Item 8. Financial Statements and Supplementary Data

| --- | --- | --- |

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Stockholders of Rollins, Inc.:

The management of Rollins, Inc. and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Rollins, Inc. maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded against loss or unauthorized use and that the financial records are adequate and can be relied upon to produce financial statements in accordance with accounting principles generally accepted in the United States of America. The internal control system is augmented by written policies and procedures, an internal audit program and the selection and training of qualified personnel. This system includes policies that require adherence to ethical business standards and compliance with all applicable laws and regulations.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of the design and operation of internal controls over financial reporting, as of December 31, 2020 based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management’s assessment is that Rollins, Inc. maintained effective internal control over financial reporting as of December 31, 2020.

The independent registered public accounting firm, Grant Thornton LLP has audited the consolidated financial statements as of and for the year ended December 31, 2020, and has also issued their report on the effectiveness of the Company’s internal control over financial reporting, included in this report on page 27.

/s/ Gary W. Rollins		/s/ Paul E. Northen
Gary W. Rollins		Paul E. Northen
Chairman and Chief Executive Officer		Senior Vice President, Chief Financial Officer and Treasurer
Principal Executive Officer		Principal Financial and Accounting Officer

Atlanta, Georgia

February 26, 2021

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grant thornton llp 1100 Peachtree St.NE, Suite 1200 Atlanta, GA 30309 D +1 404 330 2000 F +1 404 330 2047		REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING Board of Directors and Stockholders Rollins, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Rollins, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 26, 2021 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Atlanta, Georgia February 26, 2021
GT.COM		Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership.

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grant thornton llp 1100 Peachtree St.NE, Suite 1200 Atlanta, GA 30309 D +1 404 330 2000 F +1 404 330 2047		REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Board of Directors and Stockholders Rollins, Inc. Opinion on the financial statements We have audited the accompanying consolidated statements of financial position of Rollins, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive earnings, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule included under item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 26, 2021 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
GT.COM		Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership.

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Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accrued Insurance – workers’ compensation and vehicle liability As described further in Note 1 to the financial statements, the Company retains, up to certain policy-specified limits, certain risks related to workers’ compensation and vehicle liability. The estimated costs of existing and future claims under the retained loss programs 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. We identified accrued insurance - workers’ compensation and vehicle liability and related expense (“accrued insurance”) as a critical audit matter. The principal considerations for our determination that accrued insurance is a critical audit matter are that accrued insurance liability has higher risk of estimation uncertainty due to the loss development factors and inherent assumptions in actuarial methods used in determining the required liability. The estimation uncertainty and complexity of the actuarial methods utilized involved especially subjective auditor judgment and an increased extent of effort, including the need to involve an auditor-engaged actuarial specialist. Our audit procedures related to the accrued insurance reserve included the following, among others:

	•	Obtained an understanding, evaluated the design and tested operating effectiveness of key controls relating to accrued insurance, including, but not limited to, controls that (1) validate that claims were reported and submitted accurately and timely, (2) validate the underlying data maintained by the Company and the third-party administrator used to develop the accrued insurance reserve was complete and accurate, and (3) verify the third-party actuarial report used in developing the accrued insurance reserve was reviewed by the Company’s management.

	•	Utilized an auditor-engaged specialist in evaluating management’s methods and assumptions, including the reasonableness of the selected loss development factors utilized by management, as well as performing a retrospective review to validate the assumptions utilized by management, to identify indicators of potential bias.

	•	Tested the underlying data maintained by the Company and the third-party administrator, which was submitted to the Company’s actuary to develop the accrued insurance reserve, for completeness and accuracy.

	/s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2004. Atlanta, Georgia February 26, 2021

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Rollins, Inc. and Subsidiaries
(in thousands except share information)
December 31,		2020				2019
ASSETS
Cash and cash equivalents		$	98,477			$	94,276
Trade receivables, net of allowance for expected credit losses of $16,854 and $16,699, respectively			126,337				122,766
Financed receivables, short-term, net of allowance for expected credit losses of $1,297 and $1,675, respectively			23,716				22,267
Materials and supplies			30,843				19,476
Other current assets			35,404				51,002
Total current assets			314,777				309,787
Equipment and property, net			178,052				195,533
Goodwill			653,176				572,847
Customer contracts, net			298,949				273,720
Trademarks and tradenames, net			109,044				102,539
Other intangible assets, net			10,777				10,525
Operating lease, right-of-use assets, net			212,342				200,727
Financed receivables, long-term, net of allowance for expected credit losses of $1,934 and $1,284 respectively			38,187				30,792
Benefit plan assets			1,198				21,565
Deferred income taxes			2,222				2,180
Other assets			27,176				24,161
Total assets		$	1,845,900			$	1,744,376
LIABILITIES
Accounts payable		$	64,596			$	35,234
Accrued insurance			31,675				30,441
Accrued compensation and related liabilities			91,011				81,943
Unearned revenues			131,253				122,825
Operating lease liabilities-current			73,248				66,117
Current portion of long-term debt			17,188				12,500
Other current liabilities			63,540				60,975
Total current liabilities			472,511				410,035
Accrued insurance, less current portion			36,067				34,920
Operating lease liabilities, less current portion			140,897				135,651
Long-term debt			185,812				279,000
Deferred income tax liability			10,612				9,927
Long-term accrued liabilities			58,641				59,093
Total liabilities			904,540				928,626
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, without par value; 500,000 shares authorized, zero shares issued			—				—
Common stock, par value $1 per share; 550,000,000 shares authorized, 491,612,059 and 491,146,269 shares issued and outstanding, respectively			491,612				491,146
Paid in capital			101,757				89,413
Accumulated other comprehensive loss			(10,897	)			(21,109	)
Retained earnings			358,888				256,300
Total stockholders’ equity			941,360				815,750
Total liabilities and stockholders’ equity		$	1,845,900			$	1,744,376

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

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CONSOLIDATED STATEMENTS OF INCOME
Rollins, Inc. and Subsidiaries
(in thousands except share information)
Years ended December 31,		2020				2019				2018
REVENUES
Customer services		$	2,161,220			$	2,015,477			$	1,821,565
COSTS AND EXPENSES
Cost of services provided, exclusive of depreciation and amortization			1,048,592				993,593				894,437
Depreciation and amortization			88,329				81,111				66,792
Sales, general and administrative			656,207				623,379				550,698
Accelerated stock vesting expense			6,691				—				—
Pension settlement loss			—				49,898				—
Loss/(gain) on sales of assets, net			1,599				(581	)			(875	)
Interest expense/(income)			5,082				6,917				(220	)
TOTAL COSTS AND EXPENSES			1,806,500				1,754,317				1,510,832
INCOME BEFORE INCOME TAXES			354,720				261,160				310,733
PROVISION FOR INCOME TAXES
Current			95,111				65,041				71,442
Deferred			(1,215	)			(7,228	)			7,628
TOTAL PROVISION			93,896				57,813				79,070
NET INCOME		$	260,824			$	203,347			$	231,663
INCOME PER SHARE - BASIC		$	0.53			$	0.41			$	0.47
INCOME PER SHARE - DILUTED		$	0.53			$	0.41			$	0.47
Weighted average shares outstanding - basic			491,604				491,216				490,936
Weighted average shares outstanding - diluted			491,604				491,216				490,936
DIVIDENDS PAID PER SHARE		$	0.33			$	0.31			$	0.31

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

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Rollins, Inc. and Subsidiaries
(in thousands)
Years ended December 31,		2020				2019				2018
NET INCOME		$	260,824			$	203,347			$	231,663
Other comprehensive earnings/(loss)
Pension and other postretirement benefit plans, net of tax			(127	)			45,896				(11,050	)
Foreign currency translation adjustments			10,443				4,350				(14,072	)
Interest rate swaps, net of tax			(104	)			(277	)			—
Other comprehensive earnings/(loss)			10,212				49,969				(25,122	)
Comprehensive earnings		$	271,036			$	253,316			$	206,541

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

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Rollins, Inc. and Subsidiaries
(in thousands)
		Common Stock								Treasury
		Shares				Amount				Shares				Amount				Paid- In- Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Total
Balance at December 31, 2017			490,482			$	490,482				—			$	—			$	81,405			$	(45,956	)		$	127,993			$	653,924
Net income															—												231,663				231,663
Other comprehensive income
Pension liability adjustment, net of tax																							(11,050	)							(11,050	)
Foreign currency translation adjustments																							(14,072	)							(14,072	)
Cash dividends																											(152,742	)			(152,742	)
Stock compensation			908				908												13,323								(505	)			13,726
Employee stock buybacks			(428	)			(428	)											(9,342	)							229				(9,541	)
Balance at December 31, 2018			490,962			$	490,962				—			$	—			$	85,386			$	(71,078	)		$	206,638			$	711,908
Impact of adoption of ASC 842																											212				212
Net income															—												203,347				203,347
Other comprehensive income
Pension settlement loss, net of tax																							46,022								46,022
Pension liability adjustment, net of tax																							(126	)							(126	)
Foreign currency translation adjustments																							4,350								4,350
Interest rate swaps, net of tax																							(277	)							(277	)
Cash dividends																											(153,836	)			(153,836	)
Stock compensation			580				580												13,772								(193	)			14,159
Employee stock buybacks			(396	)			(396	)											(9,745	)							132				(10,009	)
Balance at December 31, 2019			491,146			$	491,146				—			$	—			$	89,413			$	(21,109	)		$	256,300			$	815,750
Impact of adoption of ASC 326																											2,486				2,486
Net income															—												260,824				260,824
Other comprehensive income
Pension liability adjustment, net of tax																							(127	)							(127	)
Foreign currency translation adjustments																							10,443								10,443
Interest rate swaps, net of tax																							(104	)							(104	)
Cash dividends																											(160,487	)			(160,487	)
Stock compensation			802				802												20,315								(267	)			20,850
Employee stock buybacks			(336	)			(336	)											(7,971	)							32				(8,275	)
Balance at December 31, 2020			491,612			$	491,612				—			$	—			$	101,757			$	(10,897	)		$	358,888			$	941,360

