Leases

3 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

Leases

Lessee

We lease facilities and equipment primarily under operating leases. We recognize lease expense on a straight-line basis over the term of the lease, taking into account, when applicable, lessor incentives for tenant improvements, periods where no rent payment is required and escalations in rent payments over the term of the lease. Remaining terms for facility leases generally range from one to fifteen years, while remaining terms for equipment leases generally range from one to six years. Most real property leases contain renewal options (typically for five-year increments). Generally, the renewal option periods are not included within the lease term as we are not reasonably certain to exercise that right at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

ROU assets and operating lease liabilities are recognized at the lease commencement date. ROU assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases liabilities are recognized based on the present value of the future lease payments over the lease term discounted at our incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of our leases. We estimate the discount rate as our incremental borrowing rate based on qualitative factors including Company-specific credit rating, lease term, general economic and the interest rate environment. For existing leases that commenced prior to the adoption of the amended leasing guidance, we determined the discount rate on April 1, 2019 using the full lease term. Operating lease liabilities are recorded under the caption, “Current portion of operating lease liabilities” and “Long-Term Operating Lease Liabilities” and the corresponding lease assets are recorded under the caption, “Operating Lease Right-of-Use Assets,” in our condensed consolidated balance sheet. Finance lease assets are included in property, plant and equipment, net and finance lease liabilities are included in current portion of long-term debt and long-term debt in our condensed consolidated balance sheet.

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)	June 30, 2019
Operating leases
Operating Lease Right-of-Use Assets	$	2,031
Current portion of operating lease liabilities	$	373
Long-Term Operating Lease Liabilities	1,805
Total operating lease liabilities	$	2,178
Finance Leases
Property, Plant and Equipment, net	$	67
Current portion of long-term debt	$	7
Long-Term Debt	86
Total finance lease liabilities	$	93
Weighted Average Remaining Lease Term (Years)
Operating leases	8.56
Finance leases	11.76
Weighted Average Discount Rate
Operating leases	3.61		%
Finance leases	3.99		%

The components of lease cost were as follows:

	Quarter Ended June 30,
(In millions)	2019
Short-term lease cost	$	8
Operating lease cost	115
Finance lease cost:
Amortization of right-of-use assets	2
Interest on lease liabilities	1
Total finance lease cost	3
Variable lease cost (1)	31
Sublease income	(8		)
Total lease cost (2)	$	149

(1) These amounts include payments for maintenance, taxes, payments affected by the consumer price index and other similar metrics and payments contingent on usage.

(2) These amounts were primarily recorded within operating expenses in the accompanying condensed consolidated statement of operations.

Supplemental cash flow information related to leases was as follows:

	Quarter Ended June 30,
(In millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(99	)
Operating cash flows from finance leases	—
Financing cash flows from finance leases	(3		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	2,290
Finance leases	55

(1) These amounts include the transition adjustment for the adoption of the amended leasing guidance discussed in Financial Note 1, “Significant Accounting Policies.”

Maturities of lease liabilities as of June 30, 2019 were as follows:

(In millions)	Operating Leases			Finance Leases			Total
The remainder of 2020	$	319		$	8		$	327
2021	401			10			411
2022	344			10			354
2023	286			10			296
2024	232			10			242
Thereafter	900			69			969
Total lease payments (1)	$	2,482		$	117		$	2,599
Less imputed interest	(304		)	(24		)	(328		)
Present value of lease liabilities	$	2,178		$	93		$	2,271

(1) Total lease payments have not been reduced by minimum sublease income of $191 million due under future noncancelable subleases.

As of June 30, 2019, we entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $275 million that are not reflected in the table above. These operating leases will commence between 2020 and 2022 with noncancelable lease terms of 5 to 20 years.

As previously disclosed in our 2019 Annual Report and under the previous lease accounting, the minimum lease payments required under operating leases were as follows as of March 31, 2019:

(In millions)	Noncancelable Operating Leases
2020	$	454
2021	397
2022	343
2023	290
2024	236
Thereafter	936
Total minimum lease payments (1) (2)	$	2,656

(1) Amount includes future minimum lease payments for the sale-leaseback transaction of $49 million.

(2) Total minimum lease payments have not been reduced by minimum sublease income of $133 million due under future noncancelable subleases.

Lessor

We lease primarily certain owned equipment to the physician practices that are classified as direct financing or sales-type leases. As of June 30, 2019, the total lease receivable was $303 million with a weighted average remaining lease term of approximately nine years. Interest income from these leases recorded was not material during the first quarter of 2020.

