INTERNATIONAL BUSINESS MACHINES CORP

Previous wording

FOR THE THREE MONTHS ENDED MARCH 31, 2024

Current wording

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024

Previous wording

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 acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and 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 or audit adjustments that affect the recorded one-time charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, 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 impacted by the size, type and frequency of our acquisitions. Given its unique and temporary nature, management has also characterized as non-operating expense, the mark-to-market impact on the foreign exchange call option contracts to economically hedge the foreign currency exposure related to the purchase price of our announced acquisition of StreamSets and webMethods from Software AG. The mark-to-market impact is recorded in other (income) and expense in the Consolidated Income Statement and reflects the fair value changes in the derivative contracts. 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, consistent 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 benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and 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.

Current wording

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 acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and 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 or audit adjustments that affect the recorded one-time charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, 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 impacted by the size, type and frequency of our acquisitions. Given its unique and temporary nature, management has also characterized as non-operating expense, the mark-to-market impact on the foreign exchange derivative contracts entered into prior to the acquisition of StreamSets and webMethods from SoftwareAG to economically hedge the foreign currency exposure related to the purchase price of this acquisition. These derivative contracts expired by June 28, 2024. This impact was recorded in other (income) and expense in the Consolidated Income Statement and reflects the realized loss from the changes in fair value of these derivative contracts. 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, consistent 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 benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and 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 outs…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

(1)Year-to-year revenue growth of 2.5 percent adjusted for currency.

Current wording

(1)Year-to-year revenue growth of 3.8 percent adjusted for currency.

Previous wording

The following table provides the company’s operating (non-GAAP) earnings for the first quarter of 2024 and 2023.

Current wording

The following table provides the company’s operating (non-GAAP) earnings for the second quarter of 2024 and 2023.

Previous wording

In the first three months of 2024, movements in global currencies continued to impact our reported year-to-year revenue and profit. We execute hedging programs which defer, but do not eliminate, the impact of currency. The (gains)/losses from these hedging programs are reflected primarily in other income and expense. Refer to “Currency Rate Fluctuations,” for additional information.

Current wording

In the first six months of 2024, movements in global currencies continued to impact our reported year-to-year revenue and profit. We execute hedging programs which defer, but do not eliminate, the impact of currency. The (gains)/losses from these hedging programs are reflected primarily in other income and expense. Refer to “Currency Rate Fluctuations,” for additional information.

Previous wording

In the first quarter of 2024, we reported $14.5 billion in revenue, income from continuing operations of $1.6 billion and operating (non-GAAP) earnings of $1.6 billion. Diluted earnings per share from continuing operations was $1.69 as reported and $1.68 on an operating (non-GAAP) basis. We generated $4.2 billion in cash from operations and $1.9 billion in free cash flow, and delivered shareholder returns of $1.5 billion in dividends. Our first-quarter performance reflects solid revenue performance, gross margin expansion and cash generation, demonstrating the quality of our portfolio, our hybrid cloud and AI strategy, and the strength of our diversified business model. We continued to focus on the fundamentals of our business which, combined with our strong cash generation, position us to invest both organically and through strategic acquisitions while continuing to return value to shareholders through dividends.

Current wording

In the second quarter of 2024, we reported $15.8 billion in revenue, income from continuing operations of $1.8 billion and operating (non-GAAP) earnings of $2.3 billion. Diluted earnings per share from continuing operations was $1.96 as reported and $2.43 on an operating (non-GAAP) basis. We generated $2.1 billion in cash from operations and $2.6 billion in free cash flow, and delivered shareholder returns of $1.5 billion in dividends. Our second-quarter performance reflects solid revenue growth and cash flow generation, demonstrating the continued success of our hybrid cloud and AI strategy, and the strength of our diversified business model. We continued to focus on the fundamentals of our business which, combined with our cash generation, position us to continue investing in innovation and expertise across the portfolio while continuing to return value to shareholders through dividends.

