Leases

6 Months Ended

Jun. 28, 2019

15. LEASES

The Company's operating leases consist of rent commitments under various leases for office space, warehouses, land and buildings at varying dates from January 2019 to December 2024. The terms of most of these leases are in the range of 3 to 7 years, with certain leases renewable for varying periods. It is expected that in the normal course of business leases that expire will be renewed or replaced by leases on other similar property. Some the Company's lease obligations have rent escalations or contingent rent that are recognized on a straight-line basis over the entire lease term. Material leasehold improvements and other landlord incentives are amortized over the shorter of their economic lives or the lease term, including renewal periods, if reasonably assured. Substantially all real estate taxes, insurance and maintenance expenses associated with leased facilities are obligations of the Company. The terms for most machinery and equipment leases range from 3 to 5 years.

The Company's finance leases consist of assets purchased under the Company's master leasing agreement with PNC, including machinery, office furniture and equipment and construction in process. At June 28, 2019, the Company's master leasing agreement with PNC had a total capacity to $20.0 million. The terms of these leases are 5 years. Amortization of these assets is included in depreciation and amortization expense. At June 28, 2019, $7.7 million of assets included in property, plant and equipment, net of accumulated depreciation, were accounted for as finance leases purchased under the Company's master leasing agreement with PNC. At June 28, 2019, the Company had accumulated depreciation of $1.9 million associated with these assets. Additionally, $3.2 million of assets purchased under the Company's master leasing agreement were included in construction in process in property, plant and equipment, net of accumulated depreciation. At December 31, 2018, $10.8 million of assets purchased under the Company's master leasing agreement and accounted for as capital leases were included in property, plant and equipment, net of accumulated depreciation, with accumulated depreciation of $1.5 million. Finance leases (capital leases at December 31, 2018) of the Distribution segment were included in assets held for sale, noncurrent portion on the Company's Condensed Balance Sheets. See Note 4, Discontinued Operations, for further information on the Company's agreement to sell the Distribution segment.

At the commencement date of a contract containing a lease, a right-of-use asset and lease liability are recorded to the Company's Condensed Balance Sheets when the Company obtains control of the use of the asset. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make payments upon entering into a lease agreement.

Right-of-use assets, net consists of the following:



	Classification	June 28, 2019⁽¹⁾
In thousands
Assets
Operating lease right of use assets	Operating lease right-of-use assets, net	$	16,330
Finance lease right of use assets	Property, plant and equipment, net of accumulated depreciation	5,748
Total leased assets⁽²⁾		$	22,078

⁽¹⁾ The Company elected the modified retrospective transition method that applies ASC 842 as of January 1, 2019. See Note 3, Significant Accounting Policies Update, for further information on the adoption of ASC 842.

⁽²⁾Right of use assets of the Distribution segment were included in assets held for sale, noncurrent portion on the Company's Condensed Consolidated Balance Sheets. See Note 4, Discontinued Operations, for further information on the Company's agreement to sell the Distribution segment.

15. LEASES (CONTINUED)

The lease liability and future rental payments are required under leases that have initial or remaining non-cancellable lease terms in excess of one year as of June 28, 2019. Lease liabilities consist of the following:



	Classification	June 28, 2019		December 31, 2018
In thousands
Liabilities
Current
Operating lease liability, current portion	Operating lease liabilities, current portion	$	4,259	$	—
Finance lease liability, current portion	Other current liabilities	1,972		1,803
Noncurrent
Operating lease liability, noncurrent portion	Operating lease liabilities, noncurrent portion	12,895		—
Finance lease liability, noncurrent portion	Other long-term liabilities	6,143		6,260
Total lease liabilities⁽¹⁾		$	25,269	$	8,063

⁽¹⁾ Lease liabilities of the Distribution segment were included in liabilities held for sale on the Company's Condensed Consolidated Balance Sheets. See Note 4, Discontinued Operations, for further information on the Company's agreement to sell the Distribution segment.

Future rental payments for continuing operations consist of the following:



	June 28, 2019
In thousands

Operating leases
2019⁽¹⁾	$	2,560
2020	4,783
2021	3,847
2022	3,100
2023	2,609
Thereafter	1,970
Total future operating lease payments	$	18,869
Interest	(1,715		)
Present value of future operating lease payments	$	17,154

Finance leases
2019⁽¹⁾	$	1,147
2020	2,094
2021	1,963
2022	1,702
2023	1,181
Thereafter	394
Total future finance lease payments	$	8,481
Interest	(366		)
Present value of future finance lease payments	$	8,115

Present value of total future lease payments	$	25,269

⁽¹⁾ Payments for 2019 include payments for the remaining six months of the year ended December 31, 2019.

15. LEASES (CONTINUED)

Prior to the adoption of ASC 842, operating lease payments on an undiscounted basis for continuing operations were approximately $20.7 million and were payable as follows: $4.8 million in 2019, $4.5 million in 2020, $3.7 million in 2021, $3.1 million in 2022, $2.6 million in 2023 and $2.0 million thereafter. Prior to the adoption of ASC 842, finance lease payments (capital lease payments under ASC 840) on an undiscounted basis for continuing operations were approximately $8.1 million and were payable as follows: $1.8 million in 2019, $1.8 million in 2020, $1.7 million in 2021, $1.5 million in 2022, $1.0 million in 2023 and $0.3 million thereafter.

The following table illustrates the components of lease expense for the Company's leases.



	For the Three Months Ended		For the Six Months Ended
	June 28, 2019		June 28, 2019
In thousands
Finance lease cost
Amortization of right-of-use assets	$	238	$	465
Interest on lease liabilities	79		153
Operating lease cost	1,279		2,554
Short-term lease cost	3		27
Variable lease cost	33		53
Total lease expense⁽¹⁾	$	1,632	$	3,252

⁽¹⁾Lease expense of the Distribution segment was included in discontinued operations on the Company's Condensed Consolidated Statement of Operations. See Note 4, Discontinued Operations, for further information on the Company's agreement to sell the Distribution segment.

The following table segregates cash paid for the Company's leases.



	June 28, 2019
In thousands
Operating cash flows from operating leases	$	(2,585	)
Operating cash flows from finance leases	(153		)
Financing cash flows from finance leases	(663		)
Total cash flows from leasing activities⁽¹⁾	$	(3,401	)

⁽¹⁾Cash flows from leasing activities of the Distribution segment was included in discontinued operations on the Company's Condensed Consolidated Statement of Cash Flows. See Note 4, Discontinued Operations, for further information on the Company's agreement to sell the Distribution segment.

During the six-month fiscal period ended June 28, 2019, $0.2 million and $1.5 million in right-of-use assets were obtained in exchange for new operating lease liabilities and finance lease liabilities, respectively.

Other information related to leases is as follows:



	June 28, 2019

Weighted-average remaining lease term
Operating leases	4.44
Finance leases	3.67
Weighted-average discount rate
Operating leases	4.36	%
Finance leases	4.00	%