INTERNATIONAL BUSINESS MACHINES CORP

Previous wording

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025

Current wording

FOR THE THREE MONTHS ENDED MARCH 31, 2026

Previous wording

The references to “adjusted for currency” or “at constant currency” in the Management 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 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 period’s currency conversion rate. This approach 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 “Currency Rate Fluctuations” for additional information.

Current wording

The references to “adjusted for currency” or “at constant currency” in the Management 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 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 period’s currency conversion rate. This approach 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 “Currency Rate Fluctuations” on page 53 for additional information.

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 and 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 (TCJA or 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 include the tax effect of true-ups, audit adjustments, accounting elections and new regulations or laws (e.g., H.R. 1 in July of 2025) that impact the TCJA provisions which resulted in the one-time provisional charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of acquired 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. Management also characterized as non-operating expense, given its unique and temporary nature, the impact on the foreign exchange derivative contracts entered into prior to the acquisition of StreamSets and webMethods from Software AG, beginning in December 2023, to economically hedge the foreign currency exposure related to the purchase price of this acquisition. These derivative contracts expired by June 28, 2024. 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 including the impact of a settlement charge of $2.7 billion ($2.0 billion net of tax) resulting from the transfer to an insurer of a portion of the IBM Qualified Personal Pension Plan's defined benefit pension obligations and related plan assets in the third quarter of 2024 and pension insolvency costs and other costs. Non-operating re…

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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 and 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 (TCJA or 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 include the tax effect of true-ups, audit adjustments, accounting elections and new regulations, or laws (e.g., H.R. 1 in July of 2025) that impact the TCJA provisions which resulted in the one-time provisional charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of acquired 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. 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.

Previous wording

The following table provides the company’s operating (non-GAAP) earnings for the third quarter of 2025 and 2024.

Current wording

The following table provides the company’s operating (non-GAAP) earnings for the first quarter of 2026 and 2025.

Previous wording

(3)Refer to the quarter-to-date "GAAP Reconciliation" on page 81 for additional information..

Current wording

(1)Refer to the quarter-to-date "GAAP Reconciliation" on page 57 for additional information..

Previous wording

The strength of our portfolio and the resiliency of our business model underpinned by our hybrid cloud and AI strategy position us well to deliver sustainable and profitable growth. While the current economic and trade environment continue to remain dynamic, we expect technology to keep supporting overall economic growth and serve as a key source of competitive advantage allowing businesses to scale, innovate and drive productivity. This was reflected in our performance in the third quarter. Our disciplined strategy and durable business model enable us to create long-term value for our partners and clients.

Current wording

The strength of our portfolio and the resiliency of our business model, underpinned by our software-led hybrid cloud and AI strategy, position us well to navigate the current climate. While the economic and geopolitical environment remain dynamic and uncertain, businesses continue to invest in technology to scale AI, drive productivity, increase resiliency and accelerate their growth. This was reflected in our performance in the first quarter. Our durable, high value portfolio enables us to execute on our strategy delivering innovation to our clients and partners.

Previous wording

In the first nine months of 2025, 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 three months of 2026, 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” on page 53 for additional information.

Previous wording

In the third quarter of 2025, we reported $16.3 billion in revenue, income from continuing operations of $1.7 billion, and operating (non-GAAP) earnings of $2.5 billion. Diluted earnings per share from continuing operations was $1.84 as reported and $2.65 on an operating (non-GAAP) basis. We generated $3.1 billion in cash from operations and $2.4 billion in free cash flow, and delivered shareholder returns of $1.6 billion in dividends. Our third-quarter performance reflects the continued success of our hybrid cloud and AI strategy. With our focus on the fundamentals of our business, we continue to maintain a strong liquidity position and solid cash flow generation which enables us to invest in our business and return value to shareholders through dividends.

Current wording

In the first quarter of 2026, we reported $15.9 billion in revenue, income from continuing operations of $1.2 billion, and operating (non-GAAP) earnings of $1.8 billion. Diluted earnings per share from continuing operations was $1.28 as reported and $1.91 on an operating (non-GAAP) basis. We generated $5.2 billion in cash from operations and $2.2 billion in free cash flow. We returned $1.6 billion to shareholders in dividends and invested in the acquisition of Confluent, Inc. (Confluent). Our first-quarter performance reinforces the strategic choices we have made over the last several years to advance IBM as a software-led Hybrid Cloud and AI platform company. With our focus on the fundamentals of our business, we continue to maintain a strong liquidity position and solid investment grade balance sheet which enables us to invest in our business and return value to shareholders through dividends.

