REG-Intnl Bus. Mach IBM Reports 2020 Fourth-Quarter and Full-Year Results
22/01/2021 07:00
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IBM Reports 2020 Fourth-Quarter and Full-Year Results
Strong hybrid cloud adoption; Gross margin expansion; Solid cash generation
IBM (NYSE: IBM) today announced fourth-quarter and full-year 2020 earnings
results.
“We made progress in 2020 growing our hybrid cloud platform as the
foundation for our clients’ digital transformations while dealing with the
broader uncertainty of the macro environment," said Arvind Krishna, IBM
chairman and chief executive officer. "The actions we are taking to focus on
hybrid cloud and AI will take hold, giving us confidence we can achieve
revenue growth in 2021.”
Highlights
Fourth Quarter:
* GAAP EPS from continuing operations of $1.41; Operating (non-GAAP) EPS of
$2.07
-- EPS includes the impact of a pre-tax charge of more than $2.0 billion for
structural actions in the fourth quarter
* Revenue of $20.4 billion, down 6 percent (down 8 percent adjusting for
divested businesses and currency)
* Total cloud revenue of $7.5 billion, up 10 percent (up 8 percent adjusting for
divested businesses and currency)
* Red Hat revenue up 19 percent (up 17 percent adjusting for currency),
normalized for historical comparability
* GAAP gross profit margin of 51.7 percent, up 70 basis points; Operating
(non-GAAP) gross profit margin of 52.5 percent, up 70 basis points
* Debt reduced by $3.9 billion since end of third quarter
Full Year:
* GAAP EPS from continuing operations of $6.13; Operating (non-GAAP) EPS of
$8.67
* Revenue of $73.6 billion, down 5 percent (down 4 percent adjusting for
divested businesses and currency)
* Total cloud revenue of $25.1 billion, up 19 percent (up 20 percent adjusting
for divested businesses and currency)
* Red Hat revenue up 18 percent, normalized for historical comparability
* GAAP gross profit margin up 100 basis points; operating (non-GAAP) gross
profit margin up 130 basis points
* Net cash from operating activities of $18.2 billion; free cash flow of $10.8
billion
* Cash on hand of $14.3 billion; debt reduced by more than $11 billion since
closing the Red Hat acquisition
FOURTH QUARTER 2020
Results include the impact of $2.04 billion pre-tax charge
Pre-tax Gross
Diluted Net Pre-tax Income Profit
EPS * Income * Income * Margin * Margin
GAAP from Continuing Operations $ 1.41 $ 1.3B $ 1.3B 6.3 % 51.7 %
Year/Year (66) % (66) % (68) % (12.0) Pts 0.7 Pts
Operating (Non-GAAP) $ 2.07 $ 1.9B $ 2.1B 10.2 % 52.5 %
Year/Year (56) % (56) % (56) % (11.4) Pts 0.7 Pts
* Results include the impact of pre-tax charge of $2.04 billion for structural
actions in the fourth quarter.
“In 2020 we increased investment in our business across R&D and CAPEX,
and since October, announced the acquisition of seven companies focused on
hybrid cloud and AI," said James Kavanaugh, IBM senior vice president and
chief financial officer. "With solid cash generation, steadily expanding gross
profit margins, disciplined financial management and ample liquidity, we are
well positioned for success as the leading hybrid cloud platform company.”
Cash Flow and Balance Sheet
In the fourth quarter, the company generated net cash from operating
activities of $5.9 billion, or $6.8 billion excluding Global Financing
receivables. IBM’s free cash flow was $6.1 billion. The company returned
$1.5 billion to shareholders in dividends.
For the full year, the company generated net cash from operating activities of
$18.2 billion, or $13.8 billion excluding Global Financing receivables. Net
capital expenditures of $3 billion increased $0.7 billion, primarily for cloud
infrastructure. Free cash flow was $10.8 billion. IBM returned $5.8 billion to
shareholders in dividends.
IBM ended the fourth quarter with $14.3 billion of cash on hand, which
includes marketable securities, up $5.3 billion from year-end 2019. Debt,
including Global Financing debt of $21.2 billion, totaled $61.5 billion, down
$3.9 billion since the end of the third quarter, and down $11.5 billion since
closing the Red Hat acquisition.
Segment Results for Fourth Quarter
Segment pre-tax results reflect the impact of the $2.04 billion pre-tax charge
for structural actions in the fourth quarter.
