Leases

6 Months Ended

Jun. 30, 2019

Leases:

PMI determines that a contract contains a lease if the contract conveys a right to control the use of the identified asset for a period of time in exchange for consideration. PMI’s operating leases are principally for real estate (office space, warehouses and retail store space) and vehicles. Lease expense is recognized on a straight-line basis over the lease term. Lease terms range from 1 year to 75 years, some of which include options to renew, which are reasonably certain to be renewed. Lease terms may also include options to terminate the lease. At lease commencement PMI recognizes lease liabilities and the corresponding right-of-use assets (at the present value of future payments) for predominately all of its operating leases. The recognition of the right of use asset and lease liability includes renewal options when it is reasonably certain that they will be exercised. The exercise of a lease renewal or termination option is at PMI’s discretion. Certain of PMI’s leases include payments that are based on changes to an index or on actual usage. These lease payments are adjusted periodically and are included within variable lease costs. For information regarding PMI’s immaterial finance leases, see Note 11. Fair Value Measurements.

Beginning in 2019, PMI accounts for lease and nonlease components as a single lease component with the exception of its vehicle leases, of which PMI accounts for the lease components separately from the nonlease components. Additionally, leases with an initial term of 12 months or less are not included in the right of use asset or lease liability on the condensed consolidated statement of financial position.

PMI’s operating leases at June 30, 2019 were as follows:



(in millions)	June 30, 2019
Assets:
Other assets	$	710

Liabilities:
Current
Accrued liabilities - Other	$	184
Noncurrent
Income taxes and other liabilities	524
Total lease liabilities	$	708

The components of PMI’s lease cost were as follows for the six months and three months ended June 30, 2019:



(in millions)	For the Six Months Ended June 30, 2019		For the Three Months Ended June 30, 2019
Operating lease cost	$	119	$	59
Short-term lease cost	30		18
Variable lease cost	10		2
Total lease cost	$	159	$	79

For the six months ended June 30, 2019, lease cost of $38 million were recorded in cost of sales and $121 million were recorded in marketing, administration and research cost. For the three months ended June 30, 2019, lease costs of $19 million were recorded in cost of sales and $60 million were recorded in marketing, administration and research cost.

Maturity of PMI’s operating lease liabilities, on an undiscounted basis, as of June 30, 2019, were as follows (as calculated under the new guidance ASC 842 (Leases)):



(in millions)	Total
2019	$	117
2020	177
2021	132
2022	94
2023	69
Thereafter	319
Total lease payments	908
Less: Interest	200
Present value of lease liabilities	$	708

Minimum rental commitments under non-cancelable operating leases in effect at December 31, 2018, were as follows (as calculated under legacy guidance ASC 840 (Leases)):



(in millions)	Total
2019	$	147
2020	103
2021	73
2022	52
2023	43
Thereafter	354
	$	772

Other information related to PMI’s operating leases were as follows for the six months ended June 30, 2019:



(in millions)	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities in Operating cash flows	$	121
Leased assets obtained in exchange for new operating lease liabilities	$	98
Weighted-average remaining lease term (years)	10.3
Weighted-average discount rate⁽¹⁾	4.7		%

⁽¹⁾ PMI’s weighted-average discount rate is based on its estimated pre-tax cost of debt adjusted for country-specific risk.

For further details, see Note 21. New Accounting Standards.