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LEASES

12 Months Ended

Dec. 31, 2019

3. LEASES

The Company leases identified assets comprising real estate and equipment. Real estate leases consist primarily of office and warehouse space and equipment leases consist of vehicles and warehouse equipment. At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. At inception of a lease, the Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately.

Leases are classified as either finance leases or operating leases based on criteria in ASC 842. The Company’s operating leases are comprised of real estate and warehouse equipment, and the Company’s finance leases are comprised of vehicles.

Right-of-use (“ROU”) assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases generally do not provide an implicit rate, the Company uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. ROU assets also include any lease payments made and exclude lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Certain of the Company’s real estate leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at the lease commencement date. Additional payments based on the change in an index or rate, or payments based on a change in the Company’s portion of real estate taxes and insurance, are recorded as a period expense when incurred.

Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term and is included in operating expenses in the consolidated statement of income. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated useful life and is included in operating expenses in the consolidated statement of income. Interest expense on finance leases is calculated using the amortized cost basis and is included in other income, net in the consolidated statement of income.

The Company’s leases have remaining lease terms of less than one year to 14 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. The Company has elected not to recognize ROU assets and lease liabilities for short-term operating leases that have a term of 12 months or less.

The components of lease cost for the year ended December 31, 2019 was as follows:


Operating lease cost	$	4,899

Short-term least cost		3,406

Variable lease cost		640

Finance leases:
Amortization of ROU assets		436
Interest on lease liabilities		56
Finance lease cost		492

Total lease cost	$	9,437

Rent expense under operating lease agreements was $6.1 million and $10.7 million for the years ended December 31, 2018 and 2017, respectively.

Supplemental cash flow information for leases for the year ended December 31, 2019 was as follows:


Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,077
Operating cash flows from finance leases		56
Financing cash flows from finance leases		2,223

ROU assets obtained in exchange for lease obligations:
Finance leases		2,866
Operating leases		34,931

ROU assets for operating and finance leases at December 31, 2019 were comprised of the following:


	Real Estate		Equipment		Total		Balance Sheet Location
Operating leases	$	30,926	$	416	$	31,342	Other Assets
Finance leases		—		2,632		2,632	Property and Equipment, net

The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at December 31, 2019 was as follows:


	Operating Leases		Finance Leases
Weighted-average remaining lease term (years)	10.1		0.6
Weighted-average discount rate	3.1	%	2.9	%

The following table reconciles the undiscounted future lease payments for operating and finance leases to the operating and finance lease liabilities recorded in the consolidated balance sheet at December 31, 2019:


	Undiscounted Future Lease Payments
	Operating Leases		Finance Leases
2020	$	3,661	$	1,500
2021		2,990		—
2022		3,213		—
2023		3,025		—
2024		2,737		—
2025 and thereafter		18,188		—
Total lease payments		33,814		1,500
Less imputed interest		(5,351)		(15)
Total	$	28,463	$	1,485

Accrued liabilities	$	2,812	$	1,485
Other liabilities		25,651		—

As of December 31, 2019, the Company had additional operating leases for office and warehouse space that had not yet commenced of $0.7 million. These operating leases will commence in 2020 with lease terms of three to five years. As of December 31, 2019, the Company did not have any significant additional finance leases that had not yet commenced.

The Company’s future minimum operating lease commitments, as of December 31, 2018, under ASC 840, the predecessor to ASC 842, were as follows:


Year Ending December 31:

2019	$	3,954
2020		2,949
2021		2,410
2022		2,114
2023		1,681
2024 and thereafter		14,860
	$	27,968