8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report: November 3, 2021

(Date of earliest event reported)

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

New York	1-2360	13-0871985
(State of Incorporation)	(Commission File Number)	(IRS employer Identification No.)

One New Orchard Road Armonk, New York	10504
(Address of principal executive offices)	(Zip Code)

914-499-1900

(Registrant’s telephone number)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Capital stock, par value $.20 per share	IBM	New York Stock Exchange
		NYSE Chicago
2.625% Notes due 2022	IBM 22A	New York Stock Exchange
1.250% Notes due 2023	IBM 23A	New York Stock Exchange
0.375% Notes due 2023	IBM 23B	New York Stock Exchange
1.125% Notes due 2024	IBM 24A	New York Stock Exchange
2.875% Notes due 2025	IBM 25A	New York Stock Exchange
0.950% Notes due 2025	IBM 25B	New York Stock Exchange
0.875% Notes due 2025	IBM 25C	New York Stock Exchange
0.300% Notes due 2026	IBM 26B	New York Stock Exchange
1.250% Notes due 2027	IBM 27B	New York Stock Exchange
0.300% Notes due 2028	IBM 28B	New York Stock Exchange
1.750% Notes due 2028	IBM 28A	New York Stock Exchange
1.500% Notes due 2029	IBM 29	New York Stock Exchange
1.750% Notes due 2031	IBM 31	New York Stock Exchange
0.650% Notes due 2032	IBM 32A	New York Stock Exchange
1.200% Notes due 2040	IBM 40	New York Stock Exchange
7.00% Debentures due 2025	IBM 25	New York Stock Exchange
6.22% Debentures due 2027	IBM 27	New York Stock Exchange
6.50% Debentures due 2028	IBM 28	New York Stock Exchange
7.00% Debentures due 2045	IBM 45	New York Stock Exchange
7.125% Debentures due 2096	IBM 96	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ☐

Item 2.01. Completion of Acquisition or Disposition of Assets.

On November 3, 2021, International Business Machines Corporation (“IBM”) completed the previously announced complete legal and structural separation of its managed infrastructure services business and distribution to holders of IBM’s common stock of 80.1% of the outstanding shares of common stock of Kyndryl Holdings, Inc. (“Kyndryl”), in a tax free spin-off (the “Spin-Off”). The distribution was made in the amount of one share of Kyndryl common stock for every five shares of IBM common stock (the “Distribution”) owned by IBM’s stockholders of record as of the close of business on October 25, 2021. As a result of the Distribution, Kyndryl is now an independent public company trading under the symbol “KD” on the New York Stock Exchange. The Spin-Off was made without the payment of any consideration or the exchange of any shares by IBM’s stockholders.

Item 7.01. Regulation FD Disclosure.

Exhibit 99.1 of this Form 8-K contains additional information related to the unaudited pro forma financial information reflecting the Spin-Off that IBM has posted on its Investor Relations website (www.ibm.com/investor/).

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (“GAAP”), the company has disclosed in the attached investor relations article certain non-GAAP information, which management believes provides useful information to investors. The rationale for management’s use of non-GAAP measures and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in Exhibit 99.2 to this Form 8-K.

The information in this Item 7.01, including Exhibits 99.1 and 99.2, is being furnished with the Commission and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.

Item 9.01. Financial Statements and Exhibits.

(b) Pro Forma Financial Information

The unaudited pro forma condensed consolidated financial information of IBM reflecting the separation of the Company's managed infrastructure service business of its GTS segment, including the unaudited Pro Forma Condensed Consolidated Income Statements for the six months ended June 30, 2021 and for each of the years ended December 31, 2020, 2019 and 2018 and the unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2021, are attached hereto as Exhibit 99.3 and incorporated herein by reference.

(d) Exhibits

The following exhibits are being furnished as part of this report:

Exhibit No.	Description of Exhibit
99.1 99.2	Investor Relations Article, dated November 4, 2021 Non-GAAP Financial Information

The following exhibits are being filed as part of this report:

conde
Exhibit No.	Description of Exhibit
99.3	Unaudited pro forma condensed consolidated financial information
104	Cover 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

2

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.

.

3

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, hereunto duly authorized.

