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Leases (Tables)

9 Months Ended

Sep. 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 September 30:	2019
Finance lease cost	$	7
Operating lease cost		423
Short-term lease cost		11
Variable lease cost		90
Sublease income		(7)
Total lease cost	$	523


(Dollars in millions)
For the nine months ended September 30:	2019
Finance lease cost	$	14
Operating lease cost		1,243
Short-term lease cost		26
Variable lease cost		345
Sublease income		(16)
Total lease cost	$	1,613

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


(Dollars in millions)
For the nine months ended September 30:	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from finance leases	$	7
Financing cash outflows from finance leases	$	6
Operating cash outflows from operating leases	$	1,154
ROU assets obtained in exchange for new finance lease liabilities	$	149	*
ROU assets obtained in exchange for new operating lease liabilities	$	6,023	*

* 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 nine months ended September 30, 2019 was $1,221 million for operating leases and immaterial for finance leases.

Schedule of weighted-average lease terms and discount rates


At September 30:	2019
Weighted-average remaining lease term — finance leases		5.9	yrs.
Weighted-average remaining lease term — operating leases		5.3	yrs.
Weighted-average discount rate — finance leases		1.73	%
Weighted-average discount rate — operating leases		3.10	%

Schedule of expected undiscounted cash out 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 September 30, 2019:


	Remainder of										Beyond		Imputed
(Dollars in millions)	2019		2020		2021		2022		2023		2023		Interest*		Total
Finance leases	$	10	$	42	$	43	$	36	$	24	$	53	$	(54)	$	155
Operating leases	$	402	$	1,419	$	1,123	$	847	$	604	$	1,160	$	(388)	$	5,167

* 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 September 30:	2019
Lease income — sales-type and direct financing leases
Sales-type lease selling price	$	188
Less: Carrying value of underlying assets, excluding unguaranteed residual value		75
Gross profit		113
Interest income on lease receivables		71
Total sales-type and direct financing lease income	$	184
Lease income — operating leases		80
Variable lease income		12
Total lease income	$	276


(Dollars in millions)
For the nine months ended September 30:	2019
Lease income — sales-type and direct financing leases
Sales-type lease selling price	$	516
Less: Carrying value of underlying assets, excluding unguaranteed residual value		204
Gross profit		312
Interest income on lease receivables		222
Total sales-type and direct financing lease income	$	534
Lease income — operating leases		252
Variable lease income		38
Total lease income	$	824

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 September 30, 2019:


(Dollars in millions)	Total
Remainder of 2019	$	847
2020		2,344
2021		1,571
2022		759
2023		216
Thereafter		43
Total undiscounted cash flows	$	5,781
Present value of lease payments (recognized as financing receivables)		5,337	*
Difference between undiscounted cash flows and discounted cash flows	$	444

* 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 September 30, 2019:


(Dollars in millions)	Total
Remainder of 2019	$	90
2020		119
2021		33
2022		3
2023		0
Thereafter		0
Total undiscounted cash flows	$	245