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Leases
6 Months Ended
Mar. 31, 2021
Leases  
Leases

Note 9 — Leases

Our primary involvement with leases is as a lessee where we lease properties to support our business. A majority of our leases are operating leases of office space. For these leases, we have elected to account for the lease and non-lease components together as a single lease component. Our operating and financing leases expire at various dates through 2032 and 2026, respectively, without taking into consideration available renewal options, and many such leases require variable lease payments by us for property taxes, insurance premiums, common area maintenance and other costs. Certain of these leases also have extension or termination options, and we assess the likelihood of exercising such options. If it is reasonably certain that we will exercise the options, we include the impact in the measurement of our right-of-use assets and lease liabilities.

Our right-of-use assets for operating leases are included in operating lease right-of-use-assets and our right-of-use assets for financing leases are included in financing lease right-of-use-assets, net, on our Condensed Consolidated Balance Sheets. Our lease liabilities for operating and financing leases are included in other current liabilities for the current portion and separately in operating and financing lease liabilities for the long-term portion. We use our incremental borrowing rate in determining the present value of lease payments. Our operating lease expense is included in cost of sales and selling, general and administrative expenses in our consolidated statements of operations. Total operating lease expense consists of operating lease cost, which is recognized on a straight-line basis over the lease term, and variable lease cost, which is recognized based on actual amounts incurred. Our finance lease expense consists of amortization of the right-of-use asset and interest expense. Amortization expense is recognized on a straight-line basis over the lease term and is included in cost of sales and selling, general and administrative expenses in our consolidated statement of operations. Interest expense is calculated using the effective interest method and is included in interest expense in our consolidated statement of operations. We also sublease certain immaterial properties and sublease income is included as a reduction of rental expense.

The following tables present our operating and finance leases, related lease expenses and other information (dollars in millions):

Operating Lease Portfolio

March 31,

September 30,

2021

    

2020

Right-of-use assets

$

83.1

$

87.2

Short-term lease liability

 

15.6

 

16.8

Long-term lease liability

77.0

80.6

Weighted average remaining lease term

 

7.2 years

 

7.6 years

Weighted average discount rate

 

3.0%

 

3.0%

Finance Lease Portfolio

March 31,

September 30,

2021

    

2020

Right-of-use assets

$

12.8

$

0.5

Short-term lease liability

 

2.9

 

0.2

Long-term lease liability

10.0

0.4

Weighted average remaining lease term

 

4.6 years

 

2.4 years

Weighted average discount rate

 

1.8%

 

1.7%

Lease Expense

Three Months Ended

Six Months Ended

 

March 31,

March 31,

2021

    

2020

2021

    

2020

Lease Expense

Operating lease expense

$

4.9

$

4.8

$

9.8

$

9.4

Finance lease expense

Amortization of right-of-use asset

0.7

0.8

Interest on lease liabilities

0.1

0.1

Short-term lease expense

0.1

0.1

0.1

0.1

Variable lease expense

0.5

0.7

1.4

1.8

Total lease expense

$

6.3

$

5.6

$

12.2

$

11.3

Other Information

Three Months Ended

Six Months Ended

 

March 31,

March 31,

2021

    

2020

2021

    

2020

Cash paid related to lease liabilities

Finance lease - cash paid for interest

$

$

$

$

Operating lease - cash paid for fixed payments

5.1

4.6

9.9

9.1

Finance lease - cash paid for finance lease liabilities

0.7

0.7

Right-of-use assets obtained in exchange for new finance lease liabilities

0.4

13.0

Right-of-use assets obtained in exchange for new operating lease liabilities

 

2.8

 

8.4

 

3.0

 

18.0

Maturities of Lease Liabilities

Our future lease commitments from our operating and finance leases on an undiscounted basis, reconciled to the lease liability at March 31, 2021 were as follows (in millions):

Financing

Operating

2021

    

$

1.5

$

8.3

 

2022

3.0

16.9

2023

2.8

14.9

2024

2.7

13.9

2025

2.7

11.5

Thereafter

 

0.7

37.9

Total lease payments

13.4

103.4

Less: imputed interest

(0.5)

(10.8)

Present value of lease liabilities

$

12.9

$

92.6

In fiscal 2019, we entered into agreements related to the construction and leasing of two buildings on our existing corporate campus in San Diego, California. Under these agreements, a financial institution owns the buildings and we acted as the construction agent. We began leasing the real property for a term of five years upon the completion of the buildings in December 2020, which is reflected in our finance lease right-of-use assets and finance lease liabilities presented above. The terms of these agreements include provisions that require or limit, among other financial ratios and measurements, the permitted levels of debt, coverage of cash interest expense, and under certain circumstances, payments of dividends or other distributions to shareholders. As of March 31, 2021, we were in compliance with all covenants included in these agreements.