LEASES

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Lessor, Operating Leases

LEASES

Lessee Activity

We have entered into operating and finance leases primarily for office, manufacturing and research and development (R&D) facilities, vehicles and equipment. Our leases have remaining terms from one to 16 years and some of those

leases include options that provide us with the ability to extend the lease term for periods ranging from one to 12 years. Such options are included in the lease term when it is reasonably certain that the option will be exercised.

Certain of our leases include provisions for variable lease payments which are based on, but not limited to, maintenance, insurance, taxes, index escalations and usage-based amounts. For all asset classes, we have elected to apply a practical expedient to account for other services within lease contracts as components of the lease. We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months.

We classify our leases as operating or finance at the lease commencement date. Finance leases are generally those leases for which we will pay substantially all of the underlying asset’s fair value or will use the asset for all or a major part of its economic life, including circumstances in which we will ultimately own the asset. All other leases are operating leases. For finance leases, we recognize interest expense using the effective interest method and we recognize amortization expense on the right-of-use asset over the shorter of the lease term or the useful life of the asset. For operating leases, we recognize lease cost on a straight-line basis over the term of the lease.

Lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. We determine the present value of payments under a lease based on our incremental borrowing rate as of the lease commencement date. The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. For operating leases that commenced prior to our adoption of Topic 842, we measured the lease liabilities and right-of-use assets using our incremental borrowing rate as of January 1, 2019.

The components of lease cost for the three and nine months ended September 30, 2019 were:

(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	30	$	90
Finance lease cost
Amortization of right-of-use assets	1		4
Interest on lease liabilities	3		4
Variable lease cost	24		68
Lease cost	$	58	$	166

The following table contains supplemental cash flow information related to leases for the nine months ended September 30, 2019:

(in millions)	Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	89
Operating cash flows from finance leases	3
Financing cash flows from finance leases	3
Right-of-use operating lease assets obtained in exchange for lease obligations	164

There were no material lease transactions that we entered into but have not yet commenced as of September 30, 2019. Supplemental balance sheet information related to leases as of September 30, 2019 includes:

(in millions)	September 30, 2019
Operating leases
Operating lease right-of-use assets	$	589
Accounts payable and accrued liabilities	$	98
Operating lease liabilities	494
Total operating lease liabilities	$	592
Finance leases
Property, plant and equipment, at cost	$	65
Accumulated depreciation	(19)
Property, plant and equipment, net	$	46
Current maturities of long-term debt and finance lease obligations	$	—
Long-term debt and finance lease obligations	53
Total finance lease liabilities	$	53

Lease term and discount rates as of September 30, 2019 were:

	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	10
Finance leases	15
Weighted-average discount rate
Operating leases	2.8	%
Finance leases	10.5	%

Maturities of operating and finance lease liabilities as of September 30, 2019 were:

(in millions)	Finance Leases		Operating Leases
2019	$	2	$	30
2020	7		104
2021	7		88
2022	7		74
2023	6		62
Thereafter	83		308
Total minimum lease payments	112		666
Less: imputed interest	(59)		(74)
Present value of lease liabilities	$	53	$	592

Future minimum lease payments as of December 31, 2018 were:

	As Restated
(in millions)	Capital Leases		Operating Leases
2019	$	7	$	123
2020	7		94
2021	8		86
2022	8		72
2023	6		64
Thereafter	88		212
Total minimum lease payments	124		$	651
Less: imputed interest	(62)
Present value of lease liabilities	$	62

Lessor Activity

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers, primarily in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (IV) fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.

The components of lease revenue for the three and nine months ended September 30, 2019 were:

(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Sales-type lease revenue	$	3	$	14
Operating lease revenue	16		46
Variable lease revenue	23		65
Total lease revenue	$	42	$	125

The components of our net investment in sales-type leases as of September 30, 2019 were:

(in millions)	September 30, 2019
Minimum lease payments	$	83
Unguaranteed residual values	11
Net investment in leases	$	94

Our net investment in sales-type leases is classified as follows in the accompanying condensed consolidated balance sheets:

(in millions)	September 30, 2019
Accounts receivable, net	$	36
Other non-current assets	58
Total	$	94

Maturities of sales-type and operating leases as of September 30, 2019 were:

(in millions)	Sales-type Leases		Operating Leases
2019	$	10	$	15
2020	31		61
2021	25		61
2022	17		58
2023	9		27
Thereafter	3		5
Total minimum lease payments	95		$	227
Less: imputed interest	(12)
Present value of minimum lease payments	$	83

Lessee, Operating Leases

LEASES

Lessee Activity

We have entered into operating and finance leases primarily for office, manufacturing and research and development (R&D) facilities, vehicles and equipment. Our leases have remaining terms from one to 16 years and some of those

leases include options that provide us with the ability to extend the lease term for periods ranging from one to 12 years. Such options are included in the lease term when it is reasonably certain that the option will be exercised.