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS
Rollins, Inc. and Subsidiaries
(in thousands)
Years ended December 31,		2020				2019				2018
OPERATING ACTIVITIES
Net income		$	260,824			$	203,347			$	231,663
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other non-cash charges			89,444				79,544				64,675
Pension settlement loss			—				49,898				—
Provision for deferred income taxes			(1,215	)			(7,228	)			7,628
Stock based compensation expense			20,850				14,158				13,726
Provision for expected credit losses			17,536				15,145				13,606
Changes in assets and liabilities:
Trade accounts receivables and other accounts receivables			(12,045	)			(20,151	)			(12,549	)
Financing receivables			(11,787	)			(9,080	)			(10,784	)
Materials and supplies			(10,706	)			(2,151	)			(374	)
Other current assets			6,102				(14,009	)			(7,121	)
Other non-current assets			16,409				600				11,329
Accounts payable and accrued expenses			50,212				5,611				(10,691	)
Unearned revenue			7,276				5,424				4,901
Accrued insurance			1,889				1,915				(686	)
Pension funding			—				(144	)			—
Long-term accrued liabilities			996				(3,306	)			(5,922	)
Net cash provided by operating activities			435,785				319,573				299,401
INVESTING ACTIVITIES
Cash used for acquisitions of companies, net of cash acquired			(147,613	)			(430,558	)			(76,769	)
Capital expenditures			(23,229	)			(27,146	)			(27,179	)
Cash from sale of franchises			495				617				343
Derivative investments			216				104				297
Proceeds from sale of assets			7,700				1,758				1,840
Investment tax credits			36				118				93
Net cash used in investing activities			(162,395	)			(455,107	)			(101,375	)
FINANCING ACTIVITIES
Payment of contingent consideration			(24,011	)			(15,969	)			(13,129	)
Borrowings under term loan			—				250,000				—
Borrowings under revolving commitment			135,000				190,000				—
Repayments on term loan			(54,000	)			(60,000	)			—
Repayments on revolving commitment			(169,500	)			(88,500	)			—
Payment of dividends			(160,487	)			(153,836	)			(152,742	)
Cash paid for common stock purchased			(8,275	)			(10,009	)			(9,541	)
Net cash (used in)/provided by financing activities			(281,273	)			111,686				(175,412	)
Effect of exchange rate changes on cash			12,084				2,639				(14,179	)
Net increase/(decrease) in cash and cash equivalents			4,201				(21,209	)			8,435
Cash and cash equivalents at beginning of year			94,276				115,485				107,050
Cash and cash equivalents at end of year		$	98,477			$	94,276			$	115,485
Supplemental disclosure of cash flow information
Cash paid for interest		$	5,056			$	6,452			$	25
Cash paid for income taxes, net		$	81,184			$	75,812			$	77,351
Non-cash additions to operating lease right-of-use assets		$	89,016			$	75,782			$	—

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

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Supplemental Disclosures of Non-Cash Items

Pension—Non-cash decreases/(increases) in the minimum pension liability which were charged/(credited) to other comprehensive income were $(0.2) million, $75.4 million, and $(14.8) million in 2020, 2019, and 2018, respectively.

Business Combinations —There were $12.6 million in non-cash acquisitions of assets in business combinations for the year ended December 31, 2020, $34.2 million in 2019 and $18.1 million for 2018.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2020, 2019, and 2018, Rollins, Inc. and Subsidiaries

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description—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 Canada, Central and South America, the Caribbean, the Middle East, Asia, Europe, Africa, Canada, and Australia. Services are performed through a contract that specifies the pricing arrangement with the customer.

Orkin, a wholly-owned subsidiary of the Company founded in 1901, is the world’s largest pest and termite control company. It provides customized services from over 400 locations. Orkin either serves customers directly or through franchise operations, in the United States, Canada, Central and South America, the Caribbean, the Middle East, Asia, Europe, and Africa providing essential pest control services and protection against termite damage, rodents and insects to homes and businesses, including hotels, food service establishments, food manufacturers, retailers and transportation companies. Orkin operates under the Orkin® trademark. The Orkin® brand name makes Orkin the most recognized pest and termite company throughout the United States.

Orkin Canada, a wholly-owned subsidiary of Orkin founded in 1952, was acquired by Orkin in 1999. Orkin Canada is Canada’s largest pest control provider and a leader in the development of fast, effective and environmentally responsible pest control solutions. Orkin Canada operates under the Orkin Canada® trademarks. The Orkin Canada brand name provides brand recognition throughout Canada.

Western, a wholly-owned subsidiary of the Company founded in 1928, was acquired by Rollins, Inc. in 2004. Western is primarily a commercial pest control service company and its business complements most of the services Orkin offers, focusing on the northeastern United States.

IFC, a wholly-owned subsidiary of the Company founded in 1937, was acquired by Rollins, Inc. in 2005. IFC is a leading provider of pest management and sanitation services and products to the food and commodity industries.

HomeTeam, a wholly-owned subsidiary of the Company established in 1996, was acquired by Rollins, Inc. in April 2008. At the time of the acquisition, HomeTeam, with its unique Taexx® tubes in the wall pest control system, was recognized as a premier pest control business and ranked as the 4th largest company in the industry. HomeTeam services home builders and other commercial and residential customers nationally.

Rollins Australia Pty Ltd (“Rollins Australia”), a wholly-owned subsidiary of the Company, acquired Allpest, in February 2014. Allpest was established in 1959 and is headquartered in Perth, Australia. Allpest provides traditional commercial, residential, and termite service as well as consulting services on border protection related to Australia’s biosecurity program and provides specialized services to Australia’s mining and oil and gas sectors.

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Critter Control, a wholly-owned subsidiary of the Company, was acquired by Rollins, Inc. on February 27, 2015. Critter Control was established in 1983 and is headquartered in Traverse City, Michigan. The business is primarily franchised, operating in 40 states and one Canadian province.

Rollins UK Holdings Ltd was formed as a wholly-owned subsidiary of the Company to acquire Safeguard in June 2016. Safeguard is a pest control company established in the United Kingdom in 1991 with a history of providing superior pest control, bird control, and specialist services to residential and commercial customers.

Northwest, a wholly-owned subsidiary of the Company founded in 1951, was acquired by the Company in August 2017. Northwest specializes in residential and commercial termite control, pest control, mosquito control, wildlife services, lawn care, insulation, and HVAC services, focusing on the Southeast United States.

On April 30, 2019, the Company acquired Clark Pest Control located in Lodi, CA. At the time of the acquisition, Clark Pest Control was a leading pest management company in California and the nation’s 8th largest pest management company according to PCT 100 rankings. Clark Pest Control services its customers from 26 service locations in 2 states. Clark Pest Control recorded revenues of approximately $139.2 million for the fiscal year ended December 31, 2018. The Company’s consolidated statements of income include the results of operations of Clark Pest Control for the period beginning April 30, 2019 through December 31, 2020.

The Company has several smaller wholly-owned subsidiaries that in total make up less than 5% of the Company’s total revenues.

The Company has one reportable segment, its pest and termite control business. Revenue, operating profit and identifiable assets for this segment, includes the United States, Canada, Australia, Europe, Asia, Central and South America, the Caribbean, the Middle East, and Africa. The Company’s results of operations and its financial condition are not reliant upon any single customer, few customers or foreign operations.

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

Principles of Consolidation—The Company’s Consolidated Financial Statements include the accounts of Rollins, Inc. and the Company’s wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The Company does not consolidate the financial statements of any company in which it has an ownership interest of 50% or less. The Company is not the primary beneficiary of, nor does it have a controlling financial interest in, any variable interest entity. Accordingly, the Company has not consolidated any variable interest entity. The Company reclassified certain prior period amounts, none of which were material, to conform to the current period presentation. All material intercompany accounts and transactions have been eliminated.

Subsequent Events—The Company evaluates its financial statements through the date the financial statements are issued.

Estimates Used in the Preparation of Consolidated Financial Statements—The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the accompanying notes and financial statements. Actual results could differ from those estimates and such differences could be significant.

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.

Nature of Goods and Services and Performance Obligations

The Company contracts with its customers to provide the following goods and services, each of which is a distinct performance obligation:

Pest control services - Rollins provides pest control services to protect residential and commercial properties from common pests, including rodents and insects. Pest control generally consists of assessing a customer’s property for conditions that invite pests, tackling current infestations, and stopping the life cycle to prevent future invaders. Revenue from pest control services is recognized as services are rendered.

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The Company’s revenue recognition policies are designed to recognize revenues upon satisfaction of the performance obligation at the time services are performed. For certain revenue types, because of the timing of billing and the receipt of cash versus the timing of performing services, we use estimates as described below. Residential and commercial pest control services are primarily recurring in nature on a monthly, bi-monthly or quarterly basis, while certain types of commercial customers may receive multiple treatments within a given month. In general, pest control customers sign an initial one-year contract, and revenues are recognized at the time services are performed. The Company defers recognition of advance payments and recognizes the revenue as the services are rendered. The Company classifies discounts related to the advance payments as a reduction in revenues.

Termite control services - Rollins provides both traditional and baiting termite protection services. Traditional termite protection uses “Termidor” liquid treatment and/or dry foam and Orkin foam to treat voids and spaces around the property, while baiting termite protection uses baits to disrupt the molting process termites require for growth and offers ongoing protection. Revenue from initial termite treatment services is recognized as services are provided.

Maintenance/monitoring/inspection - In connection with the initial service offerings, Rollins provides recurring maintenance, monitoring or inspection services to help protect consumer’s property from any future sign of termite activities after the original treatment. This recurring service is a service-type warranty under ASC 606 as it is routinely sold and purchased separately from the initial treatment services and is typically purchased or renewed annually.

Termite baiting revenues are recognized based on the transfer of control of the individual units of accounting. At the inception of a new baiting services contract, upon quality control review of the installation, the Company recognizes revenue for the installation of the monitoring stations, initial directed liquid termiticide treatment and servicing of the monitoring stations. A portion of the contract amount is deferred for the undelivered monitoring performance obligation. This portion is recognized as income on a straight-line basis over the remaining contract term, which results in recognition of revenue that depicts the Company’s performance in transferring control of the service. The allocation of the transaction price to the two deliverables is based on the relative stand-alone selling price. There are no contingencies related to the delivery of additional items or meeting other specified performance conditions. Baiting renewal revenue is deferred and recognized over the annual contract period on a straight-line basis that depicts the Company’s performance in transferring control of the service.

Revenue received for conventional termite renewals is deferred and recognized on a straight-line basis over the remaining contract term that depicts the Company’s performance in transferring control of the service; and, the cost of reinspections, reapplications and repairs and associated labor and chemicals are expensed as incurred. For outstanding claims, an estimate is made of the costs to be incurred (including legal costs) based upon current factors and historical information. The performance of reinspections tends to be close to the contract renewal date and while reapplications and repairs involve an insubstantial number of the contracts, these costs are incurred over the contract term. As the revenue is being deferred, the future cost of reinspections, reapplications and repairs and associated labor and chemicals applicable to the deferred revenue are expensed as incurred. The Company accrues for noticed claims. The costs of providing termite services upon renewal are compared to the expected revenue to be received and a provision is made for any expected losses.

Miscellaneous services - In certain agreements with customers, Rollins may offer other miscellaneous services, including restroom cleaning (eliminating foul odors, grease and grime which could attract pests) and training (seminars covering good manufacturing practices and product stewardship). Revenue from miscellaneous services is recognized when services are provided.

Products - Depending on customer demand, Rollins may separately sell pest control and/or termite protection products, such as traps. Revenue from product sales is recognized upon transfer of control of the asset.

Equipment rental (or lease) - Depending on customer demand, Rollins may lease certain pest control and/or termite protection equipment. Revenues from equipment rentals are recognized over the period of the rental/lease. Revenues from equipment rentals represent less than 1.0% of the Company’s revenues for each reported period.

