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Lease Commitments

3 Months Ended

Mar. 31, 2019

The Company leases office facilities, equipment, and automobiles under non-cancelable operating and finance leases. The Company’s lease obligations are primarily for the use of office space. The Company evaluates if a leasing arrangement exists upon inception of a contract. A contract contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Identified property, plant, or equipment may include a physically distinct portion of a larger asset, or a portion of an asset that represents substantially all of the capacity of the asset but is not physically distinct. In addition, the Company assesses whether a contract implicitly contains the right to control the use of a tangible asset that is not already owned. In addition, the Company subleases certain real estate properties to third parties, which consist of operating leases.

The Company’s leases expire at various dates and may contain renewal and expansion options. The Company’s leases do not typically contain termination options. The exercise of lease renewal and expansion options are at the Company’s sole discretion and are only included in the determination of the lease term if the Company is reasonably certain to exercise the option. The Company’s lease agreements typically do not contain any material residual value guarantees or restrictive covenants.

ROU assets and lease liabilities are based on the present value of the minimum lease payments over the lease term. As stated in Note 2 “Accounting Principles and Practices”, the Company has elected the practical expedient related to lease and non-lease components, as an accounting policy election for all asset classes, which allows a lessee to not separate non-lease from lease components and instead account for consideration received in a contract as a single lease component.

A portion of the Company’s lease agreements include variable lease payments which are not recorded in the initial measurement of the lease liability and ROU asset balances. For real estate arrangements, base rental payments may be escalated according to annual changes in the Consumer Price Index (“CPI”). The escalated rental payments based on the estimated CPI at the lease commencement date are included within minimum rental payments; however, changes in CPI are considered variable in nature and are recognized as variable lease costs in the period in which the obligation is incurred. Additionally, real estate lease agreements may include other variable payments related to operating expenses charged by the landlord based on actual expenditures. Information technology equipment agreements may include variable payments based on usage of the equipment.

The Company utilizes discount rates to determine the present value of the lease payments based on information available at the commencement date of the lease. The Company uses an incremental borrowing rate based on factors such as the lease term and the economic environment the lease exists to determine the appropriate present value of future lease payments as the rate implicit in the lease is not always readily available. When determining the incremental borrowing rate, the Company considers the rate of interest it would pay on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms.

Operating leases are included in Operating lease right-of-use assets, Other current liabilities, and Non-current operating lease liabilities on the Condensed Consolidated Statements of Financial Position. Finance leases are included in Other non-current assets, Other current liabilities, and Other non-current liabilities on the Condensed Consolidated Statements of Financial Position.

The classification of operating and finance lease asset and liability balances within the Condensed Consolidated Statements of Financial Position is as follows (in millions):



As of		March 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	993
Finance lease assets	Other non-current assets	70
Total lease assets		$	1,063

Liabilities
Current lease liabilities
Operating	Other current liabilities	$	214
Finance	Other current liabilities	27
Non-current lease liabilities
Operating	Non-current operating lease liabilities	978
Finance	Other non-current liabilities	50
Total lease liabilities		$	1,269

The components of lease costs are as follows (in millions):



	Three Months Ended March 31, 2019
Operating lease cost	$	68
Finance lease cost
Amortization of leased assets	7
Interest on lease liabilities	1
Variable lease cost	6
Short-term lease cost ⁽¹⁾	1
Sublease income	(8		)
Net lease cost	$	75

(1) Short-term lease cost does not include expenses related to leases with a lease term of one month or less.

Maturity analysis of operating and financing leases as of March 31, 2019 are as follows (in millions):



	Operating			Finance			Less:
	Leases			Leases			Subleases			Total
Remainder of 2019	$	206		$	26		$	(26	)	$	206
2020	244			27			(31		)	240
2021	217			23			(31		)	209
2022	192			2			(32		)	162
2023	138			—			(14		)	124
Thereafter	494			—			(4		)	490
Total undiscounted future minimum lease payments	$	1,491		$	78		$	(138	)	$	1,431
Less: Imputed interest	(161		)	(1		)	—			(162		)
Present value of lease liabilities	$	1,330		$	77		$	(138	)	$	1,269

Weighted average remaining lease term and discount rate related to operating and finance leases are as follows:



As of	March 31, 2019
Weighted average remaining lease term (years)
Operating leases	8.0
Finance leases	2.7
Weighted average discount rate
Operating leases	3.3	%
Finance leases	2.5	%

Other cash and non-cash related activities are as follows (in millions):



	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	52
ROU assets obtained in exchange for new operating lease liabilities	$	26

Lease Commitments