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LEASES | 9 Months Ended
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Sep. 28, 2019
Leases [Abstract] |
LEASES | LEASES Adoption of ASC Topic 842, “Leases” (ASC 842) ASC 842 became effective for the Company on December 30, 2018 and was adopted using the modified retrospective method for all leases that had commenced as of the effective date, along with certain available practical expedients. The Company elected to recognize any effects of applying the new standard as a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, which there were none. In addition, the Company elected to adopt the package of practical expedients permitted under the transition guidance within the new standard. The practical expedient package applied to leases that commenced prior to the effective date of the new standard and permits a reporting entity not to: i) reassess whether any expired or existing contracts are or contain leases, ii) reassess the historical lease classification for any expired or existing leases, and iii) reassess initial direct costs for any existing leases. The reporting results for the nine months ended September 28, 2019 reflect the application of ASC 842 guidance while the historical results for fiscal year 2018 were prepared under the guidance of ASC 840. The adoption of the new standard did not have a significant impact upon the Company’s condensed consolidated statements of income and cash flows. The adoption of the new standard resulted in the following impact to the condensed consolidated balance sheet: i) no significant change in the carrying values of assets and liabilities related to the Company’s finance leases, previously referred to as capital leases (See Note 9, “Long-Term Debt and Finance Lease Obligations”), ii) the derecognition of assets and related liabilities pertaining to certain build-to-suit arrangements previously accounted for under ASC 840 and recording them under the guidance of ASC 842, and iii) the recording of right-of-use assets and corresponding lease liabilities pertaining to the Company’s operating leases on the condensed consolidated balance sheet, adjusted for existing balances of prepaid rent and deferred rent liabilities as of the transition date. The cumulative effect of applying ASC 842 to all leases that had commenced as of December 30, 2018 was as follows:
Balance sheet captions impacted by ASC 842 |  | December 30, 2018 (Prior to adoption of ASC 842) |  | Effect of the adoption of ASC 842 |  |  | December 30, 2018 (As adjusted)
|  | (in thousands)
Prepaid assets |  | $ | 53,447 |  |  | $ | (4,413 | ) | (1) |  | $ | 49,034 |
Property, plant and equipment, net |  | 932,877 |  |  | (23,448 | ) | (2) |  | 909,429 |
Operating lease right-of-use assets, net |  | — |  |  | 134,172 |  | (3) |  | 134,172 |
Other assets |  | 143,759 |  |  | (4,989 | ) | (4) |  | 138,770 |
Other current liabilities |  | 71,280 |  |  | 15,935 |  | (5) |  | 87,215 |
Operating lease right-of-use liabilities |  | — |  |  | 111,570 |  | (6) |  | 111,570 |
Long-term debt, net and finance leases |  | 1,636,598 |  |  | (26,183 | ) | (7) |  | 1,610,415 |
ASC 842 adoption adjustments:
(1) Short term prepaid rent reclassified from Prepaid assets to the Operating lease right-of-use asset.
(2) Derecognition of approximately $26 million of leased properties, recorded in Property, plant and equipment, specifically Construction-in-process, that were recognized under the previously existing build-to-suit accounting rules; partially offset by Prepaid assets related to finance leases reclassified from Prepaid assets.
(3) Recognition of Operating lease right-to-use asset and adjusted for prepaid rent and deferred rent liability reclassification adjustments identified in adjustments (1) (4) (5).
(4) Long-term prepaid rent reclassified from Other assets to the Operating lease right-of-use asset.
(5) Recognition of short-term portion of the Operating lease right-of-use liabilities offset by reclassification of deferred rent liability to Operating lease right-of-use asset.
(6) Recognition of long-term portion of the Operating lease right-of-use liabilities.
(7) Derecognition of approximately $26 million of Other debt associated with leased properties that were recognized under the previously existing build-to-suit accounting rules.
