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LEASES (Notes) | 9 Months Ended
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Sep. 30, 2019
Leases [Abstract] |
LEASES | LEASES 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. In preparation for adoption of the standard, we have implemented internal control procedures and key system functionality to enable the preparation of financial information. The adoption of the standard had a material impact on our condensed consolidated balance sheets, but did not have material impact on our condensed consolidated income statements or cash flows. Adoption of the standard resulted in the recognition of an operating lease liability of $455.5 million. Operating lease ROU assets were recorded in the amount of $419.0 million. Inclusive in the adoption was the transfer of $35.3 million in deferred rent liability and $792,000 in unfavorable rental contract liabilities to operating lease ROU assets. For finance leases, the effect of the adoption amounted to a finance lease liability of $12.1 million, which was transfered from capital lease debt and a finance right of use assets in the amount of $14.1 million which remained in property, plant and equipment. 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:
| Three months ended | Nine months ended
(In thousands) | September 30, 2019
Operating lease cost | $ | 24,497 |  | $ | 71,568 |
Finance lease cost: |  |
Depreciation of leased equipment | $ | 724 |  | $ | 2,351 |
Interest on lease liabilities | 91 |  | 319 |
Total finance lease cost | $ | 815 |  | $ | 2,670 |
Supplemental cash flow information related to leases was as follows:
| Three months ended |  | Nine months ended |
(In thousands) | September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities: |  |
Operating cash flows from operating leases | $ | 24,739 |  | $ | 71,926 |
Operating cash flows from financing leases | 91 |  | 319 |
Financing cash flows from financing leases | 1,363 |  | 4,299 |
Right-of-use & Equipment assets obtained in exchange for lease obligations: |  |
Operating leases(1) | 15,984 |  | 462,613 |
Financing leases | 32 |  | 14,088 |
(1) Amounts for the nine months ended September 30, 2019 include the transition adjustment for the adoption of Topic 842 discussed in Note 2, Significant Accounting Policies for further information. Supplemental balance sheet information related to leases was as follows:
(In thousands, except lease term and discount rates) |
| September 30, 2019 |
Operating Leases |
Operating lease right-of-use assets | $ | 438,558 |
Current portion of operating lease liability | $ | 69,308 |
Operating lease liabilities | 410,958 |
Total operating lease liabilities | $ | 480,266 |
Finance Leases |
Property and Equipment, at cost | $ | 14,088 |
Accumulated depreciation | (2,351 | )
Equipment, net | $ | 11,737 |
Current portion of finance lease | $ | 4,095 |
Finance lease liabilities | 4,042 |
Total finance lease liabilities | $ | 8,137 |
Weighted Average Remaining Lease Term |
Operating leases - years | 8.5 |
Finance leases - years | 3.2 |
Weighted Average Discount Rate |
Operating leases | 6.4 | %
Finance leases | 4.2 | %
Maturities of lease liabilities were as follows:
(In thousands) |  |
| Operating |  | Financing |
Year Ending December 31, | Leases |  | Leases |
2019 (excluding the nine months ended September 30, 2019) | $ | 24,616 |  | $ | 1,716 |
2020 | 95,158 |  | 3,481 |
2021 | 88,085 |  | 2,614 |
2022 | 78,279 |  | 691 |
2023 | 67,021 |  | — |
Thereafter | 282,379 |  | — |
Total Lease Payments | 635,538 |  | 8,502 |
Less imputed interest | (155,272 | ) | (365 | )
Total | $ | 480,266 |  | $ | 8,137 |
As of September 30, 2019 , we have additional operating leases for facilities that have not yet commenced of approximately $2.1 million. These operating leases will commence in 2019 with lease terms of 4 to 5 years. As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, maturities of operating lease liabilities were as follows as of December 31, 2018 (in thousands):
| Facilities |  | Equipment |  | Total
2019 | $ | 75,588 |  |  | $ | 14,924 |  |  | $ | 90,512 |
2020 | 66,116 |  |  | 14,385 |  |  | 80,501 |
2021 | 57,826 |  |  | 12,966 |  |  | 70,792 |
2022 | 48,542 |  |  | 10,264 |  |  | 58,806 |
2023 | 38,800 |  |  | 7,095 |  |  | 45,895 |
Thereafter | 160,327 |  |  | 5,144 |  |  | 165,471 |
