Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.19.2
Leases
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Leases
LEASES
On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), using the modified retrospective approach. The Company elected the package of practical expedients available in the standard and as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company has also elected the practical expedient to not separate lease components and non-lease components and will account for the leases as a single lease component for all classes of leases.
As a result of the adoption of ASC 842, the Company recognized an increase in lease ROU assets of $31,639, current portions of operating lease ROU liabilities of $5,084 and an increase to long-term portions of operating lease liabilities of $28,480. There was no impact to the condensed consolidated statements of income or retained earnings for the adoption of ASC 842. No impairment was recognized on the ROU asset upon adoption. These adjustments are detailed as follows:
 
As of January 1, 2019
 
As Reported
 
842 Adjustment
 
Adjusted Balances
Operating Leases:
 
 
 
 
 
Operating lease assets
$

 
$
31,639

 
$
31,639

Current portions of operating lease liabilities

 
5,084

 
5,084

Long-term portions of operating lease liabilities

 
28,480

 
28,480

Total operating lease liabilities
$

 
$
33,564

 
$
33,564

Weighted-average remaining lease term
 
 
 
 
10 years

Weighted-average discount rate
 
 
 
 
6.0
%
 
 
 
 
 
 
Financing Leases:
 
 
 
 
 
Energy assets, net
$
38,263

 
$

 
$
38,263

Current portions of financing lease liabilities
4,956

 

 
4,956

Long-term financing lease liabilities, less current portions and net of deferred financing fees
28,407

 

 
28,407

Total financing lease liabilities
$
33,363

 
$

 
$
33,363

Weighted-average remaining lease term
 
 
 
 
18 years

Weighted-average discount rate
 
 
 
 
11.7
%

The Company enters into a variety of operating lease agreements through the normal course of its business including certain administrative offices. The leases are long-term, non-concealable real estate lease agreements, expiring at various dates through fiscal 2025. The agreements generally provide for fixed minimum rental payments and the payment of utilities, real estate taxes, insurance and repairs. The Company also leases certain land parcels related to our energy projects, expiring at various dates through fiscal 2044. The office and land leases make up a significant portion of the Company’s operating lease activity. Many of these leases have one or more renewal options that allow the Company, at it’s discretion, to renew the lease for six months to seven years. Only renewal options that the Company believed were likely to be exercised were included in our lease calculations. Many land leases include minimum lease payments that increase when the related project becomes operational. In these cases, the commercial operation date was estimated by the Company and used to calculate the estimated minimum lease payments.
The Company also enters into leases for IT equipment and service agreements, automobiles, and other leases related to our construction projects such as equipment, mobile trailers and other temporary structures. The Company utilizes the portfolio approach for this class of lease. These leases are either short-term in nature or immaterial.
A portion of the Company’s real estate leases are generally subject to annual changes in the Consumer Price Index (“CPI”). The Company utilized each lease’s minimum lease payments to calculate the lease balances upon transition. The subsequent increases in rent based on changes in CPI were excluded and will be excluded for future leases from the calculation of the lease balances, but will be recorded to the condensed consolidated statement of income as part of our operating lease costs.
The Company has elected the practical expedient to not separate lease and non-lease components for existing leases for real estate and land leases. Going forward if a lease has non-lease components the Company will allocate consideration based on price information in the agreement or, if this information is not available, the Company will make a good faith estimate based on available pricing information at the time.
The discount rate was calculated using an incremental borrowing rate based on financing rates on secured comparable notes with comparable terms and a synthetic credit rating calculated by a third party. The Company elected to apply the discount rate using the remaining lease term at the date of adoption.
The Company has a number of leases that are classified as financing leases, which relate to transactions that are considered sale-leasebacks under ASC 840. See the sale-leaseback section below for additional information on the Company’s financing leases.
Supplemental balance sheet information related to leases at June 30, 2019 is as follows:
 
June 30, 2019
Operating Leases:
 
