Document and Entity Information
Document and Entity Information | 9 Months Ended |
Sep. 30, 2015shares | |
Document and Entity Information | |
Entity Registrant Name | INTERNATIONAL BUSINESS MACHINES CORP |
Entity Central Index Key | 51,143 |
Document Type | 10-Q |
Document Period End Date | Sep. 30, 2015 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 970,110,126 |
Document Fiscal Year Focus | 2,015 |
Document Fiscal Period Focus | Q3 |
Trading Symbol | IBM |
CONSOLIDATED STATEMENT OF EARNI
CONSOLIDATED STATEMENT OF EARNINGS - USD ($) shares in Millions, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Revenue: | ||||
Services | $ 12,327 | $ 13,869 | $ 37,290 | $ 41,979 |
Sales | 6,501 | 8,034 | 20,990 | 25,180 |
Financing | 452 | 494 | 1,403 | 1,521 |
Total revenue | 19,280 | 22,397 | 59,682 | 68,680 |
Cost: | ||||
Services | 8,067 | 8,868 | 24,776 | 27,100 |
Sales | 1,544 | 2,398 | 4,895 | 7,269 |
Financing | 233 | 257 | 733 | 765 |
Total cost | 9,844 | 11,523 | 30,405 | 35,135 |
Gross profit | 9,436 | 10,874 | 29,278 | 33,545 |
Expense and other (income): | ||||
Selling, general and administrative | 4,731 | 5,281 | 15,273 | 17,146 |
Research, development and engineering | 1,287 | 1,354 | 3,885 | 4,117 |
Intellectual property and custom development income | (188) | (145) | (489) | (543) |
Other (income) and expense | (133) | (103) | (578) | (433) |
Interest expense | 117 | 126 | 340 | 367 |
Total expense and other (income) | 5,815 | 6,513 | 18,431 | 20,654 |
Income from continuing operations before income taxes | 3,621 | 4,361 | 10,846 | 12,891 |
Provision for income taxes | 659 | 906 | 1,943 | 2,655 |
Income from continuing operations | 2,962 | 3,455 | 8,904 | 10,237 |
Loss from discontinued operations, net of tax | (12) | (3,437) | (176) | (3,698) |
Net income | $ 2,950 | $ 18 | $ 8,727 | $ 6,539 |
Assuming dilution: | ||||
Continuing operations (in dollars per share) | $ 3.02 | $ 3.46 | $ 9.03 | $ 10.09 |
Discontinued operations (in dollars per share) | (0.01) | (3.44) | (0.18) | (3.65) |
Total (in dollars per share) | 3.01 | 0.02 | 8.85 | 6.44 |
Basic: | ||||
Continuing operations (in dollars per share) | 3.04 | 3.48 | 9.07 | 10.15 |
Discontinued operations (in dollars per share) | (0.01) | (3.46) | (0.18) | (3.67) |
Total (in dollars per share) | $ 3.03 | $ 0.02 | $ 8.89 | $ 6.48 |
Weighted-average number of common shares outstanding: (millions) | ||||
Assuming dilution (in shares) | 979 | 997.7 | 986 | 1,014.9 |
Basic (in shares) | 975.1 | 991.8 | 981.8 | 1,008.9 |
Cash dividend per common share | $ 1.3 | $ 1.1 | $ 3.7 | $ 3.15 |
CONSOLIDATED STATEMENT OF COMPR
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | ||||
Net income | $ 2,950 | $ 18 | $ 8,727 | $ 6,539 |
Other comprehensive income/(loss), before tax: | ||||
Foreign currency translation adjustments | (1,015) | (1,126) | (1,365) | (848) |
Net changes related to available-for-sale securities: | ||||
Unrealized gains/(losses) arising during the period | (102) | 0 | (85) | 1 |
Reclassification of (gains)/losses to net income | 0 | 0 | 0 | 5 |
Total net changes related to available-for-sale securities | (101) | 0 | (85) | 6 |
Unrealized gains/(losses) on cash flow hedges: | ||||
Unrealized gains/(losses) arising during the period | 36 | 524 | 467 | 596 |
Reclassification of (gains)/losses to net income | (273) | 58 | (843) | 91 |
Total unrealized gains/(losses) on cash flow hedges | (237) | 582 | (376) | 687 |
Retirement-related benefit plans: | ||||
Prior service costs/(credits) | 0 | 0 | 6 | 1 |
Net (losses)/gains arising during the period | (2) | 1 | 14 | 48 |
Curtailments and settlements | 11 | 7 | 19 | 20 |
Amortization of prior service (credits)/cost | (25) | (29) | (76) | (88) |
Amortization of net (gains)/losses | 823 | 635 | 2,479 | 1,923 |
Total retirement-related benefit plans | 807 | 615 | 2,441 | 1,905 |
Other comprehensive income/(loss), before tax | (547) | 71 | 616 | 1,749 |
Income tax (expense)/benefit related to items of other comprehensive income | (176) | (680) | (895) | (1,126) |
Other comprehensive income/(loss) | (724) | (609) | (280) | 623 |
Total comprehensive income/(loss) | $ 2,227 | $ (591) | $ 8,448 | $ 7,162 |
CONSOLIDATED STATEMENT OF FINAN
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash and cash equivalents | $ 9,480 | $ 8,476 |
Marketable securities | 88 | 0 |
Notes and accounts receivable - trade (net of allowances of $362 in 2015 and $336 in 2014) | 7,987 | 9,090 |
Short-term financing receivables (net of allowances of $488 in 2015 and $452 in 2014) | 16,195 | 19,835 |
Other accounts receivable (net of allowances of $53 in 2015 and $40 in 2014) | 931 | 2,906 |
Inventories, at lower of average cost or market: | ||
Finished goods | 388 | 430 |
Work in process and raw materials | 1,224 | 1,674 |
Total inventories | 1,613 | 2,103 |
Deferred taxes | 1,660 | 2,044 |
Prepaid expenses and other current assets | 4,158 | 4,967 |
Total current assets | 42,112 | 49,422 |
Property, plant and equipment | 29,229 | 39,034 |
Less: Accumulated depreciation | 18,568 | 28,263 |
Property, plant and equipment - net | 10,661 | 10,771 |
Long-term financing receivables (net of allowances of $121 in 2015 and $126 in 2014) | 9,517 | 11,109 |
Prepaid pension assets | 4,033 | 2,160 |
Deferred taxes | 3,690 | 4,808 |
Goodwill | 30,275 | 30,556 |
Intangible assets - net | 2,775 | 3,104 |
Investments and sundry assets | 5,586 | 5,603 |
Total assets | 108,649 | 117,532 |
Current liabilities: | ||
Taxes | 2,883 | 5,084 |
Short-term debt | 7,538 | 5,731 |
Accounts payable | 5,166 | 6,864 |
Compensation and benefits | 3,785 | 4,031 |
Deferred income | 10,458 | 11,877 |
Other accrued expenses and liabilities | 3,902 | 6,013 |
Total current liabilities | 33,732 | 39,600 |
Long-term debt | 32,122 | 35,073 |
Retirement and nonpension postretirement benefit obligations | 17,012 | 18,261 |
Deferred income | 3,593 | 3,691 |
Other liabilities | 8,739 | 8,892 |
Total liabilities | 95,198 | 105,518 |
IBM stockholders' equity: | ||
Common stock, par value $0.20 per share, and additional paid-in capital; Shares authorized: 4,687,500,000 (Shares issued: 2015 - 2,219,559,126; 2014 - 2,215,209,574) | 53,220 | 52,666 |
Retained earnings | 142,898 | 137,793 |
Treasury stock - at cost (Shares: 2015 - 1,249,449,000; 2014 - 1,224,685,815) | (154,669) | (150,715) |
Accumulated other comprehensive income/(loss) | (28,155) | (27,875) |
Total IBM stockholders' equity | 13,294 | 11,868 |
Noncontrolling interests | 157 | 146 |
Total equity | 13,450 | 12,014 |
Total liabilities and equity | $ 108,649 | $ 117,532 |
CONSOLIDATED STATEMENT OF FINA5
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Parenthetical) - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION | ||
Notes and accounts receivable - trade, allowances | $ 362 | $ 336 |
Short-term financing receivables, allowances | 488 | 452 |
Other accounts receivable, allowances | 53 | 40 |
Long-term financing receivables, allowances | $ 121 | $ 126 |
Common stock, par value (in dollars per share) | $ 0.2 | $ 0.2 |
Common stock, Shares authorized (in shares) | 4,687,500,000 | 4,687,500,000 |
Common stock, Shares issued (in shares) | 2,219,559,126 | 2,215,209,574 |
Treasury stock, Shares (in shares) | 1,249,449,000 | 1,224,685,815 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
Cash flows from operating activities: | ||
Net income | $ 8,727 | $ 6,539 |
Adjustments to reconcile net income to cash provided by operating activities | ||
Depreciation | 1,981 | 2,428 |
Amortization of intangibles | 884 | 1,018 |
Stock-based compensation | 369 | 416 |
Net (gain)/loss on asset sales and other | 584 | (262) |
Loss on Microelectronics business disposal | 48 | 3,346 |
Changes in operating assets and liabilities, net of acquisitions/divestitures | (864) | (2,675) |
Net cash provided by operating activities | 11,729 | 10,809 |
Cash flows from investing activities: | ||
Payments for property, plant and equipment | (2,670) | (2,793) |
Proceeds from disposition of property, plant and equipment | 314 | 325 |
Investment in software | (407) | (336) |
Acquisition of businesses, net of cash acquired | (821) | (650) |
Divestitures of businesses, net of cash transferred | (488) | 489 |
Non-operating finance receivables - net | 1,334 | 948 |
Purchases of marketable securities and other investments | (2,101) | (1,513) |
Proceeds from disposition of marketable securities and other investments | 2,125 | 1,765 |
Net cash used in investing activities | (2,714) | (1,765) |
Cash flows from financing activities: | ||
Proceeds from new debt | 3,701 | 5,642 |
Payments to settle debt | (5,389) | (3,108) |
Short-term borrowings/(repayments) less than 90 days - net | 1,080 | 3,888 |
Common stock repurchases | (3,846) | (13,547) |
Common stock transactions - other | 271 | 549 |
Cash dividends paid | (3,636) | (3,176) |
Net cash used in financing activities | (7,818) | (9,753) |
Effect of exchange rate changes on cash and cash equivalents | (194) | (447) |
Net change in cash and cash equivalents | 1,004 | (1,155) |
Cash and cash equivalents at January 1 | 8,476 | 10,716 |
Cash and cash equivalents at September 30 | $ 9,480 | $ 9,561 |
CONSOLIDATED STATEMENT OF CHANG
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - USD ($) $ in Millions | Total | Total IBM Stockholders' Equity | Common Stock and Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income/(Loss) | Non-Controlling Interests |
Equity - at Dec. 31, 2013 | $ 22,929 | $ 22,792 | $ 51,594 | $ 130,042 | $ (137,242) | $ (21,602) | $ 137 |
Net income plus other comprehensive income/(loss) | |||||||
Net income | 6,539 | 6,539 | 6,539 | ||||
Other comprehensive income/(loss) | 623 | 623 | 623 | ||||
Total comprehensive income/(loss) | 7,162 | 7,162 | |||||
Cash dividends paid - common stock | (3,176) | (3,176) | (3,176) | ||||
Common stock issued under employee plans (Shares - 4,349,552 and 6,354,088 for the nine months ended September 30, 2015 and 2014, respectively) | 792 | 792 | 792 | ||||
Purchases (Shares - 954,158 and 1,124,077) and sales (Shares - 484,817 and 894,291) of treasury stock under employee plans - net, for the nine months ended September 30, 2015 and 2014, respectively | (96) | (96) | (1) | (95) | |||
Other treasury shares purchased, not retired (Shares - 24,293,844 and 70,854,767 for the nine months ended September 30, 2015 and 2014, respectively) | (13,280) | (13,280) | (13,280) | ||||
Changes in other equity | 60 | 60 | 60 | ||||
Changes in noncontrolling interests | 3 | 3 | |||||
Equity - at Sep. 30, 2014 | 14,395 | 14,255 | 52,446 | 133,403 | (150,616) | (20,978) | 140 |
Equity - at Dec. 31, 2014 | 12,014 | 11,868 | 52,666 | 137,793 | (150,715) | (27,875) | 146 |
Net income plus other comprehensive income/(loss) | |||||||
Net income | 8,727 | 8,727 | 8,727 | ||||
Other comprehensive income/(loss) | (280) | (280) | (280) | ||||
Total comprehensive income/(loss) | 8,448 | 8,448 | |||||
Cash dividends paid - common stock | (3,636) | (3,636) | (3,636) | ||||
Common stock issued under employee plans (Shares - 4,349,552 and 6,354,088 for the nine months ended September 30, 2015 and 2014, respectively) | 556 | 556 | 556 | ||||
Purchases (Shares - 954,158 and 1,124,077) and sales (Shares - 484,817 and 894,291) of treasury stock under employee plans - net, for the nine months ended September 30, 2015 and 2014, respectively | (79) | (79) | 14 | (93) | |||
Other treasury shares purchased, not retired (Shares - 24,293,844 and 70,854,767 for the nine months ended September 30, 2015 and 2014, respectively) | (3,861) | (3,861) | (3,861) | ||||
Changes in other equity | (2) | (2) | (2) | ||||
Changes in noncontrolling interests | 11 | 11 | |||||
Equity - at Sep. 30, 2015 | $ 13,450 | $ 13,294 | $ 53,220 | $ 142,898 | $ (154,669) | $ (28,155) | $ 157 |
CONSOLIDATED STATEMENT OF CHAN8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Parenthetical) - shares | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | ||
Common stock issued under employee plans (in shares) | 4,349,552 | 6,354,088 |
Purchases of treasury stock under employee plans (in shares) | 954,158 | 1,124,077 |
Sales of treasury stock under employee plans (in shares) | 484,817 | 894,291 |
Other treasury shares purchased, not retired (in shares) | 24,293,844 | 70,854,767 |
Basis of Presentation
Basis of Presentation | 9 Months Ended |
Sep. 30, 2015 | |
Basis of Presentation: | |
Basis of Presentation: | 1. Basis of Presentation: The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company's management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company's results of operations, financial position and cash flows. T he 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 co mpany may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. Refer to the company's 201 4 Annual Report on pages 68 to 71 fo r a discussion of the company's critical accounting estimates. On October 20, 2014, the company announced a definitive agreement to divest its Microelectronics business and manufacturing operations to GLOBALFOUNDRIES. The assets and liabilities of t he Microelectronics business were reported as held for sale at December 31, 2014, and the operating results of the Microelectronics business have been reported as discontinued operations. The transaction closed on July 1, 2015. Refer to Note 9, Acquisition s/Divestitures,” for additional information on the transaction. In addition, in the first quarter of 2015, the company renamed its Systems & Technology segment to Systems Hardware and its System z brand to z Systems. Interim results are not necessa rily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company's 2014 Annual Report. Noncontrolling interest amounts of $ 2.4 million and $ 2.4 million, net of tax, f or the three months ended September 30, 2015 and 2014 , respectively, and $ 5.9 million and $ 4.2 million, net of tax, for the nine months ended September 30, 2015 and 2014 , respectively , are included in the Consolidated Statement of Earnings within the other (income) and expense line item. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure pur poses. 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 applicabl e. |
Accounting Changes
Accounting Changes | 9 Months Ended |
Sep. 30, 2015 | |
Accounting Changes: | |
Accounting Changes: | 2 . Accounting Changes: In September 2015, the Financial Accounting Standards Board (FASB) issued guidance eliminating the requirement that an acquirer in a business combination account for a measurement-period adjustment retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which the amount of the adjustment is determined. In addition, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date should be presented separately on the face of the income statement or disclosed in the notes. The guidance is effective January 1, 20 16 with early a dop tion permitted. The guidance is not expected to have a material impact in the consolidated financial results. In July 2015, the FASB issued guidance which requires all inventories, except those using the last-in, first-out or r etail methods, to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable cost of completion, disposal and transportation. The guidance is effective January 1, 2017 with early adoption permitted. The guidance is not expected to have a material impact in the consolidated financial results. In May 2015, the FASB issued guidance which r emoved the requirement to categorize within the f air value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also removed the requirement to make certain disclosures for all investments that are eligible to be measured at fa ir value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The guidance is effective January 1, 2016 with early adoption permitted. The guidance is a change in disclosure only and will not have a material impact in the consolidated financial results. In April 2015, the FASB issued guidance which requires debt issuance costs related to a recognized deb t liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective January 1, 2016 with early adoption permitted. The guidance is a change in fin ancial statement presentation only and will not have a material impact in the consolidated financial results. At September 30, 2015 , the company had approximately $ 74 million in debt issuance costs included in investments and sundry assets in the Consolidated Statement of Financial Position. In April 2015, the FASB issued guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a services contract. All softwa re licenses recognized under this guidance will be accounted for consistent with other licenses of intangible assets. The guidance is effective January 1, 2016 with early adoption permitted. The guidance is not expected to have a material impact in the con solidated financial results. In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retro spectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The guidance was initially effective January 1, 2017 and early adoption was not permitted. In August 2015, the FASB issued guidance whic h provides for a one-year deferral of the effective date to January 1, 2018, with an option of applying the standard on the original effective date. The company is currently evaluating the impact of the new guidance, the effective date and the method of ad option. In April 2014, the FASB issued guidance that change d the criteria for reporting a discontinued operation. O nly disposals of a component that represents a strategic shift that has (or will have) a major effect on an entity's operations and f inancial results is a discontinued operation. The g uidance also requires expanded disclosures about discontinued operations and disposals of a significant part of an entity that does not qualify for discontinued operations reporting. The guidance was effec tive January 1, 2015 . T he impact to the company will be dependent on any transaction that is within the scope of the new guidance. In July 2013, the FASB issued guidance regarding the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under certain circumstances, unrecognized tax benefits should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The guidance was effective January 1, 2014. The guidance was a change in financial statement presentation only and did not have a material impact in the consolidated financial results. In March 2013, th e FASB issued guidance on when foreign currency translation adjustments should be released to net income. When a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, th e parent is required to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially compl ete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The guidance was effective January 1, 2014 and did not have a material impact in the consolidated financial results. In February 2013, the FASB issued guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. Examples include d ebt arrangements, other contractual obligations and settled litigation matters. The guidance requires an entity to measure such obligations as the sum of the amount that the reporting entity agreed to pay on the basis of its arrangement among its co-obligo rs plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance was effective January 1, 2014 and did not have a material impact in the consolidated financial resul ts. |
Financial Instruments
Financial Instruments | 9 Months Ended |
Sep. 30, 2015 | |
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 t o 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 avail able 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 up on 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 dr iver 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” calcula ted 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 metho dology 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 utiliz ing a discounted cash flow model that uses observable market inputs such as known notional value amounts, yield curves, spot and forward exchange rates as well as discount rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative. Certain financial assets are measured at fair value on a nonrecurring basis. These assets include equity method investments that are recognized at fair value at the measurement date to the ex tent that they are deemed to be other-than-temporarily impaired. Certain assets that are measured at fair value on a recurring basis can be subject to nonrecurring fair value measurements. These assets include available-for-sale equity investments that are deemed to be other-than-temporarily impaired. In the event of an other-than-temporary impairment of a financial investment, fair value is measured using a model described above. Non-financial assets such as property, plant and equipment, land, goo dwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for nonfinancial assets depend on the type of asset. In the third quarter of 2014, the company recorded an im pairment on certain assets that were initially reported as held for sale at September 30, 2014. See note 9 , “Acquisitions/Divestitures,” for additional information. There were no material impairments of non-financial assets for the nine months ended September 30, 2015 . Accounting guidance permits the measurement of eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other account ing 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 v alue on a recurring basis at September 30, 2015 and December 31, 2014 . (Dollars in millions) At September 30, 2015 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ 4,626 $ — $ 4,626 Commercial paper — 275 — 275 Money market funds 2,155 — — 2,155 U.S. government securities — 0 — 0 Canadian government securities — 186 — 186 Other securities — 7 — 7 Total 2,155 5,094 — 7,250 (6) Debt securities - current (2) — 88 — 88 (6) Debt securities - noncurrent (3) 1 8 — 9 Trading security investments (3) 54 — — 54 Available-for-sale equity investments (3) 160 — — 160 Derivative assets (4) Interest rate contracts — 739 — 739 Foreign exchange contracts — 542 — 542 Equity contracts — 2 — 2 Total — 1,283 — 1,283 (7) Total assets $ 2,371 $ 6,473 $ — $ 8,844 (7) Liabilities: Derivative liabilities (5) Foreign exchange contracts $ — $ 187 $ — $ 187 Equity contracts — 43 — 43 Interest rate contracts — 0 — 0 Total liabilities $ — $ 230 $ — $ 230 (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Commercial paper and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position. (3) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (4) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in t he Consolidated Statement of Financial Position at September 30, 2015 were $502 million and $781 million, respectively. (5) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other lia bilities in the Consolidated Statement of Financial Position at September 30, 2015 were $167 million and $ 63 million, respectively. (6) Available-for-sale securities with carrying values that approximate fair value. (7) If derivative exposures cover ed by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $180 million. (Dollars in millions) At December 31, 2014 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ 3,517 $ — $ 3,517 Commercial paper — 764 — 764 Money market funds 662 — — 662 U.S government securities — 410 — 410 Other securities — 6 — 6 Total 662 4,697 — 5,359 (5) Debt securities - noncurrent (2) 1 8 — 9 Trading security investments (2) 74 — — 74 Available-for-sale equity investments (2) 243 — — 243 Derivative assets (3) Interest rate contracts — 633 — 633 Foreign exchange contracts — 775 — 775 Equity contracts — 24 — 24 Total — 1,432 — 1,432 (6) Total assets $ 980 $ 6,138 $ — $ 7,118 (6) Liabilities: Derivative liabilities (4) Foreign exchange contracts $ — $ 177 $ — $ 177 Equity contracts — 19 — 19 Total liabilities $ — $ 196 $ — $ 196 (6) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (3) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at December 31, 2014 were $751 million and $681 million, res pectively. (4) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at December 31, 2014 were $165 million and $31 milli on, respectively. (5) Available-for-sale securities with carrying values that approximate fair value. (6) If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the tot al derivative asset and liability positions each would have been reduced by $97 million. There were no transfers between Levels 1 and 2 for the nine months ended September 30, 2015 . During the year ended December 31, 2014 , the company transferred trading s ecurit y investments valued at $74 million from Level 2 to Level 1 due to the expiration of certain regulatory restrictions. Financial Assets and Liabilities Not Measured at Fair Value Short-Term Receivables and Payables Notes and other accounts receivable and other investments are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (excluding the current portion of long-term debt) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Loans and Long-term Receivables Fair values are based on discounted future ca sh flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At September 30, 2015 and December 31, 2014 , the difference between the carrying amount and estimated fair value for loans an d long-term receivables was immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Long-Term Debt Fair value of publicly-traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt was $ 32 ,122 million and $ 35,073 million, and the estimated fair value was $ 33 ,889 million and $ 37,524 million at September 30, 2015 and December 31, 2014 , respectively. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy. Debt and Marketable Equity Securities The compa ny’s cash equivalents and current debt securities are considered available-for-sale and recorded at fair value, which is not materially different from carrying value, in the Consolidated Statement of Financial Position. The following tables summar ize the company’s noncurrent debt and marketable equity securities which are considered available-for-sale and recorded at fair value in the Consolidated Statement of Financial Position. Gross Gross (Dollars in millions) Adjusted Unrealized Unrealized Fair At September 30, 2015: Cost Gains Losses Value Debt securities – noncurrent (1) $ 6 $ 3 $ — $ 9 Available-for-sale equity investments (1) $ 272 $ 6 $ 118 $ 160 (1) Included within investments and sundry assets in the Consolidated Statement of Financial Position. Gross Gross (Dollars in millions) Adjusted Unrealized Unrealized Fair At December 31, 2014: Cost Gains Losses Value Debt securities – noncurrent (1) $ 7 $ 3 $ — $ 9 Available-for-sale equity investments (1) $ 272 $ 2 $ 31 $ 243 (1) Included within investments and sundry assets in the Consolidated Statement of Financial Position. During the fourth quarter of 2014, the company acquired equity securities in conjunction with the sale of the industry standard server business which are classified as available-for-sale securities. Gross unrealized losses of $ 99 million and $ 86 million related to available-for-sale securities for the three and nine months ended September 30, 2015 , respectively, were recorded in the Consolidated Statement of Financial Position. Based on an evaluation of available evidence as of September 30, 2015 and December 31, 2014 , the company believes that unrealized losses on available-for-sale securities were temporary and did not represent a need for an other -than-temporary impairment. In determining whether an other -than-temporary decline in market value has occurred, the company considers the duration that, and extent to which, the fair value of the investment is below its cost, the financial condition and near-term prospects of the issuer and the company’s intent and ability to retain the security in ord er to allow for an anticipated recovery in fair value . The duration of the decline in market value of these securities has occurred over a short-term, and the company has the ability to hold these securities and has no plans to sell this investment prior to recovery of its cost basis. Sales of debt and available-for-sale equity investments during the period were as follows: (Dollars in millions) For the three months ended September 30: 2015 2014 Proceeds $ 1 $ 1 Gross realized gains (before taxes) 0 0 Gross realized losses (before taxes) 0 0 (Dollars in millions) For the nine months ended September 30: 2015 2014 Proceeds $ 7 $ 16 Gross realized gains (before taxes) 1 0 Gross realized losses (before taxes) 1 5 The after-tax net unrealized holding gains/(losses) on available-for-sale debt and equity securities that have been included in other comprehensive income/(loss) for the period and after-tax net (gains)/losses reclassified from accumulated other comprehensive income/(loss) to net income were as follows: (Dollars in millions) For the three months ended September 30: 2015 2014 Net unrealized gains/(losses) arising during the period $ (63) $ 0 Net unrealized (gains)/losses reclassified to net income* 0 0 *There were no writedowns for the three months ended September 30, 2015 and 2014, respectively. (Dollars in millions) For the nine months ended September 30: 2015 2014 Net unrealized gains/(losses) arising during the period $ (52) $ 1 Net unrealized (gains)/losses reclassified to net income* 0 3 * There were no writedowns for the nine months ended September 30, 2015 and 2014, respectively. The contractual maturities of substantially all available-for-sale debt securities are less than one year at September 30, 2015 . Derivative Financial Instruments The company operates in multiple functional currencies and is a significant lender and borrower in the global markets. In the normal course of business, the company is exposed to the impact of interest rate changes and foreign currency fluctuations, and to a lesser extent equity and commodity price changes and client credit risk. The company limits these risks by following established risk management policies and procedures, including the use of derivatives, and, where cost effective, financing with debt in the currencies in which assets are denominated. For interest rate exposures, derivatives are used to better align rate movements between the interest rates associated with the company’s lease and other fina ncial assets and