Income Tax Accounting Policy
Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Analyst Adjustments: Removal of Deferred Taxes
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the tax effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Valuation allowances are recognized to reduce deferred tax assets to the amount that will more likely than not be realized. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. When IBM changes its determination as to the amount of deferred tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to income tax expense in the period in which such determination is made.

IBM recognizes tax liabilities when, despite IBM’s belief that its tax return positions are supportable, IBM believes that certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The current portion of tax liabilities is included in taxes and the noncurrent portion of tax liabilities is included in other liabilities in the Consolidated Statement of Financial Position. To the extent that new information becomes available which causes IBM to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

The U.S. Tax Cuts and Jobs Act introduced GILTI, which subjects a U.S. shareholder to current tax on income earned by certain foreign subsidiaries. The Financial Accounting Standards Board (FASB) allows companies to either (1) recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years (deferred method) or (2) account for taxes on GILTI as period costs in the year the tax is incurred (period method). IBM elected the deferred method and in order to record the initial deferred taxes for GILTI, IBM estimated the impact of foreign temporary differences on GILTI in future years. This included consideration of statutory limitation impacts on the GILTI calculation.

Source: 10-K (filing date: 2019-02-26).

International Business Machines Corp., income tax expense (benefit), continuing operations

USD $ in millions

	12 months ended	Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	U.S. federal
	U.S. state and local
	Non-U.S.
	Current
	U.S. federal
	U.S. state and local
	Non-U.S.
	Deferred
	Provision for income taxes

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

Item	Description	The company
Current	Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations.	International Business Machines Corp.’s current increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.
Deferred	Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.	International Business Machines Corp.’s deferred increased from 2016 to 2017 and from 2017 to 2018.
Provision for income taxes	Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	International Business Machines Corp.’s provision for income taxes increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.

International Business Machines Corp., effective income tax rate (EITR) reconciliation

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Statutory tax rate
	Foreign tax differential
	Intra-entity transfers
	Domestic incentives
	State and local
	Japan resolution
	Other
	Effective tax rate, before enactment of U.S. tax reform
	Enactment of U.S. tax reform
	Effective tax rate

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

Item	Description	The company
Effective tax rate, before enactment of U.S. tax reform	Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	International Business Machines Corp.’s effective tax rate, before enactment of U.S. tax reform declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

International Business Machines Corp., components of deferred tax assets and liabilities

USD $ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Retirement benefits
	Share-based and other compensation
	Domestic tax loss/credit carryforwards
	Deferred income
	Foreign tax loss/credit carryforwards
	Bad debt, inventory and warranty reserves
	Depreciation
	Accruals
	Intangible assets
	Other
	Gross deferred tax assets
	Valuation allowance
	Net deferred tax assets
	Depreciation
	Retirement benefits
	Goodwill and intangible assets
	Leases
	Software development costs
	Deferred transition costs
	GILTI deferred taxes
	Undistributed foreign earnings
	Other
	Gross deferred tax liabilities
	Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

Item	Description	The company
Gross deferred tax assets	Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	International Business Machines Corp.’s gross deferred tax assets declined from 2016 to 2017 but then slightly increased from 2017 to 2018.
Net deferred tax assets	Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	International Business Machines Corp.’s net deferred tax assets declined from 2016 to 2017 but then slightly increased from 2017 to 2018.
Net deferred tax assets (liabilities)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting.	International Business Machines Corp.’s net deferred tax assets (liabilities) declined from 2016 to 2017 and from 2017 to 2018.

International Business Machines Corp., deferred tax assets and liabilities, classification

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current deferred tax assets
	Noncurrent deferred tax assets
	Current deferred tax liabilities
	Noncurrent deferred tax liabilities

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

Item	Description	The company
Noncurrent deferred tax assets	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent.	International Business Machines Corp.’s noncurrent deferred tax assets declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.
Noncurrent deferred tax liabilities	Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent.	International Business Machines Corp.’s noncurrent deferred tax liabilities increased from 2016 to 2017 and from 2017 to 2018.