Date: November 4, 2021
	By:	/s/ Robert F. Del Bene
		Robert F. Del Bene
		Vice President and Controller

4

EX-99.1

EXHIBIT 99.1

IBM Completes Separation of Kyndryl November 4, 2021 On November 3, 2021, IBM completed the separation of Kyndryl into an independent publicly traded company. Today, IBM is filing an 8-K, as required by the SEC, which provides historical pro forma financial statements for IBM. This article is one of a series IBM is posting to help investors better understand its historical profile and reporting implications post-separation. It builds upon the information included in the investor article posted on September 28, 2021. In conjunction with today’s 8-K filing, IBM is providing: x a view of IBM’s 2020 net income baseline, consistent with the revenue and free cash flow baseline previously discussed, an updated schedule of future investor communications, including plans to provide additional information on fourth quarter discontinued operations. x IBM Historical Net Income Considerations As IBM previously stated, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), Kyndryl’s historical financial results will now be reported as discontinued operations within IBM’s consolidated financial reporting. As a reminder, IBM discontinued operations does not include historical intercompany transactions between IBM and Kyndryl, which were previously eliminated in consolidation. It also does not include the spending for shared services (e.g., finance, marketing, human resources, tax, legal, global sales coverage) that has already been transferred to Kyndryl. Therefore, IBM’s historical recast of continuing operations does not represent its go-forward continuing operations profile. As shown in today’s 8-K, IBM’s 2020 continuing operations (GAAP) net income is $3.9 billion. Adjusting for the above referenced items, as well as other smaller items, results in continuing operations net income baseline of $5.6 billion, or a continuing operations operating (non-GAAP) net income baseline of $7.7 billion. For perspective, these include significant charges for structural actions taken in fourth quarter 2020. Given these charges were taken at year end, they did not impact free cash flow in the period. 1

Future communications IBM intends to provide additional information on fourth quarter 2021 discontinued operations later in November. This will allow investors and analysts to align their expectations to the company’s continuing operations reporting basis ahead of its earnings report in January. Further, IBM expects to provide a view of its 2020 and year-to-date 2021 quarterly historical results on a continuing operations basis by the end of the year to facilitate an update to detailed historical models. To help investors understand the growth dynamics after the separation, IBM intends to provide insight into the revenue growth contribution from the incremental Kyndryl external sales during its earnings reporting for the first year after separation. Additional information can be found on IBM’s Investor Relations website (www.ibm.com/investor). 2

Exhibit 1: Schedule of Investor Communications Exhibit 2: IBM 2020 Income Statement Financial Reporting and Baseline 3

Forward-looking statements and non-GAAP information: Except for the historical information and discussions contained herein, certain statements made in this investor relations article may be characterized as forward looking under 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. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual result s to differ materially. Additional information concerning these factors is contained in the company’s filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made 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. This article, the below-mentioned rationale for management’s use of non-GAAP metrics and the below-mentioned reconciliations are integrally related and are intended to be presented and understood together. In an effort to provide additional and useful information regarding IBM’s historical results and forward-looking financial information on a continuing o perations basis, as determined by generally accepted accounting principles (GAAP), these materials contain non -GAAP financial measures, specifically 2020 free cash flow and operating net income, as well as a post-separation modeled free cash flow estimate and pro forma net income. The rationale for management’s use of non-GAAP information and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are included in Exhibit 99.2 to the company’s Form 8-K furnished with the SEC on November 4, 2021. 4

EX-99.2

EXHIBIT 99.2

Non-GAAP Financial Information

Operating and Pro Forma Operating (non-GAAP) net income

In an effort to provide better transparency into the operational results of the business, management has provided operating (non-GAAP) net income from continuing operations and pro forma operating (non-GAAP) net income from continuing operations, non-GAAP measures that exclude the effects of certain acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs and certain Kyndryl separation-related charges and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (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 true-ups, accounting elections and any changes to regulations, laws, audit adjustments, etc. that affect the recorded one-time charge. Management also characterizes direct and incremental charges incurred to accomplish the Kyndryl separation as non-operating given their unique and non-recurring nature. These charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlement charges and related tax charges. All other spending for Kyndryl is included in both net income from continuing operations and in operating (non-GAAP) net income. For acquisitions, operating and pro forma operating (non-GAAP) net income exclude the amortization of purchased 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 the company’s acquisitions. All other spending for acquired companies is included in net income from continuing operations and in both operating and pro forma operating (non-GAAP) net income. For retirement-related costs, management characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating net income. 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 the company considers these costs to be outside of the operational performance of the business.

The pro forma operating (non-GAAP) net income also includes management adjustments as described in Exhibit 99.3 to this Form 8-K. Management adjustments include certain general corporate overhead costs associated with labor and benefits for shared resources transferred to Kyndryl that the company does not intend to backfill. Management believes the resource transfers and costs which were used as the basis for the management adjustments are reasonable and representative of the labor-based cost reductions the company will realize after the separation of Kyndryl.

Overall, management believes that supplementally providing investors with a view of operating and pro forma operating (non-GAAP) net income as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward.

