LEASES

9 Months Ended

Sep. 30, 2023

The Company leases real properties for use in manufacturing and as administrative and sales offices, and leases automobiles and office equipment. The Company determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Company is the lessee, leases are classified as either finance or operating. Right-of-use (“ROU”) assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any. If a lease does not provide a discount rate and the implicit rate cannot be readily determined, an incremental borrowing rate is used to determine the present value of future lease payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term within the Condensed Consolidated Statements of Operations. Lease and non-lease components within the Company’s lease agreements are accounted for together. Variable lease payments are recognized in the period in which the obligation is incurred. The Company has no leases in which the Company is the lessor.

Nearly all of the Company’s leasing arrangements are classified as operating leases. ROU asset and lease liability balances were as follows for the periods presented:


	September 30, 2023		December 31, 2022
ROU asset	$	44,661	$	48,470

Current lease liability	7,290		7,041
Long-term lease liability	39,288		43,001
Total lease liability	$	46,578	$	50,042

The ROU asset is reported in “Other assets” while the current lease liability is reported in “Other current liabilities” and the long-term lease liability is reported in “Other long-term liabilities” in the Company’s Condensed Consolidated Balance Sheets. Cash paid for operating lease liabilities is recorded as operating cash outflows in the Company’s Condensed Consolidated Statements of Cash Flows.

Arcadia leases certain office, manufacturing, distribution and warehouse facilities from entities affiliated with the redeemable noncontrolling interest holder and former president of Arcadia. There were eight related party leases in effect as of September 30, 2023, with expiration dates ranging from calendar years 2023 to 2026, excluding any renewal options. As of September 30, 2023, the total ROU asset and related lease liability recognized for related party leases was $26,291 and $27,062, respectively.

For the three months ended September 30, 2023 and 2022, operating lease expense was $3,349 and $2,872, respectively. For the nine months ended September 30, 2023 and 2022, operating lease expense was $9,504 and $8,413, respectively. Related party lease expense for the three and nine months ended September 30, 2023 and 2022 was $1,156 and $3,469, respectively, in each period and is included in total operating lease expense. Short term and variable lease costs were not significant for any period presented.