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Leases |
2. Leases
Adoption of Updated Leasing Guidance
On January 1, 2019, the Company adopted the new lease guidance using a modified retrospective transition method applied to those leases which were not completed as of January 1, 2019. Results for reporting periods beginning after December 31, 2018 are presented under the new guidance, while prior period comparative amounts are not adjusted and continue to be reported in accordance with historical guidance. The Company applied the new standard using the package of practical expedients permitted under the transition guidance where the Company:
In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases.
The resulting impact, as of the adoption date, to the consolidated balance sheet of applying the new guidance in 2019 versus the prior guidance was an increase to right-of-use assets of $152.2 million, a decrease to other assets of $0.3 million, an increase to total assets of $151.9 million, an increase to short-term lease liabilities of $14.1 million, a decrease to accrued expenses and other current liabilities of $0.5 million, an increase to total current liabilities of $13.5 million, an increase to long-term lease liabilities of $164.8 million, a decrease to deferred rent, net of current portion, of $26.4 million and an increase to total liabilities of $151.9 million. There was no impact to stockholders’ equity or the consolidated statements of operations as a result of adopting the new guidance. There was no impact to total operating or financing cash flows of applying the new guidance in 2019 versus the prior guidance other than renaming or adding line items to the statements of cash flows to conform to the accounting for, and presentation of, the new standard.
The Company determines if an arrangement contains a lease at inception and does not separate lease and non-lease components of an arrangement determined to contain a lease. Operating and finance leases with a duration of less than 12 months are excluded from right-of-use-assets and lease liabilities and related expense is recorded as incurred. The Company leases its office facilities under non-cancelable operating leases that expire at various dates through May 2031. Certain leases contain optional termination dates. The table below only considers lease obligations through the optional termination dates, as the Company is not reasonably certain to extend lease agreements beyond those dates. The following table provides a summary of lease assets and liabilities as of September 30, 2019:
Operating lease costs were $9.0 million for the three months ended September 30, 2019, net of $0.6 million of operating sublease income related to certain office facilities subleased to third parties. Operating lease costs were $23.4 million for the nine months ended September 30, 2019, net of $1.7 million of operating sublease income related to certain office facilities subleased to third parties. Finance lease costs consisted of $0 million related to the amortization finance lease assets and $0 million of interest expense for the three months ended September 30, 2019. Finance lease costs consisted of $0.2 million related to the amortization finance lease assets and $0.1 million of interest expense for the nine months ended September 30, 2019.
The following table provides a reconciliation between non-cancelable lease commitments and lease liabilities as of September 30, 2019:
Lease Term and Discount Rate
The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of operating lease payments. To determine the estimated incremental borrowing rate, the Company uses publicly available credit ratings for peer companies. The Company estimates the incremental borrowing rate using yields for maturities that are in line with the duration of the lease payments.
The following table provides weighted average remaining lease terms and weighted average discount rate for operating and finance leases as of September 30, 2019:
Other Information Cash payments related to our operating lease liabilities were $8.3 million for the three months ended September 30, 2019 and $23.0 million for the nine months ended September 30, 2019. Cash payments related to our financing lease liabilities were $0 million for the three months ended September 30, 2019 and $0.2 million for the nine months ended September 30, 2019.
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