LEASES

3 Months Ended

Mar. 31, 2020

Leases

LEASES

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 March 31, 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 5 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.

(in thousands)
Lease Classification	Financial Statement Classification	Three Months Ended March 31, 2020
Short-term lease cost	Cost of services provided, Sales, general, and administrative expenses		76
Operating lease cost	Cost of services provided, Sales, general, and administrative expenses		20,717
Total lease expense			20,793
Other Information
Weighted-average remaining lease term – operating leases			3.84
Weighted-average discount rate – operating leases			3.93
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases			20,477

ROLLINS, INC. AND SUBSIDIARIES

Lease Commitments

Future minimum lease payments, including assumed exercise of renewal options at March 31, 2020 were as follows:

(in thousands)	Operating Leases
2020 (excluding the three months ended March 31, 2020)	$	58,250
2021		65,533
2022		47,137
2023		27,744
2024		11,624
2025		7,382
Thereafter		10,723
Total Future Minimum Lease Payments		228,393
Less:  Amount representing interest		19,147
Total future minimum lease payments, net of interest	$	209,246

Total future minimum lease payments for operating leases, including the amount representing interest, are comprised of $96.8 million for building leases and $131.6 million for vehicle leases. As of March 31, 2020, the Company had no additional future obligations for leases that had not yet commenced.

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.