Allowance for Credit Losses

3 Months Ended

Mar. 27, 2020

We estimate expected credit losses on our trade receivables and financing receivables in accordance with Accounting Standards Codification ("ASC") 326 - Financial Instruments - Credit Losses. We adopted this accounting standard on the first day of our 2020 fiscal year using a modified-retrospective approach. As a result, the consolidated financial statements for 2020 are presented under the new standard, while the comparative prior year period is not adjusted and continues to be reported in accordance with our historical accounting policy.

Trade Receivables

Trade receivables as of March 27, 2020 were $403.1 million, net of an allowance of $22.7 million. Our allowance for trade receivables consists of two components: a $9.7 million allowance for credit losses and a $13.0 million allowance for customer claims accounted for under the scope of ASC 606 - Revenue Recognition.

As a result of our robust credit monitoring practices, the industry in which we operate, and the nature of our customer base, the credit losses associated with our trade receivables have historically been insignificant in comparison to our annual net sales. We measure the allowance for credit losses on trade receivables on a collective (pool) basis when similar risk characteristics exist. We generally pool our trade receivables based on the geographic region or country to which the receivables relate. Receivables that do not share similar risk characteristics are evaluated for collectibility on an individual basis.

Our historical credit loss experience provides the basis for our estimation of expected credit losses. We generally use a three-year average annual loss rate as a starting point for our estimation, and make adjustments to the historical loss rate to account for differences in current conditions impacting the collectibility of our receivable pools. We generally monitor macroeconomic indicators to assess whether adjustments are necessary to reflect current conditions.

The table below presents a rollforward of our trade receivable allowance for credit losses for the quarter ended March 27, 2020.



	Quarter ended
Trade Receivables	March 27, 2020
Allowance for credit losses:
Balance, beginning of period⁽¹⁾	$	8.9
Provision for uncollectible amounts⁽²⁾	0.8
Deductions to allowance related to write-offs	—
Recoveries of amounts previously written off	—
Balance, end of period	$	9.7

⁽¹⁾Beginning balance includes $1.0 million increase reflecting the impact of our adoption of ASC 326 on the first day of fiscal 2020. See Note 2. "Recently Issued Accounting Pronouncements" for additional information.

⁽²⁾Provision for the quarter ended March 27, 2020 includes $0.2 million of estimated trade receivable credit losses relating to our foodservice customer base as a direct result of the COVID-19 pandemic. Given the recent developments surrounding the pandemic, including the government imposed mandatory closures and social distancing initiatives, we revised our receivable pools to separately identify our foodservice customers and judgmentally adjusted our historical loss rates to account for the current circumstances which are negatively impacting their financial condition. While the provision included in our operating results reflects our best estimate as of March 27, 2020, there are significant uncertainties about what the effects of the COVID-19 pandemic will ultimately be.

5. Allowance for Credit Losses (continued)

Financing Receivables

Financing receivables are included in other accounts receivable, net on our Consolidated Balance Sheets and are recognized at amortized cost less an allowance for estimated credit losses. Financing receivables include seasonal advances to growers and suppliers, which are usually short-term in nature, and other financing receivables.

A significant portion of the fresh produce we sell is acquired through supply contracts with independent growers. In order to ensure the consistent high quality of our products and packaging, we make advances to independent growers and suppliers. These growers and suppliers typically sell all of their production to us and make payments on their advances as a deduction to the agreed upon selling price of the fruit or packaging material. The majority of the advances to growers and suppliers are for terms less than one year and typically span a growing season. In certain cases, there may be longer term advances with terms of up to 4 years.

We measure the allowance for credit losses on advances to suppliers and growers on a collective (pool) basis when similar risk characteristics exist. We generally pool our advances based on the country to which they relate, and further disaggregate them based on their current or past-due status. We generally consider an advance to a grower to be past due when the advance is not fully paid within the respective growing season. The allowance for advances to growers and suppliers that do not share similar risk characteristics are determined on a case-by-case basis depending on the expected production for the season and other contributing factors. The advances are typically collateralized by property liens and pledges of the respective season’s produce. Occasionally, we agree to a payment plan with these growers or take steps to recover the advance via established collateral. We may write-off uncollectible financing receivables after our collection efforts are exhausted. Historically, our credit losses associated with our advances to suppliers and growers has not been significant.

Our historical credit loss experience provides the basis for our estimation of expected credit losses. We generally use a three-year average annual loss rate as a starting point for our estimation, and make adjustments to the historical loss rate to account for differences in current or expected future conditions. We generally monitor macroeconomic indicators as well as other factors which may impact the collectibility of the advances, including unfavorable weather conditions and crop diseases, when assessing whether adjustments to the historical loss rate are necessary.

The following table details the advances to growers and suppliers based on their credit risk profile (U.S. dollars in millions):



	March 27, 2020				December 27, 2019
	Current Status		Past-Due		Current Status		Past-Due
Gross advances to growers and suppliers	$	35.8	$	5.6	$	33.8	$	8.3

The allowance for advances to growers and suppliers and the related financing receivables for the quarters ended March 27, 2020 and March 29, 2019 were as follows (U.S. dollars in millions):



	Quarter ended
	March 27, 2020			March 29, 2019
Allowance for advances to growers and suppliers:
Balance, beginning of period⁽¹⁾	$	2.3		$	2.8
Provision for uncollectible amounts	(0.1		)	—
Deductions to allowance related to write-offs	(0.1		)	—
Balance, end of period	$	2.1		$	2.8

⁽¹⁾Beginning balance includes $0.2 million increase reflecting the impact of our adoption of ASC 326 on the first day of fiscal 2020. See Note 2. "Recently Issued Accounting Pronouncements" for additional information.