Document and Entity Information
Document and Entity Information | 3 Months Ended |
Mar. 31, 2019shares | |
Document and Entity Information | |
Entity Registrant Name | IBM CREDIT LLC |
Entity Central Index Key | 0001225307 |
Document Type | 10-Q |
Document Period End Date | Mar. 31, 2019 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Non-accelerated Filer |
Entity Current Reporting Status | Yes |
Entity Small Business | false |
Entity Emerging Growth Company | false |
Entity Common Stock, Shares Outstanding | 0 |
Document Fiscal Year Focus | 2019 |
Document Fiscal Period Focus | Q1 |
CONSOLIDATED STATEMENT OF EARNI
CONSOLIDATED STATEMENT OF EARNINGS - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue | ||
Financing revenue | $ 404 | $ 365 |
Operating lease revenue | 78 | |
Operating lease revenue | 84 | |
Total revenue | 482 | 449 |
Financing cost (related party cost of $74 in 2019 and $57 in 2018) | 160 | 102 |
Depreciation of equipment under operating lease | 45 | |
Depreciation of equipment under operating lease | 48 | |
Net margin | 277 | 300 |
Expense and other (income) | ||
Selling, general and administrative | 97 | 98 |
Provision for credit losses | 4 | 9 |
Other (income) and expense | (18) | 1 |
Total expense and other (income) | 83 | 109 |
Income before income taxes | 193 | 191 |
Provision for income taxes | 150 | 42 |
Net income | $ 43 | $ 149 |
CONSOLIDATED STATEMENT OF EAR_2
CONSOLIDATED STATEMENT OF EARNINGS (Parenthetical) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
CONSOLIDATED STATEMENT OF EARNINGS | ||
Financing cost - related party | $ 74 | $ 57 |
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 | $ 43 | $ 149 | |
Other comprehensive income/(loss), before tax: | |||
Foreign currency translation | 3 | 70 | |
Retirement-related benefit plans | [1] | 0 | 1 |
Other comprehensive income/(loss), before tax | 3 | 71 | |
Income tax benefit related to items of other comprehensive income | 3 | 11 | |
Other comprehensive income/(loss), net of tax | 6 | 82 | |
Total comprehensive income | $ 49 | $ 230 | |
[1] | Amounts represented relate to multiple-employer plans. |
CONSOLIDATED STATEMENT OF FINAN
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Assets: | ||
Cash and cash equivalents | $ 1,573 | $ 1,828 |
Equipment under operating leases (net of accumulated depreciation of $286 in 2019 and $283 in 2018) | 345 | |
Equipment under operating leases (net of accumulated depreciation of $286 in 2019 and $283 in 2018) | 386 | |
Other receivables from IBM | 301 | 2,019 |
Other assets | 366 | 373 |
Total assets | 35,217 | 39,497 |
Liabilities: | ||
Accounts payable | 1,362 | 1,705 |
Accounts payable to IBM | 950 | 3,044 |
Debt | 10,577 | 10,954 |
Debt payable to IBM | 18,367 | 19,580 |
Taxes | 594 | 547 |
Other liabilities | 203 | 246 |
Total liabilities | 32,053 | 36,076 |
Member's interest: | ||
Member's interest | 3,191 | 3,216 |
Retained earnings | 238 | |
Accumulated other comprehensive income/(loss) | (27) | (33) |
Total member's interest | 3,164 | 3,420 |
Total liabilities and member's interest | 35,217 | 39,497 |
Financing Receivable Portfolio | ||
Assets: | ||
Financing receivables | 23,431 | 25,848 |
Financing receivables from IBM | ||
Assets: | ||
Financing receivables | 3,869 | 3,609 |
Purchased and participated receivables from IBM | ||
Assets: | ||
Financing receivables | $ 5,331 | $ 5,433 |
CONSOLIDATED STATEMENT OF FIN_2
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Parenthetical) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Equipment under operating leases - accumulated depreciation | $ 286 | |
Equipment under operating leases - accumulated depreciation | $ 283 | |
Financing Receivable Portfolio | ||
Receivables - allowances | 171 | 174 |
Purchased and participated receivables from IBM | ||
Receivables - allowances | $ 11 | $ 18 |
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 | $ 43 | $ 149 | |
Adjustments to reconcile net income to cash provided by operating activities: | |||
Provision for credit losses | 4 | 9 | |
Depreciation | 45 | ||
Depreciation | 48 | ||
Deferred taxes | (2) | (25) | |
Net (gain)/loss on asset sales and other | (6) | (44) | |
Change in operating assets and liabilities: | |||
Other assets/other liabilities | 4 | 103 | |
Net cash provided by operating activities | 88 | 240 | |
Cash flows from investing activities: | |||
Originations of financing receivables | (4,219) | (4,943) | |
Collection of financing receivables | 4,023 | 3,751 | |
Short-term financing receivables - net | [1] | 46 | 863 |
Purchase of equipment under operating leases | (20) | (57) | |
Proceeds from disposition of equipment under operating lease | 13 | 15 | |
Other receivables from IBM - net | 1,738 | (214) | |
Other investing activities - net | (10) | (65) | |
Net cash provided by/(used in) investing activities | 1,572 | (650) | |
Cash flows from financing activities: | |||
Proceeds from issuance of debt from IBM | 2,545 | 4,841 | |
Principal payments on debt from IBM | (2,388) | (4,299) | |
Proceeds from issuance of debt | 300 | 2,122 | |
Principal payments on debt | (196) | (247) | |
Short-term borrowings from/(repayments to) IBM - net | [1] | (1,299) | (2,517) |
Short-term borrowings/(repayments) - net | [1] | (500) | 480 |
Distributions to IBM | (370) | (490) | |
Net cash used in financing activities | (1,910) | (111) | |
Effect of exchange rate changes on cash and cash equivalents | (5) | 11 | |
Net change in cash and cash equivalents | (255) | (510) | |
Cash and cash equivalents at beginning of period | 1,828 | 2,680 | |
Cash and cash equivalents at end of period | $ 1,573 | $ 2,170 | |
[1] | Short-term represents original maturities of 90 days or less. |
CONSOLIDATED STATEMENT OF CHANG
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST - USD ($) $ in Millions | Jan. 01, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | ||
Member's Interest | |||||
Balance at the beginning of the period | $ 3,562 | $ 3,420 | $ 3,562 | ||
Net income | 43 | 149 | |||
Other comprehensive income/(loss), net of tax | 6 | 82 | |||
Total comprehensive income | 49 | 230 | |||
Contributions from IBM | [1] | 64 | |||
Distributions to IBM | (370) | (490) | |||
Balance at the end of the period | 3,164 | 3,302 | |||
Member's Interest | |||||
Member's Interest | |||||
Balance at the beginning of the period | 3,101 | 3,216 | 3,101 | ||
Contributions from IBM | [1] | 64 | |||
Distributions to IBM | (88) | (34) | |||
Balance at the end of the period | 3,191 | 3,067 | |||
Retained Earnings | |||||
Member's Interest | |||||
Balance at the beginning of the period | 302 | 238 | 302 | ||
Cumulative effect of change in accounting principle | 5 | 5 | [2] | ||
Net income | 43 | 149 | |||
Distributions to IBM | (282) | (456) | |||
Accumulated Other Comprehensive Income/(Loss) | |||||
Member's Interest | |||||
Balance at the beginning of the period | 158 | (33) | 158 | ||
Cumulative effect of change in accounting principle | $ (5) | (5) | [2] | ||
Other comprehensive income/(loss), net of tax | 6 | 82 | |||
Balance at the end of the period | $ (27) | $ 234 | |||
[1] | Includes $64 million non-cash equity contribution from IBM. Refer to note 9, "Relationship with IBM and Related Party Transactions." | ||||
[2] | Reflects the adoption of the FASB guidance on stranded tax effects. Refer to note 2, "Accounting Changes." |
CONSOLIDATED STATEMENT OF CHA_2
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST (Parenthetical) $ in Millions | 3 Months Ended |
Mar. 31, 2019USD ($) | |
IBM | |
Non-cash equity contribution received | $ 64 |
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 IBM Credit LLC (IBM Credit or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company’s management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company’s results of operations, financial position and cash flows. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. Member’s Interest in the Consolidated Statement of Financial Position represents the accumulation of the company’s net income over time and contributions from IBM and distributions to IBM. Distributions by the company to IBM are considered first to be a return of profit as reflected in retained earnings in the Consolidated Statement of Financial Position. Any amount distributed to IBM in excess of the company’s available balance in retained earnings is considered a return of a portion of member’s interest as reflected in the Consolidated Statement of Financial Position. Income tax expense is based on reported income before income taxes. Whereas the majority of non-U.S. entities are separate legal tax filers, the company’s U.S. federal and certain state and foreign operations will continue to be included in various IBM consolidated tax returns. In such cases, the income taxes for these entities are calculated using a separate return method modified to apply the benefits-for-loss approach, which is consistent with the company’s Tax Sharing Agreement with IBM. Under this approach, the provision for income taxes is computed as if the company filed tax returns on a separate tax return basis and is then adjusted, as necessary, to reflect IBM’s reimbursement for any tax benefits generated by the company. In the first quarter of 2019, the company reported a provision for income taxes of $150 million and an effective tax rate of 77.5 percent, compared to a provision of $42 million and an effective tax rate of 22.0 percent in the first quarter of 2018. The change in the effective tax rate was primarily attributable to an additional tax expense of $116 million related to guidance issued by the U.S. Treasury in January 2019 regarding U.S. tax reform repatriation tax. In accordance with the previously executed Tax Sharing Agreement between IBM and the company, $64 million of the resulting liability was settled through a non-cash contribution to member’s interest. For additional information, refer to Note 9, “Relationship with IBM and Related Party Transactions.” The amount of restricted cash included in the Consolidated Statement of Financial Position and Consolidated Statement of Cash Flows is immaterial for the periods presented. All significant intracompany transactions between IBM Credit’s businesses have been eliminated. All significant intercompany transactions between IBM Credit and IBM have been included in these Consolidated Financial Statements. Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements included in the Form 10-K. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. 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. The guidance is effective on January 1, 2020 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 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 (ROU) assets and lease liabilities for most leases in the Consolidated Statement of Financial Position. The guidance also made some changes to lessor accounting, including the 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 also 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 (IDC’s). From a lessor perspective, the changes in lease termination guidance, IDC and removal of third-party residual value guarantee insurance in the lease classification test did not have a material impact on the consolidated financial results. There are no material impacts of adoption from a lessee perspective as there are no material lease arrangements in which the company is a lessee. Refer to note 4, “Leases,” for additional information, including further discussion on the impact of adoption. 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 ceases 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, $5 million was reclassified from AOCI to retained earnings. 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. 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 on January 1, 2018 using the modified-retrospective transition method. The company concluded that substantially all of its financing and operating lease revenue streams are not within the scope of the guidance, as they are governed by other accounting standards. The guidance did not have an impact on the company’s consolidated financial results. The company concluded its assessment of the data availability and presentation necessary to meet the additional disclosure requirements of the guidance in the Notes to the Consolidated Financial Statements and there was no material change to disclosures as a result of the adoption of the guidance. |
Financial Instruments
Financial Instruments | 3 Months Ended |
Mar. 31, 2019 | |
Financial Instruments: | |
Financial Instruments: | 3. Financial Instruments : Fair Value Measurements Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the company is required to classify certain assets and liabilities based on the following fair value hierarchy: · Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date; · Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and · Level 3—Unobservable inputs for the asset or liability. The guidance requires the use of observable market data if such data is available without undue cost and effort. When available the company uses unadjusted quoted market prices in active markets to measure the fair value and classifies such items as Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument. In determining the fair value of financial instruments, the company considers certain market valuation adjustments to the “base valuations” calculated using the methodologies described below for several parameters that market participants would consider in determining fair value: · Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument. · Credit risk adjustments are applied to reflect the company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company’s own credit risk as observed in the credit default swap market. As an example, the fair value of derivatives is derived utilizing a discounted cash flow model that uses observable market inputs such as known notional value amounts, yield curves, spot and forward exchange rates as well as discount rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative. Certain 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. Accounting guidance permits the measurement of eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. This election is irrevocable. The company has not applied the fair value option to any eligible assets or liabilities. The following tables present the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at 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 $ — $ 750 $ — $ 750 Money market funds 5 — — 5 Total 5 750 — 755 Derivative assets (2) — 21 — 21 (4) Total assets $ 5 $ 771 $ — $ 776 Liabilities: Derivative liabilities (3) $ — $ 23 $ — $ 23 (4) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within other assets in the Consolidated Statement of Financial Position. (3) Included within other liabilities in the Consolidated Statement of Financial Position. (4) If derivative exposures covered by a qualifying master netting agreement with IBM had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions would each have been reduced by $1 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 $ — $ 792 $ — $ 792 Money market funds 5 — — 5 Total 5 792 — 797 Derivative assets (2) — 18 — 18 (4) Total assets $ 5 $ 810 $ — $ 815 Liabilities: Derivative liabilities (3) $ — $ 37 $ — $ 37 (4) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within other assets in the Consolidated Statement of Financial Position. (3) Included within other liabilities in the Consolidated Statement of Financial Position. (4) If derivative exposures covered by a qualifying master netting agreement with IBM had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions would each have been reduced by $11 million. Financial Assets and Liabilities Not Measured at Fair Value Short-Term Receivables and Payables Short-term financing receivables are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (including debt payable to IBM) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy, except for short-term debt, which would be classified as Level 2. Long-Term Receivables Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At March 31, 2019 and December 31, 2018, the difference between the carrying amount and estimated fair value for long-term receivables was immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Long-Term Debt Fair value of publicly traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt, which includes debt payable to IBM, for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt (including debt payable to IBM) was $17,796 million and $17,276 million and the estimated fair value was $17,829 million and $17,199 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. Derivative Financial Instruments The company operates in multiple currencies and is a lender and issuer in the capital markets and a borrower from IBM. In the normal course of business, the company may be exposed to the impact of interest rate changes and foreign currency fluctuations. The company limits its exposure to core market risks by following established risk management policies and procedures, and through the use of match funding with IBM and third parties. Although the company seeks to substantially match fund the terms, currency and interest rate variability of its debt against its underlying financial assets, risks may arise between assets and the related liabilities used for funding. The company may also choose to mitigate any remaining exposure relating to interest rate changes and foreign currency fluctuations through the use of interest rate or foreign exchange derivatives. Derivative assets and liabilities are recorded in other assets and other liabilities in the Consolidated Statement of Financial Position and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the company with IBM and third parties, and are not necessarily a direct measure of the financial exposure. The company also enters into master netting agreements with certain counterparties that allow for netting of exposures in the event of default or breach. However, in the Consolidated Statement of Financial Position, the company does not offset derivative assets against liabilities in master netting arrangements. At March 31, 2019, the aggregate fair value of derivative contracts with IBM that were in an asset position totaled $21 million and the aggregate fair value of derivative contracts with IBM that were in a liability position totaled $23 million. If derivatives exposures