REG-Intnl Bus. Mach IBM Reports 2021 Third-Quarter Results
21/10/2021 07:05
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IBM Reports 2021 Third-Quarter Results
Revenue Performance Led by Consulting and Software; Solid Cash Generation
Highlights
Third Quarter:
* Revenue of $17.6 billion, up 0.3 percent (down 0.2 percent adjusting for
divested businesses and currency)
- Cloud & Cognitive Software up 3 percent (up 2 percent adjusting for
currency)
- Global Business Services up 12 percent (up 11 percent adjusting for
currency)
* Revenue, up 2.5 percent (up 1.9 percent adjusting for divested businesses and
currency), normalized to exclude Kyndryl to be separated in November
* Net cash from operating activities of $16.1 billion and adjusted free cash
flow of $11.1 billion, both up $0.3 billion over last 12 months
* Total cloud revenue over last 12 months of $27.8 billion, up 14 percent (up 11
percent adjusting for divested businesses and currency)
- Cloud & Cognitive Software cloud revenue up 31 percent (up 28 percent
adjusting for currency)
- Global Business Services cloud revenue up 30 percent (up 27 percent
adjusting for currency)
* Red Hat revenue up 17 percent, normalized for historical comparability
* Debt reduced by $7.0 billion since year-end 2020
IBM (NYSE: IBM) today announced third-quarter 2021 earnings results.
“With the separation of Kyndryl early next month, IBM takes the next step in
our evolution as a platform-centric hybrid cloud and AI company," said Arvind
Krishna, IBM chairman and chief executive officer. “We continue to make
progress in our software and consulting businesses, which represent our higher
growth opportunities. With our increased focus and agility to better serve
clients, we are confident in achieving our medium-term objectives of
mid-single digit revenue growth and strong free cash flow generation.”
THIRD QUARTER 2021
All GAAP results include the impact of Kyndryl separation costs*
Pre-tax Gross
Diluted Net Pre-tax Income Profit
EPS Income Income Margin Margin
GAAP from Continuing Operations $ 1.25 $ 1.1B $ 1.3B 7.5 % 46.4 %
Year/Year (34 )% (33 )% (28 )% (2.9 )Pts (1.6 )Pts
Operating (Non-GAAP) $ 2.52 $ 2.3B $ 2.4B 13.6 % 48.0 %
Year/Year (2 )% (1 )% (7 )% (1.0 )Pts (1.0 )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.
* Impact of Kyndryl separation costs for third quarter 2021 GAAP results: EPS
($0.56) per share; Net Income ($0.5B); Pre-tax Income ($0.3B); Pre-Tax Income
Margin (1.6) points; Gross Profit Margin (0.6) points
“We again had solid cash generation for the quarter and over the last year,
while maintaining a strong balance sheet and the liquidity to support our
hybrid cloud and AI strategy,” said James Kavanaugh, IBM senior vice
president and chief financial officer. "Our post-separation portfolio mix is
shifted toward our growth vectors, with a higher-value recurring revenue
stream and strong cash generation, allowing us to continue to invest in the
business and provide attractive shareholder returns.”
Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities
of $2.7 billion. IBM’s free cash flow was $0.6 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 $1.2 billion. The company returned $1.5 billion to shareholders
in dividends.
Over the last 12 months, the company generated net cash from operating
activities of $16.1 billion. IBM’s free cash flow for the last 12 months was
$9.2 billion. The company’s adjusted free cash flow, excluding cash impacts
of $1.8 billion for the structural actions and transaction separation costs,
was $11.1 billion.
IBM ended the third quarter with $8.4 billion of cash on hand (includes
marketable securities), down $5.9 billion from year-end 2020 reflecting
acquisitions of $3.0 billion and debt reduction payments. Debt, including
Global Financing debt of $15.9 billion, totaled $54.5 billion, down $7.0
billion since the end of 2020, and down $18.5 billion since closing the Red
Hat acquisition.
Segment Results for Third Quarter
* Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive
Applications and Transaction Processing Platforms) —revenues of $5.7
billion, up 2.5 percent (up 1.9 percent adjusting for currency). Cloud &
Data Platforms grew 10 percent (up 9 percent adjusting for currency),
Cognitive Applications revenue was flat (down 1 percent adjusting for
currency) and Transaction Processing Platforms declined 9 percent. Cloud
revenue up 21 percent (up 20 percent adjusting for currency).
