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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED JUNE 30, 2020

000-55786

(Commission file number)

IBM CREDIT LLC

(Exact name of registrant as specified in its charter)

Delaware		22-2351962
(State or Other Jurisdiction of Incorporation or Organization)		(IRS employer identification number)


One North Castle Drive, Armonk, New York		10504
(Address of principal executive offices)		(Zip Code)

914-765-1900

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☒		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

All of the limited liability company interests ("Interests") in the registrant are held by an affiliate of the registrant. None of the Interests are publicly traded.

REDUCED DISCLOSURE FORMAT

IBM Credit LLC, an indirect, wholly owned subsidiary of International Business Machines Corporation (IBM), meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

Table of Contents

Index

		Page
Part I - Financial Information:

Item 1. Consolidated Financial Statements (Unaudited):

Consolidated Income Statement for the three and six months ended June 30, 2020 and 2019		3

Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2020 and 2019		4

Consolidated Balance Sheet at June 30, 2020 and December 31, 2019		5

Consolidated Statement of Cash Flows for the six months ended June 30, 2020 and 2019		6

Consolidated Statement of Changes in Member’s Interest for the three and six months ended June 30, 2020 and 2019		7

Notes to Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		31

Item 4. Controls and Procedures		49

Part II - Other Information:

Item 1. Legal Proceedings		49

Item 5. Other Information		49

Item 6. Exhibits		50

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Part I— Financial Information

Item 1. Consolidated Financial Statements:

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2020		2019		2020		2019
Revenue
Financing revenue	$	225	$	339	$	503	$	743
Operating lease revenue		54		70		112		149
Total revenue	$	279	$	410	$	615	$	892
Financing cost (related party cost for the three and six months: $35 and $84 in 2020, $58 and $131 in 2019)	$	73	$	137	$	178	$	297
Depreciation of equipment under operating lease		28		43		59		88
Net margin	$	177	$	230	$	378	$	507
Expense and other (income)
Selling, general and administrative	$	77	$	97	$	151	$	194
Provision for/(benefit from) credit losses		27		(8)		45		(4)
Other (income) and expense		(31)		5		(51)		(13)
Total expense and other (income)	$	74	$	94	$	145	$	178
Income before income taxes	$	104	$	136	$	232	$	330
Provision for income taxes		15		23		2		173
Net income	$	89	$	113	$	231	$	156

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2020		2019		2020		2019
Net income	$	89	$	113	$	231	$	156
Other comprehensive income/(loss), before tax:
Foreign currency translation		36		16		(120)		20
Retirement-related benefit plans (1)		1		0		2		0
Other comprehensive income/(loss), before tax		37		17		(118)		20
Income tax (expense)/benefit related to items of other comprehensive income		14		2		(3)		5
Other comprehensive income/(loss), net of tax	$	52	$	19	$	(121)	$	25
Total comprehensive income/(loss)	$	141	$	132	$	109	$	181

(1)	Amounts presented relate to multiple-employer plans.

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	At June 30,		At December 31,
(Dollars in millions)	2020		2019
Assets:
Cash and cash equivalents	$	1,717	$	1,687
Financing receivables		14,084		17,365
(net of allowances of $182 in 2020 and $148 in 2019)
Equipment under operating leases		154		212
(net of accumulated depreciation of $216 in 2020 and $238 in 2019)
Financing receivables from IBM		3,735		3,870
Receivables purchased/participated from IBM		4,362		4,359
(net of allowances of $22 in 2020 and $8 in 2019)
Other receivables from IBM		792		513
Other assets		544		406
Total assets	$	25,389	$	28,412

Liabilities:
Accounts payable	$	404	$	434
Accounts payable to IBM		931		336
Debt		6,557		7,150
Debt payable to IBM		14,308		16,945
Taxes		600		637
Other liabilities		245		224
Total liabilities	$	23,046	$	25,726
Member’s interest:
Member's interest		2,496		2,601
Retained earnings		—		116
Accumulated other comprehensive income/(loss)		(153)		(31)
Total member's interest	$	2,343	$	2,686
Total liabilities and member’s interest	$	25,389	$	28,412

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	Six Months Ended June 30,
(Dollars in millions)	2020		2019
Cash flows from operating activities:
Net income	$	231	$	156
Adjustments to reconcile net income to cash provided by operating activities:
Provision for/(benefit from) credit losses		45		(4)
Depreciation		59		88
Deferred taxes		(49)		27
Net (gain)/loss on asset sales and other		(55)		(44)
Change in operating assets and liabilities:
Other assets/other liabilities		(117)		(198)
Net cash provided by operating activities	$	115	$	26

Cash flows from investing activities:
Originations of financing receivables	$	(5,914)	$	(6,872)
Collection of financing receivables		7,202		7,446
Proceeds from sales of financing receivables		715		—
Short-term financing receivables - net (1)		1,575		4,884
Purchase of equipment under operating leases		(23)		(29)
Proceeds from disposition of equipment under operating lease		38		32
Other receivables from IBM - net		(296)		1,697
Other investing activities - net		42		39
Net cash provided by investing activities	$	3,339	$	7,197

Cash flows from financing activities:
Proceeds from issuance of debt from IBM	$	3,801	$	5,858
Principal payments on debt from IBM		(4,534)		(5,903)
Proceeds from issuance of debt		419		500
Principal payments on debt		(674)		(431)
Short-term borrowings from/(repayments to) IBM - net (1)		(1,723)		(4,914)
Short-term borrowings/(repayments) - net (1)		(293)		(1,486)
Distributions to IBM		(411)		(942)
Net cash used in financing activities	$	(3,415)	$	(7,318)

Effect of exchange rate changes on cash and cash equivalents	$	(9)	$	0
Net change in cash and cash equivalents	$	30	$	(96)

Cash and cash equivalents at January 1		1,687		1,828
Cash and cash equivalents at June 30	$	1,717	$	1,732

(1)	Short-term represents original maturities of 90 days or less.