covered by a qualifying master netting agreement with IBM had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions would each have been reduced by $1 million. At December 31, 2018, the aggregate fair value of derivative contracts with IBM that were in an asset position totaled $18 million and the aggregate fair value of derivative contracts with IBM that were in a liability position totaled $37 million. If derivatives exposures covered by a qualifying master netting agreement with IBM had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions would each have been reduced by $11 million. Interest Rate Risk Fixed and Variable Rate Borrowings The company issues debt in the capital markets to fund its operations. Access to cost-effective financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall interest cost, the company may enter into interest-rate swaps with IBM to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). At March 31, 2019 and December 31, 2018, the total notional amount of the company's interest rate swap contracts with IBM was $3,350 million at both periods. The weighted average remaining maturity of these instruments at March 31, 2019 and December 31, 2018, was approximately 2.2 years and 2.4 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. Foreign Exchange Risk Long-Term Investments in Foreign Subsidiaries (Net Investment) The company enters into foreign exchange derivatives with IBM as a hedge of net investment of its foreign subsidiaries to reduce the volatility in member's interest caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. At March 31, 2019 and December 31, 2018, the total notional amount of derivative contracts with IBM designated as net investment hedges was $1,356 million and $1,986 million, respectively. The weighted average remaining maturity of these instruments was 0.2 years at both periods. Foreign Currency Asset/Liability Management The company enters into foreign exchange derivative contracts to manage foreign currency exposures associated with the company’s funding from IBM and third parties. These derivatives are not designated as hedges for accounting purposes. However, these derivatives represent economic hedges which provide an economic offset to the underlying foreign currency exposure. The terms of these derivative contracts are generally less than one year. The gains and losses recognized on economic hedges are recorded in other (income) and expense in the Consolidated Statement of Earnings, and the associated cash flows are included in other investing activities-net, in the Consolidated Statement of Cash Flows. There were no foreign exchange derivative contracts with third parties outstanding at March 31, 2019 and December 31, 2018. The following tables provide a quantitative summary of the 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 with IBM Other assets $ 11 $ 10 Other liabilities $ 23 $ 27 Foreign exchange contracts with IBM Other assets 10 9 Other liabilities 1 11 Fair value of derivative assets $ 21 $ 18 Fair value of derivative liabilities $ 23 $ 37 Not designated as hedging instruments: Foreign exchange contracts Other assets — — Other liabilities — — Fair value of derivative assets $ — $ — Fair value of derivative liabilities $ — $ — Total $ 21 $ 18 $ 23 $ 37 As of 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: At March 31, At December 31, (Dollars in millions) 2019 2018 Debt: Carrying amount of the hedged item $ (3,335) $ (3,310) Cumulative hedging adjustments included in the carrying amount - assets/(liabilities) 9 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, 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 Financing cost $ 160 $ 102 $ 4 $ 9 Other (income) and expense (18) 1 — 1 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 with IBM Financing cost $ 20 $ (21) $ (25) $ 23 Derivative instruments not designated as hedging instruments: Foreign exchange contracts Other (income) and expense — 1 N/A N/A Total $ 20 $ (20) $ (25) $ 23 Gain/(Loss) Recognized in Earnings and Other Comprehensive Income Consolidated Statement of Reclassified Amounts Excluded from (Dollars in millions) Recognized in OCI Earnings from AOCI Effectiveness Testing (3) For the three months ended March 31: 2019 2018 Line Item 2019 2018 2019 2018 Derivative instruments in net investment hedges: Foreign exchange contracts with IBM $ (10) $ (43) Financing cost $ — $ — $ 10 $ 7 Total $ (10) $ (43) $ — $ — $ 10 $ 7 (1) The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts. (2) The amount includes basis adjustments to the carrying value of the hedged item recorded during the period. (3) The company's policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. 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 hedges); nor are there any anticipated in the normal course of business. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2019 | |
Leases: | |
Leases: | 4. Leases: Accounting for leases as a lessee IBM Credit’s global operations are primarily conducted in IBM leased or owned facilities, whereby IBM charges the company for occupancy expenses based on square footage space usage, with no fixed term commitment. As such, these arrangements do not represent leases and the company did not record any ROU assets or associated lease liabilities in the Consolidated Statement of Financial Position at January 1, 2019. For additional information, see Note 9, “Relationship with IBM and Related Party Transactions.” The company has no other material lease arrangements in which it is a lessee. Accounting for leases as lessor The company enters into leases as a means to provide financing to its clients. Assets under lease include new and used IBM equipment and certain original equipment manufacturers’ (OEM) IT products. Equipment generally consists of IBM Z, Power Systems and Storage Systems. When 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 client has the right to control that asset. The company determines whether there is a right to control the use of the asset by assessing the client’s rights to obtain substantially all of the economic benefits from the use of the identified asset and rights to direct the use of the identified asset. The company determines the classification of the lease at the lease commencement date. Lease payments due to IBM Credit 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 finance income, 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. 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 Financing lease revenue $ Operating lease revenue Variable lease revenue Total lease revenue $ Sales-Type and Direct Financing Leases If a lease is classified as a sales-type or direct financing lease, 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 and 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 $472 million. For further information on the company’s investment in leases, including guaranteed and unguaranteed residual values, refer to note 5, “Financing Receivables, Receivables Purchased/Participated from IBM.” IBM Credit enters into lease arrangements for the purpose of generating revenue by providing financing. As a result, any profit or loss at the lease commencement date is presented on a net basis within a single line item on the Consolidated Statement of Earnings. Under a net sales-type lease, eligible IDCs are deferred and recognized over the lease term. Over the term of a sales-type lease, the company recognizes financing revenue 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 lease is measured similarly to a sales-type lease, however, the net investment in the lease is reduced by any selling profit, which is typically zero. In a direct financing lease, the selling profit and IDCs are deferred at commencement and recognized over the lease term. The company rarely enters into direct financing leases. Prior to the adoption of the new lease guidance, the company’s leases were generally classified as direct financing leases. Due to the changes in the lease classification requirements under the new lease guidance, the company’s leases are generally classified as sales-type leases and presented on a net basis. 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 and 2018, impairment of residual values was immaterial. The following table provides a maturity analysis of the lease payments due to IBM Credit on sales-type and direct financing leases over the next five years and thereafter, with the exception of 2019, which presents the 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 $ * Operating Leases Equipment provided to clients under an operating lease is carried at cost within Equipment under Operating Lease 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 equipment under operating leases was $106 million. At commencement of an operating lease, IDCs are deferred. As lease payments are made, the company records financing revenue over the lease term. IDCs are amortized 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 Credit on operating leases over the next five years and thereafter, at March 31, 2019, with the exception of 2019, which presents the 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 lease 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. |
Financing Receivables, Receivab
Financing Receivables, Receivables Purchased/Participated from IBM | 3 Months Ended |
Mar. 31, 2019 | |
Financing Receivables, Receivables Purchased/Participated from IBM: | |
Financing Receivables, Receivables Purchased/Participated from IBM: | 5. Financing Receivables, Receivables Purchased/Participated from IBM : Financing receivables consist of Client Financing leases, loans and installment payment plans to end-user clients as well as loans to IBM for terms up to seven years. Assets financed are primarily IT products and services where IBM and the company have experience. Client Financing arrangements are priced to achieve a market yield. Financing receivables also include Commercial Financing, which generally consists of working capital financing to suppliers, distributors and resellers of IBM and OEM IT products and services. Payment terms for working capital financing receivables generally range from 30 to 90 days. The company purchases interests in certain of IBM’s trade accounts receivable at a discount. These receivables are primarily for IT-related products and services, which are due within 30 days, and IBM performs all servicing under these arrangements. These receivables are included within the Commercial Financing segment. The company also participates in receivables from IBM for certain long-term financing receivables generated from IBM’s Total Solution Offerings in certain countries as well as for certain government and other contracts. These receivables are included in the Client Financing segment. The company carries the credit risk of IBM’s clients for all purchased and participated receivables from IBM. Client Loans and Commercial Installment (Dollars in millions) Investment in Financing Payments At March 31, 2019: Leases Receivables (Loans) Total Financing receivables, gross $ $ $ $ Unearned income Deferred initial direct costs — Recorded investment $ $ $ $ Allowance for credit losses Unguaranteed residual value — — Guaranteed residual value — — Total financing receivables, net $ $ $ $ Purchased and Participated (Dollars in millions) Receivables At March 31, 2019: From IBM Short-term purchased receivables from IBM $ Allowance for credit losses Total short-term purchased receivables from IBM, net $ Long-term participated receivables from IBM $ Allowance for credit losses Total long-term participated receivables from IBM, net $ Total purchased and participated receivables from IBM, net $ Client Loans and Commercial Installment (Dollars in millions) Investment in Financing Payments At December 31, 2018: Leases Receivables (Loans) Total Financing receivables, gross $ 5,120 $ 11,422 $ 9,694 $ 26,236 Unearned income (411) (36) (453) (900) Deferred initial direct costs 46 — 73 119 Recorded investment $ 4,755 $ 11,386 $ 9,314 $ 25,455 Allowance for credit losses (65) (11) (98) (174) Unguaranteed residual value 491 — — 491 Guaranteed residual value 77 — — 77 Total financing receivables, net $ 5,258 $ 11,374 $ 9,216 $ 25,848 Purchased and Participated (Dollars in millions) Receivables At December 31, 2018: From IBM Short-term purchased receivables from IBM $ 1,373 Allowance for credit losses (4) Total short-term purchased receivables from IBM, net $ 1,369 Long-term participated receivables from IBM $ 4,079 Allowance for credit losses (14) Total long-term participated receivables from IBM, net $ 4,065 Total purchased and participated receivables from IBM, net $ 5,433 The company utilizes certain of its financing receivables as collateral for non-recourse 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 Client Financing receivables on a gross basis, excluding the allowance for credit losses and residual value, by portfolio segment and by class, excluding Commercial Financing receivables and other miscellaneous financing receivables at March 31, 2019 and December 31, 2018. Commercial Financing receivables and purchased receivables from IBM 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 three portfolio segments: lease receivables, loan receivables and participated receivables from IBM, 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 Participated receivables from IBM 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 Participated receivables from IBM Total $ $ $ $ Write-offs $ $ $ — $ Recoveries — 0 Provision Foreign currency translation adjustment — Other — — Ending balance at March 31, 2019 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Participated receivables from IBM $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ Write-offs of lease and loan receivables were $8 million and $5 million, respectively, for the three months ended March 31, 2019. Provisions for credit losses recorded for lease receivables, loan receivables and participated receivables from IBM were $1 million, $5 million and a reduction of $7 million, respectively, for the three months ended March 31, 2019. The average recorded investment of impaired leases and loans for Americas, EMEA and Asia Pacific was $98 million, $30 million and $13 million, respectively, for the three months ended March 31, 2019 and $65 million, $39 million and $19 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 Participated receivables from IBM Ending balance $ $ $ $ Recorded investment collectively evaluated for impairment $ $ $ $ Recorded investment individually evaluated for impairment $ $ 39 $ $ Allowance for credit losses Beginning balance at January 1, 2018 Lease receivables $ $ $ $ Loan receivables Participated receivables from IBM 2 Total $ $ $ $ Write-offs $ $ $ $ Recoveries Provision Foreign currency translation adjustment Other Ending balance at December 31, 2018 $ 107 $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Participated receivables from IBM $ $ $ $ 14 Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ Write-offs of lease receivables and loan receivables were $13 million and $3 million, respectively, for the year ended December 31, 2018. Provisions for credit losses recorded for lease receivables, loan receivables and participated receivables from IBM were $9 million, $6 million and $12 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 general 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 clients’ financing receivables past due when an installment is aged over 90 days. The following table summarizes the information about the recorded investment in lease and loan receivables and participated receivables from IBM, including recorded investments aged over 90 days and still accruing, billed invoices aged over 90 days and 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 $ 3,358 $ 280 $ 239 $ 13 $ 41 EMEA 632 38 22 3 16 Asia Pacific 586 14 2 — 11 Total lease receivables $ 4,576 $ 331 $ 263 $ 16 $ 68 Americas $ 5,674 $ 193 $ 128 $ 22 $ 64 EMEA 2,100 56 10 3 46 Asia Pacific 845 5 2 1 3 Total loan receivables $ 8,619 $ 253 $ 140 $ 26 $ 114 Americas $ 652 $ 5 $ 5 $ 3 $ — EMEA 1,587 6 6 2 — Asia Pacific 1,669 — — — — Total participated receivables from IBM $ 3,908 $ 11 $ 11 $ 4 $ — Total $ 17,104 $ 596 $ 414 $ 47 $ 182 (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, $138 million is individually evaluated for impairment with a related allowance of $112 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 $ 3,433 $ 288 $ 247 $ 18 $ 44 EMEA 687 24 9 1 15 Asia Pacific 635 29 19 2 11 Total lease receivables $ 4,755 $ 341 $ 275 $ 21 $ 70 Americas $ 6,167 $ 217 $ 161 $ 22 $ 61 EMEA 2,231 80 24 3 57 Asia Pacific 916 13 9 1 4 Total loan receivables $ 9,314 $ 310 $ 194 $ 25 $ 122 Americas $ 735 $ 11 $ 11 $ 2 $ — EMEA 1,627 9 4 1 5 Asia Pacific 1,717 — — — — Total participated receivables from IBM $ 4,079 $ 20 $ 15 $ 3 $ 5 Total $ 18,147 $ 671 $ 484 $ 49 $ 197 (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, $149 million is individually evaluated for impairment with a related allowance of $120 million. Credit Quality Indicators The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by clients, as well as other information, 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 client credit ratings. The following tables present the net recorded investment 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. In certain circumstances, the company may mitigate credit risk through arrangements with third parties, including credit insurance, financial guarantees, or non-recourse borrowings. The credit quality indicators do not reflect these mitigation actions. Lease Receivables Loan Receivables Participated Receivables from IBM (Dollars in millions) Asia Asia Asia At March 31, 2019: Americas EMEA Pacific Americas EMEA Pacific Americas EMEA Pacific Credit Ratings: Aaa – Aa3 $ 285 $ 9 $ 45 $ 673 $ 49 $ 102 $ 380 $ 72 $ 68 A1 – A3 761 108 237 859 139 256 76 100 733 Baa1 – Baa3 933 122 118 1,514 604 171 81 800 507 Ba1 – Ba2 673 181 72 1,412 595 208 48 532 295 Ba3 – B1 430 128 60 562 401 56 59 66 36 B2 – B3 197 58 37 511 263 42 8 14 27 Caa – D 44 15 6 75 26 6 — — 1 Total $ 3,323 $ 621 $ 575 $ 5,605 $ 2,076 $ 841 $ 651 $ 1,584 $ 1,667 Lease Receivables Loan Receivables Participated Receivables from IBM (Dollars in millions) Asia Asia Asia At December 31, 2018 Americas EMEA Pacific Americas EMEA Pacific Americas EMEA Pacific Credit Ratings: Aaa – Aa3 $ 520 $ 24 $ 49 $ 935 $ 79 $ 71 $ 112 $ 58 $ 134 A1 – A3 617 82 241 1,108 269 351 133 198 659 Baa1 – Baa3 807 214 169 1,450 704 246 174 517 463 Ba1 – Ba2 772 207 102 1,387 681 149 167 500 280 Ba3 – B1 391 90 36 703 297 52 84 218 99 B2 – B3 264 47 26 475 156 37 57 114 70 Caa – D 23 5 3 42 17 5 5 12 9 Total $ 3,395 $ 670 $ 625 $ 6,101 $ 2,204 $ 912 $ 733 $ 1,618 $ 1,714 T roubled 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. |
