Document and Entity Information
Document and Entity Information | 3 Months Ended |
Mar. 31, 2019shares | |
Document and Entity Information | |
Entity Registrant Name | INTERNATIONAL BUSINESS MACHINES CORP |
Entity Central Index Key | 0000051143 |
Document Type | 10-Q |
Document Period End Date | Mar. 31, 2019 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Small Business | false |
Entity Emerging Growth Company | false |
Entity Common Stock, Shares Outstanding | 886,642,873 |
Document Fiscal Year Focus | 2019 |
Document Fiscal Period Focus | Q1 |
Trading Symbol | IBM |
CONSOLIDATED STATEMENT OF EARNI
CONSOLIDATED STATEMENT OF EARNINGS - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue | $ 18,182 | $ 19,072 |
Cost | 10,139 | 10,825 |
Gross profit | 8,043 | 8,247 |
Expense and other (income): | ||
Selling, general and administrative | 4,691 | 5,445 |
Research, development and engineering | 1,433 | 1,405 |
Intellectual property and custom development income | (101) | (317) |
Other (income) and expense | (73) | 413 |
Interest expense | 210 | 165 |
Total expense and other (income) | 6,160 | 7,111 |
Income from continuing operations before income taxes | 1,883 | 1,136 |
Provision for/(benefit from) income taxes | 289 | (540) |
Income from continuing operations | 1,593 | 1,675 |
Income/(loss) from discontinued operations, net of tax | (2) | 4 |
Net income | $ 1,591 | $ 1,679 |
Assuming dilution: | ||
Continuing operations (in dollars per share) | $ 1.78 | $ 1.81 |
Discontinued operations (in dollars per share) | 0 | 0 |
Total (in dollars per share) | 1.78 | 1.81 |
Basic: | ||
Continuing operations (in dollars per share) | 1.79 | 1.82 |
Discontinued operations (in dollars per share) | 0 | 0 |
Total (in dollars per share) | $ 1.79 | $ 1.82 |
Weighted-average number of common shares outstanding: | ||
Assuming dilution (in shares) | 893,910,526 | 925,409,434 |
Basic (in shares) | 889,581,542 | 920,680,222 |
Services | ||
Revenue | $ 12,423 | $ 12,961 |
Cost | 8,359 | 8,835 |
Sales | ||
Revenue | 5,354 | 5,700 |
Cost | 1,516 | 1,722 |
Financing | ||
Revenue | 404 | 410 |
Cost | $ 264 | $ 269 |
CONSOLIDATED STATEMENT OF COMPR
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | ||
Net income | $ 1,591 | $ 1,679 |
Other comprehensive income/(loss), before tax: | ||
Foreign currency translation adjustments | 171 | (167) |
Net changes related to available-for-sale securities: | ||
Unrealized gains/(losses) arising during the period | (1) | (2) |
Reclassification of (gains)/losses to net income | 0 | |
Total net changes related to available-for-sale securities | (1) | (3) |
Unrealized gains/(losses) on cash flow hedges: | ||
Unrealized gains/(losses) arising during the period | (352) | 61 |
Reclassification of (gains)/losses to net income | 98 | (54) |
Total unrealized gains/(losses) on cash flow hedges | (254) | 7 |
Retirement-related benefit plans: | ||
Prior service costs/(credits) | (1) | |
Net (losses)/gains arising during the period | (4) | 2 |
Curtailments and settlements | 1 | 0 |
Amortization of prior service (credits)/costs | (3) | (19) |
Amortization of net (gains)/losses | 464 | 753 |
Total retirement-related benefit plans | 458 | 735 |
Other comprehensive income/(loss), before tax | 375 | 573 |
Income tax (expense)/benefit related to items of other comprehensive income | (67) | (143) |
Other comprehensive income/(loss), net of tax | 308 | 430 |
Total comprehensive income/(loss) | $ 1,899 | $ 2,109 |
CONSOLIDATED STATEMENT OF FINAN
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 | |
Current assets: | |||
Cash and cash equivalents | $ 17,134 | $ 11,379 | |
Restricted cash | 137 | 225 | |
Marketable securities | 872 | 618 | |
Notes and accounts receivable - trade (net of allowances of $316 in 2019 and $309 in 2018) | 6,987 | 7,432 | |
Short-term financing receivables (net of allowances of $248 in 2019 and $244 in 2018) | 20,287 | 22,388 | |
Other accounts receivable (net of allowances of $33 in 2019 and $38 in 2018) | 671 | 743 | |
Inventories, at lower of average cost or net realizable value: | |||
Finished goods | 369 | 266 | |
Work in process and raw materials | 1,402 | 1,415 | |
Total inventories | 1,771 | 1,682 | |
Deferred costs | 2,368 | 2,300 | |
Prepaid expenses and other current assets | 2,478 | 2,378 | |
Total current assets | 52,705 | 49,146 | |
Property, plant and equipment | 32,692 | 32,460 | |
Less: Accumulated depreciation | 22,017 | 21,668 | |
Property, plant and equipment - net | 10,675 | 10,792 | |
Operating right-of-use assets - net | [1] | 4,634 | |
Long-term financing receivables (net of allowances of $38 in 2019 and $48 in 2018) | 8,361 | 9,148 | |
Prepaid pension assets | 4,966 | 4,666 | |
Deferred costs | 2,663 | 2,676 | |
Deferred taxes | 5,284 | 5,216 | |
Goodwill | 36,281 | 36,265 | |
Intangible assets - net | 2,956 | 3,087 | |
Investments and sundry assets | 2,403 | 2,386 | |
Total assets | 130,926 | 123,382 | |
Current liabilities: | |||
Taxes | 2,484 | 3,046 | |
Short-term debt | 10,250 | 10,207 | |
Accounts payable | 5,711 | 6,558 | |
Compensation and benefits | 3,027 | 3,310 | |
Deferred income | 12,134 | 11,165 | |
Operating lease liabilities | [1] | 1,313 | |
Other accrued expenses and liabilities | 3,952 | 3,941 | |
Total current liabilities | 38,871 | 38,227 | |
Long-term debt | 39,727 | 35,605 | |
Retirement and nonpension postretirement benefit obligations | 16,467 | 17,002 | |
Deferred income | 3,481 | 3,445 | |
Operating lease liabilities | [1] | 3,590 | |
Other liabilities | 12,184 | 12,174 | |
Total liabilities | 114,320 | 106,452 | |
IBM stockholders' equity: | |||
Common stock, par value $.20 per share, and additional paid-in capital; Shares authorized: 4,687,500,000; Shares issued: 2019 - 2,234,819,047; 2018 - 2,233,427,058 | 55,287 | 55,151 | |
Retained earnings | 159,396 | 159,206 | |
Treasury stock, at cost; Shares 2019 - 1,348,176,174; 2018 - 1,340,947,648 | (169,021) | (168,071) | |
Accumulated other comprehensive income/(loss) | (29,182) | (29,490) | |
Total IBM stockholders' equity | 16,481 | 16,796 | |
Noncontrolling interests | 126 | 134 | |
Total equity | 16,607 | 16,929 | |
Total liabilities and equity | $ 130,926 | $ 123,382 | |
[1] | Reflects the adoption of the FASB guidance on leases. Refer to note 2, "Accounting Changes" and note 5, "Leases.” |
CONSOLIDATED STATEMENT OF FIN_2
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Parenthetical) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION | ||
Notes and accounts receivable - trade, allowances | $ 316 | $ 309 |
Short-term financing receivables, allowances | 248 | 244 |
Other accounts receivable, allowances | 33 | 38 |
Long-term financing receivables, allowances | $ 38 | $ 48 |
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) | 2,234,819,047 | 2,233,427,058 |
Treasury stock, Shares (in shares) | 1,348,176,174 | 1,340,947,648 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cash flows from operating activities: | ||
Net income | $ 1,591 | $ 1,679 |
Adjustments to reconcile net income to cash provided by operating activities | ||
Depreciation | 1,143 | 774 |
Amortization of intangibles | 303 | 340 |
Stock-based compensation | 113 | 116 |
Net (gain)/loss on asset sales and other | (176) | 34 |
Changes in operating assets and liabilities, net of acquisitions/divestitures | 1,785 | 1,658 |
Net cash provided by operating activities | 4,759 | 4,602 |
Cash flows from investing activities: | ||
Payments for property, plant and equipment | (539) | (870) |
Proceeds from disposition of property, plant and equipment | 81 | 103 |
Investment in software | (156) | (126) |
Acquisition of businesses, net of cash acquired | (1) | (71) |
Divestitures of businesses, net of cash transferred | 33 | |
Non-operating finance receivables - net | 193 | (89) |
Purchases of marketable securities and other investments | (1,138) | (1,521) |
Proceeds from disposition of marketable securities and other investments | 674 | 810 |
Net cash used in investing activities | (853) | (1,764) |
Cash flows from financing activities: | ||
Proceeds from new debt | 5,979 | 2,170 |
Payments to settle debt | (1,768) | (3,295) |
Short-term borrowings/(repayments) less than 90 days - net | 21 | 412 |
Common stock repurchases | (920) | (777) |
Common stock repurchases for tax withholdings | (61) | (53) |
Financing - other | 9 | 16 |
Cash dividends paid | (1,397) | (1,382) |
Net cash provided by (used in) financing activities | 1,863 | (2,909) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (102) | 100 |
Net change in cash, cash equivalents and restricted cash | 5,668 | 28 |
Cash, cash equivalents and restricted cash at beginning of period | 11,604 | 12,234 |
Cash, cash equivalents and restricted cash at end of period | $ 17,272 | $ 12,262 |
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, 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) | 2,422 | (2,422) | |||||
Net income plus other comprehensive income/(loss) | |||||||
Net income | 1,679 | 1,679 | 1,679 | ||||
Other comprehensive income/(loss) | 430 | 430 | 430 | ||||
Total comprehensive income/(loss) | 2,109 | 2,109 | |||||
Cash dividends paid - common stock ($1.57 and $1.50 per share for 2019 and 2018, respectively) | (1,382) | (1,382) | (1,382) | ||||
Common stock issued under employee plans (Shares - 1,391,989 and 1,037,255 for 2019 and 2018, respectively) | 146 | 146 | 146 | ||||
Purchases (Shares - 454,710 and 325,635) and sales (Shares - 82,862 and 45,878 ) of treasury stock under employee plans - net, for 2019 and 2018, respectively | (45) | 1 | (47) | (45) | |||
Other treasury shares purchased, not retired (Shares - 6,856,678 and 4,968,417 for 2019 and 2018, respectively) | (780) | (780) | (780) | ||||
Changes in noncontrolling interests | (7) | (7) | |||||
Balance at the End of the Period at Mar. 31, 2018 | 18,166 | 54,712 | 156,371 | (164,334) | (28,583) | 124 | 18,290 |
Balance at the Beginning of the Period at Dec. 31, 2017 | 17,594 | 54,566 | 153,126 | (163,507) | (26,592) | 131 | 17,725 |
Balance at the End of the Period at Dec. 31, 2018 | 16,796 | 55,151 | 159,206 | (168,071) | (29,490) | 134 | 16,929 |
Net income plus other comprehensive income/(loss) | |||||||
Net income | 1,591 | 1,591 | 1,591 | ||||
Other comprehensive income/(loss) | 308 | 308 | 308 | ||||
Total comprehensive income/(loss) | 1,899 | 1,899 | |||||
Cash dividends paid - common stock ($1.57 and $1.50 per share for 2019 and 2018, respectively) | (1,397) | (1,397) | (1,397) | ||||
Common stock issued under employee plans (Shares - 1,391,989 and 1,037,255 for 2019 and 2018, respectively) | 137 | 137 | 137 | ||||
Purchases (Shares - 454,710 and 325,635) and sales (Shares - 82,862 and 45,878 ) of treasury stock under employee plans - net, for 2019 and 2018, respectively | (48) | 2 | (50) | (48) | |||
Other treasury shares purchased, not retired (Shares - 6,856,678 and 4,968,417 for 2019 and 2018, respectively) | (900) | (900) | (900) | ||||
Changes in other equity | (5) | (5) | (5) | ||||
Changes in noncontrolling interests | (8) | (8) | |||||
Balance at the End of the Period at Mar. 31, 2019 | $ 16,481 | $ 55,287 | $ 159,396 | $ (169,021) | $ (29,182) | $ 126 | $ 16,607 |
CONSOLIDATED STATEMENT OF CHA_2
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Parenthetical) - $ / shares | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | ||
Cash dividend per common share | $ 1.57 | $ 1.50 |
Common stock issued under employee plans (in shares) | 1,391,989 | 1,037,255 |
Purchases of treasury stock under employee plans (in shares) | 454,710 | 325,635 |
Sales of treasury stock under employee plans (in shares) | 82,862 | 45,878 |
Other treasury shares purchased, not retired (in shares) | 6,856,678 | 4,968,417 |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Mar. 31, 2019 | |
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. In the first quarter of 2019, the company made a number of changes to its organizational structure and management system. These changes impacted the company’s reportable segments, but did not impact the company’s Consolidated Financial Statements. Refer to note 8, “Segments,” for additional information on the changes in reportable segments. The periods presented in this Form 10-Q are reported on a comparable basis. The company provided recast historical segment information reflecting these changes in a Form 8-K dated April 4, 2019. For the three months ended March 31, 2019, the company recorded a provision for income taxes of $289 million and its effective tax rate was 15.4 percent. The rate was primarily driven by the geographical mix of income and foreign and domestic audit activity, partially offset by a discrete tax charge of $129 million related to the January 2019 additional tax reform guidance issued by the U.S. Treasury. In the first quarter of 2018, the company reported a benefit from income taxes of $540 million and its effective tax rate was (47.5) percent. This benefit was primarily driven by audit resolutions partially offset by a discrete provisional charge related to U.S. tax reform guidance. Noncontrolling interest amounts of $7.0 million and $7.8 million, net of tax, for the three months ended March 31, 2019 and 2018, 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 2018 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 | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Changes | |
Accounting Changes | 2. Accounting Changes: New Standards to be Implemented In August 2018, the Financial Accounting Standards Board (FASB) issued guidance which changed the disclosure requirements for fair value measurements and defined benefit plans. The guidance is effective for each of the topics on January 1, 2020 and December 31, 2020, respectively, with early adoption of certain provisions permitted. The company early adopted the provision in the fair value guidance that removed the Level 1/Level 2 transfer disclosures. The company is evaluating the adoption date for the remaining changes. As the guidance is a change to disclosures only, the company does not expect the guidance to have a material impact in the consolidated financial results. In January 2017, the FASB issued guidance that simplifies the goodwill impairment test by removing Step 2. The guidance also changes the requirements for reporting units with zero or negative carrying amounts and requires additional disclosures for these reporting units. The guidance is effective January 1, 2020 and early adoption is permitted. The company expects to adopt the guidance on a prospective basis on the effective date. The company is evaluating the impact of the guidance. In June 2016, with amendments in 2018, the 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. A cross-functional team was established that is evaluating the financial instruments portfolio and the system, process and policy change requirements and continues to make substantial progress. The new guidance expands the scope of financial instruments subject to impairment, including off-balance sheet commitments and residual value. The guidance is effective January 1, 2020 with one-year early adoption permitted. The company will adopt the guidance as of the effective date and is continuing to evaluate the impact. Standards Implemented The FASB issued guidance in February 2016, with amendments in 2018 and 2019, which changed 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 also made some changes to lessor accounting, including elimination of the use of third-party residual value guarantee insurance in the lease classification test, and overall aligns with the new revenue recognition guidance. The guidance requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows arising from leases. The company adopted the guidance effective January 1, 2019, using the transition option whereby prior comparative periods were not retrospectively presented in the Consolidated Financial Statements. The company elected the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and the lessee practical expedient to combine lease and nonlease components for all asset classes. The company made a policy election to not recognize right-of-use assets and lease liabilities for short-term leases for all asset classes. The guidance had a material impact on the Consolidated Statement of Financial Position as of the effective date. As a lessee, at adoption, the company recognized operating and financing right-of-use (ROU) assets of $4.8 billion and $0.2 billion, respectively, and operating and financing lease liabilities of $5.1 billion and $0.2 billion, respectively. The transition adjustment recognized in retained earnings at January 1, 2019 was not material. From a lessor perspective, the changes in lease termination guidance and removal of third-party residual value guarantee insurance in the lease classification test did not have a material impact in the consolidated financial results. Refer to note 5, “Leases,” for additional information, including further discussion on the impact of adoption. In August 2018, the FASB issued guidance on a customer’s accounting for implementation costs incurred in cloud-computing arrangements that are hosted by a vendor. Certain types of implementation costs should be capitalized and amortized over the term of the hosting arrangement. The guidance is effective January 1, 2020 and early adoption is permitted. The company adopted the guidance on January 1, 2019 on a prospective basis. The guidance did not have a material impact in the consolidated financial results. 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 U.S. tax reform from accumulated other comprehensive income/(loss) (AOCI) to retained earnings. The guidance was 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 the actual cessation date. At adoption on January 1, 2018, $2.4 billion 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 was 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, SG&A expense and RD&E 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. 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. The guidance required certain equity investments to be 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 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. In the fourth quarter of 2018, the company recognized an additional impact to net deferred taxes and retained earnings of $56 million, resulting in a total net increase to retained earnings of $580 million. The decrease to net deferred taxes was the result of the company’s election to include Global Intangible Low-Taxed Income (GILTI) in measuring deferred taxes. The revenue guidance did not have a material impact in the company’s consolidated financial results. Refer to note 3, “Revenue Recognition,” for additional information. In March 2016, the FASB issued guidance which changed 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 | 3 Months Ended |
Mar. 31, 2019 | |
Revenue Recognition | |
Revenue Recognition | 3. Revenue Recognition: Disaggregation of Revenue The following tables provide details of revenue by major products/service offerings and by geography. Revenue by Major Products/Service Offerings (Dollars in millions) Cloud & Global Global For the three months Cognitive Business Technology Global Total ended March 31, 2019: Software Services Services Systems Financing Other Revenue Cognitive Applications $ $ — $ — $ — $ — $ — $ Cloud & Data Platforms — — — — — Transaction Processing Platforms — — — — — Consulting — — — — — Application Management — — — — — Global Process Services — — — — — Infrastructure & Cloud Services — — — — — Technology Support Services — — — — — 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 (Dollars in millions) For the three months Total ended March 31, 2019: Revenue Americas $ Europe/Middle East/Africa Asia Pacific Total $ Revenue by Major Products/Service Offerings (Dollars in millions) Cloud & Global Global For the three months Cognitive Business Technology Global Total ended March 31, 2018: Software* Services* Services* Systems Financing Other* Revenue Cognitive Applications $ $ — $ — $ — $ — $ — $ Cloud & Data Platforms — — — — — Transaction Processing Platforms — — — — — Consulting — — — — — Application Management — — — — — Global Process Services — — — — — Infrastructure & Cloud Services — — — — — Technology Support Services — — — — — Systems Hardware — — — — — Operating Systems Software — — — — — Global Financing** — — — — — Other Revenue — — — — — Total $ $ $ $ $ $ $ * Recast to conform to 2019 presentation. ** Contains lease and loan/working capital financing arrangements which are not subject to the guidance on revenue from contracts with customers. Revenue by Geography (Dollars in millions) For the three months Total ended March 31, 2018: Revenue 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 March 31, 2019, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $118 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 five years and the balance (mostly Infrastructure & Cloud Services) thereafter. At December 31, 2018, the aggregate amount of the transaction price allocated to RPO related to customer contracts that were unsatisfied or partially unsatisfied was $124 billion. Given the profile of contract terms, approximately 60 percent of this amount was expected to be recognized as revenue over the next two years, approximately 35 percent between three and five years and the balance (mostly Infrastructure & Cloud Services) thereafter. Revenue Recognized for Performance Obligations Satisfied (or Partially Satisfied) in Prior Periods For the three months ending March 31, 2019, the impact to revenue from performance obligations satisfied (or partially satisfied) in previous periods was immaterial. For the three months ending March 31, 2018, revenue was reduced by $22 million for performance obligations satisfied (or partially satisfied) in previous periods, mainly due to changes in estimates on percentage-of-completion based contracts. Refer to note A, “Significant Accounting Policies,” in the company’s 2018 Annual Report for additional information on percentage-of-completion contracts and estimates of costs to complete. Reconciliation of Contract Balances The following table provides information about notes and accounts receivables — trade, contract assets and deferred income balances: At March 31, At December 31, (Dollars in millions) 2019 2018 Notes and accounts receivable—trade (net of allowances of $316 and $309 at March 31, 2019 and December 31, 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. The amount of revenue recognized during the three months ended March 31, 2019 that was included within the deferred income balance at December 31, 2018 was $3.5 billion and primarily related to services and software. The amount of revenue recognized during the three months ended March 31, 2018 that was included within the deferred income balance at January 1, 2018 was $3.5 billion and was also primarily related to services and software. |
Financial Instruments
Financial Instruments | 3 Months Ended |
Mar. 31, 2019 | |
