LEASES
We determine at its inception whether an arrangement that provides us control over the use of an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. We have elected not to recognize an ROU asset and lease liability for leases with terms of 12 months or less. Some of our leases include options to extend the term of the lease for up to 40 years or to terminate the lease within one year. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining total future lease payments. As most of our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate on the commencement date to calculate the present value of future payments.
Certain of our leases include variable payments, which may be calculated based on the Consumer Price Index (CPI) or similar indices at the lease commencement date. To the extent these variable payments are not considered fixed, we exclude such payments from the ROU asset and lease liability and expense as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease, such as commissions.
In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. For all other types of leases, non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.
Our leases are for office space, manufacturing facilities, and machinery and equipment. Real estate represents more than 75% of our lease obligations.
The components of lease costs were as follows:
| | | | | | | | | | | | | | | | | |
| | | | | |
| Year Ended December 31 | 2025 | | 2024 | | 2023 |
| Finance lease cost: | | | | | |
| Amortization of ROU assets | $ | 70 | | | $ | 62 | | | $ | 61 | |
| Interest on lease liabilities | 24 | | | 21 | | | 14 | |
| Operating lease cost | 331 | | | 317 | | | 320 | |
| Short-term lease cost | 74 | | | 74 | | | 76 | |
| Variable lease cost | 36 | | | 39 | | | 34 | |
| Sublease income | (17) | | | (16) | | | (17) | |
| Total lease costs, net | $ | 518 | | | $ | 497 | | | $ | 488 | |
Additional information related to leases was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31 | 2025 | | 2024 | | 2023 |
| | | | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | $ | 332 | | | $ | 319 | | | $ | 322 | |
| Operating cash flows from finance leases | 23 | | | 20 | | | 13 | |
| Financing cash flows from finance leases* | 556 | | | 64 | | | 55 | |
| ROU assets obtained in exchange for lease liabilities: | | | | | |
| Operating leases | 250 | | | 292 | | | 279 | |
| Finance leases* | (37) | | | 155 | | | 240 | |
*In 2025, financing cash flows from finance leases included approximately $490 for the exercise of options to purchase the underlying assets. This transaction also impacted ROU assets obtained in exchange for lease liabilities.
Additional quantitative lease information was as follows:
| | | | | | | | | | | |
| December 31 | 2025 | | 2024 |
| | | |
| Weighted-average remaining lease term: | | | |
| Operating leases | 10.9 years | | 10.8 years |
| Finance leases | 15.7 years | | 14.4 years |
| Weighted-average discount rate: | | | |
| Operating leases | 4 | % | | 4 | % |
| Finance leases | 5 | % | | 4 | % |
The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on the Consolidated Balance Sheet on December 31, 2025:
| | | | | | | | | | | |
| Year Ended December 31 | Operating Leases | | Finance Leases |
| 2026 | $ | 305 | | | $ | 55 | |
| 2027 | 265 | | | 46 | |
| 2028 | 202 | | | 39 | |
| 2029 | 156 | | | 36 | |
| 2030 | 108 | | | 30 | |
| Thereafter | 703 | | | 328 | |
| Total future lease payments | 1,739 | | | 534 | |
| Less imputed interest | 355 | | | 142 | |
| Present value of future lease payments | 1,384 | | | 392 | |
| Less current portion of lease liabilities | 260 | | | 39 | |
| Long-term lease liabilities | $ | 1,124 | | | $ | 353 | |
| ROU assets | $ | 1,284 | | | $ | 392 | |
On December 31, 2024, operating and finance lease liabilities and the related ROU assets were as follows:
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| Current portion of lease liabilities | $ | 253 | | | $ | 66 | |
| Long-term lease liabilities | 1,133 | | | 462 | |
| ROU assets | 1,295 | | | 501 | |
Lease liabilities are included on the Consolidated Balance Sheet in current and noncurrent other liabilities, while ROU assets are included in noncurrent other assets.
On December 31, 2025, we had additional future payments on leases that had not yet commenced of $25. These leases will commence in 2026 and have lease terms ranging from one to 10 years.