Leases

9 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

Leases

Lessee

The Company leases facilities and equipment primarily under operating leases. The Company recognizes 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 five 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 the Company is not reasonably certain to exercise that right at lease commencement. The Company’s 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 the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease liabilities are recognized based on the present value of the future lease payments over the lease term, discounted at the Company’s incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of the Company’s leases. The Company estimates the discount rate as its 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, the Company 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 the Company’s condensed consolidated balance sheet. Finance lease assets are included within property, plant and equipment, net and finance lease liabilities are included within the current portion of long-term debt and long-term debt in the Company’s condensed consolidated balance sheet.

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)	December 31, 2019
Operating leases
Operating Lease Right-of-Use Assets	$	2,013
Current portion of operating lease liabilities	$	365
Long-Term Operating Lease Liabilities	1,780
Total operating lease liabilities	$	2,145
Finance Leases
Property, Plant and Equipment, net	$	166
Current portion of long-term debt	$	13
Long-Term Debt	150
Total finance lease liabilities	$	163
Weighted Average Remaining Lease Term (Years)
Operating leases	8.1
Finance leases	11.5
Weighted Average Discount Rate
Operating leases	3.02		%
Finance leases	3.05		%

The components of lease cost were as follows:

(In millions)	Three Months Ended December 31, 2019			Nine Months Ended December 31, 2019
Short-term lease cost	$	7		$	22
Operating lease cost	117			345
Finance lease cost:
Amortization of right-of-use assets	4			9
Interest on lease liabilities	1			3
Total finance lease cost	5			12
Variable lease cost (1)	31			93
Sublease income	(10		)	(24		)
Total lease cost (2)	$	150		$	448

(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 condensed consolidated statement of operations.

Supplemental cash flow information related to leases was as follows:

(In millions)	Nine Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(287	)
Operating cash flows from finance leases	(3		)
Financing cash flows from finance leases	(17		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	2,366
Finance leases	163

(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 December 31, 2019 were as follows:

(In millions)	Operating Leases			Finance Leases			Total
The remainder of 2020	$	99		$	2		$	101
2021	428			18			446
2022	372			18			390
2023	311			17			328
2024	255			16			271
Thereafter	969			125			1,094
Total lease payments (1)	2,434			196			2,630
Less imputed interest	(289		)	(33		)	(322		)
Present value of lease liabilities	$	2,145		$	163		$	2,308

(1) Total lease payments have not been reduced by minimum sublease income of $185 million due under future noncancelable subleases.

As of December 31, 2019, the Company entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $163 million that are not reflected in the table above. These operating leases will commence between 2020 and 2024 with noncancelable lease terms of 3 to 15 years.

As previously disclosed in the Company’s 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

The Company primarily leases certain owned equipment, that are classified as direct financing or sales-type leases, to physician practices. As of December 31, 2019, the total lease receivable was $269 million with a weighted average remaining lease term of approximately seven years. Interest income from these leases recorded was not material during the three and nine months ended December 31, 2019.

Leases

Leases

Lessee

The Company leases facilities and equipment primarily under operating leases. The Company recognizes 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 five 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 the Company is not reasonably certain to exercise that right at lease commencement. The Company’s 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 the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease liabilities are recognized based on the present value of the future lease payments over the lease term, discounted at the Company’s incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of the Company’s leases. The Company estimates the discount rate as its 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, the Company 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 the Company’s condensed consolidated balance sheet. Finance lease assets are included within property, plant and equipment, net and finance lease liabilities are included within the current portion of long-term debt and long-term debt in the Company’s condensed consolidated balance sheet.

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)	December 31, 2019
Operating leases
Operating Lease Right-of-Use Assets	$	2,013
Current portion of operating lease liabilities	$	365
Long-Term Operating Lease Liabilities	1,780
Total operating lease liabilities	$	2,145
Finance Leases
Property, Plant and Equipment, net	$	166
Current portion of long-term debt	$	13
Long-Term Debt	150
Total finance lease liabilities	$	163
Weighted Average Remaining Lease Term (Years)
Operating leases	8.1
Finance leases	11.5
Weighted Average Discount Rate
Operating leases	3.02		%
Finance leases	3.05		%

The components of lease cost were as follows:

(In millions)	Three Months Ended December 31, 2019			Nine Months Ended December 31, 2019
Short-term lease cost	$	7		$	22
Operating lease cost	117			345
Finance lease cost:
Amortization of right-of-use assets	4			9
Interest on lease liabilities	1			3
Total finance lease cost	5			12
Variable lease cost (1)	31			93
Sublease income	(10		)	(24		)
Total lease cost (2)	$	150		$	448

(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 condensed consolidated statement of operations.

