Document and Entity Information
Document and Entity Information | 9 Months Ended |
Sep. 30, 2020shares | |
Document and Entity Information | |
Document Type | 10-Q |
Document Quarterly Report | true |
Document Transition Report | false |
Document Period End Date | Sep. 30, 2020 |
Entity File Number | 000-55786 |
Entity Registrant Name | IBM CREDIT LLC |
Entity Incorporation, State or Country Code | DE |
Entity Tax Identification Number | 22-2351962 |
Entity Address, Address Line One | One North Castle Drive |
Entity Address, City or Town | Armonk |
Entity Address, State or Province | NY |
Entity Address, Postal Zip Code | 10504 |
City Area Code | 914 |
Local Phone Number | 765-1900 |
Title of 12(b) Security | None |
Entity Central Index Key | 0001225307 |
No Trading Symbol Flag | true |
Amendment Flag | false |
Entity Filer Category | Non-accelerated Filer |
Entity Current Reporting Status | Yes |
Entity Interactive Data Current | Yes |
Entity Small Business | false |
Entity Emerging Growth Company | false |
Entity Shell Company | false |
Entity Common Stock, Shares Outstanding | 0 |
Current Fiscal Year End Date | --12-31 |
Document Fiscal Year Focus | 2020 |
Document Fiscal Period Focus | Q3 |
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED INCOME STATEMENT - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Revenue | ||||
Financing revenue | $ 214 | $ 305 | $ 717 | $ 1,048 |
Operating lease revenue | 52 | 67 | 165 | 216 |
Total revenue | 266 | 372 | 881 | 1,265 |
Financing cost (related party cost for the three and nine months: $32 and $116 in 2020, $58 and $189 in 2019) | 66 | 122 | 244 | 419 |
Depreciation of equipment under operating lease | 27 | 39 | 86 | 127 |
Net margin | 174 | 212 | 552 | 719 |
Expense and other (income) | ||||
Selling, general and administrative | 80 | 87 | 232 | 281 |
Provision for/(benefit from) credit losses | 4 | (1) | 49 | (4) |
Other (income) and expense | (17) | (5) | (68) | (18) |
Total expense and other (income) | 67 | 81 | 212 | 259 |
Income before income taxes | 107 | 131 | 339 | 460 |
Provision for income taxes | 21 | 22 | 23 | 195 |
Net income | $ 85 | $ 109 | $ 316 | $ 265 |
CONSOLIDATED INCOME STATEMENT (
CONSOLIDATED INCOME STATEMENT (Parenthetical) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
CONSOLIDATED INCOME STATEMENT | ||||
Financing cost - related party | $ 32 | $ 58 | $ 116 | $ 189 |
CONSOLIDATED STATEMENT OF COMPR
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | ||
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||||
Net income | $ 85 | $ 109 | $ 316 | $ 265 | |
Other comprehensive income/(loss), before tax: | |||||
Foreign currency translation | 60 | (76) | (60) | (56) | |
Retirement-related benefit plans (1) | [1] | 1 | 0 | 3 | 1 |
Other comprehensive income/(loss), before tax | 61 | (75) | (57) | (55) | |
Income tax (expense)/benefit related to items of other comprehensive income | 8 | (17) | 5 | (13) | |
Other comprehensive income/(loss), net of tax | 69 | (93) | (52) | (68) | |
Total comprehensive income/(loss) | $ 155 | $ 16 | $ 264 | $ 197 | |
[1] | Amounts presented relate to multiple-employer plans. |
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Assets: | ||
Cash and cash equivalents | $ 1,745 | $ 1,687 |
Equipment under operating leases (net of accumulated depreciation of $186 in 2020 and $238 in 2019) | 130 | 212 |
Other receivables from IBM | 814 | 513 |
Other assets | 529 | 406 |
Total assets | 23,626 | 28,412 |
Liabilities: | ||
Accounts payable | 236 | 434 |
Accounts payable to IBM | 336 | |
Debt | 6,422 | 7,150 |
Debt payable to IBM | 13,871 | 16,945 |
Taxes | 586 | 637 |
Other liabilities | 237 | 224 |
Total liabilities | 21,353 | 25,726 |
Member's interest: | ||
Member's interest | 2,356 | 2,601 |
Retained earnings | 116 | |
Accumulated other comprehensive income/(loss) | (83) | (31) |
Total member's interest | 2,273 | 2,686 |
Total liabilities and member's interest | 23,626 | 28,412 |
Financing Receivable Portfolio | ||
Assets: | ||
Financing receivables | 12,264 | 17,365 |
Financing receivables from IBM | ||
Assets: | ||
Financing receivables | 3,937 | 3,870 |
Purchased and participated receivables from IBM | ||
Assets: | ||
Financing receivables | $ 4,207 | $ 4,359 |
CONSOLIDATED BALANCE SHEET (Par
CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Equipment under operating leases - accumulated depreciation | $ 186 | $ 238 |
Financing Receivable Portfolio | ||
Receivables - allowances | 179 | 148 |
Purchased and participated receivables from IBM | ||
Receivables - allowances | $ 23 | $ 8 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Millions | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | ||
Cash flows from operating activities: | |||
Net income | $ 316 | $ 265 | |
Adjustments to reconcile net income to cash provided by operating activities: | |||
Provision for/(benefit from) credit losses | 49 | (4) | |
Depreciation | 86 | 127 | |
Deferred taxes | (75) | 19 | |
Net (gain)/loss on asset sales and other | (76) | (61) | |
Change in operating assets and liabilities: | |||
Other assets/other liabilities | (303) | (250) | |
Net cash provided by/(used in) operating activities | (3) | 95 | |
Cash flows from investing activities: | |||
Originations of financing receivables | (8,991) | (10,167) | |
Collection of financing receivables | 10,521 | 10,823 | |
Proceeds from sales of financing receivables | 1,575 | ||
Short-term financing receivables - net (1) | [1] | 1,445 | 7,242 |
Purchase of equipment under operating leases | (33) | (43) | |
Proceeds from disposition of equipment under operating lease | 56 | 57 | |
Other receivables from IBM - net | (40) | 1,371 | |
Other investing activities - net | (32) | 91 | |
Net cash provided by investing activities | 4,501 | 9,374 | |
Cash flows from financing activities: | |||
Distributions to IBM | (636) | (1,182) | |
Net cash used in financing activities | (4,447) | (9,199) | |
Effect of exchange rate changes on cash and cash equivalents | 7 | (20) | |
Net change in cash and cash equivalents | 58 | 251 | |
Cash and cash equivalents at beginning of period | 1,687 | 1,828 | |
Cash and cash equivalents at end of period | 1,745 | 2,079 | |
Debt | |||
Cash flows from financing activities: | |||
Proceeds from issuance of debt | 555 | 739 | |
Principal payments on debt | (921) | (2,012) | |
Short-term borrowings/(repayments) - net | [1] | (301) | (2,312) |
Debt payable to IBM | |||
Cash flows from financing activities: | |||
Proceeds from issuance of debt | 4,735 | 7,007 | |
Principal payments on debt | (6,316) | (7,656) | |
Short-term borrowings/(repayments) - net | [1] | $ (1,563) | $ (3,782) |
[1] | Short-term represents original maturities of 90 days or less. |
CONSOLIDATED STATEMENT OF CHANG
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | ||
Member's Interest | |||||
Balance at the beginning of the period | $ 2,343 | $ 2,724 | $ 2,686 | $ 3,420 | |
Net income | 85 | 109 | 316 | 265 | |
Other comprehensive income/(loss), net of tax | 69 | (93) | (52) | (68) | |
Total comprehensive income/(loss) | 155 | 16 | 264 | 197 | |
Contributions from IBM | [1] | 64 | |||
Distributions to IBM | (225) | (240) | (636) | (1,182) | |
Balance at the end of the period | 2,273 | 2,500 | 2,273 | 2,500 | |
Member's Interest | |||||
Member's Interest | |||||
Balance at the beginning of the period | 2,496 | 2,733 | 2,601 | 3,216 | |
Contributions from IBM | [1] | 64 | |||
Distributions to IBM | (140) | (132) | (245) | (679) | |
Balance at the end of the period | 2,356 | 2,601 | 2,356 | 2,601 | |
Retained Earnings | |||||
Member's Interest | |||||
Balance at the beginning of the period | 116 | 238 | |||
Net income | 85 | 109 | 316 | 265 | |
Distributions to IBM | (85) | (109) | (391) | (503) | |
Accumulated Other Comprehensive Income/(Loss) | |||||
Member's Interest | |||||
Balance at the beginning of the period | (153) | (8) | (31) | (33) | |
Other comprehensive income/(loss), net of tax | 69 | (93) | (52) | (68) | |
Balance at the end of the period | $ (83) | $ (101) | (83) | $ (101) | |
Cumulative Effect, Period of Adoption, Adjustment | |||||
Member's Interest | |||||
Balance at the beginning of the period | [2] | (41) | |||
Cumulative Effect, Period of Adoption, Adjustment | Retained Earnings | |||||
Member's Interest | |||||
Balance at the beginning of the period | [2] | $ (41) | |||
[1] | In accordance with the previously executed Tax Sharing Agreement, $64 million was settled through a non-cash contribution. Refer to note 14, "Relationship with IBM and Related Party Transactions." | ||||
[2] | Reflects the adoption of the FASB guidance on current expected credit losses. Refer to note 2, "Accounting Changes." |
CONSOLIDATED STATEMENT OF CHA_2
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST (Parenthetical) $ in Millions | 9 Months Ended |
Sep. 30, 2019USD ($) | |
IBM | |
Non-cash equity contribution received | $ 64 |
Basis of Presentation
Basis of Presentation | 9 Months Ended |
Sep. 30, 2020 | |
Basis of Presentation | |
Basis of Presentation | Notes to Consolidated Financial Statements: 1. Basis of Presentation: The accompanying Consolidated Financial Statements and footnotes of IBM Credit LLC (IBM Credit or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company’s management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company’s results of operations, financial position and cash flows. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. Member’s interest in the Consolidated Balance Sheet represents the accumulation of the company’s net income over time and contributions from IBM and distributions to IBM. Distributions by the company to IBM are considered first to be a return of profit as reflected in retained earnings in the Consolidated Balance Sheet. Any amount distributed to IBM in excess of the company’s available balance in retained earnings is considered a return of a portion of Member’s interest as reflected in the Consolidated Balance Sheet. Income tax expense is based on reported income before income taxes. Whereas the majority of non-U.S. entities are separate legal tax filers, the company’s U.S. federal and certain state and foreign operations are included in various IBM consolidated tax returns. In such cases, the income taxes for these entities are calculated using a separate return method modified to apply the benefits-for-loss approach, which is consistent with the company’s Tax Sharing Agreement with IBM. Under this approach, the provision for income taxes is computed as if the company filed tax returns on a separate tax return basis and is then adjusted, as necessary, to reflect IBM’s reimbursement for any tax benefits generated by the company. The amount of restricted cash included in the Consolidated Balance Sheet and Consolidated Statement of Cash Flows is immaterial for the periods presented. All significant intracompany transactions between IBM Credit’s businesses have been eliminated. All significant intercompany transactions between IBM Credit and IBM have been included in these Consolidated Financial Statements. Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company’s 2019 Form 10-K. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. |
Accounting Changes
Accounting Changes | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Changes | |
Accounting Changes | 2. Accounting Changes: New Standards to be Implemented Any current pending standards to be implemented are either not applicable or not material to the company. Standards Implemented Reference Rate Reform Standard/Description– Effective Date and Adoption Considerations– Effect on Financial Statements or Other Significant Matters– Financial Instruments-Credit Losses Standard/Description – Effective Date and Adoption Considerations – Effect on Financial Statements or Other Significant Matters – At January 1, 2020, an increase in the allowance for credit losses of $56 million was recorded for financing receivables (inclusive of its related off-balance sheet commitments). Additionally, net deferred taxes were reduced by $16 million in the Consolidated Balance Sheet, resulting in a cumulative-effect net decrease to retained earnings of $41 million. Refer to note 6, “Financing Receivables, Receivables Purchased/Participated from IBM,” and note 9, “Commitments,” for additional information. |
Segments
Segments | 9 Months Ended |
Sep. 30, 2020 | |
Segments | |
Segments | 3. Segments The company’s operations consist of two business segments: Client Financing and Commercial Financing. The segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in determining how to allocate resources and evaluate performance. The company is organized on the basis of its financing offerings. The company’s reportable segments are business units that offer different financing solutions based upon clients’ needs. Client Financing provides leases and loan financing to end-user clients, acquires installment payment plans offered to end-user clients by IBM, and acquires participation interests in IBM financing receivables for which the company assumes the IBM client’s credit risk from IBM. End-user clients are primarily IBM clients that elect to finance their acquisition of IBM’s hardware, software, and services, as well as Original Equipment Manufacturer (OEM) IT hardware, software and services, to meet their total solution requirements. In addition, the company provides loans to IBM, primarily in support of IBM’s Global Technology Services segment’s acquisition of IT assets, which IBM uses in external, revenue-producing services contracts. Commercial Financing provides working capital financing for suppliers, distributors and resellers of IBM and OEM IT products and services. The segment’s performance primarily reflects the wind down of OEM IT Commercial Financing operations which began in the second quarter of 2019. The segment’s pre-tax income includes an allocation of interest expense and selling, general and administrative (SG&A) expense by the company to each of its operating segments. Interest expense is allocated based on the average assets in each segment. SG&A expense is allocated based on a measurable financial driver, such as net margin. IBM Credit and its consolidated subsidiaries are reported by the company’s parent, IBM, as part of IBM’s Global Financing segment, which also includes IBM’s remanufacturing and remarketing business. SEGMENT INFORMATION Client Commercial Total (Dollars in millions) Financing Financing Segments For the three months ended September 30, 2020: Total revenue $ 234 $ 32 $ 266 Pre-tax income 91 16 107 Depreciation of equipment under operating lease 27 — 27 Interest expense 54 7 61 Provision for/(benefit from) credit losses 4 (1) 4 For the three months ended September 30, 2019: Total revenue $ 292 $ 80 $ 372 Pre-tax income 89 42 131 Depreciation of equipment under operating lease 39 — 39 Interest expense 96 20 115 Provision for/(benefit from) credit losses 5 (6) (1) (Amounts may not add due to rounding.) SEGMENT INFORMATION Client Commercial Total (Dollars in millions) Financing Financing Segments For the nine months ended September 30, 2020: Total revenue $ 757 $ 125 $ 881 Pre-tax income 274 66 339 Depreciation of equipment under operating lease 86 — 86 Interest expense 198 29 227 Provision for/(benefit from) credit losses 50 (1) 49 For the nine months ended September 30, 2019: Total revenue $ 906 $ 359 $ 1,265 Pre-tax income 303 158 460 Depreciation of equipment under operating lease 127 — 127 Interest expense 289 111 400 Provision for/(benefit from) credit losses (1) (4) (4) (Amounts may not add due to rounding.) |
Divestiture
Divestiture | 9 Months Ended |
Sep. 30, 2020 | |
Divestiture | |
Divestiture | 4. Divestiture In the first quarter of 2019, IBM sold certain commercial financing capabilities and assigned a number of its commercial financing contracts, excluding related receivables which were collected as they became due in the normal course of business, to a third party and recorded a pre-tax gain of $16 million. |
Financial Assets and Liabilitie
Financial Assets and Liabilities | 9 Months Ended |
Sep. 30, 2020 | |
Financial Assets and Liabilities | |
Financial Assets and Liabilities | 5. Financial Assets and Liabilities Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The company classifies certain assets and liabilities based on the following fair value hierarchy: ● Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date; ● Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and ● Level 3—Unobservable inputs for the asset or liability. When available, the company uses unadjusted quoted market prices in active markets to measure the fair value and classifies such items as Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. The determination of fair value considers various factors, including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument. In determining the fair value of financial instruments, the company considers certain market valuation adjustments to the “base valuations” calculated using the methodologies described below for several parameters that market participants would consider in determining fair value: ● Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument. ● Credit risk adjustments are applied to reflect the company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company’s own credit risk as observed in the credit default swap market. The company holds investments in time deposits and certificates of deposit that are designated as available-for-sale. The primary objective of the company’s cash and debt investment portfolio is to maintain principal by investing in very liquid and highly rated investment grade securities. Available-for-sale securities are measured for impairment on a recurring basis by comparing the security’s fair value with its amortized cost basis. Effective January 1, 2020 with the adoption of the new standard on credit losses, if the fair value of the security falls below its amortized cost basis, the change in fair value is recognized in the period the impairment is identified when the loss is due to credit factors. The change in fair value due to non-credit factors is recorded in other comprehensive income when the company does not intend to sell and has the ability to hold the investment. The company’s standard practice is to hold all of its debt security investments classified as available-for-sale until maturity. There were no impairments for credit losses or non-credit impairments for the three and nine months ended September 30, 2020. Prior to the adoption of the new standard, available-for-sale securities were measured for impairment using an other-than-temporary impairment model. No impairment was recorded for the three and nine months ended September 30, 2019. The following table presents the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019. Fair Value Hierarchy At September 30, 2020 At December 31, 2019 (Dollars in millions) Level Assets Liabilities Assets Liabilities Cash equivalents (1) Time deposits and certificates of deposit (2) 2 $ 706 $ N/A $ 788 $ N/A Money market funds 1 — N/A 5 N/A Total cash equivalents $ 706 $ N/A $ 793 $ N/A Derivatives designated as hedging instruments (3) Interest rate contracts with IBM 2 73 — 45 — Foreign exchange contracts with IBM 2 3 36 — 18 Total $ 783 $ 36 $ 838 $ 18 (1) Included within cash and cash equivalents in the Consolidated Balance Sheet. (2) Available-for-sale securities with an amortized cost basis that approximates fair value. (3) Included within other assets and other liabilities in the Consolidated Balance Sheet. N/A – not applicable Financial Assets and Liabilities Not Measured at Fair Value Short-Term Receivables and Payables Short-term financing receivables are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (including debt payable to IBM) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy, except for short-term debt, which would be classified as Level 2. Long-Term Receivables Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At September 30, 2020 and December 31, 2019, the difference between the carrying amount and estimated fair value for long-term receivables was immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Long-Term Debt Fair value of publicly traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt, which includes debt payable to IBM, for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt (including debt payable to IBM) was $14,281 million and $15,268 million, and the estimated fair value was $14,480 million and $15,409 million at September 30, 2020 and December 31, 2019, respectively. If measured at fair value in the financial statements, long-term debt would be classified as Level 2 in the fair value hierarchy. |
