Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases

Schedule of various components of lease costs

(Dollars in millions)
For the three months ended March 31:	2019
Finance lease cost:
Amortization of ROU assets	$	4
Interest on lease liabilities	1
Operating lease cost	386
Short-term lease cost	9
Variable lease cost	128
Sublease income	(2		)
Total lease cost	$	526

Schedule of supplemental information relating to the cash flows arising from lease transactions

(Dollars in millions except for lease term and discount rate values)
For the three months ended March 31:	2019
(Gains) and losses on sale and leaseback transactions, net	$	(36	)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from finance leases	$	1
Financing cash outflows from finance leases	$	3
Operating cash outflows from operating leases	$	380
ROU assets obtained in exchange for new finance lease liabilities	$	153	*
ROU assets obtained in exchange for new operating lease liabilities	$	4,958	*
Weighted-average remaining lease term — finance leases	10.7		yrs.
Weighted-average remaining lease term — operating leases	5.1		yrs.
Weighted-average discount rate — finance leases	3.64		%
Weighted-average discount rate — operating leases	3.34		%

*  Includes opening balance additions as a result of the adoption of the new lease guidance effective January 1, 2019. The post adoption addition of leases was $156 million for operating leases and immaterial for finance leases.

Schedule of expected undiscounted cash flows for operating and finance leases

The following maturity analysis presents expected undiscounted cash out flows for operating and finance leases on an annual basis for the next five years, with the exception of 2019, which presents the expected undiscounted cash out flows for operating and finance leases for the remaining nine months of the year.

											Beyond		Imputed
(Dollars in millions)	2019		2020		2021		2022		2023		2023		Interest *			Total
Finance leases	$	13	$	18	$	18	$	18	$	16	$	105	$	(33	)	$	156
Operating leases	$	1,192	$	1,258	$	937	$	655	$	435	$	829	$	(403	)	$	4,903

*  Imputed interest represents the difference between undiscounted cash flows and discounted cash flows.

Operating lease commitments

The following table, which was included in the company’s 2018 Annual Report, depicts gross minimum rental commitments under noncancelable leases, amounts related to vacant space associated with workforce transformation, sublease income commitments and capital lease commitments at December 31, 2018.

											Beyond
(Dollars in millions)	2019		2020		2021		2022		2023		2023
Operating lease commitments
Gross minimum rental commitments
(including vacant space below)	$	1,581	$	1,233	$	914	$	640	$	445	$	815
Vacant space	$	29	$	23	$	14	$	9	$	5	$	8
Sublease income commitments	$	11	$	7	$	5	$	4	$	4	$	2
Capital lease commitments	$	3	$	3	$	3	$	3	$	2	$	28

Capital lease commitments

The following table, which was included in the company’s 2018 Annual Report, depicts gross minimum rental commitments under noncancelable leases, amounts related to vacant space associated with workforce transformation, sublease income commitments and capital lease commitments at December 31, 2018.

											Beyond
(Dollars in millions)	2019		2020		2021		2022		2023		2023
Operating lease commitments
Gross minimum rental commitments
(including vacant space below)	$	1,581	$	1,233	$	914	$	640	$	445	$	815
Vacant space	$	29	$	23	$	14	$	9	$	5	$	8
Sublease income commitments	$	11	$	7	$	5	$	4	$	4	$	2
Capital lease commitments	$	3	$	3	$	3	$	3	$	2	$	28

Schedule of amounts included in the Consolidated Statement of Earnings related to lessor activity

(Dollars in millions)
For the three months ended March 31:	2019
Lease income — sales-type and direct financing leases
Sales-type lease selling price	$	149
Less: Carrying value of underlying assets, excluding unguaranteed residual value	55
Gross profit	94
Interest income on lease receivables	79
Total sales-type and direct financing lease income	$	172
Lease income — operating leases	90
Variable lease income	18
Total lease income	$	280

Schedule of maturity analysis of the lease payments due to IBM on sales-type and direct financing leases

The following table provides a maturity analysis of the lease payments due to IBM on sales-type and direct financing leases over the next five years and thereafter, with the exception of 2019, which presents the expected undiscounted cash flows for the remaining nine months of the year, as well as a reconciliation of the undiscounted cash flows to the financing receivables recognized in the Consolidated Statement of Financial Position at March 31, 2019:

(Dollars in millions)	Total
2019	$	2,167
2020	2,173
2021	1,353
2022	616
2023	145
Thereafter	9
Total undiscounted cash flows	$	6,462
Present value of lease payments (recognized as financing receivables)	5,965		*
Difference between undiscounted cash flows and discounted cash flows	$	497

* The present value of the lease payments will not equal the financing receivables balances in the Statement of Financial Position, due to certain items including IDC’s, allowance for credit losses and residual values, which are included in the financing receivables balance, but are not included in the future lease payments.

Schedule of maturity analysis of the undiscounted lease payments due to IBM on operating leases

The following table provides a maturity analysis of the undiscounted lease payments due to IBM on operating leases over the next five years and thereafter, at March 31, 2019, with the exception of 2019, which presents the expected undiscounted cash flows for the remaining nine months of the year:

(Dollars in millions)	Total
2019	$	183
2020	136
2021	43
2022	2
2023	0
Thereafter	0
Total undiscounted cash flows	$	364