* Global Business Services (includes Consulting, Application Management and
Global Process Services) — revenues of $4.4 billion, up 11.6 percent (up
11.0 percent adjusting for currency), with growth in Consulting, up 17 percent
(up 16 percent adjusting for currency), Application Management up 5 percent,
and Global Process Services up 19 percent. Cloud revenue up 38 percent (up 37
percent adjusting for currency).
* Global Technology Services (includes Infrastructure & Cloud Services and
Technology Support Services) — revenues of $6.2 billion, down 4.8 percent
(down 5.4 percent adjusting for currency). Infrastructure & Cloud Services
declined 5 percent (down 6 percent adjusting for currency) and Technology
Support Services declined 4 percent (down 5 percent adjusting for currency).
Cloud revenue up 1 percent (flat adjusting for currency). Gross profit margin
up 120 basis points.
* Systems (includes Systems Hardware and Operating Systems Software) —
revenues of $1.1 billion, down 11.9 percent (down 12.4 percent adjusting for
currency), driven by declines in IBM Z (down 33 percent) and Power systems
down 24 percent (down 25 percent adjusting for currency). Storage Systems grew
11 percent. Cloud revenue down 42 percent (down 43 percent adjusting for
currency).
* Global Financing (includes financing and used equipment sales) — revenues of
$220 million, down 19.2 percent (down 19.8 percent adjusting for currency).
Year-To-Date 2021 Results
Revenues for the nine-month period ended September 30, 2021 totaled $54.1
billion, an increase of 1.6 percent year to year (down 1 percent adjusting for
divested businesses and currency) compared with $53.3 billion for the first
nine months of 2020. Net income was $3.4 billion, down 19 percent year to
year, reflecting the impact of $0.7 billion of transaction costs associated
with the Kyndryl separation. Diluted earnings per share was $3.77 compared
with $4.72 per diluted share for the 2020 period, a decrease of 20 percent.
GAAP earnings per share results include a ($2.85) 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 ($0.76) per share.
Operating (non-GAAP) net income for the nine months ended September 30, 2021
was $6.0 billion compared with $5.9 billion in the prior-year period, an
increase of 1.3 percent. Operating (non-GAAP) diluted earnings per share from
continuing operations was $6.62 compared with $6.60 per diluted share for the
2020 period, flat 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 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;
* total revenue normalized to exclude Kyndryl to be separated in November;
* 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-3q21
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-3q21&esheet=52512699&newsitemid=20211020006120&lan=en-US&anchor=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-3q21&index=1&md5=66223e6b6cf972a3d8d1b905ca2aea91)
. 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,
2021 2020 2021 2020
REVENUE
Cloud & Cognitive Software $ 5,692 $ 5,553 $ 17,227 $ 16,540
Global Business Services 4,427 3,965 13,002 11,992
Global Technology Services 6,154 6,462 18,866 19,245
Systems 1,107 1,257 4,251 4,477
Global Financing 220 273 702 837
Other 18 50 45 163
TOTAL REVENUE 17,618 17,560 54,093 53,253
GROSS PROFIT 8,171 8,430 25,379 25,052
GROSS PROFIT MARGIN
Cloud & Cognitive Software 77.0 % 77.1 % 77.1 % 76.6 %
Global Business Services 29.8 % 32.9 % 28.6 % 29.5 %
Global Technology Services 36.2 % 35.0 % 35.3 % 34.4 %
Systems 41.3 % 51.2 % 51.3 % 53.7 %
Global Financing 25.6 % 37.5 % 28.4 % 39.0 %
TOTAL GROSS PROFIT MARGIN 46.4 % 48.0 % 46.9 % 47.0 %
EXPENSE AND OTHER INCOME
S,G&A 4,860 4,647 15,368 15,849
R,D&E 1,621 1,515 4,907 4,722
Intellectual property and custom development income (153 ) (134 ) (435 ) (453 )
Other (income) and expense 234 253 911 614
Interest expense 291 323 852 971
TOTAL EXPENSE AND OTHER INCOME 6,852 6,603 21,603 21,704