* Cloud & Cognitive Software (includes Cloud & Data Platforms which
includes Red Hat, Cognitive Applications and Transaction Processing Platforms)
— revenues of $6.8 billion, down 4.5 percent (down 6.6 percent adjusting for
currency). Cloud & Data Platforms grew 9 percent (up 6 percent adjusting
for currency) led by Red Hat. Cognitive Applications revenue was flat (down 2
percent adjusting for currency), with growth in Security and IoT. Transaction
Processing Platforms declined 24 percent (down 26 percent adjusting for
currency). Cloud revenue up 39 percent (up 36 percent adjusting for currency).
Gross profit margin up 20 basis points.
* Global Business Services (includes Consulting, Application Management and
Global Process Services) — revenues of $4.2 billion, down 2.7 percent (down
5.2 percent adjusting for currency), driven by declines in Application
Management and Consulting. Global Process Services revenue grew. Cloud revenue
up 16 percent (up 14 percent adjusting for currency). Gross profit margin up
260 basis points.
* Global Technology Services (includes Infrastructure & Cloud Services and
Technology Support Services) — revenues of $6.6 billion, down 5.5 percent
(down 7.8 percent adjusting for currency). Cloud revenue up 4 percent (up 1
percent adjusting for currency). Gross profit margin up 70 basis points.
* Systems (includes Systems Hardware and Operating Systems Software) —
revenues of $2.5 billion, down 17.8 percent (down 19.4 percent adjusting for
currency), as a result of declines in all Systems Hardware platforms,
reflecting the impact of product cycle dynamics. Cloud revenue down 18 percent
(down 19 percent adjusting for currency). Gross profit margin up 380 basis
points.
* Global Financing (includes financing and used equipment sales) — revenues of
$286 million, down 4.8 percent (down 6.0 percent adjusting for currency),
reflecting the wind-down of OEM commercial financing.
Full-year 2020 Results
Full-year results reflect transaction-related impacts associated with the Red
Hat acquisition, which closed in July 2019, and the impact of the $2.04
billion pre-tax charge for structural actions in the fourth quarter.
Diluted earnings per share from continuing operations was $6.13 compared to
$10.57 in 2019, a decrease of 42 percent. Net income from continuing
operations was $5.5 billion, down 42 percent year to year. Revenues for the
full year 2020 totaled $73.6 billion, a decrease of 4.6 percent year to year
(down 3.5 percent adjusting for divested businesses and currency) compared
with $77.1 billion for the full year 2019.
Operating (non-GAAP) diluted earnings per share from continuing operations was
$8.67 compared with $12.81 per diluted share for 2019, a decrease of 32
percent. Operating (non-GAAP) net income for the full year ended December 31,
2020 was $7.8 billion compared with $11.4 billion in the prior-year period, a
decrease of 32 percent.
FULL YEAR 2020
Results include the impact of $2.04 billion pre-tax charge
Pre-tax Gross
Diluted Net Pre-tax Income Profit
EPS * Income * Income * Margin * Margin
GAAP from Continuing Operations $ 6.13 ** $ 5.5B ** $ 4.6B 6.3 % 48.3 %
Year/Year (42) % (42) % (54) % (6.9) Pts 1.0 Pts
Operating (Non-GAAP) $ 8.67 $ 7.8B $ 7.7B 10.4 % 49.3 %
Year/Year (32) % (32) % (39) % (5.8) Pts 1.3 Pts
* Results include the impact of pre-tax charge of $2.04 billion for structural
actions in the fourth quarter.
** Consolidated diluted earnings per share was $6.23 compared to $10.56 in
2019, a decrease of 41 percent. Consolidated net income was $5.6 billion, down
41 percent year to year.
Full-Year 2021 Expectations
The company expects to grow revenue for the full year 2021 based on the
current foreign exchange rates. The company also expects adjusted free cash
flow of $11 billion to $12 billion in 2021. Adjusted free cash flow excludes
approximately $3 billion of cash impacts from the company’s structural
actions initiated in the fourth quarter of 2020 and the transaction costs
associated with the separation of the managed infrastructure services
business.
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;
* net cash from operating activities, excluding Global Financing receivables;
* free cash flow;
* adjusted free cash flow (expectations).
