Leases

12 Months Ended

Oct. 03, 2020

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, Summary of Significant Accounting Policies, 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 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 Balance Sheets. Operating lease cost is included in Cost of sales and Selling, general and administrative on the Consolidated Statements of Earnings. Finance lease cost is included in Cost of sales, Selling, general and administrative and Interest on the Consolidated Statements of Earnings.

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:



	Fiscal Year Ended October 3, 2020
Operating lease cost	$	27,493

Finance lease cost:
Amortization of right-of-use assets	$	1,175
Interest on lease liabilities	367
Total finance lease cost	$	1,542

As we have not restated prior-year information for the adoption of ASC 842, total rent expense for operating leases under ASC 840 amounted to $25,510 in 2019 and $26,594 in 2018.

Supplemental cash flow information related to leases was as follows:



	Fiscal Year Ended October 3, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow for operating leases	$	24,218
Operating cash flow for finance leases	367
Financing cash flow for finance leases	1,167
Assets obtained in exchange for lease obligations:
Operating leases	13,738
Finance leases	11,166

Supplemental balance sheet information related to leases was as follows:



	October 3, 2020
Operating Leases
Operating lease right-of-use assets	$	68,393

Accrued liabilities and other	$	15,034
Other long-term liabilities	60,837
Total operating lease liabilities	$	75,871

Finance Leases
Property, plant, and equipment, at cost	$	13,930
Accumulated depreciation	(1,497		)
Property, plant, and equipment, net	$	12,433

Accrued liabilities and other	$	2,199
Other long-term liabilities	11,392
Total finance lease liabilities	$	13,591

Weighted average remaining lease term in years
Operating leases	7.4
Finance leases	12.3

Weighted average discount rate
Operating leases	4.7		%
Finance leases	4.8		%

Maturities of lease liabilities were as follows:



	October 3, 2020
	Operating Leases			Finance Leases
2021	$	17,495		$	2,487
2022	16,392			2,253
2023	12,651			2,146
2024	9,050			2,085
2025	7,388			1,839
Thereafter	34,056			8,694
Total lease payments	97,032			19,504
Less: imputed interest	(21,161		)	(5,913		)
Total	$	75,871		$	13,591

The operating lease right-of-use assets and finance leased cost in the disclosures above reflect write downs of $3,696 and $1,112, respectively as of October 3, 2020, based on expected cash flows over the remaining life of the assets in relation to impairment charges associated with the COVID-19 pandemic.

As we have not restated prior-year information for the adoption of ASC 842, future minimum rental payments required under non-cancellable operating leases under ASC 840 as of September 28, 2019 were $20,993 in 2020, $19,118 in 2021, $15,636 in 2022, $11,344 in 2023, $7,151 in 2024 and $41,670 thereafter.