| $ | 447,199 |  |  | $ | 64,778 |  |  | $ | 511,977 |
LEASES | LEASES 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. In preparation for adoption of the standard, we have implemented internal control procedures and key system functionality to enable the preparation of financial information. The adoption of the standard had a material impact on our condensed consolidated balance sheets, but did not have material impact on our condensed consolidated income statements or cash flows. Adoption of the standard resulted in the recognition of an operating lease liability of $455.5 million. Operating lease ROU assets were recorded in the amount of $419.0 million. Inclusive in the adoption was the transfer of $35.3 million in deferred rent liability and $792,000 in unfavorable rental contract liabilities to operating lease ROU assets. For finance leases, the effect of the adoption amounted to a finance lease liability of $12.1 million, which was transfered from capital lease debt and a finance right of use assets in the amount of $14.1 million which remained in property, plant and equipment. 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:
| Three months ended | Nine months ended
(In thousands) | September 30, 2019
Operating lease cost | $ | 24,497 |  | $ | 71,568 |
Finance lease cost: |  |
Depreciation of leased equipment | $ | 724 |  | $ | 2,351 |
Interest on lease liabilities | 91 |  | 319 |
Total finance lease cost | $ | 815 |  | $ | 2,670 |
Supplemental cash flow information related to leases was as follows:
| Three months ended |  | Nine months ended |
(In thousands) | September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities: |  |
Operating cash flows from operating leases | $ | 24,739 |  | $ | 71,926 |
Operating cash flows from financing leases | 91 |  | 319 |
Financing cash flows from financing leases | 1,363 |  | 4,299 |
Right-of-use & Equipment assets obtained in exchange for lease obligations: |  |
Operating leases(1) | 15,984 |  | 462,613 |
Financing leases | 32 |  | 14,088 |
(1) Amounts for the nine months ended September 30, 2019 include the transition adjustment for the adoption of Topic 842 discussed in Note 2, Significant Accounting Policies for further information. Supplemental balance sheet information related to leases was as follows:
(In thousands, except lease term and discount rates) |
| September 30, 2019 |
Operating Leases |
Operating lease right-of-use assets | $ | 438,558 |
Current portion of operating lease liability | $ | 69,308 |
Operating lease liabilities | 410,958 |
Total operating lease liabilities | $ | 480,266 |
Finance Leases |
Property and Equipment, at cost | $ | 14,088 |
Accumulated depreciation | (2,351 | )
Equipment, net | $ | 11,737 |
Current portion of finance lease | $ | 4,095 |
Finance lease liabilities | 4,042 |
Total finance lease liabilities | $ | 8,137 |
Weighted Average Remaining Lease Term |
Operating leases - years | 8.5 |
Finance leases - years | 3.2 |
Weighted Average Discount Rate |
Operating leases | 6.4 | %
Finance leases | 4.2 | %
Maturities of lease liabilities were as follows:
(In thousands) |  |
| Operating |  | Financing |
Year Ending December 31, | Leases |  | Leases |
2019 (excluding the nine months ended September 30, 2019) | $ | 24,616 |  | $ | 1,716 |
2020 | 95,158 |  | 3,481 |
2021 | 88,085 |  | 2,614 |
2022 | 78,279 |  | 691 |
2023 | 67,021 |  | — |
Thereafter | 282,379 |  | — |
Total Lease Payments | 635,538 |  | 8,502 |
Less imputed interest | (155,272 | ) | (365 | )
Total | $ | 480,266 |  | $ | 8,137 |
As of September 30, 2019 , we have additional operating leases for facilities that have not yet commenced of approximately $2.1 million. These operating leases will commence in 2019 with lease terms of 4 to 5 years. As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, maturities of operating lease liabilities were as follows as of December 31, 2018 (in thousands):
| Facilities |  | Equipment |  | Total
2019 | $ | 75,588 |  |  | $ | 14,924 |  |  | $ | 90,512 |
2020 | 66,116 |  |  | 14,385 |  |  | 80,501 |
2021 | 57,826 |  |  | 12,966 |  |  | 70,792 |
2022 | 48,542 |  |  | 10,264 |  |  | 58,806 |
2023 | 38,800 |  |  | 7,095 |  |  | 45,895 |
Thereafter | 160,327 |  |  | 5,144 |  |  | 165,471 |
| $ | 447,199 |  |  | $ | 64,778 |  |  | $ | 511,977 |

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