Document and Entity Information
Document and Entity Information | 6 Months Ended |
Jun. 30, 2016shares | |
Document and Entity Information | |
Entity Registrant Name | INTERNATIONAL BUSINESS MACHINES CORP |
Entity Central Index Key | 51,143 |
Document Type | 10-Q |
Document Period End Date | Jun. 30, 2016 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 955,844,217 |
Document Fiscal Year Focus | 2,016 |
Document Fiscal Period Focus | Q2 |
Trading Symbol | IBM |
CONSOLIDATED STATEMENT OF EARNI
CONSOLIDATED STATEMENT OF EARNINGS - USD ($) shares in Millions, $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Revenue: | ||||
Services | $ 13,018 | $ 12,597 | $ 25,409 | $ 24,963 |
Sales | 6,792 | 7,733 | 12,671 | 14,489 |
Financing | 429 | 484 | 843 | 950 |
Total revenue | 20,238 | 20,813 | 38,923 | 40,403 |
Cost: | ||||
Services | 8,691 | 8,431 | 17,074 | 16,709 |
Sales | 1,582 | 1,726 | 2,960 | 3,351 |
Financing | 263 | 266 | 501 | 501 |
Total cost | 10,536 | 10,423 | 20,535 | 20,561 |
Gross profit | 9,702 | 10,390 | 18,388 | 19,842 |
Expense and other (income): | ||||
Selling, general and administrative | 5,349 | 5,179 | 11,361 | 10,541 |
Research, development and engineering | 1,465 | 1,300 | 2,923 | 2,598 |
Intellectual property and custom development income | (365) | (128) | (582) | (301) |
Other (income) and expense | 37 | (301) | 289 | (444) |
Interest expense | 167 | 115 | 315 | 223 |
Total expense and other (income) | 6,653 | 6,165 | 14,306 | 12,617 |
Income from continuing operations before income taxes | 3,049 | 4,224 | 4,082 | 7,225 |
Provision for/(benefit from) income taxes | 544 | 698 | (439) | 1,283 |
Income from continuing operations | 2,505 | 3,526 | 4,521 | 5,942 |
Loss from discontinued operations, net of tax | 0 | (77) | (3) | (165) |
Net income | $ 2,504 | $ 3,449 | $ 4,518 | $ 5,777 |
Assuming dilution: | ||||
Continuing operations (in dollars per share) | $ 2.61 | $ 3.58 | $ 4.69 | $ 6.01 |
Discontinued operations (in dollars per share) | 0 | (0.08) | 0 | (0.17) |
Total (in dollars per share) | 2.61 | 3.50 | 4.69 | 5.84 |
Basic: | ||||
Continuing operations (in dollars per share) | 2.62 | 3.59 | 4.71 | 6.03 |
Discontinued operations (in dollars per share) | 0 | (0.08) | 0 | (0.17) |
Total (in dollars per share) | $ 2.62 | $ 3.51 | $ 4.71 | $ 5.86 |
Weighted-average number of common shares outstanding: | ||||
Assuming dilution (in shares) | 960.5 | 986.7 | 962.4 | 989.5 |
Basic (in shares) | 957.4 | 982.3 | 959.5 | 985.2 |
Cash dividend per common share | $ 1.40 | $ 1.30 | $ 2.70 | $ 2.40 |
CONSOLIDATED STATEMENT OF COMPR
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | ||||
Net income | $ 2,504 | $ 3,449 | $ 4,518 | $ 5,777 |
Other comprehensive income/(loss), before tax: | ||||
Foreign currency translation adjustments | (248) | 102 | (10) | (350) |
Net changes related to available-for-sale securities: | ||||
Unrealized gains/(losses) arising during the period | 1 | (15) | (35) | 17 |
Reclassification of (gains)/losses to net income | 0 | 0 | 37 | 0 |
Total net changes related to available-for-sale securities | 1 | (15) | 2 | 16 |
Unrealized gains/(losses) on cash flow hedges: | ||||
Unrealized gains/(losses) arising during the period | 9 | (187) | (256) | 432 |
Reclassification of (gains)/losses to net income | 102 | (321) | 11 | (570) |
Total unrealized gains/(losses) on cash flow hedges | 111 | (508) | (245) | (138) |
Retirement-related benefit plans: | ||||
Prior service costs/(credits) | 1 | 6 | ||
Net (losses)/gains arising during the period | 78 | 93 | (68) | 16 |
Curtailments and settlements | 10 | 3 | 14 | 7 |
Amortization of prior service (credits)/costs | (27) | (25) | (53) | (51) |
Amortization of net (gains)/losses | 693 | 821 | 1,383 | 1,656 |
Total retirement-related benefit plans | 754 | 894 | 1,277 | 1,635 |
Other comprehensive income/(loss), before tax | 617 | 472 | 1,023 | 1,163 |
Income tax (expense)/benefit related to items of other comprehensive income | (223) | (62) | (21) | (719) |
Other comprehensive income/(loss) | 394 | 411 | 1,002 | 444 |
Total comprehensive income/(loss) | $ 2,899 | $ 3,860 | $ 5,520 | $ 6,221 |
CONSOLIDATED STATEMENT OF FINAN
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 10,017 | $ 7,686 |
Marketable securities | 600 | 508 |
Notes and accounts receivable - trade (net of allowances of $352 in 2016 and $367 in 2015) | 8,782 | 8,333 |
Short-term financing receivables (net of allowances of $526 in 2016 and $490 in 2015) | 16,635 | 19,020 |
Other accounts receivable (net of allowances of $58 in 2016 and $51 in 2015) | 1,130 | 1,201 |
Inventories, at lower of average cost or market: | ||
Finished goods | 414 | 352 |
Work in process and raw materials | 1,271 | 1,199 |
Total inventories | 1,685 | 1,551 |
Prepaid expenses and other current assets | 4,676 | 4,205 |
Total current assets | 43,524 | 42,504 |
Property, plant and equipment | 30,136 | 29,342 |
Less: Accumulated depreciation | 19,044 | 18,615 |
Property, plant and equipment - net | 11,092 | 10,727 |
Long-term financing receivables (net of allowances of $142 in 2016 and $118 in 2015) | 9,267 | 10,013 |
Prepaid pension assets | 2,957 | 1,734 |
Deferred taxes | 4,387 | 4,822 |
Goodwill | 36,422 | 32,021 |
Intangible assets - net | 5,148 | 3,487 |
Investments and sundry assets | 5,259 | 5,187 |
Total assets | 118,056 | 110,495 |
Current liabilities: | ||
Taxes | 2,275 | 2,847 |
Short-term debt | 4,887 | 6,461 |
Accounts payable | 5,484 | 6,028 |
Compensation and benefits | 3,950 | 3,560 |
Deferred income | 11,508 | 11,021 |
Other accrued expenses and liabilities | 5,480 | 4,353 |
Total current liabilities | 33,585 | 34,269 |
Long-term debt | 39,638 | 33,428 |
Retirement and nonpension postretirement benefit obligations | 16,723 | 16,504 |
Deferred income | 3,837 | 3,771 |
Other liabilities | 8,385 | 8,099 |
Total liabilities | 102,167 | 96,071 |
IBM stockholders' equity: | ||
Common stock, par value $0.20 per share, and additional paid-in capital; Shares authorized: 4,687,500,000 (Shares issued: 2016 - 2,224,090,577; 2015 - 2,221,223,449) | 53,565 | 53,262 |
Retained earnings | 148,071 | 146,124 |
Treasury stock - at cost (Shares: 2016 - 1,268,246,360; 2015 - 1,255,494,724) | (157,298) | (155,518) |
Accumulated other comprehensive income/(loss) | (28,604) | (29,607) |
Total IBM stockholders' equity | 15,733 | 14,262 |
Noncontrolling interests | 156 | 162 |
Total equity | 15,889 | 14,424 |
Total liabilities and equity | $ 118,056 | $ 110,495 |
CONSOLIDATED STATEMENT OF FINA5
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Parenthetical) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION | ||
Notes and accounts receivable - trade, allowances | $ 352 | $ 367 |
Short-term financing receivables, allowances | 526 | 490 |
Other accounts receivable, allowances | 58 | 51 |
Long-term financing receivables, allowances | $ 142 | $ 118 |
Common stock, par value (in dollars per share) | $ 0.20 | $ 0.20 |
Common stock, Shares authorized (in shares) | 4,687,500,000 | 4,687,500,000 |
Common stock, Shares issued (in shares) | 2,224,090,577 | 2,221,223,449 |
Treasury stock, Shares (in shares) | 1,268,246,360 | 1,255,494,724 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | |
Cash flows from operating activities: | ||
Net income | $ 4,518 | $ 5,777 |
Adjustments to reconcile net income to cash provided by operating activities | ||
Depreciation | 1,382 | 1,335 |
Amortization of intangibles | 745 | 594 |
Stock-based compensation | 261 | 257 |
Net (gain)/loss on asset sales and other | 167 | 152 |
Loss on Microelectronics business disposal | 37 | |
Changes in operating assets and liabilities, net of acquisitions/divestitures | 2,015 | (659) |
Net cash provided by operating activities | 9,088 | 7,494 |
Cash flows from investing activities: | ||
Payments for property, plant and equipment | (1,826) | (1,722) |
Proceeds from disposition of property, plant and equipment | 172 | 182 |
Investment in software | (295) | (290) |
Acquisition of businesses, net of cash acquired | (5,405) | (708) |
Divestitures of businesses, net of cash transferred | 35 | 81 |
Non-operating finance receivables - net | 1,127 | 1,338 |
Purchases of marketable securities and other investments | (2,386) | (1,716) |
Proceeds from disposition of marketable securities and other investments | 2,028 | 1,464 |
Net cash used in investing activities | (6,550) | (1,371) |
Cash flows from financing activities: | ||
Proceeds from new debt | 8,263 | 2,765 |
Payments to settle debt | (3,425) | (4,463) |
Short-term borrowings/(repayments) less than 90 days - net | (909) | 177 |
Common stock repurchases | (1,775) | (2,303) |
Common stock transactions - other | 115 | 221 |
Cash dividends paid | (2,590) | (2,366) |
Net cash used in financing activities | (322) | (5,970) |
Effect of exchange rate changes on cash and cash equivalents | 114 | (236) |
Net change in cash and cash equivalents | 2,330 | (83) |
Cash and cash equivalents at beginning of period | 7,686 | 8,476 |
Cash and cash equivalents at end of period | $ 10,017 | $ 8,393 |
CONSOLIDATED STATEMENT OF CHANG
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - USD ($) $ in Millions | Total IBM Stockholders' Equity | Common Stock and Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income/(Loss) | Non-Controlling Interests | Total |
Balance at the Beginning of the Period at Dec. 31, 2014 | $ 11,868 | $ 52,666 | $ 137,793 | $ (150,715) | $ (27,875) | $ 146 | $ 12,014 |
Net income plus other comprehensive income/(loss) | |||||||
Net income | 5,777 | 5,777 | 5,777 | ||||
Other comprehensive income/(loss) | 444 | 444 | 444 | ||||
Total comprehensive income/(loss) | 6,221 | 6,221 | |||||
Cash dividends paid - common stock | (2,366) | (2,366) | (2,366) | ||||
Common stock issued under employee plans (Shares - 2,867,128 and 3,929,697 for the six months ended June 30, 2016 and 2015, respectively) | 395 | 395 | 395 | ||||
Purchases (Shares - 769,837 and 931,120) and sales (Shares - 323,578 and 475,037) of treasury stock under employee plans - net, for the six months ended June 30, 2016 and 2015, respectively | (77) | 14 | (91) | (77) | |||
Other treasury shares purchased, not retired (Shares - 12,305,377 and 14,467,545 for the six months ended June 30, 2016 and 2015, respectively) | (2,356) | (2,356) | (2,356) | ||||
Changes in other equity | (2) | (2) | (2) | ||||
Changes in noncontrolling interests | 8 | 8 | |||||
Balance at the End of the Period at Jun. 30, 2015 | 13,684 | 53,059 | 141,218 | (153,162) | (27,432) | 153 | 13,837 |
Balance at the Beginning of the Period at Dec. 31, 2015 | 14,262 | 53,262 | 146,124 | (155,518) | (29,607) | 162 | 14,424 |
Net income plus other comprehensive income/(loss) | |||||||
Net income | 4,518 | 4,518 | 4,518 | ||||
Other comprehensive income/(loss) | 1,002 | 1,002 | 1,002 | ||||
Total comprehensive income/(loss) | 5,520 | 5,520 | |||||
Cash dividends paid - common stock | (2,590) | (2,590) | (2,590) | ||||
Common stock issued under employee plans (Shares - 2,867,128 and 3,929,697 for the six months ended June 30, 2016 and 2015, respectively) | 321 | 321 | 321 | ||||
Purchases (Shares - 769,837 and 931,120) and sales (Shares - 323,578 and 475,037) of treasury stock under employee plans - net, for the six months ended June 30, 2016 and 2015, respectively | (56) | 16 | (71) | (56) | |||
Other treasury shares purchased, not retired (Shares - 12,305,377 and 14,467,545 for the six months ended June 30, 2016 and 2015, respectively) | (1,709) | (1,709) | (1,709) | ||||
Changes in other equity | (16) | (18) | 2 | (16) | |||
Changes in noncontrolling interests | (6) | (6) | |||||
Balance at the End of the Period at Jun. 30, 2016 | $ 15,733 | $ 53,565 | $ 148,071 | $ (157,298) | $ (28,604) | $ 156 | $ 15,889 |
CONSOLIDATED STATEMENT OF CHAN8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Parenthetical) - shares | 6 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | ||
Common stock issued under employee plans (in shares) | 2,867,128 | 3,929,697 |
Purchases of treasury stock under employee plans (in shares) | 769,837 | 931,120 |
Sales of treasury stock under employee plans (in shares) | 323,578 | 475,037 |
Other treasury shares purchased, not retired (in shares) | 12,305,377 | 14,467,545 |
Basis of Presentation
Basis of Presentation | 6 Months Ended |
Jun. 30, 2016 | |
Basis of Presentation: | |
Basis of Presentation: | 1. Basis of Presentation: The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM 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. Refer to the company’s recast 2015 Annual Report on Form 8-K, dated June 13, 2016, pages 48 to 51, for a discussion of the company’s critical accounting estimates. On October 20, 2014, the company announced a definitive agreement to divest its Microelectronics business and manufacturing operations to GLOBALFOUNDRIES. The assets and liabilities of the Microelectronics business were reported as held for sale at December 31, 2014, and the operating results of the Microelectronics business have been reported as discontinued operations. The transaction closed on July 1, 2015. Refer to note 9, “Acquisitions/Divestitures,” for additional information on the transaction. In January 2016, the company made a number of changes to its organizational structure and management system. These changes impacted the company’s reportable segments, but did not impact the Consolidated Financial Statements. Refer to note 6, “Segments,” on pages 27 to 29 for additional information on the changes in reportable segments. The periods presented in this Form 10-Q are reported on a comparable basis. The company filed a recast 2015 Annual Report in a Form 8-K on June 13, 2016 to recast its historical segment information to reflect these changes. In the first quarter of 2016, the company classified certain properties, primarily office space, as held for sale. As a result of the company’s reassessment of its real estate portfolio, certain properties were approved for sale and are being actively marketed. The sales are expected to be completed within twelve months from the date of classification as held for sale. A pre-tax impairment charge of $252 million was recorded to other income (expense) related to the applicable land, buildings and furniture and fixtures as of March 31, 2016. The pre-tax charge reflected the difference between the net book value and the fair value (estimated proceeds) less the estimated costs to sell the properties. The fair value of these assets is not material. In the first quarter of 2016, the company reported a benefit from income taxes of $983 million, and its effective tax rate was (95.1) percent, primarily driven by the resolution of a long-standing non-U.S. tax matter in February 2016. For the six months ended June 30, 2016, the company’s benefit from income taxes is $439 million and its effective tax rate is (10.8) percent. See Taxes on page 71 for additional information. Noncontrolling interest amounts of $3.0 million and $2.4 million, net of tax, for the three months ended June 30, 2016 and 2015, respectively, and $4.4 million and $3.5 million, net of tax, for the six months ended June 30, 2016 and 2015, respectively, are included in the Consolidated Statement of Earnings within the other (income) and expense line item. 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 2015 Annual Report and Form 8-K dated June 13, 2016. 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. Certain prior year amounts have been reclassified to conform to the current year presentation. This is annotated where applicable. |
Accounting Changes
Accounting Changes | 6 Months Ended |
Jun. 30, 2016 | |
Accounting Changes: | |
Accounting Changes: | 2. Accounting Changes: New Standards to be Implemented In June 2016, the Financial Accounting Standards Board (FASB) issued guidance for credit impairment based on an expected loss rather than incurred loss model. The guidance requires the consideration of all available relevant information when estimating expected credit losses, including past events, current conditions and forecasts and their implications for expected credit losses. The guidance is effective January 1, 2020 with a one year early adoption permitted. The company is evaluating the impact of the new guidance and the effective date. In March 2016, the FASB issued guidance which changes the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the Consolidated Statement of Cash Flows. The guidance is effective January 1, 2017 and early adoption is permitted. The impact of the guidance could result in increased volatility of the company’s provision for income taxes and earnings per share in the Consolidated Statement of Earnings, depending on the company’s share price at exercise or vesting of share-based awards compared to grant date. The standard is not expected to have a material impact upon adoption. In February 2016, the FASB issued guidance which changes the accounting for leases. The guidance requires lessees to recognize right-of-use assets and lease liabilities for most leases in the Consolidated Statement of Financial Position. The guidance makes some changes to lessor accounting, including the elimination of the use of residual value guarantee insurance in the capital lease test, and overall aligns with the new revenue recognition guidance. The guidance also requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective January 1, 2019 and early adoption is permitted. The company is currently evaluating the impact of the new guidance and the effective date. The company’s operating lease commitments were $6.4 billion at December 31, 2015, and in 2015, the use of residual value guarantee insurance resulted in the company recognizing $608 million of sales-type lease revenue that would otherwise have been recognized as operating lease revenue over the lease term. In January 2016, the FASB issued guidance which addresses aspects of recognition, measurement, presentation and disclosure of financial instruments. Certain equity investments will be measured at fair value with changes recognized in net income. The amendment also simplifies the impairment test of equity investments that lack readily determinable fair value. The guidance is effective January 1, 2018 and early adoption is not permitted except for limited provisions. The guidance is not expected to have a material impact in the consolidated financial results. The FASB issued guidance on the recognition of revenue from contracts with customers in May 2014 with amendments in 2015 and 2016. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The guidance was initially effective January 1, 2017 and early adoption was not permitted. The amended guidance provides for a one-year deferral of the effective date to January 1, 2018, with an option of applying the standard on the original effective date. The company will adopt the guidance on January 1, 2018 and apply the cumulative catch-up transition method. The company is continuing to evaluate the impact of the new guidance in the consolidated financial results. Standards Implemented In November 2015, the FASB issued guidance which requires deferred tax liabilities and assets be classified as noncurrent in the statement of financial position. The guidance was effective January 1, 2016 with early adoption permitted. The company adopted the guidance in the fourth quarter of 2015 on a retrospective basis. The company reclassified current deferred tax assets of $2.0 billion at December 31, 2014 to deferred tax assets and current deferred tax liabilities of $19 million at December 31, 2014 to other liabilities from other accrued expenses and liabilities in the Consolidated Statement of Financial Position. In order to offset deferred tax assets and liabilities for presentation as a single noncurrent amount by tax jurisdiction, the company also reclassified $178 million at December 31, 2014 from deferred tax assets to other liabilities in the Consolidated Statement of Financial Position. In September 2015, the FASB issued guidance eliminating the requirement that an acquirer in a business combination account for a measurement-period adjustment retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which the amount of the adjustment is determined. In addition, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date should be presented separately on the face of the income statement or disclosed in the notes. The guidance was effective January 1, 2016 on a prospective basis. The guidance did not have a material impact in the consolidated financial results. In May 2015, the FASB issued guidance which removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also removed the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The guidance was effective January 1, 2016. The guidance was a change in disclosure only and did not have an impact in the consolidated financial results. In April 2015, the FASB issued guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a services contract. All software licenses recognized under this guidance will be accounted for consistent with other licenses of intangible assets. The guidance was effective January 1, 2016 and the company adopted it on a prospective basis. The guidance did not have a material impact in the consolidated financial results. In April 2015, the FASB issued guidance which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance was effective January 1, 2016 with early adoption permitted. The company adopted the guidance in the fourth quarter of 2015 on a retrospective basis. The company had debt issuance costs of $90 million and $74 million at June 30, 2016 and December 31, 2015, respectively. Debt issuance costs were previously included in investments and sundry assets in the Consolidated Statement of Financial Position. |
Financial Instruments
Financial Instruments | 6 Months Ended |
Jun. 30, 2016 | |
Financial Instruments: | |
Financial Instruments: | 3. Financial Instruments: Fair Value Measurements Accounting guidance defines fair value 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. Under this guidance, the company is required to classify 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. The guidance requires the use of observable market data if such data is available without undue cost and effort. 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. As an example, the fair value of derivatives is derived utilizing a discounted cash flow model that uses observable market inputs such as known notional value amounts, yield curves, spot and forward exchange rates as well as discount rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative. Certain financial assets are measured at fair value on a nonrecurring basis. These assets include equity method investments that are recognized at fair value at the measurement date to the extent that they are deemed to be other-than-temporarily impaired. Certain assets that are measured at fair value on a recurring basis can be subject to nonrecurring fair value measurements. These assets include available-for-sale equity investments that are deemed to be other-than-temporarily impaired. In the event of an other-than-temporary impairment of a financial investment, fair value is measured using a model described above. Non-financial assets such as property, plant and equipment, land, goodwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for nonfinancial assets depend on the type of asset. During the six months ended June 30, 2016, the company recorded an impairment on certain assets that are classified as held for sale. See note 1, “Basis of Presentation,” for additional information. There were no material impairments of non-financial assets for the six months ended June 30, 2015. Accounting guidance permits the measurement of eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. This election is irrevocable. The company has not applied the fair value option to any eligible assets or liabilities. The following tables present the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at June 30, 2016 and December 31, 2015. (Dollars in millions) At June 30, 2016 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ Commercial paper — — — — Money market funds — — U.S. government securities — — Canadian government securities — — Total — (6) Debt securities - current (2) — — (6) Debt securities - noncurrent (3) — Available-for-sale equity investments (3) — — Derivative assets (4) Interest rate contracts — — Foreign exchange contracts — — Equity contracts — — Total — — (7) Total assets $ $ $ — $ (7) Liabilities: Derivative liabilities (5) Foreign exchange contracts $ — $ $ — $ Equity contracts — — Total liabilities $ — $ $ — $ (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) U.S. government securities, time deposits and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position. (3) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (4) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at June 30, 2016 were $262 million and $1,022 million, respectively. (5) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at June 30, 2016 were $374 million and $40 million, respectively. (6) Available-for-sale securities with carrying values that approximate fair value. (7) If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $280 million. (Dollars in millions) At December 31, 2015 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ Money market funds — — Other securities — — Total — (6) Debt securities - current (2) — — (6) Debt securities - noncurrent (3) — Trading security investments (3) — — Available-for-sale equity investments (3) — — Derivative assets (4) Interest rate contracts — — Foreign exchange contracts — — Equity contracts — — Total — — (7) Total assets $ $ $ — $ (7) Liabilities: Derivative liabilities (5) Foreign exchange contracts $ — $ $ — $ Equity contracts — — Interest rate contracts — — Total liabilities $ — $ $ — $ (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Commercial paper and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position. (3) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (4) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at December 31, 2015 were $292 million and $702 million, respectively. (5) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at December 31, 2015 were $164 million and $22 million, respectively. (6) Available-for-sale securities with carrying values that approximate fair value. (7) If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $139 million. There were no transfers between Levels 1 and 2 for the six months ended June 30, 2016 and the year ended December 31, 2015. Financial Assets and Liabilities Not Measured at Fair Value Short-Term Receivables and Payables Notes and other accounts receivable and other investments are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (excluding the current portion of long-term debt) 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. Loans and 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 June 30, 2016 and December 31, 2015, the difference between the carrying amount and estimated fair value for loans and 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 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 was $39,638 million and $33,428 million, and the estimated fair value was $42,506 million and $35,220 million at June 30, 2016 and December 31, 2015, respectively. