Leases

12 Months Ended

Jun. 30, 2020

NOTE 10. LEASES

On July 1, 2019, the Company adopted ASU 2016-02 on a modified retrospective basis and recognized a $9 million cumulative-effect adjustment to the opening balance of Accumulated deficit related to previous sale leaseback transactions. ASU 2016-02 requires lessees to recognize all operating leases on the balance sheet by recording a lease liability and a right-of-use asset. The lease liability represents the present value of the Company’s lease obligations over the lease term. The discount rate used was calculated using the Company’s incremental borrowing rate (“IBR”) which represents the interest rate at which the Company would be expected to borrow an amount equal to the lease payments on a secured basis over a similar term. To derive the IBR, the Company utilizes unsecured borrowing rates and adjusts those rates using the notching method to approximate a collateralized rate. Further adjustments are made to reflect the primary geographies in which the Company operates. The right-of-use asset represents the Company’s right to use, or control the use of, the underlying asset for the lease term at lease commencement. The Company recorded operating lease right-of-use assets, current operating lease liabilities and noncurrent operating lease liabilities for its operating leases of approximately $1.4 billion, $0.2 billion and $1.4 billion, respectively, on July 1, 2019.

The Company assesses whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately, the classification and initial measurement of the right-of-use asset and lease liability is determined at lease commencement, which is the date the underlying asset becomes available for use. For operating leases, the Company recognizes the current and non-current portion of its lease liabilities within Other current liabilities and Operating lease liabilities, respectively, and its right-of-use assets within Operating lease right-of-use assets in its Balance Sheet. For finance leases, the Company recognizes the current and non-current portion of its lease liabilities within Current borrowings and Borrowings, respectively, and its right-of-use assets within Property, plant and equipment, net in its Balance Sheet.

Rent expense for operating leases is recognized on a straight-line basis over the lease term. Such amounts are presented within either Selling, general and administrative or Operating expenses in the Statement of Operations based on the nature of the lease. Depreciation expense related to finance lease right-of-use assets is presented within Depreciation and amortization, and interest expense related to finance lease liabilities is presented within Interest expense, net in the Statement of Operations. Variable lease

payments are expensed in the period incurred. The Company’s variable lease payments consist of payments dependent on various external indicators, including common area maintenance, real estate taxes and utility charges.

The Company applied the package of practical expedients permitted under ASU 2016-02 transition guidance. Accordingly, the Company did not reassess: (1) whether an expired or existing contract is a lease or contains an embedded lease; (2) lease classification of an expired or existing lease; (3) capitalization of initial direct costs for an expired or existing lease; (4) existing land easements for lease accounting treatment.

In addition, the Company elected to apply the short term lease exemption and not record leases on the Balance Sheet that have a term of 12 months or less and do not contain purchase options reasonably certain of being exercised. The Company recognizes rent expense related to these leases on a straight-line basis over the lease term.

In circumstances where the Company is the lessee, the Company elected to account for lease and non-lease components as a single lease component for all asset classes. Additionally, the Company has contracts that contain customer premise equipment (i.e., set-top units) for which we apply the lessor lease and non-lease component practical expedient and account for lease components and non-lease components (e.g., service revenue) as a single performance obligation pursuant to ASU 2014-09. The Company applies this practical expedient when the lease component would be classified as an operating lease, if accounted for separately, and the service revenue component is the predominant component in the arrangement.

Summary of leases

The Company's operating leases primarily consist of real estate, including office space, warehouse space and printing facilities, and satellite transponders. During the fourth quarter of fiscal 2020, the Company modified its contract related to its satellite transponders which resulted in certain transponders being classified as finance leases. Certain leases for satellite transponders were determined to be operating leases in accordance with ASU 2016-02. The Company’s operating leases generally include options to extend the lease term or terminate the lease. Such options do not impact the Company’s lease term assessment until the Company is reasonably certain that the option will be exercised.

Certain of the Company’s leases include rent adjustments which may be indexed to various metrics, including the consumer price index or other inflationary indexes. As a general matter, the Company’s real estate lease arrangements typically require adjustments resulting from changes in real estate taxes and other costs to operate the leased asset.

Other required lease disclosures

The total lease cost for operating and finance leases included in the Statement of Operations was as follows:


	Income Statement Location	For the fiscal year ended June 30, 2020

Operating lease costs	Selling, general and administrative	$	139
Operating lease costs	Operating expenses	64
Finance lease costs	Depreciation and amortization	6
Finance lease costs	Interest expense, net	1
Short term lease costs	Operating expenses	9
Variable lease costs	Selling, general and administrative	41
Total lease costs		$	260

Total operating lease expense was approximately $195 million and $183 million for the fiscal years ended June 30, 2019 and 2018, respectively.

Additional information related to the Company’s operating and finance leases under ASU 2016-02:

As of June 30, 2020

Operating Leases

Finance Leases

Weighted-average remaining lease term

12.2 years

4.7 years

Weighted-average incremental borrowing rate

3.49

3.64


	For the fiscal year ended June 30, 2020
	(in millions)
Cash paid - Operating lease liabilities	$	224
Cash paid - Finance lease liabilities - principal	7
Cash paid - Finance lease liabilities - interest	1
Operating lease right-of-use asset obtained in exchange for operating lease liabilities	225

Future minimum lease payments under non-cancellable leases as of June 30, 2020 are as follows:


	As of June 30, 2020
	Operating Leases		Finance Leases
	(in millions)
Fiscal 2021	$	174	$	31
Fiscal 2022	168		29
Fiscal 2023	156		26
Fiscal 2024	143		26
Fiscal 2025	131		16
Thereafter	824		0
Total future minimum lease payments	$	1,596	$	128
Less: interest	(319)		(10)
Present value of minimum payments	$	1,277	$	118