Right to access intellectual property (Franchise) - The right to access Rollins’ intellectual property is an essential part of Orkin’s franchising agreements. These agreements provide the franchisee (the customer) a license to use the Rollins’ name and trademark when advertising and selling services to end customers in their normal course of business. Orkin franchise agreements contain a clause allowing Orkin to purchase certain assets of the franchisee. This is only an offer for Orkin to re-purchase the assets originally provided by Orkin to the franchisee and is not a performance obligation or a form of consideration. International and domestic franchising revenue was less than 1.0% of the Company’s annual revenues.

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All Orkin domestic franchises have a guaranteed repurchase clause that the Orkin franchise may be repurchased by Orkin at a later date once it has been established. The Company amortizes the initial franchise fee over the initial franchise term. Deferred Orkin franchise fees were $1.6 million and $1.7 million for the year ending December 31, 2020 and 2019, respectively.

Royalties from Orkin franchises are accrued and recognized as revenues are earned on a monthly basis. Revenue from Orkin franchises was $9.4 million for the year ended December 31, 2020 and $8.7 million and $8.8 million for the years ended December 31, 2019 and 2018, respectively.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. We record unearned revenue when revenue is recognized subsequent to billing. Unearned revenue mainly relates to the Company’s termite baiting offering, conventional renewals, and year-in-advance pest control services for which we have been paid in advance and earn the revenue when we transfer control of the product or service. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. Refer to Note 3 - Revenue for further information, including changes in unearned revenue for the year.

The Company extends terms to certain customers on higher dollar termite and ancillary work, as well as to certain franchisees for initial funding on the sale of franchises. These financed receivables are segregated from our trade receivables. The amounts that are due within one year from the balance sheet dates are classified as short-term financed receivables, and are shown, net of allowance for expected credit losses, at $23.7 million as of December 31, 2020 and $22.3 million at December 31, 2019. The balances of long-term financed receivables, net of allowance for expected credit losses, were $38.2 million as of December 31, 2020 and $30.8 million at December 31, 2019 and are included in long-term assets on our consolidated statements of financial position. See Note 6 – Financing Receivables for further information.

The allowance for expected credit losses reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. Activity in the allowance for expected credit losses can be found on Schedule II-Valuation and Qualifying Accounts.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. All revenues are reported net of sales taxes.

The Company’s international operations accounted for approximately 7% and 8% of revenues for the years ended December 31, 2020 and 2019, respectively.

Allowance for Expected Credit Losses— The Company maintains an allowance for expected credit losses accounts based on the expected collectability of accounts receivable. Management uses historical collection results as well as accounts receivable aging in order to determine the expected collectability of accounts receivable. Substantially all of the Company’s receivables are due from pest control and termite services in the United States and selected international locations. The Company’s allowance for expected credit losses is determined using a combination of factors to ensure that our receivables are not overstated due to uncollectability. The Company’s established credit evaluation procedures seek to minimize the amount of business we conduct with higher risk customers. Provisions for expected credit losses are recorded in selling, general and administrative expenses. Accounts are written-off against the allowance for expected credit losses when the Company determines that amounts are uncollectible, and recoveries of amounts previously written off are recorded when collected. Significant recoveries will generally reduce the required provision in the period of recovery. Therefore, the provision for expected credit losses can fluctuate significantly from period to period. There were no large recoveries in 2020, 2019, and 2018. We record specific provisions when we become aware of a customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, our estimates of the realizability of receivables would be further adjusted, either upward or downward.

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Advertising—Advertising costs are charged to sales, general and administrative expense during the year in which they are incurred.

Years ended December 31,		2020				2019				2018
(in thousands)
Advertising		$	86,314			$	81,174			$	69,875

Cash and Cash Equivalents— The Company considers all investments with an original maturity of three months or less when purchased to be cash equivalents.

At December 31,		2020				2019				2018
(in thousands) (in US dollars)
Cash held in foreign bank accounts		$	71,330			$	74,094			$	53,613

The Company’s $98.5 million of total cash at December 31, 2020, is primarily cash held at various banking institutions. Approximately $71.3 million is held in cash accounts at international bank institutions and the remaining $27.2 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 the foreseeable future.

Marketable Securities— From time to time, the Company maintains investments held by several large, well-capitalized financial institutions. The Company’s investment policy does not allow investment in any securities rated less than “investment grade” by national rating services.

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designations as of each balance sheet date. Debt securities are classified as available-for-sale because the Company does not have the intent to hold the securities to maturity. Available-for-sale securities are stated at their fair values, with the unrealized gains and losses reported as in earnings.

The Company had no marketable securities other than those held in the defined benefit pension plan and the non-qualified deferred compensation plan at December 31, 2020 and 2019. See Note 16 for further details.

Materials and Supplies— Materials and supplies are stated at the lower cost of cost or market. Cost is determined on the first-in, first-out method.

Income Taxes—The Company provides for income taxes based on FASB ASC topic 740 “Income Taxes”, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. The Company provides an allowance for deferred tax assets when it determines that it is more likely than not that the deferred tax assets will not be utilized. The Company establishes additional provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum probability threshold. The Company’s policy is to record interest and penalties related to income tax matters in income tax expense.

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Equipment and Property— Equipment and Property are stated at cost, net of accumulated depreciation, and are provided principally on a straight-line basis over the estimated useful lives of the related assets. Annual provisions for depreciation are computed using the following asset lives: buildings, 10 to 40 years; and furniture, fixtures, and operating equipment, 2 to 10 years. Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are expensed as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal with the resulting gain or loss credited or charged to income. The annual provisions for depreciation, below, have been reflected in the Consolidated Statements of Income in the line item entitled Depreciation and Amortization.

Years ended December 31,		2020				2019				2018
(in thousands)
Depreciation		$	40,623			$	36,646			$	30,364

Impairment of Long-Lived Assets - In accordance with the FASB ASC Topic 360, “Property, Plant and Equipment”, the Company’s long-lived assets, such as property and equipment and intangible assets with definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. We periodically evaluate the appropriateness of remaining depreciable lives assigned to long-lived assets, including customer contracts and assets that may be subject to a management plan for disposition.

Goodwill and Other Intangible Assets— In accordance with the FASB ASC Topic 350, “Intangibles - Goodwill and other”, the Company classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill. The Company does not amortize intangible assets with indefinite lives or goodwill. Goodwill and other intangible assets with indefinite useful lives are tested for impairment annually or more frequently if events or circumstances indicate the assets might be impaired. Such conditions may include an economic downturn or a change in the assessment of future operations. The Company performs impairment tests of goodwill at the Company level. Such impairment tests for goodwill include comparing the fair value of the appropriate reporting unit (the Company) with its carrying value. If the fair value of the reporting unit is below the carrying value, the Company recognizes a goodwill impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. The Company performs impairment tests for indefinite-lived intangible assets by comparing the fair value of each indefinite-lived intangible asset unit to its carrying value. The Company recognizes an impairment charge if the asset’s carrying value exceeds its estimated fair value. The Company completed its most recent annual impairment analysis as of September 30, 2020. Based upon the results of these analyses, the Company has concluded that no impairment of its goodwill or intangible assets with indefinite lives was indicated.

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 recent claims and trends. 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.

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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. An accrual for termite contracts is included in other current liabilities and long-term accrued liabilities on the Company’s consolidated statements of financial position.

Contingency Accruals—The Company is a party to legal proceedings with respect to matters in the ordinary course of business. In accordance with the FASB 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 liability 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

Three-for-two stock split—The Board of Directors at its quarterly meeting on October 27, 2020, authorized a three-for-two stock split by the issuance on December 10, 2020 of one additional common share for each two common shares held of record at November 10, 2020. All share and per share data appearing in the consolidated financial statements and related notes are restated for the three-for-two stock split.

Earnings Per Share—the FASB ASC Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share and diluted earnings per share presentation. Further, all outstanding unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities and an entity is required to include participating securities in its calculation of basic earnings per share.

The Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends and therefore are considered participating securities. See Note 17 for further information on restricted stock granted to employees.

The basic and diluted calculations are the same as we have no stock options or other potentially dilutive instruments outstanding. Basic and diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the respective periods.

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A reconciliation of weighted average shares outstanding along with the earnings per share attributable to restricted shares of common stock (participating securities) is as follows (in thousands except per share data). All share and per share information in the following chart are restated for the stock split effective December 10, 2020:

Years Ended December 31,		2020				2019				2018
Net income available to stockholders		$	260,824			$	203,347			$	231,663
Less dividends paid:
Common stock			(159,524	)			(152,793	)			(151,458	)
Restricted shares of common stock			(963	)			(1,042	)			(1,284	)
Undistributed earnings for the period		$	100,337			$	49,512			$	78,921
Allocation of undistributed earnings:
Common stock			99,676				49,144				78,255
Restricted shares of common stock			661				368				666
Basic and diluted shares outstanding:
Common stock			488,365				487,569				486,794
Restricted shares of common stock			3,240				3,647				4,143
			491,605				491,216				490,937
Basic and diluted earnings per share:
Common stock:
Distributed earnings		$	0.33			$	0.31			$	0.31
Undistributed earnings			0.20				0.10			$	0.16
		$	0.53			$	0.41			$	0.47
Restricted shares of common stock:
Distributed earnings		$	0.30			$	0.29			$	0.31
Undistributed earnings			0.20				0.10				0.16
		$	0.50			$	0.39			$	0.47

Translation of Foreign Currencies—Assets and liabilities reported in functional currencies other than U.S. dollars are translated into U.S. dollars at the year-end rate of exchange. Revenues and expenses are translated at the weighted average exchange rates for the year. The resulting translation adjustments are charged or credited to other comprehensive income. Gains or losses from foreign currency transactions, such as those resulting from the settlement of receivables or payables, denominated in foreign currency are included in the earnings of the current period.

Stock-Based Compensation— The Company accounts for its stock-based compensation in accordance with the FASB ASC Topic 718 “Compensation – Stock Compensation.” Time lapse restricted shares (TLRSs) have been issued to officers and other management employees under the Company’s Employee Stock Incentive Plan.

TLRSs provide for the issuance of a share of the Company’s common stock at no cost to the holder and generally vest after a certain stipulated number of years from the grant date, depending on the terms of the issue. Outstanding TLRSs vest in 20 percent increments starting with the second anniversary of the grant, over six years from the date of grant. During these years, grantees receive all dividends declared and retain voting rights for the granted shares. The agreements under which the restricted stock is issued provide that shares awarded may not be sold or otherwise transferred until restrictions established under the plans have lapsed. The fair value of these awards is recognized as compensation expense, net of estimated forfeitures, on a straight-line basis over six years.

Comprehensive Income (Loss)—Other Comprehensive Income (Loss) results from foreign currency translations, minimum pension liability adjustments and cash flow hedge of interest rate risks.

