Leases

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

Leases

Leases

We primarily lease to or from third parties various office facilities, colocation facilities, equipment and transmission capacity. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.

Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs). We generally account for each component separately based on the estimated standalone price of each component. For colocation leases, we account for the lease and non-lease components as a single lease component.

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless we determine that we are reasonably certain of renewing the lease. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not generally contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2022		2021	2020
	(Dollars in millions)
Operating and short-term lease cost	$	451	535	729
Finance lease cost:
Amortization of right-of-use assets	37		37	36
Interest on lease liability	15		16	12
Total finance lease cost	52		53	48
Total lease cost	$	503	588	777

We primarily lease from third parties various equipment, office facilities, retail outlets, switching facilities and other network sites or components. These leases, with few exceptions, provide for renewal options and rent escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that we believe are reasonably assured.

During the years ended December 31, 2021 and 2020, we rationalized our lease footprint and ceased using 23 and 16 underutilized leased property locations, respectively. We determined that we no longer needed the leased space and, due to the limited remaining term on the contracts, concluded that we had neither the intent nor ability to sublease the properties. For the years ended December 31, 2021 and 2020, we incurred accelerated lease costs of approximately $35 million and $41 million, respectively. We did not further rationalize our lease footprint or incur material accelerated lease costs during the year ended December 31, 2022. However, in conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and expect to incur additional accelerated lease costs in future periods.

For the years ended December 31, 2022, 2021 and 2020, our gross rental expense, including the accelerated lease costs discussed above, was $503 million, $588 million and $777 million, respectively. We also received sublease rental income of $25 million for each of the years ended December 31, 2022, 2021 and 2020.

Supplemental consolidated balance sheet information and other information related to leases is included below:

		As of December 31,
Leases (Dollars in millions)	Classification on the Balance Sheet	2022			2021
Assets
Operating lease assets	Other, net	$	1,340		1,451
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	317			314
Total leased assets		$	1,657		1,765
Liabilities
Current
Operating	Current operating lease liabilities	$	344		385
Finance	Current maturities of long-term debt	16			19
Noncurrent
Operating	Other	1,088			1,171
Finance	Long-term debt	234			251
Total lease liabilities		$	1,682		1,826
Weighted-average remaining lease term (years)
Operating leases		7.7			6.8
Finance leases		12.0			13.1
Weighted-average discount rate
Operating leases		5.98		%	5.54	%
Finance leases		4.96		%	4.89	%

At December 31, 2022, we classified certain operating and finance lease assets and liabilities related to the EMEA business as held for sale and discontinued recording amortization on the related right-of-use assets upon this classification. These operating and finance lease assets and liabilities held for sale are not reflected in the above or throughout the disclosures within this note. See Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business for more information.

Supplemental consolidated cash flow statement information related to leases is included below:

	Years Ended December 31,
	2022		2021
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	462	525
Operating cash flows for finance leases	15		15
Financing cash flows for finance leases	89		52
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	381	165
Right-of-use assets obtained in exchange for new finance lease liabilities	94		94

As of December 31, 2022, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2023	$	416	28
2024	282		27
2025	223		28
2026	174		28
2027	130		29
Thereafter	611		194
Total lease payments	1,836		334
Less: interest	(404)		(84)
Total	1,432		250
Less: current portion	(344)		(16)
Long-term portion	$	1,088	234

As of December 31, 2022, we had no material operating or finance leases that had not yet commenced.

Operating Lease Income

Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations. See "Revenue Recognition" in Note 1—Background and Summary of Significant Accounting Policies.

For the years ended December 31, 2022, 2021 and 2020, our gross rental income was $1.2 billion, $1.2 billion and $1.3 billion, respectively, which represents 7%, 6% and 6% respectively, of our operating revenue for the years ended December 31, 2022, 2021 and 2020.

Leases

Leases

We primarily lease to or from third parties various office facilities, colocation facilities, equipment and transmission capacity. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.

Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs). We generally account for each component separately based on the estimated standalone price of each component. For colocation leases, we account for the lease and non-lease components as a single lease component.

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless we determine that we are reasonably certain of renewing the lease. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not generally contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2022		2021	2020
	(Dollars in millions)
Operating and short-term lease cost	$	451	535	729
Finance lease cost:
Amortization of right-of-use assets	37		37	36
Interest on lease liability	15		16	12
Total finance lease cost	52		53	48
Total lease cost	$	503	588	777

We primarily lease from third parties various equipment, office facilities, retail outlets, switching facilities and other network sites or components. These leases, with few exceptions, provide for renewal options and rent escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that we believe are reasonably assured.

During the years ended December 31, 2021 and 2020, we rationalized our lease footprint and ceased using 23 and 16 underutilized leased property locations, respectively. We determined that we no longer needed the leased space and, due to the limited remaining term on the contracts, concluded that we had neither the intent nor ability to sublease the properties. For the years ended December 31, 2021 and 2020, we incurred accelerated lease costs of approximately $35 million and $41 million, respectively. We did not further rationalize our lease footprint or incur material accelerated lease costs during the year ended December 31, 2022. However, in conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and expect to incur additional accelerated lease costs in future periods.

For the years ended December 31, 2022, 2021 and 2020, our gross rental expense, including the accelerated lease costs discussed above, was $503 million, $588 million and $777 million, respectively. We also received sublease rental income of $25 million for each of the years ended December 31, 2022, 2021 and 2020.

