Document and Entity Information
Document and Entity Information | 6 Months Ended |
Jun. 30, 2018shares | |
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, 2018 |
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 | 912,768,189 |
Document Fiscal Year Focus | 2,018 |
Document Fiscal Period Focus | Q2 |
Trading Symbol | IBM |
CONSOLIDATED STATEMENT OF EARNI
CONSOLIDATED STATEMENT OF EARNINGS - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |||
Revenue | $ 20,003 | $ 19,289 | $ 39,075 | $ 37,443 | ||
Cost | 10,804 | 10,321 | [1] | 21,629 | 20,531 | [1] |
Gross profit | 9,199 | 8,968 | [1] | 17,445 | 16,912 | [1] |
Expense and other (income): | ||||||
Selling, general and administrative | 4,857 | 5,033 | [1] | 10,302 | 10,060 | [1] |
Research, development and engineering | 1,364 | 1,436 | [1] | 2,769 | 2,921 | [1] |
Intellectual property and custom development income | (250) | (365) | (567) | (810) | ||
Other (income) and expense | 280 | 273 | [1] | 692 | 592 | [1] |
Interest expense | 173 | 147 | 338 | 283 | ||
Total expense and other (income) | 6,423 | 6,525 | [1] | 13,534 | 13,046 | [1] |
Income from continuing operations before income taxes | 2,776 | 2,443 | 3,911 | 3,867 | ||
Provision for/(benefit from) income taxes | 373 | 111 | (166) | (218) | ||
Income from continuing operations | 2,402 | 2,332 | 4,078 | 4,085 | ||
Income/(loss) from discontinued operations, net of tax | 1 | (1) | 5 | (3) | ||
Net income | $ 2,404 | $ 2,331 | $ 4,083 | $ 4,082 | ||
Assuming dilution: | ||||||
Continuing operations (in dollars per share) | $ 2.61 | $ 2.48 | $ 4.42 | $ 4.32 | ||
Discontinued operations (in dollars per share) | 0 | 0 | 0.01 | 0 | ||
Total (in dollars per share) | 2.61 | 2.48 | 4.43 | 4.32 | ||
Basic: | ||||||
Continuing operations (in dollars per share) | 2.63 | 2.49 | 4.44 | 4.35 | ||
Discontinued operations (in dollars per share) | 0 | 0 | 0.01 | 0 | ||
Total (in dollars per share) | $ 2.63 | $ 2.49 | $ 4.45 | $ 4.35 | ||
Weighted-average number of common shares outstanding: | ||||||
Assuming dilution (in shares) | 919,398,606 | 939,564,761 | 922,404,020 | 943,700,484 | ||
Basic (in shares) | 915,064,434 | 934,923,989 | 917,872,328 | 938,682,445 | ||
Cash dividend per common share | $ 1.57 | $ 1.50 | $ 3.07 | $ 2.90 | ||
Services | ||||||
Revenue | $ 12,886 | $ 12,547 | $ 25,848 | $ 24,889 | ||
Cost | 8,645 | 8,368 | [1] | 17,479 | 16,769 | [1] |
Sales | ||||||
Revenue | 6,721 | 6,324 | 12,421 | 11,727 | ||
Cost | 1,869 | 1,664 | [1] | 3,591 | 3,195 | [1] |
Financing | ||||||
Revenue | 396 | 418 | 806 | 827 | ||
Cost | $ 290 | $ 289 | $ 559 | $ 568 | ||
[1] | Recast to reflect adoption of the FASB guidance on presentation of net periodic pension and nonpension postretirement benefit costs. |
CONSOLIDATED STATEMENT OF COMPR
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | ||||
Net income | $ 2,404 | $ 2,331 | $ 4,083 | $ 4,082 |
Other comprehensive income/(loss), before tax: | ||||
Foreign currency translation adjustments | (347) | (38) | (513) | 124 |
Net changes related to available-for-sale securities: | ||||
Unrealized gains/(losses) arising during the period | 0 | 4 | (2) | 3 |
Reclassification of (gains)/losses to net income | 0 | 0 | 1 | |
Total net changes related to available-for-sale securities | 0 | 3 | (2) | 4 |
Unrealized gains/(losses) on cash flow hedges: | ||||
Unrealized gains/(losses) arising during the period | (149) | (96) | (89) | (128) |
Reclassification of (gains)/losses to net income | 434 | (176) | 380 | (274) |
Total unrealized gains/(losses) on cash flow hedges | 285 | (272) | 292 | (402) |
Retirement-related benefit plans: | ||||
Prior service costs/(credits) | 0 | (1) | 0 | |
Net (losses)/gains arising during the period | 82 | 44 | 84 | 105 |
Curtailments and settlements | 6 | 3 | 6 | 1 |
Amortization of prior service (credits)/costs | (19) | (22) | (37) | (44) |
Amortization of net (gains)/losses | 741 | 713 | 1,494 | 1,423 |
Total retirement-related benefit plans | 810 | 738 | 1,545 | 1,486 |
Other comprehensive income/(loss), before tax | 748 | 432 | 1,322 | 1,211 |
Income tax (expense)/benefit related to items of other comprehensive income | (455) | 88 | (598) | (3) |
Other comprehensive income/(loss), net of tax | 294 | 520 | 724 | 1,208 |
Total comprehensive income/(loss) | $ 2,697 | $ 2,852 | $ 4,807 | $ 5,290 |
CONSOLIDATED STATEMENT OF FINAN
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 | |
Current assets: | |||
Cash and cash equivalents | $ 10,741 | $ 11,972 | |
Restricted cash | 219 | 262 | [1] |
Marketable securities | 966 | 608 | |
Notes and accounts receivable - trade (net of allowances of $310 in 2018 and $297 in 2017) | 7,445 | 8,928 | |
Short-term financing receivables (net of allowances of $281 in 2018 and $261 in 2017) | 19,806 | 21,721 | |
Other accounts receivable (net of allowances of $37 in 2018 and $36 in 2017) | 1,089 | 981 | |
Inventories, at lower of average cost or market: | |||
Finished goods | 488 | 333 | |
Work in process and raw materials | 1,254 | 1,250 | |
Total inventories | 1,742 | 1,583 | |
Deferred costs | 2,344 | 1,820 | [2] |
Prepaid expenses and other current assets | 2,443 | 1,860 | [1],[2] |
Total current assets | 46,795 | 49,735 | |
Property, plant and equipment | 32,233 | 32,331 | |
Less: Accumulated depreciation | 21,209 | 21,215 | |
Property, plant and equipment - net | 11,024 | 11,116 | |
Long-term financing receivables (net of allowances of $59 in 2018 and $74 in 2017) | 8,783 | 9,550 | |
Prepaid pension assets | 5,375 | 4,643 | |
Deferred costs | 2,613 | 2,136 | [2] |
Deferred taxes | 4,689 | 4,862 | |
Goodwill | 36,482 | 36,788 | |
Intangible assets - net | 3,344 | 3,742 | |
Investments and sundry assets | 2,518 | 2,783 | [2] |
Total assets | 121,622 | 125,356 | |
Current liabilities: | |||
Taxes | 2,780 | 4,219 | |
Short-term debt | 7,646 | 6,987 | |
Accounts payable | 5,518 | 6,451 | |
Compensation and benefits | 3,686 | 3,644 | |
Deferred income | 11,752 | 11,552 | |
Other accrued expenses and liabilities | 4,059 | 4,510 | |
Total current liabilities | 35,442 | 37,363 | |
Long-term debt | 37,851 | 39,837 | |
Retirement and nonpension postretirement benefit obligations | 15,963 | 16,720 | |
Deferred income | 3,718 | 3,746 | |
Other liabilities | 10,000 | 9,965 | |
Total liabilities | 102,974 | 107,631 | |
IBM stockholders' equity: | |||
Common stock, par value $.20 per share, and additional paid-in capital; Shares authorized: 4,687,500,000; Shares issued: 2018 - 2,232,306,588; 2017 - 2,229,428,813 | 54,827 | 54,566 | |
Retained earnings | 157,349 | 153,126 | |
Treasury stock, at cost; Shares: 2018 - 1,319,538,399; 2017 - 1,307,249,588 | (165,366) | (163,507) | |
Accumulated other comprehensive income/(loss) | (28,290) | (26,592) | |
Total IBM stockholders' equity | 18,520 | 17,594 | |
Noncontrolling interests | 128 | 131 | |
Total equity | 18,648 | 17,725 | |
Total liabilities and equity | $ 121,622 | $ 125,356 | |
[1] | Recast to reflect adoption of the FASB guidance on restricted cash. | ||
[2] | Recast to conform to current period presentation. |
CONSOLIDATED STATEMENT OF FINA5
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Parenthetical) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION | ||
Notes and accounts receivable - trade, allowances | $ 310 | $ 297 |
Short-term financing receivables, allowances | 281 | 261 |
Other accounts receivable, allowances | 37 | 36 |
Long-term financing receivables, allowances | $ 59 | $ 74 |
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) | 2,232,306,588 | 2,229,428,813 |
Treasury stock, Shares (in shares) | 1,319,538,399 | 1,307,249,588 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Millions | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | ||
Cash flows from operating activities: | |||
Net income | $ 4,083 | $ 4,082 | |
Adjustments to reconcile net income to cash provided by operating activities | |||
Depreciation | 1,547 | 1,439 | |
Amortization of intangibles | 683 | 777 | |
Stock-based compensation | 242 | 265 | |
Net (gain)/loss on asset sales and other | 6 | 74 | |
Changes in operating assets and liabilities, net of acquisitions/divestitures | 336 | 785 | |
Net cash provided by operating activities | 6,896 | 7,421 | |
Cash flows from investing activities: | |||
Payments for property, plant and equipment | (1,801) | (1,425) | |
Proceeds from disposition of property, plant and equipment | 180 | 136 | |
Investment in software | (275) | (278) | |
Acquisition of businesses, net of cash acquired | (122) | (169) | |
Divestitures of businesses, net of cash transferred | 29 | ||
Non-operating finance receivables - net | 422 | 816 | |
Purchases of marketable securities and other investments | (2,811) | (2,357) | [1] |
Proceeds from disposition of marketable securities and other investments | 2,009 | 1,883 | |
Net cash used in investing activities | (2,399) | (1,365) | [1] |
Cash flows from financing activities: | |||
Proceeds from new debt | 2,506 | 5,835 | |
Payments to settle debt | (3,654) | (2,106) | |
Short-term borrowings/(repayments) less than 90 days - net | 397 | (973) | |
Common stock repurchases | (1,767) | (2,725) | |
Common stock repurchases for tax withholdings | (143) | (147) | |
Financing - other | 52 | 97 | |
Cash dividends paid | (2,819) | (2,724) | |
Net cash used in financing activities | (5,428) | (2,743) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (344) | 547 | |
Net change in cash, cash equivalents and restricted cash | (1,274) | 3,860 | [1] |
Cash, cash equivalents and restricted cash at beginning of period | 12,234 | 8,073 | [1] |
Cash, cash equivalents and restricted cash at end of period | $ 10,960 | $ 11,932 | [1] |
[1] | Recast to reflect adoption of the FASB guidance on restricted cash. |
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, 2016 | $ 18,246 | $ 53,935 | $ 152,759 | $ (159,050) | $ (29,398) | $ 146 | $ 18,392 | |
Equity | ||||||||
Cumulative effect of change in accounting principle | Accounting Standards Update 2016-16, Intra-Entity Transfers of Assets Other Than Inventory | [1] | 102 | 102 | 102 | ||||
Net income plus other comprehensive income/(loss) | ||||||||
Net income | 4,082 | 4,082 | 4,082 | |||||
Other comprehensive income/(loss) | 1,208 | 1,208 | 1,208 | |||||
Total comprehensive income/(loss) | 5,290 | 5,290 | ||||||
Cash dividends paid - common stock | (2,724) | (2,724) | (2,724) | |||||
Common stock issued under employee plans (Shares - 2,877,775 and 2,945,036 for 2018 and 2017, respectively) | 300 | 300 | 300 | |||||
Purchases (Shares - 946,596 and 920,968) and sales (Shares - 351,491 and 347,939) of treasury stock under employee plans - net, for 2018 and 2017, respectively | (88) | 15 | (103) | (88) | ||||
Other treasury shares purchased, not retired (Shares - 11,693,706 and 16,299,114 for 2018 and 2017, respectively) | (2,708) | (2,708) | (2,708) | |||||
Changes in noncontrolling interests | (21) | (21) | ||||||
Balance at the End of the Period at Jun. 30, 2017 | 18,419 | 54,235 | 154,234 | (161,860) | (28,189) | 125 | 18,544 | |
Balance at the Beginning of the Period at Dec. 31, 2017 | 17,594 | 54,566 | 153,126 | (163,507) | (26,592) | 131 | 17,725 | |
Equity | ||||||||
Cumulative effect of change in accounting principle | Accounting Standards Update 2014-09, Revenue from Contracts with Customers | 524 | 524 | 524 | |||||
Cumulative effect of change in accounting principle | Accounting Standards Updates 2016-01 (Financial Instruments), 2017-12 (Hedging) and 2018-02 (Stranded Tax Effects) | [2] | 2,422 | (2,422) | |||||
Net income plus other comprehensive income/(loss) | ||||||||
Net income | 4,083 | 4,083 | 4,083 | |||||
Other comprehensive income/(loss) | 724 | 724 | 724 | |||||
Total comprehensive income/(loss) | 4,807 | 4,807 | ||||||
Cash dividends paid - common stock | (2,819) | (2,819) | (2,819) | |||||
Common stock issued under employee plans (Shares - 2,877,775 and 2,945,036 for 2018 and 2017, respectively) | 261 | 261 | 261 | |||||
Purchases (Shares - 946,596 and 920,968) and sales (Shares - 351,491 and 347,939) of treasury stock under employee plans - net, for 2018 and 2017, respectively | (86) | 12 | (98) | (86) | ||||
Other treasury shares purchased, not retired (Shares - 11,693,706 and 16,299,114 for 2018 and 2017, respectively) | (1,761) | (1,761) | (1,761) | |||||
Changes in noncontrolling interests | (3) | (3) | ||||||
Balance at the End of the Period at Jun. 30, 2018 | $ 18,520 | $ 54,827 | $ 157,349 | $ (165,366) | $ (28,290) | $ 128 | $ 18,648 | |
[1] | Reflects the adoption of the FASB guidance on intra-entity transfers of assets. | |||||||
[2] | Reflects the adoption of the FASB guidance on stranded tax effects, hedging and financial instruments. Refer to note 2, "Accounting Changes". |
CONSOLIDATED STATEMENT OF CHAN8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Parenthetical) - shares | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | ||
Common stock issued under employee plans (in shares) | 2,877,775 | 2,945,036 |
Purchases of treasury stock under employee plans (in shares) | 946,596 | 920,968 |
Sales of treasury stock under employee plans (in shares) | 351,491 | 347,939 |
Other treasury shares purchased, not retired (in shares) | 11,693,706 | 16,299,114 |
Basis of Presentation
Basis of Presentation | 6 Months Ended |
Jun. 30, 2018 | |
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. For a discussion of significant estimates and judgments made in recognizing revenue under the new revenue standard, see note 3, “Revenue Recognition”. Also, refer to the company’s 2017 Annual Report on pages 70 to 73, for a discussion of the company’s critical accounting estimates. Noncontrolling interest amounts of $3.8 million and $3.5 million, net of tax, for the three months ended June 30, 2018 and 2017, respectively, and $11.7 million and $7.1 million, net of tax, for the six months ended June 30, 2018 and 2017, respectively, are included as a reduction within other (income) and expense in the Consolidated Statement of Earnings. 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 2017 Annual Report. 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, 2018 | |
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 model rather than an 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 has established an implementation team and is evaluating the impact of the new guidance. The FASB issued guidance in February 2016, with amendments in 2018, 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 third-party 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. There are certain practical expedients that can be elected which the company is currently evaluating for application. The guidance is effective January 1, 2019 and early adoption is permitted. The company will adopt the guidance as of the effective date. A cross-functional implementation team has been established which is evaluating the lease portfolio, system, process and policy change requirements. The company has made progress in gathering the necessary data elements for the lease population and a system provider has been selected, with system configuration and implementation underway. The company is currently evaluating the impact of the new guidance on its consolidated financial results and expects it will have a material impact on the Consolidated Statement of Financial Position. The company is currently planning on electing the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and is evaluating the other practical expedients available under the guidance. The company’s operating lease commitments, as a lessee, were $6.6 billion at December 31, 2017. From a lessor perspective, in 2017, the use of third-party residual value guarantee insurance resulted in the company recognizing $452 million of sales-type lease revenue that would otherwise have been recognized over the lease period as operating lease revenue. Further, due to changes in lease termination guidance, when equipment is returned to the company prior to the end of the lease term, the carrying amounts of lease receivables, which remain outstanding relating to that equipment and still expected to be collected, will be reclassified to loan receivables. The amount that would have been reclassified from lease receivables to loan receivables in 2017, under the application of this new guidance, would have been approximately $450 million. The company continues to assess the potential impacts of the guidance, including changes resulting from the pending accounting standard updates to be issued by the FASB, normal and ongoing business dynamics or potential changes in contracting terms, and as a result, preliminary conclusions are subject to change. Standards Implemented In February 2018, the FASB issued guidance that allows entities to elect an option to reclassify the stranded tax effects related to the application of the Tax Cuts and Jobs Act (“U.S. tax reform”) from accumulated other comprehensive income/(loss) (“AOCI”) to retained earnings. The guidance is effective January 1, 2019 with early adoption permitted, and can be applied either in the period of adoption or retrospectively to all applicable periods. The company adopted the guidance effective January 1, 2018, and elected not to reclassify prior periods. In accordance with its accounting policy, the company releases income tax effects from AOCI once the reason the tax effects were established cease to exist (e.g., when available-for-sale debt securities are sold or if a pension plan is liquidated). This guidance allows for the reclassification of stranded tax effects as a result of the change in tax rates from U.S. tax reform to be recorded upon adoption of the guidance rather than at an actual cessation date. At adoption on January 1, 2018, $2,420 million was reclassified from AOCI to retained earnings, primarily comprised of amounts relating to retirement-related benefit plans. In August 2017, the FASB issued guidance to simplify the application of hedge accounting in certain areas, better portray the economic results of an entity’s risk management activities in its financial statements and make targeted improvements to presentation and disclosure requirements. The guidance is effective January 1, 2019 with early adoption permitted. The company adopted the guidance as of January 1, 2018, and it did not have a material impact in the consolidated financial results. In March 2017, the FASB issued guidance that impacts the presentation of net periodic pension and postretirement benefit costs (“net benefit cost”). Under the guidance, the service cost component of net benefit cost continues to be presented within cost, selling, general and administrative expense and research, development and engineering expense in the Consolidated Statement of Earnings, unless eligible for capitalization. The other components of net benefit cost are presented separately from service cost within other (income) and expense in the Consolidated Statement of Earnings. The guidance was effective January 1, 2018 with early adoption permitted. The company adopted the guidance as of the effective date. The guidance is primarily a change in financial statement presentation and did not have a material impact in the consolidated financial results. This presentation change was applied retrospectively upon adoption. For the three months ended June 30, 2017, $175 million, $127 million, and $48 million was recast from total cost, selling, general and administrative (SG&A) expense, and research, development, and engineering (RD&E) expense, respectively, into other (income) and expense. For the six months ended June 30, 2017, $347 million, $252 million, and $98 million was recast from total cost, SG&A expense, and RD&E expense, respectively, into other (income) and expense. Refer to note 9, “Retirement-Related Benefits,” for additional information. In January 2016, the FASB issued guidance which addresses aspects of recognition, measurement, presentation and disclosure of financial instruments. The guidance was effective January 1, 2018 and early adoption was not permitted except for limited provisions. The company adopted the guidance on the effective date. Certain equity investments are now measured at fair value with changes recognized in net income. The amendment also simplified the impairment test of equity investments that lack readily determinable fair value. The guidance did not 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 depicts 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 specific disclosures relating to revenue recognition. The company adopted the guidance effective January 1, 2018 using the modified retrospective transition method. At adoption, $557 million was reclassified from notes and accounts receivable-trade and deferred income-current to prepaid expenses and other current assets to establish the opening balance for net contract assets. In-scope sales commission costs previously recorded in the Consolidated Statement of Earnings were capitalized in deferred costs in accordance with the transition guidance, in the amount of $737 million. Deferred income of $29 million was recorded for certain software licenses that will be recognized over time versus at a point in time under previous guidance. Additionally, net deferred taxes were reduced by $184 million in the Consolidated Statement of Financial Position, resulting in a cumulative-effect net increase to retained earnings of $524 million. The guidance did not have a material impact in the company’s consolidated financial results for the three and six months ended June 30, 2018. The company expects revenue recognition for its broad portfolio of hardware, software, and services offerings to remain largely unchanged. Refer to note 3, “Revenue Recognition,” for additional information, including further discussion on the impact of adoption and changes in accounting policies relating to revenue recognition. In January 2017, the FASB issued guidance which clarifies the definition of a business. The guidance provides a more robust framework to use in determining when a set of assets and activities acquired or sold is a business. The guidance was effective January 1, 2018 and early adoption was permitted. The company adopted the guidance effective January 1, 2017, and it did not have a material impact in the consolidated financial results. In October 2016, the FASB issued guidance which requires an entity to recognize the income tax consequences of intra-entity transfers of assets, other than inventory, at the time of transfer. Assets within the scope of the guidance include intellectual property and property, plant and equipment. The guidance was effective January 1, 2018 and early adoption was permitted. The company adopted the guidance on January 1, 2017 using the required modified retrospective method. At adoption, $95 million and $47 million were reclassified from investments and sundry assets and prepaid expenses and other current assets, respectively into retained earnings. Additionally, net deferred taxes of $244 million were established in deferred taxes in the Consolidated Statement of Financial Position, resulting in a cumulative-effect net increase to retained earnings of $102 million. In January 2017, the company had one transaction that generated a $582 million benefit to income tax expense, income from continuing operations and net income and a benefit to both basic and diluted earnings per share of $0.62 per share for the six months ended June 30, 2017. No transactions impacted the consolidated financial results for the six months ended June 30, 2018. The ongoing impact of this guidance will be dependent on any transaction that is within its scope. 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 was effective and adopted by the company on January 1, 2017, and it did not have a material impact in the Consolidated Statement of Financial Position. The ongoing impact of the guidance could result in increased volatility in the 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, however these impacts are not expected to be material. These impacts are recorded on a prospective basis. The company continues to estimate forfeitures in conjunction with measuring stock-based compensation cost. The guidance also requires cash payments on behalf of employees for shares directly withheld for taxes to be presented as financing outflows in the Consolidated Statement of Cash Flows. The FASB also issued guidance in May 2017 and June 2018, which relates to the accounting for modifications of share-based payment awards and accounting for share-based payments issued to non-employees, respectively. The company adopted the guidance for modifications in the second quarter of 2017, and guidance for non-employees’ payments in the second quarter of 2018. The guidance had no impact in the consolidated financial results. |
Revenue Recognition
Revenue Recognition | 6 Months Ended |
Jun. 30, 2018 | |
Revenue Recognition | |
Revenue Recognition | 3. Revenue Recognition: Effective January 1, 2018, the company adopted the new accounting standard related to the recognition of revenue in contracts with customers under the modified retrospective transition method. This method was applied to contracts that were not complete as of the date of initial application. The following is a summary of new and/or revised significant accounting policies, which relate primarily to revenue and cost recognition. Refer to note A, “Significant Accounting Policies,” in the company’s 2017 Annual Report for the policies in effect for revenue and cost prior to January 1, 2018 and for all other significant accounting policies. The impact related to adopting the new standard was not material. For further information regarding the adoption of the new standard, see note 2, “Accounting Changes”. Revenue The company accounts for a contract with a client when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service transfers to a client, in an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring those products or services. If the consideration promised in a contract includes a variable amount, the company estimates the amount to which it expects to be entitled using either the expected value or most likely amount method. The company’s contracts may include terms that could cause variability in the transaction price, including, for example, rebates, volume discounts, service-level penalties, and performance bonuses or other forms of contingent revenue. The company only includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The company may not be able to reliably estimate contingent revenue in certain long-term arrangements due to uncertainties that are not expected to be resolved for a long period of time or when the company’s experience with similar types of contracts is limited. The company’s arrangements infrequently include contingent revenue. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current and forecasted) that is reasonably available to the company, taking into consideration the type of client, the type of transaction and the specific facts and circumstances of each arrangement. Changes in estimates of variable consideration are included in the disclosure on pages 19 and 20. The company’s standard billing terms are that payment is due upon receipt of invoice, payable within 30 days. Invoices are generally issued as control transfers and/or as services are rendered. Additionally, in determining the transaction price, the company adjusts the promised amount of consideration for the effects of the time value of money if the billing terms are not standard and the timing of payments agreed to by the parties to the contract provide the client or the company with a significant benefit of financing, in which case the contract contains a significant financing component. As a practical expedient, the company does not account for significant financing components if the period between when the company transfers the promised product or service to the client and when the client pays for that product or service will be one year or less. Most arrangements that contain a financing component are financed through the company’s Global Financing business and include explicit financing terms. The company may include subcontractor services or third-party vendor equipment or software in certain integrated services arrangements. In these types of arrangements, revenue from sales of third-party vendor products or services is recorded net of costs when the company is acting as an agent between the client and the vendor, and gross when the company is the principal for the transaction. To determine whether the company is an agent or principal, the company considers whether it obtains control of the products or services before they are transferred to the customer. In making this evaluation, several factors are considered, most notably whether the company has primary responsibility for fulfillment to the client, as well as inventory risk and pricing discretion. The company recognizes revenue on sales to solution providers, resellers and distributors (herein referred to as “resellers”) when the reseller has economic substance apart from the company and the reseller is considered the principal for the transaction with the end-user client. The company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions. In addition to the aforementioned general policies, the following are the specific revenue recognition policies for arrangements with multiple performance obligations and for each major category of revenue. Arrangements with Multiple Performance Obligations The company’s global capabilities as a cognitive solutions and cloud platform company include services, software, hardware and related financing. The company enters into revenue arrangements that may consist of any combination of these products and services based on the needs of its clients. For example, a client may purchase a server that includes operating system software. In addition, the arrangement may include post-contract support for the software and a contract for post-warranty maintenance service for the hardware. These types of arrangements may also include financing provided by the company. These arrangements consist of multiple products and services, whereby the hardware and software may be delivered in one period and the software support and hardware maintenance services are delivered over time. In another example, the company may assist the client in building and running an enterprise information technology (IT) environment utilizing a private cloud on a long-term basis and the client periodically purchases hardware and/or software products from the company to upgrade or expand the facility. The services delivered on the cloud are provided on a continuous basis across multiple reporting periods, and the hardware and software products are provided in each period the products are purchased. The company continues to build new products and offerings and continuously reinvent its platforms and delivery methods, including through the use of cloud and as-a-Service models. These are not separate businesses; they are offerings across the segments that address market opportunities in analytics, data, cloud and security. Revenue from these offerings follows the specific revenue recognition policies for arrangements with multiple performance obligations and for each major category of revenue, depending on the type of offering, which are comprised of services, hardware and/or software. To the extent that a product or service in multiple performance obligation arrangements is subject to other specific accounting guidance, such as leasing guidance, that product or service is accounted for in accordance with such specific guidance. For all other products or services in these arrangements, the criteria below are considered to determine when the products or services are distinct and how to allocate the arrangement consideration to each distinct performance obligation. A performance obligation is a promise in a contract with a client to transfer products or services that are distinct. If the company enters into two or more contracts at or near the same time, the contracts may be combined and accounted for as one contract, in which case the company determines whether the products or services in the combined contract are distinct. A product or service that is promised to a client is distinct if both of the following criteria are met: · The client can benefit from the product or service either on its own or together with other resources that are readily available to the client (that is, the product or service is capable of being distinct); and · The company’s promise to transfer the product or service to the client is separately identifiable from other promises in the contract (that is, the product or service is distinct within the context of the contract). If these criteria are not met, the company determines an appropriate measure of progress based on the nature of its overall promise for the single performance obligation. When products and services are distinct, the arrangement consideration is allocated to each performance obligation on a relative standalone selling price basis. The revenue policies in the Services, Hardware and/or Software sections below are then applied to each performance obligation, as applicable. To the extent the company grants the customer the option to acquire additional products or services in one of these arrangements, the company accounts for the option as a distinct performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into the contract (e.g., a discount incremental