Previous wording

Total revenue grew 1.5 percent as reported and 3 percent adjusted for currency compared to the prior-year period, led by Software. Software delivered revenue growth of 5.5 percent as reported and 5.9 percent adjusted for currency, with growth in both Hybrid Platform & Solutions and Transaction Processing, and continued strength in our high-value, recurring revenue base. Hybrid Platform & Solutions revenue was up 6.5 percent as reported and 6.7 percent adjusted for currency, with growth across Red Hat, Automation and Data & AI. Transaction Processing, with its strong base of recurring revenue, grew 3.4 percent as reported and 3.9 percent adjusted for currency, as clients continue to value this portfolio of mission-critical software. Consulting revenue decreased 0.2 percent as reported but grew 1.7 percent adjusted for currency, reflecting organic growth as clients continue to prioritize large data and technology transformation projects focused on driving productivity with AI and analytics. Infrastructure revenue decreased 0.7 percent year to year as reported but grew 0.2 percent adjusted for currency, with growth in Hybrid Infrastructure reflecting strong demand across our hardware portfolio, offset by a decline in Infrastructure Support reflecting product cycle dynamics.

Current wording

Total revenue grew 1.9 percent as reported and 4 percent adjusted for currency compared to the prior-year period, led by Software and Infrastructure. Software delivered revenue growth of 7.1 percent as reported and 8.4 percent adjusted for currency, with solid growth across Hybrid Platform & Solutions and Transaction Processing, and with strong transactional performance. Hybrid Platform & Solutions revenue was up 5.2 percent as reported and 6.3 percent adjusted for currency, led by growth in Red Hat and Automation. Transaction Processing grew 11.4 percent as reported and 13.0 percent adjusted for currency, with revenue growth in both recurring and transactional software. Consulting revenue decreased 0.9 percent as reported but grew 1.8 percent adjusted for currency, reflecting continued solid demand for our large transformational offerings as clients continue to prioritize driving productivity with AI and analytics, partially offset by clients' delay in discretionary projects as they prioritized their spending. Infrastructure revenue increased 0.7 percent year to year as reported and 2.7 percent adjusted for currency, with growth in Hybrid Infrastructure reflecting continued demand across our hardware portfolio, offset by a decline in Infrastructure Support.

Previous wording

From a geographic perspective, Americas revenue increased 3.1 percent as reported (3.2 percent adjusted for currency). Europe/Middle East/Africa (EMEA) decreased 0.4 percent as reported and 2.1 percent adjusted for currency. Asia Pacific increased 0.3 percent as reported (7.9 percent adjusted for currency).

Current wording

From a geographic perspective, Americas revenue decreased 0.8 percent as reported (0.5 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 2.6 percent as reported and 3.2 percent adjusted for currency. Asia Pacific increased 8.6 percent as reported (17.2 percent adjusted for currency).

Previous wording

Gross margin of 53.5 percent increased 0.8 points year to year with continued margin expansion driven by revenue growth, portfolio mix and ongoing productivity actions. Operating (non-GAAP) gross margin of 54.7 percent increased 1.0 points compared to the prior-year period due to the same dynamics.

Current wording

Gross margin of 56.8 percent increased 1.8 points year to year with continued margin expansion driven by revenue growth, portfolio mix and ongoing productivity actions. Operating (non-GAAP) gross margin of 57.8 percent increased 1.9 points compared to the prior-year period due to the same dynamics.

Previous wording

Operating (non-GAAP) pre-tax income from continuing operations of $1.7 billion increased 14.4 percent compared to the prior-year period and the operating (non-GAAP) pre-tax margin from continuing operations increased 1.3 points to 11.5 percent primarily driven by the combination of our revenue growth and gross margin performance and the benefits from productivity actions. The year-to-year workforce rebalancing charges and divestiture dynamics were a net benefit to our operating (non-GAAP) pre-tax income from continuing operations year-to-year performance of approximately 8.2 points and operating (non-GAAP) pre-tax margin of approximately 0.8 points. The operating (non-GAAP) income tax provision for the first quarter of 2024 was $94 million, compared to $200 million in the first quarter of 2023. The operating (non-GAAP) income tax provision year-to-year change was primarily driven by the same factor described above. Operating (non-GAAP) net income from continuing operations of $1.6 billion increased 25.2 percent and the operating (non-GAAP) net income margin from continuing operations of 10.8 percent was up 2.0 points year to year.

