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Leases
9 Months Ended
Mar. 28, 2020
Leases [Abstract]  
Leases

8.Leases

The Company determines if an arrangement is a lease at inception and recognizes a financing or operating lease liability and right-of-use asset in the Company’s consolidated balance sheet. Right-of-use assets and lease liabilities for both operating and finance leases are recognized based on present value of lease payments over the lease term at commencement date. Since the Company’s leases

do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. This rate was determined by using the yield curve based on the Company’s credit rating adjusted for the Company’s specific debt profile and secured debt risk. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease expenses for these short-term leases are recognized on a straight-line basis over the lease term. The Company has several lease agreements that contain lease and non-lease components, such as maintenance, taxes, and insurance, which are accounted for separately. The difference between the operating lease right-of-use assets and operating lease liabilities primarily relates to adjustments for deferred rent, favorable leases, and prepaid rent.

Subsidiaries of the Company have entered into numerous operating and finance leases for various warehouses, office facilities, equipment, tractors, and trailers. Our leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. Certain full-service fleet lease agreements include variable lease payments associated with usage, which are recorded and paid as incurred. When calculating lease liabilities, lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.  

Certain of the leases for tractors, trailers, and other vehicles and equipment provide for residual value guarantees to the lessors. Circumstances that would require the subsidiary to perform under the guarantees include either (1) default on the leases with the leased assets being sold for less than the specified residual values in the lease agreements, or (2) decisions not to purchase the assets at the end of the lease terms combined with the sale of the assets, with sales proceeds less than the residual value of the leased assets specified in the lease agreements. Residual value guarantees under these operating lease agreements typically range between 6% and 16% of the value of the leased assets at inception of the lease. These leases have original terms ranging from 5 to 7.2 years and expiration dates ranging from 2020 to 2027. As of March 28, 2020, the undiscounted maximum amount of potential future payments for lease residual value guarantees totaled approximately $23.6 million, which would be mitigated by the fair value of the leased assets at lease expiration.

The following table presents the location of the right-of-use assets and lease liabilities in the Company’s consolidated balance sheet as of March 28, 2020 (in millions), as well as the weighted-average lease term and discount rate for the Company’s leases:

 

Leases

 

Consolidated Balance Sheet Location

 

As of

March 28, 2020

 

Assets:

 

 

 

 

 

 

Operating

 

Operating lease right-of-use assets

 

$

440.8

 

Finance

 

Property, plant and equipment, net

 

 

200.1

 

Total lease assets

 

 

 

$

640.9

 

Liabilities:

 

 

 

 

 

 

Current

 

 

 

 

 

 

Operating

 

Operating lease obligations—current installments

 

$

83.3

 

Finance

 

Finance lease obligations—current installments

 

 

28.1

 

Non-current

 

 

 

 

 

 

Operating

 

Operating lease obligations, excluding current installments

 

 

360.6

 

Finance

 

Finance lease obligations, excluding current installments

 

 

182.1

 

Total lease liabilities

 

 

 

$

654.1

 

 

 

 

 

 

 

 

Weighted average remaining lease term

 

 

 

 

 

 

Operating leases

 

 

 

8.1 years

 

Finance leases

 

 

 

7.0 years

 

Weighted average discount rate

 

 

 

 

 

 

Operating leases

 

 

 

 

5.1

%

Finance leases

 

 

 

 

5.3

%

 

The following table presents the location of lease costs in the Company consolidated statement of operations for the three and nine months ended March 28, 2020 (in millions):

Lease Cost

 

Statement of Operations Location

 

Three months ended

March 28, 2020

 

 

Nine months ended

March 28, 2020

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

Amortization of finance lease assets

 

Operating expenses

 

$

6.7

 

 

$

17.2

 

Interest on lease liabilities

 

Interest expense

 

 

2.7

 

 

 

7.6

 

Total finance lease cost

 

 

 

$

9.4

 

 

$

24.8

 

Operating lease cost

 

Operating expenses

 

 

28.9

 

 

 

83.7

 

Short-term lease cost

 

Operating expenses

 

 

6.6

 

 

 

18.1

 

Total lease cost

 

 

 

$

44.9

 

 

$

126.6

 

Supplemental cash flow information related to leases for the period reported is as follows (in millions):

(In millions)

 

Nine months ended

March 28, 2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

81.1

 

Operating cash flows from finance leases

 

 

7.6

 

Financing cash flows from finance leases

 

 

16.9

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

Operating leases

 

 

49.6

 

Finance leases

 

 

26.8

 

 

Future minimum lease payments under non-cancelable leases as of March 28, 2020 are as follows (in millions):

 

Fiscal Year

 

Operating Leases

 

 

Finance Leases

 

Remaining 2020

 

$

26.7

 

 

$

9.7

 

2021

 

 

101.2

 

 

 

38.5

 

2022

 

 

84.0

 

 

 

38.0

 

2023

 

 

68.1

 

 

 

36.9

 

2024

 

 

50.6

 

 

 

36.0

 

Thereafter

 

 

224.8

 

 

 

95.1

 

Total future minimum lease payments

 

$

555.4

 

 

$

254.2

 

Less: Interest

 

 

111.5

 

 

 

44.0

 

Present value of future minimum lease payments

 

$

443.9

 

 

$

210.2

 

 

Future minimum lease payments in effect as of June 29, 2019 under non-cancelable leases, as determined prior to the adoption of ASC 842, were as follows (in millions):

 

Fiscal Year

 

Operating Leases

 

 

Finance Leases

 

2020

 

$

104.7

 

 

$

26.7

 

2021

 

 

89.6

 

 

 

26.3

 

2022

 

 

73.8

 

 

 

25.8

 

2023

 

 

58.2

 

 

 

24.7

 

2024

 

 

40.8

 

 

 

23.9

 

Thereafter

 

 

163.8

 

 

 

58.4

 

Total future minimum lease payments

 

$

530.9

 

 

$

185.8

 

Less: Interest

 

 

 

 

 

 

38.6

 

Present value of future minimum lease payments

 

 

 

 

 

$

147.2

 

 

As of March 28, 2020, the Company has additional operating and finance leases that have not yet commenced which total $47.7 million in future minimum lease payments and $0.4 million of residual value guarantees. These leases primarily relate to warehouse leases and will commence in fiscal 2020 with lease terms of 7 to 15 years.