Leases

We lease certain warehouses, distribution centers, retail stores, office space, land, vehicles and equipment.

We determine if an arrangement is a lease at inception. Operating lease right-of-use ("ROU") assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the implicit rate for most of our leases is not readily determinable, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Upon adoption of the new lease standard, we utilized the incremental borrowing rate as of the date of adoption. We determine our incremental borrowing rate by analyzing yield curves with consideration of lease term, and country and company specific factors. The operating lease ROU asset also includes any lease prepayments and excludes lease incentives.

Many of our leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 40 years or more. Our lease terms assumed in our measurement of the ROU assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Some of our lease agreements include rental payments adjusted periodically for inflation. Most of these adjustments are considered variable lease costs. Other variable lease costs consist of certain non-lease components that are disclosed as lease costs due to our election of the practical expedient to combine lease and non-lease components and include items such as variable payments for utilities, property taxes, common area maintenance, sales taxes, and insurance.

For leases with an initial term of 12 months or less, we have not recognized a right-of-use asset or lease liability on the Unaudited Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease terms.

We guarantee the residual values for the majority of our vehicles. The residual values decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value when a vehicle is sold, we would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more than the residual value when a vehicle is sold, we would be paid the amount realized over the residual value. Had we terminated all of our operating leases subject to these guarantees at March 31, 2019, our portion of the guaranteed residual value would have totaled approximately $76 million. Other than the residual value guarantees associated with our vehicles discussed above, we do not have any other material residual value guarantees or restrictive covenants.

The amounts recorded in the unaudited condensed consolidated balance sheet as of March 31, 2019 related to our lease agreements are as follows (in thousands):



Leases	Classification	March 31, 2019

Assets
Operating lease assets, net	Operating lease assets, net	$	1,279,576
Finance lease assets, net	Property, plant and equipment, net	42,311
Total leased assets		$	1,321,887
Liabilities
Current
Operating	Current portion of operating lease liabilities	$	216,172
Finance	Current portion of long-term obligations	10,658
Noncurrent
Operating	Long-term operating lease liabilities	1,109,814
Finance	Long-term obligations, excluding current portion	31,502
Total lease liabilities		$	1,368,146

The components of lease expense are as follows (in thousands):



		Three Months Ended
Lease Cost	Classification	March 31, 2019

Operating lease cost	Cost of goods sold	$	3,835
Operating lease cost	Selling, general and administrative expenses	73,282
Short-term lease cost	Selling, general and administrative expenses	667
Variable lease cost	Selling, general and administrative expenses	25,990
Finance lease cost
Amortization of leased assets	Depreciation and amortization	2,598
Interest on lease liabilities	Interest expense, net of interest income	448
Sublease income	Other income, net	(275		)
Net lease cost		$	106,545

The future minimum lease commitments under our noncancelable operating leases at December 31, 2018 were as follows (in thousands):



Years ending December 31:
2019	$	294,269
2020	256,172
2021	210,632
2022	158,763
2023	131,518
Thereafter	777,165
Future Minimum Lease Payments	$	1,828,519

The future minimum lease commitments under our leases at March 31, 2019 are as follows (in thousands):



	Operating leases		Finance leases ⁽¹⁾		Total
Nine months ending December 31, 2019	$	222,074	$	9,087	$	231,161
Years ending December 31:
2020	265,133		10,705		275,838
2021	217,839		8,571		226,410
2022	166,904		6,214		173,118
2023	138,834		2,676		141,510
2024	115,318		2,210		117,528
Thereafter	704,382		16,481		720,863
Future minimum lease payments	1,830,484		55,944		1,886,428
Less: Interest	504,498		13,784		518,282
Present value of lease liabilities	$	1,325,986	$	42,160	$	1,368,146


(1)	Amounts are included in the scheduled maturities of long-term obligations in the “Liquidity and Capital Resources,” section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q.

As of March 31, 2019, we have additional minimum operating lease payments for leases that have not yet commenced of $103 million. These operating leases will commence between April 1, 2019 and December 31, 2020 with lease terms of 2 to 20 years. Most of these leases have not commenced as the assets are in the process of being constructed. We have appropriately considered the build-to-suit and sale-leaseback guidance where appropriate on these leases. No significant build-to-suit or sale-leaseback transactions have been identified.

Other information related to leases was as follows:



Lease Term and Discount Rate	March 31, 2019

Weighted-average remaining lease term (years)
Operating leases	9.8
Finance leases	8.8
Weighted-average discount rate
Operating leases	5.4	%
Finance leases	4.5	%



	Three Months Ended
Supplemental cash flows information (in thousands)	March 31, 2019

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	73,976
Financing cash flows from finance leases	2,642
Leased assets obtained in exchange for new finance lease liabilities	5,245
Leased assets obtained in exchange for new operating lease liabilities	28,563