Strong Performance by Red Hat Accelerates Cloud
Revenue Growth
Highlights
Third Quarter:
- GAAP EPS from continuing operations of $1.87
- Operating (non-GAAP) EPS of $2.68
- Net cash from operating activities of $15.4 billion and free
cash flow of $12.3 billion, over the last 12 months
- Debt reduced by $6.7 billion since the end of second
quarter
- Revenue of $18.0 billion, down 3.9 percent (down 0.6 percent
adjusting for divested businesses and currency)
- Revenue for Red Hat, up 19 percent (up 20 percent adjusting for
currency), normalized for historical comparability
- Revenue growth in Cloud & Cognitive Software and Global
Business Services segments -- Cloud & Cognitive Software up 6
percent (up 8 percent adjusting for currency) -- Global Business
Services up 1 percent (up 2 percent adjusting for currency)
- Cloud revenue of $5.0 billion in the third quarter, up 11
percent (up 14 percent adjusting for divested businesses and
currency) -- Cloud revenue of $20.0 billion over the last 12
months
2019 Full-year Expectations:
- GAAP EPS of at least $10.58; maintains operating (non-GAAP) EPS
of at least $12.80
- Maintains free cash flow of approximately $12 billion
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.”
THIRD QUARTER 2019
Results Reflect the Impact of
Items Related to
the Red Hat Acquisition Closed
in July 2019
Pre-tax
Gross
Diluted
Net
Pre-tax
Income
Profit
EPS
Income
Income
Margin
Margin
GAAP from Continuing Operations
$
1.87
$
1.7B
$
1.5B
8.4
%
46.2
%
Year/Year
(36)
%
(38)
%
(49)
%
(7.5)
Pts
(0.7)
Pts
Operating (Non-GAAP)
$
2.68
$
2.4B
$
2.4B
13.3
%
47.4
%
Year/Year
(22)
%
(24)
%
(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)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
REVENUE
Cloud & Cognitive Software
$
5,280
$
4,962
*
$
15,962
$
15,548
*
Global Business Services
4,117
4,076
*
12,391
12,326
*
Global Technology Services
6,700
7,101
*
20,412
21,846
*
Systems
1,481
1,736
4,562
5,412
Global Financing
343
388
1,100
1,188
Other
107
493
*
944
1,511
*
TOTAL REVENUE
18,028
18,756
55,370
57,830
GROSS PROFIT
8,336
8,803
25,388
26,249
GROSS PROFIT MARGIN
Cloud & Cognitive Software
74.1
%
76.1
%
*
75.5
%
76.8
%
*
Global Business Services
31.1
%
30.0
%
*
27.8
%
26.5
%
*
Global Technology Services
35.8
%
37.0
%
*
34.6
%
34.3
%
*
Systems
52.6
%
52.7
%
51.1
%
49.3
%
Global Financing
36.9
%
26.3
%
35.6
%
29.1
%
TOTAL GROSS PROFIT MARGIN
46.2
%
46.9
%
45.9
%
45.4
%
EXPENSE AND OTHER INCOME
S,G&A
5,024
4,363
15,171
14,665
R,D&E
1,553
1,252
4,393
4,021
Intellectual property and custom
development income
(166)
(275)
(489)
(842)
Other (income) and expense
(31)
275
(850)
968
Interest expense
432
191
990
530
TOTAL EXPENSE AND OTHER INCOME
6,813
5,807
19,215
19,341
INCOME FROM CONTINUING
OPERATIONS
BEFORE INCOME TAXES
1,522
2,996
6,173
6,908
Pre-tax margin
8.4
%
16.0
%
11.1
%
11.9
%
Provision for / (Benefit from) income
taxes
(151)
304
407
138
Effective tax rate
(9.9)
%
10.2
%
6.6
%
2.0
%
INCOME FROM CONTINUING
OPERATIONS
$
1,673
$
2,692
$
5,766
$
6,770
DISCONTINUED OPERATIONS
Income / (Loss) from discontinued
operations, net of taxes
(1)
2
(5)
7
NET INCOME
$
1,672
$
2,694
$
5,761
$
6,777
EARNINGS / (LOSS) PER SHARE OF COMMON
STOCK
Assuming Dilution
Continuing Operations
$
1.87
$
2.94
$
6.46
$
7.36
Discontinued Operations
$
0.00
$
0.00
$
(0.01)
$
0.01
TOTAL
$
1.87
$
2.94
$
6.45
$
7.37
Basic
Continuing Operations
$
1.89
$
2.95
$
6.50
$
7.39
Discontinued Operations
$
0.00
$
0.00
$
(0.01)
$
0.01
TOTAL
$
1.89
$
2.95
$
6.49
$
7.40
WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (M’s)
Assuming Dilution
892.8
915.2
892.5
920.0
Basic
886.0
911.2
887.3
915.6
_________________________________
* Recast to conform with 2019 presentation.
INTERNATIONAL BUSINESS
MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEET
(Unaudited)
At
At
September 30,
December 31,
(Dollars in Millions)
2019
2018
ASSETS:
Current Assets:
Cash and cash equivalents
$
10,087
$
11,379
Restricted cash
138
225
Marketable securities
733
618
Notes and accounts receivable - trade,
net
6,753
7,432
Short-term financing receivables, net
12,330
22,388
Other accounts receivable, net
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
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
LIABILITIES:
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
EQUITY:
IBM Stockholders’ Equity:
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, 2019
September 30, 2018
YTY
YTY @constant currency
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191016005883/en/
IBM Edward Barbini, 914‑499‑6565 barbini@us.ibm.com John
Bukovinsky, 732‑618‑3531 jbuko@us.ibm.com
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