Segments
Segments | 3 Months Ended |
Mar. 31, 2019 | |
Segments: | |
Segments: | 6. Segments : The company’s operations consist of two business segments: Client Financing and Commercial Financing. The segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in determining how to allocate resources and evaluate performance. The company is organized on the basis of its financing offerings. The company’s reportable segments are business units that offer different financing solutions based upon clients’ needs. Client Financing provides leases and loan financing to end-user clients, acquires installment payment plans offered to end-user clients by IBM, and acquires participation interests in IBM financing receivables for which the company assumes the IBM client’s credit risk from IBM. End-user clients are primarily IBM clients that elect to finance their acquisition of IBM’s hardware, software, and services, as well as OEM IT hardware, software and services, to meet their total solution requirements. In addition, the company provides loans to IBM, primarily in support of IBM’s Global Technology Services segment’s acquisition of IT assets, which IBM uses in external, revenue-producing services contracts. Commercial Financing provides working capital financing for suppliers, distributors and resellers of IBM and OEM IT products and services. Commercial Financing also purchases interests in certain of IBM’s trade accounts receivable at a discount and assumes the credit risk with IBM’s client. The segment’s expense includes an allocation of interest expense and selling, general and administrative (SG&A) expense by the company to each of its operating segments. Interest expense is allocated based on the average assets in each segment. SG&A expense is allocated based on a measurable financial driver, such as net margin. IBM Credit and its consolidated subsidiaries are reported by the company’s parent, IBM, as part of IBM’s Global Financing segment, which also includes IBM’s remanufacturing and remarketing business. SEGMENT INFORMATION Client Commercial Total (Dollars in millions) Financing Financing Segments For the three months ended March 31, 2019: Total revenue $ 322 $ 160 $ 482 Pre-tax income 117 76 193 Depreciation of equipment under operating lease 45 — 45 Financing cost 107 53 160 Provision for/(benefit from) credit losses (1) 5 4 For the three months ended March 31, 2018: Total revenue $ 308 $ 142 $ 449 Pre-tax income 128 63 191 Depreciation of equipment under operating lease 48 — 48 Financing cost 69 33 102 Provision for/(benefit from) credit losses 10 (1) 9 |
Equity Activity
Equity Activity | 3 Months Ended |
Mar. 31, 2019 | |
Equity Activity: | |
Equity Activity: | 7. Equity Activity : IBM Credit had no unrealized gains or (losses) on cash flow hedges and gains and losses on available-for-sale securities were immaterial during the periods presented in the following tables: Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended March 31, 2019: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ 3 $ 3 $ 6 Retirement-related benefit plans (1): Prior service costs/(credits) $ — $ — $ — Net (losses)/gains arising during the period 0 0 0 Curtailments and settlements — — — Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 0 0 0 Total retirement-related benefit plans $ 0 $ 0 $ 0 Other comprehensive income/(loss) $ 3 $ 3 $ 6 (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, "Retirement-Related Benefits," for additional information.) Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended March 31, 2018: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ 70 $ 11 $ 81 Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ 1 $ 0 $ 1 Curtailments and settlements — — — Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 0 0 0 Total retirement-related benefit plans $ 1 $ 0 $ 1 Other comprehensive income/(loss) $ 71 $ 11 $ 82 (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, "Retirement-Related Benefits," for additional information.) Accumulated Other Comprehensive Income/(Loss) (net of tax) Net Change Foreign Retirement- Accumulated Currency Related Other Translation Benefit Comprehensive (Dollars in millions) Adjustments* Plans Income/(Loss) January 1, 2019 $ (23) $ (10) $ (33) Other comprehensive income before reclassification 6 0 6 Amount reclassified from accumulated other comprehensive income — 0 0 Total change for the period 6 0 6 March 31, 2019 $ (17) $ (10) $ (27) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Foreign Retirement- Accumulated Currency Related Other Translation Benefit Comprehensive (Dollars in millions) Adjustments* Plans Income/(Loss) January 1, 2018 $ 165 $ (7) $ 158 Cumulative effect of a change in accounting principle** (5) — (5) Other comprehensive income before reclassification 81 0 81 Amount reclassified from accumulated other comprehensive income — 0 0 Total change for the period 81 1 82 March 31, 2018 $ 241 $ (7) $ 234 * 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. Refer to note 2, "Accounting Changes." |
Retirement-Related Benefits
Retirement-Related Benefits | 3 Months Ended |
Mar. 31, 2019 | |
Retirement-Related Benefits: | |
Retirement-Related Benefits: | 8. Retirement-Related Benefits : IBM Credit employees are eligible to participate in IBM’s retirement plans. Retirement-related plans are accounted for as multiemployer or multiple-employer plans as required by local regulations. Multiemployer Plans: For multiemployer plans, IBM allocates charges to the company based on the number of employees. The charges related to multiemployer plans are recorded in the company’s Consolidated Statement of Earnings. The amounts of expense attributed to the company by IBM for the three months ended March 31, 2019 and 2018 were not material. Charges from IBM to the company in relation to these plans (including non-pension, post-retirement benefits) are limited to service costs. Contributions and any other types of costs are the responsibility of IBM. Multiple-Employer Plans: For multiple-employer plans (mainly in Germany, Spain and Japan), assets and obligations are based on actuarial valuations or allocations and are recorded in the Consolidated Statement of Financial Position. Any gains or losses recorded to Accumulated Other Comprehensive Income in the three months ended March 31, 2019 and 2018 were not material. Costs related to multiple-employer plans are recorded in the company’s Consolidated Statement of Earnings. The total costs for multiple-employer plans for the three months ended March 31, 2019 and 2018 were not material. |
Relationship with IBM and Relat
Relationship with IBM and Related Party Transactions | 3 Months Ended |
Mar. 31, 2019 | |
Relationship with IBM and Related Party Transactions: | |
Relationship with IBM and Related Party Transactions: | 9. Relationship with IBM and Related Party Transactions : IBM Credit is a captive finance company and an indirect, wholly owned subsidiary of IBM. IBM Credit generally conducts its financing activities with IBM on an arm’s-length basis, subject in certain cases, particularly with respect to originations, to commercial factors, including IBM’s relationship with a client. The following is a description of certain material relationships between IBM Credit and IBM, regarding support, operating, borrowing, licensing, service and other arrangements. Support Agreement Pursuant to a Support Agreement between IBM and IBM Credit, IBM has agreed to retain, directly or indirectly, beneficial ownership of at least 51 percent of the equity voting interests in the company at all times. IBM has also agreed to cause the company to have a minimum consolidated tangible net worth of at least $50 million on the last day of each of the company’s fiscal years (with consolidated tangible net worth for purposes of this discussion of the Support Agreement understood to mean (a) the total assets of IBM Credit and its consolidated subsidiaries less (b) the intangible assets and total liabilities of IBM Credit and its consolidated subsidiaries). IBM has also agreed to cause the company to maintain a leverage ratio not to exceed 11 to 1 for each of the company’s fiscal quarters. Leverage ratio for purposes of this discussion of the Support Agreement is understood to mean, for any calendar quarter, IBM Credit’s debt-to-equity ratio as reported in, and calculated in the manner set forth in, IBM Credit’s periodic report covering such fiscal quarter (refer to page 34 of this Form 10-Q). In the event that the company’s leverage ratio at the end of any fiscal quarter is higher than 11 to 1, then, upon demand by the company, IBM has agreed to make or cause to be made a capital contribution to the company in an amount sufficient to cause the company’s leverage ratio to not exceed 11 to 1. The Support Agreement is not a guarantee by IBM of any indebtedness, other obligation, or liability of any kind of IBM Credit. Operating Relationship The company originates financing with end-user clients, which are primarily IBM customers that elect to finance their acquisition of IBM’s hardware, software, and services. The company participates in receivables from IBM for certain long-term financing receivables generated from IBM’s Total Solution Offerings in certain countries as well as for certain government and other contracts. The company carries the credit risk of IBM’s clients for all participated receivables from IBM. These receivables earned interest income of $50 million in the three months ended March 31, 2019, an increase of $1 million as compared to the same period in 2018. The interest income is included in the Consolidated Statement of Earnings as financing revenue. For additional information, see note 5, “Financing Receivables, Receivables Purchased/Participated from IBM.” The company purchases interests in certain of IBM’s trade accounts receivable at a discount and assumes the associated credit risk of IBM’s client. For the three months ended March 31, 2019, finance income earned from these receivables was $15 million, an increase of $2 million as compared to the same period in 2018. The finance income is included in financing revenue in the Consolidated Statement of Earnings. Effective in the second quarter of 2019, IBM and the company have suspended the program under which IBM Credit LLC purchases interests in IBM's trade accounts receivable. For additional information, see note 5, “Financing Receivables, Receivables Purchased/Participated from IBM.” In certain countries, the company provides loans to IBM, primarily in support of IBM’s Global Technology Services segment’s acquisition of IT assets, which it uses in external, revenue-producing services contracts. This financing is included in the Consolidated Statement of Financial Position as financing receivables from IBM. For the three months ended March 31, 2019, the interest income earned from these receivables was $44 million, an increase of $5 million as compared to the same period in 2018. Interest income is included in financing revenue in the Consolidated Statement of Earnings. The amount of such financings outstanding was $3,869 million at March 31, 2019 and $3,609 million at December 31, 2018. The amount of other receivables from IBM of $301 million and $2,019 million at March 31, 2019 and December 31, 2018, respectively, primarily relate to the investment of a portion of the company's excess cash in short-term interest bearing accounts with IBM, which can be withdrawn upon demand. The company's investment of excess cash with IBM was $282 million at March 31, 2019 and $2,014 million at December 31, 2018. The decline in the first quarter of 2019 was driven by the company’s decision to utilize its excess cash to retire a portion of its debt with IBM. The investment of excess cash with IBM is presented in other receivables from IBM in the Consolidated Statement of Financial Position and in the investing section of the Consolidated Statement of Cash Flows. Interest income earned from these investments was $8 million and $6 million in the three months ended March 31, 2019 and 2018, respectively. The interest income is included in financing revenue in the Consolidated Statement of Earnings. In addition, the company provides financing at market rates to suppliers, distributors and resellers of IBM products and services, a portion of which is supplemented by financing incentives from IBM to cover an interest free period. Fee income earned from these financing incentives under these arrangements for the three months ended March 31, 2019 was $49 million, an increase of $2 million as compared to the same period in 2018. These fees are included in financing revenue in the Consolidated Statement of Earnings and are deferred and recognized over the term of the financing arrangement. Borrowing Relationship The company has a credit facility with IBM that allows the company to obtain short-term and long-term funding. These loans are included in the Consolidated Statement of Financial Position as debt payable to IBM. Interest expense incurred on loans from IBM was $74 million and $57 million for the three months ended March 31, 2019 and 2018, respectively. Interest expense is included in financing cost in the Consolidated Statement of Earnings. For additional information on short-term and long-term funding, see note 11, “Borrowings.” Services and Other Arrangements The company sources a number of services from IBM, including functional support for collection administration, treasury, accounting, legal, tax, human resources, marketing and IT. In certain instances, IBM acts as IBM Credit’s billing and collection agent and forwards the financing payments to IBM Credit. The company also has the right to use certain IBM intangible assets in its business. In addition, the company conducts its global operations primarily from IBM leased or IBM owned facilities. For these support services and occupancy expenses, IBM charged the company $48 million and $52 million in the three months ended March 31, 2019 and 2018, respectively. The company participates in the various IBM stock-based compensation plans, including awards of Restricted Stock Units and Performance Share Units. In addition, the company participates in certain multiemployer retirement-related plans that are sponsored by IBM. Amounts charged by IBM to the company related to stock-based compensation and multiemployer retirement-related plans expense during the periods reported were not material. Expenses related to the services discussed above are included in selling, general and administrative expense in the Consolidated Statement of Earnings. These expenses may not be indicative of the expenses that IBM Credit will incur in the future, or would have incurred if the company had obtained these services from a third party. The outstanding amount of accounts payable to IBM of $950 million at March 31, 2019, and $3,044 million at December 31, 2018, primarily relate to unsettled purchases of equipment or receivables/loans (for software and services) from IBM. This payable account is non-interest bearing, short term in nature and is expected to be settled in the normal course of business. The company sells equipment returned from lease to IBM at cost, which approximates fair value. In addition, IBM may migrate a client to new technology. In the event this migration results in an early termination of a lease, IBM will purchase the returned equipment at a pre-negotiated price, which is a function of the discounted value of the scheduled future lease payments and the residual value. The company's net profit from sales of returned equipment to IBM was $2 million and $8 million for the three months ended March 31, 2019 and 2018, respectively. These sales are recorded net in other (income) and expense in the Consolidated Statement of Earnings. Tax Sharing Agreement The company’s U.S. federal and certain state and foreign operations are included in various IBM consolidated tax returns; and, in such cases, IBM makes payments to tax authorities on the company’s behalf. IBM and the company maintain a Tax Sharing Agreement for any operations included in an IBM consolidated tax return, pursuant to which IBM charges the company for any taxes owed and reimburses the company for any tax attributes generated. Such charges or reimbursements are based upon a calculation of the company’s relevant pro forma stand-alone tax return. In the first quarter of 2019, the company reported a provision for income taxes of $150 million and an effective tax rate of 77.5 percent, compared to a provision of $42 million and an effective tax rate of 22.0 percent in the first quarter of 2018. The change in the effective tax rate was primarily attributable to an additional tax expense of $116 million related to guidance issued by the U.S. Treasury in January 2019 regarding U.S. tax reform repatriation tax. In accordance with the previously executed Tax Sharing Agreement between IBM and the company, $64 million of the resulting liability was settled through a non-cash contribution to member’s interest. This contribution is included in the Consolidated Statement of Changes in Member’s Interest as Contributions from IBM. |
Divestiture
Divestiture | 3 Months Ended |
Mar. 31, 2019 | |
Divestiture: | |
Divestiture: | 10. Divestiture : In the fourth quarter of 2018, IBM 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. The transaction closed in the first quarter of 2019 and resulted in a pre-tax gain of $16 million. The cash proceeds from the divestiture of $20 million are expected to be remitted to the company by IBM in the second quarter of 2019. |
Borrowings
Borrowings | 3 Months Ended |
Mar. 31, 2019 | |
Borrowings: | |
