Leases

6 Months Ended

Jun. 30, 2019

NOTE 7 - LEASES

On January 1, 2019, we adopted ASC 842, “Leases” which, among other changes, requires us to record liabilities classified as operating leases on our Condensed Consolidated Balance Sheets along with a corresponding

right-of-use

asset. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. We elected the package of practical expedients

available for expired or existing contracts, which allowed us to carryforward our historical assessments of whether contracts are or contain leases, lease classification tests and treatment of initial direct costs. We also elected to not separate lease components from

non-lease

components for all fixed payments, and we exclude variable lease payments in the measurement of

right-of-use

assets and lease obligations.

Upon adoption of ASC 842, we recorded a $44.9 million increase in other assets, a $1.4 million decrease to other current assets, a $1.0 million decrease to other current liabilities and a $44.5 million increase to operating lease obligations. These adjustments are the result of assigning a

right-of-use

asset and related lease liability to our operating leases. We did not record any cumulative effect adjustments to opening retained earnings, and adoption of the lease standard had no impact to cash from or used in operating, financing, or investing activities on our consolidated cash flow statements.

We determine if an arrangement is a lease at inception. Most of our operating leases do not provide an implicit rate so we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. We lease various assets in the ordinary course of business as follows: warehouses to store our materials and perform staging activities for certain products we install; various office spaces for selling and administrative activities to support our business; certain manufacturing facilities to produce insulation materials; and certain vehicles and equipment to facilitate our operations, including, but not limited to, trucks, forklifts and office equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term.

Most lease agreements include one or more renewal options, all of which are at our sole discretion. Generally, future renewal options that have not been executed as of the balance sheet date are excluded from

right-of-use

assets and related lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Some of our vehicle lease agreements include provisions for residual value guarantees and any expected payment is included in our lease liability.

Lease Position as of June 30, 2019

The table below presents the lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet:


(in thousands)	Classification	As of June 30, 2019
Assets
Non-Current
Operating	Operating lease right-of-use assets	$	46,383
Finance	Property and equipment, net		8,599

Total lease assets		$	54,982

Liabilities
Current
Operating	Current maturities of operating lease obligations	$	15,028
Financing	Current maturities of finance lease obligations		3,738
Non-Current
Operating	Operating lease obligations		30,964
Financing	Finance lease obligations		3,943

Total lease liabilities		$	53,673


Weighted-average remaining lease term
Operating leases			4.3 years
Finance leases			2.5 years
Weighted-average discount rate (1)
Operating leases			4.95%
Finance leases			4.70%

(1)	Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

Lease Costs

The table below presents certain information related to the lease costs for finance and operating leases during 2019:


(in thousands)	Classification		Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease cost (1)		Administrative	$	5,054	$	10,041
Finance lease cost
Amortization of leased assets (2)		Cost of sales		1,332		2,810
Interest on finance lease obligations		Interest expense, net		90		184

Total lease costs			$	6,476	$	13,035

(1)	Includes variable lease costs of $ 0.5 million and $ 1.0 million, respectively, and short-term lease costs of $ 0.2 million and $ 0.4 million, respectively.

(2)	Includes variable lease costs of $ 0.2 million and $ 0.5 million, respectively.

Other Information

The table below presents supplemental cash flow information related to leases during 2019 (in thousands):


	Three months ended June 30, 2019		Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	4,288	$	8,521
Operating cash flows for finance leases		90		184
Financing cash flows for finance leases		1,116		2,481

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years for the finance lease obligations and operating lease obligations recorded on the Condensed Consolidated Balance Sheet (in thousands):


	As of June 30, 2019
	Related Party		Other		Total Operating			Finance Leases
Remainder of 2019	$	578	$	8,276	$	8,854		$	2,562
2020		1,178		13,610		14,788			2,735
2021		1,033		9,287		10,320			1,765
2022		959		5,374		6,333			831
2023		456		3,537		3,993			452
Thereafter		823		6,186		7,009			79

Total minimum lease payments	$	5,027	$	46,270		51,297			8,424

Less: Amounts representing executory costs						—			(221	)
Less: Amounts representing interest						(5,305	)		(522	)

Present value of future minimum lease payments						45,992			7,681
Less: Current obligation under leases						(15,028	)		(3,738	)

Long-term lease obligations					$	30,964		$	3,943

Disclosures Related to Periods Prior to Adoption of ASC 842 under ASU 2016-02

Lease amounts presented as of December 31, 2018 and for the six months ended June 30, 2018 are in accordance with accounting guidance in effect prior to adoption of ASC 842, “Leases,” on January 1, 2019. Total assets relating to capital leases were approximately $58.7 million and a total of approximately $32.0 million were fully depreciated as of December 31, 2018. The net book value of assets under capital leases was approximately $9.5 million as of December 31, 2018. Amortization of assets held under capital leases is included within cost of sales on the Consolidated Statements of Operations and Comprehensive Income.

Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2018 were as follows (in thousands):


	Capital Leases			Operating Leases
				Related Party		Other		Total Operating
2019	$	5,207		$	1,159	$	14,418	$	15,577
2020		2,253			1,184		11,293		12,477
2021		1,339			1,058		7,014		8,072
2022		452			972		4,335		5,307
2023		93			51		2,613		2,664
Thereafter		—			—		4,695		4,695

		9,344		$	4,424	$	44,368	$	48,792

Less: Amounts representing executory costs		(255	)
Less: Amounts representing interest		(459	)

Total obligation under capital leases		8,630
Less: Current portion of capital leases		(4,806	)

Long term capital lease obligation	$	3,824