LEASES

9 Months Ended

Sep. 29, 2024

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 consolidated 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 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 September 29, 2024 and October 1, 2023 were as follows:


		Three Months Ended
Lease expense	Classification	September 29, 2024		October 1, 2023
Operating lease cost	Cost of sales or SM&A (1)	$	13,678	$	12,101
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	2,133		1,849
Interest on lease liabilities	Interest expense, net	1,140		1,095
Net lease cost (2)		$	16,951	$	15,045

The components of lease expense for the nine months ended September 29, 2024 and October 1, 2023 were as follows:


		Nine Months Ended
Lease expense	Classification	September 29, 2024		October 1, 2023
Operating lease cost	Cost of sales or SM&A (1)	$	39,159	$	36,464
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	6,504		5,545
Interest on lease liabilities	Interest expense, net	3,489		3,287
Net lease cost (2)		$	49,152	$	45,296

(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:


	September 29, 2024		December 31, 2023
Weighted-average remaining lease term (years)
Operating leases	12.5		14.4
Finance leases	26.2		25.9

Weighted-average discount rate
Operating leases	3.8	%	3.5	%
Finance leases	6.3	%	6.2	%

Supplemental balance sheet information related to leases were as follows:


Leases	Classification	September 29, 2024		December 31, 2023
Assets
Operating lease ROU assets	Other non-current assets	$	347,576	$	307,976

Finance lease ROU assets, at cost	Property, plant and equipment, gross	87,182		89,335
Accumulated amortization	Accumulated depreciation	(24,027)		(19,472)
Finance lease ROU assets, net	Property, plant and equipment, net	63,155		69,863

Total leased assets		$	410,731	$	377,839

Liabilities
Current
Operating	Accrued liabilities	$	39,523	$	34,494
Finance	Current portion of long-term debt	5,576		5,900
Non-current
Operating	Other long-term liabilities	314,400		277,089
Finance	Long-term debt	67,814		70,485
Total lease liabilities		$	427,313	$	387,968

The maturities of our lease liabilities as of September 29, 2024 were as follows:


	Operating leases		Finance leases		Total
2024 (rest of year)	$	12,328	$	2,603	$	14,931
2025	52,482		9,164		61,646
2026	48,593		6,090		54,683
2027	46,471		4,403		50,874
2028	28,955		4,215		33,170
Thereafter	250,628		137,875		388,503
Total lease payments	439,457		164,350		603,807
Less: Imputed interest	85,534		90,960		176,494
Total lease liabilities	$	353,923	$	73,390	$	427,313

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


	Nine Months Ended
	September 29, 2024		October 1, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	36,293	$	33,872
Operating cash flows from finance leases	3,489		3,287
Financing cash flows from finance leases	4,543		3,540

ROU assets obtained in exchange for lease liabilities:
Operating leases	$	70,383	$	16,857
Finance leases	983		993