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST

(UNAUDITED)


					Accumulated
					Other		Total
	Member's		Retained		Comprehensive		Member’s
(Dollars in millions)	Interest		Earnings		Income/(Loss)		Interest
Member’s Interest, April 1, 2020	$	2,601	$	48	$	(204)	$	2,445
Net income plus other comprehensive income/(loss):
Net income				89				89
Other comprehensive income/(loss), net of tax						52		52
Total comprehensive income/(loss)							$	141
Contributions from IBM		—						—
Distributions to IBM		(105)		(137)				(242)
Member’s Interest, June 30, 2020	$	2,496	$	—	$	(153)	$	2,343

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)


					Accumulated
					Other		Total
	Member's		Retained		Comprehensive		Member’s
(Dollars in millions)	Interest		Earnings		Income/(Loss)		Interest
Member’s Interest, April 1, 2019	$	3,191	$	—	$	(27)	$	3,164
Net income plus other comprehensive income/(loss):
Net income				113				113
Other comprehensive income/(loss), net of tax						19		19
Total comprehensive income/(loss)							$	132
Contributions from IBM		—						—
Distributions to IBM		(459)		(113)				(572)
Member’s Interest, June 30, 2019	$	2,733	$	—	$	(8)	$	2,724

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST – (CONTINUED)

(UNAUDITED)


					Accumulated
					Other		Total
	Member's		Retained		Comprehensive		Member’s
(Dollars in millions)	Interest		Earnings		Income/(Loss)		Interest
Member’s Interest, January 1, 2020	$	2,601	$	116	$	(31)	$	2,686
Cumulative effect of change in accounting principle (1)				(41)				(41)
Net income plus other comprehensive income/(loss):
Net income				231				231
Other comprehensive income/(loss), net of tax						(121)		(121)
Total comprehensive income/(loss)							$	109
Contributions from IBM		—						—
Distributions to IBM		(105)		(306)				(411)
Member’s Interest, June 30, 2020	$	2,496	$	—	$	(153)	$	2,343

(1) Reflects the adoption of the FASB guidance on current expected credit losses. Refer to note 2, "Accounting Changes."

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)


					Accumulated
					Other		Total
	Member's		Retained		Comprehensive		Member’s
(Dollars in millions)	Interest		Earnings		Income/(Loss)		Interest
Member’s Interest, January 1, 2019	$	3,216	$	238	$	(33)	$	3,420
Net income plus other comprehensive income/(loss):
Net income				156				156
Other comprehensive income/(loss), net of tax						25		25
Total comprehensive income/(loss)							$	181
Contributions from IBM (1)		64						64
Distributions to IBM		(547)		(395)				(942)
Member’s Interest, June 30, 2019	$	2,733	$	—	$	(8)	$	2,724

(1) In accordance with the previously executed Tax Sharing Agreement, $64 million was settled through a non-cash contribution. Refer to note 14, "Relationship with IBM and Related Party Transactions."

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Notes to Consolidated Financial Statements:

1. Basis of Presentation:

The accompanying Consolidated Financial Statements and footnotes of IBM Credit LLC (IBM Credit or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company’s management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company’s results of operations, financial position and cash flows.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.

Member’s interest in the Consolidated Balance Sheet represents the accumulation of the company’s net income over time and contributions from IBM and distributions to IBM. Distributions by the company to IBM are considered first to be a return of profit as reflected in retained earnings in the Consolidated Balance Sheet. Any amount distributed to IBM in excess of the company’s available balance in retained earnings is considered a return of a portion of Member’s interest as reflected in the Consolidated Balance Sheet.

Income tax expense is based on reported income before income taxes. Whereas the majority of non-U.S. entities are separate legal tax filers, the company’s U.S. federal and certain state and foreign operations are included in various IBM consolidated tax returns. In such cases, the income taxes for these entities are calculated using a separate return method modified to apply the benefits-for-loss approach, which is consistent with the company’s Tax Sharing Agreement with IBM. Under this approach, the provision for income taxes is computed as if the company filed tax returns on a separate tax return basis and is then adjusted, as necessary, to reflect IBM’s reimbursement for any tax benefits generated by the company.

The amount of restricted cash included in the Consolidated Balance Sheet and Consolidated Statement of Cash Flows is immaterial for the periods presented.

All significant intracompany transactions between IBM Credit’s businesses have been eliminated. All significant intercompany transactions between IBM Credit and IBM have been included in these Consolidated Financial Statements.

Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company’s 2019 Form 10-K.

Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts.

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Notes to Consolidated Financial Statements — (continued)

2. Accounting Changes:

New Standards to be Implemented

Any current pending standards to be implemented are either not applicable or not material to the company.

Standards Implemented

Reference Rate Reform

Standard/Description–Issuance date: March 2020. This guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued, subject to meeting certain criteria.

Effective Date and Adoption Considerations–The guidance is effective as of March 12, 2020 through December 31, 2022.

Effect on Financial Statements or Other Significant Matters–The company made a policy election in the first quarter of 2020 to adopt the practical expedient which allows for the continuation of fair value hedge accounting for interest rate derivative contracts upon the transition from LIBOR to Secured Overnight Financing Rate (SOFR) or another reference rate alternative, without any impact to the Consolidated Income Statement. The company is continuing to evaluate the potential impact of the replacement of the LIBOR benchmark on its interest rate risk management activities.

