Accelerated Cloud Revenue Growth; Gross
Margin Expansion; Strong Balance Sheet and Liquidity
Position
IBM (NYSE: IBM) today announced second-quarter 2020 earnings
results.
“Our clients see the value of IBM’s hybrid cloud platform, based
on open technologies, at a time of unprecedented business
disruption," said Arvind Krishna, IBM chief executive officer. "We
are committed to building, with a growing ecosystem of partners, an
enduring hybrid cloud platform that will serve as a powerful
catalyst for innovation for our clients and the world.”
Highlights for the second quarter
include:
- GAAP EPS from continuing operations of $1.52
- Operating (non-GAAP) EPS of $2.18
- Revenue of $18.1 billion, down 5.4 percent (down 1.9 percent
adjusting for divested businesses and currency) -- Cloud &
Cognitive Software revenue up 3 percent (up 5 percent adjusting for
currency) -- Systems revenue up 6 percent
- Total cloud revenue of $6.3 billion, up 30 percent (up 34
percent adjusting for divested businesses and currency) -- Total
cloud revenue of $23.5 billion over the last 12 months, up 20
percent (up 23 percent adjusting for divested businesses and
currency)
- Red Hat revenue up 17 percent (up 18 percent adjusting for
currency), normalized for historical comparability
- GAAP gross profit margin of 48 percent, up 100 basis points;
Operating (non-GAAP) gross profit margin of 49 percent up 160 basis
points
- Net cash from operating activities of $15.1 billion and free
cash flow of $11.5 billion, over the last 12 months
SECOND 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
Profit
EPS
Income
Income
Margin
Margin
GAAP from Continuing Operations
$
1.52
$
1.4B
$
1.6B
8.7
%
48.0
%
Year/Year
(46)
%
(46)
%
(43)
%
(5.8)
Pts
1.0
Pts
Operating (Non-GAAP)
$
2.18
$
1.9B
$
2.3B
12.8
%
49.0
%
Year/Year
(31)
%
(31)
%
(27)
%
(3.8)
Pts
1.6
Pts
“Our prudent financial management in these turbulent times
enabled us to expand our gross profit margin, generate strong free
cash flow and improve our liquidity position," said James
Kavanaugh, IBM senior vice president and chief financial officer.
"We have the financial flexibility to continue to invest in our
business and return value to our shareholders through our dividend
policy.”
Cash Flow and Balance
Sheet
In the second quarter, the company generated net cash from
operating activities of $3.6 billion, or $3.0 billion excluding
Global Financing receivables. IBM’s free cash flow was $2.3
billion. The company returned $1.5 billion to shareholders in
dividends.
IBM ended the second quarter with $14.3 billion of cash on hand
which includes marketable securities, up $5.2 billion from year-end
2019. Debt, including Global Financing debt of $21.9 billion,
totaled $64.7 billion.
Segment Results for Second
Quarter
Segment results reflect growing adoption of IBM's hybrid cloud
platform while clients continue to shift priorities to preserve
cash and maintain operational stability.
- Cloud & Cognitive Software (includes Cloud & Data
Platforms which includes Red Hat, Cognitive Applications and
Transaction Processing Platforms) — revenues of $5.7 billion, up 3
percent (up 5 percent adjusting for currency), with growth in Cloud
& Data Platforms, up 29 percent (up 30 percent adjusting for
currency) led by Red Hat. Cognitive Applications and Transaction
Processing Platforms declined. Cloud revenue more than
doubled.
- Global Business Services (includes Consulting, Application
Management and Global Process Services) — revenues of $3.9 billion,
down 7 percent (down 6 percent adjusting for currency), driven by
declines in Application Management and Consulting. Cloud revenue up
12 percent (up 13 percent adjusting for currency). Gross profit
margin up 240 basis points.
- Global Technology Services (includes Infrastructure & Cloud
Services and Technology Support Services) — revenues of $6.3
billion, down 8 percent (down 5 percent adjusting for currency).
