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Leases | 3 Months Ended
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Mar. 31, 2019
Leases [Abstract] |
Leases | Note 8 Leases Change in Accounting Policy In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases and has since amended the standard with Accounting Standards Updates 2018-01, Leases: Land Easement Practical Expedient for Transition to Topic 842, Accounting Standards Update 2018-10, Codification Improvements to Topic 842, Leases, Accounting Standards Update 2018-11, Leases: Targeted Improvements, and Accounting Standards Update 2018-20, Leases: Narrow-Scope Improvements for Lessors, collectively referred to as ASC 842. This standard replaces the previous lease accounting standard under ASC 840 - Leases and requires lessees to record a right-of-use (ROU) asset and lease liability for the majority of leases. TDS adopted the provisions of ASC 842 on January 1, 2019, using a modified retrospective method. Under this method, TDS elected to apply the new accounting standard only to the most recent period presented, recognizing the cumulative effect of the accounting change, if any, as an adjustment to the beginning balance of retained earnings. Accordingly, prior periods have not been recast to reflect the new accounting standard. The cumulative effect of applying the provisions of ASC 842 had no impact on retained earnings as of January 1, 2019. TDS elected transitional practical expedients for existing leases which eliminated the requirements to reassess existing lease classification, initial direct costs, and whether contracts contain leases. TDS also elected the practical expedient related to land easements that allows it to carry forward the accounting treatment for pre-existing land easement agreements. The cumulative effect of the adoption of ASC 842 on TDS’ Consolidated Balance Sheet is presented below.
| December 31, 2018 | ASC 842 Adjustment | January 1, 2019
(Dollars in millions) |  |  |
Prepaid expenses | $ | 103 |  | $ | (13 | ) | $ | 90 |
Operating lease right-of-use assets | — |  | 975 |  | 975 |
Other assets and deferred charges | 616 |  | (12 | ) | 604 |
Short-term operating lease liabilities | — |  | 112 |  | 112 |
Other current liabilities | 114 |  | (8 | ) | 106 |
Long-term operating lease liabilities | — |  | 949 |  | 949 |
Other deferred liabilities and credits | 541 |  | (103 | ) | 438 |
As a result of the adoption of ASC 842, TDS recorded ROU assets and lease liabilities for its operating leases in its Consolidated Balance Sheet as of January 1, 2019. The lease liabilities are calculated as the discounted value of future lease payments. The difference between the lease liabilities and the corresponding ROU assets is a result of various lease prepayments and straight-line expense recognition deferral balances as of December 31, 2018, which were offset against the ROU assets as of January 1, 2019. Finance leases are included in Property, plant and equipment and Long-term debt, net consistent with presentation under prior accounting standards. Lessee Agreements A lease is generally present in a contract if the lessee controls the use of identified property, plant or equipment for a period of time in exchange for consideration. Nearly all of TDS’ leases are classified as operating leases, although it does have a small number of finance leases. TDS’ most significant leases are for land and tower spaces, network facilities, retail spaces, and offices. TDS has agreements with both lease and nonlease components, which are accounted for separately. As part of the present value calculation for the lease liabilities, TDS uses 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 TDS' unsecured rates, adjusted to approximate what TDS would have to borrow on a collateralized basis over a similar period of time as the recognized lease term. TDS applies 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. The cost of nonlease components in TDS’ lease portfolio (e.g., utilities and common area maintenance) are not typically predetermined at lease commencement and are expensed as incurred at their relative standalone price. Variable lease expense occurs when, subsequent to the lease commencement, lease payments are made that were not originally included in the lease liability calculation. TDS’ variable lease payments are primarily a result of leases with escalations that are tied to an index. The incremental changes due to the index changes are recorded as variable lease expense and are not included in the ROU assets or lease liabilities. Lease term recognition determines the periods to allocate expense and also has a significant impact on the lease liability and ROU asset calculations. Many of TDS’ leases include renewal and early termination options. At lease commencement, the lease terms include options to extend the lease when TDS is reasonably certain that it will exercise the options. The lease terms do not include early termination options unless TDS is reasonably certain to exercise the options. Certain asset classes have similar lease characteristics; therefore, TDS has applied the portfolio approach for lease term recognition for its tower space, retail, and certain ground lease asset classes. The following table shows the components of lease cost included in the Consolidated Statement of Operations:
