LEASES

3 Months Ended

Mar. 31, 2021

Leases

LEASES

NOTE 9. 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, 2021, and December 31, 2020, all leases were classified as operating leases. Building leases generally carry terms of 5 to 15 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 7 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.

During the three months ended March 31, 2021, the Company completed a sale-leaseback transaction where it sold 16 of its properties related to the Clark Pest Control acquisition for gross proceeds of $62.1 million and a gain of $31.1 million. These leases are classified as operating leases with terms of 7 to 15 years.

ROLLINS, INC. AND SUBSIDIARIES

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)
		Three Months Ended March 31,
Lease Classification	Financial Statement Classification	2021			2020
Short-term lease cost	Cost of services provided, Sales, general, and administrative expenses	$	60		$	76
Operating lease cost	Cost of services provided, Sales, general, and administrative expenses		22,634			20,717
Total lease expense		$	22,694		$	20,793
Other Information
Weighted-average remaining lease term – operating leases			5.66 years			3.84 years
Weighted-average discount rate – operating leases			3.85	%		3.93	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		$	22,457		$	20,477

Lease Commitments

Future minimum lease payments, including assumed exercise of renewal options at March 31, 2021 were as follows:

(in thousands)	Operating Leases
2021 (excluding the three months ended March 31, 2021)	$	64,099
2022		70,231
2023		50,144
2024		27,083
2025		14,908
2026		10,803
Thereafter		48,844
Total Future Minimum Lease Payments		286,112
Less: Amount representing interest		31,782
Total future minimum lease payments, net of interest	$	254,330

Future commitments presented in the table above include lease payments in renewal periods for which it is reasonably certain that the Company will exercise the renewal option. Total future minimum lease payments for operating leases, including the amount representing interest, are comprised of $156.8 million for building leases and $129.3 million for vehicle leases. As of March 31, 2021, the Company had additional future obligations of $9.0 million for leases that had not yet commenced.

ROLLINS, INC. AND SUBSIDIARIES