Item 1. Consolidated Financial Statements:

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Item 1. Consolidated Financial Statements:

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions except per share amounts)	2023		2022		2023		2022
Revenue:
Services	$	7,553	$	7,640	$	15,077	$	15,343
Sales	7,739		7,748		14,271		14,087
Financing	183		147		380		303
Total revenue	15,475		15,535		29,727		29,732
Cost:
Services	5,294		5,399		10,604		10,747
Sales	1,587		1,750		2,910		3,165
Financing	93		96		203		194
Total cost	6,974		7,246		13,717		14,107
Gross profit	8,501		8,290		16,010		15,625
Expense and other (income):
Selling, general and administrative	4,900		4,855		9,754		9,452
Research, development and engineering	1,687		1,673		3,342		3,352
Intellectual property and custom development income	(248)		(176)		(428)		(297)
Other (income) and expense	(261)		(81)		(506)		166
Interest expense	423		297		790		607
Total expense and other (income)	6,501		6,568		12,952		13,280
Income from continuing operations before income taxes	2,000		1,722		3,058		2,345
Provision for income taxes	419		257		543		218
Income from continuing operations	$	1,581	$	1,465	$	2,515	$	2,127
Income/(loss) from discontinued operations, net of tax	2		(73)		(4)		(2)
Net income	$	1,583	$	1,392	$	2,511	$	2,125

Earnings/(loss) per share of common stock:
Assuming dilution:
Continuing operations	$	1.72	$	1.61	$	2.74	$	2.34
Discontinued operations	0.00		(0.08)		0.00		0.00
Total	$	1.72	$	1.53	$	2.73	$	2.34
Basic:
Continuing operations	$	1.74	$	1.62	$	2.77	$	2.36
Discontinued operations	0.00		(0.08)		0.00		0.00
Total	$	1.74	$	1.54	$	2.76	$	2.36

Weighted-average number of common shares outstanding: (millions)
Assuming dilution	919.5		910.7		918.6		910.0
Basic	909.9		901.5		908.7		900.4

(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 June 30,				Six Months Ended June 30,
(Dollars in millions)	2023		2022		2023		2022
Net income	$	1,583	$	1,392	$	2,511	$	2,125
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments	116		213		29		655
Net changes related to available-for-sale securities:
Unrealized gains/(losses) arising during the period	(17)		0		(1)		(1)
Reclassification of (gains)/losses to net income	—		—		—		—
Total net changes related to available-for-sale securities	(17)		0		(1)		(1)
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	178		200		149		260
Reclassification of (gains)/losses to net income	(30)		16		(152)		16
Total unrealized gains/(losses) on cash flow hedges	148		217		(3)		276
Retirement-related benefit plans:
Prior service costs/(credits)	—		—		—		(5)
Net (losses)/gains arising during the period	0		1		2		10
Curtailments and settlements	6		11		5		19
Amortization of prior service (credits)/costs	(2)		6		(4)		13
Amortization of net (gains)/losses	130		450		261		917
Total retirement-related benefit plans	134		468		263		954
Other comprehensive income/(loss), before tax	381		897		289		1,885
Income tax (expense)/benefit related to items of other comprehensive income	(101)		(534)		(48)		(819)
Other comprehensive income/(loss), net of tax	280		363		241		1,066
Total comprehensive income	$	1,863	$	1,755	$	2,751	$	3,191

(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


(Dollars in millions)	At June 30, 2023		At December 31, 2022
Assets:
Current assets:
Cash and cash equivalents	$	9,394	$	7,886
Restricted cash	31		103
Marketable securities	6,904		852
Notes and accounts receivable — trade (net of allowances of $217 in 2023 and $233 in 2022)	5,673		6,541
Short-term financing receivables:
Held for investment (net of allowances of $143 in 2023 and $145 in 2022)	5,564		6,851
Held for sale	865		939
Other accounts receivable (net of allowances of $108 in 2023 and $89 in 2022)	838		817
Inventory, at lower of average cost or net realizable value:
Finished goods	174		158
Work in process and raw materials	1,327		1,394
Total inventory	1,501		1,552
Deferred costs	957		967
Prepaid expenses and other current assets	2,730		2,611
Total current assets	34,458		29,118
Property, plant and equipment	18,588		18,695
Less: Accumulated depreciation	13,145		13,361
Property, plant and equipment — net	5,443		5,334
Operating right-of-use assets — net	2,653		2,878
Long-term financing receivables (net of allowances of $28 in 2023 and $28 in 2022)	5,221		5,806
Prepaid pension assets	8,735		8,236
Deferred costs	897		866
Deferred taxes	6,340		6,256
Goodwill	56,385		55,949
Intangible assets — net	10,496		11,184
Investments and sundry assets	1,585		1,617
Total assets	$	132,213	$	127,243

(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


(Dollars in millions except per share amounts)	At June 30, 2023		At December 31, 2022
Liabilities:
Current liabilities:
Taxes	$	1,606	$	2,196
Short-term debt	6,785		4,760
Accounts payable	3,732		4,051
Compensation and benefits	3,185		3,481
Deferred income	12,712		12,032
Operating lease liabilities	842		874
Other accrued expenses and liabilities	3,651		4,111
Total current liabilities	32,513		31,505
Long-term debt	50,691		46,189
Retirement and nonpension postretirement benefit obligations	9,385		9,596
Deferred income	3,264		3,499
Operating lease liabilities	1,986		2,190
Other liabilities	12,103		12,243
Total liabilities	109,942		105,222
Equity:
IBM stockholders’ equity:
Common stock, par value $0.20 per share, and additional paid-in capital	58,963		58,343
Shares authorized: 4,687,500,000
Shares issued: 2023 - 2,262,697,191
2022 - 2,257,116,920
Retained earnings	149,318		149,825
Treasury stock - at cost	(169,581)		(169,484)
Shares: 2023 - 1,351,690,951
2022 - 1,351,024,943
Accumulated other comprehensive income/(loss)	(16,499)		(16,740)
Total IBM stockholders’ equity	22,201		21,944
Noncontrolling interests	70		77
Total equity	22,271		22,021
Total liabilities and equity	$	132,213	$	127,243

(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)


	Six Months Ended June 30,
(Dollars in millions)	2023		2022*
Cash flows from operating activities:
Net income	$	2,511	$	2,125
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation	1,047		1,251
Amortization of intangibles	1,104		1,251
Stock-based compensation	556		488
Net (gain)/loss on asset sales and other	(113)		(100)
Changes in operating assets and liabilities, net of acquisitions/divestitures	1,308		(446)
Net cash provided by operating activities	6,412		4,569

Cash flows from investing activities:
Payments for property, plant and equipment	(664)		(620)
Proceeds from disposition of property, plant and equipment	25		90
Investment in software	(305)		(341)
Acquisition of businesses, net of cash acquired	(356)		(958)
Divestitures of businesses, net of cash transferred	6		1,268
Purchases of marketable securities and other investments	(9,260)		(2,336)
Proceeds from disposition of marketable securities and other investments	2,600		1,711
Net cash provided by/(used in) investing activities	(7,953)		(1,186)

Cash flows from financing activities:
Proceeds from new debt	9,432		4,402
Payments to settle debt	(3,260)		(3,959)
Short-term borrowings/(repayments) less than 90 days — net	(3)		(9)
Common stock repurchases for tax withholdings	(240)		(315)
Financing — other	56		25
Cash dividends paid	(3,007)		(2,963)
Net cash provided by/(used in) financing activities	2,978		(2,819)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		(267)
Net change in cash, cash equivalents and restricted cash	1,436		297

Cash, cash equivalents and restricted cash at January 1	7,988		6,957
Cash, cash equivalents and restricted cash at June 30	$	9,425	$	7,254

Includes immaterial cash flows from 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)


(Dollars in millions except per share amounts)	Common Stock and Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income/(Loss)		Total IBM Stockholders' Equity		Non- Controlling Interests		Total Equity
Equity - April 1, 2023	$	58,675	$	149,253	$	(169,544)	$	(16,780)	$	21,604	$	68	$	21,672
Net income plus other comprehensive income/(loss):
Net income			1,583						1,583				1,583
Other comprehensive income/(loss)							280		280				280
Total comprehensive income/(loss)									$	1,863			$	1,863
Cash dividends paid — common stock ($1.66 per share)			(1,510)						(1,510)				(1,510)
Common stock issued under employee plans (3,199,344 shares)	288								288				288
Purchases (1,098,988 shares) and sales (860,470 shares) of treasury stock under employee plans — net			(8)		(37)				(45)				(45)
Changes in noncontrolling interests											2		2
Equity – June 30, 2023	$	58,963	$	149,318	$	(169,581)	$	(16,499)	$	22,201	$	70	$	22,271


