LEASES AND COMMITMENTS
The Company’s lease agreements primarily consist of real estate property, such as manufacturing facilities, warehouses and office buildings, in addition to personal property, such as vehicles, manufacturing and information technology equipment. The Company determines whether a contract is or contains a lease at contract inception. The majority of the Company's lease arrangements are comprised of fixed payments, and a limited number of these arrangements include a variable payment component based on certain index fluctuations. As of December 31, 2025, a significant portion of the Company’s leases were classified as operating leases.
Generally, the Company’s operating leases have renewal options that extend the lease terms, and some include options to terminate the agreement or purchase the leased asset. The amortizable life of these assets is the lesser of its useful life or the lease term, including renewal periods reasonably assured of being exercised at lease inception.
All leases with an initial term of 12 months or less without an option to extend or purchase the underlying asset that the Company is reasonably certain to exercise (short-term leases) are not recorded on the Consolidated Balance Sheet, and lease expense is recognized on a straight-line basis over the lease term.
The following table presents the lease assets and lease liabilities as of December 31, 2025 and 2024:
| | | | | | | | | | | | | | |
| | December 31, |
| (in millions) | | 2025 | | 2024 |
| Assets | Balance Sheet Location | | | |
| Operating leases | Other non-current assets | $ | 48 | | | $ | 54 | |
| Finance leases | Property, plant and equipment, net | 3 | | | 2 | |
| Total lease assets | | $ | 51 | | | $ | 56 | |
| | | | |
| Liabilities | | | | |
| Current | | | | |
| Operating leases | Other current liabilities | $ | 19 | | | $ | 17 | |
| Finance leases | Short-term borrowings and current portion of long-term debt | 1 | | | 1 | |
| Non-current | | | | |
| Operating leases | Other non-current liabilities | 31 | | | 39 | |
| Finance leases | Long-term debt | 3 | | | 1 | |
| Total lease liabilities | | $ | 54 | | | $ | 58 | |
The following table presents lease obligations arising from obtaining leased assets for the years ended December 31, 2025, 2024 and 2023:
| | | | | | | | | | | | | | | | | |
| December 31, |
| (in millions) | 2025 | | 2024 | | 2023 |
| Operating leases | $ | 9 | | | $ | 2 | | | $ | 12 | |
| Finance leases | 2 | | | 2 | | | — | |
| Total lease obligations | $ | 11 | | | $ | 4 | | | $ | 12 | |
The following table presents the maturity of lease liabilities as of December 31, 2025:
| | | | | | | | | | | |
| (in millions) | Operating leases | | Finance leases |
| 2026 | $ | 20 | | | $ | 1 | |
| 2027 | 18 | | | 1 | |
| 2028 | 8 | | | 1 | |
| 2029 | 3 | | | 1 | |
| 2030 | 2 | | | — | |
| After 2030 | 3 | | | — | |
| Total (undiscounted) lease payments | $ | 54 | | | $ | 4 | |
| Less: Imputed interest | 4 | | | — | |
| Present value of lease liabilities | $ | 50 | | | $ | 4 | |
In the years ended December 31, 2025, 2024 and 2023, the Company recorded operating lease expense of $21 million, $20 million and $15 million, respectively.
In the years ended December 31, 2025, 2024 and 2023, the operating cash flows for operating leases were $20 million.
In the years ended December 31, 2025, 2024 and 2023, the Company recorded short-term lease costs of $4 million, $5 million and $1 million, respectively.
Finance lease costs were immaterial for the periods presented.
ASC Topic 842 requires that the rate implicit in the lease be used if readily determinable. Generally, implicit rates are not readily determinable in the Company’s agreements, so the incremental borrowing rate is used instead for such lease arrangements. The incremental borrowing rates are determined using rates specific to the term of the lease, economic environments where lease activity is concentrated, value of lease portfolio, and assuming full collateralization of the loans. The following table presents the terms and discount rates: | | | | | | | | | | | |
| December 31, |
| 2025 | | 2024 |
| Weighted average remaining lease term (years) | | | |
| Operating leases | 3 | | 4 |
| Finance leases | 4 | | 5 |
| Weighted average discount rate | | | |
| Operating leases | 3.9 | % | | 3.6 | % |
| Finance leases | 6.2 | % | | 5.7 | % |