REG-Intnl Bus. Mach IBM Reports 2020 Third-Quarter Results
20/10/2020 07:00
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IBM Reports 2020 Third-Quarter Results
Strong Cloud Revenue Growth; Gross Margin Expansion; Solid Balance Sheet and
Liquidity Position
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
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-3q20&esheet=52309381&newsitemid=20201019005894&lan=en-US&anchor=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-3q20&index=1&md5=8b00194ab2adcb77c6676b9d74e7aa30)
. 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 $ 1,503 $ (35,451) $ 6,744 $ (1,265) $ 4,796
Securities
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( (120) Pts
(3))
Red Hat revenue growth rate, normalized for historical comparability 17 %
(non-GAAP)
Impact from currency (1) Pts
Red Hat revenue growth rate, normalized for historical comparability and 16 %
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 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.
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:
https://www.businesswire.com/news/home/20201019005894/en/
(https://www.businesswire.com/news/home/20201019005894/en/)
IBM
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