EMPLOYEE BENEFIT PLANS

12 Months Ended

Dec. 31, 2013

Description of New Accounting Pronouncements Recently Adopted

EMPLOYEE BENEFIT PLANS

13.  EMPLOYEE BENEFIT PLANS

Employee Benefit Plans

Defined Benefit Pension Plans

Rollins, Inc. Retirement Income Plan

The Company maintains several noncontributory tax-qualified defined benefit pension plans (the “Plans”) covering employees meeting certain age and service requirements. The Plans provides 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 the Plans with at least the minimum amount required by ERISA. The Company made contributions of $5.0 million, $5.2 million and $4.9 million to the Plans during the years ended December 31, 2013, 2012 and 2011, respectively.

In 2005, the Company ceased all future benefit accruals under the Rollins, Inc. Retirement Income Plan, although the Company remains obligated to provide employees benefits earned through June 2005.  In 2012 the Plan was amended to allow certain vested terminated participants the ability to elect for a limited time the commencement of their benefit in the form of a single-sum payment, not to exceed $13,500, or an annuity starting date of December 1, 2012.  In total $4.7 million was paid by the Plan during the year ended December 31, 2012 under this program. The Plan did not offer this option for the year ended December 31, 2013.

The Company terminated the Waltham Services, LLC Salaried Pension Plan and all benefits have been settled via an annuity purchase or lump sum in December 2012.  The total payout by the plan was either in the form of lump sum payments (including rollovers) or annuities.  Active employees were eligible to roll their balances into the Rollins 401(k) Plan.   The Annuities were purchased through an unaffiliated insurance company. The total amount disbursed to terminate the plan totaled $4.0 million.  

The Company also includes the Waltham Services, LLC Hourly Employee Pension Plan in the Company’s financial statements. The Company accounts for these defined benefit plans in accordance with FASB ASC Topic 715 “Compensation- Retirement Benefits”, and engages an outside actuary to calculate its obligations and costs. With the assistance of the actuary, the Company evaluates the significant assumptions used on a periodic basis including the estimated future return on plan assets, the discount rate, and other factors, and makes adjustments to these liabilities as necessary.

In June 2005, the Company froze the Rollins, Inc. defined benefit pension plan. The Company currently 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,	2013			2012
(in thousands)
CHANGE IN ACCUMULATED BENEFIT OBLIGATION
Accumulated Benefit obligation at beginning of year	$	210,815		$	196,911
Service cost		112			100
Interest cost		8,551			9,622
Actuarial (gain) loss		(24,724	)		21,541
Benefits paid		(8,807	)		(17,359	)
Accumulated Benefit obligation at end of year		185,947			210,815
CHANGE IN PLAN ASSETS
Market value of plan assets at beginning of year		167,544			165,044
Actual return on plan assets		28,632			14,656
Employer contribution		5,000			5,203
Benefits paid		(8,807	)		(17,359	)
Fair value of plan assets at end of year		192,369			167,544
Funded status	$	6,422		$	(43,271	)
Amounts Recognized in the Statement of Financial Position consist of:
December 31,		2013			2012
(in thousands)
Noncurrent assets/(liabilities)	$	6,422		$	(43,271	)
Amounts Recognized in Accumulated Other Comprehensive Income consists of:
December 31,		2013			2012
(in thousands)
Net actuarial loss	$	56,742		$	102,419

The accumulated benefit obligation for the defined benefit pension plans were $185.9 million and $210.8 million at December 31, 2013 and 2012, respectively. Accumulated benefit obligation and projected benefit obligation are materially the same for the Plans. Pre-tax increases in the pension liability which were (charged, net of tax) credited to other comprehensive income/(loss) were $45.7 million, $(15.4) million and $(24.5) million in 2013, 2012 and 2011, respectively.

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

December 31,	2013			2012			2011
ACCUMULATED BENEFIT OBLIGATION
Discount rate		5.20	%		4.17	%		5.01	%
Rate of compensation increase		N/A			N/A			N/A
NET BENEFIT COST
Discount rate		4.17	%		5.01	%		5.51	%
Expected return on plan assets		7.00	%		7.00	%		7.00	%
Rate of compensation increase		N/A			N/A			N/A

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, for fiscal year’s 2013, 2012 and 2011 the Company utilized a yield curve analysis.