Cloud revenue up 18 percent (up 20 percent adjusting for
currency).
- Systems (includes Systems Hardware and Operating Systems
Software) — revenues of $1.9 billion, up 6 percent, led by IBM Z,
up 69 percent (up 68 percent adjusting for currency). Storage
Systems revenue up 2 percent (up 3 percent adjusting for currency);
Power declined. Cloud revenue up 22 percent. Gross profit margin up
430 basis points.
- Global Financing (includes financing and used equipment sales)
— revenues of $265 million, down 25 percent (down 23 percent
adjusting for currency), reflecting the wind-down of OEM commercial
financing. Gross profit margin up 360 basis points.
Year-To-Date 2020 Results
Consolidated diluted earnings per share was $2.83 compared to
$4.58, down 38 percent year to year. Consolidated net income was
$2.5 billion, down 38 percent year to year. Revenues for the
six-month period ended June 30, 2020 totaled $35.7 billion, a
decrease of 4 percent year to year (down 1 percent adjusting for
divested businesses and currency) compared with $37.3 billion for
the first six months of 2019.
Operating (non-GAAP) diluted earnings per share from continuing
operations was $4.02 compared with $5.42 per diluted share for the
2019 period, a decrease of 26 percent. Operating (non-GAAP) net
income for the six months ended June 30, 2020 was $3.6 billion
compared with $4.8 billion in the prior-year period, a decrease of
26 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,
health and other 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;
- Red Hat revenue 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
https://www.ibm.com/investor/events/ibm-2q-2020-earnings-announcement.
Presentation charts will be available shortly before the
Webcast.
Financial Results Below (certain amounts may not add due
to use of rounded numbers; percentages presented are calculated
from the underlying whole-dollar amounts).
INTERNATIONAL BUSINESS
MACHINES CORPORATION
COMPARATIVE FINANCIAL
RESULTS
(Unaudited; Dollars in
millions except per share amounts)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
REVENUE
Cloud & Cognitive Software
$
5,748
$
5,563
*
$
10,987
$
10,530
*
Global Business Services
3,890
4,197
*
8,027
8,353
*
Global Technology Services
6,316
6,837
12,783
13,711
Systems
1,852
1,753
3,220
3,081
Global Financing
265
351
564
757
Other
50
460
*
113
911
*
TOTAL REVENUE
18,123
19,161
35,694
37,342
GROSS PROFIT
8,700
9,010
16,622
17,053
GROSS PROFIT MARGIN
Cloud & Cognitive Software
77.1
%
77.7
%
*
76.3
%
76.7
%
*
Global Business Services
28.4
%
26.0
%
*
27.8
%
26.1
%
*
Global Technology Services
34.2
%
34.4
%
34.1
%
34.1
%
Systems
57.8
%
53.5
%
54.6
%
50.3
%
Global Financing
38.6
%
35.0
%
39.7
%
34.9
%
TOTAL GROSS PROFIT MARGIN
48.0
%
47.0
%
46.6
%
45.7
%
EXPENSE AND OTHER INCOME
S,G&A
5,248
5,456
11,203
10,147
R,D&E
1,582
1,407
3,207
2,840
Intellectual property and custom
development income
(203)
(222)
(319)
(323)
Other (income) and expense
179
(747)
361
(820)
Interest expense
323
348
649
558
TOTAL EXPENSE AND OTHER INCOME
7,129
6,242
15,101
12,402
INCOME FROM CONTINUING
OPERATIONS
BEFORE INCOME TAXES
1,571
2,768
1,522
4,651
Pre-tax margin
8.7
%
14.4
%
4.3
%
12.5
%
Provision for / (Benefit from) income
taxes
209
269
(1,017)
558
Effective tax rate
13.3
%
9.7
%
(66.8)
%
12.0
%
INCOME FROM CONTINUING
OPERATIONS
$
1,362
$
2,499
$
2,538
$
4,093
DISCONTINUED OPERATIONS
Income / (Loss) from discontinued
operations, net of taxes
(1)
(1)
(2)
(4)
NET INCOME
$
1,361
$
2,498
$
2,536
$
4,089
EARNINGS / (LOSS) PER SHARE OF COMMON
STOCK
Assuming Dilution
Continuing Operations
$
1.52
$
2.81
$
2.83
$
4.58
Discontinued Operations
$
0.00
$
0.00
$
0.00
$
0.00
TOTAL
$
1.52
$
2.81
$
2.83
$
4.58
Basic
Continuing Operations
$
1.53
$
2.82
$
2.85
$
4.61
Discontinued Operations
$
0.00
$
0.00
$
0.00
$
0.00
TOTAL
$
1.53
$
2.82
$
2.85
$
4.61
WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (M’s)
Assuming Dilution
894.9
890.8
895.0
892.4
Basic
889.4
886.3
888.7
887.9
______________________________
* Recast to conform with 2020
presentation.
