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1、Lets Create2022 Annual ReportArvind KrishnaChairman and Chief Executive OfficerDear IBM Investor:In 2022 we took decisive steps to build a stronger IBM,executing against a sound strategy with speed,focus,and consistency.Our growth is accelerating,our confidence is growing,and our company is gaining

2、momentum.The reasons for this are clear.Our clients and partners are facing a series of specific business challenges:inflation,supply chain disruption,tight labor markets,sustainability requirements,and an ever-evolving cybersecurity threat landscape.They recognize technology as a source of competit

3、ive advantage,capable of addressing these immediate issues and future-proofing their businesses by increasing productivity,reducing costs,driving innovation,and fueling growth.To that end,we have sharpened our focus on IBMs unique ability to integrate technology and business expertise for our client

4、s and our partners.Our portfolio is built around hybrid cloud and artificial intelligence(AI),the two most transformational technologies of our time.And our go-to-market approach brings together the necessary software,consulting,and infrastructure our clients require,from across our expanding ecosys

5、tem of partners.This is todays IBM.2022 PerformanceFor the year,IBM generated$60.5 billion in revenue and$9.3 billion of free cash flow.Our focus on delivering client value fueled revenue growth of 12%at constant currency in 2022,including about four points from incremental external sales to Kyndryl

6、.Our solid and growing recurring revenue base now represents more than 50%of IBMs total revenue.And today,more than 70%of our annual revenue is in Software and Consulting.IBM 2022 Annual Report1IBM Software revenues were up 12%at constant currency,including about 6 points from incremental sales to K

7、yndryl.Red Hat,which allows clients to harness the power of open-source software innovations,continues to grow at a healthy rate.Our automation,data and AI and security software have been optimized for this platform and delivered solid growth.IBM Consulting revenues were up 15%at constant currency,d

8、riven by clients strong demand for our extensive technical and business expertise to accelerate their digital transformation journeys.IBM Infrastructure revenues were up 14%at constant currency,including about 6 points from incremental sales to Kyndryl.Clients continue to leverage IBM zSystems and D

9、istributed Infrastructure platforms as foundational elements of their hybrid cloud infrastructure.This revenue growth and cash generation allowed for both continued investment in the business and shareholder returns.In 2022,we spent more than$2 billion to acquire eight companies and returned nearly$

10、6 billion to stockholders through dividends.Technology and expertiseOur perspective on technology is clear and consistent:hybrid cloud and AI are helping to usher in a new era of greater productivity,faster insights,better decision-making,and enhanced employee and customer experiences.That is why we

11、 have designed our products and services to maximize the business value of hybrid cloud and AI for our clients.Hybrid cloud has become the leading architecture for enterprises because it offers more value than relying on a single,public cloud.This value takes the form of scale,security,ease of use,f

12、lexibility,seamless experiences,and faster innovation cycles.Companies continue to adopt hybrid cloud to unify their data and applications across multiple clouds,on premise,and at the edge.Containers are the preferred destination for hybrid cloud applications and IBMs container platform,with Red Hat

13、 at the core,continues to gain clients.For example,the Canadian Imperial Bank of Commerce(CIBC)adopted a hybrid cloud approach that uses Red Hat technology to manage and scale its infrastructure with greater speed and flexibility.As a result,they delivered hundreds of new applications while reducing

14、 provisioning time by 95%and deployment time by 50%.They join organizations like Bharti Airtel,Charles Schwab,Samsung Electronics,and the U.S.Department of Education in working with IBM to realize the value of hybrid cloud.These powerful,hybrid cloud environments also allow clients to infuse AI acro

15、ss their business operations.AI is expected to unlock$16 trillion in value from the global economy by 2030 including massive boosts in productivity by scaling data-driven insight and automating business workflows in everything from IT operations and financial reporting to human resources and custome

16、r service.Examples include IBMs work with McDonalds to automate the drive-thru experience with AI at scale.We also partnered with the U.S.Department of Veterans Affairs to automate the 2IBM SoftwareIBM ConsultingIBM Infrastructuredelivery of pension benefits,accelerating the claims process,and freei

17、ng up VA staff to focus on higher value work.And BBC Studios is now using our AIOps software to automate the management of its IT infrastructure.To help power hybrid cloud environments,and the AI that runs on them,IBM introduced the z16 platform with an integrated on-chip AI accelerator specifically

18、 designed to process and analyze real-time transactions at scale.We also unveiled IBMs next generation LinuxONE servers,which help clients dramatically reduce data center energy consumption in support of their sustainability goals.IBM Consultings business and industry expertise brings these offering

19、s to life for our clients,helping them modernize and manage their applications in a hybrid cloud environment,automate their workflows with data and AI,and meet their security and regulatory requirements.IBM Consulting has strengthened its commitment to be a trusted partner for digital transformation

20、 and expanded its use of the IBM Garage an agile approach to co-creating with clients with more than 6,700 IBM Garage engagements during the year.For example,IBM Consulting is co-creating with Discover,developing solutions for migrating its systems and applications to an open and flexible hybrid clo

21、ud architecture with Red Hat OpenShift.As a result,Discover can automate key business processes and deliver solutions more quickly,improving its customer experience and advancing its overall digital transformation.To complement these offerings,IBM made eight acquisitions in 2022.We added software an

22、d consulting capabilities to address specific client challenges,including environmental performance management software(Envizi),cybersecurity attack surface management(Randori),and digital transformation services for the U.S.federal government(Octo).Client engagement:Partnership and co-creationIBM c

23、ontinues to embrace our partner ecosystem as a strategic advantage in delivering value to our clients.In 2022,we made significant progress in bolstering these partnerships,including the introduction of a new skills program to equip partners with the same training and enablement as IBMers,at no cost.

24、The increasing value of our partner ecosystem to our company,our clients,and the partners themselves is evident.Business with our strategic partners continues to grow with SAP,Microsoft and AWS all over$1 billion in revenue for the year.We partnered with Amazon Web Services to deliver IBM software a

25、s a service on the AWS Marketplace.Our partnership with Microsoft expanded in 2022,with 30 IBM solutions now available on the Microsoft Marketplace and deployable on Microsoft Azure.Meanwhile,Adobe and Salesforce are now leveraging open-source innovation based on Red Hat technologies in their offeri

26、ngs.To ensure clients engage with IBM and its partners simply and efficiently,we made significant changes to our go-to-market model in 2022 and improved our sales productivity.The IBM Sales and IBM Ecosystem functions joined together to create a single,coordinated unit focused on a distinct set of s

27、ales plays,deeper technical engagement,and a more experiential approach to selling built around IBM Garages,Innovation Studios,and Client Engineering teams.Exploratory research and applied scienceIBM Research is driven by our longstanding mission to define the future of computing.Our investments spa

28、n multiple time horizons and range across all of IBMs businesses,maintaining a careful balance between exploratory research and applied science.In 2022,IBM Research focused its talent and resources on innovation with practical application,particularly in the areas of hybrid cloud,data and AI,automat

29、ion,security,semiconductors,and quantum computing.For example,the IBM Telum Processor features on-chip acceleration for AI inferencing in real-time.Today it powers the AI capabilities of the IBM z16,allowing clients to identify fraud at scale in milliseconds.We also pioneered breakthrough innovation

30、 in the AI field of large language and foundational models.Project Wisdom for Red Hat Ansible uses foundational AI models to enable developers to generate high-quality code,using plain English,across multiple clouds.IBM Research like the rest of the company has embraced partnership and open innovati

31、on as it works to solve the most urgent problems of business and society.While we continue to build and maintain a valuable portfolio of intellectual property,we understand that open collaboration with clients,partners,and even competitors can accelerate the realization of value.IBMs work in quantum

32、 computing is a good example of how we blend proprietary and open innovation.In November,we again advanced the fundamental science of quantum computing,unveiling the 433-qubit IBM Osprey processor.This will help us move forward on our roadmap to deliver a 1,000-plus qubit system this year,and a 4,00

33、0-plus qubit system in 2025.Our IBM Quantum Network has more than 200 members,with companies like Boeing,HSBC,and Mitsubishi Chemical pursuing potentially industry-changing research.Meanwhile,we continue to provide access to IBM 2022 Annual Report3quantum capability through the cloud.More than 1.5 m

34、illion people have downloaded the free Qiskit software development kit,and an ecosystem of more than 450,000 registered users have developed applications and published papers based on our quantum technology.Environmental,equitable,and ethical impactBoth internally,and in our work with clients,IBM as

35、pires to make a lasting,positive impact on the world by protecting the environment,advocating for inclusion,and fostering trust and transparency in both technology and business.In 2022,we announced IBM Impact,a new framework that reflects our approach to creating a more sustainable,equitable,and eth

36、ical future.Using this framework,we will continue to set goals,measure progress,and report our results as part of our culture of accountability.We continued to make progress towards our goal of net-zero operational greenhouse gas emissions by 2030.In fact,we have reduced those emissions by 61%since

37、2010.We are using IBM Sustainability solutions to simplify and automate our sustainability reporting processes.During the year,we were recognized by Boston Consulting Group and TIME Magazine for helping clients turn their sustainability ambitions into actions.IBM demonstrates its commitment to diver

38、sity,equity,and inclusivity by creating space and opportunity for everyone at IBM and in society at large.Our diversity practices have resulted in a year-over-year increase of representation for women globally and Black and Hispanic employees in the U.S.We are collaborating with more than 20 Histori

39、cally Black Colleges and Universities on IBM Cybersecurity Centers to advance STEM-based opportunities.We also continue to narrow the STEM skills gap with our IBM SkillsBuild initiative,adding to our network of 170 partners in our effort to provide access to education and training to 30 million peop

40、le worldwide by 2030.IBM continues to develop innovation,policy,and practices that prioritize ethics,trust,transparency,and above all,accountability.In 2022,we exceeded our goal to train 1,000 partners in technology ethics.IBM was named to Ethispheres list of the most ethical companies in the world

41、for the fourth time.Why the world needs IBM(and IBMers)Todays IBM is more closely aligned with the needs of our clients.Our engagement model is simpler and more effective.And we have expanded our ecosystem by strengthening existing relationships and forging new,productive partnerships.There is,of co

42、urse,more to be done.Increasing our levels of productivity will be paramount.To get there,we are infusing our own technology into workflows and processes that span from HR,to finance,to sales and more.We are prioritizing speed and simplicity in our execution while cultivating a high-performance cult

43、ure designed to ensure every activity is tied to a clear and tangible business outcome.I am proud of the progress we have made as a company and the results we have delivered.And I am especially proud of the IBMers who have made it possible.Because the performance of our business depends entirely on

