BUSINESS COMBINATIONS

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

BUSINESS COMBINATIONS

NOTE 11.             BUSINESS COMBINATIONS

The Company made fourteen  acquisitions during the six month period ended June 30, 2019, and 38 acquisitions for the year ended December 31, 2018, respectively, some of which have been disclosed on various press releases and related Current Reports on Form 8-K.

Acquisition of Clark Pest Control:

On April 30, 2019, the Company announced it had acquired Clark Pest Control of Stockton, Inc., “Clark Pest Control” located in Lodi, CA. Clark Pest Control is a leading pest management company in California and the nation's 8th largest pest management company according to PCT 100 rankings.   

Clark Pest Control has a customer base of approximately 145,000 customers, which are served 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. This acquisition will broaden Rollins' market share considerably. The Company's consolidated statements of income include the results of operations of Clark Pest Control for the period beginning April 30, 2019 through June 30, 2019.

The Company engaged an independent valuation firm to determine the allocation of the purchase price to Goodwill and identifiable Intangible assets. The preliminary 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 Company is in the process of analyzing the estimated values of assets and liabilities acquired, evaluating third-party valuations of certain tangible and intangible assets and finalizing its operating plans and, thus, the allocation of the purchase price is subject to material revision in its future financial statements. 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.

ROLLINS, INC. AND SUBSIDIARIES

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

	at April 30
(dollars in thousands)	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	)
Contingent Consideration, short-term		(6,777	)
Other current liabilities		(5,452	)
Accrued insurance, less current portion		(1,870	)
Other long-term accrued liabilities		(9,352	)
Contingent Consideration, long-term		(5,923	)
	$	395,269

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 actually had occurred as of the beginning of such years or results which may be achieved in the future.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
REVENUES
Customer services	$	535,993	$	515,454	$	997,829	$	957,373
COSTS AND EXPENSES		449,706		421,442		854,953		800,692
INCOME BEFORE INCOME TAXES		86,287		94,012		142,876		156,681
PROVISION FOR INCOME TAXES		22,489		25,683		34,458		37,032
NET INCOME	$	63,798	$	68,329	$	108,418	$	119,649
NET INCOME PER SHARE - BASIC AND DILUTED	$	0.19	$	0.21	$	0.33	$	0.37
DIVIDENDS PAID PER SHARE	$	0.11	$	0.09	$	0.21	$	0.19
Weighted average participating shares outstanding - basic and diluted		327,506		327,282		327,506		327,263

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 for all 14 acquisitions as follows (in thousands):

	June 30, 2019
Accounts receivable, net	$	7,496
Materials & supplies		1,213
Equipment and property		67,048
Goodwill		194,562
Customer contracts and other intangible assets		173,450
Current liabilities		(13,470	)
Other assets and liabilities, net		(7,532	)
Total cash purchase price	$	422,767
Less: Contingent consideration liability		(12,700	)
Total cash purchase price	$	410,067

ROLLINS, INC. AND SUBSIDIARIES

Goodwill from acquisitions represents the excess of the purchase price over the fair value of net assets of businesses acquired. The carrying amount of goodwill was $563.1  million and $368.5 million at June 30, 2019 and December 31, 2018, 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 $55.2 million  at June 30, 2019 and $54.9 million at December 31, 2018.

The Company completed its most recent annual impairment analysis as of September 30, 2018. 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 $283.3 million and $178.1 million at June 30, 2019 and December 31, 2018, respectively. The carrying amount of trademarks and tradenames was $103.0 million and $54.1 million at June 30, 2019, and December 31, 2018, respectively. The carrying amount of other intangible assets was $11.2 million and $11.0 million at June 30, 2019 and December 31, 2018, respectively. The carrying amount of customer contracts in foreign countries was $35.1 million and $37.1 million at June 30, 2019 and December 31, 2018, respectively. The carrying amount of trademarks and tradenames in foreign countries was $3.5 million and $3.7 million at June 30, 2019 and December 31, 2018, respectively. The carrying amount of other intangible assets in foreign countries was $1.4 million and $1.6 million at June 30, 2019 and December 31, 2018, respectively. 

Customer contracts and other amortizable intangible assets are amortized on a straight-line basis over their economic useful lives. The following table sets forth the components of intangible assets as of June 30, 2019 (in thousands):

Intangible Asset	Carrying Value		Useful Life in Years
Customer contracts	$	283,309		3-12
Trademarks and tradenames		102,986		N/A-20
Non-compete agreements		4,881		3-20
Patents		1,743		3-15
Other assets		2,377		10
Internet domains		2,227		N/A
Total customer contracts and other intangible assets	$	397,523