INCOME/(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,319 1,827 3,776 3,348
Pre-tax margin 7.5 % 10.4 % 7.0 % 6.3 %
Provision for/(Benefit from) income taxes 188 128 365 (888 )
Effective tax rate 14.3 % 7.0 % 9.7 % (26.5 ) %
INCOME FROM CONTINUING OPERATIONS $ 1,130 $ 1,698 $ 3,411 $ 4,237
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes — (1 ) (1 ) (2 )
NET INCOME $ 1,130 $ 1,698 $ 3,410 $ 4,234
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations $ 1.25 $ 1.89 $ 3.77 $ 4.72
Discontinued Operations $ 0.00 $ 0.00 $ 0.00 $ 0.00
TOTAL $ 1.25 $ 1.89 $ 3.77 $ 4.72
Basic
Continuing Operations $ 1.26 $ 1.90 $ 3.81 $ 4.76
Discontinued Operations $ 0.00 $ 0.00 $ 0.00 $ 0.00
TOTAL $ 1.26 $ 1.90 $ 3.81 $ 4.76
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution 906.0 897.3 904.0 895.8
Basic 897.1 891.4 895.3 889.6
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
At At
September 30, December 31,
(Dollars in Millions) 2021 2020
ASSETS:
Current Assets:
Cash and cash equivalents $ 7,455 $ 13,212
Restricted cash 352 463
Marketable securities 600 600
Notes and accounts receivable - trade, net 6,609 7,132
Short-term financing receivables, net 7,161 10,892
Other accounts receivable, net 899 714
Inventories 1,891 1,839
Deferred costs 2,046 2,107
Prepaid expenses and other current assets 2,954 2,206
Total Current Assets 29,967 39,165
Property, plant and equipment, net 9,138 10,040
Operating right-of-use assets, net 4,253 4,686
Long-term financing receivables, net 5,046 7,086
Prepaid pension assets 8,197 7,610
Deferred costs 2,248 2,449
Deferred taxes 8,967 9,241
Goodwill 61,378 59,617
Intangibles, net 13,025 13,796
Investments and sundry assets 1,996 2,282
Total Assets $ 144,214 $ 155,971
LIABILITIES:
Current Liabilities:
Taxes $ 2,159 $ 3,301
Short-term debt 7,575 7,183
Accounts payable 4,248 4,908
Deferred income 12,264 12,833
Operating lease liabilities 1,285 1,357
Other liabilities 8,300 10,287
Total Current Liabilities 35,832 39,869
Long-term debt 46,926 54,355
Retirement related obligations 16,764 18,248
Deferred income 3,965 4,301
Operating lease liabilities 3,192 3,574
Other liabilities 15,179 14,897
Total Liabilities 121,858 135,244
EQUITY:
IBM Stockholders’ Equity:
Common stock 57,189 56,556
Retained earnings 161,747 162,717
Treasury stock — at cost (169,406 ) (169,339 )
Accumulated other comprehensive income/(loss) (27,302 ) (29,337 )
Total IBM Stockholders’ Equity 22,228 20,597
Noncontrolling interests 129 129
Total Equity 22,357 20,727
Total Liabilities and Equity $ 144,214 $ 155,971
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) 2021 2020 2021 2020 2021
Net Cash Provided by Operating Activities per GAAP: $ 2,713 $ 4,286 $ 10,252 $ 12,337 $ 16,111
Less: Change in Global Financing (GF) Receivables 1,472 2,353 5,235 5,324 4,260
Capital Expenditures, net (638 ) (829 ) (1,855 ) (2,262 ) (2,635 )
Free Cash Flow 603 1,104 3,162 4,751 9,216
Structural actions initiated in 4Q20 & Separation charges ((1)) 566 — 1,792 — 1,841
Adjusted Free Cash Flow 1,170 1,104 4,954 4,751 11,057
Free Cash Flow 603 1,104 3,162 4,751 9,216
Acquisitions (152 ) (17 ) (3,018 ) (37 ) (3,317 )
Divestitures 51 (248 ) 26 510 19
Dividends (1,471 ) (1,453 ) (4,395 ) (4,343 ) (5,850 )
Non-GF Debt 1,187 1,019 (1,143 ) 4,977 (5,899 )
Other (includes GF Net Receivables and GF Debt) 22 1,098 (500 ) 886 (1,516 )
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable $ 241 $ 1,503 $ (5,868 ) $ 6,744 $ (7,347 )
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 Nine Months Ended
September 30, September 30,
(Dollars in Millions) 2021 2020 2021 2020
Net Income from Operations $ 1,130 $ 1,698 $ 3,410 $ 4,234
Depreciation/Amortization of Intangibles 1,684 1,683 5,036 4,996
Stock-based Compensation 262 222 719 658
Working Capital / Other (1,834 ) (1,670 ) (4,147 ) (2,874 )
Global Financing A/R 1,472 2,353 5,235 5,324
Net Cash Provided by Operating Activities $ 2,713 $ 4,286 $ 10,252 $ 12,337
Capital Expenditures, net of payments & proceeds (638 ) (829 ) (1,855 ) (2,262 )
