LEASES AND OTHER COMMITMENTS

6 Months Ended

Jun. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

LEASES AND OTHER COMMITMENTS

Leases

There are two types of leases: finance and operating. Both types of leases have associated right-to-use assets and lease liabilities that are valued at the present value of the lease payments and recognized on the Unaudited Consolidated Statements of Financial Position. The discount rate used in the measurement of a right-to-use asset and lease liability is the rate implicit in the lease whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, the collateralized incremental borrowing rate is used. The Company elected the accounting policy not to apply the recognition and measurement requirements to short-term leases with a term of 12 months or less and do not include a bargain purchase option.

The Company has operating leases, as a lessee, with customary terms that do not include: significant variable lease payments; significant reasonably certain extensions or options required to be included in the lease term; restrictions; or other covenants for real property, rolling stock, and machinery and equipment. Real property leases primarily consist of office space and rolling stock leases primarily for railcars and fleet vehicles. At June 30, 2022 and December 31, 2021, operating right-to-use assets of $209 million and $216 million, respectively, are included as part of "Other noncurrent assets" on the Unaudited Consolidated Statements of Financial Position. The operating right-to-use assets include $3 million and $3 million, respectively, of assets previously classified as lease intangibles and $6 million and $5 million, respectively, of prepaid lease assets. Operating lease liabilities are included as part of "Payables and other current liabilities" and "Other long-term liabilities" on the Unaudited Consolidated Statements of Financial Position.

As of June 30, 2022, reconciliation of lease payments and operating lease liabilities is provided below:


(Dollars in millions)	Operating Lease Liabilities
Remainder of 2022	$	29
2023	50
2024	37
2025	30
2026	21
2027 and beyond	53
Total lease payments	220
Less: amounts of lease payments representing interest	20
Present value of future lease payments	200
Less: current obligations under leases	50
Long-term lease obligations	$	150

The Company has operating leases, primarily leases for railcars, with terms that require the Company to guarantee a portion of the residual value of the leased assets upon termination of the lease that will expire beginning third quarter 2023. Residual guarantee payments that become probable and estimable are recognized as rent expense over the remaining life of the applicable lease. Management's current expectation is that the likelihood of material residual guarantee payments is remote.

Lease costs during the period and other information is provided below:


	Second Quarter				First Six Months
(Dollars in millions)	2022		2021		2022			2021
Lease costs:
Operating lease costs	$	16	$	18	$	34		$	36
Short-term lease costs	11		11		21			19
Sublease income	(3)		(1)		(7)			(2)
Total	$	24	$	28	$	48		$	53

Other operating lease information:
Cash paid for amounts included in the measurement of lease liabilities	$	17	$	18	$	33		$	35
Right-to-use assets obtained in exchange for new lease liabilities	$	27	$	18	$	35		$	26

Weighted-average remaining lease term, in years					6			5
Weighted-average discount rate					2.8		%	3.5		%