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Leases

9 Months Ended

Sep. 30, 2019

We adopted the New Lease Standard effective January 1, 2019 utilizing the modified retrospective approach and have elected an initial application date of January 1, 2019. Adoption of the New Lease Standard resulted in an increase to total assets and liabilities due to the recording of lease ROU assets and lease liabilities of approximately $210 million as of January 1, 2019. Our adoption of the New Lease Standard included modification of certain accounting policies and practices, business processes, systems and controls in order to support compliance with the requirements.

We elected the package of three practical expedients for transition, which include the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct costs. We elected the transition practical expedient to apply hindsight when determining the lease term and when assessing impairment of ROU assets at the adoption date, which allows us to update our assessments according to new information and changes in facts and circumstances that have occurred since lease inception. We have certain land easements that have historically been accounted for as finite-lived intangible assets. We elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements as intangible assets. Any new or modified land easements will be accounted for as leases under the New Lease Standard.

Presentation of Leases

We have operating and finance leases for certain manufacturing facilities, offices, service and quick response centers, machinery, equipment and automobiles. Our leases have remaining lease terms of up to 34 years. The terms and conditions of our leases may include options to extend or terminate the lease which are considered and included in the lease term when these options are reasonably certain of exercise.

We determine if a contract is (or contains) a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset. For all classes of leased assets, we have elected the practical expedient to account for any non-lease components in the contract together with the related lease component in the same unit of account. For lease contracts containing more than one lease component, we allocate the contract consideration to each of the lease components on the basis of relative standalone prices in order to identify the lease payments for each lease component.

ROU assets and lease liabilities are recognized in our condensed consolidated balance sheets at the commencement date based on the present value of remaining lease payments over the lease term. Additionally, ROU assets include any lease payments made at or before the commencement date, as well as any initial direct costs incurred, and are reduced by any lease incentives received. As most of our operating leases do not provide an implicit rate, we apply our incremental borrowing rate to determine the present value of remaining lease payments. Our incremental borrowing rate is determined based on information available at the commencement date of the lease.

Operating leases are included in operating lease right-of-use assets, net and operating lease liabilities in our condensed consolidated balance sheets. Finance leases are included in property plant and equipment, debt due within one year and long-term debt due after one year in our condensed consolidated balance sheets.

For all classes of leased assets, we have applied an accounting policy election to exclude short-term leases from recognition in our condensed consolidated balance sheets. A short-term lease has a lease term of 12 months or less at the commencement date and does not include a purchase option that is reasonably certain of exercise. We recognize short-term lease expense in our condensed consolidated income statements on a straight-line basis over the lease term. Our short-term lease expense and short-term lease commitments as of September 30, 2019 are immaterial.

We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated income statements as the obligation is incurred.

We have certain lease contracts where we provide a guarantee to the lessor that the value of an underlying asset will be at least a specified amount at the end of the lease. Estimated amounts expected to be paid for residual value guarantees are included in lease liabilities and ROU assets.

As of September 30, 2019, we had $41.9 million of legally binding minimum lease payments for operating leases signed but not yet commenced. We did not have material subleases, leases that imposed significant restrictions or covenants, material related party leases or sale-leaseback arrangements.

Other information related to our leases is as follows:



			September 30,
(Amounts in thousands)			2019
Operating Leases:
ROU assets recorded under operating leases			$	208,943
Accumulated amortization associated with operating leases			(26,670		)
Total operating leases ROU assets, net			$	182,273

Liabilities recorded under operating leases (current)			$	35,042
Liabilities recorded under operating leases (non-current)			146,839
Total operating leases liabilities			$	181,881

Finance Leases:
ROU assets recorded under finance leases			$	16,230
Accumulated depreciation associated with finance leases			(5,015		)
Total finance leases ROU assets, net(1)			$	11,215

Total finance leases liabilities(2)			$	11,246

The costs components of operating and finance leases are as follows:
(Amounts in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating Lease Costs:
Fixed lease expense(3)	$	13,858	$	43,864
Variable lease expense(3)	1,119		3,999
Total operating lease expense	$	14,977	$	47,863

Finance Lease Costs:
Depreciation of finance lease ROU assets(3)	$	993	$	3,280
Interest on lease liabilities(4)	102		253
Total finance lease expense	$	1,095	$	3,533

_____________________

(1) Included in property plant and equipment, net

(2) Included in debt due within one year and long-term debt due after one year, accordingly

(3) Included in cost of sales and selling, general and administrative expense, accordingly

(4) Included in interest expense

Supplemental cash flows information as of and for the nine months ended September 30, 2019:



