Quarterly report pursuant to Section 13 or 15(d)

Note G - Leases

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Note G - Leases
3 Months Ended
Dec. 28, 2019
Notes to Financial Statements  
Lessee, Leases [Text Block]
 
Note G—Leases
 
We lease property and equipment under operating lease arrangements, most of which relate to distribution centers and manufacturing facilities in the U.S., Honduras, El Salvador, and Mexico. We also lease machinery and equipment under finance lease arrangements in the U.S. We include both the contractual term as well as any renewal option that we are reasonably certain to exercise in the determination of our lease terms. For leases with a term of greater than
12
months, we value lease liabilities and the related assets as the present value of the lease payments over the related term. We apply the short-term lease exception to leases with a term of
12
months or less and exclude such leases from our Condensed Consolidated Balance Sheets. Payments related to these short-term leases are expensed on a straight-line basis over the lease term and reflected as a component of lease cost within our Condensed Consolidated Statements of Comprehensive Income (Loss). Lease payments generally consist of fixed amounts, and variable amounts based on a market rate or an index are
not
material to our consolidated lease cost. Our operating lease agreements for buildings generally include provisions for the payment of our proportional share of operating costs, property taxes, and other variable payments. These incremental payments are excluded from our calculation of operating lease liabilities and right of use assets. We have elected to use the practical expedient present in ASC
842
to
not
separate lease and non-lease components for all significant underlying asset classes and instead account for them together as a single lease component in the measurement of our lease liabilities.
 
Generally, the rate implicit in our operating leases is
not
readily determinable. Therefore, we discount future lease payments using our estimated incremental borrowing rate at lease commencement. We determine this rate based on a credit-adjusted risk-free rate, which approximates a secured rate over the lease term. The weighted average discount rate for operating leases as of
December 28, 2019,
was
4.2%.
We discount our finance lease payments based on the rate implicit and stated in the lease. The weighted average discount rate for finance leases as of
December 28, 2019,
was
5.2%.
 
The following table presents the future undiscounted payments due on our operating and finance lease liabilities as well as a reconciliation of those payments to our operating and finance lease liabilities, recorded as of 
December 28, 2019 (
in thousands):
 
   
Operating
   
Finance
 
   
Leases
   
Leases
 
2020
  $
7,740
    $
5,758
 
2021
   
8,616
     
6,384
 
2022
   
7,260
     
4,176
 
2023
   
5,526
     
3,164
 
2024
   
4,355
     
1,666
 
Thereafter
   
15,937
     
-
 
Undiscounted fixed lease payments
  $
49,434
    $
21,148
 
Discount due to interest
   
(6,507
)    
(1,592)
 
Total lease liabilities   $
42,927
    $
19,556
 
Less current maturities
   
(8,497
)    
(6,822
)
Lease liabilities, excluding current maturities
  $
34,430
    $
12,734
 
 
As of
December 28, 2019,
we have entered into certain operating leases that have
not
yet commenced and which will result in annual fixed lease payments that range from
$1.0
million to
$1.3
million for a
10
-year period.
 
Our Ceiba Textiles manufacturing facility is leased under an operating lease arrangement with a Honduran company, of which we own
31%
of the outstanding capital stock of the lessor at
December 28, 2019.
During the
three
-months ended
December 28, 2019,
and
December 29, 2018,
we paid approximately
$0.4
million in lease payments under this arrangement.
 
As of
December 28, 2019,
we recorded
$42.0
million of operating lease ROU assets, which were reflected within Operating lease assets in our Condensed Consolidated Balance Sheets, and
$23.9
million of finance lease ROU assets, which were reflected within Property, plant, and equipment, net in our Condensed Consolidated Balance Sheets.
 
The weighted average remaining lease terms for our operating leases and finance leases were approximately
7
 years and
4
 years, respectively, as of
December 28, 2019.
 
The components of total lease cost were as follows for the
three
months ended
December 28, 2019, (
in thousands):
 
Operating lease cost
  $
2,750
 
Finance leases - amortization of ROU assets
   
768
 
Finance leases - interest
   
235
 
Variable lease costs
   
410
 
Total lease cost
  $
4,163
 
 
Total rent expense recognized during the
three
months ended
December 29, 2018,
prior to the adoption of ASC
842,
was
$0.3
million.
 
Operating cash outflows for operating lease payments during the
three
months ended
December 28, 2019,
was
$2.6
million.  Financing cash outflows for finance lease payments during the
three
months ended
December 28, 2019,
was
$1.5
million.  Operating cash outflows for interest payments for finance leases during the
three
months ended
December 28, 2019,
was
$0.2
million.
 
ROU assets obtained in exchange for operating lease and finance lease liabilities during the
three
months ended
December 28, 2019,
were
$0.5
million and
$1.8
million, respectively. During the
three
-month period ended
December 29, 2018,
ROU assets obtained for finance lease liabilities were
$4.6
million.
 
We do
not
have significant leasing transactions in which we are the lessor.