Leases

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

LEASES

We determine if an arrangement is or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities and long-term operating lease liabilities in our Consolidated Balance Sheet. Finance leases are included in property, plant, and equipment, the current maturities of long-term debt and finance leases, as well as long-term debt, net in our Consolidated Balance Sheet. Our finance leases are not material.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate derived from information available at the lease commencement date to determine the present value of our lease payments if a discount rate is not stated within the lease agreement. To estimate the incremental borrowing rate, we utilize a risk-free rate plus our incremental interest rate spread for collateralized debt, which is updated on a quarterly basis. We use multiple incremental borrowing rates that correspond to the term of the lease.

We lease certain property, vehicles used in the distribution of our product, and equipment. As of December 31, 2019, we had approximately 1,400 leases with remaining terms ranging from less than one year to 20 years. Our leases primarily consist of:

•Land and buildings of our manufacturing facilities and corporate office

•Leased vehicles within our direct-to-store delivery (“DSD”) system

•Leased equipment primarily related to equipment used in the production of our products.

We also have certain storage service agreements that may be treated as real estate leases. Storage agreements providing us with both fully dedicated square footage and the right to designate how the space is utilized are classified as a lease and included in the ROU asset and corresponding lease liability. To determine if a storage agreement has an embedded real estate lease we analyze the agreement to determine if the facility has space that is fully dedicated to storing and managing our products. If the space is fully dedicated to our products, we analyze whether or not we have the right and ability to dictate how the designated space will be utilized to manage our refrigerated and frozen products. Fixed payment amounts related to those agreements are included in the determination of the ROU asset and lease liability.

Our DIP Facility and our receivables backed securitization facility contain certain restrictions on finance lease activities as these are treated as indebtedness and subject to the indebtedness covenants pursuant to these credit agreements. See further discussion of debt facilities and covenant restrictions in Note 11.

Our lease terms may include options to extend or terminate the lease. We include options to extend the lease when it is reasonably certain that we will exercise that option based on the individual lease and our business objectives at lease inception. We have elected to not record leases with a term of 12 months or less on the balance sheet. Certain vehicle leases contain residual value guarantees (“RVG”). We continue to monitor whether amounts related to RVGs are probable of being owed. As of December 31, 2019, we do not expect to make any payments related to RVGs, and our maximum exposure under those guarantees is not a material amount; therefore, we have excluded from the determination of lease payments.

We have elected the practical expedient to combine the lease and non-lease components for all asset classes, except vehicles. For vehicles, we have three separate full service agreements, wherein the agreements provide for certain maintenance services to be included in the overall cost to lease the asset. We determined the stand-alone prices for each of the lease and non-lease components based on comparisons to similar supplier arrangements (such as the cost to lease a vehicle without maintenance services and the cost to obtain maintenance services for a non-leased vehicle). The total transaction price is allocated to the lease and non-lease components on a relative stand-alone price basis.

The components of lease expenses were as follows (in thousands):

	Twelve months ended
	December 31, 2019
Operating lease cost	$	124,866
Finance lease cost	2,110
Amortization of ROU assets	1,857
Interest on lease liability	253
Short term lease cost (1)	14,337
Variable lease cost (2)	11,056
Sublease income	(6,061		)
Total net lease cost	$	146,308

(1)Related to leases with a term of 12 months or less that are not recorded on the balance sheet.

(2) Certain operating lease agreements require the payment of additional amounts for maintenance, along with additional rentals based on miles driven or units produced.

Supplemental balance sheet information related to leases was as follows (in thousands):

	As of
	December 31, 2019
Operating leases:
Operating lease ROU asset	$	275,596
Current operating lease liabilities	$	86,297
Long-term operating lease liabilities	203,477
Total operating lease liabilities	$	289,774

The weighted-average remaining lease term of our operating leases as of December 31, 2019 was 4.7 years, and our weighted-average discount rate was 6.4%.

Supplemental cash flow and other information related to leases was as follows (in thousands):

	Twelve months ended
	December 31, 2019
Operating cash flows information:
Cash paid for amounts included in the measurement of lease liabilities	$	123,158
Non-cash activity:
Right of use assets obtained in exchange for operating lease obligations	$	32,209

Maturities of operating lease liabilities were as follows (in thousands):

	As of
	December 31, 2019
2020	$	101,253
2021	75,970
2022	54,735
2023	40,127
2024	27,851
Thereafter	35,946
Total lease payments	$	335,882
Less: imputed interest	(46,108		)
Total lease obligations	$	289,774
Less: current obligations	86,297
Long-term lease obligations	$	203,477

Disclosures related to periods prior to adoption of the New Lease Standard

Prior to the adoption of this standard, rent expense was $143.3 million and $135.4 million for 2018 and 2017, respectively.