44、a workforce that is smart,committed,and inspired.That inspiration comes from our belief in the fundamental promise of technology:that when we apply innovation to real-world problems,we drive progress,for both business and society.IBMers deliver on that promise every day.When we help a pharmacy admin

45、ister more vaccines.When we help reduce the carbon footprint of a retailer.Or when we help prevent a cyberattack on a bank.Todays IBM is not simply a technology company.We are a problem-solving company and a convener of capability that brings together our colleagues,our clients,and our partners with

46、 a simple,open invitation:Lets create.We do this because we believe that IBM is the catalyst that makes the world work better.And as we have learned over the last several years,the world needs to work better.That is why the world needs IBM,today more than ever.Arvind Krishna Chairman and Chief Execu

47、tive Officer4In an effort to provide additional and useful information regarding the companys financial results and other financial information,as determined by generally accepted accounting principles(GAAP),these materials contain non-GAAP financial measures on a continuing operations basis,includi

48、ng revenue growth rates adjusted for constant currency.Free cash flow is presented on a consolidated basis,which includes activity from discontinued operations.The rationale for managements use of this non-GAAP information is included on page 6 and 34 of the companys 2022 Annual Report,which is Exhi

49、bit 13 to the Form 10-K submitted with the SEC on February 28,2023.For reconciliation of these non-GAAP financial measures to GAAP and other information,please refer to pages 17 and 34 of the companys 2022 Annual Report.Report of Financials International Business Machines Corporation and Subsidiary

50、Companies 5 MANAGEMENT DISCUSSION Overview 6Forward-Looking and Cautionary Statements 7Management Discussion Snapshot 8Description of Business 11Year in Review 17Prior Year in Review 30Other Information 32Looking Forward 32Liquidity and Capital Resources 33Critical Accounting Estimates 36Currency Ra

51、te Fluctuations 38Market Risk 39Cybersecurity 40Financing 40 Report of Management 43Report of Independent Registered Public Accounting Firm 44 CONSOLIDATED FINANCIAL STATEMENTS Income Statement 46Comprehensive Income 47Balance Sheet 48Cash Flows 49Equity 50NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

52、Basis&Policies A Significant Accounting Policies 52B Accounting Changes 65C Separation of Kyndryl 67Performance&Operations D Revenue Recognition 68E Segments 70F Acquisitions&Divestitures 74G Research,Development&Engineering 79H Taxes 80I Earnings Per Share 83Balance Sheet&Liquidity J Financial Asse

53、ts&Liabilities 84K Inventory 85L Financing Receivables 86M Property,Plant&Equipment 89N Leases 89O Intangible Assets Including Goodwill 91P Borrowings 92Q Other Liabilities 95R Commitments&Contingencies 96S Equity Activity 98Risk Management,Compensation/Benefits&Other T Derivative Financial Instrume

54、nts 101U Stock-Based Compensation 105V Retirement-Related Benefits 108W Subsequent Events 120 Performance Graphs 121Stockholder Information 122Board of Directors and Senior Leadership 123 6 Management Discussion International Business Machines Corporation and Subsidiary Companies OVERVIEW The financ

55、ial section of the International Business Machines Corporation(IBM or the company)2022 Annual Report includes the Management Discussion,the Consolidated Financial Statements and the Notes to Consolidated Financial Statements.This Overview is designed to provide the reader with some perspective regar

56、ding the information contained in the financial section.Organization of Information The Management Discussion is designed to provide readers with an overview of the business and a narrative on our financial results and certain factors that may affect our future prospects from the perspective of mana

57、gement.The“Management Discussion Snapshot”presents an overview of the key performance drivers in 2022.Beginning with the Year in Review,the Management Discussion contains the results of operations for each reportable segment of the business,a discussion of our financial position and a discussion of

58、cash flows as reflected in the Consolidated Statement of Cash Flows.Other key sections within the Management Discussion include:Looking Forward and Liquidity and Capital Resources,the latter of which includes a description of managements definition and use of free cash flow.The Consolidated Financia

59、l Statements provide an overview of income and cash flow performance and financial position.The Notes follow the Consolidated Financial Statements.Among other items,the Notes contain our accounting policies,revenue information,acquisitions and divestitures,certain commitments and contingencies and r

60、etirement-related plans information.On November 3,2021,we completed the separation of our 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 e

61、ffect 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.IBM retained 19.9 percent of the shares of Kyndryl common stock immediately following the s

62、eparation.During 2022,we fully disposed of our retained interest in Kyndryl common stock pursuant to exchange agreements with a third-party financial institution,which were completed within twelve months of separation.Refer to note J,“Financial Assets&Liabilities,”for additional information.At Decem

63、ber 31,2022,we no longer held an ownership interest in Kyndryl.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

64、,have been excluded from continuing operations and segment results for all periods presented.Refer to note C,“Separation of Kyndryl,”for additional information.In the first quarter of 2022,we realigned our management structure to reflect the planned divestiture of our healthcare software assets whic

65、h was completed in the second quarter of 2022.This change impacted our Software segment and Otherdivested businesses category,but did not impact our Consolidated Financial Statements.Refer to note E,“Segments,”for additional information on our reportable segments.The segments presented in this Annua

66、l Report are reported on a comparable basis for all periods.In September 2022,the IBM Qualified Personal Pension Plan(Qualified PPP)purchased two separate nonparticipating single premium group annuity contracts from The Prudential Insurance Company of America and Metropolitan Life Insurance Company(

67、collectively,the Insurers)and irrevocably transferred to the Insurers approximately$16 billion of the Qualified PPPs defined benefit pension obligations and related plan assets,thereby reducing our pension obligations and assets by the same amount.The group annuity contracts were purchased using ass

68、ets of the Qualified PPP and no additional funding contribution was required from IBM.The transaction resulted in no changes to the benefits to be received by the plan participants.As a result of this transaction we recognized a one-time,non-cash,pre-tax pension settlement charge of$5.9 billion($4.4

69、 billion net of tax)in the third quarter of 2022,primarily related to the accelerated recognition of accumulated actuarial losses of the Qualified PPP.Refer to note V,“Retirement-Related Benefits,”for additional information.The references to“adjusted for currency”or“at constant currency”in the Manag

70、ement Discussion do not include operational impacts that could result from fluctuations in foreign currency rates.When we refer to growth rates at constant currency or adjust such growth rates for currency,it is done so that certain financial results can be viewed without the impact of fluctuations

71、in foreign currency exchange rates,thereby facilitating period-to-period comparisons of business performance.Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior-year periods currency conversion rate.This approach

72、is used for countries where the functional currency is the local currency.Generally,when the dollar either strengthens or weakens against other currencies,the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.Refer to“Cu

73、rrency Rate Fluctuations”for additional information.To provide useful decision-making information for management and shareholders,we define and measure hybrid cloud revenue as end-to-end cloud capabilities within hybrid cloud environments,which includes technology(software and hardware),services and

74、 solutions to enable clients to implement cloud solutions across public,private and multi-clouds.This spans across IBMs Consulting,Software and Infrastructure segments.Examples include(but are not limited to)Red Hat Enterprise Linux(RHEL),Red Hat OpenShift,Cloud Paks,as-a-service offerings,service e

75、ngagements related to cloud deployment of technology and applications,and infrastructure used in cloud deployments.Management Discussion International Business Machines Corporation and Subsidiary Companies 7 Within the financial statements and tables in this Annual Report,certain columns and rows ma

76、y not add due to the use of rounded numbers for disclosure purposes.Percentages reported are calculated from the underlying whole-dollar numbers.Certain prior-year amounts have been reclassified to conform to the current year presentation.This is annotated where applicable.Operating(non-GAAP)Earning

77、s In an effort to provide better transparency into the operational results of the business,supplementally,management separates business results into operating and non-operating categories.Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisi

78、tion-related charges,intangible asset amortization,expense resulting from basis differences on equity method investments,retirement-related costs,certain impacts from the Kyndryl separation and their related tax impacts.Due to the unique,non-recurring nature of the enactment of the U.S.Tax Cuts and

79、Jobs Act(U.S.tax reform),management characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating.Adjustments primarily include true-ups,accounting elections and any changes to regulations,laws,audit adjustments that affect the r

80、ecorded one-time charge.Management characterizes direct and incremental charges incurred related to the Kyndryl separation as non-operating given their unique and non-recurring nature.These charges primarily relate to any net gains or losses on the Kyndryl common stock and the related cash-settled s

81、wap with a third-party financial institution,which are recorded in other(income)and expense in the Consolidated Income Statement.For acquisitions,operating(non-GAAP)earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and develo

82、pment,transaction costs,applicable retention,restructuring and related expenses,tax charges related to acquisition integration and pre-closing charges,such as financing costs.These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impac

83、ted by the size,type and frequency of our acquisitions.All other spending for acquired companies is included in both earnings from continuing operations and in operating(non-GAAP)earnings.For retirement-related costs,management characterizes certain items as operating and others as non-operating,con

84、sistent with GAAP.We include defined benefit plan and nonpension postretirement benefit plan service costs,multi-employer plan costs and the cost of defined contribution plans in operating earnings.Non-operating retirement-related costs include defined benefit plan and nonpension postretirement bene

85、fit plan amortization of prior service costs,interest cost,expected return on plan assets,amortized actuarial gains/losses,the impacts of any plan curtailments/settlements including the one-time,non-cash,pre-tax settlement charge of$5.9 billion($4.4 billion,net of tax)in the third quarter of 2022 an

86、d pension insolvency costs and other costs.Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance,and we consider these costs to be outside of the operational performance of the business.Overall,ma

87、nagement believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of our pension plans;improves visibility to management decisions and their

88、impacts on operational performance;enables better comparison to peer companies;and allows us to provide a long-term strategic view of the business going forward.In addition,these non-GAAP measures provide a perspective consistent with areas of interest we routinely receive from investors and analyst

89、s.Our reportable segment financial results reflect pre-tax operating earnings from continuing operations,consistent with our management and measurement system.FORWARD-LOOKING AND CAUTIONARY STATEMENTS Certain statements contained in this Annual Report may constitute forward-looking statements within

90、 the meaning of the Private Securities Litigation Reform Act of 1995.Any forward-looking statement in this Annual Report speaks only as of the date on which it is made;IBM assumes no obligation to update or revise any such statements except as required by law.Forward-looking statements are based on

