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Leases

12 Months Ended

Sep. 30, 2021

14. Leases

Effective October 1, 2019 we adopted ASC 842, Leases. We determine at lease inception whether an arrangement that provides control over the use of an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. We have elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of our leases include options to extend the term of the lease for up to 20 years.

When it is reasonably certain that we will exercise the option, Management includes the impact of the option in the lease term for purposes of determining total future lease payments. As most of our lease agreements do not explicitly state the discount rate implicit in the lease, Management uses our incremental borrowing rate on the commencement date to calculate the present value of future payments based on the tenor of each arrangement.

Our leases for real estate commonly include escalating payments. We include these variable lease payments in the calculation of our ROU asset and lease liability. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. Non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.

Our leases are for office space, manufacturing facilities, and machinery and equipment.

The components of lease costs are shown below:


	Year Ended		Year Ended
	September 30,		September 30,
(Dollars in thousands)	2021		2020
Finance lease cost:
Amortization	$	2,413	$	2,056
Interest on lease liabilities		1,235		971
Operating lease cost		5,879		5,284
Total lease cost	$	9,527	$	8,311

Additional information related to leases is shown below:


	Year Ended			Year Ended
	September 30,			September 30,
(Dollars in thousands)	2021			2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,504		$	5,223
Operating cash flows from finance leases		1,228			971
Financing cash flows from finance leases		1,757			1,547

Right-of-use assets obtained in exchange for operating lease liabilities	$	15,609		$	26,244

Weighted-average remaining lease term:
Operating leases		10.3	yrs.		6.0	yrs.
Finance leases		11.7	yrs.		12.5	yrs.
Weighted-average discount rate:
Operating leases		3.1	%		3.1	%
Finance leases		4.2	%		4.3	%

The table below is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on our Consolidated Balance Sheet on September 30, 2021:


(Dollars in thousands)	Operating		Finance
Years Ending September 30:	Leases		Leases
2022	$	5,448	3,153
2023		4,679	3,235
2024		4,032	3,319
2025		3,654	3,399
2026 and thereafter		20,453	25,516
Total minimum lease payments		38,266	38,622
Less: amounts representing interest		5,691	9,092
Present value of net minimum lease payments	$	32,575	29,530
Less: current portion of lease obligations		4,543	2,180
Non-current portion of lease obligations		28,032	27,350
ROU assets	$	31,846	24,964


(Dollars in thousands)	Operating		Finance
Years Ending September 30:	Leases		Leases
2021	$	5,614		2,930
2022		4,985		3,011
2023		3,984		3,094
2024		2,438		3,177
2025 and thereafter		6,984		28,323
Total minimum lease payments		24,005		40,535
Less: amounts representing interest		2,211		10,270
Present value of net minimum lease payments	$	21,794		30,265
Less: current portion of lease obligations		5,009		1,937
Non-current portion of lease obligations		16,785		28,328

ROU assets	$	21,390		26,164

We include operating and finance lease liabilities in the Consolidated Balance Sheet in accrued other expenses (current portion) and other liabilities (long-term portion). We include operating lease ROU assets as a caption on the Consolidated Balance Sheet and include finance lease ROU assets in Property, plant and equipment on the Consolidated Balance Sheet.