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.
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 $74 million or $0.06 per both basic and
diluted share for the three months ended March 31, 2023.
For the three months ended
March 31, 2023, the company recorded a provision for income taxes
of $124 million and its effective tax rate was 11.7 percent.
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 rates are driven by many factors including
the geographical mix of income, incentives, and changes in
unrecognized tax benefits. The prior-year rate also reflects the
impact of updates to the foreign tax credit regulations.
Noncontrolling interest amounts of $4.6 million and $4.9 million,
net of tax, for the three months ended March 31, 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 arrangement 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
March 31, 2023 and December 31, 2022 were $113 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.