Leases

9 Months Ended

Sep. 30, 2019

LEASES

Leases

We lease certain manufacturing facilities, warehouses/distribution centers, office space, land, vehicles, and equipment. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. Leases with an initial term of 12 months or less are not recorded in the Consolidated Condensed Balance Sheets and we recognize lease expense for these leases on a straight-line basis over the lease term. The Company had operating lease costs of approximately $150 million for the nine months ended September 30, 2019.

As of September 30, 2019, we have approximately $82 million of non-cancelable operating lease commitments, primarily for warehouses, that have not yet commenced. These operating leases are expected to commence between fiscal year 2019 and fiscal year 2020 with lease terms of up to 15 years.

At September 30, 2019, we have no leases classified as financing leases and we have approximately $885 million of non-cancelable operating lease commitments, excluding variable consideration. The undiscounted annual future minimum lease payments are summarized by year in the table below:



Maturity of Lease Liabilities	Operating Leases (in millions)
2019	$	45
2020	166
2021	139
2022	119
2023	107
After 2023	309
Total lease payments	$	885
Less: interest	123
Present value of lease liabilities	$	762

The long-term portion of the lease liabilities included in the amounts above is $617 million. The remainder of our lease liabilities are included in other current liabilities in the Consolidated Condensed Balance Sheets.

At September 30, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 7 years and 5%, respectively.

During the nine months ended September 30, 2019 the cash paid for amounts included in the measurement of the liabilities and the operating cash flows was $147 million. The right of use assets obtained in exchange for new liabilities was $39 million in the nine months ended.

As the Company's lease agreements normally do not provide an implicit interest rate, we apply the Company's incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments. Relevant information used in determining the Company's incremental borrowing rate includes the duration of the lease, location of the lease, and the Company's credit risk relative to risk-free market rates.

Many of our leases include renewal options that can extend the lease term. The execution of those renewal options is at our sole discretion and reflected in the lease term when they are reasonably certain to be exercised.

Certain leases also include options to purchase the underlying asset at fair market value. If leased assets have leasehold improvements, typically the depreciable life of those leasehold improvements are limited by the expected lease term. Additionally, certain lease agreements include lease payment adjustments for inflation.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We rent or sublease certain real estate to third parties. Our sublease portfolio primarily consists of operating leases within our warehouses, resulting in a nominal amount of sublease income in 2019.