International Business Machines Corporation
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Item 1. Business:
International Business Machines Corporation (IBM or the company) was incorporated in the State of New York on June 16, 1911, as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation of the Computing Scale Co. of America, the Tabulating Machine Co. and The International Time Recording Co. of New York. Since that time, IBM has focused on the intersection of business insight and technological innovation, and its operations and aims have been international in nature. This was signaled over 100 years ago, in 1924, when C-T-R changed its name to International Business Machines Corporation. And it continues today—we create sustained value for clients by helping them leverage the power of hybrid cloud and artificial intelligence (AI). Our hybrid cloud platform and AI technology support clients’ digital transformations and helps them reimagine critical workflows, at scale, and modernize applications to increase agility, drive innovation and create operational efficiencies. Our offerings draw from leading IBM capabilities in software, consulting services capability to deliver business outcomes, and deep incumbency in mission-critical infrastructure, all bolstered by one of the world’s leading research organizations.
The following information is included in IBM’s 2025 Annual Report to Stockholders and is incorporated by reference:
IBM Strategy—pages 11 to 12.
Business Segments and Capabilities—pages 12 to 14.
Human Capital—page 15.
Strategic Partnerships
We proactively partner with a broad variety of companies including hyperscalers, service providers, global system integrators, and software and hardware vendors. We work alongside our partners to deliver end-to-end solutions that address our clients’ complex business challenges while accelerating growth. Our strategic partners include: Adobe, Amazon Web Services (AWS), Microsoft, Oracle, Palo Alto Networks, Salesforce, Samsung Electronics and SAP, among others.
Companies with which we have strategic partnerships in some areas may be competitors in other areas.
Competition
IBM is a globally integrated enterprise that participates in a highly competitive environment. Our competitors vary by industry segment, and range from large multinational enterprises to smaller, more narrowly focused entities. Across our business segments, we recognize hundreds of competitors worldwide and as we execute our hybrid cloud and AI strategy, we are regularly exposed to new competitors.
Our principal methods of competition are: technology innovation; performance; price; quality; brand; our breadth of capabilities, products and services; talent; client relationships and trust; the ability to deliver business value to clients; and service and support. In order to maintain leadership, we optimize our portfolio with organic and inorganic innovations and effective resource allocation. These investments not only drive current performance but will extend our innovation leadership into the future.
Our breadth and depth of expertise enables us to take different technologies and bring them together to solve the most pressing business issues of our clients. We differentiate from other providers by bringing together incumbency with enterprises, deep expertise in technology, industries and business processes, a broad go-to-market reach including an ecosystem of partners and alliances, and a strong focus on innovation. All of these attributes position IBM for accelerated growth now and prepare us for the next set of business opportunities, such as quantum computing.
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Overall, the company is the leader or among the leaders in each of our business segments. A summary of the competitive environment for each business segment is included below:
Software:
The depth, breadth, and innovation of our software offerings, coupled with our global reach, deep industry expertise and research capabilities help differentiate our offerings from our competitors. Our hybrid cloud and AI platforms allow clients to realize their digital and AI transformations across the applications, data, and environments in which they operate. The principal competitors in this segment include: Alphabet (Google), Amazon, BMC, Broadcom, Microsoft, Oracle, Salesforce, SAP and Splunk, a CISCO Company. We also compete with smaller, niche competitors in specific geographic regions or product segments.
Consulting:
Consulting integrates strategy, experience design, technology and operations expertise by domain across industries to deliver transformation for clients. Consulting operates in a highly competitive, dynamic market that spans business consulting, systems integration, application development and management, and business process outsourcing services. Our competitors include global firms such as Accenture, Capgemini, India-based service providers, management consulting firms, the consulting practices of public accounting firms, engineering service providers, and niche specialists. Our competitive position is supported by industry expertise; hybrid cloud, data, and AI capabilities; and the use of IBM technology and ecosystem partners to deliver solutions aligned to clients’ strategic priorities.