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, operating right-of-use assets, 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 non-financial assets depend on the type of asset. There were no material impairments of non-financial assets for the three months ended March 31, 2019 and 2018, 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. Since adoption, the company measures equity investments at fair value with changes recognized in net income. 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 March 31, 2019 and December 31, 2018. (Dollars in millions) At March 31, 2019 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ (6) Money market funds — — U.S. government securities — — (6) 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 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 March 31, 2019 were $346 million and $348 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 March 31, 2019 were $316 million and $389 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 $353 million. (Dollars in millions) At December 31, 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 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 December 31, 2018 were $385 million and $347 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, 2018 were $177 million and $206 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 $267 million. 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 and including short-term finance lease liabilities) 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 March 31, 2019 and December 31, 2018, 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 (including long-term finance lease liabilities) for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt was $39,727 million and $35,605 million, and the estimated fair value was $41,675 million and $36,599 million at March 31, 2019 and December 31, 2018, 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 month periods ended March 31, 2019 and 2018 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 month periods ended March 31, 2019 and 2018 were immaterial. The contractual maturities of substantially all available-for-sale debt securities are less than one year at March 31, 2019. 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 March 31, 2019 and December 31, 2018 was $359 million and $74 million, respectively, for which $14 million of collateral was posted and reduced the position at March 31, 2019 and no collateral was posted at December 31, 2018. 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 March 31, 2019 and December 31, 2018 was $694 million and $731 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 $353 million and $267 million at March 31, 2019 and December 31, 2018, respectively, of liabilities included in master netting arrangements with those counterparties. Additionally, at March 31, 2019 and December 31, 2018, this exposure was reduced by $20 million and $70 million of cash collateral, respectively. There were no non-cash collateral balances in U.S. Treasury securities at March 31, 2019 and December 31, 2018. At March 31, 2019 and December 31, 2018, the net exposure related to derivative assets recorded in the Consolidated Statement of Financial Position was $321 million and $395 million, respectively. At March 31, 2019 and December 31, 2018, the net position related to derivative liabilities recorded in the Consolidated Statement of Financial Position was $338 million and $116 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. The amount recognized in other receivables for the right to reclaim cash collateral was $14 million at March 31, 2019. No amount was recognized in other receivables at December 31, 2018 for the right to reclaim cash collateral. The amount recognized in accounts payable for the obligation to return cash collateral was $20 million and $70 million at March 31, 2019 and December 31, 2018, 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. The company rehypothecated $14 million of cash collateral received at March 31, 2019 and no amount was rehypothecated at December 31, 2018. 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 may use forward contracts, futures contracts, interest-rate swaps, cross-currency swaps, equity 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 March 31, 2019 and December 31, 2018, the total notional amount of the company’s interest-rate swaps was $6.8 billion and $7.6 billion, respectively. The weighted-average remaining maturity of these instruments at March 31, 2019 and December 31, 2018 was approximately 3.6 years and 3.5 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 March 31, 2019 and December 31, 2018. Forecasted Debt Issuance The company is exposed to interest rate volatility on future debt issuances. To manage this risk, the company may use instruments such as forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuances. At March 31, 2019 and December 31, 2018, the total notional amount of forward starting interest-rate swaps outstanding was $5.5 billion at both periods. These swaps are linked to future interest payments on anticipated U.S. dollar debt issuances forecasted to occur throughout 2019 and 2020. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is 30 years. These swaps are accounted for as cash flow hedges. In connection with cash flow hedges of forecasted interest payments related to the company’s borrowings, the company recorded net losses of $206 million and net losses of $35 million (before taxes) at March 31, 2019 and December 31, 2018, respectively, in AOCI. The company estimates that $11 million (before taxes) of the deferred net losses on derivatives in AOCI at March 31, 2019 will be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions. Foreign Exchange Risk Long-Term Investments in Foreign Subsidiaries (Net Investment) A large portion of the company’s foreign currency denominated debt portfolio is designated as a hedge of net investment in foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. The company also uses cross-currency swaps and foreign exchange forward contracts for this risk management purpose. At March 31, 2019 and December 31, 2018, the total notional amount of derivative instruments designated as net investment hedges was $6.0 billion and $6.4 billion, respectively. At March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $10.0 billion and $9.8 billion, respectively. At March 31, 2019 and December 31, 2018, the weighted-average remaining maturity of these instruments was approximately 0.8 years at both periods. At March 31, 2019 and December 31, 2018, in connection with cash flow hedges of anticipated royalties and cost transactions, the company recorded net gains of $356 million and net gains of $342 million (before taxes), respectively, in AOCI. The company estimates that $256 million (before taxes) of deferred net gains on derivatives in AOCI at March 31, 2019 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 12 years. At March 31, 2019 and December 31, 2018, the total notional amount of cross-currency swaps designated as cash flow hedges of foreign currency denominated debt was $12.2 billion and $6.5 billion, respectively. At March 31, 2019 and December 31, 2018, in connection with cash flow hedges of foreign currency denominated borrowings, the company recorded net losses of $21 million and net gains of $75 million (before taxes), respectively, in AOCI. The company estimates that $346 million (before taxes) of deferred net gains on derivatives in AOCI at March 31, 2019 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 March 31, 2019 and December 31, 2018, the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $5.0 billion and $5.2 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 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 March 31, 2019 and December 31, 2018, the total notional amount of derivative instruments in economic hedges of these compensation obligations was $1.2 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 March 31, 2019 and December 31, 2018. 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 March 31, 2019 and December 31, 2018. 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 March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018, as well as for the three months ended March 31, 2019 and 2018, 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 3/31/2019 12/31/2018 Classification 3/31/2019 12/31/2018 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 $ $ $ $ (1) Debt designated as hedging instruments are reported at carrying value. N/A - not applicable At March 31, 2019 and December 31, 2018, the following amounts were recorded in the Consolidated Statement of Financial Position related to cumulative basis adjustments for fair value hedges: March 31, December 31, (Dollars in millions) 2019 2018 Short-term debt: Carrying amount of the hedged item $ ) $ ) Cumulative hedging adjustments included in the carrying amount - assets/(liabilities) )(1) )(1) Long-term debt: Carrying amount of the hedged item $ ) $ ) Cumulative hedging adjustments included in the carrying amount - assets/(liabilities) )(2) )(2) (1) Includes ($4) million and ($6) million of hedging adjustments on discontinued hedging relationships at March 31, 2019 and December 31, 2018, respectively. (2) Includes ($209) million and ($213) million of hedging adjustments on discontinued hedging relationships at March 31, 2019 and December 31, 2018, respectively. 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: Gains/(Losses) of (Dollars in millions) Total Total Hedge Activity For the three months ended March 31: 2019 2018 2019 2018 Cost of services $ $ $ $ Cost of sales ) Cost of financing ) * SG&A expense ) Other (income) and expense ) ) Interest expense ) * * Reclassified to conform to 2019 presentation. 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 March 31: Earnings Line Item 2019 2018 2019 2018 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 March 31: 2019 2018 Earnings Line Item 2019 2018 2019 2018 Derivative instruments in cash flow hedges: Interest rate contracts $ ) $ — Cost of financing $ — $ — $ — $ — Interest expense — — — — Foreign exchange contracts ) Cost of services — — Cost of sales ) — — Cost of financing ) )* SG&A expense ) — — Other (income) and expense ) — — Interest expense ) )* Instruments in net investment hedges(4): Foreign exchange contracts Cost of financing — — * ) Interest expense — — * Total $ ) $ ) $ ) $ $ $ * Reclassified to conform to 2019 presentation. (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. N/A - not applicable For the three months ending March 31, 2019 and 2018, 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 any anticipated in the normal course of business. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2019 | |
Leases | |
Leases | 5. Leases: The company conducts business as both a lessee and a lessor. In its ordinary course of business, the company enters into leases as a lessee for property, plant and equipment. The company is also the lessor of certain equipment, mainly through its Global Financing segment. When procuring goods or services, or upon entering into a contract with its clients, the company determines whether an arrangement contains a lease at its inception. As part of that evaluation, the company considers whether there is an implicitly or explicitly identified asset in the arrangement and whether the company, as the lessee, or the client, if the company is the lessor, has the right to control that asset. The company determines whether there is a right to control the use of the asset by assessing its rights, as the lessee, or the client’s rights, if the company is the lessor, to obtain substantially all of the economic benefits from the use of the identified asset and the rights to direct the use of the identified asset. If there is either an explicit or embedded lease within a contract, the company determines the classification of the lease (e.g., finance, operating, sales-type lease) at the lease commencement date. Accounting for leases as a lessee Effective January 1, 2019, when the company is the lessee, all leases with a term of more than 12 months are recognized as right-of-use (ROU) assets and associated lease liabilities in the Consolidated Statement of Financial Position. The lease liabilities are measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and the company’s incremental borrowing rate, which approximates the rate at which the company would borrow, on a secured basis, in the country where the lease was executed. The interest rate implicit in the lease is generally not determinable in transactions where the company is the lessee. The ROU asset equals the lease liability adjusted for any initial direct costs (IDCs), prepaid rent, and lease incentives. Fixed and in-substance fixed payments are included in the recognition of ROU assets and lease liabilities, however, variable lease payments, other than those based on a rate or index, are recognized in the Consolidated Statement of Earnings in the period in which the obligation for those payments is incurred. The company’s variable lease payments generally relate to payments tied to various indexes, non-lease components and payments above a contractual minimum fixed payment. ROU assets represent the company’s right to control the underlying assets under lease, and the lease liability is the obligation to make the lease payments related to the underlying assets under lease. Operating leases are included in operating right-of-use assets — net, current operating lease liabilities and operating lease liabilities in the Consolidated Statement of Financial Position. Finance leases are included in property, plant and equipment, short-term debt and long-term debt in the Consolidated Statement of Financial Position. At March 31, 2019, the total amount of ROU assets and lease liabilities for finance leases recognized in the Consolidated Statement of Financial Position in property, plant and equipment, short-term debt and long-term debt was $149 million, $13 million, and $144 million, respectively. Finance lease ROU assets are generally amortized on a straight-line basis over the lease term with the interest expense on the lease liability recorded using the interest method. The amortization and interest expense are recorded separately in the Consolidated Statement of Earnings. For operating leases, the amortization of the ROU asset and the interest expense on the lease liability are not separately recorded; rather, the lease cost is recognized on a straight-line basis over the lease term as a single-line item in the Consolidated Statement of Earnings, unless the ROU asset is impaired. The company has elected to not recognize leases with a lease term of less than 12 months in the Consolidated Statement of Financial Position, including those acquired in a business combination, and lease costs for those short-term leases are recognized on a straight-line basis over the lease term in the Consolidated Statement of Earnings. For all asset classes, the company has elected the lessee practical expedient to combine lease and non-lease components (e.g., maintenance services) and account for the combined unit as a single lease component. A significant portion of the company’s lease portfolio is real estate, which are mainly accounted for as operating leases, and are primarily used for corporate offices and data centers. The average term of the real estate leases is approximately five years. Certain real estate leases have renewal and/or termination options, which are assessed to determine if those options would affect the duration of the lease term. The company also has equipment leases, such as IT equipment and vehicles, which have lease terms that range from two to five years. For certain equipment leases, the company applies a portfolio approach to account for the operating lease ROU assets and lease liabilities. The following table presents the various components of lease costs: (Dollars in millions) For the three months ended March 31: 2019 Finance lease cost: Amortization of ROU assets $ Interest on lease liabilities Operating lease cost Short-term lease cost Variable lease cost Sublease income ) Total lease cost $ The following table presents supplemental information relating to the cash flows arising from lease transactions. Cash payments made from variable lease costs and short-term leases are not included in the measurement of operating and finance lease liabilities, and, as such, are excluded from the amounts below: (Dollars in millions except for lease term and discount rate values) For the three months ended March 31: 2019 (Gains) and losses on sale and leaseback transactions, net $ ) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from finance leases $ Financing cash outflows from finance leases $ Operating cash outflows from operating leases $ ROU assets obtained in exchange for new finance lease liabilities $ * ROU assets obtained in exchange for new operating lease liabilities $ * Weighted-average remaining lease term — finance leases yrs. Weighted-average remaining lease term — operating leases yrs. Weighted-average discount rate — finance leases % Weighted-average discount rate — operating leases % * Includes opening balance additions as a result of the adoption of the new lease guidance effective January 1, 2019. The post adoption addition of leases was $156 million for operating leases and immaterial for finance leases. The following maturity analysis presents expected undiscounted cash out flows for operating and finance leases on an annual basis for the next five years, with the exception of 2019, which presents the expected undiscounted cash out flows for operating and finance leases for the remaining nine months of the year. Beyond Imputed (Dollars in millions) 2019 2020 2021 2022 2023 2023 Interest * Total Finance leases $ $ $ $ $ $ $ ) $ Operating leases $ $ $ $ $ $ $ ) $ * Imputed interest represents the difference between undiscounted cash flows and discounted cash flows. Prior to the adoption of the new lease guidance on January 1, 2019, ROU assets and lease liabilities for operating leases were not recognized in the Consolidated Statement of Financial Position. The company has elected the practical expedient to not provide comparable presentation in the Consolidated Statement of Financial Position for periods prior to adoption. Rental expense, including amounts charged to inventories and fixed assets, and excluding amounts previously reserved, was $1,944 million for the year ended December 31, 2018. Rental expense in agreements with rent holidays and scheduled rent increases was previously recognized on a straight-line basis over the lease term. Contingent rentals were included in the determination of rental expense as accruable. The following table, which was included in the company’s 2018 Annual Report, depicts gross minimum rental commitments under noncancelable leases, amounts related to vacant space associated with workforce transformation, sublease income commitments and capital lease commitments at December 31, 2018. Beyond (Dollars in millions) 2019 2020 2021 2022 2023 2023 Operating lease commitments Gross minimum rental commitments (including vacant space below) $ $ $ $ $ $ Vacant space $ $ $ $ $ $ Sublease income commitments $ $ $ $ $ $ Capital lease commitments $ $ $ $ $ $ The difference between the company’s total lease commitments as reported at December 31, 2018 compared to the January 1, 2019 ROU asset balance in the Consolidated Statement of Financial Position is primarily due to the required use of a discount factor (imputed interest) under the new lease guidance and certain amounts that are not included in the ROU asset under the new lease guidance (e.g., tenant incentives and vacant space). Accounting for leases as a lessor The company typically enters into leases as an alternative means of realizing value from equipment that it would otherwise sell. Assets under lease include new and used IBM equipment and certain OEM products. Equipment generally consists of IBM Z, Power Systems and Storage Systems. Lease payments due to IBM are typically fixed and paid in equal installments over the lease term. The majority of the company’s leases do not contain variable payments that are dependent on an index or a rate. Variable lease payments that do not depend on an index or a rate (e.g., property taxes), that are paid directly by the company and are reimbursed by the client, are recorded as revenue, along with the related cost, in the period in which collection of these payments is probable. Payments that are made directly by the client to a third party, including certain property taxes and insurance, are not considered part of variable payments and therefore are not recorded by the company. The company has made a policy election to exclude from consideration in contracts all collections from sales and other similar taxes. The company’s payment terms for leases are typically unconditional. Therefore, while the client could terminate the lease prior to the end of the lease term, the client would be required to pay the remaining lease payments in full. At the end of the lease term, the company allows the client to either return the equipment, purchase the equipment or renew the lease based on mutually agreed upon terms. With respect to a client purchase of leased assets, the lease agreement would include an option to purchase the equipment at either a stated price or at the then-current fair market value of the equipment at the end of the lease. When lease arrangements include multiple performance obligations, the company allocates the consideration in the contract between the lease components and the non-lease components on a relative standalone selling price basis. The following table presents amounts included in the Consolidated Statement of Earnings related to lessor activity: (Dollars in millions) For the three months ended March 31: 2019 Lease income — sales-type and direct financing leases Sales-type lease selling price $ Less: Carrying value of underlying assets, excluding unguaranteed residual value Gross profit Interest income on lease receivables Total sales-type and direct financing lease income $ Lease income — operating leases Variable lease income Total lease income $ Sales-Type and Direct Financing Leases If a lease is classified as a sales-type or direct financing lease, the carrying amount of the asset is derecognized from inventory and a net investment in the lease is recorded. For a sales-type lease, the net investment in the lease is measured at commencement date as the sum of the lease receivable, the estimated guaranteed and unguaranteed residual value of the equipment less unearned income and allowance for credit losses. At March 31, 2019, the unguaranteed residual value of sales-type and direct financing leases was $566 million. For further information on the company’s net investment in leases, including guaranteed and unguaranteed residual values, refer to note 6, “Financing Receivables.” Any selling profit or loss arising from a sales-type lease is recorded at lease commencement. Selling profit or loss is presented on a gross basis when the company enters into a lease to realize value from a product that it would otherwise sell in its ordinary course of business, whereas in transactions where the company enters into a lease for the purpose of generating revenue by providing financing, the selling profit or loss is presented on a net basis. Under a sales-type lease, initial direct costs are expensed at lease commencement. The company recognizes finance income over the term of a sales-type lease on the net investment in the lease and any variable lease payments, which are not included in the net investment in the lease. For a direct financing lease, the investment in the lease is measured similarly to a sales-type lease, however, the net investment in the lease is reduced by any selling profit. In a direct financing lease, the selling profit and initial direct costs are deferred at commencement and recognized over the lease term. The company rarely enters into direct financing leases. The estimated residual value represents the estimated fair value of the equipment under lease at the end of the lease. Estimating residual value is a risk unique to financing activities, and management of this risk is dependent upon the ability to accurately project future equipment values at lease inception. The company has insight into product plans and cycles for the IBM products under lease. The company estimates the future fair value of leased equipment by using historical models, analyzing the current market for new and used equipment and obtaining forward-looking product information such as marketing plans and technology innovations. The company optimizes the recovery of residual values by extending lease arrangements with existing clients. The company has historically managed residual value risk both through insight into its own product cycles and monitoring of OEM IT product announcements. The company periodically reassesses the realizable value of its lease residual values. Anticipated decreases in specific future residual values that are considered to be other-than-temporary are recognized immediately upon identification and are recorded as an adjustment to the residual value estimate. For sales-type and direct financing leases, this reduction lowers the recorded net investment and is recognized as a loss charged to finance income in the period in which the estimate is changed, as well as an adjustment to unearned income to reduce future-period financing activities. For the three months ended March 31, 2019, impairment of residual values was immaterial. The following table provides a maturity analysis of the lease payments due to IBM on sales-type and direct financing leases over the next five years and thereafter, with the exception of 2019, which presents the expected undiscounted cash flows for the remaining nine months of the year, as well as a reconciliation of the undiscounted cash flows to the financing receivables recognized in the Consolidated Statement of Financial Position at March 31, 2019: (Dollars in millions) Total 2019 $ 2020 2021 2022 2023 Thereafter Total undiscounted cash flows $ Present value of lease payments (recognized as financing receivables) * Difference between undiscounted cash flows and discounted cash flows $ * The present value of the lease payments will not equal the financing receivables balances in the Statement of Financial Position, due to certain items including IDC’s, allowance for credit losses and residual values, which are included in the financing receivables balance, but are not included in the future lease payments. Operating Leases Equipment provided to clients under an operating lease is carried at cost within property, plant and equipment in the Consolidated Statement of Financial Position and depreciated over the lease term using the straight-line method, generally ranging from one to six years. The depreciable basis is the original cost of the equipment less the estimated residual value of the equipment at the end of the lease term. At March 31, 2019, the unguaranteed residual value of operating leases was $103 million. At commencement of an operating lease, initial direct costs are deferred. As lease payments are made, the company records sales revenue over the lease term. Initial direct costs are expensed over the lease term on the same basis as lease income is recorded. The following table provides a maturity analysis of the undiscounted lease payments due to IBM on operating leases over the next five years and thereafter, at March 31, 2019, with the exception of 2019, which presents the expected undiscounted cash flows for the remaining nine months of the year: (Dollars in millions) Total 2019 $ 2020 2021 2022 2023 Thereafter Total undiscounted cash flows $ Assets under operating leases are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment test is based on undiscounted cash flows, and, if impaired, the asset is written down to fair value based on either discounted cash flows or appraised values. There were no material impairment losses incurred during the period for assets under operating leases. These assets are included in “Property, plant and equipment — net” in the Consolidated Statement of Financial Position. |
