Leases

12 Months Ended

Sep. 30, 2023

Leases

Leases

Note 19. Leases

On October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842).  This guidance requires that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right-of-use asset and a lease liability.  The Company adopted the provisions of ASU 2016-02 in the first quarter of fiscal 2020 using the modified retrospective transition method, which did not require the Company to adjust comparative periods.  The Company’s right-of-use assets (“ROU”) and lease liabilities are recognized on the lease commencement date in an amount that represents the present value of future lease payments.  ROU assets are included in Other assets, and the related lease obligation is included in Operating lease liabilities on the Consolidated Balance Sheets.  

Nature of the Leases

The Company has operating and finance leases for buildings, equipment (e.g. trucks and forklifts), vehicles, and computer equipment. Leasing arrangements require fixed payments and also include an amount that is probable to be owed under residual value guarantees, if applicable. Some lease payments also include payments related to purchase or termination options when the lessee is reasonably certain to exercise the option or is not reasonably certain not to exercise the option, respectively.  The leases have remaining terms of 1 to 15 years.

For all leases with an initial expected term of more than 12 months, the Company recorded, at the adoption date of ASC 842 or lease commencement date for leases entered into after the adoption date, a lease liability, which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and an ROU asset, which is an asset that represents the lessee’s right to use, or to control the use of, a specified asset for the lease term. The Company utilizes its collateralized incremental borrowing rate commensurate to the lease term as the discount rate for its leases, unless the Company can specifically determine the lessor’s implicit rate.

On January 1, 2015, the Company entered into a finance lease agreement for the building that houses the assets and operations of LaPorte Custom Metal Processing (LCMP).  The leased asset and obligation are recorded at the present value of the minimum lease payments.  The asset is included in Property, plant and equipment, net on the Consolidated Balance Sheets and is depreciated over the 20-year lease term.  The long term component of the finance lease obligation is included in Long-term obligations.

The Company entered into a 20-year “build-to-suit” lease for a building that houses the assets and operations of the service center located in LaPorte, Indiana that was relocated from Lebanon, Indiana.  During the first quarter of fiscal 2017, the Company took occupancy of the building.  The Company retained substantially all of the construction risk and was deemed to be the owner of the facility for accounting purposes, even though it is not the legal owner.  Construction

costs incurred relative to the buildout of the facility of approximately $4,100 are included in Property, plant and equipment, net on the Consolidated Balance Sheets and depreciated over the 20-year lease term.  The Company accounts for the related build-to-suit liability as a financing obligation.

Significant Judgments and Assumptions

Determination of Whether a Contract Contains a Lease

The Company determines whether a contract is or contains a lease at the inception of the contract. The contract is or contains a lease if the contract conveys the right to control the use of identified assets for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from use of the property, plant, and equipment and have the right to direct its use.

Practical Expedients (Policy Elections)

The Company elected certain practical expedients and transition relief, including the short-term lease recognition exemption, which excludes leases with a term of 12 months or less from recognition on the balance sheet, recognizing lease components and non-lease components together as a single lease component, and the transition relief package which, among other things, includes not reassessing the lease classification or whether a contract is or contains a lease. 

The following table sets forth the components of the Company’s lease cost for the years ended September 30, 2022 and 2023.

	September 30,		September 30,
	2022		2023
Finance lease cost:
Amortization of ROU asset	$	430	$	430
Interest on lease liabilities		784		759
Total finance lease cost	$	1,214	$	1,189
Operating lease cost	$	1,100	$	1,173
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases		784		759
Operating cash flows from operating leases		1,100		1,173
Financing cash flows from finance leases		228		265
Total cash paid for amounts included in measurement of lease liabilities	$	2,112	$	2,197

Lease costs associated with short term leases are not material.

The following table sets forth the Company’s ROU assets and lease liabilities as of September 30, 2022 and 2023.

	September 30,		September 30,
	2022		2023
Finance lease assets (included in Property, plant and equipment, net)	$	5,643	$	5,230
Operating ROU lease assets (included in Other assets)	$	1,085	$	1,067
Finance lease liabilities
Accrued expenses	$	265	$	302
Long-term obligations (less current portion)		7,119		6,816
Total Finance lease liabilities	$	7,384	$	7,118
Operating lease liabilities	$	1,085	$	1,067

Operating lease payments due within one year are recorded in Accrued expenses on the Consolidated Balance Sheets.

	September 30,		September 30,
	2022		2023
Weighted average lease term (Years)
Finance leases	13.1		12.1
Operating leases	3.0		2.0
Weighted average discount rate
Finance leases	10.32	%	10.32	%
Operating leases	5.25	%	5.84	%

The following is a table of future minimum lease payments during each fiscal year under operating and finance leases and the present value of the net minimum lease payments as of September 30, 2023.

	Finance		Operating
Future minimum lease payments	Leases		Leases
2024	$	1,032	$	718
2025		1,037		276
2026		1,044		126
2027		1,049		62
2028		1,050		—
Thereafter		7,357		—
Total minimum lease payments		12,569		1,182
Less: amount representing interest		(5,451)		(115)
Present value of net minimum lease payments	$	7,118	$	1,067