Commitments and Contingencies

Operating Lease Commitments

The Company leases certain circuits, facilities, and equipment used in its operations. Operating lease expense was $4.1 million and $10.8 million, respectively, for the three and nine months ended September 30, 2018 and $2.4 million and $7.4 million, respectively, for the three and nine months ended September 30, 2017. Certain facility leases provide for renewal options with fixed rent escalations beyond the initial lease term.

At September 30, 2018, future minimum lease payments required under operating leases having initial or remaining non-cancellable lease terms for the next five years are as follows:



(dollars in millions)
Three months ended December 31, 2018	$	2.3
2019	7.9
2020	6.4
2021	4.2
2022	3.2
Thereafter	24.2
Total	$	48.2

Asset Retirement Obligations

Asset retirement obligations exist for certain assets. In conjunction with the merger of Hawaiian Telcom, the Company recognized certain asset retirement obligations related to underground tanks and environmental remediation that will occur prior to the retirement of certain assets. These obligations are recorded in "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets. Additionally, the Company recognizes certain asset retirement obligations related to data center leases which are recorded in "Accounts payable" in the Condensed Consolidated Balance Sheets. The following table presents the activity for the Company’s asset retirement obligations:



	September 30,
(dollars in millions)	2018
Balance, beginning of period	$	2.3
Liabilities assumed in purchase accounting	6.6
Accretion expense	0.1
Balance, end of period	$	9.0

Trans-Pacific Submarine Cable

Commensurate to the merger of Hawaiian Telcom, the Company gained access to the SEA-US cable. In August 2014, Hawaiian Telcom joined several other telecommunication companies to form a consortium to build and operate the SEA-US cable. The total system cost was $235.0 million and was primarily composed of a supply contract with the lead contractor. The Company has a fractional ownership in the system and recognizes its fractional share at cost. In addition, the Company constructed a cable landing station in Hawaii and provides cable landing services. The system was completed in August 2017. During the three months ended September 30, 2018, the Company incurred costs of $1.7 million, primarily to the cable contractor for construction, with all such costs capitalized.

The Company has excess capacity on its share of the SEA-US cable that it makes available to other carriers for a fee. The Company has contracted and expects to enter into additional IRU agreements with other carriers for use of this excess fiber circuit capacity. The Company may receive up-front payments for services to be delivered over a period of up to 25 years. As of September 30, 2018, the Company has a remaining obligation related to the sale of capacity and other services for $23.5 million, which was previously received in up-front payments. The Company is recognizing revenue for the circuits on a straight-line basis over the contract term.

Joint-Owned Utility Poles

The Company has a separate agreement for the joint ownership and maintenance of utility poles on Oahu, Maui, Hawaii and Kauai with the electric utilities and other third parties, such as the State of Hawaii. The agreements set forth procedures for establishing and maintaining a jointly owned aerial infrastructure including such things as pole installation and replacement and the sharing of costs among the joint pole owners. The agreements define the apportionment of costs for work done by one joint pole owner to be shared by the other joint pole owners. Traditionally, the electric utilities have initiated a majority of the work in maintaining, replacing and installing the jointly-owned poles and have billed the other joint pole owners for their respective share of the costs. The Company has a dispute with the common owner of the utilities in three of the counties, the Hawaiian Electric Companies (“HEC”), regarding the necessity of some of the work initiated and the unit cost used to calculate their share of the capitalized costs.

For the dispute involving the utility serving the City and County of Honolulu, a dispute resolution process was initiated as specified by the joint pole agreement. For the dispute involving jointly owned poles in the County of Hawaii, a complaint for payment was filed by the utility with the State court in 2016. In April 2018, Hawaiian Telcom agreed to settle the disputes with HEC and entered into agreements for selling its ownership of the poles and related responsibilities to the three utilities while becoming a lessee for attachment space on the same poles. In October 2018, the Company was notified that the Hawaii Public Utilities Commission had approved the joint pole agreement without any new conditions other than those already agreed to by the companies. The joint pole agreement approved by the Hawaii Public Utilities Commission provides for transfer of the Company’s ownership responsibility of the poles to HEC and the Company will pay a fixed annual fee to HEC for use of the poles.