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Note 11 - Leases | 3 Months Ended
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Mar. 31, 2019
Notes to Financial Statements |
Lessee, Operating Leases [Text Block] |
11. | Leases
The Company is a lessee under certain operating leases for office space and equipment. Prior to adopting ASC 842, SPAR followed the lease accounting guidance as issued in ASC 840. Under ASC 840, SPAR classified its leases as operating or capital leases based on evaluation of certain criteria of the lease agreement. For leases that contained rent escalations or rent holidays, ASC 840 requires that total rent expense during the lease term be recorded on a straight-line basis over the term of the lease and record the difference between the rents paid and the straight-line rent expense as deferred rent on the balance sheet. Any tenant improvement allowances received from the lessor would also be recorded as a reduction to rent expense over the term of the lease. ASC 842 requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding ROU, subject to certain permitted accounting policy elections. Under ASC 842, SPAR determines, at the inception of the contract, whether the contract is or contains a lease based on whether the contract provides SPAR the right to control the use of a physically distinct asset or substantially all of the capacity of an asset. Many of SPAR's equipment leases are short-term or cancellable with notice. SPAR’s office space leases have remaining lease terms between one and approximately eleven years, many of which include one or more options to extend the term for periods thereafter. Certain leases contain options to terminate the lease early, which may include a penalty for exercising the option. Many of the termination options require notice within a specified period, after which the option is no longer available to SPAR if not exercised. The extension options and termination options may be exercised at SPAR’s sole discretion. SPAR does not consider in the measurement of ROU assets and lease liabilities an option to extend or terminate a lease if SPAR is not reasonably certain to exercise the option. As of March 31, 2019, SPAR has not included any options to extend or terminate in its measurement of ROU assets or lease liabilities. The reported results for Q1 2019 reflect the application of ASC 842 guidance, whereas comparative periods and their respective disclosures prior to the adoption of ASC 842 are presented using the legacy guidance of ASC 840. As a result of adopting the new standard, SPAR recognized ROU assets and liability of $5.7 million. There was no adjustment to deferred taxes as a result of SPAR’s adoption of ASC 842. The adoption of ASC 842 did not have a material impact on SPAR’s results of operations or cash flows, nor did it have an impact on any of SPAR's existing debt covenants. Certain of SPAR’s leases include covenants that oblige SPAR, at its sole expense, to repair and maintain the leased asset periodically during the lease term. SPAR is not a party to any leases that contain residual value guarantees nor is SPAR a party to any leases that provide an option to purchase the underlying asset. Many of SPAR's office space leases include fixed and variable payments. Variable payments relate to real estate taxes, insurance, operating expenses, and common area maintenance, which are usually billed at actual amounts incurred proportionate to SPAR's rented square feet of the building. Variable payments that do not depend on an index or rate are expensed by SPAR as they are incurred and are not included in the measurement of the lease liability. Some of SPAR's leases contain both lease and non-lease components. Fixed and variable payments are allocated to each component relative to observable or estimated standalone prices. SPAR measures its variable lease costs as the portion of variable payments that are allocated to lease components. SPAR measures its lease liability for each leased asset as the present value of lease payments, as defined in ASC 842, allocated to the lease component, discounted using an incremental borrowing rate specific to the underlying asset. SPAR's ROU assets are equal to the lease liability, SPAR estimates its incremental borrowing rate based on the interest rate SPAR would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment. The components of SPAR's lease expenses for the fiscal quarter ended March 31, 2019, which are included in the condensed consolidated income statement, are as follows (in thousands):
Lease Costs |  | Classification |  | March 31, 2019 |
Operating lease cost |  | Selling, General and Administrative Expense |  | $ | 532 |
Short-term lease cost |  | Selling, General and Administrative Expense |  |  | 29 |
Variable costs |  | Selling, General and Administrative Expense |  |  | 290 |
Total lease cost |  | $ | 851 |
Supplemental cash flow information related to SPAR’s leases for the fiscal quarter ended March 31, 2019 is as follows (in thousands):
|  | March 3 1 , 2019 |
Cash paid for amounts included in the measurement of lease liabilities |  |  |  |
Operating cash flows from operating leases |  | $ | 509 |
Right-of-use assets obtained in exchange for lease obligations |  |  |  |
Operating leases |  | $ | 5,736 | (a)
| (a) | Amounts for the three months ended March 31, 2019 include the transition adjustment for the adoption of ASU 2016 - 02 discussed in Note 10.
The following table presents supplemental balance sheet information related to SPAR's operating leases as of March 31, 2019 ( in thousands):
Leases |  | March 31, 2019 |
Assets: |  |  |  |
Operating lease right-of-use assets |  | $ | 5,328 |
Liabilities: |  |  |  |
Current portion of operating lease liabilities |  | $ | 1,400 |
Non-current portion of operating lease liabilities |  |  | 3,928 |
Total operating lease liabilities |  | $ | 5,328 |
Weighted average remaining lease term—operating leases (in years) |  |  | 2.1 |
Weighted average discount rate—operating leases |  |  | 8.9 | %
At March 31, 2019, SPAR had the following maturities of lease liabilities related to office space and equipment, all of which are under non-cancellable operating leases (in thousands):
Period Ending March 31, |  | Amount |
2019 |  | $ | 1,336 |
2020 |  |  | 2,682 |
2021 |  |  | 878 |
2022 |  |  | 987 |
2023 |  |  | 78 |
Thereafter |  |  | - |
Total lease payments |  |  | 5,961 |
Less: imputed interest |  |  | (633 | )
Total |  | $ | 5,328 |
As previously disclosed in the Company’s Annual Report on Form 10 -K/A for the year ended December 31, 2018 and under the previous lease accounting standard, ASC 840, Leases, the following table summarizes the future minimum lease payments due under operating leases as of December 31, 2018 ( in thousands):
Year |  | Amount |
2019 |  | $ | 1,946 |
2020 |  |  | 1,428 |
2021 |  |  | 945 |
2022 |  |  | 682 |
2023 |  |  | 340 |
Total |  | $ | 5,341 |

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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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