INTERNATIONAL BUSINESS
MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEET
(Unaudited)
At
At
June 30,
December 31,
(Dollars in Millions)
2020
2019
ASSETS:
Current Assets:
Cash and cash equivalents
$
12,041
$
8,172
Restricted cash
147
141
Marketable securities
2,063
696
Notes and accounts receivable - trade,
net
6,543
7,870
Short-term financing receivables, net
11,967
14,192
Other accounts receivable, net
937
1,733
Inventories
1,869
1,619
Deferred costs
2,127
1,896
Prepaid expenses and other current
assets
2,260
2,101
Total Current Assets
39,953
38,420
Property, plant and equipment, net
9,709
10,010
Operating right-of-use assets, net
4,774
4,996
Long-term financing receivables, net
7,351
8,712
Prepaid pension assets
7,254
6,865
Deferred costs
2,445
2,472
Deferred taxes
8,689
5,182
Goodwill
57,833
58,222
Intangibles, net
14,270
15,235
Investments and sundry assets
1,921
2,074
Total Assets
$
154,200
$
152,186
LIABILITIES:
Current Liabilities:
Taxes
$
2,627
$
2,839
Short-term debt
9,289
8,797
Accounts payable
4,719
4,896
Deferred income
12,469
12,026
Operating lease liabilities
1,343
1,380
Other liabilities
7,995
7,763
Total Current Liabilities
38,442
37,701
Long-term debt
55,449
54,102
Retirement related obligations
16,483
17,142
Deferred income
3,787
3,851
Operating lease liabilities
3,684
3,879
Other liabilities
15,666
14,526
Total Liabilities
133,512
131,202
EQUITY:
IBM Stockholders’ Equity:
Common stock
56,135
55,895
Retained earnings
162,559
162,954
Treasury stock — at cost
(169,386)
(169,413)
Accumulated other comprehensive
income/(loss)
(28,757)
(28,597)
Total IBM Stockholders’ Equity
20,551
20,841
Noncontrolling interests
137
144
Total Equity
20,688
20,985
Total Liabilities and Equity
$
154,200
$
152,186
INTERNATIONAL BUSINESS
MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
Three Months Ended
Six Months Ended
Trailing Twelve Months
June 30,
June 30,
Ended June 30,
(Dollars in Millions)
2020
2019
2020
2019
2020
Net Cash Provided by Operating
Activities per GAAP:
$
3,576
$
2,941
$
8,052
$
7,700
$
15,122
Less: change in Global Financing (GF)
Receivables
589
119
2,971
2,577
885
Capital Expenditures, Net
(697)
(431)
(1,434)
(1,045)
(2,759)
Free Cash Flow
2,290
2,391
3,647
4,078
11,477
Acquisitions
(6)
(42)
(19)
(43)
(32,607)
Divestitures
731
855
757
888
945
Dividends
(1,450)
(1,435)
(2,890)
(2,833)
(5,764)
Share Repurchase
—
(316)
—
(1,236)
(126)
Non-GF Debt
455
27,509
3,958
33,399
(6,649)
Other (includes GF Net Receivables and GF