Financing Receivables
Financing Receivables | 3 Months Ended |
Mar. 31, 2019 | |
Financing Receivables | |
Financing Receivables | 6. 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 March 31, 2019: 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, 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 $ $ — $ $ The company utilizes certain of its financing receivables as collateral for nonrecourse borrowings. Financing receivables pledged as collateral for borrowings were $868 million and $710 million at March 31, 2019 and December 31, 2018, respectively. The company did not have any financing receivables held for sale as of March 31, 2019 and December 31, 2018. 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 March 31, 2019 and December 31, 2018. 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 March 31, 2019: 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, 2019 Lease receivables $ $ $ $ Loan receivables Total $ $ $ $ Write-offs $ ) $ ) $ ) $ ) Recoveries Provision ) ) Other * ) ) Ending balance at March 31, 2019 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ * Primarily represents translation adjustments. Write-offs of lease receivables and loan receivables were $3 million and $5 million, respectively, for the three months ended March 31, 2019. Provisions for credit losses recorded for lease receivables and loan receivables were immaterial, for the three months ended March 31, 2019. The average recorded investment of impaired leases and loans for Americas, EMEA and Asia Pacific was $147 million, $50 million and $51 million, respectively, for the three months ended March 31, 2019 and $130 million, $55 million and $81 million, respectively, for the three months ended March 31, 2018. Both interest income recognized and interest income recognized on a cash basis on impaired leases and loans were immaterial for the three months ended March 31, 2019 and 2018. (Dollars in millions) At December 31, 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 December 31, 2018 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ * Primarily represents translation adjustments. Write-offs of lease receivables and loan receivables were $15 million and $20 million, respectively, for the year ended December 31, 2018. Provisions for credit losses recorded for lease receivables and loan receivables were $14 million and $2 million, respectively, for the year ended December 31, 2018. 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 still accruing, 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 March 31, 2019: 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, $247 million is individually evaluated for impairment with a related allowance of $217 million. Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At December 31, 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, $249 million is individually evaluated for impairment with a related allowance of $219 million. 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 March 31, 2019 and December 31, 2018. 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 March 31, 2019: 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, 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 $ $ $ $ $ $ Troubled Debt Restructurings The company did not have any significant troubled debt restructurings during the three months ended March 31, 2019 or for the year ended December 31, 2018. |
Stock-Based Compensation
Stock-Based Compensation | 3 Months Ended |
Mar. 31, 2019 | |
Stock-Based Compensation | |
Stock-Based Compensation | 7. 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. (Dollars in millions) For the three months ended March 31: 2019 2018 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 March 31, 2019 decreased $3 million compared to the corresponding period in the prior year. This was due to decreases related to performance share units, the conversion of stock-based compensation previously issued by acquired entities and stock options, partially offset by an increase in restricted stock units. All changes were immaterial. As of March 31, 2019, the total unrecognized compensation cost of $671 million related to non-vested awards was expected to be recognized over a weighted-average period of approximately 2.5 years. There was no significant capitalized stock-based compensation cost at March 31, 2019 and 2018. |
Segments
Segments | 3 Months Ended |
Mar. 31, 2019 | |
Segments | |
Segments | 8. Segments: In the first quarter of 2019, the company made a number of changes to its organizational structure and management system that brought cloud and cognitive software under one organization to more effectively address evolving client needs and to prepare for the pending acquisition of Red Hat, Inc. (Red Hat). With these changes, the company has revised its reportable segments, but did not impact its Consolidated Financial Statements. In addition, the company is presenting the results of its announced divestitures in an “Other” segment, as the realignment of these businesses allows for a better representation of management’s view of the company, as well as the ongoing operational performance of the reportable segments. The company’s segments are as follows: 2018 Segments Changes (+/-) 2019 Segments Cognitive Solutions + Integration Software Cloud & Cognitive Software Global Business Services - Divested Mortgage Servicing** Global Business Services Technology Services & Cloud Platforms - Security Services Global Technology Services Systems Systems Global Financing Global Financing Other + Divested Mortgage Servicing** Other * IBM announced sales of select software assets expected to close mid-2019. Refer to note 11, “Acquisitions/Divestitures,” for additional information. **IBM completed the sale of the mortgage servicing business on February 28, 2019. 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. The tables reflect the segment recast for the prior-year period. SEGMENT INFORMATION Cloud & Global Global Cognitive Business Technology Global Total (Dollars in millions) Software Services Services Systems Financing Segments For the three months ended March 31, 2019: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income/(loss) from continuing operations $ $ $ $ ) $ $ Revenue year-to-year change )% )% )% )% )% )% Pre-tax income year-to-year change % % % )% )% % Pre-tax income/(loss) margin % % % )% % % For the three months ended March 31, 2018: External revenue $ * $ * $ * $ $ $ * Internal revenue * * Total revenue $ * $ * $ * $ $ $ * Pre-tax income/(loss) from continuing operations $ * $ * $ * $ ) $ $ * Pre-tax income/(loss) margin %* %* %* )% % %* * Recast to conform to 2019 presentation. Reconciliations to IBM as Reported: (Dollars in millions) For the three months ended March 31: 2019 2018 Revenue: Total reportable segments $ $ * Other — divested businesses * Other revenue Eliminations of internal transactions ) )* 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 ) )* Other — divested businesses ) * Unallocated corporate amounts ) ) Total pre-tax income from continuing operations $ $ * Recast to conform to 2019 presentation. |
Equity Activity
Equity Activity | 3 Months Ended |
Mar. 31, 2019 | |
Equity Activity | |
Equity Activity | 9. 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 March 31, 2019: 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 services ) ) Cost of sales ) ) Cost of financing ) SG&A expense ) ) Other (income) and expense ) Interest expense ) Total unrealized gains/(losses) on cash flow hedges $ ) $ $ ) Retirement-related benefit plans(1): Net (losses)/gains arising during the period $ ) $ $ ) Curtailments and settlements Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. Refer to note 10, “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 March 31, 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 services ) ) Cost of sales ) Cost of financing* ) 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) $ $ ) $ * Reclassified to conform to current period presentation. (1) These AOCI components are included in the computation of net periodic pension cost. Refer to note 10, “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, 2019 $ $ ) $ ) $ $ ) Other comprehensive income before reclassifications ) ) ) ) Amount reclassified from accumulated other comprehensive income — — Total change for the period $ ) $ $ $ ) $ March 31, 2019 $ $ ) $ ) $ ) $ ) * 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 $ $ ) $ $ ) $ March 31, 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.” |
Retirement-Related Benefits
Retirement-Related Benefits | 3 Months Ended |
Mar. 31, 2019 | |
Retirement-Related Benefits | |
Retirement-Related Benefits | 10. 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 March 31: 2019 2018 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 March 31: 2019 2018 2019 2018 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/(credits) (1) — — Total net periodic pension (income)/cost of defined benefit plans $ ) $ $ $ Cost of defined contribution plans Total defined benefit and contribution pension 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. As of 2019, substantially all the plan participants in the U.S. Qualified IBM Personal Pension Plan (PPP) are considered inactive. As required by U.S. GAAP, this resulted in a change in the amortization period of unrecognized actuarial losses to the average remaining life expectancy of inactive plan participants, which was 18 years as of December 31, 2018. Recognized actuarial losses decreased by approximately $240 million for the three months ended March 31, 2019, compared to the corresponding period in the prior year, primarily driven by the change in amortization period. There was no impact to funded status, retiree benefit payments or funding requirements of the U.S. Qualified PPP as a result of this change. In 2019, 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 Japan, Spain and Belgium. This amount generally represents the legally mandated minimum contribution. Total net contributions to the non-U.S. plans in the first three months of 2019 were $94 million, of which $33 million was in cash and $61 million in U.S. Treasury securities. Total contributions to the non-U.S. plans in the first three months of 2018 were $191 million, of which $44 million was in cash and $147 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 March 31: 2019 2018 2019 2018 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 plans 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 $194 million in U.S. Treasury securities to the U.S. nonpension postretirement benefit plan during the three months ended March 31, 2019, and $120 million in U.S. Treasury securities during the three months ended March 31, 2018. The contribution of U.S. Treasury securities is considered a non-cash transaction in the Consolidated Statement of Cash Flows. |
Acquisitions_Divestitures
Acquisitions/Divestitures | 3 Months Ended |
Mar. 31, 2019 | |
Acquisitions/Divestitures | |
Acquisitions/Divestitures | 11. Acquisitions/Divestitures: Acquisitions: The company did not enter into any acquisition transactions during the three months ended March 31, 2019. Red Hat — On October 28, 2018, the company announced its intent to acquire all of the outstanding shares of Red Hat. The combination of Red Hat’s vast portfolio of open-source technologies, innovative cloud development platform and developer community, combined with IBM’s innovative hybrid cloud technology, industry expertise, and commitment to data, trust and security, will deliver the hybrid capabilities required to address the next chapter of cloud implementations. Under the terms of the definitive agreement, Red Hat shareholders will receive $190 per share in cash, representing a total enterprise value of approximately $34 billion. On January 16, 2019, Red Hat stockholders voted to approve the merger with IBM. The transaction is subject to customary closing conditions, including regulatory reviews and is expected to close in the second half of 2019. The company intends to fund the transaction through a combination of cash and debt. Refer to note 13, “Borrowings”, for additional details on the commitment letter for a bridge term loan facility that IBM entered into in support of this transaction. Divestitures: Select IBM Software Products — On December 6, 2018, IBM and HCL Technologies Limited (HCL) announced a definitive agreement, in which HCL will acquire select standalone Cognitive Solutions software products for $1,775 million, inclusive of contingent consideration. The software products in-scope include AppScan, BigFix, Unica, Commerce, Portal, Notes, Domino and Connections. The transaction is expected to close in mid-2019, subject to the satisfaction of applicable regulatory requirements and customary closing conditions. IBM will receive cash consideration, with approximately half at closing and the remainder within 12 to 15 months of closing. At March 31, 2019, the company concluded that the business did not meet the held for sale classification. Select IBM Marketing Platform and Commerce Offerings — On April 4, 2019, IBM and Centerbridge Partners, L.P. (Centerbridge) announced a definitive agreement, in which Centerbridge will acquire select marketing platform and commerce offerings from IBM, including Customer Experience Analytics, Content Hub and Marketing Assistant, among others. The transaction is expected to close in mid-2019, subject to the satisfaction of applicable regulatory requirements and customary closing conditions. The financial terms related to this transaction are not expected to have a material impact to IBM’s consolidated financial statements. At March 31, 2019, the company concluded that the business did not meet the held for sale classification. Seterus — On January 3, 2019, IBM and Mr. Cooper Group announced a definitive agreement, in which Mr. Cooper Group acquired IBM’s Seterus home mortgage servicing platform business. The transaction closed in the first quarter of 2019. The financial terms related to this transaction were not material. Under the company’s new segment reporting structure, the above three divested businesses are reported in “Other — divested businesses.” Refer to note 8, “Segments,” for additional information. Overall, the company expects to recognize a total pre-tax gain on these transactions in the range of $500 million to $700 million. Other — In the fourth quarter of 2018, the Global Financing segment entered into a definitive agreement to sell certain commercial financing capabilities and assign a number of its commercial financing contracts, excluding related receivables which will be collected as they become due in the normal course of business. These commercial financing capabilities and contracts have been reported within IBM’s Global Financing segment. The transaction closed in the first quarter of 2019. The financial terms related to this transaction were not material. |
Intangible Assets Including Goo
Intangible Assets Including Goodwill | 3 Months Ended |
Mar. 31, 2019 | |
Intangible Assets Including Goodwill | |
Intangible Assets Including Goodwill | 12. Intangible Assets Including Goodwill: Intangible Assets The following table details the company’s intangible asset balances by major asset class. At March 31, 2019 (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, 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. The net carrying amount of intangible assets decreased $131 million during the first quarter of 2019, primarily due to intangible asset amortization, partially offset by additions resulting from capitalized software. The aggregate intangible amortization expense was $303 million and $340 million for the quarters ended March 31, 2019 and 2018, respectively. In addition, in the first three months of 2019, the company retired $273 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 March 31, 2019: Capitalized Acquired (Dollars in millions) Software Intangibles Total 2019 (for Q2 - Q4) $ $ $ 2020 2021 2022 2023 — Goodwill The change in the goodwill balances by segment, for the three months ended March 31, 2019 and for the year ended December 31, 2018 are as follows: Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 1/1/2019 Additions Adjustments Divestitures Adjustments* 3/31/2019 Cloud & Cognitive Software $ $ — $ $ — $ $ Global Business Services — — ) Global Technology Services — — — Systems — — — Other — divested businesses — — ) — Total $ $ — $ $ ) $ $ * Primarily driven by foreign currency translation. Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 1/1/2018 Additions Adjustments Divestitures Adjustments** 12/31/2018 Cloud & Cognitive Software* $ $ $ $ ) $ ) $ Global Business Services* ) — ) Global Technology Services* — — ) Systems — — ) Other — divested businesses* ) Total $ $ $ ) $ ) $ ) $ * Recast to conform to 2019 presentation. ** Primarily driven by foreign currency translation. In the first quarter of 2019, the company made a number of changes to its organizational structure and management system. With these changes, the company revised its reportable segments. Goodwill was reallocated to the new reporting segments, and as a result, an impairment assessment was performed. There were no goodwill impairment losses recorded during the first three months of 2019 or the full year of 2018 and the company has no accumulated impairment losses. For further information regarding the segment change, refer to note 8, “Segments.” Purchase price adjustments recorded in the first three months of 2019 and full year 2018 were related to acquisitions that 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 three months of 2019 and full year 2018 were not material. |
Borrowings
Borrowings | 3 Months Ended |
Mar. 31, 2019 | |
Borrowings | |
Borrowings | 13. Borrowings: Short-Term Debt At March 31, At December 31, (Dollars in millions) 2019 2018 Commercial paper $ $ Short-term loans Long-term debt — current maturities Total $ $ The weighted-average interest rate for commercial paper at March 31, 2019 and December 31, 2018 was 2.5 percent at both periods. The weighted-average interest rate for short-term loans was 5.8 percent and 4.3 percent at March 31, 2019 and December 31, 2018, respectively. Long-Term Debt Pre-Swap Borrowing Balance Balance (Dollars in millions) Maturities 3/31/2019 12/31/2018 U.S. dollar debt (weighted-average interest rate at March 31, 2019):* 3.2% $ $ 2.6% 2.9% 2.5% 3.2% 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 (weighted-average interest rate at March 31, 2019, in parentheses):* Euros (1.3%) 2019–2031 $ $ Pound sterling (2.7%) 2020–2022 Japanese yen (0.3%) 2022–2026 Other (6.5%) 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 finance 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 IBM, the parent. Any debt securities issued by IBM International Group Capital LLC, would be fully and unconditionally guaranteed by the parent. The company’s indenture governing its debt securities and its various credit facilities each contain significant covenants which obligate the company to promptly pay principal and interest, limit the aggregate amount of secured indebtedness and sale and leaseback transactions to 10 percent of the company’s consolidated net tangible assets, and restrict the company’s ability to merge or consolidate unless certain conditions are met. The credit facilities also include a covenant on the company’s consolidated net interest expense ratio, which cannot be less than 2.20 to 1.0, as well as a cross default provision with respect to other defaulted indebtedness of at least $500 million. The company is in compliance with all of its significant debt covenants and provides periodic certifications to its lenders. The failure to comply with its debt covenants could constitute an event of default with respect to the debt to which such provisions apply. If certain events of default were to occur, the principal and interest on the debt to which such event of default applied would become immediately due and payable. Pre-swap annual contractual obligations of long-term debt outstanding at March 31, 2019, are as follows: (Dollars in millions) Total 2019 (for Q2 - Q4) $ 2020 2021 2022 2023 2024 and beyond Total $ Interest on Debt (Dollars in millions) For the three months ended March 31: 2019 2018 Cost of financing $ $ Interest expense Interest capitalized Total interest paid and accrued $ $ Lines of Credit On October 28, 2018, the company announced its intent to acquire all of the outstanding shares of Red Hat. In connection with this acquisition, IBM entered into a commitment letter under which certain banks committed to provide the company with a 364-day unsecured bridge term loan facility in an aggregate principal amount of up to $20 billion to fund the acquisition. The company also entered into a fee letter in connection with the 364-day bridge facility, under which the company incurred $60 million in fees. These fees were capitalized and are being amortized to SG&A in the Consolidated Statement of Earnings over the expected term of the bridge term loan facility. For additional information on this transaction, see note 11, “Acquisitions/Divestitures.” |
Contingencies
Contingencies | 3 Months Ended |
Mar. 31, 2019 | |
Contingencies | |