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy. Debt and Marketable Equity Securities The company’s cash equivalents and current debt securities are considered available-for-sale and recorded at fair value, which is not materially different from carrying value, in the Consolidated Statement of Financial Position. The following tables summarize the company’s noncurrent debt and marketable equity securities which are considered available-for-sale and recorded at fair value in the Consolidated Statement of Financial Position. Gross Gross (Dollars in millions) Adjusted Unrealized Unrealized Fair At June 30, 2016: Cost Gains Losses Value Debt securities — noncurrent(1) $ $ $ — $ Available-for-sale equity investments(1) $ $ $ $ (1) Included within investments and sundry assets in the Consolidated Statement of Financial Position. Gross Gross (Dollars in millions) Adjusted Unrealized Unrealized Fair At December 31, 2015: Cost Gains Losses Value Debt securities — noncurrent(1) $ $ $ — $ Available-for-sale equity investments(1) $ $ $ $ (1) Included within investments and sundry assets in the Consolidated Statement of Financial Position. During the fourth quarter of 2014, the company acquired equity securities in conjunction with the sale of the System x business which were classified as available-for-sale securities. Based on an evaluation of available evidence as of December 31, 2015, the company recorded an other-than-temporary impairment loss of $86 million resulting in an adjusted cost basis of $185 million as of December 31, 2015. In the first quarter of 2016, the company recorded a gross realized loss of $37 million (before taxes) related to the sale of all the outstanding shares. The loss on this sale was recorded in other (income) and expense in the Consolidated Statement of Earnings. Sales of debt and available-for-sale equity investments during the period were as follows: (Dollars in millions) For the three months ended June 30: 2016 2015 Proceeds $ $ Gross realized gains (before taxes) Gross realized losses (before taxes) (Dollars in millions) For the six months ended June 30: 2016 2015 Proceeds $ $ Gross realized gains (before taxes) Gross realized losses (before taxes) The after-tax net unrealized holding gains/(losses) on available-for-sale debt and equity securities that have been included in other comprehensive income/(loss) for the period and after-tax net (gains)/losses reclassified from accumulated other comprehensive income/(loss) to net income were as follows: (Dollars in millions) For the three months ended June 30: 2016 2015 Net unrealized gains/(losses) arising during the period $ $ ) Net unrealized (gains)/losses reclassified to net income* *There were no writedowns for the three months ended June 30, 2016 and 2015, respectively. (Dollars in millions) For the six months ended June 30: 2016 2015 Net unrealized gains/(losses) arising during the period $ ) $ Net unrealized (gains)/losses reclassified to net income* * There were no writedowns for the six months ended June 30, 2016 and 2015, respectively. The contractual maturities of substantially all available-for-sale debt securities are less than one year at June 30, 2016. Derivative Financial Instruments The company operates in multiple functional currencies and is a significant lender and borrower in the global markets. In the normal course of business, the company is exposed to the impact of interest rate changes and foreign currency fluctuations, and to a lesser extent equity and commodity price changes and client credit risk. The company limits these risks by following established risk management policies and procedures, including the use of derivatives, and, where cost effective, financing with debt in the currencies in which assets are denominated. For interest rate exposures, derivatives are used to better align rate movements between the interest rates associated with the company’s lease and other financial assets and the interest rates associated with its financing debt. Derivatives are also used to manage the related cost of debt. For foreign currency exposures, derivatives are used to better manage the cash flow volatility arising from foreign exchange rate fluctuations. As a result of the use of derivative instruments, the company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, the company has a policy of only entering into contracts with carefully selected major financial institutions based upon their overall credit profile. The company’s established policies and procedures for mitigating credit risk on principal transactions include reviewing and establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. The right of set-off that exists under certain of these arrangements enables the legal entities of the company subject to the arrangement to net amounts due to and from the counterparty reducing the maximum loss from credit risk in the event of counterparty default. The company is also a party to collateral security arrangements with most of its major derivative counterparties. These arrangements require the company to hold or post collateral (cash or U.S. Treasury securities) when the derivative fair values exceed contractually established thresholds. Posting thresholds can be fixed or can vary based on credit default swap pricing or credit ratings received from the major credit agencies. The aggregate fair value of all derivative instruments under these collateralized arrangements that were in a liability position at June 30, 2016 and December 31, 2015 was $99 million and $28 million, respectively, for which no collateral was posted at June 30, 2016 and December 31, 2015. Full collateralization of these agreements would be required in the event that the company’s credit rating falls below investment grade or if its credit default swap spread exceeds 250 basis points, as applicable, pursuant to the terms of the collateral security arrangements. The aggregate fair value of derivative instruments in asset positions as of June 30, 2016 and December 31, 2015 was $1,284 million and $994 million, respectively. This amount represents the maximum exposure to loss at the reporting date if the counterparties failed to perform as contracted. This exposure was reduced by $280 million and $139 million at June 30, 2016 and December 31, 2015, respectively, of liabilities included in master netting arrangements with those counterparties. Additionally, at June 30, 2016 and December 31, 2015, this exposure was reduced by $230 million and $90 million of cash collateral, and $96 million and $40 million of non-cash collateral in U.S. Treasury securities, respectively, received by the company. At June 30, 2016 and December 31, 2015, the net exposure related to derivative assets recorded in the Consolidated Statement of Financial Position was $678 million and $726 million, respectively. At June 30, 2016 and December 31, 2015, the net exposure related to derivative liabilities recorded in the Consolidated Statement of Financial Position was $134 million and $47 million, respectively. In the Consolidated Statement of Financial Position, the company does not offset derivative assets against liabilities in master netting arrangements nor does it offset receivables or payables recognized upon payment or receipt of cash collateral against the fair values of the related derivative instruments. No amount was recognized in other receivables at June 30, 2016 or December 31, 2015 for the right to reclaim cash collateral. The amount recognized in accounts payable for the obligation to return cash collateral was $230 million and $90 million at June 30, 2016 and December 31, 2015, respectively. The company restricts the use of cash collateral received to rehypothecation, and therefore reports it in prepaid expenses and other current assets in the Consolidated Statement of Financial Position. No amount was rehypothecated at June 30, 2016 and December 31, 2015. The company may employ derivative instruments to hedge the volatility in stockholders’ equity resulting from changes in currency exchange rates of significant foreign subsidiaries of the company with respect to the U.S. dollar. These instruments, designated as net investment hedges, expose the company to liquidity risk as the derivatives have an immediate cash flow impact upon maturity which is not offset by a cash flow from the translation of the underlying hedged equity. The company monitors this cash loss potential on an ongoing basis and may discontinue some of these hedging relationships by de-designating or terminating the derivative instrument in order to manage the liquidity risk. Although not designated as accounting hedges, the company may utilize derivatives to offset the changes in the fair value of the de-designated instruments from the date of de-designation until maturity. In its hedging programs, the company uses forward contracts, futures contracts, interest-rate swaps, cross-currency swaps, and options depending upon the underlying exposure. The company is not a party to leveraged derivative instruments. A brief description of the major hedging programs, categorized by underlying risk, follows. Interest Rate Risk Fixed and Variable Rate Borrowings The company issues debt in the global capital markets to fund its operations and financing business. 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 uses interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert specific variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). At June 30, 2016 and December 31, 2015, the total notional amount of the company’s interest rate swaps was $7.3 billion at both periods. The weighted-average remaining maturity of these instruments at June 30, 2016 and December 31, 2015 was approximately 6.7 years and 7.2 years, respectively. Forecasted Debt Issuance The company is exposed to interest rate volatility on future debt issuances. To manage this risk, the company may use forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuance. These swaps are accounted for as cash flow hedges. The company did not have any derivative instruments relating to this program outstanding at June 30, 2016 and December 31, 2015. At June 30, 2016 and December 31, 2015, net gains of less than $1 million (before taxes), respectively, were recorded in accumulated other comprehensive income/(loss) in connection with cash flow hedges of the company’s borrowings. Within these amounts, less than $1 million of gains, respectively, are expected to be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying transactions. Foreign Exchange Risk Long-Term Investments in Foreign Subsidiaries (Net Investment) A large portion of the company’s foreign currency denominated debt portfolio is designated as a hedge of net investment in foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. The company also uses cross-currency swaps and foreign exchange forward contracts for this risk management purpose. At June 30, 2016 and December 31, 2015, the total notional amount of derivative instruments designated as net investment hedges was $8.3 billion and $5.5 billion, respectively. The weighted-average remaining maturity of these instruments at June 30, 2016 and December 31, 2015 was approximately 0.1 years and 0.2 years, respectively. Anticipated Royalties and Cost Transactions The company’s operations generate significant nonfunctional currency, third-party vendor payments and intercompany payments for royalties and goods and services among the company’s non-U.S. subsidiaries and with the parent company. In anticipation of these foreign currency cash flows and in view of the volatility of the currency markets, the company selectively employs foreign exchange forward contracts to manage its currency risk. These forward contracts are accounted for as cash flow hedges. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is four years. At June 30, 2016 and December 31, 2015, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $8.1 billion and $8.2 billion, respectively. The weighted-average remaining maturity of these instruments at June 30, 2016 and December 31, 2015 was 0.6 years and 0.7 years, respectively. At June 30, 2016 and December 31, 2015, in connection with cash flow hedges of anticipated royalties and cost transactions, the company recorded net losses of $76 million and net gains of $147 million (before taxes), respectively, in accumulated other comprehensive income/(loss). Within these amounts, $118 million of losses and $121 million of gains, respectively, are expected to be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions. Foreign Currency Denominated Borrowings The company is exposed to exchange rate volatility on foreign currency denominated debt. To manage this risk, the company employs cross-currency swaps to convert fixed-rate foreign currency denominated debt to fixed-rate debt denominated in the functional currency of the borrowing entity. These swaps are accounted for as cash flow hedges. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is approximately nine years. At June 30, 2016 the total notional amount of cross-currency swaps designated as cash flow hedges of foreign currency denominated debt was $1.4 billion. At December 31, 2015, no amounts were outstanding under this program. At June 30, 2016 and December 31, 2015, in connection with cash flow hedges of foreign currency denominated borrowings, the company recorded net losses of $24 million and net losses of $2 million (before taxes), respectively, in accumulated other comprehensive income/(loss). Within these amounts, $22 million of gains and less than $1 million of losses, respectively, are expected to be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying exposure. Subsidiary Cash and Foreign Currency Asset/Liability Management The company uses its Global Treasury Centers to manage the cash of its subsidiaries. These centers principally use currency swaps to convert cash flows in a cost-effective manner. In addition, the company uses foreign exchange forward contracts to economically hedge, on a net basis, the foreign currency exposure of a portion of the company’s nonfunctional currency assets and liabilities. The terms of these forward and swap contracts are generally less than one year. The changes in the fair values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated Statement of Earnings. At June 30, 2016 and December 31, 2015, the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $11.1 billion and $11.7 billion, respectively. Equity Risk Management The company is exposed to market price changes in certain broad market indices and in the company’s own stock primarily related to certain obligations to employees. Changes in the overall value of these employee compensation obligations are recorded in selling, general and administrative (SG&A) expense in the Consolidated Statement of Earnings. Although not designated as accounting hedges, the company utilizes derivatives, including equity swaps and futures, to economically hedge the exposures related to its employee compensation obligations. The derivatives are linked to the total return on certain broad market indices or the total return on the company’s common stock, and are recorded at fair value with gains or losses also reported in SG&A expense in the Consolidated Statement of Earnings. At June 30, 2016 and December 31, 2015, the total notional amount of derivative instruments in economic hedges of these compensation obligations was $1.1 billion and $1.2 billion, respectively. Other Risks The company may hold warrants to purchase shares of common stock in connection with various investments that are deemed derivatives because they contain net share or net cash settlement provisions. The company records the changes in the fair value of these warrants in other (income) and expense in the Consolidated Statement of Earnings. The company did not have any warrants qualifying as derivatives outstanding at June 30, 2016 and December 31, 2015. The company is exposed to a potential loss if a client fails to pay amounts due under contractual terms. The company may utilize credit default swaps to economically hedge its credit exposures. The swaps are recorded at fair value with gains and losses reported in other (income) and expense in the Consolidated Statement of Earnings. The company did not have any derivative instruments relating to this program outstanding at June 30, 2016 and December 31, 2015. The company is exposed to market volatility on certain investment securities. The company may utilize options or forwards to economically hedge its market exposure. The derivatives are recorded at fair value with gains and losses reported in other (income) and expense in the Consolidated Statement of Earnings. At June 30, 2016 the company did not have any derivative instruments relating to this program outstanding. At December 31, 2015 the total notional amount of derivative instruments in economic hedges of investment securities was less than $0.1 billion. The following tables provide a quantitative summary of the derivative and non-derivative instrument-related risk management activity as of June 30, 2016 and December 31, 2015, as well as for the three and six months ended June 30, 2016 and 2015, respectively. Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position As of June 30, 2016 and December 31, 2015 Fair Value of Derivative Assets Fair Value of Derivative Liabilities Balance Sheet Balance Sheet (Dollars in millions) Classification 6/30/2016 12/31/2015 Classification 6/30/2016 12/31/2015 Designated as hedging instruments: Interest rate contracts: Prepaid expenses and other current assets $ — $ — Other accrued expenses and liabilities $ — $ — Investments and sundry assets Other liabilities — Foreign exchange contracts: Prepaid expenses and other current assets Other accrued expenses and liabilities Investments and sundry assets Other liabilities Fair value of derivative assets $ $ Fair value of derivative liabilities $ $ Not designated as hedging instruments: Foreign exchange contracts: Prepaid expenses and other current assets $ $ Other accrued expenses and liabilities $ $ Investments and sundry assets Other liabilities — Equity contracts: Prepaid expenses and other current assets Other accrued expenses and liabilities Investments and sundry assets — — Other liabilities — — Fair value of derivative assets $ $ Fair value of derivative liabilities $ $ Total debt designated as hedging instruments: Short-term debt N/A N/A $ $ — Long-term debt N/A N/A $ $ Total $ $ $ $ N/A-not applicable The Effect of Derivative Instruments in the Consolidated Statement of Earnings For the three months ended June 30, 2016 and 2015 Gain (Loss) Recognized in Earnings Consolidated Recognized on Attributable to Risk (Dollars in millions) Statement of Derivatives(1) Being Hedged(2) For the three months ended June 30: Earnings Line Item 2016 2015 2016 2015 Derivative instruments in fair value hedges(5): Interest rate contracts Cost of financing $ $ ) $ ) $ Interest expense ) ) Derivative instruments not designated as hedging instruments(1): Foreign exchange contracts Other (income) and expense ) N/A N/A Interest rate contracts Other (income) and expense ) N/A N/A Equity contracts SG&A expense ) N/A N/A Other (income) and expense N/A N/A Total $ $ ) $ ) $ Gain (Loss) Recognized in Earnings and Other Comprehensive Income (Ineffectiveness) and (Dollars in millions) Effective Portion Consolidated Effective Portion Reclassified Amounts Excluded from For the three months Recognized in OCI Statement of from AOCI Effectiveness Testing(3) ended June 30: 2016 2015 Earnings Line Item 2016 2015 2016 2015 Derivative instruments in cash flow hedges: Interest rate contracts $ — $ — Interest expense $ ) $ $ — $ — Foreign exchange contracts ) Other (income) and expense ) ) Cost of sales ) — — SG&A expense ) — — Instruments in net investment hedges(4): Foreign exchange contracts ) ) Interest expense — — Total $ ) $ ) $ ) $ $ $ N/A-not applicable Note: OCI represents Other comprehensive income/(loss) in the Consolidated Statement of Comprehensive Income and AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity. (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 and amortization of basis adjustments recorded on de-designated hedging relationships during the period. (3) The amount of gain/(loss) recognized in income represents ineffectiveness on hedge relationships. (4) Instruments in net investment hedges include derivative and non-derivative instruments. (5) For the three month periods ended June 30, 2016 and June 30, 2015, fair value hedges resulted in a gains of $1 million and a loss of $5 million in ineffectiveness, respectively. The Effect of Derivative Instruments in the Consolidated Statement of Earnings For the six months ended June 30, 2016 and 2015 Gain (Loss) Recognized in Earnings Consolidated Recognized on At |
Financing Receivables
Financing Receivables | 6 Months Ended |
Jun. 30, 2016 | |
Financing Receivables: | |
Financing Receivables: | 4. Financing Receivables: The following table presents financing receivables, net of allowances for credit losses, including residual values. At June 30, At December 31, (Dollars in millions) 2016 2015 Current: Net investment in sales-type and direct financing leases $ $ Commercial financing receivables Client loan and installment payment receivables (loans) Total $ $ Noncurrent: Net investment in sales-type and direct financing leases $ $ Client loan and installment payment receivables (loans) Total $ $ Net investment in sales-type and direct financing leases relates principally to the company’s systems products and are for terms ranging generally from two to six years. Net investment in sales-type and direct financing leases includes unguaranteed residual values of $595 million and $645 million at June 30, 2016 and December 31, 2015, respectively, and is reflected net of unearned income of $546 million and $536 million, and net of allowance for credit losses of $222 million and $213 million at those dates, respectively. Commercial financing receivables, net of allowance for credit losses of $19 million both at June 30, 2016 and December 31, 2015, relate primarily to inventory and accounts receivable financing for dealers and remarketers of IBM and OEM products. Payment terms for inventory and accounts receivable financing generally range from 30 to 90 days. Client loan and installment payment receivables (loans), net of allowance for credit losses of $428 million and $377 million at June 30, 2016 and December 31, 2015, respectively, are loans that 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. Client loan and installment payment financing contracts are priced independently at competitive market rates. The company has a history of enforcing the terms of these financing agreements. The company utilizes certain of its financing receivables as collateral for nonrecourse borrowings. Financing receivables pledged as collateral for borrowings were $563 million and $545 million at June 30, 2016 and December 31, 2015, respectively. The company did not have any financing receivables held for sale as of June 30, 2016 and December 31, 2015. Financing Receivables by Portfolio Segment The following tables present financing receivables on a gross basis, excluding the allowance for credit losses and residual value, by portfolio segment and by class, excluding commercial financing receivables and other miscellaneous financing receivables at June 30, 2016 and December 31, 2015 . The company determines its allowance for credit losses based on two portfolio segments: lease receivables and loan receivables, and further segments the portfolio into two classes: major markets and growth markets. (Dollars in millions) Major Growth At June 30, 2016 Markets Markets Total Financing receivables: Lease receivables $ $ $ Loan receivables Ending balance $ $ $ Collectively evaluated for impairment $ $ $ Individually evaluated for impairment $ $ $ Allowance for credit losses: Beginning balance at January 1, 2016 Lease receivables $ $ $ Loan receivables Total $ $ $ Write-offs ) ) ) Provision Other Ending balance at June 30, 2016 $ $ $ Lease receivables $ $ $ Loan receivables $ $ $ Collectively evaluated for impairment $ $ $ Individually evaluated for impairment $ $ $ (Dollars in millions) Major Growth At December 31, 2015 Markets Markets Total Financing receivables: Lease receivables $ $ $ Loan receivables Ending balance $ $ $ Collectively evaluated for impairment $ $ $ Individually evaluated for impairment $ $ $ Allowance for credit losses: Beginning balance at January 1, 2015 Lease receivables $ $ $ Loan receivables Total $ $ $ Write-offs ) ) ) Provision Other ) ) ) Ending balance at December 31, 2015 $ $ $ Lease receivables $ $ $ Loan receivables $ $ $ Collectively evaluated for impairment $ $ $ Individually evaluated for impairment $ $ $ When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For individually evaluated receivables, the company determines the expected cash flow for the receivable and calculates an estimate of the potential loss and the probability of loss. For those accounts in which the loss is probable, the company records a specific reserve. In addition, the company records an unallocated reserve that is determined by applying a reserve rate to its different portfolios, excluding accounts that have been specifically reserved. This reserve rate is based upon credit rating, probability of default, term, characteristics (lease/loan) and loss history. Financing Receivables on Non-Accrual Status The following table presents the recorded investment in financing receivables which were on non-accrual status at June 30, 2016 and December 31, 2015. At June 30, At December 31, (Dollars in millions) 2016 2015 Major markets $ $ Growth markets Total lease receivables $ $ Major markets $ $ Growth markets Total loan receivables $ $ Total receivables $ $ Impaired Loans The company considers any loan with an individually evaluated reserve as an impaired loan. Depending on the level of impairment, loans will also be placed on non-accrual status. The following tables present impaired client loan receivables. At June 30, 2016 At December 31, 2015 Recorded Related Recorded Related (Dollars in millions) Investment Allowance Investment Allowance Major markets $ $ $ $ Growth markets Total $ $ $ $ Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the three months ended June 30, 2016: Investment Recognized Cash Basis Major markets $ $ $ — Growth markets — Total $ $ $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the three months ended June 30, 2015: Investment Recognized Cash Basis Major markets $ $ — $ — Growth markets — Total $ $ $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the six months ended June 30, 2016: Investment Recognized Cash Basis Major markets $ $ $ — Growth markets — Total $ $ $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the six months ended June 30, 2015: Investment Recognized Cash Basis Major markets $ $ — $ — Growth markets — Total $ $ $ — 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 following tables present the gross recorded investment for each class of receivables, by credit quality indicator, at June 30, 2016 and December 31, 2015 . Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators do not reflect mitigation actions that the company takes to transfer credit risk to third parties. Lease Receivables Loan Receivables (Dollars in millions) Major Growth Major Growth At June 30, 2016: Markets Markets Markets Markets Credit Rating: Aaa – Aa3 $ $ $ $ A1 – A3 Baa1 – Baa3 Ba1 – Ba2 Ba3 – B1 B2 – B3 Caa – D Total $ $ $ $ At June 30, 2016 , the industries which made up Global Financing’s receivables portfolio consisted of: Financial (36 percent), Government (14 percent), Manufacturing (14 percent), Services (10 percent), Retail (8 percent), Communications (7 percent), Healthcare (6 percent) and Other (6 percent). Lease Receivables Loan Receivables (Dollars in millions) Major Growth Major Growth At December 31, 2015: Markets Markets Markets Markets Credit Rating: Aaa – Aa3 $ $ $ $ A1 – A3 Baa1 – Baa3 Ba1 – Ba2 Ba3 – B1 B2 – B3 Caa – D Total $ $ $ $ At December 31, 2015, the industries which made up Global Financing’s receivables portfolio consisted of: Financial (36 percent), Manufacturing (14 percent), Government (11 percent), Services (11percent), Retail (9 percent), Communications (7 percent), Healthcare (6 percent) and Other (6 percent). Past Due Financing Receivables Fully <90 Days Recorded Total Reserved or Unbilled Total Investment (Dollars in millions) Past Due Financing Financing Financing > 90 Days and At June 30, 2016: > 90 days (1) Receivables Receivables Receivables Accruing (2) Major markets $ $ $ $ $ Growth markets Total lease receivables $ $ $ $ $ Major markets $ $ $ $ $ Growth markets Total loan receivables $ $ $ $ $ Total $ $ $ $ $ (1) Only the portion of a financing receivable which is greater than 90 days past due, excluding amounts that are fully reserved. (2) At a contract level, which includes total billed and unbilled amounts for aged financing receivables greater than 90 days. Fully <90 Days Recorded Total Reserved or Unbilled Total Investment (Dollars in millions) Past Due Financing Financing Financing > 90 Days and At December 31, 2015*: > 90 days (1) Receivables Receivables Receivables Accruing (2) Major markets $ $ $ $ $ Growth markets Total lease receivables $ $ $ $ $ Major markets $ $ $ $ $ Growth markets Total loan receivables $ $ $ $ $ Total $ $ $ $ $ (1) Only the portion of a financing receivable which is greater than 90 days past due, excluding amounts that are fully reserved. (2) At a contract level, which includes total billed and unbilled amounts for aged financing receivables greater than 90 days. * Reclassified to conform with 2016 presentation. Troubled Debt Restructurings The company did not have any troubled debt restructurings during the six months ended June 30, 2016 and for the year ended December 31, 2015 . |
Stock-Based Compensation
Stock-Based Compensation | 6 Months Ended |
Jun. 30, 2016 | |
Stock-Based Compensation: | |
Stock-Based Compensation: | 5. Stock-Based Compensation: Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized over the employee requisite service period. The following table presents total stock-based compensation cost included in income from continuing operations. Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2016 2015 2016 2015 Cost $ $ $ $ Selling, general and administrative Research, development and engineering Other (income) and expense* — — ) Pre-tax stock-based compensation cost Income tax benefits ) ) ) ) Total net stock-based compensation cost $ $ $ $ * Reflects the one-time effects related to divestitures. Pre-tax stock-based compensation cost for the three months ended June 30, 2016 decreased $3 million compared to the corresponding period in the prior year. This was due to decreases related to restricted stock units ($9 million) and performance share units ($4 million); partially offset by increases related to the conversion of stock-based awards previously issued by acquired entities ($8 million) and stock option awards ($1 million). Pre-tax stock-based compensation cost for the six months ended June 30, 2016 increased $3 million compared to the corresponding period in the prior year. This was due to increases related to the conversion of stock-based awards previously issued by acquired entities ($11 million), performance share units ($9 million) and stock option awards ($2 million); partially offset by a decrease related to restricted stock units ($20 million). The amount of stock-based compensation cost included in discontinued operations, net of tax, was immaterial in all periods presented. As of June 30, 2016, the total unrecognized compensation cost of $1,154 million related to non-vested awards was expected to be recognized over a weighted-average period of approximately 2.7 years. There was no significant capitalized stock-based compensation cost at June 30, 2016 and 2015. |
