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New York (State of incorporation) | 13-0871985 (IRS employer identification number) | ||||
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(Address of principal executive offices) | 10504 (Zip Code) |
914-499-1900
Title of each class | Trading symbol(s) | Name of each exchange | ||||||||||||
Capital stock, par value $.20 per share | IBM | New York Stock Exchange | ||||||||||||
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Large accelerated filer | ☒ | Accelerated filer ☐ | ||||||
Non-accelerated filer | ☐ | Smaller reporting company ☐ | ||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(Dollars in millions except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
Services | $ | 7,553 | $ | 7,640 | $ | 15,077 | $ | 15,343 | ||||||||||||||||||
Sales | 7,739 | 7,748 | 14,271 | 14,087 | ||||||||||||||||||||||
Financing | 183 | 147 | 380 | 303 | ||||||||||||||||||||||
Total revenue | 15,475 | 15,535 | 29,727 | 29,732 | ||||||||||||||||||||||
Cost: | ||||||||||||||||||||||||||
Services | 5,294 | 5,399 | 10,604 | 10,747 | ||||||||||||||||||||||
Sales | 1,587 | 1,750 | 2,910 | 3,165 | ||||||||||||||||||||||
Financing | 93 | 96 | 203 | 194 | ||||||||||||||||||||||
Total cost | 6,974 | 7,246 | 13,717 | 14,107 | ||||||||||||||||||||||
Gross profit | 8,501 | 8,290 | 16,010 | 15,625 | ||||||||||||||||||||||
Expense and other (income): | ||||||||||||||||||||||||||
Selling, general and administrative | 4,900 | 4,855 | 9,754 | 9,452 | ||||||||||||||||||||||
Research, development and engineering | 1,687 | 1,673 | 3,342 | 3,352 | ||||||||||||||||||||||
Intellectual property and custom development income | (248) | (176) | (428) | (297) | ||||||||||||||||||||||
Other (income) and expense | (261) | (81) | (506) | 166 | ||||||||||||||||||||||
Interest expense | 423 | 297 | 790 | 607 | ||||||||||||||||||||||
Total expense and other (income) | 6,501 | 6,568 | 12,952 | 13,280 | ||||||||||||||||||||||
Income from continuing operations before income taxes | 2,000 | 1,722 | 3,058 | 2,345 | ||||||||||||||||||||||
Provision for income taxes | 419 | 257 | 543 | 218 | ||||||||||||||||||||||
Income from continuing operations | $ | 1,581 | $ | 1,465 | $ | 2,515 | $ | 2,127 | ||||||||||||||||||
Income/(loss) from discontinued operations, net of tax | 2 | (73) | (4) | (2) | ||||||||||||||||||||||
Net income | $ | 1,583 | $ | 1,392 | $ | 2,511 | $ | 2,125 | ||||||||||||||||||
Earnings/(loss) per share of common stock: | ||||||||||||||||||||||||||
Assuming dilution: | ||||||||||||||||||||||||||
Continuing operations | $ | 1.72 | $ | 1.61 | $ | 2.74 | $ | 2.34 | ||||||||||||||||||
Discontinued operations | 0.00 | (0.08) | 0.00 | 0.00 | ||||||||||||||||||||||
Total | $ | 1.72 | $ | 1.53 | $ | 2.73 | $ | 2.34 | ||||||||||||||||||
Basic: | ||||||||||||||||||||||||||
Continuing operations | $ | 1.74 | $ | 1.62 | $ | 2.77 | $ | 2.36 | ||||||||||||||||||
Discontinued operations | 0.00 | (0.08) | 0.00 | 0.00 | ||||||||||||||||||||||
Total | $ | 1.74 | $ | 1.54 | $ | 2.76 | $ | 2.36 | ||||||||||||||||||
Weighted-average number of common shares outstanding: (millions) | ||||||||||||||||||||||||||
Assuming dilution | 919.5 | 910.7 | 918.6 | 910.0 | ||||||||||||||||||||||
Basic | 909.9 | 901.5 | 908.7 | 900.4 |
| | | | | | |
| | Three Months Ended March 31, | ||||
(Dollars in millions except per share amounts) |
| 2023 |
| 2022 | ||
Revenue: |
| |
|
| |
|
Services | | $ | 7,524 | | $ | 7,703 |
Sales | |
| 6,532 | |
| 6,339 |
Financing | |
| 196 | |
| 155 |
Total revenue | |
| 14,252 | |
| 14,197 |
Cost: | |
|
| |
|
|
Services | |
| 5,310 | |
| 5,349 |
Sales | |
| 1,322 | |
| 1,415 |
Financing | |
| 110 | |
| 98 |
Total cost | |
| 6,743 | |
| 6,862 |
Gross profit | |
| 7,509 | |
| 7,335 |
Expense and other (income): | |
|
| |
|
|
Selling, general and administrative | |
| 4,853 | |
| 4,597 |
Research, development and engineering | |
| 1,655 | |
| 1,679 |
Intellectual property and custom development income | |
| (180) | |
| (121) |
Other (income) and expense | |
| (245) | |
| 246 |
Interest expense | |
| 367 | |
| 311 |
Total expense and other (income) | |
| 6,451 | |
| 6,712 |
Income from continuing operations before income taxes | |
| 1,058 | |
| 623 |
Provision for/(benefit from) income taxes | |
| 124 | |
| (39) |
Income from continuing operations | | $ | 934 | | $ | 662 |
Income/(loss) from discontinued operations, net of tax | |
| (7) | |
| 71 |
Net income | | $ | 927 | | $ | 733 |
| | | | | | |
Earnings/(loss) per share of common stock: | |
|
| |
|
|
Assuming dilution: | |
|
| |
|
|
Continuing operations | | $ | 1.02 | | $ | 0.73 |
Discontinued operations | |
| (0.01) | |
| 0.08 |
Total | | $ | 1.01 | | $ | 0.81 |
Basic: | |
|
| |
|
|
Continuing operations | | $ | 1.03 | | $ | 0.74 |
Discontinued operations | |
| (0.01) | |
| 0.08 |
Total | | $ | 1.02 | | $ | 0.82 |
| | | | | | |
Weighted-average number of common shares outstanding: (millions) | |
|
| |
|
|
Assuming dilution | |
| 917.8 | |
| 909.2 |
Basic | |
| 907.5 | |
| 899.3 |
(The accompanying notes are an integral part of the financialstatements.)
3
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
| | | | | | |
| | Three Months Ended March 31, | ||||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Net income | | $ | 927 | | $ | 733 |
Other comprehensive income/(loss), before tax: | |
|
| |
|
|
Foreign currency translation adjustments | |
| (87) | |
| 442 |
Net changes related to available-for-sale securities: | |
|
| |
|
|
Unrealized gains/(losses) arising during the period | |
| 15 | |
| 0 |
Reclassification of (gains)/losses to net income | |
| — | |
| — |
Total net changes related to available-for-sale securities | |
| 15 | |
| 0 |
Unrealized gains/(losses) on cash flow hedges: | |
|
| |
|
|
Unrealized gains/(losses) arising during the period | |
| (29) | |
| 60 |
Reclassification of (gains)/losses to net income | |
| (122) | |
| (1) |
Total unrealized gains/(losses) on cash flow hedges | |
| (151) | |
| 59 |
Retirement-related benefit plans: | |
|
| |
|
|
Prior service costs/(credits) | |
| — | |
| (5) |
Net (losses)/gains arising during the period | |
| 2 | |
| 9 |
Curtailments and settlements | |
| (1) | |
| 8 |
Amortization of prior service (credits)/costs | |
| (2) | |
| 7 |
Amortization of net (gains)/losses | | | 131 | | | 468 |
Total retirement-related benefit plans | |
| 130 | |
| 486 |
Other comprehensive income/(loss), before tax | |
| (93) | |
| 987 |
Income tax (expense)/benefit related to items of other comprehensive income | |
| 53 | |
| (285) |
Other comprehensive income/(loss), net of tax | |
| (40) | |
| 703 |
Total comprehensive income | | $ | 888 | | $ | 1,436 |
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
4
STATEMENT OF COMPREHENSIVE INCOME
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Net income | $ | 1,583 | $ | 1,392 | $ | 2,511 | $ | 2,125 | ||||||||||||||||||
Other comprehensive income/(loss), before tax: | ||||||||||||||||||||||||||
Foreign currency translation adjustments | 116 | 213 | 29 | 655 | ||||||||||||||||||||||
Net changes related to available-for-sale securities: | ||||||||||||||||||||||||||
Unrealized gains/(losses) arising during the period | (17) | 0 | (1) | (1) | ||||||||||||||||||||||
Reclassification of (gains)/losses to net income | — | — | — | — | ||||||||||||||||||||||
Total net changes related to available-for-sale securities | (17) | 0 | (1) | (1) | ||||||||||||||||||||||
Unrealized gains/(losses) on cash flow hedges: | ||||||||||||||||||||||||||
Unrealized gains/(losses) arising during the period | 178 | 200 | 149 | 260 | ||||||||||||||||||||||
Reclassification of (gains)/losses to net income | (30) | 16 | (152) | 16 | ||||||||||||||||||||||
Total unrealized gains/(losses) on cash flow hedges | 148 | 217 | (3) | 276 | ||||||||||||||||||||||
Retirement-related benefit plans: | ||||||||||||||||||||||||||
Prior service costs/(credits) | — | — | — | (5) | ||||||||||||||||||||||
Net (losses)/gains arising during the period | 0 | 1 | 2 | 10 | ||||||||||||||||||||||
Curtailments and settlements | 6 | 11 | 5 | 19 | ||||||||||||||||||||||
Amortization of prior service (credits)/costs | (2) | 6 | (4) | 13 | ||||||||||||||||||||||
Amortization of net (gains)/losses | 130 | 450 | 261 | 917 | ||||||||||||||||||||||
Total retirement-related benefit plans | 134 | 468 | 263 | 954 | ||||||||||||||||||||||
Other comprehensive income/(loss), before tax | 381 | 897 | 289 | 1,885 | ||||||||||||||||||||||
Income tax (expense)/benefit related to items of other comprehensive income | (101) | (534) | (48) | (819) | ||||||||||||||||||||||
Other comprehensive income/(loss), net of tax | 280 | 363 | 241 | 1,066 | ||||||||||||||||||||||
Total comprehensive income | $ | 1,863 | $ | 1,755 | $ | 2,751 | $ | 3,191 |
ASSETS
| | | | | | | |
|
| At March 31, |
| At December 31, |
| ||
(Dollars in millions) | | 2023 |
| 2022 |
| ||
Assets: |
| |
|
| |
| |
Current assets: |
| |
|
| |
| |
Cash and cash equivalents | | $ | 9,337 | | $ | 7,886 | |
Restricted cash | |
| 198 | |
| 103 | |
Marketable securities | |
| 8,057 | |
| 852 | |
Notes and accounts receivable — trade (net of allowances of $250 in 2023 and $233 in 2022) | |
| 5,757 | |
| 6,541 | |
Short-term financing receivables: | |
| | |
| | |
Held for investment (net of allowances of $141 in 2023 and $145 in 2022) | |
| 6,057 | |
| 6,851 | |
Held for sale | |
| 605 | |
| 939 | |
Other accounts receivable (net of allowances of $102 in 2023 and $89 in 2022) | |
| 812 | |
| 817 | |
Inventory, at lower of average cost or net realizable value: | |
| | |
| | |
Finished goods | |
| 199 | |
| 158 | |
Work in process and raw materials | |
| 1,404 | |
| 1,394 | |
Total inventory | |
| 1,603 | |
| 1,552 | |
Deferred costs | |
| 1,055 | |
| 967 | |
Prepaid expenses and other current assets | |
| 2,501 | |
| 2,611 | |
Total current assets | |
| 35,982 | |
| 29,118 | |
Property, plant and equipment | |
| 18,761 | |
| 18,695 | |
Less: Accumulated depreciation | |
| 13,417 | |
| 13,361 | |
Property, plant and equipment — net | |
| 5,344 | |
| 5,334 | |
Operating right-of-use assets — net | |
| 2,789 | |
| 2,878 | |
Long-term financing receivables (net of allowances of $23 in 2023 and $28 in 2022) | |
| 5,065 | |
| 5,806 | |
Prepaid pension assets | |
| 8,487 | |
| 8,236 | |
Deferred costs | |
| 846 | |
| 866 | |
Deferred taxes | |
| 6,419 | |
| 6,256 | |
Goodwill | |
| 56,193 | |
| 55,949 | |
Intangible assets — net | |
| 10,905 | |
| 11,184 | |
Investments and sundry assets | |
| 1,607 | |
| 1,617 | |
Total assets | | $ | 133,637 | | $ | 127,243 | |
(The accompanying notes are an integral part of the financialstatements.)
5
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET – (CONTINUED)
(UNAUDITED)
LIABILITIES AND EQUITY
| | | | | | |
|
| At March 31, |
| At December 31, | ||
(Dollars in millions except per share amounts) | | 2023 |
| 2022 | ||
Liabilities: | | | | | | |
Current liabilities: |
| |
|
| |
|
Taxes | | $ | 1,650 | | $ | 2,196 |
Short-term debt | |
| 4,887 | |
| 4,760 |
Accounts payable | |
| 3,728 | |
| 4,051 |
Compensation and benefits | |
| 2,772 | |
| 3,481 |
Deferred income | |
| 13,220 | |
| 12,032 |
Operating lease liabilities | |
| 869 | |
| 874 |
Other accrued expenses and liabilities | |
| 3,866 | |
| 4,111 |
Total current liabilities | |
| 30,993 | |
| 31,505 |
Long-term debt | |
| 53,826 | |
| 46,189 |
Retirement and nonpension postretirement benefit obligations | |
| 9,509 | |
| 9,596 |
Deferred income | |
| 3,443 | |
| 3,499 |
Operating lease liabilities | |
| 2,094 | |
| 2,190 |
Other liabilities | |
| 12,099 | |
| 12,243 |
Total liabilities | |
| 111,964 | |
| 105,222 |
Equity: | |
| | |
| |
IBM stockholders’ equity: | |
| | |
| |
Common stock, par value $0.20 per share, and additional paid-in capital | |
| 58,675 | |
| 58,343 |
Shares authorized: 4,687,500,000 | |
| | |
| |
Shares issued: 2023 - 2,259,497,847 | |
| | |
| |
2022 - 2,257,116,920 | |
| | |
| |
Retained earnings | |
| 149,253 | |
| 149,825 |
Treasury stock - at cost | |
| (169,544) | |
| (169,484) |
Shares: 2023 - 1,351,452,434 | |
| | |
| |
2022 - 1,351,024,943 | |
| | |
| |
Accumulated other comprehensive income/(loss) | |
| (16,780) | |
| (16,740) |
Total IBM stockholders’ equity | |
| 21,604 | |
| 21,944 |
Noncontrolling interests | |
| 68 | |
| 77 |
Total equity | |
| 21,672 | |
| 22,021 |
Total liabilities and equity | | $ | 133,637 | | $ | 127,243 |
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
6
BALANCE SHEET
(Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||
Assets: | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 9,394 | $ | 7,886 | ||||||||||
Restricted cash | 31 | 103 | ||||||||||||
Marketable securities | 6,904 | 852 | ||||||||||||
Notes and accounts receivable — trade (net of allowances of $217 in 2023 and $233 in 2022) | 5,673 | 6,541 | ||||||||||||
Short-term financing receivables: | ||||||||||||||
Held for investment (net of allowances of $143 in 2023 and $145 in 2022) | 5,564 | 6,851 | ||||||||||||
Held for sale | 865 | 939 | ||||||||||||
Other accounts receivable (net of allowances of $108 in 2023 and $89 in 2022) | 838 | 817 | ||||||||||||
Inventory, at lower of average cost or net realizable value: | ||||||||||||||
Finished goods | 174 | 158 | ||||||||||||
Work in process and raw materials | 1,327 | 1,394 | ||||||||||||
Total inventory | 1,501 | 1,552 | ||||||||||||
Deferred costs | 957 | 967 | ||||||||||||
Prepaid expenses and other current assets | 2,730 | 2,611 | ||||||||||||
Total current assets | 34,458 | 29,118 | ||||||||||||
Property, plant and equipment | 18,588 | 18,695 | ||||||||||||
Less: Accumulated depreciation | 13,145 | 13,361 | ||||||||||||
Property, plant and equipment — net | 5,443 | 5,334 | ||||||||||||
Operating right-of-use assets — net | 2,653 | 2,878 | ||||||||||||
Long-term financing receivables (net of allowances of $28 in 2023 and $28 in 2022) | 5,221 | 5,806 | ||||||||||||
Prepaid pension assets | 8,735 | 8,236 | ||||||||||||
Deferred costs | 897 | 866 | ||||||||||||
Deferred taxes | 6,340 | 6,256 | ||||||||||||
Goodwill | 56,385 | 55,949 | ||||||||||||
Intangible assets — net | 10,496 | 11,184 | ||||||||||||
Investments and sundry assets | 1,585 | 1,617 | ||||||||||||
Total assets | $ | 132,213 | $ | 127,243 |
| | | | | | |
| | Three Months Ended March 31, | ||||
(Dollars in millions) |
| 2023 |
| 2022* | ||
Cash flows from operating activities: |
| |
|
| |
|
Net income | | $ | 927 | | $ | 733 |
Adjustments to reconcile net income/(loss) to cash provided by operating activities: | |
|
| |
|
|
Depreciation | |
| 527 | |
| 631 |
Amortization of intangibles | |
| 547 | |
| 625 |
Stock-based compensation | |
| 268 | |
| 234 |
Net (gain)/loss on asset sales and other | |
| (55) | |
| (51) |
Changes in operating assets and liabilities, net of acquisitions/divestitures | |
| 1,559 | |
| 1,076 |
Net cash provided by operating activities | |
| 3,774 | |
| 3,248 |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Payments for property, plant and equipment | |
| (300) | |
| (281) |
Proceeds from disposition of property, plant and equipment | |
| 11 | |
| 72 |
Investment in software | |
| (168) | |
| (169) |
Acquisition of businesses, net of cash acquired | |
| (22) | |
| (698) |
Divestitures of businesses, net of cash transferred | |
| — | |
| 61 |
Purchases of marketable securities and other investments | |
| (8,531) | |
| (1,025) |
Proceeds from disposition of marketable securities and other investments | |
| 1,050 | |
| 682 |
Net cash provided by/(used in) investing activities | |
| (7,960) | |
| (1,358) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Proceeds from new debt | |
| 9,432 | |
| 4,084 |
Payments to settle debt | |
| (2,125) | |
| (1,129) |
Short-term borrowings/(repayments) less than 90 days — net | |
| (3) | |
| (8) |
Common stock repurchases for tax withholdings | |
| (96) | |
| (80) |
Financing — other | |
| (3) | |
| (15) |
Cash dividends paid | |
| (1,497) | |
| (1,475) |
Net cash provided by/(used in) financing activities | |
| 5,708 | |
| 1,377 |
| | | | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| 24 | |
| (5) |
Net change in cash, cash equivalents and restricted cash | |
| 1,547 | |
| 3,263 |
| | | | | | |
Cash, cash equivalents and restricted cash at January 1 | |
| 7,988 | |
| 6,957 |
Cash, cash equivalents and restricted cash at March 31 | | $ | 9,535 | | $ | 10,219 |
*Includes immaterial cash flows from discontinued operations.
(Amounts may not add due to rounding.)
7
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | |
|
| Common | | | | | | | | | | | | | | | | | | ||
| | Stock and | | | | | | | | Accumulated | | | | | | | | | | ||
| | Additional | | | | | | | | Other | | Total IBM | | Non- | | | | ||||
| | Paid-in | | Retained | | Treasury | | Comprehensive | | Stockholders’ | | Controlling | | Total | |||||||
(Dollars in millions except per share amounts) |
| Capital |
| Earnings |
| Stock |
| Income/(Loss) |
| Equity |
| Interests |
| 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 | |
|
| |
| 927 | |
|
| |
|
| |
| 927 | |
|
| |
| 927 |
Other comprehensive income/(loss) | |
|
| |
|
| |
|
| |
| (40) | |
| (40) | |
|
| |
| (40) |
Total comprehensive income/(loss) | |
|
| |
|
| |
|
| |
|
| | $ | 888 | |
|
| | $ | 888 |
Cash dividends paid — common stock ($1.65 per share) | |
|
| |
| (1,497) | |
|
| |
|
| |
| (1,497) | |
|
| |
| (1,497) |
Common stock issued under employee plans (2,380,928 shares) | |
| 332 | |
| | |
|
| |
|
| |
| 332 | |
|
| |
| 332 |
Purchases (711,325 shares) and sales (283,834 shares) of treasury stock under employee plans — net | |
|
| |
| (2) | |
| (60) | |
|
| |
| (62) | |
|
| |
| (62) |
Changes in noncontrolling interests | |
|
| |
|
| |
|
| |
|
| |
|
| |
| (9) | |
| (9) |
Equity – March 31, 2023 | | $ | 58,675 | | $ | 149,253 | | $ | (169,544) | | $ | (16,780) | | $ | 21,604 | | $ | 68 | | $ | 21,672 |
| | | | | | | | | | | | | | | | | | | | | |
|
| Common |
| | |
| | |
| |
| | |
| | |
| | | ||
| | Stock and | | | | | | | | Accumulated | | | | | | | | | | ||
| | Additional | | | | | | | | Other | | Total IBM | | Non- | | | | ||||
| | Paid-in | | Retained | | Treasury | | Comprehensive | | Stockholders’ | | Controlling | | Total | |||||||
(Dollars in millions except per share amounts) | | Capital | | Earnings | | Stock | | Income/(Loss) | | Equity | | Interests | | Equity | |||||||
Equity - January 1, 2022 | | $ | 57,319 | | $ | 154,209 | | $ | (169,392) | | $ | (23,234) | | $ | 18,901 | | $ | 95 | | $ | 18,996 |
Net income plus other comprehensive income/(loss): | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income | |
|
| |
| 733 | |
|
| |
|
| |
| 733 | |
|
| |
| 733 |
Other comprehensive income/(loss) | |
|
| |
|
| |
|
| |
| 703 | |
| 703 | |
|
| |
| 703 |
Total comprehensive income/(loss) | |
|
| |
|
| |
|
| |
|
| | $ | 1,436 | |
|
| | $ | 1,436 |
Cash dividends paid — common stock ($1.64 per share) | |
|
| |
| (1,475) | |
|
| |
|
| |
| (1,475) | |
|
| |
| (1,475) |
Common stock issued under employee plans (1,562,135 shares) | |
| 221 | |
|
| |
|
| |
|
| |
| 221 | |
|
| |
| 221 |
Purchases (595,710 shares) and sales (400,300 shares) of treasury stock under employee plans — net | |
|
| |
| (3) | |
| (30) | |
|
| |
| (34) | |
|
| |
| (34) |
Other equity | | | 63 | | | (63) | | | | | | | | | 0 | | | | | | 0 |
Changes in noncontrolling interests | |
|
| |
|
| |
|
| |
|
| |
|
| |
| (33) | |
| (33) |
Equity - March 31, 2022 | | $ | 57,603 | | $ | 153,401 | | $ | (169,422) | | $ | (22,532) | | $ | 19,050 | | $ | 62 | | $ | 19,112 |
(Dollars in millions except per share amounts) | At June 30, 2023 | At December 31, 2022 | ||||||||||||
Liabilities: | ||||||||||||||
Current liabilities: | ||||||||||||||
Taxes | $ | 1,606 | $ | 2,196 | ||||||||||
Short-term debt | 6,785 | 4,760 | ||||||||||||
Accounts payable | 3,732 | 4,051 | ||||||||||||
Compensation and benefits | 3,185 | 3,481 | ||||||||||||
Deferred income | 12,712 | 12,032 | ||||||||||||
Operating lease liabilities | 842 | 874 | ||||||||||||
Other accrued expenses and liabilities | 3,651 | 4,111 | ||||||||||||
Total current liabilities | 32,513 | 31,505 | ||||||||||||
Long-term debt | 50,691 | 46,189 | ||||||||||||
Retirement and nonpension postretirement benefit obligations | 9,385 | 9,596 | ||||||||||||
Deferred income | 3,264 | 3,499 | ||||||||||||
Operating lease liabilities | 1,986 | 2,190 | ||||||||||||
Other liabilities | 12,103 | 12,243 | ||||||||||||
Total liabilities | 109,942 | 105,222 | ||||||||||||
Equity: | ||||||||||||||
IBM stockholders’ equity: | ||||||||||||||
Common stock, par value $0.20 per share, and additional paid-in capital | 58,963 | 58,343 | ||||||||||||
Shares authorized: 4,687,500,000 | ||||||||||||||
Shares issued: 2023 - 2,262,697,191 | ||||||||||||||
2022 - 2,257,116,920 | ||||||||||||||
Retained earnings | 149,318 | 149,825 | ||||||||||||
Treasury stock - at cost | (169,581) | (169,484) | ||||||||||||
Shares: 2023 - 1,351,690,951 | ||||||||||||||
2022 - 1,351,024,943 | ||||||||||||||
Accumulated other comprehensive income/(loss) | (16,499) | (16,740) | ||||||||||||
Total IBM stockholders’ equity | 22,201 | 21,944 | ||||||||||||
Noncontrolling interests | 70 | 77 | ||||||||||||
Total equity | 22,271 | 22,021 | ||||||||||||
Total liabilities and equity | $ | 132,213 | $ | 127,243 |
8
Six Months Ended June 30, | ||||||||||||||
(Dollars in millions) | 2023 | 2022* | ||||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income | $ | 2,511 | $ | 2,125 | ||||||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||
Depreciation | 1,047 | 1,251 | ||||||||||||
Amortization of intangibles | 1,104 | 1,251 | ||||||||||||
Stock-based compensation | 556 | 488 | ||||||||||||
Net (gain)/loss on asset sales and other | (113) | (100) | ||||||||||||
Changes in operating assets and liabilities, net of acquisitions/divestitures | 1,308 | (446) | ||||||||||||
Net cash provided by operating activities | 6,412 | 4,569 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||
Payments for property, plant and equipment | (664) | (620) | ||||||||||||
Proceeds from disposition of property, plant and equipment | 25 | 90 | ||||||||||||
Investment in software | (305) | (341) | ||||||||||||
Acquisition of businesses, net of cash acquired | (356) | (958) | ||||||||||||
Divestitures of businesses, net of cash transferred | 6 | 1,268 | ||||||||||||
Purchases of marketable securities and other investments | (9,260) | (2,336) | ||||||||||||
Proceeds from disposition of marketable securities and other investments | 2,600 | 1,711 | ||||||||||||
Net cash provided by/(used in) investing activities | (7,953) | (1,186) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||
Proceeds from new debt | 9,432 | 4,402 | ||||||||||||
Payments to settle debt | (3,260) | (3,959) | ||||||||||||
Short-term borrowings/(repayments) less than 90 days — net | (3) | (9) | ||||||||||||
Common stock repurchases for tax withholdings | (240) | (315) | ||||||||||||
Financing — other | 56 | 25 | ||||||||||||
Cash dividends paid | (3,007) | (2,963) | ||||||||||||
Net cash provided by/(used in) financing activities | 2,978 | (2,819) | ||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1) | (267) | ||||||||||||
Net change in cash, cash equivalents and restricted cash | 1,436 | 297 | ||||||||||||
Cash, cash equivalents and restricted cash at January 1 | 7,988 | 6,957 | ||||||||||||
Cash, cash equivalents and restricted cash at June 30 | $ | 9,425 | $ | 7,254 |
(Dollars in millions except per share amounts) | 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 - April 1, 2023 | $ | 58,675 | $ | 149,253 | $ | (169,544) | $ | (16,780) | $ | 21,604 | $ | 68 | $ | 21,672 | ||||||||||||||||||||||||||||||
