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Leases

9 Months Ended

Jun. 30, 2020

We adopted the provisions of the new lease accounting standard beginning on October 1, 2019, using the optional transition method, which allowed us to apply the provisions of the new standard to all leases that existed as of the date of adoption. Therefore, results for reporting periods beginning on October 1, 2019 are presented under the new lease accounting standard and prior periods are presented under the former lease accounting standard.

The new guidance included several practical expedients to facilitate the implementation of the new standard. The following summarizes the practical expedients we used to implement the standard.


•	We elected to bundle our lease and non-lease components as a single component for all asset classes.


•	We elected not to perform the following:


◦	Evaluate existing or expired land easements prior to October 1, 2019 to determine if they are leases.


◦	Include short-term leases in the calculation of our lease liability.


◦	Evaluate existing or expired contracts to determine if they are leases.


◦	Assess lease classification for existing or expired leases.


◦	Review initial direct costs for existing leases.


◦	Use hindsight in order to determine the lease term or impairment of our ROU assets.

Upon adoption of this new guidance, we recorded ROU assets and lease liabilities of $231.3 million. Additionally, we reclassified a net $6.5 million of accrued and prepaid lease costs to the ROU asset and $2.5 million related to an existing finance lease from deferred credits and other liabilities to long-term debt.

Implementation of the new lease accounting guidance had no material impact on our condensed consolidated statements of comprehensive income or our condensed consolidated statements of cash flows. Additionally, we did not record a cumulative-effect adjustment to retained earnings on the opening balance sheet.

New Lease Accounting Policy

We determine if an arrangement is a lease at the inception of the agreement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset. We are the lessee for substantially all of our leasing activity, which primarily includes operating leases for office and warehouse space, tower space, vehicles and heavy equipment used in our operations. We are also a lessee in finance leases for service centers.

We record a lease liability and a corresponding ROU asset for all of our leases with a term greater than 12 months. For lease contracts containing renewal and termination options, we include the option period in the lease term when it is reasonably certain the option will be exercised. We most frequently assume renewal options at the inception of the arrangement for our

tower and fleet leases, based on our anticipated use of the assets. Real estate leases that contain a renewal option are evaluated on a lease-by-lease basis to determine if the option period should be included in the lease term. Currently, we have not included material renewal options for real estate leases in our ROU asset or lease liability. The following table presents our weighted average remaining lease term for our leases.



	June 30, 2020
Weighted average remaining lease term (years)
Finance leases	19.36
Operating leases	10.69

The lease liability represents the present value of all lease payments over the lease term. The discount rate used to determine the present value of the lease liability is the rate implicit in the lease unless that rate cannot be readily determined. We use the implicit rate stated in the agreement to determine the lease liability for our fleet leases. We use our corporate collateralized incremental borrowing rate as the discount rate for all other lease agreements. This rate is appropriate because we believe it represents the rate we would have incurred to borrow funds to acquire the leased asset over a similar term. We calculated this rate using a combination of inputs, including our current credit rating, quoted market prices of interest rates for our publicly traded unsecured debt, observable market yield curve data for peer companies with a credit rating one notch higher than our current credit rating and the lease term.

The following table represents our weighted average discount rate:



	June 30, 2020
Weighted average discount rate
Finance leases	8.02	%
Operating leases	2.91	%

The ROU asset represents the right to use the underlying asset for the lease term, and is equal to the lease liability, adjusted for prepaid or accrued lease payments and any lease incentives that have been paid to us or when we are reasonably certain to incur costs equal to or greater than the allowance defined in the contract.

Variable payments included in our leasing arrangements are expensed in the period in which the obligation for these payments is incurred. Variable payments are dependent on usage, output or may vary for other reasons. Most of our variable lease expense is related to tower leases that have escalating payments based on changes to a stated CPI index, and usage of certain office equipment.

We have not provided material residual value guarantees for our leases, nor do our leases contain material restrictions or covenants.

Lease costs for the three and nine months ended June 30, 2020 are presented in the table below. These costs include both amounts recognized in expense and amounts capitalized. For the three and nine months ended June 30, 2020, we did not have material short-term lease costs or variable lease costs.



	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020
	(In thousands)
Finance lease cost	$	197	$	376
Operating lease cost	10,371		30,461
Total lease cost	$	10,568	$	30,837

Our ROU assets and lease liabilities are presented as follows on the condensed consolidated balance sheets (unaudited):



	Balance Sheet Classification	June 30, 2020
		(In thousands)
Assets
Finance leases	Net Property, Plant and Equipment	$	8,554
Operating leases	Deferred charges and other assets	225,311
Total right-of-use assets		$	233,865
Liabilities
Current
Finance leases	Current maturities of long-term debt	$	157
Operating leases	Other current liabilities	33,884
Noncurrent
Finance leases	Long-term debt	8,479
Operating leases	Deferred credits and other liabilities	200,390
Total lease liabilities		$	242,910

Other pertinent information related to leases was as follows. During the nine months ended June 30, 2020, amounts paid in cash for our finance leases were not material.



	Nine Months Ended June 30, 2020
	(In thousands)
Cash paid amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	28,011
Right-of-use assets obtained in exchange for lease obligations
Finance leases	$	6,143
Operating leases	$	23,628

Maturities of our lease liabilities as of June 30, 2020, presented on a rolling 12-month basis, were as follows:



	Total		Finance Leases		Operating Leases
	(In thousands)
Year 1	$	39,017	$	738	$	38,279
Year 2	37,983		749		37,234
Year 3	33,112		759		32,353
Year 4	26,386		770		25,616
Year 5	17,607		781		16,826
Thereafter	139,172		12,862		126,310
Total lease payments	293,277		16,659		276,618
Less: Imputed interest	50,367		8,023		42,344
Total	$	242,910	$	8,636	$	234,274
Reported as of June 30, 2020
Short-term lease liabilities	$	34,041	$	157	$	33,884
Long-term lease liabilities	208,869		8,479		200,390
Total lease liabilities	$	242,910	$	8,636	$	234,274

Disclosures Related to Prior Periods

The future minimum lease payments as of September 30, 2019 were as follows:



	Operating Leases⁽¹⁾		Capital Lease
	(In thousands)
2020	$	21,017	$	243
2021	20,416		248
2022	19,370		253
2023	18,071		258
2024	15,718		263
Thereafter	105,544		4,343
Total minimum lease payments	$	200,136	5,608
Less amount representing interest			3,018
Present value of net minimum lease payments			$	2,590

(1)

Future minimum lease payments do not include amounts for fleet leases and other de minimis items that can be renewed beyond the initial lease term. The Company anticipates renewing the leases beyond the initial term, but the anticipated payments associated with the renewals do not meet the definition of expected minimum lease payments and therefore are not included above. Expected payments are $17.6 million in 2020, $18.0 million in 2021, $11.8 million in 2022, $8.5 million in 2023, $5.4 million 2024 and $2.7 million thereafter.

Consolidated lease and rental expense for the three and nine months ended June 30, 2019 was $10.5 million and $30.7 million.

Leases