Leases

9 Months Ended

Sep. 30, 2020

We maintain lease agreements principally for our office spaces and certain equipment. In addition, certain of our contracts, such as those with our fulfillment vendor related to our warehouse space or contracts with certain equipment vendors, contain embedded leases. We maintain two sublease agreements with respect to one of our office locations, each of which continues through the initial term of our master lease agreement. Such sublease income and payments, while they reduce our rent expense, are not considered in the value of the right-of-use asset or lease liability. With the exception of two finance leases related to a network server and office equipment, all of our leases are classified as operating leases. In the aggregate, our leases generally have remaining lease terms of four months to four years, some of which include options to extend the lease for additional periods.

In the second quarter of 2020, we negotiated rent deferrals for our Nutrition segment’s corporate office in Fort Washington, Pennsylvania. The amended contract provides a total deferral of $0.4 million on a portion of the June, July, and August 2020 lease payments, with no substantive changes to the original contract. We have been repaying this deferral in 12 equal monthly installments beginning in September 2020. Consistent with updated guidance from the FASB in April 2020, we have elected to treat the COVID-19 pandemic-related rent deferrals as accrued liabilities. During the deferral periods we will continue to recognize expense as if no deferral had been provided.

The following table shows the components of lease expense for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2020			2019			2020			2019
Finance lease cost:
Amortization of leased assets	$	162		$	12		$	485		$	36
Interest of lease liabilities		19			2			67			5
Operating lease cost		3,675			3,924			11,025			10,444
Short-term lease cost		154			134			420			283
Total lease cost before subleases	$	4,010		$	4,072		$	11,997		$	10,768
Sublease income		(1,344	)		(1,378	)		(4,108	)		(4,078	)
Total lease cost, net	$	2,666		$	2,694		$	7,889		$	6,690

Supplemental cash flow information related to leases is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2020			2019			2020			2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow attributable to operating leases	$	(2,912	)	$	(1,701	)	$	(8,524	)	$	(6,809	)
Operating cash flow attributable to finance leases		(19	)		(2	)		(67	)		(5	)
Financing cash flow attributable to finance leases		(158	)		(11	)		(464	)		(34	)

Supplemental noncash information:
Right-of-use assets obtained in exchange for operating lease liabilities ⁽¹⁾		—			4,711			—			53,683
Right-of-use assets obtained in exchange for finance lease liabilities ⁽¹⁾		—			—			—			181

(1)

No new leases were entered into during the nine months ended September 30, 2019. Amounts shown are due to the adoption of ASC 842 and one lease modification during the three months ended September 30, 2019 that resulted in a noncash remeasurement of the related right-of-use asset and operating lease liability. Amount shown for the three months ended September 30, 2019 reflects the change in balance resulting from such lease modification. Amounts shown for the nine months ended September 30, 2019 reflect balances as of January 1, 2019 for the Healthcare segment (adjusted for lease modification) and as of March 8, 2019 for the Nutrition segment (i.e., the date of our acquisition of Nutrisystem).