Leases

3 Months Ended

Mar. 31, 2019

NOTE 8. LEASES

We have entered into contracts with third parties to lease a variety of assets, including certain real estate, machinery, equipment, automobiles and other assets.

Our leases frequently allow for lease payments that could vary based on factors such as inflation or the degree of utilization of the underlying asset and the incurrence of contractual charges such as those for common area maintenance or utilities.

Renewal and/or early termination options are common in our lease arrangements, particularly with respect to our real estate leases. Our ROU assets and lease liabilities generally exclude periods covered by renewal options and include periods covered by early termination options (based on our conclusion that it is not reasonably certain that we will exercise such options).

Our most significant lease is for our U.S. headquarters in Malvern, Pennsylvania. The initial term of the lease is through 2024 and includes three renewal options, each for an additional 60-month period. These renewal options are not considered reasonably certain of exercise and are therefore excluded from the ROU asset and lease liability.

We are party to certain sublease arrangements, primarily related to our real estate leases, where we act as the lessee and intermediate lessor. For example, we sublease portions of our Malvern, Pennsylvania facility to multiple tenants through sublease arrangements ending in 2024, with certain limited renewal and early termination options.

The following table presents information about the Company's ROU assets and lease liabilities at March 31, 2019 (in thousands):



	Condensed Consolidated Balance Sheets Line Items	March 31, 2019
ROU assets:
Operating lease ROU assets	Operating lease assets	$	57,771
Finance lease ROU assets	Property, plant and equipment, net	57,935
Total ROU assets		$	115,706
Operating lease liabilities:
Current operating lease liabilities	Current portion of operating lease liabilities	$	12,051
Noncurrent operating lease liabilities	Operating lease liabilities, less current portion	54,258
Total operating lease liabilities		$	66,309
Finance lease liabilities:
Current finance lease liabilities	Accounts payable and accrued expenses	$	5,105
Noncurrent finance lease liabilities	Other liabilities	33,979
Total finance lease liabilities		$	39,084

The following table presents information about lease costs and expenses and sublease income for the three months ended March 31, 2019 (in thousands):



	Condensed Consolidated Statements of Operations Line Items	Three Months Ended March 31, 2019
Operating lease cost	Various (1)	$	3,499
Finance lease cost:
Amortization of ROU assets	Various (1)	$	2,296
Interest on lease liabilities	Interest expense, net	$	500
Other lease costs and income:
Variable lease costs (2)	Various (1)	$	2,089
Sublease income	Various (1)	$	(964	)

__________


(1)	Amounts are included in Cost of revenues, Selling, general and administrative and/or Research and development based on the function that the underlying leased asset supports. Of these amounts, a total of $2.7 million was Cost of revenues, $4.1 million was Selling, general and administrative and $0.1 million was Research and development.


(2)	Amounts represent variable lease costs incurred that were not included in the initial measurement of the lease liability, such as common area maintenance and utilities costs associated with leased real estate and certain costs associated with our automobile leases.

The following table, determined in accordance with ASC 842, provides the undiscounted amount of future cash flows included in our lease liabilities at March 31, 2019 for each of the five years subsequent to December 31, 2018 and thereafter, as well as a reconciliation of such undiscounted cash flows to our lease liabilities at March 31, 2019 (in thousands):



	Operating Leases		Finance Leases
2019, excluding amounts already paid	$	11,135	$	5,240
2020	13,667		7,329
2021	13,021		7,476
2022	12,309		7,626
2023	9,890		7,780
Thereafter	20,622		10,521
Total future lease payments	$	80,644	$	45,972
Less: amount representing interest	14,335		6,888
Present value of future lease payments (lease liability)	$	66,309	$	39,084

The Company’s future minimum lease commitments as of December 31, 2018 under ASC 840, as reported in the Annual Report, were as follows:



	Capital Leases (1)		Operating Leases
2019	$	6,884	$	15,800
2020	6,819		14,519
2021	6,921		12,883
2022	7,072		12,454
2023	7,225		9,945
Thereafter	9,127		20,573
Total minimum lease payments	$	44,048	$	86,174
Less: Amount representing interest	4,084
Total present value of minimum payments	$	39,964
Less: Current portion of such obligations	5,845
Long-term capital lease obligations	$	34,119

__________


(1)	The Malvern, Pennsylvania headquarters lease arrangement is included under Capital Leases.