Certain of our leases include provisions for variable lease payments which are based on, but not limited to, maintenance, insurance, taxes, index escalations and usage-based amounts. For all asset classes, we have elected to apply a practical expedient to account for other services within lease contracts as components of the lease. We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months.

We classify our leases as operating or finance at the lease commencement date. Finance leases are generally those leases for which we will pay substantially all of the underlying asset’s fair value or will use the asset for all or a major part of its economic life, including circumstances in which we will ultimately own the asset. All other leases are operating leases. For finance leases, we recognize interest expense using the effective interest method and we recognize amortization expense on the right-of-use asset over the shorter of the lease term or the useful life of the asset. For operating leases, we recognize lease cost on a straight-line basis over the term of the lease.

Lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. We determine the present value of payments under a lease based on our incremental borrowing rate as of the lease commencement date. The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. For operating leases that commenced prior to our adoption of Topic 842, we measured the lease liabilities and right-of-use assets using our incremental borrowing rate as of January 1, 2019.

The components of lease cost for the three and nine months ended September 30, 2019 were:

(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	30	$	90
Finance lease cost
Amortization of right-of-use assets	1		4
Interest on lease liabilities	3		4
Variable lease cost	24		68
Lease cost	$	58	$	166

The following table contains supplemental cash flow information related to leases for the nine months ended September 30, 2019:

(in millions)	Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	89
Operating cash flows from finance leases	3
Financing cash flows from finance leases	3
Right-of-use operating lease assets obtained in exchange for lease obligations	164

There were no material lease transactions that we entered into but have not yet commenced as of September 30, 2019. Supplemental balance sheet information related to leases as of September 30, 2019 includes:

(in millions)	September 30, 2019
Operating leases
Operating lease right-of-use assets	$	589
Accounts payable and accrued liabilities	$	98
Operating lease liabilities	494
Total operating lease liabilities	$	592
Finance leases
Property, plant and equipment, at cost	$	65
Accumulated depreciation	(19)
Property, plant and equipment, net	$	46
Current maturities of long-term debt and finance lease obligations	$	—
Long-term debt and finance lease obligations	53
Total finance lease liabilities	$	53

Lease term and discount rates as of September 30, 2019 were:

	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	10
Finance leases	15
Weighted-average discount rate
Operating leases	2.8	%
Finance leases	10.5	%

Maturities of operating and finance lease liabilities as of September 30, 2019 were:

(in millions)	Finance Leases		Operating Leases
2019	$	2	$	30
2020	7		104
2021	7		88
2022	7		74
2023	6		62
Thereafter	83		308
Total minimum lease payments	112		666
Less: imputed interest	(59)		(74)
Present value of lease liabilities	$	53	$	592

Future minimum lease payments as of December 31, 2018 were:

	As Restated
(in millions)	Capital Leases		Operating Leases
2019	$	7	$	123
2020	7		94
2021	8		86
2022	8		72
2023	6		64
Thereafter	88		212
Total minimum lease payments	124		$	651
Less: imputed interest	(62)
Present value of lease liabilities	$	62

Lessor Activity

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers, primarily in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (IV) fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.

The components of lease revenue for the three and nine months ended September 30, 2019 were:

(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Sales-type lease revenue	$	3	$	14
Operating lease revenue	16		46
Variable lease revenue	23		65
Total lease revenue	$	42	$	125

The components of our net investment in sales-type leases as of September 30, 2019 were:

(in millions)	September 30, 2019
Minimum lease payments	$	83
Unguaranteed residual values	11
Net investment in leases	$	94

Our net investment in sales-type leases is classified as follows in the accompanying condensed consolidated balance sheets:

(in millions)	September 30, 2019
Accounts receivable, net	$	36
Other non-current assets	58
Total	$	94

Maturities of sales-type and operating leases as of September 30, 2019 were:

(in millions)	Sales-type Leases		Operating Leases
2019	$	10	$	15
2020	31		61
2021	25		61
2022	17		58
2023	9		27
Thereafter	3		5
Total minimum lease payments	95		$	227
Less: imputed interest	(12)
Present value of minimum lease payments	$	83

Lessee, Finance Leases

LEASES

Lessee Activity

We have entered into operating and finance leases primarily for office, manufacturing and research and development (R&D) facilities, vehicles and equipment. Our leases have remaining terms from one to 16 years and some of those

leases include options that provide us with the ability to extend the lease term for periods ranging from one to 12 years. Such options are included in the lease term when it is reasonably certain that the option will be exercised.

