REG-Intnl Bus. Mach IBM Reports 2021 Second-Quarter Results
20/07/2021 07:00
For best results when printing this announcement, please click on link below: http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20210720:nBw3H2xn8a&default-theme=true IBM Reports 2021 Second-Quarter Results Improved Revenue Growth Led by Hybrid Cloud Platform Adoption, Consulting and Software Highlights Second Quarter: * Revenue of $18.7 billion, up 3 percent (flat adjusting for divested businesses and currency) -- Cloud & Cognitive Software up 6 percent (up 2 percent adjusting for currency) -- Global Business Services up 12 percent (up 7 percent adjusting for currency) * Net cash from operating activities of $17.7 billion and adjusted free cash flow of $11.0 billion, over last 12 months * Total cloud revenue over last 12 months of $27.0 billion, up 15 percent (up 13 percent adjusting for divested businesses and currency) * Total cloud revenue in the quarter of $7.0 billion, up 13 percent (up 9 percent adjusting for divested businesses and currency) led by -- Cloud & Cognitive Software cloud revenue up 29 percent (up 25 percent adjusting for currency) -- Global Business Services cloud revenue up 35 percent (up 30 percent adjusting for currency) * Red Hat revenue up 20 percent (up 17 percent adjusting for currency), normalized for historical comparability * GAAP gross profit margin of 48.0 percent, flat; Operating (non-GAAP) gross profit margin of 49.3 percent, up 30 basis points * Debt reduced by $6.4 billion since year-end 2020 IBM (NYSE: IBM) today announced second-quarter 2021 earnings results. “In the second quarter client adoption of our hybrid cloud platform contributed to strong performance in Global Business Services and software and drove improved overall revenue growth. At the same time, we continued to help clients infuse our AI-based technology offerings into their core business workflows," said Arvind Krishna, IBM chairman and chief executive officer. "We are pleased with our progress and we remain on track to deliver full-year revenue growth and meet our cash flow objective.” SECOND QUARTER 2021 Pre-tax Gross Diluted Net Pre-tax Income Profit EPS Income Income Margin Margin GAAP from Continuing Operations $ 1.47 $ 1.3B $ 1.6B 8.3 % 48.0 % Year/Year (3) % (3) % (1) % (0.4) Pts 0.0 Pts Operating (Non-GAAP) $ 2.33 $ 2.1B $ 2.5B 13.5 % 49.3 % Year/Year 7 % 8 % 9 % 0.7 Pts 0.3 Pts GAAP EPS results include impacts related to the amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation. The impact of the Kyndryl separation costs for second-quarter 2021 was ($0.15) per share. “We expanded operating margins and grew profit dollars in the quarter, providing a key contribution to our cash performance," said James Kavanaugh, IBM senior vice president and chief financial officer. "In the first half of the year we increased adjusted free cash flow, invested in strategic acquisitions to strengthen our hybrid cloud and AI capabilities, continued to deleverage and, consistent with our commitment, again increased our dividend.” Cash Flow and Balance Sheet In the second quarter, the company generated net cash from operating activities of $2.6 billion. IBM’s free cash flow was $1.0 billion, which includes $0.6 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 Kyndryl. IBM’s adjusted free cash flow, excluding these cash impacts, was $1.6 billion. The company returned $1.5 billion to shareholders in dividends. In the first six months of the year, the company generated net cash from operating activities of $7.5 billion. Free cash flow for the first six months was $2.6 billion. The company’s adjusted free cash flow, excluding cash impacts of $1.2 billion for the structural actions and transaction separation costs, was $3.8 billion. Over the last 12 months, the