Let’s Create
2023 Annual Report
Chairman and Chief Executive Officer
Arvind Krishna
Dear IBM Investor:
In 2023, we made significant
progress in our journey to become
a more innovative and focused
company, built around the two most
transformational technologies of
our time: hybrid cloud and AI. We
executed against a proven strategy,
refined our portfolio, expanded our
ecosystem of partners, and enhanced
productivity throughout IBM.
We also continued to address the evolving needs of our clients.
As AI becomes a top priority, our clients are using watsonx
– IBM’s flagship AI and data platform – to help revolutionize
customer service, modernize countless lines of code, and
automate enterprise tasks to boost employee productivity.
I have never been more confident in IBM’s direction. Today’s
IBM is more capable and more productive. We have a strong
portfolio and a solid foundation to support sustainable growth.
And we are delivering on our promise to be the catalyst that
makes the world work better.
2023 performance
For the year, IBM generated $61.9 billion in revenue, up 3%
at constant currency, and $11.2 billion of free cash flow, up
$1.9 billion year-over-year. We experienced growing demand
for our new watsonx platform, marked by thousands of client
interactions. This demand contributed to roughly doubling the
book of business for watsonx and generative AI from the third
to the fourth quarter.
IBM 2023 Annual Report
1
Software
Consulting
Infrastructure
We also expanded profit margins by emphasizing high-
value offerings in Consulting and Software and by digitally
transforming our processes and scaling AI to enhance
productivity within IBM.
Software revenues were up more than 5% at constant
currency, as clients turned to our advanced software
capabilities across hybrid cloud, data & AI, automation,
transactions processing, and security. Our performance was
led by Red Hat, and we had solid growth in our recurring
revenue base.
Consulting revenues were up 6% at constant currency.
We capitalized on the growing need for expertise in
digital transformation and AI deployment, leveraging our
consulting services in data and technology consulting,
cloud modernization, application operations, and business
transformation.
Infrastructure revenues decreased by 4% at constant
currency, in line with the typical product cycle dynamics in
this segment. IBM z16 is significantly outperforming previous
cycles, demonstrating the enduring value this platform
provides to our clients.
IBM’s revenue growth and cash generation enabled us to
make substantial investments in the business and deliver
value to our shareholders. In 2023, IBM spent nearly $7
billion on research and development, more than $5 billion to
acquire nine companies, and returned more than $6 billion to
stockholders through dividends.
Technology and expertise
AI and hybrid cloud continue to drive value creation, allowing
businesses to scale, increase productivity, and seize new
market opportunities. IBM has built two powerful platforms
to capitalize on the strong demand for both technologies:
watsonx for AI, and Red Hat OpenShift for hybrid cloud.
Watsonx is our comprehensive AI and data platform, built to
deliver AI models and give our clients the ability to manage
the entire lifecycle of AI for business, including the training,
tuning, deployment, and ongoing governance of those models.
As clients shift from experimenting with generative AI to
building and deploying it throughout their enterprises, we are
focused on practical and urgent business use cases, including
code modernization, customer service, and digital labor.
Financial institutions like Citi, Bradesco, and NatWest
are using watsonx to help increase productivity, improve
code quality, and enhance customer experiences. Our
enterprise-ready AI capabilities are being embedded into
SAP solutions. EY launched EY.ai Workforce, a new solution
that will use watsonx Orchestrate to automate HR tasks and
processes. Service partners such as NTT Data Business
Solutions, Wipro, and TCS are launching watsonx Centers
of Excellence to scale AI-powered client innovations. And
generative AI from watsonx, combined with expertise from
Consulting, is enhancing the digital experiences of the U.S.
Open, the Masters, Wimbledon, the GRAMMYs, and ESPN
Fantasy Football.
2
IBMers are also embracing watsonx to unleash greater
productivity, eliminate complexity, simplify workflows, and
automate manual tasks. Examples include processing HR and
IT tasks more easily, generating code up to 60% faster, and
answering client inquiries more quickly.
Hybrid cloud architectures have seen massive adoption, with
nearly 80% of IT decision makers operating hybrid cloud
environments. But nearly two thirds of companies report
difficulty managing these complex environments, a challenge
that will grow as businesses deploy generative AI across
multiple clouds. IBM’s industry-leading hybrid cloud platform,
based on Red Hat OpenShift, can solve this problem. It
helps our clients move from architectures that are hybrid by
default to architectures that are hybrid by design. It enables
companies to run workloads seamlessly across multiple
clouds, both public and private, to simplify operations, unify
data and applications, and accelerate new innovations. And
it complements our watsonx platform, allowing clients the
flexibility to manage multi-model AI across complex, multi-
cloud environments.
Virgin Money is harnessing IBM’s hybrid cloud to enable new
digital customer experiences and improve their credit card
services. Red Hat OpenShift is now the preferred platform
provider to Nokia’s core network applications business.
And the Boston Red Sox are leveraging our hybrid cloud
technologies to improve the club’s operations.
Experts from Consulting provide differentiated value as we
establish IBM as a leader in AI for business, just as they did
with our hybrid cloud business. Our extensive network of
data and AI consultants has already facilitated thousands of
hands-on client interactions. IBM combines technology with
consulting services to deliver the data architecture, security,
and governance our clients need to adopt trusted AI solutions.
IBM consultants are working with Riyadh Air on mission-
critical technology and business capabilities to support the
path to their first flight. NATO chose IBM to help detect and
respond to cyber threats with greater speed. And Diageo
partnered with Consulting and SAP on an ambitious five-year
business transformation and cloud migration.
along with new machine learning, intelligence, and operational
improvements for z/OS.
In addition, we enhanced IBM’s portfolio with nine
acquisitions in 2023, including Apptio, a suite of software to
help our clients better understand their technology investment
and the business value it delivers.
Client engagement and partnership
IBM’s success is directly tied to the success of our clients.
Their problems are our problems. And their opportunities
are our opportunities. That is why we developed a more
collaborative, experience-based approach that allows us to
respond effectively to their needs.
The IBM Garage Method, now integrated across our business,
combines agile development and design thinking to facilitate
co-creation with our clients. Clients have embraced this highly
collaborative way of working with IBM, turning ideas into
outcomes with thousands of Garage engagements throughout
the year.
Our approach to client engagement allows us to meet clients
where they are, bringing together whatever technology
and expertise are needed across our expanding partner
ecosystem. That is why we strengthened our strategic
partnerships with key industry players like Adobe, AWS,
Microsoft, SAP, Salesforce, Samsung, and others. Strategic
partnerships now make up more than 40% of our Consulting
revenue and delivered double-digit growth in both signings
and revenue for the year.
Research and development
In 2023, IBM Research advanced the fundamental science
of several critical technologies, including AI, quantum
computing, and semiconductors.
In AI, we demonstrated our ability to quickly transform
research into commercial applications. We launched the
watsonx AI and data platform, introduced the groundbreaking
Granite AI foundational model, and developed new AI-
optimized hardware.
Throughout 2023, clients modernized their infrastructure with
the z16 platform in alignment with their hybrid cloud and AI
strategies. IBM launched a new suite of AI offerings for IBM Z
We have IBM Quantum System One engagements with several
leading organizations, including Cleveland Clinic, the Platform
for Digital and Quantum Innovation of Quebec, Rensselaer
Polytechnic Institute, and the University of Tokyo. We also
IBM 2023 Annual Report
3
unveiled our 133-qubit Quantum Heron processor, which
enhanced the performance, efficiency, and scalability of the
newly deployed IBM Quantum System Two. And our work on
error correction and mitigation is helping to lay the foundation
for a new era of quantum utility.
Research also pushed the limits of semiconductor design and
packaging, building on recent innovations such as the 2nm
node chip, hybrid bonding, and vertical transistors. We are
working with Rapidus to propel Japan’s push for leadership
in semiconductor research and manufacturing, and we are
participating in an initiative with New York State, Micron, and
others to jointly invest $10 billion in semiconductor R&D.
The promise of IBM
IBM is in the business of shaping the future for our clients.
That future must be built on trust.
IBM is at the forefront of technologies, like AI and quantum
computing, which will fundamentally change the way we work
and live. We bear significant responsibility to develop those
technologies ethically and deploy them with transparency and
trust. That is why we built powerful AI governance into our
watsonx platform and developed quantum-safe cryptography
to secure sensitive data. It is why we advocate for smart AI
regulation, including holding those who develop and deploy
AI accountable for fraudulent, discriminatory, and harmful
activity. And it is why IBM and Meta announced the formation
of the AI Alliance, a group of more than 70 organizations
dedicated to advancing open, safe, and responsible AI.
We also earn trust by operating with integrity, staying true
to our values, and addressing the needs of all stakeholders.
We continue to advance our efforts on the environment,
ethics, and education. IBM has achieved a 63% reduction
in greenhouse gas emissions against base year 2010.
We announced a new program to train 1,000 suppliers in
technology ethics by 2025. And IBM committed to training
two million learners in AI by the end of 2026 to address the
technology skills gap.
But IBM’s commitment to trust goes beyond our citizenship,
products, and policies. We earn trust by delivering on our
promises.
We articulated a clear vision for the future of IBM in the
spring of 2020. We promised a more focused company
built around two powerful technologies: hybrid cloud and
AI. We promised fundamental changes to our go-to-market
strategy, putting clients at the center of everything we do and
transforming competitors into partners. And we promised
operational changes to simplify our internal processes and
increase our productivity. As this report details, we are
fulfilling those promises.
As we look ahead, we renew our commitment to the journey
we began in 2020. We will continue to innovate, to execute
with speed and purpose, find more opportunities for
operational efficiency, and further enhance our productivity
by employing the same technologies we use to drive growth
for our clients. And as always, we will be the catalyst that
makes the world work better, bringing together our colleagues,
clients, and partners with a simple invitation: Let’s Create.
This is the promise of IBM.
Arvind Krishna
Chairman and Chief Executive Officer
In an effort to provide additional and useful information regarding the company’s financial results and other financial information, as determined by generally
accepted accounting principles (GAAP), these materials contain non-GAAP financial measures on a continuing operations basis, including revenue growth
rates adjusted for constant currency and free cash flow. The rationale for management’s use of this non-GAAP information is included on page 6 and 31 of
the company’s 2023 Annual Report, which is Exhibit 13 to the Form 10-K submitted with the SEC on February 26, 2024. For reconciliation of these non-GAAP
financial measures to GAAP and other information, please refer to pages 17 and 31 of the company’s 2023 Annual Report. For watsonx and generative AI, book of
business includes Software transactional revenue, SaaS Annual Contract Value and Consulting signings.
4
Report of Financials
International Business Machines Corporation and Subsidiary Companies
5
MANAGEMENT DISCUSSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Overview
6 Basis & Policies
Forward-Looking and Cautionary Statements
7 A Significant Accounting Policies
Management Discussion Snapshot
8 B Accounting Changes
Description of Business
Year in Review
Prior Year in Review
Other Information
Looking Forward
11 Performance & Operations
17 C Revenue Recognition
28 D Segments
29
29
E Acquisitions & Divestitures
F Other (Income) and Expense
Liquidity and Capital Resources
30 G Research, Development & Engineering
Critical Accounting Estimates
Currency Rate Fluctuations
Market Risk
Financing
33 H Taxes
36
I
Earnings Per Share
36 Balance Sheet & Liquidity
38
J Financial Assets & Liabilities
K Inventory
Report of Management
41
L Financing Receivables
Report of Independent Registered
M Property, Plant & Equipment
Public Accounting Firm
42 N Leases
CONSOLIDATED FINANCIAL STATEMENTS
P Borrowings
O Intangible Assets Including Goodwill
Income Statement
Comprehensive Income
Balance Sheet
Cash Flows
Equity
44 Q Other Liabilities
45 R Commitments & Contingencies
46
S Equity Activity
47 Risk Management, Compensation/Benefits & Other
48
T Derivative Financial Instruments
U Stock-Based Compensation
V Retirement-Related Benefits
W Subsequent Events
Performance Graphs
Stockholder Information
Board of Directors and Senior Leadership
50
63
64
66
71
78
78
78
82
83
84
84
87
87
90
91
94
95
97
100
104
107
121
122
123
124
6
Management Discussion
International Business Machines Corporation and Subsidiary Companies
OVERVIEW
The financial section of the International Business Machines Corporation (IBM or the company) 2023 Annual Report includes the
Management Discussion, the Consolidated Financial Statements and the Notes to Consolidated Financial Statements. This Overview
is designed to provide the reader with some perspective regarding the information contained in the financial section.
Organization of Information
• The Management Discussion is designed to provide readers with an overview of the business and a narrative on our financial
results and certain factors that may affect our future prospects from the perspective of management. The “Management
Discussion Snapshot” presents an overview of the key performance drivers in 2023.
• Beginning with the "Year in Review," the Management Discussion contains the results of operations for each reportable segment
of the business, a discussion of our financial position and a discussion of cash flows as reflected in the Consolidated Statement of
Cash Flows. Other key sections within the Management Discussion include: "Looking Forward" and "Liquidity and Capital
Resources," the latter of which includes a description of management's definition and use of free cash flow.
• The Consolidated Financial Statements provide an overview of income and cash flow performance and financial position.
• The Notes follow the Consolidated Financial Statements. Among other items, the Notes contain our accounting policies, revenue
information, acquisitions and divestitures, certain commitments and contingencies and retirement-related plans information.
• On November 3, 2021 we completed the separation of our managed infrastructure services unit into a new public company,
Kyndryl. The accounting requirements for reporting the separation of Kyndryl as a discontinued operation were met when the
separation was completed. Accordingly, the historical results of Kyndryl are presented as discontinued operations and, as such,
have been excluded from continuing operations and segment results for all periods presented. Refer to note E, “Acquisitions &
Divestitures,” for additional information.
•
In September 2022, the IBM Qualified Personal Pension Plan (Qualified PPP) purchased two separate nonparticipating single
premium group annuity contracts from The Prudential Insurance Company of America and Metropolitan Life Insurance Company
(collectively, the Insurers) and irrevocably transferred to the Insurers approximately $16 billion of the Qualified PPP’s defined
benefit pension obligations and related plan assets, thereby reducing our pension obligations and assets by the same amount.
The group annuity contracts were purchased using assets of the Qualified PPP and no additional funding contribution was
required from IBM. The transaction resulted in no changes to the benefits to be received by the plan participants. As a result of
this transaction we recognized a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax) in
the third quarter of 2022, primarily related to the accelerated recognition of accumulated actuarial losses of the Qualified PPP.
Refer to note V, “Retirement-Related Benefits,” for additional information.
• Effective January 1, 2023, due to advances in technology, we increased the estimated useful lives of our server and network
equipment from five to six years for new assets and from three to four years for used assets. Based on the carrying amount of
server and network equipment included in property, plant and equipment-net in our Consolidated Balance Sheet as of
December 31, 2022, the effect of this change in accounting estimate was an increase in income from continuing operations
before income taxes of $208 million or $0.18 per basic and diluted share for the year ended December 31, 2023.
•
In 2023, we executed workforce rebalancing actions to address remaining stranded costs from portfolio actions over the last
couple of years resulting in charges to pre-tax income from continuing operations of $438 million. In addition, beginning in the
first quarter of 2023, we updated our measure of segment pre-tax income to no longer allocate workforce rebalancing actions to
our reportable segments, consistent with our management system. Workforce rebalancing charges in 2022 and 2021 of
$40 million and $182 million, respectively, were included in the segments.
• The references to “adjusted for currency” or “at constant currency” in the Management Discussion do not include operational
impacts that could result from fluctuations in foreign currency rates. When we refer to growth rates at constant currency or adjust
such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in
foreign currency exchange rates, thereby facilitating period-to-period comparisons of business performance. Financial results
adjusted for currency are calculated by translating current period activity in local currency using the comparable prior-year
period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency.
Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or
adjusting for currency will be higher or lower than growth reported at actual exchange rates. Refer to “Currency Rate
Fluctuations” for additional information.
• Within the financial statements and tables in this Annual Report, 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 numbers.
Certain prior-year amounts have been reclassified to conform to the change in current year presentation. This is annotated where
applicable.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
7
Operating (non-GAAP) Earnings
In an effort to provide better transparency into the operational results of the business, supplementally, management separates
business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP
measure that excludes the effects of certain acquisition-related charges, intangible asset amortization, expense resulting from basis
differences on equity method investments, retirement-related costs, certain impacts from the Kyndryl separation and their related
tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform),
management characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge
as non-operating. Adjustments primarily include true-ups, accounting elections and any changes to regulations, laws, audit
adjustments that affect the recorded one-time charge. Management characterizes direct and incremental charges incurred related
to the Kyndryl separation as non-operating given their unique and non-recurring nature. In 2022, these charges primarily related to
any net gains or losses on the Kyndryl common stock and the related cash-settled swap with a third-party financial institution,
which were recorded in other (income) and expense in the Consolidated Income Statement. As of November 2, 2022, the company
no longer held an ownership interest in Kyndryl. For acquisitions, operating (non-GAAP) earnings exclude the amortization of
purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs,
applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges,
such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are
significantly impacted by the size, type and frequency of our acquisitions. Given its unique and temporary nature, management has
also characterized as non-operating expense, the mark-to-market impact on the foreign exchange call option contracts to
economically hedge the foreign currency exposure related to the purchase price of our announced acquisition of StreamSets and
webMethods from Software AG. The mark-to-market impact is recorded in other (income) and expense in the Consolidated Income
Statement and reflects the fair value changes in the derivative contracts. All other spending for acquired companies is included in
both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, management
characterizes certain items as operating and others as non-operating, consistent with GAAP. We include defined benefit plan and
nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in
operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit
plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts
of any plan curtailments/settlements including the one-time, non-cash, pre-tax settlement charge of $5.9 billion ($4.4 billion, net of
tax) in the third quarter of 2022 and pension insolvency costs and other costs. Non-operating retirement-related costs are primarily
related to changes in pension plan assets and liabilities which are tied to financial market performance, and we consider these costs
to be outside of the operational performance of the business.
Overall, management believes that supplementally providing investors with a view of operating earnings as described above
provides increased transparency and clarity into both the operational results of the business and the performance of our pension
plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to
peer companies; and allows us to provide a long-term strategic view of the business going forward. In addition, these non-GAAP
measures provide a perspective consistent with areas of interest we routinely receive from investors and analysts. Our reportable
segment financial results reflect pre-tax operating earnings from continuing operations, consistent with our management and
measurement system.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements contained in this Annual Report may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Any forward-looking statement in this Annual Report speaks only as of the date on which it
is made; IBM assumes no obligation to update or revise any such statements except as required by law. Forward-looking
statements are based on IBM’s current assumptions regarding future business and financial performance; these statements, by
their nature, address matters that are uncertain to different degrees. Forward-looking statements involve a number of risks,
uncertainties and other factors that could cause actual results to be materially different, as discussed more fully elsewhere in this
Annual Report and in the company’s filings with the Securities and Exchange Commission (SEC), including IBM’s 2023 Form 10-K
filed on February 26, 2024.
8
Management Discussion
International Business Machines Corporation and Subsidiary Companies
MANAGEMENT DISCUSSION SNAPSHOT
($ and shares in millions except per share amounts)
For year ended December 31:
Revenue (2)
Gross profit margin
Total expense and other (income)
Income from continuing operations before income taxes
Provision for/(benefit from) income taxes from continuing operations
Income from continuing operations
Income from continuing operations margin
Loss from discontinued operations, net of tax
Net income
Earnings per share from continuing operations–assuming dilution
Consolidated earnings per share–assuming dilution
Weighted-average shares outstanding–assuming dilution
Assets (3)
Liabilities (3)
Equity (3)
2023
2022 (1)
$ 61,860
$ 60,530
55.4 %
54.0 %
$ 25,610
$ 31,531
$
$
$
$
$
$
$
8,690
1,176
7,514
12.1 %
(12)
7,502
8.15
8.14
922.1
$
$
$
$
$
$
$
1,156
(626)
1,783
2.9 %
(143)
1,639
1.95
1.80
912.3
$ 135,241
$ 127,243
$ 112,628
$ 105,222
$ 22,613
$ 22,021
Yr.-to-Yr.
Percent/Margin
Change
2.2 %
1.4 pts.
(18.8) %
NM
NM
NM
9.2 pts.
(91.8) %
NM
NM
NM
1.1 %
6.3 %
7.0 %
2.7 %
(1) Includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax) resulting in an impact of ($4.84) to diluted
earnings per share from continuing operations and an impact of ($4.83) to consolidated diluted earnings per share. Refer to note V, “Retirement-
Related Benefits,” for additional information.
(2) Year-to-year revenue growth of 2.9 percent adjusted for currency.
(3) At December 31.
NM–Not meaningful
The following table provides the company’s operating (non-GAAP) earnings for 2023 and 2022. Refer to page 28 for additional
information.
($ in millions except per share amounts)
For year ended December 31:
Net income as reported (1)
Loss from discontinued operations, net of tax
Income from continuing operations (1)
Non-operating adjustments (net of tax)
Acquisition-related charges
Non-operating retirement-related costs/(income) (1)
U.S. tax reform impacts
Kyndryl-related impacts
Operating (non-GAAP) earnings
Diluted operating (non-GAAP) earnings per share
(1) 2022 includes a one-time, non-cash pension settlement charge of $4.4 billion net of tax.
NM–Not meaningful
2023
2022
$
$
$
$
7,502 $
(12)
7,514 $
1,292
(30)
95
—
8,870 $
9.62 $
1,639
(143)
1,783
1,329
4,933
(70)
351
8,326
9.13
Yr.-to-Yr.
Percent Change
NM
(91.8) %
NM
(2.8) %
NM
NM
(100.0) %
6.5 %
5.4 %
Management Discussion
International Business Machines Corporation and Subsidiary Companies
9
Macroeconomic Environment
Our business profile positions us well in challenging macroeconomic times. Our diversification across geographies, industries,
clients and business mix and our recurring revenue base provides some stability in revenue, profit and cash generation. In the
current environment, technology demand continues to be a major driving force behind global economic and business growth.
Businesses and governments around the world are looking for opportunities to scale, offer better services, drive efficiencies and
seize new market opportunities. More recently, geopolitical events and the interest rate environment are adding to the uncertainty.
In response, clients are leveraging technologies like hybrid cloud and artificial intelligence (AI) that boost productivity and
competitiveness.
For the year ended December 31, 2023, movements in global currencies continued to impact our reported year-to-year revenue and
profit. We execute hedging programs which defer, but do not eliminate, the impact of currency. The (gains)/losses from these
hedging programs are reflected primarily in other (income) and expense. Refer to “Currency Rate Fluctuations,” for additional
information. We saw progress from the actions we have taken to mitigate the impacts of escalating labor and component costs and
a strong U.S. dollar (USD).
Financial Performance Summary
In 2023, we reported $61.9 billion in revenue, income from continuing operations of $7.5 billion, and operating (non-GAAP)
earnings of $8.9 billion. Diluted earnings per share from continuing operations was $8.15 as reported and diluted earnings per share
was $9.62 on an operating (non-GAAP) basis. We generated $13.9 billion in cash from operations and $11.2 billion in free cash flow,
and returned $6.0 billion to shareholders in dividends. We are pleased with the fundamentals of our business and progress we have
made in executing our strategy. Our 2023 performance demonstrates the strength of our diversified portfolio and sustainability of
our revenue growth. We increased our investment in innovation and talent and completed nine acquisitions in 2023, strengthening
our hybrid cloud and AI capabilities, all while continuing to return value to shareholders through our dividend.
Total revenue grew 2.2 percent year to year as reported and 3 percent adjusted for currency compared to the prior year, led by
Software and Consulting. Software revenue increased 5.1 percent as reported and 5 percent adjusted for currency, with growth in
Hybrid Platform & Solutions and Transaction Processing. Hybrid Platform & Solutions increased 4.6 percent as reported and 5
percent adjusted for currency, with growth across Red Hat, Automation and Data & AI. Transaction Processing increased 6.2
percent as reported and 6 percent adjusted for currency, reflecting the success of our zSystems platform which continued to drive
client demand. Consulting revenue increased 4.6 percent as reported and 6 percent adjusted for currency with growth across all
lines of business, highlighting the solid demand for data and technology transformation and application modernization projects.
Infrastructure decreased 4.5 percent year to year as reported and 4 percent adjusted for currency, reflecting product cycle
dynamics.
From a geographic perspective, Americas revenue grew 2.0 percent year to year as reported (2 percent adjusted for currency).
Europe/Middle East/Africa (EMEA) increased 3.0 percent as reported (1 percent adjusted for currency). Asia Pacific grew 1.6
percent as reported (7 percent adjusted for currency).
Gross margin of 55.4 percent increased 1.4 points year to year, with continued margin expansion across all reportable segments
driven by revenue growth, improving portfolio mix and productivity actions. Operating (non-GAAP) gross margin of 56.5 percent
increased 1.3 points versus the prior year, due to the same dynamics.
Total expense and other (income) decreased 18.8 percent in 2023 versus the prior year primarily driven by the one-time, non-cash
pension settlement charge of $5.9 billion in 2022 and the benefits from productivity actions we have taken; partially offset by the
effects of currency, higher workforce rebalancing charges to address remaining stranded cost from portfolio actions, and higher
spending reflecting our continued focus on talent and portfolio innovation to drive our strategy. Total operating (non-GAAP) expense
and other (income) increased 4.5 percent year to year, driven primarily by the effects of currency, higher workforce rebalancing
charges and higher spending to drive our strategy; partially offset by benefits from productivity actions.
Pre-tax income from continuing operations was $8.7 billion in 2023 compared with $1.2 billion in the prior year and pre-tax margin
was 14.0 percent, an increase of 12.1 points versus 2022. The year-to-year improvements were primarily driven by the $5.9 billion
pension settlement charge in the prior year, the combination of our revenue growth and gross margin performance and the benefits
from productivity actions. The continuing operations effective tax rate for 2023 was 13.5 percent compared to (54.2) percent in
2022. The prior-year effective tax rate was primarily driven by the pension settlement charge. Net income from continuing
operations was $7.5 billion in 2023 compared with $1.8 billion in the prior year and net income from continuing operations margin
was 12.1 percent, an increase of 9.2 points year to year. Operating (non-GAAP) pre-tax income from continuing operations of $10.3
billion increased 5.0 percent year to year and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.4
points to 16.7 percent. The combination of our revenue and gross margin performance and productivity actions resulted in strong
operating (non-GAAP) pre-tax income growth in 2023. The operating (non-GAAP) effective tax rate for 2023 was 14.0 percent
10
Management Discussion
International Business Machines Corporation and Subsidiary Companies
compared to 15.2 percent in 2022. Operating (non-GAAP) income from continuing operations of $8.9 billion increased 6.5 percent
and the operating (non-GAAP) income margin from continuing operations of 14.3 percent was up 0.6 points year to year.
Diluted earnings per share from continuing operations was $8.15 in 2023 compared with $1.95 in 2022, which included an impact
of $4.84 from the prior-year pension settlement charge. Operating (non-GAAP) diluted earnings per share of $9.62 increased 5.4
percent versus 2022.
At December 31, 2023, the balance sheet remained strong with increased financial flexibility to support and invest in the business.
Cash and cash equivalents, restricted cash and marketable securities at year end were $13.5 billion, an increase of $4.6 billion from
December 31, 2022. During 2023, we invested $5.1 billion in acquisitions and returned $6.0 billion to shareholders through
dividends. Total debt of $56.5 billion at December 31, 2023 increased $5.6 billion driven by net debt issuances. We were
opportunistic in accessing the debt market and issued $9.5 billion of debt in the first quarter of 2023 to plan for our debt maturity
obligations in 2023 and 2024 as well as capital allocation priorities.
Total assets increased $8.0 billion ($7.1 billion adjusted for currency) from December 31, 2022 primarily driven by an increase in
cash and cash equivalents and goodwill; partially offset by a decrease in prepaid pension assets. Total liabilities increased $7.4
billion ($6.6 billion adjusted for currency) from December 31, 2022 primarily driven by an increase in debt, deferred income and
retirement and postretirement benefit obligations. Total equity of $22.6 billion increased $0.6 billion from December 31, 2022,
driven by 2023 net income and common stock issuances; partially offset by dividends paid and an increase in accumulated other
comprehensive loss due to retirement-related benefit plans.
Cash provided by operating activities was $13.9 billion in 2023, an increase of $3.5 billion compared to 2022, driven by an increase
in cash provided by financing receivables, performance-related improvements within net income and sales cycle working capital
efficiencies. Our free cash flow was $11.2 billion, an increase of $1.9 billion versus the prior year. Refer to page 31 for additional
information on free cash flow. Net cash used in investing activities of $7.1 billion increased $2.9 billion compared to the prior year,
mainly driven by the Apptio acquisition, and a decrease in cash provided by divestitures; partially offset by higher net proceeds from
marketable securities and other investments. Net cash used in financing activities of $1.8 billion decreased $3.2 billion compared to
2022, mainly due to an increase in net cash provided by debt.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
11
DESCRIPTION OF BUSINESS
Please refer to IBM’s Annual Report on Form 10-K filed with the SEC on February 26, 2024, for Item 1A. entitled “Risk Factors.”
IBM is addressing the hybrid cloud and AI opportunity with a platform-centric approach, focused on providing client value through a
combination of technology and business expertise. We provide integrated solutions and products that leverage: data, information
technology, deep expertise in industries and business processes, with trust and security and a broad ecosystem of partners and
alliances. Our hybrid cloud platform and AI technology and services capabilities support clients’ digital transformations and help
them engage with their customers and employees in new ways. These solutions draw from an industry-leading portfolio of
capabilities in software, consulting services and a deep incumbency in mission-critical systems, all bolstered by one of the world’s
leading research organizations.
IBM Strategy
IBM continues to focus its strategy on hybrid cloud and AI, today’s most transformative technologies. Businesses are pursuing
digital-first strategies as a critical imperative for driving revenue growth, boosting productivity, mitigating risks including
cyberattacks, and meeting sustainability commitments. Technology is increasingly distributed across environments spanning
multiple clouds, data centers, and myriad edge devices, making hybrid cloud the default approach for most enterprises. 77 percent
of business and IT decision makers use hybrid cloud environments (Harris Poll survey). In parallel, generative AI has become a top
priority for boards and the C-Suite. Over 80 percent of C-suite executives expect that generative AI will fundamentally transform
their organization’s workflows and how people do their jobs (IBM Institute for Business Value survey).
Our strategy aligns with the needs of our clients
Client demand for technology to drive business outcomes is accelerating. Our two strategic platforms deliver impact to serve that
demand: Red Hat OpenShift in hybrid cloud and watsonx in AI.
These two strategic platforms complement one another. AI benefits from hybrid cloud through seamless access to data and
applications across heterogeneous environments. Conversely, hybrid cloud is differentiated by AI’s delivery of insights and
automation to streamline business, IT, and security processes.
In 2023, we launched watsonx as our AI platform for business. Built on Red Hat OpenShift, watsonx offers the power of state-of-
the-art IBM and open-source models for clients to run AI wherever they need it. The depth and breadth of our consulting expertise
in generative AI can make a crucial difference in accelerating time-to-value for clients. Our offerings are uniquely differentiated,
delivering to clients an open and responsible approach to use multiple models, trusted AI governance solutions, and targeted use
cases with proven value, including digital labor, customer service and software development. Watsonx and our Consulting
capabilities to deploy AI at-scale are a powerful combination distinctive to IBM.
Red Hat OpenShift is the market-leading hybrid cloud application platform. OpenShift is built on open-source technologies including
Linux, containers, and Kubernetes. With hybrid cloud becoming the industry’s dominant architecture, OpenShift allows clients to
build and run applications in a consistent way across environments enabling organizations to write once, run anywhere. A 2023
study by IBM Consulting profiled hybrid cloud practices used by organizations and found most to be implementing a siloed ‘hybrid
by default’ approach. Leading enterprises have embraced a ‘hybrid by design’ architecture to leverage common platforms and
practices throughout environments. The study shows that clients taking a ‘hybrid by design’ platform approach can expect over
three times higher return on investment in their digital transformation efforts. OpenShift’s market leadership make it the best choice
for clients seeking the value of a ‘hybrid by design’ approach.
IBM’s hybrid cloud and AI strategy addresses an enormous market need. The hybrid cloud market is projected to grow to more than
$1.5 trillion over 3 years. In conjunction, the AI market is expected to grow at 30 percent powered by generative AI (International
Data Corporation). As technology evolves beyond IT to being a differentiator in every industry and business function, we continue to
expect strong tailwinds in the markets we serve.
12
Management Discussion
International Business Machines Corporation and Subsidiary Companies
IBM’s differentiated portfolio value
All our businesses benefit Red Hat OpenShift and watsonx by extending, implementing, or delivering them. In turn, the platforms
differentiate our businesses in the unique capabilities they bring. For each business we provide a brief overview and examples of
strategic linkage to our platforms.
Consulting
Business Transformation ● Technology Consulting ●
Application Operations
System Integrator Partners
Software
Data and AI ● Automation ● Security ●
Transaction Processing
Software and SaaS Partners
AI and data platform
watsonx
Hybrid cloud platform
watsonx.ai ● watsonx.data ● watsonx.governance
Red Hat
OpenShift ● Enterprise Linux ● Ansible Automation Platform
Infrastructure
IBM Z ● Distributed Infrastructure ●
Infrastructure Support
Public Clouds
AWS ● Azure ●
Others
Enterprise
Infrastructure
Edge
IBM Software brings to life the combined value of hybrid cloud and AI with capabilities that deliver improved client outcomes: (1) AI
and data to infuse generative AI at scale into applications and business processes, leveraging the power of data to drive decisions in
real-time; (2) Automation and Application Modernization to improve business and IT productivity with digital labor and create
outstanding customer experiences; (3) Security of all touchpoints using AI to drive real-time, automated detection, and an
orchestrated response; (4) Transaction Processing software that powers IBM Z; (5) Red Hat, also reported in our Software segment,
that delivers our hybrid cloud platform with OpenShift as well as market leading capabilities of Red Hat Enterprise Linux and
Ansible. Our Software products differentiate our platforms. For example, our award-winning Application Resource Management
product, Turbonomic, leverages AI to simultaneously improve performance while minimizing cost across a client’s hybrid cloud
environment. We strategically build products on OpenShift to provide clients the flexibility to consume software across clouds and
on-premises. Building to that common platform also accelerates our innovation and efficiency.
IBM Consulting delivers business transformation, technology consulting, and application operations by leveraging hybrid cloud and
AI technologies from IBM along with our ecosystem partners. To support our hybrid cloud strategy, we built a Red Hat business of
over $2.5 billion. We are pursuing a similar approach for our AI strategy with over 16,000 accredited consultants. We have also
scaled our focus on the ecosystem to create multi-billion-dollar partnerships with AWS, Microsoft, and SAP. Our consulting
capabilities help clients to realize value from their digital transformations, for example, a global provider of business decisioning
data and analytics is leveraging watsonx for a procurement solution to improve savings, reduce time, and mitigate risk.
IBM Infrastructure provides trusted, performant, secure, and resilient infrastructure solutions across AI, data-intensive, and
regulated mission-critical workloads. Forty-five of the world’s top fifty banks run on IBM Z, where our transaction processing
capability excels with integrated AI to deliver unmatched throughput, availability, and security. Our AI strategy delivers more value
on IBM Z. For example, watsonx Code Assistant leverages generative AI to modernize Z applications. Our Power, Storage, and Cloud
offerings accelerate client’s digital transformations while our Infrastructure Support delivers lifecycle services to optimize hybrid
cloud environments.
IBM Research demonstrates our ability to quickly transition from research to market-ready solutions, continuing our legacy of
defining the evolution of computing. In 2023, we delivered a pipeline of AI and hybrid cloud innovations that created new business
opportunities for IBM including watsonx, generative AI models, and AI infusions into our software product portfolio. In quantum
computing, we delivered noteworthy progress in both hardware and software: we unveiled our lowest-error, highest-performing
Management Discussion
International Business Machines Corporation and Subsidiary Companies
13
flagship chips Heron and Condor, and updated Qiskit software for greater stability, reliability, and performance. We continue to
leverage our world-class skills in semiconductors to achieve breakthroughs and expand our industry leading partnerships.
A key part of our strategy is to add value to our strategic platforms through inorganic investments. Our focus is on bolstering our
hybrid cloud, and data and AI technology assets that further accelerate our organic innovation engines as well as consulting
expertise that expand our position in new markets. Additionally, in line with our focus on sharpening our portfolio, we recently
closed the divestiture of The Weather Company assets.
To bolster our AI strategy, we established the $500 million Enterprise AI Venture Fund to deepen collaboration with early-stage
innovators. We also collaborated to launch the AI Alliance to accelerate responsible innovation in AI throughout a broad, open
community across industry, startups, academia, research, and government.
Collaborating to create value with clients and ecosystem partners
As technology becomes pervasive across businesses, we are also diversifying the ways we reach a broader client base. For example,
we invest in product-led growth routes to capture new customers and expand our market reach. We also continue to build our
experiential selling skills across client engineering, customer success management, and deep technical expertise to solve clients’
critical challenges. We brought our next-generation innovations including watsonx to a wide range of clients and partners through
our signature THINK event tour and our inaugural IBM TechXchange conference.
We set a strategic objective to increase the mix of business with our ecosystem. Our partnerships with technology resellers, systems
integrators, independent software vendors (ISVs), consultancies, advisory firms, and managed service providers give clients the
flexibility they seek to maximize the impact of their technology investments. We launched a redesigned Partner Plus program in
2023, providing partners with access to extensive IBM resources, incentives, training, and support to accelerate delivering
innovation to clients. We continue to deepen relationships with key strategic partners such as AWS, Microsoft, SAP, Salesforce, and
Adobe to amplify the joint impact for our clients by embedding IBM technology into the platforms that run their businesses. For
example, in 2023 we continued to expand our software-as-a-service offerings on AWS marketplace, and our industry aligned
portfolio of offerings with Microsoft.
In 2024, we will continue to advance our hybrid cloud and AI strategy. We will co-create with our clients and ecosystem to realize
business value through digital transformations, as their trusted innovation partner.
Business Segments and Capabilities
IBM operates in more than 175 countries around the world. Our platform-centric hybrid cloud and AI strategy is executed through
our operations and consists of four business segments: Software, Consulting, Infrastructure and Financing.
The following description of our business segments is based on our organizational structure as of December 31, 2023. Refer to
"Looking Forward," for changes to our reportable segments effective January 1, 2024.
Software
Software provides software solutions that address client needs for a hybrid cloud platform, data and AI, automation, and security on
their journey to hybrid cloud. It includes all software, except operating system software reported in the Infrastructure segment.
Software comprises two business areas – Hybrid Platform & Solutions and Transaction Processing, which have the following
capabilities:
Hybrid Platform & Solutions: includes software, infused with AI, to help clients operate, manage and optimize their IT resources and
business processes within hybrid, multi-cloud environments. It includes the following:
Red Hat: provides enterprise open-source solutions, for hybrid, multi-cloud environments, which includes Red Hat Enterprise Linux
(RHEL), OpenShift, our hybrid cloud platform, as well as Ansible.
Automation: optimizes processes from business workflows to IT operations with AI-powered automation. Automation includes
software for business automation, IT automation, integration and application runtimes.
Data & AI: accelerates data-driven agendas by infusing AI throughout the enterprise, empowering intelligent decision making. The
portfolio includes capabilities that simplify data consumption through data fabric with data management, optimize lifecycle
management, and make better predictions through business analytics. Data & AI capabilities facilitate sustainable, resilient
businesses and enable intelligent management of enterprise assets and supply chains with environmental intelligence.
14
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Security: creates a risk-aware, secure business by gaining real-time threat insights, orchestrating actions and automating responses
across all touchpoints, in line with a zero-trust security strategy. Security includes software and services for threat management,
data security, and identity and access management.
Transaction Processing: supports clients’ mission-critical, on-premise workloads in industries such as banking, airlines and retail.
This includes transaction processing software such as Customer Information Control System and storage software, as well as the
analytics and integration software running on IBM operating systems such as DB2 and WebSphere running on z/OS.
Consulting
Consulting provides deep industry expertise and market-leading capabilities in business transformation and technology
implementation. Consulting designs, builds and operates technology and business processes based on open, hybrid cloud
architectures leveraging the power of generative AI, with IBM technology and ecosystem partner technologies. Consulting uses its
IBM Garage method to convene experts to co-create solutions with clients to accelerate their digital transformations through AI and
automation.
Consulting comprises three business areas – Business Transformation, Technology Consulting and Application Operations, which
have the following capabilities:
Business Transformation: provides strategy, process design, system implementation and operations services to improve and
transform key experiences and business processes. These services deploy AI and automation in business processes to exploit the
value of data and include an ecosystem of partners alongside IBM technology, including strategic partnerships with Adobe, Oracle,
Salesforce and SAP, among others.
Technology Consulting: helps clients architect and implement solutions across cloud platforms, including Amazon, Microsoft and
IBM, and deploy strategies to transform the enterprise experience and enable innovation, including data transformation for AI with
watsonx and application modernization for hybrid cloud with Red Hat OpenShift.
Application Operations: focuses on application and cloud platform services required to operationalize and run hybrid cloud
platforms. It facilitates clients’ efforts to manage, optimize and orchestrate application and data workloads across platforms and
environments through both custom applications and ISV packages.
Infrastructure
Infrastructure provides trusted and secure solutions for hybrid cloud and is optimized for infusing AI into mission-critical
transactions.
Infrastructure comprises two business areas – Hybrid Infrastructure and Infrastructure Support, which have the following
capabilities:
Hybrid Infrastructure: provides clients with innovative infrastructure platforms to help meet the new requirements of hybrid multi-
cloud and enterprise AI workloads leveraging flexible and as-a-service consumption models. Hybrid Infrastructure includes
zSystems and Distributed Infrastructure.
zSystems (also referred to as IBM Z): the premier transaction processing platform with leading security, resilience and scale, highly
optimized for mission-critical, high-volume transaction workloads and enabled for enterprise AI and hybrid cloud. It includes
zSystems and LinuxONE, with a range of high-performance systems designed to address enterprise computing capacity, security
and performance needs, z/OS, a security-rich, high-performance enterprise operating system, as well as Linux and other operating
systems.
Distributed Infrastructure: includes Power, Storage and IBM Cloud Infrastructure-as-a-Service (IaaS). Power consists of high-
performance servers, designed and engineered for data intensive and AI-enabled workloads and optimized for hybrid cloud and
Linux. The Storage portfolio consists of a broad range of storage hardware and software-defined offerings, including Z-attach and
distributed flash, tape solutions, software-defined storage controllers, data protection software and network-attach storage. IBM
Cloud IaaS is built on enterprise-grade hardware with leading security and compliance capabilities and offers flexible computing
options across architectures to meet client workload needs.
Infrastructure Support: delivers comprehensive, proactive and AI-enabled maintenance and support services to maintain and
improve the availability and value of clients’ IT infrastructure (hardware and software) both on-premises and in the cloud.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
15
Financing
Financing facilitates IBM clients’ acquisition of hardware, software and services through its financing solutions. The financing
arrangements are predominantly for products or services that are critical to the end users’ business operations and support IBM’s
hybrid cloud and AI strategy. Financing conducts a comprehensive credit evaluation of its clients prior to extending financing. As a
captive financier, Financing has the benefit of both deep knowledge of its client base and a clear insight into the products and
services financed. These factors allow the business to effectively manage two of the primary risks associated with financing, credit
and residual value, while generating strong returns on equity.
Financing comprises the following two business areas – Client Financing and Commercial Financing:
Client Financing: lease, installment payment plan and loan financing to end-user clients for terms generally up to seven years.
Assets financed are primarily new and used IBM hardware, software and services.
Commercial Financing: short-term working capital financing to business partners and distributors primarily of IBM products and
services. The company has an existing agreement with a third-party investor to sell IBM short-term commercial financing
receivables on a revolving basis. Refer to note L, "Financing Receivables," for additional information.
Human Capital
Employees and Related Workforce
(In thousands)
For the year ended December 31:
IBM/wholly owned subsidiaries
Less-than-wholly owned subsidiaries
Complementary (1)
2023
282.2
8.7
14.4
(1) The complementary workforce is an approximation of equivalent full-time employees hired under temporary, part-time and limited-term employment
arrangements to meet specific business needs in a flexible and cost-effective manner.