Current wording

Operating (non-GAAP) pre-tax income from continuing operations of $2.8 billion increased 16.5 percent compared to the second quarter of 2023 and the operating (non-GAAP) pre-tax margin from continuing operations increased 2.2 points to 17.7 percent primarily driven by the combination of our revenue growth and gross margin performance and the benefits from productivity actions. The operating (non-GAAP) provision for income taxes in the second quarter of 2024 was $516 million, compared to $393 million in the second quarter of 2023. Operating (non-GAAP) net income from continuing operations of $2.3 billion increased 13.6 percent and the operating (non-GAAP) net income margin from continuing operations of 14.4 percent was up 1.5 points year to year.

Previous wording

Diluted earnings per share from continuing operations of $1.69 in the first quarter of 2024 increased 65.7 percent and operating (non-GAAP) diluted earnings per share of $1.68 increased 23.5 percent versus the first quarter of 2023.

Current wording

Diluted earnings per share from continuing operations of $1.96 in the second quarter of 2024 increased 14.0 percent and operating (non-GAAP) diluted earnings per share of $2.43 increased 11.5 percent compared to the second quarter of 2023.

Previous wording

Total expense and other (income) increased 3.4 percent in the first quarter of 2024 versus the prior-year period primarily driven by higher workforce rebalancing charges, the effects of currency, higher non-operating retirement-related cost and higher spending reflecting our continued focus on talent and portfolio innovation to drive our strategy; partially offset by higher gains on divestitures primarily driven by the divestiture of The Weather Company assets and the benefits from productivity actions. Total operating (non-GAAP) expense and other (income) increased 0.7 percent year to year, driven primarily by the factors described above, excluding the higher non-operating retirement-related costs.

Current wording

Total expense and other (income) increased 3.5 percent in the first six months of 2024 versus the prior-year period primarily driven by higher spending reflecting our continued investment in portfolio innovation to drive our strategy, higher acquisition-related charges, amortization of acquired intangible assets and non-operating retirement-related cost, and the effects of currency; partially offset by the gain on the divestiture of The Weather Company assets and the benefits from productivity actions. Total operating (non-GAAP) expense and other (income) increased 1.0 percent year to year, driven primarily by the factors described above, excluding the higher non-operating retirement-related costs, acquisition-related charges and amortization of acquired intangible assets.

Previous wording

Pre-tax income from continuing operations was $1.1 billion and pre-tax margin was 7.4 percent in the first quarter of 2024, both approximately flat compared to the prior-year period. Our gross margin expansion and the benefits from productivity actions enabled continued investments to drive innovation. Our first-quarter 2024 pre-tax income includes a gain from the sale of The Weather Company assets of $241 million and workforce rebalancing charges of approximately $375 million. The year-to-year workforce rebalancing charges and divestiture dynamics were a net benefit to our pre-tax income from continuing operations year-to-year performance of approximately 8.2 points and pre-tax margin of approximately 0.8 points. The continuing operations benefit from income taxes for the first quarter of 2024 was $502 million, compared to a provision for income taxes of $124 million in the first quarter of 2023. The current-year benefit is primarily driven by the resolution of certain tax audit matters. Net income from continuing operations of $1.6 billion increased 68.6 percent and the net income from continuing operations margin was 10.9 percent, up 4.3 points year to year.