Operating lease assets

$
32,051

Current operating lease liabilities
5,807

Long-term portions of operating lease liabilities
28,308

Total operating lease liabilities
$
34,115

Weighted-average remaining lease term
10 years

Weighted-average discount rate
6.3
%
 
 
Financing Leases:
 
Energy assets, net
$
37,199

Current portions of financing lease liabilities
5,044

Long-term financing lease liabilities, less current portions and net of deferred financing fees
26,100

Total financing lease liability
$
31,144

Weighted-average remaining lease term
17 years

Weighted-average discount rate
11.8
%

The costs related to our leases are as follows:
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating Lease:
 
 
 
Operating lease costs
$
1,909

 
$
3,747

 
 
 
 
Financing Lease:
 
 
 
Amortization expense
532

 
1,064

Interest on lease liabilities
947

 
1,896

 
 
 
 
Total lease costs
$
3,388

 
$
6,707


 The Company’s estimated minimum future lease obligations under our leases are as follows: 
 
Operating Leases
 
Financing Leases
Year ended December 31,
 

 
 
2019
$
3,709

 
$
4,480

2020
7,365

 
7,881

2021
5,832

 
6,775

2022
5,270

 
5,173

2023
4,021

 
3,686

Thereafter
21,029

 
26,800

Total minimum lease payments
$
47,226

 
$
54,795

Less: interest
13,111

 
23,651

Present value of lease liabilities
$
34,115

 
$
31,144


The Company has determined that certain power purchase agreements (“PPAs”) contain a lease component in accordance with ASC 840, Leases. The Company recognized $2,271 and $4,495 of operating lease revenue under these agreements during the three and six months ended June 30, 2019, respectively, which was reflected in revenues on the condensed consolidated statements of income. PPAs signed after January 1, 2019 no longer meet the definition of a lease upon the adoption of ASC 842, Leases, and are instead accounted for in accordance with ASC 606, Revenues From Contracts With Customers.
Sale-Leaseback
For solar PV projects that the Company has determined not to be integral equipment, the Company then determines if the leaseback should be classified as a financing lease or an operating lease. All solar PV projects sold to date under the sale-leaseback program have been determined by the Company to be financing leases. For leasebacks classified as financing leases, the Company initially records a financing lease asset and financing lease obligation in its condensed consolidated balance sheets equal to the lower of the present value of the Company’s future minimum leaseback payments or the fair value of the solar PV project. For financing leasebacks, the Company defers any gain or loss, representing the excess or shortfall of cash received from the investor compared to the net book value of the asset in the Company’s condensed consolidated balance sheets at the time of the sale. The Company records the long term portion of any deferred gain or loss in other liabilities and other assets, respectively, and the current portion of any deferred gain and loss in accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively, in its condensed consolidated balance sheets and amortizes the deferred amounts over the lease term in cost of revenues in its condensed consolidated statements of income. Net amortization expense in cost of revenues related to deferred gains and losses was $58 and $46 of net gains for the three months ended June 30, 2019 and 2018, respectively. Net amortization expense in cost of revenues related to deferred gains was $115 and $105 for the six months ended June 30, 2019 and 2018, respectively.
During the third quarter of 2018, the Company entered into an agreement with an investor which gives us the option to sell and contemporaneously lease back solar photovoltaic (“solar PV”) projects through August 2019 up to a maximum funding amount of $100.0 million. As of June 30, 2019, $95.1 million remained available under the lending commitment.
A summary of amounts related to sale leasebacks in the Company’s condensed consolidated balance sheets is as follows:
 
