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COMMITMENTS AND GUARANTEES | 12 Months Ended
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Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND GUARANTEES | COMMITMENTS AND GUARANTEESCOMMITMENTS — The Company has numerous assets, predominantly real estate, vehicles and equipment, under various lease arrangements. At inception of arrangements with vendors, the Company determines whether the contract is or contains a lease based on each party’s rights and obligations under the arrangement. If the lease arrangement also contains non-lease components, the lease and non-lease elements are separately accounted for in accordance with the appropriate accounting guidance for each item. From time to time, lease arrangements allow for, and the Company executes, the purchase of the underlying leased asset. Lease arrangements may also contain renewal options or early termination options. As part of its lease liability and right-of-use asset calculation, consideration is given to the likelihood of exercising any extension or termination options. Leases with expected durations of less than twelve months from inception (i.e. short-term leases) are excluded from the Company’s calculation of lease liabilities and right-of-use assets, as permitted by ASC 842, Leases. The following is a summary of the Company's right-of-use-assets and lease liabilities:
(Millions of Dollars) | December 31, 2022 |  | January 1, 2022
Right-of-use assets | $ | 431.5 |  |  | $ | 426.0 |
Lease liabilities | $ | 440.5 |  |  | $ | 439.1 |
Weighted-average incremental borrowing rate | 3.6 | % |  | 3.5 | %
Weighted-average remaining term | 6 years |  | 6 years
Right-of-use assets are included within Other assets in the Consolidated Balance Sheets, while lease liabilities are included within Accrued expenses and Other liabilities, as appropriate. The Company determines its incremental borrowing rate based on interest rates from its debt issuances, taking into consideration adjustments for collateral, lease terms and foreign currency. As a result of acquiring right-of-use assets from new leases entered into during the years ended December 31, 2022 and January 1, 2022, the Company's lease liabilities increased approximately $115.8 million and $84.1 million, respectively. The Company has variable rate leases for certain manufacturing facilities, distribution centers and office buildings in which the periodic rental payments vary based on benchmark interest rates. The following is a summary of the Company's total lease cost for the years ended December 31, 2022, January 1, 2022, and January 2, 2021:
(Millions of Dollars) | 2022 |  | 2021 |  | 2020
Operating lease cost | $ | 147.1 |  |  | $ | 126.3 |  |  | $ | 116.7 |
Short-term lease cost | 27.6 |  |  | 25.5 |  |  | 21.0 |
Variable lease cost | 5.9 |  |  | 5.9 |  |  | 7.0 |
Sublease income | (2.5) |  |  | (1.3) |  |  | (0.3) |
Total lease cost | $ | 178.1 |  |  | $ | 156.4 |  |  | $ | 144.4 |
During 2022, 2021, and 2020, the Company paid $124.1 million, $110.8 million, and $111.2 million respectively, relating to leases included in the measurement of its lease liability and right-of-use asset. The following is a summary of the Company's future lease obligations on an undiscounted basis at December 31, 2022:
(Millions of Dollars) | Total |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027 |  | Thereafter
Lease obligations | $ | 490.4 |  |  | $ | 116.2 |  |  | $ | 94.4 |  |  | $ | 70.8 |  |  | $ | 61.0 |  |  | $ | 46.4 |  |  | $ | 101.6 |
The following is a summary of the Company’s future marketing commitments at December 31, 2022:
(Millions of Dollars) | Total |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027 |  | Thereafter
Marketing commitments | $ | 81.6 |  |  | $ | 45.1 |  |  | $ | 22.1 |  |  | $ | 7.2 |  |  | $ | 7.2 |  |  | $ | — |  |  | $ | — |
As of December 31, 2022, the Company had unrecognized commitments that require the future purchase of goods or services (unconditional purchase obligations) to provide it with access to products and services at competitive prices. These obligations consist of supplier agreements with long-term minimum material purchase requirements and freight forwarding arrangements with minimum quantity commitments. The following is a summary of the Company's unconditional purchase obligations related to these agreements at December 31, 2022:
(Millions of Dollars) | Total |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027 |  | Thereafter
Supplier agreements | $ | 339.0 |  |  | $ | 142.2 |  |  | $ | 130.8 |  |  | $ | 56.0 |  |  | $ | 10.0 |  |  | $ | — |  |  | $ | — |
GUARANTEES — The Company's financial guarantees at December 31, 2022 are as follows:
(Millions of Dollars) | Term |  | Maximum Potential Payment |  | Carrying Amount of Liability
Guarantees on the residual values of leased properties | One to nine years |  | $ | 156.6 |  |  | $ | — |
Standby letters of credit | Up to three years |  | 174.0 |  |  | — |
Commercial customer financing arrangements | Up to six years |  | 79.7 |  |  | 12.7 |
Total |  |  | $ | 410.3 |  |  | $ | 12.7 |
The Company has guaranteed a portion of the residual values associated with the variable rate leases mentioned previously. The lease guarantees are for an amount up to $156.6 million while the fair value of the underlying assets is estimated at $189.5 million. The related assets would be available to satisfy the guarantee obligations and therefore it is unlikely the Company will incur any future loss associated with these guarantees. The Company has issued $174.0 million in standby letters of credit that guarantee future payments which may be required under certain insurance programs and in relation to certain environmental remediation activities described more fully in Note S, Contingencies. The Company provides various limited and full recourse guarantees to financial institutions that provide financing to U.S. and Canadian Mac Tool distributors and franchisees for their initial purchase of the inventory and trucks necessary to function as a distributor and franchisee. In addition, the Company provides limited and full recourse guarantees to financial institutions that extend credit to certain end retail customers of its U.S. Mac Tool distributors and franchisees. The gross amount guaranteed in these arrangements is $79.7 million and the $12.7 million carrying value of the guarantees issued is recorded in Other liabilities in the Consolidated Balance Sheets. The Company provides warranties on certain products across its businesses. The types of product warranties offered generally range from one year to limited lifetime. There are also certain products with no warranty. Further, the Company sometimes incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information becomes available. The changes in the carrying amount of product warranties for the years ended December 31, 2022, January 1, 2022, and January 2, 2021 are as follows:
(Millions of Dollars) | 2022 |  | 2021 |  | 2020
Balance beginning of period | $ | 134.5 |  |  | $ | 107.9 |  |  | $ | 94.4 |
Warranties and guarantees issued | 155.3 |  |  | 150.1 |  |  | 126.9 |
Warranties assumed in acquisitions | — |  |  | 33.4 |  |  | — |
Warranty payments and currency | (163.2) |  |  | (156.9) |  |  | (113.4) |
Balance end of period | $ | 126.6 |  |  | $ | 134.5 |  |  | $ | 107.9 |

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