Leases

9 Months Ended

Sep. 30, 2019

The Company determines whether a contract contains a lease at inception. The Company leases land and buildings, plant equipment, vehicles, and computer equipment which have been classified as operating leases. Certain real estate leases include one or more options to renew; the exercise of lease renewal options is at the Company’s discretion. The Company includes renewal option periods in the lease term when it is determined that the options are reasonably certain to be exercised. Certain of Arconic's real estate lease agreements include rental payments that either have fixed contractual increases over time or adjust periodically for inflation. Certain of the Company's lease agreements include variable lease payments. The variable portion of payments is not included in the initial measurement of the right-of-use asset or lease liability due to the uncertainty of the payment amount and is recorded as lease cost in the period incurred. The Company also rents or subleases certain real estate to third parties, which is not material to the consolidated financial statements.

Operating lease right-of-use assets and lease liabilities with an initial term greater than 12 months are recorded on the balance sheet at the present value of the future minimum lease payments over the lease term at the lease commencement date and are recognized as lease expense on a straight-line basis over the lease term. The Company uses an incremental collateralized borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, as most of its leases do not provide an implicit rate. The operating lease right-of-use assets also include any lease prepayments made and were reduced by lease incentives and accrued exit costs as of the adoption date.

Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $36 and $35 in the third quarter of 2019 and 2018, respectively, and $110 and $109 in the nine months ended September 30, 2019 and 2018, respectively.

Operating lease right-of-use assets and lease liabilities in the Consolidated Balance Sheet were as follows:



	September 30, 2019
Right-of-use assets classified in Other noncurrent assets	$	256

Current portion of lease liabilitiesclassified in Other current liabilities	74
Long-term portion of lease liabilities classified in Other noncurrent liabilities and deferred credits	194
Total lease liabilities	$	268

Future minimum contractual operating lease obligations were as follows:



	September 30, 2019			December 31, 2018
2019	$	24		$	94
2020	79			74
2021	59			54
2022	43			40
2023	32			30
Thereafter	90			87
Total lease payments	$	327		$	379
Less: Imputed interest	(59		)
Present value of lease liabilities	$	268

Right-of-use assets obtained in exchange for operating lease obligations in the third quarter and nine months ended September 30, 2019 were $7 and $25, respectively. The weighted-average remaining lease term and weighted-average discount rate at September 30, 2019 was 6 years and 6.1%, respectively.