Revenue Recognition

9 Months Ended

Sep. 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 September 30,					Nine Months Ended September 30,
(Dollars in millions)	2020		2019			2020		2019
Cloud & Data Platforms	$	2,775	$	2,308		$	8,108	$	6,398
Cognitive Applications		1,317		1,305	*		3,745		3,914	*
Transaction Processing Platforms		1,461		1,589			4,687		5,419
Total Cloud & Cognitive Software	$	5,553	$	5,201	*	$	16,540	$	15,731	*
Consulting		1,966		2,016	*		5,973		6,037	*
Application Management		1,758		1,897			5,332		5,724
Global Process Services		240		247			687		752
Total Global Business Services	$	3,965	$	4,160	*	$	11,992	$	12,513	*
Infrastructure & Cloud Services		4,933		5,071			14,663		15,454
Technology Support Services		1,528		1,629			4,582		4,958
Total Global Technology Services	$	6,462	$	6,700		$	19,245	$	20,412
Systems Hardware		919		1,117			3,404		3,358
Operating Systems Software		338		364			1,074		1,204
Total Systems	$	1,257	$	1,481		$	4,477	$	4,562
Global Financing**		273		343			837		1,100
Other		50		142	*		163		1,053	*
Total revenue	$	17,560	$	18,028		$	53,253	$	55,370

*  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 September 30,				Nine Months Ended September 30,
(Dollars in millions)	2020		2019		2020		2019
Americas	$	8,139	$	8,514	$	24,755	$	25,813
Europe/Middle East/Africa		5,564		5,477		16,775		17,354
Asia Pacific		3,857		4,036		11,723		12,203
Total	$	17,560	$	18,028	$	53,253	$	55,370

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 September 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. Approximately 60 percent of the amount is expected to be

recognized as revenue in the subsequent two years, approximately 35 percent in the subsequent three to 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 nine months ended September 30, 2020, revenue was increased by $12 million and reduced by $45 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 receivable – trade, contract assets and deferred income balances:

	At September 30,		At December 31,
(Dollars in millions)	2020		2019
Notes and accounts receivable — trade (net of allowances of $354 in 2020 and $299 in 2019)	$	6,099	$	7,870
Contract assets (1)		528		492
Deferred income (current)		11,681		12,026
Deferred income (noncurrent)		3,820		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 nine months ended September 30, 2020 that was included within the deferred income balance at June 30, 2020 and December 31, 2019 was $4.2 billion and $8.6 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 nine months ended September 30, 2020 and the year ended December 31, 2019:

(Dollars in millions)
January 1, 2020*		Additions / (Releases)		Write-offs		Other**		September 30, 2020
$	316	$	79	$	(39)	$	(2)	$	354

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.