| 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 | | | | | | | | | | | | | | | | | | | | | | (Dollars in millions) | | Cloud & | | Global | | Global | | | | | | | | | | | | | For the three months | | Cognitive | | Business | | Technology | | | | | Global | | | | | Total | ended September 30, 2019: | | Software | | Services | | Services | | Systems | | Financing | | Other | | Revenue | | | | | | | | | | | | | | | | | | | | | | | Cognitive Applications | | $ | 1,383 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,383 | Cloud & Data Platforms | | | 2,308 | | | — | | | — | | | — | | | — | | | — | | | 2,308 | Transaction Processing Platforms | | | 1,589 | | | — | | | — | | | — | | | — | | | — | | | 1,589 | | | | | | | | | | | | | | | | | | | | | | | Consulting | | | — | | | 1,973 | | | — | | | — | | | — | | | — | | | 1,973 | Application Management | | | — | | | 1,897 | | | — | | | — | | | — | | | — | | | 1,897 | Global Process Services | | | — | | | 247 | | | — | | | — | | | — | | | — | | | 247 | | | | | | | | | | | | | | | | | | | | | | | Infrastructure & Cloud Services | | | — | | | — | | | 5,071 | | | — | | | — | | | — | | | 5,071 | Technology Support Services | | | — | | | — | | | 1,629 | | | — | | | — | | | — | | | 1,629 | | | | | | | | | | | | | | | | | | | | | | | Systems Hardware | | | — | | | — | | | — | | | 1,117 | | | — | | | — | | | 1,117 | Operating Systems Software | | | — | | | — | | | — | | | 364 | | | — | | | — | | | 364 | | | | | | | | | | | | | | | | | | | | | | | Global Financing* | | | — | | | — | | | — | | | — | | | 343 | | | — | | | 343 | | | | | | | | | | | | | | | | | | | | | | | Other Revenue | | | — | | | — | | | — | | | — | | | — | | | 107 | | | 107 | Total | | $ | 5,280 | | $ | 4,117 | | $ | 6,700 | | $ | 1,481 | | $ | 343 | | $ | 107 | | $ | 18,028 |
* 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) | | Total | For the three months ended September 30, 2019: | | Revenue | | | | | Americas | | $ | 8,514 | Europe/Middle East/Africa | | | 5,477 | Asia Pacific | | | 4,036 | Total | | $ | 18,028 |
Revenue by Major Products/Service Offerings | | | | | | | | | | | | | | | | | | | | | | (Dollars in millions) | | Cloud & | | Global | | Global | | | | | | | | | | | | | For the three months | | Cognitive | | Business | | Technology | | | | | Global | | | | | Total | ended September 30, 2018: | | Software* | | Services* | | Services* | | Systems | | Financing | | Other* | | Revenue | | | | | | | | | | | | | | | | | | | | | | | Cognitive Applications | | $ | 1,324 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,324 | Cloud & Data Platforms | | | 1,968 | | | — | | | — | | | — | | | — | | | — | | | 1,968 | Transaction Processing Platforms | | | 1,669 | | | — | | | — | | | — | | | — | | | — | | | 1,669 | | | | | | | | | | | | | | | | | | | | | | | Consulting | | | — | | | 1,900 | | | — | | | — | | | — | | | — | | | 1,900 | Application Management | | | — | | | 1,915 | | | — | | | — | | | — | | | — | | | 1,915 | Global Process Services | | | — | | | 260 | | | — | | | — | | | — | | | — | | | 260 | | | | | | | | | | | | | | | | | | | | | | | Infrastructure & Cloud Services | | | — | | | — | | | 5,393 | | | — | | | — | | | — | | | 5,393 | Technology Support Services | | | — | | | — | | | 1,707 | | | — | | | — | | | — | | | 1,707 | | | | | | | | | | | | | | | | | | | | | | | Systems Hardware | | | — | | | — | | | — | | | 1,339 | | | — | | | — | | | 1,339 | Operating Systems Software | | | — | | | — | | | — | | | 397 | | | — | | | — | | | 397 | | | | | | | | | | | | | | | | | | | | | | | Global Financing** | | | — | | | — | | | — | | | — | | | 388 | | | — | | | 388 | | | | | | | | | | | | | | | | | | | | | | | Other Revenue | | | — | | | — | | | — | | | — | | | — | | | 493 | | | 493 | Total | | $ | 4,962 | | $ | 4,076 | | $ | 7,101 | | $ | 1,736 | | $ | 388 | | $ | 493 | | $ | 18,756 |
* Recast to conform to 2019 presentation. ** 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) | | Total | For the three months 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 | | | | | | | | | | | | | | | | | | | | | | (Dollars in millions) | | Cloud & | | Global | | Global | | | | | | | | | | | | | For the nine months | | Cognitive | | Business | | Technology | | | | | Global | | | | | Total | ended September 30, 2019: | | Software | | Services | | Services | | Systems | | Financing | | Other | | Revenue | | | | | | | | | | | | | | | | | | | | | | | Cognitive Applications | | $ | 4,145 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 4,145 | Cloud & Data Platforms | | | 6,398 | | | — | | | — | | | — | | | — | | | — | | | 6,398 | Transaction Processing Platforms | | | 5,419 | | | — | | | — | | | — | | | — | | | — | | | 5,419 | | | | | | | | | | | | | | | | | | | | | | | Consulting | | | — | | | 5,915 | | | — | | | — | | | — | | | — | | | 5,915 | Application Management | | | — | | | 5,724 | | | — | | | — | | | — | | | — | | | 5,724 | Global Process Services | | | — | | | 752 | | | — | | | — | | | — | | | — | | | 752 | | | | | | | | | | | | | | | | | | | | | | | Infrastructure & Cloud Services | | | — | | | — | | | 15,454 | | | — | | | — | | | — | | | 15,454 | Technology Support Services | | | — | | | — | | | 4,958 | | | — | | | — | | | — | | | 4,958 | | | | | | | | | | | | | | | | | | | | | | | Systems Hardware | | | — | | | — | | | — | | | 3,358 | | | — | | | — | | | 3,358 | Operating Systems Software | | | — | | | — | | | — | | | 1,204 | | | — | | | — | | | 1,204 | | | | | | | | | | | | | | | | | | | | | | | Global Financing* | | | — | | | — | | | — | | | — | | | 1,100 | | | — | | | 1,100 | | | | | | | | | | | | | | | | | | | | | | | Other Revenue | | | — | | | — | | | — | | | — | | | — | | | 944 | | | 944 | Total | | $ | 15,962 | | $ | 12,391 | | $ | 20,412 | | $ | 4,562 | | $ | 1,100 | | $ | 944 | | $ | 55,370 |
