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Leases | 12 Months Ended
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Dec. 31, 2019
Leases [Abstract] |
Leases | Note 9 – Leases We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations. We also reviewed other contracts, such as manufacturing agreements and service agreements, for potential embedded leases. We specifically reviewed these other contracts to determine whether we have the right to substantially all of the economic benefit from the use of any specified assets or the right to direct the use of any specified assets, either of which would indicate the existence of a lease. As of December 31, 2019, our operating leases had remaining lease terms of one month to six years, some of which included options to extend the leases for up to nine years, and some of which included options to terminate the leases within three months. For those leases that are reasonably assured to be renewed, we have included the option to extend as part of our right of use asset and lease liability. Leases with an initial term of 12 months or less were not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. Lease expense related to these short-term leases was $0.4 million for the twelve months ended December 31, 2019, and is included in cost of sales, selling, general and administrative expenses and research and development expenses in the Consolidated Statements of Income. Lease expense related to variable lease payments that do not depend on an index or rate, such as real estate taxes and insurance reimbursements, was $0.9 million for the twelve months ended December 31, 2019. For lease agreements entered into or reassessed after the adoption of Topic 842, we elected to not separate lease and nonlease components. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Supplemental balance sheet information related to operating leases is as follows:
|  |  |  | December 31, |  |  | January 1, |
(In thousands) |  | Classification |  | 2019 |  |  | 2019 (1) |
Assets |  |  |  |  |  |  |  |  |  |
Right of use lease assets |  | Other assets |  | $ | 8,452 |  |  | $ | 10,322 |
Total lease asset |  |  |  | $ | 8,452 |  |  | $ | 10,322 |
Liabilities |  |  |  |  |  |  |  |  |  |
Current lease liability |  | Accrued expenses |  | $ | 2,676 |  |  | $ | 2,948 |
Non-current lease liability |  | Other non-current liabilities |  |  | 5,818 |  |  |  | 7,374 |
Total lease liability |  |  |  | $ | 8,494 |  |  | $ | 10,322 |
(1) | Reflects the adoption of the new lease accounting standard on January 1, 2019.
The components of lease expense included in the Consolidated Statements of Income for the twelve months ended December 31, 2019 were as follows:
|  | For the Year Ended December 31, |
(In thousands) |  | 2019 |
Research and development expenses |  | $ | 2,417 |
Selling, general and administrative expenses |  |  | 1,400 |
Cost of sales |  |  | 64 |
Total operating lease expense |  | $ | 3,881 |
As of December 31, 2019, operating lease liabilities included on the Consolidated Balance Sheet by future maturity were as follows:
(In thousands) |  | Amount |
2020 |  | $ | 2,856 |
2021 |  |  | 2,412 |
2022 |  |  | 1,705 |
2023 |  |  | 1,160 |
2024 |  |  | 482 |
Thereafter |  |  | 264 |
Total lease payments |  |  | 8,879 |
Less: Interest |  |  | (385 | )
Present value of lease liabilities |  | $ | 8,494 |
Future operating lease payments include $0.7 million related to options to extend lease terms that are reasonably certain of being exercised. There are no legally binding leases that have not yet commenced. As of December 31, 2018, future minimum rental payments under non-cancelable operating leases, including renewals determined to be reasonably assured as of December 31, 2018, with original maturities of greater than 12 months, were as follows:
(In thousands) |  | Amount (1) |
2019 |  | $ | 3,873 |
2020 |  |  | 3,580 |
2021 |  |  | 2,771 |
2022 |  |  | 2,053 |
2023 |  |  | 1,317 |
Thereafter |  |  | 762 |
Total |  | $ | 14,356 |
| (1) | Certain renewal options were subsequently determined to not be reasonably assured of renewal upon the Company’s adoption of the new lease accounting standard on January 1, 2019.
Our leases do not provide an implicit rate and therefore we use an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We used the incremental borrowing rate on January 1, 2019, for operating leases that commenced on or prior to that date. The incremental borrowing rate was determined on a portfolio basis by grouping leases with similar terms as well as grouping leases based on a U.S. dollar or Euro functional currency. The actual rate was then determined based on a credit spread over LIBOR as well as the Bloomberg Curve Matrix for the U.S. Communications section. The following table provides information about our weighted average lease terms and weighted average discount rates as of December 31, 2019:
|  | As of December 31, |
|  | 2019 |
Weighted average remaining lease term (years) |  |  |  |
Operating leases with USD functional currency |  |  | 2.6 |
Operating leases with Euro functional currency |  |  | 4.4 |
Weighted average discount rate |  |  |  |
Operating leases with USD functional currency |  |  | 4.02 | %
Operating leases with Euro functional currency |  |  | 1.84 | %
Supplemental cash flow information related to operating leases is as follows:
|  | As of December 31, |
(In thousands) |  | 2019 |
Cash paid for amounts included in the measurement of operating lease assets / liabilities |  |  |  |
Cash used in operating activities related to operating leases |  | $ | 3,439 |
Right-of-use assets obtained in exchange for lease obligations |  | $ | 11,615 |
Sales-Type Leases We are the lessor in sales-type lease arrangements for network equipment, which have initial terms of up to five years. Our sales-type lease arrangements contain either a provision whereby the network equipment reverts back to us upon the expiration of the lease or a provision that allows the lessee to purchase the network equipment at a bargain purchase amount at the end of the lease. In addition, our sales-type lease arrangements do not contain any residual value guarantees or material restrictive covenants. The allocation of the consideration between lease and nonlease components is determined by stand-alone selling price by component. The net investment in sales-type leases consists of lease receivables less unearned income. Collectability of sales-type leases is evaluated periodically at an individual customer level. The Company has elected to exclude taxes related to sales-type leases from revenue and the associated expense of such taxes. As of December 31, 2019 and 2018, we did not have an allowance for credit losses for our net investment in sales-type leases. As of December 31, 2019 and 2018, the components of the net investment in sales-type leases were as follows:
|  | December 31, |  |  | December 31, |
(In thousands) |  | 2019 |  |  | 2018 |
Current minimum lease payments receivable(1) |  | $ | 1,201 |  |  | $ | 11,339 |
Non-current minimum lease payments receivable(2) |  |  | 889 |  |  |  | 1,670 |
Total minimum lease payments receivable |  |  | 2,090 |  |  |  | 13,009 |
Less: Current unearned revenue(1) |  |  | 365 |  |  |  | 631 |
Less: Non-current unearned revenue(2) |  |  | 163 |  |  |  | 473 |
Net investment in sales-type leases |  | $ | 1,562 |  |  | $ | 11,905 |
| (1) | Included in other receivables on the Consolidated Balance Sheet.
| (2) | Included in other assets on the Consolidated Balance Sheet.
The components of sales-type lease gross profit recognized at the lease commencement date and interest and dividend income, included in the Consolidated Statements of Income for the twelve months ended December 31, 2019 were as follows:
(In thousands) |  | For the Year Ended December 31, 2019 |
Sales - Network Solutions |  | $ | 1,723 |
Cost of sales - Network Solutions |  |  | 675 |
Gross profit |  | $ | 1,048 |
Interest and dividend income |  | $ | 357 |
As of December 31, 2019 future minimum lease payments to be received from sales-type leases were as follows:
(In thousands) |  | Amount |
2020 |  | $ | 1,201 |
2021 |  |  | 565 |
2022 |  |  | 232 |
2023 |  |  | 86 |
2024 |  |  | 6 |
Total |  | $ | 2,090 |

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