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Lease Commitments | 9 Months Ended
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Sep. 30, 2019
Leases [Abstract] |
Lease Commitments | Lease Commitments The Company leases office facilities, equipment, and automobiles under non-cancelable operating and finance leases. The Company’s lease obligations are primarily for the use of office space. The Company evaluates if a leasing arrangement exists upon inception of a contract. A contract contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Identified property, plant, or equipment may include a physically distinct portion of a larger asset, or a portion of an asset that represents substantially all of the capacity of the asset but is not physically distinct. The Company assesses whether a contract implicitly contains the right to control the use of a tangible asset that is not already owned. In addition, the Company subleases certain real estate properties to third parties, which consist of operating leases. The Company’s leases expire at various dates and may contain renewal and expansion options. The exercise of lease renewal and expansion options are at the Company’s sole discretion and are only included in the determination of the lease term if the Company is reasonably certain to exercise the option. The Company’s leases do not typically contain termination options. In addition, the Company’s lease agreements typically do not contain any material residual value guarantees or restrictive covenants. ROU assets and lease liabilities are based on the present value of the minimum lease payments over the lease term. As stated in Note 2 “Accounting Principles and Practices”, the Company has elected the practical expedient related to lease and non-lease components, as an accounting policy election for all asset classes, which allows a lessee to not separate non-lease from lease components and instead account for consideration received in a contract as a single lease component. A portion of the Company’s lease agreements include variable lease payments that are not recorded in the initial measurement of the lease liability and ROU asset balances. For real estate arrangements, base rental payments may be escalated according to annual changes in the Consumer Price Index (“CPI”) or other indices. The escalated rental payments based on the estimated CPI at the lease commencement date are included within minimum rental payments; however, changes in CPI are considered variable in nature and are recognized as variable lease costs in the period in which the obligation is incurred. Additionally, real estate lease agreements may include other variable payments related to operating expenses charged by the landlord based on actual expenditures. Information technology equipment agreements may include variable payments based on usage of the equipment. The Company utilizes discount rates to determine the present value of the lease payments based on information available at the commencement date of the lease. The Company uses an incremental borrowing rate based on factors such as the lease term and the economic environment where the lease exists to determine the appropriate present value of future lease payments as the rate implicit in the lease is not always readily available. When determining the incremental borrowing rate, the Company considers the rate of interest it would pay on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms. Operating leases are included in Operating lease right-of-use assets, Other current liabilities, and Non-current operating lease liabilities on the Condensed Consolidated Statements of Financial Position. Finance leases are included in Other non-current assets, Other current liabilities, and Other non-current liabilities on the Condensed Consolidated Statements of Financial Position. The classification of operating and finance lease asset and liability balances within the Condensed Consolidated Statements of Financial Position is as follows (in millions):
As of |  | September 30, 2019
Assets |  |
Operating lease assets | Operating lease right-of-use assets | $ | 913 |
Finance lease assets | Other non-current assets | 106 |
Total lease assets |  | $ | 1,019 |
Liabilities |  |
Current lease liabilities |  |
Operating | Other current liabilities | $ | 194 |
Finance | Other current liabilities | 24 |
Non-current lease liabilities |  |
Operating | Non-current operating lease liabilities | 922 |
Finance | Other non-current liabilities | 82 |
Total lease liabilities |  | $ | 1,222 |
The components of lease costs are as follows (in millions):
| Three Months Ended September 30, 2019 |  | Nine Months Ended September 30, 2019
Operating lease cost | $ | 43 |  |  | $ | 176 |
Finance lease costs |  |  |
Amortization of leased assets | 7 |  |  | 20 |
Interest on lease liabilities | — |  |  | 1 |
Variable lease cost | 31 |  |  | 49 |
Short-term lease cost (1) | 1 |  |  | 3 |
Sublease income | (8 | ) |  | (24 | )
Net lease cost | $ | 74 |  |  | $ | 225 |
