Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2018

Revenue by Major Products/Service Offerings

					Technology
(Dollars in millions)			Global		Services &
For the three months	Cognitive		Business		Cloud				Global				Total
ended September 30, 2018:	Solutions		Services		Platforms		Systems		Financing		Other		Revenue
Solutions Software	$	2,910	$	—	$	—	$	—	$	—	$	—	$	2,910
Transaction Processing Software	1,238		—		—		—		—		—		1,238

Consulting	—		1,900		—		—		—		—		1,900
Global Process Services	—		314		—		—		—		—		314
Application Management	—		1,915		—		—		—		—		1,915

Infrastructure Services	—		—		5,595		—		—		—		5,595
Technical Support Services	—		—		1,707		—		—		—		1,707
Integration Software	—		—		990		—		—		—		990

Systems Hardware	—		—		—		1,339		—		—		1,339
Operating Systems Software	—		—		—		397		—		—		397

Global Financing*	—		—		—		—		388		—		388

Other Revenue	—		—		—		—		—		62		62

Total	$	4,148	$	4,130	$	8,292	$	1,736	$	388	$	62	$	18,756

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

Revenue by Geography

(Dollars in millions)
For the three months	Total
ended September 30, 2018:	Revenue
Americas	$	8,853
Europe/Middle East/Africa	5,827
Asia Pacific	4,076

Total	$	18,756

Revenue by Major Products/Service Offerings

					Technology
(Dollars in millions)			Global		Services &
For the nine months	Cognitive		Business		Cloud				Global				Total
ended September 30, 2018:	Solutions		Services		Platforms		Systems		Financing		Other		Revenue
Solutions Software	$	9,080	$	—	$	—	$	—	$	—	$	—	$	9,080
Transaction Processing Software	3,946		—		—		—		—		—		3,946

Consulting	—		5,698		—		—		—		—		5,698
Global Process Services	—		934		—		—		—		—		934
Application Management	—		5,863		—		—		—		—		5,863

Infrastructure Services	—		—		17,188		—		—		—		17,188
Technical Support Services	—		—		5,239		—		—		—		5,239
Integration Software	—		—		3,106		—		—		—		3,106

Systems Hardware	—		—		—		4,187		—		—		4,187
Operating Systems Software	—		—		—		1,225		—		—		1,225

Global Financing*	—		—		—		—		1,188		—		1,188

Other Revenue	—		—		—		—		—		176		176

Total	$	13,027	$	12,495	$	25,533	$	5,412	$	1,188	$	176	$	57,830

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

Revenue by Geography

(Dollars in millions)
For the nine months	Total
ended September 30, 2018:	Revenue
Americas	$	26,772
Europe/Middle East/Africa	18,410
Asia Pacific	12,648

Total	$	57,830

Schedule of reconciliation of contract balances

	At September 30,		At January 1,
(Dollars in millions)	2018		2018 (as adjusted)
Notes and accounts receivable-trade (net of allowances of $310 and $297 at September 30, 2018 and January 1, 2018, respectively)	$	7,071	$	8,295
Contract assets (1)	510		557
Deferred income (current)	10,704		11,493
Deferred income (noncurrent)	3,507		3,758

(1)

Included within prepaid expenses and other current assets in the Consolidated Statement of Financial Position.

Schedule of deferred contract costs

	At September 30,
(Dollars in millions)	2018
Capitalized costs to obtain a contract	$	681
Deferred costs to fulfill a contract:
Deferred setup costs	2,123
Other deferred fulfillment costs	2,003

Total deferred costs (1)	$	4,808

(1)

Of the total, $2,227 million is current and $2,581 million is noncurrent. Prior to January 1, 2018, the current and noncurrent balance of deferred costs were included within prepaid expenses and other current assets and investments and sundry assets, respectively.

Accounting Standards Update 2014-09, Revenue from Contracts with Customers

Revenue Recognition

Schedule of transition disclosures

Consolidated Statement of Earnings Impacts

	As reported under		Adjustments to			Adjusted
(Dollars in millions except per share amounts)	new revenue		convert to			amounts under
For the three months ended September 30, 2018:	standard		prior GAAP			prior GAAP
Revenue	$	18,756	$	4		$	18,760
Cost	9,953		—			9,953
Gross profit	8,803		4			8,807
Selling, general and administrative expense	4,363		(28		)	4,335
Income from continuing operations before income taxes	2,996		33			3,029
Provision for/(benefit from) income taxes	304		8			313
Net income	$	2,694	$	24		$	2,718
Earnings/(loss) per share of common stock:
Assuming dilution	$	2.94	$	0.03		$	2.97
Basic	$	2.95	$	0.03		$	2.98

	As reported under		Adjustments to			Adjusted
(Dollars in millions except per share amounts)	new revenue		convert to			amounts under
For the nine months ended September 30, 2018:	standard		prior GAAP			prior GAAP
Revenue	$	57,830	$	(10	)	$	57,821
Cost	31,582		0			31,582
Gross profit	26,249		(10		)	26,239
Selling, general and administrative expense	14,665		(32		)	14,633
Income from continuing operations before income taxes	6,908		23			6,930
Provision for/(benefit from) income taxes	138		5			143
Net income	$	6,777	$	17		$	6,794
Earnings/(loss) per share of common stock:
Assuming dilution	$	7.36	$	0.02		$	7.38
Basic	$	7.39	$	0.02		$	7.41

Consolidated Statement of Financial Position Impacts

	As reported under			Adjustments to			Adjusted
(Dollars in millions)	new revenue			convert to			amounts under
At September 30, 2018:	standard			prior GAAP			prior GAAP
Assets:
Notes and accounts receivable - trade (net of allowances)	$	7,071		$	574		$	7,645
Deferred costs (current)	2,227			(280		)	1,947
Prepaid expenses and other current assets	2,388			(510		)	1,878
Deferred taxes	4,436			179			4,615
Deferred costs (noncurrent)	2,581			(402		)	2,179
Investments and sundry assets	2,272			—			2,272
Total assets	$	121,990		$	(439	)	$	121,551
Liabilities:
Taxes	$	2,502		$	—		$	2,502
Deferred income (current)	10,704			51			10,754
Deferred income (noncurrent)	3,507			(5		)	3,502
Total liabilities	$	102,071		$	46		$	102,117
Equity:
Retained earnings	$	158,612		$	(507	)	$	158,106
AOCI	(27,820		)	22			(27,798		)
Total stockholders’ equity	19,918			(484		)	19,434
Total liabilities and stockholders’ equity	$	121,990		$	(439	)	$	121,551

Consolidated Statement of Cash Flows Impacts

	As reported under		Adjustments to			Adjusted
(Dollars in millions)	new revenue		convert to			amounts under
For the nine months ended September 30, 2018:	standard		prior GAAP			prior GAAP
Cash flows from operating activities:
Net income	$	6,777	$	17		$	6,794
Adjustments to reconcile net income to cash provided by operating activities:
Changes in operating assets and liabilities, net of acquisitions/divestitures	631		(17		)	614
Net cash provided by operating activities	$	11,128	$	—		$	11,128