ARMONK, N.Y.--(BUSINESS WIRE)--IBM (NYSE: IBM) today announced third-quarter results.
“In the third quarter, as we continued to help clients with their digital reinventions, we grew revenue in our Cloud & Cognitive Software segment and in Global Business Services," said Ginni Rometty, IBM chairman, president and chief executive officer. "Our results demonstrate that clients see IBM and Red Hat as a powerful combination and they trust us to provide them with the open hybrid cloud technology, innovation and industry expertise to help them shift their mission-critical workloads to the cloud.”
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THIRD QUARTER 2019 |
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Results Reflect the Impact of Items Related to |
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the Red Hat Acquisition Closed in July 2019 |
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Pre-tax |
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Gross |
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Diluted |
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Net |
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Pre-tax |
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Income |
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Profit |
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EPS |
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Income |
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Income |
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Margin |
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Margin |
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GAAP from Continuing Operations |
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$ |
1.87 |
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$ |
1.7B |
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$ |
1.5B |
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8.4 |
% |
46.2 |
% |
Year/Year |
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(36) |
% |
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(38) |
% |
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(49) |
% |
(7.5) |
Pts |
(0.7) |
Pts |
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Operating (Non-GAAP) |
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$ |
2.68 |
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$ |
2.4B |
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$ |
2.4B |
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13.3 |
% |
47.4 |
% |
Year/Year |
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(22) |
% |
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(24) |
% |
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(33) |
% |
(5.9) |
Pts |
(0.0) |
Pts |
“We continued our focus on the strength of our balance sheet in the third quarter," said James Kavanaugh, IBM senior vice president and chief financial officer. "We generated $12.3 billion in free cash flow over the last 12 months and with our disciplined financial management we reduced debt by nearly $7 billion in the quarter, while maintaining a strong cash balance.”
Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities of $3.6 billion, or $2.5 billion excluding Global Financing receivables. IBM’s free cash flow was $1.8 billion. IBM returned $1.6 billion to shareholders through $1.4 billion in dividends and $0.1 billion in gross share repurchases. The company suspended its share repurchase program on July 9.
IBM ended the third quarter with $11.0 billion of cash on hand. Debt, including Global Financing debt of $23.1 billion, totaled $66.3 billion – down $6.7 billion since the end of the second quarter.
Segment Results for Third Quarter
- Cloud & Cognitive Software (includes cloud and data platforms which includes Red Hat; cognitive applications; and transaction processing platforms) — revenues of $5.3 billion, up 6.4 percent (up 7.8 percent adjusting for currency), led by security, IoT, data and AI platforms and hybrid cloud; cloud and data platforms, up 17 percent (up 19 percent adjusting for currency); cognitive applications, up 4 percent (up 6 percent adjusting for currency); transaction processing platforms, down 5 percent (down 4 percent adjusting for currency).
- Global Business Services (includes consulting, application management and global process services) — revenues of $4.1 billion, up 1.0 percent (up 2.2 percent adjusting for currency), led by growth in consulting, up 4 percent (up 5 percent adjusting for currency); gross profit margin increased 110 basis points.
- Global Technology Services (includes infrastructure and cloud services and technology support services) — revenues of $6.7 billion, down 5.6 percent (down 4.1 percent adjusting for currency).
- Systems (includes systems hardware and operating systems software) — revenues of $1.5 billion, down 14.7 percent (down 13.8 percent adjusting for currency), reflecting the end of the IBM z14 product cycle and shipping of the new IBM z15 in the last week of September; gross profit margin expansion in Power and Storage.
- Global Financing (includes financing and used equipment sales) — revenues of $343 million, down 11.7 percent (down 10.7 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing; gross profit margin expansion.
Full-Year 2019 Expectations
On August 2, 2019, the company updated full-year expectations to reflect the impact of the Red Hat acquisition and related activities. IBM expects GAAP diluted earnings per share for the full year to be at least $10.58. The company continues to expect operating (non-GAAP) diluted earnings per share of at least $12.80. Operating (non-GAAP) diluted earnings per share exclude $2.22 per share of charges for: amortization of purchased intangible assets and other acquisition-related charges, including pre-closing charges, such as financing costs, associated with the Red Hat acquisition; retirement-related charges; and tax reform enactment impacts.