Infrastructure:
IBM is well positioned in the growing hybrid cloud infrastructure market, providing on-premises and cloud-based server and storage solutions. We gain advantage and differentiation through investments in higher-value capabilities, including security, scalability, and reliability, designed especially for mission-critical and AI workloads. In addition, we offer a portfolio of life-cycle services for hybrid cloud infrastructure deployment. Our principal competitors include: Dell Technologies, Hewlett-Packard Enterprise (HPE), Intel, NetApp and Pure Storage as well as original device manufacturers (ODMs) who provide systems that are re-branded. Further, cloud service providers are leveraging innovation in technology and service delivery to compete with traditional providers and to offer additional routes to market for server and storage systems.
Financing:
Financing provides client and commercial financing, facilitating IBM clients’ acquisition of hardware, software and services. Financing’s ability to manage credit and residual value risk generates a competitive advantage for the company. The key competitive factors include: interest rates charged, IT product experience, client service, contract flexibility, ease of doing business, global capabilities and residual values. In client and commercial financing, Financing primarily competes with non-captive financing entities and financial institutions.
Forward-Looking and Cautionary Statements
Certain statements contained in this Form 10-K may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Reform Act”). Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements by their nature address matters that are uncertain to different degrees. The company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission (“SEC”), in materials delivered to stockholders and in press releases. In addition, the company’s representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects,” and similar expressions, may identify such forward-looking statements. Any forward-looking statement in this Form 10-K speaks only as of the date on which it is made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements. In accordance with the Reform Act, set forth under Item 1A. “Risk Factors” on pages 3 to 10 are cautionary statements that accompany those forward-looking statements. Readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those
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cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-K, in the company’s filings with the SEC or in materials incorporated therein by reference.
The following information is included in IBM’s 2025 Annual Report to Stockholders and is incorporated herein by reference:
Segment information and revenue by classes of similar products or services—pages 65 to 68.
Financial information regarding environmental activities—pages 92 to 93.
The number of persons employed by the registrant—page 15.
The management discussion overview—pages 8 to 10.
Website information and company reporting—page 118.
Information About Our Executive Officers (at February 24, 2026):
| Age | Officer since | |||||||||
Arvind Krishna, Chairman of the Board, President and Chief Executive Officer (1) | 63 | 2020 | ||||||||
| Gary D. Cohn, Vice Chairman | 65 | 2021 | ||||||||
| Nicolas A. Fehring, Vice President and Controller | 47 | 2023 | ||||||||
James J. Kavanaugh, Senior Vice President, Finance and Operations, and Chief Financial Officer | 59 | 2008 | ||||||||
| Nickle J. LaMoreaux, Senior Vice President and Chief Human Resources Officer | 46 | 2020 | ||||||||
| Anne Robinson, Senior Vice President and Chief Legal Officer | 55 | 2024 | ||||||||
Robert D. Thomas, Senior Vice President, Software and Chief Commercial Officer | 51 | 2023 | ||||||||
(1) Member of the Board of Directors.
All executive officers are elected by the Board of Directors annually as provided in the Company’s By-laws. Each executive officer named above, with the exception of Anne Robinson, has been an executive of IBM or its subsidiaries during the past five years. Ms. Robinson previously served as Managing Director, General Counsel and Corporate Secretary of The Vanguard Group, Inc. and Secretary of the Vanguard funds from August 2016 until June 2024.
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026
Snapshot
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 management.
Within the tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain prior-period amounts have been reclassified to conform to the current-period presentation. This is annotated where applicable.
Currency:
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 70 for additional information.
Operating (non-GAAP) Earnings:
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.
Overall, management 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 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 analysts.
