COMMITMENTS AND GUARANTEES

6 Months Ended

Jul. 01, 2023

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)	July 1, 2023	December 31, 2022
Right-of-use assets	$510.3	$431.5
Lease liabilities	$519.4	$440.5
Weighted-average incremental borrowing rate	4.4%	3.6%
Weighted-average remaining term	8 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.

The Company has arrangements with third-party financial institutions that offer voluntary supply chain finance ("SCF") programs. These arrangements enable certain of the Company’s suppliers, at the supplier’s sole discretion, to sell receivables due from the Company to the financial institutions on terms directly negotiated with the financial institutions. The Company negotiates commercial terms with its suppliers, including prices, quantities, and payment terms, regardless of suppliers’ decisions to finance the receivables due from the Company under these SCF programs. The Company has no economic interest in a supplier’s decision to participate in these SCF programs, and no direct financial relationship with the financial institutions, as it relates to these SCF programs. The amounts due to the financial institutions for suppliers that voluntarily participate in these SCF programs were presented within Accounts payable on the Company’s Condensed Consolidated Balance Sheets and totaled $623.9 million and $607.5 million as of  July 1, 2023 and December 31, 2022, respectively.

GUARANTEES — The Company’s financial guarantees at July 1, 2023 are as follows:


(Millions of Dollars)	Term	Maximum Potential Payment		Carrying Amount of Liability
Guarantees on the residual values of leased assets	One to nine years	$	156.6	$	—
Standby letters of credit	Up to three years	175.3		—
Commercial customer financing arrangements	Up to six years	82.1		13.0
Total		$	414.0	$	13.0

The Company has guaranteed a portion of the residual values associated with certain of its variable rate leases. The lease guarantees are for an amount up to $156.6 million while the fair value of the underlying assets is estimated at $198.5 million. The related assets would be available to satisfy the guarantee obligations.

The Company has issued $175.3 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 P, 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 $82.1 million and the $13.0 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 six months ended July 1, 2023 and July 2, 2022 are as follows:


(Millions of Dollars)	2023		2022
Balance beginning of period	$	126.6	$	134.5
Warranties and guarantees issued	86.1		78.7
Warranty payments and currency	(85.1)		(82.0)
Balance end of period	$	127.6	$	131.2

- Definition

The entire disclosure for each guarantee obligation, or each group of similar guarantee obligations, including (a) the nature of the guarantee, including its term, how it arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee; (c) the current carrying amount of the liability, if any, for the guarantor's obligations under the guarantee; and (d) the nature of any recourse provisions under the guarantee, and any assets held either as collateral or by third parties, and any relevant related party disclosure. Excludes disclosures about product warranties.

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