Leases

9 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

LEASES

As discussed in Note 2, New Accounting Guidance, we adopted the new lease guidance in fiscal year 2020 using a modified retrospective approach with the election to apply the guidance as of 1 October 2019. For adoption, we elected the package of practical expedients permitted under the transition guidance to carry forward the historical lease populations as well as their classifications existing as of the adoption date (i.e. contracts having a lease commencement date prior to 1 October 2019). Refer to Note 1, Basis of Presentation and Major Accounting Policies, and Note 2, New Accounting Guidance, for additional information on our adoption and related policies under the new lease standard.

Lessee Accounting

The Company is the lessee under various agreements for real estate, vehicles, aircraft, and other equipment that are accounted for as operating leases. Our finance leases principally relate to the right to use machinery and equipment and are not material.

The operating lease expense for the three and nine months ended 30 June 2020, which exclude short-term and variable lease expenses, as those expenses were immaterial, was $19.7 and $59.2, respectively.

Amounts associated with operating leases, including their presentation on our consolidated balance sheets, as of our most recent balance sheet date and our adoption date are as follows:

	30 June 2020	1 October 2019
Operating lease ROU asset
Other noncurrent assets	$352.0	$332.3
Operating lease liabilities
Payables and accrued liabilities	67.4	68.6
Other noncurrent liabilities	325.7	306.7
Total Operating Lease Liabilities	$393.1	$375.3

The difference between the ROU assets and lease liabilities recorded upon adoption primarily relate to the land lease associated with our former Energy-from-Waste business in which an ROU asset was not recognized.

	30 June 2020
Weighted-average remaining lease term (in years)(A)	15.5
Weighted-average discount rate(B)	2.2	%

^(A)Calculated on the basis of the remaining lease term and the lease liability balance for each lease as of the reporting date.

^(B)Calculated on the basis of the discount rate used to calculate the lease liability for each lease and the remaining balance of the lease payments for each lease as of the reporting date.

At 30 June 2020, the maturity analysis of lease liabilities, showing the undiscounted cash flows, is as follows:

	Operating Leases
2020 (excluding the nine months ended 30 June 2020)	$20.4
2021	70.6
2022	51.3
2023	43.0
2024	34.9
Thereafter	238.7
Total Undiscounted Lease Payments	$458.9
Imputed interest	(65.8)
Present Value of Lease Liability Recognized on the Balance Sheet	$393.1

As previously disclosed in our 2019 Form 10-K, at 30 September 2019, prior to our adoption of the new lease guidance, minimum payments due under leases were as follows:

	Operating Leases
2020	$75.1
2021	62.6
2022	44.4
2023	35.9
2024	28.6
Thereafter	171.4
Total Undiscounted Lease Payments	$418.0

The impacts associated with our operating leases on the consolidated statements of cash flows are reflected within "Other adjustments" within operating activities. This includes the non-cash operating lease expense amortization of $59.2 as well as a use of cash of $60.0 for payments on amounts included in the measurement of the lease liability.

In addition to the ROU assets established upon adoption, we recorded $86 of non-cash additions during the nine months ended 30 June 2020.

We have additional operating leases that have not yet commenced as of 30 June 2020 having lease payments totaling approximately $70.

Lessor Accounting

Historically, certain contracts associated with facilities that are built to provide product to a specific customer were accounted for as leases. As noted above, we elected the package of practical expedients permitted under the transition guidance to carry forward these lease determinations as of 30 September 2019. As we generally control the operations and maintenance of the assets that provide the supply of gas to our customers, there have been no new arrangements that qualified as a lease in fiscal year 2020.

In cases where operating lease treatment is appropriate, there is no difference in revenue recognition over the life of the contract as compared to accounting for the contract under a sale of gas agreement. Under the new lease standard, these contracts qualify for a practical expedient available to lessors to combine the lease and non-lease components and account for the combined component in accordance with the accounting treatment for the predominant component. We elected to apply this practical expedient and have accounted for the combined component as product sales under the revenue standard as we control the operations and maintenance of the assets that provide the supply of gas to our customers.