The below table reconciles the non-GAAP financial information contained in the investor relations article which was posted to IBM’s Investor Relations website on November 4, 2021 and is included as Exhibit 99.1 in this Form 8-K.

	Year Ended
	December 31, 2020
($ in billions)	Historical		Pro Forma (1)
Income from continuing operations	$	5.5	$	5.3
Management adjustments		—		0.4
Tax effect of adjustments		—		(0.1)
Sub-total	$	5.5	$	5.6
Non-operating adjustments:
Acquisition-related charges		1.9		1.8
Non-operating retirement-related costs/(income)		1.1		1.1
U.S. tax reform impacts		(0.1)		(0.1)
Separation-related charges(2)		0.0		—
Tax effect of adjustments		(0.6)		(0.6)
Operating (non-GAAP) net income	$	7.8	$	7.7

(1)The company’s unaudited Pro Forma Condensed Consolidated Income Statement is included in Exhibit 99.3.

(2)The pro forma income from continuing operations already excludes certain Kyndryl separation-related charges that were included in the Kyndryl Discontinued Operations adjustment column of the unaudited Pro Forma Condensed Consolidated Income Statement.

Free Cash Flow / Modeled Free Cash Flow

The company uses free cash flow as a measure to evaluate its operating results, plan shareholder return levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines IBM free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and our Global Financing receivables are the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management presents free cash flow that excludes the effect of Global Financing receivables.

The company has also provided a 2020 post-separation IBM modeled free cash flow estimate to provide insight into IBM’s estimated free cash flow following the separation of Kyndryl. The company defines IBM modeled free cash flow as IBM free cash flow, less Kyndryl’s modeled free cash flow. Kyndryl’s modeled free cash flow is estimated based on Kyndryl’s 2020 historical financial statements, prepared on a carve-out basis under U.S. GAAP. The carve-out methodologies and principles may not be reflective of the results of operations, financial position and cash flows had Kyndryl been a separate company. Therefore, the company includes adjustments to reflect a more representative view of Kyndryl cash flows. The adjustments primarily relate to new commercial pricing arrangements and contract scope changes as well as a net reduction in expense compared to the allocated expenses from IBM included in Kyndryl’s historical financial statements.

The below table reconciles the non-GAAP financial information contained in the investor relations article which was posted to IBM’s Investor Relations website on November 4, 2021 and is included as Exhibit 99.1 in this Form 8-K.

	Year Ended
($ in billions)	December 31, 2020
Net Cash from Operations per GAAP	$	18.2
Less: change in Global Financing (GF) Receivables		4.3
Capital Expenditures, net		(3.0)
Free Cash Flow	$	10.8
Less: Kyndryl Modeled Free Cash Flow(1)		0.7
IBM Modeled Free Cash Flow	$	10.0

(1) See table below for the reconciliation of Kyndryl Modeled Free Cash Flow to the most directly comparable GAAP measure, as presented at IBM’s Investor Briefing on October 4, 2021.

	Year Ended
($ in billions)	December 31, 2020
Net Cash from Operations per GAAP	$	0.6
Capital Expenditures, net		(0.9)
Free Cash Flow	$	(0.3)
New Commercial Pricing Arrangements and Contract Scope Changes(1)		0.5
Shared Services (Corporate Overhead)(2)		0.6
Kyndryl Modeled Free Cash Flow	$	0.7

(1) Primarily reflects the impact of new commercial pricing arrangements that Kyndryl and IBM have entered into prior to the Spin-off applied to historical purchases of goods and services from IBM as well as the net impact of incremental customer contracts transferred to Kyndryl from IBM that were not historically managed by Kyndryl and specific customer contracts being retained by IBM.

(2) Reflects the net reduction in costs for corporate overhead, primarily due to a flatter cost structure as Kyndryl becomes a stand-alone public entity. If Kyndryl decides to reduce resources or invest more heavily in certain areas in the future, that will be part of its discretionary future decisions and have not been included in this calculation.

EX-99.3

EXHIBIT 99.3

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On November 3, 2021 (the “Separation Date”), International Business Machines Corporation (the “Company”, “IBM”, “we”, “our” and “us”), a New York corporation, completed the previously announced separation of its managed infrastructure services business, into a separate, independent publicly traded company, Kyndryl Holdings, Inc. (the “Business” or “Kyndryl”). The separation was structured as a spin-off (the “Spin-off”), which occurred by way of a pro rata distribution (the “Distribution”) to IBM stockholders of 80.1 percent of the outstanding shares of Kyndryl. Each of the IBM stockholders received one share of Kyndryl common stock for every five shares of IBM common stock held of record as of the close of business on October 25, 2021 (the “Record Date”). Kyndryl is now an independent public company under the symbol “KD” on the New York Stock Exchange. After the distribution, IBM will no longer consolidate Kyndryl into its financial results (the entire transaction being referred to as the “Separation”).