Operating and Finance Leases At inception of a contract, the Company determines if a contract meets the definition of a lease. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company determines if the contract conveys the right to control the use of an identified asset for a period of time. The Company assesses throughout the period of use whether the Company has both of the following: (1) the right to obtain substantially all of the economic benefits from use of the identified asset, and (2) the right to direct the use of the identified asset. This determination is reassessed if the terms of the contract are changed. Leases are classified as operating or finance leases based on the terms of the lease agreement and certain characteristics of the identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement date based on the present value of the minimum future lease payments. The Company leases laboratory, production, and office space (real estate), as well as land, vehicles and certain equipment under non-cancellable operating and finance leases. The carrying value of the Company’s right-of-use lease assets is substantially concentrated in its real estate leases, while the volume of lease agreements is primarily concentrated in vehicles and equipment leases. The Company’s policy is to not record leases with an original term of twelve months or less on the condensed consolidated balance sheets. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. Certain lease agreements include rental payments that are adjusted periodically for inflation or other variables. In addition to rent, the leases may require the Company to pay additional amounts for taxes, insurance, maintenance and other expenses, which are generally referred to as non-lease components. Such adjustments to rental payments and variable non-lease components are treated as variable lease payments and recognized in the period in which the obligation for these payments was incurred. Variable lease components and variable non-lease components are not measured as part of the right of use asset and liability. Only when lease components and their associated non-lease components are fixed are they accounted for as a single lease component and are recognized as part of a right of use asset and liability. Total contract consideration is allocated to the combined fixed lease and non-lease component. This policy election applies consistently to all asset classes under lease agreements. Most leases contain clauses for renewal at the Company’s option with renewal terms that generally extend the lease term from 1 to 5 years. Certain lease agreements contain options to purchase the leased property and options to terminate the lease. Payments to be made in option periods are recognized as part of the right-of-use lease assets and lease liabilities when it is reasonably certain that the option to extend the lease will be exercised or the option to terminate the lease will not be exercised, or is not at the Company’s option. The Company determines whether the reasonably certain threshold is met by considering contract-, asset-, market-, and entity-based factors. A portfolio approach is applied to certain lease contracts with similar characteristics. The Company’s lease agreements do not contain any significant residual value guarantees or material restrictive covenants imposed by the leases. The Company subleases a limited number of lease arrangements. Sublease activity is not material to the condensed consolidated financial statements. Right-of-use lease assets and lease liabilities are reported in the Company’s unaudited condensed consolidated balance sheets as follows:
|  | September 28, 2019
|  | (in thousands)
Operating leases |  |
Operating lease right-of-use assets, net |  | $ | 140,359 |
Other current liabilities |  | $ | 20,032 |
Operating lease right-of-use liabilities |  | 116,868 |
Total operating lease liabilities |  | $ | 136,900 |
Finance leases |  |
Property, plant and equipment, net |  | $ | 32,076 |
Current portion of long-term debt and finance leases |  | $ | 3,002 |
Long-term debt, net and finance leases |  | 26,710 |
Total finance lease liabilities |  | $ | 29,712 |
The components of operating and finance lease costs for the three and nine months ended September 28, 2019 were as follows:
|  | September 28, 2019
|  | Three Months Ended |  | Nine Months Ended
|  | (in thousands)
Operating lease costs |  | $ | 7,839 |  |  | $ | 23,433 |
Finance lease costs: |  |  |  |
Amortization of right-of-use assets |  | 1,070 |  |  | 2,921 |
Interest on lease liabilities |  | 360 |  |  | 1,001 |
Short-term lease costs |  | 256 |  |  | 652 |
Variable lease costs |  | 646 |  |  | 1,911 |
Sublease income |  | (383 | ) |  | (474 | )
Total lease costs |  | $ | 9,788 |  |  | $ | 29,444 |
Other information related to leases was as follows: Supplemental cash flow information
|  | Nine Months Ended
|  | September 28, 2019
|  | (in thousands)
Cash flows included in the measurement of lease liabilities: |  |
Operating cash flows from operating leases |  | $ | 20,084 |
Operating cash flows from finance leases |  | 1,058 |
Finance cash flows from finance leases |  | 2,862 |
Non-cash leases activity: |  |
Right-of-use lease assets obtained in exchange for new operating lease liabilities |  | $ | 20,805 |
Right-of-use lease assets obtained in exchange for new finance lease liabilities |  | 4,741 |
Lease term and discount rate
|  | As of
|  | September 28, 2019
