Lease Commitments

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

Lease Commitments

Lease Commitments

Under ASC 842, a contract contains a lease if there is an identified asset and the Company has the right to control the asset. The Company determines whether a contract contains a lease at contract inception. The Company leases office and production space under various non-cancellable operating leases that expire no later than 2035. Certain real estate leases include one or more options to renew. The exercise of lease renewal options is at the Company's sole discretion. Options to extend the lease are included in the lease term when it is reasonably certain the Company will exercise the option. The Company also has production equipment, office equipment and vehicles under operating leases and finance leases that were acquired through the C&K acquisition. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain of exercise. Certain leases include rental payments adjusted periodically for inflation. The lease agreements do not contain any material residual value guarantee or material restrictive covenants. The Company has elected to use the available practical expedient to account for the lease and non-lease components of its leases as a single component. As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

The Company does not have a published credit rating because it has no publicly traded debt; therefore, the Company is generating its incremental borrowing rate ("IBR"), using a synthetic credit rating model that compares its credit quality to other rated companies based on certain financial metrics and ratios. The reference rate will be based on the yield curve of companies with similar credit quality based on the metrics and adjusted for currency in regions where we have significant operations.

All leases with an initial term of 12 months or less that do not include an option to extend or purchase the underlying asset that the Company is reasonably certain to exercise (“short-term leases”) are not recorded on the Consolidated Balance Sheets. Short-term lease expenses are recognized on a straight-line basis over the lease term.

The following table presents the classification of right of use assets and lease liabilities as of December 31, 2022 and January 1, 2022:

		Fiscal Year Ended
(in thousands)	Consolidated Balance Sheet Classification	December 31, 2022		January 1, 2022
Operating Leases
Right of use assets - operating lease	Right of use lease assets, net	$	54,901	$	29,616
Current operating lease liabilities	Accrued liabilities	11,694		9,018
Non-current operating lease liabilities	Non-current lease liabilities	44,963		22,305
Total operating lease liabilities		$	56,657	$	31,323
Finance Leases
Right of use assets - finance lease	Right of use lease assets, net	$	2,481	$	—
Current finance lease liabilities	Accrued liabilities	1,147		—
Non-current finance lease liabilities	Non-current lease liabilities	698		—
Total finance lease liabilities		$	1,845	$	—

The following table represents the lease costs for 2022, 2021, and 2020:

		Fiscal Year Ended
(in thousands)	Consolidated Statements of Net Income Classification	December 31, 2022		January 1, 2022		December 26, 2020
Operating lease expenses	Cost of sales, SG&A expenses	$	14,071	$	9,929	$	8,591
Finance lease:
Finance lease expenses	Cost of sales	112		—		—
Interest on lease liabilities	Other expenses	13		—		—
Short-term lease expenses	Cost of sales, SG&A expenses	1,130		345		512
Variable lease expenses	Cost of sales, SG&A expenses	1,091		1,165		1,307
Total lease costs	Cost of sales, SG&A expenses	$	16,417	$	11,439	$	10,410

The Company leases certain office and warehouse space as well as certain machinery and equipment under non-cancellable operating leases. The Company acquired through the C&K acquisition certain machinery and equipment under finance leases.

Rent expense under these leases was $16.4 million, $11.4 million, and $10.4 million in 2022, 2021, and 2020, respectively.

 

Maturity of Lease Liabilities as of December 31, 2022 (in thousands)	Operating leases		Finance Leases
2023	$	13,966	$	1,166
2024	13,709		425
2025	8,099		283
2026	5,652		1
2027	4,447		—
2028 and thereafter	21,217		—
Total lease payments	$	67,090	$	1,875
Less: Imputed interest	(10,433)		(30)
Present value of lease liabilities	$	56,657	$	1,845

	Fiscal Year Ended
	December 31, 2022		January 1, 2022
Weighted-average remaining lease term (years)
Operating leases	6.84		4.79
Finance leases	1.90		—
Weighted-average discount rate
Operating leases	4.84	%	4.27	%
Finance leases	1.43	%	—

	Fiscal Year Ended
(in thousands)	December 31, 2022		January 1, 2022		December 26, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow - payments on operating leases	$	(12,298)	$	(10,150)	$	(8,929)
Operating cash flow - interest payments on finance leases	(13)		—		—
Financing cash flow - payments on finance lease obligations	(719)		—		—
Leased assets obtained in exchange of new lease obligations, including leases acquired:
Operating leases	$	37,760	$	20,217	$	2,862
Finance leases	2,502		—		—

There were no sale leaseback transactions for the fiscal years ended December 31, 2022, and December 26, 2020. The net gain recorded from a sale leaseback transaction was $4.1 million for the fiscal year ended January 1, 2022.