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Management Discussion – (continued)
Financial Results Summary — Three Months Ended June 30:
($ and shares in millions, except per share amounts) | Yr.-to-Yr. Percent/ Margin Change | ||||||||||||||||
| For the three months ended June 30: | 2026 | 2025 | |||||||||||||||
Revenue (1) | $ | 17,162 | $ | 16,977 | 1.1 | % | |||||||||||
| Gross profit margin | 57.7 | % | 58.8 | % | (1.0) | pts. | |||||||||||
Total expense and other (income) | $ | 7,428 | $ | 7,380 | 0.7 | % | |||||||||||
Income from continuing operations before income taxes | $ | 2,479 | $ | 2,597 | (4.5) | % | |||||||||||
Provision for/(benefit from) income taxes from continuing operations | $ | 313 | $ | 404 | (22.5) | % | |||||||||||
Income from continuing operations | $ | 2,166 | $ | 2,193 | (1.2) | % | |||||||||||
Income from continuing operations margin | 12.6 | % | 12.9 | % | (0.3) | pts. | |||||||||||
| Income/(loss) from discontinued operations, net of tax | $ | (1) | $ | 1 | nm | ||||||||||||
Net income | $ | 2,165 | $ | 2,194 | (1.3) | % | |||||||||||
Earnings per share from continuing operations - assuming dilution | $ | 2.27 | $ | 2.31 | (1.7) | % | |||||||||||
Consolidated earnings per share - assuming dilution | $ | 2.27 | $ | 2.31 | (1.7) | % | |||||||||||
| Weighted-average shares outstanding - assuming dilution | 953.3 | 948.0 | 0.6 | % | |||||||||||||
(1)Year-to-year revenue growth of 1 percent adjusted for currency.
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The following table provides the company’s operating (non-GAAP) earnings for the second quarter of 2026 and 2025.
($ in millions, except per share amounts) | Yr.-to-Yr. Percent Change | ||||||||||||||||
| For the three months ended June 30: | 2026 | 2025 | |||||||||||||||
Net income as reported | $ | 2,165 | $ | 2,194 | (1.3) | % | |||||||||||
| Income/(loss) from discontinued operations, net of tax | (1) | 1 | nm | ||||||||||||||
Income from continuing operations | $ | 2,166 | $ | 2,193 | (1.2) | % | |||||||||||
| Non-operating adjustments (net of tax): | |||||||||||||||||
| Acquisition-related charges | 548 | 443 | 23.8 | ||||||||||||||
Non-operating retirement-related costs/(income) | 76 | 17 | nm | ||||||||||||||
U.S. tax reform impacts | 2 | — | nm | ||||||||||||||
Operating (non-GAAP) earnings (1) | $ | 2,792 | $ | 2,652 | 5.3 | % | |||||||||||
Diluted operating (non-GAAP) earnings per share (1) | $ | 2.93 | $ | 2.80 | 4.6 | % | |||||||||||
(1)Refer to the quarter-to-date "GAAP Reconciliation" on page 65 for additional information.
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Financial Performance Summary — Three Months Ended June 30:
In the second quarter of 2026, we reported $17.2 billion in revenue, income from continuing operations of $2.2 billion, and operating (non-GAAP) earnings of $2.8 billion. Diluted earnings per share from continuing operations was $2.27 as reported and $2.93 on an operating (non-GAAP) basis. We generated $2.6 billion in cash from operations and $2.5 billion in free cash flow, and returned $1.6 billion to shareholders in dividends. While our second-quarter performance was below our expectations, we have conviction in the strength of our portfolio and the strategic direction of our business. We believe our strategic investments over the past several years continue to strengthen IBM's position as a software-led Hybrid Cloud and AI platform company and we continue to build leadership in quantum.
Total revenue grew 1.1 percent both as reported and adjusted for currency compared to the prior-year period. Software and Infrastructure revenue results were below our expectations, while Consulting was in-line. The Software shortfall was limited to a capital-sensitive area of the portfolio. While we are navigating near-term client buying dynamics that we will work through, about 80 percent of our software revenue is recurring in nature and delivered healthy growth in the quarter,
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Management Discussion – (continued)
reflecting the demand for our offerings and giving us confidence in our growth opportunity. Since the z17 was introduced in June 2025, this has been the strongest start to a mainframe program in our history, and we expected declines year to year in revenue. However, the results in the quarter were worse than our expectations, driven by a shortfall in our IBM Z performance and the associated software stack, primarily in Transaction Processing. In the final weeks of June, we saw a shift in client spending priorities that resulted in numerous large deals failing to close within the expected timelines, driving the majority of the shortfall. Many clients redirected spending toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. We saw this dynamic firsthand, with Distributed Infrastructure revenue increasing 37 percent, our strongest quarter on record.