Financial Instruments-Credit Losses

Standard/Description–Issuance date: June 2016, with amendments in 2018, 2019 and 2020. This changes the guidance for credit losses based on an expected loss model rather than an incurred loss model. It requires the consideration of all available relevant information when estimating expected credit losses, including past events, current conditions and forecasts and their implications for expected credit losses. It also expands the scope of financial instruments subject to impairment, including off-balance sheet commitments and residual value.

Effective Date and Adoption Considerations–The guidance was effective January 1, 2020, with one-year early adoption permitted. The company adopted the guidance as of the effective date using the transition methodology whereby prior comparative periods were not retrospectively presented in the Consolidated Financial Statements.

Effect on Financial Statements or Other Significant Matters–At January 1, 2020, an increase in the allowance for credit losses of $56 million was recorded for financing receivables (inclusive of its related off-balance sheet commitments). Additionally, net deferred taxes were reduced by $16 million in the Consolidated Balance Sheet, resulting in a cumulative-effect net decrease to retained earnings of $41 million. Refer to note 6, “Financing Receivables, Receivables Purchased/Participated from IBM,” and note 9, “Commitments,” for additional information.

3. Segments:

The company’s operations consist of two business segments: Client Financing and Commercial Financing. The segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in determining how to allocate resources and evaluate performance. The company is organized on the basis of its financing offerings. The company’s reportable segments are business units that offer different financing solutions based upon clients’ needs.

Client Financing provides leases and loan financing to end-user clients, acquires installment payment plans offered to end-user clients by IBM, and acquires participation interests in IBM financing receivables for which the company assumes the IBM client’s credit risk from IBM. End-user clients are primarily IBM clients that elect to finance their acquisition of IBM’s hardware, software, and services, as well as Original Equipment Manufacturer (OEM) IT hardware, software and services, to meet their total solution requirements. In addition, the company provides loans to IBM,

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Notes to Consolidated Financial Statements — (continued)

primarily in support of IBM’s Global Technology Services segment’s acquisition of IT assets, which IBM uses in external, revenue-producing services contracts.

Commercial Financing provides working capital financing for suppliers, distributors and resellers of IBM and OEM IT products and services. The segment’s performance reflects the wind down of OEM IT Commercial Financing operations which began in the second quarter of 2019.

The segment’s pre-tax income includes an allocation of interest expense and selling, general and administrative (SG&A) expense by the company to each of its operating segments. Interest expense is allocated based on the average assets in each segment. SG&A expense is allocated based on a measurable financial driver, such as net margin.

IBM Credit and its consolidated subsidiaries are reported by the company’s parent, IBM, as part of IBM’s Global Financing segment, which also includes IBM’s remanufacturing and remarketing business.

SEGMENT INFORMATION


	Client		Commercial		Total
(Dollars in millions)	Financing		Financing		Segments
For the three months ended June 30, 2020:
Total revenue	$	244	$	35	$	279
Pre-tax income		86		18		104
Depreciation of equipment under operating lease		28		—		28
Interest expense		63		9		72
Provision for/(benefit from) credit losses		27		(1)		27

For the three months ended June 30, 2019:
Total revenue	$	292	$	118	$	410
Pre-tax income		96		40		136
Depreciation of equipment under operating lease		43		—		43
Interest expense		96		39		135
Provision for/(benefit from) credit losses		(5)		(3)		(8)

(Amounts may not add due to rounding.)

SEGMENT INFORMATION


	Client		Commercial		Total
(Dollars in millions)	Financing		Financing		Segments
For the six months ended June 30, 2020:
Total revenue	$	522	$	93	$	615
Pre-tax income		182		50		232
Depreciation of equipment under operating lease		59		—		59
Interest expense		145		21		166
Provision for/(benefit from) credit losses		45		0		45

For the six months ended June 30, 2019:
Total revenue	$	614	$	278	$	892
Pre-tax income		213		116		330
Depreciation of equipment under operating lease		88		—		88
Interest expense		193		92		285
Provision for/(benefit from) credit losses		(6)		2		(4)

(Amounts may not add due to rounding.)

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Notes to Consolidated Financial Statements — (continued)

4. Divestiture:

In the first quarter of 2019, IBM sold certain commercial financing capabilities and assigned a number of its commercial financing contracts, excluding related receivables which were collected as they became due in the normal course of business, to a third party and recorded a pre-tax gain of $16 million.

5. Financial Assets and Liabilities:

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The company classifies certain assets and liabilities based on the following fair value hierarchy:

●

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date;

●

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

●

Level 3—Unobservable inputs for the asset or liability.

When available, the company uses unadjusted quoted market prices in active markets to measure the fair value and classifies such items as Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation.

The determination of fair value considers various factors, including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument.

In determining the fair value of financial instruments, the company considers certain market valuation adjustments to the “base valuations” calculated using the methodologies described below for several parameters that market participants would consider in determining fair value:

●

Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument.

●

Credit risk adjustments are applied to reflect the company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company’s own credit risk as observed in the credit default swap market.

The company holds investments in time deposits and certificates of deposit that are designated as available-for-sale. The primary objective of the company’s cash and debt investment portfolio is to maintain principal by investing in very liquid and highly rated investment grade securities.

