10.

LEASES

The Company adopted the provisions of ASC

842

effective in the

first

quarter of

2019

on a modified retrospective basis. Refer to Note

“

Summary of Significant Accounting Policies

” for a summary of the effect of initial adoption on the Company’s consolidated financial statements.

The Company applied the following practical expedients as provided for under ASC

842:

(i)

The determination of whether expired or existing contracts contain leases at the date of adoption was

not

reassessed;

(ii)

The classification of existing or expired leases at the date of adoption was

not

reassessed;

(iii)

The provisions of ASC

842

were

not

applied to lease agreements with a term of

months or less;

(iv)

Non-lease components, which are

not

material, were combined with lease components and, accordingly, consideration was

not

allocated between these

two

elements;

(v)

Existing lease agreements were

not

reassessed to identify any initial direct costs; and

(vi)

Hindsight was applied to determine changes in lease terms and assess for the impairment of ROU assets.

Lease Agreements Under Which the Company is the Lessee

The Company enters into agreements for land, land easements, access rights, IRUs, co-located data centers, buildings, equipment, pole attachments and personal property. These assets are utilized in the provision of broadband and telecommunications services to the Company’s customers. An agreement is determined to be a lease if it coveys to the Company the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as the Company having both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. This determination is made at contract inception. Operating leases are included in operating lease ROU assets and current and noncurrent operating lease liabilities on the consolidated balance sheet. Finance leases are included in property, plant and equipment and current portion of long-term obligations and long-term obligations on the consolidated balance sheet.

ROU assets represent the Company’s right to use the underlying asset for the term of the operating lease and operating lease liabilities represent the Company’s obligation to make lease payments over the term of the lease. ROU assets and operating lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the term of the lease.

The terms of the Company’s leases are primarily fixed. A limited number of leases include a variable payment component based on a pre-determined percentage or index.

Most of the Company’s lease agreements include extension options which vary between leases but are generally consistent with industry practice. Extension options are exercised as required to meet the Company’s service obligations and other business requirements. Extension options are included in the determination of the ROU asset if, at lease inception, it is reasonably certain that the option will be exercised.

Certain leases include a provision for early termination, typically in return for an agreed amount of consideration. The terms of these provisions vary by contract. Upon the exercise of an early termination option, the ROU asset and associated liability are remeasured to reflect the present value of the revised cash flows. There were

early terminations recorded in the

six

-month period ended

June 30, 2019.

The Company’s operating and financing lease agreements do

not

include residual value guarantees, embedded leases or impose material restrictions or covenants on the Company’s operations. It has

lease arrangements with related parties. The Company has subleases associated with certain leased assets. Such arrangements are

not

material.

The Company entered into additional operating lease commitments that had

not

yet commenced as of

June 30, 2019

with a present value totaling approximately

$640.

These leases are primarily associated with the Company’s CAF Phase II services, are expected to commence in

2019

and

2020,

and have terms of

years.

The discount rate applied to determine the present value of the future lease payments is based on the Company’s incremental borrowing rate which is derived from recent secured borrowing arrangements entered into by the Company and publicly available information for instruments with similar terms.

The Company did

not

recognize any short-term lease cost, variable lease cost, enter into any sale and leaseback transactions or obtain right-of-use assets in exchange for operating and finance leases during the

six

-month period ended

June 30, 2019.

The following tables provide certain quantitative information about the Company’s lease agreements under which it is the lessee as of and for the

three

and

six

-month periods ended

June 30, 2019.

The maturities of lease liabilities are presented in

twelve

-month increments beginning

July 1, 2019.