The following table provides the weighted average remaining lease term and weighted average discount rates for our leases as of March 31, 2019:



	March 31, 2019
Weighted average remaining lease term (years), weighted based on lease liability balances:
Operating leases	6.5 years
Finance leases	6.2 years
Weighted average discount rate (percentages), weighted based on the remaining balance of lease payments:
Operating leases	5.8	%
Finance leases	5.1	%

The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the three months ended March 31, 2019 (in thousands):



	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash payments for operating leases	$	3,692
Operating cash payments for finance leases	$	473
Financing cash payments for finance leases	$	1,174
Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$	—
Finance leases	$	—

Leases

NOTE 8. LEASES

We have entered into contracts with third parties to lease a variety of assets, including certain real estate, machinery, equipment, automobiles and other assets.

The following table presents information about the Company's ROU assets and lease liabilities at March 31, 2019 (in thousands):



	Condensed Consolidated Balance Sheets Line Items	March 31, 2019
ROU assets:
Operating lease ROU assets	Operating lease assets	$	57,771
Finance lease ROU assets	Property, plant and equipment, net	57,935
Total ROU assets		$	115,706
Operating lease liabilities:
Current operating lease liabilities	Current portion of operating lease liabilities	$	12,051
Noncurrent operating lease liabilities	Operating lease liabilities, less current portion	54,258
Total operating lease liabilities		$	66,309
Finance lease liabilities:
Current finance lease liabilities	Accounts payable and accrued expenses	$	5,105
Noncurrent finance lease liabilities	Other liabilities	33,979
Total finance lease liabilities		$	39,084

The following table presents information about lease costs and expenses and sublease income for the three months ended March 31, 2019 (in thousands):



	Condensed Consolidated Statements of Operations Line Items	Three Months Ended March 31, 2019
Operating lease cost	Various (1)	$	3,499
Finance lease cost:
Amortization of ROU assets	Various (1)	$	2,296
Interest on lease liabilities	Interest expense, net	$	500
Other lease costs and income:
Variable lease costs (2)	Various (1)	$	2,089
Sublease income	Various (1)	$	(964	)

__________


(1)	Amounts are included in Cost of revenues, Selling, general and administrative and/or Research and development based on the function that the underlying leased asset supports. Of these amounts, a total of $2.7 million was Cost of revenues, $4.1 million was Selling, general and administrative and $0.1 million was Research and development.


(2)	Amounts represent variable lease costs incurred that were not included in the initial measurement of the lease liability, such as common area maintenance and utilities costs associated with leased real estate and certain costs associated with our automobile leases.



	Operating Leases		Finance Leases
2019, excluding amounts already paid	$	11,135	$	5,240
2020	13,667		7,329
2021	13,021		7,476
2022	12,309		7,626
2023	9,890		7,780
Thereafter	20,622		10,521
Total future lease payments	$	80,644	$	45,972
Less: amount representing interest	14,335		6,888
Present value of future lease payments (lease liability)	$	66,309	$	39,084

The Company’s future minimum lease commitments as of December 31, 2018 under ASC 840, as reported in the Annual Report, were as follows:



	Capital Leases (1)		Operating Leases
2019	$	6,884	$	15,800
2020	6,819		14,519
2021	6,921		12,883
2022	7,072		12,454
2023	7,225		9,945
Thereafter	9,127		20,573
Total minimum lease payments	$	44,048	$	86,174
Less: Amount representing interest	4,084
Total present value of minimum payments	$	39,964
Less: Current portion of such obligations	5,845
Long-term capital lease obligations	$	34,119

__________


(1)	The Malvern, Pennsylvania headquarters lease arrangement is included under Capital Leases.

The following table provides the weighted average remaining lease term and weighted average discount rates for our leases as of March 31, 2019:



	March 31, 2019
Weighted average remaining lease term (years), weighted based on lease liability balances:
Operating leases	6.5 years
Finance leases	6.2 years
Weighted average discount rate (percentages), weighted based on the remaining balance of lease payments:
Operating leases	5.8	%
Finance leases	5.1	%

The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the three months ended March 31, 2019 (in thousands):



	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash payments for operating leases	$	3,692
Operating cash payments for finance leases	$	473
Financing cash payments for finance leases	$	1,174
Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$	—
Finance leases	$	—