IBM 10-K 2023-12-31 section summaries

Business strategy and positioning

IBM’s strategy centers on hybrid cloud and AI. It combines software, consulting, and mission-critical infrastructure to help clients modernize applications, transform workflows, and improve agility and efficiency. IBM cites its research capabilities, technology and industry expertise, enterprise relationships, and global partner ecosystem as differentiators, and identifies quantum computing as a future opportunity. It says it regularly optimizes its portfolio through organic and inorganic innovation and resource allocation.

IBM works with hyperscalers, service providers, systems integrators, and software and hardware vendors, including Adobe, AWS, Microsoft, Oracle, Salesforce, Samsung Electronics, and SAP. Some partners also compete with IBM in other areas.

Competition

IBM says it faces hundreds of competitors worldwide, including new entrants, in a broad and changing competitive environment. Competition spans innovation, performance, price, quality, breadth of offerings, talent, client trust, business value, and service and support.

• Software: Competes in hybrid-cloud and AI platforms with large technology vendors such as Alphabet/Google, Amazon, Broadcom, Microsoft, Oracle, Salesforce, and SAP, as well as niche providers.
• Consulting: Competes with Accenture, Capgemini, India-based service providers, management and accounting firms, engineering providers, and local or specialized firms across consulting, systems integration, application, and business-process services.
• Infrastructure: Supplies on-premises and cloud-based servers and storage, emphasizing security, scalability, reliability, and lifecycle services for mission-critical and regulated workloads. Competitors include Dell Technologies, HPE, Intel, NetApp, Pure Storage, rebranded ODM systems, and cloud service providers, which are expanding their offerings and routes to market.
• Financing: Supports client and commercial purchases of IBM hardware, software, and services. Its competitive position depends partly on managing credit and residual-value risk. It competes mainly with non-captive finance providers and financial institutions on rates, IT-product expertise, service, flexibility, and global reach.

Scope of this section

This chunk reports no financial results, operating metrics, or material year-over-year business changes. It directs readers to incorporated sections of IBM’s 2023 Annual Report for further strategy, segment and revenue details, human capital, management discussion, and environmental information.

IBM Risk Factors

Demand, technology and execution

Economic downturns, changing client budgets and buying patterns, longer sales cycles, seasonality and concentration of orders near quarter-end can make results difficult to predict and pressure revenue and profit. IBM notes that first-quarter revenue has historically been lower than fourth-quarter revenue. Failure to innovate, commercialize and scale hybrid cloud, AI—including generative AI—quantum and other technologies, or to attract the ecosystems needed to support them, could weaken market share and margins. Growth investments may not achieve adoption or expected returns; new business models could also displace existing offerings or increase costs. Productivity and transformation initiatives using automation, AI and agile processes may not deliver expected speed, quality, savings or scale.

International, regulatory and environmental exposure

IBM operates in more than 175 countries and earns about 60% of its revenue outside the U.S. Local economic and political conditions, recessions, inflation, currency movements, trade changes, hostilities, health events, natural disasters and climate impacts can affect operations and results. Tariffs, sanctions and trade disputes may raise costs or restrict cross-border delivery.

Expanding and fragmented rules on data privacy, AI, data protection and localization, cybersecurity, competition, anti-corruption, labor, intellectual property, and imports and exports could increase compliance costs and reporting obligations, constrain operations, and expose IBM to litigation, enforcement, fines, penalties or debarment. International data-transfer and data-location requirements could make offerings less profitable or harder to launch or maintain. Climate change, severe weather, environmental regulation and related disclosure requirements may also create costs; IBM does not expect climate change or climate-related compliance to disproportionately affect its financial position, results or competitive position.

Cybersecurity, privacy and third parties

IBM reports that no cybersecurity incident or vulnerability has had a material adverse effect to date, but future events could. Risks include ransomware, social engineering, nation-state and criminal attacks, AI-enabled threats, third-party compromises and vulnerabilities that remain undetected. IBM and its customers handle sensitive, regulated and personal data and support critical operations, including in financial services, healthcare, government and infrastructure. An incident could lead to data theft or loss, service disruption, litigation, regulatory action, fines, debarment, remediation costs, customer losses and reputational or competitive harm. Safeguards cannot eliminate these risks, which also depend on customers and other third parties, including timely vulnerability patching.

IBM relies on distributors, resellers, software and service providers for market access and delivery; they may fail to keep pace, meet legal requirements or perform reliably. Third-party and open-source software may have limited warranties or indemnities, and community-maintained code may lose support.

Operations, talent, suppliers and transactions

IBM depends on skilled technical, marketing and other employees amid intense competition for talent. Shortages, slow retraining or redeployment, demographic shifts, or reduced value or availability of equity compensation could hinder execution. Certain businesses depend on a single or limited number of suppliers, including server-processor technology for some semiconductors. Supplier distress, delivery failures, defects or compliance problems could disrupt production, reliability and market access. Product, service or delivery defects, internal-control deficiencies, significant client disputes, investigations or actions by partners and other parties could damage IBM’s reputation and relationships with customers, employees and partners.

Acquisitions, alliances and dispositions may not achieve strategic objectives, expected revenue improvements or savings, and may create integration, retention and execution problems or leave litigation and other liabilities. Transactions may require financing, which could be harder to obtain or costlier during capital-market disruption. IBM’s intellectual property may not prevent imitation or misappropriation; third-party patent enforcement, changes in legal protections or inability to obtain necessary licenses could affect offerings.

Government contracts, controls, accounting and legal matters

Public-sector contracts may depend on periodic funding, permit termination without cause or impose higher liability limits. Funding delays, penalties, suspension or debarment could harm demand and results. Internal controls cannot eliminate errors, IT failures, override or fraud; deficiencies could impair reporting and operations. GAAP estimates, including legal reserves, require judgment, and actual outcomes may differ. Goodwill and amortizable intangible assets acquired by IBM could be impaired if expected economic benefits do not materialize, resulting in charges. Legal proceedings and investigations may arise across IBM’s global operations and client base, and their outcomes are uncertain.

Financial, pension, tax and market risks

Pension-asset and liability volatility could hurt results; a prolonged market downturn could require additional plan funding and reduce liquidity and financial flexibility. Mandatory pension-insolvency insurance premiums outside the U.S. could rise significantly. Tax results and cash taxes may be affected by geographic income mix, deferred-tax valuations, changing laws and interpretations, OECD-driven tax-law changes and tax-authority examinations.

IBM’s financing business faces client-creditworthiness and credit-concentration risks, interest-rate and currency exposure, uncertainty in residual values and counterparty non-performance on derivatives used to manage exposures. Most sales are on open credit; worsening creditworthiness of major customers or receivable defaults above expectations could require a higher credit-loss allowance and reduce consolidated net income. Deteriorating market liquidity or sudden economic shifts could also weaken earnings, cash flow and access to funding. Currency movements affect revenue and costs generated by local-currency affiliates.

