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Leases | 6 Months Ended
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Jun. 30, 2019
Lessee Disclosure [Abstract] |
Leases | 3. Leases Effective January 1, 2019, we adopted the provisions of ASC 842, Leases, using the effective date (or modified retrospective) approach for transition. Under this transition method, periods prior to 2019 have not been restated and the cumulative effect of initially applying the new standard was recorded as an adjustment to Retained earnings at January 1, 2019. The new standard is intended to increase transparency and comparability among organizations by requiring the recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We applied the new accounting standard to leases existing at the date of initial application on January 1, 2019. We elected the available package of practical expedients, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We implemented processes and internal controls to enable the preparation of financial information on adoption. The most significant impact resulting from the adoption of the new standard was the recognition of ROU assets and lease liabilities for operating leases on our balance sheet for our real estate and automobile operating leases, in addition to the derecognition and reassessment of assets and liabilities related to our primary manufacturing facility in Salt Lake City, Utah (SLC lease), which had been accounted for as a build-to-suit lease with a failed sale leaseback. For that lease, transitional guidance required the derecognition of existing assets and liabilities and a reassessment of lease classification. We determined that the lease met the criteria for recording as a finance lease and we determined the January 1, 2019 values of the ROU asset and lease liability on the basis of that reassessment. The change in the SLC lease-related assets and liabilities resulted in a $0.3 million pre-tax reduction to retained earnings at the date of adoption. 10 Index The table below presents the cumulative effect of changes made to our December 31, 2018 Balance Sheet as a result of the adoption of ASC 842, Leases: ALBANY INTERNATIONAL CORP. CONSOLIDATED BALANCE SHEET (in thousands, except share data) (unaudited)
| As previously reported at December 31, 2018 | Adjustments Increase/ (decrease) | Opening balance, as adjusted, January 1, 2019
ASSETS |  |  |
Cash and cash equivalents | $197,755 | $— | $197,755
Accounts receivable, net | 223,176 | — | 223,176
Contract assets | 57,447 | — | 57,447
Inventories | 85,904 | — | 85,904
Income taxes prepaid and receivable | 7,473 | — | 7,473
Prepaid expenses and other current assets | 21,294 | (370) | 20,924
Total current assets | 593,049 | (370) | 592,679
Property, plant and equipment, net | 462,055 | (6,144) | 455,911
Intangibles, net | 49,206 | — | 49,206
Goodwill | 164,382 | — | 164,382
Deferred income taxes | 62,622 | (20) | 62,602
Noncurrent receivables | 45,061 | — | 45,061
Other assets | 41,617 | 13,615 | 55,232
Total assets | $1,417,992 | $7,081 | $1,425,073
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |
Notes and loans payable | $— | $— | $—
Accounts payable | 52,246 | — | 52,246
Accrued liabilities | 129,030 | 4,964 | 133,994
Current maturities of long-term debt | 1,224 | (1,206) | 18
Income taxes payable | 6,806 | — | 6,806
Total current liabilities | 189,306 | 3,758 | 193,064
Long-term debt | 523,707 | (24,680) | 499,027
Other noncurrent liabilities | 88,277 | 27,968 | 116,245
Deferred taxes and other liabilities | 8,422 | — | 8,422
Total liabilities | 809,712 | 7,046 | 816,758
SHAREHOLDERS' EQUITY |  |  |
Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none issued | — | — | —
Class A Common Stock, par value $.001 per share; authorized 100,000,000 shares; issued 37,450,329 in 2018 and 37,395,753 in 2017 | 37 | — | 37
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 3,233,998 in 2018 and 2017 | 3 | — | 3
Additional paid in capital | 430,555 | — | 430,555
Retained earnings | 589,645 | 35 | 589,680
Accumulated items of other comprehensive income: |  |  |
Translation adjustments | (115,976) | — | (115,976)
Pension and postretirement liability adjustments | (47,109) | — | (47,109)
Derivative valuation adjustment | 4,697 | — | 4,697
Treasury stock (Class A), at cost 8,418,620 shares in 2018 and 8,431,335 shares in 2017 | (256,603) | — | (256,603)
Total Company shareholders' equity | 605,249 | 35 | 605,284
Noncontrolling interest | 3,031 | — | 3,031
Total equity | 608,280 | 35 | 608,315
Total liabilities and shareholders' equity | $1,417,992 | $7,081 | $1,425,073
11 Index Adoption of the standard had no impact to cash from or used in operating, investing, or financing activities in our Consolidated Statements of Cash Flows. Significant changes to our accounting policies as a result of adopting the new standard are discussed below. We determine if an arrangement is a lease at inception. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we assess whether: • The contract involves the use of an identified asset. This may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset, • The lessee has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use, and • The lessee has the right to direct the use of the asset, which is demonstrated when the lessee has decision-making rights that are most relevant to changing how and for what purpose the asset is used. Judgement is required in the application of ASC 842, including the determination of whether a contract contains a lease, the appropriate classification, allocation of consideration, and the determination of the discount rate for the lease. Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments. We are generally the lessee in our lease transactions. For periods ending after December 31, 2018, lessees are required to recognize a lease liability and an ROU asset for leases with terms greater than 12 months, in accordance with the practical expedient that is available for ongoing accounting. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term, using the rate implicit in the lease. If that rate is not readily determinable, the rate is based on the Company’s incremental borrowing rate. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease. Our ROU assets include the values associated with the additional periods when it is reasonably certain that we will exercise the option. We review the carrying value of ROU assets for impairment whenever events and circumstances indicate that the carrying value of an asset group may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. We have lease agreements with lease and non-lease components. For most leases, we account for the lease and non-lease components as a single lease component, in accordance with the practical expedient that is available for ongoing accounting. Additionally, for certain leases, such as for vehicles, we apply a portfolio approach. New leases will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Expenses related to operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile, in which interest and amortization are presented separately in the income statement. Operating lease ROU assets are included in Other assets in the Consolidated Balance Sheets and Operating lease liabilities are included in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets. Finance lease ROU assets are included in Property, plant, and equipment, net in the Consolidated Balance Sheets and Finance lease liabilities are included in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets. We have operating and finance leases for offices, manufacturing facilities, warehouses, vehicles, and certain equipment. Our leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. 12 Index The components of lease expense were as follows:
(in thousands) | For the three months ended June 30, 2019 | For the six months ended June 30, 2019
Finance lease |  |
Amortization of right-of-use asset | $246 | $499
Interest on lease liabilities | 394 | 793
Operating lease |  |
Fixed lease cost | 1,208 | 2,425
Variable lease cost | 147 | 204
Short-term lease cost | 340 | 672
Total lease expense | $2,335 | $4,593
Lease expense for the three and six month periods ended June 30, 2018 was $1.9 million and $4.0 million, respectively. Supplemental cash flow information related to leases was as follows:
(in thousands) | For the three months ended June 30, 2019 | For the six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash flows from operating leases | $1,182 | $2,373
Operating cash flows from finance leases | 394 | 793
Financing cash flows from finance leases | 178 | 578
Right-of-use assets obtained in exchange for lease obligations: |
Operating leases | $2,590 | $3,002
Finance leases | — | —
The initial recognition of each ROU asset and lease liability at lease commencement is a noncash transaction that is excluded from amounts reported in the Consolidated Statements of Cash Flows. Supplemental balance sheet information related to leases was as follows:
(in thousands) | June 30, 2019
Operating leases |
Right of use assets included in Other assets | $14,443
Lease liabilities included in |
Accrued liabilities | $3,854
Other noncurrent liabilities | 10,637
Total operating lease liabilities | $14,491
Finance leases |
Right of use assets included in Property, plant and equipment, net | $10,472
Lease liabilities included in |
Accrued liabilities | $1,252
Other noncurrent liabilities | 18,235
Total finance lease liabilities | $19,487
13 Index Additional information for leases existing at June 30, 2019 was as follows:
Weighted average remaining lease term |
Operating leases | 5 years
Finance leases | 11 years
Weighted average discount rate |
Operating leases | 5.6%
Finance leases | 8.0%
Maturities of lease liabilities as of June 30, 2019 were as follows:
(in thousands) | Operating leases | Finance lease
Year ending December 31, |  |
2019 | $2,317 | $1,371
2020 | 4,496 | 2,790
2021 | 3,304 | 2,790
2022 | 2,271 | 2,838
2023 | 1,495 | 3,004
Thereafter | 3,054 | 15,512
Total lease payments | 16,937 | 28,305
Less imputed interest | (2,446) | (8,818)
Total | $ 14,491 | $ 19,487
The finance lease liability includes the SLC lease described above, but excludes additional manufacturing space that was included in the September 2018 modification of that lease. We expect to take control of the additional space during the fourth quarter of 2019, which would be the commencement of this lease component, at which time the lease liability and ROU asset will be recorded. We will have control of the additional space through 2029 and the additional space will increase gross cash outflows during that period by $6.1 million. As of December 31, 2018, future rental payments required under operating leases with initial or remaining non-cancelable lease terms in excess of one year, were: 2019, $4.6 million; 2020, $3.2 million; 2021, $2.1 million; 2022, $1.5 million; and 2023 and thereafter, $6.5 million. As of December 31, 2018, the following schedule presents future minimum annual payments under the SLC lease finance obligation, and the present value of the minimum payments:
| (in thousands)
Year ending December 31, |
2019 | $2,451
2020 | 2,974
2021 | 2,990
2022 | 3,054
2023 | 3,277
Thereafter | 18,930
Total minimum payments | 33,676
Less imputed interest | (7,790)
Total | $ 25,886
As of December 31, 2018, the capitalized value associated with the SLC lease was included in Property, plant, and equipment, net at a value of $17.3 million, which included a gross cost of $20.8 million, and Accumulated depreciation of $3.5 million.

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- Definition The entire disclosure for lessee entity's leasing arrangements including, but not limited to, all of the following: (a.) The basis on which contingent rental payments are determined, (b.) The existence and terms of renewal or purchase options and escalation clauses, (c.) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing. + References Reference 1: http://fasb.org/us-gaap/role/ref/otherTransitionRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 + Details
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