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Leases

12 Months Ended

Dec. 31, 2019

Effective January 1, 2019 the Company adopted ASC 842, which requires recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet, based on the present value of the future minimum rental payments for existing operating leases. The Company adopted the provisions of ASC 842 on January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption in line with the new transition method allowed under ASU 2018-11. ASC 842 provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients” which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight and elected the practical expedient pertaining to land easements. The new standard also provides practical expedients for an entity’s ongoing accounting for leases. The Company elected the short-term lease exemption for all leases that qualify, meaning the Company will not recognize ROU assets or lease liabilities for leases with terms shorter than twelve months. The Company also elected the practical expedient to not separate lease and non-lease components for a majority of its asset classes, including real estate and most equipment.

The Company measures the ROU assets and liabilities based on the present value of the future minimum lease payments over the lease term at the commencement date. Minimum lease payments include the fixed lease and non-lease components of the agreement, as well as any variable rent payments that depend on an index, initially measured using the index at the lease commencement date. The ROU assets are adjusted for any initial direct costs incurred less any lease incentives received, in addition to payments made on or before the commencement date of the lease. The Company recognizes lease expense for leases on a straight-line basis over the lease term.

As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s credit spread adjusted for current market factors and foreign currency rates. The Company also made a policy election to determine its incremental borrowing rate, at the initial application date, using the total lease term and the total minimum rental payments, as the Company believes this rate is more indicative of the implied financing cost.

The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases for service centers, warehouses, showrooms, and machinery and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company enters into lease contracts ranging from 1 to 60 years with a majority of the Company’s lease terms ranging from 1 to 8 years.

Some leases include one or more options to renew, with renewal terms that can extend the lease term from 3 to 10 years or more. The exercise of these lease renewal options is at the Company’s sole discretion. An insignificant number of the Company’s leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

Certain of the Company’s leases include rental payments that will adjust periodically for inflation or certain adjustments based on step increases. An insignificant number of the Company’s leases contain residual value guarantees and none of the

Company’s agreements contain material restrictive covenants. Variable rent expenses consist primarily of maintenance, property taxes and charges based on usage.

The Company rents or subleases certain real estate to third parties. The Company’s sublease portfolio consists mainly of operating leases.

The components of lease costs are as follows:



	Twelve Months Ended December 31, 2019
	Cost of Goods Sold			Selling, General and Administrative		Total
Operating lease costs
Fixed	$	30,002		97,988		127,990
Short-term	9,725			13,933		23,658
Variable	8,123			29,852		37,975
Sub-leases	(311		)	(537	)	(848	)
	$	47,539		141,236		188,775


	Twelve Months Ended December 31, 2019
	Depreciation and Amortization			Interest		Total
Finance lease costs
Amortization of leased assets	$	4,015		—		4,015
Interest on lease liabilities	—			491		491
	$	4,015		491		4,506
Net lease costs						193,281

Supplemental balance sheet information related to leases is as follows:



	Classification	At December 31, 2019
Assets
Operating Leases
Right of use operating lease assets	Right of use operating lease assets	$	323,003
Finance Leases
Property, plant and equipment, gross	Property, plant and equipment	35,271
Accumulated depreciation	Accumulated depreciation	(5,664		)
Property, plant and equipment, net	Property, plant and equipment, net	29,607
Total lease assets		$	352,610

Liabilities
Operating Leases
Other current	Current operating lease liabilities	$	101,945
Non-current	Non-current operating lease liabilities	228,155
Total operating liabilities		330,100
Finance Leases
Short-term debt	Short-term debt and current portion of long-term debt	4,835
Long-term debt	Long-term debt, less current portion	25,214
Total finance liabilities		30,049
Total lease liabilities		$	360,149

Maturities of lease liabilities are as follows:

As of December 31, 2019



Year ending December 31,	Finance Leases		Operating Leases	Total
2020	$	5,355	119,745	125,100
2021	4,955		94,169	99,124
2022	4,612		66,090	70,702
2023	4,077		36,965	41,042
2024	2,894		20,118	23,012
Thereafter	10,884		26,105	36,989
Total lease payments	32,777		363,192	395,969
Less imputed interest	2,728		33,092
Present value, Total	$	30,049	330,100

As of December 31, 2018



Year ending December 31,	Finance Leases		Operating Leases	Total
2019	$	1,494	116,110	117,604
2020	1,195		93,724	94,919
2021	766		66,129	66,895
2022	562		42,247	42,809
2023	555		22,207	22,762
Thereafter	3,215		26,097	29,312
Total payments	7,787		366,514	374,301
Less amount representing interest	1,123
Present value of capitalized lease payments	$	6,664

The Company had approximately $13,932 of leases that commenced after December 31, 2019 that created rights and obligations to the Company. These leases are not included in the above maturity schedule.

Lease term and discount rate are as follows:



	At December 31, 2019
Weighted Average Remaining Lease Term
Operating Leases	4.27
Finance Leases	8.44

Weighted Average Discount Rate
Operating Leases	3.3	%
Finance Leases	1.4	%

Supplemental cash flow information related to leases was as follows:



	Twelve Months Ended
	December 31, 2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	127,213
Operating cash flows from finance leases	349
Financing cash flows from finance leases	3,975
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases	133,959
Finance Leases	20,464
Amortization:
Amortization of Right of use operating lease assets ⁽¹⁾	109,884

⁽¹⁾ Amortization of Right of use operating lease assets during the period is reflected in Other assets and prepaid expenses on the Condensed Consolidated Statements of Cash Flows.

Rental expense under fixed operating leases was $127,990, $143,513 and $145,176 in 2019, 2018 and 2017, respectively.

Leases