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Leases
 6 Months Ended
Jul. 03, 2021
Leases [Abstract]  
Leases LeasesWe 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”). 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. 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 FASB’s 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 July 3, 2021, and January 2, 2021, total unrecognized deferred gains related to these transactions were $80.1 million and $82.0 million, respectively.

During 2019, we entered into real estate financing transactions on two warehouse facilities. 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 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 2020 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.

During the first and second quarters of 2021, we recorded finance leases of $10.2 million and $0.3 million, respectively, related to new tractors put into service as part of our mobile fleet. These leases were entered into for a period of four years each.

Additionally, during the second quarter of 2021, we recorded operating leases totaling $5.0 million related to warehouse facilities in Milwaukee, WI, and Statesville, NC. Each lease was entered into for an initial period of ten years, and has two five-year renewal options.
The following table presents our assets and liabilities related to our leases as of July 3, 2021 and January 2, 2021:
Lease assets and liabilitiesJuly 3, 2021January 2, 2021
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$49,478 $51,142 
Finance lease right-of-use assets (1)
Property and equipment, net152,510 148,561 
Total lease right-of-use assets$201,988 $199,703 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$4,936 $6,076 
Finance lease liabilitiesFinance lease liabilities - short term6,379 5,675 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term44,897 44,965 
Finance lease liabilitiesFinance lease liabilities - long term272,817 267,443 
Total lease liabilities$329,029 $324,159 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $66.8 million and $58.6 million as of July 3, 2021 and January 2, 2021, respectively.
The components of lease expense were as follows:
Three Months EndedSix Months Ended
Components of lease expenseJuly 3, 2021June 27, 2020July 3, 2021June 27, 2020
(In thousands)(In thousands)
Operating lease cost:$2,934 $2,977 $5,984 $6,098 
Finance lease cost:
   Amortization of right-of-use assets$4,210 $3,513 $8,197 $6,878 
   Interest on lease liabilities6,241 6,557 12,399 12,721 
Total finance lease costs$10,451 $10,070 $20,596 $19,599 
Supplemental cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
Cash flow informationJuly 3, 2021June 27, 2020July 3, 2021June 27, 2020
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$2,807 $2,860 $5,372 $5,663 
   Operating cash flows from finance leases6,241 6,557 12,399 12,721 
   Financing cash flows from finance leases$2,542 $2,403 $4,671 $4,583 
Right-of-use assets obtained in exchange for lease obligations
   Operating leases$5,106 $— $5,106 $— 
   Finance leases$338 $— $10,549 $— 
Supplemental balance sheet information related to leases was as follows:
Balance sheet informationJuly 3, 2021January 2, 2021
(In thousands)
Finance leases
   Property and equipment$219,264 $207,147 
   Accumulated depreciation(66,754)(58,586)
Property and equipment, net$152,510 $148,561 
Weighted Average Remaining Lease Term (in years)
   Operating leases10.9411.14
   Finance leases16.1916.08
Weighted Average Discount Rate
   Operating leases8.98 %9.28 %
   Finance leases9.83 %9.87 %
The major categories of our finance lease liabilities as of July 3, 2021 and January 2, 2021 are as follows:
CategoryJuly 3, 2021January 2, 2021
(In thousands)
Equipment and vehicles$36,080 $29,434 
Real estate243,116 243,684 
Total finance leases$279,196 $273,118 
As of July 3, 2021, maturities of lease liabilities were as follows:
Fiscal yearOperating leasesFinance leases
(In thousands)
2021$10,429 $16,744 
20229,589 32,495 
20238,349 32,191 
20247,877 31,575 
20257,878 27,850 
Thereafter43,766 380,072 
Total lease payments$87,888 $520,927 
Less: imputed interest(38,055)(241,731)
Total$49,833 $279,196 
On January 2, 2021, maturities of lease liabilities were as follows:
Fiscal yearOperating leasesFinance leases
(In thousands)
2021$11,215 $30,159 
20229,161 29,453 
20238,400 29,189 
20247,283 28,649 
20257,392 28,102 
Thereafter44,092 380,511 
Total lease payments$87,543 $526,063 
Less: imputed interest(36,502)(252,945)
Total$51,041 $273,118 
Leases LeasesWe 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”). 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. 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 FASB’s 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 July 3, 2021, and January 2, 2021, total unrecognized deferred gains related to these transactions were $80.1 million and $82.0 million, respectively.