IBM continues to expect free cash flow of approximately $12 billion, with a realization rate over 100 percent of GAAP Net Income.
Year-To-Date 2019 Results
Year-to-date results reflect the impact of items related to the Red Hat acquisition closed in July 2019. Consolidated diluted earnings per share was $6.45 compared to $7.37, down 12 percent year to year. Consolidated net income was $5.8 billion, down 15 percent year to year. Revenues for the nine-month period ended September 30, 2019 totaled $55.4 billion, a decrease of 4 percent year to year (down 0.7 percent adjusting for divested businesses and currency) compared with $57.8 billion for the first nine months of 2018.
Operating (non-GAAP) diluted earnings per share from continuing operations was $8.10 compared with $8.96 per diluted share for the 2018 period, a decrease of 10 percent. Operating (non-GAAP) net income for the nine months ended September 30, 2019 was $7.2 billion compared with $8.2 billion in the prior-year period, a decrease of 12 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, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; 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;
- revenue for Red Hat 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.
Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. The company views Global Financing receivables as a profit-generating investment, which it seeks to maximize and therefore it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.
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 http://www.ibm.com/investor/events/earnings/3q19.html. 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) |
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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REVENUE |
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Cloud & Cognitive Software |
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$ |
5,280 |
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$ |
4,962 |
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* |
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$ |
15,962 |
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$ |
15,548 |
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* |
Global Business Services |
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4,117 |
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4,076 |
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* |
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12,391 |
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12,326 |
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* |
Global Technology Services |
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6,700 |
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7,101 |
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* |
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20,412 |
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21,846 |
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* |
Systems |
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1,481 |
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1,736 |
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4,562 |
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5,412 |
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Global Financing |
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343 |
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388 |
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1,100 |
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1,188 |
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Other |
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107 |
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493 |
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* |
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944 |
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1,511 |
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* |
TOTAL REVENUE |
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18,028 |
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18,756 |
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55,370 |
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57,830 |
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GROSS PROFIT |
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8,336 |
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8,803 |
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25,388 |
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26,249 |
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GROSS PROFIT MARGIN |
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Cloud & Cognitive Software |
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74.1 |
% |
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76.1 |
% |
* |
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75.5 |
% |
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76.8 |
% |
* |
Global Business Services |
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31.1 |
% |
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30.0 |
% |
* |
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27.8 |