Previous wording

Total revenue grew 9.1 percent as reported and 7.3 percent adjusted for currency compared to the prior-year period. Software delivered revenue growth of 10.5 percent as reported (8.8 percent adjusted for currency). Consulting revenue increased 3.3 percent as reported (1.5 percent adjusted for currency). Infrastructure revenue increased 17.0 percent as reported (15.1 percent adjusted for currency), reflecting early strength in our new IBM z17.

Current wording

Total revenue grew 9.5 percent as reported and 6.1 percent adjusted for currency compared to the prior-year period. Software delivered revenue growth of 11.3 percent as reported (7.9 percent adjusted for currency). Consulting revenue increased 4.0 percent as reported (0.9 percent adjusted for currency). Infrastructure revenue increased 15.3 percent as reported (11.7 percent adjusted for currency).

Previous wording

From a geographic perspective, Americas revenue increased 9.3 percent as reported and adjusted for currency. Europe/Middle East/Africa (EMEA) increased 14.6 percent as reported (8.7 percent adjusted for currency). Asia Pacific increased 0.1 percent as reported (0.2 percent adjusted for currency).

Current wording

From a geographic perspective, Americas revenue increased 9.1 percent as reported (8.2 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 15.2 percent as reported (5.4 percent adjusted for currency). Asia Pacific increased 1.1 percent as reported (1.7 percent adjusted for currency).

Previous wording

Gross margin of 57.3 percent increased 1.1 points year to year with margin expansion driven primarily by portfolio mix and productivity actions. Operating (non-GAAP) gross margin of 58.7 percent increased 1.2 points compared to the prior-year period due to the same dynamics.

Current wording

Gross margin of 56.2 percent increased 1.0 point year to year with margin expansion driven primarily by productivity actions, revenue growth and portfolio mix. Operating (non-GAAP) gross margin of 57.7 percent increased 1.1 points compared to the prior-year period due to the same dynamics.

Previous wording

Pre-tax income from continuing operations was $2.4 billion in the third quarter of 2025 compared with a pre-tax loss of $0.8 billion in the prior-year period and pre-tax margin was up 20.2 points year to year to 14.9 percent. The continuing operations provision for income taxes was $0.7 billion in the third quarter of 2025, compared to a benefit from income taxes of $0.5 billion in the third quarter of 2024. Net income from continuing operations of $1.7 billion in the current period compared with a net loss of $0.3 billion in the prior-year period and the net income from continuing operations margin of 10.7 percent was up 12.8 points year to year. The year-to-year performance was primarily driven by the transfer to an insurer of a portion of the Qualified PPP's defined benefit pension obligations and related plan assets which resulted in a pension settlement charge of $2.7 billion ($2.0 billion net of tax) in the third quarter of 2024. Our performance in the third quarter also continues to benefit from both revenue growth and gross margin expansion, reflecting the strength of our business model and portfolio.

Current wording

Pre-tax income from continuing operations was $1.4 billion in the first quarter of 2025 compared to $1.2 billion in the prior-year period and pre-tax margin was up 0.8 points year to year to 8.7 percent. The continuing operations provision for income taxes was $0.2 billion in the first quarter of 2026, compared to $0.1 billion in the first quarter of 2025. Net income from continuing operations was $1.2 billion in the current period compared to $1.1 billion in the prior-year period and the net income from continuing operations margin of 7.6 percent was up 0.4 points year to year. The year-to-year performance was primarily driven by revenue growth, portfolio mix and increased productivity, partially offset by our organic and inorganic investments in portfolio innovation.

Previous wording

Operating (non-GAAP) pre-tax income from continuing operations of $3.0 billion increased 22.0 percent compared to the third quarter of 2024 and the operating (non-GAAP) pre-tax margin from continuing operations increased 2.0 points to 18.6 percent driven by revenue growth, portfolio mix, and increased productivity while providing investment flexibility. The operating (non-GAAP) provision for income taxes was $0.5 billion in the third quarter of 2025, compared to $0.3 billion in the third quarter of 2024. Operating (non-GAAP) net income from continuing operations of $2.5 billion increased 16.8 percent and the operating (non-GAAP) net income margin from continuing operations of 15.4 percent increased 1.0 points year to year.