company generated net cash from operating activities of $17.7 billion. IBM’s free cash flow for the last 12 months was $9.7 billion. The company’s adjusted free cash flow, excluding cash impacts of $1.3 billion for the structural actions and transaction separation costs, was $11.0 billion. IBM ended the second quarter with $8.2 billion of cash on hand (includes marketable securities), down $6.1 billion from year-end 2020 due primarily to acquisitions and debt reduction payments. Debt, including Global Financing debt of $17.5 billion, totaled $55.2 billion, down $6.4 billion since the end of 2020, and down $17.9 billion since closing the Red Hat acquisition. Segment Results for Second Quarter * Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive Applications and Transaction Processing Platforms) —revenues of $6.1 billion, up 6.1 percent (up 2.5 percent adjusting for currency). Cloud & Data Platforms grew 12 percent (up 8 percent adjusting for currency), led by the company’s hybrid cloud platform and Cloud Pak growth. Cognitive Applications grew 12 percent (up 8 percent adjusting for currency), led by growth in Security and AI applications. Transaction Processing Platforms declined 7 percent (down 11 percent adjusting for currency). Cloud revenue up 29 percent (up 25 percent adjusting for currency). * Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.3 billion, up 11.6 percent (up 7.3 percent adjusting for currency), with growth in Consulting, up 16 percent (up 11 percent adjusting for currency), Application Management up 5 percent (up 1 percent adjusting for currency) and Global Process Services up 28 percent (up 25 percent adjusting for currency). Cloud revenue up 35 percent (up 30 percent adjusting for currency). Gross profit margin declined 60 basis points. * Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.3 billion, up 0.4 percent (down 4.1 percent adjusting for currency). Both Infrastructure & Cloud Services and Technology Support Services were flat (down 4 percent adjusting for currency). Cloud revenue down 1 percent (down 5 percent adjusting for currency). Gross profit margin up 110 basis points. * Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.7 billion, down 7.3 percent (down 10.2 percent adjusting for currency), driven by declines in IBM Z (down 11 percent; down 13 percent adjusting for currency) and Storage Systems (down 7 percent, down 10 percent adjusting for currency). Power systems declined 2 percent (down 5 percent adjusting for currency). Cloud revenue down 16 percent (down 19 percent adjusting for currency). * Global Financing (includes financing and used equipment sales) — revenues of $242 million, down 8.6 percent (down 11.6 percent adjusting for currency). Year-To-Date 2021 Results Revenues for the six-month period ended June 30, 2021 totaled $36.5 billion, an increase of 2 percent year to year (down 1 percent adjusting for divested businesses and currency) compared with $35.7 billion for the first six months of 2020. Net income was $2.3 billion, down 10 percent year to year. Diluted earnings per share was $2.52 compared with $2.83 per diluted share for the 2020 period, a decrease of 11 percent. GAAP earnings per share results include a ($1.58) per-share impact for charges related to amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation. The impact of the Kyndryl separation costs was ($0.20) per share. Operating (non-GAAP) net income for the six months ended June 30, 2021 was $3.7 billion compared with $3.6 billion in the prior-year period, an increase of 3 percent. Operating (non-GAAP) diluted earnings per share from continuing operations was $4.10 compared with $4.02 per diluted share for the 2020 period, an increase of 2 percent. Full-Year 2021 Expectations The company expects to grow revenue for the full year 2021 based on mid-July 2021 foreign exchange rates. The company continues to expect adjusted free cash flow of $11 billion to $12 billion in 2021. Adjusted free cash flow expectations exclude 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 Kyndryl. 