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IBM
IBM
#75
Rank
NZ$369.87 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
NZ$393.53
Share price
0.53%
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-0.95%
Change (1 year)
๐Ÿ‘จโ€๐Ÿ’ป Software๐Ÿ‘ฉโ€๐Ÿ’ป Tech๐Ÿ‡บ๐Ÿ‡ธ Dow jones๐Ÿฆพ AI
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The International Business Machines Corporation is an American IT and consulting company based in Armonk, New York. IBM is one of the world's leading companies for hardware, software and services in the IT sector and one of the largest consulting companies.

  1. IBM
  2. Quarterly Reports (10-Q)
  3. Submitted on 2026-04-23

IBM - 10-Q quarterly report FY


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2026
1-2360
(Commission file number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
New York
(State of incorporation)
13-0871985
(IRS employer identification number)
One New Orchard Road
Armonk, New York
(Address of principal executive offices)
10504
(Zip Code)
914-499-1900
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)
Name of each exchange on which registered
Capital stock, par value $.20 per shareIBMNew York Stock Exchange
NYSE Texas
0.300% Notes due 2026IBM 26BNew York Stock Exchange
1.250% Notes due 2027IBM 27BNew York Stock Exchange
3.375% Notes due 2027IBM 27FNew York Stock Exchange
0.300% Notes due 2028IBM 28BNew York Stock Exchange
1.750% Notes due 2028IBM 28ANew York Stock Exchange
1.500% Notes due 2029IBM 29New York Stock Exchange
0.875% Notes due 2030IBM 30ANew York Stock Exchange
2.900% Notes due 2030IBM 30CNew York Stock Exchange
1.750% Notes due 2031IBM 31New York Stock Exchange
3.000% Notes due 2031IBM 31ANew York Stock Exchange
3.625% Notes due 2031IBM 31BNew York Stock Exchange
0.650% Notes due 2032IBM 32ANew York Stock Exchange
3.150% Notes due 2033IBM 33ANew York Stock Exchange
3.450% Notes due 2034IBM 34ANew York Stock Exchange
1.250% Notes due 2034IBM 34New York Stock Exchange
3.750% Notes due 2035IBM 35New York Stock Exchange
3.450% Notes due 2037IBM 37New York Stock Exchange
3.850% Notes due 2038IBM 38BNew York Stock Exchange
4.875% Notes due 2038IBM 38New York Stock Exchange
1.200% Notes due 2040IBM 40New York Stock Exchange
4.000% Notes due 2043IBM 43New York Stock Exchange
3.800% Notes due 2045IBM 45ANew York Stock Exchange
Floating Rate Notes due 2028IBM 28ENew York Stock Exchange
6.22% Debentures due 2027IBM 27New York Stock Exchange
6.50% Debentures due 2028IBM 28New York Stock Exchange
5.875% Debentures due 2032IBM 32DNew York Stock Exchange
7.00% Debentures due 2045IBM 45New York Stock Exchange
7.125% Debentures due 2096IBM 96New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer ☐
Smaller reporting company ☐
Non-accelerated filer
☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 939,885,280 shares of common stock outstanding at March 31, 2026.


Index

Page
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Income Statement for the three months ended March 31, 2026 and 2025
3
Consolidated Statement of Comprehensive Income for the three months ended March 31, 2026 and 2025
4
Consolidated Balance Sheet at March 31, 2026 and December 31, 2025
5
Consolidated Statement of Cash Flows for the three months ended March 31, 2026 and 2025
7
Consolidated Statement of Equity for the three months ended March 31, 2026 and 2025
8
Notes to Consolidated Financial Statements
9
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
38
Item 4. Controls and Procedures
58
Item 1. Legal Proceedings
59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
59
Item 5. Other Information
59
Item 6. Exhibits
60
2
Table of Contents
Part I - Financial Information
Item 1. Consolidated Financial Statements:
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
Three Months Ended March 31,
($ in millions, except per share amounts)
 20262025
Revenue:  
Services$7,688 $7,280 
Sales8,009 7,070 
Financing220 191 
Total revenue15,917 14,541 
Cost:  
Services5,244 5,002 
Sales1,599 1,404 
Financing124 104 
Total cost6,968 6,510 
Gross profit8,950 8,031 
Expense and other (income):  
Selling, general and administrative5,089 4,886 
Research and development2,173 1,950 
Intellectual property and custom development income(172)(253)
Other (income) and expense
(1)(165)
Interest expense473 455 
Total expense and other (income)7,562 6,873 
Income from continuing operations before income taxes
1,387 1,158 
Provision for/(benefit from) income taxes
172 103 
Income from continuing operations
1,216 1,054 
Income from discontinued operations, net of tax
0 1 
Net income
$1,216 $1,055 
Earnings per share of common stock:
  
Assuming dilution:  
Continuing operations$1.28 $1.12 
Discontinued operations0.00 0.00 
Total$1.28 $1.12 
Basic:  
Continuing operations$1.30 $1.14 
Discontinued operations0.00 0.00 
Total$1.30 $1.14 
Weighted-average number of common shares outstanding: (millions)  
Assuming dilution952.1 945.4 
Basic938.5 928.0 

(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
3
Table of Contents
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended March 31,
($ in millions) 2026 2025
Net income
$1,216 $1,055 
Other comprehensive income/(loss), before tax:  
Foreign currency translation adjustments136 (343)
Net unrealized gains/(losses) on available-for-sale securities
0 8 
Unrealized gains/(losses) on cash flow hedges:  
Unrealized gains/(losses) arising during the period(175)(58)
Reclassification of (gains)/losses to net income342 (323)
Total unrealized gains/(losses) on cash flow hedges167 (382)
Retirement-related benefit plans:  
Prior service costs/(credits)— 0 
Net gains/(losses) arising during the period
1 0 
Curtailments and settlements2 2 
Amortization of prior service costs/(credits)
9 (2)
Amortization of net (gains)/losses198 151 
Total retirement-related benefit plans209 151 
Other comprehensive income/(loss), before tax512 (566)
Income tax (expense)/benefit related to items of other comprehensive income(213)259 
Other comprehensive income/(loss), net of tax299 (306)
Total comprehensive income$1,514 $749 

(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
4
Table of Contents
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
($ in millions)
At March 31, 2026At December 31, 2025
Assets:  
Current assets:  
Cash and cash equivalents$10,819 $13,587 
Restricted cash45 54 
Marketable securities964 830 
Notes and accounts receivable — trade (net of allowances of $102 in 2026 and $99 in 2025)
6,493 8,112 
Short-term financing receivables:
Held for investment (net of allowances of $100 in 2026 and $106 in 2025)
5,767 7,344 
Held for sale743 1,131 
Other accounts receivable (net of allowances of $37 in 2026 and $37 in 2025)
1,242 1,052 
Inventory, at lower of average cost or net realizable value:
Finished goods268 230 
Work in process and raw materials1,208 990 
Total inventory1,476 1,220 
Deferred costs1,157 1,084 
Prepaid expenses and other current assets3,209 2,530 
Total current assets31,914 36,944 
Property, plant and equipment17,765 17,874 
Less: Accumulated depreciation11,985 11,975 
Property, plant and equipment — net5,781 5,899 
Operating right-of-use assets — net3,219 3,129 
Long-term financing receivables (net of allowances of $27 in 2026 and $34 in 2025)
7,014 7,708 
Prepaid pension assets7,578 7,544 
Deferred costs831 825 
Deferred taxes8,552 8,610 
Goodwill74,709 67,717 
Intangible assets — net14,624 11,391 
Investments and sundry assets2,009 2,112 
Total assets$156,229 $151,880 

(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
5
Table of Contents
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET – (CONTINUED)
(UNAUDITED)
LIABILITIES AND EQUITY
($ and shares in millions, except per share amount)
At March 31, 2026At December 31, 2025
Liabilities:
Current liabilities:  
Taxes$2,053 $2,347 
Short-term debt8,655 6,424 
Accounts payable4,039 4,756 
Compensation and benefits3,941 4,114 
Deferred income17,034 16,101 
Operating lease liabilities798 800 
Other accrued expenses and liabilities3,582 4,116 
Total current liabilities40,101 38,658 
Long-term debt57,706 54,836 
Retirement and nonpension postretirement benefit obligations8,763 9,018 
Deferred income4,195 4,271 
Operating lease liabilities2,643 2,547 
Other liabilities9,767 9,810 
Total liabilities$123,174 $119,139 
Equity:  
IBM stockholders’ equity:  
Common stock, par value $0.20 per share, and additional paid-in capital
63,936 63,318 
Shares authorized: 4,688
  
Shares issued: 2026 — 2,294
  
2025 — 2,291
  
Retained earnings155,327 155,648 
Treasury stock - at cost(170,874)(170,605)
Shares: 2026 — 1,354
  
2025 — 1,354
  
Accumulated other comprehensive income/(loss)(15,415)(15,713)
Total IBM stockholders’ equity32,974 32,648 
Noncontrolling interests81 93 
Total equity33,056 32,740 
Total liabilities and equity$156,229 $151,880 
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
6
Table of Contents
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
($ in millions)
 2026 2025
Cash flows from operating activities:  
Net income$1,216 $1,055 
Adjustments to reconcile net income to cash provided by operating activities:  
Depreciation (1)
555 536 
Amortization of capitalized software and acquired intangible assets719 641 
Stock-based compensation506 401 
Net (gain)/loss on divestitures, asset sales and other(11)(22)
Changes in operating assets and liabilities, net of acquisitions/divestitures
2,185 1,759 
Net cash provided by operating activities5,169 4,370 
Cash flows from investing activities:  
Payments for property, plant and equipment
(232)(244)
Proceeds from disposition of property, plant and equipment/other
8 74 
Investment in software(159)(151)
Purchases of marketable securities and other investments(1,612)(6,486)
Proceeds from disposition of marketable securities and other investments1,971 927 
Acquisition of businesses, net of cash acquired(10,465)(7,098)
Divestiture of businesses, net of cash transferred1 (1)
Net cash provided by/(used in) investing activities(10,489)(12,979)
Cash flows from financing activities:  
Proceeds from new debt7,437 8,378 
Payments to settle debt(2,928)(1,257)
Short-term borrowings/(repayments) less than 90 days — net0 (29)
Common stock repurchases for tax withholdings(350)(284)
Proceeds from issuance of shares
178 216 
Financing — other
(42)(32)
Cash dividends paid(1,576)(1,549)
Net cash provided by/(used in) financing activities2,719 5,443 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(177)167 
Net change in cash, cash equivalents and restricted cash(2,777)(2,999)
Cash, cash equivalents and restricted cash at January 113,640 14,160 
Cash, cash equivalents and restricted cash at March 31$10,864 $11,161 
(1) Includes operating lease right-of-use assets amortization expense of $0.2 billion in 2026 and 2025.
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
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INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EQUITY
(UNAUDITED)
($ 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 - 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 1,216   1,216  1,216 
Other comprehensive income/(loss)   299 299  299 
Total comprehensive income    $1,514  $1,514 
Cash dividends paid — common stock ($1.68 per share)
 (1,576)  (1,576) (1,576)
Common stock issued under employee plans
618    618  618 
Purchases and sales of treasury stock under employee plans — net
 39 (269) (230) (230)
Changes in noncontrolling interests     (11)(11)
Equity – March 31, 2026$63,936 $155,327 $(170,874)$(15,415)$32,974 $81 $33,056 
($ 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
 1,055   1,055  1,055 
Other comprehensive income/(loss)   (306)(306) (306)
Total comprehensive income
    $749  $749 
Cash dividends paid — common stock ($1.67 per share)
 (1,549)  (1,549) (1,549)
Common stock issued under employee plans
533    533 533
Purchases and sales of treasury stock under employee plans — net
 34 (193) (159) (159)
Changes in noncontrolling interests     (14)(14)
Equity - March 31, 2025$61,913 $150,703 $(170,160)$(15,575)$26,880 $72 $26,953 

(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)

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Notes to Consolidated Financial Statements
1
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, included as a reduction within other (income) and expense in the Consolidated Income Statement, 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
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 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.
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Notes to Consolidated Financial Statements — (continued)
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
($ in millions)
For the three months ended March 31:20262025
Hybrid Cloud$1,905 $1,687 
Automation
1,741 1,584 
Data
1,474 1,236 
Transaction Processing
1,932 1,828 
Total Software$7,052 $6,336 
Strategy and Technology
2,896 2,782 
Intelligent Operations
2,376 2,286 
Total Consulting$5,272 $5,068 
Hybrid Infrastructure2,108 1,646 
Infrastructure Support1,218 1,240 
Total Infrastructure$3,326 $2,886 
Financing (1)
220 191 
Other (2)
48 61 
Total revenue$15,917 $14,541 
(1)Contains lease and loan financing arrangements which are not subject to the guidance on revenue from contracts with customers.
(2)Includes reductions in revenue for estimated residual value less related unearned income on sales-type leases, which reflects the z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2025 Annual Report for additional information.
Revenue by Geography
($ in millions)
For the three months ended March 31:20262025
Americas$7,861 $7,206 
Europe/Middle East/Africa5,242 4,552 
Asia Pacific2,814 2,783 
Total$15,917 $14,541 
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.
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Notes to Consolidated Financial Statements — (continued)
At March 31, 2026, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was approximately $69 billion. Approximately 69 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 28 percent in the subsequent three to five years and the balance thereafter.
Revenue Recognized for Performance Obligations Satisfied (or Partially Satisfied) in Prior Periods
For the three months ended March 31, 2026, revenue recognized for performance obligations satisfied or partially satisfied in prior periods was not material.
Reconciliation of Contract Balances
The following table provides information about notes and accounts receivable — trade, contract assets and deferred income balances.
($ in millions)
At March 31, 2026At December 31, 2025
Notes and accounts receivable — trade (net of allowances of $102 in 2026 and $99 in 2025)
$6,493 $8,112 
Contract assets (1)
$551 $482 
Deferred income (current)$17,034 $16,101 
Deferred income (noncurrent)$4,195 $4,271 
(1)Included within prepaid expenses and other current assets in the Consolidated Balance Sheet.
The amount of revenue recognized during the three months ended March 31, 2026 that was included within the deferred income balance at December 31, 2025 was $4.9 billion and was primarily related to software and services.
The following table provides roll forwards of the notes and accounts receivable — trade allowance for expected credit losses for the three months ended March 31, 2026 and the year ended December 31, 2025.
($ in millions)
    
January 1, 2026Additions / (Releases)
Write-offs (1)
Foreign currency and otherMarch 31, 2026
$99$6$(3)$0$102
January 1, 2025Additions / (Releases)
Write-offs (1)
Foreign currency and otherDecember 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.
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.