June 30,
 
December 31,
 
2019
 
2018
Financing lease assets, net
$
37,199

 
$
38,263

Deferred loss, short-term, net
115

 
115

Deferred loss, long-term, net
1,859

 
1,917

Total deferred loss
$
1,974

 
$
2,032

Financing lease liabilities, short-term
5,044

 
4,956

Financing lease liabilities, long-term
26,100

 
28,407

Total financing lease liabilities
$
31,144

 
$
33,363

Deferred gain, short-term, net
345

 
345

Deferred gain, long-term, net
5,635

 
5,808

Total deferred gain
$
5,980

 
$
6,153

Leases
LEASES
On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), using the modified retrospective approach. The Company elected the package of practical expedients available in the standard and as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company has also elected the practical expedient to not separate lease components and non-lease components and will account for the leases as a single lease component for all classes of leases.
As a result of the adoption of ASC 842, the Company recognized an increase in lease ROU assets of $31,639, current portions of operating lease ROU liabilities of $5,084 and an increase to long-term portions of operating lease liabilities of $28,480. There was no impact to the condensed consolidated statements of income or retained earnings for the adoption of ASC 842. No impairment was recognized on the ROU asset upon adoption. These adjustments are detailed as follows:
 
As of January 1, 2019
 
As Reported
 
842 Adjustment
 
Adjusted Balances
Operating Leases:
 
 
 
 
 
Operating lease assets
$

 
$
31,639

 
$
31,639

Current portions of operating lease liabilities

 
5,084

 
5,084

Long-term portions of operating lease liabilities

 
28,480

 
28,480

Total operating lease liabilities
$

 
$
33,564

 
$
33,564

Weighted-average remaining lease term
 
 
 
 
10 years

Weighted-average discount rate
 
 
 
 
6.0
%
 
 
 
 
 
 
Financing Leases:
 
 
 
 
 
Energy assets, net
$
38,263

 
$

 
$
38,263

Current portions of financing lease liabilities
4,956

 

 
4,956

Long-term financing lease liabilities, less current portions and net of deferred financing fees
28,407

 

 
28,407

Total financing lease liabilities
$
33,363

 
$

 
$
33,363

Weighted-average remaining lease term
 
 
 
 
18 years

Weighted-average discount rate
 
 
 
 
11.7
%

The Company enters into a variety of operating lease agreements through the normal course of its business including certain administrative offices. The leases are long-term, non-concealable real estate lease agreements, expiring at various dates through fiscal 2025. The agreements generally provide for fixed minimum rental payments and the payment of utilities, real estate taxes, insurance and repairs. The Company also leases certain land parcels related to our energy projects, expiring at various dates through fiscal 2044. The office and land leases make up a significant portion of the Company’s operating lease activity. Many of these leases have one or more renewal options that allow the Company, at it’s discretion, to renew the lease for six months to seven years. Only renewal options that the Company believed were likely to be exercised were included in our lease calculations. Many land leases include minimum lease payments that increase when the related project becomes operational. In these cases, the commercial operation date was estimated by the Company and used to calculate the estimated minimum lease payments.
The Company also enters into leases for IT equipment and service agreements, automobiles, and other leases related to our construction projects such as equipment, mobile trailers and other temporary structures. The Company utilizes the portfolio approach for this class of lease. These leases are either short-term in nature or immaterial.
A portion of the Company’s real estate leases are generally subject to annual changes in the Consumer Price Index (“CPI”). The Company utilized each lease’s minimum lease payments to calculate the lease balances upon transition. The subsequent increases in rent based on changes in CPI were excluded and will be excluded for future leases from the calculation of the lease balances, but will be recorded to the condensed consolidated statement of income as part of our operating lease costs.
The Company has elected the practical expedient to not separate lease and non-lease components for existing leases for real estate and land leases. Going forward if a lease has non-lease components the Company will allocate consideration based on price information in the agreement or, if this information is not available, the Company will make a good faith estimate based on available pricing information at the time.
The discount rate was calculated using an incremental borrowing rate based on financing rates on secured comparable notes with comparable terms and a synthetic credit rating calculated by a third party. The Company elected to apply the discount rate using the remaining lease term at the date of adoption.
The Company has a number of leases that are classified as financing leases, which relate to transactions that are considered sale-leasebacks under ASC 840. See the sale-leaseback section below for additional information on the Company’s financing leases.
Supplemental balance sheet information related to leases at June 30, 2019 is as follows:
 
June 30, 2019
Operating Leases:
 
