Operating Leases Operating Leases

3 Months Ended

Mar. 31, 2019

As described in Note 1, the Company adopted ASC 842 prospectively as of January 1, 2019. The Company leases the majority of its pawnshop locations under operating leases and determines if an arrangement is or contains a lease at inception. Many leases include both lease and non-lease components, which the Company accounts for separately. Lease components include rent, taxes and insurance costs while non-lease components include common area or other maintenance costs. Operating leases are included in right of use assets, lease liability, current and lease liability, non-current in the consolidated balance sheets. The Company does not have any finance leases.

The following table details the components of the ROU asset and lease liability recognized upon adoption of ASC 842 on January 1, 2019 (in thousands):



Initial measurement of right of use asset (present value of the future minimum lease payments)	$	295,063
Accrued straight-line rent liability	(4,237		)
Amounts previously recognized in respect of business combinations:
Favorable lease intangible asset	45,596
Unfavorable lease intangible liability	(17,275		)
Total initial right of use asset	$	319,147

Lease liability, current	$	(87,608	)
Lease liability, non-current	(207,455		)
Total initial lease liability (present value of the future minimum lease payments)	$	(295,063	)

Leased facilities are generally leased for a term of three to five years with one or more options to renew, typically at the Company’s sole discretion. In addition, the majority of these leases can be terminated early upon an adverse change in law which negatively affects the store’s profitability. The Company regularly evaluates renewal and termination options to determine if the Company is reasonably certain to exercise the option, and excludes these options from the lease term included in the recognition of the ROU asset and lease liability until such certainty exists. The weighted-average remaining lease term for operating leases as of March 31, 2019 was 4.0 years.

The ROU asset and lease liability is recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company’s leases do not provide an implicit rate and therefore, it uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company utilizes a portfolio approach for determining the incremental borrowing rate to apply to groups of leases with similar characteristics. The weighted-average discount rate used to measure the lease liability as of March 31, 2019 was 7.2%.

The Company has certain operating leases in Mexico which are denominated in U.S. dollars. The liability related to these leases is considered a monetary liability, and requires remeasurement into the functional currency (Mexican pesos) using reporting date exchange rates. The remeasurement results in the recognition of foreign currency exchange gains or losses, producing a certain level of earnings volatility. The Company recognized a foreign currency gain of $0.3 million during the three months ended March 31, 2019 related to the remeasurement of these U.S. dollar denominated operating leases, which is included in (gain) loss on foreign exchange in the accompanying consolidated statements of income.

Lease expense is recognized on a straight-line basis over the lease term, with variable lease expense recognized in the period such payments are incurred. The following table details the components of lease expense included in store operating expenses in the consolidated statements of income during the three months ended March 31, 2019 (in thousands):



Operating lease expense	$	30,980
Variable lease expense ⁽¹⁾	2,075
Total operating lease expense	$	33,055


⁽¹⁾	Variable lease costs consist primarily of taxes, insurance and common area or other maintenance costs paid based on actual costs incurred by the lessor and can therefore vary over the lease term.

The following table details the maturity of lease liabilities for all operating leases as of March 31, 2019 (in thousands):



Nine months ending December 31, 2019	$	78,583
2020	85,863
2021	65,433
2022	42,233
2023	23,021
Thereafter	20,221
Total	$	315,354
Less amount of lease payments representing interest	(41,438		)
Total present value of lease payments	$	273,916

The following table details supplemental cash flow information related to operating leases for the three months ended March 31, 2019 (in thousands):



Cash paid for amounts included in the measurement of operating lease liabilities	$	28,840
Leased assets obtained in exchange for new operating lease liabilities	$	2,551