LEASES

6 Months Ended

Jun. 30, 2019

2019

We determine if a contract contains a lease by evaluating the nature and substance of the agreement. We lease facilities, computer hardware, and other furniture and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For new lease agreements, we combine lease and nonlease components for all of our asset classes. See Note 2 for further information.

When portions of the lease payments are not fixed or depend on an index or rate, we consider those payments to be variable in nature. These include, but are not limited to, common area maintenance, taxes and insurance. Variable lease payments are recorded in the period in which the obligation for the payment is incurred.

Most leases include options to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

At June 30, 2019, $406 million of operating ROU assets are included within other long-term assets in our condensed consolidated balance sheet. Additionally, at June 30, 2019, $121 million and $324 million of operating ROU lease liabilities are included within trade accounts payable and accrued expenses and other long-term liabilities, respectively, in our condensed consolidated balance sheet based on the remaining lease term.

For the three and six months ended June 30, 2019, total fixed operating lease costs, excluding short-term lease costs, were $39 million and $78 million, respectively, and are included within operating costs in our condensed consolidated statement of income. Short-term lease costs were not material. In addition, for the three and six months ended June 30, 2019, total variable operating lease costs were $19 million and $35 million, respectively and are included within operating costs in our condensed consolidated statement of income. We sublease facilities or partial facilities to third party tenants for space not used in our operations. For the three and six months ended June 30, 2019, sublease rental income was $10 million and $19 million, respectively, and is included within operating costs in our condensed consolidated statement of income.

The weighted average remaining lease term is 4.8 years with a weighted average discount rate of 4.3% at June 30, 2019. For the six months ended June 30, 2019, cash paid for amounts included in the measurement of lease liabilities included within our operating cash flows was $75 million.



Maturity of Lease Liabilities	June 30, 2019
	(in millions)
2019 (excluding the six months ended June 30, 2019)	$	72
2020	122
2021	103
2022	84
2023	39
After 2023	74
Total lease payments	494
Less: Interest	49
Present value of ROU lease liabilities	$	445

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, as adjusted for collateralized borrowings, based on the information available at date of adoption or commencement date in determining the present value of lease payments.

For the year ended 2018, under prior lease disclosure requirements

We lease facilities, computer hardware, and other furniture and equipment under long-term operating leases that are non-cancelable and expire on various dates through 2046. We sublease facilities or partial facilities to third party tenants for space not used in our operations. Rent with scheduled escalation terms are accounted for on a straight-line basis over the lease term. Rent expense and sublease rental income, which are recorded net as an operating cost, for all operating leases were as follows for the years ended December 31, 2018, 2017 and 2016:



	2018			2017			2016
	(in millions)
Rent expense	$	167		$	204		$	179
Sublease rental income	(32		)	(33		)	(26		)
Net rent expense	$	135		$	171		$	153

Future annual minimum payments due subsequent to December 31, 2018 under all of our noncancelable operating leases with initial terms in excess of one year are as follows:



	Minimum Lease Payments		Sublease Rental Receipts			Net Lease Commitments
	(in millions)
For the years ending December 31,:
2019	$	147	$	(13	)	$	134
2020	113		(12		)	101
2021	96		(10		)	86
2022	79		(9		)	70
2023	34		(9		)	25
Thereafter	50		(23		)	27
Total	$	519	$	(76	)	$	443