Financing Receivables, Receivab
Financing Receivables, Receivables Purchased/Participated from IBM | 9 Months Ended |
Sep. 30, 2020 | |
Financing Receivables, Receivables Purchased/Participated from IBM | |
Financing Receivables, Receivables Purchased/Participated from IBM | 6. Financing Receivables, Receivables Purchased/Participated from IBM Financing receivables primarily consist of client loan and installment payment receivables (loans), investment in sales-type and direct financing leases and Commercial Financing receivables. Loans are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are generally for terms up to seven years. Investment in sales-type and direct financing leases relate principally to IBM’s Systems products and are for terms ranging generally from two The company purchases interests in certain of IBM’s short-term receivables. These receivables are included within the Commercial Financing segment. The company also participates in receivables from IBM for certain long-term financing receivables generated from IBM’s Total Solution Offerings in certain countries as well as for certain government and other contracts. The company carries the credit risk of IBM’s clients for all purchased and participated receivables from IBM. Loans, investment in sales-type and direct financing leases, and participated receivables from IBM are collectively referred to as Client Financing receivables and are included within the Client Financing segment. Effective January 1, 2020, the company adopted the new accounting standard related to credit losses, using the transition methodology whereby prior comparative periods were not retrospectively presented in the Consolidated Financial Statements. Refer to note 2, “Accounting Changes,” for additional information. Under this new guidance, the amortized cost basis of a financial asset represents the original amount of the financing receivable (including residual value) adjusted for unearned income, deferred initial direct costs, cash collected, write-offs and any foreign exchange adjustments. The allowance for credit losses represents future expected credit losses over the life of the receivables based on past experience, current information and forward-looking economic considerations. Prior to the effective date, financing receivables were measured at recorded investment, which does not include residual value. As a result, all prior periods are presented at recorded investment, while current period information is presented at amortized cost. Additionally, current period information reflects updates to the portfolio segments, and other presentation changes within the following tables, as a result of the adoption of this new guidance. A summary of the components of the company’s financing receivables and receivables purchased/participated from IBM is presented as follows: Client Loan and Installment Payment Commercial (Dollars in millions) Receivables Investment in Financing At September 30, 2020: (Loans) Leases Receivables Total Financing receivables, gross $ 7,780 $ 2,863 $ 1,845 $ 12,488 Unearned income (289) (229) (3) (520) Deferred initial direct costs 58 20 — 78 Residual value* — 398 — 398 Amortized cost $ 7,549 $ 3,052 $ 1,843 $ 12,443 Allowance for credit losses (97) (75) (8) (179) Total financing receivables, net $ 7,452 $ 2,977 $ 1,835 $ 12,264 * Includes guaranteed and unguaranteed residual value Client Loan and Installment Payment Commercial (Dollars in millions) Receivables Investment in Financing At December 31, 2019: (Loans) Leases Receivables Total Financing receivables, gross $ 9,566 $ 4,626 $ 3,400 $ 17,592 Unearned income (373) (384) (4) (761) Deferred initial direct costs 71 32 — 103 Recorded investment $ 9,264 $ 4,274 $ 3,396 $ 16,934 Allowance for credit losses (82) (56) (9) (148) Unguaranteed residual value — 531 — 531 Guaranteed residual value — 47 — 47 Total financing receivables, net $ 9,181 $ 4,796 $ 3,387 $ 17,365 At September 30, At December 31, (Dollars in millions) 2020 2019 Short-term purchased receivables from IBM $ 37 $ 56 Allowance for credit losses (1) 0 Total short-term purchased receivables from IBM, net $ 36 $ 56 Long-term participated receivables from IBM $ 4,193 $ 4,310 Allowance for credit losses (22) (7) Total long-term participated receivables from IBM, net $ 4,171 $ 4,303 Total receivables purchased/participated from IBM, net $ 4,207 $ 4,359 The company has a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties, with enhanced focus in this unprecedented environment of the COVID-19 pandemic. These actions may include credit insurance, financial guarantees, nonrecourse borrowings, transfers of receivables recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease. Sale of receivables arrangements are also utilized in the normal course of business as part of the company’s cash and liquidity management. During the three months ended September 30, 2020, the company sold $854 million of Client Financing receivables, consisting of lease and loan receivables of $435 million and $419 million, respectively. At the time of sale, more than half of the receivables sold were due within the next 12 months. For the nine months ended September 30, 2020, the company sold $1,565 million of financing receivables consisting of lease and loan receivables of $852 million and $713 million, respectively. The transfer of these receivables qualified as true sales and therefore reduced financing receivables, resulting in a benefit to cash flows from investing activities. The impact to the Consolidated Income Statement, including fees and net gain associated with the transfer of these receivables for the three and nine months ended September 30, 2020, was not material. The company did not have any material financing receivables held for sale as of September 30, 2020 and December 31, 2019. Financing receivables pledged as collateral for borrowings were $596 million and $1,062 million at September 30, 2020 and December 31, 2019, respectively. Allowance for Credit Losses Refer to note A, “Significant Accounting Policies,” in the company’s 2019 Annual Report for a full description of its accounting policies for financing receivables and related allowances. The descriptions below include any changes to those policies due to the new standard. Effective with the adoption of the new credit losses standard, the company’s estimates of its allowances for expected credit losses include consideration of: past events, including any historical default, historical concessions and resulting troubled debt restructurings, current economic conditions, taking into account any non-freestanding mitigating credit enhancements, and certain forward-looking information, including reasonable and supportable forecasts. Collectively Evaluated Receivables The company determines its allowance for credit losses based on two portfolio segments: Client Financing receivables and Commercial Financing receivables, and further segments the portfolio into three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. For Client Financing receivables, the company uses a credit loss model to calculate allowances based on its internal loss experience and current conditions and forecasts by class of financing receivable. The company records an unallocated reserve that is calculated by applying a reserve rate to its portfolio, excluding accounts that have been individually evaluated and specifically reserved. This reserve rate is based upon credit rating, probability of default, term and loss history. The allowance is adjusted quarterly for expected recoveries of amounts that were previously written off or are expected to be written off. Recoveries cannot exceed the aggregated amount of the previous write-off or expected write-off. Macroeconomic variables attributed to the expected credit losses for Client Financing receivables may vary by class of financing receivables based on historical experiences, portfolio composition and current environment. In addition to a qualitative review of credit risk factors across the portfolio, the company considers forward-looking macroeconomic variables such as gross domestic product, unemployment rates, equity prices and corporate profits when quantifying the impact of economic forecasts on its Client Financing receivables allowance for expected credit losses. The company also considers the impact of current conditions and economic forecasts relating to specific industries, geographical areas, and client-credit ratings on the portfolio. Under this approach, forecasts of these variables over two years are considered reasonable and supportable. Beyond two years, the company reverts to long-term average loss experience. Forward-looking estimates require the use of judgment, particularly in times of economic uncertainty. Consistent with the first half of 2020, the company continues to monitor the evolving global impacts from the COVID-19 pandemic as well as its impact on external economic models, which have been revised with increased frequency throughout the year. The company’s allowances at September 30, 2020, reflect the qualitative process described above. Any changes to economic models that occurred after the balance sheet date will be reflected in future periods. The allowance for Commercial Financing receivables is estimated based on a combination of write-off history and current economic conditions, excluding any individually evaluated accounts. The Commercial Financing receivables portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current estimated risk of loss and resulting impact to the company’s financial results are not material. At January 1, 2020, upon adoption of the new standard on credit losses, the company recorded an additional allowance for Client and Commercial Financing receivables (including related off-balance sheet commitments) of $56 million. This was primarily driven by an increase in the Client Financing receivables allowance. Refer to note 9, “Commitments,” for additional information regarding off-balance sheet commitments. Client Financing Receivables The following tables present the amortized cost basis or recorded investment for Client Financing receivables at September 30, 2020 and December 31, 2019, respectively, further segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. (Dollars in millions) At September 30, 2020: Americas EMEA Asia Pacific Total Amortized cost $ 7,536 $ 4,614 $ 2,644 $ 14,794 Allowance for credit losses Beginning balance at December 31, 2019 $ 98 $ 36 $ 11 $ 146 Adjustment for adoption of new standard 21 13 4 39 Beginning balance at January 1, 2020 $ 120 $ 50 $ 16 $ 185 Write-offs $ (23) $ (1) $ (2) $ (26) Recoveries 0 0 2 2 Additions/(releases) 33 9 (1) 41 Other* (11) 2 0 (8) Ending balance at September 30, 2020 $ 119 $ 60 $ 15 $ 194 * Primarily represents translation adjustments. (Dollars in millions) At December 31, 2019: Americas EMEA Asia Pacific Total Recorded investment Lease receivables $ 3,160 $ 710 $ 404 $ 4,274 Loan receivables 6,173 2,415 676 9,264 Participated receivables from IBM 717 1,671 1,922 4,310 Ending balance $ 10,049 $ 4,796 $ 3,003 $ 17,848 Recorded investment collectively evaluated for impairment $ 9,957 $ 4,770 $ 2,993 $ 17,720 Recorded investment individually evaluated for impairment $ 92 $ 26 $ 10 $ 128 Allowance for credit losses Beginning balance at January 1, 2019 Lease receivables $ 38 $ 17 $ 10 $ 65 Loan receivables 66 28 5 98 Participated receivables from IBM 3 8 3 14 Total $ 107 $ 53 $ 17 $ 177 Write-offs $ (14) $ (10) $ (4) $ (29) Recoveries 0 0 0 1 Additions/(releases) 7 (6) (2) (2) Foreign currency translation adjustment (1) 0 0 (1) Other 0 0 0 0 Ending balance at December 31, 2019 $ 98 $ 36 $ 11 $ 146 Lease receivables $ 27 $ 21 $ 8 $ 56 Loan receivables $ 68 $ 12 $ 2 $ 82 Participated receivables from IBM $ 3 $ 3 $ 1 $ 7 Related allowance, collectively evaluated for impairment $ 23 $ 11 $ 3 $ 36 Related allowance, individually evaluated for impairment $ 75 $ 26 $ 9 $ 110 Write-offs of lease receivables and loan receivables were $17 million and $11 million, respectively, for the year ended December 31, 2019. Provisions for credit losses recorded for lease receivables and participated receivables from IBM were an addition of $5 million and a release of $6 million, respectively, for the year ended December 31, 2019. Past Due Financing Receivables The company considers a client’s financing receivable balance past due when any installment is aged over 90 days. The following tables summarize information about the amortized cost basis or recorded investment in Client Financing receivables, including amortized cost or recorded investment aged over 90 days and still accruing, billed invoices aged over 90 days and still accruing, and amortized cost or recorded investment not accruing. Amortized Billed Amortized Total Amortized Cost Invoices Cost (Dollars in millions) Amortized Cost > 90 Days and > 90 Days and Not At September 30, 2020: Cost > 90 Days (1) Accruing (1) Accruing Accruing (2) Americas $ 7,536 $ 241 $ 165 $ 30 $ 88 EMEA 4,614 78 12 4 72 Asia Pacific 2,644 15 7 4 8 Total client financing receivables $ 14,794 $ 334 $ 184 $ 38 $ 168 (1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days . (2) Of the amortized cost not accruing, there was a related allowance of $115 million. Financing income recognized on these receivables was immaterial for the three and nine months ended September 30, 2020, respectively. Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At December 31, 2019: Investment > 90 Days (1) Accruing (1) Accruing Accruing (2) Americas $ 3,160 $ 179 $ 143 $ 10 $ 37 EMEA 710 24 11 1 16 Asia Pacific 404 9 2 0 7 Total lease receivables $ 4,274 $ 213 $ 156 $ 11 $ 59 Americas $ 6,173 $ 107 $ 66 $ 10 $ 56 EMEA 2,415 51 3 1 51 Asia Pacific 676 3 1 0 2 Total loan receivables $ 9,264 $ 161 $ 69 $ 11 $ 110 Americas $ 717 $ 8 $ 8 $ 1 $ 0 EMEA 1,671 7 7 1 1 Asia Pacific 1,922 6 5 1 1 Total participated receivables from IBM $ 4,310 $ 21 $ 20 $ 3 $ 2 Total $ 17,848 $ 394 $ 245 $ 25 $ 171 (1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days . (2) Of the recorded investment not accruing, $128 million is individually evaluated for impairment with a related allowance of $110 million. Financing income recognized on these receivables was immaterial for the three and nine months ended September 30, 2019, respectively. Credit Quality Indicators The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody’s, where available, as one of many inputs in its determination of customer credit ratings. The credit quality of the customer is evaluated based on these indicators and is assigned the same risk rating whether the receivable is a lease, loan or participated from IBM. The following tables present the amortized cost basis or recorded investment for Client Financing receivables by credit quality indicator at September 30, 2020 and December 31, 2019, respectively. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. Effective January 1, 2020, under the new guidance for credit losses, the company discloses its credit quality by year of origination. Additionally, under the new guidance, the amortized cost is presented on a gross basis, whereas under the prior guidance, the company presented the recorded investment net of the allowance for credit losses. At September 30, 2020, the credit quality indicators reflect mitigating credit enhancement actions taken by customers which reduces the risk to the company. (Dollars in millions) Americas EMEA Asia Pacific At September 30, 2020 Aaa – Baa3 Ba1 – D Aaa – Baa3 Ba1 – D Aaa – Baa3 Ba1 – D Vintage year: 2020 $ 1,770 $ 1,283 $ 1,074 $ 1,301 $ 653 $ 239 2019 1,322 752 644 592 551 142 2018 994 483 354 286 412 162 2017 418 191 89 142 199 58 2016 107 75 39 45 134 29 2015 and prior 41 100 25 21 55 10 Total $ 4,652 $ 2,884 $ 2,226 $ 2,387 $ 2,004 $ 640 Lease Receivables Loan Receivables Participated Receivables from IBM (Dollars in millions) Asia Asia Asia At December 31, 2019 Americas EMEA Pacific Americas EMEA Pacific Americas EMEA Pacific Credit Ratings: Aaa – Aa3 $ 305 $ 55 $ 31 $ 732 $ 89 $ 89 $ 440 $ 88 $ 89 A1 – A3 700 88 124 1,166 178 237 71 271 934 Baa1 – Baa3 949 153 83 1,756 907 107 104 762 500 Ba1 – Ba2 733 206 61 1,461 532 159 49 442 245 Ba3 – B1 196 137 62 444 455 46 43 88 126 B2 – B3 236 45 32 513 228 33 4 18 26 Caa – D 13 5 2 32 15 3 2 0 2 Total $ 3,133 $ 689 $ 396 $ 6,105 $ 2,403 $ 674 $ 714 $ 1,668 $ 1,921 Troubled Debt Restructurings The company did not have any significant troubled debt restructurings during the nine months ended September 30, 2020 or for the year ended December 31, 2019. |
Leases
Leases | 9 Months Ended |
Sep. 30, 2020 | |
Leases | |
Leases | 7. Leases Accounting for leases as a lessor The following table presents amounts included in the Consolidated Income Statement related to lessor activity: (Dollars in millions) For the three months ended September 30: 2020 2019 Financing lease revenue $ 36 $ 50 Operating lease revenue 52 67 Variable lease revenue 5 6 Total lease revenue $ 93 $ 124 (Dollars in millions) For the nine months ended September 30: 2020 2019 Financing lease revenue $ 129 $ 157 Operating lease revenue 165 216 Variable lease revenue 17 19 Total lease revenue $ 310 $ 391 |
Borrowings
Borrowings | 9 Months Ended |
Sep. 30, 2020 | |
Borrowings | |
