Lease Obligations

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Lease Obligations

Lease Obligations

Initial adoption of new ASU

Effective January 1, 2019, we adopted ASU 2016-02 “Leases” (Topic 842), which requires the recognition of lease assets and liabilities for items classified as operating leases under previous guidance. As permitted under ASU 2018-11 “Targeted Improvements to ASC 842”, we elected to not restate comparative periods in transition. Adoption of the new standard resulted in the recording of additional net operating lease assets and lease liabilities of $135.9 and $135.8, respectively, as of January 1, 2019. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings.

Lease Details

Substantially all of our operating lease right-of-use assets and operating lease liabilities represent leases for certain operating facilities, warehouses, office space, trucking equipment, and various other assets. Finance lease balances consist of vehicle and certain equipment leases. We are not involved in any material sale and leaseback transactions, and our sublease arrangements were not material for the periods presented.

At the inception of a contract, we assess whether a contract is, or contains, a lease. Our assessment is based on whether the contract involves the use of a distinct identified asset, whether we obtain the right to substantially all the economic benefit of the asset, and whether we have the right to direct the use of the asset.

Our leases have remaining lease terms that expire at various dates through 2035, some of which include options to extend or terminate the leases at our discretion. Where renewal or termination options are reasonably likely to be exercised, we recognize the option as part of the right-of-use asset and lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Both lease and non-lease components are accounted for as a single lease component, as we have elected to group lease and non-lease components for all leases.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of the lease payments. We apply a portfolio approach for determining the incremental borrowing rate based on the applicable lease terms and the economic environment in the various regions where our operations are located.

At December 31, 2021, we had $7.3 of additional operating leases and $.8 of additional finance leases that had not yet commenced. These leases will commence in 2022 with average lease terms of 6 years for the operating leases and 7 years for the finance leases.

Supplemental balance sheet information related to leases was as follows:

	December 31
	2021		2020
Operating leases:
Operating lease right-of-use assets	$	192.6	$	161.6
Current portion of operating lease liabilities	$	44.5	$	42.4
Operating lease liabilities	153.0		122.1
Total operating lease liabilities	$	197.5	$	164.5
Finance leases:
Sundry	$	3.8	$	3.6
Current maturities of long-term debt	$	.8	$	.9
Long-term debt	2.9		2.7
Total finance lease liabilities	$	3.7	$	3.6

The components of lease expense were as follows:

	Year Ended December 31
	2021		2020		2019
Operating lease costs:
Lease costs	$	50.1	$	48.4	$	45.0
Variable lease costs	15.4		12.1		12.9
Total operating lease costs	$	65.5	$	60.5	$	57.9
Short-term lease costs	$	7.0	$	4.9	$	5.0
Finance lease costs:
Amortization of right-of-use assets	$	1.7	$	2.4	$	2.7
Interest on lease liabilities	.1		.1		.2
Total finance lease costs	$	1.8	$	2.5	$	2.9
Total lease costs	$	74.3	$	67.9	$	65.8

Variable lease costs consist primarily of taxes, insurance, and common-area or other maintenance costs for our leased facilities and equipment, which are paid based on actual costs incurred by the lessor.

Supplemental cash flow information related to leases was as follows:

	Year Ended December 31
	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	48.6	$	47.3	$	40.7
Operating cash flows from finance leases	.1		.1		.2
Financing cash flows from finance leases	1.7		2.4		2.7
Right-of-use assets obtained in exchange for new operating lease liabilities	74.0		43.6		40.7
Right-of-use assets obtained in exchange for new finance lease liabilities	1.9		1.8		2.1

In connection with the ECS transaction discussed in Note R, we acquired operating right-of-use assets in 2019 of approximately $24.0 (including a favorable lease position of $2.4). The operating lease liability associated with these right-of-use assets was approximately $21.6. Finance right-of-use assets acquired in the ECS transaction and the related finance lease liabilities were immaterial.

The following table reconciles the undiscounted cash flows for the operating and finance leases at December 31, 2021 to the operating and finance lease liabilities recorded on the Consolidated Balance Sheets:

	December 31, 2021
	Operating Leases			Finance Leases
2022	$	49.0		$	1.5
2023	43.2			1.1
2024	35.2			.6
2025	25.8			.3
2026	20.1			.2
Thereafter	38.6			.3
Total	211.9			4.0
Less: Interest	14.4			.3
Lease Liability	$	197.5		$	3.7
Weighted average remaining lease term (years)	5.7			3.7
Weighted average discount rate	2.7		%	2.7		%

Lease Obligations

Lease Obligations

Initial adoption of new ASU

Effective January 1, 2019, we adopted ASU 2016-02 “Leases” (Topic 842), which requires the recognition of lease assets and liabilities for items classified as operating leases under previous guidance. As permitted under ASU 2018-11 “Targeted Improvements to ASC 842”, we elected to not restate comparative periods in transition. Adoption of the new standard resulted in the recording of additional net operating lease assets and lease liabilities of $135.9 and $135.8, respectively, as of January 1, 2019. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings.

Lease Details

Substantially all of our operating lease right-of-use assets and operating lease liabilities represent leases for certain operating facilities, warehouses, office space, trucking equipment, and various other assets. Finance lease balances consist of vehicle and certain equipment leases. We are not involved in any material sale and leaseback transactions, and our sublease arrangements were not material for the periods presented.

At the inception of a contract, we assess whether a contract is, or contains, a lease. Our assessment is based on whether the contract involves the use of a distinct identified asset, whether we obtain the right to substantially all the economic benefit of the asset, and whether we have the right to direct the use of the asset.

Our leases have remaining lease terms that expire at various dates through 2035, some of which include options to extend or terminate the leases at our discretion. Where renewal or termination options are reasonably likely to be exercised, we recognize the option as part of the right-of-use asset and lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Both lease and non-lease components are accounted for as a single lease component, as we have elected to group lease and non-lease components for all leases.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of the lease payments. We apply a portfolio approach for determining the incremental borrowing rate based on the applicable lease terms and the economic environment in the various regions where our operations are located.

At December 31, 2021, we had $7.3 of additional operating leases and $.8 of additional finance leases that had not yet commenced. These leases will commence in 2022 with average lease terms of 6 years for the operating leases and 7 years for the finance leases.

Supplemental balance sheet information related to leases was as follows:

	December 31
	2021		2020
Operating leases:
Operating lease right-of-use assets	$	192.6	$	161.6
Current portion of operating lease liabilities	$	44.5	$	42.4
Operating lease liabilities	153.0		122.1
Total operating lease liabilities	$	197.5	$	164.5
Finance leases:
Sundry	$	3.8	$	3.6
Current maturities of long-term debt	$	.8	$	.9
Long-term debt	2.9		2.7
Total finance lease liabilities	$	3.7	$	3.6

The components of lease expense were as follows:

	Year Ended December 31
	2021		2020		2019
Operating lease costs:
Lease costs	$	50.1	$	48.4	$	45.0
Variable lease costs	15.4		12.1		12.9
Total operating lease costs	$	65.5	$	60.5	$	57.9
Short-term lease costs	$	7.0	$	4.9	$	5.0
Finance lease costs:
Amortization of right-of-use assets	$	1.7	$	2.4	$	2.7
Interest on lease liabilities	.1		.1		.2
Total finance lease costs	$	1.8	$	2.5	$	2.9
Total lease costs	$	74.3	$	67.9	$	65.8

Variable lease costs consist primarily of taxes, insurance, and common-area or other maintenance costs for our leased facilities and equipment, which are paid based on actual costs incurred by the lessor.

Supplemental cash flow information related to leases was as follows:

	Year Ended December 31
	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	48.6	$	47.3	$	40.7
Operating cash flows from finance leases	.1		.1		.2
Financing cash flows from finance leases	1.7		2.4		2.7
Right-of-use assets obtained in exchange for new operating lease liabilities	74.0		43.6		40.7
Right-of-use assets obtained in exchange for new finance lease liabilities	1.9		1.8		2.1

In connection with the ECS transaction discussed in Note R, we acquired operating right-of-use assets in 2019 of approximately $24.0 (including a favorable lease position of $2.4). The operating lease liability associated with these right-of-use assets was approximately $21.6. Finance right-of-use assets acquired in the ECS transaction and the related finance lease liabilities were immaterial.

The following table reconciles the undiscounted cash flows for the operating and finance leases at December 31, 2021 to the operating and finance lease liabilities recorded on the Consolidated Balance Sheets:

	December 31, 2021
	Operating Leases			Finance Leases
2022	$	49.0		$	1.5
2023	43.2			1.1
2024	35.2			.6
2025	25.8			.3
2026	20.1			.2
Thereafter	38.6			.3
Total	211.9			4.0
Less: Interest	14.4			.3
Lease Liability	$	197.5		$	3.7
Weighted average remaining lease term (years)	5.7			3.7
Weighted average discount rate	2.7		%	2.7		%