Franchising Program – Rollins’ wholly-owned subsidiary, Orkin Systems, LLC, had 49, 50 and 47 domestic franchises as of December 31, 2020, 2019 and 2018, respectively. Transactions with Orkin’s domestic franchises involve sales of territories and customer contracts to establish new Orkin franchises, initial franchise fees and royalties. The territories, customer contracts and initial Orkin franchise fees are typically sold for a combination of cash and notes due over periods ranging up to five years. Notes receivable from Orkin domestic franchises were $5.8 million at December 31, 2020 and $6.7 million at December 31, 2019. The Company amortizes the Orkin domestic initial domestic franchise fees over the initial franchise term. Deferred Orkin domestic franchise fees were $1.6 million at December 31, 2020 and $1.7 million December 31, 2019. These notes receivable are included as financing receivables and the deferred franchise fees are included in other current liabilities in the accompanying Consolidated Statements of Financial Position. The Company’s maximum exposure to loss (notes receivable from franchises less deferred franchise fees) relating to Orkin’s domestic franchises was $4.2 million, $5.0 million, and $4.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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As of December 31, 2020, 2019 and 2018, Orkin had 94, 97, and 86 international franchises, respectively. Orkin’s international franchise program began with its first international franchise in 2000 and since has expanded to Central and South America, the Caribbean, the Middle East, Asia, Europe, and Africa.

Royalties from Orkin franchises (domestic and international) are accrued and recognized as revenues, and are earned on a monthly basis. Revenue from Orkin franchises (domestic and international) was $9.4 million for the year ended December 31, 2020 and $8.7 million and $8.8 million for the years ended December 31, 2019 and 2018, respectively.

Rollins’ wholly-owned subsidiary, Critter Control, Inc., had 79, 85 and 81 franchises in the United States and Canada as of December 31, 2020, 2019 and 2018, respectively. Transactions with Critter Control franchises involve sales of territories and customer contracts to establish new franchises, initial franchise fees and royalties. The territories, customer contracts and initial franchise fees are typically sold for a combination of cash and notes. Notes receivable from Critter Control franchises were $1.7 million and $0.9 million at December 31, 2020 and 2019, respectively. These notes are not guaranteed. These notes receivable are included as financing receivables and the deferred franchise fees are included in other current liabilities in the accompanying Consolidated Statements of Financial Position. The Company amortizes the Critter Control domestic initial franchise fees over the initial franchise term. Deferred Critter Control domestic franchise fees were $69 thousand at December 31, 2020 and $19 thousand December 31, 2019. The Company’s maximum exposure to loss (notes receivable from franchises less deferred franchise fees) relating to Critter Control’s domestic franchises was $1.6 million and $0.9 million for the years ended December 31, 2020 and 2019, respectively.

Royalties from Critter Control franchises (domestic and international) are accrued and recognized as revenues, and are earned on a monthly basis. Revenue from Critter Control franchises was $4.8 million for the year ended December 31, 2020 and $4.8 million and $4.1 million for the years ended December 31, 2019 and 2018, respectively.

Combined domestic and international revenues from Orkin, Critter Control and Australia franchises were $15.2 million for the year ended December 31, 2020 and $17.1 million and $14.7 million for the years ended December 31, 2019 and 2018, respectively. Total franchising revenues were less than 1.0% of the Company’s annual revenues.

Right to access intellectual property (Franchise) - The right to access Orkin’s, Critter Control’s and our Australia franchisors’ intellectual property is an essential part of our franchise agreements. These agreements provide the franchisee a license to use the brand name and trademark when advertising and selling services to end customers in their normal course of business. Orkin and Critter Control franchise agreements contain a clause allowing the respective franchisor to purchase certain assets of the franchisee at the conclusion of their franchise agreement or upon termination. This is only an option for the franchisor to re-purchase the assets selected by the franchisor and is not a performance obligation or a form of consideration.

Recent Accounting Guidance

Recently adopted accounting standards

In June of 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments.” The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. The Company adopted ASU 2016-13 effective January 1, 2020 and recognized the decrease in the allowance for expected credit losses, net of tax, as a $2.5 million increase to beginning retained earnings.

The Company is exposed to credit losses primarily related to accounts receivable 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.

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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 creditworthiness 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.

The Company’s allowances for credit losses for trade accounts receivable and financed receivables are developed using historical collection experience, the current aging of receivables, and consideration of current economic and market conditions and reasonable and supportable forecasts relevant to the collection of receivables. Below is a roll-forward of the Company’s allowance for credit losses for the year ended December 31, 2020.

		Allowance for Expected Credit Losses
		Trade Receivables				Financed Receivables				Total Receivables
Balance at January 1, 2020		$	16,699			$	2,959			$	19,658
Adoption of ASC 326			(3,330	)			—				(3,330	)
Adjusted balance at January 1, 2020			13,369				2,959				16,328
Provision for expected credit losses			14,699				2,837				17,536
Write-offs charged against the allowance			(18,228	)			(2,565	)			(20,793	)
Recoveries collected			7,014				—				7,014
Balance at December 31, 2020		$	16,854			$	3,231			$	20,085

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

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

Recently issued accounting standards to be adopted in 2021 or later

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

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2. ACQUISITIONS

The Company made 31 and 30 acquisitions during the years ended December 31, 2020, and 2019, respectively, and a material one is described below.

Acquisition of Clark Pest Control:

The Company completed the acquisition of Clark Pest Control on April 30, 2019. Clark Pest Control is a leading pest management company in California and was the nation’s 8th largest pest management company according to PCT 100 rankings at the time of the acquisition, making it the largest Rollins acquisition since the Company acquired HomeTeam Pest Defense in 2008. Clark Pest Control services its customers from 26 service locations in 2 states. Clark Pest Control recorded revenues of approximately $139.2 million for the fiscal year ended December 31, 2018. The Company’s consolidated statements of income include the results of operations of Clark Pest Control beginning April 30, 2019.

The Company engaged an independent valuation firm to determine the allocation of the purchase price to goodwill and identifiable intangible assets. The valuation resulted in the allocation of $191.9 million to goodwill, $112.7 million to customer contracts, and $49.8 million to other intangible assets, principally tradenames. The finite-lived intangible assets, principally customer contracts, are being amortized over periods principally ranging from 5 to 10 years on a straight-lined basis.

The fair values of Clark Pest Control's assets and liabilities, at the date of acquisition, were as follows:

(in thousands)		at April 30, 2019
Assets and liabilities:
Trade accounts receivables		$	6,974
Materials and supplies			900
Other current assets			5,367
Equipment and property, net			65,535
Goodwill			191,853
Customer contracts			112,700
Trademarks & tradenames			49,300
Non-compete agreements			500
Accounts payable			(1,929	)
Accrued compensation and related liabilities			(5,678	)
Unearned revenues			(879	)
Other current liabilities			(877	)
Accrued insurance, less current portion			(1,870	)
Total consideration			421,896
Less: contingent consideration			(26,627	)
Total cash paid at acquisition		$	395,269

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The unaudited pro forma financial information presented below gives effect to the Clark Pest Control acquisition as if it had occurred as of the beginning of our fiscal year 2018. The information presented below is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had actually occurred as of the beginning of such years or results which may be achieved in the future.

		12 Months Ended
		December 31,
(in thousands, except per share amounts)		2019				2018
Revenues:
Customer Services		$	2,060,280			$	1,960,741
Costs And Expenses			1,798,984				1,640,120
Income Before Income Taxes			261,296				320,621
Provision For Income Taxes			57,813				79,070
Net Income		$	203,483			$	241,551
Net Income Per Share - Basic And Diluted		$	0.41			$	0.49
Dividends Paid Per Share		$	0.31			$	0.31
Weighted average participating shares outstanding - basic and diluted			491,604				491,216

Total cash purchase price for the Company’s acquisitions in 2020 and 2019 were $147.6 million and $430.6 million, respectively. Excluding the values of the Clark Pest Control discussed above, the fair values of major classes of assets acquired and liabilities assumed along with the contingent consideration liability recorded during the valuation period of acquisition is included in the reconciliation of the total consideration as follows (in thousands):

December 31,		2020				2019
Accounts receivable		$	3,547			$	754
Materials and supplies			582				478
Equipment and property			7,269				3,169
Goodwill			73,430				12,309
Customer contracts			72,608				23,644
Trademarks & tradenames			7,317				—
Other intangible assets			1,333				850
Current liabilities			(15,518	)			(8,832	)
Other assets and liabilities, net			9,639				11,994
Total consideration paid			160,207				44,366
Less: Contingent consideration liability			(12,594	)			(9,077	)
Total cash purchase price		$	147,613			$	35,289

3. REVENUE

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

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

Years ended December 31,		2020				2019				2018
(in thousands)
United States		$	2,006,368			$	1,862,698			$	1,677,116
Other Countries			154,852				152,779				144,449
Total Revenues		$	2,161,220			$	2,015,477			$	1,821,565

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

Years ended December 31,		2020				2019				2018
(in thousands)
Residential revenue		$	977,470			$	861,636			$	773,932
Commercial revenue			766,716				770,342				707,386
Termite completions, bait monitoring and renewals			406,782				371,258				332,573
Other revenues			10,252				12,241				7,674
Total Revenues		$	2,161,220			$	2,015,477			$	1,821,565

Deferred revenue recognized for the year ended December 31, 2020 and 2019 was $173.2 million and $165.0 million, respectively. Changes in unearned revenue were as follows:

At December 31,		2020				2019
(in thousands)
Balance at beginning of year		$	136,507			$	127,075
Deferral of unearned revenue			185,943				174,404
Recognition of unearned revenue			(173,226	)			(164,972	)
Balance at December 31,		$	149,224			$	136,507

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized revenue”), which includes both unearned revenue and revenue that will be billed and recognized in future periods. The Company has no material contracted not recognized revenue as of December 31, 2020 or December 31, 2019.

At December 31, 2020 and December 31, 2019, the Company had long-term unearned revenue of $18.0 million and $13.7 million, respectively. Unearned short-term revenue is recognized over the next 12-month period. The majority of unearned long-term revenue is recognized over a period of five years or less with immaterial amounts recognized through 2025.

4. DEBT

In April 2019, the Company entered into a Credit Agreement with Truist Bank, (formerly known as SunTrust Bank) and Bank of America, N.A. for an unsecured Revolving Commitment of up to $175.0 million, which includes a $75.0 million letter of credit subfacility and a $25.0 million swingline subfacility and an unsecured variable rate $250.0 million Term Loan with Truist Bank and Bank of America, N.A. Both the Revolving Commitment and the Term Loan have five-year durations commencing on April 29, 2019. In addition, the agreement has provisions to extend the duration beyond the Revolving Commitment termination date as well as optional prepayments rights at any time and from time to time to prepay any borrowing, in whole or in part, without premium or penalty. As of December 31, 2020, the Revolving Commitment had outstanding borrowings of $67.0 million and the Term Loan had outstanding borrowings of $136.0 million. As of December 31, 2019, there were $291.5 million in aggregate outstanding borrowings. The $203.0 million outstanding borrowings value approximated the fair value at December 31, 2020 based upon interest rates available to the Company as evidenced by debt of other companies with similar credit characteristics. Our effective interest rate on the debt outstanding as of December 31, 2020 was 1.07%. The effective interest rate is comprised of the 1-month LIBOR plus a margin of 75.0 basis points as determined by our leverage ratio calculation.

