Leases

12 Months Ended

Mar. 31, 2020

Note 16: Leases

Effective April 1, 2019, the Company adopted new lease accounting guidance and, as a result, recorded $61.3 million of right-of-use (“ROU”) assets and corresponding lease liabilities for operating leases on its consolidated balance sheet. The consolidated financial statements for fiscal 2020 reflect the adoption of this new guidance; however, fiscal 2019, fiscal 2018 and prior-years have not been adjusted. See Note 1 for additional information regarding the Company’s adoption of the new guidance.

The Company determines if an arrangement is a lease at contract inception. The lease term begins upon lease commencement, which is when the Company takes possession of the asset, and may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. The Company uses the lease term within its determination of the appropriate lease classification, either as an operating lease or as a finance lease, and to calculate straight-line lease expense for its operating leases.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company recognizes ROU assets and lease liabilities at the commencement date, based upon the present value of lease payments over the lease term. As its lease agreements typically do not provide an implicit interest rate, the Company primarily uses an incremental borrowing rate based upon the information available at lease commencement. In determining the incremental borrowing rate, the Company considers its current collateralized borrowing rate, the term of the lease, and the economic environments where the lease activity is concentrated. The Company believes this method effectively estimates a borrowing rate that it could obtain for a debt instrument with similar terms as the lease agreement.

Based upon its accounting policy, the Company does not separate lease and non-lease components for any asset class. In addition, the Company does not record short-term leases (i.e. leases with an initial term of 12 months or less) on its consolidated balance sheets and recognizes payments for these leases as lease expense.

Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. These variable lease costs are recognized as variable lease expense when incurred. The depreciable life of the ROU assets and related leasehold improvements are limited by the expected lease term, unless the lease contains a provision to transfer title to the Company or a purchase option that the Company expects to execute.

The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and office buildings. In addition, the Company leases certain manufacturing and IT equipment and vehicles. The Company’s most significant leases have remaining lease terms of 1 to 15 years. Certain leases contain renewal options for varying periods, which are at the Company’s discretion. If reasonably certain of exercise, the Company includes the renewal periods within the calculation of ROU assets and lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Lease Assets and Liabilities: The following table provides a summary of leases recorded on the consolidated balance sheet.

	Balance Sheet Location	March 31, 2020
Lease Assets
Operating lease ROU assets	Other noncurrent assets	$	61.4
Finance lease ROU assets (a)	Property, plant and equipment - net		8.5

Lease Liabilities
Operating lease liabilities	Other current liabilities	$	10.9
Operating lease liabilities	Other noncurrent liabilities		50.3
Finance lease liabilities	Long-term debt - current portion		0.4
Finance lease liabilities	Long-term debt		3.3

(a)

Finance lease ROU assets were recorded net of accumulated amortization of $1.8 million as of March 31, 2020.

Components of Lease Expense: The Company records operating lease expense as either cost of sales or SG&A expenses within its consolidated statements of operations, depending upon the nature and use of the ROU assets. The Company records finance lease expense as depreciation expense within cost of sales or SG&A expenses, depending upon the nature and use of the ROU assets, and as interest expense in its consolidated statements of operations.

The components of lease expense were as follows:

	Year ended March 31, 2020
Operating lease expense (a)	$	21.2
Finance lease expense:
Depreciation of ROU assets		0.5
Interest on lease liabilities		0.2
Total lease expense	$	21.9

(a)

In fiscal 2020, operating lease expense included short-term lease expense of $4.1 million. Variable lease expense was not significant.

Supplemental Cash Flow Information

	Year ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	14.7
Financing cash flows for finance leases		0.5

ROU assets obtained in exchange for lease liabilities
Operating leases	$	9.0
Finance leases		0.2

Lease Term and Discount Rates

	March 31, 2020
Weighted-average remaining lease term:
Operating leases	9.3 years
Finance leases	8.8 years

Weighted-average discount rate:
Operating leases		3.5	%
Finance leases		4.7	%

Maturity of Lease Liabilities under New Lease Accounting Guidance: Future minimum rental payments for leases with initial non-cancellable lease terms in excess of one year were as follows at March 31, 2020:

Fiscal Year	Operating Leases			Finance Leases
2021	$	12.8		$	0.5
2022		11.4			0.5
2023		9.3			0.5
2024		6.3			0.5
2025		5.8			0.5
2026 and beyond		26.2			2.0
Total lease payments		71.8			4.5
Less: Interest		(10.6	)		(0.8	)
Present value of lease liabilities	$	61.2		$	3.7

Maturity of Lease Liabilities under Previous Lease Accounting Guidance: Future minimum rental payments for operating leases with initial non-cancellable lease terms in excess of one year were as follows at March 31, 2019:

Fiscal Year
2020	$	14.2
2021		12.4
2022		9.1
2023		7.1
2024		4.7
2025 and beyond		22.9
Total	$	70.4

The Company recorded $19.3 million and $18.5 million of rental expense related to operating leases in fiscal 2019 and 2018, respectively.