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Notes to Consolidated Financial Statements — (continued)
Management System Segment View
($ in millions)
SoftwareConsultingInfrastructureFinancingTotal
Segments
For the three months ended March 31, 2026:
     
Revenue$7,052 $5,272 $3,326 $220 $15,870 
Segment cost1,216 3,822 1,435 124 6,598 
Other expenses and (income) (1)
3,737 891 1,366 (23)5,971 
Segment profit
$2,099 $558 $524 $118 $3,300 
Revenue year-to-year change11.3 %4.0 %15.3 %14.8 %9.6 %
Segment profit year-to-year change13.7 %(0.1)%111.7 %72.6 %21.3 %
Segment profit margin29.8 %10.6 %15.8 %53.8 %20.8 %
For the three months ended March 31, 2025:
     
Revenue$6,336 $5,068 $2,886 $191 $14,480 
Segment cost1,042 3,686 1,363 104 6,195 
Other expenses and (income) (1)
3,447 823 1,275 19 5,564 
Segment profit
$1,847 $558 $248 $69 $2,721 
Segment profit margin29.1 %11.0 %8.6 %35.8 %18.8 %
(1)Other expenses and (income) by segment primarily includes:
Software – Selling, general and administrative (SG&A) expense, Research and development (R&D) expense
Consulting – SG&A expense
Infrastructure – R&D expense, SG&A expense, Other expense, Intellectual property and custom development income
Financing – Intercompany financing net other income which reflects IBM Z product cycle dynamics, SG&A expense
Reconciliations to IBM as Reported:
($ in millions)
  
For the three months ended March 31:20262025
Revenue:  
Total reportable segments$15,870 $14,480 
Other revenue (1)
48 61 
Total revenue from continuing operations$15,917 $14,541 
Pre-tax income from continuing operations:  
Total reportable segment profit
$3,300 $2,721 
Amortization of acquired intangible assets(570)(495)
Acquisition-related charges(76)(63)
Non-operating retirement-related (costs)/income
(96)(23)
Stock-based compensation (2)
(503)(401)
Net interest excluding the Financing segment (338)(265)
Workforce rebalancing charges (2)
(336)(316)
Other‒divested businesses
(2)(7)
Unallocated corporate amounts and other
9 5 
Total pre-tax income from continuing operations
$1,387 $1,158 
(1)Includes reductions in revenue for the estimated residual value less related unearned income on sales-type leases, which reflects the z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2025 Annual Report for additional information.
(2)Excludes certain acquisition-related charges.
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Notes to Consolidated Financial Statements — (continued)
Other Reportable Segment Items
($ in millions)
SoftwareConsultingInfrastructureFinancingTotal
Segments
For the three months ended March 31, 2026:
Depreciation (1) /amortization of non-acquired intangibles
$134 $21 $278 $1 $433 
Interest Income— — — 205 205 
Interest Expense— — — 111 111 
For the three months ended March 31, 2025:
Depreciation (1) /amortization of non-acquired intangibles
$121 $21 $266 $1 $409 
Interest Income— — — 176 176 
Interest Expense— — — 90 90 
(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.

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Notes to Consolidated Financial Statements — (continued)
5. Acquisitions & Divestitures:
Acquisitions
Confluent, Inc. (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.
The following table reflects the purchase price and the resulting purchase price allocation as of March 31, 2026.
($ in millions)
Amortization
Life (in years)		Confluent
Current assets (1)
$2,483 
Property, plant and equipment/noncurrent assets95 
Intangible assets:
 GoodwillN/A7,225 
 Client relationships122,122 
 Completed technology71,590 
 Trademarks5122 
Total assets acquired$13,638 
Current liabilities (2)
1,798 
Noncurrent liabilities249 
Total liabilities assumed$2,047 
Total purchase price$11,590 
(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 business. 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.

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Notes to Consolidated Financial Statements — (continued)
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 $11.3 billion. Purchase consideration was paid primarily in cash and is reported in the Consolidated Statement of Cash Flows, net of acquired cash and cash equivalents. The following table reflects the consideration paid related to the acquisition.
($ in millions)
Total Consideration (1)
Cash paid for outstanding Confluent common stock$11,268 
Cash paid for Confluent equity awards269 
Cash consideration
$11,537 
Fair value of stock-based compensation awards attributable to pre-acquisition services
53 
Total consideration
$11,590 
(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 $7,136 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 $665 million. Refer to note 17, "Stock-Based Compensation," for additional information. The acquisition was integrated into the Software segment.
6. Other (Income) and Expense:
Components of other (income) and expense are as follows:
($ in millions)
For the three months ended March 31:20262025
Other (income) and expense:
(Gains)/losses on foreign currency transactions (1)
$(328)$443 
(Gains)/losses on derivative instruments (1)
423 (442)
Interest income(152)(191)
Net (gains)/losses from securities and investment assets(9)29 
Retirement-related costs/(income)
96 23 
Other
(31)(26)
Total other (income) and expense$(1)$(165)
(1)The company uses financial hedging instruments to limit specific currency risks related to foreign currency-based transactions. The hedging program does not hedge 100 percent of currency exposures and defers, versus eliminates, the impact of currency. Refer to note 16, “Derivative Financial Instruments,” for additional information on foreign exchange risk.
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Notes to Consolidated Financial Statements — (continued)
7. Earnings Per Share of Common Stock:
The following tables provide the computation of basic and diluted earnings per share of common stock for the three months ended March 31, 2026 and 2025.
($ in millions, except per share amounts)
For the three months ended March 31:20262025
Number of shares on which basic earnings per share is calculated:  
Weighted-average shares outstanding during period938,533,632928,006,724
Add — Incremental shares under stock-based compensation plans11,674,96815,220,862
Add — Incremental shares associated with contingently issuable shares1,922,4572,140,642
Number of shares on which diluted earnings per share is calculated952,131,057945,368,229
Income from continuing operations
$1,216 $1,054 
Income from discontinued operations, net of tax
0 1 
Net income on which basic and dilutive earnings per share is calculated
$1,216 $1,055 
Earnings per share of common stock:
  
Assuming dilution  
Continuing operations$1.28 $1.12 
Discontinued operations0.00 0.00 
Total$1.28 $1.12 
Basic
Continuing operations$1.30 $1.14 
Discontinued operations0.00 0.00 
Total$1.30 $1.14 
Stock options to purchase 27,885 shares and 1,859,582 shares were outstanding as of March 31, 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.
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Table of Contents
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 months ended March 31, 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 months ended March 31, 2026 and 2025, respectively.
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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 March 31, 2026 and December 31, 2025.
Fair Value
Hierarchy
Level		At March 31, 2026At December 31, 2025
($ in millions)
Assets (4)
Liabilities (5)
Assets (4)
Liabilities (5)
Cash equivalents: (1)
Time deposits, certificates of deposit and other (2)
2$3,066 N/A$7,072 N/A
Money market funds
11,934 N/A 413 N/A
Total cash equivalents$5,000 N/A$7,485 N/A
Debt securities — current (2) (3)
2964 N/A830 N/A
Debt securities — noncurrent
2,39 N/A9 N/A
Derivatives designated as hedging instruments:
Interest rate contracts21 195 2 171 
Foreign exchange contracts2738 399 545 325 
Derivatives not designated as hedging instruments:
Foreign exchange contracts211 37 12 14 
Equity contracts20 62 34 3 
Total$6,724 $693 $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)Term deposits and government securities that are reported within marketable securities in the Consolidated Balance Sheet.
(4)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 March 31, 2026 were $568 million and $182 million, respectively, and at December 31, 2025 were $232 million and $361 million, respectively.
(5)The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Balance Sheet at March 31, 2026 were $254 million and $439 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 March 31, 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.
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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 $57,706 million and $54,836 million, and the estimated fair value was $54,373 million and $52,703 million at March 31, 2026 and December 31, 2025, respectively.
9. Financing Receivables:
Financing receivables primarily consist of client loan and installment payment receivables (loans), investment in sales-type and direct financing leases (collectively referred to as client financing receivables) and commercial financing receivables. Loans are provided primarily to clients to finance the purchase of IBM hardware, software and services. Payment terms on these financing arrangements are for terms generally up to seven years. Investment in sales-type and direct financing leases relate principally to the company’s Infrastructure products and are for terms generally up to five years. Commercial financing receivables, which consist of both held-for-investment and held-for-sale receivables, relate primarily to working capital financing for business partners and distributors of IBM products and services. Payment terms for working capital financing generally range from 30 to 60 days.
A summary of the components of the company’s financing receivables is presented as follows:
Client Financing Receivables
Client Loan and Installment Payment ReceivablesInvestment in Sales-Type and Direct Financing
Commercial Financing Receivables
($ in millions)Held forHeld for
At March 31, 2026(Loans)LeasesInvestment
Sale (1)
Total
Financing receivables, gross$8,822 $4,165 $574 $743 $14,304 
Unearned income(679)(456)— — (1,136)
Unguaranteed residual value— 482 — — 482 
Amortized cost$8,143 $4,191 $574 $743 $13,651 
Allowance for credit losses(64)(59)(5)— (128)
Total financing receivables, net$8,079 $4,132 $569 $743 $13,523 
Current portion$3,920 $1,277 $569 $743 $6,509 
Noncurrent portion$4,158 $2,855 $— $— $7,014 
Client Financing Receivables
Client Loan and Installment Payment ReceivablesInvestment in Sales-Type and Direct Financing
Commercial Financing Receivables
($ in millions)Held forHeld for
At December 31, 2025(Loans)LeasesInvestment
Sale (1)
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.