The unaudited pro forma condensed consolidated financial statements have been derived from the Company’s historical consolidated financial statements and give effect to the Separation. The following unaudited Pro Forma Condensed Consolidated Income Statements for the six months ended June 30, 2021 and for each of the years ended December 31, 2020, 2019 and 2018 reflect the Company’s results as if the Separation had occurred as of January 1, 2018 in that they reflect the reclassification of Kyndryl as Discontinued Operations for all periods presented. The adjustments in the “Transaction Accounting Adjustments” column in the unaudited Pro Forma Condensed Consolidated Income Statements for the six months ended June 30, 2021 and for the year ended December 31, 2020 give effect to the Separation and related transactions as if they had occurred as of January 1, 2020. The following unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2021 reflects the Company’s financial position as if the Separation had occurred on June 30, 2021. After the date of the Separation, the historical financial results of Kyndryl will be reflected in our consolidated financial statements as discontinued operations under U.S. generally accepted accounting principles (“GAAP”) for all periods.

The unaudited pro forma condensed consolidated financial statements have been prepared based upon the best available information and management estimates and are subject to assumptions and adjustments described below and in the accompanying notes to those financial statements. They are not intended to be a complete presentation of the Company’s financial position or results of operations had the Separation occurred as of and for the periods indicated. In addition, the unaudited pro forma condensed consolidated financial statements are provided for illustrative and informational purposes only and are not necessarily indicative of the Company’s future results of operations or financial condition had the Separation and related transactions been completed on the dates assumed. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. Management believes these assumptions and adjustments are reasonable, given the information available at the filing date. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with our historical consolidated financial statements and accompanying notes.

The unaudited pro forma condensed consolidated financial statements have been prepared to include transaction accounting adjustments to reflect the financial condition and results of operations as if the Separation occurred on January 1, 2020. In addition, we have provided a presentation of adjustments on page 8 that management believes are necessary to enhance an understanding of the pro forma effects of the transaction.

The pro forma adjustments are based on currently available information and assumptions management believes are, under the circumstances and given the information available at this time, reasonable, and best reflect the Separation on IBM’s financial condition and results of operations. The adjustments included within the “Kyndryl Discontinued Operations” column of the unaudited pro forma condensed consolidated financial statements are consistent with the guidance for discontinued operations under GAAP. The Company's current estimates on a discontinued operations basis are preliminary and could change as the Company finalizes discontinued operations accounting to be reported in the Company's 2021 Annual Report on Form 10-K.

The unaudited pro forma condensed consolidated financial statements have been prepared in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Amendments to Financial Disclosures About Acquired and Disposed Businesses, as adopted by the SEC on May 21, 2020. Management adjustments are presented for anticipated reductions to certain general corporate overhead costs associated with labor and benefits for shared resources transferred to Kyndryl that IBM does not intend to backfill after the Separation.

Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes.

Unaudited Pro Forma Condensed Consolidated Income Statement

For the Six Months Ended June 30, 2021

			Kyndryl
			Discontinued		IBM		Transaction
			Operations		Continuing		Accounting			Pro
($ in millions except per share amounts)	Historical		(Note a)		Operations		Adjustments		Notes	Forma
Revenue
Services	$	22,889	$	(8,594)	$	14,295	$	159	(k,l)	$	14,454
Sales		13,101		(478)		12,623		1,306	(k)		13,929
Financing		485		—		485		—			485
Total revenue		36,474		(9,072)		27,403		1,465			28,868
Cost
Services		15,646		(6,280)		9,366		240	(k)		9,606
Sales		3,279		(462)		2,818		249	(k)		3,066
Financing		341		—		341		—			341
Total cost		19,266		(6,742)		12,525		489			13,013
Gross profit		17,208		(2,330)		14,878		976			15,855
Expense and other (income)
Selling, general and administrative		10,508		(969)		9,539		(21)	(k,m)		9,518
Research, development and engineering		3,286		(29)		3,257		—			3,257
Intellectual property and custom development income		(282)		3		(278)		—			(278)
Other (income) and expense		676		(33)		643		—			643
Interest expense		562		(0)		561		—			561
Total expense and other (income)		14,751		(1,029)		13,722		(21)			13,701
Income from continuing operations before income taxes		2,457		(1,302)		1,156		998			2,154
Provision for/(benefit from) income taxes		177		(248)		(71)		201	(n)		130
Income from continuing operations	$	2,281	$	(1,054)	$	1,227	$	796		$	2,023
Earnings from continuing operations per share of common stock
Assuming dilution	$	2.52								$	2.24
Basic	$	2.55								$	2.26
Weighted-average number of common shares outstanding
Assuming dilution	902,989,752									902,989,752
Basic	894,336,970									894,336,970

