Lease Accounting

12 Months Ended

Dec. 31, 2020

Lessee Arrangements

We lease a variety of transportation equipment (including trucks, trailers, and railcars), terminals, land and facilities, and office space and equipment. Lease terms vary and can range from short term (under 12 months) to long term (greater than 12 months). A majority of our leases contain options to extend the life of the lease at our sole discretion. We considered these options when determining the lease terms used to derive our right of use asset and associated lease liability. Leases with a term of less than 12 months are not recorded on our consolidated balance sheet and we recognize lease expense for these leases on a straight line basis over the lease term.

Certain lease agreements include lease and non-lease components. We have elected to combine lease and non-lease components for all of our underlying assets for the purpose of deriving our right of use asset and lease liability. Additionally, certain lease payments are driven by variable factors, such as plant production or indexing rates. Variable costs are expensed as incurred and are not included in our determination for our lease liability and right of use asset.

As a lessee, we do not have any finance leases and none of our leases contain material residual value guarantees or material restrictive covenants. In addition, most of our leases do not provide an implicit rate, and as such, we determined our incremental borrowing rate based on the information available at the inception of the lease in determining the present value of lease payments.

Our lease portfolio consists of operating leases within three major categories: Transportation Equipment, Office Space and Equipment, and Facilities and Equipment. These values are recorded within Right of Use Assets, net on the Consolidated Balance Sheets. Current and non-current lease liabilities are recorded within Accrued liabilities and Other long-term liabilities, respectively, on the Consolidated Balance Sheets. Refer to the table below for our lease balances as of December 31, 2020 and December 31, 2019.


Leases	Classification	Financial Statement Caption	December 31, 2020		December 31, 2019
Assets
	Transportation Equipment	Right of Use Assets, net	$	88,038	$	98,588
	Office Space & Equipment	Right of Use Assets, net	7,489		11,085
	Facilities and Equipment	Right of Use Assets, net	58,398		67,398
Total Right of Use Assets, net			$	153,925	$	177,071
Liabilities
Current		Accrued liabilities	23,348		28,406
Non-Current		Other long-term liabilities	131,623		144,910
Total Lease Liability			$	154,971	$	173,316

Our Right of Use Assets, net balance includes our unamortized initial direct costs associated with certain of our transportation equipment leases. Additionally, it includes our unamortized prepaid rents, our deferred rents, and our previously classified intangible asset associated with a favorable lease. Our lease liability includes our cease-use provision for railcars no longer in use.

We recorded total operating lease expense of $30.2 million, $27.2 million, and $30.8 million for the years ended December 31, 2020, 2019, and 2018. The total operating lease expense is net of the variable railcar mileage credits we receive in our Alkali Business of $18.4 million, $24.8 million, and $26.2 million for the years ended December 31, 2020, 2019, and 2018. The total operating cost includes the amounts associated with our existing lease liabilities, along with both short term and variable lease costs incurred during the period which are not significant to the operating lease cost individually, or in the aggregate.

The maturities of our operating lease liabilities as of December 31, 2020 on an undiscounted cash flow basis reconciled to the present value recorded on our Consolidated Balance Sheet:


Maturity of Lease Liabilities	Transportation Equipment		Office Space and Equipment		Facilities and Equipment		Operating Leases
2021	$	23,226	$	3,100	$	6,871	$	33,197
2022	19,988		2,472		5,558		28,018
2023	18,992		697		5,504		25,193
2024	17,978		708		4,980		23,666
2025	10,973		655		5,016		16,644
Thereafter	16,678		1,071		125,376		143,125
Total Lease Payments	107,835		8,703		153,305		269,843
Less: Interest	(17,993)		(1,042)		(95,837)		(114,872)
Present value of operating lease liabilities	$	89,842	$	7,661	$	57,468	$	154,971

The following table presents the weighted average remaining terms and discount rates related to our right of use assets:

Lease Term and Discount Rate

December 31, 2020

December 31, 2019

Weighted-average remaining lease term

13.10 years

12.53 years

Weighted-average discount rate

7.68%

7.61%

The following table provides information regarding the cash paid and right of use assets obtained related to our operating leases:


Cash Flows Information	December 31, 2020		December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	41,308	$	44,046
Leased assets obtained in exchange for new operating lease liabilities (1)	8,035		198,389

(1) 2019 is inclusive of our transition adjustment as of January 1, 2019.

Lessor Arrangements

We have the following contracts in which we act as a lessor. We also, from time to time, sublease certain of our transportation and facilities equipment to third parties.

Operating Leases

During the years ended December 31, 2020, 2019, and 2018, we acted as a lessor in our revenue contracts associated with our Free State pipeline system, included in our onshore facilities and transportation segment, and the M/T American Phoenix, included in our marine transportation segment. Revenues associated with these contracts were recorded within their respective segment's revenue in the Consolidated Statements of Operations. Our lease revenues for these arrangements (inclusive of fixed and variable consideration) are reflected in the table below for the years ended December 31, 2020, 2019, and 2018, respectively:


	Year Ended December 31,
	2020		2019		2018
M/T American Phoenix	$	24,116	$	27,010	26,959
Free State Pipeline(1)	5,234		6,090		6,586

(1) We sold the Free State pipeline to a subsidiary of Denbury Inc. on October 30, 2020. The 2020 revenues presented above reflect operations through October 29, 2020 as that was the last date the asset operated under our ownership.

Direct Finance Lease

We formerly held a direct finance lease of the Northeast Jackson Dome ("NEJD") Pipeline. Under the terms of the agreement, we were paid a quarterly payment, which commenced in August 3, 2008. These payments were fixed at approximately $5.2 million per quarter during the lease term at an interest rate of 10.25%. At the end of the lease term in 2028, we would convey all of our interest in the NEJD Pipeline to the lessee for a nominal payment. During the third quarter of 2020, our customer, a subsidiary of Denbury, Inc., defaulted under the agreement and we exercised a letter of credit we had issued to us as beneficiary and collected approximately $41 million in accelerated principal payments. On October 30, 2020 we executed an agreement with our customer to accelerate the remaining principal payments on the NEJD direct financing lease. As of December 31, 2020, we have an outstanding receivable (included within "Accounts receivable- trade, net" on the Consolidated Balance Sheets) of $70.0 million from Denbury for the remaining payments due in 2021 per the agreement. Additionally as part of this agreement, we transferred to it the ownership of all of our CO2 assets, inclusive of the Free State pipeline system, noted previously.

The present value of our lease receivables for our direct finance lease as of December 31, 2019 includes a current portion of $9.3 million, which is recorded in other current assets on the Consolidated Balance Sheets.