COMMITMENTS AND GUARANTEES

3 Months Ended

Apr. 02, 2022

Commitments and Guarantees [Abstract]

COMMITMENTS — The Company has numerous assets, predominantly real estate, vehicles and equipment, under various lease arrangements. The following is a summary of the Company's right-of-use-assets and lease liabilities:


(Millions of Dollars)	April 2, 2022	January 1, 2022
Right-of-use assets	$420.1	$426.0
Lease liabilities	$430.5	$439.1
Weighted-average incremental borrowing rate	3.4%	3.5%
Weighted-average remaining term	6 years	6 years

Right-of-use assets are included within Other assets in the Condensed Consolidated Balance Sheets, while lease liabilities are included within Accrued expenses and Other liabilities, as appropriate. The Company determines its incremental borrowing rate based on interest rates from its debt issuances, taking into consideration adjustments for collateral, lease terms and foreign currency.

GUARANTEES — The Company’s financial guarantees at April 2, 2022 are as follows:


(Millions of Dollars)	Term	Maximum Potential Payment		Carrying Amount of Liability
Guarantees on the residual values of leased assets	One to five years	$	89.6	$	—
Standby letters of credit	Up to three years	165.7		—
Commercial customer financing arrangements	Up to six years	69.5		8.7
Total		$	324.8	$	8.7

The Company has guaranteed a portion of the residual values of certain leased assets including the previously discussed leases for one of its major distribution centers and two of its office buildings. The lease guarantees are for an amount up to $89.6 million while the fair value of the underlying assets is estimated at $119.0 million. The related assets would be available to satisfy the guarantee obligations and therefore it is unlikely the Company will incur any future loss associated with these guarantees.

The Company has issued $165.7 million in standby letters of credit that guarantee future payments which may be required under certain insurance programs and in relation to certain environmental remediation activities described more fully in Note R, Contingencies.

The Company provides various limited and full recourse guarantees to financial institutions that provide financing to U.S. and Canadian Mac Tool distributors and franchisees for their initial purchase of the inventory and trucks necessary to function as a distributor and franchisee. In addition, the Company provides limited and full recourse guarantees to financial institutions that extend credit to certain end retail customers of its U.S. Mac Tool distributors and franchisees. The gross amount guaranteed in these arrangements is $69.5 million and the $8.7 million carrying value of the guarantees issued is recorded in Other liabilities in the Condensed Consolidated Balance Sheets.

The Company provides warranties on certain products across its businesses. The types of product warranties offered generally range from one year to limited lifetime. There are also certain products with no warranty. Further, the Company sometimes incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information becomes available.

The changes in the carrying amount of product warranties for the three months ended April 2, 2022 and April 3, 2021 are as follows:


(Millions of Dollars)	2022		2021
Balance beginning of period	$	134.5	$	107.9
Warranties and guarantees issued	39.6		36.3
Warranty payments and currency	(38.0)		(41.3)
Balance end of period	$	136.1	$	102.9

Product warranties totaling $5.2 million and $5.7 million were reclassified to held for sale as of April 2, 2022 and April 3, 2021, respectively.