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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Schedule of various components of lease costs

The following tables present the various components of lease costs:


(Dollars in millions)
For the three months ended June 30:	2019
Finance lease cost	$	2
Operating lease cost		434
Short-term lease cost		7
Variable lease cost		128
Sublease income		(6)
Total lease cost	$	565


(Dollars in millions)
For the six months ended June 30:	2019
Finance lease cost	$	7
Operating lease cost		820
Short-term lease cost		16
Variable lease cost		256
Sublease income		(8)
Total lease cost	$	1,090

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


(Dollars in millions)
For the six months ended June 30:	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from finance leases	$	4
Financing cash outflows from finance leases	$	2
Operating cash outflows from operating leases	$	762
ROU assets obtained in exchange for new finance lease liabilities	$	77	*
ROU assets obtained in exchange for new operating lease liabilities	$	5,771	*

* 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 for the six months ended June 30, 2019 was $927 million for operating leases and immaterial for finance leases.

Schedule of weighted-average lease terms and discount rates


At June 30:	2019
Weighted-average remaining lease term — finance leases		7.2	yrs.
Weighted-average remaining lease term — operating leases		5.2	yrs.
Weighted-average discount rate — finance leases		2.46	%
Weighted-average discount rate — operating leases		3.13	%

Schedule of expected undiscounted cash flows for operating and finance leases

The following table presents a maturity analysis of the expected undiscounted cash out flows for operating and finance leases on an annual basis for the next five years and thereafter, at June 30, 2019:


	Remainder of										Beyond		Imputed
(Dollars in millions)	2019		2020		2021		2022		2023		2023		Interest*		Total
Finance leases	$	8	$	17	$	17	$	16	$	12	$	53	$	(53)	$	71
Operating leases	$	819	$	1,372	$	1,054	$	777	$	551	$	1,064	$	(371)	$	5,265

* 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


											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

The following tables present amounts included in the Consolidated Statement of Earnings related to lessor activity:


(Dollars in millions)
For the three months ended June 30:	2019
Lease income — sales-type and direct financing leases
Sales-type lease selling price	$	179
Less: Carrying value of underlying assets, excluding unguaranteed residual value		74
Gross profit		105
Interest income on lease receivables		73
Total sales-type and direct financing lease income	$	178
Lease income — operating leases		82
Variable lease income		9
Total lease income	$	269


(Dollars in millions)
For the six months ended June 30:	2019
Lease income — sales-type and direct financing leases
Sales-type lease selling price	$	328
Less: Carrying value of underlying assets, excluding unguaranteed residual value		129
Gross profit		199
Interest income on lease receivables		151
Total sales-type and direct financing lease income	$	350
Lease income — operating leases		172
Variable lease income		27
Total lease income	$	548

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

The following table presents a maturity analysis of the lease payments due to IBM on sales-type and direct financing leases over the next five years and thereafter, as well as a reconciliation of the undiscounted cash flows to the financing receivables recognized in the Consolidated Statement of Financial Position at June 30, 2019:


(Dollars in millions)	Total
Remainder of 2019	$	1,496
2020		2,199
2021		1,426
2022		654
2023		166
Thereafter		25
Total undiscounted cash flows	$	5,967
Present value of lease payments (recognized as financing receivables)		5,494	*
Difference between undiscounted cash flows and discounted cash flows	$	473

* 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 presents a maturity analysis of the undiscounted lease payments due to IBM on operating leases over the next five years and thereafter, at June 30, 2019:


(Dollars in millions)	Total
Remainder of 2019	$	153
2020		115
2021		31
2022		2
2023		0
Thereafter		0
Total undiscounted cash flows	$	301