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Leases | 6 Months Ended
--- | ---
Dec. 29, 2019
Leases [Abstract] |
Leases | Leases The Company primarily leases manufacturing, office and warehousing space. Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs. Variable costs include lease payments that were volume or usage-driven in accordance with the use of the underlying asset, as well as non-lease components incurred with respect to actual terms rather than contractually fixed amounts. The Company's finance lease obligations primarily relate to Wolfspeed manufacturing space in Malaysia. Accounting Policy At lease inception, the Company determines an arrangement is a lease if the contract involves the use of a distinct identified asset, the lessor does not have substantive substitution rights and the Company obtains control of the asset throughout the period by obtaining substantially all of the economic benefit of the asset and the right to direct the use of the asset. Right-of-use assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Assets and liabilities are recognized based on the present value of lease payments over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of the renewal option is at the Company's sole discretion and the Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities. The Company will remeasure its lease liability and adjust the related right-of-use asset upon the occurrence of the following: lease modifications not accounted for as a separate contract; a triggering event that changes the certainty of the lessee exercising an option to renew or terminate the lease, or purchase the underlying asset; a change to the amount probable of being owed by the Company under a residual value guarantee; or the resolution of a contingency upon which the variable lease payments are based such that those payments become fixed. Because most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company would use the implicit rate when readily determinable. Operating lease expense is generally recognized on a straight-line basis over the lease term. Finance lease assets are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Interest expense on the finance lease liability is recognized using the effective interest rate method and is presented within interest expense on the Company’s consolidated statements of operations. The Company has agreements with lease and non-lease components, which are accounted for as a single lease component. Leases with a lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates, are not included in the right-of-use assets or liabilities. These variable lease payments are expensed as incurred. Balance Sheet Lease assets and liabilities as of December 29, 2019, and the corresponding balance sheet classifications, are as follows (in millions of U.S. Dollars):
Operating Leases: |  |  |
Right-of-use asset (1) |  | $14.2 |
Current lease liability (2) |  | 5.2 |
Non-current lease liability (3) |  | 8.8 |
Total operating lease liabilities |  | 14.0 |
Finance Leases: |  |  |
Finance lease assets (1) |  | 3.7 |
Current portion of finance lease obligations (2) |  | 0.9 |
Finance lease obligations, less current portion (3) |  | 2.3 |
Total finance lease obligations |  | 3.2 |
(1) Within other assets on the consolidated balance sheets. (2) Within other current liabilities on the consolidated balance sheets. (3) Within other long-term liabilities on the consolidated balance sheets. Statement of Operations Operating lease expense was $1.6 million and $3.0 million for three and six months ended December 29, 2019. Short-term lease expense, variable lease expense and lease income were immaterial for the three and six months ended December 29, 2019. Finance lease amortization and interest expense were less than $0.1 million for the three and six months ended December 29, 2019. Cash Flows Cash flow information consisted of the following:
| Six months ended
(in millions of U.S. Dollars) | December 29, 2019
Cash used in operating activities: |
Cash paid for operating leases | $1.6 |
Cash paid for interest portion of financing leases (1) | — |
Cash used in financing activities: |
Cash paid for principal portion of finance leases | 0.1 |
Non-cash operating activities: |
Operating lease additions due to adoption of ASC 842 | 12.2 |
Operating lease modifications, net | 4.6 |
Finance lease additions | 3.3 |
(1) Less than $0.1 million for the six months ended December 29, 2019. Lease Liability Maturities Maturities of operating and finance lease liabilities as of December 29, 2019 were as follows (in millions of U.S. Dollars):
Fiscal Year Ending | Operating Leases | Finance Leases | Total
June 28, 2020 (remainder of fiscal 2020) | $3.5 |  | $0.7 |  | $4.2 |
June 27, 2021 | 4.3 |  | 0.4 |  | 4.7 |
June 26, 2022 | 3.4 |  | 0.4 |  | 3.8 |
June 25, 2023 | 1.8 |  | 0.4 |  | 2.2 |
June 30, 2024 | 0.9 |  | 0.4 |  | 1.3 |
Thereafter | 1.0 |  | 1.2 |  | 2.2 |
Total lease payments | 14.9 |  | 3.5 |  | 18.4 |
Imputed lease interest | (0.9) |  | (0.3) |  | (1.2) |
Total lease liabilities | $14.0 |  | $3.2 |  | $17.2 |
Supplemental Disclosures
| Operating Leases | Finance Leases
Weighted average remaining lease term (in months) | 42 | 83
Weighted average discount rate | 3.72 | % | 3.40 | %
As previously disclosed in the Company's Annual Report on Form 10-K for the year ended June 30, 2019 and under the previous lease accounting standard ASC 840, the aggregate future non-cancelable minimum rental payments on its operating leases as of June 30, 2019, were as follows:
Fiscal Years Ending | (in millions of U.S. Dollars)
June 28, 2020 | $4.1 |
June 27, 2021 | 2.3 |
June 26, 2022 | 1.2 |
June 25, 2023 | 0.7 |
June 30, 2024 | — |
Thereafter | — |
Total future minimum rental payments | $8.3 |