As a globally integrated enterprise, IBM operates in more than 175 countries. Our highly skilled global workforce is reflective of the
work we do for clients in support of their digital transformations and mission-critical operations through our focus on hybrid cloud
and AI. Our employees are among the world’s leading experts in hybrid cloud, AI, quantum computing, cybersecurity and industry-
specific solutions. We believe our success depends on the caliber of our talent and the engagement and inclusion of IBMers in the
workplace.
Talent and Culture
We attract, develop, engage, and retain talent in a dynamic and competitive environment. IBM provides a compelling employee
value proposition, offering professionals competitive compensation and attractive career opportunities in the development and
delivery of innovative technologies for clients whose businesses the world relies on. Our value proposition and talent strategy help
to retain talent. In 2023, voluntary attrition decreased when compared to each of the past two years.
We are continuously transforming and developing our talent, both through learning and hiring. In 2023, we added skills in consulting
and key technical areas and invested in scaling our capacity in strategically important markets. We continue to invest in upskilling
and reskilling our workforce. Our digital learning and career platforms are examples of this commitment to provide employees
access to the resources needed to build strategic skills and grow their careers. Our performance reflection cycles inspire further
learning, growth, and development via candid feedback to help employees reach their career and business goals. Helping our
employees learn and apply new skills is important for retention and critical to our ability to transform and evolve.
Employee engagement is a key indicator of employee well-being and their dedication to the company’s mission, purpose and
values. We conduct an annual engagement survey to assess the health of the company’s growth culture and employee sentiment.
We maintained strong participation with over 187,000 employees globally responding to the 2023 engagement survey, providing
actionable data-driven insights to managers and leaders around factors such as workplace experience, inclusion, pride, and
propensity to recommend IBM as an employer. For the third year in a row, more than eight out of ten employees who participated in
the survey responded that they felt engaged at work, a testament to our industry-leading talent practices.
Diversity and Inclusion
IBM takes immense pride in its rich legacy as a trailblazer in fostering diversity and inclusion within the workplace. We work to
ensure individuals from diverse backgrounds feel a sense of belonging, can embrace their true selves, nurture their talents and
advance in their careers. Our efforts have resulted in nearly nine out of ten of employees who participated in the survey feeling
empowered to express their authentic identities at work.
16
Management Discussion
International Business Machines Corporation and Subsidiary Companies
A workplace characterized by diversity and inclusivity serves as a catalyst for heightened innovation, agility, and overall
performance. This environment fuels business growth. Our focus on creating a diverse and inclusive workplace has led to increased
levels of inclusion for underrepresented employees, including women, who make up more than one-third of our workforce.
Executive representation of women globally, and Hispanic executives in the U.S. improved by 1.1 points and 0.5 points,
respectively, in 2023. Representation of Black executives in the U.S. declined 0.2 points in 2023. Our executive annual incentive
program includes a diversity modifier that affirms our commitment to diverse representation in our workforce that reflects the labor
pool demographics of the communities in which we operate. The design of the modifier is based on our progress in creating and
developing a diverse executive population.
We are committed to pay equity and transparency, fostering an environment of equal pay for equal work regardless of gender, race,
or other personal characteristics. Statistical pay equity assessments are conducted across all countries with IBM employees,
reinforcing our dedication to our longstanding pay equity practice. We also empower employees to understand their pay by
providing comprehensive compensation education. Employees can also directly access information about their pay, including a
comparison against their market pay range, through the HR system or their direct managers.
Health, Safety and Well-Being
IBM has long established its commitment to a culture of health, safety, and well-being. This commitment is demonstrated through
our health and safety policy and compliance with country legal requirements, both of which are implemented through IBM’s
externally certified Health & Safety Management System (HSMS). Objectives of our HSMS include providing a safe and healthy
workplace, preventing work-related injuries and illnesses, enhancing worker health and productivity and providing resources to
fulfill these commitments.
Our belief that there is no greater resource than our people led us to integrate employee well-being into every aspect of our
business. We feel that our employees perform best at work, at home and in the communities where they live and work when their
well-being is supported. We believe in not taking a one-size-fits-all approach when it comes to health, safety, and well-being and
strive to provide programs that are culturally relevant and inclusive to address the needs of a diverse employee population. Our
health and safety programs are driven by evidence-based strategies, real time insights and innovative solutions.
We offer a wide range of health, safety, and well-being programs, covering all aspects of employee well-being: physical, mental, and
financial health. Access to well-being services and resources are offered through onsite activities and partnerships with external
vendors, among other methods of delivery. We continued our focus on cardiovascular, musculoskeletal, and mental health. IBMers
worldwide have confidential, 24/7 access to critical mental health support through employee assistance programs and
supplemental resources. Other programs include training for employees on resilience, ergonomics, and financial well-being.
Employees are supported with around-the-clock access to IBM’s world-class Health and Safety team who provide education, timely
updates on new health and safety developments and forums to ask questions and raise concerns. In 2023, we enhanced our health
and safety incident management program by introducing a centralized reporting and investigation system, providing IBMers an
efficient, seamless and secure way to report work-related accidents, occupational illnesses and near-miss incidents, regardless of
where they occur. This facilitates prompt investigation of incidents and implementation of corrective actions to prevent future
occurrences.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
17
YEAR IN REVIEW
Results of Continuing Operations
Segment Details
The table below presents each reportable segment’s revenue and gross margin results, followed by an analysis of the 2023 versus
2022 reportable segment results. The segment details presented below are reported under our historical reportable segments.
Refer to "Looking Forward" for changes to our reportable segments effective in the first quarter of 2024.
($ in millions)
For the year ended December 31:
2023
2022
Yr.-to-Yr.
Percent/
Margin
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
Revenue
Software
Gross margin
Consulting
Gross margin
Infrastructure
Gross margin
Financing
Gross margin
Other
Gross margin
Total revenue
Total gross profit
Total gross margin
Non-operating adjustments
Amortization of acquired intangible assets
Operating (non-GAAP) gross profit
Operating (non-GAAP) gross margin
Software
($ in millions)
For the year ended December 31:
Software revenue
Hybrid Platform & Solutions
Red Hat
Automation
Data & AI
Security
5.2 %
6.1 %
(3.9) %
15.0 %
(50.6) %
2.9 %
$
26,308
$
25,037
80.1 %
79.6 %
19,985
19,107
26.6 %
25.5 %
14,593
15,288
56.0 %
741
48.1 %
233
52.8 %
645
38.3 %
453
5.1 %
0.4 pts.
4.6 %
1.1 pts.
(4.5) %
3.2 pts.
14.8 %
9.8 pts.
(48.4) %
(256.4) %
(95.3) %
(161.1) pts.
$
$
61,860
34,300
$
$
60,530
32,687
55.4 %
54.0 %
631
682
$
34,931
$
33,370
56.5 %
55.1 %
2.2 %
4.9 %
1.4 pts.
(7.5) %
4.7 %
1.3 pts.
2023
2022
$
$
26,308
18,693
$
$
25,037
17,866
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
5.1 %
4.6 %
9.1
3.4
4.5
(2.5)
6.2
5.2 %
4.8 %
9.0
3.6
4.8
(2.2)
6.3
Transaction Processing
7,615
7,171
Software revenue of $26,308 million increased 5.1 percent as reported (5 percent adjusted for currency) in 2023 compared to the
prior year, driven by growth in both Hybrid Platform & Solutions and Transaction Processing. The growth in Hybrid Platform &
Solutions was led by Red Hat, Automation and Data & AI. In Transaction Processing, our zSystems platform continued to drive client
demand. Our Software revenue performance in 2023 reflects growth in our high-value, recurring revenue base, which is
approximately 80 percent of our annual software revenue, as well as transactional revenue. Our platform-based approach is
resonating with clients and there is growing interest in our generative AI platform, watsonx.
Hybrid Platform & Solutions revenue of $18,693 million increased 4.6 percent as reported (5 percent adjusted for currency) in 2023
compared to the prior year. Within Hybrid Platform & Solutions, Red Hat revenue increased 9.1 percent as reported (9 percent
adjusted for currency) led by double-digit growth in OpenShift and Ansible, and solid growth in RHEL. OpenShift continued its strong
performance with annual recurring revenue of $1.2 billion exiting 2023. Automation revenue increased 3.4 percent as reported (4
18
Management Discussion
International Business Machines Corporation and Subsidiary Companies
percent adjusted for currency), with strength in AIOps and Management solutions as clients looked to optimize business
performance and enhance productivity. Data & AI revenue increased 4.5 percent as reported (5 percent adjusted for currency),
reflecting demand for data management as clients prepare for generative AI and strength in asset and supply chain management
software which helps clients run sustainable operations. Security revenue decreased 2.5 percent as reported (2 percent adjusted
for currency). While we had revenue declines in security threat management and identity and access management, we delivered
revenue growth in data security.
Across Hybrid Platform & Solutions, our annual recurring revenue (ARR) was $14.4 billion exiting 2023. ARR is a key performance
metric management uses to assess the health and growth trajectory of our Hybrid Platform & Solutions business within the Software
segment. ARR is calculated by estimating the current quarter’s recurring, committed value for certain types of active contracts as of
the period-end date and then multiplying that value by four. This value is based on each arrangement’s contract value and start
date, mitigating fluctuations during the contract term, and includes the following consumption models: (1) software subscription
agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, (3) maintenance and
support contracts, and (4) security managed services contracts. ARR should be viewed independently of revenue as this
performance metric and its inputs may not represent the amount of revenue recognized in the period and therefore is not intended
to represent current period revenue or revenue that will be recognized in future periods.
Transaction Processing revenue of $7,615 million increased 6.2 percent as reported (6 percent adjusted for currency) in 2023
compared to the prior year. Clients continue to value this portfolio of mission-critical software in support of growing workloads on
our hardware platforms, such as zSystems. This, together with price increases, contributed to growth in both recurring and
transactional revenue in Transaction Processing.
($ in millions)
For the year ended December 31:
2023
2022
Yr.-to-Yr.
Percent/
Margin
Change
Software
Gross profit
Gross profit margin
Pre-tax income
Pre-tax margin
$
21,063
$
19,941
80.1 %
79.6 %
$
6,571
$
6,162
25.0 %
24.6 %
5.6 %
0.4 pts.
6.6 %
0.4 pts.
Software gross profit margin of 80.1 percent in 2023 increased 0.4 points compared to the prior year, primarily driven by margin
expansion in software services due to portfolio mix. Pre-tax income of $6,571 million increased 6.6 percent and pre-tax margin of
25.0 percent increased 0.4 points compared to the prior year. The year-to-year increases in pre-tax income and pre-tax margin
were driven by our solid revenue growth, higher gross profit contribution and the productivity actions we have taken, partially offset
by key investments in innovation. Pre-tax margin in 2023 includes approximately 1 point of impact from currency.
Consulting
($ in millions)
For the year ended December 31:
2023
2022
Consulting revenue
Business Transformation
Technology Consulting
Application Operations
$
$
$
$
19,985
9,179
3,849
6,958
19,107
8,834
3,765
6,508
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
4.6 %
3.9 %
2.2
6.9
6.1 %
5.3 %
3.8
8.6
Consulting revenue of $19,985 million increased 4.6 percent as reported (6 percent adjusted for currency) in 2023 compared to the
prior year, with growth across all three business areas. This growth reflects the solid demand for our data and technology
transformation projects with a focus on AI and analytics. Clients are also prioritizing cloud modernization and cloud-based
application development projects. There has been a consistent client focus throughout the year on digital transformation and AI
initiatives to drive productivity and cost savings for their enterprises. Our integrated value proposition, investments in skills and
strategic partnerships and focused execution continues to differentiate us in the marketplace. Our strategic partnerships which
account for approximately 40 percent of Consulting revenue, delivered double-digit growth in 2023 on a year-to-year basis in both
Consulting signings and revenue.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
19
Business Transformation revenue of $9,179 million increased 3.9 percent as reported (5 percent adjusted for currency) compared
to the prior year, led by data and technology transformations including AI and analytics-focused projects, and finance and supply
chain transformations.
Technology Consulting revenue of $3,849 million increased 2.2 percent as reported (4 percent adjusted for currency), led by cloud-
based application development and cloud modernization projects.
Application Operations revenue of $6,958 million increased 6.9 percent as reported (9 percent adjusted for currency) driven by
growth in platform engineering services and cloud application management.
($ in millions)
For the year ended December 31:
2023
2022
Yr.-to-Yr.
Percent/
Margin
Change
Consulting
Gross profit
Gross profit margin
Pre-tax income
Pre-tax margin
$
$
5,313
26.6 %
1,918
9.6 %
$
$
4,864
25.5 %
1,677
8.8 %
9.2 %
1.1 pts.
14.4 %
0.8 pts.
Consulting gross profit margin increased 1.1 points to 26.6 percent compared to the prior year. Pre-tax income of $1,918 million
increased 14.4 percent and pre-tax margin increased 0.8 points to 9.6 percent compared to the prior year. The increases in gross
profit margin and pre-tax margin reflect benefits from pricing and productivity actions we have taken, which were partially offset by
increased labor costs.
Consulting Signings and Book-to-Bill
($ in millions)
For the year ended December 31:
Total Consulting signings
2023
2022
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
$
23,339
$
20,485
13.9 %
16.7 %
Consulting signings grew 13.9 percent as reported (17 percent adjusted for currency) in 2023, and our book-to-bill ratio over the
trailing twelve months was over 1.15. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same
period and is a useful indicator of the demand for our business over time.
Signings are management’s initial estimate of the value of a client’s commitment under a services contract within IBM Consulting.
There are no third-party standards or requirements governing the calculation of signings. The calculation used by management
involves estimates and judgments to gauge the extent of a client’s commitment, including the type and duration of the agreement
and the presence of termination charges or wind-down costs.
Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Total signings
can vary over time due to a variety of factors including, but not limited to, the timing of signing a small number of larger contracts.
Signings associated with an acquisition will be recognized on a prospective basis.
Management believes the estimated values of signings disclosed provide an indication of our forward-looking revenue. Signings are
used to monitor the performance of the business and viewed as useful information for management and shareholders. The
conversion of signings into revenue may vary based on the types of services and solutions, contract duration, customer decisions,
and other factors, which may include, but are not limited to, the macroeconomic environment.
20
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Infrastructure
($ in millions)
For the year ended December 31:
Infrastructure revenue
Hybrid Infrastructure
zSystems
Distributed Infrastructure
Infrastructure Support
2023
2022
$
$
14,593
9,215
$
$
15,288
9,451
5,377
5,837
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
(4.5) %
(2.5) %
(4.5)
(1.0)
(7.9)
(3.9) %
(2.2) %
(4.2)
(0.7)
(6.6)
Infrastructure revenue of $14,593 million decreased 4.5 percent as reported (4 percent adjusted for currency) as compared to the
prior year, reflecting product cycle dynamics which impacted both Hybrid Infrastructure and Infrastructure Support.
Hybrid Infrastructure revenue of $9,215 million decreased 2.5 percent as reported (2 percent adjusted for currency) as compared
to the prior year. Within Hybrid Infrastructure, zSystems revenue decreased 4.5 percent as reported (4 percent adjusted for
currency) on a year-to-year basis, consistent with the z16 cycle, as it was introduced in the second quarter of 2022. Overall, across
the program cycle, z16 revenue performance has significantly outperformed prior cycles, including the successful z15 program. The
z16 program incorporates a number of key innovations for our clients including cloud-native development for hybrid cloud,
embedded AI at scale, quantum safe cyber-resilient security, energy efficiency and strong reliability and scalability. Clients are
increasingly leveraging zSystems for more workloads which drives demand for more capacity. Installed MIPS have doubled during
the last two zSystems product cycles. zSystems remains an enduring platform, driving hardware adoption as well as related
software, storage and services. Distributed Infrastructure revenue decreased 1.0 percent as reported (1 percent adjusted for
currency). We had year-to-year declines in high-end Power and cloud platform revenue, partially offset by strong growth in high-end
Storage and low- to mid-range Power.
Infrastructure Support revenue of $5,377 million decreased 7.9 percent as reported (7 percent adjusted for currency), reflecting
reduced demand for support services as a result of product cycle dynamics.
($ in millions)
For the year ended December 31:
2023
2022
Yr.-to-Yr.
Percent/
Margin
Change
Infrastructure
Gross profit
Gross profit margin
Pre-tax income
Pre-tax margin
$
$
8,167
56.0 %
2,421
16.6 %
$
$
8,066
52.8 %
2,262
14.8 %
1.2 %
3.2 pts.
7.0 %
1.8 pts.
Infrastructure gross profit margin increased 3.2 points to 56.0 percent in 2023 compared to the prior year. The increase was driven
by margin expansion in Hybrid Infrastructure across both Distributed Infrastructure and zSystems, reflecting our continued focus on
productivity initiatives including streamlining our supply chain, partially offset by margin decline in Infrastructure Support due to
product cycle dynamics. Pre-tax income of $2,421 million increased 7.0 percent and pre-tax margin increased 1.8 points to 16.6
percent primarily driven by the increase in gross profit contribution, an increase in IP and custom development income, a benefit
from the changes in the useful life of servers and network equipment and productivity actions. Pre-tax margin in 2023 included
approximately 1 point of impact from currency.
Financing
Refer to pages 38 through 40 for a discussion of Financing’s segment results.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
21
Geographic Revenue
In addition to the revenue presentation by reportable segment, we also measure revenue performance on a geographic basis.
($ in millions)
For the year ended December 31:
2023
2022
Total revenue
Americas
Europe/Middle East/Africa
Asia Pacific
$
$
$
$
61,860
31,666
18,492
11,702
60,530
31,057
17,950
11,522
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
2.2 %
2.0 %
3.0
1.6
2.9 %
2.5 %
1.3
6.5
Total revenue of $61,860 million in 2023 increased 2.2 percent year to year as reported and 3 percent adjusted for currency.
Americas revenue increased 2.0 percent as reported and 2 percent adjusted for currency. The U.S. increased 1.1 percent. Canada
decreased 2.5 percent as reported, but grew 1 percent adjusted for currency. Latin America increased 15.7 percent as reported and
18 percent adjusted for currency. Within Latin America, Brazil revenue increased 21.0 percent as reported and 19 percent adjusted
for currency.
EMEA revenue increased 3.0 percent as reported and 1 percent adjusted for currency. France increased 1.2 percent as reported, but
decreased 1 percent adjusted for currency. The UK increased 0.7 percent as reported and was flat adjusted for currency. Germany
increased 0.4 percent as reported, but decreased 2 percent adjusted for currency. Italy decreased 0.8 percent as reported and 3
percent adjusted for currency.
Asia Pacific revenue increased 1.6 percent as reported and 7 percent adjusted for currency. Japan revenue increased 3.8 percent as
reported and 11 percent adjusted for currency. India increased 15.1 percent as reported and 20 percent adjusted for currency.
Australia decreased 6.7 percent as reported and 3 percent adjusted for currency. China decreased 19.6 percent as reported and 16
percent adjusted for currency.
Total Expense and Other (Income)
($ in millions)
For the year ended December 31:
Total expense and other (income) (1)
Non-operating adjustments
Amortization of acquired intangible assets
Acquisition-related charges
Non-operating retirement-related (costs)/income (1)
Kyndryl-related impacts
2023
2022
Yr.-to-Yr.
Percent/
Margin
Change
$ 25,610
$ 31,531
(18.8) %
(996)
(33)
39
—
(1,065)
(18)
(6,548)
(351)
(6.5)
83.7
NM
(100.0)
4.5 %
(10.7)pts.
0.9 pts.
Operating (non-GAAP) expense and other (income)
$ 24,620
$ 23,549
Total expense-to-revenue ratio
Operating (non-GAAP) expense-to-revenue ratio
41.4 %
39.8 %
52.1 %
38.9 %
(1) 2022 includes a one-time, non-cash pension settlement charge of $5.9 billion. Refer to note V, “Retirement-Related Benefits,” for additional
information.
NM–Not meaningful
Our expense dynamics in 2023 reflect our continued investments to execute our hybrid cloud and AI strategy. We remain focused
on our productivity initiatives as we digitally transform our business processes and scale AI within IBM. This includes simplifying our
application and infrastructure environments, aligning our teams by workflow, reducing our real estate footprint and enabling a
higher value-add workforce through automation and AI driven efficiencies. These productivity actions have allowed us to increase
our investments in innovation, technical and industry skills and go-to-market capabilities, including our ecosystem.
For additional information regarding total expense and other (income) for both expense presentations, refer to the following
analyses by category.
22
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Selling, General and Administrative Expense
($ in millions)
For the year ended December 31:
Selling, general and administrative expense
Selling, general and administrative–other
Advertising and promotional expense
Workforce rebalancing charges
Amortization of acquired intangible assets
Stock-based compensation
Provision for/(benefit from) expected credit loss expense
2023
2022
Yr.-to-Yr.
Percent
Change
$
15,706
$
15,537
1.1 %
1,237
438
995
616
10
1,330
50
1,062
566
64
(7.0)
NM
(6.4)
8.8
(83.6)
2.1 %
Total selling, general and administrative expense
$
19,003
$
18,609
Non-operating adjustments
Amortization of acquired intangible assets
Acquisition-related charges
Kyndryl-related impacts
(995)
(44)
—
(1,062)
(17)
0
(6.4)
156.7
NM
Operating (non-GAAP) selling, general and administrative expense
$
17,964
$
17,529
2.5 %
NM–Not meaningful
Total selling, general and administrative (SG&A) expense increased 2.1 percent in 2023 versus 2022, driven primarily by the
following factors:
• Higher workforce rebalancing charges (2 points) to address remaining stranded cost from portfolio actions; and
• Higher net spending (1 point) reflecting our continued investment to drive our hybrid cloud and AI strategy, partially offset by
benefits from productivity actions.
Operating (non-GAAP) SG&A expense increased 2.5 percent year to year primarily driven by the same factors.
Provisions for expected credit loss expense was $10 million in 2023 as compared to $64 million in 2022. The year-to-year change
was primarily driven by lower specific reserve requirements in the current year. Refer to "Receivables and Allowances" section on
page 25 for additional information.
Research, Development and Engineering Expense
($ in millions)
For the year ended December 31:
2023
2022
Yr.-to-Yr.
Percent
Change
Total research, development and engineering
$
6,775
$
6,567
3.2 %
Research, development and engineering (RD&E) expense increased 3.2 percent in 2023 versus 2022, primarily driven by higher
spending (4 points) reflecting our continued investment to drive innovation in AI, hybrid cloud and quantum, partially offset by the
effects of currency (1 point).
Intellectual Property and Custom Development Income
($ in millions)
For the year ended December 31:
2023
2022
Licensing of intellectual property including royalty-based fees
Custom development income
Sales/other transfers of intellectual property
Total
$
$
$
366
485
8
860
$
397
246
21
663
Yr.-to-Yr.
Percent
Change
(7.7) %
97.2
(60.1)
29.6 %
Total Intellectual Property and Custom Development Income increased 29.6 percent in 2023 compared to 2022. The increase was
primarily driven by a three-year joint development and licensing agreement signed in the fourth quarter of 2022 with a Japanese
consortium to leverage our intellectual property and expertise on advanced semiconductors.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
23
The timing and amount of licensing, sales or other transfers of IP may vary significantly from period to period depending upon the
timing of licensing agreements, economic conditions, industry consolidation and the timing of new patents and know-how
development.
Other (Income) and Expense
($ in millions)
For the year ended December 31:
Other (income) and expense
Foreign currency transaction losses/(gains)
(Gains)/losses on derivative instruments
Interest income
Net (gains)/losses from securities and investment assets
Retirement-related costs/(income) (1)
Other
Total other (income) and expense
Non-operating adjustments
Amortization of acquired intangible assets
Acquisition-related charges (2)
Non-operating retirement-related costs/(income) (1)
Kyndryl-related impacts
2023
2022
$
116
$
(17)
(670)
(39)
(39)
(266)
$
(914) $
(1)
11
39
—
(643)
225
(162)
278
6,548
(443)
5,803
(2)
(1)
(6,548)
Yr.-to-Yr.
Percent
Change
NM
NM
NM
NM
NM
(40.1) %
NM
(66.7)
NM
NM
(351)
(100.0)
Operating (non-GAAP) other (income) and expense
$
(866) $
(1,099)
(21.3) %
(1) 2022 includes a one-time, non-cash pension settlement charge of $5.9 billion.
(2) 2023 includes a gain of $12 million on foreign exchange call option contracts related to the company’s announced acquisition of StreamSets and
webMethods from Software AG. Refer to note E, “Acquisitions & Divestitures,” for additional information.
NM–Not meaningful
Total other (income) and expense was income of $914 million in 2023 compared to expense of $5,803 million in 2022. The year-to-
year change was primarily driven by:
• Lower non-operating retirement-related cost ($6,587 million) primarily driven by the pension settlement charge in 2022. Refer to
note V, “Retirement-Related Benefits,” for additional information; and
• Higher interest income ($508 million) driven by higher average interest rates and a higher average cash balance in the current
year; and
• Losses on Kyndryl retained shares ($267 million) in the prior year; partially offset by
• Net exchange losses (including foreign exchange derivative instruments) in the current year versus net exchange gains in the
prior year ($516 million). The prior-year (gains)/losses on derivative instruments also includes a loss on the cash-settled swap
related to the Kyndryl retained shares; and
• Lower gains on divestitures ($277 million) primarily driven by the divestiture of our healthcare software assets in 2022 (included
in “Other”).
Operating (non-GAAP) other (income) and expense was $866 million of income in 2023 and decreased $234 million compared to
the prior year. The year-to-year decrease was driven primarily by the effects of currency and lower gains on divestitures, partially
offset by higher interest income described above.
Interest Expense
($ in millions)
For the year ended December 31:
Total interest expense
2023
2022
Yr.-to-Yr.
Percent
Change
$
1,607
$
1,216
32.1 %
Interest expense of $1,607 million in 2023 increased $391 million compared to 2022. Interest expense is presented in cost of
financing in the Consolidated Income Statement only if the related external borrowings are to support the Financing external
24
Management Discussion
International Business Machines Corporation and Subsidiary Companies
business. Overall interest expense (excluding capitalized interest) in 2023 was $1,940 million, an increase of $379 million year to
year primarily driven by higher average interest rates and a higher average debt balance in the current year.
Stock-Based Compensation
Pre-tax stock-based compensation cost of $1,133 million increased $146 million compared to 2022. This was primarily due to
increases from restricted stock units ($84 million), stock options ($32 million) and Employee Stock Purchase Plan (ESPP) ($21
million). The increases are driven by stock-based compensation awards granted as part of our annual cycles for executives and
other employees, and the ESPP being considered compensatory effective April 1, 2022. Stock-based compensation cost, and the
year-to-year change, was reflected in the following categories: Cost: $190 million, up $26 million; SG&A expense: $616 million, up
$50 million; and RD&E expense: $328 million, up $70 million.
Retirement-Related Plans
The following table provides the total pre-tax cost for all retirement-related plans. Total operating costs/(income) are included in
the Consolidated Income Statement within the caption (e.g., Cost, SG&A, RD&E) relating to the job function of the plan participants.
($ in millions)
For the year ended December 31:
Retirement-related plans–cost
Service cost
Multi-employer plans
Cost of defined contribution plans
Total operating costs/(income)
Interest cost
Expected return on plan assets
Recognized actuarial losses
Amortization of prior service costs/(credits)
Curtailments/settlements (1)
Other costs
Total non-operating costs/(income) (1)
Total retirement-related plans–cost (1)
2023
2022
Yr.-to-Yr.
Percent
Change
$
$
$
$
$
183
$
13
991
1,188
$
2,415
$
(2,971)
508
(9)
5
13
(39) $
1,149
$
245
15
924
1,184
1,731
(2,747)
1,568
12
5,970
15
6,548
7,732
(25.2) %
(10.6)
7.2
0.3 %
39.5 %
8.2
(67.6)
NM
(99.9) %
(11.8)
NM
(85.1) %
(1) 2022 includes a one-time, non-cash pension settlement charge of $5.9 billion.
NM–Not meaningful
Total pre-tax retirement-related plan cost decreased by $6,583 million compared to 2022, primarily due to a decrease in
curtailment/settlements ($5,965 million) driven by the $5.9 billion pension settlement charge in 2022, lower recognized actuarial
losses ($1,060 million), higher expected returns on plan assets ($224 million) and lower service cost ($62 million) partially offset by
higher interest costs ($684 million) and higher cost of defined contribution plans ($67 million).
As discussed in the “Operating (non-GAAP) Earnings” section, we characterize certain retirement-related costs as operating and
others as non-operating. Utilizing this characterization, operating retirement-related costs in 2023 were $1,188 million, an increase
of $3 million compared to 2022. Non-operating income was $39 million in 2023 as compared to cost of $6,548 million in 2022. The
year-to-year change was driven primarily by the pension settlement charge in the prior year, lower recognized actuarial losses, and
lower service cost partially offset by higher interest costs and higher cost of defined contribution plans.
Income Taxes
The continuing operations effective tax rate for 2023 was 13.5 percent compared to (54.2) percent in 2022. The prior-year effective
tax rate was primarily driven by the transfer of a portion of the Qualified PPP’s defined benefit pension obligations and related plan
assets. The operating (non-GAAP) effective tax rate for 2023 was 14.0 percent compared to 15.2 percent in 2022. For additional
information, refer to note H, “Taxes.”
Management Discussion
International Business Machines Corporation and Subsidiary Companies
25
Financial Position
Dynamics
Our balance sheet at December 31, 2023 continues to provide us with flexibility to support and invest in the business.
Cash and cash equivalents, restricted cash and marketable securities at December 31, 2023 were $13,462 million, an increase of
$4,622 million compared to prior-year end. Total debt of $56,547 million increased $5,598 million from prior-year end primarily
due to net debt issuances. We were opportunistic in accessing the debt market and issued $9,463 million of debt in the first quarter
of 2023 to prudently plan for our debt maturity obligations in 2023 and 2024 as well as capital allocation priorities. We continue to
manage our debt levels while being acquisitive and without sacrificing investments in our business.
During 2023, we generated $13,931 million in cash from operating activities, an increase of $3,496 million compared to 2022. Our
free cash flow for 2023 was $11,210 million, an increase of $1,919 million versus the prior year. Refer to page 31 for additional
information on free cash flow. Our strong cash generation has enabled us to be acquisitive and increase our investment in R&D,
strengthening our AI and hybrid cloud capabilities, while supporting continued shareholder returns through dividends. We invested
$5,082 million in acquisitions and returned $6,040 million to shareholders through dividends in 2023. Our cash generation supports
investment and deployment of capital to areas with the most attractive long-term opportunities.
Consistent with accounting standards, the company remeasured the funded status of our retirement and postretirement plans at
December 31. The overall net underfunded position at December 31, 2023 was $4,006 million, an increase of $1,855 million from
the prior-year end, primarily due to lower discount rates. At year end, our qualified defined benefit pension plans were well funded
and the required contributions related to these plans and multi-employer plans are expected to be $200 million in 2024. In 2023,
the return on the U.S. Personal Pension Plan assets was 4.3 percent and the plan was 123 percent funded at December 31, 2023.
Overall, global asset returns were 4.5 percent and the qualified defined benefit plans worldwide were 111 percent funded at
December 31, 2023.
IBM Working Capital
($ in millions)
At December 31:
Current assets
Current liabilities
Working capital
Current ratio
2023
2022
$
$
32,908 $
29,118
34,122
31,505
(1,214) $
(2,387)
0.96:1
0.92:1
Working capital increased $1,173 million from the year-end 2022 position. Current assets increased $3,790 million ($3,626 million
adjusted for currency) primarily in cash and cash equivalents; partially offset by a decrease in short-term financing receivables and
inventories. Current liabilities increased $2,617 million ($2,426 million adjusted for currency) primarily in short-term debt driven by
reclassifications from long-term debt net of maturities and from deferred income.
Receivables and Allowances
Roll Forward of Total IBM Receivables Allowance for Credit Losses
($ in millions)
January 1, 2023
$495
Additions/
(Releases) (1)
$11
Write-offs (2)
$(97)
Foreign currency
and other (3)
$48
December 31, 2023
$457
(1) Additions/(Releases) for allowance for credit losses are recorded in expense.
(2) Refer to note A, “Significant Accounting Policies,” for additional information regarding allowance for credit loss write-offs.
(3) Other includes additions/(releases) related to discontinued operations.
Excluding receivables classified as held for sale, the total IBM receivables provision coverage was 2.2 percent at December 31,
2023, a decrease of 20 basis points compared to December 31, 2022. The decrease in coverage is due to declines in reserves
primarily driven by write-offs. The majority of the write-offs during the year related to receivables which had been previously
reserved. Refer to Financing's "Financial Position" on page 39 for additional details regarding the Financing segment receivables and
allowances.
26
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Noncurrent Assets and Liabilities
($ in millions)
At December 31:
Noncurrent assets
Long-term debt
Noncurrent liabilities (excluding debt)
2023
2022
$
$
$
102,333
50,121
28,385
$
$
$
98,125
46,189
27,528
The increase in noncurrent assets of $4,208 million ($3,495 million adjusted for currency) was primarily due to goodwill mainly
related to the Apptio acquisition; partially offset by a decrease in prepaid pension assets.
Long-term debt increased $3,932 million ($3,531 million adjusted for currency) primarily driven by debt issuances; partially offset
by reclassifications to short-term debt to reflect upcoming maturities.
Noncurrent liabilities (excluding debt) increased $858 million ($605 million adjusted for currency) primarily driven by retirement
and postretirement benefit obligations due to plan remeasurements.
Debt
Our funding requirements are continually monitored as we execute our strategies to manage the overall asset and liability profile.
Additionally, we maintain sufficient flexibility to access global funding sources as needed.
($ in millions)
At December 31:
Total debt
Financing segment debt (1)
Non-Financing debt
2023
2022
$
$
$
56,547
11,879
44,668
$
$
$
50,949
12,872
38,077
(1) Refer to Financing’s “Financial Position” on page 38 for additional details.
Total debt of $56,547 million increased $5,598 million ($5,181 million adjusted for currency) from December 31, 2022, primarily
driven by proceeds from issuances of $9,586 million; partially offset by maturities of $5,082 million.
Non-Financing debt of $44,668 million increased $6,591 million ($6,230 million adjusted for currency) from December 31, 2022,
primarily driven by our first quarter debt issuances to plan for debt maturity obligations in 2023 and 2024 as well as capital
allocation priorities.
Financing segment debt of $11,879 million decreased $992 million ($1,049 million adjusted for currency) from December 31,
2022, primarily due to lower funding requirements associated with financing receivables.
Financing provides financing solutions predominantly for IBM’s external client assets, and the debt used to fund Financing assets is
primarily composed of intercompany loans. Total debt changes generally correspond with the level of client and commercial
financing receivables, the level of cash and cash equivalents, the change in intercompany and external payables and the change in
intercompany investment from IBM. The terms of the intercompany loans are set by the company to substantially match the term,
currency and interest rate variability underlying the financing receivable. The Financing debt-to-equity ratio remained at 9.0 to 1 at
December 31, 2023.
Interest expense relating to debt supporting Financing’s external client and internal business is included in the “Financing Results of
Operations” and in note D, “Segments.” In the Consolidated Income Statement, the external debt-related interest expense
supporting Financing’s internal financing to the company is classified as interest expense.
Equity
Total equity increased $592 million from December 31, 2022, primarily driven by an increase from net income of $7,502 million and
common stock of $1,300 million; partially offset by dividends paid of $6,040 million and an increase in accumulated other
comprehensive loss of $2,021 million driven by retirement-related benefit plans.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
27
Cash Flow
Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows on page
47, are summarized in the table below. These amounts also include the cash flows associated with the Financing business.
($ in millions)
For the year ended December 31:
Net cash provided by/(used in)
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
2023
2022
$
13,931 $
10,435
(7,070)
(1,769)
9
(4,202)
(4,958)
(244)
1,032
Net change in cash, cash equivalents and restricted cash
$
5,101 $
Net cash provided by operating activities increased $3,496 million in 2023. This was due to an increase in cash provided by
financing receivables, performance-related improvements within net income and sales cycle working capital efficiencies.
Net cash used in investing activities increased $2,868 million mainly driven by the Apptio acquisition, and a decrease in cash
provided by divestitures; partially offset by higher net proceeds from marketable securities and other investments.
Net cash used in financing activities decreased $3,188 million mainly due to an increase in net cash provided by debt of $3,276
million primarily driven by a higher level of issuances and lower level of maturities in the current year.
Discontinued Operations
Loss from discontinued operations was $12 million in 2023 compared to $143 million in the prior-year period. The results for both
periods reflect the net impact of changes in separation-related estimates and the settlement of assets and liabilities in accordance
with the separation and distribution agreement. The prior-year results also reflect a gain on sale of a joint venture historically
managed by Kyndryl, which was sold to Kyndryl in the first quarter of 2022 upon receiving regulatory approval. The discontinued
operations provision for income taxes for the year ended December 31, 2022 primarily reflects the impact of provision to return
adjustments on the Kyndryl-related taxes. Refer to note E, "Acquisitions & Divestitures," for additional information.
28
Management Discussion
International Business Machines Corporation and Subsidiary Companies
GAAP Reconciliation
The tables below provide a reconciliation of our income statement results as reported under GAAP to our operating earnings
presentation which is a non-GAAP measure. Management’s calculation of operating (non-GAAP) earnings, as presented, may differ
from similarly titled measures reported by other companies. Please refer to the “Operating (non-GAAP) Earnings” section for
management’s rationale for presenting operating earnings information.
($ in millions except per share amounts)
For the year ended December 31, 2023:
GAAP
Acquisition-
Related
Adjustments
Retirement-
Related
Adjustments
U.S. Tax
Reform
Impacts
Kyndryl-
Related
Impacts
Operating
(non-GAAP)
Gross profit
Gross profit margin
SG&A
Other (income) and expense (1)
Total expense and other (income)
$ 34,300
$ 631
55.4 %
1.0 pts.
$ 19,003
$ (1,039)
(914)
10
25,610
(1,029)
$
$
Pre-tax income from continuing operations
8,690
1,660
—
$
—
$
—
$ 34,931
— pts.
— pts.
— pts.
56.5 %
—
39
39
(39)
$
—
—
—
—
$
—
—
—
—
$ 17,964
(866)
24,620
10,311
Pre-tax margin from continuing operations
Provision for income taxes (3)
Effective tax rate
14.0 %
2.7 pts.
(0.1) pts.
— pts.
— pts.
16.7 %
$ 1,176
$ 368
$
(8)
$
(95)
$
—
$ 1,441
13.5 %
1.4 pts.
0.0 pts.
(0.9) pts.
— pts.
14.0 %
Income from continuing operations
$ 7,514
$ 1,292
$
(30)
$ 95
$
—
$ 8,870
Income margin from continuing operations
Diluted earnings per share from continuing
12.1 %
2.1 pts.
0.0 pts.
0.2 pts.
— pts.
14.3 %
operations
$ 8.15
$ 1.40
$
(0.03)
$ 0.10
$
—
$
9.62
($ in millions except per share amounts)
For the year ended December 31, 2022:
GAAP
Acquisition-
Related
Adjustments
Retirement-
Related
Adjustments (2)
U.S. Tax
Reform
Impacts
Kyndryl-
Related
Impacts
Operating
(non-GAAP)
Gross profit
Gross profit margin
SG&A
Other (income) and expense
$ 32,687
$ 682
54.0 %
1.1 pts.
$ 18,609
$ (1,080)
5,803
(3)
$
$
Total expense and other (income)
31,531
(1,083)
Pre-tax income from continuing operations
1,156
1,765
—
$
—
$
—
$ 33,370
— pts.
— pts.
— pts.
55.1 %
—
$
(6,548)
(6,548)
6,548
—
—
—
—
$
0
$ 17,529
(351)
(351)
(1,099)
23,549
351
9,821
Pre-tax margin from continuing operations
Provision for/(benefit from) income taxes (3)
Effective tax rate
1.9 %
2.9 pts.
10.8 pts.
— pts.
0.6 pts.
16.2 %
$
(626)
$ 436
$ 1,615
$ 70
$
—
$ 1,495
(54.2) %
14.2 pts.
52.6 pts.
0.7 pts.
1.9 pts.
15.2 %
Income from continuing operations
$ 1,783
$ 1,329
$ 4,933
$
(70)
$ 351
$ 8,326
Income margin from continuing operations
2.9 %
2.2 pts.
8.1 pts.
(0.1) pts.
0.6 pts.
13.8 %
Diluted earnings per share from continuing
operations
$ 1.95
$ 1.46
$
5.41
$ (0.08)
$ 0.38
$
9.13
(1) Acquisition-Related Adjustments in 2023 includes a gain of $12 million on foreign exchange call option contracts related to the company’s planned
acquisition of StreamSets and webMethods from Software AG. Refer to note E, “Acquisitions & Divestitures,” for additional information.
(2) Retirement-Related Adjustments in 2022 includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion after tax).
Refer to note V, “Retirement-Related Benefits,” for additional information.
(3) The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which
employs an annual effective tax rate method to the results.
PRIOR YEAR IN REVIEW
Refer to "Year in Review" on pages 17 through 29 of the "Management Discussion" section of our 2022 Annual Report on Form 10-K
for a discussion on our financial condition and results of operations for the year ended December 31, 2022 compared to the year
ended December 31, 2021.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
29
OTHER INFORMATION
Looking Forward
Technology has proven to be a fundamental source of competitive advantage. Continued demand for technology will serve as a
major driving force behind global economic and business growth as businesses look to scale, offer better services, drive efficiencies
and seize new market opportunities. Our clients are asking how to boost productivity with AI and how to manage their technology
stack, much of which is deployed across a hybrid environment: public, private and on-premise. These trends continue to fuel
demand for both hybrid cloud and AI.
Hybrid Cloud and AI Progress
We entered 2023 intent on enhancing our Software portfolio and strengthening our Consulting position. We have accomplished
both. In mid-2023, we launched watsonx, our flagship AI and data platform that enables clients to train, tune, validate and deploy
AI models and we continue to build additional capabilities to help clients and partners capitalize on the AI opportunity. Consulting
has delivered consistent revenue growth throughout 2023 despite an uneven macroeconomic environment. Our integrated value
proposition, expanding ecosystem, skills and technical expertise, global reach and co-creation approach, set us apart and
contributed to our Consulting performance outpacing that of our competitors. 2023 also underscored the enduring nature and
relevance of our zSystems platform with the z16 program significantly outperforming prior cycles including the successful z15 cycle.
We continue to drive our productivity initiatives as we digitally transform our business processes and scale AI within IBM. We have
achieved over $1.5 billion in savings from these productivity initiatives through 2023 and believe we can achieve at least $3.0 billion
in annual run-rate savings by the end of 2024. The savings have allowed us to increase our investments in innovation, technical and
industry skills and go-to-market capabilities, including our ecosystem. As we continue to execute productivity initiatives, we expect
workforce rebalancing to be consistent with 2023 levels.
To complement our portfolio, we completed nine acquisitions in 2023, including Apptio, and we announced the acquisition of
StreamSets and webMethods from Software AG which is expected to close in mid-year 2024. We also announced the Enterprise AI
Venture Fund, a $500 million fund with the goal of partnering with the startup community to understand the latest AI innovations in
the market to help them scale. As we remain focused on portfolio optimization, we completed the sale of our Weather Company
assets in January 2024.
We are pleased with the progress we have made. Over the last two years, we aligned our business to a platform-centric model,
focused on hybrid cloud and AI. Our go-to-market is based on more technical and experiential selling. We opened our ecosystem
and strategic partnerships to give our clients greater choice and technical depth. And we have invested in innovation and skills and
pursued strategic acquisitions. These actions resulted in a fundamentally different company with an improved business mix, a
higher value recurring revenue base and solid cash generation – a business well positioned for the future.
Effective January 1, 2024, we changed how we provide certain retirement-related benefits in the U.S. We are providing a new
benefit to most U.S. employees under our existing U.S. Defined Benefit Qualified Personal Pension Plan (Qualified PPP) called the
Retirement Benefit Account (RBA). This is in place of our contributions to the U.S. employees' 401(k) Plus accounts. IBM U.S.
regular full-time and part-time employees with at least one year of service will participate in the RBA. Each eligible employee's RBA
will be credited monthly with an amount equal to five percent of their eligible pay with no employee contribution required. Under the
RBA, eligible employees will earn six percent interest through 2026 and starting in 2027, will earn interest equal to the 10-year U.S.
