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LEASES AND COMMITMENTS

12 Months Ended

Dec. 31, 2022

The Company’s lease agreements primarily consist of real estate property, such as manufacturing facilities, warehouses, and office buildings, in addition to personal property, such as vehicles, manufacturing and information technology equipment. The Company determines whether a contract is or contains a lease at contract inception. The majority of the Company’s lease arrangements are comprised of fixed payments, and a limited number of these arrangements include a variable payment component based on certain index fluctuations. As of December 31, 2022, a significant portion of the Company’s leases were classified as operating leases.

Generally, the Company’s operating leases have renewal options that extend the lease terms, and some include options to terminate the agreement or purchase the leased asset. The amortizable life of these assets is the lesser of its useful life or the lease term, including renewal periods reasonably assured of being exercised at lease inception.

All leases with an initial term of 12 months or less without an option to extend or purchase the underlying asset that the Company is reasonably certain to exercise (“short-term leases”) are not recorded on the Consolidated Balance Sheet, and lease expense is recognized on a straight-line basis over the lease term.

The following table presents the lease assets and lease liabilities as of December 31, 2022 and 2021:


		December 31,
(in millions)		2022		2021
Assets	Balance Sheet Location
Operating leases	Other non-current assets	$	199	$	185
Finance leases	Property, plant and equipment, net	10		11
Total lease assets		$	209	$	196

Liabilities
Current
Operating leases	Other current liabilities	$	42	$	43
Finance leases	Notes payable and other short-term debt	3		2
Non-current
Operating leases	Other non-current liabilities	166		152
Finance leases	Long-term debt	9		11
Total lease liabilities		$	220	$	208

The following table presents lease obligations arising from obtaining leased assets for the years ended December 31, 2022 and 2021:


	December 31,
(in millions)	2022		2021
Operating leases	$	39	$	27
Finance leases	2		1
Total lease obligations	$	41	$	28

The following table presents the maturity of lease liabilities as of December 31, 2022:


(in millions)	Operating leases		Finance leases
2023	$	47	$	2
2024	40		2
2025	37		2
2026	32		2
2027	26		2
After 2027	44		3
Total (undiscounted) lease payments	$	226	$	13
Less: Imputed interest	18		1
Present value of lease liabilities	$	208	$	12

In the years ended December 31, 2022, 2021 and 2020, the Company recorded operating lease expense of $50 million, $57 million and $29 million, respectively.

In the years ended December 31, 2022, 2021 and 2020, the operating cash flows for operating leases were $50 million, $54 million and $29 million, respectively.

In the years ended December 31, 2022, 2021 and 2020, the Company recorded short-term lease costs of $25 million, $21 million and $21 million, respectively.

Finance lease costs and related cash flows were immaterial for the periods presented.

ASC Topic 842, “Leases”, requires that the rate implicit in the lease be used if readily determinable. Generally, implicit rates are not readily determinable in the Company’s agreements, so the incremental borrowing rate is used instead for such lease arrangements. The incremental borrowing rates are determined using rates specific to the term of the lease, economic environments where lease activity is concentrated, value of lease portfolio, and assuming full collateralization of the loans. The following table presents the terms and discount rates:


	December 31,
	2022		2021
Weighted average remaining lease term (years)
Operating leases	6		7
Finance leases	6		7
Weighted average discount rate
Operating leases	2.2	%	2.0	%
Finance leases	3.2	%	3.0	%

LEASES AND COMMITMENTS