Current wording

Pre-tax income from continuing operations of $3.3 billion increased 7.7 percent and pre-tax margin was 10.9 percent, an increase of 0.6 points versus the first half of 2023. Performance in the first six months of 2024 reflects our gross margin expansion and the benefits from productivity actions which enabled investments to drive innovation. The continuing operations benefit from income taxes for the first six months of 2024 was $112 million, compared to a provision for income taxes of $543 million for the first six months of 2023. The benefit from income taxes in the first six months of 2024 was primarily driven by the resolution of certain tax audit matters in the first quarter. Net income from continuing operations of $3.4 billion increased 35.4 percent and the net income from continuing operations margin was 11.3 percent, up 2.8 points year to year.

Previous wording

At March 31, 2024, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at March 31, 2024 of $19.3 billion increased $5.8 billion from December 31, 2023 and debt of $59.5 billion at March 31, 2024 increased $3.0 billion.

Current wording

At June 30, 2024, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at June 30, 2024 of $16.0 billion increased $2.5 billion from December 31, 2023 and debt of $56.5 billion at June 30, 2024 was flat from prior-year end.

Previous wording

Total assets increased $1.9 billion ($3.2 billion adjusted for currency) from December 31, 2023 primarily driven by increases in cash and cash equivalents and marketable securities; partially offset by a decrease in receivables. Total liabilities increased $1.2 billion ($2.5 billion adjusted for currency) from December 31, 2023 primarily driven by an increase in debt and deferred income; partially offset by decreases in tax liabilities and accounts payable. Total equity of $23.3 billion increased $0.7 billion from December 31, 2023 primarily driven by first-quarter 2024 net income and common stock issuances; partially offset by dividends paid.

Current wording

Total assets decreased $1.4 billion (increased $0.5 billion adjusted for currency) from December 31, 2023 primarily driven by increases in cash and cash equivalents, restricted cash and marketable securities; partially offset by a decrease in receivables. Total liabilities decreased $2.9 billion ($1.0 billion adjusted for currency) from December 31, 2023 primarily driven by decreases in tax liabilities and accounts payable; partially offset by an increase in deferred income. Total equity of $24.1 billion increased $1.5 billion from December 31, 2023 primarily driven by first-half 2024 net income and common stock issuances; partially offset by dividends paid.

Previous wording

Cash provided by operating activities was $4.2 billion in the first quarter of 2023, an increase of $0.4 billion compared to the first quarter of 2023 and free cash flow was $1.9 billion, an increase of $0.6 billion versus the prior-year period. Refer to page 60 for additional information on free cash flow. Net cash used in investing activities of $4.2 billion, decreased $3.7 billion and net cash provided by financing activities of $1.9 billion decreased $3.8 billion compared to theprior-year period.

Current wording

Cash provided by operating activities was $6.2 billion in the first six months of 2024, a decrease of $0.2 billion compared to the first six months of 2023 and free cash flow was $4.5 billion, an increase of $1.1 billion versus the prior-year period. Refer to page 77 for additional information on free cash flow. Net cash used in investing activities of 2.0 billion decreased 6.0 billion and financing activities were a net use of cash of 2.6 billion in the first six months of 2024 compared to a net source of cash of $3.0 billion in the prior-year period.

Previous wording

The following table presents each reportable segment’s revenue and gross margin results, followed by an analysis of the first quarter of 2024 versus the first quarter of 2023 reportable segments results. Prior-year results have been recast to conform with the changes as described in note 4, "Segments."

Current wording

The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the second quarter and first six months of 2024 versus the second quarter and first six months of 2023 reportable segments results. Prior-year results have been recast to reflect the January 2024 segment changes as described in note 4, "Segments."

Previous wording

Across Hybrid Platform & Solutions, our annual recurring revenue (ARR) was $13.9 billion. ARR is a key performance metric management uses to assess the health and growth trajectory of our Hybrid Platform & Solutions business within the Software segment. The metric was updated in the first quarter of 2024 to reflect the organizational changes described in note 4, “Segments,” and to simplify the calculation. ARR is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.

