POWER SOLUTIONS INTERNATIONAL, INC.PSIX
POWER SOLUTIONS INTERNATIONAL, INC. Leases Disclosure
Leases
Lease Policies
The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term while lease liabilities represent the obligation to make lease payments arising from the lease. All leases with an expected term greater than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the lease commencement date to determine the present value of the lease payments unless the implicit rate in the lease is readily determinable. The incremental borrowing rate is determined considering factors such as the lease term, the Company’s credit standing and the economic environment of the location of the lease.
The lease term includes all non-cancellable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that the Company will exercise the option. Leases that have a term of 12 months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of a ROU asset or lease liability.
The Company classifies leases as finance leases when (i) there is a transfer of ownership of the underlying asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that the Company is reasonably certain will be exercised, (iii) the lease term is for the majority of the remaining economic life of the asset, or (iv) the present value of the lease payments and any residual value guarantee equals or substantially exceeds the fair value of the asset.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for finance leases is generally front-loaded as the finance lease ROU asset is depreciated on a straight-line basis, but interest expense on the lease liability is recognized using the interest method which results in more expense during the early years of the lease. Variable lease payments are expensed in the period in which the obligation for those payments is incurred. The Company has elected to combine lease and non-lease components, such as fixed maintenance costs, as a single lease component in calculating ROU assets and lease liabilities for all classes of leased assets.
Leases
The Company has obligations under lease arrangements primarily for facilities, equipment and vehicles. These leases have original lease periods expiring between September 2025 and July 2034. The following table summarizes the lease expense by category in the Consolidated Statements of Income:
| (in thousands) | For the Year Ended December 31, | |||||||||||||
| 2024 | 2023 | |||||||||||||
| Cost of sales | $ | 7,603 | $ | 8,111 | ||||||||||
| Research, development and engineering expenses | 326 | 295 | ||||||||||||
| Selling, general and administrative expenses | 266 | 180 | ||||||||||||
| Interest expense | 8 | 14 | ||||||||||||
| Total | $ | 8,203 | $ | 8,600 | ||||||||||
The following table summarizes the components of lease expense and income:
| (in thousands) | For the Year Ended December 31, | |||||||||||||
| 2024 | 2023 | |||||||||||||
Operating lease cost | $ | 6,126 | $ | 5,885 | ||||||||||
| Finance lease cost: | ||||||||||||||
| Amortization of ROU asset | 66 | 82 | ||||||||||||
| Interest expense | 8 | 14 | ||||||||||||
Short-term lease cost | 861 | 1,005 | ||||||||||||
Variable lease cost | 1,142 | 1,614 | ||||||||||||
| Sublease income | — | (619) | ||||||||||||
| Total lease cost, net | $ | 8,203 | $ | 7,981 | ||||||||||
The following table presents supplemental cash flow information related to leases:
| (in thousands) | For the Year Ended December 31, | |||||||||||||
| 2024 | 2023 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||
| Operating cash flows paid for operating leases | $ | 6,063 | $ | 4,719 | ||||||||||
| Operating cash flows paid for interest portion of finance leases | 8 | 14 | ||||||||||||
| Financing cash flows paid for principal portion of finance leases | 76 | 90 | ||||||||||||
Right-of-use assets obtained in exchange for lease obligations | ||||||||||||||
Operating leases | 1,139 | 18,095 | ||||||||||||
| Finance leases | — | — | ||||||||||||
As of December 31, 2024 and 2023, the weighted-average remaining lease term was 5.3 years and 6.2 years for operating leases and 1.2 years and 2.2 years for finance leases, respectively. As of December 31, 2024 and 2023, the weighted-average discount rate was 7.5% and 7.6% for operating leases, respectively, and 6.5% for finance leases as of both periods.
The following table presents supplemental balance sheet information related to leases:
| (in thousands) | As of December 31, | |||||||||||||
| 2024 | 2023 | |||||||||||||
Operating lease ROU assets, net | $ | 23,275 | $ | 27,145 | ||||||||||
Operating lease liabilities, current | 4,503 | 3,912 | ||||||||||||
| Operating lease liabilities, non-current | 20,663 | 25,070 | ||||||||||||
Total operating lease liabilities | $ | 25,166 | $ | 28,982 | ||||||||||
Finance lease ROU assets, net 1 | $ | 78 | $ | 144 | ||||||||||
Finance lease liabilities, current | 78 | 76 | ||||||||||||
| Finance lease liabilities, non-current | 16 | 94 | ||||||||||||
Total finance lease liabilities | $ | 94 | $ | 170 | ||||||||||
1. Included in , net for finance leases on the Consolidated Balance Sheets.
The following table presents maturity analysis of lease liabilities as of December 31, 2024:
| (in thousands) | ||||||||||||||
| Year Ending December 31, | Operating Leases | Finance Leases | ||||||||||||
| 2025 | $ | 6,250 | $ | 81 | ||||||||||
| 2026 | 5,946 | 16 | ||||||||||||
| 2027 | 5,950 | — | ||||||||||||
| 2028 | 4,972 | — | ||||||||||||
| 2029 | 4,001 | — | ||||||||||||
| Thereafter | 3,532 | — | ||||||||||||
Total undiscounted lease payments | 30,651 | 97 | ||||||||||||
Less: imputed interest | 5,485 | 3 | ||||||||||||
Total lease liabilities | $ | 25,166 | $ | 94 | ||||||||||
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.