Basis of Presentation	3 Months Ended
Mar. 31, 2022
Basis of Presentation
Basis of Presentation	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. On November 3, 2021, the company completed the separation of its managed infrastructure services unit into a new public company with the distribution of 80.1 percent of the outstanding common stock of Kyndryl Holdings, Inc. (Kyndryl) to IBM stockholders on a pro rata basis. To effect the separation, IBM stockholders received one share of Kyndryl common stock for every five shares of IBM common stock held at the close of business on October 25, 2021, the record date for the distribution. The company retained 19.9 percent of the shares of Kyndryl common stock immediately following the separation with the intent to dispose of such shares within twelve months after the distribution. The company accounts for the retained Kyndryl common stock as a fair value investment included within prepaid expenses and other current assets in the Consolidated Balance Sheet with subsequent fair value changes included in other (income) and expense in the Consolidated Income Statement. Refer to note 8, “Financial Assets & Liabilities,” for additional information. The accounting requirements for reporting the separation of Kyndryl as a discontinued operation were met when the separation was completed. Accordingly, the historical results of Kyndryl are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. Refer to note 3, “Separation of Kyndryl,” for additional information. In the first quarter of 2022, the company realigned its management structure to reflect the planned divestiture of its healthcare data and analytics assets. This change impacted the company’s Software segment and Other-divested businesses category. In the fourth quarter of 2021, immediately prior to the separation of Kyndryl, the company made a number of changes to its organizational structure and management system. These changes impacted the company’s reportable segments but did not impact the Consolidated Financial Statements. Refer to note 5, “Segments,” for additional information on the company’s reportable segments. The segments are reported on a comparable basis for all periods. For the three months ended March 31, 2022, the company recorded a benefit from income taxes of $39 million and its effective tax rate was (6.3) percent. The rate was driven by many factors including the impacts of recently published foreign tax credit regulations, geographical mix of income, incentives, and changes in unrecognized tax benefits. For the three months ended March 31, 2021, the company reported a benefit from income taxes of $160 million and its effective tax rate was (65.5) percent. This tax benefit was primarily related to the resolution of certain tax audits. Noncontrolling interest amounts of $4.9 million, net of tax, for both the three months ended March 31, 2022 and 2021 are included as a reduction within other (income) and expense in the Consolidated Income Statement. 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 2021 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. In addition, an adjustment of $63 million between common stock and retained earnings related to the issuance of treasury stock in connection with certain previously issued stock-based compensation awards has been reflected in the Consolidated Balance Sheet and Consolidated Statement of Equity at March 31, 2022.

Basis of Presentation

3 Months Ended

Mar. 31, 2022

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.

On November 3, 2021, the company completed the separation of its managed infrastructure services unit into a new public company with the distribution of 80.1 percent of the outstanding common stock of Kyndryl Holdings, Inc. (Kyndryl) to IBM stockholders on a pro rata basis. To effect the separation, IBM stockholders received one share of Kyndryl common stock for every five shares of IBM common stock held at the close of business on October 25, 2021, the record date for the distribution. The company retained 19.9 percent of the shares of Kyndryl common stock immediately following the separation with the intent to dispose of such shares within twelve months after the distribution. The company accounts for the retained Kyndryl common stock as a fair value investment included within prepaid expenses and other current assets in the Consolidated Balance Sheet with subsequent fair value changes included in other (income) and expense in the Consolidated Income Statement. Refer to note 8, “Financial Assets & Liabilities,” for additional information.

The accounting requirements for reporting the separation of Kyndryl as a discontinued operation were met when the separation was completed. Accordingly, the historical results of Kyndryl are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. Refer to note 3, “Separation of Kyndryl,” for additional information.

In the first quarter of 2022, the company realigned its management structure to reflect the planned divestiture of its healthcare data and analytics assets. This change impacted the company’s Software segment and Other-divested businesses category. In the fourth quarter of 2021, immediately prior to the separation of Kyndryl, the company made a number of changes to its organizational structure and management system. These changes impacted the company’s reportable segments but did not impact the Consolidated Financial Statements. Refer to note 5, “Segments,” for additional information on the company’s reportable segments. The segments are reported on a comparable basis for all periods.

For the three months ended March 31, 2022, the company recorded a benefit from income taxes of $39 million and its effective tax rate was (6.3) percent. The rate was driven by many factors including the impacts of recently published foreign tax credit regulations, geographical mix of income, incentives, and changes in unrecognized tax benefits. For the three months ended March 31, 2021, the company reported a benefit from income taxes of $160 million and its effective tax rate was (65.5) percent. This tax benefit was primarily related to the resolution of certain tax audits.

Noncontrolling interest amounts of $4.9 million, net of tax, for both the three months ended March 31, 2022 and 2021 are included as a reduction within other (income) and expense in the Consolidated Income Statement.

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 2021 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. In addition, an adjustment of $63 million between common stock and retained earnings related to the issuance of treasury stock in connection with certain previously issued stock-based compensation awards has been reflected in the Consolidated Balance Sheet and Consolidated Statement of Equity at March 31, 2022.