Leases

Leases

Lessee

We lease facilities and equipment primarily under operating leases. We recognize lease expense on a straight-line basis over the term of the lease, taking into account, when applicable, lessor incentives for tenant improvements, periods where no rent payment is required and escalations in rent payments over the term of the lease. Remaining terms for facility leases generally range from one to fifteen years, while remaining terms for equipment leases generally range from one to six years. Most real property leases contain renewal options (typically for five-year increments). Generally, the renewal option periods are not included within the lease term as we are not reasonably certain to exercise that right at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

ROU assets and operating lease liabilities are recognized at the lease commencement date. ROU assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases liabilities are recognized based on the present value of the future lease payments over the lease term discounted at our incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of our leases. We estimate the discount rate as our incremental borrowing rate based on qualitative factors including Company-specific credit rating, lease term, general economic and the interest rate environment. For existing leases that commenced prior to the adoption of the amended leasing guidance, we determined the discount rate on April 1, 2019 using the full lease term. Operating lease liabilities are recorded under the caption, “Current portion of operating lease liabilities” and “Long-Term Operating Lease Liabilities” and the corresponding lease assets are recorded under the caption, “Operating Lease Right-of-Use Assets,” in our condensed consolidated balance sheet. Finance lease assets are included in property, plant and equipment, net and finance lease liabilities are included in current portion of long-term debt and long-term debt in our condensed consolidated balance sheet.

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)	June 30, 2019
Operating leases
Operating Lease Right-of-Use Assets	$	2,031
Current portion of operating lease liabilities	$	373
Long-Term Operating Lease Liabilities	1,805
Total operating lease liabilities	$	2,178
Finance Leases
Property, Plant and Equipment, net	$	67
Current portion of long-term debt	$	7
Long-Term Debt	86
Total finance lease liabilities	$	93
Weighted Average Remaining Lease Term (Years)
Operating leases	8.56
Finance leases	11.76
Weighted Average Discount Rate
Operating leases	3.61		%
Finance leases	3.99		%

The components of lease cost were as follows:

	Quarter Ended June 30,
(In millions)	2019
Short-term lease cost	$	8
Operating lease cost	115
Finance lease cost:
Amortization of right-of-use assets	2
Interest on lease liabilities	1
Total finance lease cost	3
Variable lease cost (1)	31
Sublease income	(8		)
Total lease cost (2)	$	149

(1) These amounts include payments for maintenance, taxes, payments affected by the consumer price index and other similar metrics and payments contingent on usage.

(2) These amounts were primarily recorded within operating expenses in the accompanying condensed consolidated statement of operations.

Supplemental cash flow information related to leases was as follows:

	Quarter Ended June 30,
(In millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(99	)
Operating cash flows from finance leases	—
Financing cash flows from finance leases	(3		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	2,290
Finance leases	55

(1) These amounts include the transition adjustment for the adoption of the amended leasing guidance discussed in Financial Note 1, “Significant Accounting Policies.”

Maturities of lease liabilities as of June 30, 2019 were as follows:

(In millions)	Operating Leases			Finance Leases			Total
The remainder of 2020	$	319		$	8		$	327
2021	401			10			411
2022	344			10			354
2023	286			10			296
2024	232			10			242
Thereafter	900			69			969
Total lease payments (1)	$	2,482		$	117		$	2,599
Less imputed interest	(304		)	(24		)	(328		)
Present value of lease liabilities	$	2,178		$	93		$	2,271

(1) Total lease payments have not been reduced by minimum sublease income of $191 million due under future noncancelable subleases.

As of June 30, 2019, we entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $275 million that are not reflected in the table above. These operating leases will commence between 2020 and 2022 with noncancelable lease terms of 5 to 20 years.

As previously disclosed in our 2019 Annual Report and under the previous lease accounting, the minimum lease payments required under operating leases were as follows as of March 31, 2019:

(In millions)	Noncancelable Operating Leases
2020	$	454
2021	397
2022	343
2023	290
2024	236
Thereafter	936
Total minimum lease payments (1) (2)	$	2,656

(1) Amount includes future minimum lease payments for the sale-leaseback transaction of $49 million.

(2) Total minimum lease payments have not been reduced by minimum sublease income of $133 million due under future noncancelable subleases.

Lessor

We lease primarily certain owned equipment to the physician practices that are classified as direct financing or sales-type leases. As of June 30, 2019, the total lease receivable was $303 million with a weighted average remaining lease term of approximately nine years. Interest income from these leases recorded was not material during the first quarter of 2020.

