Leases

12 Months Ended

Dec. 31, 2019

NACCO adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019 using the modified retrospective transition method.

The most significant effect to the 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 Consolidated Balance Sheet. Many leases include renewal and/or fair value or bargain purchase options, which are not recognized on the 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	DECEMBER 31 2019
Assets
Operating	Operating lease right-of-use assets	$	11,398
Finance	Property, plant and equipment, net ^(a)	544

Liabilities
Current
Operating	Other current liabilities	$	1,318
Finance	Current maturities of long-term debt	558
Noncurrent
Operating	Operating lease liabilities	$	12,448
Finance	Long-term debt	85

^(a)Finance leased assets are recorded net of accumulated amortization of $1.9 million as of December 31, 2019.

The components of lease expense were as follows for the year ended December 31, 2019:



Description	Location
Lease expense
Operating lease cost	Selling, general and administrative expenses	$	2,251
Finance lease cost:
Amortization of leased assets	Cost of sales	570
Interest on lease liabilities	Interest expense	18
Variable lease expense	Selling, general and administrative expenses	555
Short-term lease expense	Selling, general and administrative expenses	298
Total lease expense		$	3,692

Rental expense for all operating leases was $3.7 million in 2018. Depreciation of plant and equipment under capital leases was included in depreciation expense in the year ended December 31, 2018.

Future minimum finance and operating lease payments were as follows at December 31, 2019:



	Finance Leases		Operating Leases		Total
2020	$	567	$	2,193	$	2,760
2021	37		2,149		2,186
2022	37		2,175		2,212
2023	16		1,685		1,701
2024	—		1,661		1,661
Subsequent to 2024	—		9,330		9,330
Total minimum lease payments	657		19,193		$	19,850
Amounts representing interest	14		5,427
Present value of net minimum lease payments	$	643	$	13,766

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 year ended December 31, 2019:



Lease term and discount rate
Weighted average remaining lease term (years)
Operating	9.63
Finance	0.75

Weighted average discount rate
Operating	6.99	%
Finance	5.95	%

The following table details cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2019:



Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,299
Operating cash flows from finance leases	18
Financing cash flows from finance leases	534

Leases