International Business Machines Corp., adjustments to financial data

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Current Assets
	Current assets (as reported)
	Less: Current deferred tax assets, net
	Current assets (adjusted)
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Current deferred tax assets, net
	Less: Noncurrent deferred tax assets, net
	Total assets (adjusted)
	Adjustment to Current Liabilities
	Current liabilities (as reported)
	Less: Current deferred tax liabilities, net
	Current liabilities (adjusted)
	Adjustment to Total Liabilities
	Total liabilities (as reported)
	Less: Current deferred tax liabilities, net
	Less: Noncurrent deferred tax liabilities, net
	Total liabilities (adjusted)
	Adjustment to Total IBM Stockholders’ Equity
	Total IBM stockholders’ equity (as reported)
	Less: Net deferred tax assets (liabilities)
	Total IBM stockholders’ equity (adjusted)
	Adjustment to Net Income Attributable To IBM
	Net income attributable to IBM (as reported)
	Add: Deferred income tax expense (benefit)
	Net income attributable to IBM (adjusted)

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

International Business Machines Corp., Financial Data: Reported vs. Adjusted

International Business Machines Corp., adjusted ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current Ratio
	Reported current ratio
	Adjusted current ratio
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	International Business Machines Corp.’s adjusted current ratio improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	International Business Machines Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	International Business Machines Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	International Business Machines Corp.’s adjusted financial leverage increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	International Business Machines Corp.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	International Business Machines Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

International Business Machines Corp., Ratios: Reported vs. Adjusted

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Current assets
	Current liabilities
	Ratio
	Current ratio¹
	Adjusted for Deferred Taxes
	Selected Financial Data (USD $ in millions)
	Adjusted current assets
	Adjusted current liabilities
	Ratio
	Adjusted current ratio²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	International Business Machines Corp.’s adjusted current ratio improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net income attributable to IBM
	Revenue
	Ratio
	Net profit margin¹
	Adjusted for Deferred Taxes
	Selected Financial Data (USD $ in millions)
	Adjusted net income attributable to IBM
	Revenue
	Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ Net profit margin = 100 × Net income attributable to IBM ÷ Revenue
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net income attributable to IBM ÷ Revenue
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	International Business Machines Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Revenue
	Total assets
	Ratio
	Total asset turnover¹
	Adjusted for Deferred Taxes
	Selected Financial Data (USD $ in millions)
	Revenue
	Adjusted total assets
	Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ Total asset turnover = Revenue ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	International Business Machines Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Total assets
	Total IBM stockholders’ equity
	Ratio
	Financial leverage¹
	Adjusted for Deferred Taxes
	Selected Financial Data (USD $ in millions)
	Adjusted total assets
	Adjusted total IBM stockholders’ equity
	Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ Financial leverage = Total assets ÷ Total IBM stockholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total IBM stockholders’ equity
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	International Business Machines Corp.’s adjusted financial leverage increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net income attributable to IBM
	Total IBM stockholders’ equity
	Ratio
	ROE¹
	Adjusted for Deferred Taxes
	Selected Financial Data (USD $ in millions)
	Adjusted net income attributable to IBM
	Adjusted total IBM stockholders’ equity
	Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ ROE = 100 × Net income attributable to IBM ÷ Total IBM stockholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Adjusted net income attributable to IBM ÷ Adjusted total IBM stockholders’ equity
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	International Business Machines Corp.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net income attributable to IBM
	Total assets
	Ratio
	ROA¹
	Adjusted for Deferred Taxes
	Selected Financial Data (USD $ in millions)
	Adjusted net income attributable to IBM
	Adjusted total assets
	Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ ROA = 100 × Net income attributable to IBM ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Adjusted net income attributable to IBM ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	International Business Machines Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

	International Business Machines Corp.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

	All companies
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

International Business Machines Corp. (IBM)

Analysis of Income Taxes

Income Tax Accounting Policy

Income Tax Expense (Benefit)

Effective Income Tax Rate (EITR)

Components of Deferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities, Classification

Analyst Adjustments: Removal of Deferred Taxes

International Business Machines Corp., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Deferred Taxes (Summary)

International Business Machines Corp., Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)