91、IBMs current assumptions regarding future business and financial performance;these statements,by their nature,address matters that are uncertain to different degrees.Forward-looking statements involve a number of risks,uncertainties and other factors that could cause actual results to be materially

92、different,as discussed more fully elsewhere in this Annual Report and in the companys filings with the Securities and Exchange Commission(SEC),including IBMs 2022 Form 10-K filed on February 28,2023.8 Management Discussion International Business Machines Corporation and Subsidiary Companies MANAGEME

93、NT DISCUSSION SNAPSHOT($and shares in millions except per share amounts)Yr.-to-Yr.Percent/Margin For year ended December 31:2022*2021 Change Revenue$60,530$57,350 5.5%*Gross profit margin 54.0%54.9%(0.9)pts.Total expense and other(income)$31,531$26,649 18.3%Income from continuing operations before i

94、ncome taxes$1,156$4,837 (76.1)%Provision for/(benefit from)income taxes from continuing operations$(626)$124 NM Income from continuing operations$1,783$4,712 (62.2)%Income from continuing operations margin 2.9%8.2%(5.3)pts.Income/(loss)from discontinued operations,net of tax$(143)$1,030 NM Net incom

95、e$1,639$5,743 (71.5)%Earnings per share from continuing operationsassuming dilution$1.95$5.21 (62.6)%Consolidated earnings per shareassuming dilution$1.80$6.35 (71.7)%Weighted-average shares outstandingassuming dilution 912.3 904.6 0.8%Assets$127,243$132,001 (3.6)%Liabilities$105,222$113,005 (6.9)%E

96、quity$22,021$18,996 15.9%*Includes a one-time,non-cash,pre-tax pension settlement charge of$5.9 billion($4.4 billion net of tax)resulting in an impact of($4.84)to diluted earnings per share from continuing operations and an impact of($4.83)to consolidated diluted earnings per share.See note V,“Retir

97、ement-Related Benefits,”for additional information.*11.6 percent adjusted for currency.At December 31.NMNot meaningful The following table provides the companys operating(non-GAAP)earnings for 2022 and 2021.See page 29 for additional information.($in millions except per share amounts)Yr.-to-Yr.For y

98、ear ended December 31:2022 2021 Percent Change Net income as reported$1,639 *$5,743 (71.5)%Income/(loss)from discontinued operations,net of tax (143)1,030 NM Income from continuing operations$1,783 *$4,712 (62.2)%Non-operating adjustments(net of tax)Acquisition-related charges 1,329 1,424 (6.7)Non-o

99、perating retirement-related costs/(income)4,933 *1,031 NM U.S.tax reform impacts (70)89 NM Kyndryl-related impacts 351 (81)NM Operating(non-GAAP)earnings$8,326$7,174 16.0%Diluted operating(non-GAAP)earnings per share$9.13$7.93 15.1%*Includes a one-time,non-cash pension settlement charge of$4.4 billi

100、on net of tax.NMNot meaningful Macroeconomic Environment Our business profile positions us well in challenging times.Our diversification across geographies,industries,clients and business mix provides some stability in revenue,profit and cash generation.Throughout 2022,we experienced escalating labo

101、r and component costs and a strong U.S.dollar.While those dynamics have put pressure on our margin profile,we are seeing progress in the actions we have taken to mitigate the impacts of these higher costs.Consulting,which makes up well over half of IBMs workforce,is most impacted by the labor cost i

102、nflation.We have begun to see improved utilization and priced margin improvements year over year,and our acquisitions have become more accretive,all of which will benefit our margin profile going forward.Our Consulting pre-tax margin of 8.8 percent increased 0.7 points in 2022 versus the prior year

103、and improved 3.2 points in the second half of 2022 compared to the first half reflecting the benefit of these actions.Additionally,across all of our product-based businesses,we have executed price increases above our historical level of increases to be more reflective of the labor and component cost

104、s we are incurring due to the inflationary environment.This includes price increases in our maintenance and support agreements for our hardware and software portfolios.Additionally,despite the many global supply chain disruptions throughout 2022,our supply chain has demonstrated resiliency and the a

105、bility to proactively respond to potential disruptions in order to meet our clients needs.The strengthening of the U.S.dollar impacted our reported revenue and gross profit dollars in 2022.We execute hedging programs which defer but do not eliminate the impact of currency.The gains from these hedgin

106、g programs are reflected primarily in other income and expense.With the rate and magnitude of Management Discussion International Business Machines Corporation and Subsidiary Companies 9 movements,and because we do not hedge all currencies,this did have a currency impact to our overall profit and ca

107、sh flows in 2022.See“Currency Rate Fluctuations,”for additional information.The geopolitical situation in Eastern Europe intensified in February 2022,with Russias invasion of Ukraine.The safety and security of our employees and their families in the impacted regions has been our primary focus.The sa

108、nctions placed on numerous Russian entities,specific Russian-controlled entities,as well as Belarus and other measures that have been and continue to be imposed as a result of the war have increased the level of economic and political uncertainty.In the second quarter of 2022,we made the decision to

109、 carry out an orderly wind-down of our Russian operations.As such,we assessed certain accounting-related matters that generally require consideration of current information reasonably available to us and forecasted financial data in the context of unknown future impacts to IBM that resulted in certa

110、in immaterial asset and restructuring charges in 2022.These charges,together with the year-to-year lost business due to the wind-down,impacted our pre-tax income by approximately$230 million for the year ended December 31,2022.The long-term impacts of the Russian war in Ukraine remain uncertain;howe

111、ver,we do not expect a significant impact on the companys future results of operations or financial position.Historically,Russia,Ukraine and Belarus made up less than one percent of the companys full-year revenue.While the revenue impact is not material to total consolidated IBM revenue,the business

112、 in Russia has historically been high margin and therefore,is a more significant headwind to our profit and cash flows.Financial Performance Summary In 2022,we reported$60.5 billion in revenue,income from continuing operations of$1.8 billion,including a one-time,non-cash,pre-tax pension settlement c

113、harge of$5.9 billion($4.4 billion net of tax),and operating(non-GAAP)earnings of$8.3 billion,which excludes the impact of the settlement charge.The pension settlement charge was the result of the transfer to Insurers of a portion of our U.S.benefit pension obligations,an action we took to further re

114、duce the risk profile of our retirement-related plans.Diluted earnings per share from continuing operations was$1.95 as reported,including an impact of$4.84 from the pension settlement charge,and diluted earnings per share was$9.13 on an operating(non-GAAP)basis.On a consolidated basis,we generated$

115、10.4 billion in cash from operations and$9.3 billion in free cash flow and returned$5.9 billion to shareholders in dividends.We are pleased with the fundamentals of our business and the progress we have made in executing our strategy.Our 2022 performance demonstrates that we are now a higher-growth,

116、higher-value company with the ability to generate strong cash from operations and a growing free cash flow.Total revenue grew 5.5 percent as reported and 12 percent adjusted for currency compared to the prior year,including approximately 4 points from incremental sales to Kyndryl.Over 70 percent of

117、current-year revenue was in our growth areas of Software and Consulting and approximately half of our revenue is recurring.Software revenue increased 6.9 percent as reported and 12 percent adjusted for currency,including approximately 6 points of growth from incremental sales to Kyndryl.There was co

118、ntinued momentum in our recurring revenue stream in both Hybrid Platform&Solutions and Transaction Processing.Hybrid Platform&Solutions grew 4.9 percent as reported and 9 percent adjusted for currency,led by strong double-digit revenue growth in Red Hat.Transaction Processing increased 12.2 percent

119、as reported and 19 percent adjusted for currency,including approximately 19 points of growth from incremental sales to Kyndryl.Consulting revenue increased 7.1 percent as reported and 15 percent adjusted for currency as we help clients with their digital transformations.Infrastructure revenue increa

120、sed 7.8 percent year to year as reported and 14 percent adjusted for currency,reflecting strong double-digit growth in Hybrid Infrastructure driven by our z16 program,which launched in the second quarter of 2022.The Infrastructure revenue performance also includes approximately 6 points of growth fr

121、om incremental sales to Kyndryl.Across the segments,total hybrid cloud revenue of$22.4 billion in 2022 grew 11 percent as reported and 17 percent adjusted for currency,and represents 37 percent of IBMs revenue.From a geographic perspective,Americas revenue grew 9.7 percent year to year as reported(1

122、0 percent adjusted for currency).Europe/Middle East/Africa(EMEA)increased 2.9 percent(14 percent adjusted for currency).Asia Pacific declined 0.7 percent as reported,but grew 11 percent adjusted for currency.The gross margin of 54.0 percent decreased 0.9 points year to year,however,gross profit doll

123、ars increased 3.8 percent compared to the prior year.Overall,gross margin was impacted by the investments we are making to drive our hybrid cloud and artificial intelligence(AI)strategy,higher labor and component costs and the impacts of currency,while the mitigating hedging benefits and operational

124、 productivity and efficiency we have realized are primarily reflected in expense.The operating(non-GAAP)gross margin of 55.1 percent decreased 1.0 points versus the prior year.Total expense and other(income)increased 18.3 percent in 2022 versus the prior year primarily driven by the pension settleme

125、nt charge of$5.9 billion,higher spending reflecting continued investment in our offerings,technical talent and ecosystem,and year-to-year impacts related to Kyndryl retained shares,partially offset by the effects of currency and benefits from the actions taken to streamline our operations and go-to-

126、market model.Total operating(non-GAAP)expense and other(income)decreased 3.2 percent year to year,driven primarily by the effects of currency and benefits from the actions taken to streamline our operations and go-to-market model,partially offset by higher spending to drive our hybrid cloud and AI s

127、trategy.10 Management Discussion International Business Machines Corporation and Subsidiary Companies Pre-tax income from continuing operations of$1.2 billion decreased 76.1 percent and the pre-tax margin was 1.9 percent,a decrease of 6.5 points versus 2021.These declines were primarily driven by th

128、e$5.9 billion pension settlement charge.The continuing operations effective tax rate for 2022 was(54.2)percent compared to 2.6 percent in 2021.The current-year effective tax rate was primarily driven by the pension settlement charge.The prior-year effective tax rate was primarily driven by tax benef

129、its related to audit settlements in multiple jurisdictions.Net income from continuing operations of$1.8 billion decreased 62.2 percent and the net income from continuing operations margin was 2.9 percent,down 5.3 points year to year.Operating(non-GAAP)pre-tax income from continuing operations of$9.8

130、 billion increased 24.6 percent year to year and the operating(non-GAAP)pre-tax margin from continuing operations increased 2.5 points to 16.2 percent.These profit dynamics reflect our portfolio shift toward higher value,driven by Software and Consulting.Our pre-tax profit includes the contribution

