Item 1. Consolidated Financial Statements:

193K characters. Original on sec.gov · Markdown

Item 1. Consolidated Financial Statements:

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions except per share amounts)	2022			2021*			2022			2021*
Revenue:
Services	$	7,365		$	7,251		$	22,708		$	21,549
Sales		6,565			5,814	**		20,652			18,502	**
Financing		176			186	**		479			606	**
Total revenue		14,107			13,251			43,840			40,656
Cost:
Services		5,168			4,650			15,915			14,014
Sales		1,389			1,363	**		4,555			4,241	**
Financing		120			132	**		314			416	**
Total cost		6,677			6,145			20,784			18,670
Gross profit		7,430			7,106			23,055			21,985
Expense and other (income):
Selling, general and administrative		4,391			4,306			13,843			13,842
Research, development and engineering		1,611			1,606			4,963			4,863
Intellectual property and custom development income		(121)			(153)			(418)			(431)
Other (income) and expense		5,755			244			5,921			891
Interest expense		295			290			903			852
Total expense and other (income)		11,931			6,293			25,212			20,017
Income/(loss) from continuing operations before income taxes		(4,501)			813			(2,156)			1,968
Provision for/(benefit from) income taxes		(1,287)			(224)			(1,070)			(282)
Income/(loss) from continuing operations	$	(3,214)		$	1,037		$	(1,087)		$	2,250
Income from discontinued operations, net of tax		18			93			16			1,160
Net income/(loss)	$	(3,196)	+	$	1,130		$	(1,071)	+	$	3,410

Earnings/(loss) per share of common stock:
Assuming dilution:
Continuing operations	$	(3.55)		$	1.14		$	(1.21)		$	2.49
Discontinued operations		0.02			0.10			0.02			1.28
Total	$	(3.54)		$	1.25		$	(1.19)		$	3.77
Basic:
Continuing operations	$	(3.55)		$	1.16		$	(1.21)		$	2.51
Discontinued operations		0.02			0.10			0.02			1.30
Total	$	(3.54)		$	1.26		$	(1.19)		$	3.81

Weighted-average number of common shares outstanding: (millions)
Assuming dilution		904.1			906.0			901.6			904.0
Basic		904.1			897.1			901.6			895.3

*	Reclassified to reflect discontinued operations presentation.

**	Reclassified to conform to current year presentation.

+ Includes the impact of a one-time, non-cash pension settlement charge. Refer to note 18, "Retirement-Related Benefits," for additional information.

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021*		2022		2021*
Net income/(loss)	$	(3,196)	$	1,130	$	(1,071)	$	3,410
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments		143		(114)		799		463
Net changes related to available-for-sale securities:
Unrealized gains/(losses) arising during the period		0		0		(1)		0
Reclassification of (gains)/losses to net income		—		—		—		—
Total net changes related to available-for-sale securities		0		0		(1)		0
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period		189		109		449		262
Reclassification of (gains)/losses to net income		(12)		32		4		282
Total unrealized gains/(losses) on cash flow hedges		178		141		453		545
Retirement-related benefit plans:
Prior service costs/(credits)		412		0		408		0
Net (losses)/gains arising during the period		53		1		63		23
Curtailments and settlements		5,913		13		5,931		46
Amortization of prior service (credits)/costs		3		3		16		8
Amortization of net (gains)/losses		388		638		1,305		1,929
Total retirement-related benefit plans		6,768		656		7,722		2,006
Other comprehensive income/(loss), before tax		7,089		683		8,973		3,014
Income tax (expense)/benefit related to items of other comprehensive income		(2,058)		(333)		(2,877)		(978)
Other comprehensive income/(loss), net of tax		5,030		350		6,096		2,035
Total comprehensive income	$	1,834	$	1,480	$	5,025	$	5,446

Amounts presented have not been recast to exclude discontinued operations.

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

ASSETS


	At September 30,		At December 31,
(Dollars in millions)	2022		2021
Assets:
Current assets:
Cash and cash equivalents	$	7,816	$	6,650
Restricted cash		159		307
Marketable securities		1,753		600
Notes and accounts receivable — trade (net of allowances of $214 in 2022 and $218 in 2021)		5,526		6,754
Short-term financing receivables:
Held for investment (net of allowances of $139 in 2022 and $176 in 2021)		6,280		7,221
Held for sale		395		793
Other accounts receivable (net of allowances of $48 in 2022 and $24 in 2021)		902		1,002
Inventory, at lower of average cost or net realizable value:
Finished goods		209		208
Work in process and raw materials		1,585		1,442
Total inventory		1,794		1,649
Deferred costs		921		1,097
Prepaid expenses and other current assets		3,452		3,466
Total current assets		28,999		29,539
Property, plant and equipment		18,675		20,085
Less: Accumulated depreciation		13,525		14,390
Property, plant and equipment — net		5,150		5,694
Operating right-of-use assets — net		2,740		3,222
Long-term financing receivables (net of allowances of $20 in 2022 and $25 in 2021)		4,781		5,425
Prepaid pension assets		9,695		9,850
Deferred costs		818		924
Deferred taxes		6,868		7,370
Goodwill		54,218		55,643
Intangible assets — net		10,967		12,511
Investments and sundry assets		1,614		1,823
Total assets	$	125,850	$	132,001

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET – (CONTINUED)

(UNAUDITED)

LIABILITIES AND EQUITY


	At September 30,		At December 31,
(Dollars in millions except per share amounts)	2022		2021
Liabilities:
Current liabilities:
Taxes	$	1,667	$	2,289
Short-term debt		5,937		6,787
Accounts payable		3,806		3,955
Compensation and benefits		3,369		3,204
Deferred income		11,139		12,518
Operating lease liabilities		844		974
Other accrued expenses and liabilities		3,702		3,892
Total current liabilities		30,466		33,619
Long-term debt		44,942		44,917
Retirement and nonpension postretirement benefit obligations		11,760		14,435
Deferred income		3,018		3,577
Operating lease liabilities		2,103		2,462
Other liabilities		13,413		13,996
Total liabilities		105,703		113,005
Equity:
IBM stockholders’ equity:
Common stock, par value $0.20 per share, and additional paid-in capital		58,117		57,319
Shares authorized: 4,687,500,000
Shares issued: 2022 - 2,255,410,248
2021 - 2,248,577,848
Retained earnings		148,611		154,209
Treasury stock - at cost		(169,514)		(169,392)
Shares: 2022 - 1,351,283,886
2021 - 1,350,509,249
Accumulated other comprehensive income/(loss)		(17,138)		(23,234)
Total IBM stockholders’ equity		20,076		18,901
Noncontrolling interests		71		95
Total equity		20,147		18,996
Total liabilities and equity	$	125,850	$	132,001

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(Dollars in millions)	2022		2021
Cash flows from operating activities:
Net income/(loss)	$	(1,071)	$	3,410
Adjustments to reconcile net income/(loss) to cash provided by operating activities:
Pension settlement charge		5,894		—
Depreciation		1,837		3,139
Amortization of intangibles		1,828		1,897
Stock-based compensation		739		719
Net (gain)/loss on asset sales and other		(60)		(150)
Changes in operating assets and liabilities, net of acquisitions/divestitures		(2,695)		1,238
Net cash provided by operating activities		6,470		10,252

Cash flows from investing activities:
Payments for property, plant and equipment		(937)		(1,612)
Proceeds from disposition of property, plant and equipment		98		312
Investment in software		(479)		(555)
Acquisition of businesses, net of cash acquired		(1,020)		(3,018)
Divestitures of businesses, net of cash transferred		1,271		26
Purchases of marketable securities and other investments		(4,474)		(2,655)
Proceeds from disposition of marketable securities and other investments		2,655		2,202
Net cash provided by/(used in) investing activities		(2,883)		(5,300)

Cash flows from financing activities:
Proceeds from new debt		7,797		394
Payments to settle debt		(5,446)		(7,321)
Short-term borrowings/(repayments) less than 90 days — net		221		840
Common stock repurchases for tax withholdings		(329)		(252)
Financing — other		106		71
Cash dividends paid		(4,454)		(4,395)
Net cash provided by/(used in) financing activities		(2,106)		(10,662)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(463)		(159)
Net change in cash, cash equivalents and restricted cash		1,018		(5,868)

Cash, cash equivalents and restricted cash at January 1		6,957		13,675
Cash, cash equivalents and restricted cash at September 30	$	7,975	$	7,806

Cash flows are presented on an IBM consolidated basis. Refer to note 3, “Separation of Kyndryl,” for additional information related to cash flows from Kyndryl discontinued operations.

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF EQUITY

(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 - July 1, 2022	$	57,802	$	153,298	$	(169,522)	$	(22,169)	$	19,409	$	67	$	19,476
Net income/(loss) plus other comprehensive income/(loss):
Net income/(loss)				(3,196)						(3,196)				(3,196)
Other comprehensive income/(loss)								5,030		5,030				5,030
Total comprehensive income/(loss)									$	1,834			$	1,834
Cash dividends paid — common stock ($1.65 per share)				(1,491)						(1,491)				(1,491)
Common stock issued under employee plans (871,676 shares)		315								315				315
Purchases (103,736 shares) and sales (178,069 shares) of treasury stock under employee plans — net				0		8				8				8
Changes in noncontrolling interests												4		4
Equity – September 30, 2022	$	58,117	$	148,611	$	(169,514)	$	(17,138)	$	20,076	$	71	$	20,147


	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 - July 1, 2021	$	56,912	$	162,086	$	(169,404)	$	(27,652)	$	21,942	$	125	$	22,067
Net income plus other comprehensive income/(loss):
Net income				1,130						1,130				1,130
Other comprehensive income/(loss)								350		350				350
Total comprehensive income/(loss)									$	1,480			$	1,480
Cash dividends paid — common stock ($1.64 per share)				(1,471)						(1,471)				(1,471)
Common stock issued under employee plans (482,632 shares)		277								277				277
Purchases (124,146 shares) and sales (121,792 shares) of treasury stock under employee plans — net				1		(2)				0				0
Changes in noncontrolling interests												4		4
Equity - September 30, 2021	$	57,189	$	161,747	$	(169,406)	$	(27,302)	$	22,228	$	129	$	22,357

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF EQUITY – (CONTINUED)

(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, 2022	$	57,319	$	154,209	$	(169,392)	$	(23,234)	$	18,901	$	95	$	18,996
Net income/(loss) plus other comprehensive income/(loss):
Net income/(loss)				(1,071)						(1,071)				(1,071)
Other comprehensive income/(loss)								6,096		6,096				6,096
Total comprehensive income/(loss)									$	5,025			$	5,025
Cash dividends paid — common stock ($4.94 per share)				(4,454)						(4,454)				(4,454)
Common stock issued under employee plans (6,832,400 shares)		736								736				736
Purchases (2,423,220 shares) and sales (1,648,583 shares) of treasury stock under employee plans — net				(10)		(122)				(133)				(133)
Other equity		63		(63)						0				0
Changes in noncontrolling interests												(23)		(23)
Equity - September 30, 2022	$	58,117	$	148,611	$	(169,514)	$	(17,138)	$	20,076	$	71	$	20,147


	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, 2021	$	56,556	$	162,717	$	(169,339)	$	(29,337)	$	20,597	$	129	$	20,727
Net income plus other comprehensive income/(loss):
Net income				3,410						3,410				3,410
Other comprehensive income/(loss)								2,035		2,035				2,035
Total comprehensive income/(loss)									$	5,446			$	5,446
Cash dividends paid — common stock ($4.91 per share)				(4,395)						(4,395)				(4,395)
Common stock issued under employee plans (4,496,470 shares)		632								632				632
Purchases (1,797,733 shares) and sales (1,448,189 shares) of treasury stock under employee plans — net				15		(66)				(52)				(52)
Changes in noncontrolling interests												(1)		(1)
Equity - September 30, 2021	$	57,189	$	161,747	$	(169,406)	$	(27,302)	$	22,228	$	129	$	22,357

(Amounts may not add due to rounding.)

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

Notes to Consolidated Financial Statements

1. Basis o****f Presentation:

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

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

On November 3, 2021, the company completed the separation of its managed infrastructure services unit into a new public company with the distribution of 80.1 percent of the outstanding common stock of Kyndryl Holdings, Inc. (Kyndryl) to IBM stockholders on a pro rata basis. To effect the separation, IBM stockholders received one share of Kyndryl common stock for every five shares of IBM common stock held at the close of business on October 25, 2021, the record date for the distribution. The company retained 19.9 percent of the shares of Kyndryl common stock immediately following the separation with the intent to dispose of such shares within twelve months after the distribution. The company accounts for the retained Kyndryl common stock as a fair value equity investment included within prepaid expenses and other current assets in the Consolidated Balance Sheet with subsequent fair value changes included in other (income) and expense in the Consolidated Income Statement. As of September 30, 2022, the company transferred all of its 19.9 percent retained interest in Kyndryl common stock pursuant to exchange agreements with a third-party financial institution. Refer to note 8, “Financial Assets & Liabilities,” for additional information.

