Recently Issued Accounting Standards

Accounting Standards Adopted in 2019: NACCO adopted Accounting Standard Update ("ASU") 2016-02, Leases (Topic 842), which is codified in Accounting Standards Codification 842, Leases (“ASC 842”), on January 1, 2019, using the modified retrospective transition method (the "guidance").

The most significant effect to the Unaudited Condensed Consolidated Balance Sheet relates to the recognition of new right-of-use assets (“ROU assets”) and lease liabilities for operating leases of real estate, mining and other equipment that expire at various dates through 2031. The majority of the Company's leases are operating leases. See the table below for further information on the Unaudited Condensed Consolidated Balance Sheet. Many leases include renewal and/or fair value or bargain purchase options, which are not recognized on the Unaudited Condensed Consolidated Balance Sheet. The Company's lease agreements do not contain lease payments that depend on an index or a rate, as such, minimum lease payments do not include variable lease payments. There was no cumulative effect adjustment to the opening balance of retained earnings. The adoption of this guidance did not have a material effect on the Company’s results of operations, cash flows, liquidity or debt-covenant compliance. NACCO did not apply the standard to the comparative periods presented in the year of adoption.

The Company elected many of the available practical expedients permitted under the guidance, which among other items, allow the Company to carry forward its historical lease classification, not reassess leases for the definition of a lease under the new standard and not separate lease components from nonlease components for all classes of underlying assets. The Company also elected the practical expedient to carry forward the historical accounting treatment for existing land easement agreements. Upon the adoption of ASC 842, NACCO did not record a ROU asset and related lease liability for leases with an initial term of 12 months or less.

Leased assets and liabilities include the following:



Description	Location	SEPTEMBER 30 2019
Assets
Operating	Operating lease right-of-use assets	$	11,721
Finance	Property, plant and equipment, net ^(a)	238

Liabilities
Current
Operating	Other current liabilities	$	1,413
Finance	Current maturities of long-term debt	161
Noncurrent
Operating	Operating lease liabilities	12,669
Finance	Long-term debt	93

^(a)Finance leased assets are recorded net of accumulated amortization of $3.0 million as of September 30, 2019.

The components of lease expense were as follows:



		THREE MONTHS ENDED		NINE MONTHS ENDED
		SEPTEMBER 30		SEPTEMBER 30
Description	Location	2019		2019
Lease expense
Operating lease cost	Selling, general and administrative expenses	$	569	$	1,783
Finance lease cost:
Amortization of leased assets	Cost of sales	104		300
Interest on lease liabilities	Interest expense	4		10
Variable lease expense	Selling, general and administrative expenses	141		416
Short-term lease expense	Selling, general and administrative expenses	79		242
Net lease expense		$	897	$	2,751

Future minimum finance and operating lease payments were as follows at September 30, 2019:



	Finance Leases		Operating Leases		Total
Remainder of 2019	$	119	$	612	$	731
2020	58		2,229		2,287
2021	37		2,125		2,162
2022	37		2,150		2,187
2023	16		1,659		1,675
Subsequent to 2023	—		10,951		10,951
Total minimum lease payments	267		19,726		$	19,993
Amounts representing interest	13		5,644
Present value of net minimum lease payments	$	254	$	14,082

As most of the Company's leases do not provide an implicit rate, the Company determines the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company considers its credit rating and the current economic environment in determining this collateralized rate. The assumptions used in accounting for ASC 842 were as follows for the three and nine months ended September 30, 2019:



	THREE MONTHS ENDED		NINE MONTHS ENDED
	September 30		September 30
	2019		2019
Weighted average remaining lease term (years)
Operating	9.76		9.76
Finance	1.95		1.95

Weighted average discount rate
Operating	6.99	%	6.99	%
Finance	5.36	%	5.36	%

The following table details cash paid for amounts included in the measurement of lease liabilities for the three and nine months ended September 30:



	THREE MONTHS ENDED		NINE MONTHS ENDED
	September 30		September 30
	2019		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	608	$	1,768
Operating cash flows from finance leases	4		10
Financing cash flows from finance leases	115		347