Leases

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Leases

Leases

We lease real estate, fleet, and equipment for use in our operations. Our leases generally have lease terms of 1 to 30 years, some of which include options to terminate or extend leases for up to 5 to 10 years or on a month-to-month basis. We include options that are reasonably certain to be exercised as part of the determination of lease terms. We may negotiate termination clauses in anticipation of any changes in market conditions, but generally these termination options have not been exercised. Residual value guarantees are generally not included within our operating leases with the exception of some fleet leases. In addition to base rent payments, the leases may require us to pay directly for taxes and other non-lease components, such as insurance, maintenance and other operating expenses, which may be dependent on usage or vary month-to-month. Variable lease payments amounted to $380 million in 2020 and $327 million in 2019. We elected the practical expedient in the new standard to not separate non-lease components from lease components in calculating the amounts of ROU assets and lease liabilities for all underlying asset classes.

We determine if an arrangement is a lease at inception of the contract and we perform the lease classification test as of the lease commencement date. 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. Operating lease ROU assets and liabilities are recognized at commencement date

based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

For operating leases, the ROU assets and liabilities in our consolidated balance sheets follows:
		As of December 31,
(MILLIONS OF DOLLARS)	Balance Sheet Classification	2020		2019
ROU assets	Other noncurrent assets	$	1,393	$	1,289
Lease liabilities (short-term)	Other current liabilities	321		269
Lease liabilities (long-term)	Other noncurrent liabilities	1,114		1,030

Components of total lease cost includes:
	Year Ended December 31,
(MILLIONS OF DOLLARS)	2020		2019
Operating lease cost	$	433	$	422
Variable lease cost	380		327
Sublease income	(40)		(45)
Total lease cost	$	773	$	704

Other supplemental information for 2020 follows:
	Weighted-Average Remaining Contractual Lease Term (Years)	Weighted-Average Discount Rate
(MILLIONS OF DOLLARS)	As of December 31, 2020			Year Ended December 31, 2020
Operating leases	6.9	2.9	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases				$	334
(Gains)/losses on sale and leaseback transactions, net				(3)
ROU assets obtained in exchange for new operating lease liabilities				413

Other supplemental information for 2019 follows:
	Weighted-Average Remaining Contractual Lease Term (Years)	Weighted-Average Discount Rate
(MILLIONS OF DOLLARS)	As of December 31, 2019			Year Ended December 31, 2019
Operating leases	6.9	3.5	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases				$	339
(Gains)/losses on sale and leaseback transactions, net				(29)
ROU assets obtained in exchange for new operating lease liabilities				318

The following reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in the consolidated balance sheet as of December 31, 2020:
(MILLIONS OF DOLLARS)
Period	Operating Lease Liabilities
Next one year(a)	$	357
1-2 years	299
2-3 years	250
3-4 years	167
4-5 years	137
Thereafter	408
Total undiscounted lease payments	1,618
Less: Imputed interest	183
Present value of minimum lease payments	1,435
Less: Current portion	321
Noncurrent portion	$	1,114

(a)Reflects lease payments due within 12 months subsequent to the balance sheet date.

In April 2018, we entered an agreement to lease space in an office building in New York City. We expect to take control of the property in 2021 and relocate our global headquarters to this new office building in 2022. Our future minimum rental commitment under this 20-year lease is approximately $1.6 billion.

Prior to our adoption of the new lease standard, rental expense, net of sublease income, was $301 million in 2018.