Borrowings | 8. Borrowings Short-Term Debt Balance Balance (Dollars in millions) 9/30/2020 12/31/2019 Commercial paper $ — $ 304 Short-term loans 43 49 Secured borrowings 72 280 Debt $ 116 $ 633 Debt payable to IBM 5,897 8,194 Total $ 6,012 $ 8,827 The weighted-average interest rate for commercial paper was 1.6 percent at December 31, 2019. The weighted-average interest rate for short-term loans was 3.7 percent and 5.2 percent at September 30, 2020 and December 31, 2019, respectively. The weighted-average interest rate for secured borrowings was 2.7 percent and 3.6 percent at September 30, 2020 and December 31, 2019, respectively. Short-term financing receivables pledged as collateral for short-term secured borrowings were $72 million at September 30, 2020 and $280 million at December 31, 2019. The weighted-average interest rate for debt payable to IBM was 0.4 percent and 1.6 percent at September 30, 2020 and December 31, 2019, respectively. Long-Term Debt Balance Balance (Dollars in millions) Maturities 9/30/2020 12/31/2019 Long-term notes (weighted-average interest rate at September 30, 2020) 2.1% 2020 $ 1,500 $ 1,500 1.9% 2021 2,850 2,850 2.2% 2022 500 500 3.0% 2023 750 750 $ 5,600 $ 5,600 Long-term loans (3.6% weighted-average interest rate at September 30, 2020) 2020-2024 120 113 Secured borrowings (4.1% weighted-average interest rate at September 30, 2020) 2020-2026 524 781 Long-term debt $ 6,244 $ 6,495 Less: net unamortized discount 1 1 Less: net unamortized debt issuance costs 2 5 Add: fair value adjustment* 65 28 Debt $ 6,307 $ 6,517 Debt payable to IBM (1.3% weighted-average interest rate at September 30, 2020) 7,975 8,751 Total $ 14,281 $ 15,268 * The portion of the company's fixed-rate debt obligations that is hedged is reflected in the Consolidated Balance Sheet as an amount equal to the sum of the debt's carrying value and a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates. The company utilizes certain of its financing receivables as collateral. Long-term financing receivables pledged as collateral for long-term secured borrowings were $524 million at September 30, 2020 and $781 million at December 31, 2019. The company’s indenture governing its debt securities contains significant covenants which obligate the company to promptly pay principal and interest, limit the aggregate amount of liens (other than permitted liens as such term is defined under the indenture) to 15 percent of the company’s consolidated net tangible assets, and restrict the company’s ability to merge or consolidate unless certain conditions are met. Pre-swap annual contractual obligations of long-term debt and long-term debt payable to IBM outstanding at September 30, 2020, are as follows: 2020 2025 and (Dollars in millions) (Q4) 2021 2022 2023 2024 beyond Total Long-term debt $ 1,587 $ 3,142 $ 643 $ 790 $ 82 $ 0 $ 6,244 Debt payable to IBM 1,226 3,249 2,151 884 369 96 7,975 Total $ 2,813 $ 6,390 $ 2,794 $ 1,675 $ 451 $ 96 $ 14,219 Interest on Debt The company recognized interest expense of $61 million and $227 million for the three and nine months ended September 30, 2020, of which $32 million and $116 million was interest expense on debt payable to IBM, respectively. The company recognized interest expense of $115 million and $400 million for the three and nine months ended September 30, 2019, of which $58 million and $189 million was interest expense on debt payable to IBM, respectively. Lines of Credit On July 2, 2020, IBM and the company entered into a new $2.5 billion 364-day Credit Agreement to replace the existing $2.5 billion 364-day Credit Agreement, and also extended the maturity date of the existing $2.5 billion Three-Year Credit Agreement (together, the Credit Agreements). The new maturity dates for the 364-day and Three-Year Credit Agreements are July 1, 2021 and July 20, 2023, respectively. As of September 30, 2020, the company had no borrowings outstanding against the Credit Agreements. The company’s Credit Agreements each contain significant debt covenants, which obligate the company to promptly pay principal and interest, limit the aggregate amount of secured indebtedness and sale and leaseback transactions to 10 percent of IBM’s consolidated net tangible assets, and restrict the ability of the company or IBM to merge or consolidate with a third party, unless certain conditions are met. The Credit Agreements also include several financial covenants, including that (i) IBM will not permit the consolidated net interest expense ratio, for any period of four consecutive fiscal quarters taken as a single accounting period, to be less than 2.20 to 1.0; (ii) the company will not permit its tangible net worth to be less than $50 million as of the end of the fiscal year and (iii) the company’s leverage ratio cannot be greater than 11 to 1 as of the last day of the fiscal quarter. The Credit Agreements each contain a cross default provision with respect to other defaulted indebtedness of at least $500 million. The company is in compliance with its debt covenants, and provides periodic certifications to its lenders. The failure to comply with its debt covenants could constitute an event of default. If certain events of default were to occur, the principal and interest on the debt to which such event of default applied would become immediately due and payable. The Borrowers are also restricted from amending, modifying or terminating the Support Agreement in any manner materially adverse to the lenders. For additional information on the Support Agreement, see note 14, “Relationship with IBM and Related Party Transactions.” |
Commitments
Commitments | 9 Months Ended |
Sep. 30, 2020 | |
Commitments | |
Commitments | 9. Commitments : The company’s extended lines of credit to third-party entities include unused amounts of $1.7 billion and $1.8 billion at September 30, 2020 and December 31, 2019, respectively. A portion of these amounts is available to the company’s business partners to support their working capital needs. In addition, the company has committed to provide future financing to its clients in connection with client purchase agreements for approximately $5.2 billion and $5.4 billion at September 30, 2020 and December 31, 2019, respectively. Effective January 1, 2020, the company adopted the new accounting standard on credit losses, which resulted in the recognition of a related allowance for non-cancellable off-balance sheet commitments. Refer to note 2, “Accounting Changes,” for additional information. The allowance for these commitments is recorded in other liabilities in the Consolidated Balance Sheet and was not material at September 30, 2020. The company collectively evaluates the allowance for these arrangements using a provision methodology consistent with the portfolio of the commitments. Refer to note 6, “Financing Receivables, Receivables Purchased/Participated from IBM,” for additional information . |
Contingencies
Contingencies | 9 Months Ended |
Sep. 30, 2020 | |
Contingencies | |
Contingencies | 10. Contingencies : The company is, or may be, involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise in the ordinary course of its business. Certain of these actions and proceedings are similar to suits filed against other financial institutions and captive finance companies. These may include collection and bankruptcy proceedings related to its leases and loans and proceedings concerning client allegations of wrongful repossession or defamation of credit. The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate). In addition, the company also discloses matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, client and employee relations considerations. The company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any recorded liabilities, including any changes to such liabilities for the quarter ended September 30, 2020 were not material to the Consolidated Financial Statements. In accordance with the relevant accounting guidance, the company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. As of September 30, 2020, there were no such matters. |
Equity Activity
Equity Activity | 9 Months Ended |
Sep. 30, 2020 | |
Equity Activity | |
Equity Activity | 11. Equity Activity : IBM Credit had no unrealized gains or (losses) on cash flow hedges and gains and losses on available-for-sale securities were immaterial during the periods presented in the following tables: Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended September 30, 2020: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ 60 $ 8 $ 69 Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ — $ — $ — Curtailments and settlements 0 0 0 Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 1 0 1 Total retirement-related benefit plans $ 1 $ 0 $ 1 Other comprehensive income/(loss) $ 61 $ 8 $ 69 (1) These accumulated other comprehensive income (AOCI) components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.) Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended September 30, 2019: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (76) $ (17) $ (93) Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ — $ — $ — Curtailments and settlements — — — Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 0 0 0 Total retirement-related benefit plans $ 0 $ 0 $ 0 Other comprehensive income/(loss) $ (75) $ (17) $ (93) (1) These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.) Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the nine months ended September 30, 2020: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (60) $ 6 $ (54) Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ 0 $ 0 $ 0 Curtailments and settlements 0 0 0 Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 3 0 2 Total retirement-related benefit plans $ 3 $ 0 $ 2 Other comprehensive income/(loss) $ (57) $ 5 $ (52) (1) These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.) Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the nine months ended September 30, 2019: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (56) $ (13) $ (69) Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ 0 $ 0 $ 0 Curtailments and settlements — — — Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 1 0 1 Total retirement-related benefit plans $ 1 $ 0 $ 1 Other comprehensive income/(loss) $ (55) $ (13) $ (68) (1) These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.) Accumulated Other Comprehensive Income/(Loss) (net of tax) Net Change Foreign Retirement- Accumulated Currency Related Other Translation Benefit Comprehensive (Dollars in millions) Adjustments* Plans Income/(Loss) January 1, 2020 $ (12) $ (19) $ (31) Other comprehensive income before reclassification (54) 0 (54) Amount reclassified from accumulated other comprehensive income — 2 2 Total change for the period (54) 2 (52) September 30, 2020 $ (67) $ (16) $ (83) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Foreign Retirement- Accumulated Currency Related Other Translation Benefit Comprehensive (Dollars in millions) Adjustments* Plans Income/(Loss) January 1, 2019 $ (23) $ (10) $ (33) Other comprehensive income before reclassification (69) 0 (69) Amount reclassified from accumulated other comprehensive income — 1 1 Total change for the period (69) 1 (68) September 30, 2019 $ (92) $ (9) $ (101) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. |
Derivative Financial Instrument
Derivative Financial Instruments | 9 Months Ended |
Sep. 30, 2020 | |
Derivative Financial Instruments | |
Derivative Financial Instruments | 12. Derivative Financial Instruments : The company operates in multiple currencies and is a lender and issuer in the capital markets and a borrower from IBM. In the normal course of business, the company may be exposed to the impact of interest rate changes and foreign currency fluctuations. The company limits its exposure to core market risks by following established risk management policies and procedures, and through the use of match-funding with IBM and third parties. Although the company seeks to substantially match-fund the terms, currency and interest rate variability of its debt against its underlying financial assets, risks may arise between assets and the related liabilities used for funding. The company may also choose to mitigate any remaining exposure relating to interest rate changes and foreign currency fluctuations through the use of interest rate or foreign exchange derivatives. Derivative assets and liabilities are recorded in other assets and other liabilities in the Consolidated Balance Sheet and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the company with IBM and third parties, and are not necessarily a direct measure of the financial exposure. The company also enters into master netting agreements with certain counterparties that allow for netting of exposures in the event of default or breach. However, in the Consolidated Balance Sheet, the company does not offset derivative assets against liabilities in master netting arrangements. If derivatives exposures covered by a qualifying master netting agreement with IBM had been netted in the Consolidated Balance Sheet at September 30, 2020 December 31, 2019 Interest Rate Risk Fixed and Variable Rate Borrowings The company issues debt in the capital markets to fund its operations. Access to cost-effective financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall interest cost, the company may enter into interest-rate swaps with IBM to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). At September 30, 2020 and December 31, 2019, the total notional amount of the company's interest rate swap contracts with IBM was $2,550 million at both periods. The weighted average remaining maturity of these instruments at September 30, 2020 and December 31, 2019, was approximately 1.2 years and 2.0 years, respectively. These interest rate contracts were accounted for as fair value hedges. The company did not have any cash flow hedges relating to this program outstanding at September 30, 2020 and December 31, 2019. Foreign Exchange Risk Long-Term Investments in Foreign Subsidiaries (Net Investment) The company enters into foreign exchange derivatives with IBM as a hedge of net investment of its foreign subsidiaries to reduce the volatility in member's interest caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. At September 30, 2020 and December 31, 2019, the total notional amount of derivative contracts with IBM designated as net investment hedges was $870 million and $1,229 million, respectively. The weighted average remaining maturity of these instruments at September 30, 2020 and December 31, 2019, was 0.2 years at both periods. Foreign Currency Asset/Liability Management The company enters into foreign exchange derivative contracts to manage foreign currency exposures associated with the company’s funding from IBM and third parties. These derivatives are not designated as hedges for accounting purposes. However, these derivatives represent economic hedges which provide an economic offset to the underlying foreign currency exposure. The terms of these derivative contracts are generally less than one year. The gains and losses recognized on economic hedges are recorded in other (income) and expense in the Consolidated Income Statement, and the associated cash flows are included in other investing activities - net, in the Consolidated Statement of Cash Flows. There were no foreign exchange derivative contracts with third parties outstanding at September 30, 2020 and December 31, 2019. Cumulative Basis Adjustments for Fair Value Hedges At September 30, 2020 and December 31, 2019, the following amounts were recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges. (Dollars in millions) Line Item in the Consolidated Balance Sheet At September 30, At December 31, in which the Hedged Item is Included: 2020 2019 Debt: Carrying amount of the hedged item $ (2,613) $ (2,574) Cumulative hedging adjustments included in the carrying amount - assets/(liabilities) (65) (28) The Effect of Derivative Instruments in the Consolidated Income Statement The total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value hedges, net investment hedges and derivatives not designated as hedging instruments are recorded and the total effect of hedge activity on these income and expense line items, are as follows: Gains/(Losses) of (Dollars in millions) Total Total Hedge Activity For the three months ended September 30: 2020 2019 2020 2019 Financing cost $ 66 $ 122 $ 13 $ 9 Gain/(Loss) Recognized in Consolidated Income Statement Consolidated Recognized on Attributable to Risk (Dollars in millions) Income Statement Derivatives Being Hedged (2) For the three months ended September 30: Line Item 2020 2019 2020 2019 Derivative instruments in fair value hedges (1): Interest rate contracts with IBM Financing cost $ 0 $ 5 $ 12 $ (8) Total $ 0 $ 5 $ 12 $ (8) Gain/(Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income Consolidated (Dollars in millions) Income Reclassified Amounts Excluded from For the three months Recognized in OCI Statement from AOCI Effectiveness Testing (3) ended September 30: 2020 2019 Line Item 2020 2019 2020 2019 Derivative instruments in net investment hedges: Foreign exchange contracts with IBM $ (34) $ 67 Financing cost $ — $ — $ 1 $ 12 Total $ (34) $ 67 $ — $ — $ 1 $ 12 (1) The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts. (2) The amount includes basis adjustments to the carrying value of the hedged item recorded during the period. (3) The company's policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period . Gains/(Losses) of (Dollars in millions) Total Total Hedge Activity For the nine months ended September 30: 2020 2019 2020 2019 Financing cost $ 244 $ 419 $ 32 $ 16 Gain/(Loss) Recognized in Consolidated Income Statement Consolidated Recognized Attributable to Risk (Dollars in millions) Income Statement on Derivatives Being Hedged (2) For the nine months ended September 30: Line Item 2020 2019 2020 2019 Derivative instruments in fair value hedges (1): Interest rate contracts with IBM Financing cost $ 60 $ 57 $ (37) $ (70) Total $ 60 $ 57 $ (37) $ (70) Gain/(Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income Consolidated (Dollars in millions) Income Amounts Excluded from For the nine months Recognized in OCI Statement Reclassified from AOCI Effectiveness Testing (3) ended September 30: 2020 2019 Line Item 2020 2019 2020 2019 Derivative instruments in net investment hedges: Foreign exchange contracts with IBM $ (23) $ 49 Financing cost $ — $ — $ 10 $ 28 Total $ (23) $ 49 $ — $ — $ 10 $ 28 (1) The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts. (2) The amount includes basis adjustments to the carrying value of the hedged item recorded during the period. (3) The company's policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. For the three and nine months ended September 30, 2020 and 2019 , there were no material gains or losses excluded from the assessment of hedge effectiveness (for fair value hedges); nor are there any anticipated in the normal course of business. |
Retirement-Related Benefits
Retirement-Related Benefits | 9 Months Ended |
Sep. 30, 2020 | |
Retirement-Related Benefits | |
