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Leases | 6 Months Ended
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Jul. 03, 2022
Leases [Abstract] |
Leases | Leases On January 3, 2022, we adopted ASU No. 2016-02, Leases, and all related amendments using the "Comparatives Under 840 Option" transition approach. Under this transition approach, comparative prior periods, including disclosures, were not restated. We elected the transition package of practical expedients which, among other things, allowed us to carry forward historical lease classification. We chose not to elect the hindsight practical expedient. The adoption of the standard did not have an impact on our condensed consolidated statements of operations and there was no adjustment to our retained earnings. We do not expect the adoption of the new standard to have a material impact on our operating results on an ongoing basis. The most significant impact of the new leases standard was the recognition of right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. On January 3, 2022, the adoption of the new standard resulted in the recognition of a right-of-use asset of $184 and a lease liability of $184. We lease certain property and equipment, such as our headquarters in Minnesota, our office location in Florida and certain production equipment under finance leases. We also lease our manufacturing location in Florida and warehouse space in Minnesota under operating leases. We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. On April 1, 2022, we commenced a finance lease for a new nitrogen generator. The lease has a term of 15 years for total fixed payments of approximately $14,000. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. For leases that do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Some of our leases include options to extend the term, which is only included in the lease liability and right-of-use assets calculation when it is reasonably certain we will exercise that option. As of July 3, 2022, the operating lease liability and operating right-of-use assets did not include any lease extension options. We have lease agreements with lease and non-lease components and have elected to account for these as a single lease component only for equipment leases. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The components of lease expense are as follows:
| Three Months Ended July 3, 2022 | Six Months Ended July 3, 2022
Operating lease cost | $ | 13 |  | $ | 26 |
Finance lease cost: |  |
Amortization of assets | 495 |  | 842 |
Interest on lease liabilities | 234 |  | 322 |
Variable lease cost | — |  | — |
Total net lease cost | $ | 742 |  | $ | 1,190 |
Short-term lease cost amounted to $70 and $140 for the three and six months ended July 3, 2022, respectively. Supplemental cash flow information related to leases are as follows:
| Six Months Ended July 3, 2022
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash flows used for operating leases | $ | 12 |
Operating cash flows used for finance leases | 234 |
Financing cash flows used for finance leases | 416 |
Right of use assets obtained in exchange for lease liabilities: |
Operating leases | 184 |
Finance leases | 9,126 |
The weighted average remaining lease term and weighted average discount rates related to leases are as follows:
| July 3, 2022
Weighted average remaining lease term: |
Operating leases | 3.5 years
Finance leases | 13.4 years
Weighted average discount rate: |
Operating leases | 4.8%
Finance leases | 8.5%
Supplemental balance sheet information related to leases is as follows:
Leases |  | Classification |  | July 3, 2022
Assets |  |  |  |
Operating lease right-of-use assets |  | Other assets |  | $ | 163 |
Finance lease right-of-use assets |  | Property and equipment, net |  | 10,630 |
Total lease right-of-use assets |  |  |  | $ | 10,793 |
Operating lease liabilities |  |  |  |
Current portion of operating lease liabilities |  | Accrued expenses |  | $ | 42 |
Operating lease liabilities, excluding current portion |  | Other long-term liabilities |  | 122 |
Total operating lease liabilities |  |  |  | 164 |
Finance lease liabilities |  |  |  |
Current portion of finance lease liabilities |  | Accrued expenses |  | 1,306 |
Finance lease liabilities, excluding current portion |  | Other long-term liabilities |  | 9,489 |
Total finance lease liabilities |  |  |  | 10,795 |
Total lease liabilities |  |  |  | $ | 10,959 |
Future maturities of lease liabilities as of July 3, 2022 are as follows:
Fiscal Year |  | Operating Leases |  | Finance Leases |  | Total
Remainder of 2022 |  | $ | 24 |  |  | $ | 1,288 |  |  | $ | 1,312 |
2023 |  | 50 |  |  | 1,458 |  |  | 1,508 |
2024 |  | 51 |  |  | 1,234 |  |  | 1,285 |
2025 |  | 54 |  |  | 1,155 |  |  | 1,209 |
2026 |  | — |  |  | 1,157 |  |  | 1,157 |
Thereafter |  | — |  |  | 11,977 |  |  | 11,977 |
Total lease payments |  | 179 |  |  | 18,269 |  |  | 18,448 |
Less imputed interest |  | (15) |  |  | (7,474) |  |  | (7,489) |
Total lease liabilities |  | $ | 164 |  |  | $ | 10,795 |  |  | $ | 10,959 |
With the exception of the future minimum lease commitments related to our lease of the land and building representing our primary operating location in Bloomington, Minnesota, which are eliminated in consolidation, we had no disclosures in the prior year period related to leases. SkyWater as the Lessor In March 2020, we executed a contract with a customer that includes the right to use of a portion of our existing facility to produce wafers using the customer’s equipment. The contractual amount that relates to revenue from an operating lease was $21,000, and is being recognized over the estimated lease term of 4.5 years. The total amount was prepaid by the customer and recorded as deferred revenue. See Note 4 – Revenue for additional information on revenue recognition and deferred revenue of the operating lease. The carrying value of the facility space utilized by the lessee was approximately $27,000, net of accumulated depreciation of $2,248 and $1,558 as of July 3, 2022 and January 2, 2022, respectively, and is included in property and equipment on our condensed consolidated balance sheets.
