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Leases
 9 Months Ended
Sep. 26, 2020
Leases [Abstract]  
Leases Leases
We have operating and finance leases for certain of our distribution facilities, office space, land, mobile fleet, and equipment. Many of our leases are non-cancelable and typically have a defined initial lease term, and some provide options to renew at our election for specified periods of time. The majority of our leases have remaining lease terms of 1 year to 15 years, some of which include one or more options to extend the leases for 5 years. Our leases generally provide for fixed annual rentals. Certain of our leases include provisions for escalating rent based on, among other things, contractually defined increases and/or changes in the Consumer Price Index (“CPI”). Some of our leases require us to pay taxes, insurance, and maintenance expenses associated with the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We determine if an arrangement is a lease at inception and assess lease classification as either operating or finance at lease inception or modification. Operating lease right-of use (“ROU”) assets and liabilities are presented separately on the condensed consolidated balance sheets. Finance lease ROU assets are included in property and equipment and the finance lease obligations are presented separately in the condensed consolidated balance sheet. When a lease does not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We have also made the accounting policy election to not separate lease components from non-lease components related to our mobile fleet asset class.
Finance Lease Liabilities
Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate. As noted in the table below, a majority of our finance leases, formally known as capital leases, relate to real estate.

During 2017 and 2018, we entered into real estate financing transactions on warehouse facilities in Tampa, FL; Ft. Worth, TX; Bellingham, PA; Frederick, MD; Lawrenceville, GA; and Raleigh, NC. These transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms of 15 years with multiple 5-year renewal options, with one having a single 10-year renewal option. We accounted for these transactions in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 840, which was the lease accounting standard in effect at the inception of these arrangements. We have recorded these transactions as finance lease liabilities on our balance sheet. As of September 26, 2020, and December 28, 2019, total unrecognized deferred gains related to these transactions were $83.0 million and $85.8 million, respectively.

On May 19, 2019, we completed a real estate financing transaction on a warehouse facility in University Park, IL for net proceeds of $21.8 million. On June 20, 2019, we completed a real estate financing transaction on a warehouse facility in Yulee, FL for net proceeds of $13.3 million. These two transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms of 15 years with multiple 5-year renewal options. Gross proceeds of these transactions were $45.0 million.

During the first quarter of fiscal 2020, we completed several real estate financing transactions. On December 31, 2019, we completed real estate financing transactions on warehouse facilities in Madison, TN; Kansas City, MO; Richmond, VA; and Bridgeton, MO for aggregate net proceeds of $27.2 million. On January 31, 2020, we completed real estate financing transactions on warehouse facilities in Charlotte, NC; Memphis, TN; Independence, KY; San Antonio, TX; Portland, ME; Denville, NJ; Yaphank, NY; Pensacola, FL; and Tallmadge, OH for aggregate net proceeds of $34.1 million. On February 28, 2020, we completed a real estate financing transaction on a warehouse facility in Elkhart, IN for net proceeds of $7.5 million. These transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms from 15 years to 18 years with multiple 5-year renewal options. Gross proceeds of these transactions were $78.3 million.
We determined that the transactions in fiscal 2019 and in the first quarter of the current fiscal year did not qualify as sales in accordance with ASC 842. Therefore, for accounting purposes, the transactions were not accounted for as sale-leaseback transactions, and no gain or loss was recorded. We determined that these leases qualified for finance lease treatment and recorded them accordingly. The net book value of the assets related to these transactions remains on our books as property and equipment and we continue to depreciate the assets over their remaining useful lives.

On August 14, 2020, we entered into a sale-leaseback arrangement on our warehouse facility in Denver, CO. We determined that this transaction qualified as a sale in accordance with ASC 842 and the lease qualified for operating lease treatment. Gross proceeds of this transaction were $11.0 million and we recognized a related gain of $8.7 million. Upon completion of the transaction, we entered into a long-term lease on the property for an initial term of five years with multiple 5-year renewal options. Net proceeds of the transaction were $10.6 million, which were used to pay down our Term Loan Facility.