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. EST, today. The Webcast may be accessed via a link at
https://www.ibm.com/investor/events/earnings-4q20
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-4q20&esheet=52365587&newsitemid=20210121005941&lan=en-US&anchor=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-4q20&index=1&md5=b70d8b3dee0d32484eb03528da21e2de)
. 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 Year Ended
December 31, December 31,
2020 2019 2020 2019
REVENUE
Cloud & Cognitive Software $ 6,837 $ 7,160 * $ 23,376 $ 22,891 *
Global Business Services 4,170 4,285 * 16,162 16,798 *
Global Technology Services 6,568 6,949 25,812 27,361
Systems 2,501 3,042 6,978 7,604
Global Financing 286 301 1,123 1,400
Other 6 40 * 169 1,092 *
TOTAL REVENUE 20,367 21,777 73,620 77,147
GROSS PROFIT 10,523 11,100 35,575 36,488
GROSS PROFIT MARGIN
Cloud & Cognitive Software 79.8 % 79.5 % * 77.5 % 77.1 % *
Global Business Services 30.1 % 27.6 % * 29.7 % 27.7 % *
Global Technology Services 35.9 % 35.2 % 34.8 % 34.8 %
Systems 59.9 % 56.0 % 55.9 % 53.1 %
Global Financing 33.8 % 35.6 % 37.7 % 35.6 %
TOTAL GROSS PROFIT MARGIN 51.7 % 51.0 % 48.3 % 47.3 %
EXPENSE AND OTHER INCOME
S,G&A 7,232 5,433 23,082 20,604
R,D&E 1,611 1,596 6,333 5,989
Intellectual property and custom development income (173) (159) (626) (648)
Other (income) and expense 247 (117) 861 (968)
Interest expense 317 354 1,288 1,344
TOTAL EXPENSE AND OTHER INCOME 9,234 7,107 30,937 26,322
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,289 3,993 4,637 10,166
Pre-tax margin 6.3 % 18.3 % 6.3 % 13.2 %
Provision for/(Benefit from) income taxes 25 324 (864) 731
Effective tax rate 1.9 % 8.1 % (18.6) % 7.2 %
INCOME FROM CONTINUING OPERATIONS $ 1,264 $ 3,669 $ 5,501 $ 9,435
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes 92 0 89 (4)
NET INCOME $ 1,356 $ 3,670 $ 5,590 $ 9,431
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations $ 1.41 $ 4.11 $ 6.13 $ 10.57
Discontinued Operations $ 0.10 $ 0.00 $ 0.10 $ (0.01)
TOTAL $ 1.51 $ 4.11 $ 6.23 $ 10.56
Basic
Continuing Operations $ 1.42 $ 4.14 $ 6.18 $ 10.63
Discontinued Operations $ 0.10 $ 0.00 $ 0.10 $ 0.00
TOTAL $ 1.52 $ 4.14 $ 6.28 $ 10.63
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution 899.0 893.7 896.6 892.8
Basic 892.6 887.1 890.3 887.2
_____________________
* Recast to conform with 2020 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
At At
December 31, December 31,
(Dollars in Millions) 2020 2019
ASSETS:
Current Assets:
Cash and cash equivalents $ 13,212 $ 8,172
Restricted cash 463 141
Marketable securities 600 696
Notes and accounts receivable - trade, net 7,132 7,870
Short-term financing receivables, net 10,892 14,192
Other accounts receivable, net 714 1,733
Inventories 1,839 1,619
Deferred costs 2,107 1,896
Prepaid expenses and other current assets 2,206 2,101
Total Current Assets 39,165 38,420
Property, plant and equipment, net 10,040 10,010
Operating right-of-use assets, net 4,686 4,996
Long-term financing receivables, net 7,086 8,712
Prepaid pension assets 7,610 6,865
Deferred costs 2,449 2,472
Deferred taxes 9,241 5,182
Goodwill 59,617 58,222
Intangibles, net 13,796 15,235
Investments and sundry assets 2,282 2,074
Total Assets $ 155,971 $ 152,186
LIABILITIES:
Current Liabilities:
Taxes $ 3,301 $ 2,839
Short-term debt 7,183 8,797
Accounts payable 4,908 4,896
Deferred income 12,833 12,026
Operating lease liabilities 1,357 1,380
Other liabilities 10,287 7,763
Total Current Liabilities 39,869 37,701
