LEASES

3 Months Ended

Mar. 28, 2020

We determine if an arrangement is or contains a lease at contract inception and determines its classification as an operating or finance lease at lease commencement. We lease certain retail locations, office space, distribution facilities, manufacturing space, and machinery and equipment. While the substantial majority of these leases are operating leases, certain machinery and equipment agreements are finance leases. As of March 28, 2020, the initial lease terms of the various leases range from one to 20 years. ROU lease assets and liabilities associated with leases with an initial term of twelve months or less are not recorded on the balance sheet.

Operating lease assets represent the right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. We use our collateralized incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. Our operating leases also typically require payment of real estate taxes, common area maintenance and insurance. These components compromise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components, with the exception of our distribution facility asset class. Operating lease assets include prepaid lease payments and initial direct costs and are reduced by lease incentives. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.

The following table presents the assets and liabilities related to operating and finance leases (in thousands):


	Balance Sheet Location	March 28, 2020
Assets:
Operating lease assets	Operating lease right-of-use assets	$	36,272
Finance lease assets	Property, plant and equipment	1,068
Total lease assets		$	37,340

Liabilities:
Current
Operating lease liabilities	Operating lease liabilities	$	7,867
Finance lease liabilities	Current maturities of long-term debt	188
Non-current
Operating lease liabilities	Operating lease liabilities, non-current	40,372
Finance lease liabilities	Long-term debt, net of current portion	902
Total lease liabilities		$	49,329

The following table presents the components of lease costs (in thousands):


	Three Months Ended
	March 28, 2020
Operating lease costs	$	2,297
Finance lease cost - amortization of right-of-use assets	53
Finance lease cost - interest on lease liabilities	17
Short-term lease cost	55
Variable lease cost	838
Sublease income	(186)
Total lease cost	$	3,074

The following table presents lease terms and discount rates:


	March 28, 2020
Weighted average remaining lease term:
Operating leases	6.83 years
Finance leases	4.43 years

Weighted average discount rate:
Operating leases	6.62	%
Finance leases	6.24	%

Minimum lease payments have not been reduced by minimum sublease rentals of $3.9 million due in the future under non-cancelable subleases. We received $0.2 million in sublease income for both the three months ended March 28, 2020 and March 30, 2019, respectively. The following table presents the minimum lease payment obligations of operating and finance lease liabilities (leases with terms in excess of one year) for the next five years and thereafter as of March 28, 2020 (in thousands):


	Operating Leases		Finance Leases		Total
2020	$	7,730	$	187	$	7,917
2021	9,843		249		10,092
2022	7,505		249		7,754
2023	7,716		249		7,965
2024	7,474		330		7,804
Thereafter	20,048		—		20,048
Total lease payments	60,316		1,264		61,580
Less: Effect of discounting to net present value	12,077		174		12,251
Present value of lease liabilities	$	48,239	$	1,090	$	49,329

The following table presents supplemental cash flow information related to our leases (in thousands):


			March 28, 2020
Cash paid for amounts included in measurement of liabilities:
Operating cash flows used in operating leases			2,531
Operating cash flows used in finance leases			17
Financing cash flows used in finance leases			45

LEASES

The following table presents the assets and liabilities related to operating and finance leases (in thousands):


	Balance Sheet Location	March 28, 2020
Assets:
Operating lease assets	Operating lease right-of-use assets	$	36,272
Finance lease assets	Property, plant and equipment	1,068
Total lease assets		$	37,340

Liabilities:
Current
Operating lease liabilities	Operating lease liabilities	$	7,867
Finance lease liabilities	Current maturities of long-term debt	188
Non-current
Operating lease liabilities	Operating lease liabilities, non-current	40,372
Finance lease liabilities	Long-term debt, net of current portion	902
Total lease liabilities		$	49,329

The following table presents the components of lease costs (in thousands):


	Three Months Ended
	March 28, 2020
Operating lease costs	$	2,297
Finance lease cost - amortization of right-of-use assets	53
Finance lease cost - interest on lease liabilities	17
Short-term lease cost	55
Variable lease cost	838
Sublease income	(186)
Total lease cost	$	3,074

The following table presents lease terms and discount rates:


	March 28, 2020
Weighted average remaining lease term:
Operating leases	6.83 years
Finance leases	4.43 years

Weighted average discount rate:
Operating leases	6.62	%
Finance leases	6.24	%


	Operating Leases		Finance Leases		Total
2020	$	7,730	$	187	$	7,917
2021	9,843		249		10,092
2022	7,505		249		7,754
2023	7,716		249		7,965
2024	7,474		330		7,804
Thereafter	20,048		—		20,048
Total lease payments	60,316		1,264		61,580
Less: Effect of discounting to net present value	12,077		174		12,251
Present value of lease liabilities	$	48,239	$	1,090	$	49,329

The following table presents supplemental cash flow information related to our leases (in thousands):


			March 28, 2020
Cash paid for amounts included in measurement of liabilities:
Operating cash flows used in operating leases			2,531
Operating cash flows used in finance leases			17
Financing cash flows used in finance leases			45