Segments
Segments | 6 Months Ended |
Jun. 30, 2016 | |
Segments: | |
Segments: | 6. Segments: The tables on pages 28 and 29 reflect the results of continuing operations of the company’s segments consistent with the management and measurement system utilized within the company. Performance measurement is based on operating pre-tax income from continuing operations. These results are used, in part, by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments. In January 2016, the company made a number of changes to its organizational structure and management system consistent with its ongoing transformation to a cognitive solutions and cloud platform business. With these changes, the company updated its reportable segments. The company continues to have five reportable segments as follows: The Cognitive Solutions segment includes solutions units that address many of the company’s strategic areas, including analytics, commerce and security, several of the new initiatives around Watson, Watson Health, Watson Internet of Things and Transaction Processing Software. The Technology Services & Cloud Platforms segment includes the company’s cloud infrastructure and platform capabilities, the previously reported Global Technology Services business and Integration Software. Operating Systems Software has been aligned with the underlying hardware platforms in the Systems segment. The Global Business Services and Global Financing segments remain unchanged. The company also realigned a portion of its software support revenue, which was previously managed and reported in Integrated Technology Services within Global Technology Services, to the underlying software product areas. SEGMENT INFORMATION Cognitive Solutions& Industry Services Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Segments For the three months ended June 30, 2016: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income/(loss) from continuing operations $ $ $ $ $ $ Revenue year-to-year change % )% )% )% )% )% Pre-tax income year-to-year change )% )% )% )% )% )% Pre-tax income margin % % % % % % For the three months ended June 30, 2015*: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income from continuing operations $ $ $ $ $ $ Pre-tax income margin % % % % % % * Recast to conform with 2016 presentation. Reconciliations to IBM as Reported: (Dollars in millions) For the three months ended June 30: 2016 2015* Revenue: Total reportable segments $ $ Eliminations of internal transactions ) ) Other revenue Total consolidated revenue $ $ Pre-tax income from continuing operations: Total reportable segments $ $ Amortization of acquired intangible assets ) ) Acquisition-related (charges)/income ) ) Non-operating retirement-related (costs)/income ) ) Eliminations of internal transactions ) ) Unallocated corporate amounts ) Total pre-tax income from continuing operations $ $ * Recast to conform with 2016 presentation. SEGMENT INFORMATION Cognitive Solutions & Industry Services Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Segments For the six months ended June 30, 2016: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income/(loss) from continuing operations $ $ $ $ $ $ Revenue year-to-year change % )% )% )% )% )% Pre-tax income year-to-year change )% )% )% )% )% )% Pre-tax income margin % % % % % % For the six months ended June 30, 2015*: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income from continuing operations $ $ $ $ $ $ Pre-tax income margin % % % % % % * Recast to conform with 2016 presentation. Reconciliations to IBM as Reported: (Dollars in millions) For the six months ended June 30: 2016 2015* Revenue: Total reportable segments $ $ Eliminations of internal transactions ) ) Other revenue Total consolidated revenue $ $ Pre-tax income from continuing operations: Total reportable segments $ $ Amortization of acquired intangible assets ) ) Acquisition-related charges ) Non-operating retirement-related (costs)/income ) ) Eliminations of internal transactions ) ) Unallocated corporate amounts ) ) Total pre-tax income from continuing operations $ $ * Recast to conform with 2016 presentation. |
Equity Activity
Equity Activity | 6 Months Ended |
Jun. 30, 2016 | |
Equity Activity: | |
Equity Activity: | 7. 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 June 30, 2016: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ ) $ $ ) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ $ $ Reclassification of (gains)/losses to other (income) and expense Total net changes related to available-for-sale securities $ $ $ Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ $ $ Reclassification of (gains)/losses to: Cost of sales ) SG&A expense ) Other (income) and expense ) Interest expense ) Total unrealized gains/(losses) on cash flow hedges $ $ ) $ Retirement-related benefit plans(1): Net (losses)/gains arising during the period $ $ ) $ Curtailments and settlements ) Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, “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 June 30, 2015: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ $ $ Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ ) $ $ ) Reclassification of (gains)/losses to other (income) and expense Total net changes related to available-for-sale securities $ ) $ $ ) Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ ) $ $ ) Reclassification of (gains)/losses to: Cost of sales ) ) SG&A expense ) ) Other (income) and expense ) ) Interest expense Total unrealized gains/(losses) on cash flow hedges $ ) $ $ ) Retirement-related benefit plans(1): Prior service costs/(credits) $ $ $ Net (losses)/gains arising during the period ) Curtailments and settlements ) Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, “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 six months ended June 30, 2016: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ ) $ $ Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ ) $ $ ) Reclassification of (gains)/losses to other (income) and expense ) Total net changes related to available-for-sale securities $ $ ) $ Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ ) $ $ ) Reclassification of (gains)/losses to: Cost of sales ) SG&A expense ) Other (income) and expense ) ) Interest expense ) Total unrealized gains/(losses) on cash flow hedges $ ) $ $ ) Retirement-related benefit plans(1): Net (losses)/gains arising during the period $ ) $ $ ) Curtailments and settlements ) Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, “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 six months ended June 30, 2015: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ ) $ ) $ ) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ $ ) $ Reclassification of (gains)/losses to other (income) and expense Total net changes related to available-for-sale securities $ $ ) $ Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ $ ) $ Reclassification of (gains)/losses to: Cost of sales ) ) SG&A expense ) ) Other (income) and expense ) ) Interest expense Total unrealized gains/(losses) on cash flow hedges $ ) $ $ ) Retirement-related benefit plans(1): Prior service costs/(credits) $ $ ) $ Net (losses)/gains arising during the period ) Curtailments and settlements ) Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, “Retirement-Related Benefits,” for additional information.) Accumulated Other Comprehensive Income/(Loss) (net of tax) Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in Millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 2016 $ $ ) $ ) $ $ ) Other comprehensive income before reclassifications ) ) ) Amount reclassified from accumulated other comprehensive income Total change for the period ) June 30, 2016 $ ) $ ) $ ) $ $ ) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in Millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 2015 $ $ ) $ ) $ ) $ ) Other comprehensive income before reclassifications ) ) Amount reclassified from accumulated other comprehensive income ) Total change for the period ) ) June 30, 2015 $ $ ) $ ) $ ) $ ) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. |
Retirement-Related Benefits
Retirement-Related Benefits | 6 Months Ended |
Jun. 30, 2016 | |
Retirement-Related Benefits: | |
Retirement-Related Benefits: | 8. Retirement-Related Benefits: The company offers defined benefit pension plans, defined contribution pension plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits. The following tables provide the pre-tax cost for all retirement-related plans. Yr. to Yr. (Dollars in millions) Percent For the three months ended June 30: 2016 2015 Change Retirement-related plans — cost Defined benefit and contribution pension plans — cost $ $ )% Nonpension postretirement plans — cost ) Total $ $ )% Yr. to Yr. (Dollars in millions) Percent For the six months ended June 30: 2016 2015 Change Retirement-related plans — cost Defined benefit and contribution pension plans — cost $ $ )% Nonpension postretirement plans — cost ) Total $ $ )% The following tables provide the components of the cost/(income) for the company’s pension plans. Cost/(Income) of Pension Plans (Dollars in millions) U.S. Plans Non-U.S. Plans For the three months ended June 30: 2016 2015 2016 2015 Service cost $ — $ — $ $ Interest cost Expected return on plan assets ) ) ) ) Amortization of prior service costs/(credits) ) ) Recognized actuarial losses Curtailments and settlements — — Multi-employer plans/other costs — — Total net periodic pension (income)/cost of defined benefit plans ) ) Cost of defined contribution plans Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings $ $ $ $ (Dollars in millions) U.S. Plans Non-U.S. Plans For the six months ended June 30: 2016 2015 2016 2015 Service cost $ — $ — $ $ Interest cost Expected return on plan assets ) ) ) ) Amortization of prior service costs/(credits) ) ) Recognized actuarial losses Curtailments and settlements — — Multi-employer plan/other costs — — Total net periodic pension (income)/cost of defined benefit plans ) ) Cost of defined contribution plans Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings $ $ $ $ On March 24, 2014, the Supreme Court of Spain issued a ruling against IBM Spain in litigation involving its defined benefit and defined contribution plans. As a result of the ruling, the company recorded pre-tax retirement-related obligations of $233 million in 2015 ($230 million in the first quarter of 2015) in selling, general and administrative expense in the Consolidated Statement of Earnings. These obligations are reflected in “Non-U.S. Plans - Multi-employer plans/other costs” in the table above. In March 2016, the company initiated a change to the investment strategy of its U.S. defined benefit plan. The 2016 target asset allocation was modified by reducing equity securities from 34 percent to 21 percent, other investments from 10 percent to 9 percent and increasing debt securities from 56 percent to 70 percent of total plan assets. This change is designed to reduce the risk associated with the potential negative impact that equity markets might have on the funded status of the U.S. defined benefit plan. The change is expected to reduce the 2017 expected long-term rate of return on assets from 7.00 percent to approximately 6.25 percent. See note S, “Retirement-Related Benefits,” on page 118 in the company’s recast 2015 Annual Report on Form 8-K dated June 13, 2016 for additional information regarding the company’s investment strategy. In 2016, the company expects to contribute approximately $500 million to its non-U.S. defined benefit and multi-employer plans, the largest of which will be contributed to the defined benefit pension plans in the UK and Japan. This amount generally represents the legally mandated minimum contribution. Total net contributions to the non-U.S. plans in the first six months of 2016 were $217 million, of which $83 million was in cash and $134 million in U.S. Treasury securities. Total net contributions to the non-U.S. plans in the first six months of 2015 were $186 million in cash. The contribution of U.S. Treasury securities is considered a non-cash transaction in the Consolidated Statement of Cash Flows. The following tables provide the components of the cost/(income) for the company’s nonpension postretirement plans. Cost of Nonpension Postretirement Plans (Dollars in millions) U.S. Plan Non-U.S. Plans For the three months ended June 30: 2016 2015 2016 2015 Service cost $ $ $ $ Interest cost Expected return on plan assets — ) ) Amortization of prior service costs/(credits) ) ) ) ) Recognized actuarial losses Curtailments and settlements — — Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ $ $ $ (Dollars in millions) U.S. Plan Non-U.S. Plans For the six months ended June 30: 2016 2015 2016 2015 Service cost $ $ $ $ Interest cost Expected return on plan assets — ) ) Amortization of prior service costs/(credits) ) ) ) ) Recognized actuarial losses Curtailments and settlements — Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ $ $ $ The company contributed $200 million in U.S. Treasury securities and $227 million in cash to the U.S. nonpension postretirement benefit plan during the six months ended June 30, 2016 and 2015, respectively. The contribution of U.S. Treasury securities is considered a non-cash transaction in the Consolidated Statement of Cash Flows. |
Acquisitions_Divestitures
Acquisitions/Divestitures | 6 Months Ended |
Jun. 30, 2016 | |
Acquisitions/Divestitures: | |
Acquisitions/Divestitures: | 9. Acquisitions/Divestitures: Acquisitions: During the six months ended June 30, 2016, the company completed eleven acquisitions at an aggregate cost of $5,674 million. The Weather Company (TWC) — On January 29, 2016, the company completed the acquisition of TWC’s B2B, mobile and cloud-based web-properties, weather.com, Weather Underground, The Weather Company brand and WSI, its global business-to-business brand, for cash consideration of $2,278 million. The cable television segment was not acquired by IBM, but will license weather forecast data and analytics from IBM under a long-term contract. TWC was a privately held business. Goodwill of $1,717 million has been assigned to the Cognitive Solutions segment. At the acquisition date, it was expected that none of the goodwill would be deductible for tax purposes. The overall weighted-average useful life of the identified intangible assets acquired is 6.9 years. Truven Health Analytics, Inc. (Truven) — On April 8, 2016, the company completed the acquisition of Truven, a leading provider of healthcare analytics solutions, for cash consideration of $2,612 million, of which $200 million will be paid in July 2017. Truven has developed proprietary analytic methods and assembled analytic content assets, creating extensive national healthcare utilization, performance, quality and cost data. Truven was a privately held business. Goodwill of $1,933 million has been assigned to the Cognitive Solutions segment. At the acquisition date, it was expected that none of the goodwill would be deductible for tax purposes. The overall weighted-average useful life of the identified intangible assets acquired is 6.9 years. Other Acquisitions — The Technology Services & Cloud Platforms segment completed acquisitions of two businesses in the first quarter: Ustream, Inc. (Ustream), a privately held business, and AT&T’s application and hosting services business. Global Business Services (GBS) completed acquisitions of five privately held businesses: in the first quarter, Resource/Ammirati, ecx International AG (ecx.io) and Optevia Limited (Optevia); and in the second quarter, Aperto AG (Aperto) and Bluewolf Group LLC (Bluewolf). The Cognitive Solutions segment completed acquisitions of two privately held businesses in the second quarter: Resilient Systems Inc. (Resilient) and EZ Legacy Ltd. (EZSource). Each acquisition is expected to enhance the company’s portfolio of product and services capabilities. Ustream provides cloud-based video streaming to enterprises and broadcasters. The acquisition of AT&T’s application and hosting services business is expected to strengthen the company’s cloud portfolio. Resource/Ammirati is a leading U.S. based digital marketing and creative agency, addressing the rising demand from businesses seeking to reinvent themselves for the digital economy. Ecx.io will enhance IBM Interactive Experience (IBM iX) with new digital marketing, commerce and platform skills to accelerate clients’ digital transformations. Optevia is a Software-as-a Service systems integrator specializing in CRM solutions for public sector organizations. Aperto will join IBM iX, supporting the company’s growth in Europe, with expertise in digital strategy projects, including website and application development. Bluewolf will extend the company’s analytics, experience design and industry consulting leadership with one of the world’s leading Salesforce consulting practices to deliver differentiated, consumer-grade experiences via the cloud. Resilient, a provider of incident response solutions, automates and orchestrates the many processes needed when dealing with cyber incidents from breaches to lost devices. EZSource helps developers quickly and easily understand and change mainframe code based on data displayed through dashboards and other visualizations. Purchase price consideration for all acquisitions as reflected in the following table, was paid primarily in cash. All acquisitions are reported in the Consolidated Statement of Cash Flows net of acquired cash and cash equivalents. The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of June 30, 2016. The Truven Amortization Weather Health Other (Dollars in millions) Life (in yrs.) Company Analytics Acquisitions Current assets $ $ $ Fixed assets/noncurrent assets Intangible assets: Goodwill N/A Completed technology 1-7 Client relationships 3-7 Patents/trademarks 2-7 Total assets acquired Current liabilities ) ) ) Noncurrent liabilities ) ) ) Total liabilities assumed ) ) ) Bargain purchase gain — — )* Total purchase price $ $ $ N/A - not applicable * Bargain purchase gain relating to AT&T’s application and hosting services business was recognized in selling, general and administrative expense in the Consolidated Statement of Earnings in the three months ended March 31, 2016. The acquisitions were accounted for as business combinations using the acquisition method, and accordingly, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity were recorded at their estimated fair values at the date of acquisition. The primary items that generated the goodwill are the value of the synergies between the acquired businesses and IBM and the acquired assembled workforce, neither of which qualify as an amortizable intangible asset. For the “Other Acquisitions”, the overall weighted-average life of the identified amortizable intangible assets acquired is 6.4 years. These identified intangible assets will be amortized on a straight-line basis over their useful lives. Goodwill of $91 million was assigned to the Technology Services & Cloud Platforms segment, goodwill of $278 million was assigned to the GBS segment and goodwill of $118 million was assigned to the Cognitive Solutions segment. It is expected that approximately 50 percent of the goodwill will be deductible for tax purposes. Divestitures: Microelectronics — On October 20, 2014, IBM and GLOBALFOUNDRIES announced a definitive agreement in which GLOBALFOUNDRIES would acquire the company’s Microelectronics business, including existing semiconductor manufacturing assets and operations in East Fishkill, NY and Essex Junction, VT. The commercial OEM business acquired by GLOBALFOUNDRIES includes custom logic and specialty foundry, manufacturing and related operations. The transaction closed on July 1, 2015. The transaction includes a 10-year exclusive manufacturing sourcing agreement in which GLOBALFOUNDRIES will provide server processor semiconductor technology for use in IBM Systems. The agreement provides the company with capacity and market-based pricing for current semiconductor nodes in production and progression to nodes in the future for both development and production needs. As part of the transaction, the company will provide GLOBALFOUNDRIES with certain transition services, including IT, supply chain, packaging and test services and lab services. The initial term for these transition services is one to three years, with GLOBALFOUNDRIES having the ability to renew. In the third quarter of 2014, the company recorded a pre-tax charge of $4.7 billion related to the sale of the Microelectronics disposal group, which was part of the Systems reportable segment. The pre-tax charge reflected the fair value less the estimated cost of selling the disposal group including an impairment to the semiconductor long-lived assets of $2.4 billion, $1.5 billion representing the cash consideration expected to be transferred to GLOBALFOUNDRIES and $0.8 billion of other related costs. Additional pre-tax charges of $116 million were recorded during 2015 related to the disposal, and a pre-tax credit of $1 million was recorded during the first half of 2016. The cumulative pre-tax charge was $4.8 billion as of June 30, 2016. Any additional charges that may be recorded in future periods are expected to be immaterial. All assets and liabilities of the business, classified as held for sale at June 30, 2015, were transferred at closing. The company transferred $515 million of net cash to GLOBALFOUNDRIES in the third quarter of 2015. This amount included $750 million of cash consideration, adjusted by the amount of working capital due from GLOBALFOUNDRIES and other miscellaneous items. The remaining cash consideration will be transferred over two years. Reporting the related assets and liabilities initially as held for sale at September 30, 2014 was based on meeting all of the criteria for such reporting in the applicable accounting guidance. While the company met certain criteria for held for sale reporting in prior periods, it did not meet all of the criteria until September 30, 2014. In addition, at September 30, 2014, the company concluded that the Microelectronics business met the criteria for discontinued operations reporting. The disposal group constitutes a component under accounting guidance. The continuing cash inflows and outflows with the discontinued component are related to the manufacturing sourcing arrangement and the transition, packaging and test services. These cash flows are not direct cash flows as they are not significant and the company will have no significant continuing involvement. Summarized financial information for discontinued operations is shown in the table below. Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2016 2015 2016 2015 Total revenue $ — $ $ — $ Income/(loss) from discontinued operations $ ) $ ) $ ) $ ) Gain/(loss) on disposal, before tax ) ) Total loss from discontinued operations, before income taxes $ ) $ ) $ ) $ ) Provision/(benefit) for income taxes ) ) ) Loss from discontinued operations, net of tax $ $ ) $ ) $ ) Industry Standard Server — On January 23, 2014, IBM and Lenovo Group Limited (Lenovo) announced a definitive agreement in which Lenovo would acquire the company’s industry standard server portfolio (System x) for an adjusted purchase price of $2.1 billion, consisting of approximately $1.8 billion in cash, with the balance in Lenovo common stock. The stock represented less than 5 percent equity ownership in Lenovo. As of March 31, 2016, all Lenovo common stock has been sold. The company would sell to Lenovo its System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations. IBM and Lenovo entered into a strategic relationship which included a global OEM and reseller agreement for sales of IBM’s industry-leading entry and midrange Storwize disk storage systems, tape storage systems, General Parallel File System software, SmartCloud Entry offering, and elements of IBM’s system software, including Systems Director and Platform Computing solutions. Effective with the initial closing of the transaction, Lenovo assumed related customer service and maintenance operations. IBM will continue to provide maintenance delivery on Lenovo’s behalf for an extended period of time. In addition, as part of the transaction agreement, the company will provide Lenovo with certain transition services, including IT and supply chain services. The initial term for these transition services ranges from less than one year to three years. Lenovo can renew certain services for an additional year. The initial closing was completed on October 1, 2014. A subsequent closing occurred in most other countries in which there was a large business footprint on December 31, 2014. T he remaining countries closed on March 31, 2015. An assessment of the ongoing contractual terms of the transaction resulted in the recognition of a pre-tax gain of $63 million in 2015 and $32 million in the first half of 2016. Overall, the company expects to recognize a total pre-tax gain on the sale of approximately $1.6 billion , which does not include associated costs related to transition and performance-based costs. Net of these charges, the pre-tax gain was approximately $1.3 billion, of which the cumulative gain recorded as of June 30, 2016 is $1.2 billion. The balance of the gain is expected to be recognized in 2019 upon conclusion of the maintenance agreement. Customer Care — On September 10, 2013, IBM and SYNNEX announced a definitive agreement in which SYNNEX would acquire the company’s worldwide customer care business process outsourcing services business for $501 million, consisting of approximately $430 million in cash, net of balance sheet adjustments, and $71 million in SYNNEX common stock, which represented less than 5 percent equity ownership in SYNNEX. As part of the transaction, SYNNEX entered into a multi-year agreement with the company, and Concentrix, SYNNEX’s outsourcing business, became an IBM strategic business partner for global customer care business process outsourcing services. The initial closing was completed on January 31, 2014, with subsequent closings occurring during 2014. For the full year of 2014, the company recorded a pre-tax gain of $202 million related to this transaction. In the second quarter of 2015, resolution of the final balance sheet adjustments was concluded. An assessment of the ongoing contractual terms of the transaction resulted in the recognition of a pre-tax gain of $7 million in 2015. Through June 30, 2016, the cumulative pre-tax gain attributed to this transaction was $211 million. Others — In the first quarter of 2016, the company completed four software product-related divestitures. The financial terms related to these transactions were not material. Overall, the company recorded a pre-tax gain of $36 million related to these transactions in the first quarter of 2016. There were no divestitures in the second quarter of 2016. |
Intangible Assets Including Goo
Intangible Assets Including Goodwill | 6 Months Ended |
Jun. 30, 2016 | |
Intangible Assets Including Goodwill: | |
Intangible Assets Including Goodwill: | 10. Intangible Assets Including Goodwill: The following table details the company’s intangible asset balances by major asset class: At June 30, 2016 (Dollars in millions) Gross Carrying Accumulated Net Carrying Intangible asset class Amount Amortization Amount Capitalized software $ $ ) $ Client relationships ) Completed technology ) Patents/trademarks ) Other* ) Total $ $ ) $ * Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems. At December 31, 2015 (Dollars in millions) Gross Carrying Accumulated Net Carrying Intangible asset class Amount Amortization Amount Capitalized software $ $ ) $ Client relationships ) Completed technology ) Patents/trademarks ) Other* ) Total $ $ ) $ * Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems. The net carrying amount of intangible assets increased $1,662 million during the first six months of 2016, primarily due to intangible asset additions resulting from acquisitions, partially offset by amortization. The aggregate intangible amortization expense was $398 million and $745 million for the second quarter and first six months of 2016, respectively, versus $296 million and $594 million for the second quarter and first six months of 2015, respectively. In addition, in the first six months of 2016, the company retired $283 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount. The amortization expense for each of the five succeeding years relating to intangible assets currently recorded in the Consolidated Statement of Financial Position is estimated to be the following at June 30, 2016: Capitalized Acquired (Dollars in millions) Software Intangibles Total 2016 (for Q3-Q4) $ $ $ 2017 2018 2019 2020 — The change in the goodwill balances by reportable segment, for the six months ended June 30, 2016 and for the year ended December 31, 2015 are as follows: Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 1/1/2016* Additions Adjustments Divestitures Adjustments** 6/30/16 Cognitive Solutions $ $ $ ) $ ) $ $ Global Business Services ) Technology Services & Cloud Platforms ) Systems — — Total $ $ $ $ ) $ $ * Recast to conform with 2016 presentation. ** Primarily driven by foreign currency translation. Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 1/1/2015* Additions* Adjustments* Divestitures* Adjustments* ** 12/31/15* Cognitive Solutions $ $ $ ) $ ) $ ) $ Global Business Services ) ) Technology Services & Cloud Platforms ) ) ) Systems — ) Total $ $ $ ) $ ) $ ) $ * Recast to conform with 2016 presentation. ** Primarily driven by foreign currency translation. In January 2016, the company made a number of changes to its organizational structure and management system consistent with the ongoing transformation to a cognitive solutions and cloud platform business. With these changes, the company revised its reportable segments. Goodwill was reallocated to the new reporting segments, and as a result, an impairment assessment was performed. There were no goodwill impairment losses recorded during the first six months of 2016 or the full year of 2015 and the company has no accumulated impairment losses. For further information regarding the segment change, refer to note 6, “Segments”. Purchase price adjustments recorded in the first six months of 2016 and full year 2015 were related to acquisitions that were completed on or prior to March 31, 2016 or December 31, 2014, respectively, and were still subject to the measurement period that ends at the earlier of 12 months from the acquisition date or when information becomes available. Net purchase price adjustments of $5 million were recorded during the first six months of 2016 with the primary drivers being accounts receivable, inventory, deferred tax assets, deferred revenue and current liabilities. |
