Leases, Codification Topic 842

12 Months Ended

Sep. 30, 2021

Leases

The Company leases real estate, vehicles and other equipment which are used in the Company’s manufacturing, administrative and research and development activities. The Company identifies a contract that contains a lease as one which conveys a right, either explicitly or implicitly, to control the use of an identified asset in exchange for consideration. The Company’s lease arrangements are generally classified as operating leases. These arrangements have remaining terms ranging from less than one year to approximately 25 years and the weighted-average remaining lease term of the Company’s leases is approximately 6.9 years. An option to renew or terminate the current term of a lease arrangement is included in the lease term if the Company is reasonably certain to exercise that option.

The Company does not recognize a right-of-use asset and lease liability for short-term leases, which have terms of 12 months or less, on its consolidated balance sheet. For the longer-term lease arrangements that are recognized on the Company’s consolidated balance sheet, the right-of-use asset and lease liability is initially measured at the commencement date based upon the present value of the lease payments due under the lease. These payments represent the combination of the fixed lease and fixed non-lease components that are due under the arrangement. The costs associated with the Company’s short-term leases, as well as variable costs relating to the Company’s lease arrangements, are not material to its consolidated financial results.

The implicit interest rates of the Company’s lease arrangements are generally not readily determinable and as such, the Company applies an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under an arrangement. The weighted-average incremental borrowing rate that has been applied to measure the Company’s lease liabilities is 2.2%.

The Company’s lease costs recorded in its consolidated statements of income for the years ended September 30, 2021 and 2020 were $132 million and $131 million, respectively, under the new lease accounting standard. Rental expense for all operating leases amounted to $169 million in 2019 under the previous accounting standard. Cash payments arising from the Company’s lease arrangements are reflected on its consolidated statement of cash flows as outflows used for operating activities. The right-of-use assets and lease liabilities recognized on the Company’s consolidated balance sheet as of September 30, 2021 and 2020 were as follows:


(Millions of dollars)	2021		2020
Right-of-use assets recorded in Other Assets	$	446	$	418
Current lease liabilities recorded in Accrued expenses	126		106
Non-current lease liabilities recorded in Deferred Income Taxes and Other Liabilities	344		336

The Company’s payments due under its operating leases are as follows:


(Millions of dollars)
2022	$	134
2023	96
2024	63
2025	45
2026	37
Thereafter	140
Total payments due	515
Less: imputed interest	45
Total	$	470

Sale-Leaseback Transactions

During fiscal year 2021, the Company sold certain properties and concurrently entered into operating lease arrangements for each property, which met the requirements for sale-leaseback accounting. The Company recorded gross proceeds of $225 million related to the transactions and pre-tax gains of $158 million were recorded in Other operating expense. The lease agreements have initial lease terms between two and three years and include options for the Company to extend the leases for an additional six-to-twelve months.