Debt)
213
(698)
(213)
(68)
564
Change in Cash, Cash Equivalents,
Restricted Cash and Short-term Marketable Securities
$
2,233
$
28,264
$
5,241
$
34,186
$
(32,158)
INTERNATIONAL BUSINESS
MACHINES CORPORATION
CASH FLOW
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in Millions)
2020
2019
2020
2019
Net Income from Operations
$
1,361
$
2,498
$
2,536
$
4,089
Depreciation/Amortization of
Intangibles
1,678
1,294
3,313
2,740
Stock-based Compensation
247
135
436
248
Working Capital / Other
(300)
(1,106)
(1,204)
(1,954)
Global Financing A/R
589
119
2,971
2,577
Net Cash Provided by Operating
Activities
$
3,576
$
2,941
$
8,052
$
7,700
Capital Expenditures, net of payments
& proceeds
(697)
(431)
(1,434)
(1,045)
Divestitures, net of cash transferred
731
855
757
888
Acquisitions, net of cash acquired
(6)
(42)
(19)
(43)
Marketable Securities / Other Investments,
net
(1,264)
3,779
(1,442)
3,509
Net Cash Provided by / (Used in)
Investing Activities
$
(1,236)
$
4,162
$
(2,138)
$
3,309
Debt, net of payments & proceeds
(38)
22,841
1,319
27,073
Dividends
(1,450)
(1,435)
(2,890)
(2,833)
Common Stock Repurchases
—
(316)
—
(1,236)
Common Stock Transactions – Other
(137)
(59)
(168)
(111)
Net Cash Provided by / (Used in)
Financing Activities
$
(1,624)
$
21,031
$
(1,739)
$
22,894
Effect of Exchange Rate changes on
Cash
101
129
(301)
27
Net Change in Cash, Cash Equivalents
and Restricted Cash
$
817
$
28,263
$
3,874
$
33,930
INTERNATIONAL BUSINESS
MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Three Months Ended June 30,
2020
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
5,748
$
3,890
$
6,316
$
1,852
$
265
Internal
743
55
304
240
241
Total Segment Revenue
$
6,491
$
3,945
$
6,621
$
2,092
$
506
Pre-tax Income / (Loss) from Continuing
Operations
1,708
362
250
248
176
Pre-tax Margin
26.3
%
9.2
%
3.8
%
11.8
%
34.9
%
Change YTY Revenue – External
3.3
%
(7.3)
%
(7.6)
%
5.7
%
(24.5)
%
Change YTY Revenue - External @constant
currency
4.6
%
(6.0)
%
(5.4)
%
6.3
%
(22.7)
%
Three Months Ended June 30,
2019
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software*
Services*
Services
Systems
Financing
Revenue
External
$
5,563
$
4,197
$
6,837
$
1,753
$
351
Internal
607
69
302
171
281
Total Segment Revenue
$
6,170
$
4,266
$
7,139
$
1,924
$
632
Pre-tax Income / (Loss) from Continuing
Operations
2,007
290
235
61
239
Pre-tax Margin
32.5
%
6.8
%
3.3
%
3.2
%
37.8
%
______________________________
* Recast to conform with 2020
presentation.
