SYPRIS SOLUTIONS INC Leases Disclosure

 

The Company determines if an arrangement is a lease at its inception. The Company has entered into operating leases for real estate and personal property, including manufacturing and information technology equipment. These real estate leases have initial terms which range from to years, and often include or more options to renew. These renewal terms can extend the lease term by years, and will be included in the lease term when it is reasonably certain that the Company will exercise the option. The Company’s existing leases do contain significant restrictive provisions; however, certain leases contain provisions for payment of real estate taxes, insurance and maintenance costs by the Company. The lease agreements do contain any residual value guarantees. Some of the real estate lease agreements include periods of rent holidays and payments that escalate over the lease term by specified amounts. All operating lease expenses are recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.

 

Some leases require variable lease payments based on factors specific to the individual agreements. Variable lease payments for which we are typically responsible for include real estate taxes, insurance and common area maintenance expenses based on the Company’s pro-rata share, which are excluded from the measurement of the lease liability. Additionally, of the Company’s real estate leases has lease payments that adjust based on annual changes in the Consumer Price Index (“CPI”). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Incremental payments due to changes in the index are treated as variable lease costs and expensed as incurred.

 

These operating leases are included in “Operating lease right-of-use assets” on the Company’s consolidated balance sheets as of   and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligations to make lease payments are included in “Operating lease liabilities, current portion” and “Operating lease liabilities, net of current portion” on the Company’s consolidated balance sheets as of   Based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company recognized right-of-use assets of approximately and lease liabilities for operating leases of approximately on and included adjustments for any unamortized lease incentives and prepaid and accrued rent. Operating lease right-of-use assets and liabilities commencing after are recognized at the commencement date based on the present value of lease payments over the lease term. As of   total right-of-use assets and operating lease liabilities were approximately and respectively.

 

We primarily use our incremental borrowing rate, which is updated quarterly, based on the information available at commencement date, in determining the present value of lease payments. If readily available, we would use the implicit rate in a new lease to determine the present value of lease payments. The Company has certain contracts for real estate which contain lease and non-lease components which it has elected to treat as a single lease component.

 

The Company has entered into various short-term operating leases, primarily for office equipment with an initial term of months or less. Lease payments associated with short-term leases are expensed as incurred and are recorded on the Company’s balance sheet. The related lease expense for short-term leases was material for the year ended  

 

The following table presents information related to lease expense for the year ended   (in thousands):

 

Finance lease expense:
Amortization expense		$	481
Interest expense			348
Operating lease expense			1,406
Variable lease expense			272
Total lease expense		$	2,507

 

The following table presents supplemental cash flow information related to leases for the year ended   (in thousands):

 

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	1,436
Operating cash flows from finance leases			348
Financing cash flows from finance leases			632

 

The annual future minimum lease payments as of are as follows (in thousands):

 

		Operating				Finance
		Leases				Leases
Next 12 months		$	1,424			$	945
12 to 24 months			1,476				644
24 to 36 months			1,492				612
36 to 48 months			1,509				612
48 to 60 months			1,318				559
Thereafter			2,931				595
Total lease payments			10,150				3,967
Less imputed interest			(2,403	)			(932	)
Total		$	7,747			$	3,035

 

For the year ended and under legacy lease accounting (ASC ), future minimum lease payments under non-cancellable leases as of were expected to be as follows:

 

		Operating				Finance
		Leases				Leases
2019		$	1,453			$	927
2020			1,387				881
2021			1,430				580
2022			1,443				548
2023			1,459				548
Thereafter			4,101				1,143
Total lease payments			11,273				4,627
Less imputed interest							(1,230	)
Total						$	3,397

 

The following table presents certain information related to lease terms and discount rates for leases as of  

 

		Operating				Finance
		Leases				Leases
Weighted-average remaining lease term (years)			7.1				5.3
Weighted-average discount rate (percentage)			8.0				10.3