Leases

6 Months Ended

Jun. 30, 2019

Leases. We adopted ASC 842 using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption. For the comparative periods prior to adoption, we present the disclosures which were required under ASC 840.

We have operating leases for facilities used for manufacturing, research and development, sales and distribution, and office space, as well as leases for manufacturing and office equipment, vehicles, and land. Our leases have remaining terms of less than one year to approximately 19 years. A number of our lease agreements contain options to renew at our discretion for periods of up to 30 years and options to terminate the leases within one year. The lease term used to calculate right-of-use ("ROU") assets and lease liabilities includes renewal and termination options that are deemed reasonably certain to be exercised. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. We do not have any bargain purchase options in our leases. For leases with an initial term of one year or less, we do not record a ROU asset or lease liability on our consolidated balance sheet. Substantially all of the ROU assets and lease liabilities as of June 30, 2019 recorded on our consolidated balance sheet are related to our cardiovascular segment.

We sublease a portion of one of our facilities to a third party. We also lease certain hardware consoles to customers and record rental revenue as a component of net sales. Rental revenue under such console leasing arrangements for the three and six months ended June 30, 2019 and 2018 was not significant.

The following was included in our consolidated balance sheet as of June 30, 2019 (in thousands):



Leases	As of June 30, 2019
Assets
ROU operating lease assets	$	79,309

Liabilities
Short-term operating lease liabilities	$	11,732
Long-term operating lease liabilities	71,272
Total operating lease liabilities	$	83,004

During the year ended December 31, 2015, we entered into sale and leaseback transactions to finance certain production equipment for approximately $2.0 million. At that time, we deferred the gain from the sale and leaseback transaction, of which approximately $93,000 remained as of December 31, 2018. As part of the adoption of ASC 842, we wrote-off the deferred gain as an adjustment to equity through retained earnings during the three months ended March 31, 2019.

We recognize lease expense on a straight-line basis over the term of the lease. The components of lease costs for the three and six months ended June 30, 2019 are as follows, in thousands:



		Three months ended			Six months ended
Lease Cost	Classification	June 30, 2019			June 30, 2019
Operating lease cost (a)	Selling, general and administrative expenses	$	4,172		$	8,398
Sublease (income) (b)	Selling, general and administrative expenses	(146		)	(292		)
Net lease cost		$	4,026		$	8,106

(a) Includes expense related to short-term leases and variable payments, which were not significant.

(b) Does not include rental revenue from leases of hardware consoles to customers, which was not significant.

Supplemental cash flow information for the six months ended June 30, 2019 is as follows:



	Six months ended
	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	7,267
Right-of-use assets obtained in exchange for lease obligations	$	2,927

Generally, our lease agreements do not specify an implicit rate. Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length of lease term and the risks of the economic environment in which the leased asset operates. As of June 30, 2019, the following disclosures for remaining lease term and incremental borrowing rates were applicable:



Supplemental disclosure		June 30, 2019
Weighted average remaining lease term		12 years
Weighted average discount rate		3.3%

As of June 30, 2019, maturities of operating lease liabilities were as follows, in thousands:



Year ended December 31,	Amounts due under Operating Leases
Remaining 2019	$	7,064
2020	12,789
2021	11,762
2022	9,361
2023	7,381
Thereafter	53,588
Total lease payments	101,945
Less: Imputed interest	(18,941		)
Total	$	83,004

As previously disclosed in our 2018 Form 10-K under the prior guidance of ASC 840, minimum payments under operating lease agreements as of December 31, 2018 were as follows, in thousands:



Year ended December 31,	Operating Leases
2019	$	13,421
2020	11,319
2021	9,995
2022	8,053
2023	6,953
Thereafter	52,754
Total minimum lease payments	$	102,495

As of June 30, 2019, we had additional operating leases for office space that had not yet commenced. These leases will commence during 2019 and are not deemed material.