LEASES

12 Months Ended

Dec. 28, 2019

Adoption of ASC Topic 842, “Leases” (ASC 842)

ASC 842 became effective for the Company on December 30, 2018 and was adopted using the modified retrospective method for all leases that had commenced as of the effective date, along with certain available practical expedients. The Company elected to recognize any effects of applying the new standard as a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, which there were none. In addition, the Company elected to adopt the package of practical expedients permitted under the transition guidance within the new standard. The practical expedient package applied to leases that commenced prior to the effective date of the new standard and permits a reporting entity not to: i) reassess whether any expired or existing contracts are or contain leases, ii) reassess the historical lease classification for any expired or existing leases, and iii) reassess initial direct costs for any existing leases.

The reporting results for fiscal year 2019 reflect the application of ASC 842 guidance while the historical results for fiscal year 2018 were prepared under the guidance of ASC 840. The adoption of the new standard did not have a significant impact upon the Company’s consolidated statements of income and cash flows. The adoption of the new standard resulted in the following impact to the consolidated balance sheets: i) no significant change in the carrying values of assets and liabilities related to the Company’s finance leases, previously referred to as capital leases (See Note 9, “Long-Term Debt and Finance Lease Obligations”), ii) the derecognition of assets and related liabilities pertaining to certain build-to-suit arrangements previously accounted for under ASC 840 and recording them under the guidance of ASC 842, and iii) the recording of right-of-use assets and corresponding lease liabilities pertaining to the Company’s operating leases on the consolidated balance sheets, adjusted for

existing balances of prepaid rent and deferred rent liabilities as of the transition date. The cumulative effect of applying ASC 842 to all leases that had commenced as of December 29, 2018 was as follows:



Balance sheet captions impacted by ASC 842	December 30, 2018 (Prior to adoption of ASC 842)		Effect of the adoption of ASC 842				December 30, 2018 (As adjusted)
	(in thousands)
Prepaid assets	$	53,447	$	(4,413	)	⁽¹⁾	$	49,034
Property, plant and equipment, net	932,877		(23,448		)	⁽²⁾	909,429
Operating lease right-of-use assets, net	—		134,172			⁽³⁾	134,172
Other assets	143,759		(4,989		)	⁽⁴⁾	138,770
Other current liabilities	71,280		15,935			⁽⁵⁾	87,215
Operating lease right-of-use liabilities	—		111,570			⁽⁶⁾	111,570
Long-term debt, net and finance leases	1,636,598		(26,183		)	⁽⁷⁾	1,610,415
ASC 842 adoption adjustments:
⁽¹⁾ Short term prepaid rent reclassified from Prepaid assets to the Operating lease right-of-use assets, net.
⁽²⁾ Derecognition of approximately $26 million of leased properties, recorded in Property, plant and equipment, net, specifically Construction-in-process, that were recognized under the previously existing build-to-suit accounting rules; partially offset by Prepaid assets related to finance leases reclassified from Prepaid assets.
⁽³⁾ Recognition of Operating lease right-of-use assets, net, and adjusted for prepaid rent and deferred rent liability reclassification adjustments identified in adjustments ⁽¹⁾ ⁽⁴⁾ ⁽⁵⁾.
⁽⁴⁾ Long-term prepaid rent reclassified from Other assets to Operating lease right-of-use assets, net.
⁽⁵⁾ Recognition of short-term portion of the Operating lease right-of-use liabilities offset by reclassification of deferred rent liability to Operating lease right-of-use assets, net.
⁽⁶⁾ Recognition of long-term portion of the Operating lease right-of-use liabilities.
⁽⁷⁾ Derecognition of approximately $26 million of Other debt associated with leased properties that were recognized under the previously existing build-to-suit accounting rules.

Operating and Finance Leases

Right-of-use lease assets and lease liabilities are reported in the Company’s consolidated balance sheets as follows:



	December 28, 2019
	(in thousands)
Operating leases
Operating lease right-of-use assets, net	$	140,085

Other current liabilities	$	20,357
Operating lease right-of-use liabilities	116,252
Total operating lease liabilities	$	136,609

Finance leases
Property, plant and equipment, net	$	32,519

Current portion of long-term debt and finance leases	$	2,997
Long-term debt, net and finance leases	27,530
Total finance lease liabilities	$	30,527

The components of operating and finance lease costs for fiscal year 2019 were as follows:



	Fiscal Year
	December 28, 2019
	(in thousands)
Operating lease costs	$	30,885
Finance lease costs:
Amortization of right-of-use assets	4,007
Interest on lease liabilities	1,349
Short-term lease costs	1,056
Variable lease costs	3,161
Sublease income	(994		)
Total lease costs	$	39,464

Other information related to leases was as follows:

Supplemental cash flow information



	Fiscal Year
	December 28, 2019
	(in thousands)
Cash flows included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	27,153
Operating cash flows from finance leases	1,406
Finance cash flows from finance leases	3,766

Non-cash leases activity:
Right-of-use lease assets obtained in exchange for new operating lease liabilities	$	24,382
Right-of-use lease assets obtained in exchange for new finance lease liabilities	4,819

Lease term and discount rate



	As of
	December 28, 2019
Weighted-average remaining lease term (in years)
Operating lease	8.23
Finance lease	12.97
Weighted-average discount rate
Operating lease	4.36
Finance lease	4.58

At the lease commencement date, the discount rate implicit in the lease is used to discount the lease liability if readily determinable. If not readily determinable or leases do not contain an implicit rate, the Company’s incremental borrowing rate is used as the discount rate.

As of December 28, 2019, maturities of operating and finance lease liabilities for each of the following five years and a total thereafter were as follows:



	Operating Leases		Finance Leases
	(in thousands)
2020	$	25,955	$	4,308
2021	25,028		3,832
2022	20,614		3,819
2023	16,853		2,929
2024	16,007		2,141
Thereafter	60,371		23,650
Total minimum future lease payments	164,828		40,679
Less: Imputed interest	28,219		10,152
Total lease liabilities	$	136,609	$	30,527

Total minimum future lease payments (predominantly operating leases) of approximately $57 million for leases that have not commenced as of December 28, 2019, as the Company does not yet control the underlying assets, are not included in the consolidated financial statements. These leases are expected to commence between fiscal years 2020 and 2024 with lease terms of approximately 4 to 15 years.

As of December 29, 2018, minimum future lease payments under non-cancellable leases for each of the following five years and a total thereafter were as follows:



	Operating Leases ⁽¹⁾		Finance Leases ⁽¹⁾
	(in thousands)
2019	$	25,411	$	3,972
2020	22,400		3,759
2021	21,544		2,869
2022	18,535		2,967
2023	15,398		2,209
Thereafter	66,870		24,304
Total minimum future lease payments	$	170,158	$	40,080
⁽¹⁾ Lease commitments are presented under the guidance of ASC 840 and includes approximately $14 million of minimum future lease payments for leases that had not commenced as of December 29, 2018. These commitments relate to existing leases for which the Company does not yet control certain expansion space.

LEASES