Leases

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Leases

Leases Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new accounting guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance, as discussed in Note 1—Background and Summary of Significant Accounting Policies.

We primarily lease to or from third parties various office facilities, colocation facilities, dark fiber and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; 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.

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 it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. 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 contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2020		2019
	(Dollars in millions)
Operating and short-term lease cost	$	440	388
Finance lease cost:
Amortization of right-of-use assets	19		14
Interest on lease liability	11		10
Total finance lease cost	30		24
Total lease cost	$	470	412

We lease various equipment, office facilities, retail outlets, switching facilities and other network sites. These leases, with few exceptions, provide for renewal options and 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 are reasonably assured. For the years ended December 31, 2020, 2019 and 2018, our gross rental expense was $470 million, $412 million and $524 million, respectively. We also received sublease rental income for the years ended December 31, 2020, 2019 and 2018 of $8 million, $9 million and $9 million, respectively.

Supplemental consolidated balance sheet information and other information related to leases:

		Years Ended December 31,
Leases	Classification on the Balance Sheet	2020			2019
		(Dollars in millions)
Assets
Operating lease assets	Other, net	$	1,091		1,060
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	235			154
Total leased assets		$	1,326		1,214
Liabilities
Current
Operating	Current operating lease liabilities	$	241		249
Finance	Current maturities of long-term debt	14			11
Noncurrent
Operating	Operating lease liabilities	903			854
Finance	Long-term debt	241			160
Total lease liabilities		$	1,399		1,274
Weighted-average remaining lease term (years)
Operating leases		7.2			7.5
Finance leases		12.5			13.1
Weighted-average discount rate
Operating leases		5.85		%	6.19	%
Finance leases		5.01		%	5.60	%

Supplemental unaudited consolidated cash flow statement information related to leases:

	Years Ended December 31,
	2020		2019
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	350	387
Operating cash flows for finance leases	13		11
Financing cash flows for finance leases	18		5
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	151	206
Right-of-use assets obtained in exchange for new finance lease liabilities	100		12

As of December 31, 2020, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2021	$	297	26
2022	249		25
2023	213		26
2024	154		26
2025	107		27
Thereafter	410		218
Total lease payments	1,430		348
Less: interest	(286)		(93)
Total	1,144		255
Less: current portion	(241)		(14)
Long-term portion	$	903	241

As of December 31, 2020, we had no material operating or finance leases that had not yet commenced.

Operating Lease Income

We lease various office facilities, colocation facilities and dark fiber to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations.

For the years ended December 31, 2020, 2019 and 2018 our gross rental income was $760 million or 10%, $798 million or 10%, and $192 million or 2% respectively, of our operating revenue.

Leases

Leases Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new accounting guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance, as discussed in Note 1—Background and Summary of Significant Accounting Policies.

We primarily lease to or from third parties various office facilities, colocation facilities, dark fiber and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; 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.

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 it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. 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 contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2020		2019
	(Dollars in millions)
Operating and short-term lease cost	$	440	388
Finance lease cost:
Amortization of right-of-use assets	19		14
Interest on lease liability	11		10
Total finance lease cost	30		24
Total lease cost	$	470	412

We lease various equipment, office facilities, retail outlets, switching facilities and other network sites. These leases, with few exceptions, provide for renewal options and 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 are reasonably assured. For the years ended December 31, 2020, 2019 and 2018, our gross rental expense was $470 million, $412 million and $524 million, respectively. We also received sublease rental income for the years ended December 31, 2020, 2019 and 2018 of $8 million, $9 million and $9 million, respectively.

