LEASES

12 Months Ended

Mar. 31, 2023

LEASES

LEASES

NOTE 9. LEASES

The following table presents the various components of lease costs:

			Three Months
	Year Ended		Ended
	March 31,		March 31,		Year Ended December 31,
(Dollars in millions)	2023		2022		2021		2020
Finance lease costs	$	85	$	21	$	69	$	61
Operating lease costs		434		111		354		424
Short-term lease costs		7		4		7		10
Variable lease costs		108		16		73		114
Sublease income		(9)		(1)		(5)		(4)
Total lease costs	$	625	$	150	$	498	$	605

For pre-Separation periods, the Company’s components of lease costs reflected in the Consolidated Income Statement are based on an allocation of IBM’s lease costs, depending on the type of lease. Finance lease costs relating to assets specifically utilized by the Company were fully allocated to the Company. The real estate lease costs were allocated based on the percentage of space utilized by the Company. The remaining lease costs were allocated to the Company based on headcount.

The Company had no sale and leaseback transactions for the year ended March 31, 2023, the three months ended March 31, 2022 and the years ended December 31, 2021 and 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.

			Three Months
	Year Ended		Ended
	March 31,		March 31,		Year Ended December 31,
(Dollars in millions)	2023		2022		2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for finance leases	$	5	$	1	$	3	$	3
Financing cash outflows for finance leases		83		20		70		72
Operating cash outflows for operating leases		417		118		327		450
Right-of-use assets obtained in exchange for new finance lease liabilities		111		19		86		129
Right-of-use assets obtained in exchange for new operating lease liabilities		175		67		562		336

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

	March 31,		March 31,		December 31,
	2023		2022		2021
Finance leases
Weighted-average remaining lease term	3.5	years	3.6	years	3.3	years
Weighted-average discount rate	3.36	%	1.82	%	1.41	%
Operating leases
Weighted-average remaining lease term	4.7	years	5.1	years	5.2	years
Weighted-average discount rate	4.38	%	2.84	%	2.66	%

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.

Year Ending	March 31,		March 31,		March 31,		March 31,		March 31,				Imputed
(Dollars in millions)	2024		2025		2026		2027		2028		Thereafter		Interest*		Total**
Finance leases	$	67	$	78	$	61	$	35	$	21	$	—	$	(20)	$	242
Operating leases		350	$	256	$	206	$	120	$	65	$	138	$	(113)		1,022

*      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 $2 million that have not yet commenced as of March 31, 2023 and therefore are not included in this table.

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

	March 31,				December 31,
(Dollars in millions)	2023		2022		2021
Right-of-use assets – Property and equipment	$	245	$	220	$	221
Lease liabilities:
Current		82		68		76
Noncurrent		160		151		147

For the twelve months ended March 31, 2023, we identified and abandoned certain operating right-of-use assets that were inherited from the former Parent at Separation. We determined that we will no longer receive economic benefits from these leased properties and do not have the intent or practical ability to sublease or sell them. Accordingly, we recorded accelerated depreciation in the amount of $69 million for the year ended March 31, 2023, representing the remaining carrying value of the identified right-of-use assets. Refer to Note 19 – Workforce Rebalancing and Site-Rationalization Charges for details of this program.