The accounting requirements for reporting the separation of Kyndryl as a discontinued operation were met when the separation was completed. Accordingly, the historical results of Kyndryl are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. Refer to note 3, “Separation of Kyndryl,” for additional information.

In the first quarter of 2022, the company realigned its management structure to reflect the planned divestiture of its healthcare software assets which was completed in the second quarter of 2022. This change impacted the company’s Software segment and Other–divested businesses category. In the fourth quarter of 2021, immediately prior to the separation of Kyndryl, the company made a number of changes to its organizational structure and management system. These changes impacted the company’s reportable segments but did not impact the Consolidated Financial Statements. Refer to note 5, “Segments,” for additional information on the company’s reportable segments. The segments are reported on a comparable basis for all periods.

In September 2022, the IBM Qualified Personal Pension Plan (Qualified PPP) purchased two separate nonparticipating single premium group annuity contracts from The Prudential Insurance Company of America and Metropolitan Life Insurance Company (collectively, the Insurers) and irrevocably transferred to the Insurers approximately $16 billion of the Qualified PPP’s defined benefit pension obligations and related plan assets, thereby reducing the company’s pension obligations and assets by the same amount. The group annuity contracts were purchased using assets of the Qualified PPP and no additional funding contribution was required from the company. As a result of this transaction the company recognized a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022, primarily related to the accelerated recognition of accumulated actuarial losses of the Qualified PPP. Refer to note 18, “Retirement-Related Benefits,” for additional information.

For the three and nine months ended September 30, 2022, the company reported a benefit from income taxes of $1,287 million and $1,070 million, respectively. The tax benefits were primarily due to the transfer of a portion of the

Notes to Consolidated Financial Statements — (continued)

Qualified PPP’s defined benefit pension obligations and related plan assets, as described above. For the three and nine months ended September 30, 2021, the company reported a benefit from income taxes of $224 million and $282 million, respectively. The tax benefits were primarily driven by the resolution of certain tax audits in the first quarter of 2021 as well as third-quarter 2021 events that resulted in additional anticipated utilization of U.S. foreign tax credits.

Noncontrolling interest amounts of $3.7 million and $5.5 million, net of tax, for the three months ended September 30, 2022 and 2021, respectively, and $14.2 million and $14.5 million, net of tax, for the nine months ended September 30, 2022 and 2021, respectively, are included as a reduction within other (income) and expense in the Consolidated Income Statement.

Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company’s 2021 Annual Report.

Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain prior-period amounts have been reclassified to conform to the current-period presentation. This is annotated where applicable. In addition, in the first quarter of 2022, an adjustment of $63 million was recorded between common stock and retained earnings related to the issuance of treasury stock in connection with certain previously issued stock-based compensation awards and is reflected in the Consolidated Balance Sheet and Consolidated Statement of Equity at September 30, 2022.

2. Accounting Changes:

New Standards to be Implemented

Disclosures of Supplier Finance Program Obligations

_Standard/Description–_Issuance date: September 2022. This guidance requires an entity to provide certain interim and annual disclosures about the use of supplier finance programs in connection with the purchase of goods or services.

_Effective Date and Adoption Considerations–_The guidance is effective January 1, 2023 with certain annual disclosures required beginning in 2024 and early adoption is permitted. The company will adopt the guidance as of the effective date.

_Effect on Financial Statements or Other Significant Matters–_As the guidance is a change to disclosures only, the company does not expect it to have a material impact in the consolidated financial results. The company’s use of supplier finance programs as of September 30, 2022 was not material.

Disclosures about Government Assistance

_Standard/Description–_Issuance date: November 2021. This guidance requires an entity to provide certain annual disclosures about government assistance received and accounted for by applying a grant or contribution accounting model by analogy.

_Effective Date and Adoption Considerations–_The guidance is effective for annual disclosures beginning in 2022 and early adoption was permitted. The company will adopt the guidance as of the effective date.

Troubled Debt Restructurings and Vintage Disclosures

Standard/Description–Issuance date: March 2022. This eliminates the accounting guidance for troubled debt restructurings and requires an entity to apply the general loan modification guidance to all loan modifications, including those made to customers experiencing financial difficulty, to determine whether the modification results in a new loan or

Notes to Consolidated Financial Statements — (continued)

a continuation of an existing loan. The guidance also requires presenting current period gross write-offs by year of origination for financing receivables and net investment in leases.

Effective Date and Adoption Considerations–The amendment is effective January 1, 2023 and early adoption is permitted. The company will adopt the guidance as of the effective date.

Effect on Financial Statements or Other Significant Matters–The guidance is not expected to have a material impact in the consolidated financial results.

Standards Implemented

Lessors–Certain Leases with Variable Lease Payments

Standard/Description–Issuance date: July 2021. This guidance modifies a lessor’s accounting for certain leases with variable lease payments that resulted in the recognition of a day-one loss even if the lessor expected the arrangement to be profitable overall. The amendment requires these types of lease contracts to be classified as operating leases which eliminates any recognition of a day-one loss.

Effective Date and Adoption Considerations–The amendment was effective January 1, 2022 and early adoption was permitted. The company adopted the guidance on a prospective basis as of the effective date.

Effect on Financial Statements or Other Significant Matters–The guidance did not have a material impact in the consolidated financial results.

Revenue Contracts with Customers Acquired in a Business Combination

Standard/Description–Issuance date: October 2021. This guidance requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with revenue guidance, as if it had originated the contracts. Deferred revenue acquired in a business combination is no longer required to be measured at its fair value, but rather will generally be recognized at the same basis as the acquiree.

Effective Date and Adoption Considerations–The amendment is effective January 1, 2023 and early adoption is permitted including adoption in an interim period. The company adopted the guidance as of October 1, 2021 using the retrospective transition method whereby the new guidance was applied to all business combinations that occurred on or after January 1, 2021.

Effect on Financial Statements or Other Significant Matters–The guidance did not have a material impact in the consolidated financial results. The impact of the guidance in IBM’s future financial results will be dependent on the nature and size of its acquisitions.

Simplifying the Accounting for Income Taxes

Standard/Description–Issuance date: December 2019. This guidance simplifies various aspects of income tax accounting by removing certain exceptions to the general principle of the guidance and also clarifies and amends existing guidance to improve consistency in application.

Effective Date and Adoption Considerations–The guidance was effective January 1, 2021 and early adoption was permitted. The company adopted the guidance on a prospective basis as of the effective date.

Effect on Financial Statements or Other Significant Matters–The guidance did not have a material impact in the consolidated financial results.

3. Separation of Kyndryl:

On November 3, 2021, the company completed the separation of its managed infrastructure services unit into a new public company with the distribution of 80.1 percent of the outstanding shares of Kyndryl to IBM stockholders on a pro rata basis. The company retained 19.9 percent of the shares of Kyndryl common stock. As of September 30, 2022, the

Notes to Consolidated Financial Statements — (continued)

company transferred all of its 19.9 percent retained interest in Kyndryl common stock pursuant to exchange agreements with a third-party financial institution. Refer to note 8, “Financial Assets & Liabilities,” for additional information.

The historical results of Kyndryl have been presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The company’s presentation of discontinued operations excludes general corporate overhead costs which were historically allocated to Kyndryl, consistent with the company’s management system, that did not meet the requirements to be presented in discontinued operations in 2021. Such allocations include labor and non-labor expenses related to IBM’s corporate support functions (e.g., finance, accounting, tax, treasury, IT, HR, legal, among others) that historically provided support to Kyndryl and transferred to Kyndryl at separation. In addition, discontinued operations excludes the historical intercompany purchases and sales between IBM and Kyndryl that were eliminated in consolidation.

IBM will provide transition services to Kyndryl predominantly consisting of information technology services for a period no longer than two years after the separation. The impact of these transition services on the company’s Consolidated Financial Statements for the three and nine months ended September 30, 2022 was not material.

IBM and Kyndryl entered into various commercial agreements pursuant to which Kyndryl will purchase hardware, software and services from IBM and under which IBM will receive hosting and information infrastructure services from Kyndryl. As part of the separation, IBM has also committed to provide upgraded hardware at no cost to Kyndryl over a two-year period after the separation. An estimate of the remaining obligation under the agreement is recorded in other accrued expenses and liabilities in the Consolidated Balance Sheet.

The following table presents the major categories of income/(loss) from discontinued operations, net of tax.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021*		2022		2021*
Revenue	$	1	$	4,367	$	7	$	13,437
Cost of sales		2		3,303		19		10,043
Selling, general and administrative expense		(24)		554		42		1,527
RD&E and Other (income) and expense		0		4		(70)		59
Income from discontinued operations before income taxes	$	24	$	506	$	16	$	1,807
Provision for income taxes		6		413		1		648
Income from discontinued operations, net of tax	$	18	$	93	$	16	$	1,160

*	Excludes intercompany transactions between IBM and Kyndryl and general corporate overhead costs transferred to Kyndryl as discussed above.

Income from discontinued operations, net of tax, for the three months ended September 30, 2022 primarily reflects the net impact of changes in separation-related estimates and the settlement of assets and liabilities in accordance with the separation and distribution agreement. Income from discontinued operations, net of tax, for the nine months ended September 30, 2022 reflects the same drivers as above and also includes a joint venture historically managed by Kyndryl, which did not transfer at separation due to the transfer being subject to regulatory approval. Upon receiving regulatory approval in the first quarter of 2022, the company sold its majority shares in the joint venture to Kyndryl, resulting in a pre-tax gain on sale of $68 million.

The company did not incur any separation costs during the three months ended September 30, 2022. Separation costs of $543 million incurred during the three months ended September 30, 2021, and $5 million and $739 million incurred during the nine months ended September 30, 2022 and 2021, respectively, are included in income/(loss) from discontinued operations, net of tax, in the Consolidated Income Statement. These charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlement charges and related tax charges.

Notes to Consolidated Financial Statements — (continued)

The following table presents selected financial information related to cash flows from discontinued operations.


	Nine Months Ended September 30,
(Dollars in millions)	2022		2021
Net cash provided by/(used in) operating activities	$	—	$	2,167	*
Net cash provided by/(used in) investing activities	$	48	$	(363)

Excludes intercompany transactions between IBM and Kyndryl and general corporate overhead costs transferred to Kyndryl as discussed above.

4. Revenue Recognition:

Disaggregation of Revenue

The following tables provide details of revenue by major products/service offerings, hybrid cloud revenue, and revenue by geography.

Revenue by Major Products/Service Offerings



	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021*		2022		2021*
Hybrid Platform & Solutions	$	4,172	$	4,074	$	12,641	$	12,082
Transaction Processing		1,640		1,332		5,107		4,257
Total Software	$	5,811	$	5,406	$	17,749	$	16,339
Business Transformation		2,165		2,068		6,646		6,070
Application Operations		1,593		1,501		4,865		4,489
Technology Consulting		943		889		2,826		2,538
Total Consulting	$	4,700	$	4,457	$	14,337	$	13,098
Hybrid Infrastructure		1,931		1,453		6,392		5,294
Infrastructure Support		1,421		1,468		4,413		4,480
Total Infrastructure	$	3,352	$	2,921	$	10,805	$	9,774
Financing**		174		184		474		601
Other		70		282		475		844
Total revenue	$	14,107	$	13,251	$	43,840	$	40,656

*	Recast to reflect segment changes.

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

Hybrid Cloud Revenue by Segment


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021*		2022		2021*
Software	$	2,186	$	2,038	$	6,604	$	5,797
Consulting		2,221		1,982		6,642		5,605
Infrastructure		768		558		2,661		2,376
Other		2		77		143		246
Total	$	5,176	$	4,655	$	16,049	$	14,024

Recast to reflect segment changes.

Notes to Consolidated Financial Statements — (continued)

Revenue by Geography


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021		2022		2021
Americas	$	7,416	$	6,579	$	22,614	$	20,178
Europe/Middle East/Africa		3,959		3,939		12,716		12,181
Asia Pacific		2,732		2,734		8,509		8,297
Total	$	14,107	$	13,251	$	43,840	$	40,656

Remaining Performance Obligations

The remaining performance obligation (RPO) disclosure provides the aggregate amount of the transaction price yet to be recognized as of the end of the reporting period and an explanation as to when the company expects to recognize these amounts in revenue. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed, such as certain as-a-Service, governmental, term software license and services offerings. The customer is not considered committed when they are able to terminate for convenience without payment of a substantive penalty. The disclosure includes estimates of variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property. Additionally, as a practical expedient, the company does not include contracts that have an original duration of one year or less. RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.

At September 30, 2022, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $53 billion. Approximately 73 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 25 percent in the subsequent three to five years and the balance thereafter.

Revenue Recognized for Performance Obligations Satisfied (or Partially Satisfied) in Prior Periods

For the three and nine months ended September 30, 2022, revenue was reduced by $36 million and $60 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods mainly due to changes in estimates on contracts with cost-to-cost measures of progress.

Reconciliation of Contract Balances

The following table provides information about notes and accounts receivable–trade, contract assets and deferred income balances.


