Leases

The Company determines if an arrangement is a lease at inception of the agreement. Operating leases are included in right-of-use operating assets, and current and noncurrent operating lease obligations in the Company’s Condensed Consolidated Balance Sheets. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If the lease does

not

provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The right-of-use operating lease assets also include in its calculation any prepaid lease payments made and excludes any lease incentives received from the arrangement. The Company’s lease terms

may

include options to extend or terminate the lease, and the impact of these options are included in the lease liability and lease asset calculations when the exercise of the option is at the Company’s sole discretion and it is reasonably certain that the Company will exercise that option. The Company will

not

separate lease and nonlease components for its leases when it is impractical to separate the two, such as leases with variable payment arrangements. Leases with an initial term of

months or less are

not

recorded on the balance sheet.

The Company has operating leases for land, machinery and equipment. The Company also has finance leases for machinery and equipment. The commencement date used for the calculation of the lease obligation is the latter of the commencement date of the new standard (

April 1, 2019)

or the lease start date. Certain of the leases have options to extend the life of the lease, which are included in the liability calculation when the option is at the sole discretion of the Company and it is reasonably certain that the Company will exercise the option. In addition, the Company has certain leases that have variable payments based solely on output or usage of the leased asset. These variable operating lease assets are excluded from the Company’s balance sheet presentation and expensed as incurred. Leases with an initial term of

months or less are

not

material. The Company currently has finance leases which were accounted for as capital leases under the previous standard and were unchanged as a result of this standard implementation.

Upon adoption of ASU

2016

02,

the Company determined its right-of-use assets related to the operating leases for its plant equipment in Sunnyside, Washington were partially impaired and therefore were reduced with a corresponding charge to retained earnings of

$2,019,000

(which is net of tax). The estimated lives of these assets will be shortened due to the planned closure of the facility after the year’s pack.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows (In thousands):

	Three Months		Nine Months
	December 28, 2019		December 28, 2019

Lease cost:

Amortization of right of use asset	$	1,084	$	3,191
Interest on lease liabilities		321		1,033
Finance lease cost		1,405		4,224
Operating lease cost		7,545		23,234
Total lease cost	$	8,950	$	27,458

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases			$	1,033
Operating cash flows from operating leases				24,531
Financing cash flows from finance leases				4,799
Total			$	30,363

Right-of-use assets obtained in exchange for new finance lease liabilities			$	3,697
Right-of-use assets obtained in exchange for new operating lease liabilities			$	6,085
Weighted-average lease term (years):
Financing leases				5.4
Operating leases				3.9
Weighted-average discount rate (percentage):
Financing leases				4.2
Operating leases				4.6

Table of Contents

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

Undiscounted future lease payments under non-cancelable operating leases and financial leases, along with a reconciliation of undiscounted cash flows to operating and financing lease liabilities, respectively, as of

December 28, 2019 (

in thousands) were as follows:

Years ending March 31:	Operating		Financing
Balance of 2020	$	5,435	$	1,945
2021		26,301		7,782
2022		19,683		7,782
2023		13,446		7,782
2024		6,496		6,064
2025-2031		7,516		6,161
Total minimum payment required	$	78,877	$	37,516
Less interest		6,481		3,926
Present value of minimum lease payments		72,396		33,590
Amount due within one year		24,430		6,584
Long-term capital lease obligation	$	47,966	$	27,006

As the Company has

not

restated prior year information for its adoption of ASC Topic

842,

the following presents its future minimum lease payments for operating and capital leases under ASC Topic

840

March 31, 2019:

Years ending March 31:	Operating		Capital
2020	$	28,689	$	7,827
2021		24,938		7,827
2022		17,526		7,827
2023		12,062		7,827
2024		5,950		6,102
2025-2031		6,927		5,267
Total minimum payment required	$	96,092	$	42,677
Less interest				4,973
Present value of minimum lease payments				37,704
Amount due within one year				6,418
Long-term capital lease obligation			$	31,286