The tax-free treatment of the Kyndryl spin-off depends on the accuracy and continued satisfaction of facts, assumptions, representations and undertakings supporting an IRS private-letter ruling and tax-advisor opinion. If the spin-off is found taxable, IBM and U.S.-taxable stockholders could incur significant U.S. federal tax liabilities. IBM debt-security values and its ability to pay interest and repay principal are exposed to operating and market risks, including interest rates, currencies and regulation. Common-stock prices may be volatile, and rating-agency changes could impair the value and liquidity of IBM debt and equity securities; IBM does not make a market in either.

Cybersecurity Risk Management

IBM integrates cybersecurity into its enterprise risk management program, which is based on the NIST Cybersecurity Framework. Its controls include layered technical safeguards, a Security Operations Center (SOC), threat intelligence—including IBM Security X-Force Exchange—third-party security tools, and periodic external reviews. IBM also assesses cybersecurity risks associated with suppliers and vendors and trains employees to recognize and report suspicious activity.

IBM’s global Computer Security Incident Response Team (CSIRT) responds to threats affecting the company. A separate Product Security Incident Response Team (PSIRT) addresses vulnerabilities in customer offerings. Potential threats include criminal hackers, hacktivists, nation states and competitors; intentional or accidental actions by employees and third parties; process or technology errors; and risks associated with increased remote work.

IBM states that cybersecurity risks and incidents identified to date have not had a material adverse effect on the company, while warning that future incidents could have such an effect.

Oversight and Accountability

The Board and its Audit Committee oversee cybersecurity risk management. They receive regular briefings from Enterprise & Technology Security (E&TS), including the Chief Information Security Officer (CISO), on internal and external risks, incidents and remediation, threat intelligence, emerging regulations, and security practices.

The CISO leads enterprise security strategy and manages the CSIRT and PSIRT. Business Information Security Officers coordinate security matters specific to individual businesses. A cross-functional Cybersecurity Advisory Committee meets regularly to oversee risk management, establish governance structures, and review notable incidents and prevention strategies. Incident reviews and responses involve security, IT, legal, privacy, business, procurement and other functions; significant events are reported to senior legal and cybersecurity leaders.

Item 15 and Schedule II

Item 15 is primarily an exhibit index and provides no new operating results or period-over-period financial comparisons. It incorporates IBM’s 2023 annual-report financial statements—including consolidated income, comprehensive income, balance sheet, cash flow and equity statements—together with the related notes and independent auditor’s report. The only listed financial-statement schedule is Valuation and Qualifying Accounts and Reserves for FY2021–FY2023; other schedules were omitted because they were inapplicable, immaterial, or covered in the statements or notes.

Schedule II: Valuation and qualifying accounts

Amounts in $ millions. The schedule reports these year-end balances:

FY2023 movements were as follows:

The current credit-loss allowance’s “Other” includes reserves related to discontinued operations. Credit-loss allowance changes are recorded to expense, inventory-loss allowance changes to cost accounts, and revenue-based provision changes as estimated reductions to revenue. Revenue-based provisions primarily cover expected reductions from customer and business-partner programs, including rebates. Write-offs or deductions represent amounts considered unrecoverable or amounts remitted to customers and business partners.

PricewaterhouseCoopers reported that the schedule presented fairly, in all material respects, when read with IBM’s consolidated financial statements; its report is dated February 26, 2024. The Form 10-K summary is listed as none.

Notable exhibits

The exhibit index includes a $2.5 billion three-year credit agreement and a $7.5 billion five-year credit agreement, both dated June 22, 2021, amended in June 2022 and extended in June 2023. These are facility commitments; the section does not establish amounts drawn. IBM also lists numerous debt instruments with maturities spanning 2024–2096. Notes issued in February 2024 carry stated coupons of 4.600%–5.300% and maturities from 2026 to 2054; the exhibit index does not state their proceeds or outstanding balances.

Other notable exhibits include a December 2023 amendment to IBM’s bylaws, updated compensation-plan materials (including 2023 long-term performance and incentive-plan documents), and the Executive Officer Compensation Recovery Policy.

Management Discussion

The provided section excerpt is only a page header identifying page 6 as “Management Discussion” for International Business Machines Corporation and Subsidiary Companies. It contains no financial metrics, business developments, or risk disclosures to summarize.

IBM 2023 MD&A: Reporting conventions and significant comparisons

Effective January 1, 2023, IBM extended the estimated useful lives of new server and network equipment from five to six years, and of used equipment from three to four years, citing technology advances. The change increased 2023 continuing-operations pretax income by $208 million and basic and diluted EPS by $0.18.

IBM’s 2023 workforce-rebalancing actions, intended to address stranded costs from portfolio changes, generated $438 million of continuing-operations pretax charges, compared with $40 million in 2022 and $182 million in 2021. Beginning in Q1 2023, IBM stopped allocating these charges to reportable segments, consistent with its management system; prior-year segment results included them.

A major non-operating comparison item was IBM’s September 2022 pension risk transfer. The company transferred approximately $16 billion of defined-benefit pension obligations and related plan assets to Prudential and MetLife through annuity contracts, using plan assets and requiring no additional IBM contribution; participant benefits were unchanged. The transaction resulted in a one-time, noncash Q3 2022 pretax pension settlement charge of $5.9 billion ($4.4 billion after tax), primarily from accelerated recognition of accumulated actuarial losses.

IBM completed the separation of Kyndryl’s managed infrastructure services business on November 3, 2021. Kyndryl is treated as a discontinued operation and excluded from continuing operations and segment results for all periods shown. IBM held no Kyndryl ownership interest after November 2, 2022.

IBM supplements GAAP results with non-GAAP operating earnings from continuing operations. These measures exclude specified acquisition-related charges and purchased-intangible amortization, certain retirement-related costs, certain Kyndryl-separation impacts and related taxes, and other specified items. IBM views non-operating pension costs as primarily reflecting changes in plan assets and liabilities associated with financial-market performance. Segment results are reported using pretax operating earnings, consistent with management’s measurement system.

IBM also classified fair-value changes on foreign-exchange call options used to economically hedge currency exposure associated with the announced Software AG StreamSets and webMethods purchase price as non-operating. Such mark-to-market movements can cause differences between GAAP and non-GAAP results. Constant-currency growth translates current-period local-currency activity at prior-year exchange rates to exclude exchange-rate fluctuations, but does not capture operational effects resulting from currency movements.

IBM FY2023 management discussion

Financial results

Revenue increased 2.2% reported and 2.9% currency-adjusted. Gross margin expanded 1.4 percentage points; operating gross margin increased 1.3 points. Software and Consulting drove growth, while Infrastructure declined amid product-cycle dynamics.

The sharp increase in reported continuing-operations income is not representative of underlying growth: FY2022 included a one-time, non-cash, pre-tax pension settlement charge of $5.9B ($4.4B after tax). It reduced diluted EPS by $4.84 from continuing operations and $4.83 on a consolidated basis. The continuing-operations effective tax rate was 13.5% in FY2023 versus negative 54.2% in FY2022, with the prior-year rate significantly affected by the pension charge.

