Leases

9 Months Ended

Sep. 29, 2019

Leases [Abstract]

Leases

Leases

At the beginning of the first quarter of 2019, we adopted ASC 842, Leases, using an optional transition method which allowed us to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of earnings invested in the business in the period of adoption. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that existed prior to adoption of the new standard. We also elected to combine lease and non-lease components, to keep leases with an initial term of 12 months or less off the consolidated balance sheet and recognize the associated lease payments in the consolidated statements of earnings on a straight-line basis over the lease term.

The Company has operating and financing leases for field offices and various equipment. Our leases have remaining lease terms of one year to 10 years. We determine if an arrangement is a lease at inception.

We recorded $74.1 million of right-of-use (“ROU”) assets within operating lease right-of-use assets, $19.8 million of current lease liabilities within operating lease liabilities, current and $54.3 million of noncurrent lease liabilities within operating lease

liabilities, noncurrent in the consolidated balance sheet on the date of adoption. No adjustment to the beginning balance of earnings invested in the business was necessary as a result of adopting this standard.

ROU 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. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Since most of the Company’s leases do not have an implicit borrowing rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our leases may include options allowing us in our sole discretion to extend or terminate the lease, and when it is reasonably certain that we will exercise those options, we will include those periods in our lease term. Variable costs, such as payments for insurance and tax payments, are expensed when the obligation for those payments is incurred.

The components of lease expense were as follows (in millions of dollars):

		Third Quarter		September Year to Date
Description	Statements of Earnings Location	2019		2019
Operating:
Operating lease cost	Selling, general and administrative expenses	$	6.6	$	20.3
Short-term lease cost	Selling, general and administrative expenses	0.9		2.5
Variable lease cost	Selling, general and administrative expenses	1.7		5.2
Financing:
Amortization of ROU assets	Selling, general and administrative expenses	0.1		0.1
Interest on lease liabilities	Other income (expense), net	0.1		0.1
Total lease cost		$	9.4	$	28.2

Supplemental consolidated balance sheet information related to leases was as follows (in millions of dollars):

Description	Balance Sheet Location	As of Third Quarter-End 2019
ROU Assets:
Operating	Operating lease right-of-use assets	$	62.2
Financing	Property and equipment	2.8
Total lease assets		$	65.0
ROU Liabilities:
Operating - current	Operating lease liabilities, current	$	19.8
Financing - current	Accounts payable and accrued liabilities	0.9
Operating - noncurrent	Operating lease liabilities, noncurrent	45.3
Financing - noncurrent	Other long-term liabilities	1.5
Total lease liabilities		$	67.5

Weighted average remaining lease terms and discount rates for September year to date 2019 was as follows:

	September Year to Date
	2019
Weighted average remaining lease term (years):
Operating leases	3.9
Financing leases	3.7
Weighted average discount rate:
Operating leases	5.8	%
Financing leases	5.1	%

Other information related to leases was as follows (in millions of dollars):

	Third Quarter		September Year to Date
	2019		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6.3	$	19.8
Financing cash flows from financing leases	0.2		0.4
ROU assets obtained in exchange for new lease obligations:
Operating leases	$	2.2	$	6.2
Financing leases	1.1		2.8

Maturities of lease liabilities as of third quarter-end 2019 were as follows (in millions of dollars):

	Operating Leases		Financing Leases
2019, remaining	$	6.1	$	0.3
2020	21.9		0.8
2021	17.5		0.8
2022	12.3		0.8
2023	7.0		—
2024	3.9		—
Thereafter	4.2		—
Total future lease payments	72.9		2.7
Less: Imputed interest	7.8		0.3
Total	$	65.1	$	2.4

Maturities of operating leases accounted for under ASC 840 as of year-end 2018 were as follows (in millions of dollars):

Fiscal year:
2019	$	26.7
2020	20.4
2021	15.2
2022	9.8
2023	4.7
Later years	4.9
Total	$	81.7

Leases

Leases

At the beginning of the first quarter of 2019, we adopted ASC 842, Leases, using an optional transition method which allowed us to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of earnings invested in the business in the period of adoption. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that existed prior to adoption of the new standard. We also elected to combine lease and non-lease components, to keep leases with an initial term of 12 months or less off the consolidated balance sheet and recognize the associated lease payments in the consolidated statements of earnings on a straight-line basis over the lease term.

