REG-International Business Machines Corp: 3rd Quarter Results
26/10/2023 07:15
IBM RELEASES THIRD-QUARTER RESULTS
Revenue growth led by Software and Consulting; Strong profit and cash
generation
ARMONK, N.Y., Oct. 25, 2023 -- IBM (NYSE: IBM (http://www.ibm.com/investor))
today announced third-quarter 2023 earnings results.
"Technology remains a critical source of competitive differentiation and
progress for organizations around the world," said Arvind Krishna, IBM
chairman and chief executive officer. "Clients are increasingly adopting our
watsonx AI and data platform along with our hybrid cloud solutions to unlock
productivity and operational efficiency. This is helping drive solid growth in
our software and consulting businesses. As a result, we remain confident in
our revenue and free cash flow growth expectations for the full year."
Third-Quarter Highlights
* Revenue
- Revenue of $14.8 billion, up 4.6 percent, up 3.5 percent at constant
currency
- Software revenue up 8 percent, up 6 percent at constant currency
- Consulting revenue up 6 percent, up 5 percent at constant currency
- Infrastructure revenue down 2 percent, down 3 percent at constant currency
* Profit Margin
- Gross Profit Margin: GAAP: 54.4 percent, up 1.7 points; Operating
(Non-GAAP): 55.5 percent, up 1.6 points
- Pre-Tax Income Margin: GAAP: 12.7 percent, up 44.6 points; Operating
(Non-GAAP): 15.6 percent, up 1.7 points
* Cash Flow
- Year to date net cash from operating activities of $9.5 billion, up $3.0
billion; free cash flow of $5.1 billion, up $1.0 billion
THIRD QUARTER 2023 INCOME STATEMENT SUMMARY
Revenue Gross Profit Gross Pre-tax Income Pre-tax Income Margin Net Income Diluted Earnings Per Share
Profit
Margin
GAAP from $ 14.8 B $ 8.0 B 54.4 % $ 1.9 B 12.7 % $ 1.7 B $ 1.86
Continuing
Operations
Year/Year 4.6 %* 8 % 1.7 Pts NM ** 44.6 Pts** NM ** NM **
Operating (Non-GAAP) $ 8.2 B 55.5 % $ 2.3 B 15.6 % $ 2.0 B $ 2.20
Year/Year 8 % 1.6 Pts 17 % 1.7 Pts 23 % 22 %
* 3.5% at constant currency
** GAAP YTY results include the impact of a one-time, non-cash pension settlement charge related to the transfer of a portion of the company's U.S. defined benefit pension obligations and related plan assets to third-party insurers in third quarter 2022.
"Our continued focus on the fundamentals of our business is driving solid
revenue growth, profit margin expansion, and strong cash generation," said
James Kavanaugh, IBM senior vice president and chief financial officer. "That
cash generation has enabled us to increase our investment in R&D and
acquisitions, strengthening our future AI and hybrid cloud capabilities, while
supporting continued shareholder returns through our dividend."
Segment Results for Third Quarter
* Software — revenues of $6.3 billion, up 7.8 percent, up 6.3 percent at
constant currency:
- Hybrid Platform & Solutions up 8 percent, up 7 percent at constant
currency:
-- Red Hat up 9 percent, up 8 percent at constant currency
-- Automation up 14 percent, up 13 percent at constant currency
-- Data & AI up 6 percent
-- Security down 2 percent, down 3 percent at constant currency
- Transaction Processing up 7 percent, up 5 percent at constant currency
* Consulting — revenues of $5.0 billion, up 5.6 percent, up 5.0 percent at
constant currency:
- Business Transformation up 6 percent, up 5 percent at constant currency
- Technology Consulting up 2 percent, up 1 percent at constant currency
- Application Operations up 7 percent
* Infrastructure — revenues of $3.3 billion, down 2.4 percent, down 3.2
percent at constant currency:
- Hybrid Infrastructure up 1 percent, flat at constant currency
-- IBM zSystems up 9 percent
-- Distributed Infrastructure down 4 percent, down 6 percent at
constant currency
- Infrastructure Support down 6 percent, down 7 percent at constant currency
* Financing — revenues of $0.2 billion, up 6.9 percent, up 5.1 percent at
constant currency
Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities
of $3.1 billion, up $1.2 billion year to year. Net cash from operating
activities excluding IBM Financing receivables was $2.0 billion. IBM's free
cash flow was $1.7 billion, up $0.9 billion year to year. The company returned
$1.5 billion to shareholders in dividends in the third quarter.