Retirement-Related Benefits | 13. Retirement-Related Benefits : IBM Credit employees are eligible to participate in IBM’s retirement plans. Retirement-related plans are accounted for as multiemployer, multiple-employer, or defined contribution plans as required by local regulations. Multiemployer and Defined Contribution Plans: IBM charges the company for multiemployer and defined contribution costs based on the number of employees. The charges are recorded in the company’s operating results in the Consolidated Income Statement. The amounts attributed to the company by IBM for the three and nine months ended September 30, 2020 and 2019 were not material. Charges from IBM to the company in relation to these plans (including non pension post retirement benefits) are limited to service costs and defined contribution cost. Contributions to multiemployer and defined contribution plans and any other types of cost are the responsibility of IBM. Multiple-employer Plans: For multiple-employer plans (mainly in Germany, Spain and Japan), assets and obligations are based on actuarial valuations or allocations and are recorded in the Consolidated Balance Sheet. Any gains or losses recorded to AOCI in the three and nine months ended September 30, 2020 and 2019, were not material. Costs related to multiple-employer plans are recorded in the company’s Consolidated Income Statement. The total costs for multiple-employer plans for the three and nine months ended September 30, 2020 and 2019, were not material. |
Relationship with IBM and Relat
Relationship with IBM and Related Party Transactions | 9 Months Ended |
Sep. 30, 2020 | |
Relationship with IBM and Related Party Transactions | |
Relationship with IBM and Related Party Transactions | 14. Relationship with IBM and Related Party Transactions IBM Credit is a captive finance company and an indirect, wholly owned subsidiary of IBM. IBM Credit generally conducts its financing activities with IBM on an arm’s-length basis, subject in certain cases, particularly with respect to originations, to commercial factors, including IBM’s relationship with a client. The following is a description of certain material relationships between IBM Credit and IBM, regarding support, operating, borrowing, licensing, service and other arrangements. Support Agreement Pursuant to a Support Agreement between IBM and IBM Credit, IBM has agreed to retain, directly or indirectly, beneficial ownership of at least 51 percent of the equity voting interests in the company at all times. IBM has also agreed to cause the company to have a minimum consolidated tangible net worth of at least $50 million on the last day of each of the company’s fiscal years (with consolidated tangible net worth for purposes of this discussion of the Support Agreement understood to mean (a) the total assets of IBM Credit and its consolidated subsidiaries less (b) the intangible assets and total liabilities of IBM Credit and its consolidated subsidiaries). IBM has also agreed to cause the company to maintain a leverage ratio not to exceed 11 to 1 for each of the company’s fiscal quarters. Leverage ratio for purposes of this discussion of the Support Agreement is understood to mean, for any calendar quarter, IBM Credit’s debt-to-equity ratio as reported in, and calculated in the manner set forth in, IBM Credit’s periodic report covering such fiscal quarter. In the event that the company’s leverage ratio at the end of any fiscal quarter is higher than 11 to 1, then, upon demand by the company, IBM has agreed to make or cause to be made a capital contribution to the company in an amount sufficient to cause the company’s leverage ratio to not exceed 11 to 1. The Support Agreement is not a guarantee by IBM of any indebtedness, other obligation, or liability of any kind of IBM Credit. Operating Relationship The company originates financing with end-user clients, which are primarily IBM customers that elect to finance their acquisition of IBM’s hardware, software, and services. Where IBM Credit’s financing contract is bundled with IBM’s product and service contract to create a combined periodic payment schedule for the entire offering, the offering is termed a Total Solution Offering. Within the Client Financing segment, the company participates in receivables from IBM for certain long-term financing receivables generated from IBM’s Total Solution Offerings in certain countries as well as for certain government and other contracts. The company carries the credit risk of IBM’s clients for all participated receivables from IBM. These receivables earned interest income of $55 million and $160 million in the three and nine months ended September 30, 2020, respectively, an increase of $7 million and an increase of $15 million as compared to the same periods in 2019, respectively. The interest income is included in the Consolidated Income Statement as financing revenue. For additional information, see note 6, “Financing Receivables, Receivables Purchased/Participated from IBM.” In addition, within Client Financing, in certain countries, the company provides loans to IBM, primarily in support of IBM’s Global Technology Services segment’s acquisition of IT assets used to support external, revenue-producing services contracts. This financing is included in the Consolidated Balance Sheet as financing receivables from IBM. For the three months ended September 30, 2020, the interest income earned from these receivables was $21 million, a decrease of $19 million as compared to the same period in 2019. For the nine months ended September 30, 2020, interest income earned was $81 million, a decrease of $48 million as compared to the same period in 2019. The declines in both periods were primarily driven by a decline in interest rates. The interest income is included in financing revenue in the Consolidated Income Statement. The amount of such financings outstanding was $3,937 million at September 30, 2020 and $3,870 million at December 31, 2019. Within the Commercial Financing segment, the company purchases interests in trade accounts receivable and other short-term receivables from IBM at a discount for which IBM Credit LLC assumes the associated credit risk of IBM’s clients. In the second quarter of 2019, the company suspended the program under which it purchases interests in IBM's trade accounts receivable. For the three months ended September 30, 2020, finance income earned from these receivables was $2 million, a decrease of $2 million as compared to the same period in 2019. For the nine months ended September 30, 2020, finance income earned from these receivables was $7 million, a decrease of $19 million as compared to the same period in 2019. In addition, within Commercial Financing, the company provides financing which includes an interest free period to suppliers, distributors and resellers of IBM products and services, which is funded by IBM. Fee income earned from these arrangements for the three months ended September 30, 2020 was $21 million, a decrease of $13 million as compared to the same period in 2019. Fee income earned for the nine months ended September 30, 2020 was $86 million, a decrease of $30 million as compared to the same period in 2019. These fees are included in financing revenue in the Consolidated Income Statement and are deferred and recognized over the term of the financing arrangement. The company had no outstanding accounts payable to IBM at September 30, 2020 as compared to $336 million at December 31, 2019, which primarily relates to unsettled purchases of equipment or receivables/loans (for software and services) from IBM. These payables are settled on a net basis with receivables due from IBM related to amounts IBM collected from customers on the company’s behalf. In the third quarter of 2020, the account was in a receivable position and the net amount owed by IBM to IBM Credit is presented in other receivables from IBM in the Consolidated Balance Sheet. These accounts are non-interest bearing, short term in nature and expected to be settled in the normal course of business. At September 30, 2020, other receivables from IBM of $814 million included $557 million of excess cash invested with IBM, and $251 million of receivables due from IBM primarily related to amounts IBM collected on the company’s behalf. At December 31, 2019, other receivables from IBM of $513 million included $509 million of excess cash invested with IBM. The company’s excess cash is invested with IBM in short-term interest bearing accounts, can be withdrawn upon demand and is presented in the investing section of the Consolidated Statement of Cash Flows. The company's interest income earned on cash invested with IBM declined $5 million and $18 million for the three and nine months ended September 30, 2020, respectively, as compared to the prior-year periods. The interest income is included in financing revenue in the Consolidated Income Statement. Borrowing Relationship The company has a credit facility with IBM that allows the company to obtain short- and long-term funding. These loans are included in the Consolidated Balance Sheet as debt payable to IBM. Interest expense incurred on loans from IBM was $32 million and $116 million for the three and nine months ended September 30, 2020, respectively, as compared to $58 million and $189 million for the three and nine months ended September 30, 2019, respectively. Interest expense is included in financing cost in the Consolidated Income Statement. For additional information on short-term and long-term funding, see note 8, “Borrowings.” Services and Other Arrangements The company sources a number of services from IBM, including functional support for treasury, accounting, legal, tax, human resources, marketing and IT. In certain instances, IBM acts as IBM Credit’s billing and collection agent and forwards the financing payments to IBM Credit. The company also has the right to use certain IBM intangible assets in its business. In addition, the company conducts its global operations primarily from IBM leased or IBM owned facilities. For these support services and occupancy expenses, IBM charged the company $37 million and $45 million in the three months ended September 30, 2020 and 2019, respectively, and $109 million and $147 million for the nine months ended September 30, 2020 and 2019, respectively. The company participates in the various IBM stock-based compensation plans, including awards of Restricted Stock Units and Performance Share Units. In addition, the company participates in certain multiemployer retirement-related and defined contribution plans that are sponsored by IBM. Amounts charged by IBM to the company related to stock- based compensation, multiemployer retirement-related and defined contribution plans during the periods reported were not material. Expenses related to the services discussed above are included in selling, general and administrative expense in the Consolidated Income Statement. These expenses may not be indicative of the expenses that IBM Credit will incur in the future, or would have incurred if the company had obtained these services from a third party. The company sells equipment returned from lease to IBM at cost, which approximates fair value. In addition, IBM may migrate a client to new technology. In the event this migration results in an early termination of a lease, IBM will purchase the returned equipment at a pre-negotiated price, which is a function of the discounted value of the scheduled future lease payments and the residual value. The company's net profit from sales of returned equipment to IBM was $4 million and $2 million for the three months ended September 30, 2020 and 2019, respectively, and $25 million and $11 million for the nine months ended September 30, 2020 and 2019, respectively. These sales are recorded net in other (income) and expense in the Consolidated Income Statement. Tax Sharing Agreement The company’s U.S. federal and certain state and foreign operations are included in various IBM consolidated tax returns; and, in such cases, IBM makes payments to tax authorities on the company’s behalf. IBM and the company maintain a Tax Sharing Agreement for any operations included in an IBM consolidated tax return, pursuant to which IBM charges the company for any taxes owed and reimburses the company for any tax attributes generated. Such charges or reimbursements are based upon a calculation of the company’s relevant pro forma stand-alone tax return. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies | |
Basis of Presentation | The accompanying Consolidated Financial Statements and footnotes of IBM Credit LLC (IBM Credit or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company’s management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company’s results of operations, financial position and cash flows. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. Member’s interest in the Consolidated Balance Sheet represents the accumulation of the company’s net income over time and contributions from IBM and distributions to IBM. Distributions by the company to IBM are considered first to be a return of profit as reflected in retained earnings in the Consolidated Balance Sheet. Any amount distributed to IBM in excess of the company’s available balance in retained earnings is considered a return of a portion of Member’s interest as reflected in the Consolidated Balance Sheet. Income tax expense is based on reported income before income taxes. Whereas the majority of non-U.S. entities are separate legal tax filers, the company’s U.S. federal and certain state and foreign operations are included in various IBM consolidated tax returns. In such cases, the income taxes for these entities are calculated using a separate return method modified to apply the benefits-for-loss approach, which is consistent with the company’s Tax Sharing Agreement with IBM. Under this approach, the provision for income taxes is computed as if the company filed tax returns on a separate tax return basis and is then adjusted, as necessary, to reflect IBM’s reimbursement for any tax benefits generated by the company. The amount of restricted cash included in the Consolidated Balance Sheet and Consolidated Statement of Cash Flows is immaterial for the periods presented. All significant intracompany transactions between IBM Credit’s businesses have been eliminated. All significant intercompany transactions between IBM Credit and IBM have been included in these Consolidated Financial Statements. Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company’s 2019 Form 10-K. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. |
Accounting Changes | New Standards to be Implemented Any current pending standards to be implemented are either not applicable or not material to the company. Standards Implemented Reference Rate Reform Standard/Description– Effective Date and Adoption Considerations– Effect on Financial Statements or Other Significant Matters– Financial Instruments-Credit Losses Standard/Description – Effective Date and Adoption Considerations – Effect on Financial Statements or Other Significant Matters – At January 1, 2020, an increase in the allowance for credit losses of $56 million was recorded for financing receivables (inclusive of its related off-balance sheet commitments). Additionally, net deferred taxes were reduced by $16 million in the Consolidated Balance Sheet, resulting in a cumulative-effect net decrease to retained earnings of $41 million. Refer to note 6, “Financing Receivables, Receivables Purchased/Participated from IBM,” and note 9, “Commitments,” for additional information. |
Financial Assets and Liabilities Measured At Fair Value | Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The company classifies certain assets and liabilities based on the following fair value hierarchy: ● Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date; ● Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and ● Level 3—Unobservable inputs for the asset or liability. When available, the company uses unadjusted quoted market prices in active markets to measure the fair value and classifies such items as Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. The determination of fair value considers various factors, including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument. In determining the fair value of financial instruments, the company considers certain market valuation adjustments to the “base valuations” calculated using the methodologies described below for several parameters that market participants would consider in determining fair value: ● Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument. ● Credit risk adjustments are applied to reflect the company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company’s own credit risk as observed in the credit default swap market. The company holds investments in time deposits and certificates of deposit that are designated as available-for-sale. The primary objective of the company’s cash and debt investment portfolio is to maintain principal by investing in very liquid and highly rated investment grade securities. Available-for-sale securities are measured for impairment on a recurring basis by comparing the security’s fair value with its amortized cost basis. Effective January 1, 2020 with the adoption of the new standard on credit losses, if the fair value of the security falls below its amortized cost basis, the change in fair value is recognized in the period the impairment is identified when the loss is due to credit factors. The change in fair value due to non-credit factors is recorded in other comprehensive income when the company does not intend to sell and has the ability to hold the investment. The company’s standard practice is to hold all of its debt security investments classified as available-for-sale until maturity. There were no impairments for credit losses or non-credit impairments for the three and nine months ended September 30, 2020. Prior to the adoption of the new standard, available-for-sale securities were measured for impairment using an other-than-temporary impairment model. No impairment was recorded for the three and nine months ended September 30, 2019. |
Financial Assets and Liabilities Not Measured At Fair Value | Financial Assets and Liabilities Not Measured at Fair Value Short-Term Receivables and Payables Short-term financing receivables are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (including debt payable to IBM) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy, except for short-term debt, which would be classified as Level 2. Long-Term Receivables Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At September 30, 2020 and December 31, 2019, the difference between the carrying amount and estimated fair value for long-term receivables was immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Long-Term Debt Fair value of publicly traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt, which includes debt payable to IBM, for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt (including debt payable to IBM) was $14,281 million and $15,268 million, and the estimated fair value was $14,480 million and $15,409 million at September 30, 2020 and December 31, 2019, respectively. If measured at fair value in the financial statements, long-term debt would be classified as Level 2 in the fair value hierarchy. |
