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Leases

12 Months Ended

Dec. 31, 2019

Adoption of Topic 842, “Leases”

On January 1, 2019, we adopted Topic 842 prospectively through a cumulative-effect adjustment with no restatement of prior period financial statements. On adoption, we elected the package of practical expedients to retain the lease identification, classification and initial direct costs for existing leases. We recognized $2.1 billion of Operating lease assets and liabilities on the Consolidated Balance Sheet as of January 1, 2019 in connection with the adoption of this new standard. Additionally, beginning in 2019, net operating lease activity, including the reduction of the operating lease asset and the accretion of the operating lease liability, are reflected in Depreciation, amortization and net lease activity on our Consolidated Statements of Cash Flows. The adoption of Topic 842 did not have a material impact on our Consolidated Statements of Income and our Consolidated Statements of Cash Flows.

Nature of Leases

Most of our leases are real estate leases. In addition, we lease trucks, trailers, containers and material handling equipment.

The components of our lease expense and gain realized on sale-leaseback transactions were as follows:



	Year Ended December 31,
(In millions)	2019
Operating lease cost	$	696
Short-term lease cost	144
Variable lease cost	90
Total operating lease cost	$	930
Finance lease cost:
Amortization of leased assets	$	53
Interest on lease liabilities	7
Total finance lease cost	$	60
Total lease cost	$	990
Gain recognized on sale-leaseback transactions ⁽¹⁾	$	99


(1)	For the year ended December 31, 2019, we completed multiple sale-leaseback transactions for land and buildings, including a sale and partial leaseback of our shared-services center in Portland, Oregon and received aggregate cash proceeds of $203 million. Gains on sale-leaseback transactions are included in Direct operating expense in our Consolidated Statements of Income.

Supplemental balance sheet information related to leases was as follows:



(In millions)	December 31, 2019
Operating leases:
Operating lease assets	$	2,245
Short-term operating lease liabilities	468
Operating lease liabilities	1,776
Total operating lease liabilities	$	2,244
Finance leases:
Property and equipment, gross	$	483
Accumulated depreciation	(125		)
Property and equipment, net	$	358
Short-term borrowings and current maturities of long-term debt	58
Long-term debt	288
Total finance lease liabilities	$	346
Weighted-average remaining lease term
Operating leases	7 years
Finance leases	7 years
Weighted-average discount rate
Operating leases	5.16		%
Finance leases	2.69		%

Assets represented by capital leases, net of accumulated depreciation, were $296 million as of December 31, 2018.

Supplemental cash flow information related to leases was as follows:



	Year Ended December 31,
(In millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	704
Operating cash flows for finance leases	7
Financing cash flows for finance leases	62
Leased assets obtained in exchange for new lease obligations:
Operating leases	823
Finance leases	103

Property and equipment acquired through capital leases was $111 million and $145 million for the years ended December 31, 2018 and 2017, respectively. Additionally, non-cash investing activities for the year ended December 31, 2019 include $39 million of property and equipment additions for build-to-suit leases.

Maturities of lease liabilities as of December 31, 2019 were as follows:



(In millions)	Finance Leases			Operating Leases
2020	$	71		$	553
2021	67			503
2022	64			405
2023	70			316
2024	49			226
Thereafter	82			662
Total lease payments	$	403		$	2,665
Less: interest	(57		)	(421		)
Present value of lease liabilities	$	346		$	2,244

As of December 31, 2019, we had additional operating leases that have not yet commenced with future undiscounted lease payments of $176 million. These operating leases will commence in fiscal year 2020 through fiscal year 2035 with initial lease terms of 4 years to 15 years.

Disclosures Related to Topic 840

The following information is required disclosure for companies adopting the lease standard prospectively without revising comparative prior period information.

Future minimum lease payments with initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018 were as follows:



(In millions)	Capital Leases			Operating Leases
Year ending December 31:
2019	$	61		$	577
2020	60			460
2021	55			367
2022	52			288
2023	43			221
Thereafter	39			523
Total minimum lease payments	$	310		$	2,436
Amount representing interest	(21		)
Present value of minimum lease payments	$	289

Rent expense was $820 million and $716 million for the years ended December 31, 2018 and 2017, respectively.

Leases