Commitments and Contingencies

12 Months Ended

Dec. 28, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

Leases

Lessee

The Company leases buildings and property, railcars, machinery and equipment, and various types of vehicles for use in our operations. Each arrangement is evaluated individually to determine if the arrangement is or contains a lease at inception. The Company has lease agreements with lease and non-lease components and we have elected to not separate lease and non-lease components for all classes of underlying assets. In addition, our lease agreements do not contain any material residual guarantees or restrictive covenants.

Leases may include variable lease payments for common area maintenance, real estate taxes, and truck lease mileage. No leases are tied to a market index rate or CPI. Variable lease payments are not included in the initial measurement of the right-of-use assets or lease liabilities, and are recorded as lease expense in the period incurred. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that we will exercise that option. We have elected not to record leases with an initial term of 12 months or less on the balance sheet and instead recognize those lease payments on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as either operating or financing leases in our Consolidated Balance Sheet.

Right-of-use assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Our lease right-of-use assets are measured at the initial measurement of the lease liability, adjusted for any lease payments made prior to the lease commencement date, less any lease incentives received and other initial direct costs incurred. Our lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments.

Our leases have remaining terms ranging from less than one month to 11 years and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. Our finance leases include a fleet of mobile equipment.

The components of lease expense were as follows:


(thousands)	For the Fiscal Year Ended, December 28, 2019
Finance lease cost:
Amortization of right-of-use Assets	$	288
Interest on lease liabilities	67
Total finance lease cost	$	355

Operating lease cost	$	26,717
Short-term lease cost	5,029
Variable lease cost	4,187
Total lease cost	$	35,933

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from financing leases	$	58
Operating cash flows from operating leases	26,409
Financing cash flows from financing leases	191
Right-of-use assets obtained in exchange for new finance lease liabilities	6,539
Right-of-use assets obtained in exchange for new operating lease liabilities	104,963

Weighted-average remaining lease term (years)
Finance leases	6.7
Operating leases	5.1

Weighted-average discount rate
Finance leases	3.4		%
Operating leases	5.8		%

Future annual minimum lease payment commitments as of December 28, 2019 were as follows:


(thousands)	Operating Leases		Finance Leases		Total
2020	$	23,894	$	883	$	24,777
2021	20,484		883		21,367
2022	16,902		883		17,785
2023	12,745		883		13,628
2024	8,702		883		9,585
2025 and thereafter	13,367		2,828		16,195
Total minimum lease payments	$	96,094	$	7,243	$	103,337
Less: imputed interest	13,311		885		14,196
Lease liability	$	82,783	$	6,358	$	89,141

As disclosed in our 2018 Annual Report on Form 10-K, and under the previous lease accounting standard 840, future minimum lease payments due under noncancelable operating lease agreements as of December 29, 2018 were as follows:


(thousands)
2019	$	22,226
2020	16,095
2021	12,458
2022	9,247
2023	6,020
2024 and thereafter	5,786
Total minimum lease payments	$	71,832

Lessor

The Company is a lessor of portions of a building and property, railcars, and equipment such as embedded leases of parts cleaning machines. Each of the Company’s leases is classified as an operating lease, and the vast majority are short-term leases. Variable lease payments include real and personal property taxes, which are based on the lessee’s pro rata portion of such amounts, and excess mileage charges which are computed as the actual miles traveled in a calendar year minus the maximum average mileage allowance as specified per the contract. Options to extend the lease beyond the original terms range from day-to-day renewals to increments of five-year extensions. Options to terminate the lease range from immediate termination upon return of the asset to various written notification periods following a minimum lease term. Options for a lessee to purchase the underlying asset are not contractually specified but may be negotiated on a case-by-case basis. Significant judgments made in determining whether a contract contains a lease include assessments as to whether or not the contract conveys the right to direct the use of an identified asset. Significant judgments made in allocating consideration between lease and non-lease components include techniques applied in estimating the relative stand-alone selling prices of the lease and non-lease components of the contract in cases where a stand-alone selling price is not directly observable. As of December 28, 2019, the Company is party to a contract under which it leases railcars to the related party Calumet Specialty Products Partners, L.P. No leased assets are covered by residual value guarantees. The Company manages the risk associated with the residual value of leased assets through such means as performing periodic maintenance and upkeep activities and the inclusion of contractual terms that hold the lessee responsible for damage incurred to leased assets. Contained in Note 7, “Property, plant, and equipment,” are disclosures concerning the Company’s underlying assets under operating leases. The Company has made an accounting policy election to exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected by the lessor from a lessee.

The Company recognizes rental income on a straight-line basis for that portion of the consideration allocated to the embedded lease component of certain of our parts cleaning contracts. We also recognize rental income on certain subleases of railcars and portions of a building and property.

Rental income for the fourth quarter and fiscal year ended December 28, 2019 was as follows:


	For the Fiscal Year Ended
	December 28, 2019
(thousands)	Environmental Services		Oil Business		Total
Parts Cleaning	$	22,408	$	—	$	22,408
Railcars	—		213		213
Property	—		42		42
Total rental income	$	22,408	$	255	$	22,663

Purchase Obligations

The Company may enter into purchase obligations with certain vendors. They represent expected payments to third party service providers and other commitments entered into during the normal course of our business. These purchase obligations are generally cancellable with or without notice without penalty, although certain vendor agreements provide for cancellation fees or penalties depending on the terms of the contract.

The Company had purchase obligations in the form of open purchase orders of $28.3 million as of December 28, 2019, and $18.6 million as of December 29, 2018, primarily for capital expenditures, used oil, catalyst, disposal, and solvent.The Company may be subject to investigations, claims, or lawsuits as a result of operating its business, including matters governed by environmental laws and regulations. When claims are asserted, the Company evaluates the likelihood that a loss will occur and records a liability for those instances when the likelihood is deemed probable and the exposure is reasonably estimable. The Company carries insurance at levels it believes are adequate to cover loss contingencies based on historical claims activity. When the potential loss exposure is limited to the insurance deductible and the likelihood of loss is determined to be probable, the Company accrues for the amount of the required deductible, unless a lower amount of exposure is estimated. As of December 28, 2019 and December 29, 2018, the Company had accrued $4.0 million and $4.2 million related to loss contingencies respectively.