Available-for-sale securities are measured for impairment on a recurring basis by comparing the security’s fair value with its amortized cost basis. Effective January 1, 2020 with the adoption of the new standard on credit losses, if the fair value of the security falls below its amortized cost basis, the change in fair value is recognized in the period the impairment is identified when the loss is due to credit factors. The change in fair value due to non-credit factors is recorded in other comprehensive income when the company does not intend to sell and has the ability to hold the investment. The company’s standard practice is to hold all of its debt security investments classified as available-for-sale until maturity. There were no impairments for credit losses or non-credit impairments for the three and six months ended

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Notes to Consolidated Financial Statements — (continued)

June 30, 2020. Prior to the adoption of the new standard, available-for-sale securities were measured for impairment using an other-than-temporary impairment model. No impairment was recorded for the three and six months ended June 30, 2019.

The following table presents the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019.



	Fair Value
	Hierarchy	At June 30, 2020				At December 31, 2019
(Dollars in millions)	Level	Assets		Liabilities		Assets		Liabilities
Cash equivalents (1)
Time deposits and certificates of deposit (2)	2	$	666	$	N/A	$	788	$	N/A
Money market funds	1		—		N/A		5		N/A
Total cash equivalents		$	666	$	N/A	$	793	$	N/A
Derivatives designated as hedging instruments (3)
Interest rate contracts with IBM	2		99		—		45		—
Foreign exchange contracts with IBM	2		0		26		—		18
Total		$	765	$	26	$	838	$	18

(1)	Included within cash and cash equivalents in the Consolidated Balance Sheet.

(2)	Available-for-sale securities with an amortized cost basis that approximates fair value.

(3)	Included within other assets and other liabilities in the Consolidated Balance Sheet.

N/A – not applicable

Financial Assets and Liabilities Not Measured at Fair Value

Short-Term Receivables and Payables

Short-term financing receivables are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (including debt payable to IBM) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy, except for short-term debt, which would be classified as Level 2.

Long-Term Receivables

Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At June 30, 2020 and December 31, 2019, the difference between the carrying amount and estimated fair value for long-term receivables was immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.

Long-Term Debt

Fair value of publicly traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt, which includes debt payable to IBM, for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt (including debt payable to IBM) was $14,682 million and $15,268 million, and the estimated fair value was $14,843 million and $15,409 million at June 30, 2020 and December 31, 2019, respectively. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy.

6. Financing Receivables, Receivables Purchased/Participated from IBM:

Financing receivables primarily consist of client loan and installment payment receivables (loans), investment in sales-type and direct financing leases and Commercial Financing receivables. Loans are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are generally for terms up to seven years. Investment in sales-type and direct financing leases relate principally to the company’s

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Notes to Consolidated Financial Statements — (continued)

Systems products and are for terms ranging generally from two to six years. Commercial Financing receivables relate primarily to working capital financing for dealers and remarketers of IBM products. Payment terms for working capital financing generally range from 30 to 90 days.

The company purchases interests in certain of IBM’s short-term receivables. These receivables are included within the Commercial Financing segment. The company also participates in receivables from IBM for certain long-term financing receivables generated from IBM’s Total Solution Offerings in certain countries as well as for certain government and other contracts. The company carries the credit risk of IBM’s clients for all purchased and participated receivables from IBM.

Loans, investment in sales-type and direct financing leases, and participated receivables from IBM are collectively referred to as Client Financing receivables and are included within the Client Financing segment.

Effective January 1, 2020, the company adopted the new accounting standard related to credit losses, using the transition methodology whereby prior comparative periods were not retrospectively presented in the Consolidated Financial Statements. Refer to note 2, “Accounting Changes,” for additional information. Under this new guidance, the amortized cost basis of a financial asset represents the original amount of the financing receivable (including residual value) adjusted for unearned income, deferred initial direct costs, cash collected, write-offs and any foreign exchange adjustments. The allowance for credit losses represents future expected credit losses over the life of the receivables based on past experience, current information and forward-looking economic considerations. Prior to the effective date, financing receivables were measured at recorded investment, which does not include residual value. As a result, all prior periods are presented at recorded investment, while current period information is presented at amortized cost. Additionally, current period information reflects updates to the portfolio segments, and other presentation changes within the following tables, as a result of the adoption of this new guidance.

A summary of the components of the company’s financing receivables and receivables purchased/participated from IBM is presented as follows:


	Client Loan and
	Installment
	Payment				Commercial
(Dollars in millions)	Receivables		Investment in		Financing
At June 30, 2020:	(Loans)		Leases		Receivables		Total
Financing receivables, gross	$	8,603	$	3,661	$	2,031	$	14,296
Unearned income		(317)		(281)		(3)		(601)
Deferred initial direct costs		63		25		—		88
Residual value*		—		483		—		483
Amortized cost	$	8,349	$	3,888	$	2,029	$	14,266
Allowance for credit losses		(101)		(72)		(9)		(182)
Total financing receivables, net	$	8,248	$	3,816	$	2,020	$	14,084

* Includes guaranteed and unguaranteed residual value

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Notes to Consolidated Financial Statements — (continued)


	Client Loan and
	Installment
	Payment				Commercial
(Dollars in millions)	Receivables		Investment in		Financing
At December 31, 2019:	(Loans)		Leases		Receivables		Total
Financing receivables, gross	$	9,566	$	4,626	$	3,400	$	17,592
Unearned income		(373)		(384)		(4)		(761)
Deferred initial direct costs		71		32		—		103
Recorded investment	$	9,264	$	4,274	$	3,396	$	16,934
Allowance for credit losses		(82)		(56)		(9)		(148)
Unguaranteed residual value		—		531		—		531
Guaranteed residual value		—		47		—		47
Total financing receivables, net	$	9,181	$	4,796	$	3,387	$	17,365


	At June 30,		At December 31,
(Dollars in millions)	2020		2019
Short-term purchased receivables from IBM	$	50	$	56
Allowance for credit losses		0		0
Total short-term purchased receivables from IBM, net	$	50	$	56

Long-term participated receivables from IBM	$	4,333	$	4,310
Allowance for credit losses		(21)		(7)
Total long-term participated receivables from IBM, net	$	4,312	$	4,303

Total receivables purchased/participated from IBM, net	$	4,362	$	4,359

The company has a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties. These actions may include credit insurance, financial guarantees, nonrecourse borrowings, transfers of receivables recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease.

