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(7) Leases

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Right-of-use 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 Company’s incremental borrowing rate on a collateralized basis aligning with the term of the lease. ÌýOur lease agreements include both lease and non-lease components, which the Company accounts for as a single lease component. ÌýThe 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. Ìý

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Leases with an initial term greater than twelve months are classified as either finance or operating. Finance leases are generally those that we substantially use or pay for the entire asset over its estimated useful life and are recorded in property and equipment. All other leases are categorized as operating leases and recorded in operating lease right-of-use assets.

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We have entered into sale leaseback transactions. To determine whether the transaction should be accounted for as a sale, we evaluate whether control of the asset has transferred to a third party. If the transfer of the asset is determined to be a sale, we recognize the transaction price for the sale based on cash proceeds received, derecognize the carrying amount of the asset sold, and recognize a gain or loss in the consolidated statement of operations for any difference between the carrying value of the asset and the transaction price. The leaseback is accounted for according to our lease policy discussed above. If the transfer of the asset is not determined to be a sale, we account for the transaction as a financing arrangement.

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The Company has finance lease agreements with transponder and transmitter network suppliers for the right to transmit its signals. The Company is also party to a finance lease agreement for data processing hardware and a warehouse. ÌýThe Company also leases data processing equipment, facilities, office space, retail space and land. These leases are classified as operating leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments using our incremental borrowing rate.

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Our leases have remaining lease terms of less thanÌýone yearÌýtoÌý19 years, some of which may include theÌýoptionÌýtoÌýextendÌýfor up to 20 years, and some of which include options to or terminate the leases within less than one year.

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The components of lease cost during the years ended December 31, 2023, 2022 and 2021 were as follows:

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

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Supplemental balance sheet information related to leases was as follows:

Supplemental cash flow information related to leases was as follows:

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Future lease payments under finance leases and operating leases with initial terms of one year or more at December 31, 2023 consisted of the following:

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In June 2022, QVC modified the finance lease for its distribution center in Ontario, California which reduced the term of the lease and removed QVC’s ability to take ownership of the distribution center at the end of the lease term. QVC will make annual payments over the modified lease term. Since the lease was modified and removed QVC’s ability to take ownership at the end of the lease term, the Company accounted for the modification similar to a sale and leaseback transaction, and as a result, QVC received net cash proceeds of $250 million and recognized a $240Ìýmillion gain on the sale of the distribution center during the second quarter of 2022 calculated as the difference between the aggregate consideration received (including cash and forgiveness of the remaining financing obligation of $84Ìýmillion) and the carrying value of the distribution center. ÌýThe gain is included in gains on sale of assets and sale leaseback transactions in the consolidated statement of operations. The Company accounted for the modified lease as an operating lease and recorded a $37ÌýmillionÌýright-of-use assetÌýand a $31ÌýmillionÌýoperating lease liability, with the difference attributable to prepaid rent.

In December 2023, QVC modified the lease for its distribution center in Ontario, California pursuant to which QVC extended the term of the lease through December 31, 2030 with an option to renew the lease for an additional 3-year term ending December 31, 2033.

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In July 2022, QVC soldÌýfiveÌýowned and operated properties located in the U.S. to an independent third party and received net cash proceeds of $443Ìýmillion. Concurrent with the sale, QVC entered into agreements to lease each of the properties back from the purchaser over an initial term ofÌý20 yearsÌýwith the option to extend the terms of the property leases for up toÌýfourÌýconsecutive terms ofÌýfive years. QVC recognized a $277Ìýmillion gain related to the successful sale leaseback for the year ended December 31, 2022, calculated as the difference between the aggregate consideration received and the carrying value of the properties. The Company accounted for the leases as operating leases and recorded a $207ÌýmillionÌýright-of-use assetÌýand a $205Ìýmillion operating leaseÌýliability, with the difference attributable to initial direct costs.

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In November 2022, QVC entered into agreements to sellÌýtwoÌýproperties located in Germany and the U.K. to an independent third party.ÌýUnder the terms of the agreements, QVC received net cash proceeds ofÌý$102Ìýmillion related to its German facility and $80Ìýmillion related to its U.K. facility when the sale closed in January 2023. QVC recorded a gain of $69 million and $44 million related to the successful sale leaseback of the German and U.K. properties, respectively, during the first quarter of 2023 calculated as the difference between the aggregate consideration received and the carrying value of the properties. QVC accounted for the leases as operating at the close of the sale leaseback transaction and recorded a $42Ìýmillion and $32Ìýmillion right-of-use asset and operating lease liability for the German and U.K. properties, respectively.

As of December 31, 2022, the related assets of $71 million were classified as held for sale, and included in other assets, at cost, net of accumulated amortization in the consolidated balance sheet, as the proceeds from the sale were used to repay a portion of the Credit Facility borrowings which were classified as noncurrent as of December 31, 2022. º¬Ð߲ݴ«Ã½ classifies obligations as current when they are contractually required to be satisfied in the next twelve months.

On October 31, 2022, the Company entered into foreign currency forward contracts with an aggregate notional amount of $167Ìýmillion to mitigate the foreign currency risk associated with the sale and leaseback of Germany and U.K. properties. The forward did not qualify as a cash flow hedge under U.S. GAAP. Changes in the fair value of the forward are reflected in realized and unrealized gains (losses) on financial instruments, net in the consolidated statements of operations. The forward expired in January 2023 and was in a net liability position of $10Ìýmillion as of December 31, 2022, which was included in accrued liabilities in the consolidated balance sheet. The contracts expired in January 2023 which resulted in a net cash settlement of $12 million.