Borrowings: | 11. Borrowings : The company may, at times, pledge financing receivables as collateral for non-recourse short-term and long-term borrowings. The amount of these secured borrowings is reflected in the following short-term and long-term debt tables below. Short-Term Debt Balance Balance (Dollars in millions) 3/31/2019 12/31/2018 Commercial paper $ 2,494 $ 2,995 Short-term loans 22 17 Secured borrowings 28 23 Debt $ 2,543 $ 3,035 Debt payable to IBM 8,605 10,223 Total $ 11,148 $ 13,258 IBM Credit maintains a commercial paper program under which the company is permitted to issue unsecured commercial paper notes from time to time, up to a maximum aggregate amount outstanding at any one time of $5 billion. The proceeds of the commercial paper can be used for general corporate purposes, including, among other items, the repayment of indebtedness and other short-term liquidity needs. The maturity of the commercial paper notes issued can vary but may not exceed 364 days from the date of issuance. The notes are sold under customary terms in the commercial paper marketplace, and can be issued either at a discount from par, or at par, and bear interest rates as agreed upon under the terms and conditions of the agreements between the company and each commercial paper dealer. The weighted-average interest rate for commercial paper was 2.5 percent at March 31, 2019 and December 31, 2018. The weighted-average interest rate for short-term loans was 7.2 percent and 4.3 percent at March 31, 2019 and December 31, 2018, respectively, and relates primarily to borrowings in Latin America in 2019 and in Asia Pacific in 2018. The weighted-average interest rate for secured borrowings was 6.8 percent and 6.9 percent at March 31, 2019 and December 31, 2018, respectively. Short-term financing receivables pledged as collateral for short-term secured borrowings were $28 million at March 31, 2019 and $23 million at December 31, 2018. The weighted-average interest rate for debt payable to IBM was 1.3 percent and 1.6 percent at March 31, 2019 and December 31, 2018, respectively. Long-Term Debt Balance Balance (Dollars in millions) Maturities 3/31/2019 12/31/2018 Long-term notes (weighted-average interest rate at March 31, 2019) 2.1% 2019 $ 1,400 $ 1,400 3.3% 2020 1,500 1,500 2.8% 2021 2,850 2,850 2.2% 2022 500 500 3.0% 2023 750 750 $ 7,000 $ 7,000 Long-term loans (6.2% weighted-average interest rate at March 31, 2019) 2019-2021 213 276 Secured borrowings (5.1% weighted-average interest rate at March 31, 2019) 2019-2024 840 687 Long-term debt $ 8,053 $ 7,964 Less: net unamortized discount 2 2 Less: net unamortized debt issuance costs 7 9 Less: fair value adjustment* 9 34 Debt $ 8,034 $ 7,919 Debt payable to IBM (1.4% weighted-average interest rate at March 31, 2019) 9,762 9,357 Total $ 17,796 $ 17,276 * The company utilizes certain of its financing receivables as collateral. Long-term financing receivables pledged as collateral for long-term secured borrowings were $840 million at March 31, 2019 and $687 million at December 31, 2018. The company has a shelf registration statement in place with the U.S. Securities and Exchange Commission ( SEC) allowing it to offer for sale public debt securities. The company issued fixed- and floating-rate debt securities in September 2017 in the aggregate amount of $3,000 million with maturity dates ranging from 2019 to 2022. During 2018, the company issued fixed- and floating-rate debt securities in the aggregate amount of $4,000 million with maturity dates ranging from 2020 to 2023. The net proceeds from the issuance of debt securities are utilized for general corporate purposes. This debt is included in the long-term debt table above. The company’s indenture governing its debt securities contains significant covenants which obligate the company to promptly pay principal and interest, limit the aggregate amount of liens (other than permitted liens as such term is defined under the indenture) to 15 percent of the company’s consolidated net tangible assets, and restrict the company’s ability to merge or consolidate unless certain conditions are met. Pre-swap annual contractual obligations of long-term debt and long-term debt payable to IBM outstanding at March 31, 2019 are as follows: 2019 2024 and (Dollars in millions) (Q2-Q4) 2020 2021 2022 2023 beyond Total Long-term debt $ 1,775 $ 1,898 $ 3,063 $ 560 $ 757 $ 0 $ 8,053 Debt payable to IBM 3,235 3,068 1,834 1,188 335 102 9,762 Total $ 5,010 $ 4,966 $ 4,898 $ 1,748 $ 1,092 $ 102 $ 17,815 Interest on Debt The company recognized interest expense of $150 million for the three months ended March 31, 2019, of which $74 million was interest expense on debt payable to IBM. The company recognized interest expense of $102 million for the three months ended March 31, 2018, of which $57 million was interest expense on debt payable to IBM. Lines of Credit The company has committed lines of credit in some of the geographies which are not significant in the aggregate. Interest rates and other terms of borrowing under these lines of credit vary from country to country, depending on local market conditions. On July 19, 2018, IBM and the company (the Borrowers) entered into a new $2.5 billion, 364-Day Credit Agreement to replace the maturing $2.5 billion, 364-Day agreement, and also amended their existing $2.5 billion Three-Year Credit Agreement (the Credit Agreements). The amended Three-Year Credit Agreement included a modification of terms to account for the potential discontinuation of LIBOR and to extend the maturity date by one year. The new maturity date for the Three-Year Agreement is July 20, 2021. The facility size remains unchanged. The Credit Agreements permit the Borrowers to borrow up to an aggregate of $5 billion on a revolving basis. Neither Borrower is a guarantor or co-obligor of the other Borrower under the Credit Agreements. Subject to certain conditions stated in the Credit Agreements, the Borrowers may borrow, prepay and re-borrow amounts under the Credit Agreements at any time during the term of the Credit Agreements. Funds borrowed may be used for the general corporate purposes of the Borrowers. Interest rates on borrowings under the Credit Agreements will be based on prevailing market interest rates, as further described in the Credit Agreements. The Credit Agreements contain customary representations and warranties, covenants, events of default, and indemnification provisions. As of March 31, 2019, the company had no borrowings outstanding against the Credit Agreements. The company’s Credit Agreements each contain significant debt covenants, which obligate the company to promptly pay principal and interest, limit the aggregate amount of secured indebtedness and sale and leaseback transactions to 10 percent of IBM’s consolidated net tangible assets, and restrict the ability of the company or IBM to merge or consolidate with a third party, unless certain conditions are met. The Credit Agreements also include several financial covenants, including that (i) IBM will not permit the consolidated net interest expense ratio, for any period of four consecutive fiscal quarters taken as a single accounting period, to be less than 2.20 to 1.0; (ii) the company will not permit its tangible net worth to be less than $50 million as of the end of the fiscal year and (iii) the company’s leverage ratio cannot be greater than 11 to 1 as of the last day of the fiscal quarter. The Credit Agreements each contain a cross default provision with respect to other defaulted indebtedness of at least $500 million. The company is in compliance with all of its significant debt covenants, and is obligated to provide periodic certifications to its lenders. The failure to comply with its debt covenants could constitute an event of default. If certain events of default were to occur, the principal and interest on the debt to which any event of default applied would become immediately due and payable. The Borrowers are also restricted from amending, modifying or terminating the Support Agreement in any manner materially adverse to the lenders. For additional information on the Support Agreement , see note 9, “Relationship with IBM and Related Party Transactions.” |
Contingencies
Contingencies | 3 Months Ended |
Mar. 31, 2019 | |
Contingencies: | |
Contingencies: | 12. Contingencies : The company is, or may be, involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise in the ordinary course of its business. Certain of these actions and proceedings are similar to suits filed against other financial institutions and captive finance companies. These may include collection and bankruptcy proceedings related to its leases and loans and proceedings concerning client allegations of wrongful repossession or defamation of credit. The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate). In addition, the company also discloses matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, client and employee relations considerations. In accordance with the relevant accounting guidance, 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. Also in accordance with the relevant accounting guidance, the company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. As of March 31, 2019, there were no matters for which the likelihood of material loss is at least reasonably possible. |
Commitments
Commitments | 3 Months Ended |
Mar. 31, 2019 | |
Commitments: | |
Commitments: | 13. Commitments : The company’s extended lines of credit to third-party entities include unused amounts of $7,635 million and $7,112 million at March 31, 2019 and December 31, 2018, respectively. A portion of these amounts is available to the company’s Commercial Financing clients 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 $384 million and $495 million at March 31, 2019 and December 31, 2018, respectively. |
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 IBM Credit LLC (IBM Credit or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company’s management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company’s results of operations, financial position and cash flows. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. Member’s Interest in the Consolidated Statement of Financial Position represents the accumulation of the company’s net income over time and contributions from IBM and distributions to IBM. Distributions by the company to IBM are considered first to be a return of profit as reflected in retained earnings in the Consolidated Statement of Financial Position. Any amount distributed to IBM in excess of the company’s available balance in retained earnings is considered a return of a portion of member’s interest as reflected in the Consolidated Statement of Financial Position. Income tax expense is based on reported income before income taxes. Whereas the majority of non-U.S. entities are separate legal tax filers, the company’s U.S. federal and certain state and foreign operations will continue to be included in various IBM consolidated tax returns. In such cases, the income taxes for these entities are calculated using a separate return method modified to apply the benefits-for-loss approach, which is consistent with the company’s Tax Sharing Agreement with IBM. Under this approach, the provision for income taxes is computed as if the company filed tax returns on a separate tax return basis and is then adjusted, as necessary, to reflect IBM’s reimbursement for any tax benefits generated by the company. The amount of restricted cash included in the Consolidated Statement of Financial Position and Consolidated Statement of Cash Flows is immaterial for the periods presented. All significant intracompany transactions between IBM Credit’s businesses have been eliminated. All significant intercompany transactions between IBM Credit and IBM have been included in these Consolidated Financial Statements. Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements included in the Form 10-K. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. 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. The guidance is effective on January 1, 2020 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 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 (ROU) assets and lease liabilities for most leases in the Consolidated Statement of Financial Position. The guidance also made some changes to lessor accounting, including the 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 also 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 (IDC’s). From a lessor perspective, the changes in lease termination guidance, IDC and removal of third-party residual value guarantee insurance in the lease classification test did not have a material impact on the consolidated financial results. There are no material impacts of adoption from a lessee perspective as there are no material lease arrangements in which the company is a lessee. Refer to note 4, “Leases,” for additional information, including further discussion on the impact of adoption. 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 ceases 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, $5 million was reclassified from AOCI to retained earnings. 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. 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 on January 1, 2018 using the modified-retrospective transition method. The company concluded that substantially all of its financing and operating lease revenue streams are not within the scope of the guidance, as they are governed by other accounting standards. The guidance did not have an impact on the company’s consolidated financial results. The company concluded its assessment of the data availability and presentation necessary to meet the additional disclosure requirements of the guidance in the Notes to the Consolidated Financial Statements and there was no material change to disclosures as a result of the adoption of the guidance. |
Financial Instruments and Fair Value Measurements | Fair Value Measurements Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the company is required to classify certain assets and liabilities based on the following fair value hierarchy: · Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date; · Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and · Level 3—Unobservable inputs for the asset or liability. The guidance requires the use of observable market data if such data is available without undue cost and effort. When available the company uses unadjusted quoted market prices in active markets to measure the fair value and classifies such items as Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument. In determining the fair value of financial instruments, the company considers certain market valuation adjustments to the “base valuations” calculated using the methodologies described below for several parameters that market participants would consider in determining fair value: · Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument. · Credit risk adjustments are applied to reflect the company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company’s own credit risk as observed in the credit default swap market. As an example, the fair value of derivatives is derived utilizing a discounted cash flow model that uses observable market inputs such as known notional value amounts, yield curves, spot and forward exchange rates as well as discount rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative. Certain 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. 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. Financial Assets and Liabilities Not Measured at Fair Value Short-Term Receivables and Payables Short-term financing receivables are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (including debt payable to IBM) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy, except for short-term debt, which would be classified as Level 2. Long-Term Receivables Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Long-Term Debt Fair value of publicly traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt, which includes debt payable to IBM, for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. 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 currencies and is a lender and issuer in the capital markets and a borrower from IBM. In the normal course of business, the company may be exposed to the impact of interest rate changes and foreign currency fluctuations. The company limits its exposure to core market risks by following established risk management policies and procedures, and through the use of match funding with IBM and third parties. Although the company seeks to substantially match fund the terms, currency and interest rate variability of its debt against its underlying financial assets, risks may arise between assets and the related liabilities used for funding. The company may also choose to mitigate any remaining exposure relating to interest rate changes and foreign currency fluctuations through the use of interest rate or foreign exchange derivatives. Derivative assets and liabilities are recorded in other assets and other liabilities in the Consolidated Statement of Financial Position and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the company with IBM and third parties, and are not necessarily a direct measure of the financial exposure. The company also enters into master netting agreements with certain counterparties that allow for netting of exposures in the event of default or breach. However, in the Consolidated Statement of Financial Position, the company does not offset derivative assets against liabilities in master netting arrangements. Interest Rate Risk Fixed and Variable Rate Borrowings The company issues debt in the capital markets to fund its operations. Access to cost-effective financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall interest cost, the company may enter into interest-rate swaps with IBM to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). Foreign Exchange Risk Long-Term Investments in Foreign Subsidiaries (Net Investment) The company enters into foreign exchange derivatives with IBM as a hedge of net investment of its foreign subsidiaries to reduce the volatility in member's interest caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. Foreign Currency Asset/Liability Management The company enters into foreign exchange derivative contracts to manage foreign currency exposures associated with the company’s funding from IBM and third parties. These derivatives are not designated as hedges for accounting purposes. However, these derivatives represent economic hedges which provide an economic offset to the underlying foreign currency exposure. The terms of these derivative contracts are generally less than one year. The gains and losses recognized on economic hedges are recorded in other (income) and expense in the Consolidated Statement of Earnings, and the associated cash flows are included in other investing activities-net, in the Consolidated Statement of Cash Flows. |
