Leases

3 Months Ended

Mar. 31, 2019

We adopted ASC 842 on January 1, 2019, and elected the modified retrospective approach in which the new standard is applied to all leases existing at the date of adoption through a cumulative-effect adjustment of less than $0.1 million to retained deficit. Consequently, financial information is not updated, and the disclosures required under the new standard are not provided for periods prior to January 1, 2019. As part of the adoption, we elected the package of practical expedients, the short-term lease exemption, and the practical expedient to not separate lease and non-lease components permitted within ASC 842. Accordingly, we accounted for our existing operating leases as operating leases under the new standard, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, or (c) whether any unamortized initial direct costs would have met the definition of initial direct costs in ASC 842 at lease commencement.

We determine whether an arrangement is a lease at inception. Right-of-use (“ROU”) lease assets represent our right to use an underlying asset for the lease term, and lease obligations represent our obligation to make lease payments arising from the lease. ROU lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the implicit rate is not readily determinable, we use the estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Amortization of ROU lease assets is recognized in expense on a straight-line basis over the lease term.

Short-term leases are leases having a term of twelve months or less. We recognize short-term leases on a straight-line basis and do not record a related lease asset or liability for such leases. Finance lease ROU assets consist of equipment used in the manufacturing process with terms between thirteen months and five years. Operating lease ROU assets consist of the following:


•	Equipment used in the manufacturing process as well as office equipment with terms between thirteen months and five years.


•	Manufacturing plants and office facilities with terms between thirteen months and 25 years.

The following table presents components of lease expense for the three months ended March 31, 2019:



	Financial Statement Line Item	Three Months Ended March 31, 2019
Lease cost:
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	$	322
Interest expense	Interest expense	53
Operating lease cost	Cost of sales and selling, general and administrative expense	3,434
Short-term lease cost ⁽¹⁾	Cost of sales and selling, general and administrative expense	107
Total lease cost		$	3,916

_______________________________

(1) Excludes expenses related to leases with a lease term of one month or less.

The following table presents the lease-related assets and liabilities recorded on the balance sheet as of March 31, 2019:



	Financial Statement Line Item	March 31, 2019
Lease assets and liabilities:
Assets
Operating lease assets	Operating lease right-of-use assets	$	68,458
Finance lease asset	Finance lease right-of-use assets	12,886
Total lease assets		$	81,344

Liabilities
Current liabilities
Operating lease liabilities	Current portion of operating lease liability	$	7,630
Finance lease liabilities	Other current liabilities	2,401
Non-current liabilities
Operating lease liabilities	Operating lease liability, net of current portion	66,975
Finance lease liabilities	Other non-current liabilities	6,150
Total lease liabilities		$	83,156

The following table contains supplemental information related to leases for the three months ended March 31, 2019:



Supplemental Cash Flows Information	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	53
Operating cash flows from operating leases	5,288
Financing cash flows from finance leases	792
Right-of-use assets obtained in exchange for new operating lease liabilities	$	2,836

As of March 31, 2019, the weighted average remaining lease term and weighted-average discount rate for finance and operating leases was as follows:



	Weighted-Average Remaining Lease Term (years)	Weighted-Average Discount Rate
Finance leases	4.1	2.4	%
Operating leases	10.5	8.5	%

The future minimum lease obligations with noncancelable terms in excess of twelve months as of March 31, 2019, is as follows:



	Operating Leases		Finance Leases
2019 ⁽¹⁾	$	10,104	$	2,190
2020	11,979		2,033
2021	11,118		2,020
2022	10,812		1,853
2023	9,264		962
Thereafter	59,946		17
Total future minimum lease payments	113,223		9,075
Less: imputed interest	38,618		524
Total lease liabilities	$	74,605	$	8,551


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

As of March 31, 2019, we have an additional operating lease commitment that has not yet commenced that would require us to pay a total of approximately $21.9 million base rent payments over the lease term of 15 years. This lease is expected to commence during the fourth quarter of 2019.

The following table summarizes the future minimum lease payments under operating leases with initial or non-cancelable lease terms in excess of one year prior to adoption of ASC 842 as reported in our Annual Report on Form 10-K for the year ended December 31, 2018.



Year Ending December 31,
2019	$	13,337
2020	11,515
2021	10,557
2022	10,293
2023	8,752
Thereafter	53,945
Total minimum payments	$	108,399

During the three months ended March 31, 2018, we recognized rent expense of $2.1 million.

Leases


•	Equipment used in the manufacturing process as well as office equipment with terms between thirteen months and five years.


•	Manufacturing plants and office facilities with terms between thirteen months and 25 years.