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Leases
 9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases Leases

Lessee
The Company adopted ASU No. 2016-02, “Leases (Topic 842),” on January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach utilizing the optional transition method. Prior year financial statements were not recast using this approach. The Company elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $68 million and $66 million, respectively, as of January 1, 2019. The standard did not materially impact our consolidated net earnings or cash flows.
The Company leases property and equipment under finance and operating leases. The Company's operating leases consist of automobiles in certain countries and real estate, including office, storage and parking spaces. The duration of these leases range from 2 to 10 years. The Company's finance leases primarily consist of equipment financed for the purpose of delivering services to our customers. For leases with terms greater than 12 months, the Company recorded the related asset and obligation at the present value of lease payments over the term. Many of our leases include variable rental escalation clauses which are recognized when incurred. Some of our leases also include renewal options and/or termination options that are factored into the determination of lease payments and lease terms when it is reasonably certain that the Company will exercise these options. Lease agreements do not contain any material residual value guarantees or material restrictive covenants. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a
straight-line basis over the lease term. For real estate leases beginning in 2019 and later, we account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs). For automobile leases we account for lease and non-lease components together.
When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, real estate leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate used in the calculation of the lease liability is based on the secured rate associated with financed lease obligations for each location of leased property.

The table below presents the lease-related assets and liabilities recorded on the balance sheet:
 
 
 
As of
in millions, except weighted average calculations
Classification on the Balance Sheet
 
September 30, 2019
Assets
 
 
 
Operating lease assets
Right of use assets - operating lease, net
 
$
53

Finance lease assets
Property and equipment, net
 
113

Total lease assets
 
 
$
166

 
 
 
 
Liabilities
 
 
 
Current
 
 
 
Operating
Current portion of operating lease liability
 
$
19

Finance
Current portion of finance lease liability
 
42

Noncurrent
 
 
 
Operating
Operating lease liability
 
41

Finance
Finance lease liability
 
66

Total lease liabilities
 
 
$
168

 
 
 
 
Weighted-average remaining lease term
 
 
 
Operating leases
 
 
3.55 years

Finance leases
 
 
2.51 years

Weighted-average discount rate
 
 
 
Operating leases(1)
 
 
5.00
%
Finance leases
 
 
4.56
%

(1) Upon adoption of the new lease standard, discount rates used for existing leases were established based on the Company's incremental borrowing rate at January 1, 2019. For new leases entered after January 1, 2019, the discount rate was determined based on the Company's incremental borrowing rate at lease commencement.

Lessee Costs

The table below presents certain information related to the lease costs for finance and operating leases recognized in the Company's condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2019:

 
 
Three Months Ended
 
Nine Months Ended
 
in millions
 
September 30, 2019
 
September 30, 2019
 
Finance lease cost
 
 
 
 
 
Depreciation of leased assets
 
$
7

 
$
16

 
Interest of lease liabilities
 
1

 
3

 
Operating lease cost
 
6

 
24

 
Sub-lease income from real estate properties owned and leased
 
(1
)
 
(5
)
 
Total lease cost
 
$
13

 
$
38

 


Other Information

The table below presents supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities:

 
 
Nine Months Ended
in millions
 
September 30, 2019
Operating cash flows for operating leases
 
$
17

Operating cash flows for finance leases
 
$
2

Financing cash flows for finance leases
 
$
18




Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet as of September 30, 2019:
in millions
 
Operating Leases
 
Finance Leases
2019 (balance of year)
 
$
6

 
$
15

2020
 
23

 
46

2021
 
16

 
41

2022
 
11

 
12

2023
 
7

 
—

Thereafter
 
6

 
—

Total minimum lease payments
 
69

 
114

Less: amount of lease payments representing interest
 
(9
)
 
(6
)
Present value of future minimum lease payments
 
60

 
108

Less: current obligations under leases
 
(19
)
 
