LEASES

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

LEASES

LEASES

The Company has both real estate leases and equipment leases. The main types of equipment leases include forklifts, trailers, printers and copiers, railcars, and trucks. Leases are categorized as either operating leases or finance leases. As a result of electing the practical expedient within ASU 2016-02, variable lease payments are combined and recognized on the balance sheet in the event that those charges and any related increases are explicitly stated in the lease. Such payments include common area maintenance charges, property taxes, and insurance charges and are recorded in the right of use asset and corresponding liability when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an index or rate. Due to the acquisitive nature of the Company and the potential for synergies upon integration of acquired entities, the Company determined that the reasonably certain criterion could not be met for any renewal periods beginning two years from March 31, 2022. In addition, the Company has historically not been exercising purchase options with equipment leases as it does not make economic sense to buy the leased equipment. Instead, the Company has historically replaced the leased equipment with a newly leased equipment. Therefore, the Company determined that the reasonably certain criterion could not be met as it relates to purchase options. The Company has no residual value guarantees in lease transactions.

The Company did not identify any embedded leases. As indicated above, the Company elected the practical expedient to combine lease and non-lease components and recognizes the combined amount on the consolidated balance sheet. Management determined that since the Company has a centralized treasury function, the parent company would either fund or guarantee a subsidiary's loan for borrowing over a similar term. As such, the Company's management determined it is appropriate to utilize a corporate based borrowing rate for all locations. The Company developed four tranches of leases based on lease terms and these tranches reflect the composition of the current lease portfolio. The Company's borrowing history shows that interest rates of a term loan or a line of credit depend on the duration of the loan rather than the nature of the assets purchased by those funds. Based on this understanding, the Company elected to use a portfolio approach to discount rates, applying corporate rates to the tranches of leases based on lease terms. Based on the Company's risk rating, the company applied the following discount rates for new leases entered into during 2022: (1) 1-2 years, 1.45% (2) 3-4 years, 2.04% (3) 5-9 years, 2.38% and (4) 10+ years, 3.10%.

In connection with the acquisition of Zumbro, the Company assumed a finance lease commitment for a warehouse, with an expiration date of March 31, 2033. The warehouse can be purchased at a pre-determined price beginning in 2023.

Right of use assets and lease liabilities at March 31, 2022 and December 31, 2021 are summarized as follows:

Right of use assets	March 31, 2022		December 31, 2021
Operating leases	$	6,901	$	6,929
Finance leases	2,308		2,359
Total	$	9,209	$	9,288

Lease liabilities - current	March 31, 2022		December 31, 2021
Operating leases	$	2,194	$	2,194
Finance leases	169		167
Total	$	2,363	$	2,361

Lease liabilities - non-current	March 31, 2022		December 31, 2021
Operating leases	$	4,730	$	4,811
Finance leases	2,260		2,303
Total	$	6,990	$	7,114

For the three months ended March 31, 2022 and 2021, the Company's total lease costs were as follows, which included both amounts recognized in profits or losses during the period and amounts capitalized on the balance sheet, and the cash flows arising from lease transactions:

	Three Months Ended March 31,
	2022			2021
Lease Cost
Operating lease cost	$	781		$	716
Finance Lease cost
Amortization of ROU asset	52			52
Interest on lease liabilities	31			33
Total finance lease cost	$	83		$	85
Total lease cost	$	864		$	801
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	801		$	739
Operating cash flows from finance leases	31			33
Financing cash flows from finance leases	41			39
	$	873		$	811
ROU assets obtained in exchange for new operating lease liabilities, net of ROU assets disposals	$	662		$	1,036
Weighted-average remaining lease term - operating leases	4.03 years			4.14 years
Weighted-average remaining lease term - finance leases	11.16 years			12.00 years
Weighted-average discount rate - operating leases	3.3		%	4.2		%
Weighted-average discount rate - finance leases	5.1		%	5.1		%

Rent expense charged to operations under operating lease agreements for the three months ended March 31, 2022 and 2021 aggregated approximately $781 and $716, respectively.