Treasury Yield, subject to a three percent minimum per year through 2033. Eligible employees also received a salary increase
effective January 1, 2024 for the difference between the IBM 401(k) Plus contribution percent they were previously entitled to
receive and the five percent RBA pay credit. Since the RBA is a component of the Qualified PPP, it will be funded by the trust for the
Qualified PPP along with other benefits in the Qualified PPP. At December 31, 2023, the Qualified PPP was 123 percent funded with
assets exceeding liabilities by $4.6 billion.
As a result of this change, service cost within the Qualified PPP is expected to increase by approximately $0.4 billion and cost of
defined contribution plans is expected to decline by approximately $0.5 billion in 2024. Including the employee salary increase
described above, the net impact to the company’s operating costs is expected to be immaterial. In addition, inactive pension plan
participants no longer represent substantially all of the participants in the U.S. Qualified PPP. As required by U.S. GAAP, this will
change the amortization period of unrecognized actuarial losses from the average remaining life expectancy of inactive plan
participants, to the average remaining service period of active plan participants. This will result in an increase to 2024 amortization
expense of approximately $0.3 billion. Actuarial loss amortization is reported within non-operating pension costs. There will be no
impact to 2024 operating (non-GAAP) earnings, funded status, retiree benefit payments or funding requirements of the U.S.
Qualified PPP due to the change in amortization period.
Our retirement-related plans remain in a strong financial position. In aggregate, our worldwide qualified plans are funded 111
percent, with the U.S. at 123 percent. Contributions for all retirement-related plans are expected to be approximately $1.5 billion in
2024, of which approximately $0.2 billion generally relates to legally required contributions to non-U.S. defined benefits and multi-
employer plans. The expected decrease of $0.3 billion in total contributions for 2024 is primarily driven by ongoing dynamics of our
30
Management Discussion
International Business Machines Corporation and Subsidiary Companies
retirement-related plans, including the change in U.S. retirement-related benefits described above. We expect 2024 pre-tax
retirement-related plan cost to be approximately $1.5 billion. This estimate reflects current pension plan assumptions at
December 31, 2023. Within total retirement-related plan cost, operating retirement-related plan cost is expected to be
approximately $1.1 billion in 2024, a decrease of approximately $0.1 billion compared to 2023. Non-operating retirement-related
plan cost is expected to be approximately $0.4 billion, an increase of approximately $0.5 billion compared to 2023, primarily driven
by higher recognized actuarial losses, partially offset by lower interest cost.
In addition, in the first quarter of 2024, we announced changes to our organizational structure and management system to better
align our portfolio to the market, increase transparency and improve segment comparability to peers. These changes will not impact
our Consolidated Financial Statements, but will impact our reportable segments beginning in the first quarter of 2024. The changes
include: Security services, previously reported in Software segment moved to the Consulting segment; The Weather Company
assets, divested in January 2024, previously reported in Software segment moved to Other - divested businesses category; and
stock-based compensation expense and non-Financing net interest expense are no longer included in our reportable segment
results, consistent with our management system. Since these changes did not occur until first-quarter 2024, the periods presented
in this Annual Report are reported under the historical segments. Refer to note D, “Segments,” for additional information.
We recognized a pre-tax gain on the sale of The Weather Company assets of approximately $240 million at closing. The tax impact
of the transaction will be included in our 2024 annual effective tax rate. On a full year basis, the gain on sale, net of tax, and forgone
profit is expected to be immaterial.
Liquidity and Capital Resources
We have generated strong cash flow from operations allowing us to invest and deploy capital to areas with the most attractive long-
term opportunities. We provide for additional liquidity through several sources: maintaining an adequate cash balance, access to
global funding sources, committed global credit facilities and other committed and uncommitted lines of credit worldwide. The
following table provides a summary of the major sources of liquidity for the years ended December 31, 2021 through 2023.
Cash Flow and Liquidity Trends
($ in billions)
Net cash from operating activities
Cash and cash equivalents, restricted cash and short-term marketable securities
Committed global credit facilities (1)
(1) Refer to note P, “Borrowings,” for additional information.
2023
2022
2021
$
$
$
13.9
13.5
10.0
$
$
$
10.4
8.8
10.0
$
$
$
12.8
7.6
10.0
The indenture governing our debt securities and our various credit facilities each contain significant 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 our ability to merge or consolidate unless certain
conditions are met. The credit facilities also include a covenant on our consolidated net interest expense ratio, which cannot be less
than 2.20 to 1.0, as well as a cross default provision with respect to other defaulted indebtedness of at least $500 million.
We are in compliance with all of our significant debt covenants and provide periodic certification to our lenders. The failure to
comply with debt covenants could constitute an event of default with respect to our debt to which such provisions apply. 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.
We do not have “ratings trigger” provisions in our debt covenants or documentation, which would allow the holders to declare an
event of default and seek to accelerate payments thereunder in the event of a change in credit rating. Our debt covenants are well
within the required levels. Our contractual agreements governing derivative instruments contain standard market clauses which can
trigger the termination of the agreement if IBM’s credit rating were to fall below investment grade. At December 31, 2023, the fair
value of those instruments that were in a liability position was $593 million, before any applicable netting, and this position is
subject to fluctuations in fair value period to period based on the level of our outstanding instruments and market conditions. We
have no other contractual arrangements that, in the event of a change in credit rating, would result in a material adverse effect on
our financial position or liquidity.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
31
The following table presents the major ratings agencies’ ratings assigned to our debt securities as of December 31, 2023. The
Moody's and Standard and Poor’s ratings remain unchanged from December 31, 2022. Additionally, Fitch assigned its credit ratings
on our debt securities in the fourth quarter of 2023.
IBM Ratings
Senior long-term debt
Commercial paper
Standard
and Poor’s
A-
A-2
Moody’s
Investors
Service
A3
Prime-2
Fitch
Ratings
A-
F1
We have ample and increased financial flexibility, supported by our strong liquidity position and cash flows, to operate at a single A
credit rating. In 2023, we issued $9.5 billion of debt to plan for our debt maturity obligations in 2023 and 2024, as well as capital
allocation priorities. Debt levels increased $5.6 billion from December 31, 2022, driven by net debt issuances. On February 5, 2024,
we issued $5.5 billion of debt to increase our financial liquidity and plan for our future debt maturities. Refer to note W,
“Subsequent Events,” for additional information.
We prepare our Consolidated Statement of Cash Flows in accordance with applicable accounting standards for cash flow
presentation on page 47 and highlight causes and events underlying sources and uses of cash in that format on page 27. For the
purpose of running its business, IBM manages, monitors and analyzes cash flows in a different manner.
Management uses free cash flow as a measure to evaluate its operating results, plan shareholder return levels, strategic
investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available
for discretionary expenditures. We define free cash flow as net cash from operating activities less the change in Financing
receivables and net capital expenditures, including the investment in software. A key objective of the Financing business is to
generate strong returns on equity, and our Financing receivables are the basis for that growth. Accordingly, management considers
Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore,
management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of
Financing receivables.
The following is management’s view of cash flows for 2023, 2022 and 2021 prepared in a manner consistent with the description
above and is presented on a consolidated basis, including cash flows of discontinued operations.
($ in billions)
For the year ended December 31:
Net cash from operating activities per GAAP (2)
Less: the change in Financing receivables
Net cash from operating activities, excluding Financing receivables
Capital expenditures, net
Free cash flow (FCF) (3)
Acquisitions
Divestitures
Dividends
Non-Financing debt
Other (includes Financing receivables and Financing debt) (4)
Change in cash, cash equivalents, restricted cash and short-term
marketable securities
(1) Includes immaterial cash flows from discontinued operations.
(2) 2021 includes cash flows of discontinued operations of $1.6 billion.
2023
2022 (1)
2021
$
13.9
$
10.4
$
1.2
12.7
(1.5)
11.2
(5.1)
0.0
(6.0)
5.5
(1.0)
(0.7)
11.2
(1.9)
9.3
(2.3)
1.3
(5.9)
1.9
(2.9)
12.8
3.9
8.9
(2.4)
6.5
(3.3)
0.1
(5.9)
(1.2)
(3.0)
$
4.6
$
1.3
$
(6.7)
(3) 2021 includes cash impacts of approximately $1.4 billion for Kyndryl-related structural actions and separation charges.
(4) 2021 includes the distribution from Kyndryl of $0.9 billion.
From the perspective of how management views cash flow, in 2023, after investing $1.5 billion in capital investments, we generated
free cash flow of $11.2 billion, an increase of $1.9 billion versus the prior year. The year-to-year increase in free cash flow primarily
reflects current year performance-related improvements within net income, sales cycle working capital efficiencies and a decline in
capital expenditures reflecting actions to optimize our real estate portfolio. In 2023, we continued to return value to shareholders
with $6.0 billion in dividends and invested $5.1 billion in acquisitions.
32
Management Discussion
International Business Machines Corporation and Subsidiary Companies
IBM’s Board of Directors considers the dividend payment on a quarterly basis. In the second quarter of 2023, the Board of Directors
increased the company’s quarterly common stock dividend from $1.65 to $1.66 per share.
Events that could temporarily change the historical cash flow dynamics discussed previously include significant changes in
operating results, material changes in geographic sources of cash, unexpected adverse impacts from litigation, future pension
funding requirements during periods of severe downturn in the capital markets or the timing of tax payments. Whether any litigation
has such an adverse impact will depend on a number of variables, which are more completely described in note R, “Commitments &
Contingencies.” With respect to pension funding, in 2023, we contributed $70 million to our non-U.S. defined benefit plans
compared to $118 million in 2022. As highlighted in the Contractual Obligations table, we expect to make legally mandated pension
plan contributions to certain non-U.S. plans of approximately $1.3 billion in the next five years. The 2024 contributions are currently
expected to be approximately $200 million. Contributions related to all retirement-related plans are expected to be approximately
$1.5 billion in 2024, a decrease of approximately $300 million compared to 2023. Refer to "Looking Forward" for additional
information. Financial market performance could increase the legally mandated minimum contributions in certain non-U.S.
countries that require more frequent remeasurement of the funded status. We are not quantifying any further impact from pension
funding because it is not possible to predict future movements in the capital markets or pension plan funding regulations.
In 2024, we are not legally required to make any contributions to the U.S. defined benefit pension plans.
Our cash flows are sufficient to fund our current operations and obligations, including investing and financing activities such as
dividends and debt service. When additional requirements arise, we have several liquidity options available. These options may
include the ability to borrow additional funds at reasonable interest rates and utilizing our committed global credit facilities. Our
overall shareholder payout remains at a comfortable level and we remain fully committed to our long-standing dividend policy.
Contractual Obligations
($ in millions)
Total Contractual
Payments Due In
Payment Stream
2024
2025–26
2027–28
After 2028
Long-term debt obligations
$
57,099 $
6,307 $
10,531 $
9,733 $
Interest on long-term debt obligations
Finance lease obligations (1)
Operating lease obligations (1)
Purchase obligations
Other long-term liabilities:
Minimum defined benefit plan pension
funding (mandated) (2)
Excess 401(k) Plus Plan
Long-term termination benefits
Tax reserves (3)
Other
19,170
499
3,948
3,822
1,300
1,644
858
5,712
569
1,717
121
948
1,203
200
207
191
108
149
2,991
182
1,377
1,581
600
436
128
93
2,322
124
733
610
500
464
97
55
30,528
12,140
72
890
428
537
442
271
Total
$
94,622 $
11,151 $
17,920 $
14,639 $
45,308
(1) Finance lease obligations are presented on a discounted cash flow basis, whereas operating lease obligations are presented on an undiscounted cash
flow basis.
(2) As funded status on plans will vary, obligations for mandated minimum pension payments after 2028 could not be reasonably estimated.
(3) These amounts represent the liability for unrecognized tax benefits. We estimate that approximately $108 million of the liability is expected to be
settled within the next 12 months. The settlement period for the noncurrent portion of the income tax liability cannot be reasonably estimated as the
timing of the payments will depend on the progress of tax examinations with the various tax authorities; however, it is not expected to be due within
the next 12 months.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
33
Certain contractual obligations reported in the previous table exclude the effects of time value and therefore, may not equal the
amounts reported in the Consolidated Balance Sheet. Certain noncurrent liabilities are excluded from the previous table as their
future cash outflows are uncertain. This includes deferred taxes, derivatives, deferred income, disability benefits and other sundry
items. Certain obligations related to our divestitures are included.
Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of
the following criteria: (1) they are noncancelable, (2) we would incur a penalty if the agreement was canceled, or (3) we must make
specified minimum payments even if we do not take delivery of the contracted products or services (take-or-pay). If the obligation
to purchase goods or services is noncancelable, the entire value of the contract is included in the previous table. If the obligation is
cancelable, but we would incur a penalty if canceled, the dollar amount of the penalty is included as a purchase obligation.
Contracted minimum amounts specified in take-or-pay contracts are also included in the table as they represent the portion of each
contract that is a firm commitment.
In the ordinary course of business, we enter into contracts that specify that we will purchase all or a portion of our requirements of a
specific product, commodity or service from a supplier or vendor. These contracts are generally entered into in order to secure
pricing or other negotiated terms. They do not specify fixed or minimum quantities to be purchased and, therefore, we do not
consider them to be purchase obligations.
Interest on floating-rate debt obligations is calculated using the effective interest rate at December 31, 2023, plus the interest rate
spread associated with that debt, if any.
Off-Balance Sheet Arrangements
In the normal course of business, we may enter into off-balance sheet arrangements such as client financing commitments and
guarantees. At December 31, 2023, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a
material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources. Refer to the table above for our contractual obligations, and note R,
“Commitments & Contingencies,” for detailed information about our guarantees, financial commitments and indemnification
arrangements. We do not have retained interests in assets transferred to unconsolidated entities or other material off-balance sheet
interests or instruments.
Critical Accounting Estimates
The application of GAAP requires IBM to make estimates and assumptions about certain items and future events that directly affect
its reported financial condition. The accounting estimates and assumptions discussed in this section are those that we consider to
be the most critical to our financial statements. An accounting estimate is considered critical if both (a) the nature of the estimate or
assumption is material due to the levels of subjectivity and judgment involved, and (b) the impact within a reasonable range of
outcomes of the estimate and assumption is material to IBM’s financial condition. Senior management has discussed the
development, selection and disclosure of these estimates with the Audit Committee of IBM’s Board of Directors. Our significant
accounting policies are described in note A, “Significant Accounting Policies.”
A quantitative sensitivity analysis is provided where that information is reasonably available, can be reliably estimated and provides
material information to investors. The amounts used to assess sensitivity (e.g., 1 percent, 10 percent, etc.) are included to allow
users of the financial statements to understand a general direction cause and effect of changes in the estimates and do not
represent management’s predictions of variability. For all of these estimates, it should be noted that future events rarely develop
exactly as forecasted, and estimates require regular review and adjustment.
Pension Assumptions
For our defined benefit pension plans, the measurement of the benefit obligation to plan participants and net periodic pension
(income)/cost requires the use of certain assumptions, including, among others, estimates of discount rates, interest crediting rates
and expected return on plan assets. Beginning in 2024, as a result of changes to the Qualified PPP as discussed in "Looking
Forward" the interest crediting rate and expected return on plan assets will be based on their relationship to the plan's discount
rate.
Changes in the discount rate and the interest crediting rate assumptions would impact the service cost, (gain)/loss amortization and
interest cost components of the net periodic pension (income)/cost calculation and the projected benefit obligation (PBO). Changes
in the expected long-term return on plan assets assumption impacts the net periodic pension (income)/cost. Expected returns on
plan assets are calculated based on the market-related value of plan assets, which recognizes changes in the fair value of plan
assets systematically over a five-year period in the expected return on plan assets line in net periodic pension (income)/cost. The
differences between the actual return on plan assets and the expected long-term return on plan assets are recognized over five
years in the expected return on plan assets line in net periodic pension (income)/cost and also as a component of actuarial (gains)/
losses, which are recognized over the service lives or life expectancy of the participants, depending on the plan, provided such
34
Management Discussion
International Business Machines Corporation and Subsidiary Companies
amounts exceed thresholds which are based upon the benefit obligation or the value of plan assets, as provided by accounting
standards.
The discount rate assumption for the IBM Personal Pension Plan (PPP), a U.S.-based defined benefit plan, decreased by 30 basis
points to 5.0 percent on December 31, 2023. This change will decrease pre-tax income recognized in 2024 by an estimated $112
million. A 25 basis point increase or decrease in the discount rate assumption for the PPP would cause a corresponding increase or
decrease, respectively, in the pre-tax income recognized in 2024 by an estimated $100 million. The impact on pre-tax income as a
result of a change in discount rate includes the impact of a similar change in the interest crediting rate. The increase or decrease in
the discount rate would also cause a corresponding increase or decrease, respectively, in the 2024 expected return on plan assets
assumption. Further changes in the discount rate assumptions would impact the PBO which, in turn, may impact our funding
decisions if the PBO exceeds plan assets. A 25 basis point increase in the discount rate would decrease the PBO by $399 million. A
25 basis point decrease in the discount rate would increase the PBO by $414 million. The impact on the PBO as a result of a change
in discount rate includes the impact of a similar change in the interest crediting rate.
Each 50 basis point change in the expected long-term return on PPP plan assets assumption would have an estimated impact of
$136 million on the following year’s pre-tax net periodic pension (income)/cost (based upon the 2024 assumptions).
We may voluntarily make contributions or be required, by law, to make contributions to our pension plans. Actual results that differ
from the estimates may result in more or less future IBM funding into the pension plans than is planned by management. Impacts of
these types of changes on our pension plans in other countries worldwide would vary depending upon the status of each respective
plan.
In addition to the above, we evaluate other pension assumptions involving demographic factors, such as retirement age and
mortality, and update these assumptions to reflect experience and expectations for the future. Actual results in any given year can
differ from actuarial assumptions because of economic and other factors.
For additional information on our pension plans and the development of these assumptions, refer to note V, “Retirement-Related
Benefits.”
Revenue Recognition
Application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates.
Specifically, complex arrangements with nonstandard terms and conditions may require significant contract interpretation to
determine the appropriate accounting, including whether promised goods and services specified in an arrangement are distinct
performance obligations. Other significant judgments include determining the standalone selling price (SSP), determining whether
IBM or a reseller is acting as the principal in a transaction and whether separate contracts should be combined and considered part
of one arrangement.
Revenue recognition is also impacted by our ability to determine when a contract is probable of collection and to estimate variable
consideration, including, for example, rebates, volume discounts, service-level penalties and performance bonuses. We consider
various factors when making these judgments, including a review of specific transactions, historical experience and market and
economic conditions. Evaluations are conducted each quarter to assess the adequacy of the estimates. If the estimates were
changed by 10 percent in 2023, the impact on net income would have been $42 million.
Costs to Complete Service Contracts
We enter into numerous service contracts through our services businesses. During the contractual period, revenue, cost and profits
may be impacted by estimates of the ultimate profitability of each contract, especially contracts for which we use cost-to-cost
measures of progress. For those contracts, if at any time these estimates indicate the contract will be unprofitable, the entire
estimated loss for the remainder of the contract is recorded immediately in cost. We perform ongoing profitability analyses of these
services contracts in order to determine whether the latest estimates require updating. Key factors reviewed to estimate the future
costs to complete each contract are future labor costs and product costs and expected productivity efficiencies. Contract loss
provisions recorded as a component of other accrued expenses and liabilities were immaterial at December 31, 2023 and 2022.
Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments are required in determining the
consolidated provision for income taxes.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is
uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. These tax
liabilities are recognized when, despite our belief that our tax return positions are supportable, we believe that certain positions may
not be fully sustained upon review by tax authorities. We believe that our accruals for tax liabilities are adequate for all open audit
years based on our assessment of many factors, including past experience and interpretations of tax law. This assessment relies on
Management Discussion
International Business Machines Corporation and Subsidiary Companies
35
estimates and assumptions and may involve a series of complex judgments about future events. To the extent that new information
becomes available which causes us to change our judgment regarding the adequacy of existing tax liabilities, such changes to tax
liabilities will impact income tax expense in the period in which such determination is made.
Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the
need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results,
estimates of future taxable income and the feasibility of ongoing tax planning strategies/actions. In the event that we change our
determination as to the amount of deferred tax assets that can be realized, we will adjust the valuation allowance with a
corresponding impact to income tax expense in the period in which such determination is made.
The consolidated provision for income taxes will change period to period based on non-recurring events, such as the settlement of
income tax audits and changes in tax laws, as well as recurring factors including the geographic mix of income before taxes, state
and local taxes and the effects of various global income tax strategies.
To the extent that the provision for income taxes increases/decreases by 1 percent of income from continuing operations before
income taxes, consolidated net income would have decreased/improved by $87 million in 2023.
Valuation of Assets
The application of business combination and impairment accounting requires the use of significant estimates and assumptions. The
acquisition method of accounting for business combinations requires us to estimate the fair value of assets acquired including
separately identifiable intangible assets, liabilities assumed, and any noncontrolling interest in the acquiree to properly allocate
purchase price consideration. Impairment testing for assets, other than goodwill, requires the allocation of cash flows to those
assets or group of assets and if required, an estimate of fair value for the assets or group of assets. Our estimates are based upon
assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of
management’s assumptions, which would not reflect unanticipated events and circumstances that may occur.
Valuation of Goodwill
We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of
goodwill may not be recoverable. We first assess qualitative factors in each of our reporting units that carry goodwill including
relevant events and circumstances that affect the fair value of the reporting units to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. Judgment in the assessment of qualitative factors of impairment
include entity specific factors, industry, market and other macroeconomic conditions, legal and regulatory actions, as well as other
individual factors impacting each reporting unit such as loss of key personnel and overall financial performance. If we do not
perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, we perform a quantitative test.
In the quantitative test, we compare the fair value of each reporting unit to its carrying amount. Estimating the fair value of a
reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. We estimate the fair value of
our reporting units using the income approach. When circumstances warrant, we may also use a combination of the income
approach and certain market approaches. Under the income approach, we estimate the fair value of a reporting unit based on the
present value of estimated discounted future cash flows. The discounted cash flow methodology includes the use of projections,
which require the use of significant estimates and assumptions specific to the reporting unit as well as those based on general
economic conditions. Factors specific to each reporting unit include revenue growth rates, gross margins, discount rates, terminal
value growth rates, capital expenditures projections, assumed tax rates and other assumptions deemed reasonable by
management.
After performing the annual goodwill impairment qualitative analysis during the fourth quarter of 2023, the company determined it
was not necessary to perform the quantitative goodwill impairment test.
Loss Contingencies
We are currently involved in various claims and legal proceedings. At least quarterly, we review the status of each significant matter
and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the
amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the
determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties
related to these matters, accruals are based only on the best information available at the time. As additional information becomes
available, we reassess the potential liability related to our pending claims and litigation, and may revise our estimates. These
revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.
36
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Financing Receivables Allowance for Credit Losses
The Financing business reviews its financing receivables portfolio on a regular basis in order to assess collectibility and records
adjustments to the allowance for credit losses at least quarterly. A description of the methods used by management to estimate the
amount of uncollectible receivables is included in note A, “Significant Accounting Policies.” Factors that could result in actual
receivable losses that are materially different from the estimated reserve include significant changes in the economy, or a sudden
change in the economic health of a client that represents a significant concentration in Financing’s receivables portfolio.
To the extent that actual collectibility differs from management’s estimates currently provided for by 10 percent, Financing’s
segment pre-tax income and our income from continuing operations before income taxes would be higher or lower by an estimated
$16 million depending upon whether the actual collectibility was better or worse, respectively, than the estimates.
Change in Accounting Estimate
Effective January 1, 2023, due to advances in technology, we increased the estimated useful lives of our server and network
equipment. Refer to note A, "Significant Accounting Policies," for additional information on this change in accounting estimate.
Currency Rate Fluctuations
Changes in the relative values of non-U.S. currencies to the USD affect our financial results and financial position. At December 31,
2023, currency changes resulted in assets and liabilities denominated in local currencies being translated into more dollars than at
year-end 2022. We use financial hedging instruments to limit specific currency risks related to foreign currency-based transactions.
Movements in currency, and the fact that we do not hedge 100 percent of our currency exposures, resulted in a currency impact to
our revenues, profit and cash flows throughout 2023. We execute a hedging program which defers, versus eliminates, the volatility
of currency impacts on our financial results. During periods of sustained movements in currency, the marketplace and competition
adjust to the changing rates over time.
We translate revenue, cost and expense in our non-U.S. operations at current exchange rates in the reported period. References to
“adjusted for currency” or “constant currency” reflect adjustments based upon a simple mathematical formula. However, this
constant currency methodology that we utilize to disclose this information does not incorporate any operational actions that
management could take to mitigate fluctuating currency rates. Based on the currency rate movements in 2023, revenue from
continuing operations increased 2.2 percent as reported and 2.9 percent at constant currency versus 2022. Currency translation
and hedging impacted year-to-year pre-tax income growth and operating (non-GAAP) pre-tax income growth by approximately
$700 million in 2023. From a segment perspective, in 2023, currency translation and hedging impacted our Software and
Infrastructure pre-tax income margin year-to-year growth by approximately one point each. We view these amounts as a theoretical
maximum impact to our as-reported financial results. Hedging and certain underlying foreign currency transaction gains and losses
are allocated to our segment results. Considering the operational responses mentioned above, movements of exchange rates, and
the nature and timing of hedging instruments, it is difficult to predict future currency impacts on any particular period.
For non-U.S. subsidiaries and branches that operate in U.S. dollars or whose economic environment is highly inflationary, translation
adjustments are reflected in results of operations. Generally, we manage currency risk in these entities by linking prices and
contracts to U.S. dollars.
Market Risk
In the normal course of business, our financial position is routinely subject to a variety of risks, including the market risk associated
with interest rate and currency movements on outstanding debt and non-U.S. dollar denominated assets and liabilities, and other
risks such as collectibility of accounts receivable.
We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these
and other potential exposures. As a result, we do not anticipate any material losses from these risks.
Our debt, in support of the geographic breadth of our operations and our Financing business, contains an element of market risk
from changes in interest and currency rates. We manage this risk, in part, through the use of a variety of financial instruments
including derivatives, as described in note T, “Derivative Financial Instruments.”
To meet disclosure requirements, we perform a sensitivity analysis to determine the effects that market risk exposures may have on
the fair values of our debt and other financial instruments.
The financial instruments that are included in the sensitivity analysis are comprised of our cash and cash equivalents, marketable
securities, short-term and long-term loans, commercial financing and installment payment receivables, investments, long-term and
short-term debt and derivative financial instruments. Our derivative financial instruments generally include interest rate swaps,
foreign currency swaps, forward contracts, and options.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
37
To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of hypothetical changes in interest rates
and foreign currency exchange rates on market-sensitive instruments. The market values for interest and foreign currency exchange
risk are computed based on the present value of future cash flows as affected by the changes in rates that are attributable to the
market risk being measured. The discount rates used for the present value computations were selected based on market interest
and foreign currency exchange rates in effect at December 31, 2023 and 2022. The differences in this comparison are the
hypothetical losses associated with each type of risk.
Information provided by the sensitivity analysis does not necessarily represent the actual changes in fair value that we would incur
under normal market conditions because, due to practical limitations, all variables other than the specific market risk factor are held
constant. In addition, the results of the model are constrained by the fact that certain items are specifically excluded from the
analysis, while the financial instruments relating to the financing or hedging of those items are included by definition. Excluded
items include short-term and long-term receivables from sales-type and direct financing leases, forecasted foreign currency cash
flows and the company’s net investment in foreign operations. As a consequence, reported changes in the values of some of the
financial instruments impacting the results of the sensitivity analysis are not matched with the offsetting changes in the values of
the items that those instruments are designed to finance or hedge.
The results of the sensitivity analysis at December 31, 2023 and 2022, are as follows:
Interest Rate Risk
A hypothetical 10 percent adverse change in the levels of interest rates, with all other variables held constant, would result in a
decrease in the fair value of our financial instruments of approximately $0.3 billion and $0.2 billion at December 31, 2023 and
2022, respectively. Changes in the relative sensitivity of the fair value of our financial instrument portfolio for these theoretical
changes in the level of interest rates from the prior year are primarily driven by changes in debt maturities, interest rate profile and
amount.
Foreign Currency Exchange Rate Risk
A hypothetical 10 percent adverse change in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other
variables held constant, would result in a decrease in the fair value of our financial instruments of approximately $1.6 billion and
$1.4 billion at December 31, 2023 and 2022, respectively. The theoretical changes from the prior year are primarily driven by
changes in foreign currency activities related to long-term debt and derivatives.
Financing Risks
Refer to the “Description of Business” on page 15 for a discussion of the financing risks associated with the Financing business and
management’s actions to mitigate such risks.
38
Management Discussion
International Business Machines Corporation and Subsidiary Companies
FINANCING
Financing is a reportable segment that facilitates IBM clients' acquisition of hardware, software and services by providing financing
solutions, while generating solid returns on equity.
Results of Operations
($ in millions)
For the year ended December 31:
2023
2022
Yr.-to-Yr.
Percent
Change
Revenue
Pre-tax income
$
$
741
374
$
$
645
340
14.8 %
10.1 %
Financing revenue increased 14.8 percent (15 percent adjusted for currency) to $741 million compared to the prior year, primarily
driven by client financing up $89 million to $728 million. The increase in client financing revenue was primarily driven by an increase
in client financing asset yields.
Financing pre-tax income increased 10.1 percent to $374 million compared to the prior year and the pre-tax margin of 50.5 percent
decreased 2.2 points year to year. The increase in pre-tax income in 2023 is primarily driven by a decrease in selling, general and
administrative expenses and settlements on non-accrual assets.
Financial Position
($ in millions)
At December 31:
Cash and cash equivalents
Client financing receivables
Net investment in sales-type and direct financing leases (1)
Client loans
Total client financing receivables
Commercial financing receivables
Held for investment
Held for sale
Other receivables
Total external receivables (2)
Intercompany assets (3)(4)
Other assets (4)
Total assets
Intercompany payables (3)
Debt (5)
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
2023
2022
$
555
$
699
4,237
6,486
4,047
8,329
$
10,723
$
12,376
1,155
692
26
293
939
66
$
12,596
$
13,674
963
294
14,409
426
11,879
783
13,088
1,321
14,409
$
$
$
$
$
988
395
15,757
637
12,872
814
14,323
1,433
15,757
$
$
$
$
$
(1) Includes deferred initial direct costs which are expensed in IBM’s consolidated financial results.
(2) The difference between the decrease in total external receivables of $1.1 billion (from $13.7 billion in 2022 to $12.6 billion in 2023) and the $1.2
billion change in Financing segment receivables disclosed in the free cash flow presentation on page 31 is primarily attributable to currency impacts.
(3) This entire amount is eliminated for purposes of IBM’s consolidated financial results and therefore does not appear in the Consolidated Balance Sheet.
(4) Prior period amounts have been recast to conform to 2023 presentation.
(5) Financing segment debt is primarily composed of intercompany loans.
Management Discussion
International Business Machines Corporation and Subsidiary Companies
39
Financing Segment Receivables and Allowances
The following table presents external Financing segment receivables excluding receivables classified as held for sale, and
immaterial miscellaneous receivables.
($ in millions)
At December 31:
Amortized cost (1)
Specific allowance for credit losses
Unallocated allowance for credit losses
Total allowance for credit losses
Net financing receivables
Allowance for credit losses coverage
2023
2022
$
12,034
$
12,843
111
45
156
127
46
173
$
11,878
$
12,670
1.3 %
1.3 %
(1) Includes deferred initial direct costs which are expensed in IBM’s consolidated financial results.
Roll Forward of Financing Segment Receivables Allowance for Credit Losses
($ in millions)
January 1, 2023
$173
Additions/
(Releases) (1)
$(12)
Write-offs (2)
$(18)
Foreign currency
and other
December 31, 2023
$12
$156
(1) Additions/(Releases) for allowance for credit losses are recorded in expense.
(2) Refer to note A, “Significant Accounting Policies,” for additional information regarding allowance for credit loss write-offs.
We continue to apply our rigorous credit policies. Approximately 72 percent of the total external portfolio was with investment-
grade clients, a decrease of 1 point compared to December 31, 2022. This investment grade percentage is based on the credit
ratings of the companies in the portfolio and reflects certain mitigating actions taken to reduce the risk to IBM.
We have a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties. These
actions may include credit insurance, financial guarantees, nonrecourse secured borrowings, transfers of receivables recorded as
true sales in accordance with accounting guidance or sales of equipment under operating lease. Sale of receivables arrangements
are also utilized in the normal course of business as part of our cash and liquidity management. For additional information related to
the company's sales of receivables, refer to "Transfer of Financial Assets" in note L, “Financing Receivables.”
Return on Equity Calculation
($ in millions)
At December 31:
Numerator
Financing after-tax income (A) (1)
Denominator
Average Financing equity (B) (2)
Financing return on equity (A)/(B)
2023
2022
$
$
312
1,238
25.2 %
$
$
279
1,389
20.1 %
(1) Calculated based upon an estimated tax rate, which is a function of IBM’s provision for income taxes determined on a consolidated basis.
(2) Average of the ending equity for Financing for the last five quarters.
Return on equity was 25.2 percent compared to 20.1 percent for the years ended December 31, 2023 and 2022, respectively. The
increase was driven by an increase in net income and a lower average equity balance.
40
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Residual Value
The estimated residual value represents the estimated fair value of the equipment under lease at the end of the lease. The company
estimates the future fair value of leased equipment by using historical models, analyzing the current market for new and used
equipment and obtaining forward-looking product information such as marketing plans and technology innovations.
The company optimizes the recovery of residual values by extending lease arrangements with, or selling leased equipment to
existing clients and periodically reassesses the realizable value of its lease residual values.
The following table presents the recorded amount of unguaranteed residual value for sales-type and direct financing leases at
December 31, 2023 and 2022. In addition, the table presents the run out of when the unguaranteed residual value assigned to
equipment on leases at December 31, 2023, is expected to be returned to the company. The unguaranteed residual value for
operating leases at December 31, 2023 and 2022 was not material.
Unguaranteed Residual Value
($ in millions)
Sales-type and direct financing leases
$
422 $
458 $
67 $
146 $
124 $
121
At December 31,
2022
At December 31,
2023
2024
2025
2026
2027
and Beyond
Estimated Run Out of December 31, 2023 Balance
Report of Management
International Business Machines Corporation and Subsidiary Companies
41
Management Responsibility for Financial Information
Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with IBM
management. The accompanying financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America, applying certain estimates and judgments as required.
IBM maintains an effective internal control structure. It consists, in part, of organizational arrangements with clearly defined lines of
responsibility and delegation of authority, and comprehensive systems and control procedures. An important element of the control
environment is an ongoing internal audit program. Our system also contains self-monitoring mechanisms, and actions are taken to
correct deficiencies as they are identified.
To assure the effective administration of internal controls, we carefully select and train our employees, develop and disseminate
written policies and procedures, provide appropriate communication channels and foster an environment conducive to the effective
functioning of controls. We believe that it is essential for the company to conduct its business affairs in accordance with the highest
ethical standards, as set forth in the IBM Business Conduct Guidelines. These guidelines, translated into numerous languages, are
distributed to employees throughout the world, and reemphasized through internal programs to assure that they are understood
and followed.
The Audit Committee of the Board of Directors is composed solely of independent, non-management directors, and is responsible
for recommending to the Board the independent registered public accounting firm to be retained for the coming year, subject to
stockholder ratification. The Audit Committee meets regularly and privately with the independent registered public accounting firm,
with the company’s internal auditors, as well as with IBM management, to review accounting, auditing, internal control structure
and financial reporting matters.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting of the company.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America.
The company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the criteria
established in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, management concluded that the company’s internal control over financial reporting
was effective as of December 31, 2023.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, is retained to audit IBM’s Consolidated Financial
Statements and the effectiveness of the internal control over financial reporting. Its accompanying report is based on audits
conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).
42
Report of Independent Registered Public Accounting Firm
International Business Machines Corporation and Subsidiary Companies
To the Board of Directors and Stockholders of International Business Machines Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of International Business Machines Corporation and its
subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, of
comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, including
the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal
control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Report of Independent Registered Public Accounting Firm
International Business Machines Corporation and Subsidiary Companies
43
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes – Uncertain Tax Positions
As described in Notes A and H to the consolidated financial statements, the Company is subject to income taxes in the United States
and numerous foreign jurisdictions. As disclosed by management, during the ordinary course of business there are many
transactions and calculations for which the ultimate tax determination is uncertain. As a result, management recognizes tax
liabilities based on estimates of whether additional taxes and interest will be due. As further described by management, these tax
liabilities are recognized when, despite management’s belief that the tax return positions are supportable, management believes
that certain positions may not be fully sustained upon review by tax authorities. Management bases its assessment of the accruals
for tax liabilities on many factors, including past experience and interpretations of tax law. These assessments rely on estimates and
assumptions and may involve a series of complex judgments about future events. As of December 31, 2023, unrecognized tax
benefits were $8.8 billion..
The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical audit
matter are the significant judgment by management when estimating the uncertain tax positions, including applying complex tax
laws, and a high degree of estimation uncertainty based on potential for significant adjustments as a result of audits by tax
authorities or other forms of tax settlement. This in turn led to a high degree of auditor judgment, effort, and subjectivity in
performing procedures to evaluate management’s timely identification and measurement of uncertain tax positions. Also, the
evaluation of audit evidence available to support the uncertain tax positions is complex and required significant auditor judgment as
the nature of the evidence is often inherently subjective, and the audit effort involved the use of professionals with specialized skill
and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
identification and recognition of the uncertain tax positions, and controls addressing completeness of the uncertain tax positions, as
well as controls over measurement of the amount recorded. These procedures also included, among others (i) testing the
information used in the calculation of the uncertain tax positions, including intercompany agreements and international, federal, and
state filing positions; (ii) testing the calculation of the uncertain tax positions by jurisdiction, including management’s assessment of
the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; (iii) testing the
completeness of management’s assessment of both the identification of uncertain tax positions and possible outcomes of each
uncertain tax position; and (iv) evaluating the status and results of income tax audits pending in various tax jurisdictions.
Professionals with specialized skill and knowledge were used to assist in the evaluation of the completeness and measurement of
the Company’s uncertain tax positions, including evaluating the reasonableness of management’s assessment of whether tax
positions are more-likely-than-not of being sustained and the amount of potential benefit to be realized.
PricewaterhouseCoopers LLP
New York, New York
February 26, 2024
We, or firms that we have ultimately acquired, have served as the Company’s auditor since 1923. For the period from 1923 to 1958,
the Company was audited by firms that a predecessor firm to PricewaterhouseCoopers LLP ultimately acquired.
44
Consolidated Income Statement
International Business Machines Corporation and Subsidiary Companies
($ in millions except per share amounts)
For the year ended December 31:
Notes
2023
2022
2021
Revenue
Services
Sales
Financing
Total revenue
Cost
Services
Sales
Financing
Total cost
Gross profit
Expense and other (income)
Selling, general and administrative
Research, development and engineering
Intellectual property and custom development income
Other (income) and expense
Interest expense
Total expense and other (income)
Income from continuing operations before income taxes
Provision for/(benefit from) income taxes
Income from continuing operations
Income/(loss) from discontinued operations, net of tax
Net income (1)
Earnings/(loss) per share of common stock (1)
Assuming dilution
Continuing operations
Discontinued operations
Total
Basic
Continuing operations
Discontinued operations
Total
$
30,378
$
30,206
$
30,745
737
61,860
21,051
6,127
382
27,560
34,300
19,003
6,775
(860)
(914)
1,607
25,610
8,690
1,176
7,514
(12)
29,673
651
60,530
21,062
6,374
406
27,842
32,687
18,609
6,567
(663)
5,803
1,216
31,531
1,156
(626)
1,783
(143)
$
7,502
$
1,639
$
$
$
$
$
8.15
$
1.95
$
(0.01)
(0.16)
8.14
$
1.80
$
8.25
$
1.97
$
(0.01)
(0.16)
8.23
$
1.82
$
C
G
F
P&T
H
E
I
I
I
I
I
I
29,225
27,346
780
57,350
19,147
6,184
534
25,865
31,486
18,745
6,488
(612)
873
1,155
26,649
4,837
124
4,712
1,030
5,743
5.21
1.14
6.35
5.26
1.15
6.41
Weighted-average number of common shares outstanding
Assuming dilution
Basic
922,073,828
912,269,062
904,641,001
911,210,319
902,664,190
895,990,771
(1) 2022 includes the impact of a one-time, non-cash pension settlement charge. Refer to note V, “Retirement-Related Benefits,” for additional
information.
Amounts may not add due to rounding.
The accompanying notes are an integral part of the financial statements.
Consolidated Statement of Comprehensive Income
International Business Machines Corporation and Subsidiary Companies
45
($ in millions)
For the year ended December 31:
Net income
Other comprehensive income/(loss), before tax
Foreign currency translation adjustments
Net changes related to available-for-sale securities
Unrealized gains/(losses) arising during the period
Reclassification of (gains)/losses to net income
Total net changes related to available-for-sale securities
Unrealized gains/(losses) on cash flow hedges
Unrealized gains/(losses) arising during the period
Reclassification of (gains)/losses to net income
Total unrealized gains/(losses) on cash flow hedges
Retirement-related benefit plans
Prior service costs/(credits)
Net (losses)/gains arising during the period
Curtailments and settlements
Amortization of prior service (credits)/costs
Amortization of net (gains)/losses
Total retirement-related benefit plans
Other comprehensive income/(loss), before tax
Income tax (expense)/benefit related to items of other comprehensive income
Other comprehensive income/(loss)
Total comprehensive income
(1) Amounts presented have not been recast to exclude discontinued operations.
Amounts may not add due to rounding.
The accompanying notes are an integral part of the financial statements.
Notes
2023
2022
2021 (1)
$ 7,502
$ 1,639
$ 5,743
S
S
S
S
S
S
S
3
0
—
0
207
(159)
47
2
(3,115)
5
(9)
515
(2,602)
(2,552)
176
987
(1)
—
(1)
241
(400)
(158)
463
878
5,970
12
1,596
8,919
8,936
0
—
0
344
243
587
(51)
2,433
94
9
2,484
4,969
6,542
531
(2,442)
(1,703)
(2,021)
6,494
4,839
$ 5,481
$ 8,134
$ 10,582
46
Consolidated Balance Sheet
International Business Machines Corporation and Subsidiary Companies
($ in millions except per share amounts)
At December 31:
Assets
Current assets
Cash and cash equivalents
Restricted cash
Marketable securities
Notes and accounts receivable—trade (net of allowances of $192 in 2023 and $233 in 2022)
Short-term financing receivables
Held for investment (net of allowances of $129 in 2023 and $145 in 2022)
Held for sale
Other accounts receivable (net of allowances of $109 in 2023 and $89 in 2022)
Inventory
Deferred costs
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment
Less: Accumulated depreciation
Property, plant and equipment—net
Operating right-of-use assets—net
Long-term financing receivables (net of allowances of $27 in 2023 and $28 in 2022)
Prepaid pension assets
Deferred costs
Deferred taxes
Goodwill
Intangible assets—net
Investments and sundry assets
Total assets
Liabilities and equity
Current liabilities
Taxes
Short-term debt
Accounts payable
Compensation and benefits
Deferred income
Operating lease liabilities
Other accrued expenses and liabilities
Total current liabilities
Long-term debt
Retirement and nonpension postretirement benefit obligations
Deferred income
Operating lease liabilities
Other liabilities
Total liabilities
Commitments and Contingencies
Equity
IBM stockholders' equity
Common stock, par value $.20 per share, and additional paid-in capital
Shares authorized: 4,687,500,000
Shares issued (2023—2,266,911,160; 2022—2,257,116,920)
Retained earnings
Treasury stock, at cost (shares: 2023—1,351,897,514; 2022—1,351,024,943)
Accumulated other comprehensive income/(loss)
Total IBM stockholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
Amounts may not add due to rounding.
The accompanying notes are an integral part of the financial statements.
