Leases (Notes)

6 Months Ended

Jun. 30, 2019

The primary leased asset classes of the Company include real estate, dark fiber, colocation facilities and other equipment. The lease agreements include both lease and non-lease components, which the Company accounts for separately depending on the election made for each leased asset class. For real estate and dark fiber leased asset classes, the Company accounts for lease and non-lease components as a single lease component and includes all fixed payments in the measurement of lease liabilities and lease assets. For colocation facilities leased asset class, the Company accounts for lease and non-lease components separately including only the fixed lease payment component in the measurement of lease liabilities and lease assets.

In addition to fixed lease payments, certain of the Company’s lease agreements include variable lease payments which are tied to an index or rate such as the change in the Consumer Price Index. These variable payments are not included in the measurement of the lease liabilities and lease assets.

Lease assets and lease liabilities are initially recognized based on the present value of the future lease payments over the expected lease term. As for most leases the implicit rate is not readily determinable, the Company uses a discount rate in determining the present value of future payments based on the yield-to-maturity of the Company’s secured publicly traded USD denominated debt instruments interpolating the duration of the debt to the term of the executed lease.

The Company’s leases have base rent periods and some with optional renewal periods. Leases with base rent periods of less than 12 months are not recorded on the balance sheet. For purposes of measurement of lease liabilities, the expected lease terms may include renewal options when it is reasonably certain that the Company will exercise such options. Based on conditions of the Company's existing leases and its overall business strategies, the majority of the Company's renewal options are not reasonably certain in determining the expected lease term. The Company will periodically reassess expected lease terms (and purchase options, if applicable) based on significant triggering events or compelling economic reasons to exercise such options.

The Company’s primary lease income represents sublease income on certain real estate leases. Sublease income is included in other revenue and presented gross from rent expense. For customer premise equipment ("CPE") where such CPE would qualify as a lease, the Company applies the practical expedient to combine the operating lease with the subscription service revenue as a single performance obligation in accordance with revenue recognition accounting guidance as the subscription service is the predominant component.

The components of lease related expenses, net are as follows.



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease expense ^(a)	$	109		$	216

Finance lease expense:
Amortization of right-of-use assets	3			7
Interest on lease liabilities	2			3
Total finance lease expense	5			10

Sublease income	(7		)	(14		)
Total lease related expenses, net	$	107		$	212


^(a)	Includes short-term leases and variable leases costs of $30 million and $65 million for the three and six months ended June 30, 2019, respectively.

Supplemental cash flow information related to leases is as follows.



	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	147
Operating cash flows from finance leases	$	2
Financing cash flows from finance leases	$	4

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	161
Finance leases	$	26

Supplemental balance sheet information related to leases is as follows.



	June 30, 2019
Operating leases:
Operating lease right-of-use assets	$	1,166

Current operating lease liabilities	$	208
Long-term operating lease liabilities	1,052
Total operating lease liabilities	$	1,260

Finance leases:
Finance lease right-of-use assets (included within property, plant and equipment, net)	$	202

Current finance lease liabilities (included within accounts payable and accrued liabilities)	$	6
Long-term finance lease liabilities (included within other long-term liabilities)	97
Total finance lease liabilities	$	103

Weighted average remaining lease term
Operating leases	6.9 years
Finance leases	13.1 years

Weighted average discount rate
Operating leases	4.5		%
Finance leases	5.6		%

Maturities of lease liabilities are as follows.



	Operating leases			Finance leases
Six months ended December 31, 2019	$	146		$	5
2020	278			11
2021	243			12
2022	207			12
2023	178			12
Thereafter	516			95
Undiscounted lease cash flow commitments	1,568			147
Reconciling impact from discounting	(308		)	(44		)
Lease liabilities on consolidated balance sheet as of June 30, 2019	$	1,260		$	103

The following table presents the Company’s unadjusted lease commitments as of December 31, 2018 as a required disclosure for companies adopting the lease standard prospectively without revising comparative period information.



	Operating leases		Finance leases
2019	$	286	$	10
2020	254		9
2021	207		9
2022	170		9
2023	143		10
Thereafter	440		64
	$	1,500	$	111