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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 $88 million and $84 million at March 31, 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 $1.3 billion of IBM short-term commercial financing receivables on a revolving basis. In addition, the company enters into agreements with third-party financial institutions to sell certain of its client financing receivables, including both loan and lease receivables, for cash proceeds. There were no material client financing receivables transferred for the three months ended March 31, 2026 and 2025.
The following table presents the total amount of commercial financing receivables transferred.
($ in millions)
For the three months ended March 31:20262025
Commercial financing receivables:
Receivables transferred during the period$2,262 $1,942 
Receivables uncollected at end of period (1)
$690 $680 
(1)Of the total amount of commercial financing receivables sold and derecognized from the Consolidated Balance Sheet, the amounts presented remained uncollected from business partners as of March 31, 2026 and 2025.
The transfer of these receivables qualified as true sales and therefore reduced financing receivables. For the three months ended March 31, 2026 and 2025, the net loss, including fees, associated with the transfer of commercial financing receivables was not material, and is included in other (income) and expense in the Consolidated Income Statement. For the company’s policy on determining treatment for transfer of financial assets, refer to note A, “Significant Accounting Policies,” in the company’s 2025 Annual Report.
Financing Receivables by Portfolio Segment
The following tables present the amortized cost basis for client financing receivables at March 31, 2026 and December 31, 2025, further segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. The commercial financing receivables portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current estimated risk of loss and resulting impact to the company’s financial results are not material.
($ in millions)    
At March 31, 2026:AmericasEMEAAsia PacificTotal
Amortized cost$6,761 $3,998 $1,575 $12,334 
Allowance for credit losses:    
Beginning balance at January 1, 2026$69 $60 $7 $136 
Write-offs(5)0 — (5)
Recoveries0 0 — 0 
Additions/(releases)1 (8)0 (7)
Other (1)
0 (1)0 (1)
Ending balance at March 31, 2026$66 $51 $7 $123 
(1)Primarily represents translation adjustments.
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Notes to Consolidated Financial Statements — (continued)
($ in millions)    
At December 31, 2025:AmericasEMEAAsia PacificTotal
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)
Recoveries0 0 0 1 
Additions/(releases)10 10 2 22 
Other (1)
7 6 0 13 
Ending balance at December 31, 2025$69 $60 $7 $136 
(1)Primarily represents translation adjustments.
When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For the company’s policy on determining allowances for credit losses, refer to note A, “Significant Accounting Policies,” in the company’s 2025 Annual Report.
The company’s total past due financing receivables, including client financing receivables amortized cost aged over 90 days and still accruing and amortized cost not accruing, at March 31, 2026 and December 31, 2025 were not material.
Credit Quality Indicators
The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody’s, where available, as one of many inputs in its determination of customer credit ratings. The credit quality of the customer is evaluated based on these indicators and is assigned the same risk rating whether the receivable is a lease or a loan.
The following tables present the amortized cost basis for client financing receivables by credit quality indicator at March 31, 2026 and December 31, 2025, respectively. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators reflect mitigating credit enhancement actions taken by customers which reduce the risk to IBM. Gross write-offs by vintage year at March 31, 2026 and December 31, 2025 were not material.
($ in millions)AmericasEMEAAsia Pacific
At March 31, 2026:Aaa – Baa3
Ba1 – C
Aaa – Baa3
Ba1 – C
Aaa – Baa3
Ba1 – C
Vintage year:      
2026$646 $116 $180 $194 $270 $38 
20253,418 540 1,882 432 560 79 
2024974 171 565 234 282 41 
2023524 124 194 115 146 8 
2022151 14 72 51 112 13 
2021 and prior35 49 35 44 20 4 
Total$5,748 $1,013 $2,928 $1,070 $1,391 $184 
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Notes to Consolidated Financial Statements — (continued)
($ in millions)AmericasEMEAAsia 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 
20241,142 220 715 296 330 46 
2023708 181 262 143 177 9 
2022237 27 118 74 126 17 
202173 4 42 8 25 1 
2020 and prior15 49 15 41 5 4 
Total$6,153 $1,125 $3,376 $1,064 $1,440 $170 
Modifications
The company did not have any significant modifications due to clients experiencing financial difficulty during the three months ended March 31, 2026 or for the year ended December 31, 2025.
10. Leases:
Accounting for Leases as a Lessor
The following table presents amounts included in the Consolidated Income Statement related to lessor activity.
($ in millions)
For the three months ended March 31:20262025
Lease income — sales-type and direct financing leases:
  
Sales-type lease selling price$170 $70 
Less: Carrying value of underlying assets (1)
(49)(30)
Gross profit122 41 
Interest income on lease receivables67 61 
Total sales-type and direct financing lease income189 101 
Lease income — operating leases
13 11 
Variable lease income20 12 
Total lease income$221 $124 
(1)Excludes unguaranteed residual value.
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Notes to Consolidated Financial Statements — (continued)
11. Intangible Assets Including Goodwill:
Intangible Assets
The following tables present the company's intangible asset balances by major asset class.
At March 31, 2026
($ in millions)Gross Carrying
Amount		Accumulated
Amortization
Net Carrying
Amount (1)
Intangible asset class:
Capitalized software$1,419 $(455)$963 
Client relationships13,352 (5,878)7,474 
Completed technology8,953 (4,302)4,651 
Patents/trademarks2,143 (698)1,445 
Other (2)
139 (49)90 
Total$26,006 $(11,382)$14,624 
At December 31, 2025
($ in millions)Gross Carrying
Amount		Accumulated
Amortization
Net Carrying
Amount (1)
Intangible asset class:
Capitalized software$1,388 $(424)$964 
Client relationships11,261 (5,602)5,659 
Completed technology7,399 (4,096)3,304 
Patents/trademarks2,030 (665)1,365 
Other (2)
139 (40)99 
Total$22,218 $(10,827)$11,391 
(1)Amounts at March 31, 2026 and December 31, 2025 include a decrease in the net intangible asset balance of $24 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 $3,232 million during the first three months of 2026, primarily due to additions of acquired intangibles 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 $719 million and $641 million for the three months ended March 31, 2026 and 2025, respectively. During the three months ended March 31, 2026, the company retired $119 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount.
The future amortization expense relating to intangible assets currently recorded in the Consolidated Balance Sheet was estimated to be the following at March 31, 2026:
($ in millions)Capitalized
Software		Acquired
Intangibles		Total
Remainder of 2026$389 $2,035 $2,424 
2027377 2,668 3,046 
2028186 2,363 2,549 
202911 1,680 1,691 
2030— 1,240 1,240 
Thereafter— 3,674 3,674 
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Notes to Consolidated Financial Statements — (continued)
Goodwill
The changes in the goodwill balances by segment for the three months ended March 31, 2026 and for the year ended December 31, 2025 were as follows:
($ in millions)BalanceGoodwill
Additions
Purchase
Price
Adjustments
Foreign
Currency
Translation
and Other
Adjustments (1)
Balance
Segment1/1/2026Divestitures3/31/2026
Software$52,987 $7,136 $1 $— $(175)$59,950 
Consulting10,341 89 (18)— (36)10,376 
Infrastructure4,389 — 1 — (6)4,383 
Other— — — — — — 
Total$67,717 $7,225 $(17)$— $(217)$74,709 
($ in millions)BalanceGoodwill
Additions
Purchase
Price
Adjustments
Foreign
Currency
Translation
and Other
Adjustments (1)
Balance
Segment
1/1/2025Divestitures12/31/2025
Software
$47,136 $5,004 $(8)$— $855 $52,987 
Consulting
9,206 908 10 — 217 10,341 
Infrastructure4,363 — 0 0 26 4,389 
Other
— — — — — — 
Total$60,706 $5,912 $1 $0 $1,098 $67,717 
(1)Primarily driven by foreign currency translation.
Goodwill additions recorded in the three months ended March 31, 2026 were driven by the acquisition of Confluent. Refer to note 5, “Acquisitions & Divestitures,” for additional information.
There were no goodwill impairment losses recorded during the three months ended March 31, 2026 or the year ended December 31, 2025 and the company has no accumulated impairment losses. Purchase price adjustments recorded during the three months ended March 31, 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 three months ended March 31, 2026 and the year ended December 31, 2025 were not material.
12. Borrowings:
Short-Term Debt
The company's total short-term debt at March 31, 2026 and December 31, 2025 was $8,655 million and $6,424 million, respectively, and primarily consisted of current maturities of long-term debt detailed in “Long-Term Debt” below. Included in the March 31, 2026 short-term debt balance is $1,100 million of debt acquired in the Confluent acquisition in March, which was settled on April 15, 2026 (refer to note 5, "Acquisitions & Divestitures," for additional information).


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Notes to Consolidated Financial Statements — (continued)
Long-Term Debt
Pre-Swap Borrowing
 BalanceBalance
($ in millions)Maturities3/31/202612/31/2025
U.S. dollar debt (weighted-average interest rate at March 31, 2026): (1) (2)
   
3.3%2026$3,000 $5,800 
3.3%20274,119 4,119 
4.8%20282,318 2,319 
3.7%20294,256 3,757 
3.2%20302,384 2,355 
4.5%20311,000 500 
4.6%20322,700 2,700 
4.7%20331,250 750 
4.9%20341,000 1,000 
5.2%2035900 900 
5.0%20361,000 — 
8.0%203883 83 
4.5%20392,745 2,745 
2.9%2040650 650 
4.0%20421,107 1,107 
5.3%20441,000 1,000 
7.0%204527 27 
4.7%2046650 650 
4.3%20493,000 3,000 
3.0%2050750 750 
4.2%20521,400 1,400 
5.1%2053650 650 
5.3%20541,400 1,400 
5.7%20551,000 1,000 
5.8%2056750 — 
7.1%2096316 316 
$39,456 $38,979 
Euro debt (weighted-average interest rate at March 31, 2026): (1)
2.3%2027$2,304 $2,349 
1.1%20282,937 2,114 
1.5%20291,152 1,174 
1.7%20302,016 2,055 
2.8%20314,031 2,936 
0.7%20321,843 1,879 
3.2%20331,267 1,292 
2.4%20342,304 1,174 
3.8%20351,152 1,174 
3.5%20371,037 1,057 
3.9%2038864 — 
1.2%2040979 998 
4.0%20431,152 1,174 
3.8%2045864 881 
$23,901 $20,258 
Other currencies (weighted-average interest rate at March 31, 2026): (1)
  
Pound sterling (4.9%)
2038$990 $1,009 
Japanese yen (1.2%)
2026–2028798 811 
Other (13.7%)
2026–202753 78 
$65,198 $61,134 
Finance lease obligations (5.1% weighted-average interest rate at March 31, 2026)
2026–20351,139 1,153 
$66,337 $62,286 
Less: net unamortized discount 809 806 
Less: net unamortized debt issuance costs 203 185 
Add: fair value adjustment (3)
 (65)(36)
$65,260 $61,259 
Less: current maturities 7,554 6,424 
Total $57,706 $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.

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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 $0.9 billion of Euro floating-rate notes with a maturity of 2 years.
Pre-swap annual contractual obligations of long-term debt outstanding at March 31, 2026, were as follows:
($ in millions)Total
Remainder of 2026$3,533 
20276,724 
20286,027 
20295,586 
20304,460 
Thereafter40,007 
Total$66,337 
Interest on Debt
($ in millions)  
For the three months ended March 31:20262025
Cost of financing$111 $87 
Interest expense473 455 
Interest capitalized1 2 
Total interest paid and accrued$585 $544 
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, 2028 and June 22, 2030, respectively. The Credit Agreements permit the company and its subsidiary borrowers to borrow up to $10 billion on a revolving basis. At March 31, 2026, there were no borrowings by the company, or its subsidiaries, under these credit facilities.
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Notes to Consolidated Financial Statements — (continued)

13. Commitments:
The company’s extended lines of credit to third-party entities include unused amounts of $2.2 billion and $1.7 billion at March 31, 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 $1.8 billion and $1.9 billion at March 31, 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 March 31, 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 March 31, 2026 and December 31, 2025 were not material.
Changes in the company’s warranty liability for standard warranties, which are included in other accrued expenses and liabilities and other liabilities in the Consolidated Balance Sheet, are presented in the following table. The company's extended warranty liability, which is included in deferred income in the Consolidated Balance Sheet, was not material for the periods presented.
Standard Warranty Liability
($ in millions)20262025
Balance at January 1$95 $76 
Current-period accruals19 16 
Accrual adjustments to reflect actual experience0 14 
Charges incurred(22)(21)
Balance at March 31$93 $85 

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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 March 31, 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.
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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 March 31, 2026:
Other comprehensive income/(loss):   
Foreign currency translation adjustments$136 $(116)$20 
Net unrealized gains/(losses) on available-for-sale securities
$0 $0 $0 
Unrealized gains/(losses) on cash flow hedges:  
Unrealized gains/(losses) arising during the period$(175)$42 $(133)
Reclassification of (gains)/losses to:
   
Cost of services15 (4)11 
Cost of sales(1)1 0 
Cost of financing1 0 1 
SG&A expense1 0 1 
Other (income) and expense320 (80)240 
Interest expense6 (1)4 
Total unrealized gains/(losses) on cash flow hedges$167 $(43)$124 
Retirement-related benefit plans: (1)
   
Prior service costs/(credits)$— $— $— 
Net gains/(losses) arising during the period
1 0 1 
Curtailments and settlements
2 0 1 
Amortization of prior service costs/(credits)9 (2)7 
Amortization of net (gains)/losses198 (52)146 
Total retirement-related benefit plans$209 $(54)$155 
Other comprehensive income/(loss)$512 $(213)$299 
(1)These accumulated other comprehensive income (AOCI) components are included in the computation of net periodic pension cost. Refer to note 18, “Retirement-Related Benefits,” for additional information.
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Notes to Consolidated Financial Statements — (continued)
Reclassifications and Taxes Related to Items of Other Comprehensive Income
($ in millions)Before Tax
Amount		Tax (Expense)/
Benefit		Net of Tax
Amount
For the three months ended March 31, 2025:
Other comprehensive income/(loss):   
Foreign currency translation adjustments$(343)$203 $(139)
Net unrealized gains/(losses) on available-for-sale securities
$8 $(2)$6 
Unrealized gains/(losses) on cash flow hedges:   
Unrealized gains/(losses) arising during the period$(58)$16 $(42)
Reclassification of (gains)/losses to:   
Cost of services2 0 2 
Cost of sales(8)2 (5)
Cost of financing1 0 1 
SG&A expense(3)1 (2)
Other (income) and expense(322)81 (241)
Interest expense6 (2)5 
Total unrealized gains/(losses) on cash flow hedges$(382)$98 $(283)
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 2 
Amortization of prior service costs/(credits)(2)1 (1)
Amortization of net (gains)/losses151 (41)111 
Total retirement-related benefit plans$151 $(40)$111 
Other comprehensive income/(loss)$(566)$259 $(306)
(1)These AOCI components are included in the computation of net periodic pension cost. Refer to note 18, “Retirement-Related Benefits,” for additional information.