Leases | Accounting for leases as a lessee IBM Credit’s global operations are primarily conducted in IBM leased or owned facilities, whereby IBM charges the company for occupancy expenses based on square footage space usage, with no fixed term commitment. As such, these arrangements do not represent leases and the company did not record any ROU assets or associated lease liabilities in the Consolidated Statement of Financial Position at January 1, 2019. For additional information, see Note 9, “Relationship with IBM and Related Party Transactions.” The company has no other material lease arrangements in which it is a lessee. Accounting for leases as lessor The company enters into leases as a means to provide financing to its clients. Assets under lease include new and used IBM equipment and certain original equipment manufacturers’ (OEM) IT products. Equipment generally consists of IBM Z, Power Systems and Storage Systems. When 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 client has the right to control that asset. The company determines whether there is a right to control the use of the asset by assessing the client’s rights to obtain substantially all of the economic benefits from the use of the identified asset and rights to direct the use of the identified asset. The company determines the classification of the lease at the lease commencement date. Lease payments due to IBM Credit 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 finance income, 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. Sales-Type and Direct Financing Leases If a lease is classified as a sales-type or direct financing lease, 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 and 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 investment in leases, including guaranteed and unguaranteed residual values, refer to note 5, “Financing Receivables, Receivables Purchased/Participated from IBM.” IBM Credit enters into lease arrangements for the purpose of generating revenue by providing financing. As a result, any profit or loss at the lease commencement date is presented on a net basis within a single line item on the Consolidated Statement of Earnings. Under a net sales-type lease, eligible IDCs are deferred and recognized over the lease term. Over the term of a sales-type lease, the company recognizes financing revenue 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 lease is measured similarly to a sales-type lease, however, the net investment in the lease is reduced by any selling profit, which is typically zero. In a direct financing lease, the selling profit and IDCs are deferred at commencement and recognized over the lease term. The company rarely enters into direct financing leases. Prior to the adoption of the new lease guidance, the company’s leases were generally classified as direct financing leases. Due to the changes in the lease classification requirements under the new lease guidance, the company’s leases are generally classified as sales-type leases and presented on a net basis. 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 Equipment under Operating Lease 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, IDCs are deferred. As lease payments are made, the company records financing revenue over the lease term. IDCs are amortized over the lease term on the same basis as lease income is recorded. Assets under operating lease 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. |
Financing Receivables, Allowance for Credit Losses and Other Credit-Related Policies | The company utilizes certain of its financing receivables as collateral for non-recourse borrowings. The company determines its allowance for credit losses based on three portfolio segments: lease receivables, loan receivables and participated receivables from IBM, and further segments the portfolio into three classes: Amercias, 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 general 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 clients’ financing receivables past due when an installment is aged over 90 days. Credit Quality Indicators The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by clients, as well as other information, 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 client credit ratings. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. In certain circumstances, the company may mitigate credit risk through arrangements with third parties, including credit insurance, financial guarantees, or non-recourse borrowings. The credit quality indicators do not reflect these mitigation actions. |
Receivables Purchased/Participated from IBM | The company purchases interests in certain of IBM’s trade accounts receivable at a discount. These receivables are due within 30 days. These receivables are included within the Commercial Financing segment. The company also participates in receivables from IBM for certain long-term financing receivables generated from IBM’s Total Solution Offerings in certain countries as well as for certain government and other contracts. These receivables are included in the Client Financing segment. The company carries the credit risk of IBM’s clients for all purchased and participated receivables from IBM. Commercial Financing receivables and purchased receivables from IBM 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. |
Segments | The company’s operations consist of two business segments: Client Financing and Commercial Financing. The segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in determining how to allocate resources and evaluate performance. The company is organized on the basis of its financing offerings. The company’s reportable segments are business units that offer different financing solutions based upon clients’ needs. The segment’s expense includes an allocation of interest expense and selling, general and administrative (SG&A) expense by the company to each of its operating segments. Interest expense is allocated based on the average assets in each segment. SG&A expense is allocated based on a measurable financial driver, such as net margin. |
Retirement-Related Benefits | IBM Credit employees are eligible to participate in IBM’s retirement plans. Retirement-related plans are accounted for as multiemployer or multiple-employer plans as required by local regulations. Multiemployer Plans: For multiemployer plans, IBM allocates charges to the company based on the number of employees. The charges related to multiemployer plans are recorded in the company’s Consolidated Statement of Earnings. Charges from IBM to the company in relation to these plans (including non-pension, post-retirement benefits) are limited to service costs. Contributions and any other types of costs are the responsibility of IBM. Multiple-Employer Plans: For multiple-employer plans (mainly in Germany, Spain and Japan), assets and obligations are based on actuarial valuations or allocations and are recorded in the Consolidated Statement of Financial Position. Costs related to multiple-employer plans are recorded in the company’s Consolidated Statement of Earnings. |
Relationship with IBM and Related Party Transactions | IBM Credit is a captive finance company and an indirect, wholly owned subsidiary of IBM. IBM Credit generally conducts its financing activities with IBM on an arm’s-length basis, subject in certain cases, particularly with respect to originations, to commercial factors, including IBM’s relationship with a client. Support Agreement Pursuant to a Support Agreement between IBM and IBM Credit, IBM has agreed to retain, directly or indirectly, beneficial ownership of at least 51 percent of the equity voting interests in the company at all times. IBM has also agreed to cause the company to have a minimum consolidated tangible net worth of at least $50 million on the last day of each of the company’s fiscal years (with consolidated tangible net worth for purposes of this discussion of the Support Agreement understood to mean (a) the total assets of IBM Credit and its consolidated subsidiaries less (b) the intangible assets and total liabilities of IBM Credit and its consolidated subsidiaries). IBM has also agreed to cause the company to maintain a leverage ratio not to exceed 11 to 1 for each of the company’s fiscal quarters. Leverage ratio for purposes of this discussion of the Support Agreement is understood to mean, for any calendar quarter, IBM Credit’s debt-to-equity ratio as reported in, and calculated in the manner set forth in, IBM Credit’s periodic report covering such fiscal quarter (refer to page 34 of this Form 10-Q). In the event that the company’s leverage ratio at the end of any fiscal quarter is higher than 11 to 1, then, upon demand by the company, IBM has agreed to make or cause to be made a capital contribution to the company in an amount sufficient to cause the company’s leverage ratio to not exceed 11 to 1. The Support Agreement is not a guarantee by IBM of any indebtedness, other obligation, or liability of any kind of IBM Credit. Operating Relationship In certain countries, the company provides loans to IBM, primarily in support of IBM’s Global Technology Services segment’s acquisition of IT assets, which it uses in external, revenue-producing services contracts. This financing is included in the Consolidated Statement of Financial Position as financing receivables from IBM. Interest income is included in financing revenue in the Consolidated Statement of Earnings. The amount of other receivables from IBM primarily relate to the investment of a portion of the company's excess cash in short-term interest bearing accounts with IBM, which can be withdrawn upon demand. The investment of excess cash with IBM is presented in other receivables from IBM in the Consolidated Statement of Financial Position and in the investing section of the Consolidated Statement of Cash Flows. The interest income is included in financing revenue in the Consolidated Statement of Earnings. The company provides financing at market rates to suppliers, distributors and resellers of IBM products and services, a portion of which is supplemented by financing incentives from IBM to cover an interest free period. Fee income earned from these financing incentives under these arrangements are included in financing revenue in the Consolidated Statement of Earnings and are deferred and recognized over the term of the financing arrangement. Borrowing Relationship The company has a credit facility with IBM that allows the company to obtain short-term and long-term funding. These loans are included in the Consolidated Statement of Financial Position as debt payable to IBM. Services and Other Arrangements The company sources a number of services from IBM, including functional support for collection administration, treasury, accounting, legal, tax, human resources, marketing and IT. In certain instances, IBM acts as IBM Credit’s billing and collection agent and forwards the financing payments to IBM Credit. The company also has the right to use certain IBM intangible assets in its business. In addition, the company conducts its global operations primarily from IBM leased or IBM owned facilities. The company participates in the various IBM stock-based compensation plans, including awards of Restricted Stock Units and Performance Share Units. In addition, the company participates in certain multiemployer retirement-related plans that are sponsored by IBM. Expenses related to the services discussed above are included in selling, general and administrative expense in the Consolidated Statement of Earnings. The outstanding amount of accounts payable to IBM primarily relate to unsettled purchases of equipment or receivables/loans (for software and services) from IBM. This payable account is non-interest bearing, short term in nature and is expected to be settled in the normal course of business. The company sells equipment returned from lease to IBM at cost, which approximates fair value. In addition, IBM may migrate a client to new technology. In the event this migration results in an early termination of a lease, IBM will purchase the returned equipment at a pre-negotiated price, which is a function of the discounted value of the scheduled future lease payments and the residual value. These sales are recorded net in other (income) and expense in the Consolidated Statement of Earnings. Tax Sharing Agreement The company’s U.S. federal and certain state and foreign operations are included in various IBM consolidated tax returns; and, in such cases, IBM makes payments to tax authorities on the company’s behalf. IBM and the company maintain a Tax Sharing Agreement for any operations included in an IBM consolidated tax return, pursuant to which IBM charges the company for any taxes owed and reimburses the company for any tax attributes generated. Such charges or reimbursements are based upon a calculation of the company’s relevant pro forma stand-alone tax return. |
Borrowings | The company may, at times, pledge financing receivables as collateral for non-recourse short-term and long-term borrowings. |
Contingencies | The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate). In addition, the company also discloses matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, client and employee relations considerations. In accordance with the relevant accounting guidance, 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. Also 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. |
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 $ — $ 750 $ — $ 750 Money market funds 5 — — 5 Total 5 750 — 755 Derivative assets (2) — 21 — 21 (4) Total assets $ 5 $ 771 $ — $ 776 Liabilities: Derivative liabilities (3) $ — $ 23 $ — $ 23 (4) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within other assets in the Consolidated Statement of Financial Position. (3) Included within other liabilities in the Consolidated Statement of Financial Position. (4) If derivative exposures covered by a qualifying master netting agreement with IBM had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions would each have been reduced by $1 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 $ — $ 792 $ — $ 792 Money market funds 5 — — 5 Total 5 792 — 797 Derivative assets (2) — 18 — 18 (4) Total assets $ 5 $ 810 $ — $ 815 Liabilities: Derivative liabilities (3) $ — $ 37 $ — $ 37 (4) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within other assets in the Consolidated Statement of Financial Position. (3) Included within other liabilities in the Consolidated Statement of Financial Position. (4) If derivative exposures covered by a qualifying master netting agreement with IBM had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions would each have been reduced by $11 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 with IBM Other assets $ 11 $ 10 Other liabilities $ 23 $ 27 Foreign exchange contracts with IBM Other assets 10 9 Other liabilities 1 11 Fair value of derivative assets $ 21 $ 18 Fair value of derivative liabilities $ 23 $ 37 Not designated as hedging instruments: Foreign exchange contracts Other assets — — Other liabilities — — Fair value of derivative assets $ — $ — Fair value of derivative liabilities $ — $ — Total $ 21 $ 18 $ 23 $ 37 |
Amounts related to cumulative basis adjustments for fair value hedges | At March 31, At December 31, (Dollars in millions) 2019 2018 Debt: Carrying amount of the hedged item $ (3,335) $ (3,310) Cumulative hedging adjustments included in the carrying amount - assets/(liabilities) 9 |
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 Financing cost $ 160 $ 102 $ 4 $ 9 Other (income) and expense (18) 1 — 1 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 with IBM Financing cost $ 20 $ (21) $ (25) $ 23 Derivative instruments not designated as hedging instruments: Foreign exchange contracts Other (income) and expense — 1 N/A N/A Total $ 20 $ (20) $ (25) $ 23 Gain/(Loss) Recognized in Earnings and Other Comprehensive Income Consolidated Statement of Reclassified Amounts Excluded from (Dollars in millions) Recognized in OCI Earnings from AOCI Effectiveness Testing (3) For the three months ended March 31: 2019 2018 Line Item 2019 2018 2019 2018 Derivative instruments in net investment hedges: Foreign exchange contracts with IBM $ (10) $ (43) Financing cost $ — $ — $ 10 $ 7 Total $ (10) $ (43) $ — $ — $ 10 $ 7 (1) The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts. (2) The amount includes basis adjustments to the carrying value of the hedged item recorded during the period. (3) The company's policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period. N/A - Not Applicable |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases: | |
Summary of lease income included in Consolidated Statements of Earnings | 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 Financing lease revenue $ Operating lease revenue Variable lease revenue Total lease revenue $ |
Summary of maturity analysis of sales-type and direct financing lease payments due to IBM Credit and reconciliation of undiscounted cash flows to financing receivables | (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 $ * |
Summary of maturity analysis of operating lease payments due to IBM Credit | The following table provides a maturity analysis of the undiscounted lease payments due to IBM Credit on operating leases over the next five years and thereafter, at March 31, 2019, with the exception of 2019, which presents the 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, Receiv_2
Financing Receivables, Receivables Purchased/Participated from IBM (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Financing Receivables, Receivables Purchased/Participated from IBM: | |
