Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases
Leases
During the first quarter of 2019, the Company adopted Topic 842, effective January 1, 2019. This ASC requires lessees to recognize an operating lease asset and an operating lease liability on the balance sheet, with the exception of short-term leases.
Under the transition method selected by QES, leases existing at, or entered into after, January 1, 2019 are to be recognized and measured. Prior period amounts have not been adjusted and continue to be reflected in accordance with QES’s historical accounting. The adoption of this standard resulted in the recording of operating lease assets and operating lease liabilities of approximately of $29.1 million as of January 1, 2019, with no related impact on our condensed consolidated statement of shareholders' equity or condensed consolidated statement of operations. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at the lease commencement.
QES elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allows companies to carry forward their historical lease classification. QES made an accounting policy election by class of underlying asset not to recognize the lease liability and related right-of-use asset for leases with a term of one year or less.
We have operating and finance leases for administrative offices, operations and manufacturing facilities, and certain equipment. Our leases have remaining lease terms of one year to eight years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Options to extend or terminate leases that are considered reasonably certain are included in our determination of the lease term.
The components of lease expense were as follows (in thousands of dollars):
 
 
March 31, 2019
Operating lease cost
 
$
3,074

 
 
 

Finance lease cost:
 
 

   Amortization of ROU assets
 
92

   Interest on lease liabilities
 
87

     Total finance lease cost
 
179

 
 
 
Short-term lease cost
 
$
179


Supplemental cash flow information related to leases was as follows (in thousands of dollars):
 

March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 

   Operating cash flows for operating leases
 
$
2,856

   Operating cash flows for finance leases
 
116

   Financing cash flows for finance leases
 
122

 
 
 

ROU assets obtained in exchange for lease obligations:
 
 

  Operating leases
 
29,965

  Finance leases
 
$
2,529



Supplemental balance sheet information related to leases was as follows (in thousands of dollars, except lease term and discount rate):
 
 
March 31, 2019
Operating Leases
 
 

Operating lease ROU assets
 
$
25,581

 
 
 

Other current liabilities
 
7,766

Long-term operating lease liabilities
 
17,820

   Total operating lease liabilities
 
$
25,586

 
 
 
Finance Leases
 
 

Property and equipment, net
 
2,434

 
 
 

Other current liabilities
 
578

Long-term finance lease liabilities
 
3,895

   Total finance lease liabilities
 
$
4,473

 
 
 

Weighted Average Remaining Lease Term
 
 

Operating leases
 
4 years

Finance leases
 
7 years

 
 
 

Weighted Average Discount Rate
 
 

Operating leases
 
8.8
%
Finance leases
 
8.2
%


Maturities of lease liabilities were as follows at March 31, 2019 (in thousands of dollars):
 
 
Operating Leases
 
Finance Leases
Remainder of 2019
 
$
7,377

 
$
693

2020
 
8,574

 
884

2021
 
7,634

 
829

2022
 
4,809

 
812

2023
 
1,177

 
753

Thereafter
 
1,623

 
1,936

   Total lease payments
 
31,194

 
5,907

Less: imputed interest
 
(5,608
)
 
(1,434
)
   Total
 
$
25,586

 
$
4,473



At December 31, 2018, future minimum lease payments under the Company's finance leases for the five years ending December 31, 2019 through December 31, 2023 and thereafter are as follows:  $0.7 million, $0.7 million, $0.6 million, $0.6 million and $0.6 million and $1.9 million, respectively.
Leases
Leases
During the first quarter of 2019, the Company adopted Topic 842, effective January 1, 2019. This ASC requires lessees to recognize an operating lease asset and an operating lease liability on the balance sheet, with the exception of short-term leases.
Under the transition method selected by QES, leases existing at, or entered into after, January 1, 2019 are to be recognized and measured. Prior period amounts have not been adjusted and continue to be reflected in accordance with QES’s historical accounting. The adoption of this standard resulted in the recording of operating lease assets and operating lease liabilities of approximately of $29.1 million as of January 1, 2019, with no related impact on our condensed consolidated statement of shareholders' equity or condensed consolidated statement of operations. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at the lease commencement.
QES elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allows companies to carry forward their historical lease classification. QES made an accounting policy election by class of underlying asset not to recognize the lease liability and related right-of-use asset for leases with a term of one year or less.
We have operating and finance leases for administrative offices, operations and manufacturing facilities, and certain equipment. Our leases have remaining lease terms of one year to eight years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Options to extend or terminate leases that are considered reasonably certain are included in our determination of the lease term.
The components of lease expense were as follows (in thousands of dollars):
 
 
March 31, 2019
Operating lease cost
 
$
3,074

 
 
 

Finance lease cost:
 
 

   Amortization of ROU assets
 
92

   Interest on lease liabilities
 
87

     Total finance lease cost
 
179

 
 
 
Short-term lease cost
 
$
179


Supplemental cash flow information related to leases was as follows (in thousands of dollars):
 

March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 

   Operating cash flows for operating leases
 
$
2,856

   Operating cash flows for finance leases
 
116

   Financing cash flows for finance leases
 
122

 
 
 

ROU assets obtained in exchange for lease obligations:
 
 

  Operating leases
 
29,965

  Finance leases
 
$
2,529



Supplemental balance sheet information related to leases was as follows (in thousands of dollars, except lease term and discount rate):
 
 
March 31, 2019
Operating Leases
 
 

Operating lease ROU assets
 
$
25,581

 
 
 

Other current liabilities
 
7,766

Long-term operating lease liabilities
 
17,820

   Total operating lease liabilities
 
$
25,586

 
 
 
Finance Leases
 
 

Property and equipment, net
 
2,434

 
 
 

Other current liabilities
 
578

Long-term finance lease liabilities
 
3,895

   Total finance lease liabilities
 
$
4,473

 
 
 

Weighted Average Remaining Lease Term
 
 

Operating leases
 
4 years

Finance leases
 
7 years

 
 
 

Weighted Average Discount Rate
 
 

Operating leases
 
8.8
%
Finance leases
 
8.2
%


Maturities of lease liabilities were as follows at March 31, 2019 (in thousands of dollars):
 
 
Operating Leases
 
Finance Leases
Remainder of 2019
 
$
7,377

 
$
693

2020
 
8,574

 
884

2021
 
7,634

 
829

2022
 
4,809

 
812

2023
 
1,177

 
753

Thereafter
 
1,623

 
1,936

   Total lease payments
 
31,194

 
5,907

Less: imputed interest
 
(5,608
)
 
(1,434
)
   Total
 
$
25,586

 
$
4,473



At December 31, 2018, future minimum lease payments under the Company's finance leases for the five years ending December 31, 2019 through December 31, 2023 and thereafter are as follows:  $0.7 million, $0.7 million, $0.6 million, $0.6 million and $0.6 million and $1.9 million, respectively.