% |
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26.5 |
% |
* |
Global Technology Services |
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35.8 |
% |
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37.0 |
% |
* |
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34.6 |
% |
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34.3 |
% |
* |
Systems |
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52.6 |
% |
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52.7 |
% |
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51.1 |
% |
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49.3 |
% |
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Global Financing |
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36.9 |
% |
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26.3 |
% |
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35.6 |
% |
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29.1 |
% |
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TOTAL GROSS PROFIT MARGIN |
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46.2 |
% |
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46.9 |
% |
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45.9 |
% |
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45.4 |
% |
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EXPENSE AND OTHER INCOME |
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S,G&A |
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5,024 |
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4,363 |
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15,171 |
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14,665 |
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R,D&E |
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1,553 |
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1,252 |
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4,393 |
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4,021 |
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Intellectual property and custom development income |
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(166) |
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(275) |
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(489) |
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(842) |
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Other (income) and expense |
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(31) |
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275 |
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(850) |
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968 |
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Interest expense |
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432 |
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191 |
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990 |
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530 |
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TOTAL EXPENSE AND OTHER INCOME |
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6,813 |
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5,807 |
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19,215 |
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19,341 |
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INCOME FROM CONTINUING OPERATIONS |
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BEFORE INCOME TAXES |
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1,522 |
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2,996 |
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6,173 |
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6,908 |
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Pre-tax margin |
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8.4 |
% |
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16.0 |
% |
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11.1 |
% |
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11.9 |
% |
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Provision for / (Benefit from) income taxes |
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(151) |
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304 |
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|
407 |
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138 |
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Effective tax rate |
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(9.9) |
% |
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10.2 |
% |
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6.6 |
% |
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2.0 |
% |
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INCOME FROM CONTINUING OPERATIONS |
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$ |
1,673 |
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$ |
2,692 |
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$ |
5,766 |
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$ |
6,770 |
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DISCONTINUED OPERATIONS |