Current wording

Across Hybrid Platform & Solutions, our annual recurring revenue (ARR) was $14.1 billion. ARR is a key performance metric management uses to assess the health and growth trajectory of our Hybrid Platform & Solutions business within the Software segment. The metric was updated in the first quarter of 2024 to reflect the organizational changes described in note 4, “Segments,” and to simplify the calculation. ARR is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.

Previous wording

Software gross profit margin decreased 0.2 points to 82.4 percent in the first quarter of 2024 compared to the prior-year period. In the first quarter, segment profit of $1,500 million increased 8.8 percent and segment profit margin of 25.4 percent increased 0.8 points compared to the prior-year period. The segment profit margin expansion reflects our operating leverage from revenue growth in the quarter and continued productivity actions, partially offset by key investments in innovation and approximately 1 point of impact from currency.

Current wording

Software gross profit margin increased 1.5 points to 83.6 percent in the second quarter of 2024 compared to the prior-year period. Segment profit of $2,113 million increased 20.8 percent and segment profit margin of 31.3 percent increased 3.6 points compared to the prior-year period. The segment profit growth reflects our operating leverage driven by our revenue performance and portfolio mix. The benefits of our continued productivity actions, partially offset by key investments in software innovation, also contributed to segment profit and margin expansion.

Previous wording

In the first quarter of 2024, Business Transformation revenue of $2,317 million increased 1.5 percent as reported (3.3 percent adjusted for currency) compared to the prior-year period, led by supply chain and finance transformations. In addition, customer experience transformation offerings contributed to revenue growth in the quarter.

Current wording

In the second quarter of 2024, Business Transformation revenue of $2,360 million increased 2.8 percent as reported (5.5 percent adjusted for currency) compared to the prior-year period, led by finance and supply chain transformations. Data transformation offerings also contributed to revenue growth in the quarter.

Previous wording

Application Operations revenue of $1,938 million decreased 2.6 percent as reported (0.7 percent adjusted for currency) compared to the prior-year period, reflecting a decline in on-premise custom application management projects, partially offset by growth in cloud-based application management offerings.

Current wording

Application Operations revenue of $1,902 million decreased 4.5 percent as reported (1.8 percent adjusted for currency) compared to the prior-year period, reflecting a decline in on-premise custom application management projects, partially offset by growth in cloud-based application management offerings.

Previous wording

In the first quarter of 2024, Consulting signings grew 2.4 percent as reported and 4.3 percent adjusted for currency. We had solid demand for our offerings as clients prioritize larger transformation projects. Our book-to-bill ratio for the trailing twelve-months remains over 1.15. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period. The metric is a useful indicator of the demand of our business over time.

Current wording

In the second quarter of 2024, Consulting signings decreased 4.5 percent as reported and 2.5 percent adjusted for currency. While discretionary spending constraints impacted our small engagement performance in the second-quarter 2024, we had solid demand for large engagements across finance and supply chain transformation, cloud modernization and application development. Our book-to-bill ratio for the trailing twelve-months remains over 1.15. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period. The metric is a useful indicator of the demand of our business over time.

Previous wording

Infrastructure revenue of $3,076 million decreased 0.7 percent as reported, but increased 0.2 percent adjusted for currency in the first quarter of 2024 compared to the prior-year period, with a decline in Infrastructure Support and growth in Hybrid Infrastructure.

Current wording

Infrastructure revenue of $3,645 million increased 0.7 percent as reported and 2.7 percent adjusted for currency in the second quarter of 2024 compared to the prior-year period, with strong growth in Hybrid Infrastructure, partially offset by a decline in Infrastructure Support.

Previous wording

Infrastructure Support revenue of $1,273 million decreased 8.3 percent as reported (7.3 percent adjusted for currency) in the first quarter of 2024 compared to the prior-year period, driven by volume decline in support of non-IBM equipment and IBM product cycle dynamics.

Current wording

Infrastructure Support revenue of $1,285 million decreased 5.4 percent as reported (2.9 percent adjusted for currency) in the second quarter of 2024 compared to the prior-year period, driven by volume decline in support of non-IBM equipment and IBM product cycle dynamics.