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

Unaudited Pro Forma Condensed Consolidated Income Statement

For the Year Ended December 31, 2020

			Kyndryl
			Discontinued		IBM		Transaction
			Operations		Continuing		Accounting			Pro
($ in millions except per share amounts)	Historical		(Note a)		Operations		Adjustments		Notes	Forma
Revenue
Services	$	45,004	$	(17,373)	$	27,631	$	315	(k,l)	$	27,946
Sales		27,484		(1,066)		26,417		2,374	(k)		28,791
Financing		1,133		—		1,133		—			1,133
Total revenue		73,620		(18,439)		55,181		2,689			57,870
Cost
Services		30,404		(12,703)		17,700		467	(k)		18,168
Sales		6,934		(1,023)		5,911		501	(k)		6,412
Financing		708		—		708		—			708
Total cost		38,046		(13,726)		24,320		969			25,288
Gross profit		35,575		(4,713)		30,861		1,720			32,582
Expense and other (income)
Selling, general and administrative		23,082		(2,509)		20,572		(39)	(k,m)		20,534
Research, development and engineering		6,333		(71)		6,262		—			6,262
Intellectual property and custom development income		(626)		5		(620)		—			(620)
Other (income) and expense		861		(64)		797		—			797
Interest expense		1,288		(0)		1,288		—			1,288
Total expense and other (income)		30,937		(2,639)		28,298		(39)			28,260
Income from continuing operations before income taxes		4,637		(2,074)		2,563		1,759			4,322
Provision for/(benefit from) income taxes		(864)		(496)		(1,359)		431	(n)		(928)
Income from continuing operations	$	5,501	$	(1,579)	$	3,922	$	1,328		$	5,250
Earnings from continuing operations per share of common stock
Assuming dilution	$	6.13								$	5.86
Basic	$	6.18								$	5.90
Weighted-average number of common shares outstanding
Assuming dilution	896,563,971									896,563,971
Basic	890,348,679									890,348,679

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

Unaudited Pro Forma Condensed Consolidated Income Statement

For the Year Ended December 31, 2019

			Kyndryl
			Discontinued
			Operations		Pro
(S in millions except per share amounts)	Historical		(Note a)		Forma
Revenue
Services	$	47,493	$	(18,321)	$	29,172
Sales		28,252		(1,111)		27,141
Financing		1,402		—		1,402
Total revenue		77,147		(19,432)		57,714
Cost
Services		32,491		(13,458)		19,033
Sales		7,263		(1,023)		6,240
Financing		904		—		904
Total cost		40,659		(14,481)		26,177
Gross profit		36,488		(4,951)		31,537
Expense and other (income)
Selling, general and administrative		20,604		(1,878)		18,726
Research, development and engineering		5,989		(79)		5,910
Intellectual property and custom development income		(648)		9		(639)
Other (income) and expense		(968)		(48)		(1,016)
Interest expense		1,344		(0)		1,344
Total expense and other (income)		26,322		(1,997)		24,325
Income from continuing operations before income taxes		10,166		(2,954)		7,212
Provision for/(benefit from) income taxes		731		(671)		60
Income from continuing operations	$	9,435	$	(2,283)	$	7,152
Earnings from continuing operations per share of common stock
Assuming dilution	$	10.57			$	8.01
Basic	$	10.63			$	8.06
Weighted-average number of common shares outstanding
Assuming dilution	892,813,376				892,813,376
Basic	887,235,105				887,235,105

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

Unaudited Pro Forma Condensed Consolidated Income Statement

For the Year Ended December 31, 2018

			Kyndryl
			Discontinued
			Operations		Pro
(S in millions except per share amounts)	Historical		(Note a)		Forma
Revenue
Services	$	49,257	$	(19,949)	$	29,308
Sales		28,735		(1,160)		27,575
Financing		1,599		—		1,599
Total revenue		79,591		(21,109)		58,482
Cost
Services		33,687		(14,600)		19,087
Sales		7,835		(1,088)		6,747
Financing		1,132		—		1,132
Total cost		42,655		(15,688)		26,967
Gross profit		36,936		(5,420)		31,515
Expense and other (income)
Selling, general and administrative		19,366		(1,859)		17,507
Research, development and engineering		5,379		(69)		5,310
Intellectual property and custom development income		(1,026)		5		(1,021)
Other (income) and expense		1,152		(82)		1,071
Interest expense		723		0		723
Total expense and other (income)		25,594		(2,004)		23,589
Income from continuing operations before income taxes		11,342		(3,416)		7,926
Provision for/(benefit from) income taxes		2,619		(752)		1,867
Income from continuing operations	$	8,723	$	(2,664)	$	6,059
Earnings from continuing operations per share of common stock
Assuming dilution	$	9.51			$	6.61
Basic	$	9.56			$	6.64
Weighted-average number of common shares outstanding
Assuming dilution	916,315,714				916,315,714
Basic	912,048,072				912,048,072

