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Leases

12 Months Ended

Dec. 31, 2020

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update supersedes the lease requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flow arising from a lease. The Company adopted this update on January 1, 2019 using the modified retrospective method without the recasting of comparative periods’ financial information, as permitted by the transition guidance.

The Company has operating and finance leases for real estate and equipment. Generally, the leases have remaining terms of one month to ten years. Leases with an initial term of 12 months or less, which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise, are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

In addition, some leases include options to terminate the lease. The Company generally negotiates these termination clauses in anticipation of any changes in market conditions; however, because a termination option requires approval from management, the Company assumes the majority of its termination options will not be exercised when determining the lease term.

The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. Accordingly, all costs associated with a lease contract are accounted for as lease cost. Lease expense is recorded in operating expenses in the results of operations.

Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable portion of lease payments is not included in the computation of the right of use assets or lease liabilities. Rather, variable payments, other than those dependent upon a market index or rate, are expensed when the obligation for those payments is incurred and are included in “Cost of sales (exclusive of depreciation and amortization)” and “Selling, general, and administrative” within the consolidated statements of income (loss).

The Company does not include significant restrictions or covenants in its lease agreements, and residual value guarantees are generally not included within its operating leases.

The components of lease expense were as follows:


	Year Ended December 31
	2020		2019
Operating lease expense	$	122	$	131
Finance lease expense
Amortization of right-of-use assets	2		1
Short-term lease expense	6		13
Variable lease expense	24		26
Sublease income	(1)		(1)
Total lease expense	$	153	$	170

Total rental expense (under ASC 840) for the year ended December 31, 2018 was $111 million.

Other information related to leases was as follows:


	Year Ended December 31
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	143	$	160
Financing cash flows from finance leases	$	2	$	1
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	98	$	170
Finance leases	$	7	$	—

Supplemental balance sheet information related to leases was as follows:


	December 31
	2020		2019
Operating leases
Operating lease right-of-use assets (a)	$	328	$	331

Accrued expenses and other current liabilities	$	95	$	96
Deferred credits and other liabilities	241		234
Total operating lease liabilities	$	336	$	330

Finance leases
Property, plant and equipment, gross	$	13	$	2
Accumulated depreciation	(6)		(1)
Total finance lease right-of-use assets	$	7	$	1

Short-term debt, including current maturities of long-term debt	$	3	$	1
Long-term debt	5		1
Total finance lease liabilities	$	8	$	2


(a) Included in “Other assets” in the consolidated balance sheets.


	Year Ended December 31
	2020			2019
	Weighted average remaining lease term	Weighted average discount rate		Weighted average remaining lease term	Weighted average discount rate
Operating leases	5.38	3.63	%	4.82	4.24	%
Finance leases	3.97	3.07	%	3.18	4.02	%

Maturities of lease liabilities under non-cancellable leases as of December 31, 2020 were as follows:


Year ending December 31	Operating leases		Finance leases
2021	$	106	$	3
2022	81		2
2023	60		2
2024	39		1
2025	26		—
Thereafter	60		—
Total future undiscounted lease payments	372		8
Less imputed interest	(36)		—
Total reported lease liability	$	336	$	8

Leases