Current wording

Operating (non-GAAP) pre-tax income from continuing operations of $2.1 billion increased 22.5 percent compared to the first quarter of 2025 and the operating (non-GAAP) pre-tax margin from continuing operations increased 1.4 points to 13.4 percent primarily driven by the factors described above. The operating (non-GAAP) provision for income taxes was $0.3 billion in the first quarter of 2026, compared to $0.2 billion in the first quarter of 2025. Operating (non-GAAP) net income from continuing operations of $1.8 billion increased 20.1 percent and the operating (non-GAAP) net income margin from continuing operations of 11.4 percent increased 1.0 point year to year.

Previous wording

Diluted earnings per share from continuing operations of$5.27 in the first nine months of 2025 increased 59.7 percent and operating (non-GAAP) diluted earningsper share of $7.06 increased 10.1 percent compared to the first nine months of 2024.

Current wording

Diluted earnings per share from continuing operations of $1.28 increased 14.3 percent and operating (non-GAAP) diluted earnings per share of $1.91 increased 19.4 percent compared to the first quarter of 2025.

Previous wording

At September 30, 2025, 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 September 30, 2025 of $14.9 billion increased $0.1 billion from December 31, 2024 and debt of $63.1 billion at September 30, 2025 increased $8.1 billion. The company continues to make investments in innovation both organically and through acquisitions, including the HashiCorp acquisition in first-quarter 2025.

Current wording

At March 31, 2026, 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, 2026 of $11.8 billion decreased $2.6 billion from December 31, 2025 and debt of $66.4 billion at March 31, 2026 increased $5.1 billion. The company continues to make investments in innovation both organically and through acquisitions, including the Confluent acquisition in first-quarter 2026.

Previous wording

Cash provided by operating activities was $9.2 billion in the first nine months of 2025, essentially flat compared to the first nine months of 2024. Free cash flow was $7.2 billion, an increase of $0.6 billion versus the prior-year period. Refer to page 78 for additional information on free cash flow. Net cash used in investing activities of $11.7 billion increased $8.2 billion compared to the prior-year period primarily driven by cash used for the HashiCorp acquisition. Financing activities were a net use of cash of $0.4 billion and decreased$5.0 billion compared to theprior-year period. The year-to-year performance is primarily driven by debt.

Current wording

Cash provided by operating activities was $5.2 billion in the first three months of 2026, an increase of$0.8 billion compared to the first three months of 2025. Free cash flow was $2.2 billion, an increase of $0.3 billion versus the prior-year period. Refer to page 55 for additional information on free cash flow. Net cash used in investing activities of $10.5 billion, which includes our investment in the acquisition of Confluent, decreased $2.5 billion compared to the prior-year period. Financing activities were a net source of cash of $2.7 billion, a decrease of$2.7 billion compared to theprior-year period.

Previous wording

The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the third quarter and first nine months of 2025 versus the third quarter and first nine months of 2024 reportable segments results. The reported revenue categories within our Software and Consulting reportable segments are reported on a comparable basis for all periods.

Current wording

The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the first three months of 2026 versus the first three months of 2025 reportable segments results.

Previous wording

(1)Includes reductions in revenue for estimated residual value less related unearned income on sales-type leases, which reflects the new z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2024 Annual Report for additional information.

Current wording

(1)Includes reductions in revenue for estimated residual value less related unearned income on sales-type leases, which reflects the z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2025 Annual Report for additional information.

Previous wording

Revenue performance by line of business in the third quarter compared to the prior-year period was as follows:

Current wording

Revenue performance by line of business in the first quarter compared to the prior-year period was as follows:

Previous wording

Across Software, our annual recurring revenue (ARR) was $23.2 billion, which increased 10.7 percent as reported (8.8 percent adjusted for currency). In the first quarter of 2025, the ARR calculation was updated to include all recurring revenue within the Software segment. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment, and 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 software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.

Current wording

Across Software, our annual recurring revenue (ARR) was solid at $24.6 billion, which increased approximately $3 billion as reported year to year. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment, and is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. The first-quarter 2026 recurring revenue metric includes annualized Confluent recurring revenue since the acquisition date of March 17, 2026. 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 software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.

Previous wording

In the third quarter of 2025, Consulting gross profit margin of 29.3 percent increased 0.8 points on a year-to-year basis. Segment profit of $686 million increased 22.6 percent and segment profit margin of 12.9 percent increased 2.0 points year to year.

Current wording

In the first quarter of 2026, Consulting gross profit margin of 27.5 percent increased 0.2 points on a year-to-year basis. Segment profit of $558 million decreased 0.1 percent and segment profit margin of 10.6 percent decreased 0.4 points year to year.