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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 reclassifications20 0 (133)1 (113)
Amount reclassified from accumulated other comprehensive income— — 258 154 412 
Total change for the period$20 $0 $124 $155 $299 
March 31, 2026$(3,936)$(1)$(32)$(11,445)$(15,415)
($ 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(139)6 (42)0 (176)
Amount reclassified from accumulated other comprehensive income
— — (241)111 (130)
Total change for the period$(139)$6 $(283)$111 $(306)
March 31, 2025$(3,651)$6 $(46)$(11,884)$(15,575)
(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 March 31, 2026 and December 31, 2025, the total derivative asset and liability positions each would have been reduced by $422 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.

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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 March 31, 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 March 31, 2026 and December 31, 2025 was approximately 3.2 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 March 31, 2026 and December 31, 2025, the carrying value of debt designated as hedging instruments was $16.5 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 March 31, 2026 and December 31, 2025, the total notional amount of derivative instruments designated as net investment hedges was $7.1 billion and $6.9 billion, respectively. At both March 31, 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 March 31, 2026, the maximum remaining length of time over which the company hedged its exposure is approximately two years. At March 31, 2026 and December 31, 2025, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $11.3 billion and $10.8 billion, respectively. At both March 31, 2026 and December 31, 2025, the weighted-average remaining maturity of these instruments was less than one year.

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Notes to Consolidated Financial Statements — (continued)
At March 31, 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 $180 million and $4 million, respectively, deferred in AOCI. The company estimates that $145 million of the deferred net gains (before taxes) on derivatives in AOCI at March 31, 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 March 31, 2026, the maximum length of time remaining over which the company hedged its exposure was approximately five years. At March 31, 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 March 31, 2026 and December 31, 2025, in connection with forward contracts, there were unrealized net losses (before taxes) of $63 million and $48 million, respectively, deferred in AOCI. Approximately $141 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 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 March 31, 2026 and December 31, 2025, the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $6.9 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 March 31, 2026 and December 31, 2025, the total notional amount of derivative instruments in economic hedges of these compensation obligations was $1.4 billion and $1.5 billion, respectively.
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Notes to Consolidated Financial Statements — (continued)
Cumulative Basis Adjustments for Fair Value Hedges
At March 31, 2026 and December 31, 2025, the following amounts were recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:
($ in millions)March 31,
2026		December 31,
2025
Short-term debt:  
Carrying amount of the hedged item$(493)$— 
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities) 7 — 
Long-term debt:  
Carrying amount of the hedged item(6,136)(6,656)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities) (1)
58 36 
(1)Includes $(107) million and $(114) million of hedging adjustments on discontinued hedging relationships at March 31, 2026 and December 31, 2025, respectively.
Effect of Derivatives in the Consolidated Income Statement and Other Comprehensive Income (OCI)
The total effect of fair value hedges, cash flow hedges, net investment hedges and derivatives not designated as hedging instruments are summarized by income and expense line items as follows:
($ in millions)
(Gains)/Losses of Total Hedge Activity
Three Months Ended March 31,20262025
Cost of services$15 $2 
Cost of sales(1)(8)
Cost of financing(1)0 
SG&A expense67 31 
Other (income) and expense (1)
423 (442)
Interest expense(5)(2)
(1)Primarily driven by currency gains and losses on the company's foreign currency derivatives hedging programs. Refer to note 6, "Other (Income) and Expense," for additional information.
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Notes to Consolidated Financial Statements — (continued)
(Gains)/Losses Recognized in Consolidated Income Statement
($ in millions)Consolidated
Income Statement
Line Item		Recognized on
Derivatives
Attributable to Risk
Being Hedged (1)
For the three months ended March 31:2026202520262025
Derivative instruments in fair value hedges: (2)
     
Interest rate contractsCost of financing$7 $(11)$(5)$14 
Interest expense30 (59)(23)72 
Derivative instruments not designated as hedging instruments: 
Foreign exchange contractsOther (income) and expense103 (120)  N/A N/A
Equity contracts
SG&A expense66 34   N/A N/A
Total $206 $(156)$(29)$86 
Effects of Derivatives Recognized in Consolidated Income Statement and OCI
(Gains)/Losses
($ 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 March 31:202620252026202520262025
Derivative instruments in cash flow hedges:       
Interest rate contracts$— $— Cost of financing$1 $1 N/AN/A
Interest expense3 3 N/AN/A
Foreign exchange contracts
Amount included in the assessment of effectiveness(129)42 Cost of services15 2 N/AN/A
Cost of sales(1)(8)N/AN/A
Cost of financing1 1 N/AN/A
SG&A expense1 (3)N/AN/A
Other (income) and expense289 (348)N/AN/A
Interest expense3 3 N/AN/A
Amount excluded from the assessment of effectiveness(46)(101)Other (income) and expense N/A N/A32 26 
Instruments in net investment hedges: (4)
Foreign exchange contracts
Amount included in the assessment of effectiveness450 (820)
Amount excluded from the assessment of effectiveness14 12 Cost of financing N/A N/A(4)(4)
Interest expense N/A N/A(18)(22)
Total$289 $(867) $311 $(350)$10 $0 
(1)The amount includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period.
(2)The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts.
(3)Amounts excluded from effectiveness testing for both net investment hedges and cash flow hedges of foreign currency debt are amortized to net income on a straight line basis over the life of the relevant hedging instrument.
(4)Instruments in net investment hedges include derivative and non-derivative instruments with the amounts recognized in OCI providing an offset to the translation of foreign subsidiaries.
N/A - not applicable
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Notes to Consolidated Financial Statements — (continued)
17. Stock-Based Compensation:
Stock-based compensation cost for stock awards and stock options is measured at grant date, based on the fair value of the award, and is recognized over the employee requisite service period. The following table presents total stock-based compensation cost included in income from continuing operations.
($ in millions)
For the three months ended March 31:20262025
Cost$76 $65 
Selling, general and administrative270 217 
Research and development160 119 
Pre-tax stock-based compensation cost506 401 
Income tax benefits(207)(194)
Total net stock-based compensation cost$299 $207 
Pre-tax stock-based compensation cost for the three months ended March 31, 2026 increased $105 million compared to the corresponding period in the prior year primarily due to increases in restricted stock units ($50 million) and performance share units ($47 million). The increases reflect the company's annual cycle for employees, improved attainment of targets related to performance share units and the issuance and assumption of stock-based compensation awards in connection with recent acquisitions.
Total unrecognized compensation cost related to non-vested awards at March 31, 2026 was $2.9 billion and is expected to be recognized over a weighted-average period of approximately 2.3 years.
18. Retirement-Related Benefits:
The company offers DB pension plans, defined contribution (DC) plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits.
Cost/(Income) of Retirement Plans
The following table provides the components of the cost/(income) for the company’s retirement-related benefit plans.
($ in millions)U.S. PlansNon-U.S. Plans
For the three months ended March 31:2026 202520262025
Service cost $86 $88 $44 $41 
Interest cost (1)
180 187 290 251 
Expected return on plan assets (1)
(266)(268)(363)(345)
Amortization of prior service costs/(credits) (1)
— — 16 5 
Recognized actuarial losses (1)
122 70 76 81 
Curtailments and settlements (1)
— — 2 2 
Multi-employer plans— — 3 3 
Other costs/(credits) (1)
— — 11 8 
Total net periodic pension (income)/cost of defined benefit plans$122 $77 $78 $47 
Cost of defined contribution plans15 14 103 96 
Total defined benefit pension and defined contribution plans cost recognized in the Consolidated Income Statement$137 $90 $180 $143 
(1)These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.
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Notes to Consolidated Financial Statements — (continued)
Cost of Nonpension Postretirement Plans
The following table provides the components of the cost for the company’s nonpension postretirement plans.
($ in millions)U.S. PlanNon-U.S. Plans
For the three months ended March 31:2026202520262025
Service cost$0 $0 $0 $0 
Interest cost (1)
25 28 12 10 
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 $11 
(1)These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.
Plan Contributions
The company does not anticipate any significant changes to the expected plan contributions in 2026 from the amounts disclosed in the 2025 Annual Report. The table below includes contributions to the following plans:
($ in millions)Plan Contributions
For the three months ended March 31:20262025
U.S. nonpension postretirement benefit plan
$70 $70 
Non-U.S. DB and multi-employer plans (1)
19 1 
Total plan contributions$90 $70 
(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 three months ended March 31, 2026 and 2025, contributions of $205 million and $215 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 April 22, 2026, the company announced that the Board of Directors declared an increase in the regular quarterly cash dividend to $1.69 per common share. The dividend is payable June 10, 2026 to stockholders of record on May 8, 2026.
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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 2026
Snapshot
Organization of Information:
The Management Discussion is designed to provide readers with an overview of the business and a narrative on our financial results and certain factors that may affect our future prospects from the perspective of management.
Within the tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain prior-period amounts have been reclassified to conform to the current-period presentation. This is annotated where applicable.
Currency:
The references to “adjusted for currency” or “at constant currency” in the Management Discussion do not include operational impacts that could result from fluctuations in foreign currency rates. When we refer to growth rates at constant currency or adjust such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior-year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates. Refer to “Currency Rate Fluctuations” on page 53 for additional information.
Operating (non-GAAP) Earnings:
In an effort to provide better transparency into the operational results of the business, supplementally, management separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges and intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (TCJA or U.S. tax reform), management characterizes the one-time provisional charge recorded in the fourth quarter of 2017, and adjustments to that charge as non-operating. Adjustments include the tax effect of true-ups, audit adjustments, accounting elections and new regulations, or laws (e.g., H.R. 1 in July of 2025) that impact the TCJA provisions which resulted in the one-time provisional charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of acquired intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of our acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, management characterizes certain items as operating and others as non-operating, consistent with GAAP. We include defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and we consider these costs to be outside of the operational performance of the business.
Overall, management believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of our pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows us to provide a long-term strategic view of the business going forward. In addition, these non-GAAP measures provide a perspective consistent with areas of interest we routinely receive from investors and analysts.
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Management Discussion – (continued)
Financial Results Summary — Three Months Ended March 31:
($ and shares in millions, except per share amounts)
Yr.-to-Yr.
Percent/
Margin
Change
For the three months ended March 31:20262025
Revenue (1)
$15,917 $14,541 9.5 %   
Gross profit margin56.2 %55.2 %1.0 pts. 
Total expense and other (income)
$7,562 $6,873 10.0 %   
Income from continuing operations before income taxes
$1,387 $1,158 19.8 %   
Provision for/(benefit from) income taxes from continuing operations
$172 $103 65.8 %   
Income from continuing operations
$1,216 $1,054 15.3 %   
Income from continuing operations margin
7.6 %7.3 %0.4 pts. 
Income from discontinued operations, net of tax
$0 $1 nm 
Net income
$1,216 $1,055 15.2 %   
Earnings per share from continuing operations - assuming dilution
$1.28 $1.12 14.3 %   
Consolidated earnings per share - assuming dilution
$1.28 $1.12 14.3 %   
Weighted-average shares outstanding - assuming dilution952.1 945.4 0.7 %   
At 3/31/2026At 12/31/2025
Assets$156,229$151,8802.9 %   
Liabilities$123,174$119,1393.4 %   
Equity$33,056$32,7401.0 %   
(1)Year-to-year revenue growth of 6 percent adjusted for currency.
nm - not meaningful
The following table provides the company’s operating (non-GAAP) earnings for the first quarter of 2026 and 2025.
($ in millions, except per share amounts)
Yr.-to-Yr.
Percent
Change
For the three months ended March 31:20262025
Net income as reported
$1,216 $1,055 15.2 %   
Income from discontinued operations, net of tax
0 1 nm 
Income from continuing operations
$1,216 $1,054 15.3 %   
Non-operating adjustments (net of tax):   
Acquisition-related charges$508 $429 18.4 
Non-operating retirement-related costs/(income)
94 35 169.4 
U.S. tax reform impacts
4 (2)nm 
Operating (non-GAAP) earnings (1)
$1,821 $1,517 20.1 %   
Diluted operating (non-GAAP) earnings per share (1)
$1.91 $1.60 19.4 %   
(1)Refer to the quarter-to-date "GAAP Reconciliation" on page 57 for additional information..
nm - not meaningful
Macroeconomic Environment:
The strength of our portfolio and the resiliency of our business model, underpinned by our software-led hybrid cloud and AI strategy, position us well to navigate the current climate. While the economic and geopolitical environment remain dynamic and uncertain, businesses continue to invest in technology to scale AI, drive productivity, increase resiliency and
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Management Discussion – (continued)
accelerate their growth. This was reflected in our performance in the first quarter. Our durable, high value portfolio enables us to execute on our strategy delivering innovation to our clients and partners.

