Leases

We adopted ASC 842, "Leases," effective on December 30, 2018, the first day of our 2019 fiscal year, using the modified retrospective transition method. The new standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations.

We evaluated the transition and presentation approaches available as well as the impact of the new guidance on our consolidated financial statements and related disclosures, including the increase in the assets and liabilities on our balance sheet, and the impact on our current lease portfolio from both a lessor and lessee perspective. To facilitate this, we utilized a comprehensive approach to review our lease portfolio, as well as assessed system requirements and control implications. We elected the "package of practical expedients" that would allow us to carryforward our historical lease classifications, not reassess historical contracts to determine if they contain leases, and not reassess the initial direct costs for any existing leases. We also elected the practical expedient to not separate lease and non-lease components.

Our leases are recognized in our Consolidated Balance Sheets as Operating lease right-of-use assets, and as lease liabilities, with the current portion presented in Current portion of operating lease liabilities and with the long-term portion presented in Long-term operating lease liabilities, net of current portion.

Right-of-use ("ROU") 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 ROU assets and liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments.

At inception, we determine if an arrangement is a lease, if it includes options to extend or terminate the lease, and if it is reasonably certain that we will exercise the options. Lease cost, representing lease payments over the term of the lease and any capitalizable direct costs less any incentives received, is recognized on a straight-line basis over the lease term as lease expense. Lattice has operating leases for corporate offices, sales offices, research and development facilities, storage facilities, and a data center. Our leases have remaining lease terms of 1 year to 8 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year. The exercise of lease renewal options is at our sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term and lease payment obligation, respectively. For our leases that contain variable lease payments, residual value guarantees, or restrictive covenants, we have concluded that these inputs are not significant to the determination of the ROU asset and lease liability. We have no finance leases as of March 30, 2019.

Our adoption of the standard resulted in the non-cash recognition of additional net ROU assets and lease liabilities of approximately $29.9 million and $32.3 million, respectively, as of December 30, 2018. The difference between these amounts resulted from an adjustment to the deferred rent balance existing under the prior guidance. Adoption of this standard did not materially affect our consolidated net earnings.

All of our facilities are leased under operating leases, which expire at various times through 2027. For the first quarter of fiscal 2019, we recorded the following for lease expense and cash paid for lease liabilities:



	Three Months Ended
(In thousands)	March 30, 2019

Fixed operating lease expense	$	1,995
Variable operating lease expense	—
Total operating lease expense	$	1,995

The following table presents the lease balance classifications within the Consolidated Balance Sheets and summarizes their activity during the first three months of fiscal 2019:



Operating lease right-of-use assets	(in thousands)
Balance as of December 29, 2018	—
Right-of-use assets recorded from adoption of ASC 842	29,893
Right-of-use assets obtained in exchange for new lease obligations during the period	219
Amortization of right-of-use asset during the period	(1,487	)
Impairment of right-of-use asset on Portland, Oregon office (recorded in Restructuring charges)	(757	)
Balance as of March 30, 2019	27,868

Operating lease liabilities	(in thousands)
Balance as of December 29, 2018	—
Lease liabilities recorded from adoption of ASC 842	32,273
Lease liabilities incurred for new lease obligations during the period	219
Accretion of lease liabilities	508
Operating cash used by payments on lease liabilities	(2,597	)
Balance as of March 30, 2019	30,403
Less: Current portion of operating lease liabilities	(5,027	)
Long-term operating lease liabilities, net of current portion	25,376

For our operating leases, the weighted-average remaining lease term is 6.5 years and the weighted-average discount rate is 7.0% as of March 30, 2019.

Maturities of operating lease liabilities as of March 30, 2019 are as follows:



Fiscal year	(in thousands)

2019 (remaining 9 months)	$	4,974
2020	7,053
2021	5,288
2022	4,436
2023	4,563
Thereafter	11,369
Total lease payments	37,683
Less: amount representing interest	(7,280		)
Total lease liabilities	$	30,403

Future minimum lease commitments at December 29, 2018, under the previous lease guidance (ASC 840), were as follows:



Fiscal year	(in thousands)

2019	$	7,090
2020	6,893
2021	5,452
2022	4,658
2023	4,229
Thereafter	9,930
	$	38,252

Prior to 2019, the reporting of future minimum lease commitments included the lease obligations associated with previously restructured facilities. After adoption of Topic 842 for the first quarter of 2019, the lease obligations for previously restructured facilities were $8.1 million and continued to be recorded in Other long-term liabilities on our Consolidated Balance Sheets. The difference between the future minimum lease payments reported at December 29, 2018 and the total maturity of operating lease liabilities as of March 30, 2019 is primarily due to new leases executed in the first quarter of fiscal 2019 and to the reasonable certainty of extending the lease of an existing facility. Rental expense under operating leases was $8.3 million for fiscal 2018 and $8.9 million for fiscal 2017.