Underlying operating performance improved: operating earnings rose 6.5%, and diluted operating EPS increased 5.4%. Operating continuing-operations income was $8.9B, with a 14.3% margin, up 0.6 points. Operating pre-tax income increased 5.0% to $10.3B, and its margin rose 0.4 points to 16.7%. The operating effective tax rate was 14.0%, compared with 15.2%.

Reported expenses and other income fell 18.8%, mainly reflecting the prior-year pension charge and productivity benefits. By contrast, operating (non-GAAP) expenses and other income rose 4.5% as currency effects, higher workforce-rebalancing charges and strategic investment spending outweighed productivity actions. Non-GAAP operating earnings exclude material items, including acquisition-related charges of $1.292B (FY2022: $1.329B), non-operating retirement-related costs/(income) of negative $1M (FY2022: negative $30M), and U.S. tax-reform impacts of $95M (FY2022: negative $70M).

Revenue trends

Hybrid Platform & Solutions grew across Red Hat, Automation, and Data & AI; Transaction Processing benefited from continued zSystems demand. Consulting growth across its business lines was supported by demand for data and technology transformation and application modernization. Infrastructure’s decline reflected product-cycle dynamics.

Cash flow and balance sheet

Operating cash flow increased $3.5B, supported by financing-receivables cash generation, improved performance-related net income, and sales-cycle working-capital efficiencies. Free cash flow rose $1.9B. Investing cash use increased $2.9B, mainly because of the Apptio acquisition and lower divestiture proceeds. Financing cash use decreased $3.2B, primarily due to increased net cash provided by debt.

IBM’s nine acquisitions, including its $5.1B of acquisition investment, supported its efforts to strengthen hybrid-cloud and AI capabilities. It issued $9.5B of debt in Q1 to plan for 2023–24 maturities and capital-allocation needs, and paid $6.0B in dividends during FY2023.

Management pointed to recurring revenue and diversification across geographies, industries, clients and business mix as sources of resilience. It also cited uncertainty from geopolitical events, interest rates, currency movements, and escalating labor and component costs. Currency hedging defers but does not eliminate currency effects; productivity actions helped mitigate cost pressures.

Strategy and market opportunity

IBM’s strategy focuses on hybrid cloud and AI, combining software, consulting, mission-critical infrastructure, and research to help clients modernize operations. IBM positions Red Hat OpenShift as its hybrid-cloud platform and watsonx as its business AI platform. The platforms are intended to reinforce each other: watsonx enables AI across varied environments, while AI-driven insights and automation can improve hybrid-cloud operations.

IBM cites external research to describe the opportunity, rather than company results: a Harris Poll found that 77% of business and IT decision makers use hybrid-cloud environments; an IBM Institute for Business Value survey found that over 80% of C-suite executives expect generative AI to fundamentally change organizational workflows and jobs. IDC projects a hybrid-cloud market exceeding $1.5 trillion over three years and an AI market growing at 30%, powered by generative AI. An IBM Consulting study found organizations pursuing “hybrid by design” could expect over three times the ROI on digital transformation compared with more siloed approaches.

Products, capabilities, and go-to-market

Launched in 2023, watsonx is built on OpenShift and offers IBM and open-source models designed to run where clients need them, alongside AI governance capabilities and consulting to help deploy AI at scale. IBM has over 16,000 accredited AI consultants and established a $500 million Enterprise AI Venture Fund to collaborate with early-stage innovators. It also helped launch the AI Alliance to support open, responsible AI innovation.

IBM is investing in product-led growth, technical selling, and ecosystem routes to market. Its redesigned Partner Plus program provides partners with resources, incentives, training, and support. Strategic relationships include AWS, Microsoft, SAP, Salesforce, and Adobe. IBM says it built a Red Hat business within Consulting of over $2.5 billion; the filing does not specify a period or comparison for that figure.

IBM describes Software as spanning hybrid-cloud platforms, data and AI, automation, security, and transaction processing. Consulting provides business transformation, technology consulting, and application operations. Infrastructure offers hybrid infrastructure and support. Financing enables client purchases of IBM hardware, software, and services, and conducts credit evaluations before extending financing. IBM operates in more than 175 countries. IBM also says 45 of the world’s top 50 banks run on IBM Z, highlighting its role in high-volume, regulated workloads.

These segment descriptions reflect IBM’s organization at December 31, 2023; changes to reportable segments took effect January 1, 2024.

Portfolio and research developments

IBM says its 2023 research generated AI and hybrid-cloud opportunities, including watsonx and AI additions to software. It also reported quantum-computing advances, including the Heron and Condor chips and updated Qiskit software. IBM closed the divestiture of The Weather Company assets as part of its portfolio focus, and says future inorganic investment will prioritize hybrid cloud, data and AI assets, and consulting capabilities.

Execution considerations

The strategy depends on converting projected AI and hybrid-cloud demand into sales and client value, scaling watsonx and consulting deployment, and competing in rapidly evolving markets. IBM emphasizes trusted, secure, and responsible AI, reflecting the governance and security considerations associated with expanding AI adoption. For risk disclosures, IBM refers readers to the Risk Factors in its 2023 Form 10-K.

Financing

IBM’s Financing business is a captive financier serving its client and partner ecosystem. Client Financing offers leases, installment plans and loans, generally for terms of up to seven years, primarily for new and used IBM hardware, software and services. Commercial Financing provides short-term working-capital financing to business partners and distributors. IBM also has an agreement with a third-party investor to sell short-term commercial-financing receivables on a revolving basis.

IBM says its knowledge of clients and the products being financed helps it manage credit and residual-value risks and generate strong returns on equity.

Workforce and talent

At year-end 2023, IBM and its wholly owned subsidiaries had 282.2 thousand employees; less-than-wholly owned subsidiaries had 8.7 thousand. IBM also used a complementary workforce of 14.4 thousand full-time-equivalent workers hired through temporary, part-time and limited-term arrangements. The company operated in more than 175 countries.

IBM focused on hiring and developing consulting and technical skills, expanding capacity in strategically important markets, and continuing workforce upskilling and reskilling. Voluntary attrition decreased in 2023 compared with each of the prior two years. IBM nevertheless described attracting, developing and retaining talent as an ongoing challenge in a dynamic, competitive environment.

Engagement, inclusion and well-being

More than 187,000 employees responded to IBM’s 2023 engagement survey. For the third consecutive year, more than eight in ten participating employees said they felt engaged at work, and nearly nine in ten said they felt empowered to express their authentic identities.

Women represented more than one-third of IBM’s workforce. In 2023, global representation of women executives improved by 1.1 percentage points and Hispanic executive representation in the U.S. improved by 0.5 points; Black executive representation in the U.S. declined by 0.2 points. IBM’s executive annual incentive program includes a diversity modifier tied to progress in developing a diverse executive population. The company also highlighted pay-equity assessments across countries where it has employees.

