Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. FTI CONSULTING INC (887936) 10-Q published on Apr 25, 2019 at 7:29 am
Reporting Period: Mar 30, 2019
As of January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, Leases ("ASC 842"), which supersedes existing lease guidance. The standards require us to record right-of-use ("ROU") assets and corresponding lease liabilities on the balance sheet, as well as, disclose key quantitative and qualitative information about our lease contracts.
Under ASC 842, we determine if a contract is a leasing arrangement at inception. ROU assets represent our right to control the use of an identified asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use the incremental borrowing rate on the commencement date in determining the present value of our lease payments. We recognize operating lease expense for our operating leases on a straight-line basis over the lease term, which may include renewal or termination options that are reasonably certain of exercise.
See Note 1, "Basis of Presentation and Significant Accounting Policies" for a description of the significant accounting policies for our operating leases. See Note 9, "Leases" for the disclosures required under ASC 842. The adoption of this standard resulted in recognition of ROU assets in the amount of $148.5 million and lease liabilities in the amount of $206.7 million for operating leases on our Condensed Consolidated Balance Sheets as of January 1, 2019. Our existing deferred rent and cease-use liabilities were $62.3 million as of December 31, 2018 and were included as a reduction to the initial measurement of our operating lease assets. Our existing prepaid rent balance was $4.1 million as of December 31, 2018 and was included as a reduction to the initial measurement of our operating lease liabilities. There was no material impact on the Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows.
We lease office space and equipment under non-cancelable operating leases. We recognize operating lease expense on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to seven years. The exercise of lease renewal options is at our sole discretion. Certain of our lease agreements include rental payments that are adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We sublease certain of our leased office spaces to third parties. Our sublease portfolio consists of leases of office space that we have abandoned before the lease term expiration. Operating lease expense on abandoned office space is reduced by sublease rental income, which is recorded to SG&A expenses on the Condensed Consolidated Statements of Comprehensive Income. Our sublease arrangements do not contain renewal options or restrictive covenants. We estimate that future sublease rental income to be $3.7 million in 2019, $4.6 million in 2020, $4.2 million in 2021, $0.7 million in 2022, $0.6 million in 2023 and $0.9 million in years beyond 2023.
Adjusted EPS increased $0.59 to $1.63 for the three months ended March 31, 2019 compared to $1.04 for the three months ended March 31, 2018. Adjusted EPS excludes $2.1 million of non-cash interest expense related to the 2.0% convertible senior notes due 2023 ("2023 Convertible Notes"), which increased Adjusted EPS by $0.04, and a $2.1 million tax gain related to a change in accounting estimate for the September 2018 sale of the Ringtail software and related business ("Ringtail divestiture"), which decreased Adjusted EPS by $0.05.