LEASES

9 Months Ended

Oct. 03, 2021

LEASES

We lease office and retail space, warehouse and distribution facilities, land, vehicles, and equipment. We determine if an agreement is or contains a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are based on the estimated present value of lease payments over the lease term and are recognized at the lease commencement date.

As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate in determining the present value of lease payments. The estimated incremental borrowing rate is derived from information available at the lease commencement date.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. A limited number of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain residual value guarantees or material restrictive covenants.

For real estate, equipment and vehicles that support selling, marketing and general administrative activities the Company accounts for the lease and non-lease components as a single lease component. These asset categories comprise the majority of our leases. The lease and non-lease components of real estate and equipment leases supporting production activities are not accounted for as a single lease component. Consideration for such contracts are allocated to the lease component and non-lease components based upon relative standalone prices either observable or estimated if observable prices are not readily available.

The components of lease expense for the three months ended October 3, 2021 and September 27, 2020 were as follows:


		Three Months Ended
Lease expense	Classification	October 3, 2021		September 27, 2020
Operating lease cost	Cost of sales or SM&A (1)	$	10,764	$	11,485
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	1,971		1,959
Interest on lease liabilities	Interest expense, net	1,100		1,106
Net lease cost (2)		$	13,835	$	14,550

The components of lease expense for the nine months ended October 3, 2021 and September 27, 2020 were as follows:


		Nine Months Ended
Lease expense	Classification	October 3, 2021		September 27, 2020
Operating lease cost	Cost of sales or SM&A (1)	$	33,318	$	32,702
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	6,032		5,938
Interest on lease liabilities	Interest expense, net	3,321		3,340
Net lease cost (2)		$	42,671	$	41,980

(1)Supply chain-related amounts were included in cost of sales.

(2)Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial.

Information regarding our lease terms and discount rates were as follows:


	October 3, 2021		December 31, 2020
Weighted-average remaining lease term (years)
Operating leases	13.0		12.5
Finance leases	30.6		30.1

Weighted-average discount rate
Operating leases	3.7	%	3.8	%
Finance leases	5.9	%	5.9	%

Supplemental balance sheet information related to leases were as follows:


Leases	Classification	October 3, 2021		December 31, 2020
Assets
Operating lease ROU assets	Other non-current assets	$	196,746	$	224,268

Finance lease ROU assets, at cost	Property, plant and equipment, gross	98,967		101,426
Accumulated amortization	Accumulated depreciation	(18,097)		(13,361)
Finance lease ROU assets, net	Property, plant and equipment, net	80,870		88,065

Total leased assets		$	277,616	$	312,333

Liabilities
Current
Operating	Accrued liabilities	$	25,156	$	36,578
Finance	Current portion of long-term debt	3,533		4,868
Non-current
Operating	Other long-term liabilities	166,827		181,871
Finance	Long-term debt	74,713		75,887
Total lease liabilities		$	270,229	$	299,204

The maturity of our lease liabilities as of October 3, 2021 were as follows:


	Operating leases		Finance leases		Total
2021 (rest of year)	$	9,959	$	2,165	$	12,124
2022	28,404		7,352		35,756
2023	20,759		5,255		26,014
2024	15,737		4,687		20,424
2025	14,210		4,720		18,930
Thereafter	160,556		161,336		321,892
Total lease payments	249,625		185,515		435,140
Less: Imputed interest	57,642		107,269		164,911
Total lease liabilities	$	191,983	$	78,246	$	270,229

As of October 3, 2021, the Company had entered into an additional lease as a lessee, primarily for real estate. This lease has not yet commenced and will result in ROU assets and corresponding lease liabilities of approximately $22,000. This lease is expected to commence during the fourth quarter of 2021, with a lease term of approximately 8 years.

Supplemental cash flow and other information related to leases were as follows:


	Nine Months Ended
	October 3, 2021		September 27, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	32,243	$	32,010
Operating cash flows from finance leases	3,321		3,341
Financing cash flows from finance leases	3,313		3,136

ROU assets obtained in exchange for lease liabilities:
Operating leases	$	7,013	$	36,629
Finance leases	436		2,076