2. LEASES: ADOPTION OF ASC 842, LEASES

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

LEASES: ADOPTION OF ASC 842, LEASES

NOTE 2: LEASES: ADOPTION OF ASU 842, “LEASES”

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which replaced existing lease guidance in US GAAP and requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet for leases greater than twelve months and disclose key information about leasing arrangements. We adopted the standard on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application. Financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. There were no adjustments to opening retained earnings on adoption.

The Company leases certain properties, buildings and equipment under various arrangements that provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases, which expire at various dates through 2023.

The new standard provides a number of optional practical expedients for transition. We elected the package of practical expedients under the transition guidance which permitted us not to reassess under the new standard our prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial direct costs previously capitalized would qualify for capitalization under Topic 842. We also elected the practical expedient related to land easements, which allowed us not to reassess our current accounting treatment for existing agreements on land easements, which are not accounted for as leases. We did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

The new standard also provides practical expedients and recognition exemptions for an entity’s ongoing accounting policy elections. For leases with an initial term of twelve months or less a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and instead recognize lease expense for such leases generally on a straight line basis over the lease term. We elected this short-term lease recognition exemption for all leases that qualify. We do not separate lease and non-lease components. Some of our agreements contain variable payment provisions (other than those that depend on an index or a rate, such as CPI) which are not included in our future minimum lease payments. These variable lease agreements include usage-based payments for equipment under service contracts and other properties.

Our long-term lease agreements do not contain any material restrictive covenants. Our equipment leases have remaining terms of between 1 year and 3 years, and property leases have remaining terms of between 1 year and 5 years. Some of these leases may include options to extend the leases, and some may include options to terminate the leases within 30 days. When we are not reasonably certain to exercise these options, the options are not considered in determining the lease term, and associated payments are excluded from future minimum lease payments.

ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at the lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and a portion is recorded in cost of sales, and the remainder is recorded in selling, general and administrative expenses.

The accounting for some of our leases may require significant judgement, which includes determining whether a contract contains a lease, determining the incremental borrowing rate to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate and assessing the likelihood of renewal or termination options.

During the third quarter ended September 30, 2019, we derecognized $164 in lease liabilities and ROU assets associated with a related party lease that was on a month-to-month basis.

As of September 30, 2019, we do not have any finance lease assets or liabilities, nor do we have any subleases.

The following tables present information about our operating leases.

	September 30, 2019		January 1, 2019
Assets:
Right-of-use operating lease assets	$	4,626	$	5,707
Liabilities:
Current lease liabilities		1,167		1,215
Non-current lease liabilities		3,481		4,492
Total lease liabilities	$	4,648	$	5,707

The components of our lease expense were as follows:

	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Operating lease expense included in Cost of sales	$	312	$	926
Operating lease expense included in SG&A		55		185
Short term lease expense		41		278
Total lease expense	$	408	$	1,389

As of September 30, 2019, we do not have any finance lease assets or liabilities, nor do we have any subleases.

	Nine Months Ended
	September 30, 2019
Other information related to operating leases were as follows:
Operating cash flows from operating leases	$	(1,111	)

Lease Term and Discount Rate:	September 30, 2019		January 1, 2019
Weighted-average remaining lease terms (years) on operating leases		3.69		4.5
Weighted-average discount rates on operating leases		5.374%		5.374%

During the third quarter, we did not have any sale/leaseback transactions.

Future minimum lease payments under non cancellable operating leases were as follows:	12 Months ending
	September 30,
2020	$	1,385
2021		1,387
2022		1,403
2023		942
Thereafter		–
Total lease payments		5,117
Less: Interest		(469	)
Present value of lease liabilities	$	4,648