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Note 8 - Leases | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Lessee, Operating Leases [Text Block] | 8. Leases The Company adopted ASU 2016-02 and related updates (ASC 842), which replaced previous lease accounting guidance, on January 1, 2019, using the modified retrospective method of adoption. As a result, prior periods have not been restated. ASC 842 requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. Adoption of the standard resulted in the recognition of net lease assets and lease liabilities of $20 million on January 1, 2019. The adoption of the new standard did not have a material effect on the Company’s consolidated statements of income or cash flows. In addition, the adoption did not have a material impact on the Company’s liquidity or the Company’s covenant compliance under its current debt agreements. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows for the carry forward of lease classifications determined under the requirements of ASC Topic 840. The Company also elected the practical expedient related to land easements, allowing for the continuation of historical accounting treatment for land easements on existing agreements at OTP. In addition, the Company has elected the hindsight practical expedient to determine the reasonably certain lease term for leases in place at the time of adoption. The Company has elected the practical expedient to not separate nonlease components from lease components on real estate leases for the purpose of determining the classification and the value of lease assets and lease liabilities at the inception of a lease. The Company enters into leases for coal rail cars, warehouse and office space, land and certain office, manufacturing and material handling equipment under varying terms and conditions. The lengths of the leases vary from less than one year to approximately ten years. If a lease contains an option to extend and there is reasonable certainty the option will be exercised, the option is considered in the lease term at inception. None of these leases met the criteria to be classified as financing leases. Of the operating leases in place on January 1, 2019, 50 were capitalized as right-of-use assets and the remainder were month-to-month leases with no long-term obligations. The right-of-use asset operating leases in place at the time of adoption were capitalized on the basis of their remaining payment obligation balances, discounted to present value based on the Company’s incremental borrowing rates (IBRs) appropriate to the leased asset and lease terms. The remaining payments for operating lease right-of-use assets are being charged to expense on a straight-line basis over the life of the lease. For the Company’s current lease obligations, no explicit interest rates were stated in the lease agreements and no implicit rates could be determined based on the terms of the agreements. Therefore, in all cases, the Company has applied a formula-based IBR appropriate to the individual company, type of lease and lease term. The breakdown of right-of-use assets and lease liabilities as of December 31, 2019 by business segment is provided in the following table.
(in thousands) |  | Electric |  |  | Manufacturing |  |  | Plastics |  |  | Corporate |  |  | Total |
Right of Use Assets – Operating Leases: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross |  | $ | 4,137 |  |  | $ | 20,347 |  |  | $ | 666 |  |  | $ | 769 |  |  | $ | 25,919 |
Accumulated Amortization |  |  | (1,166 | ) |  |  | (2,375 | ) |  |  | (395 | ) |  |  | (132 | ) |  |  | (4,068 | )
Net of Accumulated Amortization |  | $ | 2,971 |  |  | $ | 17,972 |  |  | $ | 271 |  |  | $ | 637 |  |  | $ | 21,851 |
Obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current Operating Lease Liabilities |  | $ | 1,116 |  |  | $ | 2,609 |  |  | $ | 256 |  |  | $ | 155 |  |  | $ | 4,136 |
Long-Term Operating Lease Liabilities |  |  | 2,176 |  |  |  | 15,470 |  |  |  | 15 |  |  |  | 532 |  |  |  | 18,193 |
Total Lease Liabilities |  | $ | 3,292 |  |  | $ | 18,079 |  |  | $ | 271 |  |  | $ | 687 |  |  | $ | 22,329 |
The amounts of the Company’s right-of-use operating lease obligations as of December 31, 2019 for each of the five years in the period 2020 through 2024 and in aggregate for the years beyond 2024 are presented in the following table.
