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LEASES

9 Months Ended

Mar. 29, 2020

The Company leases certain office spaces, manufacturing and warehouse spaces, equipment, and vehicles. On July 1, 2019 the Company adopted ASC 842. Refer to Note 2 - Recent Accounting Pronouncements for additional information regarding the adoption. While the majority of the Company’s lease arrangements are operating leases, the Company has certain leases that qualify as finance leases.

Lease accounting policy

Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company includes renewals and terminations in the calculation of the right-of-use asset and liability when the provision is reasonably certain to be exercised. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments when the rate implicit in the lease is unknown.

The Company has elected the following practical expedients and accounting policy elections for accounting under ASC 842: (i) leases with an initial lease term of 12 months or less are not recorded on the balance sheet; and (ii) lease and non-lease components of a contract are accounted for as a single lease component.

Lease details

The components of lease expense were as follows:



	Three Months Ended		Nine Months Ended
	March 29, 2020		March 29, 2020
	(in thousands)
Financing lease cost:
Amortization of right-of-use assets	$	895	$	2,713
Interest on lease liabilities	126		392
Total finance lease cost	$	1,021	$	3,105

Operating lease cost	$	12,370	$	33,555
Variable lease cost	23,776		64,794

Variable lease payments are expensed as incurred and are not included within the right of use asset and lease liability calculation. Variable lease payments primarily include costs associated with the Company’s third party logistics arrangements that contain one or more embedded leases. Variable lease costs will fluctuate based on factory output and material receipt volumes. Short-term rental expense, for agreements less than one year in duration, were immaterial for the three and nine months ended March 29, 2020.

Supplemental cash flow information related to leases was as follows:



	Nine Months Ended
	March 29, 2020

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	30,730
Financing cash flows paid for principal portion of finance leases	2,653

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	79,919
Finance leases	1,617

Supplemental balance sheet information related to leases were as follows:



	March 29, 2020
	(in thousands)
Operating leases
Other assets	$	156,972

Accrued expenses and other current liabilities	$	40,211
Other long-term liabilities	122,659
Total operating lease liabilities	$	162,870

Finance Leases
Property and Equipment, net	$	18,002

Current portion of long-term debt and lease liabilities	$	3,444
Long-term debt and lease liabilities	11,153
Total finance lease liabilities	$	14,597



	March 29, 2020
	Weighted-Average Remaining Lease Term	Weighted-Average Discount Rate
	(in years)
Operating leases	6.4	2.54	%
Finance leases	4.4	2.83	%

As of March 29, 2020, the maturities of lease liabilities are as follows:



Fiscal Year	Operating Leases			Finance Leases
	(in thousands)
2020 (remaining 3 months)	$	9,779		$	1,105
2021	42,028			3,567
2022	26,498			6,157
2023	18,844			1,268
2024	16,371			877
Thereafter	62,658			2,920
Total lease payments	$	176,178		$	15,894
Less imputed interest	(13,308		)	(1,297		)
Total	$	162,870		$	14,597

Selected Operating Leases and Related Guarantees

The Company leases the majority of its administrative, research and development and manufacturing facilities, regional sales/service offices, and certain equipment under non-cancelable operating leases. Certain of the Company’s facility leases for buildings located at its Fremont, California headquarters, Tualatin, Oregon campus, and certain other facility leases provide the Company with options to extend the leases for additional periods or to purchase the facilities. Certain of the Company’s facility leases provide for periodic rent increases based on the general rate of inflation.

The Company has operating leases regarding certain improved properties in Fremont and Livermore, California (the “California Operating Leases”). The Company is required to maintain cash collateral in an aggregate of approximately $250.0 million in separate interest-bearing accounts as security for the Company’s obligations. These amounts are recorded with other restricted cash and investments in the Company’s Condensed Consolidated Balance Sheet as of March 29, 2020.

During the term of the California Operating Leases and when the terms of the California Operating Leases expire, the property subject to the California Operating Leases may be re-marketed. The Company has guaranteed to the lessor that each property will have a certain minimum residual value. The aggregate guarantee made by the Company under the California Operating Leases is generally no more than $220.4 million; however, under certain default circumstances, the guarantee with regard to the California Operating Lease may be 100% of the lessor’s aggregate investment in the applicable property, which in no case will exceed $250.0 million, in the aggregate.

LEASES