Leases

12 Months Ended

Dec. 31, 2019

NOTE 10. LEASES

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months and also requires disclosures by lessees and lessors about the amount, timing, and uncertainty of cash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842.”

On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 840, Leases. The adoption of ASC 842 resulted in an increase in both assets and liabilities of $175 million as of January 1, 2019. These balances are presented in the following three line items on the Consolidated Balance Sheet: (i) operating lease right-of-use assets; (ii) current operating lease liabilities; and (iii) operating lease liabilities. The adoption of ASC 842 had no impact on our retained earnings, consolidated net earnings, or cash flows.

We elected the package of practical expedients for leases that commenced before the effective date of ASC 842 whereby we elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. In addition, we have lease agreements with lease and non-lease components, and we have elected the practical expedient for all underlying asset classes to account for the lease and related non-lease component(s) as a single lease component. Our finance lease and lessor arrangements are immaterial.

We determine if an arrangement is or contains a lease at inception. We have operating leases for office space, warehouses, distribution centers, research and development facilities, manufacturing locations, and certain equipment, primarily automobiles. Many leases include optional terms, ranging from options to terminate the lease in less than one year to options to extend the lease for up to 15 years. We include optional periods as part of the lease term when we determine that we are reasonably certain to exercise the renewal option or we will not early terminate the lease. Reasonably certain is based on economic incentives and represents a high threshold.

Operating lease cost was $80 million, $64 million, and $46 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Short-term and variable lease cost, and cost for finance leases were immaterial for the year ended December 31, 2019. During the year ended December 31, 2019, cash paid for operating leases was $65 million and is included in operating cash flows. ROU assets obtained in exchange for operating lease liabilities were $80 million for the year ended December 31, 2019, and of those ROU assets exchanged for operating lease obligations, $31 million were related to operating leases acquired with ASP.

The following table presents the maturities of our operating lease liabilities as of December 31, 2019 ($ in millions):



2020	$	57.4
2021	45.8
2022	34.1
2023	22.8
2024	16.2
Thereafter	63.2
Total lease payments	239.5
Less: imputed interest	(25.6		)
Total lease liabilities	$	213.9

Future minimum lease payments as of December 31, 2018 for operating leases having initial or remaining non-cancelable lease terms in excess of one year under Topic 840 were as follows ($ in millions):



2019	$	54.2
2020	41.2
2021	32.4
2022	24.0
2023	13.5
Thereafter	16.1
Total lease payments	$	181.4

As of December 31, 2019, the weighted average lease term of our operating leases was 7.1 years and the weighted average discount rate of our operating leases was 3.4%. We primarily use our incremental borrowing rate as the discount rate for our operating leases, as we are generally unable to determine the interest rate implicit in the lease.

As of December 31, 2019, we entered into operating leases for which the lease term had not yet commenced. These leases will commence in 2020 with lease terms between 1 and 15 years and fixed payments over the non-cancelable lease terms of $22 million.