Item 1. Consolidated Financial Statements:

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
($ and shares in millions, except per share amounts)	2026		2025		2026		2025
Revenue:
Services	$	8,000	$	7,724	$	23,615	$	22,686
Sales	8,912		8,407		25,970		24,606
Financing	192		200		598		557
Total revenue	17,103		16,331		50,182		47,849
Cost:
Services	5,441		5,224		15,979		15,506
Sales	1,834		1,637		5,287		4,672
Financing	114		109		345		303
Total cost	7,389		6,970		21,611		20,481
Gross profit	9,714		9,360		28,571		27,369
Expense and other (income):
Selling, general and administrative	4,620		4,748		14,691		14,661
Research and development	2,378		2,082		6,863		6,129
Intellectual property and custom development income	(164)		(219)		(501)		(687)
Other (income) and expense	(109)		(173)		(296)		(376)
Interest expense	491		492		1,451		1,457
Total expense and other (income)	7,217		6,931		22,208		21,184
Income from continuing operations before income taxes	2,497		2,430		6,363		6,185
Provision for/(benefit from) income taxes	298		686		782		1,193
Income from continuing operations	2,199		1,744		5,581		4,992
Income/(loss) from discontinued operations, net of tax	(10)		0		(10)		1
Net income	$	2,190	$	1,744	$	5,571	$	4,993

Earnings/(loss) per share of common stock:
Assuming dilution:
Continuing operations	$	2.31	$	1.84	$	5.86	$	5.27
Discontinued operations	(0.01)		0.00		(0.01)		0.00
Total	$	2.30	$	1.84	$	5.85	$	5.27
Basic:
Continuing operations	$	2.33	$	1.87	$	5.93	$	5.36
Discontinued operations	(0.01)		0.00		(0.01)		0.00
Total	$	2.32	$	1.87	$	5.92	$	5.36

Weighted-average number of common shares outstanding:
Assuming dilution	953.5		948.9		953.0		947.4
Basic	944.4		933.9		941.4		930.9

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2026		2025		2026		2025
Net income	$	2,190	$	1,744	$	5,571	$	4,993
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments	79		(100)		206		(1,056)



Net unrealized gains/(losses) on available-for-sale securities	0		(2)		0		1
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	(66)		20		(123)		(121)
Reclassification of (gains)/losses to net income	5		94		443		(649)
Total unrealized gains/(losses) on cash flow hedges	(61)		113		321		(769)
Retirement-related benefit plans:
Prior service costs/(credits)	—		0		—		0
Net gains/(losses) arising during the period	(2)		0		(1)		0
Curtailments and settlements	2		2		7		8
Amortization of prior service costs/(credits)	9		(2)		26		(5)
Amortization of net (gains)/losses	196		158		590		466
Total retirement-related benefit plans	205		158		622		469
Other comprehensive income/(loss), before tax	222		170		1,148		(1,355)
Income tax (expense)/benefit related to items of other comprehensive income	(56)		(112)		(420)		641
Other comprehensive income/(loss), net of tax	166		58		728		(715)
Total comprehensive income	$	2,356	$	1,802	$	6,299	$	4,278

(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


($ in millions)	At September 30, 2026		At December 31, 2025
Assets:
Current assets:
Cash and cash equivalents	$	9,233	$	13,587
Restricted cash	48		54
Marketable securities	1,825		830
Notes and accounts receivable — trade (net of allowances of $115 in 2026 and $99 in 2025)	5,794		8,112
Short-term financing receivables:
Held for investment (net of allowances of $92 in 2026 and $106 in 2025)	5,638		7,344
Held for sale	774		1,131
Other accounts receivable (net of allowances of $29 in 2026 and $37 in 2025)	1,673		1,052
Inventory, at lower of average cost or net realizable value:
Finished goods	320		230
Work in process and raw materials	1,625		990
Total inventory	1,945		1,220
Deferred costs	1,177		1,084
Prepaid expenses and other current assets	3,083		2,530
Total current assets	31,192		36,944
Property, plant and equipment	17,692		17,874
Less: Accumulated depreciation	11,649		11,975
Property, plant and equipment — net	6,043		5,899
Operating right-of-use assets — net	3,114		3,129
Long-term financing receivables (net of allowances of $28 in 2026 and $34 in 2025)	6,844		7,708
Prepaid pension assets	7,715		7,544
Deferred costs	808		825
Deferred taxes	8,827		8,610
Goodwill	74,916		67,717
Intangible assets — net	13,603		11,391
Investments and sundry assets	1,950		2,112
Total assets	$	155,011	$	151,880

(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


($ and shares in millions, except per share amount)	At September 30, 2026		At December 31, 2025
Liabilities:
Current liabilities:
Taxes	$	1,867	$	2,347
Short-term debt	7,013		6,424
Accounts payable	4,491		4,756
Compensation and benefits	3,668		4,114
Deferred income	15,164		16,101
Operating lease liabilities	749		800
Other accrued expenses and liabilities	3,534		4,116
Total current liabilities	36,485		38,658
Long-term debt	56,804		54,836
Retirement and nonpension postretirement benefit obligations	8,452		9,018
Deferred income	4,318		4,271
Operating lease liabilities	2,574		2,547
Other liabilities	10,172		9,810
Total liabilities	$	118,805	$	119,139
Equity:
IBM stockholders’ equity:
Common stock, par value $0.20 per share, and additional paid-in capital	65,137		63,318
Shares authorized: 4,688
Shares issued: 2026 — 2,300
2025 — 2,291
Retained earnings	156,576		155,648
Treasury stock - at cost	(171,191)		(170,605)
Shares: 2026 — 1,355
2025 — 1,354
Accumulated other comprehensive income/(loss)	(14,985)		(15,713)
Total IBM stockholders’ equity	35,537		32,648
Noncontrolling interests	669		93
Total equity	36,206		32,740
Total liabilities and equity	$	155,011	$	151,880

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
($ in millions)	2026		2025
Cash flows from operating activities:
Net income	$	5,571	$	4,993
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation (1)	1,638		1,698
Amortization of capitalized software and acquired intangible assets	2,363		2,027
Stock-based compensation	1,539		1,285
Net (gain)/loss on divestitures, asset sales and other	(124)		(46)
Changes in operating assets and liabilities, net of acquisitions/divestitures	804		(804)
Net cash provided by operating activities	11,791		9,153

Cash flows from investing activities:
Payments for property, plant and equipment	(793)		(709)
Proceeds from disposition of property, plant and equipment/other	60		118
Investment in software	(467)		(476)
Purchases of marketable securities and other investments	(4,769)		(8,910)
Proceeds from disposition of marketable securities and other investments	3,763		6,162
Acquisition of businesses, net of cash acquired	(11,364)		(7,903)
Divestiture of businesses, net of cash transferred	30		(1)
Net cash provided by/(used in) investing activities	(13,539)		(11,719)

Cash flows from financing activities:
Proceeds from new debt	9,415		8,391
Payments to settle debt	(7,261)		(3,679)
Short-term borrowings/(repayments) less than 90 days — net	3		(29)
Common stock repurchases for tax withholdings	(817)		(851)
Proceeds from issuance of shares	562		535
Noncontrolling interest transactions (2) (3)	557		(15)
Financing — other (2)	(98)		(93)
Cash dividends paid	(4,762)		(4,681)
Net cash provided by/(used in) financing activities	(2,402)		(423)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	(209)		429
Net change in cash, cash equivalents and restricted cash	(4,359)		(2,561)

Cash, cash equivalents and restricted cash at January 1	13,640		14,160
Cash, cash equivalents and restricted cash at September 30	$	9,282	$	11,600

(1) Includes operating lease right-of-use assets amortization expense of $0.6 billion in 2026 and 2025.

(2) Prior-year amounts have been reclassified to conform to the change in 2026 presentation.

(3) Refer to "Other Transactions" in note 5, "Acquisition, Divestitures and Other Transactions," for additional information.

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF EQUITY

(UNAUDITED)


($ in millions, except per share amount)	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 – July 1, 2026	$	64,600	$	155,937	$	(170,934)	$	(15,151)	$	34,452	$	89	$	34,541
Net income plus other comprehensive income/(loss):
Net income			2,190						2,190				2,190
Other comprehensive income/(loss)							166		166				166
Total comprehensive income									$	2,356			$	2,356
Cash dividends paid — common stock ($1.69 per share)			(1,596)						(1,596)				(1,596)
Common stock issued under employee plans	537								537				537
Purchases and sales of treasury stock under employee plans — net			45		(257)				(211)				(211)

Changes in noncontrolling interests (1)											580		580
Equity – September 30, 2026	$	65,137	$	156,576	$	(171,191)	$	(14,985)	$	35,537	$	669	$	36,206


($ in millions, except per share amount)	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 – July 1, 2025	$	62,392	$	151,367	$	(170,209)	$	(16,041)	$	27,509	$	79	$	27,588
Net income plus other comprehensive income/(loss):
Net income			1,744						1,744				1,744
Other comprehensive income/(loss)							58		58				58
Total comprehensive income									$	1,802			$	1,802
Cash dividends paid — common stock ($1.68 per share)			(1,569)						(1,569)				(1,569)
Common stock issued under employee plans	427								427				427
Purchases and sales of treasury stock under employee plans — net			39		(303)				(263)				(263)
Changes in noncontrolling interests											6		6
Equity – September 30, 2025	$	62,819	$	151,581	$	(170,512)	$	(15,983)	$	27,905	$	85	$	27,990

(1) Refer to "Other Transactions" in note 5, "Acquisition, Divestitures and Other Transactions," for additional information.