Previous wording

For the three and nine months ended September 30, 2025, Consulting signings decreased 4.1 percent as reported (5.1 percent adjusted for currency) and 10.1 percent as reported (11.0 percent adjusted for currency), respectively. However, the quality of our signings continued to strengthen, with more strategic signings with new clients and expanded engagements with existing clients. Our book-to-bill ratio for the trailing twelve-months was approximately 1.12. 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

Consulting signings increased 8.5 percent as reported and 6.0 percent adjusted for currency for the three months ended March 31, 2026, compared to the prior-year period. Signings returned to growth in the first-quarter 2026, with strength across our application and data transformation offerings. Our book-to-bill ratio for the trailing twelve-months was 1.04. 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. At March 31, 2026, backlog was $31.3 billion.

Previous wording

Signings are management’s initial estimate of the value of a client’s commitment under a services contract 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 client’s commitment, including the type and duration of the agreement, and the presence of termination charges or wind-down costs.

Current wording

Signings are management’s initial estimate of the value of a client’s commitment under a services contract. The calculation used by management involves estimates and judgments to gauge the extent of a client’s commitment, including the type and duration of the agreement and the presence of termination charges or wind-down costs. Backlog reflects the estimated remaining value of overall work to be recognized as revenue under services contracts, and it is calculated as the total reported signings less already recognized revenue and less any backlog adjustments.

Previous wording

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. Signings associated with an acquisition will be recognized on a prospective basis.

Current wording

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. Signings associated with an acquisition will be recognized on a prospective basis. Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue not materialized and adjustments for currency.

Previous wording

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 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.

Current wording

Management believes the estimated values of signings and backlog provide an indication of our forward-looking revenue, which are used by management as tools to monitor the performance of the business and are viewed as useful decision-making information for investors. There are no third-party standards or requirements governing the calculation of these measurements. The conversion of signings and backlog 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 or external events.

Previous wording

Infrastructure gross profit margin of 57.2 percent increased 2.2 points in the third quarter of 2025 compared to the prior-year period. Infrastructure segment profit of $644 million increased 52.6 percent and segment profit margin of 18.1 percent increased 4.2 points compared to the prior-year period.

Current wording

Infrastructure gross profit margin of 56.9 percent increased 4.1 points in the first quarter of 2026 compared to the prior-year period. Infrastructure segment profit of $524 million increased 111.7 percent and segment profit margin of 15.8 percent increased 7.2 points compared to the prior-year period.

Previous wording

Infrastructure gross profit, segment profit and the respective margin expansion for the third quarter and first nine months of 2025 were primarily driven by the productivity actions we have taken and volume and mix of revenue, partially offset by our investments in product innovation.

Current wording

Infrastructure gross profit, segment profit and the respective margin expansion for the first quarter of 2026 reflect the productivity actions we have taken and the growth and mix of revenue, partially offset by our ongoing investments in product innovation.

Previous wording

Refer to pages 79 through 80 for a discussion of Financing’s segment results.

Current wording

Refer to pages 56 through 57 for a discussion of Financing’s segment results.

Previous wording

Americas revenue of $8,143 million increased 9.3 percent as reported and adjusted for currency in the third quarter of 2025 compared to the prior-year period. The U.S. increased 12.0 percent year to year. Canada was flat as reported, but grew 0.7 percent adjusted for currency. Latin America decreased 1.2 percent as reported and 1.8 percent adjusted for currency, with a decline in Brazil of 9.3 percent as reported and 10.3 percent adjusted for currency.

Current wording

Americas revenue of $7,861 million increased 9.1 percent as reported and 8.2 percent adjusted for currency in the first quarter of 2026 compared to the prior-year period. The U.S. increased 7.5 percent year to year. Canada increased 12.5 percent as reported and 7.9 percent adjusted for currency. Latin America increased 14.4 percent as reported and 9.1 percent adjusted for currency, with Brazil increasing 29.3 percent as reported and 22.4 percent adjusted for currency.

Previous wording

Asia Pacific revenue of $8,822 million decreased 0.4 percent as reported and 0.9 percent adjusted for currency. Japan increased 0.5 percent as reported, but declined 1.6 percent adjusted for currency. Australia and India increased 5.3 percent and 4.1 percent, respectively, as reported, and 8.6 percent and 8.0 percent, respectively, adjusted for currency. China decreased 20.1 percent as reported and 20.0 percent adjusted for currency. China represents approximately 1 percent of IBM total revenue.