Previous wording

Infrastructure gross profit margin of 54.2 percent increased 2.3 points in the first quarter of 2024 compared to the prior-year period, with margin expansion in Hybrid Infrastructure and Infrastructure Support. The increase in margin within Hybrid Infrastructure was across both IBM Z and Distributed Infrastructure, as a result of productivity initiatives including streamlining our supply chain. In the first quarter of 2024, Infrastructure segment profit of $311 million increased 1.4 percent and the segment profit margin of 10.1 percent increased 0.2 points compared to the prior-year period. The segment profit and margin reflects benefits from higher IP and custom development income and productivity actions, partially offset by portfolio mix and approximately 1 point of impact from currency.

Current wording

Infrastructure gross profit margin of 56.5 percent increased 0.5 points in the second quarter of 2024 compared to the prior-year period, with solid margin expansion in Hybrid Infrastructure and Infrastructure Support. The increase in margin within Hybrid Infrastructure was driven primarily by margin expansion within Distributed Infrastructure, driven by Power systems, and portfolio mix to IBM Z. In the second quarter of 2024, Infrastructure segment profit of $654 million decreased 10.7 percent and segment profit margin of 17.9 percent decreased 2.3 points compared to the prior-year period. The year-to-year decrease in segment profit and margin reflects key investments we are making in the business across areas such as AI, hybrid cloud and quantum, partially offset by the benefits from productivity actions we have taken. The segment profit margin included approximately 1 point of impact from currency.

Previous wording

Refer to pages 61 through 63 for a discussion of Financing’s segment results.

Current wording

Refer to pages 78 through 80 for a discussion of Financing’s segment results.

Previous wording

Americas revenue of $7,296 million increased 3.1 percent as reported and 3.2 percent adjusted for currency. The U.S. increased 3.4 percent. Canada decreased 6.4 percent as reported and 6.7 percent adjusted for currency. Latin America increased 12.8 percent as reported and 13.8 percent adjusted for currency, with Brazil increasing 11.6 percent as reported and 8.2 percent adjusted for currency.

Current wording

Americas revenue of $15,275 million increased 1.0 percent as reported and 1.2 percent adjusted for currency. The U.S. increased 3.0 percent compared to the prior-year period. Canada decreased 6.3 percent as reported and 5.6 percent adjusted for currency. Latin America decreased 6.5 percent as reported and 5.2 percent adjusted for currency, with Brazil decreasing 9.0 percent as reported and 8.8 percent adjusted for currency.

Previous wording

Total selling, general and administrative (SG&A) expense increased 2.5 percent in the first quarter of 2024 versus the prior-year period driven primarily by the following factors:

Current wording

Total selling, general and administrative (SG&A) expense increased 0.8 percent in the second quarter of 2024 versus the prior-year period driven primarily by the following factors:

Previous wording

•Higher workforce rebalancing charges (2 points); and

Current wording

•Lower workforce rebalancing charges (2 points); and

Previous wording

•Higher net spending reflecting our continued investment to drive our hybrid cloud and AI strategy, partially offset by benefits from productivity actions.

Current wording

•Higher spending, which includes expenses from acquired businesses, as a result of our continued investment to drive our hybrid cloud and AI strategy; and

Previous wording

Benefit from expected credit loss expense was $23 million in the first quarter of 2024 compared to a provision of $2 million in the first quarter of 2023. The year-to-year change was primarily driven by lower specific reserve requirements in the current year. Refer to "Receivables and Allowances" section on page 55 for additional information.

Current wording

Expected credit loss expense was a benefit of $21 million in the first six months of 2024 compared to a provision of $16 million in the prior-year period. The year-to-year change was primarily driven by lower reserve requirements in the current year. Refer to "Receivables and Allowances" section on page 72 for additional information.

Previous wording

Research, development and engineering (RD&E) expense in the first quarter of 2024 increased 8.5 percent year to year primarily driven by investments to drive innovation in AI, hybrid cloud and quantum.