Lease Commitments

Lease Commitments

Under ASC 842, a contract contains a lease if there is an identified asset and the Company has the right to control the asset. The Company determines whether a contract contains a lease at contract inception. The Company leases office and production space under various non-cancellable operating leases that expire no later than 2035. Certain real estate leases include one or more options to renew. The exercise of lease renewal options is at the Company's sole discretion. Options to extend the lease are included in the lease term when it is reasonably certain the Company will exercise the option. The Company also has production equipment, office equipment and vehicles under operating leases and finance leases that were acquired through the C&K acquisition. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain of exercise. Certain leases include rental payments adjusted periodically for inflation. The lease agreements do not contain any material residual value guarantee or material restrictive covenants. The Company has elected to use the available practical expedient to account for the lease and non-lease components of its leases as a single component. As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

The Company does not have a published credit rating because it has no publicly traded debt; therefore, the Company is generating its incremental borrowing rate ("IBR"), using a synthetic credit rating model that compares its credit quality to other rated companies based on certain financial metrics and ratios. The reference rate will be based on the yield curve of companies with similar credit quality based on the metrics and adjusted for currency in regions where we have significant operations.

All leases with an initial term of 12 months or less that do not include an option to extend or purchase the underlying asset that the Company is reasonably certain to exercise (“short-term leases”) are not recorded on the Consolidated Balance Sheets. Short-term lease expenses are recognized on a straight-line basis over the lease term.

The following table presents the classification of right of use assets and lease liabilities as of December 31, 2022 and January 1, 2022:

		Fiscal Year Ended
(in thousands)	Consolidated Balance Sheet Classification	December 31, 2022		January 1, 2022
Operating Leases
Right of use assets - operating lease	Right of use lease assets, net	$	54,901	$	29,616
Current operating lease liabilities	Accrued liabilities	11,694		9,018
Non-current operating lease liabilities	Non-current lease liabilities	44,963		22,305
Total operating lease liabilities		$	56,657	$	31,323
Finance Leases
Right of use assets - finance lease	Right of use lease assets, net	$	2,481	$	—
Current finance lease liabilities	Accrued liabilities	1,147		—
Non-current finance lease liabilities	Non-current lease liabilities	698		—
Total finance lease liabilities		$	1,845	$	—

The following table represents the lease costs for 2022, 2021, and 2020:

		Fiscal Year Ended
(in thousands)	Consolidated Statements of Net Income Classification	December 31, 2022		January 1, 2022		December 26, 2020
Operating lease expenses	Cost of sales, SG&A expenses	$	14,071	$	9,929	$	8,591
Finance lease:
Finance lease expenses	Cost of sales	112		—		—
Interest on lease liabilities	Other expenses	13		—		—
Short-term lease expenses	Cost of sales, SG&A expenses	1,130		345		512
Variable lease expenses	Cost of sales, SG&A expenses	1,091		1,165		1,307
Total lease costs	Cost of sales, SG&A expenses	$	16,417	$	11,439	$	10,410

The Company leases certain office and warehouse space as well as certain machinery and equipment under non-cancellable operating leases. The Company acquired through the C&K acquisition certain machinery and equipment under finance leases.

Rent expense under these leases was $16.4 million, $11.4 million, and $10.4 million in 2022, 2021, and 2020, respectively.

 

Maturity of Lease Liabilities as of December 31, 2022 (in thousands)	Operating leases		Finance Leases
2023	$	13,966	$	1,166
2024	13,709		425
2025	8,099		283
2026	5,652		1
2027	4,447		—
2028 and thereafter	21,217		—
Total lease payments	$	67,090	$	1,875
Less: Imputed interest	(10,433)		(30)
Present value of lease liabilities	$	56,657	$	1,845

	Fiscal Year Ended
	December 31, 2022		January 1, 2022
Weighted-average remaining lease term (years)
Operating leases	6.84		4.79
Finance leases	1.90		—
Weighted-average discount rate
Operating leases	4.84	%	4.27	%
Finance leases	1.43	%	—

	Fiscal Year Ended
(in thousands)	December 31, 2022		January 1, 2022		December 26, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow - payments on operating leases	$	(12,298)	$	(10,150)	$	(8,929)
Operating cash flow - interest payments on finance leases	(13)		—		—
Financing cash flow - payments on finance lease obligations	(719)		—		—
Leased assets obtained in exchange of new lease obligations, including leases acquired:
Operating leases	$	37,760	$	20,217	$	2,862
Finance leases	2,502		—		—

There were no sale leaseback transactions for the fiscal years ended December 31, 2022, and December 26, 2020. The net gain recorded from a sale leaseback transaction was $4.1 million for the fiscal year ended January 1, 2022.