| Three Months Ended March 31, 2019
(Dollars in millions) |
Operating lease cost | $ | 43 |
Variable lease cost | 2 |
Total lease cost | $ | 45 |
The following table shows supplemental cash flow information related to lease activities:
| Three Months Ended March 31, 2019
(Dollars in millions) |
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash flows from operating leases | $ | 41 |
ROU assets obtained in exchange for lease obligations: |
Operating leases | $ | 25 |
Finance leases | 7 |
The following table shows the classification of TDS’ operating and finance leases in its Consolidated Balance Sheet:
| March 31, 2019
(Dollars in millions) |
Operating Leases |
Operating lease right-of-use assets | $ | 965 |
Short-term operating lease liabilities | $ | 110 |
Long-term operating lease liabilities | 929 |
Total operating lease liabilities | $ | 1,039 |
Finance Leases |  |
Property, plant and equipment | $ | 17 |
Less: Accumulated depreciation and amortization | 4 |
Property, plant and equipment, net | $ | 13 |
Current portion of long-term debt | $ | 1 |
Long-term debt, net | 5 |
Total finance lease liabilities | $ | 6 |
The table below shows a weighted-average analysis for lease term and discount rate for all leases:
| March 31, 2019
Weighted Average Remaining Lease Term |
Operating leases | 12 years |
Finance leases | 22 years |
Weighted Average Discount Rate |
Operating leases | 4.5 | %
Finance leases | 6.9 | %
The maturities of lease liabilities are as follows:
| Operating Leases |  | Finance Leases
(Dollars in millions) |  |  |
Remainder of 2019 | $ | 118 |  |  | $ | 1 |
2020 | 161 |  |  | 1 |
2021 | 144 |  |  | — |
2022 | 127 |  |  | 1 |
2023 | 111 |  |  | — |
Thereafter | 764 |  |  | 14 |
Total lease payments 1 | $ | 1,425 |  |  | $ | 17 |
Less: Imputed interest | 386 |  |  | 11 |
Present value of lease liabilities | $ | 1,039 |  |  | $ | 6 |
1 | Lease payments exclude $11 million of legally binding lease payments for leases signed but not yet commenced.
Lessor Agreements TDS’ most significant lessor leases are for tower space and colocation space. All of TDS’ lessor leases are classified as operating leases. A lease is generally present in a contract if the lessee controls the use of identified property, plant, or equipment for a period of time in exchange for consideration. TDS’ lessor agreements with lease and nonlease components are generally accounted for separately; however, certain service agreements with insignificant lease components are accounted for as nonlease transactions. Lease term recognition determines the periods to allocate revenue over the term of the lease. Many of TDS’ leases include renewal and early termination options. At lease commencement, lease terms include options to extend the lease when TDS is reasonably certain that lessees will exercise the options. Lease terms would not include periods after the date of a termination option that lessees are reasonably certain to exercise. Variable lease income occurs when, subsequent to the lease commencement, lease payments are received that were not originally included in the lease receivable calculation. TDS’ variable lease income is primarily a result of leases with escalations that are tied to an index. The incremental increases due to the index changes are recorded as variable lease income. The following table shows the components of lease income which are included in service revenue in the Consolidated Statement of Operations:
| Three Months Ended March 31, 2019
(Dollars in millions) |
Operating lease income | $ | 22 |
The maturities of expected lease payments to be received are as follows:
| Operating Leases
(Dollars in millions) |
Remainder of 2019 | $ | 57 |
2020 | 70 |
2021 | 37 |
2022 | 25 |
2023 | 13 |
Thereafter | 10 |
Total future lease maturities | $ | 212 |
Disclosures under ASC 840 As of December 31, 2018, future minimum rental payments required under operating leases and rental receipts expected under operating leases that have noncancellable lease terms in excess of one year were as follows:
| Operating Leases Future Minimum Rental Payments |  | Operating Leases Future Minimum Rental Receipts
(Dollars in millions) |  |  |
2019 | $ | 170 |  |  | $ | 59 |
2020 | 158 |  |  | 48 |
2021 | 142 |  |  | 35 |
2022 | 126 |  |  | 23 |
2023 | 110 |  |  | 10 |
Thereafter | 784 |  |  | 7 |
Total | $ | 1,490 |  |  | $ | 182 |

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- Definition The entire disclosure for lessee entity's leasing arrangements including, but not limited to, all of the following: (a.) The basis on which contingent rental payments are determined, (b.) The existence and terms of renewal or purchase options and escalation clauses, (c.) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 + Details
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