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Leases

12 Months Ended

Dec. 31, 2022

NOTE N. LEASES

Accounting for Leases as a Lessee

The following table presents the various components of lease costs.


($ in millions)
For the year ended December 31:	2022		2021		2020
Finance lease cost	$	67	$	52	$	35
Operating lease cost		1,050		1,126		1,181
Short-term lease cost		7		21		28
Variable lease cost		262		336		343
Sublease income		(72)		(46)		(28)
Total lease cost	$	1,315	$	1,489	$	1,558

The company recorded net gains on sale and leaseback transactions of $41 million and $7 million for the years ended December 31, 2022 and 2021, respectively. The company had no sale and leaseback transactions in 2020.

The following table presents supplemental information relating to the cash flows arising from lease transactions. Cash payments related to variable lease costs and short-term leases are not included in the measurement of operating and finance lease liabilities, and, as such, are excluded from the amounts below.


($ in millions)
For the year ended December 31:	2022		2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from finance leases	$	9	$	8	$	8
Financing cash outflows from finance leases		55		42		25
Operating cash outflows from operating leases		1,020		1,135		1,212
ROU assets obtained in exchange for new finance lease liabilities*		196		46		50
ROU assets obtained in exchange for new operating lease liabilities*		705		779		785

* Includes the impact of currency.

The following table presents the weighted-average lease term and discount rate for finance and operating leases.



At December 31:	2022		2021
Finance leases
Weighted-average remaining lease term	3.7	yrs.	4.1	yrs.
Weighted-average discount rate	3.57	%	0.88	%
Operating leases
Weighted-average remaining lease term	4.5	yrs.	4.5	yrs.
Weighted-average discount rate	3.77	%	3.01	%

The following table presents a maturity analysis of expected undiscounted cash flows for operating and finance leases on an annual basis for the next five years and thereafter.


($ in millions)
													Imputed
	2023		2024		2025		2026		2027		Thereafter		Interest		*	Total		**
Finance leases	$	88	$	74	$	54	$	24	$	22	$	19	$	(43)		$	239
Operating leases		960		788		555		430		285		313		(267)			3,064

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

**	The company entered into lease agreements for certain facilities and equipment with payments totaling approximately $691 million that have not yet commenced as of December 31, 2022, and therefore are not included in this table.

The following table presents information on the company’s finance leases recognized in the Consolidated Balance Sheet.


($ in millions)
At December 31:	2022		2021
ROU Assets—Property, plant and equipment	$	223	$	86
Lease Liabilities
Short-term debt		75		36
Long-term debt		164		63

Accounting for Leases as a Lessor

The following table presents amounts included in the Consolidated Income Statement related to lessor activity.


($ in millions)
For the year ended December 31:	2022		2021		2020
Lease income—sales-type and direct financing leases
Sales-type lease selling price	$	1,636	$	1,355	$	1,321
Less: Carrying value of underlying assets*		(385)		(300)		(410)
Gross profit		1,251		1,055		911
Interest income on lease receivables		200		179		249
Total sales-type and direct financing lease income		1,451		1,234		1,160
Lease income—operating leases		116		169		255
Variable lease income		87		120		115
Total lease income	$	1,653	$	1,523	$	1,530

* Excludes unguaranteed residual value.

Sales-Type and Direct Financing Leases

At December 31, 2022 and 2021, the unguaranteed residual values of sales-type and direct financing leases were $422 million and $335 million, respectively. Refer to note L, “Financing Receivables,” for additional information on the company’s net investment in leases.

For the years ended December 31, 2022 and 2021, impairment of residual values was immaterial.

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 Balance Sheet at December 31, 2022.


($ in millions)
	Total
2023	$	1,692
2024		1,173
2025		738
2026		330
2027		87
Thereafter		3
Total undiscounted cash flows	$	4,023
Present value of lease payments (recognized as financing receivables)		3,672	*
Difference between undiscounted cash flows and discounted cash flows	$	351

The present value of the lease payments will not equal the financing receivables balances in the Consolidated Balance Sheet due to certain items including IDCs, allowance for credit losses and residual values, which are included in the financing receivable balance, but are not included in the future lease payments.