(Amounts may not add due to rounding.)

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF EQUITY – (CONTINUED)

(UNAUDITED)


($ in millions, except per share amount)	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, 2026	$	63,318	$	155,648	$	(170,605)	$	(15,713)	$	32,648	$	93	$	32,740
Net income plus other comprehensive income/(loss):
Net income			5,571						5,571				5,571
Other comprehensive income/(loss)							728		728				728
Total comprehensive income									$	6,299			$	6,299
Cash dividends paid — common stock ($5.06 per share)			(4,762)						(4,762)				(4,762)
Common stock issued under employee plans	1,821								1,821				1,821
Purchases and sales of treasury stock under employee plans — net			119		(586)				(467)				(467)
Other equity	(1)		0						(1)				(1)
Changes in noncontrolling interests (1)											576		576
Equity – September 30, 2026	$	65,137	$	156,576	$	(171,191)	$	(14,985)	$	35,537	$	669	$	36,206


($ in millions, except per share amount)	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, 2025	$	61,380	$	151,163	$	(169,968)	$	(15,269)	$	27,307	$	86	$	27,393
Net income plus other comprehensive income/(loss):
Net income			4,993						4,993				4,993
Other comprehensive income/(loss)							(715)		(715)				(715)
Total comprehensive income									$	4,278			$	4,278
Cash dividends paid — common stock ($5.03 per share)			(4,681)						(4,681)				(4,681)
Common stock issued under employee plans	1,439								1,439				1,439
Purchases and sales of treasury stock under employee plans — net			107		(544)				(437)				(437)

Changes in noncontrolling interests											(1)		(1)
Equity – September 30, 2025	$	62,819	$	151,581	$	(170,512)	$	(15,983)	$	27,905	$	85	$	27,990

(1) Refer to "Other Transactions" in note 5, "Acquisition, Divestitures and Other Transactions," for additional information.

(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.

Noncontrolling interest amounts that impact the Consolidated Income Statement are included as a reduction within other (income) and expense and were not material to the consolidated results for the periods presented.

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 2025 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 change in current-period presentation. This is annotated where applicable.

2. Accounting Changes:

New Standards to be Implemented

Accounting for Government Grants Received by Business Entities

Standard/Description – Issuance date: December 2025. This guidance establishes the accounting for government grants received by business entities and permits recognition when it is probable that the entity will comply with the grant's conditions and the grant will be received. The guidance also establishes presentation requirements for asset-related and income-related grants and expands related disclosure requirements.

Effective Date and Adoption Considerations – The guidance is effective for the company for annual and interim reporting periods beginning January 1, 2029. Early adoption is permitted.

Effect on Financial Statements or Other Significant Matters – The company is evaluating the impact of the guidance in the consolidated financial results.

Intangibles - Goodwill and Other - Internal-Use Software

Standard/Description – Issuance date: September 2025. This guidance requires internal-use software development cost capitalization to begin when both of the following occur: management has authorized and committed to funding the software project, and it is probable the project will be completed and the software will be used to perform its intended function. This guidance eliminates accounting considerations of software development stages.

Effective Date and Adoption Considerations – The guidance is effective for the company for annual and interim reporting periods beginning January 1, 2028. Early adoption is permitted.

Effect on Financial Statements or Other Significant Matters – The company is evaluating the impact of the guidance in the consolidated financial results.

Disaggregation of Income Statement Expenses

Standard/Description – Issuance date: November 2024. This guidance requires a new tabular disclosure of certain types of expenses (including purchases of inventory, employee compensation, depreciation and amortization) that are included within commonly presented expense captions on the income statement. The guidance also requires the disclosure

Notes to Consolidated Financial Statements — (continued)

of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. Additionally, the guidance requires the disclosure of the total amount of selling expenses and an entity’s definition of selling expenses. The disclosures are required on an interim and annual basis.

Effective Date and Adoption Considerations – The guidance is effective for the company for annual reporting periods beginning in 2027, and for interim reporting periods beginning January 1, 2028. Early adoption is permitted. The company expects to adopt the guidance as of the effective date and to apply the guidance on a prospective basis.

Effect on Financial Statements or Other Significant Matters – The company continues to evaluate the need for any changes to processes and controls to meet the additional disclosure requirements. The guidance is a change to disclosures only and will impact the Notes to the Consolidated Financial Statements but will not impact the consolidated financial results.

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 September 30,				Nine Months Ended September 30,
($ in millions)	2026		2025		2026		2025
Hybrid Cloud	$	2,086	$	1,886	$	5,988	$	5,369
Automation	1,870		1,934		5,562		5,401
Data	1,738		1,459		4,994		4,194
Transaction Processing	2,111		1,930		6,073		5,967
Total Software	$	7,804	$	7,209	$	22,617	$	20,932
Strategy and Technology	2,965		2,905		8,794		8,607
Intelligent Operations	2,370		2,419		7,140		7,100
Total Consulting	$	5,335	$	5,324	$	15,934	$	15,706
Hybrid Infrastructure	2,452		2,263		7,130		6,775
Infrastructure Support	1,255		1,296		3,738		3,811
Total Infrastructure	$	3,707	$	3,559	$	10,868	$	10,586
Financing (1)	192		200		598		557
Other (2)	66		38		165		68
Total revenue	$	17,103	$	16,331	$	50,182	$	47,849

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

(2)Includes reductions in revenue for estimated residual value less related unearned income on sales-type leases, which reflects the z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2025 Annual Report for additional information.

Revenue by Geography


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2026		2025		2026		2025
Americas	$	8,576	$	8,143	$	24,854	$	23,811
Europe/Middle East/Africa	5,426		5,251		16,302		15,216
Asia Pacific	3,101		2,936		9,027		8,822
Total	$	17,103	$	16,331	$	50,182	$	47,849

Notes to Consolidated Financial Statements — (continued)

Remaining Performance Obligations

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

At September 30, 2026, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was approximately $69 billion. Approximately 70 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 27 percent in the subsequent three to five years and the balance thereafter.

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

For the three and nine months ended September 30, 2026, revenue recognized for performance obligations satisfied or partially satisfied in prior periods was not material.

Reconciliation of Contract Balances

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


($ in millions)	At September 30, 2026		At December 31, 2025
Notes and accounts receivable — trade (net of allowances of $115 in 2026 and $99 in 2025)	$	5,794	$	8,112
Contract assets (1)	$	667	$	482
Deferred income (current)	$	15,164	$	16,101
Deferred income (noncurrent)	$	4,318	$	4,271

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

The amount of revenue recognized during the nine months ended September 30, 2026 that was included within the deferred income balance at December 31, 2025 was $11.4 billion and was primarily related to software and services.

The following table provides roll forwards of the notes and accounts receivable — trade allowance for expected credit losses for the nine months ended September 30, 2026 and the year ended December 31, 2025.


($ in millions)
January 1, 2026	Additions / (Releases)	Write-offs (1)	Foreign currency and other	September 30, 2026
$99	$25	$(17)	$9	$115


January 1, 2025						Additions / (Releases)						Write-offs (1)						Foreign currency and other						December 31, 2025
$114						$5						$(31)						$10						$99

(1)The majority of the write-offs during the period related to receivables which had been previously reserved.

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

Notes to Consolidated Financial Statements — (continued)

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 segment profit. The chief operating decision maker (CODM) considers budget-to-actual results of segment profit, both when evaluating the performance of and allocating resources to each of the segments as well as in developing certain compensation recommendations. The CODM reviews segment revenue, cost and profit information related to each segment, which is included in the tables below, but does not regularly review total assets by segment and therefore, such information is not presented.

