Leases

9 Months Ended

Sep. 30, 2019

Kforce leases property for our field offices as well as certain office equipment. We determine if a contract or arrangement meets the definition of a lease at inception. We recorded approximately $17.6 million of right-of-use (“ROU”) assets and $21.0 million of lease liabilities on our consolidated balance sheet on January 1, 2019 related to operating leases upon adoption of the new lease standard. The difference between the ROU assets and lease liabilities balances relates to the lease incentive liabilities recorded as of December 31, 2018 in accordance with the previous lease accounting guidance. We determined that no cumulative effect adjustment to retained earnings was necessary upon adoption. We elected the package of practical expedients and did not reassess our prior conclusions regarding lease identification, lease classification and initial direct costs. We did not elect the hindsight practical expedient. ROU assets for operating leases, net of amortization, are recorded within Other assets, net and operating lease liabilities are recorded within current liabilities if expected to be recognized in less than one year and in Other long-term liabilities, if over one year, in the Unaudited Condensed Consolidated Balance Sheet. Operating lease additions are non-cash transactions and the amortization of the ROU assets is reflected as Noncash lease expense within operating activities in the Unaudited Condensed Consolidated Statement of Cash Flows.

Finance leases are not significant to our operations as of and for the three and nine months ended September 30, 2019.

Operating Leases

We elected not to separate lease and non-lease components when determining the consideration in the contract. ROU assets and lease liabilities are recognized based on the present value of the lease payments over the lease term at the commencement date. If there is no rate implicit in the lease, we use our incremental borrowing rate in the present value calculation, which is based on our collateralized borrowing rate and determined based on the terms of our leases and the economic environment in which they exist. Our weighted-average discount rate was 3.9% on September 30, 2019. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.

Our lease terms typically range from three to five years with one or more similar options to renew. The exercise of renewal options is at our sole discretion and is included in the lease term if we are reasonably certain that the renewal option will be exercised. Our weighted-average remaining lease term was 4.6 years at September 30, 2019.

We elected the short-term practical expedient for leases with an initial term of 12 months or less and did not recognize ROU assets or lease liabilities for these short-term leases.

In addition to base rent, certain of our operating leases require variable payments of property taxes, insurance and common area maintenance. These variable lease costs, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred.

The following table presents operating lease expense included in selling, general and administrative expenses (“SG&A”) for the three and nine months ended September 30, 2019 (in thousands):


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Operating lease expense	$	1,712	$	5,147
Variable lease costs	404		1,183
Short-term lease expense	195		595
Sublease income	(119)		(332)
Total operating lease expense	$	2,192	$	6,593

The following table presents the maturities of operating lease liabilities as of September 30, 2019 (in thousands):


Remainder of 2019	$	1,113
2020	6,954
2021	4,539
2022	2,788
2023	2,331
2024	1,477
Thereafter	2,798
Total maturities of operating lease liabilities	22,000
Less: imputed interest	1,898
Total operating lease liabilities	$	20,102

The following table presents the expected future contractual operating lease obligations as of December 31, 2018 in accordance with the previous guidance (in thousands):


2019	$	6,994
2020	6,177
2021	3,731
2022	2,142
2023	1,745
Thereafter	1,199
Total future contractual operating lease obligations	$	21,988