Financing Receivables, Receivables Purchased/Participated from IBM | Financing receivables primarily consist of client loan and installment payment receivables (loans), investment in sales-type and direct financing leases and Commercial Financing receivables. Loans are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are generally for terms up to seven years. Investment in sales-type and direct financing leases relate principally to IBM’s Systems products and are for terms ranging generally from two The company purchases interests in certain of IBM’s short-term receivables. These receivables are included within the Commercial Financing segment. The company also participates in receivables from IBM for certain long-term financing receivables generated from IBM’s Total Solution Offerings in certain countries as well as for certain government and other contracts. The company carries the credit risk of IBM’s clients for all purchased and participated receivables from IBM. Loans, investment in sales-type and direct financing leases, and participated receivables from IBM are collectively referred to as Client Financing receivables and are included within the Client Financing segment. Effective January 1, 2020, the company adopted the new accounting standard related to credit losses, using the transition methodology whereby prior comparative periods were not retrospectively presented in the Consolidated Financial Statements. Refer to note 2, “Accounting Changes,” for additional information. Under this new guidance, the amortized cost basis of a financial asset represents the original amount of the financing receivable (including residual value) adjusted for unearned income, deferred initial direct costs, cash collected, write-offs and any foreign exchange adjustments. The allowance for credit losses represents future expected credit losses over the life of the receivables based on past experience, current information and forward-looking economic considerations. Prior to the effective date, financing receivables were measured at recorded investment, which does not include residual value. As a result, all prior periods are presented at recorded investment, while current period information is presented at amortized cost. Additionally, current period information reflects updates to the portfolio segments, and other presentation changes within the following tables, as a result of the adoption of this new guidance. |
Allowance for Credit Losses - Financing Receivables | Allowance for Credit Losses Refer to note A, “Significant Accounting Policies,” in the company’s 2019 Annual Report for a full description of its accounting policies for financing receivables and related allowances. The descriptions below include any changes to those policies due to the new standard. Effective with the adoption of the new credit losses standard, the company’s estimates of its allowances for expected credit losses include consideration of: past events, including any historical default, historical concessions and resulting troubled debt restructurings, current economic conditions, taking into account any non-freestanding mitigating credit enhancements, and certain forward-looking information, including reasonable and supportable forecasts. |
Collectively Evaluated Financing Receivables | Collectively Evaluated Receivables The company determines its allowance for credit losses based on two portfolio segments: Client Financing receivables and Commercial Financing receivables, and further segments the portfolio into three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. For Client Financing receivables, the company uses a credit loss model to calculate allowances based on its internal loss experience and current conditions and forecasts by class of financing receivable. The company records an unallocated reserve that is calculated by applying a reserve rate to its portfolio, excluding accounts that have been individually evaluated and specifically reserved. This reserve rate is based upon credit rating, probability of default, term and loss history. The allowance is adjusted quarterly for expected recoveries of amounts that were previously written off or are expected to be written off. Recoveries cannot exceed the aggregated amount of the previous write-off or expected write-off. Macroeconomic variables attributed to the expected credit losses for Client Financing receivables may vary by class of financing receivables based on historical experiences, portfolio composition and current environment. In addition to a qualitative review of credit risk factors across the portfolio, the company considers forward-looking macroeconomic variables such as gross domestic product, unemployment rates, equity prices and corporate profits when quantifying the impact of economic forecasts on its Client Financing receivables allowance for expected credit losses. The company also considers the impact of current conditions and economic forecasts relating to specific industries, geographical areas, and client-credit ratings on the portfolio. Under this approach, forecasts of these variables over two years are considered reasonable and supportable. Beyond two years, the company reverts to long-term average loss experience. Forward-looking estimates require the use of judgment, particularly in times of economic uncertainty. Consistent with the first half of 2020, the company continues to monitor the evolving global impacts from the COVID-19 pandemic as well as its impact on external economic models, which have been revised with increased frequency throughout the year. The company’s allowances at September 30, 2020, reflect the qualitative process described above. Any changes to economic models that occurred after the balance sheet date will be reflected in future periods. |
Past Due Financing Receivables | Past Due Financing Receivables |
Commitments | Effective January 1, 2020, the company adopted the new accounting standard on credit losses, which resulted in the recognition of a related allowance for non-cancellable off-balance sheet commitments. Refer to note 2, “Accounting Changes,” for additional information. The allowance for these commitments is recorded in other liabilities in the Consolidated Balance Sheet and was not material at September 30, 2020. The company collectively evaluates the allowance for these arrangements using a provision methodology consistent with the portfolio of the commitments. Refer to note 6, “Financing Receivables, Receivables Purchased/Participated from IBM,” for additional information |
Contingencies | The company is, or may be, involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise in the ordinary course of its business. Certain of these actions and proceedings are similar to suits filed against other financial institutions and captive finance companies. These may include collection and bankruptcy proceedings related to its leases and loans and proceedings concerning client allegations of wrongful repossession or defamation of credit. The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate). In addition, the company also discloses matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, client and employee relations considerations. The company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any recorded liabilities, including any changes to such liabilities for the quarter ended September 30, 2020 were not material to the Consolidated Financial Statements. In accordance with the relevant accounting guidance, the company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. As of September 30, 2020, there were no such matters. |
Derivative Financial Instruments | The company operates in multiple currencies and is a lender and issuer in the capital markets and a borrower from IBM. In the normal course of business, the company may be exposed to the impact of interest rate changes and foreign currency fluctuations. The company limits its exposure to core market risks by following established risk management policies and procedures, and through the use of match-funding with IBM and third parties. Although the company seeks to substantially match-fund the terms, currency and interest rate variability of its debt against its underlying financial assets, risks may arise between assets and the related liabilities used for funding. The company may also choose to mitigate any remaining exposure relating to interest rate changes and foreign currency fluctuations through the use of interest rate or foreign exchange derivatives. Derivative assets and liabilities are recorded in other assets and other liabilities in the Consolidated Balance Sheet and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the company with IBM and third parties, and are not necessarily a direct measure of the financial exposure. The company also enters into master netting agreements with certain counterparties that allow for netting of exposures in the event of default or breach. However, in the Consolidated Balance Sheet, the company does not offset derivative assets against liabilities in master netting arrangements. If derivatives exposures covered by a qualifying master netting agreement with IBM had been netted in the Consolidated Balance Sheet at September 30, 2020 December 31, 2019 |
Segments (Tables)
Segments (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Segments | |
Reporting information by segment | SEGMENT INFORMATION Client Commercial Total (Dollars in millions) Financing Financing Segments For the three months ended September 30, 2020: Total revenue $ 234 $ 32 $ 266 Pre-tax income 91 16 107 Depreciation of equipment under operating lease 27 — 27 Interest expense 54 7 61 Provision for/(benefit from) credit losses 4 (1) 4 For the three months ended September 30, 2019: Total revenue $ 292 $ 80 $ 372 Pre-tax income 89 42 131 Depreciation of equipment under operating lease 39 — 39 Interest expense 96 20 115 Provision for/(benefit from) credit losses 5 (6) (1) (Amounts may not add due to rounding.) SEGMENT INFORMATION Client Commercial Total (Dollars in millions) Financing Financing Segments For the nine months ended September 30, 2020: Total revenue $ 757 $ 125 $ 881 Pre-tax income 274 66 339 Depreciation of equipment under operating lease 86 — 86 Interest expense 198 29 227 Provision for/(benefit from) credit losses 50 (1) 49 For the nine months ended September 30, 2019: Total revenue $ 906 $ 359 $ 1,265 Pre-tax income 303 158 460 Depreciation of equipment under operating lease 127 — 127 Interest expense 289 111 400 Provision for/(benefit from) credit losses (1) (4) (4) (Amounts may not add due to rounding.) |
Financial Assets and Liabilit_2
Financial Assets and Liabilities (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Financial Assets and Liabilities | |
Financial assets and financial liabilities measured at fair value on a recurring basis | Fair Value Hierarchy At September 30, 2020 At December 31, 2019 (Dollars in millions) Level Assets Liabilities Assets Liabilities Cash equivalents (1) Time deposits and certificates of deposit (2) 2 $ 706 $ N/A $ 788 $ N/A Money market funds 1 — N/A 5 N/A Total cash equivalents $ 706 $ N/A $ 793 $ N/A Derivatives designated as hedging instruments (3) Interest rate contracts with IBM 2 73 — 45 — Foreign exchange contracts with IBM 2 3 36 — 18 Total $ 783 $ 36 $ 838 $ 18 (1) Included within cash and cash equivalents in the Consolidated Balance Sheet. (2) Available-for-sale securities with an amortized cost basis that approximates fair value. (3) Included within other assets and other liabilities in the Consolidated Balance Sheet. N/A – not applicable |
Financing Receivables, Receiv_2
Financing Receivables, Receivables Purchased/Participated from IBM (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Financing Receivables, Receivables Purchased/Participated from IBM | |
Components of financing receivables and receivables purchased/participated from IBM | Client Loan and Installment Payment Commercial (Dollars in millions) Receivables Investment in Financing At September 30, 2020: (Loans) Leases Receivables Total Financing receivables, gross $ 7,780 $ 2,863 $ 1,845 $ 12,488 Unearned income (289) (229) (3) (520) Deferred initial direct costs 58 20 — 78 Residual value* — 398 — 398 Amortized cost $ 7,549 $ 3,052 $ 1,843 $ 12,443 Allowance for credit losses (97) (75) (8) (179) Total financing receivables, net $ 7,452 $ 2,977 $ 1,835 $ 12,264 * Includes guaranteed and unguaranteed residual value Client Loan and Installment Payment Commercial (Dollars in millions) Receivables Investment in Financing At December 31, 2019: (Loans) Leases Receivables Total Financing receivables, gross $ 9,566 $ 4,626 $ 3,400 $ 17,592 Unearned income (373) (384) (4) (761) Deferred initial direct costs 71 32 — 103 Recorded investment $ 9,264 $ 4,274 $ 3,396 $ 16,934 Allowance for credit losses (82) (56) (9) (148) Unguaranteed residual value — 531 — 531 Guaranteed residual value — 47 — 47 Total financing receivables, net $ 9,181 $ 4,796 $ 3,387 $ 17,365 At September 30, At December 31, (Dollars in millions) 2020 2019 Short-term purchased receivables from IBM $ 37 $ 56 Allowance for credit losses (1) 0 Total short-term purchased receivables from IBM, net $ 36 $ 56 Long-term participated receivables from IBM $ 4,193 $ 4,310 Allowance for credit losses (22) (7) Total long-term participated receivables from IBM, net $ 4,171 $ 4,303 Total receivables purchased/participated from IBM, net $ 4,207 $ 4,359 The company has a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties, with enhanced focus in this unprecedented environment of the COVID-19 pandemic. These actions may include credit insurance, financial guarantees, nonrecourse borrowings, transfers of receivables recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease. Sale of receivables arrangements are also utilized in the normal course of business as part of the company’s cash and liquidity management. |
Schedule of financing receivables by portfolio segment | (Dollars in millions) At September 30, 2020: Americas EMEA Asia Pacific Total Amortized cost $ 7,536 $ 4,614 $ 2,644 $ 14,794 Allowance for credit losses Beginning balance at December 31, 2019 $ 98 $ 36 $ 11 $ 146 Adjustment for adoption of new standard 21 13 4 39 Beginning balance at January 1, 2020 $ 120 $ 50 $ 16 $ 185 Write-offs $ (23) $ (1) $ (2) $ (26) Recoveries 0 0 2 2 Additions/(releases) 33 9 (1) 41 Other* (11) 2 0 (8) Ending balance at September 30, 2020 $ 119 $ 60 $ 15 $ 194 * Primarily represents translation adjustments. (Dollars in millions) At December 31, 2019: Americas EMEA Asia Pacific Total Recorded investment Lease receivables $ 3,160 $ 710 $ 404 $ 4,274 Loan receivables 6,173 2,415 676 9,264 Participated receivables from IBM 717 1,671 1,922 4,310 Ending balance $ 10,049 $ 4,796 $ 3,003 $ 17,848 Recorded investment collectively evaluated for impairment $ 9,957 $ 4,770 $ 2,993 $ 17,720 Recorded investment individually evaluated for impairment $ 92 $ 26 $ 10 $ 128 Allowance for credit losses Beginning balance at January 1, 2019 Lease receivables $ 38 $ 17 $ 10 $ 65 Loan receivables 66 28 5 98 Participated receivables from IBM 3 8 3 14 Total $ 107 $ 53 $ 17 $ 177 Write-offs $ (14) $ (10) $ (4) $ (29) Recoveries 0 0 0 1 Additions/(releases) 7 (6) (2) (2) Foreign currency translation adjustment (1) 0 0 (1) Other 0 0 0 0 Ending balance at December 31, 2019 $ 98 $ 36 $ 11 $ 146 Lease receivables $ 27 $ 21 $ 8 $ 56 Loan receivables $ 68 $ 12 $ 2 $ 82 Participated receivables from IBM $ 3 $ 3 $ 1 $ 7 Related allowance, collectively evaluated for impairment $ 23 $ 11 $ 3 $ 36 Related allowance, individually evaluated for impairment $ 75 $ 26 $ 9 $ 110 |
Schedule of past due financing receivables | Amortized Billed Amortized Total Amortized Cost Invoices Cost (Dollars in millions) Amortized Cost > 90 Days and > 90 Days and Not At September 30, 2020: Cost > 90 Days (1) Accruing (1) Accruing Accruing (2) Americas $ 7,536 $ 241 $ 165 $ 30 $ 88 EMEA 4,614 78 12 4 72 Asia Pacific 2,644 15 7 4 8 Total client financing receivables $ 14,794 $ 334 $ 184 $ 38 $ 168 (1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days . (2) Of the amortized cost not accruing, there was a related allowance of $115 million. Financing income recognized on these receivables was immaterial for the three and nine months ended September 30, 2020, respectively. Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At December 31, 2019: Investment > 90 Days (1) Accruing (1) Accruing Accruing (2) Americas $ 3,160 $ 179 $ 143 $ 10 $ 37 EMEA 710 24 11 1 16 Asia Pacific 404 9 2 0 7 Total lease receivables $ 4,274 $ 213 $ 156 $ 11 $ 59 Americas $ 6,173 $ 107 $ 66 $ 10 $ 56 EMEA 2,415 51 3 1 51 Asia Pacific 676 3 1 0 2 Total loan receivables $ 9,264 $ 161 $ 69 $ 11 $ 110 Americas $ 717 $ 8 $ 8 $ 1 $ 0 EMEA 1,671 7 7 1 1 Asia Pacific 1,922 6 5 1 1 Total participated receivables from IBM $ 4,310 $ 21 $ 20 $ 3 $ 2 Total $ 17,848 $ 394 $ 245 $ 25 $ 171 (1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days . (2) Of the recorded investment not accruing, $128 million is individually evaluated for impairment with a related allowance of $110 million. Financing income recognized on these receivables was immaterial for the three and nine months ended September 30, 2019, respectively. |
Schedule of net recorded investment by credit quality indicators | (Dollars in millions) Americas EMEA Asia Pacific At September 30, 2020 Aaa – Baa3 Ba1 – D Aaa – Baa3 Ba1 – D Aaa – Baa3 Ba1 – D Vintage year: 2020 $ 1,770 $ 1,283 $ 1,074 $ 1,301 $ 653 $ 239 2019 1,322 752 644 592 551 142 2018 994 483 354 286 412 162 2017 418 191 89 142 199 58 2016 107 75 39 45 134 29 2015 and prior 41 100 25 21 55 10 Total $ 4,652 $ 2,884 $ 2,226 $ 2,387 $ 2,004 $ 640 Lease Receivables Loan Receivables Participated Receivables from IBM (Dollars in millions) Asia Asia Asia At December 31, 2019 Americas EMEA Pacific Americas EMEA Pacific Americas EMEA Pacific Credit Ratings: Aaa – Aa3 $ 305 $ 55 $ 31 $ 732 $ 89 $ 89 $ 440 $ 88 $ 89 A1 – A3 700 88 124 1,166 178 237 71 271 934 Baa1 – Baa3 949 153 83 1,756 907 107 104 762 500 Ba1 – Ba2 733 206 61 1,461 532 159 49 442 245 Ba3 – B1 196 137 62 444 455 46 43 88 126 B2 – B3 236 45 32 513 228 33 4 18 26 Caa – D 13 5 2 32 15 3 2 0 2 Total $ 3,133 $ 689 $ 396 $ 6,105 $ 2,403 $ 674 $ 714 $ 1,668 $ 1,921 |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Leases | |
Summary of lease revenue included in the Consolidated Income Statement | (Dollars in millions) For the three months ended September 30: 2020 2019 Financing lease revenue $ 36 $ 50 Operating lease revenue 52 67 Variable lease revenue 5 6 Total lease revenue $ 93 $ 124 (Dollars in millions) For the nine months ended September 30: 2020 2019 Financing lease revenue $ 129 $ 157 Operating lease revenue 165 216 Variable lease revenue 17 19 Total lease revenue $ 310 $ 391 |
Borrowings (Tables)
Borrowings (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Borrowings | |
Short-Term Debt | Balance Balance (Dollars in millions) 9/30/2020 12/31/2019 Commercial paper $ — $ 304 Short-term loans 43 49 Secured borrowings 72 280 Debt $ 116 $ 633 Debt payable to IBM 5,897 8,194 Total $ 6,012 $ 8,827 |
