Leases, Codification Topic 842

9 Months Ended

Jun. 30, 2020

Leases

We adopted the new leasing standard utilizing the modified retrospective approach on October 1, 2019. Adoption of the new standard resulted in an increase to total assets and liabilities due to the recording of lease right-of-use assets (“ROU”) and lease liabilities related to our operating lease portfolio.

We elected the package of three practical expedients for transition, which include the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct costs and applying hindsight when determining the lease term and when assessing impairment of right-of-use assets at the adoption date. This allows us to update our assessments according to new information and changes in facts and circumstances that have occurred since lease inception.

Presentation of Leases

We lease certain office, warehouse, manufacturing, distribution, and research and development facilities and equipment under operating leases.

Our leases have remaining lease terms of 1 year to 14 years. The terms and conditions of our leases may include options to extend or terminate the lease which are considered and included in the lease term when these options are reasonably certain of exercise.

We determine if a contract is (or contains) a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset. For all classes of leased assets, we have elected the practical expedient to account for any non-lease components in the contract together with the related lease component in the same unit of account.

ROU assets and lease liabilities are recognized in our condensed consolidated balance sheets at the commencement date based on the present value of remaining lease payments over the lease term. Additionally, ROU assets include any lease payments made at or before the commencement date, as well as any initial direct costs incurred, and are reduced by any lease incentives received. As most of our operating leases do not provide an implicit rate, we apply our incremental borrowing rate to determine the present value of remaining lease payments. Our incremental borrowing rate is determined based on information available at the commencement date of the lease.

For all classes of leased assets, we have applied an accounting policy election to exclude short-term leases from recognition in our condensed consolidated balance sheets. A short-term lease has a lease term of 12 months or less at the commencement date and does not include a purchase option that is reasonably certain of exercise. We recognize short-term lease expense in our condensed consolidated statements of operations on a straight-line basis over the lease term.

Our short-term lease expense for the three and nine months ended June 30, 2020 and short-term lease commitments at June 30, 2020 are immaterial.

We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated statements of operations as the obligation is incurred.

At June 30, 2020, any legally-binding minimum lease payments for operating leases signed but not yet commenced, subleases, leases that imposed significant restrictions or covenants, related party leases or sale-leaseback arrangements were immaterial.

The components of lease cost are presented below.


	Three months ended		Nine months ended
	June 30, 2020		June 30, 2020

	(in millions)
Operating lease cost	1.6		4.7
Finance lease cost	0.3		1.0
Total lease expense	$	1.9	$	5.7

Supplemental cash flow information related to leases for the nine months ended June 30, 2020 is presented below, in millions.


Operating cash flows used in operating leases	$	4.5
Financing cash flows used in finance leases	$	1.0

Supplemental information describing where lease-related assets and liabilities are reflected in the Condensed Consolidated Balance Sheet at June 30, 2020 is presented below, in millions.


Right of use assets:
Operating leases	Other noncurrent assets	$	26.3
Finance leases	Plant, property and equipment	2.6
Total right of use assets		$	28.9
Lease liabilities:
Operating leases - current	Other current liabilities	$	4.2
Operating leases - noncurrent	Other noncurrent liabilities	23.8
Finance leases - current	Current portion of long-term debt	1.2
Finance leases - noncurrent	Long-term debt	1.6
Total lease liabilities		$	30.8

Supplemental information related to lease terms and discount rates at June 30, 2020 is presented below.


Weighted-average remaining lease term (years):
Operating leases	7.99
Finance leases	2.63
Weighted-average interest rate:
Operating leases	5.65	%
Finance leases	5.03	%

Total lease liabilities at June 30, 2020 have scheduled maturities as follows:


	Operating Leases		Finance Leases

	(in millions)
2020	$	1.6	$	0.4
2021	5.5		1.2
2022	4.7		0.8
2023	4.3		0.5
2024	4.1		0.1
Thereafter	16.1		—
Total lease payments	36.3		3.0
Less: imputed interest	8.3		0.2
Present value of lease liabilities	$	28.0	$	2.8