Financing receivables pledged as collateral for borrowings were $758 million and $1,062 million at June 30, 2020 and December 31, 2019, respectively.

In the second quarter of 2020, the company sold $711 million of Client Financing receivables, consisting of lease and loan receivables of $417 million and $294 million, respectively, approximately half of which were scheduled to be due within the next 12 months. The transfer of these receivables qualified as true sales and therefore reduced financing receivables and resulted in a benefit to cash flows from investing activities of $715 million. The impact to the Consolidated Income Statement, including fees and net gain associated with the transfer of these receivables was not material.

The company did not have any financing receivables held for sale at June 30, 2020 and December 31, 2019.

Allowance for Credit Losses

Refer to note A, “Significant Accounting Policies,” in the company’s 2019 Annual Report for a full description of its accounting policies for financing receivables and related allowances. The descriptions below include any changes to those policies due to the new standard.

Effective with the adoption of the new credit losses standard, the company’s estimates of its allowances for expected credit losses include consideration of: past events, including any historical default, historical concessions and resulting troubled debt restructurings, current economic conditions, taking into account any non-freestanding mitigating credit enhancements, and certain forward-looking information, including reasonable and supportable forecasts.

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Notes to Consolidated Financial Statements — (continued)

Collectively Evaluated Receivables

The company determines its allowance for credit losses based on two portfolio segments: Client Financing receivables and Commercial Financing receivables, and further segments the portfolio into three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific.

For Client Financing receivables, the company uses a credit loss model to calculate allowances based on its internal loss experience and current conditions and forecasts by class of financing receivable. The company records an unallocated reserve that is calculated by applying a reserve rate to its portfolio, excluding accounts that have been individually evaluated and specifically reserved. This reserve rate is based upon credit rating, probability of default, term and loss history. The allowance is adjusted quarterly for expected recoveries of amounts that were previously written off or are expected to be written off. Recoveries cannot exceed the aggregated amount of the previous write-off or expected write-off.

Macroeconomic variables attributed to the expected credit losses for Client Financing receivables may vary by class of financing receivables based on historical experiences, portfolio composition, and current environment. In addition to a qualitative review of credit risk factors across the portfolio, the company considers forward-looking macroeconomic variables such as gross domestic product, unemployment rates, equity prices and corporate profits when quantifying the impact of economic forecasts on its Client Financing receivables allowance for expected credit losses. The company also considers the impact of current conditions and economic forecasts relating to specific industries, geographical areas, and client-specific exposures on the portfolio. Under this approach, forecasts of these variables over two years are considered reasonable and supportable. Beyond two years, the company reverts to long-term average loss experience. Forward-looking estimates require the use of judgment, particularly in times of economic uncertainty. Consistent with the first quarter of 2020, with evolving global impacts from the COVID-19 pandemic, external economic models have been revised with increased frequency and with alternative scenarios. The company’s allowances at June 30, 2020, reflect the qualitative process described above. Any changes to economic models that occurred after the balance sheet date will be reflected in future periods.

The allowance for Commercial Financing receivables is estimated based on a combination of write-off history and current economic conditions, excluding any individually evaluated accounts. The Commercial Financing receivables portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current estimated risk of loss and resulting impact to the company’s financial results are not material.

At January 1, 2020, upon adoption of the new standard on credit losses, the company recorded an additional allowance for Client and Commercial Financing receivables (including related off-balance sheet commitments) of $56 million. This was primarily driven by an increase in the Client Financing receivables allowance. Refer to note 9, “Commitments,” for additional information regarding off-balance sheet commitments.

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Notes to Consolidated Financial Statements — (continued)

Client Financing Receivables

The following tables present the amortized cost basis or recorded investment for Client Financing receivables at June 30, 2020 and December 31, 2019, respectively, further segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific.


(Dollars in millions)
At June 30, 2020:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	8,948	$	4,759	$	2,863	$	16,570

Allowance for credit losses
Beginning balance at December 31, 2019	$	98	$	36	$	11	$	146
Adjustment for adoption of new standard		21		13		4		39
Beginning balance at January 1, 2020	$	120	$	50	$	16	$	185
Write-offs	$	(15)	$	(1)	$	(1)	$	(17)
Recoveries		0		—		2		2
Additions/(releases)		28		9		(1)		37
Other*		(12)		0		0		(12)
Ending balance at June 30, 2020	$	121	$	58	$	15	$	194

* Primarily represents translation adjustments.


