Rollins, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LEASES

LEASES

9 Months Ended

Sep. 30, 2021

NOTE 9.LEASES

The Company leases certain buildings, vehicles, and equipment in order to reduce the risk associated with ownership and to maximize working capital utilization. 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 September 30, 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 nine months ended September 30, 2021, the Company completed multiple sale-leaseback transactions where it sold 17 of its properties related to the Clark Pest Control acquisition for gross proceeds of $67.0 million and a pre-tax gain of $31.5 million. These leases are classified as operating leases with terms of 7 to 15 years.

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.


		Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except Other Information)
Lease Classification	Financial Statement Classification	2021		2020		2021			2020
Short-term lease cost	Cost of services provided, Sales, general, and administrative expenses	$	51	$	20	$	176		$	153
Operating lease cost	Cost of services provided, Sales, general, and administrative expenses		23,472		21,514		69,497			63,538
Total lease expense		$	23,523	$	21,534	$	69,673		$	63,691

Other Information:
Weighted-average remaining lease term - operating leases							5.54 years			3.70 years
Weighted-average discount rate - operating leases							3.69	%		3.94	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases						$	68,614		$	62,928

Lease Commitments

Future minimum lease payments, including assumed exercise of renewal options as of September 30, 2021 were as follows:


(in thousands)
2021 (excluding the nine months ended September 30, 2021)	$	22,994
2022		79,411
2023		59,682
2024		35,874
2025		20,329
2026		13,495
Thereafter		52,667
Total Future Minimum Lease Payments		284,452
Less: Amount representing interest		30,387
Total future minimum lease payments, net of interest	$	254,065

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 $161.3 million for building leases and $123.2 million for vehicle leases. As of September 30, 2021, the Company had additional future obligations of $4.3 million for leases that had not yet commenced.