to the range of discounts typically given for the product or service), in which case the client in effect pays in advance for the option to purchase future products or services. The company recognizes revenue when those future products or services are transferred or when the option expires. Services The company’s primary services offerings include infrastructure services, including outsourcing, and other managed services; application management services; global process services (GPS); maintenance and support; and consulting, including the design and development of complex IT systems to a client’s specifications (e.g., design and build). Many of these services can be delivered entirely or partially through cloud or as-a-Service delivery models. The company’s services are provided on a time-and-material basis, as a fixed-price contract or as a fixed-price per measure of output contract and the contract terms range from less than one year to over 10 years. In services arrangements, the company typically satisfies the performance obligation and recognizes revenue over time. In design and build arrangements, the performance obligation is satisfied over time either because the client controls the asset as it is created (e.g., when the asset is built at the customer site) or because the company’s performance does not create an asset with an alternative use and the company has an enforceable right to payment plus a reasonable profit for performance completed to date. In most other services arrangements, the performance obligation is satisfied over time because the client simultaneously receives and consumes the benefits provided as the company performs the services. In outsourcing, other managed services, application management, GPS and other cloud-based services arrangements, the company determines whether the services performed during the initial phases of the arrangement, such as setup activities, are distinct. In most cases, the arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The company applies a measure of progress (typically time-based) to any fixed consideration and allocates variable consideration to the distinct periods of service based on usage. As a result, revenue is generally recognized over the period the services are provided on a usage basis. This results in revenue recognition that corresponds with the value to the client of the services transferred to date relative to the remaining services promised. Revenue from time-and-material contracts is recognized on an output basis as labor hours are delivered and/or direct expenses are incurred. Revenue from as-a-Service type contracts, such as Infrastructure-as-a-Service, is recognized either on a straight-line basis or on a usage basis, depending on the terms of the arrangement (such as whether the company is standing ready to perform or whether the contract has usage-based metrics). If the as-a-Service contract includes setup activities, those promises in the arrangement are evaluated to determine if they are distinct. Revenue related to maintenance and support services and extended warranty is recognized on a straight-line basis over the period of performance because the company is standing ready to provide services. In fixed-price design and build contracts, revenue is recognized based on progress towards completion of the performance obligation using a cost-to-cost measure of progress (i.e., percentage-of-completion (POC) method of accounting). Revenue is recognized based on the labor costs incurred to date as a percentage of the total estimated labor costs to fulfill the contract. Due to the nature of the work performed in these arrangements, the estimation of cost at completion is complex, subject to many variables and requires significant judgment. Key factors reviewed by the company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known by the company. Refer to page 20 for the amount of revenue recognized in the reporting period on a cumulative catch-up basis (i.e., from performance obligations satisfied, or partially satisfied, in previous periods). The company performs ongoing profitability analyses of its design and build services contracts accounted for using a cost-to-cost measure of progress in order to determine whether the latest estimates of revenues, costs and profits require updating. If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately. For other types of services contracts, any losses are recorded as incurred. In some services contracts, the company bills the client prior to recognizing revenue from performing the services. In other services contracts, the company performs the services prior to billing the client. When the company performs services prior to billing the client in design and build contracts, the right to consideration is typically subject to milestone completion or client acceptance and the unbilled accounts receivable is classified as a contract asset. Refer to page 85 of the company’s 2017 Annual Report for the amount of deferred income and unbilled accounts receivable at December 31, 2017 and 2016. Billings usually occur in the month after the company performs the services or in accordance with specific contractual provisions. Hardware The company’s hardware offerings include the sale or lease of system servers and storage solutions. These products can also be delivered through as-a-Service or cloud delivery models, such as Storage-as-a-Service. The company also offers installation services for its more complex hardware products. Hardware offerings are often sold with distinct maintenance services, described under the Services section above. Revenue from hardware sales is recognized when control has transferred to the customer which typically occurs when the hardware has been shipped to the client, risk of loss has transferred to the client and the company has a present right to payment for the hardware. In limited circumstances when a hardware sale includes client acceptance provisions, revenue is recognized either when client acceptance has been obtained, client acceptance provisions have lapsed, or the company has objective evidence that the criteria specified in the client acceptance provisions have been satisfied. Revenue from hardware sales-type leases is recognized at the beginning of the lease term. Revenue from rentals and operating leases is recognized on a straight-line basis over the term of the rental or lease. Revenue from as-a-Service arrangements is recognized either on a straight-line basis or on a usage basis as described in the Services section above. Installation services are accounted for as distinct performance obligations with revenue recognized as the services are performed. Any cost of standard warranties is accrued when the corresponding revenue is recognized. Shipping and handling activities that occur after the client has obtained control of a product are accounted for as an activity to fulfill the promise to transfer the product rather than as an additional promised service and, therefore, no revenue is deferred and recognized over the shipping period. Software The company’s software offerings include solutions software, which contains many of the company’s strategic areas including analytics, data and security; transaction processing software, which primarily runs mission-critical systems for clients; integration software, which helps clients to create, connect and optimize their applications data and infrastructure; and, operating systems software, which provides operating systems for IBM Z and Power Systems hardware. Many of these offerings can be delivered entirely or partially through as-a-Service or cloud delivery models, while others are delivered as on-premise software licenses. Revenue from perpetual (one-time charge) license software is recognized at a point in time at the inception of the arrangement when control transfers to the client, if the software license is distinct from the post-contract support offered by the company. In limited circumstances, when the software requires continuous updates to provide the intended functionality, the software license and post-contract support are not distinct and revenue for the single performance obligation is recognized over time as the post-contract support is provided. This is only applicable to certain security software perpetual licenses offered by the company. Prior to the adoption of the new revenue standard, the company recognized revenue for these software licenses at a point in time at the inception of the arrangement. This change did not have a material impact on the company’s financial statements. Revenue from post-contract support is recognized over the contract term on a straight-line basis because the company is providing a service of standing ready to provide support, when-and-if needed, and is providing unspecified software upgrades on a when-and-if available basis over the contract term. Revenue from software hosting or Software-as-a-Service arrangements is recognized either on a straight-line basis or on a usage basis as described in the Services section above. In software hosting arrangements, the rights provided to the client (e.g., ownership of a license, contract termination provisions and the feasibility of the client to operate the software) are considered in determining whether the arrangement includes a license. In arrangements that include a software license, the associated revenue is recognized in accordance with the software license recognition policy above rather than over time as a service. Revenue from term license software is recognized at a point in time for the committed term of the contract (which is typically one month due to client termination rights). However, if the amount of consideration to be paid in exchange for the license depends on client usage, revenue is recognized when the usage occurs. Financing Financing income attributable to sales-type leases, direct financing leases and loans is recognized on the accrual basis using the effective interest method. Operating lease income is recognized on a straight-line basis over the term of the lease. Standalone Selling Price The company allocates the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (SSP) is the price at which the company would sell a promised product or service separately to a client. In most cases, the company is able to establish SSP based on the observable prices of products or services sold separately in comparable circumstances to similar clients. The company typically establishes a standalone selling price range for its products and services which are reassessed on a periodic basis or when facts and circumstances change. In certain instances, the company may not be able to establish a standalone selling price range based on observable prices and the company estimates the standalone selling price. The company estimates SSP by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, competitive positioning, competitor actions, internal costs, profit objectives and pricing practices. Additionally, in certain circumstances, the company may estimate SSP for a product or service by applying the residual approach. This approach has been most commonly used when certain perpetual software licenses are only sold bundled with one year of post-contract support and a price has not been established for the software. Estimating SSP is a formal process that includes review and approval by the company’s management. Services Costs Recurring operating costs for services contracts are recognized as incurred. For fixed-price design and build contracts, the costs of external hardware and software accounted for under the cost-to-cost measure of progress are deferred and recognized based on the labor costs incurred to date (i.e., the measure of progress), as a percentage of the total estimated labor costs to fulfill the contract as control transfers over time for these performance obligations. Certain eligible, nonrecurring costs incurred in the initial phases of outsourcing contracts and other cloud-based services contracts (i.e., setup costs) are capitalized when the costs relate directly to the contract, the costs generate or enhance resources of the company that will be used in satisfying the performance obligation in the future, and the costs are expected to be recovered. These costs consist of transition and setup costs related to the installation of systems and processes and other deferred fulfillment costs, including, prepaid assets used in services contracts (i.e., prepaid software or prepaid maintenance), and other deferred fulfillment costs eligible for capitalization. Capitalized costs are amortized on a straight-line basis over the expected period of benefit, which includes anticipated contract renewals or extensions, consistent with the transfer to the client of the services to which the asset relates. Additionally, fixed assets associated with these contracts are capitalized and depreciated on a straight-line basis over the expected useful life of the asset. If an asset is contract specific, then the depreciation period is the shorter of the useful life of the asset or the contract term. Amounts paid to clients in excess of the fair value of acquired assets used in outsourcing arrangements are deferred and amortized on a straight-line basis as a reduction of revenue over the expected period of benefit. The company performs periodic reviews to assess the recoverability of deferred contract transition and setup costs. This review is done by comparing the carrying amount of the asset to the remaining amount of consideration the company expects to receive for the services to which the asset relates, less the costs that relate directly to providing those services that have not yet been recognized. If the carrying amount is deemed not recoverable, an impairment loss is recognized. In situations in which an outsourcing contract is terminated, the terms of the contract may require the client to reimburse the company for the recovery of unbilled accounts receivable, unamortized deferred costs incurred to purchase specific assets utilized in the delivery of services and to pay any additional costs incurred by the company to transition the services. Software Costs Certain eligible, non-recurring costs incurred in the initial phases of Software-as-a-Service contracts are deferred and amortized over the expected period of benefit, which includes anticipated contract renewals or extensions, consistent with the policy described for Services Costs. Recurring operating costs in these contracts are recognized as incurred. Incremental Costs of Obtaining a Contract Incremental costs of obtaining a contract (e.g., sales commissions) are capitalized and amortized on a straight-line basis over the expected customer relationship period if the company expects to recover those costs. The company previously expensed these costs as incurred. The expected customer relationship is determined based on the average customer relationship period, including expected renewals, for each offering type and ranges from three to six years. Expected renewal periods are only included in the expected customer relationship period if commission amounts paid upon renewal are not commensurate with amounts paid on the initial contract. Incremental costs of obtaining a contract include only those costs the company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. The company has determined that certain commissions programs meet the requirements to be capitalized. Some commission programs are not subject to capitalization as the commission expense is paid and recognized as the related revenue is recognized. Additionally, as a practical expedient, the company expenses costs to obtain a contract as incurred if the amortization period would have been a year or less. These costs are included in selling, general and administrative expenses. Product Warranties The company offers warranties for its hardware products that generally range up to three years, with the majority being either one or three years. Estimated costs for standard warranty terms are recognized when revenue is recorded for the related product. The company estimates its warranty costs standard to the product based on historical warranty claim experience and estimates of future spending, and applies this estimate to the revenue stream for products under warranty. Estimated future costs for warranties applicable to revenue recognized in the current period are charged to cost of sales. The warranty liability is reviewed quarterly to verify that it properly reflects the remaining obligation based on the anticipated expenditures over the balance of the obligation period. Adjustments are made when actual warranty claim experience differs from estimates. Costs from fixed-price support or maintenance contracts, including extended warranty contracts, are recognized as incurred. Revenue from extended warranty contracts is initially recorded as deferred income and subsequently recognized on a straight-line basis over the delivery period because the company is providing a service of standing ready to provide services over such term. Contract Assets and Notes and Accounts Receivable—Trade The company classifies the right to consideration in exchange for products or services transferred to a client as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional as compared to a contract asset which is a right to consideration that is conditional upon factors other than the passage of time. The majority of the company’s contract assets represent unbilled amounts related to design and build services contracts when the cost-to-cost method of revenue recognition is utilized, revenue recognized exceeds the amount billed to the client, and the right to consideration is subject to milestone completion or client acceptance. Contract assets are generally classified as current and are recorded on a net basis with deferred income (i.e., contract liabilities) at the contract level. At January 1, 2018 and June 30, 2018 contract assets of $557 million and $515 million, respectively, are included in prepaid expenses and other current assets in the Consolidated Statement of Financial Position. At December 31, 2017, these assets were classified as notes and accounts receivable-trade in the Consolidated Statement of Financial Position. An allowance for contract assets, if needed, and uncollectible trade receivables is estimated based on a combination of write-off history, aging analysis and any specific, known troubled accounts. Disaggregation of Revenue The following tables provide details of revenue by major products/service offerings and by geography. Revenue by Major Products/Service Offerings Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Other Revenue For the three months ended June 30, 2018: Solutions Software $ $ — $ — $ — $ — $ — $ Transaction Processing Software — — — — — Consulting — — — — — Global Process Services — — — — — Application Management — — — — — Infrastructure Services — — — — — Technical Support Services — — — — — Integration Software — — — — — Systems Hardware — — — — — Operating Systems Software — — — — — Global Financing* — — — — — Other Revenue — — — — — Total $ $ $ $ $ $ $ * Contains lease and loan/working capital financing arrangements which are not subject to the guidance on revenue from contracts with customers. Revenue by Geography Total (Dollars in millions) Revenue For the three months ended June 30, 2018: Americas $ Europe/Middle East/Africa Asia Pacific Total $ Revenue by Major Products/Service Offerings Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Other Revenue For the six months ended June 30, 2018: Solutions Software $ $ — $ — $ — $ — $ — $ Transaction Processing Software — — — — — Consulting — — — — — Global Process Services — — — — — Application Management — — — — — Infrastructure Services — — — — — Technical Support Services — — — — — Integration Software — — — — — Systems Hardware — — — — — Operating Systems Software — — — — — Global Financing* — — — — — Other Revenue — — — — — Total $ $ $ $ $ $ $ *Contains lease and loan/working capital financing arrangements which are not subject to the guidance on revenue from contracts with customers. Revenue by Geography Total (Dollars in millions) Revenue For the six months ended June 30, 2018: Americas $ Europe/Middle East/Africa Asia Pacific Total $ Remaining Performance Obligations The remaining performance obligation (RPO) disclosure provides the aggregate amount of the transaction price yet to be recognized as of the end of the reporting period and an explanation as to when the company expects to recognize these amounts in revenue. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed, such as certain as-a-Service, governmental, term software license and services offerings. The customer is not considered committed when they are able to terminate for convenience without payment of a substantive penalty. The disclosure includes estimates of variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property. Additionally, as a practical expedient, the company does not include contracts that have an original duration of one year or less. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency. At June 30, 2018, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $124 billion. Given the profile of contract terms, approximately 60 percent of this amount is expected to be recognized as revenue over the next two years, approximately 35 percent between three and fi |
Financial Instruments
Financial Instruments | 6 Months Ended |
Jun. 30, 2018 | |
Financial Instruments | |
Financial Instruments | 4. 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 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 debt securities that are deemed to be other-than-temporarily impaired. In the event of an other-than-temporary impairment of a debt security, fair value is measured using a model described above. Certain 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. There were no material impairments of non-financial assets for the six months ended June 30, 2018 and 2017, respectively. 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. Effective January 1, 2018, the company adopted the new FASB guidance on recognition, measurement, presentation and disclosure of financial instruments using the cumulative catch-up transition method. Under the new standard, the company measures equity investments at fair value with changes recognized in net income. Based on the method of adoption, prior year information has not been updated to conform with the new guidance. Refer to note 2, “Accounting Changes,” for further information. 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, 2018 and December 31, 2017. (Dollars in millions) At June 30, 2018 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ (6) Money market funds — — Total $ $ $ — $ Equity investments (2) — — Debt securities - current (3) — — (6) Derivative assets (4) — — (7) Total assets $ $ $ — $ Liabilities: Derivative liabilities (5) $ — $ $ — $ (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within marketable securities, and investments and sundry assets in the Consolidated Statement of Financial Position. (3) Included within marketable securities 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, 2018 were $301 million and $398 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, 2018 were $94 million and $162 million, respectively. (6) Available-for-sale debt 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 $201 million. (Dollars in millions) At December 31, 2017 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ Commercial paper — — Money market funds — — Canadian government securities — — Total $ $ $ — $ (6) Equity investments (2) — — Debt securities - current (3) — — (6) Debt securities - noncurrent (2) — Derivative assets (4) — — (7) Total assets $ $ $ — $ Liabilities: Derivative liabilities (5) $ — $ $ — $ (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (3) U.S government securities reported as marketable securities 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, 2017 were $185 million and $757 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, 2017 were $377 million and $38 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 $255 million. There were no transfers between Levels 1 and 2 for the six months ended June 30, 2018 and the year ended December 31, 2017. 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, except for short-term debt, which would be classified as Level 2. 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, 2018 and December 31, 2017, 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 $37,851 million and $39,837 million, and the estimated fair value was $39,554 million and $42,264 million at June 30, 2018 and December 31, 2017, 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. Available-for-sale securities Gross realized gains/losses from the sale of available-for-sale securities during the three and six month periods ended June 30, 2018 and 2017 were immaterial. After-tax net unrealized holding gains/losses on available-for-sale securities that have been included in other comprehensive income/loss for the three and six month periods ended June 30, 2018 and 2017 were immaterial. The contractual maturities of substantially all available-for-sale debt securities are less than one year at June 30, 2018. 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, 2018 and December 31, 2017 was $24 million and $126 million, respectively, for which no collateral was posted at either date. 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 at June 30, 2018 and December 31, 2017 was $699 million and $942 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 $201 million and $255 million at June 30, 2018 and December 31, 2017, respectively, of liabilities included in master netting arrangements with those counterparties. Additionally, at June 30, 2018 and December 31, 2017, this exposure was reduced by $63 million and $114 million of cash collateral, respectively. There were no non-cash collateral balances in U.S. Treasury securities at June 30, 2018 and December 31, 2017. At June 30, 2018 and December 31, 2017, the net exposure related to derivative assets recorded in the Consolidated Statement of Financial Position was $436 million and $572 million, respectively. At June 30, 2018 and December 31, 2017, the net position related to derivative liabilities recorded in the Consolidated Statement of Financial Position was $55 million and $160 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, 2018 or December 31, 2017 for the right to reclaim cash collateral. The amount recognized in accounts payable for the obligation to return cash collateral was $63 million and $114 million at June 30, 2018 and December 31, 2017, respectively. The company restricts the use of cash collateral received to rehypothecation, and therefore reports it in restricted cash in the Consolidated Statement of Financial Position. No amount was rehypothecated at June 30, 2018 and December 31, 2017. 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 may use 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, 2018 and December 31, 2017, the total notional amount of the company’s interest rate swaps was $9.9 billion and $9.1 billion, respectively. The weighted-average remaining maturity of these instruments at June 30, 2018 and December 31, 2017 was approximately 4.5 years and 4.8 years, respectively. These interest-rate contracts were accounted for as fair value hedges. The company did not have any cash flow hedges relating to this program outstanding at June 30, 2018 and December 31, 2017. 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, 2018 and December 31, 2017. 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, 2018 and December 31, 2017, the total notional amount of derivative instruments designated as net investment hedges was $6.9 billion and $7.0 billion, respectively. At June 30, 2018 and December 31, 2017, the weighted-average remaining maturity of these instruments was approximately 0.2 years at both periods. 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 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, 2018 and December 31, 2017, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $8.4 billion and $7.8 billion, respectively. The weighted-average remaining maturity of these instruments at June 30, 2018 and December 31, 2017 was 0.7 years at both periods. At June 30, 2018 and December 31, 2017, in connection with cash flow hedges of anticipated royalties and cost transactions, the company recorded net gains of $233 million and net gains of $27 million (before taxes), respectively, in AOCI. The company estimates that $192 million (before taxes) of deferred net gains on derivatives in AOCI at June 30, 2018, will 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 ten years. At June 30, 2018 and December 31, 2017, the total notional amount of cross-currency swaps designated as cash flow hedges of foreign currency denominated debt was $6.5 billion at both periods. At June 30, 2018 and December 31, 2017, in connection with cash flow hedges of foreign currency denominated borrowings, the company recorded net gains of $129 million and net gains of $42 million (before taxes), respectively, in AOCI. The company estimates that $187 million (before taxes) of deferred net gains on derivatives in AOCI at June 30, 2018, will 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, 2018 and December 31, 2017, the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $8.7 billion and $11.5 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, 2018 and December 31, 2017, the total notional amount of derivative instruments in economic hedges of these compensation obligations was $1.3 billion at both periods. 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, 2018 and December 31, 2017. 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, 2018 and December 31, 2017. 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, 2018 and December 31, 2017, the company did not have any derivative instruments relating to this program outstanding. The following tables provide a quantitative summary of the derivative and non-derivative instrument-related risk management activity at June 30, 2018 and December 31, 2017, as well as for the three and six months ended June 30, 2018 and 2017, respectively. Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position Fair Value of Derivative Assets Fair Value of Derivative Liabilities Balance Sheet Balance Sheet (Dollars in millions) Classification 6/30/2018 12/31/2017 Classification 6/30/2018 12/31/2017 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 $ $ Equity contracts Prepaid expenses and other current assets Other accrued expenses and liabilities Fair value of derivative assets $ $ Fair value of derivative liabilities $ $ Total derivatives $ $ $ $ Total debt designated as hedging instruments(1): Short-term debt N/A N/A $ — $ — Long-term debt N/A N/A N/A N/A $ $ Total $ $ $ $ N/A - not applicable (1) Debt designated as hedging instruments are reported at carrying value. At June 30, 2018, the following amounts were recorded in the Consolidated Statement of Financial Position related to cumulative basis adjustments for fair value hedges: (Dollars in millions) Cumulative Amount of Line Item in the Carrying Amount of the Fair Value Hedging Adjustment Consolidated Statement of Financial Position Hedged Item Included in the Carrying in which the Hedged Item is Included Assets/(Liabilities) Amount of Assets/(Liabilities) Short-term debt $ ) $ Long-term debt $ ) $ )(1) (1) Includes ($184) million of hedging adjustments on discontinued hedging relationships. The Effect of Derivative Instruments in the Consolidated Statement of Earnings The total amounts of income and expense line items presented in the Consolidated Statement of Earnings in which the effects of fair value hedges, cash flow hedges, net investment hedges and derivatives not designated as hedging instruments are recorded and the total effect of hedge activity on these income and expense line items, are as follows: Other (Dollars in millions) Cost of Cost of Cost of SG&A (Income) and Interest For the three months ended June 30, 2018: Services Sales Financing Expense Expense Expense Total $ $ $ $ $ $ Gains/(losses) of total hedge activity ) ) ) Gain (Loss) Recognized in Earnings Consolidated Recognized on Attributable to Risk (Dollars in millions) Statement of Derivatives Being Hedged(2) For the three months ended June 30: Earnings Line Item 2018 2017 2018 2017 Derivative instruments in fair value hedges(1): Interest rate contracts Cost of financing $ ) $ $ $ ) Interest expense ) ) Derivative instruments not designated as hedging instruments: Foreign exchange contracts Other (income) and expense ) N/A N/A Equity contracts SG&A expense N/A N/A Total $ ) $ $ $ ) Gain (Loss) Recognized in Earnings and Other Comprehensive Income (Dollars in millions) Consolidated Reclassified Amounts Excluded from For the three months Recognized in OCI Statement of from AOCI Effectiveness Testing(3) ended June 30: 2018 2017 Earnings Line Item 2018 2017 2018 2017 Derivative instruments in cash flow hedges: Foreign exchange contracts $ ) $ ) Interest expense $ ) $ ) $ — $ — Other (income) and expense ) — Cost of sales ) — — Cost of services — — SG&A expense ) — — Instruments in net investment hedges(4): Foreign exchange contracts ) Cost of financing — — — Interest expense — — Total $ $ ) $ ) $ $ $ Prior period gain or loss amounts and presentation are not conformed to the new hedge accounting guidance that the company adopted in 2018. Refer to note 2, “Accounting Changes,” for further information. 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 company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. (4) Instruments in net investment hedges include derivative and non-derivative instruments. Other (Dollars in millions) Cost of Cost of Cost of SG&A (Income) and Interest For the six months ended June 30, 2018: Services Sales Financing Expense Expense Expense Total $ $ $ $ $ $ Gains/(losses) of total hedge activity ) ) ) ) Gain (Loss) Recognized in Earnings Consolidated Recognized on Attributable to Risk (Dollars in millions) Statement of Derivatives Being Hedged(2) For the six months ended June 30: Earnings Line Item 2018 2017 2018 2017 Derivative instruments in fair value hedges(1): Interest rate contracts Cost of financing $ ) $ $ $ Interest expense ) Derivative instruments not designated as hedging instruments: Foreign exchange contracts Other (income) and expense ) N/A N/A Equity contracts SG&A expense ) N/A N/A Total $ ) $ $ $ Gain (Loss) Recognized in Earnings and Other Comprehensive Income (Dollars in millions) Consolidated Reclassified Amounts Excluded from For the six months Recognized in OCI Statement of from AOCI Effectiveness Testing(3) ended June 30: 2018 2017 Earnings Line Item 2018 2017 2018 2017 Derivative instruments in cash flow hedges: Foreign exchange contracts $ ) $ ) Interest expense $ ) $ ) $ — $ — Other (income) and expense ) — Cost of sales ) — — Cost of services — — SG&A expense ) — — Instruments in net investment hedges(4): Foreign exchange contracts ) Cost of financing — — — Interest expense — — Total $ $ ) $ ) $ $ $ Prior period gain or loss amounts and presentation are not conformed to the new hedge accounting guidance that the company adopted in 2018. Refer to note 2, “Accounting Changes,” for further information. 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 company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. (4) Instruments in net investment hedges include derivative and non-derivative instruments. For the three and six months ending June 30, 2018 and 2017, there were no material gains or losses excluded from the assessment of hedge effectiveness (for fair value or cash flow hedges), or associated with an underlying exposure that did not or was not expected to occur (for cash flow hedges); nor are there a |
