Basis of Presentation

6 Months Ended

Jun. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation:

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

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

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

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

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

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

Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company’s 2022 Annual Report.

Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain prior-period amounts have been reclassified to conform to the current-period presentation. This is annotated where applicable.