Leases

6 Months Ended

Sep. 30, 2019

As described in Note 2 – “Recent Accounting Pronouncements,” effective April 1, 2019, we adopted ASC 842 using the optional transition method. In accordance with the optional transition method, we did not recast the prior period financial statements, and all prior period amounts and disclosures are presented under ASC 840.

The Company leases certain real and personal property under non-cancelable operating leases. Lease assets under finance leases is comprised primarily of computers and related equipment. Finance lease obligations primarily consist of contractual arrangements with HPE Financial Services.

Under ASC 842, an arrangement is determined to be a lease at inception if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At inception, we determine whether the contract is or contains a lease and, if so, whether the lease should be classified as an operating or a finance lease. The Company recognizes a ROU asset and a lease liability based on the present value of the future minimum lease payments over the lease term at the commencement date, adjusted for any lease incentives, initial direct costs, and potential impairment. At the commencement date, a single discount rate is applied to a group of leases with the same durations. The rate is updated quarterly for new leases that commence during the period, unless a triggering event occurs requiring more frequent reassessment. We define the initial lease term to include renewal options determined to be reasonably certain. Lease assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets.

Certain leases require us to pay property taxes, insurance and routine maintenance, which are included in variable lease expense. At September 30, 2019, the Company did not have any lease agreements with residual value guarantees or material restrictions or covenants. The Company's lessor arrangements with its customers are immaterial to the results of operations and cash flows.

The components of lease expense were as follows:



(in millions)	Statement of Operations Line Item(s)	Three Months Ended September 30, 2019			Six Months Ended September 30, 2019
Finance lease expense
Amortization of leased assets	Depreciation and amortization	$	29		$	65
Interest on lease obligations	Interest expense, net	5			10
Total finance lease expense		34			75
Operating lease expense	Cost of services and selling, general and administrative	16			30
Variable lease expense	Cost of services and selling, general and administrative	2			4
Sublease income	Cost of services and selling, general and administrative	(1		)	(2		)
Total lease expense, net		$	51		$	107

Supplemental balance sheet information related to leases was as follows:



(in millions)	Balance Sheet Line Item	September 30, 2019
Assets
Finance lease assets	Property and equipment, net of accumulated depreciation of $120	$	260
Operating lease assets	Other assets	92
Total lease assets		$	352
Liabilities
Current
Finance leases	Current finance lease obligations	$	119
Operating leases	Current operating lease obligations	40
Non-current
Finance leases	Non-current finance lease obligations	164
Operating leases	Other long-term liabilities	70
Total lease liabilities		$	393

Supplemental cash flow information related to leases was as follows:



(in millions)	Six Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease obligations:
Operating cash flows from operating leases	$	27
Operating cash flows from finance leases	9
Financing cash flows from finance leases	77

The Company includes both the amortization of operating lease assets and changes in the lease liabilities in changes in other assets and liabilities, net on the statement of cash flows.

The weighted average remaining lease terms and discount rates were as follows:



	September 30, 2019
Weighted average remaining lease term (in years):
Finance leases	2.8
Operating leases	4.2
Weighted average discount rate:
Finance leases	6.57	%
Operating leases	4.71	%

As of September 30, 2019, future minimum lease payments required to be made under leases were as follows:



Fiscal Year (in millions)	Operating Leases			Finance Leases
Remainder of fiscal year 2020	$	23		$	77
2021	35			107
2022	22			76
2023	17			37
2024	8			11
Thereafter	17			1
Total minimum lease payments	122			309
Less: Amount representing interest	(12		)	(26		)
Present value of net minimum lease payments	$	110		$	283

As of September 30, 2019, the Company has aggregate rent obligations of $42 million for operating leases and $5 million for finance leases, for leases that have not commenced, with terms ranging from one to 10 years.

Leases