IBM (NYSE: IBM) today announced third-quarter 2020 earnings results.
“The strong performance of our cloud business, led by Red Hat, underscores the growing client adoption of our open hybrid cloud platform," said Arvind Krishna, IBM chief executive officer. "Separating the managed infrastructure services business creates a market-leading standalone company and further sharpens our focus on IBM's open hybrid cloud platform and AI capabilities. This will accelerate our growth strategy and better position IBM to seize the $1 trillion hybrid cloud opportunity.”
Highlights for the third quarter include:
- GAAP EPS from continuing operations of $1.89
- Operating (non-GAAP) EPS of $2.58
-
Revenue of $17.6 billion, down 2.6 percent (down 3.1 percent adjusting for divested businesses and currency)
-- Cloud & Cognitive Software revenue up 7 percent (up 6 percent adjusting for currency) -
Total cloud revenue of $6.0 billion, up 19 percent
-- Total cloud revenue of $24.4 billion over the last 12 months, up 22 percent (up 25 percent adjusting for divested businesses and currency) - Red Hat revenue up 17 percent (up 16 percent adjusting for currency), normalized for historical comparability
- GAAP gross profit margin of 48 percent, up 180 basis points; Operating (non-GAAP) gross profit margin of 49 percent, up 160 basis points
- Net cash from operating activities of $15.8 billion and free cash flow of $10.8 billion, over the last 12 months
THIRD QUARTER 2020 | ||||||||||||||
Pre-tax | Gross | |||||||||||||
Diluted | Net | Pre-tax | Income | Profit | ||||||||||
EPS | Income | Income | Margin | Margin | ||||||||||
GAAP from Continuing Operations | $ | 1.89 | $ | 1.7B | $ | 1.8B | 10.4 | % | 48.0 | % | ||||
Year/Year | 1 | % | 2 | % | 20 | % | 2.0 | Pts | 1.8 | Pts | ||||
Operating (Non-GAAP) | $ | 2.58 | $ | 2.3B | $ | 2.6B | 14.7 | % | 49.0 | % | ||||
Year/Year | (4) | % | (3) | % | 8 | % | 1.4 | Pts | 1.6 | Pts | ||||
“In the third quarter we continued to deliver strong gross profit margin expansion, generated solid free cash flow and maintained a sound capital structure with ample liquidity," said James Kavanaugh, IBM senior vice president and chief financial officer. "We have the necessary financial flexibility to increase our investments in hybrid cloud and AI technology innovation and skills, while remaining committed to our long-standing dividend policy.”
Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities of $4.3 billion, or $1.9 billion excluding Global Financing receivables. IBM’s free cash flow was $1.1 billion. The company returned $1.5 billion to shareholders in dividends.
IBM ended the third quarter with $15.8 billion of cash on hand which includes marketable securities, up $6.7 billion from year-end 2019. Debt, including Global Financing debt of $20.9 billion, totaled $65.4 billion.
Segment Results for Third Quarter
Segment results reflect growing adoption of IBM's open hybrid cloud platform while clients continue to shift priorities to preserve cash and maintain operational stability.
- Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat, Cognitive Applications and Transaction Processing Platforms) — revenues of $5.6 billion, up 7 percent (up 6 percent adjusting for currency). Cloud & Data Platforms, grew 20 percent (up 19 percent adjusting for currency) led by Red Hat. Cognitive Applications grew 1 percent (flat adjusting for currency), led by Security and Supply Chain. Transaction Processing Platforms declined. Cloud revenue grew more than 60 percent.
- Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.0 billion, down 5 percent (down 6 percent adjusting for currency), driven by declines in Application Management and Consulting. Cloud revenue up 10 percent (up 9 percent adjusting for currency). Gross profit margin up 190 basis points.
- Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.5 billion, down 4 percent. Cloud revenue up 9 percent (up 8 percent adjusting for currency).
- Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.3 billion, down 15 percent (down 16 percent adjusting for currency), driven by declines in IBM Z and Storage Systems, reflecting the impact of product cycle dynamics.
