Leases

On January 1, 2019, the company adopted ASC Topic 842, “Leases,” including the following ASUs: ASU 2016-02, ASU 2017-13, ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01. The new guidance requires the recognition of right-of-use assets and lease liabilities on the balance sheet for leases with terms greater than 12 months or leases that contain a purchase option that is reasonably certain to be exercised. Lessees are now required to classify leases as either finance or operating leases. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

The company elected to utilize the package of practical expedients in ASC 842-10-65-1(f) that, upon adoption of ASC 842, allows entities to (1) not reassess whether any expired or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as of the date of adoption and (3) not reassess initial direct costs for any existing leases. The company elected to utilize the practical expedient in ASC 842-10-65-1(gg) in which an entity need not assess whether existing land easements not previously accounted for as leases contain a lease under ASC 842. The company also elected to utilize the practical expedient in ASC 842-10-15-37 in which the company has chosen to account for each separate lease component of a contract and its associated nonlease components as a single lease component.

The company adopted ASC 842 using the modified retrospective method, and accordingly, the new guidance was applied retrospectively to leases that existed as of January 1, 2019 (the date of initial application). As a result, the company has recorded total right-of-use assets of $282 million, total current lease liabilities of $72 million, total noncurrent lease liabilities of $222 million and a cumulative effect adjustment to increase retained earnings by $21 million (net of deferred taxes of $6 million) as of January 1, 2019. The increase in retained earnings primarily resulted from the recognition of previously deferred gains associated with two sale and leaseback transactions, as allowed under ASC 842-10-65-1(ee). The adoption of ASC 842 did not have a material impact on the company’s results of operations or any impact on the company’s cash flows.

The company’s right-of use assets and lease liabilities primarily relate to office facilities, equipment used in connection with long-term construction contracts and other personal property. Certain of the company’s facility and equipment leases include one or more options to renew, with renewal terms that can extend the lease term up to 10 years. The exercise of lease renewal options is at the company’s discretion. Renewal periods are included in the expected lease term if they are reasonably certain of being exercised by the company. Certain leases also include options to purchase the leased property. None of the company’s lease agreements contain material residual value guarantees or material restrictions or covenants.

Long-term leases (leases with terms greater than 12 months) are recorded on the consolidated balance sheet at the present value of the minimum lease payments not yet paid. The company uses its incremental borrowing rate to determine the present value of the lease when the rate implicit in the lease is not readily determinable. Certain lease contracts contain nonlease components such as maintenance, utilities, fuel and operator services. The company has made an accounting policy election, as allowed under ASC 842-10-15-37 and discussed above, to capitalize both the lease component and nonlease components of its contracts as a single lease component for all of its right-of-use assets. From time to time, certain service or purchase contracts may contain an embedded lease.

Short-term leases (leases with an initial term of 12 months or less or leases that are cancelable by the lessee and lessor without significant penalties) are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term. The majority of the company’s short-term leases relate to equipment used on construction projects. These leases are entered into at agreed upon hourly, daily, weekly or monthly rental rates for an unspecified duration and typically have a termination for convenience provision. Such equipment leases are considered short-term in nature unless it is reasonably certain that the equipment will be leased for a term greater than 12 months.

The components of lease expense for the three months ended March 31, 2019 were as follows:



Lease Cost / (Sublease Income)	Three Months Ended March 31, 2019
(in thousands)
Operating lease cost	$	22,406
Finance lease cost
Amortization of right-of-use assets	393
Interest on lease liabilities	18
Variable lease cost⁽¹⁾	4,546
Short-term lease cost	36,286
Sublease income	(11,108		)
Total lease cost	$	52,541


(1)	Primarily relates to rent escalation due to cost of living indexation and payments for property taxes, insurance or common area maintenance based on actual assessments.

Information related to the company’s right-of use assets and lease liabilities as of March 31, 2019 was as follows:



Lease Assets / Liabilities	Balance Sheet Classification	March 31, 2019
(in thousands)
Right-of-use assets
Operating lease assets	Other assets	$	312,262
Finance lease assets	Other assets	1,504
Total right-of-use assets		$	313,766
Lease liabilities
Operating lease liabilities, current	Other accrued liabilities	$	67,428
Operating lease liabilities, noncurrent	Noncurrent liabilities	255,190
Finance lease liabilities, current	Other accrued liabilities	1,009
Finance lease liabilities, noncurrent	Noncurrent liabilities	947
Total lease liabilities		$	324,574

Supplemental information related to the company’s leases for the three months ended March 31, 2019 was as follows:



	Three Months Ended March 31, 2019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	22,570
Operating cash flows from finance leases	18
Financing cash flows from finance leases	428
Right-of-use assets obtained in exchange for new operating lease liabilities	51,240
Right-of-use assets obtained in exchange for new finance lease liabilities	—
Weighted-average remaining lease term - operating leases	6.97 years
Weighted-average remaining lease term - finance leases	1.94 years
Weighted-average discount rate - operating leases	3.45		%
Weighted-average discount rate - finance leases	3.27		%

Total remaining lease payments under both the company’s operating and finance leases are as follows:



Year Ended December 31,	Operating Leases			Finance Leases
(in thousands)
Remainder of 2019	$	59,119		$	1,140
2020	72,084			757
2021	52,926			111
2022	42,317			—
2023	34,940			—
Thereafter	100,766			—
Total lease payments	$	362,152		$	2,008
Less: Interest	(39,534		)	(52		)
Present value of lease liabilities	$	322,618		$	1,956