	At September 30,		At December 31,
(Dollars in millions)	2022		2021
Notes and accounts receivable — trade (net of allowances of $214 in 2022 and $218 in 2021)	$	5,526	$	6,754
Contract assets*	$	522	$	471
Deferred income (current)	$	11,139	$	12,518
Deferred income (noncurrent)	$	3,018	$	3,577

Included within prepaid expenses and other current assets in the Consolidated Balance Sheet.

The amount of revenue recognized during the three and nine months ended September 30, 2022 that was included within the deferred income balance at June 30, 2022 and December 31, 2021 was $4.3 billion and $8.8 billion, respectively, and was primarily related to services and software.

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 nine months ended September 30, 2022 and the year ended December 31, 2021.


(Dollars in millions)
January 1, 2022		Additions / (Releases)		Write-offs		Foreign currency and other		September 30, 2022
$	218	$	43	$	(28)	$	(19)	$	214


January 1, 2021			Additions / (Releases)			Write-offs			Foreign currency and other			December 31, 2021
$	260		$	(15)		$	(28)		$	1		$	218

The contract assets allowance for expected credit losses was not material in any of the periods presented.

5. Segments:

In January 2022, IBM announced the divestiture of its healthcare software assets which closed in the second quarter of 2022. Refer to note 6, “Acquisitions & Divestitures,” for additional information. The company re-aligned its management structure to manage these assets outside of the Software segment prior to the divestiture. Beginning in the first quarter of 2022, the financial results of these assets are presented in Other–divested businesses. In the fourth quarter of 2021, immediately prior to the separation of Kyndryl, the company made a number of changes to its organizational structure and management system to align the company’s operating model to its platform-centric approach to hybrid cloud and AI. With these changes, the company revised its reportable segments, but did not impact its Consolidated Financial Statements.

The following tables reflect the results of continuing operations of the company’s segments consistent with the management and measurement system utilized within the company, and the prior-year periods have been recast to reflect the company’s segment changes in the first quarter of 2022 and the fourth quarter of 2021 described above. Performance measurement is based on pre-tax income from continuing operations. These results are used by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments.

Notes to Consolidated Financial Statements — (continued)

SEGMENT INFORMATION


													Total
(Dollars in millions)	Software			Consulting			Infrastructure			Financing			Segments
For the three months ended September 30, 2022:
Revenue	$	5,811		$	4,700		$	3,352		$	174		$	14,037
Pre-tax income from continuing operations	$	1,306		$	462		$	280		$	79		$	2,128
Revenue year-to-year change		7.5	%		5.4	%		14.8	%		(5.7)	%		8.2	%
Pre-tax income year-to-year change		31.9	%		(0.8)	%		34.1	%		(40.4)	%		18.4	%
Pre-tax income margin		22.5	%		9.8	%		8.3	%		45.4	%		15.2	%

For the three months ended September 30, 2021:*
Revenue	$	5,406		$	4,457		$	2,921		$	184		$	12,969
Pre-tax income from continuing operations	$	990		$	466		$	209		$	132		$	1,797
Pre-tax income margin		18.3	%		10.5	%		7.1	%		71.7	%		13.9	%

Reconciliations to IBM as Reported:


(Dollars in millions)
For the three months ended September 30:	2022			2021*
Revenue:
Total reportable segments	$	14,037		$	12,969
Other‒divested businesses		3			189
Other revenue		68			93
Total consolidated revenue	$	14,107		$	13,251

Pre-tax income/(loss) from continuing operations:
Total reportable segments	$	2,128		$	1,797
Amortization of acquired intangible assets		(417)			(469)
Acquisition-related (charges)/income		(1)			(4)
Non-operating retirement-related (costs)/income		(6,062)	**		(318)
Kyndryl-related impacts+		14			—
Eliminations of internal transactions		0			1
Other‒divested businesses		0			(41)
Unallocated corporate amounts and other		(163)			(155)
Total pre-tax income/(loss) from continuing operations	$	(4,501)		$	813

*	Recast to conform to current year presentation.

** Includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion. See note 18, “Retirement-Related Benefits,” for additional information.

+ Refer to note 8, “Financial Assets & Liabilities,” for additional information.

Notes to Consolidated Financial Statements — (continued)

SEGMENT INFORMATION


													Total
(Dollars in millions)	Software			Consulting			Infrastructure			Financing			Segments
For the nine months ended September 30, 2022:
Revenue	$	17,749		$	14,337		$	10,805		$	474		$	43,365
Pre-tax income from continuing operations	$	3,816		$	1,154		$	1,236		$	265		$	6,470
Revenue year-to-year change		8.6	%		9.5	%		10.6	%		(21.2)	%		8.9	%
Pre-tax income year-to-year change		41.0	%		13.9	%		25.0	%		(26.8)	%		27.6	%
Pre-tax income margin		21.5	%		8.0	%		11.4	%		55.9	%		14.9	%

For the nine months ended September 30, 2021:*
Revenue	$	16,339		$	13,098		$	9,774		$	601		$	39,812
Pre-tax income from continuing operations	$	2,707		$	1,013		$	989		$	362		$	5,071
Pre-tax income margin		16.6	%		7.7	%		10.1	%		60.1	%		12.7	%

Reconciliations to IBM as Reported:


(Dollars in millions)
For the nine months ended September 30:	2022			2021*
Revenue:
Total reportable segments	$	43,365		$	39,812
Other‒divested businesses		319			583
Other revenue		156			261
Total consolidated revenue	$	43,840		$	40,656

Pre-tax income/(loss) from continuing operations:
Total reportable segments	$	6,470		$	5,071
Amortization of acquired intangible assets		(1,337)			(1,371)
Acquisition-related charges		(9)			(37)
Non-operating retirement-related (costs)/income		(6,455)	**		(967)
Kyndryl-related impacts+		(353)			—
Eliminations of internal transactions		(15)			(3)
Other‒divested businesses		108	++		(106)
Unallocated corporate amounts		(565)			(619)
Total pre-tax income/(loss) from continuing operations	$	(2,156)		$	1,968

*	Recast to conform to current year presentation.

**	Includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion. See note 18, “Retirement-Related Benefits,” for additional information.

+	Refer to note 8, “Financial Assets & Liabilities,” for additional information.

++ Includes a gain from the sale of the company’s healthcare software assets. Refer to note 6, “Acquisitions & Divestitures.”

Notes to Consolidated Financial Statements — (continued)

6. Acquisitions & Divestitures:

Acquisitions

Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions, except as otherwise stated, were for 100 percent of the acquired business and are reported in the Consolidated Statement of Cash Flows, net of acquired cash and cash equivalents.

During the nine months ended September 30, 2022, the company completed six acquisitions at an aggregate cost of $1,102 million. Each acquisition is expected to enhance the company’s portfolio of products and services capabilities and further advance IBM’s hybrid cloud and AI strategy.

Acquisition	Segment	Description of Acquired Business
First Quarter

Envizi	Software	Data and analytics software provider for environmental performance management

Sentaca	Consulting	Telco consulting services and solutions provider specializing in automation, cloud migration, and future networks for telecommunication providers

Neudesic	Consulting	Application development and cloud computing services company
Second Quarter

Randori	Software	Leading attack surface management (ASM) and cybersecurity provider

Databand.ai	Software	Proactive data observability platform that isolates data errors and issues to alert relevant stakeholders

Third Quarter

Omnio	Software	Developer of software connectors used in the collection of raw data for various Industrial Internet of Things (IoT) applications

At September 30, 2022, the remaining cash to be remitted by the company related to certain first half 2022 acquisitions was $90 million, most of which is expected to be paid by the second quarter of 2023.

The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of September 30, 2022.

Notes to Consolidated Financial Statements — (continued)


	Amortization	Total
(Dollars in millions)	Life (in years)	Acquisitions
Current assets		$	63
Property, plant and equipment/noncurrent assets			3
Intangible assets:
Goodwill	N/A		857
Client relationships	7		151
Completed technology	4-7		90
Trademarks	2-3		7
Total assets acquired		$	1,171
Current liabilities			48
Noncurrent liabilities			22
Total liabilities assumed		$	69
Total purchase price		$	1,102

N/A – not applicable

The goodwill generated is primarily attributable to the assembled workforce of the acquired businesses and the increased synergies expected to be achieved from the integration of the acquired businesses into the company’s various integrated solutions and services, neither of which qualifies as an amortizable intangible asset.

The overall weighted-average useful life of the identified amortizable intangible assets acquired was 6.7 years. Goodwill of $432 million and $425 million was assigned to the Software and Consulting segments, respectively. It is expected that 41 percent of the goodwill will be deductible for tax purposes.

The identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that the assets’ economic benefits are expected to be consumed over time.

The valuation of the assets acquired and liabilities assumed is subject to revision. If additional information becomes available, the company may further revise the purchase price allocation as soon as practical, but no later than one year from the acquisition date; however, material changes are not expected.

On October 3, 2022, the company acquired Dialexa, a privately held digital product engineering services firm. Dialexa will be integrated into the Consulting segment. At the date of issuance of the financial statements, the initial purchase accounting for Dialexa was not complete.

Divestitures

Healthcare Software Assets — In January 2022, IBM and Francisco Partners (Francisco) signed a definitive agreement in which Francisco would acquire IBM’s healthcare data and analytics assets reported within Other‒divested businesses for $1,065 million. Refer to note 5, “Segments,” for additional information. The assets include Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex, and imaging software offerings. In addition, IBM is providing Francisco with transition services including IT and other services. The closing completed for the U.S. and Canada on June 30, 2022 and a subsequent closing occurred in most other countries on September 30, 2022. The company expects to close the remaining countries by the first quarter of 2023.

On June 30, 2022, the company received a cash payment of $1,065 million. As of September 30, 2022 a total pre-tax gain of $259 million has been recognized in other (income) and expense in the Consolidated Income Statement. Any pre-tax gains related to the subsequent wave closings are not expected to be material. The total gain on sale may change in the future due to changes in transaction estimates; however, such changes are not expected to be material.

Notes to Consolidated Financial Statements — (continued)

Other Divestitures — In the first quarter of 2022, the Infrastructure segment completed one divestiture. The financial terms related to this transaction were not material.

7. Earnings/(Loss) Per Share of Common Stock:

The following tables provide the computation of basic and diluted earnings/(loss) per share of common stock for the three and nine months ended September 30, 2022 and 2021.


(Dollars in millions except per share amounts)
For the three months ended September 30:	2022		2021
Number of shares on which basic earnings per share is calculated:
Weighted-average shares outstanding during period		904,076,831		897,097,073
Add — Incremental shares under stock-based compensation plans		—		6,946,467
Add — Incremental shares associated with contingently issuable shares		—		1,909,573
Number of shares on which diluted earnings per share is calculated		904,076,831		905,953,114

Income/(loss) from continuing operations	$	(3,214)	$	1,037
Income/(loss) from discontinued operations, net of tax		18		93
Net income/(loss) on which basic earnings per share is calculated	$	(3,196)	$	1,130

Income/(loss) from continuing operations	$	(3,214)	$	1,037
Net income applicable to contingently issuable shares		—		—
Income/(loss) from continuing operations on which diluted earnings per share is calculated	$	(3,214)	$	1,037
Income/(loss) from discontinued operations, net of tax, on which diluted earnings per share is calculated		18		93
Net income/(loss) on which diluted earnings per share is calculated	$	(3,196)	$	1,130

Earnings/(loss) per share of common stock:
Assuming dilution
Continuing operations	$	(3.55)	$	1.14
Discontinued operations		0.02		0.10
Total	$	(3.54)	$	1.25
Basic
Continuing operations	$	(3.55)	$	1.16
Discontinued operations		0.02		0.10
Total	$	(3.54)	$	1.26

Stock options to purchase 840,544 shares and 750,990 shares were outstanding as of September 30, 2022 and 2021, respectively, but were not included in the computation of diluted earnings/(loss) per share because the exercise price of the options during the respective period was greater than the average market price of the common shares, and therefore, the effect would have been antidilutive.

Due to the net loss for the three months ended September 30, 2022, otherwise dilutive potential shares of common stock under stock-based compensation plans and contingently issuable shares of 6,696,350 and 2,069,742, respectively, have been excluded from the computation of diluted earnings/(loss) per share as the effect would have been antidilutive.

Notes to Consolidated Financial Statements — (continued)


(Dollars in millions except per share amounts)
For the nine months ended September 30:	2022		2021
Number of shares on which basic earnings per share is calculated:
Weighted-average shares outstanding during period		901,621,217		895,257,004
Add — Incremental shares under stock-based compensation plans		—		7,000,190
Add — Incremental shares associated with contingently issuable shares		—		1,720,345
Number of shares on which diluted earnings per share is calculated		901,621,217		903,977,539

Income/(loss) from continuing operations	$	(1,087)	$	2,250
Income/(loss) from discontinued operations, net of tax		16		1,160
Net income/(loss) on which basic earnings per share is calculated	$	(1,071)	$	3,410

Income/(loss) from continuing operations	$	(1,087)	$	2,250
Net income applicable to contingently issuable shares		—		—
Income/(loss) from continuing operations on which diluted earnings per share is calculated	$	(1,087)	$	2,250
Income/(loss) from discontinued operations, net of tax, on which diluted earnings per share is calculated		16		1,160
Net income/(loss) on which diluted earnings per share is calculated	$	(1,071)	$	3,410

Earnings/(loss) per share of common stock:
Assuming dilution
Continuing operations	$	(1.21)	$	2.49
Discontinued operations		0.02		1.28
Total	$	(1.19)	$	3.77
Basic
Continuing operations	$	(1.21)	$	2.51
Discontinued operations		0.02		1.30
Total	$	(1.19)	$	3.81

Stock options to purchase 930,788 shares and 879,289 shares (average of first, second and third quarter share amounts) were outstanding as of September 30, 2022 and 2021, respectively, but were not included in the computation of diluted earnings/(loss) per share because the exercise price of the options during the respective period was greater than the average market price of the common shares, and therefore, the effect would have been antidilutive.

