Note 8. Leases

We determine if a contract contains a lease at the inception of an arrangement. If so, ROU assets representing the right to use an underlying asset for the lease term and lease liabilities representing an obligation to make lease payments arising from the lease are included on the condensed consolidated balance sheet.

We have operating and finance leases for facilities, vehicles, and equipment. Some leases include one or more options to renew, with renewal terms that can extend the lease term from five to ten years with exercise of lease renewal options being at the sole discretion of NCS as lessee. Certain leases also include options to purchase the leased property. Some leases may include an option to terminate the contract with notice. ROU assets and lease liabilities with a term of longer than 12 months are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, our interest rate under the senior secured credit facility is used as an incremental borrowing rate applied to the present value calculation at the lease commencement date unless the implicit rate is readily determinable. Lease expense for operating leases is recognized on a straight-line basis over the lease term. At adoption, ROU assets included any lease payments already made and excluded any initial direct costs.

Our lease agreements are from a lessee perspective and do not contain (i) any leases with variable lease payments (e.g., payments that depend on a percentage of sales of a lessee or payments that increase based upon an index such as a consumer price index), (ii) residual value guarantees probable of being paid or (iii) material restrictive covenants. Lease agreements with lease and non-lease components are generally accounted for separately when practical. For leases where the lease and non-lease component are comingled and the non-lease component is determined to be insignificant when compared to the lease component, the lease and non-lease components are treated as a single lease component for all asset classes.

As of March 31, 2019, we do not have any lessor leases and we do not have any additional operating and finance leases that have not yet commenced.

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


		March 31,
Leases	Condensed Consolidated Balance Sheet Location	2019
Assets
Operating lease right-of-use assets	Deposits and other assets	$	6,938
Finance lease right-of-use assets (1)	Property and equipment, net		4,234
Total leased right-of-use assets		$	11,172

Liabilities
Current
Operating lease liabilities	Other current liabilities	$	2,711
Finance lease liabilities	Current maturities of long-term debt		1,758

Noncurrent
Operating lease liabilities	Other long-term liabilities		4,263
Finance lease liabilities	Long-term debt, less current maturities		1,927
Total lease liabilities		$	10,659

_______________

(1)

Finance lease right-of-use assets are recorded net of accumulated amortization of $1.6 million as of March 31, 2019.

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


	Three Months Ended
	March 31,
Lease Cost	2019
Operating lease cost	$	680
Finance lease cost
Amortization of right-of-use assets		334
Interest on lease liabilities		63
Short-term lease cost		271
Total lease cost	$	1,348

Maturities of lease liabilities are as follows (in thousands):


Year Ending December 31,	Operating Leases		Finance Leases
2019 (excluding the three months ended March 31, 2019)	$	2,396	$	1,493
2020		2,124		1,393
2021		1,509		891
2022		771		283
2023		265		—
Thereafter		586		—
Total lease payments	$	7,651	$	4,060
Less: interest		677		375
Present value of lease liabilities	$	6,974	$	3,685

Lease term and discount rate consist of the following:


	March 31,
Lease Term and Discount Rate	2019
Weighted-average remaining lease term (years):
Operating leases		2.8
Finance leases		1.8
Weighted-average discount rate:
Operating leases		5.9	%
Finance leases		5.5	%

Supplemental cash flow and other information related to leases are as follows (in thousands):


	Three Month Ended
	March 31,
Other Information	2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	829
Operating cash flows from finance leases		63
Financing cash flows from finance leases		394
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	179
Finance leases		837

Future annual commitments at December 31, 2018 under ASC 840 are as follows:


Year Ending December 31,	Operating Leases		Finance Leases
2019	$	2,867	$	1,768
2020		1,276		973
2021		757		686
2022		434		198
2023		292		—
Thereafter		398		—
Total lease payments	$	6,024	$	3,625
Less: interest		—		346
Present value of lease liabilities	$	6,024	$	3,279