A portion of our real estate lease cost is generally subject to annual changes in the Consumer Price Index (“CPI”). The known changes to lease payments are included in the lease liability at lease commencement. Unknown changes related to CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, a subset of our vehicle lease cost is considered variable.
The following table presents our assets and liabilities related to our leases as of September 26, 2020 and December 28, 2019:
September 26, 2020December 28, 2019
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$53,124 $54,408 
Finance lease right-of-use assets (1)
Property and equipment, net151,017 141,922 
Total lease right-of-use assets$204,141 $196,330 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$6,926 $7,317 
Finance lease liabilitiesFinance lease liabilities - short term5,469 6,486 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term45,883 47,091 
Finance lease liabilitiesFinance lease liabilities - long term267,753 191,525 
Total lease liabilities$326,031 $252,419 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $55.9 million and $30.8 million as of September 26, 2020 and December 28, 2019, respectively.
The components of lease expense were as follows:
Three Months EndedNine Months Ended
September 26, 2020September 28, 2019September 26, 2020September 28, 2019
(In thousands)(In thousands)
Operating lease cost:$3,108 $2,911 $9,206 $9,047 
Finance lease cost:
   Amortization of right-of-use assets$4,648 $2,699 $11,526 $8,722 
   Interest on lease liabilities4,949 4,347 17,670 12,216 
Total finance lease costs$9,597 $7,046 $29,196 $20,938 
Supplemental cash flow information related to leases was as follows:
Three Months EndedNine Months Ended
September 26, 2020September 28, 2019September 26, 2020September 28, 2019
(In thousands)
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$3,029 $2,990 $8,662 $8,957 
   Operating cash flows from finance leases4,949 4,347 17,670 12,216 
   Financing cash flows from finance leases$2,893 $2,421 $7,327 $6,652 
Right-of-use assets obtained in exchange for lease obligations
   Operating leases$3,640 $— $3,668 $— 
   Finance leases$3,145 $14,403 $3,145 $18,652 
Supplemental balance sheet information related to leases was as follows:
September 26, 2020December 28, 2019
(In thousands)
Finance leases
   Property and equipment$206,920 $172,720 
   Accumulated depreciation(55,903)(30,798)
Property and equipment, net$151,017 $141,922 
Weighted Average Remaining Lease Term (in years)
   Operating leases11.1211.71
   Finance leases16.2917.12
Weighted Average Discount Rate
   Operating leases9.24 %9.34 %
   Finance leases9.86 %10.11 %
The major categories of our finance lease liabilities as of September 26, 2020 and December 28, 2019 are as follows:
September 26, 2020December 28, 2019
(In thousands)
Equipment and vehicles$29,451 $32,471 
Real estate243,771 165,540 
Total finance leases$273,222 $198,011 
As of September 26, 2020, maturities of lease liabilities were as follows:
Operating leasesFinance leases
(In thousands)
2020$11,727 $6,729 
20219,383 30,025 
20228,641 29,325 
20237,286 28,996 
20247,590 28,376 
Thereafter45,803 408,808 
Total lease payments$90,430 $532,259 
Less: imputed interest(37,621)(259,037)
Total$52,809 $273,222 

On December 28, 2019, maturities of lease liabilities were as follows:
Operating leasesFinance leases
(In thousands)
2020$11,348 $24,002 
202110,111 23,052 
20228,048 22,230 
20237,330 21,854 
20246,413 21,380 
Thereafter50,901 327,439 
Total lease payments$94,151 $439,957 
Less: imputed interest(39,743)(241,946)
Total$54,408 $198,011 
Leases Leases
We have operating and finance leases for certain of our distribution facilities, office space, land, mobile fleet, and equipment. Many of our leases are non-cancelable and typically have a defined initial lease term, and some provide options to renew at our election for specified periods of time. The majority of our leases have remaining lease terms of 1 year to 15 years, some of which include one or more options to extend the leases for 5 years. Our leases generally provide for fixed annual rentals. Certain of our leases include provisions for escalating rent based on, among other things, contractually defined increases and/or changes in the Consumer Price Index (“CPI”). Some of our leases require us to pay taxes, insurance, and maintenance expenses associated with the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We determine if an arrangement is a lease at inception and assess lease classification as either operating or finance at lease inception or modification. Operating lease right-of use (“ROU”) assets and liabilities are presented separately on the condensed consolidated balance sheets. Finance lease ROU assets are included in property and equipment and the finance lease obligations are presented separately in the condensed consolidated balance sheet. When a lease does not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We have also made the accounting policy election to not separate lease components from non-lease components related to our mobile fleet asset class.
Finance Lease Liabilities
Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate. As noted in the table below, a majority of our finance leases, formally known as capital leases, relate to real estate.

During 2017 and 2018, we entered into real estate financing transactions on warehouse facilities in Tampa, FL; Ft. Worth, TX; Bellingham, PA; Frederick, MD; Lawrenceville, GA; and Raleigh, NC. These transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms of 15 years with multiple 5-year renewal options, with one having a single 10-year renewal option. We accounted for these transactions in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 840, which was the lease accounting standard in effect at the inception of these arrangements. We have recorded these transactions as finance lease liabilities on our balance sheet. As of September 26, 2020, and December 28, 2019, total unrecognized deferred gains related to these transactions were $83.0 million and $85.8 million, respectively.

On May 19, 2019, we completed a real estate financing transaction on a warehouse facility in University Park, IL for net proceeds of $21.8 million. On June 20, 2019, we completed a real estate financing transaction on a warehouse facility in Yulee, FL for net proceeds of $13.3 million. These two transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms of 15 years with multiple 5-year renewal options. Gross proceeds of these transactions were $45.0 million.

