LEASES

12 Months Ended

Dec. 31, 2021

LEASES

LEASES

NOTE 9. LEASES

The following table presents the various components of lease costs:

	Year Ended December 31,
(Dollars in millions)	2021		2020		2019
Finance lease costs	$	69	$	61	$	18
Operating lease costs		354		424		429
Short-term lease costs		7		10		12
Variable lease costs		73		114		124
Sublease income		(5)		(4)		(2)
Total lease costs	$	498	$	605	$	581

For pre-Separation periods, the Company’s right-of-use assets and lease liabilities reflected in the Consolidated Balance Sheet are based on an allocation of IBM’s balances depending on the type of lease. Finance lease balances relating to assets specifically utilized by the Company were fully allocated to the Company. The real estate lease balances were allocated based on the percentage of space utilized. The remaining lease balances were allocated to the Company based on headcount.

The Company had no sale and leaseback transactions for the years ended December 31, 2021, 2020 and 2019.

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.

	Year Ended December 31,
(Dollars in millions)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for finance leases	$	3	$	3	$	1
Financing cash outflows for finance leases		70		72		19
Operating cash outflows for operating leases		327		450		454
Right-of-use assets obtained in exchange for new finance lease liabilities		86		129		147	*
Right-of-use assets obtained in exchange for new operating lease liabilities		562		336		1,647	*

* 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 year ended December 31, 2019 was $430 million for operating leases and $141 million for finance leases.

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

	December 31,
	2021		2020
Finance leases
Weighted-average remaining lease term	3.3	years	3.5	years
Weighted-average discount rate	1.41	%	1.35	%
Operating leases
Weighted-average remaining lease term	5.2	years	5.7	years
Weighted-average discount rate	2.66	%	2.19	%

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.

													Imputed
(Dollars in millions)	2022		2023		2024		2025		2026		Thereafter		Interest*		Total**
Finance leases	$	78	$	68	$	44	$	28	$	8	$	—	$	(5)	$	222
Operating leases		403		302		236		201		121		190		(87)		1,366

*      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 $27 million that have not yet commenced as of December 31, 2021, and therefore are not included in this table.

The following table presents the total amount of finance leases recognized in the Consolidated Balance Sheet:

	December 31,
(Dollars in millions)	2021		2020
Right-of-use assets – Property and equipment	$	221	$	201
Lease liabilities:
Short-term debt		76		69
Long-term debt		147		140