Qurate Retail, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Lease and Transponder Service Agreements

Lease and Transponder Service Agreements

3 Months Ended

Mar. 31, 2020

Leases

The Company has finance lease agreements with transponder and transmitter network suppliers for the right to transmit its signals in the U.S., and Germany. The Company is also party to a finance lease agreement for data processing hardware and a warehouse.

QVC also leases data processing equipment, facilities, office space and land. These leases are classified as operating leases. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments using our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Our leases have remaining lease terms of less than 1 year to 14 years, some of which may include the option to extend or terminate the leases.

The components of lease cost for the three months ended March 31, 2020 and 2019 were as follows:



	Three months ended
(in millions)	March 31, 2020		March 31, 2019
Finance lease cost
Depreciation of leased assets	$	5	5
Interest on lease liabilities	2		2
Total finance lease cost	7		7
Operating lease cost	10		6
Total lease cost	$	17	13

The remaining weighted-average lease term and the weighted-average discount rate were as follows:



	March 31, 2020
Weighted-average remaining lease term (years):
Finance leases	9.1
Operating leases	12.2
Weighted-average discount rate:
Finance leases	5.1	%
Operating leases	6.0	%

Supplemental balance sheet information related to leases was as follows:



(in millions)	March 31, 2020			December 31, 2019
Operating Leases:
Operating lease right-of-use assets	$	208		214
Accrued liabilities	$	22		28
Other long-term liabilities	184			190
Total operating lease liabilities	$	206		218
Finance Leases:
Property and equipment	$	280		282
Accumulated depreciation	(133		)	(129	)
Property and equipment, net	$	147		153
Current portion of debt and finance lease obligations	$	17		18
Long-term portion of debt and finance lease obligations	157			163
Total finance lease liabilities	$	174		181

Supplemental cash flow information related to leases was as follows:



	Three months ended
(in millions)	March 31, 2020		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating lease	$	14	6
Operating cash flows from finance leases	2		2
Financing cash flows from finance leases	5		5
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	3		68
Finance leases	$	—	—

Future payments under noncancelable operating leases and finance leases with initial terms of one year or more as of March 31, 2020 consisted of the following:



(in millions)	Finance Leases			Operating leases		Total leases
Remainder of 2020	$	19		26		45
2021	25			27		52
2022	25			23		48
2023	24			20		44
2024	23			20		43
Thereafter	108			183		291
Total lease payments	224			299		523
Less: imputed interest	(50		)	(93	)	(143	)
Total lease liabilities	$	174		206		380

On October 5, 2018, QVC entered into a lease (“ECDC Lease”) for an East Coast distribution center. The 1.7 million square foot rental building is located in Bethlehem, Pennsylvania and the ECDC Lease has an initial term of 15 years. QVC obtained initial access to a portion of the ECDC Lease during March 2019 and obtained access to the remaining portion during September 2019. In total, QVC recorded a right of use asset of $141 million and an operating lease liability of $131 million relating to the ECDC Lease, with the difference attributable to prepaid rent. QVC is required to pay an initial base rent of $10 million per year, with payments that began in the third quarter of 2019 and increasing to $14 million per year, as well as all real estate taxes and other building operating costs. QVC also has the option to extend the term of the ECDC Lease for up to two consecutive terms of 5 years each and one final term of 4 years.