Leases

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

10. Leases

Adoption of ASU 2016-02, “Leases (Topic 842)”

On January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)” and all related amendments using the modified retrospective method with no adjustments to comparative prior periods. The Company also elected certain practical expedients that allowed the Company to (1) recognize a cumulative-effect adjustment to the opening balance of retained earnings; (2) forgo reassessment of its prior conclusions on (a) whether an expired or existing contract contains a lease, (b) the lease classification of expired or existing leases, and (c) whether any costs incurred for expired or existing leases qualified as initial direct costs; and (3) use an accounting policy election by class of underlying asset to choose whether or not to separate non-lease components from lease components. Subsequent to the date of adoption, the Company recognizes and measures new

or modified leases in accordance with ASC 842. Prior to January 1, 2019, the Company recognized and measured leases in accordance with ASC 840, “Leases” and prior period results continue to be reported under the accounting standards in effect for those periods.

Under the modified retrospective approach for the adoption of ASC 842, the adoption resulted in the recording of a ROU asset of $20.9 million and a lease liability of $23.2 million within the consolidated balance sheet on January 1, 2019. The difference between the ROU asset and lease liability on the date of adoption relates to the reclassification of $2.1 million of certain previously recorded deferred rent balances to the ROU asset.

In addition, in accordance with the implementation guidance of ASU 2016-02, on January 1, 2019 the Company recorded the cumulative impact of adopting the new standard on the consolidated financial statements in which the Company reclassified a deferred gain from other long-term liabilities of $1.0 million, $0.8 million net of tax, to retained deficit related to a previous sale leaseback of the former Metalex Libertyville, Illinois facility.

Finance and Operating Lease Obligations

The Company’s components of lease expense was as follows:

	For the Year Ended December 31, 2019
Finance lease expense:
Depreciation of right-of-use assets	$	145
Interest on lease liabilities	42
Operating lease expense (1)	6,586
Other lease expense	(32)
Total	$	6,741

(1) Operating lease expense includes $0.6 million of accelerated lease expense related to the planned vacating of certain facilities in the industrial and engineered components segments.

Based on the nature of the ROU asset, depreciation of finance right-of-use assets, operating lease expense, and other lease expense are recorded within either cost of goods sold or selling and administrative expenses and interest on finance lease liabilities is recorded within interest expense on the consolidated statements of operations. Other lease expense includes lease expense for leases with an estimated total term of 12 months or less and variable lease expense related to variations in lease payments as a result of a change in factors or circumstances occurring after the lease possession date.

The Company’s balance sheet information related to leases was as follows:

	December 31, 2019
Finance Leases
Property, plant and equipment - net	$	506
Current portion of long-term debt	$	417
Long-term debt	325
Total finance lease liabilities	$	742
Operating Leases
Right-of-use operating lease assets	$	20,910
Current portion of operating lease liabilities	$	4,275
Long-term operating lease liabilities	19,136
Total operating lease liabilities	$	23,411

Other information related to the Company’s leases was as follows:

	December 31, 2019
Weighted-average remaining lease term (in years)
Finance leases	2.59
Operating leases	7.19
Weighted-average discount rate
Finance leases	6.7	%
Operating leases	6.9	%

Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2019 are as follows:

	Continuing Operations		Discontinued Operations		Total
Operating cash flows from finance leases	$	47	$	3	$	50
Operating cash flows from operating leases	$	6,262	$	4,023	$	10,285
Financing cash flows from finance leases	$	332	$	8	$	340

Future minimum lease payments required under finance and operating leases for each of the next five years and thereafter are as follows:

	Finance Leases		Operating Leases
2020	$	450	$	5,730
2021	136		4,790
2022	107		3,528
2023	79		2,946
2024	31		2,530
Thereafter	—		10,654
Total future undiscounted lease payments	803		30,178
Less: imputed interest	(61)		(6,767)
Total lease obligations	$	742	$	23,411

As of December 31, 2019, the company had additional operating leases for vehicles that were signed and had not yet commenced with future minimum lease payments of $0.3 million. These operating leases are expected to commence in 2020 with lease terms between two to four years.

Future minimum lease payments required under long-term operating leases in effect at December 31, 2018 were as follows:

2019	$	5,768
2020	4,418
2021	3,823
2022	2,877
2023	2,362
Thereafter	10,307
	$	29,555

Total rental expense under operating leases was $6.5 million and $6.1 million for the years end December 31, 2018 and December 31, 2017, respectively.