Net income plus other comprehensive income/(loss): | ||||||||||||||||||||||||||||||||||||||||||||
Net income | 1,583 | 1,583 | 1,583 | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | 280 | 280 | 280 | |||||||||||||||||||||||||||||||||||||||||
Total comprehensive income/(loss) | $ | 1,863 | $ | 1,863 | ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid — common stock ($1.66 per share) | (1,510) | (1,510) | (1,510) | |||||||||||||||||||||||||||||||||||||||||
Common stock issued under employee plans (3,199,344 shares) | 288 | 288 | 288 | |||||||||||||||||||||||||||||||||||||||||
Purchases (1,098,988 shares) and sales (860,470 shares) of treasury stock under employee plans — net | (8) | (37) | (45) | (45) | ||||||||||||||||||||||||||||||||||||||||
Changes in noncontrolling interests | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||
Equity – June 30, 2023 | $ | 58,963 | $ | 149,318 | $ | (169,581) | $ | (16,499) | $ | 22,201 | $ | 70 | $ | 22,271 |
(Dollars in millions except per share amounts) | 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 - April 1, 2022 | $ | 57,603 | $ | 153,401 | $ | (169,422) | $ | (22,532) | $ | 19,050 | $ | 62 | $ | 19,112 | ||||||||||||||||||||||||||||||
Net income plus other comprehensive income/(loss): | ||||||||||||||||||||||||||||||||||||||||||||
Net income | 1,392 | 1,392 | 1,392 | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | 363 | 363 | 363 | |||||||||||||||||||||||||||||||||||||||||
Total comprehensive income/(loss) | $ | 1,755 | $ | 1,755 | ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid — common stock ($1.65 per share) | (1,488) | (1,488) | (1,488) | |||||||||||||||||||||||||||||||||||||||||
Common stock issued under employee plans (4,398,589 shares) | 199 | 199 | 199 | |||||||||||||||||||||||||||||||||||||||||
Purchases (1,723,774 shares) and sales (1,070,214 shares) of treasury stock under employee plans — net | (7) | (100) | (107) | (107) | ||||||||||||||||||||||||||||||||||||||||
Changes in noncontrolling interests | 6 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Equity - June 30, 2022 | $ | 57,802 | $ | 153,298 | $ | (169,522) | $ | (22,169) | $ | 19,409 | $ | 67 | $ | 19,476 |
(Dollars in millions except per share amounts) | 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 | 2,511 | 2,511 | 2,511 | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | 241 | 241 | 241 | |||||||||||||||||||||||||||||||||||||||||
Total comprehensive income/(loss) | $ | 2,751 | $ | 2,751 | ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid — common stock ($3.31 per share) | (3,007) | (3,007) | (3,007) | |||||||||||||||||||||||||||||||||||||||||
Common stock issued under employee plans (5,580,271 shares) | 619 | 619 | 619 | |||||||||||||||||||||||||||||||||||||||||
Purchases (1,810,313 shares) and sales (1,144,305 shares) of treasury stock under employee plans — net | (10) | (97) | (107) | (107) | ||||||||||||||||||||||||||||||||||||||||
Changes in noncontrolling interests | (7) | (7) | ||||||||||||||||||||||||||||||||||||||||||
Equity - June 30, 2023 | $ | 58,963 | $ | 149,318 | $ | (169,581) | $ | (16,499) | $ | 22,201 | $ | 70 | $ | 22,271 |
(Dollars in millions except per share amounts) | 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, 2022 | $ | 57,319 | $ | 154,209 | $ | (169,392) | $ | (23,234) | $ | 18,901 | $ | 95 | $ | 18,996 | ||||||||||||||||||||||||||||||
Net income plus other comprehensive income/(loss): | ||||||||||||||||||||||||||||||||||||||||||||
Net income | 2,125 | 2,125 | 2,125 | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | 1,066 | 1,066 | 1,066 | |||||||||||||||||||||||||||||||||||||||||
Total comprehensive income/(loss) | $ | 3,191 | $ | 3,191 | ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid — common stock ($3.29 per share) | (2,963) | (2,963) | (2,963) | |||||||||||||||||||||||||||||||||||||||||
Common stock issued under employee plans (5,960,724 shares) | 420 | 420 | 420 | |||||||||||||||||||||||||||||||||||||||||
Purchases (2,319,484 shares) and sales (1,470,514 shares) of treasury stock under employee plans — net | (11) | (130) | (141) | (141) | ||||||||||||||||||||||||||||||||||||||||
Other equity | 63 | (63) | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Changes in noncontrolling interests | (27) | (27) | ||||||||||||||||||||||||||||||||||||||||||
Equity - June 30, 2022 | $ | 57,802 | $ | 153,298 | $ | (169,522) | $ | (22,169) | $ | 19,409 | $ | 67 | $ | 19,476 |
9
2. Accounting Changes:
| | | | | | |
(Dollars in millions) | | | ||||
For the three months ended March 31: | | 2023 | | 2022 | ||
Hybrid Platform & Solutions | | $ | 4,179 | | $ | 4,080 |
Transaction Processing | | | 1,742 | | | 1,692 |
Total Software | | $ | 5,921 | | $ | 5,772 |
Business Transformation | |
| 2,283 | |
| 2,255 |
Application Operations | |
| 1,736 | |
| 1,619 |
Technology Consulting | |
| 943 | |
| 955 |
Total Consulting | | $ | 4,962 | | $ | 4,829 |
Hybrid Infrastructure | |
| 1,709 | |
| 1,700 |
Infrastructure Support | |
| 1,389 | |
| 1,519 |
Total Infrastructure | | $ | 3,098 | | $ | 3,219 |
Financing* | |
| 196 | |
| 154 |
Other | |
| 75 | |
| 224 |
Total revenue | | $ | 14,252 | | $ | 14,197 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Hybrid Platform & Solutions | $ | 4,665 | $ | 4,390 | $ | 8,844 | $ | 8,470 | ||||||||||||||||||
Transaction Processing | 1,943 | 1,776 | 3,685 | 3,468 | ||||||||||||||||||||||
Total Software | $ | 6,608 | $ | 6,166 | $ | 12,529 | $ | 11,938 | ||||||||||||||||||
Business Transformation | 2,295 | 2,227 | 4,578 | 4,482 | ||||||||||||||||||||||
Application Operations | 1,758 | 1,653 | 3,494 | 3,272 | ||||||||||||||||||||||
Technology Consulting | 961 | 928 | 1,904 | 1,884 | ||||||||||||||||||||||
Total Consulting | $ | 5,013 | $ | 4,809 | $ | 9,975 | $ | 9,637 | ||||||||||||||||||
Hybrid Infrastructure | 2,260 | 2,760 | 3,969 | 4,461 | ||||||||||||||||||||||
Infrastructure Support | 1,358 | 1,474 | 2,747 | 2,993 | ||||||||||||||||||||||
Total Infrastructure | $ | 3,618 | $ | 4,235 | $ | 6,716 | $ | 7,453 | ||||||||||||||||||
Financing* | 185 | 146 | 380 | 300 | ||||||||||||||||||||||
Other | 51 | 180 | 126 | 404 | ||||||||||||||||||||||
Total revenue | $ | 15,475 | $ | 15,535 | $ | 29,727 | $ | 29,732 |
10
|
|
|
|
|
|
|
Revenue by Geography
| | | | | | |
(Dollars in millions) |
| | ||||
For the three months ended March 31: | | 2023 | | 2022 | ||
Americas | | $ | 7,078 | | $ | 7,056 |
Europe/Middle East/Africa | |
| 4,331 | |
| 4,231 |
Asia Pacific | |
| 2,843 | |
| 2,910 |
Total | | $ | 14,252 | | $ | 14,197 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Americas | $ | 8,046 | $ | 8,142 | $ | 15,124 | $ | 15,198 | ||||||||||||||||||
Europe/Middle East/Africa | 4,602 | 4,526 | 8,933 | 8,757 | ||||||||||||||||||||||
Asia Pacific | 2,827 | 2,868 | 5,670 | 5,778 | ||||||||||||||||||||||
Total | $ | 15,475 | $ | 15,535 | $ | 29,727 | $ | 29,732 |
| | | | | | |
|
| At March 31, |
| At December 31, | ||
(Dollars in millions) | | 2023 | | 2022 | ||
Notes and accounts receivable — trade (net of allowances of $250 in 2023 and $233 in 2022) | | $ | 5,757 | | $ | 6,541 |
Contract assets* | | $ | 461 | | $ | 464 |
Deferred income (current) | | $ | 13,220 | | $ | 12,032 |
Deferred income (noncurrent) | | $ | 3,443 | | $ | 3,499 |
(Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||
Notes and accounts receivable — trade (net of allowances of $217 in 2023 and $233 in 2022) | $ | 5,673 | $ | 6,541 | ||||||||||
Contract assets* | $ | 447 | $ | 464 | ||||||||||
Deferred income (current) | $ | 12,712 | $ | 12,032 | ||||||||||
Deferred income (noncurrent) | $ | 3,264 | $ | 3,499 |
|
| |
11
Notes to Consolidated Financial Statements — (continued)
The following table provides roll forwards of the notes and accounts receivable–trade allowance for expected credit losses for the threesix months ended March 31,June 30, 2023 and the year ended December 31, 2022.
| | | | | | | | | | | | | |
(Dollars in millions) |
|
| |
|
| |
|
| |
|
| | |
January 1, 2023 | | Additions / (Releases) | | Write-offs | | Foreign currency and other | | March 31, 2023 | |||||
$ | 233 | | $ | 23 | | $ | (8) | | $ | 1 | | $ | 250 |
| | | | | | | | | | | | | |
January 1, 2022 | | Additions / (Releases) | | Write-offs | | Foreign currency and other | | December 31, 2022 | |||||
$ | 218 | | $ | 59 | | $ | (31) | | $ | (14) | | $ | 233 |
(Dollars in millions) | ||||||||||||||||||||||||||
January 1, 2023 | Additions / (Releases) | Write-offs | Foreign currency and other | June 30, 2023 | ||||||||||||||||||||||
$ | 233 | $ | 31 | $ | (47) | $ | 1 | $ | 217 |
January 1, 2022 | Additions / (Releases) | Write-offs | Foreign currency and other | December 31, 2022 | ||||||||||||||||||||||
$ | 218 | $ | 59 | $ | (31) | $ | (14) | $ | 233 |
12
SEGMENT INFORMATION
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Total |
| |||||
(Dollars in millions) | | Software | | Consulting | | Infrastructure | | Financing | | Segments |
| |||||
For the three months ended March 31, 2023: |
| |
|
| |
|
| |
|
| |
|
| |
| |
Revenue | | $ | 5,921 | | $ | 4,962 | | $ | 3,098 | | $ | 196 | | $ | 14,177 | |
Pre-tax income from continuing operations | | $ | 1,164 | | $ | 382 | | $ | 216 | | $ | 100 | | $ | 1,863 | |
Revenue year-to-year change | |
| 2.6 | % |
| 2.8 | % |
| (3.7) | % |
| 27.3 | % |
| 1.5 | % |
Pre-tax income year-to-year change | |
| 2.7 | % |
| 9.6 | % |
| 8.5 | % |
| 19.6 | % |
| 5.5 | % |
Pre-tax income margin | |
| 19.7 | % |
| 7.7 | % |
| 7.0 | % |
| 51.3 | % |
| 13.1 | % |
| | | | | | | | | | | | | | | | |
For the three months ended March 31, 2022: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenue | | $ | 5,772 | | $ | 4,829 | | $ | 3,219 | | $ | 154 | | $ | 13,973 | |
Pre-tax income from continuing operations | | $ | 1,134 | | $ | 348 | | $ | 199 | | $ | 84 | | $ | 1,766 | |
Pre-tax income margin | |
| 19.7 | % |
| 7.2 | % |
| 6.2 | % |
| 54.6 | % |
| 12.6 | % |
(Dollars in millions) | Software | Consulting | Infrastructure | Financing | Total Segments | ||||||||||||||||||||||||||||||
For the three months ended June 30, 2023: | |||||||||||||||||||||||||||||||||||
Revenue | $ | 6,608 | $ | 5,013 | $ | 3,618 | $ | 185 | $ | 15,424 | |||||||||||||||||||||||||
Pre-tax income from continuing operations | $ | 1,504 | $ | 446 | $ | 633 | $ | 64 | $ | 2,647 | |||||||||||||||||||||||||
Revenue year-to-year change | 7.2 | % | 4.3 | % | (14.6) | % | 26.2 | % | 0.4 | % | |||||||||||||||||||||||||
Pre-tax income year-to-year change | 9.4 | % | 30.1 | % | (16.4) | % | (36.8) | % | 2.7 | % | |||||||||||||||||||||||||
Pre-tax income margin | 22.8 | % | 8.9 | % | 17.5 | % | 34.9 | % | 17.2 | % | |||||||||||||||||||||||||
For the three months ended June 30, 2022: | |||||||||||||||||||||||||||||||||||
Revenue | $ | 6,166 | $ | 4,809 | $ | 4,235 | $ | 146 | $ | 15,355 | |||||||||||||||||||||||||
Pre-tax income from continuing operations | $ | 1,375 | $ | 343 | $ | 757 | $ | 102 | $ | 2,577 | |||||||||||||||||||||||||
Pre-tax income margin | 22.3 | % | 7.1 | % | 17.9 | % | 69.7 | % | 16.8 | % |
| | | | | | | |
(Dollars in millions) |
|
| |
|
| | |
For the three months ended March 31: | | 2023 | | 2022 | | ||
Revenue: |
| |
|
| |
|
|
Total reportable segments | | $ | 14,177 | | $ | 13,973 | |
Other‒divested businesses | |
| 0 | |
| 154 | |
Other revenue | |
| 75 | |
| 70 | |
Total consolidated revenue | | $ | 14,252 | | $ | 14,197 | |
| | | | | | | |
Pre-tax income/(loss) from continuing operations: | |
|
| |
|
| |
Total reportable segments | | $ | 1,863 | | $ | 1,766 | |
Amortization of acquired intangible assets | |
| (392) | |
| (461) | |
Acquisition-related (charges)/income | |
| (3) | |
| (7) | |
Non-operating retirement-related (costs)/income | |
| 5 | |
| (202) | |
Kyndryl-related impacts | | | — | |
| (222) | * |
Workforce rebalancing charges** | | | (259) | | | — | |
Other‒divested businesses | |
| (4) | |
| (52) | |
Unallocated corporate amounts and other | |
| (151) | |
| (199) | È |
Total pre-tax income from continuing operations | | $ | 1,058 | | $ | 623 | |
(Dollars in millions) | |||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||
Revenue: | |||||||||||||||||
Total reportable segments | $ | 15,424 | $ | 15,355 | |||||||||||||
Other‒divested businesses | (1) | 162 | |||||||||||||||
Other revenue | 52 | 18 | |||||||||||||||
Total revenue from continuing operations | $ | 15,475 | $ | 15,535 | |||||||||||||
Pre-tax income from continuing operations: | |||||||||||||||||
Total reportable segments | $ | 2,647 | $ | 2,577 | |||||||||||||
Amortization of acquired intangible assets | (389) | (458) | |||||||||||||||
Acquisition-related (charges)/income | (7) | (2) | |||||||||||||||
Non-operating retirement-related (costs)/income | (1) | (192) | |||||||||||||||
Kyndryl-related impacts | — | (145) | * | ||||||||||||||
Workforce rebalancing charges** | (117) | — | |||||||||||||||
Other‒divested businesses | (1) | 160 | |||||||||||||||
Unallocated corporate amounts and other | (133) | (219) | + | ||||||||||||||
Total pre-tax income/(loss) from continuing operations | $ | 2,000 | $ | 1,722 |
|
|
|
|
13
(Dollars in millions) | Software | Consulting | Infrastructure | Financing | Total Segments | ||||||||||||||||||||||||||||||
For the six months ended June 30, 2023: | |||||||||||||||||||||||||||||||||||
Revenue | $ | 12,529 | $ | 9,975 | $ | 6,716 | $ | 380 | $ | 29,601 | |||||||||||||||||||||||||
Pre-tax income from continuing operations | $ | 2,668 | $ | 828 | $ | 849 | $ | 165 | $ | 4,510 | |||||||||||||||||||||||||
Revenue year-to-year change | 5.0 | % | 3.5 | % | (9.9) | % | 26.8 | % | 0.9 | % | |||||||||||||||||||||||||
Pre-tax income year-to-year change | 6.3 | % | 19.8 | % | (11.2) | % | (11.3) | % | 3.8 | % | |||||||||||||||||||||||||
Pre-tax income margin | 21.3 | % | 8.3 | % | 12.6 | % | 43.3 | % | 15.2 | % | |||||||||||||||||||||||||
For the six months ended June 30, 2022: | |||||||||||||||||||||||||||||||||||
Revenue | $ | 11,938 | $ | 9,637 | $ | 7,453 | $ | 300 | $ | 29,328 | |||||||||||||||||||||||||
Pre-tax income from continuing operations | $ | 2,509 | $ | 691 | $ | 956 | $ | 186 | $ | 4,342 | |||||||||||||||||||||||||
Pre-tax income margin | 21.0 | % | 7.2 | % | 12.8 | % | 62.0 | % | 14.8 | % |
(Dollars in millions) | |||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||
Revenue: | |||||||||||||||||
Total reportable segments | $ | 29,601 | $ | 29,328 | |||||||||||||
Other‒divested businesses | (1) | 316 | |||||||||||||||
Other revenue | 127 | 88 | |||||||||||||||
Total consolidated revenue | $ | 29,727 | $ | 29,732 | |||||||||||||
Pre-tax income from continuing operations: | |||||||||||||||||
Total reportable segments | $ | 4,510 | $ | 4,342 | |||||||||||||
Amortization of acquired intangible assets | (781) | (919) | |||||||||||||||
Acquisition-related charges | (10) | (9) | |||||||||||||||
Non-operating retirement-related (costs)/income | 4 | (394) | |||||||||||||||
Kyndryl-related impacts | — | (367) | * | ||||||||||||||
Workforce rebalancing charges** | (376) | — | |||||||||||||||
Other‒divested businesses | (5) | 109 | |||||||||||||||
Unallocated corporate amounts | (284) | (418) | + | ||||||||||||||
Total pre-tax income/(loss) from continuing operations | $ | 3,058 | $ | 2,345 |
Acquisition | Segment |
| Description of Acquired Business | |||||||
First Quarter | ||||||||||
StepZen, Inc. |
|
|
| Developer of GraphQL to help build application programming interfaces (APIs) | ||||||
|
|
|
|
| ||||||
|
|
| ||||||||
| ||||||||||
NS1 | Software | Leading provider of network automation SaaS solutions | ||||||||
Second Quarter | ||||||||||
Ahana Cloud, Inc. | Software | Expert in open-source-based solutions for data analytics | ||||||||
Polar Security | Software | Innovator in technology that helps companies discover, continuously monitor and secure cloud and SaaS application data | ||||||||
Agyla SAS | Consulting | Leading provider of cloud platform engineering services in France specializing in Cloud, DevOps and Security | ||||||||
| | | | | |
| | Amortization | | Total | |
(Dollars in millions) |
| Life (in years) | | Acquisitions | |
Current assets | | | | $ | 27 |
Property, plant and equipment/noncurrent assets | | | |
| 9 |
Intangible assets: | | | | | |
Goodwill |
| N/A | |
| 141 |
Client relationships |
| 7 | |
| 34 |
Completed technology |
| 5-7 | |
| 35 |
Trademarks |
| 2-5 | |
| 2 |
Total assets acquired | | | | $ | 247 |
Current liabilities | | | |
| 19 |
Noncurrent liabilities | | | |
| 2 |
Total liabilities assumed | | | | $ | 21 |
Total purchase price | | | | $ | 226 |
(Dollars in millions) | Amortization Life (in years) | Total Acquisitions | ||||||||||||
Current assets | $ | 46 | ||||||||||||
Property, plant and equipment/noncurrent assets | 7 | |||||||||||||
Intangible assets: | ||||||||||||||
Goodwill | N/A | 301 | ||||||||||||
Client relationships | 7 | 37 | ||||||||||||
Completed technology | 5-7 | 66 | ||||||||||||
Trademarks | 2-5 | 2 | ||||||||||||
Total assets acquired | $ | 458 | ||||||||||||
Current liabilities | 26 | |||||||||||||
Noncurrent liabilities | 10 | |||||||||||||
Total liabilities assumed | $ | 36 | ||||||||||||
Total purchase price | $ | 423 |
The goodwill generated
14
Notes to Consolidated Financial Statements — (continued)
acquired businesses into the company’s various integrated solutions and services, neither of which qualifies as an amortizable intangible asset. It is expected that none of the goodwill will be deductible for tax purposes.
In April
Loss
Expense
:
| | | | | | | |
(Dollars in millions) | | | | | | | |
For the three months ended March 31: |
| 2023 |
| 2022 | | ||
Other (income) and expense: |
| |
|
| |
| |
Foreign currency transaction losses/(gains)* | | $ | 88 | | $ | (176) | |
(Gains)/losses on derivative instruments | |
| (142) | |
| 102 | |
Interest income | |
| (170) | |
| (17) | |
Net (gains)/losses from securities and investment assets | |
| 5 | |
| 218 | ** |
Retirement-related costs/(income) | |
| (5) | |
| 202 | |
OtherÈ | |
| (22) | |
| (83) | |
Total other (income) and expense | | $ | (245) | | $ | 246 | |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Other (income) and expense: | ||||||||||||||||||||||||||
Foreign currency transaction losses/(gains)* | $ | (166) | $ | (494) | $ | (78) | $ | (670) | ||||||||||||||||||
(Gains)/losses on derivative instruments** | 141 | 439 | (1) | 541 | ||||||||||||||||||||||
Interest income | (201) | (28) | (371) | (46) | ||||||||||||||||||||||
Net (gains)/losses from securities and investment assets+ | 3 | 54 | 8 | 273 | ||||||||||||||||||||||
Retirement-related costs/(income) | 1 | 192 | (4) | 394 | ||||||||||||||||||||||
Other++ | (39) | (243) | (61) | (327) | ||||||||||||||||||||||
Total other (income) and expense | $ | (261) | $ | (81) | $ | (506) | $ | 166 |
|
| |
È
15
| | | | | | |
(Dollars in millions except per share amounts) | | | | | | |
For the three months ended March 31: |
| 2023 |
| 2022 | ||
Number of shares on which basic earnings per share is calculated: |
| |
|
| |
|
Weighted-average shares outstanding during period |
| | 907,526,887 |
| | 899,316,026 |
Add — Incremental shares under stock-based compensation plans |
| | 8,609,239 |
| | 8,375,246 |
Add — Incremental shares associated with contingently issuable shares |
| | 1,709,153 |
| | 1,534,864 |
Number of shares on which diluted earnings per share is calculated |
| | 917,845,279 |
| | 909,226,136 |
| | | | | | |
Income from continuing operations | | $ | 934 | | $ | 662 |
Income/(loss) from discontinued operations, net of tax | |
| (7) | |
| 71 |
Net income on which basic earnings per share is calculated | | $ | 927 | | $ | 733 |
| | | | | | |
Income from continuing operations | | $ | 934 | | $ | 662 |
Net income applicable to contingently issuable shares | |
| — | |
| — |
Income from continuing operations on which diluted earnings per share is calculated | | $ | 934 | | $ | 662 |
Income/(loss) from discontinued operations, net of tax, on which diluted earnings per share is calculated | |
| (7) | |
| 71 |
Net income on which diluted earnings per share is calculated | | $ | 927 | | $ | 733 |
| | | | | | |
Earnings/(loss) per share of common stock: | |
|
| |
|
|
Assuming dilution | |
|
| |
|
|
Continuing operations | | $ | 1.02 | | $ | 0.73 |
Discontinued operations | |
| (0.01) | |
| 0.08 |
Total | | $ | 1.01 | | $ | 0.81 |
Basic | |
|
| |
|
|
Continuing operations | | $ | 1.03 | | $ | 0.74 |
Discontinued operations | |
| (0.01) | |
| 0.08 |
Total | | $ | 1.02 | | $ | 0.82 |
(Dollars in millions except per share amounts) | ||||||||||||||
For the three months ended June 30: | 2023 | 2022 | ||||||||||||
Number of shares on which basic earnings per share is calculated: | ||||||||||||||
Weighted-average shares outstanding during period | 909,855,943 | 901,470,793 | ||||||||||||
Add — Incremental shares under stock-based compensation plans | 7,584,035 | 7,518,749 | ||||||||||||
Add — Incremental shares associated with contingently issuable shares | 2,012,519 | 1,760,192 | ||||||||||||
Number of shares on which diluted earnings per share is calculated | 919,452,496 | 910,749,734 | ||||||||||||
Income from continuing operations | $ | 1,581 | $ | 1,465 | ||||||||||
Income/(loss) from discontinued operations, net of tax | 2 | (73) | ||||||||||||
Net income on which basic earnings per share is calculated | $ | 1,583 | $ | 1,392 | ||||||||||
Income from continuing operations | $ | 1,581 | $ | 1,465 | ||||||||||
Net income applicable to contingently issuable shares | — | — | ||||||||||||
Income from continuing operations on which diluted earnings per share is calculated | $ | 1,581 | $ | 1,465 | ||||||||||
Income/(loss) from discontinued operations, net of tax, on which diluted earnings per share is calculated | 2 | (73) | ||||||||||||
Net income on which diluted earnings per share is calculated | $ | 1,583 | $ | 1,392 | ||||||||||
Earnings/(loss) per share of common stock: | ||||||||||||||
Assuming dilution | ||||||||||||||
Continuing operations | $ | 1.72 | $ | 1.61 | ||||||||||
Discontinued operations | 0.00 | (0.08) | ||||||||||||
Total | $ | 1.72 | $ | 1.53 | ||||||||||
Basic | ||||||||||||||
Continuing operations | $ | 1.74 | $ | 1.62 | ||||||||||
Discontinued operations | 0.00 | (0.08) | ||||||||||||
Total | $ | 1.74 | $ | 1.54 |
16
(Dollars in millions except per share amounts) For the six months ended June 30: 2023 2022 Number of shares on which basic earnings per share is calculated: Weighted-average shares outstanding during period 908,691,415 900,393,410 Add — Incremental shares under stock-based compensation plans 8,096,637 7,946,998 Add — Incremental shares associated with contingently issuable shares 1,860,836 1,647,528 Number of shares on which diluted earnings per share is calculated 918,648,888 909,987,935 Income from continuing operations $ 2,515 $ 2,127 Income/(loss) from discontinued operations, net of tax (4) (2) Net income on which basic earnings per share is calculated $ 2,511 $ 2,125 Income from continuing operations $ 2,515 $ 2,127 Net income applicable to contingently issuable shares — — Income from continuing operations on which diluted earnings per share is calculated $ 2,515 $ 2,127 Income/(loss) from discontinued operations, net of tax, on which diluted earnings per share is calculated (4) (2) Net income on which diluted earnings per share is calculated $ 2,511 $ 2,125 Earnings/(loss) per share of common stock: Assuming dilution Continuing operations $ 2.74 $ 2.34 Discontinued operations 0.00 0.00 Total $ 2.73 $ 2.34 Basic Continuing operations $ 2.77 $ 2.36 Discontinued operations 0.00 0.00 Total $ 2.76 $ 2.36
Liabilities:
Level 1
–
Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date;
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.
June 30, 2023.
