Leases

12 Months Ended

Dec. 31, 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 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 $214 million for the year ended December 31, 2019.

At December 31, 2019, we have approximately $49 million of non-cancelable operating lease commitments that have not yet commenced. These operating leases are expected to commence by the end of fiscal year 2021 with lease terms of up to 10 years.

At December 31, 2019, we have no leases classified as financing leases and we have approximately $1,105 million of non-cancellable 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)
2020	$	203
2021	172
2022	146
2023	132
2024	110
After 2024	342
Total lease payments	$	1,105
Less: interest	161
Present value of lease liabilities	$	944

The long-term portion of the lease liabilities included in the amounts above is $778 million. The remainder of our lease liabilities are included in other current liabilities in the Consolidated Balance Sheets.

At December 31, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 7 years and 4%, respectively.

During the year ended December 31, 2019 the cash paid for amounts included in the measurement of the liabilities and the operating cash flows was $210 million. The right of use assets obtained in exchange for new liabilities was $298 million partially offset by $68 million in terminations in the year ended December 31, 2019.

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.

Rent expense under the Company's operating leases during the years ended December 31, 2018 and 2017, prior to the Company's adoption of ASC 842, was $250 million and $238 million, respectively. The Company's future minimum lease obligations under non-cancellable operating leases as of December 31, 2018 was comparable to those as of December 31, 2019.

Synthetic lease arrangement

In 2019, we entered into a synthetic lease arrangement with a financial institution for a non-core property in the North America region. The term of this lease commenced in the fourth quarter of 2019 and will expire five years after commencement. The lease contains provisions for options to purchase, extend the original term for additional periods or return the property. This arrangement includes a residual value guarantee that is not material to the Consolidated Financial Statements at December 31, 2019. We have assessed the reasonable certainty of these provisions to determine the appropriate lease term.

We assessed the lease classification of the agreement and determined it was an operating lease. This lease was measured using our incremental borrowing rate and is included in our right of use assets and lease liabilities in the Consolidated Balance Sheets for a nominal amount. Rental payments are calculated at the applicable LIBOR rate plus a margin and the annual lease payments are nominal.