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LEASES | 9 Months Ended
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Sep. 30, 2022
Leases [Abstract] |
LEASES | LEASES We have finance and operating leases for real estate, aircraft and engines, information technology equipment (primarily mainframes, servers and copiers), vehicles and various other equipment used in operating our business. Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease. We recognize a right-of-use ("ROU") asset and lease obligation for all leases greater than twelve months. Some of our leases contain both lease and non-lease components, which we have elected to treat as a single lease component. We have also elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase options, of twelve months or less in our consolidated balance sheets for all classes of underlying assets. Lease costs for short-term leases are recognized on a straight-line basis over the lease term. Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease obligation for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and whether the optional period and payments should be included in the calculation of the associated ROU asset and lease obligation. In making this determination, we consider all relevant economic factors that would compel us to exercise or not exercise an option. When our leases contain future payments that are dependent on an index or rate, such as the consumer price index, we initially measure the lease obligation and ROU asset using the index or rate at the commencement date. In subsequent periods, lease payments dependent on an index or rate are not remeasured. Rather, changes to payments due to a change in an index or rate are recognized in our statements of consolidated income in the period of the change. When available, we use the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of our leases. For these leases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement. The incremental borrowing rate is derived using multiple inputs including our credit rating, the impact of full collateralization, lease term and denominated currency. Our remaining lease terms vary from 1 month to 138 years. Aircraft In addition to the aircraft that we own, we have leases for 310 aircraft. Of these leased aircraft, 17 are classified as finance leases, 18 are classified as operating leases and the remaining 275 are classified as short-term leases. A majority of the obligations associated with the aircraft classified as finance leases have been legally defeased. A majority of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline. In order to meet customers' needs, we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes. Due to the nature of these agreements, primarily being that either party can cancel the agreement with short notice, we have classified these as short-term leases. Additionally, the lease payments associated with these charter agreements are variable in nature based on the number of hours flown. Real Estate We have operating and finance leases for package centers, airport facilities, warehouses, office space and expansion facilities utilized during peak shipping periods. Many of our leases contain charges for common area maintenance or other expenses that are updated based on landlord estimates. Due to this variability, the cash flows associated with these charges are not included in the minimum lease payments used in determining the ROU asset and associated lease obligation. Some of our real estate leases contain options to renew or extend the lease or terminate the lease before the expiration date. These options are factored into the determination of the lease term and lease payments when their exercise is considered to be reasonably certain. We also enter into real estate leases that contain lease incentives, such as tenant improvement allowances or move-in allowances, that are received or receivable at lease commencement. These incentives reduce lease payments for classification purposes and reduce the initial ROU asset. When lease incentives are receivable at lease commencement, these also reduce the initial lease obligation. From time to time, we enter into leases with the intention of purchasing the underlying property, either through purchase options with a fixed price or a purchase agreement negotiated contemporaneously with the lease agreement. We classify these leases as finance leases and include the purchase date and purchase price in the determination of the lease term and lease payments, respectively, when the option to exercise or purchase is reasonably certain. Transportation equipment and other equipment We enter into both long-term and short-term leases for transportation equipment to supplement our capacity or meet contractual demands. Some of these assets are leased on a month-to-month basis and the leases can be terminated without penalty. The lease term for these types of leases is determined by the length of the underlying customer contract or based on the judgment of the business unit. We also enter into multi-year leases for trailers to increase capacity during periods of high demand, which are typically only used for 90-120 days during the year. These leases are treated as short-term as the cumulative right of use is less than 12 months over the term of the contract. The remainder of our leases are primarily related to equipment used in our air operations, vehicles required to meet capacity needs during periods of higher demand for our shipping services, technology equipment and office equipment used in our facilities. Some of our transportation and technology equipment leases require us to make additional lease payments based on the underlying usage of the assets. Due to the variable nature of these costs, these are expensed as incurred and are not included in the ROU asset and associated lease obligation. The components of lease expense for the three and nine months ended September 30, 2022 and 2021 are as follows (in millions):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Operating lease costs | $ | 179 |  |  | $ | 183 |  |  | $ | 546 |  |  | $ | 537 |