The aggregate annual maturities of long-term debt were as follows:

(in thousands)		Revolving Commitment				Term Loan				Total Debt
2021		$	—			$	17,188			$	17,188
2022			—				18,750				18,750
2023			—				23,437				23,437
2024			67,000				76,625				143,625
Total		$	67,000			$	136,000			$	203,000

The Company maintains approximately $35.1 million in letters of credit. These letters of credit are required by the Company’s fronting insurance companies and/or certain states, due to the Company’s self-insured status, to secure various workers’ compensation and casualty insurance contracts coverage. The Company believes that it has adequate liquid assets, funding sources and insurance accruals to accommodate such claims.

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In order to comply with applicable debt covenants, the Company is required to maintain at all times a leverage ratio of not 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 at December 31, 2020 and expects to maintain compliance throughout 2021.

5. TRADE RECEIVABLES

The allowance for expected credit losses accounts is principally calculated based on the application of estimated loss percentages to delinquency aging totals, based on contractual terms, for the various categories of receivables. Bad debt write-offs occur according to Company policies that are specific to pest control, commercial and termite accounts.

At December 31,		2020				2019
(in thousands)
Gross trade receivables		$	143,191			$	139,465
Allowance for expected credit losses			(16,854	)			(16,699	)
Net trade receivables		$	126,337			$	122,766

At any given time, the Company may have immaterial amounts due from related parties, which are invoiced and settled on a regular basis.

6. FINANCING RECEIVABLES

Rollins manages its financing receivables on an aggregate basis when assessing and monitoring credit risks. 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 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 creditworthiness 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 turndown 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.

Schedule of financed receivables including installment receivable amounts which are due subsequent to one year

At December 31,		2020				2019
(in thousands)
Gross financing receivables, short-term		$	25,013			$	23,942
Gross financing receivables, long-term			40,121				32,076
Allowance for expected credit losses			(3,231	)			(2,959	)
Net financing receivables		$	61,903			$	53,059

Total financing receivables, net were $61.9 million and $53.1 million at December 31, 2020 and December 31, 2019, respectively. Financing receivables are generally charged-off when deemed uncollectable or when 180 days have elapsed since the date of the last full contractual payment. The Company’s charge-off policy has been consistently applied during the periods reported. Management considers the charge-off policy when evaluating the appropriateness of the allowance for expected credit losses. Gross charge-offs as a percentage of average financing receivables were 4.6% and 5.0% for the twelve months ended December 31, 2020 and December 31, 2019, respectively. Due to the low percentage of charge-off receivables and the high creditworthiness of the potential obligor, the entire Rollins, Inc. financing receivables portfolio has a low credit risk.

The Company offers 90 days same-as-cash financing to some customers based on their creditworthiness. Interest is not recognized until the 91st day at which time it is calculated retrospectively back to the first day if the contract has not been paid in full. In certain circumstances, such as when delinquency is deemed to be of an administrative nature, accounts may still accrue interest when they reach 180 days past due. As of December 31, 2020, there were 2 accounts that were greater than 180 days past due, which have been fully reserved.

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Included in financing receivables are notes receivable from franchise owners. The majority of these notes are low risk as the repurchase of these franchises is guaranteed by the Company’s wholly-owned subsidiary, Orkin Systems, LLC, and the repurchase price of the franchise is currently estimated and has historically been well above the receivable due from the franchise owner. Also included in notes receivables are franchise notes from other brands which are not guaranteed and do not have the same historical valuation.

The carrying amount of notes receivable approximates fair value as the interest rates approximate market rates for these types of contracts. Long-term installment receivables, net were $38.2 million and $30.8 million at December 31, 2020 and 2019, respectively.

Rollins establishes an allowance for expected credit losses to ensure financing receivables are not overstated due to uncollectability. The allowance balance is comprised of a general reserve, which is determined based on a percentage of the financing receivables balance, and a specific reserve, which is established for certain accounts with identified exposures, such as customer default, bankruptcy or other events, that make it unlikely that Rollins will recover its investment. The general reserve percentages are based on several factors, which include consideration of historical credit losses and portfolio delinquencies, trends in overall weighted average risk rating of the portfolio and information derived from competitive benchmarking.

The allowance for expected credit losses related to financing receivables was as follows

At December 31,		2020				2019
(in thousands)
Balance, beginning of period		$	2,959			$	3,381
Additions to allowance			2,837				2,179
Charge-offs, net of recoveries			(2,565	)			(2,601	)
Balance, end of period		$	3,231			$	2,959

The following is a summary of the past due financing receivables:

At December 31,		2020				2019
(in thousands)
30-59 days past due		$	2,215			$	1,427
60-89 days past due			1,063				751
90 days or more past due			1,745				1,412
Total		$	5,023			$	3,590

The following is a summary of percentage of gross financing receivables:

At December 31,		2020				2019
Current			92.3%				93.7%
30-59 days past due			3.4%				2.5%
60-89 days past due			1.6%				1.3%
90 days or more past due			2.7%				2.5%
Total			100.0%				100.0%

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7. EQUIPMENT AND PROPERTY

Equipment and property are presented at cost less accumulated depreciation and are detailed as follows:

December 31,		2020				2019
(in thousands)
Buildings		$	91,453			$	95,525
Operating equipment			116,791				120,826
Furniture and fixtures			19,860				19,579
Computer equipment and systems			212,010				193,795
			440,114				429,725
Less: accumulated depreciation			(294,226	)			(267,370	)
			145,888				162,355
Land			32,164				33,178
Net equipment and property		$	178,052			$	195,533

Included in equipment and property, net at December 31, 2020 and 2019, are fixed assets held in foreign countries of $8.5 million, and $7.7 million, respectively.

Total depreciation expense was approximately $40.6 million in 2020, $36.6 million in 2019 and $30.4 million in 2018.

8. FAIR VALUE MEASUREMENT

The Company’s financial instruments consist of cash and cash equivalents, trade and notes receivables, accounts payable, other short-term liabilities and debt. The carrying amounts of these financial instruments approximate their fair values. The Company has financial instruments related to its defined benefit pension plan and deferred compensation plan detailed in Note 16.

The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs.

At December 31, 2020 and 2019, respectively, the Company had $35.7 million and $49.1 million of acquisition holdback and earnout liabilities with the former owners of acquired companies. Acquisition earnouts are generally earned by achieving certain levels of revenue growth while maintaining certain profit margins. The earnout liabilities are discounted to reflect the expected probability of payout, and both earnout and holdback liabilities are discounted to their net present value on the Company’s books and are considered Level 3 liabilities.

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

(in thousands)
Acquisition holdback and earnout liabilities at December 31, 2018		$	30,926
New acquisitions			35,704
Revaluations			(1,703	)
Payouts			(15,969	)
Interest on outstanding contingencies			1,973
Charge offset, forfeit and other			(1,799	)
Acquisition holdback and earnout liabilities at December 31, 2019			49,132
New acquisitions			12,594
Revaluations			(2,305	)
Payouts			(24,011	)
Interest on outstanding contingencies			2,025
Charge offset, forfeit and other			(1,691	)
Acquisition holdback and earnout liabilities at December 31, 2020		$	35,744

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9. GOODWILL

Goodwill represents the excess of the purchase price over the fair value of net assets of businesses acquired. The carrying amount of goodwill was $650.8 million at December 31, 2020 and $572.8 million as of December 31, 2019. Goodwill increased for the year ended December 31, 2020 due to acquisitions, and currency conversion of foreign goodwill. The carrying amount of goodwill in foreign countries was $81.4 million as of December 31, 2020 and $55.8 million as of December 31, 2019.

The changes in the carrying amount of goodwill for the twelve months ended December 31, 2020 and 2019 were as follows:

(in thousands)
Goodwill at December 31, 2018		$	368,481
Goodwill acquired			204,162
Goodwill adjustments due to currency translation			204
Goodwill at December 31, 2019			572,847
Goodwill acquired			73,430
Goodwill adjustments due to currency translation			6,899
Goodwill at December 31, 2020		$	653,176

10. CUSTOMER CONTRACTS, TRADENAMES AND TRADEMARKS, AND OTHER INTANGIBLE ASSETS

Customer contracts are amortized on a straight-line basis over the period of the agreements, as straight-line best approximates the ratio that current revenues bear to the total of current and anticipated revenues, based on the estimated lives of the assets. In accordance with the FASB ASC Topic 350 “Intangibles - Goodwill and other”, the expected lives of customer contracts were analyzed, and it was determined that customer contracts should be amortized over a life of 7 to 20 years dependent upon customer type.

The carrying amount and accumulated amortization for customer contracts were as follows:

December 31,		2020				2019
(in thousands)
Customer contracts		$	475,494			$	470,781
Less: accumulated amortization			(176,545	)			(197,061	)
Customer contracts, net		$	298,949			$	273,720

The carrying amount of customer contracts in foreign countries was $45.7 million as of December 31, 2020 and $33.5 million as of December 31, 2019.

Trademarks and tradenames are amortized on a straight-line basis over the period of their useful lives. The Company has determined these assets have useful lives between 7 and 20 years with non-amortizable, indefinite lived tradenames of $97.4 million and $94.5 million as of December 31, 2020 and 2019, respectively.

The carrying amount and accumulated amortization for trademarks and tradenames were as follows:

December 31,		2020				2019
(in thousands)
Trademarks and tradenames		$	115,131			$	107,579
Less: accumulated amortization			(6,087	)			(5,040	)
Trademarks and tradenames, net		$	109,044			$	102,539

The carrying amount of trademarks and tradenames in foreign countries was $3.3 million as of December 31, 2020 and $3.4 million as of December 31, 2019.

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Other intangible assets include non-compete agreements and patents. Non-compete agreements are amortized on a straight-line basis over periods ranging from 3 to 20 years and patents are amortized on a straight-line basis over 15 years.

The carrying amount and accumulated amortization for other intangible assets were as follows:

December 31,		2020				2019
(in thousands)
Other intangible assets		$	23,247			$	22,023
Less: accumulated amortization			(12,470	)			(11,498	)
Other intangible assets, net		$	10,777			$	10,525

The carrying amount of other intangible assets in foreign countries was $1.0 million as of December 31, 2020 and $1.2 million as of December 31, 2019.

Included in the table above are non-amortizable, indefinite lived Internet domain names of $2.2 million at December 31, 2020 and 2019, respectively.

Total amortization expense was approximately $47.7 million in 2020, $44.5 million in 2019 and $36.4 million in 2018.

Estimated amortization expense for the existing carrying amount of customer contracts and other intangible assets for each of the five succeeding fiscal years are as follows:

(in thousands)
2021		$	48,213
2022			46,641
2023			42,022
2024			38,850
2025			33,450

11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

The Company uses interest rate swap arrangements to manage or hedge its interest rate risk. Notwithstanding the terms of the swaps, the Company is ultimately obligated for all amounts due and payable under the Revolving Commitment and the Term Loan (“Credit Facility”). 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 the Company to pay a fixed rate of 1.94% per annum on the notional amount. The notional amounts as of December 31, 2020 and 2019 were $40.0 and $80.0 million, respectively. The cash flows from the swap began June 30, 2019 and end on December 31, 2021. As of December 31, 2020 and 2019, $0.4 million and $0.3 million, respectively, had been recorded as Accumulated Losses in Other Comprehensive Income (“AOCI”). 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 2020, $0.7 million was recorded as additional interest expense from the swap. During 2019, $0.1 million was recorded as interest income, partially offsetting the floating rate interest expense on our Credit Facility. On a quarterly basis, management evaluates any swap agreement to determine its effectiveness or ineffectiveness and records the change in fair value as an adjustment to AOCI. Management intends that the swap remains effective. No swaps existed at December 31, 2018.

