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Leases

6 Months Ended

Mar. 31, 2020

The company’s lease portfolio is comprised of leases of real estate, including manufacturing and office facilities, and leases of personal property, including machinery and equipment and IT equipment. Operating leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheet and related lease expense is recognized on a straight-line basis over the lease term. Short-term lease costs and variable lease costs were insignificant in the three and six months ended March 31, 2020.

For all asset classes, the company has elected to adopt the practical expedient under ASC 842 to not separate lease and non-lease components in contracts that contain both. These lease agreements are accounted for as a single lease component for all classes of underlying assets. The company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As the discount rate implicit in the lease is typically unknown, the discount rate used to determine the lease liability for the majority of our leases is the collateralized incremental borrowing rate in the applicable geographic area for a similar term and amount as the lease agreement.

Components of lease expense (in millions)



	Three Months Ended March 31, 2020		Six Months Ended March 31, 2020
Finance lease costs	$	—	$	1
Operating lease costs	5		10
Total lease costs	$	5	$	11

The following table provides a summary of the location and amounts related to finance leases recognized in the Condensed Consolidated Balance Sheet (in millions).



	Classification	March 31, 2020
Finance lease right-of-use assets	Net Property	$	6
Finance lease liabilities	Short-term debt	2
Finance lease liabilities	Long-term debt	4

The following table provides a summary of the location and amounts related to operating leases recognized in the Condensed Consolidated Balance Sheet (in millions).



	Classification	March 31, 2020
Operating lease right-of-use assets	Other assets	$	77
Operating lease liabilities	Other current liabilities	14
Operating lease liabilities	Other liabilities	63

The following tables summarize additional information related to our lease agreements.

Supplemental cash flow information related to leases (in millions)



	Six Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9
Operating cash flows from finance leases	—
Financing cash flows from finance leases	1
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	6
Finance leases	2

Supplemental balance sheet information related to leases



	March 31, 2020
Weighted-average remaining lease term (years):
Operating leases	8.6
Finance leases	2.6
Weighted-average discount rate:
Operating leases	4.5	%
Finance leases	5.2	%

Maturities (in millions)



	Operating Leases			Finance Leases
Remainder of 2020	$	9		$	1
2021	16			3
2022	12			2
2023	12			1
2024	9			—
Thereafter	39			—
Total lease payments	97			7
Less: Impact of discounting future lease payments	(20		)	(1		)
Present value of lease liabilities	$	77		$	6

Disclosures related to periods prior to adoption of ASU 2016-02

Cash obligations under future minimum rental commitments under operating leases as of September 30, 2019 are shown in the table below (in millions).



	2020		2021		2022		2023		2024		Thereafter		Total
Lease commitments	$	18	$	15	$	14	$	13	$	13	$	25	$	98

Leases