Leases and Commitments (Notes)

3 Months Ended

Mar. 31, 2020

Leases of Lessee Disclosure [Text Block]

Leases and Commitments

The company reviews new contracts in accordance with ASU 2016-02, "Leases" to determine if the contracts include a lease. To the extent a lease agreement includes an extension option that is reasonably certain to be exercised, the company has recognized those amounts as part of the right-of-use assets and lease liabilities. The company combines lease and non-lease components, such as common area maintenance, in the calculation of the lease assets and related liabilities. As most lease agreements do not provide an implicit rate, the company uses an incremental borrowing rate (IBR) based on information available at commencement date in determining the present value of lease payments and to help classify the lease as operating or financing. The company calculates its IBR based on the secured rates of the company's recent debt issuances, the credit rating of the company, changes in currencies, lease repayment timing as well as other publicly available data.

The company leases a portion of its facilities, transportation equipment, data processing equipment and certain other equipment. These leases have terms from 1 to 20 years and provide for renewal options. Generally, the company is required to pay taxes and normal expenses associated with operating the facilities and equipment. As of March 31, 2020, the company is committed under non-cancelable operating leases, which have initial or remaining terms in excess of one year and expire on various dates through 2035.

On April 23, 2015, the company sold and leased back, under four separate lease agreements, four properties located in Ohio and one property in Florida for net proceeds of $23,000,000, which were used to reduce debt under the U.S. and Canadian Credit Facility. The initial total annual rent for the properties was $2,275,000 and can increase annually over the 20-year term of the leases based on the applicable geographical consumer price index (CPI). Each of the four lease agreements contains three 10-year renewals with the rent for each option term based on the greater of the then-current fair market rent for each property or the then- current rate and increasing annually by the applicable CPI. Under the terms of the lease agreements, the company is responsible for all taxes, insurance and utilities. The company is permitted to sublet the properties; however, the properties are currently being utilized exclusively by the company and there is no current subletting. The company is required to adequately maintain each of the properties and any leasehold improvements will be amortized over the lesser of the lives of the improvements or the remaining lease lives, consistent with any other company leases.

In connection with the transaction, the requirements for sale lease-back accounting were met. Accordingly, the company recorded the sale of the properties, removed the related property and equipment from the company's balance sheet, recognized an initial deferred gain of $7,414,000 and an immediate loss of $257,000 related to one property and recorded new lease liabilities. Specifically, the company recorded four capital leases totaling $32,339,000 and one operating lease related to leased land, which was not a material component of the transaction. The gains on the sales of the properties were required to be deferred and recognized over the life of the leases as the property sold is being leased back. The deferred gain is classified under Other Long-Term Obligations on the Consolidated Balance Sheet. The gains realized were $75,000 for the three months ended March 31, 2020, respectively, compared to $73,000 for the three months ended March 31, 2019, respectively.

In December 2018, the company entered into a 20-year lease agreement in Germany. The lease is not expected to commence until July 2020.

Lease expenses for the three months ended March 31, 2020 and March 31, 2019, respectively, were as follows (in thousands):



	For the Three Months Ended March 31,
	2020		2019
Operating leases	$	2,243	$	2,409
Variable and short-term leases	921		614
Total operating leases	$	3,164	$	3,023

Finance lease interest cost	$	328	$	311
Finance lease depreciation	703		609
Total finance leases	$	1,031	$	920

Future minimum operating and finance lease commitments, as of March 31, 2020, are as follows (in thousands):



	Finance Leases			Operating Leases
2020	$	2,811		$	6,135
2021	3,517			6,474
2022	2,530			4,012
2023	2,477			1,482
2024	2,458			1,103
Thereafter	25,054			1,088
Total future minimum lease payments	38,847			20,294
Amounts representing interest	(10,503		)	(4,780		)
Present value of minimum lease payments	28,344			15,514
Less: current maturities of lease obligations	(2,466		)	(6,307		)
Long-term lease obligations	$	25,878		$	9,207

Supplemental cash flow amounts for the three months ended March 31, 2020 were as follows (in thousands):



Cash Activity: Cash paid in measurement of amounts for lease liabilities	March 31, 2020
Operating Leases	$	3,240
Financing Leases	972
Total	$	4,212

Non-Cash Activity: Right-of-use assets obtained in exchange for lease obligations	March 31, 2020
Operating Leases	$	19
Financing Leases	935
Total	$	954

Weighted-average remaining lease terms and discount rates for finance and operating leases are as follows as of March 31, 2020:



	March 31, 2020
Weighted-average remaining lease term - finance leases	14.1 years
Weighted-average remaining lease term - operating leases	3.5 years
Weighted-average discount rate - finance leases	3.88%
Weighted-average discount rate - operating leases	7.66%