Due to the net loss for the nine months ended September 30, 2022, otherwise dilutive potential shares of common stock under stock-based compensation plans and contingently issuable shares of 7,530,115 and 1,899,113, respectively, have been excluded from the computation of diluted earnings/(loss) per share as the effect would have been antidilutive.

8. Financial Assets & Liabilities**:**

Fair Value Measurements

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

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

Notes to Consolidated Financial Statements — (continued)

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

	●	Level 3–Unobservable inputs for the asset or liability.

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

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

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

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

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

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

The company’s standard practice is to hold all of its debt security investments classified as available-for-sale until maturity. No impairments for credit losses and no material non-credit impairments were recorded for the three and nine months ended September 30, 2022

Certain non-financial assets such as property, plant and equipment, operating right-of-use assets, land, goodwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for non-financial assets depend on the type of asset. There were no material impairments of non-financial assets for the three and nine months ended September 30, 2022 and 2021, respectively.

Notes to Consolidated Financial Statements — (continued)

The following table presents the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021.


	Fair Value
	Hierarchy	At September 30, 2022				At December 31, 2021
(Dollars in millions)	Level	Assets (8)		Liabilities (9)		Assets (8)		Liabilities (9)
Cash equivalents: (1)
Time deposits and certificates of deposit (2)	2	$	4,195	$	N/A	$	1,903	$	N/A
Money market funds	1		732		N/A		263		N/A
U.S. government securities (2)	2		—		N/A		599		N/A
Total cash equivalents		$	4,927	$	N/A	$	2,766	$	N/A
Equity investments (3)	1		—		N/A		0		N/A
Kyndryl common stock (4)	1		184		N/A		807		N/A
Secured borrowing (4)	2		N/A		184		N/A		—
Debt securities-current (2)(5)	2		1,753		N/A		600		N/A
Debt securities-noncurrent (2)(6)	2,3		31		N/A		37		N/A
Derivatives designated as hedging instruments:
Interest rate contracts	2		1		339		12		—
Foreign exchange contracts	2		998		531		359		117
Derivatives not designated as hedging instruments:
Foreign exchange contracts	2		13		31		21		42
Equity contracts (7)	1,2		—		178		6		4
Total		$	7,908	$	1,263	$	4,608	$	162

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

(2)	Available-for-sale debt securities with carrying values that approximate fair value.

(3)	Included within investments and sundry assets in the Consolidated Balance Sheet.

(4)	Refer to “Kyndryl Common Stock” below for additional information.

(5)	U.S. treasury bills and term deposits that are reported within marketable securities in the Consolidated Balance Sheet.

(6)	Includes corporate and government debt securities that are reported within investments and sundry assets in the Consolidated Balance Sheet.

(7)	Level 1 includes immaterial amounts related to equity futures contracts.

(8)	The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Balance Sheet at September 30, 2022 were $1,008 million and $4 million, respectively, and at December 31, 2021 were $358 million and $40 million, respectively.

(9)	The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Balance Sheet at September 30, 2022 were $475 million and $603 million, respectively, and at December 31, 2021 were $60 million and $103 million, respectively.

N/A – not applicable

Kyndryl Common Stock

On November 3, 2021, IBM completed the separation of Kyndryl and retained 19.9 percent of the shares of Kyndryl common stock with the intent to dispose of the shares within twelve months of the separation.

On May 18, 2022, the company borrowed an aggregate principal amount of $357 million under a short-term credit facility with a third-party financial institution, the proceeds of which were used to repay certain of the company’s existing indebtedness. On May 23, 2022, the company completed a debt-for-equity exchange where 22.3 million shares of Kyndryl common stock, equal to 9.95 percent or half of the company’s 19.9 percent retained interest (the Shares), were exchanged at a strike price of $13.95 per share to extinguish $311 million of the company’s indebtedness under the short-term credit facility (the May 2022 Exchange). The remaining portion of the short-term credit facility was repaid with $46 million of cash.

In connection with the May 2022 Exchange, the company entered into a cash-settled swap with the lender of the short-term credit facility as the counterparty that maintained IBM’s continued economic exposure in the Shares. Upon

Notes to Consolidated Financial Statements — (continued)

settlement of the swap, which will occur no later than November 2, 2022, IBM will either receive or pay an amount derived from the difference between the volume-weighted average price (VWAP) of the Kyndryl common stock over the outstanding term of the swap and the strike price of $13.95 per share. As a result, the most significant input into the valuation of the swap is the price of Kyndryl common stock. The fair value of the swap at September 30, 2022 was $85 million and is included within other accrued expenses and liabilities in the Consolidated Balance Sheet. For the three and nine months ended September 30, 2022, an unrealized gain on the swap of $3 million and an unrealized loss on the swap of $85 million, respectively, was recorded in other (income) and expense in the Consolidated Income Statement.

As a result of the swap, the transfer of the Shares pursuant to the May 2022 Exchange did not qualify as a true sale, and therefore the Shares remain on the company’s Consolidated Balance Sheet at September 30, 2022. Relatedly, the portion of the company’s indebtedness under the short-term credit facility that was extinguished pursuant to the May 2022 Exchange has been classified as a secured borrowing within short-term debt in the Consolidated Balance Sheet. The company has elected to record the debt at fair value based on changes in the value of the Shares underlying the debt. The fair value of the debt was $184 million at September 30, 2022. In electing the fair value option, the company recognizes changes in fair value of the debt in other (income) and expense, which amounted to $34 million and $127 million for the three and nine months ended September 30, 2022, respectively. The contractual principal balance of the debt was $311 million at September 30, 2022. Both the Shares and the debt are expected to be entirely derecognized from the company’s Consolidated Balance Sheet upon settlement of the swap, which will occur no later than November 2, 2022.

On August 5, 2022, the company borrowed an aggregate principal amount of $300 million under a short-term credit facility with a third-party financial institution, the proceeds of which will be used to repay certain of the company’s existing indebtedness. On August 11, 2022, the company completed a debt-for-equity exchange through the transfer of the remaining 22.3 million shares of Kyndryl common stock to extinguish $229 million of the company’s indebtedness under the short-term credit facility (the August 2022 Exchange). The remaining portion of the short-term credit facility was repaid with $71 million of cash. As a result of the August 2022 Exchange, the 22.3 million shares of Kyndryl common stock were derecognized from the company’s Consolidated Balance Sheet. The debt-for-equity exchange associated with the August 2022 Exchange is a non-cash financing activity for purposes of the company’s Consolidated Statement of Cash Flows as of September 30, 2022.

The retained interest in the Kyndryl common stock of $184 million and $807 million at September 30, 2022 and December 31, 2021, respectively, is included within prepaid expenses and other current assets in the Consolidated Balance Sheet. For the nine months ended September 30, 2022, the company recorded an unrealized loss of $93 million, net of adjustment for the mark-to-market on the related debt as described above related to the Kyndryl common stock under the May 2022 Exchange. The net mark-to-market impact for the three months ended September 30, 2022 was zero. The company recorded a realized gain of $11 million and a realized loss of $174 million related to the Kyndryl shares under the August 2022 Exchange for the three and nine months ended September 30, 2022, respectively. Gains and losses for both the May and August exchanges as noted above were recorded in other (income) and expense in the Consolidated Income Statement.

Financial Assets and Liabilities Not Measured at Fair Value

Short-Term Receivables and Payables

Notes and other accounts receivable and other investments are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (excluding the current portion of long-term debt and including short-term finance lease liabilities) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy, except for short-term debt which would be classified as Level 2.

Notes to Consolidated Financial Statements — (continued)

Loans and Long-Term Receivables

Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At September 30, 2022 and December 31, 2021, the difference between the carrying amount and estimated fair value for loans and long-term receivables was immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.

Long-Term Debt

Fair value of publicly traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt (including long-term finance lease liabilities) for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt was $44,942 million and $44,917 million, and the estimated fair value was $40,944 million and $49,465 million at September 30, 2022 and December 31, 2021, respectively. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy.

9. Financing Receivables:

Financing receivables primarily consist of client loan and installment payment receivables (loans), investment in sales-type and direct financing leases (collectively referred to as client financing receivables) and commercial financing receivables. Loans are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are generally for terms up to seven years. Investment in sales-type and direct financing leases relate principally to the company’s Infrastructure products and are for terms ranging generally from two to six years. Commercial financing receivables, which consist of both held-for-investment and held-for-sale receivables, relate primarily to working capital financing for dealers and remarketers of IBM products. Payment terms for working capital financing generally range from 30 to 90 days.

A summary of the components of the company’s financing receivables is presented as follows:


	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 September 30, 2022:	(Loans)		Leases		Investment		Sale*		Total
Financing receivables, gross	$	7,777	$	3,566	$	169	$	395	$	11,907
Unearned income		(330)		(285)		—		—		(615)
Unguaranteed residual value		—		323		—		—		323
Amortized cost	$	7,447	$	3,604	$	169	$	395	$	11,616
Allowance for credit losses		(101)		(53)		(5)		—		(159)
Total financing receivables, net	$	7,346	$	3,551	$	164	$	395	$	11,456
Current portion	$	4,750	$	1,366	$	164	$	395	$	6,676
Noncurrent portion	$	2,596	$	2,185	$	—	$	—	$	4,781

The carrying value of the receivables classified as held for sale approximates fair value.

Notes to Consolidated Financial Statements — (continued)


	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, 2021:	(Loans)		Leases		Investment		Sale*		Total
Financing receivables, gross	$	9,303	$	3,336	$	450	$	793	$	13,881
Unearned income		(353)		(223)		—		—		(576)
Unguaranteed residual value		—		335		—		—		335
Amortized cost	$	8,949	$	3,448	$	450	$	793	$	13,640
Allowance for credit losses		(131)		(64)		(6)		—		(201)
Total financing receivables, net	$	8,818	$	3,384	$	444	$	793	$	13,439
Current portion	$	5,371	$	1,406	$	444	$	793	$	8,014
Noncurrent portion	$	3,447	$	1,978	$	—	$	—	$	5,425

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 borrowings, transfers of receivables recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease. Sale of receivables arrangements are also utilized in the normal course of business as part of the company’s cash and liquidity management.

Financing receivables pledged as collateral for nonrecourse borrowings were $386 million and $408 million at September 30, 2022 and December 31, 2021, respectively. These borrowings are included in note 12, “Borrowings.”

Transfer of Financial Assets

The company has an existing agreement with a third-party investor to sell IBM short-term commercial financing receivables on a revolving basis. The company has expanded this agreement to other countries and geographies since commencement in the U.S. and Canada in 2020. In addition, the company enters into agreements with third-party financial institutions to sell certain of its client financing receivables, including both loan and lease receivables, for cash proceeds. In the first nine months of 2022, sales of client financing receivables were largely focused on credit mitigation. During 2021, sales of client financing receivables were utilized as part of the company’s cash and liquidity management as well as for credit mitigation.

The following table presents the total amount of client and commercial financing receivables transferred.


(Dollars in millions)
For the nine months ended September 30:	2022		2021
Client financing receivables:
Lease receivables	$	15	$	781
Loan receivables		2		2,189
Total client financing receivables transferred	$	17	$	2,970
Commercial financing receivables:
Receivables transferred during the period	$	6,091	$	4,465
Receivables uncollected at end of period*	$	816	$	707

*	Of the total amount of commercial financing receivables sold and derecognized from the Consolidated Balance Sheet, the amounts presented remained uncollected from business partners as of September 30, 2022 and 2021.

The transfer of these receivables qualified as true sales and therefore reduced financing receivables. The cash proceeds from the sales are included in cash flows from operating activities and the impacts to the Consolidated Income

Notes to Consolidated Financial Statements — (continued)

Statement, including fees and net gain or loss associated with the transfers of these receivables for the nine months ended September 30, 2022 and 2021 were not material.

Financing Receivables by Portfolio Segment

The following tables present the amortized cost basis for client financing receivables at September 30, 2022 and December 31, 2021, further segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. The commercial financing receivables portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current estimated risk of loss and resulting impact to the company’s financial results are not material.