LEASES

LEASES

The Company has both real estate leases and equipment leases. The main types of equipment leases include forklifts, trailers, printers and copiers, railcars, and trucks. Leases are categorized as either operating leases or finance leases. As a result of electing the practical expedient within ASU 2016-02, variable lease payments are combined and recognized on the balance sheet in the event that those charges and any related increases are explicitly stated in the lease. Such payments include common area maintenance charges, property taxes, and insurance charges and are recorded in the right of use asset and corresponding liability when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an index or rate. Due to the acquisitive nature of the Company and the potential for synergies upon integration of acquired entities, the Company determined that the reasonably certain criterion could not be met for any renewal periods beginning two years from March 31, 2022. In addition, the Company has historically not been exercising purchase options with equipment leases as it does not make economic sense to buy the leased equipment. Instead, the Company has historically replaced the leased equipment with a newly leased equipment. Therefore, the Company determined that the reasonably certain criterion could not be met as it relates to purchase options. The Company has no residual value guarantees in lease transactions.

The Company did not identify any embedded leases. As indicated above, the Company elected the practical expedient to combine lease and non-lease components and recognizes the combined amount on the consolidated balance sheet. Management determined that since the Company has a centralized treasury function, the parent company would either fund or guarantee a subsidiary's loan for borrowing over a similar term. As such, the Company's management determined it is appropriate to utilize a corporate based borrowing rate for all locations. The Company developed four tranches of leases based on lease terms and these tranches reflect the composition of the current lease portfolio. The Company's borrowing history shows that interest rates of a term loan or a line of credit depend on the duration of the loan rather than the nature of the assets purchased by those funds. Based on this understanding, the Company elected to use a portfolio approach to discount rates, applying corporate rates to the tranches of leases based on lease terms. Based on the Company's risk rating, the company applied the following discount rates for new leases entered into during 2022: (1) 1-2 years, 1.45% (2) 3-4 years, 2.04% (3) 5-9 years, 2.38% and (4) 10+ years, 3.10%.

In connection with the acquisition of Zumbro, the Company assumed a finance lease commitment for a warehouse, with an expiration date of March 31, 2033. The warehouse can be purchased at a pre-determined price beginning in 2023.

Right of use assets and lease liabilities at March 31, 2022 and December 31, 2021 are summarized as follows:

Right of use assets	March 31, 2022		December 31, 2021
Operating leases	$	6,901	$	6,929
Finance leases	2,308		2,359
Total	$	9,209	$	9,288

Lease liabilities - current	March 31, 2022		December 31, 2021
Operating leases	$	2,194	$	2,194
Finance leases	169		167
Total	$	2,363	$	2,361

Lease liabilities - non-current	March 31, 2022		December 31, 2021
Operating leases	$	4,730	$	4,811
Finance leases	2,260		2,303
Total	$	6,990	$	7,114

For the three months ended March 31, 2022 and 2021, the Company's total lease costs were as follows, which included both amounts recognized in profits or losses during the period and amounts capitalized on the balance sheet, and the cash flows arising from lease transactions:

	Three Months Ended March 31,
	2022			2021
Lease Cost
Operating lease cost	$	781		$	716
Finance Lease cost
Amortization of ROU asset	52			52
Interest on lease liabilities	31			33
Total finance lease cost	$	83		$	85
Total lease cost	$	864		$	801
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	801		$	739
Operating cash flows from finance leases	31			33
Financing cash flows from finance leases	41			39
	$	873		$	811
ROU assets obtained in exchange for new operating lease liabilities, net of ROU assets disposals	$	662		$	1,036
Weighted-average remaining lease term - operating leases	4.03 years			4.14 years
Weighted-average remaining lease term - finance leases	11.16 years			12.00 years
Weighted-average discount rate - operating leases	3.3		%	4.2		%
Weighted-average discount rate - finance leases	5.1		%	5.1		%

Rent expense charged to operations under operating lease agreements for the three months ended March 31, 2022 and 2021 aggregated approximately $781 and $716, respectively.