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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 are recorded in other income/expense and were equal to a net gain of $0.2 million for the twelve months ended December 31, 2020 and a net loss of $0.4 million in 2019. The fair values of the Company’s FX Forwards were recorded in Other Current Liabilities as net obligations of $0.4 million and $0.2 million at December 31, 2020 and 2019, respectively.

As of December 31, 2020, the Company had the following outstanding FX Forwards (in thousands except for number of instruments):

(in thousands except for number of instruments)		Number of Instruments				Sell Notional				Buy Notional
FX Forward Contracts
Sell AUD/Buy USD Fwd Contract		$	12			$	1,600			$	1,233
Sell CAD/Buy USD Fwd Contract			14				14,500				11,381
Total		$	26							$	12,614

The financial statement impact related to these derivative instruments was insignificant for the years ended December 31, 2020, 2019, and 2018.

12. INCOME TAXES

The Company’s income tax provision consisted of the following:

For the years ended December 31,		2020				2019				2018
(in thousands)
Current:
Federal		$	67,861			$	43,593			$	49,911
State			18,381				15,337				13,602
Foreign			8,869				6,111				7,929
Total current tax			95,111				65,041				71,442
Deferred:
Federal			(2,076	)			(5,217	)			6,091
State			312				(1,518	)			1,957
Foreign			549				(493	)			(420	)
Total deferred tax			(1,215	)			(7,228	)			7,628
Total income tax provision		$	93,896			$	57,813			$	79,070

The primary factors causing income tax expense to be different than the federal statutory rate for 2020, 2019 and 2018 are as follows:

For the years ended December 31,		2020				2019				2018
(in thousands)
Income tax at statutory rate		$	74,491			$	54,845			$	65,254
State income tax expense (net of federal benefit)			14,393				10,182				12,984
Foreign tax expense			2,341				933				1,186
Foreign tax credit			(240	)			(242	)			(234	)
Repatriation tax under TCJA			—				(844	)			1,233
Pension settlement			—				(10,537	)			—
Executive compensation			5,557				2,445				2,165
Restricted stock adjustments			(3,927	)			(2,973	)			(4,420	)
Other			1,281				4,004				902
Total income tax provision		$	93,896			$	57,813			$	79,070

Other includes the release of deferred tax liabilities, tax credits, valuation allowance, and other immaterial adjustments.

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During 2018, the Company completed the analysis of earnings and profits of foreign investments. This resulted in the recognition at year ended December 31, 2018 of an additional $1.2 million related to the imposition of a tax on deemed repatriated earnings of foreign subsidiaries. The Company has elected to include the global intangible low-taxed income (GILTI) as part of tax expense in the year incurred.

The Provision for Income Taxes resulted in an effective tax rate of 26.5% on Income Before Income Taxes for the year ended December 31, 2020. The effective rate differs from the annual federal statutory rate primarily because of state and foreign income taxes, adjustments related to the accelerated stock vesting expense and certain other disallowed deductions.

For 2019 the effective tax rate was 22.1%. The effective rate differs from the annual federal statutory rate primarily because of state and foreign income taxes and beneficial adjustments related to the pension settlement.

For 2018 the effective tax rate was 25.4%. The effective income tax rate differs from the annual federal statutory tax rate primarily because of state and foreign income taxes, tax benefits associated with restricted stock and adjustments due to the TCJA.

During 2020, 2019 and 2018, the Company paid income taxes of $81.2 million, $75.8 million and $77.3 million, respectively, net of refunds.

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows:

December 31,		2020				2019
(in thousands)
Deferred tax assets:
Termite accrual		$	721			$	786
Insurance and contingencies			19,531				18,464
Unearned revenues			11,825				11,506
Compensation and benefits			12,304				11,983
State and foreign operating loss carryforwards			2,768				3,939
Bad debt reserve			4,214				4,312
Foreign tax credit			3,804				3,972
Other			2,519				2,439
Valuation allowance			(144	)			(83	)
Total deferred tax assets			57,542				57,318
Deferred tax liabilities:
Depreciation and amortization			(25,730	)			(24,981	)
Net pension liability			(727	)			(5,279	)
Intangibles and other			(39,475	)			(34,805	)
Total deferred tax liabilities		$	(65,932	)		$	(65,065	)
Net deferred taxes
Deferred tax assets		$	2,222			$	2,180
Deferred tax liabilities		$	(10,612	)		$	(9,927	)

Analysis of the valuation allowance:

December 31,		2020				2019
(in thousands)
Valuation allowance at beginning of year		$	83			$	76
Increase in valuation allowance			61				7
Valuation allowance at end of year		$	144			$	83

As of December 31, 2020, the Company has net operating loss carryforwards for foreign and state income tax purposes of approximately $58.5 million, which will be available to offset future taxable income. If not used, these carryforwards will expire between 2021 and 2032. Management believes that it is unlikely to be able to utilize approximately $0.7 million of foreign net operating losses before they expire and has included a valuation allowance for the effect of these unrealizable operating loss carryforwards. The valuation allowance increased by $0.06 million due to foreign net operating losses. The Company has a foreign tax credit carryforward of $3.8 million which if not fully utilized will expire in 2026.

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Earnings from continuing operations before income tax included foreign income of $25.3 million in 2020, $26.7 million in 2019 and $22.7 million in 2018. 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 acquisition of unrelated companies. Repatriation of cash from the Company’s foreign subsidiaries is not part of the Company’s current business plan.

The total amount of unrecognized tax benefits at December 31, 2020 that, if recognized, would affect the effective tax rate is $0.8 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

December 31,		2020				2019
(in thousands)
Unrecognized tax benefits at beginning of year		$	844			$	2,554
Additions for tax positions of prior years			—				844
Reductions for tax positions of prior years			—				(2,554	)
Unrecognized tax benefits at end of year		$	844			$	844

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. In addition, the Company has subsidiaries in various state and international jurisdictions that are currently under audit for years ranging from 2013 through 2019. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S., income tax examinations for years prior to 2013.

It is reasonably possible that the amount of unrecognized tax benefits will decrease in the next 12 months.

The Company’s policy is to record interest and penalties related to income tax matters in income tax expense. Accrued interest and penalties were $0.07 million and $0.03 million as of December 31, 2020 and 2019, respectively. During 2020 the Company recognized interest and penalties of $0.1 million.

13. ACCRUAL FOR TERMITE CONTRACTS

In accordance with the FASB ASC Topic 450 “Contingencies,” 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 cost include termiticide life expectancy and government regulation.

A reconciliation of changes in the accrual for termite contracts is as follows:

At December 31,		2020				2019
(in thousands)
Accrual for termite claims at beginning of year		$	3,139			$	3,219
Current year provision			1,276				3,014
Settlements, claims, and expenditures			(1,543	)			(3,094	)
Accrual for termite claims at end of year		$	2,872			$	3,139

The accrual for termite contracts is included in other current liabilities, $1.9 million and $2.3 million at December 31, 2020 and 2019, respectively, and long-term accrued liabilities, $0.9 million and $0.8 million at December 31, 2020 and 2019, respectively, on the Company’s consolidated statements of financial position.

14. 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 December 31, 2020 and 2019, all leases were classified as operating leases. Building leases generally carry terms of 5 to 10 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.

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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.

(dollars in thousands)						Years Ended December 31,
Lease Classification		Financial Statement Classification				2020				2019
Short-term lease cost			Cost of services provided, Sales, general, and administrative expenses			$	189			$	351
Operating lease cost			Cost of services provided, Sales, general, and administrative expenses				85,426				77,412
Total lease expense						$	85,615			$	77,763
Other Information:
Weighted average remaining lease term - operating leases							3.76 Yrs				3.90 Yrs
Weighted average discount rate - operating leases							3.93%				3.94%
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases:						$	84,673			$	76,404
Operating lease right-of-use assets, net						$	212,342			$	200,727
Operating lease liabilities-current						$	73,248			$	66,117
Operating lease liabilities, less current portion						$	140,897			$	135,651

Lease Commitments

Future minimum lease payments, including assumed exercise of renewal options at December 31, 2020 were as follows:

(in thousands)		Operating Leases
2021		$	80,425
2022			63,078
2023			42,813
2024			20,194
2025			10,143
Thereafter			16,390
Total future minimum lease payments			233,043
Less: Amount representing interest			18,898
Total future minimum lease payments, net of interest		$	214,145

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 $97.9 million for building leases and $135.1 million for vehicle leases. As of December 31, 2020, the Company had additional future obligations of $7.0 million for leases that had not yet commenced.

15. COMMITMENTS AND CONTINGENCIES

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, and regulatory and litigation 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 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. We do not believe that the ultimate resolution of the claims we are currently involved in will have a material adverse effect on our business, results of operations, financial condition, cash flow and prospects; 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.

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As previously disclosed, the SEC is conducting an investigation, which the Company believes is primarily focused on how it established accruals and reserves at period-ends and the impact of those accruals and reserves on reported earnings. The investigation relates to period-ends for periods beginning January 1, 2015. The Company is fully cooperating with the SEC’s investigation. The Company cannot predict the outcome of this investigation. The Company’s Audit Committee retained independent counsel to conduct an internal investigation into matters related to the SEC investigation and, in particular, the Company’s processes for establishing reserves for each quarter in the relevant periods. The internal investigation was concluded in October 2020. The Company, after consultation with the Audit Committee and the independent counsel, believes that its financial statements filed with the SEC on Forms 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.

Management does not believe that any pending claim, proceeding or litigation, 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.

16. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans

Rollins, Inc. Retirement Income Plan, (the “Rollins, Inc. Plan”)

The Company has sponsored several noncontributory tax-qualified defined benefit pension plans covering employees meeting certain age and service requirements, the most significant of which was the Rollins, Inc. Plan. The plan provided benefits based on the average compensation for the highest five years during the last ten years of credited service (as defined) in which compensation was received, and the average anticipated Social Security covered earnings. The Company funds its plans with at least the minimum amount required by ERISA. The Company made no contributions to the plans for the years ended December 31, 2020 or 2018, but contributed $0.1 million for the year ended December 31, 2019.