Financing Receivables
Financing Receivables | 6 Months Ended |
Jun. 30, 2018 | |
Financing Receivables | |
Financing Receivables | 5. Financing Receivables: Financing receivables primarily consist of investment in sales-type and direct financing leases, commercial financing receivables and client loan and installment payment receivables (loans). 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. Commercial financing receivables 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) 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 loans and installment payment financing contracts are priced independently at competitive market rates. A summary of the components of the company’s financing receivables is presented as follows: Investment in Client Loan and Sales-Type and Commercial Installment Payment (Dollars in millions) Direct Financing Financing Receivables/ At June 30, 2018: Leases Receivables (Loans) Total Financing receivables, gross $ $ $ $ Unearned income ) ) ) ) Recorded Investment $ $ $ $ Allowance for credit losses ) ) ) ) Unguaranteed residual value — — Guaranteed residual value — — Total financing receivables, net $ $ $ $ Current portion $ $ $ $ Noncurrent portion $ $ — $ $ Investment in Client Loan and Sales-Type and Commercial Installment Payment (Dollars in millions) Direct Financing Financing Receivables/ At December 31, 2017: Leases Receivables (Loans) Total Financing receivables, gross $ $ $ $ Unearned income ) ) ) ) Recorded Investment $ $ $ $ Allowance for credit losses ) ) ) ) Unguaranteed residual value — — Guaranteed residual value — — Total financing receivables, net $ $ $ $ Current portion $ $ $ $ Noncurrent portion $ $ — $ $ The company utilizes certain of its financing receivables as collateral for non-recourse borrowings. Financing receivables pledged as collateral for borrowings were $743 million and $773 million at June 30, 2018 and December 31, 2017, respectively. The company did not have any financing receivables held for sale as of June 30, 2018 and December 31, 2017. Financing Receivables by Portfolio Segment The following tables present the recorded investment by portfolio segment and by class, excluding commercial financing receivables and other miscellaneous financing receivables at June 30, 2018 and December 31, 2017. Commercial financing receivables are excluded from the presentation of financing receivables by portfolio segment, as they are short term in nature and the current estimated risk of loss and resulting impact to the company’s financing results are not material. The company determines its allowance for credit losses based on two portfolio segments: lease receivables and loan receivables, and further segments the portfolio into three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. (Dollars in millions) At June 30, 2018: Americas EMEA Asia Pacific Total Recorded Investment Lease receivables $ $ $ $ Loan receivables Ending balance $ $ $ $ Recorded investment collectively evaluated for impairment $ $ $ $ Recorded investment individually evaluated for impairment $ $ $ $ Allowance for credit losses Beginning balance at January 1, 2018 Lease receivables $ $ $ $ Loan receivables Total $ $ $ $ Write-offs $ ) $ ) $ ) $ ) Recoveries Provision Other ) ) ) ) Ending balance at June 30, 2018 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ Write-offs of lease receivables and loan receivables were $4 million and $2 million, respectively, for the six months ended June 30, 2018. Provisions for credit losses recorded for lease receivables and loan receivables were $9 million and $18 million, respectively, for the six months ended June 30, 2018. The average recorded investment of impaired leases and loans for Americas, EMEA and Asia Pacific was $128 million, $55 million and $78 million, respectively, for the three months ended June 30, 2018 and $176 million, $28 million and $132 million, respectively, for the three months ended June 30, 2017. Both interest income recognized and interest income recognized on a cash basis on impaired leases and loans were immaterial for the three months ended June 30, 2018 and 2017. The average recorded investment of impaired leases and loans for Americas, EMEA and Asia Pacific was $128 million, $56 million and $80 million, respectively, for the six months ended June 30, 2018 and $173 million, $25 million and $141 million, respectively, for the six months ended June 30, 2017. Both interest income recognized and interest income recognized on a cash basis on impaired leases and loans were immaterial for the six months ended June 30, 2018 and 2017. (Dollars in millions) At December 31, 2017: Americas EMEA Asia Pacific Total Recorded Investment Lease receivables $ $ $ $ Loan receivables Ending balance $ $ $ $ Recorded investment collectively evaluated for impairment $ $ $ $ Recorded investment individually evaluated for impairment $ $ $ $ Allowance for credit losses Beginning balance at January 1, 2017 Lease receivables $ $ $ $ Loan receivables Total $ $ $ $ Write-offs $ ) $ ) $ ) $ ) Recoveries Provision ) ) Other Ending balance at December 31, 2017 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ Write-offs of lease receivables and loan receivables were $55 million and $82 million, respectively, for the year ended December 31, 2017. Provisions for credit losses recorded for lease receivables and loan receivables were $9 million and $7 million, respectively, for the year ended December 31, 2017. 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. The company considers any receivable with an individually evaluated reserve as an impaired receivable. 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. Past Due Financing Receivables The company considers a client’s financing receivable balance past due when any installment is aged over 90 days. The following table summarizes information about the recorded investment in lease and loan financing receivables, including recorded investments aged over 90 days and still accruing, billed invoices aged over 90 days and recorded investment not accruing. Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At June 30, 2018: Investment > 90 Days (1) Accruing (1) Accruing Accruing (2) Americas $ $ $ $ $ EMEA Asia Pacific Total lease receivables $ $ $ $ $ Americas $ $ $ $ $ EMEA Asia Pacific Total loan receivables $ $ $ $ $ Total $ $ $ $ $ (1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days. (2) Of the recorded investment not accruing, $258 million is individually evaluated for impairment with a related allowance of $253 million. Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At December 31, 2017: Investment > 90 Days (1) Accruing (1) Accruing Accruing (2)(3) Americas $ $ $ $ $ EMEA Asia Pacific Total lease receivables $ $ $ $ $ Americas $ $ $ $ $ EMEA Asia Pacific Total loan receivables $ $ $ $ $ Total $ $ $ $ $ (1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days. (2) Of the recorded investment not accruing, $269 million is individually evaluated for impairment with a related allowance of $250 million. (3) Recast to conform to current period presentation, which includes billed impaired amounts. 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 recorded investment net of allowance for credit losses for each class of receivables, by credit quality indicator, at June 30, 2018 and December 31, 2017. 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. (Dollars in millions) Lease Receivables Loan Receivables At June 30, 2018: Americas EMEA Asia Pacific Americas EMEA Asia Pacific Credit Ratings: Aaa – Aa3 $ $ $ $ $ $ A1 – A3 Baa1 – Baa3 Ba1 – Ba2 Ba3 – B1 B2 – B3 Caa – D Total $ $ $ $ $ $ (Dollars in millions) Lease Receivables Loan Receivables At December 31, 2017: Americas EMEA Asia Pacific Americas EMEA Asia Pacific Credit Ratings: Aaa – Aa3 $ $ $ $ $ $ A1 – A3 Baa1 – Baa3 Ba1 – Ba2 Ba3 – B1 B2 – B3 Caa – D Total $ $ $ $ $ $ Troubled Debt Restructurings The company did not have any significant troubled debt restructurings during the six months ended June 30, 2018 or for the year ended December 31, 2017. |
Stock-Based Compensation
Stock-Based Compensation | 6 Months Ended |
Jun. 30, 2018 | |
Stock-Based Compensation | |
Stock-Based Compensation | 6. 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) 2018 2017 2018 2017 Cost $ $ $ $ Selling, general and administrative Research, development and engineering Pre-tax stock-based compensation cost $ $ $ $ Income tax benefits ) ) ) ) Total net stock-based compensation cost $ $ $ $ Pre-tax stock-based compensation cost for the three months ended June 30, 2018 decreased $10 million compared to the corresponding period in the prior year. This was due to decreases related to restricted stock units ($7 million), performance share units ($2 million), and the conversion of stock-based awards previously issued by acquired entities ($1 million). Pre-tax stock-based compensation cost for the six months ended June 30, 2018 decreased $23 million compared to the corresponding period in the prior year. This was due to decreases related to restricted stock units ($12 million), performance share units ($8 million), and the conversion of stock-based awards previously issued by acquired entities ($3 million). As of June 30, 2018, the total unrecognized compensation cost of $965 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, 2018 and 2017. |
Segments
Segments | 6 Months Ended |
Jun. 30, 2018 | |
Segments | |
Segments | 7. Segments: The tables below reflect the continuing operations results 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. The segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker (the chief executive officer) in determining how to allocate resources and evaluate performance. SEGMENT INFORMATION Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Segments For the three months ended June 30, 2018: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income 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, 2017: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income from continuing operations * $ $ $ $ $ $ Pre-tax income margin * % % % % % % * Recast to reflect adoption of the FASB guidance on presentation of net benefit cost. Reconciliations to IBM as Reported: (Dollars in millions) For the three months ended June 30: 2018 2017 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 reflect adoption of the FASB guidance on presentation of net benefit cost. SEGMENT INFORMATION Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Segments For the six months ended June 30, 2018: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income from continuing operations $ $ $ $ $ $ Revenue year-to-year change % % % % % % Pre-tax income year-to-year change % )% )% nm % % Pre-tax income margin % % % % % % For the six months ended June 30, 2017: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income/(loss) from continuing operations * $ $ $ $ ) $ $ Pre-tax income/(loss) margin * % % % )% % % * Recast to reflect adoption of the FASB guidance on presentation of net benefit cost. nm - not meaningful Reconciliations to IBM as Reported: (Dollars in millions) For the six months ended June 30: 2018 2017 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 reflect adoption of the FASB guidance on presentation of net benefit cost. |
Equity Activity
Equity Activity | 6 Months Ended |
Jun. 30, 2018 | |
Equity Activity | |
Equity Activity | 8. 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, 2018: 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 ) Cost of services ) ) 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 9, “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, 2017: 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 ) ) Cost of services ) ) 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 9, “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, 2018: 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 ) Cost of services ) ) 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 9, “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, 2017: 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 ) ) Cost of services ) ) 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 9, “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, 2018 $ $ ) $ ) $ $ ) Cumulative effect of a change in accounting principle ** ) ) ) Other comprehensive income before reclassifications ) ) ) ) Amount reclassified from accumulated other comprehensive income Total change for the period $ $ ) $ $ ) $ June 30, 2018 $ $ ) $ ) $ $ ) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. ** Reflects the adoption of the FASB guidance on stranded tax effects, hedging and financial instruments. Refer to note 2, “Accounting Changes”. 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, 2017 $ $ ) $ ) $ $ ) Other comprehensive income before reclassifications ) Amount reclassified from accumulated other comprehensive income ) Total change for the period $ ) $ $ $ $ June 30, 2017 $ $ ) $ ) $ $ ) * 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, 2018 | |
Retirement-Related Benefits | |
Retirement-Related Benefits | 9. 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 table provides the pre-tax cost for all retirement-related plans. Yr. to Yr. (Dollars in millions) Percent For the three months ended June 30: 2018 2017 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: 2018 2017 Change Retirement-related plans — cost Defined benefit and contribution pension plans — cost $ $ % Nonpension postretirement plans — cost ) Total $ $ % The following table provides 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: 2018 2017 2018 2017 Service cost $ — $ — $ $ Interest cost (1) Expected return on plan assets (1) ) ) ) ) Amortization of prior service costs/(credits) (1) ) ) Recognized actuarial losses (1) Curtailments and settlements (1) — — Multi-employer plans — — Other costs (1) — — 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 $ $ $ $ (1) These components of net periodic pension cost are included in other (income) and expense in the Consolidated Statement of Earnings. (Dollars in millions) U.S. Plans Non-U.S. Plans For the six months ended June 30: 2018 2017 2018 2017 Service cost $ — $ — $ $ Interest cost (1) Expected return on plan assets (1) ) ) ) ) Amortization of prior service costs/(credits) (1) ) ) Recognized actuarial losses (1) Curtailments and settlements (1) — — Multi-employer plans — — Other costs (1) — — 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 $ $ $ $ (1) These components of net periodic pension cost are included in other (income) and expense in the Consolidated Statement of Earnings. In 2018, the company expects to contribute approximately $400 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, Japan and Spain. This amount generally represents the legally mandated minimum contribution. Total contributions to the non-U.S. plans in the first six months of 2018 were $237 million, of which $80 million was in cash and $157 million in U.S. Treasury securities. Total net contributions to the non-U.S. plans in the first six months of 2017 were $263 million, of which $87 million was in cash and $176 million in U.S. Treasury securities. The contribution of U.S. Treasury securities is considered a non-cash transaction in the Consolidated Statement of Cash Flows. The following table provides the components of the cost 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: 2018 2017 2018 2017 Service cost $ $ $ $ Interest cost (1) Expected return on plan assets (1) — — ) ) Amortization of prior service costs/(credits) (1) ) ) Recognized actuarial losses (1) Curtailments and settlements (1) — — Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ $ $ $ (1) These components of net periodic pension cost are included in other (income) and expense in the Consolidated Statement of Earnings. (Dollars in millions) U.S. Plan Non-U.S. Plans For the six months ended June 30: 2018 2017 2018 2017 Service cost $ $ $ $ Interest cost (1) Expected return on plan assets (1) — — ) ) Amortization of prior service costs/(credits) (1) ) ) Recognized actuarial losses (1) Curtailments and settlements (1) — — Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ $ $ $ (1) These components of net periodic pension cost are included in other (income) and expense in the Consolidated Statement of Earnings. The company contributed $215 million in U.S. Treasury securities to the U.S. nonpension postretirement benefit plan during the six months ended June 30, 2018, and $230 million in U.S. Treasury securities during the six months ended June 30, 2017. The contribution of U.S. Treasury securities is considered a non-cash transaction in the Consolidated Statement of Cash Flows. |
Acquisitions
Acquisitions | 6 Months Ended |
Jun. 30, 2018 | |
Acquisitions | |
Acquisitions | 10. Acquisitions: During the six months ended June 30, 2018, the company completed two acquisitions at an aggregate cost of $49 million. The Cognitive Solutions segment completed the acquisition of one privately held business: in the second quarter, Armanta, Inc. (Armanta). The Global Business Services segment completed the acquisition of one privately held business: in the second quarter, Oniqua Holdings Pty Ltd. (Oniqua). Each acquisition is expected to enhance the company’s portfolio of product and services capabilities. Armanta is a provider of aggregation and analytics software to financial institutions, enabling data aggregation across multiple systems in near real-time speed, enhancing decision-making and improving regulatory compliance. Oniqua is a global innovator in maintenance-repair-operate inventory optimization solutions and services for asset-intensive industries. All of these acquisitions were for 100 percent of the acquired businesses. 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 acquisitions did not have a material impact in the Consolidated Financial Statements. |
Intangible Assets Including Goo
Intangible Assets Including Goodwill | 6 Months Ended |
Jun. 30, 2018 | |
Intangible Assets Including Goodwill | |
Intangible Assets Including Goodwill | 11. Intangible Assets Including Goodwill: The following table details the company’s intangible asset balances by major asset class. At June 30, 2018 (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, 2017 (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 decreased $398 million during the first six months of 2018, primarily due to intangible asset amortization, partially offset by additions resulting from capitalized software. The aggregate intangible amortization expense was $342 million and $683 million for the second quarter and first six months of 2018, respectively, versus $388 million and $777 million for the second quarter and first six months of 2017, respectively. In addition, in the first six months of 2018, the company retired $348 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, 2018: Capitalized Acquired (Dollars in millions) Software Intangibles Total 2018 (for Q3 - Q4) $ $ $ 2019 2020 2021 2022 — The change in the goodwill balances by reportable segment, for the six months ended June 30, 2018 and for the year ended December 31, 2017 are as follows: Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 01/01/18 Additions Adjustments Divestitures Adjustments* 6/30/18 Cognitive Solutions $ $ $ $ ) $ ) $ Global Business Services — ) Technology Services & Cloud Platforms — — ) Systems — — — ) Total $ $ $ $ ) $ ) $ * Primarily driven by foreign currency translation. Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 01/01/17 Additions Adjustments Divestitures Adjustments* 12/31/17 Cognitive Solutions $ $ $ ) $ ) $ $ Global Business Services — — Technology Services & Cloud Platforms ) — Systems — — Total $ $ $ ) $ ) $ $ * Primarily driven by foreign currency translation. There were no goodwill impairment losses recorded during the first six months of 2018 or the full year of 2017 and the company has no accumulated impairment losses. Purchase price adjustments recorded in the first six months of 2018 and full year 2017 were related to acquisitions that were completed on or prior to March 31, 2018 or September 30, 2017, 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 recorded during the first six months of 2018 were not material. Net purchase price adjustments of $38 million were recorded during 2017, with the primary drivers being deferred tax assets, other taxes payable and other current liabilities associated with the Truven Health Analytics, Inc. and The Weather Company acquisitions. |
Borrowings
Borrowings | 6 Months Ended |
Jun. 30, 2018 | |
Borrowings | |
Borrowings | 12. Borrowings: Short-Term Debt At June 30, At December 31, (Dollars in millions) 2018 2017 Commercial paper $ $ Short-term loans Long-term debt — current maturities Total $ $ The weighted-average interest rate for commercial paper at June 30, 2018 and December 31, 2017 was 2.1 percent and 1.5 percent, respectively. The weighted-average interest rate for short-term loans was 8.9 percent and 8.8 percent at June 30, 2018 and December 31, 2017, respectively. Long-Term Debt Pre-Swap Borrowing Balance Balance (Dollars in millions) Maturities 6/30/2018 12/31/2017 U.S. dollar debt (average interest rate at June 30, 2018):* 7.3% $ $ 3.0% 2.2% 2.7% 2.4% 3.3% 3.6% 7.0% 3.5% 4.7% 6.5% 3.7% — 5.9% 8.0% 5.6% 4.0% 7.0% 4.7% 7.1% $ $ Other currencies (average interest rate at June 30, 2018, in parentheses):* Euros (1.5%) 2019–2029 $ $ Pound sterling (2.7%) 2020–2022 Japanese yen (0.3%) 2022–2026 Other (5.4%) 2019–2022 $ $ Less: net unamortized discount Less: net unamortized debt issuance costs Add: fair value adjustment** $ $ Less: current maturities Total $ $ * Includes notes, debentures, bank loans, secured borrowings and capital lease obligations. ** 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 and 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. During the third quarter of 2017, IBM Credit LLC, a wholly owned subsidiary of the company, filed a shelf registration statement with the Securities and Exchange Commission (SEC) allowing it to offer for sale public debt securities. In 2017, IBM Credit LLC issued fixed- and floating-rate debt securities in the aggregate amount of $3.0 billion with maturity dates ranging from 2019 to 2022. During the first quarter of 2018, IBM Credit LLC issued fixed- and floating-rate debt securities in the aggregate amount of $2.0 billion with maturity dates ranging from 2021 to 2023. This debt is included in the long-term debt table above. 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 obligations of long-term debt outstanding at June 30, 2018, are as follows: (Dollars in millions) Total 2018 (for Q3 - Q4) $ 2019 2020 2021 2022 2023 and beyond Total $ Interest on Debt (Dollars in millions) For the six months ended June 30: 2018 2017 Cost of financing $ $ Interest expense Interest capitalized Total interest paid and accrued $ $ Lines of Credit On July 19, 2018, the company amended its existing $10.25 billion Five-Year Credit Agreement. In addition, the company and IBM Credit LLC entered into a new $2.5 billion, 364-Day Credit Agreement, to replace the maturing $2.5 billion, 364-Day agreement, and also amended the existing $2.5 billion Three-Year Credit Agreement. The amended Five-Year and Three-Year credit agreements included a modification of terms to account for the potential discontinuation of LIBOR and to extend the maturity dates. The new maturity dates for the Five-Year and Three-Year Credit Agreements are July 20, 2023 and July 20, 2021, respectively. Each of the facility sizes remained unchanged. |
Contingencies
Contingencies | 6 Months Ended |
Jun. 30, 2018 | |
Contingencies | |
Contingencies | 13. 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, 2018 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 SCO appealed. On October 30, 2017, the Tenth Circuit Court of Appeals affirmed the dismissal of all but one of SCO’s remaining claims, which was remanded to the Federal Court in Utah. 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 August 7, 2017, the Indiana Superior Court awarded the State $128 million, which it then offset against IBM’s previously affirmed award of $50 million, resulting in a $78 million award to the State, plus interest. Both parties appealed to the Indiana Court of Appeals and the matter remains pending. On March 9, 2017, the Commonwealth of Pennsylvania’s Department of Labor and Industry sued IBM in Pennsylvania state court regarding a 2006 contract for the development of a custom software system to manage the Commonwealth’s unemployment insurance benefits programs. The matter is pending in a Pennsylvania court. On October 29, 2013, Bridgestone Americas, Inc. (Bridgestone) sued IBM regarding a 2009 contract for the implementation of an SAP-based, enterprise-wide order management system. IBM counterclaimed against Bridgestone and its parent, Bridgestone Corp. IBM and Bridgestone have resolved the case and all claims have been dismissed. Following the 2017 final judgment of the Appeal Court in London holding that IBM UK acted lawfully in 2010 in closing its UK defined benefit plans to future accruals for most participants and in implementing a new retirement policy, the Employment Tribunal in Southampton UK is expected to address approximately 290 individual actions alleging constructive dismissal and age discrimination brought against IBM UK in 2010 by employees who left the company at that time. The individual actions were previously stayed. In May 2015, a putative class action 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, alleging violations of the Employee Retirement Income Security Act (“ERISA”). Management’s Retirement Plans Committee and three current or former IBM executives are named as defendants. On September 29, 2017, the Court granted the defendants’ motion to dismiss the first amended complaint. Plaintiffs appealed to the Second Circuit Court of Appeals and the matter remains pending. In August 2015, IBM learned that the SEC was 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 cooperated with the SEC in this matter. In May 2018, the SEC informed IBM that based on the information to date, it closed its investigation into this matter without pursuing any enforcement action against the company. 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 all these matters for all applicable years is approximately $900 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, 2018 | |
Commitments | |
Commitments | 14. Commitments: The company’s extended lines of credit to third-party entities include unused amounts of $8,404 million and $8,111 million at June 30, 2018 and December 31, 2017, 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 $3,799 million and $3,569 million at June 30, 2018 and December 31, 2017, 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 $17 million and $19 million at June 30, 2018 and December 31, 2017, 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 are presented in the following tables. Standard Warranty Liability (Dollars in millions) 2018 2017 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) 2018 2017 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. |
Taxes
Taxes | 6 Months Ended |
Jun. 30, 2018 | |
Taxes | |
Taxes | 15. Taxes: For the three months ended June 30, 2018, the company reported a provision for income taxes of $373 million and an effective tax rate of 13.5 percent, compared to a provision of $111 million and an effective tax rate of 4.5 percent for the three months ended June 30, 2017. For the six-month period ended June 30, 2018, the company reported a benefit from income taxes of $166 million and an effective tax rate of (4.3) percent. The benefit was primarily driven by the resolution in the first quarter of 2018 of certain tax matters relating to the ongoing U.S. federal audit of the company’s 2013-2014 tax returns and the completion of the U.S. federal audit of amended tax returns filed for prior years. For the six months ended June 30, 2017, the company reported a benefit from income taxes of $218 million, and its effective tax rate was (5.6) percent, primarily driven by a discrete tax benefit in the first quarter of 2017 related to an intra-entity transfer of assets and discrete tax benefits related to foreign audit activity. The company’s U.S. income tax returns for 2013 and 2014 continue to be examined by the Internal Revenue Service (IRS) with specific focus on certain cross-border transactions in 2013. Although the IRS could propose additional adjustments, the company believes it is adequately reserved on these issues. With respect to major U.S. state and foreign taxing jurisdictions, the company is generally no longer subject to tax examinations for years prior to 2013. The company is no longer subject to income tax examination of its U.S. federal tax return for years prior to 2013. The open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as it relates to the amount and/or timing of income, deductions and tax credits. Although the outcome of tax audits is always uncertain, the company believes that adequate amounts of tax and interest have been provided for any adjustments that are expected to result for these years. The amount of unrecognized tax benefits at December 31, 2017 decreased $1,013 million in the first six months of 2018 to $6,018 million. The decrease was primarily driven by the resolution of certain tax matters in the first quarter of 2018 related to the U.S. audits described above. The liability at June 30, 2018 of $6,018 million can be reduced by $597 million of offsetting tax benefits associated with timing adjustments, U.S. tax credits, potential transfer pricing adjustments and state income taxes. The net amount of $5,421 million, if recognized, would favorably affect the company’s effective tax rate. The company is involved in a number of income tax-related matters in India challenging tax assessments issued by the India Tax Authorities. As of June 30, 2018, the company has recorded $650 million as prepaid income taxes in India. A significant portion of this balance represents cash tax deposits paid over time to protect the company’s right to appeal various income tax assessments made by the India Tax Authorities. The company believes it will prevail on these matters. U.S. Tax Reform On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform resulted in the company recording a provisional tax expense charge of $5,475 million in the fourth-quarter and year-ended December 31, 2017. This charge was the result of the one-time U.S. transition tax and any foreign tax costs on undistributed foreign earnings, as well as the remeasurement of deferred tax balances to the new U.S. federal tax rate. All components of the provisional charge of $5,475 million were based on the company’s estimates as of December 31, 2017. Specifically, the transition tax, any foreign tax costs, as well as the remeasurement of deferred tax balances are provisional and were calculated based on existing tax law and the best information available as of the date of estimate. The effect of U.S. tax reform changes on deferred tax assets and liabilities was a benefit of $270 million and was included in the one-time charge. An additional provisional charge of $107 million was recorded in the first quarter as a result of IRS guidance issued in January 2018 and a benefit of $14 million was recorded in the second quarter as a result of IRS guidance issued in early April 2018. The final impact of U.S. tax reform may differ, possibly materially, due to factors such as changes in interpretations and assumptions that the company has made in its assessment, conclusion of the effects of the “Global Intangible Low-Taxed Income” (“GILTI”) provisions, further refinement of the company’s calculations, additional guidance that may be issued by the U.S. government, among other items. The company is still evaluating the Act’s GILTI provisions and has not yet elected an accounting policy. As these various factors are finalized, any change will be recorded as an adjustment to the provision for, or benefit from, income taxes in the period the amounts are determined, not to exceed 12 months from the date of U.S. tax reform enactment. The company has not completed its assessment and the tax charge remains provisional as of June 30, 2018. |