Weighted-average remaining lease term (in years) |  |
Operating lease |  | 8.35
Finance lease |  | 12.94
Weighted-average discount rate |  |
Operating lease |  | 4.37
Finance lease |  | 4.40
At the lease commencement date, the discount rate implicit in the lease is used to discount the lease liability if readily determinable. If not readily determinable or leases do not contain an implicit rate, the Company’s incremental borrowing rate is used as the discount rate. As of September 28, 2019, maturities of operating and finance lease liabilities for each of the following five years and a total thereafter were as follows:
|  | Operating Leases |  | Finance Leases
|  | (in thousands)
2019 (excluding the nine months ended September 28, 2019) |  | $ | 6,264 |  |  | $ | 1,244 |
2020 |  | 25,519 |  |  | 4,658 |
2021 |  | 23,993 |  |  | 3,651 |
2022 |  | 20,188 |  |  | 3,622 |
2023 |  | 16,197 |  |  | 2,760 |
Thereafter |  | 74,148 |  |  | 24,235 |
Total minimum future lease payments |  | 166,309 |  |  | 40,170 |
Less: Imputed interest |  | 29,409 |  |  | 10,458 |
Total lease liabilities |  | $ | 136,900 |  |  | $ | 29,712 |
Total minimum future lease payments (predominantly operating leases) of approximately $47 million for leases that have not commenced as of September 28, 2019, as the Company does not yet control the underlying assets, are not included in the condensed consolidated financial statements. These leases are expected to commence between fiscal years 2019 and 2024 with lease terms of approximately 3 to 15 years. As of December 29, 2018, minimum future lease payments under non-cancellable leases for each of the following five years and a total thereafter were as follows:
|  | Operating Leases (1) |  | Finance Leases (1)
|  | (in thousands)
2019 |  | $ | 25,411 |  |  | $ | 3,972 |
2020 |  | 22,400 |  |  | 3,759 |
2021 |  | 21,544 |  |  | 2,869 |
2022 |  | 18,535 |  |  | 2,967 |
2023 |  | 15,398 |  |  | 2,209 |
Thereafter |  | 66,870 |  |  | 24,304 |
Total minimum future lease payments |  | $ | 170,158 |  |  | $ | 40,080 |
(1) Lease commitments are presented under the guidance of ASC 840 and includes approximately $14 million of minimum future lease payments for leases that had not commenced as of December 29, 2018. These commitments relate to existing leases for which the Company does not yet control certain expansion space.
LEASES | LEASES Adoption of ASC Topic 842, “Leases” (ASC 842) ASC 842 became effective for the Company on December 30, 2018 and was adopted using the modified retrospective method for all leases that had commenced as of the effective date, along with certain available practical expedients. The Company elected to recognize any effects of applying the new standard as a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, which there were none. In addition, the Company elected to adopt the package of practical expedients permitted under the transition guidance within the new standard. The practical expedient package applied to leases that commenced prior to the effective date of the new standard and permits a reporting entity not to: i) reassess whether any expired or existing contracts are or contain leases, ii) reassess the historical lease classification for any expired or existing leases, and iii) reassess initial direct costs for any existing leases. The reporting results for the nine months ended September 28, 2019 reflect the application of ASC 842 guidance while the historical results for fiscal year 2018 were prepared under the guidance of ASC 840. The adoption of the new standard did not have a significant impact upon the Company’s condensed consolidated statements of income and cash flows. The adoption of the new standard resulted in the following impact to the condensed consolidated balance sheet: i) no significant change in the carrying values of assets and liabilities related to the Company’s finance leases, previously referred to as capital leases (See Note 9, “Long-Term Debt and Finance Lease Obligations”), ii) the derecognition of assets and related liabilities pertaining to certain build-to-suit arrangements previously accounted for under ASC 840 and recording them under the guidance of ASC 842, and iii) the recording of right-of-use assets and corresponding lease liabilities pertaining to the Company’s operating leases on the condensed consolidated balance sheet, adjusted for existing balances of prepaid rent and deferred rent liabilities as of the transition date. The cumulative effect of applying ASC 842 to all leases that had commenced as of December 30, 2018 was as follows:
Balance sheet captions impacted by ASC 842 |  | December 30, 2018 (Prior to adoption of ASC 842) |  | Effect of the adoption of ASC 842 |  |  | December 30, 2018 (As adjusted)
|  | (in thousands)
Prepaid assets |  | $ | 53,447 |  |  | $ | (4,413 | ) | (1) |  | $ | 49,034 |
Property, plant and equipment, net |  | 932,877 |  |  | (23,448 | ) | (2) |  | 909,429 |
Operating lease right-of-use assets, net |  | — |  |  | 134,172 |  | (3) |  | 134,172 |
Other assets |  | 143,759 |  |  | (4,989 | ) | (4) |  | 138,770 |
Other current liabilities |  | 71,280 |  |  | 15,935 |  | (5) |  | 87,215 |
Operating lease right-of-use liabilities |  | — |  |  | 111,570 |  | (6) |  | 111,570 |
Long-term debt, net and finance leases |  | 1,636,598 |  |  | (26,183 | ) | (7) |  | 1,610,415 |
ASC 842 adoption adjustments:
(1) Short term prepaid rent reclassified from Prepaid assets to the Operating lease right-of-use asset.
