Leases

6 Months Ended

Jun. 29, 2019

Note 3 – Leases

The Company leases buildings and machinery and equipment used for manufacturing and/or sales and administrative purposes. The Company is also party to various service, warehousing, and other agreements that it evaluates for potential embedded leases. Substantially all of the Company’s leases are structured and classified as operating leases. As of January 1, 2019, the Company accounts for its leases in accordance with ASC Topic 842.

The Company leases assets in each region in which it operates. The Company’s leases are generally denominated in the currency of the leased assets' location, which may not be the functional currency of the subsidiary lessee. Accordingly, the Company remeasures its lease liability and recognizes a transactional gain/loss for leases denominated in currencies other than the functional currency of the subsidiary lessee.

The Company recognizes right of use assets and lease liabilities for leases greater than twelve months in duration based on the contract consideration for lease components through the term of the lease and the applicable discount rate. Leases with a duration less than or equal to twelve months are considered short-term leases. The Company does not recognize right of use assets or lease liabilities for short-term leases and classifies the expense as short-term lease expense. Variable lease payments based on an index or rate are included in the right of use assets and lease liabilities based on the effective rates at lease commencement. Changes in the rates or indices do not impact the right of use asset or lease liability and are recognized as a component of lease expense in the statement of operations. Variable lease payments not based on an index or rate are not included in the initial right of use asset and lease liability and are recognized when incurred as a component of lease expense in the statement of operations.

The Company has elected to not separate contract consideration for lease and non-lease components for its building leases. In addition to the noncancellable period of a lease, the Company includes periods covered by extension options it is reasonably certain to exercise, termination options that it is reasonably certain not to exercise, and extension and termination options controlled by the lessor in its determination of the lease term. The Company uses the rate implicit in the contract whenever possible when determining the applicable discount rate. When the implicit rate is not used, the Company employs a portfolio approach based on the duration of the lease. The portfolio lease rates are calculated monthly.

No individual lease is considered significant and there are no leases that have not yet commenced that are considered significant.

The net right of use assets and lease liabilities recognized on the consolidated condensed balance sheet for the Company's operating leases as of June 29, 2019 and the net right of use assets and lease liabilities recognized upon the adoption of ASC Topic 842 on January 1, 2019 are presented below:

	June 29, 2019		January 1, 2019
Right of use assets
Operating Leases
Buildings and improvements	$	90,989	$	86,058
Machinery and equipment		5,147		5,404
Total	$	96,136	$	91,462
Current lease liabilities
Operating Leases
Buildings and improvements	$	12,676	$	10,644
Machinery and equipment		2,647		3,317
Total	$	15,323	$	13,961
Long-term lease liabilities
Operating Leases
Buildings and improvements	$	83,604	$	79,000
Machinery and equipment		2,482		2,823
Total	$	86,086	$	81,823
Total lease liabilities	$	101,409	$	95,784

Lease expense is classified in the statements of operations based on asset use. Total lease cost recognized on the consolidated condensed statements of operations is as follows:

	Fiscal quarter ended June 29, 2019		Six fiscal months ended June 29, 2019
Lease expense
Operating lease expense	$	5,627	$	11,163
Short-term lease expense		819		1,652
Variable lease expense		9		21
Total lease expense	$	6,455	$	12,836

The Company paid $10,277 for its operating leases in the six fiscal months ended June 29, 2019, which are included in operating cash flows on the consolidated condensed statement of cash flows. The weighted-average remaining lease term for the Company's operating leases is 9.2 years and the weighted-average discount rate is 6.1% as of June 29, 2019.

The undiscounted future lease payments for the Company's operating lease liabilities are as follows:

	June 29, 2019
2019 (excluding the six fiscal months ended June 29, 2019)	$	11,095
2020		19,294
2021		16,198
2022		13,408
2023		12,387
Thereafter		61,246

The undiscounted future lease payments presented in the table above include payments through the term of the lease, which may include periods beyond the noncancellable term. The difference between the total payments above and the lease liability balance is due to the discount rate used to calculate lease liabilities.

The Company elected to use the package of practical expedients available in ASC Topic 842; and accordingly, did not reassess existing contracts for leases, the classification of existing leases, or initial direct costs for any existing leases. The Company also elected to use the practical expedient available in ASC Topic 842 for land easements.

The Company did not elect the practical expedient available in ASC Topic 842 to use hindsight in determining the lease term. Accordingly, the remaining lease term as of January 1, 2019 was used to calculate the initial right of use asset and lease liability.