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Leases

12 Months Ended

Dec. 31, 2019

As discussed in Note 2, “Recently Issued Accounting Pronouncements,” Xylem adopted the new guidance on accounting for leases.

Leasing Arrangements

We lease certain offices, manufacturing buildings, transportation equipment, machinery, computers and other equipment. Our most significant lease liabilities relate to real estate leases. These leases include renewal, termination or purchase options, and we have assessed these to determine whether it is reasonably certain for us to exercise any of the previously mentioned options. All periods relating to options that are reasonably certain to be exercised have been included in the lease term of the respective leases.

We did not identify any events or conditions during the twelve month period ended December 31, 2019 to indicate that a reassessment or re-measurement of our existing leases was required. There also were no impairment indicators identified during the twelve month period ended December 31, 2019 that required an impairment test for the Company’s ROU assets.

Our current lease liabilities of $61 million are included in "Accrued and other current liabilities" and our non-current lease liabilities of $185 million are included in "Other non-current accrued liabilities" as of December 31, 2019. Our ROU asset balances are included in "Other non-current assets". The net balance of our ROU assets as of December 31, 2019 was $241 million. These balances include an immaterial amount related to finance leases.

The components of our lease cost were as follows:



	Year Ended
(in millions)	December 31, 2019
Lease cost
Operating lease cost	$	76
Short-term lease cost	9
Variable lease cost	19
Total lease cost	$	104

The supplemental cash flow information related to leases are as follows:



	Year Ended
(in millions)	December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	73

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	33

Information relating to the lease term and discount rate are as follows:



	Year Ended
	December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	6 Years

Weighted-average discount rate
Operating leases	2.7%

As of December 31, 2019, the maturities of operating lease liabilities were as follows:



(in millions)
2020	$	65
2021	50
2022	37
2023	29
2024	21
Thereafter	62
Total lease payments	264
Less: Imputed interest	(21		)
Total	$	243

Disclosures related to periods prior to adoption of the New Lease Standard as reported and provided in our 2018 Annual Report.

We lease certain offices, manufacturing buildings, machinery, computers and other equipment. We often pay maintenance, insurance and tax expense related to leased assets. Total rent expense for the two years ended December 31, 2018 was as follows:



(in millions)	Total
2018	81
2017	70

As of December 31, 2018, we were obligated to make minimum future rental payments under operating leases as follows:



(in millions)
2019	$	76
2020	61
2021	43
2022	33
2023	22
Thereafter	64
Total lease payments	299

Lessor arrangements

In addition to manufacturing and selling equipment, we also lease out equipment to customers in exchange for consideration. These arrangements are generally short term in nature and predominantly involve the rental of pumps and accessories within the Water Infrastructure segment. Rental arrangements generally do not provide the customer the right to purchase the equipment as Xylem’s strategy is to rent these items over their useful lives. Customers may be billed based on daily, weekly or monthly rates depending on the expected rental period. We assessed that these arrangements constitute a lease under ASC 842, and have recognized them as operating leases. In situations where arrangements contain both the sale of products and a leasing component, contract consideration is allocated based on relative standalone selling price.

Total revenue from lease arrangements was $247 million for the twelve month period ended December 31, 2019. Our gross assets available for rent and related accumulated amortization were $256 million and $166 million, respectively, as of December 31, 2019. Depreciation expense for these assets were $28 million for the twelve month period ended December 31, 2019.

Leases