Supplemental cash flow information related to leases was as follows:

(In millions)	Nine Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(287	)
Operating cash flows from finance leases	(3		)
Financing cash flows from finance leases	(17		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	2,366
Finance leases	163

(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 December 31, 2019 were as follows:

(In millions)	Operating Leases			Finance Leases			Total
The remainder of 2020	$	99		$	2		$	101
2021	428			18			446
2022	372			18			390
2023	311			17			328
2024	255			16			271
Thereafter	969			125			1,094
Total lease payments (1)	2,434			196			2,630
Less imputed interest	(289		)	(33		)	(322		)
Present value of lease liabilities	$	2,145		$	163		$	2,308

(1) Total lease payments have not been reduced by minimum sublease income of $185 million due under future noncancelable subleases.

As of December 31, 2019, the Company entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $163 million that are not reflected in the table above. These operating leases will commence between 2020 and 2024 with noncancelable lease terms of 3 to 15 years.

As previously disclosed in the Company’s 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

The Company primarily leases certain owned equipment, that are classified as direct financing or sales-type leases, to physician practices. As of December 31, 2019, the total lease receivable was $269 million with a weighted average remaining lease term of approximately seven years. Interest income from these leases recorded was not material during the three and nine months ended December 31, 2019.

Leases

Leases

Lessee

The Company leases facilities and equipment primarily under operating leases. The Company recognizes 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 five 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 the Company is not reasonably certain to exercise that right at lease commencement. The Company’s 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 the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease liabilities are recognized based on the present value of the future lease payments over the lease term, discounted at the Company’s incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of the Company’s leases. The Company estimates the discount rate as its 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, the Company 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 the Company’s condensed consolidated balance sheet. Finance lease assets are included within property, plant and equipment, net and finance lease liabilities are included within the current portion of long-term debt and long-term debt in the Company’s condensed consolidated balance sheet.

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)	December 31, 2019
Operating leases
Operating Lease Right-of-Use Assets	$	2,013
Current portion of operating lease liabilities	$	365
Long-Term Operating Lease Liabilities	1,780
Total operating lease liabilities	$	2,145
Finance Leases
Property, Plant and Equipment, net	$	166
Current portion of long-term debt	$	13
Long-Term Debt	150
Total finance lease liabilities	$	163
Weighted Average Remaining Lease Term (Years)
Operating leases	8.1
Finance leases	11.5
Weighted Average Discount Rate
Operating leases	3.02		%
Finance leases	3.05		%

The components of lease cost were as follows:

(In millions)	Three Months Ended December 31, 2019			Nine Months Ended December 31, 2019
Short-term lease cost	$	7		$	22
Operating lease cost	117			345
Finance lease cost:
Amortization of right-of-use assets	4			9
Interest on lease liabilities	1			3
Total finance lease cost	5			12
Variable lease cost (1)	31			93
Sublease income	(10		)	(24		)
Total lease cost (2)	$	150		$	448

(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 condensed consolidated statement of operations.

Supplemental cash flow information related to leases was as follows:

(In millions)	Nine Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(287	)
Operating cash flows from finance leases	(3		)
Financing cash flows from finance leases	(17		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	2,366
Finance leases	163

(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 December 31, 2019 were as follows:

(In millions)	Operating Leases			Finance Leases			Total
The remainder of 2020	$	99		$	2		$	101
2021	428			18			446
2022	372			18			390
2023	311			17			328
2024	255			16			271
Thereafter	969			125			1,094
Total lease payments (1)	2,434			196			2,630
Less imputed interest	(289		)	(33		)	(322		)
Present value of lease liabilities	$	2,145		$	163		$	2,308

(1) Total lease payments have not been reduced by minimum sublease income of $185 million due under future noncancelable subleases.

As of December 31, 2019, the Company entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $163 million that are not reflected in the table above. These operating leases will commence between 2020 and 2024 with noncancelable lease terms of 3 to 15 years.

As previously disclosed in the Company’s 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

The Company primarily leases certain owned equipment, that are classified as direct financing or sales-type leases, to physician practices. As of December 31, 2019, the total lease receivable was $269 million with a weighted average remaining lease term of approximately seven years. Interest income from these leases recorded was not material during the three and nine months ended December 31, 2019.