Revenue Recognition

9 Months Ended

Sep. 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 September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021*		2022		2021*
Hybrid Platform & Solutions	$	4,172	$	4,074	$	12,641	$	12,082
Transaction Processing		1,640		1,332		5,107		4,257
Total Software	$	5,811	$	5,406	$	17,749	$	16,339
Business Transformation		2,165		2,068		6,646		6,070
Application Operations		1,593		1,501		4,865		4,489
Technology Consulting		943		889		2,826		2,538
Total Consulting	$	4,700	$	4,457	$	14,337	$	13,098
Hybrid Infrastructure		1,931		1,453		6,392		5,294
Infrastructure Support		1,421		1,468		4,413		4,480
Total Infrastructure	$	3,352	$	2,921	$	10,805	$	9,774
Financing**		174		184		474		601
Other		70		282		475		844
Total revenue	$	14,107	$	13,251	$	43,840	$	40,656

* 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 September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021*		2022		2021*
Software	$	2,186	$	2,038	$	6,604	$	5,797
Consulting		2,221		1,982		6,642		5,605
Infrastructure		768		558		2,661		2,376
Other		2		77		143		246
Total	$	5,176	$	4,655	$	16,049	$	14,024

* Recast to reflect segment changes.

Revenue by Geography

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021		2022		2021
Americas	$	7,416	$	6,579	$	22,614	$	20,178
Europe/Middle East/Africa		3,959		3,939		12,716		12,181
Asia Pacific		2,732		2,734		8,509		8,297
Total	$	14,107	$	13,251	$	43,840	$	40,656

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, 2022, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $53 billion. Approximately 73 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 25 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 nine months ended September 30, 2022, revenue was reduced by $36 million and $60 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 September 30,		At December 31,
(Dollars in millions)	2022		2021
Notes and accounts receivable — trade (net of allowances of $214 in 2022 and $218 in 2021)	$	5,526	$	6,754
Contract assets*	$	522	$	471
Deferred income (current)	$	11,139	$	12,518
Deferred income (noncurrent)	$	3,018	$	3,577

* 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, 2022 that was included within the deferred income balance at June 30, 2022 and December 31, 2021 was $4.3 billion and $8.8 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 nine months ended September 30, 2022 and the year ended December 31, 2021.

(Dollars in millions)
January 1, 2022		Additions / (Releases)		Write-offs		Foreign currency and other		September 30, 2022
$	218	$	43	$	(28)	$	(19)	$	214

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.