Long-Term Debt | Balance Balance (Dollars in millions) Maturities 9/30/2020 12/31/2019 Long-term notes (weighted-average interest rate at September 30, 2020) 2.1% 2020 $ 1,500 $ 1,500 1.9% 2021 2,850 2,850 2.2% 2022 500 500 3.0% 2023 750 750 $ 5,600 $ 5,600 Long-term loans (3.6% weighted-average interest rate at September 30, 2020) 2020-2024 120 113 Secured borrowings (4.1% weighted-average interest rate at September 30, 2020) 2020-2026 524 781 Long-term debt $ 6,244 $ 6,495 Less: net unamortized discount 1 1 Less: net unamortized debt issuance costs 2 5 Add: fair value adjustment* 65 28 Debt $ 6,307 $ 6,517 Debt payable to IBM (1.3% weighted-average interest rate at September 30, 2020) 7,975 8,751 Total $ 14,281 $ 15,268 * The portion of the company's fixed-rate debt obligations that is hedged is reflected in the Consolidated Balance Sheet as an amount equal to the sum of the debt's carrying value and a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates. |
Contractual obligations of long-term debt and long-term debt payable to IBM outstanding | 2020 2025 and (Dollars in millions) (Q4) 2021 2022 2023 2024 beyond Total Long-term debt $ 1,587 $ 3,142 $ 643 $ 790 $ 82 $ 0 $ 6,244 Debt payable to IBM 1,226 3,249 2,151 884 369 96 7,975 Total $ 2,813 $ 6,390 $ 2,794 $ 1,675 $ 451 $ 96 $ 14,219 |
Equity Activity (Tables)
Equity Activity (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Equity Activity | |
Reclassifications and Taxes Related to Items of Other Comprehensive Income | (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended September 30, 2020: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ 60 $ 8 $ 69 Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ — $ — $ — Curtailments and settlements 0 0 0 Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 1 0 1 Total retirement-related benefit plans $ 1 $ 0 $ 1 Other comprehensive income/(loss) $ 61 $ 8 $ 69 (1) These accumulated other comprehensive income (AOCI) components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.) Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended September 30, 2019: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (76) $ (17) $ (93) Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ — $ — $ — Curtailments and settlements — — — Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 0 0 0 Total retirement-related benefit plans $ 0 $ 0 $ 0 Other comprehensive income/(loss) $ (75) $ (17) $ (93) (1) These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.) Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the nine months ended September 30, 2020: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (60) $ 6 $ (54) Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ 0 $ 0 $ 0 Curtailments and settlements 0 0 0 Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 3 0 2 Total retirement-related benefit plans $ 3 $ 0 $ 2 Other comprehensive income/(loss) $ (57) $ 5 $ (52) (1) These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.) Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the nine months ended September 30, 2019: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (56) $ (13) $ (69) Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ 0 $ 0 $ 0 Curtailments and settlements — — — Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 1 0 1 Total retirement-related benefit plans $ 1 $ 0 $ 1 Other comprehensive income/(loss) $ (55) $ (13) $ (68) (1) These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.) |
Accumulated Other Comprehensive Income/(Loss) (net of tax) | Accumulated Other Comprehensive Income/(Loss) (net of tax) Net Change Foreign Retirement- Accumulated Currency Related Other Translation Benefit Comprehensive (Dollars in millions) Adjustments* Plans Income/(Loss) January 1, 2020 $ (12) $ (19) $ (31) Other comprehensive income before reclassification (54) 0 (54) Amount reclassified from accumulated other comprehensive income — 2 2 Total change for the period (54) 2 (52) September 30, 2020 $ (67) $ (16) $ (83) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Foreign Retirement- Accumulated Currency Related Other Translation Benefit Comprehensive (Dollars in millions) Adjustments* Plans Income/(Loss) January 1, 2019 $ (23) $ (10) $ (33) Other comprehensive income before reclassification (69) 0 (69) Amount reclassified from accumulated other comprehensive income — 1 1 Total change for the period (69) 1 (68) September 30, 2019 $ (92) $ (9) $ (101) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. |
Derivative Financial Instrume_2
Derivative Financial Instruments (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Derivative Financial Instruments | |
Amounts related to cumulative basis adjustments for fair value hedges | (Dollars in millions) Line Item in the Consolidated Balance Sheet At September 30, At December 31, in which the Hedged Item is Included: 2020 2019 Debt: Carrying amount of the hedged item $ (2,613) $ (2,574) Cumulative hedging adjustments included in the carrying amount - assets/(liabilities) (65) (28) |
Effect of Derivative Instruments in the Consolidated Statement of Earnings | Gains/(Losses) of (Dollars in millions) Total Total Hedge Activity For the three months ended September 30: 2020 2019 2020 2019 Financing cost $ 66 $ 122 $ 13 $ 9 Gain/(Loss) Recognized in Consolidated Income Statement Consolidated Recognized on Attributable to Risk (Dollars in millions) Income Statement Derivatives Being Hedged (2) For the three months ended September 30: Line Item 2020 2019 2020 2019 Derivative instruments in fair value hedges (1): Interest rate contracts with IBM Financing cost $ 0 $ 5 $ 12 $ (8) Total $ 0 $ 5 $ 12 $ (8) Gain/(Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income Consolidated (Dollars in millions) Income Reclassified Amounts Excluded from For the three months Recognized in OCI Statement from AOCI Effectiveness Testing (3) ended September 30: 2020 2019 Line Item 2020 2019 2020 2019 Derivative instruments in net investment hedges: Foreign exchange contracts with IBM $ (34) $ 67 Financing cost $ — $ — $ 1 $ 12 Total $ (34) $ 67 $ — $ — $ 1 $ 12 (1) The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts. (2) The amount includes basis adjustments to the carrying value of the hedged item recorded during the period. (3) The company's policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period . Gains/(Losses) of (Dollars in millions) Total Total Hedge Activity For the nine months ended September 30: 2020 2019 2020 2019 Financing cost $ 244 $ 419 $ 32 $ 16 Gain/(Loss) Recognized in Consolidated Income Statement Consolidated Recognized Attributable to Risk (Dollars in millions) Income Statement on Derivatives Being Hedged (2) For the nine months ended September 30: Line Item 2020 2019 2020 2019 Derivative instruments in fair value hedges (1): Interest rate contracts with IBM Financing cost $ 60 $ 57 $ (37) $ (70) Total $ 60 $ 57 $ (37) $ (70) Gain/(Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income Consolidated (Dollars in millions) Income Amounts Excluded from For the nine months Recognized in OCI Statement Reclassified from AOCI Effectiveness Testing (3) ended September 30: 2020 2019 Line Item 2020 2019 2020 2019 Derivative instruments in net investment hedges: Foreign exchange contracts with IBM $ (23) $ 49 Financing cost $ — $ — $ 10 $ 28 Total $ (23) $ 49 $ — $ — $ 10 $ 28 (1) The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts. (2) The amount includes basis adjustments to the carrying value of the hedged item recorded during the period. (3) The company's policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. |
Accounting Changes (Details)
Accounting Changes (Details) $ in Millions | Dec. 31, 2019USD ($) |
Accounting Changes | |
Retained earnings | $ 116 |
Cumulative Effect, Period of Adoption, Adjustment | ASU 2016-13 | |
Accounting Changes | |
Receivables - allowances, including off-balance sheet commitments | 56 |
Deferred taxes | (16) |
Retained earnings | $ (41) |
Segments - Business Segments (D
Segments - Business Segments (Details) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($)segment | Sep. 30, 2019USD ($) | |
Segment Information | ||||
Number of reportable segments | segment | 2 | |||
Segments, Income statement information | ||||
Revenue | $ 266 | $ 372 | $ 881 | $ 1,265 |
Pre-tax income | 107 | 131 | 339 | 460 |
Depreciation of equipment under operating lease | 27 | 39 | 86 | 127 |
Interest expense | 61 | 115 | 227 | 400 |
Provision for/(benefit from) credit losses | 4 | (1) | 49 | (4) |
Client Financing | ||||
Segments, Income statement information | ||||
Revenue | 234 | 292 | 757 | 906 |
Pre-tax income | 91 | 89 | 274 | 303 |
Depreciation of equipment under operating lease | 27 | 39 | 86 | 127 |
Interest expense | 54 | 96 | 198 | 289 |
Provision for/(benefit from) credit losses | 4 | 5 | 50 | (1) |
Commercial Financing | ||||
Segments, Income statement information | ||||
Revenue | 32 | 80 | 125 | 359 |
Pre-tax income | 16 | 42 | 66 | 158 |
Interest expense | 7 | 20 | 29 | 111 |
Provision for/(benefit from) credit losses | $ (1) | $ (6) | $ (1) | $ (4) |
Divestiture (Details)
Divestiture (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Disposal Group, Disposed of by Sale | Commercial financing business | IBM | |
Divestiture | |
Gain on divestiture | $ 16 |
Financial Assets and Liabilit_3
Financial Assets and Liabilities - Fair Value Measurements (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Financial assets and financial liabilities measured at fair value on a recurring basis: | |||||
Impairment for credit losses | $ 0 | $ 0 | |||
Available-for-sale securities impairment | $ 0 | $ 0 | |||
Recurring | |||||
Financial assets and financial liabilities measured at fair value on a recurring basis: | |||||
Cash equivalents | 706 | 706 | $ 793 | ||
Total assets | 783 | 783 | 838 | ||
Total liabilities | 36 | 36 | 18 | ||
Recurring | Level 1 | Money market funds | |||||
Financial assets and financial liabilities measured at fair value on a recurring basis: | |||||
Cash equivalents | 5 | ||||
Recurring | Level 2 | Interest rate contracts | |||||
Financial assets and financial liabilities measured at fair value on a recurring basis: | |||||
Derivative assets | 73 | 73 | 45 | ||
Recurring | Level 2 | Foreign exchange contracts | |||||
Financial assets and financial liabilities measured at fair value on a recurring basis: | |||||
Derivative assets | 3 | 3 | |||
Derivative liabilities | 36 | 36 | 18 | ||
Recurring | Level 2 | Time deposits and certificates of deposit | |||||
Financial assets and financial liabilities measured at fair value on a recurring basis: | |||||
Cash equivalents | $ 706 | $ 706 | $ 788 |
Financial Assets and Liabilit_4
Financial Assets and Liabilities - Not Measured at Fair Value (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Long-Term Debt | ||
Carrying amount of long-term debt | $ 14,281 | $ 15,268 |
Fair value of long-term debt | $ 14,480 | $ 15,409 |
Financing Receivables, Receiv_3
Financing Receivables, Receivables Purchased/Participated from IBM - Net of Allowances (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2020 | Dec. 31, 2019 | Dec. 31, 2018 | |
Financing receivables | ||||
Financing receivables pledged as collateral for borrowings | $ 596 | $ 596 | $ 1,062 | |
Proceeds from sales of financing receivables | 1,575 | |||
Financing Receivable Portfolio | ||||
Financing receivables | ||||
Financing receivables, gross | 12,488 | 12,488 | 17,592 | |
Unearned income | (520) | (520) | (761) | |
Deferred initial direct costs | 78 | 78 | 103 | |
Residual value | 398 | 398 | ||
Amortized cost/Recorded investment | 12,443 | 12,443 | 16,934 | |
Allowance for credit losses | (179) | (179) | (148) | |
Unguaranteed residual value | 531 | |||
Guaranteed residual value | 47 | |||
Net financing receivables | 12,264 | 12,264 | 17,365 | |
Sold financing receivables | 854 | 1,565 | ||
Lease receivables | ||||
Financing receivables | ||||
Financing receivables, gross | 2,863 | 2,863 | 4,626 | |
Unearned income | (229) | (229) | (384) | |
Deferred initial direct costs | 20 | 20 | 32 | |
Residual value | 398 | 398 | ||
Amortized cost/Recorded investment | 3,052 | 3,052 | 4,274 | |
Allowance for credit losses | (75) | (75) | (56) | $ (65) |
Unguaranteed residual value | 531 | |||
Guaranteed residual value | 47 | |||
Net financing receivables | 2,977 | 2,977 | 4,796 | |
Sold financing receivables | 435 | $ 852 | ||
Lease receivables | Minimum | ||||
Financing receivables | ||||
Financing receivable, payment terms | 2 years | |||
Lease receivables | Maximum | ||||
Financing receivables | ||||
Financing receivable, payment terms | 6 years | |||
Commercial financing receivables | ||||
Financing receivables | ||||
Financing receivables, gross | 1,845 | $ 1,845 | 3,400 | |
Unearned income | (3) | (3) | (4) | |
Amortized cost/Recorded investment | 1,843 | 1,843 | 3,396 | |
Allowance for credit losses | (8) | (8) | (9) | |
Net financing receivables | 1,835 | $ 1,835 | 3,387 | |
Commercial financing receivables | Minimum | ||||
Financing receivables | ||||
Financing receivable, payment terms | 30 days | |||
Commercial financing receivables | Maximum | ||||
Financing receivables | ||||
Financing receivable, payment terms | 90 days | |||
Loan receivables | ||||
Financing receivables | ||||
Financing receivables, gross | 7,780 | $ 7,780 | 9,566 | |
Unearned income | (289) | (289) | (373) | |
Deferred initial direct costs | 58 | 58 | 71 | |
Amortized cost/Recorded investment | 7,549 | 7,549 | 9,264 | |
Allowance for credit losses | (97) | (97) | (82) | (98) |
Net financing receivables | 7,452 | 7,452 | 9,181 | |
Sold financing receivables | 419 | $ 713 | ||
Loan receivables | Maximum | ||||
Financing receivables | ||||
Financing receivable, payment terms | 7 years | |||
Purchased and participated receivables from IBM | ||||
Financing receivables | ||||
Allowance for credit losses | (23) | $ (23) | (8) | |
Net financing receivables | 4,207 | 4,207 | 4,359 | |
Short-term purchased receivables from IBM | ||||
Financing receivables | ||||
Amortized cost/Recorded investment | 37 | 37 | 56 | |
Allowance for credit losses | (1) | (1) | 0 | |
Net financing receivables | 36 | 36 | 56 | |
Long-term participated receivables from IBM | ||||
Financing receivables | ||||
Amortized cost/Recorded investment | 4,193 | 4,193 | 4,310 | |
Allowance for credit losses | (22) | (22) | (7) | $ (14) |
Net financing receivables | $ 4,171 | $ 4,171 | $ 4,303 |
Financing Receivables, Receiv_4
Financing Receivables, Receivables Purchased/Participated from IBM - Collectively Evaluated Financing Receivables (Details) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2020 | Dec. 31, 2019 | |
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Forecast duration | 2 years | |
ASU 2016-13 | Cumulative Effect, Period of Adoption, Adjustment | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Receivables - allowances, including off-balance sheet commitments | $ 56 |
Financing Receivables, Receiv_5
Financing Receivables, Receivables Purchased/Participated from IBM - By Portfolio Segment (Details) $ in Millions | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020USD ($)itemsegment | Dec. 31, 2019USD ($)item | |
Allowance for credit losses: | ||
Number of portfolio segments | segment | 2 | |
Number of classes of financing receivable | item | 3 | 3 |
Total Client Financing Receivables Portfolio Segment | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | $ 14,794 | $ 17,848 |
Recorded investment collectively evaluated for impairment | 17,720 | |
Recorded investment individually evaluated for impairment | 128 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 146 | 177 |
Write-offs | (26) | (29) |
Recoveries | 2 | 1 |
Additions/(releases) | 41 | (2) |
Foreign currency translation adjustment | (1) | |
Other | (8) | 0 |
Allowance for credit losses, ending balance | 194 | 146 |
Related allowance, collectively evaluated for impairment | 36 | |
Related allowance, individually evaluated for impairment | 110 | |
Total Client Financing Receivables Portfolio Segment | Americas | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 7,536 | 10,049 |
Recorded investment collectively evaluated for impairment | 9,957 | |
Recorded investment individually evaluated for impairment | 92 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 98 | 107 |
Write-offs | (23) | (14) |
Recoveries | 0 | 0 |
Additions/(releases) | 33 | 7 |
Foreign currency translation adjustment | (1) | |
Other | (11) | 0 |
Allowance for credit losses, ending balance | 119 | 98 |
Related allowance, collectively evaluated for impairment | 23 | |
Related allowance, individually evaluated for impairment | 75 | |
Total Client Financing Receivables Portfolio Segment | EMEA | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 4,614 | 4,796 |
Recorded investment collectively evaluated for impairment | 4,770 | |
Recorded investment individually evaluated for impairment | 26 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 36 | 53 |
Write-offs | (1) | (10) |
Recoveries | 0 | 0 |
Additions/(releases) | 9 | (6) |
Foreign currency translation adjustment | 0 | |
Other | 2 | 0 |
Allowance for credit losses, ending balance | 60 | 36 |
Related allowance, collectively evaluated for impairment | 11 | |
Related allowance, individually evaluated for impairment | 26 | |
Total Client Financing Receivables Portfolio Segment | Asia Pacific | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 2,644 | 3,003 |
Recorded investment collectively evaluated for impairment | 2,993 | |
Recorded investment individually evaluated for impairment | 10 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 11 | 17 |
Write-offs | (2) | (4) |
Recoveries | 2 | 0 |
Additions/(releases) | (1) | (2) |
Foreign currency translation adjustment | 0 | |
Other | 0 | 0 |
Allowance for credit losses, ending balance | 15 | 11 |
Related allowance, collectively evaluated for impairment | 3 | |
Related allowance, individually evaluated for impairment | 9 | |
Lease receivables | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 3,052 | 4,274 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 56 | 65 |
Write-offs | (17) | |
Additions/(releases) | 5 | |
Allowance for credit losses, ending balance | 75 | 56 |
Lease receivables | Americas | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 3,160 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 27 | 38 |
Allowance for credit losses, ending balance | 27 | |
Lease receivables | EMEA | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 710 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 21 | 17 |
Allowance for credit losses, ending balance | 21 | |
Lease receivables | Asia Pacific | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 404 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 8 | 10 |
Allowance for credit losses, ending balance | 8 | |
Loan receivables | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 7,549 | 9,264 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 82 | 98 |
Write-offs | (11) | |
Allowance for credit losses, ending balance | 97 | 82 |
Loan receivables | Americas | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 6,173 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 68 | 66 |
Allowance for credit losses, ending balance | 68 | |