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Income / (Loss) from discontinued operations, net of taxes |
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(1) |
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2 |
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(5) |
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7 |
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NET INCOME |
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$ |
1,672 |
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$ |
2,694 |
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$ |
5,761 |
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$ |
6,777 |
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EARNINGS / (LOSS) PER SHARE OF COMMON STOCK |
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Assuming Dilution |
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Continuing Operations |
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$ |
1.87 |
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$ |
2.94 |
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$ |
6.46 |
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$ |
7.36 |
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Discontinued Operations |
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$ |
0.00 |
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$ |
0.00 |
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$ |
(0.01) |
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$ |
0.01 |
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TOTAL |
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$ |
1.87 |
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$ |
2.94 |
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$ |
6.45 |
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$ |
7.37 |
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Basic |
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Continuing Operations |
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$ |
1.89 |
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$ |
2.95 |
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$ |
6.50 |
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$ |
7.39 |
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Discontinued Operations |
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$ |
0.00 |
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$ |
0.00 |
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$ |
(0.01) |
|
$ |
0.01 |
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TOTAL |
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$ |
1.89 |
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$ |
2.95 |
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$ |
6.49 |
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$ |
7.40 |
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WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s) |
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Assuming Dilution |
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|
892.8 |
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915.2 |
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892.5 |
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920.0 |
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Basic |
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|
886.0 |
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|
911.2 |
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|
887.3 |
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|
915.6 |
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_________________________________ * Recast to conform with 2019 presentation. |
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INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) |
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At |
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At |
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September 30, |
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December 31, |
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(Dollars in Millions) |
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2019 |
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2018 |
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ASSETS: |
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Current Assets: |
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Cash and cash equivalents |
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$ |
10,087 |
|
$ |
11,379 |
||
Restricted cash |
|
|
138 |
|
|
225 |
||
Marketable securities |
|
|
733 |
|
|
618 |
||
Notes and accounts receivable - trade, net |
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|
6,753 |
|
|
7,432 |
||
Short-term financing receivables, net |
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|
12,330 |
|
|
22,388 |
||
Other accounts receivable, net |
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|
1,876 |
|
|
743 |
||
Inventories |
|
|
1,712 |
|
|
1,682 |
||
Deferred costs |
|
|
1,978 |
|
|
2,300 |
||
Prepaid expenses and other current assets |
|
|
2,515 |
|
|
2,378 |
||
Total Current Assets |
|
|
38,121 |
|
|
49,146 |
