LEASES

3 Months Ended

Mar. 31, 2024

We lease office and retail space, warehouse and distribution facilities, land, vehicles, and equipment. We determine if an agreement is or contains a lease at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet.

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. ROU assets and liabilities are based on the estimated present value of lease payments over the lease term and are recognized at the lease commencement date.

As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate in determining the present value of lease payments. The estimated incremental borrowing rate is derived from information available at the lease commencement date.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. A limited number of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain residual value guarantees or material restrictive covenants.

For real estate, equipment and vehicles that support selling, marketing and general administrative activities, the Company accounts for the lease and non-lease components as a single lease component. These asset categories comprise the majority of our leases. The lease and non-lease components of real estate and equipment leases supporting production activities are not accounted for as a single lease component. Consideration for such contracts are allocated to the lease and non-lease components based upon relative standalone prices either observable or estimated if observable prices are not readily available.

The components of lease expense for the three months ended March 31, 2024 and April 2, 2023 were as follows:


		Three Months Ended
Lease expense	Classification	March 31, 2024		April 2, 2023
Operating lease cost	Cost of sales or SM&A (1)	$	12,215	$	12,043
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	2,213		1,862
Interest on lease liabilities	Interest expense, net	1,185		1,100
Net lease cost (2)		$	15,613	$	15,005

(1)Supply chain-related amounts were included in cost of sales.

(2)Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial.

Information regarding our lease terms and discount rates were as follows:


	March 31, 2024		December 31, 2023
Weighted-average remaining lease term (years)
Operating leases	14.1		14.4
Finance leases	25.6		25.9

Weighted-average discount rate
Operating leases	3.5	%	3.5	%
Finance leases	6.3	%	6.2	%

Supplemental balance sheet information related to leases were as follows:


Leases	Classification	March 31, 2024		December 31, 2023
Assets
Operating lease ROU assets	Other non-current assets	$	307,664	$	307,976

Finance lease ROU assets, at cost	Property, plant and equipment, gross	89,759		89,335
Accumulated amortization	Accumulated depreciation	(20,810)		(19,472)
Finance lease ROU assets, net	Property, plant and equipment, net	68,949		69,863

Total leased assets		$	376,613	$	377,839

Liabilities
Current
Operating	Accrued liabilities	$	35,224	$	34,494
Finance	Current portion of long-term debt	6,254		5,900
Non-current
Operating	Other long-term liabilities	276,417		277,089
Finance	Long-term debt	70,475		70,485
Total lease liabilities		$	388,370	$	387,968

The maturity of our lease liabilities as of March 31, 2024 were as follows:


	Operating leases		Finance leases		Total
2024 (rest of year)	$	36,307	$	7,991	$	44,298
2025	35,441		9,330		44,771
2026	28,146		6,179		34,325
2027	26,635		4,421		31,056
2028	25,499		4,216		29,715
Thereafter	243,152		137,910		381,062
Total lease payments	395,180		170,047		565,227
Less: Imputed interest	83,539		93,318		176,857
Total lease liabilities	$	311,641	$	76,729	$	388,370

Supplemental cash flow and other information related to leases were as follows:


	Three Months Ended
	March 31, 2024		April 2, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11,824	$	11,281
Operating cash flows from finance leases	1,185		1,100
Financing cash flows from finance leases	1,563		1,183

ROU assets obtained in exchange for lease liabilities:
Operating leases	$	9,043	$	3,735
Finance leases	983		292