(Amounts in thousands, except lease term and discount rate)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases(1)	$	39,642
Financing cash flows from finance leases(2)	4,177
ROU assets obtained in exchange for lease obligations:
Operating leases	$	15,739
Finance leases	10,184
Weighted average remaining lease term (in years)
Operating leases	9 years
Finance leases	4 years
Weighted average discount rate (percent)
Operating leases	4.6		%
Finance leases	3.7		%

_____________________

(1) Included in our condensed consolidated statement of cash flows, operating activities, prepaid expenses and other assets, net and retirement obligations and other

(2) Included in our condensed consolidated statement of cash flows, financing activities, payments under other financing arrangements

Future undiscounted lease payments under operating and finance leases as of September 30, 2019 were as follows (amounts in thousands):



Year ending December 31,	Operating Leases			Finance Leases
2019 (excluding the nine months ended September 30, 2019)	$	10,769		$	1,321
2020	39,425			4,353
2021	30,498			2,854
2022	25,032			1,623
2023	21,235			850
Thereafter	95,094			945
Total future minimum lease payments	$	222,053		$	11,946
Less: Imputed interest	(40,172		)	(700		)
Total	$	181,881		$	11,246

Other current liabilities	$	35,042		$	—
Operating lease liabilities	146,839			—
Debt due within one year	—			4,342
Long-term debt due after one year	—			6,904
Total	$	181,881		$	11,246



The future minimum lease payments as of December 31, 2018 were as follows (amounts in thousands):
Year ending December 31,
2019	$	68,443
2020	49,874
2021	38,446
2022	28,496
2023	21,473
Thereafter	66,518
Total future minimum lease payments	$	273,250

Leases

Presentation of Leases

Other information related to our leases is as follows:



			September 30,
(Amounts in thousands)			2019
Operating Leases:
ROU assets recorded under operating leases			$	208,943
Accumulated amortization associated with operating leases			(26,670		)
Total operating leases ROU assets, net			$	182,273

Liabilities recorded under operating leases (current)			$	35,042
Liabilities recorded under operating leases (non-current)			146,839
Total operating leases liabilities			$	181,881

Finance Leases:
ROU assets recorded under finance leases			$	16,230
Accumulated depreciation associated with finance leases			(5,015		)
Total finance leases ROU assets, net(1)			$	11,215

Total finance leases liabilities(2)			$	11,246

The costs components of operating and finance leases are as follows:
(Amounts in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating Lease Costs:
Fixed lease expense(3)	$	13,858	$	43,864
Variable lease expense(3)	1,119		3,999
Total operating lease expense	$	14,977	$	47,863

Finance Lease Costs:
Depreciation of finance lease ROU assets(3)	$	993	$	3,280
Interest on lease liabilities(4)	102		253
Total finance lease expense	$	1,095	$	3,533

_____________________

(1) Included in property plant and equipment, net

(2) Included in debt due within one year and long-term debt due after one year, accordingly

(3) Included in cost of sales and selling, general and administrative expense, accordingly

(4) Included in interest expense

Supplemental cash flows information as of and for the nine months ended September 30, 2019:



(Amounts in thousands, except lease term and discount rate)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases(1)	$	39,642
Financing cash flows from finance leases(2)	4,177
ROU assets obtained in exchange for lease obligations:
Operating leases	$	15,739
Finance leases	10,184
Weighted average remaining lease term (in years)
Operating leases	9 years
Finance leases	4 years
Weighted average discount rate (percent)
Operating leases	4.6		%
Finance leases	3.7		%

_____________________

(1) Included in our condensed consolidated statement of cash flows, operating activities, prepaid expenses and other assets, net and retirement obligations and other

(2) Included in our condensed consolidated statement of cash flows, financing activities, payments under other financing arrangements

Future undiscounted lease payments under operating and finance leases as of September 30, 2019 were as follows (amounts in thousands):



Year ending December 31,	Operating Leases			Finance Leases
2019 (excluding the nine months ended September 30, 2019)	$	10,769		$	1,321
2020	39,425			4,353
2021	30,498			2,854
2022	25,032			1,623
2023	21,235			850
Thereafter	95,094			945
Total future minimum lease payments	$	222,053		$	11,946
Less: Imputed interest	(40,172		)	(700		)
Total	$	181,881		$	11,246

Other current liabilities	$	35,042		$	—
Operating lease liabilities	146,839			—
Debt due within one year	—			4,342
Long-term debt due after one year	—			6,904
Total	$	181,881		$	11,246



The future minimum lease payments as of December 31, 2018 were as follows (amounts in thousands):
Year ending December 31,
2019	$	68,443
2020	49,874
2021	38,446
2022	28,496
2023	21,473
Thereafter	66,518
Total future minimum lease payments	$	273,250