Current wording

Research, development and engineering (RD&E) expense increased 9.1 percent and 8.8 percent year to year in the second quarter and first six months of 2024, respectively. RD&E expense increased year to year primarily driven by investments to drive innovation in AI, hybrid cloud and quantum, as well as in Infrastructure ahead of our next IBM Z cycle in 2025.

Previous wording

Total intellectual property and custom development income in the first quarter of 2024 increased 20.3 percent year to year. The increase was primarily driven by joint development and licensing agreements with a Japanese consortium to leverage our intellectual property and expertise on advanced semiconductors.

Current wording

Total intellectual property and custom development income decreased 2.8 percent year to year in the second quarter, and increased 6.9 percent in the first six months of 2024 compared to the prior-year period. The increase in the first six months of 2024 was primarily driven by joint development and licensing agreements with a Japanese consortium to leverage our intellectual property and expertise on advanced semiconductors.

Previous wording

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 the timing of new patents and know-how development.

Current wording

The timing and amount of licensing and sales of IP may vary significantly from period to period depending upon the timing of licensing agreements, economic conditions, industry consolidation and the timing of new patents and know-how development.

Previous wording

•Higher non-operating retirement-related cost of $101 million primarily driven by an increase in recognized actuarial losses of the Qualified PPP due to the change in amortization period as described in note 18, "Retirement-Related Benefits," partially offset by lower interest costs.

Current wording

•Higher non-operating retirement-related cost of $97 million primarily driven by an increase in recognized actuarial losses of the Qualified PPP due to the change in amortization period as described in note 18, "Retirement-Related Benefits," partially offset by lower interest costs; partially offset by

Previous wording

Operating (non-GAAP) other (income) and expense was income of $463 million in the first quarter of 2024 and increased $221 million compared to the prior-year period. The year-to-year change was primarily driven by the factors described above, excluding the higher non-operating retirement-related costs.

Current wording

Operating (non-GAAP) other (income) and expense was income of $349 million in the second quarter of 2024 and increased $87 million compared to the prior-year period. The year-to-year change was primarily driven by the factors described above, excluding the higher non-operating retirement-related costs.

Previous wording

•Higher gains on divestitures ($230 million) primarily driven by the divestiture of The Weather Company assets (included in “Other” in the table above). Refer to note 5, "Acquisitions & Divestitures," for additional information; and

Current wording

•Higher gains on divestitures ($214 million) primarily driven by the divestiture of The Weather Company assets (included in “Other” in the table above). Refer to note 5, "Acquisitions & Divestitures," for additional information; and

Previous wording

•Higher interest income ($41 million) primarily driven by a higher average cash balance in the current year; partially offset by

Current wording

•Higher interest income ($56 million) primarily driven by a higher average cash balance in the current year; partially offset by

Previous wording

•Net exchange losses (including derivative instruments) in the current year versus net exchange gains in the prior year ($136 million); and

Current wording

•Net exchange losses (including derivative instruments) of $82 million in the current year versus net exchange gains of $79 million in the prior year.

Previous wording

Interest expense of $432 million in the first quarter of 2024 increased $64 million compared to the prior-year period. Interest expense is presented in cost of financing in the Consolidated Income Statement if the related external borrowings are to support the Financing external business. Overall interest expense (excluding capitalized interest) for the first quarter of 2024 was $517 million, an increase of $60 million year to year primarily driven by higher average interest rates and a higher average debt balance in thecurrent year.

Current wording

Interest expense increased $4 million and $69 million year to year in the second quarter and first six months of 2024, respectively. Interest expense is presented in cost of financing in the Consolidated Income Statement if the related external borrowings are to support the Financing external business. Overall interest expense (excluding capitalized interest) for the second quarter and first six months of 2024 was $509 million and $1,026 million, respectively, an increase of $3 million and $63 million, respectively, compared to the prior-year periods. The year-to-year dynamics for both the second quarter and first six months of 2024 were primarily driven by higher average interest rates and a higher average debt balance in thecurrent year.