Leases

Leases

Lessee

We lease facilities and equipment primarily under operating leases. We recognize lease expense on a straight-line basis over the term of the lease, taking into account, when applicable, lessor incentives for tenant improvements, periods where no rent payment is required and escalations in rent payments over the term of the lease. Remaining terms for facility leases generally range from one to fifteen years, while remaining terms for equipment leases generally range from one to six years. Most real property leases contain renewal options (typically for five-year increments). Generally, the renewal option periods are not included within the lease term as we are not reasonably certain to exercise that right at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

ROU assets and operating lease liabilities are recognized at the lease commencement date. ROU assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases liabilities are recognized based on the present value of the future lease payments over the lease term discounted at our incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of our leases. We estimate the discount rate as our incremental borrowing rate based on qualitative factors including Company-specific credit rating, lease term, general economic and the interest rate environment. For existing leases that commenced prior to the adoption of the amended leasing guidance, we determined the discount rate on April 1, 2019 using the full lease term. Operating lease liabilities are recorded under the caption, “Current portion of operating lease liabilities” and “Long-Term Operating Lease Liabilities” and the corresponding lease assets are recorded under the caption, “Operating Lease Right-of-Use Assets,” in our condensed consolidated balance sheet. Finance lease assets are included in property, plant and equipment, net and finance lease liabilities are included in current portion of long-term debt and long-term debt in our condensed consolidated balance sheet.

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)	June 30, 2019
Operating leases
Operating Lease Right-of-Use Assets	$	2,031
Current portion of operating lease liabilities	$	373
Long-Term Operating Lease Liabilities	1,805
Total operating lease liabilities	$	2,178
Finance Leases
Property, Plant and Equipment, net	$	67
Current portion of long-term debt	$	7
Long-Term Debt	86
Total finance lease liabilities	$	93
Weighted Average Remaining Lease Term (Years)
Operating leases	8.56
Finance leases	11.76
Weighted Average Discount Rate
Operating leases	3.61		%
Finance leases	3.99		%

The components of lease cost were as follows:

	Quarter Ended June 30,
(In millions)	2019
Short-term lease cost	$	8
Operating lease cost	115
Finance lease cost:
Amortization of right-of-use assets	2
Interest on lease liabilities	1
Total finance lease cost	3
Variable lease cost (1)	31
Sublease income	(8		)
Total lease cost (2)	$	149

(1) These amounts include payments for maintenance, taxes, payments affected by the consumer price index and other similar metrics and payments contingent on usage.

(2) These amounts were primarily recorded within operating expenses in the accompanying condensed consolidated statement of operations.

Supplemental cash flow information related to leases was as follows:

	Quarter Ended June 30,
(In millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(99	)
Operating cash flows from finance leases	—
Financing cash flows from finance leases	(3		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	2,290
Finance leases	55

(1) These amounts include the transition adjustment for the adoption of the amended leasing guidance discussed in Financial Note 1, “Significant Accounting Policies.”

Maturities of lease liabilities as of June 30, 2019 were as follows:

(In millions)	Operating Leases			Finance Leases			Total
The remainder of 2020	$	319		$	8		$	327
2021	401			10			411
2022	344			10			354
2023	286			10			296
2024	232			10			242
Thereafter	900			69			969
Total lease payments (1)	$	2,482		$	117		$	2,599
Less imputed interest	(304		)	(24		)	(328		)
Present value of lease liabilities	$	2,178		$	93		$	2,271

(1) Total lease payments have not been reduced by minimum sublease income of $191 million due under future noncancelable subleases.

As of June 30, 2019, we entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $275 million that are not reflected in the table above. These operating leases will commence between 2020 and 2022 with noncancelable lease terms of 5 to 20 years.

As previously disclosed in our 2019 Annual Report and under the previous lease accounting, the minimum lease payments required under operating leases were as follows as of March 31, 2019:

(In millions)	Noncancelable Operating Leases
2020	$	454
2021	397
2022	343
2023	290
2024	236
Thereafter	936
Total minimum lease payments (1) (2)	$	2,656

(1) Amount includes future minimum lease payments for the sale-leaseback transaction of $49 million.

(2) Total minimum lease payments have not been reduced by minimum sublease income of $133 million due under future noncancelable subleases.

Lessor

We lease primarily certain owned equipment to the physician practices that are classified as direct financing or sales-type leases. As of June 30, 2019, the total lease receivable was $303 million with a weighted average remaining lease term of approximately nine years. Interest income from these leases recorded was not material during the first quarter of 2020.