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Leases

12 Months Ended

Dec. 31, 2021

12. Leases

In the first quarter of 2019, the Company adopted ASC 842, Leases, and selected the modified retrospective transition as of the effective date of January 1, 2019 (the effective date method). Under the effective date method, financial results reported in periods prior to 2019 are unchanged.

The Company determines if an arrangement is a lease at inception. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are

recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company uses an estimated incremental borrowing rate at the lease commencement date to determine the present value of lease payments when the implicit rate is not readily determinable in the lease. The Company’s incremental borrowing rate reflects a fully secured rate based on recent debt issuances, the credit rating of the Company, changes in currency and repayment timing of the lease, as well as publicly available data for instruments with similar characteristics when calculating incremental borrowing rates.

Certain lease agreements include terms with options to extend the lease, however none of these have been recognized in the Company’s right-of-use assets or lease liabilities since those options were not reasonably certain to be exercised. Leases with a term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. The Company’s lease agreements include lease payments that are largely fixed and do not contain material residual value guarantees or variable lease payments and no lease transactions with related parties. For the years ended December 31, 2021 and 2020, the Company’s lease costs associated with leases with terms less than 12 months or variable lease costs were immaterial. Certain leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s leases do not contain restrictions or covenants that restrict the Company from incurring other financial obligations.

The Company leases warehouses, office buildings and equipment under both operating and finance lease arrangements. Information related to these leases is as follows:


		Year ended December 31,
		2021		2020
Lease cost
Finance lease cost:
Amortization of right-of-use assets (included in Cost of goods sold and Selling and administrative expense)	$	16	$	7
Interest on lease liabilities (included in Interest expense, net)		3		2
Operating lease cost (included in Cost of goods sold and Selling and administrative expense)		52		75
Total lease cost	$	71	$	84


		Year ended December 31,
		2021		2020
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	52	$	75
Operating cash flows from finance leases		3		2
Financing cash flows from finance leases		16		7
Right-of-use assets obtained in exchange for new operating lease liabilities		33		42



		December 31,
		2021		2020
Supplemental balance sheet information
Operating leases:
Operating lease right-of-use assets (included in Other assets)	$	116	$	138

Current operating lease liabilities (included in Other current liabilities)		38		45
Noncurrent operating lease liabilities (included in Other long-term liabilities)		78		93
Total operating lease liabilities	$	116	$	138

Finance leases:
Property, plant and equipment	$	155	$	154
Accumulated amortization		(51)		(42)
Property, plant and equipment, net		104		112

Current finance lease liabilities (included in Long-term debt due within one year)		14		16
Noncurrent finance lease liabilities (included in Long-term debt)		84		92
Total finance lease liabilities	$	98	$	108

Weighted-average remaining lease term (in years):
Operating leases		5.1		4.8
Finance leases		6.2		6.9
Weighted-average discount rate:
Operating leases		3.61%		3.69%
Finance leases		2.58%		2.73%


Maturity of lease liabilities		Operating leases		Finance leases
2022	$	42	$	17
2023		29		17
2024		21		15
2025		12		15
2026		7		15
2027 and thereafter		17		28
Total lease payments		128		107
Less: imputed interest		(12)		(9)
Total lease obligations	$	116	$	98

Minimum payments related to leases not yet commenced as of December 31, 2021	$	—	$	12