In 2005, the Company ceased all future benefit accruals under the Rollins, Inc. Plan, although the Company remained obligated to provide employees benefits earned through June 2005. In September 2019, the Company settled this fully-funded pension plan through a combination of lump sum payments to participants, payments to the Pension Benefit Guaranty Corporation, and the purchase of a group annuity contract. With the completed funding of the plan payout settlements, the Company had approximately $31.8 million of pension assets remaining. The remaining assets were the result of the funded status of the Rollins, Inc. Plan, higher take rate of lump sum payment election by participants and optimal pricing of the group annuity contract. The Company evaluated the ERISA allowable opportunities for utilization of the excess pension assets, including funding other employee benefits. The Company used $18.0 million during the year ended December 31, 2020 and $11.0 million during the year ended December 31, 2019 of the $31.8 million to fund its 401(k) match obligation. The Company anticipates a possible reversion of any remaining pension assets to the Company per ERISA regulations in 2021. As of December 31, 2020, the Company had approximately $1.2 million remaining of benefit plan assets related to the Rollins, Inc. Plan.

The Company continues to sponsor the Waltham Services, LLC Hourly Employee Pension Plan (“Waltham Plan”), which covers less than 85 participants as of December 31, 2020. The Waltham Plan was amended, effective September 1, 2018, to freeze future benefit accruals for all participants. The Company accounts for all defined benefit plans in accordance with the FASB ASC Topic 715 “Compensation Retirement Benefits,” and engages an outside actuary to calculate 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 uses December 31 as the measurement date for its defined benefit post-retirement plans. The funded status of the plans and the net amount recognized in the statement of financial position are summarized as follows as of:

December 31,		2020				2019
(in thousands)
CHANGE IN ACCUMULATED BENEFIT OBLIGATION
Accumulated benefit obligation at beginning of year		$	2,818			$	208,425
Service cost			—				—
Interest cost			102				4,804
Actuarial gain/(loss)			313				(4,156	)
Benefits paid			(26	)			(8,000	)
Settlement			(171	)			(198,255	)
Accumulated Benefit obligation at end of year			3,036				2,818
CHANGE IN PLAN ASSETS
Fair value of assets at beginning of year			23,603				213,699
Settlement			—				(198,255	)
Actual return on assets			(1,647	)			27,064
Employer contributions			—				144
Rollins 401(k) funding			(18,010	)			(11,049	)
Benefits paid			(689	)			(8,000	)
Fair value of plan assets at end of year			3,257				23,603
Funded status		$	221			$	20,785

Amounts Recognized in the Statement of Financial Position consist of:
December 31,		2020				2019
(in thousands)
Assets:
Benefit plan assets		$	1,198			$	21,565
Liabilities:
Long-term accrued liabilities		$	977			$	780

Amounts Recognized in the Accumulated Other Comprehensive Income consist of:
December 31,		2020				2019
(in thousands)
Net actuarial loss		$	992			$	912

The accumulated benefit obligation for the defined benefit pension plans were $3.0 million and $2.8 million at December 31, 2020 and 2019, respectively. Accumulated benefit obligation and projected benefit obligation are materially the same for the Waltham Plan. In 2020 and 2018, pension liability pre-tax increases of $0.2 million and $14.8 million, respectively, were credited, net of tax, to other comprehensive income. In 2019, the pre-tax decrease of $75.4 million in the pension liability was charged, net of tax against other comprehensive income.

The following weighted average assumptions were used to determine the accumulated benefit obligation and net benefit cost:

December 31,		2020				2019				2018
ACCUMULATED BENEFIT OBLIGATION
Discount rate			2.80	%			3.65	%			4.00	%*
Rate of compensation increase			N/A				N/A				N/A
NET BENEFIT COST
Discount rate			3.65	%			4.70	%			4.45	%
Expected return on plan assets			7.00	%			7.00	%			7.00	%
Rate of compensation increase			N/A				N/A				N/A

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	*	In 2018, the Company used a termination liability approach in calculating the 2018 discount rate for the Rollins, Inc. Plan. The following assumptions were used 1) 3.90%, based on current market conditions, for participants in pay status expected to elect a plan termination annuity; 2) 4.11%, based on current market conditions, for active and terminated participants with deferred benefits expected to elect a plan termination annuity; 3) The IRC 417(e) interest rates for the month of November 2018 (3.43%, 4.46%, and 4.88%), based on plan provisions, for all lump sum eligible expected to elect a plan termination lump sum. The Waltham Plan applied a 4.05% discount rate based on yield curve analysis.

The return on plan assets reflects the weighted average of the expected long-term rates of return for the broad categories of investments held in the plan. The expected long-term rate of return is adjusted when there are fundamental changes in the expected returns on the plan investments.

The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company utilized a yield curve analysis for the Waltham Plan for fiscal years 2020, 2019 and 2018. For the Rollins, Inc. Plan, the Company utilized a termination liability approach for fiscal year 2018 and settled the plan in 2019.

The combined components of net periodic benefit cost are summarized as follows:

Years ended December 31,		2020				2019				2018
(in thousands)
Service cost		$	—			$	—			$	37
Interest cost			102				4,805				7,926
Expected return on plan assets			(140	)			(6,149	)			(13,775	)
Amortization of net loss			100				2,396				3,292
Preliminary net periodic benefit cost/(income)			62				1,052				(2,520	)
Settlement expense			56				46,419				—
Net periodic benefit cost		$	118			$	47,471			$	(2,520	)

The benefit obligations recognized in other comprehensive income for the years ended December 31, 2020, 2019, and 2018 are summarized as follows:

Years ended December 31,		2020				2019				2018
(in thousands)
Pretax (income)/loss		$	236			$	(26,634	)		$	18,056
Amortization of net loss			(100	)			(2,396	)			(3,292	)
Settlement expense			(56	)			(46,419	)			—
Total recognized in other comprehensive income		$	80			$	(75,449	)		$	14,764

At December 31, 2020, the plans’ assets were comprised of listed common stocks and U.S. government and corporate securities. At December 31, 2019, the plans’ assets were comprised of listed common stocks, U.S. government and corporate securities, real estate and other. No shares of Rollins, Inc. common stock were held by the plans at December 31, 2020 or 2019.

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The plans’ weighted average asset allocation at December 31, 2020 and 2019 by asset category, along with the target allocation for 2021, are as follows:

		Target Allocation for						Percentage of plan assets as of December 31,
Asset category		2021						2020				2019
Cash and cash equivalents			0.0%	-	100.0%				41.1%				72.3%
Domestic equity			0.0%	-	40.0%				29.0%				5.8%
International equity			0.0%	-	30.0%				15.0%				1.9%
Debt securities - core fixed income			0.0%	-	100.0%				14.9%				2.1%
Real estate			0.0%	-	20.0%				0.0%				9.5%
Alternative Opportunistic Special			0.0%	-	20.0%				0.0%				10.4%
Total			0.0%	-	100.0%				100.0%				100.0%

For each of the asset categories in the Waltham Plan, the investment strategy is identical – maximize the long-term rate of return on plan assets with an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class which is rebalanced as required. The plans utilize a number of investment approaches, including individual market securities, equity and fixed income funds in which the underlying securities are marketable, and debt funds to achieve this target allocation. The Company and management are not considering making contributions to the remaining pension plan during fiscal 2021.

Some of our assets, primarily our private equity, real estate, and hedge funds, do not have readily determinable market values given the specific investment structures involved and the nature of the underlying investments. For the December 31, 2020 and 2019 plan asset reporting, publicly traded asset pricing was used where possible. For assets without readily determinable values, estimates were derived from investment manager statements combined with discussions focusing on underlying fundamentals and significant events. Additionally, these investments are categorized as NAV investments and are valued using significant non-observable inputs which do not have a readily determinable fair value. In accordance with ASU No. 2011-12 “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. As of December 31, 2020, the Company did not have any remaining benefit plan assets without readily determinable values_._

Fair Value Measurements

Given the plans to utilize the excess benefit plan assets from the settlement of the Rollins, Inc. Plan, to fund its 401(k) matching contribution obligations, the Company began liquidating investments in real estate funds and private equity funds after settlement. For the remaining Waltham Plan investments, the Company has modified the overall investment strategy to mitigate risk related to volatility with asset types by transitioning to a higher percentage of fixed income securities. As such, the Company’s overall investment strategy is to achieve a mix of assets to match long-term pension obligations and near-term benefits payments, with a diversification of asset types, fund strategies and fund managers. With the modification of investment strategy, the Company has transitioned the majority of its assets to Fixed-income securities. Fixed-income securities include corporate bonds, mortgage-backed securities, sovereign bonds, and U.S. Treasuries. Equity securities primarily include investments in large-cap and small-cap companies domiciled domestically and internationally. For each of the asset categories in the pension plan, the investment strategy is identical – maximize the long-term rate of return on plan assets with an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class which is rebalanced as required. The plans utilize a number of investment approaches, including but not limited to individual market securities, equity and fixed income funds in which the underlying securities are marketable, and debt funds to achieve this target allocation.

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The following table presents our plan assets using the fair value hierarchy as of December 31, 2020. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. See Note 8 for a brief description of the three levels under the fair value hierarchy.

(in thousands)		Level 1				Level 2				NAV				Total
(1) Cash and cash equivalents		$	1,322			$	—			$	—			$	1,322
(2) Fixed income securities			—				480				—				480
(3) Domestic equity securities			—				932				—				932
(3) International equity securities			—				523				—				523
Total		$	1,322			$	1,935			$	—			$	3,257

The following table presents our plan assets using the fair value hierarchy as of December 31, 2019. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.

(in thousands)		Level 1				Level 2				NAV				Total
(1) Cash and cash equivalents		$	17,071			$	—			$	—			$	17,071
(2) Fixed income securities			—				499				—				499
(3) Domestic equity securities			—				899				—				899
(3) International equity securities			—				437				—				437
(4) Real estate			—				—				2,235				2,235
(5) Alternative/opportunistic/special			—				—				2,462				2,462
Total		$	17,071			$	1,835			$	4,697			$	23,603

(1)	Cash and cash equivalents, which are used to pay benefits and plan administrative expenses, are held in Rule 2a-7 money market funds.

(2)	Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.

(3)	Domestic and international equity securities are valued using a market approach based on the quoted market prices of identical instruments in their respective markets.

(4)	Real estate fund values are primarily reported by the fund manager and are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market-based comparable data.

(5)

Alternative/Opportunistic/Special funds can invest across the capital structure in both liquid and illiquid securities that are valued using a market approach based on the quoted market prices of identical instruments, or if no market price is available, instruments will be held at their fair market value (which may be cost) as reasonably determined by the investment manager, independent dealers, or pricing services.

The estimated future benefit payments over the next five years for the Waltham Plan are as follows:

(in thousands)
2021		$	68
2022			77
2023			83
2024			100
2025			110
Thereafter			693
Total		$	1,131

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Defined Contribution 401(k) Savings Plan

The Company sponsors a defined contribution 401(k) Savings Plan (“the Plan”) that is available to a majority of the Company’s full-time employees the first day of the calendar quarter following completion of three months of service. The Plan is available to non-full-time employees the first day of the calendar quarter following one year of service upon completion of 1,000 hours in that year. The Plan provides for a matching contribution of one dollar ($1.00) for each one dollar ($1.00) of a participant’s contributions to the Plan that do not exceed 3 percent of his or her eligible compensation (which include commissions, overtime, and bonuses) and fifty cents ($0.50) for each one dollar ($1.00) of a participant’s contributions to the Plan over the initial 3 percent that do not exceed 6 percent of his or her eligible compensation (which includes commissions, overtime and bonuses). The charge to expense for the Company match was approximately $27.4 million and $25.5 million for the years ended December 31, 2020 and 2019, respectively, and $21.1 million for the year ended December 31, 2018. At December 31, 2020, 2019, and 2018 approximately, 34.9%, 30.8%, and 41.7%, respectively, of the plan assets consisted of Rollins, Inc. common stock. Total administrative fees paid by the Company for the Plan were less than $0.1 million for each of the years ended December 31, 2020, 2019 and 2018.