In the first three months of 2026, movements in global currencies continued to impact our reported year-to-year revenue and profit. We execute hedging programs which defer, but do not eliminate, the impact of currency. The (gains)/losses from these hedging programs are reflected primarily in other (income) and expense. Refer to “Currency Rate Fluctuations” on page 53 for additional information.
Financial Performance Summary — Three Months Ended March 31:
In the first quarter of 2026, we reported $15.9 billion in revenue, income from continuing operations of $1.2 billion, and operating (non-GAAP) earnings of $1.8 billion. Diluted earnings per share from continuing operations was $1.28 as reported and $1.91 on an operating (non-GAAP) basis. We generated $5.2 billion in cash from operations and $2.2 billion in free cash flow. We returned $1.6 billion to shareholders in dividends and invested in the acquisition of Confluent, Inc. (Confluent). Our first-quarter performance reinforces the strategic choices we have made over the last several years to advance IBM as a software-led Hybrid Cloud and AI platform company. With our focus on the fundamentals of our business, we continue to maintain a strong liquidity position and solid investment grade balance sheet which enables us to invest in our business and return value to shareholders through dividends.
Total revenue grew 9.5 percent as reported and 6.1 percent adjusted for currency compared to the prior-year period. Software delivered revenue growth of 11.3 percent as reported (7.9 percent adjusted for currency). Consulting revenue increased 4.0 percent as reported (0.9 percent adjusted for currency). Infrastructure revenue increased 15.3 percent as reported (11.7 percent adjusted for currency).
From a geographic perspective, Americas revenue increased 9.1 percent as reported (8.2 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 15.2 percent as reported (5.4 percent adjusted for currency). Asia Pacific increased 1.1 percent as reported (1.7 percent adjusted for currency).
Gross margin of 56.2 percent increased 1.0 point year to year with margin expansion driven primarily by productivity actions, revenue growth and portfolio mix. Operating (non-GAAP) gross margin of 57.7 percent increased 1.1 points compared to the prior-year period due to the same dynamics.
Total expense and other (income) increased 10.0 percent in the first quarter of 2026 compared to the first quarter of 2025 driven by our organic and inorganic investments in portfolio innovation and the effects of currency, partially offset by savings from productivity actions. Total operating (non-GAAP) expense and other (income) increased 8.7 percent year to year, driven primarily by the same factors.
Pre-tax income from continuing operations was $1.4 billion in the first quarter of 2025 compared to $1.2 billion in the prior-year period and pre-tax margin was up 0.8 points year to year to 8.7 percent. The continuing operations provision for income taxes was $0.2 billion in the first quarter of 2026, compared to $0.1 billion in the first quarter of 2025. Net income from continuing operations was $1.2 billion in the current period compared to $1.1 billion in the prior-year period and the net income from continuing operations margin of 7.6 percent was up 0.4 points year to year. The year-to-year performance was primarily driven by revenue growth, portfolio mix and increased productivity, partially offset by our organic and inorganic investments in portfolio innovation.
Operating (non-GAAP) pre-tax income from continuing operations of $2.1 billion increased 22.5 percent compared to the first quarter of 2025 and the operating (non-GAAP) pre-tax margin from continuing operations increased 1.4 points to 13.4 percent primarily driven by the factors described above. The operating (non-GAAP) provision for income taxes was $0.3 billion in the first quarter of 2026, compared to $0.2 billion in the first quarter of 2025. Operating (non-GAAP) net income from continuing operations of $1.8 billion increased 20.1 percent and the operating (non-GAAP) net income margin from continuing operations of 11.4 percent increased 1.0 point year to year.
Diluted earnings per share from continuing operations of $1.28 increased 14.3 percent and operating (non-GAAP) diluted earnings per share of $1.91 increased 19.4 percent compared to the first quarter of 2025.
At March 31, 2026, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at March 31, 2026 of $11.8 billion decreased $2.6 billion from December 31, 2025 and debt of $66.4 billion at March 31, 2026 increased $5.1 billion. The company
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Management Discussion – (continued)
continues to make investments in innovation both organically and through acquisitions, including the Confluent acquisition in first-quarter 2026.
Total assets increased $4.3 billion ($5.1 billion adjusted for currency) from December 31, 2025 primarily driven by the Confluent acquisition. Total liabilities increased $4.0 billion ($4.9 billion adjusted for currency) from December 31, 2025. Total equity of $33.1 billion increased $0.3 billion from December 31, 2025.
Cash provided by operating activities was $5.2 billion in the first three months of 2026, an increase of $0.8 billion compared to the first three months of 2025. Free cash flow was $2.2 billion, an increase of $0.3 billion versus the prior-year period. Refer to page 55 for additional information on free cash flow. Net cash used in investing activities of $10.5 billion, which includes our investment in the acquisition of Confluent, decreased $2.5 billion compared to the prior-year period. Financing activities were a net source of cash of $2.7 billion, a decrease of $2.7 billion compared to the prior-year period.

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Management Discussion – (continued)
First Quarter in Review
Results of Continuing Operations
Segment Details
The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the first three months of 2026 versus the first three months of 2025 reportable segments results.
($ in millions)Yr.-to-Yr.
Percent/Margin
Change		Yr.-to-Yr.
Percent
Change
Adjusted For
Currency
For the three months ended March 31:20262025
Revenue:    
Software$7,052 $6,336 11.3 %7.9 %
Gross margin82.8 %83.6 %(0.8)pts. 
Consulting5,272 5,068 4.0 %0.9 %
Gross margin27.5 %27.3 %0.2 pts. 
Infrastructure3,326 2,886 15.3 %11.7 %
Gross margin56.9 %52.8 %4.1 pts. 
Financing220 191 14.8 %   10.2 %
Gross margin43.4 %45.8 %(2.4)pts. 
Other (1)
48 61 (21.4)%   (37.4)%
Gross marginnm (416.6)%nm 
Total revenue$15,917 $14,541 9.5 %6.1 %
Total gross profit$8,950 $8,031 11.4 % 
Total gross margin56.2 %55.2 %1.0 pts.  
Non-operating adjustments: 
Amortization of acquired intangible assets237 200 18.3 % 
Operating (non-GAAP) gross profit$9,187 $8,232 11.6 % 
Operating (non-GAAP) gross margin 57.7 %56.6 %1.1 pts.  
(1)Includes reductions in revenue for estimated residual value less related unearned income on sales-type leases, which reflects the z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2025 Annual Report for additional information.
nm - not meaningful
Software
($ in millions)Yr.-to-Yr.
Percent
Change		Yr.-to-Yr.
Percent
Change
Adjusted For
Currency
For the three months ended March 31:20262025
Software revenue:$7,052 $6,336 11.3 %7.9 %
Hybrid Cloud
$1,905 $1,687 12.9 %10.0 %
Automation
1,741 1,584 9.9 6.7 
Data
1,474 1,236 19.2 15.9 
Transaction Processing
1,932 1,828 5.7 1.7 
Software revenue of $7,052 million increased 11.3 percent as reported (7.9 percent adjusted for currency) in the first quarter of 2026 compared to the prior-year period, with growth in all lines of business. This revenue performance reflects the diversity of our portfolio, our ongoing generative AI innovation, and the continued shift to higher growth end markets.
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Management Discussion – (continued)
Revenue performance by line of business in the first quarter compared to the prior-year period was as follows:
Hybrid Cloud (Red Hat) revenue increased 12.9 percent as reported (10.0 percent adjusted for currency) in the first quarter, reflecting accelerated growth of approximately two points compared to fourth-quarter 2025, primarily driven by the stabilization of our consumption-based services revenue growth. OpenShift had strong year-to-year growth in the first quarter and now represents a $2 billion annual recurring revenue business. Automation revenue grew 9.9 percent as reported (6.7 percent adjusted for currency). This includes revenue growth contribution from our HashiCorp acquisition which closed in February 2025. Data revenue grew 19.2 percent as reported (15.9 percent adjusted for currency) reflecting demand for our generative AI products, strength in our strategic partnerships, and inorganic contribution from our acquisitions, including DataStax and Confluent which closed in mid-March 2026. Transaction Processing revenue increased 5.7 percent as reported (1.7 percent adjusted for currency), reflecting growth due to our strong IBM z17 program.
Across Software, our annual recurring revenue (ARR) was solid at $24.6 billion, which increased approximately $3 billion as reported year to year. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment, and is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. The first-quarter 2026 recurring revenue metric includes annualized Confluent recurring revenue since the acquisition date of March 17, 2026. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.
($ in millions)Yr.-to-Yr.
Percent/
Margin
Change
For the three months ended March 31:20262025
Software:   
Gross profit$5,836 $5,294 10.2 %    
Gross profit margin82.8 %83.6 %(0.8)pts.  
Segment profit$2,099 $1,847 13.7 %    
Segment profit margin 29.8 %29.1 %0.6 pts.  
Software gross profit margin decreased 0.8 points to 82.8 percent in the first quarter of 2026 compared to the prior-year period, reflecting our investments in portfolio innovation.
Segment profit of $2,099 million increased 13.7 percent and segment profit margin of 29.8 percent increased 0.6 points compared to the prior-year period, reflecting the benefits of our productivity actions, contributions from revenue growth and mix, partially offset by organic and inorganic investments in portfolio innovation.
Consulting
($ in millions)  Yr.-to-Yr.
Percent
Change		Yr.-to-Yr.
Percent
Change
Adjusted For
Currency
For the three months ended March 31:20262025
Consulting revenue:$5,272 $5,068 4.0 %0.9 %
Strategy and Technology
$2,896 $2,782 4.1 %0.9 %
Intelligent Operations
2,376 2,286 4.0 0.8 
Consulting revenue of $5,272 million increased 4.0 percent as reported and 0.9 percent adjusted for currency on a year-to-year basis. We had revenue growth across the portfolio reflecting momentum in the business as client demand continues to shift towards enterprise-wide transformation. Strategy and Technology revenue increased 4.1 percent as reported (0.9 percent adjusted for currency) and Intelligent Operations revenue increased 4.0 percent as reported (0.8 percent adjusted for currency). The revenue performance in Consulting reflects our differentiated, asset-led delivery model which continues to drive productivity and speed to value, combining our deep domain expertise with software, automation, and reusable assets to help clients deploy AI securely and at scale.