- Global Financing (includes financing and used equipment sales) — revenues of $273 million, down 20 percent, reflecting the wind-down of OEM commercial financing. Gross profit margin up 60 basis points.
Year-To-Date 2020 Results
Year-to-date results reflect transaction-related impacts associated with the Red Hat acquisition, which closed in July 2019.
Consolidated diluted earnings per share was $4.72 compared with $6.45 per diluted share for the 2019 period, a decrease of 27 percent. Consolidated net income was $4.2 billion, down 27 percent year to year. Revenues for the nine-month period ended September 30, 2020 totaled $53.3 billion, a decrease of 4 percent year to year (down 2 percent adjusting for divested businesses and currency) compared with $55.4 billion for the first nine months of 2019.
Operating (non-GAAP) diluted earnings per share from continuing operations was $6.60 compared with $8.10 per diluted share for the 2019 period, a decrease of 19 percent. Operating (non-GAAP) net income for the nine months ended September 30, 2020 was $5.9 billion compared with $7.2 billion in the prior-year period, a decrease of 18 percent.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, but not limited to, the following: a downturn in economic environment and client spending budgets; the company’s failure to meet growth and productivity objectives; a failure of the company’s innovation initiatives; damage to the company’s reputation; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results; the possibility that the proposed separation of the managed infrastructure services unit of the company’s Global Technology Services segment will not be completed within the anticipated time period or at all, the possibility of disruption or unanticipated costs in connection with the proposed separation or the possibility that the separation will not achieve its intended benefits; impact of local legal, economic, political, health and other conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; impairment of the company’s goodwill or amortizable intangible assets; the company’s ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product quality issues; impacts of business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels and ecosystems; the company’s ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities, and higher debt levels; legal proceedings and investigatory risks; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Qs, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Any forward-looking statement in this release 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.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information, which management believes provides useful information to investors:
IBM results —
- adjusting for currency (i.e., at constant currency);
- total revenue and cloud revenue adjusting for divested businesses and currency;
- Red Hat revenue normalized for historical comparability;
- presenting operating (non-GAAP) earnings per share amounts and related income statement items;
- adjusting for free cash flow;
- net cash from operating activities, excluding Global Financing receivables.
The rationale for management’s use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8‑K that includes this press release and is being submitted today to the SEC.
Conference Call and Webcast
IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EDT, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-3q20. Presentation charts will be available shortly before the Webcast.
Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).
INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
REVENUE | ||||||||||||||||
Cloud & Cognitive Software | $ | 5,553 | $ | 5,201 | * | $ | 16,540 | $ | 15,731 | * | ||||||
Global Business Services | 3,965 | 4,160 | * | 11,992 | 12,513 | * | ||||||||||
Global Technology Services | 6,462 | 6,700 | 19,245 | 20,412 | ||||||||||||
Systems | 1,257 | 1,481 | 4,477 | 4,562 | ||||||||||||
Global Financing | 273 | 343 | 837 | 1,100 | ||||||||||||
Other | 50 | 142 | * | 163 | 1,053 | * | ||||||||||
TOTAL REVENUE | 17,560 | 18,028 | 53,253 | 55,370 | ||||||||||||
GROSS PROFIT | 8,430 | 8,336 | 25,052 | 25,388 | ||||||||||||
GROSS PROFIT MARGIN | ||||||||||||||||
Cloud & Cognitive Software | 77.1 | % | 74.5 | % | * | 76.6 | % | 76.0 | % | * | ||||||
Global Business Services | 32.9 | % | 31.1 | % | * | 29.5 | % | 27.8 | % | * | ||||||
Global Technology Services | 35.0 | % | 35.8 | % | 34.4 | % | 34.6 | % | ||||||||
Systems | 51.2 | % | 52.6 | % | 53.7 | % | 51.1 | % | ||||||||
Global Financing | 37.5 | % | 36.9 | % | 39.0 | % | 35.6 | % | ||||||||
TOTAL GROSS PROFIT MARGIN | 48.0 | % | 46.2 | % | 47.0 | % | 45.9 | % | ||||||||
EXPENSE AND OTHER INCOME | ||||||||||||||||
S,G&A | 4,647 | 5,024 | 15,849 | 15,171 | ||||||||||||
R,D&E | 1,515 | 1,553 | 4,722 | 4,393 | ||||||||||||
Intellectual property and custom development income | (134) | (166) | (453) | (489) | ||||||||||||
Other (income) and expense | 253 | (31) | 614 | (850) | ||||||||||||
Interest expense | 323 | 432 | 971 | 990 | ||||||||||||
TOTAL EXPENSE AND OTHER INCOME | 6,603 | 6,813 | 21,704 | 19,215 | ||||||||||||
INCOME FROM CONTINUING OPERATIONS | ||||||||||||||||
BEFORE INCOME TAXES | 1,827 | 1,522 | 3,348 | 6,173 | ||||||||||||
Pre-tax margin | 10.4 | % | 8.4 | % | 6.3 | % | 11.1 | % | ||||||||
Provision for / (Benefit from) income taxes | 128 | (151) | (888) | 407 | ||||||||||||
Effective tax rate | 7.0 | % | (9.9) | % | (26.5) | % | 6.6 | % | ||||||||
INCOME FROM CONTINUING OPERATIONS | $ | 1,698 | $ | 1,673 | $ | 4,237 | $ | 5,766 | ||||||||
DISCONTINUED OPERATIONS | ||||||||||||||||
Income / (Loss) from discontinued operations, net of taxes | (1) | (1) | (2) | (5) | ||||||||||||
NET INCOME | $ | 1,698 | $ | 1,672 | $ | 4,234 | $ | 5,761 | ||||||||
EARNINGS / (LOSS) PER SHARE OF COMMON STOCK | ||||||||||||||||
Assuming Dilution | ||||||||||||||||
Continuing Operations | $ | 1.89 | $ | 1.87 | $ | 4.72 | $ | 6.46 | ||||||||
Discontinued Operations | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.01) | ||||||||
TOTAL | $ | 1.89 | $ | 1.87 | $ | 4.72 | $ | 6.45 | ||||||||
Basic | ||||||||||||||||
Continuing Operations | $ | 1.90 | $ | 1.89 | $ | 4.76 | $ | 6.50 | ||||||||
Discontinued Operations | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.01) | ||||||||
TOTAL | $ | 1.90 | $ | 1.89 | $ | 4.76 | $ | 6.49 | ||||||||
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s) | ||||||||||||||||
Assuming Dilution | 897.3 | 892.8 | 895.8 | 892.5 | ||||||||||||
Basic | 891.4 | 886.0 | 889.6 | 887.3 | ||||||||||||
| _____________________________ |
* Recast to conform with 2020 presentation. |
INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) | ||||||
At | At | |||||
September 30, | December 31, | |||||