Components of financing receivables and receivables purchased/participated from IBM | Client Loans and Commercial Installment (Dollars in millions) Investment in Financing Payments At March 31, 2019: Leases Receivables (Loans) Total Financing receivables, gross $ $ $ $ Unearned income Deferred initial direct costs — Recorded investment $ $ $ $ Allowance for credit losses Unguaranteed residual value — — Guaranteed residual value — — Total financing receivables, net $ $ $ $ Purchased and Participated (Dollars in millions) Receivables At March 31, 2019: From IBM Short-term purchased receivables from IBM $ Allowance for credit losses Total short-term purchased receivables from IBM, net $ Long-term participated receivables from IBM $ Allowance for credit losses Total long-term participated receivables from IBM, net $ Total purchased and participated receivables from IBM, net $ Client Loans and Commercial Installment (Dollars in millions) Investment in Financing Payments At December 31, 2018: Leases Receivables (Loans) Total Financing receivables, gross $ 5,120 $ 11,422 $ 9,694 $ 26,236 Unearned income (411) (36) (453) (900) Deferred initial direct costs 46 — 73 119 Recorded investment $ 4,755 $ 11,386 $ 9,314 $ 25,455 Allowance for credit losses (65) (11) (98) (174) Unguaranteed residual value 491 — — 491 Guaranteed residual value 77 — — 77 Total financing receivables, net $ 5,258 $ 11,374 $ 9,216 $ 25,848 Purchased and Participated (Dollars in millions) Receivables At December 31, 2018: From IBM Short-term purchased receivables from IBM $ 1,373 Allowance for credit losses (4) Total short-term purchased receivables from IBM, net $ 1,369 Long-term participated receivables from IBM $ 4,079 Allowance for credit losses (14) Total long-term participated receivables from IBM, net $ 4,065 Total purchased and participated receivables from IBM, net $ 5,433 |
Schedule of financing receivables by portfolio segment | (Dollars in millions) At March 31, 2019: Americas EMEA Asia Pacific Total Recorded investment Lease receivables $ $ $ $ Loan receivables Participated receivables from IBM 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 Participated receivables from IBM Total $ $ $ $ Write-offs $ $ $ — $ Recoveries — — Provision Foreign currency translation adjustment — Other — — Ending balance at March 31, 2019 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Participated receivables from IBM $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ (Dollars in millions) At December 31, 2018: Americas EMEA Asia Pacific Total Recorded investment Lease receivables $ $ $ $ Loan receivables Participated receivables from IBM 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 Participated receivables from IBM Total $ $ $ $ Write-offs $ $ $ $ Recoveries Provision Foreign currency translation adjustment Other Ending balance at December 31, 2018 $ $ $ $ Lease receivables $ $ $ $ Loan receivables $ $ $ $ Participated receivables from IBM $ $ $ $ Related allowance, collectively evaluated for impairment $ $ $ $ Related allowance, individually evaluated for impairment $ $ $ $ |
Schedule of past due financing receivables | Recorded Billed Recorded Total Recorded Investment Invoices Investment (Dollars in millions) Recorded Investment > 90 Days and > 90 Days and Not At March 31, 2019: Investment > 90 Days (1) Accruing (1) Accruing Accruing (2) Americas $ 3,358 $ 280 $ 239 $ 13 $ 41 EMEA 632 38 22 3 16 Asia Pacific 586 14 2 — 11 Total lease receivables $ 4,576 $ 331 $ 263 $ 16 $ 68 Americas $ 5,674 $ 193 $ 128 $ 22 $ 64 EMEA 2,100 56 10 3 46 Asia Pacific 845 5 2 1 3 Total loan receivables $ 8,619 $ 253 $ 140 $ 26 $ 114 Americas $ 652 $ 5 $ 5 $ 3 $ — EMEA 1,587 6 6 2 — Asia Pacific 1,669 — — — — Total participated receivables from IBM $ 3,908 $ 11 $ 11 $ 4 $ — Total $ 17,104 $ 596 $ 414 $ 47 $ 182 (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, $138 million is individually evaluated for impairment with a related allowance of $112 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 $ 3,433 $ 288 $ 247 $ 18 $ 44 EMEA 687 24 9 1 15 Asia Pacific 635 29 19 2 11 Total lease receivables $ 4,755 $ 341 $ 275 $ 21 $ 70 Americas $ 6,167 $ 217 $ 161 $ 22 $ 61 EMEA 2,231 80 24 3 57 Asia Pacific 916 13 9 1 4 Total loan receivables $ 9,314 $ 310 $ 194 $ 25 $ 122 Americas $ 735 $ 11 $ 11 $ 2 $ — EMEA 1,627 9 4 1 5 Asia Pacific 1,717 — — — — Total participated receivables from IBM $ 4,079 $ 20 $ 15 $ 3 $ 5 Total $ 18,147 $ 671 $ 484 $ 49 $ 197 (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, $149 million is individually evaluated for impairment with a related allowance of $120 million. |
Schedule of net recorded investment by credit quality indicators | Lease Receivables Loan Receivables Participated Receivables from IBM (Dollars in millions) Asia Asia Asia At March 31, 2019: Americas EMEA Pacific Americas EMEA Pacific Americas EMEA Pacific Credit Ratings: Aaa – Aa3 $ 285 $ 9 $ 45 $ 673 $ 49 $ 102 $ 380 $ 72 $ 68 A1 – A3 761 108 237 859 139 256 76 100 733 Baa1 – Baa3 933 122 118 1,514 604 171 81 800 507 Ba1 – Ba2 673 181 72 1,412 595 208 48 532 295 Ba3 – B1 430 128 60 562 401 56 59 66 36 B2 – B3 197 58 37 511 263 42 8 14 27 Caa – D 44 15 6 75 26 6 — — 1 Total $ 3,323 $ 621 $ 575 $ 5,605 $ 2,076 $ 841 $ 651 $ 1,584 $ 1,667 Lease Receivables Loan Receivables Participated Receivables from IBM (Dollars in millions) Asia Asia Asia At December 31, 2018 Americas EMEA Pacific Americas EMEA Pacific Americas EMEA Pacific Credit Ratings: Aaa – Aa3 $ 520 $ 24 $ 49 $ 935 $ 79 $ 71 $ 112 $ 58 $ 134 A1 – A3 617 82 241 1,108 269 351 133 198 659 Baa1 – Baa3 807 214 169 1,450 704 246 174 517 463 Ba1 – Ba2 772 207 102 1,387 681 149 167 500 280 Ba3 – B1 391 90 36 703 297 52 84 218 99 B2 – B3 264 47 26 475 156 37 57 114 70 Caa – D 23 5 3 42 17 5 5 12 9 Total $ 3,395 $ 670 $ 625 $ 6,101 $ 2,204 $ 912 $ 733 $ 1,618 $ 1,714 |
Segments (Tables)
Segments (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Segments: | |
Reporting information by segment | Client Commercial Total (Dollars in millions) Financing Financing Segments For the three months ended March 31, 2019: Total revenue $ 322 $ 160 $ 482 Pre-tax income 117 76 193 Depreciation of equipment under operating lease 45 — 45 Financing cost 107 53 160 Provision for/(benefit from) credit losses (1) 5 4 For the three months ended March 31, 2018: Total revenue $ 308 $ 142 $ 449 Pre-tax income 128 63 191 Depreciation of equipment under operating lease 48 — 48 Financing cost 69 33 102 Provision for/(benefit from) credit losses 10 (1) 9 |
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 $ 3 $ 3 $ 6 Retirement-related benefit plans (1): Prior service costs/(credits) $ — $ — $ — Net (losses)/gains arising during the period 0 0 0 Curtailments and settlements — — — Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 0 0 0 Total retirement-related benefit plans $ 0 $ 0 $ 0 Other comprehensive income/(loss) $ 3 $ 3 $ 6 (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, "Retirement-Related Benefits," for additional information.) Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended March 31, 2018: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ 70 $ 11 $ 81 Retirement-related benefit plans (1): Net (losses)/gains arising during the period $ 1 $ 0 $ 1 Curtailments and settlements — — — Amortization of prior service (credits)/costs 0 0 0 Amortization of net (gains)/losses 0 0 0 Total retirement-related benefit plans $ 1 $ 0 $ 1 Other comprehensive income/(loss) $ 71 $ 11 $ 82 (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, "Retirement-Related Benefits," for additional information.) |
Accumulated Other Comprehensive Income/(Loss) (net of tax) | Net Change Foreign Retirement- Accumulated Currency Related Other Translation Benefit Comprehensive (Dollars in millions) Adjustments* Plans Income/(Loss) January 1, 2019 $ (23) $ (10) $ (33) Other comprehensive income before reclassification 6 0 6 Amount reclassified from accumulated other comprehensive income — 0 0 Total change for the period 6 0 6 March 31, 2019 $ (17) $ (10) $ (27) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Foreign Retirement- Accumulated Currency Related Other Translation Benefit Comprehensive (Dollars in millions) Adjustments* Plans Income/(Loss) January 1, 2018 $ 165 $ (7) $ 158 Cumulative effect of a change in accounting principle** (5) — (5) Other comprehensive income before reclassification 81 0 81 Amount reclassified from accumulated other comprehensive income — 0 0 Total change for the period 81 1 82 March 31, 2018 $ 241 $ (7) $ 234 * 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. Refer to note 2, "Accounting Changes." |
Borrowings (Tables)
Borrowings (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Borrowings: | |
Short-Term Debt | Balance Balance (Dollars in millions) 3/31/2019 12/31/2018 Commercial paper $ 2,494 $ 2,995 Short-term loans 22 17 Secured borrowings 28 23 Debt $ 2,543 $ 3,035 Debt payable to IBM 8,605 10,223 Total $ 11,148 $ 13,258 |
Long-Term Debt | Balance Balance (Dollars in millions) Maturities 3/31/2019 12/31/2018 Long-term notes (weighted-average interest rate at March 31, 2019) 2.1% 2019 $ 1,400 $ 1,400 3.3% 2020 1,500 1,500 2.8% 2021 2,850 2,850 2.2% 2022 500 500 3.0% 2023 750 750 $ 7,000 $ 7,000 Long-term loans (6.2% weighted-average interest rate at March 31, 2019) 2019-2021 213 276 Secured borrowings (5.1% weighted-average interest rate at March 31, 2019) 2019-2024 840 687 Long-term debt $ 8,053 $ 7,964 Less: net unamortized discount 2 2 Less: net unamortized debt issuance costs 7 9 Less: fair value adjustment* 9 34 Debt $ 8,034 $ 7,919 Debt payable to IBM (1.4% weighted-average interest rate at March 31, 2019) 9,762 9,357 Total $ 17,796 $ 17,276 * |
Contractual obligations of long-term debt and long-term debt payable to IBM outstanding | 2019 2024 and (Dollars in millions) (Q2-Q4) 2020 2021 2022 2023 beyond Total Long-term debt $ 1,775 $ 1,898 $ 3,063 $ 560 $ 757 $ 0 $ 8,053 Debt payable to IBM 3,235 3,068 1,834 1,188 335 102 9,762 Total $ 5,010 $ 4,966 $ 4,898 $ 1,748 $ 1,092 $ 102 $ 17,815 |
Basis of Presentation (Details)
Basis of Presentation (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Provision for income taxes | $ 150 | $ 42 |
Effective rate on continuing operations | 77.50% | 22.00% |
Additional provisional charge (benefit) resulting from guidance related to U.S. tax reform | $ 116 | |
IBM | ||
Non-cash equity contribution received | $ 64 |
Accounting Changes (Details)
Accounting Changes (Details) - USD ($) $ in Millions | Jan. 01, 2018 | Mar. 31, 2018 | [1] |
Accumulated Other Comprehensive Income/(Loss) | |||
Accounting Changes | |||
Reclassification from AOCI to retained earnings for stranded tax effects of U.S. tax reform | $ (5) | $ (5) | |
Retained Earnings | |||
Accounting Changes | |||
Reclassification from AOCI to retained earnings for stranded tax effects of U.S. tax reform | $ 5 | $ 5 | |
[1] | Reflects the adoption of the FASB guidance on stranded tax effects. Refer to note 2, "Accounting Changes." |
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: | ||
Derivative assets | $ 21 | $ 18 |
Derivative liabilities | 23 | 37 |
Recurring | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 755 | 797 |
Derivative assets | 21 | 18 |
Total assets | 776 | 815 |
Derivative liabilities | 23 | 37 |
Potential reduction in net position of total derivative assets | 1 | 11 |
Potential reduction in net position of total derivative liabilities | 1 | 11 |
Recurring | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 750 | 792 |
Recurring | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 5 | 5 |
Recurring | Level 1 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 5 | 5 |
Total assets | 5 | 5 |
Recurring | Level 1 | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 5 | 5 |
Recurring | Level 2 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 750 | 792 |
Derivative assets | 21 | 18 |
Total assets | 771 | 810 |
Derivative liabilities | 23 | 37 |
Recurring | Level 2 | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | $ 750 | $ 792 |
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 | $ 17,796 | $ 17,276 |
Fair value of long-term debt | $ 17,829 | $ 17,199 |
Financial Instruments - Derivat
Financial Instruments - Derivatives, Offsetting (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Derivative Financial Instruments | ||
Fair value of derivative assets | $ 21 | $ 18 |
Fair value of derivative liabilities | 23 | 37 |
IBM | ||
Derivative Financial Instruments | ||
Fair value of derivative assets | 21 | 18 |
Fair value of derivative liabilities | 23 | 37 |
Assets included in master netting arrangements | 1 | 11 |
Liabilities included in master netting arrangements | $ 1 | $ 11 |
Financial Instruments - Deriv_2
Financial Instruments - Derivatives, Other Information (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Fair value hedges | Interest rate swaps | IBM | ||
Derivative Financial Instruments | ||
Notional amount | $ 3,350 | $ 3,350 |
Average remaining maturity | 2 years 2 months 12 days | 2 years 4 months 24 days |
Cash flow hedges | Interest rate swaps | IBM | ||
Derivative Financial Instruments | ||
Notional amount | $ 0 | $ 0 |
Net investment hedges | Foreign exchange contracts | IBM | ||
Derivative Financial Instruments | ||
Notional amount | $ 1,356 | $ 1,986 |
Average remaining maturity | 2 months 12 days | 2 months 12 days |
Derivative instruments not designated as hedging instruments | Foreign exchange contracts | Maximum | ||
Derivative Financial Instruments | ||
Term of derivative contract | 1 year | |
Derivative instruments not designated as hedging instruments | Foreign exchange contracts | Third parties | ||
Derivative Financial Instruments | ||
Notional amount | $ 0 | $ 0 |
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 derivative assets | $ 21 | $ 18 |
Fair value of derivative liabilities | 23 | 37 |
Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of derivative assets | 21 | 18 |
Fair value of derivative liabilities | 23 | 37 |
IBM | ||
Fair Values of Derivative Instruments | ||
Fair value of derivative assets | 21 | 18 |
Fair value of derivative liabilities | 23 | 37 |
Interest rate contracts | IBM | Designated as hedging instruments | Other assets | ||
Fair Values of Derivative Instruments | ||
Fair value of derivative assets | 11 | 10 |
Interest rate contracts | IBM | Designated as hedging instruments | Other liabilities | ||
Fair Values of Derivative Instruments | ||
Fair value of derivative liabilities | 23 | 27 |
Foreign exchange contracts | IBM | Designated as hedging instruments | Other assets | ||
Fair Values of Derivative Instruments | ||
Fair value of derivative assets | 10 | 9 |
Foreign exchange contracts | IBM | Designated as hedging instruments | Other liabilities | ||
Fair Values of Derivative Instruments | ||
Fair value of derivative liabilities | $ 1 | $ 11 |
Financial Instruments - Cumulat
Financial Instruments - Cumulative Basis Adjustment for Fair Value Hedges (Details) - Debt - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Fair Values of Derivative Instruments | ||
Carrying Amount of the Hedged Item Assets/(Liabilities) | $ (3,335) | $ (3,310) |
Carrying Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Assets/(Liabilities) | $ 9 | $ 34 |
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 | |
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Loss (income) from continuing operations before income taxes | $ (193) | $ (191) |
Financing cost | ||
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Loss (income) from continuing operations before income taxes | 160 | 102 |
Gains/(losses) of Total hedge activity | 4 | 9 |
Other (income) and expense | ||
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Loss (income) from continuing operations before income taxes | $ (18) | 1 |
Gains/(losses) of Total hedge activity | $ 1 |
Financial Instruments - Deriv_4
Financial Instruments - Derivatives, Gains and Losses (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Gain/(Loss) Recognized in Earnings, Recognized on Derivatives | $ 20 | $ (20) |
Gain/(Loss) Recognized in Earnings, Attributable to Risk Being Hedged | (25) | 23 |
Gains (losses) excluded from the assessment of hedge effectiveness for fair value hedges | ||
Net investment hedges | ||
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | (10) | (43) |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | 10 | 7 |
Interest rate contracts | IBM | Fair value hedges | Financing cost | ||
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Gain/(Loss) Recognized in Earnings, Recognized on Derivatives | 20 | (21) |
Gain/(Loss) Recognized in Earnings, Attributable to Risk Being Hedged | (25) | 23 |
Foreign exchange contracts | IBM | Net investment hedges | ||
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI | (10) | (43) |
Foreign exchange contracts | IBM | Net investment hedges | Financing cost | ||
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing | $ 10 | 7 |
Foreign exchange contracts | Derivative instruments not designated as hedging instruments | Third parties | Other (income) and expense | ||
The Effect of Derivative Instruments in the Consolidated Statement of Earnings | ||
Gain/(Loss) Recognized in Earnings, Recognized on Derivatives | $ 1 |
Leases - Lease income (Details)
Leases - Lease income (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Leases: | |
Lessor, Operating Lease, Existence of Lessee Option to Purchase Underlying Asset [true false] | true |
Lessor, Direct Financing Lease, Existence of Lessee Option to Purchase Underlying Asset [true false] | true |
Financing lease revenue | $ 55 |
Operating lease revenue | 78 |
Variable lease revenue | 11 |
Lease income | $ 144 |
Leases - Sales and Direct Finan
Leases - Sales and Direct Financing Leases (Details) $ in Millions | Mar. 31, 2019USD ($) |
Leases: | |
2019 | $ 1,691 |
2020 | 1,638 |
2021 | 1,018 |
2022 | 468 |
2023 | 103 |
Thereafter | 6 |
Total undiscounted cash flows | 4,923 |
Present value of lease payments (recognized as financing receivables) | 4,536 |
Difference between undiscounted cash flows and discounted cash flows | 387 |
Unguaranteed residual value | $ 472 |
Leases - Operating Leases (Deta
Leases - Operating Leases (Details) $ in Millions | Mar. 31, 2019USD ($) |
Maturity analysis of lease payments due | |
Unguaranteed residual value of operating leases | $ 106 |
2019 | 162 |
2020 | 122 |
2021 | 40 |
2022 | 2 |
2023 | 0 |
Total undiscounted cash flows | $ 327 |
Minimum | |
Maturity analysis of lease payments due | |
Lease term | 1 year |
Maximum | |
Maturity analysis of lease payments due | |
Lease term | 6 years |
Financing Receivables, Receiv_3
Financing Receivables, Receivables Purchased/Participated from IBM - Net of Allowances (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Financing receivables | |||
Unguaranteed residual value | $ 472 | ||
Financing receivables pledged as collateral for borrowings | 868 | $ 710 | |
Financing receivables held for sale | 0 | 0 | |
Financing Receivable Portfolio | |||
