Leases

9 Months Ended

Jun. 27, 2020

Leases [Abstract]

Leases

Leases

On September 29, 2019, we adopted ASC 842: Leases, and the related amendments (ASC 842), using the modified retrospective method, as described in Note 1, Basis of Presentation, without adjusting prior comparative periods.

We lease certain manufacturing facilities, office space and machinery and equipment globally. At inception we evaluate whether a contractual arrangement contains a lease. Specifically, we consider whether we control the underlying asset and have the right to obtain substantially all the economic benefits or outputs from the asset. If the contractual arrangement contains a lease, we then determine the classification of the lease, operating or finance, using the classification criteria described in ASC 842. We then determine the term of the lease based on terms and conditions of the contractual arrangement, including whether the options to extend or terminate the lease are reasonably certain to be exercised. We have elected to not separate lease components from non-lease components, such as common area maintenance charges and instead, account for the lease and non-lease components as a single component.

Our lease ROU assets represent our right to use an underlying asset for the lease term and our lease liabilities represent our obligation to make lease payments. Operating lease ROU assets are included in Operating lease right-of-use assets and operating lease liabilities are included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Condensed Balance Sheets. Finance lease ROU assets are included in Property, plant and equipment and finance lease liabilities are included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Condensed Balance Sheets. Operating lease cost is included in Cost of sales and Selling, general and administrative on the Consolidated Condensed Statements of Earnings (Loss). Finance lease cost is included in Cost of sales, Selling, general and administrative and Interest on the Consolidated Condensed Statements of Earnings (Loss).

The ROU assets and lease liabilities for both operating and finance leases are recognized as of the commencement date at the net present value of the fixed minimum lease payments over the term of the lease, using the discount rate described below. Variable lease payments are recorded in the period in which the obligation for the payment is incurred. Variable lease payments based on an index or rate are initially measured using the index or rate as of the commencement date of the lease and included in the fixed minimum lease payments. For short-term leases that have a term of 12 months or less as of the commencement date, we do not recognize a ROU asset or lease liability on our balance sheet; we recognize expense as the lease payments are made over the lease term.

The discount rate used to calculate the present value of our leases is the rate implicit in lease. If the information necessary to determine the rate implicit in the lease is not available, we use our incremental borrowing rate for collateralized debt, which is determined using our credit rating and other information available as of the lease commencement date.

The components of lease expense were as follows:

	Three Months Ended June 27, 2020		Nine Months Ended June 27, 2020
Operating lease cost	$	8,456	$	20,572
Finance lease cost:
Amortization of right-of-use assets	$	365	$	777
Interest on lease liabilities	114		242
Total finance lease cost	$	479	$	1,019

Supplemental cash flow information related to leases was as follows:

	Nine Months Ended June 27, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow for operating leases	$	19,830
Operating cash flow for finance leases	242
Financing cash flow for finance leases	730
Assets obtained in exchange for lease obligations:
Operating leases	9,629
Finance leases	6,563

Supplemental balance sheet information related to leases was as follows:

	June 27, 2020
Operating Leases
Operating lease right-of-use assets	$	61,833
Accrued liabilities and other	$	13,890
Other long-term liabilities	52,893
Total operating lease liabilities	$	66,783
Finance Leases
Property, plant, and equipment, at cost	$	9,237
Accumulated depreciation	(1,095		)
Property, plant, and equipment, net	$	8,142
Accrued liabilities and other	$	1,609
Other long-term liabilities	7,731
Total finance lease liabilities	$	9,340
Weighted average remaining lease term in years
Operating leases	7.3
Finance leases	15.0
Weighted average discount rate
Operating leases	4.7		%
Finance leases	4.8		%

Maturities of lease liabilities were as follows:

	June 27, 2020
	Operating Leases			Finance Leases
2020	$	1,975		$	401
2021	15,779			1,571
2022	14,664			1,409
2023	10,949			1,327
2024	7,410			1,267
Thereafter	35,854			8,514
Total lease payments	86,631			14,489
Less: imputed interest	(19,848		)	(5,149		)
Total	$	66,783		$	9,340

The operating lease right-of-use assets and finance leased cost in the disclosures above reflect a write down of $3,771 and $1,112, respectively as of June 27, 2020, based on expected cash flows over the remaining life of the assets in relation to impairment charges recorded by the Company associated with the COVID-19 pandemic.