Leases

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

Leases

The Company leases parking facilities, office space, warehouses, vehicles and equipment and determines if an arrangement is a lease at inception. The Company rents or subleases certain real estate to third parties. The Company's sublease portfolio consists of operating leases for space within its leased parking facilities.

Prior to January 1, 2019, the Company recognized lease expense related to operating leases on a straight-line basis over the terms of the leases and, accordingly, recorded the difference between cash rent payments and recognition of rent expense as a deferred rent liability or prepaid rent. Landlord-funded leasehold improvements were also recorded as deferred rent liabilities and were amortized as a reduction of rent expense over the noncancelable term of the related operating lease. For leases that included one or more options to renew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. Certain of the Company's lease agreements include variable rent consisting primarily of payments that are a percentage of parking services revenue based on contractual levels and rental payments adjusted periodically for inflation.

Upon adoption of Topic 842, ROU assets represent the Company's "right-of-use" over an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The ROU asset includes cumulative prepaid or accrued rent on adoption date, unamortized lease incentives, unamortized initial direct costs, unamortized favorable acquired lease contracts, net and unfavorable acquired lease contracts, net initially recognized prior to adoption of Topic 842. The short term lease exception has been applied to leases with an initial term of 12 months or less and these leases are not recorded on the balance sheet.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. Lease expense is recognized on a straight-line basis over the lease term.

For leases that include one or more options to renew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. Equipment and vehicle leases also include options to purchase the leased property. The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Variable lease components comprising of payments that are a percentage of parking services revenue based on contractual levels and rental payments adjusted periodically for inflation are not included in the lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Consistent with other long-lived assets or asset groups that are held and used, the Company tests right-of-use assets when impairment indicators are present as detailed in Note 1. Significant Accounting Policies and Practices.

Service concession arrangements within the scope of ASU No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services, are excluded from the scope of Topic 842. Lease costs associated with these arrangements are recorded as a reduction of revenue. See Note 5. Revenue for further discussion. Upon adoption of Topic 842, favorable and

unfavorable acquired lease contracts, net that represented the fair value of acquired lease contracts, arising from the October 2, 2012 acquisition of KCPC Holdings, Inc. the ultimate parent of Central Parking Corporation, are now included in the right-of-use assets balance. See Note 1. Significant Accounting Policies and Practices for the favorable and unfavorable acquired lease contracts, net balance reclassified to right-of-use assets upon adoption of Topic 842.

The components of leased assets and liabilities and classification on the Consolidated Balance Sheet as of December 31, 2019 were as follows:

(millions)	Classification	2019
Assets
Operating	Right-of-use assets	$	431.7
Finance	Leasehold improvements, equipment and construction in progress, net	18.6
Total leased assets		$	450.3
Liabilities
Current
Operating	Short-term lease liabilities	$	115.2
Finance	Current portion of long-term obligations under credit facility and other long-term borrowings	3.1
Noncurrent
Operating	Long-term lease liabilities	327.7
Finance	Other long-term borrowings	15.6
Total lease liabilities		$	461.6

The components of lease cost and classification on the Consolidated Statement of Income for the year ended December 31, 2019 were as follows:

(millions)	Classification	2019
Operating lease (a)	Cost of services - lease type contracts	$	150.9
Short-term lease (a)	Cost of services - lease type contracts	33.1
Variable lease	Cost of services - lease type contracts	58.1
Operating lease cost		242.1
Finance lease cost
Amortization of leased assets	Depreciation and amortization	2.3
Interest on lease liabilities	Interest expense	0.9
Net lease cost		$	245.3

^(a) Includes $6.0 million operating lease costs related to leases for office space, classified in General and administrative expenses

Sublease income during the year ended December 31, 2019 was $5.5 million.

The Company has entered into operating lease arrangements as of December 31, 2019 that commence in future periods. The total amount of right-of-use assets and lease liabilities related to these arrangements are immaterial.

Maturities, lease term, and discount rate information of lease liabilities as of December 31, 2019 were as follows:

(millions)	Operating  Leases			Finance Leases			Total
2020	$	133.7		$	4.0		$	137.7
2021	104.0			4.0			108.0
2022	83.7			3.5			87.2
2023	56.8			2.5			59.3
2024	38.1			1.4			39.5
2025 and thereafter	96.9			6.0			102.9
Total lease payments	513.2			21.4			534.6
Less: Imputed interest	70.3			2.7			73.0
Present value of lease liabilities	$	442.9		$	18.7		$	461.6
Weighted-average remaining lease term (years)	5.6			6.9
Weighted-average discount rate	4.9		%	4.9		%

Future sublease income for the above periods shown was excluded as the amounts are not material.

Supplemental cash flow information related to leases was as follows:

(millions)	2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows related to operating leases	$	179.0
Operating cash outflows related to finance leases	0.9
Financing cash outflows related to finance leases	2.3
Leased assets obtained in exchange for new operating liabilities	68.6
Leased assets obtained in exchange for new finance lease liabilities	6.8

Leases

Leases

The Company leases parking facilities, office space, warehouses, vehicles and equipment and determines if an arrangement is a lease at inception. The Company rents or subleases certain real estate to third parties. The Company's sublease portfolio consists of operating leases for space within its leased parking facilities.

