Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

7. Leases

Effective January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842)” and the series of related Accounting Standards Updates that followed (collectively referred to as “Topic 842”). The most significant changes under the new guidance include clarification of the definition of a lease, and the requirements for lessees to recognize a right-of-use (ROU) asset and a lease liability for all qualifying leases with terms longer than twelve months in the consolidated balance sheet. In addition, under Topic 842, additional disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

The Company elected the practical expedient available under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earliest comparative period presented in the Company’s financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019 but without retrospective application. The Company also elected all other available practical expedients except the hindsight practical expedient. In electing the practical expedients, the Company utilized the transition practical expedient package whereby the Company did not reassess (i) whether any of the Company’s expired or existing contracts contain a lease, (ii) the classification for any expired or existing leases and (iii) initial direct costs for any existing leases. 

The impact of Topic 842 on the Company’s consolidated balance sheet as of January 1, 2019 was the recognition of ROU assets and lease liabilities for operating leases, while the Company’s accounting for finance leases remained substantially unchanged. The Company’s finance leases were immaterial prior to the adoption of Topic 842, and no change was made to the classification for these leases. As a result of the adoption of Topic 842, beginning retained earnings was impacted by $0.1 million and there was no impact to the income statement.

The Company leases property including warehouse space, offices, vehicles and office equipment. The Company determines if an arrangement is a lease at inception. As part of the transition to the new standard, the Company reviewed agreements with suppliers, vendors, customers, and other outside parties to determine if any agreements met the definition of an embedded lease. Based on the nature of the contracts reviewed, and various factors, including identified assets included in the agreement to which the Company has exclusive rights of control as described by Topic 842, were considered. The Company concluded that these are not material agreements with parties that would constitute an embedded lease. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining lease payments over the remaining lease term as of January 1, 2019. The Company is required to determine a discount rate in order to calculate the present value of lease payments. If the rate is not included in the lease or cannot be readily determined, the Company uses its incremental secured borrowing rate based on lease term information available at the commencement date of the lease in determining the present value of lease payments. The Company recognizes lease components and non-lease components together and not as separate parts of a lease for all leases. The Company will exercise this practical expedient in the future by asset class.

The expenses generated by the lease activity of the Company as lessee for the three months ended March 31, 2019 were as follows:

Lease Type	Income Statement Classification	Amount
(Dollars in thousands)
Consolidated operating lease expense	Operating expenses	$	986
Consolidated financing lease amortization	Operating expenses		17
Consolidated financing lease interest	Interest expense		2
Consolidating financing lease expense			19
Net lease cost	Operating expenses	$	1,005

The value of the net assets and liabilities generated by the leasing activity of the Company as lessee as of March 31, 2019 were as follows:

Lease Type	Balance Sheet Classification	Amount
(Dollars in thousands)
Total ROU operating lease assets (1)	Operating lease right-of-use assets, net	$	11,954
Total ROU financing lease assets (2)	Property and equipment, net		220
Total lease assets		$	12,174
Total current operating lease obligation	Operating lease liabilities	$	3,082
Total current financing lease obligation	Accrued and other current liabilities		70
Total current lease obligation		$	3,152
Total long term operating lease obligation	Operating lease long term liabilities	$	9,280
Total long term financing lease obligation	Other long term liabilities		159
Total long term lease obligation		$	9,439

⁽¹⁾ Operating lease assets are recorded net of accumulated amortization of $0.8 million as of March 31, 2019

⁽²⁾ Financing lease assets are recorded net of accumulated amortization of $0.1 million as of March 31, 2019

The future minimum lease payments for finance and operating lease liabilities of the Company as lessee as of March 31, 2019 were as follows:

Maturity Date of Lease Liabilities	Operating Leases		Financing Leases		Total
(Dollars in thousands)
Year one	$	3,665	$	77	$	3,742
Year two		2,831		72		2,903
Year three		2,680		61		2,741
Year four		2,322		32		2,354
Year five		1,081		1		1,082
Subsequent years		1,462		—		1,462
Total lease payments		14,041		243		14,284
Less: Interest		1,679		14		1,693
Present value of lease liabilities	$	12,362	$	229	$	12,591

The weighted average remaining lease terms and discount rates of the leases held by the Company as of March 31, 2019 were as follows:

Lease Type	Weighted Average Term in Years		Weighted Average Interest Rate
Operating leases		4.7		5.5
Financing leases		3.3		3.6

The cash outflows of the leasing activity of the Company as lessee for the three months ended March 31, 2019 were as follows:

Cash Flow Source	Classification	Amount
(Dollars in thousands)
Operating cash outflows from operating leases	Operating activities	$	980
Operating cash outflows from financing leases	Operating activities		2
Financing cash outflows from financing leases	Financing activities		17

Any leases, new or modified, for the three months ended March 31, 2019 are not material.