XML 50 R14.htm IDEA: XBRL DOCUMENT

Leases

12 Months Ended

Dec. 31, 2019

As discussed in Note 1 — Business and Significant Accounting Policies, the Company adopted ASU No. 2016-02 on January 1, 2019 using a modified retrospective approach. We elected to use an optional transition method available under ASU No. 2016-02 to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption rather than in the earliest comparative period presented. As such, the Company's historical consolidated financial statements have not been restated.

Under ASC Topic 840, which was the U.S. GAAP lease accounting standard before ASU No. 2016-02, lease arrangements that met certain criteria were considered operating leases and were not recorded on an entity's balance sheet. Prior to January 1, 2019 and through December 31, 2019, all of the Company’s lease arrangements were accounted for as operating leases. The adoption of ASU No. 2016-02 on January 1, 2019 had a material impact on the Company’s consolidated balance sheet due to the recognition of right-of-use assets of $651.9 million and related lease liabilities of $851.3 million. The Company’s adoption of ASU No. 2016-02 resulted in a net increase of $638.7 million in each of Total Assets and Total Liabilities. The adoption of the new lease standard did not affect Stockholders’ Equity.

In connection with our adoption of ASU No. 2016-02, we elected to use certain practical expedients under the new lease standard and made other elections that impact the Company's lease accounting. We elected to use these practical expedients in connection with the adoption of ASU No. 2016-02 because, among other things, they simplified the adoption of the new lease standard, streamlined our internal processes and minimized the associated costs. The critical practical expedients and accounting policy elections used by the Company for all classes of leases accounted for under ASU No. 2016-02 were as follows:


•	Existing contracts were not reassessed to determine if they contained leases.


•	Existing leases were not reassessed to determine if their classification should be changed.


•	Initial direct costs for existing leases were not reassessed.


•	Lease components and nonlease components (e.g., common area maintenance charges, etc.) for each lease arrangement were accounted for as a single lease component for purposes of the recognition and measurement requirements of ASU No. 2016-02.


•	The incremental borrowing rate used for the purpose of measuring each of our lease liabilities was derived by reference to the related lease’s remaining minimum payments and remaining lease term on the date of adopting the new lease standard. We used incremental borrowing rates because we were unable to determine the implicit interest rates in our leases.

Leasing Activities

The Company’s leasing activities are primarily for facilities under cancelable and non-cancelable lease agreements expiring during 2020 and through 2038. These facilities support our executive and administrative activities, research and consulting, sales, systems support, operations, and other functions. The Company also has leases for office equipment and other assets, which are not significant. Certain of the Company's lease agreements include (i) renewal options to extend the lease term for up to ten years and/or (ii) options to terminate the agreement within one year. Additionally, certain of the Company’s lease agreements provide standard recurring escalations of lease payments for, among other things, increases in a lessor’s maintenance costs and taxes. Under some lease agreements, the Company may be entitled to allowances, free rent, lessor-financed tenant improvements and other incentives. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Prior to January 1, 2019, the Company recognized lease expense in accordance with ASC Topic 840. Because both ASU No. 2016-02 and ASC Topic 840 generally recognize operating lease expense on a straight-line basis over the term of the lease arrangement and the Company only has operating lease arrangements, the lease expense recognition patterns under the two accounting methodologies during 2019, 2018 and 2017 were substantively the same.

Except for lease arrangements pertaining to facilities, all other operating lease activity is not material. As such, operating leases for office equipment and other assets (collectively, the “Other Leases”) are: (i) not recognized and measured under the relevant provisions of ASU No. 2016-02; (ii) excluded from the right-of-use assets and related lease liabilities on the Consolidated Balance Sheet as of December 31, 2019; and (iii) excluded from the quantitative disclosures provided below, other than the disclosures under the heading "Lease Disclosures Under ASC Topic 840." The Other Leases are accounted for similar to the guidance for operating leases under ASC Topic 840, which generally recognizes lease expense on a straight-line basis over the term of the lease arrangement. As a result, the impact of excluding the Other Leases from the requirements of ASU No. 2016-02 is not significant.

The Company subleases certain office space that it does not intend to occupy. Such sublease arrangements expire during 2020 and through 2032 and primarily relate to facilities in Arlington, Virginia. Certain of the Company’s sublease agreements: (i) include renewal and termination options; (ii) provide for customary escalations of lease payments in the normal course of business; and (iii) grant the subtenant certain allowances, free rent, Gartner-financed tenant improvements and other incentives.

Lease Accounting under ASU No. 2016-02

Under ASU No. 2016-02, a lease is a contract or an agreement, or a part of another arrangement, between two or more parties that, at its inception, creates enforceable rights and obligations that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

Right-of-use assets represent a right to use an underlying asset for the lease term and the related lease liability represents an obligation to make lease payments pursuant to the contractual terms of the lease agreement. Right-of-use assets and lease liabilities are initially recognized on the lease commencement date based on the present value of the lease payments over the lease term. For all of our facilities leases, we account for both lease components and nonlease components (e.g., common area maintenance charges, etc.) as a single lease component when determining the present value of our lease payments. Variable lease payments that are not dependent on an index or a rate are excluded from the determination of our right-of-use assets and lease liabilities and such payments are recognized as expense in the period when the related obligation is incurred.

The Company’s lease agreements do not provide implicit interest rates. Instead, the Company uses an incremental borrowing rate determined on the lease commencement date to calculate the present value of future lease payments. The incremental borrowing rate is calculated for each individual lease and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis (in the currency that the lease is denominated) over a similar term an amount equal to the lease payments in a similar economic environment. Right-of-use assets also include any initial direct costs incurred by the Company and lease payments made to a lessor on or before the related lease commencement date, less any lease incentives received directly from the lessor.

