Revenue Recognition

6 Months Ended

Jun. 30, 2022

Revenue Recognition

Revenue Recognition

4. Revenue Recognition:

Disaggregation of Revenue

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

Revenue by Major Products/Service Offerings

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2022		2021*		2022		2021*
Hybrid Platform & Solutions	$	4,390	$	4,208	$	8,470	$	8,008
Transaction Processing		1,776		1,587		3,468		2,925
Total Software	$	6,166	$	5,795	$	11,938	$	10,933
Business Transformation		2,227		2,049		4,482		4,002
Application Operations		1,653		1,514		3,272		2,989
Technology Consulting		928		814		1,884		1,649
Total Consulting	$	4,809	$	4,378	$	9,637	$	8,641
Hybrid Infrastructure		2,760		2,059		4,461		3,841
Infrastructure Support		1,474		1,501		2,993		3,012
Total Infrastructure	$	4,235	$	3,560	$	7,453	$	6,853
Financing**		146		209		300		417
Other		180		277		404		561
Total revenue	$	15,535	$	14,218	$	29,732	$	27,405

* Recast to reflect segment changes.

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

Hybrid Cloud Revenue by Segment

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2022		2021*		2022		2021*
Software	$	2,288	$	2,015	$	4,418	$	3,760
Consulting		2,286		1,901		4,421		3,623
Infrastructure		1,220		981		1,892		1,818
Other		69		82		141		169
Total	$	5,863	$	4,979	$	10,872	$	9,369

* Recast to reflect segment changes.

Revenue by Geography

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2022		2021		2022		2021
Americas	$	8,142	$	7,122	$	15,198	$	13,599
Europe/Middle East/Africa		4,526		4,314		8,757		8,242
Asia Pacific		2,868		2,782		5,778		5,563
Total	$	15,535	$	14,218	$	29,732	$	27,405

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, 2022, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $55 billion. Approximately 71 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 26 percent in the subsequent three to five years and the balance thereafter.

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

For the three and six months ended June 30, 2022, revenue was reduced by $24 million and $28 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods mainly due to changes in estimates on contracts with cost-to-cost measures of progress.

Reconciliation of Contract Balances

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

	At June 30,		At December 31,
(Dollars in millions)	2022		2021
Notes and accounts receivable — trade (net of allowances of $213 in 2022 and $218 in 2021)	$	5,867	$	6,754
Contract assets*		531		471
Deferred income (current)		12,522		12,518
Deferred income (noncurrent)		3,069		3,577

* 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, 2022 that was included within the deferred income balance at March 31, 2022 and December 31, 2021 was $4.4 billion and $6.8 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 expected credit losses for the six months ended June 30, 2022 and the year ended December 31, 2021:

(Dollars in millions)
January 1, 2022		Additions / (Releases)		Write-offs		Foreign currency and other		June 30, 2022
$	218	$	30	$	(22)	$	(13)	$	213

January 1, 2021		Additions / (Releases)		Write-offs		Foreign currency and other		December 31, 2021
$	260	$	(15)	$	(28)	$	1	$	218

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