UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2020

1-2360

(Commission file number)

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

New York	13-0871985
(State of incorporation)	(IRS employer identification number)
One New Orchard Road Armonk, New York	10504
(Address of principal executive offices)	(Zip Code)

914-499-1900

(Registrant’s telephone number)

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

Title of each class	Trading symbol	Name of each exchange on which registered
Capital stock, par value $.20 per share	IBM	New York Stock Exchange
		NYSE Chicago
2.750%  Notes due 2020	IBM 20B	New York Stock Exchange
1.875%  Notes due 2020	IBM 20A	New York Stock Exchange
0.500%  Notes due 2021	IBM 21B	New York Stock Exchange
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 (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 ☐
Non-accelerated filer ☐	Smaller reporting company ☐
	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 887,891,957 shares of common stock outstanding at March 31, 2020.

Index

9
	Page
Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Income Statement for the three months ended March 31, 2020 and 2019	3
Consolidated Statement of Comprehensive Income for the three months ended March 31, 2020 and 2019	4
Consolidated Balance Sheet at March 31, 2020 and December 31, 2019	5
Consolidated Statement of Cash Flows for the three months ended March 31, 2020 and 2019	7
Consolidated Statement of Equity for the three months ended March 31, 2020 and 2019	8
Notes to Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition	44
Item 4. Controls and Procedures	74
Part II - Other Information:
Item 1. Legal Proceedings	75
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities	75
Item 6. Exhibits	76

2

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,
(Dollars in millions except per share amounts)	2020		2019
Revenue:
Services	$	11,373	$	11,915	*
Sales		5,895		5,862	*
Financing		302		404
Total revenue		17,571		18,182
Cost:
Services		7,843		8,272	*
Sales		1,624		1,603	*
Financing		181		264
Total cost		9,649		10,139
Gross profit		7,922		8,043
Expense and other (income):
Selling, general and administrative		5,955		4,691
Research, development and engineering		1,625		1,433
Intellectual property and custom development income		(116)		(101)
Other (income) and expense		182		(73)
Interest expense		326		210
Total expense and other (income)		7,972		6,160
Income/(loss) from continuing operations before income taxes		(49)		1,883
Provision for/(benefit from) income taxes		(1,226)		289
Income from continuing operations	$	1,176	$	1,593
Income/(loss) from discontinued operations, net of tax		(1)		(2)
Net income	$	1,175	$	1,591
Earnings/(loss) per share of common stock:
Assuming dilution:
Continuing operations	$	1.31	$	1.78
Discontinued operations		0.00		0.00
Total	$	1.31	$	1.78
Basic:
Continuing operations	$	1.32	$	1.79
Discontinued operations		0.00		0.00
Total	$	1.32	$	1.79
Weighted-average number of common shares outstanding: (millions)
Assuming dilution		895.0		893.9
Basic		888.0		889.6

* Reclassified to conform to current period presentation. Refer to note 1, “Basis of Presentation,” for additional information.

(Amounts may not add due to rounding.)

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

3

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended March 31,
(Dollars in millions)	2020		2019
Net income	$	1,175	$	1,591
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments		(919)		171
Net changes related to available-for-sale securities:
Unrealized gains/(losses) arising during the period		0		(1)
Reclassification of (gains)/losses to net income		—		—
Total net changes related to available-for-sale securities		0		(1)
Unrealized gains/(losses) on cash flow hedges:
Unrealized gains/(losses) arising during the period		(180)		(352)
Reclassification of (gains)/losses to net income		91		98
Total unrealized gains/(losses) on cash flow hedges		(90)		(254)
Retirement-related benefit plans:
Prior service costs/(credits)		(4)		—
Net (losses)/gains arising during the period		8		(4)
Curtailments and settlements		8		1
Amortization of prior service (credits)/costs		1		(3)
Amortization of net (gains)/losses		570		464
Total retirement-related benefit plans		582		458
Other comprehensive income/(loss), before tax		(427)		375
Income tax (expense)/benefit related to items of other comprehensive income		(260)		(67)
Other comprehensive income/(loss), net of tax		(686)		308
Total comprehensive income/(loss)	$	489	$	1,899

(Amounts may not add due to rounding.)

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

4

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

ASSETS

	At March 31,		At December 31,
(Dollars in millions)	2020		2019
Assets:
Current assets:
Cash and cash equivalents	$	11,218	$	8,172
Restricted cash		152		141
Marketable securities		647		696
Notes and accounts receivable — trade (net of allowances of $337 in 2020 and $299 in 2019)		6,927		7,870
Short-term financing receivables (net of allowances of $186 in 2020 and $188 in 2019)		12,126		14,192
Other accounts receivable (net of allowances of $28 in 2020 and $33 in 2019)		1,616		1,733
Inventory, at lower of average cost or net realizable value:
Finished goods		298		220
Work in process and raw materials		1,488		1,399
Total inventory		1,786		1,619
Deferred costs		1,948		1,896
Prepaid expenses and other current assets		2,509		2,101
Total current assets		38,931		38,420
Property, plant and equipment		31,089		32,028
Less: Accumulated depreciation		21,464		22,018
Property, plant and equipment — net		9,626		10,010
Operating right-of-use assets — net		4,871		4,996
Long-term financing receivables (net of allowances of $52 in 2020 and $33 in 2019)		7,708		8,712
Prepaid pension assets		6,933		6,865
Deferred costs		2,459		2,472
Deferred taxes		8,782		5,182
Goodwill		57,517		58,222
Intangible assets — net		14,666		15,235
Investments and sundry assets		1,911		2,074
Total assets	$	153,403	$	152,186

(Amounts may not add due to rounding.)