Leases | Leases The Company primarily leases manufacturing, office and warehousing space. Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs. Variable costs include lease payments that were volume or usage-driven in accordance with the use of the underlying asset, as well as non-lease components incurred with respect to actual terms rather than contractually fixed amounts. The Company's finance lease obligations primarily relate to Wolfspeed manufacturing space in Malaysia. Accounting Policy At lease inception, the Company determines an arrangement is a lease if the contract involves the use of a distinct identified asset, the lessor does not have substantive substitution rights and the Company obtains control of the asset throughout the period by obtaining substantially all of the economic benefit of the asset and the right to direct the use of the asset. Right-of-use assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Assets and liabilities are recognized based on the present value of lease payments over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of the renewal option is at the Company's sole discretion and the Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities. The Company will remeasure its lease liability and adjust the related right-of-use asset upon the occurrence of the following: lease modifications not accounted for as a separate contract; a triggering event that changes the certainty of the lessee exercising an option to renew or terminate the lease, or purchase the underlying asset; a change to the amount probable of being owed by the Company under a residual value guarantee; or the resolution of a contingency upon which the variable lease payments are based such that those payments become fixed. Because most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company would use the implicit rate when readily determinable. Operating lease expense is generally recognized on a straight-line basis over the lease term. Finance lease assets are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Interest expense on the finance lease liability is recognized using the effective interest rate method and is presented within interest expense on the Company’s consolidated statements of operations. The Company has agreements with lease and non-lease components, which are accounted for as a single lease component. Leases with a lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates, are not included in the right-of-use assets or liabilities. These variable lease payments are expensed as incurred. Balance Sheet Lease assets and liabilities as of December 29, 2019, and the corresponding balance sheet classifications, are as follows (in millions of U.S. Dollars):
Operating Leases: |  |  |
Right-of-use asset (1) |  | $14.2 |
Current lease liability (2) |  | 5.2 |
Non-current lease liability (3) |  | 8.8 |
Total operating lease liabilities |  | 14.0 |
Finance Leases: |  |  |
Finance lease assets (1) |  | 3.7 |
Current portion of finance lease obligations (2) |  | 0.9 |
Finance lease obligations, less current portion (3) |  | 2.3 |
Total finance lease obligations |  | 3.2 |
(1) Within other assets on the consolidated balance sheets. (2) Within other current liabilities on the consolidated balance sheets. (3) Within other long-term liabilities on the consolidated balance sheets. Statement of Operations Operating lease expense was $1.6 million and $3.0 million for three and six months ended December 29, 2019. Short-term lease expense, variable lease expense and lease income were immaterial for the three and six months ended December 29, 2019. Finance lease amortization and interest expense were less than $0.1 million for the three and six months ended December 29, 2019. Cash Flows Cash flow information consisted of the following:
| Six months ended
(in millions of U.S. Dollars) | December 29, 2019
Cash used in operating activities: |
Cash paid for operating leases | $1.6 |
Cash paid for interest portion of financing leases (1) | — |
Cash used in financing activities: |
Cash paid for principal portion of finance leases | 0.1 |
Non-cash operating activities: |
Operating lease additions due to adoption of ASC 842 | 12.2 |
Operating lease modifications, net | 4.6 |
Finance lease additions | 3.3 |
(1) Less than $0.1 million for the six months ended December 29, 2019. Lease Liability Maturities Maturities of operating and finance lease liabilities as of December 29, 2019 were as follows (in millions of U.S. Dollars):
Fiscal Year Ending | Operating Leases | Finance Leases | Total
June 28, 2020 (remainder of fiscal 2020) | $3.5 |  | $0.7 |  | $4.2 |
June 27, 2021 | 4.3 |  | 0.4 |  | 4.7 |
June 26, 2022 | 3.4 |  | 0.4 |  | 3.8 |
June 25, 2023 | 1.8 |  | 0.4 |  | 2.2 |
June 30, 2024 | 0.9 |  | 0.4 |  | 1.3 |
Thereafter | 1.0 |  | 1.2 |  | 2.2 |
Total lease payments | 14.9 |  | 3.5 |  | 18.4 |
Imputed lease interest | (0.9) |  | (0.3) |  | (1.2) |
Total lease liabilities | $14.0 |  | $3.2 |  | $17.2 |
Supplemental Disclosures
| Operating Leases | Finance Leases
Weighted average remaining lease term (in months) | 42 | 83
Weighted average discount rate | 3.72 | % | 3.40 | %
As previously disclosed in the Company's Annual Report on Form 10-K for the year ended June 30, 2019 and under the previous lease accounting standard ASC 840, the aggregate future non-cancelable minimum rental payments on its operating leases as of June 30, 2019, were as follows:
Fiscal Years Ending | (in millions of U.S. Dollars)
June 28, 2020 | $4.1 |
June 27, 2021 | 2.3 |
June 26, 2022 | 1.2 |
June 25, 2023 | 0.7 |
June 30, 2024 | — |
Thereafter | — |
Total future minimum rental payments | $8.3 |

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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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