Earnings Per Share of Common St
Earnings Per Share of Common Stock | 6 Months Ended |
Jun. 30, 2018 | |
Earnings Per Share of Common Stock | |
Earnings Per Share of Common Stock | 16. Earnings Per Share of Common Stock: The following tables provide the computation of basic and diluted earnings per share of common stock for the three and six months ended June 30, 2018 and 2017. For the Three Months Ended June 30, 2018 June 30, 2017 Number of shares on which basic earnings per share is calculated: Weighted-average shares outstanding during period Add – Incremental shares under stock-based compensation plans Add – Incremental shares associated with contingently issuable shares Number of shares on which diluted earnings per share is calculated Income from continuing operations (millions) $ $ Income/(loss) from discontinued operations, net of tax (millions) ) Net income on which basic earnings per share is calculated (millions) $ $ Income from continuing operations (millions) $ $ Net income applicable to contingently issuable shares (millions) ) ) Income from continuing operations on which diluted earnings per share is calculated (millions) $ $ Income/(loss) from discontinued operations, net of tax, on which basic and diluted earnings per share is calculated (millions) ) Net income on which diluted earnings per share is calculated (millions) $ $ Earnings/(loss) per share of common stock: Assuming dilution Continuing operations $ $ Discontinued operations Total $ $ Basic Continuing operations $ $ Discontinued operations Total $ $ Stock options to purchase 388,681 shares and 22,625 shares were outstanding as of June 30, 2018 and 2017, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise price during the respective period was greater than the average market price of the common shares, and, therefore, the effect would have been antidilutive. For the Six Months Ended June 30, 2018 June 30, 2017 Number of shares on which basic earnings per share is calculated: Weighted-average shares outstanding during period Add – Incremental shares under stock compensation plans Add – Incremental shares associated with contingently issuable shares Number of shares on which diluted earnings per share is calculated Income from continuing operations (millions) $ $ Income/(loss) from discontinued operations, net of tax (millions) ) Net income on which basic earnings per share is calculated (millions) $ $ Income from continuing operations (millions) $ $ Net income applicable to contingently issuable shares (millions) ) ) Income from continuing operations on which diluted earnings per share is calculated (millions) $ $ Income/(loss) from discontinued operations, net of tax, on which basic and diluted earnings per share is calculated (millions) ) Net income on which diluted earnings per share is calculated (millions) $ $ Earnings/(loss) per share of common stock: Assuming dilution Continuing operations $ $ Discontinued operations Total $ $ Basic Continuing operations $ $ Discontinued operations Total $ $ Stock options to purchase 202,775 shares and 20,271 shares (average of first and second quarter share amounts) were outstanding as of June 30, 2018 and 2017, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise price during the respective periods was greater than the average market price of the common shares, and, therefore, the effect would have been antidilutive. |
Subsequent Events
Subsequent Events | 6 Months Ended |
Jun. 30, 2018 | |
Subsequent Events | |
Subsequent Events | 17. Subsequent Events : On July 31, 2018, the company announced that the Board of Directors approved a quarterly dividend of $1.57 per common share. The dividend is payable September 10, 2018 to shareholders of record on August 10, 2018. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 6 Months Ended |
Jun. 30, 2018 | |
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. For a discussion of significant estimates and judgments made in recognizing revenue under the new revenue standard, see note 3, “Revenue Recognition”. Also, refer to the company’s 2017 Annual Report on pages 70 to 73, 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 2017 Annual Report. 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 model rather than an 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 has established an implementation team and is evaluating the impact of the new guidance. The FASB issued guidance in February 2016, with amendments in 2018, 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 third-party 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. There are certain practical expedients that can be elected which the company is currently evaluating for application. The guidance is effective January 1, 2019 and early adoption is permitted. The company will adopt the guidance as of the effective date. A cross-functional implementation team has been established which is evaluating the lease portfolio, system, process and policy change requirements. The company has made progress in gathering the necessary data elements for the lease population and a system provider has been selected, with system configuration and implementation underway. The company is currently evaluating the impact of the new guidance on its consolidated financial results and expects it will have a material impact on the Consolidated Statement of Financial Position. The company is currently planning on electing the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and is evaluating the other practical expedients available under the guidance. The company’s operating lease commitments, as a lessee, were $6.6 billion at December 31, 2017. From a lessor perspective, in 2017, the use of third-party residual value guarantee insurance resulted in the company recognizing $452 million of sales-type lease revenue that would otherwise have been recognized over the lease period as operating lease revenue. Further, due to changes in lease termination guidance, when equipment is returned to the company prior to the end of the lease term, the carrying amounts of lease receivables, which remain outstanding relating to that equipment and still expected to be collected, will be reclassified to loan receivables. The amount that would have been reclassified from lease receivables to loan receivables in 2017, under the application of this new guidance, would have been approximately $450 million. The company continues to assess the potential impacts of the guidance, including changes resulting from the pending accounting standard updates to be issued by the FASB, normal and ongoing business dynamics or potential changes in contracting terms, and as a result, preliminary conclusions are subject to change. Standards Implemented In February 2018, the FASB issued guidance that allows entities to elect an option to reclassify the stranded tax effects related to the application of the Tax Cuts and Jobs Act (“U.S. tax reform”) from accumulated other comprehensive income/(loss) (“AOCI”) to retained earnings. The guidance is effective January 1, 2019 with early adoption permitted, and can be applied either in the period of adoption or retrospectively to all applicable periods. The company adopted the guidance effective January 1, 2018, and elected not to reclassify prior periods. In accordance with its accounting policy, the company releases income tax effects from AOCI once the reason the tax effects were established cease to exist (e.g., when available-for-sale debt securities are sold or if a pension plan is liquidated). This guidance allows for the reclassification of stranded tax effects as a result of the change in tax rates from U.S. tax reform to be recorded upon adoption of the guidance rather than at an actual cessation date. At adoption on January 1, 2018, $2,420 million was reclassified from AOCI to retained earnings, primarily comprised of amounts relating to retirement-related benefit plans. In August 2017, the FASB issued guidance to simplify the application of hedge accounting in certain areas, better portray the economic results of an entity’s risk management activities in its financial statements and make targeted improvements to presentation and disclosure requirements. The guidance is effective January 1, 2019 with early adoption permitted. The company adopted the guidance as of January 1, 2018, and it did not have a material impact in the consolidated financial results. In March 2017, the FASB issued guidance that impacts the presentation of net periodic pension and postretirement benefit costs (“net benefit cost”). Under the guidance, the service cost component of net benefit cost continues to be presented within cost, selling, general and administrative expense and research, development and engineering expense in the Consolidated Statement of Earnings, unless eligible for capitalization. The other components of net benefit cost are presented separately from service cost within other (income) and expense in the Consolidated Statement of Earnings. The guidance was effective January 1, 2018 with early adoption permitted. The company adopted the guidance as of the effective date. The guidance is primarily a change in financial statement presentation and did not have a material impact in the consolidated financial results. This presentation change was applied retrospectively upon adoption. For the three months ended June 30, 2017, $175 million, $127 million, and $48 million was recast from total cost, selling, general and administrative (SG&A) expense, and research, development, and engineering (RD&E) expense, respectively, into other (income) and expense. For the six months ended June 30, 2017, $347 million, $252 million, and $98 million was recast from total cost, SG&A expense, and RD&E expense, respectively, into other (income) and expense. Refer to note 9, “Retirement-Related Benefits,” for additional information. In January 2016, the FASB issued guidance which addresses aspects of recognition, measurement, presentation and disclosure of financial instruments. The guidance was effective January 1, 2018 and early adoption was not permitted except for limited provisions. The company adopted the guidance on the effective date. Certain equity investments are now measured at fair value with changes recognized in net income. The amendment also simplified the impairment test of equity investments that lack readily determinable fair value. The guidance did not 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 depicts 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 specific disclosures relating to revenue recognition. The company adopted the guidance effective January 1, 2018 using the modified retrospective transition method. At adoption, $557 million was reclassified from notes and accounts receivable-trade and deferred income-current to prepaid expenses and other current assets to establish the opening balance for net contract assets. In-scope sales commission costs previously recorded in the Consolidated Statement of Earnings were capitalized in deferred costs in accordance with the transition guidance, in the amount of $737 million. Deferred income of $29 million was recorded for certain software licenses that will be recognized over time versus at a point in time under previous guidance. Additionally, net deferred taxes were reduced by $184 million in the Consolidated Statement of Financial Position, resulting in a cumulative-effect net increase to retained earnings of $524 million. The guidance did not have a material impact in the company’s consolidated financial results for the three and six months ended June 30, 2018. The company expects revenue recognition for its broad portfolio of hardware, software, and services offerings to remain largely unchanged. Refer to note 3, “Revenue Recognition,” for additional information, including further discussion on the impact of adoption and changes in accounting policies relating to revenue recognition. In January 2017, the FASB issued guidance which clarifies the definition of a business. The guidance provides a more robust framework to use in determining when a set of assets and activities acquired or sold is a business. The guidance was effective January 1, 2018 and early adoption was permitted. The company adopted the guidance effective January 1, 2017, and it did not have a material impact in the consolidated financial results. In October 2016, the FASB issued guidance which requires an entity to recognize the income tax consequences of intra-entity transfers of assets, other than inventory, at the time of transfer. Assets within the scope of the guidance include intellectual property and property, plant and equipment. The guidance was effective January 1, 2018 and early adoption was permitted. The company adopted the guidance on January 1, 2017 using the required modified retrospective method. At adoption, $95 million and $47 million were reclassified from investments and sundry assets and prepaid expenses and other current assets, respectively into retained earnings. Additionally, net deferred taxes of $244 million were established in deferred taxes in the Consolidated Statement of Financial Position, resulting in a cumulative-effect net increase to retained earnings of $102 million. In January 2017, the company had one transaction that generated a $582 million benefit to income tax expense, income from continuing operations and net income and a benefit to both basic and diluted earnings per share of $0.62 per share for the six months ended June 30, 2017. No transactions impacted the consolidated financial results for the six months ended June 30, 2018. The ongoing impact of this guidance will be dependent on any transaction that is within its scope. 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 was effective and adopted by the company on January 1, 2017, and it did not have a material impact in the Consolidated Statement of Financial Position. The ongoing impact of the guidance could result in increased volatility in the 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, however these impacts are not expected to be material. These impacts are recorded on a prospective basis. The company continues to estimate forfeitures in conjunction with measuring stock-based compensation cost. The guidance also requires cash payments on behalf of employees for shares directly withheld for taxes to be presented as financing outflows in the Consolidated Statement of Cash Flows. The FASB also issued guidance in May 2017 and June 2018, which relates to the accounting for modifications of share-based payment awards and accounting for share-based payments issued to non-employees, respectively. The company adopted the guidance for modifications in the second quarter of 2017, and guidance for non-employees’ payments in the second quarter of 2018. The guidance had no impact in the consolidated financial results. |
Revenue Recognition | Effective January 1, 2018, the company adopted the new accounting standard related to the recognition of revenue in contracts with customers under the modified retrospective transition method. This method was applied to contracts that were not complete as of the date of initial application. The following is a summary of new and/or revised significant accounting policies, which relate primarily to revenue and cost recognition. Refer to note A, “Significant Accounting Policies,” in the company’s 2017 Annual Report for the policies in effect for revenue and cost prior to January 1, 2018 and for all other significant accounting policies. Revenue The company accounts for a contract with a client when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service transfers to a client, in an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring those products or services. If the consideration promised in a contract includes a variable amount, the company estimates the amount to which it expects to be entitled using either the expected value or most likely amount method. The company’s contracts may include terms that could cause variability in the transaction price, including, for example, rebates, volume discounts, service-level penalties, and performance bonuses or other forms of contingent revenue. The company only includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The company may not be able to reliably estimate contingent revenue in certain long-term arrangements due to uncertainties that are not expected to be resolved for a long period of time or when the company’s experience with similar types of contracts is limited. The company’s arrangements infrequently include contingent revenue. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current and forecasted) that is reasonably available to the company, taking into consideration the type of client, the type of transaction and the specific facts and circumstances of each arrangement. Changes in estimates of variable consideration are included in the disclosure on pages 19 and 20. The company’s standard billing terms are that payment is due upon receipt of invoice, payable within 30 days. Invoices are generally issued as control transfers and/or as services are rendered. Additionally, in determining the transaction price, the company adjusts the promised amount of consideration for the effects of the time value of money if the billing terms are not standard and the timing of payments agreed to by the parties to the contract provide the client or the company with a significant benefit of financing, in which case the contract contains a significant financing component. As a practical expedient, the company does not account for significant financing components if the period between when the company transfers the promised product or service to the client and when the client pays for that product or service will be one year or less. Most arrangements that contain a financing component are financed through the company’s Global Financing business and include explicit financing terms. The company may include subcontractor services or third-party vendor equipment or software in certain integrated services arrangements. In these types of arrangements, revenue from sales of third-party vendor products or services is recorded net of costs when the company is acting as an agent between the client and the vendor, and gross when the company is the principal for the transaction. To determine whether the company is an agent or principal, the company considers whether it obtains control of the products or services before they are transferred to the customer. In making this evaluation, several factors are considered, most notably whether the company has primary responsibility for fulfillment to the client, as well as inventory risk and pricing discretion. The company recognizes revenue on sales to solution providers, resellers and distributors (herein referred to as “resellers”) when the reseller has economic substance apart from the company and the reseller is considered the principal for the transaction with the end-user client. The company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions. In addition to the aforementioned general policies, the following are the specific revenue recognition policies for arrangements with multiple performance obligations and for each major category of revenue. Arrangements with Multiple Performance Obligations The company’s global capabilities as a cognitive solutions and cloud platform company include services, software, hardware and related financing. The company enters into revenue arrangements that may consist of any combination of these products and services based on the needs of its clients. For example, a client may purchase a server that includes operating system software. In addition, the arrangement may include post-contract support for the software and a contract for post-warranty maintenance service for the hardware. These types of arrangements may also include financing provided by the company. These arrangements consist of multiple products and services, whereby the hardware and software may be delivered in one period and the software support and hardware maintenance services are delivered over time. In another example, the company may assist the client in building and running an enterprise information technology (IT) environment utilizing a private cloud on a long-term basis and the client periodically purchases hardware and/or software products from the company to upgrade or expand the facility. The services delivered on the cloud are provided on a continuous basis across multiple reporting periods, and the hardware and software products are provided in each period the products are purchased. The company continues to build new products and offerings and continuously reinvent its platforms and delivery methods, including through the use of cloud and as-a-Service models. These are not separate businesses; they are offerings across the segments that address market opportunities in analytics, data, cloud and security. Revenue from these offerings follows the specific revenue recognition policies for arrangements with multiple performance obligations and for each major category of revenue, depending on the type of offering, which are comprised of services, hardware and/or software. To the extent that a product or service in multiple performance obligation arrangements is subject to other specific accounting guidance, such as leasing guidance, that product or service is accounted for in accordance with such specific guidance. For all other products or services in these arrangements, the criteria below are considered to determine when the products or services are distinct and how to allocate the arrangement consideration to each distinct performance obligation. A performance obligation is a promise in a contract with a client to transfer products or services that are distinct. If the company enters into two or more contracts at or near the same time, the contracts may be combined and accounted for as one contract, in which case the company determines whether the products or services in the combined contract are distinct. A product or service that is promised to a client is distinct if both of the following criteria are met: · The client can benefit from the product or service either on its own or together with other resources that are readily available to the client (that is, the product or service is capable of being distinct); and · The company’s promise to transfer the product or service to the client is separately identifiable from other promises in the contract (that is, the product or service is distinct within the context of the contract). If these criteria are not met, the company determines an appropriate measure of progress based on the nature of its overall promise for the single performance obligation. When products and services are distinct, the arrangement consideration is allocated to each performance obligation on a relative standalone selling price basis. The revenue policies in the Services, Hardware and/or Software sections below are then applied to each performance obligation, as applicable. To the extent the company grants the customer the option to acquire additional products or services in one of these arrangements, the company accounts for the option as a distinct performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into the contract (e.g., a discount incremental to the range of discounts typically given for the product or service), in which case the client in effect pays in advance for the option to purchase future products or services. The company recognizes revenue when those future products or services are transferred or when the option expires. Services The company’s primary services offerings include infrastructure services, including outsourcing, and other managed services; application management services; global process services (GPS); maintenance and support; and consulting, including the design and development of complex IT systems to a client’s specifications (e.g., design and build). Many of these services can be delivered entirely or partially through cloud or as-a-Service delivery models. The company’s services are provided on a time-and-material basis, as a fixed-price contract or as a fixed-price per measure of output contract and the contract terms range from less than one year to over 10 years. In services arrangements, the company typically satisfies the performance obligation and recognizes revenue over time. In design and build arrangements, the performance obligation is satisfied over time either because the client controls the asset as it is created (e.g., when the asset is built at the customer site) or because the company’s performance does not create an asset with an alternative use and the company has an enforceable right to payment plus a reasonable profit for performance completed to date. In most other services arrangements, the performance obligation is satisfied over time because the client simultaneously receives and consumes the benefits provided as the company performs the services. In outsourcing, other managed services, application management, GPS and other cloud-based services arrangements, the company determines whether the services performed during the initial phases of the arrangement, such as setup activities, are distinct. In most cases, the arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The company applies a measure of progress (typically time-based) to any fixed consideration and allocates variable consideration to the distinct periods of service based on usage. As a result, revenue is generally recognized over the period the services are provided on a usage basis. This results in revenue recognition that corresponds with the value to the client of the services transferred to date relative to the remaining services promised. Revenue from time-and-material contracts is recognized on an output basis as labor hours are delivered and/or direct expenses are incurred. Revenue from as-a-Service type contracts, such as Infrastructure-as-a-Service, is recognized either on a straight-line basis or on a usage basis, depending on the terms of the arrangement (such as whether the company is standing ready to perform or whether the contract has usage-based metrics). If the as-a-Service contract includes setup activities, those promises in the arrangement are evaluated to determine if they are distinct. Revenue related to maintenance and support services and extended warranty is recognized on a straight-line basis over the period of performance because the company is standing ready to provide services. In fixed-price design and build contracts, revenue is recognized based on progress towards completion of the performance obligation using a cost-to-cost measure of progress (i.e., percentage-of-completion (POC) method of accounting). Revenue is recognized based on the labor costs incurred to date as a percentage of the total estimated labor costs to fulfill the contract. Due to the nature of the work performed in these arrangements, the estimation of cost at completion is complex, subject to many variables and requires significant judgment. Key factors reviewed by the company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known by the company. Refer to page 20 for the amount of revenue recognized in the reporting period on a cumulative catch-up basis (i.e., from performance obligations satisfied, or partially satisfied, in previous periods). The company performs ongoing profitability analyses of its design and build services contracts accounted for using a cost-to-cost measure of progress in order to determine whether the latest estimates of revenues, costs and profits require updating. If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately. For other types of services contracts, any losses are recorded as incurred. In some services contracts, the company bills the client prior to recognizing revenue from performing the services. In other services contracts, the company performs the services prior to billing the client. When the company performs services prior to billing the client in design and build contracts, the right to consideration is typically subject to milestone completion or client acceptance and the unbilled accounts receivable is classified as a contract asset. Refer to page 85 of the company’s 2017 Annual Report for the amount of deferred income and unbilled accounts receivable at December 31, 2017 and 2016. Billings usually occur in the month after the company performs the services or in accordance with specific contractual provisions. Hardware The company’s hardware offerings include the sale or lease of system servers and storage solutions. These products can also be delivered through as-a-Service or cloud delivery models, such as Storage-as-a-Service. The company also offers installation services for its more complex hardware products. Hardware offerings are often sold with distinct maintenance services, described under the Services section above. Revenue from hardware sales is recognized when control has transferred to the customer which typically occurs when the hardware has been shipped to the client, risk of loss has transferred to the client and the company has a present right to payment for the hardware. In limited circumstances when a hardware sale includes client acceptance provisions, revenue is recognized either when client acceptance has been obtained, client acceptance provisions have lapsed, or the company has objective evidence that the criteria specified in the client acceptance provisions have been satisfied. Revenue from hardware sales-type leases is recognized at the beginning of the lease term. Revenue from rentals and operating leases is recognized on a straight-line basis over the term of the rental or lease. Revenue from as-a-Service arrangements is recognized either on a straight-line basis or on a usage basis as described in the Services section above. Installation services are accounted for as distinct performance obligations with revenue recognized as the services are performed. Any cost of standard warranties is accrued when the corresponding revenue is recognized. Shipping and handling activities that occur after the client has obtained control of a product are accounted for as an activity to fulfill the promise to transfer the product rather than as an additional promised service and, therefore, no revenue is deferred and recognized over the shipping period. Software The company’s software offerings include solutions software, which contains many of the company’s strategic areas including analytics, data and security; transaction processing software, which primarily runs mission-critical systems for clients; integration software, which helps clients to create, connect and optimize their applications data and infrastructure; and, operating systems software, which provides operating systems for IBM Z and Power Systems hardware. Many of these offerings can be delivered entirely or partially through as-a-Service or cloud delivery models, while others are delivered as on-premise software licenses. Revenue from perpetual (one-time charge) license software is recognized at a point in time at the inception of the arrangement when control transfers to the client, if the software license is distinct from the post-contract support offered by the company. In limited circumstances, when the software requires continuous updates to provide the intended functionality, the software license and post-contract support are not distinct and revenue for the single performance obligation is recognized over time as the post-contract support is provided. This is only applicable to certain security software perpetual licenses offered by the company. Prior to the adoption of the new revenue standard, the company recognized revenue for these software licenses at a point in time at the inception of the arrangement. This change did not have a material impact on the company’s financial statements. Revenue from post-contract support is recognized over the contract term on a straight-line basis because the company is providing a service of standing ready to provide support, when-and-if needed, and is providing unspecified software upgrades on a when-and-if available basis over the contract term. Revenue from software hosting or Software-as-a-Service arrangements is recognized either on a straight-line basis or on a usage basis as described in the Services section above. In