(Dollars in millions except per share amounts)	Common Stock and Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income/(Loss)		Total IBM Stockholders' Equity		Non- Controlling Interests		Total Equity
Equity - April 1, 2022	$	57,603	$	153,401	$	(169,422)	$	(22,532)	$	19,050	$	62	$	19,112
Net income plus other comprehensive income/(loss):
Net income			1,392						1,392				1,392
Other comprehensive income/(loss)							363		363				363
Total comprehensive income/(loss)									$	1,755			$	1,755
Cash dividends paid — common stock ($1.65 per share)			(1,488)						(1,488)				(1,488)
Common stock issued under employee plans (4,398,589 shares)	199								199				199
Purchases (1,723,774 shares) and sales (1,070,214 shares) of treasury stock under employee plans — net			(7)		(100)				(107)				(107)
Changes in noncontrolling interests											6		6
Equity - June 30, 2022	$	57,802	$	153,298	$	(169,522)	$	(22,169)	$	19,409	$	67	$	19,476

(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)


(Dollars in millions except per share amounts)	Common Stock and Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income/(Loss)		Total IBM Stockholders' Equity		Non- Controlling Interests		Total Equity
Equity - January 1, 2023	$	58,343	$	149,825	$	(169,484)	$	(16,740)	$	21,944	$	77	$	22,021
Net income plus other comprehensive income/(loss):
Net income			2,511						2,511				2,511
Other comprehensive income/(loss)							241		241				241
Total comprehensive income/(loss)									$	2,751			$	2,751
Cash dividends paid — common stock ($3.31 per share)			(3,007)						(3,007)				(3,007)
Common stock issued under employee plans (5,580,271 shares)	619								619				619
Purchases (1,810,313 shares) and sales (1,144,305 shares) of treasury stock under employee plans — net			(10)		(97)				(107)				(107)

Changes in noncontrolling interests											(7)		(7)
Equity - June 30, 2023	$	58,963	$	149,318	$	(169,581)	$	(16,499)	$	22,201	$	70	$	22,271


(Dollars in millions except per share amounts)	Common Stock and Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income/(Loss)		Total IBM Stockholders' Equity		Non- Controlling Interests		Total Equity
Equity - January 1, 2022	$	57,319	$	154,209	$	(169,392)	$	(23,234)	$	18,901	$	95	$	18,996
Net income plus other comprehensive income/(loss):
Net income			2,125						2,125				2,125
Other comprehensive income/(loss)							1,066		1,066				1,066
Total comprehensive income/(loss)									$	3,191			$	3,191
Cash dividends paid — common stock ($3.29 per share)			(2,963)						(2,963)				(2,963)
Common stock issued under employee plans (5,960,724 shares)	420								420				420
Purchases (2,319,484 shares) and sales (1,470,514 shares) of treasury stock under employee plans — net			(11)		(130)				(141)				(141)
Other equity	63		(63)						0				0
Changes in noncontrolling interests											(27)		(27)
Equity - June 30, 2022	$	57,802	$	153,298	$	(169,522)	$	(22,169)	$	19,409	$	67	$	19,476

(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 of Presentation:

The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). 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.

In the fourth quarter of 2022, the company completed its annual assessment of the useful lives of its property, plant and equipment. Due to advances in technology, the company determined it should increase the estimated useful lives of its server and network equipment from five to six years for new assets and from three to four years for used assets. This change in accounting estimate was effective beginning January 1, 2023. Based on the carrying amount of server and network equipment included in property, plant and equipment-net in the company's Consolidated Balance Sheet as of December 31, 2022, the effect of this change in estimate was an increase in income from continuing operations before income taxes of $57 million, or $0.05 per basic and diluted share for the three months ended June 30, 2023, and $131 million, or $0.12 and $0.11 per basic and diluted share, respectively, for the six months ended June 30, 2023.

For the three and six months ended June 30, 2023, the company reported a provision for income taxes of $419 million and $543 million, respectively, and its effective tax rate was 21.0 percent and 17.8 percent, respectively. For the three and six months ended June 30, 2022, the company reported a provision for income taxes of $257 million and $218 million, respectively, and its effective tax rate was 14.9 percent and 9.3 percent, respectively. The rates are driven by many factors including the impacts of foreign tax credit regulations, geographical mix of income, incentives and changes in unrecognized tax benefits.

Noncontrolling interest amounts of $3.9 million and $5.5 million, net of tax, for the three months ended June 30, 2023 and 2022, respectively, and $8.4 million and $10.5 million, net of tax, for the six months ended June 30, 2023 and 2022, respectively, are included as a reduction within other (income) and expense in the Consolidated Income Statement.

The company has supplier finance programs with third-party financial institutions where the company agrees to pay the financial institutions the stated amounts of invoices from participating suppliers on the originally invoiced maturity date, which have an average term of 90 days. The financial institutions offer earlier payment of the invoices at the sole discretion of the supplier for a discounted amount. The company does not provide secured legal assets or other forms of guarantees under the arrangements. The company is not a party to the arrangements between its suppliers and the financial institutions. These obligations are recognized as accounts payable in the Consolidated Balance Sheet. The obligations outstanding under these programs at June 30, 2023 and December 31, 2022 were $115 million and $60 million, respectively.

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 2022 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.

Notes to Consolidated Financial Statements — (continued)

2. Accounting Changes:

Standards Implemented

Disclosures of Supplier Finance Program Obligations

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

*Effective Date and Adoption Considerations–*The guidance was effective January 1, 2023 with certain annual disclosures required beginning in 2024 and early adoption was permitted. The company adopted the guidance as of the effective date.

*Effect on Financial Statements or Other Significant Matters–*The guidance did not have a material impact in the consolidated financial results. Refer to Note 1, "Basis of Presentation," for additional information.

Troubled Debt Restructurings and Vintage Disclosures

Standard/Description–Issuance date: March 2022. This eliminates the accounting guidance for troubled debt restructurings and requires an entity to apply the general loan modification guidance to all loan modifications, including those made to customers experiencing financial difficulty, to determine whether the modification results in a new loan or a continuation of an existing loan. The guidance also requires presenting current-period gross write-offs by year of origination for financing receivables and net investment in leases.

Effective Date and Adoption Considerations–The amendment was effective January 1, 2023 and early adoption was permitted. The company adopted the guidance 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. Refer to note 9, "Financing Receivables," for additional information.

3. Revenue Recognition:

Disaggregation of Revenue

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

Revenue by Major Products/Service Offerings


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2023		2022		2023		2022
Hybrid Platform & Solutions	$	4,665	$	4,390	$	8,844	$	8,470
Transaction Processing	1,943		1,776		3,685		3,468
Total Software	$	6,608	$	6,166	$	12,529	$	11,938
Business Transformation	2,295		2,227		4,578		4,482
Application Operations	1,758		1,653		3,494		3,272
Technology Consulting	961		928		1,904		1,884
Total Consulting	$	5,013	$	4,809	$	9,975	$	9,637
Hybrid Infrastructure	2,260		2,760		3,969		4,461
Infrastructure Support	1,358		1,474		2,747		2,993
Total Infrastructure	$	3,618	$	4,235	$	6,716	$	7,453
Financing*	185		146		380		300
Other	51		180		126		404
Total revenue	$	15,475	$	15,535	$	29,727	$	29,732

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

Notes to Consolidated Financial Statements — (continued)

Revenue by Geography


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2023		2022		2023		2022
Americas	$	8,046	$	8,142	$	15,124	$	15,198
Europe/Middle East/Africa	4,602		4,526		8,933		8,757
Asia Pacific	2,827		2,868		5,670		5,778
Total	$	15,475	$	15,535	$	29,727	$	29,732

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 June 30, 2023, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $58 billion. Approximately 72 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 26 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 six months ended June 30, 2023, revenue was reduced by $14 million and $29 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.


(Dollars in millions)	At June 30, 2023		At December 31, 2022
Notes and accounts receivable — trade (net of allowances of $217 in 2023 and $233 in 2022)	$	5,673	$	6,541
Contract assets*	$	447	$	464
Deferred income (current)	$	12,712	$	12,032
Deferred income (noncurrent)	$	3,264	$	3,499

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

Notes to Consolidated Financial Statements — (continued)

The amount of revenue recognized during the three and six months ended June 30, 2023 that was included within the deferred income balance at March 31, 2023 and December 31, 2022 was $4.4 billion and $6.8 billion, respectively, and was primarily related to services and software.

The following table provides roll forwards of the notes and accounts receivable–trade allowance for expected credit losses for the six months ended June 30, 2023 and the year ended December 31, 2022.


(Dollars in millions)
January 1, 2023		Additions / (Releases)		Write-offs		Foreign currency and other		June 30, 2023
$	233	$	31	$	(47)	$	1	$	217


January 1, 2022						Additions / (Releases)						Write-offs						Foreign currency and other						December 31, 2022
$	218					$	59					$	(31)					$	(14)					$	233

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

4. Segments:

The following tables reflect the results of continuing operations of the company’s segments consistent with the management and measurement system utilized within the company. Performance measurement is based on pre-tax income from continuing operations. These results are used by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments.

