Leases

9 Months Ended

Sep. 29, 2019

Leases [Abstract]

Leases

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. Options to extend the term of operating leases 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 the notice required under the lease and upon the payment of a termination fee, if required. 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 September 29, 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.

On July 2, 2019, we entered into a lease agreement for office space in Long Island City, N.Y. (the “LIC Lease”), which commenced in July and ends in 2035. The present value of lease liabilities associated with the LIC Lease at the commencement date was $22 million.

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

(In thousands)	Classification in the Condensed Consolidated Balance Sheet	September 29, 2019
Operating lease right-of-use assets	Miscellaneous assets	$	54,909
Current operating lease liabilities	Accrued expenses and other	$	7,733
Noncurrent operating lease liabilities	Other	56,156
Total operating lease liabilities		$	63,889

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		For the Nine Months Ended
(In thousands)	September 29, 2019
Operating lease cost	$	2,763	$	7,310
Short term and variable lease cost	442		1,454
Total lease cost	$	3,205	$	8,764

The table below presents additional information regarding operating leases:

(In thousands, except lease term and discount rate)	September 29, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,818
Right-of-use assets obtained in exchange for operating lease liabilities(1)	$	60,988
Weighted-average remaining lease term	9.9 years
Weighted-average discount rate	4.65		%

⁽¹⁾ Amounts for the nine months ended September 29, 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 September 29, 2019, were as follows:

(In thousands)	Amount
2019 (3 months ending December 29, 2019)	$	2,284
2020	9,808
2021	9,026
2022	8,577
2023	7,970
Later Years	41,899
Total lease payments	$	79,564
Less: Interest	(15,675		)
Present value of lease liabilities	$	63,889

Finance lease    

We had a finance lease in connection with the land at our College Point, N.Y., printing and distribution facility. Interest on the lease liability was 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. On August 1, 2019, using existing cash, we purchased the assets under the finance lease for $6.9 million, which resulted in the settlement of our finance lease obligation. See Note 7 for more information.

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 September 29, 2019, the cost and accumulated depreciation related to the Company Headquarters included in Property, plant and equipment in our Condensed Consolidated Balance Sheet was approximately $508 million and $200 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 the Company Headquarters that we lease to third parties. The building rental revenue was as follows:

	For the Quarter Ended		For the Nine Months Ended
(In thousands)	September 29, 2019
Building rental revenue (1)	$	7,887	$	22,962

⁽¹⁾ Building rental revenue includes approximately $3.0 million and $8.8 million of sublease income for the quarter and nine months ended September 29, 2019, respectively.

Maturities of lease payments to be received on an annual basis for the Company's office space operating leases as of September 29, 2019, were as follows:

(In thousands)	Amount
2019 (3 months ending December 29, 2019)	$	7,590
2020	32,242
2021	32,259
2022	32,254
2023	19,329
Later Years	142,162
Total building rental revenue from operating leases	$	265,836

Leases

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. Options to extend the term of operating leases 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 the notice required under the lease and upon the payment of a termination fee, if required. 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 September 29, 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.

On July 2, 2019, we entered into a lease agreement for office space in Long Island City, N.Y. (the “LIC Lease”), which commenced in July and ends in 2035. The present value of lease liabilities associated with the LIC Lease at the commencement date was $22 million.

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

(In thousands)	Classification in the Condensed Consolidated Balance Sheet	September 29, 2019
Operating lease right-of-use assets	Miscellaneous assets	$	54,909
Current operating lease liabilities	Accrued expenses and other	$	7,733
Noncurrent operating lease liabilities	Other	56,156
Total operating lease liabilities		$	63,889

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		For the Nine Months Ended
(In thousands)	September 29, 2019
Operating lease cost	$	2,763	$	7,310
Short term and variable lease cost	442		1,454
Total lease cost	$	3,205	$	8,764

The table below presents additional information regarding operating leases:

(In thousands, except lease term and discount rate)	September 29, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,818
Right-of-use assets obtained in exchange for operating lease liabilities(1)	$	60,988
Weighted-average remaining lease term	9.9 years
Weighted-average discount rate	4.65		%

⁽¹⁾ Amounts for the nine months ended September 29, 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 September 29, 2019, were as follows:

(In thousands)	Amount
2019 (3 months ending December 29, 2019)	$	2,284
2020	9,808
2021	9,026
2022	8,577
2023	7,970
Later Years	41,899
Total lease payments	$	79,564
Less: Interest	(15,675		)
Present value of lease liabilities	$	63,889

Finance lease    

We had a finance lease in connection with the land at our College Point, N.Y., printing and distribution facility. Interest on the lease liability was 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. On August 1, 2019, using existing cash, we purchased the assets under the finance lease for $6.9 million, which resulted in the settlement of our finance lease obligation. See Note 7 for more information.

