4. Lease Obligations

Change in Accounting Policy

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) using the modified retrospective method. Under this guidance, the net present value of future lease payments are recorded as right-of-use assets and liabilities. In addition, the Company elected the ‘package of practical expedients’ permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. In addition, the Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company did not recognize right-of-use assets or lease liabilities, including not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for our real estate and vehicle leases. Adoption of the new standard resulted in the recording of additional operating right-of-use assets and operating lease liabilities of approximately $15.1 million, as of January 1, 2019. The adoption of Topic 842 did not impact the Company’s retained earnings, consolidated net earnings or cash flows.

The following is a summary of the lease-related assets and liabilities recorded as of December 31, 2019:


(in thousands)	Classification on the Consolidated Balance Sheet
Assets
Operating lease right-of-use assets	Operating lease right-of-use assets		$	22,958
Finance lease right-of-use assets	Property and equipment, net of accumulated depreciation			1,478
Total right-of-use lease assets			$	24,436

Liabilities
Current
Operating lease obligations		Current portion of operating lease obligations	$	6,205
Finance lease obligations		Current portion of finance lease obligations		1,135
Total current obligations				7,340
Non-current
Operating lease obligations		Operating lease obligations, net of current maturities		16,884
Finance lease obligations		Finance lease obligations, net of current maturities		338
Total non-current obligations				17,222
Total lease obligations			$	24,562

The following is a summary of the lease terms and discount rates as of December 31, 2019:


Weighted-average remaining lease term - finance leases	1.4 years
Weighted-average remaining lease term - operating leases	3.9 years
Weighted-average discount rate - finance leases	2.5	%
Weighted-average discount rate - operating leases	3.8	%

The following is a summary of certain information related to the lease costs for finance and operating leases for the year ended December 31, 2019:


(in thousands)	Year ended December 31,
Lease cost:	2019
Finance lease cost:
Amortization of right-of-use assets	$	820
Interest on lease liabilities		66
Operating lease cost		7,282
Short-term lease cost		8
Variable lease costs		284
Total lease cost	$	8,460

The following is a summary of other information and supplemental cash flow information related to finance and operating leases for the year ended December 31, 2019:


(in thousands)
Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	7,337
Right-of-use asset obtained in exchange for new operating lease obligations	$	13,301

The future undiscounted minimum lease payments, as reconciled to the discounted minimum lease obligation indicated on the Company’s consolidated balance sheets, under current portion of operating lease obligations, current portion of finance lease obligations, and operating lease obligations, net of current maturities, as of December 31, 2019 were as follows:


	Finance		Operating		Total
	Lease		Lease		Lease
(in thousands)	Obligations		Obligations		Obligations

2020	$	1,167	$	8,431	$	9,598
2021		341		7,335		7,676
2022		—		5,999		5,999
2023		—		4,123		4,123
2024		—		1,978		1,978
Thereafter		—		1,648		1,648
Total minimum lease payments		1,508		29,514		31,022
Financing component		(35)		(6,425)		(6,460)
Net present value of minimum lease payments		1,473		23,089		24,562
Less: current portion of finance and operating lease obligations		(1,135)		(6,205)		(7,340)
Long-term finance and operating lease obligations	$	338	$	16,884	$	17,222

The financing component for finance lease obligations represents the interest component of capital leases that will be recognized as interest expense in future periods. The financing component for operating lease obligations represents the effect of discounting the lease payments to their present value.

Certain subsidiaries of the Company have operating leases for facilities from third party companies that are owned, in whole or part, by employees of the subsidiaries. The terms and rental rates of these leases are at market rental rates. As of December 31, 2019, the minimum lease payments required under these leases totaled $4.5 million, which is to be paid over the next 4.5 years.

The future minimum lease payments required under operating leases as of December 31, 2018 as reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 under previous ASC 840 guidance were as follows:


	Operating
(in thousands)	Lease Obligations

2019	$	4,829
2020		3,754
2021		2,971
2022		2,379
2023		1,335
Thereafter		2,127
Total minimum lease payments	$	17,395

Capital Leases

Prior to the adoption of ASU No. 2016-02, Leases (Topic 842), certain of the Company’s leased vehicles and equipment leases met the characteristics of capital leases. The economic substance of these leases was a financing transaction for acquisition of the vehicles and equipment and, accordingly, the leases were included in the balance sheets in property and equipment, net of accumulated depreciation, with a corresponding amount recorded in current portion of lease obligations or lease obligations, net of current maturities, as appropriate. The capital lease assets were amortized on a straight-line basis over the life of the lease or, if shorter, the life of the leased asset, and were included in depreciation expense in the statements of operations. The interest associated with capital leases was included in interest expense in the statements of operations.

As of December 31, 2018, the Company had $2.7 million of capital lease obligations outstanding, $1.1 million of which was classified as a current liability.

As of December 31, 2018, $2.6 million of leased assets were capitalized in property and equipment, net of accumulated depreciation.