Lease Financing Obligation
|3 Months Ended|
Jul. 03, 2011
|Lease Financing Obligation|
|Lease Financing Obligation||
NOTE 13. LEASE FINANCING OBLIGATION
In connection with the Sipex acquisition, we assumed a lease financing obligation related to a facility located in Milpitas, California (the "Hillview Facility"). The lease term expired March 31, 2011 and had average lease payments of approximately $1.4 million per year.
The fair value of the Hillview Facility was estimated at $13.4 million at the time of the acquisition and was included in the property, plant and equipment, net line item on the condensed consolidated balance sheet. In accordance with purchase accounting, we accounted for this sale and leaseback transaction as a financing transaction which was included in the long-term lease financing obligations line item on our condensed consolidated balance sheet. The effective interest rate was 8.2%.
At the end of the lease term, March 31, 2011, the terminal value of $12.2 million was settled in a noncash transaction with the expiration of the Hillview Facility lease. As a result, during the first quarter of fiscal year 2012, the property, plant and equipment balance and the terminal value of $12.2 million were removed from our condensed consolidated balance sheet.
Depreciation for the Hillview Facility recorded using the straight-line method for the remaining useful life for the periods indicated below was as follows (in thousands):
In April 2008, we entered into a sublease agreement for the Hillview Facility. The sublease expired March 31, 2011. The sublease income recorded in the other income and expense, net line item in our condensed consolidated statements of operations for the periods indicated below was as follows (in thousands):
We have also acquired engineering design tools ("design tools") under capital leases. We acquired $5.2 million of design tools in December 2007 under a four-year license, $3.7 million of design tools in November 2008 under a three-year license, $1.1 million in July 2009 under a 3-year license, $1.3 million in December 2009 under a 28-month license, and $1.0 million in June 2010 under a three-year license, all of which were accounted for as capital leases and recorded in the property, plant and equipment, net line item on the condensed consolidated balance sheets. The related design tool obligations were included in the lease financing obligation in our condensed consolidated balance sheets.
Amortization of the design tools recorded using the straight-line method over the remaining useful life for the periods indicated below was as follows (in thousands):
Future minimum lease and sublease income payments for the lease financing obligations as of July 3, 2011 are as follows (in thousands):
Interest expense for the Hillview Facility lease financing obligation and design tools for the periods indicated below was as follows (in thousands):
In the course of our business, we enter into arrangements accounted for as operating leases. Our current arrangements relate to engineering design licenses and office space. As of July 3, 2011, our future obligations under these arrangements were $5.7 million and $1.1 million, respectively.
In fiscal year 2011, the lessor for the Hillview Facility made a remediation claim for damages related to our lease. Based on such claim, we submitted a proposal to the lessor to settle the claim and recorded an accrual of $0.4 million in the fourth quarter of fiscal year 2011. The proposal expired in July 2011. The lessor has now filed suit in connection with that remediation claim, claiming it is owed $3 million in remediation costs. We believe the claimed costs are substantially inflated and will defend the lawsuit on that basis, among others. In addition, we have claims against the lessor which we intend to file as part of the lawsuit. We continue to estimate and accrue the amount of approximately $0.4 million to settle the claim.
The entire disclosure for long-term debt.
Reference 1: http://www.xbrl.org/2003/role/presentationRef