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 September 29, 2019, the cost and accumulated depreciation related to the Company Headquarters included in Property, plant and equipment in our Condensed Consolidated Balance Sheet was approximately $508 million and $200 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 the Company Headquarters that we lease to third parties. The building rental revenue was as follows:

	For the Quarter Ended		For the Nine Months Ended
(In thousands)	September 29, 2019
Building rental revenue (1)	$	7,887	$	22,962

⁽¹⁾ Building rental revenue includes approximately $3.0 million and $8.8 million of sublease income for the quarter and nine months ended September 29, 2019, respectively.

Maturities of lease payments to be received on an annual basis for the Company's office space operating leases as of September 29, 2019, were as follows:

(In thousands)	Amount
2019 (3 months ending December 29, 2019)	$	7,590
2020	32,242
2021	32,259
2022	32,254
2023	19,329
Later Years	142,162
Total building rental revenue from operating leases	$	265,836

Leases

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. Options to extend the term of operating leases 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 the notice required under the lease and upon the payment of a termination fee, if required. 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 September 29, 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.

On July 2, 2019, we entered into a lease agreement for office space in Long Island City, N.Y. (the “LIC Lease”), which commenced in July and ends in 2035. The present value of lease liabilities associated with the LIC Lease at the commencement date was $22 million.

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

(In thousands)	Classification in the Condensed Consolidated Balance Sheet	September 29, 2019
Operating lease right-of-use assets	Miscellaneous assets	$	54,909
Current operating lease liabilities	Accrued expenses and other	$	7,733
Noncurrent operating lease liabilities	Other	56,156
Total operating lease liabilities		$	63,889

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		For the Nine Months Ended
(In thousands)	September 29, 2019
Operating lease cost	$	2,763	$	7,310
Short term and variable lease cost	442		1,454
Total lease cost	$	3,205	$	8,764

The table below presents additional information regarding operating leases:

(In thousands, except lease term and discount rate)	September 29, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,818
Right-of-use assets obtained in exchange for operating lease liabilities(1)	$	60,988
Weighted-average remaining lease term	9.9 years
Weighted-average discount rate	4.65		%

⁽¹⁾ Amounts for the nine months ended September 29, 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 September 29, 2019, were as follows:

(In thousands)	Amount
2019 (3 months ending December 29, 2019)	$	2,284
2020	9,808
2021	9,026
2022	8,577
2023	7,970
Later Years	41,899
Total lease payments	$	79,564
Less: Interest	(15,675		)
Present value of lease liabilities	$	63,889

Finance lease    

We had a finance lease in connection with the land at our College Point, N.Y., printing and distribution facility. Interest on the lease liability was 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. On August 1, 2019, using existing cash, we purchased the assets under the finance lease for $6.9 million, which resulted in the settlement of our finance lease obligation. See Note 7 for more information.

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 September 29, 2019, the cost and accumulated depreciation related to the Company Headquarters included in Property, plant and equipment in our Condensed Consolidated Balance Sheet was approximately $508 million and $200 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 the Company Headquarters that we lease to third parties. The building rental revenue was as follows:

	For the Quarter Ended		For the Nine Months Ended
(In thousands)	September 29, 2019
Building rental revenue (1)	$	7,887	$	22,962

⁽¹⁾ Building rental revenue includes approximately $3.0 million and $8.8 million of sublease income for the quarter and nine months ended September 29, 2019, respectively.

Maturities of lease payments to be received on an annual basis for the Company's office space operating leases as of September 29, 2019, were as follows:

(In thousands)	Amount
2019 (3 months ending December 29, 2019)	$	7,590
2020	32,242
2021	32,259
2022	32,254
2023	19,329
Later Years	142,162
Total building rental revenue from operating leases	$	265,836