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Note 11 - Leases
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Operating and Finance Leases [Text Block]
11.
LEASES
 
The Company adopted the provisions of ASC
842
effective in the
first
quarter of
2019
on a modified retrospective basis. See Note
1
Summary of Significant Accounting Policies
” for a summary of the effect of initial adoption on the Company’s consolidated financial statements.
 
The Company applied the following practical expedients as provided for under ASC
842:
 
 
(i)
The determination of whether expired or existing contracts contain leases at the date of adoption was
not
reassessed;
 
(ii)
The classification of existing or expired leases at the date of adoption was
not
reassessed;
 
(iii)
The provisions of ASC
842
were
not
applied to lease agreements with a term of
12
months or less;
 
(iv)
Non-lease components, which are
not
material, were combined with lease components and, accordingly, consideration was
not
allocated between these
two
elements;
 
(v)
Existing lease agreements were
not
reassessed to identify any initial direct costs; and
 
(vi)
Hindsight was applied to determine changes in lease terms and assess for the impairment of ROU assets.
 
Lease Agreements Under Which the Company is the Lessee
 
The Company enters into agreements for land, land easements, access rights, IRUs, co-located data centers, buildings, equipment, pole attachments and personal property. These assets are utilized in the provision of broadband and telecommunications services to the Company’s customers. An agreement is determined to be a lease if it conveys to the Company the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as the Company having both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. This determination is made at contract inception. Operating leases are included in operating lease right of use assets and current and noncurrent operating lease liabilities on the consolidated balance sheet. Finance leases are included in property, plant and equipment and current portion of long-term obligations and long-term obligations on the consolidated balance sheet.
 
ROU assets represent the Company’s right to use the underlying asset for the term of the operating lease and operating lease liabilities represent the Company’s obligation to make lease payments over the term of the lease. ROU assets and operating lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the term of the lease.
 
The terms of the Company’s leases are primarily fixed. A limited number of leases include a variable payment component based on a pre-determined percentage or index.
 
Most of the Company’s lease agreements include extension options which vary between leases but are generally consistent with industry practice. Extension options are exercised as required to meet the Company’s service obligations and other business requirements. Extension options are included in the determination of the ROU asset if, at lease inception, it is reasonably certain that the option will be exercised.
 
Certain leases include a provision for early termination, typically in return for an agreed amount of consideration. The terms of these provisions vary by contract. Upon the exercise of an early termination option, the ROU asset and associated liability are remeasured to reflect the present value of the revised cash flows. Early terminations recorded in the year ended
December 31, 2019
were
not
material.
 
The Company’s operating and finance lease agreements do
not
include residual value guarantees, embedded leases or impose material restrictions or covenants on the Company’s operations. It has
no
lease arrangements with related parties. The Company has subleases associated with certain leased assets. Such arrangements are
not
material.
 
The Company entered into additional operating lease commitments that had
not
yet commenced as of
December 31, 2019
with a present value totaling approximately
$464.
These leases are primarily associated with the Company’s CAF Phase II services, are expected to commence in
2020,
and have terms of
7
to
25
years.
 
The discount rate applied to determine the present value of the future lease payments is based on the Company’s incremental borrowing rate which is derived from recent secured borrowing arrangements entered into by the Company and publicly available information for instruments with similar terms.
 
Short-term and variable lease cost recorded during the year ended
December 31, 2019
were
not
material.
 
The Company did
not
enter into any sale and leaseback transactions during the year ended
December 31, 2019.
 
The following tables provide certain quantitative information about the Company’s lease agreements under which it is the lessee as of and for the year ended
December 31, 2019.
The maturities of lease liabilities are presented in
twelve
-month increments beginning
January 1, 2020.
 
   
Year Ended
 
   
December 31, 2019
 
Lease Cost
 
 
 
 
         
Finance lease cost:
       
Amortization of right of use assets
  $
188
 
Interest on lease liabilities
   
270
 
Operating lease costs
   
7,865
 
Total lease cost
  $
8,323
 
 
 
   
At December 31, 2019
 
Balance Sheet Information
 
 
 
 
         
Operating leases:
       
Right of use assets
  $
80,991
 
         
         
Liabilities - current
  $
2,795
 
Liabilities - noncurrent
   
78,767
 
Total liabilities
  $
81,562
 
         
Finance leases:
       
Property, plant and equipment
  $
5,800
 
Accumulated depreciation and amortization
   
(3,699
)
Property, plant and equipment, net
  $
2,101
 
         
Current portion of long-term obligations
  $
53
 
Long-term obligations, net of current portion
   
2,676
 
Total finance lease liabilities
  $
2,729
 
 
 