software hosting arrangements, the rights provided to the client (e.g., ownership of a license, contract termination provisions and the feasibility of the client to operate the software) are considered in determining whether the arrangement includes a license. In arrangements that include a software license, the associated revenue is recognized in accordance with the software license recognition policy above rather than over time as a service. Revenue from term license software is recognized at a point in time for the committed term of the contract (which is typically one month due to client termination rights). However, if the amount of consideration to be paid in exchange for the license depends on client usage, revenue is recognized when the usage occurs. Financing Financing income attributable to sales-type leases, direct financing leases and loans is recognized on the accrual basis using the effective interest method. Operating lease income is recognized on a straight-line basis over the term of the lease. Standalone Selling Price The company allocates the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (SSP) is the price at which the company would sell a promised product or service separately to a client. In most cases, the company is able to establish SSP based on the observable prices of products or services sold separately in comparable circumstances to similar clients. The company typically establishes a standalone selling price range for its products and services which are reassessed on a periodic basis or when facts and circumstances change. In certain instances, the company may not be able to establish a standalone selling price range based on observable prices and the company estimates the standalone selling price. The company estimates SSP by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, competitive positioning, competitor actions, internal costs, profit objectives and pricing practices. Additionally, in certain circumstances, the company may estimate SSP for a product or service by applying the residual approach. This approach has been most commonly used when certain perpetual software licenses are only sold bundled with one year of post-contract support and a price has not been established for the software. Estimating SSP is a formal process that includes review and approval by the company’s management. Services Costs Recurring operating costs for services contracts are recognized as incurred. For fixed-price design and build contracts, the costs of external hardware and software accounted for under the cost-to-cost measure of progress are deferred and recognized based on the labor costs incurred to date (i.e., the measure of progress), as a percentage of the total estimated labor costs to fulfill the contract as control transfers over time for these performance obligations. Certain eligible, nonrecurring costs incurred in the initial phases of outsourcing contracts and other cloud-based services contracts (i.e., setup costs) are capitalized when the costs relate directly to the contract, the costs generate or enhance resources of the company that will be used in satisfying the performance obligation in the future, and the costs are expected to be recovered. These costs consist of transition and setup costs related to the installation of systems and processes and other deferred fulfillment costs, including, prepaid assets used in services contracts (i.e., prepaid software or prepaid maintenance), and other deferred fulfillment costs eligible for capitalization. Capitalized costs are amortized on a straight-line basis over the expected period of benefit, which includes anticipated contract renewals or extensions, consistent with the transfer to the client of the services to which the asset relates. Additionally, fixed assets associated with these contracts are capitalized and depreciated on a straight-line basis over the expected useful life of the asset. If an asset is contract specific, then the depreciation period is the shorter of the useful life of the asset or the contract term. Amounts paid to clients in excess of the fair value of acquired assets used in outsourcing arrangements are deferred and amortized on a straight-line basis as a reduction of revenue over the expected period of benefit. The company performs periodic reviews to assess the recoverability of deferred contract transition and setup costs. This review is done by comparing the carrying amount of the asset to the remaining amount of consideration the company expects to receive for the services to which the asset relates, less the costs that relate directly to providing those services that have not yet been recognized. If the carrying amount is deemed not recoverable, an impairment loss is recognized. In situations in which an outsourcing contract is terminated, the terms of the contract may require the client to reimburse the company for the recovery of unbilled accounts receivable, unamortized deferred costs incurred to purchase specific assets utilized in the delivery of services and to pay any additional costs incurred by the company to transition the services. Software Costs Certain eligible, non-recurring costs incurred in the initial phases of Software-as-a-Service contracts are deferred and amortized over the expected period of benefit, which includes anticipated contract renewals or extensions, consistent with the policy described for Services Costs. Recurring operating costs in these contracts are recognized as incurred. Incremental Costs of Obtaining a Contract Incremental costs of obtaining a contract (e.g., sales commissions) are capitalized and amortized on a straight-line basis over the expected customer relationship period if the company expects to recover those costs. The company previously expensed these costs as incurred. The expected customer relationship is determined based on the average customer relationship period, including expected renewals, for each offering type and ranges from three to six years. Expected renewal periods are only included in the expected customer relationship period if commission amounts paid upon renewal are not commensurate with amounts paid on the initial contract. Incremental costs of obtaining a contract include only those costs the company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. The company has determined that certain commissions programs meet the requirements to be capitalized. Some commission programs are not subject to capitalization as the commission expense is paid and recognized as the related revenue is recognized. Additionally, as a practical expedient, the company expenses costs to obtain a contract as incurred if the amortization period would have been a year or less. These costs are included in selling, general and administrative expenses. Product Warranties The company offers warranties for its hardware products that generally range up to three years, with the majority being either one or three years. Estimated costs for standard warranty terms are recognized when revenue is recorded for the related product. The company estimates its warranty costs standard to the product based on historical warranty claim experience and estimates of future spending, and applies this estimate to the revenue stream for products under warranty. Estimated future costs for warranties applicable to revenue recognized in the current period are charged to cost of sales. The warranty liability is reviewed quarterly to verify that it properly reflects the remaining obligation based on the anticipated expenditures over the balance of the obligation period. Adjustments are made when actual warranty claim experience differs from estimates. Costs from fixed-price support or maintenance contracts, including extended warranty contracts, are recognized as incurred. Revenue from extended warranty contracts is initially recorded as deferred income and subsequently recognized on a straight-line basis over the delivery period because the company is providing a service of standing ready to provide services over such term. Contract Assets and Notes and Accounts Receivable—Trade The company classifies the right to consideration in exchange for products or services transferred to a client as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional as compared to a contract asset which is a right to consideration that is conditional upon factors other than the passage of time. The majority of the company’s contract assets represent unbilled amounts related to design and build services contracts when the cost-to-cost method of revenue recognition is utilized, revenue recognized exceeds the amount billed to the client, and the right to consideration is subject to milestone completion or client acceptance. Contract assets are generally classified as current and are recorded on a net basis with deferred income (i.e., contract liabilities) at the contract level. At January 1, 2018 and June 30, 2018 contract assets of $557 million and $515 million, respectively, are included in prepaid expenses and other current assets in the Consolidated Statement of Financial Position. At December 31, 2017, these assets were classified as notes and accounts receivable-trade in the Consolidated Statement of Financial Position. An allowance for contract assets, if needed, and uncollectible trade receivables is estimated based on a combination of write-off history, aging analysis and any specific, known troubled accounts. Remaining Performance Obligations The remaining performance obligation (RPO) disclosure provides the aggregate amount of the transaction price yet to be recognized as of the end of the reporting period and an explanation as to when the company expects to recognize these amounts in revenue. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed, such as certain as-a-Service, governmental, term software license and services offerings. The customer is not considered committed when they are able to terminate for convenience without payment of a substantive penalty. The disclosure includes estimates of variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property. Additionally, as a practical expedient, the company does not include contracts that have an original duration of one year or less. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency. Transition Disclosures In accordance with the modified retrospective method transition requirements, the company will present the financial statement line items impacted and adjusted to compare to presentation under the prior GAAP for each of the interim and annual periods during the first year of adoption of the new revenue standard. |
Financial Instruments and Fair Value Measurement | 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 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 debt securities that are deemed to be other-than-temporarily impaired. In the event of an other-than-temporary impairment of a debt security, fair value is measured using a model described above. Certain 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. Effective January 1, 2018, the company adopted the new FASB guidance on recognition, measurement, presentation and disclosure of financial instruments using the cumulative catch-up transition method. Under the new standard, the company measures equity investments at fair value with changes recognized in net income. Based on the method of adoption, prior year information has not been updated to conform with the new guidance. 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, except for short-term debt, which would be classified as Level 2. 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. |
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 restricted cash 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 may use 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 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 ten 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 | Commercial financing receivables are excluded from the presentation of financing receivables by portfolio segment, as they are short term in nature and the current estimated risk of loss and resulting impact to the company’s financing results are not material. The company determines its allowance for credit losses based on two portfolio segments: lease receivables and loan receivables, and further segments the portfolio into three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. 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. The company considers any receivable with an individually evaluated reserve as an impaired receivable. 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. The company considers a client’s financing receivable balance past due when any installment is aged over 90 days. The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody’s, where available, as one of many inputs in its determination of customer credit ratings. The credit quality 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. The segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker (the chief executive officer) in determining how to allocate resources and evaluate performance. |
Acquisitions | 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. |
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. |
Income Taxes | All components of the provisional charge were based on the company’s estimates as of December 31, 2017. Specifically, the transition tax, any foreign tax costs, as well as the remeasurement of deferred tax balances are provisional and were calculated based on existing tax law and the best information available as of the date of estimate. |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Revenue Recognition | |
Schedule of disaggregation of revenue | Revenue by Major Products/Service Offerings Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Other Revenue For the three months ended June 30, 2018: Solutions Software $ $ — $ — $ — $ — $ — $ Transaction Processing Software — — — — — Consulting — — — — — Global Process Services — — — — — Application Management — — — — — Infrastructure Services — — — — — Technical Support Services — — — — — Integration Software — — — — — Systems Hardware — — — — — Operating Systems Software — — — — — Global Financing* — — — — — Other Revenue — — — — — Total $ $ $ $ $ $ $ * Contains lease and loan/working capital financing arrangements which are not subject to the guidance on revenue from contracts with customers. Revenue by Geography Total (Dollars in millions) Revenue For the three months ended June 30, 2018: Americas $ Europe/Middle East/Africa Asia Pacific Total $ Revenue by Major Products/Service Offerings Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Other Revenue For the six months ended June 30, 2018: Solutions Software $ $ — $ — $ — $ — $ — $ Transaction Processing Software — — — — — Consulting — — — — — Global Process Services — — — — — Application Management — — — — — Infrastructure Services — — — — — Technical Support Services — — — — — Integration Software — — — — — Systems Hardware — — — — — Operating Systems Software — — — — — Global Financing* — — — — — Other Revenue — — — — — Total $ $ $ $ $ $ $ *Contains lease and loan/working capital financing arrangements which are not subject to the guidance on revenue from contracts with customers. Revenue by Geography Total (Dollars in millions) Revenue For the six months ended June 30, 2018: Americas $ Europe/Middle East/Africa Asia Pacific Total $ |
Schedule of reconciliation of contract balances | At June 30, At January 1, (Dollars in millions) 2018 2018 (as adjusted) Notes and accounts receivable-trade (net of allowances of $310 and $297 at June 30, 2018 and January 1, 2018, respectively) $ $ Contract assets (1) Deferred income (current) Deferred income (noncurrent) (1) Included within prepaid expenses and other current assets in the Consolidated Statement of Financial Position. |
Schedule of deferred contract costs | At June 30, (Dollars in millions) 2018 Capitalized costs to obtain a contract $ Deferred costs to fulfill a contract: Deferred setup costs Other deferred fulfillment costs Total deferred costs (1) $ (1) Of the total, $2,344 million is current and $2,613 million is noncurrent. Prior to January 1, 2018, the current and noncurrent balance of deferred costs were included within prepaid expenses and other current assets and investments and sundry assets, respectively. |
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | |
Revenue Recognition | |
Schedule of transition disclosures | Consolidated Statement of Earnings Impacts As reported under Adjustments to Adjusted (Dollars in millions except per share amounts) new revenue convert to amounts under For the three months ended June 30, 2018: standard prior GAAP prior GAAP Revenue $ $ $ Cost Gross profit Selling, general and administrative expense Income from continuing operations before income taxes ) Provision for/(benefit from) income taxes ) Net income $ $ ) $ Earnings/(loss) per share of common stock: Assuming dilution $ $ $ Basic $ $ $ As reported under Adjustments to Adjusted (Dollars in millions except per share amounts) new revenue convert to amounts under For the six months ended June 30, 2018: standard prior GAAP prior GAAP Revenue $ $ ) $ Cost Gross profit ) Selling, general and administrative expense ) Income from continuing operations before income taxes ) Provision for/(benefit from) income taxes ) ) ) Net income $ $ ) $ Earnings/(loss) per share of common stock: Assuming dilution $ $ ) $ Basic $ $ ) $ Consolidated Statement of Financial Position Impacts As reported under Adjustments to Adjusted (Dollars in millions) new revenue convert to amounts under At June 30, 2018: standard prior GAAP prior GAAP Assets: Notes and accounts receivable - trade (net of allowances) $ $ $ Deferred costs (current) ) Prepaid expenses and other current assets ) Deferred taxes Deferred costs (noncurrent) ) Investments and sundry assets — Total assets $ $ ) $ Liabilities: Taxes $ $ — $ Deferred income (current) Deferred income (noncurrent) ) Total liabilities $ $ $ Equity: Retained earnings $ $ ) $ AOCI ) ) Total stockholders’ equity ) Total liabilities and stockholders’ equity $ $ ) $ Consolidated Statement of Cash Flows Impacts As reported under Adjustments to Adjusted (Dollars in millions) new revenue convert to amounts under For the six months ended June 30, 2018: standard prior GAAP prior GAAP Cash flows from operating activities: Net income $ $ ) $ Adjustments to reconcile net income to cash provided by operating activities Changes in operating assets and liabilities, net of acquisitions/divestitures Net cash provided by operating activities $ $ — $ |
Financial Instruments (Tables)
Financial Instruments (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Financial Instruments | |
Financial assets and financial liabilities measured at fair value on a recurring basis | (Dollars in millions) At June 30, 2018 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ (6) Money market funds — — Total $ $ $ — $ Equity investments (2) — — Debt securities - current (3) — — (6) Derivative assets (4) — — (7) Total assets $ $ $ — $ Liabilities: Derivative liabilities (5) $ — $ $ — $ (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within marketable securities, and investments and sundry assets in the Consolidated Statement of Financial Position. (3) Included within marketable securities 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, 2018 were $301 million and $398 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, 2018 were $94 million and $162 million, respectively. (6) Available-for-sale debt 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 $201 million. (Dollars in millions) At December 31, 2017 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ Commercial paper — — Money market funds — — Canadian government securities — — Total $ $ $ — $ (6) Equity investments (2) — — Debt securities - current (3) — — (6) Debt securities - noncurrent (2) — Derivative assets (4) — — (7) Total assets $ $ $ — $ Liabilities: Derivative liabilities (5) $ — $ $ — $ (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (3) U.S government securities reported as marketable securities 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, 2017 were $185 million and $757 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, 2017 were $377 million and $38 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 $255 million. |
Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position | Fair Value of Derivative Assets Fair Value of Derivative Liabilities Balance Sheet Balance Sheet (Dollars in millions) Classification 6/30/2018 12/31/2017 Classification 6/30/2018 12/31/2017 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 $ $ Equity contracts Prepaid expenses and other current assets Other accrued expenses and liabilities Fair value of derivative assets $ $ Fair value of derivative liabilities $ $ Total derivatives $ $ $ $ Total debt designated as hedging instruments(1): Short-term debt N/A N/A $ — $ — Long-term debt N/A N/A N/A N/A $ $ Total $ $ $ $ N/A - not applicable (1) Debt designated as hedging instruments are reported at carrying value. |
Amounts related to cumulative basis adjustments for fair value hedges | (Dollars in millions) Cumulative Amount of Line Item in the Carrying Amount of the Fair Value Hedging Adjustment Consolidated Statement of Financial Position Hedged Item Included in the Carrying in which the Hedged Item is Included Assets/(Liabilities) Amount of Assets/(Liabilities) Short-term debt $ ) $ Long-term debt $ ) $ )(1) (1) Includes ($184) million of hedging adjustments on discontinued hedging relationships. |
Effect of Derivative Instruments in the Consolidated Statement of Earnings | Other (Dollars in millions) Cost of Cost of Cost of SG&A (Income) and Interest For the three months ended June 30, 2018: Services Sales Financing Expense Expense Expense Total $ $ $ $ $ $ Gains/(losses) of total hedge activity ) ) ) Gain (Loss) Recognized in Earnings Consolidated Recognized on Attributable to Risk (Dollars in millions) Statement of Derivatives Being Hedged(2) For the three months ended June 30: Earnings Line Item 2018 2017 2018 2017 Derivative instruments in fair value hedges(1): Interest rate contracts Cost of financing $ ) $ $ $ ) Interest expense ) ) Derivative instruments not designated as hedging instruments: Foreign exchange contracts Other (income) and expense ) N/A N/A Equity contracts SG&A expense N/A N/A Total $ ) $ $ $ ) Gain (Loss) Recognized in Earnings and Other Comprehensive Income (Dollars in millions) Consolidated Reclassified Amounts Excluded from For the three months Recognized in OCI Statement of from AOCI Effectiveness Testing(3) ended June 30: 2018 2017 Earnings Line Item 2018 2017 2018 2017 Derivative instruments in cash flow hedges: Foreign exchange contracts $ ) $ ) Interest expense $ ) $ ) $ — $ — Other (income) and expense ) — Cost of sales ) — — Cost of services — — SG&A expense ) — — Instruments in net investment hedges(4): Foreign exchange contracts ) Cost of financing — — — Interest expense — — Total $ $ ) $ ) $ $ $ Prior period gain or loss amounts and presentation are not conformed to the new hedge accounting guidance that the company adopted in 2018. Refer to note 2, “Accounting Changes,” for further information. 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 company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. (4) Instruments in net investment hedges include derivative and non-derivative instruments. Other (Dollars in millions) Cost of Cost of Cost of SG&A (Income) and Interest For the six months ended June 30, 2018: Services Sales Financing Expense Expense Expense Total $ $ $ $ $ $ Gains/(losses) of total hedge activity ) ) ) ) Gain (Loss) Recognized in Earnings Consolidated Recognized on Attributable to Risk (Dollars in millions) Statement of Derivatives Being Hedged(2) For the six months ended June 30: Earnings Line Item 2018 2017 2018 2017 Derivative instruments in fair value hedges(1): Interest rate contracts Cost of financing $ ) $ $ $ Interest expense ) Derivative instruments not designated as hedging instruments: Foreign exchange contracts Other (income) and expense ) N/A N/A Equity contracts SG&A expense ) N/A N/A Total $ ) $ $ $ Gain (Loss) Recognized in Earnings and Other Comprehensive Income (Dollars in millions) Consolidated Reclassified Amounts Excluded from For the six months Recognized in OCI Statement of from AOCI Effectiveness Testing(3) ended June 30: 2018 2017 Earnings Line Item 2018 2017 2018 2017 Derivative instruments in cash flow hedges: Foreign exchange contracts $ ) $ ) Interest expense $ ) $ ) $ — $ — Other (income) and expense ) — Cost of sales ) — — Cost of services — — SG&A expense ) — — Instruments in net investment hedges(4): Foreign exchange contracts ) Cost of financing — — — Interest expense — — Total $ $ ) $ ) $ $ $ Prior period gain or loss amounts and presentation are not conformed to the new hedge accounting guidance that the company adopted in 2018. Refer to note 2, “Accounting Changes,” for further information. 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 company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. (4) Instruments in net investment hedges include derivative and non-derivative instruments. |
Financing Receivables (Tables)
Financing Receivables (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Financing Receivables | |
Summary of the components of financing receivables | Investment in Client Loan and Sales-Type and Commercial Installment Payment (Dollars in millions) Direct Financing Financing Receivables/ At June 30, 2018: Leases Receivables (Loans) Total Financing receivables, gross $ $ $ $ Unearned income ) ) ) ) Recorded Investment $ $ $ $ Allowance for credit losses ) ) ) ) Unguaranteed residual value — — Guaranteed residual value — — Total financing receivables, net $ $ $ $ Current portion $ $ $ $ Noncurrent portion $ $ — $ $ Investment in Client Loan and Sales-Type and Commercial Installment Payment (Dollars in millions) Direct Financing Financing Receivables/ At December 31, 2017: Leases Receivables (Loans) Total Financing receivables, gross $ $ $ $ Unearned income ) ) ) ) Recorded Investment $ $ $ $ Allowance for credit losses ) ) ) ) Unguaranteed residual value — — Guaranteed residual value — — Total financing receivables, net $ $ $ $ Current portion $ $ $ $ Noncurrent portion $ $ — $ $ |
Schedule of financing receivables and allowance for credit losses by portfolio segment | (Dollars in millions) At June 30, 2018: Americas EMEA Asia Pacific Total Recorded Investment Lease receivables $ $ $ $ Loan receivables Ending balance $ $ $ $ Recorded investment collectively evaluated for impairment $ $ $ $ Recorded investment individually evaluated for impairment $ $ $ $ Allowance for credit losses Beginning balance at January 1, 2018 Lease receivables $ $ $ $ Loan receivables Total $ $ $ $ Write-offs $ ) $ ) $ ) $ ) Recoveries Provision Other ) ) ) ) Ending balance at June 30, 2018 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ (Dollars in millions) At December 31, 2017: Americas EMEA Asia Pacific Total Recorded Investment Lease receivables $ $ $ $ Loan receivables Ending balance $ $ $ $ Recorded investment collectively evaluated for impairment $ $ $ $ Recorded investment individually evaluated for impairment $ $ $ $ Allowance for credit losses Beginning balance at January 1, 2017 Lease receivables $ $ $ $ Loan receivables Total $ $ $ $ Write-offs $ ) $ ) $ ) $ ) Recoveries Provision ) ) Other Ending balance at December 31, 2017 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ |
Schedule of past due financing receivables | Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At June 30, 2018: Investment > 90 Days (1) Accruing (1) Accruing Accruing (2) Americas $ $ $ $ $ EMEA Asia Pacific Total lease receivables $ $ $ $ $ Americas $ $ $ $ $ EMEA Asia Pacific Total loan receivables $ $ $ $ $ Total $ $ $ $ $ (1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days. (2) Of the recorded investment not accruing, $258 million is individually evaluated for impairment with a related allowance of $253 million. Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At December 31, 2017: Investment > 90 Days (1) Accruing (1) Accruing Accruing (2)(3) Americas $ $ $ $ $ EMEA Asia Pacific Total lease receivables $ $ $ $ $ Americas $ $ $ $ $ EMEA Asia Pacific Total loan receivables $ $ $ $ $ Total $ $ $ $ $ (1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days. (2) Of the recorded investment not accruing, $269 million is individually evaluated for impairment with a related allowance of $250 million. (3) Recast to conform to current period presentation, which includes billed impaired amounts. |
Schedule of net recorded investment by credit quality indicator | (Dollars in millions) Lease Receivables Loan Receivables At June 30, 2018: Americas EMEA Asia Pacific Americas EMEA Asia Pacific Credit Ratings: Aaa – Aa3 $ $ $ $ $ $ A1 – A3 Baa1 – Baa3 Ba1 – Ba2 Ba3 – B1 B2 – B3 Caa – D Total $ $ $ $ $ $ (Dollars in millions) Lease Receivables Loan Receivables At December 31, 2017: Americas EMEA Asia Pacific Americas EMEA Asia Pacific Credit Ratings: Aaa – Aa3 $ $ $ $ $ $ A1 – A3 Baa1 – Baa3 Ba1 – Ba2 Ba3 – B1 B2 – B3 Caa – D Total $ $ $ $ $ $ |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
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) 2018 2017 2018 2017 Cost $ $ $ $ Selling, general and administrative Research, development and engineering Pre-tax stock-based compensation cost $ $ $ $ Income tax benefits ) ) ) ) Total net stock-based compensation cost $ $ $ $ |
Segments (Tables)
Segments (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Segments | |
Revenue and Pre-tax Income by Segment | Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Segments For the three months ended June 30, 2018: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income 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, 2017: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income from continuing operations * $ $ $ $ $ $ Pre-tax income margin * % % % % % % * Recast to reflect adoption of the FASB guidance on presentation of net benefit cost. Technology Global Services & Cognitive Business Cloud Global Total (Dollars in millions) Solutions Services Platforms Systems Financing Segments For the six months ended June 30, 2018: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income from continuing operations $ $ $ $ $ $ Revenue year-to-year change % % % % % % Pre-tax income year-to-year change % )% )% nm % % Pre-tax income margin % % % % % % For the six months ended June 30, 2017: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income/(loss) from continuing operations * $ $ $ $ ) $ $ Pre-tax income/(loss) margin * % % % )% % % * Recast to reflect adoption of the FASB guidance on presentation of net benefit cost. nm - not meaningful |
Reconciliation of segment revenue to IBM as reported | (Dollars in millions) For the three months ended June 30: 2018 2017 Revenue: Total reportable segments $ $ Eliminations of internal transactions ) ) Other revenue Total consolidated revenue $ $ (Dollars in millions) For the six months ended June 30: 2018 2017 Revenue: Total reportable segments $ $ Eliminations of internal transactions ) ) Other revenue Total consolidated revenue $ $ |
Reconciliation of segment pre-tax income to IBM as reported | (Dollars in millions) For the three months ended June 30: 2018 2017 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 reflect adoption of the FASB guidance on presentation of net benefit cost. (Dollars in millions) For the six months ended June 30: 2018 2017 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 reflect adoption of the FASB guidance on presentation of net benefit cost. |
Equity Activity (Tables)
Equity Activity (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
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, 2018: 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 ) Cost of services ) ) 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 9, “Retirement-Related Benefits,” for additional information.) (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended June 30, 2017: 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 ) ) Cost of services ) ) 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 9, “Retirement-Related Benefits,” for additional information.) (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the six months ended June 30, 2018: 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 ) Cost of services ) ) 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 9, “Retirement-Related Benefits,” for additional information.) (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the six months ended June 30, 2017: 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 ) ) Cost of services ) ) 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 9, “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, 2018 $ $ ) $ ) $ $ ) Cumulative effect of a change in accounting principle ** ) ) ) Other comprehensive income before reclassifications ) ) ) ) Amount reclassified from accumulated other comprehensive income Total change for the period $ $ ) $ $ ) $ June 30, 2018 $ $ ) $ ) $ $ ) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. ** Reflects the adoption of the FASB guidance on stranded tax effects, hedging and financial instruments. Refer to note 2, “Accounting Changes”. 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, 2017 $ $ ) $ ) $ $ ) Other comprehensive income before reclassifications ) Amount reclassified from accumulated other comprehensive income ) Total change for the period $ ) $ $ $ $ June 30, 2017 $ $ ) $ ) $ $ ) * 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, 2018 | |