IBM’s health, safety and well-being programs include physical, mental and financial health support, as well as 24/7 confidential mental-health resources. In 2023, IBM introduced a centralized system to report and investigate work-related accidents, occupational illnesses and near misses, with the aim of accelerating investigations and corrective actions.

IBM FY2023 overview

IBM’s revenue grew modestly, with gains in Software and Consulting partly offset by lower Infrastructure revenue. Gross margin improved, and operating cash flow and free cash flow increased. Cash and debt both rose, as IBM issued debt to address upcoming maturities and continued investing in acquisitions, research and development, and dividends.

Consolidated results

¹Calculated as revenue less gross profit.

Revenue increased 2.2% reported (2.9% adjusted for currency). The prior year’s total expense and other income included a $5.9B one-time, noncash pension settlement charge; its absence was the main reason that line fell. IBM’s operating (non-GAAP) expense and other income increased 4.5%.

Reportable segments

Software revenue rose 5.1% reported (5.2% currency-adjusted); its gross margin increased to 80.1% from 79.6%, while pre-tax margin rose to 25.0% from 24.6%. Consulting revenue grew 4.6% reported (6.1% currency-adjusted); gross margin improved to 26.6% from 25.5%, and pre-tax margin to 9.6% from 8.8%. Infrastructure revenue fell 4.5% reported (3.9% currency-adjusted), but gross margin improved to 56.0% from 52.8% and pre-tax margin to 16.6% from 14.8%. Financing gross margin was 48.1% versus 38.3%; Other’s was negative 256.4% versus negative 95.3%.

Software’s growth reflected Hybrid Platform & Solutions and Transaction Processing gains. Within Hybrid Platform & Solutions, Red Hat grew 9.1%, Automation 3.4%, and Data & AI 4.5%, while Security declined 2.5%. OpenShift and Ansible had double-digit growth; OpenShift ARR was $1.2B at year-end, and Hybrid Platform & Solutions ARR was $14.4B. IBM described recurring revenue as approximately 80% of annual Software revenue and cited increasing client interest in its generative-AI platform, watsonx.

Consulting benefited from demand for data and technology transformation, AI and analytics, cloud modernization, and application development. Strategic partnerships represented about 40% of Consulting revenue and delivered double-digit growth in signings and revenue. FY2023 signings were $23.339B, up from $20.485B (13.9% reported; 16.7% currency-adjusted); trailing-12-month book-to-bill exceeded 1.15. Signings indicate demand but their conversion to revenue is uncertain and involves management estimates.

Infrastructure’s decline reflected product-cycle dynamics, especially the z16 cycle, and reduced support demand. Hybrid Infrastructure fell 2.5%; zSystems declined 4.5% and Distributed Infrastructure 1.0%; Infrastructure Support fell 7.9%. IBM said z16 performance across its program cycle had outperformed prior cycles, with installed MIPS doubling over the last two zSystems cycles. Productivity and supply-chain actions supported margin improvement, partly offset by weaker Infrastructure Support margins.

Geographic revenue

Asia Pacific grew 7% currency-adjusted, despite China declining 19.6% reported (16% adjusted); India grew 15.1% reported (20% adjusted). The regional results therefore masked substantial country-level and currency variation.

Cash flow, liquidity and capital allocation

IBM issued $9.463B of debt in Q1 to address 2023–2024 maturities and support capital-allocation priorities; the increase in total debt was primarily due to net debt issuance. Current liabilities rose mainly because of short-term debt, including reclassifications from long-term debt net of maturities, and deferred income. IBM invested $5.082B in acquisitions and returned $6.040B through dividends, while citing cash generation as support for increased R&D and acquisitions to strengthen AI and hybrid-cloud capabilities.

Costs, financing and other material items

SG&A increased 2.1% to $19.003B from $18.609B, including workforce rebalancing charges of $438M versus $50M. R&D and engineering increased 3.2% to $6.775B from $6.567B, with investment focused on AI, hybrid cloud and quantum. IBM cited simplification, workforce alignment, footprint reduction, automation and AI as productivity measures intended to fund innovation and go-to-market investment; labor-cost pressure partly offset Consulting pricing and productivity benefits.

Interest expense excluding capitalized interest was $1.940B, up $379M, primarily reflecting higher average interest rates and a higher average debt balance. Operating other income declined mainly because of currency effects and $277M lower divestiture gains, partly offset by higher interest income. Intellectual-property and custom-development income increased 29.6% to $860M from $663M, largely due to a three-year Japanese consortium agreement; such income can vary with deal timing.

Stock-based compensation increased $146M: SG&A expense was $616M, up $50M; R&D and engineering was $328M, up $70M; and cost expense was $190M, up $26M. The retirement-cost comparison was dominated by the prior-year $5.9B pension settlement charge. Operating retirement costs were nearly unchanged at $1.188B, up $3M; non-operating retirement income was $39M versus $6.548B of cost in FY2022. The net underfunded position of retirement and postretirement plans increased $1.855B to $4.006B, primarily due to lower discount rates. Worldwide qualified defined-benefit plans were 111% funded, and required 2024 contributions for qualified defined-benefit and multi-employer plans were expected to be $200M.

The continuing-operations effective tax rate was 13.5% versus (54.2)% in FY2022, whose rate was primarily affected by the transfer of a portion of Qualified PPP pension obligations and related assets. The operating (non-GAAP) tax rate declined to 14.0% from 15.2%.

Credit quality

IBM’s receivables allowance for credit losses declined by $38M during 2023. Lower reserve coverage mainly reflected write-offs; most write-offs related to receivables that had already been reserved.

During 2023, IBM recorded $11M of additions net of releases in expense, $97M of write-offs, and $48M of foreign currency and other items, including discontinued operations. Coverage declined 20 basis points year over year.

Assets, liabilities and debt

Noncurrent assets increased $4.208B, or $3.495B adjusted for currency, primarily from goodwill associated mainly with the Apptio acquisition, partly offset by lower prepaid pension assets. Long-term debt rose mainly because of debt issuance, partly offset by upcoming maturities reclassified to short-term debt. Noncurrent liabilities excluding debt increased mainly due to retirement and postretirement benefit obligations following plan remeasurements.

Total debt increased $5.598B, or $5.181B adjusted for currency. IBM received $9.586B in debt issuance proceeds, partly offset by $5.082B of maturities. Non-Financing debt rose $6.591B ($6.230B adjusted for currency), reflecting first-quarter issuance to plan for 2023–2024 maturities and capital allocation priorities. Financing segment debt declined $992M ($1.049B adjusted for currency), primarily because of lower financing-receivable funding needs.

Financing’s debt-to-equity ratio remained 9.0:1. IBM said Financing debt generally tracks client and commercial financing receivables and related funding balances; intercompany loans are structured to substantially match financing receivables’ terms, currencies and interest-rate variability.

Equity and capital allocation

Total equity increased $592M in 2023. Net income and common stock additions were substantially offset by dividends and a higher accumulated other comprehensive loss, driven by retirement-related benefit plans.