Notes to Consolidated Financial Statements — (continued)

SEGMENT INFORMATION


(Dollars in millions)	Software			Consulting			Infrastructure			Financing			Total Segments
For the three months ended June 30, 2023:
Revenue	$	6,608		$	5,013		$	3,618		$	185		$	15,424
Pre-tax income from continuing operations	$	1,504		$	446		$	633		$	64		$	2,647
Revenue year-to-year change	7.2		%	4.3		%	(14.6)		%	26.2		%	0.4		%
Pre-tax income year-to-year change	9.4		%	30.1		%	(16.4)		%	(36.8)		%	2.7		%
Pre-tax income margin	22.8		%	8.9		%	17.5		%	34.9		%	17.2		%

For the three months ended June 30, 2022:
Revenue	$	6,166		$	4,809		$	4,235		$	146		$	15,355
Pre-tax income from continuing operations	$	1,375		$	343		$	757		$	102		$	2,577
Pre-tax income margin	22.3		%	7.1		%	17.9		%	69.7		%	16.8		%

Reconciliations to IBM as Reported:


(Dollars in millions)
For the three months ended June 30:	2023		2022
Revenue:
Total reportable segments	$	15,424	$	15,355
Other‒divested businesses	(1)		162
Other revenue	52		18
Total revenue from continuing operations	$	15,475	$	15,535

Pre-tax income from continuing operations:
Total reportable segments	$	2,647	$	2,577
Amortization of acquired intangible assets	(389)		(458)
Acquisition-related (charges)/income	(7)		(2)
Non-operating retirement-related (costs)/income	(1)		(192)
Kyndryl-related impacts	—		(145)		*
Workforce rebalancing charges**	(117)		—
Other‒divested businesses	(1)		160
Unallocated corporate amounts and other	(133)		(219)		+
Total pre-tax income/(loss) from continuing operations	$	2,000	$	1,722

*Unrealized loss on Kyndryl retained shares and related swap. Refer to note 5, "Acquisitions & Divestitures," and note 16, "Derivative Financial Instruments," for additional information.

** Beginning in the first quarter of 2023, the company updated its measure of segment pre-tax income, consistent with its management system, to no longer allocate workforce rebalancing charges to its segments. Workforce rebalancing charges in the second quarter of 2022 of $3 million were included in the segments.

+Recast to conform to 2023 presentation.

Notes to Consolidated Financial Statements — (continued)

SEGMENT INFORMATION


(Dollars in millions)	Software			Consulting			Infrastructure			Financing			Total Segments
For the six months ended June 30, 2023:
Revenue	$	12,529		$	9,975		$	6,716		$	380		$	29,601
Pre-tax income from continuing operations	$	2,668		$	828		$	849		$	165		$	4,510
Revenue year-to-year change	5.0		%	3.5		%	(9.9)		%	26.8		%	0.9		%
Pre-tax income year-to-year change	6.3		%	19.8		%	(11.2)		%	(11.3)		%	3.8		%
Pre-tax income margin	21.3		%	8.3		%	12.6		%	43.3		%	15.2		%

For the six months ended June 30, 2022:
Revenue	$	11,938		$	9,637		$	7,453		$	300		$	29,328
Pre-tax income from continuing operations	$	2,509		$	691		$	956		$	186		$	4,342
Pre-tax income margin	21.0		%	7.2		%	12.8		%	62.0		%	14.8		%

Reconciliations to IBM as Reported:


(Dollars in millions)
For the six months ended June 30:	2023		2022
Revenue:
Total reportable segments	$	29,601	$	29,328
Other‒divested businesses	(1)		316
Other revenue	127		88
Total consolidated revenue	$	29,727	$	29,732

Pre-tax income from continuing operations:
Total reportable segments	$	4,510	$	4,342
Amortization of acquired intangible assets	(781)		(919)
Acquisition-related charges	(10)		(9)
Non-operating retirement-related (costs)/income	4		(394)
Kyndryl-related impacts	—		(367)		*
Workforce rebalancing charges**	(376)		—
Other‒divested businesses	(5)		109
Unallocated corporate amounts	(284)		(418)		+
Total pre-tax income/(loss) from continuing operations	$	3,058	$	2,345

*Unrealized loss on Kyndryl retained shares and related swap. Refer to note 5, "Acquisitions & Divestitures," and note 16, "Derivative Financial Instruments," for additional information.

**Beginning in the first quarter of 2023, the company updated its measure of segment pre-tax income, consistent with its management system, to no longer allocate workforce rebalancing charges to its segments. Workforce rebalancing charges in the first six months of 2022 of $9 million were included in the segments.

+Recast to conform to 2023 presentation.

Notes to Consolidated Financial Statements — (continued)

5. Acquisitions & Divestitures:

Acquisitions

Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions, unless 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 six months ended June 30, 2023, the company completed six acquisitions at an aggregate cost of $423 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

StepZen, Inc.	Software	Developer of GraphQL to help build application programming interfaces (APIs)

Asset Strategy Library (ASL) Portfolio of Uptake Technologies	Software	Library of industrial asset management data

NS1	Software	Leading provider of network automation SaaS solutions
Second Quarter

Ahana Cloud, Inc.	Software	Expert in open-source-based solutions for data analytics

Polar Security	Software	Innovator in technology that helps companies discover, continuously monitor and secure cloud and SaaS application data

Agyla SAS	Consulting	Leading provider of cloud platform engineering services in France specializing in Cloud, DevOps and Security

At June 30, 2023, the remaining cash to be remitted by the company related to certain first-half 2023 acquisitions was $42 million, most of which is expected to be paid in the first half of 2024. The unremitted cash associated with these acquisitions is primarily a non-cash financing activity for purposes of the company's Consolidated Statement of Cash Flows as of June 30, 2023.

The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of June 30, 2023.


(Dollars in millions)	Amortization Life (in years)	Total Acquisitions
Current assets		$	46
Property, plant and equipment/noncurrent assets		7
Intangible assets:
Goodwill	N/A	301
Client relationships	7	37
Completed technology	5-7	66
Trademarks	2-5	2
Total assets acquired		$	458
Current liabilities		26
Noncurrent liabilities		10
Total liabilities assumed		$	36
Total purchase price		$	423

N/A – not applicable

Notes to Consolidated Financial Statements — (continued)

Goodwill of $266 million, $23 million and $12 million was assigned to the Software, Consulting and Infrastructure segments, respectively, and 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. It is expected that none of the goodwill will be deductible for tax purposes.

The overall weighted-average useful life of the identified amortizable intangible assets acquired was 6.8 years. The identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that the assets economic benefits are expected to be consumed over time.

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.

Transactions Announced – The company signed a definitive agreement in June 2023 to acquire Apptio Inc. (Apptio), a leader in financial and operational IT management and optimization software, for estimated cash consideration of $4.6 billion. The acquisition of Apptio will accelerate the advancement of IBM’s IT automation capabilities and enable enterprise leaders to deliver enhanced business value across technology investments. The transaction is expected to close in the second half of 2023, subject to customary closing conditions, including regulatory clearance. Upon closing, Apptio will be integrated into the Software segment.

Divestitures

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 common stock of Kyndryl Holdings, Inc. (Kyndryl) to IBM stockholders on a pro rata basis. The company retained 19.9 percent of the shares of Kyndryl common stock immediately following the separation. During 2022, the company fully disposed of its retained interest in Kyndryl common stock pursuant to exchange agreements with a third-party financial institution, which were completed within twelve months of separation. As of November 2, 2022, the company no longer held an ownership interest in Kyndryl.

Income/(loss) from discontinued operations, net of tax for the three and six months ended June 30, 2023 of $2 million and $(4) million, respectively, 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/(loss) from discontinued operations, net of tax for the three and six months ended June 30, 2022 of $(73) million and $(2) million, respectively, reflects the same drivers as above and also reflects a gain on sale of a joint venture historically managed by Kyndryl, which was sold to Kyndryl in the first quarter of 2022 upon receiving regulatory approval.

Other — The company completed two divestitures in the second quarter of 2023. The financial terms related to these transactions were not material.

Notes to Consolidated Financial Statements — (continued)

6. Other (Income) and Expense:

Components of other (income) and expense are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2023		2022		2023		2022
Other (income) and expense:
Foreign currency transaction losses/(gains)*	$	(166)	$	(494)	$	(78)	$	(670)
(Gains)/losses on derivative instruments**	141		439		(1)		541
Interest income	(201)		(28)		(371)		(46)
Net (gains)/losses from securities and investment assets+	3		54		8		273
Retirement-related costs/(income)	1		192		(4)		394
Other++	(39)		(243)		(61)		(327)
Total other (income) and expense	$	(261)	$	(81)	$	(506)	$	166

The company uses financial hedging instruments to limit specific currency risks related to foreign currency-based transactions. The hedging program does not hedge 100 percent of currency exposures and defers, versus eliminates, the impact of currency. Refer to note 16, "Derivative Financial Instruments," for additional information on foreign exchange risk.

**Prior year amounts include an unrealized loss on the cash-settled swap related to the Kyndryl retained shares of $88 million recognized in the second quarter of 2022. Refer to note 16, "Derivative Financial Instruments," for additional information.

+Prior year amounts include an unrealized loss on Kyndryl retained shares of $56 million and $278 million for the three and six months ended June 30, 2022, respectively. Refer to note 5, "Acquisitions & Divestitures," for additional information.

++Other primarily consists of (gains)/losses from divestitures and dispositions of land/buildings. Prior year amounts include a pre-tax gain of $232 million recognized in the second quarter of 2022 related to the divestiture of IBM's healthcare software assets.

Notes to Consolidated Financial Statements — (continued)

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

The following tables provide the computation of basic and diluted earnings per share of common stock for the three and six months ended June 30, 2023 and 2022.


