Leases (Notes)

3 Months Ended

Mar. 31, 2019

On January 1, 2019, the date of initial application, the Company adopted ASC 842 using the modified retrospective transition method whereby prior comparative periods have not been restated and continue to be reported under the accounting standards in effect for the prior period. The Company elected the package of practical expedients permitted under the transition guidance for all leases, which allowed the Company to adopt ASC 842 without reassessing whether arrangements contain leases, the lease classification, and the determination of initial direct costs.

Upon adoption on January 1, 2019, the Company recognized right-of-use (“ROU”) assets inclusive of finance leases, net of prepaids, incentives, and impairments, of $24.6 million and lease liabilities of $25.1 million in the Consolidated Balance Sheet. At adoption, there was no impact to the Consolidated Statement of Operations, Consolidated Statement of Cash Flows or Consolidated Statement of Stockholders’ (Deficit) Equity.

Lease Policies

The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. ROU assets represent the right to use an underlying asset for the lease term while lease liabilities represent the obligation to make lease payments arising from the lease. All leases with an expected term greater than 12 months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the lease commencement date to determine the present value of the lease payments unless the implicit rate in the lease is readily determinable. The incremental borrowing rate is determined considering factors such as the lease term, the Company’s credit standing and the economic environment of the location of the lease.

The lease term includes all non-cancellable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that the Company will exercise the option. Leases that have a term of 12 months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of a ROU asset or lease liability.

The Company classifies leases as finance leases when (i) there is a transfer of ownership of the underlying asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that the Company is reasonably certain will be exercised, (iii) the lease term is for the majority of the remaining economic life of the asset, or (iv) the present value of the lease payments and any residual value guarantee equals or substantially exceeds the fair value of the asset.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for finance leases is generally front-loaded as the finance lease ROU asset is depreciated on a straight-line basis, but interest expense on the lease liability is recognized using the interest method which results in more expense during the early years of the lease. Variable lease payments are expensed in the period in which the obligation for those payments is incurred. The Company has elected to combine lease and non-lease components, such as fixed maintenance costs, as a single lease component in calculating ROU assets and lease liabilities for all classes of leased assets.

Leases

The Company has obligations under lease arrangements primarily for facilities, equipment and vehicles. These leases have original lease periods expiring between March 2020 and August 2039. For the three ended March 31, 2019, the Company recorded lease expense of $1.8 million within Cost of sales, $0.1 million within Research, development, and engineering, $0.1 million within Selling, general and administrative and less than $0.1 million within Interest expense on the Consolidated Statement of Operations.

The following table summarizes the components of lease expense:



(in thousands)	For the Three Months Ended March 31, 2019
Operating lease cost	$	1,401
Finance lease cost
Amortization of ROU asset	24
Interest expense	7
Short-term lease cost	143
Variable lease cost	455
Total lease cost	$	2,030

For the quarter ended March 31, 2018, rent expense related to operating leases under previous accounting guidance was $1.2 million.

The following table presents supplemental cash flow information related to leases:



(in thousands)	For the Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows paid for operating leases	$	1,146
Operating cash flows paid for interest portion of finance leases	7
Financing cash flows paid for principal portion of finance leases	22
Right-of-use assets obtained in exchange for lease obligations
Operating leases	37
Finance leases	83

As of March 31, 2019, the weighted-average remaining lease term was 7.2 years for operating leases and 5.1 years for finance leases. The weighted-average discount rate was 7.2% for operating leases and 6.1% for finance leases. The following table presents supplemental balance sheet information related to leases as of March 31, 2019:



(in thousands)	Operating Leases		Finance Leases
ROU assets, net ¹	$	23,294	$	470

Lease liabilities, current ²	3,704		96
Lease liabilities, non-current ³	20,282		394
Total lease liabilities	$	23,986	$	490

1. Included in Other noncurrent assets for operating leases and Property, plant and equipment, net for finance leases on the Consolidated Balance Sheet.

2. Included in Other accrued liabilities for operating leases and Current maturities of long-term debt for finance leases on the Consolidated Balance Sheet.

3. Included in Other noncurrent liabilities for operating leases and Long-term debt, net of current maturities for finance leases on the Consolidated Balance Sheet.

The following table presents maturity analysis of lease liabilities as of March 31, 2019:



(in thousands)	Operating Leases		Finance Leases
Nine months ending December 31, 2019	$	3,975	$	92
Year ending December 31, 2020	5,120		123
Year ending December 31, 2021	4,737		123
Year ending December 31, 2022	4,638		100
Year ending December 31, 2023	3,246		55
Thereafter	9,202		73
Total undiscounted lease payments	30,918		566
Less: imputed interest	6,932		76
Total lease liabilities	$	23,986	$	490

Minimum lease commitments as of December 31, 2018 and accounted for under previous lease guidance were as follows:



(in thousands)	Operating		Capital
2019	$	5,071	$	80
2020	5,175		63
2021	4,724		67
2022	4,681		50
2023	3,104		13
2024 and beyond	3,694		—
Total	$	26,449	$	273

Leases

Lease Policies

Leases

The following table summarizes the components of lease expense:



(in thousands)	For the Three Months Ended March 31, 2019
Operating lease cost	$	1,401
Finance lease cost
Amortization of ROU asset	24
Interest expense	7
Short-term lease cost	143
Variable lease cost	455
Total lease cost	$	2,030

For the quarter ended March 31, 2018, rent expense related to operating leases under previous accounting guidance was $1.2 million.

The following table presents supplemental cash flow information related to leases:



(in thousands)	For the Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows paid for operating leases	$	1,146
Operating cash flows paid for interest portion of finance leases	7
Financing cash flows paid for principal portion of finance leases	22
Right-of-use assets obtained in exchange for lease obligations
Operating leases	37
Finance leases	83



(in thousands)	Operating Leases		Finance Leases
ROU assets, net ¹	$	23,294	$	470

Lease liabilities, current ²	3,704		96
Lease liabilities, non-current ³	20,282		394
Total lease liabilities	$	23,986	$	490

1. Included in Other noncurrent assets for operating leases and Property, plant and equipment, net for finance leases on the Consolidated Balance Sheet.

2. Included in Other accrued liabilities for operating leases and Current maturities of long-term debt for finance leases on the Consolidated Balance Sheet.

3. Included in Other noncurrent liabilities for operating leases and Long-term debt, net of current maturities for finance leases on the Consolidated Balance Sheet.

The following table presents maturity analysis of lease liabilities as of March 31, 2019:



(in thousands)	Operating Leases		Finance Leases
Nine months ending December 31, 2019	$	3,975	$	92
Year ending December 31, 2020	5,120		123
Year ending December 31, 2021	4,737		123
Year ending December 31, 2022	4,638		100
Year ending December 31, 2023	3,246		55
Thereafter	9,202		73
Total undiscounted lease payments	30,918		566
Less: imputed interest	6,932		76
Total lease liabilities	$	23,986	$	490

Minimum lease commitments as of December 31, 2018 and accounted for under previous lease guidance were as follows:



(in thousands)	Operating		Capital
2019	$	5,071	$	80
2020	5,175		63
2021	4,724		67
2022	4,681		50
2023	3,104		13
2024 and beyond	3,694		—
Total	$	26,449	$	273