For the first nine months of the year, the company generated net cash from
operating activities of $9.5 billion, up $3.0 billion year to year. Net cash
from operating activities excluding IBM Financing receivables was $6.3
billion. IBM's free cash flow was $5.1 billion, up $1.0 billion year to year.
IBM ended the third quarter with $11.0 billion of cash and marketable
securities, up $2.2 billion from year-end 2022. Debt, including IBM Financing
debt of $9.9 billion, totaled $55.2 billion, up $4.3 billion since the end of
2022.
Full-Year 2023 Expectations
* Revenue: The company continues to expect constant currency revenue growth of
three percent to five percent. At current foreign exchange rates, currency is
expected to be about a one-point headwind to revenue growth.
* Free cash flow: The company continues to expect about $10.5 billion in free
cash flow, up more than $1 billion year to year.
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; 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; 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; fluctuations in financial results; impact of local legal,
economic, political, health and other conditions; the company's failure to
meet growth and productivity objectives; 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; reliance on third party distribution channels and
ecosystems; cybersecurity and data privacy considerations; adverse effects
related to climate change and environmental matters; tax matters; legal
proceedings and investigatory risks; the company's pension plans; currency
fluctuations and customer financing risks; impact of changes in market
liquidity conditions and customer credit risk on receivables; potential
failure of the separation of Kyndryl Holdings, Inc. to qualify for tax-free
treatment; 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 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);
* presenting operating (non-GAAP) earnings per share amounts and related
income statement items;
* free cash flow;
* net cash from operating activities excluding IBM 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. ET, today. The Webcast may be accessed via a link
at https://www.ibm.com/investor/events/earnings-3q23. 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).
Contact: IBM
Sarah Meron, 347-891-1770
sarah.meron@ibm.com
Tim Davidson, 914-844-7847
tfdavids@us.ibm.com
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,
2023 2022* 2023 2022*
REVENUE BY SEGMENT
Software $ 6,265 $ 5,811 $ 18,794 $ 17,749
Consulting 4,963 4,700 14,938 14,337
Infrastructure 3,272 3,352 9,988 10,805
Financing 186 174 566 474
Other 67 70 192 475
TOTAL REVENUE 14,752 14,107 44,479 43,840
GROSS PROFIT 8,023 7,430 24,033 23,055
GROSS PROFIT MARGIN
Software 79.5 % 79.0 % 79.4 % 79.0 %
Consulting 27.4 % 26.0 % 26.2 % 24.8 %
Infrastructure 53.5 % 50.8 % 53.8 % 51.9 %
Financing 49.7 % 32.8 % 47.5 % 35.1 %
TOTAL GROSS PROFIT MARGIN 54.4 % 52.7 % 54.0 % 52.6 %
EXPENSE AND OTHER INCOME
S,G&A 4,458 4,391 14,212 13,843
R,D&E 1,685 1,611 5,027 4,963
Intellectual property and custom development income (190) (121) (618) (418)
Other (income) and expense (215) 5,755 (721) 5,921
Interest expense 412 295 1,202 903
TOTAL EXPENSE AND OTHER INCOME 6,150 11,931 19,102 25,212
INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,873 (4,501) 4,931 (2,156)
Pre-tax margin 12.7 % (31.9) % 11.1 % (4.9) %
Provision for/(Benefit from) income taxes 159 (1,287) 702 (1,070)
Effective tax rate 8.5 % 28.6 % 14.2 % 49.6 %
INCOME/(LOSS) FROM CONTINUING OPERATIONS $ 1,714 $ (3,214) $ 4,229 $ (1,087)
DISCONTINUED OPERATIONS
Income/(loss) from discontinued operations, net of taxes (10) 18 (15) 16
NET INCOME/(LOSS) $ 1,704 $ (3,196) $ 4,214 $ (1,071)
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations $ 1.86 $ (3.55) $ 4.59 $ (1.21)
Discontinued Operations $ (0.01) $ 0.02 $ (0.02) $ 0.02
TOTAL $ 1.84 $ (3.54) $ 4.58 $ (1.19)
Basic
Continuing Operations $ 1.88 $ (3.55) $ 4.65 $ (1.21)
Discontinued Operations $ (0.01) $ 0.02 $ (0.02) $ 0.02
TOTAL $ 1.87 $ (3.54) $ 4.63 $ (1.19)
WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (M's)
Assuming Dilution 923.7 904.1 920.3 901.6
Basic 912.8 904.1 910.1 901.6
_________________________
* Includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax).
INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in Millions) At At
September 30, December 31,
2023 2022
ASSETS:
Current Assets:
Cash and cash equivalents $ 7,257 $ 7,886
Restricted cash 19 103
Marketable securities 3,721 852
Notes and accounts receivable - trade, net 5,330 6,541
Short-term financing receivables, net 5,625 7,790
Other accounts receivable, net 842 817
Inventories 1,399 1,552
Deferred costs 931 967
Prepaid expenses and other current assets 2,582 2,611
Total Current Assets 27,705 29,118
Property, plant and equipment, net 5,369 5,334
Operating right-of-use assets, net 3,112 2,878
Long-term financing receivables, net 4,789 5,806
Prepaid pension assets 8,901 8,236
Deferred costs 822 866
Deferred taxes 6,168 6,256
Goodwill 59,596 55,949
Intangibles, net 11,278 11,184
Investments and sundry assets 1,582 1,617
Total Assets $ 129,321 $ 127,243
LIABILITIES:
Current Liabilities:
Taxes $ 1,559 $ 2,196
Short-term debt 6,414 4,760
Accounts payable 3,342 4,051
Deferred income 11,917 12,032
Operating lease liabilities 807 874
Other liabilities 6,566 7,592
Total Current Liabilities 30,606 31,505
Long-term debt 48,828 46,189
Retirement related obligations 9,090 9,596
Deferred income 3,085 3,499
Operating lease liabilities 2,476 2,190
Other liabilities 12,081 12,243
Total Liabilities 106,165 105,222
EQUITY:
IBM Stockholders' Equity:
Common stock 59,313 58,343
Retained earnings 149,506 149,825
Treasury stock — at cost (169,640) (169,484)
Accumulated other comprehensive income/(loss) (16,098) (16,740)
Total IBM Stockholders' Equity 23,081 21,944
Noncontrolling interests 75 77
Total Equity 23,156 22,021
Total Liabilities and Equity $ 129,321 $ 127,243
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited)
Three Months Ended Nine Months Ended Trailing Twelve
September 30, September 30, Months Ended
September 30,
(Dollars in Millions) 2023 2022 2023 2022* 2023
Net Cash from Operations per GAAP $ 3,055 $ 1,901 $ 9,468 $ 6,470 $ 13,432
Less: change in IBM Financing receivables 1,092 704 3,119 1,071 1,331
Capital Expenditures, net (282) (445) (1,226) (1,317) (1,769)
Free Cash Flow 1,682 752 5,123 4,082 10,332
Acquisitions (4,589) (62) (4,945) (1,020) (6,274)
Divestitures (10) 3 (4) 1,271 (3)
Dividends (1,515) (1,491) (4,522) (4,454) (6,016)
Non-Financing Debt (942) 2,946 7,572 4,686 4,795
Other (includes IBM Financing net receivables and 41 (198) (1,068) (2,395) (1,566)
debt)
Change in Cash, Cash Equivalents, Restricted Cash $ (5,333) $ 1,950 $ 2,156 $ 2,171 $ 1,268
and Short-term Marketable Securities
_________________________
* Includes immaterial cash flows from discontinued operations.
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in Millions) 2023 2022 2023 2022*
Net Income/(Loss) from Operations $ 1,704 $ (3,196) $ 4,214 $ (1,071)
Pension Settlement Charge - 5,894 - 5,894
Depreciation/Amortization of Intangibles 1,093 1,163 3,243 3,665
Stock-based Compensation 286 251 843 739
Working Capital / Other (1,119) (2,914) (1,952) (3,827)
IBM Financing A/R 1,092 704 3,119 1,071
Net Cash Provided by Operating Activities $ 3,055 $ 1,901 $ 9,468 $ 6,470
Capital Expenditures, net of payments & proceeds (282) (445) (1,226) (1,317)
Divestitures, net of cash transferred (10) 3 (4) 1,271
Acquisitions, net of cash acquired (4,589) (62) (4,945) (1,020)
Marketable Securities / Other Investments, net 2,927 (1,193) (3,732) (1,818)
Net Cash Provided by/(Used in) Investing Activities $ (1,953) $ (1,697) $ (9,906) $ (2,883)
Debt, net of payments & proceeds (1,550) 2,138 4,619 2,572
Dividends (1,515) (1,491) (4,522) (4,454)
Financing - Other (67) 67 (252) (223)
Net Cash Provided by/(Used in) Financing Activities $ (3,132) $ 714 $ (154) $ (2,106)
Effect of Exchange Rate changes on Cash (119) (197) (120) (463)
Net Change in Cash, Cash Equivalents and Restricted $ (2,149) $ 721 $ (713) $ 1,018
Cash
_________________________
* Includes immaterial cash flows from discontinued operations.
