LEASES

3 Months Ended

Jan. 31, 2020

NOTE 10—LEASES

The Company, using the guidance in Accounting Standards Codification ("ASC") 842, Leases, determines if an agreement is a lease at the inception of the agreement, and when a lease exists, we follow the guidance in ASC 842 to determine whether the lease is an operating or finance lease. The Company is a party to certain agreements that are classified as operating leases, and those are recorded on our Condensed Consolidated Balance Sheet as Right of Use Assets, Current Lease Liabilities, and Long-term Lease Liabilities. The Company is not a party to any finance lease arrangements. The Company has elected not to record short-term leases with initial terms of twelve months or less in our Condensed Consolidated Balance Sheet. Lease expenses related to those short-term leases are recognized on a straight-line basis over the term of the lease.

The initial assets and corresponding liabilities recorded at commencement of our operating leases are based on the present value of the future minimum lease payments over the lease term. In determining the present value, we use the implicit interest rate in the agreement, if provided. If an implicit interest rate is not provided, we determine the present value of the future minimum lease payments using our incremental borrowing rate based on available information at the lease commencement. When lease agreements contain residual value guarantees that are considered probable, those are included in calculating the amount of lease liabilities to record. Operating lease expense is recognized on a straight-line basis over the lease term with a corresponding reduction to the Right of Use Asset and the applicable lease liability. Lease expense is classified as Cost of Sales or Selling, General and Administrative in our Condensed Consolidated Statements of Operations based on the use of the leased item.

The operating leases to which the Company is a party are primarily related to transportation equipment, equipment used in production processes and the assets of independent contract producers who house our live birds. A significant portion of the costs associated with leases related to the use of assets of independent contract poultry producers who house and care for our live birds are for non-lease components of our agreements with such producers. Non-lease components of payments made to independent contract poultry producers include those related to the operating costs of, and services provided by, such producers. For costs associated with such leases, we elected to account for the lease and non-lease components as a single lease

component, and all costs associated with such leases are disclosed as variable lease costs in the table below. The following table presents the components of our lease costs (in thousands) paid during the three months ended January 31, 2020:


Description	Three Months Ended January 31, 2020
Operating lease cost	$	4,397
Short-term lease cost	865
Variable lease cost ⁽¹⁾	101,641
Total lease cost	$	106,903

(1) Variable lease costs are attributable to payments made to independent contract poultry producers and are based on or influenced by output received from contract producers, birds placed, poultry house size and relative performance.

Other information regarding our operating leases includes the following:


Description	Three Months Ended January 31, 2020
Cash outflows for operating leases included in the measurement of lease liabilities (in thousands)	$	4,856
Non-cash amount of right of use assets and lease liabilities recorded upon adoption (in thousands) ⁽¹⁾	54,665
Weighted-average remaining lease term (years)	4.1
Weighted-average discount rate	2.42		%

(1) There were no new right of use assets obtained in exchange for lease liabilities during the three months ended January 31, 2020.

The future maturities of obligations under non-cancelable operating leases at January 31, 2020 were as follows (in thousands):


Fiscal Year	Amount
2020 (remainder)	$	11,639
2021	14,416
2022	11,929
2023	8,277
2024	4,694
Thereafter	2,381
Total undiscounted operating lease payments	53,336
Less: imputed interest	(3,527)
Present value of lease liabilities	$	49,809