(Dollars in millions except per share amounts)
For the three months ended June 30:	2023		2022
Number of shares on which basic earnings per share is calculated:
Weighted-average shares outstanding during period	909,855,943		901,470,793
Add — Incremental shares under stock-based compensation plans	7,584,035		7,518,749
Add — Incremental shares associated with contingently issuable shares	2,012,519		1,760,192
Number of shares on which diluted earnings per share is calculated	919,452,496		910,749,734

Income from continuing operations	$	1,581	$	1,465
Income/(loss) from discontinued operations, net of tax	2		(73)
Net income on which basic earnings per share is calculated	$	1,583	$	1,392

Income from continuing operations	$	1,581	$	1,465
Net income applicable to contingently issuable shares	—		—
Income from continuing operations on which diluted earnings per share is calculated	$	1,581	$	1,465
Income/(loss) from discontinued operations, net of tax, on which diluted earnings per share is calculated	2		(73)
Net income on which diluted earnings per share is calculated	$	1,583	$	1,392

Earnings/(loss) per share of common stock:
Assuming dilution
Continuing operations	$	1.72	$	1.61
Discontinued operations	0.00		(0.08)
Total	$	1.72	$	1.53
Basic
Continuing operations	$	1.74	$	1.62
Discontinued operations	0.00		(0.08)
Total	$	1.74	$	1.54

Stock options to purchase 5,541,485 shares and 788,500 shares were outstanding as of June 30, 2023 and 2022, respectively, but were not included in the computation of diluted earnings 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.

Notes to Consolidated Financial Statements — (continued)


(Dollars in millions except per share amounts)
For the six months ended June 30:	2023		2022
Number of shares on which basic earnings per share is calculated:
Weighted-average shares outstanding during period	908,691,415		900,393,410
Add — Incremental shares under stock-based compensation plans	8,096,637		7,946,998
Add — Incremental shares associated with contingently issuable shares	1,860,836		1,647,528
Number of shares on which diluted earnings per share is calculated	918,648,888		909,987,935

Income from continuing operations	$	2,515	$	2,127
Income/(loss) from discontinued operations, net of tax	(4)		(2)
Net income on which basic earnings per share is calculated	$	2,511	$	2,125

Income from continuing operations	$	2,515	$	2,127
Net income applicable to contingently issuable shares	—		—
Income from continuing operations on which diluted earnings per share is calculated	$	2,515	$	2,127
Income/(loss) from discontinued operations, net of tax, on which diluted earnings per share is calculated	(4)		(2)
Net income on which diluted earnings per share is calculated	$	2,511	$	2,125

Earnings/(loss) per share of common stock:
Assuming dilution
Continuing operations	$	2.74	$	2.34
Discontinued operations	0.00		0.00
Total	$	2.73	$	2.34
Basic
Continuing operations	$	2.77	$	2.36
Discontinued operations	0.00		0.00
Total	$	2.76	$	2.36

Stock options to purchase 3,251,207 shares and 975,911 shares (average of first and second quarter share amounts) were outstanding as of June 30, 2023 and 2022, respectively, but were not included in the computation of diluted earnings 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.

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;
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.

Notes to Consolidated Financial Statements — (continued)

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 protect principal by investing in very liquid investment securities with highly rated counterparties.

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 six months ended June 30, 2023.

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 six months ended June 30, 2023 and 2022, 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 June 30, 2023 and December 31, 2022.


	Fair Value Hierarchy Level		At June 30, 2023						At December 31, 2022
(Dollars in millions)		Assets (5)			Liabilities (6)			Assets (5)			Liabilities (6)
Cash equivalents: (1)
Time deposits and certificates of deposit (2)	2		$	4,383		N/A			$	3,712		N/A
Money market funds	1		399			N/A			306			N/A
Total cash equivalents			$	4,782		N/A			$	4,018		N/A

Debt securities-current (2)(3)	2		6,904			N/A			852			N/A
Debt securities-noncurrent (2)(4)	2,3		33			N/A			31			N/A
Derivatives designated as hedging instruments:
Interest rate contracts	2		0			400			3			336
Foreign exchange contracts	2		342			374			184			674
Derivatives not designated as hedging instruments:
Foreign exchange contracts	2		14			47			42			16
Equity contracts	2		21			4			49			8
Total			$	12,096		$	824		$	5,179		$	1,034

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

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

(3)U.S. treasury bills and term deposits that are reported within marketable securities in the Consolidated Balance Sheet. The June 30, 2023 balance includes proceeds from the first quarter 2023 debt issuances. See note 12, "Borrowings," for additional information.

(4)Includes immaterial activity related to private company investments reported within investments and sundry assets in the Consolidated Balance Sheet.

(5)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 June 30, 2023 were $369 million and $8 million, respectively, and at December 31, 2022 were $271 million and $7 million, respectively.

(6)The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Balance Sheet at June 30, 2023 were $274 million and $551 million, respectively, and at December 31, 2022 were $546 million and $488 million, respectively.

N/A – not applicable

Financial Assets and Liabilities Not Measured at Fair Value

Short-Term Receivables and Payables

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

Loans and Long-Term Receivables

Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At June 30, 2023 and December 31, 2022, the difference between the carrying amount and estimated fair value for loans and long-term receivables was immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.

Notes to Consolidated Financial Statements — (continued)

Long-Term Debt

Fair value of publicly traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt (including long-term finance lease liabilities) for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt was $50,691 million and $46,189 million, and the estimated fair value was $47,250 million and $42,514 million at June 30, 2023 and December 31, 2022, respectively. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy.

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 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 Installment Payment Receivables		Investment in Sales-Type and Direct Financing
			Commercial Financing Receivables
(Dollars in millions)			Held for		Held for
At June 30, 2023	(Loans)		Leases		Investment		Sale*		Total
Financing receivables, gross	$	7,262	$	3,853	$	251	$	865	$	12,230
Unearned income	(436)		(377)		—		—		(813)
Unguaranteed residual value	—		404		—		—		404
Amortized cost	$	6,826	$	3,880	$	251	$	865	$	11,821
Allowance for credit losses	(104)		(62)		(5)		—		(171)
Total financing receivables, net	$	6,722	$	3,818	$	245	$	865	$	11,650
Current portion	$	3,925	$	1,393	$	245	$	865	$	6,429
Noncurrent portion	$	2,796	$	2,425	$	—	$	—	$	5,221


	Client Financing Receivables
	Client Loan and Installment Payment Receivables		Investment in Sales-Type and Direct Financing
			Commercial Financing Receivables
(Dollars in millions)			Held for		Held for
At December 31, 2022	(Loans)		Leases		Investment		Sale*		Total
Financing receivables, gross	$	8,875	$	4,023	$	299	$	939	$	14,136
Unearned income	(439)		(351)		—		—		(790)
Unguaranteed residual value	—		422		—		—		422
Amortized cost	$	8,437	$	4,094	$	299	$	939	$	13,769
Allowance for credit losses	(108)		(60)		(5)		—		(173)
Total financing receivables, net	$	8,329	$	4,034	$	293	$	939	$	13,596
Current portion	$	5,073	$	1,485	$	293	$	939	$	7,790
Noncurrent portion	$	3,256	$	2,549	$	—	$	—	$	5,806

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

Notes to Consolidated Financial Statements — (continued)

The company has a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties. These actions may include credit insurance, financial guarantees, nonrecourse secured borrowings, transfers of receivables recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease. Sale of receivables arrangements are also utilized in the normal course of business as part of the company’s cash and liquidity management.

Financing receivables pledged as collateral for secured borrowings were $251 million and $349 million at June 30, 2023 and December 31, 2022, 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. In addition, the company enters into agreements with third-party financial institutions to sell certain of its client financing receivables, including both loan and lease receivables, for cash proceeds. There were no material client financing receivables transferred for the six months ended June 30, 2023 and 2022.

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


(Dollars in millions)
For the six months ended June 30:	2023		2022




Commercial financing receivables:
Receivables transferred during the period	$	4,345	$	3,914
Receivables uncollected at end of period*	$	928	$	815

*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 June 30, 2023 and 2022.

The transfer of these receivables qualified as true sales and therefore reduced financing receivables. The cash proceeds from the sales are included in cash flows from operating activities. For the six months ended June 30, 2023 and 2022, the net loss, including fees, associated with the transfer of commercial financial receivables was $45 million and $22 million, respectively, and is included in other (income) and expense in the Consolidated Income Statement.

Notes to Consolidated Financial Statements — (continued)

Financing Receivables by Portfolio Segment

The following tables present the amortized cost basis for client financing receivables at June 30, 2023 and December 31, 2022, further segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. The commercial financing receivables portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current estimated risk of loss and resulting impact to the company’s financial results are not material.


(Dollars in millions)
At June 30, 2023:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	6,317	$	3,019	$	1,370	$	10,705
Allowance for credit losses:
Beginning balance at January 1, 2023	$	88	$	60	$	20	$	168
Write-offs	$	(3)	$	0	$	0	$	(4)
Recoveries	—		0		0		1
Additions/(releases)	6		(12)		0		(6)
Other*	7		$	0	(1)		7
Ending balance at June 30, 2023	$	98	$	48	$	19	$	165


(Dollars in millions)
At December 31, 2022:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	7,281	$	3,546	$	1,704	$	12,531
Allowance for credit losses:
Beginning balance at January 1, 2022	$	111	$	61	$	23	$	195
Write-offs	$	(20)	$	(3)	$	(2)	$	(25)
Recoveries	1		0		4		5
Additions/(releases)	(5)		6		(4)		(3)
Other*	2		(5)		(2)		(4)
Ending balance at December 31, 2022	$	88	$	60	$	20	$	168

*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 2022 Annual Report.