Financing receivables | |||
Financing receivables, gross | 23,814 | 26,236 | |
Unearned income | (856) | (900) | |
Deferred initial direct costs | 107 | 119 | |
Recorded investment | 23,065 | 25,455 | |
Allowance for credit losses | (171) | (174) | |
Unguaranteed residual value | 472 | ||
Unguaranteed residual value | 491 | ||
Guaranteed residual value | 65 | 77 | |
Net financing receivables | $ 23,431 | 25,848 | |
Financing Receivable Portfolio | Maximum | |||
Financing receivables | |||
Financing receivable, payment terms | 7 years | ||
Lease receivables | |||
Financing receivables | |||
Financing receivables, gross | $ 4,923 | 5,120 | |
Unearned income | (387) | (411) | |
Deferred initial direct costs | 40 | 46 | |
Recorded investment | 4,576 | 4,755 | |
Allowance for credit losses | (58) | (65) | $ (62) |
Unguaranteed residual value | 472 | ||
Unguaranteed residual value | 491 | ||
Guaranteed residual value | 65 | 77 | |
Net financing receivables | 5,056 | 5,258 | |
Commercial financing receivables | |||
Financing receivables | |||
Financing receivables, gross | 9,902 | 11,422 | |
Unearned income | (33) | (36) | |
Recorded investment | 9,869 | 11,386 | |
Allowance for credit losses | (15) | (11) | |
Net financing receivables | $ 9,854 | 11,374 | |
Commercial financing receivables | Minimum | |||
Financing receivables | |||
Financing receivable, payment terms | 30 days | ||
Commercial financing receivables | Maximum | |||
Financing receivables | |||
Financing receivable, payment terms | 90 days | ||
Loan receivables | |||
Financing receivables | |||
Financing receivables, gross | $ 8,988 | 9,694 | |
Unearned income | (436) | (453) | |
Deferred initial direct costs | 66 | 73 | |
Recorded investment | 8,619 | 9,314 | |
Allowance for credit losses | (98) | (98) | (96) |
Net financing receivables | 8,521 | 9,216 | |
Purchased and participated receivables from IBM | |||
Financing receivables | |||
Allowance for credit losses | (11) | (18) | |
Net financing receivables | $ 5,331 | 5,433 | |
Short-term purchased receivables from IBM | |||
Financing receivables | |||
Financing receivable, payment terms | 30 days | ||
Recorded investment | $ 1,434 | 1,373 | |
Allowance for credit losses | (5) | (4) | |
Net financing receivables | 1,430 | 1,369 | |
Long-term participated receivables from IBM | |||
Financing receivables | |||
Recorded investment | 3,908 | 4,079 | |
Allowance for credit losses | (6) | (14) | $ (14) |
Net financing receivables | $ 3,902 | $ 4,065 |
Financing Receivables, Receiv_4
Financing Receivables, Receivables Purchased/Participated from IBM - By Portfolio Segment (Details) $ in Millions | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019USD ($)item | Mar. 31, 2018USD ($) | Dec. 31, 2018USD ($) | |
Finance leases portfolio and loans receivable and participated loans | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Number of portfolio segments | item | 3 | ||
Number of classes of financing receivable | item | 3 | ||
Recorded investment | $ 17,104 | $ 18,147 | |
Recorded investment collectively evaluated for impairment | 16,966 | 17,998 | |
Recorded investment individually evaluated for impairment | 138 | 149 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 177 | $ 172 | 172 |
Write-offs | (13) | (16) | |
Recoveries | 0 | 2 | |
Provision | (1) | 27 | |
Foreign currency translation adjustment | (1) | (10) | |
Other | 2 | ||
Allowance for credit losses, ending balance | 162 | 177 | |
Related allowance, collectively evaluated for impairment | 49 | 56 | |
Related allowance, individually evaluated for impairment | 112 | 120 | |
Interest income recognized on impaired leases and loans | |||
Interest income recognized on a cash basis | |||
Finance leases portfolio and loans receivable and participated loans | Americas | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 9,684 | 10,335 | |
Recorded investment collectively evaluated for impairment | 9,585 | 10,239 | |
Recorded investment individually evaluated for impairment | 99 | 96 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 107 | 107 | 107 |
Write-offs | (3) | (6) | |
Recoveries | 0 | ||
Provision | 4 | 11 | |
Foreign currency translation adjustment | (1) | (6) | |
Other | 1 | ||
Allowance for credit losses, ending balance | 106 | 107 | |
Related allowance, collectively evaluated for impairment | 33 | 38 | |
Related allowance, individually evaluated for impairment | 74 | 69 | |
Average recorded investment of impaired leases and loans | 98 | 65 | |
Finance leases portfolio and loans receivable and participated loans | EMEA | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 4,319 | 4,545 | |
Recorded investment collectively evaluated for impairment | 4,294 | 4,505 | |
Recorded investment individually evaluated for impairment | 25 | 39 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 53 | 43 | 43 |
Write-offs | (9) | (1) | |
Recoveries | 0 | 0 | |
Provision | (5) | 13 | |
Foreign currency translation adjustment | (3) | ||
Other | 0 | 1 | |
Allowance for credit losses, ending balance | 38 | 53 | |
Related allowance, collectively evaluated for impairment | 13 | 15 | |
Related allowance, individually evaluated for impairment | 25 | 38 | |
Average recorded investment of impaired leases and loans | 30 | 39 | |
Finance leases portfolio and loans receivable and participated loans | Asia Pacific | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 3,100 | 3,268 | |
Recorded investment collectively evaluated for impairment | 3,087 | 3,254 | |
Recorded investment individually evaluated for impairment | 13 | 13 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 17 | 21 | 21 |
Write-offs | (8) | ||
Recoveries | 0 | 2 | |
Provision | 0 | 3 | |
Foreign currency translation adjustment | 0 | (1) | |
Other | 0 | 1 | |
Allowance for credit losses, ending balance | 17 | 17 | |
Related allowance, collectively evaluated for impairment | 4 | 4 | |
Related allowance, individually evaluated for impairment | 13 | 13 | |
Average recorded investment of impaired leases and loans | 13 | 19 | |
Lease receivables | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 4,576 | 4,755 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 65 | 62 | 62 |
Write-offs | (8) | (13) | |
Provision | 1 | 9 | |
Allowance for credit losses, ending balance | 58 | 65 | |
Lease receivables | Americas | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 3,358 | 3,433 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 38 | 42 | 42 |
Allowance for credit losses, ending balance | 35 | 38 | |
Lease receivables | EMEA | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 632 | 687 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 17 | 6 | 6 |
Allowance for credit losses, ending balance | 11 | 17 | |
Lease receivables | Asia Pacific | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 586 | 635 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 10 | 15 | 15 |
Allowance for credit losses, ending balance | 11 | 10 | |
Loan receivables | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 8,619 | 9,314 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 98 | 96 | 96 |
Write-offs | (5) | (3) | |
Provision | 5 | 6 | |
Allowance for credit losses, ending balance | 98 | 98 | |
Loan receivables | Americas | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 5,674 | 6,167 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 66 | 57 | 57 |
Allowance for credit losses, ending balance | 70 | 66 | |
Loan receivables | EMEA | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 2,100 | 2,231 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 28 | 34 | 34 |
Allowance for credit losses, ending balance | 24 | 28 | |
Loan receivables | Asia Pacific | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 845 | 916 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 5 | 4 | 4 |
Allowance for credit losses, ending balance | 4 | 5 | |
Long-term participated receivables from IBM | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 3,908 | 4,079 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 14 | 14 | 14 |
Provision | (7) | 12 | |
Allowance for credit losses, ending balance | 6 | 14 | |
Long-term participated receivables from IBM | Americas | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 652 | 735 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 3 | 9 | 9 |
Allowance for credit losses, ending balance | 1 | 3 | |
Long-term participated receivables from IBM | EMEA | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 1,587 | 1,627 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 8 | 4 | 4 |
Allowance for credit losses, ending balance | 3 | 8 | |
Long-term participated receivables from IBM | Asia Pacific | |||
FINANCING RECEIVABLES, RECEIVABLES PURCHASED | |||
Recorded investment | 1,669 | 1,717 | |
Allowance for credit losses: | |||
Allowance for credit losses, beginning balance | 3 | $ 2 | 2 |
Allowance for credit losses, ending balance | $ 2 | $ 3 |
Financing Receivables, Receiv_5
Financing Receivables, Receivables Purchased/Participated from IBM - Past Due (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Finance leases portfolio and loans receivable and participated loans | ||
Past Due Financing Receivables | ||
Total Recorded Investment | $ 17,104 | $ 18,147 |
Recorded Investment > 90 Days and Accruing | 414 | 484 |
Billed Invoices > 90 Days and Accruing | 47 | 49 |
Recorded Investment Not Accruing | 182 | 197 |
Recorded investment, impaired financing receivables with related allowance | 138 | 149 |
Impaired financing receivables, related allowance | 112 | 120 |
Finance leases portfolio and loans receivable and participated loans | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 596 | 671 |
Finance leases portfolio and loans receivable and participated loans | Americas | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 9,684 | 10,335 |
Finance leases portfolio and loans receivable and participated loans | EMEA | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 4,319 | 4,545 |
Finance leases portfolio and loans receivable and participated loans | Asia Pacific | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 3,100 | 3,268 |
Lease receivables | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 4,576 | 4,755 |
Recorded Investment > 90 Days and Accruing | 263 | 275 |
Billed Invoices > 90 Days and Accruing | 16 | 21 |
Recorded Investment Not Accruing | 68 | 70 |
Lease receivables | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 331 | 341 |
Lease receivables | Americas | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 3,358 | 3,433 |
Recorded Investment > 90 Days and Accruing | 239 | 247 |
Billed Invoices > 90 Days and Accruing | 13 | 18 |
Recorded Investment Not Accruing | 41 | 44 |
Lease receivables | Americas | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 280 | 288 |
Lease receivables | EMEA | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 632 | 687 |
Recorded Investment > 90 Days and Accruing | 22 | 9 |
Billed Invoices > 90 Days and Accruing | 3 | 1 |
Recorded Investment Not Accruing | 16 | 15 |
Lease receivables | EMEA | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 38 | 24 |
Lease receivables | Asia Pacific | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 586 | 635 |
Recorded Investment > 90 Days and Accruing | 2 | 19 |
Billed Invoices > 90 Days and Accruing | 2 | |
Recorded Investment Not Accruing | 11 | 11 |
Lease receivables | Asia Pacific | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 14 | 29 |
Loan receivables | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 8,619 | 9,314 |
Recorded Investment > 90 Days and Accruing | 140 | 194 |
Billed Invoices > 90 Days and Accruing | 26 | 25 |
Recorded Investment Not Accruing | 114 | 122 |
Loan receivables | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 253 | 310 |
Loan receivables | Americas | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 5,674 | 6,167 |
Recorded Investment > 90 Days and Accruing | 128 | 161 |
Billed Invoices > 90 Days and Accruing | 22 | 22 |
Recorded Investment Not Accruing | 64 | 61 |
Loan receivables | Americas | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 193 | 217 |
Loan receivables | EMEA | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 2,100 | 2,231 |
Recorded Investment > 90 Days and Accruing | 10 | 24 |
Billed Invoices > 90 Days and Accruing | 3 | 3 |
Recorded Investment Not Accruing | 46 | 57 |
Loan receivables | EMEA | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 56 | 80 |
Loan receivables | Asia Pacific | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 845 | 916 |
Recorded Investment > 90 Days and Accruing | 2 | 9 |
Billed Invoices > 90 Days and Accruing | 1 | 1 |
Recorded Investment Not Accruing | 3 | 4 |
Loan receivables | Asia Pacific | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 5 | 13 |
Long-term participated receivables from IBM | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 3,908 | 4,079 |
Recorded Investment > 90 Days and Accruing | 11 | 15 |
Billed Invoices > 90 Days and Accruing | 4 | 3 |
Recorded Investment Not Accruing | 5 | |
Long-term participated receivables from IBM | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 11 | 20 |
Long-term participated receivables from IBM | Americas | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 652 | 735 |
Recorded Investment > 90 Days and Accruing | 5 | 11 |
Billed Invoices > 90 Days and Accruing | 3 | 2 |
Long-term participated receivables from IBM | Americas | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 5 | 11 |
Long-term participated receivables from IBM | EMEA | ||
Past Due Financing Receivables | ||
Total Recorded Investment | 1,587 | 1,627 |
Recorded Investment > 90 Days and Accruing | 6 | 4 |
Billed Invoices > 90 Days and Accruing | 2 | 1 |
Recorded Investment Not Accruing | 5 | |
Long-term participated receivables from IBM | EMEA | > 90 days | ||
Past Due Financing Receivables | ||
Recorded Investment, Past Due | 6 | 9 |
Long-term participated receivables from IBM | Asia Pacific | ||
Past Due Financing Receivables | ||
Total Recorded Investment | $ 1,669 | $ 1,717 |
Financing Receivables, Receiv_6
Financing Receivables, Receivables Purchased/Participated from IBM - 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 | 3,323 | 3,395 |
Lease receivables | Americas | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 285 | 520 |
Lease receivables | Americas | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 761 | 617 |
Lease receivables | Americas | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 933 | 807 |
Lease receivables | Americas | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 673 | 772 |
Lease receivables | Americas | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 430 | 391 |
Lease receivables | Americas | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 197 | 264 |
Lease receivables | Americas | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 44 | 23 |
Lease receivables | EMEA | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 621 | 670 |
Lease receivables | EMEA | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 9 | 24 |
Lease receivables | EMEA | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 108 | 82 |
Lease receivables | EMEA | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 122 | 214 |
Lease receivables | EMEA | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 181 | 207 |
Lease receivables | EMEA | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 128 | 90 |
Lease receivables | EMEA | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 58 | 47 |
Lease receivables | EMEA | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 15 | 5 |
Lease receivables | Asia Pacific | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 575 | 625 |
Lease receivables | Asia Pacific | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 45 | 49 |
Lease receivables | Asia Pacific | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 237 | 241 |
Lease receivables | Asia Pacific | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 118 | 169 |
Lease receivables | Asia Pacific | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 72 | 102 |
Lease receivables | Asia Pacific | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 60 | 36 |
Lease receivables | Asia Pacific | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 37 | 26 |
Lease receivables | Asia Pacific | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 6 | 3 |
Loan receivables | Americas | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 5,605 | 6,101 |
Loan receivables | Americas | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 673 | 935 |
Loan receivables | Americas | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 859 | 1,108 |
Loan receivables | Americas | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,514 | 1,450 |
Loan receivables | Americas | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,412 | 1,387 |
Loan receivables | Americas | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 562 | 703 |
Loan receivables | Americas | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 511 | 475 |
Loan receivables | Americas | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 75 | 42 |
Loan receivables | EMEA | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 2,076 | 2,204 |
Loan receivables | EMEA | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 49 | 79 |
Loan receivables | EMEA | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 139 | 269 |
Loan receivables | EMEA | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 604 | 704 |
Loan receivables | EMEA | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 595 | 681 |
Loan receivables | EMEA | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 401 | 297 |
Loan receivables | EMEA | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 263 | 156 |
Loan receivables | EMEA | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 26 | 17 |
Loan receivables | Asia Pacific | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 841 | 912 |
Loan receivables | Asia Pacific | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 102 | 71 |
Loan receivables | Asia Pacific | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 256 | 351 |
Loan receivables | Asia Pacific | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 171 | 246 |
Loan receivables | Asia Pacific | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 208 | 149 |
Loan receivables | Asia Pacific | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 56 | 52 |