(2) Derecognition of approximately $26 million of leased properties, recorded in Property, plant and equipment, specifically Construction-in-process, that were recognized under the previously existing build-to-suit accounting rules; partially offset by Prepaid assets related to finance leases reclassified from Prepaid assets.
(3) Recognition of Operating lease right-to-use asset and adjusted for prepaid rent and deferred rent liability reclassification adjustments identified in adjustments (1) (4) (5).
(4) Long-term prepaid rent reclassified from Other assets to the Operating lease right-of-use asset.
(5) Recognition of short-term portion of the Operating lease right-of-use liabilities offset by reclassification of deferred rent liability to Operating lease right-of-use asset.
(6) Recognition of long-term portion of the Operating lease right-of-use liabilities.
(7) Derecognition of approximately $26 million of Other debt associated with leased properties that were recognized under the previously existing build-to-suit accounting rules.
Operating and Finance Leases At inception of a contract, the Company determines if a contract meets the definition of a lease. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company determines if the contract conveys the right to control the use of an identified asset for a period of time. The Company assesses throughout the period of use whether the Company has both of the following: (1) the right to obtain substantially all of the economic benefits from use of the identified asset, and (2) the right to direct the use of the identified asset. This determination is reassessed if the terms of the contract are changed. Leases are classified as operating or finance leases based on the terms of the lease agreement and certain characteristics of the identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement date based on the present value of the minimum future lease payments. The Company leases laboratory, production, and office space (real estate), as well as land, vehicles and certain equipment under non-cancellable operating and finance leases. The carrying value of the Company’s right-of-use lease assets is substantially concentrated in its real estate leases, while the volume of lease agreements is primarily concentrated in vehicles and equipment leases. The Company’s policy is to not record leases with an original term of twelve months or less on the condensed consolidated balance sheets. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. Certain lease agreements include rental payments that are adjusted periodically for inflation or other variables. In addition to rent, the leases may require the Company to pay additional amounts for taxes, insurance, maintenance and other expenses, which are generally referred to as non-lease components. Such adjustments to rental payments and variable non-lease components are treated as variable lease payments and recognized in the period in which the obligation for these payments was incurred. Variable lease components and variable non-lease components are not measured as part of the right of use asset and liability. Only when lease components and their associated non-lease components are fixed are they accounted for as a single lease component and are recognized as part of a right of use asset and liability. Total contract consideration is allocated to the combined fixed lease and non-lease component. This policy election applies consistently to all asset classes under lease agreements. Most leases contain clauses for renewal at the Company’s option with renewal terms that generally extend the lease term from 1 to 5 years. Certain lease agreements contain options to purchase the leased property and options to terminate the lease. Payments to be made in option periods are recognized as part of the right-of-use lease assets and lease liabilities when it is reasonably certain that the option to extend the lease will be exercised or the option to terminate the lease will not be exercised, or is not at the Company’s option. The Company determines whether the reasonably certain threshold is met by considering contract-, asset-, market-, and entity-based factors. A portfolio approach is applied to certain lease contracts with similar characteristics. The Company’s lease agreements do not contain any significant residual value guarantees or material restrictive covenants imposed by the leases. The Company subleases a limited number of lease arrangements. Sublease activity is not material to the condensed consolidated financial statements. Right-of-use lease assets and lease liabilities are reported in the Company’s unaudited condensed consolidated balance sheets as follows:
|  | September 28, 2019
|  | (in thousands)
Operating leases |  |
Operating lease right-of-use assets, net |  | $ | 140,359 |
Other current liabilities |  | $ | 20,032 |
Operating lease right-of-use liabilities |  | 116,868 |
Total operating lease liabilities |  | $ | 136,900 |
Finance leases |  |
Property, plant and equipment, net |  | $ | 32,076 |
Current portion of long-term debt and finance leases |  | $ | 3,002 |
Long-term debt, net and finance leases |  | 26,710 |
Total finance lease liabilities |  | $ | 29,712 |
The components of operating and finance lease costs for the three and nine months ended September 28, 2019 were as follows:
|  | September 28, 2019
|  | Three Months Ended |  | Nine Months Ended
|  | (in thousands)
Operating lease costs |  | $ | 7,839 |  |  | $ | 23,433 |
Finance lease costs: |  |  |  |
Amortization of right-of-use assets |  | 1,070 |  |  | 2,921 |
Interest on lease liabilities |  | 360 |  |  | 1,001 |
Short-term lease costs |  | 256 |  |  | 652 |
Variable lease costs |  | 646 |  |  | 1,911 |
Sublease income |  | (383 | ) |  | (474 | )
Total lease costs |  | $ | 9,788 |  |  | $ | 29,444 |
Other information related to leases was as follows: Supplemental cash flow information
|  | Nine Months Ended
|  | September 28, 2019
|  | (in thousands)
Cash flows included in the measurement of lease liabilities: |  |
Operating cash flows from operating leases |  | $ | 20,084 |
Operating cash flows from finance leases |  | 1,058 |
Finance cash flows from finance leases |  | 2,862 |
Non-cash leases activity: |  |
Right-of-use lease assets obtained in exchange for new operating lease liabilities |  | $ | 20,805 |
Right-of-use lease assets obtained in exchange for new finance lease liabilities |  | 4,741 |
Lease term and discount rate
|  | As of
|  | September 28, 2019
Weighted-average remaining lease term (in years) |  |
Operating lease |  | 8.35
Finance lease |  | 12.94
Weighted-average discount rate |  |
Operating lease |  | 4.37
Finance lease |  | 4.40
At the lease commencement date, the discount rate implicit in the lease is used to discount the lease liability if readily determinable. If not readily determinable or leases do not contain an implicit rate, the Company’s incremental borrowing rate is used as the discount rate. As of September 28, 2019, maturities of operating and finance lease liabilities for each of the following five years and a total thereafter were as follows:
|  | Operating Leases |  | Finance Leases
|  | (in thousands)
2019 (excluding the nine months ended September 28, 2019) |  | $ | 6,264 |  |  | $ | 1,244 |
2020 |  | 25,519 |  |  | 4,658 |
2021 |  | 23,993 |  |  | 3,651 |
2022 |  | 20,188 |  |  | 3,622 |
2023 |  | 16,197 |  |  | 2,760 |
Thereafter |  | 74,148 |  |  | 24,235 |
Total minimum future lease payments |  | 166,309 |  |  | 40,170 |
Less: Imputed interest |  | 29,409 |  |  | 10,458 |
Total lease liabilities |  | $ | 136,900 |  |  | $ | 29,712 |
Total minimum future lease payments (predominantly operating leases) of approximately $47 million for leases that have not commenced as of September 28, 2019, as the Company does not yet control the underlying assets, are not included in the condensed consolidated financial statements. These leases are expected to commence between fiscal years 2019 and 2024 with lease terms of approximately 3 to 15 years. As of December 29, 2018, minimum future lease payments under non-cancellable leases for each of the following five years and a total thereafter were as follows:
|  | Operating Leases (1) |  | Finance Leases (1)
|  | (in thousands)
2019 |  | $ | 25,411 |  |  | $ | 3,972 |
2020 |  | 22,400 |  |  | 3,759 |
2021 |  | 21,544 |  |  | 2,869 |
2022 |  | 18,535 |  |  | 2,967 |
2023 |  | 15,398 |  |  | 2,209 |
Thereafter |  | 66,870 |  |  | 24,304 |
Total minimum future lease payments |  | $ | 170,158 |  |  | $ | 40,080 |
(1) Lease commitments are presented under the guidance of ASC 840 and includes approximately $14 million of minimum future lease payments for leases that had not commenced as of December 29, 2018. These commitments relate to existing leases for which the Company does not yet control certain expansion space.

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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