Intnl Bus. Mach UK Regulatory Announcement: IBM Reports 2020 First-Quarter Results

Continued Cloud Revenue Growth; Gross Margin Expansion; Strong Balance Sheet and Liquidity Position

ARMONK, N.Y.–(BUSINESS WIRE)– 

IBM (NYSE:IBM) today announced first-quarter 2020 earnings results.

“IBM remains focused on helping our clients adapt to the immediate challenges of the COVID-19 pandemic, while we continue to enable them to shift their mission-critical workloads to hybrid cloud and expand their use of AI to help transform their operations,” said Arvind Krishna, IBM chief executive officer. “Our first-quarter performance in cloud is a reflection of the trust clients place in IBM’s technology and expertise today, and positions us to continue building an enduring hybrid cloud platform for the future.”

Highlights for the first quarter include:

  • GAAP EPS from continuing operations of $1.31
  • Operating (non-GAAP) EPS of $1.84
  • Revenue of $17.6 billion, down 3.4 percent (up 0.1 percent adjusting for divested businesses and currency)

    — Cloud & Cognitive Software up 5 percent (up 7 percent adjusting for currency)

    — Systems up 3 percent (up 4 percent adjusting for currency)

    — Global Business Services flat (up 1 percent adjusting for currency)
  • Total cloud revenue of $5.4 billion, up 19 percent (up 23 percent adjusting for divested businesses and currency)

    — Cloud revenue of $22 billion over last 12 months, up 13 percent (up 16 percent adjusting for divested businesses and currency)
  • Red Hat revenue, up 18 percent (up 20 percent adjusting for currency), normalized for historical comparability
  • GAAP gross profit margin up 90 basis points; Operating (non-GAAP) gross profit margin up 150 basis points
  • Net cash from operating activities of $14.5 billion and free cash flow of $11.6 billion, over the last 12 months
  • IBM is withdrawing its full-year 2020 guidance in light of the current COVID-19 crisis. The company will reassess this position based on the clarity of the macroeconomic recovery at the end of the second quarter.

 

 

FIRST QUARTER 2020

 

 

 

Results Reflect the Impact of Items Related to

 

 

 

the Red Hat Acquisition Closed in July 2019

 

 

 

 

 

 

 

 

 

 

 

Pre-tax

 

Gross

 

 

 

Diluted

 

Net

 

Pre-tax

 

Income/(Loss)

 

Profit

 

 

 

EPS

 

Income

 

Income/(Loss)

 

Margin

 

Margin

 

GAAP from Continuing Operations

 

$

1.31

 

$

1.2B

 

$

0.0B

 

(0.3)

%

45.1

%

Year/Year

 

 

(26)

%

 

(26)

%

 

(103)

%

(10.6)

Pts

0.9

Pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Non-GAAP)

 

$

1.84

 

$

1.6B

 

$

0.7B

 

3.9

%

46.2

%

Year/Year

 

 

(18)

%

 

(18)

%

 

(69)

%

(8.4)

Pts

1.5

Pts

“Our recurring revenue stream, continued gross profit margin expansion and strong balance sheet and liquidity position remain stabilizing elements in an unprecedented business climate,” said James Kavanaugh, IBM senior vice president and chief financial officer. “We’ve taken actions within our business to provide the necessary flexibility and operating efficiency for the current environment.”

Cash Flow and Balance Sheet

In the first quarter, the company generated net cash from operating activities of $4.5 billion, or $2.1 billion excluding Global Financing receivables. IBM’s free cash flow was $1.4 billion. The company returned $1.4 billion to shareholders in dividends.

IBM ended the first quarter with $12.0 billion of cash on hand which includes marketable securities. Debt, including Global Financing debt of $22.3 billion, totaled $64.3 billion – down $8.7 billion since the end of the second-quarter 2019.

Segment Results for First Quarter

  • Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat; Cognitive Applications; and Transaction Processing Platforms) — revenues of $5.2 billion, up 5 percent (up 7 percent adjusting for currency), with growth in Cloud & Data Platforms, up 32 percent (up 34 percent adjusting for currency) led by Red Hat.
  • Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.1 billion, flat year-to-year (up 1 percent adjusting for currency), with growth in Consulting, up 4 percent (up 5 percent adjusting for currency); gross profit margin up 100 basis points.
  • Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.5 billion, down 6 percent (down 4 percent adjusting for currency); gross profit margin up 30 basis points.
  • Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.4 billion, up 3 percent (up 4 percent adjusting for currency), led by IBM Z, up 59 percent (up 61 percent adjusting for currency) and Storage Systems revenue up 18 percent (up 19 percent adjusting for currency); gross profit margin up 410 basis points.
  • Global Financing (includes financing and used equipment sales) — revenues of $299 million, down 26 percent (down 25 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing; gross profit margin up 580 basis points.