Financial flexibility and cash flows

IBM’s operating cash flow increased substantially in FY2023, supported by increased cash from financing receivables, performance-related improvements within net income, and sales-cycle working-capital efficiencies. Investing outflows rose, mainly reflecting the Apptio acquisition and lower divestiture proceeds; financing outflows declined as net cash provided by debt increased.

The $3.276B increase in net cash provided by debt was primarily due to higher debt issuance and lower maturities.

Discontinued operations

The discontinued-operations loss narrowed to $12M in FY2023 from $143M in FY2022. Both years included effects from changes in separation-related estimates and settlements under the separation and distribution agreement. FY2022 also included a gain on the sale to Kyndryl of a joint venture formerly managed by Kyndryl, after regulatory approval, and Kyndryl-related tax provision-to-return adjustments.

FY2023 continuing-operations results

IBM’s reported GAAP income rose sharply, while operating-basis income increased 6.5% and diluted EPS increased 5.4%. The GAAP comparison is heavily affected by FY2022’s one-time, non-cash pension settlement charge of $5.9B pre-tax ($4.4B after tax). That charge explains much of the gap between FY2022 GAAP and operating results, making the GAAP year-over-year increase less indicative of underlying performance.

FY2022 retirement-related reconciliation adjustments added $6.548B to pre-tax income and $4.933B to continuing-operations income. Other FY2022 reconciliation items included $1.765B of acquisition-related pre-tax adjustments and $351M each for U.S. tax reform and Kyndryl-related adjustments. FY2023 acquisition-related adjustments added $1.660B to pre-tax income; these included a $12M gain on foreign-exchange call options related to IBM’s planned acquisition of StreamSets and webMethods from Software AG.

Operating earnings are a management-defined non-GAAP measure and may not be comparable with similarly titled measures reported by other companies.

Strategy, demand and operating priorities

IBM says demand for hybrid cloud and AI continues to grow as clients pursue productivity gains and seek to manage technology across public, private and on-premises environments. In 2023, IBM launched watsonx, its flagship AI and data platform. Consulting delivered consistent revenue growth and outperformed competitors despite an uneven macroeconomic environment, while the z16 program significantly outperformed prior product cycles, including z15.

Over the prior two years, IBM shifted toward a platform-centric hybrid-cloud-and-AI model, emphasizing technical and experiential selling, broader partnerships and a higher-value recurring-revenue base. IBM achieved more than $1.5 billion in productivity savings through 2023 and targets at least $3.0 billion in annual run-rate savings by year-end 2024. It plans to redirect savings to innovation, skills and go-to-market capabilities; 2024 workforce rebalancing is expected to be consistent with 2023 levels.

IBM completed nine acquisitions in 2023, including Apptio, and announced the planned acquisition of StreamSets and webMethods, expected to close in mid-2024. It also announced a $500 million Enterprise AI Venture Fund. In January 2024, IBM sold The Weather Company assets and recognized an approximately $240 million pretax gain; the after-tax gain, net of forgone profit, is expected to be immaterial for the full year.

Retirement benefits and 2024 outlook

Effective January 1, 2024, IBM introduced a Retirement Benefit Account for most eligible U.S. employees under the Qualified Personal Pension Plan, replacing company contributions to the 401(k) Plus plan. The account receives a monthly credit equal to 5% of eligible pay and earns 6% interest through 2026. From 2027 through 2033, it earns the 10-year U.S. Treasury yield, subject to a 3% annual floor. Eligible employees also received salary increases to offset the difference from their former 401(k) contribution entitlement.

At December 31, 2023, the U.S. Qualified PPP was 123% funded, with assets exceeding liabilities by $4.6 billion; worldwide qualified plans were 111% funded.

Approximately $0.2 billion of 2024 contributions is generally required for non-U.S. defined-benefit and multi-employer plans. The benefit change is expected to increase Qualified PPP service cost by approximately $0.4 billion and reduce defined-contribution-plan cost by approximately $0.5 billion. Including salary increases, the net operating-cost impact is expected to be immaterial.

A change in the amortization period for unrecognized actuarial losses is expected to add approximately $0.3 billion to 2024 non-operating pension expense. IBM says this change will not affect 2024 non-GAAP operating earnings, funded status, retiree benefit payments or funding requirements. The expected increase in non-operating plan cost primarily reflects higher recognized actuarial losses, partly offset by lower interest cost.

Segment reporting changes

Beginning in Q1 2024, IBM changed its organizational structure and segment reporting to better align with the market and improve transparency and peer comparability. Security services moved from Software to Consulting; Weather Company assets moved from Software to Other—divested businesses; and stock-based compensation and non-Financing net interest expense were removed from reportable segment results. These changes do not affect IBM’s consolidated financial statements; periods in the 2023 annual report remain presented under the historical segments.

Liquidity and cash flow

Operating cash flow rose 33.7% in 2023 after declining in 2022. IBM said strong cash generation and liquidity support investment in long-term opportunities and financial flexibility. Management also uses free cash flow to evaluate performance, plan shareholder returns and strategic investment, and assess debt-service capacity. IBM defines free cash flow as operating cash flow less the change in Financing receivables and net capital expenditures, including software investment. It also presents operating cash flow excluding the effect of Financing receivables, which management views as profit-generating investments rather than working capital to minimize. IBM cautions that free cash flow is not necessarily fully available for discretionary spending.

Debt, ratings and covenants

IBM issued $9.5B of debt in 2023 to plan for 2023–2024 maturities and capital-allocation priorities. Debt increased $5.6B from December 31, 2022, driven by net debt issuances. On February 5, 2024, IBM issued a further $5.5B to increase liquidity and plan for future maturities. Management said liquidity and cash flows support operating at a single-A credit rating.

At December 31, 2023, S&P rated IBM’s senior long-term debt A- and commercial paper A-2; Moody’s ratings were A3 and Prime-2, respectively. These ratings were unchanged from December 31, 2022. Fitch assigned ratings in Q4 2023 of A- for senior long-term debt and F1 for commercial paper.

Debt indentures and credit facilities require prompt payment of principal and interest, limit secured debt and sale-leaseback transactions to 10% of consolidated net tangible assets, and restrict mergers or consolidations subject to conditions. Credit facilities require a consolidated net interest expense ratio of at least 2.20:1.0 and include a cross-default provision covering other defaulted indebtedness of at least $500M. IBM reported compliance with significant covenants and said it was well within required levels; noncompliance could trigger default and immediate acceleration of applicable principal and interest.

IBM has no debt-rating triggers that allow acceleration solely due to a rating change. Derivative contracts have standard clauses that could trigger termination if IBM’s rating fell below investment grade. At year-end 2023, the fair value of derivative instruments in a liability position was $593M before applicable netting; this amount can fluctuate with outstanding instruments and market conditions. IBM said it had no other rating-change arrangements expected to materially adversely affect its financial position or liquidity.

Cash flow and capital allocation

IBM’s consolidated cash flows include discontinued operations. FY2023 operating cash flow and free cash flow (FCF) increased, while net capital expenditures declined. Management attributed the FCF improvement primarily to performance-related net income growth, sales-cycle working-capital efficiencies and lower capital spending as it optimized its real-estate portfolio.

