Leases Leases

6 Months Ended

Jun. 30, 2019

We have entered into lease arrangements for office space, land, equipment, pipeline facilities and warehouses. These leases have been entered into to better enable us to conduct our business operations in the regions in which we operate. Office space is leased to provide adequate workspace for all our employees in several locations throughout the Mid-Atlantic, Mid-West and in Florida. We lease land at various locations throughout our service territories to enable us to inject natural gas into underground storage and distribution systems, for bulk storage capacity, for our propane operations and for storage of equipment used in repairs and maintenance of our infrastructure. We lease natural gas compressors to ensure timely and reliable transportation of natural gas to our customers. Additionally, we lease a pipeline to deliver natural gas to an industrial customer in Polk County, Florida. We lease warehouses to store equipment and materials used in repairs and maintenance for our businesses.

Some of our leases are subject to annual changes in the Consumer Price Index (“CPI”). While lease liabilities are not re-measured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. A 100-basis-point increase in CPI would have resulted in immaterial additional annual lease costs.

Most of our leases include options to renew, with renewal terms that can extend the lease term from one to 25 years or more. The exercise of lease renewal options is at our sole discretion. The amounts disclosed in our condensed consolidated balance sheet at June 30, 2019, pertaining to the right of use assets and lease liabilities, are measured based on our current expectations of exercising our available renewal options.

Our existing leases are not subject to any restrictions or covenants which preclude our ability to pay dividends, obtain financing or enter into additional leases.

We utilize our incremental borrowing rate, as the basis to calculate the present value of future lease payments, at lease commencement. Our incremental borrowing rate represents the rate that we would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment.

Leases with an initial term of 12 months or less are not recorded on our balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

We have elected not to separate non-lease components from all classes of our existing leases. Non-lease components have been accounted for as part of the single lease component to which they are related.

As of June 30, 2019, we have not entered into any leases, which have not yet commenced, that would entitle us to significant rights or create additional obligations. The following table presents information related to our total lease cost included in our condensed consolidated statements of income:



		Three Months Ended				Six Months Ended
		June 30,				June 30,
( in thousands)	Classification	2019		2018		2019		2018
Operating lease cost ⁽¹⁾	Operations expense	$	654	$	698	$	1,288	$	1,805
Finance lease cost:
Amortization of lease assets	Depreciation and amortization	249		361		650		719
Interest on lease liabilities	Interest expense	1		14		5		31
Net lease cost		$	904	$	1,073	$	1,943	$	2,555

⁽¹⁾ Includes short-term leases and variable lease costs, which are immaterial

The following table presents the balance and classifications of our right of use assets and lease liabilities included in our condensed consolidated balance sheet at June 30, 2019:



(in thousands)	Balance sheet classification	Amount
Assets
Operating lease assets	Operating lease right-of-use assets	$	12,404
Total lease assets		$	12,404
Liabilities
Current
Operating lease liabilities	Other accrued liabilities	$	1,704
Noncurrent
Operating lease liabilities	Operating lease - liabilities	10,710
Total lease liabilities		$	12,414

The following table presents our weighted-average remaining lease terms and weighted-average discount rates for our operating and financing leases at June 30, 2019:



	At June 30, 2019
Weighted-average remaining lease term (in years)
Operating leases	9.13
Weighted-average discount rate
Operating leases	3.8	%

The following table presents additional information related to cash paid for amounts included in the measurement of lease liabilities included in our condensed consolidated statements of cash flows as of June 30, 2019 and June 30, 2018:



	Six Months Ended
	June 30,
(in thousands)	2019		2018
Operating cash flows from operating leases	$	1,100	$	1,715
Operating cash flows from finance leases	$	5	$	31
Financing cash flows from finance leases	$	650	$	719

The following table presents the future undiscounted maturities of our operating and financing leases at June 30, 2019 and for each of the next five years and thereafter:



(in thousands)	Operating Leases ⁽¹⁾		Finance Leases		Total
Remainder of 2019	$	1,089	$	—	$	1,089
2020	2,091		—		2,091
2021	1,852		—		1,852
2022	1,691		—		1,691
2023	1,695		—		1,695
2024	1,451		—		1,451
Thereafter	4,916		—		4,916
Total lease payments	$	14,785	$	—	$	14,785
Less: Interest	2,371		—		2,371
Present value of lease liabilities	$	12,414	$	—	12,414

⁽¹⁾ Operating lease payments include $3.9 million related to options to extend lease terms that are reasonably certain of being exercised.

The following table presents future minimum lease payments for our operating leases at December 31, 2018 under ASC 840 and is being presented for comparative purposes:



Year(s)	2019	2020	2021	2022	2023	Thereafter	Total
(in thousands)
Expected payments	$2,349	$1,998	$1,761	$1,689	$1,642	$5,398	$14,837