Note 6 – Leases

The Company leases certain real estate for commercial, production, and retail purposes, as well as equipment from third parties. Lease expiration dates are between 2019 and 2026. A portion of leases are denominated in foreign currencies.

On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842),” which requires most leases to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective method and used the effective date as our date of initial adoption. Prior year financial statements were not restated under the new standard and, therefore, those amounts are not presented below. For both operating and finance leases, the Company recognizes a right-of-use asset, which represents the right to use the underlying asset for the lease term, and a lease liability, which represents the present value of our obligation to make payments arising over the lease term.

We elected the short-term lease exemption for all leases that qualify. This means leases having an initial term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease.

The Company's leases may include options to extend or terminate the lease. Renewal options generally range from one to ten years and the options to extend are included in the lease term when it is reasonably certain that we will exercise that option. Some leases have variable payments, however, because they are not based on an index or rate, they are not included in the ROU assets and liabilities. Variable payments for real estate leases primarily relate to common area maintenance, insurance, taxes and utilities. Variable payments for equipment, vehicles, and leases within supply agreements primarily relate to usage, repairs, and maintenance. As the implicit rate is not readily determinable for most of the Company's leases, the Company applies a portfolio approach using an estimated incremental borrowing rate, giving consideration to company specific information and publicly available interest rates for instruments with similar characteristics, to determine the initial present value of lease payments over the lease terms.

The effect of the changes made to our consolidated balance sheet as of January 1, 2019 for the adoption of the new lease standard was as follows:


	Balance at		Adjustments due		Balance at
$'s in 000's	December 31, 2018		to ASC 842		January 1, 2019
ASSETS
Property and equipment, net (1)	$	27,335	$	—	$	27,335
Operating lease right-of-use assets		—		10,424		10,424
Other non-current assets		2,857		(116)		2,741

LIABILITIES
Current portion of operating leases	$	—	$	2,921	$	2,921
Operating Leases, less current installments		—		7,644		7,644
Current portion of long-term debt and finance leases(2)		2,251		—		2,251
Finance leases, less current installments		2,319		—		2,319
Other non-current liabilities		524		(257)		267

⁽¹⁾

Finance lease right-of-use assets of $4.5 million are included in property and equipment, net, on the condensed consolidated balance sheets.

⁽²⁾

Current portion of long-term debt and finance leases includes $1.5 million of current portion of finance leases.

In accordance with the new lease standard requirements, the disclosure of the impact of adoption on our consolidated balance sheet was as follows:


		September 30, 2019
			Balance excluding
			the adoption of		Effect of
$'s in 000's	As Reported		ASC 842		change
ASSETS
Property and equipment, net (1)	$	45,815	$	26,303	$	(19,512)
Operating lease right-of-use assets		21,987		—		(21,987)
Other non-current assets		1,966		2,040		74

LIABILITIES
Current portion of operating leases	$	4,745	$	—	$	(4,745)
Operating leases, less current installments		17,561		—		(17,561)
Current portion of long-term debt and finance leases(2)		3,504		3,504		—
Finance leases, less current installments		1,879		1,879		—
Other non-current liabilities		238		494		256

⁽¹⁾

Finance lease right-of-use assets of $3.8 million are included in property and equipment, net, on the condensed consolidated balance sheets.

⁽²⁾

Current portion of long-term debt and finance leases includes $1.2 million of current portion of finance leases.



	Three Months Ended		Nine Months Ended
$'s in 000's	September 30, 2019		September 30, 2019
Finance lease cost
Amortization of right-of-use assets	$	337	$	1,038
Interest on lease liabilities		126		235
Operating lease cost		3,293		5,164
Variable lease cost(1)		208		395
Short-term lease cost		29		48
Total lease cost	$	3,993	$	6,880

⁽¹⁾

Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate.

Other information related to leases was as follows as of:


			September 30, 2019
Weighted-average remaining lease term (years)
Operating leases			5.17
Finance leases			2.54
Weighted-average discount rate
Operating leases			5.2%
Finance leases			5.5%

Annual future commitments under non-cancelable leases as of September 30, 2019, consist of the following:


	Lease Obligations
$'s in 000's	Operating Leases		Finance Leases
Remainder of 2019	$	1,482	$	440
2020		5,911		1,428
2021		4,551		735
2022		4,380		566
2023		4,075		164
Thereafter		5,309		25
Total minimum future obligations	$	25,708	$	3,358
Less interest		(3,402)		(241)
Present value of net future minimum obligations		22,306		3,117
Less current lease obligations		(4,745)		(1,238)
Long-term lease obligations	$	17,561	$	1,879

Supplemental cash flow information:



	Nine Months Ended
$'s in 000's	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	235
Operating cash flows from operating leases		3,110
Financing cash flows from finance leases		1,103
(Noncash) right-of-use assets obtained in exchange for lease obligations
Operating leases		4,648
Finance leases		535

Annual future commitments under non-cancelable leases as of December 31, 2018 under ASC 840 were:


	Lease Obligations
$'s in 000's	Operating Leases		Capital Leases
2019	$	3,318	$	1,615
2020		2,685		1,296
2021		1,894		605
2022		1,765		433
2023		1,478		123
Thereafter		134		—
Total minimum future obligations	$	11,274	$	4,072
Less imputed interest				(298)
Total lease obligations				3,774
Less current obligations				(1,455)
Long-term lease obligations			$	2,319