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Management Discussion – (continued)
($ in millions)Yr.-to-Yr.
Percent/
Margin
Change
For the three months ended March 31:20262025
Consulting:   
Gross profit$1,449 $1,381 4.9 %    
Gross profit margin27.5 %27.3 %0.2 pts.  
Segment profit$558 $558 (0.1)%    
Segment profit margin10.6 %11.0 %(0.4)pts.  
In the first quarter of 2026, Consulting gross profit margin of 27.5 percent increased 0.2 points on a year-to-year basis. Segment profit of $558 million decreased 0.1 percent and segment profit margin of 10.6 percent decreased 0.4 points year to year.
Consulting segment profit and profit margin performance in the first quarter of 2026 compared to the prior-year period declined modestly as productivity gains were offset by investments in the business and currency headwinds reflecting our geographic mix of the business.
Consulting Signings, Book-to-Bill and Backlog
($ in millions)Yr.-to-Yr.
Percent
Change		Yr.-to-Yr.
Percent
Change
Adjusted For
Currency
For the three months ended March 31:20262025
Total Consulting signings$5,354 $4,934 8.5 %6.0 %
Consulting signings increased 8.5 percent as reported and 6.0 percent adjusted for currency for the three months ended March 31, 2026, compared to the prior-year period. Signings returned to growth in the first-quarter 2026, with strength across our application and data transformation offerings. Our book-to-bill ratio for the trailing twelve-months was 1.04. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period and is a useful indicator of the demand for our business over time. At March 31, 2026, backlog was $31.3 billion.
Signings are management’s initial estimate of the value of a client’s commitment under a services contract. The calculation used by management involves estimates and judgments to gauge the extent of a client’s commitment, including the type and duration of the agreement and the presence of termination charges or wind-down costs. Backlog reflects the estimated remaining value of overall work to be recognized as revenue under services contracts, and it is calculated as the total reported signings less already recognized revenue and less any backlog adjustments.
Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Total signings can vary over time due to a variety of factors including, but not limited to, the timing of signing a small number of larger contracts. Signings associated with an acquisition will be recognized on a prospective basis. Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue not materialized and adjustments for currency.
Management believes the estimated values of signings and backlog provide an indication of our forward-looking revenue, which are used by management as tools to monitor the performance of the business and are viewed as useful decision-making information for investors. There are no third-party standards or requirements governing the calculation of these measurements. The conversion of signings and backlog into revenue may vary based on the types of services and solutions, contract duration, customer decisions, and other factors, which may include, but are not limited to, the macroeconomic environment or external events.
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Management Discussion – (continued)
Infrastructure
($ in millions)Yr.-to-Yr.
Percent
Change		Yr.-to-Yr.
Percent
Change
Adjusted For
Currency
For the three months ended March 31:20262025
Infrastructure revenue:$3,326 $2,886 15.3 %11.7 %
Hybrid Infrastructure$2,108 $1,646 28.1 %24.8 %
IBM Z50.9 48.3 
Distributed Infrastructure16.7 13.1 
Infrastructure Support1,218 1,240 (1.8)(5.7)
Infrastructure revenue of $3,326 million increased 15.3 percent as reported and 11.7 percent adjusted for currency in the first quarter of 2026 compared to the prior-year period, with Hybrid Infrastructure increasing 28.1 percent as reported (24.8 percent adjusted for currency) and Infrastructure Support decreasing 1.8 percent as reported (5.7 percent adjusted for currency). Within Hybrid Infrastructure, IBM Z increased 50.9 percent as reported (48.3 percent adjusted for currency) in the first quarter, with z17 continuing to outperform prior programs. Clients are investing in IBM Z as they modernize mission-critical workloads, driven by requirements for resiliency, security and compliance, while enabling new AI capabilities on the platform. Distributed Infrastructure revenue increased 16.7 percent as reported (13.1 percent adjusted for currency), with growth in both Power and Storage. Power revenue growth was driven by demand for Power11, with its resiliency and performance advantages supporting data-intensive workloads. Revenue growth in Storage reflects strong adoption of our new Flash offerings introduced in the first-quarter 2026, which incorporate industry-leading agentic AI capabilities.
($ in millions)Yr.-to-Yr.
Percent/
Margin
Change
For the three months ended March 31:20262025
Infrastructure:   
Gross profit$1,891 $1,522 24.2 %    
Gross profit margin56.9 %52.8 %4.1 pts.  
Segment profit$524 $248 111.7 %    
Segment profit margin15.8 %8.6 %7.2 pts.  
Infrastructure gross profit margin of 56.9 percent increased 4.1 points in the first quarter of 2026 compared to the prior-year period. Infrastructure segment profit of $524 million increased 111.7 percent and segment profit margin of 15.8 percent increased 7.2 points compared to the prior-year period.
Infrastructure gross profit, segment profit and the respective margin expansion for the first quarter of 2026 reflect the productivity actions we have taken and the growth and mix of revenue, partially offset by our ongoing investments in product innovation.
Financing
Refer to pages 56 through 57 for a discussion of Financing’s segment results.

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Management Discussion – (continued)
Geographic Revenue
In addition to the revenue presentation by reportable segment, we also measure revenue performance on a geographic basis.
($ in millions)Yr.-to-Yr.
Percent
Change 		Yr.-to-Yr.
Percent
Change
Adjusted For
Currency
For the three months ended March 31:20262025
Total Revenue$15,917 $14,541 9.5 %6.1 %
Americas$7,861 $7,206 9.1 %8.2 %
Europe/Middle East/Africa (EMEA)5,242 4,552 15.2 5.4 
Asia Pacific2,814 2,783 1.1 1.7 
Geographic revenue performance for the three months ended March 31, 2026:
Americas revenue of $7,861 million increased 9.1 percent as reported and 8.2 percent adjusted for currency in the first quarter of 2026 compared to the prior-year period. The U.S. increased 7.5 percent year to year. Canada increased 12.5 percent as reported and 7.9 percent adjusted for currency. Latin America increased 14.4 percent as reported and 9.1 percent adjusted for currency, with Brazil increasing 29.3 percent as reported and 22.4 percent adjusted for currency.
In EMEA, total revenue of $5,242 million increased 15.2 percent as reported and 5.4 percent adjusted for currency. Italy, France, Germany and the U.K. increased 23.8 percent, 21.7 percent, 18.7 percent and 17.0 percent, respectively, as reported, and 12.3 percent, 10.2 percent, 7.2 percent and 9.7 percent, respectively, adjusted for currency. The Middle East and Africa region increased 15.8 percent as reported and 13.4 percent adjusted for currency and represents less than 3 percent of IBM total revenue.
Asia Pacific revenue of $2,814 million increased 1.1 percent as reported and 1.7 percent adjusted for currency. Japan decreased 3.8 percent as reported and 0.7 percent adjusted for currency. Australia and India increased 15.2 percent and 5.2 percent, respectively, as reported, and 3.9 percent and 11.4 percent, respectively, adjusted for currency.
Expense
Total Expense and Other (Income)
($ in millions)Yr.-to-Yr.
Percent
Change
For the three months ended March 31:20262025
Total expense and other (income)
$7,562 $6,873 10.0 %   
Non-operating adjustments:   
Amortization of acquired intangible assets$(333)$(294)13.1 %
Acquisition-related charges(76)(63)20.9 
Non-operating retirement-related (costs)/income
(96)(23)nm 
Operating (non-GAAP) expense and other (income)
$7,057 $6,494 8.7 %
Total expense-to-revenue ratio47.5 %47.3 %0.2 pts. 
Operating (non-GAAP) expense-to-revenue ratio44.3 %44.7 %(0.3)pts. 
nm - not meaningful
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Management Discussion – (continued)
For additional information regarding total expense and other (income) for both expense presentations, refer to the following analyses by category.
Selling, General and Administrative Expense
($ in millions)Yr.-to-Yr.
Percent
Change
For the three months ended March 31:20262025
Selling, general and administrative expense:   
Selling, general and administrative — other$3,900 $3,806 2.5 %
Advertising and promotional expense229 238 (3.7)
Workforce rebalancing charges359 316 13.7 
Amortization of acquired intangible assets333 294 13.1 
Stock-based compensation
270 217 24.3 
Provision for/(benefit from) expected credit loss expense(2)14 nm
Total selling, general and administrative expense$5,089 $4,886 4.2 %
Non-operating adjustments:   
Amortization of acquired intangible assets$(333)$(294)13.1 %
Acquisition-related charges
(75)(58)28.1 
Operating (non-GAAP) selling, general and administrative expense$4,682 $4,533 3.3 %
nm - not meaningful
Total selling, general and administrative (SG&A) expense increased 4.2 percent in the first quarter of 2026 versus the prior-year period driven primarily by the following factors:
•Higher operating expenses from acquired businesses, as a result of our continued investment to drive our hybrid cloud and AI strategy (3 points);
•The effects of currency (2 points); and
•Higher acquisition-related charges and amortization of acquired intangible assets (1 point); partially offset by
•Benefits from productivity and the actions taken to transform our operations (2 points).
Operating (non-GAAP) SG&A expense increased 3.3 percent year to year primarily driven by the same factors above, excluding the higher acquisition-related charges and amortization of acquired intangible assets.
Expected credit loss expense was a benefit of $2 million in the first quarter of 2026 compared to a provision of $14 million in the prior-year period. The year-to-year change was primarily driven by higher unallocated reserve requirements in the prior year as a result of the economic conditions. Refer to "Receivables and Allowances" section on page 50 for additional information.
Research and Development
($ in millions)Yr.-to-Yr.
Percent
Change
For the three months ended March 31:20262025
Research and development expense
$2,173 $1,950 11.4 %
Research and development (R&D) expense increased 11.4 percent in the first quarter of 2026. The year-to-year increase in R&D expense reflects our organic and inorganic investments to drive innovation in AI, hybrid cloud and quantum, and the effects of currency.
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Management Discussion – (continued)
Intellectual Property and Custom Development Income
($ in millions)Yr.-to-Yr.
Percent
Change
For the three months ended March 31:20262025
Intellectual property and custom development income:   
Intellectual property income (1)
$45 $63 (28.5)%
Custom development income127 190 (33.3)
Total$172 $253 (32.1)%
(1)Includes licensing, royalty-based fees and sales.
Total intellectual property and custom development income decreased 32.1 percent year to year in the first quarter of 2026. The timing and amount of licensing and sales of IP may vary significantly from period to period depending upon the timing of licensing agreements, economic conditions, industry consolidation and the timing of new patents and know-how development.
Other (Income) and Expense
($ in millions)Yr.-to-Yr.
Percent
Change
For the three months ended March 31:20262025
Other (income) and expense:   
(Gains)/losses on foreign currency transactions$(328)$443 nm
(Gains)/losses on derivative instruments
423 (442)nm
Interest income(152)(191)(20.4)%
Net (gains)/losses from securities and investment assets(9)29 nm
Retirement-related costs/(income)
96 23 nm
Other(31)(26)18.9
Total other (income) and expense$(1)$(165)(99.2)%
Non-operating adjustments:   
Non-operating retirement-related (costs)/income
(96)(23)nm
Operating (non-GAAP) other (income) and expense$(98)$(187)(47.8)%
nm - not meaningful
Total other (income) and expense was income of $1 million in the first quarter of 2026, a decrease of $163 million compared to the prior-year period. The year-to-year change was primarily driven by:
•Higher net exchange losses (including derivative instruments) of $94 million; and
•Higher non-operating retirement-related cost of $74 million. Refer to "Retirement-Related Plans" on page 49 for additional information.
Operating (non-GAAP) other (income) and expense was income of $98 million in the first quarter of 2026, a decrease $89 million compared to the prior-year period. The year-to-year change was primarily driven by higher net exchange losses (including derivative instruments).
Interest Expense
($ in millions)Yr.-to-Yr.
Percent
Change
For the three months ended March 31:20262025
Interest expense$473 $455 4.0 %
Interest expense of $473 million in the first quarter of 2026 increased $18 million compared to the prior-year period, driven by higher average debt balances. In addition, when external borrowings support the Financing business, interest expense is presented in cost of financing on the Consolidated Income Statement. Interest reported in cost of financing in the first quarter of 2026 was $111 million, a year-to-year increase of $23 million.
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Table of Contents
Management Discussion – (continued)
Retirement-Related Plans
The following table provides the total pre-tax cost for all retirement-related plans. The operating cost amounts are included in the Consolidated Income Statement within the caption (e.g., Cost, SG&A, R&D) relating to the job function of the plan participants. The non-operating cost amounts are included in other (income) and expense.
($ in millions)Yr.-to-Yr.
Percent
Change
For the three months ended March 31:20262025
Retirement-related plans — cost:   
Service cost$131 $130 0.5 %
Multi-employer plans3 3 (14.0)
Cost of defined contribution plans118 110 7.3 
Total operating costs$251 $243 3.4 %
Interest cost$507 $476 6.4 %
Expected return on plan assets(629)(614)2.5 
Recognized actuarial losses198 152 30.5 
Amortization of prior service costs/(credits)9 (2)nm 
Curtailments/settlements
2 2 (21.5)
Other costs11 8 25.1 
Total non-operating costs/(income)$96 $23 nm 
Total retirement-related plans — cost$348 $266 30.9 %
nm - not meaningful
Total pre-tax retirement-related plan cost in the first quarter of 2026 increased by $82 million compared to the first quarter of 2025, primarily driven by an increase in recognized actuarial losses ($46 million) and interest cost ($30 million), partially offset by higher expected return on plan assets ($15 million).
As described in the “Operating (non-GAAP) Earnings” section, management characterizes certain retirement-related costs as operating and others as non-operating. Utilizing this characterization, operating retirement-related costs in the first quarter of 2026 were $251 million, an increase of $8 million compared to the first quarter of 2025. Non-operating costs were $96 million in the first quarter of 2026 compared to $23 million in the prior-year period. The year-to-year increase in non-operating costs was driven by the same factors as described in the total pre-tax retirement plan cost above.
Taxes
The continuing operations provision for income taxes was $172 million in the first quarter of 2026, compared to $103 million in the first quarter of 2025. The operating (non-GAAP) provision for income taxes was $308 million in the first quarter of 2026, compared to $221 million in the first quarter of 2025.
IBM’s tax provision and effective tax rate are impacted by recurring and discrete factors including the geographical mix of income before taxes, changes in business operations, incentives, specific transactions, changes in unrecognized tax benefits, settlement of income tax audits, and changes in tax laws or regulations. The GAAP tax provision and effective tax rate could also be affected by adjustments to the previously recorded charges for U.S. tax reform attributable to any changes in law, new regulations and guidance, and audit adjustments, among others.
The U.S. Internal Revenue Service (IRS) has proposed adjustments related to certain cross-border transactions with respect to the company’s 2013-2014 and 2015-2016 U.S. income tax returns. The company strongly disagrees with the IRS’ proposed adjustments, has filed IRS Appeals protests, and will pursue resolution at court, if necessary. In the fourth quarter of 2025, the IRS concluded its audit of the company’s 2017-2018 U.S. income tax returns. The company strongly disagrees with certain adjustments proposed by the IRS and is evaluating its options to contest them. With respect to major U.S. state and foreign taxing jurisdictions, the company is generally no longer subject to tax examinations for years prior to 2016. The company is no longer subject to income tax examination of its U.S. federal tax return for years prior to 2013. Although the outcome of tax audits is always uncertain, the company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that are expected to result for these years.