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 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; 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 from 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; 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); * 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; * free cash flow; * adjusted free cash flow. 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-2q21 (https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-2q21&esheet=52462203&newsitemid=20210719005788&lan=en-US&anchor=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-2q21&index=1&md5=a28c011e29ada50d3ac701cdcd7db154) . 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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 REVENUE Cloud & Cognitive Software $ 6,098 $ 5,748 $ 11,534 $ 10,987 Global Business Services 4,341 3,890 8,575 8,027 Global Technology Services 6,342 6,316 12,712 12,783 Systems 1,717 1,852 3,144 3,220 Global Financing 242 265 482 564 Other 5 50 28 113 TOTAL REVENUE 18,745 18,123 36,474 35,694 GROSS PROFIT 9,004 8,700 17,208 16,622 GROSS PROFIT MARGIN Cloud & Cognitive Software 78.1 % 77.1 % 77.1 % 76.3 % Global Business Services 27.9 % 28.4 % 28.0 % 27.8 % Global Technology Services 35.3 % 34.2 % 34.9 % 34.1 % Systems 55.1 % 57.8 % 54.8 % 54.6 % Global Financing 27.4 % 38.6 % 29.7 % 39.7 % TOTAL GROSS PROFIT MARGIN 48.0 % 48.0 % 47.2 % 46.6 % EXPENSE AND OTHER INCOME S,G&A 5,334 5,248 10,508 11,203 R,D&E 1,657 1,582 3,286 3,207 Intellectual property and custom development income (135 ) (203 ) (282 ) (319 ) Other (income) and expense 315 179 676 361 Interest expense 281 323 562 649 TOTAL EXPENSE AND OTHER INCOME 7,451 7,129 14,751 15,101 INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,552 1,571 2,457 1,522 Pre-tax margin 8.3 % 8.7 % 6.7 % 4.3 % Provision for/(Benefit from) income taxes 227 209 177 (1,017 ) Effective tax rate 14.7 % 13.3 % 7.2 % (66.8 ) % INCOME FROM CONTINUING OPERATIONS $ 1,325 $ 1,362 $ 2,281 $ 2,538 DISCONTINUED OPERATIONS Income/(Loss) from discontinued operations, net of taxes — (1 ) (1 ) (2 ) NET INCOME $ 1,325 $ 1,361 $ 2,280 $ 2,536 EARNINGS/(LOSS) PER SHARE OF COMMON STOCK Assuming Dilution Continuing Operations $ 1.47 $ 1.52 $ 2.52 $ 2.83 Discontinued Operations $ 0.00 $ 0.00 $ 0.00 $ 0.00 TOTAL $ 1.47 $ 1.52 $ 2.52 $ 2.83 Basic Continuing Operations $ 1.48 $ 1.53 $ 2.55 $ 2.85 Discontinued Operations $ 0.00 $ 0.00 $ 0.00 $ 0.00 TOTAL $ 1.48 $ 1.53 $ 2.55 $ 2.85 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s) Assuming Dilution 904.2 894.9 903.0 895.0 Basic 895.0 889.4 894.3 888.7 INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) At At June 30, December 31, (Dollars in Millions) 2021 2020 ASSETS: Current Assets: Cash and cash equivalents $ 7,350 $ 13,212 Restricted cash 215 463 Marketable securities 600 600 Notes and accounts receivable - trade, net 6,827 7,132 Short-term financing receivables, net 8,194 10,892 Other accounts receivable, net 802 714 Inventories 1,807 1,839 Deferred costs 2,211 2,107 Prepaid expenses and other current assets 2,768 2,206 Total Current Assets 30,774 39,165 Property, plant and equipment, net 9,423 10,040 Operating right-of-use assets, net 4,387 4,686 Long-term financing receivables, net 5,674 7,086 Prepaid pension assets 8,046 7,610 Deferred costs 2,362 2,449 Deferred taxes 8,954 9,241 Goodwill 61,645 59,617 Intangibles, net 13,539 13,796 Investments and sundry assets 2,010 2,282 Total Assets $ 146,814 $ 155,971 LIABILITIES: Current