Leases Leases (Notes)

9 Months Ended

Dec. 31, 2021

15. Leases

Operating leases

The Company's operating leases consist of manufacturing facilities, sales offices, distribution centers, warehouses, vehicles, and equipment. For leases with terms greater than twelve months, at lease commencement the Company recognizes a right-of-use ("ROU") asset and a lease liability. The initial lease liability is recognized at the present value of remaining lease payments over the lease term. Leases with an initial term of twelve months or less are not recorded on the Company's Condensed Consolidated Balance Sheet. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term.

The Company's operating leases have lease terms ranging from 1 to 15 years, some of which include options to extend or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term. The Company’s lease agreements do not contain material residual value guarantees or any material restrictive covenants.

The following table illustrates the balance sheet classification for ROU assets and lease liabilities (in thousands):


	Balance sheet classification	December 31, 2021		March 31, 2021
Assets	Other assets	$	31,182	$	34,181

Current	Accrued liabilities	8,033		7,673
Non-current	Other non current liabilities	24,003		27,321
Total liabilities		$	32,036	$	34,994

Included in the ROU asset balance are leases held by Dorner and Garvey in the amount of $895,000 and $1,361,000, respectively, as of December 31, 2021.

Operating lease expense of $2,332,000 and $2,342,000 and $6,940,000 and 6,953,000 for the three and nine months ended December 31, 2021 and December 31, 2020, respectively, is included in income from operations on the Condensed Consolidated Statements of Operations. Short-term lease expense, sublease income, and variable lease expenses were not material for the three and nine months ended December 31, 2021 and December 31, 2020.

Supplemental cash flow information related to operating leases is as follows (in thousands):


	Nine months ended
	December 31, 2021		December 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,885	$	6,740
ROU assets obtained in exchange for new operating lease liabilities	$	3,670	$	2,421

Finance Lease

As stated in Note 9, Debt, in connection with the acquisition of Dorner, the Company recorded a finance lease for a manufacturing facility in Hartland, WI that has a 23 year lease term which terminates in 2035. The outstanding balance on the finance lease obligation is $14,213,000 as of December 31, 2021, of which $530,000 has been recorded within the Current portion of long term debt and finance lease obligations and the remaining balance is recorded within Term loan and finance lease obligations on the Company's Condensed Consolidated Balance Sheet.

Similar to the Company discount rate for operating leases, the discount rate implicit within the finance lease is not readily determinable. Therefore, the Company used its estimated incremental borrowing rate in determining the present value of lease payments. The incremental borrowing rate was determined based on the Company’s recent debt issuances, lease term, and the currency, and was determined to be 4.51%.

Lease expense of $250,000 and $734,000 is included in Income from operations in the three and nine months ended December 31, 2021, respectively, and $162,000 and $477,000 is included in Interest and debt expense in the three and nine months ended December 31, 2021, respectively, on the Company's Condensed Consolidated Statements of Operations related to the finance lease.

Supplemental cash flow information related to finance leases is as follows (in thousands):


	Nine months ended
	December 31, 2021
Cash paid for amounts included in the measurement of finance lease liabilities	$	847
ROU assets obtained in exchange for new finance lease liabilities	$	14,582