Divestitures, net of cash transferred 51 (248 ) 26 510
Acquisitions, net of cash acquired (152 ) (17 ) (3,018 ) (37 )
Marketable Securities / Other Investments, net 109 762 (453 ) (680 )
Net Cash Provided by/(Used in) Investing Activities $ (629 ) $ (332 ) $ (5,300 ) $ (2,470 )
Debt, net of payments & proceeds (287 ) (252 ) (6,086 ) 1,067
Dividends (1,471 ) (1,453 ) (4,395 ) (4,343 )
Common Stock Transactions - Other 9 16 (181 ) (152 )
Net Cash Provided by/(Used in) Financing Activities $ (1,748 ) $ (1,689 ) $ (10,662 ) $ (3,428 )
Effect of Exchange Rate changes on Cash (94 ) 101 (159 ) (200 )
Net Change in Cash, Cash Equivalents and Restricted Cash $ 241 $ 2,366 $ (5,868 ) $ 6,239
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Three Months Ended September 30, 2021
Cloud & Global Global
Cognitive Business Technology Global
(Dollars in Millions) Software Services Services Systems Financing
Revenue
External $ 5,692 $ 4,427 $ 6,154 $ 1,107 $ 220
Internal 764 53 317 176 153
Total Segment Revenue $ 6,456 $ 4,480 $ 6,471 $ 1,283 $ 373
Pre-tax Income/(Loss) from Continuing Operations 1,675 587 383 (207 ) 206
Pre-tax Margin 25.9 % 13.1 % 5.9 % (16.1 ) % 55.1 %
Change YTY Revenue - External 2.5 % 11.6 % (4.8 ) % (11.9 ) % (19.2 ) %
Change YTY Revenue - External @constant currency 1.9 % 11.0 % (5.4 ) % (12.4 ) % (19.8 ) %
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 %
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Nine Months Ended September 30, 2021
Cloud & Global Global
Cognitive Business Technology Global
(Dollars in Millions) Software Services Services Systems Financing
Revenue
External $ 17,227 $ 13,002 $ 18,866 $ 4,251 $ 702
Internal 2,322 166 956 606 581
Total Segment Revenue $ 19,549 $ 13,168 $ 19,822 $ 4,857 $ 1,283
Pre-tax Income/(Loss) from Continuing Operations 4,822 1,349 903 (33 ) 618
Pre-tax Margin 24.7 % 10.2 % 4.6 % (0.7 ) % 48.1 %
Change YTY Revenue - External 4.2 % 8.4 % (2.0 ) % (5.1 ) % (16.2 ) %
Change YTY Revenue - External @constant currency 1.7 % 5.5 % (4.9 ) % (7.0 ) % (18.0 ) %
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 %
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, 2021
Continuing Operations
Acquisition- Retirement- Tax Separation-
Related Related Reform Related Operating
GAAP Adjustments( (1)) Adjustments( (2)) Impacts Charges( (4)) (Non-GAAP)
Gross Profit $ 8,171 $ 184 $ — $ — $ 108 $ 8,463
Gross Profit Margin 46.4 % 1.0 Pts — Pts — Pts 0.6 Pts 48.0 %
S,G&A 4,860 (293) — — (169) 4,398
R,D&E 1,621 — — — (1) 1,620
Other (Income) & Expense 234 (1) (328) — — (94)
Interest Expense 291 — — — — 291
Total Expense & Other (Income) 6,852 (294) (328) — (169) 6,061
Pre-tax Income from Continuing Operations 1,319 478 328 — 277 2,402
Pre-tax Income Margin from Continuing Operations 7.5 % 2.7 Pts 1.9 Pts — Pts 1.6 Pts 13.6 %
Provision for/(Benefit from) Income Taxes ((3)) 188 103 57 — (233) 115
Effective Tax Rate 14.3 % 1.5 Pts 0.4 Pts — Pts (11.4) Pts 4.8 %
Income from Continuing Operations 1,130 375 271 — 510 2,286
Income Margin from Continuing Operations 6.4 % 2.1 Pts 1.5 Pts — Pts 2.9 Pts 13.0 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 1.25 $ 0.41 $ 0.30 $ — $ 0.56 $ 2.52
Three Months Ended September 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 $ 8,430 $ 180 $ — $ — $ — $ 8,610
Gross Profit Margin 48.0 % 1.0 Pts — Pts — Pts — 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/(Loss) from Continuing Operations 1,827 460 291 — — 2,578
Pre-tax Income Margin from Continuing Operations 10.4 % 2.6 Pts 1.7 Pts — Pts — Pts 14.7 %
Provision for/(Benefit from) Income Taxes ((3)) 128 102 54 (21) — 263
Effective Tax Rate 7.0 % 2.7 Pts 1.3 Pts (0.8) Pts — 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 — Pts 13.2 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 1.89 $ 0.40 $ 0.26 $ 0.03 $ — $ 2.58
_______________
(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 separation charges.