Leases

LEASES

We determine if an arrangement is or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities and long-term operating lease liabilities in our Consolidated Balance Sheet. Finance leases are included in property, plant, and equipment, the current maturities of long-term debt and finance leases, as well as long-term debt, net in our Consolidated Balance Sheet. Our finance leases are not material.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate derived from information available at the lease commencement date to determine the present value of our lease payments if a discount rate is not stated within the lease agreement. To estimate the incremental borrowing rate, we utilize a risk-free rate plus our incremental interest rate spread for collateralized debt, which is updated on a quarterly basis. We use multiple incremental borrowing rates that correspond to the term of the lease.

We lease certain property, vehicles used in the distribution of our product, and equipment. As of December 31, 2019, we had approximately 1,400 leases with remaining terms ranging from less than one year to 20 years. Our leases primarily consist of:

•Land and buildings of our manufacturing facilities and corporate office

•Leased vehicles within our direct-to-store delivery (“DSD”) system

•Leased equipment primarily related to equipment used in the production of our products.

We also have certain storage service agreements that may be treated as real estate leases. Storage agreements providing us with both fully dedicated square footage and the right to designate how the space is utilized are classified as a lease and included in the ROU asset and corresponding lease liability. To determine if a storage agreement has an embedded real estate lease we analyze the agreement to determine if the facility has space that is fully dedicated to storing and managing our products. If the space is fully dedicated to our products, we analyze whether or not we have the right and ability to dictate how the designated space will be utilized to manage our refrigerated and frozen products. Fixed payment amounts related to those agreements are included in the determination of the ROU asset and lease liability.

Our DIP Facility and our receivables backed securitization facility contain certain restrictions on finance lease activities as these are treated as indebtedness and subject to the indebtedness covenants pursuant to these credit agreements. See further discussion of debt facilities and covenant restrictions in Note 11.

Our lease terms may include options to extend or terminate the lease. We include options to extend the lease when it is reasonably certain that we will exercise that option based on the individual lease and our business objectives at lease inception. We have elected to not record leases with a term of 12 months or less on the balance sheet. Certain vehicle leases contain residual value guarantees (“RVG”). We continue to monitor whether amounts related to RVGs are probable of being owed. As of December 31, 2019, we do not expect to make any payments related to RVGs, and our maximum exposure under those guarantees is not a material amount; therefore, we have excluded from the determination of lease payments.

We have elected the practical expedient to combine the lease and non-lease components for all asset classes, except vehicles. For vehicles, we have three separate full service agreements, wherein the agreements provide for certain maintenance services to be included in the overall cost to lease the asset. We determined the stand-alone prices for each of the lease and non-lease components based on comparisons to similar supplier arrangements (such as the cost to lease a vehicle without maintenance services and the cost to obtain maintenance services for a non-leased vehicle). The total transaction price is allocated to the lease and non-lease components on a relative stand-alone price basis.

The components of lease expenses were as follows (in thousands):

	Twelve months ended
	December 31, 2019
Operating lease cost	$	124,866
Finance lease cost	2,110
Amortization of ROU assets	1,857
Interest on lease liability	253
Short term lease cost (1)	14,337
Variable lease cost (2)	11,056
Sublease income	(6,061		)
Total net lease cost	$	146,308

(1)Related to leases with a term of 12 months or less that are not recorded on the balance sheet.

(2) Certain operating lease agreements require the payment of additional amounts for maintenance, along with additional rentals based on miles driven or units produced.

Supplemental balance sheet information related to leases was as follows (in thousands):

	As of
	December 31, 2019
Operating leases:
Operating lease ROU asset	$	275,596
Current operating lease liabilities	$	86,297
Long-term operating lease liabilities	203,477
Total operating lease liabilities	$	289,774

The weighted-average remaining lease term of our operating leases as of December 31, 2019 was 4.7 years, and our weighted-average discount rate was 6.4%.

Supplemental cash flow and other information related to leases was as follows (in thousands):

	Twelve months ended
	December 31, 2019
Operating cash flows information:
Cash paid for amounts included in the measurement of lease liabilities	$	123,158
Non-cash activity:
Right of use assets obtained in exchange for operating lease obligations	$	32,209

Maturities of operating lease liabilities were as follows (in thousands):

	As of
	December 31, 2019
2020	$	101,253
2021	75,970
2022	54,735
2023	40,127
2024	27,851
Thereafter	35,946
Total lease payments	$	335,882
Less: imputed interest	(46,108		)
Total lease obligations	$	289,774
Less: current obligations	86,297
Long-term lease obligations	$	203,477

Disclosures related to periods prior to adoption of the New Lease Standard

Prior to the adoption of this standard, rent expense was $143.3 million and $135.4 million for 2018 and 2017, respectively.