Leases

3 Months Ended

Mar. 31, 2019

Note 11 - Leases

We have a finance lease obligation related to our manufacturing facility in Eschenbach, Germany. Under the terms of the lease agreement, we have an option to purchase the property upon the expiration of the lease in 2021 at a price which is the greater of (i) the then-current market value or (ii) the residual book value of the land including the buildings and installations thereon. Our finance lease obligation related to this facility was $4.8 million and $5.0 million as of March 31, 2019 and December 31, 2018, respectively. The finance lease right-of-use asset balance for this facility was $6.5 million and $6.7 million as of March 31, 2019 and December 31, 2018, respectively. All other finance lease obligations and finance lease right-of-use assets were cumulatively immaterial as of March 31, 2019 and December 31, 2018. Accumulated amortization related to our finance lease right-of-use assets was $3.6 million and $3.5 million as of March 31, 2019 and December 31, 2018, respectively.

Amortization expense related to our finance lease right-of-use assets, which is included in the “Cost of sales” line item of the condensed consolidated statements of operations, was immaterial for each of the three-month periods ended March 31, 2019 and 2018. Interest expense related to our finance lease obligations, which is included in the “Interest expense, net” line item of the condensed consolidated statements of operations, was immaterial for each of the three-month periods ended March 31, 2019 and 2018. Payments made on the principal portion of our finance lease obligations were immaterial for each of the three-month periods ended March 31, 2019 and 2018.

We have operating leases primarily related to building space and vehicles. Renewal options are included in the lease term to the extent we are reasonably certain to exercise the option. The exercise of lease renewal options is at our sole discretion. We account for lease components separately from non-lease components. The incremental borrowing rate represents our ability to borrow on a collateralized basis over a similar lease term.

The following table includes our expenses and payments for operating leases for the three months ended March 31, 2019:



(Dollars in thousands)	Three Months Ended
	March 31, 2019
Operating leases expense	718
Short-term leases expense	39
Payments on operating lease obligations	764

As of March 31, 2019 and December 31, 2018, our assets and liabilities balances related to finance and operating leases were as follows:



(Dollars in thousands)	Location in Statements of Financial Position	March 31, 2019		December 31, 2018
Finance lease right-of-use assets	Property, plant and equipment, net	$	6,534	$	6,750
Operating lease right-of-use assets	Other long-term assets	$	6,235	$	—

Finance lease obligations, current portion	Other accrued liabilities	$	415	$	420
Finance lease obligations, non-current portion	Other long-term liabilities	$	4,437	$	4,629
Total finance lease obligations		$	4,852	$	5,049

Operating lease obligations, current portion	Other accrued liabilities	$	2,611	$	—
Operating lease obligations, non-current portion	Other long-term liabilities	$	3,641	$	—
Total operating lease obligations		$	6,252	$	—

Net Future Minimum Lease Payments

The following table includes future minimum lease payments under finance and operating leases together with the present value of the net future minimum lease payments as of March 31, 2019:



(Dollars in thousands)	Finance			Operating
	Leases			Leases Signed			Less: Leases Not Yet Commenced			Leases
2019	$	407		$	2,219		$	(233	)	$	1,986
2020	515			2,684			(309		)	2,375
2021	4,186			1,563			(78		)	1,485
2022	—			792			—			792
2023	—			205			—			205
Thereafter	—			22			—			22
Total Lease Payments	5,108			7,485			(620		)	6,865
Less: Interest	(256		)	(648		)	35			(613		)
Present Value of Net Future Minimum Lease Payments	$	4,852		$	6,837		$	(585	)	$	6,252

The following table includes information regarding the lease term and discount rates utilized in the calculation of the present value of net future minimum lease payments:



	Finance Leases	Operating Leases
Weighted Average Remaining Lease Term	2.3 years	3.0 years
Weighted Average Discount Rate	2.55%	6.16%

Transition

We adopted Accounting Standards Codification (ASC) 842, Leases, in the first quarter of 2019 using the optional transition method, which applies the new lease requirements through a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restatement of comparative periods. The adoption primarily affected our condensed consolidated statements of financial position through the recognition of $6.2 million of operating lease right-of-use assets and $6.2 million of operating lease obligations, as well as an immaterial impact to retained earnings, as of January 1, 2019. We recognized an additional $0.7 million of operating lease right-of-use assets and $0.7 million operating lease obligations during the three months ended March 31, 2019. The total operating lease right-of use assets and operating lease obligations recognized was $6.9 million and $6.9 million, respectively. The guidance was applied to all leases that were not completed at the date of implementation.

Practical Expedients

We have elected to recognize lease payments in the condensed consolidated statements of operations on a straight-line basis over the term of the lease for short-term leases. We also elected the package of practical expedients that allows us to carry forward the historical lease classification and accounting for indirect costs for any existing leases.

Leases