131、from incremental sales to Kyndryl and the negative impacts of currency primarily due to the strengthening of the U.S.dollar.The operating(non-GAAP)effective tax rate for 2022 was 15.2 percent compared to 9.0 percent in 2021.The lower prior-year operating(non-GAAP)effective tax rate was primarily dri

132、ven by tax benefits related to audit settlements in multiple jurisdictions.Operating(non-GAAP)income from continuing operations of$8.3 billion increased 16.0 percent and the operating(non-GAAP)income margin from continuing operations of 13.8 percent was up 1.2 points year to year.Diluted earnings pe

133、r share from continuing operations of$1.95 in 2022 decreased 62.6 percent,which included an impact of$4.84 from the pension settlement charge.Operating(non-GAAP)diluted earnings per share of$9.13 increased 15.1 percent versus 2021.At December 31,2022,the balance sheet remained strong with the flexib

134、ility to support and invest in the business.Cash and cash equivalents,restricted cash and marketable securities at year end were$8.8 billion,an increase of$1.3 billion from December 31,2021.During 2022,we continued to invest in acquisitions and provide a solid and modestly growing dividend to shareh

135、olders.Total debt of$50.9 billion at December 31,2022 decreased$0.8 billion driven by currency impacts,partially offset by net debt issuances.Total assets decreased$4.8 billion($1.3 billion adjusted for currency)from December 31,2021 primarily driven by decreases in prepaid pension assets,intangible

136、 assets,deferred taxes,and prepaid expenses and other;partially offset by an increase in cash and restricted cash.Total liabilities decreased$7.8 billion($4.3 billion adjusted for currency)from December 31,2021 primarily driven by a decrease in retirement and postretirement benefit obligations.Total

137、 equity of$22.0 billion increased$3.0 billion from December 31,2021 as a result of a decrease in accumulated other comprehensive losses,2022 net income and common stock issuances,partially offset by dividends paid.Our cash flows from operating,investing and financing activities,as reflected in the C

138、onsolidated Statement of Cash Flows,include the cash flows of discontinued operations.On a consolidated basis,cash provided by operating activities was$10.4 billion in 2022,a decrease of$2.4 billion compared to 2021,driven by financing receivables.Net cash used in investing activities of$4.2 billion

139、 decreased$1.8 billion compared to the prior year and net cash used in financing activities of$5.0 billion decreased$8.4 billion compared to 2021.Management Discussion International Business Machines Corporation and Subsidiary Companies 11 DESCRIPTION OF BUSINESS Please refer to IBMs Annual Report o

140、n Form 10-K filed with the SEC on February 28,2023,for Item 1A.entitled“Risk Factors.”IBM is addressing the hybrid cloud and AI opportunity with a platform-centric approach,focused on providing client value through a combination of technology and business expertise.We provide integrated solutions an

141、d products that leverage:data,information technology,deep expertise in industries and business processes,with trust and security and a broad ecosystem of partners and alliances.Our hybrid cloud platform and AI technology and services capabilities support clients digital transformations and help them

142、 engage with their customers and employees in new ways.These solutions draw from an industry-leading portfolio of capabilities in software,consulting services and a deep incumbency in mission-critical systems,all bolstered by one of the worlds leading research organizations.IBM Strategy IBM continue

143、s to execute its Hybrid Cloud and AI strategy,the two most transformative technologies for business today.Over the last couple of years,we have driven deep change within the company to deliver this platform-centric strategy.We have continually delivered innovation in our software and infrastructure

144、offerings and scaled and enhanced the capabilities of our consulting practices.We have expanded our partner ecosystem,simplified our go-to-market model,and pursued strategic acquisitions and divestitures.Our strategy aligns with the needs of our clients Our clients are accelerating their digital tra

145、nsformations as they face economic uncertainties,skill shortages,supply chain instability,security breaches and heightened sustainability goals.These market realities confirm the following convictions that have shaped our strategy:Technology is crucial to address business challenges:Our clients see

146、digital capabilities fostering efficiency,revenue growth and scale in their organizations.High tech adopters gain a revenue growth premium over their peers of 7 percentage points,according to an IBM Institute for Business Value survey.International Data Corporation(IDC)forecasts that spending on dig

147、ital transformation technologies will grow at nearly 17 percent in 2023 versus 2 percent global GDP growth;AI accelerates enterprise productivity:Businesses urgently want to optimize end-to-end processes.Most now recognize AI will be a critical technology to rapidly adopt to realize that goal.Accord

148、ing to IDC,today 45 percent of organizations have not yet expanded AI beyond a few isolated projects,while by 2026,75 percent of large organizations will rely on AI driven processes for digital-first operations;Digital transformation necessitates heterogeneous environments:Enterprises need digital w

149、orkloads to be deployed across all their multiple clouds,data centers and distributed locations where their business runs.Seventy-two percent of the decision makers interviewed in a Harris Poll survey have their company workloads running across private infrastructure and public cloud;Open-source cat

150、alyzes innovative outcomes:Operating on a common open-source platform reduces the cost of managing that heterogeneity.It also enables enterprises to holistically accelerate developers productivity and innovation time-to-market.Sixty-eight percent of the decision makers interviewed in a Harris Poll s

151、urvey indicated they are using containers most or all of the time;With Red Hat OpenShift,IBM delivers the new essential platform:Over decades,IBM has delivered industry-shaping and enduring IT platforms,such as mainframe and middleware.Building on this heritage,Red Hat OpenShift is the leading open-

152、source hybrid cloud platform to help enterprises realize their digital transformation goals.IBMs differentiated value proposition Our differentiated value proposition encompasses our integrated competencies across software,consulting and infrastructure,leveraging our open hybrid cloud platform.We dr

153、aw upon five core capabilities to address our clients hybrid cloud and AI needs:(1)build and modernize for the hybrid cloud environments that operate with speed,consistency and agility,(2)create AI-infused,data-driven business insights regardless of where data lives,while maintaining enterprise grad

154、e data governance,privacy and trust,(3)automate the end-to-end enterprise processes for efficacy with AI-driven decision-making,(4)secure everywhere,with consistent governance and compliance across environments,and(5)bring it together by transforming our clients businesses and processes into sustain

155、able best-in-class industry practices.12 Management Discussion International Business Machines Corporation and Subsidiary Companies Our full technology stack helps us meet clients where they are in their digital transformations,and we offer the consulting expertise to help guide and implement the be

156、st solutions for that journey.Our rapidly growing ecosystem of cloud,independent software vendors(ISVs),hardware,network and services partners enhance the client experience and drive the value and innovation derived from IBM technologies.Our focus on hybrid cloud accelerates our open and collaborati

157、ve approach to partnership.Our hybrid cloud platform strategy drives sustained growth and financial performance:on average,every$1 of platform spend results in$3 to$5 of software revenue,$6 to$8 of services and$1 to$2 of enterprise infrastructure.The hybrid cloud opportunity represents over a$1 tril

158、lion market across software,consulting and infrastructure.IBMs integrated value is amplified by ensuring our existing businesses all advance the hybrid cloud value proposition to our clients.We strategically embed the Red Hat platform with our offerings:(1)IBM Softwares growing portfolio runs on Red

159、 Hat OpenShift Container Platform(OCP),(2)IBM Infrastructure solutions are optimized hybrid cloud deployments for mission-critical workloads,and(3)IBM Consulting is the leading market system integrator with hybrid cloud and Red Hat expertise to help clients transform their business and technology.IB

160、M Software extends the value of our hybrid cloud platform with four critical capabilities:(1)“Modernize”for agility and speed from legacy to hybrid cloud architecture,(2)“Data-driven”,predicting outcomes from distributed data and applying AI to empower predictive decision-making,real-time digital in

161、telligence and sustainable operations,(3)“Automate”at scale to make experiences and tasks more productive and impactful,and(4)“Secure”all touchpoints,all the time,employing real-time threat insights,automated detection and orchestrated response.Red Hat,reported in our Software segment,delivers the l

162、eading open-source hybrid cloud platform and enables clients to build,secure,operate and manage any application,anywhere,from on-premises environments to multiple clouds and the edge.One hundred percent of commercial banks,telecommunication,media and technology companies in the Fortune Global 500 re

163、ly on Red Hat.Red Hat collaborates with a broad ecosystem of partners and communities comprised of millions of developers.These capabilities allow our clients to“write once,deploy anywhere”for cloud native application development and modernization.We embed the Red Hat platform with our offerings,to

164、advance the hybrid cloud value proposition to our clients.IBM Consulting delivers business transformation for our clients through hybrid cloud and AI technologies.Our 160,000+professionals together with our open ecosystem of partners help clients advance digital transformation,build open hybrid clou

165、d architectures,orchestrate critical applications across environments,and optimize key workflows and business processes.IBM Consulting drives transformative projects across different industries with its IBM Garage method.IBM Consulting has dedicated talent in practices to support IBM technology and

166、continues to invest in the industrys largest Red Hat practice to make hybrid cloud a foundation for innovation and business growth,enabling clients to get more value from investments.IBM Consulting has deepened its hybrid cloud consulting offerings and scaled cloud capability to 40,000+cloud platfor

167、m certifications,while accelerating the transformation journeys for its clients in 2022.IBM Consulting also captures growth by investing in practices with a wide ecosystem of partners,including AWS,Azure and major ISVs.Management Discussion International Business Machines Corporation and Subsidiary

168、Companies 13 IBM Infrastructure solutions provide unmatched performance,security and resiliency for mission-critical,trusted,or regulated applications running in a hybrid environment.We drive customer adoption and leading DevOps experience for IBM hybrid cloud at scale,deeply integrating with Red Ha

169、t and IBM Software offerings.We delivered major breakthroughs in 2022,with next generation z16,Power10 servers and new storage offerings.Forty-five of the worlds top 50 banks are running on IBM zSystems,which excel at transaction processing with integrated AI and unmatched throughput,availability an

170、d advanced security for the era of quantum computing.Power,Storage,and IBM Cloud help to accelerate enterprise digital transformation with secure,scalable and resilient solutions built for hybrid cloud agility and application modernization.Infrastructure Support provides lifecycle services and suppo

171、rt to optimize and maintain hybrid cloud environments,with visibility and automated diagnosis and remediation.IBM Research continues to help define the evolution of computing.In 2022,our focused research agenda provided a pipeline of innovations,including automated container-driven environments,AI m

