Leases (Notes)

3 Months Ended

Mar. 31, 2019

We have cancelable and non-cancelable finance and operating lease obligations for the lease of land, vehicles, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Most of our leases have options and can extend the terms from one to 40 years. There are no material lease arrangements where we are the lessor.

We determine whether a contract is or contains a lease when we have the right to control the use of the identified asset in exchange for consideration. Lease liabilities and ROU assets are recognized at the commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate in the calculation of present value unless the implicit rate can be readily determined. Certain leases include provisions for variable payments based upon percentage of sales and/or other operating metrics; escalation provisions to adjust rental payments to reflect changes in price indices and fair market rents; and provisions for the renewal, termination, and/or purchase the leased asset. We only consider fixed payments and those options that are reasonably certain to be exercised in the determination of the lease term and the initial measurement of lease liabilities and ROU assets. Expense for operating lease payments is recognized as lease expense on a straight-line basis over the lease term. Expense for finance leases is recognized as amortization expense on a straight-line basis and interest expense on an effective rate basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

We do not separate lease and nonlease components of a contract. There are no material residual value guarantees associated with any of our leases.

The following table provides information on the amounts (in thousands, except lease term and discount rates) of our leased assets and liabilities as of March 31, 2019 and their placement within our condensed consolidated balance sheets:



Lease type	Balance Sheet Location	March 31, 2019
Assets
Finance	Property, plant, and equipment	$	10,649
Finance	Accumulated amortization	(2,919		)
Finance	Property and equipment, net	$	7,730
Operating	Operating lease assets	405,942
Total leased assets		$	413,672

Liabilities
Current
Finance	Other accrued liabilities	$	2,056
Operating	Operating lease liabilities	64,868
Long-term
Finance	Finance lease liabilities	6,366
Operating	Operating lease liabilities	344,620
Total lease liabilities		$	417,910

Weighted-average remaining lease term (in years)
Finance		6.37
Operating		11.39
Weighted-average discount rate
Finance		6.60		%
Operating		7.88		%

The following table summarizes the lease costs recognized on our condensed consolidated statements of operations (in thousands):



Lease cost type	Three Months Ended March 31, 2019
Finance lease cost
Amortization of finance lease assets	$	499
Interest on lease liabilities	156
Operating lease cost	23,412
Variable lease cost	1,630
Short-term lease cost	253
Net lease cost	$	25,950

The following table summarizes the supplemental cash flow information related to leases as follows (in thousands):



Lease type	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of liabilities
Financing cash flows from finance leases	$	342
Operating cash flows from finance leases	156
Operating cash flows from operating leases	21,045
Non-cash supplemental amounts
ROU assets obtained in exchange for new operating lease obligations	14,130

The table below includes the estimated future undiscounted cash flows for finance and operating leases as of March 31, 2019 (in thousands):



For the year ending December 31,	Finance leases			Operating leases			Total
2019 (1)	$	2,035		$	72,302		$	74,337
2020	2,151			79,713			81,864
2021	1,444			51,584			53,028
2022	1,238			49,454			50,692
2023	1,156			48,396			49,552
2024	751			40,211			40,962
Thereafter	1,098			198,494			199,592
Total lease payments	9,873			540,154			550,027
Less amount representing interest	(1,451		)	(130,666		)	(132,117		)
Present value of lease liabilities	$	8,422		$	409,488		$	417,910

_________________________________________________________


(1)	Represents period from April 1, 2019 to December 31, 2019.

Additionally, the Company has $5.9 million in future undiscounted cash flows for an operating lease of a retail facility that has not yet commenced. This lease is expected to commence when the lessor has made the location available to the Company to construct the store location.

At December 31, 2018, the estimated minimum lease payments for capital and operating leases with initial or remaining non-cancelable lease terms in excess of one year were as follows (in thousands):



	Capital leases		Operating leases
2019	$	2,723	$	62,589
2020	2,264		62,132
2021	1,757		39,821
2022	1,512		38,402
2023	1,148		38,827
Thereafter	2,600		191,717
Total minimum rental payments	$	12,004	$	433,488
Less amount representing interest	1,865
Present value of minimum rental payments	$	10,139

Leases