(42
)
Long-term lease obligations
 
$
41

 
$
66



The table below provides the undiscounted cash flows for the Company's finance lease liabilities and operating lease obligations as of December 31, 2018.

in millions
 
Operating Leases
 
Finance Leases
2019
 
$
24

 
$
19

2020
 
20

 
31

2021
 
12

 
—

2022
 
11

 
—

2023
 
6

 
—

Thereafter
 
2

 
—

Total minimum lease payments
 
$
75

 
$
50



Lessor

The Company receives rental revenue for leasing hardware offerings to its customers. For our hardware rental offering, the Company owns or leases the hardware and may or may not provide managed services. Leases sometimes include options to renew but typically do not include lessee purchase options. The revenue for these operating leases is generally recognized straight-line over the term of the contract and is included within the recurring revenue caption on the condensed consolidated statements of income (loss). Equipment used for this revenue is reported within Property and equipment, net on the condensed consolidated balance sheet.

Rental revenue for these operating leases was as follows:
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
in millions
 
2019
 
2018
 
2019
 
2018
Rental revenue*
 
$
22

 
$
7

 
52

 
27


*Rental revenue includes hardware maintenance.

The following table includes estimated rental revenue expected to be recognized in the future based on executed contracts at September 30, 2019:

in millions
Rental Revenue
2019 (balance of year)
$
19

2020
64

2021
58

2022
26

2023
—

Total
$
167
Leases Leases

Lessee
The Company adopted ASU No. 2016-02, “Leases (Topic 842),” on January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach utilizing the optional transition method. Prior year financial statements were not recast using this approach. The Company elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $68 million and $66 million, respectively, as of January 1, 2019. The standard did not materially impact our consolidated net earnings or cash flows.
The Company leases property and equipment under finance and operating leases. The Company's operating leases consist of automobiles in certain countries and real estate, including office, storage and parking spaces. The duration of these leases range from 2 to 10 years. The Company's finance leases primarily consist of equipment financed for the purpose of delivering services to our customers. For leases with terms greater than 12 months, the Company recorded the related asset and obligation at the present value of lease payments over the term. Many of our leases include variable rental escalation clauses which are recognized when incurred. Some of our leases also include renewal options and/or termination options that are factored into the determination of lease payments and lease terms when it is reasonably certain that the Company will exercise these options. Lease agreements do not contain any material residual value guarantees or material restrictive covenants. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a
straight-line basis over the lease term. For real estate leases beginning in 2019 and later, we account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs). For automobile leases we account for lease and non-lease components together.
When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, real estate leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate used in the calculation of the lease liability is based on the secured rate associated with financed lease obligations for each location of leased property.

The table below presents the lease-related assets and liabilities recorded on the balance sheet:
 
 
 
As of
in millions, except weighted average calculations
Classification on the Balance Sheet
 
September 30, 2019
Assets
 
 
 
Operating lease assets
Right of use assets - operating lease, net
 
$
53

Finance lease assets
Property and equipment, net
 
113

Total lease assets
 
 
$
166

 
 
 
 
Liabilities
 
 
 
Current
 
 
 
Operating
Current portion of operating lease liability
 
$
19

Finance
Current portion of finance lease liability
 
42

Noncurrent
 
 
 
Operating
Operating lease liability
 
41

Finance
Finance lease liability
 
66

Total lease liabilities
 
 
$
168

 
 
 
 
Weighted-average remaining lease term
 
 
 
Operating leases
 
 
3.55 years

Finance leases
 
 
2.51 years

Weighted-average discount rate
 
 
 
Operating leases(1)
 
 
5.00
%
Finance leases
 
 
4.56
%

(1) Upon adoption of the new lease standard, discount rates used for existing leases were established based on the Company's incremental borrowing rate at January 1, 2019. For new leases entered after January 1, 2019, the discount rate was determined based on the Company's incremental borrowing rate at lease commencement.