Software delivered revenue growth of 5.1 percent as reported (4.6 percent adjusted for currency). Consulting revenue was flat as reported and increased 1.1 percent adjusted for currency. Infrastructure revenue decreased 7.4 percent both as reported and adjusted for currency.
From a geographic perspective, Americas revenue decreased 0.5 percent as reported (1.0 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 4.1 percent as reported (2.1 percent adjusted for currency). Asia Pacific increased 0.3 percent as reported (5.2 percent adjusted for currency).
Gross margin of 57.7 percent decreased 1.0 point year to year driven by our revenue shortfall and mix, partially offset by productivity actions. Operating (non-GAAP) gross margin of 59.4 percent decreased 0.7 points compared to the prior-year period due to the same dynamics.
Total expense and other (income) increased 0.7 percent in the second quarter of 2026 compared to the second quarter of 2025 driven by our investments in portfolio innovation, and higher amortization of acquired intangible assets and acquisition-related charges, partially offset by savings from productivity actions and the effects of currency. Total operating (non-GAAP) expense and other (income) decreased 1.5 percent year to year, driven by savings from productivity actions and the effects of currency, partially offset by our investments in portfolio innovations.
Pre-tax income from continuing operations of $2.5 billion decreased 4.5 percent compared to the prior-year period and pre-tax margin declined 0.9 points year to year to 14.4 percent. Software and Consulting segment profit margins improved year to year, while Infrastructure profit margin was impacted by the IBM Z shortfall and cycle dynamics. The continuing operations provision for income taxes was $0.3 billion in the second quarter of 2026, compared to $0.4 billion in the second quarter of 2025. Net income from continuing operations was essentially flat year to year. Net income from continuing operations margin of 12.6 percent, was down 0.3 points year to year.
Operating (non-GAAP) pre-tax income from continuing operations of $3.3 billion increased 2.9 percent compared to the second quarter of 2025 and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.3 points to 19.2 percent. The operating (non-GAAP) provision for income taxes was $0.5 billion in both the second quarter of 2026 and the second quarter of 2025. Operating (non-GAAP) net income from continuing operations of $2.8 billion increased 5.3 percent and the operating (non-GAAP) net income margin from continuing operations of 16.3 percent increased 0.6 point year to year.
Diluted earnings per share from continuing operations of $2.27 decreased 1.7 percent and operating (non-GAAP) diluted earnings per share of $2.93 increased 4.6 percent compared to the second quarter of 2025.
Cash provided by operating activities was $2.6 billion in the second quarter of 2026, an increase of $0.9 billion compared to the second quarter of 2025, which includes a decrease in cash used by financing receivables of $1.2 billion. Free cash flow was $2.5 billion, a decrease of $0.3 billion versus the prior-year period. Net cash used in investing activities was $0.5 billion, compared with net cash provided by investing activities of $1.7 billion in the prior-year period. Net cash used in financing activities of $5.7 billion increased $2.9 billion compared to the second quarter of 2025.
