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LEASES

9 Months Ended

Sep. 30, 2019

14. LEASES

The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019 and recognized leases with duration greater than 12 months on the balance sheet using the modified retrospective approach. Prior year financial statements have not been restated and therefore those amounts are not presented below. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed for a carry-forward of the historical lease classification. For leases with terms greater than 12 months, the Company has recorded the related ROU asset and liability at the present value of lease payments over the term. A few of the leases include rental escalation clauses or renewal options and they have been factored into the determination of lease payments when appropriate. There are no residual value guarantees on the existing leases. The Company estimates its incremental borrowing rate, at lease commencement, to determine the present value of lease payments, since most of the Company’s leases do not provide an implicit rate of return. ROU assets exclude lessor incentives received.

The Company’s lease population consists primarily of real estate including its corporate headquarters, office space and warehouses, in addition to vehicles, railcars, storage containers and office equipment. The Company does not have any finance leases. The Company has a significant population of month-to-month real estate leases that have been classified as short-term leases, and therefore has not recognized a ROU asset or lease liability related to them. The Company determines at contract inception, if an arrangement is a lease or contains a lease based on whether the Company obtains the right to control the use of specifically identifiable property, plant and equipment for a period of time in exchange for consideration. The Company has elected not to separate non-lease components from lease components for its leases. Variable lease payments relate primarily to taxes and insurance on real estate contracts and are recognized as expense when incurred.

The Company subleases certain real estate to third parties. Our sublease portfolio consists solely of operating leases. As of September 30, 2019, the Company had no operating leases that had not yet commenced. During the nine months ended September 30, 2019, the Company entered into new leases or modified existing leases that resulted in an increase of ROU assets in exchange for operating lease liabilities as disclosed below.

Lease position:

The table below presents the assets and liabilities related to operating leases recorded on the balance sheet:


(in thousands)	Classification on the Consolidated Balance Sheet	September 30, 2019
Assets:
Operating lease assets	Operating lease right-of-use assets	$	35,556

Liabilities:
Current – operating leases	Current portion of operating leases	$	11,066
Non-current – operating leases	Long-term operating lease liabilities		30,165
Total lease liabilities		$	41,231

During the quarter ended September 30, 2019, the Company recorded an impairment totaling $4.6 million representing the acceleration of depreciation on the remaining balance of the ROU assets related to leased real estate locations that have been abandoned. The Company has not terminated these leases and continues to carry the present value of lease liability related to these payments.

Lease costs:

The components of lease expense for the period are reported as follows:


	Classification on the Consolidated	Three months ended		Nine months ended
(in thousands)	Statements of Operations	September 30, 2019		September 30, 2019
Operating lease cost	Cost of revenues	$	1,777		5,649
Short-term lease cost	Cost of revenues		932		3,325
Variable lease cost	Cost of revenues		2		3
Operating lease cost	Selling, general and administrative expenses	$	1,839		5,845
Short-term lease cost	Selling, general and administrative expenses		593		2,116
Variable lease cost	Selling, general and administrative expenses		336		391
Sublease income	Selling, general and administrative expenses		(18)		(54)
Total lease cost		$	5,461		17,275


Other information:
Cash paid for amounts included in the measurement of lease liabilities – operating leases (in thousands)	$	10,291
ROU assets obtained in exchange for operating lease liabilities (in thousands)	$	7,207
Weighted average remaining lease term – operating leases		5.4	years
Weighted average discount rate – operating leases		3.74	%


	Operating
Maturity of lease liabilities (in thousands)	Leases
2019 (excluding the nine months ended September 30, 2019)	$	3,371
2020		11,770
2021		9,385
2022		6,369
2023		3,914
Thereafter		10,886
Total lease payments		45,695
Less: Amounts representing interest		(4,464)
Present value of lease liabilities	$	41,231