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Leases | 9 Months Ended
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Sep. 30, 2019
Leases [Abstract] |
Leases | 8. Leases In February 2016 the FASB amended its ASC and created a new Topic 842, Leases. The final guidance requires lessees to recognize a right-of-use asset and a lease liability for all long-term leases at the commencement date and recognize expenses on their statements of income similar to the former Topic 840, Leases. It is effective for fiscal years and interim periods beginning after December 15, 2018 and early adoption was permitted. We adopted ASC 842, Leases effective January 1, 2019 using the modified retrospective approach, which allows application of the standard at the adoption date rather than at the beginning of the earliest comparative period presented. Therefore, no changes have been made to the 2018 financial statements. The adoption of this standard resulted in the recognition of operating lease liability with a net present value of $22.7 million, and corresponding right-of-use assets obtained in the same amount, at January 1, 2019. The leases were recognized with a weighted average discount rate of 5.5% and a weighted average remaining lease term of six years. In addition, deferred rent obligations of approximately $2.4 million recognized under prior lease rules were offset against the corresponding right-of-use asset and will be reflected in amortization over the remaining life of the lease. Our leases had remaining lease terms of one year up to 11 years, some of which had options to extend the leases for up to 29 years and one lease contained a termination option with a two year notice requirement. The adoption of the new leasing standard had no significant impact on covenants or other provisions of our current term and revolver loan facility agreements. We exercised judgment in the adoption of the new leasing standard, including the determination of whether a financial arrangement includes a lease and in determining the appropriate discount rates to be applied to leases based on our general collateralized credit standing and the geographical market considerations impacting lease rates across all locations. When available, we used the implicit discount rate in the lease contract to discount lease payments to present value. If an implicit discount rate was not available in the lease contract, we used our incremental borrowing rate. We elected the package of practical expedients permitted under the transition guidance of the new leasing standard which includes a provision that allows us to carry forward the historical lease classification of identified leasing arrangements and not reassess (i) classification for any existing leases, (ii) whether any expired or existing agreements are or contain a lease, or (iii) whether any initial direct costs qualified for capitalization. We have also elected the practical expedients that allow us to omit leases with initial terms of 12 months or less from our balance sheet, which are expensed on a straight-line basis over the life of the lease. We have elected not to separate lease and non-lease components for future leases. Our operating and finance lease liabilities result from the lease of land and buildings that comprise our corporate headquarters, various manufacturing facilities and related space, leases on company vehicles, and leases on a variety of office and other equipment. Our leases do not include terms or conditions which would result in variable lease payments other than for small office equipment leases with an additional charge for volume of usage. These incremental payments are excluded from our calculation of lease liability and the related right-of-use asset. We do not include option terms in the determination of lease liabilities and the related right-of-use assets until we determine the exercise of the option is reasonably certain. Our leases do not contain residual value guarantee provisions or other restrictions or financial covenant provisions. On March 8, 2019 we executed a modification to extend the lease of our On-X manufacturing facilities. This modification resulted in an increase in the net present value and corresponding right-of-use asset of $3.7 million, using a discount rate of 5.83%. We have not executed any material lease arrangements which have not commenced. We do not have any related party leasing arrangements. We sublease, on an operating lease basis, two unused office space facilities near our corporate office. Total annual rental income for these facilities is approximately $910,000. Supplemental consolidated balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):
Operating leases: | September 30, 2019
Operating lease right-of-use assets | $ | 25,576
Accumulated amortization | (3,735)
Operating lease right-of-use assets, net | $ | 21,841
Current maturities of operating leases | $ | 5,270
Non-current maturities of operating lease | 18,046
Total operating lease liabilities | $ | 23,316
Finance leases: |
Property and equipment, at cost | $ | 6,750
Accumulated amortization | (1,079)
Property and equipment, net | $ | 5,671
Current maturities of finance leases | $ | 636
Non-current maturities of finance leases | 5,144
Total finance lease liabilities | $ | 5,780
Weighted average remaining lease term (in years): |
Operating leases | 5.7
Finance leases | 11
Weighted average discount rate: |
Operating leases | 5.4%
Finance leases | 2.0%
Current maturities of finance leases are included as a component of Accrued Expenses and Other and non-current maturities of finance leases are included as a component of Other Long-Term Liabilities on our Summary Consolidated Balance Sheets. A summary of lease expenses for our finance and operating leases included in General, Administrative, and Marketing Expenses on our Summary Consolidated Statements of Operations and Comprehensive (Loss) Income are as follows (in thousands):
| Three Months Ended |  | Nine Months Ended
| September 30, 2019 |  | September 30, 2019
Amortization of property and equipment | $ | 188 |  | $ | 608
Interest expense on finance leases |  | 30 |  |  | 93
Total finance lease expense |  | 218 |  |  | 701
Operating lease expense |  | 1,717 |  |  | 4,870
Sublease income |  | (227) |  |  | (679)
Total lease expense | $ | 1,708 |  | $ | 4,892
A summary of our supplemental cash flow information is as follows (in thousands):
| Nine Months Ended
Cash paid for amounts included in the measurement of lease liabilities: | September 30, 2019
Operating cash flows for finance leases | $ | 91
Operating cash flows for operating leases |  | 5,004
Financing cash flows for finance leases |  | 561
Future minimum lease payments and sublease rental income are as follows (in thousands):
| Finance |  | Operating |  | Sublease
| Leases |  | Leases |  | Income
Remainder of 2019 | $ | 256 |  | $ | 1,347 |  | $ | 227
2020 |  | 554 |  |  | 6,632 |  |  | 921
2021 |  | 609 |  |  | 5,908 |  |  | 930
2022 |  | 557 |  |  | 3,459 |  |  | 316
2023 |  | 557 |  |  | 2,300 |  |  | --
Thereafter |  | 3,900 |  |  | 7,228 |  |  | --
Total minimum lease payments | $ | 6,433 |  | $ | 26,874 |  | $ | 2,394
Less amount representing interest |  | (653) |  |  | (3,558) |  |  |
Present value of net minimum lease payments |  | 5,780 |  |  | 23,316 |  |  |
Less current maturities |  | (636) |  |  | (5,270) |  |  |
Lease liabilities, less current maturities | $ | 5,144 |  | $ | 18,046 |  |  |

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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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