Lessee Costs

The table below presents certain information related to the lease costs for finance and operating leases recognized in the Company's condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2019:

 
 
Three Months Ended
 
Nine Months Ended
 
in millions
 
September 30, 2019
 
September 30, 2019
 
Finance lease cost
 
 
 
 
 
Depreciation of leased assets
 
$
7

 
$
16

 
Interest of lease liabilities
 
1

 
3

 
Operating lease cost
 
6

 
24

 
Sub-lease income from real estate properties owned and leased
 
(1
)
 
(5
)
 
Total lease cost
 
$
13

 
$
38

 


Other Information

The table below presents supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities:

 
 
Nine Months Ended
in millions
 
September 30, 2019
Operating cash flows for operating leases
 
$
17

Operating cash flows for finance leases
 
$
2

Financing cash flows for finance leases
 
$
18




Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet as of September 30, 2019:
in millions
 
Operating Leases
 
Finance Leases
2019 (balance of year)
 
$
6

 
$
15

2020
 
23

 
46

2021
 
16

 
41

2022
 
11

 
12

2023
 
7

 
—

Thereafter
 
6

 
—

Total minimum lease payments
 
69

 
114

Less: amount of lease payments representing interest
 
(9
)
 
(6
)
Present value of future minimum lease payments
 
60

 
108

Less: current obligations under leases
 
(19
)
 
(42
)
Long-term lease obligations
 
$
41

 
$
66



The table below provides the undiscounted cash flows for the Company's finance lease liabilities and operating lease obligations as of December 31, 2018.

in millions
 
Operating Leases
 
Finance Leases
2019
 
$
24

 
$
19

2020
 
20

 
31

2021
 
12

 
—

2022
 
11

 
—

2023
 
6

 
—

Thereafter
 
2

 
—

Total minimum lease payments
 
$
75

 
$
50



Lessor

The Company receives rental revenue for leasing hardware offerings to its customers. For our hardware rental offering, the Company owns or leases the hardware and may or may not provide managed services. Leases sometimes include options to renew but typically do not include lessee purchase options. The revenue for these operating leases is generally recognized straight-line over the term of the contract and is included within the recurring revenue caption on the condensed consolidated statements of income (loss). Equipment used for this revenue is reported within Property and equipment, net on the condensed consolidated balance sheet.

Rental revenue for these operating leases was as follows:
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
in millions
 
2019
 
2018
 
2019
 
2018
Rental revenue*
 
$
22

 
$
7

 
52

 
27


*Rental revenue includes hardware maintenance.

The following table includes estimated rental revenue expected to be recognized in the future based on executed contracts at September 30, 2019:

in millions
Rental Revenue
2019 (balance of year)
$
19

2020
64

2021
58

2022
26

2023
—

Total
$
167
Leases Leases

Lessee
The Company adopted ASU No. 2016-02, “Leases (Topic 842),” on January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach utilizing the optional transition method. Prior year financial statements were not recast using this approach. The Company elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $68 million and $66 million, respectively, as of January 1, 2019. The standard did not materially impact our consolidated net earnings or cash flows.
The Company leases property and equipment under finance and operating leases. The Company's operating leases consist of automobiles in certain countries and real estate, including office, storage and parking spaces. The duration of these leases range from 2 to 10 years. The Company's finance leases primarily consist of equipment financed for the purpose of delivering services to our customers. For leases with terms greater than 12 months, the Company recorded the related asset and obligation at the present value of lease payments over the term. Many of our leases include variable rental escalation clauses which are recognized when incurred. Some of our leases also include renewal options and/or termination options that are factored into the determination of lease payments and lease terms when it is reasonably certain that the Company will exercise these options. Lease agreements do not contain any material residual value guarantees or material restrictive covenants. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a
straight-line basis over the lease term. For real estate leases beginning in 2019 and later, we account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs). For automobile leases we account for lease and non-lease components together.
When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, real estate leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate used in the calculation of the lease liability is based on the secured rate associated with financed lease obligations for each location of leased property.

