Leases

12 Months Ended

Dec. 31, 2020

Note 3 – Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, as amended, Leases (Topic 842) using the modified retrospective method of applying the new standard at the adoption date. In addition, the Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, does not require reassessment of prior conclusions related to contracts containing a lease, lease classification, and initial direct lease costs. Adoption of this standard resulted in the recording of net operating lease right-of-use (ROU) assets of $45,727 and corresponding operating lease liabilities of $67,508 as of January 1, 2019. The consolidated balance sheets for reporting periods beginning on or after January 1, 2019 are presented under the new guidance.

The Company determines if an arrangement is a lease at inception of a contract. Substantially all of the Company’s leases are operating leases. A significant portion of the Company’s operating lease portfolio includes manufacturing sites, component warehouses and corporate offices. The remaining lease terms on the majority of the Company’s leases are between 2.5 and 20 years, some of which include options to extend the lease terms. Leases with initial term of 12 months or less are not recorded on the consolidated balance sheet. Operating lease ROU assets are presented within long term assets, the current portion of operating lease liabilities are presented within current liabilities and the non-current portion of operating lease liabilities are presented within long term liabilities on the consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset during the lease term and the lease liabilities represent the Company’s obligation to make the lease payments arising during the lease. ROU assets and liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. The Company’s lease term includes options to extend or terminate the lease when it is reasonably certain that the

Company will exercise that option. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. The components of the lease costs were as follows:


		Year Ended ‎December 31, 2020		Year Ended ‎December 31, 2019
Operating lease costs:
Fixed	$	9,719	$	13,662
Short-term		843		1,032
Total lease cost	$	10,562	$	14,694


Supplemental balance sheet information related to leases were as follows:
		December 31, 2020		December 31, 2019
Operating leases:
Right of use assets	$	18,152	$	56,507

Lease liabilities:
Lease liability, current	$	11,635	$	14,960
Lease liability, long-term		18,549		53,766
Total operating lease liabilities	$	30,184	$	68,726


Supplemental cash flow information is as follows:
		Year Ended ‎December 31, 2020		Year Ended ‎December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	14,209	$	20,778
Total	$	14,209	$	20,778

Right of use assets obtained in exchange for new lease obligations:
Operating leases	$	15,939	$	32,079
Total	$	15,939	$	32,079

‎

The aggregate future lease payments for operating leases as of December 31, 2020 are as follows:


		Operating leases
2021	$	13,821
2022		4,050
2023		2,920
2024		2,177
2025		2,221
Thereafter		35,709
Total lease payments		60,898
Less: interest		(30,714)
Total	$	30,184


Weighted-average remaining lease term (years)
Operating leases		15.0
Weighted-average discount rate
Operating leases		11.3%

On February 26, 2019, the Company entered into an amendment to its lease of the Shoals manufacturing facility to extend the initial term thereof from December 31, 2021 to December 31, 2026, with two five-year extension terms thereafter through December 31, 2031 and December 31, 2036, at the Company’s option. In addition, the Company agreed to vacate up to 40% of the manufacturing facility on or before December 31, 2021 with the base rent payable to the landlord reduced on proportional basis.

The Company has accounted for the amendment as a modification of the lease, resulting in a non-cash increase to lease liability and right of use asset of $32,079. The Company has concluded that the initial term through December 31, 2026 would be included in the measurement of lease liabilities as of the modification date. The Company has concluded that the options for extensions beyond that date are not reasonably certain of exercise, and have been excluded from the measurement of lease liabilities.

In October 2019, the Company recorded a $2,445 gain as a result of the remeasurement of the lease liability following its notice of termination of the Company’s Roanoke lease.

During 2019, the Company entered into a lease agreement for new office space for which the company took possession on February 1, 2020. The new lease arrangement requires total minimum lease payments of approximately $3,000 over 11.5 years.

On October 8, 2020, FreightCar America, Inc. (the “Company”) and its wholly owned subsidiary, FreightCar Alabama, LLC (“FreightCar Alabama”), entered into the Third Amendment to Industrial Facility Lease (the “Lease Amendment”) with Teachers’ Retirement System of Alabama and the Employees’ Retirement System of Alabama as landlord (collectively, the “Landlord”), in connection with the Industrial Facility Lease, dated as of September 29, 2011, which was assigned to FreightCar Alabama on February 28, 2018 and amended by that certain Second Amendment to Industrial Facility Lease by and among FreightCar Alabama, the Landlord and the Company, as Guarantor, dated as of February 26, 2019 (as previously amended and assigned, the “Original Lease”), relating to the Company’s facility in Cherokee, Alabama (the “Facility”).

The Lease Amendment was entered into in connection with the closure of the Facility. The Lease Amendment amends the Original Lease to shorten its term by amending the expiration date from December 31, 2026 to February 28, 2021, with a single one-month extension of the new February 28, 2021 expiration date at the option of

FreightCar Alabama, and provided FreightCar Alabama with the option to store railcars and other rolling stock from the end of the term through June 30, 2021 at no additional rent or other costs, except that the Company would be obligated to pay one-month’s rent at the previous monthly rate if it exercises the one-month term extension option.

In addition, the Landlord has agreed in the Lease Amendment to waive the base rent payable under the Original Lease for the months of October 2020 through February 2021. As consideration for the Landlord’s entry into the Lease Amendment and the aforementioned rent waiver, the Company and FreightCar Alabama agreed to sell and transfer certain Facility-related assets to the Landlord. The lease termination resulted in a lease termination gain of $15,234. See Note 8 –Restructuring and Impairment Charges.