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Segment Information
 12 Months Ended
Dec. 31, 2018
Segment Information  
Segment Information

 

NOTE U. SEGMENT INFORMATION

 

The company’s major operations consist of five business segments: Cognitive Solutions, Global Business Services, Technology Services & Cloud Platforms, Systems and Global 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 (the chief executive officer) in determining how to allocate resources and evaluate performance. The segments are determined based on several factors, including client base, homogeneity of products, technology, delivery channels and similar economic characteristics.

 

Segment revenue and pre-tax income include transactions between the segments that are intended to reflect an arm’s-length, market-based transfer price. Systems that are used by Technology Services & Cloud Platforms in outsourcing engagements are primarily sourced internally from the Systems segment and software is sourced from various segments. Software used by Technology Services & Cloud Platforms on external engagements is sourced internally through Cognitive Solutions and the Systems segments. For providing IT services that are used internally, Technology Services & Cloud Platforms and Global Business Services recover cost, as well as a reasonable fee, that is intended to reflect the arm’s-length value of providing the services. They enter into arm’s-length loans at prices equivalent to market rates with Global Financing to facilitate the acquisition of equipment and software used in services engagements. All internal transaction prices are reviewed annually, and reset if appropriate.

 

The company utilizes globally integrated support organizations to realize economies of scale and efficient use of resources. As a result, a considerable amount of expense is shared by all of the segments. This shared expense includes sales coverage, certain marketing functions and support functions such as Accounting, Treasury, Procurement, Legal, Human Resources and Billing and Collections. Where practical, shared expenses are allocated based on measurable drivers of expense, e.g., headcount. When a clear and measurable driver cannot be identified, shared expenses are allocated on a financial basis that is consistent with the company’s management system, e.g., advertising expense is allocated based on the gross profits of the segments. A portion of the shared expenses, which are recorded in net income, are not allocated to the segments. These expenses are associated with the elimination of internal transactions and other miscellaneous items.

 

The following tables 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.

 

Management System Segment View

 

($ in millions)

 

 

 

 

 

 

 

Technology

 

 

 

 

 

 

 

 

 

 

 

Global

 

Services &

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Cloud

 

 

 

Global

 

Total

 

For the year ended December 31:

 

Solutions

 

Services

 

Platforms

 

Systems

 

Financing

 

Segments

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenue

 

$
18,481

 

$
16,817

 

$
34,462

 

$
8,034

 

$
1,590

 

$
79,383

 

Internal revenue

 
2,715

 
326

 
795

 
815

 
1,610

 
6,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$
21,197

 

$
17,143

 

$
35,257

 

$
8,848

 

$
3,200

 

$
85,644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax income from continuing operations

 

$
7,154

 

$
1,676

 

$
3,786

 

$
904

 

$
1,361

 

$
14,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue year-to-year change

 
0.5

%
2.6

%
0.9

%
(1.1

)%
1.0

%
0.9

%

Pre-tax income year-to-year change

 
5.3

%
23.0

%
(11.7

)%
(19.9

)%
6.5

%
0.2

%

Pre-tax income margin

 
33.8

%
9.8

%
10.7

%
10.2

%
42.5

%
17.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenue

 

$
18,453

 

$
16,348

 

$
34,277

 

$
8,194

 

$
1,696

 

$
78,968

 

Internal revenue

 
2,647

 
363

 
657

 
750

 
1,471

 
5,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$
21,100

 

$
16,711

 

$
34,934

 

$
8,945

 

$
3,168

 

$
84,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax income from continuing operations*

 

$
6,795

 

$
1,362

 

$
4,286

 

$
1,128

 

$
1,278

 

$
14,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue year-to-year change

 
1.4

%
(2.3

)%
(3.1

)%
5.7

%
(9.3

)%
(1.3

)%

Pre-tax income year-to-year change*

 
7.4

%
(19.0

)%
(7.7

)%
21.9

%
(22.8

)%
(2.5

)%

Pre-tax income margin*

 
32.2

%
8.2

%
12.3

%
12.6

%
40.3

%
17.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenue

 

$
18,187

 

$
16,700

 

$
35,337

 

$
7,714

 

$
1,692

 

$
79,630

 

Internal revenue

 
2,630

 
409

 
715

 
750

 
1,802

 
6,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$
20,817

 

$
17,109

 

$
36,052

 

$
8,464

 

$
3,494

 

$
85,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax income from continuing operations*

 

$
6,325

 

$
1,683

 

$
4,643

 

$
925

 

$
1,654

 

$
15,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue year-to-year change

 
3.8

%
(3.1

)%
0.6

%
(18.0

)%
(22.0

)%
(2.7

)%

Pre-tax income year-to-year change*

 
(12.5

)%
(34.4

)%
(17.4

)%
(46.1

)%
(30.0

)%
(21.9

)%

Pre-tax income margin*

 
30.4

%
9.8

%
12.9

%
10.9

%
47.3

%
17.7

%

 

 

*Recast to reflect adoption of the FASB guidance on presentation of net benefit cost.

