14. Leases

Under the new lease standard, a contract is a lease or contains one when (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. We assess whether an arrangement is a lease, or contains a lease, upon inception of the contract.

The company enters into operating leases for buildings, warehouses, office equipment, production equipment, aircraft, land and other types of equipment. When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease. Otherwise, the company uses its incremental borrowing rate based on the information available at lease commencement. The company’s finance and short-term leases are immaterial.

Many of the company’s leases include one or more renewal and/or termination options at the company’s discretion, which are included in the determination of the lease term if the company is reasonably certain to exercise the option. The company also enters into lease agreements that have variable payments, such as those related to usage or adjustments to certain indexes. Variable lease payments are recognized in the period in which those payments are incurred. Certain leases also include residual value guarantees; however, these amounts are not probable to be owed and are not included in the calculation of the lease liability.

The company subleases all or portions of certain building and warehouse leases to third parties, all of which are classified as operating leases. Some of these arrangements offer the lessee renewal options.

The components of lease expense were as follows:


	Three Months Ended
($ in millions)	March 31, 2019

Operating lease expense	$	(17)
Variable lease expense		(2)
Sublease income		1
Net lease expense	$	(18)

Supplemental cash flow information related to leases was as follows:


	Three Months Ended
($ in millions)	March 31, 2019

Cash paid for amounts included in the measurements of lease liabilities - Operating cash flows from operating leases	$	(16)
ROU assets obtained in exchange for operating lease obligations		10

Supplemental balance sheet information related to operating leases was as follows:


($ in millions)	Balance Sheet Location	March 31, 2019

Operating lease ROU asset	Other assets	$	236
Current operating lease liabilities	Other current liabilities		54
Noncurrent operating lease liabilities	Other liabilities		181

Weighted average remaining lease term and weighted average discount rate for the company’s operating leases were as follows:


	March 31, 2019

Weighted average remaining lease term in years	9.7
Weighted average discount rate	4.4	%

Maturities of lease liabilities are as follows:


($ in millions)	Operating Leases

2019 (excluding the three months ended March 31, 2019)	$	47
2020		51
2021		42
2022		36
2023		27
Thereafter		89
Future value of lease liabilities		292
Less: Imputed interest		(57)
Present value of lease liabilities	$	235

Total noncancellable operating leases in effect at December 31, 2018, as reported under previous lease accounting guidance, require rental payments of the following amounts in each of the following periods:


($ in millions)

2019	$	66
2020		52
2021		41
2022		34
2023		25
Thereafter		87
Total future lease payments	$	305