LEASES

12 Months Ended

Dec. 31, 2022

The Company has operating leases for corporate offices, distribution facilities, manufacturing plants, and certain vehicles. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments that do not depend on changes in index rates or payments based on usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense.

ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the net present value of fixed lease payments over the lease term. The Company’s lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. ROU assets also include any advance lease payments. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The components of lease costs for the year ended December 31, 2022, 2021 and 2020 were as follows (in thousands):


	Year Ended December 31,
	2022		2021		2020
Operating lease costs (1):
Fixed lease expense	$	17,855	$	17,860	$	18,181
Variable lease expense	4,698		$	5,833	$	3,798
Total	$	22,553	$	23,693	$	21,979

(1) Expenses are recorded within distribution expenses and selling, general and administrative expenses.

Supplemental cash flow information for the year ended December 31, 2022, 2021 and 2020 were as follows (in thousands):


	Year Ended December 31,
	2022		2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	19,338	$	19,154	$	15,802
Total	$	19,338	$	19,154	$	15,802


	Year Ended December 31,
	2022		2021		2020
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	2,540	$	1,299	$	—
Total	$	2,540	$	1,299	$	—

Included in machinery, furniture and equipment as of December 31, 2022 and 2021 is $0.3 million, related to assets recorded under finance leases. Included in accumulated depreciation and amortization at December 31, 2022 and December 31, 2021 is $0.2 million related to assets recorded under finance leases.

On January 20, 2023, the Company entered into the third amendment to the existing Medford operating lease. The amendment modified certain terms and conditions of the existing lease agreement, including, but not limited to, reduction in leased square footage, reduction in rent payment, and an extension of the lease term of 7 lease years.

During the period ended December 31, 2020, in response to the COVID-19 pandemic, the Company negotiated COVID-19-related rent concessions for several of its leased properties. The majority of these rent concessions were in the form of deferred rent payments for one or more months. The Company applied the guidance issued in the FASB staff Q&A - Topic 842 and Topic 840: Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic, and elected to account for these rent concessions as if no changes to the lease were made and continued to recognize the straight-line lease expense. The COVID-19 related deferred rent payments as of December 31, 2020 were $1.0 million were deferred into fiscal year 2021. As of December 31, 2021, all deferred payments have been paid.

The aggregate future lease payments for operating leases as of December 31, 2022 were as follows (in thousands):


	Operating
2023	$	19,094
2024	18,571
2025	17,975
2026	17,265
2027	13,146
Thereafter	23,657
Total lease payments	109,708
Less: Interest	(19,260)
Present value of lease payments	$	90,448

Average lease terms and discount rates were as follows:


	December 31, 2022		December 31, 2021
Weighted-average remaining lease term (years)
Operating leases	6.3		7.3
Weighted-average discount rate
Operating leases	6.1	%	6.2	%