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

Unaudited Pro Forma Condensed Consolidated Balance Sheet at June 30, 2021

			Kyndryl
			Discontinued		Transaction
			Operations		Accounting			Pro
($ in millions)	Historical		(Note a)		Adjustments		Notes	Forma
Assets:
Cash and cash equivalents	$	7,350	$	(29)	$	900	(b)	$	8,221
Restricted cash		215		(14)		—			201
Marketable securities		600		—		—			600
Notes and accounts receivable—trade, net		6,827		(1,505)		—			5,322
Short-term financing receivables—net		8,194		—		—			8,194
Other accounts receivable—net		802		(18)		—			785
Inventory		1,807		(27)		—			1,781
Deferred costs		2,211		(1,150)		—			1,061
Prepaid expenses and other current assets		2,768		(153)		—			2,615
Investment in Kyndryl		—		—		730	(c)		730
Total current assets		30,774		(2,895)		1,630			29,509
Property, plant and equipment—net		9,423		(3,498)		—			5,925
Operating right-of-use assets—net		4,387		(1,166)		—			3,221
Long-term financing receivables—net		5,674		—		—			5,674
Prepaid pension assets		8,046		(49)		—			7,997
Deferred costs		2,362		(1,325)		—			1,037
Deferred taxes		8,954		(504)		96	(d)		8,547
Goodwill		61,645		(5,822)		—			55,823
Intangible assets—net		13,539		(56)		—			13,483
Investments and sundry assets		2,010		(75)		100	(e)		2,035
Total assets	$	146,814	$	(15,389)	$	1,826		$	133,251
Liabilities and equity:
Taxes	$	2,260	$	—	$	134	(f)	$	2,394
Short-term debt		6,442		(106)		—			6,335
Accounts payable		4,214		(782)		—			3,431
Compensation and benefits		3,846		(430)		—			3,416
Deferred income		13,272		(939)		—			12,333
Operating lease liabilities		1,334		(335)		—			999
Other accrued expenses and liabilities		5,249		(1,022)		421	(g,h)		4,648
Total current liabilities		36,616		(3,615)		554			33,556
Long-term debt		48,735		(285)		—			48,450
Retirement and nonpension postretirement benefit obligations		17,265		(1,053)		—			16,211
Deferred income		4,113		(554)		—			3,559
Operating lease liabilities		3,278		(849)		—			2,429
Other liabilities		14,741		(579)		798	(f,i)		14,960
Total liabilities		124,747		(6,935)		1,353			119,164
Equity:
Common stock and additional paid-in capital		56,912		—		—			56,912
Retained earnings		162,086		(10,029)		473	(j)		152,531
Treasury stock - at cost		(169,404)		—		—			(169,404)
Accumulated other comprehensive income/(loss)		(27,652)		1,638		—			(26,014)
Total stockholders’ equity		21,942		(8,391)		473			14,025
Noncontrolling interests		125		(63)		—			62
Total equity		22,067		(8,454)		473			14,086
Total liabilities and equity	$	146,814	$	(15,389)	$	1,826		$	133,251

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

Kyndryl Discontinued Operations:

(a) Reflects the discontinued operations, including associated assets, liabilities, and equity and results of operations attributable to Kyndryl which were included in the Company's historical financial statements. In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the amounts exclude the following:

i. General corporate overhead costs which were historically allocated to Kyndryl that do not meet the requirements to be presented in discontinued operations. Such allocations included labor and non-labor expenses related to IBM’s corporate support functions (e.g., finance, accounting, tax, treasury, IT, HR, legal, among others) that historically provided support to Kyndryl.

ii. The impact of intercompany purchases and sales between IBM and Kyndryl that were eliminated in consolidation. See note (k) for the impacts to our results from the historical intercompany purchases and sales at the new commercial pricing.

Transaction Accounting Adjustments:

(b) Reflects the estimated net incremental cash IBM receives from Kyndryl in connection with the Separation. The amount is based on the expectation that approximately $2.0 billion will be retained by Kyndryl.