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.


(Dollars in millions)	Total Amortized Cost		Amortized Cost > 90 Days*		Amortized Cost > 90 Days and Accruing*		Billed Invoices > 90 Days and Accruing		Amortized Cost Not Accruing**
At June 30, 2023:
Americas	$	6,317	$	147	$	72	$	6	$	77
EMEA	3,019		35		4		1		31
Asia Pacific	1,370		17		2		1		16
Total client financing receivables	$	10,705	$	200	$	78	$	8	$	124


(Dollars in millions)	Total Amortized Cost		Amortized Cost > 90 Days*		Amortized Cost > 90 Days and Accruing*		Billed Invoices > 90 Days and Accruing		Amortized Cost Not Accruing**
At December 31, 2022:
Americas	$	7,281	$	272	$	198	$	22	$	74
EMEA	3,546		52		8		1		46
Asia Pacific	1,704		20		3		1		17
Total client financing receivables	$	12,531	$	344	$	208	$	23	$	137

*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 $121 million and $122 million at June 30, 2023 and December 31, 2022, respectively. Financing income recognized on these receivables was immaterial for the three and six months ended June 30, 2023, 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 June 30, 2023 and December 31, 2022, respectively. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators reflect mitigating credit enhancement actions taken by customers which reduce the risk to IBM. Gross write-offs by vintage year at June 30, 2023 were not material.


(Dollars in millions)	Americas				EMEA				Asia Pacific
At June 30, 2023:	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2023	$	1,011	$	466	$	438	$	307	$	248	$	53
2022	2,363		507		895		498		476		60
2021	887		231		336		110		146		48
2020	337		161		145		99		140		30
2019	179		46		79		56		75		13
2018 and prior	63		65		18		37		57		24
Total	$	4,841	$	1,476	$	1,911	$	1,108	$	1,142	$	227

Notes to Consolidated Financial Statements — (continued)


(Dollars in millions)	Americas				EMEA				Asia Pacific
At December 31, 2022:	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2022	$	3,316	$	1,097	$	1,447	$	704	$	799	$	96
2021	1,197		323		451		159		203		65
2020	559		217		258		158		210		49
2019	251		91		161		99		127		22
2018	128		26		42		16		84		21
2017 and prior	32		45		14		38		12		17
Total	$	5,482	$	1,800	$	2,373	$	1,173	$	1,434	$	269

Modifications and Troubled Debt Restructurings

The company did not have any significant modifications due to financial difficulty during the six months ended June 30, 2023. The company did not have any significant troubled debt restructurings during the year ended December 31, 2022.

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 June 30,				Six Months Ended June 30,
(Dollars in millions)	2023		2022		2023		2022
Lease income — sales-type and direct financing leases:
Sales-type lease selling price	$	248	$	735	$	338	$	789
Less: Carrying value of underlying assets*	(61)		(120)		(91)		(139)
Gross profit	$	187	$	615	$	247	$	651
Interest income on lease receivables	59		45		118		90
Total sales-type and direct financing lease income	$	246	$	660	$	365	$	741
Lease income — operating leases	25		27		51		56
Variable lease income	14		28		35		56
Total lease income	$	284	$	715	$	451	$	853

*Excludes unguaranteed residual value.

Sales-type lease revenue was $284 million and $451 million for the three and six months ended June 30, 2023, respectively, compared to $715 million and $853 million for the three and six months ended June 30, 2022, respectively. The decreases in both the three and six month periods were predominantly due to the zSystems product cycle dynamics.

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 June 30, 2023
(Dollars in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount*
Intangible asset class:
Capitalized software	$	1,622	$	(707)	$	915
Client relationships	8,274		(3,056)		5,217
Completed technology	5,131		(2,174)		2,957
Patents/trademarks	1,781		(378)		1,403
Other**	19		(16)		3
Total	$	16,827	$	(6,331)	$	10,496


	At December 31, 2022
(Dollars in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount*
Intangible asset class:
Capitalized software	$	1,650	$	(705)	$	945
Client relationships	8,559		(2,951)		5,608
Completed technology	5,220		(2,045)		3,175
Patents/trademarks	2,140		(688)		1,452
Other**	19		(15)		4
Total	$	17,588	$	(6,404)	$	11,184

*Amounts as of June 30, 2023 and December 31, 2022 include an increase in net intangible asset balances of $24 million and a decrease in net intangible asset balances of $198 million, respectively, due to foreign currency translation.

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

The net carrying amount of intangible assets decreased $688 million during the first six months of 2023, primarily due to intangible asset amortization, partially offset by additions of capitalized software and acquired intangibles. The aggregate intangible asset amortization expense was $556 million and $1,104 million for the second quarter and first six months of 2023, respectively, compared to $625 million and $1,251 million for the second quarter and first six months of 2022, respectively. In the first six months of 2023, the company retired $1,189 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount.

The future amortization expense relating to intangible assets currently recorded in the Consolidated Balance Sheet was estimated to be the following at June 30, 2023:


(Dollars in millions)	Capitalized Software		Acquired Intangibles		Total
Remainder of 2023	$	303	$	786	$	1,089
2024	410		1,557		1,967
2025	175		1,538		1,713
2026	27		1,515		1,542
2027	—		1,496		1,496
Thereafter	—		2,688		2,688

Notes to Consolidated Financial Statements — (continued)

Goodwill

The changes in the goodwill balances by segment for the six months ended June 30, 2023 and for the year ended December 31, 2022 were as follows:


(Dollars in millions)	Balance		Goodwill Additions		Purchase Price Adjustments					Foreign Currency Translation and Other Adjustments*		Balance
Segment	1/1/2023				Divestitures				6/30/2023
Software	$	43,657	$	267	$	(7)	$	—		$	88	$	44,005
Consulting	7,928		23		6		—			43		8,000
Infrastructure	4,363		12		—		—			4		4,380
Other	—		—		—		—			—		—
Total	$	55,949	$	302	$	(1)	$	—		$	136	$	56,385


(Dollars in millions)	Balance		Goodwill Additions		Purchase Price Adjustments					Foreign Currency Translation and Other Adjustments*		Balance
Segment	1/1/2022				Divestitures				12/31/2022
Software	$	43,966	$	568	$	(118)	$	—		$	(760)	$	43,657
Consulting	6,797		1,366		(42)		—			(192)		7,928
Infrastructure	4,396		—		—		(1)			(32)		4,363
Other**	484		—		—		(484)			—		—
Total	$	55,643	$	1,934	$	(159)	$	(485)		$	(984)	$	55,949

*Primarily driven by foreign currency translation.

**The company derecognized goodwill related to the divestiture of its healthcare software assets in the second quarter of 2022.

There were no goodwill impairment losses recorded during the first six months of 2023 or full-year 2022 and the company has no accumulated impairment losses. Purchase price adjustments recorded in the first six months of 2023 and full-year 2022 were related to acquisitions that were still subject to the measurement period that ends at the earlier of 12 months from the acquisition date or when information becomes available. Net purchase price adjustments recorded in the first six months of 2023 were not material. Net purchase price adjustments recorded in 2022 primarily related to deferred tax assets and liabilities associated with the Turbonomic acquisition.

12. Borrowings:

Short-Term Debt


(Dollars in millions)	At June 30, 2023		At December 31, 2022
Short-term loans	$	5	$	8
Long-term debt — current maturities	6,780		4,751
Total	$	6,785	$	4,760

The weighted-average interest rate for short-term loans was 8.6 percent and 7.6 percent at June 30, 2023 and December 31, 2022, respectively.

Notes to Consolidated Financial Statements — (continued)

Long-Term Debt

Pre-Swap Borrowing


		Balance		Balance
(Dollars in millions)	Maturities	6/30/2023		12/31/2022
U.S. dollar debt (weighted-average interest rate at June 30, 2023):*
3.4%	2023	$	1,508	$	1,529
3.3%	2024	5,005		5,009
5.1%	2025	1,602		1,603
3.5%	2026	5,201		4,351
3.1%	2027	3,620		3,620
5.0%	2028	1,313		313
3.5%	2029	3,250		3,250
2.0%	2030	1,350		1,350
4.4%	2032	1,850		1,850
4.8%	2033	750		—
8.0%	2038	83		83
4.5%	2039	2,745		2,745
2.9%	2040	650		650
4.0%	2042	1,107		1,107
7.0%	2045	27		27
4.7%	2046	650		650
4.3%	2049	3,000		3,000
3.0%	2050	750		750
4.2%	2052	1,400		1,400
5.1%	2053	650		—
7.1%	2096	316		316
		$	36,828	$	33,605
Other currencies (weighted-average interest rate at June 30, 2023, in parentheses):*
Euro (1.8%)	2024–2043	$	19,095	$	17,087
Pound sterling (4.9%)	2038	954		—
Japanese yen (0.5%)	2024–2028	1,221		694
Other (16.1%)	2023–2026	272		361
		$	58,369	$	51,747
Finance lease obligations (3.9%)	2023–2030	268		239
		$	58,637	$	51,986
Less: net unamortized discount		859		835
Less: net unamortized debt issuance costs		164		138
Add: fair value adjustment**		(144)		(73)
		$	57,471	$	50,940
Less: current maturities		6,780		4,751
Total		$	50,691	$	46,189

*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 2023, the company issued $0.7 billion of Japanese yen floating-rate syndicated bank loans with a maturity of 5 years; $4.6 billion of Euro fixed-rate notes in tranches with maturities ranging from 4 to 20 years and coupons ranging from 3.375 percent to 4 percent; $0.9 billion of Pound sterling fixed-rate notes with a maturity of 15 years and a coupon of 4.875 percent; and $3.25 billion of U.S. dollar fixed-rate notes in tranches with maturities ranging from 3 to 30 years and coupons ranging from 4.5 to 5.1 percent.