FCF rose 20.4% in FY2023 from FY2022. FY2021 included $1.6B of discontinued-operations cash flows and approximately $1.4B of Kyndryl-related structural-action and separation cash costs. The Board increased the quarterly common dividend from $1.65 to $1.66 per share in Q2 2023.

Liquidity and contractual obligations

IBM said cash flow is sufficient for current operations and obligations, including investment, dividends and debt service. It cited borrowing capacity and committed global credit facilities as additional liquidity sources and said shareholder payouts remain comfortable.

Total contractual payments were $94.622B. The schedule includes $57.099B of long-term debt obligations and $19.170B of contractual interest.

Other significant commitments include operating leases of $3.948B, purchase obligations of $3.822B, finance leases of $499M, excess 401(k) Plus Plan obligations of $1.644B, long-term termination benefits of $858M and tax reserves of $5.712B; approximately $108M of tax reserves were expected to settle within 12 months. Finance-lease payments are discounted, while operating-lease payments are undiscounted.

Pension funding and cash-flow risks

IBM contributed $70M to non-U.S. defined-benefit plans in FY2023, down from $118M in FY2022. It expected approximately $200M of mandated non-U.S. pension contributions in 2024 and $1.3B over five years. Total retirement-plan contributions were expected to be approximately $1.5B in 2024, about $300M below 2023; no U.S. defined-benefit pension contribution was legally required in 2024.

Management cautioned that adverse capital-market performance or changes in funding regulations could increase required contributions, particularly in countries with more frequent funded-status remeasurement. Changes in operating results, geographic cash flows, litigation, pension requirements and tax-payment timing could also temporarily alter historical cash-flow patterns.

IBM reported no off-balance-sheet arrangements with a material current or reasonably likely future effect on its financial condition, results, liquidity or capital resources, and no material retained interests in transferred assets or other off-balance-sheet interests.

Critical accounting estimates and judgments

IBM’s 2023 estimates require significant judgment and can materially affect earnings, pension obligations, and asset values. Actual outcomes may differ from the assumptions used.

Pensions

The discount rate for the U.S. IBM Personal Pension Plan declined 30 basis points to 5.0% at December 31, 2023. IBM estimated that this change would reduce 2024 pre-tax income by $112 million. The sensitivities below include corresponding changes in the interest crediting rate.

Beginning in 2024, following changes to the Qualified PPP, the interest crediting rate and expected return on plan assets will be based on their relationship to the discount rate. Differences between actual investment returns and assumptions could change future pension funding needs.

Revenue, contracts, and taxes

Revenue recognition depends on judgments about complex contract terms, distinct performance obligations, standalone selling prices, principal-versus-reseller status, collectibility, and variable consideration such as rebates, penalties, and bonuses. A 10% change in these estimates would have affected 2023 net income by $42 million.

For cost-to-cost service contracts, IBM records the full estimated remaining loss as soon as a contract is expected to be unprofitable. Contract-loss provisions were immaterial at December 31, 2023 and 2022; estimates depend particularly on labor and product costs and expected productivity.

Tax expense is sensitive to audit outcomes, changes in tax law, geographic income mix, and whether deferred tax assets can be realized. A tax-provision change equal to 1% of 2023 income from continuing operations before income taxes would have changed consolidated net income by $87 million in the opposite direction.

Asset valuation, credit losses, and other uncertainties

Goodwill impairment estimates rely on reporting-unit cash-flow projections and assumptions including revenue growth, gross margins, discount and terminal growth rates, capital expenditures, and taxes. After its fourth-quarter 2023 qualitative annual assessment, IBM concluded that a quantitative goodwill impairment test was unnecessary. Acquisition valuations and other impairment assessments also require estimates of fair value and cash flows.

For Financing segment receivables, a 10% difference between actual collectibility and IBM’s estimates would change Financing segment pre-tax income and consolidated income from continuing operations before taxes by an estimated $16 million: higher if collectibility is better than estimated and lower if worse. Economic deterioration or a change in the financial health of a concentrated client could cause actual losses to differ materially from reserves.

Litigation accruals depend on whether losses are probable and reasonably estimable; new information may require revisions that materially affect results or financial position. Effective January 1, 2023, IBM increased the estimated useful lives of server and network equipment in response to technology advances; the excerpt does not quantify the earnings impact.

Currency-rate fluctuations

IBM said the approximately $700 million impacts represent a theoretical maximum. Currency movements affected revenue, profit and cash flows during FY2023. Local-currency assets and liabilities translated into more U.S. dollars at December 31, 2023, than at year-end 2022.

IBM hedges specific foreign-currency transaction exposures, but does not hedge all exposures; the hedging program defers rather than eliminates currency volatility. Future impacts are difficult to predict because they depend on exchange-rate movements, operational responses, and the nature and timing of hedges. For non-U.S. subsidiaries and branches operating in U.S. dollars or highly inflationary environments, translation adjustments are reflected in results. IBM generally manages those risks by linking prices and contracts to U.S. dollars.

Market risk

IBM’s sensitivity analysis estimated that a hypothetical 10% adverse move in interest rates would reduce the fair value of included financial instruments by approximately $0.3B at Dec. 31, 2023, compared with $0.2B at Dec. 31, 2022. A hypothetical 10% adverse foreign-exchange move against the U.S. dollar would reduce fair value by approximately $1.6B, versus $1.4B.

The year-over-year increases reflected changes in debt maturities and the interest-rate profile and amount, as well as foreign-currency activity related to long-term debt and derivatives. IBM uses swaps, forwards, options and other derivatives to manage these exposures and does not anticipate material losses from them.

These sensitivities are hypothetical fair-value estimates, not expected realized losses. The analysis holds other variables constant and excludes, among other items, sales-type and direct-financing lease receivables, forecast foreign-currency cash flows and IBM’s net investment in foreign operations. As a result, some included financing or hedging instruments are not matched with the excluded items they finance or hedge.

Financing segment results

Revenue grew 14.8% (15% currency-adjusted). Client-financing revenue increased $89M to $728M, primarily because of higher asset yields. Pre-tax income rose 10.1%, mainly reflecting lower SG&A expense and settlements on non-accrual assets; the pre-tax margin declined 2.2 percentage points.

Financing segment financial position

Debt was primarily composed of intercompany loans. The decline in external receivables was attributed in part to currency impacts. Some intercompany balances are eliminated in IBM’s consolidated results.

Financing receivables and credit-loss allowance

IBM’s external financing receivables portfolio contracted year over year, while allowance coverage remained stable.

The portfolio figures exclude held-for-sale receivables and immaterial miscellaneous receivables. During FY2023, the allowance declined from $173M to $156M: $12M of net releases through expense and $18M of write-offs were partly offset by $12M of foreign currency and other changes.

IBM manages credit exposure through rating assessments and measures that include credit insurance, guarantees, nonrecourse secured borrowings, qualifying true-sale receivables transfers, and equipment sales. It also sells receivables as part of normal cash and liquidity management.

