Note 7 - Leases

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Lessee, Operating and Financing Leases [Text Block]

Note

7

. Leases

In

February 2016,

the FASB issued ASU

2016

-

02.

The new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. In accordance with ASU

2016

-

02,

leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. On

January 1, 2019,

the Company adopted ASU

2016

-

02

under the modified retrospective method with the available practical expedients.

Operating Leases

Avalon leases golf carts, machinery and equipment for the landfill operations, furniture and fixtures for The Grand Resort, and office copiers under operating leases. On

January 1, 2019,

as a result of the adopted ASU

2016

-

02,

the Company recorded a ROU asset and related lease liability of approximately

$1.7

million. Our operating leases have remaining lease terms ranging from

1

to

5

years. The weighted average remaining lease term on operating leases was approximately

3.2

years at

September 30, 2019.

In addition, in connection with the purchase of New Castle Country Club’s real property assets on

May 13, 2019,

the Company assumed the remaining term of New Castle Country Club’s golf cart operating lease. At acquisition, the Company recorded an operating lease right-of-use asset and corresponding obligation under operating leases of approximately

$

126,000

.

The golf cart operating lease had a remaining lease term of

3

years at the acquisition date (See Note

16

).

Leased property and associated obligations under operating leases at

September 30, 2019

consists of the following (in thousands):

	September 30,
	2019
Operating lease right-of-use assets	$	1,505
Current portion of obligations under operating leases	$	528
Long-term portion of obligations under operating leases		977
Total obligations under operating leases	$	1,505

The weighted average discount rate on operating leases was

5.01%

at

September 30, 2019.

Finance Leases

In

November 2003,

Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of

ten

(

10

) years with

four

(

4

) consecutive

ten

(

10

) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay

$15,000

in annual rent and make leasehold improvements of

$150,000

per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of

$150,000

will be carried forward and applied to future leasehold improvement obligations. Based upon the amount of leasehold improvements already made, Avalon expects to exercise all its remaining renewal options. At

September 30, 2019

there were approximately

34.1

years remaining on the golf course and related facilities finance lease.

In addition, the golf and related operations also entered into lease agreements for vehicles, golf course maintenance and restaurant equipment and the captive landfill operations entered into a lease for a piece of equipment which were determined to be finance leases. At

September 30, 2019,

the vehicles, golf course maintenance and restaurant equipment and the landfill operations equipment have remaining lease terms ranging from

2

to

5

years at

September 30, 2019.   

The weighted average remaining lease term on the vehicles and equipment leases was approximately

2.3

years at

September 30, 2019.

Leased property and associated obligations under finance leases at

September 30, 2019

and

December 31, 2018

consists of the following (in thousands):

	September 30,			December 31,
	2019			2018
Leased property under finance leases	$	11,604		$	11,442
Less accumulated amortization		(5,750	)		(5,374	)
Leased property under finace leases, net	$	5,854		$	6,068
Current portion of obligations under finance leases	$	250		$	236
Long-term portion of obligations under finance leases		515			688
Total obligations under finance leases	$	765		$	924

The weighted average discount rate on finance leases was

4.8%

at both

September 30, 2019

and

December 31, 2018.

For the

three

and

nine

months ended

September 30, 2019

and

2018,

components of lease expense were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Operating lease cost	$	298	$	195	$	586	$	446
Finance lease cost:
Depreciation on right-of-use assets	$	124	$	129	$	376	$	354
Interest on lease liabilities		11		13		33		38
Total finance lease cost	$	135	$	142	$	409	$	392

Future commitments under long-term, operating leases and finance leases at

September 30, 2019

are as follows (in thousands):

	Finance		Operating		Total
2020	$	285	$	593	$	878
2021		251		496		747
2022		72		343		415
2023		33		175		208
2024		20		31		51
Thereafter		435		-		435
Total lease payments		1,096		1,638		2,734
Less imputed interest		331		133		464
Total		765		1,505		2,270
Less: current portion of obligations under leases		250		528		778
Long-term portion of obligations under leases	$	515	$	977	$	1,492