LEASES

6 Months Ended

Jul. 03, 2020

LEASES

LEASES

7. LEASES

The Company leases certain office facilities under long-term, non-cancellable operating leases that expire at various dates through the year 2027. In addition, the Company is obligated under finance leases for certain furniture and office equipment that expire at various dates through the year 2022.

From time to time, the Company enters into non-cancelable leases for some of our facility and equipment needs. These leases allow the Company to conserve cash by paying a monthly lease rental fee for the use of facilities and equipment rather than purchasing them. The Company’s leases have remaining terms ranging from one to eight years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases within one year. Currently, all of the Company’s leases contain fixed payment terms. The Company may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for the remaining lease payments under the term of the lease. Additionally, all of our month-to-month leases are cancelable by the Company or the lessor, at any time, and are not included in our right-of-use asset or lease liability. As of July 3, 2020, the Company had no leases with residual value guarantees. Typically, the Company has purchase options on the equipment underlying its long-term leases. The Company may exercise some of these purchase options when the need for equipment is on-going and the purchase option price is attractive. Nonperformance-related default covenants, cross-default provisions, subjective default provisions and material adverse change clauses contained in material lease agreements, if any, are also evaluated to determine whether those clauses affect lease classification in accordance with “ASC” Topic 842-10-25. Leases are accounted for as operating or financing leases, depending on the terms of the lease.

Financing Leases

The Company leases certain equipment under financing leases. The economic substance of the leases is a financing transaction for acquisition of equipment and leasehold improvements. Accordingly, the right-of-use assets for these leases are included in the balance sheets in equipment and leasehold improvements, net of accumulated depreciation, with a corresponding amount recorded in current portion of financing lease obligations or noncurrent portion of financing lease obligations, as appropriate. The financing lease assets are amortized over the life of the lease or, if shorter, the life of the leased asset, on a straight-line basis and included in depreciation expense. The interest associated with financing lease obligations is included in interest expense.

Right-of-use assets

Operating leases are included in right-of-use assets, and current portion of lease liability and noncurrent portion of lease liability, as appropriate. Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate to calculate present value, the Company determines this rate by estimating the Company’s incremental borrowing rate at the lease commencement date. The right-of-use asset also includes any lease payments made and initial direct costs incurred at lease commencement and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The following is a summary of the lease expense:

	Three Months Ended				Six Months Ended
	July 3,		June 28,		July 3,		June 28,
	2020		2019		2020		2019
	(in thousands)				(in thousands)
Operating lease cost	$	1,766	$	1,181	$	3,508	$	2,270
Finance lease cost:
Amortization of assets		155		124		310		231
Interest on lease liabilities		8		9		17		18
Total net lease cost	$	1,929	$	1,314	$	3,835	$	2,519

The following is a summary of lease information presented on the Company’s consolidated balance sheet:

	July 3,			December 27,
	2020			2019
	(in thousands)
Operating leases:
Right-of-use assets	$	22,679		$	22,297
Lease liability	$	5,994		$	5,550
Lease liability, less current portion		17,935			18,411
Total lease liabilities	$	23,929		$	23,961
Finance leases (included in equipment and leasehold improvements, net):
Equipment and leasehold improvements, net	$	2,247		$	1,957
Accumulated depreciation		(1,572)			(1,291)
Total equipment and leasehold improvements, net	$	675		$	666
Finance lease obligations	$	332		$	375
Finance lease obligations, less current portion		256			191
Total finance lease obligations	$	588		$	566
Weighted average remaining lease term (in years):
Operating Leases		4.73			4.59
Finance Leases		1.92			1.47
Weighted average discount rate:
Operating Leases		4.50	%		5.14	%
Finance Leases		4.21	%		4.80	%

Rent expense and related charges for common area maintenance for all facility operating leases were $1.8 million and $3.5 million for the three and six months ended July 3, 2020, respectively, as compared to $1.2 million and $2.3 million for the three and six months ended June 28, 2019, respectively.

The following is a summary of other information and supplemental cash flow information related to finance and operating leases:

	Six Months Ended
	July 3,		June 28,
	2020		2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases	$	3,377	$	2,345
Operating cash flow from finance leases		17		64
Financing cash flow from finance leases		296		300
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	2,552	$	1,223

The following is a summary of the maturities of lease liabilities as of July 3, 2020:

	Operating		Finance
	(in thousands)
Fiscal year:
Remainder of 2020	$	6,906	$	348
2021		5,942		171
2022		4,963		69
2023		3,028		14
2024		2,185		9
2025 and thereafter		3,505		—
Total lease payments	$	26,529	$	611
Less: Imputed interest		(2,600)		(23)
Total lease obligations		23,929		588
Less: Current obligations		5,994		332
Noncurrent lease obligations	$	17,935	$	256

The imputed interest for finance lease obligations represents the interest component of finance leases that will be recognized as interest expense in future periods. The financing component for operating lease obligations represents the effect of discounting the operating lease payments to their present value.