In cases where sales-type lease treatment is appropriate, revenue and expense are recognized up front for the sale of equipment component of the contract as compared to revenue recognition over the life of the arrangement under contracts not qualifying as sales-type leases. Additionally, a portion of the revenue representing interest income from the financing component of the lease receivable is reflected as sales over the life of the contract. During the nine months ended 30 June 2020, we recognized interest income of $53.9 on our lease receivables.

Our contracts generally do not have the option to extend or terminate the lease or provide the customer the right to purchase the asset at the end of the contract term. Instead, renewal of such contracts requires negotiation of mutually agreed terms by both parties. Unless the customer terminates within the required notice period, the contract will go into evergreen. Given the long-term duration of our contracts, there is no assumed residual value for the assets at the end of the lease term.

Lease receivables, net, primarily relate to sales-type leases and are mostly included within "Noncurrent lease receivables" on our consolidated balance sheets, with the remaining balance in "Other receivables and current assets."

Lease payments collected during the nine months ended 30 June 2020 were $123.0. These payments reduced the lease receivable balance by $69.1 in fiscal year 2020.

At 30 June 2020, minimum lease payments expected to be collected, which reconciles to the total undiscounted minimum lease payments reflected in the table below, were as follows:

2020 (excluding the nine months ended 30 June 2020)	$39.9
2021	155.7
2022	145.2
2023	139.1
2024	133.0
Thereafter	718.2
Total	$1,331.1
Unearned interest income	(420.2)
Lease Receivables, net	$910.9

As previously disclosed in our 2019 Form 10-K, at 30 September 2019, prior to our adoption of the new lease guidance, minimum lease payments expected to be collected were as follows:

2020	$162.5
2021	156.9
2022	145.7
2023	139.4
2024	133.2
Thereafter	715.5
Total	$1,453.2
Unearned interest income	(472.3)
Lease Receivables, net	$980.9

Other than lease payments received during the first nine months of fiscal year 2020 and the impact of currency, there have been no significant changes to our minimum lease payments expected to be collected since those disclosed as of 30 September 2019 in our 2019 Form 10-K.

Leases

LEASES

As discussed in Note 2, New Accounting Guidance, we adopted the new lease guidance in fiscal year 2020 using a modified retrospective approach with the election to apply the guidance as of 1 October 2019. For adoption, we elected the package of practical expedients permitted under the transition guidance to carry forward the historical lease populations as well as their classifications existing as of the adoption date (i.e. contracts having a lease commencement date prior to 1 October 2019). Refer to Note 1, Basis of Presentation and Major Accounting Policies, and Note 2, New Accounting Guidance, for additional information on our adoption and related policies under the new lease standard.

Lessee Accounting

The Company is the lessee under various agreements for real estate, vehicles, aircraft, and other equipment that are accounted for as operating leases. Our finance leases principally relate to the right to use machinery and equipment and are not material.

The operating lease expense for the three and nine months ended 30 June 2020, which exclude short-term and variable lease expenses, as those expenses were immaterial, was $19.7 and $59.2, respectively.

Amounts associated with operating leases, including their presentation on our consolidated balance sheets, as of our most recent balance sheet date and our adoption date are as follows:

	30 June 2020	1 October 2019
Operating lease ROU asset
Other noncurrent assets	$352.0	$332.3
Operating lease liabilities
Payables and accrued liabilities	67.4	68.6
Other noncurrent liabilities	325.7	306.7
Total Operating Lease Liabilities	$393.1	$375.3

The difference between the ROU assets and lease liabilities recorded upon adoption primarily relate to the land lease associated with our former Energy-from-Waste business in which an ROU asset was not recognized.

	30 June 2020
Weighted-average remaining lease term (in years)(A)	15.5
Weighted-average discount rate(B)	2.2	%

^(A)Calculated on the basis of the remaining lease term and the lease liability balance for each lease as of the reporting date.

^(B)Calculated on the basis of the discount rate used to calculate the lease liability for each lease and the remaining balance of the lease payments for each lease as of the reporting date.

