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Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Standards Adopted During the Period

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02), which requires that assets and liabilities arising under leases be recognized on the balance sheets. ASU 2016-02 also requires additional quantitative and qualitative disclosures of the amount, timing and uncertainty of cash flows relating to lease arrangements. ASU 2016-02 was effective for annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842)—Targeted Improvements (ASU 2018-11). ASU 2018-11 allows entities to elect a simplified transition method, allowing for application of ASU 2016-02 at the adoption date, with recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted this standard on January 1, 2019 using the simplified transition method, allowing us to not restate comparative periods and apply ASC 842 on a prospective basis, resulting in a balance sheet presentation that, in certain respects, is not comparable to the prior period in the first year of adoption. We elected the practical expedient package permitted under the transition guidance within the new standard, which among other things, allows us to carry forward historical lease classifications. We also elected to use the lessee component election, allowing us to account for the lease and non-lease components as a single lease component. As the majority of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We made an accounting policy election to keep leases with an initial term of 12 months or less off of our consolidated balance sheets. We recognize lease payments for such leases in our consolidated statements of operations on a straight-line basis over the lease term.

Upon adoption of this standard, we recognized a right-of-use asset of $8.2 million, and a corresponding lease liability of the same amount, related to our operating leases as of January 1, 2019. In addition, we recognized a cumulative-effect adjustment for the de-recognition of our build-to-suit leases as these leases no longer qualify for build-to-suit accounting and have instead been recognized as operating leases under ASC 842. The adjustment resulted in a decrease to retained earnings of $5.1 million, which is net of a tax benefit. At adoption, our weighted-average remaining lease term was 3.0 years and our weighted-average discount rate was 4.9%.

Supplemental balance sheet information related to operating leases was as follows (in millions):


	Financial Statement Line Item on our	September 30,		January 1,
Operating Leases	Consolidated Balance Sheets	2019		2019
Right-of-use assets	Other non-current assets	$	4.7	$	8.2
Current lease liabilities	Other current liabilities	$	1.9	$	4.1
Non-current lease liabilities	Other non-current liabilities		2.8		4.1
Total operating lease liabilities		$	4.7	$	8.2

We recorded $1.2 million and $3.9 million in operating lease expense for the three and nine months ended September 30, 2019 and recorded $1.0 million and $3.2 million in operating lease expense for the three and nine months ended September 30, 2018. The amounts recorded in operating lease expense include short-term leases and variable lease costs, which are immaterial.

In connection with completion of construction in the third quarter of 2019 of a building we own, we leased part of the space in the building to another entity as part of a broader collaboration arrangement. The lease is accounted for as a sales-type lease. Upon lease commencement in the third quarter of 2019, we reclassified $23.1 million of property, plant and equipment, net to other non-current assets on our consolidated balance sheets. The collaboration arrangement activity was immaterial for the period ended September 30, 2019.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The standard provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect (or portion thereof) of the change in the U.S. federal corporate income tax rate under the Tax Cuts and Jobs Act (Tax Reform) is recorded. We adopted the new standard on January 1, 2019. Adoption of this standard did not have a material impact on our financial statements.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, to eliminate or modify certain disclosure rules that are redundant, outdated, or duplicative of U.S. GAAP or other regulatory requirements. Among other changes, the amendments eliminated the annual requirement to disclose the high and low trading prices of our common stock. In addition, the amendments expanded the disclosure requirements related to the analysis of shareholders’ equity for interim financial statements. An analysis of the changes in each caption of shareholders’ equity presented in the balance sheet must be provided in a note or separate statement, and we have provided this disclosure in a separate statement (Consolidated Statements of Stockholders’ Equity) beginning in the first quarter of 2019.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. ASU 2016-13 will be effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We have begun to identify all of our financial instruments that could be impacted by the new standard as well as to gather data required to comply with the guidance. While we are currently evaluating the impact of adopting this guidance on our financial statements, we do not expect the adoption of the standard will have a material impact.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04), which simplifies how an entity is required to test goodwill for impairment. A goodwill impairment will be measured by the amount by which a reporting unit’s carrying value exceeds its fair value, with the amount of impairment not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, and must be adopted on a prospective basis. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial statements.

In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). The standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial statements.