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Leases | 3 Months Ended
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Mar. 29, 2020
Leases [Abstract] |
Leases | Leases The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company uses the following policies and assumptions to evaluate its population of leases: •Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term. •Allocating lease and non-lease components: The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable. •Calculating the discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate. •Recognizing leases: The Company does not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term. •Including rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the Consumer Price Index or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement. •Including renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right-of-use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right-of-use asset and the associated lease liability. •Including options to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract. •Including residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants. Following is a summary of the weighted average remaining lease term and weighted average discount rate for the Company’s population of leases:
|  | March 29, 2020 |  | December 29, 2019
Weighted average remaining lease term: |  |  |  |
Operating leases |  | 10.0 years |  | 10.2 years
Financing leases |  | 5.8 years |  | 4.8 years
Weighted average discount rate: |  |  |  |
Operating leases |  | 4.1 | % |  | 4.1 | %
Financing leases |  | 5.6 | % |  | 5.7 | %
During the first quarter of 2020, the Company entered into a lease agreement, effective January 1, 2020, with Beacon to continue to lease its headquarters office facility and an adjacent office facility in Charlotte, North Carolina. The new lease has a 10-year term and expires on December 31, 2029. This lease is classified as an operating lease and the additional lease liability associated with this lease was $32.3 million as of March 29, 2020. This lease replaced the previous lease agreement, which was classified as a financing lease and was scheduled to expire on December 31, 2021, and had a $6.8 million principal balance outstanding as of December 29, 2019. Following is a summary of balances related to the Company’s lease portfolio within the condensed consolidated statements of operations:
|  | First Quarter |  |
(in thousands) |  | 2020 |  | 2019
Cost of sales impact: |  |  |  |
Operating lease costs |  | $ | 1,385 |  |  |  | $ | 1,341 |
Short-term and variable leases |  | 2,600 |  |  |  | 2,262 |
Depreciation expense from financing leases |  | 354 |  |  |  | 353 |
Total cost of sales impact |  | $ | 4,339 |  |  |  | $ | 3,956 |
SD&A expenses impact: |  |  |  |  |  |  |
Operating lease costs |  | $ | 4,669 |  |  |  | $ | 2,896 |
Short-term and variable leases |  | 890 |  |  |  | 1,059 |
Depreciation expense from financing leases |  | 571 |  |  |  | 1,139 |
Total SD&A expenses impact |  | $ | 6,130 |  |  |  | $ | 5,094 |
Interest expense, net impact: |  |  |  |  |  |  |
Interest expense on financing lease obligations |  | $ | 266 |  |  |  | $ | 702 |
Total interest expense, net impact |  | $ | 266 |  |  |  | $ | 702 |
Total lease cost |  | $ | 10,735 |  |  |  | $ | 9,752 |
The future minimum lease payments related to the Company’s lease portfolio include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of March 29, 2020:
(in thousands) |  | Operating Leases |  | Financing Leases |  | Total
Remainder of 2020 |  | $ | 17,092 |  |  | $ | 5,275 |  |  | $ | 22,367 |
2021 |  | 20,809 |  |  | 2,628 |  |  | 23,437 |
2022 |  | 18,089 |  |  | 2,694 |  |  | 20,783 |
2023 |  | 15,832 |  |  | 2,750 |  |  | 18,582 |
2024 |  | 15,192 |  |  | 2,808 |  |  | 18,000 |
Thereafter |  | 89,017 |  |  | 5,407 |  |  | 94,424 |
Total minimum lease payments including interest |  | $ | 176,031 |  |  | $ | 21,562 |  |  | $ | 197,593 |
Less: Amounts representing interest |  | 33,496 |  |  | 3,027 |  |  | 36,523 |