Loan receivables | EMEA | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 2,415 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 12 | 28 |
Allowance for credit losses, ending balance | 12 | |
Loan receivables | Asia Pacific | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 676 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 2 | 5 |
Allowance for credit losses, ending balance | 2 | |
Long-term participated receivables from IBM | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 4,193 | 4,310 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 7 | 14 |
Additions/(releases) | (6) | |
Allowance for credit losses, ending balance | 22 | 7 |
Long-term participated receivables from IBM | Americas | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 717 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 3 | 3 |
Allowance for credit losses, ending balance | 3 | |
Long-term participated receivables from IBM | EMEA | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 1,671 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 3 | 8 |
Allowance for credit losses, ending balance | 3 | |
Long-term participated receivables from IBM | Asia Pacific | ||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | ||
Amortized cost/Recorded investment | 1,922 | |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 1 | 3 |
Allowance for credit losses, ending balance | 1 | |
Cumulative Effect, Period of Adoption, Adjustment | Total Client Financing Receivables Portfolio Segment | ||
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 39 | |
Allowance for credit losses, ending balance | 39 | |
Cumulative Effect, Period of Adoption, Adjustment | Total Client Financing Receivables Portfolio Segment | Americas | ||
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 21 | |
Allowance for credit losses, ending balance | 21 | |
Cumulative Effect, Period of Adoption, Adjustment | Total Client Financing Receivables Portfolio Segment | EMEA | ||
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 13 | |
Allowance for credit losses, ending balance | 13 | |
Cumulative Effect, Period of Adoption, Adjustment | Total Client Financing Receivables Portfolio Segment | Asia Pacific | ||
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 4 | |
Allowance for credit losses, ending balance | 4 | |
Cumulative Effect, Period of Adoption, Adjusted Balance | Total Client Financing Receivables Portfolio Segment | ||
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 185 | |
Allowance for credit losses, ending balance | 185 | |
Cumulative Effect, Period of Adoption, Adjusted Balance | Total Client Financing Receivables Portfolio Segment | Americas | ||
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 120 | |
Allowance for credit losses, ending balance | 120 | |
Cumulative Effect, Period of Adoption, Adjusted Balance | Total Client Financing Receivables Portfolio Segment | EMEA | ||
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 50 | |
Allowance for credit losses, ending balance | 50 | |
Cumulative Effect, Period of Adoption, Adjusted Balance | Total Client Financing Receivables Portfolio Segment | Asia Pacific | ||
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | $ 16 | |
Allowance for credit losses, ending balance | $ 16 |
Financing Receivables, Receiv_6
Financing Receivables, Receivables Purchased/Participated from IBM - Past Due (Details) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2020 | Dec. 31, 2019 | |
Past Due Financing Receivables | ||
Period after which financing receivables become past due | 90 days | |
Total Client Financing Receivables Portfolio Segment | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | $ 14,794 | $ 17,848 |
Amortized cost/Recorded Investment > 90 Days and Accruing | 184 | 245 |
Billed Invoices > 90 Days and Accruing | 38 | 25 |
Amortized cost/Recorded Investment Not Accruing | 168 | 171 |
Amortized cost/Recorded investment, impaired financing receivables with related allowance | 128 | |
Impaired financing receivables, related allowance | 115 | 110 |
Total Client Financing Receivables Portfolio Segment | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 334 | 394 |
Total Client Financing Receivables Portfolio Segment | Americas | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 7,536 | 10,049 |
Amortized cost/Recorded Investment > 90 Days and Accruing | 165 | |
Billed Invoices > 90 Days and Accruing | 30 | |
Amortized cost/Recorded Investment Not Accruing | 88 | |
Total Client Financing Receivables Portfolio Segment | Americas | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 241 | |
Total Client Financing Receivables Portfolio Segment | EMEA | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 4,614 | 4,796 |
Amortized cost/Recorded Investment > 90 Days and Accruing | 12 | |
Billed Invoices > 90 Days and Accruing | 4 | |
Amortized cost/Recorded Investment Not Accruing | 72 | |
Total Client Financing Receivables Portfolio Segment | EMEA | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 78 | |
Total Client Financing Receivables Portfolio Segment | Asia Pacific | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 2,644 | 3,003 |
Amortized cost/Recorded Investment > 90 Days and Accruing | 7 | |
Billed Invoices > 90 Days and Accruing | 4 | |
Amortized cost/Recorded Investment Not Accruing | 8 | |
Total Client Financing Receivables Portfolio Segment | Asia Pacific | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 15 | |
Lease receivables | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 3,052 | 4,274 |
Amortized cost/Recorded Investment > 90 Days and Accruing | 156 | |
Billed Invoices > 90 Days and Accruing | 11 | |
Amortized cost/Recorded Investment Not Accruing | 59 | |
Lease receivables | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 213 | |
Lease receivables | Americas | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 3,160 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 143 | |
Billed Invoices > 90 Days and Accruing | 10 | |
Amortized cost/Recorded Investment Not Accruing | 37 | |
Lease receivables | Americas | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 179 | |
Lease receivables | EMEA | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 710 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 11 | |
Billed Invoices > 90 Days and Accruing | 1 | |
Amortized cost/Recorded Investment Not Accruing | 16 | |
Lease receivables | EMEA | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 24 | |
Lease receivables | Asia Pacific | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 404 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 2 | |
Billed Invoices > 90 Days and Accruing | 0 | |
Amortized cost/Recorded Investment Not Accruing | 7 | |
Lease receivables | Asia Pacific | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 9 | |
Loan receivables | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 7,549 | 9,264 |
Amortized cost/Recorded Investment > 90 Days and Accruing | 69 | |
Billed Invoices > 90 Days and Accruing | 11 | |
Amortized cost/Recorded Investment Not Accruing | 110 | |
Loan receivables | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 161 | |
Loan receivables | Americas | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 6,173 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 66 | |
Billed Invoices > 90 Days and Accruing | 10 | |
Amortized cost/Recorded Investment Not Accruing | 56 | |
Loan receivables | Americas | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 107 | |
Loan receivables | EMEA | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 2,415 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 3 | |
Billed Invoices > 90 Days and Accruing | 1 | |
Amortized cost/Recorded Investment Not Accruing | 51 | |
Loan receivables | EMEA | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 51 | |
Loan receivables | Asia Pacific | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 676 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 1 | |
Billed Invoices > 90 Days and Accruing | 0 | |
Amortized cost/Recorded Investment Not Accruing | 2 | |
Loan receivables | Asia Pacific | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 3 | |
Long-term participated receivables from IBM | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | $ 4,193 | 4,310 |
Amortized cost/Recorded Investment > 90 Days and Accruing | 20 | |
Billed Invoices > 90 Days and Accruing | 3 | |
Amortized cost/Recorded Investment Not Accruing | 2 | |
Long-term participated receivables from IBM | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 21 | |
Long-term participated receivables from IBM | Americas | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 717 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 8 | |
Billed Invoices > 90 Days and Accruing | 1 | |
Amortized cost/Recorded Investment Not Accruing | 0 | |
Long-term participated receivables from IBM | Americas | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 8 | |
Long-term participated receivables from IBM | EMEA | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 1,671 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 7 | |
Billed Invoices > 90 Days and Accruing | 1 | |
Amortized cost/Recorded Investment Not Accruing | 1 | |
Long-term participated receivables from IBM | EMEA | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | 7 | |
Long-term participated receivables from IBM | Asia Pacific | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded investment | 1,922 | |
Amortized cost/Recorded Investment > 90 Days and Accruing | 5 | |
Billed Invoices > 90 Days and Accruing | 1 | |
Amortized cost/Recorded Investment Not Accruing | 1 | |
Long-term participated receivables from IBM | Asia Pacific | > 90 days | ||
Past Due Financing Receivables | ||
Amortized cost/Recorded Investment, Past Due | $ 6 |
Financing Receivables, Receiv_7
Financing Receivables, Receivables Purchased/Participated from IBM - Credit Quality Year of Origination (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Total Client Financing Receivables Portfolio Segment | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | $ 14,794 | $ 17,848 |
Total Client Financing Receivables Portfolio Segment | Americas | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 7,536 | 10,049 |
Total Client Financing Receivables Portfolio Segment | Americas | Aaa - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
2020 | 1,770 | |
2019 | 1,322 | |
2018 | 994 | |
2017 | 418 | |
2016 | 107 | |
2015 and prior | 41 | |
Amortized cost/Recorded investment | 4,652 | |
Total Client Financing Receivables Portfolio Segment | Americas | Ba1 - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
2020 | 1,283 | |
2019 | 752 | |
2018 | 483 | |
2017 | 191 | |
2016 | 75 | |
2015 and prior | 100 | |
Amortized cost/Recorded investment | 2,884 | |
Total Client Financing Receivables Portfolio Segment | EMEA | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 4,614 | 4,796 |
Total Client Financing Receivables Portfolio Segment | EMEA | Aaa - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
2020 | 1,074 | |
2019 | 644 | |
2018 | 354 | |
2017 | 89 | |
2016 | 39 | |
2015 and prior | 25 | |
Amortized cost/Recorded investment | 2,226 | |
Total Client Financing Receivables Portfolio Segment | EMEA | Ba1 - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
2020 | 1,301 | |
2019 | 592 | |
2018 | 286 | |
2017 | 142 | |
2016 | 45 | |
2015 and prior | 21 | |
Amortized cost/Recorded investment | 2,387 | |
Total Client Financing Receivables Portfolio Segment | Asia Pacific | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 2,644 | 3,003 |
Total Client Financing Receivables Portfolio Segment | Asia Pacific | Aaa - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
2020 | 653 | |
2019 | 551 | |
2018 | 412 | |
2017 | 199 | |
2016 | 134 | |
2015 and prior | 55 | |
Amortized cost/Recorded investment | 2,004 | |
Total Client Financing Receivables Portfolio Segment | Asia Pacific | Ba1 - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
2020 | 239 | |
2019 | 142 | |
2018 | 162 | |
2017 | 58 | |
2016 | 29 | |
2015 and prior | 10 | |
Amortized cost/Recorded investment | 640 | |
Lease receivables | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 3,052 | 4,274 |
Lease receivables | Americas | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 3,160 | |
Lease receivables | EMEA | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 710 | |
Lease receivables | Asia Pacific | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 404 | |
Loan receivables | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 7,549 | 9,264 |
Loan receivables | Americas | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 6,173 | |
Loan receivables | EMEA | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 2,415 | |
Loan receivables | Asia Pacific | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 676 | |
Long-term participated receivables from IBM | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | $ 4,193 | 4,310 |
Long-term participated receivables from IBM | Americas | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 717 | |
Long-term participated receivables from IBM | EMEA | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | 1,671 | |
Long-term participated receivables from IBM | Asia Pacific | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Amortized cost/Recorded investment | $ 1,922 |
Financing Receivables, Receiv_8
Financing Receivables, Receivables Purchased/Participated from IBM - Credit Quality Indicators (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Troubled debt restructurings of financing receivables | ||
Lease receivables | Americas | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 3,133 | |
Lease receivables | Americas | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 305 | |
Lease receivables | Americas | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 700 | |
Lease receivables | Americas | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 949 | |
Lease receivables | Americas | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 733 | |
Lease receivables | Americas | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 196 | |
Lease receivables | Americas | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 236 | |
Lease receivables | Americas | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 13 | |
Lease receivables | EMEA | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 689 | |
Lease receivables | EMEA | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 55 | |
Lease receivables | EMEA | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 88 | |
Lease receivables | EMEA | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 153 | |
Lease receivables | EMEA | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 206 | |
Lease receivables | EMEA | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 137 | |
Lease receivables | EMEA | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 45 | |
Lease receivables | EMEA | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 5 | |
Lease receivables | Asia Pacific | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 396 | |
Lease receivables | Asia Pacific | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 31 | |
Lease receivables | Asia Pacific | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 124 | |
Lease receivables | Asia Pacific | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 83 | |
Lease receivables | Asia Pacific | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 61 | |
Lease receivables | Asia Pacific | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 62 | |
Lease receivables | Asia Pacific | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 32 | |
Lease receivables | Asia Pacific | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 2 | |
Loan receivables | Americas | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 6,105 | |
Loan receivables | Americas | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 732 | |
Loan receivables | Americas | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,166 | |
Loan receivables | Americas | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,756 | |
Loan receivables | Americas | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,461 | |
Loan receivables | Americas | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 444 | |
Loan receivables | Americas | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 513 | |
Loan receivables | Americas | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 32 | |
Loan receivables | EMEA | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 2,403 | |
Loan receivables | EMEA | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 89 | |
Loan receivables | EMEA | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 178 | |
Loan receivables | EMEA | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 907 | |
Loan receivables | EMEA | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 532 | |
Loan receivables | EMEA | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 455 | |
Loan receivables | EMEA | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 228 | |
Loan receivables | EMEA | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 15 | |
Loan receivables | Asia Pacific | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 674 | |
Loan receivables | Asia Pacific | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 89 | |
Loan receivables | Asia Pacific | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 237 | |
Loan receivables | Asia Pacific | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 107 | |
Loan receivables | Asia Pacific | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 159 | |
Loan receivables | Asia Pacific | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 46 | |
Loan receivables | Asia Pacific | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 33 | |
Loan receivables | Asia Pacific | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 3 | |
Long-term participated receivables from IBM | Americas | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 714 | |
Long-term participated receivables from IBM | Americas | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 440 | |
Long-term participated receivables from IBM | Americas | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 71 | |
Long-term participated receivables from IBM | Americas | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 104 | |
Long-term participated receivables from IBM | Americas | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 49 | |
Long-term participated receivables from IBM | Americas | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 43 | |
Long-term participated receivables from IBM | Americas | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 4 | |
Long-term participated receivables from IBM | Americas | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 2 | |
Long-term participated receivables from IBM | EMEA | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,668 | |
Long-term participated receivables from IBM | EMEA | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 88 | |
Long-term participated receivables from IBM | EMEA | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 271 | |
