Leases

The Company has various operating and finance leases primarily for the use of land, storage tanks, railcars, equipment, precious metals and office facilities that have remaining lease terms of greater than one year to fifteen years, some of which include options to extend the lease for up to 35 years, and some of which include options to terminate the lease within one year. Effective January 1, 2019, the Company adopted ASU 2016-02 using a modified retrospective transition approach that applied the new standard to all leases existing at the effective date of the standard with no restatement of prior periods. Given the adoption of ASU 2016-02, the Company’s operating leases have been included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities and long-term portion of operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. The Company’s finance leases are included in property, plant and equipment, current portion of long-term debt and long-term debt, less current portion in the consolidated balance sheets, which remains consistent with the Company’s presentation of its finance leases prior to the adoption of ASU 2016-02.

The Company elected to apply the following practical expedients and policy elections provided by the standard at transition:


•	Package of Three - The Company has elected that it will not reassess contracts that have expired or existed at the date of adoption for (1) leases under the new definition of a lease, (2) lease classification, and (3) whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.


•	Portfolio Approach - The Company elected to determine the discount rate used to measure lease liabilities at the portfolio level. Specifically, the Company segregated its leases into different populations based on lease term.

•

Discount Rate - The Company elected to apply the discount rate at transition based on the remaining lease term and lease payments rather than the original lease term and lease payments. As a majority of the Company’s leases do not provide an implicit rate, the Company used an incremental borrowing rate based on information available at the date of transition to determine the present value of lease payments.


•	Lease/Non-Lease Components - The Company elected to not separate non-lease components. The Company elected to make this election for each class of underlying asset.


•	Definition of Minimum Rental Payments - The Company elected to include executory costs as part of the minimum lease payments for purposes of measuring the lease liability and right-of-use asset at transition.


•	Land Easement - The Company elected not to assess whether any land easements are, or contain, leases in accordance with ASC 842 when transitioning to the standard.

Supplemental balance sheet information related to the Company’s leases as of December 31, 2019, were as follows (in millions):



		December 31, 2019
Assets:	Classification:
Operating lease assets	Operating lease right-of-use assets	$	93.1
Finance lease assets	Property, plant and equipment, net ⁽¹⁾	3.2
Total leased assets		$	96.3
Liabilities:
Current
Operating	Current portion of operating lease liabilities	$	60.6
Finance	Current portion of long-term debt	0.3
Non-current
Operating	Long-term operating lease liabilities	33.0
Finance	Long term debt, less current portion	2.4
Total lease liabilities		$	96.3


⁽¹⁾	Finance lease assets are recorded net of accumulated amortization of $7.1 million as of December 31, 2019.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense related to the Company’s leases for the year ended December 31, 2019 were as follows (in millions):



		December 31,
Lease Costs:	Classification:	2019
Fixed operating lease cost	Cost of Sales; SG&A Expenses	$	67.0
Short-term operating lease cost ⁽¹⁾	Cost of Sales; SG&A Expenses	8.0
Variable operating lease cost ^{(2) (3)}	Cost of Sales; SG&A Expenses	3.2
Finance lease cost:
Amortization of right-of-use asset	Cost of Sales	1.2
Interest on lease liabilities	Interest expense	1.4
Total lease cost		$	80.8


⁽¹⁾	The Company’s leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets.

⁽²⁾

Approximately $2.0 million of the Company’s variable operating lease cost for the year ended December 31, 2019 relates to its lease agreement with Phillips 66 related to the LVT unit at its Lake Charles, Louisiana refinery (“the LVT Agreement”). Pursuant to the LVT Agreement, Phillips 66 is obligated to supply a minimum supply quantity which the Company agrees to purchase through December 31, 2020. Pricing for the agreement is indexed to the prior month’s average of Platts Mid USGC 55 Grade Jet Kero price on the day of loading plus an adder. Phillips 66 invoices the Company for the estimated volume of product to be purchased by the Company based on a supplied forecast and differences between actual volumes purchased and the estimated volume of product originally billed which makes up the variable component of the operating lease contract.


⁽³⁾	The Company’s railcar leases typically include a mileage limit the railcar can travel over the life of the lease. For any mileage incurred over this limit, the Company is obligated to pay an agreed upon dollar value for each mile that is traveled over the limit.

As of December 31, 2019, the Company had estimated minimum commitments for the payment of rentals under leases which, at inception, had a noncancelable term of more than one year, as follows (in millions):



Maturity of Lease Liabilities	Operating Leases⁽¹⁾		Finance Leases⁽²⁾		Total
2020	$	65.0	$	0.5	$	65.5
2021	13.8		0.5		14.3
2022	9.7		0.5		10.2
2023	6.9		0.5		7.4
2024	3.9		0.5		4.4
Thereafter	3.3		1.1		4.4
Total	$	102.6	$	3.6	$	106.2
Less: Interest	9.0		0.9		9.9
Present value of lease liabilities	$	93.6	$	2.7	$	96.3
Less obligations due within one year	60.6		0.3		60.9
Long-term lease obligations	$	33.0	$	2.4	$	35.4


⁽¹⁾	As of December 31, 2019, the Company’s operating lease payments included no material options to extend lease terms that are reasonably certain of being exercised. The Company has no legally binding minimum lease payments for leases signed but not yet commenced as of December 31, 2019.


⁽²⁾	As of December 31, 2019, the Company’s finance lease payments included no material options to extend lease terms that are reasonably certain of being exercised. In addition, the Company has no legally binding minimum lease payments for leases that have been signed but not yet commenced as of December 31, 2019.

Weighted-Average Lease Term and Discount Rate

The weighted-average remaining lease term and weighted-average discount rate for the Company’s operating and finance leases were as follows:



Lease Term and Discount Rate:	December 31, 2019
Weighted-average remaining lease term (years):
Operating leases	2.5
Finance leases	7.1
Weighted-average discount rate:
Operating leases	7.3	%
Finance leases	8.8	%