172、odels,security management,sustainability and many others.Our published Technology Atlas illustrates strategic goals and detailed plans for the next three years of research.We continued to develop technology to harness the potential of the paradigm-shifting inflection point in AI represented by found

173、ation models.We outlined a pioneering vision for quantum-centric supercomputing and announced new breakthrough advancements in quantum software and hardware,including the 433 qubit Osprey processor.We continue to monetize our unparalleled IP and to leverage our world-class skills in semiconductors t

174、o innovate in hardware and collaborate with industry-leading partners.In addition to our organic investments in R&D,our inorganic investments foster our strategy by adding critical competencies to our software and consulting businesses.Our acquisitions of Databand.ai,Randori and Envizi expanded our

175、growing portfolio of AI-driven software,bringing capabilities to help our clients gain better observability into their data,protect against cybersecurity breaches across their various exposure points and manage their environmental performance.We expanded our consulting expertise in data,AI,digital,a

176、nd cloud through the acquisitions of Sentaca,Neudesic,Dialexa and Octo.These investments also facilitate growth by deepening our industry expertise and consulting capabilities with government and telco clients.In 2022,IBM successfully completed eight acquisitions in total.Expanding client engagement

177、s and our ecosystem During 2022,we helped clients harness the power of hybrid cloud and AI technologies to address current challenges and opportunities.We invested in experiential selling,client engineering,customer success management,expert lab services and deep technical expertise to show clients

178、the value of technology as a fundamental source of competitive advantage.We engaged clients in digital transformations using automation and security and other solutions to increase growth,productivity,resilience and responsiveness.We introduced a product-led growth initiative under our new global“Le

179、ts create”campaign,illustrating how technology can be brought to life to solve the biggest challenges in business.When IBM and our partners work together to solve clients most complex business challenges,everyone wins.We opened access to software technology on the AWS marketplace to provide flexibil

180、ity through an open ecosystem.IBM customers can purchase 30 IBM products through the Azure Marketplace and deploy these IBM technologies on Azure.We gave partners access to the same training,and deep technical and product expertise as IBMers to foster a consistent client experience.We deepened our p

181、artnership with cloud hyperscalers,large independent software vendors and global system integrators,making it easier for partners and clients to embrace hybrid cloud.Our commitment to the IBM ecosystem gives partners and clients the flexibility and market access they need to run workloads seamlessly

182、 in any environment.In 2022,IBMs execution and innovation of our hybrid cloud and AI strategy improved the trajectory of our business.We see the core convictions that have shaped our strategy continue to resonate in the market.As we enter 2023,we will continue to advance our R&D innovation,inorganic

183、 investment and fast-growing ecosystem,positioning IBM as a leader in a world where hybrid cloud and AI are central to enterprise success.14 Management Discussion International Business Machines Corporation and Subsidiary Companies Business Segments and Capabilities IBM operates in more than 175 cou

184、ntries around the world.Our platform-centric hybrid cloud and AI strategy is executed through our operations and consists of four business segments:Software,Consulting,Infrastructure and Financing.Software Software provides software solutions that address client needs for a hybrid cloud platform,dat

185、a and AI,automation,and security on their journey to hybrid cloud.It includes all software,except operating system software reported in the Infrastructure segment.Software comprises two business areas Hybrid Platform&Solutions and Transaction Processing,which have the following capabilities:Hybrid P

186、latform&Solutions:includes software,infused with AI,to help clients operate,manage and optimize their IT resources and business processes within hybrid,multi-cloud environments.It includes the following:Red Hat:provides enterprise open-source solutions,for hybrid,multi-cloud environments,which inclu

187、des Red Hat Enterprise Linux(RHEL),OpenShift,our hybrid cloud platform,as well as Ansible.Automation:optimizes processes from business workflows to IT operations with AI-powered automation.Automation includes software for business automation,IT automation,integration and application runtimes.Data&AI

188、:accelerates data-driven agendas by infusing AI throughout the enterprise,empowering intelligent decision making.The portfolio includes capabilities that simplify data consumption through data fabric with data management,optimize lifecycle management,and make better predictions through business anal

189、ytics.Data&AI capabilities facilitate sustainable,resilient businesses and enable intelligent management of enterprise assets and supply chains with environmental intelligence and the worlds most accurate weather forecast data.Security:creates a risk-aware,secure business by gaining real-time threat

190、 insights,orchestrating actions and automating responses across all touchpoints,in line with a zero-trust security strategy.Security includes software and services for threat management,data security,and identity and access management.Transaction Processing:the software that supports clients mission

191、-critical,on-premise workloads in industries such as banking,airlines and retail.This includes transaction processing software such as Customer Information Control System and storage software,as well as the analytics and integration software running on IBM operating systems such as DB2 and WebSphere

192、 running on z/OS.Consulting Consulting provides deep industry expertise and market-leading capabilities in business transformation and technology implementation.Consulting designs,builds and operates technology and business processes based on open,hybrid cloud architectures with IBM technology and e

193、cosystem partner technologies.Consulting uses its IBM Garage method to convene experts to co-create solutions with clients to accelerate their digital transformations through AI and automation.Consulting comprises three business areas Business Transformation,Technology Consulting and Application Ope

194、rations,which have the following capabilities:Business Transformation:provides strategy,process design,system implementation and operations services to improve and transform key business processes.These services deploy AI and automation in business processes to exploit the value of data and include

195、an ecosystem of partners alongside IBM technology,including strategic partnerships with Adobe,Oracle,Salesforce and SAP,among others.Technology Consulting:helps clients architect and implement solutions across cloud platforms,including Amazon,Microsoft and IBM,and strategies to transform the enterpr

196、ise experience and enable innovation,including application modernization for hybrid cloud with Red Hat OpenShift.Application Operations:focuses on application and cloud platform services required to operationalize and run cloud platforms.It facilitates clients efforts to manage,optimize and orchestr

197、ate application and data workloads across platforms and environments through both custom applications and ISV packages.Infrastructure Infrastructure provides trusted,agile and secure solutions for hybrid cloud and is the foundation of the hybrid cloud stack.Infrastructure is optimized for infusing A

198、I into mission-critical transactions and tightly integrated with IBM Software including Red Hat for accelerated hybrid cloud benefits.Management Discussion International Business Machines Corporation and Subsidiary Companies 15 Infrastructure comprises two business areas Hybrid Infrastructure and In

199、frastructure Support,which have the following capabilities:Hybrid Infrastructure:provides clients with innovative infrastructure platforms to help meet the new requirements of hybrid multi-cloud and enterprise AI workloads leveraging flexible and as-a-service consumption models.Hybrid Infrastructure

200、 includes zSystems and Distributed Infrastructure.zSystems:the premier transaction processing platform with leading security,resilience and scale,highly optimized for mission-critical,high-volume transaction workloads.It includes zSystems and LinuxONE,with a range of high-performance systems designe

201、d to address computing capacity,security and performance needs of businesses.zSystems operating system software environments include z/OS,a security-rich,high-performance enterprise operating system,as well as Linux and other platforms that are enabled with enterprise AI and are hybrid cloud ready.D

202、istributed Infrastructure:the portfolio is uniquely positioned for hybrid cloud,meeting client demands for scalability,security and capacity.Distributed Infrastructure includes Power,Storage and IBM Cloud Infrastructure-as-a-Service(IaaS).Power consists of high-performance servers,designed and engin

203、eered for big data and AI-enabled workloads and are optimized for hybrid cloud and Linux.The Storage portfolio consists of a broad range of storage hardware and software-defined offerings,including Z-attach and distributed flash,tape solutions,software-defined storage controllers,data protection sof

204、tware and network-attach storage.IBM Cloud IaaS is built on enterprise-grade hardware with an open architecture and is specifically designed for regulated industries with leading security and compliance capabilities.IBM Cloud IaaS offers flexible computing options across x86,Power,Storage and zSyste

205、ms as a service to meet client workload needs.Hybrid Infrastructure also includes remanufacturing and remarketing of used equipment with a focus on sustainable recovery services.Infrastructure Support:works across hybrid cloud environments providing a uniquely integrated services experience for clie

206、nts.Infrastructure Support delivers comprehensive,proactive and AI-enabled services to maintain and improve the availability and value of clients IT infrastructure(hardware and software)both on-premises and in the cloud.These offerings include maintenance for IBM products and other technology platfo

207、rms,as well as open-source and cross-vendor software and solution support.Financing Financing facilitates IBM clients acquisition of information technology systems,software and services through its financing solutions.The financing arrangements are predominantly for products or services that are cri

208、tical to the end users business operations and support IBMs hybrid cloud and AI strategy.Financing conducts a comprehensive credit evaluation of its clients prior to extending financing.As a captive financier,Financing has the benefit of both deep knowledge of its client base and a clear insight int

209、o the products and services financed.These factors allow the business to effectively manage two of the primary risks associated with financing,credit and residual value,while generating strong returns on equity.Financing comprises the following two business areas Client Financing and Commercial Fina

210、ncing:Client Financing:lease,installment payment plan and loan financing to end-user clients for terms up to seven years,and internal loan financing in support of IBM IaaS service arrangements.Assets financed are primarily new and used IT hardware,software and services where we have expertise.Commer

211、cial Financing:short-term working capital financing to distributors and resellers primarily of IBM products.The company has an existing agreement with a third-party investor to sell IBM short-term commercial financing receivables on a revolving basis.Human Capital Employees and Related Workforce(In

212、thousands)For the year ended December 31:2022 IBM/wholly owned subsidiaries 288.3 Less-than-wholly owned subsidiaries 8.2 Complementary*14.8 *The complementary workforce is an approximation of equivalent full-time employees hired under temporary,part-time and limited-term employment arrangements to

213、meet specific business needs in a flexible and cost-effective manner.As a globally integrated enterprise,IBM operates in more than 175 countries and is continuing to shift our business to the higher value segments of enterprise IT.Our highly skilled global workforce is reflective of the work we do f

214、or clients in support of their digital transformations and mission-critical operations through our focus on hybrid cloud and AI.Our employees are among the worlds leading experts in hybrid cloud,AI,quantum computing,cybersecurity and industry-specific solutions.We believe our success depends on the

215、caliber of our talent and the engagement and inclusion of IBMers in the workplace.16 Management Discussion International Business Machines Corporation and Subsidiary Companies Talent and Culture We attract,develop,engage and retain talent in a dynamic and competitive environment.IBM provides a compe

216、lling employee value proposition,offering professionals competitive compensation and attractive career opportunities in the development and delivery of innovative technologies for clients whose businesses the world relies on.Our value proposition and talent strategy help to retain talent.During 2022

