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Lease Commitments

9 Months Ended

Sep. 30, 2019

The Company leases certain warehouses, distribution centers, office space, material handling equipment, office equipment, cars and information technology hardware. The Company determines if an arrangement is a lease or contains an embedded lease at contract inception.

Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more. The exercise of lease renewal options is at the Company's sole discretion. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Certain of the Company's lease agreements include rental payments based on the use of the leased property over contractual levels. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company has lease agreements with lease and non-lease components, which are accounted for separately. Although separation of lease and non-lease components is required, certain practical expedients are available to entities. Entities electing the practical expedient would account for each lease component and the related non-lease component together as a single component. For certain building leases, including the lease of warehouses, distribution centers and office space, the Company accounts for the lease and non-lease components as a single lease component. For all other asset types, the Company accounts for lease and non-lease components separately.

For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

For finance leases, the right-of-use asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term. In those cases, the right-of-use asset is amortized over the useful life of the underlying asset. Amortization of the right-of-use asset is recognized and presented separately from interest expense on the lease liability.

Right-of-use assets for operating and finance leases are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, "Property, Plant, and Equipment - Overall", to determine whether a right-of-use asset is impaired, and if so, the amount of the impairment loss to recognize. No impairment losses have been recognized to date.

The following table presents the location and amount of lease assets and liabilities in the Condensed Consolidated Balance Sheets:



Assets	Location	September 30, 2019
Operating lease assets, net	Operating lease right-of-use assets, net	$	86,285
Finance lease assets	Property, plant and equipment	2,978
Total leased assets		$	89,263
Liabilities	Location
Current:
Operating	Accrued liabilities	$	28,631
Finance	Current portion of long-term debt and finance leases	—
Noncurrent:
Operating	Noncurrent operating leases	60,335
Finance	Long-term debt and finance leases	5,063
Total lease liabilities		$	94,029

The following table presents the location and amount of lease expense in the Condensed Consolidated Income Statement:



Lease cost	Location	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost ^(a)	Cost of Sales	$	6,318	$	19,249
Operating lease cost	Selling General & Administrative Expenses	1,432		4,330
Total operating lease cost		7,750		23,579

Amortization of finance lease assets	Cost of sales	$	51	$	160
Interest on finance lease liabilities	Interest expense	1		3
Total finance lease cost		52		163
Net lease cost		$	7,802	$	23,742

^(a) - Includes short-term lease costs of $1,981 and $5,382 and variable lease costs of $995 and $2,675 for the three and nine month periods ended September 30, 2019, respectively.

The following table presents the future maturities of the Company's lease obligations:



	September 30, 2019
	Operating Leases		Finance Leases		Total
2019	$	8,119	$	—	$	8,119
2020	31,099		—		31,099
2021	17,802		5,063		22,865
2022	13,494		—		13,494
2023	9,549		—		9,549
After 2024	24,016		—		24,016
Total lease payments	104,079		5,063		109,142
Less: Interest	15,113		—		15,113
Present value of lease liabilities	$	88,966	$	5,063	$	94,029

The following table presents the weighted-average lease term and discount rates of the Company's lease obligations:



Weighted-average remaining lease term (years)	September 30, 2019
Operating leases	4.98
Finance leases	1.42
Weighted-average discount rate
Operating leases	5.84	%
Finance leases	4.77	%

The following table presents the cash flow amounts related to lease liabilities included in the Company's Condensed Consolidated Statement of Cash Flows



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	8,265		$	25,446
Operating cash flows from finance leases	51			160
Financing cash flows from finance leases	(185		)	(574		)
Leased assets obtained in exchange for new operating lease liabilities	—			39

Lease Commitments