LEASES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LEASES |
NOTE 3: LEASES
The Company measured Merisant and Mafco’s legacy lease agreements as if the leases were new at the Acquisition date and applied the provisions of Topic 842. This resulted in the recognition of right-of-use assets and operating lease liabilities of $15.2 million as of June 26, 2020. The right-of-use assets and operating lease liabilities at June 26, 2020 also included approximately $0.3 million related to one lease that Act II had applied the provisions of Topic 842 to effective January 1, 2020. In the third quarter of 2020, the Company recorded a measurement period adjustment that reduced the right-of-use assets by $2.7 million to adjust the value of the leases to market value. All leases are classified as operating leases.
The Company’s lease portfolio includes a factory building, office space, warehouses, material handling equipment, vehicles and office equipment.
Certain leases include one or more options to renew, with renewal terms that can extend the lease term from to five years or more. The exercise of lease renewal options is at the Company’s sole discretion. For purposes of calculating operating lease liabilities, lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option.
Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment.
The Company’s lease agreements do not contain any residual value guarantees. Some leases include variable payments that are based on the usage and occupancy of the leased asset. The Company has elected not to record leases with an initial term of twelve months or less on the balance sheet.
For real estate and vehicle leases, the Company elected the practical expedient to not separate lease from non-lease components within the contract. Electing this practical expedient means the Company would account for each lease component and the related non-lease component together as a single component. For equipment leases, the Company has not elected this practical expedient and separates the non-lease components from the lease component.
The right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease expense for the period from June 26, 2020 through June 30, 2020 was not material. Lease expense for the three months ended September 30, 2020 was $1.1 million.
The following table presents the future maturities of the Company’s lease obligations as of September 30, 2020 (in thousands):
The weighted-average remaining lease term is 4.9 years and the weighted-average discount rate is 3.42%.
Cash paid for amounts included in the measurement of the lease liability and for supplemental non-cash information for the three months ended September 30, 2020 was $0.9 million and for the period from June 26, 2020 through June 30, 2020 was not material.
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