Company Quick10K Filing
Rollins
10-Q 2020-09-30 Filed 2020-10-28
10-Q 2020-06-30 Filed 2020-07-31
10-Q 2020-03-31 Filed 2020-04-30
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-10-25
10-Q 2019-06-30 Filed 2019-07-26
10-Q 2019-03-31 Filed 2019-04-26
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-30 Filed 2018-10-26
10-Q 2018-06-30 Filed 2018-07-27
10-Q 2018-03-31 Filed 2018-04-27
10-K 2017-12-31 Filed 2018-02-26
10-Q 2017-09-30 Filed 2017-10-27
10-Q 2017-06-30 Filed 2017-07-28
10-Q 2017-03-31 Filed 2017-04-28
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-09-30 Filed 2016-10-28
10-Q 2016-06-30 Filed 2016-07-28
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-24
10-Q 2015-09-30 Filed 2015-10-29
10-Q 2015-06-30 Filed 2015-07-29
10-Q 2015-03-31 Filed 2015-04-30
10-K 2014-12-31 Filed 2015-02-25
10-Q 2014-09-30 Filed 2014-10-29
10-Q 2014-06-30 Filed 2014-07-25
10-Q 2014-03-31 Filed 2014-04-25
10-K 2013-12-31 Filed 2014-02-26
10-Q 2013-09-30 Filed 2013-10-25
10-Q 2013-06-30 Filed 2013-07-26
10-Q 2013-03-31 Filed 2013-04-26
10-Q 2012-09-30 Filed 2012-10-26
10-Q 2012-06-30 Filed 2012-07-27
10-Q 2012-03-31 Filed 2012-04-27
10-Q 2011-09-30 Filed 2011-10-28
10-Q 2011-06-30 Filed 2011-07-29
10-Q 2011-03-31 Filed 2011-04-29
10-Q 2010-06-30 Filed 2010-07-30
10-Q 2010-03-31 Filed 2010-04-30
10-K 2009-12-31 Filed 2010-02-25
8-K 2020-10-28 Earnings, Exhibits
8-K 2020-10-27 Other Events, Exhibits
8-K 2020-10-27 Officers, Exhibits
8-K 2020-10-01 Other Events, Exhibits
8-K 2020-08-26 Officers, Exhibits
8-K 2020-08-25 Officers, Amend Bylaw, Exhibits
8-K 2020-08-18 Other Events, Exhibits
8-K 2020-07-29 Earnings, Exhibits
8-K 2020-07-28 Other Events, Exhibits
8-K 2020-07-07 Earnings, Exhibits
8-K 2020-07-01 Other Events, Exhibits
8-K 2020-06-30 Other Events, Exhibits
8-K 2020-06-11
8-K 2020-06-08
8-K 2020-04-29
8-K 2020-04-28
8-K 2020-04-28
8-K 2020-04-28
8-K 2020-04-20
8-K 2020-04-02
8-K 2020-03-26
8-K 2020-03-26
8-K 2020-03-05
8-K 2020-02-18
8-K 2020-01-31
8-K 2020-01-29
8-K 2020-01-28
8-K 2020-01-07
8-K 2019-11-01
8-K 2019-10-23
8-K 2019-10-22
8-K 2019-10-03
8-K 2019-10-01
8-K 2019-07-24
8-K 2019-07-23
8-K 2019-07-02
8-K 2019-04-30
8-K 2019-04-30
8-K 2019-04-24
8-K 2019-04-23
8-K 2019-04-23
8-K 2019-04-03
8-K 2019-03-11
8-K 2019-03-04
8-K 2019-01-23
8-K 2019-01-22
8-K 2019-01-08
8-K 2019-01-07
8-K 2019-01-03
8-K 2018-10-24
8-K 2018-10-23
8-K 2018-10-03
8-K 2018-08-08
8-K 2018-07-25
8-K 2018-07-25
8-K 2018-07-06
8-K 2018-07-02
8-K 2018-06-28
8-K 2018-05-17
8-K 2018-04-27
8-K 2018-04-25
8-K 2018-04-25
8-K 2018-04-24
8-K 2018-04-17
8-K 2018-04-02
8-K 2018-03-19
8-K 2018-03-13
8-K 2018-03-02
8-K 2018-02-28
8-K 2018-01-30
8-K 2018-01-24
8-K 2018-01-23
8-K 2018-01-23
8-K 2018-01-23
8-K 2018-01-03