At 30 June 2020, the maturity analysis of lease liabilities, showing the undiscounted cash flows, is as follows:

	Operating Leases
2020 (excluding the nine months ended 30 June 2020)	$20.4
2021	70.6
2022	51.3
2023	43.0
2024	34.9
Thereafter	238.7
Total Undiscounted Lease Payments	$458.9
Imputed interest	(65.8)
Present Value of Lease Liability Recognized on the Balance Sheet	$393.1

As previously disclosed in our 2019 Form 10-K, at 30 September 2019, prior to our adoption of the new lease guidance, minimum payments due under leases were as follows:

	Operating Leases
2020	$75.1
2021	62.6
2022	44.4
2023	35.9
2024	28.6
Thereafter	171.4
Total Undiscounted Lease Payments	$418.0

The impacts associated with our operating leases on the consolidated statements of cash flows are reflected within "Other adjustments" within operating activities. This includes the non-cash operating lease expense amortization of $59.2 as well as a use of cash of $60.0 for payments on amounts included in the measurement of the lease liability.

In addition to the ROU assets established upon adoption, we recorded $86 of non-cash additions during the nine months ended 30 June 2020.

We have additional operating leases that have not yet commenced as of 30 June 2020 having lease payments totaling approximately $70.

Lessor Accounting

Historically, certain contracts associated with facilities that are built to provide product to a specific customer were accounted for as leases. As noted above, we elected the package of practical expedients permitted under the transition guidance to carry forward these lease determinations as of 30 September 2019. As we generally control the operations and maintenance of the assets that provide the supply of gas to our customers, there have been no new arrangements that qualified as a lease in fiscal year 2020.

In cases where operating lease treatment is appropriate, there is no difference in revenue recognition over the life of the contract as compared to accounting for the contract under a sale of gas agreement. Under the new lease standard, these contracts qualify for a practical expedient available to lessors to combine the lease and non-lease components and account for the combined component in accordance with the accounting treatment for the predominant component. We elected to apply this practical expedient and have accounted for the combined component as product sales under the revenue standard as we control the operations and maintenance of the assets that provide the supply of gas to our customers.

In cases where sales-type lease treatment is appropriate, revenue and expense are recognized up front for the sale of equipment component of the contract as compared to revenue recognition over the life of the arrangement under contracts not qualifying as sales-type leases. Additionally, a portion of the revenue representing interest income from the financing component of the lease receivable is reflected as sales over the life of the contract. During the nine months ended 30 June 2020, we recognized interest income of $53.9 on our lease receivables.

Our contracts generally do not have the option to extend or terminate the lease or provide the customer the right to purchase the asset at the end of the contract term. Instead, renewal of such contracts requires negotiation of mutually agreed terms by both parties. Unless the customer terminates within the required notice period, the contract will go into evergreen. Given the long-term duration of our contracts, there is no assumed residual value for the assets at the end of the lease term.

Lease receivables, net, primarily relate to sales-type leases and are mostly included within "Noncurrent lease receivables" on our consolidated balance sheets, with the remaining balance in "Other receivables and current assets."

Lease payments collected during the nine months ended 30 June 2020 were $123.0. These payments reduced the lease receivable balance by $69.1 in fiscal year 2020.

At 30 June 2020, minimum lease payments expected to be collected, which reconciles to the total undiscounted minimum lease payments reflected in the table below, were as follows:

2020 (excluding the nine months ended 30 June 2020)	$39.9
2021	155.7
2022	145.2
2023	139.1
2024	133.0
Thereafter	718.2
Total	$1,331.1
Unearned interest income	(420.2)
Lease Receivables, net	$910.9

As previously disclosed in our 2019 Form 10-K, at 30 September 2019, prior to our adoption of the new lease guidance, minimum lease payments expected to be collected were as follows:

2020	$162.5
2021	156.9
2022	145.7
2023	139.4
2024	133.2
Thereafter	715.5
Total	$1,453.2
Unearned interest income	(472.3)
Lease Receivables, net	$980.9

Other than lease payments received during the first nine months of fiscal year 2020 and the impact of currency, there have been no significant changes to our minimum lease payments expected to be collected since those disclosed as of 30 September 2019 in our 2019 Form 10-K.