Leases

3 Months Ended

Mar. 31, 2019

PPG leases certain retail paint stores, warehouses, distribution facilities, office space and equipment, including fleet vehicles. PPG determines if a contract is a lease at the inception of the arrangement. PPG reviews all options to extend, terminate, or purchase its right of use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised. Certain real estate leases contain lease and non-lease components, which are accounted for separately. For certain equipment leases, lease and non-lease components are accounted for as a single lease component.

Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The components of lease expense were as follows:



($ in millions)	Classification in the Condensed Consolidated Statement of Income	Three Months Ended March 31, 2019
Operating lease cost ^(a)	Cost of sales, exclusive of depreciation and amortization		$9
Operating lease cost ^(a)	Selling, general and administrative	48
Total operating lease cost			$57
Finance lease cost:
Amortization of right-of-use assets	Depreciation		$1
Interest on lease liabilities	Interest Expense	—
Total finance lease cost			$1
Total lease cost			$58


(a)	Includes variable lease costs of $4 million. Short-term lease costs were $1 million during the period.

Variable lease expense is based on contractual arrangements with PPG’s lessors determined based on external indices or other relevant market factors. In addition, PPG’s variable lease expense also includes elements of a contract that do not represent a good or service but for which the lessee is responsible for paying.



($ in millions)	Classification on the Condensed Consolidated Balance Sheet	March 31, 2019
Assets:
Operating	Other assets		$726
Finance ^(a)	Property, plant, and equipment	14
Total leased assets			$740
Liabilities:
Current
Operating	Current portion of operating lease liabilities		$168
Finance	Short-term debt and current portion of long-term debt	3
Noncurrent
Operating	Operating lease liabilities	566
Finance	Long-term debt	9
Total lease liabilities			$746


(a)	Net of accumulated depreciation of $15 million.



($ 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		$52
Operating cash flows from finance leases		$—
Financing cash flows from finance leases		$1
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		$34
Finance leases		$—



	As of March 31, 2019
Weighted-average remaining lease term (in years)
Operating leases	7.4
Finance leases	6.2
Weighted-average discount rate
Operating leases	3.2	%
Finance leases	9.5	%

Nearly all of PPG’s lease contracts do not provide a readily determinable implicit rate. For these contracts, PPG’s estimated incremental borrowing rate is based on information available at the inception of the lease.

As of March 31, 2019, maturities of lease liabilities were as follows:



($ in millions)	Operating Leases		Finance Leases
Remaining nine months of 2019		$142		$3
2020	155		3
2021	116		3
2022	89		2
2023	70		2
Thereafter	255		4
Total lease payments		$827		$17
Less: Interest	93		5
Total lease obligations		$734		$12

Disclosures related to periods prior to adoption of ASU 2016-02

The Company adopted ASU 2016-02 using a retrospective adoption method at January 1, 2019 as noted in Note 2. "New Accounting Standards." As required, the following disclosure is provided for periods prior to adoption. Minimum lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year are as follows:



($ in millions)	Operating Leases		Capital Leases
2019		$207		$3
2020	157		3
2021	116		1
2022	93		1
2023	76		1
Beyond 2023		$244		$3

Leases

The components of lease expense were as follows:



($ in millions)	Classification in the Condensed Consolidated Statement of Income	Three Months Ended March 31, 2019
Operating lease cost ^(a)	Cost of sales, exclusive of depreciation and amortization		$9
Operating lease cost ^(a)	Selling, general and administrative	48
Total operating lease cost			$57
Finance lease cost:
Amortization of right-of-use assets	Depreciation		$1
Interest on lease liabilities	Interest Expense	—
Total finance lease cost			$1
Total lease cost			$58


(a)	Includes variable lease costs of $4 million. Short-term lease costs were $1 million during the period.



($ in millions)	Classification on the Condensed Consolidated Balance Sheet	March 31, 2019
Assets:
Operating	Other assets		$726
Finance ^(a)	Property, plant, and equipment	14
Total leased assets			$740
Liabilities:
Current
Operating	Current portion of operating lease liabilities		$168
Finance	Short-term debt and current portion of long-term debt	3
Noncurrent
Operating	Operating lease liabilities	566
Finance	Long-term debt	9
Total lease liabilities			$746


(a)	Net of accumulated depreciation of $15 million.



($ 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		$52
Operating cash flows from finance leases		$—
Financing cash flows from finance leases		$1
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		$34
Finance leases		$—



	As of March 31, 2019
Weighted-average remaining lease term (in years)
Operating leases	7.4
Finance leases	6.2
Weighted-average discount rate
Operating leases	3.2	%
Finance leases	9.5	%

As of March 31, 2019, maturities of lease liabilities were as follows:



($ in millions)	Operating Leases		Finance Leases
Remaining nine months of 2019		$142		$3
2020	155		3
2021	116		3
2022	89		2
2023	70		2
Thereafter	255		4
Total lease payments		$827		$17
Less: Interest	93		5
Total lease obligations		$734		$12

Disclosures related to periods prior to adoption of ASU 2016-02



($ in millions)	Operating Leases		Capital Leases
2019		$207		$3
2020	157		3
2021	116		1
2022	93		1
2023	76		1
Beyond 2023		$244		$3