(Dollars in Millions) | 2020 | 2019 | ||||
ASSETS: | ||||||
Current Assets: | ||||||
Cash and cash equivalents | $ | 14,393 | $ | 8,172 | ||
Restricted cash | 160 | 141 | ||||
Marketable securities | 1,200 | 696 | ||||
Notes and accounts receivable - trade, net | 6,099 | 7,870 | ||||
Short-term financing receivables, net | 10,848 | 14,192 | ||||
Other accounts receivable, net | 923 | 1,733 | ||||
Inventories | 1,949 | 1,619 | ||||
Deferred costs | 2,084 | 1,896 | ||||
Prepaid expenses and other current assets | 2,188 | 2,101 | ||||
Total Current Assets | 39,845 | 38,420 | ||||
Property, plant and equipment, net | 9,958 | 10,010 | ||||
Operating right-of-use assets, net | 4,715 | 4,996 | ||||
Long-term financing receivables, net | 6,423 | 8,712 | ||||
Prepaid pension assets | 7,636 | 6,865 | ||||
Deferred costs | 2,438 | 2,472 | ||||
Deferred taxes | 8,852 | 5,182 | ||||
Goodwill | 58,355 | 58,222 | ||||
Intangibles, net | 13,962 | 15,235 | ||||
Investments and sundry assets | 1,944 | 2,074 | ||||
Total Assets | $ | 154,128 | $ | 152,186 | ||
LIABILITIES: | ||||||
Current Liabilities: | ||||||
Taxes | $ | 2,375 | $ | 2,839 | ||
Short-term debt | 10,285 | 8,797 | ||||
Accounts payable | 3,985 | 4,896 | ||||
Deferred income | 11,681 | 12,026 | ||||
Operating lease liabilities | 1,336 | 1,380 | ||||
Other liabilities | 8,332 | 7,763 | ||||
Total Current Liabilities | 37,993 | 37,701 | ||||
Long-term debt | 55,129 | 54,102 | ||||
Retirement related obligations | 16,732 | 17,142 | ||||
Deferred income | 3,820 | 3,851 | ||||
Operating lease liabilities | 3,635 | 3,879 | ||||
Other liabilities | 15,484 | 14,526 | ||||
Total Liabilities | 132,794 | 131,202 | ||||
EQUITY: | ||||||
IBM Stockholders’ Equity: | ||||||
Common stock | 56,366 | 55,895 | ||||
Retained earnings | 162,806 | 162,954 | ||||
Treasury stock — at cost | (169,380) | (169,413) | ||||
Accumulated other comprehensive income/(loss) | (28,584) | (28,597) | ||||
Total IBM Stockholders’ Equity | 21,208 | 20,841 | ||||
Noncontrolling interests | 126 | 144 | ||||
Total Equity | 21,334 | 20,985 | ||||
Total Liabilities and Equity | $ | 154,128 | $ | 152,186 | ||
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited) | |||||||||||||||
Trailing Twelve | |||||||||||||||
Three Months Ended | Nine Months Ended | Months Ended | |||||||||||||
September 30, | September 30, | September 30, | |||||||||||||
(Dollars in Millions) | 2020 | 2019 | 2020 | 2019 | 2020 | ||||||||||
Net Cash Provided by Operating Activities per GAAP: | $ | 4,286 | $ | 3,619 | $ | 12,337 | $ | 11,319 | $ | 15,789 | |||||
Less: change in Global Financing (GF) Receivables | 2,353 | 1,135 | 5,324 | 3,712 | 2,104 | ||||||||||
Capital Expenditures, Net | (829) | (681) | (2,262) | (1,725) | (2,907) | ||||||||||
Free Cash Flow | 1,104 | 1,803 | 4,751 | 5,882 | 10,778 | ||||||||||
Acquisitions | (17) | (32,587) | (37) | (32,630) | (37) | ||||||||||
Divestitures | (248) | 39 | 510 | 927 | 658 | ||||||||||
Dividends | (1,453) | (1,436) | (4,343) | (4,269) | (5,780) | ||||||||||
Share Repurchase | — | (126) | — | (1,361) | — | ||||||||||
Non-GF Debt | 1,019 | (4,967) | 4,977 | 28,432 | (663) | ||||||||||
Other (includes GF Net Receivables and GF Debt) | 1,098 | 1,823 | 886 | 1,755 | (160) | ||||||||||
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities | $ | 1,503 | $ | (35,451) | $ | 6,744 | $ | (1,265) | $ | 4,796 | |||||