Management System Segment View


($ in millions)	Software			Consulting			Infrastructure			Financing			Total Segments
For the three months ended September 30, 2026:
Revenue	$	7,804		$	5,335		$	3,707		$	192		$	17,038
Segment cost	1,368			3,873			1,603			114			6,958
Other expenses and (income) (1)	3,702			810			1,389			(29)			5,871
Segment profit	$	2,734		$	653		$	715		$	108		$	4,209
Revenue year-to-year change	8.2		%	0.2		%	4.2		%	(3.9)		%	4.6		%
Segment profit year-to-year change	15.2		%	(4.8)		%	10.9		%	(12.5)		%	10.0		%
Segment profit margin	35.0		%	12.2		%	19.3		%	56.1		%	24.7		%

For the three months ended September 30, 2025:
Revenue	$	7,209		$	5,324		$	3,559		$	200		$	16,292
Segment cost	1,220			3,766			1,525			109			6,619
Other expenses and (income) (1)	3,615			872			1,390			(32)			5,846
Segment profit	$	2,374		$	686		$	644		$	123		$	3,827
Segment profit margin	32.9		%	12.9		%	18.1		%	61.6		%	23.5		%


($ in millions)	Software			Consulting			Infrastructure			Financing			Total Segments
For the nine months ended September 30, 2026:
Revenue	$	22,617		$	15,934		$	10,868		$	598		$	50,017
Segment cost	3,934			11,484			4,634			345			20,398
Other expenses and (income) (1)	11,348			2,593			4,159			(81)			18,018
Segment profit	$	7,335		$	1,858		$	2,074		$	334		$	11,601
Revenue year-to-year change	8.1		%	1.5		%	2.7		%	7.3		%	4.7		%
Segment profit year-to-year change	12.5		%	2.8		%	11.7		%	(9.9)		%	9.9		%
Segment profit margin	32.4		%	11.7		%	19.1		%	55.9		%	23.2		%

For the nine months ended September 30, 2025:
Revenue	$	20,932		$	15,706		$	10,586		$	557		$	47,782
Segment cost	3,452			11,306			4,481			303			19,542
Other expenses and (income) (1)	10,962			2,594			4,248			(116)			17,688
Segment profit	$	6,517		$	1,807		$	1,857		$	371		$	10,552
Segment profit margin	31.1		%	11.5		%	17.5		%	66.5		%	22.1		%

(1)Other expenses and (income) by segment primarily includes:

Software – Selling, general and administrative (SG&A) expense, Research and development (R&D) expense

Consulting – SG&A expense

Infrastructure – R&D expense, SG&A expense, Other expense, Intellectual property and custom development income

Financing – Intercompany financing net other income which reflects IBM Z product cycle dynamics, SG&A expense

Notes to Consolidated Financial Statements — (continued)

Reconciliations to IBM as Reported:


($ in millions)
For the three months ended September 30:	2026		2025
Revenue:
Total reportable segments	$	17,038	$	16,292
Other revenue (1)	66		38
Total revenue from continuing operations	$	17,103	$	16,331

Pre-tax income from continuing operations:
Total reportable segment profit	$	4,209	$	3,827
Amortization of acquired intangible assets	(672)		(561)
Acquisition-related charges	(36)		(29)
Non-operating retirement-related (costs)/income	(91)		(13)

Stock-based compensation (2)	(524)		(430)
Net interest excluding the Financing segment	(414)		(345)
Workforce rebalancing charges (2)	4		(40)
Other‒divested businesses	2		(1)
Unallocated corporate amounts and other (3)	19		21
Total pre-tax income from continuing operations	$	2,497	$	2,430


($ in millions)
For the nine months ended September 30:	2026		2025
Revenue:
Total reportable segments	$	50,017	$	47,782
Other revenue (1)	165		68
Total revenue from continuing operations	$	50,182	$	47,849

Pre-tax income from continuing operations:
Total reportable segment profit	$	11,601	$	10,552
Amortization of acquired intangible assets	(1,905)		(1,605)
Acquisition-related charges	(163)		(118)
Non-operating retirement-related (costs)/income	(283)		(61)
Stock-based compensation (2)	(1,511)		(1,255)
Net interest excluding the Financing segment	(1,165)		(953)
Workforce rebalancing charges (2)	(362)		(372)
Other‒divested businesses	(3)		(28)
Unallocated corporate amounts and other (3)	155		24
Total pre-tax income from continuing operations	$	6,363	$	6,185

(1)Includes reductions in revenue for the estimated residual value less related unearned income on sales-type leases, which reflects the z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2025 Annual Report for additional information.

(2)Excludes certain acquisition-related charges.

(3)Includes net gains/(losses) from asset sales and equity investments.

Notes to Consolidated Financial Statements — (continued)

Other Reportable Segment Items


($ in millions)	Software		Consulting		Infrastructure		Financing		Total Segments
For the three months ended September 30, 2026:
Depreciation (1) /amortization of non-acquired intangibles	$	149	$	16	$	276	$	1	$	442
Interest Income	—		—		—		187		187
Interest Expense	—		—		—		104		104

For the three months ended September 30, 2025:
Depreciation (1) /amortization of non-acquired intangibles	$	133	$	20	$	296	$	1	$	451
Interest Income	—		—		—		190		190
Interest Expense	—		—		—		95		95


($ in millions)	Software		Consulting		Infrastructure		Financing		Total Segments
For the nine months ended September 30, 2026:
Depreciation (1) /amortization of non-acquired intangibles	$	420	$	46	$	832	$	2	$	1,300
Interest Income	—		—		—		575		575
Interest Expense	—		—		—		320		320

For the nine months ended September 30, 2025:
Depreciation (1) /amortization of non-acquired intangibles	$	388	$	61	$	841	$	3	$	1,293
Interest Income	—		—		—		528		528
Interest Expense	—		—		—		268		268

(1)Where several segments share leased or owned assets, landlord ownership of these assets is assigned to one segment. Depreciation expense in this table is presented consistently with this ownership view. However, from a segment profit perspective, depreciation expense is allocated to each user segment. Therefore, there is no precise correlation between the depreciation expense presented above and segment profit.

Immaterial Items

The resulting gains and (losses) from equity method investments that are attributable to the segments did not have a material effect on the financial results of the segments.

Notes to Consolidated Financial Statements — (continued)

5. Acquisitions, Divestitures and Other Transactions:

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 nine months ended September 30, 2026, the company completed two acquisitions within the Software segment, one acquisition within the Infrastructure segment and one acquisition within the Consulting segment at an aggregate total purchase price of $12,600 million. These acquisitions are expected to enhance the company's portfolio of products and services capabilities and further advance IBM's hybrid cloud and AI strategy.

The following table reflects the purchase price and the resulting purchase price allocation as of September 30, 2026.


($ in millions)	Amortization Life (in years)	Confluent, Inc. (Confluent)		Other Acquisitions
Current assets (1)		$	2,405	$	342
Property, plant and equipment/noncurrent assets		93		195
Intangible assets:
Goodwill	N/A	7,247		319
Client relationships	7-12	2,122		40
Completed technology	5-7	1,590		281
Trademarks	1-5	122		3
Total assets acquired		$	13,578	$	1,179
Current liabilities (2)		1,723		91
Noncurrent liabilities		253		90
Total liabilities assumed		$	1,976	$	181
Total purchase price		$	11,602	$	998

(1)Includes $1,165 million of cash and cash equivalents and $917 million of short-term marketable securities acquired from Confluent at the acquisition date. Short-term marketable securities were sold by March 31, 2026.

(2)Includes $1,100 million of short-term debt related to convertible notes acquired from Confluent that were recognized at fair value on the acquisition date. The notes were settled on April 15, 2026.

N/A – not applicable

The goodwill generated is primarily attributable to the assembled workforce and the expected synergies from the integration of the acquired businesses. The identified intangible assets are amortized on a straight-line basis over their useful life which approximates the economic life of the assets.

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. Any such revisions or changes may be material.

Notes to Consolidated Financial Statements — (continued)

Confluent — On March 17, 2026, the company completed the acquisition of all of the outstanding shares of Confluent. IBM's and Confluent's combined portfolios enable enterprises to deploy generative and agentic AI better and faster by providing trusted communication and data flow between environments, applications and APIs. Confluent's shareholders on record immediately prior to the effective time on the closing date received $31 per share in cash, representing a total equity value of approximately $11.3 billion. The following table reflects the consideration paid related to the acquisition.


($ in millions)	Total Consideration (1)
Cash paid for outstanding Confluent common stock	$	11,268
Cash paid for Confluent equity awards	269
Cash consideration	$	11,537
Fair value of stock-based compensation awards attributable to pre-acquisition services	65
Total consideration	$	11,602

(1)As part of the assets acquired, the company received $1,165 million of cash and cash equivalents and $917 million of short-term marketable securities from Confluent at the acquisition date.

Goodwill of $7,158 million and $89 million was assigned to the Software and Consulting segments, respectively. It is expected that 1 percent of the goodwill will be deductible for tax purposes. The overall weighted-average useful life of the identified amortizable intangible assets acquired was 9.7 years. In connection with the acquisition, the company issued and assumed 3.0 million stock awards with a fair value of $665 million. Refer to note 17, "Stock-Based Compensation," for additional information. The acquisition was integrated into the Software segment.

Other Acquisitions — Goodwill of $189 million, $114 million, and $16 million was assigned to the Infrastructure, Consulting and Software segments, respectively. It is expected that 59 percent of the goodwill will be deductible for tax purposes. The overall weighted-average useful life of the identified amortizable assets acquired was 6.8 years.

Divestitures

On September 30, 2026, the company completed the divestiture of a joint venture whose historical results were reported within Other, outside of our reportable segments. The transaction did not have a material impact on IBM's Consolidated Financial Statements.

Other Transactions

On September 14, 2026, Anderon LLC (“Anderon”), an IBM subsidiary, finalized an award agreement with the U.S. Department of Commerce (the “Department”) providing an incentive of up to an aggregate $1.0 billion under the CHIPS and Science Act (the "CHIPS") to accelerate research and development of quantum wafer manufacturing capabilities. In addition to the CHIPS incentive provided by the Department, IBM has contributed $1.0 billion of cash into Anderon, along with intellectual property and other assets.

