Leases

Adoption of Topic 842

On January 1, 2019, the Company adopted Topic 842 by applying the guidance at adoption date. As a result, the comparative information as of December 31, 2018 and for the three months ended March 31, 2018 has not been adjusted and continues to be reported under ASC 840, Leases (“ASC 840”). The Company elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed the Company to carry forward its identification of contracts that are or contain leases, its historical lease classification and its accounting for initial direct costs for existing leases. The impact of adopting Topic 842 was not material to the Company’s results of operations or cash flows for the three months ended March 31, 2019.

Beginning January 1, 2019, the Company has recognized ROU assets and lease liabilities for the Company’s operating leases on its unaudited condensed consolidated balance sheets. ROU assets for the Company’s operating leases are presented within operating lease right-of-use assets on the Company’s condensed consolidated balance sheets, while the lease liabilities for the Company’s operating leases are presented within operating lease liabilities, with a current and long-term portion. Upon adoption of Topic 842, the balances at adoption date of prepaid and accrued rent, lease incentives and unamortized assets and liabilities related to favorable and unfavorable leases were reclassified and are now presented within operating lease right-of-use assets on the Company’s condensed consolidated balance sheets. Refer to further discussion of the Company’s ROU assets and lease liabilities below. The Company’s accounting for its historical capital leases, which are now presented as finance leases under Topic 842, remained substantially unchanged.

Lease Arrangements

The Company has operating and finance leases primarily for its facilities, office space, land, fleet vehicles and equipment. Many of the Company’s leases are non-cancellable and typically have an initial lease term of five to ten years and most provide options at the Company’s election to renew for specified periods of time. The Company’s leases generally provide for fixed annual rentals. Certain of the Company’s leases include provisions for escalating rent, as an example, based on changes in the consumer price index. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement. Most of the Company’s leases require it to pay taxes, insurance and maintenance expenses associated with the properties. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement contains a lease at inception. The Company has lease agreements with lease and non-lease components, which for all such leases are generally accounted for separately. The Company has elected the short-term lease exception under Topic 842 for all leases and as such, leases with an initial term of 12 months or less are not recorded on the unaudited condensed consolidated balance sheets. The Company recognizes lease expense for short-term leases on a straight-line basis over the lease term.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases generally do not provide an implicit rate, we use the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and any initial direct costs incurred. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Leases

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



(in thousands)	Classification	Three Months Ended March 31, 2019
Operating lease cost (a)	Selling, general and administrative expenses	$	9,567

Finance lease cost
Amortization of ROU assets	Depreciation expense	$	1,644
Interest on lease liabilities	Interest expense	180
Total finance lease cost		$	1,824

(a) Includes short-term leases and variable lease costs, which are not material.

The Company subleases certain facilities to third parties. Income from sublease rentals for the three months ended March 31, 2019 was not material.

The following table reflects the Company’s right-of-use assets and lease liabilities as of March 31, 2019:



(in thousands)	Classification	March 31, 2019
Assets
Operating lease right-of-use assets	Operating lease right-of-use assets	$	109,448
Finance lease right-of-use assets (a)	Property and equipment, net of accumulated depreciation	15,540
Total leased right-of-use assets		$	124,988
Liabilities
Current portion
Operating lease liabilities	Current portion of operating lease liabilities	$	23,820
Finance lease liabilities	Current portion of long-term debt and finance lease obligations	6,497
Noncurrent portion
Operating lease liabilities	Long-term portion of operating lease liabilities	91,380
Finance lease liabilities	Long-term portion of finance lease obligations	7,301
Total lease liabilities		$	128,998

(a) Finance lease right-of-use assets are presented net of accumulated amortization of $43.3 million as of March 31, 2019.

The following table presents the weighted average remaining lease term and weighted average discount rate for the Company’s leases as of March 31, 2019:



	March 31, 2019
Weighted average remaining lease term (years)
Operating leases	6.3
Finance leases	3.3
Weighted average discount rate
Operating leases	6.8	%
Finance leases	4.8	%

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:



(in thousands)	Operating Leases			Finance Leases			Total
2019 (a)	$	23,676		$	5,335		$	29,011
2020	25,747			5,578			31,325
2021	23,097			2,356			25,453
2022	19,405			873			20,278
2023	16,054			660			16,714
Thereafter	34,909			—			34,909
Total lease payments	142,888			14,802			157,690
Less: Interest	(27,688		)	(1,004		)	(28,692		)
Present value of lease liabilities	$	115,200		$	13,798		$	128,998

(a) Excludes the three months ended March 31, 2019.

As of March 31, 2019, the Company had an additional operating lease for a facility that has not yet commenced, as the facility had not yet been made available to the Company. This lease is expected to commence in 2019.

Cash paid for amounts included in the measurement of lease liabilities and right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 2019 were as follows:



(in thousands)	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	7,927
Operating cash flows from finance leases	166
Financing cash flows from finance leases	1,708
Right-of-use assets obtained in exchange for lease obligations
Operating leases	5,467
Finance leases	$	—

Disclosures related to periods prior to adoption of Topic 842

As previously discussed, the Company adopted Topic 842 by applying the guidance at adoption date, January 1, 2019. As required, the following disclosure is provided for periods prior to adoption, which continue to be presented in accordance with ASC 840.

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2018 are as follows:



(in thousands)	Capital Leases			Operating Leases
2019	$	7,245		$	30,431
2020	5,599			24,210
2021	2,356			21,551
2022	873			17,908
2023	660			14,607
Thereafter	—			34,279
	16,733			$	142,986	(a)
Less: Amounts representing interest	(1,227		)
Total obligation under capital leases	15,506
Less: Current portion of capital lease obligation	(6,661		)
Long-term capital lease obligation	$	8,845

(a) Minimum operating lease payments have not been reduced by minimum sublease rentals of $0.1 million due in the future under noncancelable subleases.