LEASES

The Company leases office space, office equipment, refinery facilities and equipment, and railcars under non-cancelable operating leases, with terms typically ranging from one to twenty years, subject to certain renewal options as applicable. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of lease liabilities and right-of-use assets. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company determines whether a contract is or contains a lease at inception of the contract and whether the lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.

The Company does not separate lease and nonlease components of contracts. There are no material residual value guarantees associated with any of the Company’s leases. There are no significant restrictions or covenants included in the Company’s lease agreements other than those that are customary in such arrangements. Certain of the Company’s leases, primarily for the Company’s commercial, logistics asset classes, include provisions for variable payments. These variable payments are typically determined based on a measure of throughput or actual days the asset is operated during the contract term or another measure of usage and are not included in the initial measurement of lease liabilities and right-of-use assets.

Lease Position as of March 31, 2019

The table below presents the lease related assets and liabilities recorded on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2019:



(in millions)	Classification on the Balance Sheet	March 31, 2019
Assets
Operating lease assets - third party	Operating lease right of use assets - third party	$	245.1
Operating lease assets - affiliate	Operating lease right of use assets - affiliate	655.6
Total lease assets		$	900.7

Liabilities
Current liabilities:
Operating lease liabilities - third party	Current operating lease liabilities - third party	$	80.9
Operating lease liabilities - affiliate	Current operating lease liabilities - affiliate	73.3
Noncurrent liabilities:
Operating lease liabilities - third party	Long-term operating lease liabilities - third party	164.7
Operating lease liabilities - affiliate	Long-term operating lease liabilities - affiliate	582.3
Total lease liabilities		$	901.2

Lease Costs

The table below presents certain information related to lease costs associated with the Company’s operating leases for the three months ended March 31, 2019:



	Three Months Ended March 31,
Lease Costs (in millions)	2019
Components of total lease cost:
Operating lease cost	$	53.3
Short-term lease cost	23.3
Variable lease cost	10.1
Total lease cost	$	86.7

There were no net gains or losses on any sale-leaseback transactions for the three months ended March 31, 2019.

Other Information

The table below presents supplemental cash flow information related to leases for the three months ended March 31, 2019:



	Three Months Ended March 31,
(in millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	35.4
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets	82.7

Lease Term and Discount Rate

The table below presents certain information related to the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases as of March 31, 2019:



	March 31, 2019
Weighted average remaining lease term - operating leases	7.1 years
Weighted average discount rate - operating leases	8.33	%

Undiscounted Cash Flows

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the operating lease liabilities recorded on the Condensed Consolidated Balance Sheets as of March 31, 2019:



Amounts due within twelve months of March 31, (in millions)	Operating Leases
2019	$	218.7
2020	193.0
2021	155.2
2022	142.6
2023	135.9
Thereafter	369.8
Total minimum lease payments	1,215.2
Less: effect of discounting	314.0
Present value of future minimum lease payments	901.2
Less: current obligations under leases	154.2
Long-term lease obligations	$	747.0

As of March 31, 2019, the Company has entered into an additional third party lease for hydrogen supply, with future lease payments expected to total approximately $212.6 million. The lease is expected to commence in the second quarter of 2020 with a term of 15 years.

There are no material lease arrangements where the Company is the lessor.

In the normal course of business, the Company enters into certain affiliate lease arrangements with PBFX for the use of certain storage, terminaling and pipeline assets. The Company believes the terms and conditions under these leases are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. The terms for these affiliate leases generally range from seven to fifteen years. The Company uses the same methodology for discounting the lease payments on affiliate leases as it does for third party leases as described above. For the three months ended March 31, 2019, the Company incurred operating lease costs, related to affiliate operating leases, of $27.1 million. As of March 31, 2019, the Company had recorded right-of-use assets, short-term lease obligations and long-term lease obligations of $655.6 million, $73.3 million and $582.3 million, respectively, associated with these affiliate leases.