NOTE 8. LEASES
Ralliant determines if an arrangement is, or contains, a lease at inception and recognizes a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months. Ralliant has operating leases for office space, warehouses, distribution centers, research and development facilities, manufacturing locations, and certain equipment, primarily automobiles. Many leases include optional terms, ranging from options to terminate the lease in less than one year to options to extend the lease for up to 10 years. Ralliant includes optional periods as part of the lease term when Ralliant determines that it is reasonably certain to exercise the renewal option or it will not early terminate the lease. Reasonably certain is based on economic incentives and represents a high threshold. Ralliant has lease agreements with lease and non-lease components and has elected the practical expedient for all underlying asset classes to account for the lease and related non-lease component(s) as a single lease component.
Lease-related balances are recorded within the following three line items on the Consolidated and Combined Balance Sheets: (i) Other assets; (ii) Accrued expenses and other current liabilities; and (iii) Other long-term liabilities.
Operating lease cost was $20.1 million, $18.9 million, and $14.2 million for the years ended December 31, 2025, 2024, and 2023, respectively, and are recorded within Cost of sales and Selling, general, and administrative expenses in the Company’s Consolidated and Combined Statement of Earnings.
During the years ended December 31, 2025, 2024, and 2023, cash paid for operating leases included in operating cash flows was $17.3 million, $16.5 million, and $13.9 million, respectively. Operating lease ROU assets obtained in exchange for operating lease liabilities were $7.0 million and $28.7 million for the years ended December 31, 2025 and 2024, respectively. Operating lease ROU assets were $68.4 million and $72.4 million as of December 31, 2025 and 2024, respectively. Operating lease liabilities were $74.2 million and $71.7 million as of December 31, 2025 and 2024, respectively.
The following table presents the maturities of the Company’s operating lease liabilities as of December 31, 2025:
| | | | | |
| 2026 | $ | 18.9 | |
| 2027 | 14.4 | |
| 2028 | 11.9 | |
| 2029 | 9.9 | |
| 2030 | 8.7 | |
| Thereafter | 27.1 | |
| Total lease payments | 90.9 | |
| Less: imputed interest | (16.7) | |
| Total operating lease liabilities | $ | 74.2 | |
As of December 31, 2025 and 2024, the weighted-average lease term of Ralliant’s operating leases was 6.7 years and 7.7 years, respectively, and the weighted-average discount rate of Ralliant’s operating leases was 4.6% and 4.9%, respectively. Ralliant primarily uses its incremental borrowing rate as the discount rate for its operating leases as the Company has generally been unable to determine the interest rate implicit in the lease.
Ralliant entered into a 10-year lease agreement for its corporate headquarters that had not yet commenced as of December 31, 2025. The estimated average annual lease payments under this agreement are $1.3 million.