As part of the transaction, the Department made available $650 million of the award at closing to be used for eligible expenses and an additional $350 million will be granted upon the achievement of contractual milestones. In connection with the transaction, Anderon issued a minority equity interest to the Department. The award agreement permits award funds not yet deployed for eligible expenses to be invested in U.S. government securities, funds that invest exclusively in such securities, and other permitted investments. The award agreement also contains customary provisions, including the Department's right to terminate the agreement for convenience, and certain clawback rights.

IBM retains a controlling ownership interest and controlling financial interest in Anderon. Accordingly, Anderon is consolidated in IBM's financial statements, with all intercompany balances and transactions eliminated in consolidation. The Department’s equity interest is presented as noncontrolling interests in IBM's Consolidated Balance Sheet and Statement of Equity at September 30, 2026. Proceeds related to the Department’s equity interest are classified within financing activities while proceeds from the grant are classified within operating or investing activities based on the nature of expenditures funded in IBM's Consolidated Statement of Cash Flows.

Notes to Consolidated Financial Statements — (continued)

6. Other (Income) and Expense:

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


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2026		2025		2026		2025


Other (income) and expense:
(Gains)/losses on foreign currency transactions (1)	$	(52)	$	(84)	$	(487)	$	1,131
(Gains)/losses on derivative instruments (1)	21		162		560		(881)
Interest income	(87)		(150)		(325)		(513)
Net (gains)/losses from securities and investment assets (2)	18		(3)		(97)		8
Retirement-related costs/(income)	91		13		283		61
Other (3)	(100)		(110)		(230)		(181)
Total other (income) and expense	$	(109)	$	(173)	$	(296)	$	(376)

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

(2)Includes realized and unrealized net (gains)/losses from equity investments.

(3)Includes net (gains)/losses from divestitures and asset sales.

7. Earnings 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 nine months ended September 30, 2026 and 2025.


($ in millions, except per share amounts)
For the three months ended September 30:	2026		2025
Number of shares on which basic earnings per share is calculated:
Weighted-average shares outstanding during period	944,400,458		933,861,791
Add — Incremental shares under stock-based compensation plans	6,984,869		12,486,696
Add — Incremental shares associated with contingently issuable shares	2,138,160		2,582,540
Number of shares on which diluted earnings per share is calculated	953,523,487		948,931,026

Income from continuing operations	$	2,199	$	1,744
Income/(loss) from discontinued operations, net of tax	(10)		0
Net income on which basic and dilutive earnings per share is calculated	$	2,190	$	1,744

Earnings/(loss) per share of common stock:
Assuming dilution
Continuing operations	$	2.31	$	1.84
Discontinued operations	(0.01)		0.00
Total	$	2.30	$	1.84
Basic
Continuing operations	$	2.33	$	1.87
Discontinued operations	(0.01)		0.00
Total	$	2.32	$	1.87

Stock options to purchase 3,447,784 shares and 1,803,688 shares were outstanding as of September 30, 2026 and 2025, 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)


($ in millions, except per share amounts)
For the nine months ended September 30:	2026		2025
Number of shares on which basic earnings per share is calculated:
Weighted-average shares outstanding during period	941,375,371		930,891,930
Add — Incremental shares under stock-based compensation plans	9,576,464		14,132,523
Add — Incremental shares associated with contingently issuable shares	2,020,857		2,395,938
Number of shares on which diluted earnings per share is calculated	952,972,693		947,420,391

Income from continuing operations	$	5,581	$	4,992
Income/(loss) from discontinued operations, net of tax	(10)		1
Net income on which basic and dilutive earnings per share is calculated	$	5,571	$	4,993

Earnings/(loss) per share of common stock:
Assuming dilution
Continuing operations	$	5.86	$	5.27
Discontinued operations	(0.01)		0.00
Total	$	5.85	$	5.27
Basic
Continuing operations	$	5.93	$	5.36
Discontinued operations	(0.01)		0.00
Total	$	5.92	$	5.36

Stock options to purchase 1,774,161 shares and 1,838,436 shares (average of first, second and third quarter share amounts) were outstanding as of September 30, 2026 and 2025, 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)

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.

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 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.

Available-for-sale securities are measured for impairment on a recurring basis by comparing the security’s fair value with its amortized cost basis. If the fair value of the security falls below its amortized cost basis, the change in fair value is recognized in the period the impairment is identified when the loss is due to credit factors. The change in fair value due to non-credit factors is recorded in other comprehensive income when the company does not intend to sell and has the ability to hold the investment. The company’s standard practice is to hold all of its debt security investments classified as available-for-sale until maturity. No impairments for credit losses and no material non-credit impairments were recorded for the three and nine months ended September 30, 2026 and 2025, respectively.

Certain non-financial assets such as property, plant and equipment, operating right-of-use assets, goodwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for non-financial assets depend on the type of asset. There were no material impairments of non-financial assets for the three and nine months ended September 30, 2026 and 2025, respectively.

Notes to Consolidated Financial Statements — (continued)

The following table presents the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at September 30, 2026 and December 31, 2025.


	Fair Value Hierarchy Level		At September 30, 2026						At December 31, 2025
($ in millions)		Assets (6)			Liabilities (7)			Assets (6)			Liabilities (7)
Cash equivalents: (1)
Time deposits, certificates of deposit and other (2)	2		$	2,408		N/A			$	7,072		N/A
Money market funds (3)	1		1,721			N/A			413			N/A
Total cash equivalents			$	4,129		N/A			$	7,485		N/A
Equity investments (4)	1		56			N/A			—			N/A
Debt securities — current (2) (5)	2		1,825			N/A			830			N/A
Debt securities — noncurrent (2)	2,3		12			N/A			9			N/A
Derivatives designated as hedging instruments:
Interest rate contracts	2		—			325			2			171
Foreign exchange contracts	2		616			363			545			325
Derivatives not designated as hedging instruments:
Foreign exchange contracts	2		21			13			12			14
Equity contracts	2		11			27			34			3
Total			$	6,670		$	728		$	8,916		$	513

(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)Includes cash invested primarily in money market funds holding U.S. government securities. Refer to "Other Transactions" in note 5, "Acquisitions, Divestitures and Other Transactions," for additional information.

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

(5)Term deposits and government securities that are reported within marketable securities in the Consolidated Balance Sheet.

(6)The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Balance Sheet at September 30, 2026 were $521 million and $128 million, respectively, and at December 31, 2025 were $232 million and $361 million, respectively.

(7)The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Balance Sheet at September 30, 2026 were $198 million and $531 million, respectively, and at December 31, 2025 were $254 million and $259 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 September 30, 2026 and December 31, 2025, the difference between the carrying amount and estimated fair value for loans and long-term receivables was not material. 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

The majority of the company’s long-term debt portfolio is comprised of publicly traded debt, and its fair value is based on quoted market prices for the identical liability when traded as an asset in an active market (Level 1). 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 (Level 2). The carrying amount of long-term debt was $56,804 million and $54,836 million, and the estimated fair value was $51,404 million and $52,703 million at September 30, 2026 and December 31, 2025, respectively.

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 IBM hardware, software and services. Payment terms on these financing arrangements are for terms generally up to seven years. Investment in sales-type and direct financing leases relate principally to the company’s Infrastructure products and are for terms generally up to five years. Commercial financing receivables, which consist of both held-for-investment and held-for-sale receivables, relate primarily to working capital financing for business partners and distributors of IBM products and services. Payment terms for working capital financing generally range from 30 to 60 days.

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


	Client Financing Receivables
	Client Loan and Installment Payment Receivables		Investment in Sales-Type and Direct Financing
			Commercial Financing Receivables
($ in millions)			Held for Investment		Held for Sale (1)
At September 30, 2026	(Loans)		Leases				Total
Financing receivables, gross	$	8,530	$	3,877	$	775	$	774	$	13,956
Unearned income	(653)		(411)		—		—		(1,064)
Unguaranteed residual value	—		485		—		—		485
Amortized cost	$	7,877	$	3,951	$	775	$	774	$	13,377
Allowance for credit losses	(61)		(58)		(1)		—		(120)
Total financing receivables, net	$	7,815	$	3,893	$	774	$	774	$	13,257
Current portion	$	3,639	$	1,225	$	774	$	774	$	6,413
Noncurrent portion	$	4,176	$	2,668	$	—	$	—	$	6,844


	Client Financing Receivables
	Client Loan and Installment Payment Receivables		Investment in Sales-Type and Direct Financing
			Commercial Financing Receivables
($ in millions)			Held for Investment		Held for Sale (1)
At December 31, 2025	(Loans)		Leases				Total
Financing receivables, gross	$	9,634	$	4,338	$	1,865	$	1,131	$	16,968
Unearned income	(710)		(479)		—		—		(1,189)
Unguaranteed residual value	—		545		—		—		545
Amortized cost	$	8,925	$	4,403	$	1,865	$	1,131	$	16,324
Allowance for credit losses	(69)		(67)		(5)		—		(141)
Total financing receivables, net	$	8,856	$	4,336	$	1,861	$	1,131	$	16,184
Current portion	$	4,226	$	1,257	$	1,861	$	1,131	$	8,475
Noncurrent portion	$	4,630	$	3,079	$	—	$	—	$	7,708

(1)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, true sales, 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 not material at September 30, 2026 and December 31, 2025, 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 up to $1.3 billion of 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 nine months ended September 30, 2026 and 2025.

