Leases (Notes)

3 Months Ended

Mar. 31, 2019

LEASES

Lessee activities

Operating leases

We have operating leases for office space and equipment. We determine if an arrangement is a lease at inception. Certain office space leases provide for rent adjustments relating to changes in real estate taxes and other operating costs. Our operating leases generally include options to extend the term of the leases which are not recognized as part of the right-of-use asset until we are reasonably certain that the option will be exercised. We may terminate our leases with sufficient notice to the lessor and in some cases, upon the payment of a termination fee. Our leases do not include substantial variable payments based on index or rate. After the adoption of ASU 2016-02 in 2019, for all leases, a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, are recognized in the Condensed Consolidated Balance Sheet as of March 31, 2019 as described below.

Our leases do not provide a readily determinable implicit discount rate. Therefore, we estimate our incremental borrowing rate to discount the lease payments based on the information available at lease commencement.

We recognize a single lease cost on a straight-line basis over the term of the lease and we classify all cash payments within operating activities in the statement of cash flows. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We evaluate right-of-use assets for impairment consistent with our property, plant and equipment policy disclosure included in our Annual Report on Form 10-K for the year ended December 30, 2018.

The table below presents the lease-related assets and liabilities recorded on the balance sheet:



(In thousands)	Classification in the Condensed Consolidated Balance Sheet	March 31, 2019
Operating lease right-of-use assets	Miscellaneous assets	$	35,955
Current operating lease liabilities	Accrued expenses and other	6,594
Noncurrent operating lease liabilities	Other	34,939
Total operating lease liabilities		$	41,533

The total lease cost for operating leases included in Selling, general and administrative costs in our Condensed Consolidated Statement of Operations was as follows:



	For the Quarter Ended
(In thousands)	March 31, 2019
Operating lease cost	$	2,239
Short term and variable lease cost	460
Total lease cost	$	2,699

The table below presents additional information regarding operating leases:



	For the Quarter Ended
(In thousands, except lease term and discount rate)	March 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,197
Right-of-use assets obtained in exchange for operating lease liabilities⁽¹⁾	$	37,863
Weighted-average remaining lease term	7.3 years
Weighted-average discount rate	5.41		%

⁽¹⁾ Amounts for the quarter ended March 31, 2019, include the transition adjustment resulting from the adoption of ASU 2016-02 as discussed in Note 2.

Maturities of lease liabilities on an annual basis for the Company's operating leases as of March 31, 2019, were as follows:



(In thousands)	Amount
2019 (9 months ending December 29, 2019)	$	6,242
2020	7,682
2021	6,829
2022	6,261
2023	5,474
Later Years	18,158
Total lease payments	$	50,646
Less: Interest	(9,113		)
Present value of lease liabilities	$	41,533

Finance lease

We have a finance lease in connection with the land at our College Point, N.Y. printing facility. Interest on the lease liability has been recorded in Interest expense and other, net in our Condensed Consolidated Statement of Operations. Repayments of the principal portion of our lease liability are recorded in financing activities and payments of interest on our lease liability are recorded in operating activities in the statement of cash flows for our finance lease.

As of March 31, 2019, the asset related to the finance lease of $5.0 million is included in Property, plant and equipment in the Condensed Consolidated Balance Sheet. As of March 31, 2019, the undiscounted cash flow related to the finance lease was $7.1 million offset by interest of $0.3 million, resulting in $6.8 million included in Short-term debt and finance lease obligations in the Condensed Consolidated Balance Sheet.

Lessor activities

Our leases to third parties predominantly relate to office space in the Company Headquarters. We determine if an arrangement is a lease at inception. Office space leases are operating leases and generally include options to extend the term of the lease. Our leases do not include variable payments based on index or rate. We do not separate the lease and non-lease components in a contract. The non-lease components predominantly include charges for utilities usage and other operating expenses estimated based on the proportionate share of the rental space of each lease.

For our office space operating leases, we recognize rental revenue on a straight-line basis over the term of the lease and we classify all cash payments within operating activities in the statement of cash flows.

Residual value risk is not a primary risk resulting from our office space operating leases because of the long-lived nature of the underlying real estate assets which generally hold their value or appreciate in the long term.

We evaluate assets leased to third parties for impairment consistent with our property, plant and equipment policy disclosure included in our Annual Report on Form 10-K for the year ended December 30, 2018.

As of March 31, 2019, the cost and accumulated depreciation related to the Company Headquarters building included in Property, plant and equipment in our Condensed Consolidated Balance Sheet was approximately $510 million and $192 million, respectively. Office space leased to third parties represents approximately 39% of rentable square feet of the Company Headquarters.

We generate building rental revenue from the floors in our headquarter building that we lease to third parties. The building rental revenue was as follows:



	For the Quarter Ended
(In thousands)	March 31, 2019
Building rental revenue ⁽¹⁾	$	7,639

⁽¹⁾ Building rental revenue includes approximately $2.9 million of sublease income for the quarter ended March 31, 2019.