Contingencies | 14. 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 March 31, 2019 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. On September 28, 2018, the Indiana Court of Appeals affirmed the Superior Court’s $78 million award to the State, but reversed the Superior Court by awarding IBM prejudgment interest on its previously affirmed $50 million award. In February 2019, the Indiana Supreme Court heard both parties’ appeals. 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. 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. On December 10, 2018, the Second Circuit Court of Appeals reversed the District Court order and the matter remains pending. 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 | 3 Months Ended |
Mar. 31, 2019 | |
Commitments | |
Commitments | 15. Commitments: The company’s extended lines of credit to third-party entities include unused amounts of $7,902 million and $7,368 million at March 31, 2019 and December 31, 2018, 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 $4,165 million and $4,432 million at March 31, 2019 and December 31, 2018, 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 $24 million and $26 million at March 31, 2019 and December 31, 2018, 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) 2019 2018 Balance at January 1 $ $ Current period accruals Accrual adjustments to reflect actual experience ) ) Charges incurred ) ) Balance at March 31 $ $ Extended Warranty Liability (Dollars in millions) 2019 2018 Aggregate deferred revenue at January 1 $ $ Revenue deferred for new extended warranty contracts Amortization of deferred revenue ) ) Other* ) Aggregate deferred revenue at March 31 $ $ Current portion $ $ Noncurrent portion $ $ * Other primarily consists of foreign currency translation adjustments. |
Earnings Per Share of Common St
Earnings Per Share of Common Stock | 3 Months Ended |
Mar. 31, 2019 | |
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 months ended March 31, 2019 and 2018. For the Three Months Ended March 31, 2019 March 31, 2018 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 1,137,019 shares and 16,869 shares were outstanding as of March 31, 2019 and 2018, 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. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2019 | |
Subsequent Events | |
Subsequent Events | 17. Subsequent Events : On April 30, 2019, the company announced that the Board of Directors approved a quarterly dividend of $1.62 per common share. The dividend is payable June 10, 2019 to shareholders of record on May 10, 2019. The dividend declaration represents an increase of $0.05 per common share, which is 3 percent higher than the prior quarterly dividend of $1.57 per common share. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 3 Months Ended |
Mar. 31, 2019 | |
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. In the first quarter of 2019, the company made a number of changes to its organizational structure and management system. These changes impacted the company’s reportable segments, but did not impact the company’s Consolidated Financial Statements. Refer to note 8, “Segments,” for additional information on the changes in reportable segments. The periods presented in this Form 10-Q are reported on a comparable basis. The company provided recast historical segment information reflecting these changes in a Form 8-K dated April 4, 2019. 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 2018 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 August 2018, the Financial Accounting Standards Board (FASB) issued guidance which changed the disclosure requirements for fair value measurements and defined benefit plans. The guidance is effective for each of the topics on January 1, 2020 and December 31, 2020, respectively, with early adoption of certain provisions permitted. The company early adopted the provision in the fair value guidance that removed the Level 1/Level 2 transfer disclosures. The company is evaluating the adoption date for the remaining changes. As the guidance is a change to disclosures only, the company does not expect the guidance to have a material impact in the consolidated financial results. In January 2017, the FASB issued guidance that simplifies the goodwill impairment test by removing Step 2. The guidance also changes the requirements for reporting units with zero or negative carrying amounts and requires additional disclosures for these reporting units. The guidance is effective January 1, 2020 and early adoption is permitted. The company expects to adopt the guidance on a prospective basis on the effective date. The company is evaluating the impact of the guidance. In June 2016, with amendments in 2018, the 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. A cross-functional team was established that is evaluating the financial instruments portfolio and the system, process and policy change requirements and continues to make substantial progress. The new guidance expands the scope of financial instruments subject to impairment, including off-balance sheet commitments and residual value. The guidance is effective January 1, 2020 with one-year early adoption permitted. The company will adopt the guidance as of the effective date and is continuing to evaluate the impact. Standards Implemented The FASB issued guidance in February 2016, with amendments in 2018 and 2019, which changed 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 also made some changes to lessor accounting, including elimination of the use of third-party residual value guarantee insurance in the lease classification test, and overall aligns with the new revenue recognition guidance. The guidance requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows arising from leases. The company adopted the guidance effective January 1, 2019, using the transition option whereby prior comparative periods were not retrospectively presented in the Consolidated Financial Statements. The company elected the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and the lessee practical expedient to combine lease and nonlease components for all asset classes. The company made a policy election to not recognize right-of-use assets and lease liabilities for short-term leases for all asset classes. The guidance had a material impact on the Consolidated Statement of Financial Position as of the effective date. As a lessee, at adoption, the company recognized operating and financing right-of-use (ROU) assets of $4.8 billion and $0.2 billion, respectively, and operating and financing lease liabilities of $5.1 billion and $0.2 billion, respectively. The transition adjustment recognized in retained earnings at January 1, 2019 was not material. From a lessor perspective, the changes in lease termination guidance and removal of third-party residual value guarantee insurance in the lease classification test did not have a material impact in the consolidated financial results. Refer to note 5, “Leases,” for additional information, including further discussion on the impact of adoption. In August 2018, the FASB issued guidance on a customer’s accounting for implementation costs incurred in cloud-computing arrangements that are hosted by a vendor. Certain types of implementation costs should be capitalized and amortized over the term of the hosting arrangement. The guidance is effective January 1, 2020 and early adoption is permitted. The company adopted the guidance on January 1, 2019 on a prospective basis. The guidance did not have a material impact in the consolidated financial results. 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 U.S. tax reform from accumulated other comprehensive income/(loss) (AOCI) to retained earnings. The guidance was 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 the actual cessation date. At adoption on January 1, 2018, $2.4 billion 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 was 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, SG&A expense and RD&E 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. 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. The guidance required certain equity investments to be 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 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. In the fourth quarter of 2018, the company recognized an additional impact to net deferred taxes and retained earnings of $56 million, resulting in a total net increase to retained earnings of $580 million. The decrease to net deferred taxes was the result of the company’s election to include Global Intangible Low-Taxed Income (GILTI) in measuring deferred taxes. The revenue guidance did not have a material impact in the company’s consolidated financial results. Refer to note 3, “Revenue Recognition,” for additional information. In March 2016, the FASB issued guidance which changed 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 | 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. |
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, operating right-of-use assets, 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 non-financial 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. Since adoption, the company measures equity investments at fair value with changes recognized in net income. Refer to note 2, “Accounting Changes,” for further information. 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 and including short-term finance lease liabilities) 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 March 31, 2019 and December 31, 2018, 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 (including long-term finance lease liabilities) 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 may use forward contracts, futures contracts, interest-rate swaps, cross-currency swaps, equity 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 instruments such as forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuances. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is 30 years. 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 12 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 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. The company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. |
Accounting for leases as a lessee | The company conducts business as both a lessee and a lessor. In its ordinary course of business, the company enters into leases as a lessee for property, plant and equipment. The company is also the lessor of certain equipment, mainly through its Global Financing segment. When procuring goods or services, or upon entering into a contract with its clients, the company determines whether an arrangement contains a lease at its inception. As part of that evaluation, the company considers whether there is an implicitly or explicitly identified asset in the arrangement and whether the company, as the lessee, or the client, if the company is the lessor, has the right to control that asset. The company determines whether there is a right to control the use of the asset by assessing its rights, as the lessee, or the client’s rights, if the company is the lessor, to obtain substantially all of the economic benefits from the use of the identified asset and the rights to direct the use of the identified asset. If there is either an explicit or embedded lease within a contract, the company determines the classification of the lease (e.g., finance, operating, sales-type lease) at the lease commencement date. Accounting for leases as a lessee Effective January 1, 2019, when the company is the lessee, all leases with a term of more than 12 months are recognized as right-of-use (ROU) assets and associated lease liabilities in the Consolidated Statement of Financial Position. The lease liabilities are measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and the company’s incremental borrowing rate, which approximates the rate at which the company would borrow, on a secured basis, in the country where the lease was executed. The interest rate implicit in the lease is generally not determinable in transactions where the company is the lessee. The ROU asset equals the lease liability adjusted for any initial direct costs (IDCs), prepaid rent, and lease incentives. Fixed and in-substance fixed payments are included in the recognition of ROU assets and lease liabilities, however, variable lease payments, other than those based on a rate or index, are recognized in the Consolidated Statement of Earnings in the period in which the obligation for those payments is incurred. The company’s variable lease payments generally relate to payments tied to various indexes, non-lease components and payments above a contractual minimum fixed payment. ROU assets represent the company’s right to control the underlying assets under lease, and the lease liability is the obligation to make the lease payments related to the underlying assets under lease. Operating leases are included in operating right-of-use assets — net, current operating lease liabilities and operating lease liabilities in the Consolidated Statement of Financial Position. Finance leases are included in property, plant and equipment, short-term debt and long-term debt in the Consolidated Statement of Financial Position. Finance lease ROU assets are generally amortized on a straight-line basis over the lease term with the interest expense on the lease liability recorded using the interest method. The amortization and interest expense are recorded separately in the Consolidated Statement of Earnings. For operating leases, the amortization of the ROU asset and the interest expense on the lease liability are not separately recorded; rather, the lease cost is recognized on a straight-line basis over the lease term as a single-line item in the Consolidated Statement of Earnings, unless the ROU asset is impaired. The company has elected to not recognize leases with a lease term of less than 12 months in the Consolidated Statement of Financial Position, including those acquired in a business combination, and lease costs for those short-term leases are recognized on a straight-line basis over the lease term in the Consolidated Statement of Earnings. For all asset classes, the company has elected the lessee practical expedient to combine lease and non-lease components (e.g., maintenance services) and account for the combined unit as a single lease component. A significant portion of the company’s lease portfolio is real estate, which are mainly accounted for as operating leases, and are primarily used for corporate offices and data centers. The average term of the real estate leases is approximately five years. Certain real estate leases have renewal and/or termination options, which are assessed to determine if those options would affect the duration of the lease term. The company also has equipment leases, such as IT equipment and vehicles, which have lease terms that range from two to five years. For certain equipment leases, the company applies a portfolio approach to account for the operating lease ROU assets and lease liabilities. Cash payments made from variable lease costs and short-term leases are not included in the measurement of operating and finance lease liabilities. Prior to the adoption of the new lease guidance on January 1, 2019, ROU assets and lease liabilities for operating leases were not recognized in the Consolidated Statement of Financial Position. The company has elected the practical expedient to not provide comparable presentation in the Consolidated Statement of Financial Position for periods prior to adoption. Rental expense, including amounts charged to inventories and fixed assets, and excluding amounts previously reserved, was $1,944 million for the year ended December 31, 2018. Rental expense in agreements with rent holidays and scheduled rent increases was previously recognized on a straight-line basis over the lease term. Contingent rentals were included in the determination of rental expense as accruable. |
Accounting for leases as a lessor | The company conducts business as both a lessee and a lessor. In its ordinary course of business, the company enters into leases as a lessee for property, plant and equipment. The company is also the lessor of certain equipment, mainly through its Global Financing segment. When procuring goods or services, or upon entering into a contract with its clients, the company determines whether an arrangement contains a lease at its inception. As part of that evaluation, the company considers whether there is an implicitly or explicitly identified asset in the arrangement and whether the company, as the lessee, or the client, if the company is the lessor, has the right to control that asset. The company determines whether there is a right to control the use of the asset by assessing its rights, as the lessee, or the client’s rights, if the company is the lessor, to obtain substantially all of the economic benefits from the use of the identified asset and the rights to direct the use of the identified asset. If there is either an explicit or embedded lease within a contract, the company determines the classification of the lease (e.g., finance, operating, sales-type lease) at the lease commencement date. Accounting for leases as a lessor The company typically enters into leases as an alternative means of realizing value from equipment that it would otherwise sell. Assets under lease include new and used IBM equipment and certain OEM products. Equipment generally consists of IBM Z, Power Systems and Storage Systems. Lease payments due to IBM are typically fixed and paid in equal installments over the lease term. The majority of the company’s leases do not contain variable payments that are dependent on an index or a rate. Variable lease payments that do not depend on an index or a rate (e.g., property taxes), that are paid directly by the company and are reimbursed by the client, are recorded as revenue, along with the related cost, in the period in which collection of these payments is probable. Payments that are made directly by the client to a third party, including certain property taxes and insurance, are not considered part of variable payments and therefore are not recorded by the company. The company has made a policy election to exclude from consideration in contracts all collections from sales and other similar taxes. The company’s payment terms for leases are typically unconditional. Therefore, while the client could terminate the lease prior to the end of the lease term, the client would be required to pay the remaining lease payments in full. At the end of the lease term, the company allows the client to either return the equipment, purchase the equipment or renew the lease based on mutually agreed upon terms. With respect to a client purchase of leased assets, the lease agreement would include an option to purchase the equipment at either a stated price or at the then-current fair market value of the equipment at the end of the lease. When lease arrangements include multiple performance obligations, the company allocates the consideration in the contract between the lease components and the non-lease components on a relative standalone selling price basis. Sales-Type and Direct Financing Leases If a lease is classified as a sales-type or direct financing lease, the carrying amount of the asset is derecognized from inventory and a net investment in the lease is recorded. For a sales-type lease, the net investment in the lease is measured at commencement date as the sum of the lease receivable, the estimated guaranteed and unguaranteed residual value of the equipment less unearned income and allowance for credit losses. For further information on the company’s net investment in leases, including guaranteed and unguaranteed residual values, refer to note 6, “Financing Receivables.” Any selling profit or loss arising from a sales-type lease is recorded at lease commencement. Selling profit or loss is presented on a gross basis when the company enters into a lease to realize value from a product that it would otherwise sell in its ordinary course of business, whereas in transactions where the company enters into a lease for the purpose of generating revenue by providing financing, the selling profit or loss is presented on a net basis. Under a sales-type lease, initial direct costs are expensed at lease commencement. The company recognizes finance income over the term of a sales-type lease on the net investment in the lease and any variable lease payments, which are not included in the net investment in the lease. For a direct financing lease, the investment in the lease is measured similarly to a sales-type lease, however, the net investment in the lease is reduced by any selling profit. In a direct financing lease, the selling profit and initial direct costs are deferred at commencement and recognized over the lease term. The company rarely enters into direct financing leases. The estimated residual value represents the estimated fair value of the equipment under lease at the end of the lease. Estimating residual value is a risk unique to financing activities, and management of this risk is dependent upon the ability to accurately project future equipment values at lease inception. The company has insight into product plans and cycles for the IBM products under lease. The company estimates the future fair value of leased equipment by using historical models, analyzing the current market for new and used equipment and obtaining forward-looking product information such as marketing plans and technology innovations. The company optimizes the recovery of residual values by extending lease arrangements with existing clients. The company has historically managed residual value risk both through insight into its own product cycles and monitoring of OEM IT product announcements. The company periodically reassesses the realizable value of its lease residual values. Anticipated decreases in specific future residual values that are considered to be other-than-temporary are recognized immediately upon identification and are recorded as an adjustment to the residual value estimate. For sales-type and direct financing leases, this reduction lowers the recorded net investment and is recognized as a loss charged to finance income in the period in which the estimate is changed, as well as an adjustment to unearned income to reduce future-period financing activities. Operating Leases Equipment provided to clients under an operating lease is carried at cost within property, plant and equipment in the Consolidated Statement of Financial Position and depreciated over the lease term using the straight-line method, generally ranging from one to six years. The depreciable basis is the original cost of the equipment less the estimated residual value of the equipment at the end of the lease term. At commencement of an operating lease, initial direct costs are deferred. As lease payments are made, the company records sales revenue over the lease term. Initial direct costs are expensed over the lease term on the same basis as lease income is recorded. Assets under operating leases are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment test is based on undiscounted cash flows, and, if impaired, the asset is written down to fair value based on either discounted cash flows or appraised values. These assets are included in “Property, plant and equipment — net” in the Consolidated Statement of Financial Position. |
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 | In the first quarter of 2019, the company made a number of changes to its organizational structure and management system that brought cloud and cognitive software under one organization to more effectively address evolving client needs and to prepare for the pending acquisition of Red Hat, Inc. (Red Hat). With these changes, the company has revised its reportable segments, but did not impact its Consolidated Financial Statements. In addition, the company is presenting the results of its announced divestitures in an “Other” segment, as the realignment of these businesses allows for a better representation of management’s view of the company, as well as the ongoing operational performance of the reportable 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. |