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

Years ended December 31,	2013			2012			2011
(in thousands)
Service cost	$	112		$	100		$	158
Interest cost		8,551			9,622			9,879
Expected return on plan assets		(11,589	)		(12,106	)		(12,080	)
Amortization of net loss		3,910			3,606			1,800
Net periodic loss/(benefit)	$	984		$	1,222		$	(243	)

The benefit obligations recognized in other comprehensive income for the years ended December 31, 2013, 2012 and 2011 are summarized as follows:

(in thousands)	2013			2012			2011
Pretax (income)/loss	$	(41,767	)	$	18,991		$	26,297
Amortization of net loss		(3,910	)		(3,606	)		(1,800	)
Total recognized in other comprehensive income		(45,677	)		15,385			24,497
Total recognized in net periodic benefit (income)/cost and other comprehensive income	$	(44,693	)	$	16,607		$	24,254

The Company expects to amortize a net loss of $2.4 million in 2014. At December 31, 2013 and 2012, the Plan’s assets were comprised of listed common stocks and U.S. government and corporate securities, real estate and other. Included in the assets of the Plan were shares of Rollins, Inc. Common Stock with a market value of $37.1 million and $26.6 million at December 31, 2013 and 2012, respectively.

The Plans’ weighted average asset allocation at December 31, 2013 and 2012 by asset category, along with the target allocation for 2014, are as follows:

	Target			Percentage of plan assets as of
	allocations for			December 31,
Asset category	2014			2013			2012
Cash and cash equivalents		0% - 5%			0.6	%		0.2	%
Equity securities - Rollins stock		0% - 30%			19.3	%		15.9	%
Domestic equity - all other		0% - 30%			21.5	%		13.0	%
Global equity		0.0	%		0.0	%		12.5	%
International equity		10% - 30%			25.3	%		13.6	%
Debt securities - core fixed income		15% - 50%			20.4	%		17.1	%
Tactical composite		0.0	%		0.0	%		12.5	%
Real estate		0% - 20%			6.7	%		7.7	%
Real return		0% - 20%			6.2	%		7.5	%
Other		0% - 20%			0.0	%		0.0	%
Total		100.0	%		100.0	%		100.0	%

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 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 considering making contributions to the pension plans of approximately $3.3 million during fiscal 2014.

Some of our assets, primarily our private equityandreal estate, do not have readily determinable market values given the specific investment structures involved and the nature of the underlying investments.  For the December 31, 2013 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 withdiscussions focusing on underlying fundamentals and significant events. Additionally, these investments are categorized as level 3 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.

Fair Value Measurements

The Company’s overall investment strategy is to achieve a mix of approximately 70 percent of investments for long-term growth and 30 percent for near-term benefit payments, with a wide diversification of asset types, fund strategies and fund managers.  Equity securities primarily include investments in large-cap and small-cap companiesdomiciled domestically andinternationally.  Fixed-income securities include corporate bonds, mortgage-backed securities,sovereign bonds, and U.S. Treasuries.  Other types of investments include real estatefunds and private equity funds that follow several different investment strategies. 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, includingbut not limited toindividual market securities, equity and fixed income funds in which the underlying securities are marketable, and debt funds to achieve this target allocation.

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, 2013 plan asset reporting, publicly traded asset pricing was used where possible. For assets without readily determinable values, estimates were derived from investment manager discussions focusing on underlying fundamentals and significant events.

The following table presents our plan assets using the fair value hierarchy as of December 31, 2013. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. See note 7 for a brief description of the three levels under the fair value hierarchy.

(in thousands)		Total		Level 1		Level 2		Level 3
(1)	Cash and Cash Equivalents	$	1,067	$	1,067	$	—	$	—
(2)	Fixed Income Securities		39,273		—		39,273		—
	Domestic Equity Securities
	Rollins, Inc. Stock		37,067		37,067		—		—
	Other Securities		41,357		41,357		—		—
(3)	International Equity Securities		48,780		—		48,780		—
(4)	Real Estate		12,831		—		—		12,831
(5)	Real Return		11,994		—		11,994		—
	Total	$	192,369	$	79,491	$	100,047	$	12,831

The following table presents our plan assets using the fair value hierarchy as of December 31, 2012. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.