|  | Right-of-Use Operating Leases |
(in thousands) |  | OTP |  |  | Nonelectric |  |  | Total |
2020 |  | $ | 1,243 |  |  | $ | 3,969 |  |  | $ | 5,212 |
2021 |  |  | 1,228 |  |  |  | 3,717 |  |  |  | 4,945 |
2022 |  |  | 326 |  |  |  | 3,588 |  |  |  | 3,914 |
2023 |  |  | 268 |  |  |  | 3,303 |  |  |  | 3,571 |
2024 |  |  | 217 |  |  |  | 2,870 |  |  |  | 3,087 |
Beyond 2024 |  |  | 283 |  |  |  | 5,304 |  |  |  | 5,587 |
Total Minimum Obligations |  | $ | 3,565 |  |  | $ | 22,751 |  |  | $ | 26,316 |
Interest Component of Obligations |  |  | (273 | ) |  |  | (3,714 | ) |  |  | (3,987 | )
Present Value of Minimum Obligations, December 31, 2019 |  | $ | 3,292 |  |  | $ | 19,037 |  |  | $ | 22,329 |
The weighted-average remaining lease term for the Company’s outstanding lease liabilities is 6.0 years and the weighted-average discount rate is 5.3%. A reconciliation of the Company’s operating lease obligations on adoption of ASC Topic 842 on January 1, 2019 and its operating lease obligations on December 31, 2019 is provided in the table below.
(in thousands) |  | OTP |  |  | Nonelectric |  |  | Total |
Operating Lease Obligations, January 1, 2019 |  | $ | 3,609 |  |  | $ | 16,760 |  |  | $ | 20,369 |
Non-cash Acquisition of Right-of-Use Assets |  |  | 758 |  |  |  | 5,560 |  |  |  | 6,318 |
Lease Adjustments/Modifications |  |  | 71 |  |  |  | (187 | ) |  |  | (116 | )
Lease Obligation Payments |  |  | (1,316 | ) |  |  | (4,055 | ) |  |  | (5,371 | )
Interest Component of Lease Obligation Payment |  |  | 170 |  |  |  | 959 |  |  |  | 1,129 |
Operating Lease Obligations, December 31, 2019 |  | $ | 3,292 |  |  | $ | 19,037 |  |  | $ | 22,329 |
The lease modifications in the above table include adjustments in future minimum lease obligations on several units of leased equipment along with reductions for equipment leases terminated prior to the end of the original lease term when the equipment being leased was replaced with new equipment under a new lease. OTP has obligations to make future operating lease payments primarily related to coal rail-car leases. OTP’s rail-car lease payments are charged to fuel inventory and then expensed to production fuel – electric as a component of fuel cost when fuel is burned. OTP also leases office and operating equipment with lease payments charged to rent expense and reported in electric operation and maintenance expenses on the Company’s consolidated statements of income. From time to time, OTP will lease construction equipment or land for lay-down yards for materials used on capital projects. These leases are generally short term in nature with the lease payments being charged to the related construction project and included in CWIP or plant in service after the project is completed and placed in service. The Company’s nonelectric companies have obligations to make future operating lease payments primarily related to leases of buildings and manufacturing equipment. These payments are charged to rent expense accounts and reported in costs of products sold or other nonelectric expenses, as appropriate, on the Company’s consolidated statements of income. The allocation of right-of-use asset and variable lease costs, including non-cash costs related to straight-line amortization of escalating lease payments, for 2019 is presented in the following table.
|  | Operating Lease Cost |  |  | Variable Lease Cost |  |  | Total Lease Cost |
Plant in Service or CWIP |  | $ | 29 |  |  | $ | - |  |  | $ | 29 |
Inventory |  |  | 952 |  |  |  | - |  |  |  | 952 |
Cost of Products Sold |  |  | 3,848 |  |  |  | 1,068 |  |  |  | 4,916 |
Electric Operation and Maintenance Expenses |  |  | 334 |  |  |  | - |  |  |  | 334 |
Other Nonelectric Expenses |  |  | 208 |  |  |  | - |  |  |  | 208 |
Total |  | $ | 5,371 |  |  | $ | 1,068 |  |  | $ | 6,439 |
Prior to adopting ASU 842, the Company recorded operating lease payments primarily related to leases of buildings and manufacturing equipment according to the requirements of ASC 840 – Leases (ASC 840). Under ASC 840, these payments were charged to rent expense accounts and reported in electric operations and maintenance, costs of products sold or other nonelectric expenses, as appropriate, on the Company’s consolidated statements of income. Lease payment expenses including payments for rail car leases totaled $6,273,000 and $6,237,000 in 2018 and 2017, respectively.

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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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