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)
Three Months Ended September 30, 2023
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 6,265 $ 4,963 $ 3,272 $ 186
Pre-tax Income from Continuing Operations* $ 1,486 $ 509 $ 387 $ 91
Pre-tax Margin* 23.7 % 10.2 % 11.8 % 49.2 %
Change YTY Revenue 7.8 % 5.6 % (2.4) % 6.9 %
Change YTY Revenue - Constant Currency 6.3 % 5.0 % (3.2) % 5.1 %
Three Months Ended September 30, 2022
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 5,811 $ 4,700 $ 3,352 $ 174
Pre-tax Income from Continuing Operations $ 1,306 $ 462 $ 280 $ 79
Pre-tax Margin 22.5 % 9.8 % 8.3 % 45.4 %
_________________________
* The third quarter 2023 pre-tax charge of approximately $0.03 billion for workforce rebalancing is not included in the measure of
segment pre-tax income, consistent with the company's management system.
Nine Months Ended September 30, 2023
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 18,794 $ 14,938 $ 9,988 $ 566
Pre-tax Income from Continuing Operations* $ 4,154 $ 1,336 $ 1,236 $ 256
Pre-tax Margin* 22.1 % 8.9 % 12.4 % 45.3 %
Change YTY Revenue 5.9 % 4.2 % (7.6) % 19.5 %
Change YTY Revenue - Constant Currency 6.5 % 6.4 % (6.4) % 20.3 %
Nine Months Ended September 30, 2022
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 17,749 $ 14,337 $ 10,805 $ 474
Pre-tax Income from Continuing Operations $ 3,816 $ 1,154 $ 1,236 $ 265
Pre-tax Margin 21.5 % 8.0 % 11.4 % 55.9 %
_________________________
* The year-to-date 2023 pre-tax charge of approximately $0.41 billion for workforce rebalancing is not included in the measure of
segment pre-tax income, consistent with the company's management system.
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, 2023
Continuing Operations
GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts Kyndryl- Related Impacts (3) Operating (Non-GAAP)
Gross Profit $ 8,023 $ 162 $ — $ — $ — $ 8,185
Gross Profit Margin 54.4 % 1.1 pts. — pts. — pts. — pts. 55.5 %
S,G&A $ 4,458 $ (277) $ — $ — $ — $ 4,181
Other (Income) & Expense (215) — 12 — — (203)
Total Expense & Other (Income) 6,150 (277) 12 — — 5,885
Pre-tax Income from 1,873 438 (12) — — 2,299
Continuing Operations
Pre-tax Income Margin from 12.7 % 3.0 pts. (0.1) pts. — pts. — pts. 15.6 %
Continuing Operations
Provision for/(Benefit from) $ 159 $ 99 $ (14) $ 24 $ — $ 268
Income Taxes (4)
Effective Tax Rate 8.5 % 2.7 pts. (0.5) pts. 1.0 pts. — pts. 11.7 %
Income from Continuing $ 1,714 $ 340 $ 1 $ (24) $ — $ 2,031
Operations
Income Margin from 11.6 % 2.3 pts. 0.0 pts. (0.2) pts. — pts. 13.8 %
Continuing Operations
Diluted Earnings Per Share: $ 1.86 $ 0.37 $ 0.00 $ (0.03) $ — $ 2.20
Continuing Operations
Three Months Ended September 30, 2022
Continuing Operations
GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts Kyndryl- Related Impacts (3) Operating (Non-GAAP)
Gross Profit $ 7,430 $ 165 $ — $ — $ — $ 7,595
Gross Profit Margin 52.7 % 1.2 pts. — pts. — pts. — pts. 53.8 %
S,G&A $ 4,391 $ (253) $ — $ — $ 0 $ 4,138
Other (Income) & Expense 5,755 (1) (6,062) — 14 (293)
Total Expense & Other (Income) 11,931 (253) (6,062) — 14 5,630
Pre-tax Income/(Loss) from (4,501) 418 6,062 — (14) 1,965
Continuing Operations
Pre-tax Income/(Loss) Margin (31.9) % 3.0 pts. 43.0 pts. — pts. (0.1) pts. 13.9 %
from Continuing Operations
Provision for/(Benefit from) $ (1,287) $ 103 $ 1,495 $ — $ — $ 312
Income Taxes (4)
Effective Tax Rate 28.6 % (0.8) pts. (12.1) pts. — pts. 0.2 pts. 15.9 %
Income/(Loss) from Continuing $ (3,214) $ 315 $ 4,566 $ — $ (14) $ 1,653
Operations
Income/(Loss) Margin from (22.8) % 2.2 pts. 32.4 pts. — pts. (0.1) pts. 11.7 %
Continuing Operations
Diluted Earnings/(Loss) Per $ (3.55) $ 0.35 $ 5.05 $ — $ (0.02) $ 1.81
Share: Continuing Operations (5)
_________________________
(1) 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.
