Note D - Leases

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Lessee, Operating and Finance Leases [Text Block]

Note D - Leases

On

January 1, 2019,

the Company adopted Topic

842

using the modified retrospective approach with optional transition method. The Company recorded operating lease assets (right-of-use assets) of $

22.8

million and operating lease liabilities of

$23.9

million. There was minimal impact to retained earnings upon adoption of Topic

842.

 

We have operating and finance leases for corporate and business offices, service facilities, call centers and certain equipment. Leases with an initial term of

12

months or less are generally

not

recorded on the balance sheet, unless the arrangement includes an option to purchase the underlying asset, or an option to renew the arrangement, that we are reasonably certain to exercise (short-term leases). Our leases have remaining lease terms of

one

 year to

six

 years, some of which include options to extend the leases for up to an additional

five

 years, and some of which include options to terminate the leases within

one

 year.

We sublease our Fullerton, Jacksonville and Manila facilities. Our current subleases have lease terms ranging from

five

 to

35

 months, which will each expire at various dates by fiscal year

2023.

As of

September 30, 2020

, assets recorded under finance and operating leases were approximately

$1.0

 million and

$13.4

 million respectively, and accumulated depreciation associated with finance leases was

$0.5

 million. Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The discount rate used to determine the commencement date present value of lease payment is the interest rate implicit in the lease, or when that is

not

readily determinable, we utilized our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset

may

be required for items such as initial direct costs paid or incentives received.

During the

nine

 months ended

September 

30,

2020,

we modified the terms of some of our existing leases which resulted in the re-measurement of the related ROU assets and lease liabilities. We also exercised early termination options and impaired a lease for a facility we were vacating. The resulting impairment and early termination charges are included in our restructuring expenses

 in the

nine

 months ended 

September 30, 2020

.  Please refer to Note O - Restructuring Activities for more details.

The following table presents supplemental balance sheet information related to our financing and operating leases:

In thousands	As of September 30, 2020
	Operating Leases		Finance Leases		Total
Right-of-use Assets	$	13,410	$	998	$	14,408
Liabilities
Short-term lease liabilities		6,580		223		6,803
Long-term lease liabilities		10,373		454		10,827
Total Lease Liabilities	$	16,953	$	677	$	17,630

In thousands	As of December 31, 2019
	Operating Leases		Finance Leases		Total
Right-of-use Assets	$	17,679	$	1,138	$	18,817
Liabilities
Short-term lease liabilities		7,226		390		7,616
Long-term lease liabilities		12,514		564		13,078
Total Lease Liabilities	$	19,740	$	954	$	20,694

For the

three

and

nine

months ended

September 30, 2020

and

2019

, the components of lease expense were as follows:

In thousands	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019
Operating lease cost	$	1,951		$	2,347
Finance lease cost:
Amortization of right-of-use assets		59			75
Interest on lease liabilities		10			16
Total Finance lease cost		69			91
Variable lease cost		604			614
Sublease income		(228	)		—
Total lease cost, net	$	2,396		$	3,052

In thousands	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Operating lease cost	$	6,435		$	6,940
Finance lease cost:
Amortization of right-of-use assets		191			225
Interest on lease liabilities		37			54
Total Finance lease cost		228			279
Variable lease cost		2,246			1,991
Sublease income		(228	)		—
Total lease cost, net	$	8,681		$	9,210

Other information related to leases was as follows:

In thousands	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	14,535		$	13,076
Operating cash flows from finance leases		32			63
Financing cash flows from finance leases		357			344
Weighted Average Remaining Lease term
Operating leases		3.0			3.5
Finance leases		3.2			2.9
Weighted Average Discount Rate
Operating leases		4.67	%		4.71	%
Finance leases		5.28	%		6.68	%

The maturities of the Company's finance and operating lease liabilities as of

September 30, 2020

 are as follows: 

In thousands	Operating Leases (1)		Finance Leases
Year Ending December 31,
Remainder of 2020	$	7,171	$	249
2021		4,842		220
2022		3,490		196
2023		2,377		59
2024		300		13
2025		—		—
Total future minimum lease payments		18,180		737
Less: Imputed interest		1,227		60
Total lease liabilities	$	16,953	$	677
(1) Non-cancelable sublease proceeds for the remainder of the fiscal year ending December 31, 2020 and the fiscal years ending December 31, 2021, 2022, and 2023 of $254k, $647k, $540k, and $154k, respectively, are not included in the table above.

As of

September 30, 2020

, wehave

one

operating lease for our new fulfillment center in Kansas City that has 

not

yet commenced.