Leases

6 Months Ended

Jun. 30, 2019

LEASES

We lease property and equipment in the ordinary course of business under various lease agreements. The most significant lease obligations are for real property and equipment specific to our industry, including property operated as a landfill or transfer station and operating equipment. Our leases have varying terms. Some may include renewal or purchase options, escalation clauses, restrictions, penalties or other obligations that we consider in determining minimum lease payments. Our lease terms include options to renew the lease when it is reasonably certain that we will exercise the option.

Certain leases require payments that are variable in nature based on volume measurements, e.g. a fixed rate per ton at our landfills. In addition, certain rental payments are adjusted annually based on changes in an underlying base index such as a consumer price index. Variable lease payments are recognized in our consolidated statement of income in the period incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We generally account for lease components separately from non-lease components.

Leases are classified as either operating leases or finance leases, as appropriate. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheet.

Operating Leases

Many of our leases are operating leases. Operating lease classification generally can be attributed to either (1) relatively low fixed minimum lease payments (including, for example, real property lease payments that are not fixed and vary based on the volume of waste we receive or process), or (2) minimum lease terms that are shorter than the asset's economic useful life. We expect that, in the ordinary course of business, our operating leases will be renewed, replaced by other leases, or replaced with capital expenditures. We recognize rent expense for these leases on a straight-line basis over the lease term.

We recognize a right-of-use liability and right-of-use asset for leases classified as operating leases in our consolidated balance sheet upon lease commencement. The right-of-use liability represents the present value of the remaining lease payments. An

implicit rate is often not readily available for these leases. As such, we use our incremental borrowing rate at the commencement date to determine the present value of the lease payments. Our incremental borrowing rate represents the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. In addition, we recognize a corresponding right-of-use asset, which represents our right to use an underlying asset for the lease term. The right-of-use asset is adjusted for certain favorable or unfavorable leases recognized through acquisition, prepaid or accrued rent, asset impairments and lease incentives, including but not limited to cash incentives, rent abatement or leasehold improvements paid by the lessor.

Finance Leases

We capitalize assets acquired under finance leases at lease commencement and amortize them to depreciation expense over the lesser of the useful life of the asset or the lease term on either a straight-line or a units-of-consumption basis, depending on the asset leased. We record the present value of the related lease payments as a debt obligation. Our finance lease liability relates primarily to certain long-term landfill operating agreements that require minimum lease payments with offsetting finance lease assets recorded as part of the landfill development costs.

A summary of the lease classification on our consolidated balance sheet as of June 30, 2019 follows:


		2019
Assets
Operating lease assets	Other assets	$	233.1
Finance lease assets	Property and equipment, net	119.1
Total lease assets		$	352.2

Liabilities
Current
Operating	Other accrued liabilities	$	35.1
Finance	Notes payable and current maturities of long-term debt	6.0
Long-term
Operating	Other long-term liabilities	217.3
Finance	Long-term debt, net of current maturities	101.7
Total lease liabilities		$	360.1

A summary of the lease cost reflected in our consolidated statement of operations for the three and six months ended June 30, 2019 follows:


		Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost
Fixed lease cost	Cost of operations	$	9.2	$	18.5
Short-term lease cost	Cost of operations	10.6		20.7
Variable lease cost	Cost of operations	4.7		8.9
Finance lease cost
Amortization of leased assets	Depreciation amortization, and depletion	1.4		2.7
Interest on lease liabilities	Interest expense	1.8		3.7
Variable lease cost	Interest expense	1.3		2.7
Total lease cost		$	29.0	$	57.2

As of June 30, 2019, aggregate principal payments for operating and finance leases follows:


	Operating Leases		Finance Leases		Total
2019 (remaining)	$	22.4	$	6.8	$	29.2
2020	40.0		13.4		53.4
2021	36.6		13.1		49.7
2022	31.6		12.5		44.1
2023	30.1		37.9		68.0
Thereafter	141.9		127.3		269.2
Total lease payments	302.6		211.0		513.6
Less: interest	(50.2)		(103.3)		(153.5)
Present value of lease liabilities	$	252.4	$	107.7	$	360.1

A summary of the weighted-average remaining lease term and weighted-average discount rate as of June 30, 2019 follows:


	June 30, 2019
Weighted-average remaining lease term (years)
Operating leases	9.0
Finance leases	15.3
Weighted-average discount rate
Operating leases	3.8	%
Finance leases	7.2	%

Supplemental cash flow and other non-cash information for the three and six months ended June 30, 2019 follows:


	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	26.6	$	51.0
Operating cash flows from finance leases	$	3.1	$	6.4
Financing cash flows from finance leases	$	1.1	$	2.8
Leased assets obtained in exchange for new finance lease liabilities	$	0.8	$	0.8
Leased assets obtained in exchange for new operating lease liabilities	$	7.7	$	9.4