(in thousands)		Total		Level 1		Level 2		Level 3
(1)	Cash and Cash Equivalents	$	289	$	289	$	—	$	—
(2)	Fixed Income Securities		28,624		—		28,624		—
	Domestic Equity Securities				—		—		—
	Rollins, Inc. Stock		26,644		26,644		—		—
	Other Securities		21,779		21,779		—		—
	Global Equity Securities		20,990		20,990		—		—
(3)	International Equity Securities		22,758		10,805		11,953		—
(6)	Tactical Composite		21,026		—		21,026		—
(4)	Real Estate		12,890		—		—		12,890
(5)	Real Return		12,544		—		12,544		—
	Total	$	167,544	$	80,507	$	74,147	$	12,890

(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) Some 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) Real Return funds invest in global equities, commodities and inflation protected core bonds that are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets.

(6) Tactical Composite funds invest in stocks, bonds and cash, both domestic and international. These assets are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets.

The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2013.

					Net			Net
	Balance at		Net Realized		Purchases,			Transfers		Balance at
	December 31,		and Unrealized		Issuances and			In to/(Out of)		December 31,
(in thousands)	2012		Gains/(Losses)		Settlements			Level 3		2013
Real Estate	$	12,890	$	1,061	$	(1,120	)	$	—	$	12,831
Total	$	12,890	$	1,061	$	(1,120	)	$	—	$	12,831

The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2012.

					Net		Net
	Balance at		Net Realized		Purchases,		Transfers		Balance at
	December 31,		and Unrealized		Issuances and		In to/(Out of)		December 31,
(in thousands)	2011		Gains/(Losses)		Settlements		Level 3		2012
Real Estate	$	7,092	$	997	$	4,801	$	—	$	12,890
Total	$	7,092	$	997	$	4,801	$	—	$	12,890

The estimated future benefit payments over the next ten years are as follows:

(in thousands)
2014	$	9,877
2015		10,364
2016		10,794
2017		11,251
2018		11,724
Thereafter		63,089
Total	$	117,099

Defined Contribution 401(k) Plan

The Company sponsors a defined contribution 401(k) Plan that is available to a majority of the Company’s full-time employees the first 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 fifty cents ($.50) for each one dollar ($1.00) of a participant’s contributions to the Plan 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 $8.2 million for the year ended December 31, 2013 and $7.7 million and $7.0 million for the years ended December 31, 2012 and 2011. At December 31, 2013, 2012 and 2011 approximately, 34.9%, 32.5% and 35.5%, respectively of the plan assets consisted of Rollins, Inc. Common Stock. Total administrative fees paid by the Company for the Plan were approximately $54 thousand in 2013, $53 thousand in 2012 and $42 thousand in 2011.

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. The Company credited accounts of participants of long service to the Company with certain discretionary amounts (“Pension Plan Benefit Restoration Contributions”) in lieu of benefits that previously accrued under the Company's Retirement Income Plan up to a maximum of $245 thousand. The Company made Pension Plan Benefit Restoration Contributions under the Deferred Compensation Plan for five years. The first contribution was made in January 2007 for those participants who were employed for all of the 2006 plan year. Only employees with five full years of vested service on June 30, 2005 qualified for Pension Plan Benefit Restoration Contributions. Under the Deferred Compensation Plan, salary and bonus deferrals and Pension Plan Benefit Restoration Contributions are fully vested. Any discretionary contributions are subject to vesting in accordance with the matching contribution vesting schedule set forth in the Rollins 401(k) Plan in which a participant participates. The Company made its last contributions associated with this plan during the first quarter of 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, 2013 the Deferred Compensation Plan had 41 life insurance policies with a net face value of $37.2 million. The cash surrender value of these life insurance policies were worth $11.5 million and $11.2 million at December 31, 2013 and 2012, respectively.

The estimated life insurance premium payments over the next five years are as follows:

(in thousands)
2014	$	121
2015		467
2016		1,693
2017		1,500
2018		1,661
Total	$	5,442

Total expense/(income) related to deferred compensation was $159 thousand, $338 thousand and $218 thousand in 2013, 2012, and 2011, respectively. The Company had $13.7 million and $11.3 million in deferred compensation assets as of December 31, 2013 and 2012, respectively, included within other assets on the Company’s consolidated statements of financial position and $12.8 million and $11.1 million in deferred compensation liability as of December 31, 2013 and 2012, respectively, located within long-term accrued liabilities on the Company’s consolidated statements of financial position. The amounts of assets were marked to fair value.