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, 2021
Continuing Operations
Acquisition- Retirement- Tax Separation-
Related Related Reform Related Operating
GAAP Adjustments ((1)) Adjustments ((2)) Impacts Charges ((4)) (Non-GAAP)
Gross Profit $ 25,379 $ 540 $ — $ — $ 168 $ 26,087
Gross Profit Margin 46.9 % 1.0 Pts — Pts — Pts 0.3 Pts 48.2 %
S,G&A 15,368 (884) — — (343) 14,141
R,D&E 4,907 — — — (1) 4,906
Other (Income) & Expense 911 (2) (998) — — (90)
Interest Expense 852 — — — — 852
Total Expense & Other (Income) 21,603 (886) (998) — (344) 19,374
Pre-tax Income from Continuing Operations 3,776 1,426 998 — 513 6,713
Pre-tax Income Margin from Continuing Operations 7.0 % 2.6 Pts 1.8 Pts — Pts 0.9 Pts 12.4 %
Provision for/(Benefit from) Income Taxes ((3)) 365 344 185 6 (174) 725
Effective Tax Rate 9.7 % 3.1 Pts 1.3 Pts 0.1 Pts (3.3) Pts 10.8 %
Income from Continuing Operations 3,411 1,082 813 (6) 687 5,988
Income Margin from Continuing Operations 6.3 % 2.0 Pts 1.5 Pts (0.0) Pts 1.3 Pts 11.1 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 3.77 $ 1.20 $ 0.90 $ (0.01) $ 0.76 $ 6.62
Nine Months Ended September 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 $ 25,052 $ 556 $ — $ — $ — $ 25,608
Gross Profit Margin 47.0 % 1.0 Pts — Pts — Pts — 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 — Pts — Pts 10.5 %
Provision for/(Benefit from) Income Taxes ((3)) (888) 312 119 128 — (329)
Effective Tax Rate (26.5) % 12.3 Pts 6.1 Pts 2.3 Pts — 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 — Pts 11.1 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 4.72 $ 1.23 $ 0.79 $ (0.14) $ — $ 6.60
_______________
(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 separation 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 Nine Months Ended Twelve Months Ended
September 30, 2021 September 30, 2021 September 30, 2021
Change YTY Change YTY Change YTY
Revenue Adjusting for Divested Businesses and Currency Total IBM Total IBM Cloud
Revenue as reported 0.3 % 1.6 % 13.6 %
Impact from divested businesses 0.0 Pts 0.1 Pts 0.3 Pts
Currency impact (0.6) Pts (2.7) Pts (2.8) Pts
Revenue adjusting for divested businesses and currency (non-GAAP) (0.2) % (1.0) % 11.1 %
Three Months Ended
September 30, 2021
Total IBM Revenue, Normalized to Exclude Kyndryl Change YTY
Revenue as reported 0.3 %
Impact from Kyndryl( (1)) 2.1 Pts
Revenue normalized to exclude Kyndryl (non-GAAP) 2.5 %
Impact from divested businesses 0.1 Pts
Currency impact (0.7) Pts
Revenue normalized to exclude Kyndryl, adjusted for divested businesses and 1.9 %
currency (non-GAAP)
_______________
(1) Estimated as of September 30, 2021.
Three Months Ended
September 30, 2021
Red Hat Revenue, Normalized for Historical Comparability Change YTY
Red Hat Revenue GAAP growth rate( (1)) 23 %
Impact from purchase accounting deferred revenue and intercompany adjustments( (6) Pts
(2))
Red Hat revenue growth rate, normalized for historical comparability 17 %
(non-GAAP)
Impact from currency (0) 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 third-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.
IBM
Sarah Meron, 347-891-1770
sarah.meron@ibm.com
(mailto:sarah.meron@ibm.com)
Tim Davidson, 914-844-7847
tfdavids@us.ibm.com (mailto:tfdavids@us.ibm.com)
View source version on businesswire.com:
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