Pre-swap annual contractual obligations of long-term debt outstanding at June 30, 2023, were as follows:


(Dollars in millions)	Total
Remainder of 2023	$	1,668
2024	6,364
2025	4,962
2026	5,534
2027	5,829
Thereafter	34,280
Total	$	58,637

Interest on Debt


(Dollars in millions)
For the six months ended June 30:	2023		2022
Cost of financing	$	173	$	165
Interest expense	790		607
Interest capitalized	6		2
Total interest paid and accrued	$	969	$	775

Lines of Credit

On June 15, 2023, the company amended its existing $2.5 billion Three-Year Credit Agreement and $7.5 billion Five-Year Credit Agreement (the Credit Agreements) to extend the maturity dates to June 20, 2026 and June 22, 2028, respectively. The Credit Agreements permit the company and its subsidiary borrowers to borrow up to $10 billion on a revolving basis. At June 30, 2023, 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 $1.2 billion and $1.6 billion at June 30, 2023 and December 31, 2022, respectively. A portion of these amounts was available to the company’s business partners to support their working capital needs. In addition, the company has committed to provide future financing to its clients in connection with client purchase agreements for $1.7 billion and $2.1 billion at June 30, 2023 and December 31, 2022, respectively. The reduction in the future financing commitments is primarily due to lower services financing in the current year. 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 2022 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 June 30, 2023.

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 June 30, 2023 and December 31, 2022 was not material.

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

Standard Warranty Liability


(Dollars in millions)	2023		2022
Balance at January 1	$	79	$	77
Current-period accruals	35		39
Accrual adjustments to reflect actual experience	(14)		(1)
Charges incurred	(43)		(41)
Balance at June 30	$	57	$	74

Notes to Consolidated Financial Statements — (continued)

Extended Warranty Liability


(Dollars in millions)	2023		2022
Balance at January 1	$	272	$	350
Revenue deferred for new extended warranty contracts	20		84
Amortization of deferred revenue	(73)		(83)
Other*	(1)		(12)
Balance at June 30	$	218	$	339
Current portion	$	119	$	172
Noncurrent portion	$	99	$	167

*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 June 30, 2023 were not material to the Consolidated Financial Statements.

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

With respect to certain of the claims, suits, investigations and proceedings discussed herein, the company believes at this time that the likelihood of any material loss is remote, given, for example, the procedural status, court rulings, and/or the strength of the company’s defenses in those matters. With respect to the remaining claims, suits, investigations and proceedings discussed in this note, except as specifically discussed herein, the company is unable to provide estimates of reasonably possible losses or range of losses, including losses in excess of amounts accrued, if any, for the following reasons. Claims, suits, investigations and proceedings are inherently uncertain, and it is not possible to predict the ultimate outcome of these matters. It is the company’s experience that damage amounts claimed in litigation against it are unreliable and unrelated to possible outcomes, and as such are not meaningful indicators of the company’s potential liability. Further, the company is unable to provide such an estimate due to a number of other factors with respect to these claims, suits, investigations and proceedings, including considerations of the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the

Notes to Consolidated Financial Statements — (continued)

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.

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 January 13, 2023, a putative securities law class action making allegations substantially similar to those in the dismissed case was filed in the same court. On April 4, 2023, the court entered an order appointing June E. Adams Irrevocable Trust Dated 7/21/14 FBO Edward Adams, the same entity that filed the since dismissed April 5, 2022 class action, as lead plaintiff. On June 5, 2023, the plaintiff voluntarily dismissed the case, with prejudice.

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

As disclosed in the Kyndryl Form 10 and subsequent Kyndryl public filings, in 2017 BMC Software, Inc. (BMC) filed suit against IBM in the United States District Court for the Southern District of Texas in a dispute involving IBM’s former managed infrastructure services business. On May 30, 2022, the trial court awarded BMC $718 million in direct damages and $718 million in punitive damages, plus interest and fees. IBM filed a notice of appeal. 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 $450 million. The company believes it will prevail on these matters and that this amount is not a meaningful indicator of liability.

Notes to Consolidated Financial Statements — (continued)

15. Equity Activity:

Reclassifications and Taxes Related to Items of Other Comprehensive Income


(Dollars in millions)	Before Tax Amount		Tax (Expense)/ Benefit		Net of Tax Amount
For the three months ended June 30, 2023:
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	116	$	(34)	$	82
Net changes related to available-for-sale securities:
Unrealized gains/(losses) arising during the period	$	(17)	$	4	$	(12)
Reclassification of (gains)/losses to other (income) and expense	—		—		—
Total net changes related to available-for-sale securities	$	(17)	$	4	$	(12)
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	$	178	$	(48)	$	130
Reclassification of (gains)/losses to:
Cost of services	3		(1)		2
Cost of sales	(2)		1		(1)
Cost of financing	4		(1)		3
SG&A expense	(1)		0		0
Other (income) and expense	(55)		14		(41)
Interest expense	22		(5)		16
Total unrealized gains/(losses) on cash flow hedges	$	148	$	(40)	$	109
Retirement-related benefit plans:*
Prior service costs/(credits)	$	—	$	0	$	0
Net (losses)/gains arising during the period	0		7		7
Curtailments and settlements	6		(1)		5
Amortization of prior service (credits)/costs	(2)		1		(2)
Amortization of net (gains)/losses	130		(38)		92
Total retirement-related benefit plans	$	134	$	(31)	$	102
Other comprehensive income/(loss)	$	381	$	(101)	$	280

*These accumulated other comprehensive income (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 Amount		Tax (Expense)/ Benefit		Net of Tax Amount
For the three months ended June 30, 2022:
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	213	$	(347)	$	(134)
Net changes related to available-for-sale securities:
Unrealized gains/(losses) arising during the period	$	0	$	0	$	0
Reclassification of (gains)/losses to other (income) and expense	—		—		—
Total net changes related to available-for-sale securities	$	0	$	0	$	0
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	$	200	$	(53)	$	147
Reclassification of (gains)/losses to:
Cost of services	(13)		3		(10)
Cost of sales	(23)		7		(17)
Cost of financing	6		(2)		5
SG&A expense	(14)		4		(10)
Other (income) and expense	38		(10)		29
Interest expense	22		(6)		16
Total unrealized gains/(losses) on cash flow hedges	$	217	$	(56)	$	161
Retirement-related benefit plans:*
Prior service costs/(credits)	$	—	$	0	$	0
Net (losses)/gains arising during the period	1		(3)		(2)
Curtailments and settlements	11		(3)		8
Amortization of prior service (credits)/costs	6		(2)		5
Amortization of net (gains)/losses	450		(125)		325
Total retirement-related benefit plans	$	468	$	(132)	$	336
Other comprehensive income/(loss)	$	897	$	(534)	$	363

*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 Amount		Tax (Expense)/ Benefit		Net of Tax Amount
For the six months ended June 30, 2023:
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	29	$	22	$	52
Net changes related to available-for-sale securities:
Unrealized gains/(losses) arising during the period	$	(1)	$	0	$	(1)
Reclassification of (gains)/losses to other (income) and expense	—		—		—
Total net changes related to available-for-sale securities	$	(1)	$	0	$	(1)
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	$	149	$	(41)	$	107
Reclassification of (gains)/losses to:
Cost of services	5		(1)		4
Cost of sales	(17)		5		(12)
Cost of financing	9		(2)		7
SG&A expense	(10)		3		(7)
Other (income) and expense	(181)		45		(135)
Interest expense	42		(11)		32
Total unrealized gains/(losses) on cash flow hedges	$	(3)	$	(1)	$	(4)
Retirement-related benefit plans:*
Prior service costs/(credits)	$	—	$	1	$	1
Net (losses)/gains arising during the period	2		7		8
Curtailments and settlements	5		(1)		4
Amortization of prior service (credits)/costs	(4)		1		(3)
Amortization of net (gains)/losses	261		(76)		185
Total retirement-related benefit plans	$	263	$	(69)	$	194
Other comprehensive income/(loss)	$	289	$	(48)	$	241

