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BUSINESS COMBINATIONS

9 Months Ended

Sep. 30, 2019

NOTE 12. BUSINESS COMBINATIONS

The Company made 29 acquisitions during the nine month period ended September 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 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. The Company's consolidated statements of income include the results of operations of Clark Pest Control for the period beginning April 30, 2019 through September 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.

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 )

Other long term liabilities (9,352 )

Accrued insurance, less current portion (1,870 )

Contingent Consideration, long-term (5,923 )

$ 395,269

ROLLINS, INC. AND SUBSIDIARIES

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				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
REVENUES
Customer services	$	556,466	$	523,957	$	1,554,295	$	1,481,329
COSTS AND EXPENSES		510,327		430,970		1,365,280		1,231,662
INCOME BEFORE INCOME TAXES		46,139		92,987		189,015		249,667
PROVISION FOR INCOME TAXES		2,078		23,262		36,569		58,566
NET INCOME	$	44,061	$	69,725	$	152,446	$	191,101
NET INCOME PER SHARE - BASIC AND DILUTED	$	0.13	$	0.21	$	0.47	$	0.58
DIVIDENDS PAID PER SHARE	$	0.11	$	0.09	$	0.32	$	0.28
Weighted average participating shares outstanding - basic and diluted		327,459		327,320		327,490		327,283

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, 2019
Accounts receivable, net	$	8,535
Materials & supplies		1,378
Equipment and property		68,704
Goodwill		201,443
Customer contracts and other intangible assets		189,581
Current liabilities		(18,180	)
Other assets and liabilities, net		(7,512	)
Total purchase price	$	443,949
Less: Contingent consideration liability		(12,700	)
Total cash purchase price	$	431,249

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 $570.8 million and $368.5 million at September 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 $53.8 million at September 30, 2019 and $54.9 million at December 31, 2018.

The Company completed its most recent annual impairment analysis as of September 30, 2019. 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 $283.8 million and $178.1 million at September 30, 2019 and December 31, 2018, respectively. The carrying amount of trademarks and tradenames was $102.7 million and $54.1 million at September 30, 2019, and December 31, 2018, respectively. The carrying amount of other intangible assets was $11.0 million at both September 30, 2019 and December 31, 2018. The carrying amount of customer contracts in foreign countries was $33.4 million and $37.1 million at September 30, 2019 and December 31, 2018, respectively. The carrying amount of trademarks and tradenames in foreign countries was $3.4 million and $3.7 million at September 30, 2019 and December 31, 2018, respectively. The carrying amount of other intangible assets in foreign countries was $1.3 million and $1.6 million at September 30, 2019 and December 31, 2018, respectively.

ROLLINS, INC. AND SUBSIDIARIES

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

Intangible Asset	Carrying Value		Useful Life in Years
Customer contracts	$	283,830		3-12
Trademarks and tradenames		102,657		N/A-20
Non-compete agreements		4,877		3-20
Patents		1,613		3-15
Other assets		2,291		10
Internet domains		2,227		N/A
Total customer contracts and other intangible assets	$	397,495