Finance lease costs: |  |  |  |  |  |  |
Amortization of assets | 28 |  |  | 24 |  |  | 84 |  |  | 70 |
Interest on lease liabilities | 3 |  |  | 4 |  |  | 10 |  |  | 11 |
Total finance lease costs | 31 |  |  | 28 |  |  | 94 |  |  | 81 |
Variable lease costs | 62 |  |  | 51 |  |  | 194 |  |  | 178 |
Short-term lease costs | 319 |  |  | 305 |  |  | 944 |  |  | 835 |
Total lease costs | $ | 591 |  |  | $ | 567 |  |  | $ | 1,778 |  |  | $ | 1,631 |
In addition to the lease costs disclosed in the table above, we monitor all lease categories for any indicators that the carrying value of the assets may not be recoverable. There were no material impairments recognized during the three or nine months ended September 30, 2022 or 2021. Supplemental information related to leases and location within our consolidated balance sheets is as follows (in millions, except lease term and discount rate):
| September 30, 2022 |  | December 31, 2021
Operating Leases: |  |  |
Operating lease right-of-use assets | $ | 3,417 |  |  | $ | 3,562 |
Current maturities of operating leases | $ | 560 |  |  | $ | 580 |
Non-current operating leases | 2,960 |  |  | 3,033 |
Total operating lease obligations | $ | 3,520 |  |  | $ | 3,613 |
Finance Leases: |  |  |
Property, plant and equipment, net | $ | 947 |  |  | $ | 1,125 |
Current maturities of long-term debt, commercial paper and finance leases | $ | 79 |  |  | $ | 129 |
Long-term debt and finance leases | 300 |  |  | 279 |
Total finance lease obligations | $ | 379 |  |  | $ | 408 |
Weighted average remaining lease term (in years): |  |  |
Operating leases | 11.0 |  | 11.7
Finance leases | 8.8 |  | 8.0
Weighted average discount rate: |  |  |
Operating leases | 2.21 | % |  | 1.94 | %
Finance leases | 3.03 | % |  | 2.79 | %
Supplemental cash flow information related to leases is as follows (in millions):
| Nine Months Ended September 30,
| 2022 |  | 2021
Cash paid for amounts included in measurement of obligations: |  |  |
Operating cash flows from operating leases | $ | 523 |  |  | $ | 538 |
Operating cash flows from finance leases | 3 |  |  | 8 |
Financing cash flows from finance leases | 123 |  |  | 48 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |
Operating leases | $ | 588 |  |  | $ | 953 |
Finance leases | 98 |  |  | 252 |
Maturities of lease obligations as of September 30, 2022 are as follows (in millions):
| Finance Leases |  | Operating Leases
2022 | $ | 31 |  |  | $ | 136 |
2023 | 83 |  |  | 644 |
2024 | 56 |  |  | 544 |
2025 | 42 |  |  | 484 |
2026 | 35 |  |  | 437 |
Thereafter | 212 |  |  | 1,800 |
Total lease payments | 459 |  |  | 4,045 |
Less: Imputed interest | (80) |  |  | (525) |
Total lease obligations | 379 |  |  | 3,520 |
Less: Current obligations | (79) |  |  | (560) |
Long-term lease obligations | $ | 300 |  |  | $ | 2,960 |
As of September 30, 2022, we had $1.2 billion of additional leases which had not commenced. These leases will commence between 2022 and 2024 when we are granted access to the property, such as when leasehold improvements are completed by the lessor or a certificate of occupancy is obtained.
LEASES | LEASES We have finance and operating leases for real estate, aircraft and engines, information technology equipment (primarily mainframes, servers and copiers), vehicles and various other equipment used in operating our business. Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease. We recognize a right-of-use ("ROU") asset and lease obligation for all leases greater than twelve months. Some of our leases contain both lease and non-lease components, which we have elected to treat as a single lease component. We have also elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase options, of twelve months or less in our consolidated balance sheets for all classes of underlying assets. Lease costs for short-term leases are recognized on a straight-line basis over the lease term. Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease obligation for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and whether the optional period and payments should be included in the calculation of the associated ROU asset and lease obligation. In making this determination, we consider all relevant economic factors that would compel us to exercise or not exercise an option. When our leases contain future payments that are dependent on an index or rate, such as the consumer price index, we initially measure the lease obligation and ROU asset using the index or rate at the commencement date. In subsequent periods, lease payments dependent on an index or rate are not remeasured. Rather, changes to payments due to a change in an index or rate are recognized in our statements of consolidated income in the period of the change. When available, we use the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of our leases. For these leases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement. The incremental borrowing rate is derived using multiple inputs including our credit rating, the impact of full collateralization, lease term and denominated currency. Our remaining lease terms vary from 1 month to 138 years. Aircraft In addition to the aircraft that we own, we have leases for 310 aircraft. Of these leased aircraft, 17 are classified as finance leases, 18 are classified as operating leases and the remaining 275 are classified as short-term leases. A majority of the obligations associated with the aircraft classified as finance leases have been legally defeased. A majority of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline. In order to meet customers' needs, we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes. Due to the nature of these agreements, primarily being that either party can cancel the agreement with short notice, we have classified these as short-term leases. Additionally, the lease payments associated with these charter agreements are variable in nature based on the number of hours flown. Real Estate We have operating and finance leases for package centers, airport facilities, warehouses, office space and expansion facilities utilized during peak