Leases | Leases On January 3, 2022, we adopted ASU No. 2016-02, Leases, and all related amendments using the "Comparatives Under 840 Option" transition approach. Under this transition approach, comparative prior periods, including disclosures, were not restated. We elected the transition package of practical expedients which, among other things, allowed us to carry forward historical lease classification. We chose not to elect the hindsight practical expedient. The adoption of the standard did not have an impact on our condensed consolidated statements of operations and there was no adjustment to our retained earnings. We do not expect the adoption of the new standard to have a material impact on our operating results on an ongoing basis. The most significant impact of the new leases standard was the recognition of right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. On January 3, 2022, the adoption of the new standard resulted in the recognition of a right-of-use asset of $184 and a lease liability of $184. We lease certain property and equipment, such as our headquarters in Minnesota, our office location in Florida and certain production equipment under finance leases. We also lease our manufacturing location in Florida and warehouse space in Minnesota under operating leases. We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. On April 1, 2022, we commenced a finance lease for a new nitrogen generator. The lease has a term of 15 years for total fixed payments of approximately $14,000. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. For leases that do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Some of our leases include options to extend the term, which is only included in the lease liability and right-of-use assets calculation when it is reasonably certain we will exercise that option. As of July 3, 2022, the operating lease liability and operating right-of-use assets did not include any lease extension options. We have lease agreements with lease and non-lease components and have elected to account for these as a single lease component only for equipment leases. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The components of lease expense are as follows:
| Three Months Ended July 3, 2022 | Six Months Ended July 3, 2022
Operating lease cost | $ | 13 |  | $ | 26 |
Finance lease cost: |  |
Amortization of assets | 495 |  | 842 |
Interest on lease liabilities | 234 |  | 322 |
Variable lease cost | — |  | — |
Total net lease cost | $ | 742 |  | $ | 1,190 |
Short-term lease cost amounted to $70 and $140 for the three and six months ended July 3, 2022, respectively. Supplemental cash flow information related to leases are as follows:
| Six Months Ended July 3, 2022
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash flows used for operating leases | $ | 12 |
Operating cash flows used for finance leases | 234 |
Financing cash flows used for finance leases | 416 |
Right of use assets obtained in exchange for lease liabilities: |
Operating leases | 184 |
Finance leases | 9,126 |
The weighted average remaining lease term and weighted average discount rates related to leases are as follows:
| July 3, 2022
Weighted average remaining lease term: |
Operating leases | 3.5 years
Finance leases | 13.4 years
Weighted average discount rate: |
Operating leases | 4.8%
Finance leases | 8.5%
Supplemental balance sheet information related to leases is as follows:
Leases |  | Classification |  | July 3, 2022
Assets |  |  |  |
Operating lease right-of-use assets |  | Other assets |  | $ | 163 |
Finance lease right-of-use assets |  | Property and equipment, net |  | 10,630 |
Total lease right-of-use assets |  |  |  | $ | 10,793 |
Operating lease liabilities |  |  |  |
Current portion of operating lease liabilities |  | Accrued expenses |  | $ | 42 |
Operating lease liabilities, excluding current portion |  | Other long-term liabilities |  | 122 |
Total operating lease liabilities |  |  |  | 164 |
Finance lease liabilities |  |  |  |
Current portion of finance lease liabilities |  | Accrued expenses |  | 1,306 |
Finance lease liabilities, excluding current portion |  | Other long-term liabilities |  | 9,489 |
Total finance lease liabilities |  |  |  | 10,795 |
Total lease liabilities |  |  |  | $ | 10,959 |
Future maturities of lease liabilities as of July 3, 2022 are as follows:
Fiscal Year |  | Operating Leases |  | Finance Leases |  | Total
Remainder of 2022 |  | $ | 24 |  |  | $ | 1,288 |  |  | $ | 1,312 |
2023 |  | 50 |  |  | 1,458 |  |  | 1,508 |
2024 |  | 51 |  |  | 1,234 |  |  | 1,285 |
2025 |  | 54 |  |  | 1,155 |  |  | 1,209 |
2026 |  | — |  |  | 1,157 |  |  | 1,157 |
Thereafter |  | — |  |  | 11,977 |  |  | 11,977 |
Total lease payments |  | 179 |  |  | 18,269 |  |  | 18,448 |
Less imputed interest |  | (15) |  |  | (7,474) |  |  | (7,489) |
Total lease liabilities |  | $ | 164 |  |  | $ | 10,795 |  |  | $ | 10,959 |
With the exception of the future minimum lease commitments related to our lease of the land and building representing our primary operating location in Bloomington, Minnesota, which are eliminated in consolidation, we had no disclosures in the prior year period related to leases. SkyWater as the Lessor In March 2020, we executed a contract with a customer that includes the right to use of a portion of our existing facility to produce wafers using the customer’s equipment. The contractual amount that relates to revenue from an operating lease was $21,000, and is being recognized over the estimated lease term of 4.5 years. The total amount was prepaid by the customer and recorded as deferred revenue. See Note 4 – Revenue for additional information on revenue recognition and deferred revenue of the operating lease. The carrying value of the facility space utilized by the lessee was approximately $27,000, net of accumulated depreciation of $2,248 and $1,558 as of July 3, 2022 and January 2, 2022, respectively, and is included in property and equipment on our condensed consolidated balance sheets.

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