Notes
2023
2022
J
L
K
C
M
M
M
N
L
V
C
H
O
O
H
J&P
N
J&P
V
N
Q
R
S
A
$ 13,068
21
373
7,214
6,102
692
640
1,161
998
2,639
32,908
18,122
12,621
5,501
3,220
5,766
7,506
842
6,656
60,178
11,036
1,626
$ 135,241
$
2,270
6,426
4,132
3,501
13,451
820
3,521
34,122
50,121
10,808
3,533
2,568
11,475
112,628
$
7,886
103
852
6,541
6,851
939
817
1,552
967
2,611
29,118
18,695
13,361
5,334
2,878
5,806
8,236
866
6,256
55,949
11,184
1,617
$ 127,243
$
2,196
4,760
4,051
3,481
12,032
874
4,111
31,505
46,189
9,596
3,499
2,190
12,243
105,222
59,643
58,343
151,276
(169,624)
(18,761)
22,533
80
22,613
$ 135,241
149,825
(169,484)
(16,740)
21,944
77
22,021
$ 127,243
Consolidated Statement of Cash Flows
International Business Machines Corporation and Subsidiary Companies
47
($ in millions)
For the year ended December 31:
Cash flows from operating activities
Net income
Adjustments to reconcile net income to cash provided by operating activities
Pension settlement charge
Depreciation (1)
Amortization of capitalized software and acquired intangible assets
Stock-based compensation
Deferred taxes
Net (gain)/loss on asset sales and other (2)
Change in operating assets and liabilities, net of acquisitions/divestitures
Receivables (including financing receivables)
Retirement related
Inventory
Other assets/other liabilities (2)
Accounts payable
Net cash provided by operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from disposition of property, plant and equipment
Investment in software
Purchases of marketable securities and other investments
Proceeds from disposition of marketable securities and other investments
Acquisition of businesses, net of cash acquired
Divestiture of businesses, net of cash transferred
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Proceeds from new debt
Payments to settle debt
Short-term borrowings/(repayments) less than 90 days—net
Common stock repurchases for tax withholdings
Financing—other
Distribution from Kyndryl (3)
Cash dividends paid
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at January 1
2023
2022
2021
$
7,502
$
1,639
$
5,743
—
2,109
2,287
1,133
(1,114)
(170)
725
(462)
390
1,466
65
5,894
2,407
2,395
987
(2,726)
(363)
(539)
331
71
126
213
—
3,888
2,529
982
(2,001)
(136)
1,372
1,038
138
(842)
85
13,931
10,435
12,796
(1,245)
(1,346)
(2,062)
321
(565)
(11,143)
10,647
(5,082)
(4)
(7,070)
9,586
(5,082)
(7)
(402)
176
—
(6,040)
(1,769)
9
5,101
7,988
111
(626)
(5,930)
4,665
(2,348)
1,272
(4,202)
7,804
(6,800)
217
(407)
176
—
(5,948)
(4,958)
(244)
1,032
6,957
387
(706)
(3,561)
3,147
(3,293)
114
(5,975)
522
(8,597)
(40)
(319)
70
879
(5,869)
(13,354)
(185)
(6,718)
13,675
Cash, cash equivalents and restricted cash at December 31
$
13,089
$
7,988
$
6,957
Supplemental data
Income taxes paid—net of refunds received
Interest paid on debt
$
$
1,564
1,668
$
$
1,865
1,401
$
$
2,103
1,512
(1) Includes operating lease right-of-use assets amortization expense of $0.9 billion in 2023 and 2022. 2021 is not comparable as it includes Kyndryl
discontinued operations.
(2) Prior periods have been reclassified to conform to the change in 2023 presentation.
(3) Amount in 2021 represents $0.9 billion net cash proceeds from Kyndryl dividend payments to IBM, funded from the proceeds of $2.9 billion of debt
issued and retained by Kyndryl.
Cash flows above are presented on an IBM consolidated basis. Refer to note E, “Acquisitions & Divestitures," for additional information related to cash
flows from Kyndryl discontinued operations.
Amounts may not add due to rounding.
The accompanying notes are an integral part of the financial statements.
48
Consolidated Statement of Equity
International Business Machines Corporation and Subsidiary Companies
($ in millions except per share amounts)
2021
Equity, January 1, 2021
Net income plus other
comprehensive income/(loss)
Net income
Other comprehensive income/
(loss)
Total comprehensive income
Cash dividends paid—common
stock ($6.55 per share)
Common stock issued under
employee plans (5,608,845
shares)
Purchases (2,286,912 shares) and
sales (2,093,243 shares) of
treasury stock under employee
plans—net
Separation of Kyndryl (1)
Changes in noncontrolling interests
Common
Stock and
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income/(Loss)
Total IBM
Stockholders’
Equity
Non-
Controlling
Interests
Total
Equity
$ 56,556 $ 162,717 $ (169,339) $
(29,337) $
20,597 $
129 $ 20,727
5,743
5,743
4,839
4,839
$
10,582
5,743
4,839
$ 10,582
(5,869)
(5,869)
(5,869)
762
762
762
22
(8,404)
(53)
(31)
(31)
1,264
(7,140)
(62)
(7,203)
28
28
Equity, December 31, 2021
$ 57,319 $ 154,209 $ (169,392) $
(23,234) $
18,901 $
95 $ 18,996
(1) Refer to note E, "Acquisitions & Divestitures," for additional information.
Amounts may not add due to rounding.
The accompanying notes are an integral part of the financial statements.
($ in millions except per share amounts)
2022
Equity, January 1, 2022
Net income plus other
comprehensive income/(loss)
Net income
Other comprehensive income/
(loss)
Total comprehensive income
Cash dividends paid—common
stock ($6.59 per share)
Common stock issued under
employee plans (8,539,072
shares)
Purchases (3,027,994 shares) and
sales (2,512,300 shares) of
treasury stock under employee
plans—net
Other equity
Changes in noncontrolling interests
Common
Stock and
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income/(Loss)
Total IBM
Stockholders’
Equity
Non-
Controlling
Interests
Total
Equity
$ 57,319 $ 154,209 $ (169,392) $
(23,234) $
18,901 $
95 $ 18,996
1,639
1,639
6,494
8,134
6,494
$
1,639
6,494
$ 8,134
(5,948)
(5,948)
(5,948)
962
63
(12)
(63)
(92)
962
962
(104)
0
(104)
0
(18)
(18)
Equity, December 31, 2022
$ 58,343 $ 149,825 $ (169,484) $
(16,740) $
21,944 $
77 $ 22,021
Amounts may not add due to rounding.
The accompanying notes are an integral part of the financial statements.
Consolidated Statement of Equity
International Business Machines Corporation and Subsidiary Companies
49
($ in millions except per share amounts)
2023
Common
Stock and
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income/(Loss)
Total IBM
Stockholders’
Equity
Non-
Controlling
Interests
Total
Equity
Equity, January 1, 2023
$ 58,343 $ 149,825 $ (169,484) $
(16,740) $
21,944 $
77 $ 22,021
Net income plus other
comprehensive income/(loss)
Net income
7,502
7,502
7,502
Other comprehensive income/
(loss)
Total comprehensive income
Cash dividends paid—common
stock ($6.63 per share)
Common stock issued under
employee plans (9,794,240
shares)
Purchases (2,953,554 shares) and
sales (2,080,983 shares) of
treasury stock under employee
plans—net
Changes in noncontrolling interests
(2,021)
(2,021)
$
5,481
(2,021)
$ 5,481
(6,040)
(6,040)
(6,040)
1,300
1,300
1,300
(11)
(140)
(152)
(152)
3
3
Equity, December 31, 2023
$ 59,643 $ 151,276 $ (169,624) $
(18,761) $
22,533 $
80 $ 22,613
Amounts may not add due to rounding.
The accompanying notes are an integral part of the financial statements.
50
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM or
the company) have been prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP).
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. Certain prior-year amounts
have been reclassified to conform to the change in current year presentation. This is annotated where applicable.
On November 3, 2021 we completed the separation of our managed infrastructure services unit into a new public company, Kyndryl.
The accounting requirements for reporting the separation of Kyndryl as a discontinued operation were met when the separation was
completed. Accordingly, the historical results of Kyndryl are presented as discontinued operations and, as such, have been excluded
from continuing operations and segment results for all periods presented. Refer to note E, “Acquisitions & Divestitures,” for
additional information.
In September 2022, the IBM Qualified Personal Pension Plan (Qualified PPP) purchased two separate nonparticipating single
premium group annuity contracts from The Prudential Insurance Company of America and Metropolitan Life Insurance Company
(collectively, the Insurers) and irrevocably transferred to the Insurers approximately $16 billion of the Qualified PPP’s defined
benefit pension obligations and related plan assets, thereby reducing the company’s pension obligations and assets by the same
amount. The group annuity contracts were purchased using assets of the Qualified PPP and no additional funding contribution was
required from the company. As a result of this transaction the company recognized a one-time, non-cash, pre-tax pension
settlement charge of $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022, primarily related to the accelerated recognition
of accumulated actuarial losses of the Qualified PPP. The $1.5 billion tax effect associated with the settlement charge is reflected as
an adjustment to reconcile net income to net cash provided by operating activities within deferred taxes in the Consolidated
Statement of Cash Flows for the year ended December 31, 2022. Refer to note V, “Retirement-Related Benefits,” for additional
information.
In the fourth quarter of 2022, the company completed its annual assessment of the useful lives of its information technology
equipment. Due to advances in technology, the company determined it should increase the estimated useful lives of its server and
network equipment from five to six years for new assets and from three to four years for used assets. This change in accounting
estimate was effective beginning January 1, 2023. Based on the carrying amount of server and network equipment included in
property, plant and equipment-net in the company's Consolidated Balance Sheet as of December 31, 2022, the effect of this change
in estimate was an increase in income from continuing operations before income taxes of $208 million or $0.18 per basic and
diluted share for the year ended December 31, 2023.
The company reported a provision for income taxes of $1,176 million for the year ended December 31, 2023. The company
reported a benefit from income taxes of $626 million for the year ended December 31, 2022. This tax benefit was primarily due to
the transfer of a portion of the Qualified PPP’s defined benefit pension obligations and related plan assets, as described above.
Refer to note H, “Taxes,” for additional information.
Noncontrolling interest amounts of $16 million, $20 million and $19 million, net of tax, for the years ended December 31, 2023,
2022 and 2021, respectively, are included as a reduction within other (income) and expense in the Consolidated Income Statement.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of IBM and its controlled subsidiaries, which are primarily majority
owned. Any noncontrolling interest in the equity of a subsidiary is reported as a component of total equity in the Consolidated
Balance Sheet. Net income and losses attributable to the noncontrolling interest is reported as described above in the Consolidated
Income Statement. The accounts of variable interest entities (VIEs) are included in the Consolidated Financial Statements, if
required. Investments in business entities in which the company does not have control but has the ability to exercise significant
influence over operating and financial policies, are accounted for using the equity method and the company’s proportionate share of
income or loss is recorded in other (income) and expense. At December 31, 2023 and 2022, equity method investments were $125
million and $142 million, respectively. Equity investments in non-publicly traded entities lacking controlling financial interest or
significant influence are primarily measured at cost, absent other indicators of fair value, net of impairment, if any. At December 31,
2023 and 2022, equity investments measured at cost were $131 million and $63 million, respectively. Equity method investments
and equity investments measured at cost are included in investments and sundry assets in the Consolidated Balance Sheet. The
accounting policy for other investments in equity securities is described within the “Marketable Securities” section of this note. All
intercompany transactions and accounts have been eliminated in consolidation.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
51
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect amounts that are reported in the Consolidated Financial Statements and accompanying disclosures. Estimates are made for
the following, among others: revenue, costs to complete service contracts, income taxes, pension assumptions, valuation of assets
including goodwill and intangible assets, loss contingencies, allowance for credit losses and other matters. 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. Actual results may be
different from these estimates.
Revenue
The company accounts for a contract with a client when it has written approval, the contract is committed, the rights of the parties,
including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.
Revenue is recognized when, or as, control of a promised product or service transfers to a client, in an amount that reflects the
consideration to which the company expects to be entitled in exchange for transferring those products or services. If the
consideration promised in a contract includes a variable amount, the company estimates the amount to which it expects to be
entitled using either the expected value or most likely amount method. The company’s contracts may include terms that could
cause variability in the transaction price, including, for example, rebates, volume discounts, service-level penalties, and
performance bonuses or other forms of contingent revenue.
The company only includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The
company may not be able to reliably estimate contingent revenue in certain long-term arrangements due to uncertainties that are
not expected to be resolved for a long period of time or when the company’s experience with similar types of contracts is limited.
The company’s arrangements infrequently include contingent revenue. Changes in estimates of variable consideration are included
in note C, “Revenue Recognition.”
The company’s standard billing terms are that payment is due upon receipt of invoice, payable within 30 days. Invoices are
generally issued as control transfers and/or as services are rendered. Additionally, in determining the transaction price, the
company adjusts the promised amount of consideration for the effects of the time value of money if the billing terms are not
standard and the timing of payments agreed to by the parties to the contract provide the client or the company with a significant
benefit of financing, in which case the contract contains a significant financing component. As a practical expedient, the company
does not account for significant financing components if the period between when the company transfers the promised product or
service to the client and when the client pays for that product or service will be one year or less. Most arrangements that contain a
financing component are financed through the company’s Financing business and include explicit financing terms.
The company may include subcontractor services or third-party vendor equipment or software in certain integrated services
arrangements. In these types of arrangements, revenue from sales of third-party vendor products or services is recorded net of
costs when the company is acting as an agent between the client and the vendor, and gross when the company is the principal for
the transaction. To determine whether the company is an agent or principal, the company considers whether it obtains control of the
products or services before they are transferred to the customer. In making this evaluation, several factors are considered, most
notably whether the company has primary responsibility for fulfillment to the client, as well as inventory risk and pricing discretion.
The company recognizes revenue on sales to solution providers, resellers and distributors (herein referred to as resellers) when the
reseller has economic substance apart from the company and the reseller is considered the principal for the transaction with the
end-user client.
The company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and
concurrent with specific revenue-producing transactions.
In addition to the aforementioned general policies, the following are the specific revenue recognition policies for arrangements with
multiple performance obligations and for each major category of revenue.
Arrangements with Multiple Performance Obligations
The company’s global capabilities as a hybrid cloud platform and AI company include services, software, hardware and related
financing. The company enters into revenue arrangements that may consist of any combination of these products and services
based on the needs of its clients.
The company continues to develop new products and offerings and their associated consumption and delivery methods, including
the use of cloud and as-a-Service models. These are not separate businesses; they are offerings across the segments that address
market opportunities in areas such as analytics, data, cloud, security, AI and sustainability. Revenue from these offerings follows
52
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
the specific revenue recognition policies for arrangements with multiple performance obligations and for each major category of
revenue, depending on the type of offering, which are comprised of services, software and/or hardware.
To the extent that a product or service in multiple performance obligation arrangements is subject to other specific accounting
guidance, such as leasing guidance, that product or service is accounted for in accordance with such specific guidance. For all other
products or services in these arrangements, the company determines if the products or services are distinct and allocates the
consideration to each distinct performance obligation on a relative standalone selling price basis.
When products and services are not distinct, the company determines an appropriate measure of progress based on the nature of
its overall promise for the single performance obligation.
The revenue policies in the Services, Hardware and/or Software sections below are applied to each performance obligation, as
applicable.
Services
The company’s primary services offerings include consulting services, including business transformation; technology consulting and
application operations including the design and development of complex IT environments to a client’s specifications (e.g., design
and build); cloud services; business process outsourcing; and infrastructure support. Many of these services can be delivered
entirely or partially through cloud or as-a-Service delivery models. The company’s services are provided on a time-and-material
basis, as a fixed-price contract or as a fixed-price per measure of output contract and the contract terms generally range from less
than one year to 5 years.
In services arrangements, the company typically satisfies the performance obligation and recognizes revenue over time. In design
and build arrangements, the performance obligation is satisfied over time either because the client controls the asset as it is created
(e.g., when the asset is built at the customer site) or because the company’s performance does not create an asset with an
alternative use and the company has an enforceable right to payment plus a reasonable profit for performance completed to date.
In most other services arrangements, the performance obligation is satisfied over time because the client simultaneously receives
and consumes the benefits provided as the company performs the services.
Revenue from time-and-material contracts is recognized on an output basis as labor hours are delivered and/or direct expenses are
incurred. Revenue from as-a-Service type contracts, such as Infrastructure-as-a-Service, is recognized either on a straight-line
basis or on a usage basis, depending on the terms of the arrangement (such as whether the company is standing ready to perform or
whether the contract has usage-based metrics). If an as-a-Service contract includes setup activities, those promises in the
arrangement are evaluated to determine if they are distinct.
In areas such as application management, business process outsourcing and other cloud-based services arrangements, the
company determines whether the services performed during the initial phases of the arrangement, such as setup activities, are
distinct. In most cases, the arrangement is a single performance obligation comprised of a series of distinct services that are
substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The company applies a measure of
progress (typically time-based) to any fixed consideration and allocates variable consideration to the distinct periods of service
based on usage. As a result, revenue is generally recognized over the period the services are provided on a usage basis. This results
in revenue recognition that corresponds with the value to the client of the services transferred to date relative to the remaining
services promised.
Revenue related to maintenance and technology lifecycle support and extended warranty is recognized on a straight-line basis over
the period of performance because the company is standing ready to provide services.
In design and build contracts, revenue is recognized based on progress toward completion of the performance obligation using a
cost-to-cost measure of progress. Revenue is recognized based on the labor costs incurred to date as a percentage of the total
estimated labor costs to fulfill the contract. Due to the nature of the work performed in these arrangements, the estimation of cost
at completion is complex, subject to many variables and requires significant judgment. Key factors reviewed by the company to
estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. Changes in
original estimates are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to
the revision become known by the company. Refer to note C, “Revenue Recognition,” for the amount of revenue recognized in the
reporting period on a cumulative catch-up basis (i.e., from performance obligations satisfied, or partially satisfied, in previous
periods).
The company performs ongoing profitability analyses of its design and build services contracts accounted for using a cost-to-cost
measure of progress in order to determine whether the latest estimates of revenues, costs and profits require updating. If at any
time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is
recorded immediately. For other types of services contracts, any losses are recorded as incurred.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
53
In some services contracts, the company bills the client prior to recognizing revenue from performing the services. Deferred income
of $3,444 million and $3,241 million at December 31, 2023 and 2022, respectively, is included in the Consolidated Balance Sheet.
In other services contracts, the company performs the services prior to billing the client. When the company performs services prior
to billing the client in design and build contracts, the right to consideration is typically subject to milestone completion or client
acceptance and the unbilled accounts receivable is classified as a contract asset. At December 31, 2023 and 2022, contract assets
for services contracts of $420 million and $426 million, respectively, are included in prepaid expenses and other current assets in
the Consolidated Balance Sheet. The remaining amount of unbilled accounts receivable of $816 million and $788 million at
December 31, 2023 and 2022, respectively, is included in notes and accounts receivable–trade in the Consolidated Balance Sheet.
Billings usually occur in the month after the company performs the services or in accordance with specific contractual provisions.
Hardware
The company’s hardware offerings include the sale or lease of Hybrid Infrastructure solutions including zSystems as well as
Distributed Infrastructure solutions such as Power and Storage solutions. The capabilities of these products can also be delivered
through as-a-Service or cloud delivery models, such as Infrastructure-as-a-Service and Storage-as-a-Service. The company also
offers installation services for its more complex hardware products. Hardware offerings are often sold with distinct maintenance
services, described in the Services section above.
Revenue from hardware sales is recognized when control has transferred to the customer which typically occurs when the hardware
has been shipped to the client, risk of loss has transferred to the client and the company has a present right to payment for the
hardware. In limited circumstances when a hardware sale includes client acceptance provisions, revenue is recognized either when
client acceptance has been obtained, client acceptance provisions have lapsed, or the company has objective evidence that the
criteria specified in the client acceptance provisions have been satisfied. Revenue from hardware sales-type leases is recognized at
the beginning of the lease term. Revenue from rentals and operating leases is recognized on a straight-line basis over the term of
the rental or lease.
Revenue from as-a-Service arrangements is recognized either on a straight-line basis or on a usage basis as described in the
Services section above. Installation services are accounted for as distinct performance obligations with revenue recognized as the
services are performed. Shipping and handling activities that occur after the client has obtained control of a product are accounted
for as an activity to fulfill the promise to transfer the product rather than as an additional promised service and, therefore, no
revenue is deferred and recognized over the shipping period.
Software
The company’s software offerings include hybrid platform software solutions, which contain many of the company’s strategic areas
including Red Hat, automation, data and AI, security and sustainability; transaction processing, which primarily supports mission-
critical systems for clients; and distributed infrastructure software, which provides operating systems for zSystems and Power
Systems hardware. These offerings include proprietary software and open-source software, and many can be delivered entirely or
partially through as-a-Service or cloud delivery models, while others are delivered as on-premise software licenses.
Revenue from proprietary perpetual (one-time charge) license software is recognized at a point in time at the inception of the
arrangement when control transfers to the client, if the software license is distinct from the post-contract support (PCS) offered by
the company.
Revenue from proprietary term license software is recognized at a point in time for the committed term of the contract, unless
consideration depends on client usage, in which case revenue is recognized when the usage occurs.
Proprietary term licenses often have a one-month contract term due to client termination rights, in which case, revenue would be
recognized in that month for both the license and PCS. Clients may contract to convert their existing IBM term license software into
perpetual license software plus PCS. When proprietary term license software is converted to perpetual license software, the
consideration becomes fixed with no cancellability and, therefore, revenue for the perpetual license is recognized upon conversion,
consistent with the accounting for other perpetual licenses, as described above. PCS revenue is recognized as described below.
The company also has open-source software offerings. Since open-source software is offered under an open-source licensing model
and therefore, the license is available for free, the standalone selling price is zero. As such, when the license is sold with PCS or
other products and services, no consideration is allocated to the license when it is a distinct performance obligation and therefore
no revenue is recognized when control of the license transfers to the client. Revenue is recognized over the PCS period. In certain
cases, open-source software is bundled with proprietary software and, if the open-source software is not considered distinct, the
software bundle is accounted for under a proprietary software model.
54
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Revenue from PCS is recognized over the contract term on a straight-line basis because the company is providing a service of
standing ready to provide support, when-and-if needed, and is providing unspecified software upgrades on a when-and-if available
basis over the contract term.
Revenue from software hosting or Software-as-a-Service (SaaS) arrangements is recognized either on a straight-line basis or on a
usage basis as described in the Services section above. In software hosting arrangements, the rights provided to the client (e.g.,
ownership of a license, contract termination provisions and the feasibility of the client to operate the software) are considered in
determining whether the arrangement includes a license. In arrangements that include a software license, the associated revenue is
recognized in accordance with the software license recognition policy above rather than over time as a service.
Financing
Financing income attributable to sales-type leases, direct financing leases and loans is recognized on the accrual basis using the
effective interest method. Operating lease income is recognized on a straight-line basis over the term of the lease.
Standalone Selling Price
The company allocates the transaction price to each performance obligation on a relative standalone selling price basis. The
standalone selling price (SSP) is the price at which the company would sell a promised product or service separately to a client. In
most cases, the company is able to establish SSP based on the observable prices of products or services sold separately in
comparable circumstances to similar clients. The company typically establishes SSP ranges for its products and services which are
reassessed on a periodic basis or when facts and circumstances change.
In certain instances, the company may not be able to establish a SSP range based on observable prices, and as a result, the
company estimates SSP. The company estimates SSP by considering multiple factors including, but not limited to, overall market
conditions, including geographic or regional specific factors, internal costs, profit objectives and pricing practices. Additionally, in
certain circumstances, the company may estimate SSP for a product or service by applying the residual approach. Estimating SSP is
a formal process that includes review and approval by the company’s management.
Services Costs
Recurring operating costs for services contracts are recognized as incurred. For fixed-price design and build contracts, the costs of
external hardware and software accounted for under the cost-to-cost measure of progress are deferred and recognized based on
the labor costs incurred to date (i.e., the measure of progress), as a percentage of the total estimated labor costs to fulfill the
contract as control transfers over time for these performance obligations. Certain eligible, non-recurring costs (i.e., setup costs)
incurred in the initial phases of business process outsourcing contracts and other cloud-based services contracts, including
Software-as-a-Service arrangements, are capitalized when the costs relate directly to the contract, the costs generate or enhance
resources of the company that will be used in satisfying the performance obligation in the future, and the costs are expected to be
recovered. These costs consist of transition and setup costs related to the provisioning, configuring, implementation and training
and other deferred fulfillment costs, including, for example, prepaid assets used in services contracts (i.e., prepaid software or
prepaid maintenance). Capitalized costs are amortized on a straight-line basis over the expected period of benefit, which can
include anticipated contract renewals or extensions, consistent with the transfer to the client of the services to which the asset
relates. Additionally, fixed assets associated with these contracts are capitalized and depreciated on a straight-line basis over the
expected useful life of the asset. If an asset is contract specific, then the depreciation period is the shorter of the useful life of the
asset or the contract term. Amounts paid to clients in excess of the fair value of acquired assets used in business process
outsourcing arrangements are deferred and amortized on a straight-line basis as a reduction of revenue over the expected period of
benefit. The company performs periodic reviews to assess the recoverability of deferred contract transition and setup costs. If the
carrying amount is deemed not recoverable, an impairment loss is recognized. Refer to note C, “Revenue Recognition,” for the
amount of deferred costs to fulfill a contract at December 31, 2023 and 2022.
In situations in which a business process outsourcing or other cloud-based services contract is terminated, the terms of the contract
may require the client to reimburse the company for the recovery of unbilled accounts receivable, unamortized deferred contract
costs and additional costs incurred by the company to transition the services.
Software Costs
Costs that are related to the conceptual formulation and design of licensed software programs are expensed as incurred to
research, development and engineering expense; costs that are incurred to produce the finished product after technological
feasibility has been established are capitalized as an intangible asset. Capitalized amounts are amortized on a straight-line basis
over periods ranging up to three years and are recorded in software cost within cost of sales. The company performs periodic
reviews to ensure that unamortized program costs remain recoverable from future revenue. Costs to support or service licensed
programs are charged to software cost within cost of sales as incurred.
The company capitalizes certain costs that are incurred to purchase or develop internal-use software. Internal-use software
programs also include software used by the company to deliver Software-as-a-Service when the client does not receive a license to
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
55
the software and the company has no substantive plans to market the software externally. Capitalized costs are amortized on a
straight-line basis over periods ranging up to three years and are recorded in selling, general and administrative expense or cost of
sales, depending on whether the software is used by the company in revenue generating transactions. Additionally, the company
may capitalize certain types of implementation costs and amortize them over the term of the arrangement when the company is a
customer in a cloud-computing arrangement.
Incremental Costs of Obtaining a Contract
Incremental costs of obtaining a contract (e.g., sales commissions) are capitalized and amortized on a straight-line basis over the
expected customer relationship period if the company expects to recover those costs. The expected customer relationship period,
determined based on the average customer relationship period, including expected renewals, for each offering type, is three years.
Expected renewal periods are only included in the expected customer relationship period if commission amounts paid upon renewal
are not commensurate with amounts paid on the initial contract. Incremental costs of obtaining a contract include only those costs
the company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. The company has
determined that certain commissions programs meet the requirements to be capitalized. Some commission programs are not
subject to capitalization as the commission expense is paid and recognized as the related revenue is recognized. Additionally, as a
practical expedient, the company expenses costs to obtain a contract as incurred if the amortization period would have been a year
or less. These costs are included in selling, general and administrative expenses.
Product Warranties
The company offers warranties for its hardware products that generally range up to three years, with the majority being either one or
three years. Any cost of standard warranties is accrued when the corresponding revenue is recognized. The company estimates its
standard warranty costs for products based on historical warranty claim experience and estimates of future spending and applies
this estimate to the revenue stream for products under warranty. Estimated future costs for warranties applicable to revenue
recognized in the current period are charged to cost of sales. The warranty liability is reviewed quarterly to verify that it properly
reflects the remaining obligation based on the anticipated expenditures over the balance of the obligation period. Adjustments are
made when actual warranty claim experience differs from estimates. Costs from fixed-price support or maintenance contracts,
including extended warranty contracts, are recognized as incurred.
Revenue from extended warranty contracts is initially recorded as deferred income and subsequently recognized on a straight-line
basis over the delivery period because the company is providing a service of standing ready to provide services over such term.
Refer to note R, “Commitments & Contingencies,” for additional information.
Shipping and Handling
Costs related to shipping and handling are recognized as incurred and included in cost in the Consolidated Income Statement.
Expense and Other Income
Selling, General and Administrative
Selling, general and administrative (SG&A) expense is charged to income as incurred, except for certain sales commissions, which
are capitalized and amortized. For further information regarding capitalizing sales commissions, see “Incremental Costs of
Obtaining a Contract” above. Expenses of promoting and selling products and services are classified as selling expense and, in
addition to sales commissions, include such items as compensation, advertising and travel. General and administrative expense
includes such items as compensation, legal costs, office supplies, non-income taxes, insurance and office rental. In addition,
general and administrative expense includes other operating items such as an allowance for credit losses, workforce rebalancing
charges for contractually obligated payments to employees terminated in the ongoing course of business, acquisition costs related
to business combinations, amortization of certain intangible assets and environmental remediation costs.
Advertising and Promotional Expense
The company expenses advertising and promotional costs as incurred. Cooperative advertising reimbursements from vendors are
recorded net of advertising and promotional expense in the period in which the related advertising and promotional expense is
incurred.
Advertising and promotional expense, which includes media, agency and promotional expense, was $1,237 million, $1,330 million
and $1,413 million in 2023, 2022 and 2021, respectively, and is recorded in SG&A expense in the Consolidated Income Statement.
Research, Development and Engineering
Research, development and engineering (RD&E) costs are expensed as incurred. Software costs that are incurred to produce the
finished product after technological feasibility has been established are capitalized as an intangible asset.
56
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Intellectual Property and Custom Development Income
The company licenses and sells the rights to certain of its intellectual property (IP) including internally developed patents, trade
secrets and technological know-how. Certain IP transactions to third parties are licensing/royalty-based and others are transaction-
based sales/other transfers. Income from licensing arrangements is recognized at the inception of the license term if the nature of
the company’s promise is to provide a right to use the company’s intellectual property as it exists at that point in time (i.e., the
license is functional intellectual property) and control has transferred to the client. Income is recognized over time if the nature of
the company’s promise is to provide a right to access the company’s intellectual property throughout the license period (i.e., the
license is symbolic intellectual property), such as a trademark license. Income from royalty-based fee arrangements is recognized
at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the royalty has been
allocated has been satisfied (or partially satisfied). The company also enters into cross-licensing arrangements of patents, and
income from these arrangements is recognized when control transfers to the customer. In addition, the company earns income from
certain custom development projects with strategic technology partners and specific clients. The company records the income from
these projects over time as the company satisfies the performance obligation if there are no repayment provisions and the fee is not
dependent upon the ultimate success of the project.
Government Assistance
The company receives grants from governments and government agencies (government) in support of certain of the company’s
business activities, primarily related to research, job creation, or job training. Grants are generally received in the form of cash as
either a recovery for expenses incurred or as an incentive for meeting certain requirements as agreed to in the grant, with terms
ranging from one to five years. Grants are recorded as credits against Cost, SG&A and RD&E in the Consolidated Income Statement
based on the nature of the grant and the expense being offset once the conditions and restrictions of the grant have been met and
payment has been received from the government. When a grant is received before conditions of the grant have been met, the grant
is recorded in other accrued expenses and liabilities or other liabilities in the Consolidated Balance Sheet. For the years ended
December 31, 2023 and 2022, grants recorded in the company’s Consolidated Financial Statements were not material.
Business Combinations and Intangible Assets Including Goodwill
The company accounts for business combinations using the acquisition method and accordingly, the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree are generally recorded at their acquisition date fair values.
Contract assets and contract liabilities are measured in accordance with the guidance on revenue recognition. Goodwill represents
the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets.
The primary drivers that generate goodwill are the value of synergies between the acquired entities and the company and the
acquired assembled workforce, neither of which qualifies as a separately identifiable intangible asset. Goodwill recorded in an
acquisition is assigned to applicable reporting units based on expected revenues or expected cash flows. Identifiable intangible
assets with finite lives are amortized over their useful lives. Amortization of completed technology is recorded in cost, and
amortization of all other intangible assets is recorded in SG&A expense. Acquisition-related costs, including advisory, legal,
accounting, valuation and pre-close and other costs, are typically expensed in the periods in which the costs are incurred and are
recorded in SG&A expense. The results of operations of acquired businesses are included in the Consolidated Financial Statements
from the acquisition date.
Impairment
Long-lived assets, other than goodwill, are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The impairment test is typically based on undiscounted cash flows and, if impaired, the
asset is written down to fair value based on either discounted cash flows or appraised values. Goodwill is tested for impairment at
least annually, in the fourth quarter and whenever changes in circumstances indicate an impairment may exist. The goodwill
impairment test is performed at the reporting unit level, which is generally at the level of or one level below an operating segment.
Depreciation and Amortization
Property, plant and equipment are carried at cost and depreciated over their estimated useful lives using the straight-line method.
The estimated useful lives of certain depreciable assets are as follows: buildings, 30 to 50 years; building equipment, 10 to 20
years; land improvements, 20 years; production, engineering, office and other equipment, 2 to 20 years; and information technology
equipment, 1.5 to 6 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related
lease term, rarely exceeding 25 years. Refer to the “Basis of Presentation” section above for additional information about the useful
lives of information technology equipment.
As noted within the “Software Costs” section of this note, capitalized software costs are amortized on a straight-line basis over
periods ranging up to 3 years. Other intangible assets are amortized over periods between 1 and 20 years.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
57
Environmental
The cost of internal environmental protection programs that are preventative in nature are expensed as incurred. When a cleanup
program becomes likely, and it is probable that the company will incur cleanup costs and those costs can be reasonably estimated,
the company accrues remediation costs for known environmental liabilities.
Asset Retirement Obligations
Asset retirement obligations (ARO) are legal obligations associated with the retirement of long-lived assets and the liability is
initially recorded at fair value. The related asset retirement costs are capitalized by increasing the carrying amount of the related
assets by the same amount as the liability. Asset retirement costs are subsequently depreciated over the useful lives of the related
assets. Subsequent to initial recognition, the company records period-to-period changes in the ARO liability resulting from the
passage of time in interest expense and revisions to either the timing or the amount of the original expected cash flows to the
related assets.
Defined Benefit Pension and Nonpension Postretirement Benefit Plans
The funded status of the company’s defined benefit pension plans and nonpension postretirement benefit plans (retirement-related
benefit plans) is recognized in the Consolidated Balance Sheet. The funded status is measured as the difference between the fair
value of plan assets and the benefit obligation at December 31, the measurement date. For defined benefit pension plans, the
benefit obligation is the projected benefit obligation (PBO), which represents the actuarial present value of benefits expected to be
paid upon retirement based on employee services already rendered and estimated future compensation levels. For the nonpension
postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit obligation (APBO), which represents
the actuarial present value of postretirement benefits attributed to employee services already rendered. The fair value of plan
assets represents the current market value of assets held in an irrevocable trust fund, held for the sole benefit of participants, which
are invested by the trust fund. Overfunded plans, with the fair value of plan assets exceeding the benefit obligation, are aggregated
and recorded as a prepaid pension asset equal to this excess. Underfunded plans, with the benefit obligation exceeding the fair
value of plan assets, are aggregated and recorded as a retirement and nonpension postretirement benefit obligation equal to this
excess.
The current portion of the retirement and nonpension postretirement benefit obligations represents the actuarial present value of
benefits payable in the next 12 months exceeding the fair value of plan assets, measured on a plan-by-plan basis. This obligation is
recorded in compensation and benefits in the Consolidated Balance Sheet.
Net periodic pension and nonpension postretirement benefit cost/(income) is recorded in the Consolidated Income Statement and
includes service cost, interest cost, expected return on plan assets, amortization of prior service costs/(credits) and (gains)/losses
previously recognized as a component of other comprehensive income/(loss) (OCI) and amortization of the net transition asset
remaining in accumulated other comprehensive income/(loss) (AOCI). The service cost component of net benefit cost is recorded in
Cost, SG&A and RD&E in the Consolidated Income Statement (unless eligible for capitalization) based on the employees’ respective
functions. The other components of net benefit cost are presented separately from service cost within other (income) and expense
in the Consolidated Income Statement.
(Gains)/losses and prior service costs/(credits) are recognized as a component of OCI in the Consolidated Statement of
Comprehensive Income as they arise. Those (gains)/losses and prior service costs/(credits) are subsequently recognized as a
component of net periodic cost/(income) pursuant to the recognition and amortization provisions of applicable accounting guidance.
(Gains)/losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial
assumptions. Prior service costs/(credits) represent the cost of benefit changes attributable to prior service granted in plan
amendments.
The measurement of benefit obligations and net periodic cost/(income) is based on estimates and assumptions approved by the
company’s management. These valuations reflect the terms of the plans and use participant-specific information such as
compensation, age and years of service, as well as certain assumptions, including estimates of discount rates, expected return on
plan assets, rate of compensation increases, interest crediting rates and mortality rates.
Defined Contribution Plans
The company’s contribution for defined contribution plans is recorded when the employee renders service to the company. The
charge is recorded in Cost, SG&A and RD&E in the Consolidated Income Statement based on the employees’ respective functions.
Stock-Based Compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees. The company measures
stock-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost on a
straight-line basis (net of estimated forfeitures) over the employee requisite service period. The company grants its employees
Restricted Stock Units (RSUs), including Retention Restricted Stock Units (RRSUs); Performance Share Units (PSUs); and stock
options. RSUs are stock awards granted to employees that entitle the holder to shares of common stock as the award vests,
58
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
typically over a one- to four-year period. PSUs are stock awards where the number of shares ultimately received by the employee
depends on performance against specified targets and typically vest over a three-year period. Over the performance period, the
number of shares that will be issued is adjusted based upon the probability of achievement of performance targets. The ultimate
number of shares issued and the related compensation cost recognized as expense will be based on a comparison of the final
performance metrics to the specified targets. Dividend equivalents are not paid on the stock awards described above. The fair value
of the awards is determined and fixed on the grant date based on the company’s stock price, adjusted for the exclusion of dividend
equivalents where applicable and for PSUs assumes that performance targets will be achieved. The company estimates the fair
value of stock options using a Black-Scholes valuation model. Stock-based compensation cost is recorded in Cost, SG&A, and RD&E
in the Consolidated Income Statement based on the employees’ respective functions.
The company records deferred tax assets for awards that result in deductions on the company’s income tax returns, based on the
amount of compensation cost recognized and the relevant statutory tax rates. The differences between the deferred tax assets
recognized for financial reporting purposes and the actual tax deduction reported on the income tax return are recorded as a benefit
or expense to the provision for income taxes in the Consolidated Income Statement.
Income Taxes
Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the tax effect of temporary
differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are
recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. The company
includes Global Intangible Low-Taxed Income (GILTI) in measuring deferred taxes. Valuation allowances are recognized to reduce
deferred tax assets to the amount that will more likely than not be realized. In assessing the need for a valuation allowance,
management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable
income and the feasibility of ongoing tax planning strategies/actions. When the company changes its determination as to the
amount of deferred tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to income tax
expense in the period in which such determination is made.
The company recognizes additional tax liabilities when the company believes that certain positions may not be fully sustained upon
review by tax authorities. Benefits from tax positions are measured at the largest amount of benefit that is greater than 50 percent
likely of being realized upon settlement. The noncurrent portion of tax liabilities is included in other liabilities in the Consolidated
Balance Sheet. To the extent that new information becomes available which causes the company to change its judgment regarding
the adequacy of existing tax liabilities, such changes to tax liabilities will impact income tax expense in the period in which such
determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in
income tax expense.
Translation of Non-U.S. Currency Amounts
Assets and liabilities of non-U.S. subsidiaries that have a local functional currency are translated to U.S. dollars at year-end
exchange rates. Translation adjustments are recorded in OCI. Income and expense items are translated at weighted-average rates
of exchange prevailing during the year.
Inventory, property, plant and equipment—net and other non-monetary assets and liabilities of non-U.S. subsidiaries and branches
that operate in U.S. dollars are translated at the approximate exchange rates prevailing when the company acquired the assets or
liabilities. All other assets and liabilities denominated in a currency other than U.S. dollars are translated at year-end exchange rates
with the transaction gain or loss recognized in other (income) and expense. Income and expense items are translated at the
weighted-average rates of exchange prevailing during the year. These translation gains and losses are included in net income for the
period in which exchange rates change.
Derivative Financial Instruments
The company uses derivative financial instruments primarily to manage foreign currency and interest rate risk, and to a lesser
extent, equity and credit risk. The company does not use derivative financial instruments for trading or speculative purposes.
Derivatives that qualify for hedge accounting can be designated as either cash flow hedges, net investment hedges, or fair value
hedges. The company may enter into derivative contracts that economically hedge certain of its risks, even when hedge accounting
does not apply, or the company elects not to apply hedge accounting.
Derivatives are recognized in the Consolidated Balance Sheet at fair value on a gross basis as either assets or liabilities and
classified as current or noncurrent based upon whether the maturity of the instrument is less than or greater than 12 months.
Changes in the fair value of derivatives designated as a cash flow hedge are recorded, net of applicable taxes, in OCI and
subsequently reclassified into the same income statement line as the hedged exposure when the underlying hedged item is
recognized in earnings. For forward contracts designated as cash flow hedges of the principal associated with foreign currency
denominated debt, the company excludes the initial forward points from the assessment of hedge effectiveness and recognizes it in
other (income) and expense in the Consolidated Income Statement on a straight-line basis over the life of the hedging instrument.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
59
Changes in the fair value of the amounts excluded from the assessment of hedge effectiveness are recognized in OCI. Effectiveness
for net investment hedging derivatives is measured on a spot-to-spot basis. Changes in the fair value of highly effective net
investment hedging derivatives and other non-derivative financial instruments designated as net investment hedges are recorded as
foreign currency translation adjustments in AOCI. Changes in the fair value of the portion of a net investment hedging derivative
excluded from the assessment of effectiveness are recorded in interest expense and cost of financing. Changes in the fair value of
interest rate derivatives designated as a fair value hedge and the offsetting changes in the fair value of the underlying hedged
exposure are recorded in interest expense and cost of financing. Changes in the fair value of derivatives not designated as hedges
are reported in earnings primarily in other (income) and expense. See note T, “Derivative Financial Instruments,” for further
information.
The cash flows associated with derivatives designated as fair value and cash flow hedges are reported in cash flows from operating
activities in the Consolidated Statement of Cash Flows. Cash flows from derivatives designated as net investment hedges and
derivatives not designated as hedges are reported in cash flows from investing activities in the Consolidated Statement of Cash
Flows. Cash flows from derivatives designated as hedges of foreign currency denominated debt directly associated with the
settlement of the principal are reported in payments to settle debt in cash flows from financing activities in the Consolidated
Statement of Cash Flows.
Financial Instruments
In determining the fair value of its financial instruments, the company uses a variety of methods and assumptions that are based on
market conditions and risks existing at each balance sheet date. See note J, “Financial Assets & Liabilities,” for further information.
All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
Fair Value Measurement
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 primarily in time deposits, certificates of deposit, and U.S. government debt 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. 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
60
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
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 and no material non-credit impairments recognized for the years ended December 31, 2023, 2022
and 2021.
Certain nonfinancial assets such as property, plant and equipment, land, goodwill and intangible assets are subject to non-recurring
fair value measurements if they are deemed to be impaired. The impairment models used for nonfinancial assets depend on the
type of asset. There were no material impairments of nonfinancial assets for the years ended December 31, 2023, 2022 and 2021.
Cash Equivalents
All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.
Marketable Securities
The company measures equity investments at fair value with changes recognized in net income.
Debt securities included in current assets represent securities that are expected to be realized in cash within one year of the
balance sheet date. Long-term debt securities are included in investments and sundry assets. Debt securities are considered
available-for-sale and are reported at fair value with unrealized gains and losses, net of applicable taxes, in OCI. The realized gains
and losses on available-for-sale debt securities are included in other (income) and expense in the Consolidated Income Statement.
Realized gains and losses are calculated based on the specific identification method. Refer to note J, "Financial Assets & Liabilities,"
for additional information.
Inventory
Raw materials, work in process and finished goods are stated at the lower of average cost or net realizable value.