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


($ in millions)
For the nine months ended September 30:	2026		2025




Commercial financing receivables:
Receivables transferred during the period	$	6,265	$	5,681
Receivables uncollected at end of period (1)	$	659	$	712

(1)Of the total amount of commercial financing receivables sold and derecognized from the Consolidated Balance Sheet, the amounts presented remained uncollected from business partners as of September 30, 2026 and 2025.

The transfer of these receivables qualified as true sales and therefore reduced financing receivables. For the nine months ended September 30, 2026 and 2025, the net loss, including fees, associated with the transfer of commercial financing receivables was not material, and is included in other (income) and expense in the Consolidated Income Statement. For the company’s policy on determining treatment for transfer of financial assets, refer to note A, “Significant Accounting Policies,” in the company’s 2025 Annual Report.

Financing Receivables by Portfolio Segment

The following tables present the amortized cost basis for client financing receivables at September 30, 2026 and December 31, 2025, further segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. The commercial financing receivables portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current estimated risk of loss and resulting impact to the company’s financial results are not material.


($ in millions)
At September 30, 2026:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	6,674	$	3,657	$	1,497	$	11,828
Allowance for credit losses:
Beginning balance at January 1, 2026	$	69	$	60	$	7	$	136
Write-offs	(7)		0		(3)		(10)
Recoveries	0		0		0		0
Additions/(releases)	3		(9)		(1)		(7)
Other (1)	0		(1)		0		(1)
Ending balance at September 30, 2026	$	66	$	49	$	4	$	119

(1)Primarily represents translation adjustments.

Notes to Consolidated Financial Statements — (continued)


($ in millions)
At December 31, 2025:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	7,278	$	4,440	$	1,610	$	13,328
Allowance for credit losses:
Beginning balance at January 1, 2025	$	69	$	45	$	9	$	123
Write-offs	(16)		(1)		(5)		(22)
Recoveries	0		0		0		1
Additions/(releases)	10		10		2		22
Other (1)	7		6		0		13
Ending balance at December 31, 2025	$	69	$	60	$	7	$	136

(1)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 2025 Annual Report.

The company’s total past due financing receivables, including client financing receivables with amortized cost aged over 90 days and still accruing, as well as amortized cost not accruing, were not material at September 30, 2026, or December 31, 2025.

Credit Quality Indicators

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

The following tables present the amortized cost basis for client financing receivables by credit quality indicator at September 30, 2026 and December 31, 2025, 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 September 30, 2026 and December 31, 2025 were not material.


($ in millions)	Americas				EMEA				Asia Pacific
At September 30, 2026:	Aaa – Baa3		Ba1 – C		Aaa – Baa3		Ba1 – C		Aaa – Baa3		Ba1 – C
Vintage year:
2026	$	1,806	$	520	$	449	$	452	$	478	$	60
2025	2,608		322		1,512		274		418		57
2024	776		113		441		183		241		32
2023	303		57		149		73		115		6
2022	89		6		41		30		67		9
2021 and prior	26		47		19		35		14		0
Total	$	5,608	$	1,066	$	2,611	$	1,047	$	1,332	$	164

Notes to Consolidated Financial Statements — (continued)


($ in millions)	Americas				EMEA				Asia Pacific
At December 31, 2025:	Aaa – Baa3		Ba1 – C		Aaa – Baa3		Ba1 – C		Aaa – Baa3		Ba1 – C
Vintage year:
2025	$	3,979	$	644	$	2,223	$	501	$	777	$	93
2024	1,142		220		715		296		330		46
2023	708		181		262		143		177		9
2022	237		27		118		74		126		17
2021	73		4		42		8		25		1
2020 and prior	15		49		15		41		5		4
Total	$	6,153	$	1,125	$	3,376	$	1,064	$	1,440	$	170

Modifications

The company did not have any significant modifications due to clients experiencing financial difficulty during the nine months ended September 30, 2026 or for the year ended December 31, 2025.

10. Leases:

Accounting for Leases as a Lessor

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


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2026		2025		2026		2025


Lease income — sales-type and direct financing leases:
Sales-type lease selling price	$	124	$	280	$	568	$	1,227
Less: Carrying value of underlying assets (1)	(31)		(66)		(153)		(247)
Gross profit	93		214		414		979
Interest income on lease receivables	62		65		193		180
Total sales-type and direct financing lease income	155		279		608		1,160
Lease income — operating leases	14		11		40		32
Variable lease income	21		19		71		47
Total lease income	$	190	$	309	$	719	$	1,239

(1)Excludes unguaranteed residual value.

Notes to Consolidated Financial Statements — (continued)

11. Intangible Assets Including Goodwill:

Intangible Assets

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


	At September 30, 2026
($ in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount (1)
Intangible asset class:
Capitalized software	$	1,518	$	(524)	$	994
Client relationships	13,370		(6,544)		6,826
Completed technology	9,190		(4,838)		4,353
Patents/trademarks	2,140		(782)		1,357
Other (2)	139		(67)		72
Total	$	26,357	$	(12,754)	$	13,603


	At December 31, 2025
($ in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount (1)
Intangible asset class:
Capitalized software	$	1,388	$	(424)	$	964
Client relationships	11,261		(5,602)		5,659
Completed technology	7,399		(4,096)		3,304
Patents/trademarks	2,030		(665)		1,365
Other (2)	139		(40)		99
Total	$	22,218	$	(10,827)	$	11,391

(1)Amounts at September 30, 2026 and December 31, 2025 include a decrease in the net intangible asset balance of $37 million and an increase in the net intangible asset balance of $182 million, respectively, due to foreign currency translation.

(2)Other intangibles are primarily acquired proprietary and non-proprietary technology licenses, data, business processes, methodologies and systems.

The net carrying amount of intangible assets increased $2,211 million during the first nine months of 2026, driven by additions of acquired intangibles primarily from Confluent of $3,834 million in the first quarter of 2026 and additions of capitalized software, partially offset by intangible asset amortization. The aggregate intangible asset amortization expense was $828 million and $2,363 million for the three and nine months ended September 30, 2026 and $699 million and $2,027 million for the three and nine months ended September 30, 2025, respectively. During the nine months ended September 30, 2026, the company retired $361 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 September 30, 2026:


($ in millions)	Capitalized Software		Acquired Intangibles		Total
Remainder of 2026	$	146	$	688	$	834
2027	482		2,712		3,194
2028	291		2,408		2,699
2029	76		1,727		1,802
2030	—		1,287		1,287
Thereafter	—		3,787		3,787

Notes to Consolidated Financial Statements — (continued)

Goodwill

The changes in the goodwill balances by segment for the nine months ended September 30, 2026 and for the year ended December 31, 2025 were as follows:


($ in millions)	Balance		Goodwill Additions		Purchase Price Adjustments					Foreign Currency Translation and Other Adjustments (1)		Balance
Segment	1/1/2026				Divestitures				9/30/2026
Software	$	52,987	$	7,153	$	12	$	—		$	(310)	$	59,843
Consulting	10,341		203		13		—			(52)		10,504
Infrastructure	4,389		189		1		—			(10)		4,569

Total	$	67,717	$	7,544	$	26	$	—		$	(372)	$	74,916


($ in millions)	Balance		Goodwill Additions		Purchase Price Adjustments					Foreign Currency Translation and Other Adjustments (1)		Balance
Segment	1/1/2025				Divestitures				12/31/2025
Software	$	47,136	$	5,004	$	(8)	$	—		$	855	$	52,987
Consulting	9,206		908		10		—			217		10,341
Infrastructure	4,363		—		0		0			26		4,389

Total	$	60,706	$	5,912	$	1	$	0		$	1,098	$	67,717

(1)Primarily driven by foreign currency translation.

Goodwill additions recorded in the nine months ended September 30, 2026 were primarily driven by the acquisition of Confluent. Refer to note 5, “Acquisitions, Divestitures and Other Transactions,” for additional information.

There were no goodwill impairment losses recorded during the nine months ended September 30, 2026 or the year ended December 31, 2025 and the company has no accumulated impairment losses. Purchase price adjustments recorded during the nine months ended September 30, 2026 and the year ended December 31, 2025 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 nine months ended September 30, 2026 and the year ended December 31, 2025 were not material.

12. Borrowings:

Short-Term Debt

The company's total short-term debt at September 30, 2026 and December 31, 2025 was $7,013 million and $6,424 million, respectively, and primarily consisted of current maturities of long-term debt detailed in “Long-Term Debt” below.