INTERNATIONAL BUSINESS
MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Six Months Ended June 30,
2020
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
10,987
$
8,027
$
12,783
$
3,220
$
564
Internal
1,556
101
599
388
453
Total Segment Revenue
$
12,543
$
8,128
$
13,382
$
3,608
$
1,017
Pre-tax Income / (Loss) from Continuing
Operations
2,641
633
72
31
370
Pre-tax Margin
21.1
%
7.8
%
0.5
%
0.9
%
36.4
%
Change YTY Revenue – External
4.3
%
(3.9)
%
(6.8)
%
4.5
%
(25.4)
%
Change YTY Revenue - External @constant
currency
5.6
%
(2.6)
%
(4.7)
%
5.4
%
(23.9)
%
Six Months Ended June 30,
2019
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software*
Services*
Services
Systems
Financing
Revenue
External
$
10,530
$
8,353
$
13,711
$
3,081
$
757
Internal
1,448
143
591
334
581
Total Segment Revenue
$
11,978
$
8,495
$
14,303
$
3,415
$
1,338
Pre-tax Income / (Loss) from Continuing
Operations
3,792
587
510
(141)
527
Pre-tax Margin
31.7
%
6.9
%
3.6
%
(4.1)
%
39.4
%
______________________________
* 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 June 30,
2020
Continuing Operations
Acquisition-
Retirement-
Tax
Related
Related
Reform
Operating
GAAP
Adjustments*
Adjustments**
Impacts
(Non-GAAP)
Gross Profit
$
8,700
$
187
$
—
$
—
$
8,887
Gross Profit Margin
48.0
%
1.0
Pts
—
—
49.0
%
S,G&A
5,248
(285)
—
—
4,962
R,D&E
1,582
—
—
—
1,582
Other (Income) & Expense
179
(1)
(273)
—
(95)
Interest Expense
323
—
—
—
323
Total Expense & Other
(Income)
7,129
(286)
(273)
—
6,570
Pre-tax Income from Continuing
Operations
1,571
473
273
—
2,318
Pre-tax Income Margin from Continuing
Operations
8.7
%
2.6
Pts
1.5
Pts
—
12.8
%
Provision for / (Benefit from) Income
Taxes***
209
108
52
—
369
Effective Tax Rate
13.3
%
1.9
Pts
0.7
Pts
—
15.9
%
Income from Continuing
Operations
1,362
365
222
—
1,949
Income Margin from Continuing
Operations
7.5
%
2.0
Pts
1.2
Pts
—
10.8
%
Diluted Earnings / (Loss) Per Share:
Continuing Operations
$
1.52
$
0.41
$
0.25
$
—
$
2.18
Three Months Ended June 30,
2019
Continuing Operations
Acquisition-
Retirement-
Tax
Related
Related
Reform
Operating
GAAP
Adjustments*
Adjustments**
Impacts
(Non-GAAP)
Gross Profit
$
9,010
$
73
$
—
$
—
$
9,083
Gross Profit Margin
47.0
%
0.4
Pts
—
—
47.4
%
S,G&A
5,456
(149)
—
—
5,307
R,D&E
1,407
—
—
—
1,407
Other (Income) & Expense
(747)
119
(136)
—
(764)
Interest Expense
348
(168)
—
—
180
Total Expense & Other
(Income)
6,242
(198)
(136)
—
5,907
Pre-tax Income from Continuing
Operations
2,768
272
136
—
3,176
Pre-tax Income Margin from Continuing
Operations
14.4
%
1.4
Pts
0.7
Pts
—
16.6
%
Provision for / (Benefit from) Income
Taxes***
269
55
40
(14)
349
Effective Tax Rate
9.7
%
0.9
Pts
0.8
Pts
(0.4)
Pts
11.0
%
Income from Continuing
Operations
2,499
217
97
14
2,827
Income Margin from Continuing
Operations
13.0
%
1.1
Pts
0.5
Pts
0.1
Pts
14.8
%
Diluted Earnings / (Loss) Per Share:
Continuing Operations
$
2.81
$
0.24
$
0.11
$
0.01
$
3.17
______________________________
*
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)
Six Months Ended June 30,
2020
Continuing Operations
Acquisition-
Retirement-
Tax
Related
Related
Reform
Operating
GAAP
Adjustments*
Adjustments**
Impacts
(Non-GAAP)
Gross Profit
$
16,622
$
375
$
—
$
—
$
16,998
Gross Profit Margin
46.6
%
1.1
