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Leases
 6 Months Ended
Jul. 01, 2023
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 one to 15 years, some of which include one or more options to extend the leases for five 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 sheets. 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.
The following table presents our assets and liabilities related to our leases as of July 1, 2023 and December 31, 2022:
Lease assets and liabilitiesJuly 1, 2023December 31, 2022
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$43,601 $45,717 
Finance lease right-of-use assets (1)
Property and equipment, net130,804 132,748 
Total lease right-of-use assets$174,405 $178,465 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$7,085 $7,432 
Finance lease liabilitiesFinance lease liabilities - short term8,238 7,089 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term37,853 40,011 
Finance lease liabilitiesFinance lease liabilities - long term262,950 265,986 
Total lease liabilities$316,126 $320,518 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $94.3 million and $90.1 million as of July 1, 2023 and December 31, 2022, respectively.
The components of lease expense were as follows:
Three Months EndedSix Months Ended
Components of lease expenseJuly 1, 2023July 2, 2022July 1, 2023July 2, 2022
(In thousands)(In thousands)
Operating lease cost:
Operating lease cost$3,116 $2,578 $6,034 $5,095 
Sublease income(835)(676)(1,413)(1,328)
Total operating lease costs$2,281 $1,902 $4,621 $3,767 
Finance lease cost:
   Amortization of right-of-use assets$4,693 $4,890 $6,782 $8,600 
   Interest on lease liabilities6,037 6,120 12,081 12,280 
Total finance lease costs$10,730 $11,010 $18,863 $20,880 
Supplemental cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
Cash flow informationJuly 1, 2023July 2, 2022July 1, 2023July 2, 2022
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$3,133 $2,623 $6,591 $5,151 
   Operating cash flows from finance leases6,037 6,120 12,081 12,280 
   Financing cash flows from finance leases$2,133 $1,011 $4,266 $4,733 
Non-cash supplemental cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
Non-cash informationJuly 1, 2023July 2, 2022July 1, 2023July 2, 2022
(In thousands)(In thousands)
Right-of-use assets obtained in exchange for lease obligations
Operating leases$— $591 $— $1,127 
Finance leases$3,400 $2,313 $3,400 $2,313 
Supplemental balance sheet information related to leases was as follows:
Balance sheet informationJuly 1, 2023December 31, 2022
(In thousands)
Finance leases
   Property and equipment$225,134 $222,839 
   Accumulated depreciation(94,330)(90,091)
Property and equipment, net$130,804 $132,748 
Weighted Average Remaining Lease Term (in years)
   Operating leases9.199.21
   Finance leases13.5013.97
Weighted Average Discount Rate
   Operating leases8.67 %8.54 %
   Finance leases8.90 %8.87 %
The major categories of our finance lease liabilities as of July 1, 2023 and December 31, 2022 were as follows:
CategoryJuly 1, 2023December 31, 2022
(In thousands)
Equipment and vehicles$27,743 $29,300 
Real estate243,445 243,775 
Total finance leases$271,188 $273,075 
Under the short-term lease exception provided within ASC 842, we do not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of July 1, 2023. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheets, including options to extend lease terms that are reasonably certain of being exercised.
Fiscal yearOperating leasesFinance leases
(In thousands)
2023$5,100 $18,694 
202410,583 27,429 
20259,300 29,736 
20265,917 33,301 
20274,657 27,719 
Thereafter32,208 525,315 
Total lease payments$67,765 $662,194 
Less: imputed interest(22,827)(391,006)
Total$44,938 $271,188 
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 one to 15 years, some of which include one or more options to extend the leases for five 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 sheets. 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.
The following table presents our assets and liabilities related to our leases as of July 1, 2023 and December 31, 2022:
Lease assets and liabilitiesJuly 1, 2023December 31, 2022
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$43,601 $45,717 
Finance lease right-of-use assets (1)
Property and equipment, net130,804 132,748 
Total lease right-of-use assets$174,405 $178,465 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$7,085 $7,432 
Finance lease liabilitiesFinance lease liabilities - short term8,238 7,089 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term37,853 40,011 
Finance lease liabilitiesFinance lease liabilities - long term262,950 265,986 
Total lease liabilities$316,126 $320,518 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $94.3 million and $90.1 million as of July 1, 2023 and December 31, 2022, respectively.
The components of lease expense were as follows:
Three Months EndedSix Months Ended
Components of lease expenseJuly 1, 2023July 2, 2022July 1, 2023July 2, 2022
(In thousands)(In thousands)
Operating lease cost:
Operating lease cost$3,116 $2,578 $6,034 $5,095 
Sublease income(835)(676)(1,413)(1,328)
Total operating lease costs$2,281 $1,902 $4,621 $3,767 
Finance lease cost:
   Amortization of right-of-use assets$4,693 $4,890 $6,782 $8,600 
   Interest on lease liabilities6,037 6,120 12,081 12,280 
Total finance lease costs$10,730 $11,010 $18,863 $20,880 
Supplemental cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
Cash flow informationJuly 1, 2023July 2, 2022July 1, 2023July 2, 2022
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$3,133 $2,623 $6,591 $5,151 
   Operating cash flows from finance leases6,037 6,120 12,081 12,280 
   Financing cash flows from finance leases$2,133 $1,011 $4,266 $4,733 
Non-cash supplemental cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
Non-cash informationJuly 1, 2023July 2, 2022July 1, 2023July 2, 2022
(In thousands)(In thousands)
Right-of-use assets obtained in exchange for lease obligations
Operating leases$— $591 $— $1,127 
Finance leases$3,400 $2,313 $3,400 $2,313 
Supplemental balance sheet information related to leases was as follows:
Balance sheet informationJuly 1, 2023December 31, 2022
(In thousands)
Finance leases
   Property and equipment$225,134 $222,839 
   Accumulated depreciation(94,330)(90,091)
Property and equipment, net$130,804 $132,748 
Weighted Average Remaining Lease Term (in years)
   Operating leases9.199.21
   Finance leases13.5013.97
Weighted Average Discount Rate
   Operating leases8.67 %8.54 %
   Finance leases8.90 %8.87 %
The major categories of our finance lease liabilities as of July 1, 2023 and December 31, 2022 were as follows:
CategoryJuly 1, 2023December 31, 2022
(In thousands)
Equipment and vehicles$27,743 $29,300 
Real estate243,445 243,775 
Total finance leases$271,188 $273,075 
Under the short-term lease exception provided within ASC 842, we do not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of July 1, 2023. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheets, including options to extend lease terms that are reasonably certain of being exercised.
Fiscal yearOperating leasesFinance leases
(In thousands)
2023$5,100 $18,694 
202410,583 27,429 
20259,300 29,736 
20265,917 33,301 
20274,657 27,719 
Thereafter32,208 525,315 
Total lease payments$67,765 $662,194 
Less: imputed interest(22,827)(391,006)
Total$44,938 $271,188