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Table of Contents
Management Discussion – (continued)
Financial Position
Dynamics
Our balance sheet at March 31, 2026 continues to provide us with financial flexibility to support and invest in the business.
Cash and cash equivalents, restricted cash and marketable securities at March 31, 2026 were $11,827 million, a decrease of $2,643 million compared to December 31, 2025. Total debt of $66,361 million at March 31, 2026 increased $5,100 million compared to December 31, 2025, primarily driven by the first-quarter 2026 debt issuances to increase our financial liquidity and plan for our future debt maturities. We continue to manage our debt levels while being acquisitive and without sacrificing investments in our business.
In the first three months of 2026, we generated $5,169 million in cash from operating activities, an increase of $799 million compared to the first three months of 2025. Our free cash flow for the three months ended March 31, 2026 was $2,220 million, an increase of $258 million versus the prior-year period. Refer to pages 54 through 55 for additional information on free cash flow. We returned $1,576 million to shareholders through dividends in the first three months of 2026 and invested in the acquisition of Confluent which completed in March 2026.
Our pension plans were well funded at the end of 2025, with worldwide qualified plans funded at 116 percent. Overall pension funded status as of the end of March 2026 was fairly consistent with year-end 2025. Refer to “Retirement-Related Plans” on page 30 in our 2025 Annual Report for additional information.
IBM Working Capital
($ in millions)At March 31, 2026At December 31, 2025
Current assets$31,914 $36,944 
Current liabilities40,101 38,658 
Working capital$(8,186)$(1,714)
Current ratio0.80:10.96:1
Working capital decreased $6,472 million from the year-end 2025 position. Current assets decreased $5,030 million ($4,721 million adjusted for currency) primarily due to decreases in receivables of $3,395 million related to collections of seasonally higher year-end balances, along with declines in cash and cash equivalents, restricted cash and marketable securities of $2,643 million, which included the reductions for the acquisition of Confluent in the first quarter. Current liabilities increased $1,442 million ($1,664 million adjusted for currency) primarily driven by increases in short-term debt due to timing of maturities and debt acquired in the Confluent acquisition of $1,100 million, which was settled on April 15, 2026 (refer to note 5, “Acquisitions & Divestitures,” for additional information), and an increase of $933 million in deferred income, partially offset by a decrease in accounts payable.
Receivables and Allowances
Roll Forward of Total IBM Receivables Allowance for Credit Losses
($ in millions)
January 1, 2026
Additions / (Releases) (1)
Write-offs (2)
Foreign currency and other
March 31, 2026
$276$(1)$(8)$(1)$267
(1)Additions/(Releases) for allowance for credit losses are recorded in expense.
(2)Refer to note A, “Significant Accounting Policies,” in our 2025 Annual Report for additional information regarding allowance for credit loss write-offs.
Excluding receivables classified as held for sale, the total IBM receivables provision coverage was 1.2 percent at March 31, 2026, an increase of 10 basis points compared to December 31, 2025. The increase in coverage is primarily driven by a decrease in total receivables. The majority of the write-offs during the three months ended March 31, 2026 were related to receivables which had been previously reserved. Refer to Financing's “Balance Sheet and Return on Equity Highlights” on page 56 for additional details regarding the Financing segment receivables and allowances.
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Management Discussion – (continued)
Noncurrent Assets and Liabilities
($ in millions)At March 31, 2026At December 31, 2025
Noncurrent assets$124,315 $114,936 
Long-term debt$57,706 $54,836 
Noncurrent liabilities (excluding debt)$25,367 $25,645 
Noncurrent assets increased $9,379 million ($9,835 million adjusted for currency) primarily due to an increase in goodwill and intangible assets from the Confluent acquisition.
Long-term debt increased $2,870 million ($3,199 million adjusted for currency) primarily driven by our first-quarter 2026 debt issuances, partially offset by reclassifications to short-term debt to reflect upcoming maturities.
Noncurrent liabilities (excluding debt) decreased $278 million ($8 million adjusted for currency) primarily driven by currency.
Debt
Our funding requirements are continually monitored as we execute our strategies to manage the overall asset and liability profile. Additionally, we maintain sufficient flexibility to access global funding sources as needed.
($ in millions)At March 31, 2026At December 31, 2025
Total debt$66,361 $61,260 
Financing segment debt (1)
$12,837 $15,093 
Non-Financing debt$53,523 $46,167 
(1)Refer to Financing’s “Balance Sheet and Return on Equity Highlights” on page 56 for additional details.
Total debt of $66,361 million increased $5,100 million ($5,427 million adjusted for currency) from December 31, 2025, primarily driven by proceeds from issuances of $7,437 million to increase our financial liquidity and plan for our future debt maturities, as well as debt acquired in the Confluent acquisition (refer to note 5, "Acquisitions & Divestitures," for additional information), partially offset by maturities of $2,928 million.
Non-Financing debt of $53,523 million increased $7,356 million ($7,628 million adjusted for currency) from December 31, 2025, primarily driven by the same dynamics as described above.

Financing segment debt of $12,837 million decreased $2,256 million ($2,201 million adjusted for currency) from December 31, 2025, primarily due to lower funding requirements associated with financing receivables.
Financing provides financing solutions predominantly for IBM’s external client assets, and the debt used to fund Financing assets is primarily comprised of intercompany loans. Total debt changes generally correspond with the level of client and commercial financing receivables, the level of cash and cash equivalents, the change in intercompany and external payables, and the change in intercompany investment from IBM. The terms of the intercompany loans are set by the company to substantially match the term, currency and interest rate variability underlying the financing receivable. The Financing debt-to-equity ratio remained at 9.0 to 1 at March 31, 2026.
In the Consolidated Income Statement, when external borrowings support the Financing business, interest expense is presented in cost of financing. Refer to note 12, “Borrowings,” for additional information.
Equity
Total equity increased $315 million from December 31, 2025, primarily driven by net income of $1,216 million and an increase in common stock of $618 million, partially offset by dividends paid of $1,576 million.
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Management Discussion – (continued)
Cash Flow
Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows on page 7, are summarized in the table below. These amounts also include the cash flows associated with the Financing business.
($ in millions)
For the three months ended March 31:20262025
Net cash provided by/(used in):  
Operating activities$5,169 $4,370 
Investing activities(10,489)(12,979)
Financing activities2,719 5,443 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(177)167 
Net change in cash, cash equivalents and restricted cash$(2,777)$(2,999)
Net cash provided by operating activities increased $799 million as compared to the first three months of 2025. This was due to an increase in performance-related improvements within net income, and an increase in cash provided by financing receivables, partially offset by higher interest payments on debt.

Net cash used in investing activities decreased $2,491 million primarily due to lower cash used in purchases of marketable securities and other investments, as well as proceeds from the sale of marketable securities acquired in the Confluent acquisition. This decrease was partially offset by higher cash used for acquisitions, reflecting the impact of the Confluent acquisition in the current quarter compared with the HashiCorp acquisition in the prior‑year period.

Net cash provided by financing activities decreased $2,724 million primarily driven by a higher level of maturities and lower level of debt issuances in the current-year period.
Looking Forward
Technology remains a key driver of growth and competitive advantage which allows businesses to scale, drive cost efficiencies, productivity and transformation. It is clear that hybrid cloud and AI are the two most consequential technologies for enterprise performance. These technologies are no longer viewed as incremental tools, but as platforms that fundamentally change how businesses scale, compete, and operate. Their value is even more critical in today’s environment.

AI is changing the economics of enterprise operations. To capture this opportunity and build a competitive advantage, businesses must go beyond just adding AI; they must become AI-first. The portfolio of AI offerings we have built, including cost efficient, fit-for-purpose open-source models deployed in hybrid environments, is focused on helping businesses scale AI and generate return through productivity improvements and automation. In Software, IBM watsonx provides a robust portfolio of AI products for developing AI apps, managing data, and governing the entire lifecycle of AI models and AI agents, allowing clients to move from pilots to production with full control over cost, security, sovereignty, and performance. Our watsonx platform and watsonx Orchestrate help enterprises deploy AI by connecting agents, models, and workflows with governance and security. We continue to see Infrastructure play a critical role, as AI moves into the core of enterprise operations, enabling hybrid cloud environments for mission-critical transactions and AI workloads, as clients bring AI to their data. IBM Z delivers enhanced AI acceleration through multi-model AI capabilities, low unit cost architecture at scale for workloads that require end-to-end encryption, continued availability, and ultra-high throughput. In Consulting, AI is both a growth driver and a productivity engine. Our experts are helping clients design and execute AI strategies by leveraging the IBM Consulting Advantage platform, an AI delivery platform designed to implement solutions at scale, transforming how our consultants work. As agents take on more work, delivery becomes faster, more software driven, and more scalable.

AI is a powerful productivity driver for our clients and for IBM. We are transforming our enterprise operations, driving efficiency and cost savings with our Client Zero approach, leveraging technology and embedding AI in our own workflows. Our developer workforce is using IBM Bob, our AI-based software development system that automates the full
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Management Discussion – (continued)
software lifecycle, driving developer productivity and predictable enterprise costs. IBM Bob became generally available in March.

We remain focused on accelerating organic innovation speed and impact, and we continue to invest in emerging technologies, including Quantum, bringing new innovations to market. To complement our portfolio, in mid-March we completed the previously announced acquisition of Confluent, which enables enterprises to deploy generative and agentic AI better and faster by providing trusted communication and data flow between environments, applications and APIs.

