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Leases

9 Months Ended

Sep. 30, 2019

Lessor

Sealed Air has contractual obligations as a lessor with respect to free on loan equipment and leased equipment, both sales-type and operating. The consideration in a contract that contains both lease and non-lease components is allocated based on the standalone selling price.

Our contractual obligations for operating leases can include termination and renewal options. Our contractual obligations for sales-type leases tend to have fixed terms and can include purchase options. We utilize the reasonably certain threshold criteria in determining which options our customers will exercise.

All lease payments are primarily fixed in nature and therefore captured in the lease receivable. Our lease receivable balance at September 30, 2019 was:



(in millions)	Short-Term (12 months or less)		Long-Term		Total
Total lease receivable (Sales-type and Operating)	$	4.2	$	7.4	$	11.6

Lessee

Sealed Air has contractual obligations as a lessee with respect to warehouses, offices, and manufacturing facilities, IT equipment, automobiles, and material production equipment.

Under the leasing standard, ASU 2016-02, leases that are more than one year in duration are capitalized and recorded on the balance sheet. Some of our leases, namely for automobiles and real estate, offer an option to extend the term of such leases. We utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, some of our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation.

In determining the discount rate to use in calculating the present value of lease payments, we estimate the rate of interest we would pay on a collateralized loan with the same payment terms as the lease by utilizing our bond yields traded in the secondary market to determine the estimated cost of funds for the particular tenor. We update our assumptions and discount rates on a quarterly basis.

The standard also provides practical expedients for an entity’s transition and ongoing accounting. In terms of transition accounting, we elected the ‘package of practical expedients’, which permits us to not reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.

In terms of ongoing accounting, we have elected to use the short-term lease recognition exemption for all asset classes. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets. We have also elected the practical expedient to not separate lease and non-lease components for all asset classes, meaning all consideration that is fixed, or in-substance fixed, will be captured as part of our lease components for balance sheet purposes. Furthermore, all variable payments included in lease agreements will be disclosed as variable lease expense when incurred. Generally, variable lease payments are based on usage and common area maintenance. These payments will be included as variable lease expense when recognized.

The following table details our lease obligations included in our Condensed Consolidated Balance Sheets.



(in millions)	September 30, 2019
Other non-current assets:
Finance leases - ROU assets	$	54.6
Finance leases - Accumulated depreciation	(13.5		)
Operating lease right-of-use-assets:
Operating leases - ROU assets	101.3
Operating leases - Accumulated depreciation	(21.0		)
Total lease assets	$	121.4
Current portion of long-term debt:
Finance leases	$	(10.3	)
Current portion of operating lease liabilities:
Operating leases	(24.6		)
Long-term debt, less current portion:
Finance leases	(30.4		)
Long-term operating lease liabilities, less current portion:
Operating leases	(57.4		)
Total lease liabilities	$	(122.7	)

At September 30, 2019, estimated future minimum annual rental commitments under non-cancelable real and personal property leases were as follows:



(in millions)	Operating leases			Finance leases
Remainder of 2019	$	7.5		$	3.2
2020	26.4			11.9
2021	20.3			10.2
2022	13.3			5.7
2023	9.0			2.8
Thereafter	18.7			15.2
Total lease payments	95.2			49.0
Less: Interest	(13.2		)	(8.3		)
Present value of lease liabilities	$	82.0		$	40.7

At December 31, 2018, operating leases estimated future minimum annual rental commitments under non-cancelable real and personal property leases, prior to the adoption of ASC 842, were as follows:



(in millions)	Operating leases
2019	$	28.5
2020	20.1
2021	14.7
2022	10.1
2023	6.9
Thereafter	17.0
Total lease payments	$	97.3

The following lease cost is included in our Condensed Consolidated Statements of Operations:



(in millions)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Lease cost
Finance leases
Amortization of ROU assets	$	2.4	$	6.5
Interest on lease liabilities	0.5		1.5
Operating leases	7.4		23.7
Short-term lease cost	2.0		3.9
Variable lease cost	1.6		4.7
Total lease cost	$	13.9	$	40.3



(in millions)	Nine Months Ended September 30, 2019
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	3.9
Operating cash flows from operating leases	$	26.1
Financing cash flows from finance leases	$	6.5

ROU assets obtained in exchange for new finance lease liabilities	$	19.6
ROU assets obtained in exchange for new operating lease liabilities	$	14.5



Weighted average information:
Finance leases
Remaining lease term (in years)	6.4
Discount rate	5.0	%
Operating leases
Remaining lease term (in years)	4.9
Discount rate	5.4	%

Leases