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
Lease Cost

Finance lease cost:
Amortization of right-of-use assets	$	19	$	39
Interest on lease liabilities		68		136
Operating lease costs		1,955		3,910
Total lease cost	$	2,042	$	4,085

	At
	June 30, 2019
Balance Sheet Information

Operating leases:
ROU assets	$	80,458


Liabilities - current	$	2,517
Liabilities - noncurrent		77,937
Total liabilities	$	80,454

Finance leases:
Property, plant and equipment	$	2,519
Accumulated depreciation and amortization		(1,410	)
Property, plant and equipment, net	$	1,109

Current portion of long-term obligations	$	46
Long-term obligations, net of current portion		2,705
Total finance lease liabilities	$	2,751

	At June 30, 2019
	Operating			Financing
	Leases			Leases
Maturities of Lease Liabilities

Year 1	$	7,058		$	314
Year 2		7,392			322
Year 3		7,284			331
Year 4		7,151			341
Year 5		6,855			350
Thereafter		159,594			3,652
Total lease payments		195,334			5,310
Less imputed interest		(115,494	)		(2,559	)
Total present value of lease obligations		79,840			2,751
Present value of current obligations		(1,903	)		(46	)
Present value of long-term obligations	$	77,937		$	2,705

Other Information

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	136
Operating cash flows from operating leases		3,914
Financing cash flows from finance leases		18
Right-of-use assets obtained in exchange for new operating lease liabilities		243
Weighted-average remaining lease term (in years):
Finance leases		14
Operating leases		30
Weighted-average discount rate:
Finance leases		9.8	%
Operating leases		6.9	%

Lease Agreements Under Which the Company is the Lessor

The Company’s agreements under which it is the lessor are primarily associated with the use of its network assets, including IRUs for fiber optic cable, colocation and buildings. An agreement is determined to be a lease if it coveys to the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as the lessee having both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. This determination is made at contract inception. Exchanges of IRUs with other carriers are accounted for as leases if the arrangement has commercial substance. All of the Company’s agreements under which it is the lessor have been determined to be operating leases.

Lease payments are recognized as income on a straight-line basis over the term of the agreement, including scheduled changes in payments

not

based on an index or otherwise determined to be variable in nature. Any changes in payments based on an index are reflected in income in the period of the change. The underlying leased asset is reported as a component of property, plant and equipment on the balance sheet.

Initial direct costs associated with the lease incurred by the Company are deferred and expensed over the term of the lease.

Certain of the Company’s operating lease agreements include extension options which vary between leases but are generally consistent with industry practice. Extension options are

not

included in the determination of lease income unless, at lease inception, it is reasonably certain that the option will be exercised.

The Company’s operating leases do

not

include purchase options.

Certain leases include a provision for early termination, typically in return for an agreed amount of consideration. The terms of these provisions vary by contract. Upon the exercise of an early termination option, any deferred rent receivable, deferred income and unamortized initial direct costs are written off. The underlying asset is assessed for impairment giving consideration to the Company’s ability to utilize the asset in its business. There were

early terminations recorded in the

six

-month period ended

June 30, 2019.

The Company does

not

have material sublease arrangements as the lessor or lease arrangements with related parties.

The Company did

not

have sales-type leases or direct financing leases as of

June 30, 2019.

The underlying assets associated with the Company’s operating leases are accounted for under ASC

360,

“

Property, Plant and Equipment.

” The assets are depreciated on a straight-line basis over their estimated useful life, including any periods in which the Company expects to utilize the asset subsequent to termination of the lease.

The Company’s operating lease agreements

may

include a non-lease component associated with operation and maintenance services. Consideration received for these services are recognized as income on a straight-line basis consistently with the lease components. Certain operating lease arrangements include a separate maintenance and service agreement. Consideration received under these separate agreements are recognized as income when the relevant service is provided to the lessee.

The following tables provide certain quantitative information about the Company’s operating lease agreements under which it is the lessor as of and for the

three

and

six

-month periods ended

June 30, 2019.

Lease income is classified as revenue on the Statement of Comprehensive Income. The carrying value of the underlying leased assets is

not

material.

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
Lease Income

Total lease income	$	855	$	1,716

	At June, 30
	2019
Maturities of Future Undiscounted Lease Payments

Year 1	$	1,130
Year 2		1,088
Year 3		625
Year 4		369
Year 5		365
Thereafter		2,928
Total future undiscounted lease payments	$	6,505