Notes to Consolidated Financial Statements — (continued)

Long-Term Debt

Pre-Swap Borrowing


		Balance		Balance
($ in millions)	Maturities	9/30/2026		12/31/2025
U.S. dollar debt (weighted-average interest rate at September 30, 2026): (1) (2)
3.7%	2026	$	—	$	5,800
3.3%	2027	4,119		4,119
4.8%	2028	2,317		2,319
3.7%	2029	4,256		3,757
3.2%	2030	2,380		2,355
4.5%	2031	1,000		500
4.6%	2032	2,700		2,700
4.7%	2033	1,250		750
4.9%	2034	1,000		1,000
5.2%	2035	900		900
5.0%	2036	1,000		—
8.0%	2038	83		83
4.5%	2039	2,745		2,745
2.9%	2040	650		650
4.0%	2042	1,107		1,107
5.3%	2044	1,000		1,000
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		650
5.3%	2054	1,400		1,400
5.7%	2055	1,000		1,000
5.8%	2056	750		—
7.1%	2096	316		316
		$	36,450	$	38,979
Euro debt (weighted-average interest rate at September 30, 2026): (1)
2.3%	2027	$	2,272	$	2,349
1.3%	2028	2,896		2,114
1.5%	2029	1,136		1,174
1.7%	2030	1,988		2,055
2.8%	2031	3,975		2,936
0.7%	2032	1,817		1,879
3.2%	2033	1,249		1,292
2.4%	2034	2,272		1,174
3.8%	2035	1,136		1,174
3.5%	2037	1,022		1,057
3.9%	2038	852		—
1.2%	2040	965		998
4.0%	2043	1,136		1,174
3.8%	2045	852		881
		$	23,567	$	20,258
Other currencies (weighted-average interest rate at September 30, 2026): (1)
Canadian dollar (4.3%)	2030-2034	$	1,937	$	—
Pound sterling (4.9%)	2038	996		1,009
Japanese yen (1.5%)	2026–2028	808		811
Other (13.4%)	2026–2027	13		78
		$	63,772	$	61,134
Finance lease obligations (4.9% weighted-average interest rate at September 30, 2026)	2026–2035	1,240		1,153
		$	65,012	$	62,286
Less: net unamortized discount		791		806
Less: net unamortized debt issuance costs		199		185
Add: fair value adjustment (3)		(209)		(36)
		$	63,813	$	61,259
Less: current maturities		7,009		6,424
Total		$	56,804	$	54,836

(1)Includes notes, debentures, bank loans and secured borrowings.

(2)Includes a total of $4.9 billion from the 2024 issuance of U.S. dollar fixed-rate notes by IBM International Capital Pte. Ltd (IIC), a 100-percent owned finance subsidiary of IBM. The notes are fully and unconditionally guaranteed by IBM and no other subsidiary of IBM guarantees the notes.

(3)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.

On February 3, 2026, the company issued $3.25 billion of U.S. dollar fixed-rate notes in tranches with maturities ranging from 3 to 30 years and coupons ranging from 4.0 to 5.8 percent; and $3.3 billion of Euro fixed-rate notes in tranches with maturities ranging from 5 to 12 years and coupons ranging from 3.0 to 3.85 percent; and $0.9 billion of Euro floating-rate notes with a maturity of 2 years. On August 17, 2026, the company issued $2 billion of Canadian dollar fixed-rate notes in tranches with maturities ranging from 4 to 8 years and coupons ranging from 4.1 to 4.75 percent.

Pre-swap annual contractual obligations of long-term debt outstanding at September 30, 2026, were as follows:


($ in millions)	Total
Remainder of 2026	$	359
2027	6,732
2028	6,036
2029	5,614
2030	5,706
Thereafter	40,564
Total	$	65,012

Interest on Debt


($ in millions)
For the nine months ended September 30:	2026		2025
Cost of financing	$	320	$	268
Interest expense	1,451		1,457
Interest capitalized	4		5
Total interest paid and accrued	$	1,774	$	1,730

Lines of Credit

The company has a $2.5 billion Three-Year Credit Agreement and $7.5 billion Five-Year Credit Agreement (the Credit Agreements) with maturity dates of June 20, 2029 and June 22, 2031, respectively. The Credit Agreements permit the company and its subsidiary borrowers to borrow up to $10 billion on a revolving basis. At September 30, 2026, 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 $2.1 billion and $1.7 billion at September 30, 2026 and December 31, 2025, respectively. In addition, the company has committed to provide future financing to its clients in connection with client purchase agreements for $1.6 billion and $1.9 billion at September 30, 2026 and December 31, 2025, respectively. The company collectively evaluates the allowance for these arrangements using a provision methodology consistent with the portfolio of the commitments. Refer to note A, “Significant Accounting Policies,” in the company’s 2025 Annual Report for additional information. The allowance for these commitments recorded in other liabilities in the Consolidated Balance Sheet at September 30, 2026 and December 31, 2025 was not material.

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

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

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

In addition, the company guarantees certain loans and financial commitments. The maximum potential future payment under these financial guarantees and the fair value of these guarantees recognized in the Consolidated Balance Sheet at September 30, 2026 and December 31, 2025 were not material.

The company’s liabilities for standard and extended warranties, which are included in other accrued expenses and liabilities and other liabilities, and in deferred income, respectively, in the Consolidated Balance Sheet, were not material for the periods presented.

Notes to Consolidated Financial Statements — (continued)

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 Intellectual Property (IP) rights and associated products and offerings, including claims of copyright and patent infringement and violations of trade secrets and other IP rights. In addition, the company enforces its own IP against infringement, through license negotiations, lawsuits or otherwise. Further, given the rapidly evolving external landscape of cybersecurity, AI, privacy and data protection laws, regulations and threat actors, the company and its clients have been and will continue to be subject to actions or proceedings in various jurisdictions. Also, as is typical for companies of IBM’s scope and scale, the company is party to actions and proceedings in various jurisdictions involving a wide range of labor and employment issues (including matters related to contested employment decisions, country-specific labor and employment laws, and the company’s pension, retirement and other benefit plans), as well as actions with respect to contracts, product liability, cybersecurity, data privacy, securities, foreign operations, competition law and environmental matters. These actions may be commenced by a number of different parties, including competitors, clients, current or former employees, government and regulatory agencies, stockholders and representatives of the locations in which the company does business. Some of the actions to which the company is party may involve particularly complex technical issues, and some actions may raise novel questions under the laws of the various jurisdictions in which these matters arise.

The company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any recorded liabilities, including any changes to such liabilities for the quarter ended September 30, 2026 were not material to the Consolidated Financial Statements.

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

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

The company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate), to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter.

Whether any losses, damages or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including: the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact any such losses, damages or remedies may have in the Consolidated Financial Statements; and the unique facts and 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.

Notes to Consolidated Financial Statements — (continued)

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

15. Equity Activity:

Reclassifications and Taxes Related to Items of Other Comprehensive Income


($ in millions)	Before Tax Amount		Tax (Expense)/ Benefit		Net of Tax Amount
For the three months ended September 30, 2026:
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	79	$	(19)	$	60



Net unrealized gains/(losses) on available-for-sale securities	$	0	$	0	$	0
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	$	(66)	$	18	$	(48)
Reclassification of (gains)/losses to:
Cost of services	20		(5)		15
Cost of sales	(10)		3		(7)
Cost of financing	1		0		1
SG&A expense	(4)		1		(3)
Other (income) and expense	(7)		2		(5)
Interest expense	5		(1)		4
Total unrealized gains/(losses) on cash flow hedges	$	(61)	$	18	$	(43)
Retirement-related benefit plans: (1)
Prior service costs/(credits)	$	—	$	—	$	—
Net gains/(losses) arising during the period	(2)		0		(2)
Curtailments and settlements	2		0		2
Amortization of prior service costs/(credits)	9		(2)		6
Amortization of net (gains)/losses	196		(52)		144
Total retirement-related benefit plans	$	205	$	(55)	$	150
Other comprehensive income/(loss)	$	222	$	(56)	$	166

(1)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


($ in millions)	Before Tax Amount		Tax (Expense)/ Benefit		Net of Tax Amount
For the three months ended September 30, 2025:
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	(100)	$	(40)	$	(140)



Net unrealized gains/(losses) on available-for-sale securities	$	(2)	$	0	$	(1)
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	$	20	$	(6)	$	14
Reclassification of (gains)/losses to:
Cost of services	7		(2)		5
Cost of sales	0		0		0
Cost of financing	1		0		1
SG&A expense	1		0		1
Other (income) and expense	79		(20)		59
Interest expense	6		(1)		4
Total unrealized gains/(losses) on cash flow hedges	$	113	$	(30)	$	84
Retirement-related benefit plans: (1)
Prior service costs/(credits)	$	0	$	0	$	0
Net gains/(losses) arising during the period	0		0		0
Curtailments and settlements	2		0		1
Amortization of prior service costs/(credits)	(2)		1		(1)
Amortization of net (gains)/losses	158		(43)		115
Total retirement-related benefit plans	$	158	$	(43)	$	115
Other comprehensive income/(loss)	$	170	$	(112)	$	58

(1)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


($ in millions)	Before Tax Amount		Tax (Expense)/ Benefit		Net of Tax Amount
For the nine months ended September 30, 2026:
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	206	$	(177)	$	28