Long-term participated receivables from IBM | EMEA | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 762 | |
Long-term participated receivables from IBM | EMEA | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 442 | |
Long-term participated receivables from IBM | EMEA | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 88 | |
Long-term participated receivables from IBM | EMEA | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 18 | |
Long-term participated receivables from IBM | EMEA | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 0 | |
Long-term participated receivables from IBM | Asia Pacific | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,921 | |
Long-term participated receivables from IBM | Asia Pacific | Aaa - Aa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 89 | |
Long-term participated receivables from IBM | Asia Pacific | A1 - A3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 934 | |
Long-term participated receivables from IBM | Asia Pacific | Baa1 - Baa3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 500 | |
Long-term participated receivables from IBM | Asia Pacific | Ba1 - Ba2 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 245 | |
Long-term participated receivables from IBM | Asia Pacific | Ba3 - B1 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 126 | |
Long-term participated receivables from IBM | Asia Pacific | B2 - B3 | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 26 | |
Long-term participated receivables from IBM | Asia Pacific | Caa - D | ||
Amortized cost/recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | $ 2 |
Leases - Lease income (Details)
Leases - Lease income (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Leases | ||||
Financing lease revenue | $ 36 | $ 50 | $ 129 | $ 157 |
Operating lease revenue | 52 | 67 | 165 | 216 |
Variable lease revenue | 5 | 6 | 17 | 19 |
Total lease revenue | $ 93 | $ 124 | $ 310 | $ 391 |
Borrowings - Short-Term Debt (D
Borrowings - Short-Term Debt (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Short-Term Debt | ||
Short-term debt | $ 6,012 | $ 8,827 |
Short-term financing receivables pledged as collateral for short-term secured borrowings | 72 | 280 |
Debt | ||
Short-Term Debt | ||
Short-term debt | 116 | 633 |
Commercial paper | ||
Short-Term Debt | ||
Short-term debt | $ 304 | |
Weighted-average interest rates for short-term loans (as a percent) | 1.60% | |
Short-term loans | ||
Short-Term Debt | ||
Short-term debt | $ 43 | $ 49 |
Weighted-average interest rates for short-term loans (as a percent) | 3.70% | 5.20% |
Secured borrowings | ||
Short-Term Debt | ||
Short-term debt | $ 72 | $ 280 |
Weighted-average interest rates for short-term loans (as a percent) | 2.70% | 3.60% |
Debt payable to IBM | ||
Short-Term Debt | ||
Short-term debt | $ 5,897 | $ 8,194 |
Weighted-average interest rates for short-term loans (as a percent) | 0.40% | 1.60% |
Borrowings - Long-Term Debt, Co
Borrowings - Long-Term Debt, Components (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Borrowings | ||
Long-term debt - gross | $ 14,219 | |
Long-term debt - net | 14,281 | $ 15,268 |
Long-term financing receivables pledged as collateral for long-term secured borrowings | $ 524 | 781 |
Maximum percent of lien over the net tangible assets | 15.00% | |
Debt | ||
Borrowings | ||
Long-term debt - gross | $ 6,244 | 6,495 |
Less: net unamortized discount | 1 | 1 |
Less: net unamortized debt issuance costs | 2 | 5 |
Add: fair value adjustment | 65 | 28 |
Long-term debt - net | 6,307 | 6,517 |
Long-term notes | ||
Borrowings | ||
Long-term debt - gross | $ 5,600 | 5,600 |
Long-term notes maturing in 2020 | ||
Borrowings | ||
Debt instrument, weighted-average interest rate percentage (as a percent) | 2.10% | |
Long-term debt - gross | $ 1,500 | 1,500 |
Long-term notes maturing in 2021 | ||
Borrowings | ||
Debt instrument, weighted-average interest rate percentage (as a percent) | 1.90% | |
Long-term debt - gross | $ 2,850 | 2,850 |
Long-term notes maturing in 2022 | ||
Borrowings | ||
Debt instrument, weighted-average interest rate percentage (as a percent) | 2.20% | |
Long-term debt - gross | $ 500 | 500 |
Long-term notes maturing in 2023 | ||
Borrowings | ||
Debt instrument, weighted-average interest rate percentage (as a percent) | 3.00% | |
Long-term debt - gross | $ 750 | 750 |
Long-term loans | ||
Borrowings | ||
Debt instrument, weighted-average interest rate percentage (as a percent) | 3.60% | |
Long-term debt - gross | $ 120 | 113 |
Secured borrowings | ||
Borrowings | ||
Debt instrument, weighted-average interest rate percentage (as a percent) | 4.10% | |
Long-term debt - gross | $ 524 | 781 |
Debt payable to IBM | ||
Borrowings | ||
Debt instrument, weighted-average interest rate percentage (as a percent) | 1.30% | |
Long-term debt - gross | $ 7,975 | |
Long-term debt - net | $ 7,975 | $ 8,751 |
Borrowings - Contractual Maturi
Borrowings - Contractual Maturities (Details) - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Contractual maturities of long-term debt | ||
2020 (Q4) | $ 2,813 | |
2021 | 6,390 | |
2022 | 2,794 | |
2023 | 1,675 | |
2024 | 451 | |
2025 and beyond | 96 | |
Total | 14,219 | |
Debt | ||
Contractual maturities of long-term debt | ||
2020 (Q4) | 1,587 | |
2021 | 3,142 | |
2022 | 643 | |
2023 | 790 | |
2024 | 82 | |
2025 and beyond | 0 | |
Total | 6,244 | $ 6,495 |
Debt payable to IBM | ||
Contractual maturities of long-term debt | ||
2020 (Q4) | 1,226 | |
2021 | 3,249 | |
2022 | 2,151 | |
2023 | 884 | |
2024 | 369 | |
2025 and beyond | 96 | |
Total | $ 7,975 |
Borrowings - Interest on Debt (
Borrowings - Interest on Debt (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Interest on Debt | ||||
Interest expense | $ 61 | $ 115 | $ 227 | $ 400 |
Interest expense on debt payable to IBM | $ 32 | $ 58 | $ 116 | $ 189 |
Borrowings - Lines of Credit (D
Borrowings - Lines of Credit (Details) - Lines of Credit $ in Millions | Jul. 02, 2020USD ($) | Sep. 30, 2020USD ($) |
New Credit Agreements | ||
Lines of Credit | ||
Revolving line of credit, borrowings outstanding | $ 0 | |
Covenants | ||
Limit based on net tangible assets | 10.00% | |
Period for calculation of net interest expense ratio | 1 year | |
Minimum net interest expense ratio | 2.20 | |
Financial covenant - minimum tangible net worth | $ 50 | |
Financial covenant - maximum leverage ratio | 11 | |
Default provision on credit facility | $ 500 | |
Credit Agreement 364 Days 2020 | ||
Lines of Credit | ||
Revolving line of credit, amount | $ 2,500 | |
Revolving line of credit, term | 364 days | |
364-Day Credit Agreement, 2019 | ||
Lines of Credit | ||
Revolving line of credit, amount | $ 2,500 | |
Revolving line of credit, term | 364 days | |
Three-Year Credit Agreement | ||
Lines of Credit | ||
Revolving line of credit, amount | $ 2,500 | |
Revolving line of credit, term | 3 years |
Commitments - (Details)
Commitments - (Details) - USD ($) $ in Billions | Sep. 30, 2020 | Dec. 31, 2019 |
Extended lines of credit | ||
Commitments | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 1.7 | $ 1.8 |
Financing for client purchase agreements | ||
Commitments | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 5.2 | $ 5.4 |
Equity Activity - Reclassificat
Equity Activity - Reclassifications and Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||
Unrealized gains (losses) on cash flow hedges | $ 0 | $ 0 | $ 0 | $ 0 |
Gains (losses) on available-for-sale-debt securities | ||||
Other comprehensive income/(loss), Before Tax Amount | 61 | (75) | (57) | (55) |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 8 | (17) | 5 | (13) |
Other comprehensive income/(loss), net of tax | 69 | (93) | (52) | (68) |
Accumulated Other Comprehensive Income/(Loss) | ||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||
Other comprehensive income before reclassification | (54) | (69) | ||
Reclassification/amortization, Net of Tax Amount | 2 | 1 | ||
Other comprehensive income/(loss), Before Tax Amount | 61 | (75) | (57) | (55) |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 8 | (17) | 5 | (13) |
Other comprehensive income/(loss), net of tax | 69 | (93) | (52) | (68) |
Foreign Currency Translation Adjustments | ||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||
Other comprehensive income before reclassification | (54) | (69) | ||
Other comprehensive income/(loss), Before Tax Amount | 60 | (76) | (60) | (56) |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 8 | (17) | 6 | (13) |
Other comprehensive income/(loss), net of tax | 69 | (93) | (54) | (69) |
Net Change Retirement-Related Benefit Plans | ||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||
Other comprehensive income before reclassification | 0 | 0 | ||
Reclassification/amortization, Net of Tax Amount | 2 | 1 | ||
Other comprehensive income/(loss), Before Tax Amount | 1 | 0 | 3 | 1 |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 0 | 0 | 0 | 0 |
Other comprehensive income/(loss), net of tax | 1 | 0 | 2 | 1 |
Retirement-Related Benefit Plans, Curtailments and Settlements | ||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||
Other comprehensive income/(loss), arising during the period, Before Tax Amount | 0 | 0 | ||
Other comprehensive income/(loss), arising during the period, Tax (Expense)/Benefit | 0 | 0 | ||
Other comprehensive income before reclassification | 0 | 0 | ||
Retirement-Related Benefit Plans, Prior Service Costs/(Credits) | ||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||
Reclassification/amortization, Before Tax Amount | 0 | 0 | 0 | 0 |
Reclassification/amortization, Tax (Expense)/Benefit | 0 | 0 | 0 | 0 |
Reclassification/amortization, Net of Tax Amount | 0 | 0 | 0 | 0 |
Retirement-Related Benefit Plans, Net Gains/(Losses) | ||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||
Other comprehensive income/(loss), arising during the period, Before Tax Amount | 0 | 0 | ||
Other comprehensive income/(loss), arising during the period, Tax (Expense)/Benefit | 0 | 0 | ||
Other comprehensive income before reclassification | 0 | 0 | ||
Reclassification/amortization, Before Tax Amount | 1 | 0 | 3 | 1 |
Reclassification/amortization, Tax (Expense)/Benefit | 0 | 0 | 0 | 0 |
Reclassification/amortization, Net of Tax Amount | $ 1 | $ 0 | $ 2 | $ 1 |
Equity Activity - AOCI Rollforw
Equity Activity - AOCI Rollforward (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Accumulated Other Comprehensive Income/(Loss) (net of tax) | ||||
Balance at the beginning of the period | $ 2,343 | $ 2,724 | $ 2,686 | $ 3,420 |
Other comprehensive income/(loss), net of tax | 69 | (93) | (52) | (68) |
Balance at the end of the period | 2,273 | 2,500 | 2,273 | 2,500 |
Accumulated Other Comprehensive Income/(Loss) | ||||
Accumulated Other Comprehensive Income/(Loss) (net of tax) | ||||
Balance at the beginning of the period | (153) | (8) | (31) | (33) |
Other comprehensive income before reclassification | (54) | (69) | ||
Amount reclassified from accumulated other comprehensive income | 2 | 1 | ||
Other comprehensive income/(loss), net of tax | 69 | (93) | (52) | (68) |
Balance at the end of the period | (83) | (101) | (83) | (101) |
Foreign Currency Translation Adjustments | ||||
Accumulated Other Comprehensive Income/(Loss) (net of tax) | ||||
Balance at the beginning of the period | (12) | (23) | ||
Other comprehensive income before reclassification | (54) | (69) | ||
Other comprehensive income/(loss), net of tax | 69 | (93) | (54) | (69) |
Balance at the end of the period | (67) | (92) | (67) | (92) |
Net Change Retirement-Related Benefit Plans | ||||
Accumulated Other Comprehensive Income/(Loss) (net of tax) | ||||
Balance at the beginning of the period | (19) | (10) | ||
Other comprehensive income before reclassification | 0 | 0 | ||
Amount reclassified from accumulated other comprehensive income | 2 | 1 | ||
Other comprehensive income/(loss), net of tax | 1 | 0 | 2 | 1 |
Balance at the end of the period | $ (16) | $ (9) | $ (16) | $ (9) |
Derivative Financial Instrume_3
Derivative Financial Instruments - Derivatives, Other Information (Details) - USD ($) $ in Millions | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
IBM | ||
Derivative Financial Instruments | ||
Assets included in master netting arrangements | $ 36 | $ 18 |
Liabilities included in master netting arrangements | 36 | 18 |
Fair value hedges | Interest rate swaps | IBM | ||
Derivative Financial Instruments | ||
Notional amount | $ 2,550 | $ 2,550 |
Average remaining maturity | 1 year 2 months 12 days | 2 years |
Cash flow hedges | Interest rate swaps | IBM | ||
Derivative Financial Instruments | ||
Notional amount | $ 0 | $ 0 |
Net investment hedges | Foreign exchange contracts | IBM | ||
Derivative Financial Instruments | ||
Notional amount | $ 870 | $ 1,229 |
Average remaining maturity | 2 months 12 days | 2 months 12 days |
Derivative instruments not designated as hedging instruments | Foreign exchange contracts | Maximum | ||
Derivative Financial Instruments | ||
Term of derivative contract | 1 year | |
Derivative instruments not designated as hedging instruments | Foreign exchange contracts | Third parties | ||
Derivative Financial Instruments | ||
Notional amount | $ 0 | $ 0 |
Derivative Financial Instrume_4
Derivative Financial Instruments - Cumulative Basis Adjustment for Fair Value Hedges (Details) - Debt - USD ($) $ in Millions | Sep. 30, 2020 | Dec. 31, 2019 |
Fair Values of Derivative Instruments | ||
Carrying amount of the hedged item | $ (2,613) | $ (2,574) |
Cumulative hedging adjustments included in the carry amount - assets/(liabilities) | $ (65) | $ (28) |
Derivative Financial Instrume_5
Derivative Financial Instruments - Effect of Hedge Activity on Income and Expense (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
The Effect of Derivative Instruments in the Consolidated Income Statement | ||||
Loss (income) from continuing operations before income taxes | $ (107) | $ (131) | $ (339) | $ (460) |
Financing cost | ||||
The Effect of Derivative Instruments in the Consolidated Income Statement | ||||
Loss (income) from continuing operations before income taxes | 66 | 122 | 244 | 419 |
Gains/(losses) of Total hedge activity | $ 13 | $ 9 | $ 32 | $ 16 |
Derivative Financial Instrume_6
Derivative Financial Instruments - Derivatives, Gains and Losses (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
The Effect of Derivative Instruments in the Consolidated Income Statement | ||||
Gain/(Loss) Recognized in Earnings, Recognized on Derivatives | $ 0 | $ 5 | $ 60 | $ 57 |
Gain/(Loss) Recognized in Earnings, Attributable to Risk Being Hedged | 12 | (8) | (37) | (70) |
Gains (losses) excluded from the assessment of hedge effectiveness for fair value hedges | ||||
Net investment hedges | ||||
The Effect of Derivative Instruments in the Consolidated Income Statement | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | (34) | 67 | (23) | 49 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | 1 | 12 | 10 | 28 |
Interest rate contracts | IBM | Fair value hedges | Financing cost | ||||
The Effect of Derivative Instruments in the Consolidated Income Statement | ||||
Gain/(Loss) Recognized in Earnings, Recognized on Derivatives | 0 | 5 | 60 | 57 |
Gain/(Loss) Recognized in Earnings, Attributable to Risk Being Hedged | 12 | (8) | (37) | (70) |
Foreign exchange contracts | IBM | Net investment hedges | ||||
The Effect of Derivative Instruments in the Consolidated Income Statement | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | (34) | 67 | (23) | 49 |
Foreign exchange contracts | IBM | Net investment hedges | Financing cost | ||||
The Effect of Derivative Instruments in the Consolidated Income Statement | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | $ 1 | $ 12 | $ 10 | $ 28 |
Relationship with IBM and Rel_2
Relationship with IBM and Related Party Transactions - Support Agreement (Details) $ in Millions | Sep. 30, 2020USD ($) |
IBM Credit LLC | IBM | |
Related party transactions | |
Minimum beneficial ownership of equity voting interest (as a percent) | 51.00% |
IBM | Support Agreement | |
Related party transactions | |
Minimum consolidated tangible net worth to be supported by parent company | $ 50 |
Maximum debt to equity ratio to be supported by parent company | 11 |
Relationship with IBM and Rel_3
Relationship with IBM and Related Party Transactions - Operating Relationship (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2020 | Dec. 31, 2019 | |
Disclosures | |||
Other receivables from IBM | $ 814 | $ 814 | $ 513 |
Accounts payable to related party | 336 | ||
Excess cash in short-term interest-bearing accounts with parent | |||
Disclosures | |||
Other receivables from IBM | 557 | 557 | |
Receivables collected on company's behalf | |||
Disclosures | |||
Other receivables from IBM | 251 | 251 | |
Financing revenue | |||
Disclosures | |||
Fee income from related party related to financing incentives to third party | 21 | 86 | |
Change in fee income | (13) | (30) | |
Financing receivables from IBM | |||
Disclosures | |||
Net financing receivables | 3,937 | 3,937 | 3,870 |
Long-term participated receivables from IBM | |||
Disclosures | |||
Net financing receivables | 4,171 | 4,171 | 4,303 |
Short-term purchased receivables from IBM | |||
Disclosures | |||
Net financing receivables | 36 | 36 | 56 |
IBM | |||
Disclosures | |||
Other receivables from IBM | 513 | ||
Accounts payable to related party | 0 | 0 | 336 |
IBM | Excess cash in short-term interest-bearing accounts with parent | |||
Disclosures | |||
Other receivables from IBM | $ 509 | ||
IBM | Financing revenue | Excess cash in short-term interest-bearing accounts with parent | |||
Disclosures | |||
Increase (decrease) in interest income over the prior year | (5) | (18) | |
IBM | Financing receivables from IBM | Financing revenue | |||
Disclosures | |||
Interest income from a related party | 21 | 81 | |
Increase (decrease) in interest income over the prior year | (19) | (48) | |
IBM | Long-term participated receivables from IBM | Financing revenue | |||
Disclosures | |||
Interest income from a related party | 55 | 160 | |
Increase (decrease) in financial services revenue over the prior year | 7 | 15 | |
IBM | Short-term purchased receivables from IBM | Financing revenue | |||
Disclosures | |||
Financing revenue | 2 | 7 | |
Increase (decrease) in financial services revenue over the prior year | $ (2) | $ (19) |
Relationship with IBM and Rel_4
Relationship with IBM and Related Party Transactions - Borrowing, Services, and Other Arrangements (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Related party transactions | ||||
Interest expense incurred on related party borrowings | $ 32 | $ 58 | $ 116 | $ 189 |
IBM | ||||
Related party transactions | ||||
Selling, general and administrative expense with related party | 37 | 45 | 109 | 147 |
IBM | Financing cost | Debt payable to IBM | ||||
Related party transactions | ||||
Interest expense incurred on related party borrowings | 32 | 58 | 116 | 189 |
IBM | Sales of returned equipment | Other (income) and expense | ||||
Related party transactions | ||||
Net profit on transaction with related party | $ 4 | $ 2 | $ 25 | $ 11 |