* 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) | | Total | For the nine months ended September 30, 2019: | | Revenue | | | | | Americas | | $ | 25,813 | Europe/Middle East/Africa | | | 17,354 | Asia Pacific | | | 12,203 | Total | | $ | 55,370 |
Revenue by Major Products/Service Offerings | | | | | | | | | | | | | | | | | | | | | | (Dollars in millions) | | Cloud & | | Global | | Global | | | | | | | | | | | | | For the nine months | | Cognitive | | Business | | Technology | | | | | Global | | | | | Total | ended September 30, 2018: | | Software* | | Services* | | Services* | | Systems | | Financing | | Other* | | Revenue | | | | | | | | | | | | | | | | | | | | | | | Cognitive Applications | | $ | 4,023 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 4,023 | Cloud & Data Platforms | | | 5,997 | | | — | | | — | | | — | | | — | | | — | | | 5,997 | Transaction Processing Platforms | | | 5,528 | | | — | | | — | | | — | | | — | | | — | | | 5,528 | | | | | | | | | | | | | | | | | | | | | | | Consulting | | | — | | | 5,698 | | | — | | | — | | | — | | | — | | | 5,698 | Application Management | | | — | | | 5,863 | | | — | | | — | | | — | | | — | | | 5,863 | Global Process Services | | | — | | | 765 | | | — | | | — | | | — | | | — | | | 765 | | | | | | | | | | | | | | | | | | | | | | | Infrastructure & Cloud Services | | | — | | | — | | | 16,608 | | | — | | | — | | | — | | | 16,608 | Technology Support Services | | | — | | | — | | | 5,239 | | | — | | | — | | | — | | | 5,239 | | | | | | | | | | | | | | | | | | | | | | | Systems Hardware | | | — | | | — | | | — | | | 4,187 | | | — | | | — | | | 4,187 | Operating Systems Software | | | — | | | — | | | — | | | 1,225 | | | — | | | — | | | 1,225 | | | | | | | | | | | | | | | | | | | | | | | Global Financing** | | | — | | | — | | | — | | | — | | | 1,188 | | | — | | | 1,188 | | | | | | | | | | | | | | | | | | | | | | | Other Revenue | | | — | | | — | | | — | | | — | | | — | | | 1,511 | | | 1,511 | Total | | $ | 15,548 | | $ | 12,326 | | $ | 21,846 | | $ | 5,412 | | $ | 1,188 | | $ | 1,511 | | $ | 57,830 |
* Recast to conform to 2019 presentation. ** 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) | | Total | For the nine months ended September 30, 2018: | | Revenue | | | | | Americas | | $ | 26,772 | Europe/Middle East/Africa | | | 18,410 | Asia Pacific | | | 12,648 | Total | | $ | 57,830 |
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. Remaining performance obligation 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, 2019, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $115 billion. Given the profile of contract terms, approximately 58 percent of this amount is expected to be recognized as revenue over the next two years, approximately 34 percent between three and five years and the balance (mostly Infrastructure & Cloud Services) thereafter. At December 31, 2018, the aggregate amount of the transaction price allocated to RPO related to customer contracts that were unsatisfied or partially unsatisfied was $124 billion. Given the profile of contract terms, approximately 60 percent of this amount was 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 nine months ending September 30, 2019, revenue was reduced by $42 million and $33 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods mainly due to changes in estimates on percentage-of-completion based contracts. For the three and nine months ending September 30, 2018, revenue was reduced by $25 million and $50 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods mainly due to changes in estimates on percentage-of-completion based contracts. Reconciliation of Contract Balances The following table provides information about notes and accounts receivables — trade, contract assets and deferred income balances: | | | | | | | | | At September 30, | | At December 31, | (Dollars in millions) | | 2019 | | 2018 | Notes and accounts receivable — trade (net of allowances of $286 and $309 at September 30, 2019 and December 31, 2018, respectively) | | $ | 6,753 | | $ | 7,432 | Contract assets (1) | | | 513 | | | 470 | Deferred income (current) | | | 11,223 | | | 11,165 | Deferred income (noncurrent) | | | 3,382 | | | 3,445 |
| (1) | Included within prepaid expenses and other current assets in the Consolidated Statement of Financial Position. |
The amount of revenue recognized during the three and nine months ended September 30, 2019 that was included within the deferred income balance at June 30, 2019 and December 31, 2018 was $3.6 billion and $7.7 billion, respectively, and was primarily related to services and software. The amount of revenue recognized during the three and nine months ended September 30, 2018 that was included within the deferred income balance at June 30, 2018 and January 1, 2018 was $3.8 billion and $8.0 billion, respectively, and was primarily related to services and software.
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