Leases

12 Months Ended

Dec. 31, 2020

Leases

Leases

Note 12. Leases

The company has operating leases relating principally to transportation and other equipment, and some real estate. The company determines if an arrangement contains a lease at inception, which generally occurs when the arrangement identifies a specific asset that the company has the right to direct the use of and obtain substantially all of the economic benefit from use of the identified asset. Certain of our lease agreements contain rent escalation clauses (including fixed and index-based escalations), and options to extend or terminate the lease. For purposes of calculating operating lease obligations, the company’s lease terms include options to extend the lease when it is reasonably certain that the company will exercise such option. The company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is the rate of interest the company could borrow on a collateralized basis over a similar term with similar payments. Operating lease expense is recognized on a straight-line basis over the lease term.

Operating lease right-of-use assets and lease obligations included in the consolidated balance sheets at December 31, are as follows (in thousands):

		2020		2019
Right-of-use assets under operating leases:
Other assets - noncurrent	$	90,280	$	75,176
Lease obligations under operating leases:
Accrued liabilities	$	17,702	$	17,532
Other liabilities - noncurrent		72,614		57,897
	$	90,316	$	75,429

The weighted average remaining lease term for our operating leases is nine and six years, and the weighted-average discount rate is 3.84% and 3.96% as of December 31, 2020 and 2019, respectively. Future operating lease liabilities as of December 31, 2020, for the next five years and thereafter are as follows (in thousands):

2021	$	20,734
2022		17,165
2023		14,057
2024		11,418
2025		8,888
Thereafter		34,159
Total undiscounted cash flows		106,421
Less imputed interest		(16,105)
Lease obligations under operating leases	$	90,316

Note 12. Leases (Continued)

Operating lease expense included in the consolidated statements of income was $21.3 and $20.1 million for the years ended December 31, 2020 and 2019, respectively. Cash paid related to operating lease obligations was $18.6 and $17.5 million for the years ended December 31, 2020 and 2019, respectively. Variable lease costs were not material for the years ended December 31, 2020 and 2019. Short-term lease expense included in the consolidated statements of income was $19.1 and $20.0 million for the years ended December 31, 2020 and 2019, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities for the years ended December 31, 2020 and 2019 was $33.3 million, including $19.7 million related to Zimmer, and $16.1 million, respectively. The company paid $21.1 million for operating leases for the year ended December 31, 2018.

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) and its subsequent corresponding updates, which established a new lease accounting model that requires lessees to recognize a right-of-use asset and related lease liability for most leases having lease terms of more than 12 months. The company adopted ASC 842 effective January 1, 2019, using the optional transition method, thereby applying the new guidance at the effective date, without retrospective application to prior periods. The company elected practical expedients permitted under the transition guidance which allowed the company to not reassess under the new standard its prior conclusions regarding lease identification and classification. The company elected to use hindsight when determining the lease term. The company also elected the short-term lease exemption, and did not recognize right-of-use assets and lease liabilities for short-term leases, those with lease commencement date terms of 12 months or less. The company recognized right-of-use assets and lease liabilities of $76.3 million, with no impact on retained earnings, in the consolidated balance sheet on January 1, 2019, and the standard did not have a significant impact on the company’s operating results or cash flows for the year ended December 31, 2019.