12. LEASES

The Company’s significant accounting policies are detailed in “Note 1: Summary of Significant Accounting Policies”. In February 2016, the FASB issued ASU 2016-02 “Leases” (Topic 842). Topic 842 supersedes the lease accounting guidance previously set forth in the Accounting Standards Codification (ASC) Topic 840 “Leases,” and requires lessees to recognize a lease liability and a right-of-use asset (ROU) for all leases that extend beyond one year. The Company adopted Topic 842 with a date of initial application of January 1, 2019, which resulted in a ROU asset and lease liability of approximately $6,000, including discontinued operations.

The Company did not apply Topic 842 retrospectively using the transition option in ASU 2018-11, “Targeted Improvements” to ASC 842, to not restate comparative periods in transition and instead to use the effective date of ASC 842, “Leases”, as the date of initial application of transition. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which allowed us to carry forward the historical lease classification.

The Company’s leases pertain primarily to engineering, manufacturing, sales and administrative facilities, with an initial term of one year or more. The Company has three leased facilities in Minnesota, two that expire in 2022 and one that expires in 2023, one leased facility in Illinois that expires in 2022, one leased facility in Singapore that expires in 2020, one leased facility in Indonesia that expires in 2024, and one leased facility in Germany that expires in 2022.

Certain foreign leases allow for variable lease payments that depend on an index or a market rate adjustment for the respective country and are adjusted on an annual basis. The adjustment is recognized as incurred in profit and loss. The facility leases include options to extend for terms ranging from one to five years. Lease options that the Company is reasonably certain to execute, are included in the determination of the ROU asset and lease liability. Our Indonesia lease includes embedded forward starting leases that will begin in 2022 and 2024 for additional square footage, which will result in the recognition of an additional ROU asset and lease liability in those periods of approximately $103 and $72, respectively. The Company also leases equipment that include bargain purchase options at termination. These leases have been classified as finance leases.

As of December 31, 2019, the Company has a weighted-average lease term of 1.4 years for its finance leases, and 3.1 years for its operating leases. As of December 31, 2019, the Company has a weighted-average discount rate of 5.56% for its finance leases, and 5.25% for its operating leases. Discount rates are determined based on 5 year term incremental borrowing rates at inception of the lease. Operating cash flows from continuing operations for the year ended December 31, 2019 from operating leases were $1,898. Non-cash increases for the year ended December 31, 2019, to the operating lease ROU assets, lease incentive other assets and lease liabilities from continuing operations were $741, $140, and $881, respectively. Financing lease assets are classified as machinery and equipment within the consolidated balance sheet.

The following table summarizes lease costs by type:


	Year Ended December 31,			2019
	Lease cost
	Finance lease cost:
	Amortization of right-of-use assets			$ 103
	Interest on lease liabilities			10

	Operating lease cost			1,862
	Variable lease cost*			564
	Total lease cost			$ 2,539

*Variable lease costs consists primarily of taxes, insurance, and common area or other maintenance costs for our domestic and foreign building leases.

Total expense for 2018 and 2017 under leases pertaining primarily to engineering, manufacturing, sales and administrative facilities, with an initial term of one year or more, was $2,327 and $1,728, respectively.

Maturities of lease liabilities are as follows:


		Operating Leases		Financing Leases		Total
2020		1,929		105		2,034
2021		1,591		31		1,622
2022		1,026		-		1,026
2023		418		-		418
2024		83		-		83
Total lease payments		5,047		136		5,183
Less: Interest		(381)		(5)		(386)
Present value of lease liabilities	$	4,666	$	131	$	4,797

As previously disclosed in Note 20 of the Notes to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K, prior to the adoption of ASU 2016-02, Leases (Topic 842), the future minimum payments required under lease agreements as of December 31, 2018 were 2019 - $2,417; 2020 - $2,255; 2021 - $1,689; 2022 - $950; 2023 - $188.