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited) | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
(Dollars in Millions) | 2020 | 2019 | 2020 | 2019 | ||||||||
Net Income from Operations | $ | 1,698 | $ | 1,672 | $ | 4,234 | $ | 5,761 | ||||
Depreciation/Amortization of Intangibles | 1,683 | 1,669 | 4,996 | 4,409 | ||||||||
Stock-based Compensation | 222 | 220 | 658 | 468 | ||||||||
Working Capital / Other | (1,670) | (1,077) | (2,874) | (3,031) | ||||||||
Global Financing A/R | 2,353 | 1,135 | 5,324 | 3,712 | ||||||||
Net Cash Provided by Operating Activities | $ | 4,286 | $ | 3,619 | $ | 12,337 | $ | 11,319 | ||||
Capital Expenditures, net of payments & proceeds | (829) | (681) | (2,262) | (1,725) | ||||||||
Divestitures, net of cash transferred | (248) | 39 | 510 | 927 | ||||||||
Acquisitions, net of cash acquired | (17) | (32,587) | (37) | (32,630) | ||||||||
Marketable Securities / Other Investments, net | 762 | 2,856 | (680) | 6,365 | ||||||||
Net Cash Provided by / (Used in) Investing Activities | $ | (332) | $ | (30,373) | $ | (2,470) | $ | (27,064) | ||||
Debt, net of payments & proceeds | (252) | (6,608) | 1,067 | 20,465 | ||||||||
Dividends | (1,453) | (1,436) | (4,343) | (4,269) | ||||||||
Common Stock Repurchases | — | (126) | — | (1,361) | ||||||||
Common Stock Transactions - Other | 16 | (7) | (152) | (118) | ||||||||
Net Cash Provided by / (Used in) Financing Activities | $ | (1,689) | $ | (8,177) | $ | (3,428) | $ | 14,717 | ||||
Effect of Exchange Rate changes on Cash | 101 | (378) | (200) | (352) | ||||||||
Net Change in Cash, Cash Equivalents and Restricted Cash | $ | 2,366 | $ | (35,310) | $ | 6,239 | $ | (1,379) | ||||
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) | ||||||||||||||||
Three Months Ended September 30, 2020 | ||||||||||||||||
Cloud & | Global | Global | ||||||||||||||
Cognitive | Business | Technology | Global | |||||||||||||
(Dollars in Millions) | Software | Services | Services | Systems | Financing | |||||||||||
Revenue | ||||||||||||||||
External | $ | 5,553 | $ | 3,965 | $ | 6,462 | $ | 1,257 | $ | 273 | ||||||
Internal | 875 | 49 | 312 | 240 | 208 | |||||||||||
Total Segment Revenue | $ | 6,428 | $ | 4,014 | $ | 6,774 | $ | 1,497 | $ | 480 | ||||||
Pre-tax Income / (Loss) from Continuing Operations | 1,834 | 570 | 399 | (37) | 196 | |||||||||||
Pre-tax Margin | 28.5 | % | 14.2 | % | 5.9 | % | (2.5) | % | 40.7 | % | ||||||
Change YTY Revenue - External | 6.8 | % | (4.7) | % | (3.6) | % | (15.1) | % | (20.5) | % | ||||||
Change YTY Revenue - External @constant currency | 5.8 | % | (5.8) | % | (4.3) | % | (16.0) | % | (20.3) | % | ||||||
Three Months Ended September 30, 2019 | ||||||||||||||||
Cloud & | Global | Global | ||||||||||||||
Cognitive | Business | Technology | Global | |||||||||||||
(Dollars in Millions) | Software* | Services* | Services | Systems | Financing | |||||||||||
Revenue | ||||||||||||||||
External | $ | 5,201 | $ | 4,160 | $ | 6,700 | $ | 1,481 | $ | 343 | ||||||
Internal | 686 | 70 | 287 | 195 | 302 | |||||||||||
Total Segment Revenue | $ | 5,888 | $ | 4,230 | $ | 6,988 | $ | 1,676 | $ | 645 | ||||||
Pre-tax Income / (Loss) from Continuing Operations | 1,290 | 567 | 490 | 39 | 275 | |||||||||||
Pre-tax Margin | 21.9 | % | 13.4 | % | 7.0 | % | 2.3 | % | 42.6 | % | ||||||
| _____________________________ |
* Recast to conform with 2020 presentation. |
