Leases

6 Months Ended

Jun. 30, 2019

Leases

Leases

4.    Leases

Our operating lease activities primarily consist of leases for real estate, landfills and operating equipment. Our financing lease activities primarily consist of leases for operating equipment, railcars and landfill assets. Leases with an initial term of 12 months or less, which are not expected to be renewed beyond one year, are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms generally ranging from one to 10 years. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments based on usage and other lease agreements include rental payments adjusted periodically for inflation; these payments are treated as variable lease payments. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.  

When the implicit interest rate is not readily available for our operating leases, we discount future cash flows of the remaining lease payments using the current interest rate that would be paid to borrow on collateralized debt over a similar term, or incremental borrowing rate, at the commencement date.

Supplemental balance sheet information for our leases is as follows (in millions):

Leases	Classification		June 30, 2019
Assets
Long-term:
Operating	Other assets	$	378
Financing	Property and equipment, net of accumulated depreciation and amortization		349
Total lease assets		$	727
Liabilities
Current:
Operating	Accrued liabilities	$	89
Financing	Current portion of long-term debt		33
Long-term:
Operating	Other liabilities		300
Financing	Long-term debt, less current portion		296
Total lease liabilities		$	718

Our operating lease expense for the three and six months ended June 30, 2019 was $31 million and $59 million, respectively, and is included in operating and selling, general and administrative expenses in our Condensed Consolidated Statement of Operations. Our financing lease expense for the three and six months ended June 30, 2019 was $11 million and $25 million, respectively, and is included in depreciation and amortization expense and interest expense, net in our Condensed Consolidated Statement of Operations.

Minimum contractual obligations for our leases (undiscounted) as of June 30, 2019 are as follows (in millions):

		Operating		Financing
2019 (excluding six months ended June 30, 2019)	$	45	$	22
2020		87		42
2021		55		40
2022		45		39
2023		37		38
Thereafter		268		235
Total lease payments	$	537	$	416
Less: interest		(148)		(87)
Discounted lease liabilities	$	389	$	329

As of June 30, 2019, we entered into leases, primarily for real estate, that have not yet commenced with future lease payments of $167 million that are not reflected in the table above. These leases will commence through 2020 with non-cancelable lease terms up to 15 years.

Cash paid for our operating and financing leases was $44 million and $17 million, respectively, for the six months ended June 30, 2019. Right-of-use assets obtained in exchange for lease obligations for our operating and financing leases were $32 million and $110 million, respectively, for the six months ended June 30, 2019.

As of June 30, 2019, the weighted average remaining lease terms of our operating and financing leases were 16 years and 15 years, respectively. The weighted average discount rates used to determine the lease liabilities as of June 30, 2019 for our operating and financing leases were 3.79% and 4.16%, respectively.