Long-term debt 54,355 54,102
Retirement related obligations 18,248 17,142
Deferred income 4,301 3,851
Operating lease liabilities 3,574 3,879
Other liabilities 14,897 14,526
Total Liabilities 135,244 131,202
EQUITY:
IBM Stockholders’ Equity:
Common stock 56,556 55,895
Retained earnings 162,717 162,954
Treasury stock — at cost (169,339) (169,413)
Accumulated other comprehensive income/(loss) (29,337) (28,597)
Total IBM Stockholders’ Equity 20,597 20,841
Noncontrolling interests 129 144
Total Equity 20,727 20,985
Total Liabilities and Equity $ 155,971 $ 152,186
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
(Dollars in Millions) 2020 2019 2020 2019
Net Cash Provided by Operating Activities per GAAP: $ 5,859 $ 3,451 $ 18,197 $ 14,770
Less: change in Global Financing (GF) Receivables (974) (3,220) 4,349 491
Capital Expenditures, Net (780) (645) (3,042) (2,370)
Free Cash Flow 6,054 6,027 10,805 11,909
Acquisitions (299) — (336) (32,630)
Divestitures (7) 149 503 1,076
Dividends (1,455) (1,438) (5,797) (5,707)
Share Repurchase — — — (1,361)
Non-GF Debt (4,756) (5,640) 221 22,792
Other (includes GF Net Receivables and GF Debt) (1,016) (1,046) (130) 709
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable $ (1,478) $ (1,948) $ 5,265 $ (3,213)
Securities
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
(Dollars in Millions) 2020 2019 2020 2019
Net Income from Operations $ 1,356 $ 3,670 $ 5,590 $ 9,431
Depreciation/Amortization of Intangibles 1,699 1,650 6,695 6,059
Stock-based Compensation 279 210 937 679
Working Capital / Other 3,499 1,142 625 (1,890)
Global Financing A/R (974) (3,220) 4,349 491
Net Cash Provided by Operating Activities $ 5,859 $ 3,451 $ 18,197 $ 14,770
Capital Expenditures, net of payments & proceeds (780) (645) (3,042) (2,370)
Divestitures, net of cash transferred (7) 149 503 1,076
Acquisitions, net of cash acquired (299) — (336) (32,630)
Marketable Securities / Other Investments, net 528 624 (153) 6,988
Net Cash Provided by/(Used in) Investing Activities $ (558) $ 127 $ (3,028) $ (26,936)
Debt, net of payments & proceeds (4,781) (4,181) (3,714) 16,284
Dividends (1,455) (1,438) (5,797) (5,707)
Common Stock Repurchases — — — (1,361)
Common Stock Transactions - Other (57) (55) (210) (173)
Net Cash Provided by/(Used in) Financing Activities $ (6,293) $ (5,674) $ (9,721) $ 9,042
Effect of Exchange Rate changes on Cash 113 185 (87) (167)
Net Change in Cash, Cash Equivalents and Restricted Cash $ (878) $ (1,911) $ 5,361 $ (3,290)
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Three Months Ended December 31, 2020
Cloud & Global Global
Cognitive Business Technology Global
(Dollars in Millions) Software Services Services Systems Financing
Revenue
External $ 6,837 $ 4,170 $ 6,568 $ 2,501 $ 286
Internal 738 43 316 196 233
Total Segment Revenue $ 7,575 $ 4,213 $ 6,884 $ 2,697 $ 519
Pre-tax Income/(Loss) from Continuing Operations 1,887 148 (353) 455 195
Pre-tax Margin 24.9 % 3.5 % (5.1) % 16.9 % 37.6 %
Change YTY Revenue - External (4.5) % (2.7) % (5.5) % (17.8) % (4.8) %
Change YTY Revenue - External @constant currency (6.6) % (5.2) % (7.8) % (19.4) % (6.0) %
Three Months Ended December 31, 2019
Cloud & Global Global
Cognitive Business Technology Global
(Dollars in Millions) Software* Services* Services Systems Financing
Revenue
External $ 7,160 $ 4,285 $ 6,949 $ 3,042 $ 301
Internal 692 65 278 198 348
Total Segment Revenue $ 7,853 $ 4,350 $ 7,227 $ 3,240 $ 649
Pre-tax Income/(Loss) from Continuing Operations 2,729 469 645 802 252
