| LEASES |
5. LEASES
Lessor Arrangements
The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment, including vehicles and machinery, with terms ranging from 14 months to 125 months. At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party residual value insurance to reduce its residual asset risk. At June 30, 2023 and December 31, 2022, the carrying value of residual assets covered by residual value guarantees and residual value insurance was $55.3 million and $44.3 million, respectively. For more information on the Company’s lessor arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in the Company’s 2022 Form 10-K.
Total net investment in sales-type and direct financing leases consists of the following (dollars in thousands):
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June 30, 2023 |
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December 31, 2022 |
Sales-type and direct financing leases: |
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Lease receivables, net of unearned income and deferred selling profit |
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$ |
280,023 |
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$ |
266,380 |
Unguaranteed residual values, net of unearned income and deferred selling profit |
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15,946 |
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15,159 |
Total net investment in sales-type and direct financing leases |
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$ |
295,969 |
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$ |
281,539 |
Lessee Arrangements
The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 23 years. For more information on the Company’s lessee arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in the Company’s 2022 Form 10-K.
The tables below provide information about the Company’s lessee lease portfolio and other supplemental lease information (dollars in thousands):
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June 30, 2023 |
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December 31, 2022 |
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Operating |
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Finance |
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Operating |
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Finance |
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ROU assets |
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$ |
32,725 |
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$ |
5,128 |
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$ |
35,729 |
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$ |
5,588 |
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Lease liabilities |
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40,507 |
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7,676 |
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47,696 |
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8,288 |
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Lease Term and Discount Rate of Operating leases: |
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Weighted-average remaining lease term (years) |
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6.26 |
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5.58 |
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6.80 |
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6.08 |
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Weighted-average discount rate (1) |
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2.96 |
% |
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1.17 |
% |
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2.91 |
% |
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1.17 |
% |
(1) An incremental borrowing rate is used based on information available at commencement date of lease or at remeasurement date.
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Six months ended June 30, |
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2023 |
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2022 |
Cash paid for amounts included in measurement of lease liabilities: |
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Operating Cash Flows from Finance Leases |
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$ |
46 |
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$ |
53 |
Operating Cash Flows from Operating Leases |
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6,156 |
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5,756 |
Financing Cash Flows from Finance Leases |
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612 |
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589 |
ROU assets obtained in exchange for lease obligations: |
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Operating leases |
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$ |
(241) |
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$ |
424 |
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Three months ended June 30, |
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Six months ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
Net Operating Lease Cost |
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$ |
2,358 |
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$ |
2,230 |
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$ |
4,910 |
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$ |
5,081 |
Finance Lease Cost: |
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Amortization of right-of-use assets |
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230 |
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230 |
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459 |
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459 |
Interest on lease liabilities |
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23 |
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26 |
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46 |
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60 |
Total Lease Cost |
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$ |
2,611 |
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$ |
2,486 |
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$ |
5,415 |
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$ |
5,600 |
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The maturities of lessor and lessee arrangements outstanding are presented in the table below (dollars in thousands):
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June 30, 2023 |
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Lessor |
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Lessee |
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Sales-type and Direct Financing |
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Operating |
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Finance |
For the remaining six months of 2023 |
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$ |
35,659 |
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$ |
5,345 |
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$ |
666 |
2024 |
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72,115 |
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10,154 |
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1,358 |
2025 |
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61,666 |
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8,027 |
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1,392 |
2026 |
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50,022 |
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5,517 |
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1,427 |
2027 |
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40,317 |
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4,101 |
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1,462 |
Thereafter |
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54,321 |
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11,666 |
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1,627 |
Total undiscounted cash flows |
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314,100 |
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44,810 |
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7,932 |
Less: Adjustments (1) |
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34,077 |
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4,303 |
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256 |
Total (2) |
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$ |
280,023 |
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$ |
40,507 |
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$ |
7,676 |
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(1) Lessor – unearned income and unearned guaranteed residual value; Lessee – imputed interest.
(2) Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements.
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