217、,voluntary attrition decreased consistent with the overall labor market.We are continuously transforming and developing our talent,both through learning and hiring.In 2022,we added skills in consulting and key technical areas and invested in scaling our capacity in strategically important markets.We

218、 are expanding our ability to deliver best-in-class customer experiences by investing in talent to facilitate garages,client engineering centers and customer success management.We continue to invest in upskilling and reskilling our workforce.Our digital learning and career platforms are examples of

219、this commitment to provide employees access to the resources needed to build strategic skills and grow their careers.These digital platforms utilize Watson AI to generate personalized recommendations for employees and include peer-to-peer collaboration and internal social sharing functionality.Helpi

220、ng employees learn and apply new skills is important for retention and critical to our ability to transform and evolve.Employee engagement is an indicator of employee well-being and their dedication to the companys mission,purpose and values.We conduct an annual engagement survey to assess the healt

221、h of the companys culture and employee sentiment.More than 185,000 employees globally participated in the 2022 engagement survey,providing actionable data-driven insights to managers and leaders around factors such as workplace experience,inclusion,pride and propensity to recommend IBM as an employe

222、r.More than eight out of ten employees that participated in the survey responded that they felt engaged at work,a testament to our industry-leading talent practices.Diversity and Inclusion IBM has a long,proud history as a pioneer in diversity and inclusion.We work to ensure employees from diverse b

223、ackgrounds are engaged,can be their authentic selves,build skills and grow their careers.Nearly nine out of ten employees feel empowered to be their authentic selves at work.We believe a diverse and inclusive workplace leads to greater innovation,agility,performance and engagement,enabling both busi

224、ness growth and societal impact.Our focus on creating a diverse and inclusive workplace has led to increased levels of inclusion for women,Black and Hispanic employees.Women make up more than one-third of our workforce.In addition,executive representation of women globally,and Hispanic and Black exe

225、cutives in the U.S.improved by 0.3 points,0.4 points and 0.6 points,respectively,in 2022.Our executive compensation program metrics include a diversity modifier to reinforce our focus and continued accountability for improving the diverse representation of our workforce.Globally,our executives are m

226、easured on the improvement of diversity and inclusion for women.In the U.S.,executives are also measured on improvement of diversity and inclusion for U.S.underrepresented minorities.We believe in pay equity whereby employees should be compensated fairly for their work and performance,regardless of

227、their gender,race or other personal characteristics.We have a long-standing practice of maintaining pay equity,which has been part of our global policy since 1935 and we remain firmly committed to equal pay for equal work.To this end,we conduct statistical pay equity assessments across all countries

228、 with IBM employees.We also empower employees to understand their pay by providing comprehensive compensation education.Employees can also directly access information about their pay,including a comparison against their market pay range,through the HR system or their direct managers.Health,Safety an

229、d Well-Being IBM has a long-standing commitment to the health,safety and well-being of our employees.This commitment is embodied in our health and safety policy which is implemented through our externally certified Health and Safety Management System(HSMS).Objectives of our HSMS include providing a

230、safe and healthy workplace,preventing work-related injuries and illnesses,enhancing worker health and productivity and providing resources to fulfill these commitments.We feel that our employees perform best at work,at home and in the communities where they live and work when their well-being is sup

231、ported.We believe in not taking a one-size-fits-all approach when it comes to health,safety and well-being.We strive to provide programs that are culturally relevant and inclusive to address the needs of a diverse employee population.We have taken our experience from the pandemic and created an envi

232、ronment to support our employees needs on flexibility.Access to well-being services and resources are offered through onsite activities,partnerships with external vendors,amongst other methods of delivery.We offer a wide range of evidence-based health promotion services and programs,covering all asp

233、ects of employee well-being:physical,mental and financial health.In 2022,programs were focused on cardiovascular,musculoskeletal and mental health,addressing some of the medical issues that were exacerbated during the COVID-19 pandemic.All IBMers worldwide have confidential,24/7 access to critical m

234、ental health support through employee assistance programs and supplemental resources.Other programs include additional paid time off for working parents and caregivers experiencing life events,training for employees on resilience,as well as financial counseling offerings.Employees are supported with

235、 around-the-clock access to IBMs world-class Health and Safety team,education,timely updates and forums to ask questions and raise concerns.Management Discussion International Business Machines Corporation and Subsidiary Companies 17 YEAR IN REVIEW Results of Continuing Operations As discussed in th

236、e“Organization of Information”section,with the completion of the separation on November 3,2021,the results of Kyndryl are reported as discontinued operations and as such,have been excluded from continuing operations and segment results for all periods presented.Segment Details In the first quarter o

237、f 2022,we realigned our management structure to reflect the planned divestiture of our healthcare software assets which was completed in the second quarter of 2022.This change impacted our Software segment and Otherdivested businesses category,but did not impact our Consolidated Financial Statements

238、.Prior-year results have been recast to reflect this change.The table below presents each reportable segments revenue and gross margin results,followed by an analysis of the 2022 versus 2021 reportable segment results.($in millions)Yr.-to-Yr.Yr.-to-Yr.Percent/Percent Change Margin Adjusted for For t

239、he year ended December 31:2022 2021 Change Currency Revenue Software$25,037$23,426 *6.9%11.9%Gross margin 79.6%79.6%*0.0 pts.Consulting 19,107 17,844 7.1%14.9%Gross margin 25.5%28.0%(2.5)pts.Infrastructure 15,288 14,188 7.8%13.5%Gross margin 52.8%55.3%(2.6)pts.Financing 645 774 (16.6)%(13.0)%Gross m

240、argin 38.3%31.7%6.6 pts.Other 453 1,119 *(59.6)%(56.2)%Gross margin (95.3)%(22.3)%*(73.0)pts.Total revenue$60,530$57,350 5.5%11.6%Total gross profit$32,687$31,486 3.8%Total gross margin 54.0%54.9%(0.9)pts.Non-operating adjustments Amortization of acquired intangible assets 682 719 (5.1)%Operating(no

241、n-GAAP)gross profit$33,370$32,205 3.6%Operating(non-GAAP)gross margin 55.1%56.2%(1.0)pts.*Recast to reflect segment change.Software($in millions)Yr.-to-Yr.Yr.-to-Yr.Percent Change Percent Adjusted for For the year ended December 31:2022 2021 Change Currency Software revenue$25,037$23,426 *6.9%11.9%H

242、ybrid Platform&Solutions$17,866$17,036 *4.9%9.4%Red Hat 12.6 17.5 Automation 2.1 6.6 Data&AI 1.5 5.5 Security 2.2 7.3 Transaction Processing 7,171 6,390 12.2 18.7 *Recast to reflect segment change.Software revenue of$25,037 million increased 6.9 percent as reported(12 percent adjusted for currency)i

243、n 2022 compared to the prior year,driven by growth in both Hybrid Platform&Solutions and Transaction Processing.This includes incremental sales to Kyndryl which contributed approximately 6 points to Software revenue growth.Software concluded 2022 with seasonally strong transactional performance in t

244、he fourth quarter and a solid and growing recurring revenue base.Within Software,hybrid cloud revenue of$9,321 million grew 11 percent as reported(16 percent adjusted for currency)year to year.Our platform-based approach to hybrid cloud and AI is resonating with clients.We have modernized and optimi

245、zed our software capabilities to run on this platform across Automation,Data&AI and Security for the platform.Hybrid Platform&Solutions revenue of$17,866 million increased 4.9 percent as reported(9 percent adjusted for currency)in 2022 compared to the prior year.Incremental sales to Kyndryl contribu

246、ted approximately 1 point to revenue growth.Within Hybrid Platform&Solutions,we had revenue growth across all of our business areas.Red Hat revenue increased 12.6 percent as reported(17 percent 18 Management Discussion International Business Machines Corporation and Subsidiary Companies adjusted for

247、 currency)led by double-digit growth in OpenShift and Ansible,both of which gained market share in 2022.OpenShift had$1.0 billion in annual recurring revenue exiting 2022.Revenue in RHEL also had strong growth and gained share in 2022 compared to the prior year.Red Hat continues to be a leader in op

248、en-source technology and its hybrid cloud offerings continue to transform enterprise IT.Automation revenue increased 2.1 percent as reported(7 percent adjusted for currency),led by Integration and AIOps and Management as clients look to automate business workflows and improve applications.Data&AI re

249、venue increased 1.5 percent as reported(6 percent adjusted for currency),reflecting demand in areas such as Data Management,Data Fabric,Information Exchange,and Asset and Supply Chain Management.In addition,our offerings such as Envizi and Environmental Intelligence Suite are resonating with clients

250、 as they continue to prioritize sustainability efforts.Security revenue increased 2.2 percent as reported(7 percent adjusted for currency),led by strength across our offerings such as Threat Management,Data Security and Identity.We continue to help clients detect,prevent and respond to security inci

251、dents as they adopt zero-trust security strategies.Across Hybrid Platform&Solutions,our annual recurring revenue(ARR)was$13.3 billion exiting 2022.ARR is a key performance metric management uses to assess the health and growth trajectory of our Hybrid Platform&Solutions business within the Software

252、segment.ARR is calculated by estimating the current quarters recurring,committed value for certain types of active contracts as of the period-end date and then multiplying that value by four.This value is based on each arrangements contract value and start date,mitigating fluctuations during the con

253、tract term,and includes the following consumption models:(1)software subscription agreements,including committed term licenses,(2)as-a-service arrangements such as SaaS and PaaS,(3)maintenance and support contracts,and(4)security managed services contracts.ARR should be viewed independently of reven

254、ue as this performance metric and its inputs may not represent the amount of revenue recognized in the period and therefore is not intended to represent current period revenue or revenue that will be recognized in future periods.ARR is calculated at estimated constant currency.Transaction Processing

255、 revenue of$7,171 million increased 12.2 percent as reported(19 percent adjusted for currency)in 2022 compared to the prior year.This includes incremental sales to Kyndryl which contributed approximately 19 points of revenue growth in 2022.Client demand for this mission-critical software has followe

256、d increases in zSystems installed capacity over the last two product cycles and consistently strong renewal rates during 2022 are evidence of the importance of this software in a hybrid cloud environment.($in millions)Yr.-to-Yr.Percent/Margin For the year ended December 31:2022 2021*Change Software

257、Gross profit$19,941$18,648 6.9%Gross profit margin 79.6%79.6%0.0 pts.Pre-tax income$6,162$4,849 27.1%Pre-tax margin 24.6%20.7%3.9 pts.*Recast to reflect segment change.The Software gross profit margin of 79.6 percent in 2022 was flat compared to the prior year.Pre-tax income of$6,162 million increas

