Leases Leases

9 Months Ended

Jul. 03, 2020

LEASES

We have operating leases for certain facilities, as well as manufacturing and office equipment. We have financing leases for our corporate headquarters, including our fabrication facility, and to a lesser extent, various manufacturing equipment. These leases expire at various dates through 2038, and certain of these leases have renewal options with the longest ranging up to two ten-year periods.

We determine that a contract contains a lease at lease inception if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In evaluating whether the right to control an identified asset exists, we assess whether we have the right to direct the use of the identified asset and obtain substantially all of the economic benefit from the use of the identified asset. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and lease liabilities. For leases with a term of one year or less, categorized as short-term leases, we elected not to recognize the lease liability for these arrangements and the lease payments are recognized in the condensed consolidated statement of operations on a straight-line basis over the lease term. ROU assets and lease liabilities are recognized at the present value of future minimum lease payments over the lease term on the commencement date. ROU assets are initially measured as the amount of the initial lease liability, adjusted for initial direct costs, lease payments made at or before the commencement date, and reduced by lease incentives received. We include options to renew or terminate when determining the lease term when it is reasonably certain that the option will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.

Our leases may contain lease and non-lease components. We elected to account for lease and non-lease components in a contract as part of a single lease component. Fixed payments are considered part of the single lease component and included in the ROU assets and lease liabilities. Additionally, lease contracts typically include variable payments and other costs that do not transfer a separate good or service, such as reimbursement for real estate taxes and insurance, which are expensed as incurred.

Our leases generally do not provide an implicit interest rate. As a result, we utilize our incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

Included in our condensed consolidated balance sheets were the following amounts related to operating and finance lease assets and liabilities (in thousands):


	July 3, 2020		September 27, 2019		Consolidated Balance Sheet Classification
Assets:
Operating lease ROU assets	$	32,157	$	—	Other long-term assets
Finance lease assets	33,919		—		Property and equipment, net
Capital lease and financed assets	—		40,442		Property and equipment, net
Total lease assets	$	66,076	$	40,442
Liabilities:
Current:
Operating lease liabilities	$	7,498	$	—	Accrued liabilities
Finance lease liabilities	1,506		—		Current portion of finance lease obligations and other
Capital lease and financing obligations	—		1,084		Current portion of finance lease obligations and other
Long-term:
Operating lease liabilities	30,438		—		Other long-term liabilities
Finance lease liabilities	29,351		—		Finance lease obligations and other, less current portion
Capital lease and financing obligations	—		29,506		Finance lease obligations and other, less current portion
Total lease liabilities	$	68,793	$	30,590

The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases as of July 3, 2020 were as follows:


	July 3, 2020
Weighted-average remaining lease term (in years):
Operating leases	6.57
Finance leases	17.07
Weighted-average discount rate:
Operating leases	6.36	%
Finance leases	6.71	%

The components of lease expense were as follows (in thousands):


	Three Months Ended		Nine Months Ended
	July 3, 2020
Finance lease cost:
Amortization of lease assets	$	747	$	2,193
Interest on lease liabilities	525		1,641
Total finance lease cost	$	1,272	$	3,834

Operating lease cost	$	2,451	$	7,393
Variable lease cost	$	749	$	1,937
Short-term lease cost	$	69	$	339
Sublease income	$	(117)	$	(442)

Cash paid for amounts included in the measurement of lease liabilities were as follows (in thousands):


	Nine Months Ended
	July 3, 2020
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	7,027
Operating cash flows from finance leases	$	1,641
Financing cash flows from finance leases	$	1,307

Non-cash activities:
Operating lease right-of-use assets obtained in exchange for new lease liabilities	$	242
Financing lease assets obtained in exchange for new lease liabilities	$	586

As of July 3, 2020, maturities of lease liabilities by fiscal year were as follows (in thousands):


Fiscal year ending:	Operating Leases		Finance Leases
2020 (remainder of fiscal year)	$	2,527	$	963
2021	9,250		3,394
2022	7,479		2,836
2023	6,012		2,820
2024	5,588		2,856
2025	3,650		2,783
Thereafter	12,284		37,150
Total lease payments	46,790		52,802
Less: interest	8,854		21,945
Present value of lease liabilities	$	37,936	$	30,857

As of September 27, 2019, future minimum lease payments for our operating and capital leases were as follows as determined in accordance with the previous guidance under ASC 840, Leases and as previously disclosed in our 2019 Annual Report on Form 10-K (in thousands):


Fiscal year ending:	Operating Leases		Capital Leases
2020	$	9,987	$	3,299
2021	9,233		3,343
2022	7,447		2,884
2023	6,061		2,816
2024	5,564		2,853
Thereafter	16,437		39,927
Total future minimum lease payments	$	54,729	55,122
Less amount representing interest			(26,241)
Present value of net minimum capital lease payments			$	28,881