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Leases

12 Months Ended

Dec. 31, 2019

The Company adopted ASU 2016-02 on January 1, 2019, and elected the modified retrospective method of implementation. The standard requires the recognition of ROU assets and lease liabilities for leases, which are defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company has elected the practical expedient which allows for leases with an initial

term of 12 months or less to be excluded from recognition on the Consolidated Statement of Financial Condition and for which lease expense is recognized on a straight-line basis over the lease term.

Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. These leases are primarily for corporate office space, datacenters, and technology equipment. The leases have remaining terms of 1 year to 15 years, some of which include options to extend the initial term at the Company's discretion. The lease terms used in calculating ROU assets and lease liabilities include the options to extend the initial term when the Company is reasonably certain of exercising the options. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants. In addition to the base rental costs, the Company’s lease agreements for corporate office space generally provide for rent escalations resulting from increased assessments for operating expenses, real estate taxes and other charges. Payments for such reimbursable expenses are considered variable and are recognized as variable lease costs in the period in which the obligation for those payments was incurred.

The Company also subleases certain office space and facilities to third parties. The subleases have remaining terms of 1 to 12 years. The Company recognizes sublease income on a straight-line basis over the term of the sublease within Other, net on the Consolidated Statement of Comprehensive Income.

As the implied discount rate for most of the Company's leases is not readily determinable, the Company uses its incremental borrowing rate on its secured borrowings, which was based on the information available as of the initial transition date, January 1, 2019, in determining the present value of lease payments.

As part of its purchase price allocation related to the ITG Acquisition, the balances of ROU assets and lease liabilities for certain acquired ITG office space were adjusted to reflect their fair values as of the ITG Closing Date. Additionally, the discount rate used to value the lease liabilities on the acquired leases was adjusted to the Company's incremental borrowing rate on its secured borrowings as of the ITG Closing Date. See Note 3 “ITG Acquisition” for further information on the ITG Acquisition.

During the year ended December 31, 2019, the Company ceased use of certain office lease premises as part of its ongoing effort to consolidate office space. For the year ended December 31, 2019, the Company recognized $66.5 million in Termination of office leases on the Consolidated Statement of Comprehensive Income, comprising $27.1 million of impairments of ROU assets, $37.9 million of write-offs of leasehold improvements and fixed assets, and $1.4 million of dilapidation charges.

Lease assets and liabilities are summarized as follows:



(in thousands)	Financial Statement Location	December 31, 2019
Operating leases
Operating lease right-of-use assets	Operating lease right-of-use assets	$	314,526
Operating lease liabilities	Operating lease liabilities	365,364

Finance leases
Property and equipment, at cost	Property, equipment, and capitalized software, net	37,589
Accumulated depreciation	Property, equipment, and capitalized software, net	(24,579		)
Finance lease liabilities	Accounts payable, accrued expenses, and other liabilities	13,371

Weighted average remaining lease term and discount rate are as follows:



	December 31, 2019
Weighted average remaining lease term
Operating leases	7.50 years
Finance leases	1.45 years
Weighted average discount rate
Operating leases	5.70	%
Finance leases	3.52	%

The components of lease expense were as follows:



(in thousands)	Year Ended December 31, 2019
Operating lease cost:
Fixed	$	72,714
Variable	8,333
Impairment of ROU Asset	27,104
Total Operating lease cost	108,151

Finance lease cost:
Amortization of right-of-use assets	12,565
Interest on lease liabilities	661
Total Finance lease cost	13,226

Sublease income	12,590

Future minimum lease payments under operating and finance leases with non-cancelable lease terms, as of December 31, 2019, are as follows:



(in thousands)	Operating Leases			Finance Leases
2020	$	76,118		$	10,929
2021	73,062			3,305
2022	66,850			565
2023	63,676			—
2024	32,144			—
2025 and thereafter	141,371			—
Total lease payments	453,221			14,799
Less imputed interest	(87,857		)	(1,428		)
Total lease liability	$	365,364		$	13,371

Future lease payments under non-cancelable leases and sublease receipts as of December 31, 2018 are as follows:



(thousands)	Capital		Operating		Subleases
2019	$	21,983	$	32,755	$	(8,979	)
2020	11,283		30,473		(9,324		)
2021	1,651		25,564		(8,844		)
2022	—		22,710		(8,552		)
2023	—		21,456		(8,695		)
Thereafter	—		113,779		(36,312		)
Total minimum lease payments	$	34,917	$	246,737	$	(80,706	)

Leases