Revenue Recognition

6 Months Ended

Jun. 30, 2020

Revenue Recognition

Revenue Recognition

3. Revenue Recognition:

Disaggregation of Revenue

The following tables provide details of revenue by major products/service offerings and by geography.

Revenue by Major Products/Service Offerings

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in millions)	2020		2019			2020		2019
Cloud & Data Platforms	$	2,797	$	2,173		$	5,333	$	4,090
Cognitive Applications		1,246		1,372	*		2,428		2,609	*
Transaction Processing Platforms		1,706		2,018			3,226		3,830
Total Cloud & Cognitive Software	$	5,748	$	5,563	*	$	10,987	$	10,530	*
Consulting		1,936		2,020	*		4,007		4,021	*
Application Management		1,734		1,919			3,573		3,827
Global Process Services		221		258			447		505
Total Global Business Services	$	3,890	$	4,197	*	$	8,027	$	8,353	*
Infrastructure & Cloud Services		4,813		5,174			9,729		10,383
Technology Support Services		1,503		1,663			3,054		3,328
Total Global Technology Services	$	6,316	$	6,837		$	12,783	$	13,711
Systems Hardware		1,488		1,328			2,484		2,241
Operating Systems Software		365		425			736		840
Total Systems	$	1,852	$	1,753		$	3,220	$	3,081
Global Financing**		265		351			564		757
Other		50		460	*		113		911	*
Total revenue	$	18,123	$	19,161		$	35,694	$	37,342

*  Recast to conform to current period presentation. Refer to note 4, “Segments,” for additional information.

** Contains lease and loan/working capital financing arrangements which are not subject to the guidance on revenue from contracts with customers.

Revenue by Geography

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2020		2019		2020		2019
Americas	$	8,450	$	8,806	$	16,617	$	17,299
Europe/Middle East/Africa		5,695		6,149		11,212		11,876
Asia Pacific		3,977		4,205		7,865		8,167
Total	$	18,123	$	19,161	$	35,694	$	37,342

Remaining Performance Obligations

The remaining performance obligation (RPO) disclosure provides the aggregate amount of the transaction price yet to be recognized as of the end of the reporting period and an explanation as to when the company expects to recognize these amounts in revenue. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed, such as certain as-a-Service, governmental, term software license and services offerings. The customer is not considered committed when they are able to terminate for convenience without payment of a substantive penalty. The disclosure includes estimates of variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property. Additionally, as a practical expedient, the company does not include contracts that have an original duration of one year or less. RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.

At June 30, 2020, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $117 billion. Given the profile of contract terms, approximately 60 percent of

this amount is expected to be recognized as revenue over the next two years, approximately 35 percent between three and five years and the balance (mostly Infrastructure & Cloud Services) thereafter.

Revenue Recognized for Performance Obligations Satisfied (or Partially Satisfied) in Prior Periods

For the three and six months ended June 30, 2020, revenue was reduced by $56 million and $54 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods mainly due to changes in estimates on percentage-of-completion based contracts.

Contract Balances

The following table provides information about notes and accounts receivables — trade, contract assets and deferred income balances:

	At June 30,		At December 31,
(Dollars in millions)	2020		2019
Notes and accounts receivable — trade (net of allowances of $369 and $299 at June 30, 2020 and December 31, 2019, respectively)	$	6,543	$	7,870
Contract assets (1)		505		492
Deferred income (current)		12,469		12,026
Deferred income (noncurrent)		3,787		3,851

(1) Included within prepaid expenses and other current assets in the Consolidated Balance Sheet.

The amount of revenue recognized during the three and six months ended June 30, 2020 that was included within the deferred income balance at March 31, 2020 and December 31, 2019 was $4.5 billion and $6.5 billion, respectively, and was primarily related to services and software.

The following table provides roll forwards of the notes and accounts receivable – trade allowance for credit losses for the six months ended June 30, 2020 and the year ended December 31, 2019:

(Dollars in millions)
January 1, 2020*		Additions / (Releases)		Write-offs		Other**		June 30, 2020
$	316	$	87	$	(26)	$	(8)	$	369

January 1, 2019		Additions / (Releases)		Write-offs		Other**		December 31, 2019
$	309	$	98	$	(113)	$	5	$	299

* Opening balance does not equal the allowance at December 31, 2019 due to the adoption of the guidance for current expected credit losses. Refer to note 2, “Accounting Changes,” for additional information.

** Primarily represents translation adjustments.

The contract assets allowance for credit losses was not material in any of the periods presented.