Certain of our leases include provisions for variable lease payments which are based on, but not limited to, maintenance, insurance, taxes, index escalations and usage-based amounts. For all asset classes, we have elected to apply a practical expedient to account for other services within lease contracts as components of the lease. We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months.

We classify our leases as operating or finance at the lease commencement date. Finance leases are generally those leases for which we will pay substantially all of the underlying asset’s fair value or will use the asset for all or a major part of its economic life, including circumstances in which we will ultimately own the asset. All other leases are operating leases. For finance leases, we recognize interest expense using the effective interest method and we recognize amortization expense on the right-of-use asset over the shorter of the lease term or the useful life of the asset. For operating leases, we recognize lease cost on a straight-line basis over the term of the lease.

Lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. We determine the present value of payments under a lease based on our incremental borrowing rate as of the lease commencement date. The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. For operating leases that commenced prior to our adoption of Topic 842, we measured the lease liabilities and right-of-use assets using our incremental borrowing rate as of January 1, 2019.

The components of lease cost for the three and nine months ended September 30, 2019 were:

(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	30	$	90
Finance lease cost
Amortization of right-of-use assets	1		4
Interest on lease liabilities	3		4
Variable lease cost	24		68
Lease cost	$	58	$	166

The following table contains supplemental cash flow information related to leases for the nine months ended September 30, 2019:

(in millions)	Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	89
Operating cash flows from finance leases	3
Financing cash flows from finance leases	3
Right-of-use operating lease assets obtained in exchange for lease obligations	164

There were no material lease transactions that we entered into but have not yet commenced as of September 30, 2019. Supplemental balance sheet information related to leases as of September 30, 2019 includes:

(in millions)	September 30, 2019
Operating leases
Operating lease right-of-use assets	$	589
Accounts payable and accrued liabilities	$	98
Operating lease liabilities	494
Total operating lease liabilities	$	592
Finance leases
Property, plant and equipment, at cost	$	65
Accumulated depreciation	(19)
Property, plant and equipment, net	$	46
Current maturities of long-term debt and finance lease obligations	$	—
Long-term debt and finance lease obligations	53
Total finance lease liabilities	$	53

Lease term and discount rates as of September 30, 2019 were:

	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	10
Finance leases	15
Weighted-average discount rate
Operating leases	2.8	%
Finance leases	10.5	%

Maturities of operating and finance lease liabilities as of September 30, 2019 were:

(in millions)	Finance Leases		Operating Leases
2019	$	2	$	30
2020	7		104
2021	7		88
2022	7		74
2023	6		62
Thereafter	83		308
Total minimum lease payments	112		666
Less: imputed interest	(59)		(74)
Present value of lease liabilities	$	53	$	592

Future minimum lease payments as of December 31, 2018 were:

	As Restated
(in millions)	Capital Leases		Operating Leases
2019	$	7	$	123
2020	7		94
2021	8		86
2022	8		72
2023	6		64
Thereafter	88		212
Total minimum lease payments	124		$	651
Less: imputed interest	(62)
Present value of lease liabilities	$	62

Lessor Activity

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers, primarily in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (IV) fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.

The components of lease revenue for the three and nine months ended September 30, 2019 were:

(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Sales-type lease revenue	$	3	$	14
Operating lease revenue	16		46
Variable lease revenue	23		65
Total lease revenue	$	42	$	125

The components of our net investment in sales-type leases as of September 30, 2019 were:

(in millions)	September 30, 2019
Minimum lease payments	$	83
Unguaranteed residual values	11
Net investment in leases	$	94

Our net investment in sales-type leases is classified as follows in the accompanying condensed consolidated balance sheets:

(in millions)	September 30, 2019
Accounts receivable, net	$	36
Other non-current assets	58
Total	$	94

Maturities of sales-type and operating leases as of September 30, 2019 were:

(in millions)	Sales-type Leases		Operating Leases
2019	$	10	$	15
2020	31		61
2021	25		61
2022	17		58
2023	9		27
Thereafter	3		5
Total minimum lease payments	95		$	227
Less: imputed interest	(12)
Present value of minimum lease payments	$	83

Lessor, Direct Financing Leases

LEASES

Lessee Activity

We have entered into operating and finance leases primarily for office, manufacturing and research and development (R&D) facilities, vehicles and equipment. Our leases have remaining terms from one to 16 years and some of those

leases include options that provide us with the ability to extend the lease term for periods ranging from one to 12 years. Such options are included in the lease term when it is reasonably certain that the option will be exercised.

