Leases

9 Months Ended

Sep. 30, 2019

Leases

Leases

14.  Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases, which provides guidance on the recognition, measurement, presentation and disclosure of leases. The new standard, effective as of January 1, 2019, supersedes present U.S. GAAP guidance on leases and requires all leases with terms longer than 12 months to be reported on the balance sheet as right-of-use (ROU) assets and lease liabilities, as well as provide additional disclosures. The lease liability represents the lessee’s obligation to make lease payments arising from a lease and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs.

Under ASU No. 2016-02, companies are required to transition to the new standard in the period of adoption at the beginning of the earliest period presented in the financial statements (January 1, 2017 for the Company). In July 2018, the FASB issued ASU No. 2018-11 as an update to ASU No. 2016-02, which in part provided companies the option of transitioning to the new standard as of the adoption date and recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the new standard as of January 1, 2019 using the alternative transition method under ASU No. 2018-11 and recognized a cumulative-effect adjustment to the opening balance sheet. The Company's prior period financial statements were not adjusted due to adopting the new standard based on the alternative transition method. The Company elected the available package of practical expedients for leases that commenced prior to the effective date that allows it to not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; and 3) the accounting treatment of initial direct costs for any expired or existing leases. The Company also elected the practical expedient that allows lessees to treat lease and non-lease components of leases as a single lease component for all asset classes. The adoption of the new standard resulted in recording $75.5 million and $77.9 million of ROU assets and lease liabilities, respectively, as of January 1, 2019 on the Company’s unaudited condensed consolidated balance sheet. The adoption of the new standard did not significantly affect the Company’s results of operations.

Starting in the first quarter of 2019, the Company accounts for leases in accordance with ASC 842, Leases. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than 12 months are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with an initial term of 12 months or less. Leases with an initial term of 12 months or less are directly expensed as incurred. Leases are classified as either operating or finance depending on the specific terms of the arrangement.

The Company’s leases mainly consist of facilities, office equipment, and vehicles. The majority of leases are classified as operating, with certain leases classified as finance leases based on the specific terms of the arrangement. The remaining lease term ranges from 2019 to 2029, with some leases including an option to extend the lease for varying periods of time or to terminate prior to the end of the lease term. Certain lease agreements contain provisions for future rent increases. Lease payments included in the measurement of the lease liability comprise fixed payments, and the exercise price of a Company option to purchase the underlying asset if the Company is reasonably certain to exercise the option. The Company’s leases typically do not contain residual value guarantees.

At the commencement date, operating and finance lease liabilities, and their corresponding ROU assets, are recorded based on the present value of lease payments over the expected lease term. The lease term includes the noncancellable period of the lease, plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. The interest rate implicit in lease contracts is typically not readily determinable, therefore an incremental borrowing rate is used to calculate the lease liability. The incremental borrowing rate is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the ROU asset may be required for items such as prepayments, lease incentives received or initial direct costs paid.

Operating lease cost is recognized over the lease term on a straight-line basis, while finance lease cost is amortized over the expected term on a straight-line basis. Variable lease cost not dependent on an index or rate is recognized when incurred.

The components of lease cost for the three and nine months ended September 30, 2019 are as follows (dollars in millions):

	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Amortization of right-of-use assets	$	0.1	$	0.2
Interest on lease liabilities		—		—
Total finance lease cost	$	0.1	$	0.2
Operating lease cost	$	6.1	$	18.8
Short term lease cost		0.5		1.6
Variable lease cost		1.0		2.7
Sublease income		(0.3)		(0.9)
Total lease cost	$	7.4	$	22.4

Supplemental balance sheet information as of September 30, 2019 related to leases was as follows (dollars in millions):

	September 30, 2019
Operating leases
Operating lease assets, net	$	68.9
Other current liabilities		20.4
Operating lease liability - long term		50.7
Finance leases
Property, plant and equipment, net	$	1.5
Current portion of long-term debt		0.4
Long-term debt		1.0
Weighted average remaining lease term
Operating leases		5.2	years
Finance leases		3.5	years
Weighted average discount rate
Operating leases		2.5	%
Finance leases		2.8	%

Supplemental cash flow information related to leases for the nine months ended September 30, 2019 was as follows (dollars in millions):

	Nine Months Ended
	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	—
Operating cash flows from operating leases		17.7
Financing cash flows from finance leases		0.2
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	$	16.4
Finance leases		0.8

Future minimum lease payments under non-cancellable leases as of September 30, 2019 are as follows (dollars in millions):

	Operating Leases		Finance Leases
2019 (excluding the nine months ended September 30, 2019)	$	5.9	$	0.1
2020		20.6		0.5
2021		15.2		0.4
2022		9.7		0.3
2023		7.6		0.2
Thereafter		16.7		—
Total undiscounted lease payments		75.7		1.5
Less: Imputed interest		(4.6)		(0.1)
Total lease liabilities	$	71.1	$	1.4

As of December 31, 2018, minimum commitments for the Company’s leases as required under prior lease guidance in ASC 840 were as follows (dollars in millions):

	Operating Leases		Finance Leases
2019	$	25.3	$	—
2020		19.1		0.1
2021		13.7		0.1
2022		9.3		—
2023		7.3		—
Thereafter		18.4		—
Total	$	93.1	$	0.2