Liabilities: Taxes $ 2,260 $ 3,301 Short-term debt 6,442 7,183 Accounts payable 4,214 4,908 Deferred income 13,272 12,833 Operating lease liabilities 1,334 1,357 Other liabilities 9,095 10,287 Total Current Liabilities 36,616 39,869 Long-term debt 48,735 54,355 Retirement related obligations 17,265 18,248 Deferred income 4,113 4,301 Operating lease liabilities 3,278 3,574 Other liabilities 14,741 14,897 Total Liabilities 124,747 135,244 EQUITY: IBM Stockholders’ Equity: Common stock 56,912 56,556 Retained earnings 162,086 162,717 Treasury stock — at cost (169,404 ) (169,339 ) Accumulated other comprehensive income/(loss) (27,652 ) (29,337 ) Total IBM Stockholders’ Equity 21,942 20,597 Noncontrolling interests 125 129 Total Equity 22,067 20,727 Total Liabilities and Equity $ 146,814 $ 155,971 INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited) Trailing Twelve Three Months Ended Six Months Ended Months Ended June 30, June 30, June 30, (Dollars in Millions) 2021 2020 2021 2020 2021 Net Cash Provided by Operating Activities per GAAP: $ 2,625 $ 3,576 $ 7,539 $ 8,052 $ 17,684 Less: Change in Global Financing (GF) Receivables 900 589 3,763 2,971 5,142 Capital Expenditures, net (688 ) (697 ) (1,217 ) (1,434 ) (2,826 ) Free Cash Flow 1,037 2,290 2,559 3,647 9,716 Structural actions initiated in 4Q20 & Separation charges ((1)) 595 — 1,224 — 1,274 Adjusted Free Cash Flow 1,631 2,290 3,783 3,647 10,990 Free Cash Flow 1,037 2,290 2,559 3,647 9,716 Acquisitions (1,747 ) (6 ) (2,866 ) (19 ) (3,182 ) Divestitures (10 ) 731 (25 ) 757 (280 ) Dividends (1,467 ) (1,450 ) (2,924 ) (2,890 ) (5,832 ) Non-GF Debt (586 ) 455 (2,331 ) 3,958 (6,068 ) Other (includes GF Net Receivables and GF Debt) (335 ) 213 (522 ) (213 ) (440 ) Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable $ (3,108 ) $ 2,233 $ (6,110 ) $ 5,241 $ (6,085 ) Securities ___________________________ (1) Includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and separation related costs. INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited) Three Months Ended Six Months Ended June 30, June 30, (Dollars in Millions) 2021 2020 2021 2020 Net Income from Operations $ 1,325 $ 1,361 $ 2,280 $ 2,536 Depreciation/Amortization of Intangibles 1,680 1,678 3,352 3,313 Stock-based Compensation 243 247 457 436 Working Capital / Other (1,524 ) (300 ) (2,313 ) (1,204 ) Global Financing A/R 900 589 3,763 2,971 Net Cash Provided by Operating Activities $ 2,625 $ 3,576 $ 7,539 $ 8,052 Capital Expenditures, net of payments & proceeds (688 ) (697 ) (1,217 ) (1,434 ) Divestitures, net of cash transferred (10 ) 731 (25 ) 757 Acquisitions, net of cash acquired (1,747 ) (6 ) (2,866 ) (19 ) Marketable Securities / Other Investments, net (227 ) (1,264 ) (562 ) (1,442 ) Net Cash Provided by/(Used in) Investing Activities $ (2,671 ) $ (1,236 ) $ (4,671 ) $ (2,138 ) Debt, net of payments & proceeds (1,500 ) (38 ) (5,799 ) 1,319 Dividends (1,467 ) (1,450 ) (2,924 ) (2,890 ) Common Stock Transactions - Other (163 ) (137 ) (190 ) (168 ) Net Cash Provided by/(Used in) Financing Activities $ (3,131 ) $ (1,624 ) $ (8,914 ) $ (1,739 ) Effect of Exchange Rate changes on Cash 69 101 (65 ) (301 ) Net Change in Cash, Cash Equivalents and Restricted Cash $ (3,108 ) $ 817 $ (6,110 ) $ 3,874 INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) Three Months Ended June 30, 2021 Cloud & Global Global Cognitive Business Technology Global (Dollars in Millions) Software Services Services Systems Financing Revenue External $ 6,098 $ 4,341 $ 6,342 $ 1,717 $ 242 Internal 726 58 326 241 260 Total Segment Revenue $ 6,824 $ 4,399 $ 6,668 $ 1,958 $ 502 Pre-tax Income/(Loss) from Continuing Operations 1,720 371 381 176 246 Pre-tax Margin 25.2 % 8.4 % 5.7 % 9.0 % 48.9 % Change YTY Revenue - External 6.1 % 11.6 % 0.4 % (7.3 ) % (8.6 ) % Change YTY Revenue - External @constant currency 2.5 % 7.3 % (4.1 ) % (10.2 ) % (11.6 ) % Three Months Ended June 30, 2020 Cloud & Global Global Cognitive Business Technology Global (Dollars in Millions) Software Services Services Systems Financing Revenue External $ 5,748 $ 3,890 $ 6,316 $ 1,852 $ 265 Internal 743 55 304 240 241 Total Segment Revenue $ 6,491 $ 3,945 $ 6,621 $ 2,092 $ 506 Pre-tax Income/(Loss) from Continuing Operations 1,708 362 250 248 176 Pre-tax Margin 26.3 % 9.2 % 3.8 % 11.8 % 34.9 % INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) Six Months Ended June 30, 2021 Cloud & Global Global Cognitive Business Technology Global (Dollars in Millions) Software Services Services Systems Financing Revenue External $ 11,534 $ 8,575 $ 12,712 $ 3,144 $ 482 Internal 1,558 113 639 430 428 Total Segment Revenue $ 13,093 $ 8,688 $ 13,351 $ 3,574 $ 910 Pre-tax Income/(Loss) from Continuing Operations 3,147 761 520 174 412 Pre-tax Margin 24.0 % 8.8 % 3.9 % 4.9 % 45.3 % Change YTY Revenue - External 5.0 % 6.8 % (0.6 ) % (2.4 ) % (14.7 ) % Change YTY Revenue - External @constant currency 1.6 % 2.8 % (4.7 ) % (5.0 ) % (17.1 ) % Six Months Ended June 30, 2020 Cloud & Global Global Cognitive Business Technology Global (Dollars in Millions) Software Services Services Systems Financing Revenue External $ 10,987 $ 8,027 $ 12,783 $ 3,220 $ 564 Internal 1,556 101 599 388 453 Total Segment Revenue $ 12,543 $ 8,128 $ 13,382 $ 3,608 $ 1,017 Pre-tax Income/(Loss) from Continuing Operations 2,641 633 72 31 370 Pre-tax Margin 21.1 % 7.8 % 0.5 % 0.9 % 36.4 % INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts) Three Months Ended June 30, 2021 Continuing Operations Acquisition- Retirement- Tax Separation- Related Related Reform Related Operating GAAP Adjustments( (1)) Adjustments( (2)) Impacts Charges( (4)) (Non-GAAP) Gross Profit $ 9,004 $ 180 $ — $ — $ 58 $ 9,242 Gross Profit Margin 48.0 % 1.0 Pts — Pts — Pts 0.3 Pts 49.3 % S,G&A 5,334 (298 ) — — (116 ) 4,919 R,D&E 1,657 — — — (0 ) 1,656 Other (Income) & Expense 315 (1 ) (328 ) — — (14 ) Interest Expense 281 — — — — 281 Total Expense & Other (Income) 7,451 (299 ) (328 ) — (117 ) 6,708 Pre-tax Income from Continuing Operations 1,552 479 328 — 175 2,534 Pre-tax Income Margin from Continuing Operations 8.3 % 2.6 Pts 1.7 Pts — Pts 0.9 Pts 13.5 % Provision for/(Benefit from) Income Taxes ((3)) 227 107 67 (14 ) 44 431 Effective Tax Rate 14.7 % 1.4 Pts 0.7 Pts (0.5 ) Pts 0.7 Pts 17.0 % Income from Continuing Operations 1,325 373 261 14 131 2,103 Income Margin from Continuing Operations 7.1 % 2.0 Pts 1.4 Pts 0.1 Pts 0.7 Pts 11.2 % Diluted Earnings/(Loss) Per Share: Continuing Operations $ 1.47 $ 0.41 $ 0.29 $ 0.01 $ 0.15 $ 2.33 Three Months Ended June 30, 2020 Continuing Operations Acquisition- Retirement- Tax Separation- Related Related Reform Related Operating GAAP Adjustments ((1)) Adjustments ((2)) Impacts Charges ((4)) (Non-GAAP) Gross Profit $ 8,700 $ 187 $ — $ — $ — $ 8,887 Gross Profit Margin 48.0 % 1.0 Pts — Pts — Pts — Pts 49.0 % S,G&A 5,248 (285 ) — — — 4,962 R,D&E 1,582 — — — — 1,582 Other (Income) & Expense 179 (1 ) (273 ) — — (95 ) Interest Expense 323 — — — — 323 Total Expense & Other (Income) 7,129 (286 ) (273 ) — — 6,570 Pre-tax Income/(Loss) from Continuing Operations 1,571 473 273 — — 2,318 Pre-tax Income Margin from Continuing Operations 8.7 % 2.6 Pts 1.5 Pts — Pts — Pts 12.8 % Provision for/(Benefit from) Income Taxes ((3)) 209 108 52 — — 369 Effective Tax Rate 13.3 % 1.9 Pts 0.7 Pts — Pts — Pts 15.9 % Income from Continuing Operations 1,362 365 222 — — 1,949 Income Margin from Continuing Operations 7.5 % 2.0 Pts 1.2 Pts — Pts — Pts 10.8 % Diluted Earnings/(Loss) Per Share: Continuing Operations $ 1.52 $ 0.41 $ 0.25 $ — $ — $ 2.18 ___________________ (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) Kyndryl separation 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) Six Months Ended June 30, 2021 Continuing Operations Acquisition- Retirement- Tax Separation- Related Related Reform Related Operating GAAP Adjustments ((1)) Adjustments ((2)) Impacts Charges ((4)) (Non-GAAP) Gross Profit $ 17,208 $ 355 $ — $ — $ 61 $ 17,624 Gross Profit Margin 47.2 % 1.0 Pts — Pts — Pts 0.2 Pts 48.3 % S,G&A 10,508 (591 ) — — (175 ) 9,742 R,D&E 3,286 — — — (0 ) 3,286 Other (Income) & Expense 676 (1 ) (670 ) — — 5 Interest Expense 562 — — — — 562 Total Expense & Other (Income) 14,751 (593 ) (670 ) — (175 ) 13,313 Pre-tax Income from Continuing Operations 2,457 948 670 — 236 4,312 Pre-tax Income Margin from Continuing Operations 6.7 % 2.6 Pts 1.8 Pts — Pts 0.6 Pts 11.8 % Provision for/(Benefit from) Income Taxes ((3)) 177 240 128 6 59 610 Effective Tax Rate 7.2 % 4.0 Pts 1.9 Pts 0.1 Pts 1.0 Pts 14.1 % Income from Continuing Operations 2,281 707 542 (6 ) 177 3,702 Income Margin from Continuing Operations 6.3 % 1.9 Pts 1.5 Pts (0.0 ) Pts 0.5 Pts 10.1 % Diluted Earnings/(Loss) Per Share: Continuing Operations $ 2.52 $ 0.79 $ 0.60 $ (0.01 ) $ 0.20 $ 4.10 Six Months Ended June 30, 2020 Continuing Operations Acquisition- Retirement- Tax Separation- Related Related Reform Related Operating GAAP Adjustments ((1)) Adjustments ((2)) Impacts Charges ((4)) (Non-GAAP) Gross Profit $ 16,622 $ 375 $ — $ — $ — $ 16,998 Gross Profit Margin 46.6 % 1.1 Pts — Pts — Pts — Pts 47.6 % S,G&A 11,203 (570 ) — — — 10,633 R,D&E 3,207 — — — — 3,207 Other (Income) & Expense 361 (1 ) (538 ) — — (178 ) Interest Expense 649 — — — — 649 Total Expense & Other (Income) 15,101 (571 ) (538 ) — — 13,992 Pre-tax Income from Continuing Operations 1,522 946 538 — — 3,006 Pre-tax Income Margin from Continuing Operations 4.3 % 2.7 Pts 1.5 Pts — Pts — Pts 8.4 % Provision for/(Benefit from) Income Taxes ((3)) (1,017 ) 210 65 149 — (592 ) Effective Tax Rate (66.8 ) % 28.0 Pts 14.1 Pts 5.0 Pts — Pts (19.7 ) % Income from Continuing Operations 2,538 736 472 (149 ) — 3,598 Income Margin from Continuing Operations 7.1 % 2.1 Pts 1.3 Pts (0.4 ) Pts — Pts 10.1 % Diluted Earnings/(Loss) Per Share: Continuing Operations $ 2.83 $ 0.83 $ 0.53 $ (0.17 ) $ — $ 4.02 _______________________ (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) Kyndryl separation 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) Trailing Three Months Ended Six Months Ended Twelve Months Ended June 30, 2021 June 30, 2021 June 30, 2021 Change YTY Change YTY Change YTY Revenue Adjusting for Divested Businesses and Currency Cloud Total IBM Total IBM Cloud Revenue as reported 12.6 % 3.4 % 2.2 % 15.2 % Impact from divested businesses 0.2 Pts 0.1 Pts 0.1 Pts 0.5 Pts Currency impact (4.1 ) Pts (4.0 ) Pts (3.7 ) Pts (3.1 ) Pts Revenue adjusting for divested businesses and currency (non-GAAP) 8.7 % (0.5 ) % (1.4 ) % 12.6 % Three Months Ended June 30, 2021 Red Hat Revenue, Normalized for Historical Comparability Change YTY Red Hat Revenue GAAP growth rate( (1)) 36 % Impact from purchase accounting deferred revenue and intercompany adjustments( (16 ) Pts (2)) Red Hat revenue growth rate, normalized for historical comparability 20 % (non-GAAP) Impact from currency (3 ) Pts Red Hat revenue growth rate, normalized for historical comparability and 17 % 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) Represents change in the second-quarter 2021 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/20210719005788/en/ (https://www.businesswire.com/news/home/20210719005788/en/) IBM Sarah Meron, 347‑891‑1770 sarah.meron@ibm.com (mailto:sarah.meron@ibm.com) John Bukovinsky, 732‑618‑3531 jbuko@us.ibm.com (mailto:jbuko@us.ibm.com) Copyright Business Wire 2021
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