Notes and Accounts Receivable—Trade and Contract Assets
The company classifies the right to consideration in exchange for products or services transferred to a client as either a receivable or
a contract asset. A receivable is a right to consideration that is unconditional as compared to a contract asset which is a right to
consideration that is conditional upon factors other than the passage of time. The majority of the company’s contract assets
represent unbilled amounts related to design and build services contracts when the cost-to-cost method of revenue recognition is
utilized, revenue recognized exceeds the amount billed to the client, and the right to consideration is subject to milestone
completion or client acceptance. Contract assets are generally classified as current and are recorded on a net basis with deferred
income (i.e., contract liabilities) at the contract level.
Financing Receivables
Financing receivables primarily consist of client loan and installment payment receivables (loans) and investment in sales-type and
direct financing leases (collectively referred to as client financing receivables) and commercial financing receivables. Leases are
accounted for in accordance with lease accounting standards. Loans, which are generally unsecured, are primarily for IBM
hardware, software and services. Commercial financing receivables are primarily for working capital financing to business partners
and distributors of IBM products and services. Financing receivables are classified as either held for sale or held for investment,
depending on the company’s intent and ability to hold the underlying contract for the foreseeable future or until maturity or payoff.
Loans and commercial financing receivables are recorded at amortized cost, which approximates fair value.
Transfers of Financial Assets
The company enters into arrangements to sell certain financial assets (primarily notes and accounts receivable–trade and financing
receivables) to third-party financial institutions. For a transfer of financial assets to be considered a sale, the asset must be legally
isolated from the company and the purchaser must have control of the asset. Determining whether all the requirements have been
met includes an evaluation of legal considerations, the extent of the company’s continuing involvement with the assets transferred
and any other relevant consideration. When the true sale criteria are met, the company derecognizes the carrying value of the
financial asset transferred and recognizes a net gain or loss on the sale. The proceeds from these arrangements are reflected as
cash provided by operating activities in the Consolidated Statement of Cash Flows. If the true sale criteria are not met, the transfer
is considered a secured borrowing and the financial asset remains on the Consolidated Balance Sheet with proceeds from the sale
recognized as debt and recorded as cash flows from financing activities in the Consolidated Statement of Cash Flows.
Arrangements to sell notes and accounts receivable–trade are used in the normal course of business as part of the company’s cash
and liquidity management. Facilities primarily in the U.S. and several countries in Europe enable the company to sell certain notes
and accounts receivable–trade, without recourse, to third parties in order to manage credit, collection, concentration and currency
risk. The gross amounts sold (the gross proceeds) under these arrangements were $3.4 billion, $3.3 billion and $1.8 billion for the
years ended December 31, 2023, 2022 and 2021, respectively. Within the notes and accounts receivables–trade sold and
derecognized from the Consolidated Balance Sheet, $0.5 billion, $1.0 billion, and $0.7 billion remained uncollected from customers
at December 31, 2023, 2022 and 2021, respectively. The fees and the net gains and losses associated with the transfer of notes
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
61
and accounts receivables-trade were not material for any of the periods presented. Refer to note L, “Financing Receivables,” for
more information on transfers of financing receivables.
Allowance for Credit Losses
Receivables are recorded concurrent with billing and shipment of a product and/or delivery of a service to customers. An allowance
for uncollectible trade receivables and contract assets, if needed, is estimated based on specific customer situations, current and
future expected economic conditions, past experiences of losses, as well as an assessment of potential recoverability of the balance
due.
The company estimates its allowances for expected credit losses for financing receivables by considering past events, including any
historical default, historical concessions and resulting troubled debt restructurings, current economic conditions, any non-
freestanding mitigating credit enhancements, and certain forward-looking information, including reasonable and supportable
forecasts. The methodologies that the company uses to calculate its financing receivables reserves, which are applied consistently
to its different portfolios, are as follows:
Individually Evaluated–The company reviews all financing receivables considered at risk quarterly, and performs an analysis based
upon current information available about the client, such as financial statements, news reports, published credit ratings, current
market-implied credit analysis, as well as collateral net of repossession cost, prior collection history and current and future
expected economic conditions. For loans that are collateral dependent, impairment is measured using the fair value of the collateral
when foreclosure is probable. Using this information, the company determines the expected cash flow for the receivable and
calculates an estimate of the potential loss and the probability of loss. For those accounts in which the loss is probable, the
company records a specific reserve.
Collectively Evaluated–The company determines its allowances for credit losses for collectively evaluated financing receivables
(unallocated) based on two portfolio segments: client financing receivables and commercial financing receivables. The company
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.
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. Macroeconomic variables may vary by class of financing receivables based on historical experiences,
portfolio composition and current environment. The company also considers the impact of current conditions and economic
forecasts relating to specific industries, geographical areas, and client credit ratings, in addition to performing a qualitative review of
credit risk factors across 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.
The portfolio of commercial financing receivables is short term in nature and any allowance for these assets is estimated based on a
combination of write-off history and current economic conditions, excluding any individually evaluated accounts.
Other Credit-Related Policies
Past Due–The company views client financing receivables as past due when payment has not been received after 90 days,
measured from the original billing date.
Non-Accrual–Non-accrual assets include those receivables (impaired loans or nonperforming leases) with specific reserves and
other accounts for which it is likely that the company will be unable to collect all amounts due according to original terms of the
lease or loan agreement. Interest income recognition is discontinued on these receivables. Cash collections are first applied as a
reduction to principal outstanding. Any cash received in excess of principal payments outstanding is recognized as interest income.
Receivables may be removed from non-accrual status, if appropriate, based upon changes in client circumstances, such as a
sustained history of payments.
Write-Off–Receivable losses are charged against the allowance in the period in which the receivable is deemed uncollectible.
Subsequent recoveries, if any, are credited to the allowance. Write-offs of receivables and associated reserves occur to the extent
that the customer is no longer in operation and/or there is no reasonable expectation of additional collections or repossession.
62
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Supplier Financing
The company has supplier finance programs with third-party financial institutions where the company agrees to pay the financial
institutions the stated amounts of invoices from participating suppliers on the originally invoiced maturity date, which have an
average term of 90 to 120 days, consistent with the company's standard payment terms. The financial institutions offer earlier
payment of the invoices at the sole discretion of the supplier for a discounted amount. The company does not provide secured legal
assets or other forms of guarantees under the arrangements. The company is not a party to the arrangements between its suppliers
and the financial institutions. These obligations are recognized as accounts payable in the Consolidated Balance Sheet. The
obligations outstanding under these programs at December 31, 2023 and December 31, 2022 were $101 million and $60 million,
respectively.
Leases
The company conducts business as both a lessee and a lessor. In its ordinary course of business, the company enters into leases as
a lessee for property, plant and equipment. The company is also the lessor of certain equipment, mainly through its Financing
segment.
When procuring goods or services, or upon entering into a contract with its clients, the company determines whether an
arrangement contains a lease at its inception. As part of that evaluation, the company considers whether there is an implicitly or
explicitly identified asset in the arrangement and whether the company, as the lessee, or the client, if the company is the lessor, has
the right to control the use of that asset.
Accounting for Leases as a Lessee
When the company is the lessee, all leases with a term of more than 12 months are recognized as right-of-use (ROU) assets and
associated lease liabilities in the Consolidated Balance Sheet. The lease liabilities are measured at the lease commencement date
and determined using the present value of the lease payments not yet paid and the company’s incremental borrowing rate, which
approximates the rate at which the company would borrow on a secured basis in the country where the lease was executed. The
interest rate implicit in the lease is generally not determinable in transactions where the company is the lessee. The ROU asset
equals the lease liability adjusted for any initial direct costs (IDCs), prepaid rent and lease incentives. The company’s variable lease
payments generally relate to payments tied to various indexes, non-lease components and payments above a contractual minimum
fixed amount.
Operating leases are included in operating right-of-use assets–net, current operating lease liabilities and operating lease liabilities
in the Consolidated Balance Sheet. Finance leases are included in property, plant and equipment, short-term debt and long-term
debt in the Consolidated Balance Sheet. The lease term includes options to extend or terminate the lease when it is reasonably
certain that the company will exercise that option.
The company made a policy election to not recognize leases with a lease term of 12 months or less in the Consolidated Balance
Sheet.
For all asset classes, the company has elected the lessee practical expedient to combine lease and non-lease components (e.g.,
maintenance services) and account for the combined unit as a single lease component. A significant portion of the company’s lease
portfolio is real estate, which are mainly accounted for as operating leases, and are primarily used for corporate offices and data
centers. The average term of the real estate leases is approximately five years. The company also has equipment leases, such as IT
equipment and vehicles, which have lease terms that range from two to six years. For certain of these operating and finance leases,
the company applies a portfolio approach to account for the lease assets and lease liabilities.
Accounting for Leases as a Lessor
The company typically enters into leases as an alternative means of realizing value from equipment that it would otherwise sell.
Assets under lease primarily include new and used IBM equipment. IBM equipment generally consists of zSystems, Power and
Storage products.
Lease payments due to IBM are typically fixed and paid in equal installments over the lease term. The majority of the company’s
leases do not contain variable payments that are dependent on an index or a rate. Variable lease payments that do not depend on an
index or a rate (e.g., property taxes), that are paid directly by the company and are reimbursed by the client, are recorded as
revenue, along with the related cost, in the period in which collection of these payments is probable. Payments that are made
directly by the client to a third party, including certain property taxes and insurance, are not considered part of variable payments
and therefore are not recorded by the company. The company has made a policy election to exclude from consideration in contracts
all collections from sales and other similar taxes.
The company’s payment terms for leases are typically unconditional. Therefore, in an instance when the client requests to terminate
the lease prior to the end of the lease term, the client would typically be required to pay the remaining lease payments in full. At the
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
63
end of the lease term, the company allows the client to either return the equipment, purchase the equipment at the then-current fair
market value or at a pre-stated purchase price, or renew the lease based on mutually agreed upon terms.
When lease arrangements include multiple performance obligations, the company allocates the consideration in the contract
between the lease components and the non-lease components on a relative standalone selling price basis.
Sales-Type and Direct Financing Leases
For a sales-type or direct financing lease, the carrying amount of the asset is derecognized from inventory and a net investment in
the lease is recorded. For a sales-type lease, the net investment in the lease is measured at commencement date as the sum of the
lease receivable and the estimated residual value of the equipment less unearned income and allowance for credit losses. Any
selling profit or loss arising from a sales-type lease is recorded at lease commencement. Selling profit or loss is presented on a
gross basis when the company enters into a lease to realize value from a product that it would otherwise sell in its ordinary course of
business. For segment reporting, the net investment in sales-type leases excluding the allowance for credit losses is recognized as
hardware revenue in the Infrastructure segment, while the estimated residual value less related unearned income is recognized as a
reduction in revenue in the Other revenue category and represents the portion of fair value retained by the company. In transactions
where the company enters into a lease for the purpose of generating revenue by providing financing, the selling profit or loss is
presented on a net basis. Under a sales-type lease, initial direct costs are expensed at lease commencement. Over the term of the
lease, the company recognizes finance income on the net investment in the lease and any variable lease payments, which are not
included in the net investment in the lease.
For a direct financing lease, the net investment in the lease is measured similarly to a sales-type lease, however, the net investment
in the lease is reduced by any selling profit. In a direct financing lease, the selling profit and initial direct costs are deferred at
commencement and recognized over the lease term. The company rarely enters into direct financing leases.
The estimated residual value represents the estimated fair value of the equipment under lease at the end of the lease. The company
estimates the future fair value of leased equipment by using historical models, analyzing the current market for new and used
equipment and obtaining forward-looking product information such as marketing plans and technology innovations. The company
optimizes the recovery of residual values by extending lease arrangements with, or selling leased equipment to existing clients, and
periodically reassesses the realizable value of its lease residual values. Anticipated decreases in specific future residual values that
are considered to be other-than-temporary are recognized immediately upon identification and are recorded as adjustments to the
residual value estimate and unearned income, which reduces current period and future period financing income, respectively.
Common Stock
Common stock refers to the $.20 par value per share capital stock as designated in the company’s Certificate of Incorporation.
Treasury stock is accounted for using the cost method. When treasury stock is reissued, the value is computed and recorded using a
weighted-average basis.
Earnings Per Share of Common Stock
Earnings per share (EPS) is computed using the two-class method, which determines EPS for each class of common stock and
participating securities according to dividends and dividend equivalents and their respective participation rights in undistributed
earnings. Basic EPS of common stock is computed by dividing net income by the weighted-average number of common shares
outstanding for the period. Diluted EPS of common stock is computed on the basis of the weighted-average number of shares of
common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.
Dilutive potential common shares include outstanding stock awards, convertible notes and stock options.
NOTE B. ACCOUNTING CHANGES
New Standards to be Implemented
Income Tax Disclosures
Standard/Description–Issuance date: December 2023. This guidance requires disaggregated disclosure of the tax rate
reconciliation into eight categories, with further disaggregation required for items greater than a specific threshold. Additionally, the
guidance requires the disclosure of income taxes paid disaggregated by federal, state and foreign jurisdictions.
Effective Date and Adoption Considerations–The guidance is effective January 1, 2025 and early adoption is permitted. The
company expects to adopt the guidance as of the effective date.
Effect on Financial Statements or Other Significant Matters–As the guidance is a change to disclosures only, it will impact note H,
“Taxes,” but will not impact the consolidated financial results.
Segment Reporting Disclosures
Standard/Description–Issuance date: November 2023. This guidance requires the disclosure of significant segment expenses that
are regularly provided to a company's chief operating decision maker and included within each reported measure of segment profit
64
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
or loss. The company must also disclose “other segment items,” which is the difference between segment revenue less significant
expenses for each reported measure of segment profit or loss, and a description of its composition. This guidance also requires all
segment annual disclosures to be provided on an interim basis.
Effective Date and Adoption Considerations–The guidance is effective for annual periods beginning in 2024, and for interim
periods beginning January 1, 2025, and is required to be applied on a retrospective basis to all prior periods presented. Early
adoption is permitted. The company will adopt the guidance as of the effective date.
Effect on Financial Statements or Other Significant Matters–As the guidance is a change to disclosures only, it will impact note D,
“Segments,” but will not have an impact in the consolidated financial results.
Standards Implemented
Disclosures of Supplier Finance Program Obligations
Standard/Description–Issuance date: September 2022. This guidance requires an entity to provide certain interim and annual
disclosures about the use of supplier finance programs in connection with the purchase of goods or services.
Effective Date and Adoption Considerations–The guidance was effective January 1, 2023 with certain annual disclosures required
beginning in 2024 and early adoption was permitted. The company adopted the guidance as of the effective date.
Effect on Financial Statements or Other Significant Matters–The guidance did not have a material impact in the consolidated
financial results. Refer to note A, "Significant Accounting Policies," for additional information.
Troubled Debt Restructurings and Vintage Disclosures
Standard/Description–Issuance date: March 2022. This eliminates the accounting guidance for troubled debt restructurings and
requires an entity to apply the general loan modification guidance to all loan modifications, including those made to customers
experiencing financial difficulty, to determine whether the modification results in a new loan or a continuation of an existing loan.
The guidance also requires presenting current-period gross write-offs by year of origination for financing receivables and net
investment in leases.
Effective Date and Adoption Considerations–The amendment was effective January 1, 2023 and early adoption was permitted.
The company adopted the guidance as of the effective date.
Effect on Financial Statements or Other Significant Matters–The guidance did not have a material impact in the consolidated
financial results. Refer to note L, "Financing Receivables," for additional information.
NOTE C. REVENUE RECOGNITION
Disaggregation of Revenue
The following tables provide details of revenue by major products/service offerings and revenue by geography.
Revenue by Major Products/Service Offerings
($ in millions)
For the year ended December 31:
Hybrid Platform & Solutions
Transaction Processing
Total Software
Business Transformation
Application Operations
Technology Consulting
Total Consulting
Hybrid Infrastructure
Infrastructure Support
Total Infrastructure
Financing (1)
Other
Total Revenue
2023
2022
2021
$
$
$
$
$
$
$
$
$
18,693
$
17,866
$
7,615
26,308
9,179
6,958
3,849
19,985
9,215
5,377
14,593
741
233
61,860
$
$
$
$
$
$
$
$
7,171
25,037
8,834
6,508
3,765
19,107
9,451
5,837
15,288
645
453
60,530
$
$
$
$
$
$
$
$
17,036
6,390
23,426
8,284
6,095
3,466
17,844
8,167
6,021
14,188
774
1,119
57,350
(1) Contains lease and loan financing arrangements which are not subject to the guidance on revenue from contracts with customers.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
65
Revenue by Geography
($ in millions)
For the year ended December 31:
Americas
Europe/Middle East/Africa
Asia Pacific
Total
2023
2022
2021
$
31,666
$
31,057
$
18,492
11,702
17,950
11,522
$
61,860
$
60,530
$
28,299
17,447
11,604
57,350
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 December 31, 2023, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are
unsatisfied or partially unsatisfied was approximately $60 billion, of which approximately 70 percent is expected to be recognized
as revenue in the subsequent two years, approximately 27 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 year ended December 31, 2023, revenue was reduced by $16 million for performance obligations satisfied or partially
satisfied in previous periods mainly due to changes in estimates on contracts with cost-to-cost measures of progress. Refer to note
A, “Significant Accounting Policies,” for additional information on these contracts and estimates of costs to complete.
Reconciliation of Contract Balances
The following table provides information about notes and accounts receivable—trade, contract assets and deferred income
balances.
($ in millions)
At December 31:
Notes and accounts receivable — trade (net of allowances of $192 in 2023 and $233 in 2022)
Contract assets (1)
Deferred income (current)
Deferred income (noncurrent)
(1) Included within prepaid expenses and other current assets in the Consolidated Balance Sheet.
2023
2022
$
7,214
$
505
13,451
3,533
6,541
464
12,032
3,499
The amount of revenue recognized during the year ended December 31, 2023 that was included within the deferred income balance
at December 31, 2022 was $10.5 billion and primarily related to services and software.
The following table provides roll forwards of the notes and accounts receivable—trade allowance for expected credit losses for the
years ended December 31, 2023 and 2022.
($ in millions)
January 1, 2023
Additions/(Releases)
Write-offs
Foreign currency and Other
December 31, 2023
$233
$32
$(79)
$6
$192
January 1, 2022
Additions/(Releases)
Write-offs
Foreign currency and Other
December 31, 2022
$218
$59
$(31)
$(14)
$233
The contract assets allowance for expected credit losses was not material in the years ended December 31, 2023 and 2022.
66
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Deferred Costs
($ in millions)
At December 31:
Capitalized costs to obtain a contract
Deferred costs to fulfill a contract
Deferred setup costs
Other deferred fulfillment costs
Total deferred costs (1)
2023
2022
$
686
$
563
399
755
456
814
$
1,841
$
1,833
(1) Of the total deferred costs, $998 million was current and $842 million was noncurrent at December 31, 2023 and $967 million was current and $866
million was noncurrent at December 31, 2022.
The amount of total deferred costs amortized during the year ended December 31, 2023 was $1,493 million and there were no
material impairment losses incurred. Refer to note A, “Significant Accounting Policies,” for additional information on deferred costs
to fulfill a contract and capitalized costs of obtaining a contract.
NOTE D. SEGMENTS
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 (the chief executive officer) in determining how to allocate resources and
evaluate performance. The segments are determined based on several factors, including client base, homogeneity of products,
technology, delivery channels and similar economic characteristics.
Certain transactions between the segments are recorded to other (income) and expense and are reflected in segment pre-tax
income. The company utilizes globally integrated support organizations to realize economies of scale and efficient use of resources.
As a result, a considerable amount of expense is shared by all of the segments. This shared expense includes sales coverage,
certain marketing functions and support functions such as Accounting, Treasury, Procurement, Legal, Human Resources, Chief
Information Office, and Billing and Collections. Where practical, shared expenses are allocated based on measurable drivers of
expense, e.g., headcount. When a clear and measurable driver cannot be identified, shared expenses are allocated on a financial
basis that is consistent with the company’s management system, e.g., advertising expense is allocated based on the gross profits of
the segments. A portion of the shared expenses, which are recorded in net income, are not allocated to the segments. These
expenses are associated with the elimination of internal transactions and other miscellaneous items.
In the first quarter of 2024, the company announced changes to its organizational structure and management system to better align
its portfolio to the market, increase transparency and improve segment comparability to peers. These changes will not impact the
company’s Consolidated Financial Statements, but will impact its reportable segments beginning in the first quarter of 2024. The
changes include: Security services, previously reported in the Software segment moved to the Consulting segment; The Weather
Company assets divested in January 2024 previously reported in the Software segment moved to the Other—divested businesses
category; and stock-based compensation expense and non-Financing net interest expense are no longer included in the company's
reportable segment results, consistent with the company's management system. Since these changes did not occur until first-
quarter 2024, the periods presented in this Annual Report are reported under the historical segments.
The following tables reflect the results of continuing operations of the company’s segments consistent with the management and
measurement system utilized within the company. Performance measurement is based on pre-tax income from continuing
operations. These results are used by the chief operating decision maker, both in evaluating the performance of, and in allocating
resources to, each of the segments.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
67
Management System Segment View
($ in millions)
For the year ended December 31:
Software
Consulting
Infrastructure
Financing
2023
Revenue
$ 26,308
$ 19,985
$ 14,593
$
Pre-tax income from continuing operations
6,571
1,918
2,421
Revenue year-to-year change
Pre-tax income year-to-year change
Pre-tax income margin
5.1 %
6.6 %
25.0 %
4.6 %
14.4 %
9.6 %
(4.5) %
7.0 %
16.6 %
741
374
14.8 %
10.1 %
50.5 %
Total
Segments
$ 61,627
11,283
2.6 %
8.1 %
18.3 %
2022
Revenue
$ 25,037
$ 19,107
$ 15,288
$
Pre-tax income from continuing operations
6,162
1,677
2,262
645
340
$ 60,077
10,441
Revenue year-to-year change
Pre-tax income year-to-year change
Pre-tax income margin
6.9 %
27.1 %
24.6 %
7.1 %
15.7 %
8.8 %
7.8 %
11.7 %
14.8 %
(16.6) %
(22.9) %
52.6 %
6.8 %
19.1 %
17.4 %
2021
Revenue
$ 23,426
$ 17,844
$ 14,188
$
Pre-tax income from continuing operations
4,849
1,449
2,025
774
441
$ 56,231
8,765
Reconciliations of IBM as Reported
($ in millions)
For the year ended December 31:
Revenue
Total reportable segments
Other—divested businesses
Other revenue
Total revenue
($ in millions)
For the year ended December 31:
Pre-tax income from continuing operations
Total reportable segments
Amortization of acquired intangible assets
Acquisition-related charges
Non-operating retirement-related (costs)/income (1)
Kyndryl-related impacts (2)
Workforce rebalancing charges (3)
Other—divested businesses
Unallocated corporate amounts and other
2023
2022
2021
$
61,627
$
60,077
$
56,231
(2)
235
318
135
785
335
$
61,860
$
60,530
$
57,350
2023
2022
2021
$
11,283
$
10,441
$
(1,627)
(33)
39
—
(435)
5
(541)
(1,747)
(18)
(6,548)
(351)
—
91
(712)
8,765
(1,838)
(43)
(1,282)
118
—
(102)
(782)
Total pre-tax income from continuing operations
$
8,690
$
1,156
$
4,837
(1) 2022 includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion. See note V, “Retirement-Related Benefits,” for additional
information.
(2) Net impacts for Kyndryl retained shares and related swaps. Refer to note E, “Acquisitions & Divestitures," and note T, "Derivative Financial
Instruments," for additional information.
(3) Beginning in the first quarter of 2023, the company updated its measure of segment pre-tax income, consistent with its management system, to no
longer allocate workforce rebalancing charges to its reportable segments. Workforce rebalancing charges of $40 million and $182 million for 2022 and
2021, respectively, were included in the segments.
68
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Immaterial Items
Equity Method Investments and Equity Method Investments Gains/(Losses)
The equity method investments and the resulting gains and (losses) from these investments that are attributable to the segments
did not have a material effect on the financial position or the financial results of the segments.
Segment Assets and Other Items
Software assets are mainly goodwill, acquired intangible assets and accounts receivable. Consulting assets are primarily goodwill
and accounts receivable. Infrastructure assets are primarily goodwill, plant, property and equipment, accounts receivable and
manufacturing inventory. Financing assets are primarily financing receivables, and cash and marketable securities.
To ensure the efficient use of the company’s space and equipment, several segments may share leased or owned plant, property
and equipment assets. Where assets are shared, landlord ownership of the assets is assigned to one segment and is not allocated to
each user segment. This is consistent with the company’s management system and is reflected accordingly in the table below. In
those cases, there will not be a precise correlation between segment pre-tax income and segment assets.
Depreciation expense and capital expenditures that are reported by each segment also are consistent with the landlord ownership
basis of asset assignment.
Financing interest income of $680 million, $582 million and $628 million for the years ended December 31, 2023, 2022 and 2021,
respectively, reflect the income associated with Financing's external client transactions, as well as the income from investment in
cash and marketable securities. Financing interest expense of $298 million, $175 million and $129 million for the years ended
December 31, 2023, 2022 and 2021, respectively, reflect the expense associated with intercompany loans and secured borrowings
supporting Financing's external client transactions. These secured borrowings are included in note P, “Borrowings.” Intercompany
financing activities are recorded to other (income) and expense and are reflected in segment pre-tax income.
Management System Segment View
($ in millions)
For the year ended December 31:
Software
Consulting
Infrastructure
Financing
Total
Segments
2023
Assets
$
61,141
$
14,342
$
11,991
$
14,409
$ 101,883
Depreciation/amortization of intangibles
Capital expenditures/investments in intangibles
526
385
106
20
1,018
836
8
15
1,659
1,255
2022
Assets
Depreciation/amortization of intangibles (1)
Capital expenditures/investments in intangibles
$
57,186
$
13,481
$
12,243
$
15,757
$
98,667
564
446
108
33
1,250
853
14
27
1,936
1,359
2021
Assets
Depreciation/amortization of intangibles (1)
Capital expenditures/investments in intangibles
$
58,420
$
11,914
$
11,766
$
16,880
$
98,980
598
559
97
55
1,257
792
49
33
2,001
1,439
(1) Recast to conform to 2023 presentation to remove amortization of acquired intangible assets.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
69
Reconciliations of IBM as Reported
($ in millions)
At December 31:
Assets
Total reportable segments
Elimination of internal transactions
Other—divested businesses
Unallocated amounts
Cash and marketable securities
Deferred tax assets
Plant, other property and equipment
Operating right-of-use assets
Pension assets
Other (1)
Total IBM consolidated assets
2023
2022
$
101,883
$
98,667
(1,028)
19
12,907
6,468
1,838
2,085
7,506
3,563
(1,062)
100
8,138
6,078
1,760
1,586
8,236
3,740
$
135,241
$
127,243
(1) Prior period has been reclassified to conform to the change in 2023 presentation.
Major Clients
No single client represented 10 percent or more of the company’s total revenue in 2023, 2022 or 2021.
Geographic Information
The following tables provide information for those countries that are 10 percent or more of the specific category.
Revenue (1)
($ in millions)
For the year ended December 31:
2023
2022
2021
United States
Other countries (2)
Total revenue
(1) Revenues are attributed to countries based on the location of the client.
(2) Prior periods reclassified to conform to the changes in 2023 presentation.
Plant and Other Property–Net (1)
($ in millions)
At December 31:
United States
Other countries
Total
(1) Excludes rental machines.
Operating Right-of-Use Assets–Net
($ in millions)
At December 31:
United States
Japan
Other countries
Total
$
$
$
$
$
$
25,309
$
25,098
$
36,551
35,432
61,860
$
60,530
$
22,893
34,457
57,350
2023
2022
2021
3,466
$
3,209
$
2,027
2,100
5,492
$
5,308
$
3,375
2,293
5,668
2023
2022
2021
1,249
$
1,074
$
340
1,631
259
1,545
3,220
$
2,878
$
1,148
398
1,676
3,222
70
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Revenue by Classes of Similar Products or Services
The following table presents external revenue for similar classes of products or services within the company’s reportable segments.
Client solutions often include IBM software and systems and other suppliers’ products if the client solution requires it. For each of
the segments that include services, Software-as-a-Service, consulting, education, training and other product-related services are
included as services. For each of these segments, software includes product license charges and ongoing subscriptions.
($ in millions)
For the year ended December 31:
Software
Software
Services
Systems
Consulting
Services
Software
Systems
Infrastructure
Maintenance
Servers
Services
Storage
Software
Financing
Financing
Used equipment sales
2023
2022
2021
$
22,483
$
21,374
$
3,764
62
3,575
88
19,845
3,485
96
$
19,691
$
18,857
$
17,563
212
82
170
80
$
4,138
$
4,590
$
4,253
2,463
2,081
1,658
4,471
2,653
1,989
1,585
$
$
680
60
$
$
582
64
$
$
173
108
4,743
3,483
2,616
1,919
1,426
628
145
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
71
NOTE E. ACQUISITIONS & DIVESTITURES
Acquisitions
Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions, except otherwise stated, were for 100
percent of the acquired business and are reported in the Consolidated Statement of Cash Flows, net of acquired cash and cash
equivalents.
2023
In 2023, the company completed nine acquisitions at an aggregate cost of $5,197 million. Each acquisition is expected to enhance
the company’s portfolio of products and services capabilities and further advance IBM’s hybrid cloud and AI strategy.
Acquisition
Segment
Description of Acquired Business
Software
Developer of GraphQL to help build
application programming interfaces (APIs)
Software
Library of industrial asset management data
First Quarter
StepZen, Inc.
Asset Strategy Library (ASL) Portfolio of
Uptake Technologies
NS1
Second Quarter
Ahana Cloud, Inc.
Polar Security
Software
Software
Software
Agyla SAS
Consulting
Third Quarter
Apptio, Inc.
Fourth Quarter
Manta Software, Inc.
Equine Global
Software
Software
Consulting
Leading provider of network automation
SaaS solutions
Expert in open-source-based solutions for
data analytics
Innovator in technology that helps
companies discover, continuously monitor
and secure cloud and SaaS application data
Leading provider of cloud platform
engineering services in France specializing
in Cloud, DevOps and Security
Leading provider of financial and operational
IT management and optimization software
which enables enterprise leaders to deliver
enhanced business value across technology
investments
World-class data lineage platform to
complement capabilities within watsonx.ai,
watsonx.data and watsonx.governance
ERP specialist and cloud consulting services
provider
At December 31, 2023, the remaining cash to be remitted by the company related to 2023 acquisitions was not material.
72
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of
December 31, 2023.
($ in millions)
Current assets
Property, plant and equipment/noncurrent assets
Intangible assets
Goodwill
Client relationships
Completed technology
Trademarks
Total assets acquired
Current liabilities
Noncurrent liabilities
Total liabilities assumed
Total purchase price
N/A–Not applicable
Amortization
Life (in Years)
Apptio, Inc.
$
146
$
N/A
6—10
5—7
1—5
4
3,541
770
530
35
5,027
$
249
166
415
4,612
$
$
$
$
$
Other
Acquisitions
80
12
401
44
108
2
647
41
20
62
585
The valuation of the assets acquired and liabilities assumed is subject to revision. If additional information becomes available, the
company may further revise the purchase price allocation as soon as practical, but no later than one year from the acquisition date;
however, material changes are not expected.
The goodwill generated is primarily attributable to the assembled workforce of the acquired businesses and the increased synergies
expected to be achieved from the integration of the acquired businesses into the company’s various integrated solutions and
services neither of which qualifies as an amortizable intangible asset.
Apptio, Inc.–Goodwill of $3,170 million and $371 million was assigned to the Software and Consulting segments, respectively. It is
expected that one percent of the goodwill will be deductible for tax purposes. The overall weighted-average useful life of the
identified amortizable intangible assets acquired was 8.7 years.
Other Acquisitions–Goodwill of $358 million, $31 million and $12 million was assigned to the Software, Consulting and
Infrastructure segments, respectively. It is expected that none of the goodwill will be deductible for tax purposes. The overall
weighted-average useful life of the identified amortizable intangible assets acquired was 6.6 years.
The identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that
the assets’ economic benefits are expected to be consumed over time.
Transactions Announced–Each of the announced acquisitions is subject to customary closing conditions, including regulatory
clearance.
On December 18, 2023, the company entered into a definitive agreement with Software AG to acquire StreamSets and
webMethods, Software AG's Super iPaaS (integration platform-as-a-service) enterprise technology platforms, for approximately
€2.13 billion in cash. StreamSets will add data ingestion capabilities to watsonx, and webMethods will provide clients and partners
additional integration and API management tools for their hybrid multi-cloud environments. The acquisition is expected to close in
mid-year 2024 and upon closing, StreamSets and webMethods will be integrated into the Software segment.
In connection with the planned acquisition, on December 18, 2023 the company entered into foreign exchange call option contracts
for a premium of $49 million to purchase a total of €2.13 billion on June 18, 2024 at a strike price of 1.095. Refer to note T,
“Derivative Financial Instruments,” for additional information.
In January 2024, the company entered into a definitive agreement to acquire application modernization capabilities from Advanced,
which brings a combination of talent, tools and knowledge to enhance the company's Consulting mainframe application and data
modernization services. The acquisition is expected to close in the second quarter of 2024 and will be integrated into the Consulting
segment upon closing.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
73
2022
In 2022, the company completed eight acquisitions at an aggregate cost of $2,651 million. Each acquisition is expected to enhance
the company’s portfolio of products and services capabilities and further advance IBM’s hybrid cloud and AI strategy.
Acquisition
Segment
Description of Acquired Business
First Quarter
Envizi
Sentaca
Neudesic
Second Quarter
Randori
Databand.ai
Third Quarter
Omnio
Fourth Quarter
Dialexa
Octo
Software
Consulting
Data and analytics software provider for
environmental performance management
Telco consulting services and solutions
provider specializing in automation, cloud
migration, and future networks for
telecommunications providers
Consulting
Application development and cloud
computing services company
Software
Software
Software
Consulting
Consulting
Leading attack surface management (ASM)
and cybersecurity provider
Proactive data observability platform that
isolates data errors and issues to alert
relevant stakeholders
Developer of software connectors used in
the collection of raw data for various
Industrial Internet of Things (IoT)
applications
Digital product engineering services firm
IT modernization and digital transformation
services provider exclusively serving the
U.S. federal government
At December 31, 2022, the remaining cash to be remitted by the company related to certain 2022 acquisitions was $238 million, of
which $103 million was paid in 2023 and the remaining amount is expected to be paid in 2024.
74
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of
December 31, 2023. Net purchase price adjustments recorded in 2023 were not material.
($ in millions)
Current assets
Property, plant and equipment/noncurrent assets
Intangible assets
Goodwill
Client relationships
Completed technology
Trademarks
Total assets acquired
Current liabilities
Noncurrent liabilities
Total liabilities assumed
Total purchase price
N/A–Not applicable
Amortization
Life (in Years)
Octo
Other
Acquisitions
N/A
7—10
4—7
2—3
$
119 $
8
829
365
30
15
87
8
1,055
204
90
10
$
1,366 $
1,454
53
50
103 $
52
15
67
1,264 $
1,387
$
$
The goodwill generated is primarily attributable to the assembled workforce of the acquired businesses and the increased synergies
expected to be achieved from the integration of the acquired businesses into the company’s various integrated solutions and
services neither of which qualifies as an amortizable intangible asset.
Octo–The overall weighted-average useful life of the identified amortizable intangible assets acquired was 9.3 years. Goodwill of
$709 million and $120 million was assigned to the Consulting and Software segments, respectively. It is expected that 24 percent
of the goodwill will be deductible for tax purposes.
Other acquisitions–The overall weighted-average useful life of the identified amortizable intangible assets acquired was 6.7 years.
Goodwill of $625 million and $431 million was assigned to the Consulting and Software segments, respectively. It is expected that
52 percent of the goodwill will be deductible for tax purposes.
The identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that
the assets’ economic benefits are expected to be consumed over time.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
75
2021
In 2021, the company completed fifteen acquisitions at an aggregate cost of $3,341 million.
Acquisition
Segment
Description of Acquired Business
First Quarter
Nordcloud
Taos Mountain, LLC (Taos)
StackRox
Second Quarter
Consulting
Consulting
Software
Turbonomic, Inc. (Turbonomic)
Software
Consulting company providing services in
cloud implementation, application
transformation and managed services
Leading cloud professional and managed
services provider
Innovator in container and Kubernetes-
native security
Application Resource Management and
Network Performance Management
software provider
ECX Copy Data Management business from
Catalogic Software, Inc.
Software
Smart data protection solution
Waeg
myInvenio
Third Quarter
VEVRE Software business from Volta, Inc.
BoxBoat Technologies
Consulting
Software
Software
Consulting
Leading Salesforce consulting partner
Process mining software company
Cloud-native virtual routing engine
Premier DevOps consultancy and enterprise
Kubernetes certified service provider
Bluetab Solutions Group
Consulting
Data solutions service provider
Fourth Quarter
SXiQ Digital Pty Ltd
Consulting
McD Tech Labs from McDonald’s
Software
ReaQta
Adobe Workfront practice from Rego
Consulting Corporation
Software
Consulting
Digital transformation services company
specializing in cloud applications, cloud
platforms and cloud cybersecurity
Asset purchase to accelerate the
development and deployment of
McDonald’s Automated Order Taking (AOT)
technology
Provider of endpoint security solutions
designed to leverage AI to automatically
identify and manage threats
Work management software consulting for
enterprise clients
Phlyt
Software
Cloud-native development consultancy
76
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of
December 31, 2022. Net purchase price adjustments recorded in 2022 primarily related to deferred tax assets and liabilities.
($ in millions)
Current assets
Property, plant and equipment/noncurrent assets
Intangible assets
Goodwill
Client relationships
Completed technology
Trademarks
Total assets acquired
Current liabilities
Noncurrent liabilities
Total liabilities assumed
Total purchase price
N/A–Not applicable
Amortization
Life (in Years)
Turbonomic
$
115
$
N/A
4—10
4—7
1—6
11
1,390
309
117
15
Other
Acquisitions
112
18
1,073
196
206
31
$
$
$
1,957
$
1,636
73
55
128
1,829
$
$
68
56
124
1,512
The goodwill generated is primarily attributable to the assembled workforce of the acquired businesses and the increased synergies
expected to be achieved from the integration of the acquired businesses into the company’s various integrated solutions and
services neither of which qualifies as an amortizable intangible asset.
Turbonomic–The overall weighted-average useful life of the identified amortizable intangible assets acquired was 9.0 years.
Goodwill of $1,325 million and $65 million was assigned to the Software and Consulting segments, respectively. It is expected that
none of the goodwill will be deductible for tax purposes.
Other acquisitions–The overall weighted-average useful life of the identified amortizable intangible assets acquired was 6.6 years.
Goodwill of $633 million and $440 million was assigned to the Consulting and Software segments, respectively. It is expected that
nine percent of the goodwill will be deductible for tax purposes.
The identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that
the assets’ economic benefits are expected to be consumed over time.
Divestitures
Transactions Closed in 2024–In August 2023, IBM and Zephyr Buyer, L.P., a wholly-owned subsidiary of Francisco Partners
(collectively, Francisco), entered into a definitive agreement under which Francisco would acquire The Weather Company assets
from IBM for $1,100 million inclusive of $250 million of contingent consideration, of which $200 million is contingent on Francisco’s
attainment of certain investment return metrics. The assets, reported within the company’s Software segment, include The Weather
Company's digital consumer-facing offerings, The Weather Channel mobile and cloud-based digital properties including
Weather.com, Weather Underground and Storm Radar, as well as its enterprise offerings for broadcast, media, aviation, advertising
technology and data solutions for other emerging industries.
At December 31, 2023, the business continued to meet the criteria for held-for-sale classification. Held-for-sale assets of
approximately $545 million, which consist primarily of goodwill, prepaid and other current assets, intangible assets-net and plant,
property and equipment-net of approximately $464 million, $50 million, $21 million and $10 million, respectively, and held-for-sale
liabilities of $19 million consisting primarily of deferred income, were included in the company’s Consolidated Balance Sheet at
December 31, 2023.
The transaction closed on January 31, 2024. Upon closing, the company received cash proceeds of $750 million and provided seller
financing to Francisco in the form of a $100 million loan with a term of 7 years. The company recognized a pre-tax gain on sale of
approximately $240 million at closing. As discussed in note D, "Segments," in the first quarter of 2024, The Weather Company
assets previously reported in the Software segment moved to the Other—divested businesses category.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
77
2023
The company completed two divestitures in the second quarter of 2023. The financial terms related to each of these transactions
did not have a material impact to IBM's Consolidated Financial Statements.
2022
Healthcare Software Assets–In January 2022, IBM and Francisco Partners (Francisco) signed a definitive agreement in which
Francisco would acquire IBM’s healthcare data and analytics assets reported within Other—divested businesses for $1,065 million.
The assets included Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex, and imaging
software offerings. In addition, IBM is providing Francisco with transition services including IT and other services. The closing
completed for the U.S. and Canada on June 30, 2022 and the company received a cash payment of $1,065 million. Subsequent
closings were completed in most other countries in the second half of 2022, with the remaining country closings completed in 2023.
The total pre-tax gain recognized on this transaction as of December 31, 2023 was $303 million and was recorded in other (income)
and expense in the Consolidated Income Statement.
Other Divestitures–In the first quarter of 2022, the Infrastructure segment completed one divestiture. The financial terms related to
this transaction did not have a material impact to IBM's Consolidated Financial Statements.
2021
Separation of Kyndryl–On November 3, 2021, the company completed the separation of its managed infrastructure services unit
into a new public company, Kyndryl. The company retained 19.9 percent of the shares of Kyndryl common stock immediately
following the separation. During 2022, the company fully disposed of its retained interest in Kyndryl common stock pursuant to
exchange agreements with a third-party financial institution, which were completed within twelve months of separation. The
historical results of Kyndryl have been presented as discontinued operations and, as such, have been excluded from continuing
operations and segment results for all periods presented.
IBM provided transition services to Kyndryl predominantly consisting of information technology services for a period of two years
after the separation. All transition services concluded in the fourth quarter of 2023. The impact of these transition services on the
company’s Consolidated Financial Statements for the years ended December 31, 2023, 2022 and 2021 was not material.
At separation, IBM and Kyndryl entered into various commercial agreements pursuant to which Kyndryl will purchase hardware,
software and services from IBM and under which IBM will receive hosting and information infrastructure services from Kyndryl. As
part of the separation, IBM also committed to provide upgraded hardware at no cost to Kyndryl over a two-year period after the
separation. The agreement concluded in the fourth quarter of 2023.
The following table presents the major categories of income/(loss) from discontinued operations, net of tax.
($ in millions)
For the year ended December 31:
Revenue
Cost of sales
Selling, general and administrative expense (2)
RD&E and Other (income) and expense
Income/(loss) from discontinued operations before income taxes
Provision for/(benefit from) income taxes (3)
Income/(loss) from discontinued operations, net of tax
2023
2022
2021 (1)
$
$
$
— $
7
$
—
22
(1)
24
86
(84)
(20) $
(20) $
(9)
124
(12) $
(143) $
14,994
11,270
1,900
80
1,744
714
1,030
(1) Excludes intercompany transactions between IBM and Kyndryl and general corporate overhead costs transferred to Kyndryl.
(2) Prior periods recast to conform to 2023 presentation.
(3) 2021 includes tax charges related to the Kyndryl separation.
Loss from discontinued operations before income taxes for the year ended December 31, 2023 reflects the net impact of changes in
separation-related estimates and the settlement of assets and liabilities in accordance with the separation and distribution
agreement. Loss from discontinued operations, net of tax, for the year ended December 31, 2022 reflects the same drivers above
and also reflects a gain on sale of a joint venture historically managed by Kyndryl, which was sold to Kyndryl in the first quarter of
2022 upon receiving regulatory approval.
Separation costs of $5 million and $1,042 million were incurred during the years ended December 31, 2022 and 2021, respectively,
and are included in income/(loss) from discontinued operations, net of tax, in the Consolidated Income Statement. There were no
separation charges incurred for the year ended December 31, 2023.
78
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The following table presents selected financial information related to cash flows from discontinued operations.
($ in millions)
For the year ended December 31:
Net cash provided by/(used in) operating activities
Net cash provided by/(used in) investing activities
2023
2022
2021
$
— $
—
— $
48
1,612
(380)
Other Divestitures–In 2021, the company completed two divestitures reported in the Software segment and one divestiture
reported in Other–divested businesses. In the third quarter of 2021, IBM completed the sale of the company’s remaining OEM
commercial financing capabilities reported within the Financing segment. The financial terms related to each of these transactions
did not have a material impact to IBM's Consolidated Financial Statements.
