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Leases

9 Months Ended

Sep. 28, 2019

Under ASC 842, Leases, the Company determines if an arrangement is a lease obligation at inception of the contract. The Company enters into operating and finance lease commitments primarily for its manufacturing and office space, vehicles, and equipment leases that expire on various dates over the next 15 years, some of which include one or more options to extend the lease for up to 5 years. In addition, the Company leases land associated with certain of its buildings in Canada and China, under long-term leases expiring on various dates ranging from 2032 to 2062, one of which includes an assumed option to extend the lease for up to 10 years.

The Company's operating lease ROU assets and corresponding lease liabilities with contract terms greater than 12 months are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. In determining the present value of future lease payments, the Company utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease. In addition, the calculation may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company recognizes its operating lease expense for lease payments on a straight-line basis over the lease term. Variable lease costs are not included in fixed lease payments and, as a result, are excluded from the measurement of the ROU assets and lease liabilities. The Company expenses all variable lease costs as incurred, which were not material for the nine months ended September 28, 2019.

The Company's lease agreements often contain lease and non-lease components. For real estate and equipment leases, the Company accounts for the lease and non-lease components as a single lease component. For vehicle leases, the Company does not combine lease and non-lease components.

The components of lease expense are as follows:



	Three Months Ended		Nine Months Ended
(In thousands)	September 28, 2019		September 28, 2019
Operating Lease Cost	$	1,390	$	4,141

Short-Term Lease Cost	178		542

Finance Lease Cost:
ROU asset amortization	309		907
Interest on lease liabilities	25		69
Total Finance Lease Cost	334		976

Total Lease Costs	$	1,902	$	5,659

Supplemental cash flow information related to leases is as follows:



	Nine Months Ended
(In thousands)	September 28, 2019
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
Operating cash flows from operating leases	$	4,223
Operating cash flows from finance leases	$	69
Financing cash flows from finance leases	$	854

ROU Assets Obtained in Exchange for Lease Obligations (a):
Operating leases	$	27,949
Finance leases	$	3,575


(a)	Includes additions related to the transition adjustment for the adoption of ASC 842. The post-adoption additions of operating leases were $12,632,000, of which $10,994,000 related to ROU assets obtained as part of the acquisition of SMH. The post-adoption additions of finance leases were $2,224,000, of which $528,000 related to ROU assets obtained as part of the acquisition of SMH.

Supplemental balance sheet information related to leases is as follows:



(In thousands, except lease term and discount rate)	Balance Sheet Line Item	September 28, 2019
Operating Leases:
ROU assets	Other assets	$	27,714

Short-term liabilities	Other current liabilities	$	4,217
Long-term liabilities	Other long-term liabilities	25,047
Total operating lease liabilities		$	29,264

Finance Leases:
ROU assets, at cost	Property, plant, and equipment, at cost	$	3,731
ROU assets accumulated amortization	Less: accumulated depreciation and amortization	(1,274		)
ROU assets, net	Property, plant, and equipment, net	$	2,457

Short-term obligations	Current maturities of long-term obligations	$	1,128
Long-term obligations	Long-term obligations	1,280
Total finance lease liabilities		$	2,408

Weighted Average Remaining Lease Term:
Operating leases		10.3
Finance leases		2.4

Weighted Average Discount Rate:
Operating leases		3.97		%
Finance leases		4.16		%

As of September 28, 2019, future lease payments for lease liabilities are as follows:



	Operating			Finance
(In thousands)	Leases			Leases
2019	$	1,387		$	320
2020	5,112			1,149
2021	4,306			743
2022	3,531			251
2023	3,078			62
Thereafter	18,637			1
Total Future Lease Payments	36,051			2,526
Less: Imputed Interest	(6,787		)	(118		)
Present Value of Lease Payments	$	29,264		$	2,408

As of September 28, 2019, the Company had no significant operating and finance leases that had not yet commenced.

As previously disclosed in the Company's 2018 Annual Report on Form 10-K for the fiscal year ended December 29, 2018 and under the previous lease accounting standard, future minimum lease payments for noncancelable operating leases were as follows:



(In thousands)	December 29, 2018
2019	$	4,507
2020	3,275
2021	2,230
2022	1,579
2023	987
Thereafter	1,713
Total Future Minimum Lease Payments	$	14,291

Leases

The components of lease expense are as follows:



	Three Months Ended		Nine Months Ended
(In thousands)	September 28, 2019		September 28, 2019
Operating Lease Cost	$	1,390	$	4,141

Short-Term Lease Cost	178		542

Finance Lease Cost:
ROU asset amortization	309		907
Interest on lease liabilities	25		69
Total Finance Lease Cost	334		976

Total Lease Costs	$	1,902	$	5,659

Supplemental cash flow information related to leases is as follows:



	Nine Months Ended
(In thousands)	September 28, 2019
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
Operating cash flows from operating leases	$	4,223
Operating cash flows from finance leases	$	69
Financing cash flows from finance leases	$	854

ROU Assets Obtained in Exchange for Lease Obligations (a):
Operating leases	$	27,949
Finance leases	$	3,575


(a)	Includes additions related to the transition adjustment for the adoption of ASC 842. The post-adoption additions of operating leases were $12,632,000, of which $10,994,000 related to ROU assets obtained as part of the acquisition of SMH. The post-adoption additions of finance leases were $2,224,000, of which $528,000 related to ROU assets obtained as part of the acquisition of SMH.

Supplemental balance sheet information related to leases is as follows:



(In thousands, except lease term and discount rate)	Balance Sheet Line Item	September 28, 2019
Operating Leases:
ROU assets	Other assets	$	27,714

Short-term liabilities	Other current liabilities	$	4,217
Long-term liabilities	Other long-term liabilities	25,047
Total operating lease liabilities		$	29,264

Finance Leases:
ROU assets, at cost	Property, plant, and equipment, at cost	$	3,731
ROU assets accumulated amortization	Less: accumulated depreciation and amortization	(1,274		)
ROU assets, net	Property, plant, and equipment, net	$	2,457

Short-term obligations	Current maturities of long-term obligations	$	1,128
Long-term obligations	Long-term obligations	1,280
Total finance lease liabilities		$	2,408

Weighted Average Remaining Lease Term:
Operating leases		10.3
Finance leases		2.4

Weighted Average Discount Rate:
Operating leases		3.97		%
Finance leases		4.16		%

As of September 28, 2019, future lease payments for lease liabilities are as follows:



	Operating			Finance
(In thousands)	Leases			Leases
2019	$	1,387		$	320
2020	5,112			1,149
2021	4,306			743
2022	3,531			251
2023	3,078			62
Thereafter	18,637			1
Total Future Lease Payments	36,051			2,526
Less: Imputed Interest	(6,787		)	(118		)
Present Value of Lease Payments	$	29,264		$	2,408

As of September 28, 2019, the Company had no significant operating and finance leases that had not yet commenced.



(In thousands)	December 29, 2018
2019	$	4,507
2020	3,275
2021	2,230
2022	1,579
2023	987
Thereafter	1,713
Total Future Minimum Lease Payments	$	14,291