Note 5: Leases

Adoption of ASU 2016-02 – Leases (Topic 842)

On January 1, 2019, the Company adopted ASU 2016-02 using the modified retrospective approach applied to all leases with a remaining lease term greater than one year. Results for reporting periods beginning after January 1, 2019, are presented in accordance with the new guidance under ASU 2016-02, while prior period amounts are not restated. The adoption of the new lease guidance resulted in the Company recognizing operating lease right-of-use assets and lease liabilities based on the present value of remaining minimum lease payments. For the discount rate assumption, the implicit rate was not readily determinable in the Company’s lease agreements. Therefore, the Company used an estimated secured incremental borrowing rate, based on the Company’s credit rating, adjusted for the weighted average term of each lease in determining the present value of lease payments. There was no impact to opening retained earnings.

The Company elected the practical expedients available under ASU 2016-02 and applied them consistently to all applicable leases. The Company did not apply ASU 2016-02 to any leases with a remaining term of 12 months or less. For these leases, no asset or liability was recorded and lease expense continues to be recognized on a straight-line basis over the lease term. As allowed by the practical expedients, the Company does not reassess whether any expired or existing contracts are or contain leases, does not reassess the lease classification for any expired or existing leases and does not reassess initial direct costs for existing leases. Additionally, the Company does not separately identify lease and nonlease components, such as maintenance costs.

Lease Accounting

The Company has various operating leases primarily for office space and other distribution centers, some of which include escalating lease payments and options to extend or terminate the lease. The Company determines if a contract is a lease at the inception of the arrangement. The exercise of lease renewal options are at the Company’s sole discretion and options are recognized when it is reasonably certain the Company will exercise the option. The Company’s leases have remaining terms of less than one year to 15 years. The Company does not have lease agreements with residual value guarantees, sale leaseback terms or material restrictive covenants.

The Company has a sublease with Denton Publishing Company for a remaining term of approximately four years. Additionally, the Company has various subleases with distributors, for distribution center space, with varying remaining lease terms of less than one year to two years and are cancellable with notice by either party. As of March 31, 2019, sublease income is expected to approximate $390 for the remainder of 2019, $341 in 2020, $232 in 2021, $221 in 2022, and $129 in 2023.

Operating lease right-of-use assets and liabilities are recognized at commencement date of lease agreements greater than one year based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term and variable lease costs are expensed as incurred. As of March 31, 2019, the Company does not have any significant additional operating leases that have not yet commenced.

The table below sets forth supplemental Consolidated Balance Sheet information for the Company’s leases.



	Classification	March 31, 2019
Assets
Operating	Operating lease right-of-use assets	$	22,527

Liabilities
Operating
Current	Other accrued expense	$	1,802
Noncurrent	Long-term operating lease liabilities		23,862
Total lease liabilities		$	25,664

Lease Term and Discount Rate
Operating leases
Weighted average remaining lease term (years)			12.2
Weighted average discount rate			7.4	%

The table below sets forth components of lease expense and supplemental cash flow information for the Company’s leases.



	Three Months Ended March 31, 2019
Lease Cost
Operating lease cost	$	1,038
Short-term lease cost		46
Variable lease cost		90
Sublease income		(161)
Total lease cost	$	1,013

Supplemental Cash Flow Information
Cash paid for operating leases included in operating activities	$	998

The table below sets forth the remaining maturities of the Company’s lease liabilities as of March 31, 2019.



Years Ending December 31,	Operating Leases
2019	$	2,700
2020		3,480
2021		3,450
2022		3,398
2023		2,986
Thereafter		24,506
Total lease payments		40,520
Less: imputed interest		14,856
Total lease liabilities	$	25,664

The table below sets forth the future minimum obligations for operating leases in effect as of December 31, 2018, as determined prior to the adoption of ASU 2016-02. Total operating lease expense was $4,688 for the year ended December 31, 2018.



		Total		2019		2020		2021		2022		2023		Thereafter
Operating lease commitments	$	41,837	$	4,403	$	3,588	$	3,575	$	3,467	$	3,533	$	23,271