XML 41 R17.htm IDEA: XBRL DOCUMENT

Leases

9 Months Ended

Sep. 28, 2019

LEASES

We adopted ASU 2016-02, Leases, as of January 1, 2019, using the modified retrospective transition approach, with a cumulative-effect adjustment to the opening balance of retained earnings as of the effective date. The financial results reported in periods prior to 2019 are unchanged. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

Adoption of the new standard resulted in additional operating lease liabilities and lease assets, including the transition of existing capital lease liabilities and lease assets to finance classification, of approximately $166.5 million and $164.0 million, respectively, as of January 1, 2019. Upon adoption, there were two primary reasons for the differences between the lease assets and liabilities recognized: (1) the transition requirement to reduce the operating lease asset carrying value by the deferred lease liabilities that existed prior to the adoption date; and (2) the transition of capital leases to finance leases which occurred at their existing carrying values. Additionally, historical build-to-suit assets and liabilities were removed on transition and recorded as an adjustment to retained earnings, net of deferred tax impact. The standard did not materially impact our consolidated net income or cash flow classification.

We lease certain office buildings, warehouse facilities, vehicles, and plant, office, and computer equipment. Lease 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.

We evaluate arrangements at inception to determine if lease components are included. An arrangement includes a lease component if it identifies an asset and we have control over the asset. For new leases beginning January 1, 2019 or later, we have elected for all asset classes not to separate lease components from the non-lease components included in an arrangement when measuring the leased asset and leased liability.

Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for leases on a straight-line basis over the lease term. We apply the portfolio approach to certain groups of computer equipment and vehicle leases when the term, classification, and asset type are identical. The discount rate selected is the incremental borrowing rate we would obtain for a secured financing of the lease asset over a similar term.

Many of our leases include one or more options to extend the lease term. Certain leases also include options to terminate early or purchase the leased property, all of which are executed at our sole discretion. Optional periods may be included in the lease term and measured as part of the lease asset and lease liability if we are reasonably certain to exercise our right to use the leased asset during the optional periods. We generally consider renewal options to be reasonably certain of execution and included in the lease term when significant leasehold

improvements have been made by us to the leased assets. The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of our lease agreements include contingent rental payments based on per unit usage over contractual levels (e.g., miles driven or machine hours used) and others include rental payments adjusted periodically for market reviews or inflationary indexes. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The balance sheet locations of our lease assets and liabilities were as follows (in millions):



Assets	Balance Sheet Location	September 28, 2019
Operating	Operating lease assets	$	131.9
Finance	Other non-current assets	27.2
Total		$	159.1



Liabilities	Balance Sheet Location	September 28, 2019
Current
Operating	Other accrued liabilities	$	32.2
Finance	Current indebtedness	3.1
Non-Current
Operating	Other non-current liabilities	103.3
Finance	Long-term debt, less current portion	21.0
Total		$	159.6

The below table shows our lease assets and liabilities by reporting segment (in millions):



	Assets				Liabilities
	Operating		Financing		Operating		Financing
	September 28, 2019		September 28, 2019		September 28, 2019		September 28, 2019
CSCA	$	23.1	$	17.2	$	23.4	$	16.9
CSCI	40.4		5.7		41.2		2.9
RX	36.4		0.7		37.6		0.7
Unallocated	32.0		3.6		33.3		3.6
Total	$	131.9	$	27.2	$	135.5	$	24.1

Lease expense was as follows (in millions):



	Three Months Ended		Nine Months Ended
	September 28, 2019		September 28, 2019
Operating leases⁽¹⁾	$	11.0	$	33.9

Finance leases
Amortization	$	0.9	$	2.3
Interest	0.2		0.4
Total finance leases	$	1.1	$	2.7

(1) Includes short-term leases and variable lease costs, which are immaterial.

Total operating lease expense for the three and nine months ended September 29, 2018 was $12.4 million and $38.5 million, respectively.

The annual future maturities of our leases as of September 28, 2019 are as follows (in millions):



	Operating Leases		Finance Leases		Total
2019	$	9.3	$	1.0	$	10.3
2020	35.3		3.7		39.0
2021	25.8		4.9		30.7
2022	18.8		2.4		21.2
2023	14.3		1.6		15.9
After 2023	51.9		15.6		67.5
Total lease payments	155.4		29.2		184.6
Less: Interest	19.9		5.1		25.0
Present value of lease liabilities	$	135.5	$	24.1	$	159.6

Our weighted average lease terms and discount rates are as follows:



	September 28, 2019
Weighted-average remaining lease term (in years)
Operating leases	6.58
Finance leases	10.90
Weighted-average discount rate
Operating leases	4.17	%
Finance leases	3.50	%

Our lease cash flow classifications are as follows (in millions):



	Nine Months Ended
	September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	33.6
Operating cash flows for finance leases	$	0.4
Financing cash flows for finance leases	$	2.2

Leased assets obtained in exchange for new finance lease liabilities	$	19.0
Leased assets obtained in exchange for new operating lease liabilities	$	5.3

Leases