Certain of the Company’s facility lease agreements include options to extend or terminate the lease. When it is reasonably certain that the Company will exercise a renewal or termination option, the present value of the lease payments for the affected lease is adjusted accordingly. Leases with a term of twelve months or less are accounted for in the same manner as long-term lease arrangements, including any related disclosures. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term, unless the related right-of-use asset was previously impaired.

All of our existing sublease arrangements have been classified as operating leases with sublease income recognized on a straight-line basis over the term of the sublease arrangement. To measure the Company’s periodic sublease income, we elected to use a practical expedient under ASU No. 2016-02 to aggregate nonlease components with the related lease components when (i) the timing and pattern of transfer for the nonlease components and the related lease components are the same and (ii) the lease components, if accounted for separately, would be classified as an operating lease. This practical expedient applies to all of our existing sublease arrangements.

When our projected lease cost for the term of a sublease exceeds our anticipated sublease income for that same period, we treat that circumstance as an indicator that the carrying amount of the related right-of-use asset may not be fully recoverable. In those situations, we perform an impairment analysis and, if indicated, we record a charge against earnings to reduce the right-of-use asset to the amount deemed to be recoverable in the future. There were no right-of-use asset impairments during 2019.

On the Consolidated Balance Sheet as of December 31, 2019, right-of-use assets are classified and reported in Operating lease right-of-use assets, and the related lease liabilities are included in Accounts payable and accrued liabilities (current) and Operating lease liabilities (long-term). On the Consolidated Statement of Cash Flows for 2019, the reduction in the carrying amount of right-of-use assets is presented separately and the change in operating lease liabilities is included under Accounts payable and accrued and other liabilities in the reconciliation of net income to cash provided by operating activities.

Lease Disclosures Under ASU No. 2016-02

All of the Company’s leasing and subleasing activity for 2019 is recognized in Selling, general and administrative expense in the Consolidated Statements of Operations. The table below presents the Company’s net lease cost and certain other information related to our leasing activities as of and for the year ended December 31, 2019 (dollars in thousands).



Description
Year Ended December 31, 2019:
Operating lease cost (1)	$	144,727
Variable lease cost (2)	16,404
Sublease income	(38,901		)
Total lease cost, net (3)	$	122,230

Cash paid for amounts included in the measurement of operating lease liabilities	$	135,799
Cash receipts from sublease arrangements	$	34,441
Right-of-use assets obtained in exchange for new operating lease liabilities	$	136,997

As of December 31, 2019:
Weighted average remaining lease term for operating leases (in years)	10.2
Weighted average discount rate for operating leases	6.7		%


(1)	Included in operating lease cost was $43.2 million of costs for subleasing activities during 2019.


(2)	These amounts are primarily variable lease and nonlease costs that were not fixed at the lease commencement date or are dependent on something other than an index or a rate.


(3)	The Company did not capitalize any operating lease costs during 2019.

As of December 31, 2019, the (i) maturities of operating lease liabilities under non-cancelable arrangements and (ii) estimated future sublease cash receipts from non-cancelable arrangements were as follows (in thousands):



	Operating			Sublease
	Lease			Cash
Period ending December 31,	Payments			Receipts
2020	$	134,579		$	39,941
2021	134,707			44,382
2022	129,741			45,582
2023	126,435			46,520
2024	114,948			40,643
Thereafter	643,129			143,547
Total future minimum operating lease payments and estimated sublease cash receipts (1)	1,283,539			$	360,615
Imputed interest	(374,490		)
Total operating lease liabilities per the Consolidated Balance Sheet	$	909,049


(1)	Approximately 82% of the operating lease payments pertain to properties in the United States.

The table below indicates where the discounted operating lease payments from the above table are classified in the Consolidated Balance Sheet as of December 31, 2019 (in thousands).



Description
Accounts payable and accrued liabilities	$	76,516
Operating lease liabilities	832,533
Total operating lease liabilities per the Consolidated Balance Sheet	$	909,049

As of December 31, 2019, the Company had additional operating leases for facilities that have not yet commenced. These operating leases, which aggregated $50.2 million of undiscounted lease payments, are scheduled to commence during 2020 and 2021 with lease terms of up to ten years.

Lease Disclosures Under ASC Topic 840

Based on the Company's selected method of adoption for ASU No. 2016-02, the disclosures presented below from ASC Topic 840 are required herein.

As of December 31, 2018, future minimum annual cash payments under non-cancelable operating lease agreements for facilities, office equipment and other assets, which expired in 2019 and through 2038, were as follows (in thousands):



Year ended or ending December 31,
2019	$	130,991
2020	121,802
2021	118,945
2022	111,117
2023	106,113
Thereafter	689,360
Total minimum lease payments (1)	$	1,278,328

(1) Excludes approximately $372.0 million of sublease income.

The Company's operating lease expense under ASC Topic 840 for its facilities, office equipment and other assets was $93.5 million and $87.9 million in 2018 and 2017, respectively. The cost of such operating leases, including any contractual rent increases, rent concessions and landlord incentives, was recognized ratably over the life of the related lease agreement.

LEASES


•	Existing contracts were not reassessed to determine if they contained leases.


•	Existing leases were not reassessed to determine if their classification should be changed.


•	Initial direct costs for existing leases were not reassessed.


•	Lease components and nonlease components (e.g., common area maintenance charges, etc.) for each lease arrangement were accounted for as a single lease component for purposes of the recognition and measurement requirements of ASU No. 2016-02.


•	The incremental borrowing rate used for the purpose of measuring each of our lease liabilities was derived by reference to the related lease’s remaining minimum payments and remaining lease term on the date of adopting the new lease standard. We used incremental borrowing rates because we were unable to determine the implicit interest rates in our leases.