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) | ||||||||||||||||
Nine Months Ended September 30, 2020 | ||||||||||||||||
Cloud & | Global | Global | ||||||||||||||
Cognitive | Business | Technology | Global | |||||||||||||
(Dollars in Millions) | Software | Services | Services | Systems | Financing | |||||||||||
Revenue | ||||||||||||||||
External | $ | 16,540 | $ | 11,992 | $ | 19,245 | $ | 4,477 | $ | 837 | ||||||
Internal | 2,431 | 150 | 911 | 628 | 660 | |||||||||||
Total Segment Revenue | $ | 18,971 | $ | 12,142 | $ | 20,155 | $ | 5,106 | $ | 1,497 | ||||||
Pre-tax Income / (Loss) from Continuing Operations | 4,475 | 1,203 | 471 | (7) | 566 | |||||||||||
Pre-tax Margin | 23.6 | % | 9.9 | % | 2.3 | % | (0.1) | % | 37.8 | % | ||||||
Change YTY Revenue - External | 5.1 | % | (4.2) | % | (5.7) | % | (1.9) | % | (23.9) | % | ||||||
Change YTY Revenue - External @constant currency | 5.7 | % | (3.7) | % | (4.6) | % | (1.6) | % | (22.8) | % | ||||||
Nine Months Ended September 30, 2019 | ||||||||||||||||
Cloud & | Global | Global | ||||||||||||||
Cognitive | Business | Technology | Global | |||||||||||||
(Dollars in Millions) | Software* | Services* | Services | Systems | Financing | |||||||||||
Revenue | ||||||||||||||||
External | $ | 15,731 | $ | 12,513 | $ | 20,412 | $ | 4,562 | $ | 1,100 | ||||||
Internal | 2,135 | 213 | 879 | 528 | 884 | |||||||||||
Total Segment Revenue | $ | 17,865 | $ | 12,726 | $ | 21,291 | $ | 5,091 | $ | 1,983 | ||||||
Pre-tax Income / (Loss) from Continuing Operations | 5,082 | 1,154 | 1,000 | (101) | 803 | |||||||||||
Pre-tax Margin | 28.4 | % | 9.1 | % | 4.7 | % | (2.0) | % | 40.5 | % | ||||||
| _____________________________ |
* Recast to conform with 2020 presentation. |
INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts) | ||||||||||||||||
Three Months Ended September 30, 2020 | ||||||||||||||||
Continuing Operations | ||||||||||||||||
Acquisition- | Retirement- | Tax | ||||||||||||||
Related | Related | Reform | Operating | |||||||||||||
GAAP | Adjustments* | Adjustments** | Impacts | (Non-GAAP) | ||||||||||||
Gross Profit | $ | 8,430 | $ | 180 | $ | — | $ | — | $ | 8,610 | ||||||
Gross Profit Margin | 48.0 | % | 1.0 | Pts | — | — | 49.0 | % | ||||||||
S,G&A | 4,647 | (279) | — | — | 4,367 | |||||||||||
R,D&E | 1,515 | — | — | — | 1,515 | |||||||||||
Other (Income) & Expense | 253 | (1) | (291) | — | (39) | |||||||||||
Interest Expense | 323 | — | — | — | 323 | |||||||||||
Total Expense & Other (Income) | 6,603 | (280) | (291) | — | 6,032 | |||||||||||
Pre-tax Income from Continuing Operations | 1,827 | 460 | 291 | — | 2,578 | |||||||||||
Pre-tax Income Margin from Continuing Operations | 10.4 | % | 2.6 | Pts | 1.7 | Pts | — | 14.7 | % | |||||||
Provision for / (Benefit from) Income Taxes*** | 128 | 102 | 54 | (21) | 263 | |||||||||||
Effective Tax Rate | 7.0 | % | 2.7 | Pts | 1.3 | Pts | (0.8) | Pts | 10.2 | % | ||||||
Income from Continuing Operations | 1,698 | 358 | 237 | 21 | 2,315 | |||||||||||
Income Margin from Continuing Operations | 9.7 | % | 2.0 | Pts | 1.4 | Pts | 0.1 | Pts | 13.2 | % | ||||||
Diluted Earnings / (Loss) Per Share: Continuing Operations | $ | 1.89 | $ | 0.40 | $ | 0.26 | $ | 0.03 | $ | 2.58 | ||||||
Three Months Ended September 30, 2019 | ||||||||||||||||
Continuing Operations | ||||||||||||||||
Acquisition- | Retirement- | Tax | ||||||||||||||
Related | Related | Reform | Operating | |||||||||||||
