Segments

6 Months Ended

Jun. 30, 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 segment’s performance reflects the wind down of OEM IT Commercial Financing operations which began in the second quarter of 2019.

The segment’s pre-tax income 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 June 30, 2020:
Total revenue	$	244	$	35	$	279
Pre-tax income		86		18		104
Depreciation of equipment under operating lease		28		—		28
Interest expense		63		9		72
Provision for/(benefit from) credit losses		27		(1)		27
For the three months ended June 30, 2019:
Total revenue	$	292	$	118	$	410
Pre-tax income		96		40		136
Depreciation of equipment under operating lease		43		—		43
Interest expense		96		39		135
Provision for/(benefit from) credit losses		(5)		(3)		(8)

(Amounts may not add due to rounding.)

SEGMENT INFORMATION

	Client		Commercial		Total
(Dollars in millions)	Financing		Financing		Segments
For the six months ended June 30, 2020:
Total revenue	$	522	$	93	$	615
Pre-tax income		182		50		232
Depreciation of equipment under operating lease		59		—		59
Interest expense		145		21		166
Provision for/(benefit from) credit losses		45		0		45
For the six months ended June 30, 2019:
Total revenue	$	614	$	278	$	892
Pre-tax income		213		116		330
Depreciation of equipment under operating lease		88		—		88
Interest expense		193		92		285
Provision for/(benefit from) credit losses		(6)		2		(4)

(Amounts may not add due to rounding.)