Present value of minimum lease principal payments |  | 142,535 |  |  | 18,535 |  |  | 161,070 |
Less: Current portion of lease liabilities - operating and financing leases |  | 17,837 |  |  | 5,099 |  |  | 22,936 |
Noncurrent portion of lease liabilities - operating and financing leases |  | $ | 124,698 |  |  | $ | 13,436 |  |  | $ | 138,134 |
Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 29, 2019:
(in thousands) |  | Operating Leases |  | Financing Leases |  | Total
2020 |  | $ | 19,236 |  |  | $ | 10,611 |  |  | $ | 29,847 |
2021 |  | 16,815 |  |  | 6,215 |  |  | 23,030 |
2022 |  | 14,016 |  |  | 2,694 |  |  | 16,710 |
2023 |  | 11,704 |  |  | 2,750 |  |  | 14,454 |
2024 |  | 10,989 |  |  | 2,808 |  |  | 13,797 |
Thereafter |  | 67,556 |  |  | 5,406 |  |  | 72,962 |
Total minimum lease payments including interest |  | $ | 140,316 |  |  | $ | 30,484 |  |  | $ | 170,800 |
Less: Amounts representing interest |  | 27,527 |  |  |  | 3,678 |  |  |  | 31,205 |
Present value of minimum lease principal payments |  | 112,789 |  |  |  | 26,806 |  |  |  | 139,595 |
Less: Current portion of lease liabilities - operating and financing leases |  | 15,024 |  |  |  | 9,403 |  |  |  | 24,427 |
Noncurrent portion of lease liabilities - operating and financing leases |  | $ | 97,765 |  |  |  | $ | 17,403 |  |  |  | $ | 115,168 |
Following is a summary of balances related to the Company’s lease portfolio within the condensed consolidated statements of cash flows:
|  | First Quarter |  |
(in thousands) |  | 2020 |  | 2019
Cash flows from operating activities impact: |  |  |  |
Operating leases |  | $ | 4,195 |  |  | $ | 4,136 |
Interest payments on financing lease obligations |  | 266 |  |  | 702 |
Total cash flows from operating activities impact |  | $ | 4,461 |  |  | $ | 4,838 |
Cash flows from financing activities impact: |  |  |  |
Principal payments on financing lease obligations |  | $ | 1,485 |  |  | $ | 2,114 |
Total cash flows from financing activities impact |  | $ | 1,485 |  |  | $ | 2,114 |
Leases | Leases The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company uses the following policies and assumptions to evaluate its population of leases: •Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term. •Allocating lease and non-lease components: The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable. •Calculating the discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate. •Recognizing leases: The Company does not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term. •Including rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the Consumer Price Index or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement. •Including renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right-of-use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right-of-use asset and the associated lease liability. •Including options to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract. •Including residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants. Following is a summary of the weighted average remaining lease term and weighted average discount rate for the Company’s population of leases:
|  | March 29, 2020 |  | December 29, 2019
Weighted average remaining lease term: |  |  |  |
Operating leases |  | 10.0 years |  | 10.2 years
Financing leases |  | 5.8 years |  | 4.8 years
Weighted average discount rate: |  |  |  |
Operating leases |  | 4.1 | % |  | 4.1 | %
Financing leases |  | 5.6 | % |  | 5.7 | %
During the first quarter of 2020, the Company entered into a lease agreement, effective January 1, 2020, with Beacon to continue to lease its headquarters office facility and an adjacent office facility in Charlotte, North Carolina. The new lease has a 10-year term and expires on December 31, 2029. This lease is classified as an operating lease and the additional lease liability associated with this lease was $32.3 million as of March 29, 2020. This lease replaced the previous lease agreement, which was classified as a financing lease and was scheduled to expire on December 31, 2021, and had a $6.8 million principal balance outstanding as of December 29, 2019. Following is a summary of balances related to the Company’s lease portfolio within the condensed consolidated statements of operations:
|  | First Quarter |  |
(in thousands) |  | 2020 |  | 2019
Cost of sales impact: |  |  |  |
Operating lease costs |  | $ | 1,385 |  |  |  | $ | 1,341 |
Short-term and variable leases |  | 2,600 |  |  |  | 2,262 |
Depreciation expense from financing leases |  | 354 |  |  |  | 353 |
Total cost of sales impact |  | $ | 4,339 |  |  |  | $ | 3,956 |
SD&A expenses impact: |  |  |  |  |  |  |
Operating lease costs |  | $ | 4,669 |  |  |  | $ | 2,896 |
Short-term and variable leases |  | 890 |  |  |  | 1,059 |
Depreciation expense from financing leases |  | 571 |  |  |  | 1,139 |
Total SD&A expenses impact |  | $ | 6,130 |  |  |  | $ | 5,094 |
Interest expense, net impact: |  |  |  |  |  |  |
Interest expense on financing lease obligations |  | $ | 266 |  |  |  | $ | 702 |
Total interest expense, net impact |  | $ | 266 |  |  |  | $ | 702 |
Total lease cost |  | $ | 10,735 |  |  |  | $ | 9,752 |
The future minimum lease payments related to the Company’s lease portfolio include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of March 29, 2020:
(in thousands) |  | Operating Leases |  | Financing Leases |  | Total
Remainder of 2020 |  | $ | 17,092 |  |  | $ | 5,275 |  |  | $ | 22,367 |
2021 |  | 20,809 |  |  | 2,628 |  |  | 23,437 |
2022 |  | 18,089 |  |  | 2,694 |  |  | 20,783 |
2023 |  | 15,832 |  |  | 2,750 |  |  | 18,582 |
2024 |  | 15,192 |  |  | 2,808 |  |  | 18,000 |
Thereafter |  | 89,017 |  |  | 5,407 |  |  | 94,424 |
Total minimum lease payments including interest |  | $ | 176,031 |  |  | $ | 21,562 |  |  | $ | 197,593 |
Less: Amounts representing interest |  | 33,496 |  |  | 3,027 |  |  | 36,523 |
Present value of minimum lease principal payments |  | 142,535 |  |  | 18,535 |  |  | 161,070 |
Less: Current portion of lease liabilities - operating and financing leases |  | 17,837 |  |  | 5,099 |  |  | 22,936 |
Noncurrent portion of lease liabilities - operating and financing leases |  | $ | 124,698 |  |  | $ | 13,436 |  |  | $ | 138,134 |
Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 29, 2019:
(in thousands) |  | Operating Leases |  | Financing Leases |  | Total
2020 |  | $ | 19,236 |  |  | $ | 10,611 |  |  | $ | 29,847 |
2021 |  | 16,815 |  |  | 6,215 |  |  | 23,030 |
2022 |  | 14,016 |  |  | 2,694 |  |  | 16,710 |
2023 |  | 11,704 |  |  | 2,750 |  |  | 14,454 |
2024 |  | 10,989 |  |  | 2,808 |  |  | 13,797 |
Thereafter |  | 67,556 |  |  | 5,406 |  |  | 72,962 |
Total minimum lease payments including interest |  | $ | 140,316 |  |  | $ | 30,484 |  |  | $ | 170,800 |
Less: Amounts representing interest |  | 27,527 |  |  |  | 3,678 |  |  |  | 31,205 |
Present value of minimum lease principal payments |  | 112,789 |  |  |  | 26,806 |  |  |  | 139,595 |
Less: Current portion of lease liabilities - operating and financing leases |  | 15,024 |  |  |  | 9,403 |  |  |  | 24,427 |
Noncurrent portion of lease liabilities - operating and financing leases |  | $ | 97,765 |  |  |  | $ | 17,403 |  |  |  | $ | 115,168 |
Following is a summary of balances related to the Company’s lease portfolio within the condensed consolidated statements of cash flows:
|  | First Quarter |  |
(in thousands) |  | 2020 |  | 2019
Cash flows from operating activities impact: |  |  |  |
Operating leases |  | $ | 4,195 |  |  | $ | 4,136 |
Interest payments on financing lease obligations |  | 266 |  |  | 702 |
Total cash flows from operating activities impact |  | $ | 4,461 |  |  | $ | 4,838 |
Cash flows from financing activities impact: |  |  |  |
Principal payments on financing lease obligations |  | $ | 1,485 |  |  | $ | 2,114 |
Total cash flows from financing activities impact |  | $ | 1,485 |  |  | $ | 2,114 |

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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