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 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 liabilities July 1, 2023 December 31, 2022 (In thousands) Assets Classification Operating lease right-of-use assets Operating lease right-of-use assets $ 43,601 $ 45,717 Finance lease right-of-use assets (1) Property and equipment, net 130,804 132,748 Total lease right-of-use assets $ 174,405 $ 178,465 Liabilities Current portion Operating lease liabilities Operating lease liabilities - short term $ 7,085 $ 7,432 Finance lease liabilities Finance lease liabilities - short term 8,238 7,089 Non-current portion Operating lease liabilities Operating lease liabilities - long term 37,853 40,011 Finance lease liabilities Finance lease liabilities - long term 262,950 265,986 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 Ended Six Months Ended Components of lease expense July 1, 2023 July 2, 2022 July 1, 2023 July 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 liabilities 6,037 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 Ended Six Months Ended Cash flow information July 1, 2023 July 2, 2022 July 1, 2023 July 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 leases 6,037 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 Ended Six Months Ended Non-cash information July 1, 2023 July 2, 2022 July 1, 2023 July 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 information July 1, 2023 December 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 leases 9.19 9.21 Finance leases 13.50 13.97 Weighted Average Discount Rate Operating leases 8.67 % 8.54 % Finance leases 8.90 % 8.87 % The major categories of our finance lease liabilities as of July 1, 2023 and December 31, 2022 were as follows: Category July 1, 2023 December 31, 2022 (In thousands) Equipment and vehicles $ 27,743 $ 29,300 Real estate 243,445 243,775 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 year Operating leases Finance leases (In thousands) 2023 $ 5,100 $ 18,694 2024 10,583 27,429 2025 9,300 29,736 2026 5,917 33,301 2027 4,657 27,719 Thereafter 32,208 525,315 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 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 liabilities July 1, 2023 December 31, 2022 (In thousands) Assets Classification Operating lease right-of-use assets Operating lease right-of-use assets $ 43,601 $ 45,717 Finance lease right-of-use assets (1) Property and equipment, net 130,804 132,748 Total lease right-of-use assets $ 174,405 $ 178,465 Liabilities Current portion Operating lease liabilities Operating lease liabilities - short term $ 7,085 $ 7,432 Finance lease liabilities Finance lease liabilities - short term 8,238 7,089 Non-current portion Operating lease liabilities Operating lease liabilities - long term 37,853 40,011 Finance lease liabilities Finance lease liabilities - long term 262,950 265,986 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 Ended Six Months Ended Components of lease expense July 1, 2023 July 2, 2022 July 1, 2023 July 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 liabilities 6,037 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 Ended Six Months Ended Cash flow information July 1, 2023 July 2, 2022 July 1, 2023 July 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 leases 6,037 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 Ended Six Months Ended Non-cash information July 1, 2023 July 2, 2022 July 1, 2023 July 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 information July 1, 2023 December 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 leases 9.19 9.21 Finance leases 13.50 13.97 Weighted Average Discount Rate Operating leases 8.67 % 8.54 % Finance leases 8.90 % 8.87 % The major categories of our finance lease liabilities as of July 1, 2023 and December 31, 2022 were as follows: Category July 1, 2023 December 31, 2022 (In thousands) Equipment and vehicles $ 27,743 $ 29,300 Real estate 243,445 243,775 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 year Operating leases Finance leases (In thousands) 2023 $ 5,100 $ 18,694 2024 10,583 27,429 2025 9,300 29,736 2026 5,917 33,301 2027 4,657 27,719 Thereafter 32,208 525,315 Total lease payments $ 67,765 $ 662,194 Less: imputed interest (22,827) (391,006) Total $ 44,938 $ 271,188 |