 

Reconciliations of IBM as Reported

 

($ in millions)

 

For the year ended December 31:

 

2018

 

2017

 

2016

 

Revenue

 

 

 

 

 

 

 

Total reportable segments

 

$
85,644

 

$
84,857

 

$
85,936

 

 

 

 

 

 

 

 

 

 

 

 

Other revenue

 
207

 
171

 
289

 

Elimination of internal transactions

 
(6,261

)
(5,889

)
(6,307

)

 

 

 

 

 

 

 

 

Total IBM consolidated revenue

 

$
79,591

 

$
79,139

 

$
79,919

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

For the year ended December 31:

 

2018

 

2017

 

2016

 

Pre-tax income from continuing operations

 

 

 

 

 

 

 

Total reportable segments

 

$
14,881

 

$
14,849

*

$
15,230

*

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets

 
(809

)
(945

)
(998

)

Acquisition-related charges

 
(16

)
(52

)
(5

)

Non-operating retirement-related (costs)/income

 
(1,572

)
(1,341

)*
(448

)*

Elimination of internal transactions

 
(758

)
(726

)
(1,160

)

Unallocated corporate amounts

 
(385

)
(385

)
(290

)

 

 

 

 

 

 

 

 

Total pre-tax income from continuing operations

 

$
11,342

 

$
11,400

 

$
12,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Recast to reflect adoption of the FASB guidance on presentation of net benefit cost.

 

Immaterial Items

Investment in Equity Alliances and Equity Alliances Gains/(Losses)

 

The investments in equity alliances and the resulting gains and (losses) from these investments that are attributable to the segments did not have a material effect on the financial position or the financial results of the segments.

 

Segment Assets and Other Items

 

Cognitive Solutions assets are mainly goodwill, acquired intangible assets and accounts receivable. Global Business Services assets are primarily goodwill and accounts receivable. Technology Services & Cloud Platforms assets are primarily goodwill, plant, property and equipment including the assets associated with the outsourcing business, deferred costs and accounts receivable. Systems assets are primarily goodwill, manufacturing inventory, and plant, property and equipment. Global Financing assets are primarily financing receivables, cash and marketable securities, and fixed assets under operating leases.

 

To ensure the efficient use of the company’s space and equipment, several segments may share plant, property and equipment assets. Where assets are shared, landlord ownership of the assets is assigned to one segment and is not allocated to each user segment. This is consistent with the company’s management system and is reflected accordingly in the table on page 144. In those cases, there will not be a precise correlation between segment pre-tax income and segment assets.

 

Similarly, the depreciation amounts reported by each segment are based on the assigned landlord ownership and may not be consistent with the amounts that are included in the segments’ pre-tax income. The amounts that are included in pre-tax income reflect occupancy charges from the landlord segment and are not specifically identified by the management reporting system. Capital expenditures that are reported by each segment also are consistent with the landlord ownership basis of asset assignment.

 

Global Financing amounts for interest income and interest expense reflect the interest income and interest expense associated with the Global Financing business, including the intercompany financing activities discussed on pages 25 and 26, as well as the income from investment in cash and marketable securities. The explanation of the difference between cost of financing and interest expense for segment presentation versus presentation in the Consolidated Statement of Earnings is included on page 39 of the Management Discussion.

 

Management System Segment View

 

($ in millions)

 

 

 

 

 

 

 

Technology

 

 

 

 

 

 

 

 

 

 

 

Global

 

Services &

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Cloud

 

 

 

Global

 

Total

 

For the year ended December 31:

 

Solutions

 

Services

 

Platforms

 

Systems

 

Financing

 

Segments

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$
24,244

 

$
8,404

 

$
24,624

 

$
4,030

 

$
41,320

 

$
102,622

 

Depreciation/amortization of intangibles*

 
987

 
102

 
2,501

 
315

 
229

 
4,135

 

Capital expenditures/investments in intangibles

 
363

 
57

 
2,678

 
241

 
274

 
3,612

 

Interest income

 

—

 

—

 

—

 

—

 
1,647

 
1,647

 

Interest expense

 

—

 

—

 

—

 

—

 
515

 
515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets**

 

$
24,828

 

$
8,713

 

$
24,619

 

$
3,898

 

$
41,096

 

$
103,153

 

Depreciation/amortization of intangibles*

 
1,121

 
101

 
2,359

 
341

 
267

 
4,190

 

Capital expenditures/investments in intangibles

 
373

 
50

 
2,290

 
189

 
364

 
3,265

 

