Leases

3 Months Ended

Mar. 31, 2019

Leases

4. Leases

On January 1, 2019, the Company adopted ASC 842 using the optional transition method which allows entities to initially apply the lease accounting transition requirements at the adoption date and recognize a cumulative effect adjustment to the opening balance sheet of retained earnings in the period of adoption without restating comparative prior periods presented. The Company recorded operating lease right of use assets of $17.0 million and operating lease liabilities of $21.0 million as of January 1, 2019. The difference between the right of use assets and the lease liabilities was due to $4.0 million of unamortized lease incentives and deferred rent at the Company’s Waltham and Marlborough facilities as of December 31, 2018.

The Company is a lessee under leases of manufacturing facilities, office spaces, machinery, certain office equipment, vehicles and information technology equipment. A majority of the Company’s leases are operating leases with remaining lease terms between six months and 11 years. Finance leases are immaterial to our consolidated financial statements. The Company determines if an arrangement qualifies as a lease and what type of lease it is at inception. The Company elected the package of practical expedients permitted under the transition guidance within the new lease standard, which among other things, allowed it to continue to account for existing leases based on the historical lease classification. The Company also elected the practical expedients to combine lease and non-lease components and to exclude right of use assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet.

Some of the lease agreements the Company enters into include Company options to either extend and/or early terminate the lease, the costs of which are included in our operating lease liabilities to the extent that such options are reasonably certain of being exercised. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years per option, some of its leases have multiple options to extend. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that the Company would exercise such options.

As of March 31, 2019, operating lease right of use assets were $16.2 million and operating lease liabilities were $20.2 million. Amounts related to financing leases were immaterial. The maturity of the Company’s operating lease liabilities as of March 

31, 2019 are as follows (amounts in thousands):

	Three Months Ended
	March 31, 2019
Lease Cost	(Amounts in thousands)
Operating lease cost	$	930
Variable operating lease cost		281
Lease cost	$	1,211

The following information represents supplemental disclosure for the consolidated statements of cash flows related to operating leases (amounts in thousands):

	Three Months Ended
	March 31, 2019
Operating cash flows from operating leases	$	(985	)

Most of the leases do not provide implicit interest rates and therefore we determine the discount rate based on our incremental borrowing rate. The incremental borrowing rate for our leases is determined based on lease term and currency in which the lease payments are made.

The weighted average remaining lease term and the weighted average discount rate used to measure our operating lease liabilities as of March 31, 2019 were:

Weighted average remaining lease term (years)	7.39
Weighted average discount rate	4.62	%

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, ASC 840, “Leases,” the total commitment for non-cancelable operating leases was $18.0 million as of December 31, 2018 (amounts in thousands):

For the Years Ended December 31,	Amount
2019	$	4,021
2020		3,599
2021		3,263
2022		2,213
2023		1,316
2024 and thereafter		3,622
Minimum operating lease payments	$	18,034