Borrowings
Borrowings | 6 Months Ended |
Jun. 30, 2016 | |
Borrowings: | |
Borrowings: | 11. Borrowings: Short-Term Debt At June 30, At December 31, (Dollars in millions) 2016 2015 Commercial paper $ — $ Short-term loans Long-term debt — current maturities Total $ $ The weighted-average interest rate for commercial paper at December 31, 2015 was 0.4 percent. The weighted-average interest rate for short-term loans was 10.6 percent and 5.2 percent at June 30, 2016 and December 31, 2015, respectively. Long-Term Debt Pre-Swap Borrowing Balance Balance (Dollars in millions) Maturities 6/30/2016 12/31/2015 U.S. dollar notes and debentures (average interest rate at June 30, 2016): 3.36% 2016–2017 $ $ 3.17% 2018–2019 1.72% 2020–2021 2.35% 3.38% 3.63% 7.00% 3.45% — 6.22% 6.50% 5.88% 8.00% 5.60% 4.00% 7.00% 4.70% — 7.13% $ $ Other currencies (average interest rate at June 30, 2016, in parentheses): Euros (1.6%) 2016–2028 $ $ Pound sterling (2.7%) 2017–2022 Japanese yen (0.3%) 2017–2022 Swiss francs (6.3%) Canadian (2.2%) Other (12.4%) 2016–2020 $ $ Less: net unamortized discount Less: net unamortized debt issuance cost Add: fair value adjustment* $ $ Less: current maturities Total $ $ * The portion of the company’s fixed-rate debt obligations that is hedged is reflected in the Consolidated Statement of Financial Position as an amount equal to the sum of the debt’s carrying value plus a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates. There are no debt securities issued and outstanding by IBM International Group Capital LLC, which is an indirect, 100 percent owned finance subsidiary of International Business Machines Corporation, the parent. Any debt securities issued by IBM International Group Capital LLC, would be fully and unconditionally guaranteed by the parent. The company’s indenture governing its debt securities and its various credit facilities each contain significant 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 the company’s consolidated net tangible assets, and restrict the company’s ability to merge or consolidate unless certain conditions are met. The credit facilities also include a covenant on the company’s consolidated net interest expense ratio, which cannot be less than 2.20 to 1.0, as well as a cross default provision with respect to other defaulted indebtedness of at least $500 million. The company is in compliance with all of its significant debt covenants and provides periodic certifications to its lenders. The failure to comply with its debt covenants could constitute an event of default with respect to the debt to which such provisions apply. 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. Pre-swap annual contractual maturities of long-term debt outstanding at June 30, 2016, are as follows: (Dollars in millions) Total 2016 (for Q3-Q4) $ 2017 2018 2019 2020 2021 and beyond Total $ Interest on Debt (Dollars in millions) For the six months ended June 30: 2016 2015 Cost of financing $ $ Interest expense Net investment derivative activity ) ) Interest capitalized ) Total interest paid and accrued $ $ |
Contingencies
Contingencies | 6 Months Ended |
Jun. 30, 2016 | |
Contingencies: | |
Contingencies: | 12. Contingencies: As a company with a substantial employee population and with clients in more than 175 countries, IBM is involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. The company is a leader in the information technology industry and, as such, has been and will continue to be subject to claims challenging its IP rights and associated products and offerings, including claims of copyright and patent infringement and violations of trade secrets and other IP rights. In addition, the company enforces its own IP against infringement, through license negotiations, lawsuits or otherwise. Also, as is typical for companies of IBM’s scope and scale, the company is party to actions and proceedings in various jurisdictions involving a wide range of labor and employment issues (including matters related to contested employment decisions, country-specific labor and employment laws, and the company’s pension, retirement and other benefit plans), as well as actions with respect to contracts, product liability, securities, foreign operations, competition law and environmental matters. These actions may be commenced by a number of different parties, including competitors, clients, current or former employees, government and regulatory agencies, stockholders and representatives of the locations in which the company does business. Some of the actions to which the company is party may involve particularly complex technical issues, and some actions may raise novel questions under the laws of the various jurisdictions in which these matters arise. 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 June 30, 2016 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. 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, customer and employee relations considerations. With respect to certain of the claims, suits, investigations and proceedings discussed herein, the company believes at this time that the likelihood of any material loss is remote, given, for example, the procedural status, court rulings, and/or the strength of the company’s defenses in those matters. With respect to the remaining claims, suits, investigations and proceedings discussed in this Note, except as specifically discussed herein, the company is unable to provide estimates of reasonably possible losses or range of losses, including losses in excess of amounts accrued, if any, for the following reasons. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of these matters. It is the company’s experience that damage amounts claimed in litigation against it are unreliable and unrelated to possible outcomes, and as such are not meaningful indicators of the company’s potential liability. Further, the company is unable to provide such an estimate due to a number of other factors with respect to these claims, suits, investigations and proceedings, including considerations of the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. 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), to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter. Whether any losses, damages or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including: the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact any such losses, damages or remedies may have in the Consolidated Financial Statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors. While the company will continue to defend itself vigorously, it is possible that the company’s business, financial condition, results of operations or cash flows could be affected in any particular period by the resolution of one or more of these matters. The following is a summary of the more significant legal matters involving the company. The company is a defendant in an action filed on March 6, 2003 in state court in Salt Lake City, Utah by the SCO Group (SCO v. IBM). The company removed the case to Federal Court in Utah. Plaintiff is an alleged successor in interest to some of AT&T’s UNIX IP rights, and alleges copyright infringement, unfair competition, interference with contract and breach of contract with regard to the company’s distribution of AIX and Dynix and contribution of code to Linux and the company has asserted counterclaims. On September 14, 2007, plaintiff filed for bankruptcy protection, and all proceedings in this case were stayed. The court in another suit, the SCO Group, Inc. v. Novell, Inc., held a trial in March 2010. The jury found that Novell is the owner of UNIX and UnixWare copyrights; the judge subsequently ruled that SCO is obligated to recognize Novell’s waiver of SCO’s claims against IBM and Sequent for breach of UNIX license agreements. On August 30, 2011, the Tenth Circuit Court of Appeals affirmed the district court’s ruling and denied SCO’s appeal of this matter. In June 2013, the Federal Court in Utah granted SCO’s motion to reopen the SCO v. IBM case. In February 2016, the Federal Court ruled in favor of IBM on all of SCO’s remaining claims, and in March 2016, SCO filed a notice of appeal to the Tenth Circuit Court of Appeals. On May 13, 2010, IBM and the State of Indiana (acting on behalf of the Indiana Family and Social Services Administration) sued one another in a dispute over a 2006 contract regarding the modernization of social service program processing in Indiana. After six weeks of trial, on July 18, 2012, the Indiana Superior Court in Marion County rejected the State’s claims in their entirety and awarded IBM $52 million plus interest and costs. On February 13, 2014, the Indiana Court of Appeals reversed portions of the trial judge’s findings, found IBM in material breach, and ordered the case remanded to the trial judge to determine the State’s damages, if any. The Indiana Court of Appeals also affirmed approximately $50 million of the trial court’s award of damages to IBM. On March 22, 2016, the Indiana Supreme Court affirmed the outcome of the Indiana Court of Appeals and remanded the case to the Indiana Superior Court. On April 16, 2014, Iusacell SA de C.V. (Iusacell) sued IBM, claiming that IBM made fraudulent misrepresentations that induced Iusacell to enter into an agreement with IBM Mexico. Iusacell claims damages for lost profits. Iusacell’s complaint relates to a contractual dispute in Mexico, which is the subject of a pending arbitration proceeding in Mexico initiated by IBM Mexico against Iusacell for breach of the underlying agreement. On November 14, 2014, the District Court in the Southern District of New York granted IBM’s motion to stay Iusacell’s action against the company pending the arbitration in Mexico between Iusacell and IBM Mexico. IBM United Kingdom Limited (IBM UK) initiated legal proceedings in May 2010 before the High Court in London against the IBM UK Pensions Trust (the UK Trust) and two representative beneficiaries of the UK Trust membership. IBM UK is seeking a declaration that it acted lawfully both in notifying the Trustee of the UK Trust that it was closing its UK defined benefit plans to future accruals for most participants and in implementing the company’s new retirement policy. In April 2014, the High Court acknowledged that the changes made to its UK defined benefit plans were within IBM’s discretion, but ruled that IBM breached its implied duty of good faith both in implementing these changes and in the manner in which it consulted with employees. Proceedings to determine remedies were held in July 2014, and in February 2015 the High Court held that for IBM to make changes to accruals under the plan would require a new consultation of the participants, but other changes (including to early retirement policy) would not require such consultation. IBM UK has appealed both the breach and remedies judgments. If the appeal is unsuccessful, the Court’s rulings would require IBM to reverse the changes made to the UK defined benefit plans retroactive to their effective dates. This could result in an estimated non-operating one-time pre-tax charge of approximately $250 million, plus ongoing defined benefit related accruals. In addition, IBM UK is a defendant in approximately 290 individual actions brought since early 2010 by participants of the defined benefits plans who left IBM UK. These actions, which allege constructive dismissal and age discrimination, are pending before the Employment Tribunal in Southampton UK. In March 2011, the company announced that it had agreed to settle a civil enforcement action with the Securities and Exchange Commission (SEC) relating to alleged violations of the Foreign Corrupt Practices Act of 1977 (FCPA). On July 25, 2013, the court approved that 2011 settlement and required that for a two-year period IBM make reports to the SEC and the court on certain matters, including those relating to compliance with the FCPA. The two-year period expired in July 2015. In early 2012, IBM notified the SEC of an investigation by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM is cooperating with the SEC and Polish authorities in this matter. In April 2013, IBM learned that the U.S. Department of Justice (DOJ) is also investigating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh and Ukraine. The DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business. The company is cooperating with the DOJ in this matter. In March 2015, putative class action litigation was commenced in the United States District Court for the Southern District of New York related to the company’s October 2014 announcement that it was divesting its global commercial semiconductor technology business. The company and three of its officers are named as defendants. Plaintiffs allege that defendants violated Sections 20(a) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In May 2015, a related putative class action was also commenced in the United States District Court for the Southern District of New York based on the same underlying facts, alleging violations of the Employee Retirement Income Security Act. The company, management’s Retirement Plans Committee, and three current or former IBM executives are named as defendants. In August 2015, IBM learned that the SEC is conducting an investigation relating to revenue recognition with respect to the accounting treatment of certain transactions in the U.S., UK and Ireland. The company is cooperating with the SEC in this matter. The company is party to, or otherwise involved in, proceedings brought by U.S. federal or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as “Superfund,” or laws similar to CERCLA. Such statutes require potentially responsible parties to participate in remediation activities regardless of fault or ownership of sites. The company is also conducting environmental investigations, assessments or remediations at or in the vicinity of several current or former operating sites globally pursuant to permits, administrative orders or agreements with country, state or local environmental agencies, and is involved in lawsuits and claims concerning certain current or former operating sites. The company is also subject to ongoing tax examinations and governmental assessments in various jurisdictions. Along with many other U.S. companies doing business in Brazil, the company is involved in various challenges with Brazilian tax authorities regarding non-income tax assessments and non-income tax litigation matters. The total potential amount related to these matters for all applicable years is approximately $585 million. The company believes it will prevail on these matters and that this amount is not a meaningful indicator of liability. |
Commitments
Commitments | 6 Months Ended |
Jun. 30, 2016 | |
Commitments: | |
Commitments: | 13. Commitments: The company’s extended lines of credit to third-party entities include unused amounts of $5,931 million and $5,477 million at June 30, 2016 and December 31, 2015, respectively. A portion of these amounts was 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 $2,252 million and $2,097 million at June 30, 2016 and December 31, 2015, respectively. The company has applied the guidance requiring a guarantor to disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote. The following is a description of arrangements in which the company is the guarantor. The company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the company, under which the company customarily agrees to hold the party harmless against losses arising from a breach of representations and covenants related to such matters as title to the assets sold, certain intellectual property (IP) rights, specified environmental matters, third-party performance of nonfinancial contractual obligations and certain income taxes. In each of these circumstances, payment by the company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, the procedures of which typically allow the company to challenge the other party’s claims. While typically indemnification provisions do not include a contractual maximum on the company’s payment, the company’s obligations under these agreements may be limited in terms of time and/or nature of claim, and in some instances, the company may have recourse against third parties for certain payments made by the company. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the company under these agreements have not had a material effect on the company’s business, financial condition or results of operations. In addition, the company guarantees certain loans and financial commitments. The maximum potential future payment under these financial guarantees was $30 million and $34 million at June 30, 2016 and December 31, 2015, respectively. The fair value of the guarantees recognized in the Consolidated Statement of Financial Position is not material. Changes in the company’s warranty liability for standard warranties and deferred income for extended warranty contracts are presented in the following tables. Standard Warranty Liability (Dollars in millions) 2016 2015 Balance at January 1 $ $ Current period accruals Accrual adjustments to reflect actual experience Charges incurred ) ) Balance at June 30 $ $ Extended Warranty Liability (Dollars in millions) 2016 2015 Aggregate deferred revenue at January 1 $ $ Revenue deferred for new extended warranty contracts Amortization of deferred revenue ) ) Other* ) Aggregate deferred revenue at June 30 $ $ Current portion $ $ Noncurrent portion $ $ * Other primarily consists of foreign currency translation adjustments. |
Subsequent Events
Subsequent Events | 6 Months Ended |
Jun. 30, 2016 | |
Subsequent Events: | |
Subsequent Events: | 14. Subsequent Events : On July 26, 2016, the company announced that the Board of Directors approved a quarterly dividend of $1.40 per common share. The dividend is payable September 10, 2016 to shareholders of record on August 10, 2016. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 6 Months Ended |
Jun. 30, 2016 | |
Accounting Policies | |
Basis of Presentation | The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM 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. Refer to the company’s recast 2015 Annual Report on Form 8-K, dated June 13, 2016, pages 48 to 51, for a discussion of the company’s critical accounting estimates. 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 2015 Annual Report and Form 8-K dated June 13, 2016. 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. Certain prior year amounts have been reclassified to conform to the current year presentation. This is annotated where applicable. |
Accounting Changes | New Standards to be Implemented In June 2016, the Financial Accounting Standards Board (FASB) issued guidance for credit impairment based on an expected loss rather than incurred loss model. The guidance requires the consideration of all available relevant information when estimating expected credit losses, including past events, current conditions and forecasts and their implications for expected credit losses. The guidance is effective January 1, 2020 with a one year early adoption permitted. The company is evaluating the impact of the new guidance and the effective date. In March 2016, the FASB issued guidance which changes the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the Consolidated Statement of Cash Flows. The guidance is effective January 1, 2017 and early adoption is permitted. The impact of the guidance could result in increased volatility of the company’s provision for income taxes and earnings per share in the Consolidated Statement of Earnings, depending on the company’s share price at exercise or vesting of share-based awards compared to grant date. The standard is not expected to have a material impact upon adoption. In February 2016, the FASB issued guidance which changes the accounting for leases. The guidance requires lessees to recognize right-of-use assets and lease liabilities for most leases in the Consolidated Statement of Financial Position. The guidance makes some changes to lessor accounting, including the elimination of the use of residual value guarantee insurance in the capital lease test, and overall aligns with the new revenue recognition guidance. The guidance also requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective January 1, 2019 and early adoption is permitted. The company is currently evaluating the impact of the new guidance and the effective date. The company’s operating lease commitments were $6.4 billion at December 31, 2015, and in 2015, the use of residual value guarantee insurance resulted in the company recognizing $608 million of sales-type lease revenue that would otherwise have been recognized as operating lease revenue over the lease term. In January 2016, the FASB issued guidance which addresses aspects of recognition, measurement, presentation and disclosure of financial instruments. Certain equity investments will be measured at fair value with changes recognized in net income. The amendment also simplifies the impairment test of equity investments that lack readily determinable fair value. The guidance is effective January 1, 2018 and early adoption is not permitted except for limited provisions. The guidance is not expected to have a material impact in the consolidated financial results. The FASB issued guidance on the recognition of revenue from contracts with customers in May 2014 with amendments in 2015 and 2016. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The guidance was initially effective January 1, 2017 and early adoption was not permitted. The amended guidance provides for a one-year deferral of the effective date to January 1, 2018, with an option of applying the standard on the original effective date. The company will adopt the guidance on January 1, 2018 and apply the cumulative catch-up transition method. The company is continuing to evaluate the impact of the new guidance in the consolidated financial results. Standards Implemented In November 2015, the FASB issued guidance which requires deferred tax liabilities and assets be classified as noncurrent in the statement of financial position. The guidance was effective January 1, 2016 with early adoption permitted. The company adopted the guidance in the fourth quarter of 2015 on a retrospective basis. The company reclassified current deferred tax assets of $2.0 billion at December 31, 2014 to deferred tax assets and current deferred tax liabilities of $19 million at December 31, 2014 to other liabilities from other accrued expenses and liabilities in the Consolidated Statement of Financial Position. In order to offset deferred tax assets and liabilities for presentation as a single noncurrent amount by tax jurisdiction, the company also reclassified $178 million at December 31, 2014 from deferred tax assets to other liabilities in the Consolidated Statement of Financial Position. In September 2015, the FASB issued guidance eliminating the requirement that an acquirer in a business combination account for a measurement-period adjustment retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which the amount of the adjustment is determined. In addition, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date should be presented separately on the face of the income statement or disclosed in the notes. The guidance was effective January 1, 2016 on a prospective basis. The guidance did not have a material impact in the consolidated financial results. In May 2015, the FASB issued guidance which removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also removed the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The guidance was effective January 1, 2016. The guidance was a change in disclosure only and did not have an impact in the consolidated financial results. In April 2015, the FASB issued guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a services contract. All software licenses recognized under this guidance will be accounted for consistent with other licenses of intangible assets. The guidance was effective January 1, 2016 and the company adopted it on a prospective basis. The guidance did not have a material impact in the consolidated financial results. In April 2015, the FASB issued guidance which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance was effective January 1, 2016 with early adoption permitted. The company adopted the guidance in the fourth quarter of 2015 on a retrospective basis. The company had debt issuance costs of $90 million and $74 million at June 30, 2016 and December 31, 2015, respectively. Debt issuance costs were previously included in investments and sundry assets in the Consolidated Statement of Financial Position. |
Fair Value Measurements | Fair Value Measurements Accounting guidance defines fair value 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. Under this guidance, the company is required to classify 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. The guidance requires the use of observable market data if such data is available without undue cost and effort. 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. As an example, the fair value of derivatives is derived utilizing a discounted cash flow model that uses observable market inputs such as known notional value amounts, yield curves, spot and forward exchange rates as well as discount rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative. Certain financial assets are measured at fair value on a nonrecurring basis. These assets include equity method investments that are recognized at fair value at the measurement date to the extent that they are deemed to be other-than-temporarily impaired. Certain assets that are measured at fair value on a recurring basis can be subject to nonrecurring fair value measurements. These assets include available-for-sale equity investments that are deemed to be other-than-temporarily impaired. In the event of an other-than-temporary impairment of a financial investment, fair value is measured using a model described above. Non-financial assets such as property, plant and equipment, land, goodwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for nonfinancial assets depend on the type of asset. Accounting guidance permits the measurement of eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. This election is irrevocable. The company has not applied the fair value option to any eligible assets or liabilities. |
Fair Value of Financial Instruments | Short-Term Receivables and Payables Notes and other accounts receivable and other investments are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (excluding the current portion of long-term debt) 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. Loans and 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. 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 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. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy. |
Debt and Marketable Equity Securities | The company’s cash equivalents and current debt securities are considered available-for-sale and recorded at fair value, which is not materially different from carrying value, in the Consolidated Statement of Financial Position. |
