and $0.6 million at December 31, 2019 and 2018 respectively. The recorded change within accumulated other comprehensive income increased stockholders’ equity by $75.6 million before tax and $45.9 million after tax, driven mainly by the Rollins, Inc. Defined Benefit Plan settlement.

Recent Accounting Guidance

See Note 1 - Summary of Significant Accounting policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

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Forward-Looking Statements

This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements regarding (i) management’s belief that the Company competes favorably with competitors; (ii) our belief that our operations’ substantially comply with applicable federal and state environmental laws and regulations and that such compliance has had no material adverse effect on our operations to date; (iii) our maintenance of supplies is sufficient to fulfill our immediate needs and to alleviate potential short-term shortages in such supplies; (iv) any environmental remediation costs estimated to be incurred are not material to our financial condition or operating results, (v) the adequacy of our facilities to meet our future needs; (vi) the outcome of litigation, as discussed in the Legal Proceedings section and elsewhere and our belief that such litigation will not have a material adverse effect on our financial condition, results of operations or liquidity; (vii) the belief that we have adequate liquid assets, funding sources and insurance accruals to satisfy any claims; (viii) our expectation to continue our payment of cash dividends; (ix) plans regarding future acquisitions and franchise expansions, including our belief that acquisitions have been and may continue to be an important element of our business strategy; (x) the adequacy of our resources and borrowings to fund operations, obligations, and expansions; (xi) plans to continue funding future defined benefit plan obligations with a possible reversion of any remaining pension assets to us in compliance with ERISA regulations; (xii) our belief that the Company will not make a contribution to its remaining pension plan during fiscal year 2020; (xiii) our belief that any potential additional plan pension plan contributions will not have a material effect on our financial position, results of operations or liquidity; (xiv) our projected 2020 capital expenditures; (xv) the plans to grow the business in foreign markets through reinvestment of foreign deposits and future earnings and through acquisitions of unrelated companies with no expectation of repatriation of cash from our foreign subsidiaries; (xvi) our expectation that we will maintain compliance with the covenants contained in our Revolving Credit Agreement throughout 2020; (xvii) the impact and amount of our contractual obligations; (xviii) our expectations regarding termite claims and factors that impact future costs from those claims; (xix) the expected cost of termite renewals; (xx) the expected collectability of accounts receivable; (xxi) our belief that our tax positions are fully supportable; (xxii) expectations and plans regarding any losses from franchisees; (xxiii) the impact of recent accounting pronouncements; (xxiv) and interest rate risks and foreign exchange rate risk on our financial position, results of operations and liquidity; (xxv) our ability to utilize all of our foreign net operating losses and the possibility that the Company’s unrecognized tax benefits will decrease in the next 12 months; (xxvi) our estimation regarding an interest rate reclassification in the next 12 months; (xxvii) our reasonable certainty that we will exercise the renewal options on our operating leases; (xxviii) expectations regarding the recognition of compensation costs related to time-lapse restricted shares; (xxix) our estimation that the allowance for credit losses reported in our consolidated balance sheet will decrease by an immaterial amount upon the adoption of ASU 2016-13; (xxx) the impact of foreign interest and exchange rate fluctuation on the value of our cash receipts and payments in terms of our functional currency; (xxxi) our belief that maintaining and enhancing our brands increases our ability to enter new markets and launch new and innovative services that better serve the needs of our customers (xxxii) the maintenance of adequate liquidity and capital resources, without regard to its foreign deposits, that are directed to finance domestic operations and obligations and to fund expansion of our domestic business; (xxxiii) our ability to be proactive in safety and risk management to develop and maintain ongoing programs to reduce claims; and (xxxiv) our expected return on plan assets. Our actual results could differ materially from those indicated by the forward-looking statements because of various risks, timing and uncertainties including, without limitation, the failure to maintain and enhance our brands and develop a positive client reputation; possibility of an adverse ruling against us in pending litigation; general economic conditions; unsuccessful expansion into international markets; general market risk; our inability to attract and retain skilled workers; changes in industry practices or technologies; the unauthorized access of personal, financial, or other data or information about our customers, employees, third parties, or of our proprietary confidential information; the degree of success of our termite process reforms and pest control selling and treatment methods; the unauthorized access of personal, financial, or other data or information about our customers, employees, third parties, or of our proprietary confidential information; our ability to identify and integrate potential acquisitions; climate and weather trends; competitive factors and pricing practices; potential increases in labor costs; changes in various government laws and regulations, including environmental regulations; and any actions taken by our franchisees, subcontractors, and vendors that could harm our business. All of the foregoing risks and uncertainties are beyond our ability to control, and in many cases we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. The Company does not undertake to update its forward-looking statements.