Pre-tax Margin 34.8 % 10.8 % 8.9 % 24.8 % 38.9 %
_____________________
* Recast to conform with 2020 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Year Ended December 31, 2020
Cloud & Global Global
Cognitive Business Technology Global
(Dollars in Millions) Software Services Services Systems Financing
Revenue
External $ 23,376 $ 16,162 $ 25,812 $ 6,978 $ 1,123
Internal 3,169 193 1,226 824 894
Total Segment Revenue $ 26,545 $ 16,355 $ 27,039 $ 7,802 $ 2,017
Pre-tax Income/(Loss) from Continuing Operations 6,362 1,351 117 449 761
Pre-tax Margin 24.0 % 8.3 % 0.4 % 5.8 % 37.7 %
Change YTY Revenue - External 2.1 % (3.8) % (5.7) % (8.2) % (19.8) %
Change YTY Revenue - External @constant currency 1.9 % (4.1) % (5.4) % (8.7) % (19.2) %
Year Ended December 31, 2019
Cloud & Global Global
Cognitive Business Technology Global
(Dollars in Millions) Software* Services* Services Systems Financing
Revenue
External $ 22,891 $ 16,798 $ 27,361 $ 7,604 $ 1,400
Internal 2,827 278 1,157 726 1,232
Total Segment Revenue $ 25,718 $ 17,076 $ 28,518 $ 8,330 $ 2,632
Pre-tax Income/(Loss) from Continuing Operations 7,811 1,623 1,645 701 1,055
Pre-tax Margin 30.4 % 9.5 % 5.8 % 8.4 % 40.1 %
_____________________
* 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 December 31, 2020
Continuing Operations
Acquisition- Retirement- Tax Spin-off-
Related Related Reform Related Operating
GAAP Adjustments (1) Adjustments (2) Impacts Charges (4) (Non-GAAP)
Gross Profit $ 10,523 $ 177 $ — $ — $ 1 $ 10,700
Gross Profit Margin 51.7 % 0.9 Pts — Pts — Pts 0.0 Pts 52.5 %
S,G&A 7,232 (287) — — (28) 6,917
R,D&E 1,611 — — — — 1,611
Other (Income) & Expense 247 (1) (295) — — (48)
Interest Expense 317 — — — — 317
Total Expense & Other (Income) 9,234 (288) (295) — (28) 8,623
Pre-tax Income from Continuing Operations 1,289 465 295 — 28 2,077
Pre-tax Income Margin from Continuing Operations 6.3 % 2.3 Pts 1.4 Pts — Pts 0.1 Pts 10.2 %
Provision for/(Benefit from) Income Taxes (3) 25 105 96 (18) 7 216
Effective Tax Rate 1.9 % 4.6 Pts 4.4 Pts (0.9) Pts 0.3 Pts 10.4 %
Income from Continuing Operations 1,264 359 198 18 21 1,861
Income Margin from Continuing Operations 6.2 % 1.8 Pts 1.0 Pts 0.1 Pts 0.1 Pts 9.1 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 1.41 $ 0.40 $ 0.22 $ 0.02 $ 0.02 $ 2.07
Three Months Ended December 31, 2019
Continuing Operations
Acquisition- Retirement- Tax Spin-off-
Related Related Reform Related Operating
GAAP Adjustments (1) Adjustments (2) Impacts Charges (4) (Non-GAAP)
Gross Profit $ 11,100 $ 189 $ — $ — $ — $ 11,289
Gross Profit Margin 51.0 % 0.9 Pts — Pts — Pts — Pts 51.8 %
S,G&A 5,433 (320) — — — 5,113
R,D&E 1,596 (0) — — — 1,596
Other (Income) & Expense (117) (1) (196) — — (314)
Interest Expense 354 — — — — 354
Total Expense & Other (Income) 7,107 (320) (196) — — 6,591
Pre-tax Income from Continuing Operations 3,993 509 196 — — 4,698
Pre-tax Income Margin from Continuing Operations 18.3 % 2.3 Pts 0.9 Pts — Pts — Pts 21.6 %
Provision for/(Benefit from) Income Taxes (3) 324 133 21 14 — 492
Effective Tax Rate 8.1 % 2.0 Pts 0.1 Pts 0.3 Pts — Pts 10.5 %
Income from Continuing Operations 3,669 376 175 (14) — 4,206
Income Margin from Continuing Operations 16.8 % 1.7 Pts 0.8 Pts (0.1) Pts — Pts 19.3 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 4.11 $ 0.42 $ 0.20 $ (0.02) $ — $ 4.71
_____________________
(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.
(3) 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.
