Lease Obligations

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Lease Obligations

Leases

The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date.

For operating and finance leases, the lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date, and is subsequently measured at amortized cost using the effective interest method.

Key estimates and judgments include how the Company determines the discount rate, lease term and lease payments.

• ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the implicit interest rate as it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms based on the published United States Treasury rates as well as the Company’s credit rating at implementation or at the lease inception date.

• The lease term for all of the Company’s leases includes the non-cancelable period of the lease, plus or minus any additional periods covered by an option to extend or terminate the lease that the Company is reasonably certain to exercise.

• Lease payments included in the lease liability are comprised of fixed payments as well as any exercise price of a Company option to purchase the underlying asset if the Company is reasonably certain to exercise. The Company’s leases do not contain variable lease payments.

ROU assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently amortized by the straight-line lease expense adjusted by the lease liability accretion over the lease term.

For finance leases, the ROU asset is subsequently amortized on a straight-line basis from the lease commencement date to the earlier of the end of its useful life or the end of the lease term. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability.

The Company’s ROU assets for both operating and finance leases are reviewed for impairment losses on a quarterly basis in line with ASC 360-10 — Property, Plant, and Equipment — Overall. The Company has not recognized any impairment losses to date from continuing operations.

The Company also monitors its leases for events or changes in circumstances that require a reassessment of the lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the ROU asset.

Operating leases are included in operating lease right-of-use assets—net, current portion of operating lease obligations, and operating lease obligations in the consolidated balance sheets. Finance leases are included in property and equipment—net, current portion of finance lease obligations, and finance lease obligations in the consolidated balance sheets.

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have an original lease term of twelve months or less. Therefore, the Company recognizes the lease payments associated with these short-term leases as an expense over the lease term in the consolidated statement of operations.

Adoption of ASU 2016-02 — Transition Approach

The Company adopted ASU 2016-02 as of January 1, 2019 using the additional optional transition method pursuant to Accounting Standards Update 2018-11 “Leases (Topic 842): Targeted Improvements”, meaning that restatement of prior period consolidated financial statements or presentation of comparative disclosures is not necessary. During adoption, the Company elected the following practical expedients allowed:

• The Company elected the practical expedient package and therefore did not reassess for any existing leases:

◦ whether contracts are or contain leases;

◦ the lease classification for any existing leases; and

◦ any initial direct costs.

• The Company elected the practical expedient related to land easements, allowing to carry forward the accounting treatment for land easements on existing agreements.

• The Company used “hindsight” judgments that impact the lease term.

• The Company elected to combine lease and non-lease components into one lease component for select underlying lease asset categories. Real estate leases are accounted for separately while all other leases,

primarily equipment leases, with separate lease and non-lease components are accounted for as a single lease component.

Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease obligations of $130.8 million and $132.4 million respectively, as of January 1, 2019. The transition adjustment included right-of-use assets and operating lease obligations attributable to the Book business of $0.6 million and $0.6 million, respectively. The transition had no impact to the consolidated statement of operations.

Leases Financial Information

The Company enters into various lease agreements for real estate, such as office space and manufacturing facilities, as well as equipment leases, including press, finishing and transportation equipment. Many of these leases provide the Company with options to renew, terminate, or in the case of equipment leases, purchase the related equipment at the termination value, as defined, and at various early buyout dates during the term of the lease. In general, the Company has determined these options were not reasonably certain to be exercised, and therefore are not included in the determination of the lease term.

The following summarizes certain lease information for the year ended December 31, 2019:

	Year Ended
	December 31, 2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	5.8
Interest on lease liabilities	1.0
Operating lease cost	42.6
Short-term lease cost	0.5
Sublease income	(3.1		)
Total lease cost	$	46.8
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	—
Operating cash flows from operating leases	43.0
Financing cash flows from finance leases	8.7
Right-of-use assets obtained in exchange for new finance lease liabilities	7.7
Right-of-use assets obtained in exchange for new operating lease liabilities	18.7
Weighted-average remaining lease term — finance leases	2.0 years
Weighted-average remaining lease term — operating leases	5.1 years
Weighted-average discount rate — finance leases	6.5		%
Weighted-average discount rate — operating leases	6.7		%

Rent expense under the Company’s operating lease agreements prior to the adoption of ASU 2016-02 totaled $37.8 million and $36.8 million during the years ended December 31, 2018 and 2017, respectively.

The components of finance lease assets at December 31, 2019 and 2018, were as follows:

	2019			2018
Leased equipment—gross	$	30.2		$	29.3
Less: accumulated depreciation	(17.8		)	(14.9		)
Leased equipment—net	$	12.4		$	14.4

Future maturities of lease liabilities at December 31, 2019, were as follows:

	Future Maturities of Operating Leases			Future Maturities of Finance Leases
2020	$	36.6		$	8.2
2021	25.2			4.1
2022	18.4			1.8
2023	14.5			0.2
2024	8.6			—
2025 and thereafter	12.9			—
Total minimum payments	116.2			14.3
Less: present value discount	(15.6		)	(0.6		)
Present value of minimum payments	100.6			13.7
Less: current portion	(30.2		)	(7.7		)
Long-term lease liability	$	70.4		$	6.0

Lease Obligations

Leases

The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date.