ROL 10Q Quarterly Report

Part 1	Financial Information
Item 1. Financial Statements
Note 1.Basis of Preparation and Other
Note 2.Recent Accounting Pronouncements
Note 3.Revenue
Note 4.Earnings per Share
Note 5.Contingencies
Note 6.Fair Value of Financial Instruments
Note 7.Unearned Revenue
Note 8.Leases
Note 9.Debt
Note 10.Stockholders' Equity
Note 11. Pension and Post Retirement Benefit Plan
Note 12. Business Combinations
Note 13.Derivative Instruments and Hedging Activities
Note 14.Subsequent Events
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1.	Legal Proceedings
Item 1A. 	Risk Factors
Item 2. 	Unregistered Sales of Equity Securities and Use of Proceeds.
EX-31.1 i20550_ex31-1.htm
EX-31.2 i20550_ex31-2.htm
EX-32.1 i20550_ex32-1.htm

Rollins Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
1.81.41.10.70.40.02012201420172020
Assets, Equity
0.60.50.40.20.10.02012201420172020
Rev, G Profit, Net Income
0.40.20.0-0.1-0.3-0.52012201420172020
Ops, Inv, Fin

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

     

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2020

 

Commission File Number 1-4422

 

ROLLINS, INC.

(Exact name of registrant as specified in its charter)

 

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

 

2170 Piedmont Road, N.E., Atlanta, Georgia

(Address of principal executive offices)

 

30324

(Zip Code)

 

(404) 888-2000

(Registrant’s telephone number, including area code)

 

     

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

 

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

 

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

 

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

 

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

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

 

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

 

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

Yes o No x  

 

Rollins, Inc. had 327,749,009 shares of its $1 par value Common Stock outstanding as of October 16, 2020.

 
 

ROLLINS, INC. AND SUBSIDIARIES

 

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF SEPTEMBER 30, 2020, AND DECEMBER 31, 2019

(in thousands except share data)

(Unaudited) 

 

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

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

2
 

ROLLINS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands except per share data)

(unaudited)

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

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

3
 

ROLLINS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands)

(unaudited)

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

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

4
 

ROLLINS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands)

(unaudited)

 

   Common Stock   Paid-in-
   Accumulated Other
Comprehensive
   Retained
    
   Shares   Amount   Capital   Income/ (Loss)   Earnings  Total 
Balance at June 30, 2019   327,486   $327,486   $82,960   $(68,508)  $410,326   $752,264 
Net Income                       44,061    44,061 
Other comprehensive income, net of tax                                 
Pension Settlement                  45,990         45,990 
Change in derivatives                 (118)        (118)
Foreign currency translation adjustments               (4,110)       (4,110)
Cash dividends                   (34,394)   (34,394)
Stock compensation   (42)   (42)   3,347            3,305 
Employee stock buybacks   (2)   (2)   (99)           (101)
Balance at September 30, 2019   327,442   $327,442   $86,208   $(26,746)  $419,993   $806,897 
                               
   Common Stock   Paid-in-   Accumulated Other
Comprehensive
   Retained     
   Shares   Amount   Capital   Income/ (Loss)   Earnings  Total 
Balance at December 31, 2018   327,308   $327,308   $85,386   $(71,078)  $370,292   $711,908 
Impact of adoption of ASC 842                       212    212 
Net Income                   152,582    152,582 
Other comprehensive income, net of tax                              
Pension Settlement                 45,990         45,990 
Change in derivatives               (375)       (375)
Foreign currency translation adjustments               (1,283)       (1,283)
Cash dividends                   (103,093)   (103,093)
Stock compensation   395    395    10,496            10,891 
Employee stock buybacks   (261)   (261)   (9,674)           (9,935)
Balance at September 30, 2019   327,442   $327,442   $86,208   $(26,746)  $419,993   $806,897 
                               
