Leases

12 Months Ended

Dec. 31, 2020

16. Leases

We lease certain locomotives, freight cars, and other property for use in our rail operations. We determine if an arrangement is or contains a lease at inception. We have lease agreements with lease and non-lease components and we have elected to not separate lease and non-lease components for all classes of underlying assets. Leases with an initial term of 12 months or less are not recorded on our Consolidated Statements of Financial Position; we recognize lease expense for these leases on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing leases in our Consolidated Statements of Financial Position. Operating leases are included in operating lease assets, accounts payable and other current liabilities, and operating lease liabilities on our Consolidated Statements of Financial Position. Finance leases are included in net properties, debt due within one year, and debt due after one year on our Consolidated Statements of Financial Position.

Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use a collateralized incremental borrowing rate for all operating leases based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term and reported in equipment and other rents, and financing lease expense is recorded as depreciation and interest expense in our Consolidated Statements of Income.

The following are additional details related to our lease portfolio:



		Dec. 31,		Dec. 31,
Millions	Classification	2020		2019
Assets
Operating leases	Operating lease assets	$	1,610	$	1,812
Finance leases	Net properties [a]		370		468
Total leased assets		$	1,980	$	2,280
Liabilities
Current
Operating	Accounts payable and other current liabilities	$	321	$	362
Finance	Debt due within one year		109		114
Noncurrent
Operating	Operating lease liabilities		1,283		1,471
Finance	Debt due after one year		340		491
Total lease liabilities		$	2,053	$	2,438

[a] Finance lease assets are recorded net of accumulated amortization of $737 million and $797 million as of December 31, 2020 and 2019, respectively.

The lease cost components are classified as follows:



		Dec. 31,		Dec. 31,
Millions	Classification	2020		2019
Operating lease cost [a]	Equipment and other rents	$	247	$	305
Operating lease cost [a]	Purchased services and materials		40		40
Operating lease cost [a]	Capitalized in net properties		30		21
Finance lease cost
Amortization of leased assets	Depreciation		66		72
Interest on lease liabilities	Interest expense		27		34
Net lease cost		$	410	$	472

[a] In addition to the lease cost components referenced above, we had short-term lease costs of $26 million and $27 million as of December 31, 2020 and 2019, respectively, and variable lease costs of $10 million and $12 million as of December 31, 2020 and 2019, respectively.

The following table presents aggregate lease maturities as of December 31, 2020:



Millions		Operating Leases		Finance Leases		Total
2021	$	325	$	135	$	460
2022		273		111		384
2023		229		81		310
2024		220		68		288
2025		216		45		261
After 2025		567		77		644
Total lease payments	$	1,830	$	517	$	2,347
Less: Interest		226		68		294
Present value of lease liabilities	$	1,604	$	449	$	2,053

The following table presents the weighted average remaining lease term and discount rate:



	Dec. 31,
	2020
Weighted-average remaining lease term (years)
Operating leases		7.9
Finance leases		5.2
Weighted-average discount rate (%)
Operating leases		3.7
Finance leases		5.1

The following table presents other information related to our operating and finance leases for the year ended December 31:




Millions	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	323	$	387
Investing cash flows from operating leases		30		21
Operating cash flows from finance leases		29		35
Financing cash flows from finance leases		113		112
Leased assets obtained in exchange for finance lease liabilities		-		-
Leased assets obtained in exchange for operating lease liabilities		93		118