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: 2018 2017 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: 2018 2017 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 | (Dollars in millions) U.S. Plans Non-U.S. Plans For the three months ended June 30: 2018 2017 2018 2017 Service cost $ — $ — $ $ Interest cost (1) Expected return on plan assets (1) ) ) ) ) Amortization of prior service costs/(credits) (1) ) ) Recognized actuarial losses (1) Curtailments and settlements (1) — — Multi-employer plans — — Other costs (1) — — 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 $ $ $ $ (1) These components of net periodic pension cost are included in other (income) and expense in the Consolidated Statement of Earnings. (Dollars in millions) U.S. Plans Non-U.S. Plans For the six months ended June 30: 2018 2017 2018 2017 Service cost $ — $ — $ $ Interest cost (1) Expected return on plan assets (1) ) ) ) ) Amortization of prior service costs/(credits) (1) ) ) Recognized actuarial losses (1) Curtailments and settlements (1) — — Multi-employer plans — — Other costs (1) — — 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 $ $ $ $ (1) These components of net periodic pension cost are included in other (income) and expense in the Consolidated Statement of Earnings. |
Components of the cost/(income) for the company's nonpension postretirement plans | (Dollars in millions) U.S. Plan Non-U.S. Plans For the three months ended June 30: 2018 2017 2018 2017 Service cost $ $ $ $ Interest cost (1) Expected return on plan assets (1) — — ) ) Amortization of prior service costs/(credits) (1) ) ) Recognized actuarial losses (1) Curtailments and settlements (1) — — Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ $ $ $ (1) These components of net periodic pension cost are included in other (income) and expense in the Consolidated Statement of Earnings. (Dollars in millions) U.S. Plan Non-U.S. Plans For the six months ended June 30: 2018 2017 2018 2017 Service cost $ $ $ $ Interest cost (1) Expected return on plan assets (1) — — ) ) Amortization of prior service costs/(credits) (1) ) ) Recognized actuarial losses (1) Curtailments and settlements (1) — — Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ $ $ $ (1) These components of net periodic pension cost are included in other (income) and expense in the Consolidated Statement of Earnings. |
Intangible Assets Including G34
Intangible Assets Including Goodwill (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Intangible Assets Including Goodwill | |
Intangible asset balances by major asset class | At June 30, 2018 (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, 2017 (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 2018 (for Q3 - Q4) $ $ $ 2019 2020 2021 2022 — |
Changes in goodwill balances by reportable segment | Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 01/01/18 Additions Adjustments Divestitures Adjustments* 6/30/18 Cognitive Solutions $ $ $ $ ) $ ) $ Global Business Services — ) Technology Services & Cloud Platforms — — ) Systems — — — ) Total $ $ $ $ ) $ ) $ * Primarily driven by foreign currency translation. Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 01/01/17 Additions Adjustments Divestitures Adjustments* 12/31/17 Cognitive Solutions $ $ $ ) $ ) $ $ Global Business Services — — Technology Services & Cloud Platforms ) — Systems — — Total $ $ $ ) $ ) $ $ * Primarily driven by foreign currency translation. |
Borrowings (Tables)
Borrowings (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Borrowings | |
Short-Term Debt | At June 30, At December 31, (Dollars in millions) 2018 2017 Commercial paper $ $ Short-term loans Long-term debt — current maturities Total $ $ |
Long-Term Debt | Balance Balance (Dollars in millions) Maturities 6/30/2018 12/31/2017 U.S. dollar debt (average interest rate at June 30, 2018):* 7.3% $ $ 3.0% 2.2% 2.7% 2.4% 3.3% 3.6% 7.0% 3.5% 4.7% 6.5% 3.7% — 5.9% 8.0% 5.6% 4.0% 7.0% 4.7% 7.1% $ $ Other currencies (average interest rate at June 30, 2018, in parentheses):* Euros (1.5%) 2019–2029 $ $ Pound sterling (2.7%) 2020–2022 Japanese yen (0.3%) 2022–2026 Other (5.4%) 2019–2022 $ $ Less: net unamortized discount Less: net unamortized debt issuance costs Add: fair value adjustment** $ $ Less: current maturities Total $ $ * Includes notes, debentures, bank loans, secured borrowings and capital lease obligations. ** 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 and 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. |
Pre-swap annual contractual obligations of long-term debt outstanding | Pre-swap annual contractual obligations of long-term debt outstanding at June 30, 2018, are as follows: (Dollars in millions) Total 2018 (for Q3 - Q4) $ 2019 2020 2021 2022 2023 and beyond Total $ |
Interest on Debt | (Dollars in millions) For the six months ended June 30: 2018 2017 Cost of financing $ $ Interest expense Interest capitalized Total interest paid and accrued $ $ |
Commitments (Tables)
Commitments (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Commitments | |
Changes in warranty liabilities | Standard Warranty Liability (Dollars in millions) 2018 2017 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) 2018 2017 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. |
Earnings Per Share of Common 37
Earnings Per Share of Common Stock (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Earnings Per Share of Common Stock | |
Computation of basic and diluted earnings per share | For the Three Months Ended June 30, 2018 June 30, 2017 Number of shares on which basic earnings per share is calculated: Weighted-average shares outstanding during period Add – Incremental shares under stock-based compensation plans Add – Incremental shares associated with contingently issuable shares Number of shares on which diluted earnings per share is calculated Income from continuing operations (millions) $ $ Income/(loss) from discontinued operations, net of tax (millions) ) Net income on which basic earnings per share is calculated (millions) $ $ Income from continuing operations (millions) $ $ Net income applicable to contingently issuable shares (millions) ) ) Income from continuing operations on which diluted earnings per share is calculated (millions) $ $ Income/(loss) from discontinued operations, net of tax, on which basic and diluted earnings per share is calculated (millions) ) Net income on which diluted earnings per share is calculated (millions) $ $ Earnings/(loss) per share of common stock: Assuming dilution Continuing operations $ $ Discontinued operations Total $ $ Basic Continuing operations $ $ Discontinued operations Total $ $ For the Six Months Ended June 30, 2018 June 30, 2017 Number of shares on which basic earnings per share is calculated: Weighted-average shares outstanding during period Add – Incremental shares under stock compensation plans Add – Incremental shares associated with contingently issuable shares Number of shares on which diluted earnings per share is calculated Income from continuing operations (millions) $ $ Income/(loss) from discontinued operations, net of tax (millions) ) Net income on which basic earnings per share is calculated (millions) $ $ Income from continuing operations (millions) $ $ Net income applicable to contingently issuable shares (millions) ) ) Income from continuing operations on which diluted earnings per share is calculated (millions) $ $ Income/(loss) from discontinued operations, net of tax, on which basic and diluted earnings per share is calculated (millions) ) Net income on which diluted earnings per share is calculated (millions) $ $ Earnings/(loss) per share of common stock: Assuming dilution Continuing operations $ $ Discontinued operations Total $ $ Basic Continuing operations $ $ Discontinued operations Total $ $ |
Basis of Presentation - Noncont
Basis of Presentation - Noncontrolling Interest (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Other (Income) and Expense | ||||
Noncontrolling interest amounts, net of tax | $ 3.8 | $ 3.5 | $ 11.7 | $ 7.1 |
Accounting Changes - Leases, Ta
Accounting Changes - Leases, Tax Reform, Net Benefit Cost (Details) - USD ($) $ in Millions | Jan. 01, 2018 | Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | ||
Accounting Changes | ||||||||
Operating lease commitments | $ 6,600 | |||||||
Sales-type lease revenue recognized based on use of residual value guarantee insurance | 452 | |||||||
Reclassification from AOCI to retained earnings for stranded tax effects of U.S. tax reform | $ (2,420) | |||||||
Total cost | $ 10,804 | $ 10,321 | [1] | $ 21,629 | $ 20,531 | [1] | ||
Selling, general and administrative | 4,857 | 5,033 | [1] | 10,302 | 10,060 | [1] | ||
Research, development and engineering | $ 1,364 | 1,436 | [1] | $ 2,769 | 2,921 | [1] | ||
Accounting Standards Update 2016-02, Leases | ||||||||
Accounting Changes | ||||||||
Lease receivables that would have been reclassified under new guidance to loan receivables on lease termination | $ 450 | |||||||
Accounting Standards Update 2017-07, Improving the Presentation of Net Benefit Cost | Adjustments for adoption of guidance | Other (Income) and Expense | ||||||||
Accounting Changes | ||||||||
Total cost | (175) | (347) | ||||||
Selling, general and administrative | (127) | (252) | ||||||
Research, development and engineering | $ (48) | $ (98) | ||||||
[1] | Recast to reflect adoption of the FASB guidance on presentation of net periodic pension and nonpension postretirement benefit costs. |
Accounting Changes - Revenue Re
Accounting Changes - Revenue Recognition (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 |
Accounting Changes | |||
Deferred costs | $ 4,956 | ||
Deferred tax assets | 4,689 | $ 4,862 | |
Retained earnings | 157,349 | $ 153,126 | |
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjustments to convert to prior GAAP | |||
Accounting Changes | |||
Net contract assets | $ 557 | ||
Deferred costs | 737 | ||
Deferred income | 29 | ||
Deferred tax assets | 187 | (184) | |
Retained earnings | $ (530) | $ 524 |
Accounting Changes - Intra-Enti
Accounting Changes - Intra-Entity Transfers (Details) $ / shares in Units, $ in Millions | 1 Months Ended | 3 Months Ended | 6 Months Ended | |||||
Jan. 31, 2017item | Jun. 30, 2018USD ($)$ / shares | Jun. 30, 2017USD ($)$ / shares | Jun. 30, 2018USD ($)item$ / shares | Jun. 30, 2017USD ($)$ / shares | Dec. 31, 2017USD ($) | Jan. 01, 2017USD ($) | ||
Accounting Changes | ||||||||
Investments and sundry assets | $ 2,518 | $ 2,518 | $ 2,783 | [1] | ||||
Prepaid expenses and other current assets | 2,443 | 2,443 | 1,860 | [1],[2] | ||||
Deferred tax assets | 4,689 | 4,689 | 4,862 | |||||
Retained earnings | 157,349 | 157,349 | $ 153,126 | |||||
Continuing operations provision for (benefit from) income taxes | 373 | $ 111 | (166) | $ (218) | ||||
Income from continuing operations | 2,402 | 2,332 | 4,078 | 4,085 | ||||
Net income | $ 2,404 | $ 2,331 | $ 4,083 | $ 4,082 | ||||
Earnings per share, basic (in dollars per share) | $ / shares | $ 2.63 | $ 2.49 | $ 4.45 | $ 4.35 | ||||
Earnings per share, diluted (in dollars per share) | $ / shares | $ 2.61 | $ 2.48 | $ 4.43 | $ 4.32 | ||||
Accounting Standards Update 2016-16, Intra-Entity Transfers of Assets Other Than Inventory | ||||||||
Accounting Changes | ||||||||
Number of transactions within scope of new guidance | item | 0 | |||||||
Accounting Standards Update 2016-16, Intra-Entity Transfers of Assets Other Than Inventory | Early adoption | ||||||||
Accounting Changes | ||||||||
Investments and sundry assets | $ (95) | |||||||
Prepaid expenses and other current assets | (47) | |||||||
Deferred tax assets | 244 | |||||||
Retained earnings | $ 102 | |||||||
Number of transactions within scope of new guidance | item | 1 | |||||||
Continuing operations provision for (benefit from) income taxes | $ (582) | |||||||
Income from continuing operations | 582 | |||||||
Net income | $ 582 | |||||||
Earnings per share, basic (in dollars per share) | $ / shares | $ 0.62 | |||||||
Earnings per share, diluted (in dollars per share) | $ / shares | $ 0.62 | |||||||
[1] | Recast to conform to current period presentation. | |||||||
[2] | Recast to reflect adoption of the FASB guidance on restricted cash. |
Revenue Recognition - Billing a
Revenue Recognition - Billing and Financing Components (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Revenue Recognition | |
Payment due period from receipt of invoice, per standard billing terms | 30 days |
Practical expedient, financing components | true |
Revenue Recognition - Contract
Revenue Recognition - Contract Terms (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Services | Minimum | |
Contract terms | |
Contract term, high end of range | 10 years |
Services | Maximum | |
Contract terms | |
Contract term, low end of range | 1 year |
Term License Software | |
Contract terms | |
Committed contract term | 1 month |
Revenue Recognition - Increment
Revenue Recognition - Incremental Costs of Obtaining a Contract (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Incremental Costs of Obtaining a Contract | |
Practical expedient, incremental costs of obtaining a contract | true |
Minimum | |
Incremental Costs of Obtaining a Contract | |
Capitalized costs to obtain contract, expected customer relationship period as amortization period | 3 years |
Maximum | |
Incremental Costs of Obtaining a Contract | |
Capitalized costs to obtain contract, expected customer relationship period as amortization period | 6 years |
Revenue Recognition - Product W
Revenue Recognition - Product Warranties (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Minimum | |
Product Warranties | |
Product warranty term | 1 year |
Maximum | |
Product Warranties | |
Product warranty term | 3 years |
Revenue Recognition - Contrac46
Revenue Recognition - Contract Assets (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Jan. 01, 2018 |
Revenue Recognition | ||
Contract assets | $ 515 | $ 557 |
Revenue Recognition - Disaggreg
Revenue Recognition - Disaggregation of Revenue by Major Products/Service Offerings (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Revenue by Major Products/Service Offerings | ||||
Total Revenue | $ 20,003 | $ 19,289 | $ 39,075 | $ 37,443 |
Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 19,958 | 19,224 | 38,961 | 37,307 |
Other revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 45 | 65 | 114 | 136 |
Cognitive Solutions | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 4,580 | 4,559 | 8,879 | 8,621 |
Global Business Services | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 4,192 | 4,097 | 8,365 | 8,103 |
Technology Services & Cloud Platforms | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 8,615 | 8,406 | 17,240 | 16,622 |
Systems | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 2,177 | 1,747 | 3,676 | 3,142 |
Global Financing | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 394 | $ 415 | 799 | $ 819 |
Solutions Software | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 3,214 | 6,171 | ||
Solutions Software | Cognitive Solutions | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 3,214 | 6,171 | ||
Transaction Processing Software | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 1,366 | 2,708 | ||
Transaction Processing Software | Cognitive Solutions | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 1,366 | 2,708 | ||
Consulting | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 1,931 | 3,798 | ||
Consulting | Global Business Services | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 1,931 | 3,798 | ||
Global Process Services | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 315 | 620 | ||
Global Process Services | Global Business Services | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 315 | 620 | ||
Application Management | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 1,946 | 3,948 | ||
Application Management | Global Business Services | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 1,946 | 3,948 | ||
Infrastructure Services | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 5,768 | 11,593 | ||
Infrastructure Services | Technology Services & Cloud Platforms | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 5,768 | 11,593 | ||
Technical Support Services | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 1,750 | 3,531 | ||
Technical Support Services | Technology Services & Cloud Platforms | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 1,750 | 3,531 | ||
Integration Software | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 1,097 | 2,116 | ||
Integration Software | Technology Services & Cloud Platforms | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 1,097 | 2,116 | ||
Systems Hardware | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 1,756 | 2,848 | ||
Systems Hardware | Systems | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 1,756 | 2,848 | ||
Operating Systems Software | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 421 | 828 | ||
Operating Systems Software | Systems | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | 421 | 828 | ||
Global Financing | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 394 | 799 | ||
Global Financing | Global Financing | Business Segments, Excluding Intersegment Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Financial Services Revenue | 394 | 799 | ||
Other Revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Total Revenue | 45 | 114 | ||
Other Revenue | Other revenue | ||||
Revenue by Major Products/Service Offerings | ||||
Revenue | $ 45 | $ 114 |
Revenue Recognition - Disaggr48
Revenue Recognition - Disaggregation of Revenue by Geography (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Revenue by Geography | ||||
Revenues | $ 20,003 | $ 19,289 | $ 39,075 | $ 37,443 |
Americas | ||||
Revenue by Geography | ||||
Revenues | 9,212 | 17,919 | ||
EMEA | ||||
Revenue by Geography | ||||
Revenues | 6,407 | 12,583 | ||
Asia Pacific | ||||
Revenue by Geography | ||||
Revenues | $ 4,384 | $ 8,573 |
Revenue Recognition - Remaining
Revenue Recognition - Remaining Performance Obligations (Details) $ in Billions | 6 Months Ended |
Jun. 30, 2018USD ($) | |
Revenue Recognition | |
Practical expedient, remaining performance obligations | true |
Remaining performance obligations related to customer contracts that are unsatisfied or partially unsatisfied | $ 124 |
Revenue Recognition - Remaini50
Revenue Recognition - Remaining Performance Obligations, Expected Timing of Satisfaction (Details) | Jun. 30, 2018 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-07-01 | |
Remaining Performance Obligations | |
Percentage of remaining performance obligation expected to be recognized | 60.00% |
Duration of expected recognition period for remaining performance obligation | 2 years |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01 | |
Remaining Performance Obligations | |
Percentage of remaining performance obligation expected to be recognized | 35.00% |
Duration of expected recognition period for remaining performance obligation | 3 years |
Revenue Recognition - Performan
Revenue Recognition - Performance Obligations Satisfied or Partially Satisfied in Prior Periods (Details) - USD ($) | 3 Months Ended | 6 Months Ended |
Jun. 30, 2018 | Jun. 30, 2018 | |
Revenue Recognition | ||
Impact to revenue from performance obligations satisfied (or partially satisfied) in previous periods |
Revenue Recognition - Reconcili
Revenue Recognition - Reconciliation of Contract Balances (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 | |
Reconciliation of Contract Balances | ||||
Notes and accounts receivable - trade (net of allowances) | $ 7,445 | $ 7,445 | $ 8,295 | $ 8,928 |
Notes and accounts receivable - trade, allowances | 310 | 310 | 297 | 297 |
Contract assets | 515 | 515 | 557 | |
Deferred income (current) | 11,752 | 11,752 | 11,493 | 11,552 |
Deferred income (noncurrent) | 3,718 | 3,718 | $ 3,758 | $ 3,746 |
Revenue recognized that was included in deferred income at beginning of quarter | $ 4,000 | $ 6,000 |
Revenue Recognition - Deferred
Revenue Recognition - Deferred Contract Costs (Details) - USD ($) $ in Millions | 6 Months Ended | |||
Jun. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 | [1] | |
Deferred Contract Costs | ||||
Deferred contract costs | $ 4,956 | |||
Deferred contract costs, current | 2,344 | $ 1,820 | ||
Deferred contract costs, noncurrent | 2,613 | $ 2,136 | ||
Amortization of deferred contract costs | 953 | |||
Impairment of deferred contract costs | ||||
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjustments for adoption of guidance | ||||
Deferred Contract Costs | ||||
Deferred contract costs | $ 737 | |||
Costs to obtain a contract | ||||
Deferred Contract Costs | ||||
Deferred contract costs | 715 | |||
Deferred setup costs | ||||
Deferred Contract Costs | ||||
Deferred contract costs | 2,108 | |||
Other deferred fulfillment costs | ||||
Deferred Contract Costs | ||||
Deferred contract costs | $ 2,133 | |||
[1] | Recast to conform to current period presentation. |
Revenue Recognition - Transitio
Revenue Recognition - Transition Disclosures, Statement of Earnings (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |||
Transition Disclosures | ||||||
Revenue | $ 20,003 | $ 19,289 | $ 39,075 | $ 37,443 | ||
Cost | 10,804 | 10,321 | [1] | 21,629 | 20,531 | [1] |
Gross profit | 9,199 | 8,968 | [1] | 17,445 | 16,912 | [1] |
Selling, general and administrative | 4,857 | 5,033 | [1] | 10,302 | 10,060 | [1] |
Income from continuing operations before income taxes | 2,776 | 2,443 | 3,911 | 3,867 | ||
Provision for/(benefit from) income taxes | 373 | 111 | (166) | (218) | ||
Net income | $ 2,404 | $ 2,331 | $ 4,083 | $ 4,082 | ||
Earnings/(loss) per share of common stock: | ||||||
Assuming dilution (in dollars per share) | $ 2.61 | $ 2.48 | $ 4.42 | $ 4.32 | ||
Basic (in dollars per share) | $ 2.63 | $ 2.49 | $ 4.44 | $ 4.35 | ||
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjustments to convert to prior GAAP | ||||||
Transition Disclosures | ||||||
Revenue | $ 38 | $ (14) | ||||
Cost | 24 | 0 | ||||
Gross profit | 14 | (14) | ||||
Selling, general and administrative | 17 | (4) | ||||
Income from continuing operations before income taxes | (3) | (10) | ||||
Provision for/(benefit from) income taxes | (1) | (3) | ||||
Net income | $ (2) | $ (7) | ||||
Earnings/(loss) per share of common stock: | ||||||
Assuming dilution (in dollars per share) | $ 0 | $ (0.01) | ||||
Basic (in dollars per share) | $ 0 | $ (0.01) | ||||
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjusted amounts under prior GAAP | ||||||
Transition Disclosures | ||||||
Revenue | $ 20,041 | $ 39,061 | ||||
Cost | 10,829 | 21,629 | ||||
Gross profit | 9,212 | 17,432 | ||||
Selling, general and administrative | 4,874 | 10,298 | ||||
Income from continuing operations before income taxes | 2,773 | 3,901 | ||||
Provision for/(benefit from) income taxes | 372 | (170) | ||||
Net income | $ 2,402 | $ 4,076 | ||||
Earnings/(loss) per share of common stock: | ||||||
Assuming dilution (in dollars per share) | $ 2.61 | $ 4.41 | ||||
Basic (in dollars per share) | $ 2.63 | $ 4.43 | ||||
[1] | Recast to reflect adoption of the FASB guidance on presentation of net periodic pension and nonpension postretirement benefit costs. |
Revenue Recognition - Transit55
Revenue Recognition - Transition Disclosures, Statement of Financial Position (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 | Jun. 30, 2017 | Dec. 31, 2016 | |
Assets: | ||||||
Notes and accounts receivable - trade (net of allowances) | $ 7,445 | $ 8,295 | $ 8,928 | |||
Deferred costs (current) | 2,344 | 1,820 | [1] | |||
Prepaid expenses and other current assets | 2,443 | 1,860 | [1],[2] | |||
Deferred taxes | 4,689 | 4,862 | ||||
Deferred costs (noncurrent) | 2,613 | 2,136 | [1] | |||
Investments and sundry assets | 2,518 | 2,783 | [1] | |||
Total assets | 121,622 | 125,356 | ||||
Liabilities: | ||||||
Taxes | 2,780 | 4,219 | ||||
Deferred income (current) | 11,752 | 11,493 | 11,552 | |||
Deferred income (noncurrent) | 3,718 | 3,758 | 3,746 | |||
Total liabilities | 102,974 | 107,631 | ||||
Equity: | ||||||
Retained earnings | 157,349 | 153,126 | ||||
AOCI | (28,290) | (26,592) | ||||
Total stockholders' equity | 18,648 | 17,725 | $ 18,544 | $ 18,392 | ||
Total liabilities and stockholders' equity | 121,622 | $ 125,356 | ||||
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjustments to convert to prior GAAP | ||||||
Assets: | ||||||
Notes and accounts receivable - trade (net of allowances) | 582 | |||||
Deferred costs (current) | (382) | |||||
Prepaid expenses and other current assets | (515) | |||||
Deferred taxes | 187 | (184) | ||||
Deferred costs (noncurrent) | (332) | |||||
Total assets | (461) | |||||
Liabilities: | ||||||
Deferred income (current) | 57 | |||||
Deferred income (noncurrent) | (7) | |||||
Total liabilities | 50 | |||||
Equity: | ||||||
Retained earnings | (530) | $ 524 | ||||
AOCI | 18 | |||||
Total stockholders' equity | (512) | |||||
Total liabilities and stockholders' equity | (461) | |||||
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjusted amounts under prior GAAP | ||||||
Assets: | ||||||
Notes and accounts receivable - trade (net of allowances) | 8,027 | |||||
Deferred costs (current) | 1,961 | |||||
Prepaid expenses and other current assets | 1,928 | |||||
Deferred taxes | 4,876 | |||||
Deferred costs (noncurrent) | 2,281 | |||||
Investments and sundry assets | 2,518 | |||||
Total assets | 121,161 | |||||
Liabilities: | ||||||
Taxes | 2,780 | |||||
Deferred income (current) | 11,809 | |||||
Deferred income (noncurrent) | 3,712 | |||||
Total liabilities | 103,024 | |||||
Equity: | ||||||
Retained earnings | 156,819 | |||||
AOCI | (28,271) | |||||
Total stockholders' equity | 18,136 | |||||
Total liabilities and stockholders' equity | $ 121,161 | |||||
[1] | Recast to conform to current period presentation. | |||||
[2] | Recast to reflect adoption of the FASB guidance on restricted cash. |
Revenue Recognition - Transit56
Revenue Recognition - Transition Disclosures, Statement of Cash Flows (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Cash flows from operating activities: | ||
Net income | $ 4,083 | $ 4,082 |
Adjustments to reconcile net income to cash provided by operating activities | ||
Changes in operating assets and liabilities, net of acquisitions/divestitures | 336 | 785 |
Net cash provided by operating activities | 6,896 | $ 7,421 |
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjustments to convert to prior GAAP | ||
Cash flows from operating activities: | ||
Net income | (7) | |
Adjustments to reconcile net income to cash provided by operating activities | ||
Changes in operating assets and liabilities, net of acquisitions/divestitures | 7 | |
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjusted amounts under prior GAAP | ||
Cash flows from operating activities: | ||
Net income | 4,076 | |
Adjustments to reconcile net income to cash provided by operating activities | ||
Changes in operating assets and liabilities, net of acquisitions/divestitures | 343 | |
Net cash provided by operating activities | $ 6,896 |
Financial Instruments - Fair Va
Financial Instruments - Fair Value Measurements (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Debt securities - current | $ 966 | $ 608 |
Derivative assets | 699 | 942 |
Derivative liabilities | 256 | 415 |
Potential reduction in net position of total derivative assets | 201 | 255 |
Fair value assets, Level 2 to Level 1 transfer | 0 | 0 |
Fair value assets, Level 1 to Level 2 transfer | 0 | 0 |
Fair value liabilities, Level 2 to Level 1 transfer | 0 | 0 |
Fair value liabilities, Level 1 to Level 2 transfer | 0 | 0 |
Recurring | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 7,599 | 8,586 |
Equity investments | 10 | 4 |
Debt securities - current | 963 | 608 |
Debt securities - noncurrent | 11 | |
Derivative assets | 699 | 942 |
Total assets | 9,270 | 10,151 |
Derivative liabilities | 256 | 415 |
Potential reduction in net position of total derivative assets | 201 | 255 |
Potential reduction in net position of total derivative liabilities | 201 | 255 |
Recurring | Prepaid expenses and other current assets | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 301 | 185 |
Recurring | Investments and sundry assets | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 398 | 757 |
Recurring | Other accrued expenses and liabilities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative liabilities | 94 | 377 |
Recurring | Other liabilities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative liabilities | 162 | 38 |
Recurring | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 7,123 | 8,066 |
Recurring | Commercial paper | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 96 | |
Recurring | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 476 | 26 |
Recurring | Canadian government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 398 | |
Recurring | Level 1 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 476 | 26 |
Equity investments | 10 | 4 |
Debt securities - noncurrent | 4 | |
Total assets | 485 | 33 |
Recurring | Level 1 | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 476 | 26 |
Recurring | Level 2 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 7,123 | 8,560 |
Debt securities - current | 963 | 608 |
Debt securities - noncurrent | 7 | |
Derivative assets | 699 | 942 |
Total assets | 8,785 | 10,117 |
Derivative liabilities | 256 | 415 |
Recurring | Level 2 | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | $ 7,123 | 8,066 |
Recurring | Level 2 | Commercial paper | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 96 | |
Recurring | Level 2 | Canadian government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | $ 398 |
Financial Instruments - Not Mea
Financial Instruments - Not Measured at Fair Value (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Long-Term Debt | ||
Carrying amount of long-term debt | $ 37,851 | $ 39,837 |
Fair value of long-term debt | $ 39,554 | $ 42,264 |
Financial Instruments - Availab
Financial Instruments - Available-For-Sale Securities (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Sales of available-for-sale securities | ||||
Gross realized gains (before taxes) - new guidance | ||||
Gross realized losses (before taxes) - new guidance | ||||
Gross realized gains (before taxes) - prior year guidance | ||||
Gross realized losses (before taxes) - prior year guidance | ||||
Net changes related to available-for-sale securities, net of tax: | ||||
Net unrealized gains/(losses) arising during the period | ||||
Maximum contractual maturities of substantially all available-for-sale debt securities | 1 year |
Financial Instruments - Derivat
Financial Instruments - Derivatives, Offsetting (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2018 | Dec. 31, 2017 | |
Derivative Financial Instruments | ||
Fair value of derivative instruments under collateralized arrangements in a liability position | $ 24 | $ 126 |
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 | $ 699 | 942 |
Liabilities included in master netting arrangements | 201 | 255 |
Obligation to return cash collateral | 63 | 114 |
Non-cash collateral received | 0 | 0 |
Net exposure related to derivative assets recorded in the Statement of Financial Position | 436 | 572 |
Net position related to derivative liabilities recorded in the Statement of Financial Position | 55 | 160 |
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 | $ 63 | $ 114 |
Financial Instruments - Deriv61
Financial Instruments - Derivatives, Other Information (Details) $ in Millions | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018USD ($)instrument | Dec. 31, 2017USD ($)instrument | |
Derivative instruments in fair value hedges | Interest rate swaps | ||
Derivative Financial Instruments | ||
Notional amount | $ 9,900 | $ 9,100 |
Average remaining maturity | 4 years 6 months | 4 years 9 months 18 days |
Derivative instruments in cash flow hedges | Interest rate swaps | ||
Derivative Financial Instruments | ||
Notional amount | $ 0 | $ 0 |
Derivative instruments in cash flow hedges | Forward-starting interest rate swaps | ||
Derivative Financial Instruments | ||
Number of derivative instruments outstanding | instrument | 0 | 0 |
Derivative instruments in cash flow hedges | Foreign exchange forward contracts | ||
Derivative Financial Instruments | ||
Maximum length of time hedged | 4 years | |
Notional amount | $ 8,400 | $ 7,800 |
Average remaining maturity | 8 months 12 days | 8 months 12 days |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges | $ 233 | $ 27 |
Gains (losses) expected to be reclassified to net income within the next 12 months | $ 192 | |
Derivative instruments in cash flow hedges | Cross-currency swaps | ||
Derivative Financial Instruments | ||
Maximum length of time hedged | 10 years | |
Notional amount | $ 6,500 | 6,500 |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges | 129 | 42 |
Gains (losses) expected to be reclassified to net income within the next 12 months | 187 | |
Instruments in net investment hedges | ||
Derivative Financial Instruments | ||
Notional amount | $ 6,900 | $ 7,000 |
Average remaining maturity | 2 months 12 days | 2 months 12 days |
Not designated as hedging instruments - economic hedges | Foreign exchange contracts | ||
Derivative Financial Instruments | ||
