LEASES

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

LEASES

LEASES

The Company has both real estate leases and equipment leases. The main types of equipment leases include forklifts, trailers, printers and copiers, railcars, and trucks. Leases are categorized as both operating leases and finance leases. As a result of electing the practical expedient within ASU 2016-02, variable lease payments are combined and recognized on the balance sheet in the event that those charges and any related increases are explicitly stated in the lease. Such payments include common area maintenance charges, property taxes, and insurance charges and are recorded in the right of use asset and corresponding liability when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an index or rate. Due to the acquisitive nature of the Company and the potential for synergies upon integration of acquired entities, the Company determined that the reasonably certain criterion could not be met for any renewal periods beginning two years from September 30, 2021. In addition, the Company has historically not been exercising purchase options under the equipment leases as it does not make economic sense to buy the equipment. Instead, the Company has historically replaced the equipment with new leases. Therefore, the Company determined that the reasonably certain criterion could not be met as it relates to purchase options. The Company has no residual value guarantees in lease transactions.

The Company did not identify any embedded leases. As indicated above, the Company elected the practical expedient to combine lease and non-lease components and recognizes the combined amount on the consolidated balance sheet. Management determined that since the Company has a centralized treasury function, the parent company would either fund or guarantee a subsidiary's loan for borrowing over a similar term. As such, the Company's management determined it is appropriate to utilize a

corporate based borrowing rate for all locations. The Company developed four tranches of leases based on lease terms and these tranches reflect the composition of the current lease portfolio. The Company's borrowing history shows that interest rates of a term loan or a line of credit depend on the duration of the loan rather than the nature of the assets purchased by those funds. Based on this understanding, the Company elected to use a portfolio approach to discount rates, applying corporate rates to the tranches of leases based on lease terms. Based on the Company's risk rating, the company applied the following discount rates for new leases entered into during 2021: (1) 1-2 years, 1.45% (2) 3-4 years, 2.04% (3) 5-9 years, 2.38% and (4) 10+ years, 3.10%.

In connection with its December 2019 acquisition of Zumbro River Brand, Inc., the Company assumed the finance lease commitment for a warehouse, with an expiration date of March 31, 2033. The warehouse can be purchased at a pre-determined price beginning in 2023. At September 30, 2021 and December 31, 2020, the Company had finance lease liabilities of $2,510 and $2,631, respectively, which were recorded under lease liabilities (current and non-current) in the consolidated balance sheet.

Right of use assets and lease liabilities at September 30, 2021 and December 31, 2020 are summarized as follows:

Right of use assets	September 30, 2021		December 31, 2020
Operating leases	$	6,868	$	5,838
Finance leases	2,412		2,572
Total	$	9,280	$	8,410

Lease liabilities - current	September 30, 2021		December 31, 2020
Operating leases	$	2,278	$	2,178
Finance leases	165		159
Total	$	2,443	$	2,337

Lease liabilities - non-current	September 30, 2021		December 31, 2020
Operating leases	$	4,644	$	3,607
Finance leases	2,345		2,472
Total	$	6,989	$	6,079

For the three and nine months ended September 30, 2021 and 2020, the Company's total lease costs were as follows, which included amounts recognized in earnings, amounts capitalized on the balance sheets, and the cash flows arising from lease transactions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Lease Cost
Operating lease cost	$	788		$	702		$	2,274		$	2,179
Finance Lease cost
Amortization of ROU asset	52			157			157			157
Interest on lease liabilities	32			104			98			104
Total finance lease	84			261			255			261
Total lease cost	$	872		$	963		$	2,529		$	2,440
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	761		$	710		$	2,249		$	2,193
Operating cash flows from finance leases	32			104			98			104
Financing cash flows from finance leases	40			112			118			112
	$	833		$	926		$	2,465		$	2,409
Right-of-use assets obtained in exchange for new operating lease liabilities, net of right-of-use assets disposed	$	502		$	—		$	2,914		$	(98)
Right-of-use assets obtained in exchange for new finance lease liabilities, net of right-of-use assets disposed	$	—		$	2,782		$	—		$	2,782
Weighted-average remaining lease term - operating leases	4.32 years			5.11 years			4.32 years			5.11 years
Weighted-average remaining lease term - finance leases	11.67 years			12.50 years			11.67 years			12.50 years
Weighted-average discount rate - operating leases	3.7		%	4.7		%	3.7		%	4.7		%
Weighted-average discount rate - finance leases	5.1		%	5.1		%	5.1		%	5.1		%

Rent expense charged to operations under operating lease agreements for the three and nine months ended September 30, 2021 aggregated to approximately $788 and $2,274, respectively, and $702 and $2,179 for the three and nine months ended September 30, 2020, respectively.

