LEASES

Adoption of ASC Topic 842, Leases

On January 1, 2019, the Company adopted ASC Topic 842, Leases, ("ASC Topic 842") using the modified retrospective approach using the effective date method, which was applied to historical leases that were still effective as of January 1, 2019. Results for reporting periods beginning January 1, 2019, are presented in accordance with ASC Topic 842, while prior period amounts are reported in accordance with historical accounting treatment under ASC Topic 840, Leases, ("ASC Topic 840"). In accordance with the adoption of ASC Topic 842, the Company now records an operating lease right-of-use ("ROU") asset and operating lease liability on the Consolidated Balance Sheets for all operating leases with a contract term in excess of 12 months. Prior to the adoption of ASC Topic 842, these same leases were treated as operating leases under ASC Topic 840 and therefore were not recorded on the December 31, 2018 Consolidated Balance Sheet. There was no impact to retained earnings and no significant impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows as a result of adopting ASC Topic 842.

Lease Recognition

The Company has entered into contractual lease arrangements to rent office space and other office equipment from third-party lessors. If a contract conveys the right to control the use of identified PP&E (an identified asset) for a period of time in exchange for consideration, the Company considers the contract to be a lease, or to contain a lease, in accordance with ASC Topic 842. Right of use (ROU) assets represent Mannatech’s right to use an underlying asset for the lease term, and lease liabilities represent Mannatech’s obligation to make future lease payments arising from the lease. Operating lease liabilities and financing lease liabilities are recorded at the present value of lease payments over the lease term at the commencement date. The related ROU assets are recorded on the same date at the amount of the initial liability, adjusted for incentives received, prepayments made to the lessor, and any initial direct costs incurred, as applicable. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. The Company accounts for lease components, such as office space, separately from the non-lease components, such as maintenance service fees, based on estimated costs from the vendor. Mannatech uses the implicit interest rate when readily determinable; however, most of Mannatech's lease agreements do not provide an implicit interest rate. As such, the Company determines the present value of future lease payments using the incremental borrowing rate available at the commencement date of the contract, or as of January 1, 2019 in the case of existing leases at adoption of ASC 842. The incremental borrowing rate is the rate available to the Company for a fully collateralized, fully amortizing loan, with the same term as the lease. The operating lease ROU asset also includes any lease incentives received in the recognition of the present value of future lease payments. Certain of Mannatech's leases may also include escalation clauses or options to extend or terminate the lease. These options are included in the present value recorded for the leases when it is reasonably certain that Mannatech will exercise that option. None of Mannatech’s current leases contain guarantees of residual value. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease costs represent the straight-line lease expense of ROU assets and short-term leases. Mannatech determines if an arrangement is a lease at inception of the contract. Resulting operating lease assets are recorded on the Consolidated Balance Sheets as a component of "Other assets" with offsetting liabilities recorded as a component of "Accrued expenses" and "Other long-term liabilities". Finance lease assets are recorded on the Consolidated Balance Sheets as a component of “Property and equipment, net” with related liabilities recorded as “Current portion of finance leases” or as “Finance leases, excluding current portion”. As of December 31, 2019, Mannatech has six financing leases, all of which pertain to certain equipment used in the business. In general, Mannatech’s operating leases relate to office space used in Mannatech’s operations, including its headquarters in Flower Mound, Texas, as well as office space in other locations around the globe in which the Company does business.

As of December 31, 2019, our leased assets and liabilities consisted of the following (in thousands):



Leases	Classification	December 31, 2019
Assets
ROU Assets from operating leases	Other assets	$	5,568
ROU Assets from financing leases	Property and equipment, net	269
Total leased assets		5,837

Liabilities
Current
Operating	Accrued expenses	$	1,622
Financing	Current portion of finance leases	87

Long-Term
Operating	Other long-term liabilities	5,307
Financing	Finance leases, excluding current portion	176
Total leased liabilities		$	7,192

We incurred the following lease costs related to our operating and finance leases (in thousands):



Lease Cost	Classification	Twelve Months Ended December 31, 2019
Operating lease cost	Other operating cost	$	2,074
Finance lease cost
Amortization of leased assets	Depreciation and amortization	111
Interest on lease liabilities	Interest expense	17
Total lease cost		$	2,202

For the twelve months ended December 31, 2019, cash paid amounts included in the measurement of lease liabilities included (in thousands):



Lease Payments	Twelve Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,154
Financing cash flows from finance leases	222

Lease term and discount rates related to the Company's leases are as follows:



	December 31, 2019
Operating leases
Weighted-average remaining lease term (years)	6.1
Weighted-average discount rate	4.04	%

Financing leases
Weighted-average remaining lease term (years)	3.2
Weighted-average discount rate	4.95	%

As of December 31, 2019, future minimum lease payments on operating and financing leases were as follows (in thousands):



	December 31, 2019
Maturity of lease liabilities	Operating Leases			Financing Leases
2020	$	1,884		$	104
2021	1,592			90
2022	1,163			64
2023	605			36
Thereafter	2,752			10
Total future minimum lease payments	$	7,996		$	304
Imputed interest	(1,067		)	(41		)
Present value of minimum lease payments	$	6,929		$	263

Under ASC Topic 840 future minimum lease payments for non-cancelable leases existing at December 31, 2018 were as follows (in thousands):



	December 31, 2018
Maturity of lease liabilities	Operating Leases		Capital Leases
2019	$	1,850	$	81
2020	977		40
2021	583		28
2022	586		7
2023	586		—
Thereafter	2,737		—
Total of future minimum lease payments at December 31, 2018	$	7,319	$	156
Less: Amounts representing interest (effective interest rate 5.61%)	—		(9		)
Present Value of lease obligations as of December 31, 2018	$	7,319	$	147