Retirement-Related Benefits | As of 2019, substantially all the plan participants in the U.S. Qualified IBM Personal Pension Plan (PPP) are considered inactive. As required by U.S. GAAP, this resulted in a change in the amortization period of unrecognized actuarial losses to the average remaining life expectancy of inactive plan participants, which was 18 years as of December 31, 2018.There was no impact to funded status, retiree benefit payments or funding requirements of the U.S. Qualified PPP as a result of this change. |
Goodwill | In the first quarter of 2019, the company made a number of changes to its organizational structure and management system. With these changes, the company revised its reportable segments. Goodwill was reallocated to the new reporting segments, and as a result, an impairment assessment was performed. There were no goodwill impairment losses recorded during the first three months of 2019 or the full year of 2018 and the company has no accumulated impairment losses. For further information regarding the segment change, refer to note 8, “Segments.” |
Commitments and Contingencies | 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 andproceedings 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. Commitments 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. |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Revenue Recognition | |
Schedule of disaggregation of revenue | Revenue by Major Products/Service Offerings (Dollars in millions) Cloud & Global Global For the three months Cognitive Business Technology Global Total ended March 31, 2019: Software Services Services Systems Financing Other Revenue Cognitive Applications $ $ — $ — $ — $ — $ — $ Cloud & Data Platforms — — — — — Transaction Processing Platforms — — — — — Consulting — — — — — Application Management — — — — — Global Process Services — — — — — Infrastructure & Cloud Services — — — — — Technology Support Services — — — — — 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 (Dollars in millions) For the three months Total ended March 31, 2019: Revenue Americas $ Europe/Middle East/Africa Asia Pacific Total $ Revenue by Major Products/Service Offerings (Dollars in millions) Cloud & Global Global For the three months Cognitive Business Technology Global Total ended March 31, 2018: Software* Services* Services* Systems Financing Other* Revenue Cognitive Applications $ $ — $ — $ — $ — $ — $ Cloud & Data Platforms — — — — — Transaction Processing Platforms — — — — — Consulting — — — — — Application Management — — — — — Global Process Services — — — — — Infrastructure & Cloud Services — — — — — Technology Support Services — — — — — Systems Hardware — — — — — Operating Systems Software — — — — — Global Financing** — — — — — Other Revenue — — — — — Total $ $ $ $ $ $ $ * Recast to conform to 2019 presentation. ** Contains lease and loan/working capital financing arrangements which are not subject to the guidance on revenue from contracts with customers. Revenue by Geography (Dollars in millions) For the three months Total ended March 31, 2018: Revenue Americas $ Europe/Middle East/Africa Asia Pacific Total $ |
Schedule of reconciliation of contract balances | At March 31, At December 31, (Dollars in millions) 2019 2018 Notes and accounts receivable—trade (net of allowances of $316 and $309 at March 31, 2019 and December 31, 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. |
Financial Instruments (Tables)
Financial Instruments (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Financial Instruments | |
Financial assets and financial liabilities measured at fair value on a recurring basis | (Dollars in millions) At March 31, 2019 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ $ — $ (6) Money market funds — — U.S. government securities — — (6) 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 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 March 31, 2019 were $346 million and $348 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 March 31, 2019 were $316 million and $389 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 $353 million. (Dollars in millions) At December 31, 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 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 December 31, 2018 were $385 million and $347 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, 2018 were $177 million and $206 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 $267 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 3/31/2019 12/31/2018 Classification 3/31/2019 12/31/2018 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 $ $ $ $ (1) Debt designated as hedging instruments are reported at carrying value. N/A – not applicable |
Amounts related to cumulative basis adjustments for fair value hedges | March 31, December 31, (Dollars in millions) 2019 2018 Short-term debt: Carrying amount of the hedged item $ ) $ ) Cumulative hedging adjustments included in the carrying amount - assets/(liabilities) )(1) )(1) Long-term debt: Carrying amount of the hedged item $ ) $ ) Cumulative hedging adjustments included in the carrying amount - assets/(liabilities) )(2) )(2) (1) Includes ($4) million and ($6) million of hedging adjustments on discontinued hedging relationships at March 31, 2019 and December 31, 2018, respectively. (2) Includes ($209) million and ($213) million of hedging adjustments on discontinued hedging relationships at March 31, 2019 and December 31, 2018, respectively. |
Effect of Derivative Instruments in the Consolidated Statement of Earnings | Gains/(Losses) of (Dollars in millions) Total Total Hedge Activity For the three months ended March 31: 2019 2018 2019 2018 Cost of services $ $ $ $ Cost of sales ) Cost of financing ) * SG&A expense ) Other (income) and expense ) ) Interest expense ) * * Reclassified to conform to 2019 presentation. 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 March 31: Earnings Line Item 2019 2018 2019 2018 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 March 31: 2019 2018 Earnings Line Item 2019 2018 2019 2018 Derivative instruments in cash flow hedges: Interest rate contracts $ ) $ — Cost of financing $ — $ — $ — $ — Interest expense — — — — Foreign exchange contracts ) Cost of services — — Cost of sales ) — — Cost of financing ) )* SG&A expense ) — — Other (income) and expense ) — — Interest expense ) )* Instruments in net investment hedges(4): Foreign exchange contracts Cost of financing — — * ) Interest expense — — * Total $ ) $ ) $ ) $ $ $ * Reclassified to conform to 2019 presentation. (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. N/A - not applicable |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases | |
Schedule of various components of lease costs | (Dollars in millions) For the three months ended March 31: 2019 Finance lease cost: Amortization of ROU assets $ Interest on lease liabilities Operating lease cost Short-term lease cost Variable lease cost Sublease income ) Total lease cost $ |
Schedule of supplemental information relating to the cash flows arising from lease transactions | (Dollars in millions except for lease term and discount rate values) For the three months ended March 31: 2019 (Gains) and losses on sale and leaseback transactions, net $ ) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from finance leases $ Financing cash outflows from finance leases $ Operating cash outflows from operating leases $ ROU assets obtained in exchange for new finance lease liabilities $ * ROU assets obtained in exchange for new operating lease liabilities $ * Weighted-average remaining lease term — finance leases yrs. Weighted-average remaining lease term — operating leases yrs. Weighted-average discount rate — finance leases % Weighted-average discount rate — operating leases % * Includes opening balance additions as a result of the adoption of the new lease guidance effective January 1, 2019. The post adoption addition of leases was $156 million for operating leases and immaterial for finance leases. |
Schedule of expected undiscounted cash flows for operating and finance leases | The following maturity analysis presents expected undiscounted cash out flows for operating and finance leases on an annual basis for the next five years, with the exception of 2019, which presents the expected undiscounted cash out flows for operating and finance leases for the remaining nine months of the year. Beyond Imputed (Dollars in millions) 2019 2020 2021 2022 2023 2023 Interest * Total Finance leases $ $ $ $ $ $ $ ) $ Operating leases $ $ $ $ $ $ $ ) $ * Imputed interest represents the difference between undiscounted cash flows and discounted cash flows. |
Operating lease commitments | The following table, which was included in the company’s 2018 Annual Report, depicts gross minimum rental commitments under noncancelable leases, amounts related to vacant space associated with workforce transformation, sublease income commitments and capital lease commitments at December 31, 2018. Beyond (Dollars in millions) 2019 2020 2021 2022 2023 2023 Operating lease commitments Gross minimum rental commitments (including vacant space below) $ $ $ $ $ $ Vacant space $ $ $ $ $ $ Sublease income commitments $ $ $ $ $ $ Capital lease commitments $ $ $ $ $ $ |
Capital lease commitments | The following table, which was included in the company’s 2018 Annual Report, depicts gross minimum rental commitments under noncancelable leases, amounts related to vacant space associated with workforce transformation, sublease income commitments and capital lease commitments at December 31, 2018. Beyond (Dollars in millions) 2019 2020 2021 2022 2023 2023 Operating lease commitments Gross minimum rental commitments (including vacant space below) $ $ $ $ $ $ Vacant space $ $ $ $ $ $ Sublease income commitments $ $ $ $ $ $ Capital lease commitments $ $ $ $ $ $ |
Schedule of amounts included in the Consolidated Statement of Earnings related to lessor activity | (Dollars in millions) For the three months ended March 31: 2019 Lease income — sales-type and direct financing leases Sales-type lease selling price $ Less: Carrying value of underlying assets, excluding unguaranteed residual value Gross profit Interest income on lease receivables Total sales-type and direct financing lease income $ Lease income — operating leases Variable lease income Total lease income $ |
Schedule of maturity analysis of the lease payments due to IBM on sales-type and direct financing leases | The following table provides a maturity analysis of the lease payments due to IBM on sales-type and direct financing leases over the next five years and thereafter, with the exception of 2019, which presents the expected undiscounted cash flows for the remaining nine months of the year, as well as a reconciliation of the undiscounted cash flows to the financing receivables recognized in the Consolidated Statement of Financial Position at March 31, 2019: (Dollars in millions) Total 2019 $ 2020 2021 2022 2023 Thereafter Total undiscounted cash flows $ Present value of lease payments (recognized as financing receivables) * Difference between undiscounted cash flows and discounted cash flows $ * The present value of the lease payments will not equal the financing receivables balances in the Statement of Financial Position, due to certain items including IDC’s, allowance for credit losses and residual values, which are included in the financing receivables balance, but are not included in the future lease payments. |
Schedule of maturity analysis of the undiscounted lease payments due to IBM on operating leases | The following table provides a maturity analysis of the undiscounted lease payments due to IBM on operating leases over the next five years and thereafter, at March 31, 2019, with the exception of 2019, which presents the expected undiscounted cash flows for the remaining nine months of the year: (Dollars in millions) Total 2019 $ 2020 2021 2022 2023 Thereafter Total undiscounted cash flows $ |
Financing Receivables (Tables)
Financing Receivables (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
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 March 31, 2019: 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, 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 $ $ — $ $ |
Schedule of financing receivables and allowance for credit losses by portfolio segment | (Dollars in millions) At March 31, 2019: 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, 2019 Lease receivables $ $ $ $ Loan receivables Total $ $ $ $ Write-offs $ ) $ ) $ ) $ ) Recoveries Provision ) ) Other * ) ) Ending balance at March 31, 2019 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ * Primarily represents translation adjustments. (Dollars in millions) At December 31, 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 December 31, 2018 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ * Primarily represents translation adjustments. |
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 March 31, 2019: 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, $247 million is individually evaluated for impairment with a related allowance of $217 million. Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At December 31, 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, $249 million is individually evaluated for impairment with a related allowance of $219 million. |
Schedule of net recorded investment by credit quality indicator | (Dollars in millions) Lease Receivables Loan Receivables At March 31, 2019: 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, 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 $ $ $ $ $ $ |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Stock-Based Compensation | |
Stock-based compensation cost included in income from continuing operations | (Dollars in millions) For the three months ended March 31: 2019 2018 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) | 3 Months Ended |
Mar. 31, 2019 | |
Segments | |
Revenue and Pre-tax Income by Segment | Cloud & Global Global Cognitive Business Technology Global Total (Dollars in millions) Software Services Services Systems Financing Segments For the three months ended March 31, 2019: External revenue $ $ $ $ $ $ Internal revenue Total revenue $ $ $ $ $ $ Pre-tax income/(loss) from continuing operations $ $ $ $ ) $ $ Revenue year-to-year change )% )% )% )% )% )% Pre-tax income year-to-year change % % % )% )% % Pre-tax income/(loss) margin % % % )% % % For the three months ended March 31, 2018: External revenue $ * $ * $ * $ $ $ * Internal revenue * * Total revenue $ * $ * $ * $ $ $ * Pre-tax income/(loss) from continuing operations $ * $ * $ * $ ) $ $ * Pre-tax income/(loss) margin %* %* %* )% % %* * Recast to conform to 2019 presentation. |
Reconciliation of segment revenue to IBM as reported | (Dollars in millions) For the three months ended March 31: 2019 2018 Revenue: Total reportable segments $ $ * Other — divested businesses * Other revenue Eliminations of internal transactions ) )* Total consolidated revenue $ $ * Recast to conform to 2019 presentation. |
Reconciliation of segment pre-tax income to IBM as reported | (Dollars in millions) For the three months ended March 31: 2019 2018 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 ) )* Other — divested businesses ) * Unallocated corporate amounts ) ) Total pre-tax income from continuing operations $ $ * Recast to conform to 2019 presentation. |
Equity Activity (Tables)
Equity Activity (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
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 March 31, 2019: 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 services ) ) Cost of sales ) ) Cost of financing ) SG&A expense ) ) Other (income) and expense ) Interest expense ) Total unrealized gains/(losses) on cash flow hedges $ ) $ $ ) Retirement-related benefit plans(1): Net (losses)/gains arising during the period $ ) $ $ ) Curtailments and settlements Amortization of prior service (credits)/costs ) ) Amortization of net (gains)/losses ) Total retirement-related benefit plans $ $ ) $ Other comprehensive income/(loss) $ $ ) $ (1) These AOCI components are included in the computation of net periodic pension cost. Refer to note 10, “Retirement-Related Benefits,” for additional information. (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended March 31, 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 services ) ) Cost of sales ) Cost of financing* ) 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) $ $ ) $ * Reclassified to conform to current period presentation. (1) These AOCI components are included in the computation of net periodic pension cost. Refer to note 10, “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, 2019 $ $ ) $ ) $ $ ) Other comprehensive income before reclassifications ) ) ) ) Amount reclassified from accumulated other comprehensive income — — Total change for the period $ ) $ $ $ ) $ March 31, 2019 $ $ ) $ ) $ ) $ ) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 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 $ $ ) $ $ ) $ March 31, 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.” |
Retirement-Related Benefits (Ta
Retirement-Related Benefits (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Retirement-Related Benefits | |
Pre-tax cost for all retirement-related plans | Yr. to Yr. (Dollars in millions) Percent For the three months ended March 31: 2019 2018 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 March 31: 2019 2018 2019 2018 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/(credits) (1) — — Total net periodic pension (income)/cost of defined benefit plans $ ) $ $ $ Cost of defined contribution plans Total defined benefit and contribution pension 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 March 31: 2019 2018 2019 2018 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 plans 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 G_2
Intangible Assets Including Goodwill (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Intangible Assets Including Goodwill | |
Intangible asset balances by major asset class | At March 31, 2019 (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, 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. |
Intangible assets, future amortization expense | Capitalized Acquired (Dollars in millions) Software Intangibles Total 2019 (for Q2 - Q4) $ $ $ 2020 2021 2022 2023 — |
Changes in goodwill balances by reportable segment | Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 1/1/2019 Additions Adjustments Divestitures Adjustments* 3/31/2019 Cloud & Cognitive Software $ $ — $ $ — $ $ Global Business Services — — ) Global Technology Services — — — Systems — — — Other — divested businesses — — ) — Total $ $ — $ $ ) $ $ * Primarily driven by foreign currency translation. Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 1/1/2018 Additions Adjustments Divestitures Adjustments** 12/31/2018 Cloud & Cognitive Software* $ $ $ $ ) $ ) $ Global Business Services* ) — ) Global Technology Services* — — ) Systems — — ) Other — divested businesses* ) Total $ $ $ ) $ ) $ ) $ * Recast to conform to 2019 presentation. ** Primarily driven by foreign currency translation. |
Borrowings (Tables)
Borrowings (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Borrowings | |
Short-Term Debt | At March 31, At December 31, (Dollars in millions) 2019 2018 Commercial paper $ $ Short-term loans Long-term debt — current maturities Total $ $ |
Long-Term Debt, Pre-Swap Borrowing | Balance Balance (Dollars in millions) Maturities 3/31/2019 12/31/2018 U.S. dollar debt (weighted-average interest rate at March 31, 2019):* 3.2% $ $ 2.6% 2.9% 2.5% 3.2% 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 (weighted-average interest rate at March 31, 2019, in parentheses):* Euros (1.3%) 2019–2031 $ $ Pound sterling (2.7%) 2020–2022 Japanese yen (0.3%) 2022–2026 Other (6.5%) 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 finance 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 IBM, 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 March 31, 2019, are as follows: (Dollars in millions) Total 2019 (for Q2 - Q4) $ 2020 2021 2022 2023 2024 and beyond Total $ |
Interest on Debt | (Dollars in millions) For the three months ended March 31: 2019 2018 Cost of financing $ $ Interest expense Interest capitalized Total interest paid and accrued $ $ |
Commitments (Tables)
Commitments (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Commitments | |
Changes in warranty liabilities | Standard Warranty Liability (Dollars in millions) 2019 2018 Balance at January 1 $ $ Current period accruals Accrual adjustments to reflect actual experience ) ) Charges incurred ) ) Balance at March 31 $ $ Extended Warranty Liability (Dollars in millions) 2019 2018 Aggregate deferred revenue at January 1 $ $ Revenue deferred for new extended warranty contracts Amortization of deferred revenue ) ) Other* ) Aggregate deferred revenue at March 31 $ $ Current portion $ $ Noncurrent portion $ $ * Other primarily consists of foreign currency translation adjustments. |
Earnings Per Share of Common _2
Earnings Per Share of Common Stock (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Earnings Per Share of Common Stock | |
Computation of basic and diluted earnings per share | For the Three Months Ended March 31, 2019 March 31, 2018 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 $ $ |
Basis of Presentation - Noncont
Basis of Presentation - Noncontrolling Interest (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Provision for/(benefit from) income taxes | $ 289 | $ (540) |
Effective tax rate (as a percent) | 15.40% | (47.50%) |
Tax charge resulting from additional U.S. tax reform guidelines | $ 129 | |
Other (income) and expense | ||
Noncontrolling interest amounts, net of tax | $ 7 | $ 7.8 |
Accounting Changes - Tax Reform
Accounting Changes - Tax Reform and Leases (Details) - USD ($) $ in Millions | Jan. 01, 2018 | Mar. 31, 2019 | Jan. 01, 2019 | |
Leases | ||||
Package of practical expedients | true | |||
Operating right-of-use assets | $ 4,634 | [1] | $ 4,800 | |
Financing right-of-use assets | 200 | |||
Operating lease liabilities | 4,903 | 5,100 | ||
Financing lease liabilities | $ 156 | $ 200 | ||
Stranded tax effects | ||||
Reclassification from AOCI to retained earnings for stranded tax effects of U.S. tax reform | $ (2,400) | |||
[1] | Reflects the adoption of the FASB guidance on leases. Refer to note 2, "Accounting Changes" and note 5, "Leases.” |
Accounting Changes - Revenue Re
Accounting Changes - Revenue Recognition (Details) - USD ($) $ in Millions | Jan. 01, 2018 | Dec. 31, 2018 | Mar. 31, 2018 | Dec. 31, 2018 | Mar. 31, 2019 |
Accounting Changes | |||||
Deferred tax assets | $ 5,216 | $ 5,216 | $ 5,284 | ||
Liability for taxes | 3,046 | 3,046 | $ 2,484 | ||
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | |||||
Accounting Changes | |||||
Cumulative-effect net change in retained earnings | $ 524 | ||||
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | Adjustments from Prior GAAP | |||||
Accounting Changes | |||||
Net contract assets | $ 557 | ||||
Deferred costs | 737 | ||||
Deferred income | 29 | ||||
Deferred tax assets | (184) | ||||
Liability for taxes | (56) | (56) | |||
Cumulative-effect net change in retained earnings | $ 524 | $ 56 | $ 580 |
Revenue Recognition - Disaggreg
Revenue Recognition - Disaggregation of Revenue by Major Products/Service Offerings (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue by Major Products/Service Offerings | ||
Total Revenue | $ 18,182 | $ 19,072 |
Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 17,765 | 18,557 |
Other | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 417 | 515 |
Cloud & Cognitive Software | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 5,037 | 5,116 |
Global Business Services | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 4,119 | 4,115 |
Global Technology Services | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 6,875 | 7,421 |
Systems | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 1,328 | 1,500 |
Global Financing | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 406 | 405 |
Cognitive Applications | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 1,308 | 1,286 |
Cognitive Applications | Cloud & Cognitive Software | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 1,308 | 1,286 |
Cloud & Data Platforms | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 1,917 | 1,950 |
Cloud & Data Platforms | Cloud & Cognitive Software | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 1,917 | 1,950 |
