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Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

(6) Leases

Lease Overview

We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer and corporate operations. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.

The adoption of Topic 842 impacted our January 1, 2019 condensed consolidated balance sheet as shown below only for those line items impacted.

Effect of Initial Adoption of Topic 842 - January 1, 2019

ROU Assets. Upon initial recognition, our ROU assets for operating and finance leases were comprised of the following:

(in millions)	January 1, 2019 (initial recognition)
Pipeline and storage agreements (1)	$	29
Railcar leases (2)	15
Real Estate and other leases (3)	35
Total ROU assets	$	79

(1) Includes finance leased assets of $1 million as of January 1, 2019.

(2) Includes $14 million of railcar leases recognized by CVR Partners.

(3) Includes finance leased assets of $25 million as of January 1, 2019.

Lease Liabilities. Upon initial recognition, our lease liabilities for operating and finance leases were comprised of the following:

(in millions)		January 1, 2019 (initial recognition)
Current liabilities:
Operating leases		$	14
Finance leases		2
Long-term liabilities:
Operating leases		40
Finance leases		23
Total lease liabilities		$	79

Balance Sheet Summary as of September 30, 2019

The following tables summarize the right of use asset and lease liability balances for the Company’s operating and finance leases at September 30, 2019:

(in millions)	September 30, 2019
Operating Leases:
ROU assets, net
Pipeline and storage	$	22
Railcars	12
Real estate and other	14
Lease liability
Pipelines and storage	$	23
Railcars	12
Real estate and other	12

(in millions)	September 30, 2019
Financing Leases:
ROU assets, net
Pipeline and storage	$	30
Real estate and other	25
Lease liability
Pipelines and storage	$	41
Real estate and other	26

Lease Expense Summary for the Three and Nine Months Ended September 30, 2019

We recognize lease expense on a straight-line basis over the lease term. For the three and nine months ended September 30, 2019, we recognized lease expense comprised of the following components:

(in millions)	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
Operating lease expense	$	4			$	12
Financing lease expense:
Amortization of ROU	$	2			$	5
Interest expense on lease liability	2				5

Short-term lease expense, recognized within direct operating expenses, was $2 million and $6 million for the three and nine months ended September 30, 2019.

Lease Terms and Discount Rates

The following outlines the remaining lease terms and discount rates used in the measurement of the Company’s ROU assets and liabilities:

	September 30, 2019			January 1, 2019 (initial recognition)
Weighted-average remaining lease term (years)
Operating Leases	3.9			4.4
Finance Leases	9.8			10.3
Weighted-average discount rate
Operating Leases	5.7	%		5.8	%
Finance Leases	9.6	%		9.8	%

Maturities of Lease Liabilities

The following summarizes the remaining minimum lease payments through maturity of the Company’s right-of-use assets and liabilities at September 30, 2019:

(in millions)	Operating Leases				Financing Leases
Remainder of 2019	$	4			$	3
2020	15				11
2021	13				11
2022	10				11
2023	6				10
Thereafter	4				53
Total lease payments	52				99
Less: imputed interest	(5		)		(32		)
Total lease liability	$	47			$	67

Leases

(6) Leases

Lease Overview

We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer and corporate operations. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.

The adoption of Topic 842 impacted our January 1, 2019 condensed consolidated balance sheet as shown below only for those line items impacted.

Effect of Initial Adoption of Topic 842 - January 1, 2019

ROU Assets. Upon initial recognition, our ROU assets for operating and finance leases were comprised of the following:

(in millions)	January 1, 2019 (initial recognition)
Pipeline and storage agreements (1)	$	29
Railcar leases (2)	15
Real Estate and other leases (3)	35
Total ROU assets	$	79

(1) Includes finance leased assets of $1 million as of January 1, 2019.

(2) Includes $14 million of railcar leases recognized by CVR Partners.

(3) Includes finance leased assets of $25 million as of January 1, 2019.

Lease Liabilities. Upon initial recognition, our lease liabilities for operating and finance leases were comprised of the following:

(in millions)		January 1, 2019 (initial recognition)
Current liabilities:
Operating leases		$	14
Finance leases		2
Long-term liabilities:
Operating leases		40
Finance leases		23
Total lease liabilities		$	79

Balance Sheet Summary as of September 30, 2019

The following tables summarize the right of use asset and lease liability balances for the Company’s operating and finance leases at September 30, 2019:

(in millions)	September 30, 2019
Operating Leases:
ROU assets, net
Pipeline and storage	$	22
Railcars	12
Real estate and other	14
Lease liability
Pipelines and storage	$	23
Railcars	12
Real estate and other	12

(in millions)	September 30, 2019
Financing Leases:
ROU assets, net
Pipeline and storage	$	30
Real estate and other	25
Lease liability
Pipelines and storage	$	41
Real estate and other	26

Lease Expense Summary for the Three and Nine Months Ended September 30, 2019

We recognize lease expense on a straight-line basis over the lease term. For the three and nine months ended September 30, 2019, we recognized lease expense comprised of the following components:

(in millions)	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
Operating lease expense	$	4			$	12
Financing lease expense:
Amortization of ROU	$	2			$	5
Interest expense on lease liability	2				5

Short-term lease expense, recognized within direct operating expenses, was $2 million and $6 million for the three and nine months ended September 30, 2019.

Lease Terms and Discount Rates

The following outlines the remaining lease terms and discount rates used in the measurement of the Company’s ROU assets and liabilities:

	September 30, 2019			January 1, 2019 (initial recognition)
Weighted-average remaining lease term (years)
Operating Leases	3.9			4.4
Finance Leases	9.8			10.3
Weighted-average discount rate
Operating Leases	5.7	%		5.8	%
Finance Leases	9.6	%		9.8	%

Maturities of Lease Liabilities

The following summarizes the remaining minimum lease payments through maturity of the Company’s right-of-use assets and liabilities at September 30, 2019:

(in millions)	Operating Leases				Financing Leases
Remainder of 2019	$	4			$	3
2020	15				11
2021	13				11
2022	10				11
2023	6				10
Thereafter	4				53
Total lease payments	52				99
Less: imputed interest	(5		)		(32		)
Total lease liability	$	47			$	67

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- References

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- Definition

The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 842
-SubTopic 20
-URI http://asc.fasb.org/subtopic&trid=77888251

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- Definition

The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 842
-SubTopic 20
-URI http://asc.fasb.org/subtopic&trid=77888251

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