Derivative Financial Instruments | Derivative Financial Instruments The company operates in multiple functional currencies and is a significant lender and borrower in the global markets. In the normal course of business, the company is exposed to the impact of interest rate changes and foreign currency fluctuations, and to a lesser extent equity and commodity price changes and client credit risk. The company limits these risks by following established risk management policies and procedures, including the use of derivatives, and, where cost effective, financing with debt in the currencies in which assets are denominated. For interest rate exposures, derivatives are used to better align rate movements between the interest rates associated with the company’s lease and other financial assets and the interest rates associated with its financing debt. Derivatives are also used to manage the related cost of debt. For foreign currency exposures, derivatives are used to better manage the cash flow volatility arising from foreign exchange rate fluctuations. As a result of the use of derivative instruments, the company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, the company has a policy of only entering into contracts with carefully selected major financial institutions based upon their overall credit profile. The company’s established policies and procedures for mitigating credit risk on principal transactions include reviewing and establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. The right of set-off that exists under certain of these arrangements enables the legal entities of the company subject to the arrangement to net amounts due to and from the counterparty reducing the maximum loss from credit risk in the event of counterparty default. The company is also a party to collateral security arrangements with most of its major derivative counterparties. These arrangements require the company to hold or post collateral (cash or U.S. Treasury securities) when the derivative fair values exceed contractually established thresholds. Posting thresholds can be fixed or can vary based on credit default swap pricing or credit ratings received from the major credit agencies. Full collateralization of these agreements would be required in the event that the company’s credit rating falls below investment grade or if its credit default swap spread exceeds 250 basis points, as applicable, pursuant to the terms of the collateral security arrangements. In the Consolidated Statement of Financial Position, the company does not offset derivative assets against liabilities in master netting arrangements nor does it offset receivables or payables recognized upon payment or receipt of cash collateral against the fair values of the related derivative instruments. The company restricts the use of cash collateral received to rehypothecation, and therefore reports it in prepaid expenses and other current assets in the Consolidated Statement of Financial Position. The company may employ derivative instruments to hedge the volatility in stockholders’ equity resulting from changes in currency exchange rates of significant foreign subsidiaries of the company with respect to the U.S. dollar. These instruments, designated as net investment hedges, expose the company to liquidity risk as the derivatives have an immediate cash flow impact upon maturity which is not offset by a cash flow from the translation of the underlying hedged equity. The company monitors this cash loss potential on an ongoing basis and may discontinue some of these hedging relationships by de-designating or terminating the derivative instrument in order to manage the liquidity risk. Although not designated as accounting hedges, the company may utilize derivatives to offset the changes in the fair value of the de-designated instruments from the date of de-designation until maturity. In its hedging programs, the company uses forward contracts, futures contracts, interest-rate swaps, cross-currency swaps, and options depending upon the underlying exposure. The company is not a party to leveraged derivative instruments. The company issues debt in the global capital markets to fund its operations and financing business. 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 uses interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert specific variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). The company is exposed to interest rate volatility on future debt issuances. To manage this risk, the company may use forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuance. These swaps are accounted for as cash flow hedges. A large portion of the company’s foreign currency denominated debt portfolio is designated as a hedge of net investment in foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. The company also uses cross-currency swaps and foreign exchange forward contracts for this risk management purpose. The company’s operations generate significant nonfunctional currency, third-party vendor payments and intercompany payments for royalties and goods and services among the company’s non-U.S. subsidiaries and with the parent company. In anticipation of these foreign currency cash flows and in view of the volatility of the currency markets, the company selectively employs foreign exchange forward contracts to manage its currency risk. These forward contracts are accounted for as cash flow hedges. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is four years. The company is exposed to exchange rate volatility on foreign currency denominated debt. To manage this risk, the company employs cross-currency swaps to convert fixed-rate foreign currency denominated debt to fixed-rate debt denominated in the functional currency of the borrowing entity. These swaps are accounted for as cash flow hedges. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is approximately nine years. The company uses its Global Treasury Centers to manage the cash of its subsidiaries. These centers principally use currency swaps to convert cash flows in a cost-effective manner. In addition, the company uses foreign exchange forward contracts to economically hedge, on a net basis, the foreign currency exposure of a portion of the company’s nonfunctional currency assets and liabilities. The terms of these forward and swap contracts are generally less than one year. The changes in the fair values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated Statement of Earnings. The company is exposed to market price changes in certain broad market indices and in the company’s own stock primarily related to certain obligations to employees. Changes in the overall value of these employee compensation obligations are recorded in selling, general and administrative (SG&A) expense in the Consolidated Statement of Earnings. Although not designated as accounting hedges, the company utilizes derivatives, including equity swaps and futures, to economically hedge the exposures related to its employee compensation obligations. The derivatives are linked to the total return on certain broad market indices or the total return on the company’s common stock, and are recorded at fair value with gains or losses also reported in SG&A expense in the Consolidated Statement of Earnings. The company may hold warrants to purchase shares of common stock in connection with various investments that are deemed derivatives because they contain net share or net cash settlement provisions. The company records the changes in the fair value of these warrants in other (income) and expense in the Consolidated Statement of Earnings. The company is exposed to a potential loss if a client fails to pay amounts due under contractual terms. The company may utilize credit default swaps to economically hedge its credit exposures. The swaps are recorded at fair value with gains and losses reported in other (income) and expense in the Consolidated Statement of Earnings. The company is exposed to market volatility on certain investment securities. The company may utilize options or forwards to economically hedge its market exposure. The derivatives are recorded at fair value with gains and losses reported in other (income) and expense in the Consolidated Statement of Earnings. |
Financing Receivables | The company determines its allowance for credit losses based on two portfolio segments: lease receivables and loan receivables, and further segments the portfolio into two classes: major markets and growth markets. When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For individually evaluated receivables, the company determines the expected cash flow for the receivable and calculates an estimate of the potential loss and the probability of loss. For those accounts in which the loss is probable, the company records a specific reserve. In addition, the company records an unallocated reserve that is determined by applying a reserve rate to its different portfolios, excluding accounts that have been specifically reserved. This reserve rate is based upon credit rating, probability of default, term, characteristics (lease/loan) and loss history. |
Impaired Loans and Credit Quality Indicators | The company considers any loan with an individually evaluated reserve as an impaired loan. Depending on the level of impairment, loans will also be placed on non-accrual status. 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. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators do not reflect mitigation actions that the company takes to transfer credit risk to third parties. |
Stock-Based Compensation | Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized over the employee requisite service period. |
Segments | Performance measurement is based on operating pre-tax income from continuing operations. These results are used, in part, by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments. |
Acquisitions | All acquisitions are reported in the Consolidated Statement of Cash Flows net of acquired cash and cash equivalents. The acquisitions were accounted for as business combinations using the acquisition method, and accordingly, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity were recorded at their estimated fair values at the date of acquisition. The primary items that generated the goodwill are the value of the synergies between the acquired businesses and IBM and the acquired assembled workforce, neither of which qualify as an amortizable intangible asset. These identified intangible assets will be amortized on a straight-line basis over their useful lives. |
Commitments and Contingencies | 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. 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. 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, customer and employee relations considerations. With respect to certain of the claims, suits, investigations and proceedings discussed herein, the company believes at this time that the likelihood of any material loss is remote, given, for example, the procedural status, court rulings, and/or the strength of the company’s defenses in those matters. With respect to the remaining claims, suits, investigations and proceedings discussed in this Note, except as specifically discussed herein, the company is unable to provide estimates of reasonably possible losses or range of losses, including losses in excess of amounts accrued, if any, for the following reasons. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of these matters. It is the company’s experience that damage amounts claimed in litigation against it are unreliable and unrelated to possible outcomes, and as such are not meaningful indicators of the company’s potential liability. Further, the company is unable to provide such an estimate due to a number of other factors with respect to these claims, suits, investigations and proceedings, including considerations of the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. 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), to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter. The company has applied the guidance requiring a guarantor to disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote |
Financial Instruments (Tables)
Financial Instruments (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Financial Instruments: | |
Financial assets and financial liabilities measured at fair value on a recurring basis | (Dollars in millions) At June 30, 2016 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ Commercial paper — — — — Money market funds — — U.S. government securities — — Canadian government securities — — Total — (6) Debt securities - current (2) — — (6) Debt securities - noncurrent (3) — Available-for-sale equity investments (3) — — Derivative assets (4) Interest rate contracts — — Foreign exchange contracts — — Equity contracts — — Total — — (7) Total assets $ $ $ — $ (7) Liabilities: Derivative liabilities (5) Foreign exchange contracts $ — $ $ — $ Equity contracts — — Total liabilities $ — $ $ — $ (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) U.S. government securities, time deposits and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position. (3) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (4) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at June 30, 2016 were $262 million and $1,022 million, respectively. (5) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at June 30, 2016 were $374 million and $40 million, respectively. (6) Available-for-sale securities with carrying values that approximate fair value. (7) If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $280 million. (Dollars in millions) At December 31, 2015 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ Money market funds — — Other securities — — Total — (6) Debt securities - current (2) — — (6) Debt securities - noncurrent (3) — Trading security investments (3) — — Available-for-sale equity investments (3) — — Derivative assets (4) Interest rate contracts — — Foreign exchange contracts — — Equity contracts — — Total — — (7) Total assets $ $ $ — $ (7) Liabilities: Derivative liabilities (5) Foreign exchange contracts $ — $ $ — $ Equity contracts — — Interest rate contracts — — Total liabilities $ — $ $ — $ (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Commercial paper and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position. (3) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (4) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at December 31, 2015 were $292 million and $702 million, respectively. (5) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at December 31, 2015 were $164 million and $22 million, respectively. (6) Available-for-sale securities with carrying values that approximate fair value. (7) If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $139 million. |
Noncurrent debt and marketable equity securities available-for-sale and recorded at fair value | Gross Gross (Dollars in millions) Adjusted Unrealized Unrealized Fair At June 30, 2016: Cost Gains Losses Value Debt securities — noncurrent(1) $ $ $ — $ Available-for-sale equity investments(1) $ $ $ $ (1) Included within investments and sundry assets in the Consolidated Statement of Financial Position. Gross Gross (Dollars in millions) Adjusted Unrealized Unrealized Fair At December 31, 2015: Cost Gains Losses Value Debt securities — noncurrent(1) $ $ $ — $ Available-for-sale equity investments(1) $ $ $ $ (1) Included within investments and sundry assets in the Consolidated Statement of Financial Position. |
Sales of debt and available-for-sale equity investments | (Dollars in millions) For the three months ended June 30: 2016 2015 Proceeds $ $ Gross realized gains (before taxes) Gross realized losses (before taxes) (Dollars in millions) For the six months ended June 30: 2016 2015 Proceeds $ $ Gross realized gains (before taxes) Gross realized losses (before taxes) |
Unrealized gains/(losses) on available-for-sale debt and equity securities | (Dollars in millions) For the three months ended June 30: 2016 2015 Net unrealized gains/(losses) arising during the period $ $ ) Net unrealized (gains)/losses reclassified to net income* *There were no writedowns for the three months ended June 30, 2016 and 2015, respectively. (Dollars in millions) For the six months ended June 30: 2016 2015 Net unrealized gains/(losses) arising during the period $ ) $ Net unrealized (gains)/losses reclassified to net income* * There were no writedowns for the six months ended June 30, 2016 and 2015, respectively. |
Fair Value of Derivative Instruments in the Consolidated Statement of Financial Position | Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position As of June 30, 2016 and December 31, 2015 Fair Value of Derivative Assets Fair Value of Derivative Liabilities Balance Sheet Balance Sheet (Dollars in millions) Classification 6/30/2016 12/31/2015 Classification 6/30/2016 12/31/2015 Designated as hedging instruments: Interest rate contracts: Prepaid expenses and other current assets $ — $ — Other accrued expenses and liabilities $ — $ — Investments and sundry assets Other liabilities — Foreign exchange contracts: Prepaid expenses and other current assets Other accrued expenses and liabilities Investments and sundry assets Other liabilities Fair value of derivative assets $ $ Fair value of derivative liabilities $ $ Not designated as hedging instruments: Foreign exchange contracts: Prepaid expenses and other current assets $ $ Other accrued expenses and liabilities $ $ Investments and sundry assets Other liabilities — Equity contracts: Prepaid expenses and other current assets Other accrued expenses and liabilities Investments and sundry assets — — Other liabilities — — Fair value of derivative assets $ $ Fair value of derivative liabilities $ $ Total debt designated as hedging instruments: Short-term debt N/A N/A $ $ — Long-term debt N/A N/A $ $ Total $ $ $ $ N/A-not applicable |
Effect of Derivative Instruments in the Consolidated Statement of Earnings | The Effect of Derivative Instruments in the Consolidated Statement of Earnings For the three months ended June 30, 2016 and 2015 Gain (Loss) Recognized in Earnings Consolidated Recognized on Attributable to Risk (Dollars in millions) Statement of Derivatives(1) Being Hedged(2) For the three months ended June 30: Earnings Line Item 2016 2015 2016 2015 Derivative instruments in fair value hedges(5): Interest rate contracts Cost of financing $ $ ) $ ) $ Interest expense ) ) Derivative instruments not designated as hedging instruments(1): Foreign exchange contracts Other (income) and expense ) N/A N/A Interest rate contracts Other (income) and expense ) N/A N/A Equity contracts SG&A expense ) N/A N/A Other (income) and expense N/A N/A Total $ $ ) $ ) $ Gain (Loss) Recognized in Earnings and Other Comprehensive Income (Ineffectiveness) and (Dollars in millions) Effective Portion Consolidated Effective Portion Reclassified Amounts Excluded from For the three months Recognized in OCI Statement of from AOCI Effectiveness Testing(3) ended June 30: 2016 2015 Earnings Line Item 2016 2015 2016 2015 Derivative instruments in cash flow hedges: Interest rate contracts $ — $ — Interest expense $ ) $ $ — $ — Foreign exchange contracts ) Other (income) and expense ) ) Cost of sales ) — — SG&A expense ) — — Instruments in net investment hedges(4): Foreign exchange contracts ) ) Interest expense — — Total $ ) $ ) $ ) $ $ $ N/A-not applicable Note: OCI represents Other comprehensive income/(loss) in the Consolidated Statement of Comprehensive Income and AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity. (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 and amortization of basis adjustments recorded on de-designated hedging relationships during the period. (3) The amount of gain/(loss) recognized in income represents ineffectiveness on hedge relationships. (4) Instruments in net investment hedges include derivative and non-derivative instruments. (5) For the three month periods ended June 30, 2016 and June 30, 2015, fair value hedges resulted in a gains of $1 million and a loss of $5 million in ineffectiveness, respectively. The Effect of Derivative Instruments in the Consolidated Statement of Earnings For the six months ended June 30, 2016 and 2015 Gain (Loss) Recognized in Earnings Consolidated Recognized on Attributable to Risk (Dollars in millions) Statement of Derivatives(1) Being Hedged(2) For the six months ended June 30: Earnings Line Item 2016 2015 2016 2015 Derivative instruments in fair value hedges(4): Interest rate contracts Cost of financing $ $ $ ) $ Interest expense ) Derivative instruments not designated as hedging instruments(1): Foreign exchange contracts Other (income) and expense ) N/A N/A Interest rate contracts Other (income) and expense ) N/A N/A Equity contracts SG&A expense N/A N/A Other (income) and expense ) N/A N/A Total $ $ ) $ ) $ Gain (Loss) Recognized in Earnings and Other Comprehensive Income (Ineffectiveness) and Effective Portion Consolidated Effective Portion Reclassified Amounts Excluded from For the six months Recognized in OCI Statement of from AOCI Effectiveness Testing ended June 30: 2016 2015 Earnings Line Item 2016 2015 2016 2015 Derivative instruments in cash flow hedges: Interest rate contracts $ — $ — Interest expense $ ) $ $ — $ — Foreign exchange contracts ) Other (income) and expense Cost of sales ) — — SG&A expense ) — — Instruments in net investment hedges(3): Foreign exchange contracts ) Interest expense — — Total $ ) $ $ ) $ $ $ N/A-not applicable Note: OCI represents Other comprehensive income/(loss) in the Consolidated Statement of Comprehensive Income and AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity. (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 and amortization of basis adjustments recorded on de-designated hedging relationships during the period. (3) Instruments in net investment hedges include derivative and non-derivative instruments. (4) For the six month periods ended June 30, 2016 and June 30, 2015, fair value hedges resulted in a gain of $3 million and a loss of $3 million in ineffectiveness, respectively. |
Financing Receivables (Tables)
Financing Receivables (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Financing Receivables: | |
Financing receivables, net of allowances for credit losses, including residual values | At June 30, At December 31, (Dollars in millions) 2016 2015 Current: Net investment in sales-type and direct financing leases $ $ Commercial financing receivables Client loan and installment payment receivables (loans) Total $ $ Noncurrent: Net investment in sales-type and direct financing leases $ $ Client loan and installment payment receivables (loans) Total $ $ |
Schedule of financing receivables and allowance for credit losses by portfolio segment | (Dollars in millions) Major Growth At June 30, 2016 Markets Markets Total Financing receivables: Lease receivables $ $ $ Loan receivables Ending balance $ $ $ Collectively evaluated for impairment $ $ $ Individually evaluated for impairment $ $ $ Allowance for credit losses: Beginning balance at January 1, 2016 Lease receivables $ $ $ Loan receivables Total $ $ $ Write-offs ) ) ) Provision Other Ending balance at June 30, 2016 $ $ $ Lease receivables $ $ $ Loan receivables $ $ $ Collectively evaluated for impairment $ $ $ Individually evaluated for impairment $ $ $ (Dollars in millions) Major Growth At December 31, 2015 Markets Markets Total Financing receivables: Lease receivables $ $ $ Loan receivables Ending balance $ $ $ Collectively evaluated for impairment $ $ $ Individually evaluated for impairment $ $ $ Allowance for credit losses: Beginning balance at January 1, 2015 Lease receivables $ $ $ Loan receivables Total $ $ $ Write-offs ) ) ) Provision Other ) ) ) Ending balance at December 31, 2015 $ $ $ Lease receivables $ $ $ Loan receivables $ $ $ Collectively evaluated for impairment $ $ $ Individually evaluated for impairment $ $ $ |
Schedule of recorded investment in financing receivables which are on non-accrual status | At June 30, At December 31, (Dollars in millions) 2016 2015 Major markets $ $ Growth markets Total lease receivables $ $ Major markets $ $ Growth markets Total loan receivables $ $ Total receivables $ $ |
Schedule of impaired client loan receivables | At June 30, 2016 At December 31, 2015 Recorded Related Recorded Related (Dollars in millions) Investment Allowance Investment Allowance Major markets $ $ $ $ Growth markets Total $ $ $ $ Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the three months ended June 30, 2016: Investment Recognized Cash Basis Major markets $ $ $ — Growth markets — Total $ $ $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the three months ended June 30, 2015: Investment Recognized Cash Basis Major markets $ $ — $ — Growth markets — Total $ $ $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the six months ended June 30, 2016: Investment Recognized Cash Basis Major markets $ $ $ — Growth markets — Total $ $ $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the six months ended June 30, 2015: Investment Recognized Cash Basis Major markets $ $ — $ — Growth markets — Total $ $ $ — |
Schedule of gross recorded investment by credit quality indicator | Lease Receivables Loan Receivables (Dollars in millions) Major Growth Major Growth At June 30, 2016: Markets Markets Markets Markets Credit Rating: Aaa – Aa3 $ $ $ $ A1 – A3 Baa1 – Baa3 Ba1 – Ba2 Ba3 – B1 B2 – B3 Caa – D Total $ $ $ $ Lease Receivables Loan Receivables (Dollars in millions) Major Growth Major Growth At December 31, 2015: Markets Markets Markets Markets Credit Rating: Aaa – Aa3 $ $ $ $ A1 – A3 Baa1 – Baa3 Ba1 – Ba2 Ba3 – B1 B2 – B3 Caa – D Total $ $ $ $ |
Schedule of past due financing receivables | Fully <90 Days Recorded Total Reserved or Unbilled Total Investment (Dollars in millions) Past Due Financing Financing Financing > 90 Days and At June 30, 2016: > 90 days (1) Receivables Receivables Receivables Accruing (2) Major markets $ $ $ $ $ Growth markets Total lease receivables $ $ $ $ $ Major markets $ $ $ $ $ Growth markets Total loan receivables $ $ $ $ $ Total $ $ $ $ $ (1) Only the portion of a financing receivable which is greater than 90 days past due, excluding amounts that are fully reserved. (2) At a contract level, which includes total billed and unbilled amounts for aged financing receivables greater than 90 days. Fully <90 Days Recorded Total Reserved or Unbilled Total Investment (Dollars in millions) Past Due Financing Financing Financing > 90 Days and At December 31, 2015*: > 90 days (1) Receivables Receivables Receivables Accruing (2) Major markets $ $ $ $ $ Growth markets Total lease receivables $ $ $ $ $ Major markets $ $ $ $ $ Growth markets Total loan receivables $ $ $ $ $ Total $ $ $ $ $ (1) Only the portion of a financing receivable which is greater than 90 days past due, excluding amounts that are fully reserved. (2) At a contract level, which includes total billed and unbilled amounts for aged financing receivables greater than 90 days. * Reclassified to conform with 2016 presentation. |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Stock-Based Compensation: | |
Stock-based compensation cost included in income from continuing operations | Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2016 2015 2016 2015 Cost $ $ $ $ Selling, general and administrative Research, development and engineering Other (income) and expense* — — ) Pre-tax stock-based compensation cost Income tax benefits ) ) ) ) Total net stock-based compensation cost $ $ $ $ * Reflects the one-time effects related to divestitures. |
Segments (Tables)
Segments (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Segments: | |
Revenue and Pre-tax Income by Segment | SEGMENT INFORMATION Cognitive Solutions& Industry Services Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Segments For the three months ended June 30, 2016: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income/(loss) from continuing operations $ $ $ $ $ $ Revenue year-to-year change % )% )% )% )% )% Pre-tax income year-to-year change )% )% )% )% )% )% Pre-tax income margin % % % % % % For the three months ended June 30, 2015*: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income from continuing operations $ $ $ $ $ $ Pre-tax income margin % % % % % % * Recast to conform with 2016 presentation. SEGMENT INFORMATION Cognitive Solutions & Industry Services Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Segments For the six months ended June 30, 2016: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income/(loss) from continuing operations $ $ $ $ $ $ Revenue year-to-year change % )% )% )% )% )% Pre-tax income year-to-year change )% )% )% )% )% )% Pre-tax income margin % % % % % % For the six months ended June 30, 2015*: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income from continuing operations $ $ $ $ $ $ Pre-tax income margin % % % % % % * Recast to conform with 2016 presentation. |
Reconciliation of segment revenue to IBM as reported | (Dollars in millions) For the three months ended June 30: 2016 2015* Revenue: Total reportable segments $ $ Eliminations of internal transactions ) ) Other revenue Total consolidated revenue $ $ (Dollars in millions) For the six months ended June 30: 2016 2015* Revenue: Total reportable segments $ $ Eliminations of internal transactions ) ) Other revenue Total consolidated revenue $ $ * Recast to conform with 2016 presentation. |
Reconciliation of segment pre-tax income to IBM as reported | (Dollars in millions) For the three months ended June 30: 2016 2015* Pre-tax income from continuing operations: Total reportable segments $ $ Amortization of acquired intangible assets ) ) Acquisition-related (charges)/income ) ) Non-operating retirement-related (costs)/income ) ) Eliminations of internal transactions ) ) Unallocated corporate amounts ) Total pre-tax income from continuing operations $ $ (Dollars in millions) For the six months ended June 30: 2016 2015* Pre-tax income from continuing operations: Total reportable segments $ $ Amortization of acquired intangible assets ) ) Acquisition-related charges ) Non-operating retirement-related (costs)/income ) ) Eliminations of internal transactions ) ) Unallocated corporate amounts ) ) Total pre-tax income from continuing operations $ $ * Recast to conform with 2016 presentation. |
Equity Activity (Tables)
Equity Activity (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Equity Activity: | |
