Leases

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), using a modified retrospective approach for leases existing at or entered into after the effective date. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard. The standard requires the recognition of right-of-use assets and lease liabilities for operating leases on the Company’s Consolidated Balance Sheets. The accounting for finance leases remained unchanged. There was no effect of adopting Topic 842 on member’s equity, operating income, or net income. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted.

The Company has substantial lease commitments for locomotives, freight cars, office buildings, operating facilities, and other property. Many of the Company’s leases provide the option to purchase the leased item at fair market value or a fixed purchase price at the end of the lease, and some leases include early buyout options at a fixed purchase price. Also, many of the Company’s leases include both fixed rate and fair market value renewal options.

As the implicit interest rate is not readily available for most leases, the Company used its incremental borrowing rate to determine the present value of lease payments at the transition date. The Company has lease agreements that contain both lease and non-lease components, but only freight cars are accounted for as a single lease component. BNSF has applied the short-term lease exemption to all asset classes, and as a result, short-term leases are not recognized on the Consolidated Balance Sheets. Variable lease costs, sublease income, and lessor transactions were not significant.

The following table shows the components of lease cost (in millions):



Lease Cost	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	116	$	361
Finance lease cost:
Amortization of right-of-use assets	9		28
Interest on lease liabilities	6		18
Short-term lease cost	22		64
Total lease cost	$	153	$	471

Supplemental balance sheet information related to leases was as follows (in millions):



Operating Leases	September 30, 2019
Operating lease right-of-use assets	$	2,423

Accounts payable and other current liabilities	$	460
Operating lease liabilities	1,678
Total operating lease liabilities	$	2,138



Finance Leases	September 30, 2019
Property and equipment	$	794
Accumulated depreciation	(340		)
Property and equipment, net	$	454

Long-term debt due within one year	$	48
Long-term debt	337
Total finance lease liabilities	$	385

Supplemental cash flow information related to leases was as follows (in millions):



Cash Flow	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease obligations:
Operating cash flows for operating leases	$	368
Operating cash flows for finance leases	$	19
Financing cash flows for finance leases	$	34
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	101

Other information related to leases was as follows:



Other Information	September 30, 2019
Weighted-average remaining lease term (in years):
Operating leases	7.8
Finance leases	4.9
Weighted-average discount rate:
Operating leases	3.7	%
Finance leases	6.3	%

Maturities of lease liabilities as of September 30, 2019 are summarized as follows (in millions):



	Operating Leases			Finance Leases
2019	$	42		$	19
2020	510			69
2021	436			200
2022	346			35
2023	301			28
Thereafter	818			101
Total lease payments	2,453			452
Less amount representing interest	(315		)	(67		)
Total	$	2,138		$	385

Future minimum lease payments as of December 31, 2018 are summarized as follows (in millions):



	Operating Leases		Capital Leases
2019	$	400	$	72
2020	496		69
2021	421		200
2022	328		35
2023	289		28
Thereafter	787		101
Total lease payments	$	2,721	505
Less amount representing interest			(86		)
Total			$	419