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Lease Commitments

12 Months Ended

Dec. 31, 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.

Upon implementing the new lease accounting standard in 2019, the Company elected the package of practical expedients, which permits a lessee to not reassess under the new standard its prior conclusions regarding lease identification, lease classification and initial direct costs.

Lease liabilities and their corresponding right-of-use assets, for leases with terms of 12 months or greater, are recorded based on the present value of lease payments over the expected lease term. The Company has elected not to present short term leases on the consolidated balance sheet, in accordance with the standard.

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 cases where the lease term exceeds the useful life, 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.

Variable lease expense includes payments based on performance or usage, as well as changes to index and rate-based lease payments.

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 Consolidated Balance Sheets:



Assets	Location	December 31, 2019
Operating lease assets, net	Operating lease right-of-use assets, net	$	80,752
Finance lease assets	Property, plant and equipment	4,577
Total leased assets		$	85,329
Liabilities	Location
Current:
Operating	Accrued liabilities	$	27,663
Finance	Current portion of long-term debt and finance leases	265
Noncurrent:
Operating	Noncurrent operating leases	55,371
Finance	Long-term debt and finance leases	935
Total lease liabilities		$	84,234

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



Lease cost	Location	Twelve Months Ended December 31, 2019
Operating lease cost ^(a)	Cost of sales	$	36,321
Operating lease cost	Selling general & administrative expenses	5,632
Total operating lease cost		41,953

Amortization of finance lease assets	Cost of sales	$	352
Interest on finance lease liabilities	Interest expense	32
Total finance lease cost		384
Net lease cost		$	42,337

^(a) - Includes short-term lease costs of $7,328 and variable lease costs of $3,480 for the year ended December 31, 2019.

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



	December 31, 2019
	Operating Leases			Finance Leases			Total
2020	$	31,397		$	322		$	31,719
2021	18,020			323			18,343
2022	13,691			311			14,002
2023	9,693			275			9,968
2024	6,236			127			6,363
After 2024	17,793			—			17,793
Total lease payments	96,830			1,358			98,188
Less: Interest	(13,796		)	(158		)	(13,954		)
Present value of lease liabilities	$	83,034		$	1,200		$	84,234

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



Weighted-average remaining lease term (years)	December 31, 2019
Operating leases	4.90
Finance Leases	4.26
Weighted-average discount rate
Operating leases	5.76	%
Finance Leases	5.79	%

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



	Twelve Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases	$	33,774
Operating cash outflows from finance leases	332
Financing cash outflows from finance leases	(605		)
Leased assets obtained in exchange for new finance lease liabilities	43
Leased assets obtained in exchange for new operating lease liabilities	342

Lease Commitments