258、ed 27.1 percent compared to the prior year with a pre-tax margin expansion of 3.9 points to 24.6 percent.The improvements year to year in pre-tax income and pre-tax margin were driven primarily by the higher gross profit contribution from our strong revenue growth including the Kyndryl commercial re

259、lationship,which reflects the demand for our products,as well as portfolio mix.Consulting($in millions)Yr.-to-Yr.Yr.-to-Yr.Percent Change Percent Adjusted for For the year ended December 31:2022 2021 Change Currency Consulting revenue$19,107$17,844 7.1%14.9%Business Transformation$8,834$8,284 6.6%14

260、.0%Technology Consulting 3,765 3,466 8.6 16.8 Application Operations 6,508 6,095 6.8 15.0 Consulting revenue of$19,107 million increased 7.1 percent as reported(15 percent adjusted for currency)in 2022 compared to the prior year,with strong growth across all three business areas.Clients are leveragi

261、ng IBMs hybrid cloud leadership and deep industry expertise to navigate the complexity of their digital transformation journeys.Strong demand for our Consulting offerings led to signings growth of 6.9 percent as reported(14 percent adjusted for currency)in 2022.We had our best quarterly book-to-bill

262、 for 2022 in the fourth quarter and had a book-to-bill ratio of 1.1 for the year.Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period and is a useful indicator of the demand for our business over time.Clients are partnering with IBM Consulting as they deci

263、de which applications to modernize and how to migrate these applications across hybrid,multi-cloud environments.Within Consulting,hybrid cloud revenue of$9,019 million grew 15 percent as reported(23 percent adjusted for currency)year to year with both our Red Hat practice and strategic partnerships

264、contributing to the growth.Management Discussion International Business Machines Corporation and Subsidiary Companies 19 Business Transformation revenue of$8,834 million increased 6.6 percent as reported(14 percent adjusted for currency)compared to the prior year.We had strong demand for our Busines

265、s Transformation solutions,with growth across our service line offerings such as data and client experience transformations,supply chain and finance optimizations.Our partnerships with key ISVs including SAP,Salesforce and Adobe enabled us to help clients transform their critical workloads at scale

266、and improve the way they engage with their customers.Technology Consulting revenue of$3,765 million increased 8.6 percent as reported(17 percent adjusted for currency),led by our cloud development and cloud modernization practices which architect and implement clients cloud platforms and strategies.

267、Our Red Hat engagements as well as strategic hyperscaler partnerships also contributed to the year-to-year revenue growth.Application Operations revenue of$6,508 million increased 6.8 percent as reported(15 percent adjusted for currency).We help clients optimize their operations and reduce costs by

268、taking over the management of applications in hybrid and multi-cloud environments.Our incumbency and understanding of clients applications are key differentiators which helped to contribute to this growth.($in millions)Yr.-to-Yr.Percent/Margin For the year ended December 31:2022 2021 Change Consulti

269、ng Gross profit$4,864$4,994 (2.6)%Gross profit margin 25.5%28.0%(2.5)pts.Pre-tax income$1,677$1,449 15.7%Pre-tax margin 8.8%8.1%0.7 pts.The Consulting gross profit margin decreased 2.5 points to 25.5 percent compared to the prior year.Pre-tax income of$1,677 million increased 15.7 percent compared t

270、o the prior year and the pre-tax margin increased 0.7 points to 8.8 percent.The decline in gross profit margin reflects labor cost inflation which put pressure on the margin profile in 2022,however,the gross profit margin improved 2.4 points in the second half of 2022 compared to the first half refl

271、ecting the benefit from pricing actions and productivity.The year-to-year improvement in pre-tax income and pre-tax margin reflects the benefits of productivity within our workforce,a more streamlined operating and go-to-market structure as well as our acquisitions which have become more accretive.C

272、onsulting Signings ($in millions)Yr.-to-Yr.Yr.-to-Yr.Percent Change Percent Adjusted for For the year ended December 31:2022 2021 Change Currency Total Consulting signings$20,485$19,163 6.9%14.3%Signings are managements initial estimate of the value of a clients commitment under a services contract

273、within IBM Consulting.There are no third-party standards or requirements governing the calculation of signings.The calculation used by management involves estimates and judgments to gauge the extent of a clients commitment,including the type and duration of the agreement and the presence of terminat

274、ion charges or wind-down costs.Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value.Total signings can vary over time due to a variety of factors including,but not limited to,the timing of signing a small number of larger contracts.Signin

275、gs associated with an acquisition will be recognized on a prospective basis.Management believes the estimated values of signings disclosed provide an indication of our forward-looking revenue.Signings are used to monitor the performance of the business and viewed as useful information for management

276、 and shareholders.The conversion of signings into revenue may vary based on the types of services and solutions,contract duration,customer decisions,and other factors,which may include,but are not limited to,the macroeconomic environment.20 Management Discussion International Business Machines Corpo

277、ration and Subsidiary Companies Infrastructure($in millions)Yr.-to-Yr.Yr.-to-Yr.Percent Change Percent Adjusted for For the year ended December 31:2022 2021 Change Currency Infrastructure revenue$15,288$14,188 7.8%13.5%Hybrid Infrastructure$9,451$8,167 15.7%21.0%zSystems 30.6 36.0 Distributed Infras

278、tructure 6.6 11.9 Infrastructure Support 5,837 6,021 (3.1)3.3 Infrastructure revenue of$15,288 million increased 7.8 percent as reported(14 percent adjusted for currency)year to year driven by strong double-digit growth in Hybrid Infrastructure.Incremental sales to Kyndryl contributed approximately

279、6 points to the Infrastructure revenue growth.Within Infrastructure,hybrid cloud revenue of$3,895 million increased 7 percent as reported(11 percent adjusted for currency)year to year,driven by the product cycle dynamics of z16 and Storage in the current year.Hybrid Infrastructure revenue of$9,451 m

280、illion increased 15.7 percent as reported(21 percent adjusted for currency).Incremental sales to Kyndryl contributed approximately 6 points to the revenue growth.Within Hybrid Infrastructure,zSystems revenue grew 30.6 percent as reported(36 percent adjusted for currency)on a year-to-year basis,refle

281、cting strong execution around our new z16 program.The z16 capabilities include cyber-resilient security,embedded AI at scale and cloud-native development for hybrid cloud.Clients are leveraging cyber-resiliency to comply with business regulations and proactively avoid outages in their operations.The

282、 new on-chip AI accelerator has been helping mitigate and detect fraud in credit card application processing.The z16 is also the industrys first quantum-safe system,delivering 25 billion encrypted transactions per day for clients.In the third quarter of 2022,we also introduced our newest LinuxONE se

283、rver,a highly scalable Linux and Kubernetes-based platform with capabilities to reduce clients energy consumption.IBM zSystems remains an enduring platform,now playing an important role in a hybrid cloud environment.Distributed Infrastructure revenue increased 6.6 percent as reported(12 percent adju

284、sted for currency).This performance was led by strength in Power Systems with the extension of our Power10 innovation throughout the Power Systems product lines.The Power10 server platform is designed to deliver flexible and secure infrastructure for hybrid cloud environments.In addition,recent inno

285、vation within our Storage product lines included a refresh to our flash storage solutions which contributed to Storage performance in 2022.Infrastructure Support revenue of$5,837 million decreased 3.1 percent as reported,but grew 3 percent adjusted for currency year to year.This includes incremental

286、 sales to Kyndryl which contributed approximately 6 points of revenue growth in 2022.Infrastructure Support performance in 2022 was impacted by client adoption of new hardware with the launch of the z16 program.In the first year of a new hardware cycle,product is under standard warranty which result

287、s in a cyclical decline in maintenance revenue.($in millions)Yr.-to-Yr.Percent/Margin For the year ended December 31:2022 2021 Change Infrastructure Gross profit$8,066$7,848 2.8%Gross profit margin 52.8%55.3%(2.6)pts.Pre-tax income$2,262$2,025 11.7%Pre-tax margin 14.8%14.3%0.5 pts.The Infrastructure

288、 gross profit margin decreased 2.6 points to 52.8 percent in 2022 compared to the prior year driven by Infrastructure Support.The gross profit margin decline in Infrastructure Support was primarily driven by portfolio mix.Hybrid Infrastructure profit margin reflected declines in zSystems and Distrib

289、uted Infrastructure profit margins in line with product cycle dynamics,offset by product mix primarily toward zSystems.Pre-tax income of$2,262 million increased 11.7 percent,primarily driven by the revenue growth from the z16 product cycle and an increase in IP income year to year from a joint devel

290、opment and licensing agreement signed in the fourth quarter of 2022.The pre-tax margin increased 0.5 points year to year to 14.8 percent,primarily driven by portfolio mix.Financing See pages 40 through 42 for a discussion of Financings segment results.Management Discussion International Business Mac

291、hines Corporation and Subsidiary Companies 21 Geographic Revenue In addition to the revenue presentation by reportable segment,we also measure revenue performance on a geographic basis.($in millions)Yr.-to-Yr.Yr.-to-Yr.Percent Change Percent Adjusted for For the year ended December 31:2022 2021 Chan

292、ge Currency Total revenue$60,530$57,350 5.5%11.6%Americas$31,057$28,299 9.7%10.2%Europe/Middle East/Africa 17,950 17,447 2.9 13.9 Asia Pacific 11,522 11,604 (0.7)11.4 Total revenue of$60,530 million in 2022 increased 5.5 percent year to year as reported and 12 percent adjusted for currency,which inc

293、ludes approximately 4 points of revenue growth from incremental sales to Kyndryl.Americas revenue increased 9.7 percent as reported and 10 percent adjusted for currency,which includes approximately 3 points of revenue growth from incremental sales to Kyndryl.Within North America,the U.S.increased 9.