Supplemental consolidated balance sheet information and other information related to leases is included below:

		As of December 31,
Leases (Dollars in millions)	Classification on the Balance Sheet	2022			2021
Assets
Operating lease assets	Other, net	$	1,340		1,451
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	317			314
Total leased assets		$	1,657		1,765
Liabilities
Current
Operating	Current operating lease liabilities	$	344		385
Finance	Current maturities of long-term debt	16			19
Noncurrent
Operating	Other	1,088			1,171
Finance	Long-term debt	234			251
Total lease liabilities		$	1,682		1,826
Weighted-average remaining lease term (years)
Operating leases		7.7			6.8
Finance leases		12.0			13.1
Weighted-average discount rate
Operating leases		5.98		%	5.54	%
Finance leases		4.96		%	4.89	%

At December 31, 2022, we classified certain operating and finance lease assets and liabilities related to the EMEA business as held for sale and discontinued recording amortization on the related right-of-use assets upon this classification. These operating and finance lease assets and liabilities held for sale are not reflected in the above or throughout the disclosures within this note. See Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business for more information.

Supplemental consolidated cash flow statement information related to leases is included below:

	Years Ended December 31,
	2022		2021
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	462	525
Operating cash flows for finance leases	15		15
Financing cash flows for finance leases	89		52
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	381	165
Right-of-use assets obtained in exchange for new finance lease liabilities	94		94

As of December 31, 2022, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2023	$	416	28
2024	282		27
2025	223		28
2026	174		28
2027	130		29
Thereafter	611		194
Total lease payments	1,836		334
Less: interest	(404)		(84)
Total	1,432		250
Less: current portion	(344)		(16)
Long-term portion	$	1,088	234

As of December 31, 2022, we had no material operating or finance leases that had not yet commenced.

Operating Lease Income

Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations. See "Revenue Recognition" in Note 1—Background and Summary of Significant Accounting Policies.

For the years ended December 31, 2022, 2021 and 2020, our gross rental income was $1.2 billion, $1.2 billion and $1.3 billion, respectively, which represents 7%, 6% and 6% respectively, of our operating revenue for the years ended December 31, 2022, 2021 and 2020.

Leases

Leases

We primarily lease to or from third parties various office facilities, colocation facilities, equipment and transmission capacity. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.

Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs). We generally account for each component separately based on the estimated standalone price of each component. For colocation leases, we account for the lease and non-lease components as a single lease component.

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless we determine that we are reasonably certain of renewing the lease. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not generally contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2022		2021	2020
	(Dollars in millions)
Operating and short-term lease cost	$	451	535	729
Finance lease cost:
Amortization of right-of-use assets	37		37	36
Interest on lease liability	15		16	12
Total finance lease cost	52		53	48
Total lease cost	$	503	588	777

We primarily lease from third parties various equipment, office facilities, retail outlets, switching facilities and other network sites or components. These leases, with few exceptions, provide for renewal options and rent escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that we believe are reasonably assured.

During the years ended December 31, 2021 and 2020, we rationalized our lease footprint and ceased using 23 and 16 underutilized leased property locations, respectively. We determined that we no longer needed the leased space and, due to the limited remaining term on the contracts, concluded that we had neither the intent nor ability to sublease the properties. For the years ended December 31, 2021 and 2020, we incurred accelerated lease costs of approximately $35 million and $41 million, respectively. We did not further rationalize our lease footprint or incur material accelerated lease costs during the year ended December 31, 2022. However, in conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and expect to incur additional accelerated lease costs in future periods.

For the years ended December 31, 2022, 2021 and 2020, our gross rental expense, including the accelerated lease costs discussed above, was $503 million, $588 million and $777 million, respectively. We also received sublease rental income of $25 million for each of the years ended December 31, 2022, 2021 and 2020.

Supplemental consolidated balance sheet information and other information related to leases is included below:

		As of December 31,
Leases (Dollars in millions)	Classification on the Balance Sheet	2022			2021
Assets
Operating lease assets	Other, net	$	1,340		1,451
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	317			314
Total leased assets		$	1,657		1,765
Liabilities
Current
Operating	Current operating lease liabilities	$	344		385
Finance	Current maturities of long-term debt	16			19
Noncurrent
Operating	Other	1,088			1,171
Finance	Long-term debt	234			251
Total lease liabilities		$	1,682		1,826
Weighted-average remaining lease term (years)
Operating leases		7.7			6.8
Finance leases		12.0			13.1
Weighted-average discount rate
Operating leases		5.98		%	5.54	%
Finance leases		4.96		%	4.89	%

At December 31, 2022, we classified certain operating and finance lease assets and liabilities related to the EMEA business as held for sale and discontinued recording amortization on the related right-of-use assets upon this classification. These operating and finance lease assets and liabilities held for sale are not reflected in the above or throughout the disclosures within this note. See Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business for more information.

Supplemental consolidated cash flow statement information related to leases is included below:

	Years Ended December 31,
	2022		2021
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	462	525
Operating cash flows for finance leases	15		15
Financing cash flows for finance leases	89		52
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	381	165
Right-of-use assets obtained in exchange for new finance lease liabilities	94		94

As of December 31, 2022, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2023	$	416	28
2024	282		27
2025	223		28
2026	174		28
2027	130		29
Thereafter	611		194
Total lease payments	1,836		334
Less: interest	(404)		(84)
Total	1,432		250
Less: current portion	(344)		(16)
Long-term portion	$	1,088	234

As of December 31, 2022, we had no material operating or finance leases that had not yet commenced.

Operating Lease Income

Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations. See "Revenue Recognition" in Note 1—Background and Summary of Significant Accounting Policies.

For the years ended December 31, 2022, 2021 and 2020, our gross rental income was $1.2 billion, $1.2 billion and $1.3 billion, respectively, which represents 7%, 6% and 6% respectively, of our operating revenue for the years ended December 31, 2022, 2021 and 2020.