The Company has operating and financing leases for field offices and various equipment. Our leases have remaining lease terms of one year to 10 years. We determine if an arrangement is a lease at inception.

We recorded $74.1 million of right-of-use (“ROU”) assets within operating lease right-of-use assets, $19.8 million of current lease liabilities within operating lease liabilities, current and $54.3 million of noncurrent lease liabilities within operating lease

liabilities, noncurrent in the consolidated balance sheet on the date of adoption. No adjustment to the beginning balance of earnings invested in the business was necessary as a result of adopting this standard.

ROU 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. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Since most of the Company’s leases do not have an implicit borrowing rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our leases may include options allowing us in our sole discretion to extend or terminate the lease, and when it is reasonably certain that we will exercise those options, we will include those periods in our lease term. Variable costs, such as payments for insurance and tax payments, are expensed when the obligation for those payments is incurred.

The components of lease expense were as follows (in millions of dollars):

		Third Quarter		September Year to Date
Description	Statements of Earnings Location	2019		2019
Operating:
Operating lease cost	Selling, general and administrative expenses	$	6.6	$	20.3
Short-term lease cost	Selling, general and administrative expenses	0.9		2.5
Variable lease cost	Selling, general and administrative expenses	1.7		5.2
Financing:
Amortization of ROU assets	Selling, general and administrative expenses	0.1		0.1
Interest on lease liabilities	Other income (expense), net	0.1		0.1
Total lease cost		$	9.4	$	28.2

Supplemental consolidated balance sheet information related to leases was as follows (in millions of dollars):

Description	Balance Sheet Location	As of Third Quarter-End 2019
ROU Assets:
Operating	Operating lease right-of-use assets	$	62.2
Financing	Property and equipment	2.8
Total lease assets		$	65.0
ROU Liabilities:
Operating - current	Operating lease liabilities, current	$	19.8
Financing - current	Accounts payable and accrued liabilities	0.9
Operating - noncurrent	Operating lease liabilities, noncurrent	45.3
Financing - noncurrent	Other long-term liabilities	1.5
Total lease liabilities		$	67.5

Weighted average remaining lease terms and discount rates for September year to date 2019 was as follows:

	September Year to Date
	2019
Weighted average remaining lease term (years):
Operating leases	3.9
Financing leases	3.7
Weighted average discount rate:
Operating leases	5.8	%
Financing leases	5.1	%

Other information related to leases was as follows (in millions of dollars):

	Third Quarter		September Year to Date
	2019		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6.3	$	19.8
Financing cash flows from financing leases	0.2		0.4
ROU assets obtained in exchange for new lease obligations:
Operating leases	$	2.2	$	6.2
Financing leases	1.1		2.8

Maturities of lease liabilities as of third quarter-end 2019 were as follows (in millions of dollars):

	Operating Leases		Financing Leases
2019, remaining	$	6.1	$	0.3
2020	21.9		0.8
2021	17.5		0.8
2022	12.3		0.8
2023	7.0		—
2024	3.9		—
Thereafter	4.2		—
Total future lease payments	72.9		2.7
Less: Imputed interest	7.8		0.3
Total	$	65.1	$	2.4

Maturities of operating leases accounted for under ASC 840 as of year-end 2018 were as follows (in millions of dollars):

Fiscal year:
2019	$	26.7
2020	20.4
2021	15.2
2022	9.8
2023	4.7
Later years	4.9
Total	$	81.7