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Leases
 9 Months Ended
Sep. 27, 2020
Leases [Abstract]  
Leases Leases
The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company uses the following policies and assumptions to evaluate its leases:

•Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term.
•Allocating lease and non-lease components: The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable.
•Calculating the discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate.
•Recognizing leases: The Company does not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term.
•Including rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the Consumer Price Index or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement.
•Including renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right-of-use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right-of-use asset and the associated lease liability.
•Including options to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract.
•Including residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants.
Following is a summary of the weighted average remaining lease term and the weighted average discount rate for the Company’s leases:

September 27, 2020December 29, 2019
Weighted average remaining lease term:
Operating leases9.7 years10.2 years
Financing leases13.6 years4.8 years
Weighted average discount rate:
Operating leases4.0 %4.1 %
Financing leases3.2 %5.7 %

As of September 27, 2020, the Company had one real estate and two vehicle operating lease commitments that had not yet commenced. These lease commitments are expected to commence during the fourth quarter of 2020 and have lease terms of approximately three years. The additional lease liability associated with these lease commitments is expected to be $2.1 million.

Following is a summary of the Company’s leases within the condensed consolidated statements of operations:

Third QuarterFirst Nine Months
(in thousands)2020201920202019
Cost of sales impact:
Operating lease costs$1,397 $1,356 $4,167 $4,039 
Short-term and variable leases3,711 2,814 9,368 7,393 
Depreciation expense from financing leases643 353 1,350 1,060 
Total cost of sales impact$5,751 $4,523 $14,885 $12,492 
SD&A expenses impact:
Operating lease costs$4,846 $3,717 $14,225 $9,639 
Short-term and variable leases271 838 1,612 2,676 
Depreciation expense from financing leases772 1,139 1,914 3,415 
Total SD&A expenses impact$5,889 $5,694 $17,751 $15,730 
Interest expense, net impact:
Interest expense on financing lease obligations$613 $666 $1,120 $2,083 
Total interest expense, net impact$613 $666 $1,120 $2,083 
Total lease cost$12,253 $10,883 $33,756 $30,305 

The future minimum lease payments related to the Company’s leases include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of September 27, 2020:

(in thousands)Operating
Leases		Financing
Leases		Total
Remainder of 2020$5,882 $1,760 $7,642 
202122,603 7,079 29,682 
202219,535 7,145 26,680 
202316,839 7,201 24,040 
202415,336 7,396 22,732 
Thereafter91,125 63,421 154,546 
Total minimum lease payments including interest$171,320 $94,002 $265,322 
Less:  Amounts representing interest31,220 17,005 48,225 
Present value of minimum lease principal payments140,100 76,997 217,097 
Less:  Current portion of lease liabilities - operating and financing leases18,812 5,814 24,626 
Noncurrent portion of lease liabilities - operating and financing leases$121,288 $71,183 $192,471 
Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 29, 2019:

(in thousands)Operating
Leases		Financing
Leases		Total
2020$19,236 $10,611 $29,847 
202116,815 6,215 23,030 
202214,016 2,694 16,710 
202311,704 2,750 14,454 
202410,989 2,808 13,797 
Thereafter67,556 5,406 72,962 
Total minimum lease payments including interest$140,316 $30,484 $170,800 
Less:  Amounts representing interest27,527 3,678 31,205 
Present value of minimum lease principal payments112,789 26,806 139,595 
Less:  Current portion of lease liabilities - operating and financing leases15,024 9,403 24,427 
Noncurrent portion of lease liabilities - operating and financing leases$97,765 $17,403 $115,168 

Following is a summary of the Company’s leases within the condensed consolidated statements of cash flows:

First Nine Months
(in thousands)20202019
Cash flows from operating activities impact:
Operating leases$14,134 $13,576 
Interest payments on financing lease obligations1,120 2,083 
Total cash flows from operating activities impact$15,254 $15,659 
Cash flows from financing activities impact:
Principal payments on financing lease obligations$4,428 $6,441 
Total cash flows from financing activities impact$4,428 $6,441 
Leases Leases
The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company uses the following policies and assumptions to evaluate its leases:

•Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term.
•Allocating lease and non-lease components: The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable.
•Calculating the discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate.
•Recognizing leases: The Company does not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term.
•Including rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the Consumer Price Index or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement.
•Including renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right-of-use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right-of-use asset and the associated lease liability.
•Including options to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract.
•Including residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants.
Following is a summary of the weighted average remaining lease term and the weighted average discount rate for the Company’s leases:

September 27, 2020December 29, 2019
Weighted average remaining lease term:
Operating leases9.7 years10.2 years
Financing leases13.6 years4.8 years
Weighted average discount rate:
Operating leases4.0 %4.1 %
Financing leases3.2 %5.7 %

As of September 27, 2020, the Company had one real estate and two vehicle operating lease commitments that had not yet commenced. These lease commitments are expected to commence during the fourth quarter of 2020 and have lease terms of approximately three years. The additional lease liability associated with these lease commitments is expected to be $2.1 million.

Following is a summary of the Company’s leases within the condensed consolidated statements of operations:

Third QuarterFirst Nine Months
(in thousands)2020201920202019
Cost of sales impact:
Operating lease costs$1,397 $1,356 $4,167 $4,039 
Short-term and variable leases3,711 2,814 9,368 7,393 
Depreciation expense from financing leases643 353 1,350 1,060 
Total cost of sales impact$5,751 $4,523 $14,885 $12,492 
SD&A expenses impact:
Operating lease costs$4,846 $3,717 $14,225 $9,639 
Short-term and variable leases271 838 1,612 2,676 
Depreciation expense from financing leases772 1,139 1,914 3,415 
Total SD&A expenses impact$5,889 $5,694 $17,751 $15,730 
Interest expense, net impact:
Interest expense on financing lease obligations$613 $666 $1,120 $2,083 
Total interest expense, net impact$613 $666 $1,120 $2,083 
Total lease cost$12,253 $10,883 $33,756 $30,305 

The future minimum lease payments related to the Company’s leases include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of September 27, 2020:

(in thousands)Operating
Leases		Financing
Leases		Total
Remainder of 2020$5,882 $1,760 $7,642 
202122,603 7,079 29,682 
202219,535 7,145 26,680 
202316,839 7,201 24,040 
202415,336 7,396 22,732 
Thereafter91,125 63,421 154,546 
Total minimum lease payments including interest$171,320 $94,002 $265,322 
Less:  Amounts representing interest31,220 17,005 48,225 
Present value of minimum lease principal payments140,100 76,997 217,097 
Less:  Current portion of lease liabilities - operating and financing leases18,812 5,814 24,626 
Noncurrent portion of lease liabilities - operating and financing leases$121,288 $71,183 $192,471 
Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 29, 2019:

(in thousands)Operating
Leases		Financing
Leases		Total
2020$19,236 $10,611 $29,847 
202116,815 6,215 23,030 
202214,016 2,694 16,710 
202311,704 2,750 14,454 
202410,989 2,808 13,797 
Thereafter67,556 5,406 72,962 
Total minimum lease payments including interest$140,316 $30,484 $170,800 
Less:  Amounts representing interest27,527 3,678 31,205 
Present value of minimum lease principal payments112,789 26,806 139,595 
Less:  Current portion of lease liabilities - operating and financing leases15,024 9,403 24,427 
Noncurrent portion of lease liabilities - operating and financing leases$97,765 $17,403 $115,168 

Following is a summary of the Company’s leases within the condensed consolidated statements of cash flows:

First Nine Months
(in thousands)20202019
Cash flows from operating activities impact:
Operating leases$14,134 $13,576 
Interest payments on financing lease obligations1,120 2,083 
Total cash flows from operating activities impact$15,254 $15,659 
Cash flows from financing activities impact:
Principal payments on financing lease obligations$4,428 $6,441 
Total cash flows from financing activities impact$4,428 $6,441