Pre-Tax Income and Tax Rate

Pre-tax income was impacted by charges of approximately $0.9 billion, predominantly related to structural actions to improve competitiveness in Global Technology Services. IBM’s reported GAAP and operating (non-GAAP) tax rates for the first quarter include the effect of a non-cash discrete tax benefit, associated with the intercompany transfer of intellectual property, which more than offsets the charges for those structural actions.

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; impairment of the company’s goodwill or amortizable intangible assets; the company’s ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product quality issues; impacts of business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels and ecosystems; the company’s ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities, and higher debt levels; legal proceedings and investigatory risks; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Qs, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements.

Presentation of Information in this Press Release

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information, which management believes provides useful information to investors:

IBM results —

  • adjusting for currency (i.e., at constant currency);
  • total revenue and cloud revenue adjusting for divested businesses and currency;
  • 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.

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/1q20.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)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2020

 

2019

 

 

REVENUE

 

 

 

 

 

 

 

 

Cloud & Cognitive Software

 

$

5,238

 

 

$

4,967

 

 

*

Global Business Services

 

 

4,136

 

 

 

4,155

 

 

*

Global Technology Services

 

 

6,467

 

 

 

6,875

 

 

 

Systems

 

 

1,368

 

 

 

1,328

 

 

 

Global Financing

 

 

299

 

 

 

406

 

 

 

Other

 

 

62

 

 

 

451

 

 

*

TOTAL REVENUE

 

 

17,571

 

 

 

18,182

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

7,922

 

 

 

8,043

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT MARGIN

 

 

 

 

 

 

 

 

Cloud & Cognitive Software

 

 

75.4

 

%

 

75.6

 

%

*

Global Business Services

 

 

27.2

 

%

 

26.2

 

%

*

Global Technology Services

 

 

34.0

 

%

 

33.7

 

%

 

Systems

 

 

50.2

 

%

 

46.2

 

%

 

Global Financing

 

 

40.7

 

%

 

34.9

 

%

 

 

 

 

 

 

 

 

 

 

TOTAL GROSS PROFIT MARGIN

 

 

45.1

 

%

 

44.2

 

%

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

S,G&A

 

 

5,955

 

 

 

4,691

 

 

 

R,D&E

 

 

1,625

 

 

 

1,433

 

 

 

Intellectual property and custom development income

 

 

(116

)

 

 

(101

)

 

 

Other (income) and expense

 

 

182

 

 

 

(73

)

 

 

Interest expense

 

 

326

 

 

 

210

 

 

 

TOTAL EXPENSE AND OTHER INCOME

 

 

7,972

 

 

 

6,160

 

 

 

 

 

 

 

 

 

 

 

 

INCOME/(LOSS) FROM CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

BEFORE INCOME TAXES

 

 

(49

)

 

 

1,883

 

 

 

Pre-tax margin

 

 

(0.3

)

%

 

10.4

 

%

 

Provision for / (Benefit from) income taxes

 

 

(1,226

)

 

 

289

 

 

 

Effective tax rate

 

 

NM

 

%

 

15.4

 

%

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

1,176

 

 

$

1,593

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

Income / (Loss) from discontinued operations, net of taxes

 

 

(1

)

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

1,175

 

 

$

1,591

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS / (LOSS) PER SHARE OF COMMON STOCK

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

 

 

 

 

 

 

Continuing Operations

 

$

1.31

 

 

$

1.78

 

 

 

Discontinued Operations

 

$

0.00

 

 

$

0.00

 

 

 

TOTAL

 

$

1.31

 

 

$

1.78

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

Continuing Operations

 

$

1.32

 

 

$

1.79

 

 

 

Discontinued Operations

 

$

0.00

 

 

$

0.00

 

 

 

TOTAL

 

$

1.32

 

 

$

1.79

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

895.0

 

 

 

893.9

 

 

 

Basic

 

 

888.0

 

 

 

889.6

 

 

 

_____________________________

* Recast to conform with 2020 presentation.