(Dollars in millions)
At September 30, 2022:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	6,900	$	2,731	$	1,420	$	11,051
Allowance for credit losses:
Beginning balance at January 1, 2022	$	111	$	61	$	23	$	195
Write-offs	$	(20)	$	(1)	$	(2)	$	(23)
Recoveries		1		0		4		5
Additions/(releases)		(6)		(3)		(5)		(13)
Other*		1		(8)		(2)		(10)
Ending balance at September 30, 2022	$	87	$	49	$	18	$	154


(Dollars in millions)
At December 31, 2021:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	6,573	$	3,793	$	2,031	$	12,397
Allowance for credit losses:
Beginning balance at January 1, 2021	$	141	$	77	$	37	$	255
Write-offs	$	(8)	$	(2)	$	(7)	$	(17)
Recoveries		0		0		1		1
Additions/(releases)		(19)		(11)		(7)		(38)
Other*		(3)		(3)		0		(7)
Ending balance at December 31, 2021	$	111	$	61	$	23	$	195

Primarily represents translation adjustments.

When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For the company’s policy on determining allowances for credit losses, refer to note A, “Significant Accounting Policies,” in the company’s 2021 Annual Report. Any changes to economic models that occurred after the balance sheet date will be reflected in future periods.

Notes to Consolidated Financial Statements — (continued)

Past Due Financing Receivables

The company summarizes information about the amortized cost basis for client financing receivables, including amortized cost aged over 90 days and still accruing, billed invoices aged over 90 days and still accruing, and amortized cost not accruing.


					Amortized		Billed		Amortized
	Total		Amortized		Cost		Invoices		Cost
(Dollars in millions)	Amortized		Cost		> 90 Days and		> 90 Days and		Not
At September 30, 2022:	Cost		> 90 Days*		Accruing*		Accruing		Accruing**
Americas	$	6,900	$	266	$	197	$	22	$	70
EMEA		2,731		81		1		0		81
Asia Pacific		1,420		23		6		1		17
Total client financing receivables	$	11,051	$	369	$	204	$	23	$	168


					Amortized		Billed		Amortized
	Total		Amortized		Cost		Invoices		Cost
(Dollars in millions)	Amortized		Cost		> 90 Days and		> 90 Days and		Not
At December 31, 2021:	Cost		> 90 Days*		Accruing*		Accruing		Accruing**
Americas	$	6,573	$	188	$	100	$	6	$	90
EMEA		3,793		99		7		2		95
Asia Pacific		2,031		25		5		2		20
Total client financing receivables	$	12,397	$	312	$	112	$	10	$	205

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

**	Of the amortized cost not accruing, there was a related allowance of $120 million and $153 million at September 30, 2022 and December 31, 2021, respectively. Financing income recognized on these receivables was immaterial for the three and nine months ended September 30, 2022, respectively.

Credit Quality Indicators

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

The following tables present the amortized cost basis for client financing receivables by credit quality indicator at September 30, 2022 and December 31, 2021, respectively. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators reflect mitigating credit enhancement actions taken by customers which reduce the risk to IBM.


(Dollars in millions)	Americas				EMEA				Asia Pacific
At September 30, 2022:	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2022	$	2,475	$	1,012	$	716	$	465	$	471	$	83
2021		1,401		387		487		198		210		77
2020		660		265		268		168		213		53
2019		310		119		167		110		133		24
2018		147		40		45		37		87		25
2017 and prior		40		47		15		54		25		18
Total	$	5,031	$	1,869	$	1,698	$	1,033	$	1,140	$	280

Notes to Consolidated Financial Statements — (continued)


(Dollars in millions)	Americas				EMEA				Asia Pacific
At December 31, 2021:	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2021	$	2,556	$	1,147	$	1,181	$	778	$	565	$	226
2020		1,013		392		506		342		381		86
2019		544		236		287		291		297		51
2018		338		117		189		85		211		64
2017		108		50		15		52		74		17
2016 and prior		20		53		21		46		38		20
Total	$	4,579	$	1,994	$	2,198	$	1,595	$	1,567	$	464

Troubled Debt Restructurings

The company did not have any significant troubled debt restructurings during the nine months ended September 30, 2022 or for the year ended December 31, 2021.

10. Leases:

Accounting for Leases as a Lessor

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021		2022		2021
Lease income — sales-type and direct financing leases:
Sales-type lease selling price	$	99	$	119	$	888	$	870
Less: Carrying value of underlying assets*		(57)		(48)		(195)		(205)
Gross profit	$	43	$	70	$	693	$	664
Interest income on lease receivables		54		44		144		142
Total sales-type and direct financing lease income	$	97	$	114	$	838	$	806
Lease income — operating leases		29		38		86		136
Variable lease income		19		18		75		97
Total lease income	$	145	$	169	$	998	$	1,038

Excludes unguaranteed residual value.

Notes to Consolidated Financial Statements — (continued)

11. Intangible Assets Including Goodwill:

Intangible Assets

The following tables present the company's intangible asset balances by major asset class.


	At September 30, 2022
	Gross Carrying		Accumulated		Net Carrying
(Dollars in millions)	Amount		Amortization		Amount*
Intangible asset class:
Capitalized software	$	1,697	$	(720)	$	977
Client relationships		8,051		(2,763)		5,288
Completed technology		5,490		(2,242)		3,248
Patents/trademarks		2,093		(645)		1,448
Other**		32		(27)		5
Total	$	17,364	$	(6,397)	$	10,967


	At December 31, 2021
	Gross Carrying		Accumulated		Net Carrying
(Dollars in millions)	Amount		Amortization		Amount*
Intangible asset class:
Capitalized software	$	1,696	$	(751)	$	945
Client relationships		9,021		(2,889)		6,132
Completed technology		6,074		(2,259)		3,815
Patents/trademarks		2,196		(586)		1,610
Other**		44		(35)		9
Total	$	19,031	$	(6,520)	$	12,511

Amounts as of September 30, 2022 and December 31, 2021 included a decrease in net intangible asset balances of $389 million and $221 million, respectively, due to foreign currency translation.

**	Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems.

The net carrying amount of intangible assets decreased $1,544 million during the first nine months of 2022, primarily due to intangible asset amortization and the impacts of currency, partially offset by additions of acquired intangibles and capitalized software. The aggregate intangible asset amortization expense was $577 million and $1,828 million for the third quarter and first nine months of 2022, respectively, compared to $640 million and $1,880 million for the third quarter and first nine months of 2021, respectively. In the first nine months of 2022, the company retired $647 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount. The company also derecognized intangible assets with a gross carrying amount of $1,313 million and $1,149 million of accumulated amortization as part of the divestiture of its healthcare software assets on June 30, 2022.

The future amortization expense relating to intangible assets currently recorded in the Consolidated Balance Sheet was estimated to be the following at September 30, 2022:


	Capitalized		Acquired
(Dollars in millions)	Software		Intangibles		Total
Remainder of 2022	$	157	$	405	$	562
2023		472		1,469		1,941
2024		286		1,452		1,737
2025		63		1,434		1,497
2026		—		1,417		1,417
Thereafter		—		3,813		3,813

Notes to Consolidated Financial Statements — (continued)

Goodwill

The changes in the goodwill balances by segment for the nine months ended September 30, 2022 and for the year ended December 31, 2021 were as follows:


									Foreign
									Currency
					Purchase				Translation
(Dollars in millions)	Balance		Goodwill		Price				and Other		Balance
Segment	1/1/2022		Additions		Adjustments		Divestitures		Adjustments*		9/30/2022
Software	$	43,966	$	442	$	(118)	$	—	$	(1,290)	$	43,001
Consulting		6,797		461		(42)		—		(343)		6,872
Infrastructure		4,396		—		—		(1)		(50)		4,345
Other**		484		—		—		(484)		—		—
Total	$	55,643	$	903	$	(160)	$	(485)	$	(1,683)	$	54,218

*	Primarily driven by foreign currency translation.

**	The company derecognized $484 million of goodwill related to the divestiture of its healthcare software assets. Refer to note 6, “Acquisitions & Divestitures,” for additional information.


									Foreign
									Currency
					Purchase				Translation
(Dollars in millions)	Balance		Goodwill		Price				and Other		Balance
Segment	1/1/2021		Additions		Adjustments		Divestitures		Adjustments*		12/31/2021
Software**	$	42,665	$	1,836	$	23	$	(13)	$	(545)	$	43,966
Consulting		6,145		713		(21)		—		(40)		6,797
Infrastructure		4,436		—		0		—		(39)		4,396
Other**		520		—		—		(37)		1		484
Total	$	53,765	$	2,549	$	2	$	(50)	$	(623)	$	55,643

*	Primarily driven by foreign currency translation.

**	Recast to conform to current year presentation.

There were no goodwill impairment losses recorded during the first nine months of 2022 or full-year 2021 and the company has no accumulated impairment losses. Purchase price adjustments recorded in the first nine months of 2022 and full-year 2021 were related to acquisitions that were still subject to the measurement period that ends at the earlier of 12 months from the acquisition date or when information becomes available. Net purchase price adjustments recorded in the first nine months of 2022 primarily relate to deferred tax assets and liabilities associated with the Turbonomic acquisition.

12. Borrowings:

Short-Term Debt


	At September 30,		At December 31,
(Dollars in millions)	2022		2021
Short-term loans	$	196	$	22
Long-term debt — current maturities		5,741		6,764
Total	$	5,937	$	6,787

Included within short-term debt in the company’s Consolidated Balance Sheet at September 30, 2022 is $184 million of secured borrowings recorded at fair value from the short-term credit facility and the May 2022 Exchange as described in note 8, “Financial Assets & Liabilities.”

Notes to Consolidated Financial Statements — (continued)

The weighted-average interest rate for short-term loans excluding the aforementioned secured borrowings was 8.2 percent and 6.7 percent at September 30, 2022 and December 31, 2021, respectively.

Long-Term Debt

Pre-Swap Borrowing


		Balance		Balance
(Dollars in millions)	Maturities	9/30/2022		12/31/2021
U.S. dollar debt (weighted-average interest rate at September 30, 2022):*
2.9%	2022	$	900	$	5,673
3.4%	2023		1,536		1,573
3.3%	2024		5,011		5,016
5.1%	2025		1,604		608
3.3%	2026		4,352		4,356
3.1%	2027		3,621		2,221
6.5%	2028		313		313
3.5%	2029		3,250		3,250
2.0%	2030		1,350		1,350
4.4%	2032		1,850		600
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		—
7.1%	2096		316		316
		$	34,516	$	34,290
Other currencies (weighted-average interest rate at September 30, 2022, in parentheses):*
Euro (1.1%)	2023–2040	$	15,671	$	15,903
Pound sterling	2022		—		406
Japanese yen (0.3%)	2022–2026		1,005		1,263
Other (16.0%)	2022–2026		397		378
		$	51,590	$	52,240
Finance lease obligations (2.8%)	2022–2030		159		99
		$	51,749	$	52,339
Less: net unamortized discount			841		839
Less: net unamortized debt issuance costs			140		130
Add: fair value adjustment**			(84)		311
		$	50,684	$	51,681
Less: current maturities			5,741		6,764
Total		$	44,942	$	44,917

Includes notes, debentures, bank loans and secured borrowings.

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

Notes to Consolidated Financial Statements — (continued)

The company’s indenture governing its debt securities and its various credit facilities each contain significant covenants which obligate the company to promptly pay principal and interest, limit the aggregate amount of secured indebtedness and sale and leaseback transactions to 10 percent of the company’s consolidated net tangible assets, and restrict the company’s ability to merge or consolidate unless certain conditions are met. The credit facilities also include a covenant on the company’s consolidated net interest expense ratio, which cannot be less than 2.20 to 1.0, as well as a cross default provision with respect to other defaulted indebtedness of at least $500 million.

The company is in compliance with its debt covenants and provides periodic certifications to its lenders. The failure to comply with its debt covenants could constitute an event of default with respect to the debt to which such provisions apply. If certain events of default were to occur, the principal and interest on the debt to which such event of default applied would become immediately due and payable.

In the first quarter of 2022, the company issued $2.3 billion of Euro fixed-rate notes in tranches with maturities ranging from 8 to 12 years and coupons ranging from 0.875 to 1.25 percent, and $1.8 billion of U.S. dollar fixed-rate notes with maturities ranging from 5 to 30 years and coupons ranging from 2.20 to 3.43 percent.

On July 20, 2022, the company issued $3.25 billion of U.S. dollar fixed-rate notes in tranches with maturities ranging from 3 to 30 years and coupons ranging from 4.00 to 4.90 percent.

Pre-swap annual contractual obligations of long-term debt outstanding at September 30, 2022, were as follows:


(Dollars in millions)	Total
Remainder of 2022	$	1,334
2023		4,490
2024		6,246
2025		4,586
2026		4,657
Thereafter		30,436
Total	$	51,749

Interest on Debt


(Dollars in millions)
For the nine months ended September 30:	2022		2021
Cost of financing	$	264	$	312
Interest expense		903		852
Interest capitalized		4		3
Total interest paid and accrued	$	1,170	$	1,167

Lines of Credit

The company has a $2.5 billion Three-Year Credit Agreement and a $7.5 billion Five-Year Credit Agreement with maturity dates of June 20, 2025 and June 22, 2027, respectively. The Credit Agreements permit the company and its subsidiary borrowers to borrow up to $10 billion on a revolving basis. At September 30, 2022, there were no borrowings by the company, or its subsidiaries, under these credit facilities.

