01—Abstract
Summary
Summary of the 10-K filed February 24, 2026. Cited figures are marked; the original filing is the authoritative source.
IBM's 2025 10-K shows a strong year: revenue rose 7.6% as reported (6.1% adjusted for currency) to $67.5 billiona, gross margin expanded 1.5 points to 58.2%, and continuing-operations net income nearly doubled to $10.6 billion (diluted EPS $11.14 vs. $6.42, though the 2024 base was depressed by a $3.1 billion non-cash pension settlement charge).
On a non-GAAP operating basis, diluted EPS was $11.59b, up 12.2%. Software (+10.6%, with Red Hat and Automation leading) and Infrastructure (+12.1%, driven by the z17 mainframe cycle, where IBM Z grew 51.7%) were the growth engines, while Consulting grew only 1.8% after a 13.3% decline in signings. The 2025 tax line was a benefit, driven by resolution of tax audit matters, which flatters reported EPS relative to operating earnings.
Cash generation and balance sheet were solid but more leveraged. Operating cash flow was $13.2 billionc and free cash flow $14.7 billion, which covered $6.3 billion in dividends. Total debt rose $6.3 billion to $61.3 billion following the $8.3 billion HashiCorp acquisition, and working capital turned negative (current ratio 0.96:1).
IBM also disclosed a pending ~$11 billiond acquisition of Confluent, expected to close around mid-2026, and issued another $7.4 billion of debt in early 2026 to fund corporate needs. Risk considerations include the company's dependence on Software and Consulting mix shifts, currency exposure (about 60% of revenue from outside the U.S.), the pace of AI and hybrid cloud adoption, and a large unrecognized tax benefit balance of $6.7 billion that could create volatility in future tax provisions. The company reported no material cybersecurity incidents to date, and share repurchases remained suspended, with no buybacks in Q4 2025.
02—Key points
Key Highlights
- Revenue of $67.5B, up 7.6% reported and 6.1% constant currency; Software +10.6% and Infrastructure +12.1%, while Consulting grew just 1.8%
- Gross margin expanded to 58.2% (+1.5 pts); operating (non-GAAP) EPS of $11.59, up 12.2%
- Reported diluted EPS of $11.17 total / $11.14 continuing ops, boosted by a $1.2B after-tax tax-audit benefit; GAAP tax rate was negative (-2.3%)
- Free cash flow of $14.7B (+$2.0B YoY) covered $6.3B in dividends; operating cash flow of $13.2B
- Total debt rose $6.3B to $61.3B after the $8.3B HashiCorp acquisition; working capital turned negative and current ratio fell to 0.96:1
- Pending ~$11B Confluent acquisition (shareholders approved Feb 12, 2026; close expected mid-2026); IBM issued $7.4B of new debt in early 2026
- Consulting signings fell 13.3% to $21.8B, a leading indicator that warrants monitoring; no share repurchases in Q4 2025 with $2.0B authorization remaining
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2025, International Business Machines Corp kept $0.16.
- Revenue$67.53B100.0%
- Cost of revenue−$28.24B41.8%
- Gross profit$39.30B58.2%
- Operating costs−$28.73B42.5%
- Operating income$10.57B15.7%
- Interest, other & tax$22.0M0.0%
- Net income$10.59B15.7%
Where FY2025 revenue went
$67.53B- Cost of revenue: $28.24B, 42% of revenue
- SG&A: $20.12B, 30% of revenue
- Operating income: $10.57B, 16% of revenue
- R&D: $8.32B, 12% of revenue
Kept 16% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2025filed February 24, 2026Financial Statements
FY2025 against FY2024
| Line item | FY2025FY2024 | Change |
|---|---|---|
| Revenue | $67.53B$62.75B | +7.6% |
| Cost of Revenue | $28.24B$27.20B | +3.8% |
| Gross Profit | $39.30B$35.55B | +10.5% |
| R&D Expenses | $8.32B$7.48B | +11.2% |
| SG&A Expenses | $20.12B$19.69B | +2.2% |
| Operating Income | $10.57B$6.01B | +75.7% |
| Interest Expense | $1.94B$1.71B | +13.0% |
| Net Income | $10.59B$6.02B | +75.9% |
| EPS (Basic) | $11.36$6.53 | +74.0% |
| EPS (Diluted) | $11.17$6.43 | +73.7% |
| Shares Outstanding (Basic) | 932.29M921.77M | +1.1% |
| Shares Outstanding (Diluted) | 948.68M937.16M | +1.2% |
05—Questions
Frequently Asked Questions
Why did reported EPS nearly double in 2025?
Part of the increase reflects the absence of the 2024 $3.1 billion pre-tax (≈$2.4B after-tax) non-cash pension settlement charge, which cut 2024 EPS by about $2.56. In 2025, a tax benefit from resolving tax audit matters further lifted results. On an operating (non-GAAP) basis, which excludes these items, EPS grew a more modest 12.2% to $11.59.
Is IBM's balance sheet becoming more leveraged?
Yes, somewhat. Total debt increased $6.3B to $61.3B, largely from first-quarter 2025 issuances used to fund the HashiCorp deal and future maturities, and Financing segment debt rose to $15.1B. Management states the company operates at a single-A credit rating and remains in compliance with all debt covenants, with no ratings-trigger provisions. Cash and marketable securities were $14.5B at year-end.
What are the main risks to the growth story?
Key risks include Consulting weakness (signings down 13.3%), dependence on the z17 mainframe cycle for Infrastructure growth that may not repeat, currency swings given roughly 60% of revenue comes from outside the U.S., and AI-driven competitive and pricing pressure. The filing also notes $6.7B of unrecognized tax benefits, with the IRS contesting several years of returns, which could cause volatility in future effective tax rates.
How significant is the pending Confluent acquisition?
IBM agreed in December 2025 to acquire Confluent for $31 per share in cash, a total enterprise value of about $11B, to be integrated into the Software segment. Confluent shareholders approved the deal on February 12, 2026, and closing is expected by mid-2026 pending regulatory approvals. It would add to debt and goodwill, and its integration and any cash impact will be key items to watch.
Is IBM's dividend and shareholder return policy secure?
The dividend was raised to $1.68 per quarter in 2025 and was reaffirmed in January 2026. Dividends paid totaled $6.3B in 2025, comfortably covered by $14.7B of free cash flow. However, share repurchases remain suspended since the 2019 Red Hat acquisition, and the company has no buybacks in Q4 2025, so cash returns are dividend-only at present.
06—Continue