Leases

6 Months Ended

Jun. 28, 2019

NOTE 7. LEASES

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months and also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842”.

On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 840, Leases. The standard had a material impact on our Consolidated Condensed Balance Sheet but had no impact on our consolidated net earnings and cash flows. The most significant impact of adopting ASC 842 was the recognition of the ROU asset and lease liabilities for operating leases, which are presented in the following three line items on the Consolidated Condensed Balance Sheet: (i) operating lease right-of-use asset; (ii) current operating lease liabilities; and (iii) operating lease liabilities.

We elected the package of practical expedients for leases that commenced before the effective date of ASC 842 whereby we elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. In addition, we have lease agreements with lease and non-lease components and we have elected the practical expedient for all underlying asset classes and account for them as a single lease component. Our finance lease and lessor arrangements are immaterial.

We determine if an arrangement is a lease at inception. We have operating leases for office space, warehouses, distribution centers, research and development facilities, manufacturing locations, and certain equipment, primarily automobiles. Many leases include one or more options to renew, some of which include options to extend the leases for up to 15 years, and some of which include options to terminate the leases in less than one year. We considered options to renew in our lease terms and measurement of right-of-use assets and lease liabilities if we determined they were reasonably certain to be exercised.

For the three and six months ended June 28, 2019, operating lease cost was $20.2 million and $38.0 million. Short-term and variable lease cost, and cost for finance leases were immaterial for the three and six months ended June 28, 2019. During the six-month period ended June 28, 2019, cash paid for operating leases included in operating cash flows was $32.1 million. ROU assets obtained in exchange for operating lease obligations were $39.4 million and $43.9 million for the three and six months ended June 28, 2019. Of those ROU assets exchanged for operating lease obligations, $29.8 million were related to operating leases acquired with ASP.

The following table presents the maturity of our operating lease liabilities as of June 28, 2019 ($ in millions):



Remainder of 2019	$	33.3
2020	49.1
2021	36.0
2022	25.9
2023	17.6
Thereafter	70.4
Total lease payments	232.3
Less: imputed interest	(30.0		)
Total lease liabilities	$	202.3

As previously disclosed in our 2018 Annual Report on Form 10-K and under Topic 840, future minimum lease payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows ($ in millions):



2019	$	54.2
2020	41.2
2021	32.4
2022	24.0
2023	13.5
Thereafter	16.1
Total lease payments	$	181.4

As of June 28, 2019, the weighted average lease term of our operating leases was 7.4 years and the weighted average discount rate of our operating leases was 3.4%. We primarily use our incremental borrowing rate as the discount rate for our operating leases, as we are generally unable to determine the interest rate implicit in the lease.

As of June 28, 2019, we had entered into operating leases for which the lease term has not yet commenced. These operating leases will commence in 2019 with lease terms between 3 and 5 years and have aggregate fixed payments over the non-cancelable lease terms of $1.0 million.