During the first quarter of fiscal 2020, we completed several real estate financing transactions. On December 31, 2019, we completed real estate financing transactions on warehouse facilities in Madison, TN; Kansas City, MO; Richmond, VA; and Bridgeton, MO for aggregate net proceeds of $27.2 million. On January 31, 2020, we completed real estate financing transactions on warehouse facilities in Charlotte, NC; Memphis, TN; Independence, KY; San Antonio, TX; Portland, ME; Denville, NJ; Yaphank, NY; Pensacola, FL; and Tallmadge, OH for aggregate net proceeds of $34.1 million. On February 28, 2020, we completed a real estate financing transaction on a warehouse facility in Elkhart, IN for net proceeds of $7.5 million. These transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms from 15 years to 18 years with multiple 5-year renewal options. Gross proceeds of these transactions were $78.3 million.
We determined that the transactions in fiscal 2019 and in the first quarter of the current fiscal year did not qualify as sales in accordance with ASC 842. Therefore, for accounting purposes, the transactions were not accounted for as sale-leaseback transactions, and no gain or loss was recorded. We determined that these leases qualified for finance lease treatment and recorded them accordingly. The net book value of the assets related to these transactions remains on our books as property and equipment and we continue to depreciate the assets over their remaining useful lives.

On August 14, 2020, we entered into a sale-leaseback arrangement on our warehouse facility in Denver, CO. We determined that this transaction qualified as a sale in accordance with ASC 842 and the lease qualified for operating lease treatment. Gross proceeds of this transaction were $11.0 million and we recognized a related gain of $8.7 million. Upon completion of the transaction, we entered into a long-term lease on the property for an initial term of five years with multiple 5-year renewal options. Net proceeds of the transaction were $10.6 million, which were used to pay down our Term Loan Facility.

A portion of our real estate lease cost is generally subject to annual changes in the Consumer Price Index (“CPI”). The known changes to lease payments are included in the lease liability at lease commencement. Unknown changes related to CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, a subset of our vehicle lease cost is considered variable.
The following table presents our assets and liabilities related to our leases as of September 26, 2020 and December 28, 2019:
September 26, 2020December 28, 2019
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$53,124 $54,408 
Finance lease right-of-use assets (1)
Property and equipment, net151,017 141,922 
Total lease right-of-use assets$204,141 $196,330 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$6,926 $7,317 
Finance lease liabilitiesFinance lease liabilities - short term5,469 6,486 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term45,883 47,091 
Finance lease liabilitiesFinance lease liabilities - long term267,753 191,525 
Total lease liabilities$326,031 $252,419 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $55.9 million and $30.8 million as of September 26, 2020 and December 28, 2019, respectively.
The components of lease expense were as follows:
Three Months EndedNine Months Ended
September 26, 2020September 28, 2019September 26, 2020September 28, 2019
(In thousands)(In thousands)
Operating lease cost:$3,108 $2,911 $9,206 $9,047 
Finance lease cost:
   Amortization of right-of-use assets$4,648 $2,699 $11,526 $8,722 
   Interest on lease liabilities4,949 4,347 17,670 12,216 
Total finance lease costs$9,597 $7,046 $29,196 $20,938 
Supplemental cash flow information related to leases was as follows:
Three Months EndedNine Months Ended
September 26, 2020September 28, 2019September 26, 2020September 28, 2019
(In thousands)
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$3,029 $2,990 $8,662 $8,957 
   Operating cash flows from finance leases4,949 4,347 17,670 12,216 
   Financing cash flows from finance leases$2,893 $2,421 $7,327 $6,652 
Right-of-use assets obtained in exchange for lease obligations
   Operating leases$3,640 $— $3,668 $— 
   Finance leases$3,145 $14,403 $3,145 $18,652 
Supplemental balance sheet information related to leases was as follows:
September 26, 2020December 28, 2019
(In thousands)
Finance leases
   Property and equipment$206,920 $172,720 
   Accumulated depreciation(55,903)(30,798)
Property and equipment, net$151,017 $141,922 
Weighted Average Remaining Lease Term (in years)
   Operating leases11.1211.71
   Finance leases16.2917.12
Weighted Average Discount Rate
   Operating leases9.24 %9.34 %
   Finance leases9.86 %10.11 %
The major categories of our finance lease liabilities as of September 26, 2020 and December 28, 2019 are as follows:
September 26, 2020December 28, 2019
(In thousands)
Equipment and vehicles$29,451 $32,471 
Real estate243,771 165,540 
Total finance leases$273,222 $198,011 
As of September 26, 2020, maturities of lease liabilities were as follows:
Operating leasesFinance leases
(In thousands)
2020$11,727 $6,729 
20219,383 30,025 
20228,641 29,325 
20237,286 28,996 
20247,590 28,376 
Thereafter45,803 408,808 
Total lease payments$90,430 $532,259 
Less: imputed interest(37,621)(259,037)
Total$52,809 $273,222 

On December 28, 2019, maturities of lease liabilities were as follows:
Operating leasesFinance leases
(In thousands)
2020$11,348 $24,002 
202110,111 23,052 
20228,048 22,230 
20237,330 21,854 
20246,413 21,380 
Thereafter50,901 327,439 
Total lease payments$94,151 $439,957 
Less: imputed interest(39,743)(241,946)
Total$54,408 $198,011