 
   
At December 31, 2019
 
   
Operating
   
Financing
 
   
Leases
   
Leases
 
Maturities of Lease Liabilities
 
 
 
 
 
 
 
 
                 
Year 1
  $
7,284
    $
318
 
Year 2
   
7,529
     
327
 
Year 3
   
7,433
     
336
 
Year 4
   
7,122
     
345
 
Year 5
   
6,934
     
355
 
Thereafter
   
159,455
     
3,472
 
Total lease payments
   
195,757
     
5,153
 
Less imputed interest
   
(115,093
)    
(2,424
)
Total present value of lease obligations
   
80,664
     
2,729
 
Present value of current obligations
   
(1,897
)    
(53
)
Present value of long-term obligations
  $
78,767
    $
2,676
 
 
 
 
   
Year Ended
 
   
December 31, 2019
 
Other Information
 
 
 
 
         
Cash paid for amounts included in the measurement of lease liabilities:
       
Operating cash flows from finance leases
  $
270
 
Operating cash flows from operating leases
   
7,293
 
Financing cash flows from finance leases
   
39
 
Right of use assets obtained in exchange for new operating lease liabilities
   
828
 
Weighted-average remaining lease term (in years):
       
Finance leases
   
14
 
Operating leases
   
29
 
Weighted-average discount rate:
       
Finance leases
   
9.8
%
Operating leases
   
6.9
%
 
Lease Agreements Under Which the Company is the Lessor
 
The Company’s agreements under which it is the lessor are primarily associated with the use of its network assets, including IRUs for fiber optic cable, colocation and buildings. An agreement is determined to be a lease if it coveys to the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as the lessee having both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. This determination is made at contract inception. Exchanges of IRUs with other carriers are accounted for as leases if the arrangement has commercial substance. All of the Company’s agreements under which it is the lessor have been determined to be operating leases.
 
Lease payments are recognized as income on a straight-line basis over the term of the agreement, including scheduled changes in payments
not
based on an index or otherwise determined to be variable in nature. Any changes in payments based on an index are reflected in income in the period of the change. The underlying leased asset is reported as a component of property, plant and equipment on the balance sheet.
 
 
Initial direct costs associated with the lease incurred by the Company are deferred and expensed over the term of the lease.
 
Certain of the Company’s operating lease agreements include extension options which vary between leases but are generally consistent with industry practice. Extension options are
not
included in the determination of lease income unless, at lease inception, it is reasonably certain that the option will be exercised.
 
The Company’s operating leases do
not
include purchase options.
 
Certain leases include a provision for early termination, typically in return for an agreed amount of consideration. The terms of these provisions vary by contract. Upon the exercise of an early termination option, any deferred rent receivable, deferred income and unamortized initial direct costs are written off. The underlying asset is assessed for impairment giving consideration to the Company’s ability to utilize the asset in its business. There were
no
early terminations recorded in the year ended
December 31, 2019.
 
The Company does
not
have material sublease arrangements as the lessor or lease arrangements with related parties.
 
The Company did
not
have sales-type leases or direct finance leases as of
December 31, 2019.
 
The underlying assets associated with the Company’s operating leases are accounted for under ASC
360,
“Property, Plant and Equipment.” The assets are depreciated on a straight-line basis over their estimated useful life, including any periods in which the Company expects to utilize the asset subsequent to termination of the lease.
 
The Company’s operating lease agreements
may
include a non-lease component associated with operation and maintenance services. Consideration received for these services are recognized as income on a straight-line basis consistently with the lease components. Certain operating lease arrangements include a separate maintenance and service agreement. Consideration received under these separate agreements are recognized as income when the relevant service is provided to the lessee.
 
The following tables provide certain quantitative information about the Company’s operating lease agreements under which it is the lessor as of and for the year ended
December 31, 2019.
Lease income is classified as revenue on the Statement of Comprehensive Income. The carrying value of the underlying leased assets is
not
material.
 
   
Year Ended
 
   
December 31, 2019
 
Lease Income
 
 
 
 
         
Total lease income
  $
3,646
 
 
 
   
At December 31, 2019
 
Maturities of Future Undiscounted Lease Payments
 
 
 
 
         
Year 1
  $
1,469
 
Year 2
   
1,209
 
Year 3
   
478
 
Year 4
   
447
 
Year 5
   
427
 
Thereafter
   
2,741
 
Total future undiscounted lease payments
  $
6,771