(Dollars in millions)
At December 31, 2019:	Americas		EMEA		Asia Pacific		Total
Recorded investment
Lease receivables	$	3,160	$	710	$	404	$	4,274
Loan receivables		6,173		2,415		676		9,264
Participated receivables from IBM		717		1,671		1,922		4,310
Ending balance	$	10,049	$	4,796	$	3,003	$	17,848
Recorded investment collectively evaluated for impairment	$	9,957	$	4,770	$	2,993	$	17,720
Recorded investment individually evaluated for impairment	$	92	$	26	$	10	$	128

Allowance for credit losses
Beginning balance at January 1, 2019
Lease receivables	$	38	$	17	$	10	$	65
Loan receivables		66		28		5		98
Participated receivables from IBM		3		8		3		14
Total	$	107	$	53	$	17	$	177
Write-offs	$	(14)	$	(10)	$	(4)	$	(29)
Recoveries		0		0		0		1
Additions/(releases)		7		(6)		(2)		(2)
Foreign currency translation adjustment		(1)		0		0		(1)
Other		0		0		0		0
Ending balance at December 31, 2019	$	98	$	36	$	11	$	146
Lease receivables	$	27	$	21	$	8	$	56
Loan receivables	$	68	$	12	$	2	$	82
Participated receivables from IBM	$	3	$	3	$	1	$	7

Related allowance, collectively evaluated for impairment	$	23	$	11	$	3	$	36
Related allowance, individually evaluated for impairment	$	75	$	26	$	9	$	110

Write-offs of lease receivables and loan receivables were $17 million and $11 million, respectively, for the year ended December 31, 2019. Provisions for credit losses recorded for lease receivables and participated receivables from IBM were an addition of $5 million and a release of $6 million, respectively, for the year ended December 31, 2019.

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Notes to Consolidated Financial Statements — (continued)

Past Due Financing Receivables

The company considers a client’s financing receivable balance past due when any installment is aged over 90 days. The following tables summarize information about the amortized cost basis or recorded investment in Client Financing receivables, including amortized cost or recorded investment aged over 90 days and still accruing, billed invoices aged over 90 days and still accruing, and amortized cost or recorded investment not accruing.


					Amortized		Billed		Amortized
	Total		Amortized		Cost		Invoices		Cost
(Dollars in millions)	Amortized		Cost		> 90 Days and		> 90 Days and		Not
At June 30, 2020:	Cost		> 90 Days (1)		Accruing (1)		Accruing		Accruing (2)
Americas	$	8,948	$	306	$	230	$	29	$	96
EMEA		4,759		93		30		4		68
Asia Pacific		2,863		19		11		2		8
Total client financing receivables	$	16,570	$	418	$	271	$	35	$	172

(1)	At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days.

(2)	Of the amortized cost not accruing, there was a related allowance of $116 million. Financing income recognized on these receivables was immaterial for the three and six months ended June 30, 2020, respectively.


					Recorded		Billed		Recorded
	Total		Recorded		Investment		Invoices		Investment
(Dollars in millions)	Recorded		Investment		> 90 Days and		> 90 Days and		Not
At December 31, 2019:	Investment		> 90 Days (1)		Accruing (1)		Accruing		Accruing (2)
Americas	$	3,160	$	179	$	143	$	10	$	37
EMEA		710		24		11		1		16
Asia Pacific		404		9		2		0		7
Total lease receivables	$	4,274	$	213	$	156	$	11	$	59

Americas	$	6,173	$	107	$	66	$	10	$	56
EMEA		2,415		51		3		1		51
Asia Pacific		676		3		1		0		2
Total loan receivables	$	9,264	$	161	$	69	$	11	$	110

Americas	$	717	$	8	$	8	$	1	$	0
EMEA		1,671		7		7		1		1
Asia Pacific		1,922		6		5		1		1
Total participated receivables from IBM	$	4,310	$	21	$	20	$	3	$	2

Total	$	17,848	$	394	$	245	$	25	$	171

(1)	At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days.

(2)	Of the recorded investment not accruing, $128 million is individually evaluated for impairment with a related allowance of $110 million. Financing income recognized on these receivables was immaterial for the three and six months ended June 30, 2019, respectively.

Credit Quality Indicators

The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody’s, where available, as one of many inputs in its determination of customer credit ratings. The credit quality of the customer is evaluated based on these indicators and is assigned the same risk rating whether the receivable is a lease, loan or participated from IBM.

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Notes to Consolidated Financial Statements — (continued)

The following tables present the amortized cost basis or recorded investment for Client Financing receivables by credit quality indicator at June 30, 2020 and December 31, 2019, respectively. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. Effective January 1, 2020, under the new guidance for credit losses, the company discloses its credit quality by year of origination. Additionally, under the new guidance, the amortized cost is presented on a gross basis, whereas under the prior guidance, the company presented the recorded investment net of the allowance for credit losses. At June 30, 2020, the credit quality indicators reflect mitigating credit enhancement actions taken by the customer which reduces the risk to the company.


(Dollars in millions)	Americas				EMEA				Asia Pacific
At June 30, 2020	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2020	$	1,539	$	1,173	$	904	$	1,030	$	513	$	206
2019		2,054		1,175		882		810		659		235
2018		1,161		601		387		319		463		192
2017		575		254		104		165		240		68
2016		142		92		48		55		167		37
2015 and prior		57		126		30		23		72		13
Total	$	5,528	$	3,420	$	2,356	$	2,403	$	2,113	$	750


	Lease Receivables						Loan Receivables						Participated Receivables from IBM
(Dollars in millions)					Asia						Asia						Asia
At December 31, 2019	Americas		EMEA		Pacific		Americas		EMEA		Pacific		Americas		EMEA		Pacific
Credit Ratings:
Aaa – Aa3	$	305	$	55	$	31	$	732	$	89	$	89	$	440	$	88	$	89
A1 – A3		700		88		124		1,166		178		237		71		271		934
Baa1 – Baa3		949		153		83		1,756		907		107		104		762		500
Ba1 – Ba2		733		206		61		1,461		532		159		49		442		245
Ba3 – B1		196		137		62		444		455		46		43		88		126
B2 – B3		236		45		32		513		228		33		4		18		26
Caa – D		13		5		2		32		15		3		2		0		2
Total	$	3,133	$	689	$	396	$	6,105	$	2,403	$	674	$	714	$	1,668	$	1,921

Troubled Debt Restructurings

The company did not have any significant troubled debt restructurings during the six months ended June 30, 2020 or for the year ended December 31, 2019.