*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 Amount		Tax (Expense)/ Benefit		Net of Tax Amount
For the six months ended June 30, 2022:
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	655	$	(483)	$	172
Net changes related to available-for-sale securities:
Unrealized gains/(losses) arising during the period	$	(1)	$	0	$	0
Reclassification of (gains)/losses to other (income) and expense	—		—		—
Total net changes related to available-for-sale securities	$	(1)	$	0	$	0
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	$	260	$	(69)	$	191
Reclassification of (gains)/losses to:
Cost of services	(28)		7		(21)
Cost of sales	(35)		10		(25)
Cost of financing	12		(3)		9
SG&A expense	(20)		5		(14)
Other (income) and expense	45		(11)		34
Interest expense	43		(11)		32
Total unrealized gains/(losses) on cash flow hedges	$	276	$	(71)	$	205
Retirement-related benefit plans:*
Prior service costs/(credits)	$	(5)	$	5	$	0
Net (losses)/gains arising during the period	10		(7)		3
Curtailments and settlements	19		(5)		14
Amortization of prior service (credits)/costs	13		(3)		10
Amortization of net (gains)/losses	917		(256)		662
Total retirement-related benefit plans	$	954	$	(266)	$	689
Other comprehensive income/(loss)	$	1,885	$	(819)	$	1,066

*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)

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


(Dollars in millions)	Net Unrealized Gains/(Losses) on Cash Flow Hedges		Foreign Currency Translation Adjustments*		Net Change Retirement- Related Benefit Plans		Net Unrealized Gains/(Losses) on Available- For-Sale Securities		Accumulated Other Comprehensive Income/ (Loss)
January 1, 2023	$	(135)	$	(3,591)	$	(13,013)	$	(1)	$	(16,740)
Other comprehensive income before reclassifications	107		52		9		(1)		167
Amount reclassified from accumulated other comprehensive income	(112)		—		185		—		74
Total change for the period	$	(4)	$	52	$	194	$	(1)	$	241
June 30, 2023	$	(139)	$	(3,539)	$	(12,819)	$	(2)	$	(16,499)


(Dollars in millions)	Net Unrealized Gains/(Losses) on Cash Flow Hedges		Foreign Currency Translation Adjustments*		Net Change Retirement- Related Benefit Plans		Net Unrealized Gains/(Losses) on Available- For-Sale Securities		Accumulated Other Comprehensive Income/ (Loss)
January 1, 2022	$	(18)	$	(3,362)	$	(19,854)	$	(1)	$	(23,234)
Other comprehensive income before reclassifications	191		172		3		0		366
Amount reclassified from accumulated other comprehensive income	14		—		686		—		699
Total change for the period	$	205	$	172	$	689	$	0	$	1,066
June 30, 2022	$	187	$	(3,189)	$	(19,165)	$	(1)	$	(22,169)

*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 June 30, 2023 and December 31, 2022, the amount recognized in other accounts receivables for the right to reclaim cash collateral was $46 million and $140 million, respectively. At June 30, 2023, there was no amount recognized in accounts payable for the obligation to return cash collateral. At December 31, 2022, the amount recognized in accounts payable for such obligation was $8 million. The company restricts the use of cash collateral received to rehypothecation, and therefore reports it in restricted cash in the Consolidated Balance Sheet. At June 30, 2023, there was no cash collateral rehypothecated. At December 31, 2022, the amount rehypothecated was $8 million. Additionally, if derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Balance Sheet at June 30, 2023 and December 31, 2022, the total derivative asset and liability positions each would have been reduced by $267 million and $220 million, respectively.

Notes to Consolidated Financial Statements — (continued)

On May 19, 2022, in connection with the disposition of 22.3 million shares of Kyndryl common stock, the company entered into a cash-settled swap that maintained IBM’s continued economic exposure in those shares. The notional value of the swap was $311 million. For the three and six months ended June 30, 2022, an unrealized loss of $88 million was recorded in other (income) and expense in the Consolidated Income Statement. The company settled the swap on November 2, 2022.

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

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

Interest Rate Risk

Fixed and Variable Rate Borrowings

The company issues debt in the global capital markets to fund its operations and financing business. Access to cost-effective financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall interest cost, the company may use interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert specific variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). At June 30, 2023 and December 31, 2022, the total notional amount of the company’s interest-rate swaps was $6.9 billion and $6.5 billion, respectively. The weighted-average remaining maturity of these instruments at June 30, 2023 and December 31, 2022 was approximately 5.8 years and 6.0 years, respectively. These interest-rate contracts were accounted for as fair value hedges. The company did not have any cash flow hedges relating to this program outstanding at June 30, 2023 and December 31, 2022.

Forecasted Debt Issuance

The company is exposed to interest rate volatility on future debt issuances. To manage this risk, the company may use instruments such as forward starting interest-rate swaps to lock in the rate on the interest payments related to the forecasted debt issuances. There were no instruments outstanding at June 30, 2023 and December 31, 2022.

In connection with cash flow hedges of forecasted interest payments related to the company's borrowings, the company recorded net losses (before taxes) of $130 million and $139 million at June 30, 2023 and December 31, 2022, respectively, in AOCI. The company estimates that $17 million of the deferred net losses (before taxes) on derivatives in AOCI at June 30, 2023 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 June 30, 2023 and December 31, 2022, the carrying value of debt designated as hedging instruments was $15.7 billion and $13.4 billion, respectively. The company also uses cross-currency swaps and foreign exchange forward contracts for this risk management purpose. At June 30, 2023 and December 31, 2022, the total notional amount of derivative instruments designated as net investment hedges was $4.9 billion and $4.7 billion, respectively. At June 30, 2023 and December 31, 2022, the weighted-average remaining maturity of these instruments was approximately 0.2 years and 0.1 years, respectively.

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

Notes to Consolidated Financial Statements — (continued)

for as cash flow hedges. At June 30, 2023, the maximum remaining length of time over which the company hedged its exposure is approximately two years. At June 30, 2023 and December 31, 2022, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $8.6 billion and $8.1 billion, respectively. At both June 30, 2023 and December 31, 2022, the weighted-average remaining maturity of these instruments was approximately 0.6 years.

At June 30, 2023 and December 31, 2022, in connection with cash flow hedges of anticipated royalties and cost transactions, the company recorded net gains (before taxes) of $63 million and $66 million, respectively, in AOCI. The company estimates that $3 million of deferred net losses (before taxes) on derivatives in AOCI at June 30, 2023 will be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

Foreign Currency Denominated Borrowings

The company is exposed to exchange rate volatility on foreign currency denominated debt. To manage this risk, the company 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 June 30, 2023, the maximum length of time remaining over which the company hedged its exposure is approximately eight years. At June 30, 2023 and December 31, 2022, the total notional amount of cross-currency swaps designated as cash flow hedges of foreign currency denominated debt was $3.9 billion and $3.1 billion, respectively.

At June 30, 2023 and December 31, 2022, in connection with cash flow hedges of foreign currency denominated borrowings, the company recorded net losses (before taxes) of $109 million and $101 million, respectively, in AOCI. The company estimates that $48 million of deferred net gains (before taxes) on derivatives in AOCI at June 30, 2023 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 June 30, 2023 and December 31, 2022, the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $7.5 billion and $5.9 billion, respectively.

Equity Risk Management

The company is exposed to market price changes in certain broad market indices and in the company’s own stock primarily related to certain obligations to employees. Changes in the overall value of these employee compensation obligations are recorded in SG&A expense in the Consolidated Income Statement. Although not designated as accounting hedges, the company utilizes derivatives, including equity swaps and futures, to economically hedge the exposures related to its employee compensation obligations. The 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 June 30, 2023 and December 31, 2022, the total notional amount of derivative instruments in economic hedges of these compensation obligations was $1.2 billion and $1.1 billion, respectively.

Notes to Consolidated Financial Statements — (continued)

Cumulative Basis Adjustments for Fair Value Hedges

At June 30, 2023 and December 31, 2022, the following amounts were recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:


(Dollars in millions)	June 30, 2023		December 31, 2022
Short-term debt:
Carrying amount of the hedged item	$	(203)	$	(199)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	(3)	$	1
Long-term debt:
Carrying amount of the hedged item	$	(6,540)	$	(6,216)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	147	$	72

*Includes ($225) million and ($250) million of hedging adjustments on discontinued hedging relationships at June 30, 2023 and December 31, 2022, respectively.

