Leases

12 Months Ended

Mar. 31, 2021

Leases, Operating [Abstract]

Leases

LeasesIn the first quarter of 2020, the Company adopted amended guidance for leases using the modified retrospective method. Upon adoption of this amended guidance, the Company recorded $2.2 billion of operating lease liabilities, $2.1 billion of operating lease ROU assets, and a cumulative-effect adjustment of $69 million to opening retained earnings as of April 1, 2019. The adjustment to opening retained earnings included impairment charges of $89 million, net of tax, to the ROU assets primarily related to previously impaired long-lived assets at the retail pharmacies in the Company’s U.K. and Canadian businesses, partially offset by derecognition of existing deferred gain on the Company’s sale-leaseback transaction related to its former corporate headquarters building. The Company also elected to adopt the transition package of practical expedients provided within the amended guidance which eliminated the requirements to reassess lease identification, lease classification, and initial direct costs for leases which commenced before April 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated statements of operations and cash flows.

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. As a practical expedient, the Company does not separate lease components from non-lease components such as common area maintenance, utilities, and repairs and maintenance. Remaining terms for facility leases generally range from one to 15 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.

Operating right-of-use (“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 economics, 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 in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” and the corresponding lease assets are recorded in “Operating lease right-of-use assets” in the Company’s Consolidated Balance Sheets. 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 the Company’s Consolidated Balance Sheets. As a practical expedient, short-term leases with an initial term of 12 months or less are excluded from the Consolidated Balance Sheets and charges from these leases are expensed as incurred.

Supplemental balance sheet information related to leases was as follows:

	March 31,
(In millions, except lease term and discount rate)	2021			2020
Operating leases
Operating lease right-of-use assets	$	2,100		$	1,886
Current portion of operating lease liabilities	$	390		$	354
Long-term operating lease liabilities	1,867			1,660
Total operating lease liabilities	$	2,257		$	2,014
Finance leases
Property, plant and equipment, net	$	237		$	180
Current portion of long-term debt	$	22		$	15
Long-term debt	206			151
Total finance lease liabilities	$	228		$	166
Weighted-average remaining lease term (Years)
Operating leases	7.8			7.7
Finance leases	10.1			12.1
Weighted-average discount rate
Operating leases	2.53		%	3.03		%
Finance leases	2.71		%	2.86		%

The components of lease cost were as follows:

	Years Ended March 31,
(In millions)	2021		2020
Short-term lease cost	$	32	$	29
Operating lease cost	465		459
Finance lease cost:
Amortization of right-of-use assets	23		14
Interest on lease liabilities	6		5
Total finance lease cost	29		19
Variable lease cost (1)	125		125
Sublease income	(36)		(33)
Total lease cost (2)	$	615	$	599

(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 in “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations.

Rent expense under operating leases was $576 million in 2019.

Supplemental cash flow information related to leases was as follows:

	Years Ended March 31,
(In millions)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(362)	$	(377)
Operating cash flows from finance leases	(4)		(3)
Financing cash flows from finance leases	(31)		(18)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	321	$	2,378
Finance leases	75		166

(1) The amount for the year ended March 31, 2020 includes the transition adjustment of $2.1 billion for operating lease right-of-use assets recorded as of April 1, 2019 upon adoption of the amended leasing guidance included in ASU 2016-02, Leases.

Maturities of lease liabilities as of March 31, 2021 were as follows:

(In millions)	Operating Leases		Finance Leases		Total
2022	$	433	$	28	$	461
2023	401		28		429
2024	332		27		359
2025	283		25		308
2026	233		24		257
Thereafter	823		130		953
Total lease payments (1)	2,505		262		2,767
Less imputed interest	(248)		(34)		(282)
Present value of lease liabilities	$	2,257	$	228	$	2,485

(1)Total lease payments are not reduced by minimum sublease income of $202 million which are due under future noncancellable subleases.

As of March 31, 2021, the Company entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $217 million that are not reflected in the table above. These operating leases will commence between 2022 and 2024 with noncancellable lease terms of five to 15 years.

Lessor

The Company primarily leases certain owned equipment, that are classified as direct financing or sales-type leases, to physician practices. As of March 31, 2021 and 2020, the total lease receivable was $298 million and $272 million, respectively, with a weighted-average remaining lease term of approximately seven years. Interest income from these leases was not material for the years ended March 31, 2021 and 2020.