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Management Discussion – (continued)
Financial Results Summary — Six Months Ended June 30:
($ and shares in millions, except per share amounts) | Yr.-to-Yr. Percent/ Margin Change | ||||||||||||||||
| For the six months ended June 30: | 2026 | 2025 | |||||||||||||||
Revenue (1) | $ | 33,079 | $ | 31,519 | 5.0 | % | |||||||||||
| Gross profit margin | 57.0 | % | 57.1 | % | (0.1) | pts. | |||||||||||
| Total expense and other (income) | $ | 14,991 | $ | 14,253 | 5.2 | % | |||||||||||
| Income from continuing operations before income taxes | $ | 3,866 | $ | 3,755 | 3.0 | % | |||||||||||
Provision for/(benefit from) income taxes from continuing operations | $ | 484 | $ | 507 | (4.5) | % | |||||||||||
| Income from continuing operations | $ | 3,382 | $ | 3,248 | 4.1 | % | |||||||||||
| Income from continuing operations margin | 10.2 | % | 10.3 | % | (0.1) | pts. | |||||||||||
| Income/(loss) from discontinued operations, net of tax | $ | (1) | $ | 1 | nm | ||||||||||||
Net income | $ | 3,381 | $ | 3,249 | 4.1 | % | |||||||||||
| Earnings per share from continuing operations - assuming dilution | $ | 3.55 | $ | 3.43 | 3.5 | % | |||||||||||
Consolidated earnings per share - assuming dilution | $ | 3.55 | $ | 3.43 | 3.5 | % | |||||||||||
| Weighted-average shares outstanding - assuming dilution | 952.7 | 946.7 | 0.6 | % | |||||||||||||
| At 6/30/2026 | At 12/31/2025 | ||||||||||||||||
| Assets | $ | 152,099 | $ | 151,880 | 0.1 | % | |||||||||||
| Liabilities | $ | 117,558 | $ | 119,139 | (1.3) | % | |||||||||||
| Equity | $ | 34,541 | $ | 32,740 | 5.5 | % | |||||||||||
(1)Year-to-year revenue growth of 3 percent adjusted for currency.
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The following table provides the company’s operating (non-GAAP) earnings for the first six months of 2026 and 2025.
($ in millions, except per share amounts) | Yr.-to-Yr. Percent Change | ||||||||||||||||
| For the six months ended June 30: | 2026 | 2025 | |||||||||||||||
Net income as reported | $ | 3,381 | $ | 3,249 | 4.1 | % | |||||||||||
| Income/(loss) from discontinued operations, net of tax | (1) | 1 | nm | ||||||||||||||
Income from continuing operations | $ | 3,382 | $ | 3,248 | 4.1 | % | |||||||||||
| Non-operating adjustments (net of tax): | |||||||||||||||||
| Acquisition-related charges | 1,056 | 872 | 21.1 | ||||||||||||||
Non-operating retirement-related costs/(income) | 169 | 51 | 229.9 | ||||||||||||||
U.S. tax reform impacts | 6 | (2) | nm | ||||||||||||||
Operating (non-GAAP) earnings (1) | $ | 4,613 | $ | 4,169 | 10.7 | % | |||||||||||
Diluted operating (non-GAAP) earnings per share (1) | $ | 4.84 | $ | 4.40 | 10.0 | % | |||||||||||
(1)Refer to the year-to-date "GAAP Reconciliation" on page 66 for additional information.
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Financial Performance Summary —Six Months Ended June 30:
In the first six months of 2026, we reported $33.1 billion in revenue, net income from continuing operations of $3.4 billion, and operating (non-GAAP) earnings of $4.6 billion. Diluted earnings per share from continuing operations was $3.55 as reported and $4.84 on an operating (non-GAAP) basis. We generated $7.8 billion in cash from operations and $4.8 billion in free cash flow, and delivered shareholder returns of $3.2 billion in dividends. Our year-to-date performance was impacted by the dynamics we faced in the second quarter of 2026; however, it also reflects a focus on business fundamentals as we accelerate our productivity initiatives while continuing to invest in growth. We continue to maintain a
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Management Discussion – (continued)
strong liquidity position and a solid investment grade balance sheet which enables us to invest in our business and return value to shareholders through dividends.
Total revenue grew 5.0 percent as reported and 3.4 percent adjusted for currency compared to the prior-year period. Software grew 7.9 percent as reported (6.1 percent adjusted for currency). Consulting revenue increased 2.1 percent as reported (1.0 percent adjusted for currency). Infrastructure revenue increased 1.9 percent as reported (0.5 percent adjusted for currency).