(c) Reflects the retention by IBM of 19.9 percent of the outstanding common stock of Kyndryl, recorded at 19.9 percent of the net carrying value of Kyndryl as of the date of the Separation.

(d) Reflects additional deferred tax assets generated as a result of Kyndryl separation transactions.

(e) Kyndryl may realize tax benefits in the future from pre-spin taxes. Under the terms of the Tax Matters Agreement, these tax benefits may need to be reimbursed to IBM. A receivable has been recorded for potential reimbursements. The amount recorded is an estimate, and the final receivable may be different.

(f) Reflects additional tax liabilities expected to be incurred as a result of Kyndryl separation transactions.

(g) IBM has estimated approximately $25 million due to Kyndryl related to IBM’s share of income taxes for the pre-spin period.

(h) Reflects $396 million of additional estimated non-recurring costs to complete the Separation. These costs primarily relate to investment banker fees, legal fees, third-party consulting and contractor fees, information technology costs and other costs directly related to the Separation.

(i) Reflects an agreement under which IBM committed to provide Kyndryl with $265 million of upgraded hardware at no cost to Kyndryl over an expected two-year period after the Separation.

(j) Reflects the effect on total stockholders’ equity of the adjustments described in notes (b) through (i) above.

(k) Reflects the net effect of new commercial agreements that IBM and Kyndryl have entered into. The adjustments reflect the new pricing in these arrangements applied to historical sales of goods and services between IBM and Kyndryl.

(l) Reflects an estimated reduction in services revenue of $175 million and $330 million for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, from customer contracts transferred to Kyndryl that were historically managed by IBM.

(m) In connection with the Separation, IBM and Kyndryl entered into a Transition Services Agreement whereby IBM will provide certain post-closing services on a transitional basis. As such, a pro forma adjustment reducing selling, general and administrative expense by $37 million and $73 million for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, is reflected for this contractual arrangement.

(n) Represents $201 million and $431 million for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, of the income tax pro forma adjustments. This adjustment was determined by applying the relevant statutory tax rates to the jurisdictional mix of income including pre-tax pro forma adjustments described in notes (k), (l) and (m) above.

Management Adjustments:

IBM anticipates a reduction to certain general corporate overhead costs associated with labor and benefits for shared resources transferred to Kyndryl that IBM does not intend to backfill after the Separation. These costs were excluded from discontinued operations in note (a) above as they represent general corporate overhead costs that were historically allocated to Kyndryl and do not meet the requirements to be presented as discontinued operations. From a timeframe standpoint, these cost reductions will begin to materialize at the effective date of the Separation. Management believes the resource transfers and costs which were used as the basis for the management adjustments below are reasonable and representative of the labor-based cost reductions the company will realize after the separation of Kyndryl. IBM does not anticipate any material synergies or dis-synergies of general corporate overhead costs associated with non-labor-based costs.

Management believes the presentation of these adjustments are necessary to enhance an understanding of the pro forma effects of the transaction. The pro forma financial information below reflects all adjustments that are, in the opinion of management, necessary to provide a fair statement of the pro forma financial information, aligned with the assessment described above.

These management adjustments include forward-looking information that is subject to the safe harbor protections of the Exchange Act. The tax effect has been determined by applying the relevant statutory tax rates to the aforementioned adjustments.

The table below includes the management adjustments.

	Six Months Ended		Year Ended
($ in millions except per share amounts)	June 30, 2021		December 31, 2020
Pro forma income from continuing operations*	$	2,023	$	5,250
Management adjustments
Corporate support functions labor-based reductions	$	208	$	416
Tax effect		(49)		(114)
Pro forma income from continuing operations after management adjustments	$	2,182	$	5,552
Earnings from continuing operations per share of common stock
Assuming dilution	$	2.42	$	6.19
Basic	$	2.44	$	6.24
Weighted-average number of common shares outstanding
Assuming dilution		902,989,752		896,563,971
Basic		894,336,970		890,348,679

*As shown in the unaudited Pro Forma Condensed Consolidated Income Statement.