Net unrealized gains/(losses) on available-for-sale securities	$	0	$	0	$	0
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	$	(123)	$	28	$	(94)
Reclassification of (gains)/losses to:
Cost of services	57		(14)		43
Cost of sales	(19)		7		(12)
Cost of financing	3		(1)		3
SG&A expense	(7)		2		(5)
Other (income) and expense	393		(98)		295
Interest expense	16		(4)		12
Total unrealized gains/(losses) on cash flow hedges	$	321	$	(79)	$	241
Retirement-related benefit plans: (1)
Prior service costs/(credits)	$	—	$	—	$	—
Net gains/(losses) arising during the period	(1)		(1)		(2)
Curtailments and settlements	7		(2)		5
Amortization of prior service costs/(credits)	26		(6)		20
Amortization of net (gains)/losses	590		(155)		436
Total retirement-related benefit plans	$	622	$	(163)	$	459
Other comprehensive income/(loss)	$	1,148	$	(420)	$	728

(1)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


($ in millions)	Before Tax Amount		Tax (Expense)/ Benefit		Net of Tax Amount
For the nine months ended September 30, 2025:
Other comprehensive income/(loss):
Foreign currency translation adjustments	$	(1,056)	$	562	$	(494)



Net unrealized gains/(losses) on available-for-sale securities	$	1	$	0	$	0
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period	$	(121)	$	34	$	(87)
Reclassification of (gains)/losses to:
Cost of services	12		(3)		9
Cost of sales	(2)		1		(1)
Cost of financing	3		(1)		2
SG&A expense	(1)		0		(1)
Other (income) and expense	(679)		171		(508)
Interest expense	18		(5)		13
Total unrealized gains/(losses) on cash flow hedges	$	(769)	$	197	$	(572)
Retirement-related benefit plans: (1)
Prior service costs/(credits)	$	0	$	0	$	0
Net gains/(losses) arising during the period	0		8		8
Curtailments and settlements	8		(2)		6
Amortization of prior service costs/(credits)	(5)		2		(3)
Amortization of net (gains)/losses	466		(126)		341
Total retirement-related benefit plans	$	469	$	(118)	$	351
Other comprehensive income/(loss)	$	(1,355)	$	641	$	(715)

(1)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)


($ in millions)	Foreign Currency Translation Adjustments (1)		Net Unrealized Gains/(Losses) on Available- For-Sale Securities		Net Unrealized Gains/(Losses) on Cash Flow Hedges		Net Change Retirement- Related Benefit Plans		Accumulated Other Comprehensive Income/(Loss)
January 1, 2026	$	(3,956)	$	0	$	(157)	$	(11,600)	$	(15,713)
Other comprehensive income before reclassifications	28		0		(94)		(2)		(68)
Amount reclassified from accumulated other comprehensive income	—		—		336		461		796
Total change for the period	$	28	$	0	$	241	$	459	$	728
September 30, 2026	$	(3,928)	$	(1)	$	85	$	(11,141)	$	(14,985)


($ in millions)	Foreign Currency Translation Adjustments (1)		Net Unrealized Gains/(Losses) on Available- For-Sale Securities		Net Unrealized Gains/(Losses) on Cash Flow Hedges		Net Change Retirement- Related Benefit Plans		Accumulated Other Comprehensive Income/(Loss)
January 1, 2025	$	(3,512)	$	0	$	237	$	(11,994)	$	(15,269)
Other comprehensive income before reclassifications	(494)		0		(87)		8		(572)
Amount reclassified from accumulated other comprehensive income	—		—		(485)		343		(142)
Total change for the period	$	(494)	$	0	$	(572)	$	351	$	(715)
September 30, 2025	$	(4,005)	$	1	$	(335)	$	(11,643)	$	(15,983)

(1)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 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 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.

The company does not offset derivative assets against liabilities in master netting arrangements. If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Balance Sheet at September 30, 2026 and December 31, 2025, the total derivative asset and liability positions each would have been reduced by $423 million and $285 million, respectively. The company restricts the use of cash collateral received to rehypothecation, and therefore reports it in restricted cash. Receivables and payables recognized upon payment or receipt of cash collateral against the fair values of the related derivative instruments, including the amount rehypothecated, are recognized on a gross basis in the Consolidated Balance Sheet and were not material for all periods presented.

Notes to Consolidated Financial Statements — (continued)

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 uses interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt. At both September 30, 2026 and December 31, 2025, the total notional amount of the company’s interest-rate swaps was $6.7 billion. The weighted-average remaining maturity of these instruments at September 30, 2026 and December 31, 2025 was approximately 2.7 years and 3.5 years, respectively. These interest-rate contracts were accounted for as fair value hedges.

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 major foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the subsidiaries' functional currency with respect to the U.S. dollar. At September 30, 2026 and December 31, 2025, the carrying value of debt designated as hedging instruments was $18.3 billion and $16.4 billion, respectively. The company also uses foreign currency derivatives, which may include forward contracts, long-term cross currency swaps, and options, for this risk management purpose. At September 30, 2026 and December 31, 2025, the total notional amount of derivative instruments designated as net investment hedges was $7.7 billion and $6.9 billion, respectively. At both September 30, 2026 and December 31, 2025, the weighted-average remaining maturity of these instruments was less than one year.

Anticipated Royalties and Cost Transactions

The company’s operations generate significant nonfunctional currency, third-party vendor payments and intercompany payments for royalties and goods and services among the company’s non-U.S. subsidiaries and with the company. In anticipation of these foreign currency cash flows and in view of the volatility of the currency markets, the company selectively employs forward contracts to manage its currency risk. These forward contracts are accounted for as cash flow hedges. At September 30, 2026, the maximum remaining length of time over which the company hedged its exposure is approximately two years. At September 30, 2026 and December 31, 2025, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $11.1 billion and $10.8 billion, respectively. At both September 30, 2026 and December 31, 2025, the weighted-average remaining maturity of these instruments was less than one year.

Notes to Consolidated Financial Statements — (continued)

At September 30, 2026 and December 31, 2025, in connection with cash flow hedges of anticipated royalties and cost transactions, there were unrealized net gains (before taxes) of $220 million and $4 million, respectively, deferred in AOCI. The company estimates that $166 million of the deferred net gains (before taxes) on derivatives in AOCI at September 30, 2026 will be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

Foreign Currency-Denominated Borrowings

The company is exposed to exchange rate volatility on foreign currency-denominated debt. To manage this risk, the company may employ forward contracts or cross-currency swaps to convert the principal, or principal and interest payments of foreign currency-denominated debt, to debt denominated in the functional currency of the borrowing entity. These derivatives are accounted for as cash flow hedges.

At September 30, 2026, the maximum length of time remaining over which the company hedged its exposure was approximately four years. At September 30, 2026 and December 31, 2025, the total notional amount of derivative instruments designated as cash flow hedges of foreign currency-denominated debt was $9.2 billion and $4.8 billion, respectively.

At September 30, 2026 and December 31, 2025, in connection with forward contracts, there were unrealized net gains (before taxes) of $38 million and unrealized net losses of $48 million, respectively, deferred in AOCI. Approximately $120 million of losses (before taxes) related to the initial forward points excluded from the assessment of hedge effectiveness is expected to be amortized to other (income) and expense in the Consolidated Income Statement within the next 12 months.

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 forward contracts to economically hedge, on a net basis, the foreign currency exposure of a portion of the company’s nonfunctional currency assets and liabilities. The terms of these forward and swap contracts are generally less than one year. The changes in the fair values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated Income Statement. At September 30, 2026 and December 31, 2025, the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $6.2 billion and $6.4 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 both September 30, 2026 and December 31, 2025, the total notional amount of derivative instruments in economic hedges of these compensation obligations was $1.5 billion.

Notes to Consolidated Financial Statements — (continued)

Cumulative Basis Adjustments for Fair Value Hedges

At September 30, 2026 and December 31, 2025, the following amounts were recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:


($ in millions)	September 30, 2026		December 31, 2025
Short-term debt:
Carrying amount of the hedged item	$	(1,226)	$	—
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)	(2)		—
Long-term debt:
Carrying amount of the hedged item	(5,261)		(6,656)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities) (1)	211		36

(1)Includes $(93) million and $(114) million of hedging adjustments on discontinued hedging relationships at September 30, 2026 and December 31, 2025, respectively.