Transaction Processing Platforms | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 1,812 | 1,880 |
Transaction Processing Platforms | Cloud & Cognitive Software | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 1,812 | 1,880 |
Consulting | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 1,964 | 1,867 |
Consulting | Global Business Services | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 1,964 | 1,867 |
Global Process Services | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 247 | 246 |
Global Process Services | Global Business Services | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 247 | 246 |
Application Management | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 1,908 | 2,002 |
Application Management | Global Business Services | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 1,908 | 2,002 |
Infrastructure & Cloud Services | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 5,209 | 5,639 |
Infrastructure & Cloud Services | Global Technology Services | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 5,209 | 5,639 |
Technology Support Services | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 1,665 | 1,782 |
Technology Support Services | Global Technology Services | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 1,665 | 1,782 |
Systems Hardware | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 914 | 1,093 |
Systems Hardware | Systems | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 914 | 1,093 |
Operating Systems Software | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 414 | 407 |
Operating Systems Software | Systems | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Revenue | 414 | 407 |
Global Financing | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 406 | 405 |
Global Financing | Global Financing | Business Segments, Excluding Intersegment Revenue | ||
Revenue by Major Products/Service Offerings | ||
Financial Services Revenue | 406 | 405 |
Other Revenue | ||
Revenue by Major Products/Service Offerings | ||
Total Revenue | 417 | 515 |
Other Revenue | Other | ||
Revenue by Major Products/Service Offerings | ||
Revenue | $ 417 | $ 515 |
Revenue Recognition - Disaggr_2
Revenue Recognition - Disaggregation of Revenue by Geography (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue by Geography | ||
Revenues | $ 18,182 | $ 19,072 |
Americas | ||
Revenue by Geography | ||
Revenues | 8,493 | 8,707 |
EMEA | ||
Revenue by Geography | ||
Revenues | 5,727 | 6,176 |
Asia Pacific | ||
Revenue by Geography | ||
Revenues | $ 3,961 | $ 4,188 |
Revenue Recognition - Remaining
Revenue Recognition - Remaining Performance Obligations (Details) - USD ($) $ in Billions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Revenue Recognition | ||
Practical expedient, remaining performance obligations | true | true |
Remaining performance obligations related to customer contracts that are unsatisfied or partially unsatisfied | $ 118 | $ 124 |
Revenue Recognition - Remaini_2
Revenue Recognition - Remaining Performance Obligations, Expected Timing of Satisfaction (Details) | Mar. 31, 2019 | Dec. 31, 2018 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-01-01 | ||
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]: 2019-04-01 | ||
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]: 2021-01-01 | ||
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, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-04-01 | ||
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 ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue Recognition | ||
Impact to revenue from performance obligations satisfied (or partially satisfied) in previous periods | $ (22) |
Revenue Recognition - Reconcili
Revenue Recognition - Reconciliation of Contract Balances (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Reconciliation of Contract Balances | |||
Notes and accounts receivable - trade (net of allowances) | $ 6,987 | $ 7,432 | |
Notes and accounts receivable - trade, allowances | 316 | 309 | |
Contract assets | 528 | 470 | |
Deferred income (current) | 12,134 | 11,165 | |
Deferred income (noncurrent) | 3,481 | $ 3,445 | |
Revenue recognized that was included in deferred income at the beginning of the period | $ 3,500 | $ 3,500 |
Financial Instruments - Fair Va
Financial Instruments - Fair Value Measurements (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Debt securities - current | $ 872 | $ 618 |
Derivative assets | 694 | 731 |
Derivative liabilities | 705 | 383 |
Potential reduction in net position of total derivative assets | 353 | 267 |
Recurring | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 14,209 | 7,704 |
Equity investments | 0 | 0 |
Debt securities - current | 872 | 618 |
Derivative assets | 694 | 731 |
Total assets | 15,776 | 9,053 |
Derivative liabilities | 705 | 383 |
Potential reduction in net position of total derivative assets | 353 | 267 |
Potential reduction in net position of total derivative liabilities | 353 | 267 |
Recurring | Prepaid expenses and other current assets | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 346 | 385 |
Recurring | Investments and sundry assets | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 348 | 347 |
Recurring | Other accrued expenses and liabilities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative liabilities | 316 | 177 |
Recurring | Other liabilities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative liabilities | 389 | 206 |
Recurring | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 12,686 | 7,679 |
Recurring | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 25 | 25 |
Recurring | U.S. government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 1,498 | |
Recurring | Level 1 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 25 | 25 |
Equity investments | 0 | 0 |
Derivative assets | 4 | 1 |
Total assets | 29 | 26 |
Derivative liabilities | 40 | |
Recurring | Level 1 | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 25 | 25 |
Recurring | Level 2 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 14,184 | 7,679 |
Debt securities - current | 872 | 618 |
Derivative assets | 690 | 731 |
Total assets | 15,747 | 9,028 |
Derivative liabilities | 705 | 343 |
Recurring | Level 2 | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 12,686 | $ 7,679 |
Recurring | Level 2 | U.S. government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | $ 1,498 |
Financial Instruments - Not Mea
Financial Instruments - Not Measured at Fair Value (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Long-Term Debt | ||
Carrying amount of long-term debt | $ 39,727 | $ 35,605 |
Estimated fair value of long-term debt | $ 41,675 | $ 36,599 |
Financial Instruments - Availab
Financial Instruments - Available-For-Sale Securities (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Sales of available-for-sale securities | ||
Gross realized gains (before taxes) | ||
Gross realized losses (before taxes) | ||
Maximum contractual maturities of substantially all available-for-sale debt securities | 1 year | |
Net changes related to available-for-sale securities, net of tax: | ||
Net unrealized gains/(losses) arising during the period |
Financial Instruments - Derivat
Financial Instruments - Derivatives, Offsetting (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Dec. 31, 2018 | |
Derivative Financial Instruments | ||
Fair value of derivative instruments under collateralized arrangements in a liability position | $ 359 | $ 74 |
Collateral posted on derivative instruments | $ 14 | 0 |
Maximum spread on credit default swap agreements before full collateralization is required | 2.50% | |
Fair value of total derivative instruments, Assets | $ 694 | 731 |
Liabilities included in master netting arrangements | 353 | 267 |
Obligation to return cash collateral | 20 | 70 |
Non-cash collateral received | 0 | 0 |
Net exposure related to derivative assets recorded in the Statement of Financial Position | 321 | 395 |
Net position related to derivative liabilities recorded in the Statement of Financial Position | 338 | 116 |
Cash collateral rehypothecated | 14 | 0 |
Other receivables | ||
Derivative Financial Instruments | ||
Right to reclaim cash collateral | 14 | 0 |
Accounts payable | ||
Derivative Financial Instruments | ||
Obligation to return cash collateral | $ 20 | $ 70 |
Financial Instruments - Deriv_2
Financial Instruments - Derivatives, Hedging Programs (Details) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019USD ($)instrument | Dec. 31, 2018USD ($)instrument | |
Derivative instruments in fair value hedges | Interest rate swaps | ||
Derivative Financial Instruments | ||
Notional amount | $ 6,800 | $ 7,600 |
Average remaining maturity | 3 years 7 months 6 days | 3 years 6 months |
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 | ||
Maximum length of time hedged | 30 years | |
Notional amount | $ 5,500 | 5,500 |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges | (206) | (35) |
Gains (losses) expected to be reclassified to net income within the next 12 months | $ (11) | |
Derivative instruments in cash flow hedges | Foreign exchange forward contracts | ||
Derivative Financial Instruments | ||
Maximum length of time hedged | 4 years | |
Notional amount | $ 10,000 | $ 9,800 |
Average remaining maturity | 9 months 18 days | 9 months 18 days |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges | $ 356 | $ 342 |
Gains (losses) expected to be reclassified to net income within the next 12 months | $ 256 | |
Derivative instruments in cash flow hedges | Cross-currency swaps | ||
Derivative Financial Instruments | ||
Maximum length of time hedged | 12 years | |
Notional amount | $ 12,200 | 6,500 |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges | (21) | 75 |
Gains (losses) expected to be reclassified to net income within the next 12 months | 346 | |
Instruments in net investment hedges | ||
Derivative Financial Instruments | ||
Notional amount | $ 6,000 | $ 6,400 |
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 | $ 5,000 | $ 5,200 |
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 | $ 1,200 | $ 1,200 |
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 - Deriv_3
Financial Instruments - Derivatives, Fair Value (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | $ 694 | $ 731 |
Fair value of total derivative instruments, Liabilities | 705 | 383 |
Short-term debt | 10,250 | 10,207 |
Long-term debt (excluding current portion) | 39,727 | 35,605 |
Fair value of total derivative liabilities and debt | 6,880 | 6,644 |
Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 662 | 704 |
Fair value of total derivative instruments, Liabilities | 699 | 320 |
Designated as hedging instruments | Instruments in net investment hedges | ||
Fair Values of Derivative Instruments | ||
Long-term debt (excluding current portion) | 6,175 | 6,261 |
Total debt designated as hedging instruments | 6,175 | 6,261 |
Not designated as hedging instruments - economic hedges | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 32 | 28 |
Fair value of total derivative instruments, Liabilities | 6 | 63 |
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 | 12 | 9 |
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 | 301 | 348 |
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 | 22 | 26 |
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 | 10 | 2 |
Investments and sundry assets | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 245 | 212 |
Investments and sundry assets | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 104 | 135 |
Other accrued expenses and liabilities | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 211 | 4 |
Other accrued expenses and liabilities | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 99 | 110 |
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 | 5 | 13 |
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 | 0 | 51 |
Other liabilities | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 24 | 76 |
Other liabilities | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | $ 365 | $ 129 |
Financial Instruments - Cumulat
Financial Instruments - Cumulative Basis Adjustments for Fair Value Hedges (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
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 | $ (1,129) | $ (1,878) |
Cumulative hedging adjustment included in the carrying amount - assets/(liabilities) | (4) | (4) |
Hedging adjustments on discontinued hedging relationships | (4) | (6) |
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 | (6,073) | (6,004) |
Cumulative hedging adjustment included in the carrying amount - assets/(liabilities) | (402) | (333) |
Hedging adjustments on discontinued hedging relationships | $ (209) | $ (213) |
Financial Instruments - Effect
Financial Instruments - Effect of Hedge Activity on Income and Expense (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Derivative Instruments, Gain (Loss) | ||
Cost | $ 10,139 | $ 10,825 |
SG&A expense | 4,691 | 5,445 |
Other (income) and expense | (73) | 413 |
Interest expense | 210 | 165 |
Cost of services | ||
Derivative Instruments, Gain (Loss) | ||
Gains/(losses) of total hedge activity | 10 | 19 |
Cost of sales | ||
Derivative Instruments, Gain (Loss) | ||
Gains/(losses) of total hedge activity | 18 | (17) |
Cost of financing | ||
Derivative Instruments, Gain (Loss) | ||
Gains/(losses) of total hedge activity | (18) | 4 |
SG&A expense | ||
Derivative Instruments, Gain (Loss) | ||
Gains/(losses) of total hedge activity | 141 | (33) |
Other (income) and expense | ||
Derivative Instruments, Gain (Loss) | ||
Gains/(losses) of total hedge activity | (69) | 49 |
Interest expense | ||
Derivative Instruments, Gain (Loss) | ||
Gains/(losses) of total hedge activity | (20) | 4 |
Services | ||
Derivative Instruments, Gain (Loss) | ||
Cost | 8,359 | 8,835 |
Sales | ||
Derivative Instruments, Gain (Loss) | ||
Cost | 1,516 | 1,722 |
Financing | ||
Derivative Instruments, Gain (Loss) | ||
Cost | $ 264 | $ 269 |
Financial Instruments - Deriv_4
Financial Instruments - Derivatives, Gains and Losses (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Derivative Instruments, Gain (Loss) | ||
Gain (loss) recognized in earnings on derivatives | $ 212 | $ (222) |
Gain (loss) recognized in earnings attributable to risk being hedged | (69) | 182 |
Cash flow hedges and net investment hedges | ||
Derivative Instruments, Gain (Loss) | ||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | (333) | (143) |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI | (98) | 54 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | 17 | 12 |
Interest rate contracts | Derivative instruments in cash flow hedges | ||
Derivative Instruments, Gain (Loss) | ||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | (171) | |
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 | (181) | 61 |
Foreign exchange contracts | Instruments in net investment hedges | ||
Derivative Instruments, Gain (Loss) | ||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | 19 | (204) |
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 | 10 | 19 |
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 | 18 | (17) |
Cost of financing | Interest rate contracts | Derivative instruments in fair value hedges | ||
Derivative Instruments, Gain (Loss) | ||
Gain (loss) recognized in earnings on derivatives | 36 | (80) |
Gain (loss) recognized in earnings attributable to risk being hedged | (33) | 96 |
Cost of financing | 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 | (29) | (18) |
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 | 6 |
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 | 22 | (18) |
SG&A expense | Equity contracts | Not designated as hedging instruments - economic hedges | ||
Derivative Instruments, Gain (Loss) | ||
Gain (loss) recognized in earnings on derivatives | 119 | (14) |
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 | (87) | 104 |
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 | 18 | (55) |
Interest expense | Interest rate contracts | Derivative instruments in fair value hedges | ||
Derivative Instruments, Gain (Loss) | ||
Gain (loss) recognized in earnings on derivatives | 39 | (72) |
Gain (loss) recognized in earnings attributable to risk being hedged | (36) | 87 |
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 | (33) | (16) |
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 | $ 9 | $ 6 |
Financial Instruments - Deriv_5
Financial Instruments - Derivatives, Other Information (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Financial Instruments | ||
Gains (losses) excluded from the assessment of hedge effectiveness for fair value hedges | ||
Gains (losses) excluded from the assessment of hedge effectiveness for cash flow hedges | ||
Gains (losses) associated with underlying exposure that did not occur or was not expected to occur for cash flow hedges |
Leases - Components of Lease Co
Leases - Components of Lease Costs (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Jan. 01, 2019 | |
Lessee, Lease, Description [Line Items] | ||
ROU assets | $ 200 | |
Lease liabilities | $ 156 | $ 200 |
Finance lease cost | ||
Amortization of ROU assets | 4 | |
Interest on lease liabilities | 1 | |
Operating lease cost | 386 | |
Short-term lease cost | 9 | |
Variable lease cost | 128 | |
Sublease income | (2) | |
Total lease cost | $ 526 | |
Real estate | ||
Lessee, Lease, Description [Line Items] | ||
Average term (in years) | 5 years | |
Equipment leases | Minimum | ||
Lessee, Lease, Description [Line Items] | ||
Average term (in years) | 2 years | |
Equipment leases | Maximum | ||
Lessee, Lease, Description [Line Items] | ||
Average term (in years) | 5 years | |
Property, plant and equipment | ||
Lessee, Lease, Description [Line Items] | ||
ROU assets | $ 149 | |
Short-term debt | ||
Lessee, Lease, Description [Line Items] | ||
Lease liabilities | 13 | |
Long-term debt | ||
Lessee, Lease, Description [Line Items] | ||
Lease liabilities | $ 144 |
Leases - Cash Flow From Lease T
Leases - Cash Flow From Lease Transactions (Details) - USD ($) $ in Millions | Jan. 01, 2019 | Mar. 31, 2019 |
Leases | ||
(Gains) and losses on sale and leaseback transactions, net | $ (36) | |
Cash paid for amounts included in the measurement of lease liabilities | ||
Operating cash outflows from finance leases | 1 | |
Financing cash outflows from finance leases | 3 | |
Operating cash outflows from operating leases | 380 | |
ROU assets obtained in exchange for new finance lease liabilities | 153 | |
ROU assets obtained in exchange for new operating lease liabilities | $ 156 | $ 4,958 |
Weighted-average remaining lease term - finance leases | 10 years 8 months 12 days | |
Weighted-average remaining lease term - operating leases | 5 years 1 month 6 days | |
Weighted-average discount rate - finance leases | 3.64% | |
Weighted-average discount rate - operating leases | 3.34% |
Leases - Maturity Analysis of U
Leases - Maturity Analysis of Undiscounted Cash Flows (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2018 | Mar. 31, 2019 | Jan. 01, 2019 | |
Finance leases | |||
2019 | $ 13 | ||
2020 | 18 | ||
2021 | 18 | ||
2022 | 18 | ||
2023 | 16 | ||
Beyond 2023 | 105 | ||
Imputed Interest | (33) | ||
Total | 156 | $ 200 | |
Operating leases | |||
2019 | 1,192 | ||
2020 | 1,258 | ||
2021 | 937 | ||
2022 | 655 | ||
2023 | 435 | ||
Beyond 2023 | 829 | ||
Imputed Interest | (403) | ||
Total | $ 4,903 | $ 5,100 | |
Rental Expense | $ 1,944 |
Leases - Gross Minimum Rental C
Leases - Gross Minimum Rental Commitments (Details) $ in Millions | Dec. 31, 2018USD ($) |
Operating lease commitments | |
Gross minimum rental commitments (including vacant space below) for 2019 | $ 1,581 |
Gross minimum rental commitments (including vacant space below) for 2020 | 1,233 |
Gross minimum rental commitments (including vacant space below) for 2021 | 914 |
Gross minimum rental commitments (including vacant space below) for 2022 | 640 |
Gross minimum rental commitments (including vacant space below) for 2023 | 445 |
Gross minimum rental commitments (including vacant space below) beyond 2023 | 815 |
Vacant space for 2019 | 29 |
Vacant space for 2020 | 23 |
Vacant space for 2021 | 14 |
Vacant space for 2022 | 9 |
Vacant space for 2023 | 5 |
Vacant space beyond 2023 | 8 |
Sublease income commitments for 2019 | 11 |
Sublease income commitments for 2020 | 7 |
Sublease income commitments for 2021 | 5 |
Sublease income commitments for 2022 | 4 |
Sublease income commitments for 2023 | 4 |
Sublease income commitments beyond 2023 | 2 |
Capital lease commitments | |
Capital lease commitments for 2019 | 3 |
Capital lease commitments for 2020 | 3 |
Capital lease commitments for 2021 | 3 |
Capital lease commitments for 2022 | 3 |
Capital lease commitments for 2023 | 2 |
Capital lease commitments beyond 2023 | $ 28 |
Leases - Lease Amounts Included
Leases - Lease Amounts Included in Consolidated Statement of Earnings (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Lease income - sales-type and direct financing leases | |
Sales-type lease selling price | $ 149 |
Less: Carrying value of underlying assets, excluding unguaranteed residual value | 55 |
Gross profit | 94 |
Interest income on lease receivables | 79 |
Total sales-type and direct financing lease income | 172 |
Lease income - operating leases | 90 |
Variable lease income | 18 |
Total lease income | $ 280 |
Leases - Maturity Analysis of L
Leases - Maturity Analysis of Lease Payments Due on Sales-type and Direct Financing Leases (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Leases | ||
Unguaranteed residual value of sales-type and direct financing leases | $ 566 | $ 589 |
Maturity analysis of the lease payments due on sales-type and direct financing leases | ||
2019 | 2,167 | |
2020 | 2,173 | |
2021 | 1,353 | |
2022 | 616 | |
2023 | 145 | |
Thereafter | 9 | |
Total undiscounted cash flows | 6,462 | |
Present value of lease payments (recognized as financing receivables) | 5,965 | |
Difference between undiscounted cash flows and discounted cash flows | $ 497 |
Leases - Maturity Analysis of_2
Leases - Maturity Analysis of Undiscounted Lease Payments on Operating Leases (Details) $ in Millions | Mar. 31, 2019USD ($) |
Operating leases | |
Unguaranteed residual value for operating leases | $ 103 |
Maturity analysis of the undiscounted lease payments | |
2019 | 183 |
2020 | 136 |
2021 | 43 |
2022 | 2 |
2023 | 0 |
Thereafter | 0 |
Total undiscounted cash flows | $ 364 |
Equipment provided to customers under operating lease | Minimum | |
Operating leases | |
Lease term | 1 year |
Equipment provided to customers under operating lease | Maximum | |
Operating leases | |
Lease term | 6 years |
Financing Receivables - Payment
Financing Receivables - Payment Terms (Details) | 3 Months Ended |
Mar. 31, 2019 | |
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 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Components of the company's financing receivables | |||
Financing receivables, gross | $ 29,444 | $ 32,348 | |
Unearned income | (1,148) | (1,195) | |
Recorded Investment | 28,296 | 31,153 | |
Allowance for credit losses | (287) | (292) | |
Unguaranteed residual value | 566 | 589 | |
Guaranteed residual value | 72 | 85 | |
Total financing receivables, net | 28,648 | 31,536 | |
Current portion | 20,287 | 22,388 | |
Noncurrent portion | 8,361 | 9,148 | |
Financing receivables pledged as collateral for borrowings | 868 | 710 | |
Financing receivables held for sale | 0 | 0 | |
Lease receivables | |||
Components of the company's financing receivables | |||
Financing receivables, gross | 6,477 | 6,846 | |
Unearned income | (497) | (526) | |
Recorded Investment | 5,980 | 6,320 | |
Allowance for credit losses | (95) | (99) | $ (103) |
Unguaranteed residual value | 566 | 589 | |
Guaranteed residual value | 72 | 85 | |
Total financing receivables, net | 6,523 | 6,895 | |
Current portion | 2,712 | 2,834 | |
Noncurrent portion | 3,811 | 4,061 | |
Commercial Financing Receivables | |||
Components of the company's financing receivables | |||
Financing receivables, gross | 10,385 | 11,889 | |
Unearned income | (34) | (37) | |
Recorded Investment | 10,351 | 11,852 | |
Allowance for credit losses | (18) | (13) | |
Total financing receivables, net | 10,333 | 11,838 | |
