Leases (Notes)

9 Months Ended

Sep. 30, 2019

Leases

The Company leases real estate, office equipment and service vehicles. The Company's leases have remaining lease terms of up to 15 years, some of which include options to extend the leases for up to 20 years. The Company has included the initial lease term in the case where there are options to extend as it has determined that it is not reasonably certain that the Company would exercise those options.

Leases are classified as either finance or operating at inception of the lease, with classification affecting the pattern of expense recognition in the income statement. Operating leases result in the recognition of ROU assets and lease liabilities on the balance sheet. ROU assets represent the Company's right to use the leased asset for the lease term and lease liabilities represent the obligation to make lease payments. The liability is calculated as the present value of the remaining minimum rental payments for existing operating leases using either the rate implicit in the lease or, if none exists, the Company's incremental borrowing rate. The Company's capital leases are accounted for as finance leases; no significant changes have been made for the accounting of such leases.

The Company also leases certain equipment that it rents to its customers where the payments vary based upon the amount of time the equipment is on rent. There are no fixed payments on these leases and, therefore, no lease liability or ROU assets have been recorded. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The components of lease expense consist of the following (in millions):



	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost^(a)	Direct operating	$	25.3		$	70.0
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization^(b)	1.8			5.5
Interest on lease liabilities	Interest expense, net	0.4			1.1
Sublease income	Equipment rental revenue	(17.3		)	(46.4		)
Net lease cost		$	10.2		$	30.2

(a) Includes short-term leases of $13.7 million and $36.8 million for the three and nine months ended September 30, 2019, and variable lease costs of $0.8 million and $3.1 million for the three and nine months ended September 30, 2019, respectively.

(b) Depreciation and amortization is included with selling, general and administrative expense.

During the second quarter of 2019, the Company entered into a plan of restructuring with respect to certain branches in Canada. As part of the plan, certain of its leased locations were closed and the Company recorded a ROU asset impairment of $4.8 million. Additionally, the Company recorded related leasehold improvement impairments of $0.7 million and severance charges of $2.3 million.

Balance sheet information related to leases consists of the following (in millions):



	Classification	September 30, 2019
Assets
Operating lease ROU assets	Right-of-use assets	$	186.8
Finance lease ROU assets	Property and equipment, net^(a)	52.8
Total leased assets		$	239.6
Liabilities
Current
Operating	Current maturities of operating lease liabilities	$	30.3
Finance	Current maturities of long-term debt and financing obligations	22.9
Non-current
Operating	Operating lease liabilities	161.5
Finance	Long-term debt, net	30.1
Total lease liabilities		$	244.8

Weighted average remaining lease term
Operating leases		7.4
Finance leases		5.4
Weighted average discount rate
Operating leases		4.05		%
Finance leases		2.97		%

(a) Finance lease right-of-use assets are recorded net of accumulated amortization of $56.3 million.

Cash flow information related to leases consists of the following (in millions):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9.7	$	29.3
Operating cash flows from finance leases	0.4		1.1
Financing cash flows from finance leases	3.0		9.3
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	26.9		48.4
Finance leases	24.9		27.3

Maturities of lease liabilities are as follows (in millions):



	Operating Leases			Finance Leases
2019	$	7.5		$	13.2
2020	39.7			16.4
2021	33.5			5.5
2022	28.4			5.3
2023	24.3			4.8
After 2024	90.6			11.4
Total lease payments	224.0			56.6
Less: Interest	(32.2		)	(3.6		)
Present value of lease liabilities	$	191.8		$	53.0