Notes to Consolidated Financial Statements — (continued)

13. Commitments:

The company’s extended lines of credit to third-party entities include unused amounts of $1.5 billion and $1.7 billion at September 30, 2022 and December 31, 2021, respectively. A portion of these amounts was available to the company’s business partners to support their working capital needs. In addition, the company has committed to provide future financing to its clients in connection with client purchase agreements for $2.3 billion and $3.2 billion at September 30, 2022 and December 31, 2021, respectively. The company collectively evaluates the allowance for these arrangements using a provision methodology consistent with the portfolio of the commitments. Refer to note A, “Significant Accounting Policies,” in the company’s 2021 Annual Report for additional information. The allowance for these commitments is recorded in other liabilities in the Consolidated Balance Sheet and was not material at September 30, 2022.

The company has applied the guidance requiring a guarantor to disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote. The following is a description of arrangements in which the company is the guarantor.

The company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the company, under which the company customarily agrees to hold the party harmless against losses arising from a breach of representations and covenants related to such matters as title to the assets sold, certain intellectual property rights, specified environmental matters, third-party performance of nonfinancial contractual obligations and certain income taxes. In each of these circumstances, payment by the company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, the procedures of which typically allow the company to challenge the other party’s claims. While indemnification provisions typically do not include a contractual maximum on the company’s payment, the company’s obligations under these agreements may be limited in terms of time and/or nature of claim, and in some instances, the company may have recourse against third parties for certain payments made by the company.

It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the company under these agreements have not had a material effect on the company’s business, financial condition or results of operations.

In addition, the company guarantees certain loans and financial commitments. The maximum potential future payment under these financial guarantees and the fair value of these guarantees recognized in the Consolidated Balance Sheet at September 30, 2022 and December 31, 2021 was not material.

Changes in the company’s warranty liability for standard warranties, which are included in other accrued expenses and liabilities and other liabilities in the Consolidated Balance Sheet, and for extended warranty contracts, which are included in deferred income in the Consolidated Balance Sheet, are presented in the following tables.

Standard Warranty Liability


(Dollars in millions)	2022		2021
Balance at January 1	$	77	$	83
Current period accruals		58		50
Accrual adjustments to reflect actual experience		(1)		(2)
Charges incurred		(62)		(66)
Balance at September 30	$	72	$	66

Notes to Consolidated Financial Statements — (continued)

Extended Warranty Liability


(Dollars in millions)	2022		2021
Balance at January 1	$	350	$	425
Revenue deferred for new extended warranty contracts		103		71
Amortization of deferred revenue		(148)		(154)
Other*		(21)		(9)
Balance at September 30	$	284	$	334
Current portion	$	139	$	171
Noncurrent portion	$	145	$	163

Other primarily consists of foreign currency translation adjustments.

14. Contingencies:

As a company with a substantial employee population and with clients in more than 175 countries, IBM is involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. The company is a leader in the information technology industry and, as such, has been and will continue to be subject to claims challenging its IP rights and associated products and offerings, including claims of copyright and patent infringement and violations of trade secrets and other IP rights. In addition, the company enforces its own IP against infringement, through license negotiations, lawsuits or otherwise. Further, given the rapidly evolving external landscape of cybersecurity, privacy and data protection laws, regulations and threat actors, the company and its clients have been and will continue to be subject to actions or proceedings in various jurisdictions. Also, as is typical for companies of IBM’s scope and scale, the company is party to actions and proceedings in various jurisdictions involving a wide range of labor and employment issues (including matters related to contested employment decisions, country-specific labor and employment laws, and the company’s pension, retirement and other benefit plans), as well as actions with respect to contracts, product liability, securities, foreign operations, competition law and environmental matters. These actions may be commenced by a number of different parties, including competitors, clients, current or former employees, government and regulatory agencies, stockholders and representatives of the locations in which the company does business. Some of the actions to which the company is party may involve particularly complex technical issues, and some actions may raise novel questions under the laws of the various jurisdictions in which these matters arise.

The company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any recorded liabilities, including any changes to such liabilities for the quarter ended September 30, 2022 were not material to the Consolidated Financial Statements.

In accordance with the relevant accounting guidance, the company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. In addition, the company also discloses matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, customer and employee relations considerations.

With respect to certain of the claims, suits, investigations and proceedings discussed herein, the company believes at this time that the likelihood of any material loss is remote, given, for example, the procedural status, court rulings, and/or the strength of the company’s defenses in those matters. With respect to the remaining claims, suits, investigations and proceedings discussed in this note, except as specifically discussed herein, the company is unable to provide estimates of reasonably possible losses or range of losses, including losses in excess of amounts accrued, if any, for the following reasons. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of these matters. It is the company’s experience that damage amounts claimed in litigation against it are unreliable and unrelated to possible outcomes, and as such are not meaningful indicators of the company’s potential liability. Further, the company is unable to provide such an estimate due to a number of other factors with respect to

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 aggregate), to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter.

Whether any losses, damages or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including: the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact any such losses, damages or remedies may have in the Consolidated Financial Statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors. While the company will continue to defend itself vigorously, it is possible that the company’s business, financial condition, results of operations or cash flows could be affected in any particular period by the resolution of one or more of these matters.

The following is a summary of the more significant legal matters involving the company.

In December 2017, CIS General Insurance Limited (CISGIL) sued IBM UK regarding a contract entered into by IBM UK and CISGIL in 2015 to implement and operate an IT insurance platform. The contract was terminated by IBM UK in July 2017 for non-payment by CISGIL. CISGIL alleges wrongful termination, breach of contract and breach of warranty. In February 2021, the Technology & Construction Court in London rejected the majority of CISGIL’s claims and ruled in IBM’s favor on its counterclaim. The court’s decision required IBM to pay approximately $20 million in damages, plus interest and litigation costs. In April 2022, the Court of Appeal awarded CISGIL additional damages of approximately $89 million, plus interest and litigation costs. IBM filed an application for permission to appeal with the UK Supreme Court.

On June 8, 2021, IBM sued GlobalFoundries U.S. Inc. (GF) in New York State Supreme Court for claims including fraud and breach of contract relating to a long-term strategic relationship between IBM and GF for researching, developing, and manufacturing advanced semiconductor chips for IBM. GF walked away from its obligations and IBM is now suing to recover amounts paid to GF, and other compensatory and punitive damages, totaling more than $1.5 billion. On September 14, 2021, the court ruled on GF’s motion to dismiss. On April 7, 2022, the Appellate Division unanimously reversed the lower court’s dismissal of IBM’s fraud claim. IBM’s claims for breaches of contract, promissory estoppel, and fraud are proceeding.

On April 5, 2022, a putative securities law class action was commenced in the United States District Court for the Southern District of New York alleging that during the period from April 4, 2017 through October 20, 2021, certain strategic imperatives revenues were misclassified. The company, two current IBM senior executives, and two former IBM senior executives are named as defendants. On June 23, 2022, the court entered an order appointing Iron Workers Local 580 Joint Funds as lead plaintiff. On September 21, 2022, the plaintiff voluntarily dismissed the case, without prejudice. On March 25, 2022, the Board of Directors received a shareholder demand letter making similar allegations and demanding that the company’s Board of Directors take action to assert the company’s rights. A special committee of independent directors has been formed to investigate the issues raised in the letter.

On June 2, 2022, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York alleging that the IBM Pension Plan miscalculated certain joint and survivor annuity pension benefits by using outdated actuarial tables in violation of the Employee Retirement Income Security Act of 1974. IBM, the Plan Administrator Committee, and the IBM Pension Plan are named as defendants.

As disclosed in the Kyndryl Form 10 and subsequent Kyndryl public filings, in 2017 BMC Software, Inc. (BMC) filed suit against IBM in the United States District Court for the Southern District of Texas in a dispute involving IBM’s former managed infrastructure services business. On May 30, 2022, the trial court awarded BMC $718 million in direct

Notes to Consolidated Financial Statements — (continued)

damages and $718 million in punitive damages, plus interest and fees. IBM filed a notice of appeal, and BMC cross appealed. IBM does not believe it has any material exposure relating to this litigation. No material liability or related indemnification asset has been recorded by IBM.

The company is party to, or otherwise involved in, proceedings brought by U.S. federal or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as “Superfund,” or laws similar to CERCLA. Such statutes require potentially responsible parties to participate in remediation activities regardless of fault or ownership of sites. The company is also conducting environmental investigations, assessments or remediations at or in the vicinity of several current or former operating sites globally pursuant to permits, administrative orders or agreements with country, state or local environmental agencies, and is involved in lawsuits and claims concerning certain current or former operating sites.

The company is also subject to ongoing tax examinations and governmental assessments in various jurisdictions. Along with many other U.S. companies doing business in Brazil, the company is involved in various challenges with Brazilian tax authorities regarding non-income tax assessments and non-income tax litigation matters. The total potential amount related to all these matters for all applicable years is approximately $400 million. The company believes it will prevail on these matters and that this amount is not a meaningful indicator of liability.

15. Equity Activity:

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 September 30, 2022:	Amount		Benefit		Amount
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	143	$	(301)	$	(158)
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	$	189	$	(49)	$	140
Reclassification of (gains)/losses to:
Cost of services		(4)		1		(3)
Cost of sales		(35)		10		(25)
Cost of financing		7		(2)		5
SG&A expense		(8)		2		(6)
Other (income) and expense		6		(2)		5
Interest expense		22		(5)		16
Total unrealized gains/(losses) on cash flow hedges	$	178	$	(45)	$	133
Retirement-related benefit plans:*
Prior service costs/(credits)	$	412	$	(104)	$	309
Net (losses)/gains arising during the period		53		(13)		39
Curtailments and settlements		5,913		(1,487)		4,426
Amortization of prior service (credits)/costs		3		(1)		2
Amortization of net (gains)/losses		388		(108)		279
Total retirement-related benefit plans	$	6,768	$	(1,712)	$	5,056
Other comprehensive income/(loss)	$	7,089	$	(2,058)	$	5,030

*	These accumulated other comprehensive income (AOCI) components are included in the computation of net periodic pension cost and include the impact of a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022. Refer to note 18, “Retirement-Related Benefits,” for additional information.

Notes to Consolidated Financial Statements — (continued)

Reclassifications and Taxes Related to Items of Other Comprehensive Income


(Dollars in millions)	Before Tax		Tax (Expense)/		Net of Tax
For the three months ended September 30, 2021:	Amount		Benefit		Amount
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	(114)	$	(120)	$	(234)
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	$	109	$	(28)	$	82
Reclassification of (gains)/losses to:
Cost of services		(12)		3		(9)
Cost of sales		(1)		1		(1)
Cost of financing		6		(1)		4
SG&A expense		1		0		1
Other (income) and expense		22		(6)		17
Interest expense		16		(4)		12
Total unrealized gains/(losses) on cash flow hedges	$	141	$	(35)	$	106
Retirement-related benefit plans:*
Prior service costs/(credits)	$	0	$	0	$	0
Net (losses)/gains arising during the period		1		0		1
Curtailments and settlements		13		(4)		9
Amortization of prior service (credits)/costs		3		0		3
Amortization of net (gains)/losses		638		(174)		464
Total retirement-related benefit plans	$	656	$	(178)	$	478
Other comprehensive income/(loss)	$	683	$	(333)	$	350

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 18, “Retirement-Related Benefits,” for additional information.

Notes to Consolidated Financial Statements — (continued)

Reclassifications and Taxes Related to Items of Other Comprehensive Income


(Dollars in millions)	Before Tax		Tax (Expense)/		Net of Tax
For the nine months ended September 30, 2022:	Amount		Benefit		Amount
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	799	$	(784)	$	14
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	$	449	$	(118)	$	332
Reclassification of (gains)/losses to:
Cost of services		(32)		8		(24)
Cost of sales		(71)		20		(50)
Cost of financing		19		(5)		14
SG&A expense		(28)		8		(20)
Other (income) and expense		51		(13)		38
Interest expense		64		(16)		48
Total unrealized gains/(losses) on cash flow hedges	$	453	$	(116)	$	338
Retirement-related benefit plans:*
Prior service costs/(credits)	$	408	$	(99)	$	309
Net (losses)/gains arising during the period		63		(20)		43
Curtailments and settlements		5,931		(1,491)		4,440
Amortization of prior service (credits)/costs		16		(4)		12
Amortization of net (gains)/losses		1,305		(364)		941
Total retirement-related benefit plans	$	7,722	$	(1,978)	$	5,745
Other comprehensive income/(loss)	$	8,973	$	(2,877)	$	6,096

*	These AOCI components are included in the computation of net periodic pension cost and include the impact of a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022. Refer to note 18, “Retirement-Related Benefits,” for additional information.