Interest income

 

—

 

—

 

—

 

—

 
1,527

 
1,527

 

Interest expense

 

—

 

—

 

—

 

—

 
381

 
381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets**

 

$
25,514

 

$
8,627

 

$
24,085

 

$
3,812

 

$
36,492

 

$
98,530

 

Depreciation/amortization of intangibles*

 
1,228

 
104

 
2,224

 
375

 
317

 
4,248

 

Capital expenditures/investments in intangibles

 
495

 
55

 
2,382

 
453

 
380

 
3,764

 

Interest income

 

—

 

—

 

—

 

—

 
1,547

 
1,547

 

Interest expense

 

—

 

—

 

—

 

—

 
371

 
371

 

 

 

*Segment pre-tax income from continuing operations does not include the amortization of intangible assets.

** Recast to reflect adoption of the FASB guidance on restricted cash.

 

Reconciliations of IBM as Reported

 

($ in millions)

 

At December 31:

 

2018

 

2017

 

2016

 

Assets

 

 

 

 

 

 

 

Total reportable segments

 

$
102,622

 

$
103,153

*

$
98,530

*

 

 

 

 

 

 

 

 

 

 

 

Elimination of internal transactions

 
(7,143

)
(6,272

)
(5,670

)

Unallocated amounts

 

 

 

 

 

 

 

Cash and marketable securities

 
10,393

 
10,162

*
6,999

*

Notes and accounts receivable

 
1,597

 
2,554

 
2,660

 

Deferred tax assets

 
5,089

 
4,746

 
5,078

 

Plant, other property and equipment

 
2,463

 
2,659

 
2,656

 

Pension assets

 
4,666

 
4,643

 
3,034

 

Other

 
3,695

 
3,712

*
4,183

*

 

 

 

 

 

 

 

 

Total IBM consolidated assets

 

$
123,382

 

$
125,356

 

$
117,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Recast to reflect adoption of the FASB guidance on restricted cash.

 

Major Clients

 

No single client represented 10 percent or more of the company’s total revenue in 2018, 2017 or 2016.

 

Geographic Information

 

The following provides information for those countries that are 10 percent or more of the specific category.

 

Revenue*

 

($ in millions)

 

For the year ended December 31:

 

2018

 

2017

 

2016

 

United States

 

$
29,078

 

$
29,759

 

$
30,194

 

Japan

 
8,489

 
8,239

 
8,339

 

Other countries

 
42,024

 
41,141

 
41,386

 

 

 

 

 

 

 

 

 

Total IBM consolidated revenue

 

$
79,591

 

$
79,139

 

$
79,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Revenues are attributed to countries based on the location of the client.

 

Plant and Other Property — Net

 

($ in millions)

 

At December 31:

 

2018

 

2017

 

2016

 

United States

 

$
4,585

 

$
4,670

 

$
4,701

 

Other countries

 
5,774

 
5,985

 
5,607

 

 

 

 

 

 

 

 

 

Total

 

$
10,359

 

$
10,655

 

$
10,308

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by Classes of Similar Products or Services

 

The following table presents external revenue for similar classes of products or services within the company’s reportable segments. Client solutions often include IBM software and systems and other suppliers’ products if the client solution requires it. For each of the segments that include services, Software-as-a-Service, consulting, education, training and other product-related services are included as services. For each of these segments, software includes product license charges and ongoing subscriptions.

 

($ in millions)

 

For the year ended December 31:

 

2018

 

2017

 

2016

 

Cognitive Solutions

 

 

 

 

 

 

 

Software

 

$
13,667

 

$
13,598

 

$
13,969

 

Services

 
4,708

 
4,752

 
4,111

 

Systems

 
106

 
103

 
107

 

Global Business Services

 

 

 

 

 

 

 

Services

 

$
16,460

 

$
16,004

 

$
16,399

 

Software

 
151

 
179

 
179

 

Systems

 
206

 
165

 
121

 

Technology Services &

 

 

 

 

 

 

 

Cloud Platforms

 

 

 

 

 

 

 

Services

 

$
24,145

 

$
23,629

 

$
24,311

 

Maintenance

 
5,484

 
5,783

 
5,862

 

Software

 
3,713

 
3,610

 
3,818

 

Systems

 
1,119

 
1,254

 
1,346

 

Systems

 

 

 

 

 

 

 

Servers

 

$
3,996

 

$
3,993

 

$
3,567

 

Storage

 
2,114

 
2,243

 
2,083

 

Software

 
1,498

 
1,520

 
1,586

 

Services

 
425

 
439

 
478

 

Global Financing

 

 

 

 

 

 

 

Financing

 

$
1,223

 

$
1,167

 

$
1,231

 

Used equipment sales

 
366

 
530

 
461