Pts
—
—
47.6
%
S,G&A
11,203
(570)
—
—
10,633
R,D&E
3,207
—
—
—
3,207
Other (Income) & Expense
361
(1)
(538)
—
(178)
Interest Expense
649
—
—
—
649
Total Expense & Other
(Income)
15,101
(571)
(538)
—
13,992
Pre-tax Income from Continuing
Operations
1,522
946
538
—
3,006
Pre-tax Income Margin from Continuing
Operations
4.3
%
2.7
Pts
1.5
Pts
—
8.4
%
Provision for / (Benefit from) Income
Taxes***
(1,017)
210
65
149
(592)
Effective Tax Rate
(66.8)
%
28.0
Pts
14.1
Pts
5.0
Pts
(19.7)
%
Income from Continuing
Operations
2,538
736
472
(149)
3,598
Income Margin from Continuing
Operations
7.1
%
2.1
Pts
1.3
Pts
(0.4)
Pts
10.1
%
Diluted Earnings / (Loss) Per Share:
Continuing Operations
$
2.83
$
0.83
$
0.53
$
(0.17)
$
4.02
Six Months Ended June 30,
2019
Continuing Operations
Acquisition-
Retirement-
Tax
Related
Related
Reform
Operating
GAAP
Adjustments*
Adjustments**
Impacts
(Non-GAAP)
Gross Profit
$
17,053
$
149
$
—
$
—
$
17,202
Gross Profit Margin
45.7
%
0.4
Pts
—
—
46.1
%
S,G&A
10,147
(273)
—
—
9,873
R,D&E
2,840
—
—
—
2,840
Other (Income) & Expense
(820)
142
(274)
—
(951)
Interest Expense
558
(204)
—
—
354
Total Expense & Other
(Income)
12,402
(335)
(274)
—
11,793
Pre-tax Income from Continuing
Operations
4,651
484
274
—
5,409
Pre-tax Income Margin from Continuing
Operations
12.5
%
1.3
Pts
0.7
Pts
—
14.5
%
Provision for / (Benefit from) Income
Taxes***
558
104
66
(155)
574
Effective Tax Rate
12.0
%
0.8
Pts
0.6
Pts
(2.9)
Pts
10.6
%
Income from Continuing
Operations
4,093
381
208
155
4,836
Income Margin from Continuing
Operations
11.0
%
1.0
Pts
0.6
Pts
0.4
Pts
13.0
%
Diluted Earnings / (Loss) Per Share:
Continuing Operations
$
4.58
$
0.44
$
0.23
$
0.17
$
5.42
______________________________
*
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)
Trailing
Three Months Ended
Six Months Ended
Twelve Months Ended
June 30, 2020
June 30, 2020
June 30, 2020
Change YTY
Change YTY
Change YTY
Revenue Adjusting for Divested
Businesses and Currency
Cloud
Total IBM
Total IBM
Cloud
Revenue as reported
30.1
%
(5.4)
%
(4.4)
%
20.2
%
Impact from divested businesses
2.4
Pts
2.0
Pts
2.0
Pts
1.8
Pts
Currency impact
1.8
Pts
1.6
Pts
1.6
Pts
1.3
Pts
Revenue adjusting for divested businesses
and currency (non-GAAP)
34.3
%
(1.9)
%
(0.9)
%
23.4
%
Three Months Ended
Change
Red Hat Revenue, Normalized for
Historical Comparability
June 30, 2020
June 30, 2019
YTY
YTY @constant currency
Red Hat revenue as reported in IBM
consolidated results (1)
$
867
$
—
Add: Red Hat revenue prior to acquisition
(2)
—
936
Add: Purchase accounting deferred revenue
and intercompany adjustments (3)
227
—
Red Hat revenue, normalized for historical
comparability (non-GAAP)
$
1,094
$
936
17
%
18
%
(1) Represents GAAP revenue as reported by IBM, which is
included in the Cloud & Cognitive Software segment. (2) Revenue
for the three months ended June 30, 2019 represents pre-acquisition
Red Hat standalone revenue and is included for comparative
purposes. (3) Represents the second-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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200720005764/en/
IBM Edward Barbini, 914‑499‑6565 barbini@us.ibm.com John
Bukovinsky, 732‑618‑3531 jbuko@us.ibm.com
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