NM = Not Meaningful

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

 

 

 

 

 

 

At

 

At

 

 

March 31,

 

December 31,

(Dollars in Millions)

 

2020 

 

2019 

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,218

 

 

$

8,172

 

Restricted cash

 

 

152

 

 

 

141

 

Marketable securities

 

 

647

 

 

 

696

 

Notes and accounts receivable – trade, net

 

 

6,927

 

 

 

7,870

 

Short-term financing receivables, net

 

 

12,126

 

 

 

14,192

 

Other accounts receivable, net

 

 

1,616

 

 

 

1,733

 

Inventories

 

 

1,786

 

 

 

1,619

 

Deferred costs

 

 

1,948

 

 

 

1,896

 

Prepaid expenses and other current assets

 

 

2,509

 

 

 

2,101

 

Total Current Assets

 

 

38,931

 

 

 

38,420

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

9,626

 

 

 

10,010

 

Operating right-of-use assets, net

 

 

4,871

 

 

 

4,996

 

Long-term financing receivables, net

 

 

7,708

 

 

 

8,712

 

Prepaid pension assets

 

 

6,933

 

 

 

6,865

 

Deferred costs

 

 

2,459

 

 

 

2,472

 

Deferred taxes

 

 

8,782

 

 

 

5,182

 

Goodwill

 

 

57,517

 

 

 

58,222

 

Intangibles, net

 

 

14,666

 

 

 

15,235

 

Investments and sundry assets

 

 

1,911

 

 

 

2,074

 

Total Assets

 

$

153,403

 

 

$

152,186

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Taxes

 

$

2,348

 

 

$

2,839

 

Short-term debt

 

 

11,642

 

 

 

8,797

 

Accounts payable

 

 

4,172

 

 

 

4,896

 

Deferred income

 

 

13,377

 

 

 

12,026

 

Operating lease liabilities

 

 

1,327

 

 

 

1,380

 

Other liabilities

 

 

7,806

 

 

 

7,763

 

Total Current Liabilities

 

 

40,673

 

 

 

37,701

 

 

 

 

 

 

 

 

Long-term debt

 

 

52,685

 

 

 

54,102

 

Retirement related obligations

 

 

16,474

 

 

 

17,142

 

Deferred income

 

 

3,769

 

 

 

3,851

 

Operating lease liabilities

 

 

3,799

 

 

 

3,879

 

Other liabilities

 

 

15,874

 

 

 

14,526

 

Total Liabilities

 

 

133,275

 

 

 

131,202

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

 

Common stock

 

 

56,092

 

 

 

55,895

 

Retained earnings

 

 

162,626

 

 

 

162,954

 

Treasury stock — at cost

 

 

(169,437

)

 

 

(169,413

)

Accumulated other comprehensive income/(loss)

 

 

(29,283

)

 

 

(28,597

)

Total IBM Stockholders’ Equity

 

 

19,999

 

 

 

20,841

 

 

 

 

 

 

 

 

Noncontrolling interests

 

 

129

 

 

 

144

 

Total Equity

 

 

20,128

 

 

 

20,985

 

 

 

 

 

 

 

 

Total Liabilities and Equity

$

153,403

$

152,186 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Trailing Twelve Months

 

 

March 31,

 

Ended March 31,

(Dollars in Millions)

 

2020

 

2019

 

2020

Net Cash Provided by Operating Activities per GAAP:

 

$

4,476

 

 

$

4,759

 

 

$

14,487

 

 

 

 

 

 

 

 

 

 

 

 

Less: change in Global Financing (GF) Receivables

 

 

2,381

 

 

 

2,458

 

 

 

415

 

Capital Expenditures, Net

 

 

(737

)

 

 

(614

)

 

 

(2,493

)

 

 

 

 

 

 

 

 

 

 

 

Free Cash Flow

 

 

1,358

 

 

 

1,688

 

 

 

11,579

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(13

)

 

 

(1

)

 

 

(32,642

)

Divestitures

 

 

26

 

 

 

33

 

 

 

1,069

 

Dividends

 

 

(1,440

)

 

 

(1,397

)

 

 

(5,749

)

Share Repurchase

 

 

 

 

 

(920

)

 

 

(441

)

Non-GF Debt

 

 

3,503

 

 

 

5,890

 

 

 

20,405

 

Other (includes GF Net Receivables and GF Debt)

 

 

(426

)

 

 

629

 

 

 

(346

)

 

 

 

 

 

 

 

 

 

 

 

Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities

 

$

3,008

 

 

$

5,922

 

 

$

(6,127

)

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in Millions)

 

2020

 

2019

 

Net Income from Operations

 

$

1,175

 

 

$

1,591

 

 

Depreciation/Amortization of Intangibles

 

 

1,635

 

 

 

1,446

 

 

Stock-based Compensation

 

 

189

 