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

5

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET – (CONTINUED)

(UNAUDITED)

LIABILITIES AND EQUITY

	At March 31,		At December 31,
(Dollars in millions except per share amount)	2020		2019
Liabilities:
Current liabilities:
Taxes	$	2,348	$	2,839
Short-term debt		11,642		8,797
Accounts payable		4,172		4,896
Compensation and benefits		3,029		3,406
Deferred income		13,377		12,026
Operating lease liabilities		1,327		1,380
Other accrued expenses and liabilities		4,777		4,357
Total current liabilities		40,673		37,701
Long-term debt		52,685		54,102
Retirement and nonpension postretirement benefit obligations		16,474		17,142
Deferred income		3,769		3,851
Operating lease liabilities		3,799		3,879
Other liabilities		15,874		14,526
Total liabilities		133,275		131,202
Equity:
IBM stockholders’ equity:
Common stock, par value $0.20 per share, and additional paid-in capital		56,092		55,895
Shares authorized: 4,687,500,000
Shares issued: 2020 - 2,238,932,461
2019 - 2,237,996,975
Retained earnings		162,626		162,954
Treasury stock - at cost		(169,437)		(169,413)
Shares: 2020 - 1,351,040,504
2019 - 1,350,886,521
Accumulated other comprehensive income/(loss)		(29,283)		(28,597)
Total IBM stockholders’ equity		19,999		20,841
Noncontrolling interests		129		144
Total equity		20,128		20,985
Total liabilities and equity	$	153,403	$	152,186

(Amounts may not add due to rounding.)

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

6

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
(Dollars in millions)	2020		2019
Cash flows from operating activities:
Net income	$	1,175	$	1,591
Adjustments to reconcile net income to cash provided by operating activities
Depreciation		1,012		1,143
Amortization of intangibles		622		303
Stock-based compensation		189		113
Net (gain)/loss on asset sales and other		315		(176)
Changes in operating assets and liabilities, net of acquisitions/divestitures		1,162		1,785
Net cash provided by operating activities		4,476		4,759
Cash flows from investing activities:
Payments for property, plant and equipment		(630)		(539)
Proceeds from disposition of property, plant and equipment		46		81
Investment in software		(153)		(156)
Acquisition of businesses, net of cash acquired		(13)		(1)
Divestitures of businesses, net of cash transferred		26		33
Non-operating finance receivables — net		(20)		193
Purchases of marketable securities and other investments		(1,096)		(1,138)
Proceeds from disposition of marketable securities and other investments		938		674
Net cash provided by/(used in) investing activities		(902)		(853)
Cash flows from financing activities:
Proceeds from new debt		6,055		5,979
Payments to settle debt		(5,285)		(1,768)
Short-term borrowings/(repayments) less than 90 days — net		586		21
Common stock repurchases		—		(920)
Common stock repurchases for tax withholdings		(44)		(61)
Financing — other		13		9
Cash dividends paid		(1,440)		(1,397)
Net cash provided by/(used in) financing activities		(115)		1,863
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(403)		(102)
Net change in cash, cash equivalents and restricted cash		3,057		5,668
Cash, cash equivalents and restricted cash at January 1		8,314		11,604
Cash, cash equivalents and restricted cash at March 31	$	11,371	$	17,272

(Amounts may not add due to rounding.)

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

7

INTERNATIONAL BUSINESS MACHINES CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF EQUITY

(UNAUDITED)

	Common
	Stock and						Accumulated
	Additional						Other		Total IBM		Non-
	Paid-in		Retained		Treasury		Comprehensive		Stockholders’		Controlling		Total
(Dollars in millions except per share amounts)	Capital		Earnings		Stock		Income/(Loss)		Equity		Interests		Equity
Equity - January 1, 2020	$	55,895	$	162,954	$	(169,413)	$	(28,597)	$	20,841	$	144	$	20,985
Cumulative effect of change in accounting principle*				(66)						(66)				(66)
Net income plus other comprehensive income/(loss):
Net income				1,175						1,175				1,175
Other comprehensive income/(loss)								(686)		(686)				(686)
Total comprehensive income/(loss)									$	489			$	489
Cash dividends paid — common stock ($1.62 per share)				(1,440)						(1,440)				(1,440)
Common stock issued under employee plans (935,486 shares)		197								197				197
Purchases (310,454 shares) and sales (156,471 shares) of treasury stock under employee plans — net				3		(24)				(21)				(21)
Changes in noncontrolling interests												(15)		(15)
Equity – March 31, 2020	$	56,092	$	162,626	$	(169,437)	$	(29,283)	$	19,999	$	129	$	20,128

*Reflects the adoption of the FASB guidance on credit losses. Refer to note 2, “Accounting Changes.”

Common
Stock and			Accumulated
Additional			Other	Total IBM	Non-
Paid-in	Retained	Treasury	Comprehensive	Stockholders’	Controlling