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Leases

9 Months Ended

Sep. 26, 2020

Effective January 1, 2019 the Company adopted ASC 842, which requires recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet, based on the present value of the future minimum rental payments for existing operating leases. The Company adopted the provisions of ASC 842 on January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption in line with the new transition method allowed under ASU 2018-11. ASC 842 provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients” which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight and elected the practical expedient pertaining to land easements. The new standard also provides practical expedients for an entity’s ongoing accounting for leases. The Company elected the short-term lease exemption for all leases that qualify, meaning the Company will not recognize ROU assets or lease liabilities for leases with terms shorter than twelve months. The Company also elected the practical expedient to not separate lease and non-lease components for a majority of its asset classes, including real estate and most equipment.

The Company measures the ROU assets and liabilities based on the present value of the future minimum lease payments over the lease term at the commencement date. Minimum lease payments include the fixed lease and non-lease components of the agreement, as well as any variable rent payments that depend on an index, initially measured using the index at the lease commencement date. The ROU assets are adjusted for any initial direct costs incurred less any lease incentives received, in addition to payments made on or before the commencement date of the lease. The Company recognizes lease expense for leases on a straight-line basis over the lease term.

As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s credit spread adjusted for current market factors and foreign currency rates. The Company also made a policy election to determine its incremental borrowing rate, at the initial application date, using the total lease term and the total minimum rental payments, as the Company believes this rate is more indicative of the implied financing cost.

The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases for service centers, warehouses, showrooms, and machinery and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company enters into lease contracts ranging from 1 to 60 years with a majority of the Company’s lease terms ranging from 1 to 10 years.

Some leases include one or more options to renew, with renewal terms that can extend the lease term from 3 to 10 years or more. The exercise of these lease renewal options is at the Company’s sole discretion. An insignificant number of our leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

Certain of our leases include rental payments that will adjust periodically for inflation or certain adjustments based on step increases. An insignificant number of our leases contain residual value guarantees and none of our agreements contain material restrictive covenants. Variable rent expenses consist primarily of maintenance, property taxes and charges based on usage.

We rent or sublease certain real estate to third parties. Our sublease portfolio consists mainly of operating leases.

The components of lease costs for the three months ended September 26, 2020 and September 28, 2019 are as follows:


	Three Months Ended September 26, 2020					Three Months Ended September 28, 2019
	Cost of Goods Sold		Selling, General and Administrative	Total		Cost of Goods Sold	Selling, General and Administrative	Total
Operating lease costs
Fixed	$	5,797	25,905	31,702		8,068	25,316	33,384
Short-term	3,036		4,004	7,040		1,092	2,640	3,732
Variable	1,926		6,984	8,910		1,475	7,053	8,528
Sub-leases	(95)		(147)	(242)		(114)	(113)	(227)
	$	10,664	36,746	47,410		10,521	34,896	45,417


	Three Months Ended September 26, 2020					Three Months Ended September 28, 2019
	Depreciation and Amortization		Interest	Total		Depreciation and Amortization	Interest	Total
Finance lease costs
Amortization of leased assets	$	1,672	—	1,672		404	—	404
Interest on lease liabilities	—		189	189		—	102	102
	$	1,672	189	1,861		404	102	506
Net lease costs				$	49,271			45,923

The components of lease costs for the nine months ended September 26, 2020 and September 28, 2019 are as follows:


	Nine Months Ended September 26, 2020					Nine Months Ended September 28, 2019
	Cost of Goods Sold		Selling, General and Administrative	Total		Cost of Goods Sold	Selling, General and Administrative	Total
Operating lease costs
Fixed	$	19,086	76,548	95,634		23,925	72,578	96,503
Short-term	8,174		11,689	19,863		4,083	9,126	13,209
Variable	6,316		22,404	28,720		5,846	21,601	27,447
Sub-leases	(313)		(415)	(728)		(239)	(397)	(636)
	$	33,263	110,226	143,489		33,615	102,908	136,523


	Nine Months Ended September 26, 2020					Nine Months Ended September 28, 2019
	Depreciation and Amortization		Interest	Total		Depreciation and Amortization	Interest	Total
Finance lease costs
Amortization of leased assets	$	4,402	—	4,402		1,228	—	1,228
Interest on lease liabilities	—		492	492		—	191	191
	$	4,402	492	4,894		1,228	191	1,419
Net lease costs				$	148,383			137,942

Supplemental balance sheet information related to leases is as follows:


	Classification	At September 26, 2020		At December 31, 2019
Assets
Operating Leases
Right of use operating lease assets	Right of use operating lease assets	$	303,050	323,003
Finance Leases
Property, plant and equipment, gross	Property, plant and equipment	48,347		35,271
Accumulated depreciation	Accumulated depreciation	(10,203)		(5,664)
Property, plant and equipment, net	Property, plant and equipment, net	38,144		29,607
Total lease assets		$	341,194	352,610

Liabilities
Operating Leases
Other current	Current operating lease liabilities	$	97,778	101,945
Non-current	Non-current operating lease liabilities	214,654		228,155
Total operating liabilities		312,432		330,100
Finance Leases
Short-term debt	Short-term debt and current portion of long-term debt	7,033		4,835
Long-term debt	Long-term debt, less current portion	31,747		25,214
Total finance liabilities		38,780		30,049
Total lease liabilities		$	351,212	360,149

Maturities of lease liabilities are as follows:


Year ending December 31,	Finance Leases		Operating Leases	Total
2020 (excluding the nine months ended September 26, 2020)	$	1,974	30,826	32,800
2021	7,414		106,731	114,145
2022	6,974		79,632	86,606
2023	6,273		49,986	56,259
2024	4,738		29,767	34,505
Thereafter	14,369		39,114	53,483
Total lease payments	41,742		336,056	377,798
Less imputed interest	2,962		23,624
Present value, Total	$	38,780	312,432

The Company had approximately $2,924 of leases that commenced after September 26, 2020 that created rights and obligations to the Company. These leases are not included in the above maturity schedule.

For additional information regarding the Company’s Commitments and Contingencies as of December 31, 2019 as disclosed for finance and operating leases, see Note 15 in its 2019 Annual Report filed on Form 10-K.

Lease term and discount rate are as follows:


	At September 26, 2020		At December 31, 2019
Weighted Average Remaining Lease Term
Operating Leases	4.3 years		4.3 years
Finance Leases	7.3 years		8.4 years

Weighted Average Discount Rate
Operating Leases	3.1	%	3.3	%
Finance Leases	1.5	%	1.4	%

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended
	September 26, 2020		September 28, 2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	92,785	96,752
Operating cash flows from finance leases	492		123
Financing cash flows from finance leases	4,469		1,224
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	67,000		113,253
Finance leases	10,340		7,636
Amortization:
Amortization of right of use operating lease assets(1)	85,266		85,061

(1) Amortization of Right of use operating lease assets during the period is reflected in Other assets and prepaid expenses on the Condensed Consolidated Statements of Cash Flows.

Leases