Notes to Consolidated Financial Statements — (continued)

Reclassifications and Taxes Related to Items of Other Comprehensive Income


(Dollars in millions)	Before Tax		Tax (Expense)/		Net of Tax
For the nine months ended September 30, 2021:	Amount		Benefit		Amount
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	463	$	(304)	$	160
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	$	262	$	(66)	$	196
Reclassification of (gains)/losses to:
Cost of services		(33)		8		(25)
Cost of sales		30		(8)		23
Cost of financing		17		(4)		13
SG&A expense		32		(8)		24
Other (income) and expense		187		(47)		140
Interest expense		48		(12)		36
Total unrealized gains/(losses) on cash flow hedges	$	545	$	(138)	$	407
Retirement-related benefit plans:*
Prior service costs/(credits)	$	0	$	0	$	0
Net (losses)/gains arising during the period		23		4		27
Curtailments and settlements		46		(14)		32
Amortization of prior service (credits)/costs		8		0		8
Amortization of net (gains)/losses		1,929		(526)		1,403
Total retirement-related benefit plans	$	2,006	$	(537)	$	1,469
Other comprehensive income/(loss)	$	3,014	$	(978)	$	2,035

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 18, “Retirement-Related Benefits,” for additional information.

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


					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		332		14		352			(1)		697
Amount reclassified from accumulated other comprehensive income		6		—		5,393	**		—		5,399
Total change for the period	$	338	$	14	$	5,745		$	(1)	$	6,096
September 30, 2022	$	320	$	(3,347)	$	(14,110)		$	(1)	$	(17,138)

*	Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax.

**	Includes the impact of a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022. Refer to note 18, “Retirement-Related Benefits,” for additional information.

Notes to Consolidated Financial Statements — (continued)


					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, 2021	$	(456)	$	(4,665)	$	(24,216)	$	0	$	(29,337)
Other comprehensive income before reclassifications		196		160		26		0		382
Amount reclassified from accumulated other comprehensive income		211		—		1,442		—		1,654
Total change for the period	$	407	$	160	$	1,469	$	0	$	2,035
September 30, 2021	$	(49)	$	(4,505)	$	(22,747)	$	(1)	$	(27,302)

Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax.

16. Derivative Financial Instruments:

The company operates in multiple functional currencies and is a significant lender and borrower in the global markets. In the normal course of business, the company is exposed to the impact of interest rate changes and foreign currency fluctuations, and to a lesser extent equity and commodity price changes and client credit risk. The company limits these risks by following established risk management policies and procedures, including the use of derivatives, and, where cost effective, financing with debt in the currencies in which assets are denominated. For interest rate exposures, derivatives are used to better align rate movements between the interest rates associated with the company’s lease and other financial assets and the interest rates associated with its financing debt. Derivatives are also used to manage the related cost of debt. For foreign currency exposures, derivatives are used to better manage the cash flow volatility arising from foreign exchange rate fluctuations.

In the Consolidated Balance Sheet, the company does not offset derivative assets against liabilities in master netting arrangements nor does it offset receivables or payables recognized upon payment or receipt of cash collateral against the fair values of the related derivative instruments. At September 30, 2022 and December 31, 2021, the amount recognized in other accounts receivables for the right to reclaim cash collateral was $191 million and $2 million, respectively. At September 30, 2022 and December 31, 2021, the amount recognized in accounts payable for the obligation to return cash collateral was $222 million and $38 million, respectively. The company restricts the use of cash collateral received to rehypothecation, and therefore reports it in restricted cash in the Consolidated Balance Sheet. At September 30, 2022 and December 31, 2021, the amount rehypothecated was $158 million and $2 million, respectively. Additionally, if derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Balance Sheet at September 30, 2022 and December 31, 2021, the total derivative asset and liability positions each would have been reduced by $311 million and $60 million, respectively.

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 with the lender of the short-term credit facility as the counterparty that maintained IBM’s continued economic exposure in those shares pursuant to the May 2022 Exchange. Refer to note 8, “Financial Assets & Liabilities,” for additional information. The notional value of the swap is $311 million. Upon settlement of the swap, no later than November 2, 2022, IBM will receive or pay an amount derived from the difference between the VWAP of the Kyndryl common stock over the outstanding term of the swap and the strike price as of May 19, 2022. The fair value of the swap at September 30, 2022 was $85 million and is included within other accrued expenses and liabilities in the Consolidated Balance Sheet. For the three and nine months ended September 30, 2022, an unrealized gain of $3 million and unrealized loss of $85 million, respectively, was recorded in other (income) and expense in the Consolidated Income Statement.

In its hedging programs, the company may use forward contracts, futures contracts, interest-rate swaps, cross-currency swaps, equity swaps, and options depending upon the underlying exposure. The company is not a party to leveraged derivative instruments.

Notes to Consolidated Financial Statements — (continued)

A brief description of the major hedging programs, categorized by underlying risk, follows.

Interest Rate Risk

Fixed and Variable Rate Borrowings

The company issues debt in the global capital markets to fund its operations and financing business. Access to cost-effective financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall interest cost, the company may use interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert specific variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). At September 30, 2022 and December 31, 2021, the total notional amount of the company’s interest-rate swaps was $6.2 billion and $0.4 billion, respectively. The weighted-average remaining maturity of these instruments at September 30, 2022 and December 31, 2021 was approximately 6.0 years and 1.2 years, respectively. These interest-rate contracts were accounted for as fair value hedges. The company did not have any cash flow hedges relating to this program outstanding at September 30, 2022 and December 31, 2021.

Forecasted Debt Issuance

The company is exposed to interest rate volatility on future debt issuances. To manage this risk, the company may use instruments such as forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuances. There were no instruments outstanding at September 30, 2022 and December 31, 2021.

In connection with cash flow hedges of forecasted interest payments related to the company's borrowings, the company recorded net losses (before taxes) of $144 million and $157 million at September 30, 2022 and December 31, 2021, respectively, in AOCI. The company estimates that $18 million of the deferred net losses (before taxes) on derivatives in AOCI at September 30, 2022 will be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying interest payments.

Foreign Exchange Risk

Long-Term Investments in Foreign Subsidiaries (Net Investment)

A large portion of the company’s foreign currency denominated debt portfolio is designated as a hedge of net investment in foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the functional currency of major foreign subsidiaries with respect to the U.S. dollar. At September 30, 2022 and December 31, 2021, the carrying value of debt designated as hedging instruments was $12.8 billion and $14.1 billion, respectively. The company also uses cross-currency swaps and foreign exchange forward contracts for this risk management purpose. At September 30, 2022 and December 31, 2021, the total notional amount of derivative instruments designated as net investment hedges was $5.4 billion and $6.8 billion, respectively. At both September 30, 2022 and December 31, 2021, the weighted-average remaining maturity of these instruments was approximately 0.1 year.

Anticipated Royalties and Cost Transactions

The company’s operations generate significant nonfunctional currency, third-party vendor payments and intercompany payments for royalties and goods and services among the company’s non-U.S. subsidiaries and with the company. In anticipation of these foreign currency cash flows and in view of the volatility of the currency markets, the company selectively employs foreign exchange forward contracts to manage its currency risk. These forward contracts are accounted for as cash flow hedges. At September 30, 2022, the maximum remaining length of time over which the company hedged its exposure is approximately two years. At September 30 2022 and December 31, 2021, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was

Notes to Consolidated Financial Statements — (continued)

$8.2 billion and $7.2 billion, respectively. At both September 30, 2022 and December 31, 2021, the weighted-average remaining maturity of these instruments was approximately 0.6 years.

At September 30, 2022 and December 31, 2021, in connection with cash flow hedges of anticipated royalties and cost transactions, the company recorded net gains (before taxes) of $693 million and $315 million, respectively, in AOCI. The company estimates that $631 million of deferred net gains (before taxes) on derivatives in AOCI at September 30, 2022 will be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

Foreign Currency Denominated Borrowings

The company is exposed to exchange rate volatility on foreign currency denominated debt. To manage this risk, the company employs cross-currency swaps to convert fixed-rate foreign currency denominated debt to fixed-rate debt denominated in the functional currency of the borrowing entity. These swaps are accounted for as cash flow hedges. At September 30, 2022, the maximum length of time remaining over which the company hedged its exposure is approximately five years. At September 30, 2022 and December 31, 2021, the total notional amount of cross-currency swaps designated as cash flow hedges of foreign currency denominated debt was $3.0 billion and $2.0 billion, respectively.

At September 30, 2022 and December 31, 2021, in connection with cash flow hedges of foreign currency denominated borrowings, the company recorded net losses (before taxes) of $112 million and $174 million, respectively, in AOCI. The company estimates that $17 million of deferred net gains (before taxes) on derivatives in AOCI at September 30, 2022 will be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying exposure.

Subsidiary Cash and Foreign Currency Asset/Liability Management

The company uses its Global Treasury Centers to manage the cash of its subsidiaries. These centers principally use currency swaps to convert cash flows in a cost-effective manner. In addition, the company uses foreign exchange forward contracts to economically hedge, on a net basis, the foreign currency exposure of a portion of the company’s nonfunctional currency assets and liabilities. The terms of these forward and swap contracts are generally less than one year. The changes in the fair values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated Income Statement. At September 30, 2022 and December 31, 2021, the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $4.3 billion and $6.8 billion, respectively.

Equity Risk Management

The company is exposed to market price changes in certain broad market indices and in the company’s own stock primarily related to certain obligations to employees. Changes in the overall value of these employee compensation obligations are recorded in SG&A expense in the Consolidated Income Statement. Although not designated as accounting hedges, the company utilizes derivatives, including equity swaps and futures, to economically hedge the exposures related to its employee compensation obligations. The derivatives are linked to the total return on certain broad market indices or the total return on the company’s common stock, and are recorded at fair value with gains or losses also reported in SG&A expense in the Consolidated Income Statement. At September 30, 2022 and December 31, 2021, the total notional amount of derivative instruments in economic hedges of these compensation obligations was $1.2 billion and $1.4 billion, respectively.

Notes to Consolidated Financial Statements — (continued)

Cumulative Basis Adjustments for Fair Value Hedges

At September 30, 2022 and December 31, 2021, the following amounts were recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:


	September 30,		December 31,
(Dollars in millions)	2022		2021
Short-term debt:
Carrying amount of the hedged item	$	(425)	$	(227)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	0	$	(2)
Long-term debt:
Carrying amount of the hedged item	$	(5,631)	$	(508)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	84	$	(309)

Includes ($263) million and ($302) million of hedging adjustments on discontinued hedging relationships at September 30, 2022 and December 31, 2021, respectively.

The Effect of Derivative Instruments in the Consolidated Income Statement

The total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value hedges, cash flow hedges, net investment hedges and derivatives not designated as hedging instruments are recorded and the total effect of hedge activity on these income and expense line items are as follows:


						Gains/(Losses) of
(Dollars in millions)	Total					Total Hedge Activity
For the three months ended September 30:	2022		2021			2022		2021
Cost of services	$	5,168	$	4,650		$	4	$	12
Cost of sales	$	1,389	$	1,363	*	$	35	$	1
Cost of financing	$	120	$	132	*	$	1	$	(1)
SG&A expense	$	4,391	$	4,306		$	(69)	$	(14)
Other (income) and expense	$	5,755	$	244		$	(189)	$	(7)
Interest expense	$	295	$	290		$	4	$	(2)

Reclassified to conform to current year presentation.

Notes to Consolidated Financial Statements — (continued)


	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 September 30:	Line Item	2022		2021		2022		2021
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	(64)	$	0	$	68	$	4
	Interest expense		(191)		0		203		11
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		(186)		15		N/A		N/A
Equity contracts	SG&A expense		(76)		(13)		N/A		N/A
	Other (income) and expense		3		—		N/A		N/A
Total		$	(514)	$	3	$	271	$	15


	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 September 30:	2022		2021		Line Item	2022		2021		2022		2021
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(1)	$	(1)	$	—	$	—
					Interest expense		(3)		(3)		—		—
Foreign exchange contracts		189		109	Cost of services		4		12		—		—
					Cost of sales		35		1		—		—
					Cost of financing		(6)		(5)		—		—
					SG&A expense		8		(1)		—		—
					Other (income) and expense		(6)		(22)		—		—
					Interest expense		(18)		(13)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		1,198		477	Cost of financing		—		—		5		1
					Interest expense		—		—		14		3
Total	$	1,387	$	587		$	12	$	(32)	$	19	$	5

(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


						Gains/(Losses) of
(Dollars in millions)	Total					Total Hedge Activity
For the nine months ended September 30:	2022		2021			2022		2021
Cost of services	$	15,915	$	14,014		$	32	$	33
Cost of sales	$	4,555	$	4,241	*	$	71	$	(30)
Cost of financing	$	314	$	416	*	$	0	$	1
SG&A expense	$	13,843	$	13,842		$	(291)	$	88
Other (income) and expense	$	5,921	$	891		$	(730)	$	(246)
Interest expense	$	903	$	852		$	1	$	3

Reclassified to conform to current year presentation.