 

 

113

 

 

Working Capital / Other

 

 

(905

)

 

 

(848

)

 

Global Financing A/R

 

 

2,381

 

 

 

2,458

 

 

Net Cash Provided by Operating Activities

 

$

4,476

 

 

$

4,759

 

 

Capital Expenditures, net of payments & proceeds

 

 

(737

)

 

 

(614

)

 

Divestitures, net of cash transferred

 

 

26

 

 

 

33

 

 

Acquisitions, net of cash acquired

 

 

(13

)

 

 

(1

)

 

Marketable Securities / Other Investments, net

 

 

(178

)

 

 

(271

)

 

Net Cash Provided by / (Used in) Investing Activities

 

$

(902

)

 

$

(853

)

 

Debt, net of payments & proceeds

 

 

1,356

 

 

 

4,232

 

 

Dividends

 

 

(1,440

)

 

 

(1,397

)

 

Common Stock Repurchases

 

 

 

 

(920

)

 

Common Stock Transactions – Other

 

 

(31

)

 

 

(51

)

 

Net Cash Provided by / (Used in) Financing Activities

 

$

(115

)

 

$

1,863

 

 

Effect of Exchange Rate changes on Cash

 

 

(403

)

 

 

(102

)

 

Net Change in Cash, Cash Equivalents and Restricted Cash

 

$

3,057

 

 

$

5,668

 

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

    

Cloud &

    

Global

    

Global

    

 

 

    

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software

 

Services

 

Services

 

Systems

 

Financing

 

Revenue

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

External

 

$

 5,238

 

$

 4,136

 

 

$

 6,467

 

 

$

 1,368

 

 

$

 299

 

 

Internal

 

 

 813

 

 

 46

 

 

 

 294

 

 

 

 148

 

 

 

 212

 

 

Total Segment Revenue

 

$

 6,052

 

$

 4,183

 

 

$

 6,761

 

 

$

 1,516

 

 

$

 511

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

 933

 

 

 271

 

 

 

 (178

)

 

 

 (217

)

 

 

 194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

 15.4

%  

 

 6.5

 

%  

 

 (2.6

)

%  

 

 (14.3

)

%  

 

 37.9

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change YTY Revenue – External

 

 

 5.5

%  

 

 (0.5

)

%  

 

 (5.9

)

%  

 

 3.0

 

%  

 

 (26.2

)

%

Change YTY Revenue – External @constant currency

 

 

 6.8

%  

 

 0.9

 

%  

 

 (4.0

)

%  

 

 4.1

 

%  

 

 (24.9

)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

    

Cloud &

    

Global

    

Global

    

 

 

    

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software*

 

Services*

 

Services

 

Systems

 

Financing

 

Revenue

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

External

 

$

 4,967

 

$

 4,155

 

 

$

 6,875

 

 

$

 1,328

 

 

$

 406

 

 

Internal

 

 

 841

 

 

 74

 

 

 

 290

 

 

 

 163

 

 

 

 300

 

 

Total Segment Revenue

 

$

 5,808

 

$

 4,229

 

 

$

 7,164

 

 

$

 1,491

 

 

$

 706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

 1,785

 

 

 298

 

 

 

 275

 

 

 

 (202

)

 

 

 288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

 30.7

%  

 

 7.0

 

%  

 

 3.8

 

%  

 

 (13.5

)

%  

 

 40.8

 

%

_________________________

* Recast to conform with 2020 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

       

 

 

Three Months Ended March 31, 2020

 

 

 

Continuing Operations

 

 

    

 

 

    

Acquisition-

    

Retirement-

    

Tax

    

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

 7,922

 

 

$

 188

 

 

 

 —

 

 

 

 —

 

 

$

 8,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

 45.1

 

%  

 

 1.1

 

Pts

 

 —

 

 

 

 —

 

 

 

 46.2

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

 5,955

 

 

 

 (285

)

 

 

 —

 

 

 

 —

 

 

 

 5,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

 1,625

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 1,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

 182

 

 

 

 (1

)

 

 

 (264

)

 

 

 —

 

 

 

 (83

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 326

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

 7,972

 

 

 

 (285

)

 

 

 (264

)

 

 

 —

 

 

 

 7,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income/(Loss) from Continuing Operations

 

 

 (49

)

 

 

 473

 

 

 

 264

 

 

 

 —

 

 

 

 688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income/(Loss) Margin from Continuing Operations

 

 

 (0.3

)

%  

 

 2.7

 

Pts

 

 1.5

 

Pts

 

 —

 

 

 

