USANA Health Sciences, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Operating Leases

Operating Leases

9 Months Ended

Sep. 28, 2019

NOTE B – OPERATING LEASES

With the exception of the Company’s headquarters in Salt Lake City, Utah, and its facilities in New South Wales, Australia, and in Beijing, and Tianjin, China, the Company generally leases its facilities. Each of the facility lease agreements is a non-cancelable operating lease generally structured with renewal options and expires prior to or during 2026. In connection with the production facilities in Beijing and Tianjin, China, the Company has prepaid land use rights that are considered when applying the lease definition under the guidance for lease accounting. The Company utilizes equipment under non-cancelable operating leases, expiring through 2022.

At contract inception, the Company determines whether an arrangement is or contains a lease and whether the lease should be classified as an operating or a financing lease. A contract is or contains a lease if the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. Control is determined based on the right to obtain all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset. ROU assets for operating leases represent the right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments.

‎

NOTE B – OPERATING LEASES – CONTINUED

Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement, as well as any variable rate payments that depend on an index, initially measured using the index at the lease commencement date. Non-lease components are accounted for separately from the fixed lease component for all leases. Most of the Company’s leases do not provide an implicit rate that can readily be determined. Therefore, the applied discount rate is based on the Company’s incremental borrowing rate, which is determined using its credit rating and other information available as of the commencement date and is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Lease terms may include options to renew when it is reasonably certain that the Company will exercise that option. The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and selling, general and administrative expense in the Company’s consolidated statements of comprehensive income. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases is recognized on a straight-line basis over the lease term.

The Company monitors for events or changes in circumstances that require a reassessment of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the ROU asset unless doing so would reduce the ROU asset to an amount less than zero, in which case the remaining adjustment would be recorded in the consolidated statements of comprehensive income.

The following table summarizes the classification of lease assets and lease liabilities in the Company’s consolidated balance sheet:



		As of
Leases	Classification	September 28, ‎2019
Assets
ROU operating lease assets, net	Other assets	$	25,434
Total ROU assets		$	25,434

Liabilities
Current:
Operating lease liabilities	Other current liabilities	$	7,158
Non-current:
Operating lease liabilities	Other long-term liabilities	$	12,574
Total lease liabilities		$	19,732

‎

NOTE B – OPERATING LEASES – CONTINUED

The following table presents supplemental lease information:



	Quarter Ended		Nine Months Ended
	September 28,		September 28,
	2019		2019
Lease cost
Operating lease cost	$	2,153	$	6,647
Total lease cost	$	2,153	$	6,647



	Nine Months Ended
	September 28,
	2019
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	6,403
ROU assets obtained in exchange for new operating lease liabilities	$	6,207
Weighted-average remaining lease term—operating leases		3.82 yrs.
Weighted-average discount rate—operating leases		3.76%

The following table presents the maturity of the Company’s lease liabilities as of September 28, 2019.



Year ending
Remainder of 2019	$	2,145
2020		7,659
2021		5,115
2022		2,241
2023		1,650
Thereafter		2,609
	$	21,419
Less: imputed interest	$	(1,687)
Present value	$	19,732

The future minimum commitments under operating leases at December 29, 2018 having a non-cancelable term in excess of one year as determined prior to the adoption of Topic 842 are as follows:



Year ending
2019	$	9,155
2020		6,146
2021		3,825
2022		1,962
2023		1,464
Thereafter		2,514
	$	25,066

‎