Leases

12 Months Ended

Dec. 31, 2019

Leases

A. Lessee arrangements

We lease certain property, information technology equipment, warehouse equipment, vehicles and other equipment through operating leases. We recognize a lease liability and corresponding right-of-use asset based on the present value of lease payments. To determine the present value of lease payments for most of our leases, we use our incremental borrowing rate based on information available on the lease commencement date. For certain property and information technology equipment leases, we have elected to separate payments for lease components from non-lease components. For all other leases, we have elected not to separate payments for lease and non-lease components. Our lease agreements may include options to extend or terminate the lease. When it is reasonably certain that we will exercise that option, we have included the option in the recognition of right-of-use assets and lease liabilities. We have elected not to recognize right-of-use assets or lease liabilities for leases with a term of twelve months or less.

Our finance leases are not significant and therefore are not included in the following disclosures.

The components of lease costs were as follows:




(Millions of dollars)
	Year ended December 31
	2019
Operating lease cost	$	232
Short-term lease cost	$	57

Operating lease right-of-use assets are recognized in Other assets in Statement 3. The operating lease liabilities are recognized in Other current liabilities and Other liabilities.

Supplemental information related to leases was as follows:




(Millions of dollars)
	December 31, 2019			January 1, 2019
Operating Leases
Other assets	$	624		$	713
Other current liabilities	$	173		$	209
Other liabilities	$	461		$	511

Weighted average remaining lease term
Operating leases	7 years			7 years

Weighted average discount rates
Operating leases	2		%	2		%

Maturities of operating lease liabilities at December 31, 2019 and minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:




(Millions of dollars)	December 31, 2019
Amounts Due In
2020	$	185
2021	139
2022	86
2023	64
2024	46
Thereafter	175
Total lease payments	695
Less: Imputed interest	(61		)
Total	$	634


	December 31, 2018
Amounts Due In
2019	$	205
2020	154
2021	111
2022	67
2023	50
Thereafter	185
Total	$	772

Supplemental cash flow information related to leases was as follows:




(Millions of dollars)
	Year ended December 31
	2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	224
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	122

B. Lessor Disclosure

B. Lessor arrangements

We lease Caterpillar machinery, engines and other equipment to customers and dealers around the world, primarily through Cat Financial. Cat Financial leases to customers primarily through sales-type (non-tax) leases, where the lessee for tax purposes is considered to be the owner of the equipment during the term of the lease. Cat Financial also offers tax leases that are classified as either operating or direct finance leases for financial accounting purposes, depending on the characteristics of the lease. For tax purposes, Cat Financial is considered the owner of the equipment. Our lease agreements may include options for the lessee to purchase the underlying asset at the end of the lease term for either a stated fixed price or fair market value.

The residual value of Cat Financial’s leased equipment is determined based on its estimated end-of-term market value. We estimate the residual value of leased equipment at the inception of the lease based on a number of factors, including historical wholesale market sales prices, past remarketing experience and any known significant market/product trends. The following critical factors are also considered in our residual value estimates: lease term, market size and demand, total expected hours of usage, machine configuration, application, location, model changes, quantities, third-party residual guarantees and contractual customer purchase options.

During the term of our leases, we monitor residual values. For operating leases, adjustments to depreciation expense reflecting changes in residual value estimates are recorded prospectively on a straight-line basis. For finance leases, residual value adjustments are recognized through a reduction of finance revenue over the remaining lease term.

See Note 7 for contractual maturities of finance lease receivables (sales-type and direct finance leases).

The carrying amount of equipment leased to others, included in Property, plant and equipment - net in Statement 3, under operating leases was as follows:




	December 31,
(Millions of dollars)	2019			2018
Equipment leased to others - at original cost	$	6,208		$	6,015
Less: Accumulated depreciation	(1,960		)	(1,744		)
Equipment leased to others - net	$	4,248		$	4,271

Payments due for operating leases at December 31, 2019 and scheduled minimum rental payments for operating leases at December 31, 2018 were as follows:




(Millions of dollars)

December 31, 2019

2020	2021	2022	2023	2024	Thereafter	Total
$861	$558	$299	$149	$74	$70	$2,011

December 31, 2018

2019	2020	2021	2022	2023	Thereafter	Total
$896	$574	$314	$158	$71	$69	$2,082

Revenues from finance and operating leases, primarily included in Revenues of Financial Products on Statement 1, were as follows:




(Millions of dollars)
		Year ended December 31
	2019
Finance lease revenue		$	521
Operating lease revenue		1,248
Total		$	1,769

Revenues are presented net of sales and other related taxes.