Leases

9 Months Ended

Sep. 27, 2019

11. Leases

The Company leases certain equipment and facilities. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Many of these leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common-area maintenance or other property management costs). The Company accounts for lease and non-lease components separately. Leases with an initial term of 12 months or less are not recognized on the balance sheet.

Most leases held by the Company expire between 2019 and 2034. In the U.K., where longer lease terms are more common, the Company has a land lease that extends through 2078. Certain leases include terms such as an option to purchase the property, one or more options to renew, with renewal terms that can extend the lease term from one to 10 years, and options to terminate the leases within one year. The exercise of lease renewal or termination option is at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use assets and operating lease liabilities as they are not reasonably certain of being exercised. The Company regularly evaluates the renewal options and includes the renewal periods in the lease term when they are reasonably certain of being exercised. The depreciable life of right-of-use assets and leasehold improvements is limited to the expected lease terms.

Most leases held by the Company do not provide an implicit rate. The Company uses its incremental borrowing rate for the same jurisdiction and term as the associated lease based on the information available at the lease commencement date to determine the present value of the lease payments. The Company used the incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that date. The Company has a centrally managed treasury function; therefore, the Company applies a portfolio approach for determining the incremental borrowing rate based on the applicable lease terms and the current economic environment.

The following table summarizes the components of lease costs (in thousands):

	Three Months Ended		Nine Months Ended
	September 27,		September 27,
	2019		2019
Operating lease cost	$	1,830	$	5,695
Finance lease cost
Amortization of right-of-use assets		228		583
Interest on lease liabilities		110		316
Variable lease cost		505		1,051
Total lease cost	$	2,673	$	7,645

The following table provides the details of balance sheet information related to leases (in thousands, except lease term and discount rate):

	September 27,
	2019
Operating leases
Operating lease right-of-use assets	$	35,487

Current portion of operating lease liabilities	$	5,065
Operating lease liabilities		32,181
Total operating lease liabilities	$	37,246

Finance leases
Property, plant and equipment, gross	$	22,677
Accumulated depreciation		(7,537	)
Property, plant and equipment, net	$	15,140

Accrued expenses and other current liabilities	$	1,294
Other liabilities		14,960
Total finance lease liabilities	$	16,254

Weighted-average remaining lease term (in years)
Operating leases		10.1
Finance leases		5.0
Weighted-average discount rate
Operating leases		5.73	%
Finance leases		5.06	%

The following table provides the details of cash flow information related to leases (in thousands):

	Nine Months Ended
	September 27,
	2019
Cash paid for amounts included in lease liabilities
Operating cash flows from finance leases	$	404
Operating cash flows from operating leases	$	5,124
Financing cash flows from finance leases	$	547
Right-of-use assets obtained in exchange for new operating lease liabilities	$	5,649
Right-of-use assets obtained in exchange for new finance lease liabilities	$	9,209

Future minimum lease payments under operating and finance leases expiring subsequent to September 27, 2019, including operating leases associated with facilities that have been vacated as a result of the Company’s restructuring actions, are summarized as follows (in thousands):

Year Ending December 31,	Operating Lease			Finance Lease⁽¹⁾
2019 (remainder of year)	$	1,561		$	433
2020		6,111			9,891
2021		5,868			907
2022		5,065			907
2023		4,419			930
Thereafter		28,415			5,394
Total minimum lease payments		51,439			18,462
Less: Interest		(14,193	)		(2,208	)
Present value of lease liabilities	$	37,246		$	16,254

(1)

Future minimum lease payments under finance lease include the exercise price to purchase a facility in Germany for the year ending December 31, 2020.

Future minimum lease payments under operating and capital leases expiring subsequent to December 31, 2018 under Accounting Standards Codification Topic 840, “Leases”, including operating leases associated with facilities that have been vacated as a result of the Company’s restructuring actions, are summarized as follows (in thousands):

Year Ending December 31,	Operating Lease ⁽¹⁾		Capital Lease
2019	$	7,797	$	990
2020		6,263		980
2021		5,757		907
2022		5,264		907
2023		4,719		930
Thereafter		26,149		5,394
Total minimum lease payments	$	55,949	$	10,108

(1)

Future minimum lease payments as of December 31, 2018 included common-area maintenance and other property management costs and tax obligations.