Financing returns

The improvement in Financing ROE reflected higher income and a lower average equity base. Income uses an estimated tax rate based on IBM’s consolidated tax provision; average equity is calculated using the last five quarters’ ending balances.

Lease residual values

Unguaranteed residual values for sales-type and direct financing leases were $458M at December 31, 2023, compared with $422M at December 31, 2022. Expected returns on the 2023 balance are:

Unguaranteed residual values for operating leases were not material. Residual estimates depend on expected future equipment fair values, informed by historical models, current new- and used-equipment markets, and forward-looking product and technology information. IBM seeks to optimize recovery by extending leases or selling equipment to existing clients and periodically reassesses realizable values.

Management’s Report on Internal Control

Management concluded that IBM’s internal control over financial reporting was effective as of December 31, 2023, applying the COSO Internal Control—Integrated Framework (2013). PricewaterhouseCoopers LLP independently audited the consolidated financial statements and the effectiveness of internal control over financial reporting.

IBM described an ongoing internal audit program and procedures to identify and correct control deficiencies. No control deficiencies or material weaknesses were reported in this section. Management cautioned that internal controls have inherent limitations: they may not prevent or detect every misstatement, and their effectiveness can change as conditions or compliance with procedures change.

Independent Auditor’s Report

PwC issued unqualified opinions that IBM’s consolidated financial statements for FY2023, FY2022, and FY2021 were fairly presented in accordance with U.S. GAAP. PwC also concluded that IBM’s internal control over financial reporting was effective as of December 31, 2023. The report identified no material weakness or audit qualification.

The critical audit matter was income taxes, specifically uncertain tax positions. IBM reported $8.8 billion of unrecognized tax benefits at December 31, 2023. Estimating this balance requires management judgment across U.S. and foreign tax jurisdictions, including assessments of complex tax laws, whether tax positions will be sustained, and the potential effect of tax audits and settlements.

To address this matter, PwC tested relevant controls and calculations, examined tax positions and the completeness of management’s assessments across jurisdictions, and evaluated the status and outcomes of pending audits, with assistance from tax specialists. PwC or its predecessor firms have audited IBM since 1923.

IBM FY2023 financial statements

Consolidated results

Revenue grew 2.2%. Gross margin rose to approximately 55.5% from 54.0%, as total cost of revenue declined despite higher sales revenue. FY2022 earnings were depressed by a $5.894B noncash pension settlement charge, which helps explain the sharp year-over-year increase in FY2023 earnings.

Services revenue was nearly flat; growth in sales and financing contributed more to the modest overall increase. SG&A was $19.003B versus $18.609B, and R&D and engineering expense was $6.775B versus $6.567B. Other income was $0.914B, compared with $5.803B of expense in FY2022; interest expense increased to $1.607B from $1.216B.

Cash flow and capital allocation

Operating cash flow improved despite modest revenue growth. Acquisition spending increased, while IBM continued substantial dividend payments. FY2023 debt proceeds were $9.586B and debt repayments were $5.082B. Cash, cash equivalents and restricted cash ended the year at $13.089B, versus $7.988B at FY2022 year-end.

Balance sheet and leverage

IBM stockholders’ equity was $22.533B. After subtracting goodwill and net intangible assets, implied tangible common equity was approximately negative $48.681B. Cash and cash equivalents were $13.068B at year-end.

Comprehensive income and shares

FY2023 other comprehensive loss primarily reflected $3.115B of retirement-plan actuarial losses, reducing comprehensive income. Actual common shares outstanding, calculated as issued shares less treasury shares, increased from approximately 906.092M at the start of FY2023 to 915.014M at year-end.

IBM FY2023 financial statements and related disclosures

Consolidated results

Revenue increased 2.2% in FY2023, following 5.5% growth in FY2022. FY2023 net income included $7.514 billion from continuing operations and a $12 million discontinued-operations loss. The FY2022 pretax result and tax benefit were heavily affected by the $5.9 billion noncash pension-settlement charge ($4.4 billion after tax); the related pension transfer was also the primary reason for FY2022’s tax benefit.

Segment results

Software revenue grew 5.1% (versus 6.9% in FY2022) and Consulting grew 4.6% (versus 7.1%); their pretax margins were 25.0% and 9.6%, respectively. Infrastructure revenue declined 4.5%, after 7.8% growth in FY2022, although pretax income rose 7.0% and margin improved to 16.6%. Financing revenue grew 14.8%, rebounding from a 16.6% decline in FY2022; its margin was 50.5%.

Consolidated revenue exceeded reportable-segment revenue by $233 million in FY2023 and $453 million in FY2022. Segment pretax income is a management measure, not consolidated pretax income. Reconciliation included acquired-intangible amortization of $(1.627) billion in FY2023, $(1.747) billion in FY2022 and $(1.838) billion in FY2021; non-operating retirement-related income/(costs) of $39 million, $(6.548) billion and $(1.282) billion; and unallocated corporate amounts and other of $(541) million, $(712) million and $(782) million, respectively. FY2023 also included $435 million of workforce-rebalancing charges excluded from segment results. The FY2022 retirement cost included the pension settlement.

Balance sheet, debt and credit exposure

Goodwill rose mainly from $3.953 billion of additions, principally acquisitions including Apptio; IBM recorded no goodwill impairment in FY2023 or FY2022. Net intangible additions were $1.509 billion and amortization was $2.287 billion in FY2023; expected FY2024 amortization is $2.257 billion. Financing receivables included $6.486 billion of client loans and installment receivables (2022: $8.329 billion), $4.227 billion of financing leases (2022: $4.034 billion), and $1.155 billion of commercial financing held for investment (2022: $293 million). More-than-90-day past-due client receivables improved to $151 million from $344 million.

Debt and finance-lease obligations were $56.546 billion including current maturities. Contractual debt obligations were $6.427 billion due in 2024 and $30.600 billion thereafter. Interest paid and accrued rose to $1.949 billion from $1.566 billion, including interest expense of $1.607 billion versus $1.216 billion. IBM had no year-end borrowings under its $10 billion revolving credit agreements and reported covenant compliance; the minimum consolidated net-interest-expense ratio is 2.20:1.

Cash, investments and capital activity

IBM sold $3.4 billion of trade receivables in FY2023, versus $3.3 billion in FY2022 and $1.8 billion in FY2021; these sales are without recourse. Commercial-financing receivables transferred were $9.248 billion versus $9.029 billion, with related net losses and fees increasing to $98 million from $62 million. Sale capacity was reduced from $3.0 billion to $1.9 billion and then to $1.3 billion in January 2024.

Segment capital expenditures and investments in intangibles totaled $1.255 billion in FY2023 versus $1.359 billion in FY2022, of which Infrastructure accounted for $836 million versus $853 million. IBM completed nine acquisitions for $5.197 billion in FY2023, compared with eight for $2.651 billion in FY2022. Apptio accounted for $4.612 billion of purchase price and $3.541 billion of goodwill.