(4) Managed infrastructure services spin-off charges primarily relate to
transaction and third-party support costs, business separation and applicable
employee retention fees, pension settlements and related tax charges.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
Year Ended December 31, 2020
Continuing Operations
Acquisition- Retirement- Tax Spin-off-
Related Related Reform Related Operating
GAAP Adjustments (1) Adjustments (2) Impacts Charges (4) (Non-GAAP)
Gross Profit $ 35,575 $ 732 $ — $ — $ 1 $ 36,308
Gross Profit Margin 48.3 % 1.0 Pts — Pts — Pts 0.0 Pts 49.3 %
S,G&A 23,082 (1,137) — — (28) 21,917
R,D&E 6,333 — — — — 6,333
Other (Income) & Expense 861 (2) (1,123) — — (265)
Interest Expense 1,288 — — — — 1,288
Total Expense & Other (Income) 30,937 (1,139) (1,123) — (28) 28,648
Pre-tax Income from Continuing Operations 4,637 1,871 1,123 — 28 7,660
Pre-tax Income Margin from Continuing Operations 6.3 % 2.5 Pts 1.5 Pts — Pts 0.0 Pts 10.4 %
Provision for/(Benefit from) Income Taxes (3) (864) 418 215 110 7 (114)
Effective Tax Rate (18.6) % 10.0 Pts 5.5 Pts 1.4 Pts 0.2 Pts (1.5) %
Income from Continuing Operations 5,501 1,454 908 (110) 21 7,774
Income Margin from Continuing Operations 7.5 % 2.0 Pts 1.2 Pts (0.1) Pts 0.0 Pts 10.6 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 6.13 $ 1.63 $ 1.01 $ (0.12) $ 0.02 $ 8.67
Year Ended December 31, 2019
Continuing Operations
Acquisition- Retirement- Tax Spin-off-
Related Related Reform Related Operating
GAAP Adjustments (1) Adjustments (2) Impacts Charges (4) (Non-GAAP)
Gross Profit $ 36,488 $ 547 $ — $ — $ — $ 37,035
Gross Profit Margin 47.3 % 0.7 Pts — Pts — Pts — Pts 48.0 %
S,G&A 20,604 (1,044) — — — 19,560
R,D&E 5,989 (53) — — — 5,936
Other (Income) & Expense (968) 152 (615) — — (1,431)
Interest Expense 1,344 (228) — — — 1,116
Total Expense & Other (Income) 26,322 (1,173) (615) — — 24,533
Pre-tax Income from Continuing Operations 10,166 1,721 615 — — 12,503
Pre-tax Income Margin from Continuing Operations 13.2 % 2.2 Pts 0.8 Pts — Pts — Pts 16.2 %
Provision for/(Benefit from) Income Taxes (3) 731 378 103 (146) — 1,067
Effective Tax Rate 7.2 % 2.0 Pts 0.5 Pts (1.2) Pts — Pts 8.5 %
Income from Continuing Operations 9,435 1,343 512 146 — 11,436
Income Margin from Continuing Operations 12.2 % 1.7 Pts 0.7 Pts 0.2 Pts — Pts 14.8 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 10.57 $ 1.50 $ 0.58 $ 0.16 $ — $ 12.81
_____________________
(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.
(3) 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.
(4) Managed infrastructure services spin-off charges primarily relate to
transaction and third-party support costs, business separation and applicable
employee retention fees, pension settlements and related tax charges.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended Year Ended
December 31, 2020 December 31, 2020
Change YTY Change YTY
Revenue Adjusting for Divested Businesses and Currency Total IBM Cloud Total IBM Cloud
Revenue as reported (6.5) % 9.8 % (4.6) % 18.6 %
Impact from divested businesses 0.3 Pts 0.6 Pts 1.1 Pts 1.4 Pts
Currency impact (2.2) Pts (2.7) Pts (0.1) Pts (0.4) Pts
Revenue adjusting for divested businesses and currency (non-GAAP) (8.4) % 7.7 % (3.5) % 19.6 %
Three Months Ended Year Ended
December 31, 2020 December 31, 2020
Red Hat Revenue, Normalized for Historical Comparability Change YTY Change YTY
Red Hat Revenue GAAP growth rate( (1)) 92 % 288 %
Impact from Red Hat revenue prior to acquisition( (2)) — Pts (239) Pts
Impact from purchase accounting deferred revenue and intercompany adjustments( (73) Pts (31) Pts
(3))
Red Hat revenue growth rate, normalized for historical comparability 19 % 18 %
(non-GAAP)
Impact from currency (2) Pts 0 Pts
Red Hat revenue growth rate, normalized for historical comparability and 17 % 18 %
adjusting for currency (non-GAAP)
(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 January 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 fourth-quarter and full-year 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.
IBM
Edward Barbini, 914‑499‑6565
barbini@us.ibm.com
(mailto:barbini@us.ibm.com)
John Bukovinsky, 732‑618‑3531
jbuko@us.ibm.com (mailto:jbuko@us.ibm.com)
View source version on businesswire.com:
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