Commitments and Contingencies (Tables)

9 Months Ended

Sep. 29, 2019

Commitments and Contingencies Disclosure [Abstract]

Supplemental cash flow information related to operating leases for the three and nine months ended September 29, 2019 was as follows:



	Three Months Ended September 29, 2019		Nine Months Ended September 29, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,470	$	2,882
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	$	439	$	22,172

Weighted average remaining lease term and weighted average discount rate related to operating leases as of September 29, 2019 were as follows:



Weighted average remaining lease term	5.9 years
Weighted average discount rate	5.67	%

The operating lease expense for the three and nine months ended September 29, 2019 was as follows:



	Statements of Operations Location	Three Months Ended September 29, 2019		Nine Months Ended September 29, 2019
		(In thousands)
Operating lease cost⁽¹⁾	General and administrative	$	1,726	$	5,068

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⁽¹⁾

Included short-term leases and variable lease costs which were immaterial.

Effect of Accounting Standard Adoption

The effect of accounting standards adoption of ASU 2016-02 on the unaudited condensed consolidated statement of balance sheets and supplemental balance sheet information related to operating leases as of September 29, 2019 were as follows:



Leases	Balance Sheet Location	September 29, 2019		January 1, 2019			December 31, 2018
		(In thousands)
Build-to-suit lease ⁽¹⁾	Property and equipment, net	$	—	$	(21,610	)	$	21,610
Build-to-suit lease⁽¹⁾	Accrued liabilities	—		(281		)	281
Build-to-suit lease⁽¹⁾	Accrued liabilities	—		(1,632		)	1,632
Build-to-suit lease⁽¹⁾	Non-current financing lease obligation	—		(19,978		)	19,978
Build-to-suit lease ⁽¹⁾	Retained earnings (Accumulated deficit)	281		281			—

Operating leases ⁽²⁾	Operating lease right-of-use assets, net	32,008		14,400			—
Operating leases ⁽²⁾	Accrued liabilities	—		(107		)	107
Operating leases ⁽²⁾	Accrued liabilities	3,814		2,356			—
Operating leases ⁽²⁾	Non-current deferred rent	—		(1,141		)	1,141
Operating leases ⁽²⁾	Non-current operating lease liabilities	30,484		12,044			—

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⁽¹⁾

The Company was deemed to be the accounting owner of its build-to-suit lease arrangement for its San Jose corporate headquarters and the construction was in progress at adoption date. As such, the Company reevaluated its build-to-suit lease arrangement under ASU 2016-02 to ascertain whether it meets the criteria as the accounting owner of the build-to-suit lease arrangement through control of the underlying leased asset. The Company concluded that it did not have control over the underlying leased asset. As a result, the Company de-recognized the build to suit asset and liability as of adoption date of $21.6 million of Property and equipment and $21.9 million of financing lease obligations. The difference of $0.3 million between the de-recognized assets and the associated financing lease obligations was recorded as an adjustment to Accumulated deficit as of the adoption date.

⁽²⁾

The Company adopted ASU 2016-02 on January 1, 2019 which resulted in the recognition of ROU assets and lease liabilities for operating leases of $14.4 million on its unaudited condensed consolidated balance sheets. The ROU assets were reduced by $0.1 million current deferred rent and $1.1 million non-current deferred rent which were de-recognized along with the adoption. As of March 31, 2019, the construction of the Company’s leasehold improvements for its San Jose corporate headquarters was partially completed and partially occupied by the Company, resulting in lease commencement inception for the portion that was completed and occupied by the Company. Therefore, the Company proportionally recorded ROU assets and lease liabilities of $14.3 million, representing two thirds of the total value of the ROU assets and lease liabilities. As of June 30, 2019, upon the completion of the leasehold improvements and full occupation of the entire building, the Company recognized the remaining value of ROU assets and lease liabilities of $7.2 million. As of September 29, 2019, the Company received $3.1 million reimbursement for leasehold improvements that the Company de-recognized during the quarter.

Summary of Operating Lease Maturity

The maturity of lease liabilities related to operating leases for each of the next five years and thereafter as of September 29, 2019 was as follows (in thousands):



2019 (Remaining three months)	$	1,170
2020	5,950
2021	5,789
2022	5,645
2023	4,968
Thereafter	19,488
Total lease payments	43,010
Less: interest⁽¹⁾	(8,712		)
Total	$	34,298

Accrued liabilities	$	3,814
Non-current operating lease liabilities	30,484
Total	$	34,298

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⁽¹⁾

Calculated using the Company’s incremental borrowing rate on a collateralized basis plus LIBOR rate that closely matches contractual term of most leases.

Summary of Future Minimum Lease Payments Before 842

As of December 31, 2018, future minimum lease payments under non-cancelable operating leases and build-to-suit lease arrangements, for each of the next five years and thereafter were as follows (in thousands):



	Leases⁽¹⁾
2019	$	4,634
2020	5,813
2021	5,678
2022	5,580
2023	4,903
Thereafter	19,252
Total	$	45,860

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⁽¹⁾

Amounts are based on ASC 840, Leases that was superseded upon the adoption of ASC 842, Leases on January 1, 2019.

Schedule of Changes in Warranty Obligation

Changes in the Company’s warranty liability, which is included in Accrued liabilities in the unaudited condensed consolidated balance sheets, were as follows:



	Three Months Ended						Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
	(In thousands)
Balance at the beginning of the period	$	3,232		$	3,487		$	3,712		$	31,756
Reclassified to sales returns upon adoption of ASC 606⁽¹⁾	—			—			—			(28,713		)
Provision for warranty obligation made during the period	364			344			292			1,166
Settlements made during the period	(193		)	(213		)	(601		)	(591		)
Balance at the end of the period	$	3,403		$	3,618		$	3,403		$	3,618

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⁽¹⁾

Upon adoption of ASC 606 on January 1, 2018, warranty reserve balances totaling $28.7 million were reclassified to sales returns as these liabilities are payable to the Company’s customers and settled in cash or by credit on account. Under ASC 606, these amounts are to be accounted for as sales with right of return.