7. Leases

Accounting for Leases as a Lessor

The following table presents amounts included in the Consolidated Income Statement related to lessor activity:


(Dollars in millions)
For the three months ended June 30:	2020		2019
Financing lease revenue	$	43	$	51
Operating lease revenue		54		70
Variable lease revenue		1		2
Total lease revenue	$	98	$	124

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Notes to Consolidated Financial Statements — (continued)


(Dollars in millions)
For the six months ended June 30:	2020		2019
Financing lease revenue	$	93	$	107
Operating lease revenue		112		149
Variable lease revenue		12		12
Total lease revenue	$	217	$	268

8. Borrowings:

Short-Term Debt


	Balance		Balance
(Dollars in millions)	6/30/2020		12/31/2019
Commercial paper	$	—	$	304
Short-term loans		77		49
Secured borrowings		169		280
Debt	$	245	$	633
Debt payable to IBM		5,938		8,194
Total	$	6,184	$	8,827

The weighted-average interest rate for commercial paper was 1.6 percent at December 31, 2019. The weighted-average interest rate for short-term loans was 3.1 percent and 5.2 percent at June 30, 2020 and December 31, 2019, respectively. The weighted-average interest rate for secured borrowings was 3.0 percent and 3.6 percent at June 30, 2020 and December 31, 2019, respectively. Short-term financing receivables pledged as collateral for short-term secured borrowings were $169 million at June 30, 2020 and $280 million at December 31, 2019. The weighted-average interest rate for debt payable to IBM was 0.3 percent and 1.6 percent at June 30, 2020 and December 31, 2019, respectively.

Long-Term Debt


		Balance		Balance
(Dollars in millions)	Maturities	6/30/2020		12/31/2019
Long-term notes (weighted-average interest rate at June 30, 2020)
2.1%	2020	$	1,500	$	1,500
2.1%	2021		2,850		2,850
2.2%	2022		500		500
3.0%	2023		750		750
		$	5,600	$	5,600

Long-term loans (4.2% weighted-average interest rate at June 30, 2020)	2020-2021		49		113
Secured borrowings (4.1% weighted-average interest rate at June 30, 2020)	2020-2026		590		781
Long-term debt		$	6,239	$	6,495
Less: net unamortized discount			1		1
Less: net unamortized debt issuance costs			3		5
Add: fair value adjustment*			77		28
Debt		$	6,312	$	6,517
Debt payable to IBM (1.4% weighted-average interest rate at June 30, 2020)			8,370		8,751
Total		$	14,682	$	15,268

The portion of the company's fixed-rate debt obligations that is hedged is reflected in the Consolidated Balance Sheet as an amount equal to the sum of the debt's carrying value and a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates.

The company utilizes certain of its financing receivables as collateral. Long-term financing receivables pledged as collateral for long-term secured borrowings were $590 million at June 30, 2020 and $781 million at December 31, 2019.

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Notes to Consolidated Financial Statements — (continued)

The company’s indenture governing its debt securities contains significant covenants which obligate the company to promptly pay principal and interest, limit the aggregate amount of liens (other than permitted liens as such term is defined under the indenture) to 15 percent of the company’s consolidated net tangible assets, and restrict the company’s ability to merge or consolidate unless certain conditions are met.

Pre-swap annual contractual obligations of long-term debt and long-term debt payable to IBM outstanding at June 30, 2020, are as follows:


	2020										2025 and
(Dollars in millions)	(Q3-Q4)		2021		2022		2023		2024		beyond		Total
Long-term debt	$	1,702	$	3,135	$	609	$	786	$	5	$	0	$	6,239
Debt payable to IBM		2,297		2,832		2,113		786		267		75		8,370
Total	$	3,999	$	5,967	$	2,723	$	1,572	$	272	$	76	$	14,609

Interest on Debt

The company recognized interest expense of $72 million and $166 million for the three and six months ended June 30, 2020, of which $35 million and $84 million was interest expense on debt payable to IBM, respectively. The company recognized interest expense of $135 million and $285 million for the three and six months ended June 30, 2019, of which $58 million and $131 million was interest expense on debt payable to IBM, respectively.

Lines of Credit

On July 2, 2020, IBM and the company entered into a new $2.5 billion 364-day Credit Agreement to replace the existing $2.5 billion 364-day Credit Agreement, and also extended the maturity date of the existing $2.5 billion Three-Year Credit Agreement (together, the Credit Agreements). The new maturity dates for the 364-day and Three-Year Credit Agreements are July 1, 2021 and July 20, 2023, respectively. As of June 30, 2020, the company had no borrowings outstanding against the Credit Agreements.

The company’s Credit Agreements each contain significant debt covenants, which obligate the company to promptly pay principal and interest, limit the aggregate amount of secured indebtedness and sale and leaseback transactions to 10 percent of IBM’s consolidated net tangible assets, and restrict the ability of the company or IBM to merge or consolidate with a third party, unless certain conditions are met. The Credit Agreements also include several financial covenants, including that (i) IBM will not permit the consolidated net interest expense ratio, for any period of four consecutive fiscal quarters taken as a single accounting period, to be less than 2.20 to 1.0; (ii) the company will not permit its tangible net worth to be less than $50 million as of the end of the fiscal year and (iii) the company’s leverage ratio cannot be greater than 11 to 1 as of the last day of the fiscal quarter. The Credit Agreements each contain a cross default provision with respect to other defaulted indebtedness of at least $500 million.

