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Leases

3 Months Ended

Dec. 29, 2019

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, which is a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets obtained in exchange for lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

We elected to adopt the standard, and available practical expedients, effective September 30, 2019 (the first day of our fiscal 2020). These practical expedients allowed us to keep the lease classification assessed under the previous lease accounting standard (ASC 840) without reassessment under the new standard, and allowed all separate lease components, including non-lease components, to be accounted for as a single lease component for all existing leases prior to adoption of the new standard.

We adopted this new standard under the modified retrospective transition approach without adjusting comparative periods in the financial statements, as allowed under Leases (Topic 842), and implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The standard had a material impact on our consolidated balance sheets but did not have an impact on the consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while accounting for finance leases remained substantially unchanged. Our finance leases are primarily for certain information technology ("IT") equipment and the related ROU and lease liabilities were immaterial at December 29, 2019.

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and

current and long-term operating lease liabilities in the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

Our operating leases are primarily for corporate and project office spaces. To a much lesser extent, we have operating leases for IT equipment, vehicles, and equipment. Our operating leases have remaining lease terms of one month to eight years, some of which may include options to extend the leases for up to five years.

The components of lease costs for the three months ended December 29, 2019 are as follows:



	Amount
	(in thousands)
Operating lease cost	$	21,172
Sublease income	(574		)
Other	18
Total lease cost	$	20,616

Supplemental cash flow information related to leases for the three months ended December 29, 2019 is as follows:



	Amount
	(in thousands)
Operating cash flows for operating leases	$	19,715
Right-of-use assets obtained in exchange for new operating lease liabilities	$	262,248

Supplemental balance sheet and other information related to leases as of December 29, 2019 are as follows:



	Amount
	(in thousands)
Operating leases:
Right-of-use assets	$	223,930

Lease liabilities:
Current	$	70,958
Long-term	172,121
Total operating lease liabilities	$	243,079

Weighted-average remaining lease term:
Operating leases	4 years
Weighted-average discount rate:
Operating leases	2.3		%

As of December 29, 2019, we have additional operating leases, primarily for office space, that have not yet commenced of $58.8 million. These operating leases will commence in fiscal 2020 and 2021 with lease terms of five years to twelve years.

A maturity analysis of the future undiscounted cash flows associated with our operating lease liabilities as of December 29, 2019 is as follows:



	Amount
	(in thousands)
2020	$	59,146
2021	62,919
2022	51,443
2023	33,497
2024	22,540
Beyond	26,380
Total lease payments	255,925
Less: imputed interest	(12,846		)
Total present value of lease liabilities	$	243,079

As of September 29, 2019, $343.5 million of minimum rental commitments on operating leases was payable as follows: $108.8 million in fiscal 2020, $66.4 million in fiscal 2021, $51.4 million in fiscal 2022, $36.5 million in fiscal 2023, $25.8 million in fiscal 2024, and $54.6 million thereafter. Rental expense for the three months ended December 30, 2018 was $19.4 million.

Leases