LEASES

Adoption of ASC Topic 842, Leases

On January 1, 2019, Mannatech adopted ASC Topic 842, Leases, ("ASC Topic 842") using the modified retrospective approach, which was applied to historical leases that were still effective as of January 1, 2019. Results for reporting periods beginning January 1, 2019, are presented in accordance with ASC Topic 842, while prior period amounts are reported in accordance with historical accounting treatment under ASC Topic 840, Leases, ("ASC Topic 840"). In accordance with the adoption of ASC Topic 842, the Company now records a net operating lease right-of-use ("ROU") asset and operating lease liability on the Consolidated Balance Sheets for all operating leases with a contract term in excess of 12 months or a net present value more than corporate capitalization thresholds. Prior to the adoption of ASC Topic 842, these same leases were treated as operating leases under ASC Topic 840 and therefore were not recorded on the December 31, 2018 Consolidated Balance Sheets. There was no impact to retained earnings and no significant impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows as a result of adopting ASC Topic 842.

Lease Recognition

The Company has entered into contractual lease arrangements to rent office space and other office equipment from third-party lessors. ROU assets represent Mannatech’s right to use an underlying asset for the lease term, and lease liabilities represent Mannatech’s obligation to make future lease payments arising from the lease. Operating lease ROU assets and liabilities are recorded at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. Mannatech accounts for lease components, such as office space, separately from the non-lease components, such as maintenance service fees, based on estimated costs from the vendor. Mannatech uses the implicit interest rate when readily determinable. However, most of Mannatech's lease agreements do not provide an implicit interest rate. As such, Mannatech uses its incremental borrowing rate based on the information available at commencement date of the contract in determining the present value of future lease payments. The incremental borrowing rate is calculated using a risk-free interest rate adjusted for Mannatech's risk. The operating lease ROU asset also includes any lease incentives received in the recognition of the present value of future lease payments. Certain of Mannatech's leases may also include escalation clauses or options to extend or terminate the lease. These options are included in the present value recorded for the leases when it is reasonably certain that Mannatech will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Mannatech determines if an arrangement is a lease at inception of the contract and records the resulting operating lease asset on the Consolidated Balance Sheets as a component of "Prepaid expenses and other current assets", for the current portion, or "Other assets", for the long-term portion with offsetting liabilities recorded as a component of "Accrued expenses" and "Other long-term liabilities". Mannatech recognizes a lease in the financial statements when the arrangement either explicitly or implicitly involves property, plant, or equipment ("PP&E"), the contract terms are dependent on the use of the PP&E, and Mannatech has the ability or right to operate the PP&E or to direct others to operate the PP&E and receive greater than 10% of the economic benefits of the assets. As of March 31, 2019, Mannatech has eight financing leases. Lease costs represent the straight-line lease expense of ROU assets and short-term leases.

As of March 31, 2019, our leased assets and liabilities consisted of the following (in thousands):



Leases	Classification	March 31, 2019
Assets
Operating lease assets	Other assets	4,812
Finance lease assets	Property and equipment, net	$	136
Total leased assets		$	4,948

Liabilities
Current
Operating	Accrued expenses	$	1,836
Finance	Current portion of capital leases	81
Long-Term
Operating	Other long-term liabilities	4,618
Finance	Capital leases, excluding current portion	73
Total leased liabilities		$	6,608

We incurred the following lease costs related to our operating and finance leases (in thousands):



Lease Cost	Classification	Three Months Ended March 31, 2019
Operating lease cost	Other operating cost	$	755
Finance lease cost
Amortization of leased assets	Depreciation and amortization	23
Interest on lease liabilities	Interest expense	2
Total lease cost		$	780

For the three months ended March 31, 2019, cash paid amounts included in the measurement of lease liabilities included (in thousands):



Lease Payments	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	755
Financing cash flows from finance leases	12

As of March 31, 2019, future minimum lease payments on operating and financing leases were as follows (in thousands):



	March 31, 2019
Maturity of lease liabilities	Operating Leases			Financing Lease
Remaining 2019	$	1,759		$	68
2020	1,348			49
2021	803			38
2022	641			13
2023	586			—
Thereafter	2,737			—
Total minimum lease payments	$	7,874		$	168
Imputed interest	(1,156		)	(14		)
Present value of minimum lease payments	$	6,718		$	154

Lease term and discount rates related to the Company's leases are as follows:



	Three Months Ended March 31, 2019 ⁽¹⁾
Operating leases
Weighted-average remaining lease term (years)	7.1
Weighted-average discount rate	4.7	%

Financing leases
Weighted-average remaining lease term (years)	2.3
Weighted-average discount rate	6.9	%

⁽¹⁾ Prior periods are not presented as prior period amounts have not been adjusted under the modified retrospective method for the new lease recognition rule.