Leases (Notes)

9 Months Ended

Jun. 30, 2020

Leases

Lessee arrangements

The Company leases certain administrative, production and other facilities, fleet vehicles, information technology equipment and other equipment under arrangements that are accounted for as operating leases. The Company determines whether an arrangement contains a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether the Company has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Right-of-use assets and the corresponding lease liabilities are recognized at commencement date based on the present value of lease payments for all leases with terms longer than twelve months. As the majority of the Company's leases do not provide an implicit interest rate, to determine the present value of lease payments, the Company uses its incremental borrowing rate based on information available on the lease commencement date and uses the implicit rate when readily determinable. The Company determines its incremental borrowing rate based on a comparable market yield curve consistent with the Company's credit rating, term of the lease and relative economic environment. The Company has elected to combine lease and non-lease components for its leases.

Most leases contain options to renew or terminate the lease. Right-of-use assets and lease liabilities reflect only the options which the Company is reasonably certain to exercise. Lease expense is recognized on a straight-line basis over the lease term.

The Company has certain real estate leases that contain variable lease payments which are based on changes in the Consumer Price Index (CPI). Additionally, the Company’s leases generally require it to pay for fuel, maintenance, repair, insurance and taxes. These payments are not included in the right-of-use asset or lease liability and are expensed as incurred.

The following table presents the Company’s lease costs for the three and nine months ended June 30, 2020 (in millions):


	Three Months Ended June 30,		Nine Months Ended June 30,
	2020		2020
Operating lease cost	$	97	$	294
Variable lease cost	36		113
Total lease costs	$	133	$	407

The following table presents supplemental consolidated statement of financial position information as of June 30, 2020 (in millions):


	Location of lease balances	June 30, 2020
Operating lease right-of-use assets	Other noncurrent assets	$	1,127
Operating lease liabilities - current	Other current liabilities	322
Operating lease liabilities - noncurrent	Other noncurrent liabilities	820

Weighted-average remaining lease term		6 years
Weighted-average discount rate		2.3		%

The following table presents supplemental cash flow information related to operating leases for the three and nine months ended June 30, 2020 (in millions):


	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020
Cash paid for amounts included in the measurement of lease liability:
Operating cash outflows from operating leases	$	100	$	297
Noncash operating lease activity:
Right-of-use assets obtained in exchange for operating lease liabilities	141		315

The following table presents maturities of operating lease liabilities as of June 30, 2020 (in millions):


	June 30, 2020
2020 (3 months)	$	83
2021	338
2022	256
2023	160
2024	115
After 2024	278
Total operating lease payments	1,230
Less interest	(88)
Present value of lease payments	$	1,142

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended September 30, 2019 and accounted for under the previous lease accounting guidance, future minimum operating lease payments for long-term noncancellable operating leases as of September 30, 2019 were as follows (in millions):


	September 30, 2019
2020	$	352
2021	287
2022	200
2023	111
2024	71
After 2024	172
Total minimum lease payments	$	1,193

Lessor arrangements

The Company's monitoring services and maintenance agreements within its electronic security business that include subscriber system assets for which the Company retains ownership contain both lease and nonlease components. The Company has elected the practical expedient to combine lease and nonlease components for these arrangements where the timing and pattern of transfer of the lease and nonlease components are the same and the lease component would be classified as an operating lease if accounted for separately. The Company has concluded that in these arrangements the nonlease components are the predominant characteristic, and as a result, the combined component is accounted for under the revenue guidance.