LEASES
We have operating and finance leases for certain of our technology centers, warehouses, office spaces, land, and equipment. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The lease term is determined to be the non-cancelable period including any lessee renewal options that are considered to be reasonably certain of exercise. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company used judgment to determine an appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term in a similar economic environment. Lease expense for fixed lease payments on operating leases is recognized over the expected term on a straight-line basis, while lease expense for fixed lease payments on finance leases is recognized using the effective interest method.
Certain of our lease agreements include rental payments based on an index or are adjusted periodically for inflation. At lease inception, we make assumptions for certain factors (i.e., inflation rates) through the lease term. Changes to lease payments resulting from these factors are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, variable lease expense also includes elements of a contract that is based on usage during the term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to leases is summarized as follows:
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2025 | | 2024 |
| Assets | Classification | | | | |
| Operating lease ROU assets, net | Other assets (1) | | $ | 112 | | | $ | 99 | |
| Finance lease ROU assets, net | Property, plant and equipment, net (2) | | 44 | | | 47 | |
| Total leased assets | | | $ | 156 | | | $ | 146 | |
| Liabilities | | | | | |
| Current | | | | | |
| Operating lease liabilities | Other accrued liabilities | | $ | 31 | | | $ | 27 | |
| Finance lease liabilities | Current portion of borrowings | | 3 | | | 3 | |
| Noncurrent | | | | | |
| Operating lease liabilities | Other liabilities | | 81 | | | 73 | |
| Finance lease liabilities | Long-term borrowings | | 47 | | | 51 | |
| Total lease liabilities | | | $ | 162 | | | $ | 154 | |
(1) Operating lease assets are recorded net of accumulated amortization of $116 million and $89 million for the years ended December 31, 2025 and 2024, respectively.
(2) Finance lease assets are recorded net of accumulated amortization of $31 million and $26 million for the years ended December 31, 2025 and 2024, respectively.
Components of lease expense are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2025 | | 2024 | | 2023 |
| Finance lease cost | | | | | | |
| Amortization of right-of-use assets | | $ | 4 | | | $ | 5 | | | $ | 5 | |
| Interest on lease liabilities | | 3 | | | 3 | | | 3 | |
| Operating lease cost | | 43 | | | 39 | | | 39 | |
| Variable lease cost | | 3 | | | 3 | | | 4 | |
| Short-term lease cost | | 1 | | | 1 | | | 1 | |
| Net lease cost | | $ | 54 | | | $ | 51 | | | $ | 52 | |
Supplemental cash flow information related to leases is summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2025 | | 2024 | | 2023 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows for operating leases | | $ | 39 | | | $ | 39 | | | $ | 40 | |
| Operating cash flows for finance leases | | $ | 3 | | | $ | 3 | | | $ | 3 | |
| Financing cash flows for finance leases | | $ | 3 | | | $ | 3 | | | $ | 3 | |
| Non-cash leasing activities: | | | | | | |
ROU assets obtained in exchange for lease obligations - Operating leases (1) | | $ | 37 | | | $ | 23 | | | $ | 21 | |
| | | | | | |
(1) Includes lease extensions and option exercises.
Lease term and discount rate information are summarized as follows:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2025 | | 2024 |
| Weighted average remaining lease term (years) | | | | |
| Operating leases | | 5.5 | | 4.6 |
| Finance leases | | 11.3 | | 12.2 |
| Weighted average discount rate | | | | |
| Operating leases | | 5.0 | % | | 5.4 | % |
| Finance leases | | 5.3 | % | | 5.3 | % |
Maturities of lease liabilities as of December 31, 2025 are as follows:
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
| Year | | | | |
| 2026 | | $ | 37 | | | $ | 5 | |
| 2027 | | 29 | | | 6 | |
| 2028 | | 20 | | | 6 | |
| 2029 | | 11 | | | 7 | |
| 2030 | | 9 | | | 6 | |
| Thereafter | | 21 | | | 40 | |
| Total lease payments | | 127 | | | 70 | |
| Less: imputed interest | | 15 | | | 20 | |
| Present value of lease liabilities | | $ | 112 | | | $ | 50 | |