We had a strong start to 2026. Our first-quarter performance reflects the durability of our portfolio and the continued execution of our focused strategy around hybrid cloud and AI, giving us confidence in our ability to continue to deliver long-term growth aligned with our financial model.
Currency Rate Fluctuations
Changes in the relative values of non-U.S. currencies to the U.S. dollar affect our financial results and financial position. Movements in currency, and the fact that we do not hedge 100 percent of our currency exposures, will result in a currency impact to our revenues, profit and cash flows throughout 2026. We execute a hedging program which defers, versus eliminates, the volatility of currency impacts on our financial results. During periods of sustained movements in currency, the marketplace and competition adjust to the changing rates over time.
References to “adjusted for currency” or “constant currency” reflect adjustments based upon a simple mathematical formula. However, this constant currency methodology that we utilize to disclose this information does not incorporate any operational actions that management could take to mitigate fluctuating currency rates. Based on the currency rate movements in the first quarter of 2026, revenue from continuing operations increased 9.5 percent as reported and 6.1 percent at constant currency compared to the prior year.
At March 31, 2026, currency changes resulted in assets and liabilities denominated in most local currencies being translated into fewer U.S. dollars than at year-end 2025. We use financial hedging instruments to limit specific currency risks related to foreign currency-based transactions.
We translate revenue, cost and expense in our non-U.S. operations at current exchange rates in the reported period. In the first quarter of 2026, the impact from currency translation and hedging to year-to-year pre-tax income, operating (non-GAAP) pre-tax income and segments profit margin was not material. Hedging and certain underlying foreign currency transaction gains and losses are allocated to our segment results. Considering the operational responses mentioned above, movements of exchange rates, and the nature and timing of hedging instruments, it is difficult to predict future currency impacts in any particular period.
For non-U.S. subsidiaries and branches that operate in U.S. dollars or whose economic environment is highly inflationary, translation adjustments are reflected in results of operations. Generally, we manage currency risk in these entities by linking prices and contracts to U.S. dollars.
Liquidity and Capital Resources
In our 2025 Annual Report, on pages 31 to 33, there is a discussion of our liquidity including two tables that present three years of data. The table presented on page 31 includes net cash from operating activities, cash and cash equivalents, restricted cash and short-term marketable securities, and the size of our global credit facilities for each of the past three years. For the three months ended, or at, as applicable, March 31, 2026, those amounts are $5.2 billion of net cash from operating activities, $11.8 billion of cash and cash equivalents, restricted cash and short-term marketable securities and $10.0 billion in global credit facilities, respectively. While we have no current plans to draw on these credit facilities, they are available as back-up liquidity.
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Management Discussion – (continued)
The major rating agencies' ratings on our debt securities at March 31, 2026 appear in the following table and remain unchanged from December 31, 2025.
IBM Ratings:Standard
and Poor's		Moody’s
Investors
Service		Fitch
Ratings
Senior long-term debtA-A3A-
Commercial paperA-2Prime-2F1
We have financial flexibility, supported by our strong liquidity position and cash flows, to operate at a single A credit rating. Debt levels have increased $5.1 billion ($5.4 billion adjusted for currency) from December 31, 2025 driven by debt issuances, as well as debt acquired in the Confluent acquisition, partially offset by maturities. In the first quarter of 2026, we issued $7.4 billion of debt for general corporate purposes. Refer to note 12, “Borrowings,” for additional information.
We do not have “ratings trigger” provisions in our debt covenants or documentation, which would allow the holders to declare an event of default and seek to accelerate payments thereunder in the event of a change in credit rating. Our debt covenants are well within the required levels. Our contractual agreements governing derivative instruments contain standard market clauses which can trigger the termination of the agreement if our credit rating were to fall below investment grade. At March 31, 2026, the fair value of those instruments that were in a liability position was $693 million, before any applicable netting, and this position is subject to fluctuations in fair value period to period based on the level of our outstanding instruments and market conditions. We have no other contractual arrangements that, in the event of a change in credit rating, would result in a material adverse effect on our financial position or liquidity.
We prepare our Consolidated Statement of Cash Flows in accordance with applicable accounting standards for cash flow presentation on page 7 of this Form 10-Q and highlight causes and events underlying sources and uses of cash in that format on page 52. For the purpose of running its business, IBM manages, monitors and analyzes cash flows in a different manner.
Management uses free cash flow as a measure to evaluate its operating results, strategic investments, plan shareholder return levels and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. We define free cash flow as net cash from operating activities less the change in Financing receivables and net capital expenditures, including the investment in software and other asset sales. A key objective of the Financing business is to generate strong returns on equity, and our Financing receivables are the basis for that growth. Accordingly, management considers Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of Financing receivables.
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Management Discussion – (continued)
The following is management’s view of cash flows for the first three months of 2026 and 2025 prepared in a manner consistent with the description above.
($ in millions)
For the three months ended March 31:20262025
Net cash from operating activities per GAAP$5,169 $4,370 
Less: change in Financing receivables2,565 2,087 
Net cash from operating activities, excluding Financing receivables$2,604 $2,283 
Capital expenditures, net (384)(321)
Free cash flow $2,220 $1,962 
Change in Financing receivables
2,565 2,087 
Acquisitions(10,465)(7,098)
Divestitures1 (1)
Dividends(1,576)(1,549)
Change in total debt
4,509 7,092 
Other
279 128 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(177)167 
Change in cash, cash equivalents, restricted cash and short-term marketable securities$(2,643)$2,788 

In the first three months of 2026, we generated $2.2 billion in free cash flow, an increase of $0.3 billion versus the prior-year period. The increase was primarily driven by performance-related improvements within net income, partially offset by higher interest payments on debt and increased investments in capital expenditures. In the first three months of 2026, we continued to return value to shareholders with $1.6 billion in dividends, and we invested in the Confluent acquisition.
Events that could temporarily change the historical cash flow dynamics discussed previously and in our 2025 Annual Report include significant changes in operating results, material changes in geographic sources of cash, unexpected adverse impacts from litigation, future pension funding requirements, periods of severe downturn in the capital markets, the timing of tax payments, or the timing of certain working capital activities related to collections and payments. Whether any litigation has such an adverse impact will depend on a number of variables, which are more completely described in note 14, “Contingencies,” in this Form 10-Q.
With respect to pension funding, our pension plans remain well funded as of the end of March 2026. Our expected 2026 contributions and pre-tax retirement-related plan costs remain fairly consistent with the expectations disclosed in the 2025 Annual Report. Refer to “Retirement-Related Plans” on page 30 in our 2025 Annual Report for additional information. Financial market performance could increase the legally mandated minimum contributions in certain non-U.S. countries that require more frequent remeasurement of the funded status. We are not quantifying any further impact from pension funding because it is not possible to predict future movements in the capital markets or changes in pension plan funding regulations. In 2026, we are not legally required to make any contributions to the U.S. defined benefit pension plans and our legally required contributions to certain non-U.S. defined benefit plans are not expected to be material.
Our cash flows are sufficient to fund our current operations and obligations, including investing and financing activities such as dividends and debt service. When additional requirements arise, we have several liquidity options available. These options may include the ability to borrow additional funds at reasonable interest rates and utilizing our committed global credit facilities. Our overall shareholder payout remains at a comfortable level and we remain fully committed to our long-standing dividend policy.
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Management Discussion – (continued)
Financing
Financing is a reportable segment that facilitates IBM clients’ acquisition of hardware, software and services by providing financing solutions, while generating solid returns on equity.
Results of Operations
($ in millions)
Yr.-to-Yr.
Percent
Change/Margin Change
Yr.-to-Yr.
Percent
Change
Adjusted For
Currency
For the three months ended March 31:20262025
Revenue
$220 $191 14.8 %   10.2 %
Segment profit (1)
$118 $69 72.6 %   
Segment profit margin
53.8 %35.8 %18.0 pts. 
(1)Intercompany financing activities are reflected in segment profit and are eliminated in IBM’s consolidated financial results.
For the three months ended March 31, 2026, financing revenue increased 14.8 percent as reported (10.2 percent adjusted for currency) compared to the prior-year period, primarily driven by an increase in client financing assets.
Segment profit increased 72.6 percent to $118 million and segment profit margin increased 18.0 points to 53.8 percent, respectively, compared to the prior-year period. The increase in segment profit was driven by higher unallocated reserve requirements in the prior year as a result of economic conditions and year-to-year revenue growth as described above.
Balance Sheet and Return on Equity Highlights
($ in millions)At March 31, 2026At December 31, 2025
Client financing receivables (1)
$12,210 $13,192 
Commercial financing receivables (1) (2)
$1,312 $2,992 
Financing Segment Debt (3)
$12,837 $15,093 
Equity
$1,426 $1,678 
(1)Refer to note 9, “Financing Receivables,” for additional information.
(2)Includes both held for investment and held for sale receivables.
(3)Financing segment debt is primarily comprised of intercompany loans.
Return on equity was 25.3 percent compared to 18.5 percent for the three months ended March 31, 2026 and 2025, respectively. The increase was primarily driven by higher net income which reflects the increase in segment profit as described above. Return on equity is calculated as annualized after-tax segment profit divided by the average of the ending equity for Financing for the last two quarters. Annualized after-tax segment profit is a function of IBM's provision for income taxes determined on a consolidated basis.
The following table presents Client financing and Commercial financing receivables excluding receivables classified as held for sale.
($ in millions)
At March 31, 2026At December 31, 2025
Amortized cost
$12,907 $15,193 
Specific allowance for credit losses84 88 
Unallocated allowance for credit losses44 53 
Total allowance for credit losses128 141 
Net financing receivables$12,780 $15,052 
Allowance for credit losses coverage1.0 %0.9 %
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Management Discussion – (continued)
The percentage of Financing segment receivables reserved increased from 0.9 percent at December 31, 2025 to 1.0 percent at March 31, 2026, primarily driven by the decline in amortized cost resulting from seasonally higher year-end balances.
We continue to apply our rigorous credit policies. Approximately 80 percent of the total external portfolio was with investment grade clients, an increase of 2 points as compared to December 31, 2025. This investment grade percentage is based on the credit ratings of the companies in the portfolio and reflects certain mitigating actions taken to reduce the risk to IBM. For additional information relating to the company's credit quality and mitigation actions, including sales of receivables, refer to note 9, “Financing Receivables.”
GAAP Reconciliation
The tables below provide a reconciliation of our income statement results as reported under GAAP to our operating earnings presentation which is a non-GAAP measure. Management’s calculation of operating (non-GAAP) earnings, as presented, may differ from similarly titled measures reported by other companies. Refer to the “Operating (non-GAAP) Earnings” section on page 38 for management’s rationale for presenting operating earnings information.
($ in millions, except per share amounts)
GAAPAcquisition-
Related
Adjustments		Retirement-
Related
Adjustments
U.S. Tax Reform
Impacts
Operating
(non-GAAP)
For the three months ended March 31, 2026:
Gross profit$8,950 $237 $— $— $9,187 
Gross profit margin56.2 %1.5 pts. — pts. — pts. 57.7 %
SG&A$5,089 $(408)$— $— $4,682 
Other (income) and expense (1)— (96)— (98)
Total expense and other (income)
7,562 (409)(96)— 7,057 
Pre-tax income from continuing operations1,387 646 96 — 2,129 
Pre-tax margin from continuing operations8.7 %4.1 pts. 0.6 pts. — pts. 13.4 %
Provision for/(benefit from) income taxes (1)
$172 $137 $3 $(4)$308 
Effective tax rate12.4 %2.7 pts. (0.4)pts. (0.2)pts. 14.5 %
Income from continuing operations$1,216 $508 $94 $4 $1,821 
Income margin from continuing operations 7.6 %3.2 pts. 0.6 pts. 0.0 pts. 11.4 %
Diluted earnings per share from continuing operations$1.28 $0.53 $0.10 $0.00 $1.91 
($ in millions, except per share amounts)
GAAPAcquisition-
Related
Adjustments
Retirement-
Related
Adjustments
U.S. Tax Reform
Impacts
Operating
(non-GAAP)
For the three months ended March 31, 2025:
Gross profit$8,031 $201 $— $— $8,232 
Gross profit margin55.2 %1.4 pts. — pts. — pts. 56.6 %
SG&A$4,886 $(353)$— $— $4,533 
Other (income) and expense
(165)— (23)— (187)
Total expense and other (income)6,873 (357)(23)— 6,494 
Pre-tax income from continuing operations
1,158 557 23 — 1,738 
Pre-tax margin from continuing operations8.0 %3.8 pts. 0.2 pts. — pts. 12.0 %
Provision for/(benefit from) income taxes (1)
$103 $128 $(12)$2 $221 
Effective tax rate8.9 %4.5 pts. (0.8)pts. 0.1 pts. 12.7 %
Income from continuing operations
$1,054 $429 $35 $(2)$1,517 
Income margin from continuing operations
7.3 %3.0 pts. 0.2 pts. 0.0 pts. 10.4 %
Diluted earnings per share from continuing operations
$1.12 $0.45 $0.04 $0.00 $1.60 
(1)The tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income.
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Management Discussion – (continued)
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, but not limited to, the following: a downturn in economic environment and client spending budgets; a failure of the company’s innovation initiatives; damage to the company’s reputation; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; the company’s ability to successfully manage acquisitions, alliances and divestitures, including integration challenges, failure to achieve objectives, the assumption or retention of liabilities and higher debt levels; fluctuations in financial results; impact of local legal, economic, political, health and other conditions; the company’s failure to meet growth and productivity objectives; ineffective internal controls; the company’s use of accounting estimates; impairment of the company’s goodwill or amortizable intangible assets; the company’s ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product and service quality issues; the development and use of AI, including the company's increased AI solutions and use of AI technologies; impacts of business with government clients; reliance on third party distribution channels and ecosystems; cybersecurity and data protection considerations; adverse effects related to climate change and other environmental matters; tax matters; legal proceedings and investigatory risks; the company’s pension plans; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Qs, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission or in materials incorporated therein by reference. Any forward-looking statement in this Form 10-Q speaks only as of the date on which it is made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements.
Item 4. Controls and Procedures
The company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the company’s disclosure controls and procedures were effective as of the end of the period covered by this report. There has been no change in the company’s internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
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Part II — Other Information
Item 1. Legal Proceedings
Refer to note 14, “Contingencies,” in this Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
The following table provides information relating to the company’s repurchase of common stock for the first quarter of 2026.
PeriodTotal Number
of Shares
Purchased		Average
Price Paid
per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased Under
The Program (1)
January 1, 2026 - January 31, 2026—$— —$2,007,611,768 
February 1, 2026 - February 28, 2026—$— —$2,007,611,768 
March 1, 2026 - March 31, 2026—$— —$2,007,611,768 
Total—$— — 
(1)On October 30, 2018, the Board of Directors authorized $4.0 billion in funds for use in the company’s common stock repurchase program. The company stated that it would repurchase shares on the open market or in private transactions depending on market conditions. The common stock repurchase program does not have an expiration date. This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards. The company suspended its share repurchase program at the time of the Red Hat closing in 2019.
Item 5. Other Information
Insider Trading Arrangements
None.

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Item 6. Exhibits
Exhibit Number
10.1
10.2
22
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
International Business Machines Corporation
(Registrant)
Date: April 23, 2026
By:/s/ Nicolás A. Fehring
Nicolás A. Fehring
Vice President and Controller
61

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