XML 26 R17.htm IDEA: XBRL DOCUMENT

Leases

9 Months Ended

Sep. 28, 2019

On January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, "Leases," which requires lessees to record right-of-use assets and related lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements. Adoption of the standard resulted in the recognition of right-of-use assets of $438.1 million and related lease obligations of $445.8 million as of January 1, 2019. The standard did not have a significant impact on the Company's operating results or cash flows.

Transition

As permitted by the transition guidance, the Company adopted the standard by applying the modified retrospective method without the restatement of comparative periods. Accordingly, the Company has provided disclosures required by prior lease guidance for comparative periods.

The Company elected the package of practical expedients, which permits a lessee to not reassess under the new standard its prior conclusions regarding lease identification, lease classification and initial direct costs. The Company did not elect the practical expedient which permits the use of hindsight when determining the lease term and assessing right-of-use assets for impairment.

As permitted by the transition guidance, the Company used the remaining lease term as of the date of adoption of the standard to estimate discount rates. As permitted by the standard, the Company elected, for all asset classes, the short-term lease exemption. A short-term lease is a lease that, at the commencement date, has a term of twelve months or less and does not include an option to purchase the underlying asset.

Accounting Policy

The Company determines if an arrangement contains a lease at inception. The Company elected the practical expedient, for all asset classes, to account for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease.

For purposes of calculating operating lease obligations under the standard, the Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants.

Operating lease expense is recognized on a straight-line basis over the lease terms.

Discount Rate

The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.

Right-of-Use Assets and Lease Obligations

The Company has operating leases for production, office and warehouse facilities, manufacturing and office equipment and vehicles. Operating lease assets and obligations included in the accompanying condensed consolidated balance sheet are shown below (in millions):



	September 28, 2019
Right-of-use assets under operating leases:
Other long-term assets	$	514.0
Lease obligations under operating leases:
Accrued liabilities	$	112.0
Other long-term liabilities	409.6
	$	521.6

Maturities of lease obligations as of September 28, 2019, are shown below (in millions):



	September 28, 2019
2019⁽¹⁾	$	35.3
2020	123.2
2021	101.1
2022	77.9
2023	60.1
Thereafter	207.9
Total undiscounted cash flows	605.5
Less: Imputed interest	(83.9		)
Lease obligations under operating leases	$	521.6

⁽¹⁾For the remaining three months

The Company has entered into two lease contracts, of which one is expected to commence in the fourth quarter of 2019 with a lease term of approximately nine years, and the other is expected to commence in the third quarter of 2021 with a lease term of approximately ten years. The aggregate right-of-use assets and related lease obligations are expected to be approximately $55 million.

Cash flow information related to operating leases is shown below (in millions):



	Nine Months Ended
	September 28, 2019
Non-cash activity:
Right-of-use assets obtained in exchange for operating lease obligations	$	177.1
Operating cash flows:
Cash paid related to operating lease obligations	$	104.0

Lease expense included in the accompanying condensed consolidated statements of comprehensive income is shown below (in millions):



	Three Months Ended		Nine Months Ended
	September 28, 2019		September 28, 2019
Operating lease expense	$	36.9	$	104.4
Short-term lease expense	3.1		12.1
Variable lease expense	1.4		3.2
Total lease expense	$	41.4	$	119.7

The Company's short-term lease expense excludes leases with a duration of one month or less, as permitted by the standard.

Variable lease expense includes payments based on performance or usage, as well as changes to index and rate-based lease payments. Additionally, the Company evaluated its supply contracts with its customers and concluded that variable lease (income) expense in these arrangements is not material.

In the three and nine months ended September 29, 2018, the Company recorded rent expense of $41.3 million and $122.6 million, respectively.

The weighted average lease term and discount rate for operating leases are shown below:



	September 28, 2019
Weighted average remaining lease term (in years)	7.0
Weighted average discount rate	4.0	%

The Company has entered into certain finance lease agreements which are not material to the condensed consolidated financial statements (Note 9, "Debt").

Leases