Leases

9 Months Ended

Sep. 30, 2022

13. Leases

The Company determines if an arrangement is a lease at inception. The Company has leases for manufacturing facilities, distribution centers, warehouses, office space and equipment, with remaining lease terms of one to fourteen years. Certain of these leases include options to extend the lease for up to five years, and some include options to terminate the lease early. Leases with an initial term of 12 months or less are not recorded on the statement of financial position; the Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. Operating leases with an initial term greater than 12 months are included in Right of use asset – operating leases (“ROU assets”), Operating lease liability – short term, and Operating lease liability – long term and finance leases are included in Property, plant and equipment, Finance lease liability – short term, and Finance lease liability – long term in the Condensed Consolidated Statement of Financial Position (Unaudited).

The ROU assets represent the right to use an underlying asset for the lease term and the lease liabilities represent the obligation to make lease payments. ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. When leases do not provide an implicit rate, the Company’s incremental borrowing rate is used, which is then applied at the portfolio level, based on the information available at commencement date in determining the present value of lease payments. The Company has also elected not to separate lease and non-lease components. The lease terms include options to extend or terminate the lease when it is reasonably certain the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.

Amounts included in the Condensed Consolidated Statement of Financial Position (Unaudited) related to leases include:


		September 30,		December 31,
	Classification	2022		2021
Assets:
Operating lease assets	Right of use asset - operating leases	$	29,809	$	29,285
Finance lease assets	Property, plant and equipment, net		9,248		9,765
Total lease assets		$	39,057	$	39,050

Liabilities:
Current	Operating lease liability - short-term	$	6,155	$	5,341
Long-term	Operating lease liability - long-term		23,666		23,815
Total operating lease liabilities			29,821		29,156
Current	Finance lease liability - short-term		513		500
Long-term	Finance lease liability - long-term		9,050		9,437
Total finance lease liabilities			9,563		9,937
Total lease liabilities		$	39,384	$	39,093

The components of lease expense include:


		For the Quarter Ended September 30,				For the Nine Months Ended September 30,
Lease Cost	Classification	2022		2021		2022		2021
Operating lease cost (1)	Cost of sales	$	1,440	$	1,374	$	4,172	$	3,620
Operating lease cost (1)	Selling, general and administrative expenses		803		618		2,081		1,713
Finance lease cost
Amortization expense	Cost of sales		172		172		517		402
Interest expense on lease liabilities	Interest expense, net		85		90		256		209
Total lease cost		$	2,500	$	2,254	$	7,026	$	5,944

(1)

Includes short-term leases and variable lease costs, which are immaterial

Supplemental cash flow information related to leases was as follows:


	For the Nine Months Ended September 30,
Supplemental Cash Flow Information	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,074	$	4,201
Operating cash flows from finance leases	$	256	$	209
Financing cash flows from finance leases	$	374	$	281
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	3,638	$	7,146
Finance leases	$	—	$	10,339


Lease Term and Discount Rate	September 30, 2022			December 31, 2021
Weighted-average remaining lease term (years):
Operating leases		6.62			7.27
Finance leases		13.42			14.17
Weighted-average discount rate:
Operating leases		3.6	%		3.4	%
Finance leases		3.5	%		3.5	%


Maturity of Lease Liabilities - As of September 30, 2022	Operating Leases			Finance Leases			Total
2022 (1)	$	1,805		$	210		$	2,015
2023		6,777			840			7,617
2024		5,160			861			6,021
2025		4,315			865			5,180
2026		3,796			865			4,661
After 2026		11,561			8,408			19,969
Total lease payments		33,414			12,049			45,463
Less: interest		(3,593	)		(2,486	)		(6,079	)
Present value of lease liabilities	$	29,821		$	9,563		$	39,384

(1)

Represents amounts due in 2022 after September 30, 2022

The Company has operating leases for four facilities within the Material Handling Segment that are with a related party. Total right of use assets related to these related party leases were $4.4 million and $3.6 million at September 30, 2022 and December 31, 2021, respectively. Total operating lease liabilities related to these related party leases were $4.3 million and $3.4 million at September 30, 2022 and December 31, 2021, respectively. Total lease expense from these related party leases were $0.5 million and $0.4 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and was $1.3 million in both the nine months ended September 30, 2022 and September 30, 2021.