Leases
We primarily enter into lease agreements for office space, distribution centers, certain manufacturing facilities and equipment. Certain leases contain options that provide us with the ability to extend the lease term. Such options are included in the lease term when it is reasonably certain that the option will be exercised. When accounting for leases, we combine payments for leased assets, related services and other components of a lease. Payments within certain lease agreements are adjusted periodically for changes in an index or rate. In addition, leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheet.
The discount rate implicit within our leases is generally not determinable, and therefore we determine the discount rate based on our incremental borrowing rate. The incremental borrowing rate for our leases is determined based on lease term and the currency in which lease payments are made.
The components of lease expense are as follows: | | | | | | | | | | | | | | | | | |
| 2025 | | 2024 | | 2023 |
| Operating lease expense | $ | 64 | | | $ | 68 | | | $ | 60 | |
| Finance lease cost: | | | | | |
| Amortization of lease assets | 8 | | | 7 | | | 6 | |
| Interest on lease liabilities | 5 | | | 5 | | | 4 | |
| Short-term lease cost | 13 | | | 9 | | | 8 | |
| Variable lease cost | 6 | | | 6 | | | 6 | |
| Total lease cost | $ | 96 | | | $ | 95 | | | $ | 84 | |
Supplemental cash flow information related to leases is as follows: | | | | | | | | | | | | | | | | | |
| 2025 | | 2024 | | 2023 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash outflows - payments on operating leases | $ | 64 | | | $ | 65 | | | $ | 58 | |
| Operating cash outflows - interest payments on finance leases | 5 | | | 5 | | | 4 | |
| Financing cash outflows - payments on finance lease obligations | 5 | | | 5 | | | 5 | |
| Right-of-use assets obtained in exchange for operating lease obligations | 18 | | | 42 | | | 45 | |
| Right-of-use assets obtained in exchange for finance lease obligations | 2 | | | 4 | | | 1 | |
Supplemental balance sheet information related to operating leases is as follows:
| | | | | | | | | | | |
| 2025 | | 2024 |
| Operating Leases | | | |
| Operating lease right-of-use assets (included within Other assets) | $ | 192 | | $ | 226 |
| | | |
| Current operating lease liabilities (included within Other accrued liabilities) | $ | 47 | | $ | 54 |
| Long-term operating lease liabilities (included within Other liabilities) | 154 | | 180 |
| Total operating lease liabilities | $ | 201 | | $ | 234 |
| | | |
| Finance Leases | | | |
| Property, plant and equipment | $ | 127 | | $ | 116 |
| Accumulated depreciation | (25) | | (15) |
| Property, plant and equipment, net | $ | 102 | | $ | 101 |
| | | |
| Notes payable and long-term debt payable within one year | $ | 6 | | $ | 5 |
| Long-term debt | 102 | | 98 |
Total finance lease liabilities | $ | 108 | | $ | 103 |
| | | |
| Weighted-average remaining lease term | | | |
| Operating leases | 6.3 years | | 6.4 years |
| Finance leases | 18.8 years | | 19.5 years |
| | | |
| Weighted-average discount rate | | | |
| Operating leases | 4.3 | % | | 4.2 | % |
| Finance leases | 5.2 | % | | 5.2 | % |
Maturities of lease liabilities at June 30, 2025 are as follows: | | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| 2026 | $ | 54 | | | $ | 11 | |
| 2027 | 43 | | | 11 | |
| 2028 | 33 | | | 10 | |
| 2029 | 24 | | | 10 | |
| 2030 | 17 | | | 10 | |
| Thereafter | 62 | | | 119 | |
| Total lease payments | $ | 233 | | | $ | 171 | |
| Less imputed interest | 32 | | | 63 | |
| Total lease liabilities | $ | 201 | | | $ | 108 | |
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.