(1) Short-term lease cost does not include expenses related to leases with a lease term of one month or less. Weighted average remaining lease term and discount rate related to operating and finance leases are as follows:
As of | September 30, 2019
Weighted average remaining lease term (years) |
Operating leases | 8.0 |
Finance leases | 4.6 |
Weighted average discount rate |
Operating leases | 3.3 | %
Finance leases | 2.0 | %
Other cash and non-cash related activities are as follows (in millions):
| Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities |
Operating cash flows for operating leases | $ | 182 |
Financing cash flows from finance leases | $ | 11 |
Non-cash related activities |
ROU assets obtained in exchange for new operating lease liabilities | $ | 95 |
ROU assets obtained in exchange for new finance lease liabilities | $ | 48 |
The Company has recorded non-cash changes in Operating lease ROU assets and Non-current operating lease liabilities through Other assets and liabilities in Cash flows from operations within the Condensed Consolidated Statements of Cash Flows. Non-cash operating ROU asset lease expense was $87 million and the change in Non-current operating lease liabilities was a decrease of $92 million for the nine months ended September 30, 2019. Maturity analysis of operating and finance leases as of September 30, 2019 are as follows (in millions):
| Operating |  | Finance |  | Less: |  |
| Leases |  | Leases |  | Subleases |  | Total
Remainder of 2019 | $ | 61 |  |  | $ | 7 |  |  | $ | (9 | ) |  | $ | 59 |
2020 | 246 |  |  | 26 |  |  | (34 | ) |  | 238 |
2021 | 225 |  |  | 26 |  |  | (33 | ) |  | 218 |
2022 | 199 |  |  | 19 |  |  | (33 | ) |  | 185 |
2023 | 144 |  |  | 18 |  |  | (14 | ) |  | 148 |
Thereafter | 513 |  |  | 15 |  |  | (6 | ) |  | 522 |
Total undiscounted future minimum lease payments | 1,388 |  |  | 111 |  |  | (129 | ) |  | 1,370 |
Less: Imputed interest | (143 | ) |  | (5 | ) |  | — |  |  | (148 | )
Present value of lease liabilities | $ | 1,245 |  |  | $ | 106 |  |  | $ | (129 | ) |  | $ | 1,222 |
At December 31, 2018, future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows (in millions):
Year Ended December 31, 2018 | Gross rental commitments |  | Rentals from subleases |  | Net rental commitments
2019 | $ | 303 |  |  | $ | (34 | ) |  | $ | 269 |
2020 | 253 |  |  | (30 | ) |  | 223 |
2021 | 221 |  |  | (30 | ) |  | 191 |
2022 | 182 |  |  | (30 | ) |  | 152 |
2023 | 148 |  |  | (12 | ) |  | 136 |
Thereafter | 472 |  |  | (5 | ) |  | 467 |
Total minimum payments required | $ | 1,579 |  |  | $ | (141 | ) |  | $ | 1,438 |
Lease Commitments | Lease Commitments The Company leases office facilities, equipment, and automobiles under non-cancelable operating and finance leases. The Company’s lease obligations are primarily for the use of office space. The Company evaluates if a leasing arrangement exists upon inception of a contract. A contract contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Identified property, plant, or equipment may include a physically distinct portion of a larger asset, or a portion of an asset that represents substantially all of the capacity of the asset but is not physically distinct. The Company assesses whether a contract implicitly contains the right to control the use of a tangible asset that is not already owned. In addition, the Company subleases certain real estate properties to third parties, which consist of operating leases. The Company’s leases expire at various dates and may contain renewal and expansion options. The exercise of lease renewal and expansion options are at the Company’s sole discretion and are only included in the determination of the lease term if the Company is reasonably certain to exercise the option. The Company’s leases do not typically contain termination options. In addition, the Company’s lease agreements typically do not contain any material residual value guarantees or restrictive covenants. ROU assets and lease liabilities are based on the present value of the minimum lease payments over the lease term. As stated in Note 2 “Accounting Principles and Practices”, the Company has elected the practical expedient related to lease and non-lease components, as an accounting policy election for all asset classes, which allows a lessee to not separate non-lease from lease components and instead account for consideration received in a contract as a single lease component. A portion of the Company’s lease agreements include variable lease payments that are not recorded in the initial measurement of the lease liability and ROU asset balances. For real estate arrangements, base rental payments may be escalated according to annual changes in the Consumer Price Index (“CPI”) or other indices. The escalated rental payments based on the estimated CPI at the lease commencement date are included within minimum rental payments; however, changes in CPI are considered variable in nature and are recognized as variable lease costs in the period in which the obligation is incurred. Additionally, real estate lease agreements may include other