Leases

9 Months Ended

Sep. 30, 2019

We adopted ASC 842 on January 1, 2019, and elected the modified retrospective approach in which the new standard is applied to all leases existing at the date of adoption through a cumulative-effect adjustment of less than $0.1 million to retained deficit. Consequently, financial information is not updated, and the disclosures required under the new standard are not provided for periods prior to January 1, 2019. As part of the adoption, we elected the package of practical expedients, the short-term lease exemption, and the practical expedient to not separate lease and non-lease components. Accordingly, we accounted for our existing operating leases as operating leases under the new standard, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, or (c) whether any unamortized initial direct costs would have met the definition of initial direct costs in ASC 842 at lease commencement.

We determine whether an arrangement is a lease at inception. Right-of-use (“ROU”) lease assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the implicit rate is not readily determinable, we use the estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Amortization of ROU lease assets is recognized in expense on a straight-line basis over the lease term.

Short-term leases are leases having a term of twelve months or less. We recognize short-term leases on a straight-line basis and do not record a related lease asset or liability for such leases. Finance lease ROU assets consist of equipment used in the manufacturing process with terms greater than twelve months to seven years. Operating lease ROU assets consist of the following:


•	Equipment used in the manufacturing process as well as office equipment with terms greater than twelve months to seven years; and


•	Manufacturing plants and office facilities with terms greater than twelve months to 25 years.

The following table presents components of lease expense for the three and nine months ended September 30, 2019:



	Financial Statement Line Item	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Lease cost:
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	$	360	$	1,043
Interest expense	Interest expense	75		184
Operating lease cost	Cost of sales and selling, general and administrative expense	3,461		10,294
Short-term lease cost ⁽¹⁾	Cost of sales and selling, general and administrative expense	131		342
Total lease cost		$	4,027	$	11,863

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(1) Excludes expenses related to leases with a lease term of one month or less.

The following table presents the lease-related assets and liabilities recorded on the balance sheet as of September 30, 2019:



	Financial Statement Line Item	September 30, 2019
Lease assets and liabilities:
Assets
Operating lease assets	Operating lease right-of-use assets	$	67,885
Finance lease assets	Property, plant and equipment, net	14,268
Total lease assets		$	82,153

Liabilities
Current liabilities
Operating lease liabilities	Current portion of operating lease liabilities	$	7,047
Finance lease liabilities	Other current liabilities	2,839
Non-current liabilities
Operating lease liabilities	Operating lease liabilities, net of current portion	68,479
Finance lease liabilities	Other non-current liabilities	9,268
Total lease liabilities		$	87,633

The following table contains supplemental information related to leases for the nine months ended September 30, 2019:



Supplemental Cash Flows Information	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	184
Operating cash flows from operating leases	16,506
Financing cash flows from finance leases	2,520
Right-of-use assets obtained in exchange for new operating lease liabilities	$	8,677

As of September 30, 2019, the weighted average remaining lease term and weighted-average discount rate for finance and operating leases was as follows:

The maturities of lease liabilities greater than twelve months as of September 30, 2019, is as follows:



	Operating Leases		Finance Leases
2019 ⁽¹⁾	$	3,506	$	881
2020	12,106		3,106
2021	11,218		3,095
2022	10,927		2,880
2023	9,384		1,991
Thereafter	65,383		896
Total future minimum lease payments	112,524		12,849
Less: imputed interest	36,998		742
Total lease liabilities	$	75,526	$	12,107


(1)	For the period from October 1, 2019, to December 31, 2019.

As of September 30, 2019, we have an additional operating lease commitment that would require us to pay a total of approximately $27.5 million base rent payments over the lease term of 15 years. We are expected to commence base rent payments during the third quarter of 2020.

The following table presents the future minimum lease payments under operating leases with initial or non-cancelable lease terms in excess of one year prior to adoption of ASC 842 as reported in the 2018 Annual Report.



Year Ending December 31,
2019	$	13,337
2020	11,515
2021	10,557
2022	10,293
2023	8,752
Thereafter	53,945
Total minimum payments	$	108,399

During the three and nine months ended September 30, 2018, we recognized rent expense of $4.5 million and $9.0 million, respectively.

Leases


•	Equipment used in the manufacturing process as well as office equipment with terms greater than twelve months to seven years; and


•	Manufacturing plants and office facilities with terms greater than twelve months to 25 years.

Operating Leases

Finance Leases

Weighted-average remaining lease term (years)

Weighted-average discount rate