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Leases

9 Months Ended

Sep. 30, 2019

LEASES

We determine if an arrangement is or contains a lease at inception. We enter into leases primarily for our wholesale distribution facilities, manufacturing equipment, administrative offices, retail stores, vehicles and data processing equipment under varying terms and conditions. Our leases have remaining lease terms of less than 1 year to approximately 50 years. Most of our leases include options to extend the lease, with renewal terms ranging from 1 to 50 years or more, and some include options to terminate the lease within 1 year. If it is reasonably certain that an option to extend or terminate a lease will be exercised, that option is considered in the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize short-term lease expense for these leases on a straight-line basis over the lease term.

Certain of our lease agreements include variable lease payments, generally based on consumer price indices. Variable lease payments that are assigned to an index are determined based on the initial index at commencement, and the variability based on changes in the index is accounted for as it changes. The variable portion of payments is not included in the initial measurement of the right-of-use asset or lease liability due to the uncertainty of the payment amount and are recorded as lease expense in the period incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have lease agreements with lease and non-lease components, which are accounted for separately.

Operating leases are included in Operating Lease Right-of-Use (“ROU”) Assets, Operating Lease Liabilities due Within One Year and Operating Lease Liabilities on our Consolidated Balance Sheets. Finance leases are included in Property, Plant and Equipment, Long Term Debt and Finance Leases due Within One Year, and Long Term Debt and Finance Leases on our Consolidated Balance Sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Generally, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments, unless there is a rate stated in the lease agreement. Operating lease expense is recognized on a straight-line basis over the lease term.

The components of lease expense included in Income before Income Taxes are as follows:



	Three Months Ended			Nine Months Ended
	September 30,			September 30,
(In millions)	2019			2019
Operating Lease Expense	$	73		$	221
Finance Lease Expense:
Amortization of ROU Assets	3			8
Interest on Lease Liabilities	6			16
Short Term Lease Expense	1			4
Variable Lease Expense	2			5
Sublease Income	(3		)	(11		)
Total Lease Expense	$	82		$	243

Supplemental cash flow information related to leases is as follows:



	Nine Months Ended
	September 30,
(In millions)	2019
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating Cash Flows for Operating Leases	$	201
Operating Cash Flows for Finance Leases	16
Financing Cash Flows for Finance Leases	5
ROU Assets Obtained in Exchange for Lease Obligations
Operating Leases	124
Finance Leases	34

Supplemental balance sheet information related to leases is as follows:



	September 30,
(In millions, except lease term and discount rate)	2019
Operating Leases
Operating Lease ROU Assets	$	828

Operating Lease Liabilities due Within One Year	$	197
Operating Lease Liabilities	642
Total Operating Lease Liabilities	$	839

Finance Leases
Property, Plant and Equipment, at cost	$	256
Accumulated Depreciation	(47		)
Property, Plant and Equipment, net	$	209

Long Term Debt and Finance Leases due Within One Year	$	7
Long Term Debt and Finance Leases	238
Total Finance Lease Liabilities	$	245

Weighted Average Remaining Lease Term
Operating Leases	6.9 years
Finance Leases	32.0 years

Weighted Average Discount Rate
Operating Leases	6.72		%
Finance Leases	8.47		%

Future maturities of our lease liabilities, excluding subleases, as of September 30, 2019 are as follows:



(In millions)	Operating Leases		Finance Leases
2019 (excluding the nine months ended September 30)	$	64	$	6
2020	227		25
2021	180		35
2022	129		21
2023	100		20
Thereafter	383		706
Total Lease Payments	1,083		813
Less: Imputed Interest	244		568
Total	$	839	$	245

Future maturities of our lease liabilities as of December 31, 2018 were as follows:



																2024 and
(In millions)	2019			2020			2021			2022			2023			Beyond			Total
Capital Leases
Minimum lease payments	$	8		$	7		$	18		$	3		$	2		$	23		$	61
Imputed interest	(3		)	(3		)	(3		)	(1		)	(1		)	(13		)	(24		)
Present value	$	5		$	4		$	15		$	2		$	1		$	10		$	37
Operating Leases
Minimum lease payments	$	266		$	214		$	161		$	110		$	84		$	391		$	1,226
Minimum sublease rentals	(15		)	(12		)	(8		)	(5		)	(3		)	(6		)	(49		)
	$	251		$	202		$	153		$	105		$	81		$	385		$	1,177
Imputed interest																			(263		)
Present value																			$	914

As of September 30, 2019, we have additional operating leases that have not yet commenced for which the present value of lease payments over the respective lease terms totals $34 million. Accordingly, these leases are not recorded on the Consolidated Balance Sheet at September 30, 2019. These operating leases will commence between 2019 and 2020 with lease terms of 3 years to 15 years.

Leases