Notional amount | $ 8,700 | $ 11,500 |
Not designated as hedging instruments - economic hedges | Foreign exchange contracts | Maximum | ||
Derivative Financial Instruments | ||
Term of contract | 1 year | |
Not designated as hedging instruments - economic hedges | Equity contracts hedging employee compensation obligations | ||
Derivative Financial Instruments | ||
Notional amount | $ 1,300 | $ 1,300 |
Not designated as hedging instruments - economic hedges | Equity contracts hedging investment securities | ||
Derivative Financial Instruments | ||
Number of derivative instruments outstanding | instrument | 0 | 0 |
Not designated as hedging instruments - economic hedges | Warrants qualifying as derivatives | ||
Derivative Financial Instruments | ||
Number of derivative instruments outstanding | instrument | 0 | 0 |
Not designated as hedging instruments - economic hedges | Credit default swaps | ||
Derivative Financial Instruments | ||
Number of derivative instruments outstanding | instrument | 0 | 0 |
Financial Instruments - Deriv62
Financial Instruments - Derivatives, Fair Value (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | $ 699 | $ 942 |
Fair value of total derivative instruments, Liabilities | 256 | 415 |
Short-term debt | 7,646 | 6,987 |
Long-term debt (excluding current portion) | 37,851 | 39,837 |
Fair value of total derivative liabilities and debt | 6,610 | 6,886 |
Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 668 | 870 |
Fair value of total derivative instruments, Liabilities | 204 | 355 |
Designated as hedging instruments | Instruments in net investment hedges | ||
Fair Values of Derivative Instruments | ||
Long-term debt (excluding current portion) | 6,353 | 6,471 |
Total debt designated as hedging instruments | 6,353 | 6,471 |
Not designated as hedging instruments - economic hedges | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 31 | 72 |
Fair value of total derivative instruments, Liabilities | 52 | 60 |
Prepaid expenses and other current assets | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 2 | |
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 | 270 | 111 |
Prepaid expenses and other current assets | Foreign exchange contracts | Not designated as hedging instruments - economic hedges | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 30 | 61 |
Prepaid expenses and other current assets | Equity contracts | Not designated as hedging instruments - economic hedges | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 1 | 12 |
Investments and sundry assets | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 258 | 459 |
Investments and sundry assets | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 141 | 298 |
Other accrued expenses and liabilities | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 1 | |
Other accrued expenses and liabilities | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 41 | 318 |
Other accrued expenses and liabilities | Foreign exchange contracts | Not designated as hedging instruments - economic hedges | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 29 | 57 |
Other accrued expenses and liabilities | Equity contracts | Not designated as hedging instruments - economic hedges | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 23 | 3 |
Other liabilities | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 83 | 34 |
Other liabilities | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | $ 79 | $ 3 |
Financial Instruments - Cumulat
Financial Instruments - Cumulative Basis Adjustments for Fair Value Hedges (Details) $ in Millions | Jun. 30, 2018USD ($) |
Short-term debt | |
Amounts recorded in the Consolidated Statement of Financial Position related to cumulative basis adjustments for fair value hedges | |
Carrying Amount of the Hedged Item Assets/(Liabilities) | $ (745) |
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Assets/(Liabilities) | 4 |
Long-term debt | |
Amounts recorded in the Consolidated Statement of Financial Position related to cumulative basis adjustments for fair value hedges | |
Carrying Amount of the Hedged Item Assets/(Liabilities) | (9,424) |
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Assets/(Liabilities) | (268) |
Hedging adjustments on discontinued hedging relationships | $ (184) |
Financial Instruments - Effect
Financial Instruments - Effect of Hedge Activity on Income and Expense (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Derivative Instruments, Gain (Loss) | ||||
Loss (income) from continuing operations before income taxes | $ (2,776) | $ (2,443) | $ (3,911) | $ (3,867) |
Cost of Services | ||||
Derivative Instruments, Gain (Loss) | ||||
Loss (income) from continuing operations before income taxes | 8,645 | 17,479 | ||
Gains/(losses) of total hedge activity | 9 | 28 | ||
Cost of Sales | ||||
Derivative Instruments, Gain (Loss) | ||||
Loss (income) from continuing operations before income taxes | 1,869 | 3,591 | ||
Gains/(losses) of total hedge activity | (6) | (23) | ||
Cost of Financing | ||||
Derivative Instruments, Gain (Loss) | ||||
Loss (income) from continuing operations before income taxes | 290 | 559 | ||
Gains/(losses) of total hedge activity | 18 | 41 | ||
SG&A Expense | ||||
Derivative Instruments, Gain (Loss) | ||||
Loss (income) from continuing operations before income taxes | 4,857 | 10,302 | ||
Gains/(losses) of total hedge activity | 10 | (23) | ||
Other (Income) and Expense | ||||
Derivative Instruments, Gain (Loss) | ||||
Loss (income) from continuing operations before income taxes | 280 | 692 | ||
Gains/(losses) of total hedge activity | (435) | (386) | ||
Interest Expense | ||||
Derivative Instruments, Gain (Loss) | ||||
Loss (income) from continuing operations before income taxes | 173 | 338 | ||
Gains/(losses) of total hedge activity | $ (17) | $ (33) |
Financial Instruments - Deriv65
Financial Instruments - Derivatives, Gains and Losses (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Derivative Instruments, Gain (Loss) | ||||
Gain (loss) recognized in earnings on derivatives | $ (86) | $ 275 | $ (308) | $ 243 |
Gain (loss) recognized in earnings attributable to risk being hedged | 79 | (41) | 262 | 1 |
Gains (losses) excluded from the assessment of hedge effectiveness for fair value hedges | ||||
Gains (losses) excluded from the assessment of hedge effectiveness for cash value hedges | ||||
Gains (losses) associated with underlying exposure that did not occur or was not expected to occur for cash flow hedges | ||||
Cash flow hedges and net investment hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | 477 | (820) | 334 | (1,134) |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI | (434) | 176 | (380) | 274 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | 20 | 9 | 31 | 29 |
Foreign exchange contracts | Derivative instruments in cash flow hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | (149) | (96) | (89) | (128) |
Foreign exchange contracts | Instruments in net investment hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | 627 | (724) | 423 | (1,006) |
Cost of Financing | Interest rate contracts | Derivative instruments in fair value hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (loss) recognized in earnings on derivatives | (32) | 42 | (112) | 41 |
Gain (loss) recognized in earnings attributable to risk being hedged | 42 | (22) | 138 | 1 |
Cost of Financing | Foreign exchange contracts | Instruments in net investment hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | 8 | 16 | ||
Interest Expense | Interest rate contracts | Derivative instruments in fair value hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (loss) recognized in earnings on derivatives | (28) | 36 | (101) | 35 |
Gain (loss) recognized in earnings attributable to risk being hedged | 37 | (19) | 124 | 1 |
Interest Expense | Foreign exchange contracts | Derivative instruments in cash flow hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI | (38) | (7) | (71) | (14) |
Interest Expense | Foreign exchange contracts | Instruments in net investment hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | 11 | 7 | 16 | 27 |
Other (Income) and Expense | Foreign exchange contracts | Derivative instruments in cash flow hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI | (397) | 146 | (293) | 211 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | 2 | 3 | ||
Other (Income) and Expense | Foreign exchange contracts | Not designated as hedging instruments - economic hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (loss) recognized in earnings on derivatives | (38) | 185 | (93) | 108 |
Cost of Sales | Foreign exchange contracts | Derivative instruments in cash flow hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI | (6) | 10 | (23) | 22 |
Cost of Services | Foreign exchange contracts | Derivative instruments in cash flow hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI | 9 | 18 | 28 | 27 |
SG&A Expense | Foreign exchange contracts | Derivative instruments in cash flow hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI | (3) | 8 | (21) | 29 |
SG&A Expense | Equity contracts | Not designated as hedging instruments - economic hedges | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (loss) recognized in earnings on derivatives | $ 12 | $ 11 | $ (2) | $ 58 |
Financing Receivables - Payment
Financing Receivables - Payment Terms (Details) | 6 Months Ended |
Jun. 30, 2018 | |
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 | Minimum | |
Financing receivables | |
Financing receivable, payment terms | 30 days |
Commercial financing receivables | Maximum | |
Financing receivables | |
Financing receivable, payment terms | 90 days |
Loan receivables | Maximum | |
Financing receivables | |
Financing receivable, payment terms | 7 years |
Financing Receivables - Compone
Financing Receivables - Components of Financing Receivables (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 | Dec. 31, 2016 |
Components of the company's financing receivables | |||
Financing receivables, gross | $ 29,420 | $ 32,087 | |
Unearned income | (1,158) | (1,210) | |
Recorded Investment | 28,262 | 30,877 | |
Allowance for credit losses | (339) | (336) | |
Unguaranteed residual value | 575 | 630 | |
Guaranteed residual value | 91 | 100 | |
Total financing receivables, net | 28,589 | 31,272 | |
Current portion | 19,806 | 21,721 | |
Noncurrent portion | 8,783 | 9,550 | |
Financing receivables pledged as collateral for borrowings | 743 | 773 | |
Financing receivables held for sale | 0 | 0 | |
Lease receivables | |||
Components of the company's financing receivables | |||
Financing receivables, gross | 6,834 | 7,128 | |
Unearned income | (523) | (535) | |
Recorded Investment | 6,312 | 6,593 | |
Allowance for credit losses | (110) | (103) | $ (133) |
Unguaranteed residual value | 575 | 630 | |
Guaranteed residual value | 91 | 100 | |
Total financing receivables, net | 6,867 | 7,220 | |
Current portion | 2,866 | 2,900 | |
Noncurrent portion | 4,001 | 4,320 | |
Commercial financing receivables | |||
Components of the company's financing receivables | |||
Financing receivables, gross | 9,711 | 11,649 | |
Unearned income | (30) | (32) | |
Recorded Investment | 9,681 | 11,617 | |
Allowance for credit losses | (14) | (21) | |
Total financing receivables, net | 9,667 | 11,596 | |
Current portion | 9,667 | 11,596 | |
Loan receivables | |||
Components of the company's financing receivables | |||
Financing receivables, gross | 12,874 | 13,311 | |
Unearned income | (605) | (644) | |
Recorded Investment | 12,269 | 12,667 | |
Allowance for credit losses | (215) | (211) | $ (276) |
Total financing receivables, net | 12,055 | 12,456 | |
Current portion | 7,273 | 7,226 | |
Noncurrent portion | $ 4,781 | $ 5,230 |
Financing Receivables - By Port
Financing Receivables - By Portfolio Segment (Details) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2018USD ($) | Jun. 30, 2017USD ($) | Jun. 30, 2018USD ($)item | Jun. 30, 2017USD ($) | Dec. 31, 2017USD ($) | |
Financing receivables | |||||
Recorded Investment | $ 28,262 | $ 28,262 | $ 30,877 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 336 | ||||
Allowance for credit losses, ending balance | 339 | $ 339 | 336 | ||
Total Lease Receivable and Loan Receivable Portfolio Segments | |||||
Financing receivables | |||||
Number of portfolio segments | item | 2 | ||||
Number of classes of financing receivable | item | 3 | ||||
Recorded Investment | 18,581 | $ 18,581 | 19,259 | ||
Recorded investment collectively evaluated for impairment | 18,323 | 18,323 | 18,990 | ||
Recorded investment individually evaluated for impairment | 258 | 258 | 269 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 314 | $ 410 | 410 | ||
Write-offs | (6) | (137) | |||
Recoveries | 2 | 2 | |||
Provision | 26 | 16 | |||
Other | (12) | 24 | |||
Allowance for credit losses, ending balance | 325 | 325 | 314 | ||
Related allowance, collectively evaluated for impairment | 72 | 72 | 64 | ||
Related allowance, individually evaluated for impairment | 253 | 253 | 250 | ||
Interest income recognized on impaired leases and loans | |||||
Interest income recognized on a cash basis | |||||
Total Lease Receivable and Loan Receivable Portfolio Segments | Americas | |||||
Financing receivables | |||||
Recorded Investment | 10,057 | 10,057 | 10,626 | ||
Recorded investment collectively evaluated for impairment | 9,933 | 9,933 | 10,497 | ||
Recorded investment individually evaluated for impairment | 125 | 125 | 129 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 172 | 223 | 223 | ||
Write-offs | (3) | (51) | |||
Recoveries | 0 | 1 | |||
Provision | 15 | (8) | |||
Other | (8) | 7 | |||
Allowance for credit losses, ending balance | 175 | 175 | 172 | ||
Related allowance, collectively evaluated for impairment | 51 | 51 | 43 | ||
Related allowance, individually evaluated for impairment | 125 | 125 | 128 | ||
Average recorded investment of impaired leases and loans | 128 | 176 | 128 | 173 | |
Total Lease Receivable and Loan Receivable Portfolio Segments | EMEA | |||||
Financing receivables | |||||
Recorded Investment | 4,847 | 4,847 | 4,946 | ||
Recorded investment collectively evaluated for impairment | 4,791 | 4,791 | 4,889 | ||
Recorded investment individually evaluated for impairment | 56 | 56 | 57 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 61 | 22 | 22 | ||
Write-offs | (1) | (1) | |||
Recoveries | 0 | 1 | |||
Provision | 10 | 29 | |||
Other | (2) | 11 | |||
Allowance for credit losses, ending balance | 68 | 68 | 61 | ||
Related allowance, collectively evaluated for impairment | 16 | 16 | 15 | ||
Related allowance, individually evaluated for impairment | 53 | 53 | 46 | ||
Average recorded investment of impaired leases and loans | 55 | 28 | 56 | 25 | |
Total Lease Receivable and Loan Receivable Portfolio Segments | Asia Pacific | |||||
Financing receivables | |||||
Recorded Investment | 3,677 | 3,677 | 3,687 | ||
Recorded investment collectively evaluated for impairment | 3,599 | 3,599 | 3,604 | ||
Recorded investment individually evaluated for impairment | 77 | 77 | 83 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 82 | 165 | 165 | ||
Write-offs | (2) | (85) | |||
Recoveries | 2 | 0 | |||
Provision | 2 | (4) | |||
Other | (1) | 6 | |||
Allowance for credit losses, ending balance | 82 | 82 | 82 | ||
Related allowance, collectively evaluated for impairment | 6 | 6 | 6 | ||
Related allowance, individually evaluated for impairment | 76 | 76 | 76 | ||
Average recorded investment of impaired leases and loans | 78 | $ 132 | 80 | 141 | |
Lease receivables | |||||
Financing receivables | |||||
Recorded Investment | 6,312 | 6,312 | 6,593 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 103 | 133 | 133 | ||
Write-offs | (4) | (55) | |||
Provision | 9 | 9 | |||
Allowance for credit losses, ending balance | 110 | 110 | 103 | ||
Lease receivables | Americas | |||||
Financing receivables | |||||
Recorded Investment | 3,744 | 3,744 | 3,911 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 63 | 54 | 54 | ||
Allowance for credit losses, ending balance | 68 | 68 | 63 | ||
Lease receivables | EMEA | |||||
Financing receivables | |||||
Recorded Investment | 1,303 | 1,303 | 1,349 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 9 | 4 | 4 | ||
Allowance for credit losses, ending balance | 11 | 11 | 9 | ||
Lease receivables | Asia Pacific | |||||
Financing receivables | |||||
Recorded Investment | 1,264 | 1,264 | 1,333 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 31 | 76 | 76 | ||
Allowance for credit losses, ending balance | 31 | 31 | 31 | ||
Loan receivables | |||||
Financing receivables | |||||
Recorded Investment | 12,269 | 12,269 | 12,667 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 211 | 276 | 276 | ||
Write-offs | (2) | (82) | |||
Provision | 18 | 7 | |||
Allowance for credit losses, ending balance | 215 | 215 | 211 | ||
Loan receivables | Americas | |||||
Financing receivables | |||||
Recorded Investment | 6,313 | 6,313 | 6,715 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 108 | 169 | 169 | ||
Allowance for credit losses, ending balance | 107 | 107 | 108 | ||
Loan receivables | EMEA | |||||
Financing receivables | |||||
Recorded Investment | 3,544 | 3,544 | 3,597 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 52 | 18 | 18 | ||
Allowance for credit losses, ending balance | 57 | 57 | 52 | ||
Loan receivables | Asia Pacific | |||||
Financing receivables | |||||
Recorded Investment | 2,413 | 2,413 | 2,354 | ||
Allowance for credit losses: | |||||
Allowance for credit losses, beginning balance | 51 | $ 89 | 89 | ||
Allowance for credit losses, ending balance | $ 51 | $ 51 | $ 51 |
Financing Receivables - Past Du
Financing Receivables - Past Due (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Past Due Financing Receivable | ||
Total Recorded Investment | $ 28,262 | $ 30,877 |
Total Lease Receivable and Loan Receivable Portfolio Segments | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 18,581 | 19,259 |
Recorded Investment Not Accruing | 331 | 331 |
Recorded investment, impaired financing receivables with related allowance | 258 | 269 |
Impaired financing receivables, related allowance | 253 | 250 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 803 | 825 |
Recorded Investment > 90 Days and Accruing | 503 | 507 |
Billed Invoices > 90 Days and Accruing | 70 | 77 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Americas | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 10,057 | 10,626 |
Total Lease Receivable and Loan Receivable Portfolio Segments | EMEA | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 4,847 | 4,946 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Asia Pacific | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 3,677 | 3,687 |
Lease receivables | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 6,312 | 6,593 |
Recorded Investment Not Accruing | 100 | 107 |
Lease receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 300 | 328 |
Recorded Investment > 90 Days and Accruing | 208 | 225 |
Billed Invoices > 90 Days and Accruing | 29 | 36 |
Lease receivables | Americas | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 3,744 | 3,911 |
Recorded Investment Not Accruing | 52 | 44 |
Lease receivables | Americas | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 232 | 239 |
Recorded Investment > 90 Days and Accruing | 185 | 197 |
Billed Invoices > 90 Days and Accruing | 24 | 29 |
Lease receivables | EMEA | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 1,303 | 1,349 |
Recorded Investment Not Accruing | 16 | 27 |
Lease receivables | EMEA | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 20 | 32 |
Recorded Investment > 90 Days and Accruing | 4 | 5 |
Billed Invoices > 90 Days and Accruing | 1 | 3 |
Lease receivables | Asia Pacific | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 1,264 | 1,333 |
Recorded Investment Not Accruing | 32 | 36 |
Lease receivables | Asia Pacific | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 48 | 57 |
Recorded Investment > 90 Days and Accruing | 18 | 23 |
Billed Invoices > 90 Days and Accruing | 3 | 3 |
Loan receivables | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 12,269 | 12,667 |
Recorded Investment Not Accruing | 231 | 224 |
Loan receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 502 | 498 |
Recorded Investment > 90 Days and Accruing | 295 | 283 |
Billed Invoices > 90 Days and Accruing | 41 | 41 |
Loan receivables | Americas | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 6,313 | 6,715 |
Recorded Investment Not Accruing | 101 | 96 |
Loan receivables | Americas | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 326 | 345 |
Recorded Investment > 90 Days and Accruing | 245 | 254 |
Billed Invoices > 90 Days and Accruing | 31 | 38 |
Loan receivables | EMEA | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 3,544 | 3,597 |
Recorded Investment Not Accruing | 79 | 74 |
Loan receivables | EMEA | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 90 | 90 |
Recorded Investment > 90 Days and Accruing | 12 | 17 |
Billed Invoices > 90 Days and Accruing | 4 | 0 |
Loan receivables | Asia Pacific | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 2,413 | 2,354 |
Recorded Investment Not Accruing | 51 | 54 |
Loan receivables | Asia Pacific | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 86 | 63 |
Recorded Investment > 90 Days and Accruing | 38 | 12 |
Billed Invoices > 90 Days and Accruing | $ 7 | $ 3 |
Financing Receivables - Credit
Financing Receivables - Credit Quality Indicators (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Net recorded investment for each class of receivables, by credit quality indicator | ||
Troubled debt restructurings of financing receivables | ||
Lease receivables | Americas | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 3,676 | 3,847 |
Lease receivables | Americas | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 390 | 422 |
Lease receivables | Americas | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 808 | 855 |
Lease receivables | Americas | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 857 | 980 |
Lease receivables | Americas | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 784 | 730 |
Lease receivables | Americas | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 479 | 443 |
Lease receivables | Americas | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 320 | 367 |
Lease receivables | Americas | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 39 | 51 |
Lease receivables | EMEA | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,292 | 1,340 |
Lease receivables | EMEA | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 51 | 49 |
Lease receivables | EMEA | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 156 | 190 |
Lease receivables | EMEA | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 397 | 371 |
Lease receivables | EMEA | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 401 | 448 |
Lease receivables | EMEA | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 177 | 192 |
Lease receivables | EMEA | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 102 | 77 |
Lease receivables | EMEA | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 9 | 13 |
Lease receivables | Asia Pacific | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,233 | 1,302 |
Lease receivables | Asia Pacific | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 101 | 68 |
Lease receivables | Asia Pacific | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 477 | 544 |
Lease receivables | Asia Pacific | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 320 | 337 |
Lease receivables | Asia Pacific | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 188 | 184 |
Lease receivables | Asia Pacific | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 85 | 89 |
Lease receivables | Asia Pacific | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 54 | 64 |
Lease receivables | Asia Pacific | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 9 | 18 |
Loan receivables | Americas | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 6,206 | 6,607 |
Loan receivables | Americas | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 658 | 724 |
Loan receivables | Americas | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,364 | 1,469 |
Loan receivables | Americas | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,446 | 1,683 |
Loan receivables | Americas | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,323 | 1,253 |
Loan receivables | Americas | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 808 | 760 |
Loan receivables | Americas | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 540 | 630 |
Loan receivables | Americas | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 67 | 88 |
Loan receivables | EMEA | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 3,487 | 3,545 |
Loan receivables | EMEA | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 137 | 129 |
Loan receivables | EMEA | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 420 | 502 |
Loan receivables | EMEA | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,072 | 982 |
Loan receivables | EMEA | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,082 | 1,186 |
Loan receivables | EMEA | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 477 | 508 |
Loan receivables | EMEA | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 274 | 204 |
Loan receivables | EMEA | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 24 | 34 |
Loan receivables | Asia Pacific | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 2,362 | 2,303 |
Loan receivables | Asia Pacific | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 194 | 120 |
Loan receivables | Asia Pacific | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 913 | 961 |
Loan receivables | Asia Pacific | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 613 | 596 |
Loan receivables | Asia Pacific | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 359 | 325 |
Loan receivables | Asia Pacific | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 162 | 157 |
Loan receivables | Asia Pacific | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 103 | 113 |
Loan receivables | Asia Pacific | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | $ 17 | $ 31 |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | $ 125 | $ 136 | $ 242 | $ 265 |
Income tax benefits | (24) | (38) | (59) | (86) |
Total net stock-based compensation cost | 102 | 97 | 183 | 178 |
Pre-tax stock-based compensation cost increase (decrease) | (10) | (23) | ||
Pre-tax stock-based compensation cost increase (decrease) related to conversion of stock-based awards of acquired entities | (1) | (3) | ||
Stock-based compensation cost, unrecognized, related to non-vested awards | 965 | $ 965 | ||
Stock-based compensation cost, unrecognized, related to non-vested awards, weighted average period of recognition | 2 years 8 months 12 days | |||
Performance Share Units | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | (2) | $ (8) | ||
Restricted Stock Units | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | (7) | (12) | ||
Cost | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | 21 | 23 | 41 | 46 |
SG&A Expense | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | 88 | 98 | 169 | 189 |
Research, development and engineering | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | $ 16 | $ 15 | $ 32 | $ 29 |
Segments - Results of Continuin
Segments - Results of Continuing Operations (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Segment | ||||
Revenue | $ 20,003 | $ 19,289 | $ 39,075 | $ 37,443 |
Pre-tax income/(loss) from continuing operations | 2,776 | 2,443 | 3,911 | 3,867 |
Business Segments, Excluding Intersegment Revenue | ||||
Segment | ||||
Revenue | 19,958 | 19,224 | 38,961 | 37,307 |
Business Segments, Excluding Intersegment Revenue | Cognitive Solutions | ||||
Segment | ||||
Revenue | 4,580 | 4,559 | 8,879 | 8,621 |
Business Segments, Excluding Intersegment Revenue | Global Business Services | ||||
Segment | ||||
Revenue | 4,192 | 4,097 | 8,365 | 8,103 |
Business Segments, Excluding Intersegment Revenue | Technology Services & Cloud Platforms | ||||
Segment | ||||
Revenue | 8,615 | 8,406 | 17,240 | 16,622 |
Business Segments, Excluding Intersegment Revenue | Systems | ||||
Segment | ||||
Revenue | 2,177 | 1,747 | 3,676 | 3,142 |
Business Segments, Excluding Intersegment Revenue | Global Financing | ||||
Segment | ||||
Revenue | 394 | 415 | 799 | 819 |
Internal transactions | ||||
Segment | ||||
Revenue | (1,670) | (1,388) | (3,262) | (2,881) |
Pre-tax income/(loss) from continuing operations | (291) | (161) | (509) | (388) |
Internal transactions | Cognitive Solutions | ||||
Segment | ||||
Revenue | (703) | (655) | (1,483) | (1,371) |
Internal transactions | Global Business Services | ||||
Segment | ||||
Revenue | (83) | (93) | (172) | (179) |
Internal transactions | Technology Services & Cloud Platforms | ||||
Segment | ||||
Revenue | (169) | (173) | (310) | (333) |
Internal transactions | Systems | ||||
Segment | ||||
Revenue | (242) | (177) | (395) | (344) |
Internal transactions | Global Financing | ||||
Segment | ||||
Revenue | (473) | (290) | (902) | (653) |
Business Segments | ||||
Segment | ||||
Revenue | 21,628 | 20,612 | 42,222 | 40,188 |
Pre-tax income/(loss) from continuing operations | $ 3,728 | $ 3,270 | $ 5,816 | $ 5,616 |
Revenue year-to-year change (as a percent) | 4.90% | 5.10% | ||
Pre-tax income year-to-year change (as a percent) | 14.00% | 3.60% | ||
Pre-tax income/(loss) margin (as a percent) | 17.20% | 15.90% | 13.80% | 14.00% |
Business Segments | Cognitive Solutions | ||||
Segment | ||||
Revenue | $ 5,283 | $ 5,214 | $ 10,362 | $ 9,992 |
Pre-tax income/(loss) from continuing operations | $ 1,756 | $ 1,610 | $ 3,089 | $ 2,878 |
Revenue year-to-year change (as a percent) | 1.30% | 3.70% | ||
Pre-tax income year-to-year change (as a percent) | 9.10% | 7.30% | ||
Pre-tax income/(loss) margin (as a percent) | 33.20% | 30.90% | 29.80% | 28.80% |
Business Segments | Global Business Services | ||||
Segment | ||||
Revenue | $ 4,275 | $ 4,190 | $ 8,538 | $ 8,282 |
Pre-tax income/(loss) from continuing operations | $ 385 | $ 312 | $ 530 | $ 593 |
Revenue year-to-year change (as a percent) | 2.00% | 3.10% | ||
Pre-tax income year-to-year change (as a percent) | 23.70% | (10.60%) | ||
Pre-tax income/(loss) margin (as a percent) | 9.00% | 7.40% | 6.20% | 7.20% |
Business Segments | Technology Services & Cloud Platforms | ||||
Segment | ||||
Revenue | $ 8,784 | $ 8,579 | $ 17,550 | $ 16,955 |
Pre-tax income/(loss) from continuing operations | $ 883 | $ 994 | $ 1,320 | $ 1,668 |
Revenue year-to-year change (as a percent) | 2.40% | 3.50% | ||
Pre-tax income year-to-year change (as a percent) | (11.20%) | (20.90%) | ||
Pre-tax income/(loss) margin (as a percent) | 10.10% | 11.60% | 7.50% | 9.80% |
Business Segments | Systems | ||||
Segment | ||||
Revenue | $ 2,419 | $ 1,924 | $ 4,072 | $ 3,486 |
Pre-tax income/(loss) from continuing operations | $ 346 | $ 73 | $ 143 | $ (115) |
Revenue year-to-year change (as a percent) | 25.70% | 16.80% | ||
Pre-tax income year-to-year change (as a percent) | 376.80% | |||
Pre-tax income/(loss) margin (as a percent) | 14.30% | 3.80% | 3.50% | (3.30%) |
Business Segments | Global Financing | ||||
Segment | ||||
Revenue | $ 867 | $ 705 | $ 1,701 | $ 1,473 |
Pre-tax income/(loss) from continuing operations | $ 357 | $ 282 | $ 734 | $ 592 |
Revenue year-to-year change (as a percent) | 23.00% | 15.50% | ||
Pre-tax income year-to-year change (as a percent) | 26.80% | 23.90% | ||
Pre-tax income/(loss) margin (as a percent) | 41.20% | 40.00% | 43.10% | 40.20% |
Segments - Revenue Reconciliati
Segments - Revenue Reconciliation (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Revenue | ||||
Revenue | $ 20,003 | $ 19,289 | $ 39,075 | $ 37,443 |
Business Segments | ||||
Revenue | ||||
Revenue | 21,628 | 20,612 | 42,222 | 40,188 |
Internal transactions | ||||
Revenue | ||||
Revenue | (1,670) | (1,388) | (3,262) | (2,881) |
Other revenue | ||||
Revenue | ||||
Revenue | $ 45 | $ 65 | $ 114 | $ 136 |
Segments - Pre-Tax Income Recon
Segments - Pre-Tax Income Reconciliation (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Pre-tax income from continuing operations | ||||
Amortization of acquired intangible assets | $ (203) | $ (243) | $ (406) | $ (493) |
Acquisition-related (charges)/income | (1) | (6) | (1) | (19) |
Non-operating retirement-related (costs)/income | (394) | (349) | (796) | (696) |
Income from continuing operations before income taxes | 2,776 | 2,443 | 3,911 | 3,867 |
Business Segments | ||||
Pre-tax income from continuing operations | ||||
Income from continuing operations before income taxes | 3,728 | 3,270 | 5,816 | 5,616 |
Internal transactions | ||||
Pre-tax income from continuing operations | ||||
Income from continuing operations before income taxes | (291) | (161) | (509) | (388) |
Unallocated corporate amounts | ||||
Pre-tax income from continuing operations | ||||
Income from continuing operations before income taxes | $ (62) | $ (67) | $ (192) | $ (154) |
Equity Activity - Reclassificat
Equity Activity - Reclassifications and Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Cost | $ 10,804 | $ 10,321 | [1] | $ 21,629 | $ 20,531 | [1] |
SG&A expense | 4,857 | 5,033 | [1] | 10,302 | 10,060 | [1] |
Other (income) and expense | 280 | 273 | [1] | 692 | 592 | [1] |
Interest expense | 173 | 147 | 338 | 283 | ||
Continuing operations provision for (benefit from) income taxes | 373 | 111 | (166) | (218) | ||
Net (income) loss | (2,404) | (2,331) | (4,083) | (4,082) | ||
