LEASES

12 Months Ended

Dec. 31, 2023

Leased facilities for office, research and development, storage and distribution purposes comprise approximately 95% of the total lease obligation. Lease terms vary based on the nature of operations and the market dynamics in each country; however, all leased facilities are classified as operating leases with remaining lease terms between one year and 14 years. Most leases contain specific renewal options for periods ranging between one year and 10 years where notice to renew must be provided in advance of lease expiration or automatic renewals where no advance notice is required. Periods covered by an option to extend the lease were included in the non-cancellable lease term when exercise of the option was determined to be reasonably certain. Certain leases also contain termination options that provide the flexibility to terminate the lease ahead of its expiration with sufficient advance notice. Periods covered by an option to terminate the lease were included in the non-cancellable lease term when exercise of the option was determined not to be reasonably certain. Judgment is required in assessing whether renewal and termination options are reasonably certain to be exercised. Factors are considered such as contractual terms compared to current market rates, leasehold improvements expected to have significant value, costs to terminate a lease and the importance of the facility to operations. Costs determined to be variable and not based on an index or rate were not included in the measurement of real estate lease liabilities. These variable costs include real estate taxes, insurance, utilities, common area maintenance and other operating costs. As the implicit rate on most leases is not readily determinable, an incremental borrowing rate was applied on a portfolio approach to discount its real estate lease liabilities.

The remaining lease obligations are comprised of vehicles and a research and development facility operated by a third party under management’s direction. Vehicle lease terms vary by country with terms generally between one year and four years.

The following table summarizes the components of lease expense:


	Year Ended December 31,
Dollars in millions	2023		2022		2021
Operating lease cost	$	317	$	224	$	220
Variable lease cost	79		55		44
Short-term lease cost	20		20		17
Sublease income	(11)		(6)		(7)
Total operating lease expense	$	405	$	293	$	274

Operating lease right-of-use assets and liabilities were as follows:


	December 31,
Dollars in millions	2023		2022
Other non-current assets	$	1,390	$	1,220

Other current liabilities	$	162	$	136
Other non-current liabilities	1,530		1,261
Total liabilities	$	1,692	$	1,397

Future lease payments for non-cancellable operating leases as of December 31, 2023 were as follows:


Dollars in millions
2024	$	225
2025	236
2026	211
2027	205
2028	192
Thereafter	1,061
Total future lease payments	2,130

Less imputed interest	(438)
Total lease liability	$	1,692

Right-of-use assets obtained in exchange for new operating lease obligations were $389 million in 2023. Right-of-use assets impairment charge was $85 million in 2023. Cash paid for amounts included in the measurement of operating lease liabilities was $195 million in 2023, $203 million in 2022 and $189 million in 2021.

Undiscounted lease obligations for operating leases not yet commenced were $542 million as of December 31, 2023. The obligation primarily relates to a research and development facility that is being constructed by the lessor and is expected to be ready for use in 2025.

Supplemental balance sheet information related to leases was as follows:


	December 31,
	2023		2022
Weighted average remaining lease term	10 years		11 years
Weighted average discount rate	4	%	4	%