LEASES

12 Months Ended

Jan. 01, 2022

We determine if an arrangement is or contains a lease at contract inception and determine 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 January 1, 2022, 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 comprise 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 facilities. 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	January 1, 2022		January 2, 2021
Assets:
Operating lease assets	Operating lease right-of-use assets	$	54,971	$	34,090
Finance lease assets	Property, plant and equipment	9,380		909
Total lease assets		$	64,351	$	34,999

Liabilities:
Current
Operating lease liabilities	Operating lease liabilities	$	10,167	$	8,247
Finance lease liabilities	Current maturities of long-term debt	2,060		197
Non-current
Operating lease liabilities	Operating lease liabilities, non-current	55,940		36,546
Finance lease liabilities	Long-term debt, net of current portion	7,299		753
Total lease liabilities		$	75,466	$	45,743

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


	Fiscal Year Ended
	January 1, 2022		January 2, 2021		December 28, 2019
Operating lease costs	$	12,312	$	9,599	$	8,002
Finance lease cost - amortization of right-of-use assets	1,046		211		88
Finance lease cost - interest on lease liabilities	139		64		30
Short-term lease cost	366		185		249
Variable lease cost	3,822		3,349		2,806
Sublease income	(743)		(757)		(743)
Total lease cost	$	16,942	$	12,651	$	10,432

The following table presents lease terms and discount rates:


	January 1, 2022		January 2, 2021
Weighted average remaining lease term:
Operating leases	6.06 years		6.15 years
Finance leases	4.35 years		3.66 years

Weighted average discount rate:
Operating leases	4.75	%	6.42	%
Finance leases	2.24	%	6.24	%

Minimum lease payments have not been reduced by minimum sublease rentals of $2.3 million due in the future under non-cancelable subleases. We received $0.7 million, $0.8 million, and $0.7 million in sublease income for 2021, 2020, and 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 January 1, 2022 (in thousands):


	Operating Leases		Finance Leases		Total
2022	$	12,991	$	2,245	$	15,236
2023	13,156		2,078		15,234
2024	13,224		2,325		15,549
2025	12,470		1,995		14,465
2026	11,177		1,164		12,341
Thereafter	13,166		—		13,166
Total lease payments	76,184		9,807		85,991
Less: Effect of discounting to net present value	10,077		448		10,525
Present value of lease liabilities	$	66,107	$	9,359	$	75,466

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


	January 1, 2022		January 2, 2021		December 28, 2019
Cash paid for amounts included in measurement of liabilities:
Operating cash flows used in operating leases	$	13,146	$	11,097	$	8,649
Operating cash flows used in finance leases	139		64		30
Financing cash flows used in finance leases	1,108		185		74
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	30,234		2,831		1,208
Finance leases	9,517		—		10,015

To support the continued growth of our business, we entered into a service agreement with a third-party logistics provider to operate a new distribution facility in Memphis, Tennessee with approximately 970,000 square feet. The service agreement commenced at the end of the second quarter of 2021. The initial term of the agreement is 5 years. We began distributing from this facility in the third quarter of 2021, and we exited our distribution facility in Dallas, Texas in the fourth quarter of 2021.

As of January 1, 2022, the Company has additional operating lease obligations that have not yet commenced of approximately $4.1 million, which are not reflected in the table above.

LEASES

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


	Balance Sheet Location	January 1, 2022		January 2, 2021
Assets:
Operating lease assets	Operating lease right-of-use assets	$	54,971	$	34,090
Finance lease assets	Property, plant and equipment	9,380		909
Total lease assets		$	64,351	$	34,999

Liabilities:
Current
Operating lease liabilities	Operating lease liabilities	$	10,167	$	8,247
Finance lease liabilities	Current maturities of long-term debt	2,060		197
Non-current
Operating lease liabilities	Operating lease liabilities, non-current	55,940		36,546
Finance lease liabilities	Long-term debt, net of current portion	7,299		753
Total lease liabilities		$	75,466	$	45,743

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


	Fiscal Year Ended
	January 1, 2022		January 2, 2021		December 28, 2019
Operating lease costs	$	12,312	$	9,599	$	8,002
Finance lease cost - amortization of right-of-use assets	1,046		211		88
Finance lease cost - interest on lease liabilities	139		64		30
Short-term lease cost	366		185		249
Variable lease cost	3,822		3,349		2,806
Sublease income	(743)		(757)		(743)
Total lease cost	$	16,942	$	12,651	$	10,432

The following table presents lease terms and discount rates:


	January 1, 2022		January 2, 2021
Weighted average remaining lease term:
Operating leases	6.06 years		6.15 years
Finance leases	4.35 years		3.66 years

Weighted average discount rate:
Operating leases	4.75	%	6.42	%
Finance leases	2.24	%	6.24	%


	Operating Leases		Finance Leases		Total
2022	$	12,991	$	2,245	$	15,236
2023	13,156		2,078		15,234
2024	13,224		2,325		15,549
2025	12,470		1,995		14,465
2026	11,177		1,164		12,341
Thereafter	13,166		—		13,166
Total lease payments	76,184		9,807		85,991
Less: Effect of discounting to net present value	10,077		448		10,525
Present value of lease liabilities	$	66,107	$	9,359	$	75,466

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


	January 1, 2022		January 2, 2021		December 28, 2019
Cash paid for amounts included in measurement of liabilities:
Operating cash flows used in operating leases	$	13,146	$	11,097	$	8,649
Operating cash flows used in finance leases	139		64		30
Financing cash flows used in finance leases	1,108		185		74
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	30,234		2,831		1,208
Finance leases	9,517		—		10,015

As of January 1, 2022, the Company has additional operating lease obligations that have not yet commenced of approximately $4.1 million, which are not reflected in the table above.