Other comprehensive income/(loss) | 724 | 1,208 | ||||
Sales | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Cost | 1,869 | 1,664 | [1] | 3,591 | 3,195 | [1] |
Services | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Cost | 8,645 | 8,368 | [1] | 17,479 | 16,769 | [1] |
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 | (681) | 486 | ||||
Reclassification/amortization, Net of Tax Amount | 1,405 | 723 | ||||
Other comprehensive income/(loss), Before Tax Amount | 748 | 432 | 1,322 | 1,211 | ||
Other comprehensive income/(loss), Tax (Expense)/Benefit | (455) | 88 | (598) | (3) | ||
Other comprehensive income/(loss) | 294 | 520 | 724 | 1,208 | ||
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 | (620) | 510 | ||||
Reclassification/amortization, Net of Tax Amount | 0 | 0 | ||||
Other comprehensive income/(loss), Before Tax Amount | (347) | (38) | (513) | 124 | ||
Other comprehensive income/(loss), Tax (Expense)/Benefit | (158) | 278 | (106) | 386 | ||
Other comprehensive income/(loss) | (505) | 240 | (620) | 510 | ||
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 | 0 | 4 | (2) | 3 | ||
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 0 | (1) | 0 | (1) | ||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 0 | 2 | (1) | 2 | ||
Reclassification/amortization, Net of Tax Amount | 0 | 1 | ||||
Other comprehensive income/(loss), Before Tax Amount | 0 | 3 | (2) | 4 | ||
Other comprehensive income/(loss), Tax (Expense)/Benefit | 0 | (1) | 0 | (1) | ||
Other comprehensive income/(loss) | 0 | 2 | (1) | 2 | ||
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 | 1 | |||
Continuing operations provision for (benefit from) income taxes | 0 | 0 | 0 | |||
Net (income) loss | 0 | 0 | 1 | |||
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 | (149) | (96) | (89) | (128) | ||
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 38 | 24 | 29 | 32 | ||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | (111) | (71) | (60) | (96) | ||
Reclassification/amortization, Net of Tax Amount | 284 | (175) | ||||
Other comprehensive income/(loss), Before Tax Amount | 285 | (272) | 292 | (402) | ||
Other comprehensive income/(loss), Tax (Expense)/Benefit | (71) | 90 | (68) | 131 | ||
Other comprehensive income/(loss) | 214 | (183) | 224 | (271) | ||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
SG&A expense | 3 | (8) | 21 | (29) | ||
Other (income) and expense | 397 | (146) | 293 | (211) | ||
Interest expense | 38 | 7 | 71 | 14 | ||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Sales | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Cost | 6 | (10) | 23 | (22) | ||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Services | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Cost | (9) | (18) | (28) | (27) | ||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Cost of Sales | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Continuing operations provision for (benefit from) income taxes | (2) | 3 | (6) | 6 | ||
Net (income) loss | 5 | (8) | 17 | (16) | ||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Cost of Services | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Continuing operations provision for (benefit from) income taxes | 2 | 7 | 7 | 10 | ||
Net (income) loss | (7) | (11) | (21) | (17) | ||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | SG&A Expense | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Continuing operations provision for (benefit from) income taxes | (1) | 2 | (6) | 7 | ||
Net (income) loss | 2 | (6) | 15 | (22) | ||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Other (Income) and Expense | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Continuing operations provision for (benefit from) income taxes | (100) | 56 | (74) | 81 | ||
Net (income) loss | 297 | (90) | 219 | (130) | ||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Interest Expense | ||||||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||||||
Continuing operations provision for (benefit from) income taxes | (9) | (3) | (18) | (6) | ||
Net (income) loss | 28 | 4 | 53 | 9 | ||
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 | 64 | 70 | ||||
Reclassification/amortization, Net of Tax Amount | 1,057 | 897 | ||||
Other comprehensive income/(loss), Before Tax Amount | 810 | 738 | 1,545 | 1,486 | ||
Other comprehensive income/(loss), Tax (Expense)/Benefit | (226) | (278) | (424) | (519) | ||
Other comprehensive income/(loss) | 584 | 461 | 1,121 | 967 | ||
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 | 0 | (1) | 0 | |||
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 0 | 0 | 0 | |||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 0 | (1) | 0 | |||
Reclassification/amortization, Before Tax Amount | (19) | (22) | (37) | (44) | ||
Reclassification/amortization, Tax (Expense)/Benefit | 5 | 8 | 10 | 15 | ||
Reclassification/amortization, Net of Tax Amount | (13) | (14) | (27) | (28) | ||
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 | 82 | 44 | 84 | 105 | ||
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | (23) | (17) | (23) | (37) | ||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | 59 | 27 | 61 | 69 | ||
Reclassification/amortization, Before Tax Amount | 741 | 713 | 1,494 | 1,423 | ||
Reclassification/amortization, Tax (Expense)/Benefit | (207) | (268) | (410) | (497) | ||
Reclassification/amortization, Net of Tax Amount | 534 | 445 | 1,084 | 926 | ||
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 | 6 | 3 | 6 | 1 | ||
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | (2) | (1) | (2) | (1) | ||
Unrealized gains/(losses) arising during the period, Net of Tax Amount | $ 4 | $ 2 | $ 4 | $ 1 | ||
[1] | Recast to reflect adoption of the FASB guidance on presentation of net periodic pension and nonpension postretirement benefit costs. |
Equity Activity - AOCI Rollforw
Equity Activity - AOCI Rollforward (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | ||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Balance at the Beginning of the Period | $ 17,725 | $ 18,392 | |||
Other comprehensive income/(loss) | 724 | 1,208 | |||
Balance at the End of the Period | $ 18,648 | $ 18,544 | 18,648 | 18,544 | |
Accumulated Other Comprehensive Income/(Loss) | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Balance at the Beginning of the Period | (26,592) | (29,398) | |||
Other comprehensive income before reclassifications | (681) | 486 | |||
Amount reclassified from accumulated other comprehensive income | 1,405 | 723 | |||
Other comprehensive income/(loss) | 294 | 520 | 724 | 1,208 | |
Balance at the End of the Period | (28,290) | (28,189) | (28,290) | (28,189) | |
Accumulated Other Comprehensive Income/(Loss) | Accounting Standards Updates 2016-01 (Financial Instruments), 2017-12 (Hedging) and 2018-02 (Stranded Tax Effects) | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Cumulative Effect Of Prospective Application Of New Accounting Principle, Net Of Tax | [1] | (2,422) | |||
Net Unrealized Gains/(Losses) on Cash Flow Hedges | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Balance at the Beginning of the Period | 35 | 319 | |||
Other comprehensive income before reclassifications | (111) | (71) | (60) | (96) | |
Amount reclassified from accumulated other comprehensive income | 284 | (175) | |||
Other comprehensive income/(loss) | 214 | (183) | 224 | (271) | |
Balance at the End of the Period | 264 | 47 | 264 | 47 | |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Accounting Standards Updates 2016-01 (Financial Instruments), 2017-12 (Hedging) and 2018-02 (Stranded Tax Effects) | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Cumulative Effect Of Prospective Application Of New Accounting Principle, Net Of Tax | 5 | ||||
Foreign Currency Translation Adjustments | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Balance at the Beginning of the Period | (2,834) | (3,603) | |||
Other comprehensive income before reclassifications | (620) | 510 | |||
Amount reclassified from accumulated other comprehensive income | 0 | 0 | |||
Other comprehensive income/(loss) | (505) | 240 | (620) | 510 | |
Balance at the End of the Period | (3,408) | (3,093) | (3,408) | (3,093) | |
Foreign Currency Translation Adjustments | Accounting Standards Updates 2016-01 (Financial Instruments), 2017-12 (Hedging) and 2018-02 (Stranded Tax Effects) | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Cumulative Effect Of Prospective Application Of New Accounting Principle, Net Of Tax | 46 | ||||
Net Change Retirement-Related Benefit Plans | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Balance at the Beginning of the Period | (23,796) | (26,116) | |||
Other comprehensive income before reclassifications | 64 | 70 | |||
Amount reclassified from accumulated other comprehensive income | 1,057 | 897 | |||
Other comprehensive income/(loss) | 584 | 461 | 1,121 | 967 | |
Balance at the End of the Period | (25,146) | (25,148) | (25,146) | (25,148) | |
Net Change Retirement-Related Benefit Plans | Accounting Standards Updates 2016-01 (Financial Instruments), 2017-12 (Hedging) and 2018-02 (Stranded Tax Effects) | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Cumulative Effect Of Prospective Application Of New Accounting Principle, Net Of Tax | (2,471) | ||||
Net Unrealized Gains/(Losses) on Available-For-Sale Securities | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Balance at the Beginning of the Period | 3 | 2 | |||
Other comprehensive income before reclassifications | 0 | 2 | (1) | 2 | |
Amount reclassified from accumulated other comprehensive income | 0 | 1 | |||
Other comprehensive income/(loss) | 0 | 2 | (1) | 2 | |
Balance at the End of the Period | $ 0 | $ 5 | 0 | $ 5 | |
Net Unrealized Gains/(Losses) on Available-For-Sale Securities | Accounting Standards Updates 2016-01 (Financial Instruments), 2017-12 (Hedging) and 2018-02 (Stranded Tax Effects) | |||||
Accumulated Other Comprehensive Income (Loss) (net of tax) | |||||
Cumulative Effect Of Prospective Application Of New Accounting Principle, Net Of Tax | $ (2) | ||||
[1] | Reflects the adoption of the FASB guidance on stranded tax effects, hedging and financial instruments. Refer to note 2, "Accounting Changes". |
Retirement-Related Benefits - A
Retirement-Related Benefits - All Retirement Plans Cost (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Retirement-Related Benefits | ||||
Defined benefit and contribution pension plans - cost | $ 709 | $ 659 | $ 1,447 | $ 1,323 |
Nonpension postretirement plans - cost | 49 | 60 | 100 | 121 |
Total | $ 758 | $ 719 | $ 1,546 | $ 1,444 |
Year-to-year percent change, defined benefit and contribution pension plans cost (as a percent) | 7.50% | 9.30% | ||
Year-to-year percent change, nonpension postretirement plans cost (as a percent) | (18.30%) | (17.80%) | ||
Year-to-year percent change, total (as a percent) | 5.40% | 7.10% |
Retirement-Related Benefits - C
Retirement-Related Benefits - Cost of Pension Plans (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Cost/(Income) of Pension Plans | ||||
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings | $ 709 | $ 659 | $ 1,447 | $ 1,323 |
U.S. | ||||
Cost/(Income) of Pension Plans | ||||
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings | 281 | 218 | 584 | 446 |
U.S. | Pension Plans | ||||
Cost/(Income) of Pension Plans | ||||
Interest cost | $ 429 | $ 478 | $ 859 | $ 957 |
Interest cost - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Expected return on plan assets | $ (675) | $ (753) | $ (1,351) | $ (1,507) |
Expected return on plan assets - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Amortization of prior service costs/(credits) | $ 4 | $ 4 | $ 8 | $ 8 |
Amortization of prior service costs/(credits) - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Recognized actuarial losses | $ 378 | $ 331 | $ 763 | $ 668 |
Recognized actuarial losses - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | $ 136 | $ 60 | $ 279 | $ 127 |
Cost of defined contribution plans | 145 | 158 | 305 | 319 |
Non-U.S. | ||||
Cost/(Income) of Pension Plans | ||||
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings | 428 | 442 | 863 | 877 |
Non-U.S. | Pension Plans | ||||
Cost/(Income) of Pension Plans | ||||
Service cost | 101 | 101 | 205 | 202 |
Interest cost | $ 211 | $ 206 | $ 426 | $ 406 |
Interest cost - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Expected return on plan assets | $ (339) | $ (327) | $ (687) | $ (644) |
Expected return on plan assets - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Amortization of prior service costs/(credits) | $ (21) | $ (24) | $ (42) | $ (48) |
Amortization of prior service costs/(credits) - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Recognized actuarial losses | $ 353 | $ 371 | $ 712 | $ 733 |
Recognized actuarial losses - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Curtailments and settlements | $ 6 | $ 3 | $ 6 | $ 1 |
Curtailments and settlements - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Multi-employer plans | $ 10 | $ 10 | $ 20 | $ 19 |
Other costs | $ 4 | $ 5 | $ 11 | $ 10 |
Other costs - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | $ 325 | $ 344 | $ 651 | $ 679 |
Cost of defined contribution plans | $ 103 | $ 97 | $ 211 | $ 198 |
Retirement-Related Benefits - N
Retirement-Related Benefits - Non-US and Multi-Employer Contributions (Details) - Pension Plans, Including Multi-employer Plans - Non-U.S. - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
RETIREMENT-RELATED BENEFITS | ||
Expected current year contributions to non-U.S. defined benefit plans | $ 400 | |
Contributions by employer to defined benefit plans | 237 | $ 263 |
Contributions by employer - Cash | 80 | 87 |
Contributions by employer - Noncash | $ 157 | $ 176 |
Retirement-Related Benefits -80
Retirement-Related Benefits - Nonpension Postretirement Cost (Details) - Nonpension Postretirement Plans - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
U.S. | ||||
Retirement-related plans cost | ||||
Service cost | $ 3 | $ 3 | $ 6 | $ 7 |
Interest cost | $ 33 | $ 38 | $ 66 | $ 77 |
Interest cost - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Amortization of prior service costs/(credits) | $ (2) | $ (2) | $ (4) | $ (4) |
Amortization of prior service costs/(credits) - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Recognized actuarial losses | $ 2 | $ 5 | $ 5 | $ 10 |
Recognized actuarial losses - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | $ 37 | $ 45 | $ 74 | $ 90 |
Non-U.S. | ||||
Retirement-related plans cost | ||||
Service cost | 1 | 1 | 3 | 3 |
Interest cost | $ 11 | $ 14 | $ 24 | $ 29 |
Interest cost - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Expected return on plan assets | $ (1) | $ (2) | $ (3) | $ (4) |
Expected return on plan assets - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Amortization of prior service costs/(credits) | $ 0 | $ 0 | $ 0 | $ 0 |
Amortization of prior service costs/(credits) - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Recognized actuarial losses | $ 1 | $ 2 | $ 3 | $ 3 |
Recognized actuarial losses - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Curtailments and settlements | $ 0 | $ 0 | $ 0 | $ 0 |
Curtailments and settlements - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | $ 12 | $ 16 | $ 26 | $ 31 |
Retirement-Related Benefits -81
Retirement-Related Benefits - Nonpension Postretirement Contributions (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Nonpension Postretirement Plans | U.S. | ||
RETIREMENT-RELATED BENEFITS | ||
Contributions by employer - Noncash | $ 215 | $ 230 |
Acquisitions (Details)
Acquisitions (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2018USD ($)entity | |
Acquisitions | |
Number of acquisitions | 2 |
Aggregate acquisitions cost | $ | $ 49 |
Percentage of business acquired (as a percent) | 100.00% |
Cognitive Solutions | |
Acquisitions | |
Number of acquisitions | 1 |
Global Business Services | |
Acquisitions | |
Number of acquisitions | 1 |
Intangible Assets Including G83
Intangible Assets Including Goodwill - Intangible Assets by Class (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Intangible asset balances by major asset class | ||
Gross Carrying Amount | $ 7,197 | $ 7,260 |
Accumulated Amortization | (3,853) | (3,518) |
Net Carrying Amount | 3,344 | 3,742 |
Capitalized software | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 1,563 | 1,600 |
Accumulated Amortization | (767) | (790) |
Net Carrying Amount | 796 | 810 |
Client relationships | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 2,331 | 2,358 |
Accumulated Amortization | (1,219) | (1,080) |
Net Carrying Amount | 1,113 | 1,278 |
Completed technology | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 2,585 | 2,586 |
Accumulated Amortization | (1,548) | (1,376) |
Net Carrying Amount | 1,037 | 1,210 |
Patents/trademarks | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 662 | 668 |
Accumulated Amortization | (300) | (256) |
Net Carrying Amount | 363 | 413 |
Other intangible assets | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 56 | 47 |
Accumulated Amortization | (19) | (16) |
Net Carrying Amount | $ 36 | $ 31 |
Intangible Assets Including G84
Intangible Assets Including Goodwill - Intangible Assets Activity (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Intangible Assets Including Goodwill | ||||
Net carrying amount decrease | $ 398 | |||
Intangible asset amortization expense | $ 342 | $ 388 | 683 | $ 777 |
Retirement of fully amortized intangible assets | $ 348 |
Intangible Assets Including G85
Intangible Assets Including Goodwill - Future Amortization (Details) $ in Millions | Jun. 30, 2018USD ($) |
Future amortization expense, by year | |
2018 (for Q3-Q4) | $ 673 |
2,019 | 1,020 |
2,020 | 722 |
2,021 | 476 |
2,022 | 381 |
Capitalized software | |
Future amortization expense, by year | |
2018 (for Q3-Q4) | 268 |
2,019 | 344 |
2,020 | 159 |
2,021 | 26 |
Acquired intangibles | |
Future amortization expense, by year | |
2018 (for Q3-Q4) | 405 |
2,019 | 676 |
2,020 | 564 |
2,021 | 450 |
2,022 | $ 381 |
Intangible Assets Including G86
Intangible Assets Including Goodwill - Goodwill by Segment (Details) - USD ($) $ in Millions | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Changes in Goodwill Balances | ||
Beginning Balance | $ 36,788 | $ 36,199 |
Goodwill Additions | 34 | 16 |
Purchase Price Adjustments | 0 | (38) |
Divestitures | (1) | (20) |
Foreign Currency Translation and Other Adjustments | (340) | 631 |
Ending Balance | 36,482 | 36,788 |
Goodwill impairment losses | 0 | 0 |
Goodwill accumulated impairment losses | 0 | 0 |
Cognitive Solutions | ||
Changes in Goodwill Balances | ||
Beginning Balance | 19,665 | 19,484 |
Goodwill Additions | 10 | 3 |
Purchase Price Adjustments | 0 | (38) |
Divestitures | (1) | (20) |
Foreign Currency Translation and Other Adjustments | (165) | 235 |
Ending Balance | 19,509 | 19,665 |
Global Business Services | ||
Changes in Goodwill Balances | ||
Beginning Balance | 4,813 | 4,607 |
Goodwill Additions | 24 | |
Purchase Price Adjustments | 0 | 2 |
Foreign Currency Translation and Other Adjustments | (71) | 204 |
Ending Balance | 4,766 | 4,813 |
Technology Services & Cloud Platforms | ||
Changes in Goodwill Balances | ||
Beginning Balance | 10,447 | 10,258 |
Goodwill Additions | 13 | |
Purchase Price Adjustments | 0 | (2) |
Foreign Currency Translation and Other Adjustments | (94) | 179 |
Ending Balance | 10,353 | 10,447 |
Systems | ||
Changes in Goodwill Balances | ||
Beginning Balance | 1,862 | 1,850 |
Purchase Price Adjustments | 0 | |
Foreign Currency Translation and Other Adjustments | (9) | 13 |
Ending Balance | $ 1,854 | $ 1,862 |
Borrowings - Short-Term Debt (D
Borrowings - Short-Term Debt (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Short-term debt disclosures | ||
Long-term debt - current maturities | $ 5,447 | $ 5,214 |
Total short-term debt | 7,646 | 6,987 |
Commercial paper | ||
Short-term debt disclosures | ||
Short-term debt | $ 1,996 | $ 1,496 |
Weighted-average interest rates for short-term debt (as a percent) | 2.10% | 1.50% |
Short-term loans | ||
Short-term debt disclosures | ||
Short-term debt | $ 203 | $ 276 |
Weighted-average interest rates for short-term debt (as a percent) | 8.90% | 8.80% |
Borrowings - Long-Term Debt, Co
Borrowings - Long-Term Debt, Components (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Borrowings | ||
Long-term debt, gross | $ 43,934 | $ 45,445 |
Less: net unamortized discount | 815 | 826 |
Less: net unamortized debt issuance cost | 85 | 93 |
Add: fair value adjustment | 264 | 526 |
Long-term debt (including current maturities) | 43,298 | 45,052 |
Less: current maturities | 5,447 | 5,214 |
Long-term debt (excluding current portion) | 37,851 | 39,837 |
IBM International Group Capital, LLC | ||
Borrowings | ||
Long-term debt, gross | $ 0 | |
IBM International Group Capital, LLC | ||
Borrowings | ||
Ownership interest in subsidiary (as a percent) | 100.00% | |
U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 30,513 | 31,515 |
Euros | ||
Borrowings | ||
Long-term debt, gross | $ 10,213 | 10,502 |
Debt instrument, average interest rate (as a percent) | 1.50% | |
Pound sterling | ||
Borrowings | ||
Long-term debt, gross | $ 1,386 | 1,420 |
Debt instrument, average interest rate (as a percent) | 2.70% | |
Japanese yen | ||
Borrowings | ||
Long-term debt, gross | $ 1,313 | 1,291 |
Debt instrument, average interest rate (as a percent) | 0.30% | |
Other | ||
Borrowings | ||
Long-term debt, gross | $ 508 | 717 |
Debt instrument, average interest rate (as a percent) | 5.40% | |
Maturing 2018 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 1,714 | 4,640 |
Debt instrument, average interest rate (as a percent) | 7.30% | |
Maturing 2019 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 5,630 | 5,540 |
Debt instrument, average interest rate (as a percent) | 3.00% | |
Maturing 2020 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 3,419 | 3,416 |
Debt instrument, average interest rate (as a percent) | 2.20% | |
Maturing 2021 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 5,273 | 4,129 |
Debt instrument, average interest rate (as a percent) | 2.70% | |
Maturing 2022 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 3,434 | 3,481 |
Debt instrument, average interest rate (as a percent) | 2.40% | |
Maturing 2023 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 2,253 | 1,547 |
Debt instrument, average interest rate (as a percent) | 3.30% | |
Maturing 2024 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 2,000 | 2,000 |
Debt instrument, average interest rate (as a percent) | 3.60% | |
Maturing 2025 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 600 | 600 |
Debt instrument, average interest rate (as a percent) | 7.00% | |
Maturing 2026 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 1,350 | 1,350 |
Debt instrument, average interest rate (as a percent) | 3.50% | |
Maturing 2027 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 969 | 969 |
Debt instrument, average interest rate (as a percent) | 4.70% | |
Maturing 2028 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 313 | 313 |
Debt instrument, average interest rate (as a percent) | 6.50% | |
Maturing 2030 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 30 | |
Debt instrument, average interest rate (as a percent) | 3.70% | |
Maturing 2032 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 600 | 600 |
Debt instrument, average interest rate (as a percent) | 5.90% | |
Maturing 2038 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 83 | 83 |
Debt instrument, average interest rate (as a percent) | 8.00% | |
Maturing 2039 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 745 | 745 |
Debt instrument, average interest rate (as a percent) | 5.60% | |
Maturing 2042 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 1,107 | 1,107 |
Debt instrument, average interest rate (as a percent) | 4.00% | |
Maturing 2045 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 27 | 27 |
Debt instrument, average interest rate (as a percent) | 7.00% | |
Maturing 2046 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 650 | 650 |
Debt instrument, average interest rate (as a percent) | 4.70% | |
Maturing 2096 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 316 | 316 |
Debt instrument, average interest rate (as a percent) | 7.10% | |
Debt securities issued in 2017 | IBM Credit LLC | ||
Borrowings | ||
Fixed and floating rate debt securities issued | $ 3,000 | |
Debt securities issued during first quarter of 2018 | IBM Credit LLC | ||
Borrowings | ||
Fixed and floating rate debt securities issued | $ 2,000 |
Borrowings - Long-Term Debt, 89
Borrowings - Long-Term Debt, Covenants (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2018USD ($) | |
Borrowings | |
Limit based on net tangible assets | 10.00% |
Credit Facilities | |
Borrowings | |
Minimum net interest expense ratio | 2.20 |
Default provision on credit facility | $ 500 |
Borrowings - Pre-Swap Obligatio
Borrowings - Pre-Swap Obligations (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Pre-swap annual contractual obligations of long-term debt outstanding | ||
2018 (for Q3 - Q4) | $ 1,869 | |
2,019 | 7,048 | |
2,020 | 6,241 | |
2,021 | 6,460 | |
2,022 | 4,319 | |
2023 and beyond | 17,997 | |
Total | $ 43,934 | $ 45,445 |
Borrowings - Interest on Debt (
Borrowings - Interest on Debt (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Interest on Debt | ||
Interest capitalized | $ 3 | $ 1 |
Total interest paid and accrued | 717 | 613 |
Cost of Financing | ||
Interest on Debt | ||
Interest paid | 375 | 330 |
Interest Expense | ||
Interest on Debt | ||
Interest paid | $ 338 | $ 283 |
Borrowings - Lines of Credit (D
Borrowings - Lines of Credit (Details) - Credit Facilities - USD ($) $ in Millions | Jul. 19, 2018 | Jun. 30, 2018 |
Five-Year Credit Agreement | ||
Lines of Credit | ||
Revolving line of credit, amount | $ 10,250 | |
Revolving line of credit, term | 5 years | |
Revolving line of credit, expiration date | Jul. 20, 2023 | |
364-Day Credit Agreement, 2018 | ||
Lines of Credit | ||
Revolving line of credit, amount | $ 2,500 | |
Revolving line of credit, term | 364 days | |
364-Day Credit Agreement, 2017 | ||
Lines of Credit | ||
Revolving line of credit, amount | $ 2,500 | |
Revolving line of credit, term | 364 days | |
Three-Year Credit Agreement | ||
Lines of Credit | ||
Revolving line of credit, amount | $ 2,500 | |
Revolving line of credit, term | 3 years | |
Revolving line of credit, expiration date | Jul. 20, 2021 |
Contingencies (Details)
Contingencies (Details) $ in Millions | Aug. 07, 2017USD ($) | Feb. 13, 2014USD ($) | Jul. 18, 2012USD ($) | May 31, 2015defendant | Jun. 30, 2018USD ($)countryclaim | Oct. 30, 2017claim |
SCO v. IBM | ||||||
Loss Contingencies | ||||||
Number of remaining claims | claim | 1 | |||||
IBM v. State Of Indiana | ||||||
Loss Contingencies | ||||||
Duration of trial | 42 days | |||||
Amount of award to IBM | $ 50 | $ 52 | ||||
Amount of award against IBM | $ 128 | |||||
Net amount awarded against IBM | $ 78 | |||||
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, alleging violations of the Employee Retirement Income Security Act | ||||||
Loss Contingencies | ||||||
Number of officers or executives named as defendants | defendant | 3 | |||||
Brazil Tax Matters | ||||||
Loss Contingencies | ||||||
Damages sought, value | $ 900 | |||||
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, 2018 | Dec. 31, 2017 |
Extended lines of credit | ||
Commitments, guarantees: | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 8,404 | $ 8,111 |
Financing for client purchase agreements | ||
Commitments, guarantees: | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 3,799 | $ 3,569 |
Commitments - Financial Guarant
Commitments - Financial Guarantees (Details) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
Financial guarantees | ||
Guarantor obligations | ||
Guarantor obligations, maximum exposure | $ 17 | $ 19 |
Commitments - Standard Warranty
Commitments - Standard Warranty Liability (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Movement in standard warranty liability | ||
Beginning Balance | $ 152 | $ 156 |
Current period accruals | 61 | 74 |
Accrual adjustments to reflect actual experience | (24) | (5) |
Charges incurred | (63) | (84) |
Ending Balance | $ 126 | $ 141 |
Commitments - Extended Warranty
Commitments - Extended Warranty Liability, Contract Liability (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 | |
Movement in deferred income | ||||
Amortization of deferred revenue | $ (4,000) | $ (6,000) | ||
Current portion | 11,752 | 11,752 | $ 11,493 | $ 11,552 |
Noncurrent portion | 3,718 | 3,718 | $ 3,758 | $ 3,746 |
Extended Warranty | ||||
Movement in deferred income | ||||
Beginning Balance | 566 | |||
Revenue deferred for new extended warranty contracts | 111 | |||
Amortization of deferred revenue | (134) | |||
Other | (9) | |||
Ending Balance | 534 | 534 | ||
Current portion | 254 | 254 | ||
Noncurrent portion | $ 280 | $ 280 |
Commitments - Extended Warran98
Commitments - Extended Warranty Liability, Deferred Revenue (Details) - Extended Warranty $ in Millions | 6 Months Ended |
Jun. 30, 2017USD ($) | |
Movement in extended warranty liability | |
Beginning Balance | $ 531 |
Revenue deferred for new extended warranty contracts | 125 |
Amortization of deferred revenue | (137) |
Other | 12 |
Ending Balance | 532 |
Current portion | 231 |
Noncurrent portion | $ 300 |
Taxes - (Details)
Taxes - (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018 | Mar. 31, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Taxes | |||||
Provision for/(benefit from) income taxes | $ 373 | $ 111 | $ (166) | $ (218) | |
Effective tax rate (as a percent) | 13.50% | 4.50% | (4.30%) | (5.60%) | |
Additional provisional charge related to U.S. tax reform | $ (14) | $ 107 | |||
Unrecognized tax benefits | |||||
Decrease in amount of unrecognized tax benefits | $ 1,013 | ||||
Unrecognized tax benefits | 6,018 | 6,018 | |||
Offsetting tax benefits associated with timing adjustments, U.S. tax credits, potential transfer pricing adjustments, and state income taxes | 597 | 597 | |||
Net unrecognized tax benefit amount that, if recognized, would favorably affect the company's effective tax rate | 5,421 | 5,421 | |||
India Tax Authorities | |||||
Taxes | |||||
Prepaid taxes | $ 650 | $ 650 |
Taxes - U.S. Tax Reform (Detail
Taxes - U.S. Tax Reform (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2018 | Mar. 31, 2018 | Dec. 31, 2017 | Jun. 30, 2018 | Dec. 31, 2017 | |
Taxes | |||||
U.S. corporate tax rate (as a percent) | 21.00% | ||||
Provisional charge from enactment of U.S. tax reform | $ 5,475 | $ 5,475 | |||
Benefit for effect of tax law changes on deferred tax assets and liabilities | $ 270 | $ 270 | |||
Additional provisional charge related to U.S. tax reform | $ (14) | $ 107 |
Earnings Per Share of Common101
Earnings Per Share of Common Stock - Computation (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Number of shares on which basic earnings per share is calculated: | ||||
Weighted-average shares outstanding during period | 915,064,434 | 934,923,989 | 917,872,328 | 938,682,445 |
Add - Incremental shares under stock-based compensation plans (in shares) | 2,882,043 | 3,191,783 | 3,217,574 | 3,702,521 |
Add - Incremental shares associated with contingently issuable shares (in shares) | 1,452,129 | 1,448,989 | 1,314,118 | 1,315,518 |
Number of shares on which diluted earnings per share is calculated | 919,398,606 | 939,564,761 | 922,404,020 | 943,700,484 |
Net income on which basic earnings per share is calculated: | ||||
Income from continuing operations | $ 2,402 | $ 2,332 | $ 4,078 | $ 4,085 |
Income/(loss) from discontinued operations, net of tax | 1 | (1) | 5 | (3) |
Net income on which basic earnings per share is calculated | 2,404 | 2,331 | 4,083 | 4,082 |
Net income on which diluted earnings per share is calculated: | ||||
Income from continuing operations | 2,402 | 2,332 | 4,078 | 4,085 |
Net income applicable to contingently issuable shares | (1) | (2) | (1) | (2) |
Income from continuing operations on which diluted earnings per share is calculated | 2,401 | 2,331 | 4,077 | 4,083 |
Income/(loss) from discontinued operations, net of tax, on which basic and diluted earnings per share is calculated | 1 | (1) | 5 | (3) |
Net income on which diluted earnings per share is calculated | $ 2,403 | $ 2,330 | $ 4,082 | $ 4,080 |
Assuming dilution | ||||
Continuing operations (in dollars per share) | $ 2.61 | $ 2.48 | $ 4.42 | $ 4.32 |
Discontinued operations (in dollars per share) | 0 | 0 | 0.01 | 0 |
Total (in dollars per share) | 2.61 | 2.48 | 4.43 | 4.32 |
Basic | ||||
Continuing operations (in dollars per share) | 2.63 | 2.49 | 4.44 | 4.35 |
Discontinued operations (in dollars per share) | 0 | 0 | 0.01 | 0 |
Total (in dollars per share) | $ 2.63 | $ 2.49 | $ 4.45 | $ 4.35 |
Earnings Per Share of Common102
Earnings Per Share of Common Stock - Antidilutive Stock Options (Details) - shares | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Stock Options | ||||
Antidilutive stock options | ||||
Outstanding stock options not included in the computation of diluted earnings per share (in shares) | 388,681 | 22,625 | 202,775 | 20,271 |
Subsequent Events (Details)
Subsequent Events (Details) - Subsequent events | Jul. 31, 2018$ / shares |
Subsequent Events: | |
Dividend declared (in dollars per share) | $ 1.57 |
Dividend declared, date | Jul. 31, 2018 |
Dividend payable, date | Sep. 10, 2018 |
Shareholders of record, date | Aug. 10, 2018 |