The table below presents the lease-related assets and liabilities recorded on the balance sheet:
 
 
 
As of
in millions, except weighted average calculations
Classification on the Balance Sheet
 
September 30, 2019
Assets
 
 
 
Operating lease assets
Right of use assets - operating lease, net
 
$
53

Finance lease assets
Property and equipment, net
 
113

Total lease assets
 
 
$
166

 
 
 
 
Liabilities
 
 
 
Current
 
 
 
Operating
Current portion of operating lease liability
 
$
19

Finance
Current portion of finance lease liability
 
42

Noncurrent
 
 
 
Operating
Operating lease liability
 
41

Finance
Finance lease liability
 
66

Total lease liabilities
 
 
$
168

 
 
 
 
Weighted-average remaining lease term
 
 
 
Operating leases
 
 
3.55 years

Finance leases
 
 
2.51 years

Weighted-average discount rate
 
 
 
Operating leases(1)
 
 
5.00
%
Finance leases
 
 
4.56
%

(1) Upon adoption of the new lease standard, discount rates used for existing leases were established based on the Company's incremental borrowing rate at January 1, 2019. For new leases entered after January 1, 2019, the discount rate was determined based on the Company's incremental borrowing rate at lease commencement.

Lessee Costs

The table below presents certain information related to the lease costs for finance and operating leases recognized in the Company's condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2019:

 
 
Three Months Ended
 
Nine Months Ended
 
in millions
 
September 30, 2019
 
September 30, 2019
 
Finance lease cost
 
 
 
 
 
Depreciation of leased assets
 
$
7

 
$
16

 
Interest of lease liabilities
 
1

 
3

 
Operating lease cost
 
6

 
24

 
Sub-lease income from real estate properties owned and leased
 
(1
)
 
(5
)
 
Total lease cost
 
$
13

 
$
38

 


Other Information

The table below presents supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities:

 
 
Nine Months Ended
in millions
 
September 30, 2019
Operating cash flows for operating leases
 
$
17

Operating cash flows for finance leases
 
$
2

Financing cash flows for finance leases
 
$
18




Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet as of September 30, 2019:
in millions
 
Operating Leases
 
Finance Leases
2019 (balance of year)
 
$
6

 
$
15

2020
 
23

 
46

2021
 
16

 
41

2022
 
11

 
12

2023
 
7

 
—

Thereafter
 
6

 
—

Total minimum lease payments
 
69

 
114

Less: amount of lease payments representing interest
 
(9
)
 
(6
)
Present value of future minimum lease payments
 
60

 
108

Less: current obligations under leases
 
(19
)
 
(42
)
Long-term lease obligations
 
$
41

 
$
66



The table below provides the undiscounted cash flows for the Company's finance lease liabilities and operating lease obligations as of December 31, 2018.

in millions
 
Operating Leases
 
Finance Leases
2019
 
$
24

 
$
19

2020
 
20

 
31

2021
 
12

 
—

2022
 
11

 
—

2023
 
6

 
—

Thereafter
 
2

 
—

Total minimum lease payments
 
$
75

 
$
50



Lessor

The Company receives rental revenue for leasing hardware offerings to its customers. For our hardware rental offering, the Company owns or leases the hardware and may or may not provide managed services. Leases sometimes include options to renew but typically do not include lessee purchase options. The revenue for these operating leases is generally recognized straight-line over the term of the contract and is included within the recurring revenue caption on the condensed consolidated statements of income (loss). Equipment used for this revenue is reported within Property and equipment, net on the condensed consolidated balance sheet.

Rental revenue for these operating leases was as follows:
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
in millions
 
2019
 
2018
 
2019
 
2018
Rental revenue*
 
$
22

 
$
7

 
52

 
27


*Rental revenue includes hardware maintenance.

The following table includes estimated rental revenue expected to be recognized in the future based on executed contracts at September 30, 2019:

in millions
Rental Revenue
2019 (balance of year)
$
19

2020
64

2021
58

2022
26

2023
—

Total
$
167