On June 1, 2019, the Company adopted the new lease accounting standard under U.S. GAAP, Topic 842, which among other things, requires right-of-use (“ROU”) assets and liabilities be recognized upon lease commencement for operating leases based on the present value of lease payments over the lease term. Topic 842 was adopted using the modified retrospective approach as of the effective date of the new standard. As such, comparative financial information for reporting periods beginning prior to June 1, 2019, has not been restated and continues to be reported under the previous accounting standard. As allowed, we elected to carry forward the historical lease classification and to apply the short-term lease measurement and recognition exemption whereby ROU assets and ROU liabilities are not recognized for short-term leases. Adoption of the new standard resulted in the recognition of $42,200,000 of net operating lease ROU assets and $43,400,000 of corresponding operating lease ROU liabilities. The net operating lease ROU assets include the effect of reclassifying deferred rent as an offset in accordance with the transition guidance. The impact of the new standard was immaterial to the Company’s results of operations and cash flows.

The Company determines if an arrangement is a lease at inception. Operating lease ROU assets include any initial direct costs and prepayments less lease incentives. Lease terms include options to renew or terminate the lease when it is reasonably certain the Company will exercise such options. As most of our leases do not include an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date, in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of goods sold or SG&A expense depending on the underlying nature of the leased assets.

We lease certain property and equipment from third parties under non-cancellable operating lease agreements. Certain lease agreements provide for payment of property taxes, maintenance and insurance by the Company. Under Topic 842, we elected the practical expedient to account for lease and non-lease components as a single component for all asset classes. Certain leases include variable lease payments based on usage or an index or rate.

During the second quarter of fiscal 2020, we entered into a non-cancellable financing lease agreement for land and a building which was paid as part of the cash consideration in connection with the acquisition of certain operating assets of Heidtman. Refer to “Note Q – Acquisitions” for additional information. In the consolidated balance sheets, the financing lease ROU assets are recorded in other assets and the current and long-term portion of the financing lease ROU liabilities are recorded in other accrued items and other liabilities, respectively.

The components of lease expense for the twelve month periods ending May 31, 2021 and May 31, 2020, were as follows:

	2021		2020
(in thousands)
Operating lease expense	$	10,123	$	12,454
Financing lease expense:
Amortization of leased assets		648		451
Interest on lease liabilities		145		61
Total financing lease expense		793		512
Short-term lease expense		578		599
Variable lease expense		2,398		2,580
Total lease expense	$	13,892	$	16,145

During the first quarter of fiscal 2020, ROU assets within the Engineered Cabs operating segment with a book value of $4,843,000 were deemed to be fully impaired and written off. Refer to “Note E – Goodwill and Other Long-Lived Assets” for additional information.

During the fourth quarter of fiscal 2020, ROU assets related to the TWB Hermosillo facility with a book value of $565,000 were deemed to be fully impaired and written off. Refer to “Note E – Goodwill and Other Long-Lived Assets” for additional information.

Other information related to the Company’s leases, as of and for the twelve-month periods ended May 31, 2021 and May 31, 2020, is provided below:

	2021						2020
(dollars in thousands)	Operating Leases			Financing Leases			Operating Leases			Financing Leases
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows	$	16,506		$	145		$	11,531		$	61
Financing cash flows	$	-		$	392		$	-		$	361
ROU assets obtained in exchange for lease liabilities	$	20,421		$	-		$	4,954		$	15,217
Weighted-average remaining lease term (in years)		5.83			33.03			5.24			31.38
Weighted-average discount rate		2.61	%		3.71	%		2.89	%		3.68	%

Future minimum lease payments for non-cancelable leases having an initial or remaining term in excess of one year at May 31, 2021, were as follows:

(in thousands)	Operating Leases			Financing Leases
2022	$	10,954		$	773
2023		8,448			545
2024		5,805			166
2025		4,571			171
2026		3,821			176
Thereafter		7,415			5,473
Total		41,014			7,304
Less: imputed interest		(3,693	)		(3,124	)
Present value of lease liabilities	$	37,321		$	4,180