||
|
|
|
|
|
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|
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Property, plant and equipment, net |
|
|
10,063 |
|
|
10,792 |
||
Operating right-of-use assets, net* |
|
|
4,901 |
|
|
— |
||
Long-term financing receivables, net |
|
|
7,739 |
|
|
9,148 |
||
Prepaid pension assets |
|
|
5,481 |
|
|
4,666 |
||
Deferred costs |
|
|
2,535 |
|
|
2,676 |
||
Deferred taxes |
|
|
4,994 |
|
|
5,216 |
||
Goodwill and intangibles, net |
|
|
73,564 |
|
|
39,353 |
||
Investments and sundry assets |
|
|
2,221 |
|
|
2,386 |
||
Total Assets |
|
$ |
149,620 |
|
$ |
123,382 |
||
|
|
|
|
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|
||
LIABILITIES: |
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|
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|
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Current Liabilities: |
|
|
|
|
|
|
||
Taxes |
|
$ |
2,154 |
|
$ |
3,046 |
||
Short-term debt |
|
|
8,530 |
|
|
10,207 |
||
Accounts payable |
|
|
4,042 |
|
|
6,558 |
||
Deferred income |
|
|
11,223 |
|
|
11,165 |
||
Operating lease liabilities* |
|
|
1,377 |
|
|
— |
||
Other liabilities |
|
|
7,739 |
|
|
7,251 |
||
Total Current Liabilities |
|
|
35,066 |
|
|
38,227 |
||
|
|
|
|
|
|
|
||
Long-term debt |
|
|
57,797 |
|
|
35,605 |
||
Retirement related obligations |
|
|
15,925 |
|
|
17,002 |
||
Deferred income |
|
|
3,382 |
|
|
3,445 |
||
Operating lease liabilities* |
|
|
3,790 |
|
|
— |
||
Other liabilities |
|
|
15,564 |
|
|
12,174 |
||
Total Liabilities |
|
|
131,524 |
|
|
106,452 |
||
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EQUITY: |
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IBM Stockholders’ Equity: |
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|
|
|
|
||
Common stock |
|
|
55,808 |
|
|
55,151 |
||
Retained earnings |
|
|
160,709 |
|
|
159,206 |
||
Treasury stock — at cost |
|
|
(169,474) |
|
|
(168,071) |
||
Accumulated other comprehensive income/(loss) |
|
|
(29,086) |
|
|
(29,490) |
||
Total IBM Stockholders’ Equity |
|
|
17,956 |
|
|
16,796 |
||
|
|
|
|
|
|
|
||
Noncontrolling interests |
|
|
139 |
|
|
134 |
||
Total Equity |
|
|
18,096 |
|
|
16,929 |
||
|
|
|
|
|
|
|
||
Total Liabilities and Equity |
|
$ |
149,620 |
|
$ |
123,382 |
||
________________________ * Reflects the adoption of the FASB guidance on leases. |
||||||||
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
(Dollars in Millions) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Net Cash Provided by Operating Activities per GAAP: |
|
$ |
3,619 |
|
$ |
4,232 |
|
$ |
11,319 |
|
$ |
11,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: change in Global Financing (GF) Receivables |
|
|
1,135 |
|
|
1,096 |
|
|
3,712 |
|
|
2,874 |
Capital Expenditures, Net |
|
|
(681) |
|
|
(942) |
|
|
(1,725) |
|
|
(2,839) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash Flow |
|
|
1,803 |
|
|
2,194 |
|
|
5,882 |
|
|
5,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
(32,587) |
|
|
(1) |
|
|
(32,630) |
|
|
(123) |
Divestitures |
|
|
39 |
|
|
— |
|
|
927 |
|
|
— |
Dividends |
|
|
(1,436) |
|
|
(1,431) |
|
|
(4,269) |
|
|
(4,250) |
Share Repurchase |
|
|
(126) |
|
|
(627) |
|
|
(1,361) |
|
|
(2,393) |
Non-GF Debt |
|
|
(4,967) |
|
|
2,218 |
|
|
28,432 |
|
|
1,607 |
Other (includes GF Net Receivables and GF Debt) |
|
|
1,823 |
|
|
382 |
|
|
1,755 |
|
|
1,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities |
|
$ |
(35,451) |
|
$ |
2,736 |
|
$ |
(1,265) |
|
$ |
1,820 |
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
(Dollars in Millions) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Net Income from Operations |
|
$ |
1,672 |
|
$ |
2,694 |
|
$ |
5,761 |
|
$ |
6,777 |
Depreciation/Amortization of Intangibles |
|
|
1,669 |
|
|
1,138 |
|
|
4,409 |
|
|
3,368 |
Stock-based Compensation |
|
|
220 |
|
|
129 |
|
|
468 |
|
|
371 |
Working Capital / Other |
|
|
(1,077) |
|
|
(825) |
|
|
(3,031) |
|
|
(2,261) |
Global Financing A/R |
|
|
1,135 |
|
|
1,096 |
|
|
3,712 |
|
|
2,874 |
Net Cash Provided by Operating Activities |
|
$ |
3,619 |
|
$ |
4,232 |
|
$ |
11,319 |
|
$ |
11,128 |
Capital Expenditures, net of payments & proceeds |
|
|
(681) |
|
|
(942) |
|
|
(1,725) |
|
|
(2,839) |
Divestitures, net of cash transferred |
|
|
39 |
|
|
— |
|
|
927 |
|
|
— |
Acquisitions, net of cash acquired |
|
|
(32,587) |
|
|
(1) |
|
|
(32,630) |
|
|
(123) |
Marketable Securities / Other Investments, net |
|
|
2,856 |
|
|
(2,026) |
|
|
6,365 |
|
|
(2,406) |
Net Cash Provided by / (Used in) Investing Activities |
|
$ |
(30,373) |
|
$ |
(2,969) |
|
$ |
(27,064) |
|
$ |
(5,368) |
Debt, net of payments & proceeds |
|
|
(6,608) |
|
|
1,595 |
|
|
20,465 |
|
|
845 |
Dividends |
|
|
(1,436) |
|
|
(1,431) |
|
|
(4,269) |
|
|
(4,250) |
Common Stock Repurchases |
|
|
(126) |
|
|
(627) |
|
|
(1,361) |
|
|
(2,393) |
Common Stock Transactions - Other |
|
|
(7) |
|
|
26 |
|
|
(118) |
|
|
(66) |
Net Cash Provided by / (Used in) Financing Activities |
|
$ |
(8,177) |
|
$ |
(437) |
|
$ |
14,717 |
|
$ |
(5,864) |
Effect of Exchange Rate changes on Cash |
|
|
(378) |
|
|
(55) |
|
|
(352) |
|
|
(399) |
Net Change in Cash, Cash Equivalents and Restricted Cash |