For operating and finance leases, the lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date, and is subsequently measured at amortized cost using the effective interest method.

Key estimates and judgments include how the Company determines the discount rate, lease term and lease payments.

• ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the implicit interest rate as it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms based on the published United States Treasury rates as well as the Company’s credit rating at implementation or at the lease inception date.

• The lease term for all of the Company’s leases includes the non-cancelable period of the lease, plus or minus any additional periods covered by an option to extend or terminate the lease that the Company is reasonably certain to exercise.

• Lease payments included in the lease liability are comprised of fixed payments as well as any exercise price of a Company option to purchase the underlying asset if the Company is reasonably certain to exercise. The Company’s leases do not contain variable lease payments.

ROU assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently amortized by the straight-line lease expense adjusted by the lease liability accretion over the lease term.

For finance leases, the ROU asset is subsequently amortized on a straight-line basis from the lease commencement date to the earlier of the end of its useful life or the end of the lease term. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability.

The Company’s ROU assets for both operating and finance leases are reviewed for impairment losses on a quarterly basis in line with ASC 360-10 — Property, Plant, and Equipment — Overall. The Company has not recognized any impairment losses to date from continuing operations.

The Company also monitors its leases for events or changes in circumstances that require a reassessment of the lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the ROU asset.

Operating leases are included in operating lease right-of-use assets—net, current portion of operating lease obligations, and operating lease obligations in the consolidated balance sheets. Finance leases are included in property and equipment—net, current portion of finance lease obligations, and finance lease obligations in the consolidated balance sheets.

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have an original lease term of twelve months or less. Therefore, the Company recognizes the lease payments associated with these short-term leases as an expense over the lease term in the consolidated statement of operations.

Adoption of ASU 2016-02 — Transition Approach

The Company adopted ASU 2016-02 as of January 1, 2019 using the additional optional transition method pursuant to Accounting Standards Update 2018-11 “Leases (Topic 842): Targeted Improvements”, meaning that restatement of prior period consolidated financial statements or presentation of comparative disclosures is not necessary. During adoption, the Company elected the following practical expedients allowed:

• The Company elected the practical expedient package and therefore did not reassess for any existing leases:

◦ whether contracts are or contain leases;

◦ the lease classification for any existing leases; and

◦ any initial direct costs.

• The Company elected the practical expedient related to land easements, allowing to carry forward the accounting treatment for land easements on existing agreements.

• The Company used “hindsight” judgments that impact the lease term.

• The Company elected to combine lease and non-lease components into one lease component for select underlying lease asset categories. Real estate leases are accounted for separately while all other leases,

primarily equipment leases, with separate lease and non-lease components are accounted for as a single lease component.

Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease obligations of $130.8 million and $132.4 million respectively, as of January 1, 2019. The transition adjustment included right-of-use assets and operating lease obligations attributable to the Book business of $0.6 million and $0.6 million, respectively. The transition had no impact to the consolidated statement of operations.

Leases Financial Information

The Company enters into various lease agreements for real estate, such as office space and manufacturing facilities, as well as equipment leases, including press, finishing and transportation equipment. Many of these leases provide the Company with options to renew, terminate, or in the case of equipment leases, purchase the related equipment at the termination value, as defined, and at various early buyout dates during the term of the lease. In general, the Company has determined these options were not reasonably certain to be exercised, and therefore are not included in the determination of the lease term.

The following summarizes certain lease information for the year ended December 31, 2019:

	Year Ended
	December 31, 2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	5.8
Interest on lease liabilities	1.0
Operating lease cost	42.6
Short-term lease cost	0.5
Sublease income	(3.1		)
Total lease cost	$	46.8
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	—
Operating cash flows from operating leases	43.0
Financing cash flows from finance leases	8.7
Right-of-use assets obtained in exchange for new finance lease liabilities	7.7
Right-of-use assets obtained in exchange for new operating lease liabilities	18.7
Weighted-average remaining lease term — finance leases	2.0 years
Weighted-average remaining lease term — operating leases	5.1 years
Weighted-average discount rate — finance leases	6.5		%
Weighted-average discount rate — operating leases	6.7		%

Rent expense under the Company’s operating lease agreements prior to the adoption of ASU 2016-02 totaled $37.8 million and $36.8 million during the years ended December 31, 2018 and 2017, respectively.

The components of finance lease assets at December 31, 2019 and 2018, were as follows:

	2019			2018
Leased equipment—gross	$	30.2		$	29.3
Less: accumulated depreciation	(17.8		)	(14.9		)
Leased equipment—net	$	12.4		$	14.4

Future maturities of lease liabilities at December 31, 2019, were as follows:

	Future Maturities of Operating Leases			Future Maturities of Finance Leases
2020	$	36.6		$	8.2
2021	25.2			4.1
2022	18.4			1.8
2023	14.5			0.2
2024	8.6			—
2025 and thereafter	12.9			—
Total minimum payments	116.2			14.3
Less: present value discount	(15.6		)	(0.6		)
Present value of minimum payments	100.6			13.7
Less: current portion	(30.2		)	(7.7		)
Long-term lease liability	$	70.4		$	6.0