Notes to Consolidated Financial Statements — (continued)


	Gain (Loss) Recognized in Consolidated Income Statement
	Consolidated	Recognized on				Attributable to Risk
(Dollars in millions)	Income Statement	Derivatives				Being Hedged (2)
For the nine months ended September 30:	Line Item	2022		2021		2022		2021
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	(76)	$	0	$	89	$	15
	Interest expense		(261)		(1)		305		40
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		(595)		(59)		N/A		N/A
Equity contracts	SG&A expense		(319)		120		N/A		N/A
	Other (income) and expense		(85)		—		N/A		N/A
Total		$	(1,336)	$	59	$	395	$	55


	Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
(Dollars in millions)					Consolidated	Reclassified				Amounts Excluded from
For the nine months	Recognized in OCI				Income Statement	from AOCI				Effectiveness Testing (3)
ended September 30:	2022		2021		Line Item	2022		2021		2022		2021
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(3)	$	(4)	$	—	$	—
					Interest expense		(10)		(10)		—		—
Foreign exchange contracts		449		262	Cost of services		32		33		—		—
					Cost of sales		71		(30)		—		—
					Cost of financing		(16)		(14)		—		—
					SG&A expense		28		(32)		—		—
					Other (income) and expense		(51)		(187)		—		—
					Interest expense		(54)		(38)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		3,118		1,207	Cost of financing		—		—		6		4
					Interest expense		—		—		22		11
Total	$	3,567	$	1,470		$	(4)	$	(282)	$	28	$	15

(1)	The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts.

(2)	The amount includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period.

(3)	The company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period.

(4)	Instruments in net investment hedges include derivative and non-derivative instruments with the amounts recognized in OCI providing an offset to the translation of foreign subsidiaries.

N/A - not applicable

For the three and nine months ended September 30, 2022 and 2021, there were no material gains or losses excluded from the assessment of hedge effectiveness (for fair value or cash flow hedges), or associated with an underlying exposure that did not or was not expected to occur (for cash flow hedges); nor are there any anticipated in the normal course of business.

Notes to Consolidated Financial Statements — (continued)

17. Stock-Based Compensation:

Stock-based compensation cost for stock awards and stock options is measured at grant date, based on the fair value of the award, and is recognized over the employee requisite service period. The following table presents total stock-based compensation cost included in income from continuing operations.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2022		2021		2022		2021
Cost	$	40	$	38	$	124	$	106
Selling, general and administrative		138		144		427		399
Research, development and engineering		73		60		188		160
Pre-tax stock-based compensation cost	$	251	$	242	$	739	$	665
Income tax benefits		(51)		(54)		(191)		(166)
Total net stock-based compensation cost	$	200	$	188	$	548	$	499

Effective April 1, 2022, the company increased the discount for eligible participants under its Employees Stock Purchase Plan (ESPP) from 5 percent to 15 percent off the average market price on the date of purchase. With this change, the ESPP is considered compensatory under the accounting requirements for stock-based compensation.

Pre-tax stock-based compensation cost for the three months ended September 30, 2022 increased $10 million compared to the corresponding period in the prior year, including increases in ESPP ($15 million) as a result of the change described above and performance share units ($5 million), partially offset by decreases in stock options ($10 million) primarily due to the conversion of stock options of acquired entities in the prior year.

Pre-tax stock-based compensation cost for the nine months ended September 30, 2022 increased $74 million compared to the corresponding period in the prior year, including increases in restricted stock units ($32 million), ESPP ($30 million) and performance share units ($16 million). The increases are driven by the change in ESPP described above and a change in the timing of the company’s executive grant cycle in 2022.

Total unrecognized compensation cost related to non-vested awards at September 30, 2022 was $1.6 billion and is expected to be recognized over a weighted-average period of approximately 2.7 years.

Capitalized stock-based compensation cost was not material at September 30, 2022 and 2021.

18. Retirement-Related Benefits:

Pre-Tax Cost of Retirement-Related Plans

The company offers defined benefit (DB) pension plans, defined contribution pension plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits. The following tables provide the pre-tax cost for all retirement-related plans.

Notes to Consolidated Financial Statements — (continued)


						Yr. to Yr.
(Dollars in millions)						Percent
For the three months ended September 30:	2022			2021		Change
Retirement-related plans — cost:
Defined benefit and contribution pension plans — cost	$	6,319	*	$	598	nm
Nonpension postretirement plans — cost		31			44	(30.2)	%
Total	$	6,350		$	642	nm

*	Includes the impact of a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion related to the Qualified PPP, as described below.

nm - not meaningful


						Yr. to Yr.
(Dollars in millions)						Percent
For the nine months ended September 30:	2022			2021		Change
Retirement-related plans — cost:
Defined benefit and contribution pension plans — cost	$	7,252	*	$	1,816	nm
Nonpension postretirement plans — cost		97			133	(26.7)	%
Total	$	7,350		$	1,949	nm

*	Includes the impact of a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion related to the Qualified PPP, as described below.

nm – not meaningful

Cost/(Income) of Pension Plans

The following tables provide the components of the cost/(income) for the company’s pension plans.


(Dollars in millions)	U.S. Plans					Non-U.S. Plans
For the three months ended September 30:	2022			2021		2022		2021
Service cost	$	—		$	—	$	57	$	67
Interest cost*		282			277		124		106
Expected return on plan assets*		(432)			(451)		(246)		(274)
Amortization of prior service costs/(credits)*		2			4		3		(2)
Recognized actuarial losses*		132			249		247		347
Curtailments and settlements*		5,894	**		—		19		13
Multi-employer plans		—			—		4		2
Other costs/(credits)*		—			—		8		7
Total net periodic pension (income)/cost of defined benefit plans	$	5,877		$	80	$	216	$	266
Cost of defined contribution plans		134			152		91		100
Total defined benefit and contribution pension plans cost recognized in the Consolidated Income Statement	$	6,012		$	232	$	307	$	366

*	These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.

**	Reflects the impact of a one-time, non-cash, pre-tax pension settlement charge related to the Qualified PPP, as described below.

Notes to Consolidated Financial Statements — (continued)


(Dollars in millions)	U.S. Plans					Non-U.S. Plans
For the nine months ended September 30:	2022			2021		2022		2021
Service cost	$	—		$	—	$	180	$	201
Interest cost*		885			832		394		322
Expected return on plan assets*		(1,382)			(1,352)		(778)		(833)
Amortization of prior service costs/(credits)*		6			12		10		(9)
Recognized actuarial losses*		490			747		784		1,055
Curtailments and settlements*		5,894	**		—		38		46
Multi-employer plans		—			—		11		13
Other costs/(credits)*		—			—		24		21
Total net periodic pension (income)/cost of defined benefit plans	$	5,893		$	239	$	663	$	817
Cost of defined contribution plans		416			455		280		306
Total defined benefit and contribution pension plans cost recognized in the Consolidated Income Statement	$	6,309		$	694	$	943	$	1,122

*	These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.

**	Reflects the impact of a one-time, non-cash, pre-tax pension settlement charge related to the Qualified PPP, as described below.

Cost of Nonpension Postretirement Plans

The following tables provide the components of the cost for the company’s nonpension postretirement plans.


(Dollars in millions)	U.S. Plan				Non-U.S. Plans
For the three months ended September 30:	2022		2021		2022		2021
Service cost	$	1	$	2	$	1	$	1
Interest cost*		21		16		8		8
Expected return on plan assets*		—		—		0		(1)
Amortization of prior service costs/(credits)*		(2)		1		0		0
Recognized actuarial losses*		1		13		1		4
Curtailments and settlements*		—		—		—		—
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement	$	21	$	32	$	10	$	12

These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.


(Dollars in millions)	U.S. Plan				Non-U.S. Plans
For the nine months ended September 30:	2022		2021		2022		2021
Service cost	$	4	$	5	$	2	$	3
Interest cost*		58		49		26		25
Expected return on plan assets*		—		—		(2)		(2)
Amortization of prior service costs/(credits)*		(1)		3		0		0
Recognized actuarial losses*		6		39		3		11
Curtailments and settlements*		—		—		—		0
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement	$	67	$	96	$	30	$	37

These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.

Notes to Consolidated Financial Statements — (continued)

IBM U.S. Pension and Nonpension Postretirement Plan Changes

Over the past several years, the company has taken actions to reduce the risk profile of its worldwide retirement-related plans, while at the same time increasing the funded status of the plans. As described in note 1, “Basis of Presentation,” in September 2022, the Qualified PPP irrevocably transferred to the Insurers approximately $16 billion of the Qualified PPP’s defined benefit pension obligations and related plan assets, thereby reducing the company’s pension obligations and assets by the same amount. This transaction further de-risks the company’s retirement-related plans by eliminating the potential for the company to make future cash contributions to fund this portion of pension obligations being transferred to the Insurers. After the transaction, the Qualified PPP remained in an overfunded position as of September 30, 2022.

Upon issuance of the group annuity contracts, the Qualified PPP’s benefit obligations and administration for approximately 100,000 of the company’s retirees and beneficiaries (the Transferred Participants) were transferred to the Insurers. Under the group annuity contracts, each Insurer has made an irrevocable commitment, and will be solely responsible, to pay 50 percent of the pension benefits of each Transferred Participant that are due on and after January 1, 2023. The transaction resulted in no changes to the benefits to be received by the Transferred Participants. The company recognized a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022 primarily related to the accelerated recognition of actuarial losses included within AOCI in the Consolidated Statement of Equity. As a result of this transaction, the company was required to remeasure the benefit obligations and plan assets of the Qualified PPP. The remeasurement reflects the use of an updated discount rate and actual return on plan assets as of August 31, 2022, applying the practical expedient to remeasure plan assets and obligations as of the nearest calendar month-end date.

In September 2022, the company amended its U.S. Nonpension Postretirement Plan to transition coverage for Medicare-eligible participants to a new IBM-sponsored group Medicare Advantage program administered by UnitedHealthcare, starting January 1, 2023. The changes are intended to provide an enhanced member experience, better value and more comprehensive benefits to IBM participants. As a result of this amendment, the company was required to remeasure the benefit obligation of this plan. The amendment and remeasurement resulted in a decrease in nonpension postretirement benefit obligations and a corresponding decrease in accumulated other comprehensive loss, which is reflected in the changes in benefit obligations from actuarial losses/(gains) in the table below. The remeasurement reflects the use of an updated discount rate and actual return on plan assets as of July 31, 2022, applying the practical expedient to remeasure plan assets and obligations as of the nearest calendar month-end date.

The following table presents the changes in benefit obligations and plan assets of the company’s retirement related benefit plans affected by the interim remeasurements described above for the nine months ended September 30, 2022.

Notes to Consolidated Financial Statements — (continued)


				Nonpension
	Qualified PPP			Postretirement Plan
(Dollars in millions)	U.S. Plan			U.S. Plan
Change in benefit obligation:
Benefit obligation at January 1, 2022	$	46,457		$	3,404
Service cost		—			4
Interest cost		853			58
Plan participants' contributions		—			33
Actuarial losses/(gains)*		(6,973)			(624)
Benefits paid from trust		(2,376)			(285)
Direct benefit payments		—			(2)
Amendments/curtailments/settlements/other		(16,644)	**		—
Benefit obligation at September 30, 2022	$	21,316		$	2,588
Change in plan assets:
Fair value of plan assets at January 1, 2022	$	51,851		$	8
Actual return on plan assets		(5,746)			—
Employer contributions		—			272
Plan participants' contributions		—			33
Benefits paid from trust		(2,376)			(285)
Amendments/curtailments/settlements/other		(16,644)	**		—
Fair value of plan assets at September 30, 2022	$	27,085		$	28
Funded status at September 30, 2022	$	5,769		$	(2,560)
Accumulated benefit obligation+	$	21,316			N/A

*	Reflects an increase in the discount rate from 2.60 percent at December 31, 2021 to 4.70 percent at the remeasurement date for the Qualified PPP and from 2.30 percent at December 31, 2021 to 4.10 percent at the remeasurement date for the nonpension postretirement plan.

** Primarily represents the transfer of Qualified PPP pension obligations and related plan assets to the Insurers pursuant to group annuity contracts and lump sum payments to plan participants.

+	Represents the benefit obligation assuming no future participant compensation increases.

Plan Contributions

The table below includes contributions to the following plans:


(Dollars in millions)	Plan Contributions
For the nine months ended September 30:		2022	2021
U.S. and non-U.S. nonpension postretirement benefit plans	$	272	$	263
Non-U.S. DB and multi-employer plans*		85		43
Total plan contributions	$	357	$	306

Amounts reported net of refunds.

During the nine months ended September 30, 2022 and 2021, the company contributed $247 million and $307 million of U.S. Treasury Securities, respectively, to the non-U.S. DB plans and nonpension postretirement benefit plans. Additionally, during the nine months ended September 30, 2022 and 2021, the company contributed $366 million and $311 million in U.S. Treasury securities, respectively, to the Active Medical Trust. Contributions made with U.S. Treasury securities are considered a non-cash transaction.

The company does not anticipate any significant changes to the expected plan contributions in 2022 from the amounts disclosed in the 2021 Annual Report.

Notes to Consolidated Financial Statements — (continued)

19. Subsequent Events:

On October 25, 2022, the company announced that the Board of Directors approved a quarterly dividend of $1.65 per common share. The dividend is payable December 10, 2022 to shareholders of record on November 10, 2022.

Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS