Leasing

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

LEASING

2. LEASING

As discussed in Note 1. Basis of Presentation and Summary of Significant Accounting Policies, we adopted the new leasing standard using the modified retrospective approach with an effective date of January 1, 2019. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below. We elected the package of transition provisions available for expired or existing contracts, which allowed us to carry forward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

Lessee We lease property, vehicles and equipment under operating and financing leases.  For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. Leases with a lease term 12 months or less at inception are not recorded on our Condensed Consolidated Balance Sheet and are expensed on a straight-line basis over the lease term in our Condensed Consolidated Statement of Operations. Our leases may include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. Our incremental borrowing rate is based on a credit-adjusted risk-free rate at commencement date, which best approximates a secured rate over a similar term of lease. Additionally, we do not separate lease and non-lease components for any asset classes, except for those leases embedded in certain service arrangements. Fixed and in-substance fixed payments are included in the recognition of the operating and financing assets and lease liabilities, however, variable lease payments, other than those based on a rate or index, are recognized in the Condensed Consolidated Statements of Operations in the period in which the obligation for those payments is incurred. The company’s variable lease payments generally relate to payments tied to various indexes, non-lease components and payments above a contractual minimum fixed payment.

The following table presents our lease balances as of March 31, 2019:

In millions	Location in the Condensed Consolidated Balance Sheet	March 31, 2019
Assets
Operating lease assets	Operating lease assets	$	433
Finance lease assets	Property, plant and equipment, net	2
Amortization of Finance lease assets	Property, plant and equipment, net	—
Total leased assets		$	435
Liabilities
Current
Operating lease liabilities	Other current liabilities	$	102
Finance lease liabilities	Other current liabilities	1
Noncurrent
Operating lease liabilities	Operating lease liabilities	406
Finance lease liabilities	Other liabilities	1
Total lease liabilities		$	510

The following table presents our lease costs for operating and finance leases for the three months ended March 31, 2019:

In millions	Three months ended March 31, 2019
Operating lease cost	$	35
Finance lease cost
Amortization of leased assets	—
Interest on lease liabilities	—
Short-Term lease cost	2
Variable lease cost	9
Total lease cost	$	46

The following table presents the supplemental cash flow information for the three months ended March 31, 2019:

In millions	Three months ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	32
Operating cash flows from finance leases	—
Financing cash flows from finance leases	—
Lease Assets Obtained in Exchange for Lease Obligations
Operating Leases	12
Finance Leases	$	1

The following table reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the condensed consolidated balance sheet as of March 31, 2019:

In millions	Operating Leases		Finance Leases
2019	$	102	$	1
2020	103		1
2021	79		—
2022	59		—
2023	44		—
Thereafter	310		—
Total lease payments	697		2
Less: Amount representing interest	189		—
Present value of lease liabilities	$	508	$	2

Prior to the adoption of the new lease accounting standard, future minimum lease payments under non-cancelable operating leases at December 31, 2018 were as follows: $128 million in 2019, $96 million in 2020, $80 million in 2021, $64 million in 2022, and $50 million in 2023.

As of March 31, 2019, we have additional operating leases, primarily for a real estate lease in Europe, that have not yet commenced of $70 million. This operating lease is expected to commence in 2021 with a lease term of 10 years.

The following table presents the weighted average remaining lease term and interest rate as of March 31, 2019:

	March 31, 2019
Weighted average lease term:
Operating leases	9.1 years
Finance leases	3.2 years
Weighted average interest rate:
Operating leases	6.40	%
Finance leases	5.51	%

Lessor We have various arrangements for certain point-of-sale equipment under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.

LEASING

2. LEASING

As discussed in Note 1. Basis of Presentation and Summary of Significant Accounting Policies, we adopted the new leasing standard using the modified retrospective approach with an effective date of January 1, 2019. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below. We elected the package of transition provisions available for expired or existing contracts, which allowed us to carry forward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

Lessee We lease property, vehicles and equipment under operating and financing leases.  For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. Leases with a lease term 12 months or less at inception are not recorded on our Condensed Consolidated Balance Sheet and are expensed on a straight-line basis over the lease term in our Condensed Consolidated Statement of Operations. Our leases may include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. Our incremental borrowing rate is based on a credit-adjusted risk-free rate at commencement date, which best approximates a secured rate over a similar term of lease. Additionally, we do not separate lease and non-lease components for any asset classes, except for those leases embedded in certain service arrangements. Fixed and in-substance fixed payments are included in the recognition of the operating and financing assets and lease liabilities, however, variable lease payments, other than those based on a rate or index, are recognized in the Condensed Consolidated Statements of Operations in the period in which the obligation for those payments is incurred. The company’s variable lease payments generally relate to payments tied to various indexes, non-lease components and payments above a contractual minimum fixed payment.

The following table presents our lease balances as of March 31, 2019:

In millions	Location in the Condensed Consolidated Balance Sheet	March 31, 2019
Assets
Operating lease assets	Operating lease assets	$	433
Finance lease assets	Property, plant and equipment, net	2
Amortization of Finance lease assets	Property, plant and equipment, net	—
Total leased assets		$	435
Liabilities
Current
Operating lease liabilities	Other current liabilities	$	102
Finance lease liabilities	Other current liabilities	1
Noncurrent
Operating lease liabilities	Operating lease liabilities	406
Finance lease liabilities	Other liabilities	1
Total lease liabilities		$	510

The following table presents our lease costs for operating and finance leases for the three months ended March 31, 2019:

In millions	Three months ended March 31, 2019
Operating lease cost	$	35
Finance lease cost
Amortization of leased assets	—
Interest on lease liabilities	—
Short-Term lease cost	2
Variable lease cost	9
Total lease cost	$	46

The following table presents the supplemental cash flow information for the three months ended March 31, 2019:

In millions	Three months ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	32
Operating cash flows from finance leases	—
Financing cash flows from finance leases	—
Lease Assets Obtained in Exchange for Lease Obligations
Operating Leases	12
Finance Leases	$	1

The following table reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the condensed consolidated balance sheet as of March 31, 2019:

In millions	Operating Leases		Finance Leases
2019	$	102	$	1
2020	103		1
2021	79		—
2022	59		—
2023	44		—
Thereafter	310		—
Total lease payments	697		2
Less: Amount representing interest	189		—
Present value of lease liabilities	$	508	$	2

Prior to the adoption of the new lease accounting standard, future minimum lease payments under non-cancelable operating leases at December 31, 2018 were as follows: $128 million in 2019, $96 million in 2020, $80 million in 2021, $64 million in 2022, and $50 million in 2023.

As of March 31, 2019, we have additional operating leases, primarily for a real estate lease in Europe, that have not yet commenced of $70 million. This operating lease is expected to commence in 2021 with a lease term of 10 years.

The following table presents the weighted average remaining lease term and interest rate as of March 31, 2019:

	March 31, 2019
Weighted average lease term:
Operating leases	9.1 years
Finance leases	3.2 years
Weighted average interest rate:
Operating leases	6.40	%
Finance leases	5.51	%

Lessor We have various arrangements for certain point-of-sale equipment under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.