GAAP | Adjustments* | Adjustments** | Impacts | (Non-GAAP) | ||||||||||||
Gross Profit | $ | 8,336 | $ | 209 | $ | — | $ | — | $ | 8,545 | ||||||
Gross Profit Margin | 46.2 | % | 1.2 | Pts | — | — | 47.4 | % | ||||||||
S,G&A | 5,024 | (451) | — | — | 4,573 | |||||||||||
R,D&E | 1,553 | (53) | — | — | 1,500 | |||||||||||
Other (Income) & Expense | (31) | 10 | (145) | — | (166) | |||||||||||
Interest Expense | 432 | (24) | — | — | 408 | |||||||||||
Total Expense & Other (Income) | 6,813 | (518) | (145) | — | 6,150 | |||||||||||
Pre-tax Income from Continuing Operations | 1,522 | 727 | 145 | — | 2,395 | |||||||||||
Pre-tax Income Margin from Continuing Operations | 8.4 | % | 4.0 | Pts | 0.8 | Pts | — | 13.3 | % | |||||||
Provision for / (Benefit from) Income Taxes*** | (151) | 142 | 16 | (5) | 1 | |||||||||||
Effective Tax Rate | (9.9) | % | 8.9 | Pts | 1.3 | Pts | (0.2) | Pts | 0.1 | % | ||||||
Income from Continuing Operations | 1,673 | 586 | 130 | 5 | 2,394 | |||||||||||
Income Margin from Continuing Operations | 9.3 | % | 3.3 | Pts | 0.7 | Pts | 0.0 | Pts | 13.3 | % | ||||||
Diluted Earnings / (Loss) Per Share: Continuing Operations | $ | 1.87 | $ | 0.66 | $ | 0.14 | $ | 0.01 | $ | 2.68 | ||||||
| _____________________________ | ||
* | Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. | |
** | Includes 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. | |
*** | Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results. | |
INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts) | ||||||||||||||||
Nine Months Ended September 30, 2020 | ||||||||||||||||
Continuing Operations | ||||||||||||||||
Acquisition- | Retirement- | Tax | ||||||||||||||
Related | Related | Reform | Operating | |||||||||||||
GAAP | Adjustments* | Adjustments** | Impacts | (Non-GAAP) | ||||||||||||
Gross Profit | $ | 25,052 | $ | 556 | $ | — | $ | — | $ | 25,608 | ||||||
Gross Profit Margin | 47.0 | % | 1.0 | Pts | — | — | 48.1 | % | ||||||||
S,G&A | 15,849 | (849) | — | — | 15,000 | |||||||||||
R,D&E | 4,722 | — | — | — | 4,722 | |||||||||||
Other (Income) & Expense | 614 | (2) | (829) | — | (217) | |||||||||||
Interest Expense | 971 | — | — | — | 971 | |||||||||||
Total Expense & Other (Income) | 21,704 | (851) | (829) | — | 20,024 | |||||||||||
Pre-tax Income from Continuing Operations | 3,348 | 1,407 | 829 | — | 5,584 | |||||||||||
Pre-tax Income Margin from Continuing Operations | 6.3 | % | 2.6 | Pts | 1.6 | Pts | — | 10.5 | % | |||||||
Provision for / (Benefit from) Income Taxes*** | (888) | 312 | 119 | 128 | (329) | |||||||||||
Effective Tax Rate | (26.5) | % | 12.3 | Pts | 6.1 | Pts | 2.3 | Pts | (5.9) | % | ||||||
Income from Continuing Operations | 4,237 | 1,095 | 710 | (128) | 5,913 | |||||||||||
Income Margin from Continuing Operations | 8.0 | % | 2.1 | Pts | 1.3 | Pts | (0.2) | Pts | 11.1 | % | ||||||
Diluted Earnings / (Loss) Per Share: Continuing Operations | $ | 4.72 | $ | 1.23 | $ | 0.79 | $ | (0.14) | $ | 6.60 | ||||||
Nine Months Ended September 30, 2019 | ||||||||||||||||
Continuing Operations | ||||||||||||||||
Acquisition- | Retirement- | Tax | ||||||||||||||
Related | Related | Reform | Operating | |||||||||||||
GAAP | Adjustments* | Adjustments** | Impacts | (Non-GAAP) | ||||||||||||
Gross Profit | $ | 25,388 | $ | 359 | $ | — | $ | — | $ | 25,747 | ||||||
Gross Profit Margin | 45.9 | % | 0.6 | Pts | — | — | 46.5 | % | ||||||||