variable payments related to operating expenses charged by the landlord based on actual expenditures. Information technology equipment agreements may include variable payments based on usage of the equipment. The Company utilizes discount rates to determine the present value of the lease payments based on information available at the commencement date of the lease. The Company uses an incremental borrowing rate based on factors such as the lease term and the economic environment where the lease exists to determine the appropriate present value of future lease payments as the rate implicit in the lease is not always readily available. When determining the incremental borrowing rate, the Company considers the rate of interest it would pay on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms. Operating leases are included in Operating lease right-of-use assets, Other current liabilities, and Non-current operating lease liabilities on the Condensed Consolidated Statements of Financial Position. Finance leases are included in Other non-current assets, Other current liabilities, and Other non-current liabilities on the Condensed Consolidated Statements of Financial Position. The classification of operating and finance lease asset and liability balances within the Condensed Consolidated Statements of Financial Position is as follows (in millions):
As of |  | September 30, 2019
Assets |  |
Operating lease assets | Operating lease right-of-use assets | $ | 913 |
Finance lease assets | Other non-current assets | 106 |
Total lease assets |  | $ | 1,019 |
Liabilities |  |
Current lease liabilities |  |
Operating | Other current liabilities | $ | 194 |
Finance | Other current liabilities | 24 |
Non-current lease liabilities |  |
Operating | Non-current operating lease liabilities | 922 |
Finance | Other non-current liabilities | 82 |
Total lease liabilities |  | $ | 1,222 |
The components of lease costs are as follows (in millions):
| Three Months Ended September 30, 2019 |  | Nine Months Ended September 30, 2019
Operating lease cost | $ | 43 |  |  | $ | 176 |
Finance lease costs |  |  |
Amortization of leased assets | 7 |  |  | 20 |
Interest on lease liabilities | — |  |  | 1 |
Variable lease cost | 31 |  |  | 49 |
Short-term lease cost (1) | 1 |  |  | 3 |
Sublease income | (8 | ) |  | (24 | )
Net lease cost | $ | 74 |  |  | $ | 225 |
(1) Short-term lease cost does not include expenses related to leases with a lease term of one month or less. Weighted average remaining lease term and discount rate related to operating and finance leases are as follows:
As of | September 30, 2019
Weighted average remaining lease term (years) |
Operating leases | 8.0 |
Finance leases | 4.6 |
Weighted average discount rate |
Operating leases | 3.3 | %
Finance leases | 2.0 | %
Other cash and non-cash related activities are as follows (in millions):
| Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities |
Operating cash flows for operating leases | $ | 182 |
Financing cash flows from finance leases | $ | 11 |
Non-cash related activities |
ROU assets obtained in exchange for new operating lease liabilities | $ | 95 |
ROU assets obtained in exchange for new finance lease liabilities | $ | 48 |
The Company has recorded non-cash changes in Operating lease ROU assets and Non-current operating lease liabilities through Other assets and liabilities in Cash flows from operations within the Condensed Consolidated Statements of Cash Flows. Non-cash operating ROU asset lease expense was $87 million and the change in Non-current operating lease liabilities was a decrease of $92 million for the nine months ended September 30, 2019. Maturity analysis of operating and finance leases as of September 30, 2019 are as follows (in millions):
| Operating |  | Finance |  | Less: |  |
| Leases |  | Leases |  | Subleases |  | Total
Remainder of 2019 | $ | 61 |  |  | $ | 7 |  |  | $ | (9 | ) |  | $ | 59 |
2020 | 246 |  |  | 26 |  |  | (34 | ) |  | 238 |
2021 | 225 |  |  | 26 |  |  | (33 | ) |  | 218 |
2022 | 199 |  |  | 19 |  |  | (33 | ) |  | 185 |
2023 | 144 |  |  | 18 |  |  | (14 | ) |  | 148 |
Thereafter | 513 |  |  | 15 |  |  | (6 | ) |  | 522 |
Total undiscounted future minimum lease payments | 1,388 |  |  | 111 |  |  | (129 | ) |  | 1,370 |
Less: Imputed interest | (143 | ) |  | (5 | ) |  | — |  |  | (148 | )
Present value of lease liabilities | $ | 1,245 |  |  | $ | 106 |  |  | $ | (129 | ) |  | $ | 1,222 |
At December 31, 2018, future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows (in millions):
Year Ended December 31, 2018 | Gross rental commitments |  | Rentals from subleases |  | Net rental commitments
2019 | $ | 303 |  |  | $ | (34 | ) |  | $ | 269 |
2020 | 253 |  |  | (30 | ) |  | 223 |
2021 | 221 |  |  | (30 | ) |  | 191 |
2022 | 182 |  |  | (30 | ) |  | 152 |
2023 | 148 |  |  | (12 | ) |  | 136 |
Thereafter | 472 |  |  | (5 | ) |  | 467 |
Total minimum payments required | $ | 1,579 |  |  | $ | (141 | ) |  | $ | 1,438 |

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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