Leases

LeasesIn the first quarter of 2020, the Company adopted amended guidance for leases using the modified retrospective method. Upon adoption of this amended guidance, the Company recorded $2.2 billion of operating lease liabilities, $2.1 billion of operating lease ROU assets, and a cumulative-effect adjustment of $69 million to opening retained earnings as of April 1, 2019. The adjustment to opening retained earnings included impairment charges of $89 million, net of tax, to the ROU assets primarily related to previously impaired long-lived assets at the retail pharmacies in the Company’s U.K. and Canadian businesses, partially offset by derecognition of existing deferred gain on the Company’s sale-leaseback transaction related to its former corporate headquarters building. The Company also elected to adopt the transition package of practical expedients provided within the amended guidance which eliminated the requirements to reassess lease identification, lease classification, and initial direct costs for leases which commenced before April 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated statements of operations and cash flows.

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. As a practical expedient, the Company does not separate lease components from non-lease components such as common area maintenance, utilities, and repairs and maintenance. Remaining terms for facility leases generally range from one to 15 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.

Operating right-of-use (“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 economics, 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 in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” and the corresponding lease assets are recorded in “Operating lease right-of-use assets” in the Company’s Consolidated Balance Sheets. 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 the Company’s Consolidated Balance Sheets. As a practical expedient, short-term leases with an initial term of 12 months or less are excluded from the Consolidated Balance Sheets and charges from these leases are expensed as incurred.

Supplemental balance sheet information related to leases was as follows:

	March 31,
(In millions, except lease term and discount rate)	2021			2020
Operating leases
Operating lease right-of-use assets	$	2,100		$	1,886
Current portion of operating lease liabilities	$	390		$	354
Long-term operating lease liabilities	1,867			1,660
Total operating lease liabilities	$	2,257		$	2,014
Finance leases
Property, plant and equipment, net	$	237		$	180
Current portion of long-term debt	$	22		$	15
Long-term debt	206			151
Total finance lease liabilities	$	228		$	166
Weighted-average remaining lease term (Years)
Operating leases	7.8			7.7
Finance leases	10.1			12.1
Weighted-average discount rate
Operating leases	2.53		%	3.03		%
Finance leases	2.71		%	2.86		%

The components of lease cost were as follows:

	Years Ended March 31,
(In millions)	2021		2020
Short-term lease cost	$	32	$	29
Operating lease cost	465		459
Finance lease cost:
Amortization of right-of-use assets	23		14
Interest on lease liabilities	6		5
Total finance lease cost	29		19
Variable lease cost (1)	125		125
Sublease income	(36)		(33)
Total lease cost (2)	$	615	$	599

(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 in “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations.

Rent expense under operating leases was $576 million in 2019.

Supplemental cash flow information related to leases was as follows:

	Years Ended March 31,
(In millions)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(362)	$	(377)
Operating cash flows from finance leases	(4)		(3)
Financing cash flows from finance leases	(31)		(18)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	321	$	2,378
Finance leases	75		166

(1) The amount for the year ended March 31, 2020 includes the transition adjustment of $2.1 billion for operating lease right-of-use assets recorded as of April 1, 2019 upon adoption of the amended leasing guidance included in ASU 2016-02, Leases.

Maturities of lease liabilities as of March 31, 2021 were as follows:

(In millions)	Operating Leases		Finance Leases		Total
2022	$	433	$	28	$	461
2023	401		28		429
2024	332		27		359
2025	283		25		308
2026	233		24		257
Thereafter	823		130		953
Total lease payments (1)	2,505		262		2,767
Less imputed interest	(248)		(34)		(282)
Present value of lease liabilities	$	2,257	$	228	$	2,485

(1)Total lease payments are not reduced by minimum sublease income of $202 million which are due under future noncancellable subleases.

As of March 31, 2021, the Company entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $217 million that are not reflected in the table above. These operating leases will commence between 2022 and 2024 with noncancellable lease terms of five to 15 years.

Lessor

The Company primarily leases certain owned equipment, that are classified as direct financing or sales-type leases, to physician practices. As of March 31, 2021 and 2020, the total lease receivable was $298 million and $272 million, respectively, with a weighted-average remaining lease term of approximately seven years. Interest income from these leases was not material for the years ended March 31, 2021 and 2020.

