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Leases
 9 Months Ended
Sep. 30, 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. Our accounting policy is 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 September 30, 2023 and December 31, 2022:
Lease assets and liabilitiesSeptember 30, 2023December 31, 2022
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$42,145 $45,717 
Finance lease right-of-use assets (1)
Property and equipment, net134,166 132,748 
Total lease right-of-use assets$176,311 $178,465 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$6,845 $7,432 
Finance lease liabilitiesFinance lease liabilities - short term9,813 7,089 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term37,007 40,011 
Finance lease liabilitiesFinance lease liabilities - long term267,530 265,986 
Total lease liabilities$321,195 $320,518 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $98.5 million and $90.1 million as of September 30, 2023 and December 31, 2022, respectively.
The components of lease expense were as follows:
Three Months EndedNine Months Ended
Components of lease expenseSeptember 30, 2023October 1, 2022September 30, 2023October 1, 2022
(In thousands)(In thousands)
Operating lease cost:
Operating lease cost$2,755 $2,529 $8,789 $7,625 
Sublease income(1,062)(693)(2,475)(2,021)
Total operating lease costs$1,693 $1,836 $6,314 $5,604 
Finance lease cost:
   Amortization of right-of-use assets$5,408 $5,098 $12,190 $13,698 
   Interest on lease liabilities6,077 6,104 18,158 18,384 
Total finance lease costs$11,485 $11,202 $30,348 $32,082 
Supplemental cash flow information related to leases was as follows:
Three Months EndedNine Months Ended
Cash flow informationSeptember 30, 2023October 1, 2022September 30, 2023October 1, 2022
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$2,367 $2,562 $8,958 $7,713 
   Operating cash flows from finance leases$6,077 $6,104 $18,158 $18,384 
   Financing cash flows from finance leases$2,393 $2,496 $6,659 $7,229 
Non-cash supplemental cash flow information related to leases was as follows:
Three Months EndedNine Months Ended
Non-cash informationSeptember 30, 2023October 1, 2022September 30, 2023October 1, 2022
(In thousands)(In thousands)
Right-of-use assets obtained in exchange for lease obligations
Operating leases$— $3,604 $— $4,731 
Finance leases$7,877 $3,279 $11,277 $5,995 
Supplemental balance sheet information related to leases was as follows:
Balance sheet informationSeptember 30, 2023December 31, 2022
(In thousands)
Finance leases
   Property and equipment$232,692 $222,839 
   Accumulated depreciation(98,526)(90,091)
Property and equipment, net$134,166 $132,748 
Weighted Average Remaining Lease Term (in years)
   Operating leases9.099.21
   Finance leases13.1413.97
Weighted Average Discount Rate
   Operating leases8.70 %8.54 %
   Finance leases8.88 %8.87 %
The major categories of our finance lease liabilities as of September 30, 2023 and December 31, 2022 were as follows:
CategorySeptember 30, 2023December 31, 2022
(In thousands)
Equipment and vehicles$34,008 $29,300 
Real estate243,335 243,775 
Total finance leases$277,343 $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 September 30, 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$2,755 $17,101 
202410,626 26,566 
20259,347 32,000 
20265,956 35,717 
20274,657 30,298 
Thereafter32,208 530,078 
Total lease payments$65,549 $671,760 
Less: imputed interest(21,697)(394,417)
Total$43,852 $277,343 
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. Our accounting policy is 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 September 30, 2023 and December 31, 2022:
Lease assets and liabilitiesSeptember 30, 2023December 31, 2022
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$42,145 $45,717 
Finance lease right-of-use assets (1)
Property and equipment, net134,166 132,748 
Total lease right-of-use assets$176,311 $178,465 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$6,845 $7,432 
Finance lease liabilitiesFinance lease liabilities - short term9,813 7,089 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term37,007 40,011 
Finance lease liabilitiesFinance lease liabilities - long term267,530 265,986 
Total lease liabilities$321,195 $320,518 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $98.5 million and $90.1 million as of September 30, 2023 and December 31, 2022, respectively.
The components of lease expense were as follows:
Three Months EndedNine Months Ended
Components of lease expenseSeptember 30, 2023October 1, 2022September 30, 2023October 1, 2022
(In thousands)(In thousands)
Operating lease cost:
Operating lease cost$2,755 $2,529 $8,789 $7,625 
Sublease income(1,062)(693)(2,475)(2,021)
Total operating lease costs$1,693 $1,836 $6,314 $5,604 
Finance lease cost:
   Amortization of right-of-use assets$5,408 $5,098 $12,190 $13,698 
   Interest on lease liabilities6,077 6,104 18,158 18,384 
Total finance lease costs$11,485 $11,202 $30,348 $32,082 
Supplemental cash flow information related to leases was as follows:
Three Months EndedNine Months Ended
Cash flow informationSeptember 30, 2023October 1, 2022September 30, 2023October 1, 2022
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$2,367 $2,562 $8,958 $7,713 
   Operating cash flows from finance leases$6,077 $6,104 $18,158 $18,384 
   Financing cash flows from finance leases$2,393 $2,496 $6,659 $7,229 
Non-cash supplemental cash flow information related to leases was as follows:
Three Months EndedNine Months Ended
Non-cash informationSeptember 30, 2023October 1, 2022September 30, 2023October 1, 2022
(In thousands)(In thousands)
Right-of-use assets obtained in exchange for lease obligations
Operating leases$— $3,604 $— $4,731 
Finance leases$7,877 $3,279 $11,277 $5,995 
Supplemental balance sheet information related to leases was as follows:
Balance sheet informationSeptember 30, 2023December 31, 2022
(In thousands)
Finance leases
   Property and equipment$232,692 $222,839 
   Accumulated depreciation(98,526)(90,091)
Property and equipment, net$134,166 $132,748 
Weighted Average Remaining Lease Term (in years)
   Operating leases9.099.21
   Finance leases13.1413.97
Weighted Average Discount Rate
   Operating leases8.70 %8.54 %
   Finance leases8.88 %8.87 %
The major categories of our finance lease liabilities as of September 30, 2023 and December 31, 2022 were as follows:
CategorySeptember 30, 2023December 31, 2022
(In thousands)
Equipment and vehicles$34,008 $29,300 
Real estate243,335 243,775 
Total finance leases$277,343 $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 September 30, 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$2,755 $17,101 
202410,626 26,566 
20259,347 32,000 
20265,956 35,717 
20274,657 30,298 
Thereafter32,208 530,078 
Total lease payments$65,549 $671,760 
Less: imputed interest(21,697)(394,417)
Total$43,852 $277,343