Leases

6 Months Ended

Jun. 30, 2019

The Company leases certain real estate, fleet assets, warehouses and equipment. Leases with an initial term of 12 months or less ("short-term leases") are not recorded on the unaudited consolidated balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company determines if an arrangement is a lease at inception.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company's leases do not provide an implicit rate of return, the Company uses its imputed collateralized rate based on the information available at commencement date in determining the present value of lease payments. Operating lease ROU assets are comprised of the lease liability plus prepaid rents and are reduced by lease incentives or deferred rents. The Company has lease agreements with non-lease components which are not bifurcated.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years. The exercise of a lease renewal option typically occurs at the discretion of both parties. Certain leases also include options to purchase the leased property. For purposes of calculating operating lease liabilities, lease terms are deemed not to include options to extend the lease termination until it is reasonably certain that the Company will exercise that option. Certain of the Company's lease agreements include payments adjusted periodically for inflation based on the consumer price index. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease expense are as follows:



	Three Months Ended June 30,	Six Months Ended June 30,	Statement of Operations Classification
	2019
	(In $ millions)
Lease Cost
Operating lease cost	10	20	Cost of sales / Selling, general and administrative expenses
Short-term lease cost	5	10	Cost of sales / Selling, general and administrative expenses
Variable lease cost	2	4	Cost of sales / Selling, general and administrative expenses
Finance lease cost
Amortization of leased assets	4	9	Cost of sales
Interest on lease liabilities	5	10	Interest expense
Sublease income	—	—	Other income (expense), net
Total net lease cost	26	53

Supplemental unaudited consolidated balance sheet information related to leases is as follows:



	As of June 30, 2019	Balance Sheet Classification
	(In $ millions)
Leases
Assets
Operating lease assets	209	Operating lease ROU assets
Finance lease assets	94	Property, plant and equipment, net
Total leased assets	303

Liabilities
Current
Operating	31	Current Other liabilities
Finance	24	Short-term borrowings and current installments of long-term debt
Noncurrent
Operating	192	Operating lease liabilities
Finance	132	Long-term debt
Total lease liabilities	379



	As of June 30, 2019
Weighted-Average Remaining Lease Term (years)
Operating leases	15.0
Finance leases	7.1

Weighted-Average Discount Rate
Operating leases	2.7	%
Finance leases	11.7	%

Supplemental unaudited interim consolidated cash flow information related to leases is as follows:



	Six Months Ended June 30, 2019
	(In $ millions)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	20
Operating cash flows from finance leases	10
Financing cash flows from finance leases	11

ROU assets obtained in exchange for finance lease liabilities	—
ROU assets obtained in exchange for operating lease liabilities	5

Maturities of lease liabilities are as follows:



	As of June 30, 2019
	Operating Leases		Finance Leases
	(In $ millions)
2019	19		22
2020	34		41
2021	26		40
2022	23		32
2023	20		23
Later years	150		88
Sublease income	—		—
Total lease payments	272		246
Less amounts representing interest	(49	)	(90	)
Total lease obligations	223		156

As of June 30, 2019, there were no additional operating or financing lease commitments that have not yet commenced.

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

Operating lease rent expense was approximately $96 million for the year ended December 31, 2018. Future minimum lease payments under non-cancelable rental and lease agreements which had initial or remaining terms in excess of one year are as follows:



	As of December 31, 2018
	Operating Leases	Capital Leases
	(In $ millions)
2019	43	42
2020	34	42
2021	25	40
2022	23	32
2023	21	23
Later years	130	88
Sublease income	—	—
Minimum lease commitments	276	267
Less amounts representing interest		(100	)
Present value of net minimum lease obligations		167