   Common Stock   Paid-in-   Accumulated Other
Comprehensive
   Retained     
   Shares   Amount   Capital   Income/ (Loss)   Earnings  Total 
Balance at June 30, 2020   327,759   $327,759   $88,640   $(29,163)  $475,594   $862,830 
Net Income                   79,579    79,579 
Other comprehensive income, net of tax                              
Foreign currency translation adjustments               5,758        5,758 
Change in derivatives               252        252 
Cash dividends                   (26,214)   (26,214)
Stock compensation   (10)   (10)   10,521            10,511 
Balance at September 30, 2020   327,749   $327,749   $99,161   $(23,153)  $528,959   $932,716 
                               
   Common Stock   Paid-in-   Accumulated Other
Comprehensive
   Retained    
   Shares   Amount   Capital   Income/ (Loss)   Earnings  Total 
Balance at December 31, 2019   327,431   $327,431   $89,413   $(21,109)  $420,015   $815,750 
Impact of adoption of ASC 326                    2,484    2,484 
Net Income                   198,205    198,205 
Other comprehensive income, net of tax                              
Foreign currency translation adjustments               (1,732)       (1,732)
Change in derivatives               (312)       (312)
Cash dividends                   (91,745)   (91,745)
Stock compensation   539    539    17,612            18,151 
Employee stock buybacks   (221)   (221)   (7,864)           (8,085)
Balance at September 30, 2020   327,749   $327,749   $99,161   $(23,153)  $528,959   $932,716 

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

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ROLLINS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands)

(unaudited)

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

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

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ROLLINS, INC. AND SUBSIDIARIES

 

NOTE 1.BASIS OF PREPARATION AND OTHER

Basis of Preparation

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

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

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

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

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

NOTE 2.RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting standards

In June of 2016, 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 doubtful accounts, net of tax, as a $2.5 million increase to beginning retained earnings.

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ROLLINS, INC. AND SUBSIDIARIES

 

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

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

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




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

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (ASC 350): Simplifying the Test for Goodwill Impairment, which eliminated the requirement to calculate the implied fair 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 current Step 1). The Company adopted ASU 2017-04 effective January 1, 2020. The adoption of this standard had no material impact on its consolidated financial statements.

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.

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ROLLINS, INC. AND SUBSIDIARIES

 

Recently issued accounting standards to be adopted in 2021 or later

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

NOTE 3.REVENUE

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

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

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

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

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

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ROLLINS, INC. AND SUBSIDIARIES

 

NOTE 4.EARNINGS PER SHARE

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

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

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

NOTE 5.CONTINGENCIES

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

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

 

NOTE 6.FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, trade receivables, notes receivable, accounts payable and other short-term liabilities. The carrying amounts of these financial instruments approximate their respective fair values.

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

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

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ROLLINS, INC. AND SUBSIDIARIES

 

NOTE 7.UNEARNED REVENUE

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

For the period ended  September 30,   December 31,   September 30, 
(in thousands)  2020   2019   2019 
Balance at beginning of year  $136,507   $127,075   $127,075 
Deferral of unearned revenue   150,510    174,404    141,867 
Recognition of unearned revenue   (129,377)   (164,972)   (122,465)
Balance at end of period  $157,640   $136,507   $146,477 

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

At September 30, 2020 and December 31, 2019, the Company had long-term unearned revenue of $17.9 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 2029.

NOTE 8.LEASES

The Company leases certain buildings, vehicles, and equipment in order to reduce the risk associated with ownership. The Company elected the practical expedient approach permitted under ASC 842 not to include short-term leases with a duration of 12 months or less on the balance sheet. As of September 30, 2020, and December 31, 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.

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.