Leases

10. Leases

Adoption of ASU 2016-02, “Leases (Topic 842)”

On January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)” and all related amendments using the modified retrospective method with no adjustments to comparative prior periods. The Company also elected certain practical expedients that allowed the Company to (1) recognize a cumulative-effect adjustment to the opening balance of retained earnings; (2) forgo reassessment of its prior conclusions on (a) whether an expired or existing contract contains a lease, (b) the lease classification of expired or existing leases, and (c) whether any costs incurred for expired or existing leases qualified as initial direct costs; and (3) use an accounting policy election by class of underlying asset to choose whether or not to separate non-lease components from lease components. Subsequent to the date of adoption, the Company recognizes and measures new

or modified leases in accordance with ASC 842. Prior to January 1, 2019, the Company recognized and measured leases in accordance with ASC 840, “Leases” and prior period results continue to be reported under the accounting standards in effect for those periods.

Under the modified retrospective approach for the adoption of ASC 842, the adoption resulted in the recording of a ROU asset of $20.9 million and a lease liability of $23.2 million within the consolidated balance sheet on January 1, 2019. The difference between the ROU asset and lease liability on the date of adoption relates to the reclassification of $2.1 million of certain previously recorded deferred rent balances to the ROU asset.

In addition, in accordance with the implementation guidance of ASU 2016-02, on January 1, 2019 the Company recorded the cumulative impact of adopting the new standard on the consolidated financial statements in which the Company reclassified a deferred gain from other long-term liabilities of $1.0 million, $0.8 million net of tax, to retained deficit related to a previous sale leaseback of the former Metalex Libertyville, Illinois facility.

Finance and Operating Lease Obligations

The Company’s components of lease expense was as follows:

	For the Year Ended December 31, 2019
Finance lease expense:
Depreciation of right-of-use assets	$	145
Interest on lease liabilities	42
Operating lease expense (1)	6,586
Other lease expense	(32)
Total	$	6,741

(1) Operating lease expense includes $0.6 million of accelerated lease expense related to the planned vacating of certain facilities in the industrial and engineered components segments.

Based on the nature of the ROU asset, depreciation of finance right-of-use assets, operating lease expense, and other lease expense are recorded within either cost of goods sold or selling and administrative expenses and interest on finance lease liabilities is recorded within interest expense on the consolidated statements of operations. Other lease expense includes lease expense for leases with an estimated total term of 12 months or less and variable lease expense related to variations in lease payments as a result of a change in factors or circumstances occurring after the lease possession date.

The Company’s balance sheet information related to leases was as follows:

	December 31, 2019
Finance Leases
Property, plant and equipment - net	$	506
Current portion of long-term debt	$	417
Long-term debt	325
Total finance lease liabilities	$	742
Operating Leases
Right-of-use operating lease assets	$	20,910
Current portion of operating lease liabilities	$	4,275
Long-term operating lease liabilities	19,136
Total operating lease liabilities	$	23,411

Other information related to the Company’s leases was as follows:

	December 31, 2019
Weighted-average remaining lease term (in years)
Finance leases	2.59
Operating leases	7.19
Weighted-average discount rate
Finance leases	6.7	%
Operating leases	6.9	%

Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2019 are as follows:

	Continuing Operations		Discontinued Operations		Total
Operating cash flows from finance leases	$	47	$	3	$	50
Operating cash flows from operating leases	$	6,262	$	4,023	$	10,285
Financing cash flows from finance leases	$	332	$	8	$	340

Future minimum lease payments required under finance and operating leases for each of the next five years and thereafter are as follows:

	Finance Leases		Operating Leases
2020	$	450	$	5,730
2021	136		4,790
2022	107		3,528
2023	79		2,946
2024	31		2,530
Thereafter	—		10,654
Total future undiscounted lease payments	803		30,178
Less: imputed interest	(61)		(6,767)
Total lease obligations	$	742	$	23,411

As of December 31, 2019, the company had additional operating leases for vehicles that were signed and had not yet commenced with future minimum lease payments of $0.3 million. These operating leases are expected to commence in 2020 with lease terms between two to four years.

Future minimum lease payments required under long-term operating leases in effect at December 31, 2018 were as follows:

2019	$	5,768
2020	4,418
2021	3,823
2022	2,877
2023	2,362
Thereafter	10,307
	$	29,555

Total rental expense under operating leases was $6.5 million and $6.1 million for the years end December 31, 2018 and December 31, 2017, respectively.