Leases

9 Months Ended

Sep. 30, 2019

LEASES

During the quarter ended March 31, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842),” which requires most leases to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date of December 29, 2018, the beginning of its 2019 fiscal year. Prior year financial statements were not recast. The Company elected various transition provisions available for expired or existing contracts, which allows the Company to carry forward historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

The Company leases property and equipment, principally under operating leases. In accordance with ASU 2016-02, the Company records a right-of-use asset and related obligation at the present value of lease payments and, over the term of the lease, depreciates the right-of-use asset and accretes the obligation to future value. Some of the leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company does not separate lease and nonlease components of contracts.

When available, the Company uses the rate implicit in the lease to discount lease payments to present value, however, most of the Company's leases do not provide a readily determinable implicit rate and the Company calculates the applicable incremental borrowing rate to discount the lease payments based on the term of the lease at lease commencement. The incremental borrowing rate is determined based on currency and lease terms.

Certain leases contain variable payments which are periodically adjusted for changes in an index or rate. Such payments are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Subsequent changes in variable payments are not included in the lease liability, but are recognized in profit and loss during the period in which the obligation for those payments is incurred.

The Company has operating leases for corporate offices, manufacturing facilities, research and development facilities, and certain transportation and office equipment, all of which are operating leases. The Company's leases have remaining lease terms of up to 40 years, some of which include options to extend the leases for up to 5 years.

Upon adoption of the new guidance, the Company recorded a right-of-use asset of $308.3 million and total operating lease liabilities of $313.3 million. Additionally, the Company recorded a net increase to retained earnings of $23.1 million related to the elimination of deferred gains on certain sale-leaseback transactions that occurred in prior years.

The components of lease expense were as follows:



	Three Months Ended		Nine Months Ended
(DOLLARS IN THOUSANDS)	September 30, 2019		September 30, 2019
Operating lease cost	$	12,422	$	38,228

Supplemental cash flow information related to leases was as follows:



	Nine Months Ended
(DOLLARS IN THOUSANDS)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	36,932

Supplemental balance sheet information related to leases was as follows:



(DOLLARS IN THOUSANDS)	September 30, 2019
Operating Leases
Operating lease right-of-use assets⁽¹⁾	$	299,790

Other current liabilities⁽²⁾	37,029
Operating lease liabilities⁽³⁾	267,704
Total operating lease liabilities	$	304,733

_______________________


(1)	Presented in Other assets in the Consolidated Balance Sheet.


(2)	Presented in Other current liabilities in the Consolidated Balance Sheet.


(3)	Presented in Other liabilities in the Consolidated Balance Sheet.

Weighted average remaining lease term and discount rate were as follows:



	Weighted Average Remaining Lease Term (in years)	Weighted Average Discount Rate
Operating leases	11.7	3.21	%

Maturities of lease liabilities were as follows:



(DOLLARS IN THOUSANDS)	September 30, 2019
Less than 1 Year	$	23,523
1-3 Years	86,017
3-5 Years	67,132
After 5 years	209,048
Less: Imputed Interest	(80,987		)
Total	$	304,733

Maturities of lease liabilities, as calculated prior to the adoption of ASU 2016-02, were as follows:



(DOLLARS IN THOUSANDS)	December 31, 2018
Less than 1 Year	$	49,350
1-3 Years	78,600
3-5 Years	60,672
After 5 years	201,079
Total	$	389,701

Right-of-use assets by region were as follows:



(DOLLARS IN THOUSANDS)	September 30, 2019
North America	$	148,188
Europe, Africa and Middle East	116,579
Greater Asia	21,439
Latin America	13,584
Consolidated	$	299,790