Current portion | 10,333 | 11,838 | |
Loan receivables | |||
Components of the company's financing receivables | |||
Financing receivables, gross | 12,582 | 13,614 | |
Unearned income | (617) | (632) | |
Recorded Investment | 11,965 | 12,981 | |
Allowance for credit losses | (174) | (179) | $ (211) |
Total financing receivables, net | 11,791 | 12,802 | |
Current portion | 7,241 | 7,716 | |
Noncurrent portion | $ 4,550 | $ 5,086 |
Financing Receivables - By Port
Financing Receivables - By Portfolio Segment (Details) $ in Millions | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019USD ($)item | Mar. 31, 2018USD ($) | Dec. 31, 2018USD ($) | |
Financing receivables | |||
Recorded investment | $ 28,296 | $ 31,153 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 292 | ||
Allowance for credit losses, ending balance | $ 287 | 292 | |
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 | $ 17,945 | 19,301 | |
Recorded investment collectively evaluated for impairment | 17,699 | 19,052 | |
Recorded investment individually evaluated for impairment | 247 | 249 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 279 | $ 314 | 314 |
Write-offs | (8) | (35) | |
Recoveries | 0 | 2 | |
Provision | (1) | 16 | |
Other | (1) | (19) | |
Allowance for credit losses, ending balance | 269 | 279 | |
Related allowance, collectively evaluated for impairment | 52 | 59 | |
Related allowance, individually evaluated for impairment | 217 | 219 | |
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 | 9,820 | 10,644 | |
Recorded investment collectively evaluated for impairment | 9,672 | 10,498 | |
Recorded investment individually evaluated for impairment | 148 | 146 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 158 | 172 | 172 |
Write-offs | (4) | (10) | |
Recoveries | 0 | 0 | |
Provision | 3 | 7 | |
Other | (1) | (11) | |
Allowance for credit losses, ending balance | 155 | 158 | |
Related allowance, collectively evaluated for impairment | 33 | 39 | |
Related allowance, individually evaluated for impairment | 122 | 119 | |
Average recorded investment of impaired leases and loans | 147 | 130 | |
Total Lease Receivable and Loan Receivable Portfolio Segments | EMEA | |||
Financing receivables | |||
Recorded investment | 4,603 | 5,016 | |
Recorded investment collectively evaluated for impairment | 4,555 | 4,964 | |
Recorded investment individually evaluated for impairment | 48 | 52 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 65 | 61 | 61 |
Write-offs | (1) | (2) | |
Recoveries | 0 | 0 | |
Provision | (5) | 9 | |
Other | 0 | (3) | |
Allowance for credit losses, ending balance | 59 | 65 | |
Related allowance, collectively evaluated for impairment | 14 | 16 | |
Related allowance, individually evaluated for impairment | 45 | 49 | |
Average recorded investment of impaired leases and loans | 50 | 55 | |
Total Lease Receivable and Loan Receivable Portfolio Segments | Asia Pacific | |||
Financing receivables | |||
Recorded investment | 3,522 | 3,641 | |
Recorded investment collectively evaluated for impairment | 3,471 | 3,590 | |
Recorded investment individually evaluated for impairment | 50 | 51 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 56 | 82 | 82 |
Write-offs | (2) | (23) | |
Recoveries | 0 | 2 | |
Provision | 0 | 0 | |
Other | 1 | (4) | |
Allowance for credit losses, ending balance | 55 | 56 | |
Related allowance, collectively evaluated for impairment | 5 | 5 | |
Related allowance, individually evaluated for impairment | 50 | 51 | |
Average recorded investment of impaired leases and loans | 51 | 81 | |
Lease receivables | |||
Financing receivables | |||
Recorded investment | 5,980 | 6,320 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 99 | 103 | 103 |
Write-offs | (3) | (15) | |
Provision | 14 | ||
Allowance for credit losses, ending balance | 95 | 99 | |
Lease receivables | Americas | |||
Financing receivables | |||
Recorded investment | 3,617 | 3,827 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 53 | 63 | 63 |
Allowance for credit losses, ending balance | 49 | 53 | |
Lease receivables | EMEA | |||
Financing receivables | |||
Recorded investment | 1,230 | 1,341 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 22 | 9 | 9 |
Allowance for credit losses, ending balance | 22 | 22 | |
Lease receivables | Asia Pacific | |||
Financing receivables | |||
Recorded investment | 1,133 | 1,152 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 24 | 31 | 31 |
Allowance for credit losses, ending balance | 24 | 24 | |
Loan receivables | |||
Financing receivables | |||
Recorded investment | 11,965 | 12,981 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 179 | 211 | 211 |
Write-offs | (5) | (20) | |
Provision | 2 | ||
Allowance for credit losses, ending balance | 174 | 179 | |
Loan receivables | Americas | |||
Financing receivables | |||
Recorded investment | 6,203 | 6,817 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 105 | 108 | 108 |
Allowance for credit losses, ending balance | 106 | 105 | |
Loan receivables | EMEA | |||
Financing receivables | |||
Recorded investment | 3,374 | 3,675 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 43 | 52 | 52 |
Allowance for credit losses, ending balance | 37 | 43 | |
Loan receivables | Asia Pacific | |||
Financing receivables | |||
Recorded investment | 2,388 | 2,489 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 32 | $ 51 | 51 |
Allowance for credit losses, ending balance | $ 31 | $ 32 |
Financing Receivables - Past Du
Financing Receivables - Past Due (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Past Due Financing Receivable | ||
Total Recorded Investment | $ 28,296 | $ 31,153 |
Total Lease Receivable and Loan Receivable Portfolio Segments | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 17,945 | 19,301 |
Recorded Investment Not Accruing | 291 | 300 |
Recorded investment, impaired financing receivables with related allowance | 247 | 249 |
Impaired financing receivables, related allowance | 217 | 219 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 717 | 782 |
Recorded Investment > 90 Days and Accruing | 426 | 494 |
Billed Invoices > 90 Days and Accruing | 47 | 52 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Americas | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 9,820 | 10,644 |
Total Lease Receivable and Loan Receivable Portfolio Segments | EMEA | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 4,603 | 5,016 |
Total Lease Receivable and Loan Receivable Portfolio Segments | Asia Pacific | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 3,522 | 3,641 |
Lease receivables | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 5,980 | 6,320 |
Recorded Investment Not Accruing | 94 | 97 |
Lease receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 370 | 385 |
Recorded Investment > 90 Days and Accruing | 276 | 292 |
Billed Invoices > 90 Days and Accruing | 18 | 24 |
Lease receivables | Americas | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 3,617 | 3,827 |
Recorded Investment Not Accruing | 54 | 57 |
Lease receivables | Americas | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 294 | 310 |
Recorded Investment > 90 Days and Accruing | 240 | 256 |
Billed Invoices > 90 Days and Accruing | 13 | 19 |
Lease receivables | EMEA | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 1,230 | 1,341 |
Recorded Investment Not Accruing | 17 | 16 |
Lease receivables | EMEA | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 40 | 25 |
Recorded Investment > 90 Days and Accruing | 22 | 9 |
Billed Invoices > 90 Days and Accruing | 3 | 1 |
Lease receivables | Asia Pacific | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 1,133 | 1,152 |
Recorded Investment Not Accruing | 23 | 24 |
Lease receivables | Asia Pacific | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 37 | 49 |
Recorded Investment > 90 Days and Accruing | 13 | 27 |
Billed Invoices > 90 Days and Accruing | 2 | 3 |
Loan receivables | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 11,965 | 12,981 |
Recorded Investment Not Accruing | 197 | 203 |
Loan receivables | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 347 | 397 |
Recorded Investment > 90 Days and Accruing | 150 | 202 |
Billed Invoices > 90 Days and Accruing | 29 | 29 |
Loan receivables | Americas | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 6,203 | 6,817 |
Recorded Investment Not Accruing | 101 | 99 |
Loan receivables | Americas | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 232 | 259 |
Recorded Investment > 90 Days and Accruing | 131 | 166 |
Billed Invoices > 90 Days and Accruing | 23 | 24 |
Loan receivables | EMEA | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 3,374 | 3,675 |
Recorded Investment Not Accruing | 68 | 73 |
Loan receivables | EMEA | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 83 | 98 |
Recorded Investment > 90 Days and Accruing | 14 | 25 |
Billed Invoices > 90 Days and Accruing | 4 | 3 |
Loan receivables | Asia Pacific | ||
Past Due Financing Receivable | ||
Total Recorded Investment | 2,388 | 2,489 |
Recorded Investment Not Accruing | 28 | 31 |
Loan receivables | Asia Pacific | Total Past Due > 90 days | ||
Past Due Financing Receivable | ||
Recorded Investment > 90 Days | 32 | 40 |
Recorded Investment > 90 Days and Accruing | 4 | 11 |
Billed Invoices > 90 Days and Accruing | $ 2 | $ 1 |
Financing Receivables - Credit
Financing Receivables - Credit Quality Indicators (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
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 | 3,568 | 3,774 |
Lease receivables | Americas | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 454 | 593 |
Lease receivables | Americas | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 804 | 678 |
Lease receivables | Americas | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 932 | 892 |
Lease receivables | Americas | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 679 | 852 |
Lease receivables | Americas | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 454 | 433 |
Lease receivables | Americas | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 198 | 299 |
Lease receivables | Americas | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 47 | 26 |
Lease receivables | EMEA | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,208 | 1,319 |
Lease receivables | EMEA | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 15 | 45 |
Lease receivables | EMEA | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 136 | 158 |
Lease receivables | EMEA | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 386 | 417 |
Lease receivables | EMEA | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 437 | 426 |
Lease receivables | EMEA | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 147 | 171 |
Lease receivables | EMEA | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 69 | 90 |
Lease receivables | EMEA | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 18 | 10 |
Lease receivables | Asia Pacific | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,109 | 1,128 |
Lease receivables | Asia Pacific | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 67 | 85 |
Lease receivables | Asia Pacific | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 540 | 413 |
Lease receivables | Asia Pacific | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 199 | 297 |
Lease receivables | Asia Pacific | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 135 | 191 |
Lease receivables | Asia Pacific | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 99 | 84 |
Lease receivables | Asia Pacific | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 54 | 50 |
Lease receivables | Asia Pacific | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 15 | 7 |
Loan receivables | Americas | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 6,097 | 6,712 |
Loan receivables | Americas | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 916 | 1,055 |
Loan receivables | Americas | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 892 | 1,206 |
Loan receivables | Americas | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,602 | 1,587 |
Loan receivables | Americas | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,459 | 1,516 |
Loan receivables | Americas | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 604 | 770 |
Loan receivables | Americas | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 521 | 531 |
Loan receivables | Americas | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 104 | 47 |
Loan receivables | EMEA | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 3,337 | 3,633 |
Loan receivables | EMEA | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 127 | 125 |
Loan receivables | EMEA | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 238 | 436 |
Loan receivables | EMEA | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,233 | 1,148 |
Loan receivables | EMEA | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 944 | 1,175 |
Loan receivables | EMEA | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 481 | 472 |
Loan receivables | EMEA | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 284 | 249 |
Loan receivables | EMEA | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 31 | 28 |
Loan receivables | Asia Pacific | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 2,358 | 2,457 |
Loan receivables | Asia Pacific | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 159 | 185 |
Loan receivables | Asia Pacific | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 792 | 901 |
Loan receivables | Asia Pacific | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 653 | 648 |
Loan receivables | Asia Pacific | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 535 | 417 |
Loan receivables | Asia Pacific | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 126 | 184 |
Loan receivables | Asia Pacific | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 75 | 109 |
Loan receivables | Asia Pacific | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | $ 19 | $ 15 |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Stock-based compensation cost, allocation of recognized costs | ||
Pre-tax stock-based compensation cost | $ 113 | $ 116 |
Income tax benefits | (25) | (35) |
Net stock-based compensation cost | 88 | 81 |
Pre-tax stock-based compensation cost increase (decrease) | (3) | |
Unrecognized compensation cost related to non-vested awards | $ 671 | |
Unrecognized compensation cost related to non-vested awards, weighted average period of recognition | 2 years 6 months | |
Cost | ||
Stock-based compensation cost, allocation of recognized costs | ||
Pre-tax stock-based compensation cost | $ 20 | 20 |
SG&A expense | ||
Stock-based compensation cost, allocation of recognized costs | ||
Pre-tax stock-based compensation cost | 74 | 81 |
Research, development and engineering | ||
Stock-based compensation cost, allocation of recognized costs | ||
Pre-tax stock-based compensation cost | $ 19 | $ 16 |
Segments - Results of Continuin
Segments - Results of Continuing Operations (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Segments | ||
Revenue | $ 18,182 | $ 19,072 |
Pre-tax income/(loss) from continuing operations | 1,883 | 1,136 |
Business Segments, Excluding Intersegment Revenue | ||
Segments | ||
Revenue | 17,765 | 18,557 |
Business Segments, Excluding Intersegment Revenue | Cloud & Cognitive Software | ||
Segments | ||
Revenue | 5,037 | 5,116 |
Business Segments, Excluding Intersegment Revenue | Global Business Services | ||
Segments | ||
Revenue | 4,119 | 4,115 |
Business Segments, Excluding Intersegment Revenue | Global Technology Services | ||
Segments | ||
Revenue | 6,875 | 7,421 |
Business Segments, Excluding Intersegment Revenue | Systems | ||
Segments | ||
Revenue | 1,328 | 1,500 |
Business Segments, Excluding Intersegment Revenue | Global Financing | ||
Segments | ||
Revenue | 406 | 405 |
Internal transactions | ||
Segments | ||
Revenue | (1,668) | (1,743) |
Pre-tax income/(loss) from continuing operations | (89) | (190) |
Internal transactions | Cloud & Cognitive Software | ||
Segments | ||
Revenue | (841) | (931) |
Internal transactions | Global Business Services | ||
Segments | ||
Revenue | (74) | (89) |
Internal transactions | Global Technology Services | ||
Segments | ||
Revenue | (290) | (141) |
Internal transactions | Systems | ||
Segments | ||
Revenue | (163) | (153) |
Internal transactions | Global Financing | ||
Segments | ||
Revenue | (300) | (429) |
Business Segments | ||
Segments | ||
Revenue | 19,433 | 20,299 |
Pre-tax income/(loss) from continuing operations | $ 2,444 | $ 2,045 |
Revenue year-to-year change (as a percent) | (4.30%) | |
Pre-tax income year-to-year change (as a percent) | 19.50% | |
Pre-tax income/(loss) margin (as a percent) | 12.60% | 10.10% |
Business Segments | Cloud & Cognitive Software | ||
Segments | ||
Revenue | $ 5,879 | $ 6,047 |
Pre-tax income/(loss) from continuing operations | $ 1,767 | $ 1,680 |
Revenue year-to-year change (as a percent) | (2.80%) | |
Pre-tax income year-to-year change (as a percent) | 5.20% | |
Pre-tax income/(loss) margin (as a percent) | 30.10% | 27.80% |
Business Segments | Global Business Services | ||
Segments | ||
Revenue | $ 4,193 | $ 4,204 |
Pre-tax income/(loss) from continuing operations | $ 315 | $ 125 |
Revenue year-to-year change (as a percent) | (0.30%) | |
Pre-tax income year-to-year change (as a percent) | 152.10% | |
Pre-tax income/(loss) margin (as a percent) | 7.50% | 3.00% |
Business Segments | Global Technology Services | ||
Segments | ||
Revenue | $ 7,164 | $ 7,562 |
Pre-tax income/(loss) from continuing operations | $ 275 | $ 66 |
Revenue year-to-year change (as a percent) | (5.30%) | |
Pre-tax income year-to-year change (as a percent) | 315.10% | |
Pre-tax income/(loss) margin (as a percent) | 3.80% | 0.90% |
Business Segments | Systems | ||
Segments | ||
Revenue | $ 1,491 | $ 1,653 |
Pre-tax income/(loss) from continuing operations | $ (202) | $ (203) |
Revenue year-to-year change (as a percent) | (9.80%) | |
Pre-tax income year-to-year change (as a percent) | (0.40%) | |
Pre-tax income/(loss) margin (as a percent) | (13.50%) | (12.30%) |
Business Segments | Global Financing | ||
Segments | ||
Revenue | $ 706 | $ 834 |
Pre-tax income/(loss) from continuing operations | $ 288 | $ 377 |
Revenue year-to-year change (as a percent) | (15.40%) | |
Pre-tax income year-to-year change (as a percent) | (23.40%) | |
Pre-tax income/(loss) margin (as a percent) | 40.80% | 45.10% |
Segments - Revenue Reconciliati
Segments - Revenue Reconciliation (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue | ||
Revenue | $ 18,182 | $ 19,072 |
Business Segments | ||
Revenue | ||
Revenue | 19,433 | 20,299 |
Other | ||
Revenue | ||
Other - divested businesses | 343 | 446 |
Other revenue | 74 | 69 |
Revenue | 417 | 515 |
Internal transactions | ||
Revenue | ||
Revenue | $ (1,668) | $ (1,743) |
Segments - Pre-Tax Income Recon
Segments - Pre-Tax Income Reconciliation (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Pre-tax income from continuing operations | ||
Amortization of acquired intangible assets | $ (173) | $ (203) |
Acquisition-related (charges)/income | (39) | 0 |
Non-operating retirement-related (costs)/income | (138) | (402) |
Other - divested businesses | (55) | 14 |
Income from continuing operations before income taxes | 1,883 | 1,136 |
Business Segments | ||
Pre-tax income from continuing operations | ||
Income from continuing operations before income taxes | 2,444 | 2,045 |
Internal transactions | ||
Pre-tax income from continuing operations | ||
Income from continuing operations before income taxes | (89) | (190) |
Unallocated corporate amounts | ||
Pre-tax income from continuing operations | ||
Income from continuing operations before income taxes | $ (67) | $ (130) |
Equity Activity - Reclassificat
Equity Activity - Reclassifications and Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Cost | $ 10,139 | $ 10,825 |
SG&A expense | 4,691 | 5,445 |
Other (income) and expense | (73) | 413 |
Interest expense | 210 | 165 |
Provision for/(benefit from) income taxes | 289 | (540) |
Net (income) loss | (1,591) | (1,679) |
Other comprehensive income/(loss) | 308 | 430 |
Services | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Cost | 8,359 | 8,835 |
Sales | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Cost | 1,516 | 1,722 |
Financing | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Cost | 264 | 269 |
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 | (99) | (65) |
Reclassification/amortization, Net of Tax Amount | 407 | 495 |
Other comprehensive income/(loss), Before Tax Amount | 375 | 573 |
Other comprehensive income/(loss), Tax (Expense)/Benefit | (67) | (143) |
Other comprehensive income/(loss) | 308 | 430 |
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 | 172 | (115) |
Reclassification/amortization, Net of Tax Amount | 0 | |
Other comprehensive income/(loss), Before Tax Amount | 171 | (167) |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 0 | 51 |
Other comprehensive income/(loss) | 172 | (115) |
Net Unrealized Gains/(Losses) on Available-For-Sale Securities | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Unrealized gains/(losses) arising during the period, Before Tax Amount | (1) | (2) |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 0 | 1 |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | (1) | (2) |
Reclassification/amortization, Net of Tax Amount | 0 | |
Other comprehensive income/(loss), Before Tax Amount | (1) | (3) |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 0 | 1 |
Other comprehensive income/(loss) | (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 | |
Provision for/(benefit from) income taxes | 0 | |
Net (income) loss | 0 | |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Unrealized gains/(losses) arising during the period, Before Tax Amount | (352) | 61 |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 84 | (9) |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | (268) | 51 |
Reclassification/amortization, Net of Tax Amount | 75 | (41) |
Other comprehensive income/(loss), Before Tax Amount | (254) | 7 |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 61 | 3 |
Other comprehensive income/(loss) | (193) | 10 |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
SG&A expense | (22) | 18 |
Other (income) and expense | 87 | (104) |
Interest expense | 33 | 16 |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Services | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Cost | (10) | (19) |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Sales | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Cost | (18) | 17 |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Financing | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Cost | 29 | 18 |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Cost of services | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Provision for/(benefit from) income taxes | 3 | 5 |
Net (income) loss | (7) | (14) |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Cost of sales | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Provision for/(benefit from) income taxes | 5 | (5) |
Net (income) loss | (13) | 12 |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Cost of financing | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Provision for/(benefit from) income taxes | (7) | (4) |
Net (income) loss | 22 | 13 |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | SG&A expense | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Provision for/(benefit from) income taxes | 6 | (5) |
Net (income) loss | (16) | 13 |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Other (income) and expense | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Provision for/(benefit from) income taxes | (22) | 26 |
Net (income) loss | 65 | (78) |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | Reclassifications | Interest expense | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Provision for/(benefit from) income taxes | (8) | (4) |
Net (income) loss | 24 | 12 |
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 | (2) | 0 |
Reclassification/amortization, Net of Tax Amount | 333 | 537 |
Other comprehensive income/(loss), Before Tax Amount | 458 | 735 |
Other comprehensive income/(loss), Tax (Expense)/Benefit | (128) | (199) |
Other comprehensive income/(loss) | 330 | 537 |
