Operating Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Operating Leases

14. OPERATING LEASES: 

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The operating lease ROU assets exclude lease incentives. As our leases do not provide an implicit rate, we use our incremental borrowing rate to determine the present value of lease payments. Our leases may include renewal options to extend the lease term, the exercise of which are at our sole discretion. In our accounting treatment of leases, the lease terms used do not include any option to extend the lease, because it is not reasonably certain that we will exercise the option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components (e.g., common-area or other maintenance costs) which are generally accounted for separately and expensed monthly. We do not recognize a ROU asset and lease liability for leases having a term of 12 months or less at the effective date.

We lease a 61,208 square foot mixed-use office and warehouse facility in Golden Valley, Minnesota. The lease has a term of 91 months and expires on July 31, 2026. The lease contains a rent escalation clause, one three year renewal option and incentives. Rental expense, including the effects of lease incentives, is recognized on a straight-line basis over the term of the lease. We are also required to pay insurance, property taxes and other operating expenses related to the leased facility, which are not fixed or tied to an index. 

We lease a 19,805 square foot mixed-use office and warehouse facility in Singapore. The lease expires in July 2020, contains a rent escalation clause and one three year renewal option. We also have operating leases for sales offices in the United Kingdom and China, which expire in May 2023 and November 2020, respectively. We did not enter into any new leases in the nine months ended September 30, 2019.

The components of our costs for operating leases in the three and nine months ended September 30, 2019 are as follows: 

	Three Months Ended		Nine Months Ended
Component (in thousands)	September 30, 2019		September 30, 2019
Operating lease cost	$	179	$	538
Variable lease cost		67	202
Short-term lease cost		2	5
Total	$	248	$	745

Variable lease costs generally consists of real estate taxes and insurance for leased facilities, which are paid based on actual costs incurred by the lessor. 

At September 30, 2019, the future maturities of lease liabilities are as follows: 

Twelve months ending September 30,	(In thousands)
2020	$	801
2021	607
2022	622
2023	638
2024	654
2025 and thereafter	1,242
Total lease payments		4,564
Less: amount representing interest	700
Present value of operating lease liabilities	$	3,864

At September 30, 2019, the weighted average remaining term for our operating leases is 6.24 years, and the weighted average discount rate applied to our operating leases was 5.74%. 

Cash paid for amounts included in the measurement of operating lease liabilities in the nine months ended September 30, 2019 was $389,000. Incentives recorded as leasehold improvements in the nine months ended September 30, 2019 were $783,000.

Because we have not restated prior year information for our adoption of Topic 842, the following presents our future minimum lease payments for operating leases under ASC Topic 840. These amounts include common-area or other maintenance costs under ASC Topic 840 (which was replaced by Topic 842). At December 31, 2018, the future minimum lease payments required under noncancelable operating lease agreements were as follows:

Year ending December 31,	(In thousands)
2019	$	1,095
2020	1,298
2021	1,049
2022	1,064
2023	1,080
2024 & Thereafter	3,049
Total	$	8,635