Leases

6 Months Ended

Jun. 30, 2019

Laureate conducts a significant portion of its operations at leased facilities. These facilities include our corporate headquarters, other office locations, and many of Laureate's higher education facilities. Laureate analyzes each lease agreement to determine whether it should be classified as a finance lease or an operating lease. As a result of adopting ASC Topic 842, we recorded on our balance sheet significant asset and liability balances associated with the operating leases, as described further below.

Operating Leases

Our operating lease agreements are primarily for real estate space and are included within operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets. The terms of our operating leases vary and generally contain renewal options. Certain of these operating leases provide for increasing rent over the term of the lease. Laureate also leases certain equipment under noncancellable operating leases, which are typically for terms of 60 months or less.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Many of our lessee agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. On occasion, Laureate has entered into sublease agreements for certain leased office space; however, the sublease income from these agreements is immaterial.

Supplemental balance sheet information related to leases was as follows:



Leases	Classification	June 30, 2019
Assets:
Operating	Operating lease right-of-use assets, net	$	937,884
Finance	Buildings, Furniture, equipment and software, net	35,128
Total leased assets		$	973,012

Liabilities:
Current
Operating	Current portion of operating leases	$	95,697
Finance	Current portion of long-term debt and finance leases	3,805
Non-current
Operating	Long-term operating leases, less current portion	862,369
Finance	Long-term debt and finance leases, less current portion	34,252
Total lease liabilities		$	996,123



Lease Term and Discount Rate	June 30, 2019
Weighted average remaining lease terms
Operating leases	9.5 years
Finance leases	10.5 years

Weighted average discount rate
Operating leases	9.50	%
Finance leases	9.20	%

The components of lease cost were as follows:



Lease Cost	Classification	For the three months ended June 30, 2019			For the six months ended June 30, 2019
Operating lease cost	Direct costs	$	44,798		$	90,514
Finance lease cost
Amortization of leased assets	Direct costs	1,492			2,638
Interest on leased assets	Interest expense	856			1,477
Short-term lease costs	Direct costs	1,313			1,990
Variable lease costs	Direct costs	2,725			6,573
Sublease income	Revenues	(1,252		)	(2,211		)
Total lease cost		$	49,932		$	100,981

As of June 30, 2019, maturities of lease liabilities were as follows:



Maturity of Lease Liability	Operating Leases			Finance Leases
Year 1	$	178,746		$	6,999
Year 2	170,477			6,291
Year 3	159,700			5,839
Year 4	150,842			5,740
Year 5	141,027			4,430
Thereafter	632,804			30,151
Total lease payments	$	1,433,596		$	59,450
Less: interest and inflation	(475,530		)	(21,393		)
Present value of lease liabilities	$	958,066		$	38,057

Supplemental cash flow information related to leases was as follows for the six months ended June 30, 2019:



Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	94,909
Operating cash flows from finance leases	1,477
Financing cash flows from finance leases	1,886
Leased assets obtained for new finance lease liabilities	14,499
Leased assets obtained for new operating lease liabilities	12,252

As disclosed in our 2018 Form 10-K, future minimum lease payments at December 31, 2018, prior to the adoption of ASC Topic 842, by year and in the aggregate, under all noncancellable operating leases were as follows:



	Lease Payments
2019	$	151,795
2020	142,995
2021	135,426
2022	128,441
2023	119,955
Thereafter	482,220
Total	$	1,160,832

Leases

Operating Leases

Supplemental balance sheet information related to leases was as follows:



Leases	Classification	June 30, 2019
Assets:
Operating	Operating lease right-of-use assets, net	$	937,884
Finance	Buildings, Furniture, equipment and software, net	35,128
Total leased assets		$	973,012

Liabilities:
Current
Operating	Current portion of operating leases	$	95,697
Finance	Current portion of long-term debt and finance leases	3,805
Non-current
Operating	Long-term operating leases, less current portion	862,369
Finance	Long-term debt and finance leases, less current portion	34,252
Total lease liabilities		$	996,123



Lease Term and Discount Rate	June 30, 2019
Weighted average remaining lease terms
Operating leases	9.5 years
Finance leases	10.5 years

Weighted average discount rate
Operating leases	9.50	%
Finance leases	9.20	%

The components of lease cost were as follows:



Lease Cost	Classification	For the three months ended June 30, 2019			For the six months ended June 30, 2019
Operating lease cost	Direct costs	$	44,798		$	90,514
Finance lease cost
Amortization of leased assets	Direct costs	1,492			2,638
Interest on leased assets	Interest expense	856			1,477
Short-term lease costs	Direct costs	1,313			1,990
Variable lease costs	Direct costs	2,725			6,573
Sublease income	Revenues	(1,252		)	(2,211		)
Total lease cost		$	49,932		$	100,981

As of June 30, 2019, maturities of lease liabilities were as follows:



Maturity of Lease Liability	Operating Leases			Finance Leases
Year 1	$	178,746		$	6,999
Year 2	170,477			6,291
Year 3	159,700			5,839
Year 4	150,842			5,740
Year 5	141,027			4,430
Thereafter	632,804			30,151
Total lease payments	$	1,433,596		$	59,450
Less: interest and inflation	(475,530		)	(21,393		)
Present value of lease liabilities	$	958,066		$	38,057

Supplemental cash flow information related to leases was as follows for the six months ended June 30, 2019:



Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	94,909
Operating cash flows from finance leases	1,477
Financing cash flows from finance leases	1,886
Leased assets obtained for new finance lease liabilities	14,499
Leased assets obtained for new operating lease liabilities	12,252



	Lease Payments
2019	$	151,795
2020	142,995
2021	135,426
2022	128,441
2023	119,955
Thereafter	482,220
Total	$	1,160,832