Certain of our leases include provisions for variable lease payments which are based on, but not limited to, maintenance, insurance, taxes, index escalations and usage-based amounts. For all asset classes, we have elected to apply a practical expedient to account for other services within lease contracts as components of the lease. We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months.

We classify our leases as operating or finance at the lease commencement date. Finance leases are generally those leases for which we will pay substantially all of the underlying asset’s fair value or will use the asset for all or a major part of its economic life, including circumstances in which we will ultimately own the asset. All other leases are operating leases. For finance leases, we recognize interest expense using the effective interest method and we recognize amortization expense on the right-of-use asset over the shorter of the lease term or the useful life of the asset. For operating leases, we recognize lease cost on a straight-line basis over the term of the lease.

Lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. We determine the present value of payments under a lease based on our incremental borrowing rate as of the lease commencement date. The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. For operating leases that commenced prior to our adoption of Topic 842, we measured the lease liabilities and right-of-use assets using our incremental borrowing rate as of January 1, 2019.

The components of lease cost for the three and nine months ended September 30, 2019 were:

(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	30	$	90
Finance lease cost
Amortization of right-of-use assets	1		4
Interest on lease liabilities	3		4
Variable lease cost	24		68
Lease cost	$	58	$	166

The following table contains supplemental cash flow information related to leases for the nine months ended September 30, 2019:

(in millions)	Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	89
Operating cash flows from finance leases	3
Financing cash flows from finance leases	3
Right-of-use operating lease assets obtained in exchange for lease obligations	164

There were no material lease transactions that we entered into but have not yet commenced as of September 30, 2019. Supplemental balance sheet information related to leases as of September 30, 2019 includes:

(in millions)	September 30, 2019
Operating leases
Operating lease right-of-use assets	$	589
Accounts payable and accrued liabilities	$	98
Operating lease liabilities	494
Total operating lease liabilities	$	592
Finance leases
Property, plant and equipment, at cost	$	65
Accumulated depreciation	(19)
Property, plant and equipment, net	$	46
Current maturities of long-term debt and finance lease obligations	$	—
Long-term debt and finance lease obligations	53
Total finance lease liabilities	$	53

Lease term and discount rates as of September 30, 2019 were:

	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	10
Finance leases	15
Weighted-average discount rate
Operating leases	2.8	%
Finance leases	10.5	%

Maturities of operating and finance lease liabilities as of September 30, 2019 were:

(in millions)	Finance Leases		Operating Leases
2019	$	2	$	30
2020	7		104
2021	7		88
2022	7		74
2023	6		62
Thereafter	83		308
Total minimum lease payments	112		666
Less: imputed interest	(59)		(74)
Present value of lease liabilities	$	53	$	592

Future minimum lease payments as of December 31, 2018 were:

	As Restated
(in millions)	Capital Leases		Operating Leases
2019	$	7	$	123
2020	7		94
2021	8		86
2022	8		72
2023	6		64
Thereafter	88		212
Total minimum lease payments	124		$	651
Less: imputed interest	(62)
Present value of lease liabilities	$	62

Lessor Activity

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers, primarily in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (IV) fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.

The components of lease revenue for the three and nine months ended September 30, 2019 were:

(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Sales-type lease revenue	$	3	$	14
Operating lease revenue	16		46
Variable lease revenue	23		65
Total lease revenue	$	42	$	125

The components of our net investment in sales-type leases as of September 30, 2019 were:

(in millions)	September 30, 2019
Minimum lease payments	$	83
Unguaranteed residual values	11
Net investment in leases	$	94

Our net investment in sales-type leases is classified as follows in the accompanying condensed consolidated balance sheets:

(in millions)	September 30, 2019
Accounts receivable, net	$	36
Other non-current assets	58
Total	$	94

Maturities of sales-type and operating leases as of September 30, 2019 were:

(in millions)	Sales-type Leases		Operating Leases
2019	$	10	$	15
2020	31		61
2021	25		61
2022	17		58
2023	9		27
Thereafter	3		5
Total minimum lease payments	95		$	227
Less: imputed interest	(12)
Present value of minimum lease payments	$	83