Supplemental consolidated balance sheet information and other information related to leases:

		Years Ended December 31,
Leases	Classification on the Balance Sheet	2020			2019
		(Dollars in millions)
Assets
Operating lease assets	Other, net	$	1,091		1,060
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	235			154
Total leased assets		$	1,326		1,214
Liabilities
Current
Operating	Current operating lease liabilities	$	241		249
Finance	Current maturities of long-term debt	14			11
Noncurrent
Operating	Operating lease liabilities	903			854
Finance	Long-term debt	241			160
Total lease liabilities		$	1,399		1,274
Weighted-average remaining lease term (years)
Operating leases		7.2			7.5
Finance leases		12.5			13.1
Weighted-average discount rate
Operating leases		5.85		%	6.19	%
Finance leases		5.01		%	5.60	%

Supplemental unaudited consolidated cash flow statement information related to leases:

	Years Ended December 31,
	2020		2019
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	350	387
Operating cash flows for finance leases	13		11
Financing cash flows for finance leases	18		5
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	151	206
Right-of-use assets obtained in exchange for new finance lease liabilities	100		12

As of December 31, 2020, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2021	$	297	26
2022	249		25
2023	213		26
2024	154		26
2025	107		27
Thereafter	410		218
Total lease payments	1,430		348
Less: interest	(286)		(93)
Total	1,144		255
Less: current portion	(241)		(14)
Long-term portion	$	903	241

As of December 31, 2020, we had no material operating or finance leases that had not yet commenced.

Operating Lease Income

We lease various office facilities, colocation facilities and dark fiber to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations.

For the years ended December 31, 2020, 2019 and 2018 our gross rental income was $760 million or 10%, $798 million or 10%, and $192 million or 2% respectively, of our operating revenue.

Leases

Leases Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new accounting guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance, as discussed in Note 1—Background and Summary of Significant Accounting Policies.

We primarily lease to or from third parties various office facilities, colocation facilities, dark fiber and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; 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.

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 it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. 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 contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2020		2019
	(Dollars in millions)
Operating and short-term lease cost	$	440	388
Finance lease cost:
Amortization of right-of-use assets	19		14
Interest on lease liability	11		10
Total finance lease cost	30		24
Total lease cost	$	470	412

We lease various equipment, office facilities, retail outlets, switching facilities and other network sites. These leases, with few exceptions, provide for renewal options and 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 are reasonably assured. For the years ended December 31, 2020, 2019 and 2018, our gross rental expense was $470 million, $412 million and $524 million, respectively. We also received sublease rental income for the years ended December 31, 2020, 2019 and 2018 of $8 million, $9 million and $9 million, respectively.

Supplemental consolidated balance sheet information and other information related to leases:

		Years Ended December 31,
Leases	Classification on the Balance Sheet	2020			2019
		(Dollars in millions)
Assets
Operating lease assets	Other, net	$	1,091		1,060
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	235			154
Total leased assets		$	1,326		1,214
Liabilities
Current
Operating	Current operating lease liabilities	$	241		249
Finance	Current maturities of long-term debt	14			11
Noncurrent
Operating	Operating lease liabilities	903			854
Finance	Long-term debt	241			160
Total lease liabilities		$	1,399		1,274
Weighted-average remaining lease term (years)
Operating leases		7.2			7.5
Finance leases		12.5			13.1
Weighted-average discount rate
Operating leases		5.85		%	6.19	%
Finance leases		5.01		%	5.60	%

Supplemental unaudited consolidated cash flow statement information related to leases:

	Years Ended December 31,
	2020		2019
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	350	387
Operating cash flows for finance leases	13		11
Financing cash flows for finance leases	18		5
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	151	206
Right-of-use assets obtained in exchange for new finance lease liabilities	100		12

As of December 31, 2020, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2021	$	297	26
2022	249		25
2023	213		26
2024	154		26
2025	107		27
Thereafter	410		218
Total lease payments	1,430		348
Less: interest	(286)		(93)
Total	1,144		255
Less: current portion	(241)		(14)
Long-term portion	$	903	241

As of December 31, 2020, we had no material operating or finance leases that had not yet commenced.

Operating Lease Income

We lease various office facilities, colocation facilities and dark fiber to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations.

For the years ended December 31, 2020, 2019 and 2018 our gross rental income was $760 million or 10%, $798 million or 10%, and $192 million or 2% respectively, of our operating revenue.