From a geographic perspective, Americas revenue increased 3.9 percent year to year as reported (3.2 percent adjusted for currency). EMEA increased 9.1 percent (3.6 percent adjusted for currency). Asia Pacific increased 0.7 percent (3.6 percent adjusted for currency).
Gross margin of 57.0 percent and operating (non-GAAP) gross margin of 58.6 percent were essentially flat compared to the prior-year period and were impacted by the second quarter 2026 revenue shortfall and mix dynamics.
Total expense and other (income) increased 5.2 percent in the first six months of 2026 versus the prior-year period primarily driven by our investments in portfolio innovation, and higher amortization of acquired intangible assets and acquisition-related charges, partially offset by savings from productivity actions. Total operating (non-GAAP) expense and other (income) increased 3.4 percent year to year, driven primarily by the same factors excluding the higher amortization of acquired intangible assets and acquisition-related charges.
Pre-tax income from continuing operations of $3.9 billion increased 3.0 percent and pre-tax margin was 11.7 percent, a decline of 0.2 points as compared to the first six months of 2025. The continuing operations provision for income taxes in the first six months of 2026 and the first six months of 2025 was $0.5 billion. Net income from continuing operations of $3.4 billion increased 4.1 percent and the net income from continuing operations margin was 10.2 percent, down 0.1 points year to year. The year-to-year performance was primarily driven by first-half revenue growth and increased productivity, partially offset by our investments in portfolio innovation.
Operating (non-GAAP) pre-tax income from continuing operations of $5.4 billion increased 9.8 percent compared to the prior-year period and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.7 points to 16.4 percent. The operating (non-GAAP) provision for income taxes in the first six months of 2026 and the first six months of 2025 was $0.8 billion. Operating (non-GAAP) income from continuing operations of $4.6 billion increased 10.7 percent and the operating (non-GAAP) income margin from continuing operations of 13.9 percent increased 0.7 points year to year. The year-to-year performance is primarily driven by the same factors as described above.
Diluted earnings per share from continuing operations of $3.55 in the first six months of 2025 increased 3.5 percent and operating (non-GAAP) diluted earnings per share of $4.84 increased 10.0 percent compared to the first six months of 2025.
At June 30, 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 June 30, 2026 of $8.2 billion decreased $6.3 billion from December 31, 2025 and debt of $62.0 billion at June 30, 2026 increased $0.7 billion. The company continues to make investments in innovation both organically and through acquisitions, including the Confluent acquisition in first-quarter 2026.
Total assets increased $0.2 billion ($1.3 billion adjusted for currency) from December 31, 2025. Total liabilities decreased $1.6 billion ($0.5 billion adjusted for currency) from December 31, 2025. Total equity of $34.5 billion increased $1.8 billion from December 31, 2025.
Cash provided by operating activities was $7.8 billion in the first six months of 2026, an increase of $1.7 billion compared to the first six months of 2025, which includes an increase in cash provided by financing receivables of $1.7 billion. Free cash flow of $4.8 billion was essentially flat versus the prior-year period. Refer to page 72 for additional information on free cash flow. Net cash used in investing activities of $11.0 billion, which includes our investment in the acquisition of Confluent, decreased $0.3 billion compared to the prior-year period. Financing activities were a net use of cash of $3.0 billion in the first six months of 2026 compared to a net source of cash of $2.6 billion in the first six months of 2025.
