Leases

12 Months Ended

Dec. 31, 2019

16. Leases

The Company determines if a contract is a lease at inception. The Company has leases for equipment, office space, plant sites and distribution centers. Certain of these leases include options to extend the lease and some include options to terminate the lease early. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

The right-of-use asset represents the right to use an underlying asset for the lease term and the lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized as of the commencement date based on the present value of the lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise the applicable option.

The Company’s lease payments consist of both fixed and variable lease payments. Residual value guarantees are not common within the Company’s lease agreements nor are restrictions or covenants imposed by leases. The Company has elected the practical expedient to combine lease and non-lease components. The Company determined the discount rate to be used in measuring lease liabilities at a portfolio level using a collateralized rate. Specifically, we segregated our lease portfolio into different populations based on (1) lease currency, (2) lease term, and (3) creditworthiness of the lessee and security structure. There are no leases that have not yet commenced that create significant rights and obligations for the Company.

The components of lease cost are shown below:


	2019		Income Statement Location
	(Dollars in thousands)
Lease Cost
Operating lease cost ⁽¹⁾	$	5,318	Selling, general and administrative expenses
Operating lease cost ⁽²⁾		9,090	Cost of sales
Finance lease cost
Amortization of right-of-use assets		233	Cost of sales
Interest of lease liabilities		17	Interest expense
Net lease cost	$	14,658

(1)Included in operating lease cost is $0.9 million of short-term lease costs and $0.4 million of variable lease costs for the year ended December 31, 2019.

(2)Included in operating lease cost is $2.6 million of short-term lease costs and $1.1 million of variable lease costs for the year ended December 31, 2019.

Rent expense, as previously defined under ASC 840, for all operating leases was $12.7 million in 2018 and $10.3 million in 2017.

Supplemental balance sheet information related to leases are shown below:


	2019		Balance Sheet Location
	(Dollars in thousands)
Assets
Operating leased assets	$	21,684	Operating leased assets
Finance leased assets⁽¹⁾		859	Property, plant and equipment, net
Total leased assets	$	22,543
Liabilities
Current
Operating	$	7,259	Accrued expenses and other current liabilities
Finance		438	Loans payable and current portion of long-term debt
Noncurrent
Operating		15,326	Operating lease non-current liabilities
Finance		1,867	Long-term debt, less current portion
Total lease liabilities	$	24,890

(1)Finance leases are net of accumulated depreciation of $3.4 million for December 31, 2019.

Supplemental balance sheet information related to capital lease arrangements as previously defined under ASC 840 are shown below:


	2019
	(Dollars in thousands)
Gross amounts capitalized
Buildings	$	3,100
Equipment		1,129
		4,229
Accumulated amortization
Buildings		(3,100)
Equipment		(270)
		(3,370)
Net assets under capital leases	$	859

Supplemental cash flow information related to leases are shown below:


	2019
	(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	17
Operating cash flows from operating leases		9,757
Financing cash flows from finance leases		229
Leased assets obtained in exchange for new finance lease liabilities		755
Leased assets obtained in exchange for new operating lease liabilities		30,411


			2019
Weighted-average remaining lease term (years)
Operating leases			4.3
Finance leases			6.2
Weighted-average discount rate
Operating leases			4.2%
Finance leases			5.3%

Maturities of lease liabilities are shown below as of December 31, 2019:


	Finance		Operating
	Leases		Leases
	(Dollars in thousands)
2020	$	531	$	8,201
2021		478		6,010
2022		469		3,824
2023		442		2,089
2024		348		1,515
Thereafter		697		2,537
Net minimum lease payments	$	2,965	$	24,176
Less: interest		660		1,591
Present value of lease liabilities	$	2,305	$	22,585

Maturities of lease liabilities under ASC 840 are shown below as of December 31, 2018:



	Capital Leases		Operating Leases
	(Dollars in thousands)
2019	$	399	$	9,643
2020		331		6,375
2021		279		4,650
2022		279		2,889
2023		279		1,781
Thereafter		976		2,368
Net minimum lease payments	$	2,543	$	27,706
Less amount representing imputed interest and executory costs		712
Present value of net minimum lease payments		1,831
Less current portion		253
Long-term obligations at December 31, 2018	$	1,578