Retirement-Related Benefit Plans, Prior Service Costs/(Credits) | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Unrealized gains/(losses) arising during the period, Before Tax Amount | (1) | |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 0 | |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | (1) | |
Reclassification/amortization, Before Tax Amount | (3) | (19) |
Reclassification/amortization, Tax (Expense)/Benefit | 1 | 5 |
Reclassification/amortization, Net of Tax Amount | (2) | (14) |
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 | (4) | 2 |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 1 | (1) |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | (2) | 1 |
Reclassification/amortization, Before Tax Amount | 464 | 753 |
Reclassification/amortization, Tax (Expense)/Benefit | (130) | (203) |
Reclassification/amortization, Net of Tax Amount | 334 | 550 |
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 | 1 | 0 |
Unrealized gains/(losses) arising during the period, Tax (Expense)/Benefit | 0 | 0 |
Unrealized gains/(losses) arising during the period, Net of Tax Amount | $ 1 | $ 0 |
Equity Activity - AOCI Rollforw
Equity Activity - AOCI Rollforward (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Accumulated Other Comprehensive Income (Loss) (net of tax) | ||
Balance at the Beginning of the Period | $ 16,929 | $ 17,725 |
Other comprehensive income/(loss) | 308 | 430 |
Balance at the End of the Period | 16,607 | 18,290 |
Accumulated Other Comprehensive Income/(Loss) | ||
Accumulated Other Comprehensive Income (Loss) (net of tax) | ||
Balance at the Beginning of the Period | (29,490) | (26,592) |
Other comprehensive income before reclassifications | (99) | (65) |
Amount reclassified from accumulated other comprehensive income | 407 | 495 |
Other comprehensive income/(loss) | 308 | 430 |
Balance at the End of the Period | (29,182) | (28,583) |
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 | (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 | 284 | 35 |
Other comprehensive income before reclassifications | (268) | 51 |
Amount reclassified from accumulated other comprehensive income | 75 | (41) |
Other comprehensive income/(loss) | (193) | 10 |
Balance at the End of the Period | 90 | 50 |
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 | (3,690) | (2,834) |
Other comprehensive income before reclassifications | 172 | (115) |
Amount reclassified from accumulated other comprehensive income | 0 | |
Other comprehensive income/(loss) | 172 | (115) |
Balance at the End of the Period | (3,519) | (2,903) |
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 | (26,083) | (23,796) |
Other comprehensive income before reclassifications | (2) | 0 |
Amount reclassified from accumulated other comprehensive income | 333 | 537 |
Other comprehensive income/(loss) | 330 | 537 |
Balance at the End of the Period | (25,753) | (25,730) |
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 | 0 | 3 |
Other comprehensive income before reclassifications | (1) | (2) |
Amount reclassified from accumulated other comprehensive income | 0 | |
Other comprehensive income/(loss) | (1) | (2) |
Balance at the End of the Period | $ (1) | (1) |
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) |
Retirement-Related Benefits - A
Retirement-Related Benefits - All Retirement Plans Cost (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Retirement-Related Benefits | ||
Defined benefit and contribution pension plans - cost | $ 437 | $ 738 |
Nonpension postretirement plans - cost | 54 | 51 |
Total | $ 491 | $ 788 |
Year-to-year percent change, defined benefit and contribution pension plans cost (as a percent) | (40.80%) | |
Year-to-year percent change, nonpension postretirement plans cost (as a percent) | 6.40% | |
Year-to-year percent change, total (as a percent) | (37.70%) |
Retirement-Related Benefits - C
Retirement-Related Benefits - Cost of Pension Plans (Details) - USD ($) $ in Millions | Dec. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 |
Cost/(Income) of Pension Plans | |||
Total defined benefit and contribution pension plans cost recognized in the Consolidated Statement of Earnings | $ 437 | $ 738 | |
U.S. | |||
Cost/(Income) of Pension Plans | |||
Total defined benefit and contribution pension plans cost recognized in the Consolidated Statement of Earnings | 115 | 303 | |
U.S. | Pension Plans | |||
Cost/(Income) of Pension Plans | |||
Interest cost | $ 472 | $ 430 | |
Interest cost - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Expected return on plan assets | $ (650) | $ (676) | |
Expected return on plan assets - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Amortization of prior service costs/(credits) | $ 4 | $ 4 | |
Amortization of prior service costs/(credits) - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Recognized actuarial losses | $ 140 | $ 384 | |
Recognized actuarial losses - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Total net periodic (income)/cost recognized for defined benefit plans | $ (34) | $ 143 | |
Cost of defined contribution plans | 149 | 160 | |
Average remaining life expectancy of inactive plan participants | 18 years | ||
Decrease in recognized actuarial losses due to substantially all plan participants considered inactive as of 2019 | 240 | ||
Non-U.S. | |||
Cost/(Income) of Pension Plans | |||
Total defined benefit and contribution pension plans cost recognized in the Consolidated Statement of Earnings | 322 | 434 | |
Non-U.S. | Pension Plans | |||
Cost/(Income) of Pension Plans | |||
Service cost | 93 | 104 | |
Interest cost | $ 208 | $ 215 | |
Interest cost - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Expected return on plan assets | $ (399) | $ (348) | |
Expected return on plan assets - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Amortization of prior service costs/(credits) | $ (6) | $ (21) | |
Amortization of prior service costs/(credits) - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Recognized actuarial losses | $ 314 | $ 359 | |
Recognized actuarial losses - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Curtailments and settlements | $ 1 | $ 0 | |
Curtailments and settlements - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Multi-employer plans | $ 9 | $ 10 | |
Other costs | $ 5 | $ 7 | |
Other costs - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense | |
Total net periodic (income)/cost recognized for defined benefit plans | $ 223 | $ 327 | |
Cost of defined contribution plans | $ 98 | $ 108 |
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 | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Retirement-Related Benefits | ||
Expected current year contributions to non-U.S. defined benefit plans | $ 400 | |
Contributions by employer to defined benefit plans | 94 | $ 191 |
Contributions by employer - Cash | 33 | 44 |
Contributions by employer - Noncash | $ 61 | $ 147 |
Retirement-Related Benefits -_2
Retirement-Related Benefits - Nonpension Postretirement Cost (Details) - Nonpension Postretirement Plans - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
U.S. | ||
Retirement-related plans cost | ||
Service cost | $ 3 | $ 3 |
Interest cost | $ 36 | $ 33 |
Interest cost - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Amortization of prior service costs/(credits) | $ (1) | $ (2) |
Amortization of prior service costs/(credits) - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Recognized actuarial losses | $ 1 | $ 2 |
Recognized actuarial losses - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Total net periodic (income)/cost recognized for defined benefit plans | $ 39 | $ 37 |
Non-U.S. | ||
Retirement-related plans cost | ||
Service cost | 1 | 1 |
Interest cost | $ 12 | $ 13 |
Interest cost - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Expected return on plan assets | $ (1) | $ (1) |
Expected return on plan assets - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Amortization of prior service costs/(credits) | $ 0 | $ 0 |
Amortization of prior service costs/(credits) - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Recognized actuarial losses | $ 3 | $ 1 |
Recognized actuarial losses - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Curtailments and settlements | $ 0 | $ 0 |
Curtailments and settlements - income statement location | ibm:OtherIncomeAndExpense | ibm:OtherIncomeAndExpense |
Total net periodic (income)/cost recognized for defined benefit plans | $ 15 | $ 14 |
Retirement-Related Benefits -_3
Retirement-Related Benefits - Nonpension Postretirement Contributions (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Nonpension Postretirement Plans | U.S. | ||
Retirement-Related Benefits | ||
Contributions by employer - Noncash | $ 194 | $ 120 |
Acquisitions_Divestitures - Bus
Acquisitions/Divestitures - Businesses Acquired (Details) $ / shares in Units, $ in Millions | 3 Months Ended | 6 Months Ended |
Mar. 31, 2019entity | Dec. 31, 2019USD ($)$ / shares | |
2019 Acquisitions | ||
Acquisitions | ||
Number of acquisitions | entity | 0 | |
Red Hat, Inc. | Expected | ||
Acquisitions | ||
Percentage of business acquired (as a percent) | 100.00% | |
Cash to be paid to acquiree shareholders (in dollars per share) | $ / shares | $ 190 | |
Aggregate acquisitions cost | $ | $ 34,000 |
Acquisitions_Divestitures - Div
Acquisitions/Divestitures - Divestitures (Details) - Expected $ in Millions | 3 Months Ended | 6 Months Ended |
Jun. 30, 2019USD ($) | Jun. 30, 2019USD ($)entity | |
Other | ||
Divestitures | ||
Number of divestitures | entity | 3 | |
Other | Minimum | ||
Divestitures | ||
Pre-tax gain on sale of business | $ 500 | |
Other | Maximum | ||
Divestitures | ||
Pre-tax gain on sale of business | $ 700 | |
Select Standalone Cognitive Solutions Software Products | ||
Divestitures | ||
Cash consideration | $ 1,775 | |
Consideration receivable at closing (as a percent) | 50.00% | |
Select Standalone Cognitive Solutions Software Products | Minimum | ||
Divestitures | ||
Period after closing for receipt of remaining consideration | 12 months | |
Select Standalone Cognitive Solutions Software Products | Maximum | ||
Divestitures | ||
Period after closing for receipt of remaining consideration | 15 months |
Intangible Assets Including G_3
Intangible Assets Including Goodwill - Intangible Assets by Class (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Intangible asset balances by major asset class | ||
Gross Carrying Amount | $ 6,410 | $ 6,489 |
Accumulated Amortization | (3,454) | (3,402) |
Net Carrying Amount | 2,956 | 3,087 |
Capitalized software | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 1,665 | 1,568 |
Accumulated Amortization | (683) | (629) |
Net Carrying Amount | 982 | 939 |
Client relationships | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 2,022 | 2,068 |
Accumulated Amortization | (1,150) | (1,123) |
Net Carrying Amount | 872 | 945 |
Completed technology | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 2,032 | 2,156 |
Accumulated Amortization | (1,248) | (1,296) |
Net Carrying Amount | 784 | 860 |
Patents/trademarks | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 635 | 641 |
Accumulated Amortization | (348) | (330) |
Net Carrying Amount | 287 | 311 |
Other intangible assets | ||
Intangible asset balances by major asset class | ||
Gross Carrying Amount | 56 | 56 |
Accumulated Amortization | (25) | (23) |
Net Carrying Amount | $ 30 | $ 32 |
Intangible Assets Including G_4
Intangible Assets Including Goodwill - Intangible Assets Activity (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Intangible assets | ||
Net carrying amount decrease | $ 131 | |
Intangible asset amortization expense | 303 | $ 340 |
Retirement of fully amortized intangible assets | $ 273 |
Intangible Assets Including G_5
Intangible Assets Including Goodwill - Future Amortization (Details) $ in Millions | Mar. 31, 2019USD ($) |
Future amortization expense, by year | |
2019 (for Q2 - Q4) | $ 885 |
2020 | 944 |
2021 | 659 |
2022 | 393 |
2023 | 64 |
Capitalized software | |
Future amortization expense, by year | |
2019 (for Q2 - Q4) | 383 |
2020 | 379 |
2021 | 209 |
2022 | 11 |
Acquired intangibles | |
Future amortization expense, by year | |
2019 (for Q2 - Q4) | 501 |
2020 | 565 |
2021 | 450 |
2022 | 382 |
2023 | $ 64 |
Intangible Assets Including G_6
Intangible Assets Including Goodwill - Goodwill by Segment (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Changes in Goodwill Balances | ||
Beginning Balance | $ 36,265 | $ 36,788 |
Goodwill Additions | 34 | |
Purchase Price Adjustments | 0 | (3) |
Divestitures | (32) | (1) |
Foreign Currency Translation and Other Adjustments | 47 | (553) |
Ending Balance | 36,281 | 36,265 |
Goodwill impairment losses | 0 | |
Goodwill accumulated impairment losses | 0 | |
Business Segments | Cloud & Cognitive Software | ||
Changes in Goodwill Balances | ||
Beginning Balance | 24,594 | 24,973 |
Goodwill Additions | 9 | |
Purchase Price Adjustments | 0 | 0 |
Divestitures | (1) | |
Foreign Currency Translation and Other Adjustments | 31 | (388) |
Ending Balance | 24,625 | 24,594 |
Business Segments | Global Business Services | ||
Changes in Goodwill Balances | ||
Beginning Balance | 4,711 | 4,782 |
Goodwill Additions | 24 | |
Purchase Price Adjustments | 0 | (3) |
Foreign Currency Translation and Other Adjustments | (3) | (92) |
Ending Balance | 4,708 | 4,711 |
Business Segments | Global Technology Services | ||
Changes in Goodwill Balances | ||
Beginning Balance | 3,988 | 4,044 |
Purchase Price Adjustments | 0 | |
Foreign Currency Translation and Other Adjustments | 16 | (56) |
Ending Balance | 4,003 | 3,988 |
Business Segments | Systems | ||
Changes in Goodwill Balances | ||
Beginning Balance | 1,847 | 1,862 |
Purchase Price Adjustments | 0 | |
Foreign Currency Translation and Other Adjustments | 3 | (15) |
Ending Balance | 1,851 | 1,847 |
Other | Divested businesses | ||
Changes in Goodwill Balances | ||
Beginning Balance | 1,126 | 1,127 |
Goodwill Additions | 1 | |
Purchase Price Adjustments | 0 | |
Divestitures | (32) | 0 |
Foreign Currency Translation and Other Adjustments | (2) | |
Ending Balance | $ 1,094 | $ 1,126 |
Borrowings - Short-Term Debt (D
Borrowings - Short-Term Debt (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Short-term debt disclosures | ||
Long-term debt - current maturities | $ 7,106 | $ 7,051 |
Total short-term debt | 10,250 | 10,207 |
Commercial paper | ||
Short-term debt disclosures | ||
Short-term debt | $ 2,993 | $ 2,995 |
Weighted-average interest rates for short-term debt (as a percent) | 2.50% | 2.50% |
Short-term loans | ||
Short-term debt disclosures | ||
Short-term debt | $ 150 | $ 161 |
Weighted-average interest rates for short-term debt (as a percent) | 5.80% | 4.30% |
Borrowings - Long-Term Debt, Co
Borrowings - Long-Term Debt, Components (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Borrowings | ||
Long-term debt, gross | $ 47,346 | $ 43,196 |
Less: net unamortized discount | 831 | 802 |
Less: net unamortized debt issuance cost | 88 | 76 |
Add: fair value adjustment | 406 | 337 |
Long-term debt (including current maturities) | 46,833 | 42,656 |
Less: current maturities | 7,106 | 7,051 |
Total long-term debt (excluding current portion) | 39,727 | 35,605 |
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 | $ 28,726 | 30,131 |
Euros | ||
Borrowings | ||
Long-term debt, gross | $ 15,438 | 10,011 |
Debt instrument, weighted-average interest rate (as a percent) | 1.30% | |
Pound sterling | ||
Borrowings | ||
Long-term debt, gross | $ 1,368 | 1,338 |
Debt instrument, weighted-average interest rate (as a percent) | 2.70% | |
Japanese yen | ||
Borrowings | ||
Long-term debt, gross | $ 1,314 | 1,325 |
Debt instrument, weighted-average interest rate (as a percent) | 0.30% | |
Other | ||
Borrowings | ||
Long-term debt, gross | $ 500 | 391 |
Debt instrument, weighted-average interest rate (as a percent) | 6.50% | |
Maturing 2019 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 3,959 | 5,465 |
Debt instrument, weighted-average interest rate (as a percent) | 3.20% | |
Maturing 2020 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 4,338 | 4,344 |
Debt instrument, weighted-average interest rate (as a percent) | 2.60% | |
Maturing 2021 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 5,531 | 5,529 |
Debt instrument, weighted-average interest rate (as a percent) | 2.90% | |
Maturing 2022 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 3,529 | 3,536 |
Debt instrument, weighted-average interest rate (as a percent) | 2.50% | |
Maturing 2023 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 2,413 | 2,428 |
Debt instrument, weighted-average interest rate (as a percent) | 3.20% | |
Maturing 2024 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 2,046 | 2,037 |
Debt instrument, weighted-average interest rate (as a percent) | 3.60% | |
Maturing 2025 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 600 | 600 |
Debt instrument, weighted-average interest rate (as a percent) | 7.00% | |
Maturing 2026 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 1,350 | 1,350 |
Debt instrument, weighted-average interest rate (as a percent) | 3.50% | |
Maturing 2027 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 969 | 969 |
Debt instrument, weighted-average interest rate (as a percent) | 4.70% | |
Maturing 2028 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 313 | 313 |
Debt instrument, weighted-average interest rate (as a percent) | 6.50% | |
Maturing 2030 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 149 | 32 |
Debt instrument, weighted-average interest rate (as a percent) | 3.70% | |
Maturing 2032 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 600 | 600 |
Debt instrument, weighted-average interest rate (as a percent) | 5.90% | |
Maturing 2038 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 83 | 83 |
Debt instrument, weighted-average interest rate (as a percent) | 8.00% | |
Maturing 2039 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 745 | 745 |
Debt instrument, weighted-average interest rate (as a percent) | 5.60% | |
Maturing 2042 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 1,107 | 1,107 |
Debt instrument, weighted-average interest rate (as a percent) | 4.00% | |
Maturing 2045 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 27 | 27 |
Debt instrument, weighted-average interest rate (as a percent) | 7.00% | |
Maturing 2046 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 650 | 650 |
Debt instrument, weighted-average interest rate (as a percent) | 4.70% | |
Maturing 2096 | U.S. dollars | ||
Borrowings | ||
Long-term debt, gross | $ 316 | $ 316 |
Debt instrument, weighted-average interest rate (as a percent) | 7.10% |
Borrowings - Long-Term Debt, _2
Borrowings - Long-Term Debt, Covenants (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Borrowings | |
Limit based on net tangible assets | 10.00% |
Credit Facilities | |
Borrowings | |
Minimum net interest expense ratio | 2.20 |
Cross default provision on credit facility | $ 500 |
Borrowings - Pre-Swap Obligatio
Borrowings - Pre-Swap Obligations (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Pre-swap annual contractual obligations of long-term debt outstanding | ||
2019 (for Q2- Q4) | $ 5,459 | |
2020 | 7,374 | |
2021 | 6,700 | |
2022 | 4,354 | |
2023 | 5,358 | |
2024 and beyond | 18,102 | |
Total | $ 47,346 | $ 43,196 |
Borrowings - Interest on Debt (
Borrowings - Interest on Debt (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Interest on Debt | ||
Interest capitalized | $ 2 | $ 3 |
Total interest paid and accrued | 391 | 349 |
Cost of financing | ||
Interest on Debt | ||
Interest paid | 179 | 182 |
Interest expense | ||
Interest on Debt | ||
Interest paid | $ 210 | $ 165 |
Borrowings - Lines of Credit (D
Borrowings - Lines of Credit (Details) - 364-Day Bridge Facility $ in Millions | Oct. 28, 2018USD ($) |
Lines of Credit | |
Credit facility term | 364 days |
Amount of credit facility | $ 20,000 |
Fees related to the credit facility | $ 60 |
Contingencies (Details)
Contingencies (Details) $ in Millions | Aug. 07, 2017USD ($) | Feb. 13, 2014USD ($) | Jul. 18, 2012USD ($) | May 31, 2015defendant | Mar. 31, 2019USD ($)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 | Mar. 31, 2019 | Dec. 31, 2018 |
Extended lines of credit | ||
Commitments, guarantees: | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 7,902 | $ 7,368 |
Financing for client purchase agreements | ||
Commitments, guarantees: | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 4,165 | $ 4,432 |
Commitments - Financial Guarant
Commitments - Financial Guarantees (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Financial guarantees | ||
Guarantor obligations | ||
Guarantor obligations, maximum exposure | $ 24 | $ 26 |
Commitments - Standard Warranty
Commitments - Standard Warranty Liability (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Movement in standard warranty liability | ||
Beginning Balance | $ 118 | $ 152 |
Current period accruals | 110 | 25 |
Accrual adjustments to reflect actual experience | (9) | (14) |
Charges incurred | (111) | (32) |
Ending Balance | $ 107 | $ 130 |
Commitments - Extended Warranty
Commitments - Extended Warranty Liability (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Movement in deferred income | |||
Amortization of deferred revenue | $ (3,500) | $ (3,500) | |
Current portion | 12,134 | $ 11,165 | |
Noncurrent portion | 3,481 | $ 3,445 | |
Extended Warranty | |||
Movement in deferred income | |||
Beginning Balance | 533 | 566 | |
Revenue deferred for new extended warranty contracts | 36 | 46 | |
Amortization of deferred revenue | (64) | (69) | |
Other | (3) | 5 | |
Ending Balance | 503 | 548 | |
Current portion | 242 | 260 | |
Noncurrent portion | $ 261 | $ 288 |
Earnings Per Share of Common _3
Earnings Per Share of Common Stock - Computation (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Number of shares on which basic earnings per share is calculated: | ||
Weighted-average shares outstanding during period (in shares) | 889,581,542 | 920,680,222 |
Add - Incremental shares under stock-based compensation plans (in shares) | 3,372,460 | 3,553,104 |
Add - Incremental shares associated with contingently issuable shares (in shares) | 956,524 | 1,176,108 |
Number of shares on which diluted earnings per share is calculated (in shares) | 893,910,526 | 925,409,434 |
Net income on which basic earnings per share is calculated | ||
Income from continuing operations | $ 1,593 | $ 1,675 |
Income/(loss) from discontinued operations, net of tax | (2) | 4 |
Net income on which basic earnings per share is calculated | 1,591 | 1,679 |
Net income on which diluted earnings per share is calculated | ||
Income from continuing operations | 1,593 | 1,675 |
Income from continuing operations on which diluted earnings per share is calculated | 1,593 | 1,675 |
Income/(loss) from discontinued operations, net of tax, on which basic and diluted earnings per share is calculated | (2) | 4 |
Net income on which diluted earnings per share is calculated | $ 1,591 | $ 1,679 |
Assuming dilution | ||
Continuing operations (in dollars per share) | $ 1.78 | $ 1.81 |
Discontinued operations (in dollars per share) | 0 | 0 |
Total (in dollars per share) | 1.78 | 1.81 |
Basic | ||
Continuing operations (in dollars per share) | 1.79 | 1.82 |
Discontinued operations (in dollars per share) | 0 | 0 |
Total (in dollars per share) | $ 1.79 | $ 1.82 |
Earnings Per Share of Common _4
Earnings Per Share of Common Stock - Antidilutive Stock Options (Details) - shares | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Stock options | ||
Antidilutive stock options | ||
Outstanding stock options not included in the computation of diluted earnings per share (in shares) | 1,137,019 | 16,869 |
Subsequent Events (Details)
Subsequent Events (Details) - $ / shares | Apr. 30, 2019 | Jan. 31, 2019 |
Subsequent Events | ||
Dividend declared (in dollars per share) | $ 1.57 | |
Subsequent event | ||
Subsequent Events | ||
Dividend declared, date | Apr. 30, 2019 | |
Dividend declared (in dollars per share) | $ 1.62 | |
Dividend payable, date | Jun. 10, 2019 | |
Shareholders of record, date | May 10, 2019 | |
Dividend per share increase (in dollars per share) | $ 0.05 | |
Dividend per share increase (as a percent) | 3.00% |