LEASES (Notes)

12 Months Ended

Dec. 31, 2020

Adoption of Standard

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with terms in excess of twelve months. Sufficient disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard was effective for us beginning January 1, 2019. We have elected the optional transition method to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in the consolidated financial statements. We also elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. The adoption of the standard had a material impact on our consolidated balance sheets, but did not have material impact on our consolidated income statements or cash flows.

Lease Liability

We have operating leases for medical facilities, administrative offices, warehouse space and major medical equipment. We lease the premises at which these facilities are located and do not have options to purchase the facilities we rent. Our most common initial term varies in length from 5 to 15 years. Including renewal options negotiated with the landlord, we can have a total span of 10 to 35 years at the facilities we lease. We also lease smaller satellite X-Ray locations on mutually renewable terms, usually lasting one year. Additionally, we have operating and finance leases for certain medical and office equipment, with lease terms generally lasting from 5 to 8 years. Our Incremental Borrowing Rate ("IBR") used to discount the stream of lease payments is closely related to the interest rates charged on our collateralized debt obligations and our IBR is adjusted when those rates experience a substantial change.

The components of lease expense were as follows:



	Years ended December 31,
(In thousands)	2020		2019

Operating lease cost	$	99,323	$	95,348

Finance lease cost:
Depreciation of leased equipment	$	3,122	$	3,135
Interest on lease liabilities	210		395
Total finance lease cost	$	3,332	$	3,530

Supplemental cash flow information related to leases was as follows:


	Years ended December 31,
(In thousands)	2020		2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	89,821	$	95,922
Operating cash flows from financing leases	210		395
Financing cash flows from financing leases	3,304		5,939
Right-of-use & Equipment assets obtained in exchange for lease obligations:
Operating leases(1)	106,099		482,399
Financing leases	24		14,105

(1) Amounts for the twelve months ended December 31, 2019 include the transition adjustment for the adoption of Topic 842.

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, rental expense for the year ended December 31, 2018 was $83.0 million.

Supplemental balance sheet information related to leases was as follows:


(In thousands, except lease term and discount rates)	December 31,
	2020			2019

Operating Leases
Operating lease right-of-use assets	$	483,661		$	445,477
Current portion of operating lease liability	65,794			61,206
Operating lease liabilities	463,096			420,922
Total operating lease liabilities	$	528,890		$	482,128

Finance Leases
Equipment at cost	$	13,984		$	14,105
Accumulated depreciation	(6,220)			(3,135)
Equipment, net	$	7,764		$	10,970
Current portion of finance lease	$	2,578		$	3,283
Finance lease liabilities	743			3,264
Total finance lease liabilities	$	3,321		$	6,547

Weighted Average Remaining Lease Term
Operating leases - years	9.2			8.8
Finance leases - years	2.5			3.3

Weighted Average Discount Rate
Operating leases	6.4		%	6.4		%
Finance leases	4.4		%	4.4		%

Maturities of lease liabilities were as follows:


(In thousands)
	Operating		Financing
Year Ending December 31,	Leases		Leases
2021	$	97,307	$	2,654
2022	91,479		719
2023	83,648		14
2024	69,686		13
2025	59,469		4
Thereafter	316,112		2
Total Lease Payments	717,701		3,406
Less imputed interest	(188,811)		(85)
Total	$	528,890	$	3,321

As of December 31, 2020, we have additional operating leases for facilities and medical equipment that have not yet commenced of approximately $8.8 million. These operating leases will commence in 2021 with lease terms of 3 to 15 years.

LEASES