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Management Discussion – (continued)
Second Quarter in Review
Results of Continuing Operations
Segment Details
The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the second quarter and the first six months of 2026 versus the second quarter and first six months of 2025 reportable segments results.
| ($ in millions) | Yr.-to-Yr. Percent/Margin Change | Yr.-to-Yr. Percent Change Adjusted For Currency | ||||||||||||||||||||
| For the three months ended June 30: | 2026 | 2025 | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||
| Software | $ | 7,761 | $ | 7,387 | 5.1 | % | 4.6 | % | ||||||||||||||
| Gross margin | 82.6 | % | 83.9 | % | (1.3) | pts. | ||||||||||||||||
| Consulting | 5,327 | 5,314 | 0.2 | % | 1.1 | % | ||||||||||||||||
| Gross margin | 28.9 | % | 27.5 | % | 1.4 | pts. | ||||||||||||||||
| Infrastructure | 3,835 | 4,142 | (7.4) | % | (7.4) | % | ||||||||||||||||
| Gross margin | 58.4 | % | 61.5 | % | (3.1) | pts. | ||||||||||||||||
| Financing | 186 | 166 | 12.2 | % | 11.3 | % | ||||||||||||||||
| Gross margin | 42.5 | % | 45.7 | % | (3.3) | pts. | ||||||||||||||||
Other (1) | 52 | (31) | nm | nm | ||||||||||||||||||
| Gross margin | nm | nm | nm | |||||||||||||||||||
| Total revenue | $ | 17,162 | $ | 16,977 | 1.1 % | 1.1 | % | |||||||||||||||
| Total gross profit | $ | 9,907 | $ | 9,977 | (0.7) | % | ||||||||||||||||
| Total gross margin | 57.7 | % | 58.8 | % | (1.0) | pts. | ||||||||||||||||
| Non-operating adjustments: | ||||||||||||||||||||||
| Amortization of acquired intangible assets | 287 | 225 | 27.2 % | |||||||||||||||||||
| Operating (non-GAAP) gross profit | $ | 10,194 | $ | 10,202 | (0.1) | % | ||||||||||||||||
| Operating (non-GAAP) gross margin | 59.4 | % | 60.1 | % | (0.7) | pts. | ||||||||||||||||
(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.
nm - not meaningful
50
Management Discussion – (continued)
| ($ in millions) | Yr.-to-Yr. Percent/Margin Change | Yr.-to-Yr. Percent Change Adjusted For Currency | ||||||||||||||||||||
| For the six months ended June 30: | 2026 | 2025 | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||
| Software | $ | 14,813 | $ | 13,722 | 7.9 | % | 6.1 | % | ||||||||||||||
| Gross margin | 82.7 | % | 83.7 | % | (1.1) | pts. | ||||||||||||||||
| Consulting | 10,599 | 10,382 | 2.1 | % | 1.0 | % | ||||||||||||||||
| Gross margin | 28.2 | % | 27.4 | % | 0.8 | pts. | ||||||||||||||||
| Infrastructure | ||||||||||||||||||||||
Next expected filings
- ~2026-10-22 10-Q expected by 2026-11-06 (in 58 days)
- ~2027-02-23 10-K expected by 2027-03-02 (in 182 days)
- ~2027-04-22 10-Q expected by 2027-05-07 (in 240 days)
- ~2027-07-22 10-Q expected by 2027-08-06 (in 331 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-08-11 424B5 Prospectus Supplement
- 2026-07-23 10-Q Quarterly Report
- 2026-07-22 8-K Earnings Release; Financial Statements and Exhibits
- 2026-07-14 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits
- 2026-06-23 8-K Material Agreement Entered; Material Financial Obligation; Financial Statements and Exhibits
- 2026-05-01 8-K Officer/Director Change; Bylaws/Articles Amended; Shareholder Vote Results
- 2026-04-30 S-8 Employee Benefit Plan Registration
- 2026-04-23 10-Q Quarterly Report
- 2026-04-22 8-K Earnings Release; Financial Statements and Exhibits
- 2026-02-24 10-K Annual Report
- 2026-01-30 8-K Officer/Director Change; Financial Statements and Exhibits
- 2026-01-28 8-K Earnings Release; Financial Statements and Exhibits
- 2025-10-23 10-Q Quarterly Report
- 2025-10-22 8-K Earnings Release; Financial Statements and Exhibits
- 2025-07-24 10-Q Quarterly Report