The company is in compliance with its debt covenants, and provides periodic certifications to its lenders. The failure to comply with its debt covenants could constitute an event of default. If certain events of default were to occur, the principal and interest on the debt to which such event of default applied would become immediately due and payable. The Borrowers are also restricted from amending, modifying or terminating the Support Agreement in any manner materially adverse to the lenders. For additional information on the Support Agreement, see note 14, “Relationship with IBM and Related Party Transactions.”

9. Commitments:

The company’s extended lines of credit to third-party entities include unused amounts of $1.8 billion at both June 30, 2020 and December 31, 2019. A portion of these amounts is available to the company’s business partners to support their working capital needs. In addition, the company has committed to provide future financing to its clients in connection with client purchase agreements for approximately $5.7 billion and $5.4 billion at June 30, 2020 and December 31, 2019, respectively. Effective January 1, 2020, the company adopted the new standard on credit losses, which resulted in the recognition of a related allowance for non-cancellable off-balance sheet commitments. Refer to

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Notes to Consolidated Financial Statements — (continued)

note 2, “Accounting Changes,” for additional information. The allowance for these commitments is recorded in other liabilities in the Consolidated Balance Sheet and was not material at June 30, 2020. The company collectively evaluates the allowance for these arrangements using a provision methodology consistent with the portfolio of the commitments. Refer to note 6, “Financing Receivables, Receivables Purchased/Participated from IBM,” for additional information.

10. Contingencies:

The company is, or may be, involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise in the ordinary course of its business. Certain of these actions and proceedings are similar to suits filed against other financial institutions and captive finance companies. These may include collection and bankruptcy proceedings related to its leases and loans and proceedings concerning client allegations of wrongful repossession or defamation of credit.

The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate). In addition, the company also discloses matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, client and employee relations considerations.

The company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any recorded liabilities, including any changes to such liabilities for the quarter ended June 30, 2020 were not material to the Consolidated Financial Statements.

In accordance with the relevant accounting guidance, the company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. As of June 30, 2020, there were no such matters.

11. Equity Activity:

IBM Credit had no unrealized gains or (losses) on cash flow hedges and gains and losses on available-for-sale securities were immaterial during the periods presented in the following tables:

Reclassifications and Taxes Related to Items of Other Comprehensive Income


(Dollars in millions)	Before Tax		Tax (Expense)/		Net of Tax
For the three months ended June 30, 2020:	Amount		Benefit		Amount
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	36	$	14	$	51
Retirement-related benefit plans (1):
Net (losses)/gains arising during the period	$	—	$	—	$	—
Curtailments and settlements		0		0		0
Amortization of prior service (credits)/costs		0		0		0
Amortization of net (gains)/losses		1		0		1
Total retirement-related benefit plans	$	1	$	0	$	1
Other comprehensive income/(loss)	$	37	$	14	$	52

(1)	These accumulated other comprehensive income (AOCI) components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.)

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Notes to Consolidated Financial Statements — (continued)

Reclassifications and Taxes Related to Items of Other Comprehensive Income


(Dollars in millions)	Before Tax		Tax (Expense)/		Net of Tax
For the three months ended June 30, 2019:	Amount		Benefit		Amount
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	16	$	2	$	19
Retirement-related benefit plans (1):
Net (losses)/gains arising during the period	$	—	$	0	$	0
Curtailments and settlements		—		—		—
Amortization of prior service (credits)/costs		0		0		0
Amortization of net (gains)/losses		0		0		0
Total retirement-related benefit plans	$	0	$	0	$	0
Other comprehensive income/(loss)	$	17	$	2	$	19

(1)	These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.)

Reclassifications and Taxes Related to Items of Other Comprehensive Income


(Dollars in millions)	Before Tax		Tax (Expense)/		Net of Tax
For the six months ended June 30, 2020:	Amount		Benefit		Amount
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	(120)	$	(3)	$	(123)
Retirement-related benefit plans (1):
Net (losses)/gains arising during the period	$	0	$	0	$	0
Curtailments and settlements		0		0		0
Amortization of prior service (credits)/costs		0		0		0
Amortization of net (gains)/losses		2		0		2
Total retirement-related benefit plans	$	2	$	0	$	2
Other comprehensive income/(loss)	$	(118)	$	(3)	$	(121)

(1)	These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.)

Reclassifications and Taxes Related to Items of Other Comprehensive Income


(Dollars in millions)	Before Tax		Tax (Expense)/		Net of Tax
For the six months ended June 30, 2019:	Amount		Benefit		Amount
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	20	$	5	$	25
Retirement-related benefit plans (1):
Net (losses)/gains arising during the period	$	0	$	0	$	0
Curtailments and settlements		—		—		—
Amortization of prior service (credits)/costs		0		0		0
Amortization of net (gains)/losses		1		0		1
Total retirement-related benefit plans	$	0	$	0	$	0
Other comprehensive income/(loss)	$	20	$	5	$	25

(1)	These AOCI components are included in the computation of net periodic pension cost. (Refer to note 13, "Retirement-Related Benefits," for additional information.)

Table of Contents

Notes to Consolidated Financial Statements — (continued)

Accumulated Other Comprehensive Income/(Loss) (net of tax)

IBM CREDIT LLC 10-Q