Operating Leases

9 Months Ended

Sep. 30, 2019

(5) Operating Leases

We lease space under non-cancelable operating leases for several distribution centers, several manufacturing locations, and certain branch locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions. We also lease certain semi-tractors, pick-up trucks, and computer equipment under operating leases. Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases. Our pick-up truck leases typically have a non-cancelable lease term of less than one year and therefore, we have elected the practical expedient to exclude these short-term leases from our ROU assets and lease liabilities.

Most leases include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our ROU assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease term.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. We have a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, we apply a portfolio approach for determining the incremental borrowing rate.

Certain operating leases for pick-up trucks contain residual value guarantee provisions which would generally become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. The aggregate residual value guarantee related to these leases was approximately $93.1. We believe the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remote. To the extent our fleet contains vehicles we estimate will settle at a gain, such gains on these vehicles will be recognized when we sell the vehicle.

The cost components of our operating leases were as follows for the periods ended September 30, 2019:



	Nine-month Period				Three-month Period
	Leased Facilities and Equipment		Leased Vehicles	Total	Leased Facilities and Equipment		Leased Vehicles	Total
Operating lease cost	$	78.0	10.3	88.3	$	26.2	3.6	29.8
Variable lease cost	7.7		1.4	9.1	2.3		0.4	2.7
Short-term lease cost	—		20.1	20.1	—		6.6	6.6
Total	$	85.7	31.8	117.5	$	28.5	10.6	39.1

Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred by the lessor as well as variable mileage costs related to our leased vehicles.

Maturities of our lease liabilities for all operating leases are as follows as of September 30, 2019:



	Leased Facilities and Equipment			Leased Vehicles		Total
2019	$	23.7		3.2		26.9
2020	83.3			9.5		92.8
2021	57.6			5.3		62.9
2022	34.8			2.9		37.7
2023	19.9			1.1		21.0
2024 and thereafter	11.3			0.2		11.5
Total lease payments	$	230.6		22.2		252.8
Less: Interest	(11.6		)	(0.8	)	(12.4	)
Present value of lease liabilities	$	219.0		21.4		240.4

The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of September 30, 2019:



Remaining lease term and discount rate:	September 30, 2019
Weighted average remaining lease term (years)
Leased facilities and equipment	3.30
Leased vehicles	2.57
Weighted average discount rate
Lease facilities and equipment	3.31%
Leased vehicles	3.11%

Supplemental cash flow information related to our operating leases was as follows for the period ended September 30, 2019:



	Nine-month Period
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	87.0
Leased assets obtained in exchange for new operating lease liabilities	87.6