The Weather Company sale closed January 31, 2024. At year-end, approximately $545 million of related assets, primarily $464 million of goodwill, were held for sale, along with $19 million of liabilities. IBM received $750 million cash, provided a $100 million seven-year seller-financing loan, and recognized an approximately $240 million pretax gain.

Pensions, taxes and shareholder compensation

The combined funded position of defined-benefit pension and nonpension postretirement plans deteriorated to a $4.006 billion deficit from $2.151 billion. Worldwide qualified defined-benefit plans were 111% funded, but including nonqualified plans they were 98% funded. Non-U.S. pension plans’ deficit widened to $4.420 billion from $2.891 billion, including $2.077 billion of actuarial losses. The FY2022 transfer of approximately $16 billion of pension obligations and related assets to insurers covered about 100,000 retirees and beneficiaries and reduced IBM’s future exposure on the transferred benefits. A new U.S. Retirement Benefit Account effective in 2024 is expected to increase estimated 2024 actuarial-loss amortization by about $0.3 billion, without changing funded status or funding requirements.

Net deferred tax assets were $15.103 billion, versus $13.989 billion. Unrecognized tax benefits were $8.772 billion, including $8.205 billion that would favorably affect the effective tax rate if recognized. IBM disputes IRS proposed adjustments that would increase taxable income by approximately $4.2 billion for 2013 and $1.2 billion for 2015.

Stock-based compensation expense was $1.133 billion in FY2023, versus $987 million in FY2022 and $919 million in FY2021; $1.7 billion remained unrecognized at year-end. Outstanding awards included 23.058 million RSUs and 3.473 million PSUs. IBM had 915.0136 million common shares outstanding at year-end and issued 9.7942 million shares under compensation and employee stock-purchase plans in FY2023; repurchases remained suspended.

Other material exposures

Other comprehensive loss was $2.021 billion in FY2023, compared with income of $6.494 billion in FY2022; accumulated other comprehensive loss reached $18.761 billion. Legal exposures include a BMC award of $718 million in direct damages plus $718 million in punitive damages, which IBM appealed and for which it recorded no material liability. IBM also pursues claims against GlobalFoundries seeking more than $1.5 billion. Management cautions that contract-cost estimates, pension assumptions, tax positions, credit losses, and asset valuations depend on judgments and may affect future results.

Pension plan investment strategy

IBM’s Qualified PPP portfolio targets 8% equities, 83% fixed income, 3% real estate and 6% other investments. The company made no significant changes to the investment strategy in 2023 and planned none for 2024. The approach seeks to balance returns against volatility and funding risk: inflation, equity-market volatility and interest-rate changes could leave the plan underfunded and increase IBM’s required contributions. Diversification across sectors, issuers and geographies is used to manage concentration and other investment risks.

At December 31, 2023, the Qualified PPP held $1.717 billion in less-liquid private equity and private real estate assets. It also had $866 million in private-market investment commitments expected to be funded from plan assets over multiple years. Derivatives support fixed-income and duration management, interest-rate and credit exposure, cash equitization and currency strategies.

Non-U.S. plans

Non-U.S. plans’ weighted-average target allocation was 16% equities, 63% fixed income, 3% real estate, 13% insurance contracts and 5% other investments. Allocations can differ from the U.S. strategy because of local regulations and governance; some countries require higher fixed-income allocations to address solvency and funding risks. Non-U.S. plans’ less-liquid asset exposure is consistent with the U.S. plan, and they use derivatives for similar purposes, including currency hedging, interest-rate risk, credit exposure and alternative-investment strategies.

Plan assets and valuation

At December 31, 2023, combined U.S. and non-U.S. defined-benefit pension plan assets were nearly unchanged at fair value. IBM reported no changes to plan-asset valuation techniques in 2023 or 2022. Real estate valuations involve significant judgment because those assets are relatively illiquid and lack quoted market prices.

U.S. Level 3 assets declined largely because net purchases, sales and settlements were negative $409M, including $404M of net private-equity sales; private-equity holdings fell to $13M from $421M. Non-U.S. Level 3 assets decreased principally as real estate fell to $4M from $145M, including a $66M return loss on assets held at year-end.

Funded status

Pension plans with obligations exceeding assets had material deficits. Other plans had assets exceeding projected benefit obligations (PBO), although that excess narrowed year over year.

For plans with assets exceeding PBO, the asset surplus was $7.506B in 2023, down from $8.236B in 2022.

Nonpension postretirement plans with accumulated postretirement benefit obligations (APBO) above assets were substantially underfunded or unfunded.

Other small nonpension plan asset balances were $10M for U.S. plans in both years and $23M for non-U.S. plans in 2023, down from $29M in 2022. Non-U.S. assets were primarily government-related fixed income and corporate bonds.

Benefit contributions and payments

Benefit-related contributions and direct payments totaled $1.847B in 2023, compared with $1.962B in 2022.

Some contributions were made in noncash U.S. Treasury securities: $256M in 2023 versus $349M in 2022 for non-U.S. defined-benefit and U.S. nonpension plans, and $682M versus $557M to the Active Medical Trust.

IBM is not legally required to contribute to U.S. defined-benefit plans in 2024, though it may contribute at its discretion. It estimates approximately $200M of 2024 contributions to non-U.S. defined-benefit and multi-employer plans, primarily mandated amounts for Japan and India. Market performance and frequent funded-status remeasurement could increase required contributions.

Payments not covered by plan assets are included in current compensation-and-benefits liabilities.

Subsequent events

On January 30, 2024, IBM’s board approved a quarterly dividend of $1.66 per share, payable March 9 to shareholders of record February 9. On February 5, wholly owned finance subsidiary IBM International Capital issued $5.5B of U.S.-dollar fixed-rate notes with maturities of 2 to 30 years and coupons of 4.6%–5.3%; IBM fully and unconditionally guarantees the notes.

Performance Graphs

The graphs compare cumulative total returns on $100 invested at the beginning of each period in IBM common stock, the S&P 500, and the S&P Information Technology Index, assuming reinvestment of dividends. IBM outperformed both benchmarks over three years, but trailed both over one and five years. The technology index led IBM over all three periods.

One-year period (2023)

Three-year period

Five-year period

The graphs reflect Kyndryl’s separation from IBM on Nov. 3, 2021, with dividends reinvested. Eligible IBM shareholders received one Kyndryl share for every five IBM shares held on the Oct. 25, 2021 record date.

Stockholder Information

IBM common stock is listed on the New York Stock Exchange and NYSE Chicago under the ticker symbol IBM. The company makes its SEC filings—including Forms 10-K, 10-Q, and 8-K—available without charge through its investor website.

IBM’s 2024 Annual Meeting was scheduled for April 30, 2024. Its 2022 ESG Report, IBM Impact, and an accompanying addendum are available online.

Stockholder account services are provided through Computershare. IBM’s Computershare Investment Plan supports dividend reinvestment and direct stock purchases, as well as safekeeping of stock certificates.