|
$ |
(35,310) |
|
$ |
771 |
|
$ |
(1,379) |
|
$ |
(503) |
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019 |
|
|||||||||||||
|
|
Cloud & |
|
Global |
|
Global |
|
|
|
|
|
|
|
|||
|
|
Cognitive |
|
Business |
|
Technology |
|
|
|
|
Global |
|
||||
(Dollars in Millions) |
|
Software |
|
Services |
|
Services |
|
Systems |
|
Financing |
|
|||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
$ |
5,280 |
|
$ |
4,117 |
|
$ |
6,700 |
|
$ |
1,481 |
|
$ |
343 |
|
Internal |
|
|
686 |
|
|
70 |
|
|
287 |
|
|
195 |
|
|
302 |
|
Total Segment Revenue |
|
$ |
5,966 |
|
$ |
4,187 |
|
$ |
6,988 |
|
$ |
1,676 |
|
$ |
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income / (Loss) from Continuing Operations |
|
|
1,283 |
|
|
573 |
|
|
490 |
|
|
39 |
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax margin |
|
|
21.5 |
% |
|
13.7 |
% |
|
7.0 |
% |
|
2.3 |
% |
|
42.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change YTY Revenue - External |
|
|
6.4 |
% |
|
1.0 |
% |
|
(5.6) |
% |
|
(14.7) |
% |
|
(11.7) |
% |
Change YTY Revenue - External @constant currency |
|
|
7.8 |
% |
|
2.2 |
% |
|
(4.1) |
% |
|
(13.8) |
% |
|
(10.7) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018 |
|
|||||||||||||
|
|
Cloud & |
|
Global |
|
Global |
|
|
|
|
|
|
|
|||
|
|
Cognitive |
|
Business |
|
Technology |
|
|
|
|
Global |
|
||||
(Dollars in Millions) |
|
Software* |
|
Services* |
|
Services* |
|
Systems |
|
Financing |
|
|||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
$ |
4,962 |
|
$ |
4,076 |
|
$ |
7,101 |
|
$ |
1,736 |
|
$ |
388 |
|
Internal |
|
|
777 |
|
|
77 |
|
|
279 |
|
|
181 |
|
|
338 |
|
Total Segment Revenue |
|
$ |
5,738 |
|
$ |
4,153 |
|
$ |
7,380 |
|
$ |
1,917 |
|
$ |
726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income / (Loss) from Continuing Operations |
|
|
2,050 |
|
|
566 |
|
|
607 |
|
|
209 |
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax margin |
|
|
35.7 |
% |
|
13.6 |
% |
|
8.2 |
% |
|
10.9 |
% |
|
42.5 |
% |
______________________ * Recast to conform with 2019 presentation. |
||||||||||||||||
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
|||||||||||||
|
|
Cloud & |
|
Global |
|
Global |
|
|
|
|
|
|
|
|||
|
|
Cognitive |
|
Business |
|
Technology |
|
|
|
|
Global |
|
||||
(Dollars in Millions) |
|
Software |
|
Services |
|
Services |
|
Systems |
|
Financing |
|
|||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
$ |
15,962 |
|
$ |
12,391 |
|
$ |
20,412 |
|
$ |
4,562 |
|
$ |
1,100 |
|
Internal |
|
|
2,135 |
|
|
213 |
|
|
879 |
|
|
528 |
|
|
884 |
|
Total Segment Revenue |
|
$ |
18,097 |
|
$ |
12,604 |
|
$ |
21,291 |
|
$ |
5,091 |
|
$ |
1,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income / (Loss) from Continuing Operations |
|
|
5,052 |
|
|
1,188 |
|
|
1,000 |
|
|
(101) |
|
|
803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax margin |
|
|
27.9 |
% |
|
9.4 |
% |
|
4.7 |
% |
|
(2.0) |
% |
|
40.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change YTY Revenue - External |
|
|
2.7 |
% |
|
0.5 |
% |
|
(6.6) |
% |
|
(15.7) |
% |
|
(7.4) |
% |
Change YTY Revenue - External @constant currency |
|
|
4.9 |
% |
|
3.3 |
% |
|
(3.6) |
% |
|
(14.1) |
% |
|
(5.0) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018 |
|
|||||||||||||
|
|
Cloud & |
|
Global |
|
Global |
|
|
|
|
|
|
|
|||
|
|
Cognitive |
|
Business |
|
Technology |
|
|
|
|
Global |
|
||||
(Dollars in Millions) |
|
Software* |
|
Services* |
|
Services* |
|
Systems |
|
Financing |
|
|||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
$ |
15,548 |
|
$ |
12,326 |
|
$ |
21,846 |
|
$ |
5,412 |
|
$ |
1,188 |
|
Internal |
|
|
2,518 |
|
|
249 |
|
|
589 |
|
|
576 |
|
|
1,240 |
|
Total Segment Revenue |
|
$ |
18,066 |
|
$ |
12,575 |
|
$ |
22,435 |
|
$ |
5,989 |
|
$ |
2,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income / (Loss) from Continuing Operations |
|
|
5,760 |
|
|
1,063 |
|
|
1,124 |
|
|
352 |
|
|
1,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax margin |
|
|
31.9 |
% |
|
8.5 |
% |
|
5.0 |
% |
|
5.9 |
% |
|
42.9 |
% |
___________________ * Recast to conform with 2019 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, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018 |
|
|||||||||||||
|
|
Continuing Operations |
|
|||||||||||||
|
|
|
|
|
Acquisition- |
|
Retirement- |
|
Tax |
|
|
|
|
|||
|
|
|
|
|
Related |
|
Related |
|
Reform |
|
Operating |
|
||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
Impacts |
|
(Non-GAAP) |
|
|||||
Gross Profit |
|
$ |
8,803 |
|
$ |
96 |
|
|
— |
|
|
— |
|
$ |
8,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit Margin |
|
|
46.9 |
% |
|
0.5 |
Pts |
|
— |
|
|
— |
|
|
47.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S,G&A |
|
|
4,363 |
|
|
(112) |
|
|
— |
|
|
— |
|
|
4,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R,D&E |
|
|
1,252 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income) & Expense |
|
|
275 |
|
|
(1) |
|
|
(389) |
|
|
— |
|
|
(115) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
191 |
|
|
— |
|
|
— |
|
|
— |
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expense & Other (Income) |
|
|
5,807 |
|
|
(113) |
|
|
(389) |
|
|
— |
|
|