Schedule of Reclassifications and Taxes Related to Items of Other Comprehensive Income | 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 June 30, 2016: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ ) $ $ ) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ $ $ Reclassification of (gains)/losses to other (income) and expense Total net changes related to available-for-sale securities $ $ $ Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ $ $ Reclassification of (gains)/losses to: Cost of sales ) SG&A expense ) Other (income) and expense ) Interest expense ) Total unrealized gains/(losses) on cash flow hedges $ $ ) $ Retirement-related benefit plans(1): Net (losses)/gains arising during the period $ $ ) $ Curtailments and settlements ) Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, “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 June 30, 2015: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ $ $ Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ ) $ $ ) Reclassification of (gains)/losses to other (income) and expense Total net changes related to available-for-sale securities $ ) $ $ ) Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ ) $ $ ) Reclassification of (gains)/losses to: Cost of sales ) ) SG&A expense ) ) Other (income) and expense ) ) Interest expense Total unrealized gains/(losses) on cash flow hedges $ ) $ $ ) Retirement-related benefit plans(1): Prior service costs/(credits) $ $ $ Net (losses)/gains arising during the period ) Curtailments and settlements ) Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, “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 six months ended June 30, 2016: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ ) $ $ Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ ) $ $ ) Reclassification of (gains)/losses to other (income) and expense ) Total net changes related to available-for-sale securities $ $ ) $ Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ ) $ $ ) Reclassification of (gains)/losses to: Cost of sales ) SG&A expense ) Other (income) and expense ) ) Interest expense ) Total unrealized gains/(losses) on cash flow hedges $ ) $ $ ) Retirement-related benefit plans(1): Net (losses)/gains arising during the period $ ) $ $ ) Curtailments and settlements ) Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, “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 six months ended June 30, 2015: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ ) $ ) $ ) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ $ ) $ Reclassification of (gains)/losses to other (income) and expense Total net changes related to available-for-sale securities $ $ ) $ Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ $ ) $ Reclassification of (gains)/losses to: Cost of sales ) ) SG&A expense ) ) Other (income) and expense ) ) Interest expense Total unrealized gains/(losses) on cash flow hedges $ ) $ $ ) Retirement-related benefit plans(1): Prior service costs/(credits) $ $ ) $ Net (losses)/gains arising during the period ) Curtailments and settlements ) Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, “Retirement-Related Benefits,” for additional information.) |
Accumulated Other Comprehensive Income/(Loss) (net of tax) | Accumulated Other Comprehensive Income/(Loss) (net of tax) Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in Millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 2016 $ $ ) $ ) $ $ ) Other comprehensive income before reclassifications ) ) ) Amount reclassified from accumulated other comprehensive income Total change for the period ) June 30, 2016 $ ) $ ) $ ) $ $ ) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in Millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 2015 $ $ ) $ ) $ ) $ ) Other comprehensive income before reclassifications ) ) Amount reclassified from accumulated other comprehensive income ) Total change for the period ) ) June 30, 2015 $ $ ) $ ) $ ) $ ) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. |
Retirement-Related Benefits (Ta
Retirement-Related Benefits (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Retirement-Related Benefits: | |
Pre-tax cost for all retirement-related plans | Yr. to Yr. (Dollars in millions) Percent For the three months ended June 30: 2016 2015 Change Retirement-related plans — cost Defined benefit and contribution pension plans — cost $ $ )% Nonpension postretirement plans — cost ) Total $ $ )% Yr. to Yr. (Dollars in millions) Percent For the six months ended June 30: 2016 2015 Change Retirement-related plans — cost Defined benefit and contribution pension plans — cost $ $ )% Nonpension postretirement plans — cost ) Total $ $ )% |
Components of the cost/(income) for the company's pension plans | Cost/(Income) of Pension Plans (Dollars in millions) U.S. Plans Non-U.S. Plans For the three months ended June 30: 2016 2015 2016 2015 Service cost $ — $ — $ $ Interest cost Expected return on plan assets ) ) ) ) Amortization of prior service costs/(credits) ) ) Recognized actuarial losses Curtailments and settlements — — Multi-employer plans/other costs — — Total net periodic pension (income)/cost of defined benefit plans ) ) Cost of defined contribution plans Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings $ $ $ $ (Dollars in millions) U.S. Plans Non-U.S. Plans For the six months ended June 30: 2016 2015 2016 2015 Service cost $ — $ — $ $ Interest cost Expected return on plan assets ) ) ) ) Amortization of prior service costs/(credits) ) ) Recognized actuarial losses Curtailments and settlements — — Multi-employer plan/other costs — — Total net periodic pension (income)/cost of defined benefit plans ) ) Cost of defined contribution plans Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings $ $ $ $ |
Components of the cost/(income) for the company's nonpension postretirement plans | Cost of Nonpension Postretirement Plans (Dollars in millions) U.S. Plan Non-U.S. Plans For the three months ended June 30: 2016 2015 2016 2015 Service cost $ $ $ $ Interest cost Expected return on plan assets — ) ) Amortization of prior service costs/(credits) ) ) ) ) Recognized actuarial losses Curtailments and settlements — — Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ $ $ $ (Dollars in millions) U.S. Plan Non-U.S. Plans For the six months ended June 30: 2016 2015 2016 2015 Service cost $ $ $ $ Interest cost Expected return on plan assets — ) ) Amortization of prior service costs/(credits) ) ) ) ) Recognized actuarial losses Curtailments and settlements — Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ $ $ $ |
Acquisitions_Divestitures (Tabl
Acquisitions/Divestitures (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Acquisitions/Divestitures: | |
Business acquisitions, purchase price allocations | The Truven Amortization Weather Health Other (Dollars in millions) Life (in yrs.) Company Analytics Acquisitions Current assets $ $ $ Fixed assets/noncurrent assets Intangible assets: Goodwill N/A Completed technology 1-7 Client relationships 3-7 Patents/trademarks 2-7 Total assets acquired Current liabilities ) ) ) Noncurrent liabilities ) ) ) Total liabilities assumed ) ) ) Bargain purchase gain — — )* Total purchase price $ $ $ N/A - not applicable * Bargain purchase gain relating to AT&T’s application and hosting services business was recognized in selling, general and administrative expense in the Consolidated Statement of Earnings in the three months ended March 13, 2016. |
Discontinued operation, summarized financial information | Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2016 2015 2016 2015 Total revenue $ — $ $ — $ Income/(loss) from discontinued operations $ ) $ ) $ ) $ ) Gain/(loss) on disposal, before tax ) ) Total loss from discontinued operations, before income taxes $ ) $ ) $ ) $ ) Provision/(benefit) for income taxes ) ) ) Loss from discontinued operations, net of tax $ $ ) $ ) $ ) |
Intangible Assets Including G31
Intangible Assets Including Goodwill (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Intangible Assets Including Goodwill: | |
Intangible asset balances by major asset class | At June 30, 2016 (Dollars in millions) Gross Carrying Accumulated Net Carrying Intangible asset class Amount Amortization Amount Capitalized software $ $ ) $ Client relationships ) Completed technology ) Patents/trademarks ) Other* ) Total $ $ ) $ * Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems. At December 31, 2015 (Dollars in millions) Gross Carrying Accumulated Net Carrying Intangible asset class Amount Amortization Amount Capitalized software $ $ ) $ Client relationships ) Completed technology ) Patents/trademarks ) Other* ) Total $ $ ) $ * Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems. |
Intangible assets, future amortization expense | Capitalized Acquired (Dollars in millions) Software Intangibles Total 2016 (for Q3-Q4) $ $ $ 2017 2018 2019 2020 — |
Changes in goodwill balances by reportable segment | Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 1/1/2016* Additions Adjustments Divestitures Adjustments** 6/30/16 Cognitive Solutions $ $ $ ) $ ) $ $ Global Business Services ) Technology Services & Cloud Platforms ) Systems — — Total $ $ $ $ ) $ $ * Recast to conform with 2016 presentation. ** Primarily driven by foreign currency translation. Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 1/1/2015* Additions* Adjustments* Divestitures* Adjustments* ** 12/31/15* Cognitive Solutions $ $ $ ) $ ) $ ) $ Global Business Services ) ) Technology Services & Cloud Platforms ) ) ) Systems — ) Total $ $ $ ) $ ) $ ) $ * Recast to conform with 2016 presentation. ** Primarily driven by foreign currency translation. |
Borrowings (Tables)
Borrowings (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Borrowings: | |
Short-Term Debt | Short-Term Debt At June 30, At December 31, (Dollars in millions) 2016 2015 Commercial paper $ — $ Short-term loans Long-term debt — current maturities Total $ $ |
Long-Term Debt | Long-Term Debt Pre-Swap Borrowing Balance Balance (Dollars in millions) Maturities 6/30/2016 12/31/2015 U.S. dollar notes and debentures (average interest rate at June 30, 2016): 3.36% 2016–2017 $ $ 3.17% 2018–2019 1.72% 2020–2021 2.35% 3.38% 3.63% 7.00% 3.45% — 6.22% 6.50% 5.88% 8.00% 5.60% 4.00% 7.00% 4.70% — 7.13% $ $ Other currencies (average interest rate at June 30, 2016, in parentheses): Euros (1.6%) 2016–2028 $ $ Pound sterling (2.7%) 2017–2022 Japanese yen (0.3%) 2017–2022 Swiss francs (6.3%) Canadian (2.2%) Other (12.4%) 2016–2020 $ $ Less: net unamortized discount Less: net unamortized debt issuance cost Add: fair value adjustment* $ $ Less: current maturities Total $ $ * The portion of the company’s fixed-rate debt obligations that is hedged is reflected in the Consolidated Statement of Financial Position as an amount equal to the sum of the debt’s carrying value plus a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates. |
Pre-swap annual contractual maturities of long-term debt outstanding | (Dollars in millions) Total 2016 (for Q3-Q4) $ 2017 2018 2019 2020 2021 and beyond Total $ |
Interest on Debt | (Dollars in millions) For the six months ended June 30: 2016 2015 Cost of financing $ $ Interest expense Net investment derivative activity ) ) Interest capitalized ) Total interest paid and accrued $ $ |
Commitments (Tables)
Commitments (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Commitments: | |
Changes in warranty liabilities | Standard Warranty Liability (Dollars in millions) 2016 2015 Balance at January 1 $ $ Current period accruals Accrual adjustments to reflect actual experience Charges incurred ) ) Balance at June 30 $ $ Extended Warranty Liability (Dollars in millions) 2016 2015 Aggregate deferred revenue at January 1 $ $ Revenue deferred for new extended warranty contracts Amortization of deferred revenue ) ) Other* ) Aggregate deferred revenue at June 30 $ $ Current portion $ $ Noncurrent portion $ $ * Other primarily consists of foreign currency translation adjustments. |
Basis of Presentation (Details)
Basis of Presentation (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2016 | Mar. 31, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Provision for/(benefit from) income taxes | $ 544 | $ (983) | $ 698 | $ (439) | $ 1,283 |
Effective tax rate (as a percent) | (95.10%) | (10.80%) | |||
Other (income) and expense | |||||
Pre-tax impairment charge related to land, buildings and furniture and fixtures | $ 252 | ||||
Noncontrolling interest amounts, net of tax | $ 3 | $ 2.4 | $ 4.4 | $ 3.5 |
Accounting Changes (Details)
Accounting Changes (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2015 | Jun. 30, 2016 | Dec. 31, 2014 | |
Accounting Changes | |||
Operating lease commitments | $ 6,400 | ||
Sales-type lease revenue recognized based on use of residual value guarantee insurance | 608 | ||
Deferred tax assets | 4,822 | $ 4,387 | |
Other accrued expenses and liabilities | 4,353 | 5,480 | |
Other liabilities | 8,099 | 8,385 | |
Debt issuance costs | 74 | 90 | |
Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes | Standards Implemented | Reclassification from current to noncurrent | |||
Accounting Changes | |||
Current deferred tax assets | $ (2,000) | ||
Deferred tax assets | 2,000 | ||
Other accrued expenses and liabilities | (19) | ||
Other liabilities | 19 | ||
Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes | Standards Implemented | Reclassification from assets to liabilities | |||
Accounting Changes | |||
Deferred tax assets | (178) | ||
Other liabilities | $ (178) | ||
Accounting Standards Update 2015-03, Interest-Imputation of Interest | |||
Accounting Changes | |||
Debt issuance costs | $ 74 | $ 90 |
Financial Instruments - Fair Va
Financial Instruments - Fair Value Measurements (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Debt securities - noncurrent | $ 9 | $ 8 |
Available-for-sale equity investments | 11 | 192 |
Derivative assets | 1,284 | 994 |
Potential reduction in net position of total derivative assets | 280 | 139 |
Fair value assets, Level 2 to Level 1 transfer | 0 | 0 |
Fair value assets, Level 1 to Level 2 transfer | 0 | 0 |
Recurring | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 7,301 | 4,943 |
Debt securities - current | 599 | 506 |
Debt securities - noncurrent | 9 | 8 |
Trading security investments | 28 | |
Available-for-sale equity investments | 11 | 192 |
Derivative assets | 1,284 | 994 |
Total Assets | 9,204 | 6,671 |
Total Liabilities | 414 | 186 |
Potential reduction in net position of total derivative assets | 280 | 139 |
Potential reduction in net position of total derivative liabilities | 280 | 139 |
Recurring | Prepaid expenses and other current assets | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 262 | 292 |
Recurring | Investments and sundry assets | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 1,022 | 702 |
Recurring | Other accrued expenses and liabilities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative liabilities | 374 | 164 |
Recurring | Other liabilities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative liabilities | 40 | 22 |
Recurring | Interest rate contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 1,015 | 656 |
Derivative liabilities | 3 | |
Recurring | Foreign exchange contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 258 | 332 |
Derivative liabilities | 406 | 164 |
Recurring | Equity contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 11 | 6 |
Derivative liabilities | 8 | 19 |
Recurring | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 3,198 | 2,856 |
Recurring | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 2,141 | 2,069 |
Recurring | U.S. government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 1,500 | |
Recurring | Canadian government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 462 | |
Recurring | Other securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 18 | |
Recurring | Level 1 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 2,141 | 2,069 |
Debt securities - noncurrent | 1 | 1 |
Trading security investments | 28 | |
Available-for-sale equity investments | 11 | 192 |
Total Assets | 2,153 | 2,290 |
Recurring | Level 1 | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 2,141 | 2,069 |
Recurring | Level 2 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 5,160 | 2,874 |
Debt securities - current | 599 | 506 |
Debt securities - noncurrent | 7 | 6 |
Derivative assets | 1,284 | 994 |
Total Assets | 7,051 | 4,381 |
Total Liabilities | 414 | 186 |
Recurring | Level 2 | Interest rate contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 1,015 | 656 |
Derivative liabilities | 3 | |
Recurring | Level 2 | Foreign exchange contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 258 | 332 |
Derivative liabilities | 406 | 164 |
Recurring | Level 2 | Equity contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 11 | 6 |
Derivative liabilities | 8 | 19 |
Recurring | Level 2 | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 3,198 | 2,856 |
Recurring | Level 2 | U.S. government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 1,500 | |
Recurring | Level 2 | Canadian government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | $ 462 | |
Recurring | Level 2 | Other securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | $ 18 |
Financial Instruments - Not Mea
Financial Instruments - Not Measured at Fair Value (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Long-Term Debt | ||
Carrying amount of long-term debt | $ 39,638 | $ 33,428 |
Fair value of long-term debt | $ 42,506 | $ 35,220 |
Financial Instruments - Debt an
Financial Instruments - Debt and Equity Securities (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Jun. 30, 2016 | Mar. 31, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Debt and Marketable Equity Securities | ||||||
Debt securities - noncurrent, Adjusted Cost | $ 6 | $ 6 | $ 5 | |||
Debt securities - noncurrent, Gross Unrealized Gains | 3 | 3 | 3 | |||
Debt securities - noncurrent, Fair Value | 9 | 9 | 8 | |||
Available-for-sale equity investments, Adjusted Cost | 2 | 2 | 186 | |||
Available-for-sale equity investments, Gross Unrealized Gains | 9 | 9 | 6 | |||
Available-for-sale equity investments, Gross Unrealized Losses | 0 | 0 | 0 | |||
Available-for-sale equity investments, Fair Value | 11 | 11 | 192 | |||
Sales of debt and available-for-sale equity investments | ||||||
Proceeds | 1 | $ 1 | 149 | $ 6 | ||
Gross realized gains (before taxes) | 0 | 0 | 0 | 1 | ||
Gross realized losses (before taxes) | 0 | 0 | 37 | 0 | ||
Unrealized holding gains/(losses) on available-for-sale debt and equity securities | ||||||
Net unrealized gains/(losses) arising during the period | 1 | (10) | (22) | 10 | ||
Net unrealized (gains)/losses reclassified to net income | 0 | 0 | 23 | 0 | ||
Writedowns included in net income for the period | $ 0 | $ 0 | $ 0 | $ 0 | ||
Maximum contractual maturities of substantially all available-for-sale debt securities | 1 year | |||||
Lenovo's common stock | ||||||
Debt and Marketable Equity Securities | ||||||
Available-for-sale equity investments, Adjusted Cost | 185 | |||||
Other-than-temporary impairment loss | $ 86 | |||||
Sales of debt and available-for-sale equity investments | ||||||
Gross realized losses (before taxes) | $ 37 |
Financial Instruments - Derivat
Financial Instruments - Derivatives, Offsetting (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2016 | Dec. 31, 2015 | |
Derivative Financial Instruments | ||
Fair value of derivative instruments under collateralized arrangements in a liability position | $ 99 | $ 28 |
Collateral posted on derivative instruments | $ 0 | 0 |
Maximum spread on credit default swap agreements before full collateralization is required | 2.50% | |
Fair value of total derivative instruments, Assets | $ 1,284 | 994 |
Liabilities included in master netting arrangements | 280 | 139 |
Obligation to return cash collateral | 230 | 90 |
Non-cash collateral received | 96 | 40 |
Net exposure related to derivative assets recorded in the Statement of Financial Position | 678 | 726 |
Net exposure related to derivative liabilities recorded in the Statement of Financial Position | 134 | 47 |
Cash collateral rehypothecated | 0 | 0 |
Other receivables | ||
Derivative Financial Instruments | ||
Right to reclaim cash collateral | 0 | 0 |
Accounts payable | ||
Derivative Financial Instruments | ||
Obligation to return cash collateral | $ 230 | $ 90 |
Financial Instruments - Deriv40
Financial Instruments - Derivatives, Other Information (Details) $ in Millions | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016USD ($)instrument | Dec. 31, 2015USD ($)instrument | |
Derivative instruments in cash flow hedging relationships | Forward-starting interest rate swaps | ||
Derivative [Line Items] | ||
Number of derivative instruments outstanding | instrument | 0 | 0 |
Derivative instruments in cash flow hedging relationships | Forward-starting interest rate swaps | Maximum | ||
Derivative [Line Items] | ||
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges of borrowings | $ 1 | $ 1 |
Gains (losses) expected to be reclassified to net income within the next 12 months | $ 1 | 1 |
Derivative instruments in cash flow hedging relationships | Foreign exchange forward contracts | ||
Derivative [Line Items] | ||
Maximum length of time hedged | 4 years | |
Notional amount | $ 8,100 | $ 8,200 |
Average remaining maturity | 7 months 6 days | 8 months 12 days |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges of borrowings | $ (76) | $ 147 |
Gains (losses) expected to be reclassified to net income within the next 12 months | $ (118) | 121 |
Derivative instruments in cash flow hedging relationships | Cross-currency swaps | ||
Derivative [Line Items] | ||
Maximum length of time hedged | 9 years | |
Notional amount | $ 1,400 | 0 |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges of borrowings | (24) | (2) |
Gains (losses) expected to be reclassified to net income within the next 12 months | 22 | |
Derivative instruments in cash flow hedging relationships | Cross-currency swaps | Maximum | ||
Derivative [Line Items] | ||
Gains (losses) expected to be reclassified to net income within the next 12 months | (1) | |
Net investment hedge | ||
Derivative [Line Items] | ||
Notional amount | $ 8,300 | $ 5,500 |
Average remaining maturity | 1 month 6 days | 2 months 12 days |
Designated as hedging instruments | Interest rate swaps | ||
Derivative [Line Items] | ||
Notional amount | $ 7,300 | $ 7,300 |
Average remaining maturity | 6 years 8 months 12 days | 7 years 2 months 12 days |
Derivative instruments not designated as hedging instruments | Foreign exchange contracts | ||
Derivative [Line Items] | ||
Notional amount | $ 11,100 | $ 11,700 |
Derivative instruments not designated as hedging instruments | Foreign exchange contracts | Maximum | ||
Derivative [Line Items] | ||
Term of contract | 1 year | |
Derivative instruments not designated as hedging instruments | Economic hedge of compensation obligations | ||
Derivative [Line Items] | ||
Notional amount | $ 1,100 | $ 1,200 |
Derivative instruments not designated as hedging instruments | Warrants qualifying as derivatives | ||
Derivative [Line Items] | ||
Number of derivative instruments outstanding | instrument | 0 | 0 |
Derivative instruments not designated as hedging instruments | Credit default swaps | ||
Derivative [Line Items] | ||
Number of derivative instruments outstanding | instrument | 0 | 0 |
Derivative instruments not designated as hedging instruments | Economic hedge of investment securities | ||
Derivative [Line Items] | ||
Number of derivative instruments outstanding | instrument | 0 | |
Derivative instruments not designated as hedging instruments | Economic hedge of investment securities | Maximum | ||
Derivative [Line Items] | ||
Notional amount | $ 100 |
Financial Instruments - Deriv41
Financial Instruments - Derivatives, Fair Value (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | $ 1,284 | $ 994 |
Short-term debt | 4,887 | 6,461 |
Long-term debt | 39,638 | 33,428 |
Fair value of total derivative liabilities and debt | 9,600 | 8,131 |
Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 1,185 | 858 |
Fair value of total derivative instruments, Liabilities | 335 | 92 |
Designated as hedging instruments | Net investment hedge | ||
Fair Values of Derivative Instruments | ||
Short-term debt | 827 | |
Long-term debt | 8,359 | 7,945 |
Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 99 | 136 |
Fair value of total derivative instruments, Liabilities | 79 | 94 |
Prepaid expenses and other current assets | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 163 | 197 |
Prepaid expenses and other current assets | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 88 | 90 |
Prepaid expenses and other current assets | Equity contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 11 | 6 |
Investments and sundry assets | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 1,015 | 656 |
Investments and sundry assets | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 7 | 5 |
Investments and sundry assets | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 0 | 40 |
Other accrued expenses and liabilities | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 311 | 70 |
Other accrued expenses and liabilities | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 55 | 75 |
Other accrued expenses and liabilities | Equity contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 8 | 19 |
Other liabilities | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 3 | |
Other liabilities | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 25 | $ 19 |
Other liabilities | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | $ 15 |
Financial Instruments - Deriv42
Financial Instruments - Derivatives, Gains and Losses (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in earnings on derivatives | $ 370 | $ (238) | $ 796 | $ (26) |
Gain (loss) recognized in earnings attributable to risk being hedged | (118) | 189 | (350) | 71 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Recognized in OCI | (238) | (362) | (1,197) | 951 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | (102) | 321 | (11) | 570 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, (Ineffectiveness) and Amounts Excluded from Effectiveness Testing | 15 | 5 | 26 | 6 |
Gain (loss) on fair value hedges ineffectiveness | 1 | (5) | 3 | (3) |
Gains and (Losses) excluded from the assessment of hedge effectiveness for fair value hedges | 0 | 0 | 0 | 0 |
Gains and (Losses) associated with underlying exposure that did not occur or was not expected to occur for cash flow hedges | 0 | 0 | 0 | 0 |
Foreign exchange contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Recognized in OCI | 9 | (187) | (256) | 432 |
Foreign exchange contracts | Net investment hedge | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Recognized in OCI | (247) | (175) | (940) | 519 |
Cost of financing | Interest rate contracts | Derivative instruments in fair value hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in earnings on derivatives | 77 | (78) | 213 | 15 |
Gain (loss) recognized in earnings attributable to risk being hedged | (55) | 102 | (166) | 39 |
Interest expense | Interest rate contracts | Derivative instruments in fair value hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in earnings on derivatives | 88 | (65) | 236 | 13 |
Gain (loss) recognized in earnings attributable to risk being hedged | (63) | 86 | (184) | 32 |
Interest expense | Interest rate contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | (7) | 0 | (9) | 0 |
Interest expense | Foreign exchange contracts | Net investment hedge | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, (Ineffectiveness) and Amounts Excluded from Effectiveness Testing | 16 | 2 | 26 | 3 |
SG&A expense | Foreign exchange contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | (7) | 42 | (3) | 82 |
SG&A expense | Equity contracts | Derivative instruments not designated as hedging instruments | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in earnings on derivatives | 21 | (6) | 43 | 18 |
Other (income) and expense | Interest rate contracts | Derivative instruments not designated as hedging instruments | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in earnings on derivatives | 0 | (1) | 0 | (1) |
Other (income) and expense | Foreign exchange contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | (75) | 221 | 12 | 380 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, (Ineffectiveness) and Amounts Excluded from Effectiveness Testing | (1) | 3 | 0 | 3 |
Other (income) and expense | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in earnings on derivatives | 184 | (91) | 305 | (74) |
Other (income) and expense | Equity contracts | Derivative instruments not designated as hedging instruments | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in earnings on derivatives | 0 | 2 | (1) | 3 |
Cost of sales | Foreign exchange contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | $ (13) | $ 58 | $ (10) | $ 108 |
Financing Receivables - Net of
Financing Receivables - Net of Allowances (Details) - USD ($) $ in Millions | 6 Months Ended | ||
Jun. 30, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Financing receivables: | |||
Financing receivables, net, current | $ 16,635 | $ 19,020 | |
Financing receivables, net, noncurrent | 9,267 | 10,013 | |
Financing receivables pledged as collateral for borrowings | 563 | 545 | |
Financing receivables held for sale | 0 | 0 | |
Lease receivables | |||
Financing receivables: | |||
Financing receivables, net, current | 3,089 | 3,057 | |
Financing receivables, net, noncurrent | 4,200 | 4,501 | |
Sales-type and direct financing leases, unguaranteed residual value | 595 | 645 | |
Sales-type and direct financing leases, unearned income | 546 | 536 | |
Allowance for credit losses | $ 222 | 213 | $ 165 |
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, net, current | $ 7,146 | 8,948 | |
Allowance for credit losses | $ 19 | 19 | |
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, net, current | $ 6,400 | 7,015 | |
