Leases (Notes)

9 Months Ended

Sep. 30, 2019

We lease certain facilities, land, vehicles, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet (including short-term sale leaseback transactions); we recognize lease expense for these leases on a straight-line basis over the lease term.

Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. We determine if an arrangement is classified as a lease at inception of the arrangement. As most of our leases do not provide an implicit rate of return, we use our incremental borrowing rate, together with the lease term information available at commencement date of the lease, in determining the present value of lease payments, which is updated on a quarterly basis. For adoption of Topic 842 we used the December 31, 2018 incremental borrowing rate, for operating leases that commenced prior to December 31, 2018. We have data center lease agreements with lease and non-lease components which are accounted for separately, while for the remainder of our agreements we have elected the practical expedient to account for lease and non-lease components as a single lease component. For certain equipment leases, such as copiers and vehicles, we account for the leases under a portfolio method. Operating lease payments include related options to extend or terminate lease terms that are reasonably certain of being exercised.

The unmanned equipment that we lease to customers as operating leases consists primarily of drilling rental tools and artificial lift pumping equipment. These equipment rental revenues are generally provided based on call-out work orders that include fixed per unit prices and are derived from short-term contracts. See “Note 18 – Revenues” for additional details on our equipment rental revenues.

Finance leases are recorded net of $48 million in accumulated amortization as of September 30, 2019.



(Dollars in millions)	Classification	September 30, 2019
Balance Sheet Components:
Assets
Operating	Other Non-Current Assets	$	262
Finance	Property Plant and Equipment, Net	54
Total leased assets		$	316

Liabilities
Current
Operating	Other Current Liabilities	$	90
Finance	Short-term Borrowings and Current Portion of Long-term Debt	9

Non-Current
Operating	Other Non-Current Liabilities	195
Finance	Long-term Debt	59
Total lease liabilities		$	353



(Dollars in millions)	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Lease Expense Components:
Operating lease expense	$	29		$	88
Short-term and variable lease expense	26			74
Finance lease expense: Amortization of ROU assets and interest on lease liabilities	3			9
Sublease income	(2		)	(5		)
Total lease expense	$	56		$	166



	Operating		Finance
(Dollars in millions)	Leases		Leases
Maturity of Lease Liabilities as of September 30, 2019:
2019	$	47	$	3
2020	94		13
2021	74		11
2022	49		11
2023	27		11
After 2023	166		34
Total Lease Payments	457		83
Less: Interest	172		15
Present Value of Lease Liabilities	$	285	$	68



(Dollars in millions except years and percentages)	Nine Months Ended September 30, 2019
Other Supplemental Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	88
Operating cash outflows from finance leases	$	3
Financing cash outflows from finance leases	$	6

ROU assets obtained in exchange of new operating lease liabilities	$	45
ROU assets obtained in exchange of new finance lease liabilities	$	3
Loss on sale leaseback transactions (short-term)^(a)	$	34

Weighted-average remaining lease term (years)
Operating leases	6.9
Finance leases	7.3

Weighted-average discount rate (percentages)
Operating leases	13.5		%
Finance leases	5.7		%

(a) Included in “Asset Write-Downs and Other” of our Condensed Consolidated Statements of Operations and “Other Net Income Adjustments” of our Condensed Consolidated Statements of Cash Flows.

Leases

Finance leases are recorded net of $48 million in accumulated amortization as of September 30, 2019.



(Dollars in millions)	Classification	September 30, 2019
Balance Sheet Components:
Assets
Operating	Other Non-Current Assets	$	262
Finance	Property Plant and Equipment, Net	54
Total leased assets		$	316

Liabilities
Current
Operating	Other Current Liabilities	$	90
Finance	Short-term Borrowings and Current Portion of Long-term Debt	9

Non-Current
Operating	Other Non-Current Liabilities	195
Finance	Long-term Debt	59
Total lease liabilities		$	353



(Dollars in millions)	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Lease Expense Components:
Operating lease expense	$	29		$	88
Short-term and variable lease expense	26			74
Finance lease expense: Amortization of ROU assets and interest on lease liabilities	3			9
Sublease income	(2		)	(5		)
Total lease expense	$	56		$	166



	Operating		Finance
(Dollars in millions)	Leases		Leases
Maturity of Lease Liabilities as of September 30, 2019:
2019	$	47	$	3
2020	94		13
2021	74		11
2022	49		11
2023	27		11
After 2023	166		34
Total Lease Payments	457		83
Less: Interest	172		15
Present Value of Lease Liabilities	$	285	$	68



(Dollars in millions except years and percentages)	Nine Months Ended September 30, 2019
Other Supplemental Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	88
Operating cash outflows from finance leases	$	3
Financing cash outflows from finance leases	$	6

ROU assets obtained in exchange of new operating lease liabilities	$	45
ROU assets obtained in exchange of new finance lease liabilities	$	3
Loss on sale leaseback transactions (short-term)^(a)	$	34

Weighted-average remaining lease term (years)
Operating leases	6.9
Finance leases	7.3

Weighted-average discount rate (percentages)
Operating leases	13.5		%
Finance leases	5.7		%

(a) Included in “Asset Write-Downs and Other” of our Condensed Consolidated Statements of Operations and “Other Net Income Adjustments” of our Condensed Consolidated Statements of Cash Flows.