(2) 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. 2022 also includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax).
(3) Primarily relates to fair value changes in shares of Kyndryl common stock that were retained by IBM and the related cash-settled swap.
(4) 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.
(5) Due to the GAAP net loss for the three months ended September 30, 2022, dilutive potential shares were excluded from the GAAP loss per share as the effect would have been antidilutive. The difference in share count resulted in an additional ($0.02) reconciling item.
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, 2023
Continuing Operations
GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts Kyndryl- Related Impacts (3) Operating (Non-GAAP)
Gross Profit $ 24,033 $ 460 $ — $ — $ — $ 24,492
Gross Profit Margin 54.0 % 1.0 pts. — pts. — pts. — pts. 55.1 %
S,G&A $ 14,212 $ (768) $ — $ — $ — $ 13,444
Other (Income) & Expense (721) (2) 16 — — (707)
Total Expense & Other 19,102 (770) 16 — — 18,348
(Income)
Pre-tax Income from 4,931 1,229 (16) — — 6,144
Continuing Operations
Pre-tax Income Margin from 11.1 % 2.8 pts. 0.0 pts. — pts. — pts. 13.8 %
Continuing Operations
Provision for/(Benefit from) $ 702 $ 277 $ (27) $ (91) $ — $ 861
Income Taxes (4)
Effective Tax Rate 14.2 % 1.7 pts. (0.4) pts. (1.5) pts. — pts. 14.0 %
Income from Continuing $ 4,229 $ 953 $ 11 $ 91 $ — $ 5,283
Operations
Income Margin from 9.5 % 2.1 pts. 0.0 pts. 0.2 pts. — pts. 11.9 %
Continuing Operations
Diluted Earnings Per Share: $ 4.59 $ 1.04 $ 0.01 $ 0.10 $ — $ 5.74
Continuing Operations
Nine Months Ended September 30, 2022
Continuing Operations
GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts Kyndryl- Related Impacts (3) Operating (Non-GAAP)
Gross Profit $ 23,055 $ 526 $ — $ — $ — $ 23,582
Gross Profit Margin 52.6 % 1.2 pts. — pts. — pts. — pts. 53.8 %
S,G&A $ 13,843 $ (818) $ — $ — $ 0 $ 13,025
Other (Income) & Expense 5,921 (2) (6,455) — (353) (889)
Total Expense & Other (Income) 25,212 (820) (6,455) — (353) 17,584
Pre-tax Income/(Loss) from (2,156) 1,346 6,455 — 353 5,998
Continuing Operations
Pre-tax Income/(Loss) Margin (4.9) % 3.1 pts. 14.7 pts. — pts. 0.8 pts. 13.7 %
from Continuing Operations
Provision for/(Benefit from) $ (1,070) $ 327 $ 1,599 $ 112 $ — $ 969
Income Taxes (4)
Effective Tax Rate 49.6 % (5.7) pts. (26.7) pts. 1.9 pts. (2.9) pts. 16.1 %
Income/(Loss) from Continuing $ (1,087) $ 1,019 $ 4,856 $ (112) $ 353 $ 5,029
Operations
Income/(Loss) Margin from (2.5) % 2.3 pts. 11.1 pts. (0.3) pts. 0.8 pts. 11.5 %
Continuing Operations
Diluted Earnings/(Loss) Per $ (1.21) $ 1.13 $ 5.39 $ (0.12) $ 0.39 $ 5.52
Share: Continuing Operations (5)
_________________________
(1) 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.
(2) 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. 2022 also includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax).
(3) Primarily relates to fair value changes in shares of Kyndryl common stock that were retained by IBM and the related cash-settled swap.
(4) 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.
(5) Due to GAAP net loss for the nine months ended September 30, 2022, dilutive potential shares were excluded from the GAAP loss per share calculation as the effect would have been antidilutive. The difference in share count resulted in an additional ($0.06) reconciling item.
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