S,G&A | 15,171 | (724) | — | — | 14,447 | |||||||||||
R,D&E | 4,393 | (53) | — | — | 4,340 | |||||||||||
Other (Income) & Expense | (850) | 152 | (419) | — | (1,118) | |||||||||||
Interest Expense | 990 | (228) | — | — | 762 | |||||||||||
Total Expense & Other (Income) | 19,215 | (853) | (419) | — | 17,942 | |||||||||||
Pre-tax Income from Continuing Operations | 6,173 | 1,212 | 419 | — | 7,805 | |||||||||||
Pre-tax Income Margin from Continuing Operations | 11.1 | % | 2.2 | Pts | 0.8 | Pts | — | 14.1 | % | |||||||
Provision for / (Benefit from) Income Taxes*** | 407 | 245 | 82 | (160) | 575 | |||||||||||
Effective Tax Rate | 6.6 | % | 2.1 | Pts | 0.7 | Pts | (2.0) | Pts | 7.4 | % | ||||||
Income from Continuing Operations | 5,766 | 967 | 338 | 160 | 7,230 | |||||||||||
Income Margin from Continuing Operations | 10.4 | % | 1.7 | Pts | 0.6 | Pts | 0.3 | Pts | 13.1 | % | ||||||
Diluted Earnings / (Loss) Per Share: Continuing Operations | $ | 6.46 | $ | 1.08 | $ | 0.38 | $ | 0.18 | $ | 8.10 | ||||||
| _____________________________ | ||
* | Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. | |
** | Includes 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. | |
*** | Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results. | |
INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts) | ||||||||||||||
Trailing | ||||||||||||||
Three Months Ended | Nine Months Ended | Twelve Months Ended | ||||||||||||
September 30, 2020 | September 30, 2020 | September 30, 2020 | ||||||||||||
Change YTY | Change YTY | Change YTY | ||||||||||||
Revenue Adjusting for Divested Businesses and Currency | Cloud | Total IBM | Total IBM | Cloud | ||||||||||
Revenue as reported | 19.2 | % | (2.6) | % | (3.8) | % | 22.2 | % | ||||||
Impact from divested businesses | 1.0 | Pts | 0.4 | Pts | 1.5 | Pts | 1.8 | Pts | ||||||
Currency impact | (1.3) | Pts | (0.9) | Pts | 0.7 | Pts | 0.6 | Pts | ||||||
Revenue adjusting for divested businesses and currency (non-GAAP) | 18.9 | % | (3.1) | % | (1.6) | % | 24.6 | % | ||||||
Three Months Ended | ||||
September 30, 2020 | ||||
Red Hat Revenue, Normalized for Historical Comparability | Change YTY | |||
Red Hat Revenue GAAP growth rate (1) | 163 | % | ||
Impact from Red Hat revenue prior to acquisition (2) | (26) | Pts | ||
Impact from purchase accounting deferred revenue and intercompany adjustments (3) | (120) | Pts | ||
Red Hat revenue growth rate, normalized for historical comparability (non-GAAP) | 17 | % | ||
Impact from currency | (1) | Pts | ||
Red Hat revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP) | 16 | % | ||
(1) Represents change in GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
(2) Red Hat revenue was included in IBM’s consolidated results beginning July 9, 2019. Revenue for July 1 – July 8, 2019 represents pre-acquisition Red Hat standalone revenue and is included for computing year over year change purposes.
(3) Represents change in the third-quarter 2020 impact of the deferred revenue purchase accounting adjustment and adjustments to add back revenue which was eliminated for sales between Red Hat and IBM. This line represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting and intercompany adjustments.
View source version on businesswire.com: https://www.businesswire.com/news/home/20201019005831/en/
Contacts:
Edward Barbini, 914‑499‑6565
barbini@us.ibm.com
John Bukovinsky, 732‑618‑3531
jbuko@us.ibm.com