shipping periods. Many of our leases contain charges for common area maintenance or other expenses that are updated based on landlord estimates. Due to this variability, the cash flows associated with these charges are not included in the minimum lease payments used in determining the ROU asset and associated lease obligation. Some of our real estate leases contain options to renew or extend the lease or terminate the lease before the expiration date. These options are factored into the determination of the lease term and lease payments when their exercise is considered to be reasonably certain. We also enter into real estate leases that contain lease incentives, such as tenant improvement allowances or move-in allowances, that are received or receivable at lease commencement. These incentives reduce lease payments for classification purposes and reduce the initial ROU asset. When lease incentives are receivable at lease commencement, these also reduce the initial lease obligation. From time to time, we enter into leases with the intention of purchasing the underlying property, either through purchase options with a fixed price or a purchase agreement negotiated contemporaneously with the lease agreement. We classify these leases as finance leases and include the purchase date and purchase price in the determination of the lease term and lease payments, respectively, when the option to exercise or purchase is reasonably certain. Transportation equipment and other equipment We enter into both long-term and short-term leases for transportation equipment to supplement our capacity or meet contractual demands. Some of these assets are leased on a month-to-month basis and the leases can be terminated without penalty. The lease term for these types of leases is determined by the length of the underlying customer contract or based on the judgment of the business unit. We also enter into multi-year leases for trailers to increase capacity during periods of high demand, which are typically only used for 90-120 days during the year. These leases are treated as short-term as the cumulative right of use is less than 12 months over the term of the contract. The remainder of our leases are primarily related to equipment used in our air operations, vehicles required to meet capacity needs during periods of higher demand for our shipping services, technology equipment and office equipment used in our facilities. Some of our transportation and technology equipment leases require us to make additional lease payments based on the underlying usage of the assets. Due to the variable nature of these costs, these are expensed as incurred and are not included in the ROU asset and associated lease obligation. The components of lease expense for the three and nine months ended September 30, 2022 and 2021 are as follows (in millions):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Operating lease costs | $ | 179 |  |  | $ | 183 |  |  | $ | 546 |  |  | $ | 537 |
Finance lease costs: |  |  |  |  |  |  |
Amortization of assets | 28 |  |  | 24 |  |  | 84 |  |  | 70 |
Interest on lease liabilities | 3 |  |  | 4 |  |  | 10 |  |  | 11 |
Total finance lease costs | 31 |  |  | 28 |  |  | 94 |  |  | 81 |
Variable lease costs | 62 |  |  | 51 |  |  | 194 |  |  | 178 |
Short-term lease costs | 319 |  |  | 305 |  |  | 944 |  |  | 835 |
Total lease costs | $ | 591 |  |  | $ | 567 |  |  | $ | 1,778 |  |  | $ | 1,631 |
In addition to the lease costs disclosed in the table above, we monitor all lease categories for any indicators that the carrying value of the assets may not be recoverable. There were no material impairments recognized during the three or nine months ended September 30, 2022 or 2021. Supplemental information related to leases and location within our consolidated balance sheets is as follows (in millions, except lease term and discount rate):
| September 30, 2022 |  | December 31, 2021
Operating Leases: |  |  |
Operating lease right-of-use assets | $ | 3,417 |  |  | $ | 3,562 |
Current maturities of operating leases | $ | 560 |  |  | $ | 580 |
Non-current operating leases | 2,960 |  |  | 3,033 |
Total operating lease obligations | $ | 3,520 |  |  | $ | 3,613 |
Finance Leases: |  |  |
Property, plant and equipment, net | $ | 947 |  |  | $ | 1,125 |
Current maturities of long-term debt, commercial paper and finance leases | $ | 79 |  |  | $ | 129 |
Long-term debt and finance leases | 300 |  |  | 279 |
Total finance lease obligations | $ | 379 |  |  | $ | 408 |
Weighted average remaining lease term (in years): |  |  |
Operating leases | 11.0 |  | 11.7
Finance leases | 8.8 |  | 8.0
Weighted average discount rate: |  |  |
Operating leases | 2.21 | % |  | 1.94 | %
Finance leases | 3.03 | % |  | 2.79 | %
Supplemental cash flow information related to leases is as follows (in millions):
| Nine Months Ended September 30,
| 2022 |  | 2021
Cash paid for amounts included in measurement of obligations: |  |  |
Operating cash flows from operating leases | $ | 523 |  |  | $ | 538 |
Operating cash flows from finance leases | 3 |  |  | 8 |
Financing cash flows from finance leases | 123 |  |  | 48 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |
Operating leases | $ | 588 |  |  | $ | 953 |
Finance leases | 98 |  |  | 252 |
Maturities of lease obligations as of September 30, 2022 are as follows (in millions):
| Finance Leases |  | Operating Leases
2022 | $ | 31 |  |  | $ | 136 |
2023 | 83 |  |  | 644 |
2024 | 56 |  |  | 544 |
2025 | 42 |  |  | 484 |
2026 | 35 |  |  | 437 |
Thereafter | 212 |  |  | 1,800 |
Total lease payments | 459 |  |  | 4,045 |
Less: Imputed interest | (80) |  |  | (525) |
Total lease obligations | 379 |  |  | 3,520 |
Less: Current obligations | (79) |  |  | (560) |
Long-term lease obligations | $ | 300 |  |  | $ | 2,960 |
As of September 30, 2022, we had $1.2 billion of additional leases which had not commenced. These leases will commence between 2022 and 2024 when we are granted access to the property, such as when leasehold improvements are completed by the lessor or a certificate of occupancy is obtained.

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