Operating lease assets

$
32,051

Current operating lease liabilities
5,807

Long-term portions of operating lease liabilities
28,308

Total operating lease liabilities
$
34,115

Weighted-average remaining lease term
10 years

Weighted-average discount rate
6.3
%
 
 
Financing Leases:
 
Energy assets, net
$
37,199

Current portions of financing lease liabilities
5,044

Long-term financing lease liabilities, less current portions and net of deferred financing fees
26,100

Total financing lease liability
$
31,144

Weighted-average remaining lease term
17 years

Weighted-average discount rate
11.8
%

The costs related to our leases are as follows:
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating Lease:
 
 
 
Operating lease costs
$
1,909

 
$
3,747

 
 
 
 
Financing Lease:
 
 
 
Amortization expense
532

 
1,064

Interest on lease liabilities
947

 
1,896

 
 
 
 
Total lease costs
$
3,388

 
$
6,707


 The Company’s estimated minimum future lease obligations under our leases are as follows: 
 
Operating Leases
 
Financing Leases
Year ended December 31,
 

 
 
2019
$
3,709

 
$
4,480

2020
7,365

 
7,881

2021
5,832

 
6,775

2022
5,270

 
5,173

2023
4,021

 
3,686

Thereafter
21,029

 
26,800

Total minimum lease payments
$
47,226

 
$
54,795

Less: interest
13,111

 
23,651

Present value of lease liabilities
$
34,115

 
$
31,144


The Company has determined that certain power purchase agreements (“PPAs”) contain a lease component in accordance with ASC 840, Leases. The Company recognized $2,271 and $4,495 of operating lease revenue under these agreements during the three and six months ended June 30, 2019, respectively, which was reflected in revenues on the condensed consolidated statements of income. PPAs signed after January 1, 2019 no longer meet the definition of a lease upon the adoption of ASC 842, Leases, and are instead accounted for in accordance with ASC 606, Revenues From Contracts With Customers.
Sale-Leaseback
For solar PV projects that the Company has determined not to be integral equipment, the Company then determines if the leaseback should be classified as a financing lease or an operating lease. All solar PV projects sold to date under the sale-leaseback program have been determined by the Company to be financing leases. For leasebacks classified as financing leases, the Company initially records a financing lease asset and financing lease obligation in its condensed consolidated balance sheets equal to the lower of the present value of the Company’s future minimum leaseback payments or the fair value of the solar PV project. For financing leasebacks, the Company defers any gain or loss, representing the excess or shortfall of cash received from the investor compared to the net book value of the asset in the Company’s condensed consolidated balance sheets at the time of the sale. The Company records the long term portion of any deferred gain or loss in other liabilities and other assets, respectively, and the current portion of any deferred gain and loss in accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively, in its condensed consolidated balance sheets and amortizes the deferred amounts over the lease term in cost of revenues in its condensed consolidated statements of income. Net amortization expense in cost of revenues related to deferred gains and losses was $58 and $46 of net gains for the three months ended June 30, 2019 and 2018, respectively. Net amortization expense in cost of revenues related to deferred gains was $115 and $105 for the six months ended June 30, 2019 and 2018, respectively.
During the third quarter of 2018, the Company entered into an agreement with an investor which gives us the option to sell and contemporaneously lease back solar photovoltaic (“solar PV”) projects through August 2019 up to a maximum funding amount of $100.0 million. As of June 30, 2019, $95.1 million remained available under the lending commitment.
A summary of amounts related to sale leasebacks in the Company’s condensed consolidated balance sheets is as follows:
 