the interest rates associated with its financing debt. Derivatives are also used to manage the related cost of debt. For foreign currency exposures, derivatives are used to better manage the cash flow volatility arising from foreign exchan ge rate fluctuations. As a result of the use of derivative instruments, the company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, the c ompany has a policy of only entering into contracts with carefully selected major financial institutions based upon their overall credit profile. The company’s established policies and procedures for mitigating credit risk on principal transactions include reviewing and establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. The right of set-off that exists under certain of these arrangements enables the legal entities of the company subject to the arrangeme nt to net amounts due to and from the counterparty reducing the maximum loss from credit risk in the event of counterparty default. The company is also a party to collateral security arrangements with most of its major derivative counterparties. Th ese arrangements require the company to hold or post collateral (cash or U.S. Treasury securities) when the derivative fair values exceed contractually established thresholds. Posting thresholds can be fixed or can vary based on credit default swap pricing or credit ratings received from the major credit agencies. The aggregate fair value of all derivative instruments under these collateralized arrangements that were in a liability position at September 30, 2015 and December 31, 2014 was $12 million and $21 millio n, respectively, for which no collateral was posted at September 30, 2015 and December 31, 2014 . Full collateralization of these agreements would be required in the event that the company’s credit rating falls below investment grade or if its credit default swap spread exceeds 250 basis points, as applicable, pursuant to the terms of the collateral security arrangements. The aggregate fair value of derivative instruments in asset positions as of September 30, 2015 and December 31, 2014 was $1,283 million and $1,432 milli on, respectively. This amount represents the maximum exposure to loss at the reporting date if the counterparties failed to perform as contracted. This exposure was reduced by $180 million and $97 million at September 30, 2015 and December 31, 2014 , respectively, of liabilities included in master netting arrangements with those counterparties. Additionally, at September 30, 2015 and December 31, 2014 , this exposure was reduced by $193 million and $487 million of cash collateral, and $48 million and $31 million of non-cas h collateral in U.S. Treasury securities, respectively, received by the company. At September 30, 2015 and December 31, 2014 , the net exposure related to derivative assets recorded in the Consolidated Statement of Financial Position was $862 million and $817 mill ion, respectively. At September 30, 2015 and December 31, 2014 , the net exposure related to derivative liabilities recorded in the Consolidated Statement of Financial Position was $50 million and $99 million, respectively. In the Consolidated Statement of Financial Position, the company does not offset derivative assets against liabilities in master netting arrangements nor does it offset receivables or payables recognized upon payment or receipt of cash collateral against the fair values of the related derivative instruments. No amount was recognized in other receivables at September 30, 2015 or December 31, 2014 for the right to reclaim cash collateral. The amount recognized in accounts payable for the obligation to return cash collateral was $193 million and $487 million at September 30, 2015 and December 31, 2014 , respectively. The company restricts the use of cash collateral received to rehypothecation , and therefore reports it in prepaid expenses and other current assets in the Consolidated Statement of Financial Position. No amount was rehypothecated at September 30, 2015 and December 31, 2014 . The company may employ derivative instruments to hedge the volatility in stockholders’ equity resulting from changes in currency exchange rates of significant foreign s ubsidiaries of the company with respect to the U.S. dollar. These instruments, designated as net investment hedges, expose the company to liquidity risk as the derivatives have an immediate cash flow impact upon maturity which is not offset by a cash flow from the translation of the underlying hedged equity. The company monitors this cash loss potential on an ongoing basis and may discontinue some of these hedging relationships by de-designating or terminating the derivative instrument in order to manage th e liquidity risk. Although not designated as accounting hedges, the company may utilize derivatives to offset the changes in the fair value of the de-designated instruments from the date of de-designation until maturity. In its hedging programs, t he company uses forward contracts, futures contracts, interest-rate swaps, cross-currency swaps, and options depending upon the underlying exposure. The company is not a party to leveraged derivative instruments. A brief description of the major h edging programs, categorized by underlying risk, follows. Interest Rate Risk Fixed and Variable Rate Borrowings The company issues debt in the global capital markets, principally to fund its financing lease and loan portfolios. Access to cost-e ffective financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall interest cost, the company uses interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert specific variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). At September 30, 2015 and December 31, 2014 , the total notional amount of the company’s interest rate swaps was $6.4 billion and $5.8 bi llion, respectively. The weighted-average remaining maturity of these instruments at September 30, 2015 and December 31, 2014 was approximately 7.5 years and 8.7 years, respectively. Forecasted Debt Issuance The company is exposed to interest rate vol atility on future debt issuances. To manage this risk, the company may use forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuance. These swaps are accounted for as cash flow hedges. The com pany did not have any derivative instruments relating to this program outstanding at September 30, 2015 and December 31, 2014 . At September 30, 2015 and December 31, 2014 , net gains of approximately $1 million (before taxes) were recorded in accumulated other co mprehensive income/(loss) in connection with cash flow hedges of the company’s borrowings. Within these amounts, gains of less than $1 million are expected to be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying transactions. Foreign Exchange Risk Long-Term Investments in Foreign Subsidiaries (Net Investment) A large portion of the company’s foreign currency denominated debt portfolio is designated as a hedge of net investment in foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. The company also uses cross-currency sw aps and foreign exchange forward contracts for this risk management purpose. At September 30, 2015 and December 31, 2014 , the total notional amount of derivative instruments designated as net investment hedges was $5.3 billion and $2.2 billion, respectively. The weighted-average remaining maturity of these instruments at September 30, 2015 and December 31, 2014 was approximately 0.2 years for both periods. Anticipated Royalties and Cost Transactions The company’s operations generate significant nonfunctional cur rency, third-party vendor payments and intercompany payments for royalties and goods and services among the company’s non-U.S. subsidiaries and with the parent company. In anticipation of these foreign currency cash flows and in view of the volatility of t he currency markets, the company selectively employs foreign exchange forward contracts to manage its currency risk. These forward contracts are accounted for as cash flow hedges. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is four years. At September 30, 2015 and December 31, 2014 , the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $8.7 billion and $9.3 billion, respecti vely. The weighted-average remaining maturity of these instruments at September 30, 2015 and December 31, 2014 was 0.6 years and 0.7 years, respectively. At September 30, 2015 and December 31, 2014 , in connection with cash flow hedges of anticipated royalties and cost transactions, the company recorded net gains of $226 million and $602 million (before taxes), respectively, in accumulated other comprehensive income/(loss). Within these amounts, $207 million and $572 million of gains, respectively, are expected to be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions. Foreign Currency Denominated Borrowings The company is exposed to exchange rate volatil ity on foreign currency denominated debt. To manage this risk, the company employs cross-currency swaps to convert fixed-rate foreign currency denominated debt to fixed-rate debt denominated in the functional currency of the borrowing entity. These swaps a re accounted for as cash flow hedges. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is approximately seven years. At September 30, 2015 and December 31, 2014 , no amounts were outstanding under th is program. At September 30, 2015 and December 31, 2014 , in connection with cash flow hedges of foreign currency denominated borrowings, the company recorded net losses of $2 million (before taxes) in accumulated other comprehensive income/(loss). Within these amounts, less than $1 million of losses are expected to be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying exposure. Subsidiary Cash and Foreign Currency Asset/Liability Management The company uses its Global Treasury Centers to manage the cash of its subsidiaries. These centers principally use currency swaps to convert cash flows in a cost-effective manner. In addition, the company uses foreign exchange forward c ontracts to economically hedge, on a net basis, the foreign currency exposure of a portion of the company’s nonfunctional currency assets and liabilities. The terms of these forward and swap contracts are generally less than one year. The changes in the fa ir values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated Statement of Earnings. At September 30, 2015 and December 31, 2014 , the total notional amount of deriva tive instruments in economic hedges of foreign currency exposure was $10.8 billion and $13.1 billion, respectively. Equity Risk Management The company is exposed to market price changes in certain broad market indices and in the company’s own s tock primarily related to certain obligations to employees. Changes in the overall value of these employee compensation obligations are recorded in selling, general and administrative (SG&A) expense in the Consolidated Statement of Earnings. Although not d esignated as accounting hedges, the company utilizes derivatives, including equity swaps and futures, to economically hedge the exposures related to its employee compensation obligations. The derivatives are linked to the total return on certain broad mark et indices or the total return on the company’s common stock, and are recorded at fair value with gains or losses also reported in SG&A expense in the Consolidated Statement of Earnings. At September 30, 2015 and December 31, 2014 , the total notional amount of de rivative instruments in economic hedges of these compensation obligations was $1.2 billion and $1.3 billion, respectively. Other Risks The company may hold warrants to purchase shares of common stock in connection with various investments that are deemed derivatives because they contain net share or net cash settlement provisions. The company records the changes in the fair value of these warrants in other (income) and expense in the Consolidated Statement of Earnings. The company did not have any warrants qualifying as derivatives outstanding at September 30, 2015 and December 31, 2014 . The company is exposed to a potential loss if a cl ient fails to pay amounts due under contractual terms. The company may utilize credit default swaps to economically hedge its credit exposures. The swaps are recorded at fair value with gains and losses reported in other (income) and expense in the Consoli dated Statement of Earnings. The company did not have any derivative instruments relating to this program outstanding at September 30, 2015 and December 31, 2014 . The company is exposed to market volatility on certain investment securities. The company ma y utilize options or forwards to economically hedge its market exposure. The derivatives are recorded at fair value with gains and losses reported in other (income) and expense in the Consolidated Statement of Earnings. At September 30, 2015 and December 31, 2014 , the total notional amount of derivative instruments in economic hedges of investment securities was less than $0.1 billion for both periods. The following tables provide a quantitative summary of the derivative and non-derivative instrument-relat ed risk management activity as of September 30, 2015 and December 31, 2014 , as well as for the three and nine months ended September 30, 2015 and 2014 , respectively. Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position As of September 30, 2015 and December 31, 2014 (Dollars in millions) Fair Value of Derivative Assets Fair Value of Derivative Liabilities Balance Sheet Balance Sheet Classification 9/30/2015 12/31/2014 Classification 9/30/2015 12/31/2014 Designated as hedging instruments: Interest rate contracts: Prepaid expenses and Other accrued other current assets $ — $ 5 expenses and liabilities $ — $ 0 Investments and sundry assets 739 628 Other liabilities — — Foreign exchange Prepaid expenses and Other accrued contracts: other current assets 299 632 expenses and liabilities 89 50 Investments and sundry assets 5 17 Other liabilities 30 21 Fair value of derivative Fair value of derivative assets $ 1,043 $ 1,281 liabilities $ 119 $ 72 Not designated as hedging instruments: Foreign exchange Prepaid expenses and Other accrued contracts: other current assets $ 201 $ 90 expenses and liabilities $ 36 $ 101 Investments and sundry assets 37 37 Other liabilities 33 4 Equity contracts: Prepaid expenses and Other accrued other current assets 2 24 expenses and liabilities 43 14 Investments and sundry assets — 0 Other liabilities — 5 Fair value of derivative Fair value of derivative assets $ 241 $ 151 liabilities $ 112 $ 125 Total debt designated as hedging instruments: Short-term debt N/A N/A $ — $ 0 Long-term debt N/A N/A $ 7,709 $ 7,766 Total $ 1,283 $ 1,432 $ 7,939 $ 7,963 N/A-not applicable The Effect of Derivative Instruments in the Consolidated Statement of Earnings For the three months ended September 30, 2015 and 2014 (Dollars in millions) Gain (Loss) Recognized in Earnings Consolidated Statement of Recognized on Attributable to Risk Earnings Line Item Derivatives(1) Being Hedged(2) For the three months ended September 30: 2015 2014 2015 2014 Derivative instruments in fair value hedges(4): Interest rate contracts Cost of financing $ 125 $ 16 $ (99) $ 11 Interest expense 112 15 (88) 10 Derivative instruments not designated as hedging instruments(1): Foreign exchange contracts Other (income) and expense 208 (452) N/A N/A Interest rate contracts Other (income) and expense 0 (3) N/A N/A Equity contracts SG&A expense (81) (14) N/A N/A Other (income) and expense (8) 5 N/A N/A Total $ 357 $ (433) $ (187) $ 21 (Dollars in millions) Gain (Loss) Recognized in Earnings and Other Comprehensive Income Consolidated (Ineffectiveness) and Effective Portion Statement of Effective Portion Reclassified Amounts Excluded from Recognized in OCI Earnings Line Item from AOCI Effectiveness Testing For the three months ended September 30: 2015 2014 2015 2014 2015 2014 Derivative instruments in cash flow hedges: Interest rate contracts $ — $ — Interest expense $ 0 $ (1) $ — $ — Other (income) Foreign exchange 36 524 and expense 185 (57) 0 (1) contracts Cost of sales 46 (4) — — S |
Financing Receivables
Financing Receivables | 9 Months Ended |
Sep. 30, 2015 | |
Financing Receivables: | |
Financing Receivables: | 4. Financing Receivables: The following table presents financing receivables, net of allowances for credit losses, including residual values. At September 30, At December 31, (Dollars in millions) 2015 2014 Current: Net investment in sales-type and direct financing leases $ 3,252 $ 3,781 Commercial financing receivables 6,487 8,423 Client loan and installment payment receivables (loans) 6,456 7,631 Total $ 16,195 $ 19,835 Noncurrent: Net investment in sales-type and direct financing leases $ 4,130 $ 4,449 Client loan and installment payment receivables (loans) 5,387 6,660 Total $ 9,517 $ 11,109 Net investment in sales-type and direct financing leases relates principally to the company’s systems products and are for terms ranging generally from two to six years. Net investment in sales-type and direct financing leases includes unguaranteed residual values of $ 635 million and $ 671 million at September 30, 2015 and December 31, 2014 , respectively, and is reflected net of unearned income of $ 525 million and $ 517 million, and net of the allowance for credit losses of $ 222 million and $ 165 million at t hose dates, respectively. Commercial financing receivables, net of the allowance for credit losses of $ 16 million and $ 17 million at September 30, 2015 and December 31, 2014 , respectively, relate primarily to inventory and accounts receivable financing f or dealers and remarketers of IBM and OEM products. Payment terms for inventory and accounts receivable financing generally range from 30 to 90 days. Client loan receivables and installment payment receivables (loans) , net of the allowance for cred it losses of $ 371 million and $ 396 million at September 30, 2015 and December 31, 2014 , respectively, are loans that are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are ge nerally for terms up to seven years . Client loan and installment payment receivables (loans) financing contracts are priced independently at competitive market rates. The company has a history of enforcing the terms of these financing agreements. The company utilizes certain of its financing receivables as collateral for nonrecourse borrowings. Financing receivables pledged as collateral for borrowings were $ 593 million and $ 6 42 million at September 30, 2015 and December 31, 2014 , respectively. The company did not have any financing receivables held for sale as of September 30, 2015 and December 31, 2014 . Financing Receivables by Portfolio Segment The following tables present financing receivables on a gross basis, excluding the allowance for credit losses and residual value, by portfolio segment and by class, excluding current commercial financing receivables and other miscellaneous current financing receivables at September 30, 2015 and December 31, 2014 . The company determines its allowance for credit losses based on two portfolio segments : lease receivables and loan receivables , and further segments the portfolio into two classes: major markets a nd growth markets. (Dollars in millions) Major Growth At September 30, 2015 Markets Markets Total Financing receivables: Lease receivables $ 5,404 $ 1,480 $ 6,885 Loan receivables 9,067 3,147 12,214 Ending balance $ 14,471 $ 4,627 $ 19,099 Collectively evaluated for impairment $ 14,392 $ 4,160 $ 18,552 Individually evaluated for impairment $ 79 $ 467 $ 546 Allowance for credit losses: Beginning balance at January 1, 2015 Lease receivables $ 32 $ 133 $ 165 Loan receivables 79 317 396 Total $ 111 $ 450 $ 561 Write-offs (4) (35) (39) Provision 6 102 107 Other (6) (31) (37) Ending balance at September 30, 2015 $ 107 $ 486 $ 593 Lease receivables $ 31 $ 191 $ 222 Loan receivables $ 76 $ 295 $ 371 Collectively evaluated for impairment $ 39 $ 34 $ 73 Individually evaluated for impairment $ 68 $ 452 $ 520 (Dollars in millions) Major Growth At December 31, 2014 Markets Markets Total Financing receivables: Lease receivables $ 5,702 $ 1,943 $ 7,645 Loan receivables 10,049 4,639 14,687 Ending balance $ 15,751 $ 6,581 $ 22,332 Collectively evaluated for impairment $ 15,665 $ 6,156 $ 21,821 Individually evaluated for impairment $ 86 $ 425 $ 511 Allowance for credit losses: Beginning balance at January 1, 2014 Lease receivables $ 42 $ 80 $ 123 Loan receivables 95 147 242 Total $ 137 $ 228 $ 365 Write-offs (18) (6) (24) Provision 3 240 243 Other (12) (11) (23) Ending balance at December 31, 2014 $ 111 $ 450 $ 561 Lease receivables $ 32 $ 133 $ 165 Loan receivables $ 79 $ 317 $ 396 Collectively evaluated for impairment $ 42 $ 39 $ 81 Individually evaluated for impairment $ 69 $ 411 $ 480 When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For individually evaluated receivables, the company determines the expected cash flow for the receivable and calculates an estimate of the potential loss and the probability of loss. For those accounts in which the loss is probable, the company records a specific reserve. In addition, the company records an unallocated reserve that is determined by applying a reserve rate to its differ ent portfolios, excluding accounts that have been specifically reserved. This reserve rate is based upon credit rating, probability of default, term, characteristics (lease/loan) and loss history. Financing Receivables on Non-Accrual Status The f ollowing table presents the recorded investment in financing receivables which were on non-accrual status at September 30, 2015 and December 31, 2014 . At September 30, At December 31, (Dollars in millions) 2015 2014 Major markets $ 2 $ 13 Growth markets 68 40 Total lease receivables $ 70 $ 53 Major markets $ 12 $ 27 Growth markets 127 151 Total loan receivables $ 139 $ 178 Total receivables $ 209 $ 231 Impaired Loans The company considers any loan with an individually evaluated reserve as an impaired loan. Depending on the level of impairment, loans will also be placed on non-accrual status. The following tables present impaired client loan receivables. At September 30, 2015 At December 31, 2014 Recorded Related Recorded Related (Dollars in millions) Investment Allowance Investment Allowance Major markets $ 50 $ 46 $ 54 $ 47 Growth markets 299 286 299 293 Total $ 348 $ 332 $ 353 $ 340 Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the three months ended September 30, 2015: Investment Recognized Cash Basis Major markets $ 51 $ — $ — Growth markets 325 0 — Total $ 376 $ 0 $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the three months ended September 30, 2014: Investment Recognized Cash Basis Major markets $ 67 $ 0 $ — Growth markets 235 0 — Total $ 302 $ 0 $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the nine months ended September 30, 2015: Investment Recognized Cash Basis Major markets $ 52 $ — $ — Growth markets 320 0 — Total $ 371 $ 0 $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the nine months ended September 30, 2014: Investment Recognized Cash Basis Major markets $ 72 $ 0 $ — Growth markets 185 0 — Total $ 256 $ 0 $ — Credit Quality Indicators The company’s credit quality indicators , which are based on rating agency data , publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody ’s , where available, as o ne of many inputs in its determination of customer credit ratings. The following tables present the gross recorded investment for each class of receivables, by credit quality indicator, at September 30, 2015 and December 31, 2014 . Receivables with a credi t quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators do not reflect mitigation actions that the company may take to transfer credit risk to third parties . Lease Receivables Loan Receivables (Dollars in millions) Major Growth Major Growth At September 30, 2015: Markets Markets Markets Markets Credit Rating: Aaa – Aa3 $ 621 $ 33 $ 1,042 $ 70 A1 – A3 1,170 124 1,963 263 Baa1 – Baa3 1,502 587 2,520 1,248 Ba1 – Ba2 1,172 229 1,966 488 Ba3 – B1 500 260 839 553 B2 – B3 400 171 672 365 Caa – D 39 76 65 161 Total $ 5,404 $ 1,480 $ 9,067 $ 3,147 At September 30, 2015 , the industries which made up Global Financing’s receivables portfolio consisted of: Financial (37 percent), Government (14 percent), Manufacturing (14 percent), Services (9 percent), Retail (8 percent), Communications (7 percent), Healthcare (6 percent) and Other (5 percent). Lease Receivables Loan Receivables (Dollars in millions) Major Growth Major Growth At December 31, 2014: Markets Markets Markets Markets Credit Rating: Aaa – Aa3 $ 563 $ 46 $ 993 $ 110 A1 – A3 1,384 178 2,438 425 Baa1 – Baa3 1,704 900 3,003 2,148 Ba1 – Ba2 1,154 272 2,034 649 Ba3 – B1 470 286 827 683 B2 – B3 372 176 655 420 Caa – D 55 85 98 203 Total $ 5,702 $ 1,943 $ 10,049 $ 4,639 At December 31, 2014 , the industries which made up Global Financing’s receivables portfolio consisted of: Financial (40 percent), Manufacturing (14 percent), Government (13 percent), Services (9 percent), Retail (8 percent), Communications (6 percent), Healthcare (5 percent) and Other (5 percent). Past Due Financing Receivables The company views financing receivables as past due when payment has not been received after 90 days, measured from the billing date. Recorded Total Total Investment (Dollars in millions) Past Due Financing > 90 Days At September 30, 2015: > 90 days* Current Receivables and Accruing Major markets $ 7 $ 5,397 $ 5,404 $ 7 Growth markets 32 1,448 1,480 15 Total lease receivables $ 39 $ 6,845 $ 6,885 $ 22 Major markets $ 10 $ 9,057 $ 9,067 $ 10 Growth markets 35 3,112 3,147 21 Total loan receivables $ 45 $ 12,169 $ 12,214 $ 31 Total $ 85 $ 19,014 $ 19,099 $ 53 * Does not include accounts that are fully reserved. Recorded Total Total Investment (Dollars in millions) Past Due Financing > 90 Days At December 31, 2014: > 90 days* Current Receivables and Accruing Major markets $ 6 $ 5,696 $ 5,702 $ 6 Growth markets 32 1,911 1,943 14 Total lease receivables $ 38 $ 7,607 $ 7,645 $ 20 Major markets $ 9 $ 10,040 $ 10,049 $ 9 Growth markets 35 4,603 4,639 18 Total loan receivables $ 44 $ 14,643 $ 14,687 $ 27 Total $ 82 $ 22,250 $ 22,332 $ 47 * Does not include accounts that are fully reserved. Troubled Debt Restructurings The company did not have any troubled debt restructurings during the nine months ended September 30, 2015 and for the year ended December 31, 2014 . |
Stock-Based Compensation
Stock-Based Compensation | 9 Months Ended |
Sep. 30, 2015 | |
Stock-Based Compensation: | |
Stock-Based Compensation: | 5. Stock-Based Compensation: Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized over the employee requisite service period. The following table presents total stock-based compensation cost included in income from continuin g operations Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions) 2015 2014 2015 2014 Cost $ 24 $ 33 $ 78 $ 92 Selling, general and administrative 82 105 260 293 Research, development and engineering 11 13 37 41 Other (income) and expense* (5) — (6) (9) Pre-tax stock-based compensation cost 111 150 369 416 Income tax benefits (38) (51) (124) (141) Total net stock-based compensation cost $ 73 $ 99 $ 244 $ 276 * Reflects the one-time effects related to divestitures in 2015 and 2014. Pre-tax stock-based compensation cost for the three months ended September 30, 2015 decreased $39 million compared to the corresponding period in the prior year. This was due to decreases related to performance share units ($31 million), restricted stock units ($7 million) and in the company’s assumption of stock-based awards previously issued by acquired entities ($1 million). Pre-tax stock-based compensation cost for the nine months ended September 30, 2015 decreased $48 million compared to the corresponding period in the prior year. This was due to decreases related to performance share units ($37 million), restricted stock units ($3 million) and the company’s assumption of stock-based awards previously issued by acquired entities ($8 million). The amount of stock-based compensation cost included in the loss from discontinued operations, net of tax, was immaterial in all periods. As of September 30, 2015 , the total unrecognized compensation cost of $ 927 million related to non-vested awards was expected to be recognized over a weighted-average period of approximately 2.7 years. There was no significant capitalized stock-based compensation cost at September 30, 2015 and 2014 . |
Segments
Segments | 9 Months Ended |
Sep. 30, 2015 | |
Segments: | |
Segments: | 6. Segments: The tables on pages 28 and 29 reflect the results of continuing operations of the company’s segments consistent with the management and measurement system utilized within the company. Performance measurement is based on pre-tax income from continuing operations. These results are used, in part, by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments. In January 2015, the company’s business process outsourcing business, Global Process Services, which was previously managed within Global Technology Services, was integrated into Global Business Services, creating an end-to-end business transformation capability for clients and to better leverage the company’s indu stry knowledge. The f ollowing tables reflect this reclassification for the prior-year periods. SEGMENT INFORMATION Global Services Global Global Technology Business Systems Global Total (Dollars in millions) Services Services Software Hardware Financing Segments For the three months ended September 30, 2015: External revenue $ 7,937 $ 4,206 $ 5,136 $ 1,492 $ 447 $ 19,219 Internal revenue 190 120 785 121 584 1,800 Total revenue $ 8,127 $ 4,326 $ 5,921 $ 1,613 $ 1,031 $ 21,019 Pre-tax income from continuing operations $ 1,274 $ 673 $ 1,899 $ (24) $ 562 $ 4,384 Revenue year-to-year change (10.6) % (13.0) % (9.9) % (38.3) % (4.9) % (13.6) % Pre-tax income year-to-year change (21.6) % (21.8) % (18.6) % (75.6) % 18.1 % (15.6) % Pre-tax income margin 15.7 % 15.6 % 32.1 % (1.5) % 54.5 % 20.9 % For the three months ended September 30, 2014*: External revenue $ 8,837 $ 4,840 $ 5,708 $ 2,434 $ 487 $ 22,305 Internal revenue 252 135 862 182 598 2,029 Total revenue $ 9,089 $ 4,975 $ 6,570 $ 2,616 $ 1,084 $ 24,334 Pre-tax income/(loss) from continuing operations $ 1,625 $ 861 $ 2,333 $ (99) $ 475 $ 5,195 Pre-tax income margin 17.9 % 17.3 % 35.5 % (3.8) % 43.9 % 21.3 % * Reclassified to conform with 2015 presentation. Reconciliations to IBM as Reported: (Dollars in millions) For the three months ended September 30: 2015 2014 Revenue: Total reportable segments $ 21,019 $ 24,334 Eliminations of internal transactions (1,800) (2,029) Other revenue 60 92 Total consolidated revenue $ 19,280 $ 22,397 Pre-tax income from continuing operations: Total reportable segments $ 4,384 $ 5,195 Amortization of acquired intangible assets (162) (201) Acquisition-related charges (4) 0 Non-operating retirement-related (costs)/income (204) (71) Eliminations of internal transactions (380) (402) Unallocated corporate amounts (14) (160) Total pre-tax income from continuing operations $ 3,621 $ 4,361 SEGMENT INFORMATION Global Services Global Global Technology Business Systems Global Total (Dollars in millions) Services Services Software Hardware Financing Segments For the nine months ended September 30, 2015: External revenue $ 23,891 $ 12,869 $ 16,165 $ 5,209 $ 1,386 $ 59,520 Internal revenue 589 380 2,519 320 1,874 5,683 Total revenue $ 24,480 $ 13,249 $ 18,684 $ 5,529 $ 3,261 $ 65,203 Pre-tax income from continuing operations $ 3,516 $ 1,926 $ 6,107 $ 255 $ 1,690 $ 13,494 Revenue year-to-year change (10.8) % (12.6) % (8.9) % (32.0) % (4.2) % (12.6) % Pre-tax income year-to-year change (22.0) % (26.8) % (11.9) % nm 1.6 % (12.3) % Pre-tax income margin 14.4 % 14.5 % 32.7 % 4.6 % 51.8 % 20.7 % nm - not meaningful For the nine months ended September 30, 2014*: External revenue $ 26,696 $ 14,742 $ 17,857 $ 7,590 $ 1,502 $ 68,387 Internal revenue 739 416 2,652 541 1,900 6,248 Total revenue $ 27,435 $ 15,158 $ 20,508 $ 8,131 $ 3,403 $ 74,635 Pre-tax income/(loss) from continuing operations $ 4,509 $ 2,633 $ 6,935 $ (354) $ 1,664 $ 15,386 Pre-tax income margin 16.4 % 17.4 % 33.8 % (4.4) % 48.9 % 20.6 % * Reclassified to conform with 2015 presentation. Reconciliations to IBM as Reported: (Dollars in millions) For the nine months ended September 30: 2015 2014 Revenue: Total reportable segments $ 65,203 $ 74,635 Eliminations of internal transactions (5,683) (6,248) Other revenue 162 292 Total consolidated revenue $ 59,682 $ 68,680 Pre-tax income from continuing operations: Total reportable segments $ 13,494 $ 15,386 Amortization of acquired intangible assets (492) (596) Acquisition-related charges (11) (10) Non-operating retirement-related (costs)/income (831) (246) Eliminations of internal transactions (1,294) (1,433) Unallocated corporate amounts (19) (209) Total pre-tax income from continuing operations $ 10,846 $ 12,891 |
Equity Activity
Equity Activity | 9 Months Ended |
Sep. 30, 2015 | |
Equity Activity: | |
Equity Activity: | 7. Equity Activity: Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended September 30, 2015: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (1,015) $ (28) $ (1,043) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ (102) $ 39 $ (63) Reclassification of (gains)/losses to other (income) and expense 0 0 0 Total net changes related to available-for-sale securities $ (101) $ 39 $ (62) Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ 36 $ (9) $ 27 Reclassification of (gains)/losses to: Cost of sales (46) 13 (33) SG&A expense (43) 13 (30) Other (income) and expense (185) 71 (114) Interest expense 0 0 0 Total unrealized gains/(losses) on cash flow hedges $ (237) $ 88 $ (149) Retirement-related benefit plans (1) : Prior service costs/(credits) $ 0 $ 0 $ 0 Net (losses)/gains arising during the period (2) 1 (1) Curtailments and settlements 11 (4) 7 Amortization of prior service (credits)/costs (25) 8 (16) Amortization of net (gains)/losses 823 (281) 542 Total retirement-related benefit plans $ 807 $ (275) $ 531 Other comprehensive income/(loss) $ (547) $ (176) $ (724) (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 September 30, 2014: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (1,126) $ (271) $ (1,397) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ 0 $ 0 $ 0 Reclassification of (gains)/losses to other (income) and expense 0 0 0 Total net changes related to available-for-sale securities $ 0 $ 0 $ 0 Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ 524 $ (182) $ 342 Reclassification of (gains)/losses to: Cost of sales 4 (1) 3 SG&A expense (3) 1 (2) Other (income) and expense 57 (22) 35 Interest expense 1 0 1 Total unrealized gains/(losses) on cash flow hedges $ 582 $ (204) $ 378 Retirement-related benefit plans (1) : Prior service costs/(credits) $ 0 $ 0 $ 0 Net (losses)/gains arising during the period 1 0 1 Curtailments and settlements 7 (2) 5 Amortization of prior service (credits)/costs (29) 10 (19) Amortization of net (gains)/losses 635 (212) 423 Total retirement-related benefit plans $ 615 $ (205) $ 409 Other comprehensive income/(loss) $ 71 $ (680) $ (609) (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 nine months ended September 30, 2015: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (1,365) $ (227) $ (1,593) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ (85) $ 33 $ (52) Reclassification of (gains)/losses to other (income) and expense 0 0 0 Total net changes related to available-for-sale securities $ (85) $ 33 $ (52) Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ 467 $ (166) $ 301 Reclassification of (gains)/losses to: Cost of sales (154) 46 (109) SG&A expense (124) 36 (88) Other (income) and expense (565) 217 (348) Interest expense 0 0 0 Total unrealized gains/(losses) on cash flow hedges $ (376) $ 132 $ (243) Retirement-related benefit plans (1) : Prior service costs/(credits) $ 6 $ (2) $ 4 Net (losses)/gains arising during the period 14 (5) 9 Curtailments and settlements 19 (6) 12 Amortization of prior service (credits)/costs (76) 26 (50) Amortization of net (gains)/losses 2,479 (846) 1,633 Total retirement-related benefit plans $ 2,441 $ (833) $ 1,608 Other comprehensive income/(loss) $ 616 $ (895) $ (280) (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 nine months ended September 30, 2014: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (848) $ (241) $ (1,090) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ 1 $ 0 $ 1 Reclassification of (gains)/losses to other (income) and expense 5 (2) 3 Total net changes related to available-for-sale securities $ 6 $ (2) $ 4 Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ 596 $ (213) $ 383 Reclassification of (gains)/losses to: Cost of sales 53 (18) 35 SG&A expense 5 0 5 Other (income) and expense 33 (13) 20 Interest expense 1 0 1 Total unrealized gains/(losses) on cash flow hedges $ 687 $ (244) $ 443 Retirement-related benefit plans (1) : Prior service costs/(credits) $ 1 $ 0 $ 0 Net (losses)/gains arising during the period 48 (16) 32 Curtailments and settlements 20 (7) 14 Amortization of prior service (credits)/costs (88) 29 (58) Amortization of net (gains)/losses 1,923 (644) 1,279 Total retirement-related benefit plans $ 1,905 $ (638) $ 1,266 Other comprehensive income/(loss) $ 1,749 $ (1,126) $ 623 (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, "Retirement-Related Benefits," for additional information.) Accumulated Other Comprehensive Income/(Loss) (net of tax) Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in Millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 2015 $ 392 $ (1,742) $ (26,509) $ (15) $ (27,875) Other comprehensive income before reclassifications 301 (1,593) 25 (52) (1,319) Amount reclassified from accumulated other comprehensive income (544) 0 1,583 0 1,039 Total change for the period (243) (1,593) 1,608 (52) (280) September 30, 2015 $ 148 $ (3,335) $ (24,901) $ (67) $ (28,155) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in Millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 2014 $ (165) $ 332 $ (21,767) $ (1) $ (21,602) Other comprehensive income before reclassifications 383 (1,090) 32 1 (674) Amount reclassified from accumulated other comprehensive income 61 0 1,235 3 1,299 Total change for the period 443 (1,090) 1,267 4 623 September 30, 2014 $ 277 $ (758) $ (20,501) $ 3 $ (20,978) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. |
Retirement-Related Benefits
Retirement-Related Benefits | 9 Months Ended |
Sep. 30, 2015 | |
Retirement-Related Benefits: | |
Retirement-Related Benefits: | 8. Retirement-Related Benefits: The company offers defined benefit pension plans, defined contribution pension plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits. The following table s provide the pre-tax cost for all retirement-related plans Yr. to Yr. (Dollars in millions) Percent For the three months ended September 30: 2015 2014 Change Retirement-related plans – cost Defined benefit and contribution pension plans – cost $ 505 $ 408 23.9 % Nonpension postretirement plans – cost 68 67 0.3 Total $ 573 $ 475 20.6 % Yr. to Yr. (Dollars in millions) Percent For the nine months ended September 30: 2015 2014 Change Retirement-related plans – cost Defined benefit and contribution pension plans – cost $ 1,747 $ 1,280 36.5 % Nonpension postretirement plans – cost 206 204 0.9 Total $ 1,953 $ 1,484 31.6 % The following table s provide the components of the cost/(income) for the company’s pension plans Cost/(Income) of Pension Plans (Dollars in millions) U.S. Plans Non-U.S. Plans For the three months ended September 30: 2015 2014 2015 2014 Service cost $ — $ — $ 116 $ 113 Interest cost 507 553 270 385 Expected return on plan assets (988) (1,024) (481) (565) Amortization of prior service costs/(credits) 2 2 (24) (28) Recognized actuarial losses 414 264 392 351 Curtailments and settlements — — 11 7 Multi-employer plans/other costs — — 16 36 Total net periodic pension (income)/cost of defined benefit plans (65) (205) 300 300 Cost of defined contribution plans 162 179 109 133 Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings $ 96 $ (25) $ 409 $ 433 (Dollars in millions) U.S. Plans Non-U.S. Plans For the nine months ended September 30: 2015 2014 2015 2014 Service cost $ — $ — $ 339 $ 346 Interest cost 1,521 1,659 810 1,170 Expected return on plan assets (2,965) (3,072) (1,446) (1,715) Amortization of prior service costs/(credits) 7 7 (74) (85) Recognized actuarial losses 1,241 792 1,186 1,072 Curtailments and settlements — — 19 20 Multi-employer plan/other costs — — 272 131 Total net periodic pension (income)/cost of defined benefit plans (196) (614) 1,107 938 Cost of defined contribution plans 500 554 335 402 Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings $ 304 $ (60) $ 1,443 $ 1,340 In March 2014 , the Supreme Court of Spain issued a ruling in litigation involving IBM Spain ’ s defined benefit (DB) and defined contribution (DC) plans. As a result of this ruling, the company recorded a pre-tax retirement-related obligation of $ 148 million in 2014 ($ 55 million in the first quarter ; $ 20 million in the third quarter; and $ 73 million in the fourth quarter ) in selling, general and administrative (SG&A) expense in the Consolidated Statement of Earnings. T he Constitutional Court de nied IB M Spain’s requested leave to appeal the decision . In March 2015, the National Audience Court issued a ruling that, in part, required IBM to stop making DC contributions and also ruled that the company should promptly reinstate the DB plan. As a result of t h i s r uling , in the first quarter of 2015, the company recorded a n additional pre-tax retirement-related obligation of $ 230 million in SG&A in the Consolidated Statement of Earnings. Th ese obligation s are reflected in "Non-U.S. Plans - Multi-employer plans/oth er costs" in the table s above . IBM Spain appealed that ruling and in May 2015, the National Audience Court dismissed the appeal. See note 12, "Contingencies" for additional information. In 2015 , the company ex pects to contribute to its non-U.S. defined benefit and multi-employer plans approximately $ 600 million, which will be mainly contributed to the defined benefit pension plans in the UK, Japan, the Netherlands and Spain. This amount represents the legally m andated minimum contribution. Total net contributions to the non-U.S. plans in the first nine months of 2015 were $ 271 million. The following tables provide the components of the cost/(income) for the company's nonpension postretirement plans. Cost of Nonpension Postretirement Plans (Dollars in millions) U.S. Plan Non-U.S. Plans For the three months ended September 30: 2015 2014 2015 2014 Service cost $ 6 $ 7 $ 2 $ 1 Interest cost 41 47 12 16 Expected return on plan assets — — (2) (2) Amortization of prior service costs/(credits) (2) (2) (1) (1) Recognized actuarial losses 10 0 2 3 Curtailments and settlements — — 0 0 Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ 55 $ 51 $ 13 $ 16 (Dollars in millions) U.S. Plan Non-U.S. Plans For the nine months ended September 30: 2015 2014 2015 2014 Service cost $ 18 $ 20 $ 5 $ 5 Interest cost 122 140 39 48 Expected return on plan assets — — (5) (7) Amortization of prior service costs/(credits) (6) (6) (4) (4) Recognized actuarial losses 29 0 7 8 Curtailments and settlements — — 0 0 Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ 164 $ 154 $ 42 $ 50 |
Acquisitions_Divestitures
Acquisitions/Divestitures | 9 Months Ended |
Sep. 30, 2015 | |
Acquisitions/Divestitures: | |
Acquisitions/Divestitures: | 9 . Acquisitions/Divestitures: Acquisitions: During the nine months ended September 30, 2015 , the company completed seven acquisitions at an aggregate cost of $782 million. The Software segment completed acquisitions of six privately held businesses: in the first quarter, AlchemyAPI , Inc. ( AlchemyAPI ) and Blekko , Inc. ( Blekko ); in the second quarter, Explorys , Inc. ( Explorys ) and Phytel , Inc. ( Phytel ); and in the third quarte r, Compose, Inc. (Compose) and StrongLoop , Inc. ( StrongLoop ). Global Technology Services (GTS) completed one acquisition: in the second quarter, Blue Box Group, Inc. (Blue Box) , a privately held company. Each acquisition is expected to enhance the co mpany’s portfolio of product and services capabilities. AlchemyAPI is a leading provider of scalable cognitive computing application program interface services and computing applications. Blekko technology provides advanced Web-crawling, categorization an d intelligent filtering. Explorys provides secure cloud-based solutions for clinical integration, at-risk population management, cost of care measurement and pay-for-performance. Phytel is a leading provider of SaaS based population health management offer ings that help providers identify patients at risk for care gaps and engage the patient to begin appropriate preventative care. Blue Box provides hosted, managed, OpenStack-based production-grade private clouds for the enterprise and service provider marke ts. Compose offers auto-scaling, production-ready databases to help software development teams deploy data services efficiently . StrongLoop is a leading provider of application development software that enables software developers to build applications using applicati on programming interfaces. Purchase price consideration for these acquisitions as reflected in the following table, was paid primarily in cash . All acquisitions are reported in the Consolidated Statement of Cash Flows net of acquired cash and cash e q uivale nts. The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of September 30, 2015 Amortization Total (Dollars in millions) Life (in yrs.) Acquisitions Current assets $ 20 Fixed assets/noncurrent assets 63 Intangible assets: Goodwill N/A 637 Completed technology 5-7 79 Client relationships 7 41 Patents/trademarks 2-5 12 Total assets acquired 851 Current liabilities (16) Noncurrent liabilities (53) Total liabilities assumed (70) Total purchase price $ 782 N/A - not applicable T he acquisitions were accounted for as business combinations using the acquisition method, and accordingly, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity w ere recorded at their estimated fair values at the date of acquisition. The primary items that generated the goodwill are the value of the synergies between the acquired businesses and IBM and the acquired assembled workforce, neither of which qualify as an a mortizable intangible asset. The overall weighted-average life of the identified amortizable intangible assets acquired is 5.8 years. These identified intangible assets will be amortized on a straight-line basis over their useful lives. Goodwill of $ 574 mi llion w as assigned to the Software segment and goodwill of $62 million was assigned to the GTS segment. It is expected that 1 percent of the goodwill will be deductible for tax purposes. On September 24, 2015, the company announced it had entered into a definitive agreement to acquire the remaining shares of Advanced Application Corporation (AAC), an affiliate of JBCC Holdings Inc. and IBM Japan Ltd. AAC engages in system integration application development, software support and services. The acqui sition closed on October 1, 2015. On September 28, 2015, the company announced that it had entered into a definitive agreement to acquire Meteorix LLC ( Meteorix ), a privately held company based in Boston, Massachusetts. Meteorix offers consulting, deploy ment, integrations and on-going post production services for Workday Financial Management and Human Capital Management (HCM) applications . The a cquisition is expected to close in the fourth quarter of 2015. On October 5, 2015, the company announced that i t had entered into a definitive agreement to acquire Cleversafe Inc. ( Cleversafe ), a privately held company based in Chicago, Illinois. Cleversafe is a leading developer and manufacturer of object-based storage software and appliances. The acquisition is expected to close in the fourth quarter of 2015. On October 13, 2015, the company announced that it had closed the acquisition of Merge Healthcare Incorporated (Merge), a public company located in Chicago , Illinois . Merge is a leading provider of medical image handling and processing, interoperability and clinical systems designed to advance healthcare quality and efficiency . The enterprise value of the transaction was approximately $1 billion. At the date of issuance of the financial statements, the init ial purchase accounting for the AAC and Merge transactions was not complete. Divestitures: Microelectronics – On October 20, 2014, IBM and GLOBALFOUNDRIES announced a definitive agreement in which GLOBALFOUNDRIES would acquire the company’s Micro electronics business, including existing semiconductor manufacturing assets and operations in East Fishkill, NY and Essex Junction, VT. The commercial OEM business to be acquired by GLOBALFOUNDRIES includes custom logic and specialty foundry, manufacturing and related operations. The transaction closed on July 1, 2015. The transaction includes a 10-year exclusive manufacturing sourcing agreement in which GLOBALFOUNDRIES will provide server processor semiconductor technology for use in IBM Systems. T he agreement provides the company with capacity and market-based pricing for current semiconductor nodes in production and progression to nodes in the future for both development and production needs. As part of the transaction, the company will provide GL OBALFOUNDRIES with certain transition services, including IT, supply chain, packaging and test services and lab services. The initial term for these transition services is one to three years, with GLOBALFOUNDRIES having the ability to renew. In the third quarter of 2014, the company recorded a pre-tax charge of $4.7 billion related to the sale of the Microelectronics disposal group, which was part of the Systems Hardware reportable segment. The pre-tax charge reflected the fair value le ss the estimated cost of selling the disposal group including an impairment to the semiconductor long-lived assets of $2.4 billion, $1.5 billion representing the cash consideration expected to be transferred to GLOBALFOUNDRIES and $0.8 billion of other rel ated costs. Additional pre-tax charges of $108 million were recorded in the first nine months of 2015 related to the disposal. The cumulative pre-tax charge was $4.8 billion as of September 30, 2015. Additional charges may be recorded in future periods. All assets and liabilities of the business , which were held for sale at June 30, 2015, were transferred at closing. The company transferred $515 million of net cash to GLOBALFOUNDRIES in the third quarter of 2015 . This amount include d $750 million o f cash consideration, adjusted by the amount of working capital due from GLOBALFOUNDRIES and other miscellaneous items. The remaining cash consideration will be transferred over three years. Reporting the related assets and liabilities initially as held for sale at September 30, 2014 was based on meeting all of the criteria for such reporting in the applicable accounting guidance. While the company met certain criteria for held for sale reporting in prior periods, it did not meet all of the criteria until September 30, 2014. In addition, at September 30, 2014, the company concluded that the Microelectronics business met the criteria for discontinued operations reporting. The disposal group constitutes a component under accounting guidance. The continu ing cash inflows and outflows with the discontinued component are related to the manufacturing sourcing arrangement and the transition, packaging and test services. These cash flows are not direct cash flows as they are not significant and the company will have no significant continuing involvement. Summarized financial information for discontinued operations is shown in the tables below . Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions) 2015 2014 2015 2014 Total revenue $ — $ 360 $ 720 $ 925 Income/(loss) from discontinued operations $ 2 $ (141) $ (177) $ (520) Loss on disposal (57) (4,697) (108) (4,697) Total loss from discontinued operations, before income taxes $ (54) $ (4,838) $ (285) $ (5,217) Provision/(benefit) for income taxes (43) (1,401) (108) (1,519) Loss from discontinued operations, net of tax $ (12) $ (3,437) $ (176) $ (3,698) At September 30, At December 31, (Dollars in millions) 2015 2014 Assets: Accounts receivable $ — $ 245 Inventory — 380 Property, plant & equipment – net — — Other assets — 92 Total assets $ — $ 717 Liabilities: Accounts payable $ — $ 177 Deferred income — 87 Other liabilities — 163 Total liabilities $ — $ 427 Industry Standard Server – On January 23, 2014, IBM and Lenovo Group Limited (Lenovo) announced a definitive agreement in which Lenovo would acquire the company’s industry standard server portfolio (System x) for an adjusted purchase price of $2.1 billion, consisting of approximately $1.8 billion in cash, with the balance in Lenovo common stock. The stock represented less than 5 percent equity ownership in Lenovo. The company would sell to Lenovo its System x, BladeCenter and Flex System blade serve rs and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations. IBM and Lenovo entered into a strategic relationship which included a global OEM and reseller agreeme nt for sales of IBM’s industry-leading entry and midrange Storwize disk storage systems, tape storage systems, General Parallel File System software, SmartCloud Entry offering, and elements of IBM’s system software, including Systems Director and Platform Computing solutions. Effective with the initial closing of the transaction, Lenovo assumed related customer service and maintenance operations. IBM will continue to provide maintenance delivery on Lenovo’s behalf for an extended period of time. In addition , as part of the transaction agreement, the company will provide Lenovo with certain transition services, including IT and supply chain services. The initial term for these transition services ranges from less than one year to three years. Lenovo can renew certain services for an additional year. The initial closing was completed on October 1, 2014. A subsequent closing occurred in most other countries in which there was a large business footprint on December 31, 2014. T he remaining countries closed on Mar ch 31, 2015 resulting in a pre-tax gain of $16 million in the first quarter of 2015 . In the second quarter of 2015, an additional pre-tax gain of $36 million was recorded attributed to certain adjustments resolved during the quarter. No material adjustment s were recorded during the third quarter of 2015. Overall, the company continues to expect to recognize a total pre-tax gain on the sale of approximately $1.5 billion , which does not include associated costs related to transition and performance-based costs. Net of these charges, the pre-tax gain is approximately $1.2 billion, of which $1.1 billion was recorded in the fourth quarter of 2014. The balance of the gain is expected to be recognized in 2019 upon conclusion of the maintenance agreement. Cust omer C are – On September 10, 2013, IBM and S YNNEX announced a definitive agreement in which S YNNEX w ould acquire the company’s worldwide customer care business process outsourcing services business for $50 1 million, consisting of approximately $430 million in cash, net of balance sheet adjustments, and $7 1 million in SYNNEX common stock, which represented less than 5 percent equity ownership in SYNNEX . As part of the transaction, S YNNEX enter ed i nto a multi-year agreement with the company , and Concentrix , SYNNEX’s outsourcing business, b ec a me a n IBM strategic business partner for global customer care business process outsourcing services. The initial closing was completed on January 31, 2014, with subsequent closings occurring in 2014. For the full year o f 2014, the company recorded a pre-tax gain of $202 million related to this transaction. In the second quarter of 2015, resolution of the final balance sheet adjustments w as concluded. In the third quarter of 2015, adjustments made to certain rem aining provisions resulted in the recognition of an additional $2 million pre-tax gain. Through September 30, 2015, the cumulative pre-tax gain attributed to this transaction was $2 10 million. Retail Store Solutions – On April 17, 2012, the company announced that it had signed a definitive agreement with Toshiba TEC for the sale of its Retail Store Solutions business. As part of the transaction, the company agreed to transfer the maintenance business to Toshiba TEC wit hin three years of the original closing of the transaction. T he company completed the final phase of the transfer of the maintenance workforce to Toshiba in the second quarter of 2015 . The parts and inventory transfer to Toshiba will commence in the fourth quarte r of 2015 and is expected to be completed in 201 6 . A n assessment of the ongoing contractual terms of the transaction resulted in the recognition of a pre-tax gain of $ 8 million in the third quarter of 2015. O verall, the company has recognized a cumulative total pre-tax gain on the sale of approximately $51 8 million . Others ‒ In the second quarter of 2015, the company completed the divestiture of its Travel & Transportation kiosk business to Embross North America Ltd., and the dive stiture of its Telecom Expense Management product to Tangoe , Inc. In the first quarter of 2015, the company completed the divestiture of the Algorithmics Collateral Management suite of products to SmartStream , Inc. and the divestiture of the Comm erce ILOG Supply Chain Optimization Tools suite of products to Llamasoft , Inc. The financial terms of each transaction were not material. |
Intangible Assets Including Goo
Intangible Assets Including Goodwill | 9 Months Ended |
Sep. 30, 2015 | |
Intangible Assets Including Goodwill: | |
Intangible Assets Including Goodwill: | 10. Intangible Assets Including Goodwill: The following table details the company’s intangible asset balances by major asset class: At September 30, 2015 (Dollars in millions) Gross Carrying Accumulated Net Carrying Intangible asset class Amount Amortization Amount Capitalized software $ 1,329 $ (593) $ 736 Client relationships 1,670 (886) 784 Completed technology 2,431 (1,333) 1,098 Patents/trademarks 291 (156) 134 Other* 32 (9) 23 Total $ 5,753 $ (2,977) $ 2,775 * Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems. At December 31, 2014 (Dollars in millions) Gross Carrying Accumulated Net Carrying Intangible asset class Amount Amortization Amount Capitalized software $ 1,375 $ (679) $ 696 Client relationships 2,208 (1,271) 937 Completed technology 2,831 (1,533) 1,298 Patents/trademarks 374 (214) 161 Other* 18 (6) 12 Total $ 6,806 $ (3,702) $ 3,104 * Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems. The net carrying amount of intangible assets decreased $ 328 million during the first nine months of 2015 , primarily due to amortization, partially offset by intangible asset additions resulting from capitalized software and acquisitions. The aggregate intangible amortization expense was $ 290 million and $884 million for the third quarter and first nine months of 2015 , respectively, versus $ 339 million and $1,018 million for the third quarter and first nine months of 2014 , respectively. In addition, in the first nine months of 2015 , the company retired $ 1, 608 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount. The amortization expense for each of the five succeeding years relating to intangible assets currently recorded in t he Consolidated Statement of Financial Position is estimated to be the following at September 30, 2015 : Capitalized Acquired (Dollars in millions) Software Intangibles Total 2015 (for Q4) $ 122 $ 167 $ 289 2016 369 625 994 2017 200 518 718 2018 45 358 402 2019 — 231 231 The change in the goodwill balances by reportable segment, for the nine months ended September 30, 2015 and for the year ended December 31, 2014 are as follows: Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 01/01/15 Additions Adjustments Divestitures Adjustments** 9/30/15 Global Business Services $ 4,555 $ — $ 0 $ (1) $ (187) $ 4,367 Global Technology Services 3,530 62 0 — (86) 3,506 Software 21,000 574 (1) (8) (608) 20,957 Systems Hardware 1,472 — — — (27) 1,445 Total $ 30,556 $ 637 $ (1) $ (9) $ (907) $ 30,275 ** Primarily driven by foreign currency translation. Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 01/01/14 Additions Adjustments Divestitures Adjustments** 12/31/14 Global Business Services * $ 4,855 $ — $ 0 $ (52) $ (248) $ 4,555 Global Technology Services * 3,608 11 21 (2) (108) 3,530 Software 21,121 430 (17) (19) (516) 21,000 Systems Hardware 1,601 — — (110) (19) 1,472 Total $ 31,184 $ 442 $ 4 $ (183) $ (891) $ 30,556 * Reclassified to conform with 2015 presentation. ** Primarily driven by foreign currency translation. Purchase price adjustments recorded in the first nine months of 2015 and full year 2014 were related to acquisitions that were completed on or prior to December 31, 201 4 or December 31, 20 13 , respectively, and were still subject to the measurement period that ends at the earlier of 12 months from the acquisition date or when information becomes available. There were no goodwill impairment losses recorded during the first nine months o f 2015 or the full year of 2014 and the company has no accumulated impairment losses. |
Borrowings
Borrowings | 9 Months Ended |
Sep. 30, 2015 | |
Borrowings | |
Borrowings | 11. Borrowings : Short-Term Debt At September 30, At December 31, (Dollars in millions) 2015 2014 Commercial paper $ 1,600 $ 650 Short-term loans 653 480 Long-term debt – current maturities 5,286 4,601 Total $ 7,538 $ 5,731 The weighted-average interest rate for commercial paper at September 30, 2015 and December 31, 2014 was 0.1 percent for both periods. The weighted-average interest rate for short-term loans was 5.1 percent and 4.0 percent at September 30, 2015 and December 31, 2014 , respectively. Long-Term Debt Pre-Swap Borrowing Balance Balance (Dollars in millions) Maturities 9/30/2015 12/31/2014 U.S. dollar notes and debentures (average interest rate at September 30, 2015): 1.41% 2015–2016 $ 5,274 $ 9,254 3.91% 2017–2018 8,773 6,835 2.24% 2019–2021 6,613 6,555 1.88% 2022 1,000 1,000 3.38% 2023 1,500 1,500 3.63% 2024 2,000 2,000 7.00% 2025 600 600 6.22% 2027 469 469 6.50% 2028 313 313 5.88% 2032 600 600 8.00% 2038 83 83 5.60% 2039 745 745 4.00% 2042 1,107 1,107 7.00% 2045 27 27 7.13% 2096 316 316 $ 29,420 $ 31,404 Other currencies (average interest rate at September 30, 2015, in parentheses): \ Euros (1.8%) 2015–2025 $ 5,033 $ 5,463 Pound sterling (2.7%) 2017–2022 1,597 1,176 Japanese yen (0.5%) 2017–2019 734 733 Swiss francs (6.3%) 2020 10 162 Canadian (2.2%) 2017 373 432 Other (10.9%) 2015–2020 176 367 $ 37,343 $ 39,737 Less: net unamortized discount 840 853 Add: fair value adjustment* 904 792 $ 37,407 $ 39,675 Less: current maturities 5,286 4,601 Total $ 32,122 $ 35,073 * T he portion of the company’s fixed-rate debt obligations that is hedged is reflected in the Consolidated State ment of Financial Position as an amount equal to the sum of the debt’s carrying value plus a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates. The c ompany’s indenture governing its debt securities and its various credit facilities each contain significant covenants which obligate the comp any to promptly pay principal and interest, limit the aggregate amount of secured indebtedness and sale and leaseback transactions to 10 percent of the company’s consolidated net tangible assets, and restrict the company’s ability to merge or consolidate u nless certain conditions are met. The credit facilities also include a covenant on the company’s consolidated net interest expense ratio, which cannot be less than 2.20 to 1.0 , as well as a cross default provision with respect to other defaulted indebtedne ss of at least $ 500 million. The company is in compliance with all of its significant debt covenants and provides periodic certifications to its lenders. The failure to comply with its debt covenants could constitute an event of default with respec t to the debt to which such provisions apply. If certain events of default were to occur, the principal and interest on the debt to which such event of default applied would become immediately due and payable. Pre-swap annual c o ntractual maturities of long-term debt outstanding at September 30, 2015 , are as follows: (Dollars in millions) Total 2015 (for Q4) $ 68 2016 5,257 2017 5,345 2018 4,673 2019 4,023 2020 and beyond 17,977 Total $ 37,343 Interest on Debt (Dollars in millions) For the nine months ended September 30: 2015 2014 Cost of financing $ 407 $ 407 Interest expense 346 366 Net investment derivative activity (6) 1 Interest capitalized (1) 3 Total interest paid and accrued $ 746 $ 777 |
Contingencies
Contingencies | 9 Months Ended |
Sep. 30, 2015 | |
Contingencies: | |
Contingencies: | 12. Contingencies : As a company with a substantial employee population and with clients in more than 175 countries, IBM is involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. The company is a leader in the information technology industry and, as such, has been and will continue to be subject to claims challenging its IP rights and assoc iated products and offerings, including claims of copyright and patent infringement and violations of trade secrets and other IP rights. In addition, the company enforces its own IP against infringement, through license negotiations, lawsuits or otherwise. Also, as is typical for companies of IBM’s scope and scale, the company is party to actions and proceedings in various jurisdictions involving a wide range of labor and employment issues (including matters related to contested employment decisions, countr y-specific labor and employment laws, and the company’s pension, retirement and other benefit plans), as well as actions with respect to contracts, product liability, securities, foreign operations, competition law and environmental matters. These actions may be commenced by a number of different parties, including competitors, clients, current or former employees, government and regulatory agencies, stockholders and representatives of the locations in which the company does business. Some of the actions to which the company is party may involve particularly complex technical issues, and some actions may raise novel questions under the laws of the various jurisdictions in which these matters arise. The company records a provision with respect to a c laim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any recorded liabilities, including any changes to such liabilities for the quarter ended September 30 , 2 015 were not material to the Consolidated Financial Statements. In accordance with the relevant accounting guidance, the company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. In addition , the company also discloses matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, customer and employee relations considerations. With respect to ce rtain of the claims, suits, investigations and proceedings discussed herein, the company believes at this time that the likelihood of any material loss is remote, given, for example, the procedural status, court rulings, and/or the strength of the company’ s defenses in those matters. With respect to the remaining claims, suits, investigations and proceedings discussed in this Note, except as specifically discussed herein, the company is unable to provide estimates of reasonably possible losses or range of l osses, including losses in excess of amounts accrued, if any, for the following reasons. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of these matters. It is the company’s ex perience that damage amounts claimed in litigation against it are unreliable and unrelated to possible outcomes, and as such are not meaningful indicators of the company’s potential liability. Further, the company is unable to provide such an estimate due to a number of other factors with respect to these claims, suits, investigations and proceedings, including considerations of the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses o r range of losses (individually or in the aggregate), to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter. Whether any losses, damages or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the company’s business, financial condition, results of operations or cash flows will depend on a number of variables , including: the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact any such losses, damages or remedies may have in the Consolidated Financial Statements; and the unique facts and circu mstances of the particular matter that may give rise to additional factors. While the company will continue to defend itself vigorously, it is possible that the company’s business, financial condition, results of operations or cash flows could be affected in any particular period by the resolution of one or more of these matters. The following is a summary of the more significant legal matters involving the company. The company is a defendant in an action filed on March 6, 2003 in state court in Salt Lake City, Utah by the SCO Group (SCO v. IBM). The company removed the case to Federal Court in Utah. Plaintiff is an alleged successor in interest to some of AT&T’s UNIX IP rights, and alleges copyright infringement, unfair competition, inte rference with contract and breach of contract with regard to the company’s distribution of AIX and Dynix and contribution of code to Linux and the company has asserted counterclaims. On September 14, 2007, plaintiff filed for bankruptcy protection, and all proceedings in this case were stayed. The court in another suit, the SCO Group, Inc. v. Novell, Inc., held a trial in March 2010. The jury found that Novell is the owner of UNIX and UnixWare copyrights; the judge subsequently ruled that SCO is obligated t o recognize Novell’s waiver of SCO’s claims against IBM and Sequent for breach of UNIX license agreements. On August 30, 2011, the Tenth Circuit Court of Appeals affirmed the district court’s ruling and denied SCO’s appeal of this matter. In June 2013, the Federal Court in Utah granted SCO’s motion to reopen the SCO v. IBM case , and proceedings have resumed in that case. On May 13, 2010, IBM and the State of Indiana (acting on behalf of the Indiana Family and Social Services Administration) sued one another in a dispute over a 2006 contract regarding the modernization of social service program processing in Indiana. The State terminated the contract, claiming that IBM was in breach, and the State is seeking damages. IBM believes the State’s claims ag ainst it are without merit and is seeking payment of termination amounts specified in the contract. After six weeks of trial, on July 18, 2012, the Indiana Superior Court in Marion County rejected the State’s claims in their entirety and awarded IBM $52 mi llion plus interest and costs. On February 13, 2014, the Indiana Court of Appeals reversed portions of the trial judge’s findings, found IBM in material breach, and ordered the case remanded to the trial judge to determine the State's damages, if any. The Indiana Court of Appeals also affirmed approximately $50 million of the trial court's award of damages to IBM. This matter remains pending in the Indiana courts. On April 16, 2014, Iusacell SA de C.V. ( Iusacell ) sued IBM, claiming that IBM made f raudulent misrepresentations that induced Iusacell to enter into an agreement with IBM Mexico. Iusacell claims damages for lost profits. Iusacell’s complaint relates to a contractual dispute in Mexico, which is the subject of a pending arbitration proceedi ng in Mexico initiated by IBM Mexico against Iusacell for breach of the underlying agreement. On November 14, 2014, the District Court in the Southern District of New York granted IBM's motion to stay Iusacell's action against the company pending the arb itration in Mexico between Iusacell and IBM Mexico. IBM United Kingdom Limited (IBM UK) initiated legal proceedings in May 2010 before the High Court in London against the IBM UK Pensions Trust (the UK Trust) and two representative beneficiaries of the UK Trust membership. IBM UK is seeking a declaration that it acted lawfully both in notifying the Trustee of the UK Trust that it was closing its UK defined benefit plans to future accruals for most participants and in implementing the company’s new r etirement policy. In April 2014, the High Court acknowledged that the changes made to its UK defined benefit plans were within IBM’s discretion, but ruled that IBM breached its implied duty of good faith both in implementing these changes and in the manner in which it consulted with employees. Proceedings to determine remedies were held in July 2014, and in February 2015 the High Court held that for IBM to make changes to accruals under the plan would require a new consultation of the participants, but othe r changes (including to early retirement policy) would not require such consultation. IBM UK has appealed both the breach and remedies judgments and a decision is not expected until at least 2016 . If the appeal is uns uccessful, the Court’s rulings w ould re quire IBM to reverse the changes made to the UK defined benefit plans retroactive to their effective dates. This c ould result in an estimated non-operating one-time pre-tax charge of approximately $250 million, plus ongoing defined benefit related accruals . In addition, IBM UK is a defendant in approximately 290 individual actions brought since early 2010 by participants of the defined benefits plans who left IBM UK. These actions, which allege constructive dismissal and age discrimination, are pending befo re the Employment Tribunal in Southampton UK. On March 24, 2014, in a suit brought by local Works Councils, the Supreme Court of Spain held that IBM Spain’s Defined Contribution (DC) Plan implemented in 1993 based on the voluntary participation of its employees was null and void. The Supreme Court also held that current employees could reinstate their rights to a Defined Benefit (DB) Plan, although with an offset for DC contributions paid to date. The Court held that IBM Spain did not consult with t he Works Councils in seeking to change the pension scheme, and recommended that IBM Spain and the Works Councils engage in discussions over how to carry out the offset. The Constitutional Court denied IBM Spain’s requested leave to appeal the decision. In March 2015, the National Audience Court ruled that the Works Council was not entitled to dictate the means by which IBM should carry out the offset of DC contributions, but also ruled that the Supreme Court's judgment could be executed without the need for individual lawsuits by employees, rejecting the position that the judgment was declaratory only. The National Audience Court also ruled that IBM should stop making DC contributions, and that the company should promptly reinstate the DB Plan . IBM Spain app ealed that ruling and in May 2015, the National Audience Court dismissed the appeal. IBM continues to reexamine its business model as it reinstitutes an outdated pension plan that employees elected to forego 20 years ago, which benefits a limited subset o f the overall population of employees in Spain. The Works Councils continue to challenge IBM’s implementation approach. In March 2011, the company announced that it had agreed to settle a civil enforcement action with the Securities and Exchange Commission (SEC) relating to alleged violations of the Foreign Corrupt Practices Act of 1977 (FCPA) . On July 25, 2013, the court a pproved that 2011 settlement and required that for a two-year period IBM make reports to the SEC and the court on certain matters, including those relating to compliance with the FCPA. The two-year period expired in July 2015. In early 2012, IBM notified t he SEC of an investigation by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM is cooperating with the SEC and Polish authorities in t his matter. In April 2013, IBM learned that the U.S. Department of Justice (DOJ) is also investi gating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh and Ukraine. The DOJ is also seeking i nformation regarding the company's global FCPA compliance program and its public sector business. The company is cooperating with the DOJ in this matter. In March 2015, putative class action litigation was commenced in the United States District Court for the Southern District of New York related to the company's October 2014 announcement that it was divesting its global commercial semiconductor technology business. The company and three of its officers are named as def endants. Plaintiffs allege that defendants violated Sections 20(a) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In May 2015, a related putative class action was also commenced in the United States District Court for the South ern District of New York based on the same underlying facts, alleging violations of the Employee Retirement Income Security Act. The company, management’s Retirement Plans Committee, and three current or former IBM executives are named as defendants. In A ugust 2015, IBM learned that the SEC is conducting an investigation relating to revenue recognition with respect to the accounting treatment of certain transactions in the U.S., U.K. and Ireland. The c ompany is cooperating with the SEC in this matter. The company is a defendant in numerous actions filed after January 1, 2008 in the Supreme Court for the State of New York, county of Broome, on behalf of hundreds of plaintiffs. The complaints allege numerous and different causes of action, including f or negligence and recklessness, private nuisance and trespass. Plaintiffs in these cases seek medical monitoring and claim damages in unspecified amounts for a variety of personal injuries and property damages allegedly arising out of the presence of groun dwater contamination and vapor intrusion of groundwater contaminants into certain structures in which plaintiffs reside or resided, or conducted business, allegedly resulting from the release of chemicals into the environment by the company at its former m anufacturing and development facility in Endicott. These complaints also seek punitive damages in an unspecified amount . The company has reached an agreement in principle to settle substantially all of t hese cases. T he company is party to, or otherwise involved in, proceedings brought by U.S. federal or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as “Superfund,” or laws similar to CERCLA. Such statutes require potentially responsible parties to participate in remediation activities regardless of fault or ownership of sites. The company is also conducting environmental investigations, assessments or remediations at or in the vicinity of seve ral current or former operating sites globally pursuant to permits, administrative orders or agreements with country, state or local environmental agencies, and is involved in lawsuits and claims concerning certain current or former operating sites. The company is also subject to ongoing tax examinations and governmental assessments in various jurisdictions. Along with many other U.S. companies doing business in Brazil, the company is involved in various challenges with Brazilian tax authorities re garding non-income tax assessments and non-income tax litigation matters. The total potential amount related to these matters for all applicable years is approximately $ 4 5 0 million. The company believes it will prevail on these matters and that this amount is not a meaningful indicator of liability. |
Commitments
Commitments | 9 Months Ended |
Sep. 30, 2015 | |
Commitments: | |
Commitments: | 13. Commitments: The company’s extended lines of credit to third-party entities include unused amounts of $5,972 million and $5,365 million at September 30, 2015 and December 31, 2014 , respectively. A portion of these amounts was available to the company’s business partners to support their working capital needs. In addition, the company has committed to provide future financing to its clients in connection with client purchase agreements for approximately $1,888 million and $1,816 million at September 30, 2015 and December 31, 2014 , respectively. The company has applied the guidance requiring a guarantor to disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote. The following is a descriptio n of arrangements in which the company is the guarantor. The company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the company, under which the company customarily agrees to hold the party harmless against losses arising from a breach of representations and covenants related to such matters as title to the assets sold, certain inte llectual property (IP) rights, specified environmental matters, third-party performance of nonfinancial contractual obligations and certain income taxes. In each of these circumstances, payment by the company is conditioned on the other party making a clai m pursuant to the procedures specified in the particular contract, the procedures of which typically allow the company to challenge the other party’s claims. While typically indemnification provisions do not include a contractual maximum on the company’s p ayment, the company’s obligations under these agreements may be limited in terms of time and/or nature of claim, and in some instances, the company may have recourse against third parties for certain payments made by the company. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments ma de by the company under these agreements have not had a material effect on the company’s business, financial condition or results of operations. In addition, the company guarantees certain loans and financial commitments. The maximum potential fut ure payment under these financial guarantees was $35 million and $46 million at September 30, 2015 and December 31, 2014 , respectively. The fair value of the guarantees recognized in the Consolidated Statement of Financial Position is not material. Change s in the company’s warranty liability for standard warranties and deferred income for extended warranty contracts are presented in the following tables. Standard Warranty Liability (Dollars in millions) 2015 2014 Balance at January 1 $ 197 $ 376 Current period accruals 117 186 Accrual adjustments to reflect actual experience 4 6 Charges incurred (147) (252) Balance at September 30 $ 172 $ 316 Extended Warranty Liability (Dollars in millions) 2015 2014 Aggregate deferred revenue at January 1 $ 536 $ 579 Revenue deferred for new extended warranty contracts 182 195 Amortization of deferred revenue (192) (214) Other * (28) (21) Aggregate deferred revenue at September 30 $ 498 $ 539 Current portion $ 232 $ 257 Noncurrent portion $ 267 $ 282 * Other primarily consists of foreign currency translation adjustments. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2015 | |
Subsequent Events: | |
Subsequent Events: | 14. Subsequent Events : On October 27, 2015 , the company announced that the Board of Directors approved a quarterly dividend of $ 1.30 per common share. The dividend is payable December 10 , 201 5 to shareholders of record on November 10, 201 5. On October 27, 2015, the company announced that the Board of Directors authorized $4.0 billion in additional funds for use in the company’s stock repurchase progr a m. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 9 Months Ended |
Sep. 30, 2015 | |
Basis of Presentation: | |
Basis of Presentation | The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company's management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company's results of operations, financial position and cash flows. T he 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 co mpany may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. Refer to the company's 201 4 Annual Report on pages 68 to 71 fo r a discussion of the company's critical accounting estimates. On October 20, 2014, the company announced a definitive agreement to divest its Microelectronics business and manufacturing operations to GLOBALFOUNDRIES. The assets and liabilities of t he Microelectronics business were reported as held for sale at December 31, 2014, and the operating results of the Microelectronics business have been reported as discontinued operations. The transaction closed on July 1, 2015. Refer to Note 9, Acquisition s/Divestitures,” for additional information on the transaction. In addition, in the first quarter of 2015, the company renamed its Systems & Technology segment to Systems Hardware and its System z brand to z Systems. Interim results are not necessa rily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company's 2014 Annual Report. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure pur poses. 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 applicabl e. |
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 t o 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 avail able 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 up on 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 dr iver 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” calcula ted 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 metho dology 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 utiliz ing a discounted cash flow model that uses observable market inputs such as known notional value amounts, yield curves, spot and forward exchange rates as well as discount rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative. Certain financial assets are measured at fair value on a nonrecurring basis. These assets include equity method investments that are recognized at fair value at the measurement date to the ex tent that they are deemed to be other-than-temporarily impaired. Certain assets that are measured at fair value on a recurring basis can be subject to nonrecurring fair value measurements. These assets include available-for-sale equity investments that are deemed to be other-than-temporarily impaired. In the event of an other-than-temporary impairment of a financial investment, fair value is measured using a model described above. Non-financial assets such as property, plant and equipment, land, goo dwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for nonfinancial assets depend on the type of asset. Accounting guidance permits the measurement of eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other account ing standards. This election is irrevocable. The company has not applied the fair value option to any eligible assets or liabilities. |
Fair Value of Financial Instruments | Short-Term Receivables and Payables Notes and other accounts receivable and other investments are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (excluding the current portion of long-term debt) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Loans and Long-term Receivables Fair values are based on discounted future ca sh flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Long-Term Debt Fair value of publicly-traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy. |
Debt and Marketable Equity Securities | The compa ny’s cash equivalents and current debt securities are considered available-for-sale and recorded at fair value, which is not materially different from carrying value, in the Consolidated Statement of Financial Position. In determining whether an other -than-temporary decline in market value has occurred, the company considers the duration that, and extent to which, the fair value of the investment is below its cost, the financial condition and near-term prospects of the issuer and the company’s intent and ability to retain the security in ord er to allow for an anticipated recovery in fair value . |
Derivative Financial Instruments | The company operates in multiple functional currencies and is a significant lender and borrower in the global markets. In the normal course of business, the company is exposed to the impact of interest rate changes and foreign currency fluctuations, and to a lesser extent equity and commodity price changes and client credit risk. The company limits these risks by following established risk management policies and procedures, including the use of derivatives, and, where cost effective, financing with debt in the currencies in which assets are denominated. For interest rate exposures, derivatives are used to better align rate movements between the interest rates associated with the company’s lease and other fina ncial assets and the interest rates associated with its financing debt. Derivatives are also used to manage the related cost of debt. For foreign currency exposures, derivatives are used to better manage the cash flow volatility arising from foreign exchan ge rate fluctuations. As a result of the use of derivative instruments, the company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, the c ompany has a policy of only entering into contracts with carefully selected major financial institutions based upon their overall credit profile. The company’s established policies and procedures for mitigating credit risk on principal transactions include reviewing and establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. The right of set-off that exists under certain of these arrangements enables the legal entities of the company subject to the arrangeme nt to net amounts due to and from the counterparty reducing the maximum loss from credit risk in the event of counterparty default. The company is also a party to collateral security arrangements with most of its major derivative counterparties. Th ese arrangements require the company to hold or post collateral (cash or U.S. Treasury securities) when the derivative fair values exceed contractually established thresholds. Posting thresholds can be fixed or can vary based on credit default swap pricing or credit ratings received from the major credit agencies. Full collateralization of these agreements would be required in the event that the company’s credit rating falls below investment grade or if its credit default swap spread exceeds 250 basis points, as applicable, pursuant to the terms of the collateral security arrangements. In the Consolidated Statement of Financial Position, the company does not offset derivative assets against liabilities in master netting arrangements nor does it offset receivables or payables recognized upon payment or receipt of cash collateral against the fair values of the related derivative instruments. The company restricts the use of cash collateral received to rehypothecation , and therefore reports it in prepaid expenses and other current assets in the Consolidated Statement of Financial Position. The company may employ derivative instruments to hedge the volatility in stockholders’ equity resulting from changes in currency exchange rates of significant foreign s ubsidiaries of the company with respect to the U.S. dollar. These instruments, designated as net investment hedges, expose the company to liquidity risk as the derivatives have an immediate cash flow impact upon maturity which is not offset by a cash flow from the translation of the underlying hedged equity. The company monitors this cash loss potential on an ongoing basis and may discontinue some of these hedging relationships by de-designating or terminating the derivative instrument in order to manage th e liquidity risk. Although not designated as accounting hedges, the company may utilize derivatives to offset the changes in the fair value of the de-designated instruments from the date of de-designation until maturity. In its hedging programs, t he company uses forward contracts, futures contracts, interest-rate swaps, cross-currency swaps, and options depending upon the underlying exposure. The company is not a party to leveraged derivative instruments. The company issues debt in the global capital markets, principally to fund its financing lease and loan portfolios. Access to cost-e ffective financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall interest cost, the company uses interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert specific variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). The company is exposed to interest rate vol atility on future debt issuances. To manage this risk, the company may use forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuance. These swaps are accounted for as cash flow hedges. A large portion of the company’s foreign currency denominated debt portfolio is designated as a hedge of net investment in foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. The company also uses cross-currency sw aps and foreign exchange forward contracts for this risk management purpose. The company’s operations generate significant nonfunctional cur rency, third-party vendor payments and intercompany payments for royalties and goods and services among the company’s non-U.S. subsidiaries and with the parent company. In anticipation of these foreign currency cash flows and in view of the volatility of t he currency markets, the company selectively employs foreign exchange forward contracts to manage its currency risk. These forward contracts are accounted for as cash flow hedges. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is four years. The company is exposed to exchange rate volatil ity on foreign currency denominated debt. To manage this risk, the company employs cross-currency swaps to convert fixed-rate foreign currency denominated debt to fixed-rate debt denominated in the functional currency of the borrowing entity. These swaps a re accounted for as cash flow hedges. The maximum length of time over which the company has hedged its exposure to the variability in future cash flows is approximately seven years. The company uses its Global Treasury Centers to manage the cash of its subsidiaries. These centers principally use currency swaps to convert cash flows in a cost-effective manner. In addition, the company uses foreign exchange forward c ontracts to economically hedge, on a net basis, the foreign currency exposure of a portion of the company’s nonfunctional currency assets and liabilities. The terms of these forward and swap contracts are generally less than one year. The changes in the fa ir values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated Statement of Earnings. The company is exposed to market price changes in certain broad market indices and in the company’s own s tock primarily related to certain obligations to employees. Changes in the overall value of these employee compensation obligations are recorded in selling, general and administrative (SG&A) expense in the Consolidated Statement of Earnings. Although not d esignated as accounting hedges, the company utilizes derivatives, including equity swaps and futures, to economically hedge the exposures related to its employee compensation obligations. The derivatives are linked to the total return on certain broad mark et indices or the total return on the company’s common stock, and are recorded at fair value with gains or losses also reported in SG&A expense in the Consolidated Statement of Earnings. The company may hold warrants to purchase shares of common stock in connection with various investments that are deemed derivatives because they contain net share or net cash settlement provisions. The company records the changes in the fair value of these warrants in other (income) and expense in the Consolidated Statement of Earnings. The company is exposed to a potential loss if a cl ient fails to pay amounts due under contractual terms. The company may utilize credit default swaps to economically hedge its credit exposures. The swaps are recorded at fair value with gains and losses reported in other (income) and expense in the Consoli dated Statement of Earnings. The company is exposed to market volatility on certain investment securities. The company ma y utilize options or forwards to economically hedge its market exposure. The derivatives are recorded at fair value with gains and losses reported in other (income) and expense in the Consolidated Statement of Earnings. |
Finacing Receivables | The company determines its allowance for credit losses based on two portfolio segments : lease receivables and loan receivables , and further segments the portfolio into two classes: major markets a nd growth markets. When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For individually evaluated receivables, the company determines the expected cash flow for the receivable and calculates an estimate of the potential loss and the probability of loss. For those accounts in which the loss is probable, the company records a specific reserve. In addition, the company records an unallocated reserve that is determined by applying a reserve rate to its differ ent portfolios, excluding accounts that have been specifically reserved. This reserve rate is based upon credit rating, probability of default, term, characteristics (lease/loan) and loss history. |
Impaired Loans and Credit Quality Indicators | The company considers any loan with an individually evaluated reserve as an impaired loan. Depending on the level of impairment, loans will also be placed on non-accrual status. The company’s credit quality indicators , which are based on rating agency data , publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody ’s , where available, as o ne of many inputs in its determination of customer credit ratings. Receivables with a credi t quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators do not reflect mitigation actions that the company may take to transfer credit risk to third parties . |
Past Due Financing Receivables | The company views financing receivables as past due when payment has not been received after 90 days, measured from the billing date. |
Stock-Based Compensation | Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized over the employee requisite service period. |
Segments | Performance measurement is based on pre-tax income from continuing operations. These results are used, in part, by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments. |
Acquisitions | All acquisitions are reported in the Consolidated Statement of Cash Flows net of acquired cash and cash e q uivale nts. T he acquisitions were accounted for as business combinations using the acquisition method, and accordingly, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity w ere recorded at their estimated fair values at the date of acquisition. The primary items that generated the goodwill are the value of the synergies between the acquired businesses and IBM and the acquired assembled workforce, neither of which qualify as an a mortizable intangible asset. These identified intangible assets will be amortized on a straight-line basis over their useful lives. |
Commitments and Contingencies | The company records a provision with respect to a c laim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In accordance with the relevant accounting guidance, the company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. In addition , the company also discloses matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, customer and employee relations considerations. With respect to ce rtain of the claims, suits, investigations and proceedings discussed herein, the company believes at this time that the likelihood of any material loss is remote, given, for example, the procedural status, court rulings, and/or the strength of the company’ s defenses in those matters. With respect to the remaining claims, suits, investigations and proceedings discussed in this Note, except as specifically discussed herein, the company is unable to provide estimates of reasonably possible losses or range of l osses, including losses in excess of amounts accrued, if any, for the following reasons. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of these matters. It is the company’s ex perience that damage amounts claimed in litigation against it are unreliable and unrelated to possible outcomes, and as such are not meaningful indicators of the company’s potential liability. Further, the company is unable to provide such an estimate due to a number of other factors with respect to these claims, suits, investigations and proceedings, including considerations of the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses o r range of losses (individually or in the aggregate), to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter. The company has applied the guidance requiring a guarantor to disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote. |
Financial Instruments (Tables)
Financial Instruments (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Financial Instruments: | |
Financial assets and financial liabilities measured at fair value on a recurring basis | (Dollars in millions) At September 30, 2015 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ 4,626 $ — $ 4,626 Commercial paper — 275 — 275 Money market funds 2,155 — — 2,155 U.S. government securities — 0 — 0 Canadian government securities — 186 — 186 Other securities — 7 — 7 Total 2,155 5,094 — 7,250 (6) Debt securities - current (2) — 88 — 88 (6) Debt securities - noncurrent (3) 1 8 — 9 Trading security investments (3) 54 — — 54 Available-for-sale equity investments (3) 160 — — 160 Derivative assets (4) Interest rate contracts — 739 — 739 Foreign exchange contracts — 542 — 542 Equity contracts — 2 — 2 Total — 1,283 — 1,283 (7) Total assets $ 2,371 $ 6,473 $ — $ 8,844 (7) Liabilities: Derivative liabilities (5) Foreign exchange contracts $ — $ 187 $ — $ 187 Equity contracts — 43 — 43 Interest rate contracts — 0 — 0 Total liabilities $ — $ 230 $ — $ 230 (7) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Commercial paper and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position. (3) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (4) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in t he Consolidated Statement of Financial Position at September 30, 2015 were $502 million and $781 million, respectively. (5) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other lia bilities in the Consolidated Statement of Financial Position at September 30, 2015 were $167 million and $ 63 million, respectively. (6) Available-for-sale securities with carrying values that approximate fair value. (7) If derivative exposures cover ed by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $180 million. (Dollars in millions) At December 31, 2014 Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) Time deposits and certificates of deposit $ — $ 3,517 $ — $ 3,517 Commercial paper — 764 — 764 Money market funds 662 — — 662 U.S government securities — 410 — 410 Other securities — 6 — 6 Total 662 4,697 — 5,359 (5) Debt securities - noncurrent (2) 1 8 — 9 Trading security investments (2) 74 — — 74 Available-for-sale equity investments (2) 243 — — 243 Derivative assets (3) Interest rate contracts — 633 — 633 Foreign exchange contracts — 775 — 775 Equity contracts — 24 — 24 Total — 1,432 — 1,432 (6) Total assets $ 980 $ 6,138 $ — $ 7,118 (6) Liabilities: Derivative liabilities (4) Foreign exchange contracts $ — $ 177 $ — $ 177 Equity contracts — 19 — 19 Total liabilities $ — $ 196 $ — $ 196 (6) (1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position. (2) Included within investments and sundry assets in the Consolidated Statement of Financial Position. (3) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at December 31, 2014 were $751 million and $681 million, res pectively. (4) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at December 31, 2014 were $165 million and $31 milli on, respectively. (5) Available-for-sale securities with carrying values that approximate fair value. (6) If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the tot al derivative asset and liability positions each would have been reduced by $97 million. |
Noncurrent debt and marketable equity securities available-for-sale and recorded at fair value | Gross Gross (Dollars in millions) Adjusted Unrealized Unrealized Fair At September 30, 2015: Cost Gains Losses Value Debt securities – noncurrent (1) $ 6 $ 3 $ — $ 9 Available-for-sale equity investments (1) $ 272 $ 6 $ 118 $ 160 (1) Included within investments and sundry assets in the Consolidated Statement of Financial Position. Gross Gross (Dollars in millions) Adjusted Unrealized Unrealized Fair At December 31, 2014: Cost Gains Losses Value Debt securities – noncurrent (1) $ 7 $ 3 $ — $ 9 Available-for-sale equity investments (1) $ 272 $ 2 $ 31 $ 243 (1) Included within investments and sundry assets in the Consolidated Statement of Financial Position. |
Sales of debt and available-for-sale equity investments | (Dollars in millions) For the three months ended September 30: 2015 2014 Proceeds $ 1 $ 1 Gross realized gains (before taxes) 0 0 Gross realized losses (before taxes) 0 0 (Dollars in millions) For the nine months ended September 30: 2015 2014 Proceeds $ 7 $ 16 Gross realized gains (before taxes) 1 0 Gross realized losses (before taxes) 1 5 |
Unrealized gains/(losses) on available-for-sale debt and equity securities | (Dollars in millions) For the three months ended September 30: 2015 2014 Net unrealized gains/(losses) arising during the period $ (63) $ 0 Net unrealized (gains)/losses reclassified to net income* 0 0 *There were no writedowns for the three months ended September 30, 2015 and 2014, respectively. (Dollars in millions) For the nine months ended September 30: 2015 2014 Net unrealized gains/(losses) arising during the period $ (52) $ 1 Net unrealized (gains)/losses reclassified to net income* 0 3 * There were no writedowns for the nine months ended September 30, 2015 and 2014, respectively. |
Fair Value of Derivative Instruments in the Consolidated Statement of Financial Position | Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position As of September 30, 2015 and December 31, 2014 (Dollars in millions) Fair Value of Derivative Assets Fair Value of Derivative Liabilities Balance Sheet Balance Sheet Classification 9/30/2015 12/31/2014 Classification 9/30/2015 12/31/2014 Designated as hedging instruments: Interest rate contracts: Prepaid expenses and Other accrued other current assets $ — $ 5 expenses and liabilities $ — $ 0 Investments and sundry assets 739 628 Other liabilities — — Foreign exchange Prepaid expenses and Other accrued contracts: other current assets 299 632 expenses and liabilities 89 50 Investments and sundry assets 5 17 Other liabilities 30 21 Fair value of derivative Fair value of derivative assets $ 1,043 $ 1,281 liabilities $ 119 $ 72 Not designated as hedging instruments: Foreign exchange Prepaid expenses and Other accrued contracts: other current assets $ 201 $ 90 expenses and liabilities $ 36 $ 101 Investments and sundry assets 37 37 Other liabilities 33 4 Equity contracts: Prepaid expenses and Other accrued other current assets 2 24 expenses and liabilities 43 14 Investments and sundry assets — 0 Other liabilities — 5 Fair value of derivative Fair value of derivative assets $ 241 $ 151 liabilities $ 112 $ 125 Total debt designated as hedging instruments: Short-term debt N/A N/A $ — $ 0 Long-term debt N/A N/A $ 7,709 $ 7,766 Total $ 1,283 $ 1,432 $ 7,939 $ 7,963 N/A-not applicable |
Effect of Derivative Instruments in the Consolidated Statement of Earnings | The Effect of Derivative Instruments in the Consolidated Statement of Earnings For the three months ended September 30, 2015 and 2014 (Dollars in millions) Gain (Loss) Recognized in Earnings Consolidated Statement of Recognized on Attributable to Risk Earnings Line Item Derivatives(1) Being Hedged(2) For the three months ended September 30: 2015 2014 2015 2014 Derivative instruments in fair value hedges(4): Interest rate contracts Cost of financing $ 125 $ 16 $ (99) $ 11 Interest expense 112 15 (88) 10 Derivative instruments not designated as hedging instruments(1): Foreign exchange contracts Other (income) and expense 208 (452) N/A N/A Interest rate contracts Other (income) and expense 0 (3) N/A N/A Equity contracts SG&A expense (81) (14) N/A N/A Other (income) and expense (8) 5 N/A N/A Total $ 357 $ (433) $ (187) $ 21 (Dollars in millions) Gain (Loss) Recognized in Earnings and Other Comprehensive Income Consolidated (Ineffectiveness) and Effective Portion Statement of Effective Portion Reclassified Amounts Excluded from Recognized in OCI Earnings Line Item from AOCI Effectiveness Testing For the three months ended September 30: 2015 2014 2015 2014 2015 2014 Derivative instruments in cash flow hedges: Interest rate contracts $ — $ — Interest expense $ 0 $ (1) $ — $ — Other (income) Foreign exchange 36 524 and expense 185 (57) 0 (1) contracts Cost of sales 46 (4) — — SG&A expense 43 3 — — Instruments in net investment hedges(3): Foreign exchange contracts 73 700 Interest expense — — 4 0 Total $ 109 $ 1,224 $ 273 $ (58) $ 4 $ (1) N/A-not applicable Note: OCI represents Other comprehensive income/(loss) in the Consolidated Statement of Comprehensive Income and AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity. 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. The amount includes basis adjustments to the carrying val ue of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period. Instruments in net investment hedges include derivative and non-derivative instruments. For the three month period s ended September 30, 2015 and September 30, 2014 , fair value hedges resulted in gains of $1 million and $2 million in ineffectiveness , respectively. The Effect of Derivative Instruments in the Consolidated Statement of Earnings For the nine months ended September 30, 2015 and 2014 (Dollars in millions) Gain (Loss) Recognized in Earnings Consolidated Statement of Recognized on Attributable to Risk Earnings Line Item Derivatives(1) Being Hedged(2) For the nine months ended September 30: 2015 2014 2015 2014 Derivative instruments in fair value hedges(4): Interest rate contracts Cost of financing $ 145 $ 129 $ (63) $ (53) Interest expense 121 116 (53) (47) Derivative instruments not designated as hedging instruments(1): Foreign exchange contracts Other (income) and expense 134 (533) N/A N/A Interest rate contracts Other (income) and expense (2) 37 N/A N/A Equity contracts SG&A expense (63) 39 N/A N/A Other (income) and expense (5) 3 N/A N/A Total $ 330 $ (209) $ (116) $ (100) Gain (Loss) Recognized in Earnings and Other Comprehensive Income Consolidated (Ineffectiveness) and Effective Portion Statement of Effective Portion Reclassified Amounts Excluded from Recognized in OCI Earnings Line Item from AOCI Effectiveness Testing For the nine months ended September 30: 2015 2014 2015 2014 2015 2014 Derivative instruments in cash flow hedges: Interest rate contracts $ — $ — Interest expense $ 0 $ (1) $ — $ — Other (income) Foreign exchange 467 596 and expense 565 (33) 4 (1) contracts Cost of sales 154 (53) — — SG&A expense 124 (5) — — Instruments in net investment hedges(3): Foreign exchange contracts 592 624 Interest expense — — 6 (1) Total $ 1,059 $ 1,220 $ 843 $ (91) $ 10 $ (2) N/A-not applicable Note: OCI represents Other comprehensive income/(loss) in the Consolidated Statement of Comprehensive Income and AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity. 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. The amount includes basis adjustments to the carrying val ue of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period . Instruments in net investment hedges include derivative and non-derivative instruments. For the nine month period s ended September 30, 2015 and September 30, 2014 , fair value hedges resulted in a loss of $2 million and a gain of $2 million in ineffectiveness , respectively . |
Financing Receivables (Tables)
Financing Receivables (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Financing Receivables: | |
Financing receivables, net of allowances for credit losses, including residual values | At September 30, At December 31, (Dollars in millions) 2015 2014 Current: Net investment in sales-type and direct financing leases $ 3,252 $ 3,781 Commercial financing receivables 6,487 8,423 Client loan and installment payment receivables (loans) 6,456 7,631 Total $ 16,195 $ 19,835 Noncurrent: Net investment in sales-type and direct financing leases $ 4,130 $ 4,449 Client loan and installment payment receivables (loans) 5,387 6,660 Total $ 9,517 $ 11,109 |
Schedule of financing receivables and allowance for credit losses by portfolio segment | (Dollars in millions) Major Growth At September 30, 2015 Markets Markets Total Financing receivables: Lease receivables $ 5,404 $ 1,480 $ 6,885 Loan receivables 9,067 3,147 12,214 Ending balance $ 14,471 $ 4,627 $ 19,099 Collectively evaluated for impairment $ 14,392 $ 4,160 $ 18,552 Individually evaluated for impairment $ 79 $ 467 $ 546 Allowance for credit losses: Beginning balance at January 1, 2015 Lease receivables $ 32 $ 133 $ 165 Loan receivables 79 317 396 Total $ 111 $ 450 $ 561 Write-offs (4) (35) (39) Provision 6 102 107 Other (6) (31) (37) Ending balance at September 30, 2015 $ 107 $ 486 $ 593 Lease receivables $ 31 $ 191 $ 222 Loan receivables $ 76 $ 295 $ 371 Collectively evaluated for impairment $ 39 $ 34 $ 73 Individually evaluated for impairment $ 68 $ 452 $ 520 (Dollars in millions) Major Growth At December 31, 2014 Markets Markets Total Financing receivables: Lease receivables $ 5,702 $ 1,943 $ 7,645 Loan receivables 10,049 4,639 14,687 Ending balance $ 15,751 $ 6,581 $ 22,332 Collectively evaluated for impairment $ 15,665 $ 6,156 $ 21,821 Individually evaluated for impairment $ 86 $ 425 $ 511 Allowance for credit losses: Beginning balance at January 1, 2014 Lease receivables $ 42 $ 80 $ 123 Loan receivables 95 147 242 Total $ 137 $ 228 $ 365 Write-offs (18) (6) (24) Provision 3 240 243 Other (12) (11) (23) Ending balance at December 31, 2014 $ 111 $ 450 $ 561 Lease receivables $ 32 $ 133 $ 165 Loan receivables $ 79 $ 317 $ 396 Collectively evaluated for impairment $ 42 $ 39 $ 81 Individually evaluated for impairment $ 69 $ 411 $ 480 |
Schedule of recorded investment in financing receivables which are on Non-Accrual Status | At September 30, At December 31, (Dollars in millions) 2015 2014 Major markets $ 2 $ 13 Growth markets 68 40 Total lease receivables $ 70 $ 53 Major markets $ 12 $ 27 Growth markets 127 151 Total loan receivables $ 139 $ 178 Total receivables $ 209 $ 231 |
Schedule of impaired client loan receivables | At September 30, 2015 At December 31, 2014 Recorded Related Recorded Related (Dollars in millions) Investment Allowance Investment Allowance Major markets $ 50 $ 46 $ 54 $ 47 Growth markets 299 286 299 293 Total $ 348 $ 332 $ 353 $ 340 Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the three months ended September 30, 2015: Investment Recognized Cash Basis Major markets $ 51 $ — $ — Growth markets 325 0 — Total $ 376 $ 0 $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the three months ended September 30, 2014: Investment Recognized Cash Basis Major markets $ 67 $ 0 $ — Growth markets 235 0 — Total $ 302 $ 0 $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the nine months ended September 30, 2015: Investment Recognized Cash Basis Major markets $ 52 $ — $ — Growth markets 320 0 — Total $ 371 $ 0 $ — Interest Average Interest Income (Dollars in millions) Recorded Income Recognized on For the nine months ended September 30, 2014: Investment Recognized Cash Basis Major markets $ 72 $ 0 $ — Growth markets 185 0 — Total $ 256 $ 0 $ — |
Schedule of gross recorded investment by credit quality indicator | Lease Receivables Loan Receivables (Dollars in millions) Major Growth Major Growth At September 30, 2015: Markets Markets Markets Markets Credit Rating: Aaa – Aa3 $ 621 $ 33 $ 1,042 $ 70 A1 – A3 1,170 124 1,963 263 Baa1 – Baa3 1,502 587 2,520 1,248 Ba1 – Ba2 1,172 229 1,966 488 Ba3 – B1 500 260 839 553 B2 – B3 400 171 672 365 Caa – D 39 76 65 161 Total $ 5,404 $ 1,480 $ 9,067 $ 3,147 Lease Receivables Loan Receivables (Dollars in millions) Major Growth Major Growth At December 31, 2014: Markets Markets Markets Markets Credit Rating: Aaa – Aa3 $ 563 $ 46 $ 993 $ 110 A1 – A3 1,384 178 2,438 425 Baa1 – Baa3 1,704 900 3,003 2,148 Ba1 – Ba2 1,154 272 2,034 649 Ba3 – B1 470 286 827 683 B2 – B3 372 176 655 420 Caa – D 55 85 98 203 Total $ 5,702 $ 1,943 $ 10,049 $ 4,639 |
Schedule of past due financing receivables | Recorded Total Total Investment (Dollars in millions) Past Due Financing > 90 Days At September 30, 2015: > 90 days* Current Receivables and Accruing Major markets $ 7 $ 5,397 $ 5,404 $ 7 Growth markets 32 1,448 1,480 15 Total lease receivables $ 39 $ 6,845 $ 6,885 $ 22 Major markets $ 10 $ 9,057 $ 9,067 $ 10 Growth markets 35 3,112 3,147 21 Total loan receivables $ 45 $ 12,169 $ 12,214 $ 31 Total $ 85 $ 19,014 $ 19,099 $ 53 * Does not include accounts that are fully reserved. Recorded Total Total Investment (Dollars in millions) Past Due Financing > 90 Days At December 31, 2014: > 90 days* Current Receivables and Accruing Major markets $ 6 $ 5,696 $ 5,702 $ 6 Growth markets 32 1,911 1,943 14 Total lease receivables $ 38 $ 7,607 $ 7,645 $ 20 Major markets $ 9 $ 10,040 $ 10,049 $ 9 Growth markets 35 4,603 4,639 18 Total loan receivables $ 44 $ 14,643 $ 14,687 $ 27 Total $ 82 $ 22,250 $ 22,332 $ 47 * Does not include accounts that are fully reserved. |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Stock-Based Compensation: | |
Stock-based compensation cost included in income from continuing operations | Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions) 2015 2014 2015 2014 Cost $ 24 $ 33 $ 78 $ 92 Selling, general and administrative 82 105 260 293 Research, development and engineering 11 13 37 41 Other (income) and expense* (5) — (6) (9) Pre-tax stock-based compensation cost 111 150 369 416 Income tax benefits (38) (51) (124) (141) Total net stock-based compensation cost $ 73 $ 99 $ 244 $ 276 * Reflects the one-time effects related to divestitures in 2015 and 2014. |
Segments (Tables)
Segments (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Segments: | |
Revenue and Pre-tax Income by Segment | SEGMENT INFORMATION Global Services Global Global Technology Business Systems Global Total (Dollars in millions) Services Services Software Hardware Financing Segments For the three months ended September 30, 2015: External revenue $ 7,937 $ 4,206 $ 5,136 $ 1,492 $ 447 $ 19,219 Internal revenue 190 120 785 121 584 1,800 Total revenue $ 8,127 $ 4,326 $ 5,921 $ 1,613 $ 1,031 $ 21,019 Pre-tax income from continuing operations $ 1,274 $ 673 $ 1,899 $ (24) $ 562 $ 4,384 Revenue year-to-year change (10.6) % (13.0) % (9.9) % (38.3) % (4.9) % (13.6) % Pre-tax income year-to-year change (21.6) % (21.8) % (18.6) % (75.6) % 18.1 % (15.6) % Pre-tax income margin 15.7 % 15.6 % 32.1 % (1.5) % 54.5 % 20.9 % For the three months ended September 30, 2014*: External revenue $ 8,837 $ 4,840 $ 5,708 $ 2,434 $ 487 $ 22,305 Internal revenue 252 135 862 182 598 2,029 Total revenue $ 9,089 $ 4,975 $ 6,570 $ 2,616 $ 1,084 $ 24,334 Pre-tax income/(loss) from continuing operations $ 1,625 $ 861 $ 2,333 $ (99) $ 475 $ 5,195 Pre-tax income margin 17.9 % 17.3 % 35.5 % (3.8) % 43.9 % 21.3 % * Reclassified to conform with 2015 presentation. SEGMENT INFORMATION Global Services Global Global Technology Business Systems Global Total (Dollars in millions) Services Services Software Hardware Financing Segments For the nine months ended September 30, 2015: External revenue $ 23,891 $ 12,869 $ 16,165 $ 5,209 $ 1,386 $ 59,520 Internal revenue 589 380 2,519 320 1,874 5,683 Total revenue $ 24,480 $ 13,249 $ 18,684 $ 5,529 $ 3,261 $ 65,203 Pre-tax income from continuing operations $ 3,516 $ 1,926 $ 6,107 $ 255 $ 1,690 $ 13,494 Revenue year-to-year change (10.8) % (12.6) % (8.9) % (32.0) % (4.2) % (12.6) % Pre-tax income year-to-year change (22.0) % (26.8) % (11.9) % nm 1.6 % (12.3) % Pre-tax income margin 14.4 % 14.5 % 32.7 % 4.6 % 51.8 % 20.7 % nm - not meaningful For the nine months ended September 30, 2014*: External revenue $ 26,696 $ 14,742 $ 17,857 $ 7,590 $ 1,502 $ 68,387 Internal revenue 739 416 2,652 541 1,900 6,248 Total revenue $ 27,435 $ 15,158 $ 20,508 $ 8,131 $ 3,403 $ 74,635 Pre-tax income/(loss) from continuing operations $ 4,509 $ 2,633 $ 6,935 $ (354) $ 1,664 $ 15,386 Pre-tax income margin 16.4 % 17.4 % 33.8 % (4.4) % 48.9 % 20.6 % * Reclassified to conform with 2015 presentation. |
Segment revenue and pre-tax income reconciliations to total IBM revenue and pre-tax income from continuing operations as reported | Reconciliations to IBM as Reported: (Dollars in millions) For the three months ended September 30: 2015 2014 Revenue: Total reportable segments $ 21,019 $ 24,334 Eliminations of internal transactions (1,800) (2,029) Other revenue 60 92 Total consolidated revenue $ 19,280 $ 22,397 Pre-tax income from continuing operations: Total reportable segments $ 4,384 $ 5,195 Amortization of acquired intangible assets (162) (201) Acquisition-related charges (4) 0 Non-operating retirement-related (costs)/income (204) (71) Eliminations of internal transactions (380) (402) Unallocated corporate amounts (14) (160) Total pre-tax income from continuing operations $ 3,621 $ 4,361 Reconciliations to IBM as Reported: (Dollars in millions) For the nine months ended September 30: 2015 2014 Revenue: Total reportable segments $ 65,203 $ 74,635 Eliminations of internal transactions (5,683) (6,248) Other revenue 162 292 Total consolidated revenue $ 59,682 $ 68,680 Pre-tax income from continuing operations: Total reportable segments $ 13,494 $ 15,386 Amortization of acquired intangible assets (492) (596) Acquisition-related charges (11) (10) Non-operating retirement-related (costs)/income (831) (246) Eliminations of internal transactions (1,294) (1,433) Unallocated corporate amounts (19) (209) Total pre-tax income from continuing operations $ 10,846 $ 12,891 |
Equity Activity (Tables)
Equity Activity (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Equity Activity: | |
Schedule of Reclassifications and Taxes Related to items of Other Comprehensive Income | Reclassifications and Taxes Related to Items of Other Comprehensive Income (Dollars in millions) Before Tax Tax (Expense)/ Net of Tax For the three months ended September 30, 2015: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (1,015) $ (28) $ (1,043) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ (102) $ 39 $ (63) Reclassification of (gains)/losses to other (income) and expense 0 0 0 Total net changes related to available-for-sale securities $ (101) $ 39 $ (62) Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ 36 $ (9) $ 27 Reclassification of (gains)/losses to: Cost of sales (46) 13 (33) SG&A expense (43) 13 (30) Other (income) and expense (185) 71 (114) Interest expense 0 0 0 Total unrealized gains/(losses) on cash flow hedges $ (237) $ 88 $ (149) Retirement-related benefit plans (1) : Prior service costs/(credits) $ 0 $ 0 $ 0 Net (losses)/gains arising during the period (2) 1 (1) Curtailments and settlements 11 (4) 7 Amortization of prior service (credits)/costs (25) 8 (16) Amortization of net (gains)/losses 823 (281) 542 Total retirement-related benefit plans $ 807 $ (275) $ 531 Other comprehensive income/(loss) $ (547) $ (176) $ (724) (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 September 30, 2014: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (1,126) $ (271) $ (1,397) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ 0 $ 0 $ 0 Reclassification of (gains)/losses to other (income) and expense 0 0 0 Total net changes related to available-for-sale securities $ 0 $ 0 $ 0 Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ 524 $ (182) $ 342 Reclassification of (gains)/losses to: Cost of sales 4 (1) 3 SG&A expense (3) 1 (2) Other (income) and expense 57 (22) 35 Interest expense 1 0 1 Total unrealized gains/(losses) on cash flow hedges $ 582 $ (204) $ 378 Retirement-related benefit plans (1) : Prior service costs/(credits) $ 0 $ 0 $ 0 Net (losses)/gains arising during the period 1 0 1 Curtailments and settlements 7 (2) 5 Amortization of prior service (credits)/costs (29) 10 (19) Amortization of net (gains)/losses 635 (212) 423 Total retirement-related benefit plans $ 615 $ (205) $ 409 Other comprehensive income/(loss) $ 71 $ (680) $ (609) (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 nine months ended September 30, 2015: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (1,365) $ (227) $ (1,593) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ (85) $ 33 $ (52) Reclassification of (gains)/losses to other (income) and expense 0 0 0 Total net changes related to available-for-sale securities $ (85) $ 33 $ (52) Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ 467 $ (166) $ 301 Reclassification of (gains)/losses to: Cost of sales (154) 46 (109) SG&A expense (124) 36 (88) Other (income) and expense (565) 217 (348) Interest expense 0 0 0 Total unrealized gains/(losses) on cash flow hedges $ (376) $ 132 $ (243) Retirement-related benefit plans (1) : Prior service costs/(credits) $ 6 $ (2) $ 4 Net (losses)/gains arising during the period 14 (5) 9 Curtailments and settlements 19 (6) 12 Amortization of prior service (credits)/costs (76) 26 (50) Amortization of net (gains)/losses 2,479 (846) 1,633 Total retirement-related benefit plans $ 2,441 $ (833) $ 1,608 Other comprehensive income/(loss) $ 616 $ (895) $ (280) (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 nine months ended September 30, 2014: Amount Benefit Amount Other comprehensive income/(loss): Foreign currency translation adjustments $ (848) $ (241) $ (1,090) Net changes related to available-for-sale securities: Unrealized gains/(losses) arising during the period $ 1 $ 0 $ 1 Reclassification of (gains)/losses to other (income) and expense 5 (2) 3 Total net changes related to available-for-sale securities $ 6 $ (2) $ 4 Unrealized gains/(losses) on cash flow hedges: Unrealized gains/(losses) arising during the period $ 596 $ (213) $ 383 Reclassification of (gains)/losses to: Cost of sales 53 (18) 35 SG&A expense 5 0 5 Other (income) and expense 33 (13) 20 Interest expense 1 0 1 Total unrealized gains/(losses) on cash flow hedges $ 687 $ (244) $ 443 Retirement-related benefit plans (1) : Prior service costs/(credits) $ 1 $ 0 $ 0 Net (losses)/gains arising during the period 48 (16) 32 Curtailments and settlements 20 (7) 14 Amortization of prior service (credits)/costs (88) 29 (58) Amortization of net (gains)/losses 1,923 (644) 1,279 Total retirement-related benefit plans $ 1,905 $ (638) $ 1,266 Other comprehensive income/(loss) $ 1,749 $ (1,126) $ 623 (1) These AOCI components are included in the computation of net periodic pension cost. (See note 8, "Retirement-Related Benefits," for additional information.) |
Accumulated Other Comprehensive Income/(Loss) (net of tax) | Accumulated Other Comprehensive Income/(Loss) (net of tax) Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in Millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 2015 $ 392 $ (1,742) $ (26,509) $ (15) $ (27,875) Other comprehensive income before reclassifications 301 (1,593) 25 (52) (1,319) Amount reclassified from accumulated other comprehensive income (544) 0 1,583 0 1,039 Total change for the period (243) (1,593) 1,608 (52) (280) September 30, 2015 $ 148 $ (3,335) $ (24,901) $ (67) $ (28,155) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. Net Change Net Unrealized Net Unrealized Foreign Retirement- Gains/(Losses) Accumulated Gains/(Losses) Currency Related on Available- Other on Cash Flow Translation Benefit For-Sale Comprehensive (Dollars in Millions) Hedges Adjustments* Plans Securities Income/(Loss) January 1, 2014 $ (165) $ 332 $ (21,767) $ (1) $ (21,602) Other comprehensive income before reclassifications 383 (1,090) 32 1 (674) Amount reclassified from accumulated other comprehensive income 61 0 1,235 3 1,299 Total change for the period 443 (1,090) 1,267 4 623 September 30, 2014 $ 277 $ (758) $ (20,501) $ 3 $ (20,978) * Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. |
Retirement-Related Benefits (Ta
Retirement-Related Benefits (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Defined Benefit Plans and Other Postretirement Benefit Plans | |
Retirement-related benefits net periodic (income)/cost in the Consolidated Statement of Earnings | Yr. to Yr. (Dollars in millions) Percent For the three months ended September 30: 2015 2014 Change Retirement-related plans – cost Defined benefit and contribution pension plans – cost $ 505 $ 408 23.9 % Nonpension postretirement plans – cost 68 67 0.3 Total $ 573 $ 475 20.6 % Yr. to Yr. (Dollars in millions) Percent For the nine months ended September 30: 2015 2014 Change Retirement-related plans – cost Defined benefit and contribution pension plans – cost $ 1,747 $ 1,280 36.5 % Nonpension postretirement plans – cost 206 204 0.9 Total $ 1,953 $ 1,484 31.6 % |
Defined Benefit Pension Plans | |
Defined Benefit Plans and Other Postretirement Benefit Plans | |
Retirement-related benefits net periodic (income)/cost in the Consolidated Statement of Earnings | Cost/(Income) of Pension Plans (Dollars in millions) U.S. Plans Non-U.S. Plans For the three months ended September 30: 2015 2014 2015 2014 Service cost $ — $ — $ 116 $ 113 Interest cost 507 553 270 385 Expected return on plan assets (988) (1,024) (481) (565) Amortization of prior service costs/(credits) 2 2 (24) (28) Recognized actuarial losses 414 264 392 351 Curtailments and settlements — — 11 7 Multi-employer plans/other costs — — 16 36 Total net periodic pension (income)/cost of defined benefit plans (65) (205) 300 300 Cost of defined contribution plans 162 179 109 133 Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings $ 96 $ (25) $ 409 $ 433 (Dollars in millions) U.S. Plans Non-U.S. Plans For the nine months ended September 30: 2015 2014 2015 2014 Service cost $ — $ — $ 339 $ 346 Interest cost 1,521 1,659 810 1,170 Expected return on plan assets (2,965) (3,072) (1,446) (1,715) Amortization of prior service costs/(credits) 7 7 (74) (85) Recognized actuarial losses 1,241 792 1,186 1,072 Curtailments and settlements — — 19 20 Multi-employer plan/other costs — — 272 131 Total net periodic pension (income)/cost of defined benefit plans (196) (614) 1,107 938 Cost of defined contribution plans 500 554 335 402 Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings $ 304 $ (60) $ 1,443 $ 1,340 |
Nonpension Postretirement Plans | |
Defined Benefit Plans and Other Postretirement Benefit Plans | |
Retirement-related benefits net periodic (income)/cost in the Consolidated Statement of Earnings | The following tables provide the components of the cost/(income) for the company's nonpension postretirement plans. Cost of Nonpension Postretirement Plans (Dollars in millions) U.S. Plan Non-U.S. Plans For the three months ended September 30: 2015 2014 2015 2014 Service cost $ 6 $ 7 $ 2 $ 1 Interest cost 41 47 12 16 Expected return on plan assets — — (2) (2) Amortization of prior service costs/(credits) (2) (2) (1) (1) Recognized actuarial losses 10 0 2 3 Curtailments and settlements — — 0 0 Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ 55 $ 51 $ 13 $ 16 (Dollars in millions) U.S. Plan Non-U.S. Plans For the nine months ended September 30: 2015 2014 2015 2014 Service cost $ 18 $ 20 $ 5 $ 5 Interest cost 122 140 39 48 Expected return on plan assets — — (5) (7) Amortization of prior service costs/(credits) (6) (6) (4) (4) Recognized actuarial losses 29 0 7 8 Curtailments and settlements — — 0 0 Total nonpension postretirement plan cost recognized in Consolidated Statement of Earnings $ 164 $ 154 $ 42 $ 50 |
Acquisitions_Divestitures (Tabl
Acquisitions/Divestitures (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Acquisitions/Divestitures: | |
Business acquisition, purchase price allocation | Amortization Total (Dollars in millions) Life (in yrs.) Acquisitions Current assets $ 20 Fixed assets/noncurrent assets 63 Intangible assets: Goodwill N/A 637 Completed technology 5-7 79 Client relationships 7 41 Patents/trademarks 2-5 12 Total assets acquired 851 Current liabilities (16) Noncurrent liabilities (53) Total liabilities assumed (70) Total purchase price $ 782 N/A - not applicable |
Discontinued operation, summarized financial information | Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions) 2015 2014 2015 2014 Total revenue $ — $ 360 $ 720 $ 925 Income/(loss) from discontinued operations $ 2 $ (141) $ (177) $ (520) Loss on disposal (57) (4,697) (108) (4,697) Total loss from discontinued operations, before income taxes $ (54) $ (4,838) $ (285) $ (5,217) Provision/(benefit) for income taxes (43) (1,401) (108) (1,519) Loss from discontinued operations, net of tax $ (12) $ (3,437) $ (176) $ (3,698) At September 30, At December 31, (Dollars in millions) 2015 2014 Assets: Accounts receivable $ — $ 245 Inventory — 380 Property, plant & equipment – net — — Other assets — 92 Total assets $ — $ 717 Liabilities: Accounts payable $ — $ 177 Deferred income — 87 Other liabilities — 163 Total liabilities $ — $ 427 |
Intangible Assets Including G31
Intangible Assets Including Goodwill (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Intangible Assets Including Goodwill: | |
Intangible asset balances by major asset class | At September 30, 2015 (Dollars in millions) Gross Carrying Accumulated Net Carrying Intangible asset class Amount Amortization Amount Capitalized software $ 1,329 $ (593) $ 736 Client relationships 1,670 (886) 784 Completed technology 2,431 (1,333) 1,098 Patents/trademarks 291 (156) 134 Other* 32 (9) 23 Total $ 5,753 $ (2,977) $ 2,775 * Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems. At December 31, 2014 (Dollars in millions) Gross Carrying Accumulated Net Carrying Intangible asset class Amount Amortization Amount Capitalized software $ 1,375 $ (679) $ 696 Client relationships 2,208 (1,271) 937 Completed technology 2,831 (1,533) 1,298 Patents/trademarks 374 (214) 161 Other* 18 (6) 12 Total $ 6,806 $ (3,702) $ 3,104 * Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems. |
Intangible assets, future amortization expense | Capitalized Acquired (Dollars in millions) Software Intangibles Total 2015 (for Q4) $ 122 $ 167 $ 289 2016 369 625 994 2017 200 518 718 2018 45 358 402 2019 — 231 231 |
Changes in goodwill balances by reportable segment | Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 01/01/15 Additions Adjustments Divestitures Adjustments** 9/30/15 Global Business Services $ 4,555 $ — $ 0 $ (1) $ (187) $ 4,367 Global Technology Services 3,530 62 0 — (86) 3,506 Software 21,000 574 (1) (8) (608) 20,957 Systems Hardware 1,472 — — — (27) 1,445 Total $ 30,556 $ 637 $ (1) $ (9) $ (907) $ 30,275 ** Primarily driven by foreign currency translation. Foreign Currency Purchase Translation (Dollars in millions) Balance Goodwill Price And Other Balance Segment 01/01/14 Additions Adjustments Divestitures Adjustments** 12/31/14 Global Business Services * $ 4,855 $ — $ 0 $ (52) $ (248) $ 4,555 Global Technology Services * 3,608 11 21 (2) (108) 3,530 Software 21,121 430 (17) (19) (516) 21,000 Systems Hardware 1,601 — — (110) (19) 1,472 Total $ 31,184 $ 442 $ 4 $ (183) $ (891) $ 30,556 * Reclassified to conform with 2015 presentation. ** Primarily driven by foreign currency translation. |
Borrowings (Tables)
Borrowings (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Borrowings | |
Short-Term Debt | At September 30, At December 31, (Dollars in millions) 2015 2014 Commercial paper $ 1,600 $ 650 Short-term loans 653 480 Long-term debt – current maturities 5,286 4,601 Total $ 7,538 $ 5,731 |
Long-Term Debt | Long-Term Debt Pre-Swap Borrowing Balance Balance (Dollars in millions) Maturities 9/30/2015 12/31/2014 U.S. dollar notes and debentures (average interest rate at September 30, 2015): 1.41% 2015–2016 $ 5,274 $ 9,254 3.91% 2017–2018 8,773 6,835 2.24% 2019–2021 6,613 6,555 1.88% 2022 1,000 1,000 3.38% 2023 1,500 1,500 3.63% 2024 2,000 2,000 7.00% 2025 600 600 6.22% 2027 469 469 6.50% 2028 313 313 5.88% 2032 600 600 8.00% 2038 83 83 5.60% 2039 745 745 4.00% 2042 1,107 1,107 7.00% 2045 27 27 7.13% 2096 316 316 $ 29,420 $ 31,404 Other currencies (average interest rate at September 30, 2015, in parentheses): \ Euros (1.8%) 2015–2025 $ 5,033 $ 5,463 Pound sterling (2.7%) 2017–2022 1,597 1,176 Japanese yen (0.5%) 2017–2019 734 733 Swiss francs (6.3%) 2020 10 162 Canadian (2.2%) 2017 373 432 Other (10.9%) 2015–2020 176 367 $ 37,343 $ 39,737 Less: net unamortized discount 840 853 Add: fair value adjustment* 904 792 $ 37,407 $ 39,675 Less: current maturities 5,286 4,601 Total $ 32,122 $ 35,073 * T he portion of the company’s fixed-rate debt obligations that is hedged is reflected in the Consolidated State ment of Financial Position as an amount equal to the sum of the debt’s carrying value plus a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates. |
Pre-swap annual contractual maturities of long-term debt outstanding | (Dollars in millions) Total 2015 (for Q4) $ 68 2016 5,257 2017 5,345 2018 4,673 2019 4,023 2020 and beyond 17,977 Total $ 37,343 |
Interest on Debt | (Dollars in millions) For the nine months ended September 30: 2015 2014 Cost of financing $ 407 $ 407 Interest expense 346 366 Net investment derivative activity (6) 1 Interest capitalized (1) 3 Total interest paid and accrued $ 746 $ 777 |
Commitments (Tables)
Commitments (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Commitments: | |
Changes in warranty liabilities | Standard Warranty Liability (Dollars in millions) 2015 2014 Balance at January 1 $ 197 $ 376 Current period accruals 117 186 Accrual adjustments to reflect actual experience 4 6 Charges incurred (147) (252) Balance at September 30 $ 172 $ 316 Extended Warranty Liability (Dollars in millions) 2015 2014 Aggregate deferred revenue at January 1 $ 536 $ 579 Revenue deferred for new extended warranty contracts 182 195 Amortization of deferred revenue (192) (214) Other * (28) (21) Aggregate deferred revenue at September 30 $ 498 $ 539 Current portion $ 232 $ 257 Noncurrent portion $ 267 $ 282 * Other primarily consists of foreign currency translation adjustments. |
Basis of Presentation (Details)
Basis of Presentation (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Basis of Presentation: | ||||
Noncontrolling interest amounts, net of tax | $ 2.4 | $ 2.4 | $ 5.9 | $ 4.2 |
Accounting Changes (Details)
Accounting Changes (Details) $ in Millions | Sep. 30, 2015USD ($) |
Investments and sundry assets | |
Debt issuance costs | $ 74 |
Financial Instruments (Details
Financial Instruments (Details 1) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2015 | Dec. 31, 2014 | |
Financial Instruments: | ||
Impairments of non-financial assets | $ 0 | |
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Debt securities - noncurrent | 9 | $ 9 |
Available-for-sale equity investments | 160 | 243 |
Derivative assets | 1,283 | 1,432 |
Potential reduction in net position of total derivative liabilities | 180 | 97 |
Fair value assets, Level 2 to Level 1 transfer | 0 | |
Fair value assets, Level 1 to Level 2 transfer | 0 | |
Trading securitiy investments | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Fair value assets, Level 2 to Level 1 transfer | 74 | |
Recurring | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 7,250 | 5,359 |
Debt securities - current | 88 | |
Debt securities - noncurrent | 9 | 9 |
Trading security investments | 54 | 74 |
Available-for-sale equity investments | 160 | 243 |
Derivative assets | 1,283 | 1,432 |
Total Assets | 8,844 | 7,118 |
Total Liabilities | 230 | 196 |
Potential reduction in net position of total derivative assets | 180 | 97 |
Potential reduction in net position of total derivative liabilities | 180 | 97 |
Recurring | Prepaid expenses and other current assets | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 502 | 751 |
Recurring | Investments and sundry assets | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 781 | 681 |
Recurring | Other accrued expenses and liabilities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative liabilities | 167 | 165 |
Recurring | Other liabilities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative liabilities | 63 | 31 |
Recurring | Interest rate contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 739 | 633 |
Derivative liabilities | 0 | |
Recurring | Foreign exchange contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 542 | 775 |
Derivative liabilities | 187 | 177 |
Recurring | Equity contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 2 | 24 |
Derivative liabilities | 43 | 19 |
Recurring | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 4,626 | 3,517 |
Recurring | Commercial paper | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 275 | 764 |
Recurring | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 2,155 | 662 |
Recurring | U.S. government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 0 | 410 |
Recurring | Canadian government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 186 | |
Recurring | Other securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 7 | 6 |
Recurring | Level 1 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 2,155 | 662 |
Debt securities - noncurrent | 1 | 1 |
Trading security investments | 54 | 74 |
Available-for-sale equity investments | 160 | 243 |
Total Assets | 2,371 | 980 |
Recurring | Level 1 | Money market funds | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 2,155 | 662 |
Recurring | Level 2 | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 5,094 | 4,697 |
Debt securities - current | 88 | |
Debt securities - noncurrent | 8 | 8 |
Derivative assets | 1,283 | 1,432 |
Total Assets | 6,473 | 6,138 |
Total Liabilities | 230 | 196 |
Recurring | Level 2 | Interest rate contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 739 | 633 |
Derivative liabilities | 0 | |
Recurring | Level 2 | Foreign exchange contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 542 | 775 |
Derivative liabilities | 187 | 177 |
Recurring | Level 2 | Equity contracts | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Derivative assets | 2 | 24 |
Derivative liabilities | 43 | 19 |
Recurring | Level 2 | Time deposits and certificates of deposit | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 4,626 | 3,517 |
Recurring | Level 2 | Commercial paper | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 275 | 764 |
Recurring | Level 2 | U.S. government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 0 | 410 |
Recurring | Level 2 | Canadian government securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | 186 | |
Recurring | Level 2 | Other securities | ||
Financial assets and financial liabilities measured at fair value on a recurring basis: | ||
Cash equivalents | $ 7 | $ 6 |
Financial Instruments (Detail37
Financial Instruments (Details 2) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Fair value of financial instruments, details: | |||||
Carrying amount of long-term debt | $ 32,122 | $ 32,122 | $ 35,073 | ||
Fair value of long-term debt | 33,889 | 33,889 | 37,524 | ||
Debt and Marketable Equity Securities | |||||
Debt securities - noncurrent, Adjusted Cost | 6 | 6 | 7 | ||
Debt securities - noncurrent, Gross Unrealized Gains | 3 | 3 | 3 | ||
Debt securities - noncurrent | 9 | 9 | 9 | ||
Available-for-sale equity investments, Adjusted Cost | 272 | 272 | 272 | ||
Available-for-sale equity investments, Gross Unrealized Gains | 6 | 6 | 2 | ||
Available-for-sale equity investments, Gross Unrealized Losses | 118 | 118 | 31 | ||
Available-for-sale equity investments | 160 | 160 | $ 243 | ||
Gross unrealized gains (losses) related to available for sale securities | (102) | $ 0 | (85) | $ 1 | |
Sales of debt and available-for-sale equity investments | |||||
Proceeds | 1 | 1 | 7 | 16 | |
Gross realized gains (before taxes) | 0 | 0 | 1 | 0 | |
Gross realized losses (before taxes) | 0 | 0 | 1 | 5 | |
Unrealized holding gains/(losses) on available-for-sale debt and equity securities | |||||
Net unrealized gains/(losses) arising during the period | (63) | 0 | (52) | 1 | |
Net unrealized (gains)/losses reclassified to net income | 0 | 0 | 0 | 3 | |
Writedowns included in net income for the period | 0 | $ 0 | $ 0 | $ 0 | |
Maximum contractual maturities of substantially all available-for-sale debt securities | 1 year | ||||
Lenovo's common stock | |||||
Debt and Marketable Equity Securities | |||||
Gross unrealized gains (losses) related to available for sale securities | $ (99) | $ (86) |
Financial Instruments (Detail38
Financial Instruments (Details 3) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2015 | Dec. 31, 2014 | |
Financial Instruments: | ||
Fair value of derivative instruments under collateralized arrangements in a liability position | $ 12 | $ 21 |
Collateral posted on derivative instruments | 0 | 0 |
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 1,283 | 1,432 |
Fair value of total derivative liabilities and debt | $ 7,939 | 7,963 |
Maximum spread on credit default swap agreements before full collateralization is required | 2.50% | |
Liabilities included in master netting arrangements | $ 180 | 97 |
Obligation to return cash collateral | 193 | 487 |
Net exposure related to derivative assets recorded in the Statement of Financial Position | 862 | 817 |
Net exposure related to derivative liabilities recorded in the Statement of Financial Position | 50 | 99 |
Cash collateral rehypothecated | 0 | 0 |
U.S. Treasury securities | ||
Fair Values of Derivative Instruments | ||
Non-cash collateral received | 48 | 31 |
Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 1,043 | 1,281 |
Fair value of total derivative instruments, Liabilities | 119 | 72 |
Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 241 | 151 |
Fair value of total derivative instruments, Liabilities | 112 | 125 |
Other receivables | ||
Fair Values of Derivative Instruments | ||
Cash collateral issued, derivatives | 0 | 0 |
Accounts payable | ||
Fair Values of Derivative Instruments | ||
Obligation to return cash collateral | 193 | 487 |
Prepaid expenses and other current assets | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 5 | |
Prepaid expenses and other current assets | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 299 | 632 |
Prepaid expenses and other current assets | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 201 | 90 |
Prepaid expenses and other current assets | Equity contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 2 | 24 |
Investments and sundry assets | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 739 | 628 |
Investments and sundry assets | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 5 | 17 |
Investments and sundry assets | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 37 | 37 |
Investments and sundry assets | Equity contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Assets | 0 | |
Other accrued expenses and liabilities | Interest rate contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 0 | |
Other accrued expenses and liabilities | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 89 | 50 |
Other accrued expenses and liabilities | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 36 | 101 |
Other accrued expenses and liabilities | Equity contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 43 | 14 |
Other liabilities | Foreign exchange contracts | Designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 30 | 21 |
Other liabilities | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 33 | 4 |
Other liabilities | Equity contracts | Derivative instruments not designated as hedging instruments | ||
Fair Values of Derivative Instruments | ||
Fair value of total derivative instruments, Liabilities | 5 | |
Long term debt | Designated as hedging instruments | Net investment hedge | ||
Fair Values of Derivative Instruments | ||
Debt designated as hedging instrument | $ 7,709 | 7,766 |
Short term debt | Designated as hedging instruments | Net investment hedge | ||
Fair Values of Derivative Instruments | ||
Debt designated as hedging instrument | $ 0 |
Financial Instruments (Detail39
Financial Instruments (Details 4) - USD ($) $ in Millions | 9 Months Ended | 12 Months Ended |
Sep. 30, 2015 | Dec. 31, 2014 | |
Warrants | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 0 | $ 0 |
Derivative instruments in fair value and cash flow hedging relationships | Interest rate swaps | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 6,400 | $ 5,800 |
Average remaining maturity | 7 years 6 months | 8 years 8 months |
Derivative instruments in cash flow hedging relationships | Interest rate swaps | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 0 | $ 0 |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges of borrowings | 1 | 1 |
Derivative instruments in cash flow hedging relationships | Interest rate swaps | Maximum | ||
Derivative Instruments, Gain (Loss) | ||
Gains (losses) expected to be reclassified to net income within the next 12 months | 1 | 1 |
Derivative instruments in cash flow hedging relationships | Foreign exchange forward contracts | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 8,700 | $ 9,300 |
Average remaining maturity | 7 months 6 days | 8 months 12 days |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges of borrowings | $ 226 | $ 602 |
Gains (losses) expected to be reclassified to net income within the next 12 months | $ 207 | 572 |
Maximum length of time hedged | 4 years | |
Derivative instruments in cash flow hedging relationships | Currency swaps | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 0 | 0 |
Net gains (losses) before taxes in other comprehensive income/(loss), cash flow hedges of borrowings | $ (2) | (2) |
Maximum length of time hedged | 7 years | |
Derivative instruments in cash flow hedging relationships | Currency swaps | Maximum | ||
Derivative Instruments, Gain (Loss) | ||
Gains (losses) expected to be reclassified to net income within the next 12 months | $ (1) | (1) |
Derivative instruments in net investment hedging relationships | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 5,300 | $ 2,200 |
Average remaining maturity | 2 months 12 days | 2 months 12 days |
Derivative instruments not designated as hedging instruments | Foreign exchange forward and swap contracts | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 10,800 | $ 13,100 |
Maximum length of time hedged | 1 year | |
Derivative instruments not designated as hedging instruments | Equity contracts | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 1,200 | 1,300 |
Derivative instruments not designated as hedging instruments | Equity contracts | Maximum | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | 100 | 100 |
Derivative instruments not designated as hedging instruments | Credit default swaps | ||
Derivative Instruments, Gain (Loss) | ||
Notional amount | $ 0 | $ 0 |
Financial Instruments (Detail40
Financial Instruments (Details 5) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in income on derivatives | $ 357 | $ (433) | $ 330 | $ (209) |
Gain (loss) recognized in earnings attributable to risk being hedged | (187) | 21 | (116) | (100) |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Recognized in OCI | 109 | 1,224 | 1,059 | 1,220 |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | 273 | (58) | 843 | (91) |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, (Ineffectiveness) and Amounts Excluded from Effectiveness Testing | 4 | (1) | 10 | (2) |
Gains and (Losses) excluded from the assessment of hedge effectiveness for fair value hedges | 0 | 0 | 0 | 0 |
Gains and (Losses) associated with underlying exposure that did not occur or was not expected to occur for cash flow hedges | 0 | 0 | 0 | 0 |
Gain (loss) on fair value hedges ineffectiveness | 1 | 2 | (2) | 2 |
Foreign exchange contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Recognized in OCI | 36 | 524 | 467 | 596 |
Foreign exchange contracts | Derivative instruments in net investment hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Recognized in OCI | 73 | 700 | 592 | 624 |
Cost of financing | Interest rate contracts | Derivative instruments in fair value hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in income, recognized on derivative instruments in fair value hedges | 125 | 16 | 145 | 129 |
Gain (loss) recognized in earnings attributable to risk being hedged | (99) | 11 | (63) | (53) |
Interest expense | Interest rate contracts | Derivative instruments in fair value hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in income, recognized on derivative instruments in fair value hedges | 112 | 15 | 121 | 116 |
Gain (loss) recognized in earnings attributable to risk being hedged | (88) | 10 | (53) | (47) |
Interest expense | Interest rate contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | 0 | (1) | 0 | (1) |
Interest expense | Foreign exchange contracts | Derivative instruments in net investment hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, (Ineffectiveness) and Amounts Excluded from Effectiveness Testing | 4 | 0 | 6 | (1) |
Other (income) and expense | Interest rate contracts | Derivative instruments not designated as hedging instruments | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in income on derivatives | 0 | (3) | (2) | 37 |
Other (income) and expense | Foreign exchange contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | 185 | (57) | 565 | (33) |
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, (Ineffectiveness) and Amounts Excluded from Effectiveness Testing | 0 | (1) | 4 | (1) |
Other (income) and expense | Foreign exchange contracts | Derivative instruments not designated as hedging instruments | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in income on derivatives | 208 | (452) | 134 | (533) |
Other (income) and expense | Equity contracts | Derivative instruments not designated as hedging instruments | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in income on derivatives | (8) | 5 | (5) | 3 |
Cost of sales | Foreign exchange contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | 46 | (4) | 154 | (53) |
SG&A expense | Foreign exchange contracts | Derivative instruments in cash flow hedging relationships | ||||
Derivative Instruments, Gain (Loss) | ||||
Gain (Loss) Recognized in Earnings and Other Comprehensive Income, Effective Portion Reclassified from AOCI to Earnings | 43 | 3 | 124 | (5) |
SG&A expense | Equity contracts | Derivative instruments not designated as hedging instruments | ||||
Derivative Instruments, Gain (Loss) | ||||
Amount of gain (loss) recognized in income on derivatives | $ (81) | $ (14) | $ (63) | $ 39 |
Financing Receivables (Details
Financing Receivables (Details 1) - USD ($) $ in Millions | 9 Months Ended | ||
Sep. 30, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Financing receivables: | |||
Financing receivables used as collateral for non-recourse borrowings | $ 593 | $ 642 | |
Financing receivables held for sale | 0 | 0 | |
Financing receivables, current | |||
Financing receivables, net, current | 16,195 | 19,835 | |
Financing receivables, noncurrent | |||
Financing receivables, net, noncurrent | 9,517 | 11,109 | |
Financing receivables | |||
Allowance for credit losses | 593 | 561 | $ 365 |
Net investment in sales-type and direct financing leases | |||
Financing receivables, current | |||
Financing receivables, net, current | 3,252 | 3,781 | |
Financing receivables, noncurrent | |||
Financing receivables, net, noncurrent | 4,130 | 4,449 | |
Financing receivables | |||
Sales-type and direct financing leases, unguaranteed residual value | 635 | 671 | |
Sales-type and direct financing leases, unearned income | 525 | 517 | |
Allowance for credit losses | $ 222 | 165 | |
Net investment in sales-type and direct financing leases | Financing receivable, lower range of payment terms | |||
Financing receivables | |||
Financing receivable, payment terms | 2 years | ||
Net investment in sales-type and direct financing leases | Financing receivable, upper range of payment terms | |||
Financing receivables | |||
Financing receivable, payment terms | 6 years | ||
Commercial financing receivables | |||
Financing receivables, current | |||
Financing receivables, net, current | $ 6,487 | 8,423 | |
Financing receivables | |||
Allowance for credit losses | $ 16 | 17 | |
Commercial financing receivables | Financing receivable, lower range of payment terms | |||
Financing receivables | |||
Financing receivable, payment terms | 30 days | ||
Commercial financing receivables | Financing receivable, upper range of payment terms | |||
Financing receivables | |||
Financing receivable, payment terms | 90 days | ||
Client loan and installment payment receivables (loans) | |||
Financing receivables, current | |||
Financing receivables, net, current | $ 6,456 | 7,631 | |
Financing receivables, noncurrent | |||
Financing receivables, net, noncurrent | 5,387 | 6,660 | |
Financing receivables | |||
Allowance for credit losses | $ 371 | $ 396 | |
Client loan and installment payment receivables (loans) | Financing receivable, upper range of payment terms | |||
Financing receivables | |||
Financing receivable, payment terms | 7 years |
Financing Receivables (Detail42
Financing Receivables (Details 2) $ in Millions | 9 Months Ended | 12 Months Ended |
Sep. 30, 2015USD ($)PortfolioSegmentClassOfFinancingReceivable | Dec. 31, 2014USD ($) | |
Financing Receivables | ||
Ending Balance | $ 19,099 | $ 22,332 |
Collectively evaluated for impairment | 18,552 | 21,821 |
Individually evaluated for impairment | 546 | 511 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 561 | 365 |
Write-offs | (39) | (24) |
Provision | 107 | 243 |
Other | (37) | (23) |
Allowance for credit losses, ending balance | 593 | 561 |
Collectively evaluated for impairment | 73 | 81 |
Individually evaluated for impairment | $ 520 | 480 |
Number of portfolio segments | PortfolioSegment | 2 | |
Number of classes of financing receivable | ClassOfFinancingReceivable | 2 | |
Major Markets | ||
Financing Receivables | ||
Ending Balance | $ 14,471 | 15,751 |
Collectively evaluated for impairment | 14,392 | 15,665 |
Individually evaluated for impairment | 79 | 86 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 111 | 137 |
Write-offs | (4) | (18) |
Provision | 6 | 3 |
Other | (6) | (12) |
Allowance for credit losses, ending balance | 107 | 111 |
Collectively evaluated for impairment | 39 | 42 |
Individually evaluated for impairment | 68 | 69 |
Growth Markets | ||
Financing Receivables | ||
Ending Balance | 4,627 | 6,581 |
Collectively evaluated for impairment | 4,160 | 6,156 |
Individually evaluated for impairment | 467 | 425 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 450 | 228 |
Write-offs | (35) | (6) |
Provision | 102 | 240 |
Other | (31) | (11) |
Allowance for credit losses, ending balance | 486 | 450 |
Collectively evaluated for impairment | 34 | 39 |
Individually evaluated for impairment | 452 | 411 |
Lease receivables | ||
Financing Receivables | ||
Ending Balance | 6,885 | 7,645 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 165 | 123 |
Allowance for credit losses, ending balance | 222 | 165 |
Lease receivables | Major Markets | ||
Financing Receivables | ||
Ending Balance | 5,404 | 5,702 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 32 | 42 |
Allowance for credit losses, ending balance | 31 | 32 |
Lease receivables | Growth Markets | ||
Financing Receivables | ||
Ending Balance | 1,480 | 1,943 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 133 | 80 |
Allowance for credit losses, ending balance | 191 | 133 |
Loan receivables | ||
Financing Receivables | ||
Ending Balance | 12,214 | 14,687 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 396 | 242 |
Allowance for credit losses, ending balance | 371 | 396 |
Loan receivables | Major Markets | ||
Financing Receivables | ||
Ending Balance | 9,067 | 10,049 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 79 | 95 |
Allowance for credit losses, ending balance | 76 | 79 |
Loan receivables | Growth Markets | ||
Financing Receivables | ||
Ending Balance | 3,147 | 4,639 |
Allowance for Credit Losses | ||
Allowance for credit losses, beginning balance | 317 | 147 |
Allowance for credit losses, ending balance | $ 295 | $ 317 |
Financing Receivables (Detail43
Financing Receivables (Details 3) - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
Financing Receivables on Non-accrual Status | ||
Total Receivables | $ 209 | $ 231 |
Lease receivables | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 70 | 53 |
Lease receivables | Major Markets | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 2 | 13 |
Lease receivables | Growth Markets | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 68 | 40 |
Loan receivables | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 139 | 178 |
Loan receivables | Major Markets | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | 12 | 27 |
Loan receivables | Growth Markets | ||
Financing Receivables on Non-accrual Status | ||
Total Receivables | $ 127 | $ 151 |
Financing Receivables (Detail44
Financing Receivables (Details 4) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Impaired client loan receivables | |||||
Recorded Investment | $ 348 | $ 348 | $ 353 | ||
Related Allowance | 332 | 332 | 340 | ||
Average Recorded Investment | 376 | $ 302 | 371 | $ 256 | |
Interest Income Recognized | 0 | 0 | 0 | 0 | |
Major Markets | |||||
Impaired client loan receivables | |||||
Recorded Investment | 50 | 50 | 54 | ||
Related Allowance | 46 | 46 | 47 | ||
Average Recorded Investment | 51 | 67 | 52 | 72 | |
Interest Income Recognized | 0 | 0 | |||
Growth Markets | |||||
Impaired client loan receivables | |||||
Recorded Investment | 299 | 299 | 299 | ||
Related Allowance | 286 | 286 | $ 293 | ||
Average Recorded Investment | 325 | 235 | 320 | 185 | |
Interest Income Recognized | $ 0 | $ 0 | $ 0 | $ 0 |
Financing Receivables (Detail45
Financing Receivables (Details 5) - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | $ 19,099 | $ 22,332 |
Major Markets | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 14,471 | 15,751 |
Growth Markets | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 4,627 | 6,581 |
Lease receivables | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 6,885 | 7,645 |
Lease receivables | Major Markets | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 5,404 | 5,702 |
Lease receivables | Major Markets | Aaa - Aa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 621 | 563 |
Lease receivables | Major Markets | A1 - A3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 1,170 | 1,384 |
Lease receivables | Major Markets | Baa1 - Baa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 1,502 | 1,704 |
Lease receivables | Major Markets | Ba1 - Ba2 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 1,172 | 1,154 |
Lease receivables | Major Markets | Ba3 - B1 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 500 | 470 |
Lease receivables | Major Markets | B2 - B3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 400 | 372 |
Lease receivables | Major Markets | Caa - D | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 39 | 55 |
Lease receivables | Growth Markets | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 1,480 | 1,943 |
Lease receivables | Growth Markets | Aaa - Aa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 33 | 46 |
Lease receivables | Growth Markets | A1 - A3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 124 | 178 |
Lease receivables | Growth Markets | Baa1 - Baa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 587 | 900 |
Lease receivables | Growth Markets | Ba1 - Ba2 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 229 | 272 |
Lease receivables | Growth Markets | Ba3 - B1 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 260 | 286 |
Lease receivables | Growth Markets | B2 - B3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 171 | 176 |
Lease receivables | Growth Markets | Caa - D | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 76 | 85 |
Loan receivables | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 12,214 | 14,687 |
Loan receivables | Major Markets | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 9,067 | 10,049 |
Loan receivables | Major Markets | Aaa - Aa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 1,042 | 993 |
Loan receivables | Major Markets | A1 - A3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 1,963 | 2,438 |
Loan receivables | Major Markets | Baa1 - Baa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 2,520 | 3,003 |
Loan receivables | Major Markets | Ba1 - Ba2 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 1,966 | 2,034 |
Loan receivables | Major Markets | Ba3 - B1 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 839 | 827 |
Loan receivables | Major Markets | B2 - B3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 672 | 655 |
Loan receivables | Major Markets | Caa - D | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 65 | 98 |
Loan receivables | Growth Markets | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 3,147 | 4,639 |
Loan receivables | Growth Markets | Aaa - Aa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 70 | 110 |
Loan receivables | Growth Markets | A1 - A3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 263 | 425 |
Loan receivables | Growth Markets | Baa1 - Baa3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 1,248 | 2,148 |
Loan receivables | Growth Markets | Ba1 - Ba2 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 488 | 649 |
Loan receivables | Growth Markets | Ba3 - B1 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 553 | 683 |
Loan receivables | Growth Markets | B2 - B3 | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | 365 | 420 |
Loan receivables | Growth Markets | Caa - D | ||
Gross recorded investment for each class of receivables, by credit quality indicator | ||
Total | $ 161 | $ 203 |
Financing Receivables (Detail46
Financing Receivables (Details 6) - Global Financing - Financing Receivable Portfolio | 9 Months Ended | 12 Months Ended |
Sep. 30, 2015 | Dec. 31, 2014 | |
Financial Industry | ||
Financing Receivables by Portfolio Segment | ||
Financing receivables (as a percent) | 37.00% | 40.00% |
Government Industry | ||
Financing Receivables by Portfolio Segment | ||
Financing receivables (as a percent) | 14.00% | 13.00% |
Manufacturing Industry | ||
Financing Receivables by Portfolio Segment | ||
Financing receivables (as a percent) | 14.00% | 14.00% |
Retail Industry | ||
Financing Receivables by Portfolio Segment | ||
Financing receivables (as a percent) | 8.00% | 8.00% |
Services Industry | ||
Financing Receivables by Portfolio Segment | ||
Financing receivables (as a percent) | 9.00% | 9.00% |
Healthcare Industry | ||
Financing Receivables by Portfolio Segment | ||
Financing receivables (as a percent) | 6.00% | 5.00% |
Communications Industry | ||
Financing Receivables by Portfolio Segment | ||
Financing receivables (as a percent) | 7.00% | 6.00% |
Other industries | ||
Financing Receivables by Portfolio Segment | ||
Financing receivables (as a percent) | 5.00% | 5.00% |
Financing Receivables (Detail47
Financing Receivables (Details 7) - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
Past Due Financing Receivable | ||
Current | $ 19,014 | $ 22,250 |
Total Financing Receivables | 19,099 | 22,332 |
Recorded Investment > 90 Days and Accruing | 53 | 47 |
Troubled debt restructurings of financing receivables | 0 | 0 |
Total Past Due >90 days | ||
Past Due Financing Receivable | ||
Total Past Due | 85 | 82 |
Major Markets | ||
Past Due Financing Receivable | ||
Total Financing Receivables | 14,471 | 15,751 |
Growth Markets | ||
Past Due Financing Receivable | ||
Total Financing Receivables | 4,627 | 6,581 |
Lease receivables | ||
Past Due Financing Receivable | ||
Current | 6,845 | 7,607 |
Total Financing Receivables | 6,885 | 7,645 |
Recorded Investment > 90 Days and Accruing | 22 | 20 |
Lease receivables | Total Past Due >90 days | ||
Past Due Financing Receivable | ||
Total Past Due | 39 | 38 |
Lease receivables | Major Markets | ||
Past Due Financing Receivable | ||
Current | 5,397 | 5,696 |
Total Financing Receivables | 5,404 | 5,702 |
Recorded Investment > 90 Days and Accruing | 7 | 6 |
Lease receivables | Major Markets | Total Past Due >90 days | ||
Past Due Financing Receivable | ||
Total Past Due | 7 | 6 |
Lease receivables | Growth Markets | ||
Past Due Financing Receivable | ||
Current | 1,448 | 1,911 |
Total Financing Receivables | 1,480 | 1,943 |
Recorded Investment > 90 Days and Accruing | 15 | 14 |
Lease receivables | Growth Markets | Total Past Due >90 days | ||
Past Due Financing Receivable | ||
Total Past Due | 32 | 32 |
Loan receivables | ||
Past Due Financing Receivable | ||
Current | 12,169 | 14,643 |
Total Financing Receivables | 12,214 | 14,687 |
Recorded Investment > 90 Days and Accruing | 31 | 27 |
Loan receivables | Total Past Due >90 days | ||
Past Due Financing Receivable | ||
Total Past Due | 45 | 44 |
Loan receivables | Major Markets | ||
Past Due Financing Receivable | ||
Current | 9,057 | 10,040 |
Total Financing Receivables | 9,067 | 10,049 |
Recorded Investment > 90 Days and Accruing | 10 | 9 |
Loan receivables | Major Markets | Total Past Due >90 days | ||
Past Due Financing Receivable | ||
Total Past Due | 10 | 9 |
Loan receivables | Growth Markets | ||
Past Due Financing Receivable | ||
Current | 3,112 | 4,603 |
Total Financing Receivables | 3,147 | 4,639 |
Recorded Investment > 90 Days and Accruing | 21 | 18 |
Loan receivables | Growth Markets | Total Past Due >90 days | ||
Past Due Financing Receivable | ||
Total Past Due | $ 35 | $ 35 |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | $ (39) | $ (48) | ||
Stock-based compensation cost, unrecognized, related to non-vested awards | 927 | $ 927 | ||
Stock-based compensation cost, unrecognized, related to non-vested awards, weighted average period of recognition | 2 years 8 months | |||
Capitalized stock-based compensation cost | $ 0 | $ 0 | ||
Continuing Operations | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | 111 | $ 150 | 369 | 416 |
Income tax benefits | (38) | (51) | (124) | (141) |
Total net stock-based compensation cost | 73 | 99 | 244 | 276 |
Restricted Stock Units | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | (7) | (3) | ||
Performance Share Units | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | (31) | (37) | ||
Assumption of stock-based awards previously issued by acquired entities | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost increase (decrease) | (1) | (8) | ||
Cost | Continuing Operations | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | 24 | 33 | 78 | 92 |
Selling, general and administrative expense | Continuing Operations | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | 82 | 105 | 260 | 293 |
Research, development and engineering | Continuing Operations | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | 11 | $ 13 | 37 | 41 |
Other (income) and expense | Continuing Operations | ||||
Stock-based compensation cost, allocation of recognized costs | ||||
Pre-tax stock-based compensation cost | $ (5) | $ (6) | $ (9) |
Segments (Details 1)
Segments (Details 1) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Segment Information | ||||
Revenue | $ 19,280 | $ 22,397 | $ 59,682 | $ 68,680 |
Pre-tax income/(loss) from continuing operations | 3,621 | 4,361 | 10,846 | 12,891 |
Total Segments | ||||
Segment Information | ||||
Revenue | 19,219 | 22,305 | 59,520 | 68,387 |
Global Technology Services | ||||
Segment Information | ||||
Revenue | 7,937 | 8,837 | 23,891 | 26,696 |
Global Business Services | ||||
Segment Information | ||||
Revenue | 4,206 | 4,840 | 12,869 | 14,742 |
Software | ||||
Segment Information | ||||
Revenue | 5,136 | 5,708 | 16,165 | 17,857 |
Systems Hardware | ||||
Segment Information | ||||
Revenue | 1,492 | 2,434 | 5,209 | 7,590 |
Global Financing | ||||
Segment Information | ||||
Revenue | 447 | 487 | 1,386 | 1,502 |
Business Segments | Total Segments | ||||
Segment Information | ||||
Revenue | 21,019 | 24,334 | 65,203 | 74,635 |
Pre-tax income/(loss) from continuing operations | $ 4,384 | $ 5,195 | $ 13,494 | $ 15,386 |
Revenue year-to-year change (as a percent) | (13.60%) | (12.60%) | ||
Pre-tax income year-to-year change (as a percent) | (15.60%) | (12.30%) | ||
Pre-tax income margin (as a percent) | 20.90% | 21.30% | 20.70% | 20.60% |
Business Segments | Global Technology Services | ||||
Segment Information | ||||
Revenue | $ 8,127 | $ 9,089 | $ 24,480 | $ 27,435 |
Pre-tax income/(loss) from continuing operations | $ 1,274 | $ 1,625 | $ 3,516 | $ 4,509 |
Revenue year-to-year change (as a percent) | (10.60%) | (10.80%) | ||
Pre-tax income year-to-year change (as a percent) | (21.60%) | (22.00%) | ||
Pre-tax income margin (as a percent) | 15.70% | 17.90% | 14.40% | 16.40% |
Business Segments | Global Business Services | ||||
Segment Information | ||||
Revenue | $ 4,326 | $ 4,975 | $ 13,249 | $ 15,158 |
Pre-tax income/(loss) from continuing operations | $ 673 | $ 861 | $ 1,926 | $ 2,633 |
Revenue year-to-year change (as a percent) | (13.00%) | (12.60%) | ||
Pre-tax income year-to-year change (as a percent) | (21.80%) | (26.80%) | ||
Pre-tax income margin (as a percent) | 15.60% | 17.30% | 14.50% | 17.40% |
Business Segments | Software | ||||
Segment Information | ||||
Revenue | $ 5,921 | $ 6,570 | $ 18,684 | $ 20,508 |
Pre-tax income/(loss) from continuing operations | $ 1,899 | $ 2,333 | $ 6,107 | $ 6,935 |
Revenue year-to-year change (as a percent) | (9.90%) | (8.90%) | ||
Pre-tax income year-to-year change (as a percent) | (18.60%) | (11.90%) | ||
Pre-tax income margin (as a percent) | 32.10% | 35.50% | 32.70% | 33.80% |
Business Segments | Systems Hardware | ||||
Segment Information | ||||
Revenue | $ 1,613 | $ 2,616 | $ 5,529 | $ 8,131 |
Pre-tax income/(loss) from continuing operations | $ (24) | $ (99) | $ 255 | $ (354) |
Revenue year-to-year change (as a percent) | (38.30%) | (32.00%) | ||
Pre-tax income year-to-year change (as a percent) | (75.60%) | |||
Pre-tax income margin (as a percent) | (1.50%) | (3.80%) | 4.60% | (4.40%) |
Business Segments | Global Financing | ||||
Segment Information | ||||
Revenue | $ 1,031 | $ 1,084 | $ 3,261 | $ 3,403 |
Pre-tax income/(loss) from continuing operations | $ 562 | $ 475 | $ 1,690 | $ 1,664 |
Revenue year-to-year change (as a percent) | (4.90%) | (4.20%) | ||
Pre-tax income year-to-year change (as a percent) | 18.10% | 1.60% | ||
Pre-tax income margin (as a percent) | 54.50% | 43.90% | 51.80% | 48.90% |
Internal transactions | ||||
Segment Information | ||||
Pre-tax income/(loss) from continuing operations | $ (380) | $ (402) | $ (1,294) | $ (1,433) |
Internal transactions | Total Segments | ||||
Segment Information | ||||
Revenue | (1,800) | (2,029) | (5,683) | (6,248) |
Internal transactions | Global Technology Services | ||||
Segment Information | ||||
Revenue | (190) | (252) | (589) | (739) |
Internal transactions | Global Business Services | ||||
Segment Information | ||||
Revenue | (120) | (135) | (380) | (416) |
Internal transactions | Software | ||||
Segment Information | ||||
Revenue | (785) | (862) | (2,519) | (2,652) |
Internal transactions | Systems Hardware | ||||
Segment Information | ||||
Revenue | (121) | (182) | (320) | (541) |
Internal transactions | Global Financing | ||||
Segment Information | ||||
Revenue | $ (584) | $ (598) | $ (1,874) | $ (1,900) |
Segments (Revenue by segments)
Segments (Revenue by segments) (Details 2) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Revenue | ||||
Revenue | $ 19,280 | $ 22,397 | $ 59,682 | $ 68,680 |
Total Segments | ||||
Revenue | ||||
Revenue | 19,219 | 22,305 | 59,520 | 68,387 |
Total reportable segments | Total Segments | ||||
Revenue | ||||
Revenue | 21,019 | 24,334 | 65,203 | 74,635 |
Eliminations of internal transactions | Total Segments | ||||
Revenue | ||||
Revenue | (1,800) | (2,029) | (5,683) | (6,248) |
Other revenue | ||||
Revenue | ||||
Revenue | $ 60 | $ 92 | $ 162 | $ 292 |
Segments (Segment reconciliatio
Segments (Segment reconciliations) (Details 3) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Pre-tax Income from continuing operations | ||||
Income from continuing operations before income taxes | $ 3,621 | $ 4,361 | $ 10,846 | $ 12,891 |
Total reportable segments | Total Segments | ||||
Pre-tax Income from continuing operations | ||||
Income from continuing operations before income taxes | 4,384 | 5,195 | 13,494 | 15,386 |
Pre-tax reconciliations items | ||||
Pre-tax Income from continuing operations | ||||
Amortization of acquired intangible assets | (162) | (201) | (492) | (596) |
Acquisition-related charges | (4) | 0 | (11) | (10) |
Non-operating retirement-related (costs)/income | (204) | (71) | (831) | (246) |
Eliminations of internal transactions | ||||
Pre-tax Income from continuing operations | ||||
Income from continuing operations before income taxes | (380) | (402) | (1,294) | (1,433) |
Unallocated corporate amounts | ||||
Pre-tax Income from continuing operations | ||||
Income from continuing operations before income taxes | $ (14) | $ (160) | $ (19) | $ (209) |
Equity Activity (Details 1)
Equity Activity (Details 1) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Other comprehensive income/(loss), before tax: | ||||
Foreign currency translation adjustments, before tax | $ (1,015) | $ (1,126) | $ (1,365) | $ (848) |
Net changes related to available-for-sale securities, before tax: | ||||
Unrealized gains/(losses) arising during the period, before tax | (102) | 0 | (85) | 1 |
Reclassification of (gains)/losses to other (income) and expense, before tax | 0 | 0 | 0 | 5 |
Total net changes related to available-for-sale securities | (101) | 0 | (85) | 6 |
Unrealized gains/(losses) on cash flow hedges, before tax: | ||||
Unrealized gains/(losses) arising during the period, before tax | 36 | 524 | 467 | 596 |
Reclassification of (gains)/losses to net income, before tax | (273) | 58 | (843) | 91 |
Total unrealized gains/(losses) on cash flow hedges | (237) | 582 | (376) | 687 |
Retirement-related benefit plans, before tax: | ||||
Prior service costs/(credits), before tax | 0 | 0 | 6 | 1 |
Net (losses)/gains arising during the period, before tax | (2) | 1 | 14 | 48 |
Curtailments and settlements, before taxes | 11 | 7 | 19 | 20 |
Amortization of prior service (credits)/costs, before tax | (25) | (29) | (76) | (88) |
Amortization of net (gains)/losses, before tax | 823 | 635 | 2,479 | 1,923 |
Total retirement-related benefit plans | 807 | 615 | 2,441 | 1,905 |
Other comprehensive income/(loss), before tax | (547) | 71 | 616 | 1,749 |
Other comprehensive income/(loss), tax: | ||||
Foreign currency translation adjustments, tax | (28) | (271) | (227) | (241) |
Net changes related to available-for-sale securities, tax: | ||||
Unrealized gains/(losses) arising during the period, tax | 39 | 0 | 33 | 0 |
Total net changes related to available-for-sale securities, tax | 39 | 0 | 33 | (2) |
Unrealized gains/(losses) on cash flow hedges, tax: | ||||
Unrealized gains/(losses) arising during the period, tax | (9) | (182) | (166) | (213) |
Total unrealized gains/(losses) on cash flow hedges, tax | 88 | (204) | 132 | (244) |
Retirement-related benefit plans, tax: | ||||
Prior service costs/(credits), tax | 0 | 0 | (2) | 0 |
Net (losses)/gains arising during the period, tax | 1 | 0 | (5) | (16) |
Curtailments and settlements, tax | (4) | (2) | (6) | (7) |
Amortization of prior service (credits)/costs, tax | 8 | 10 | 26 | 29 |
Amortization of net (gains)/losses, tax | (281) | (212) | (846) | (644) |
Total retirement-related benefit plans, tax | (275) | (205) | (833) | (638) |
Other comprehensive income/(loss), tax | (176) | (680) | (895) | (1,126) |
Other comprehensive income/(loss), net of tax: | ||||
Foreign currency translation adjustments, net of tax | (1,043) | (1,397) | (1,593) | (1,090) |
Net changes related to available-for-sale securities, net of tax: | ||||
Unrealized gains/(losses) arising during the period, net of tax | (63) | 0 | (52) | 1 |
Reclassification of (gains)/losses to other (income) and expense, net of tax | 0 | 0 | 0 | 3 |
Total net changes related to available-for-sale securities, net of tax | (62) | 0 | (52) | 4 |
Unrealized gains/(losses) on cash flow hedges, net of tax: | ||||
Unrealized gains/(losses) arising during the period, net of tax | 27 | 342 | 301 | 383 |
Total unrealized gains/(losses) on cash flow hedges, net of tax | (149) | 378 | (243) | 443 |
Retirement-related benefit plans, net of tax: | ||||
Prior service costs/(credits), net of tax | 0 | 0 | 4 | 0 |
Net (losses)/gains arising during the period, net of tax | (1) | 1 | 9 | 32 |
Curtailments and settlements, net of tax | 7 | 5 | 12 | 14 |
Amortization of prior service (credits)/costs, net of tax | (16) | (19) | (50) | (58) |
Amortization of net (gains)/losses, net of tax | 542 | 423 | 1,633 | 1,279 |
Total retirement-related benefit plans, net of tax | 531 | 409 | 1,608 | 1,266 |
Other comprehensive income/(loss) | (724) | (609) | (280) | 623 |
Cost of sales | ||||
Unrealized gains/(losses) on cash flow hedges, before tax: | ||||
Reclassification of (gains)/losses to net income, before tax | (46) | 4 | (154) | 53 |
Unrealized gains/(losses) on cash flow hedges, tax: | ||||
Reclassification of (gains)/losses to net income, tax | 13 | (1) | 46 | (18) |
Unrealized gains/(losses) on cash flow hedges, net of tax: | ||||
Reclassification of (gains)/losses to net income, net of tax | (33) | 3 | (109) | 35 |
SG&A expense | ||||
Unrealized gains/(losses) on cash flow hedges, before tax: | ||||
Reclassification of (gains)/losses to net income, before tax | (43) | (3) | (124) | 5 |
Unrealized gains/(losses) on cash flow hedges, tax: | ||||
Reclassification of (gains)/losses to net income, tax | 13 | 1 | 36 | 0 |
Unrealized gains/(losses) on cash flow hedges, net of tax: | ||||
Reclassification of (gains)/losses to net income, net of tax | (30) | (2) | (88) | 5 |
Other (income) and expense | ||||
Net changes related to available-for-sale securities, before tax: | ||||
Reclassification of (gains)/losses to other (income) and expense, before tax | 0 | 0 | 0 | 5 |
Unrealized gains/(losses) on cash flow hedges, before tax: | ||||
Reclassification of (gains)/losses to net income, before tax | (185) | 57 | (565) | 33 |
Net changes related to available-for-sale securities, tax: | ||||
Reclassification of (gains)/losses to other (income) and expense, tax | 0 | 0 | 0 | (2) |
Unrealized gains/(losses) on cash flow hedges, tax: | ||||
Reclassification of (gains)/losses to net income, tax | 71 | (22) | 217 | (13) |
Net changes related to available-for-sale securities, net of tax: | ||||
Reclassification of (gains)/losses to other (income) and expense, net of tax | 0 | 0 | 0 | 3 |
Unrealized gains/(losses) on cash flow hedges, net of tax: | ||||
Reclassification of (gains)/losses to net income, net of tax | (114) | 35 | (348) | 20 |
Interest expense | ||||
Unrealized gains/(losses) on cash flow hedges, before tax: | ||||
Reclassification of (gains)/losses to net income, before tax | 0 | 1 | 0 | 1 |
Unrealized gains/(losses) on cash flow hedges, tax: | ||||
Reclassification of (gains)/losses to net income, tax | 0 | 0 | 0 | 0 |
Unrealized gains/(losses) on cash flow hedges, net of tax: | ||||
Reclassification of (gains)/losses to net income, net of tax | $ 0 | $ 1 | $ 0 | $ 1 |
Equity Activity (Details 2)
Equity Activity (Details 2) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Accumulated Other Comprehensive Income (Loss) Net of Tax | ||||
Balance at the Beginning of the Period | $ (27,875) | $ (21,602) | ||
Other comprehensive income before reclassifications | (1,319) | (674) | ||
Amount reclassified from accumulated other comprehensive income | 1,039 | 1,299 | ||
Total change for the period | $ (724) | $ (609) | (280) | 623 |
Balance at the End of the Period | (28,155) | (20,978) | (28,155) | (20,978) |
Net Unrealized Gains/(Losses) on Cash Flow Hedges | ||||
Accumulated Other Comprehensive Income (Loss) Net of Tax | ||||
Balance at the Beginning of the Period | 392 | (165) | ||
Other comprehensive income before reclassifications | 301 | 383 | ||
Amount reclassified from accumulated other comprehensive income | (544) | 61 | ||
Total change for the period | (243) | 443 | ||
Balance at the End of the Period | 148 | 277 | 148 | 277 |
Foreign Currency Translation Adjustments | ||||
Accumulated Other Comprehensive Income (Loss) Net of Tax | ||||
Balance at the Beginning of the Period | (1,742) | 332 | ||
Other comprehensive income before reclassifications | (1,593) | (1,090) | ||
Amount reclassified from accumulated other comprehensive income | 0 | 0 | ||
Total change for the period | (1,593) | (1,090) | ||
Balance at the End of the Period | (3,335) | (758) | (3,335) | (758) |
Net Change Retirement-Related Benefit Plans | ||||
Accumulated Other Comprehensive Income (Loss) Net of Tax | ||||
Balance at the Beginning of the Period | (26,509) | (21,767) | ||
Other comprehensive income before reclassifications | 25 | 32 | ||
Amount reclassified from accumulated other comprehensive income | 1,583 | 1,235 | ||
Total change for the period | 1,608 | 1,267 | ||
Balance at the End of the Period | (24,901) | (20,501) | (24,901) | (20,501) |
Net Unrealized Gains/(Losses) on Available-For-Sale Securities | ||||
Accumulated Other Comprehensive Income (Loss) Net of Tax | ||||
Balance at the Beginning of the Period | (15) | (1) | ||
Other comprehensive income before reclassifications | (52) | 1 | ||
Amount reclassified from accumulated other comprehensive income | 0 | 3 | ||
Total change for the period | (52) | 4 | ||
Balance at the End of the Period | $ (67) | $ 3 | $ (67) | $ 3 |
Retirement-Related Benefits (De
Retirement-Related Benefits (Details 1) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Retirement-Related Benefits: | ||||
Defined benefit and contribution pension plans - cost | $ 505 | $ 408 | $ 1,747 | $ 1,280 |
Nonpension postretirement plans - cost | 68 | 67 | 206 | 204 |
Total | $ 573 | $ 475 | $ 1,953 | $ 1,484 |
Year-to-year percent change, defined benefit and contribution pension plans cost (as a percent) | 23.90% | 36.50% | ||
Year-to-year percent change, Nonpension postretirement plans cost (as a percent) | 0.30% | 0.90% | ||
Year-to-year percent change, total (as a percent) | 20.60% | 31.60% |
Retirement-Related Benefits (55
Retirement-Related Benefits (Details 2) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Retirement-related plans cost | ||||
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings | $ 505 | $ 408 | $ 1,747 | $ 1,280 |
U.S. Defined Benefit Pension Plans | ||||
Retirement-related plans cost | ||||
Interest cost | 507 | 553 | 1,521 | 1,659 |
Expected return on plan assets | (988) | (1,024) | (2,965) | (3,072) |
Amortization of prior service costs/(credits) | 2 | 2 | 7 | 7 |
Recognized actuarial losses | 414 | 264 | 1,241 | 792 |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | (65) | (205) | (196) | (614) |
Non-US Defined Benefit Pension Plans | ||||
Retirement-related plans cost | ||||
Service cost | 116 | 113 | 339 | 346 |
Interest cost | 270 | 385 | 810 | 1,170 |
Expected return on plan assets | (481) | (565) | (1,446) | (1,715) |
Amortization of prior service costs/(credits) | (24) | (28) | (74) | (85) |
Recognized actuarial losses | 392 | 351 | 1,186 | 1,072 |
Curtailments and settlements | 11 | 7 | 19 | 20 |
Multi-employer plans/other costs | 16 | 36 | 272 | 131 |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | 300 | 300 | 1,107 | 938 |
U.S. Defined Benefit Non Pension Postretirement Plans | ||||
Retirement-related plans cost | ||||
Service cost | 6 | 7 | 18 | 20 |
Interest cost | 41 | 47 | 122 | 140 |
Amortization of prior service costs/(credits) | (2) | (2) | (6) | (6) |
Recognized actuarial losses | 10 | 0 | 29 | 0 |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | 55 | 51 | 164 | 154 |
Non-U.S. Defined Benefit Non Pension Postretirement Plans | ||||
Retirement-related plans cost | ||||
Service cost | 2 | 1 | 5 | 5 |
Interest cost | 12 | 16 | 39 | 48 |
Expected return on plan assets | (2) | (2) | (5) | (7) |
Amortization of prior service costs/(credits) | (1) | (1) | (4) | (4) |
Recognized actuarial losses | 2 | 3 | 7 | 8 |
Curtailments and settlements | 0 | 0 | 0 | 0 |
Total net periodic pension / nonpension (income)/cost of defined benefit plans | $ 13 | $ 16 | $ 42 | $ 50 |
Retirement-Related Benefits (56
Retirement-Related Benefits (Details 3) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Defined Contribution Plan Disclosure | ||||
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings, U.S. Plans | $ 96 | $ (25) | $ 304 | $ (60) |
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings, Non-U.S. Plans | 409 | 433 | 1,443 | 1,340 |
Total defined benefit and contribution plans cost recognized in the Consolidated Statement of Earnings | 505 | 408 | 1,747 | 1,280 |
U.S. Defined Contribution Pension Plans | ||||
Defined Contribution Plan Disclosure | ||||
Cost of defined contribution plans | 162 | 179 | 500 | 554 |
Non-US Defined Contribution Pension Plans | ||||
Defined Contribution Plan Disclosure | ||||
Cost of defined contribution plans | $ 109 | $ 133 | $ 335 | $ 402 |
Retirement-Related Benefits (Na
Retirement-Related Benefits (Narrative) (Details 4) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
Sep. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Mar. 31, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Non-U.S. Defined Benefit and Multi-employer Plan | ||||||||
Expected current year contributions to non-U.S. defined benefit plans | $ 600 | |||||||
Year-to-date contributions to non-U.S. defined benefit plans | 271 | |||||||
Non-US Defined Benefit Pension Plans | ||||||||
Multi-employer plans/other costs | $ 16 | $ 36 | $ 272 | $ 131 | ||||
Non-US Defined Benefit Pension Plans | SG&A expense | Litigation in Spain regarding defined benefit and defined contribution plans | ||||||||
Multi-employer plans/other costs | $ 230 | $ 73 | $ 20 | $ 55 | $ 148 |
Acquisitions_Divestitures (Narr
Acquisitions/Divestitures (Narratives) (Details 1) $ in Millions | 9 Months Ended | ||
Sep. 30, 2015USD ($)Acquisition | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) | |
Acquisitions: | |||
Businesses acquired, number (in entities) | Acquisition | 7 | ||
Businesses acquired, aggregate cost | $ 782 | ||
Goodwill | 30,275 | $ 30,556 | $ 31,184 |
Software | |||
Acquisitions: | |||
Goodwill | $ 20,957 | 21,000 | 21,121 |
Businesses acquired, privately held companies number (in entities) | Acquisition | 6 | ||
Global Technology Services | |||
Acquisitions: | |||
Goodwill | $ 3,506 | $ 3,530 | $ 3,608 |
Businesses acquired, privately held companies number (in entities) | Acquisition | 1 | ||
Acquisitions | |||
Acquisitions: | |||
Acquired intangible asset, weighted average useful life | 5 years 10 months | ||
Expected percent of goodwill deductible for tax purposes | 1.00% | ||
Total purchase price | $ 782 | ||
Goodwill | 637 | ||
Acquisitions | Software | |||
Acquisitions: | |||
Goodwill | 574 | ||
Acquisitions | Global Technology Services | |||
Acquisitions: | |||
Goodwill | $ 62 |
Acquisitions_Divestitures (Purc
Acquisitions/Divestitures (Purchase Price allocation) (Details 2) - USD ($) $ in Millions | Oct. 13, 2015 | Sep. 30, 2015 | Dec. 31, 2014 | Dec. 31, 2013 |
Acquisitions: | ||||
Goodwill | $ 30,275 | $ 30,556 | $ 31,184 | |
Business enterprise value | 782 | |||
Acquisitions | ||||
Acquisitions: | ||||
Current assets | 20 | |||
Fixed assets/noncurrent assets | 63 | |||
Goodwill | 637 | |||
Total assets acquired | 851 | |||
Current liabilities | (16) | |||
Noncurrent liabilities | (53) | |||
Total liabilities assumed | (70) | |||
Total purchase price | $ 782 | |||
Acquired intangible asset, weighted average useful life | 5 years 10 months | |||
Acquisitions | Completed technology | ||||
Acquisitions: | ||||
Intangible assets | $ 79 | |||
Acquisitions | Completed technology | Minimum | ||||
Acquisitions: | ||||
Acquired intangible asset, weighted average useful life | 5 years | |||
Acquisitions | Completed technology | Maximum | ||||
Acquisitions: | ||||
Acquired intangible asset, weighted average useful life | 7 years | |||
Acquisitions | Client relationships | ||||
Acquisitions: | ||||
Intangible assets | $ 41 | |||
Acquired intangible asset, weighted average useful life | 7 years | |||
Acquisitions | Patents/trademarks | ||||
Acquisitions: | ||||
Intangible assets | $ 12 | |||
Acquisitions | Patents/trademarks | Minimum | ||||
Acquisitions: | ||||
Acquired intangible asset, weighted average useful life | 2 years | |||
Acquisitions | Patents/trademarks | Maximum | ||||
Acquisitions: | ||||
Acquired intangible asset, weighted average useful life | 5 years | |||
Merge Healthcare Incorporated | Subsequent event | Estimated | ||||
Acquisitions: | ||||
Business enterprise value | $ 1,000 |
Acquisitions_Divestitures (Dive
Acquisitions/Divestitures (Divestitures) (Details 3) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Income Statement Disclosures | |||||
Loss from discontinued operations, net of tax | $ (12) | $ (3,437) | $ (176) | $ (3,698) | |
Microelectronics business | Discontinued operations | |||||
Income Statement Disclosures | |||||
Total revenue | 360 | 720 | 925 | ||
Income/(loss) from discontinued operations | 2 | (141) | (177) | (520) | |
Loss on disposal | (57) | (4,697) | (108) | (4,697) | |
Total loss from discontinued operations, before income taxes | (54) | (4,838) | (285) | (5,217) | |
Provision/(benefit) for income taxes | (43) | (1,401) | (108) | (1,519) | |
Loss from discontinued operations, net of tax | $ (12) | $ (3,437) | $ (176) | $ (3,698) | |
Assets: | |||||
Accounts receivable | $ 245 | ||||
Inventory | 380 | ||||
Other assets | 92 | ||||
Total assets | 717 | ||||
Liabilities: | |||||
Accounts payable | 177 | ||||
Deferred income | 87 | ||||
Other liabilities | 163 | ||||
Total liabilities | $ 427 |
Acquisitions_Divestitures (Di61
Acquisitions/Divestitures (Divestitures) (Details 4) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Discontinued Operations | ||||
Impairment of long-lived asstes | $ 0 | |||
Microelectronics business | ||||
Discontinued Operations | ||||
Description of continuing involvement after transaction | The transaction includes a 10-year exclusive manufacturing sourcing agreement in which GLOBALFOUNDRIES will provide server processor semiconductor technology for use in IBM Systems. The agreement provides the company with capacity and market-based pricing for current semiconductor nodes in production and progression to nodes in the future for both development and production needs. As part of the transaction, the company will provide GLOBALFOUNDRIES with certain transition services, including IT, supply chain, packaging and test services and lab services. The initial term for these transition services is one to three years, with GLOBALFOUNDRIES having the ability to renew. | |||
Discontinued operation, period of exclusive manufacturing agreement after disposal | 10 years | |||
Total cash consideration expected to be transferred to acquiring company | $ 1,500 | $ 1,500 | ||
Other related costs | 800 | |||
Cumulative pre-tax gain(loss) on sale of business | $ (4,800) | |||
Net cash transferred | $ 515 | |||
Cash consideration payable at closing date | 750 | $ 750 | ||
Period of time over which cash consideration is expected to be transferred | 3 years | |||
Microelectronics business | Discontinued operations | ||||
Discontinued Operations | ||||
Pre-tax charge related to sale | $ 57 | 4,697 | $ 108 | $ 4,697 |
Impairment of long-lived asstes | $ 2,400 | |||
Microelectronics business | Minimum | ||||
Discontinued Operations | ||||
Discontinued operation, period of continuing involvement after disposal | 1 year | |||
Microelectronics business | Maximum | ||||
Discontinued Operations | ||||
Discontinued operation, period of continuing involvement after disposal | 3 years |
Acquisitions_Divestitures (Di62
Acquisitions/Divestitures (Divestitures) (Details 5) - Disposal group disposed of by sale, not discontinued operations - USD ($) $ in Millions | Jan. 23, 2014 | Sep. 10, 2013 | Apr. 17, 2012 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2015 | Dec. 31, 2014 |
Industry Standard x86 Server Portfolio | |||||||||
Divestitures | |||||||||
Disposal group, not discontinued operation, period of renewal of continuing involvement after transition services completed | 1 year | ||||||||
Transaction price for sale of business | $ 2,100 | ||||||||
Approximate amount of transaction price received in cash | $ 1,800 | ||||||||
Pre-tax gain/(loss) on sale of business | $ 0 | $ 36 | $ 16 | ||||||
Pre-tax gain on sale of business, net of transition and performance-based costs | $ 1,100 | ||||||||
Industry Standard x86 Server Portfolio | Estimated | |||||||||
Divestitures | |||||||||
Pre-tax gain/(loss) on sale of business | $ 1,500 | ||||||||
Pre-tax gain on sale of business, net of transition and performance-based costs | $ 1,200 | ||||||||
Industry Standard x86 Server Portfolio | Maximum | |||||||||
Divestitures | |||||||||
Disposal group, not discontinued operation, period of continuing involvement after disposal | 3 years | ||||||||
Equity Ownership percent acquired | 5.00% | ||||||||
Customer Care Business Process Outsourcing Services | |||||||||
Divestitures | |||||||||
Transaction price for sale of business | $ 501 | ||||||||
Approximate amount of transaction price received in cash | 430 | ||||||||
Noncash consideration received on sale of business | $ 71 | ||||||||
Pre-tax gain/(loss) on sale of business | 2 | $ 202 | |||||||
Cumulative pre-tax gain/(loss) on sale of business | $ 210 | ||||||||
Customer Care Business Process Outsourcing Services | Maximum | |||||||||
Divestitures | |||||||||
Equity Ownership percent acquired | 5.00% | ||||||||
Retail Stores Solutions business | |||||||||
Divestitures | |||||||||
Pre-tax gain/(loss) on sale of business | $ 8 | ||||||||
Ownership retention period | 3 years | ||||||||
Cumulative pre-tax gain/(loss) on sale of business | $ 518 |
Intangible Assets Including G63
Intangible Assets Including Goodwill (Details 1) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Intangible Assets Including Goodwill: | ||||
Net carrying amount increase/(decrease) | $ (328) | |||
Intangible asset amortization expense | $ 290 | $ 339 | 884 | $ 1,018 |
Intangible assets retired and fully amortized | $ 1,608 |
Intangible Assets Including G64
Intangible Assets Including Goodwill (Details 2) - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | $ 5,753 | $ 6,806 |
Accumulated Amortization | (2,977) | (3,702) |
Net Carrying Amount | 2,775 | 3,104 |
Capitalized software | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 1,329 | 1,375 |
Accumulated Amortization | (593) | (679) |
Net Carrying Amount | 736 | 696 |
Client relationships | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 1,670 | 2,208 |
Accumulated Amortization | (886) | (1,271) |
Net Carrying Amount | 784 | 937 |
Completed technology | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 2,431 | 2,831 |
Accumulated Amortization | (1,333) | (1,533) |
Net Carrying Amount | 1,098 | 1,298 |
Patents/trademarks | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 291 | 374 |
Accumulated Amortization | (156) | (214) |
Net Carrying Amount | 134 | 161 |
Other | ||
Intangible asset balances by major asset class: | ||
Gross Carrying Amount | 32 | 18 |
Accumulated Amortization | (9) | (6) |
Net Carrying Amount | $ 23 | $ 12 |
Intangible Assets Including G65
Intangible Assets Including Goodwill (Details 3) $ in Millions | Sep. 30, 2015USD ($) |
Future amortization expense, by year | |
2015 (for Q4) | $ 289 |
2,016 | 994 |
2,017 | 718 |
2,018 | 402 |
2,019 | 231 |
Capitalized Software | |
Future amortization expense, by year | |
2015 (for Q4) | 122 |
2,016 | 369 |
2,017 | 200 |
2,018 | 45 |
Acquired Intangibles | |
Future amortization expense, by year | |
2015 (for Q4) | 167 |
2,016 | 625 |
2,017 | 518 |
2,018 | 358 |
2,019 | $ 231 |
Intangible Assets Including G66
Intangible Assets Including Goodwill (Details 4) - USD ($) $ in Millions | 9 Months Ended | 12 Months Ended |
Sep. 30, 2015 | Dec. 31, 2014 | |
Changes in Goodwill Balances | ||
Beginning Balance | $ 30,556 | $ 31,184 |
Goodwill Additions | 637 | 442 |
Purchase Price Adjustments | (1) | 4 |
Divestitures | (9) | (183) |
Foreign Currency Translation and Other Adjustments | (907) | (891) |
Ending Balance | 30,275 | 30,556 |
Goodwill impairment losses | 0 | 0 |
Goodwill accumulated impairment losses | 0 | 0 |
Global Business Services | ||
Changes in Goodwill Balances | ||
Beginning Balance | 4,555 | 4,855 |
Purchase Price Adjustments | 0 | 0 |
Divestitures | (1) | (52) |
Foreign Currency Translation and Other Adjustments | (187) | (248) |
Ending Balance | 4,367 | 4,555 |
Global Technology Services | ||
Changes in Goodwill Balances | ||
Beginning Balance | 3,530 | 3,608 |
Goodwill Additions | 62 | 11 |
Purchase Price Adjustments | 0 | 21 |
Divestitures | (2) | |
Foreign Currency Translation and Other Adjustments | (86) | (108) |
Ending Balance | 3,506 | 3,530 |
Software | ||
Changes in Goodwill Balances | ||
Beginning Balance | 21,000 | 21,121 |
Goodwill Additions | 574 | 430 |
Purchase Price Adjustments | (1) | (17) |
Divestitures | (8) | (19) |
Foreign Currency Translation and Other Adjustments | (608) | (516) |
Ending Balance | 20,957 | 21,000 |
Systems Hardware | ||
Changes in Goodwill Balances | ||
Beginning Balance | 1,472 | 1,601 |
Divestitures | (110) | |
Foreign Currency Translation and Other Adjustments | (27) | (19) |
Ending Balance | $ 1,445 | $ 1,472 |
Borrowings (Short-Term Debt) (D
Borrowings (Short-Term Debt) (Details 1) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2015 | Dec. 31, 2014 | |
Borrowings | ||
Commercial paper | $ 1,600 | $ 650 |
Short-term loans | 653 | 480 |
Long-term debt - current maturities | 5,286 | 4,601 |
Short Term Debt | 7,538 | $ 5,731 |
Default provision on credit facility | $ 500 | |
Debt Disclosure | ||
Limit based on Net Tangible Assets | 10.00% | |
Net interest expense ratio | 2.2 | |
Commercial paper | ||
Debt Disclosure | ||
Weighted-average interest rates for short-term loans (as a percent) | 0.10% | 0.10% |
Short-term loans | ||
Debt Disclosure | ||
Weighted-average interest rates for short-term loans (as a percent) | 5.10% | 4.00% |
Borrowings (Pre-Swap Borrowing)
Borrowings (Pre-Swap Borrowing) (Details 2) - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 37,343 | $ 39,737 |
Less: net unamortized discount | 840 | 853 |
Add: fair value adjustment | 904 | 792 |
Long-Term Debt, including current portion | 37,407 | 39,675 |
Less: current maturities | 5,286 | 4,601 |
Total long-term debt (excluding current portion) | 32,122 | 35,073 |
U.S. dollar notes and debentures | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | 29,420 | 31,404 |
1.41% Notes and Debentures, maturing in 2015-2016 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 5,274 | 9,254 |
Debt instrument, stated interest rate percentage (as a percent) | 1.41% | |
3.91% Notes and Debentures, maturing in 2017-2018 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 8,773 | 6,835 |
Debt instrument, stated interest rate percentage (as a percent) | 3.91% | |
2.24% Notes and Debentures, maturing in 2019-2021 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 6,613 | 6,555 |
Debt instrument, stated interest rate percentage (as a percent) | 2.24% | |
1.88% Notes and Debentures, maturing in 2022 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 1,000 | 1,000 |
Debt instrument, stated interest rate percentage (as a percent) | 1.88% | |
3.38% Notes and Debentures, maturing in 2023 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 1,500 | 1,500 |
Debt instrument, stated interest rate percentage (as a percent) | 3.38% | |
3.63% Notes and Debentures, maturing in 2024 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 2,000 | 2,000 |
Debt instrument, stated interest rate percentage (as a percent) | 3.63% | |
7.00% Notes and Debentures, maturing in 2025 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 600 | 600 |
Debt instrument, stated interest rate percentage (as a percent) | 7.00% | |
6.22% Notes and Debentures, maturing in 2027 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 469 | 469 |
Debt instrument, stated interest rate percentage (as a percent) | 6.22% | |
6.50% Notes and Debentures, maturing in 2028 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 313 | 313 |
Debt instrument, stated interest rate percentage (as a percent) | 6.50% | |
5.88% Notes and Debentures, maturing in 2032 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 600 | 600 |
Debt instrument, stated interest rate percentage (as a percent) | 5.88% | |
8.00% Notes and Debentures, maturing in 2038 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 83 | 83 |
Debt instrument, stated interest rate percentage (as a percent) | 8.00% | |
5.60% Notes and Debentures, maturing in 2039 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 745 | 745 |
Debt instrument, stated interest rate percentage (as a percent) | 5.60% | |
4.00% Notes and Debentures, maturing in 2042 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 1,107 | 1,107 |
Debt instrument, stated interest rate percentage (as a percent) | 4.00% | |
7.00% Notes and Debentures, maturing in 2045 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 27 | 27 |
Debt instrument, stated interest rate percentage (as a percent) | 7.00% | |
7.13% Notes and Debentures, maturing in 2096 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 316 | 316 |
Debt instrument, stated interest rate percentage (as a percent) | 7.13% | |
1.8% Euros maturing in 2015 - 2025 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 5,033 | 5,463 |
Debt instrument, stated interest rate percentage (as a percent) | 1.80% | |
2.7% Pound sterling maturing in 2017 - 2020 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 1,597 | 1,176 |
Debt instrument, stated interest rate percentage (as a percent) | 2.70% | |
0.5% Japanese yen maturing in 2017-2019 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 734 | 733 |
Debt instrument, stated interest rate percentage (as a percent) | 0.50% | |
6.3% Swiss francs maturing in 2020 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 10 | 162 |
Debt instrument, stated interest rate percentage (as a percent) | 6.30% | |
2.2% Canadian Maturing 2017 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 373 | 432 |
Debt instrument, stated interest rate percentage (as a percent) | 2.20% | |
10.9% Other maturing in 2015-2020 | ||
Debt Disclosure | ||
Aggregate carrying amount of long-term borrowings before adjusting for unamortized discount and fair value adjustment | $ 176 | $ 367 |
Debt instrument, stated interest rate percentage (as a percent) | 10.90% |
Borrowings (Details 3)
Borrowings (Details 3) - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
Borrowings | ||
Long-Term Debt, including current portion | $ 37,407 | $ 39,675 |
Less: current maturities | 5,286 | 4,601 |
Total long-term debt (excluding current portion) | $ 32,122 | $ 35,073 |
Borrowings (Pre-Swap Maturities
Borrowings (Pre-Swap Maturities) (Details 4) - USD ($) $ in Millions | Sep. 30, 2015 | Dec. 31, 2014 |
Pre-swap annual contractual maturities of long-term debt outstanding | ||
2015 (for Q4) | $ 68 | |
2,016 | 5,257 | |
2,017 | 5,345 | |
2,018 | 4,673 | |
2,019 | 4,023 | |
2020 and beyond | 17,977 | |
Total | $ 37,343 | $ 39,737 |
Borrowings (Interest on Debt) (
Borrowings (Interest on Debt) (Details 5) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
Interest on Debt | ||
Cost of financing | $ 407 | $ 407 |
Interest expense | 346 | 366 |
Net investment derivative activity | (6) | 1 |
Interest capitalized | (1) | 3 |
Total interest paid and accrued | $ 746 | $ 777 |
Contingencies (Details)
Contingencies (Details) $ in Millions | Jul. 25, 2013 | Jul. 18, 2012USD ($) | Feb. 13, 2014USD ($) | Sep. 30, 2015USD ($)CountryClaimDefendant |
Loss Contingencies | ||||
Clients presence in number of countries | Country | 175 | |||
Foreign Tax Authority | Brazil | ||||
Loss Contingencies | ||||
Loss contingency, estimate of possible loss | $ 450 | |||
Litigation in Spain regarding defined benefit and defined contribution plans | Spain | ||||
Loss Contingencies | ||||
Number of years an outdated pension plan was elected to be foregone by employees (in years) | 20 years | |||
Litigation Case In United States District Court regarding divesting Microelectronics business | ||||
Loss Contingencies | ||||
Number of defendants | Defendant | 3 | |||
Litigation Case In United States District Court regarding divesting Microelectronics business, alleging violations of the Employee Retirement Income Security Act | ||||
Loss Contingencies | ||||
Number of defendants | Defendant | 3 | |||
Former IBM UK Defined Benefit Plan Participants | IBM United Kingdom Limited | ||||
Loss Contingencies | ||||
Claims pending | Claim | 290 | |||
Loss contingency, estimate of possible loss | $ 250 | |||
Number of representative beneficiaries of the UK Trust membership | Defendant | 2 | |||
Civil enforcement action with the SEC | ||||
Loss Contingencies | ||||
Period for which reports are to be submitted to SEC and court on certain matters, including those relating to compliance with the FCPA | 2 years | |||
State of Indiana | Pending Litigation | ||||
Loss Contingencies | ||||
Amount of settlement to be (paid)/received | $ 52 | $ 50 |
Commitments (Details 1)
Commitments (Details 1) - USD ($) $ in Millions | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Movement in standard warranty liability | |||
Beginning Balance | $ 197 | $ 376 | |
Current period accruals | 117 | 186 | |
Accrual adjustments to reflect actual experience | 4 | 6 | |
Charges incurred | (147) | (252) | |
Ending Balance | 172 | $ 316 | |
Extended lines of credit | |||
Commitments, guarantees: | |||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | 5,972 | $ 5,365 | |
Financing for client purchase agreements | |||
Commitments, guarantees: | |||
Unused amounts in lines of credit to third-party entities and commitments for future financing to clients | 1,888 | 1,816 | |
Financial guarantees | |||
Commitments, guarantees: | |||
Guarantor obligations, maximum exposure | $ 35 | $ 46 |
Commitments (Details 2)
Commitments (Details 2) - USD ($) $ in Millions | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Deferred revenue: | |||
Deferred income, current portion | $ 10,458 | $ 11,877 | |
Deferred income, noncurrent portion | 3,593 | $ 3,691 | |
Extended warranty | |||
Movement in extended warranty liability | |||
Beginning balance, aggregate deferred revenue | 536 | $ 579 | |
Revenue deferred for new extended warranty contracts | 182 | 195 | |
Amortization of deferred revenue | (192) | (214) | |
Other | (28) | (21) | |
Ending balance, aggregate deferred revenue | 498 | 539 | |
Deferred revenue: | |||
Deferred income, current portion | 232 | 257 | |
Deferred income, noncurrent portion | $ 267 | $ 282 |
Subsequent Events (Details)
Subsequent Events (Details) - Subsequent event - USD ($) $ / shares in Units, $ in Millions | 1 Months Ended | 9 Months Ended |
Oct. 27, 2015 | Sep. 30, 2015 | |
Subsequent events: | ||
Dividend declared (in dollars per share) | $ 1.3 | |
Dividend declared, date | Oct. 27, 2015 | |
Dividend payable, date | Dec. 10, 2015 | |
Shareholders of record, date | Nov. 10, 2015 | |
Additional funds for use in the company's stock repurchase program | $ 4,000 |