Leases

12 Months Ended

Dec. 31, 2019

12 Leases

The Company adopted new accounting guidance regarding the accounting for leases as of January 1, 2019 using a modified retrospective transition approach that was applied to leases existing as of, or entered into after, January 1, 2019. The Company elected the package of transition provisions available for expired or existing contracts, which allowed the Company to carryforward historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. Upon adoption, the Company recorded a

right-of-use

lease asset and lease liabilities in the amount $

100

million as of January 1, 2019. The adoption of this standard did not have a material impact on the Company’s results of operations, cash flows and retained earnings.

The Company’s operating leases consist of property leases for sales, demonstration, laboratory, warehouse and office spaces, automotive leases for sales and service personnel and equipment leases, primarily used in our manufacturing and distribution operations. The lease policies described below were effective as of January 1, 2019. For leases with terms greater than 12 months, the Company recorded the related

right-of-use

asset and lease liability obligation at the present value of lease payments over the term of the leases. Some of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments. A certain number of these leases contain rent escalation clauses, either fixed or adjusted periodically for inflation of market rates, that are factored into the Company’s determination of

lease payments. The Company also has variable lease payments that do not depend on a rate or index, primarily for items such as real estate taxes and other expenses, which are recorded as variable costs when incurred. Variable costs incurred were not material in 2019.

In addition, the Company’s lease agreements that contain lease and

non-lease

components are generally accounted for as a single lease component. The Company has elected not to apply the recognition requirements of the new accounting guidance to leases with terms less than 12 months. For these leases, the Company recognizes lease payments in net income on a straight-line basis over the term of the lease. Costs incurred related to leases with terms less than 12 months were not material in 2019. As of December 31, 2019 and 2018, the Company does not have leases that are classified as finance leases.

When available, the Company uses the rate implicit in the lease to discount lease payments to determine the present value of the lease liabilities; however, most of the leases do not provide a readily determinable implicit rate and, as required by the accounting guidance, the Company estimated its incremental secured borrowing rate to discount the lease payments based on information available at lease commencement (or, for the leases in existence on the adoption date, the January 1, 2019 information). The Company’s incremental borrowing rate reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar term to the lease payments in a similar economic environment.

As of December 31, 2019, the Company has lease agreements that expire at various dates through 2034, with a weighted-average remaining lease term of 5.3 years. Rental expense was $36 million for the year ended

December 31, 2019 under the new lease accounting standard and $28 million for the year ended December 31, 2018 under the previous lease accounting standard. As of December 31, 2019, the weighted-average discount rate used to determine the present value of lease liabilities was 3.80%. Cash paid for amounts included in the measurement of lease liabilities in operating activities in the statement of cash flows was $36 million during the year ended December 31, 2019. The Company

recorded

$118 million

right-of-use

assets in exchange for new operating lease liabilities during the year ended December 31, 2019. The total

right-of-use

assets

recorded

during 2019 includes the $100 million

right-of-use

assets recorded upon adoption as of January 1, 2019.

The Company’s

right-of-use

lease assets and lease liabilities included in the consolidated balance sheets are classified as follows (in thousands):


	Financial Statement Classification	December 31, 2019
Assets:
Property operating lease assets	Operating lease assets	$	64,206
Automobile operating lease assets	Operating lease assets		27,197
Equipment operating lease assets	Operating lease assets		1,955

Total lease assets		$	93,358

Liabilities:
Current operating lease liabilities	Current operating lease liabilities	$	27,125
Long-term operating lease liabilities	Long-term operating lease liabilities		66,881

Total lease liabilities		$	94,006

Undiscounted future minimum rents payable as of December 31, 2019 under

non-cancelable

leases with initial terms exceeding one year reconcile to lease liabilities included in the consolidated balance sheet as follows (in thousands):


2020	$	29,489
2021		21,774
2022		16,743
2023		9,175
2024		6,867
2025 and thereafter		19,311

Total future minimum lease payments		103,359
Less: amount of lease payments representing interest		(9,353	)

Present value of future minimum lease payments		94,006
Less: current operating lease liabilities		(27,125	)

Long-term operating lease liabilities	$	66,881

Prior to the adoption of the new lease accounting standard, undiscounted future minimum rents payable as of December 31, 2018 under non-cancelable leases with initial terms exceeding one year were as follows (in thousands):


2019	$	28,417
2020		23,424
2021		16,032
2022		11,816
2023 and thereafter		23,269

Total future minimum lease payments	$	102,958