NOTE F. OTHER (INCOME) AND EXPENSE
Components of other (income) and expense are as follows:
($ in millions)
For the year ended December 31:
Other (income) and expense
Foreign currency transaction losses/(gains) (1)
(Gains)/losses on derivative instruments (1)
Interest income
Net (gains)/losses from securities and investment assets
Retirement-related costs/(income) (2)
Other (3)
Total other (income) and expense
2023
2022
2021
$
116 $
(643) $
(17)
(670)
(39)
(39)
(266)
225
(162)
278
6,548
(443)
$
(914) $
5,803 $
(204)
205
(52)
(133)
1,282
(225)
873
(1) The company uses financial hedging instruments to limit specific currency risks related to foreign currency-based transactions. The hedging program
does not hedge 100 percent of currency exposures and defers, versus eliminates, the impact of currency. Refer to note T, "Derivative Financial
Instruments," for additional information on foreign exchange risk.
(2) 2022 includes a one-time, non-cash pension settlement charge of $5.9 billion. Refer to note V, "Retirement-Related Benefits," for additional
information.
(3) Other primarily consists of (gains)/losses from divestitures and sales of land/buildings.
NOTE G. RESEARCH, DEVELOPMENT & ENGINEERING
RD&E expense was $6,775 million in 2023, $6,567 million in 2022 and $6,488 million in 2021.
The company incurred total expense of $6,342 million, $6,267 million and $6,216 million in 2023, 2022 and 2021, respectively, for
scientific research and the application of scientific advances to the development of new and improved products and their uses, as
well as services and their application. Within these amounts, software-related expense was $3,866 million, $3,971 million and
$3,922 million in 2023, 2022 and 2021, respectively.
Expense for product-related engineering was $432 million, $299 million and $272 million in 2023, 2022 and 2021, respectively.
NOTE H. TAXES
($ in millions)
For the year ended December 31:
Income/(loss) from continuing operations before income taxes
U.S. operations (1)
Non-U.S. operations
Total income from continuing operations before income taxes
2023
2022
2021
$
$
(227) $
(6,602) $
(2,654)
8,917
7,758
8,690
$
1,156
$
7,491
4,837
(1) 2022 includes the impact of a one-time, non-cash pension settlement charge. Refer to note V, “Retirement-Related Benefits,” for additional
information.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
79
The income from continuing operations provision for/(benefit from) income taxes by geographic operations was as follows:
($ in millions)
For the year ended December 31:
U.S. operations
Non-U.S. operations
Total continuing operations provision for/(benefit from) income taxes
2023
2022
2021
$
$
(574) $
(2,272) $
1,750
1,645
1,176
$
(626) $
(969)
1,093
124
The components of the income from continuing operations provision for/(benefit from) income taxes by taxing jurisdiction were as
follows:
($ in millions)
For the year ended December 31:
U.S. federal
Current
Deferred
U.S. state and local
Current
Deferred
Non-U.S.
Current
Deferred
Total continuing operations provision for/(benefit from) income taxes
Discontinued operations provision for/(benefit from) income taxes
Total provision for/(benefit from) income taxes
2023
2022
2021
$
$
$
$
$
$
$
$
$
560
$
391
$
(1,371)
(2,645)
(811) $
(2,253) $
127
$
184
$
(162)
(486)
(34) $
(302) $
1,594
$
1,676
$
428
2,022
1,176
$
$
(9) $
1,167
$
252
1,929
$
(626) $
124
$
(503) $
374
(1,358)
(984)
161
(370)
(209)
1,342
(25)
1,317
124
714
838
In addition to the total provision for/(benefit from) income taxes, the company recorded a provision included in net income for social
security, real estate, personal property and other taxes of approximately $2.9 billion in 2023. The total taxes included in net income
was approximately $4.0 billion in 2023.
A reconciliation of the statutory U.S. federal tax rate to the company’s effective tax rate from continuing operations was as follows:
For the year ended December 31:
Statutory rate
Tax differential on foreign income (1)
Domestic incentives (1)
State and local (1)
Other (1)
Effective rate
2023
2022
2021
21 %
(3)
(5)
0
1
14 %
21 %
(29)
(24)
(21)
(1)
(54) %
21 %
(10)
(5)
(3)
0
3 %
(1) 2022 includes the impacts of the pension settlement charge on tax differential on foreign income, domestic incentives, state and local, and other of
(24) points, (20) points, (21) points, and (1) point, respectively.
Percentages rounded for disclosure purposes.
The significant components reflected within the tax rate reconciliation labeled “Tax differential on foreign income” include the
effects of foreign subsidiaries’ earnings taxed at rates other than the U.S. statutory rate, U.S. taxes on foreign income and any net
impacts of intercompany transactions. These items also reflect audit settlements or changes in the amount of unrecognized tax
benefits associated with each of these items.
The continuing operations effective tax rate for 2023 was 13.5 percent compared to (54.2) percent in 2022. The prior-year effective
tax rate was primarily driven by the transfer of a portion of the Qualified PPP’s defined benefit pension obligations and related plan
assets. Refer to note V, '"Retirement-Related Benefits," for additional information. The 2021 effective tax rate was primarily driven
by tax benefits related to audit settlements in multiple jurisdictions.
80
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The effect of tax law changes on deferred tax assets and liabilities did not have a material impact on the company’s 2023 effective
tax rate.
Deferred Tax Assets
($ in millions)
At December 31:
Retirement benefits
Leases
Share-based and other compensation
Domestic tax loss/credit carryforwards
Deferred income
Foreign tax loss/credit carryforwards
Bad debt, inventory and warranty reserves
Depreciation
Restructuring charges
Accruals
Intangible assets
Capitalized research and development
Other
Gross deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred Tax Liabilities
($ in millions)
At December 31:
Goodwill and intangible assets
GILTI deferred taxes
Leases and right-of-use assets
Depreciation
Retirement benefits
Deferred transition costs
Undistributed foreign earnings
Other
Gross deferred tax liabilities
2023
2022
$
2,269
$
1,954
1,055
720
2,194
682
651
305
205
94
253
2,774
3,524
1,141
15,868
765
927
608
1,798
633
845
383
247
101
215
2,879
3,012
1,157
14,759
770
$
15,103
$
13,989
2023
2022
$
3,054
$
2,195
1,369
523
1,443
47
192
770
3,156
2,483
1,174
505
1,609
56
87
955
$
9,593
$
10,025
For financial reporting purposes, the company had foreign and domestic loss carryforwards, the tax effect of which was $681
million, as well as foreign and domestic credit carryforwards of $2,164 million. Substantially all of these carryforwards are available
for at least two years and the majority are available for 10 years or more.
The valuation allowances as of December 31, 2023, 2022 and 2021 were $765 million, $770 million and $883 million, respectively.
The amounts principally apply to certain foreign and domestic loss carryforwards and credits. In the opinion of management, it is
more likely than not that these assets will not be realized. However, to the extent that tax benefits related to these carryforwards
and credits are realized in the future, the reduction in the valuation allowance will reduce income tax expense.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
81
The amount of unrecognized tax benefits at December 31, 2023 increased by $44 million in 2023 to $8,772 million. A reconciliation
of the beginning and ending amount of unrecognized tax benefits was as follows:
($ in millions)
Balance at January 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years (including impacts due to a
lapse of statute)
Settlements
Balance at December 31
2023
2022
2021
$
8,728
$
8,709
$
8,568
296
231
(457)
(26)
355
174
(470)
(41)
934
247
(688)
(352)
$
8,772
$
8,728
$
8,709
The additions to unrecognized tax benefits related to the current and prior years were primarily attributable to U.S. federal and state
and non-U.S. tax matters, including transfer pricing. The settlements and reductions to unrecognized tax benefits for tax positions of
prior years were primarily attributable to non-U.S. and U.S. federal and state tax matters, including impacts due to lapse of statute
of limitations.
The unrecognized tax benefits at December 31, 2023 of $8,772 million can be reduced by $567 million associated with timing
adjustments, potential transfer pricing adjustments and state income taxes. The net amount of $8,205 million, if recognized, would
favorably affect the company’s effective tax rate. The net amounts at December 31, 2022 and 2021 were $8,191 million and
$8,163 million, respectively.
Interest and penalties related to income tax liabilities are included in income tax expense. During the years ended December 31,
2023, 2022 and 2021, the company recognized $379 million, $185 million and $125 million, respectively, in interest expense and
penalties. The company had $1,321 million and $956 million for the payment of interest and penalties accrued at December 31,
2023 and December 31, 2022, respectively.
Within the next 12 months, the company believes it is reasonably possible that the total amount of unrecognized tax benefits
associated with certain positions may be reduced. The potential decrease in the amount of unrecognized tax benefits is associated
with certain non-U.S. positions that are expected to be recognized due to a lapse in statute of limitations, as well as anticipated
resolution of various audits. The company estimates that the unrecognized tax benefits at December 31, 2023 could be reduced by
$143 million.
During the fourth quarter of 2020, the U.S. Internal Revenue Service (IRS) concluded its examination of the company’s U.S. income
tax returns for 2013 and 2014 and issued a final Revenue Agent’s Report (RAR) proposing adjustments related to certain cross-
border transactions that occurred in 2013. The company filed its IRS Appeals protest in the first quarter of 2021, and in October of
2023, the IRS issued a revised RAR. These adjustments, if sustained, would increase the company’s income subject to tax by
approximately $4.2 billion, with tax calculated at the relevant federal income tax rate. The company continues to strongly disagree
with the IRS position and will pursue resolution at IRS Appeals and then court, if necessary. In the first quarter of 2024, the IRS
concluded its examination of the company's U.S. income tax returns for 2015 and 2016 and issued a final RAR proposing
adjustments related to certain cross-border transactions that occurred in 2015. The proposed adjustments, if sustained, would
increase the company’s income subject to tax by approximately $1.2 billion, with tax calculated at the relevant federal income tax
rate. The company strongly disagrees with the IRS position and will pursue resolution at IRS Appeals and then court, if necessary. In
the fourth quarter of 2021, the IRS commenced its audit of the company’s U.S. tax returns for 2017 and 2018. With respect to major
U.S. state and foreign taxing jurisdictions, the company is generally no longer subject to tax examinations for years prior to 2016.
The company is no longer subject to income tax examination of its U.S. federal tax return for years prior to 2013. The open years
contain matters that could be subject to differing interpretations of applicable tax laws and regulations as it relates to the amount
and/or timing of income, deductions, and tax credits. Although the outcome of tax audits is always uncertain, the company believes
that adequate amounts of tax, interest and penalties have been provided for any adjustments that are expected to result for these
years.
The company is involved in a number of income tax-related matters in India challenging tax assessments issued by the India Tax
Authorities. As of December 31, 2023, the company had recorded $557 million as prepaid income taxes in India. A significant
portion of this balance represents cash tax deposits paid over time to protect the company’s right to appeal various income tax
assessments made by the India Tax Authorities. Although the outcome of tax audits is always uncertain, the company believes that
adequate amounts of tax, interest and penalties have been provided for any adjustments that are expected to result for these years.
Within consolidated retained earnings at December 31, 2023 were undistributed after-tax earnings from certain non-U.S.
subsidiaries that were not indefinitely reinvested. At December 31, 2023, the company had a deferred tax liability of $192 million
82
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
for the estimated taxes associated with the repatriation of these earnings. Undistributed earnings of approximately $799 million and
other outside basis differences in foreign subsidiaries were indefinitely reinvested in foreign operations. Quantification of the
deferred tax liability, if any, associated with indefinitely reinvested earnings and outside basis differences was not practicable.
NOTE I. EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share of common stock.
($ in millions except per share amounts)
For the year ended December 31:
Weighted-average number of shares on which earnings per share
calculations are based
Basic
2023
2022 (1)
2021
911,210,319
902,664,190
895,990,771
Add—incremental shares under stock-based compensation plans
8,700,951
7,593,455
6,883,290
Add—incremental shares associated with contingently issuable shares
2,162,558
2,011,417
1,766,940
Assuming dilution
Income from continuing operations
Income/(loss) from discontinued operations, net of tax
Net income on which basic earnings per share is calculated
Income from continuing operations
Net income applicable to contingently issuable shares
Income from continuing operations on which diluted earnings per
share is calculated
Income/(loss) from discontinued operations, net of tax, on which
diluted earnings per share is calculated
Net income on which diluted earnings per share is calculated
Earnings/(loss) per share of common stock
Assuming dilution
Continuing operations
Discontinued operations
Total
Basic
Continuing operations
Discontinued operations
Total
922,073,828
912,269,062
904,641,001
7,514
$
1,783
$
(12)
7,502
7,514
$
$
—
(143)
1,639
1,783
—
$
$
4,712
1,030
5,743
4,712
—
7,514
$
1,783
$
4,712
(12)
(143)
7,502
$
1,639
$
1,030
5,743
8.15
$
1.95
$
(0.01)
(0.16)
8.14
$
1.80
$
8.25
$
1.97
$
(0.01)
(0.16)
8.23
$
1.82
$
5.21
1.14
6.35
5.26
1.15
6.41
$
$
$
$
$
$
$
$
$
(1) Includes the impact of a one-time, non-cash pension settlement charge. Refer to note V, “Retirement-Related Benefits,” for additional information.
Weighted-average stock options to purchase 1,761,463 common shares in 2023, 814,976 common shares in 2022 and 980,505
common shares in 2021 were outstanding, but were not included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of the common shares for the full year, and therefore, the
effect would have been antidilutive.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
83
NOTE J. FINANCIAL ASSETS & LIABILITIES
Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the company’s financial assets and financial liabilities that are measured at fair value on a recurring
basis at December 31, 2023 and 2022.
($ in millions)
At December 31:
Cash equivalents (1)
Time deposits and certificates of deposit (2)
Money market funds
Total cash equivalents
Equity investments
Debt securities–current (2)(3)
Debt securities–noncurrent (2)(4)
Derivatives designated as hedging instruments
Interest rate contracts
Foreign exchange contracts
Derivatives not designated as hedging instruments
Foreign exchange contracts (5)
Equity contracts
Fair Value
2023
2022
Hierarchy Level
Assets (6)
Liabilities (7)
Assets (6)
Liabilities (7)
2
1
1
2
2,3
2
2
2
2
$
7,206
494
$
7,699
25
373
8
2
131
115
93
N/A
N/A
N/A
N/A
N/A
N/A
299
275
19
—
$
3,712
306
$
4,018
—
852
31
3
184
42
49
N/A
N/A
N/A
N/A
N/A
N/A
336
674
16
8
Total
$
8,446
$
593
$
5,179
$
1,034
(1) Included within cash and cash equivalents in the Consolidated Balance Sheet.
(2) Available-for-sale debt securities with carrying values that approximate fair value.
(3) U.S. treasury bills and term deposits that are reported within marketable securities in the Consolidated Balance Sheet.
(4) Includes immaterial activity related to private company investments reported within investments and sundry assets in the Consolidated Balance
Sheet.
(5) 2023 assets include $62 million related to foreign exchange call option contracts entered into in connection with the planned acquisition of
StreamSets and webMethods from Software AG. Refer to note T, “Derivative Financial Instruments,” for additional information.
(6) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the
Consolidated Balance Sheet at December 31, 2023 were $304 million and $37 million, respectively, and at December 31, 2022 were $271 million and
$7 million, respectively.
(7) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Balance
Sheet at December 31, 2023 were $294 million and $299 million, respectively, and at December 31, 2022 were $546 million and $488 million,
respectively.
N/A–Not applicable
Financial Assets and Liabilities Not Measured at Fair Value
Short-Term Receivables and Payables
Short-term receivables (excluding the current portion of long-term receivables) and other investments are financial assets with
carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (excluding the current
portion of long-term debt) 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.
Loans and 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 December 31, 2023 and 2022, the difference between the carrying amount and
estimated fair value for loans and 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 (including long-term finance lease liabilities) 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 was $50,121 million and $46,189
million, and the estimated fair value was $48,284 million and $42,514 million at December 31, 2023 and 2022, respectively. If
measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in
the fair value hierarchy.
84
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
NOTE K. INVENTORY
($ in millions)
At December 31:
Finished goods
Work in process and raw materials
Total
2023
2022
$
$
$
78
1,083
1,161
$
$
$
158
1,394
1,552
NOTE L. FINANCING RECEIVABLES
Financing receivables primarily consist of client loan and installment payment receivables (loans), investment in sales-type and
direct financing leases (collectively referred to as client financing receivables) and commercial financing receivables. Loans are
provided primarily to clients to finance the purchase of IBM hardware, software and services. Payment terms on these financing
arrangements are for terms generally up to seven years. Investment in sales-type and direct financing leases relate principally to
the company’s Infrastructure products and are for terms generally up to five years. Commercial financing receivables, which consist
of both held-for-investment and held-for-sale receivables, relate primarily to working capital financing for business partners and
distributors of IBM products and services. Payment terms for working capital financing generally range from 30 to 60 days.
A summary of the components of the company’s financing receivables is presented as follows:
($ in millions)
At December 31, 2023:
Financing receivables, gross
Unearned income
Unguaranteed residual value
Amortized cost
Allowance for credit losses
Total financing receivables, net
Current portion
Noncurrent portion
($ in millions)
At December 31, 2022:
Financing receivables, gross
Unearned income
Unguaranteed residual value
Amortized cost
Allowance for credit losses
Total financing receivables, net
Current portion
Noncurrent portion
Client Financing Receivables
Client Loan and
Installment Payment
Receivables
(Loans)
Investment in
Sales-Type and
Direct Financing
Leases
Commercial Financing
Receivables
Held for
Investment
Held for
Sale (1)
Total
$
$
$
$
$
7,060
$
4,261
$
1,160
$
692
$
13,173
(486)
—
(429)
458
—
—
—
—
(915)
458
6,574
$
4,290
$
1,160
$
692
$
12,716
(87)
6,486
3,427
3,059
$
$
$
(63)
4,227
1,520
2,707
$
$
$
(6)
1,155
1,155
—
$
$
$
—
692
692
—
$
$
$
(156)
12,560
6,793
5,766
Client Financing Receivables
Client Loan and
Installment Payment
Receivables
(Loans)
Investment in
Sales-Type and
Direct Financing
Leases
Commercial Financing
Receivables
Held for
Investment
Held for
Sale (1)
Total
$
$
$
$
$
8,875
$
4,023
$
299
$
939
$
14,136
(439)
—
(351)
422
—
—
—
—
(790)
422
8,437
$
4,094
$
299
$
939
$
13,769
(108)
8,329
5,073
3,256
$
$
$
(60)
4,034
1,485
2,549
$
$
$
(5)
293
293
—
$
$
$
—
939
939
—
$
$
$
(173)
13,596
7,790
5,806
(1) The carrying value of the receivables classified as held for sale approximates fair value.
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 secured borrowings, transfers of receivables
recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease. Sale of receivables
arrangements are also utilized in the normal course of business as part of the company’s cash and liquidity management.
Financing receivables pledged as collateral for secured borrowings were $232 million and $349 million at December 31, 2023 and
2022, respectively. These borrowings are included in note P, “Borrowings.”
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
85
Transfer of Financial Assets
The company has an existing agreement with a third-party investor to sell IBM short-term commercial financing receivables on a
revolving basis. This agreement allowed for sales up to $3.0 billion. In December 2023, the company amended and renewed its
agreement to sell up to $1.9 billion and reducing to $1.3 billion in January 2024, for one year. In addition, the company enters into
agreements with third-party financial institutions to sell certain of its client financing receivables, including both loan and lease
receivables, for cash proceeds. There were no material client financing receivables transferred for the years ended December 31,
2023 and 2022.
The following table presents the total amount of commercial financing receivables transferred.
($ in millions)
For the year ended December 31:
Commercial financing receivables
Receivables transferred during the period
Receivables uncollected at end of period (1)
2023
2022
$
$
9,248
1,600
$
$
9,029
1,561
(1) Of the total amount of commercial financing receivables sold and derecognized from the Consolidated Balance Sheet, the amounts presented
remained uncollected from business partners as of December 31, 2023 and 2022.
The transfer of these receivables qualified as true sales and therefore reduced financing receivables. The cash proceeds from the
sales are included in cash flows from operating activities. For the twelve months ended December 31, 2023 and 2022, the net loss,
including fees, associated with the transfer of commercial financing receivables was $98 million and $62 million, respectively, and
is included in other (income) and expense in the Consolidated Income Statement.
Financing Receivables by Portfolio Segment
The following tables present the amortized cost basis for client financing receivables at December 31, 2023 and 2022, further
segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. The commercial financing receivables
portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current
estimated risk of loss and resulting impact to the company’s financial results are not material.
($ in millions)
At December 31, 2023:
Amortized cost
Allowance for credit losses
Beginning balance at January 1, 2023
Write-offs
Recoveries
Additions/(releases)
Other (1)
Ending balance at December 31, 2023
($ in millions)
At December 31, 2022:
Amortized cost
Allowance for credit losses
Beginning balance at January 1, 2022
Write-offs
Recoveries
Additions/(releases)
Other (1)
Ending balance at December 31, 2022
(1) Primarily represents translation adjustments.
$
$
$
$
$
Americas
EMEA
Asia Pacific
Total
6,488
$
3,007
$
1,368
$
10,863
88
$
60
$
20
$
(9)
0
5
7
(1)
2
(14)
1
(8)
3
(4)
(1)
92
$
48
$
11
$
168
(18)
5
(12)
8
150
Americas
EMEA
Asia Pacific
Total
7,281
$
3,546
$
1,704
$
12,531
111
$
61
$
23
$
(20)
1
(5)
2
(3)
0
6
(5)
(2)
4
(4)
(2)
$
88
$
60
$
20
$
195
(25)
5
(3)
(4)
168
When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For the
company’s policy on determining allowances for credit losses, refer to note A, “Significant Accounting Policies.”
($ in millions)
At December 31, 2023:
Americas
EMEA
Asia Pacific
($ in millions)
At December 31, 2022:
Americas
EMEA
Asia Pacific
86
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Past Due Financing Receivables
The company summarizes information about the amortized cost basis for client financing receivables, including amortized cost aged
over 90 days and still accruing, billed invoices aged over 90 days and still accruing, and amortized cost not accruing.
Total
Amortized
Cost
Amortized
Cost
> 90 Days (1)
Amortized
Cost
> 90 Days and
Accruing (1)
Billed
Invoices
> 90 Days and
Accruing
Amortized
Cost
Not
Accruing (2)
$
6,488
$
111
$
40
$
3,007
1,368
31
9
1
1
6
1
0
7
$
$
71
31
8
110
Total client financing receivables
$
10,863
$
151
$
43
$
Total
Amortized
Cost
Amortized
Cost
> 90 Days (1)
Amortized
Cost
> 90 Days and
Accruing (1)
Billed
Invoices
> 90 Days and
Accruing
Amortized
Cost
Not
Accruing (2)
$
7,281
$
272
$
198
$
22
$
3,546
1,704
52
20
8
3
1
1
74
46
17
137
Total client financing receivables
$
12,531
$
344
$
208
$
23
$
(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 $106 million and $122 million at December 31, 2023 and 2022, respectively.
Financing income recognized on these receivables was immaterial for the years ended December 31, 2023 and 2022.
Credit Quality Indicators
The company’s credit quality indicators, which are based on rating agency data, publicly available information and information
provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating
system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody’s,
where available, as one of many inputs in its determination of customer credit ratings. The credit quality of the customer is
evaluated based on these indicators and is assigned the same risk rating whether the receivable is a lease or a loan.
The following tables present the amortized cost basis for client financing receivables by credit quality indicator at December 31,
2023 and 2022, respectively. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade.
All others are considered non-investment grade. The credit quality indicators reflect mitigating credit enhancement actions taken by
customers which reduce the risk to IBM. Gross write-offs by vintage year at December 31, 2023 were not material.
($ in millions)
At December 31, 2023:
Aaa - Baa3
Ba1 - C
Aaa - Baa3
Ba1 - C
Aaa - Baa3
Ba1 - C
Americas
EMEA
Asia Pacific
Vintage year
2023
2022
2021
2020
2019
2018 and prior
Total
$
2,292
$
1,028
$
1,645
655
205
104
55
268
85
79
23
50
750
687
284
106
58
16
$
520
$
501
$
374
83
60
38
30
386
110
97
40
39
70
42
40
22
8
12
$
4,955
$
1,533
$
1,901
$
1,106
$
1,174
$
195
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
87
($ in millions)
At December 31, 2022:
Aaa - Baa3
Ba1 - C
Aaa - Baa3
Ba1 - C
Aaa - Baa3
Ba1 - C
Americas
EMEA
Asia Pacific
Vintage year
2022
2021
2020
2019
2018
2017 and prior
Total
$
3,316
$
1,097
$
1,447
$
1,197
559
251
128
32
323
217
91
26
45
451
258
161
42
14
704
159
158
99
16
38
$
799
$
203
210
127
84
12
96
65
49
22
21
17
$
5,482
$
1,800
$
2,373
$
1,173
$
1,434
$
269
Modifications and Troubled Debt Restructurings
The company did not have any significant modifications due to financial difficulty for the year ended December 31, 2023. The
company did not have any significant troubled debt restructurings for the year ended December 31, 2022.
NOTE M. PROPERTY, PLANT & EQUIPMENT
($ in millions)
At December 31:
Land and land improvements
Buildings and building and leasehold improvements
Information technology equipment
Production, engineering, office and other equipment
Total—gross
Less: Accumulated depreciation
Total—net
NOTE N. LEASES
Accounting for Leases as a Lessee
The following table presents the various components of lease costs.
($ in millions)
For the year ended December 31:
Finance lease cost
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
2023
2022
$
182
$
5,333
9,223
3,385
18,122
12,621
$
5,501
$
213
5,678
9,643
3,161
18,695
13,361
5,334
2023
2022
2021
$
114
$
67
$
1,013
1,050
9
331
(61)
7
262
(72)
52
1,126
21
336
(46)
$
1,406
$
1,315
$
1,489
The company recorded net gains on sale and leaseback transactions of $145 million, $41 million and $7 million for the years ended
December 31, 2023, 2022 and 2021, respectively.
88
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The following table presents supplemental information relating to the cash flows arising from lease transactions. Cash payments
related to variable lease costs and short-term leases are not included in the measurement of operating and finance lease liabilities,
and, as such, are excluded from the amounts below.
($ in millions)
For the year ended December 31:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from finance leases
Financing cash outflows from finance leases
Operating cash outflows from operating leases
ROU assets obtained in exchange for new finance lease liabilities (1)
ROU assets obtained in exchange for new operating lease liabilities (1)
(1) Includes the impact of currency.
2023
2022
2021
$
16
75
961
355
1,220
$
9
$
55
1,020
196
705
8
42
1,135
46
779
The following table presents the weighted-average lease term and discount rate for finance and operating leases.
At December 31:
Finance leases
Weighted-average remaining lease term (in years)
Weighted-average discount rate
Operating leases
Weighted-average remaining lease term (in years)
Weighted-average discount rate
2023
2022
5.1
4.62 %
6.2
4.46 %
3.7
3.57 %
4.5
3.77 %
The following table presents a maturity analysis of expected undiscounted cash flows for operating and finance leases on an annual
basis for the next five years and thereafter.
($ in millions)
2024
2025
2026
2027
2028
Thereafter
Imputed
Interest (1)
Total (2)
Finance leases
Operating leases
$
$
145
948
126
761
$
90
$
80
$
61
$
78
$
(82) $
499
616
452
281
890
(560)
3,389
(1) Imputed interest represents the difference between undiscounted cash flows and discounted cash flows.
(2) The company entered into lease agreements for certain facilities and equipment with payments totaling approximately $247 million that have not yet
commenced as of December 31, 2023, and therefore are not included in this table.
The following table presents information on the company’s finance leases recognized in the Consolidated Balance Sheet.
($ in millions)
At December 31:
ROU Assets—Property, plant and equipment
Lease Liabilities
Short-term debt
Long-term debt
2023
2022
$
481
$
223
121
379
75
164
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
89
Accounting for Leases as a Lessor
The following table presents amounts included in the Consolidated Income Statement related to lessor activity.
($ in millions)
For the year ended December 31:
Lease income—sales-type and direct financing leases
Sales-type lease selling price
Less: Carrying value of underlying assets (1)
Gross profit
Interest income on lease receivables
Total sales-type and direct financing lease income
Lease income—operating leases
Variable lease income
Total lease income
(1) Excludes unguaranteed residual value.
2023
2022
2021
$
1,280
$
1,636
$
(245)
1,034
242
1,276
93
68
(385)
1,251
200
1,451
116
87
1,355
(300)
1,055
179
1,234
169
120
$
1,437
$
1,653
$
1,523
Sales-Type and Direct Financing Leases
At December 31, 2023 and 2022, the unguaranteed residual values of sales-type and direct financing leases were $458 million and
$422 million, respectively. Refer to note L, “Financing Receivables,” for additional information on the company’s net investment in
leases.
For the years ended December 31, 2023 and 2022, impairment of residual values was immaterial.
The following table presents a maturity analysis of the lease payments due to IBM on sales-type and direct financing leases over the
next five years and thereafter, as well as a reconciliation of the undiscounted cash flows to the financing receivables recognized in
the Consolidated Balance Sheet at December 31, 2023.
($ in millions)
2024
2025
2026
2027
2028
Thereafter
Total undiscounted cash flows
Present value of lease payments (recognized as financing receivables) (1)
Difference between undiscounted cash flows and discounted cash flows
Total
1,735
1,360
713
353
91
9
4,261
3,832
429
$
$
$
(1) The present value of the lease payments will not equal the financing receivables balances in the Consolidated Balance Sheet due to certain items
including IDCs, allowance for credit losses and residual values, which are included in the financing receivable balance, but are not included in the
future lease payments.
90
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
NOTE O. INTANGIBLE ASSETS INCLUDING GOODWILL
Intangible Assets
The following table presents the company’s intangible asset balances by major asset class.
($ in millions)
At December 31, 2023:
Intangible asset class
Capitalized software
Client relationships
Completed technology
Patents/trademarks
Other (2)
Total
($ in millions)
At December 31, 2022:
Intangible asset class
Capitalized software
Client relationships
Completed technology
Patents/trademarks
Other (2)
Total
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount (1)
$
1,636 $
(762) $
9,053
5,713
1,821
41
(3,500)
(2,510)
(436)
(20)
874
5,553
3,203
1,385
22
$
18,265 $
(7,229) $
11,036
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount (1)
$
1,650 $
(705) $
8,559
5,220
2,140
19
(2,951)
(2,045)
(688)
(15)
945
5,608
3,175
1,452
4
$
17,588 $
(6,404) $
11,184
(1) Amounts as of December 31, 2023 and December 31, 2022 include an increase in net intangible asset balance of $50 million and a decrease in net
intangible asset balance of $198 million, respectively, due to foreign currency translation.
(2) Other intangibles are primarily acquired proprietary and nonproprietary data, business processes, methodologies and systems.
There was no impairment of intangible assets recorded in 2023 and 2022. The net carrying amount of intangible assets decreased
$147 million during the year ended December 31, 2023, primarily due to intangible asset amortization, partially offset by additions
of acquired intangibles of $1,509 million primarily related to the acquisition of Apptio, Inc. and capitalized software. The aggregate
intangible amortization expense was $2,287 million and $2,397 million for the years ended December 31, 2023 and 2022,
respectively. In addition, in 2023 and 2022, respectively, the company retired $1,505 million and $1,301 million of fully amortized
intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount.
The future amortization expense relating to intangible assets currently recorded in the Consolidated Balance Sheet is estimated to
be the following at December 31, 2023:
($ in millions)
2024
2025
2026
2027
2028
Thereafter
Capitalized
Software
Acquired
Intangibles
Total
$
514 $
1,743 $
260
100
—
—
—
1,713
1,690
1,671
1,368
1,979
2,257
1,973
1,790
1,671
1,368
1,979
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
91
Goodwill
The changes in the goodwill balances by reportable segment for the years ended December 31, 2023 and 2022 are as follows:
($ in millions)
Segment
Software
Consulting
Infrastructure
Other
Total
($ in millions)
Segment
Software
Consulting
Infrastructure
Other (2)
Total
Balance at
January 1, 2023
Goodwill
Additions
Purchase
Price
Adjustments
Divestitures
$
43,657
$
3,538
$
(17) $
7,928
4,363
—
403
12
—
2
—
—
$
55,949
$
3,953
$
(15) $
—
—
—
—
—
Balance at
January 1, 2022
Goodwill
Additions
Purchase
Price
Adjustments
Divestitures
Foreign
Currency
Translation
and Other
Adjustments (1)
Balance at
December 31, 2023
$
214
$
47,392
69
8
—
8,403
4,384
—
$
291
$
60,178
Foreign
Currency
Translation
and Other
Adjustments (1)
Balance at
December 31, 2022
$
43,966
$
568
$
(118) $
6,797
4,396
484
1,366
—
—
(42)
—
—
—
—
(1)
(484)
$
(760) $
43,657
(192)
(32)
—
7,928
4,363
—
$
55,643
$
1,934
$
(159) $
(485) $
(984) $
55,949
(1) Primarily driven by foreign currency translation.
(2) The company derecognized goodwill related to the divestiture of its healthcare software assets in the second quarter of 2022.
There were no goodwill impairment losses recorded during 2023 or 2022 and the company has no accumulated impairment losses.
Purchase price adjustments recorded in 2023 and 2022 were related to acquisitions that were still subject to the measurement
period that ends at the earlier of 12 months from the acquisition date or when information becomes available. Net purchase price
adjustments recorded in 2023 were not material. Net purchase price adjustments recorded in 2022 primarily related to deferred tax
assets and liabilities associated with the Turbonomic acquisition.
NOTE P. BORROWINGS
Short-Term Debt
The company’s total short-term debt at December 31, 2023 and December 31, 2022 was $6,426 million and $4,760 million,
respectively, and primarily consisted of current maturities of long-term debt detailed in “Long-Term Debt” below.
92
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Long-Term Debt
Pre-Swap Borrowing
($ in millions)
At December 31:
U.S. dollar debt (weighted-average interest rate at December 31, 2023): (1)
3.4%
3.3%
5.1%
3.5%
3.1%
5.0%
3.5%
2.0%
4.4%
4.8%
8.0%
4.5%
2.9%
4.0%
7.0%
4.7%
4.3%
3.0%
4.2%
5.1%
7.1%
Euro debt (weighted-average interest rate at December 31, 2023): (1)
0.7%
1.1%
1.6%
2.3%
0.7%
1.5%
0.9%
2.7%
0.7%
1.3%
3.8%
1.2%
4.0%
Other currencies (weighted-average interest rate at December 31, 2023, in
parentheses): (1)
Pound sterling (4.9%)
Japanese yen (0.5%)
Other (14.2%)
Finance lease obligations (4.5%)
Less: net unamortized discount
Less: net unamortized debt issuance costs
Add: fair value adjustment (2)
Less: current maturities
Total
Maturities
2023
2022
2023
2024
2025
2026
2027
2028
2029
2030
2032
2033
2038
2039
2040
2042
2045
2046
2049
2050
2052
2053
2096
2023
2024
2025
2027
2028
2029
2030
2031
2032
2034
2035
2040
2043
2038
2024–2028
2024–2026
2024–2034
$
—
5,003
1,601
5,201
3,619
1,313
3,250
1,350
1,850
750
83
2,745
650
1,107
27
650
3,000
750
1,400
650
316
$ 35,317
$
—
829
3,315
2,210
1,989
1,105
1,105
2,762
1,768
1,105
1,105
939
1,105
$ 19,335
$
1,529
5,009
1,603
4,351
3,620
313
3,250
1,350
1,850
—
83
2,745
650
1,107
27
650
3,000
750
1,400
—
316
$ 33,605
$
2,937
801
3,204
1,068
1,922
1,068
1,068
1,335
1,709
1,068
—
908
—
$ 17,087
$
955
1,251
241
$ 57,099
499
$ 57,598
838
154
(60)
$ 56,546
6,425
$ 50,121
$
—
694
361
$ 51,747
239
$ 51,986
835
138
(73)
$ 50,940
4,751
$ 46,189
(1) Includes notes, debentures, bank loans and secured borrowings.
(2) 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.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
93
The company’s indenture governing its debt securities and its various credit facilities each contain significant 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 the company’s consolidated net tangible assets, and restrict the company’s ability to merge
or consolidate unless certain conditions are met. The credit facilities also include a covenant on the company’s consolidated net
interest expense ratio, which cannot be less than 2.20 to 1.0, as well as a cross default provision with respect to other defaulted
indebtedness of at least $500 million.
The company is in compliance with all of its debt covenants and provides periodic certifications to its lenders. The failure to comply
with its debt covenants could constitute an event of default with respect to the debt to which such provisions apply. 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.
In the first quarter of 2023, the company issued $0.7 billion of Japanese yen floating-rate syndicated bank loans with a maturity of
5 years; $4.6 billion of Euro fixed-rate notes in tranches with maturities ranging from 4 to 20 years and coupons ranging from 3.375
to 4 percent; $0.9 billion of Pound sterling fixed-rate notes with a maturity of 15 years and a coupon of 4.875 percent; and $3.25
billion of U.S. dollar fixed-rate notes in tranches with maturities ranging from 3 to 30 years and coupons ranging from 4.5 to 5.1
percent.
Post-Swap Borrowing (Long-Term Debt, Including Current Portion)
($ in millions)
At December 31:
Fixed-rate debt
Floating-rate debt (1)
Total
2023
2022
Amount
Weighted-Average
Interest Rate
Amount
Weighted-Average
Interest Rate
$
$
48,803
7,743
56,546
3.0 % $
6.1 %
$
43,898
7,042
50,940
2.7 %
5.9 %
(1) Includes $6,725 million and $6,525 million in 2023 and 2022, respectively, of notional interest-rate swaps that effectively convert fixed-rate long-
term debt into floating-rate debt. Refer to note T, “Derivative Financial Instruments,” for additional information.
Pre-swap annual contractual obligations of long-term debt outstanding at December 31, 2023, are as follows:
($ in millions)
2024
2025
2026
2027
2028
Thereafter
Total
Interest on Debt
($ in millions)
Total
6,427
5,090
5,624
5,898
3,959
30,600
57,598
$
$
For the year ended December 31:
2023
2022
2021
Cost of financing
Interest expense
Interest capitalized
Total interest paid and accrued
$
$
334
$
346
$
1,607
9
1,216
5
1,949
$
1,566
$
392
1,155
3
1,550
Refer to the related discussion in note D, “Segments,” for interest expense of the Financing segment. Refer to note T, “Derivative
Financial Instruments,” for a discussion of the use of foreign currency denominated debt designated as a hedge of net investment,
as well as a discussion of the use of currency and interest-rate swaps in the company’s debt risk management program.
Lines of Credit
On June 15, 2023, the company amended its existing $2.5 billion Three-Year Credit Agreement and $7.5 billion Five-Year Credit
Agreement (the Credit Agreements) to extend the maturity dates to June 20, 2026 and June 22, 2028, respectively. The Credit
Agreements permit the company and its subsidiary borrowers to borrow up to $10 billion on a revolving basis. The total expense
94
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
recorded by the company related to these agreements was $8 million, $11 million and $12 million in 2023, 2022 and 2021,
respectively. Subject to certain conditions stated in the Credit Agreements, the borrower may borrow, prepay and re-borrow
amounts under the Credit Agreements at any time during the term of such agreements. Funds borrowed may be used for the general
corporate purposes of the borrower.
Interest rates on borrowings under the Credit Agreements will be based on prevailing market interest rates, as further described in
the Credit Agreements. The Credit Agreements contain customary representations and warranties, covenants, events of default, and
indemnification provisions. The company believes that circumstances that might give rise to breach of these covenants or an event
of default, as specified in the Credit Agreements, are remote. As of December 31, 2023, there were no borrowings by the company
under the Credit Agreements.
The company also has other committed lines of credit in some of the geographies which are not significant in the aggregate. Interest
rates and other terms of borrowing under these lines of credit vary from country to country, depending on local market conditions.
As of December 31, 2023, there were no material borrowings by the company under these credit facilities.
NOTE Q. OTHER LIABILITIES
($ in millions)
At December 31:
Income tax reserves (1)
Deferred taxes
Excess 401(k) Plus Plan
Disability benefits
Derivative liabilities
Workforce reductions
Environmental accruals
Other (2)
Total
2023
2022
$
6,916
$
1,146
1,437
308
299
526
206
639
6,404
2,292
1,307
303
488
524
243
681
$
11,475
$
12,243
(1) Refer to note H, “Taxes,” for additional information.
(2) Prior-period amounts have been reclassified to conform to the change in 2023 presentation.
In response to changing business needs, the company periodically takes workforce reduction actions to improve productivity, cost
competitiveness and to rebalance skills. The noncurrent contractually obligated future payments associated with these activities are
reflected in the workforce reductions caption in the previous table. The noncurrent liabilities are workforce accruals primarily
related to terminated employees who are no longer working for the company and who were granted annual payments to
supplement their incomes in certain countries. Depending on the individual country’s legal requirements, these required payments
will continue until the former employee begins receiving pension benefits or passes away. The total amounts accrued for workforce
reductions, including amounts classified as other accrued expenses and liabilities in the Consolidated Balance Sheet, were $725
million and $701 million at December 31, 2023 and 2022, respectively.
The company employs extensive internal environmental protection programs that primarily are preventive in nature. The company
also participates in environmental assessments and cleanups at a number of locations, including operating facilities, previously
owned facilities and Superfund sites. The company’s maximum exposure for all environmental liabilities cannot be estimated and no
amounts have been recorded for non-ARO environmental liabilities that are not probable or estimable. The total amounts accrued
for non-ARO environmental liabilities, including amounts classified as current in the Consolidated Balance Sheet, that do not reflect
actual or anticipated insurance recoveries, were $244 million and $271 million at December 31, 2023 and 2022, respectively.
Estimated environmental costs are not expected to materially affect the consolidated financial position or consolidated results of
the company’s operations in future periods. However, estimates of future costs are subject to change due to protracted cleanup
periods, changing environmental remediation regulations and changes in assumptions.
As of December 31, 2023, the company was unable to estimate the range of settlement dates and the related probabilities for
certain asbestos remediation AROs. These conditional AROs are primarily related to the encapsulated structural fireproofing that is
not subject to abatement unless the buildings are demolished and non-encapsulated asbestos that the company would remediate
only if it performed major renovations of certain existing buildings. Because these conditional obligations have indeterminate
settlement dates, the company could not develop a reasonable estimate of their fair values. The company will continue to assess its
ability to estimate fair values at each future reporting date. The related liability will be recognized once sufficient additional
information becomes available. The total amounts accrued for ARO liabilities, including amounts classified as current in the
Consolidated Balance Sheet, were $113 million and $107 million at December 31, 2023 and 2022, respectively.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
95
NOTE R. COMMITMENTS & CONTINGENCIES
Commitments
The company’s extended lines of credit to third-party entities include unused amounts of $1.4 billion and $1.6 billion at
December 31, 2023 and 2022, respectively. A portion of these amounts was 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 $1.9 billion and $2.1 billion at December 31, 2023 and 2022, respectively. The company
collectively evaluates the allowance for these arrangements using a provision methodology consistent with the portfolio of the
commitments. Refer to note A, “Significant Accounting Policies,” for additional information. The allowance for these commitments is
recorded in other liabilities in the Consolidated Balance Sheet and was not material at December 31, 2023 and 2022.
The company has applied the guidance requiring a guarantor to disclose certain types of guarantees, even if the likelihood of
requiring the guarantor’s performance is remote. The following is a description of arrangements in which the company is the
guarantor.
The company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to
certain matters. Typically, these obligations arise in the context of contracts entered into by the company, under which the company
customarily agrees to hold the party harmless against losses arising from a breach of representations and covenants related to such
matters as title to the assets sold, certain intellectual property rights, specified environmental matters, third-party performance of
nonfinancial contractual obligations and certain income taxes. In each of these circumstances, payment by the company is
conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, the procedures of
which typically allow the company to challenge the other party’s claims. While indemnification provisions typically do not include a
contractual maximum on the company’s payment, the company’s obligations under these agreements may be limited in terms of
time and/or nature of claim, and in some instances, the company may have recourse against third parties for certain payments made
by the company.
It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the
conditional nature of the company’s obligations and the unique facts and circumstances involved in each particular agreement.
Historically, payments made by the company under these agreements have not had a material effect on the company’s business,
financial condition or results of operations.
In addition, the company guarantees certain loans and financial commitments. The maximum potential future payment under these
financial guarantees and the fair value of these guarantees recognized in the Consolidated Balance Sheet at December 31, 2023 and
2022 was not material.
Changes in the company’s warranty liability for standard warranties, which are included in other accrued expenses and liabilities
and other liabilities in the Consolidated Balance Sheet, and for extended warranty contracts, which are included in deferred income
in the Consolidated Balance Sheet, are presented in the following tables.
Standard Warranty Liability
($ in millions)
Balance at January 1
Current period accruals
Accrual adjustments to reflect experience
Charges incurred
Balance at December 31
2023
2022
$
$
$
79
84
(14)
(83)
65
$
77
84
(2)
(81)
79
96
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Extended Warranty Liability (Deferred Income)
($ in millions)
Balance at January 1
Revenue deferred for new extended warranty contracts
Amortization of deferred revenue
Other (1)
Balance at December 31
Current portion
Noncurrent portion
(1) Other consists primarily of foreign currency translation adjustments.
2023
2022
$
272
$
70
(158)
0
184
110
74
$
$
$
$
$
$
350
100
(163)
(15)
272
137
135
Contingencies
As a company with a substantial employee population and with clients in more than 175 countries, IBM is involved, either as
plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from
time to time in the ordinary course of its business. The company is a leader in the information technology industry and, as such, has
been and will continue to be subject to claims challenging its IP rights and associated products and offerings, including claims of
copyright and patent infringement and violations of trade secrets and other IP rights. In addition, the company enforces its own IP
against infringement, through license negotiations, lawsuits or otherwise. Further, given the rapidly evolving external landscape of
cybersecurity, AI, privacy and data protection laws, regulations and threat actors, the company and its clients have been and will
continue to be subject to actions or proceedings in various jurisdictions. Also, as is typical for companies of IBM’s scope and scale,
the company is party to actions and proceedings in various jurisdictions involving a wide range of labor and employment issues
(including matters related to contested employment decisions, country-specific labor and employment laws, and the company’s
pension, retirement and other benefit plans), as well as actions with respect to contracts, product liability, cybersecurity, data
privacy, securities, foreign operations, competition law and environmental matters. These actions may be commenced by a number
of different parties, including competitors, clients, current or former employees, government and regulatory agencies, stockholders
and representatives of the locations in which the company does business. Some of the actions to which the company is party may
involve particularly complex technical issues, and some actions may raise novel questions under the laws of the various jurisdictions
in which these matters arise.
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 years ended December 31, 2023, 2022 and 2021 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. 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, customer and employee
relations considerations.
With respect to certain of the claims, suits, investigations and proceedings discussed herein, the company believes at this time that
the likelihood of any material loss is remote, given, for example, the procedural status, court rulings, and/or the strength of the
company’s defenses in those matters. With respect to the remaining claims, suits, investigations and proceedings discussed in this
note, except as specifically discussed herein, the company is unable to provide estimates of reasonably possible losses or range of
losses, including losses in excess of amounts accrued, if any, for the following reasons. Claims, suits, investigations and proceedings
are inherently uncertain, and it is not possible to predict the ultimate outcome of these matters. It is the company’s experience that
damage amounts claimed in litigation against it are unreliable and unrelated to possible outcomes, and as such are not meaningful
indicators of the company’s potential liability. Further, the company is unable to provide such an estimate due to a number of other
factors with respect to these claims, suits, investigations and proceedings, including considerations of the procedural status of the
matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information
important to the matters. 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), to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews
by counsel and other information pertinent to a particular matter.
Whether any losses, damages or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a
material effect on the company’s business, financial condition, results of operations or cash flows will depend on a number of
variables, including: the timing and amount of such losses or damages; the structure and type of any such remedies; the significance
of the impact any such losses, damages or remedies may have in the Consolidated Financial Statements; and the unique facts and
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
97
circumstances of the particular matter that may give rise to additional factors. While the company will continue to defend itself
vigorously, it is possible that the company’s business, financial condition, results of operations or cash flows could be affected in
any particular period by the resolution of one or more of these matters.
The following is a summary of the more significant legal matters involving the company.
On June 8, 2021, IBM sued GlobalFoundries U.S. Inc. (GF) in New York State Supreme Court for claims including fraud and breach
of contract relating to a long-term strategic relationship between IBM and GF for researching, developing, and manufacturing
advanced semiconductor chips for IBM. GF walked away from its obligations and IBM is now suing to recover amounts paid to GF,
and other compensatory and punitive damages, totaling more than $1.5 billion. On September 14, 2021, the court ruled on GF’s
motion to dismiss. On April 7, 2022, the Appellate Division unanimously reversed the lower court’s dismissal of IBM’s fraud claim.
IBM’s claims for breaches of contract, promissory estoppel, and fraud are proceeding.
On June 2, 2022, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York
alleging that the IBM Pension Plan miscalculated certain joint and survivor annuity pension benefits by using outdated actuarial
tables in violation of the Employee Retirement Income Security Act of 1974. IBM, the Plan Administrator Committee, and the IBM
Pension Plan are named as defendants.
As disclosed in the Kyndryl Form 10 and subsequent Kyndryl public filings, in 2017 BMC Software, Inc. (BMC) filed suit against IBM
in the United States District Court for the Southern District of Texas in a dispute involving IBM’s former managed infrastructure
services business. On May 30, 2022, the trial court awarded BMC $718 million in direct damages and $718 million in punitive
damages, plus interest and fees. IBM appealed and expects a decision soon. IBM does not believe it has any material exposure
relating to this litigation. No material liability or related indemnification asset has been recorded by IBM.
The company is party to, or otherwise involved in, proceedings brought by U.S. federal or state environmental agencies under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as “Superfund,” or laws similar to
CERCLA. Such statutes require potentially responsible parties to participate in remediation activities regardless of fault or
ownership of sites. The company is also conducting environmental investigations, assessments or remediations at or in the vicinity
of several current or former operating sites globally pursuant to permits, administrative orders or agreements with country, state or
local environmental agencies, and is involved in lawsuits and claims concerning certain current or former operating sites.
The company is also subject to ongoing tax examinations and governmental assessments in various jurisdictions. Along with many
other U.S. companies doing business in Brazil, the company is involved in various challenges with Brazilian tax authorities regarding
non-income tax assessments and non-income tax litigation matters. The total potential amount related to all these matters for all
applicable years is approximately $400 million. The company believes it will prevail on these matters and that this amount is not a
meaningful indicator of liability.
NOTE S. EQUITY ACTIVITY
The authorized capital stock of IBM consists of (i) 4,687,500,000 shares of common stock with a $0.20 per share par value, of
which 915,013,646 shares were outstanding at December 31, 2023, and (ii) 150,000,000 shares of preferred stock with a $0.01
per share par value, whereby 75,000,000 shares have been designated as Series A Preferred Stock, of which 57,916,244 shares of
Series A Preferred Stock were issued to a wholly owned subsidiary of the company but were not outstanding at December 31, 2023.
The company does not intend to issue or transfer any shares of Series A Preferred Stock to any third parties.
Stock Repurchases
The Board of Directors authorizes the company to repurchase IBM common stock. The company suspended its share repurchase
program at the time of the Red Hat acquisition in 2019. At December 31, 2023, $2,008 million of Board common stock repurchase
authorization was available.
Other Stock Transactions
The company issued the following shares of common stock as part of its stock-based compensation plans and employees stock
purchase plan: 9,794,240 shares in 2023, 8,539,072 shares in 2022, and 5,608,845 shares in 2021. The company issued
2,080,983 treasury shares in 2023, 2,512,300 treasury shares in 2022, and 2,093,243 treasury shares in 2021, as a result of
restricted stock unit releases and exercises of stock options by employees of certain acquired businesses and by non-U.S.
employees. Also, as part of the company’s stock-based compensation plans, 2,953,554 common shares at a cost of $402 million,
3,027,994 common shares at a cost of $407 million, and 2,286,912 common shares at a cost of $319 million in 2023, 2022 and
2021, respectively, were remitted by employees to the company in order to satisfy minimum statutory tax withholding
requirements. These amounts are included in the treasury stock balance in the Consolidated Balance Sheet and the Consolidated
Statement of Equity.
98
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Reclassifications and Taxes Related to Items of Other Comprehensive Income
($ in millions)
For the year ended December 31, 2023:
Other comprehensive income/(loss)
Foreign currency translation adjustments
Net changes related to available-for-sale securities
Unrealized gains/(losses) arising during the period
Reclassification of (gains)/losses to other (income) and expense
Total net changes related to available-for-sale securities
Unrealized gains/(losses) on cash flow hedges
Unrealized gains/(losses) arising during the period
Reclassification of (gains)/losses to:
Cost of services
Cost of sales
Cost of financing
SG&A expense
Other (income) and expense
Interest expense
Total unrealized gains/(losses) on cash flow hedges
Retirement-related benefit plans (1)
Prior service costs/(credits)
Net (losses)/gains arising during the period
Curtailments and settlements
Amortization of prior service (credits)/costs
Amortization of net (gains)/losses
Total retirement-related benefit plans
Other comprehensive income/(loss)
Before Tax
Amount
Tax (Expense)/
Benefit
Net of Tax
Amount
3
$
100
$
103
0
—
0
$
$
0
—
0
$
$
0
—
0
207
$
(63) $
144
5
(22)
14
(12)
(209)
66
47
$
$
2
(3,115)
5
(9)
515
(2,602) $
(2,552) $
(1)
8
(3)
4
53
(17)
(19) $
0
536
(1)
3
(88)
450
531
$
$
$
5
(14)
10
(8)
(157)
49
28
2
(2,579)
4
(6)
427
(2,152)
(2,021)
$
$
$
$
$
$
$
$
(1) These AOCI components are included in the computation of net periodic pension cost. Refer to note V, “Retirement-Related Benefits,” for additional
information.
($ in millions)
For the year ended December 31, 2022:
Other comprehensive income/(loss)
Foreign currency translation adjustments
Net changes related to available-for-sale securities
Unrealized gains/(losses) arising during the period
Reclassification of (gains)/losses to other (income) and expense
Total net changes related to available-for-sale securities
Unrealized gains/(losses) on cash flow hedges
Unrealized gains/(losses) arising during the period
Reclassification of (gains)/losses to:
Cost of services
Cost of sales
Cost of financing
SG&A expense
Other (income) and expense
Interest expense
Total unrealized gains/(losses) on cash flow hedges
Retirement-related benefit plans (1)
Prior service costs/(credits)
Net (losses)/gains arising during the period
Curtailments and settlements
Amortization of prior service (credits)/costs
Amortization of net (gains)/losses
Total retirement-related benefit plans
Other comprehensive income/(loss)
Before Tax
Amount
Tax (Expense)/
Benefit
Net of Tax
Amount
$
$
$
$
$
$
$
$
176
$
(406) $
(229)
(1) $
—
(1) $
0
—
0
$
$
(1)
—
(1)
241
$
(64) $
178
(24)
(99)
24
(38)
(349)
86
(158) $
463
878
5,970
12
1,596
8,919
8,936
$
$
$
6
28
(6)
11
88
(22)
41
$
(99) $
(183)
(1,490)
(3)
(304)
(2,078) $
(2,442) $
(18)
(70)
18
(28)
(261)
64
(117)
364
695
4,480
9
1,293
6,841
6,494
(1) These AOCI components are included in the computation of net periodic pension cost and include the impact of a one-time, non-cash pension
settlement charge of $5.9 billion ($4.4 billion net of tax). Refer to note V, “Retirement-Related Benefits,” for additional information.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
99
($ in millions)
For the year ended December 31, 2021:
Other comprehensive income/(loss)
Foreign currency translation adjustments
Net changes related to available-for-sale securities
Unrealized gains/(losses) arising during the period
Reclassification of (gains)/losses to other (income) and expense
Total net changes related to available-for-sale securities
Unrealized gains/(losses) on cash flow hedges
Unrealized gains/(losses) arising during the period
Reclassification of (gains)/losses to:
Cost of services
Cost of sales
Cost of financing
SG&A expense
Other (income) and expense
Interest expense
Total unrealized gains/(losses) on cash flow hedges
Retirement-related benefit plans (1)
Prior service costs/(credits)
Net (losses)/gains arising during the period
Curtailments and settlements
Amortization of prior service (credits)/costs
Amortization of net (gains)/losses
Total retirement-related benefit plans
Other comprehensive income/(loss)
Before Tax
Amount
Tax (Expense)/
Benefit
Net of Tax
Amount
$
$
$
$
$
$
$
$
987
$
(414) $
573
0
—
0
$
$
0
—
0
$
$
0
—
0
344
$
(89) $
256
(43)
16
22
24
157
65
587
11
(3)
(6)
(6)
(40)
(16)
$
(149) $
(51) $
2,433
94
9
2,484
4,969
6,542
$
$
(1) $
(601)
(11)
0
(528)
(1,140) $
(1,703) $
(32)
13
17
19
118
49
438
(52)
1,832
83
9
1,956
3,828
4,839
(1) These AOCI components are included in the computation of net periodic pension cost. Refer to note V, “Retirement-Related Benefits,” for additional
information.
Accumulated Other Comprehensive Income/(Loss) (net of tax)
($ in millions)
Net Unrealized
Gains/(Losses)
on Cash Flow
Hedges
Foreign
Currency
Translation
Adjustments (1)
Net Change
Retirement-
Related
Benefit
Plans
Net Unrealized
Gains/(Losses)
on Available-
For-Sale
Securities
$
(456) $
(4,665) $
(24,216) $
December 31, 2020
Other comprehensive income before
reclassifications
Amount reclassified from accumulated
other comprehensive income
Separation of Kyndryl
Total change for the period
December 31, 2021
Other comprehensive income before
reclassifications
Amount reclassified from accumulated
other comprehensive income (2)
Total change for the period
December 31, 2022
Other comprehensive income before
reclassifications
Amount reclassified from accumulated
other comprehensive income
Total change for the period
December 31, 2023
256
183
—
438
(18)
178
(295)
(117)
(135)
144
(115)
28
$
(106) $
573
—
730
1,303
(3,362)
(229)
—
(229)
(3,591)
103
—
1,780
2,049
534
4,362
(19,854)
1,059
5,782
6,841
(13,013)
(2,577)
425
Accumulated
Other
Comprehensive
Income/(Loss)
$
(29,337)
2,608
2,231
1,264
6,103
(23,234)
1,007
5,487
6,494
(16,740)
(2,331)
310
0
0
—
—
0
(1)
(1)
—
(1)
(1)
0
—
(1) Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax.
(2) Net change in retirement-related benefit plans includes the impact of a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net
of tax). Refer to note V, “Retirement-Related Benefits,” for additional information.
103
(3,488) $
(2,152)
(15,165) $
0
(1) $
(2,021)
(18,761)
100
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
NOTE T. DERIVATIVE FINANCIAL INSTRUMENTS
The company operates in multiple functional currencies and is a significant lender and borrower in the global markets. In the normal
course of business, the company is exposed to the impact of interest rate changes and foreign currency fluctuations, and to a lesser
extent equity and commodity price changes and client credit risk. The company limits these risks by following established risk
management policies and procedures, including the use of derivatives, and, where cost effective, financing with debt in the
currencies in which assets are denominated. For interest rate exposures, derivatives are used to better align rate movements
between the interest rates associated with the company’s lease and other financial assets and the interest rates associated with its
financing debt. Derivatives are also used to manage the related cost of debt. For foreign currency exposures, derivatives are used to
better manage the cash flow volatility arising from foreign exchange rate fluctuations.
In the Consolidated Balance Sheet, the company does not offset derivative assets against liabilities in master netting arrangements
nor does it offset receivables or payables recognized upon payment or receipt of cash collateral against the fair values of the related
derivative instruments. The amount recognized in other accounts receivable for the right to reclaim cash collateral was $11 million
and $140 million at December 31, 2023 and 2022, respectively. The amount recognized in accounts payable for the obligation to
return cash collateral was $7 million and $8 million at December 31, 2023 and 2022, respectively. The company restricts the use of
cash collateral received to rehypothecation, and therefore reports it in restricted cash in the Consolidated Balance Sheet. The
amount rehypothecated was $7 million and $8 million at December 31, 2023 and 2022, respectively. Additionally, if derivative
exposures covered by a qualifying master netting agreement had been netted in the Consolidated Balance Sheet at December 31,
2023 and 2022, the total derivative asset and liability positions each would have been reduced by $235 million and $220 million,
respectively.
As discussed in note E, “Acquisitions and Divestitures,” in December 2023, in connection with the announced acquisition of
StreamSets and webMethods from Software AG, the company entered into foreign exchange call option contracts (the call options)
with a total notional amount of $2.3 billion (€2.13 billion) and a total premium paid of $49 million. The call options are being
accounted for as non-hedge derivatives. For the year ended December 31, 2023, the company recorded an unrealized gain of
$12 million in other (income) and expense in the Consolidated Income Statement. At December 31, 2023, the fair value of the call
options was $62 million and is included in prepaid expenses and other current assets in the Consolidated Balance Sheet.
On May 19, 2022, in connection with the disposition of 22.3 million shares of Kyndryl common stock, the company entered into a
cash-settled swap that maintained IBM’s continued economic exposure in those shares. The notional value of the swap was $311
million. For the year ended December 31, 2022, IBM recognized a loss of $83 million related to the swap which was settled on
November 2, 2022.
In its hedging programs, the company may use forward contracts, futures contracts, interest-rate swaps, cross-currency swaps,
equity swaps and options depending upon the underlying exposure. The company is not a party to leveraged derivative instruments.
A brief description of the major hedging programs, categorized by underlying risk, follows.
Interest Rate Risk
Fixed and Variable Rate Borrowings
The company issues debt in the global capital markets to fund its operations and financing business. Access to cost-effective
financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall
interest cost, the company may use interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair
value hedges) and to convert specific variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). At December 31,
2023 and 2022, the total notional amount of the company’s interest-rate swaps was $6.7 billion and $6.5 billion, respectively. The
weighted-average remaining maturity of these instruments at December 31, 2023 and 2022 was approximately 5.5 years and 6.0
years, respectively. These interest-rate contracts were accounted for as fair value hedges. The company did not have any cash flow
hedges relating to this program outstanding at December 31, 2023 and 2022.
Forecasted Debt Issuance
The company is exposed to interest rate volatility on future debt issuances. To manage this risk, the company may use instruments
such as forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuances.
There were no instruments outstanding at December 31, 2023 and 2022.
In connection with cash flow hedges of forecasted interest payments related to the company’s borrowings, the company recorded
net losses (before taxes) of $121 million and $139 million at December 31, 2023 and 2022, respectively, in AOCI. The company
estimates that $15 million of the deferred net losses (before taxes) on derivatives in AOCI at December 31, 2023 will be reclassified
to net income within the next 12 months, providing an offsetting economic impact against the underlying interest payments.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
101
Foreign Exchange Risk
Long-Term Investments in Foreign Subsidiaries (Net Investment)
A large portion of the company’s foreign currency denominated debt portfolio is designated as a hedge of net investment in foreign
subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the functional
currency of major foreign subsidiaries with respect to the U.S. dollar. At December 31, 2023 and 2022, the carrying value of debt
designated as hedging instruments was $15.9 billion and $13.4 billion, respectively. The company also uses cross-currency swaps
and foreign exchange forward contracts for this risk management purpose. At December 31, 2023 and 2022, the total notional
amount of derivative instruments designated as net investment hedges was $4.9 billion and $4.7 billion, respectively. At both
December 31, 2023 and 2022, the weighted-average remaining maturity of these instruments was approximately 0.1 years.
Anticipated Royalties and Cost Transactions
The company’s operations generate significant nonfunctional currency, third-party vendor payments and intercompany payments
for royalties and goods and services among the company’s non-U.S. subsidiaries and with the company. In anticipation of these
foreign currency cash flows and in view of the volatility of the currency markets, the company selectively employs foreign exchange
forward contracts to manage its currency risk. These forward contracts are accounted for as cash flow hedges. At December 31,
2023, the maximum remaining length of time over which the company has hedged its exposure to the variability in future cash flows
is approximately two years. At December 31, 2023 and 2022, the total notional amount of forward contracts designated as cash
flow hedges of forecasted royalty and cost transactions was $9.2 billion and $8.1 billion, respectively. At both December 31, 2023
and 2022, the weighted-average remaining maturity of these instruments was approximately 0.6 years.
At December 31, 2023 and 2022, in connection with cash flow hedges of anticipated royalties and cost transactions, the company
recorded net gains (before taxes) of $40 million and $66 million, respectively, in AOCI. The company estimates that $20 million of
deferred net losses (before taxes) on derivatives in AOCI at December 31, 2023 will be reclassified to net income within the next 12
months, providing an offsetting economic impact against the underlying anticipated transactions.
Foreign Currency Denominated Borrowings
The company is exposed to exchange rate volatility on foreign currency denominated debt. To manage this risk, the company may
employ forward contracts or cross-currency swaps to convert the principal, or principal and interest payments of foreign currency
denominated debt to debt denominated in the functional currency of the borrowing entity. These derivatives are accounted for as
cash flow hedges.
In August 2023, the company terminated all of its outstanding cross-currency swaps designated as cash flow hedges of the
principal and interest associated with foreign currency denominated debt and executed forward contracts designated as cash flow
hedges of the principal associated with foreign currency denominated debt. At December 31, 2023, the maximum length of time
remaining over which the company has hedged its exposure was approximately seven years. At December 31, 2023 and 2022, the
total notional amount of derivative instruments designated as cash flow hedges of foreign currency denominated debt was $5.2
billion and $3.1 billion, respectively.
At December 31, 2023 and 2022, in connection with cross-currency swaps, the company recorded net losses (before taxes) of $68
million and $101 million, respectively, in AOCI, of which $23 million of deferred net losses (before taxes) is estimated to be
reclassified to net income within the next 12 months.
At December 31, 2023, in connection with forward contracts, the company has recorded net gains (before taxes) of $23 million in
AOCI. Approximately $69 million of losses (before taxes) related to the initial forward points excluded from the assessment of
hedge effectiveness is expected to be amortized to other (income) and expenses within the next 12 months. There was no activity
associated with forward contracts recorded in AOCI at December 31, 2022.
Subsidiary Cash and Foreign Currency Asset/Liability Management
The company uses its Global Treasury Centers to manage the cash of its subsidiaries. These centers principally use currency swaps
to convert cash flows in a cost-effective manner. In addition, the company uses foreign exchange forward contracts to economically
hedge, on a net basis, the foreign currency exposure of a portion of the company’s nonfunctional currency assets and liabilities. The
terms of these forward and swap contracts are generally less than one year. The changes in the fair values of these contracts and of
the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated
Income Statement. At December 31, 2023 and 2022, the total notional amount of derivative instruments in economic hedges of
foreign currency exposure was $6.7 billion and $5.9 billion, respectively.
Equity Risk Management
The company is exposed to market price changes in certain broad market indices and in the company’s own stock primarily related
to certain obligations to employees. Changes in the overall value of these employee compensation obligations are recorded in SG&A
expense in the Consolidated Income Statement. Although not designated as accounting hedges, the company utilizes derivatives,
including equity swaps and futures, to economically hedge the exposures related to its employee compensation obligations. The
102
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
derivatives are linked to the total return on certain broad market indices or the total return on the company’s common stock, and
are recorded at fair value with gains or losses also reported in SG&A expense in the Consolidated Income Statement. At December
31, 2023 and 2022, the total notional amount of derivative instruments in economic hedges of these compensation obligations was
$1.2 billion and $1.1 billion, respectively.
Cumulative Basis Adjustments for Fair Value Hedges
At December 31, 2023 and 2022, the following amounts were recorded in the Consolidated Balance Sheet related to cumulative
basis adjustments for fair value hedges:
($ in millions)
At December 31:
Short-term debt
2023
2022
Carrying amount of the hedged item
$
(1) $
(199)
Cumulative hedging adjustments included in the carrying amount—assets/(liabilities)
(1)
1
Long-term debt
Carrying amount of the hedged item
Cumulative hedging adjustments included in the carrying amount—assets/(liabilities) (1)
(6,629)
61
(6,216)
72
(1) Includes ($200) million and ($250) million of hedging adjustments on discontinued hedging relationships at December 31, 2023 and 2022,
respectively.
The Effect of Derivative Instruments in the Consolidated Income Statement
The total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair
value hedges, cash flow hedges, net investment hedges and derivatives not designated as hedging instruments are recorded and the
total effect of hedge activity on these income and expense line items are as follows:
($ in millions)
For the year ended December 31:
2023
Total
2022
Gains/(Losses) of
Total Hedge Activity
2021
2023
2022
2021
Cost of services
Cost of sales
Cost of financing
SG&A expense
Other (income) and expense
Interest expense
$
21,051
$
21,062
$
19,147
$
(5) $
6,127
382
19,003
(914)
1,607
6,374
406
18,609
5,803
1,216
6,184
534
18,745
873
1,155
22
(11)
165
17
(54)
$
24
99
2
(211)
(225)
6
43
(16)
1
176
(205)
3
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
103
($ in millions)
For the year ended December 31:
Derivative instruments in fair value hedges (1)
Interest rate contracts
Derivative instruments not designated as
hedging instruments
Foreign exchange contracts
Equity contracts
Total
($ in millions)
Gain/(Loss) Recognized in Consolidated Income Statement
Consolidated
Income Statement
Line Item
Recognized on
Derivatives
Attributable to Risk
Being Hedged (2)
2023
2022
2021
2023
2022
2021
Cost of
financing
Interest
expense
Other (income)
and expense
SG&A expense
Other (income)
and expense
$
(17) $
(73) $
(1) $
(2) $
85 $
18
(83)
(257)
(2)
(11)
299
53
(192)
153
(492)
(249)
(48)
201
—
(83)
—
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$ (140) $ (1,153) $ 150 $
(13) $ 384 $
71
Gain/(Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
For the year ended
Recognized in OCI
December 31:
Derivative instruments in
cash flow hedges
2023
2022
2021
Consolidated
Income Statement
Line Item
Reclassified
from AOCI
Amounts Excluded from
Effectiveness Testing (3)
2023
2022
2021
2023
2022
2021
Interest rate contracts
$ — $ — $
— Cost of financing
Interest
expense
(15)
(14)
(13)
$
(3) $
(4) $
(4) $ — $ — $ —
Cost of services
(5)
24
43
—
—
—
—
—
—
Foreign exchange
contracts
Amount included in
the assessment of
effectiveness
Amount excluded from
the assessment of
effectiveness
213
241
344
Cost of sales
22
99
(16)
—
—
—
—
—
—
—
14
50
—
—
—
—
6
17
(6)
—
— Cost of financing
SG&A expense
Other (income)
and expense
Interest
expense
(11)
12
(21)
38
(18)
(24)
—
—
239
349
(157)
(29)
(51)
(72)
(52)
—
Instruments in net
investment hedges (4)
Foreign exchange
contracts
(397)
1,613
1,644 Cost of financing
Interest
expense
—
—
—
—
—
22
—
105
Total
$ (190) $ 1,854 $ 1,989
$ 189 $ 400 $ (243) $ 98 $ 64 $ 23
(1) The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon
payments required under these derivative contracts.
(2) The amount includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments
recorded on de-designated hedging relationships during the period.
(3) The company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period.
(4) Instruments in net investment hedges include derivative and non-derivative instruments with the amounts recognized in OCI providing an offset to the
translation of foreign subsidiaries.
N/A–Not applicable
For the years ending December 31, 2023 and 2022, there were no material gains or losses excluded from the assessment of hedge
effectiveness (for fair value or cash flow hedges), or associated with an underlying exposure that did not or was not expected to
occur (for cash flow hedges); nor are there any anticipated in the normal course of business.
104
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
NOTE U. STOCK-BASED COMPENSATION
The following table presents total stock-based compensation cost included in income from continuing operations.
($ in millions)
For the year ended December 31:
Cost
SG&A expense
RD&E expense
Pre-tax stock-based compensation cost
Income tax benefits
2023
2022
2021
$
$
190
616
328
1,133
(290)
$
164
566
258
987
(249)
Net stock-based compensation cost
$
843
$
738
$
145
555
218
919
(223)
695
The company’s total unrecognized compensation cost related to non-vested awards at December 31, 2023 was $1.7 billion and is
expected to be recognized over a weighted-average period of approximately 2.5 years.
Capitalized stock-based compensation cost was not material at December 31, 2023, 2022 and 2021.
Incentive Awards
Stock-based incentive awards are provided to employees under the terms of the company’s long-term performance plans (the
Plans). The Plans are administered by the Executive Compensation and Management Resources Committee of the Board of
Directors. Awards available under the Plans principally include restricted stock units, performance share units, stock options or any
combination thereof.
There were 293 million shares originally authorized to be awarded under the company's existing Plans and 66 million shares
granted under previous plans that, if and when those awards were cancelled, could be reissued under the existing Plans. At
December 31, 2023, 50 million unused shares were available to be granted.
Stock Awards
Stock awards for the periods presented were made in the form of Restricted Stock Units (RSUs), including Retention Restricted
Stock Units (RRSUs), or Performance Share Units (PSUs).
The following table summarizes RSU and PSU activity under the Plans during the years ended December 31, 2023, 2022 and 2021.
RSUs
PSUs
Weighted-Average
Grant Price
Number of Units
Weighted-Average
Grant Price
Number of Units (1)
Balance at January 1, 2021
Awards granted
Awards released
Awards canceled/forfeited/performance adjusted (2)
Kyndryl separation - adjustment
Kyndryl separation - cancellation
Balance at December 31, 2021
Awards granted
Awards released
Awards canceled/forfeited/performance adjusted (2)
Balance at December 31, 2022
Awards granted
Awards released
Awards canceled/forfeited/performance adjusted (2)
Balance at December 31, 2023
$
$
$
$
117
125
120
119
—
119
116
112
114
116
115
118
114
115
116
16,896,704
$
9,566,307
(4,582,159)
(2,072,800)
660,089
(1,429,661)
19,038,480
$
11,447,966
(7,013,530)
(2,420,002)
21,052,914
$
10,915,958
(7,383,980)
(1,527,249)
23,057,643
$
120
129
129
124
—
119
118
110
114
116
117
117
113
114
118
3,551,500
1,561,120
(581,397)
(453,178)
120,428
(469,616)
3,728,857
1,237,019
(679,601)
(720,197)
3,566,078
1,295,937
(840,111)
(548,865)
3,473,039
(1) The balances at December 31 for each period presented represent the number of shares expected to be issued based on achievement of grant date
performance targets. The actual number of shares issued will depend on final performance against specified targets over the vesting period.
(2) Includes adjustments of (404,655), (362,247) and (223,397) for PSUs in 2023, 2022 and 2021, respectively, because final performance metrics were
above or below specified targets.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
105
The total fair value of RSUs and PSUs granted and vested during the years ended December 31, 2023, 2022 and 2021 were as
follows:
($ in millions)
For the year ended December 31:
RSUs
Granted
Vested
PSUs
Granted
Vested
2023
2022
2021
$
$
1,293
$
1,288
$
845
801
151
$
136
$
95
77
1,195
549
201
75
In connection with vesting and release of RSUs and PSUs, the tax benefits realized by the company for the years ended
December 31, 2023, 2022 and 2021 were $256 million, $249 million and $175 million, respectively.
Stock Options
Stock options are awards which allow the employee to purchase shares of the company’s stock at a fixed price. Stock options are
granted at an exercise price equal to the company’s average high and low stock price on the date of grant. These awards generally
vest in four equal increments on the first four anniversaries of the grant date and have a contractual term of 10 years. The company
estimates the fair value of stock options at the date of grant using a Black-Scholes valuation model. Key inputs and assumptions
used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the
company’s stock, the risk-free rate and the company’s dividend yield. For the stock options granted for the years ended
December 31, 2023 and 2022, the expected option term was determined from historical exercise patterns, volatility was based on
an analysis of the company’s historical stock prices over the expected option term, the risk-free rate was obtained from the U.S.
Treasury yield curve in effect at the time of grant and the dividend yield was based on the company’s expectation of paying
dividends in the foreseeable future. Estimates of fair value are not intended to predict actual future events or the value ultimately
realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original
estimates of fair value made by the company. During the year ended December 31, 2021, the company did not grant stock options
and no stock options were exercised, forfeited or cancelled. In 2023 and 2022, stock options were primarily granted by the
company as part of its executive compensation programs.
The weighted-average fair value of stock options granted for the years ended December 31, 2023 and 2022 was $22.75 and
$14.29, respectively. The fair value was estimated based on the following weighted-average assumptions:
For the year ended December 31:
Expected term (in years)
Expected volatility
Risk-free rate
Dividend yield
2023
2022
6.3
26.0%
4.2%
5.0%
6.3
25.5%
2.0%
5.3%
The following table summarizes option activity under the Plans during the years ended December 31, 2023 and 2022.
Balance at January 1, 2022
Options granted
Options exercised
Options forfeited/cancelled/expired
Balance at December 31, 2022
Options granted
Options exercised
Options forfeited/cancelled/expired
Balance at December 31, 2023
Vested and exercisable at December 31, 2023
Weighted-Average
Exercise Price
Number of Shares
Under Option
$
$
$
$
135
125
—
125
128
133
125
129
130
132
1,549,732
5,044,353
—
(319,560)
6,274,525
4,574,756
(408,045)
(584,674)
9,856,562
2,297,818
106
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The weighted-average remaining contractual term and the aggregate intrinsic value of stock options outstanding was 7.8 years and
$328 million, respectively, at December 31, 2023. The weighted-average remaining contractual term and the aggregate intrinsic
value of stock options vested and exercisable was 4.6 years and $73 million, respectively, at December 31, 2023.
Exercises of Stock Options
The total intrinsic value of options exercised for the year ended December 31, 2023 was $10 million. No stock options were
exercised for the years ended December 31, 2022 and 2021. The total cash received from employees as a result of stock option
exercises for the year ended December 31, 2023 was approximately $51 million. In connection with these exercises, the tax
benefits realized by the company for the year ended December 31, 2023 were immaterial. The company settles employee stock
option exercises primarily with newly issued common shares and, occasionally, with treasury shares. Total treasury shares held at
December 31, 2023 and 2022 were approximately 1,352 million and 1,351 million shares, respectively.
Acquisitions
In connection with various acquisition transactions, there were 0.4 million stock options outstanding at December 31, 2023, as a
result of the company’s conversion of stock-based awards previously granted by acquired entities. The weighted-average exercise
price of these stock options was $24 per share. No material stock awards were outstanding at December 31, 2023.
IBM Employees Stock Purchase Plan
Effective April 1, 2022, the company increased the discount for eligible participants to purchase shares of IBM common stock under
its Employee Stock Purchase Plan (ESPP) from 5 percent to 15 percent off the average market price on the date of purchase. With
this change, the ESPP is considered compensatory under the accounting requirements for stock-based compensation. The ESPP
enables eligible participants to purchase shares of IBM common stock through payroll deductions of up to 10 percent of eligible
compensation. Eligible compensation includes any compensation received by the employee during the year. The ESPP provides for
semi-annual offering periods during which shares may be purchased and continues as long as shares remain available under the
ESPP, unless terminated earlier at the discretion of the Board of Directors. Individual ESPP participants are restricted from
purchasing more than $25,000 of common stock in one calendar year or 1,000 shares in an offering period.
Employees purchased approximately 3.1 million, 2.4 million and 1.0 million shares under the ESPP during the years ended
December 31, 2023, 2022 and 2021, respectively. For the years ended December 31, 2023 and 2022, the average market price of
shares purchased was $117 and $114 per share, respectively, and the total stock-based compensation cost was $64 million and
$43 million, respectively. Cash dividends declared and paid by the company on its common stock also include cash dividends on the
company stock purchased through the ESPP. Dividends are paid on full and fractional shares and can be reinvested. The company
stock purchased through the ESPP is considered outstanding and is included in the weighted-average outstanding shares for
purposes of computing basic and diluted earnings per share.
Approximately 11.3 million shares were available for purchase under the ESPP at December 31, 2023.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
107
NOTE V. RETIREMENT-RELATED BENEFITS
Description of Plans
IBM sponsors the following retirement-related plans/benefits:
Plan
Eligibility
Funding
Benefit Calculation
Other
U.S. Defined Benefit
(DB) Pension Plans
Qualified Personal
Pension Plan
(Qualified PPP) (1)
U.S. regular, full-time and
part-time employees
hired prior to January 1,
2005
Company contributes to
irrevocable trust fund, held for
sole benefit of participants
and beneficiaries
Excess Personal
Pension Plan (Excess
PPP)
Supplemental
Executive Retention
Plan (Retention Plan)
Unfunded, provides benefits in
excess of IRS limitations for
qualified plans
Eligible U.S. executives
Unfunded
U.S. Defined
Contribution (DC)
Plans
401(k) Plus (1)
U.S. regular, full-time and
part-time employees
All contributions are made in
cash and invested in
accordance with participants’
investment elections
Excess 401(k) Plus (2) U.S. employees whose
eligible compensation is
expected to exceed IRS
compensation limit for
qualified plans
Unfunded, non-qualified
amounts deferred are record-
keeping (notional) accounts
and are not held in trust for the
participants, but may be
invested in accordance with
participants’ investment
elections (under the 401(k)
Plus Plan options)
Vary based on the
participant:
Benefit accruals ceased
December 31, 2007 (1)
Certain defined benefit
pension obligations and
related plan assets were
transferred in 2022, as
described below
Employees generally
receive contributions
after one year of service
Employees generally
receive contributions
after one year of service.
Amounts deferred into
the Plan, including
company contributions,
are recorded as
liabilities
Five-year, final pay
formula based on salary,
years of service,
mortality and other
participant-specific
factors
Cash balance formula
based on percentage of
employees’ annual
salary, as well as an
interest crediting rate
Based on average
earnings, years of
service and age at
termination of
employment
Dollar-for-dollar match,
generally 5 or 6 percent
of eligible compensation
and automatic
contribution of 1, 2 or 4
percent of eligible
compensation,
depending on date of
hire
Company match and
automatic contributions
(at the same rate under
401(k) Plus Plan) on
eligible compensation
deferred and on
compensation earned in
excess of the IRC pay
limit. The percentage
varies depending on
eligibility and years of
service
U.S. Nonpension
Postretirement
Benefit Plan
Nonpension
Postretirement Plan
Non-U.S. Plans
DB or DC
Medical and dental
benefits for eligible U.S.
retirees and eligible
dependents, as well as
life insurance for eligible
U.S. retirees
Eligible regular
employees in certain non-
U.S. subsidiaries or
branches
Company contributes to
irrevocable trust fund, held for
the sole benefit of participants
and beneficiaries
Varies based on plan
design formulas and
eligibility requirements
Since January 1, 2004,
new hires are not eligible
for these benefits
Company deposits funds
under various fiduciary-type
arrangements, purchases
annuities under group
contracts or provides reserves
for these plans
Based either on years of
service and the
employee’s
compensation (generally
during a fixed number of
years immediately
before retirement) or on
annual credits
Varies based on plan
design formulas and
eligibility requirements
by country
In certain countries,
benefit accruals have
ceased and/or have
been closed to new hires
as of various dates
Most non-U.S. retirees
are covered by local
government sponsored
and administered
programs
Nonpension
Postretirement Plan
Medical and dental
benefits for eligible non-
U.S. retirees and eligible
dependents, as well as
life insurance for certain
eligible non-U.S. retirees
Primarily unfunded except for
a few select countries where
the company contributes to
irrevocable trust funds held for
the sole benefit of participants
and beneficiaries
(1) Beginning January 1, 2024, the company changed how it will provide retirement benefits to certain U.S. eligible employees. Refer to IBM U.S.
Retirement Plan Changes section below for additional information.
(2) Beginning January 1, 2024, the company's match contribution on eligible compensation deferred and earned will be 5 percent for all eligible
employees.
108
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Plan Financial Information
Summary of Financial Information
The following table presents a summary of the total retirement-related benefits net periodic (income)/cost recorded in the
Consolidated Income Statement.
($ in millions)
For the year ended December 31:
2023
2022
2021
2023
2022
2021
2023
U.S. Plans
Non-U.S. Plans
Total
2022
2021
Total defined benefit pension plans
(income)/cost (1)
$ (329) $ 5,857 $ 319 $ 359 $ 836 $ 1,119 $ 30 $ 6,693 $ 1,438
Total defined contribution plans cost
$ 615 $ 555 $ 582 $ 376 $ 369 $ 409 $ 991 $ 924 $ 992
Nonpension postretirement benefit
plans cost
Total retirement-related benefits net
periodic cost (1)
$ 92 $ 85 $ 127 $ 36 $ 30 $ 44 $ 128 $ 115 $ 172
$ 378 $ 6,497 $ 1,029 $ 771 $ 1,235 $ 1,573 $ 1,149 $ 7,732 $ 2,601
(1) 2022 includes the impact of a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion related to the Qualified PPP, as described below.
The following table presents a summary of the total PBO for defined benefit pension plans, APBO for nonpension postretirement
benefit plans, fair value of plan assets and the associated funded status recorded in the Consolidated Balance Sheet.
($ in millions)
At December 31:
U.S. Plans
Overfunded plans
Qualified PPP
Underfunded plans
Benefit Obligations
Fair Value of Plan Assets
Funded Status (1)
2023
2022
2023
2022
2023
2022
$ 19,854
$ 20,091
$ 24,437
$ 25,094
$ 4,584
$ 5,002
Nonqualified defined benefit pension plans (2)
Nonpension postretirement benefit plan
1,382
2,233
1,402
2,369
Total underfunded U.S. plans
$ 3,615
$ 3,771
$
—
10
10
$
—
10
10
(1,382)
(1,402)
(2,224)
(2,359)
$ (3,605) $ (3,761)
Non-U.S. Plans
Overfunded plans
Qualified defined benefit pension plans (3)
$ 16,515
$ 15,443
$ 19,438
$ 18,677
$ 2,923
$ 3,234
Nonpension postretirement benefit plans
—
7
—
7
—
0
Total overfunded non-U.S. plans
$ 16,515
$ 15,450
$ 19,438
$ 18,684
$ 2,923
$ 3,234
Underfunded plans
Qualified defined benefit pension plans (3)
Nonqualified defined benefit pension plans (3)
$ 11,946
$ 11,361
$ 9,621
$ 9,694
$ (2,325) $ (1,667)
5,018
4,457
—
23
—
22
(5,018)
(4,457)
(564)
(502)
Nonpension postretirement benefit plans
586
524
Total underfunded non-U.S. plans
$ 17,550
$ 16,342
$ 9,643
$ 9,716
$ (7,907) $ (6,626)
Total overfunded plans
Total underfunded plans
$ 36,369
$ 35,541
$ 43,875
$ 43,778
$ 7,506
$ 8,236
$ 21,165
$ 20,113
$ 9,653
$ 9,726
$ (11,512) $ (10,387)
(1) Funded status is recognized in the Consolidated Balance Sheet as follows: Asset amounts as prepaid pension assets; (Liability) amounts as
compensation and benefits (current liability) and retirement and nonpension postretirement benefit obligations (noncurrent liability).
(2) Excess PPP and Retention Plan.
(3) Non-U.S. qualified plans represent plans funded outside of the U.S. Non-U.S. nonqualified plans are unfunded.
At December 31, 2023, the company’s qualified defined benefit pension plans worldwide were 111 percent funded compared to the
benefit obligations, with the U.S. Qualified PPP 123 percent funded. Overall, including nonqualified plans, the company’s defined
benefit pension plans worldwide were 98 percent funded.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
109
Defined Benefit Pension and Nonpension Postretirement Benefit Plan Financial Information
The following tables through page 112 represent financial information for the company’s retirement-related benefit plans, excluding
defined contribution plans. The defined benefit pension plans under U.S. Plans consist of the Qualified PPP, the Excess PPP and the
Retention Plan. The defined benefit pension plans and the nonpension postretirement benefit plans under non-U.S. Plans consist of
all plans sponsored by the company’s subsidiaries. The nonpension postretirement benefit plan under U.S. Plan consists of only the
U.S. Nonpension Postretirement Benefit Plan.
The following tables present the components of net periodic (income)/cost of the retirement-related benefit plans recognized in the
Consolidated Income Statement, excluding defined contribution plans.
($ in millions)
For the year ended December 31:
2023
2022
2021
2023
2022
2021
Defined Benefit Pension Plans
U.S. Plans
Non-U.S. Plans
Service cost
Interest cost (1)
Expected return on plan assets (1)
Amortization of prior service costs/(credits) (1)
Recognized actuarial losses (1)
Curtailments and settlements (1) (2)
Multi-employer plans
Other costs/(credits) (1)
Total net periodic (income)/cost (2)
($ in millions)
$
—
$
—
$
—
$
177
$
1,090
1,129
1,109
1,170
$
237
493
300
424
(1,529)
(1,729)
(1,802)
(1,440)
(1,016)
(1,115)
0
109
—
—
—
8
527
5,923
—
—
16
996
—
—
—
20
400
7
13
13
14
(12)
1,031
1,392
47
15
15
94
17
18
$
(329) $ 5,857
$
319
$
359
$
836
$ 1,119
Nonpension Postretirement Benefit Plans
U.S. Plan
Non-U.S. Plans
For the year ended December 31:
2023
2022
2021
2023
2022
2021
Service cost
Interest cost (1)
Expected return on plan assets (1)
Amortization of prior service costs/(credits) (1)
Recognized actuarial losses (1)
Curtailments and settlements (1)
Other costs/(credits) (1)
Total net periodic cost
$
4
$
5
$
7
$
2
$
3
$
117
—
(29)
—
—
—
85
—
(10)
5
—
—
65
—
4
52
—
—
39
(2)
0
(1)
(2)
0
24
(2)
0
4
0
0
4
27
(3)
0
15
0
0
$
92
$
85
$
127
$
36
$
30
$
44
(1) These components of net periodic pension costs are included in other (income) and expense in the Consolidated Income Statement.
(2) 2022 includes the impact of a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion related to the Qualified PPP, as described below.
IBM U.S. Retirement Plan Changes
Over the past several years, the company has taken actions to reduce the risk profile of its worldwide retirement-related plans,
while at the same time increasing the funded status of the plans.
As described in note A, “Significant Accounting Policies,” in September 2022, the Qualified PPP irrevocably transferred to the
Insurers approximately $16 billion of the Qualified PPP’s defined benefit pension obligations and related plan assets, thereby
reducing the company’s pension obligations and assets by the same amount. This transaction further de-risked the company’s
retirement-related plans by eliminating the potential for the company to make future cash contributions to fund this portion of
pension obligations that was transferred to the Insurers.
Upon issuance of the group annuity contracts, the Qualified PPP’s benefit obligations and administration for approximately 100,000
of the company’s retirees and beneficiaries (the Transferred Participants) were transferred to the Insurers. Under the group annuity
contracts, each Insurer has made an irrevocable commitment, and is solely responsible, to pay 50 percent of the pension benefits of
each Transferred Participant due on and after January 1, 2023. The transaction resulted in no changes to the benefits to be received
by the Transferred Participants. The company recognized a one-time, non-cash, pretax pension settlement charge of $5.9 billion
($4.4 billion net of tax) in the third quarter of 2022 primarily related to the accelerated recognition of actuarial losses included
within AOCI in the Consolidated Statement of Equity.
110
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
In September 2022, the company amended its U.S. Nonpension Postretirement Plan to transition coverage for Medicare-eligible
participants to a new IBM-sponsored group Medicare Advantage program administered by UnitedHealthcare, as of January 1, 2023.
The changes were intended to provide an enhanced member experience, better value and more comprehensive benefits to IBM
participants. This change resulted in a decrease in nonpension postretirement benefit obligations and a corresponding decrease in
AOCI in 2022.
Effective January 1, 2024, IBM changed how it provides certain retirement-related benefits in the U.S. IBM is providing a new
benefit to most U.S. employees under its existing U.S. Qualified PPP called the Retirement Benefit Account (RBA). This is in place of
any IBM contributions to the U.S. employees’ 401(k) Plus accounts. IBM U.S. regular full-time and part-time employees with at least
one year of service will participate in the RBA. Each eligible employee's RBA will be credited monthly with an amount equal to five
percent of their eligible pay with no employee contribution required. Under the RBA, eligible employees will earn six percent interest
through 2026 and starting in 2027, will earn interest equal to the 10-year U.S. Treasury Yield, subject to a three percent minimum
per year through 2033. Eligible employees also received a salary increase effective January 1, 2024 for the difference between the
IBM 401(k) Plus contribution percent they were previously entitled to receive and the five percent RBA pay credit. Since the RBA is a
component of the Qualified PPP, it will be funded by the trust for the Qualified PPP along with all other benefits in the Qualified PPP.
At December 31, 2023, the Qualified PPP was 123 percent funded with assets exceeding liabilities by $4.6 billion.
As a result of this change, inactive pension plan participants no longer represent substantially all of the participants in the U.S.
Qualified PPP. As required by U.S. GAAP, this will change the amortization period of unrecognized actuarial losses from the average
remaining life expectancy of inactive plan participants to the average remaining service period of active plan participants in 2024.
This will result in an increase to 2024 amortization expense of approximately $0.3 billion. There will be no impact to funded status,
retiree benefit payments or funding requirements of the U.S. Qualified PPP due to the change in amortization period.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
111
The following table presents the changes in benefit obligations and plan assets of the company’s retirement-related benefit plans,
excluding DC plans.
($ in millions)
Change in benefit obligation
Defined Benefit Pension Plans
Nonpension Postretirement Benefit Plans
U.S. Plans
Non-U.S. Plans
U.S. Plan
Non-U.S. Plans
2023
2022
2023
2022
2023
2022
2023
2022
Benefit obligation at January 1
$ 21,493
$ 48,182
$ 31,261
$ 45,097
$ 2,369
$ 3,404
$ 531
$ 638
Service cost
Interest cost
Plan participants' contributions
Acquisitions/divestitures, net
Actuarial losses/(gains)
Benefits paid from trust
Direct benefit payments
Foreign exchange impact
Amendments/curtailments/
settlements/other (1)
—
—
177
1,090
1,129
1,170
—
—
—
—
17
(20)
237
493
14
(45)
486
(7,849)
2,077
(8,819)
(1,424)
(3,133)
(1,629)
(1,572)
(122)
(123)
(396)
(418)
—
—
1,021
(3,463)
(288)
(16,712)
(198)
(262)
4
117
38
—
(19)
(274)
(3)
—
—
5
85
43
—
(780)
(385)
(2)
—
0
2
39
—
—
35
(7)
(31)
22
3
24
—
—
(87)
(6)
(32)
(10)
(4)
(1)
Benefit obligation at December 31
$ 21,235
$ 21,493
$ 33,479
$ 31,261
$ 2,233
$ 2,369
$ 586
$ 531
Change in plan assets
Fair value of plan assets at January 1
$ 25,094
$ 51,852
$ 28,371
$ 39,979
$
10
$
Actual return on plan assets
1,055
(6,914)
1,391
(6,737)
Employer contributions
Acquisitions/divestitures, net
Plan participants' contributions
Benefits paid from trust
Foreign exchange impact
Amendments/curtailments/
settlements/other (1)
Fair value of plan assets at
December 31
Funded status at December 31
Accumulated benefit obligation (2)
—
—
—
—
—
—
57
(24)
17
103
(20)
14
(1,424)
(3,133)
(1,629)
(1,572)
(274)
(385)
—
—
1,058
(3,154)
(288)
(16,712)
(181)
(243)
—
2
—
0
—
233
—
38
8
—
344
—
43
$
29
$
31
3
—
—
—
(7)
3
(6)
3
—
—
—
(6)
2
0
$ 24,437
$ 25,094
$ 29,059
$ 28,371
$
10
$
10
$
23
$
29
$ 3,202
$ 3,600
$ (4,420) $ (2,891) $ (2,224) $ (2,359) $ (564) $ (501)
$ 21,235
$ 21,493
$ 33,128
$ 30,961
N/A
N/A
N/A
N/A
(1) 2022 amount related to U.S. Defined Benefit Pension Plans primarily represents the transfer of Qualified PPP pension obligations and related plan
assets to the Insurers pursuant to group annuity contracts.
(2) Represents the benefit obligation assuming no future participant compensation increases.
N/A–Not applicable
The following table presents the net funded status recognized in the Consolidated Balance Sheet.
($ in millions)
At December 31:
2023
2022
2023
2022
2023
2022
2023
2022
Prepaid pension assets
$ 4,584
$ 5,002
$ 2,923
$ 3,234
$
0
$
0
$
0
$
0
Defined Benefit Pension Plans
Nonpension Postretirement Benefit Plans
U.S. Plans
Non-U.S. Plans
U.S. Plan
Non-U.S. Plans
Current liabilities—compensation
and benefits
Noncurrent liabilities—retirement
and nonpension postretirement
benefit obligations
(119)
(121)
(366)
(347)
(202)
(307)
(17)
(16)
(1,262)
(1,281)
(6,977)
(5,777)
(2,022)
(2,052)
(547)
(486)
Funded status—net
$ 3,202
$ 3,600
$ (4,420) $ (2,891) $ (2,224) $ (2,359) $ (564) $ (501)
112
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The following table presents the pre-tax net loss, prior service costs/(credits) and transition (assets)/liabilities recognized in OCI
and the changes in the pre-tax net loss, prior service costs/(credits) and transition (assets)/liabilities recognized in AOCI for the
retirement-related benefit plans.
($ in millions)
Defined Benefit Pension Plans
Nonpension Postretirement Benefit Plans
U.S. Plans
Non-U.S. Plans
U.S. Plan
Non-U.S. Plans
2023
2022
2023
2022
2023
2022
2023
2022
Net loss at January 1
$ 8,617 $ 14,273 $ 11,219 $ 13,412 $ 94 $ 464 $ 86 $ 183
Current period loss/(gain)
Curtailments and settlements (1)
Amortization of net loss included in net
periodic (income)/cost
Net loss at December 31
959
794
2,125
(1,115)
(20)
(365)
—
(5,923)
(7)
(47)
(109)
(527)
(400)
(1,031)
—
—
—
(5)
34
2
1
(93)
0
(4)
$ 9,467 $ 8,617 $ 12,937 $ 11,219 $ 73 $ 94 $ 123 $ 86
Prior service costs/(credits) at January 1
$
0 $
8 $ 330 $ 397 $ (379) $ 26 $
0 $
(4)
Current period prior service costs/(credits)
Curtailments, settlements and other
Amortization of prior service (costs)/credits
included in net periodic (income)/cost
Prior service costs/(credits) at December 31
Transition (assets)/liabilities at January 1
Transition (assets)/liabilities at December 31
Total loss recognized in accumulated other
comprehensive income/(loss) (2)
—
—
0
—
—
(1)
—
(53)
—
—
—
(415)
—
(8)
(20)
(14)
29
10
(1)
—
0
$
$
$
0 $
0 $ 309 $ 330 $ (350) $ (379) $
(1) $
— $
— $
— $
— $
0 $
0 $
0 $ — $ — $
0 $
0 $ — $ — $
0 $
5
—
0
0
0
0
$ 9,467 $ 8,617 $ 13,245 $ 11,549 $ (276) $ (285) $ 122 $ 86
(1) 2022 amount related to U.S. Defined Benefit Pension Plans includes the impact of a one-time, non-cash, pre-tax pension settlement charge of $5.9
billion related to the Qualified PPP, as described above.
(2) Refer to note S, “Equity Activity,” for the total change in AOCI, and the Consolidated Statement of Comprehensive Income for the components of net
periodic (income)/cost, including the related tax effects, recognized in OCI for the retirement-related benefit plans.
Assumptions Used to Determine Plan Financial Information
Underlying both the measurement of benefit obligations and net periodic (income)/cost are actuarial valuations. These valuations
use participant-specific information such as salary, age and years of service, as well as certain assumptions, the most significant of
which include estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates
and mortality rates. The company evaluates these assumptions, at a minimum, annually, and makes changes as necessary.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
113
The following tables present the assumptions used to measure the net periodic (income)/cost and the year-end benefit obligations
for retirement-related benefit plans.
Defined Benefit Pension Plans
U.S. Plans
Non-U.S. Plans
2023
2022
2021
2023
2022
2021
Weighted-average assumptions used to measure net periodic
(income)/cost for the year ended December 31
Discount rate (1)
Expected long-term returns on plan assets (1)
Rate of compensation increase
Interest crediting rate (1)
Weighted-average assumptions used to measure benefit
obligations at December 31
Discount rate
Rate of compensation increase
Interest crediting rate
5.30 %
3.30 %
2.20 %
3.80 %
1.26 %
0.87 %
5.50 %
4.33 %
3.75 %
4.44 %
2.97 %
2.85 %
N/A
N/A
N/A
4.00 %
3.02 %
2.59 %
4.40 %
2.07 %
1.10 %
0.34 %
0.26 %
0.26 %
5.00 %
5.30 %
2.60 %
3.36 %
3.80 %
1.26 %
5.00 %
N/A
N/A
4.18 %
4.00 %
3.02 %
3.80 %
4.40 %
1.10 %
0.28 %
0.34 %
0.26 %
(1) The U.S. Plans Qualified PPP discount rate, expected long-term return on plan assets and interest crediting rate of 2.60 percent, 4.00 percent and 1.10
percent, respectively, for the period January 1, 2022 through August 31, 2022, changed to 4.70 percent, 5.00 percent and 4.00 percent, respectively,
for the period September 1, 2022 through December 31, 2022 due to remeasurement of the plan as a result of the changes described on page 109.
N/A–Not applicable
Nonpension Postretirement Benefit Plans
U.S. Plan
Non-U.S. Plans
2023
2022
2021
2023
2022
2021
Weighted-average assumptions used to measure net periodic
cost for the year ended December 31
Discount rate (1)
Expected long-term returns on plan assets
Interest crediting rate (1)
Weighted-average assumptions used to measure benefit
obligations at December 31
Discount rate
Interest crediting rate
5.30 %
3.05 %
1.80 %
7.25 %
5.35 % 4.55 %
N/A
N/A
N/A
8.05 %
6.64 % 6.62 %
4.40 %
2.16 %
1.10 %
N/A
N/A
N/A
5.00 %
5.30 %
2.30 %
7.66 %
7.25 % 5.35 %
3.80 %
4.40 %
1.10 %
N/A
N/A
N/A
(1) The U.S. Nonpension Postretirement Plan discount rate and interest crediting rate of 2.30 percent and 1.10 percent, respectively, for the period
January 1, 2022 through July 31, 2022, changed to 4.10 percent and 3.65 percent, respectively, for the period August 1, 2022 through December 31,
2022 due to remeasurement of the plan as a result of the changes described on page 109.
N/A–Not applicable
114
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Item
Description of Assumptions
Discount Rate
Changes in discount rate assumptions impact net periodic (income)/cost and the PBO.
For the U.S. and certain non-U.S. countries, a portfolio of high-quality corporate bonds is used to construct
a yield curve. Cash flows from the company’s expected benefit obligation payments are matched to the
yield curve to derive the discount rates.
In other non-U.S. countries where the markets for high-quality long-term bonds are not as well developed,
a portfolio of long-term government bonds is used as a base, and a credit spread is added to simulate
corporate bond yields at these maturities in the jurisdiction of each plan. This is the benchmark for
developing the respective discount rates.
Expected Long-
Term Returns on
Plan Assets
Represents the expected long-term returns on plan assets based on the calculated market-related value of
plan assets and considers long-term expectations for future returns and the investment policies and
strategies discussed on pages 114 to 115. These rates of return are developed and tested for
reasonableness against historical returns by the company.
The use of expected returns may result in pension income that is greater or less than the actual return of
those plan assets in a given year. Over time, however, the expected long-term returns are designed to
approximate the actual long-term returns, and therefore result in a pattern of income or loss recognition that
more closely matches the pattern of the services provided by the employees.
The difference between actual and expected returns is recognized as a component of net loss or gain in
AOCI, which is amortized as a component of net periodic (income)/cost over the service lives or life
expectancy of the plan participants, depending on the plan, provided such amounts exceed certain
thresholds provided by accounting standards. The market-related value of plan assets recognizes changes
in the fair value of plan assets systematically over a five-year period in the expected return on plan assets
line in net periodic (income)/cost.
The projected long-term rate of return on plan assets for 2024 is 5.00 percent for U.S. and 4.90 percent for
non-U.S. DB Plans.
Compensation rate increases are determined based on the company’s long-term plans for such increases.
Mortality assumptions are based on life expectancy and death rates for different types of participants and
are periodically updated based on actual experience.
Benefits for participants in Cash Balance Plans are calculated using a cash balance formula. An assumption
underlying this formula is an interest crediting rate, which impacts both net periodic (income)/cost and the
PBO. This provides the basis for projecting the expected interest rate that plan participants will earn on the
benefits that they are expected to receive in the following year.
For nonpension postretirement benefit plans, the company determines healthcare cost trend rates based
on medical cost inflation expectations in each market and IBM’s plan characteristics. The healthcare cost
trend rate is an important consideration when setting future expectations for plan costs or benefit
obligations, taking into account the terms of the plan which limit the company’s future obligations to the
participants.
The company’s U.S. healthcare cost trend rate assumption for 2024 is 6.69 percent and is expected to
decrease to 4.50 percent over approximately 14 years.
Rate of
Compensation
Increases and
Mortality
Assumptions
Interest Crediting
Rate
Healthcare Cost
Trend Rate
Plan Assets
Retirement-related benefit plan assets are recognized and measured at fair value. Because of the inherent uncertainty of valuations,
these fair value measurements may not necessarily reflect the amounts the company could realize in current market transactions.
Investment Policies and Strategies
The investment objectives of the Qualified PPP portfolio are designed to generate returns that will enable the plan to meet its future
obligations. The precise amount for which these obligations will be settled depends on future events, including the retirement dates
and life expectancy of the plan participants. The obligations are estimated using actuarial assumptions, based on the current
economic environment and other pertinent factors described above. The Qualified PPP portfolio’s investment strategy balances the
requirement to generate returns, using assets with higher expected returns such as equity securities, with the need to control risk in
the portfolio with less volatile assets, such as fixed-income securities. Risks include, among others, inflation, volatility in equity
values and changes in interest rates that could cause the plan to become underfunded, thereby increasing its dependence on
contributions from the company. To mitigate any potential concentration risk, careful consideration is given to balancing the
portfolio among industry sectors, companies and geographies, taking into account interest rate sensitivity, dependence on
economic growth, currency and other factors that affect investment returns. There were no significant changes to investment
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
115
strategy made in 2023 and none are planned for 2024. The Qualified PPP portfolio’s target allocation is 8 percent equity securities,
83 percent fixed-income securities, 3 percent real estate and 6 percent other investments.
The assets are managed by professional investment firms and investment professionals who are employees of the company. They
are bound by investment mandates determined by the company’s management and are measured against specific benchmarks.
Among these managers, consideration is given, but not limited to, balancing security concentration, issuer concentration,
investment style and reliance on particular active and passive investment strategies.
Market liquidity risks are tightly controlled, with $1,717 million of the Qualified PPP portfolio as of December 31, 2023 invested in
private market assets consisting of private equities and private real estate investments, which are less liquid than publicly traded
securities. In addition, the Qualified PPP portfolio had $866 million in commitments for future investments in private markets to be
made over a number of years. These commitments are expected to be funded from plan assets.
Derivatives are used as an effective means to achieve investment objectives and/or as a component of the plan’s risk management
strategy. The primary reasons for the use of derivatives are fixed income management, including duration, interest rate
management and credit exposure, cash equitization and to manage currency strategies.
Outside the U.S., the investment objectives are similar to those described previously, subject to local regulations. The weighted-
average target allocation for the non-U.S. plans is 16 percent equity securities, 63 percent fixed-income securities, 3 percent real
estate, 13 percent insurance contracts and 5 percent other investments, which is consistent with the allocation decisions made by
the company’s management. In some countries, a higher percentage allocation to fixed income is required to manage solvency and
funding risks. In others, the responsibility for managing the investments typically lies with a board that may include up to 50 percent
of members elected by employees and retirees. This can result in slight differences compared with the strategies previously
described. The percentage of non-U.S. plans investment in assets that are less liquid is consistent with the U.S. plan. The use of
derivatives is also consistent with the U.S. plan and mainly for currency hedging, interest rate risk management, credit exposure and
alternative investment strategies.
The company’s nonpension postretirement benefit plans are underfunded or unfunded. For some plans, the company maintains a
nominal, highly liquid trust fund balance to ensure timely benefit payments.
116
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Defined Benefit Pension Plan Assets
The following table presents the company’s defined benefit pension plans’ asset classes and their associated fair value at
December 31, 2023. The U.S. Plan consists of the Qualified PPP and the non-U.S. Plans consist of all plans sponsored by the
company’s subsidiaries.
($ in millions)
Equity
Equity securities (1)
Equity mutual funds (2)
Fixed income
Government and related (3)
Corporate bonds (4)
Mortgage and asset-backed securities
Fixed income mutual funds (5)
Insurance contracts (6)
Cash and short-term investments (7)
Private equity
Real estate
Derivatives (8)
Other mutual funds (9)
Subtotal
Investments measured at net asset
value using the NAV practical
expedient (10)
Other (11)
Fair value of plan assets
U.S. Plan
Non-U.S. Plans
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$ 631 $
— $
— $ 631 $ 243 $
— $
— $ 243
155
—
—
155
—
—
—
251
—
495
—
—
—
—
9,861
7,074
—
9,861
709
7,783
178
—
—
119
—
—
—
—
—
—
—
—
13
—
—
—
178
251
—
614
13
—
—
—
5
—
—
—
—
—
—
7,700
2,691
9
—
3,774
264
315
—
—
51
20
—
—
258
—
—
—
—
—
75
—
—
—
4
—
—
5
7,700
2,691
9
75
3,774
579
—
4
309
20
1,532
17,231
722
19,485
584
14,747
78
15,409
—
—
—
—
—
—
4,952
0
—
—
—
—
—
—
13,709
(59)
$ 1,532 $ 17,231 $ 722 $ 24,437 $ 584 $ 14,747 $
78 $ 29,059
(1) Represents U.S. and international securities. The U.S. Plan includes IBM common stock of $1 million. Non-U.S. Plans include IBM common stock of
$2 million.
(2)
Invests in predominantly equity securities.
(3)
Includes debt issued by national, state and local governments and agencies.
(4) The U.S. Plans include IBM corporate bonds of $16 million. Non-U.S. Plans include IBM corporate bonds of $5 million.
(5)
Invests predominantly in fixed-income securities.
(6) Primarily represents insurance policy contracts (Buy-In) in certain non-U.S. plans.
(7)
Includes cash, cash equivalents and short-term marketable securities.
(8)
Includes interest-rate derivatives, forwards, exchange-traded and other over-the-counter derivatives.
(9)
Invests in both equity and fixed-income securities.
(10) Investments measured at fair value using the net asset value (NAV) per share (or its equivalent) as a practical expedient, including commingled
funds, hedge funds, private equity and real estate partnerships.
(11) Represents net unsettled transactions, relating primarily to purchases and sales of plan assets.
The U.S. nonpension postretirement benefit plan assets of $10 million were invested primarily in cash equivalents, categorized as
Level 1 in the fair value hierarchy. The non-U.S. nonpension postretirement benefit plan assets of $23 million, primarily in Brazil,
and, to a lesser extent, in Mexico and South Africa, were invested primarily in government and related fixed-income securities and
corporate bonds, categorized as Level 2 in the fair value hierarchy.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
117
The following table presents the company’s defined benefit pension plans’ asset classes and their associated fair value at
December 31, 2022. The U.S. Plan consists of the Qualified PPP and the non-U.S. Plans consist of all plans sponsored by the
company’s subsidiaries.
($ in millions)
Equity
Equity securities (1)
Equity mutual funds (2)
Fixed income
Government and related (3)
Corporate bonds (4)
Mortgage and asset-backed securities
Fixed income mutual funds (5)
Insurance contracts (6)
Cash and short-term investments (7)
Private equity
Real estate
Derivatives (8)
Other mutual funds (9)
Subtotal
Investments measured at net asset
value using the NAV practical
expedient (10)
Other (11)
Fair value of plan assets
U.S. Plan
Non-U.S. Plans
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$ 518 $
— $
— $
518 $ 247 $
— $
— $
247
114
—
—
114
—
—
—
234
—
72
—
—
—
—
9,074
6,885
—
9,074
721
7,606
238
—
—
570
—
8
—
—
—
—
—
—
421
—
—
—
238
234
—
643
421
8
—
—
0
—
—
—
—
—
—
6,837
2,546
2
—
3,654
286
263
—
—
32
25
—
—
262
—
—
—
—
—
9
—
—
—
145
—
—
0
6,837
2,546
2
9
3,654
549
—
145
294
25
937
16,776
1,142
18,855
590
13,563
155
14,308
—
—
—
—
—
—
6,242
14,141
(4)
—
—
—
(78)
$ 937 $ 16,776 $ 1,142 $ 25,094 $ 590 $ 13,563 $ 155 $ 28,371
(1) Represents U.S. and international securities. The U.S. Plan includes IBM common stock of $1 million. Non-U.S. Plans include IBM common stock of
$2 million.
(2)
Invests in predominantly equity securities.
(3)
Includes debt issued by national, state and local governments and agencies.
(4) The U.S. Plans include IBM corporate bonds of $6 million. Non-U.S. Plans include IBM corporate bonds of $3 million.
(5)
Invests in predominantly fixed-income securities.
(6) Primarily represents insurance policy contracts (Buy-In) in certain non-U.S. plans.
(7)
Includes cash, cash equivalents and short-term marketable securities.
(8)
Includes interest-rate derivatives, forwards, exchange-traded and other over-the-counter derivatives.
(9)
Invests in both equity and fixed-income securities.
(10) Investments measured at fair value using the net asset value (NAV) per share (or its equivalent) as a practical expedient, including commingled
funds, hedge funds, private equity and real estate partnerships.
(11) Represents net unsettled transactions, relating primarily to purchases and sales of plan assets.
The U.S. nonpension postretirement benefit plan assets of $10 million were invested in cash equivalents, categorized as Level 1 in
the fair value hierarchy. The non-U.S. nonpension postretirement benefit plan assets of $29 million, primarily in Brazil, and, to a
lesser extent, in Mexico and South Africa, were invested primarily in government and related fixed-income securities and corporate
bonds, categorized as Level 2 in the fair value hierarchy.
118
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
The following tables present the reconciliation of the beginning and ending balances of Level 3 assets for the years ended
December 31, 2023 and 2022 for the U.S. Plan.
($ in millions)
Balance at January 1, 2023
Return on assets held at end of year
Return on assets sold during the year
Purchases, sales and settlements, net
Transfers, net
Balance at December 31, 2023
($ in millions)
Balance at January 1, 2022
Return on assets held at end of year
Return on assets sold during the year
Purchases, sales and settlements, net
Transfers, net
Balance at December 31, 2022
Corporate
Bonds
Private
Equity
Total
$
721
$
421
$
1,142
(18)
10
(5)
2
$
709
$
(5)
0
(404)
—
13
$
(23)
10
(409)
2
722
Corporate
Bonds
Private
Equity
Total
$
598
$
(114)
(2)
206
33
$
721
$
—
—
—
—
421
421
$
598
(114)
(2)
206
454
$
1,142
The following tables present the reconciliation of the beginning and ending balances of Level 3 assets for the years ended
December 31, 2023 and 2022 for the non-U.S. Plans.
($ in millions)
Balance at January 1, 2023
Return on assets held at end of year
Return on assets sold during the year
Purchases, sales and settlements, net
Transfers, net
Foreign exchange impact
Balance at December 31, 2023
($ in millions)
Balance at January 1, 2022
Return on assets held at end of year
Return on assets sold during the year
Purchases, sales and settlements, net
Transfers, net
Foreign exchange impact
Balance at December 31, 2022
Fixed Income
Mutual Funds
$
9
1
—
63
—
2
$
75
$
Real Estate
Total
$
145
$
(66)
56
(137)
0
5
4
$
155
(65)
56
(74)
0
7
78
Fixed Income
Mutual Funds
$
$
—
0
—
10
—
0
9
Real Estate
Total
$
174
$
174
6
(1)
(16)
0
(18)
$
145
$
6
(1)
(7)
0
(19)
155
Valuation Techniques
The following is a description of the valuation techniques used to measure plan assets at fair value. There were no changes in
valuation techniques during 2023 and 2022.
Equity securities are valued at the closing price reported on the stock exchange on which the individual securities are traded. IBM
common stock is valued at the closing price reported on the New York Stock Exchange. Mutual funds are typically valued based on
quoted market prices. These assets are generally classified as Level 1.
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
119
The fair value of fixed-income securities is typically estimated using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows and are generally classified as Level 2. If available, they are valued using the closing price
reported on the major market on which the individual securities are traded.
Cash includes money market accounts that are valued at their cost plus interest on a daily basis, which approximates fair value.
Short-term investments represent securities with original maturities of one year or less. These assets are classified as Level 1 or
Level 2.
Real estate valuations require significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the
long-term nature of such assets. These assets are initially valued at cost and are reviewed periodically utilizing available and
relevant market data, including appraisals, to determine if the carrying value of these assets should be adjusted. These assets are
classified as Level 3.
Exchange-traded derivatives are valued at the closing price reported on the exchange on which the individual securities are traded,
while forward contracts are valued using a mid-close price. Over-the-counter derivatives are typically valued using pricing models.
The models require a variety of inputs, including, for example, yield curves, credit curves, measures of volatility and foreign
exchange rates. These assets are classified as Level 1 or Level 2 depending on availability of quoted market prices.
Certain investments are measured at fair value using the net asset value (NAV) per share (or its equivalent) as a practical expedient.
These investments, which include commingled funds, hedge funds, private equity and real estate partnerships, are typically valued
using the NAV provided by the administrator of the fund and reviewed by the company. The NAV is based on the value of the
underlying assets owned by the fund, minus liabilities and divided by the number of shares or units outstanding.
Contributions and Direct Benefit Payments
It is the company’s general practice to fund amounts for pensions sufficient to meet the minimum requirements set forth in
applicable employee benefits laws and local tax laws. From time to time, the company contributes additional amounts as it deems
appropriate.
The following table presents the contributions made to the non-U.S. DB plans, nonpension postretirement benefit plans, multi-
employer plans, DC plans and direct benefit payments for 2023 and 2022. The cash contributions to the multi-employer plans
represent the annual cost included in the net periodic (income)/cost recognized in the Consolidated Income Statement. The
company’s participation in multi-employer plans has no material impact on the company’s financial statements.
($ in millions)
For the years ended December 31:
Non-U.S. DB plans
Nonpension postretirement benefit plans
Multi-employer plans
DC plans
Direct benefit payments
Total
2023
2022
$
57
$
233
13
991
552
103
344
15
924
576
$
1,847
$
1,962
In 2023 and 2022, $256 million and $349 million, respectively, of contributions to the non-U.S. DB plans and U.S. nonpension
postretirement benefit plans were made in U.S. Treasury securities. Additionally, in 2023 and 2022, contributions of $682 million
and $557 million, respectively, were made to the Active Medical Trust in U.S. Treasury securities. Contributions made with U.S.
Treasury securities are considered a non-cash transaction.
Defined Benefit Pension Plans
In 2024, the company is not legally required to make any contributions to the U.S. defined benefit pension plans. However,
depending on market conditions, or other factors, the company may elect to make discretionary contributions to the Qualified PPP
during the year.
In 2024, the company estimates contributions to its non-U.S. defined benefit and multi-employer plans to be approximately $200
million, the largest of which will be contributed to defined benefit pension plans in Japan and India. This amount generally
represents legally mandated minimum contributions.
Financial market performance in 2024 could increase the legally mandated minimum contribution in certain countries which require
monthly or daily remeasurement of the funded status. The company could also elect to contribute more than the legally mandated
amount based on market conditions or other factors.
120
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Expected Benefit Payments
Defined Benefit Pension Plan Expected Payments
The following table presents the total expected benefit payments to defined benefit pension plan participants subsequent to the
U.S. retirement plan changes, as described above. These payments have been estimated based on the same assumptions used to
measure the plans’ PBO at December 31, 2023 and include benefits attributable to estimated future compensation increases,
where applicable.
($ in millions)
2024
2025
2026
2027
2028
2029-2033
Qualified
U.S. Plan
Payments
Nonqualified
U.S. Plans
Payments
Qualified
Non-U.S. Plans
Payments
Nonqualified
Non-U.S. Plans
Payments
Total Expected
Benefit
Payments
$
1,769 $
122 $
1,995 $
375 $
1,830
1,848
1,822
1,780
8,284
121
119
116
113
522
1,977
1,954
1,933
1,903
9,131
359
362
354
349
4,260
4,286
4,283
4,225
4,145
1,654
19,591
The 2024 expected benefit payments to defined benefit pension plan participants not covered by the respective plan assets
(underfunded plans) represent a component of compensation and benefits, within current liabilities, in the Consolidated Balance
Sheet.
Nonpension Postretirement Benefit Plan Expected Payments
The following table presents the total expected benefit payments to nonpension postretirement benefit plan participants. These
payments have been estimated based on the same assumptions used to measure the plans’ APBO at December 31, 2023.
($ in millions)
2024
2025
2026
2027
2028
2029-2033
U.S. Plan
Payments
Qualified
Non-U.S. Plans
Payments
Nonqualified
Non-U.S. Plans
Payments
Total Expected
Benefit
Payments
$
217 $
20 $
24 $
215
213
208
233
1,085
21
22
23
24
134
24
24
24
24
129
261
260
259
255
281
1,349
The 2024 expected benefit payments to nonpension postretirement benefit plan participants not covered by the respective plan
assets represent a component of compensation and benefits, within current liabilities, in the Consolidated Balance Sheet.
Other Plan Information
The following table presents information for defined benefit pension plans with accumulated benefit obligations (ABO) in excess of
plan assets. For a more detailed presentation of the funded status of the company’s defined benefit pension plans, refer to the table
on page 111.
($ in millions)
At December 31:
2023
2022
Benefit
Obligation
Plan
Assets
Benefit
Obligation
Plan
Assets
Plans with PBO in excess of plan assets
$
18,345 $
9,621 $
17,220 $
Plans with ABO in excess of plan assets
Plans with plan assets in excess of PBO
18,029
36,369
9,604
43,875
16,979
35,534
9,694
9,694
43,770
Notes to the Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
121
The following table presents information for the nonpension postretirement benefit plan with APBO in excess of plan assets. For a
more detailed presentation of the funded status of the company’s nonpension postretirement benefit plans, refer to the table on
page 111.
($ in millions)
At December 31:
2023
2022
Benefit
Obligation
Plan
Assets
Benefit
Obligation
Plan
Assets
Plans with APBO in excess of plan assets
$
2,820 $
32 $
2,893 $
Plans with plan assets in excess of APBO
—
—
7
32
7
NOTE W. SUBSEQUENT EVENTS
On January 30, 2024, the company announced that the Board of Directors approved a quarterly dividend of $1.66 per common
share. The dividend is payable March 9, 2024 to stockholders of record on February 9, 2024.
On February 5, 2024, IBM International Capital Pte. Ltd, a wholly owned finance subsidiary of the company, issued $5.5 billion of
U.S. dollar fixed rate notes in tranches with maturities ranging from 2 to 30 years and coupons ranging from 4.6 to 5.3 percent.
These notes are fully and unconditionally guaranteed by the company.
122
Performance Graphs
International Business Machines Corporation and Subsidiary Companies
COMPARISON OF ONE-, THREE- AND FIVE-YEAR CUMULATIVE TOTAL RETURN FOR IBM, S&P 500 STOCK INDEX AND S&P
INFORMATION TECHNOLOGY INDEX
The following graphs compare the one-, three- and five-year cumulative total returns for IBM common stock with the comparable
cumulative returns of certain Standard & Poor’s (S&P) indices. Due to the fact that IBM is a company included in the S&P 500 Stock
Index, the SEC’s rules require the use of that index for the required five-year graph. Under those rules, the second index used for
comparison may be a published industry or line-of-business index. The S&P Information Technology Index is such an index. IBM is
also included in this index.
The graph assumes $100 invested on December 31 (of the initial year shown in the graph) in IBM common stock and $100 invested
on the same date in each of the S&P indices. The comparisons assume that all dividends are reinvested. On November 3, 2021, we
completed the separation of Kyndryl. IBM stockholders received one share of common stock in Kyndryl for every five shares of IBM
common stock held at the close of business on October 25, 2021, the record date for the distribution. The effect of the Kyndryl
transaction is reflected in the cumulative total return as reinvested dividends.
One-Year
Three-Year
180
160
140
120
100
250
200
150
100
50
80
12/22
3/23
6/23
9/23
12/23
0
12/20
12/21
12/22
12/23
Five-Year
350
300
250
200
150
100
50
0
12/18
12/19
12/20
12/21
12/22
12/23
One-Year
(U.S. Dollar)
—
• • • •
- - - -
Three-Year
(U.S. Dollar)
— — — —
• • • •
- - - -
Five-Year
(U.S. Dollar)
International Business Machines
S & P 500
S & P Information Technology
International Business Machines
S & P 500
S & P Information Technology
3/2023
12/2022
6/2023
$ 100.00 $ 94.19 $ 97.46 $ 103.38 $ 121.88
$ 100.00 $ 107.50 $ 116.89 $ 113.07 $ 126.29
$ 100.00 $ 121.82 $ 142.77 $ 134.72 $ 157.84
12/2023
9/2023
2020
2021
2022
2023
$ 100.00 $ 117.00 $ 129.53 $ 157.86
$ 100.00 $ 128.71 $ 105.40 $ 133.10
$ 100.00 $ 134.53 $ 96.60 $ 152.48
2018
2019
2020
2021
2022
2023
—
International Business Machines
$ 100.00 $ 123.84 $ 122.66 $ 143.51 $ 158.87 $ 193.63
• • • •
- - - -
S & P 500
$ 100.00 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21
S & P Information Technology
$ 100.00 $ 150.29 $ 216.25 $ 290.92 $ 208.90 $ 329.73
Stockholder Information
International Business Machines Corporation and Subsidiary Companies
123
IBM Stockholder Services
Stockholders with questions about their accounts should contact:
Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode Island 02940-3078, (888) IBM-6700.
Investors residing outside the United States, Canada and Puerto Rico should call (781) 575-2727.
Stockholders can also reach Computershare Trust Company, N.A. via e-mail at: ibm@computershare.com
Hearing-impaired stockholders with access to a telecommunications device (TDD) can communicate directly with Computershare
Trust Company, N.A., by calling (800) 490-1493. Stockholders residing outside the United States, Canada and Puerto Rico should
call (781) 575-2694.
IBM on the Internet
Topics featured in this Annual Report can be found online at www.ibm.com. Financial results, news on IBM products, services and
other activities can also be found at that website.
IBM files reports with the Securities and Exchange Commission (SEC), including the annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and any other filings required by the SEC.
IBM’s website (www.ibm.com/investor) contains a significant amount of information about IBM, including the company’s annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or
furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such
material is electronically filed with or furnished to the SEC. These materials are available free of charge on or through IBM’s website.
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
Computershare Investment Plan (CIP)
(formerly IBM Investor Services Program)
The Computershare Investment Plan brochure outlines a number of services provided for IBM stockholders and potential IBM
investors, including the reinvestment of dividends, direct purchase and the deposit of IBM stock certificates for safekeeping. The
brochure is available at www.computershare.com/ibmcip or by calling (888) IBM-6700. Investors residing outside the United
States, Canada and Puerto Rico should call (781) 575-2727.
Investors with other requests may write to: IBM Stockholder Relations, New Orchard Road, M/D 325, Armonk, New York 10504.
IBM Stock
IBM common stock is listed on the New York Stock Exchange and the NYSE Chicago under the symbol “IBM”.
Stockholder Communications
Stockholders can get quarterly financial results and voting results from the Annual Meeting by calling (914) 499-7777, by sending
an e-mail to infoibm@us.ibm.com, or by writing to IBM Stockholder Relations, New Orchard Road, M/D 325, Armonk, New York
10504.
Annual Meeting
The IBM Annual Meeting of Stockholders will be held on Tuesday, April 30, 2024, at 1 p.m. (ET).
Literature for IBM Stockholders
The literature mentioned below on IBM is available without charge from:
Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode Island 02940-3078, (888) IBM-6700.
Investors residing outside the United States, Canada and Puerto Rico should call (781) 575-2727.
The company’s annual report on Form 10-K and the quarterly reports on Form 10-Q provide additional information on IBM’s
business. The 10-K report is released by the end of February; 10-Q reports are released by the end of April, July and October.
The IBM ESG Report reflects IBM’s belief that corporate responsibility drives long-term value not just in our business, but also for
IBM stakeholders. Our 2022 ESG Report, IBM Impact, and the related addendum are available online at https://www.ibm.com/
impact.
General Information
Stockholders of record can receive account information and answers to frequently asked questions regarding stockholder accounts
online at www.ibm.com/investor. Stockholders of record can also consent to receive future IBM Annual Reports and Proxy
Statements online through this site.
For answers to general questions about IBM from within the continental United States, call (800) IBM-4YOU. From outside the
United States, Canada and Puerto Rico, call (914) 499-1900.
124
Board of Directors and Senior Leadership
International Business Machines Corporation and Subsidiary Companies
BOARD OF DIRECTORS
Marianne C. Brown
Former Chief Operating Officer
Global Financial Solutions, Fidelity National
Information Services, Inc.
Arvind Krishna
Chairman and Chief Executive Officer
IBM
Thomas Buberl
Chief Executive Officer
AXA S.A.
David N. Farr
Retired Chairman and
Chief Executive Officer
Emerson Electric Co.
Alex Gorsky
Former Chairman and
Chief Executive Officer
Johnson & Johnson
Michelle J. Howard
Retired Admiral
United States Navy
SENIOR LEADERSHIP
Jonathan H. Adashek
Senior Vice President
Marketing and Communications
and Chief Communications Officer
Mohamad Ali
Senior Vice President and
Chief Operating Officer
IBM Consulting
Simon J. Beaumont
Vice President, Treasurer
and General Manager
IBM Financing
Michelle H. Browdy
Senior Vice President,
Legal and Regulatory Affairs
and General Counsel
Kelly C. Chambliss
Senior Vice President
IBM Consulting, Americas
Gary D. Cohn
Vice Chairman
Andrew N. Liveris
Retired Chairman and Chief
Executive Officer
The Dow Chemical Company
Frederick William McNabb III
Retired Chairman and Chief
Executive Officer
The Vanguard Group, Inc.
Michael Miebach
Chief Executive Officer
Mastercard Incorporated
Martha E. Pollack
President
Cornell University
Nicolás Fehring
Vice President and Controller
Darío Gil
Senior Vice President and Director
IBM Research
John Granger
Senior Vice President
IBM Consulting
James J. Kavanaugh
Senior Vice President and
Chief Financial Officer
Sebastian Krause
Senior Vice President and
Chief Revenue Officer
Arvind Krishna
Chairman and Chief Executive Officer
Nickle J. LaMoreaux
Senior Vice President and Chief Human
Resources Officer
Ric Lewis
Senior Vice President
IBM Infrastructure
Joseph R. Swedish*
Retired Chairman, President
and Chief Executive Officer
Anthem, Inc.
Peter R. Voser
Retired Chief Executive Officer
Royal Dutch Shell plc
Chairman
ABB Ltd.
Frederick H. Waddell
Retired Chairman and
Chief Executive Officer
Northern Trust Corporation
Alfred W. Zollar
Executive Advisor
Siris Capital Group, LLC
Dinesh Nirmal
Senior Vice President, Products
IBM Software
Frank Sedlarcik
Vice President
Assistant General Counsel and Secretary
Alex Stern
Senior Vice President
Strategy and Mergers & Acquisitions
Robert D. Thomas
Senior Vice President
IBM Software
and Chief Commercial Officer
Joanne Wright
Senior Vice President
Transformation and Operations
Kareem Yusuf
Senior Vice President
Product Management and Growth
IBM Software
**Term on the Board ends on April 30, 2024.
International Business Machines Corporation
New Orchard Road
Armonk, New York 10504
914-499-1900
Db2, Expertus, IBM, IBM Cloud, IBM Cloud Pak, IBM
Garage, IBM Q Network, IBM Quantum, IBM Z, Instana,
Nordcloud, Octo, Osprey, Partner Plus, Power, Randori,
Sentaca, 7Summits, StepZen, Taos, TruQua, Turbonomic,
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