Nonqualified Deferred Compensation Plan

The Deferred Compensation Plan provides that participants may defer up to 50% of their base salary and up to 85% of their annual bonus with respect to any given plan year, subject to a $2 thousand per plan year minimum. The Company may make discretionary contributions to participant accounts but has not done so since 2011.

Accounts will be credited with hypothetical earnings, and/or debited with hypothetical losses, based on the performance of certain “Measurement Funds.” Account values are calculated as if the funds from deferrals and Company credits had been converted into shares or other ownership units of selected Measurement Funds by purchasing (or selling, where relevant) such shares or units at the current purchase price of the relevant Measurement Fund at the time of the participant’s selection. Deferred Compensation Plan benefits are unsecured general obligations of the Company to the participants, and these obligations rank in parity with the Company’s other unsecured and unsubordinated indebtedness. The Company has established a “rabbi trust,” which it uses to voluntarily set aside amounts to indirectly fund any obligations under the Deferred Compensation Plan. To the extent that the Company’s obligations under the Deferred Compensation Plan exceed assets available under the trust, the Company would be required to seek additional funding sources to fund its liability under the Deferred Compensation Plan.

Generally, the Deferred Compensation Plan provides for distributions of any deferred amounts upon the earliest to occur of a participant’s death, disability, retirement or other termination of employment (a “Termination Event”). However, for any deferrals of salary and bonus (but not Company contributions), participants would be entitled to designate a distribution date which is prior to a Termination Event. Generally, the Deferred Compensation Plan allows a participant to elect to receive distributions under the Deferred Compensation Plan in installments or lump-sum payments.

At December 31, 2020, the Deferred Compensation Plan had 75 life insurance policies with a net face value of $50.2 million compared to 71 policies with a face value of $47.4 million at December 31, 2019. The cash surrender value of these life insurance policies was worth $24.5 million and $22.2 million at December 31, 2020 and 2019, respectively.

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The following table presents our non-qualified deferred compensation plan assets using the fair value hierarchy as of December 31, 2020 and 2019.

(in thousands)		Level 1				Level 2				Level 3				Total
December 31, 2020		$	25			$	—			$	24,460			$	24,485
December 31, 2019		$	71			$	—			$	22,158			$	22,229

Cash and cash equivalents, which are used to pay benefits and deferred compensation plan administrative expenses, are held in Money Market Funds.

Total expense related to deferred compensation was $278 thousand, $250 thousand, and $180 thousand in 2020, 2019, and 2018, respectively. The Company had $24.5 million and $22.2 million in deferred compensation assets as of December 31, 2020 and 2019, respectively, included within other assets on the Company’s consolidated statements of financial position and $21.5 million and $21.2 million in deferred compensation liability as of December 31, 2020 and 2019, respectively, located within other current liabilities and long-term accrued liabilities on the Company’s consolidated statements of financial position. The amounts of assets were marked to fair value.

17. STOCK-BASED COMPENSATION

Stock Compensation Plans

Time Lapse Restricted Shares and Restricted Stock Units

Time lapse restricted shares (TLRSs) have been issued to officers and other employees under the Company’s Employee Stock Incentive Plan. The Company recognizes compensation expense for the unvested portion of awards outstanding over the remainder of the service period. The compensation cost recorded for these awards is based on their closing stock price at the grant date less the cost of estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures.

TLRSs provide for the issuance of a share of the Company’s common stock at no cost to the holder and generally vest after a certain stipulated number of years from the grant date, depending on the terms of the issue. TLRSs vest in 20 percent increments starting with the second anniversary of the grant, over six years from the date of grant. During these years, grantees receive all dividends declared and retain voting rights for the granted shares. The agreements under which the one-time grant of restricted stock is issued provide that shares awarded may not be sold or otherwise transferred until restrictions established under the plans have lapsed.

In April 2018, the Company granted a one-time issuance of TLRSs on a tiered Company tenure basis to U.S. based employees. The one-time grant vested 100 percent on the first anniversary date of the granted shares. The total shares granted were less than 0.1 million shares.

All share and per share information has been adjusted for the three-for-two stock split effective December 10, 2020.

The Company issued time lapse restricted shares of 0.9million, 0.7million, and 1.0 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The Company issues new shares from its authorized but unissued share pool. At December 31, 2020, approximately 7.3 million shares of the Company’s common stock were reserved for issuance. In accordance with the FASB ASC Topic 718, “Compensation – Stock Compensation,” the Company recognizes the fair value of the award on a straight-line basis over the service periods of each award. The Company estimates restricted share employee forfeiture rates based on its historical experience.

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The following table summarizes the components of the Company’s stock-based compensation programs recorded as expense ($ in thousands):

Years ended December 31,		2020				2019				2018
Time lapse restricted stock:
Pre-tax compensation expense		$	20,850			$	14,159			$	13,726
Tax benefit			(3,752	)			(3,597	)			(3,486	)
Restricted stock expense, net of tax		$	17,098			$	10,562			$	10,240

As of December 31, 2020 and 2019, $40.5 million and $41.3 million, respectively, of total unrecognized compensation cost related to time-lapse restricted shares are expected to be recognized over a weighted average period of approximately 3.8 years and 4.0 years at December 31, 2020 and 2019, respectively.

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The following table summarizes information on unvested restricted stock units outstanding as of December 31, 2020, 2019 and 2018, (adjusted for 3 for 2 stock split on December 10, 2020).

		Number of Shares (in thousands)				Weighted Average Grant-Date Fair Value
Unvested as of December 31, 2017			4,539			$	10.89
Forfeited			(53	)			12.70
Vested			(1,365	)			8.83
Granted			965				21.50
Unvested as of December 31, 2018			4,086				13.69
Forfeited			(147	)			16.40
Vested			(1,201	)			11.59
Granted			727				25.60
Unvested as of December 31, 2019			3,465				17.23
Forfeited			(59	)			17.11
Vested			(1,397	)			15.29
Granted			861				24.53
Unvested as of December 31, 2020			2,870			$	20.36

18. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

Accumulated other comprehensive income/ (loss) consist of the following (in thousands):

		Pension Liability Adjustment				Foreign Currency Translation				Interest Rate Swaps				Total
Balance at December 31, 2017		$	(35,041	)		$	(10,915	)		$	—			$	(45,956	)
Change during 2018:
Before-tax amount			(14,812	)			(14,072	)			—				(28,884	)
Tax expense			3,762				—				—				3,762
Other comprehensive earnings/(loss)			(11,050	)			(14,072	)			—				(25,122	)
Balance at December 31, 2018			(46,091	)			(24,987	)			—				(71,078	)
Change during 2019:
Before-tax amount			75,449				4,350				(277	)			79,522
Tax expense			(29,553	)			—				—				(29,553	)
Other comprehensive earnings/(loss)			45,896				4,350				(277	)			49,969
Balance at December 31, 2019			(195	)			(20,637	)			(277	)			(21,109	)
Change during 2020:
Before-tax amount			(173	)			10,443				(141	)			10,129
Tax benefit			46				—				37				83
Other comprehensive earnings/(loss)			(127	)			10,443				(104	)			10,212
Balance at December 31, 2020		$	(322	)		$	(10,194	)		$	(381	)		$	(10,897	)

19. RELATED PARTY TRANSACTIONS

The Company provides certain administrative services to RPC, Inc. (“RPC”) (a company of which Mr. Gary W. Rollins is also Chairman, and which is otherwise affiliated with the Company). The service agreements between RPC and the Company provide for the provision of services on a cost reimbursement basis and are terminable on 6 months’ notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges to RPC (or to corporations which are subsidiaries of RPC) for such services and rent totaled approximately $0.1 million for each of the years ended December 31, 2020, 2019, and 2018.

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The Company rents office, hanger and storage space to LOR, Inc. (“LOR”) (a company controlled by the late R. Randall Rollins and Gary W. Rollins). Charges to LOR (or corporations which are subsidiaries of LOR) for rent totaled $1.0 million for the year ended December 31, 2020 and $0.8 million and $0.9 million for the years ended December 31, 2019 and 2018, respectively.

In 2014, P.I.A. LLC, a company owned by our late Chairman of the Board of Directors, R. Randall Rollins, purchased a Lear Model 35A jet and entered into a lease arrangement with the Company for Company use of the aircraft for business purposes. The lease is terminable by either party on 30 days’ notice. The Company pays $100 per month rent for the leased aircraft, and pays all variable costs and expenses associated with the leased aircraft, such as the costs for fuel, maintenance, storage and pilots. The Company has the priority right to use of the aircraft on business days, and Mr. Rollins had the right to use the aircraft for personal use through the terms of an Aircraft Time Sharing Agreement with the Company. During the years ended December 31, 2020, 2019 and 2018, the Company paid approximately $0.6 million, $0.9 million, and $0.7 million in rent and operating costs for the aircraft, respectively. During 2020, 2019 and 2018, respectively, the Company accounted for 100 percent of the use of the aircraft. All transactions were approved by the Company’s Nominating and Governance Committee of the Board of Directors.

On January 24, 2018, the Company pledged a charitable gift of $0.7 million to Emory University Hospital Midtown. The amount is being paid in equal annual installments over a five year period ending in 2023. Dr. Lawley recused himself from the Board of Director’s approval of the gift agreement.

On December 1, 2019, Orkin, a subsidiary of the Company entered into a franchise agreement with Wilson Pest Management, Inc. The franchise is owned 100% by John Wilson IV. During the years ended December 31, 2020 and 2019, the Company received a total of approximately $0.1 million and $0.8 million, respectively. The 2019 proceeds included payment for the franchise and an initial franchise fee of seventy-five thousand dollars in connection with the transaction. The franchise agreement provides for a monthly royalty fee of 9.0% of the franchisee’s reported revenue. John Wilson IV is the son of John F. Wilson, President and Chief Operating Officer of the Company. The Company approved the agreement in accordance with its Related Party Transactions policy.

20. CASH DIVIDEND

On October 27, 2020, the Board of Directors declared a regular quarterly cash dividend on its common stock of $0.08 per share plus a special year-end dividend of $0.13 per share both payable December 10, 2020 to shareholders of record at the close of business November 10, 2020. Additionally, the Board of Directors approved a three-for-two stock split of the Company’s common shares on December 10, 2020 for holders of record on November 10, 2020. Dividends were paid on pre-split shares.

On January 26, 2021, after the stock split, the Board of Directors declared a regular quarterly cash dividend per common share of $0.08 payable March 10, 2021 to stockholders of record at the close of business February 10, 2021. The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings and financial condition of the Company and other relevant factors.

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