June 30,
 
December 31,
 
2019
 
2018
Financing lease assets, net
$
37,199

 
$
38,263

Deferred loss, short-term, net
115

 
115

Deferred loss, long-term, net
1,859

 
1,917

Total deferred loss
$
1,974

 
$
2,032

Financing lease liabilities, short-term
5,044

 
4,956

Financing lease liabilities, long-term
26,100

 
28,407

Total financing lease liabilities
$
31,144

 
$
33,363

Deferred gain, short-term, net
345

 
345

Deferred gain, long-term, net
5,635

 
5,808

Total deferred gain
$
5,980

 
$
6,153

Leases
LEASES
On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), using the modified retrospective approach. The Company elected the package of practical expedients available in the standard and as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company has also elected the practical expedient to not separate lease components and non-lease components and will account for the leases as a single lease component for all classes of leases.
As a result of the adoption of ASC 842, the Company recognized an increase in lease ROU assets of $31,639, current portions of operating lease ROU liabilities of $5,084 and an increase to long-term portions of operating lease liabilities of $28,480. There was no impact to the condensed consolidated statements of income or retained earnings for the adoption of ASC 842. No impairment was recognized on the ROU asset upon adoption. These adjustments are detailed as follows:
 
As of January 1, 2019
 
As Reported
 
842 Adjustment
 
Adjusted Balances
Operating Leases:
 
 
 
 
 
Operating lease assets
$

 
$
31,639

 
$
31,639

Current portions of operating lease liabilities

 
5,084

 
5,084

Long-term portions of operating lease liabilities

 
28,480

 
28,480

Total operating lease liabilities
$

 
$
33,564

 
$
33,564

Weighted-average remaining lease term
 
 
 
 
10 years

Weighted-average discount rate
 
 
 
 
6.0
%
 
 
 
 
 
 
Financing Leases:
 
 
 
 
 
Energy assets, net
$
38,263

 
$

 
$
38,263

Current portions of financing lease liabilities
4,956

 

 
4,956

Long-term financing lease liabilities, less current portions and net of deferred financing fees
28,407

 

 
28,407

Total financing lease liabilities
$
33,363

 
$

 
$
33,363

Weighted-average remaining lease term
 
 
 
 
18 years

Weighted-average discount rate
 
 
 
 
11.7
%

The Company enters into a variety of operating lease agreements through the normal course of its business including certain administrative offices. The leases are long-term, non-concealable real estate lease agreements, expiring at various dates through fiscal 2025. The agreements generally provide for fixed minimum rental payments and the payment of utilities, real estate taxes, insurance and repairs. The Company also leases certain land parcels related to our energy projects, expiring at various dates through fiscal 2044. The office and land leases make up a significant portion of the Company’s operating lease activity. Many of these leases have one or more renewal options that allow the Company, at it’s discretion, to renew the lease for six months to seven years. Only renewal options that the Company believed were likely to be exercised were included in our lease calculations. Many land leases include minimum lease payments that increase when the related project becomes operational. In these cases, the commercial operation date was estimated by the Company and used to calculate the estimated minimum lease payments.
The Company also enters into leases for IT equipment and service agreements, automobiles, and other leases related to our construction projects such as equipment, mobile trailers and other temporary structures. The Company utilizes the portfolio approach for this class of lease. These leases are either short-term in nature or immaterial.
A portion of the Company’s real estate leases are generally subject to annual changes in the Consumer Price Index (“CPI”). The Company utilized each lease’s minimum lease payments to calculate the lease balances upon transition. The subsequent increases in rent based on changes in CPI were excluded and will be excluded for future leases from the calculation of the lease balances, but will be recorded to the condensed consolidated statement of income as part of our operating lease costs.
The Company has elected the practical expedient to not separate lease and non-lease components for existing leases for real estate and land leases. Going forward if a lease has non-lease components the Company will allocate consideration based on price information in the agreement or, if this information is not available, the Company will make a good faith estimate based on available pricing information at the time.
The discount rate was calculated using an incremental borrowing rate based on financing rates on secured comparable notes with comparable terms and a synthetic credit rating calculated by a third party. The Company elected to apply the discount rate using the remaining lease term at the date of adoption.
The Company has a number of leases that are classified as financing leases, which relate to transactions that are considered sale-leasebacks under ASC 840. See the sale-leaseback section below for additional information on the Company’s financing leases.
Supplemental balance sheet information related to leases at June 30, 2019 is as follows:
 
June 30, 2019
Operating Leases:
 
