Leases

3 Months Ended

Jul. 31, 2019

Leases

We enter into lease arrangements, which we use primarily for office space, vehicles, and land. Substantially all of our leases are operating leases. Our finance leases are not material.

Effective May 1, 2019, we updated our accounting policy for leases to reflect the adoption of ASC 842. Under ASC 842, we record lease liabilities and right-of-use (ROU) assets on our balance sheet for leases with terms exceeding 12 months. We do not record lease liabilities or ROU assets for short-term leases.

The amounts recorded for lease liabilities and ROU assets are based on the estimated present value, as of the lease commencement date, of the future payments to be made over the lease term. We calculate the present value using our incremental borrowing rate that corresponds to the term of the lease. We include the effect of an option to renew or terminate a lease in the lease term when it is reasonably certain that we will exercise the option.

Some of our leases contain non-lease components (e.g., maintenance or other services) in addition to lease components. For our land leases, we have elected the practical expedient not to separate the non-lease components from the lease components.

The following table shows the amounts and classification of ROU assets and lease liabilities on our balance sheet as of July 31, 2019:



		July 31,
(Dollars in millions)	Classification	2019
Right-of-use assets	Other assets	$	50

Lease liabilities:
Current	Accounts payable and accrued expenses	$	17
Non-current	Other liabilities	33
Total		$	50

The following table shows information about the effects of leases during the three months ended July 31, 2019:



	Three Months
	Ended
(Dollars in millions)	July 31, 2019
Total lease cost¹	$	5
Cash paid for amounts included in the measurement of lease liabilities²	5
Right-of-use assets obtained in exchange for new lease liabilities	3

¹Consists primarily of operating lease cost. Other components of lease cost were not material.

²Classified within operating activities in the accompanying consolidated statement of cash flows.

The following table includes a maturity analysis of future (undiscounted) operating lease payments and a reconciliation of those payments to the lease liabilities recorded on our balance sheet as of July 31, 2019:



	July 31,
(Dollars in millions)	2019
Fiscal 2020 (nine months remaining)	$	14
Fiscal 2021	15
Fiscal 2022	10
Fiscal 2023	5
Fiscal 2024	4
Thereafter	5
Total lease payments	53
Less: Present value discount	(3		)
Lease liabilities	$	50

Weighted-average discount rate	2.9%
Weighted-average remaining term	4.0 years

Future operating lease payments, as disclosed in our 2019 Form 10-K under the prior accounting standard (ASC Topic 840), were as follows as of April 30, 2019:



	April 30,
(Dollars in millions)	2019
Fiscal 2020	$	23
Fiscal 2021	16
Fiscal 2022	10
Fiscal 2023	5
Fiscal 2024	3
Thereafter	2
Total lease payments	$	59