Prior to January 1, 2019, the Company recognized lease expense related to operating leases on a straight-line basis over the terms of the leases and, accordingly, recorded the difference between cash rent payments and recognition of rent expense as a deferred rent liability or prepaid rent. Landlord-funded leasehold improvements were also recorded as deferred rent liabilities and were amortized as a reduction of rent expense over the noncancelable term of the related operating lease. For leases that included one or more options to renew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. Certain of the Company's lease agreements include variable rent consisting primarily of payments that are a percentage of parking services revenue based on contractual levels and rental payments adjusted periodically for inflation.

Upon adoption of Topic 842, ROU assets represent the Company's "right-of-use" over an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The ROU asset includes cumulative prepaid or accrued rent on adoption date, unamortized lease incentives, unamortized initial direct costs, unamortized favorable acquired lease contracts, net and unfavorable acquired lease contracts, net initially recognized prior to adoption of Topic 842. The short term lease exception has been applied to leases with an initial term of 12 months or less and these leases are not recorded on the balance sheet.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. Lease expense is recognized on a straight-line basis over the lease term.

For leases that include one or more options to renew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. Equipment and vehicle leases also include options to purchase the leased property. The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Variable lease components comprising of payments that are a percentage of parking services revenue based on contractual levels and rental payments adjusted periodically for inflation are not included in the lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Consistent with other long-lived assets or asset groups that are held and used, the Company tests right-of-use assets when impairment indicators are present as detailed in Note 1. Significant Accounting Policies and Practices.

Service concession arrangements within the scope of ASU No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services, are excluded from the scope of Topic 842. Lease costs associated with these arrangements are recorded as a reduction of revenue. See Note 5. Revenue for further discussion. Upon adoption of Topic 842, favorable and

unfavorable acquired lease contracts, net that represented the fair value of acquired lease contracts, arising from the October 2, 2012 acquisition of KCPC Holdings, Inc. the ultimate parent of Central Parking Corporation, are now included in the right-of-use assets balance. See Note 1. Significant Accounting Policies and Practices for the favorable and unfavorable acquired lease contracts, net balance reclassified to right-of-use assets upon adoption of Topic 842.

The components of leased assets and liabilities and classification on the Consolidated Balance Sheet as of December 31, 2019 were as follows:

(millions)	Classification	2019
Assets
Operating	Right-of-use assets	$	431.7
Finance	Leasehold improvements, equipment and construction in progress, net	18.6
Total leased assets		$	450.3
Liabilities
Current
Operating	Short-term lease liabilities	$	115.2
Finance	Current portion of long-term obligations under credit facility and other long-term borrowings	3.1
Noncurrent
Operating	Long-term lease liabilities	327.7
Finance	Other long-term borrowings	15.6
Total lease liabilities		$	461.6

The components of lease cost and classification on the Consolidated Statement of Income for the year ended December 31, 2019 were as follows:

(millions)	Classification	2019
Operating lease (a)	Cost of services - lease type contracts	$	150.9
Short-term lease (a)	Cost of services - lease type contracts	33.1
Variable lease	Cost of services - lease type contracts	58.1
Operating lease cost		242.1
Finance lease cost
Amortization of leased assets	Depreciation and amortization	2.3
Interest on lease liabilities	Interest expense	0.9
Net lease cost		$	245.3

^(a) Includes $6.0 million operating lease costs related to leases for office space, classified in General and administrative expenses

Sublease income during the year ended December 31, 2019 was $5.5 million.

The Company has entered into operating lease arrangements as of December 31, 2019 that commence in future periods. The total amount of right-of-use assets and lease liabilities related to these arrangements are immaterial.

Maturities, lease term, and discount rate information of lease liabilities as of December 31, 2019 were as follows:

(millions)	Operating  Leases			Finance Leases			Total
2020	$	133.7		$	4.0		$	137.7
2021	104.0			4.0			108.0
2022	83.7			3.5			87.2
2023	56.8			2.5			59.3
2024	38.1			1.4			39.5
2025 and thereafter	96.9			6.0			102.9
Total lease payments	513.2			21.4			534.6
Less: Imputed interest	70.3			2.7			73.0
Present value of lease liabilities	$	442.9		$	18.7		$	461.6
Weighted-average remaining lease term (years)	5.6			6.9
Weighted-average discount rate	4.9		%	4.9		%

Future sublease income for the above periods shown was excluded as the amounts are not material.

Supplemental cash flow information related to leases was as follows:

(millions)	2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows related to operating leases	$	179.0
Operating cash outflows related to finance leases	0.9
Financing cash outflows related to finance leases	2.3
Leased assets obtained in exchange for new operating liabilities	68.6
Leased assets obtained in exchange for new finance lease liabilities	6.8