LEASES

6 Months Ended

Jun. 30, 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 June 30, 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.

ROLLINS, INC. AND SUBSIDIARIES

(in thousands)
Lease Classification	Financial Statement Classification	Six Months Ended June 30, 2020
Short-term lease cost	Cost of services provided, Sales, general, and administrative expenses	$	133
Operating lease cost	Cost of services provided, Sales, general, and administrative expenses		42,024
Total lease expense		$	42,157
Other Information
Weighted-average remaining lease term – operating leases			3.78
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		$	41,599

Lease Commitments

Future minimum lease payments, including assumed exercise of renewal options at June 30, 2020 were as follows:

(in thousands)	Operating Leases
2020 (excluding the six months ended June 30, 2020)	$	40,717
2021		71,763
2022		53,682
2023		33,800
2024		14,063
2025		7,913
Thereafter		11,987
Total Future Minimum Lease Payments	$	233,925
Less: Amount representing interest	$	17,585
Total future minimum lease payments, net of interest	$	216,340

Total future minimum lease payments for operating leases, including the amount representing interest, are comprised of $95.0 million for building leases and $138.9 million for vehicle leases. As of June 30, 2020, the Company had no additional future obligations for leases that had not yet commenced.