Rollins, Inc. Annual report pursuant to Section 13 and 15(d)

EMPLOYEE BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2012

	December 31,

(in thousands)	2012			2011

CHANGE IN ACCUMULATED BENEFIT OBLIGATION
Accumulated Benefit obligation at beginning of year	$	196,911		$	183,972
Pension plans acquired upon acquisitions of companies		—			—
Service cost		100			158
Interest cost		9,622			9,879
Actuarial (gain) loss		21,541			12,205
Benefits paid		(17,359	)		(8,793	)
Liability gain due to curtailment		—			(510	)

Accumulated Benefit obligation at end of year		210,815			196,911
CHANGE IN PLAN ASSETS
Market value of plan assets at beginning of year		165,044			171,457
Actual return on plan assets		14,656			(2,520	)
Employer contribution		5,203			4,900
Benefits paid		(17,359	)		(8,793	)

Fair value of plan assets at end of year		167,544			165,044

Funded status	$	(43,271	)	$	(31,867	)

	December 31,

	2012			2011			2010

ACCUMULATED BENEFIT OBLIGATION
Discount rate		4.17	%		5.01	%		5.51	%
Rate of compensation increase		N/A			N/A			N/A
NET BENEFIT COST
Discount rate		5.01	%		5.51	%		6.01	%
Expected return on plan assets		7.00	%		7.00	%		7.00	%
Rate of compensation increase		N/A			N/A			N/A

	Pension Benefits

(in thousands)	2012			2011			2010

Net Periodic Benefit Cost
Service cost	$	100		$	158		$	86
Interest cost		9,622			9,879			9,514
Expected return on plan assets		(12,106	)		(12,080	)		(11,437	)
Amortization of net loss		3,606			1,800			1,115

Net periodic loss/(benefit)	$	1,222		$	(243	)	$	(722	)

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Pretax loss	$	18,991		$	26,297		$	3,048
Amortization of net loss		(3,606	)		(1,800	)		(1,115	)

Total recognized in other comprehensive income		15,385			24,497			1,933

Total recognized in net periodic benefit cost and other comprehensive income	$	16,607		$	24,254		$	1,211

	Target allocations for	Percentage of plan assets as of December 31,

Asset category	2013	2012	2011

Cash and cash equivalents	0% – 5%	0.2%	0.6%
Equity securities—Rollins stock	10% – 20%	15.9%	20.6%
Domestic equity—all other	20% – 30%	13.0%	12.7%
Global equity	10% – 20%	12.5%	11.4%
International equity	10% – 20%	13.6%	11.6%
Debt securities—core fixed income	15% – 50%	17.1%	18.9%
Tactical composite	10% – 20%	12.5%	12.5%
Real estate	0% – 10%	7.7%	4.3%
Real return	0% – 10%	7.5%	7.4%
Other	0% – 5%	0.0%	0.0%

Total	100.0%	100.0%	100.0%

The following table presents our plan assets using the fair value hierarchy as of December 31, 2012.

		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		—
(4)	Tactical Composite		21,026		—		21,026		—
(5)	Real Estate		12,890		—		—		12,890
(6)	Real Return		12,544		—		12,544		—

	Total	$	167,544	$	80,507	$	74,147	$	12,890

The following table presents our plan assets using the fair value hierarchy as of December 31, 2011.

		Total		Level 1		Level 2		Level 3


(1)	Cash and Cash Equivalents	$	918	$	918	$	—	$	—
(2)	Fixed Income Securities		31,167		—		31,167		—
	Domestic Equity Securities				—		—		—
	Rollins, Inc. Stock		34,050		34,050		—		—
	Other Securities		21,032		21,032		—		—
	Global Equity Securities		18,751		18,751		—		—
(3)	International Equity Securities		19,120		9,316		9,804		—
(4)	Tactical Composite		20,680		—		20,680		—
(5)	Real Estate		7,092		—		—		7,092
(6)	Real Return		12,234		—		12,234		—

	Total	$	165,044	$	84,067	$	73,885	$	7,092

(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): 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.
(5): 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.
(6): 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.

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

	Balance at December 31, 2011		Net Realized and Unrealized Gains/(Losses)		Net Purchases, Issuances and Settlements		Net Transfers In to/ (Out of) Level 3		Balance at December 31, 2012


Real Estate	$	7,092	$	997	$	4,801	$	—	$	12,890

Total	$	7,092	$	997	$	4,801	$	—	$	12,890

The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2011.

	Balance at December 31, 2010		Net Realized and Unrealized Gains/(Losses)			Net Purchases, Issuances and Settlements			Net Transfers In to/ (Out of) Level 3		Balance at December 31, 2011


Real Estate	$	6,248	$	844		$	—		$	—	$	7,092
Alternative Investments		1,423		(11	)		(1,412	)		—		—

Total	$	7,671	$	833		$	(1,412	)	$	—	$	7,092