Leases

9 Months Ended

Sep. 30, 2020

J2 Global leases certain facilities and equipment under non-cancelable operating and finance leases which expire at various dates through 2036. Office and equipment leases are typically for terms of three to five years and generally provide renewal options for terms up to an additional five years. Some of the Company’s leases include options to terminate within one year.

During the third quarter of 2020, the Company decided to exit and seek subleases for certain leased facilities in the Digital Media reportable segment primarily due to a permanent “remote” or “partial remote” work model for a significant number of employees. The Company recorded a non-cash impairment charge of $9.8 million related to operating lease right-of-

use assets for the affected facilities and an impairment charge of $3.6 million for associated property and equipment. The impairment was determined by comparing the fair value of the impacted right-of-use asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment. The fair value of the right-of-use asset was based on the estimated sublease income for the affected facilities taking into consideration the time it will take to obtain a sublease tenant, the applicable discount rate and the sublease rate which represents Level 3 unobservable inputs. The impairment is presented in general and administrative expenses on the Condensed Consolidated Statements of Operations. No impairment was recorded in the third quarter of 2019.

In certain agreements in which the Company leases office space where the Company is the tenant, it subleases the site to various other companies through a sublease agreement.

Finance leases are not material to the Company’s Condensed Consolidated Financial Statements and are therefore not included in the disclosures below.

The components of lease expense were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Operating lease cost	$	16,888	$	6,509	$	33,106	$	17,684
Short-term lease cost	264		407		1,357		1,291
Total lease cost	$	17,152	$	6,916	$	34,463	$	18,975

Supplemental balance sheet information related to leases was as follows (in thousands):


	September 30, 2020		December 31, 2019
Operating leases
Operating lease right-of-use assets	$	97,439	$	125,822

Total operating lease right-of-use assets	$	97,439	$	125,822

Operating lease liabilities, current	$	27,673	$	26,927

Operating lease liabilities, noncurrent	87,563		104,070

Total operating lease liabilities	$	115,236	$	130,997

Supplemental cash flow information related to leases was as follows (in thousands):


	Nine Months Ended September 30,
	2020		2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	21,764	$	15,925
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	7,968	$	32,442

Other supplemental operating lease information consists of the following:


	September 30, 2020		December 31, 2019

Operating leases:
Weighted average remaining lease term	5.5 years		5.9 years
Weighted average discount rate	4.21	%	3.95	%

Maturities of operating lease liabilities as of September 30, 2020 were as follows (in thousands):


	Operating Leases
Fiscal Year:
2020 (remainder)	$	7,393
2021	29,086
2022	26,120
2023	20,383
2024	13,726
Thereafter	38,471
Total lease payments	$	135,179
Less: Imputed interest	19,943
Present value of operating lease liabilities	$	115,236

Sublease

Total sublease income for the three months ended September 30, 2020 and 2019 was $0.4 million and $0.9 million, respectively, and was $2.2 million and $2.4 million for the nine months ended September 30, 2020 and 2019, respectively. Total estimated aggregate sublease income to be received in the future is $3.2 million.

In the second quarter of 2020, the Company recorded $2.1 million of impairment associated with one of its sublease tenants in default as a result of the economic effects of COVID-19. The impairment is presented in general and administrative expenses on the Condensed Consolidated Statement of Operations.

Significant Judgments

Discount Rate

The majority of the J2 Global’s leases are discounted using the Company’s incremental borrowing rate as the rate implicit in the lease is not readily determinable.

Options

The lease term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determined it is reasonably certain of exercising the option at inception or when a triggering event occurs.

Practical Expedients

As a practical expedient, the Company has not separated lease components from nonlease components for its real property operating leases. Certain of the Company’s leases contain nonlease components such as maintenance and certain utility costs.

In addition, the Company elected and applied the available transition practical expedients upon adoption. By electing these practical expedients, the Company did:

•not reassess whether expired or existing contracts contain leases under the new definition of a lease;

•not reassess lease classification for expired or existing leases; and

•not reassess whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.