XML

Document and Entity Information	Nov. 03, 2021
Document Information [Line Items]
Document Type	8-K
Document Period End Date	Nov. 03, 2021
Entity File Number	1-2360
Entity Registrant Name	INTERNATIONAL BUSINESS MACHINES CORPORATION
Entity Incorporation, State or Country Code	NY
Entity Tax Identification Number	13-0871985
Entity Address, Address Line One	One New Orchard Road
Entity Address, City or Town	Armonk
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10504
City Area Code	914
Local Phone Number	499-1900
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false
Entity Central Index Key	0000051143
Amendment Flag	false
New York Stock Exchange | Common Stock
Document Information [Line Items]
Title of 12(b) Security	Capital stock, par value $.20 per share
Trading Symbol	IBM
Security Exchange Name	NYSE
New York Stock Exchange | 2.625% Notes due 2022
Document Information [Line Items]
Title of 12(b) Security	2.625% Notes due 2022
Trading Symbol	IBM 22A
Security Exchange Name	NYSE
New York Stock Exchange | 1.250% Notes due 2023
Document Information [Line Items]
Title of 12(b) Security	1.250% Notes due 2023
Trading Symbol	IBM 23A
Security Exchange Name	NYSE
New York Stock Exchange | 0.375% Notes due 2023
Document Information [Line Items]
Title of 12(b) Security	0.375% Notes due 2023
Trading Symbol	IBM 23B
Security Exchange Name	NYSE
New York Stock Exchange | 1.125% Notes due 2024
Document Information [Line Items]
Title of 12(b) Security	1.125% Notes due 2024
Trading Symbol	IBM 24A
Security Exchange Name	NYSE
New York Stock Exchange | 2.875% Notes due 2025
Document Information [Line Items]
Title of 12(b) Security	2.875% Notes due 2025
Trading Symbol	IBM 25A
Security Exchange Name	NYSE
New York Stock Exchange | 0.950% Notes due 2025
Document Information [Line Items]
Title of 12(b) Security	0.950% Notes due 2025
Trading Symbol	IBM 25B
Security Exchange Name	NYSE
New York Stock Exchange | 0.875% Notes due 2025
Document Information [Line Items]
Title of 12(b) Security	0.875% Notes due 2025
Trading Symbol	IBM 25C
Security Exchange Name	NYSE
New York Stock Exchange | 0.300% Notes due 2026
Document Information [Line Items]
Title of 12(b) Security	0.300% Notes due 2026
Trading Symbol	IBM 26B
Security Exchange Name	NYSE
New York Stock Exchange | 1.250% Notes due 2027
Document Information [Line Items]
Title of 12(b) Security	1.250% Notes due 2027
Trading Symbol	IBM 27B
Security Exchange Name	NYSE
New York Stock Exchange | 1.750% Notes due 2028
Document Information [Line Items]
Title of 12(b) Security	1.750% Notes due 2028
Trading Symbol	IBM 28A
Security Exchange Name	NYSE
New York Stock Exchange | 0.300% Notes due 2028
Document Information [Line Items]
Title of 12(b) Security	0.300% Notes due 2028
Trading Symbol	IBM 28B
Security Exchange Name	NYSE
New York Stock Exchange | 1.500% Notes due 2029
Document Information [Line Items]
Title of 12(b) Security	1.500% Notes due 2029
Trading Symbol	IBM 29
Security Exchange Name	NYSE
New York Stock Exchange | 1.750% Notes due 2031
Document Information [Line Items]
Title of 12(b) Security	1.750% Notes due 2031
Trading Symbol	IBM 31
Security Exchange Name	NYSE
New York Stock Exchange | 0.650% Notes due 2032
Document Information [Line Items]
Title of 12(b) Security	0.650% Notes due 2032
Trading Symbol	IBM 32A
Security Exchange Name	NYSE
New York Stock Exchange | 1.200% Notes due 2040
Document Information [Line Items]
Title of 12(b) Security	1.200% Notes due 2040
Trading Symbol	IBM 40
Security Exchange Name	NYSE
New York Stock Exchange | 7.00% Debentures due 2025
Document Information [Line Items]
Title of 12(b) Security	7.00% Debentures due 2025
Trading Symbol	IBM 25
Security Exchange Name	NYSE
New York Stock Exchange | 6.22% Debentures due 2027
Document Information [Line Items]
Title of 12(b) Security	6.22% Debentures due 2027
Trading Symbol	IBM 27
Security Exchange Name	NYSE
New York Stock Exchange | 6.50% Debentures due 2028
Document Information [Line Items]
Title of 12(b) Security	6.50% Debentures due 2028
Trading Symbol	IBM 28
Security Exchange Name	NYSE
New York Stock Exchange | 7.00% Debentures due 2045
Document Information [Line Items]
Title of 12(b) Security	7.00% Debentures due 2045
Trading Symbol	IBM 45
Security Exchange Name	NYSE
New York Stock Exchange | 7.125% Debentures due 2096
Document Information [Line Items]
Title of 12(b) Security	7.125% Debentures due 2096
Trading Symbol	IBM 96
Security Exchange Name	NYSE
Chicago Stock Exchange | Common Stock
Document Information [Line Items]
Title of 12(b) Security	Capital stock, par value $.20 per share
Trading Symbol	IBM
Security Exchange Name	CHX