During 2019, we entered into real estate financing transactions on two warehouse facilities. 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 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 2020 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.

During the first and second quarters of 2021, we recorded finance leases of $10.2 million and $0.3 million, respectively, related to new tractors put into service as part of our mobile fleet. These leases were entered into for a period of four years each.

Additionally, during the second quarter of 2021, we recorded operating leases totaling $5.0 million related to warehouse facilities in Milwaukee, WI, and Statesville, NC. Each lease was entered into for an initial period of ten years, and has two five-year renewal options.
The following table presents our assets and liabilities related to our leases as of July 3, 2021 and January 2, 2021:
Lease assets and liabilitiesJuly 3, 2021January 2, 2021
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$49,478 $51,142 
Finance lease right-of-use assets (1)
Property and equipment, net152,510 148,561 
Total lease right-of-use assets$201,988 $199,703 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$4,936 $6,076 
Finance lease liabilitiesFinance lease liabilities - short term6,379 5,675 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term44,897 44,965 
Finance lease liabilitiesFinance lease liabilities - long term272,817 267,443 
Total lease liabilities$329,029 $324,159 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $66.8 million and $58.6 million as of July 3, 2021 and January 2, 2021, respectively.
The components of lease expense were as follows:
Three Months EndedSix Months Ended
Components of lease expenseJuly 3, 2021June 27, 2020July 3, 2021June 27, 2020
(In thousands)(In thousands)
Operating lease cost:$2,934 $2,977 $5,984 $6,098 
Finance lease cost:
   Amortization of right-of-use assets$4,210 $3,513 $8,197 $6,878 
   Interest on lease liabilities6,241 6,557 12,399 12,721 
Total finance lease costs$10,451 $10,070 $20,596 $19,599 
Supplemental cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
Cash flow informationJuly 3, 2021June 27, 2020July 3, 2021June 27, 2020
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$2,807 $2,860 $5,372 $5,663 
   Operating cash flows from finance leases6,241 6,557 12,399 12,721 
   Financing cash flows from finance leases$2,542 $2,403 $4,671 $4,583 
Right-of-use assets obtained in exchange for lease obligations
   Operating leases$5,106 $— $5,106 $— 
   Finance leases$338 $— $10,549 $— 
Supplemental balance sheet information related to leases was as follows:
Balance sheet informationJuly 3, 2021January 2, 2021
(In thousands)
Finance leases
   Property and equipment$219,264 $207,147 
   Accumulated depreciation(66,754)(58,586)
Property and equipment, net$152,510 $148,561 
Weighted Average Remaining Lease Term (in years)
   Operating leases10.9411.14
   Finance leases16.1916.08
Weighted Average Discount Rate
   Operating leases8.98 %9.28 %
   Finance leases9.83 %9.87 %
The major categories of our finance lease liabilities as of July 3, 2021 and January 2, 2021 are as follows:
CategoryJuly 3, 2021January 2, 2021
(In thousands)
Equipment and vehicles$36,080 $29,434 
Real estate243,116 243,684 
Total finance leases$279,196 $273,118 
As of July 3, 2021, maturities of lease liabilities were as follows:
Fiscal yearOperating leasesFinance leases
(In thousands)
2021$10,429 $16,744 
20229,589 32,495 
20238,349 32,191 
20247,877 31,575 
20257,878 27,850 
Thereafter43,766 380,072 
Total lease payments$87,888 $520,927 
Less: imputed interest(38,055)(241,731)
Total$49,833 $279,196 
On January 2, 2021, maturities of lease liabilities were as follows:
Fiscal yearOperating leasesFinance leases
(In thousands)
2021$11,215 $30,159 
20229,161 29,453 
20238,400 29,189 
20247,283 28,649 
20257,392 28,102 
Thereafter44,092 380,511 
Total lease payments$87,543 $526,063 
Less: imputed interest(36,502)(252,945)
Total$51,041 $273,118