Current wording

Asia Pacific revenue of $2,814 million increased 1.1 percent as reported and 1.7 percent adjusted for currency. Japan decreased 3.8 percent as reported and 0.7 percent adjusted for currency. Australia and India increased 15.2 percent and 5.2 percent, respectively, as reported, and 3.9 percent and 11.4 percent, respectively, adjusted for currency.

Previous wording

Total selling, general and administrative (SG&A) expense decreased 3.3 percent in the third quarter of 2025 versus the prior-year period driven primarily by the following factors:

Current wording

Total selling, general and administrative (SG&A) expense increased 4.2 percent in the first quarter of 2026 versus the prior-year period driven primarily by the following factors:

Previous wording

•Higher operating expenses from acquired businesses, as a result of our continued investment to drive our hybrid cloud and AI strategy (4 points); and

Current wording

•Higher operating expenses from acquired businesses, as a result of our continued investment to drive our hybrid cloud and AI strategy (3 points);

Previous wording

Operating (non-GAAP) SG&A expense decreased 2.6 percent year to year primarily driven by the same factors above, excluding the higher acquisition-related charges and amortization of acquired intangible assets.

Current wording

•Higher acquisition-related charges and amortization of acquired intangible assets (1 point); partially offset by

Previous wording

•Benefits from productivity and the actions taken to transform our operations (4 points); and

Current wording

•Benefits from productivity and the actions taken to transform our operations (2 points).

Previous wording

Operating (non-GAAP) SG&A expense decreased 4.7 percent year to year primarily driven by the same factors above, excluding the higher amortization of acquired intangible assets and acquisition-related charges.

Current wording

Operating (non-GAAP) SG&A expense increased 3.3 percent year to year primarily driven by the same factors above, excluding the higher acquisition-related charges and amortization of acquired intangible assets.

Previous wording

Expected credit loss expense was a provision of $27 million in the first nine months of 2025 compared to a benefit of $17 million in the prior-year period. The year-to-year change was primarily driven by higher unallocated reserve requirements in the current year as a result of the current economic conditions. Refer to "Receivables and Allowances" section on page 73 for additional information.

Current wording

Expected credit loss expense was a benefit of $2 million in the first quarter of 2026 compared to a provision of $14 million in the prior-year period. The year-to-year change was primarily driven by higher unallocated reserve requirements in the prior year as a result of the economic conditions. Refer to "Receivables and Allowances" section on page 50 for additional information.

Previous wording

Research and development (R&D) expense increased 11.0 percent year to year in the third quarter. The year-to-year increase in R&D expense was primarily driven by investments to drive innovation in AI, hybrid cloud and quantum and higher operating expenses from acquired businesses.

Current wording

Research and development (R&D) expense increased 11.4 percent in the first quarter of 2026. The year-to-year increase in R&D expense reflects our organic and inorganic investments to drive innovation in AI, hybrid cloud and quantum, and the effects of currency.

Previous wording

Total intellectual property and custom development income decreased 7.9 percent and 1.2 percent year to year in the third quarter and first nine months of 2025, respectively. 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.

Current wording

Total intellectual property and custom development income decreased 32.1 percent year to year in the first quarter of 2026. 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

Operating (non-GAAP) other (income) and expense was income of $191 million in the third quarter of 2025 and decreased $362 million compared to the prior-year period. The year-to-year change was primarily driven by the prior-year gain recognized from the sale of certain QRadar SaaS assets.

Current wording

Operating (non-GAAP) other (income) and expense was income of $98 million in the first quarter of 2026, a decrease $89 million compared to the prior-year period. The year-to-year change was primarily driven by higher net exchange losses (including derivative instruments).

Previous wording

Interest expense increased $63 million in the third quarter and $169 million in the first nine months of 2025 compared to the prior-year periods, driven by higher average interest rates and debt balances. In addition, when external borrowings support the Financing business, interest expense is reported in cost of financing on the Consolidated Income Statement. For the third quarter and first nine months of 2025, interest reported in cost of financing was $95 million and $268 million with year-to-year increases of $8 million and $14 million, respectively.

Current wording

Interest expense of $473 million in the first quarter of 2026 increased $18 million compared to the prior-year period, driven by higher average debt balances. In addition, when external borrowings support the Financing business, interest expense is presented in cost of financing on the Consolidated Income Statement. Interest reported in cost of financing in the first quarter of 2026 was $111 million, a year-to-year increase of $23 million.