Loan receivables | Asia Pacific | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 42 | 37 |
Loan receivables | Asia Pacific | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 6 | 5 |
Long-term participated receivables from IBM | Americas | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 651 | 733 |
Long-term participated receivables from IBM | Americas | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 380 | 112 |
Long-term participated receivables from IBM | Americas | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 76 | 133 |
Long-term participated receivables from IBM | Americas | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 81 | 174 |
Long-term participated receivables from IBM | Americas | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 48 | 167 |
Long-term participated receivables from IBM | Americas | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 59 | 84 |
Long-term participated receivables from IBM | Americas | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 8 | 57 |
Long-term participated receivables from IBM | Americas | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 5 | |
Long-term participated receivables from IBM | EMEA | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,584 | 1,618 |
Long-term participated receivables from IBM | EMEA | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 72 | 58 |
Long-term participated receivables from IBM | EMEA | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 100 | 198 |
Long-term participated receivables from IBM | EMEA | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 800 | 517 |
Long-term participated receivables from IBM | EMEA | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 532 | 500 |
Long-term participated receivables from IBM | EMEA | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 66 | 218 |
Long-term participated receivables from IBM | EMEA | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 14 | 114 |
Long-term participated receivables from IBM | EMEA | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 12 | |
Long-term participated receivables from IBM | Asia Pacific | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 1,667 | 1,714 |
Long-term participated receivables from IBM | Asia Pacific | Aaa - Aa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 68 | 134 |
Long-term participated receivables from IBM | Asia Pacific | A1 - A3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 733 | 659 |
Long-term participated receivables from IBM | Asia Pacific | Baa1 - Baa3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 507 | 463 |
Long-term participated receivables from IBM | Asia Pacific | Ba1 - Ba2 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 295 | 280 |
Long-term participated receivables from IBM | Asia Pacific | Ba3 - B1 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 36 | 99 |
Long-term participated receivables from IBM | Asia Pacific | B2 - B3 | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | 27 | 70 |
Long-term participated receivables from IBM | Asia Pacific | Caa - D | ||
Net recorded investment for each class of receivables, by credit quality indicator | ||
Financing receivables, net recorded investment | $ 1 | $ 9 |
Segments - Business Segments (D
Segments - Business Segments (Details) $ in Millions | 3 Months Ended | |
Mar. 31, 2019USD ($)segment | Mar. 31, 2018USD ($) | |
Segment Information | ||
Number of reportable segments | segment | 2 | |
Segments, Income statement information | ||
Total revenue | $ 482 | $ 449 |
Pre-tax income | 193 | 191 |
Depreciation of equipment under operating lease | 45 | |
Depreciation of equipment under operating lease | 48 | |
Financing cost | 160 | 102 |
Provision for/(benefit from) credit losses | 4 | 9 |
Client Financing | ||
Segments, Income statement information | ||
Total revenue | 322 | 308 |
Pre-tax income | 117 | 128 |
Depreciation of equipment under operating lease | 45 | |
Depreciation of equipment under operating lease | 48 | |
Financing cost | 107 | 69 |
Provision for/(benefit from) credit losses | (1) | 10 |
Commercial Financing | ||
Segments, Income statement information | ||
Total revenue | 160 | 142 |
Pre-tax income | 76 | 63 |
Financing cost | 53 | 33 |
Provision for/(benefit from) credit losses | $ 5 | $ (1) |
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 | ||
Unrealized gains (losses) on cash flow hedges | $ 0 | $ 0 |
Gains (losses) on available-for-sale-debt securities | ||
Other comprehensive income/(loss), Before Tax Amount | 3 | 71 |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 3 | 11 |
Other comprehensive income/(loss), net of tax | 6 | 82 |
Accumulated Other Comprehensive Income/(Loss) | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Other comprehensive income before reclassification | 6 | 81 |
Reclassification/amortization, Net of Tax Amount | 0 | 0 |
Other comprehensive income/(loss), Before Tax Amount | 3 | 71 |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 3 | 11 |
Other comprehensive income/(loss), net of tax | 6 | 82 |
Foreign Currency Translation Adjustments | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Other comprehensive income before reclassification | 6 | 81 |
Other comprehensive income/(loss), Before Tax Amount | 3 | 70 |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 3 | 11 |
Other comprehensive income/(loss), net of tax | 6 | 81 |
Net Change Retirement-Related Benefit Plans | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Other comprehensive income before reclassification | 0 | 0 |
Reclassification/amortization, Net of Tax Amount | 0 | 0 |
Other comprehensive income/(loss), Before Tax Amount | 0 | 1 |
Other comprehensive income/(loss), Tax (Expense)/Benefit | 0 | 0 |
Other comprehensive income/(loss), net of tax | 0 | 1 |
Retirement-Related Benefit Plans, Prior Service Costs/(Credits) | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Reclassification/amortization, Before Tax Amount | 0 | 0 |
Reclassification/amortization, Tax (Expense)/Benefit | 0 | 0 |
Reclassification/amortization, Net of Tax Amount | 0 | 0 |
Retirement-Related Benefit Plans, Net Gains/(Losses) | ||
Reclassifications and Taxes Related to Items of Other Comprehensive Income | ||
Other comprehensive income/(loss), arising during the period, Before Tax Amount | 0 | (1) |
Other comprehensive income/(loss), arising during the period, Tax (Expense)/Benefit | 0 | 0 |
Other comprehensive income before reclassification | 0 | (1) |
Reclassification/amortization, Before Tax Amount | 0 | 0 |
Reclassification/amortization, Tax (Expense)/Benefit | 0 | 0 |
Reclassification/amortization, Net of Tax Amount | $ 0 | $ 0 |
Equity Activity - AOCI Rollforw
Equity Activity - AOCI Rollforward (Details) - USD ($) $ in Millions | Jan. 01, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | |
Accumulated Other Comprehensive Income/(Loss) (net of tax) | ||||
Balance at the beginning of the period | $ 3,562 | $ 3,420 | $ 3,562 | |
Other comprehensive income/(loss), net of tax | 6 | 82 | ||
Balance at the end of the period | 3,164 | 3,302 | ||
Accumulated Other Comprehensive Income/(Loss) | ||||
Accumulated Other Comprehensive Income/(Loss) (net of tax) | ||||
Balance at the beginning of the period | 158 | (33) | 158 | |
Cumulative effect of change in accounting principle | (5) | (5) | [1] | |
Other comprehensive income before reclassification | 6 | 81 | ||
Amount reclassified from accumulated other comprehensive income | 0 | 0 | ||
Other comprehensive income/(loss), net of tax | 6 | 82 | ||
Balance at the end of the period | (27) | 234 | ||
Foreign Currency Translation Adjustments | ||||
Accumulated Other Comprehensive Income/(Loss) (net of tax) | ||||
Balance at the beginning of the period | 165 | (23) | 165 | |
Cumulative effect of change in accounting principle | (5) | |||
Other comprehensive income before reclassification | 6 | 81 | ||
Other comprehensive income/(loss), net of tax | 6 | 81 | ||
Balance at the end of the period | (17) | 241 | ||
Net Change Retirement-Related Benefit Plans | ||||
Accumulated Other Comprehensive Income/(Loss) (net of tax) | ||||
Balance at the beginning of the period | $ (7) | (10) | (7) | |
Other comprehensive income before reclassification | 0 | 0 | ||
Amount reclassified from accumulated other comprehensive income | 0 | 0 | ||
Other comprehensive income/(loss), net of tax | 0 | 1 | ||
Balance at the end of the period | $ (10) | $ (7) | ||
[1] | Reflects the adoption of the FASB guidance on stranded tax effects. Refer to note 2, "Accounting Changes." |
Relationship with IBM and Rel_2
Relationship with IBM and Related Party Transactions - Support Agreement (Details) $ in Millions | Mar. 31, 2019USD ($) |
IBM Credit LLC | IBM | |
Related party transactions | |
Minimum beneficial ownership of equity voting interest (as a percent) | 51.00% |
IBM | Support Agreement | |
Related party transactions | |
Minimum consolidated tangible net worth to be supported by parent company | $ 50 |
Maximum debt to equity ratio to be supported by parent company | 11 |
Relationship with IBM and Rel_3
Relationship with IBM and Related Party Transactions - Operating Relationship (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Disclosures | |||
Other receivables from IBM | $ 301 | $ 2,019 | |
Financing revenue | |||
Disclosures | |||
Fee income from related party related to financing incentives to third party | 49 | ||
Change in fee income | 2 | ||
Financing receivables from IBM | |||
Disclosures | |||
Net financing receivables | 3,869 | 3,609 | |
Long-term participated receivables from IBM | |||
Disclosures | |||
Net financing receivables | 3,902 | 4,065 | |
Short-term purchased receivables from IBM | |||
Disclosures | |||
Net financing receivables | 1,430 | 1,369 | |
IBM | |||
Disclosures | |||
Other receivables from IBM | 301 | 2,019 | |
IBM | Excess cash in short-term interest-bearing accounts with parent | |||
Disclosures | |||
Other receivables from IBM | 282 | 2,014 | |
IBM | Financing revenue | Excess cash in short-term interest-bearing accounts with parent | |||
Disclosures | |||
Interest income from a related party | 8 | $ 6 | |
IBM | Financing receivables from IBM | |||
Disclosures | |||
Net financing receivables | 3,869 | $ 3,609 | |
IBM | Financing receivables from IBM | Financing revenue | |||
Disclosures | |||
Interest income from a related party | 44 | ||
Increase (decrease) in interest income over the prior year | 5 | ||
IBM | Long-term participated receivables from IBM | Financing revenue | |||
Disclosures | |||
Interest income from a related party | 50 | ||
Increase (decrease) in financial services revenue over the prior year | 1 | ||
IBM | Short-term purchased receivables from IBM | Financing revenue | |||
Disclosures | |||
Financing revenue | 15 | ||
Increase (decrease) in financial services revenue over the prior year | $ 2 |
Relationship with IBM and Rel_4
Relationship with IBM and Related Party Transactions - Borrowing, Services, and Other Arrangements (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Related party transactions | |||
Interest expense incurred on related party borrowings | $ 74 | $ 57 | |
Accounts payable to related party | 950 | $ 3,044 | |
IBM | |||
Related party transactions | |||
Selling, general and administrative expense with related party | 48 | 52 | |
Accounts payable to related party | 950 | $ 3,044 | |
IBM | Financing cost | Debt payable to IBM | |||
Related party transactions | |||
Interest expense incurred on related party borrowings | 74 | 57 | |
IBM | Sales of returned equipment | Other (income) and expense | |||
Related party transactions | |||
Net profit on transaction with related party | $ 2 | $ 8 |
Relationship with IBM and Rel_5
Relationship with IBM and Related Party Transactions - Tax Sharing Agreement (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Related party transactions | ||
Provision for income taxes | $ 150 | $ 42 |
Effective rate on continuing operations | 77.50% | 22.00% |
Additional provisional charge (benefit) resulting from guidance related to U.S. tax reform | $ 116 | |
IBM | ||
Related party transactions | ||
Non-cash equity contribution received | $ 64 |
Divestiture (Details)
Divestiture (Details) - Disposal Group, Disposed of by Sale - Commercial financing business - IBM - USD ($) $ in Millions | 3 Months Ended | |
Jun. 30, 2019 | Mar. 31, 2019 | |
Divestiture | ||
Gain on divestiture | $ 16 | |
Expected | ||
Divestiture | ||
Cash proceeds from divestiture of business | $ 20 |
Borrowings - Short-Term Debt (D
Borrowings - Short-Term Debt (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Dec. 31, 2018 | |
Short-Term Debt | ||
Short-term debt | $ 11,148 | $ 13,258 |
Short-term financing receivables pledged as collateral for short-term secured borrowings | 28 | 23 |
Debt | ||
Short-Term Debt | ||
Short-term debt | 2,543 | 3,035 |
Commercial paper | ||
Short-Term Debt | ||
Short-term debt | 2,494 | $ 2,995 |
Maximum aggregate amount permitted to be outstanding at any one time | $ 5,000 | |
Weighted-average interest rates for short-term loans (as a percent) | 2.50% | 2.50% |
Commercial paper | Maximum | ||
Short-Term Debt | ||
Term of debt instrument | 364 days | |
Short-term loans | ||
Short-Term Debt | ||
Short-term debt | $ 22 | $ 17 |
Weighted-average interest rates for short-term loans (as a percent) | 7.20% | 4.30% |
Secured borrowings | ||
Short-Term Debt | ||
Short-term debt | $ 28 | $ 23 |
Weighted-average interest rates for short-term loans (as a percent) | 6.80% | 6.90% |
Debt payable to IBM | ||
Short-Term Debt | ||
Short-term debt | $ 8,605 | $ 10,223 |
Weighted-average interest rates for short-term loans (as a percent) | 1.30% | 1.60% |
Borrowings - Long-Term Debt, Co
Borrowings - Long-Term Debt, Components (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 | Sep. 30, 2017 |
Borrowings | |||
Long-term debt - gross | $ 17,815 | ||
Long-term debt - net | 17,796 | $ 17,276 | |
Long-term financing receivables pledged as collateral for long-term secured borrowings | $ 840 | 687 | |
Maximum percent of lien over the net tangible assets | 15.00% | ||
Debt | |||
Borrowings | |||
Long-term debt - gross | $ 8,053 | 7,964 | |
Less: net unamortized discount | 2 | 2 | |
Less: net unamortized debt issuance costs | 7 | 9 | |
Less: fair value adjustment | 9 | 34 | |
Long-term debt - net | 8,034 | 7,919 | |
Long-term notes | |||
Borrowings | |||
Long-term debt - gross | $ 7,000 | 7,000 | |
Long-term notes maturing in 2019 | |||
Borrowings | |||
Debt instrument, weighted-average interest rate percentage (as a percent) | 2.10% | ||
Long-term debt - gross | $ 1,400 | 1,400 | |
Long-term notes maturing in 2020 | |||
Borrowings | |||
Debt instrument, weighted-average interest rate percentage (as a percent) | 3.30% | ||
Long-term debt - gross | $ 1,500 | 1,500 | |
Long-term notes maturing in 2021 | |||
Borrowings | |||
Debt instrument, weighted-average interest rate percentage (as a percent) | 2.80% | ||
Long-term debt - gross | $ 2,850 | 2,850 | |
Long-term notes maturing in 2022 | |||
Borrowings | |||
Debt instrument, weighted-average interest rate percentage (as a percent) | 2.20% | ||
Long-term debt - gross | $ 500 | 500 | |
Long-term notes maturing in 2023 | |||
Borrowings | |||
Debt instrument, weighted-average interest rate percentage (as a percent) | 3.00% | ||
Long-term debt - gross | $ 750 | 750 | |
Long-term loans | |||
Borrowings | |||
Debt instrument, weighted-average interest rate percentage (as a percent) | 6.20% | ||
Long-term debt - gross | $ 213 | 276 | |
Secured borrowings | |||
Borrowings | |||
Debt instrument, weighted-average interest rate percentage (as a percent) | 5.10% | ||
Long-term debt - gross | $ 840 | 687 | |
Debt securities issued during 2017 | |||
Borrowings | |||
Debt securities, aggregate amount issued | $ 3,000 | ||
Debt securities issued during 2018 | |||
Borrowings | |||
Debt securities, aggregate amount issued | 4,000 | ||
Debt payable to IBM | |||
Borrowings | |||
Debt instrument, weighted-average interest rate percentage (as a percent) | 1.40% | ||
Long-term debt - gross | $ 9,762 | ||
Long-term debt - net | $ 9,762 | $ 9,357 |
Borrowings - Contractual Maturi
Borrowings - Contractual Maturities (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Contractual maturities of long-term debt | ||
2019 (Q2-Q4) | $ 5,010 | |
2020 | 4,966 | |
2021 | 4,898 | |
2022 | 1,748 | |
2023 | 1,092 | |
2024 and beyond | 102 | |
Total | 17,815 | |
Debt | ||
Contractual maturities of long-term debt | ||
2019 (Q2-Q4) | 1,775 | |
2020 | 1,898 | |
2021 | 3,063 | |
2022 | 560 | |
2023 | 757 | |
2024 and beyond | 0 | |
Total | 8,053 | $ 7,964 |
Debt payable to IBM | ||
Contractual maturities of long-term debt | ||
2019 (Q2-Q4) | 3,235 | |
2020 | 3,068 | |
2021 | 1,834 | |
2022 | 1,188 | |
2023 | 335 | |
2024 and beyond | 102 | |
Total | $ 9,762 |
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 expense | $ 150 | $ 102 |
Interest expense on debt payable to IBM | $ 74 | $ 57 |
Borrowings - Lines of Credit (D
Borrowings - Lines of Credit (Details) - Lines of Credit $ in Millions | Jul. 19, 2018USD ($) | Jul. 18, 2018USD ($) | Mar. 31, 2019USD ($) |
New Credit Agreements | |||
Lines of Credit | |||
Revolving line of credit, amount | $ 5,000 | ||
Revolving line of credit, borrowings outstanding | $ 0 | ||
Covenants | |||
Limit based on net tangible assets | 10.00% | ||
Period for calculation of net interest expense ratio | 1 year | ||
Minimum net interest expense ratio | 2.20 | ||
Financial covenant - minimum tangible net worth | $ 50 | ||
Financial covenant - maximum leverage ratio | 11 | ||
Default provision on credit facility | $ 500 | ||
364-Day Credit Agreement, 2018 | |||
Lines of Credit | |||
Revolving line of credit, amount | $ 2,500 | ||
Revolving line of credit, term | 364 days | ||
364-Day Credit Agreement, 2017 | |||
Lines of Credit | |||
Revolving line of credit, amount | $ 2,500 | ||
Revolving line of credit, term | 364 days | ||
Three-Year Credit Agreement | |||
Lines of Credit | |||
Revolving line of credit, amount | $ 2,500 | ||
Revolving line of credit, term | 3 years | ||
Revolving line of credit, term extension | 1 year |
Commitments (Details)
Commitments (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Extended lines of credit | ||
Commitments | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 7,635 | $ 7,112 |
Financing for client purchase agreements | ||
Commitments | ||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | $ 384 | $ 495 |