5,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income from Continuing Operations |
|
|
2,996 |
|
|
209 |
|
|
389 |
|
|
— |
|
|
3,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income Margin from Continuing Operations |
|
|
16.0 |
% |
|
1.1 |
Pts |
|
2.1 |
Pts |
|
— |
|
|
19.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for / (Benefit from) Income Taxes*** |
|
|
304 |
|
|
56 |
|
|
100 |
|
|
— |
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
10.2 |
% |
|
1.0 |
Pts |
|
1.7 |
Pts |
|
— |
Pts |
|
12.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
2,692 |
|
|
153 |
|
|
289 |
|
|
— |
|
|
3,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Margin from Continuing Operations |
|
|
14.4 |
% |
|
0.8 |
Pts |
|
1.5 |
Pts |
|
— |
Pts |
|
16.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings / (Loss) Per Share: Continuing Operations |
|
$ |
2.94 |
|
$ |
0.17 |
|
$ |
0.31 |
|
$ |
— |
|
$ |
3.42 |
|
| ______________________________ |
* 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, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018 |
|
|||||||||||||
|
|
Continuing Operations |
|
|||||||||||||
|
|
|
|
|
Acquisition- |
|
Retirement- |
|
Tax |
|
|
|
|
|||
|
|
|
|
|
Related |
|
Related |
|
Reform |
|
Operating |
|
||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
Impacts |
|
(Non-GAAP) |
|
|||||
Gross Profit |
|
$ |
26,249 |
|
$ |
283 |
|
|
— |
|
|
— |
|
$ |
26,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit Margin |
|
|
45.4 |
% |
|
0.5 |
Pts |
|
— |
|
|
— |
|
|
45.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S,G&A |
|
|
14,665 |
|
|
(332) |
|
|
— |
|
|
— |
|
|
14,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R,D&E |
|
|
4,021 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income) & Expense |
|
|
968 |
|
|
(1) |
|
|
(1,185) |
|
|
— |
|
|
(219) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
530 |
|
|
— |
|
|
— |
|
|
— |
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expense & Other (Income) |
|
|
19,341 |
|
|
(333) |
|
|
(1,185) |
|
|
— |
|
|
17,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income from Continuing Operations |
|
|
6,908 |
|
|
616 |
|
|
1,185 |
|
|
— |
|
|
8,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income Margin from Continuing Operations |
|
|
11.9 |
% |
|
1.1 |
Pts |
|
2.0 |
Pts |
|
— |
|
|
15.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for / (Benefit from) Income Taxes*** |
|
|
138 |
|
|
138 |
|
|
285 |
|
|
(93) |
|
|
468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
2.0 |
% |
|
1.4 |
Pts |
|
3.0 |
Pts |
|
(1.1) |
Pts |
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
6,770 |
|
|
478 |
|
|
900 |
|
|
93 |
|
|
8,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Margin from Continuing Operations |
|
|
11.7 |
% |
|
0.8 |
Pts |
|
1.6 |
Pts |
|
0.2 |
Pts |
|
14.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings / (Loss) Per Share: Continuing Operations |
|
$ |
7.36 |
|
$ |
0.52 |
|
$ |
0.98 |
|
$ |
0.10 |
|
$ |
8.96 |
|
| ______________________________ | |||||||||||||||||||||||||
| * 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) |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|||||
|
|
September 30, 2019 |
|
|
September 30, 2019 |
|
|||||
|
|
Change YTY |
|
|
Change YTY |
|
|||||
Revenue Adjusting for Divested Businesses and Currency |
|
Cloud |
|
Total IBM |
|
|
Total IBM |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Revenue as reported |
|
|
10.6 |
% |
|
(3.9) |
% |
|
|
(4.3) |
% |
Impact from divested businesses |
|
|
1.8 |
Pts |
|
2.0 |
Pts |
|
|
0.9 |
Pts |
Currency impact |
|
|
1.5 |
Pts |
|
1.3 |
Pts |
|
|
2.6 |
Pts |
Revenue adjusting for divested businesses and currency (non-GAAP) |
|
|
13.9 |
% |
|
(0.6) |
% |
|
|
(0.7) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
||||||
Revenue for Red Hat, Normalized for Historical Comparability |
|
September 30,
|
|
September 30,
|
|
YTY |
|
YTY @constant
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Red Hat revenue as reported in IBM consolidated results (1) |
|
$ |
371 |
|
$ |
— |
|
|
|
|
|
Add: Red Hat revenue prior to acquisition (2) |
|
|
84 |
|
|
829 |
|
|
|
|
|
Add: Purchase accounting deferred revenue and intercompany adjustments (3) |
|
|
531 |
|
|
— |
|
|
|
|
|
Red Hat revenue, normalized for historical comparability (non-GAAP) |
|
$ |
987 |
|
$ |
829 |
|
19 |
% |
20 |
% |
| (1) Represents 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 on July 9, 2019. Revenue for July 1 - July 8, 2019 and the three months ended September 30, 2018 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes. | |
| (3) Represents the third-quarter 2019 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. |
|
|
|
|
2019 Full Year Expectations |
|
|
|
(as of third quarter 2019) |
|
|
|
GAAP Diluted EPS |
|
|
at least $10.58 |
|
|
|
|
Operating EPS (non-GAAP) |
|
|
at least $12.80 |
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
Acquisition-related Charges * |
|
$ |
1.52 |
|
|
|
|
Non-Operating Retirement-Related Items |
|
$ |
0.51 |
|
|
|
|
Tax Reform Enactment Impacts |
|
$ |
0.19 |
______________________________ * Includes acquisitions as of September 30, 2019. |
|||