Leases

LeasesIn the first quarter of 2020, the Company adopted amended guidance for leases using the modified retrospective method. Upon adoption of this amended guidance, the Company recorded $2.2 billion of operating lease liabilities, $2.1 billion of operating lease ROU assets, and a cumulative-effect adjustment of $69 million to opening retained earnings as of April 1, 2019. The adjustment to opening retained earnings included impairment charges of $89 million, net of tax, to the ROU assets primarily related to previously impaired long-lived assets at the retail pharmacies in the Company’s U.K. and Canadian businesses, partially offset by derecognition of existing deferred gain on the Company’s sale-leaseback transaction related to its former corporate headquarters building. The Company also elected to adopt the transition package of practical expedients provided within the amended guidance which eliminated the requirements to reassess lease identification, lease classification, and initial direct costs for leases which commenced before April 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated statements of operations and cash flows.

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. As a practical expedient, the Company does not separate lease components from non-lease components such as common area maintenance, utilities, and repairs and maintenance. Remaining terms for facility leases generally range from one to 15 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.

Operating right-of-use (“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 economics, 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 in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” and the corresponding lease assets are recorded in “Operating lease right-of-use assets” in the Company’s Consolidated Balance Sheets. 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 the Company’s Consolidated Balance Sheets. As a practical expedient, short-term leases with an initial term of 12 months or less are excluded from the Consolidated Balance Sheets and charges from these leases are expensed as incurred.

Supplemental balance sheet information related to leases was as follows:

	March 31,
(In millions, except lease term and discount rate)	2021			2020
Operating leases
Operating lease right-of-use assets	$	2,100		$	1,886
Current portion of operating lease liabilities	$	390		$	354
Long-term operating lease liabilities	1,867			1,660
Total operating lease liabilities	$	2,257		$	2,014
Finance leases
Property, plant and equipment, net	$	237		$	180
Current portion of long-term debt	$	22		$	15
Long-term debt	206			151
Total finance lease liabilities	$	228		$	166
Weighted-average remaining lease term (Years)
Operating leases	7.8			7.7
Finance leases	10.1			12.1
Weighted-average discount rate
Operating leases	2.53		%	3.03		%
Finance leases	2.71		%	2.86		%

The components of lease cost were as follows:

	Years Ended March 31,
(In millions)	2021		2020
Short-term lease cost	$	32	$	29
Operating lease cost	465		459
Finance lease cost:
Amortization of right-of-use assets	23		14
Interest on lease liabilities	6		5
Total finance lease cost	29		19
Variable lease cost (1)	125		125
Sublease income	(36)		(33)
Total lease cost (2)	$	615	$	599

(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 in “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations.

Rent expense under operating leases was $576 million in 2019.

Supplemental cash flow information related to leases was as follows:

	Years Ended March 31,
(In millions)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(362)	$	(377)
Operating cash flows from finance leases	(4)		(3)
Financing cash flows from finance leases	(31)		(18)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)	$	321	$	2,378
Finance leases	75		166

(1) The amount for the year ended March 31, 2020 includes the transition adjustment of $2.1 billion for operating lease right-of-use assets recorded as of April 1, 2019 upon adoption of the amended leasing guidance included in ASU 2016-02, Leases.

Maturities of lease liabilities as of March 31, 2021 were as follows:

(In millions)	Operating Leases		Finance Leases		Total
2022	$	433	$	28	$	461
2023	401		28		429
2024	332		27		359
2025	283		25		308
2026	233		24		257
Thereafter	823		130		953
Total lease payments (1)	2,505		262		2,767
Less imputed interest	(248)		(34)		(282)
Present value of lease liabilities	$	2,257	$	228	$	2,485

(1)Total lease payments are not reduced by minimum sublease income of $202 million which are due under future noncancellable subleases.

As of March 31, 2021, the Company entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $217 million that are not reflected in the table above. These operating leases will commence between 2022 and 2024 with noncancellable lease terms of five to 15 years.

Lessor

The Company primarily leases certain owned equipment, that are classified as direct financing or sales-type leases, to physician practices. As of March 31, 2021 and 2020, the total lease receivable was $298 million and $272 million, respectively, with a weighted-average remaining lease term of approximately seven years. Interest income from these leases was not material for the years ended March 31, 2021 and 2020.