LEASES

LEASES

The Company has both real estate leases and equipment leases. The main types of equipment leases include forklifts, trailers, printers and copiers, railcars, and trucks. Leases are categorized as both operating leases and finance leases. As a result of electing the practical expedient within ASU 2016-02, variable lease payments are combined and recognized on the balance sheet in the event that those charges and any related increases are explicitly stated in the lease. Such payments include common area maintenance charges, property taxes, and insurance charges and are recorded in the right of use asset and corresponding liability when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an index or rate. Due to the acquisitive nature of the Company and the potential for synergies upon integration of acquired entities, the Company determined that the reasonably certain criterion could not be met for any renewal periods beginning two years from September 30, 2021. In addition, the Company has historically not been exercising purchase options under the equipment leases as it does not make economic sense to buy the equipment. Instead, the Company has historically replaced the equipment with new leases. Therefore, the Company determined that the reasonably certain criterion could not be met as it relates to purchase options. The Company has no residual value guarantees in lease transactions.

The Company did not identify any embedded leases. As indicated above, the Company elected the practical expedient to combine lease and non-lease components and recognizes the combined amount on the consolidated balance sheet. Management determined that since the Company has a centralized treasury function, the parent company would either fund or guarantee a subsidiary's loan for borrowing over a similar term. As such, the Company's management determined it is appropriate to utilize a

corporate based borrowing rate for all locations. The Company developed four tranches of leases based on lease terms and these tranches reflect the composition of the current lease portfolio. The Company's borrowing history shows that interest rates of a term loan or a line of credit depend on the duration of the loan rather than the nature of the assets purchased by those funds. Based on this understanding, the Company elected to use a portfolio approach to discount rates, applying corporate rates to the tranches of leases based on lease terms. Based on the Company's risk rating, the company applied the following discount rates for new leases entered into during 2021: (1) 1-2 years, 1.45% (2) 3-4 years, 2.04% (3) 5-9 years, 2.38% and (4) 10+ years, 3.10%.

In connection with its December 2019 acquisition of Zumbro River Brand, Inc., the Company assumed the finance lease commitment for a warehouse, with an expiration date of March 31, 2033. The warehouse can be purchased at a pre-determined price beginning in 2023. At September 30, 2021 and December 31, 2020, the Company had finance lease liabilities of $2,510 and $2,631, respectively, which were recorded under lease liabilities (current and non-current) in the consolidated balance sheet.

Right of use assets and lease liabilities at September 30, 2021 and December 31, 2020 are summarized as follows:

Right of use assets	September 30, 2021		December 31, 2020
Operating leases	$	6,868	$	5,838
Finance leases	2,412		2,572
Total	$	9,280	$	8,410

Lease liabilities - current	September 30, 2021		December 31, 2020
Operating leases	$	2,278	$	2,178
Finance leases	165		159
Total	$	2,443	$	2,337

Lease liabilities - non-current	September 30, 2021		December 31, 2020
Operating leases	$	4,644	$	3,607
Finance leases	2,345		2,472
Total	$	6,989	$	6,079

For the three and nine months ended September 30, 2021 and 2020, the Company's total lease costs were as follows, which included amounts recognized in earnings, amounts capitalized on the balance sheets, and the cash flows arising from lease transactions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Lease Cost
Operating lease cost	$	788		$	702		$	2,274		$	2,179
Finance Lease cost
Amortization of ROU asset	52			157			157			157
Interest on lease liabilities	32			104			98			104
Total finance lease	84			261			255			261
Total lease cost	$	872		$	963		$	2,529		$	2,440
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	761		$	710		$	2,249		$	2,193
Operating cash flows from finance leases	32			104			98			104
Financing cash flows from finance leases	40			112			118			112
	$	833		$	926		$	2,465		$	2,409
Right-of-use assets obtained in exchange for new operating lease liabilities, net of right-of-use assets disposed	$	502		$	—		$	2,914		$	(98)
Right-of-use assets obtained in exchange for new finance lease liabilities, net of right-of-use assets disposed	$	—		$	2,782		$	—		$	2,782
Weighted-average remaining lease term - operating leases	4.32 years			5.11 years			4.32 years			5.11 years
Weighted-average remaining lease term - finance leases	11.67 years			12.50 years			11.67 years			12.50 years
Weighted-average discount rate - operating leases	3.7		%	4.7		%	3.7		%	4.7		%
Weighted-average discount rate - finance leases	5.1		%	5.1		%	5.1		%	5.1		%

Rent expense charged to operations under operating lease agreements for the three and nine months ended September 30, 2021 aggregated to approximately $788 and $2,274, respectively, and $702 and $2,179 for the three and nine months ended September 30, 2020, respectively.