LEASES

9 Months Ended

Jun. 30, 2020

We have operating leases for the premises we occupy in many of our U.S. and foreign locations, including our employee-based branch office operations. We also lease certain office and technology equipment. At inception, we determine if an arrangement to utilize a building or piece of equipment is a lease and, if so, the appropriate lease classification. If the arrangement is determined to be a lease, we recognize a ROU asset and a corresponding lease liability on our balance sheet. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected the practical expedient, where leases with an initial term of 12 months or less are not recorded as an ROU asset or lease liability. Our lease terms include any noncancelable periods and may reflect periods covered by options to extend or terminate when it is reasonably certain that we will exercise those options. As of June 30, 2020, the weighted-average remaining lease term for our operating leases was five years.

We record our operating lease ROU assets at the amount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. We record lease liabilities at commencement date based on the present value of lease payments over the lease term, which is discounted using our commencement date incremental borrowing rate. Our incremental borrowing rate considers the weighted-average yields on our senior notes payable, adjusted for collateralization and tenor. As of June 30, 2020, the

weighted-average discount rate for our operating leases was 3.84%. Payments that vary because of changes in facts or circumstances occurring after the commencement date are considered variable and are expensed in the period incurred. For our real estate leases, we elected the practical expedient to account for the lease and non-lease components as a single lease. We have not elected the practical expedient for our equipment leases and account for lease and non-lease components separately. As of June 30, 2020, ROU assets of $326 million and lease liabilities of $351 million were included as components of “Other assets” and “Other payables,” respectively, on our Condensed Consolidated Statements of Financial Condition.

Lease expense

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned.

The components of lease expense were as follows.


$ in million	Three months ended June 30, 2020		Nine months ended June 30, 2020
Operating lease costs	$	25	$	71
Variable lease costs	$	6	$	18

Variable lease costs in the preceding table includes payments for common area maintenance charges and other variable costs that are not reflected in the measurement of ROU assets and lease liabilities.

Finance leases and sublease income were immaterial for all periods presented. Short-term lease expenses for the three and nine months ended June 30, 2020 were immaterial.

Lease liabilities

Maturities of lease liabilities as of June 30, 2020 were as follows.


Maturity of lease liabilities for fiscal year ended September 30,	$ in millions
Remainder of 2020	$	18
2021	102
2022	79
2023	63
2024	46
After 2024	85
Total lease payments	393
Less: interest	42
Present value of lease liabilities	$	351

Operating lease payments in the preceding table exclude $188 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases are estimated to commence between fiscal year 2020 and 2021 with lease terms ranging from five years to 11 years.

Statement of cash flows supplemental information


$ in millions	Three months ended June 30, 2020		Nine months ended June 30, 2020
Cash outflows - lease liabilities	$	26	$	73
Non-cash - ROU assets recorded for new and modified leases	$	21	$	60

Minimum future lease commitments (under previous GAAP)

As of the date of adoption, our undiscounted minimum annual rental commitments under operating leases were materially unchanged from the disclosure in Note 17 of our 2019 Form 10-K, which is included in the following table.


Fiscal year ended September 30,	$ in millions
2020	$	103
2021	95
2022	79
2023	66
2024	49
Thereafter	127
Total	$	519