Leases

12 Months Ended

Dec. 31, 2021

Note 10 Leases

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 UScellular’s leases are classified as operating leases, although it does have a small number of finance leases. UScellular’s most significant leases are for land and tower spaces, network facilities, retail spaces, and offices.

UScellular has agreements with both lease and nonlease components, which are accounted for separately. As part of the present value calculation for the lease liabilities, UScellular 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 UScellular's unsecured rates, adjusted to approximate the rates at which UScellular would be required to borrow on a collateralized basis over a term similar to the recognized lease term. UScellular applies the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term. The cost of nonlease components in UScellular’s 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. UScellular’s 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 right-of-use assets or lease liabilities.

The identified lease term determines the periods to which expense is allocated and also has a significant impact on the right-of-use asset and lease liability calculations. Many of UScellular’s leases include renewal and early termination options. At lease commencement, the lease terms include options to extend the lease when UScellular is reasonably certain that it will exercise the options. The lease terms do not include early termination options unless UScellular is reasonably certain to exercise the options. Certain asset classes have similar lease characteristics; therefore, UScellular 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:


Year Ended December 31,	2021		2020		2019
(Dollars in millions)
Operating lease cost	$	181	$	171	$	163



Variable lease cost	10		10		7

Total	$	191	$	181	$	170

The following table shows supplemental cash flow information related to lease activities:


Year Ended December 31,	2021		2020		2019
(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	183	$	169	$	156


Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	182	$	155	$	125

The table below shows a weighted-average analysis for lease terms and discount rates for operating leases:


December 31,	2021		2020

Weighted Average Remaining Lease Term	12 years		12 years



Weighted Average Discount Rate	3.8	%	4.1	%

The maturities of lease liabilities are as follows:


	Operating Leases
(Dollars in millions)
2022	$	163
2023	162
2024	143
2025	118
2026	87
Thereafter	680
Total lease payments1	$	1,353
Less: Imputed interest	335
Present value of lease liabilities	$	1,018

1 Lease payments exclude $33 million of legally binding lease payments for leases signed but not yet commenced.

Lessor Agreements

UScellular's most significant lessor leases are for tower space. All of UScellular’s 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. UScellular’s lessor agreements with lease and nonlease components are generally accounted for separately.

The identified lease term determines the periods to which revenue is allocated over the term of the lease. Many of UScellular’s leases include renewal and early termination options. At lease commencement, lease terms include options to extend the lease when UScellular 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. UScellular’s 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 revenues in the Consolidated Statement of Operations:


Year Ended December 31,	2021		2020		2019
(Dollars in millions)
Operating lease income1	$	83	$	77	$	74

1 During the third quarter of 2019, UScellular recorded an out-of-period adjustment attributable to 2009 through the second quarter of 2019 due to errors in the timing of recognition of revenue for certain tower leases. This out-of-period adjustment had the impact of increasing operating lease income by $5 million for the year ended December 31, 2019. UScellular determined that this adjustment was not material to any of the periods impacted.

The maturities of expected lease payments to be received are as follows:


	Operating Leases
(Dollars in millions)
2022	$	72
2023	69
2024	54
2025	36
2026	17
Thereafter	15
Total future lease maturities	$	263