Operating lease assets

$
32,051

Current operating lease liabilities
5,807

Long-term portions of operating lease liabilities
28,308

Total operating lease liabilities
$
34,115

Weighted-average remaining lease term
10 years

Weighted-average discount rate
6.3
%
 
 
Financing Leases:
 
Energy assets, net
$
37,199

Current portions of financing lease liabilities
5,044

Long-term financing lease liabilities, less current portions and net of deferred financing fees
26,100

Total financing lease liability
$
31,144

Weighted-average remaining lease term
17 years

Weighted-average discount rate
11.8
%

The costs related to our leases are as follows:
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating Lease:
 
 
 
Operating lease costs
$
1,909

 
$
3,747

 
 
 
 
Financing Lease:
 
 
 
Amortization expense
532

 
1,064

Interest on lease liabilities
947

 
1,896

 
 
 
 
Total lease costs
$
3,388

 
$
6,707


 The Company’s estimated minimum future lease obligations under our leases are as follows: 
 
Operating Leases
 
Financing Leases
Year ended December 31,
 

 
 
2019
$
3,709

 
$
4,480

2020
7,365

 
7,881

2021
5,832

 
6,775

2022
5,270

 
5,173

2023
4,021

 
3,686

Thereafter
21,029

 
26,800

Total minimum lease payments
$
47,226

 
$
54,795

Less: interest
13,111

 
23,651

Present value of lease liabilities
$
34,115

 
$
31,144


The Company has determined that certain power purchase agreements (“PPAs”) contain a lease component in accordance with ASC 840, Leases. The Company recognized $2,271 and $4,495 of operating lease revenue under these agreements during the three and six months ended June 30, 2019, respectively, which was reflected in revenues on the condensed consolidated statements of income. PPAs signed after January 1, 2019 no longer meet the definition of a lease upon the adoption of ASC 842, Leases, and are instead accounted for in accordance with ASC 606, Revenues From Contracts With Customers.
Sale-Leaseback
For solar PV projects that the Company has determined not to be integral equipment, the Company then determines if the leaseback should be classified as a financing lease or an operating lease. All solar PV projects sold to date under the sale-leaseback program have been determined by the Company to be financing leases. For leasebacks classified as financing leases, the Company initially records a financing lease asset and financing lease obligation in its condensed consolidated balance sheets equal to the lower of the present value of the Company’s future minimum leaseback payments or the fair value of the solar PV project. For financing leasebacks, the Company defers any gain or loss, representing the excess or shortfall of cash received from the investor compared to the net book value of the asset in the Company’s condensed consolidated balance sheets at the time of the sale. The Company records the long term portion of any deferred gain or loss in other liabilities and other assets, respectively, and the current portion of any deferred gain and loss in accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively, in its condensed consolidated balance sheets and amortizes the deferred amounts over the lease term in cost of revenues in its condensed consolidated statements of income. Net amortization expense in cost of revenues related to deferred gains and losses was $58 and $46 of net gains for the three months ended June 30, 2019 and 2018, respectively. Net amortization expense in cost of revenues related to deferred gains was $115 and $105 for the six months ended June 30, 2019 and 2018, respectively.
During the third quarter of 2018, the Company entered into an agreement with an investor which gives us the option to sell and contemporaneously lease back solar photovoltaic (“solar PV”) projects through August 2019 up to a maximum funding amount of $100.0 million. As of June 30, 2019, $95.1 million remained available under the lending commitment.
A summary of amounts related to sale leasebacks in the Company’s condensed consolidated balance sheets is as follows:
 
June 30,
 
December 31,
 
2019
 
2018
Financing lease assets, net
$
37,199

 
$
38,263

Deferred loss, short-term, net
115

 
115

Deferred loss, long-term, net
1,859

 
1,917

Total deferred loss
$
1,974

 
$
2,032

Financing lease liabilities, short-term
5,044

 
4,956

Financing lease liabilities, long-term
26,100

 
28,407

Total financing lease liabilities
$
31,144

 
$
33,363

Deferred gain, short-term, net
345

 
345

Deferred gain, long-term, net
5,635

 
5,808

Total deferred gain
$
5,980

 
$
6,153