Maturities of lease payments to be received on an annual basis for the Company's office space operating leases as of March 31, 2019, were as follows:



(In thousands)	Amount
2019 (9 months ending December 29, 2019)	$	21,792
2020	32,214
2021	32,231
2022	32,226
2023	19,301
Later Years	142,057
Total building rental revenue from operating leases	$	279,821

Leases

LEASES

Lessee activities

Operating leases

We evaluate right-of-use assets for impairment consistent with our property, plant and equipment policy disclosure included in our Annual Report on Form 10-K for the year ended December 30, 2018.

The table below presents the lease-related assets and liabilities recorded on the balance sheet:



(In thousands)	Classification in the Condensed Consolidated Balance Sheet	March 31, 2019
Operating lease right-of-use assets	Miscellaneous assets	$	35,955
Current operating lease liabilities	Accrued expenses and other	6,594
Noncurrent operating lease liabilities	Other	34,939
Total operating lease liabilities		$	41,533

The total lease cost for operating leases included in Selling, general and administrative costs in our Condensed Consolidated Statement of Operations was as follows:



	For the Quarter Ended
(In thousands)	March 31, 2019
Operating lease cost	$	2,239
Short term and variable lease cost	460
Total lease cost	$	2,699

The table below presents additional information regarding operating leases:



	For the Quarter Ended
(In thousands, except lease term and discount rate)	March 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,197
Right-of-use assets obtained in exchange for operating lease liabilities⁽¹⁾	$	37,863
Weighted-average remaining lease term	7.3 years
Weighted-average discount rate	5.41		%

⁽¹⁾ Amounts for the quarter ended March 31, 2019, include the transition adjustment resulting from the adoption of ASU 2016-02 as discussed in Note 2.

Maturities of lease liabilities on an annual basis for the Company's operating leases as of March 31, 2019, were as follows:



(In thousands)	Amount
2019 (9 months ending December 29, 2019)	$	6,242
2020	7,682
2021	6,829
2022	6,261
2023	5,474
Later Years	18,158
Total lease payments	$	50,646
Less: Interest	(9,113		)
Present value of lease liabilities	$	41,533

Finance lease

Lessor activities

We generate building rental revenue from the floors in our headquarter building that we lease to third parties. The building rental revenue was as follows:



	For the Quarter Ended
(In thousands)	March 31, 2019
Building rental revenue ⁽¹⁾	$	7,639

⁽¹⁾ Building rental revenue includes approximately $2.9 million of sublease income for the quarter ended March 31, 2019.

Maturities of lease payments to be received on an annual basis for the Company's office space operating leases as of March 31, 2019, were as follows:



(In thousands)	Amount
2019 (9 months ending December 29, 2019)	$	21,792
2020	32,214
2021	32,231
2022	32,226
2023	19,301
Later Years	142,057
Total building rental revenue from operating leases	$	279,821

Leases

LEASES

Lessee activities

Operating leases

We evaluate right-of-use assets for impairment consistent with our property, plant and equipment policy disclosure included in our Annual Report on Form 10-K for the year ended December 30, 2018.

The table below presents the lease-related assets and liabilities recorded on the balance sheet:



(In thousands)	Classification in the Condensed Consolidated Balance Sheet	March 31, 2019
Operating lease right-of-use assets	Miscellaneous assets	$	35,955
Current operating lease liabilities	Accrued expenses and other	6,594
Noncurrent operating lease liabilities	Other	34,939
Total operating lease liabilities		$	41,533

The total lease cost for operating leases included in Selling, general and administrative costs in our Condensed Consolidated Statement of Operations was as follows:



	For the Quarter Ended
(In thousands)	March 31, 2019
Operating lease cost	$	2,239
Short term and variable lease cost	460
Total lease cost	$	2,699

The table below presents additional information regarding operating leases:



	For the Quarter Ended
(In thousands, except lease term and discount rate)	March 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,197
Right-of-use assets obtained in exchange for operating lease liabilities⁽¹⁾	$	37,863
Weighted-average remaining lease term	7.3 years
Weighted-average discount rate	5.41		%

⁽¹⁾ Amounts for the quarter ended March 31, 2019, include the transition adjustment resulting from the adoption of ASU 2016-02 as discussed in Note 2.

Maturities of lease liabilities on an annual basis for the Company's operating leases as of March 31, 2019, were as follows:



(In thousands)	Amount
2019 (9 months ending December 29, 2019)	$	6,242
2020	7,682
2021	6,829
2022	6,261
2023	5,474
Later Years	18,158
Total lease payments	$	50,646
Less: Interest	(9,113		)
Present value of lease liabilities	$	41,533

Finance lease

Lessor activities

We generate building rental revenue from the floors in our headquarter building that we lease to third parties. The building rental revenue was as follows:



	For the Quarter Ended
(In thousands)	March 31, 2019
Building rental revenue ⁽¹⁾	$	7,639

⁽¹⁾ Building rental revenue includes approximately $2.9 million of sublease income for the quarter ended March 31, 2019.

Maturities of lease payments to be received on an annual basis for the Company's office space operating leases as of March 31, 2019, were as follows:



(In thousands)	Amount
2019 (9 months ending December 29, 2019)	$	21,792
2020	32,214
2021	32,231
2022	32,226
2023	19,301
Later Years	142,057
Total building rental revenue from operating leases	$	279,821