Leases

3 Months Ended

Mar. 31, 2019

We conduct certain of our research, development, and administrative activities at leased facilities. We also lease certain warehouses and vehicles. As described in Note 1, during the first quarter of 2019, we adopted ASC 842, Leases.

We determine if an arrangement is a lease considering whether there is an identified asset and the contract conveys the right to control its use. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Our lease terms may include options to extend or terminate a lease when it is reasonably certain that we will exercise that option. We account for lease components (e.g., rental payments) separately from non-lease components (e.g., common area maintenance costs).

Right-of-use assets and lease liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term, unless there is a transfer of title or purchase option we are reasonably certain to exercise. For leases where an implicit rate is not readily determinable, we use our incremental borrowing rate based on information available at the lease commencement date to determine the present value of future lease payments. Lease expense for operating leases is recognized on a straight-line basis over the expected lease term.

Operating leases

Amounts recognized in the financial statements associated with operating leases were not material as of, and for the three months ended, March 31, 2019 and 2018. Operating lease right-of-use assets are included within other noncurrent assets and lease liabilities are included in other current and other noncurrent liabilities on our Condensed Consolidated Balance Sheet.

Finance leases

In March 2017, we entered into a Participation Agreement with BA Leasing BSC, LLC, an affiliate of Banc of America Leasing & Capital LLC ("BAL"), as lessor, and a syndicate of lenders (collectively, the "Participants"). In March 2017, we also entered into a Lease and Remedies Agreement with BAL, pursuant to which we have leased laboratory and office facilities in Tarrytown, New York (the "Facility") for a five-year term. The Participation Agreement, the Lease and Remedies Agreement, and certain other related agreements were amended and restated in May 2019, among other things, to revise certain covenants, representations and warranties, and events of default to be substantially similar to those set forth in the agreement governing the Company's revolving credit facility (as so amended and restated, the "Participation Agreement" and the "Lease," respectively). The Lease requires us to pay all maintenance, insurance, taxes, and other costs arising out of the use of the Facility. We are also required to make monthly payments of basic rent during the term of the Lease in an amount equal to a variable rate per annum based on the one-month LIBOR, plus an applicable margin that varies with our debt rating and total leverage ratio. The Participation Agreement and the Lease include an option for us to elect to extend the maturity date of the Participation Agreement and the term of the Lease for an additional five-year period, subject to the consent of all the Participants and certain other conditions. We also have the option prior to the end of the term of the Lease to (a) purchase the Facility by paying an amount equal to the outstanding principal amount of the Participants' advances under the Participation Agreement, all accrued and unpaid interest and yield thereon, and all other outstanding amounts under the Participation Agreement, the Lease, and certain related documents or (b) sell the Facility to a third party on behalf of BAL. The advances under the Participation Agreement mature, and all amounts outstanding thereunder will become due and payable in full, at the end of the term of the Lease.

Prior to January 1, 2019, for certain of the premises under the Lease we were deemed, in substance, to be the owner of the buildings (collectively, the "Build-to-Suit Buildings"). Upon the adoption of ASC 842, the classification of the Build-to-Suit Buildings, for which the construction period had been completed, was reassessed and, consequently, they were derecognized and recognized as a finance lease. These premises, along with the other premises under the Lease, are classified as a finance lease as we have the option to purchase the Facility under terms that make it reasonably assured to be exercised.

The agreements governing the Lease financing contain financial and operating covenants, which are substantially similar to the covenants set forth in the Company's revolving credit facility. The Company was in compliance with all such covenants as of March 31, 2019.

Amounts recognized in the Condensed Consolidated Balance Sheet related to the Facility are included in the table below. We had no leases accounted for as finance leases, other than the Facility, as of March 31, 2019.



		March 31,
	Classification	2019
Finance lease assets	Property, plant, and equipment, net ^(a)	$	670.9
Finance lease liabilities	Finance lease liabilities (noncurrent)	$	709.9

^(a) Finance lease assets are recorded net of accumulated amortization of $65.3 million as of March 31, 2019.

As of December 31, 2018, property, plant, and equipment, at cost, included $723.9 million of leased property under the Company's capital and facility leases related to the Facility. Accumulated amortization related to these assets amounted to $61.7 million as of December 31, 2018.

Finance lease costs consist of the following:



	Three Months Ended March 31, 2019
Amortization of right-of-use assets	$	3.5
Interest on lease liabilities	7.2
	$	10.7

Other information related to finance leases consist of the following:



	March 31,
	2019
Remaining lease term (in years)	2.93
Discount rate	3.69	%

Supplemental information

Maturities of lease liabilities as of March 31, 2019 are as follows:



	Operating Leases			Finance Leases
2019	$	6.2		$	19.5
2020	8.4			26.9
2021	5.1			26.6
2022	3.0			726.5
2023	2.6			—
2024	2.9			—
Thereafter	4.3			—
Total undiscounted lease payments	32.5			799.5
Imputed interest	(3.1		)	(82.2		)
Debt financing costs	—			(7.4		)
Total lease liabilities	$	29.4		$	709.9

As of December 31, 2018, the estimated future minimum noncancelable lease commitments, excluding the purchase price we would be obligated to pay if we were to exercise our option to purchase the Facility, were as follows:



	Operating Leases		Capital and Facility Lease Obligations
2019	$	10.4	$	26.4
2020	3.8		28.4
2021	3.4		27.9
2022	2.2		7.0
2023	1.5		—
Thereafter	4.1		—
	$	25.4	$	89.7

Leases