The Effect of Derivative Instruments in the Consolidated Income Statement

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


(Dollars in millions)	Total				Gains/(Losses) of Total Hedge Activity
For the three months ended June 30:	2023		2022		2023		2022
Cost of services	$	5,294	$	5,399	$	(3)	$	13
Cost of sales	$	1,587	$	1,750	$	2	$	23
Cost of financing	$	93	$	96	$	(3)	$	1
SG&A expense	$	4,900	$	4,855	$	43	$	(152)
Other (income) and expense	$	(261)	$	(81)	$	(141)	$	(439)
Interest expense	$	423	$	297	$	(18)	$	3

Notes to Consolidated Financial Statements — (continued)


	Gain (Loss) Recognized in Consolidated Income Statement
(Dollars in millions)	Consolidated Income Statement Line Item		Recognized on Derivatives						Attributable to Risk Being Hedged (2)
For the three months ended June 30:		2023			2022			2023			2022
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing		$	(30)		$	(17)		$	25		$	23
	Interest expense		(153)			(61)			130			81
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		(196)			(313)			N/A			N/A
Equity contracts	SG&A expense		42			(166)			N/A			N/A
	Other (income) and expense		—			(88)			N/A			N/A
Total			$	(337)		$	(645)		$	155		$	104


	Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
	Recognized in OCI				Consolidated Income Statement Line Item		Reclassified from AOCI						Amounts Excluded from Effectiveness Testing (3)
(Dollars in millions)
For the three months ended June 30:	2023		2022			2023			2022			2023			2022
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing		$	(1)		$	(1)		$	—		$	—
					Interest expense		(4)			(3)			—			—
Foreign exchange contracts	178		200		Cost of services		(3)			13			—			—
					Cost of sales		2			23			—			—
					Cost of financing		(3)			(5)			—			—
					SG&A expense		1			14			—			—
					Other (income) and expense		55			(38)			—			—
					Interest expense		(18)			(19)			—			—
Instruments in net investment hedges (4):
Foreign exchange contracts	136		1,379		Cost of financing		—			—			5			1
					Interest expense		—			—			27			5
Total	$	313	$	1,579			$	30		$	(16)		$	32		$	6

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

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

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

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

N/A - not applicable


(Dollars in millions)	Total				Gains/(Losses) of Total Hedge Activity
For the six months ended June 30:	2023		2022		2023		2022
Cost of services	$	10,604	$	10,747	$	(5)	$	28
Cost of sales	$	2,910	$	3,165	$	17	$	35
Cost of financing	$	203	$	194	$	(7)	$	(1)
SG&A expense	$	9,754	$	9,452	$	102	$	(223)
Other (income) and expense	$	(506)	$	166	$	1	$	(541)
Interest expense	$	790	$	607	$	(31)	$	(3)

Notes to Consolidated Financial Statements — (continued)


	Gain (Loss) Recognized in Consolidated Income Statement
(Dollars in millions)	Consolidated Income Statement Line Item		Recognized on Derivatives						Attributable to Risk Being Hedged (2)
For the six months ended June 30:		2023			2022			2023			2022
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing		$	(21)		$	(18)		$	13		$	26
	Interest expense		(96)			(65)			58			97
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		(180)			(409)			N/A			N/A
Equity contracts	SG&A expense		91			(243)			N/A			N/A
	Other (income) and expense		—			(88)			N/A			N/A
Total			$	(206)		$	(821)		$	71		$	123


	Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
	Recognized in OCI				Consolidated Income Statement Line Item		Reclassified from AOCI						Amounts Excluded from Effectiveness Testing (3)
(Dollars in millions)
For six months ended June 30:	2023		2022			2023			2022			2023			2022
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing		$	(2)		$	(2)		$	—		$	—
					Interest expense		(7)			(7)			—			—
Foreign exchange contracts	149		260		Cost of services		(5)			28			—			—
					Cost of sales		17			35			—			—
					Cost of financing		(8)			(10)			—			—
					SG&A expense		10			20			—			—
					Other (income) and expense		181			(45)			—			—
					Interest expense		(35)			(36)			—			—
Instruments in net investment hedges (4):
Foreign exchange contracts	(88)		1,920		Cost of financing		—			—			11			2
					Interest expense		—			—			49			7
Total	$	61	$	2,180			$	152		$	(16)		$	60		$	9

(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 six months ended June 30, 2023 and 2022, there were no material gains or losses excluded from the assessment of hedge effectiveness (for fair value or cash flow hedges), or associated with an underlying exposure that did not or was not expected to occur (for cash flow hedges); nor are there any anticipated in the normal course of business.

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 June 30,				Six Months Ended June 30,
(Dollars in millions)	2023		2022		2023		2022
Cost	$	47	$	43	$	93	$	84
Selling, general and administrative	168		153		317		289
Research, development and engineering	73		58		146		115
Pre-tax stock-based compensation cost	$	288	$	254	$	556	$	488
Income tax benefits	(75)		(82)		(142)		(139)
Total net stock-based compensation cost	$	213	$	172	$	414	$	348

Pre-tax stock-based compensation cost for the three months ended June 30, 2023 increased $34 million compared to the corresponding period in the prior year, including increases in restricted stock units ($15 million), performance share units ($11 million) and stock options ($7 million). The increases are driven by stock-based compensation awards granted by the company as part of its annual cycles for executives and other employees.

Pre-tax stock-based compensation cost for the six months ended June 30, 2023 increased $69 million compared to the corresponding period in the prior year, including increases in stock options ($21 million), Employees Stock Purchase Plan (ESPP) ($20 million), restricted stock units ($17 million) and performance share units ($11 million). The increases are driven by stock-based compensation awards granted by the company as part of its annual cycles for executives and other employees and the ESPP being considered compensatory effective April 1, 2022.

Total unrecognized compensation cost related to non-vested awards at June 30, 2023 was $1.6 billion and is expected to be recognized over a weighted-average period of approximately 2.5 years.

18. Retirement-Related Benefits:

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.


					Yr. to Yr.
(Dollars in millions)					Percent
For the three months ended June 30:	2023		2022		Change
Retirement-related plans — cost:
Defined benefit and contribution pension plans — cost	$	259	$	456	(43.2)	%
Nonpension postretirement plans — cost	33		33		(2.2)
Total	$	292	$	489	(40.4)	%


					Yr. to Yr.
(Dollars in millions)					Percent
For the six months ended June 30:	2023		2022		Change
Retirement-related plans — cost:
Defined benefit and contribution pension plans — cost	$	541	$	934	(42.1)	%
Nonpension postretirement plans — cost	65		66		(1.9)
Total	$	606	$	1,000	(39.4)	%

Notes to Consolidated Financial Statements — (continued)

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 June 30:	2023		2022		2023		2022
Service cost	$	—	$	—	$	44	$	59
Interest cost*	272		302		292		131
Expected return on plan assets*	(382)		(475)		(362)		(259)
Amortization of prior service costs/(credits)*	0		2		5		3
Recognized actuarial losses*	27		179		101		260
Curtailments and settlements*	—		—		6		11
Multi-employer plans	—		—		3		3
Other costs/(credits)*	—		—		10		6
Total net periodic pension (income)/cost of defined benefit plans	$	(82)	$	8	$	99	$	215
Cost of defined contribution plans	151		141		91		92
Total defined benefit and contribution pension plans cost recognized in the Consolidated Income Statement	$	69	$	149	$	190	$	307


(Dollars in millions)	U.S. Plans				Non-U.S. Plans
For the six months ended June 30:	2023		2022		2023		2022
Service cost	$	—	$	—	$	88	$	123
Interest cost*	545		603		580		270
Expected return on plan assets*	(764)		(950)		(718)		(532)
Amortization of prior service costs/(credits)*	0		4		10		7
Recognized actuarial losses*	55		359		203		537
Curtailments and settlements*	—		—		5		19
Multi-employer plans	—		—		6		7
Other costs/(credits)*	—		—		19		15
Total net periodic pension (income)/cost of defined benefit plans	$	(165)	$	15	$	194	$	446
Cost of defined contribution plans	323		282		188		190
Total defined benefit and contribution pension plans cost recognized in the Consolidated Income Statement	$	158	$	298	$	382	$	636

*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)

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 June 30:	2023		2022		2023		2022
Service cost	$	1	$	1	$	1	$	1
Interest cost*	29		18		10		9
Expected return on plan assets*	—		—		(1)		(1)
Amortization of prior service costs/(credits)*	(7)		1		0		0
Recognized actuarial losses*	—		2		0		1
Curtailments and settlements*	—		—		—		—
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement	$	23	$	23	$	10	$	10


(Dollars in millions)	U.S. Plan				Non-U.S. Plans
For the six months ended June 30:	2023		2022		2023		2022
Service cost	$	2	$	2	$	1	$	2
Interest cost*	58		37		19		18
Expected return on plan assets*	—		—		(1)		(1)
Amortization of prior service costs/(credits)*	(15)		2		0		0
Recognized actuarial losses*	—		4		(1)		2
Curtailments and settlements*	—		—		—		—
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement	$	46	$	46	$	19	$	20

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

The company does not anticipate any significant changes to the expected plan contributions in 2023 from the amounts disclosed in the 2022 Annual Report.

The table below includes contributions to the following plans:


(Dollars in millions)	Plan Contributions
For the six months ended June 30:	2023		2022
U.S. nonpension postretirement benefit plans	$	134	$	202
Non-U.S. DB and multi-employer plans*	29		43
Total plan contributions	$	163	$	245

*Amounts reported net of refunds.

During the six months ended June 30, 2023 and 2022, the company contributed $134 million and $182 million of U.S. Treasury Securities, respectively, to the U.S. nonpension postretirement benefit plan. Additionally, during the six months ended June 30, 2023 and 2022, the company contributed $347 million and $261 million of U.S. Treasury securities, respectively, to the Active Medical Trust. Contributions made with U.S. Treasury securities are considered a non-cash transaction.

19. Subsequent Events:

On July 24, 2023, the company announced that the Board of Directors approved a quarterly dividend of $1.66 per common share. The dividend is payable September 9, 2023 to shareholders of record on August 10, 2023.

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