17
The following table presents the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at March 31,June 30, 2023 and December 31, 2022.
| | | | | | | | | | | | | | |
| | Fair Value | | | | | ||||||||
| | Hierarchy | | At March 31, 2023 | | At December 31, 2022 | ||||||||
(Dollars in millions) |
| Level |
| Assets (5) |
| Liabilities (6) |
| Assets (5) |
| Liabilities (6) | ||||
Cash equivalents: (1) | | | | | | | | | | | | | | |
Time deposits and certificates of deposit (2) | | 2 | | $ | 3,896 | | $ | N/A | | $ | 3,712 | | $ | N/A |
Money market funds | | 1 | | | 817 | | | N/A | | | 306 | | | N/A |
Total cash equivalents | | | | $ | 4,713 | | $ | N/A | | $ | 4,018 | | $ | N/A |
Equity investments | | 1 | | | 1 | | | N/A | | | — | | | N/A |
Debt securities-current (2)(3) | | 2 | | | 8,057 | | | N/A | | | 852 | | | N/A |
Debt securities-noncurrent (2)(4) | | 2,3 | | | 33 | | | N/A | | | 31 | | | N/A |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | |
Interest rate contracts | | 2 | | | 19 | | | 281 | | | 3 | | | 336 |
Foreign exchange contracts | | 2 | | | 111 | | | 388 | | | 184 | | | 674 |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | |
Foreign exchange contracts | | 2 | | | 10 | | | 50 | | | 42 | | | 16 |
Equity contracts | | 2 | | | 28 | | | 12 | | | 49 | | | 8 |
Total | | | | $ | 12,971 | | $ | 731 | | $ | 5,179 | | $ | 1,034 |
Fair Value Hierarchy Level | At June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||
(Dollars in millions) | Assets (5) | Liabilities (6) | Assets (5) | Liabilities (6) | ||||||||||||||||||||||||||||
Cash equivalents: (1) | ||||||||||||||||||||||||||||||||
Time deposits and certificates of deposit (2) | 2 | $ | 4,383 | N/A | $ | 3,712 | N/A | |||||||||||||||||||||||||
Money market funds | 1 | 399 | N/A | 306 | N/A | |||||||||||||||||||||||||||
Total cash equivalents | $ | 4,782 | N/A | $ | 4,018 | N/A | ||||||||||||||||||||||||||
Debt securities-current (2)(3) | 2 | 6,904 | N/A | 852 | N/A | |||||||||||||||||||||||||||
Debt securities-noncurrent (2)(4) | 2,3 | 33 | N/A | 31 | N/A | |||||||||||||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Interest rate contracts | 2 | 0 | 400 | 3 | 336 | |||||||||||||||||||||||||||
Foreign exchange contracts | 2 | 342 | 374 | 184 | 674 | |||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Foreign exchange contracts | 2 | 14 | 47 | 42 | 16 | |||||||||||||||||||||||||||
Equity contracts | 2 | 21 | 4 | 49 | 8 | |||||||||||||||||||||||||||
Total | $ | 12,096 | $ | 824 | $ | 5,179 | $ | 1,034 |
Included within cash and cash equivalents in the Consolidated Balance Sheet.
18
Long-Term Debt
Client Financing Receivables | ||||||||||||||||||||||||||||||||
Client Loan and Installment Payment Receivables | Investment in Sales-Type and Direct Financing | |||||||||||||||||||||||||||||||
Commercial Financing Receivables | ||||||||||||||||||||||||||||||||
(Dollars in millions) | Held for | Held for | ||||||||||||||||||||||||||||||
At June 30, 2023 | (Loans) | Leases | Investment | Sale* | Total | |||||||||||||||||||||||||||
Financing receivables, gross | $ | 7,262 | $ | 3,853 | $ | 251 | $ | 865 | $ | 12,230 | ||||||||||||||||||||||
Unearned income | (436) | (377) | — | — | (813) | |||||||||||||||||||||||||||
Unguaranteed residual value | — | 404 | — | — | 404 | |||||||||||||||||||||||||||
Amortized cost | $ | 6,826 | $ | 3,880 | $ | 251 | $ | 865 | $ | 11,821 | ||||||||||||||||||||||
Allowance for credit losses | (104) | (62) | (5) | — | (171) | |||||||||||||||||||||||||||
Total financing receivables, net | $ | 6,722 | $ | 3,818 | $ | 245 | $ | 865 | $ | 11,650 | ||||||||||||||||||||||
Current portion | $ | 3,925 | $ | 1,393 | $ | 245 | $ | 865 | $ | 6,429 | ||||||||||||||||||||||
Noncurrent portion | $ | 2,796 | $ | 2,425 | $ | — | $ | — | $ | 5,221 |
Client Financing Receivables | ||||||||||||||||||||||||||||||||
Client Loan and Installment Payment Receivables | Investment in Sales-Type and Direct Financing | |||||||||||||||||||||||||||||||
Commercial Financing Receivables | ||||||||||||||||||||||||||||||||
(Dollars in millions) | Held for | Held for | ||||||||||||||||||||||||||||||
At December 31, 2022 | (Loans) | Leases | Investment | Sale* | Total | |||||||||||||||||||||||||||
Financing receivables, gross | $ | 8,875 | $ | 4,023 | $ | 299 | $ | 939 | $ | 14,136 | ||||||||||||||||||||||
Unearned income | (439) | (351) | — | — | (790) | |||||||||||||||||||||||||||
Unguaranteed residual value | — | 422 | — | — | 422 | |||||||||||||||||||||||||||
Amortized cost | $ | 8,437 | $ | 4,094 | $ | 299 | $ | 939 | $ | 13,769 | ||||||||||||||||||||||
Allowance for credit losses | (108) | (60) | (5) | — | (173) | |||||||||||||||||||||||||||
Total financing receivables, net | $ | 8,329 | $ | 4,034 | $ | 293 | $ | 939 | $ | 13,596 | ||||||||||||||||||||||
Current portion | $ | 5,073 | $ | 1,485 | $ | 293 | $ | 939 | $ | 7,790 | ||||||||||||||||||||||
Noncurrent portion | $ | 3,256 | $ | 2,549 | $ | — | $ | — | $ | 5,806 |
| | | | | | | | | | | | | | | |
|
| Client Financing Receivables |
| | | | | | | | | ||||
| | Client Loan and |
| Investment in | |
| |
|
|
| | ||||
| | Installment Payment | | Sales-Type and | | Commercial Financing Receivables | | | | ||||||
(Dollars in millions) | | Receivables | | Direct Financing | | Held for | | Held for | | | | ||||
At March 31, 2023: | | (Loans) | | Leases | | Investment | | Sale* | | Total | |||||
Financing receivables, gross | | $ | 7,558 | | $ | 3,853 | | $ | 250 | | $ | 605 | | $ | 12,265 |
Unearned income | | | (410) | |
| (363) | | | — | | | — | | | (773) |
Unguaranteed residual value | | | — | |
| 400 | | | — | | | — | | | 400 |
Amortized cost | | $ | 7,148 | | $ | 3,890 | | $ | 250 | | $ | 605 | | $ | 11,891 |
Allowance for credit losses | | | (100) | |
| (58) | | | (6) | | | — | | | (164) |
Total financing receivables, net | | $ | 7,047 | | $ | 3,831 | | $ | 244 | | $ | 605 | | $ | 11,727 |
Current portion | | $ | 4,369 | | $ | 1,445 | | $ | 244 | | $ | 605 | | $ | 6,662 |
Noncurrent portion | | $ | 2,678 | | $ | 2,387 | | $ | — | | $ | — | | $ | 5,065 |
* The carrying value of the receivables classified as held for sale approximates fair value.
19
| | | | | | | | | | | | | | | |
| | Client Financing Receivables | | | | | | | | | | ||||
|
| Client Loan and |
| Investment in |
|
| |
|
|
| | ||||
| | Installment Payment | | Sales-Type and | | Commercial Financing Receivables | | | | ||||||
(Dollars in millions) | | Receivables | | Direct Financing | | Held for | | Held for | | | | ||||
At December 31, 2022: | | (Loans) | | Leases | | Investment | | Sale* | | Total | |||||
Financing receivables, gross | | $ | 8,875 | | $ | 4,023 | | $ | 299 | | $ | 939 | | $ | 14,136 |
Unearned income | | | (439) | | | (351) | | | — | | | — | | | (790) |
Unguaranteed residual value | | | — | |
| 422 | | | — | | | — | | | 422 |
Amortized cost | | $ | 8,437 | | $ | 4,094 | | $ | 299 | | $ | 939 | | $ | 13,769 |
Allowance for credit losses | | | (108) | |
| (60) | | | (5) | | | — | | | (173) |
Total financing receivables, net | | $ | 8,329 | | $ | 4,034 | | $ | 293 | | $ | 939 | | $ | 13,596 |
Current portion | | $ | 5,073 | | $ | 1,485 | | $ | 293 | | $ | 939 | | $ | 7,790 |
Noncurrent portion | | $ | 3,256 | | $ | 2,549 | | $ | — | | $ | — | | $ | 5,806 |
* 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.
| | | | | | |
(Dollars in millions) |
| | ||||
For the three months ended March 31: | | 2023 | | 2022 | ||
Commercial financing receivables: | | | | | | |
Receivables transferred during the period | | $ | 2,233 | | $ | 1,989 |
Receivables uncollected at end of period* | | $ | 780 | | $ | 724 |
(Dollars in millions) | ||||||||||||||
For the six months ended June 30: | 2023 | 2022 | ||||||||||||
Commercial financing receivables: | ||||||||||||||
Receivables transferred during the period | $ | 4,345 | $ | 3,914 | ||||||||||
Receivables uncollected at end of period* | $ | 928 | $ | 815 |
|
| |
20
(Dollars in millions) | ||||||||||||||||||||||||||
At June 30, 2023: | Americas | EMEA | Asia Pacific | Total | ||||||||||||||||||||||
Amortized cost | $ | 6,317 | $ | 3,019 | $ | 1,370 | $ | 10,705 | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||
Beginning balance at January 1, 2023 | $ | 88 | $ | 60 | $ | 20 | $ | 168 | ||||||||||||||||||
Write-offs | $ | (3) | $ | 0 | $ | 0 | $ | (4) | ||||||||||||||||||
Recoveries | — | 0 | 0 | 1 | ||||||||||||||||||||||
Additions/(releases) | 6 | (12) | 0 | (6) | ||||||||||||||||||||||
Other* | 7 | $ | 0 | (1) | 7 | |||||||||||||||||||||
Ending balance at June 30, 2023 | $ | 98 | $ | 48 | $ | 19 | $ | 165 |
(Dollars in millions) | ||||||||||||||||||||||||||
At December 31, 2022: | Americas | EMEA | Asia Pacific | Total | ||||||||||||||||||||||
Amortized cost | $ | 7,281 | $ | 3,546 | $ | 1,704 | $ | 12,531 | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||
Beginning balance at January 1, 2022 | $ | 111 | $ | 61 | $ | 23 | $ | 195 | ||||||||||||||||||
Write-offs | $ | (20) | $ | (3) | $ | (2) | $ | (25) | ||||||||||||||||||
Recoveries | 1 | 0 | 4 | 5 | ||||||||||||||||||||||
Additions/(releases) | (5) | 6 | (4) | (3) | ||||||||||||||||||||||
Other* | 2 | (5) | (2) | (4) | ||||||||||||||||||||||
Ending balance at December 31, 2022 | $ | 88 | $ | 60 | $ | 20 | $ | 168 |
| | | | | | | | | | | | |
(Dollars in millions) |
|
| |
|
| |
|
| |
|
| |
At March 31, 2023: | | Americas | | EMEA | | Asia Pacific | | Total | ||||
Amortized cost |
| $ | 6,394 | | $ | 3,082 | | $ | 1,561 | | $ | 11,037 |
Allowance for credit losses: | |
|
| |
| | |
|
| |
| |
Beginning balance at January 1, 2023 | | $ | 88 | | $ | 60 | | $ | 20 | | $ | 168 |
Write-offs | | | 0 | | | 0 | | | — | | | 0 |
Recoveries | |
| — | |
| 0 | | | 0 | | | 0 |
Additions/(releases) | |
| 0 | |
| (13) | | | (1) | | | (13) |
Other* | |
| 4 | |
| 0 | | | 0 | | | 4 |
Ending balance at March 31, 2023 | | $ | 93 | | $ | 47 | | $ | 19 | | $ | 159 |
| | | | | | | | | | | | |
(Dollars in millions) |
|
| |
|
| |
|
| |
|
| |
At December 31, 2022: | | Americas | | EMEA | | Asia Pacific | | Total | ||||
Amortized cost |
| $ | 7,281 | | $ | 3,546 | | $ | 1,704 | | $ | 12,531 |
Allowance for credit losses: | |
|
| |
|
| |
|
| |
|
|
Beginning balance at January 1, 2022 | | $ | 111 | | $ | 61 | | $ | 23 | | $ | 195 |
Write-offs | | | (20) | | | (3) | | | (2) | | | (25) |
Recoveries | |
| 1 | |
| 0 | | | 4 | | | 5 |
Additions/(releases) | |
| (5) | |
| 6 | | | (4) | | | (3) |
Other* | |
| 2 | |
| (5) | | | (2) | | | (4) |
Ending balance at December 31, 2022 | | $ | 88 | | $ | 60 | | $ | 20 | | $ | 168 |
* Primarily represents translation adjustments.
21
(Dollars in millions) | Total Amortized Cost | Amortized Cost > 90 Days* | Amortized Cost > 90 Days and Accruing* | Billed Invoices > 90 Days and Accruing | Amortized Cost Not Accruing** | |||||||||||||||||||||||||||
At June 30, 2023: | ||||||||||||||||||||||||||||||||
Americas | $ | 6,317 | $ | 147 | $ | 72 | $ | 6 | $ | 77 | ||||||||||||||||||||||
EMEA | 3,019 | 35 | 4 | 1 | 31 | |||||||||||||||||||||||||||
Asia Pacific | 1,370 | 17 | 2 | 1 | 16 | |||||||||||||||||||||||||||
Total client financing receivables | $ | 10,705 | $ | 200 | $ | 78 | $ | 8 | $ | 124 |
(Dollars in millions) | Total Amortized Cost | Amortized Cost > 90 Days* | Amortized Cost > 90 Days and Accruing* | Billed Invoices > 90 Days and Accruing | Amortized Cost Not Accruing** | |||||||||||||||||||||||||||
At December 31, 2022: | ||||||||||||||||||||||||||||||||
Americas | $ | 7,281 | $ | 272 | $ | 198 | $ | 22 | $ | 74 | ||||||||||||||||||||||
EMEA | 3,546 | 52 | 8 | 1 | 46 | |||||||||||||||||||||||||||
Asia Pacific | 1,704 | 20 | 3 | 1 | 17 | |||||||||||||||||||||||||||
Total client financing receivables | $ | 12,531 | $ | 344 | $ | 208 | $ | 23 | $ | 137 |
| | | | | | | | | | | | | | | |
|
|
| |
|
| |
| Amortized |
| Billed |
| Amortized | |||
| | Total | | Amortized | | Cost | | Invoices | | Cost | |||||
(Dollars in millions) | | Amortized | | Cost | | > 90 Days and | | > 90 Days and | | Not | |||||
At March 31, 2023: | | Cost | | > 90 Days* | | Accruing* | | Accruing | | Accruing** | |||||
Americas | | $ | 6,394 | | $ | 183 | | $ | 107 | | $ | 15 | | $ | 76 |
EMEA | |
| 3,082 | | | 47 | | | 16 | | | 16 | | | 32 |
Asia Pacific | |
| 1,561 | | | 26 | | | 9 | | | 3 | | | 17 |
Total client financing receivables | | $ | 11,037 | | $ | 257 | | $ | 133 | | $ | 33 | | $ | 124 |
| | | | | | | | | | | | | | | |
|
|
| |
|
| |
| Amortized |
| Billed |
| Amortized | |||
| | Total | | Amortized | | Cost | | Invoices | | Cost | |||||
(Dollars in millions) | | Amortized | | Cost | | > 90 Days and | | > 90 Days and | | Not | |||||
At December 31, 2022: | | Cost | | > 90 Days* | | Accruing* | | Accruing | | Accruing** | |||||
Americas | | $ | 7,281 | | $ | 272 | | $ | 198 | | $ | 22 | | $ | 74 |
EMEA | |
| 3,546 | | | 52 | | | 8 | | | 1 | | | 46 |
Asia Pacific | |
| 1,704 | | | 20 | | | 3 | | | 1 | | | 17 |
Total client financing receivables | | $ | 12,531 | | $ | 344 | | $ | 208 | | $ | 23 | | $ | 137 |
* At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days.
| | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | Americas |
| EMEA |
| Asia Pacific | ||||||||||||
At March 31, 2023: |
| Aaa – Baa3 |
| Ba1 – D |
| Aaa – Baa3 |
| Ba1 – D |
| Aaa – Baa3 |
| Ba1 – D | ||||||
Vintage year: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
2023 | | $ | 295 | | $ | 231 | | $ | 157 | | $ | 130 | | $ | 115 | | $ | 48 |
2022 | | | 2,840 | | | 764 | | | 1,130 | | | 618 | | | 617 | | | 84 |
2021 | |
| 1,001 | | | 262 | | | 381 | | | 133 | | | 189 | | | 58 |
2020 | |
| 401 | | | 194 | | | 170 | | | 127 | | | 183 | | | 37 |
2019 | |
| 205 | | | 60 | | | 94 | | | 78 | | | 103 | | | 18 |
2018 and prior | |
| 72 | | | 68 | | | 23 | | | 42 | | | 77 | | | 31 |
Total | | $ | 4,815 | | $ | 1,579 | | $ | 1,955 | | $ | 1,127 | | $ | 1,285 | | $ | 276 |
22
(Dollars in millions) | Americas | EMEA | Asia Pacific | |||||||||||||||||||||||||||||||||||
At June 30, 2023: | Aaa – Baa3 | Ba1 – D | Aaa – Baa3 | Ba1 – D | Aaa – Baa3 | Ba1 – D | ||||||||||||||||||||||||||||||||
Vintage year: | ||||||||||||||||||||||||||||||||||||||
2023 | $ | 1,011 | $ | 466 | $ | 438 | $ | 307 | $ | 248 | $ | 53 | ||||||||||||||||||||||||||
2022 | 2,363 | 507 | 895 | 498 | 476 | 60 | ||||||||||||||||||||||||||||||||
2021 | 887 | 231 | 336 | 110 | 146 | 48 | ||||||||||||||||||||||||||||||||
2020 | 337 | 161 | 145 | 99 | 140 | 30 | ||||||||||||||||||||||||||||||||
2019 | 179 | 46 | 79 | 56 | 75 | 13 | ||||||||||||||||||||||||||||||||
2018 and prior | 63 | 65 | 18 | 37 | 57 | 24 | ||||||||||||||||||||||||||||||||
Total | $ | 4,841 | $ | 1,476 | $ | 1,911 | $ | 1,108 | $ | 1,142 | $ | 227 |
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | | Americas | | EMEA | | Asia Pacific | (Dollars in millions) | Americas | EMEA | Asia Pacific | ||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2022: |
| Aaa – Baa3 |
| Ba1 – D |
| Aaa – Baa3 |
| Ba1 – D |
| Aaa – Baa3 |
| Ba1 – D | At December 31, 2022: | Aaa – Baa3 | Ba1 – D | Aaa – Baa3 | Ba1 – D | Aaa – Baa3 | Ba1 – D | |||||||||||||||||||||||||||||||||||||
Vintage year: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Vintage year: | |||||||||||||||||||||||||||||||||||||
2022 | | $ | 3,316 | | $ | 1,097 | | $ | 1,447 | | $ | 704 | | $ | 799 | | $ | 96 | 2022 | $ | 3,316 | $ | 1,097 | $ | 1,447 | $ | 704 | $ | 799 | $ | 96 | |||||||||||||||||||||||||
2021 | |
| 1,197 | | | 323 | | | 451 | | | 159 | | | 203 | | | 65 | 2021 | 1,197 | 323 | 451 | 159 | 203 | 65 | |||||||||||||||||||||||||||||||
2020 | |
| 559 | | | 217 | | | 258 | | | 158 | | | 210 | | | 49 | 2020 | 559 | 217 | 258 | 158 | 210 | 49 | |||||||||||||||||||||||||||||||
2019 | |
| 251 | | | 91 | | | 161 | | | 99 | | | 127 | | | 22 | 2019 | 251 | 91 | 161 | 99 | 127 | 22 | |||||||||||||||||||||||||||||||
2018 | |
| 128 | | | 26 | | | 42 | | | 16 | | | 84 | | | 21 | 2018 | 128 | 26 | 42 | 16 | 84 | 21 | |||||||||||||||||||||||||||||||
2017 and prior | |
| 32 | | | 45 | | | 14 | | | 38 | | | 12 | | | 17 | 2017 and prior | 32 | 45 | 14 | 38 | 12 | 17 | |||||||||||||||||||||||||||||||
Total | | $ | 5,482 | | $ | 1,800 | | $ | 2,373 | | $ | 1,173 | | $ | 1,434 | | $ | 269 | Total | $ | 5,482 | $ | 1,800 | $ | 2,373 | $ | 1,173 | $ | 1,434 | $ | 269 |
Modifications and Troubled Debt Restructurings
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Lease income — sales-type and direct financing leases: | ||||||||||||||||||||||||||
Sales-type lease selling price | $ | 248 | $ | 735 | $ | 338 | $ | 789 | ||||||||||||||||||
Less: Carrying value of underlying assets* | (61) | (120) | (91) | (139) | ||||||||||||||||||||||
Gross profit | $ | 187 | $ | 615 | $ | 247 | $ | 651 | ||||||||||||||||||
Interest income on lease receivables | 59 | 45 | 118 | 90 | ||||||||||||||||||||||
Total sales-type and direct financing lease income | $ | 246 | $ | 660 | $ | 365 | $ | 741 | ||||||||||||||||||
Lease income — operating leases | 25 | 27 | 51 | 56 | ||||||||||||||||||||||
Variable lease income | 14 | 28 | 35 | 56 | ||||||||||||||||||||||
Total lease income | $ | 284 | $ | 715 | $ | 451 | $ | 853 |
| | | | | | |
(Dollars in millions) |
| | ||||
For the three months ended March 31: | | 2023 |
| 2022 | ||
Lease income — sales-type and direct financing leases: |
| |
| | |
|
Sales-type lease selling price | | $ | 90 | | $ | 54 |
Less: Carrying value of underlying assets* | |
| (30) | |
| (19) |
Gross profit | | $ | 61 | | $ | 36 |
Interest income on lease receivables | |
| 59 | |
| 45 |
Total sales-type and direct financing lease income | | $ | 119 | | $ | 81 |
Lease income — operating leases | |
| 26 | |
| 30 |
Variable lease income | |
| 21 | |
| 28 |
Total lease income | | $ | 166 | | $ | 138 |
* Excludes unguaranteed residual value.
23
At June 30, 2023 | ||||||||||||||||||||
(Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount* | |||||||||||||||||
Intangible asset class: | ||||||||||||||||||||
Capitalized software | $ | 1,622 | $ | (707) | $ | 915 | ||||||||||||||
Client relationships | 8,274 | (3,056) | 5,217 | |||||||||||||||||
Completed technology | 5,131 | (2,174) | 2,957 | |||||||||||||||||
Patents/trademarks | 1,781 | (378) | 1,403 | |||||||||||||||||
Other** | 19 | (16) | 3 | |||||||||||||||||
Total | $ | 16,827 | $ | (6,331) | $ | 10,496 |
At December 31, 2022 | ||||||||||||||||||||
(Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount* | |||||||||||||||||
Intangible asset class: | ||||||||||||||||||||
Capitalized software | $ | 1,650 | $ | (705) | $ | 945 | ||||||||||||||
Client relationships | 8,559 | (2,951) | 5,608 | |||||||||||||||||
Completed technology | 5,220 | (2,045) | 3,175 | |||||||||||||||||
Patents/trademarks | 2,140 | (688) | 1,452 | |||||||||||||||||
Other** | 19 | (15) | 4 | |||||||||||||||||
Total | $ | 17,588 | $ | (6,404) | $ | 11,184 |
| | | | | | | | | |
| | At March 31, 2023 | |||||||
|
| Gross Carrying |
| Accumulated |
| Net Carrying | |||
(Dollars in millions) | | Amount | | Amortization | | Amount* | |||
Intangible asset class: | | | | | | | | | |
Capitalized software | | $ | 1,638 | | $ | (675) | | $ | 962 |
Client relationships | |
| 8,327 | |
| (2,890) | |
| 5,438 |
Completed technology | |
| 5,097 | |
| (2,025) | |
| 3,073 |
Patents/trademarks | |
| 1,799 | |
| (370) | |
| 1,429 |
Other** | |
| 19 | |
| (15) | |
| 4 |
Total | | $ | 16,880 | | $ | (5,976) | | $ | 10,905 |
| | | | | | | | | |
| | At December 31, 2022 | |||||||
|
| Gross Carrying |
| Accumulated |
| Net Carrying | |||
(Dollars in millions) | | Amount | | Amortization | | Amount* | |||
Intangible asset class: | | | | | | | | | |
Capitalized software | | $ | 1,650 | | $ | (705) | | $ | 945 |
Client relationships | |
| 8,559 | |
| (2,951) | |
| 5,608 |
Completed technology | |
| 5,220 | |
| (2,045) | |
| 3,175 |
Patents/trademarks | |
| 2,140 | |
| (688) | |
| 1,452 |
Other** | |
| 19 | |
| (15) | |
| 4 |
Total | | $ | 17,588 | | $ | (6,404) | | $ | 11,184 |
* Amounts as of March 31,June 30, 2023 and December 31, 2022 include an increase in net intangible asset balances of $30$24 million and a decrease in net intangible asset balances of $198 million, respectively, due to foreign currency translation.
|
|
Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems.
| | | | | | | | | |
|
| Capitalized |
| Acquired |
|
| | ||
(Dollars in millions) | | Software | | Intangibles | | Total | |||
Remainder of 2023 | | $ | 441 | | $ | 1,173 | | $ | 1,615 |
2024 | |
| 374 | |
| 1,553 | |
| 1,927 |
2025 | |
| 138 | |
| 1,535 | |
| 1,673 |
2026 | |
| 9 | |
| 1,512 | |
| 1,520 |
2027 | |
| — | |
| 1,492 | |
| 1,492 |
Thereafter | | | — | | | 2,678 | |
| 2,678 |
24
(Dollars in millions) | Capitalized Software | Acquired Intangibles | Total | |||||||||||||||||
Remainder of 2023 | $ | 303 | $ | 786 | $ | 1,089 | ||||||||||||||
2024 | 410 | 1,557 | 1,967 | |||||||||||||||||
2025 | 175 | 1,538 | 1,713 | |||||||||||||||||
2026 | 27 | 1,515 | 1,542 | |||||||||||||||||
2027 | — | 1,496 | 1,496 | |||||||||||||||||
Thereafter | — | 2,688 | 2,688 |
(Dollars in millions) | Balance | Goodwill Additions | Purchase Price Adjustments | Foreign Currency Translation and Other Adjustments* | Balance | |||||||||||||||||||||||||||||||||
Segment | 1/1/2023 | Divestitures | 6/30/2023 | |||||||||||||||||||||||||||||||||||
Software | $ | 43,657 | $ | 267 | $ | (7) | $ | — | $ | 88 | $ | 44,005 | ||||||||||||||||||||||||||
Consulting | 7,928 | 23 | 6 | — | 43 | 8,000 | ||||||||||||||||||||||||||||||||
Infrastructure | 4,363 | 12 | — | — | 4 | 4,380 | ||||||||||||||||||||||||||||||||
Other | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Total | $ | 55,949 | $ | 302 | $ | (1) | $ | — | $ | 136 | $ | 56,385 |
| | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| | | | Foreign |
|
| |||||
| | | | | | | | | | Currency | | | ||||||
| | | | | | Purchase | | | | Translation | | | ||||||
(Dollars in millions) | | Balance | | Goodwill | | Price | | | | and Other | | Balance | ||||||
Segment | | 1/1/2023 | | Additions | | Adjustments | | Divestitures | | Adjustments* | | 3/31/2023 | ||||||
Software | | $ | 43,657 | | $ | 141 | | $ | 1 | | $ | — | | $ | 66 | | $ | 43,865 |
Consulting | |
| 7,928 | |
| — | |
| 5 | |
| — | |
| 29 | |
| 7,962 |
Infrastructure | | | 4,363 | | | — | | | — | | | — | | | 2 | | | 4,366 |
Other | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 55,949 | | $ | 141 | | $ | 6 | | $ | — | | $ | 97 | | $ | 56,193 |
| | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
| | | | Foreign |
|
| | |||||
| | | | | | | | | | Currency | | | ||||||
| | | | | | Purchase | | | | Translation | | | ||||||
(Dollars in millions) | | Balance | | Goodwill | | Price | | | | and Other | | Balance | ||||||
Segment | | 1/1/2022 | | Additions | | Adjustments | | Divestitures | | Adjustments* | | 12/31/2022 | ||||||
Software | | $ | 43,966 | | $ | 568 | | $ | (118) | | $ | — | | $ | (760) | | $ | 43,657 |
Consulting | |
| 6,797 | |
| 1,366 | |
| (42) | |
| — | |
| (192) | |
| 7,928 |
Infrastructure | |
| 4,396 | |
| — | |
| — | |
| (1) | |
| (32) | |
| 4,363 |
Other** | |
| 484 | |
| — | |
| — | |
| (484) | |
| — | |
| — |
Total | | $ | 55,643 | | $ | 1,934 | | $ | (159) | | $ | (485) | | $ | (984) | | $ | 55,949 |
(Dollars in millions) | Balance | Goodwill Additions | Purchase Price Adjustments | Foreign Currency Translation and Other Adjustments* | Balance | |||||||||||||||||||||||||||||||||
Segment | 1/1/2022 | Divestitures | 12/31/2022 | |||||||||||||||||||||||||||||||||||
Software | $ | 43,966 | $ | 568 | $ | (118) | $ | — | $ | (760) | $ | 43,657 | ||||||||||||||||||||||||||
Consulting | 6,797 | 1,366 | (42) | — | (192) | 7,928 | ||||||||||||||||||||||||||||||||
Infrastructure | 4,396 | — | — | (1) | (32) | 4,363 | ||||||||||||||||||||||||||||||||
Other** | 484 | — | — | (484) | — | — | ||||||||||||||||||||||||||||||||
Total | $ | 55,643 | $ | 1,934 | $ | (159) | $ | (485) | $ | (984) | $ | 55,949 |
|
| |
|
|
Primarily driven by foreign currency translation.
| | | | | | |
|
| At March 31, |
| At December 31, | ||
(Dollars in millions) | | 2023 | | 2022 | ||
Short-term loans | | $ | 6 | | $ | 8 |
Long-term debt — current maturities | |
| 4,881 | |
| 4,751 |
Total | | $ | 4,887 | | $ | 4,760 |
(Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||
Short-term loans | $ | 5 | $ | 8 | ||||||||||
Long-term debt — current maturities | 6,780 | 4,751 | ||||||||||||
Total | $ | 6,785 | $ | 4,760 |
25
Balance | Balance | |||||||||||||||||||
(Dollars in millions) | Maturities | 6/30/2023 | 12/31/2022 | |||||||||||||||||
U.S. dollar debt (weighted-average interest rate at June 30, 2023):* | ||||||||||||||||||||
3.4% | 2023 | $ | 1,508 | $ | 1,529 | |||||||||||||||
3.3% | 2024 | 5,005 | 5,009 | |||||||||||||||||
5.1% | 2025 | 1,602 | 1,603 | |||||||||||||||||
3.5% | 2026 | 5,201 | 4,351 | |||||||||||||||||
3.1% | 2027 | 3,620 | 3,620 | |||||||||||||||||
5.0% | 2028 | 1,313 | 313 | |||||||||||||||||
3.5% | 2029 | 3,250 | 3,250 | |||||||||||||||||
2.0% | 2030 | 1,350 | 1,350 | |||||||||||||||||
4.4% | 2032 | 1,850 | 1,850 | |||||||||||||||||
4.8% | 2033 | 750 | — | |||||||||||||||||
8.0% | 2038 | 83 | 83 | |||||||||||||||||
4.5% | 2039 | 2,745 | 2,745 | |||||||||||||||||
2.9% | 2040 | 650 | 650 | |||||||||||||||||
4.0% | 2042 | 1,107 | 1,107 | |||||||||||||||||
7.0% | 2045 | 27 | 27 | |||||||||||||||||
4.7% | 2046 | 650 | 650 | |||||||||||||||||
4.3% | 2049 | 3,000 | 3,000 | |||||||||||||||||
3.0% | 2050 | 750 | 750 | |||||||||||||||||
4.2% | 2052 | 1,400 | 1,400 | |||||||||||||||||
5.1% | 2053 | 650 | — | |||||||||||||||||
7.1% | 2096 | 316 | 316 | |||||||||||||||||
$ | 36,828 | $ | 33,605 | |||||||||||||||||
Other currencies (weighted-average interest rate at June 30, 2023, in parentheses):* | ||||||||||||||||||||
Euro (1.8%) | 2024–2043 | $ | 19,095 | $ | 17,087 | |||||||||||||||
Pound sterling (4.9%) | 2038 | 954 | — | |||||||||||||||||
Japanese yen (0.5%) | 2024–2028 | 1,221 | 694 | |||||||||||||||||
Other (16.1%) | 2023–2026 | 272 | 361 | |||||||||||||||||
$ | 58,369 | $ | 51,747 | |||||||||||||||||
Finance lease obligations (3.9%) | 2023–2030 | 268 | 239 | |||||||||||||||||
$ | 58,637 | $ | 51,986 | |||||||||||||||||
Less: net unamortized discount | 859 | 835 | ||||||||||||||||||
Less: net unamortized debt issuance costs | 164 | 138 | ||||||||||||||||||
Add: fair value adjustment** | (144) | (73) | ||||||||||||||||||
$ | 57,471 | $ | 50,940 | |||||||||||||||||
Less: current maturities | 6,780 | 4,751 | ||||||||||||||||||
Total | $ | 50,691 | $ | 46,189 |
| | | | | | | | |
|
|
|
| Balance |
| Balance | ||
(Dollars in millions) | | Maturities | | 3/31/2023 | | 12/31/2022 | ||
U.S. dollar debt (weighted-average interest rate at March 31, 2023):* |
|
|
| |
|
| |
|
3.4% |
| 2023 | | $ | 1,514 | | $ | 1,529 |
3.3% |
| 2024 | |
| 5,007 | |
| 5,009 |
5.1% |
| 2025 | |
| 1,603 | |
| 1,603 |
3.5% |
| 2026 | |
| 5,201 | |
| 4,351 |
3.1% |
| 2027 | |
| 3,620 | |
| 3,620 |
5.0% |
| 2028 | | | 1,313 | |
| 313 |
3.5% | | 2029 | | | 3,250 | | | 3,250 |
2.0% | | 2030 | | | 1,350 | | | 1,350 |
4.4% |
| 2032 | |
| 1,850 | |
| 1,850 |
4.8% |
| 2033 | |
| 750 | |
| — |
8.0% |
| 2038 | |
| 83 | |
| 83 |
4.5% |
| 2039 | |
| 2,745 | |
| 2,745 |
2.9% | | 2040 | | | 650 | |
| 650 |
4.0% |
| 2042 | |
| 1,107 | | | 1,107 |
7.0% |
| 2045 | |
| 27 | |
| 27 |
4.7% |
| 2046 | |
| 650 | |
| 650 |
4.3% | | 2049 | | | 3,000 | |
| 3,000 |
3.0% | | 2050 | | | 750 | | | 750 |
4.2% | | 2052 | | | 1,400 | | | 1,400 |
5.1% | | 2053 | | | 650 | | | — |
7.1% |
| 2096 | |
| 316 | |
| 316 |
| | | | $ | 36,836 | | $ | 33,605 |
Other currencies (weighted-average interest rate at March 31, 2023, in parentheses):* |
|
| |
|
| |
|
|
Euro (1.8%) |
| 2023–2043 | | $ | 20,103 | | $ | 17,087 |
Pound sterling (4.9%) |
| 2038 | |
| 928 | |
| — |
Japanese yen (0.5%) |
| 2024–2028 | |
| 1,327 | |
| 694 |
Other (16.1%) |
| 2023–2026 | |
| 305 | |
| 361 |
| | | | $ | 59,499 | | $ | 51,747 |
Finance lease obligations (3.6%) | | 2023–2030 | | | 232 | | | 239 |
| | | | $ | 59,731 | | $ | 51,986 |
Less: net unamortized discount |
|
| |
| 866 | |
| 835 |
Less: net unamortized debt issuance costs |
|
| |
| 170 | |
| 138 |
Add: fair value adjustment** |
|
| |
| 11 | |
| (73) |
| | | | $ | 58,707 | | $ | 50,940 |
Less: current maturities |
|
| |
| 4,881 | |
| 4,751 |
Total |
|
| | $ | 53,826 | | $ | 46,189 |
* Includes notes, debentures, bank loans and secured borrowings.
26
Notes to Consolidated Financial Statements — (continued)
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.
| | | |
(Dollars in millions) |
| Total | |
Remainder of 2023 | | $ | 2,812 |
2024 | |
| 6,378 |
2025 | |
| 4,935 |
2026 | |
| 5,550 |
2027 | |
| 5,812 |
Thereafter | |
| 34,243 |
Total | | $ | 59,731 |
(Dollars in millions) | Total | |||||||
Remainder of 2023 | $ | 1,668 | ||||||
2024 | 6,364 | |||||||
2025 | 4,962 | |||||||
2026 | 5,534 | |||||||
2027 | 5,829 | |||||||
Thereafter | 34,280 | |||||||
Total | $ | 58,637 |
| | | | | | |
(Dollars in millions) |
|
| |
|
| |
For the three months ended March 31: | | 2023 | | 2022 | ||
Cost of financing | | $ | 90 | | $ | 82 |
Interest expense | |
| 367 | |
| 311 |
Interest capitalized | |
| 4 | |
| 2 |
Total interest paid and accrued | | $ | 462 | | $ | 395 |
(Dollars in millions) | ||||||||||||||
For the six months ended June 30: | 2023 | 2022 | ||||||||||||
Cost of financing | $ | 173 | $ | 165 | ||||||||||
Interest expense | 790 | 607 | ||||||||||||
Interest capitalized | 6 | 2 | ||||||||||||
Total interest paid and accrued | $ | 969 | $ | 775 |
The
27
| | | | | | |
(Dollars in millions) |
| 2023 |
| 2022 | ||
Balance at January 1 | | $ | 79 | | $ | 77 |
Current period accruals | |
| 17 | |
| 14 |
Accrual adjustments to reflect actual experience | |
| (17) | |
| (2) |
Charges incurred | |
| (21) | |
| (20) |
Balance at March 31 | | $ | 58 | | $ | 69 |
28
(Dollars in millions) | 2023 | 2022 | ||||||||||||
Balance at January 1 | $ | 79 | $ | 77 | ||||||||||
Current-period accruals | 35 | 39 | ||||||||||||
Accrual adjustments to reflect actual experience | (14) | (1) | ||||||||||||
Charges incurred | (43) | (41) | ||||||||||||
Balance at June 30 | $ | 57 | $ | 74 |
Extended Warranty Liability (Deferred Income)
| | | | | | |
(Dollars in millions) |
| 2023 |
| 2022 | ||
Balance at January 1 | | $ | 272 | | $ | 350 |
Revenue deferred for new extended warranty contracts | |
| 9 | |
| 18 |
Amortization of deferred revenue | |
| (37) | |
| (44) |
Other* | |
| 1 | |
| (1) |
Balance at March 31 | | $ | 244 | | $ | 323 |
Current portion | | $ | 129 | | $ | 155 |
Noncurrent portion | | $ | 116 | | $ | 168 |
(Dollars in millions) | 2023 | 2022 | ||||||||||||
Balance at January 1 | $ | 272 | $ | 350 | ||||||||||
Revenue deferred for new extended warranty contracts | 20 | 84 | ||||||||||||
Amortization of deferred revenue | (73) | (83) | ||||||||||||
Other* | (1) | (12) | ||||||||||||
Balance at June 30 | $ | 218 | $ | 339 | ||||||||||
Current portion | $ | 119 | $ | 172 | ||||||||||
Noncurrent portion | $ | 99 | $ | 167 |
29
Notes to Consolidated Financial Statements — (continued)
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
case, with prejudice.
30
Notes to Consolidated Financial Statements — (continued)
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.
| | | | | | | | | |
(Dollars in millions) |
| Before Tax |
| Tax (Expense)/ |
| Net of Tax | |||
For the three months ended March 31, 2023: | | Amount | | Benefit | | Amount | |||
Other comprehensive income/(loss): |
| |
|
| |
|
| |
|
Foreign currency translation adjustments | | $ | (87) | | $ | 56 | | $ | (30) |
Net changes related to available-for-sale securities: | |
|
| |
|
| |
|
|
Unrealized gains/(losses) arising during the period | | $ | 15 | | $ | (4) | | $ | 11 |
Reclassification of (gains)/losses to other (income) and expense | |
| — | | | — | | | — |
Total net changes related to available-for-sale securities | | $ | 15 | | $ | (4) | | $ | 11 |
Unrealized gains/(losses) on cash flow hedges: | |
|
| |
|
| |
|
|
Unrealized gains/(losses) arising during the period | | $ | (29) | | $ | 6 | | $ | (23) |
Reclassification of (gains)/losses to: | |
|
| |
|
| |
|
|
Cost of services | |
| 2 | |
| 0 | |
| 2 |
Cost of sales | |
| (14) | |
| 4 | |
| (10) |
Cost of financing | |
| 5 | |
| (1) | |
| 4 |
SG&A expense | |
| (10) | |
| 3 | |
| (7) |
Other (income) and expense | |
| (126) | |
| 32 | |
| (94) |
Interest expense | |
| 21 | |
| (5) | |
| 16 |
Total unrealized gains/(losses) on cash flow hedges | | $ | (151) | | $ | 38 | | $ | (113) |
Retirement-related benefit plans*: | |
|
| |
|
| |
|
|
Prior service costs/(credits) | | $ | — | | $ | 1 | | $ | 1 |
Net (losses)/gains arising during the period | | | 2 | | | 0 | | | 2 |
Curtailments and settlements | |
| (1) | | | 0 | | | (1) |
Amortization of prior service (credits)/costs | |
| (2) | | | 1 | | | (2) |
Amortization of net (gains)/losses | |
| 131 | | | (38) | | | 93 |
Total retirement-related benefit plans | | $ | 130 | | $ | (38) | | $ | 92 |
Other comprehensive income/(loss) | | $ | (93) | | $ | 53 | | $ | (40) |
(Dollars in millions) | Before Tax Amount | Tax (Expense)/ Benefit | Net of Tax Amount | |||||||||||||||||
For the three months ended June 30, 2023: | ||||||||||||||||||||
Other comprehensive income/(loss): | ||||||||||||||||||||
Foreign currency translation adjustments | $ | 116 | $ | (34) | $ | 82 | ||||||||||||||
Net changes related to available-for-sale securities: | ||||||||||||||||||||
Unrealized gains/(losses) arising during the period | $ | (17) | $ | 4 | $ | (12) | ||||||||||||||
Reclassification of (gains)/losses to other (income) and expense | — | — | — | |||||||||||||||||
Total net changes related to available-for-sale securities | $ | (17) | $ | 4 | $ | (12) | ||||||||||||||
Unrealized gains/(losses) on cash flow hedges: | ||||||||||||||||||||
Unrealized gains/(losses) arising during the period | $ | 178 | $ | (48) | $ | 130 | ||||||||||||||
Reclassification of (gains)/losses to: | ||||||||||||||||||||
Cost of services | 3 | (1) | 2 | |||||||||||||||||
Cost of sales | (2) | 1 | (1) | |||||||||||||||||
Cost of financing | 4 | (1) | 3 | |||||||||||||||||
SG&A expense | (1) | 0 | 0 | |||||||||||||||||
Other (income) and expense | (55) | 14 | (41) | |||||||||||||||||
Interest expense | 22 | (5) | 16 | |||||||||||||||||
Total unrealized gains/(losses) on cash flow hedges | $ | 148 | $ | (40) | $ | 109 | ||||||||||||||
Retirement-related benefit plans:* | ||||||||||||||||||||
Prior service costs/(credits) | $ | — | $ | 0 | $ | 0 | ||||||||||||||
Net (losses)/gains arising during the period | 0 | 7 | 7 | |||||||||||||||||
Curtailments and settlements | 6 | (1) | 5 | |||||||||||||||||
Amortization of prior service (credits)/costs | (2) | 1 | (2) | |||||||||||||||||
Amortization of net (gains)/losses | 130 | (38) | 92 | |||||||||||||||||
Total retirement-related benefit plans | $ | 134 | $ | (31) | $ | 102 | ||||||||||||||
Other comprehensive income/(loss) | $ | 381 | $ | (101) | $ | 280 |
|
| |
31
Reclassifications and Taxes Related to Items of Other Comprehensive Income
| | | | | | | | | |
(Dollars in millions) |
| Before Tax |
| Tax (Expense)/ |
| Net of Tax | |||
For the three months ended March 31, 2022: | | Amount | | Benefit | | Amount | |||
Other comprehensive income/(loss): |
| |
|
| |
|
| |
|
Foreign currency translation adjustments | | $ | 442 | | $ | (136) | | $ | 306 |
Net changes related to available-for-sale securities: | |
|
| |
|
| |
|
|
Unrealized gains/(losses) arising during the period | | $ | 0 | | $ | 0 | | $ | 0 |
Reclassification of (gains)/losses to other (income) and expense | |
| — | | | — | | | — |
Total net changes related to available-for-sale securities | | $ | 0 | | $ | 0 | | $ | 0 |
Unrealized gains/(losses) on cash flow hedges: | |
|
| |
|
| |
|
|
Unrealized gains/(losses) arising during the period | | $ | 60 | | $ | (16) | | $ | 44 |
Reclassification of (gains)/losses to: | |
| | |
| | |
| |
Cost of services | |
| (15) | |
| 4 | |
| (11) |
Cost of sales | |
| (12) | |
| 4 | |
| (9) |
Cost of financing | |
| 5 | |
| (1) | |
| 4 |
SG&A expense | |
| (6) | |
| 2 | |
| (4) |
Other (income) and expense | |
| 7 | |
| (2) | |
| 5 |
Interest expense | |
| 21 | |
| (5) | |
| 15 |
Total unrealized gains/(losses) on cash flow hedges | | $ | 59 | | $ | (15) | | $ | 44 |
Retirement-related benefit plans*: | |
|
| |
|
| |
|
|
Prior service costs/(credits) | | $ | (5) | | $ | 5 | | $ | 0 |
Net (losses)/gains arising during the period | | | 9 | | | (4) | | | 5 |
Curtailments and settlements | |
| 8 | | | (2) | | | 6 |
Amortization of prior service (credits)/costs | |
| 7 | | | (2) | | | 5 |
Amortization of net (gains)/losses | |
| 468 | | | (131) | | | 337 |
Total retirement-related benefit plans | | $ | 486 | | $ | (134) | | $ | 352 |
Other comprehensive income/(loss) | | $ | 987 | | $ | (285) | | $ | 703 |
(Dollars in millions) | Before Tax Amount | Tax (Expense)/ Benefit | Net of Tax Amount | |||||||||||||||||
For the three months ended June 30, 2022: | ||||||||||||||||||||
Other comprehensive income/(loss): | ||||||||||||||||||||
Foreign currency translation adjustments | $ | 213 | $ | (347) | $ | (134) | ||||||||||||||
Net changes related to available-for-sale securities: | ||||||||||||||||||||
Unrealized gains/(losses) arising during the period | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||
Reclassification of (gains)/losses to other (income) and expense | — | — | — | |||||||||||||||||
Total net changes related to available-for-sale securities | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||
Unrealized gains/(losses) on cash flow hedges: | ||||||||||||||||||||
Unrealized gains/(losses) arising during the period | $ | 200 | $ | (53) | $ | 147 | ||||||||||||||
Reclassification of (gains)/losses to: | ||||||||||||||||||||
Cost of services | (13) | 3 | (10) | |||||||||||||||||
Cost of sales | (23) | 7 | (17) | |||||||||||||||||
Cost of financing | 6 | (2) | 5 | |||||||||||||||||
SG&A expense | (14) | 4 | (10) | |||||||||||||||||
Other (income) and expense | 38 | (10) | 29 | |||||||||||||||||
Interest expense | 22 | (6) | 16 | |||||||||||||||||
Total unrealized gains/(losses) on cash flow hedges | $ | 217 | $ | (56) | $ | 161 | ||||||||||||||
Retirement-related benefit plans:* | ||||||||||||||||||||
Prior service costs/(credits) | $ | — | $ | 0 | $ | 0 | ||||||||||||||
Net (losses)/gains arising during the period | 1 | (3) | (2) | |||||||||||||||||
Curtailments and settlements | 11 | (3) | 8 | |||||||||||||||||
Amortization of prior service (credits)/costs | 6 | (2) | 5 | |||||||||||||||||
Amortization of net (gains)/losses | 450 | (125) | 325 | |||||||||||||||||
Total retirement-related benefit plans | $ | 468 | $ | (132) | $ | 336 | ||||||||||||||
Other comprehensive income/(loss) | $ | 897 | $ | (534) | $ | 363 |
|
| |
32
(Dollars in millions) | Before Tax Amount | Tax (Expense)/ Benefit | Net of Tax Amount | |||||||||||||||||
For the six months ended June 30, 2023: | ||||||||||||||||||||
Other comprehensive income/(loss): | ||||||||||||||||||||
Foreign currency translation adjustments | $ | 29 | $ | 22 | $ | 52 | ||||||||||||||
Net changes related to available-for-sale securities: | ||||||||||||||||||||
Unrealized gains/(losses) arising during the period | $ | (1) | $ | 0 | $ | (1) | ||||||||||||||
Reclassification of (gains)/losses to other (income) and expense | — | — | — | |||||||||||||||||
Total net changes related to available-for-sale securities | $ | (1) | $ | 0 | $ | (1) | ||||||||||||||
Unrealized gains/(losses) on cash flow hedges: | ||||||||||||||||||||
Unrealized gains/(losses) arising during the period | $ | 149 | $ | (41) | $ | 107 | ||||||||||||||
Reclassification of (gains)/losses to: | ||||||||||||||||||||
Cost of services | 5 | (1) | 4 | |||||||||||||||||
Cost of sales | (17) | 5 | (12) | |||||||||||||||||
Cost of financing | 9 | (2) | 7 | |||||||||||||||||
SG&A expense | (10) | 3 | (7) | |||||||||||||||||
Other (income) and expense | (181) | 45 | (135) | |||||||||||||||||
Interest expense | 42 | (11) | 32 | |||||||||||||||||
Total unrealized gains/(losses) on cash flow hedges | $ | (3) | $ | (1) | $ | (4) | ||||||||||||||
Retirement-related benefit plans:* | ||||||||||||||||||||
Prior service costs/(credits) | $ | — | $ | 1 | $ | 1 | ||||||||||||||
Net (losses)/gains arising during the period | 2 | 7 | 8 | |||||||||||||||||
Curtailments and settlements | 5 | (1) | 4 | |||||||||||||||||
Amortization of prior service (credits)/costs | (4) | 1 | (3) | |||||||||||||||||
Amortization of net (gains)/losses | 261 | (76) | 185 | |||||||||||||||||
Total retirement-related benefit plans | $ | 263 | $ | (69) | $ | 194 | ||||||||||||||
Other comprehensive income/(loss) | $ | 289 | $ | (48) | $ | 241 |
(Dollars in millions) | Before Tax Amount | Tax (Expense)/ Benefit | Net of Tax Amount | |||||||||||||||||
For the six months ended June 30, 2022: | ||||||||||||||||||||
Other comprehensive income/(loss): | ||||||||||||||||||||
Foreign currency translation adjustments | $ | 655 | $ | (483) | $ | 172 | ||||||||||||||
Net changes related to available-for-sale securities: | ||||||||||||||||||||
Unrealized gains/(losses) arising during the period | $ | (1) | $ | 0 | $ | 0 | ||||||||||||||
Reclassification of (gains)/losses to other (income) and expense | — | — | — | |||||||||||||||||
Total net changes related to available-for-sale securities | $ | (1) | $ | 0 | $ | 0 | ||||||||||||||
Unrealized gains/(losses) on cash flow hedges: | ||||||||||||||||||||
Unrealized gains/(losses) arising during the period | $ | 260 | $ | (69) | $ | 191 | ||||||||||||||
Reclassification of (gains)/losses to: | ||||||||||||||||||||
Cost of services | (28) | 7 | (21) | |||||||||||||||||
Cost of sales | (35) | 10 | (25) | |||||||||||||||||
Cost of financing | 12 | (3) | 9 | |||||||||||||||||
SG&A expense | (20) | 5 | (14) | |||||||||||||||||
Other (income) and expense | 45 | (11) | 34 | |||||||||||||||||
Interest expense | 43 | (11) | 32 | |||||||||||||||||
Total unrealized gains/(losses) on cash flow hedges | $ | 276 | $ | (71) | $ | 205 | ||||||||||||||
Retirement-related benefit plans:* | ||||||||||||||||||||
Prior service costs/(credits) | $ | (5) | $ | 5 | $ | 0 | ||||||||||||||
Net (losses)/gains arising during the period | 10 | (7) | 3 | |||||||||||||||||
Curtailments and settlements | 19 | (5) | 14 | |||||||||||||||||
Amortization of prior service (credits)/costs | 13 | (3) | 10 | |||||||||||||||||
Amortization of net (gains)/losses | 917 | (256) | 662 | |||||||||||||||||
Total retirement-related benefit plans | $ | 954 | $ | (266) | $ | 689 | ||||||||||||||
Other comprehensive income/(loss) | $ | 1,885 | $ | (819) | $ | 1,066 |
(Dollars in millions) | Net Unrealized Gains/(Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments* | Net Change Retirement- Related Benefit Plans | Net Unrealized Gains/(Losses) on Available- For-Sale Securities | Accumulated Other Comprehensive Income/ (Loss) | |||||||||||||||||||||||||||
January 1, 2023 | $ | (135) | $ | (3,591) | $ | (13,013) | $ | (1) | $ | (16,740) | ||||||||||||||||||||||
Other comprehensive income before reclassifications | 107 | 52 | 9 | (1) | 167 | |||||||||||||||||||||||||||
Amount reclassified from accumulated other comprehensive income | (112) | — | 185 | — | 74 | |||||||||||||||||||||||||||
Total change for the period | $ | (4) | $ | 52 | $ | 194 | $ | (1) | $ | 241 | ||||||||||||||||||||||
June 30, 2023 | $ | (139) | $ | (3,539) | $ | (12,819) | $ | (2) | $ | (16,499) |
| | | | | | | | | | | | | | | |
|
|
| |
|
| |
| Net Change |
| Net Unrealized |
|
| | ||
| | Net Unrealized | | Foreign | | Retirement- | | Gains/(Losses) | | Accumulated | |||||
| | Gains/(Losses) | | Currency | | Related | | on Available- | | Other | |||||
| | on Cash Flow | | Translation | | Benefit | | For-Sale | | Comprehensive | |||||
(Dollars in millions) | | Hedges | | Adjustments* | | Plans | | Securities | | Income/(Loss) | |||||
January 1, 2023 | | $ | (135) | | $ | (3,591) | | $ | (13,013) | | $ | (1) | | $ | (16,740) |
Other comprehensive income before reclassifications | |
| (23) | |
| (30) | |
| 2 | |
| 11 | |
| (39) |
Amount reclassified from accumulated other comprehensive income/(loss) | |
| (90) | |
| — | |
| 90 | |
| — | |
| 0 |
Total change for the period | | $ | (113) | | $ | (30) | | $ | 92 | | $ | 11 | | $ | (40) |
March 31, 2023 | | $ | (248) | | $ | (3,621) | | $ | (12,921) | | $ | 10 | | $ | (16,780) |
(Dollars in millions) | Net Unrealized Gains/(Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments* | Net Change Retirement- Related Benefit Plans | Net Unrealized Gains/(Losses) on Available- For-Sale Securities | Accumulated Other Comprehensive Income/ (Loss) | |||||||||||||||||||||||||||
January 1, 2022 | $ | (18) | $ | (3,362) | $ | (19,854) | $ | (1) | $ | (23,234) | ||||||||||||||||||||||
Other comprehensive income before reclassifications | 191 | 172 | 3 | 0 | 366 | |||||||||||||||||||||||||||
Amount reclassified from accumulated other comprehensive income | 14 | — | 686 | — | 699 | |||||||||||||||||||||||||||
Total change for the period | $ | 205 | $ | 172 | $ | 689 | $ | 0 | $ | 1,066 | ||||||||||||||||||||||
June 30, 2022 | $ | 187 | $ | (3,189) | $ | (19,165) | $ | (1) | $ | (22,169) |
| | | | | | | | | | | | | | | |
|
|
| |
|
| |
| Net Change |
| Net Unrealized |
|
| | ||
| | Net Unrealized | | Foreign | | Retirement- | | Gains/(Losses) | | Accumulated | |||||
| | Gains/(Losses) | | Currency | | Related | | on Available- | | Other | |||||
| | on Cash Flow | | Translation | | Benefit | | For-Sale | | Comprehensive | |||||
(Dollars in millions) | | Hedges | | Adjustments* | | Plans | | Securities | | Income/(Loss) | |||||
January 1, 2022 | | $ | (18) | | $ | (3,362) | | $ | (19,854) | | $ | (1) | | $ | (23,234) |
Other comprehensive income before reclassifications | |
| 44 | |
| 306 | |
| 5 | |
| 0 | |
| 355 |
Amount reclassified from accumulated other comprehensive income/(loss) | |
| 0 | |
| — | |
| 348 | |
| — | |
| 348 |
Total change for the period | | $ | 44 | | $ | 306 | | $ | 352 | | $ | 0 | | $ | 703 |
March 31, 2022 | | $ | 26 | | $ | (3,056) | | $ | (19,502) | | $ | (1) | | $ | (22,532) |
* Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax.
33
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 three and six months ended June 30, 2022, an unrealized loss of $88 million was recorded in other (income) and expense in the Consolidated Income Statement. The company settled the swap on November 2, 2022.
34
are accounted for as cash flow hedges. At March 31,June 30, 2023, the maximum remaining length of time over which the company hedged its exposure is approximately two years. At March 31,June 30, 2023 and December 31, 2022, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $8.4$8.6 billion and $8.1 billion, respectively. At both March 31,June 30, 2023 and December 31, 2022, the weighted-average remaining maturity of these instruments was approximately 0.6 years.
35
hedges:
(Dollars in millions) | June 30, 2023 | December 31, 2022 | ||||||||||||
Short-term debt: | ||||||||||||||
Carrying amount of the hedged item | $ | (203) | $ | (199) | ||||||||||
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)* | $ | (3) | $ | 1 | ||||||||||
Long-term debt: | ||||||||||||||
Carrying amount of the hedged item | $ | (6,540) | $ | (6,216) | ||||||||||
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)* | $ | 147 | $ | 72 |
| | | | | | |
|
| March 31, |
| December 31, | ||
(Dollars in millions) | | 2023 | | 2022 | ||
Short-term debt: |
| |
|
| |
|
Carrying amount of the hedged item | | $ | (204) | | $ | (199) |
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)* | | $ | (4) | | $ | 1 |
Long-term debt: | |
|
| |
|
|
Carrying amount of the hedged item | | $ | (6,693) | | $ | (6,216) |
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)* | | $ | (8) | | $ | 72 |
* Includes ($238)225) million and ($250) million of hedging adjustments on discontinued hedging relationships at March 31,June 30, 2023 and December 31, 2022, respectively.
| | | | | | | | | | | | |
| | | | | | | | Gains/(Losses) of | ||||
(Dollars in millions) | | Total | | Total Hedge Activity | ||||||||
For the three months ended March 31: |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Cost of services | | $ | 5,310 | | $ | 5,349 | | $ | (2) | | $ | 15 |
Cost of sales | | $ | 1,322 | | $ | 1,415 | | $ | 14 | | $ | 12 |
Cost of financing | | $ | 110 | | $ | 98 | | $ | (3) | | $ | (2) |
SG&A expense | | $ | 4,853 | | $ | 4,597 | | $ | 59 | | $ | (70) |
Other (income) and expense | | $ | (245) | | $ | 246 | | $ | 142 | | $ | (102) |
Interest expense | | $ | 367 | | $ | 311 | | $ | (14) | | $ | (6) |
36
(Dollars in millions) | Total | Gains/(Losses) of Total Hedge Activity | ||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Cost of services | $ | 5,294 | $ | 5,399 | $ | (3) | $ | 13 | ||||||||||||||||||
Cost of sales | $ | 1,587 | $ | 1,750 | $ | 2 | $ | 23 | ||||||||||||||||||
Cost of financing | $ | 93 | $ | 96 | $ | (3) | $ | 1 | ||||||||||||||||||
SG&A expense | $ | 4,900 | $ | 4,855 | $ | 43 | $ | (152) | ||||||||||||||||||
Other (income) and expense | $ | (261) | $ | (81) | $ | (141) | $ | (439) | ||||||||||||||||||
Interest expense | $ | 423 | $ | 297 | $ | (18) | $ | 3 |
| | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in Consolidated Income Statement | ||||||||||||
| | Consolidated | | Recognized on | | Attributable to Risk | ||||||||
(Dollars in millions) | | Income Statement | | Derivatives | | Being Hedged (2) | ||||||||
For the three months ended March 31: |
| Line Item |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Derivative instruments in fair value hedges (1): |
|
|
| |
|
| |
|
| |
|
| |
|
Interest rate contracts |
| Cost of financing | | $ | 13 | | $ | (1) | | $ | (17) | | $ | 4 |
|
| Interest expense | |
| 53 | |
| (4) | |
| (68) | |
| 16 |
Derivative instruments not designated as hedging instruments: |
|
| |
|
| |
|
| |
|
| |
|
|
Foreign exchange contracts |
| Other (income) and expense | |
| 16 | |
| (95) | |
| N/A | |
| N/A |
Equity contracts |
| SG&A expense | |
| 49 | |
| (76) | |
| N/A | |
| N/A |
Total |
|
| | $ | 131 | | $ | (176) | | $ | (84) | | $ | 20 |
| | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income |
| ||||||||||||||||||
(Dollars in millions) | | | | | | | | Consolidated | | Reclassified | | Amounts Excluded from |
| ||||||||
For the three months | | Recognized in OCI | | Income Statement | | from AOCI | | Effectiveness Testing (3) |
| ||||||||||||
ended March 31: |
| 2023 |
| 2022 |
| Line Item |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||
Derivative instruments in cash flow hedges: |
| |
|
| |
|
|
|
| |
|
| |
| | |
|
| |
| |
Interest rate contracts | | $ | — | | $ | — |
| Cost of financing | | $ | (1) | | $ | (1) | | $ | — | | $ | — | |
| | | | | | |
| Interest expense | |
| (3) | |
| (3) | |
| — | |
| — | |
Foreign exchange contracts | |
| (29) | |
| 60 |
| Cost of services | |
| (2) | |
| 15 | |
| — | |
| — | |
| | | | | | |
| Cost of sales | |
| 14 | |
| 12 | |
| — | |
| — | |
| | | | | | |
| Cost of financing | |
| (4) | |
| (5) | | | — | | | — | |
| | | | | | |
| SG&A expense | |
| 10 | |
| 6 | |
| — | |
| — | |
| | | | | | |
| Other (income) and expense | |
| 126 | |
| (7) | |
| — | |
| — | |
| | | | | | |
| Interest expense | |
| (17) | |
| (17) | | | — | | | — | |
Instruments in net investment hedges (4): | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Foreign exchange contracts | |
| (224) | |
| 541 |
| Cost of financing | |
| — | |
| — | |
| 5 | |
| 1 | |
| |
| | |
| |
| Interest expense | |
| — | |
| — | |
| 22 | |
| 2 | |
Total | | $ | (253) | | $ | 601 |
|
| | $ | 122 | | $ | 1 | | $ | 28 | | $ | 3 | |
Gain (Loss) Recognized in Consolidated Income Statement | ||||||||||||||||||||||||||||||||
(Dollars in millions) | Consolidated Income Statement Line Item | Recognized on Derivatives | Attributable to Risk Being Hedged (2) | |||||||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
Derivative instruments in fair value hedges (1): | ||||||||||||||||||||||||||||||||
Interest rate contracts | Cost of financing | $ | (30) | $ | (17) | $ | 25 | $ | 23 | |||||||||||||||||||||||
Interest expense | (153) | (61) | 130 | 81 | ||||||||||||||||||||||||||||
Derivative instruments not designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Foreign exchange contracts | Other (income) and expense | (196) | (313) | N/A | N/A | |||||||||||||||||||||||||||
Equity contracts | SG&A expense | 42 | (166) | N/A | N/A | |||||||||||||||||||||||||||
Other (income) and expense | — | (88) | N/A | N/A | ||||||||||||||||||||||||||||
Total | $ | (337) | $ | (645) | $ | 155 | $ | 104 |
Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income | ||||||||||||||||||||||||||||||||||||||||||||
Recognized in OCI | Consolidated Income Statement Line Item | Reclassified from AOCI | Amounts Excluded from Effectiveness Testing (3) | |||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||
Derivative instruments in cash flow hedges: | ||||||||||||||||||||||||||||||||||||||||||||
Interest rate contracts | $ | — | $ | — | Cost of financing | $ | (1) | $ | (1) | $ | — | $ | — | |||||||||||||||||||||||||||||||
Interest expense | (4) | (3) | — | — | ||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | 178 | 200 | Cost of services | (3) | 13 | — | — | |||||||||||||||||||||||||||||||||||||
Cost of sales | 2 | 23 | — | — | ||||||||||||||||||||||||||||||||||||||||
Cost of financing | (3) | (5) | — | — | ||||||||||||||||||||||||||||||||||||||||
SG&A expense | 1 | 14 | — | — | ||||||||||||||||||||||||||||||||||||||||
Other (income) and expense | 55 | (38) | — | — | ||||||||||||||||||||||||||||||||||||||||
Interest expense | (18) | (19) | — | — | ||||||||||||||||||||||||||||||||||||||||
Instruments in net investment hedges (4): | ||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | 136 | 1,379 | Cost of financing | — | — | 5 | 1 | |||||||||||||||||||||||||||||||||||||
Interest expense | — | — | 27 | 5 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 313 | $ | 1,579 | $ | 30 | $ | (16) | $ | 32 | $ | 6 |
(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
(Dollars in millions) Total Gains/(Losses) of
Total Hedge ActivityFor the six months ended June 30: 2023 2022 2023 2022 Cost of services $ 10,604 $ 10,747 $ (5) $ 28 Cost of sales $ 2,910 $ 3,165 $ 17 $ 35 Cost of financing $ 203 $ 194 $ (7) $ (1) SG&A expense $ 9,754 $ 9,452 $ 102 $ (223) Other (income) and expense $ (506) $ 166 $ 1 $ (541) Interest expense $ 790 $ 607 $ (31) $ (3)
Gain (Loss) Recognized in Consolidated Income Statement | ||||||||||||||||||||||||||||||||
(Dollars in millions) | Consolidated Income Statement Line Item | Recognized on Derivatives | Attributable to Risk Being Hedged (2) | |||||||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
Derivative instruments in fair value hedges (1): | ||||||||||||||||||||||||||||||||
Interest rate contracts | Cost of financing | $ | (21) | $ | (18) | $ | 13 | $ | 26 | |||||||||||||||||||||||
Interest expense | (96) | (65) | 58 | 97 | ||||||||||||||||||||||||||||
Derivative instruments not designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Foreign exchange contracts | Other (income) and expense | (180) | (409) | N/A | N/A | |||||||||||||||||||||||||||
Equity contracts | SG&A expense | 91 | (243) | N/A | N/A | |||||||||||||||||||||||||||
Other (income) and expense | — | (88) | N/A | N/A | ||||||||||||||||||||||||||||
Total | $ | (206) | $ | (821) | $ | 71 | $ | 123 |
Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income | ||||||||||||||||||||||||||||||||||||||||||||
Recognized in OCI | Consolidated Income Statement Line Item | Reclassified from AOCI | Amounts Excluded from Effectiveness Testing (3) | |||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||||||
For six months ended June 30: | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||
Derivative instruments in cash flow hedges: | ||||||||||||||||||||||||||||||||||||||||||||
Interest rate contracts | $ | — | $ | — | Cost of financing | $ | (2) | $ | (2) | $ | — | $ | — | |||||||||||||||||||||||||||||||
Interest expense | (7) | (7) | — | — | ||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | 149 | 260 | Cost of services | (5) | 28 | — | — | |||||||||||||||||||||||||||||||||||||
Cost of sales | 17 | 35 | — | — | ||||||||||||||||||||||||||||||||||||||||
Cost of financing | (8) | (10) | — | — | ||||||||||||||||||||||||||||||||||||||||
SG&A expense | 10 | 20 | — | — | ||||||||||||||||||||||||||||||||||||||||
Other (income) and expense | 181 | (45) | — | — | ||||||||||||||||||||||||||||||||||||||||
Interest expense | (35) | (36) | — | — | ||||||||||||||||||||||||||||||||||||||||
Instruments in net investment hedges (4): | ||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | (88) | 1,920 | Cost of financing | — | — | 11 | 2 | |||||||||||||||||||||||||||||||||||||
Interest expense | — | — | 49 | 7 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 61 | $ | 2,180 | $ | 152 | $ | (16) | $ | 60 | $ | 9 |
37
| | | | | | |
(Dollars in millions) | | | ||||
For the three months ended March 31: | | 2023 | | 2022 | ||
Cost | | $ | 46 | | $ | 40 |
Selling, general and administrative | |
| 149 | |
| 136 |
Research, development and engineering | |
| 74 | |
| 57 |
Pre-tax stock-based compensation cost | | $ | 268 | | $ | 234 |
Income tax benefits | |
| (67) | |
| (57) |
Total net stock-based compensation cost | | $ | 201 | | $ | 177 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Cost | $ | 47 | $ | 43 | $ | 93 | $ | 84 | ||||||||||||||||||
Selling, general and administrative | 168 | 153 | 317 | 289 | ||||||||||||||||||||||
Research, development and engineering | 73 | 58 | 146 | 115 | ||||||||||||||||||||||
Pre-tax stock-based compensation cost | $ | 288 | $ | 254 | $ | 556 | $ | 488 | ||||||||||||||||||
Income tax benefits | (75) | (82) | (142) | (139) | ||||||||||||||||||||||
Total net stock-based compensation cost | $ | 213 | $ | 172 | $ | 414 | $ | 348 |
cost for the six months ended June 30, 2023 increased $69 million compared to the corresponding period in the prior year, including increases in stock options ($21 million), Employees Stock Purchase Plan (ESPP) ($20 million), restricted stock units ($17 million) and performance share units ($11 million). The increases are driven by stock-based compensation awards granted by the company as part of its annual cycles for executives and other employees and the ESPP being considered compensatory effective April 1, 2022.
| | | | | | | | | |
|
| | |
|
| |
| Yr. to Yr. |
|
(Dollars in millions) | | | | | | | | Percent |
|
For the three months ended March 31: | | 2023 | | 2022 | | Change |
| ||
Retirement-related plans — cost: |
| |
|
| |
|
|
| |
Defined benefit and contribution pension plans — cost | | $ | 281 | | $ | 478 |
| (41.1) | % |
Nonpension postretirement plans — cost | |
| 32 | |
| 33 |
| (1.6) | |
Total | | $ | 314 | | $ | 510 |
| (38.5) | |
38
Yr. to Yr. | ||||||||||||||||||||
(Dollars in millions) | Percent | |||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | Change | |||||||||||||||||
Retirement-related plans — cost: | ||||||||||||||||||||
Defined benefit and contribution pension plans — cost | $ | 259 | $ | 456 | (43.2) | % | ||||||||||||||
Nonpension postretirement plans — cost | 33 | 33 | (2.2) | |||||||||||||||||
Total | $ | 292 | $ | 489 | (40.4) | % |
Yr. to Yr. | ||||||||||||||||||||
(Dollars in millions) | Percent | |||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | Change | |||||||||||||||||
Retirement-related plans — cost: | ||||||||||||||||||||
Defined benefit and contribution pension plans — cost | $ | 541 | $ | 934 | (42.1) | % | ||||||||||||||
Nonpension postretirement plans — cost | 65 | 66 | (1.9) | |||||||||||||||||
Total | $ | 606 | $ | 1,000 | (39.4) | % |
Cost/(Income) of Pension Plans
| | | | | | | | | | | | |
(Dollars in millions) | | U.S. Plans | | Non-U.S. Plans | ||||||||
For the three months ended March 31: |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Service cost | | $ | — | | $ | — | | $ | 44 | | $ | 64 |
Interest cost* | |
| 272 | |
| 302 | |
| 288 | |
| 139 |
Expected return on plan assets* | |
| (382) | |
| (475) | |
| (356) | |
| (274) |
Amortization of prior service costs/(credits)* | |
| — | |
| 2 | |
| 5 | |
| 4 |
Recognized actuarial losses* | |
| 27 | |
| 179 | |
| 102 | |
| 278 |
Curtailments and settlements* | |
| — | |
| — | |
| (1) | |
| 8 |
Multi-employer plans | |
| — | |
| — | |
| 4 | |
| 4 |
Other costs/(credits)* | |
| — | |
| — | |
| 9 | |
| 9 |
Total net periodic pension (income)/cost of defined benefit plans | | $ | (82) | | $ | 8 | | $ | 95 | | $ | 231 |
Cost of defined contribution plans | |
| 172 | |
| 141 | |
| 97 | |
| 98 |
Total defined benefit and contribution pension plans cost recognized in the Consolidated Income Statement | | $ | 90 | | $ | 149 | | $ | 192 | | $ | 328 |
(Dollars in millions) | U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Service cost | $ | — | $ | — | $ | 44 | $ | 59 | ||||||||||||||||||
Interest cost* | 272 | 302 | 292 | 131 | ||||||||||||||||||||||
Expected return on plan assets* | (382) | (475) | (362) | (259) | ||||||||||||||||||||||
Amortization of prior service costs/(credits)* | 0 | 2 | 5 | 3 | ||||||||||||||||||||||
Recognized actuarial losses* | 27 | 179 | 101 | 260 | ||||||||||||||||||||||
Curtailments and settlements* | — | — | 6 | 11 | ||||||||||||||||||||||
Multi-employer plans | — | — | 3 | 3 | ||||||||||||||||||||||
Other costs/(credits)* | — | — | 10 | 6 | ||||||||||||||||||||||
Total net periodic pension (income)/cost of defined benefit plans | $ | (82) | $ | 8 | $ | 99 | $ | 215 | ||||||||||||||||||
Cost of defined contribution plans | 151 | 141 | 91 | 92 | ||||||||||||||||||||||
Total defined benefit and contribution pension plans cost recognized in the Consolidated Income Statement | $ | 69 | $ | 149 | $ | 190 | $ | 307 |
(Dollars in millions) | U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Service cost | $ | — | $ | — | $ | 88 | $ | 123 | ||||||||||||||||||
Interest cost* | 545 | 603 | 580 | 270 | ||||||||||||||||||||||
Expected return on plan assets* | (764) | (950) | (718) | (532) | ||||||||||||||||||||||
Amortization of prior service costs/(credits)* | 0 | 4 | 10 | 7 | ||||||||||||||||||||||
Recognized actuarial losses* | 55 | 359 | 203 | 537 | ||||||||||||||||||||||
Curtailments and settlements* | — | — | 5 | 19 | ||||||||||||||||||||||
Multi-employer plans | — | — | 6 | 7 | ||||||||||||||||||||||
Other costs/(credits)* | — | — | 19 | 15 | ||||||||||||||||||||||
Total net periodic pension (income)/cost of defined benefit plans | $ | (165) | $ | 15 | $ | 194 | $ | 446 | ||||||||||||||||||
Cost of defined contribution plans | 323 | 282 | 188 | 190 | ||||||||||||||||||||||
Total defined benefit and contribution pension plans cost recognized in the Consolidated Income Statement | $ | 158 | $ | 298 | $ | 382 | $ | 636 |
Cost of Nonpension Postretirement Plans
(Dollars in millions) | U.S. Plan | Non-U.S. Plans | ||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Service cost | $ | 1 | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||
Interest cost* | 29 | 18 | 10 | 9 | ||||||||||||||||||||||
Expected return on plan assets* | — | — | (1) | (1) | ||||||||||||||||||||||
Amortization of prior service costs/(credits)* | (7) | 1 | 0 | 0 | ||||||||||||||||||||||
Recognized actuarial losses* | — | 2 | 0 | 1 | ||||||||||||||||||||||
Curtailments and settlements* | — | — | — | — | ||||||||||||||||||||||
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement | $ | 23 | $ | 23 | $ | 10 | $ | 10 |
| | | | | | | | | | | | |
(Dollars in millions) | | U.S. Plan | | Non-U.S. Plans | ||||||||
For the three months ended March 31: |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Service cost | | $ | 1 | | $ | 1 | | $ | 1 | | $ | 1 |
Interest cost* | |
| 29 | |
| 18 | |
| 9 | |
| 9 |
Expected return on plan assets* | |
| — | |
| — | |
| (1) | |
| 0 |
Amortization of prior service costs/(credits)* | |
| (7) | |
| 1 | |
| 0 | |
| 0 |
Recognized actuarial losses* | |
| — | |
| 2 | |
| 0 | |
| 1 |
Curtailments and settlements* | |
| — | |
| — | |
| — | |
| — |
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement | | $ | 23 | | $ | 23 | | $ | 9 | | $ | 10 |
(Dollars in millions) | U.S. Plan | Non-U.S. Plans | ||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Service cost | $ | 2 | $ | 2 | $ | 1 | $ | 2 | ||||||||||||||||||
Interest cost* | 58 | 37 | 19 | 18 | ||||||||||||||||||||||
Expected return on plan assets* | — | — | (1) | (1) | ||||||||||||||||||||||
Amortization of prior service costs/(credits)* | (15) | 2 | 0 | 0 | ||||||||||||||||||||||
Recognized actuarial losses* | — | 4 | (1) | 2 | ||||||||||||||||||||||
Curtailments and settlements* | — | — | — | — | ||||||||||||||||||||||
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement | $ | 46 | $ | 46 | $ | 19 | $ | 20 |
39
Notes to Consolidated Financial Statements — (continued)
The company does not anticipate any significant changes to the expected plan contributions in 2023 from the amounts disclosed in the 2022 Annual Report.
| | | | | | |
(Dollars in millions) | | Plan Contributions | ||||
For the three months ended March 31: | | | 2023 | 2022 | ||
U.S. nonpension postretirement benefit plan | | $ | 109 | | $ | 120 |
Non-U.S. DB and multi-employer plans* | |
| 7 | |
| 35 |
Total plan contributions | | $ | 117 | | $ | 154 |
(Dollars in millions) | Plan Contributions | |||||||||||||
For the six months ended June 30: | 2023 | 2022 | ||||||||||||
U.S. nonpension postretirement benefit plans | $ | 134 | $ | 202 | ||||||||||
Non-U.S. DB and multi-employer plans* | 29 | 43 | ||||||||||||
Total plan contributions | $ | 163 | $ | 245 |
|
| |
Amounts reported net of refunds.
19. Subsequent Events:
40
41
Management Discussion – (continued)
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
42
Management Discussion – (continued)
Financial Results Summary — Three Months Ended March 31:June 30
| | | | | | | | | ||||||||||||||||||||||||
|
| |
|
| |
| Yr. to Yr. |
| ||||||||||||||||||||||||
| | | | | | | Percent/ |
| ||||||||||||||||||||||||
(Dollars and shares in millions except per share amounts) | | | | | | | Margin |
| (Dollars and shares in millions except per share amounts) | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||||
For the three months ended March 31: | | 2023 | | 2022 | | Change |
| |||||||||||||||||||||||||
For the three months ended June 30: | For the three months ended June 30: | 2023 | 2022 | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||||||||||
Revenue | | $ | 14,252 | | $ | 14,197 |
| 0.4 | %* | Revenue | $ | 15,475 | $ | 15,535 | %* | |||||||||||||||||
Gross profit margin | |
| 52.7 | % |
| 51.7 | % | 1.0 | pts. | Gross profit margin | 54.9 | % | 53.4 | % | 1.6 | pts. | ||||||||||||||||
Total expense and other (income) | | $ | 6,451 | | $ | 6,712 |
| (3.9) | % | Total expense and other (income) | $ | 6,501 | $ | 6,568 | (1.0) | % | ||||||||||||||||
Income from continuing operations before income taxes | | $ | 1,058 | | $ | 623 |
| 69.8 | % | Income from continuing operations before income taxes | $ | 2,000 | $ | 1,722 | 16.2 | % | ||||||||||||||||
Provision for/(benefit from) income taxes from continuing operations | | $ | 124 | | $ | (39) |
| nm | | |||||||||||||||||||||||
Provision for income taxes from continuing operations | Provision for income taxes from continuing operations | $ | 419 | $ | 257 | 63.4 | % | |||||||||||||||||||||||||
Income from continuing operations | | $ | 934 | | $ | 662 |
| 41.1 | % | Income from continuing operations | $ | 1,581 | $ | 1,465 | 7.9 | % | ||||||||||||||||
Income from continuing operations margin | |
| 6.6 | % |
| 4.7 | % | 1.9 | pts. | Income from continuing operations margin | 10.2 | % | 9.4 | % | 0.8 | pts. | ||||||||||||||||
Income/(loss) from discontinued operations, net of tax | | $ | (7) | | $ | 71 | | nm | | Income/(loss) from discontinued operations, net of tax | $ | 2 | $ | (73) | nm | |||||||||||||||||
Net income | | $ | 927 | | $ | 733 |
| 26.5 | % | Net income | $ | 1,583 | $ | 1,392 | 13.7 | % | ||||||||||||||||
Earnings per share from continuing operations - assuming dilution | | $ | 1.02 | | $ | 0.73 |
| 39.7 | % | Earnings per share from continuing operations - assuming dilution | $ | 1.72 | $ | 1.61 | 6.8 | % | ||||||||||||||||
Consolidated earnings per share - assuming dilution | | $ | 1.01 | | $ | 0.81 | | 24.7 | % | Consolidated earnings per share - assuming dilution | $ | 1.72 | $ | 1.53 | 12.4 | % | ||||||||||||||||
Weighted-average shares outstanding - assuming dilution | |
| 917.8 | |
| 909.2 |
| 0.9 | % | Weighted-average shares outstanding - assuming dilution | 919.5 | 910.7 | 1.0 | % | ||||||||||||||||||
| | | | | | | | | ||||||||||||||||||||||||
| | At 3/31/2023 | | At 12/31/2022 | | | | |||||||||||||||||||||||||
Assets | | $ | 133,637 | | $ | 127,243 |
| 5.0 | % | |||||||||||||||||||||||
Liabilities | | $ | 111,964 | | $ | 105,222 |
| 6.4 | % | |||||||||||||||||||||||
Equity | | $ | 21,672 | | $ | 22,021 |
| (1.6) | % |
* 4.40.4% percent adjusted for currency.
| | | | | | | | | |
|
|
| |
|
| |
| Yr. to Yr. |
|
(Dollars in millions except per share amounts) | | | | | | | | Percent |
|
For the three months ended March 31: | | 2023 | | 2022 | | Change |
| ||
Net income as reported | | $ | 927 | | $ | 733 |
| 26.5 | % |
Income/(loss) from discontinued operations, net of tax | |
| (7) | |
| 71 |
| nm | |
Income from continuing operations | | $ | 934 | | $ | 662 |
| 41.1 | % |
Non-operating adjustments (net of tax): | |
| | |
|
|
|
| |
Acquisition-related charges | | $ | 305 | | $ | 359 |
| (15.1) | % |
Non-operating retirement-related costs/(income) | | | 5 | | | 144 | | (96.5) | |
U.S. tax reform impacts | |
| 5 | |
| (116) |
| nm | |
Kyndryl-related impacts | |
| — | |
| 222 |
| (100.0) | |
Operating (non-GAAP) earnings* | | $ | 1,249 | | $ | 1,271 |
| (1.8) | % |
Diluted operating (non-GAAP) earnings per share* | | $ | 1.36 | | $ | 1.40 |
| (2.9) | % |
(Dollars in millions except per share amounts) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Net income as reported | $ | 1,583 | $ | 1,392 | 13.7 | % | |||||||||||||||||
Income/(loss) from discontinued operations, net of tax | 2 | (73) | nm | ||||||||||||||||||||
Income from continuing operations | $ | 1,581 | $ | 1,465 | 7.9 | % | |||||||||||||||||
Non-operating adjustments (net of tax): | |||||||||||||||||||||||
Acquisition-related charges | $ | 308 | $ | 345 | (10.8) | % | |||||||||||||||||
Non-operating retirement-related costs/(income) | 5 | 146 | (96.9) | ||||||||||||||||||||
U.S. tax reform impacts | 110 | 4 | nm | ||||||||||||||||||||
Kyndryl-related impacts | — | 145 | (100) | ||||||||||||||||||||
Operating (non-GAAP) earnings* | $ | 2,003 | $ | 2,105 | (4.8) | % | |||||||||||||||||
Diluted operating (non-GAAP) earnings per share* | $ | 2.18 | $ | 2.31 | (5.6) | % |
We had a good start to
43
Management Discussion – (continued)
series of price increases reflecting the value we provide to our clients.have taken. We expect these actions to continue to contribute to margin improvement throughout 2023. In the current environment, clients and partners continue to view technology as a source of competitive advantage, and are prioritizing larger digital transformation projects that focus on cost reductionsavings and increased productivity. WhileIn Consulting, while demand for our offerings that support these priorities remains solid, we are seeingcontinue to experience some deceleration in Consulting from the previous robust growth levels,delays for other projects considered to be more discretionary, especially in the U.S. The strength of the U.S. dollar has continued to impact our reported year-to-year revenue and pre-tax 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. See “Currency Rate Fluctuations,” for additional information.
Financial Performance Summary — Three Months Ended March 31:June 30:
From a geographic perspective, Americas revenue grew 0.3 percent year to year as reported (1 percent adjusted for currency).and the divestiture of our healthcare software assets in the second quarter of 2022. Europe/Middle East/Africa (EMEA) increased 2.41.7 percent (8and was flat adjusted for currency. Asia Pacific decreased 1.4 percent, but grew 3 percent adjusted for currency). Asia Pacific decreased 2.3 percent but grew 7 percent adjusted for currency.
44
Management Discussion – (continued)
above excluding the prior-year unrealized loss on Kyndryl stock and the lower non-operating retirement-related costs in the current year.
Pre-tax income from continuing operations of $1.1$2.0 billion increased 69.816.2 percent and pre-tax margin was 7.412.9 percent, an increase of 3.01.8 points versus the firstsecond quarter of 2022. Performance this quarter benefittedbenefited from the expense dynamics described above, and improvements in business mix and ongoing productivity initiatives, partially offsetinitiatives. In the second quarter of 2022, we recorded a pre-tax gain of approximately $230 million from the sale of our healthcare software assets which impacted the pre-tax income from continuing operations year-to-year performance by currencyapproximately 17 points and workforce rebalancing charges. The first-quarterthe pre-tax margin by 1.4 points. In addition, in the second-quarter 2023 workforce rebalancing chargecharges of approximately $260$117 million impacted the pre-tax income from continuing operations year-to-year performance by approximately 405 points and the pre-tax margin by 1.80.6 points. The continuing operations provision for income taxes in the firstsecond quarter of 2023 was $124$419 million compared to a benefit of $39$257 million in the firstsecond quarter of 2022. The prior-year benefitincrease was primarily driven by the impact of updates to the foreign tax credit regulations. Net income from continuing operations of $0.9$1.6 billion increased 41.17.9 percent and the net income from continuing operations margin was 6.610.2 percent, up 1.90.8 points year to year. The workforce rebalancing chargegains from the healthcare software assets divestiture impacted net income from continuing operations year-to-year performance by approximately 3015 points and pre-taxnet income margin by 1.41.2 points.
(Dollars and shares in millions except per share amounts) | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Revenue | $ | 29,727 | $ | 29,732 | 0.0 | %* | |||||||||||||||||
Gross profit margin | 53.9 | % | 52.6 | % | 1.3 | pts. | |||||||||||||||||
Total expense and other (income) | $ | 12,952 | $ | 13,280 | (2.5) | % | |||||||||||||||||
Income from continuing operations before income taxes | $ | 3,058 | $ | 2,345 | 30.4 | % | |||||||||||||||||
Provision for income taxes from continuing operations | $ | 543 | $ | 218 | 149.7 | % | |||||||||||||||||
Income from continuing operations | $ | 2,515 | $ | 2,127 | 18.2 | % | |||||||||||||||||
Income from continuing operations margin | 8.5 | % | 7.2 | % | 1.3 | pts. | |||||||||||||||||
Loss from discontinued operations, net of tax | $ | (4) | $ | (2) | 128.1 | % | |||||||||||||||||
Net income | $ | 2,511 | $ | 2,125 | 18.1 | % | |||||||||||||||||
Earnings per share from continuing operations - assuming dilution | $ | 2.74 | $ | 2.34 | 17.1 | % | |||||||||||||||||
Consolidated earnings per share - assuming dilution | $ | 2.73 | $ | 2.34 | 16.7 | % | |||||||||||||||||
Weighted-average shares outstanding - assuming dilution | 918.6 | 910.0 | 1.0 | % | |||||||||||||||||||
At 6/30/2023 | At 12/31/2022 | ||||||||||||||||||||||
Assets | $ | 132,213 | $ | 127,243 | 3.9 | % | |||||||||||||||||
Liabilities | $ | 109,942 | $ | 105,222 | 4.5 | % | |||||||||||||||||
Equity | $ | 22,271 | $ | 22,021 | 1.1 | % |
2.3% percent adjusted for currency.
(Dollars in millions except per share amounts) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Net income as reported | $ | 2,511 | $ | 2,125 | 18.1 | % | |||||||||||||||||
Loss from discontinued operations, net of tax | (4) | (2) | 128.1 | ||||||||||||||||||||
Income from continuing operations | $ | 2,515 | $ | 2,127 | 18.2 | % | |||||||||||||||||
Non-operating adjustments (net of tax): | |||||||||||||||||||||||
Acquisition-related charges | $ | 613 | $ | 704 | (13.0) | % | |||||||||||||||||
Non-operating retirement-related costs/(income) | 10 | 290 | (96.7) | ||||||||||||||||||||
U.S. tax reform impacts | 115 | (112) | nm | ||||||||||||||||||||
Kyndryl-related impacts | — | 367 | (100.0) | ||||||||||||||||||||
Operating (non-GAAP) earnings | $ | 3,252 | $ | 3,376 | (3.7) | % | |||||||||||||||||
Diluted operating (non-GAAP) earnings per share | $ | 3.54 | $ | 3.71 | (4.6) | % |
$6.5 billion.
45
Management Discussion – (continued)
Second Quarter and First QuarterSix Months in Review
Results of Continuing Operations
| | | | | | | | | | | |
|
|
| |
|
| |
|
|
| Yr. to Yr. |
|
| | | | | | | | | | Percent |
|
| | | | | | | | Yr. to Yr. | | Change |
|
(Dollars in millions) | |
| | |
| | | Percent/Margin | | Adjusted For |
|
For the three months ended March 31: | | 2023 | | 2022 | | Change | | Currency |
| ||
Revenue: |
| |
|
| |
|
|
|
|
| |
Software | | $ | 5,921 | | $ | 5,772 | | 2.6 | % | 5.6 | % |
Gross margin | |
| 79.5 | % |
| 78.8 | % | 0.6 | pts. |
| |
Consulting | |
| 4,962 | |
| 4,829 | | 2.8 | % | 8.2 | % |
Gross margin | |
| 25.2 | % |
| 24.3 | % | 0.9 | pts. |
| |
Infrastructure | |
| 3,098 | |
| 3,219 |
| (3.7) | % | 0.1 | % |
Gross margin | |
| 51.7 | % |
| 50.5 | % | 1.2 | pts. |
| |
Financing | |
| 196 | |
| 154 |
| 27.3 | % | 31.0 | % |
Gross margin | |
| 43.9 | % |
| 37.7 | % | 6.2 | pts. |
| |
Other | |
| 75 | |
| 224 | | (66.6) | % | (65.2) | % |
Gross margin | |
| (182.3) | % |
| (32.9) | % | (149.4) | pts. |
| |
Total revenue | | $ | 14,252 | | $ | 14,197 |
| 0.4 | % | 4.4 | % |
Total gross profit | | $ | 7,509 | | $ | 7,335 |
| 2.4 | % |
| |
Total gross margin | |
| 52.7 | % |
| 51.7 | % | 1.0 | pts. |
| |
Non-operating adjustments: | |
|
| |
|
|
|
|
|
| |
Amortization of acquired intangible assets | | | 148 | |
| 181 |
| (18.0) | % |
| |
Operating (non-GAAP) gross profit | | $ | 7,658 | | $ | 7,516 |
| 1.9 | % |
| |
Operating (non-GAAP) gross margin | |
| 53.7 | % |
| 52.9 | % | 0.8 | pts. |
| |
(Dollars in millions) | Yr. to Yr. Percent/Margin Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||||||
Software | $ | 6,608 | $ | 6,166 | 7.2 | % | 7.5 | % | |||||||||||||||||||||
Gross margin | 79.3 | % | 79.2 | % | 0.1 | pts. | |||||||||||||||||||||||
Consulting | 5,013 | 4,809 | 4.3 | % | 5.9 | % | |||||||||||||||||||||||
Gross margin | 25.9 | % | 24.2 | % | 1.8 | pts. | |||||||||||||||||||||||
Infrastructure | 3,618 | 4,235 | (14.6) | % | (13.8) | % | |||||||||||||||||||||||
Gross margin | 55.8 | % | 53.8 | % | 2.0 | pts. | |||||||||||||||||||||||
Financing | 185 | 146 | 26.2 | % | 27.1 | % | |||||||||||||||||||||||
Gross margin | 49.2 | % | 35.3 | % | 13.9 | pts. | |||||||||||||||||||||||
Other | 51 | 180 | (71.9) | % | (72.9) | % | |||||||||||||||||||||||
Gross margin | (295.7) | % | (49.3) | % | (246.5) | pts. | |||||||||||||||||||||||
Total revenue | $ | 15,475 | $ | 15,535 | (0.4) | % | 0.4 | % | |||||||||||||||||||||
Total gross profit | $ | 8,501 | $ | 8,290 | 2.5 | % | |||||||||||||||||||||||
Total gross margin | 54.9 | % | 53.4 | % | 1.6 | pts. | |||||||||||||||||||||||
Non-operating adjustments: | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets | 150 | 180 | (17.1) | % | |||||||||||||||||||||||||
Operating (non-GAAP) gross profit | $ | 8,650 | $ | 8,470 | 2.1 | % | |||||||||||||||||||||||
Operating (non-GAAP) gross margin | 55.9 | % | 54.5 | % | 1.4 | pts. |
(Dollars in millions) | Yr. to Yr. Percent/Margin Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||||||
Software | $ | 12,529 | $ | 11,938 | 5.0 | % | 6.6 | % | |||||||||||||||||||||
Gross margin | 79.4 | % | 79.0 | % | 0.3 | pts. | |||||||||||||||||||||||
Consulting | 9,975 | 9,637 | 3.5 | % | 7.0 | % | |||||||||||||||||||||||
Gross margin | 25.6 | % | 24.3 | % | 1.3 | pts. | |||||||||||||||||||||||
Infrastructure | 6,716 | 7,453 | (9.9) | % | (7.8) | % | |||||||||||||||||||||||
Gross margin | 53.9 | % | 52.4 | % | 1.6 | pts. | |||||||||||||||||||||||
Financing | 380 | 300 | 26.8 | % | 29.1 | % | |||||||||||||||||||||||
Gross margin | 46.5 | % | 36.5 | % | 10.0 | pts. | |||||||||||||||||||||||
Other | 126 | 404 | (68.9) | % | (68.6) | % | |||||||||||||||||||||||
Gross margin | (228.2) | % | (40.2) | % | (188.0) | pts. | |||||||||||||||||||||||
Total revenue | $ | 29,727 | $ | 29,732 | 0.0 | % | 2.3 | % | |||||||||||||||||||||
Total gross profit | $ | 16,010 | $ | 15,625 | 2.5 | % | |||||||||||||||||||||||
Total gross margin | 53.9 | % | 52.6 | % | 1.3 | pts. | |||||||||||||||||||||||
Non-operating adjustments: | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets | 298 | 361 | (17.5) | % | |||||||||||||||||||||||||
Operating (non-GAAP) gross profit | $ | 16,308 | $ | 15,986 | 2.0 | % | |||||||||||||||||||||||
Operating (non-GAAP) gross margin | 54.9 | % | 53.8 | % | 1.1 | pts. |
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Software revenue: | $ | 6,608 | $ | 6,166 | 7.2 | % | 7.5 | % | |||||||||||||||||||||
Hybrid Platform & Solutions | $ | 4,665 | $ | 4,390 | 6.3 | % | 6.6 | % | |||||||||||||||||||||
Red Hat | 10.7 | 10.8 | |||||||||||||||||||||||||||
Automation | 1.2 | 1.6 | |||||||||||||||||||||||||||
Data & AI | 10.0 | 10.6 | |||||||||||||||||||||||||||
Security | (1.5) | (1.0) | |||||||||||||||||||||||||||
Transaction Processing | 1,943 | 1,776 | 9.4 | 9.7 |
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Software revenue: | $ | 12,529 | $ | 11,938 | 5.0 | % | 6.6 | % | |||||||||||||||||||||
Hybrid Platform & Solutions | $ | 8,844 | $ | 8,470 | 4.4 | % | 5.9 | % | |||||||||||||||||||||
Red Hat | 9.5 | 10.8 | |||||||||||||||||||||||||||
Automation | 0.2 | 1.8 | |||||||||||||||||||||||||||
Data & AI | 5.7 | 7.2 | |||||||||||||||||||||||||||
Security | (1.4) | 0.4 | |||||||||||||||||||||||||||
Transaction Processing | 3,685 | 3,468 | 6.3 | 8.1 |
Software
| | | | | | | | | | | |
|
|
| |
|
| |
|
|
| Yr. to Yr. |
|
| | | | | | | | | | Percent |
|
| | | | | | | | Yr. to Yr. | | Change |
|
(Dollars in millions) | |
| | |
| | | Percent | | Adjusted For |
|
For the three months ended March 31: | | 2023 | | 2022 | | Change | | Currency |
| ||
Software revenue: | | $ | 5,921 | | $ | 5,772 |
| 2.6 | % | 5.6 | % |
Hybrid Platform & Solutions | | $ | 4,179 | | $ | 4,080 |
| 2.4 | % | 5.2 | % |
Red Hat | | | | | | | | 8.3 | | 10.8 | |
Automation | | | | | | | | (0.9) | | 2.1 | |
Data & AI | | | | | | | | 0.8 | | 3.4 | |
Security | | | | | | | | (1.2) | | 2.0 | |
Transaction Processing | | | 1,742 | |
| 1,692 |
| 2.9 |
| 6.5 | |
46
Management Discussion – (continued)
Hybrid Platform & Solutions revenue of $4,179$4,665 million increased 2.46.3 percent as reported (5(7 percent adjusted for currency) in the firstsecond quarter of 2023 compared to the prior-year period, reflecting continued client demand for our broad capabilities across all business areas.led by growth in Red Hat, Data & AI, and Automation. Red Hat revenue grew 8.3increased 10.7 percent as reported (11 percent adjusted for currency). OpenShift, our leading hybrid cloud platform, grew more than 30 percent year to year in the firstsecond-quarter 2023 and had $1.1 billion in annual recurring revenue. Ansible also had double-digit revenue growth in the second quarter of 2023 with growth across all major offerings. We had strength in OpenShift, our hybrid cloud platform,compared to 2022 and Ansible, our IT automation solution, both of which continued to takegained market share this quarter.share. Automation revenue decreased 0.9increased 1.2 percent as reported but grew 2 percent adjusted for currency driven by growth in offerings such as integration and application servers given client demand for improved IT performance and cost. Data & AI revenue increased 0.8 percent as reported (3(2 percent adjusted for currency), reflecting growth across Integration, Application Servers and Business Automation, as clients drive enhanced business value through productivity and performance optimization. Data & AI revenue increased 10.0 percent as reported (11 percent adjusted for currency) with broad-based growth in areas such as Data Management and Business Analytics given enterprise needs for data visualization, organization, analysis, and Asset and Supply Chain Management. Many of these offerings, such as DB2, serveinsights as the underpinnings for modern AI and mission-critical workloads. Security revenue decreased 1.21.5 percent as reported but grew 2.0(1 percent adjusted for currency compared to the prior year.
currency) driven by declines in security services, partially offset by growth in security software led by Data Security with Guardium Insights.
ARR is calculated at estimated constant currency.
(Dollars in millions) | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Software: | |||||||||||||||||||||||
Gross profit | $ | 5,239 | $ | 4,884 | 7.3 | % | |||||||||||||||||
Gross profit margin | 79.3 | % | 79.2 | % | 0.1 | pts. | |||||||||||||||||
Pre-tax income | $ | 1,504 | $ | 1,375 | 9.4 | % | |||||||||||||||||
Pre-tax margin | 22.8 | % | 22.3 | % | 0.5 | pts. |
(Dollars in millions) | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Software: | |||||||||||||||||||||||
Gross profit | $ | 9,944 | $ | 9,434 | 5.4 | % | |||||||||||||||||
Gross profit margin | 79.4 | % | 79.0 | % | 0.3 | pts. | |||||||||||||||||
Pre-tax income | $ | 2,668 | $ | 2,509 | 6.3 | % | |||||||||||||||||
Pre-tax margin | 21.3 | % | 21.0 | % | 0.3 | pts. |
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Consulting revenue: | $ | 5,013 | $ | 4,809 | 4.3 | % | 5.9 | % | |||||||||||||||||||||
Business Transformation | $ | 2,295 | $ | 2,227 | 3.0 | % | 4.5 | % | |||||||||||||||||||||
Technology Consulting | 961 | 928 | 3.5 | 5.1 | |||||||||||||||||||||||||
Application Operations | 1,758 | 1,653 | 6.3 | 8.1 |
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Consulting revenue: | $ | 9,975 | $ | 9,637 | 3.5 | % | 7.0 | % | |||||||||||||||||||||
Business Transformation | $ | 4,578 | $ | 4,482 | 2.1 | % | 5.5 | % | |||||||||||||||||||||
Technology Consulting | 1,904 | 1,884 | 1.1 | 4.6 | |||||||||||||||||||||||||
Application Operations | 3,494 | 3,272 | 6.8 | 10.5 |
| | | | | | | | | |
|
|
| |
|
| |
| Yr. to Yr. |
|
| | | | | | | | Percent/ |
|
(Dollars in millions) | |
| | |
| | | Margin |
|
For the three months ended March 31: | | 2023 | | 2022 | | Change |
| ||
Software: |
| |
|
| |
|
|
| |
Gross profit | | $ | 4,705 | | $ | 4,550 |
| 3.4 | % |
Gross profit margin | |
| 79.5 | % |
| 78.8 | % | 0.6 | pts. |
Pre-tax income | | $ | 1,164 | | $ | 1,134 |
| 2.7 | % |
Pre-tax margin | |
| 19.7 | % |
| 19.7 | % | 0.0 | pts. |
Software gross profit margin increased 0.6 points to 79.5 percentand our strategic partnerships grew signings and revenue in the firstsecond quarter at a double-digit rate on a year-to-year basis.
47
Consulting
| | | | | | | | | | | |
|
|
| |
|
| |
|
|
| Yr. to Yr. |
|
| | | | | | | | | | Percent |
|
| | | | | | | | Yr. to Yr. | | Change |
|
(Dollars in millions) | |
| | |
| | | Percent | | Adjusted For |
|
For the three months ended March 31: | | 2023 | | 2022 | | Change | | Currency |
| ||
Consulting revenue: | | $ | 4,962 | | $ | 4,829 | | 2.8 | % | 8.2 | % |
Business Transformation | | $ | 2,283 | | $ | 2,255 | | 1.3 | % | 6.5 | % |
Technology Consulting | |
| 943 | | | 955 | | (1.3) |
| 4.2 | |
Application Operations | |
| 1,736 | | | 1,619 | | 7.3 |
| 13.0 | |
Technology Consulting revenue of $4,962$961 million increased 2.83.5 percent as reported and 8(5 percent adjusted for currencycurrency) in the first quarter of 2023 compared to strong growth in the first quarter of 2022. Clients continue to leverage IBM’s hybrid cloud leadership and deep expertise to accelerate their digital transformations. More recently, clients are prioritizing digital transformation projects that focus on cost take out and productivity. While total Consulting revenue growth remained solid, we saw some deceleration in revenue growth particularly among U.S. clients with respect to more discretionary projects, impacting backlog realization within the quarter. Our hybrid cloud expertise and the depth and breadth of our strategic partnerships differentiates IBM Consulting in the market. In the first quarter of 2023, we had solid growth in our Red Hat consulting practice and our strategic partnerships continued to make strong contributions to our total Consulting revenue growth.
Business Transformation revenue of $2,283 million increased 1.3 percent as reported and 6 percent adjusted for currency in the firstsecond quarter of 2023 compared to the prior-year period, led by our cloud application development and cloud modernization offerings.
In our Technology Consulting revenue of $943 million decreased 1.3 percent as reported, but grew 4 percent adjusted for currency on a year-to-year basisbusiness, we led by growth in ourclient engagements around cloud application development.
development and modernization. Through our Application Operations revenue of $1,736 million increased 7.3 percent as reportedofferings, we continued to provide application and 13 percent adjusted for currency comparedcloud platform services required to operationalize and run cloud platforms.
(Dollars in millions) | 2023 | 2022 | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||
For the three months ended June 30: | |||||||||||||||||||||||
Consulting: | |||||||||||||||||||||||
Gross profit | $ | 1,300 | $ | 1,163 | 11.8 | % | |||||||||||||||||
Gross profit margin | 25.9 | % | 24.2 | % | 1.8 | pts. | |||||||||||||||||
Pre-tax income | $ | 446 | $ | 343 | 30.1 | % | |||||||||||||||||
Pre-tax margin | 8.9 | % | 7.1 | % | 1.8 | pts. |
(Dollars in millions) | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Consulting: | |||||||||||||||||||||||
Gross profit | $ | 2,553 | $ | 2,339 | 9.1 | % | |||||||||||||||||
Gross profit margin | 25.6 | % | 24.3 | % | 1.3 | pts. | |||||||||||||||||
Pre-tax income | $ | 828 | $ | 691 | 19.8 | % | |||||||||||||||||
Pre-tax margin | 8.3 | % | 7.2 | % | 1.1 | pts. |
| | | | | | | | | |
|
|
| |
|
| |
| Yr. to Yr. |
|
| | | | | | | | Percent/ |
|
(Dollars in millions) | |
| | |
| | | Margin |
|
For the three months ended March 31: | | 2023 | | 2022 | | Change |
| ||
Consulting: |
| |
|
| |
|
|
| |
Gross profit | | $ | 1,252 | | $ | 1,176 |
| 6.5 | % |
Gross profit margin | |
| 25.2 | % |
| 24.3 | % | 0.9 | pts. |
Pre-tax income | | $ | 382 | | $ | 348 |
| 9.6 | % |
Pre-tax margin | |
| 7.7 | % |
| 7.2 | % | 0.5 | pts. |
2023, Consulting first-quarter gross profit margin of 25.225.9 percent increased 0.91.8 points on a year-to-year basis. Pre-tax income of $446 million increased 9.630.1 percent to $382 million in the first quarter of 2023 and pre-tax margin of 8.9 percent increased 0.51.8 points to 7.7 percentin second-quarter 2023 compared to the same prior-year period. Our gross profit margin expansion and pre-tax margin performance continued to benefit fromare a reflection of the pricing and productivity actions we have taken during the past year.
year, which are more than offsetting the increased labor costs and investments.
| | | | | | | | | | | |
| | | | | | | | | | Yr. to Yr. |
|
| | | | | | | | | | Percent |
|
| | | | | | | | Yr. to Yr. | | Change |
|
(Dollars in millions) | | | | | | | | Percent | | Adjusted For |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| Currency |
| ||
Total Consulting signings | | $ | 5,193 | | $ | 5,136 |
| 1.1 | % | 6.5 | % |
48
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Total Consulting signings | $ | 5,667 | $ | 4,654 | 21.8 | % | 24.5 | % |
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Total Consulting signings | $ | 10,860 | $ | 9,791 | 10.9 | % | 15.1 | % |
Management Discussion – (continued)
Our book-to-bill ratio over the last twelve months was 1.07. In the firstsecond quarter of 2023, Consulting signings grew 1.122 percent as reported and 724 percent adjusted for currency.currency, with solid growth in both large and small engagements, and our book-to-bill ratio was 1.1 over the last twelve months. We addressed continued to see broad demand for technology-driven transformation as clients prioritize projects that deliver technology-driven transformations leveraging a hybrid cloud environment. Within the quarter, we saw solid demand for cloud modernization offeringsdrive cost savings and had one of our largest-ever Red Hat signings quarters. Clients’ focus on driving productivity and cost reductions has contributed to signings growth from digital transformations in areas such as talent, finance and supply chain transformations.
increase productivity.
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Infrastructure revenue: | $ | 3,618 | $ | 4,235 | (14.6) | % | (13.8) | % | |||||||||||||||||||||
Hybrid Infrastructure | $ | 2,260 | $ | 2,760 | (18.1) | % | (17.8) | % | |||||||||||||||||||||
zSystems | (30.1) | (30.0) | |||||||||||||||||||||||||||
Distributed Infrastructure | (6.5) | (5.9) | |||||||||||||||||||||||||||
Infrastructure Support | 1,358 | 1,474 | (7.9) | (6.3) |
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Infrastructure revenue: | $ | 6,716 | $ | 7,453 | (9.9) | % | (7.8) | % | |||||||||||||||||||||
Hybrid Infrastructure | $ | 3,969 | $ | 4,461 | (11.0) | % | (9.6) | % | |||||||||||||||||||||
zSystems | (19.0) | (17.8) | |||||||||||||||||||||||||||
Distributed Infrastructure | (4.9) | (3.2) | |||||||||||||||||||||||||||
Infrastructure Support | 2,747 | 2,993 | (8.2) | (5.1) |
| | | | | | | | | | | |
| | | | | | | | | | Yr. to Yr. |
|
| | | | | | | | | | Percent |
|
| | | | | | | | Yr. to Yr. | | Change |
|
(Dollars in millions) | | | | | | | | Percent | | Adjusted For |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| Currency |
| ||
Infrastructure revenue: | | $ | 3,098 | | $ | 3,219 |
| (3.7) | % | 0.1 | % |
Hybrid Infrastructure | | $ | 1,709 | | $ | 1,700 |
| 0.5 | % | 3.8 | % |
zSystems | |
|
| |
| |
| 7.0 |
| 10.7 | |
Distributed Infrastructure | |
|
| |
|
|
| (2.8) |
| 0.3 | |
Infrastructure Support | |
| 1,389 | |
| 1,519 |
| (8.5) |
| (4.0) | |
Hybrid Infrastructure revenue of $1,709 million increased 0.5 percent as reported (4(14 percent adjusted for currency) compared to first quarter of 2022. Within Hybrid Infrastructure, zSystems revenue increased 7.0 percent as reported (11 percent adjusted for currency) year to year. This was the fourth quarter of z16 availability and the program’s performance has outpaced that of prior cycles. In addition to its capabilities around embedded AI at scale, cloud native development for hybrid cloud and cyber-resilient security, clients are also leveraging z16 for its energy efficiency. We also had continued strong growth in shipped MIPs for new Linux workloads on z16. Distributed Infrastructure revenue decreased 2.8 percent as reported and was flat adjusted for currency. Revenue growth in Storage was offset by declines in Power reflecting the prior-year strong performance following the launch of Power10 high-end systems in the third quarter of 2021.
Infrastructure Support revenue of $1,389 million decreased 8.5 percent as reported and 4 percent adjusted for currency in the firstsecond quarter of 2023 compared to the prior-year period, reflecting product cycle dynamics.
49
(Dollars in millions) | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Infrastructure: | |||||||||||||||||||||||
Gross profit | $ | 2,021 | $ | 2,280 | (11.4) | % | |||||||||||||||||
Gross profit margin | 55.8 | % | 53.8 | % | 2.0 | pts. | |||||||||||||||||
Pre-tax income | $ | 633 | $ | 757 | (16.4) | % | |||||||||||||||||
Pre-tax margin | 17.5 | % | 17.9 | % | (0.4) | pts. |
| | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | Yr. to Yr. |
| |||||||||||||||||||||||
| | | | | | | | Percent/ |
| |||||||||||||||||||||||
(Dollars in millions) | | | | | | | | Margin |
| (Dollars in millions) | Yr. to Yr. Percent/ Margin Change | |||||||||||||||||||||
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| |||||||||||||||||||||||||
For the six months ended June 30: | For the six months ended June 30: | 2023 | 2022 | Yr. to Yr. Percent/ Margin Change | ||||||||||||||||||||||||||||
Infrastructure: |
| | |
| | |
|
| | Infrastructure: | ||||||||||||||||||||||
Gross profit | | $ | 1,603 | | $ | 1,625 |
| (1.4) | % | Gross profit | $ | 3,623 | $ | 3,905 | (7.2) | % | ||||||||||||||||
Gross profit margin | |
| 51.7 | % |
| 50.5 | % | 1.2 | pts. | Gross profit margin | 53.9 | % | 52.4 | % | 1.6 | pts. | ||||||||||||||||
Pre-tax income | | $ | 216 | | $ | 199 |
| 8.5 | % | Pre-tax income | $ | 849 | $ | 956 | (11.2) | % | ||||||||||||||||
Pre-tax margin | |
| 7.0 | % |
| 6.2 | % | 0.8 | pts. | Pre-tax margin | 12.6 | % | 12.8 | % | (0.2) | pts. |
same factors described above for the second quarter.
| | | | | | | | | | | |
| | | | | | | | | | Yr. to Yr. | |
| | | | | | | | | | Percent |
|
| | | | | | | | Yr. to Yr. | | Change |
|
(Dollars in millions) | | | | | | | | Percent | | Adjusted For |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| Currency |
| ||
Total Revenue | | $ | 14,252 | | $ | 14,197 |
| 0.4 | % | 4.4 | % |
Americas | | $ | 7,078 | | $ | 7,056 |
| 0.3 | % | 1.2 | % |
Europe/Middle East/Africa (EMEA) | |
| 4,331 | |
| 4,231 |
| 2.4 |
| 7.9 | |
Asia Pacific | |
| 2,843 | |
| 2,910 |
| (2.3) |
| 7.0 | |
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Total Revenue | $ | 15,475 | $ | 15,535 | (0.4) | % | 0.4 | % | |||||||||||||||||||||
Americas | $ | 8,046 | $ | 8,142 | (1.2) | % | (0.5) | % | |||||||||||||||||||||
Europe/Middle East/Africa (EMEA) | 4,602 | 4,526 | 1.7 | 0.3 | |||||||||||||||||||||||||
Asia Pacific | 2,827 | 2,868 | (1.4) | 3.2 |
(Dollars in millions) | Yr. to Yr. Percent Change | Yr. to Yr. Percent Change Adjusted For Currency | |||||||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||||||||
Total Revenue | $ | 29,727 | $ | 29,732 | 0.0 | % | 2.3 | % | |||||||||||||||||||||
Americas | $ | 15,124 | $ | 15,198 | (0.5) | % | 0.3 | % | |||||||||||||||||||||
Europe/Middle East/Africa (EMEA) | 8,933 | 8,757 | 2.0 | 4.0 | |||||||||||||||||||||||||
Asia Pacific | 5,670 | 5,778 | (1.9) | 5.2 |
prior-year period.
50
Management Discussion – (continued)
6.3 percent as reported and 1815 percent adjusted for currency. China and Australia decreased 24.321.7 percent and 16.014.5 percent, respectively, as reported, and 2018 percent and 119 percent, respectively, adjusted for currency.
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Total expense and other (income) | $ | 6,501 | $ | 6,568 | (1.0) | % | |||||||||||||||||
Non-operating adjustments: | |||||||||||||||||||||||
Amortization of acquired intangible assets | $ | (239) | $ | (278) | (14.0) | % | |||||||||||||||||
Acquisition-related charges | (7) | (2) | nm | ||||||||||||||||||||
Non-operating retirement-related (costs)/income | (1) | (192) | (99.4) | ||||||||||||||||||||
Kyndryl-related impacts | — | (145) | (100.0) | ||||||||||||||||||||
Operating (non-GAAP) expense and other (income) | $ | 6,254 | $ | 5,952 | 5.1 | % | |||||||||||||||||
Total expense-to-revenue ratio | 42.0 | % | 42.3 | % | (0.3) | pts. | |||||||||||||||||
Operating (non-GAAP) expense-to-revenue ratio | 40.4 | % | 38.3 | % | 2.1 | pts. |
| | | | | | | | | |
| | | | | | | | Yr. to Yr. |
|
(Dollars in millions) | | | | | | | | Percent |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| ||
Total expense and other (income) | | $ | 6,451 | | $ | 6,712 |
| (3.9) | % |
Non-operating adjustments: | |
|
| |
|
|
|
| |
Amortization of acquired intangible assets | | $ | (244) | | $ | (280) | | (12.8) | % |
Acquisition-related charges | |
| (3) | | | (7) | | (50.1) | |
Non-operating retirement-related (costs)/income | | | 5 | | | (202) | | nm | |
Kyndryl-related impacts | |
| — | | | (222) | | (100.0) | |
Operating (non-GAAP) expense and other (income) | | $ | 6,209 | | $ | 6,001 | | 3.5 | % |
Total expense-to-revenue ratio | |
| 45.3 | % | | 47.3 | % | (2.0) | pts. |
Operating (non-GAAP) expense-to-revenue ratio | |
| 43.6 | % | | 42.3 | % | 1.3 | pts. |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Total expense and other (income) | $ | 12,952 | $ | 13,280 | (2.5) | % | |||||||||||||||||
Non-operating adjustments: | |||||||||||||||||||||||
Amortization of acquired intangible assets | $ | (483) | $ | (558) | (13.4) | % | |||||||||||||||||
Acquisition-related charges | (10) | (9) | 17.6 | ||||||||||||||||||||
Non-operating retirement-related (costs)/income | 4 | (394) | nm | ||||||||||||||||||||
Kyndryl-related impacts | — | (367) | (100.0) | ||||||||||||||||||||
Operating (non-GAAP) expense and other (income) | $ | 12,463 | $ | 11,953 | 4.3 | % | |||||||||||||||||
Total expense-to-revenue ratio | 43.6 | % | 44.7 | % | (1.1) | pts. | |||||||||||||||||
Operating (non-GAAP) expense-to-revenue ratio | 41.9 | % | 40.2 | % | 1.7 | pts. |
| | | | | | | | | |
| | | | | | | | Yr. to Yr. |
|
(Dollars in millions) | | | | | | | | Percent |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| ||
Selling, general and administrative expense: |
| |
|
| |
|
|
| |
Selling, general and administrative — other | | $ | 3,886 | | $ | 3,824 |
| 1.6 | % |
Advertising and promotional expense | |
| 314 | |
| 336 |
| (6.6) | |
Workforce rebalancing charges | |
| 259 | |
| 5 |
| nm | |
Amortization of acquired intangible assets | |
| 243 | |
| 279 |
| (12.9) | |
Stock-based compensation | |
| 149 | |
| 136 |
| 9.4 | |
Provision for/(benefit from) expected credit loss expense | |
| 2 | |
| 16 |
| (88.2) | |
Total selling, general and administrative expense | | $ | 4,853 | | $ | 4,597 |
| 5.6 | % |
Non-operating adjustments: | |
|
| |
|
|
|
| |
Amortization of acquired intangible assets | | $ | (243) | | $ | (279) |
| (12.9) | % |
Acquisition-related charges | | | (3) | |
| (7) |
| (63.3) | |
Kyndryl-related impacts | |
| — | | | 0 | | (100.0) | |
Operating (non-GAAP) selling, general and administrative expense | | $ | 4,607 | | $ | 4,311 |
| 6.9 | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Selling, general and administrative expense: | |||||||||||||||||||||||
Selling, general and administrative — other | $ | 3,991 | $ | 3,996 | (0.1) | % | |||||||||||||||||
Advertising and promotional expense | 372 | 395 | (5.8) | ||||||||||||||||||||
Workforce rebalancing charges | 117 | 28 | nm | ||||||||||||||||||||
Amortization of acquired intangible assets | 239 | 277 | (13.9) | ||||||||||||||||||||
Stock-based compensation | 168 | 153 | 10.3 | ||||||||||||||||||||
Provision for/(benefit from) expected credit loss expense | 14 | 6 | 129.1 | ||||||||||||||||||||
Total selling, general and administrative expense | $ | 4,900 | $ | 4,855 | 0.9 | % | |||||||||||||||||
Non-operating adjustments: | |||||||||||||||||||||||
Amortization of acquired intangible assets | $ | (239) | $ | (277) | (13.9) | % | |||||||||||||||||
Acquisition-related charges | (7) | (2) | nm | ||||||||||||||||||||
Kyndryl-related impacts | — | 0 | nm | ||||||||||||||||||||
Operating (non-GAAP) selling, general and administrative expense | $ | 4,655 | $ | 4,576 | 1.7 | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Selling, general and administrative expense: | |||||||||||||||||||||||
Selling, general and administrative — other | $ | 7,877 | $ | 7,820 | 0.7 | % | |||||||||||||||||
Advertising and promotional expense | 687 | 732 | (6.1) | ||||||||||||||||||||
Workforce rebalancing charges | 376 | 33 | nm | ||||||||||||||||||||
Amortization of acquired intangible assets | 482 | 557 | (13.4) | ||||||||||||||||||||
Stock-based compensation | 317 | 289 | 9.9 | ||||||||||||||||||||
Provision for/(benefit from) expected credit loss expense | 16 | 22 | (29.5) | ||||||||||||||||||||
Total selling, general and administrative expense | $ | 9,754 | $ | 9,452 | 3.2 | % | |||||||||||||||||
Non-operating adjustments: | |||||||||||||||||||||||
Amortization of acquired intangible assets | $ | (482) | $ | (557) | (13.4) | % | |||||||||||||||||
Acquisition-related charges | (9) | (9) | 6.4 | ||||||||||||||||||||
Kyndryl-related impacts | — | 0 | nm | ||||||||||||||||||||
Operating (non-GAAP) selling, general and administrative expense | $ | 9,263 | $ | 8,887 | 4.2 | % |
51
Management Discussion – (continued)
Operating (non-GAAP) expense increased 6.91.7 percent year to year, driven primarily by the same factors.
factors above; partially offset by
of 60 basis points from June 30, 2022.
| | | | | | | | | |
| | | | | | | | Yr. to Yr. |
|
(Dollars in millions) | | | | | | | | Percent |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| ||
Research, development and engineering expense | | $ | 1,655 | | $ | 1,679 |
| (1.4) | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Research, development and engineering expense | $ | 1,687 | $ | 1,673 | 0.8 | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Research, development and engineering expense | $ | 3,342 | $ | 3,352 | (0.3) | % |
quantum.
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Intellectual property and custom development income: | |||||||||||||||||||||||
Licensing of intellectual property including royalty-based fees | $ | 127 | $ | 113 | 12.5 | % | |||||||||||||||||
Custom development income | 119 | 57 | 111.2 | ||||||||||||||||||||
Sales/other transfers of intellectual property | 2 | 6 | (73.4) | ||||||||||||||||||||
Total | $ | 248 | $ | 176 | 41.3 | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Intellectual property and custom development income: | |||||||||||||||||||||||
Licensing of intellectual property including royalty-based fees | $ | 188 | $ | 184 | 2.2 | % | |||||||||||||||||
Custom development income | 235 | 105 | 124.0 | ||||||||||||||||||||
Sales/other transfers of intellectual property | 5 | 8 | (32.5) | ||||||||||||||||||||
Total | $ | 428 | $ | 297 | 44.3 | % |
| | | | | | | | | |
| | | | | | | | Yr. to Yr. |
|
(Dollars in millions) | | | | | | | | Percent |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| ||
Intellectual property and custom development income: |
| |
|
| |
|
|
| |
Licensing of intellectual property including royalty-based fees | | $ | 61 | | $ | 71 |
| (14.2) | % |
Custom development income | |
| 115 | |
| 48 |
| 139.1 | |
Sales/other transfers of intellectual property | |
| 4 | |
| 2 |
| 119.0 | |
Total | | $ | 180 | | $ | 121 |
| 48.7 | % |
52
Management Discussion – (continued)
Other (Income) and Expense
| | | | | | | | | |
| | | | | | | | Yr. to Yr. |
|
(Dollars in millions) | | | | | | | | Percent |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| ||
Other (income) and expense: |
| |
|
| |
|
|
| |
Foreign currency transaction losses/(gains) | | $ | 88 | | $ | (176) |
| nm | |
(Gains)/losses on derivative instruments | |
| (142) | |
| 102 |
| nm | |
Interest income | |
| (170) | |
| (17) |
| nm | |
Net (gains)/losses from securities and investment assets | |
| 5 | |
| 218 |
| (97.6) | % |
Retirement-related costs/(income) | |
| (5) | |
| 202 |
| nm | |
Other | |
| (22) | |
| (83) |
| (73.9) | |
Total other (income) and expense | | $ | (245) | | $ | 246 |
| nm | |
Non-operating adjustments: | |
|
| |
|
|
|
| |
Amortization of acquired intangible assets | | $ | (1) | | $ | (1) |
| — | |
Acquisition-related charges | |
| (1) | |
| — |
| nm | |
Non-operating retirement-related (costs)/income | | | 5 | | | (202) | | nm | |
Kyndryl-related impacts | |
| — | |
| (222) |
| (100.0) | % |
Operating (non-GAAP) other (income) and expense | | $ | (242) | | $ | (179) |
| 35.3 | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Other (income) and expense: | |||||||||||||||||||||||
Foreign currency transaction losses/(gains) | $ | (166) | $ | (494) | (66.4) | % | |||||||||||||||||
(Gains)/losses on derivative instruments | 141 | 439 | (67.8) | ||||||||||||||||||||
Interest income | (201) | (28) | nm | ||||||||||||||||||||
Net (gains)/losses from securities and investment assets | 3 | 54 | (94.1) | ||||||||||||||||||||
Retirement-related costs/(income) | 1 | 192 | (99.4) | ||||||||||||||||||||
Other | (39) | (243) | (84.0) | ||||||||||||||||||||
Total other (income) and expense | $ | (261) | $ | (81) | 223.6 | % | |||||||||||||||||
Non-operating adjustments: | |||||||||||||||||||||||
Amortization of acquired intangible assets | $ | 0 | $ | (1) | (66.7) | % | |||||||||||||||||
Non-operating retirement-related (costs)/income | (1) | (192) | (99.4) | ||||||||||||||||||||
Kyndryl-related impacts | — | (145) | (100.0) | ||||||||||||||||||||
Operating (non-GAAP) other (income) and expense | $ | (262) | $ | (418) | (37.2) | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Other (income) and expense: | |||||||||||||||||||||||
Foreign currency transaction losses/(gains) | $ | (78) | $ | (670) | (88.3) | % | |||||||||||||||||
(Gains)/losses on derivative instruments | (1) | 541 | nm | ||||||||||||||||||||
Interest income | (371) | (46) | nm | ||||||||||||||||||||
Net (gains)/losses from securities and investment assets | 8 | 273 | (96.9) | ||||||||||||||||||||
Retirement-related costs/(income) | (4) | 394 | nm | ||||||||||||||||||||
Other | (61) | (327) | (81.4) | ||||||||||||||||||||
Total other (income) and expense | $ | (506) | $ | 166 | nm | ||||||||||||||||||
Non-operating adjustments: | |||||||||||||||||||||||
Amortization of acquired intangible assets | $ | (1) | $ | (1) | (33.3) | % | |||||||||||||||||
Acquisition-related charges | (1) | — | nm | ||||||||||||||||||||
Non-operating retirement-related (costs)/income | 4 | (394) | nm | ||||||||||||||||||||
Kyndryl-related impacts | — | (367) | (100.0) | ||||||||||||||||||||
Operating (non-GAAP) other (income) and expense | $ | (504) | $ | (596) | (15.5) | % |
Interest Expense
| | | | | | | | | |
| | | | | | | | Yr. to Yr. |
|
(Dollars in millions) | | | | | | | | Percent |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| ||
Interest expense | | $ | 367 | | $ | 311 |
| 18.3 | % |
Interest expense increased $57$504 million in the first quartersix months of 2023 and decreased $92 million compared to the prior-year period. The year-to-year change was primarily driven by the factors described above, excluding the lower non-operating retirement-related costs and benefits related to the prior year Kyndryl retained shares and swap.
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Interest expense | $ | 423 | $ | 297 | 42.5 | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Interest expense | $ | 790 | $ | 607 | 30.1 | % |
53
Management Discussion – (continued)
Retirement-Related Plans
| | | | | | | | | |
| | | | | | | | Yr. to Yr. |
|
(Dollars in millions) | | | | | | | | Percent |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| ||
Retirement-related plans — cost: |
| |
|
| |
|
|
| |
Service cost | | $ | 46 | | $ | 66 |
| (29.6) | % |
Multi-employer plans | |
| 4 | |
| 4 |
| (6.3) | |
Cost of defined contribution plans | |
| 269 | |
| 239 |
| 12.5 | |
Total operating costs | | $ | 319 | | $ | 309 |
| 3.3 | % |
Interest cost | | $ | 599 | | $ | 467 |
| 28.2 | % |
Expected return on plan assets | |
| (739) | |
| (749) |
| (1.4) | |
Recognized actuarial losses | |
| 129 | |
| 460 |
| (71.9) | |
Amortization of prior service costs/(credits) | |
| (2) | |
| 7 |
| nm | |
Curtailments/settlements | |
| (1) | |
| 8 |
| nm | |
Other costs | |
| 9 | |
| 9 |
| (6.4) | |
Total non-operating costs/(income) | | $ | (5) | | $ | 202 |
| (102.5) | % |
Total retirement-related plans — cost | | $ | 314 | | $ | 510 |
| (38.5) | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Retirement-related plans — cost: | |||||||||||||||||||||||
Service cost | $ | 46 | $ | 61 | (25.9) | % | |||||||||||||||||
Multi-employer plans | 3 | 3 | (17.6) | ||||||||||||||||||||
Cost of defined contribution plans | 242 | 233 | 4.1 | ||||||||||||||||||||
Total operating costs | $ | 291 | $ | 298 | (2.3) | % | |||||||||||||||||
Interest cost | $ | 604 | $ | 460 | 31.3 | % | |||||||||||||||||
Expected return on plan assets | (745) | (734) | 1.5 | ||||||||||||||||||||
Recognized actuarial losses | 128 | 442 | (71.0) | ||||||||||||||||||||
Amortization of prior service costs/(credits) | (2) | 6 | nm | ||||||||||||||||||||
Curtailments/settlements | 6 | 11 | (47.0) | ||||||||||||||||||||
Other costs | 10 | 6 | 67.7 | ||||||||||||||||||||
Total non-operating costs/(income) | $ | 1 | $ | 192 | (99.4) | % | |||||||||||||||||
Total retirement-related plans — cost | $ | 292 | $ | 489 | (40.4) | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Retirement-related plans — cost: | |||||||||||||||||||||||
Service cost | $ | 92 | $ | 127 | (27.8) | % | |||||||||||||||||
Multi-employer plans | 6 | 7 | (11.5) | ||||||||||||||||||||
Cost of defined contribution plans | 511 | 472 | 8.4 | ||||||||||||||||||||
Total operating costs | $ | 610 | $ | 606 | 0.6 | % | |||||||||||||||||
Interest cost | $ | 1,203 | $ | 927 | 29.7 | % | |||||||||||||||||
Expected return on plan assets | (1,484) | (1,483) | 0.0 | ||||||||||||||||||||
Recognized actuarial losses | 257 | 902 | (71.5) | ||||||||||||||||||||
Amortization of prior service costs/(credits) | (4) | 13 | nm | ||||||||||||||||||||
Curtailments/settlements | 5 | 19 | (74.0) | ||||||||||||||||||||
Other costs | 19 | 15 | 22.6 | ||||||||||||||||||||
Total non-operating costs/(income) | $ | (4) | $ | 394 | nm | ||||||||||||||||||
Total retirement-related plans — cost | $ | 606 | $ | 1,000 | (39.4) | % |
costs.
54
Management Discussion – (continued)
Taxes
55
For the three months ended June 30: | 2023 | 2022 | Yr. to Yr. Percent Change | ||||||||||||||||||||
Earnings per share of common stock from continuing operations: | |||||||||||||||||||||||
Assuming dilution | $ | 1.72 | $ | 1.61 | 6.8 | % | |||||||||||||||||
Basic | $ | 1.74 | $ | 1.62 | 7.4 | % | |||||||||||||||||
Diluted operating (non-GAAP) | $ | 2.18 | $ | 2.31 | (5.6) | % | |||||||||||||||||
Weighted-average shares outstanding: (in millions) | |||||||||||||||||||||||
Assuming dilution | 919.5 | 910.7 | 1.0 | % | |||||||||||||||||||
Basic | 909.9 | 901.5 | 0.9 | % | |||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | Yr. to Yr. Percent Change | ||||||||||||||||||||
Earnings per share of common stock from continuing operations: | |||||||||||||||||||||||
Assuming dilution | $ | 2.74 | $ | 2.34 | 17.1 | % | |||||||||||||||||
Basic | $ | 2.77 | $ | 2.36 | 17.4 | % | |||||||||||||||||
Diluted operating (non-GAAP) | $ | 3.54 | $ | 3.71 | (4.6) | % | |||||||||||||||||
Weighted-average shares outstanding: (in millions) | |||||||||||||||||||||||
Assuming dilution | 918.6 | 910.0 | 1.0 | % | |||||||||||||||||||
Basic | 908.7 | 900.4 | 0.9 | % | |||||||||||||||||||
Management Discussion – (continued)
| | | | | | | | | |
| | | | | | | | Yr. to Yr. |
|
| | | | | | | | Percent |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change |
| ||
Earnings per share of common stock from continuing operations: |
| |
|
| |
|
|
| |
Assuming dilution | | $ | 1.02 | | $ | 0.73 |
| 39.7 | % |
Basic | | $ | 1.03 | | $ | 0.74 |
| 39.2 | % |
Diluted operating (non-GAAP) | | $ | 1.36 | | $ | 1.40 |
| (2.9) | % |
Weighted-average shares outstanding: (in millions) | |
|
| |
|
|
|
| |
Assuming dilution | |
| 917.8 | |
| 909.2 |
| 0.9 | % |
Basic | |
| 907.5 | |
| 899.3 |
| 0.9 | % |
Actual shares outstanding at March 31,June 30, 2023 were 908.0911.0 million. The weighted-average number of common shares outstanding assuming dilution during the second quarter and first quartersix months of 2023 was 8.6were 8.7 million shares (0.9(1.0 percent) higher than the same periodperiods of 2022.
| | | | | | |
| | At March 31, | | At December 31, | ||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Current assets | | $ | 35,982 | | $ | 29,118 |
Current liabilities | |
| 30,993 | |
| 31,505 |
Working capital | | $ | 4,989 | | $ | (2,387) |
Current ratio | |
| 1.16:1 | |
| 0.92:1 |
(Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||
Current assets | $ | 34,458 | $ | 29,118 | ||||||||||
Current liabilities | 32,513 | 31,505 | ||||||||||||
Working capital | $ | 1,945 | $ | (2,387) | ||||||||||
Current ratio | 1.06:1 | 0.92:1 |
56
Management Discussion – (continued)
and benefitsshort-term debt driven by payments related to prior year performance-based compensation, andreclassifications from long-term debt net of maturities; partially offset by a decrease in taxes payable; partially offset by an increase in deferred income mainly driven by annual customer billings.
payable and accounts payable.
| | | | | | | | | | | | | |
(Dollars in millions) | | | | | | | | | | | | | |
January 1, 2023 |
| Additions / (Releases) * |
| Write-offs ** |
| Foreign currency and other+ | | March 31, 2023 | |||||
$ | 495 | | $ | 4 | | $ | (8) | | $ | 26 | | $ | 516 |
(Dollars in millions) | ||||||||||||||||||||||||||
January 1, 2023 | Additions / (Releases) * | Write-offs ** | Foreign currency and other+ | June 30, 2023 | ||||||||||||||||||||||
$ | 495 | $ | 14 | $ | (51) | $ | 38 | $ | 496 |
| | | | | | | |
| | At March 31, | | At December 31, |
| ||
(Dollars in millions) |
| 2023 |
| 2022 |
| ||
Amortized cost * | | $ | 11,301 | | $ | 12,843 | |
Specific allowance for credit losses | |
| 126 | |
| 127 | |
Unallocated allowance for credit losses | |
| 38 | |
| 46 | |
Total allowance for credit losses | |
| 164 | |
| 173 | |
Net financing receivables | | $ | 11,137 | | $ | 12,670 | |
Allowance for credit losses coverage | |
| 1.5 | % |
| 1.3 | % |
(Dollars in millions) | At June 30, 2023 | At December 31, 2022 | |||||||||||||||
Amortized cost * | $ | 10,969 | $ | 12,843 | |||||||||||||
Specific allowance for credit losses | 126 | 127 | |||||||||||||||
Unallocated allowance for credit losses | 45 | 46 | |||||||||||||||
Total allowance for credit losses | 171 | 173 | |||||||||||||||
Net financing receivables | $ | 10,798 | $ | 12,670 | |||||||||||||
Allowance for credit losses coverage | 1.6 | % | 1.3 | % |
cost and higher unallocated reserve requirements.
| | | | | | | | | | | | | |
(Dollars in millions) |
|
| |
|
| |
|
| |
|
| | |
January 1, 2023 | | Additions / (Releases)* | | Write-offs ** | | Foreign currency and other | | March 31, 2023 | |||||
$ | 173 | | $ | (13) | | $ | 0 | | $ | 5 | | $ | 164 |
(Dollars in millions) | ||||||||||||||||||||||||||
January 1, 2023 | Additions / (Releases)* | Write-offs ** | Foreign currency and other | June 30, 2023 | ||||||||||||||||||||||
$ | 173 | $ | (6) | $ | (4) | $ | 7 | $ | 171 |
|
| |
|
|
57
Management Discussion – (continued)
Noncurrent Assets and Liabilities
| | | | | | |
| | At March 31, | | At December 31, | ||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Noncurrent assets | | $ | 97,654 | | $ | 98,125 |
Long-term debt | | $ | 53,826 | | $ | 46,189 |
Noncurrent liabilities (excluding debt) | | $ | 27,146 | | $ | 27,528 |
(Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||
Noncurrent assets | $ | 97,755 | $ | 98,125 | ||||||||||
Long-term debt | $ | 50,691 | $ | 46,189 | ||||||||||
Noncurrent liabilities (excluding debt) | $ | 26,738 | $ | 27,528 |
balances; partially offset by an increase in prepaid pension assets and goodwill.
| | | | | | |
| | At March 31, | | At December 31, | ||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Total debt | | $ | 58,712 | | $ | 50,949 |
Financing segment debt* | | $ | 10,522 | | $ | 12,872 |
Non-Financing debt | | $ | 48,191 | | $ | 38,077 |
(Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||
Total debt | $ | 57,476 | $ | 50,949 | ||||||||||
Financing segment debt* | $ | 10,551 | $ | 12,872 | ||||||||||
Non-Financing debt | $ | 46,925 | $ | 38,077 |
in 2023 and 2024 as well as capital allocation priorities.
We measure Financing as a stand-alone entity, and accordingly, interest expense relating to debt supporting Financing’s external client and internal business is included in the “Financing Results of Operations” and in note 4, “Segments.”
58
Management Discussion – (continued)
Equity
Total equity decreased $349increased $250 million from December 31, 2022, primarily driven by dividends paid of $1,497 million, partially offset by an increase from net income of $927$2,511 million and common stock of $332$619 million; partially offset by dividends paid of $3,007 million.
| | | | | | |
(Dollars in millions) | | | | | | |
For the three months ended March 31: |
| 2023 |
| 2022 | ||
Net cash provided by/(used in): |
| |
|
| |
|
Operating activities | | $ | 3,774 | | $ | 3,248 |
Investing activities | |
| (7,960) | |
| (1,358) |
Financing activities | |
| 5,708 | |
| 1,377 |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| 24 | |
| (5) |
Net change in cash, cash equivalents and restricted cash | | $ | 1,547 | | $ | 3,263 |
(Dollars in millions) | ||||||||||||||
For the six months ended June 30: | 2023 | 2022 | ||||||||||||
Net cash provided by/(used in): | ||||||||||||||
Operating activities | $ | 6,412 | $ | 4,569 | ||||||||||
Investing activities | (7,953) | (1,186) | ||||||||||||
Financing activities | 2,978 | (2,819) | ||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1) | (267) | ||||||||||||
Net change in cash, cash equivalents and restricted cash | $ | 1,436 | $ | 297 |
Netinvestments and a decrease in cash provided by financingdivestitures; partially offset by a decrease in cash used in acquisitions.
Loss
59
Management Discussion – (continued)
Hybrid Cloud and AI Strategy
We believe hybrid cloud and AI are the two most transformational enterprise technologies for business. These technologies work together to drivekey drivers of business outcomes and innovation.
The second element of our strategy, AI is projected to add $16 trillion to the global economy by 2030. AI for business is different than AI for consumers given the need for accurate results, trustedover 20,000 data and governance tools. Productivity gains will come from enterprises automating their business workflows. Foundational models, large language modelsAI consultants and we recently launched our new Center of Excellence for Generative AI, staffed with over 1,000 consultants with specialized generative AI expertise. These investments we are making in products and skills will also greatly enhance productivity. We are helping clients turn their workflows into simpler, automated processes withhelp us seize the AI and helping them deploy AI into business areas such as IT operations, customer care, cybersecurity and digital labor.opportunity.
WeAI strategy, we are digitally transforming IBM much inas client zero, modernizing our IT infrastructure, optimizing the same way we are helpingoperating model, simplifying and automating our clients with their transformations by reimaginingworkflows and transformingdeploying AI across the way we work. This includes optimizing our infrastructure and application environments, as well as redesigning our end-to-end business processes.enterprise. These productivity initiativesbenefits free up spendingspend for reinvestmentsreinvestment and contribute to margin expansion.
60
Management Discussion – (continued)
61
Management Discussion – (continued)
Liquidity and Capital Resources
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
. Refer to note 12, “Borrowings,” for additional details on these credit facilities.
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| STANDARD AND POOR’S |
| MOODY’S INVESTORS SERVICE | ||||||||||
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Senior long-term debt | A- | A3 | ||||||||||||
Commercial paper | A-2 | Prime-2 |
in 2023 and 2024 as well as capital allocation priorities.
We prepare our Consolidated Statement of Cash Flows in accordance with applicable accounting standards for cash flow presentation on page 7 of this Form 10-Q and highlight causes and events underlying sources and uses of cash in that format on page 59.pages 73 and 74. For the purpose of running its business, IBM manages, monitors and analyzes cash flows in a different manner.
62
Management Discussion – (continued)
The following is management’s view of cash flows for the first threesix months of 2023 and 2022 prepared in a manner consistent with the description above.
| | | | | | | |
(Dollars in millions) | | | | | | |
|
For the three months ended March 31: |
| 2023 |
| 2022 |
| ||
Net cash from operating activities per GAAP | | $ | 3,774 | | $ | 3,248 | |
Less: change in Financing receivables | |
| 1,977 | |
| 1,631 | |
Net cash from operating activities, excluding Financing receivables | | $ | 1,797 | | $ | 1,618 | |
Capital expenditures, net | |
| (457) | |
| (378) | |
Free cash flow | | $ | 1,340 | | $ | 1,240 | |
Acquisitions | |
| (22) | |
| (698) | |
Divestitures | |
| — | |
| 61 | |
Dividends | |
| (1,497) | |
| (1,475) | |
Non-Financing debt | |
| 9,692 | |
| 4,675 | |
Other (includes Financing receivables and Financing debt) | |
| (762) | |
| (590) | * |
Change in cash, cash equivalents, restricted cash and short-term marketable securities | | $ | 8,752 | | $ | 3,213 | |
(Dollars in millions) | |||||||||||||||||
For the six months ended June 30: | 2023 | 2022* | |||||||||||||||
Net cash from operating activities per GAAP | $ | 6,412 | $ | 4,569 | |||||||||||||
Less: change in Financing receivables | 2,028 | 367 | |||||||||||||||
Net cash from operating activities, excluding Financing receivables | $ | 4,385 | $ | 4,202 | |||||||||||||
Capital expenditures, net | (944) | (871) | |||||||||||||||
Free cash flow | $ | 3,441 | $ | 3,331 | |||||||||||||
Acquisitions | (356) | (958) | |||||||||||||||
Divestitures | 6 | 1,268 | |||||||||||||||
Dividends | (3,007) | (2,963) | |||||||||||||||
Non-Financing debt | 8,514 | 1,740 | |||||||||||||||
Other (includes Financing net receivables and Financing debt) | (1,109) | (2,197) | ** | ||||||||||||||
Change in cash, cash equivalents, restricted cash and short-term marketable securities | $ | 7,489 | $ | 221 |
In 2023, we are not legally required to make any contributions to the U.S. defined benefit pension plans.
63
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | Yr. to Yr. | |
(Dollars in millions) | | | | | | | | Percent | |
For the three months ended March 31: |
| 2023 |
| 2022 |
| Change | | ||
Revenue | | $ | 196 | | $ | 154 |
| 27.3 | % |
Pre-tax income | | $ | 100 | | $ | 84 |
| 19.6 | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the three months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Revenue | $ | 185 | $ | 146 | 26.2 | % | |||||||||||||||||
Pre-tax income | $ | 64 | $ | 102 | (36.8) | % |
(Dollars in millions) | Yr. to Yr. Percent Change | ||||||||||||||||||||||
For the six months ended June 30: | 2023 | 2022 | |||||||||||||||||||||
Revenue | $ | 380 | $ | 300 | 26.8 | % | |||||||||||||||||
Pre-tax income | $ | 165 | $ | 186 | (11.3) | % |
64
Financial Position
| | | | | | | |
| | At March 31, | | At December 31, |
| ||
(Dollars in millions) |
| 2023 |
| 2022 |
| ||
Cash and cash equivalents | | $ | 564 | | $ | 699 | |
Client financing receivables: | | | | | | | |
Net investment in sales-type and direct financing leases(1) | |
| 3,846 | |
| 4,047 | |
Client loans | |
| 7,047 | |
| 8,329 | |
Total client financing receivables | | $ | 10,893 | | $ | 12,376 | |
Commercial financing receivables: | |
| | |
| | |
Held for investment | | | 244 | | | 293 | |
Held for sale | | | 605 | | | 939 | |
Other receivables | | | 38 | | | 66 | |
Total external receivables(2) | | $ | 11,779 | | $ | 13,674 | |
Intercompany assets(3) | |
| 325 | |
| 988 | (4) |
Other assets | | | 361 | | | 395 | (4) |
Total assets | | $ | 13,029 | | $ | 15,757 | |
| | | | | | | |
Intercompany payables(3) | | $ | 424 | | $ | 637 | |
Debt(5) | | | 10,522 | | | 12,872 | |
Other liabilities | | | 915 | | | 814 | |
Total liabilities | | $ | 11,861 | | $ | 14,323 | |
Total equity | | $ | 1,168 | | $ | 1,433 | |
Total liabilities and equity | | $ | 13,029 | | $ | 15,757 | |
(Dollars in millions) | At June 30, 2023 | At December 31, 2022 | |||||||||||||||
Cash and cash equivalents | $ | 662 | $ | 699 | |||||||||||||
Client financing receivables: | |||||||||||||||||
Net investment in sales-type and direct financing leases (1) | 3,831 | 4,047 | |||||||||||||||
Client loans | 6,722 | 8,329 | |||||||||||||||
Total client financing receivables | $ | 10,553 | $ | 12,376 | |||||||||||||
Commercial financing receivables: | |||||||||||||||||
Held for investment | 245 | 293 | |||||||||||||||
Held for sale | 865 | 939 | |||||||||||||||
Other receivables | 42 | 66 | |||||||||||||||
Total external receivables (2) | $ | 11,705 | $ | 13,674 | |||||||||||||
Intercompany assets (3) | 453 | 988 | (4) | ||||||||||||||
Other assets | 346 | 395 | (4) | ||||||||||||||
Total assets | $ | 13,166 | $ | 15,757 | |||||||||||||
Intercompany payables (3) | $ | 427 | $ | 637 | |||||||||||||
Debt (5) | 10,551 | 12,872 | |||||||||||||||
Other liabilities | 1,016 | 814 | |||||||||||||||
Total liabilities | $ | 11,994 | $ | 14,323 | |||||||||||||
Total equity | $ | 1,172 | $ | 1,433 | |||||||||||||
Total liabilities and equity | $ | 13,166 | $ | 15,757 |
65
Return on Equity Calculation
| | | | | | | |
(Dollars in millions) | | | | | | | |
For the three months ended March 31: |
| 2023 |
| 2022 | | ||
Numerator | | | | | | |
|
Financing after-tax income* | | $ | 82 | | $ | 69 | |
Annualized after-tax income (1) | | $ | 329 | | $ | 275 | |
Denominator | | | | | | | |
Average Financing equity (2)** | | $ | 1,301 | | $ | 1,450 | |
Financing return on equity (1)/(2) | | | 25.3 | % | | 19.0 | % |
For Three Months Ended June 30, | For Six Months Ended June 30, | ||||||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Numerator: | |||||||||||||||||||||||||||||
Financing after-tax income* | $ | 53 | $ | 84 | $ | 135 | $ | 153 | |||||||||||||||||||||
Annualized after-tax income (1) | $ | 211 | $ | 336 | $ | 270 | $ | 305 | |||||||||||||||||||||
Denominator: | |||||||||||||||||||||||||||||
Average Financing equity (2)** | $ | 1,170 | $ | 1,358 | $ | 1,258 | $ | 1,421 | |||||||||||||||||||||
Financing return on equity (1)/(2) | 18.1 | % | 24.8 | % | 21.5 | % | 21.5 | % |
** | Average of the ending |
Return on equity was 25.3 percent compared to 19.0 percentfor Financing for the last two quarters and three quarters, for the three months ended March 31,June 30 and for the six months ended June 30, respectively.
| | | | | | | | | | | | | | | | | | |
| | At | | At | | Estimated Run Out of March 31, 2023 Balance | ||||||||||||
| | December 31, | | March 31, | | | | | | | | | | | 2026 and | |||
(Dollars in millions) |
| 2022 |
| 2023 |
| 2023 |
| 2024 |
| 2025 |
| Beyond | ||||||
Sales-type and direct financing leases | | $ | 422 | | $ | 400 | | $ | 46 | | $ | 60 | | $ | 141 | | $ | 153 |
66
At December 31, 2022 | At June 30, 2023 | Estimated Run Out of June 30, 2023 Balance | ||||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2024 | 2025 | 2026 and Beyond | ||||||||||||||||||||||||||||||||||
Sales-type and direct financing leases | $ | 422 | $ | 404 | $ | 28 | $ | 60 | $ | 137 | $ | 180 |
GAAP Reconciliation
| | | | | | | | | | | | | | | | | | | |
| | | | | Acquisition- | | Retirement- | | U.S. | | Kyndryl- | | | |
| ||||
(Dollars in millions except per share amounts) | | | | | Related | | Related | | Tax Reform | | Related | | Operating |
| |||||
For the three months ended March 31, 2023: |
| GAAP |
| Adjustments |
| Adjustments | | Impacts |
| Impacts | | (non-GAAP) |
| ||||||
Gross profit | | $ | 7,509 | | $ | 148 | | $ | — | | $ | — | | $ | — | | $ | 7,658 | |
Gross profit margin | |
| 52.7 | % |
| 1.0 | pts. |
| — | pts. |
| — | pts. | | — | pts. |
| 53.7 | % |
SG&A | | $ | 4,853 | | $ | (246) | | $ | — | | $ | — | | $ | — | | $ | 4,607 | |
Other (income) and expense | | $ | (245) | | $ | (2) | | $ | 5 | | $ | — | | $ | — | | $ | (242) | |
Total expense and other (income) | | $ | 6,451 | | $ | (247) | | $ | 5 | | $ | — | | $ | — | | $ | 6,209 | |
Pre-tax income from continuing operations | | $ | 1,058 | | $ | 396 | | $ | (5) | | $ | — | | $ | — | | $ | 1,449 | |
Pre-tax margin from continuing operations | |
| 7.4 | % |
| 2.8 | pts. |
| 0.0 | pts. |
| — | pts. | | — | pts. |
| 10.2 | % |
Provision for income taxes* | | $ | 124 | | $ | 91 | | $ | (10) | | $ | (5) | | $ | — | | $ | 200 | |
Effective tax rate | |
| 11.7 | % |
| 3.1 | pts. |
| (0.7) | pts. |
| (0.3) | pts. | | — | pts. |
| 13.8 | % |
Income from continuing operations | | $ | 934 | | $ | 305 | | $ | 5 | | $ | 5 | | $ | — | | $ | 1,249 | |
Income margin from continuing operations | |
| 6.6 | % |
| 2.1 | pts. |
| 0.0 | pts. |
| 0.0 | pts. | | — | pts. |
| 8.8 | % |
Diluted earnings per share from continuing operations | | $ | 1.02 | | $ | 0.33 | | $ | 0.01 | | $ | 0.01 | | $ | — | | $ | 1.36 | |
(Dollars in millions except per share amounts) | GAAP | Acquisition- Related Adjustments | Retirement- Related Adjustments | U.S. Tax Reform Impacts | Kyndryl- Related Impacts | Operating (non-GAAP) | |||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2023: | |||||||||||||||||||||||||||||||||||||||||
Gross profit | $ | 8,501 | $ | 150 | $ | — | $ | — | $ | — | $ | 8,650 | |||||||||||||||||||||||||||||
Gross profit margin | 54.9 | % | 1.0 | pts. | — | pts. | — | pts. | — | pts. | 55.9 | % | |||||||||||||||||||||||||||||
SG&A | $ | 4,900 | $ | (245) | $ | — | $ | — | $ | — | $ | 4,655 | |||||||||||||||||||||||||||||
Other (income) and expense | $ | (261) | $ | 0 | $ | (1) | $ | — | $ | — | $ | (262) | |||||||||||||||||||||||||||||
Total expense and other (income) | $ | 6,501 | $ | (246) | $ | (1) | $ | — | $ | — | $ | 6,254 | |||||||||||||||||||||||||||||
Pre-tax income from continuing operations | $ | 2,000 | $ | 395 | $ | 1 | $ | — | $ | — | $ | 2,396 | |||||||||||||||||||||||||||||
Pre-tax margin from continuing operations | 12.9 | % | 2.6 | pts. | 0.0 | pts. | — | pts. | — | pts. | 15.5 | % | |||||||||||||||||||||||||||||
Provision for income taxes* | $ | 419 | $ | 87 | $ | (3) | $ | (110) | $ | — | $ | 393 | |||||||||||||||||||||||||||||
Effective tax rate | 21.0 | % | 0.2 | pts. | (0.2) | pts. | (4.6) | pts. | — | pts. | 16.4 | % | |||||||||||||||||||||||||||||
Income from continuing operations | $ | 1,581 | $ | 308 | $ | 5 | $ | 110 | $ | — | $ | 2,003 | |||||||||||||||||||||||||||||
Income margin from continuing operations | 10.2 | % | 2.0 | pts. | $ | 0.0 | pts. | 0.7 | pts. | — | pts. | 12.9 | % | ||||||||||||||||||||||||||||
Diluted earnings per share from continuing operations | $ | 1.72 | $ | 0.34 | $ | 0.00 | $ | 0.12 | $ | — | $ | 2.18 |
| | | | | | | | | | | | | | | | | | | |
| | | | | Acquisition- | | Retirement- | | U.S. | | Kyndryl- | | | |
| ||||
(Dollars in millions except per share amounts) | | | | | Related | | Related | | Tax Reform | | Related | | Operating |
| |||||
For the three months ended March 31, 2022: |
| GAAP |
| Adjustments |
| Adjustments |
| Impacts |
| Impacts | | (non-GAAP) |
| ||||||
Gross profit | | $ | 7,335 | | $ | 181 | | $ | — | | $ | — | | $ | — | | $ | 7,516 | |
Gross profit margin | |
| 51.7 | % |
| 1.3 | pts. |
| — | pts. |
| — | pts. | | — | pts. |
| 52.9 | % |
SG&A | | $ | 4,597 | | $ | (286) | | $ | — | | $ | — | | $ | 0 | | $ | 4,311 | |
Other (income) and expense | | $ | 246 | | $ | (1) | | $ | (202) | | $ | — | | $ | (222) | | $ | (179) | |
Total expense and other (income) | | $ | 6,712 | | $ | (287) | | $ | (202) | | $ | — | | $ | (222) | | $ | 6,001 | |
Pre-tax income from continuing operations | | $ | 623 | | $ | 468 | | $ | 202 | | $ | — | | $ | 222 | | $ | 1,515 | |
Pre-tax margin from continuing operations | |
| 4.4 | % |
| 3.3 | pts. |
| 1.4 | pts. |
| — | pts. | | 1.6 | pts. |
| 10.7 | % |
Provision for/(benefit from) income taxes* | | $ | (39) | | $ | 109 | | $ | 58 | | $ | 116 | | $ | — | | $ | 244 | |
Effective tax rate | |
| (6.3) | % |
| 9.1 | pts. |
| 4.6 | pts. |
| 7.7 | pts. | | 0.9 | pts. |
| 16.1 | % |
Income from continuing operations | | $ | 662 | | $ | 359 | | $ | 144 | | $ | (116) | | $ | 222 | | $ | 1,271 | |
Income margin from continuing operations | |
| 4.7 | % |
| 2.5 | pts. |
| 1.0 | pts. |
| (0.8) | pts. | | 1.6 | pts. |
| 9.0 | % |
Diluted earnings per share from continuing operations | | $ | 0.73 | | $ | 0.39 | | $ | 0.16 | | $ | (0.13) | | $ | 0.24 | | $ | 1.40 | |
(Dollars in millions except per share amounts) | GAAP | Acquisition- Related Adjustments | Retirement- Related Adjustments | U.S. Tax Reform Impacts | Kyndryl- Related Impacts | Operating (non-GAAP) | |||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2022: | |||||||||||||||||||||||||||||||||||||||||
Gross profit | $ | 8,290 | $ | 180 | $ | — | $ | — | $ | — | $ | 8,470 | |||||||||||||||||||||||||||||
Gross profit margin | 53.4 | % | 1.2 | pts. | — | pts. | — | pts. | — | pts. | 54.5 | % | |||||||||||||||||||||||||||||
SG&A | $ | 4,855 | $ | (279) | $ | — | $ | — | $ | 0 | $ | 4,576 | |||||||||||||||||||||||||||||
Other (income) and expense | $ | (81) | $ | (1) | $ | (192) | $ | — | $ | (145) | $ | (418) | |||||||||||||||||||||||||||||
Total expense and other (income) | $ | 6,568 | $ | (280) | $ | (192) | $ | — | $ | (145) | $ | 5,952 | |||||||||||||||||||||||||||||
Pre-tax income from continuing operations | $ | 1,722 | $ | 460 | $ | 192 | $ | — | $ | 145 | $ | 2,518 | |||||||||||||||||||||||||||||
Pre-tax margin from continuing operations | 11.1 | % | 3.0 | pts. | 1.2 | pts. | — | pts. | 0.9 | pts. | 16.2 | % | |||||||||||||||||||||||||||||
Provision for income taxes* | $ | 257 | $ | 115 | $ | 46 | $ | (4) | $ | — | $ | 413 | |||||||||||||||||||||||||||||
Effective tax rate | 14.9 | % | 1.8 | pts. | 0.7 | pts. | (0.2) | pts. | (0.9) | pts. | 16.4 | % | |||||||||||||||||||||||||||||
Income from continuing operations | $ | 1,465 | $ | 345 | $ | 146 | $ | 4 | $ | 145 | $ | 2,105 | |||||||||||||||||||||||||||||
Income margin from continuing operations | 9.4 | % | 2.2 | pts. | 0.9 | pts. | 0.0 | pts. | 0.9 | pts. | 13.5 | % | |||||||||||||||||||||||||||||
Diluted earnings per share from continuing operations | $ | 1.61 | $ | 0.38 | $ | 0.16 | $ | 0.00 | $ | 0.16 | $ | 2.31 |
67
(Dollars in millions except per share amounts) | GAAP | Acquisition- Related Adjustments | Retirement- Related Adjustments | U.S. Tax Reform Impacts | Kyndryl- Related Impacts | Operating (non-GAAP) | |||||||||||||||||||||||||||||||||||
For the six months ended June 30, 2023: | |||||||||||||||||||||||||||||||||||||||||
Gross profit | $ | 16,010 | $ | 298 | $ | — | $ | — | $ | — | $ | 16,308 | |||||||||||||||||||||||||||||
Gross profit margin | 53.9 | % | 1.0 | pts. | — | pts. | — | pts. | — | pts. | 54.9 | % | |||||||||||||||||||||||||||||
SG&A | $ | 9,754 | $ | (491) | $ | — | $ | — | $ | — | $ | 9,263 | |||||||||||||||||||||||||||||
Other (income) and expense | $ | (506) | $ | (2) | $ | 4 | $ | — | $ | — | $ | (504) | |||||||||||||||||||||||||||||
Total expense and other (income) | $ | 12,952 | $ | (493) | $ | 4 | $ | — | $ | — | $ | 12,463 | |||||||||||||||||||||||||||||
Pre-tax income from continuing operations | $ | 3,058 | $ | 791 | $ | (4) | $ | — | $ | — | $ | 3,845 | |||||||||||||||||||||||||||||
Pre-tax margin from continuing operations | 10.3 | % | 2.7 | pts. | 0.0 | pts. | — | pts. | — | pts. | 12.9 | % | |||||||||||||||||||||||||||||
Provision for income taxes* | $ | 543 | $ | 178 | $ | (14) | $ | (115) | $ | — | $ | 593 | |||||||||||||||||||||||||||||
Effective tax rate | 17.8 | % | 1.0 | pts. | (0.3) | pts. | (3.0) | pts. | — | pts. | 15.4 | % | |||||||||||||||||||||||||||||
Income from continuing operations | $ | 2,515 | $ | 613 | $ | 10 | $ | 115 | $ | — | $ | 3,252 | |||||||||||||||||||||||||||||
Income margin from continuing operations | 8.5 | % | 2.1 | pts. | 0.0 | pts. | 0.4 | pts. | — | pts. | 10.9 | % | |||||||||||||||||||||||||||||
Diluted earnings per share from continuing operations | $ | 2.74 | $ | 0.67 | $ | 0.01 | $ | 0.13 | $ | — | $ | 3.54 |
(Dollars in millions except per share amounts) | GAAP | Acquisition- Related Adjustments | Retirement- Related Adjustments | U.S. Tax Reform Impacts | Kyndryl- Related Impacts | Operating (non-GAAP) | |||||||||||||||||||||||||||||||||||
For the six months ended June 30, 2022: | |||||||||||||||||||||||||||||||||||||||||
Gross profit | $ | 15,625 | $ | 361 | $ | — | $ | — | $ | — | $ | 15,986 | |||||||||||||||||||||||||||||
Gross profit margin | 52.6 | % | 1.2 | pts. | — | pts. | — | pts. | — | pts. | 53.8 | % | |||||||||||||||||||||||||||||
SG&A | $ | 9,452 | $ | (565) | $ | — | $ | — | $ | 0 | $ | 8,887 | |||||||||||||||||||||||||||||
Other (income) and expense | $ | 166 | $ | (1) | $ | (394) | $ | — | $ | (367) | $ | (596) | |||||||||||||||||||||||||||||
Total expense and other (income) | $ | 13,280 | $ | (566) | $ | (394) | $ | — | $ | (367) | $ | 11,953 | |||||||||||||||||||||||||||||
Pre-tax income from continuing operations | $ | 2,345 | $ | 928 | $ | 394 | $ | — | $ | 367 | $ | 4,033 | |||||||||||||||||||||||||||||
Pre-tax margin from continuing operations | 7.9 | % | 3.1 | pts. | 1.3 | pts. | — | pts. | 1.2 | pts. | 13.6 | % | |||||||||||||||||||||||||||||
Provision for income taxes* | $ | 218 | $ | 224 | $ | 104 | $ | 112 | $ | — | $ | 657 | |||||||||||||||||||||||||||||
Effective tax rate | 9.3 | % | 3.4 | pts. | 1.7 | pts. | 2.8 | pts. | (0.8) | pts. | 16.3 | % | |||||||||||||||||||||||||||||
Income from continuing operations | $ | 2,127 | $ | 704 | $ | 290 | $ | (112) | $ | 367 | $ | 3,376 | |||||||||||||||||||||||||||||
Income margin from continuing operations | 7.2 | % | 2.4 | pts. | 1.0 | pts. | (0.4) | pts. | 1.2 | pts. | 11.4 | % | |||||||||||||||||||||||||||||
Diluted earnings per share from continuing operations | $ | 2.34 | $ | 0.77 | $ | 0.32 | $ | (0.12) | $ | 0.40 | $ | 3.71 |
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| | | | | | | | | | |
| | | | | | | Total Number | | Approximate | |
| | | | | | | of Shares | | Dollar Value | |
| | | | | | | Purchased as | | of Shares that | |
| | Total Number | | Average | | Part of Publicly | | May Yet Be | ||
| | of Shares | | Price Paid | | Announced | | Purchased Under | ||
Period |
| Purchased |
| per Share |
| Program |
| The Program* | ||
January 1, 2023 - January 31, 2023 |
| — | | $ | — |
| — | | $ | 2,007,611,768 |
| | | | | | | | | | |
February 1, 2023 - February 28, 2023 |
| — | | $ | — |
| — | | $ | 2,007,611,768 |
| | | | | | | | | | |
March 1, 2023 - March 31, 2023 |
| — | | $ | — |
| — | | $ | 2,007,611,768 |
| | | | | | | | | | |
Total |
| — | | $ | — |
| — | |
|
|
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Park of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under The Program* | ||||||||||||||||||||||
April 1, 2023 - April 30, 2023 | — | $ | — | — | $ | 2,007,611,768 | ||||||||||||||||||||
May 1, 2023 - May 31, 2023 | — | $ | — | — | $ | 2,007,611,768 | ||||||||||||||||||||
June 1, 2023 - June 30, 2023 | — | $ | — | — | $ | 2,007,611,768 | ||||||||||||||||||||
Total | — | $ | — | — |
The company suspended its share repurchase program at the time of the Red Hat closing. At March 31, 2023 there was approximately $2.0 billionclosing in authorized funds remaining for purchases under this program.
2019.
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101.INS |
| XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
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101.SCH |
| XBRL Taxonomy Extension Schema Document | ||||
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document | ||||
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document | ||||
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document | ||||
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document | ||||
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104 |
| Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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| International Business Machines Corporation | |||||||||||||
| (Registrant) | |||||||||||||
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Date: |
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| By: | /s/ Nicolás A. Fehring | ||||||||||||
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| Nicolás A. Fehring | ||||||||||||
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| Vice President and Controller |
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