 3.9

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for / (Benefit from) Income Taxes***

 

 

 (1,226

)

 

 

 102

 

 

 

 14

 

 

 

 149

 

 

 

 (961

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

 1,176

 

 

 

 371

 

 

 

 250

 

 

 

 (149

)

 

 

 1,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

 6.7

 

%  

 

 2.1

 

Pts

 

 1.4

 

Pts

 

 (0.8

)

Pts

 

 9.4

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

 1.31

 

 

$

 0.42

 

 

$

 0.28

 

 

$

 (0.17

)

 

$

 1.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

Continuing Operations

 

 

    

 

 

    

Acquisition-

    

Retirement-

    

Tax

 

 

    

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

    

(Non-GAAP)

 

Gross Profit

 

$

 8,043

 

 

$

 76

 

 

 

 —

 

 

 

 —

 

 

$

 8,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

 44.2

 

%  

 

 0.4

 

Pts

 

 —

 

 

 

 —

 

 

 

 44.7

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

 4,691

 

 

 

 (124

)

 

 

 —

 

 

 

 —

 

 

 

 4,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

 1,433

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 1,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

 (73

)

 

 

 23

 

 

 

 (138

)

 

 

 —

 

 

 

 (187

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 210

 

 

 

 (36

)

 

 

 —

 

 

 

 —

 

 

 

 174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

 6,160

 

 

 

 (137

)

 

 

 (138

)

 

 

 —

 

 

 

 5,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income/(Loss) from Continuing Operations

 

 

 1,883

 

 

 

 212

 

 

 

 138

 

 

 

 —

 

 

 

 2,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income/(Loss) Margin from Continuing Operations

 

 

 10.4

 

%  

 

 1.2

 

Pts

 

 0.8

 

Pts

 

 —

 

 

 

 12.3

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for / (Benefit from) Income Taxes***

 

 

 289

 

 

 

 49

 

 

 

 26

 

 

 

 (141

)

 

 

 224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

 15.4

 

%  

 

 0.7

 

Pts

 

 0.2

 

Pts

 

 (6.3

)

Pts

 

 10.0

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

 1,593

 

 

 

 164

 

 

 

 111

 

 

 

 141

 

 

 

 2,009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

 8.8

 

%  

 

 0.9

 

Pts

 

 0.6

 

Pts

 

 0.8

 

Pts

 

 11.0

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

 1.78

 

 

$

 0.18

 

 

$

 0.13

 

 

$

 0.16

 

 

$

 2.25

 

 

_________________________

*

 

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.  The effective tax rate is not displayed as the calculated rate for the three months ended March 31, 2020 is not meaningful.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Trailing Twelve Months Ended

 

 

 

March 31, 2020

 

 

March 31, 2020

 

 

 

Change YTY

 

 

Change YTY

 

Revenue Adjusting for Divested Businesses and Currency

 

Cloud

 

Total IBM

 

 

Cloud

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue as reported

 

 

18.8

%

 

(3.4

)

%

 

 

13.2

%

Impact from divested businesses

 

 

2.4

Pts

 

1.9

 

Pts

 

 

1.5

Pts

Currency impact

 

 

1.8

Pts

 

1.5

 

Pts

 

 

1.6

Pts

Revenue adjusting for divested businesses and currency (non-GAAP)

 

 

23.0

%

 

0.1

 

%

 

 

16.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Change

 

Red Hat Revenue, Normalized for Historical Comparability

 

March 31, 2020

 

March 31, 2019

 

YTY

 

YTY

@constant

currency

 

 

 

 

 

 

 

 

 

 

 

 

 

Red Hat revenue as reported in IBM consolidated results (1)

 

$

719

 

$

 

 

 

 

 

Add: Red Hat revenue prior to acquisition (2)

 

 

 

 

900

 

 

 

 

 

Add: Purchase accounting deferred revenue and intercompany adjustments (3)

 

 

347

 

 

 

 

 

 

 

Red Hat revenue, normalized for historical comparability (non-GAAP)

 

$

1,066

 

$

900

 

18

%

20

%

(1) Represents GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.

(2) Revenue for the three months ended March 31, 2019 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes.

(3) Represents the first-quarter 2020 impact of the deferred revenue purchase accounting adjustment and adjustments to add back revenue which was eliminated for sales between Red Hat and IBM. This line represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting and intercompany adjustments.

IBM

Edward Barbini, 914-499-6565

barbini@us.ibm.com

John Bukovinsky, 732-618-3531

jbuko@us.ibm.com

Contacts

IBM

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