Financing receivables, net, noncurrent | 5,067 | 5,512 | |
Allowance for credit losses | $ 428 | $ 377 | $ 396 |
Loan receivables | Maximum | |||
Financing receivables: | |||
Financing receivable, payment terms | 7 years |
Financing Receivables - By Port
Financing Receivables - By Portfolio Segment (Details) $ in Millions | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016USD ($)item | Dec. 31, 2015USD ($) | |
Total Lease Receivable and Loan Receivable Portfolio Segments | ||
Financing receivables: | ||
Number of portfolio segments | item | 2 | |
Number of classes of financing receivable | item | 2 | |
Financing receivables on a gross basis | $ 18,727 | $ 19,945 |
Collectively evaluated for impairment | 18,163 | 19,406 |
Individually evaluated for impairment | 564 | 539 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 590 | 561 |
Write-offs | (27) | (62) |
Provision | 76 | 141 |
Other | 11 | (51) |
Allowance for credit losses, ending balance | 649 | 590 |
Collectively evaluated for impairment | 119 | 79 |
Individually evaluated for impairment | 531 | 511 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Major Markets | ||
Financing receivables: | ||
Financing receivables on a gross basis | 14,433 | 15,256 |
Collectively evaluated for impairment | 14,334 | 15,180 |
Individually evaluated for impairment | 99 | 76 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 109 | 111 |
Write-offs | (3) | (14) |
Provision | 12 | 20 |
Other | 3 | (8) |
Allowance for credit losses, ending balance | 121 | 109 |
Collectively evaluated for impairment | 36 | 43 |
Individually evaluated for impairment | 85 | 65 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Growth Markets | ||
Financing receivables: | ||
Financing receivables on a gross basis | 4,294 | 4,689 |
Collectively evaluated for impairment | 3,829 | 4,227 |
Individually evaluated for impairment | 465 | 462 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 481 | 450 |
Write-offs | (25) | (48) |
Provision | 64 | 122 |
Other | 8 | (43) |
Allowance for credit losses, ending balance | 528 | 481 |
Collectively evaluated for impairment | 82 | 36 |
Individually evaluated for impairment | 446 | 445 |
Lease receivables | ||
Financing receivables: | ||
Financing receivables on a gross basis | 6,833 | 7,041 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 213 | 165 |
Allowance for credit losses, ending balance | 222 | 213 |
Lease receivables | Major Markets | ||
Financing receivables: | ||
Financing receivables on a gross basis | 5,355 | 5,517 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 25 | 32 |
Allowance for credit losses, ending balance | 36 | 25 |
Lease receivables | Growth Markets | ||
Financing receivables: | ||
Financing receivables on a gross basis | 1,478 | 1,524 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 188 | 133 |
Allowance for credit losses, ending balance | 186 | 188 |
Loan receivables | ||
Financing receivables: | ||
Financing receivables on a gross basis | 11,894 | 12,904 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 377 | 396 |
Allowance for credit losses, ending balance | 428 | 377 |
Loan receivables | Major Markets | ||
Financing receivables: | ||
Financing receivables on a gross basis | 9,077 | 9,739 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 83 | 79 |
Allowance for credit losses, ending balance | 85 | 83 |
Loan receivables | Growth Markets | ||
Financing receivables: | ||
Financing receivables on a gross basis | 2,817 | 3,165 |
Allowance for credit losses: | ||
Allowance for credit losses, beginning balance | 293 | 317 |
Allowance for credit losses, ending balance | $ 343 | $ 293 |
Financing Receivables - Non-Acc
Financing Receivables - Non-Accrual Status (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Total Lease Receivable and Loan Receivable Portfolio Segments | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | $ 184 | $ 168 |
Lease receivables | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 45 | 65 |
Loan receivables | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 139 | 104 |
Major Markets | Lease receivables | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 1 | 2 |
Major Markets | Loan receivables | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 18 | 13 |
Growth Markets | Lease receivables | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 44 | 63 |
Growth Markets | Loan receivables | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | $ 121 | $ 91 |
Financing Receivables - Impaire
Financing Receivables - Impaired Loans (Details) - Loan receivables - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Impaired client loan receivables | |||||
Recorded Investment | $ 393 | $ 393 | $ 347 | ||
Related Allowance | 372 | 372 | 331 | ||
Average Recorded Investment | 377 | $ 392 | 367 | $ 379 | |
Interest Income Recognized | 0 | 0 | 0 | 0 | |
Major Markets | |||||
Impaired client loan receivables | |||||
Recorded Investment | 74 | 74 | 50 | ||
Related Allowance | 70 | 70 | 47 | ||
Average Recorded Investment | 70 | 51 | 64 | 52 | |
Interest Income Recognized | 0 | 0 | |||
Growth Markets | |||||
Impaired client loan receivables | |||||
Recorded Investment | 319 | 319 | 297 | ||
Related Allowance | 302 | 302 | $ 284 | ||
Average Recorded Investment | 307 | 341 | 304 | 327 | |
Interest Income Recognized | $ 0 | $ 0 | $ 0 | $ 0 |
Financing Receivables - Credit
Financing Receivables - Credit Quality Indicators (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Lease receivables | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | $ 6,833 | $ 7,041 |
Loan receivables | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 11,894 | 12,904 |
Major Markets | Lease receivables | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 5,355 | 5,517 |
Major Markets | Lease receivables | Aaa - Aa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 490 | 538 |
Major Markets | Lease receivables | A1 - A3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 1,235 | 1,324 |
Major Markets | Lease receivables | Baa1 - Baa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 1,498 | 1,493 |
Major Markets | Lease receivables | Ba1 - Ba2 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 1,213 | 1,214 |
Major Markets | Lease receivables | Ba3 - B1 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 513 | 513 |
Major Markets | Lease receivables | B2 - B3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 372 | 403 |
Major Markets | Lease receivables | Caa - D | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 35 | 33 |
Major Markets | Loan receivables | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 9,077 | 9,739 |
Major Markets | Loan receivables | Aaa - Aa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 831 | 949 |
Major Markets | Loan receivables | A1 - A3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 2,093 | 2,338 |
Major Markets | Loan receivables | Baa1 - Baa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 2,539 | 2,635 |
Major Markets | Loan receivables | Ba1 - Ba2 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 2,055 | 2,143 |
Major Markets | Loan receivables | Ba3 - B1 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 870 | 905 |
Major Markets | Loan receivables | B2 - B3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 631 | 711 |
Major Markets | Loan receivables | Caa - D | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 59 | 59 |
Growth Markets | Lease receivables | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 1,478 | 1,524 |
Growth Markets | Lease receivables | Aaa - Aa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 41 | 39 |
Growth Markets | Lease receivables | A1 - A3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 136 | 162 |
Growth Markets | Lease receivables | Baa1 - Baa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 192 | 392 |
Growth Markets | Lease receivables | Ba1 - Ba2 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 359 | 352 |
Growth Markets | Lease receivables | Ba3 - B1 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 427 | 277 |
Growth Markets | Lease receivables | B2 - B3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 213 | 215 |
Growth Markets | Lease receivables | Caa - D | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 109 | 87 |
Growth Markets | Loan receivables | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 2,817 | 3,165 |
Growth Markets | Loan receivables | Aaa - Aa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 78 | 80 |
Growth Markets | Loan receivables | A1 - A3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 260 | 336 |
Growth Markets | Loan receivables | Baa1 - Baa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 366 | 813 |
Growth Markets | Loan receivables | Ba1 - Ba2 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 684 | 732 |
Growth Markets | Loan receivables | Ba3 - B1 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 814 | 576 |
Growth Markets | Loan receivables | B2 - B3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | 407 | 447 |
Growth Markets | Loan receivables | Caa - D | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables on a gross basis | $ 209 | $ 181 |
Financing Receivables - Industr
Financing Receivables - Industries (Details) - Global Financing - Financing Receivable Portfolio | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016 | Dec. 31, 2015 | |
Financial Industry | ||
Financing receivables: | ||
Financing receivables (as a percent) | 36.00% | 36.00% |
Manufacturing Industry | ||
Financing receivables: | ||
Financing receivables (as a percent) | 14.00% | 14.00% |
Government Industry | ||
Financing receivables: | ||
Financing receivables (as a percent) | 14.00% | 11.00% |
Services Industry | ||
Financing receivables: | ||
Financing receivables (as a percent) | 10.00% | 11.00% |
Retail Industry | ||
Financing receivables: | ||
Financing receivables (as a percent) | 8.00% | 9.00% |
Communications Industry | ||
Financing receivables: | ||
Financing receivables (as a percent) | 7.00% | 7.00% |
Healthcare Industry | ||
Financing receivables: | ||
Financing receivables (as a percent) | 6.00% | 6.00% |
Other industries | ||
Financing receivables: | ||
Financing receivables (as a percent) | 6.00% | 6.00% |
Financing Receivables - Past Du
Financing Receivables - Past Due (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Past Due Financing Receivable | ||
Troubled debt restructurings of financing receivables | $ 0 | $ 0 |
Total Lease Receivable and Loan Receivable Portfolio Segments | ||
Past Due Financing Receivable | ||
Fully reserved financing receivable | 513 | 517 |
Less than 90 Days or Unbilled Financing Receivables | 18,160 | 19,355 |
Total Financing Receivables | 18,727 | 19,945 |
Recorded Investment > 90 Days and Accruing | 364 | 388 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Total Past Due > 90 days | 54 | 73 |
Lease receivables | ||
Past Due Financing Receivable | ||
Fully reserved financing receivable | 179 | 173 |
Less than 90 Days or Unbilled Financing Receivables | 6,624 | 6,834 |
Total Financing Receivables | 6,833 | 7,041 |
Recorded Investment > 90 Days and Accruing | 179 | 168 |
Lease receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Total Past Due > 90 days | 30 | 35 |
Loan receivables | ||
Past Due Financing Receivable | ||
Fully reserved financing receivable | 335 | 344 |
Less than 90 Days or Unbilled Financing Receivables | 11,536 | 12,521 |
Total Financing Receivables | 11,894 | 12,904 |
Recorded Investment > 90 Days and Accruing | 185 | 220 |
Loan receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Total Past Due > 90 days | 24 | 38 |
Major Markets | Total Lease Receivable and Loan Receivable Portfolio Segments | ||
Past Due Financing Receivable | ||
Total Financing Receivables | 14,433 | 15,256 |
Major Markets | Lease receivables | ||
Past Due Financing Receivable | ||
Fully reserved financing receivable | 35 | 33 |
Less than 90 Days or Unbilled Financing Receivables | 5,314 | 5,479 |
Total Financing Receivables | 5,355 | 5,517 |
Recorded Investment > 90 Days and Accruing | 106 | 108 |
Major Markets | Lease receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Total Past Due > 90 days | 7 | 5 |
Major Markets | Loan receivables | ||
Past Due Financing Receivable | ||
Fully reserved financing receivable | 39 | 35 |
Less than 90 Days or Unbilled Financing Receivables | 9,030 | 9,696 |
Total Financing Receivables | 9,077 | 9,739 |
Recorded Investment > 90 Days and Accruing | 130 | 134 |
Major Markets | Loan receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Total Past Due > 90 days | 9 | 7 |
Growth Markets | Total Lease Receivable and Loan Receivable Portfolio Segments | ||
Past Due Financing Receivable | ||
Total Financing Receivables | 4,294 | 4,689 |
Growth Markets | Lease receivables | ||
Past Due Financing Receivable | ||
Fully reserved financing receivable | 144 | 140 |
Less than 90 Days or Unbilled Financing Receivables | 1,310 | 1,355 |
Total Financing Receivables | 1,478 | 1,524 |
Recorded Investment > 90 Days and Accruing | 73 | 60 |
Growth Markets | Lease receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Total Past Due > 90 days | 24 | 30 |
Growth Markets | Loan receivables | ||
Past Due Financing Receivable | ||
Fully reserved financing receivable | 296 | 309 |
Less than 90 Days or Unbilled Financing Receivables | 2,506 | 2,825 |
Total Financing Receivables | 2,817 | 3,165 |
Recorded Investment > 90 Days and Accruing | 55 | 86 |
Growth Markets | Loan receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Total Past Due > 90 days | $ 15 | $ 31 |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | $ 128 | $ 131 | $ 261 | $ 257 |
Income tax benefits | (42) | (45) | (84) | (87) |
Total net stock-based compensation cost | 86 | 86 | 176 | 171 |
Pre-tax stock-based compensation cost increase (decrease) | (3) | 3 | ||
Pre-tax stock-based compensation cost increase related to conversion of stock-based awards of acquired entities | 8 | 11 | ||
Stock-based compensation cost, unrecognized, related to non-vested awards | 1,154 | $ 1,154 | ||
Stock-based compensation cost, unrecognized, related to non-vested awards, weighted average period of recognition | 2 years 8 months 12 days | |||
Restricted Stock Units | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | (9) | $ (20) | ||
Performance Share Units | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | (4) | 9 | ||
Stock Options | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | 1 | 2 | ||
Cost of sales | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | 23 | 27 | 44 | 54 |
SG&A expense | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | 91 | 92 | 190 | 178 |
Research, development and engineering | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | $ 14 | 12 | $ 27 | 26 |
Other (income) and expense | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | $ 0 | $ (1) |
Segments - Segment Information
Segments - Segment Information (Details) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016USD ($) | Jun. 30, 2015USD ($) | Jun. 30, 2016USD ($)segment | Jun. 30, 2015USD ($) | |
Segment Information | ||||
Number of business segments (in segments) | segment | 5 | |||
Revenue (excluding other revenue not allocated to segments) | $ 20,162 | $ 20,778 | $ 38,781 | $ 40,301 |
Revenue | 20,238 | 20,813 | 38,923 | 40,403 |
Pre-tax income/(loss) from continuing operations | 3,049 | 4,224 | 4,082 | 7,225 |
Cognitive Solutions | ||||
Segment Information | ||||
Revenue (excluding other revenue not allocated to segments) | 4,675 | 4,516 | 8,654 | 8,564 |
Global Business Services | ||||
Segment Information | ||||
Revenue (excluding other revenue not allocated to segments) | 4,255 | 4,345 | 8,387 | 8,663 |
Technology Services & Cloud Platforms | ||||
Segment Information | ||||
Revenue (excluding other revenue not allocated to segments) | 8,857 | 8,898 | 17,280 | 17,452 |
Systems | ||||
Segment Information | ||||
Revenue (excluding other revenue not allocated to segments) | 1,950 | 2,541 | 3,626 | 4,683 |
Global Financing | ||||
Segment Information | ||||
Revenue (excluding other revenue not allocated to segments) | 424 | 478 | 834 | 939 |
Business Segments | ||||
Segment Information | ||||
Revenue | 21,723 | 22,506 | 41,987 | 43,719 |
Pre-tax income/(loss) from continuing operations | $ 3,901 | $ 5,033 | $ 5,739 | $ 9,056 |
Revenue year-to-year change (as a percent) | (3.50%) | (4.00%) | ||
Pre-tax income year-to-year change (as a percent) | (22.50%) | (36.60%) | ||
Pre-tax income margin (as a percent) | 18.00% | 22.40% | 13.70% | 20.70% |
Business Segments | Cognitive Solutions | ||||
Segment Information | ||||
Revenue | $ 5,269 | $ 5,049 | $ 9,916 | $ 9,731 |
Pre-tax income/(loss) from continuing operations | $ 1,451 | $ 1,825 | $ 2,465 | $ 3,353 |
Revenue year-to-year change (as a percent) | 4.40% | 1.90% | ||
Pre-tax income year-to-year change (as a percent) | (20.50%) | (26.50%) | ||
Pre-tax income margin (as a percent) | 27.50% | 36.10% | 24.90% | 34.50% |
Business Segments | Global Business Services | ||||
Segment Information | ||||
Revenue | $ 4,359 | $ 4,475 | $ 8,603 | $ 8,923 |
Pre-tax income/(loss) from continuing operations | $ 476 | $ 643 | $ 665 | $ 1,231 |
Revenue year-to-year change (as a percent) | (2.60%) | (3.60%) | ||
Pre-tax income year-to-year change (as a percent) | (26.10%) | (46.00%) | ||
Pre-tax income margin (as a percent) | 10.90% | 14.40% | 7.70% | 13.80% |
Business Segments | Technology Services & Cloud Platforms | ||||
Segment Information | ||||
Revenue | $ 9,013 | $ 9,071 | $ 17,602 | $ 17,791 |
Pre-tax income/(loss) from continuing operations | $ 1,279 | $ 1,414 | $ 1,537 | $ 2,544 |
Revenue year-to-year change (as a percent) | (0.60%) | (1.10%) | ||
Pre-tax income year-to-year change (as a percent) | (9.50%) | (39.60%) | ||
Pre-tax income margin (as a percent) | 14.20% | 15.60% | 8.70% | 14.30% |
Business Segments | Systems | ||||
Segment Information | ||||
Revenue | $ 2,156 | $ 2,730 | $ 4,044 | $ 5,044 |
Pre-tax income/(loss) from continuing operations | $ 229 | $ 538 | $ 218 | $ 800 |
Revenue year-to-year change (as a percent) | (21.00%) | (19.80%) | ||
Pre-tax income year-to-year change (as a percent) | (57.50%) | (72.70%) | ||
Pre-tax income margin (as a percent) | 10.60% | 19.70% | 5.40% | 15.90% |
Business Segments | Global Financing | ||||
Segment Information | ||||
Revenue | $ 926 | $ 1,182 | $ 1,822 | $ 2,229 |
Pre-tax income/(loss) from continuing operations | $ 467 | $ 613 | $ 853 | $ 1,128 |
Revenue year-to-year change (as a percent) | (21.70%) | (18.30%) | ||
Pre-tax income year-to-year change (as a percent) | (23.80%) | (24.40%) | ||
Pre-tax income margin (as a percent) | 50.50% | 51.90% | 46.80% | 50.60% |
Internal transactions | ||||
Segment Information | ||||
Revenue | $ (1,561) | $ (1,728) | $ (3,206) | $ (3,419) |
Pre-tax income/(loss) from continuing operations | (334) | (473) | (689) | (813) |
Internal transactions | Cognitive Solutions | ||||
Segment Information | ||||
Revenue | (594) | (532) | (1,262) | (1,167) |
Internal transactions | Global Business Services | ||||
Segment Information | ||||
Revenue | (103) | (130) | (216) | (261) |
Internal transactions | Technology Services & Cloud Platforms | ||||
Segment Information | ||||
Revenue | (156) | (173) | (321) | (339) |
Internal transactions | Systems | ||||
Segment Information | ||||
Revenue | (206) | (189) | (418) | (362) |
Internal transactions | Global Financing | ||||
Segment Information | ||||
Revenue | $ (502) | $ (704) | $ (988) | $ (1,290) |
Segments - Revenue Reconciliati
Segments - Revenue Reconciliation (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Revenue | ||||
Revenue | $ 20,238 | $ 20,813 | $ 38,923 | $ 40,403 |
Business Segments | ||||
Revenue | ||||
Revenue | 21,723 | 22,506 | 41,987 | 43,719 |
Internal transactions | ||||
Revenue | ||||
Revenue | (1,561) | (1,728) | (3,206) | (3,419) |
Other revenue | ||||
Revenue | ||||
Revenue | $ 76 | $ 35 | $ 142 | $ 102 |
Segments - Pre-Tax Income Recon
Segments - Pre-Tax Income Reconciliation (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Pre-tax Income from continuing operations | ||||
Amortization of acquired intangible assets | $ (265) | $ (160) | $ (477) | $ (330) |
Acquisition-related (charges)/income | (23) | (7) | 3 | (8) |
Non-operating retirement-related (costs)/income | (163) | (186) | (306) | (627) |
Income from continuing operations before income taxes | 3,049 | 4,224 | 4,082 | 7,225 |
Business Segments | ||||
Pre-tax Income from continuing operations | ||||
Income from continuing operations before income taxes | 3,901 | 5,033 | 5,739 | 9,056 |
Internal transactions | ||||
Pre-tax Income from continuing operations | ||||
Income from continuing operations before income taxes | (334) | (473) | (689) | (813) |
Unallocated corporate amounts | ||||
Pre-tax Income from continuing operations | ||||
Income from continuing operations before income taxes | $ (67) | $ 18 | $ (189) | $ (53) |
Equity Activity - Reclassificat
Equity Activity - Reclassifications and Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2016 | Mar. 31, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Cost of sales | $ 10,536 | $ 10,423 | $ 20,535 | $ 20,561 | |
SG&A expense | 5,349 | 5,179 | 11,361 | 10,541 | |
Other (income) and expense | 37 | (301) | 289 | (444) | |
Interest expense | 167 | 115 | 315 | 223 | |
Provision for/(benefit from) income taxes | 544 | $ (983) | 698 | (439) | 1,283 |
Net (income) loss | (2,504) | (3,449) | (4,518) | (5,777) | |
Other comprehensive income/(loss), Before Tax Amount | 617 | 472 | 1,023 | 1,163 | |
Other comprehensive income/(loss), Tax (Expense)/Benefit | (223) | (62) | (21) | (719) | |
Other comprehensive income/(loss) | 394 | 411 | 1,002 | 444 | |
Accumulated Other Comprehensive Income/(Loss) | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 135 | (246) | |||
Reclassification/amortization, Net of Tax Amount | 867 | 690 | |||
Other comprehensive income/(loss), Before Tax Amount | 617 | 472 | 1,023 | 1,163 | |
Other comprehensive income/(loss), Tax (Expense)/Benefit | (223) | (62) | (21) | (719) | |
Other comprehensive income/(loss) | 394 | 411 | 1,002 | 444 | |
Foreign Currency Translation Adjustments | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 351 | (549) | |||
Reclassification/amortization, Net of Tax Amount | 0 | 0 | |||
Other comprehensive income/(loss), Before Tax Amount | (248) | 102 | (10) | (350) | |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 95 | 67 | 361 | (199) | |
Other comprehensive income/(loss) | (154) | 169 | 351 | (549) | |
Net Unrealized Gains/(Losses) on Available-For-Sale Securities | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Unrealized gains/(losses) arising during the period, Before Tax Amount | 1 | (15) | (35) | 17 | |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 0 | 6 | 14 | (6) | |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 1 | (10) | (22) | 10 | |
Reclassification/amortization, Net of Tax Amount | 23 | 0 | |||
Other comprehensive income/(loss), Before Tax Amount | 1 | (15) | 2 | 16 | |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 0 | 6 | (1) | (6) | |
Other comprehensive income/(loss) | 1 | (10) | 1 | 10 | |
Net Unrealized Gains/(Losses) on Available-For-Sale Securities | Reclassifications | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Other (income) and expense | 0 | 0 | 37 | 0 | |
Provision for/(benefit from) income taxes | 0 | 0 | (14) | 0 | |
Net (income) loss | 0 | 0 | 23 | 0 | |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Unrealized gains/(losses) arising during the period, Before Tax Amount | 9 | (187) | (256) | 432 | |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 5 | 60 | 96 | (158) | |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 13 | (127) | (160) | 274 | |
Reclassification/amortization, Net of Tax Amount | 4 | (368) | |||
Other comprehensive income/(loss), Before Tax Amount | 111 | (508) | (245) | (138) | |
Other comprehensive income/(loss), Tax (Expense)/Benefit | (34) | 175 | 90 | 44 | |
Other comprehensive income/(loss) | 76 | (333) | (156) | (94) | |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Cost of sales | 13 | (58) | 10 | (108) | |
SG&A expense | 7 | (42) | 3 | (82) | |
Other (income) and expense | 75 | (221) | (12) | (380) | |
Interest expense | 7 | 0 | 9 | 0 | |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Cost of sales | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Provision for/(benefit from) income taxes | (5) | 17 | (5) | 32 | |
Net (income) loss | 8 | (41) | 5 | (76) | |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | SG&A expense | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Provision for/(benefit from) income taxes | (3) | 12 | (2) | 24 | |
Net (income) loss | 4 | (30) | 1 | (58) | |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Other (income) and expense | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Provision for/(benefit from) income taxes | (29) | 85 | 5 | 146 | |
Net (income) loss | 46 | (136) | (7) | (234) | |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Interest expense | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Provision for/(benefit from) income taxes | (3) | 0 | (4) | 0 | |
Net (income) loss | 5 | 0 | 6 | 0 | |
Net Change Retirement-Related Benefit Plans | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | (34) | 19 | |||
Reclassification/amortization, Net of Tax Amount | 840 | 1,058 | |||
Other comprehensive income/(loss), Before Tax Amount | 754 | 894 | 1,277 | 1,635 | |
Other comprehensive income/(loss), Tax (Expense)/Benefit | (283) | (310) | (471) | (558) | |
Other comprehensive income/(loss) | 471 | 585 | 806 | 1,077 | |
Retirement-Related Benefit Plans, Prior Service Costs/(Credits) | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Unrealized gains/(losses) arising during the period, Before Tax Amount | 1 | 6 | |||
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 0 | (2) | |||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 1 | 4 | |||
Reclassification/amortization, Before Tax Amount | (27) | (25) | (53) | (51) | |
Reclassification/amortization, Tax (Expense)/Benefit | 10 | 9 | 19 | 17 | |
Reclassification/amortization, Net of Tax Amount | (17) | (16) | (33) | (33) | |
Retirement-Related Benefit Plans, Net Gains/(Losses) | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Unrealized gains/(losses) arising during the period, Before Tax Amount | 78 | 93 | (68) | 16 | |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | (27) | (31) | 25 | (5) | |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 51 | 62 | (43) | 10 | |
Reclassification/amortization, Before Tax Amount | 693 | 821 | 1,383 | 1,656 | |
Reclassification/amortization, Tax (Expense)/Benefit | (263) | (285) | (510) | (565) | |
Reclassification/amortization, Net of Tax Amount | 431 | 536 | 873 | 1,091 | |
Retirement-Related Benefit Plans, Curtailments and Settlements | |||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | |||||
Unrealized gains/(losses) arising during the period, Before Tax Amount | 10 | 3 | 14 | 7 | |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | (4) | (1) | (5) | (2) | |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | $ 6 | $ 2 | $ 9 | $ 5 |
Equity Activity - AOCI Rollforw
Equity Activity - AOCI Rollforward (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Accumulated Other Comprehensive Income (Loss) (net of tax) | ||||
Balance at the Beginning of the Period | $ 14,424 | $ 12,014 | ||
Other comprehensive income/(loss) | $ 394 | $ 411 | 1,002 | 444 |
Balance at the End of the Period | 15,889 | 13,837 | 15,889 | 13,837 |
Accumulated Other Comprehensive Income/(Loss) | ||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | ||||
Balance at the Beginning of the Period | (29,607) | (27,875) | ||
Other comprehensive income before reclassifications | 135 | (246) | ||
Amount reclassified from accumulated other comprehensive income | 867 | 690 | ||
Other comprehensive income/(loss) | 394 | 411 | 1,002 | 444 |
Balance at the End of the Period | (28,604) | (27,432) | (28,604) | (27,432) |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | ||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | ||||
Balance at the Beginning of the Period | 100 | 392 | ||
Other comprehensive income before reclassifications | 13 | (127) | (160) | 274 |
Amount reclassified from accumulated other comprehensive income | 4 | (368) | ||
Other comprehensive income/(loss) | 76 | (333) | (156) | (94) |
Balance at the End of the Period | (56) | 298 | (56) | 298 |
Foreign Currency Translation Adjustments | ||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | ||||
Balance at the Beginning of the Period | (3,463) | (1,742) | ||
Other comprehensive income before reclassifications | 351 | (549) | ||
Amount reclassified from accumulated other comprehensive income | 0 | 0 | ||
Other comprehensive income/(loss) | (154) | 169 | 351 | (549) |
Balance at the End of the Period | (3,112) | (2,292) | (3,112) | (2,292) |
Net Change Retirement-Related Benefit Plans | ||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | ||||
Balance at the Beginning of the Period | (26,248) | (26,509) | ||
Other comprehensive income before reclassifications | (34) | 19 | ||
Amount reclassified from accumulated other comprehensive income | 840 | 1,058 | ||
Other comprehensive income/(loss) | 471 | 585 | 806 | 1,077 |
Balance at the End of the Period | (25,442) | (25,433) | (25,442) | (25,433) |
Net Unrealized Gains/(Losses) on Available-For-Sale Securities | ||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | ||||
Balance at the Beginning of the Period | 5 | (15) | ||