294、2 percent and Canada increased 3.3 percent as reported and 7 percent adjusted for currency.Latin America increased 18.4 percent as reported and 19 percent adjusted for currency.Within Latin America,Brazil revenue increased 17.6 percent as reported and 14 percent adjusted for currency.EMEA revenue in

295、creased 2.9 percent as reported and 14 percent adjusted for currency,which includes approximately 5 points of revenue growth from incremental sales to Kyndryl.France,the UK and Italy increased 9.6 percent,5.3 percent and 3.2 percent,respectively,as reported,and increased 22 percent,17 percent and 15

296、 percent,respectively,adjusted for currency.Germany decreased 4.7 percent as reported,but grew 6 percent adjusted for currency.The orderly wind-down of our Russian operations in the second quarter of 2022 negatively impacted the revenue growth rate in EMEA by 1.7 points as reported and 2 points adju

297、sted for currency.Asia Pacific revenue decreased 0.7 percent as reported,but grew 11 percent adjusted for currency,which includes approximately 5 points of revenue growth from incremental sales to Kyndryl.Japan revenue decreased 3.5 percent as reported,but grew 15 percent adjusted for currency.India

298、 increased 20.3 percent as reported and 28 percent adjusted for currency.Australia increased 7.3 percent as reported and 16 percent adjusted for currency.China decreased 22.7 percent as reported and 20 percent adjusted for currency,driven primarily by large transactions in the financial sector in th

299、e prior year related to our zSystems products.Total Expense and Other(Income)($in millions)Yr.-to-Yr.Percent/Margin For the year ended December 31:2022 2021 Change Total expense and other(income)$31,531 *$26,649 18.3%Non-operating adjustments Amortization of acquired intangible assets (1,065)(1,119)

300、(4.8)Acquisition-related charges (18)(43)(58.6)Non-operating retirement-related(costs)/income (6,548)*(1,282)NM Kyndryl-related impacts (351)118 NM Operating(non-GAAP)expense and other(income)$23,549$24,324 (3.2)%Total expense-to-revenue ratio 52.1%46.5%5.6 pts.Operating(non-GAAP)expense-to-revenue

301、ratio 38.9%42.4%(3.5)pts.*Includes a one-time,non-cash pension settlement charge of$5.9 billion.See note V,“Retirement-Related Benefits,”for additional information.NMNot meaningful Our expense dynamics in 2022 reflect our continued investment in innovation,skills and our ecosystem,both organically a

302、nd through acquisitions,as we accelerate and execute our hybrid cloud and AI strategy.Our work to digitally transform our operations provides flexibility to continue to invest in innovation and in talent.Total expense and other(income)increased 18.3 percent in 2022 versus the prior year primarily dr

303、iven by the one-time,non-cash pension settlement charge of$5.9 billion,higher spending reflecting our continuing focus on our portfolio and investment in our offerings,technical talent and ecosystem,and year-to-year impacts related to Kyndryl retained shares,partially offset by the effects of curren

304、cy and benefits from the actions taken to streamline operations and our go-to-market model.22 Management Discussion International Business Machines Corporation and Subsidiary Companies Total operating(non-GAAP)expense and other(income)decreased 3.2 percent year to year,driven primarily by the effect

305、s of currency and benefits from the actions taken to streamline operations and our go-to-market model,partially offset by higher spending reflecting our continuing focus on our portfolio and investment in our offerings,technical talent and ecosystem.For additional information regarding total expense

306、 and other(income)for both expense presentations,see the following analyses by category.Selling,General and Administrative Expense($in millions)Yr.-to-Yr.Percent For the year ended December 31:2022 2021 Change Selling,general and administrative expense Selling,general and administrativeother$15,537$

307、15,550 (0.1)%Advertising and promotional expense 1,330 1,413 (5.9)Workforce rebalancing charges 50 181 (72.4)Amortization of acquired intangible assets 1,062 1,116 (4.8)Stock-based compensation 566 555 1.9 Provision for/(benefit from)expected credit loss expense 64 (71)NM Total selling,general and a

308、dministrative expense$18,609$18,745 (0.7)%Non-operating adjustments Amortization of acquired intangible assets (1,062)(1,116)(4.8)Acquisition-related charges (17)(43)(60.4)Kyndryl-related impacts 0 (8)(95.5)Operating(non-GAAP)selling,general and administrative expense$17,529$17,577 (0.3)%NMNot meani

309、ngful Total selling,general and administrative(SG&A)expense decreased 0.7 percent in 2022 versus 2021,driven primarily by the following factors:The effects of currency(4 points);and Lower workforce rebalancing charges(1 point);partially offset by Higher spending(3 points)reflecting our continuing in

310、vestment to drive our hybrid cloud and AI strategy,expenses of acquired businesses and higher travel and commission expense,partially offset by benefits from the actions taken to transform our operations and lower spending for shared services transferred to Kyndryl;and A provision for expected credi

311、t loss expense in the current year compared to a benefit in the prior year(1 point).Operating(non-GAAP)SG&A expense decreased 0.3 percent year to year primarily driven by the same factors.Provisions for expected credit loss expense was$64 million in 2022 as compared to a benefit of$71 million in 202

312、1.The year-to-year change was primarily driven by an increase in specific reserves in the current year compared to decreases in both general and specific reserves in the prior year.The prior-year decreases were primarily driven by improvement in customer credit quality and some emergence from bankru

313、ptcies as economies began to reopen after the global pandemic shutdowns.The receivables provision coverage was 2.4 percent at December 31,2022,an increase of 30 basis points from December 31,2021 driven by an increase in specific reserves and,to a lesser extent,a decrease in receivables.Research,Dev

314、elopment and Engineering Expense($in millions)Yr.-to-Yr.Percent For the year ended December 31:2022 2021 Change Total research,development and engineering$6,567$6,488 1.2%Research,development and engineering(RD&E)expense increased 1.2 percent in 2022 versus 2021,reflecting our continuing investment

315、to deliver innovation in AI,hybrid cloud and emerging areas such as quantum.The year-to-year increase was primarily driven by higher spending(3 points),partially offset by the effects of currency(2 points).Management Discussion International Business Machines Corporation and Subsidiary Companies 23

316、Intellectual Property and Custom Development Income($in millions)Yr.-to-Yr.Percent For the year ended December 31:2022 2021 Change Licensing of intellectual property including royalty-based fees$397$306 29.7%Custom development income 246 272 (9.4)Sales/other transfers of intellectual property 21 35

317、(40.1)Total$663$612 8.4%Total Intellectual Property and Custom Development Income increased 8.4 percent in 2022 compared to 2021.In the fourth quarter of 2022,we signed a three-year joint development and licensing agreement with a Japanese consortium to leverage our intellectual property and experti

318、se on advanced semiconductors which resulted in income of approximately$100 million in 2022.The timing and amount of licensing,sales or other transfers of IP may vary significantly from period to period depending upon the timing of licensing agreements,economic conditions,industry consolidation and

319、the timing of new patents and know-how development.Other(Income)and Expense($in millions)Yr.-to-Yr.Percent For the year ended December 31:2022 2021 Change Other(income)and expense Foreign currency transaction losses/(gains)$(643)$(204)214.7%(Gains)/losses on derivative instruments 225 205 9.9 Intere

320、st income (162)(52)211.1 Net(gains)/losses from securities and investment assets 278 (133)NM Retirement-related costs/(income)6,548 *1,282 NM Other (443)(225)97.0 Total other(income)and expense$5,803$873 NM Non-operating adjustments Amortization of acquired intangible assets (2)(2)Acquisition-relate

321、d charges (1)NM Non-operating retirement-related costs/(income)(6,548)*(1,282)NM Kyndryl-related impacts (351)126 NM Operating(non-GAAP)other(income)and expense$(1,099)$(285)285.2%*Includes a one-time,non-cash pension settlement charge of$5.9 billion.NMNot meaningful Total other(income)and expense w

322、as$5,803 million of expense in 2022 compared to$873 million in 2021.The year-to-year increase was primarily driven by:Higher non-operating retirement-related costs($5,266 million)driven by the third-quarter 2022 pension settlement charge.Refer to note V,“Retirement-Related Benefits,”for additional i

323、nformation;and Net losses related to Kyndryl retained shares in the current year versus a net gain in the prior year($393 million);partially offset by Net exchange gains(including foreign exchange derivative instruments)in the current year versus net exchange losses in the prior year($418 million).T

324、he current-year(gains)/losses on derivative instruments includes a loss on the cash-settled swap related to the Kyndryl retained shares($83 million);Higher gains on divestitures year to year($234 million)primarily driven by the divestiture of our healthcare software assets(included in“Other”);and Hi

325、gher interest income($110 million)driven by higher average interest rates in the current year.Operating(non-GAAP)other(income)and expense was$1,099 million of income in 2022 and increased$814 million compared to the prior year.The year-to-year increase was driven primarily by the effects of currency

326、,higher gains on divestitures and higher interest income described above.24 Management Discussion International Business Machines Corporation and Subsidiary Companies Interest Expense($in millions)Yr.-to-Yr.Percent For the year ended December 31:2022 2021 Change Total interest expense$1,216$1,155 5.

327、3%Interest expense increased$61 million compared to 2021.Interest expense is presented in cost of financing in the Consolidated Income Statement only if the related external borrowings are to support the Financing external business.Overall interest expense(excluding capitalized interest)in 2022 was$

328、1,562 million,an increase of$14 million year to year primarily driven by higher average interest rates,partially offset by a lower average debt balance in the current year.Stock-Based Compensation Pre-tax stock-based compensation cost of$987 million increased$68 million compared to 2021.This was pri

329、marily due to a current-year change in our Employee Stock Purchase Plan which is considered compensatory beginning second-quarter 2022($43 million),an increase from performance share units($21 million),grants of stock options in the current year($19 million)and an increase from restricted stock unit

330、s($17 million),partially offset by a decrease associated with options previously issued by acquired entities($31 million).Stock-based compensation cost,and the year-to-year change,was reflected in the following categories:Cost:$164 million,up$18 million;SG&A expense:$566 million,up$10 million;and RD

331、&E expense:$258 million,up$40 million.Retirement-Related Plans The following table provides the total pre-tax cost for all retirement-related plans.Total operating costs/(income)are included in the Consolidated Income Statement within the caption(e.g.,Cost,SG&A,RD&E)relating to the job function of t

332、he plan participants.($in millions)Yr.-to-Yr.Percent For the year ended December 31:2022 2021 Change Retirement-related planscost Service cost$245$312 (21.3)%Multi-employer plans 15 17 (12.9)Cost of defined contribution plans 924 992 (6.8)Total operating costs/(income)$1,184$1,320 (10.3)%Interest co

333、st$1,731$1,626 6.4%Expected return on plan assets (2,747)(2,920)(5.9)Recognized actuarial losses 1,568 2,454 (36.1)Amortization of prior service costs/(credits)12 9 31.1 Curtailments/settlements 5,970 *94 NM Other costs 15 18 (19.2)Total non-operating costs/(income)$6,548 *$1,282 NM Total retirement-related planscost$7,732 *$2,601 197.2%*Includes a one-time,non-cash pension settlement charge of$5.