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ROLLINS, INC. AND SUBSIDIARIES

(in thousands)       
      Nine Months Ended 
Lease Classification  Financial Statement Classification  September 30, 2020 
Short-term lease cost  Cost of services provided, Sales, general, and administrative expenses  $153 
Operating lease cost  Cost of services provided, Sales, general, and administrative expenses   63,538 
Total lease expense     $63,691 
         
Other Information        
Weighted-average remaining lease term  - operating leases   3.70 
Weighted-average discount rate  - operating leases   3.94 
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows for operating leases  $62,928 
         

Lease Commitments

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

(in thousands)  Operating Leases 
2020 (excluding the nine months ended September 30, 2020)  21,071 
2021   76,012 
2022   58,214 
2023   37,926 
2024   16,321 
2025   8,685 
Thereafter   13,148 
Total Future Minimum Lease Payments   231,377 
Less:  Amount representing interest   (18,386
Total future minimum lease payments, net of interest  $212,991 

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

 

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ROLLINS, INC. AND SUBSIDIARIES

 

NOTE 9.DEBT

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

NOTE 10.STOCKHOLDERS’ EQUITY

During the nine months ended September 30, 2020, the Company paid $91.7 million, or $0.28 per share, in cash dividends compared to $103.1 million, or $0.315 per share, during the same period in 2019.

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

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

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

Time Lapse Restricted Shares

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

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

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

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ROLLINS, INC. AND SUBSIDIARIES

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

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

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

 

 

NOTE 11. PENSION AND POST RETIREMENT BENEFIT PLAN

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

Components of Net Pension Benefit Loss / (Gain)

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

During the nine months ended September 30, 2020, and the same period in 2019, the Company made no contributions to its defined benefit retirement plans (the “Plans”). The Company made no contributions for the year ended December 31, 2019.

 

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ROLLINS, INC. AND SUBSIDIARIES

 

NOTE 12. BUSINESS COMBINATIONS

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

   September 30,
2020
 
Accounts receivable, net  $2,344 
Materials & supplies   280 
Equipment and property   4,424 
Goodwill   44,585 
Customer contracts   37,995 
Other intangible assets   3,149 
Other assets and liabilities, net   5,319 
Current liabilities   (10,199)
Total purchase price   87,897 
Less: Contingent consideration liability   (8,017)
Total cash purchase price  $79,880 

Goodwill from acquisitions represents the excess of the purchase price over the fair value of net assets of businesses acquired. For the period ended September 30, 2020, $44.6 million of goodwill was added related to the 18 acquisitions noted above. The cumulative carrying amount of goodwill was $619.7 million and $572.8 million at September 30, 2020 and December 31, 2019, respectively. Goodwill generally changes due to the timing of acquisitions, finalization of allocation of purchase prices of previous acquisitions and foreign currency translations. The carrying amount of goodwill in foreign countries was $74.3 million at September 30, 2020 and $55.8 million at December 31, 2019.

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

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

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

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

 

 

 

NOTE 13.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 us to pay a fixed rate of 1.94% per annum on the notional amount. The cash flows from the swap began June 30, 2019 and ends on December 31, 2021. As of December 31, 2019, $0.3 million had been recorded as an Accumulated Loss in Other Comprehensive Income (“AOCI”). An additional loss of $0.3 million was recorded in AOCI in the nine months ended September 30, 2020. Realized gains and losses in connection with each required interest payment are reclassified from AOCI to interest expense during the period of the cash flows. During the quarter and nine months ended September 30, 2020, the Company reclassified into interest expense $0.3 million and $0.5 million, respectively. The fair value of the Company’s interest rate swaps was recorded as $0.7 million in Other Current Liabilities at September 30, 2020. The fair value of the Company’s interest rate swaps was recorded as $0.2 million in Other Current Liabilities and $0.1 in Long-Term Liabilities for a combined obligation of $0.3 million at December 31, 2019. On a quarterly basis, management evaluates any swap agreement to determine its effectiveness or ineffectiveness and records the change in fair value as an adjustment to AOCI. Management intends that the swap remains effective.

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Hedges of Foreign Exchange Risk

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

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

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

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

 

 

NOTE 14.SUBSEQUENT EVENTS

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

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

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

 

 

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

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

Results of Operations:

THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2019

COVID-19 Pandemic Impact

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

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

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

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

Revenue