Other comprehensive income before reclassifications | 1 | (10) | (22) | 10 |
Amount reclassified from accumulated other comprehensive income | 23 | 0 | ||
Other comprehensive income/(loss) | 1 | (10) | 1 | 10 |
Balance at the End of the Period | $ 6 | $ (5) | $ 6 | $ (5) |
Retirement-Related Benefits - A
Retirement-Related Benefits - All Retirement Plans Cost (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Retirement-Related Benefits: | ||||
Defined benefit and contribution pension plans - cost | $ 455 | $ 493 | $ 894 | $ 1,242 |
Nonpension postretirement plans - cost | 61 | 67 | 121 | 139 |
Total | $ 516 | $ 560 | $ 1,014 | $ 1,380 |
Year-to-year percent change, defined benefit and contribution pension plans cost (as a percent) | (7.70%) | (28.00%) | ||
Year-to-year percent change, nonpension postretirement plans cost (as a percent) | (9.80%) | (13.00%) | ||
Year-to-year percent change, total (as a percent) | (7.90%) | (26.50%) |
Retirement-Related Benefits - C
Retirement-Related Benefits - Cost of Pension Plans (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Cost/(Income) of Pension Plans | ||||
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings | $ 455 | $ 493 | $ 894 | $ 1,242 |
U.S. Plans | ||||
Cost/(Income) of Pension Plans | ||||
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings | 76 | 99 | 167 | 208 |
Non-U.S. Plans | ||||
Cost/(Income) of Pension Plans | ||||
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings | 379 | 394 | 727 | 1,034 |
U.S. Pension Plans | ||||
Cost/(Income) of Pension Plans | ||||
Cost of defined contribution plans | 161 | 166 | 326 | 339 |
Non-US Pension Plans | ||||
Cost/(Income) of Pension Plans | ||||
Cost of defined contribution plans | 108 | 111 | 215 | 226 |
U.S. Pension Plans | ||||
Cost/(Income) of Pension Plans | ||||
Interest cost | 511 | 507 | 1,024 | 1,014 |
Expected return on plan assets | (922) | (988) | (1,845) | (1,977) |
Amortization of prior service costs/(credits) | 3 | 2 | 5 | 5 |
Recognized actuarial losses | 324 | 412 | 657 | 827 |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | (85) | (67) | (158) | (131) |
Non-US Pension Plans | ||||
Cost/(Income) of Pension Plans | ||||
Service cost | 106 | 116 | 210 | 224 |
Interest cost | 267 | 270 | 529 | 541 |
Expected return on plan assets | (481) | (482) | (951) | (965) |
Amortization of prior service costs/(credits) | (27) | (24) | (52) | (49) |
Recognized actuarial losses | 359 | 393 | 706 | 794 |
Curtailments and settlements | 10 | 3 | 14 | 7 |
Multi-employer plans/other costs | 37 | 8 | 55 | 256 |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | $ 271 | $ 283 | $ 512 | $ 808 |
Retirement-Related Benefits - L
Retirement-Related Benefits - Litigation in Spain (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2015 | Dec. 31, 2015 | |
Litigation in Spain regarding defined benefit and defined contribution plans | ||
Loss Contingencies | ||
Multi-employer plans/other costs | $ 230 | $ 233 |
Retirement-Related Benefits - I
Retirement-Related Benefits - Investment Strategy (Details) - U.S. Pension Plans | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2016 | Dec. 31, 2017 | Dec. 31, 2015 | |
Retirement-related benefits disclosures | |||
Expected long-term returns on plan assets (as a percent) | 7.00% | ||
Expected | |||
Retirement-related benefits disclosures | |||
Expected long-term returns on plan assets (as a percent) | 6.25% | ||
Equity securities | |||
Retirement-related benefits disclosures | |||
Target allocation (as a percent) | 21.00% | 34.00% | |
Other investments | |||
Retirement-related benefits disclosures | |||
Target allocation (as a percent) | 9.00% | 10.00% | |
Debt securities | |||
Retirement-related benefits disclosures | |||
Target allocation (as a percent) | 70.00% | 56.00% |
Retirement-Related Benefits - N
Retirement-Related Benefits - Non-US and Multi-Employer Contributions (Details) - Non-U.S. Defined Benefit and Multi-employer Plan - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | |
Defined Benefit Plan Disclosure [Line Items] | ||
Expected current year contributions to non-U.S. defined benefit plans | $ 500 | |
Contributions by employer - Cash | 83 | $ 186 |
Contributions by employer - Noncash | 134 | |
Year-to-date contributions to non-U.S. defined benefit plans | $ 217 |
Retirement-Related Benefits -61
Retirement-Related Benefits - Nonpension Postretirement Cost (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
U.S. Defined Benefit Non Pension Postretirement Plans | ||||
Retirement-related plans cost | ||||
Service cost | $ 4 | $ 6 | $ 9 | $ 12 |
Interest cost | 41 | 40 | 82 | 82 |
Expected return on plan assets | 0 | 0 | ||
Amortization of prior service costs/(credits) | (2) | (2) | (4) | (4) |
Recognized actuarial losses | 5 | 9 | 10 | 20 |
Curtailments and settlements | 0 | 0 | ||
Total net periodic pension / nonpension (income)/cost of defined benefit plans | 49 | 53 | 97 | 109 |
Non-U.S. Defined Benefit Non Pension Postretirement Plans | ||||
Retirement-related plans cost | ||||
Service cost | 1 | 2 | 3 | 4 |
Interest cost | 11 | 13 | 22 | 27 |
Expected return on plan assets | (2) | (2) | (3) | (4) |
Amortization of prior service costs/(credits) | (1) | (1) | (2) | (3) |
Recognized actuarial losses | 2 | 2 | 4 | 5 |
Curtailments and settlements | 0 | 0 | 0 | |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | $ 12 | $ 14 | $ 23 | $ 29 |
Retirement-Related Benefits -62
Retirement-Related Benefits - Nonpension Postretirement Contributions (Details) - U.S. Defined Benefit Non Pension Postretirement Plans - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | |
Retirement-related benefits disclosures | ||
Contributions by employer - Cash | $ 227 | |
Contributions by employer - Noncash | $ 200 |
Acquisitions_Divestitures - Bus
Acquisitions/Divestitures - Businesses Acquired (Details) $ in Millions | Apr. 08, 2016USD ($) | Jan. 29, 2016USD ($) | Jul. 31, 2017USD ($) | Jun. 30, 2016USD ($)item | Mar. 31, 2016item | Jun. 30, 2016USD ($)item | Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($) |
Acquisitions: | ||||||||
Businesses acquired, number (in entities) | item | 11 | |||||||
Businesses acquired, aggregate cost | $ 5,674 | |||||||
Goodwill | $ 36,422 | 36,422 | $ 32,021 | $ 30,556 | ||||
Technology Services & Cloud Platforms | ||||||||
Acquisitions: | ||||||||
Goodwill | 10,398 | 10,398 | 10,156 | 9,373 | ||||
Global Business Services | ||||||||
Acquisitions: | ||||||||
Goodwill | 4,689 | 4,689 | 4,396 | 4,555 | ||||
Cognitive Solutions | ||||||||
Acquisitions: | ||||||||
Goodwill | 19,474 | 19,474 | $ 15,621 | $ 15,156 | ||||
The Weather Company | ||||||||
Acquisitions: | ||||||||
Businesses acquired, cash consideration | $ 2,278 | |||||||
Goodwill | $ 1,717 | |||||||
Expected percent of goodwill deductible for tax purposes | 0.00% | |||||||
Acquired intangible asset, weighted average useful life | 6 years 10 months 24 days | |||||||
The Weather Company | Cognitive Solutions | ||||||||
Acquisitions: | ||||||||
Goodwill | $ 1,717 | |||||||
Truven Health Analytics | ||||||||
Acquisitions: | ||||||||
Businesses acquired, aggregate cost | $ 2,612 | |||||||
Goodwill | $ 1,933 | |||||||
Expected percent of goodwill deductible for tax purposes | 0.00% | |||||||
Acquired intangible asset, weighted average useful life | 6 years 10 months 24 days | |||||||
Truven Health Analytics | Expected | ||||||||
Acquisitions: | ||||||||
Businesses acquired, cash consideration | $ 200 | |||||||
Truven Health Analytics | Cognitive Solutions | ||||||||
Acquisitions: | ||||||||
Goodwill | $ 1,933 | |||||||
Other Acquisitions | ||||||||
Acquisitions: | ||||||||
Goodwill | 487 | $ 487 | ||||||
Expected percent of goodwill deductible for tax purposes | 50.00% | |||||||
Acquired intangible asset, weighted average useful life | 6 years 4 months 24 days | |||||||
Other Acquisitions | Technology Services & Cloud Platforms | ||||||||
Acquisitions: | ||||||||
Businesses acquired, number (in entities) | item | 2 | |||||||
Goodwill | 91 | $ 91 | ||||||
Other Acquisitions | Global Business Services | ||||||||
Acquisitions: | ||||||||
Businesses acquired, number (in entities) | item | 5 | |||||||
Goodwill | $ 278 | $ 278 | ||||||
Other Acquisitions | Cognitive Solutions | ||||||||
Acquisitions: | ||||||||
Businesses acquired, number (in entities) | item | 2 | |||||||
Goodwill | $ 118 | $ 118 |
Acquisitions_Divestitures - Pur
Acquisitions/Divestitures - Purchase Price Allocation (Details) - USD ($) $ in Millions | Apr. 08, 2016 | Jan. 29, 2016 | Jun. 30, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Acquisitions: | |||||
Goodwill | $ 36,422 | $ 32,021 | $ 30,556 | ||
Completed technology | Minimum | |||||
Acquisitions: | |||||
Acquired intangible asset, weighted average useful life | 1 year | ||||
Completed technology | Maximum | |||||
Acquisitions: | |||||
Acquired intangible asset, weighted average useful life | 7 years | ||||
Client relationships | Minimum | |||||
Acquisitions: | |||||
Acquired intangible asset, weighted average useful life | 3 years | ||||
Client relationships | Maximum | |||||
Acquisitions: | |||||
Acquired intangible asset, weighted average useful life | 7 years | ||||
Patents/trademarks | Minimum | |||||
Acquisitions: | |||||
Acquired intangible asset, weighted average useful life | 2 years | ||||
Patents/trademarks | Maximum | |||||
Acquisitions: | |||||
Acquired intangible asset, weighted average useful life | 7 years | ||||
The Weather Company | |||||
Acquisitions: | |||||
Current assets | $ 76 | ||||
Fixed assets/noncurrent assets | 123 | ||||
Goodwill | 1,717 | ||||
Total assets acquired | 2,738 | ||||
Current liabilities | (88) | ||||
Noncurrent liabilities | (372) | ||||
Total liabilities assumed | (460) | ||||
Total purchase price | $ 2,278 | ||||
Acquired intangible asset, weighted average useful life | 6 years 10 months 24 days | ||||
The Weather Company | Completed technology | |||||
Acquisitions: | |||||
Intangible assets | $ 160 | ||||
The Weather Company | Client relationships | |||||
Acquisitions: | |||||
Intangible assets | 313 | ||||
The Weather Company | Patents/trademarks | |||||
Acquisitions: | |||||
Intangible assets | $ 349 | ||||
Truven Health Analytics | |||||
Acquisitions: | |||||
Current assets | $ 171 | ||||
Fixed assets/noncurrent assets | 127 | ||||
Goodwill | 1,933 | ||||
Total assets acquired | 3,141 | ||||
Current liabilities | (148) | ||||
Noncurrent liabilities | (381) | ||||
Total liabilities assumed | (529) | ||||
Total purchase price | $ 2,612 | ||||
Acquired intangible asset, weighted average useful life | 6 years 10 months 24 days | ||||
Truven Health Analytics | Completed technology | |||||
Acquisitions: | |||||
Intangible assets | $ 338 | ||||
Truven Health Analytics | Client relationships | |||||
Acquisitions: | |||||
Intangible assets | 516 | ||||
Truven Health Analytics | Patents/trademarks | |||||
Acquisitions: | |||||
Intangible assets | $ 54 | ||||
Other Acquisitions | |||||
Acquisitions: | |||||
Current assets | $ 71 | ||||
Fixed assets/noncurrent assets | 89 | ||||
Goodwill | 487 | ||||
Total assets acquired | 934 | ||||
Current liabilities | (46) | ||||
Noncurrent liabilities | (64) | ||||
Total liabilities assumed | (110) | ||||
Bargain purchase gain | (40) | ||||
Total purchase price | $ 784 | ||||
Acquired intangible asset, weighted average useful life | 6 years 4 months 24 days | ||||
Other Acquisitions | Completed technology | |||||
Acquisitions: | |||||
Intangible assets | $ 75 | ||||
Other Acquisitions | Client relationships | |||||
Acquisitions: | |||||
Intangible assets | 184 | ||||
Other Acquisitions | Patents/trademarks | |||||
Acquisitions: | |||||
Intangible assets | $ 28 |
Acquisitions_Divestitures - Mic
Acquisitions/Divestitures - Microelectronics Disposal Group (Details) - Microelectronics business - Discontinued Operations, Disposed of by Means Other than Sale - USD ($) $ in Millions | Jul. 01, 2015 | Jun. 30, 2016 | Sep. 30, 2015 | Jun. 30, 2015 | Sep. 30, 2014 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 |
Discontinued Operations | ||||||||
Discontinued operation, period of exclusive manufacturing agreement after disposal | 10 years | |||||||
Pre-tax (charge) credit related to sale | $ 0 | $ (37) | $ (4,700) | $ 1 | $ (51) | $ (116) | ||
Impairment of long-lived assets to be disposed of | 2,400 | |||||||
Total cash consideration expected to be transferred to acquiring company | 1,500 | |||||||
Other related costs | $ 800 | |||||||
Cumulative pre-tax charge | $ 4,800 | |||||||
Net cash transferred | $ 515 | |||||||
Cash consideration payable at closing date | $ 750 | |||||||
Period of time within which remaining cash consideration is expected to be transferred | 2 years | |||||||
Minimum | ||||||||
Discontinued Operations | ||||||||
Transition service agreement duration | 1 year | |||||||
Maximum | ||||||||
Discontinued Operations | ||||||||
Transition service agreement duration | 3 years |
Acquisitions_Divestitures - Dis
Acquisitions/Divestitures - Discontinued Operations Financial Information (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Jun. 30, 2016 | Jun. 30, 2015 | Sep. 30, 2014 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Income Statement Disclosures | ||||||
Loss from discontinued operations, net of tax | $ 0 | $ (77) | $ (3) | $ (165) | ||
Microelectronics business | Discontinued Operations, Disposed of by Means Other than Sale | ||||||
Income Statement Disclosures | ||||||
Total revenue | 381 | 720 | ||||
Income/(loss) from discontinued operations | (1) | (74) | (6) | (179) | ||
Gain/(loss) on disposal, before tax | 0 | (37) | $ (4,700) | 1 | (51) | $ (116) |
Total loss from discontinued operations, before income taxes | (1) | (111) | (5) | (230) | ||
Provision/(benefit) for income taxes | 0 | (34) | (2) | (65) | ||
Loss from discontinued operations, net of tax | $ 0 | $ (77) | $ (3) | $ (165) |
Acquisitions_Divestitures - Oth
Acquisitions/Divestitures - Other Disposal Groups (Details) $ in Millions | Oct. 01, 2014 | Jan. 23, 2014USD ($) | Sep. 10, 2013USD ($) | Jun. 30, 2016USD ($)item | Mar. 31, 2016item | Jun. 30, 2016USD ($) | Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($) |
Industry Standard x86 Server Portfolio | Disposal group disposed of by sale, not discontinued operations | ||||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||||
Transaction price for sale of business | $ 2,100 | |||||||
Approximate amount of transaction price received in cash | $ 1,800 | |||||||
Pre-tax gain/(loss) on sale of business | $ 32 | $ 63 | ||||||
Expected pre-tax gain (loss) on sale of business | $ 1,600 | 1,600 | ||||||
Disposal group expected total gain (loss) on sale, net of associated costs | 1,300 | 1,300 | ||||||
Cumulative gain on sale of business, net of transition and performance-based costs | 1,200 | 1,200 | ||||||
Industry Standard x86 Server Portfolio | Minimum | Disposal group disposed of by sale, not discontinued operations | ||||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||||
Transition service agreement duration | 1 year | |||||||
Industry Standard x86 Server Portfolio | Maximum | Disposal group disposed of by sale, not discontinued operations | ||||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||||
Disposal group equity consideration ownership (as a percent) | 5.00% | |||||||
Transition service agreement duration | 3 years | |||||||
Customer Care Business Process Outsourcing Services | Disposal group disposed of by sale, not discontinued operations | ||||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||||
Transaction price for sale of business | $ 501 | |||||||
Approximate amount of transaction price received in cash | 430 | |||||||
Pre-tax gain/(loss) on sale of business | $ 7 | $ 202 | ||||||
Cumulative pre-tax gain/(loss) on sale of business | $ 211 | 211 | ||||||
Noncash consideration received on sale of business | $ 71 | |||||||
Customer Care Business Process Outsourcing Services | Maximum | Disposal group disposed of by sale, not discontinued operations | ||||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||||
Disposal group equity consideration ownership (as a percent) | 5.00% | |||||||
Others | ||||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||||
Pre-tax gain/(loss) on sale of business | $ 36 | |||||||
Number of divestitures | item | 0 | 4 |
Intangible Assets Including G68
Intangible Assets Including Goodwill - Intangible Assets by Class (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | $ 8,663 | $ 6,543 |
Accumulated Amortization | (3,515) | (3,057) |
Net Carrying Amount | 5,148 | 3,487 |
Capitalized software | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 1,486 | 1,348 |
Accumulated Amortization | (604) | (581) |
Net Carrying Amount | 882 | 767 |
Client relationships | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 2,861 | 1,856 |
Accumulated Amortization | (1,093) | (927) |
Net Carrying Amount | 1,769 | 929 |
Completed technology | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 3,509 | 2,960 |
Accumulated Amortization | (1,615) | (1,397) |
Net Carrying Amount | 1,894 | 1,563 |
Patents/trademarks | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 762 | 335 |
Accumulated Amortization | (190) | (142) |
Net Carrying Amount | 572 | 193 |
Other intangible assets | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 44 | 44 |
Accumulated Amortization | (12) | (10) |
Net Carrying Amount | $ 32 | $ 35 |
Intangible Assets Including G69
Intangible Assets Including Goodwill - Intangible Assets Activity (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Intangible Assets Including Goodwill: | ||||
Net carrying amount increase | $ 1,662 | |||
Intangible asset amortization expense | $ 398 | $ 296 | 745 | $ 594 |
Retirement of fully amortized intangible assets | $ 283 |
Intangible Assets Including G70
Intangible Assets Including Goodwill - Future Amortization (Details) $ in Millions | Jun. 30, 2016USD ($) |
Future amortization expense, by year | |
2016 (for Q3-Q4) | $ 782 |
2,017 | 1,338 |
2,018 | 1,001 |
2,019 | 660 |
2,020 | 535 |
Capitalized software | |
Future amortization expense, by year | |
2016 (for Q3-Q4) | 260 |
2,017 | 393 |
2,018 | 204 |
2,019 | 25 |
Acquired intangibles | |
Future amortization expense, by year | |
2016 (for Q3-Q4) | 521 |
2,017 | 945 |
2,018 | 798 |
2,019 | 635 |
2,020 | $ 535 |
Intangible Assets Including G71
Intangible Assets Including Goodwill - Goodwill by Segment (Details) - USD ($) $ in Millions | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016 | Dec. 31, 2015 | |
Changes in Goodwill Balances | ||
Beginning Balance | $ 32,021 | $ 30,556 |
Goodwill Additions | 4,137 | 2,590 |
Purchase Price Adjustments | 5 | (3) |
Divestitures | (17) | (26) |
Foreign Currency Translation and Other Adjustments | 276 | (1,096) |
Ending Balance | 36,422 | 32,021 |
Goodwill impairment losses | 0 | 0 |
Goodwill accumulated impairment losses | 0 | 0 |
Cognitive Solutions | ||
Changes in Goodwill Balances | ||
Beginning Balance | 15,621 | 15,156 |
Goodwill Additions | 3,769 | 1,020 |
Purchase Price Adjustments | (3) | (2) |
Divestitures | (12) | (18) |
Foreign Currency Translation and Other Adjustments | 98 | (535) |
Ending Balance | 19,474 | 15,621 |
Global Business Services | ||
Changes in Goodwill Balances | ||
Beginning Balance | 4,396 | 4,555 |
Goodwill Additions | 278 | 74 |
Purchase Price Adjustments | 4 | 0 |
Divestitures | (1) | (1) |
Foreign Currency Translation and Other Adjustments | 12 | (232) |
Ending Balance | 4,689 | 4,396 |
Technology Services & Cloud Platforms | ||
Changes in Goodwill Balances | ||
Beginning Balance | 10,156 | 9,373 |
Goodwill Additions | 91 | 1,087 |
Purchase Price Adjustments | 1 | (1) |
Divestitures | (5) | (7) |
Foreign Currency Translation and Other Adjustments | 154 | (296) |
Ending Balance | 10,398 | 10,156 |
Systems | ||
Changes in Goodwill Balances | ||
Beginning Balance | 1,848 | 1,472 |
Goodwill Additions | 410 | |
Purchase Price Adjustments | 2 | 0 |
Foreign Currency Translation and Other Adjustments | 11 | (33) |
Ending Balance | $ 1,861 | $ 1,848 |
Borrowings - Short-Term Debt (D
Borrowings - Short-Term Debt (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Short-term debt disclosures | ||
Long-term debt - current maturities | $ 4,586 | $ 5,271 |
Short Term Debt | 4,887 | 6,461 |
Commercial paper | ||
Short-term debt disclosures | ||
Short-term debt | $ 600 | |
Weighted-average interest rates for short-term loans (as a percent) | 0.40% | |
Short-term loans | ||
Short-term debt disclosures | ||
Short-term debt | $ 301 | $ 590 |
Weighted-average interest rates for short-term loans (as a percent) | 10.60% | 5.20% |
Borrowings - Long-Term Debt, Co
Borrowings - Long-Term Debt, Components (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Debt Disclosure | ||
Long-term debt, gross | $ 44,027 | $ 38,820 |
Less: net unamortized discount | 853 | 838 |
Less: unamortized debt issuance costs | 90 | 74 |
Add: fair value adjustment | 1,140 | 790 |
Long-term debt (including current maturities) | 44,224 | 38,699 |
Less: current maturities | 4,586 | 5,271 |
Total long-term debt (excluding current portion) | 39,638 | 33,428 |
IBM International Group Capital, LLC | ||
Debt Disclosure | ||
Long-term debt, gross | $ 0 | |
Ownership interest in subsidiary (as a percent) | 100.00% | |
U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 32,644 | 30,319 |
Euros | ||
Debt Disclosure | ||
Long-term debt, gross | $ 7,493 | 4,892 |
Debt instrument, average interest rate percentage (as a percent) | 1.60% | |
Pound sterling | ||
Debt Disclosure | ||
Long-term debt, gross | $ 1,400 | 1,555 |
Debt instrument, average interest rate percentage (as a percent) | 2.70% | |
Japanese yen | ||
Debt Disclosure | ||
Long-term debt, gross | $ 1,383 | 1,180 |
Debt instrument, average interest rate percentage (as a percent) | 0.30% | |
Swiss francs | ||
Debt Disclosure | ||
Long-term debt, gross | $ 8 | 9 |
Debt instrument, average interest rate percentage (as a percent) | 6.30% | |
Canadian | ||
Debt Disclosure | ||
Long-term debt, gross | $ 385 | 360 |
Debt instrument, average interest rate percentage (as a percent) | 2.20% | |
Other | ||
Debt Disclosure | ||
Long-term debt, gross | $ 715 | 506 |
Debt instrument, average interest rate percentage (as a percent) | 12.40% | |
Maturing 2016 Through 2017 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 7,198 | 9,351 |
Debt instrument, average interest rate percentage (as a percent) | 3.36% | |
Maturing 2018 Through 2019 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 8,841 | 7,591 |
Debt instrument, average interest rate percentage (as a percent) | 3.17% | |
Maturing 2020 Through 2021 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 4,943 | 3,717 |
Debt instrument, average interest rate percentage (as a percent) | 1.72% | |
Maturing 2022 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 1,901 | 1,900 |
Debt instrument, average interest rate percentage (as a percent) | 2.35% | |
Maturing 2023 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 1,500 | 1,500 |
Debt instrument, average interest rate percentage (as a percent) | 3.38% | |
Maturing 2024 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 2,000 | 2,000 |
Debt instrument, average interest rate percentage (as a percent) | 3.63% | |
Maturing 2025 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 600 | 600 |
Debt instrument, average interest rate percentage (as a percent) | 7.00% | |
Maturing 2026 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 1,350 | |
Debt instrument, average interest rate percentage (as a percent) | 3.45% | |
Maturing 2027 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 469 | 469 |
Debt instrument, average interest rate percentage (as a percent) | 6.22% | |
Maturing 2028 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 313 | 313 |
Debt instrument, average interest rate percentage (as a percent) | 6.50% | |
Maturing 2032 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 600 | 600 |
Debt instrument, average interest rate percentage (as a percent) | 5.88% | |
Maturing 2038 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 83 | 83 |
Debt instrument, average interest rate percentage (as a percent) | 8.00% | |
Maturing 2039 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 745 | 745 |
Debt instrument, average interest rate percentage (as a percent) | 5.60% | |
Maturing 2042 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 1,107 | 1,107 |
Debt instrument, average interest rate percentage (as a percent) | 4.00% | |
Maturing 2045 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 27 | 27 |
Debt instrument, average interest rate percentage (as a percent) | 7.00% | |
Maturing 2046 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 650 | |
Debt instrument, average interest rate percentage (as a percent) | 4.70% | |
Maturing 2096 | U.S. dollars | ||
Debt Disclosure | ||
Long-term debt, gross | $ 316 | $ 316 |
Debt instrument, average interest rate percentage (as a percent) | 7.13% |
Borrowings - Long-Term Debt, 74
Borrowings - Long-Term Debt, Covenants (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2016USD ($) | |
Borrowings: | |
Limit based on net tangible assets | 10.00% |
Net interest expense ratio | 2.20 |
Default provision on credit facility | $ 500 |
Borrowings - Pre-Swap Maturitie
Borrowings - Pre-Swap Maturities (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Pre-swap annual contractual maturities of long-term debt outstanding | ||
2016 (for Q3-Q4) | $ 2,128 | |
2,017 | 6,943 | |
2,018 | 4,794 | |
2,019 | 5,247 | |
2,020 | 4,751 | |
2021 and beyond | 20,164 | |
Total | $ 44,027 | $ 38,820 |
Borrowings - Interest on Debt (
Borrowings - Interest on Debt (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | |
Interest on Debt | ||
Cost of financing | $ 284 | $ 276 |
Interest expense | 341 | 225 |
Net investment derivative activity | (26) | (3) |
Interest capitalized | 1 | (3) |
Total interest paid and accrued | $ 600 | $ 496 |
Contingencies (Details)
Contingencies (Details) $ in Millions | Feb. 13, 2014USD ($) | Jul. 25, 2013 | Jul. 18, 2012USD ($) | May 31, 2015defendant | Mar. 31, 2015defendant | May 31, 2010defendant | Jun. 30, 2016USD ($)countryclaim |
IBM v. State Of Indiana | |||||||
Loss Contingencies | |||||||
Duration of trial | 42 days | ||||||
Amount of settlement to be (paid)/received | $ | $ 50 | $ 52 | |||||
IBM United Kingdom Limited vs. IBM UK Pension Trusts | |||||||
Loss Contingencies | |||||||
Number of representative beneficiaries of the UK Trust membership | defendant | 2 | ||||||
Loss contingency, estimate of possible loss | $ | $ 250 | ||||||
Individual Participants Of Defined Benefit Plans vs. IBM United Kingdom | |||||||
Loss Contingencies | |||||||
Claims pending | claim | 290 | ||||||
Litigation Case In United States District Court regarding divesting Microelectronics business | |||||||
Loss Contingencies | |||||||
Number of officers or executives named as defendants | defendant | 3 | ||||||
Litigation Case In United States District Court regarding divesting Microelectronics business, alleging violations of the Employee Retirement Income Security Act | |||||||
Loss Contingencies | |||||||
Number of officers or executives named as defendants | defendant | 3 | ||||||
Civil enforcement action with the SEC | |||||||
Loss Contingencies | |||||||
Period for which reports are to be submitted to SEC and court on certain matters, including those relating to compliance with the FCPA | 2 years | ||||||
Brazil Tax Matters | |||||||
Loss Contingencies | |||||||
Damages sought, value | $ | $ 585 | ||||||
Minimum | |||||||
Loss Contingencies | |||||||
Clients presence in number of countries | country | 175 |
Commitments - Extensions of Cre
Commitments - Extensions of Credit (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Extended lines of credit | ||
Commitments, guarantees: | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 5,931 | $ 5,477 |
Financing for client purchase agreements | ||
Commitments, guarantees: | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 2,252 | $ 2,097 |
Commitments - Financial Guarant
Commitments - Financial Guarantees (Details) - USD ($) $ in Millions | Jun. 30, 2016 | Dec. 31, 2015 |
Financial guarantees | ||
Guarantor obligations | ||
Guarantor obligations, maximum exposure | $ 30 | $ 34 |
Commitments - Standard Warranty
Commitments - Standard Warranty Liability (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | |
Movement in standard warranty liability | ||
Beginning Balance | $ 181 | $ 197 |
Current period accruals | 74 | 82 |
Accrual adjustments to reflect actual experience | 3 | 9 |
Charges incurred | (89) | (100) |
Ending Balance | $ 169 | $ 188 |
Commitments - Extended Warranty
Commitments - Extended Warranty Liability (Details) - USD ($) $ in Millions | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Deferred revenue: | |||
Current portion | $ 11,508 | $ 11,021 | |
Noncurrent portion | 3,837 | $ 3,771 | |
Extended Warranty Liability | |||
Movement in extended warranty liability | |||
Aggregate deferred revenue, beginning balance | 538 | $ 536 | |
Revenue deferred for new extended warranty contracts | 122 | 122 | |
Amortization of deferred revenue | (134) | (126) | |
Other | 9 | (20) | |
Aggregate deferred revenue, ending balance | 535 | 512 | |
Deferred revenue: | |||
Current portion | 241 | 245 | |
Noncurrent portion | $ 294 | $ 267 |
Subsequent Events (Details)
Subsequent Events (Details) - Subsequent event | Jul. 26, 2016$ / shares |
Subsequent events: | |
Dividend declared (in dollars per share) | $ 1.40 |
Dividend declared, date | Jul. 26, 2016 |
Dividend payable, date | Sep. 10, 2016 |
Shareholders of record, date | Aug. 10, 2016 |