Effect of Derivatives in the Consolidated Income Statement and Other Comprehensive Income (OCI)

The total effect of fair value hedges, cash flow hedges, net investment hedges and derivatives not designated as hedging instruments are summarized by income and expense line items as follows:


	(Gains)/Losses of Total Hedge Activity
	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2026		2025		2026		2025

Cost of services	$	20	$	7	$	57	$	12
Cost of sales	(10)		0		(19)		(2)
Cost of financing	0		(1)		(2)		(2)
SG&A expense	37		(74)		(60)		(157)
Other (income) and expense	21		162		560		(881)
Interest expense	(1)		(4)		(9)		(9)

Notes to Consolidated Financial Statements — (continued)


	(Gains)/Losses Recognized in Consolidated Income Statement
($ in millions)	Consolidated Income Statement Line Item		Recognized on Derivatives						Attributable to Risk Being Hedged (1)
For the three months ended September 30:		2026			2025			2026			2025
Derivative instruments in fair value hedges: (2)
Interest rate contracts	Cost of financing		$	22		$	(1)		$	(20)		$	4
	Interest expense		103			(6)			(94)			22
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		28			83			N/A			N/A
Equity contracts	SG&A expense		42			(75)			N/A			N/A

Total			$	194		$	0		$	(114)		$	27


	Effects of Derivatives Recognized in Consolidated Income Statement and OCI
							(Gains)/Losses
($ in millions)	Gains/(Losses) Recognized in OCI				Consolidated Income Statement Line Item		Reclassified from AOCI						Amounts Excluded from Effectiveness Testing (3)
For the three months ended September 30:	2026		2025			2026			2025			2026			2025
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing		$	0		$	1		N/A			N/A
					Interest expense		2			3			N/A			N/A
Foreign exchange contracts
Amount included in the assessment of effectiveness	(42)		70		Cost of services		20			7			N/A			N/A
					Cost of sales		(10)			0			N/A			N/A
					Cost of financing		1			1			N/A			N/A
					SG&A expense		(4)			1			N/A			N/A
					Other (income) and expense		(44)			51			N/A			N/A
					Interest expense		3			3			N/A			N/A
Amount excluded from the assessment of effectiveness	(24)		(50)		Other (income) and expense		N/A			N/A			37			28
Instruments in net investment hedges: (4)
Foreign exchange contracts
Amount included in the assessment of effectiveness	83		154
Amount excluded from the assessment of effectiveness	(6)		6		Cost of financing		N/A			N/A			(3)			(5)
					Interest expense		N/A			N/A			(15)			(26)

Total	$	11	$	179			$	(32)		$	66		$	19		$	(4)

(1)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.

(2)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.

(3)Amounts excluded from effectiveness testing for both net investment hedges and cash flow hedges of foreign currency debt are amortized to net income on a straight line basis over the life of the relevant hedging instrument.

(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

Notes to Consolidated Financial Statements — (continued)


	(Gains)/Losses Recognized in Consolidated Income Statement
($ in millions)	Consolidated Income Statement Line Item		Recognized on Derivatives						Attributable to Risk Being Hedged (1)
For the nine months ended September 30:		2026			2025			2026			2025
Derivative instruments in fair value hedges: (2)
Interest rate contracts	Cost of financing		$	36		$	(14)		$	(31)		$	23
	Interest expense		165			(79)			(142)			123
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		167			(202)			N/A			N/A
Equity contracts	SG&A expense		(53)			(156)			N/A			N/A
Total			$	316		$	(451)		$	(173)		$	146


	Effects of Derivatives Recognized in Consolidated Income Statement and OCI
							(Gains)/Losses
	Gains/(Losses) Recognized in OCI				Consolidated Income Statement Line Item		Reclassified from AOCI						Amounts Excluded from Effectiveness Testing (3)
($ in millions)
For the nine months ended September 30:	2026		2025			2026			2025			2026			2025
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing		$	2		$	2		N/A			N/A
					Interest expense		7			9			N/A			N/A
Foreign exchange contracts
Amount included in the assessment of effectiveness	(103)		87		Cost of services		57			12			N/A			N/A
					Cost of sales		(19)			(2)			N/A			N/A
					Cost of financing		2			2			N/A			N/A
					SG&A expense		(7)			(1)			N/A			N/A
					Other (income) and expense		288			(763)			N/A			N/A
					Interest expense		9			9			N/A			N/A
Amount excluded from the assessment of effectiveness	(20)		(207)		Other (income) and expense		N/A			N/A			105			84
Instruments in net investment hedges: (4)
Foreign exchange contracts
Amount included in the assessment of effectiveness	733		(2,252)
Amount excluded from the assessment of effectiveness	(22)		17		Cost of financing		N/A			N/A			(11)			(13)
					Interest expense		N/A			N/A			(48)			(72)

Total	$	588	$	(2,356)			$	338		$	(732)		$	47		$	(1)

(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

Notes to Consolidated Financial Statements — (continued)

17. Stock-Based Compensation:

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


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2026		2025		2026		2025


Cost	$	59	$	67	$	208	$	199
SG&A expense	278		233		776		694
R&D expense	197		144		555		393
Pre-tax stock-based compensation cost	535		444		1,539		1,285
Income tax benefits	(205)		(228)		(558)		(578)
Net stock-based compensation cost	$	330	$	215	$	981	$	707

Pre-tax stock-based compensation cost for the three months ended September 30, 2026 increased $91 million compared to the corresponding period in the prior year primarily due to increases in restricted stock units ($80 million) and performance share units ($12 million). For the nine months ended September 30, 2026 pre-tax stock-based compensation cost increased $253 million compared to the corresponding period in the prior year primarily due to increases in restricted stock units ($210 million) and performance share units ($37 million). For both the three and nine months ended September 30, 2026, the increases are driven by the issuance and assumption of stock-based compensation awards in connection with recent acquisitions, adjustments related to targets for performance share units and the company's annual cycle for employees.

Total unrecognized compensation cost related to non-vested awards at September 30, 2026 was $2.5 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 (DC) plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits.

Cost/(Income) of Retirement Plans

The following tables provides the components of the cost/(income) for the company’s retirement-related benefit plans.


($ in millions)	U.S. Plans				Non-U.S. Plans
For the three months ended September 30:	2026		2025		2026		2025
Service cost	$	87	$	88	$	43	$	45
Interest cost (1)	180		187		286		273
Expected return on plan assets (1)	(266)		(268)		(359)		(376)
Amortization of prior service costs/(credits) (1)	—		—		16		6
Recognized actuarial losses (1)	122		70		74		88
Curtailments and settlements (1)	—		—		2		2
Multi-employer plans	—		—		3		3
Other costs/(credits) (1)	—		—		6		0
Total net periodic pension (income)/cost of defined benefit plans	$	122	$	77	$	71	$	40
Cost of defined contribution plans	15		16		98		100
Total defined benefit pension and defined contribution plans cost recognized in the Consolidated Income Statement	$	136	$	93	$	169	$	140

(1)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)


($ in millions)	U.S. Plans				Non-U.S. Plans
For the nine months ended September 30:	2026		2025		2026		2025
Service cost	$	259	$	264	$	132	$	130
Interest cost (1)	539		561		865		790
Expected return on plan assets (1)	(798)		(804)		(1,083)		(1,091)
Amortization of prior service costs/(credits) (1)	—		—		48		17
Recognized actuarial losses (1)	365		210		225		257
Curtailments and settlements (1)	—		—		7		8
Multi-employer plans	—		—		10		10
Other costs/(credits) (1)	—		—		26		18
Total net periodic pension (income)/cost of defined benefit plans	$	366	$	230	$	229	$	139
Cost of defined contribution plans	45		46		310		299
Total defined benefit pension and defined contribution plans cost recognized in the Consolidated Income Statement	$	411	$	276	$	538	$	438

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

Cost of Nonpension Postretirement Plans

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


($ in millions)	U.S. Plan				Non-U.S. Plans
For the three months ended September 30:	2026		2025		2026		2025
Service cost	$	0	$	0	$	0	$	1
Interest cost (1)	25		28		12		11
Expected return on plan assets (1)	—		—		0		0
Amortization of prior service costs/(credits) (1)	(7)		(7)		0		0
Recognized actuarial losses (1)	1		—		0		0
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement	$	19	$	22	$	12	$	11


($ in millions)	U.S. Plan				Non-U.S. Plans
For the nine months ended September 30:	2026		2025		2026		2025
Service cost	$	1	$	1	$	1	$	1
Interest cost (1)	75		85		35		31
Expected return on plan assets (1)	—		—		0		(1)
Amortization of prior service costs/(credits) (1)	(22)		(22)		0		0
Recognized actuarial losses (1)	2		—		0		1
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement	$	56	$	65	$	36	$	33

(1)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)

Plan Contributions

The company does not anticipate any significant changes to the expected plan contributions in 2026 from the amounts disclosed in the 2025 Annual Report. The table below includes contributions to the following plans:


($ in millions)	Plan Contributions
For the nine months ended September 30:	2026		2025
U.S. nonpension postretirement benefit plan	$	187	$	159
Non-U.S. DB and multi-employer plans (1)	22		21
Total plan contributions	$	209	$	179

(1)Amounts reported net of refunds.

The U.S. nonpension postretirement benefit plan contributions in the table above were made in U.S. Treasury securities. Additionally, during the nine months ended September 30, 2026 and 2025, contributions of $648 million and $580 million, respectively, were made to the Active Medical Trust in U.S. Treasury securities. Contributions made with U.S. Treasury securities are considered a non-cash transaction.

19. Subsequent Events:

On October 21, 2026, the company announced that the Board of Directors approved a quarterly dividend of $1.69 per common share. The dividend is payable December 10, 2026 to stockholders of record on November 10, 2026.

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