Segments

3 Months Ended

Mar. 31, 2020

Segments

Segments

3. Segments:

The company’s operations consist of two business segments: Client Financing and Commercial Financing. The segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in determining how to allocate resources and evaluate performance. The company is organized on the basis of its financing offerings. The company’s reportable segments are business units that offer different financing solutions based upon clients’ needs.

Client Financing provides leases and loan financing to end-user clients, acquires installment payment plans offered to end-user clients by IBM, and acquires participation interests in IBM financing receivables for which the company assumes the IBM client’s credit risk from IBM. End-user clients are primarily IBM clients that elect to finance their

acquisition of IBM’s hardware, software, and services, as well as Original Equipment Manufacturer (OEM) IT hardware, software and services, to meet their total solution requirements. In addition, the company provides loans to IBM, primarily in support of IBM’s Global Technology Services segment’s acquisition of IT assets, which IBM uses in external, revenue-producing services contracts.

Commercial Financing provides working capital financing for suppliers, distributors and resellers of IBM and OEM IT products and services. The decline in revenue in the first quarter of 2020 primarily reflects the wind down of the company’s OEM IT Commercial Financing operations which began in the second quarter of 2019.

The segment’s expense includes an allocation of interest expense and selling, general and administrative (SG&A) expense by the company to each of its operating segments. Interest expense is allocated based on the average assets in each segment. SG&A expense is allocated based on a measurable financial driver, such as net margin.

IBM Credit and its consolidated subsidiaries are reported by the company’s parent, IBM, as part of IBM’s Global Financing segment, which also includes IBM’s remanufacturing and remarketing business.

SEGMENT INFORMATION

	Client		Commercial		Total
(Dollars in millions)	Financing		Financing		Segments
For the three months ended March 31, 2020:
Total revenue	$	279	$	58	$	337
Pre-tax income		95		33		128
Depreciation of equipment under operating lease		31		—		31
Interest expense		82		13		94
Provision for credit losses		18		1		19
For the three months ended March 31, 2019:
Total revenue	$	322	$	160	$	482
Pre-tax income		117		76		193
Depreciation of equipment under operating lease		45		—		45
Interest expense		97		53		150
Provision for/(benefit from) credit losses		(1)		5		4