UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
(Exact name of registrant as specified in its charter)
(State of Incorporation) | (Commission File Number) | (IRS employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
The registrant’s press release dated October 16, 2019, regarding its financial results for the periods ended September 30, 2019, including consolidated financial statements for the periods ended September 30, 2019, is Exhibit 99.1 of this Form 8-K.
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 disclosed in the attached press release certain non-GAAP information which management believes provides useful information to investors. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in the press release, which is Exhibit 99.1 to this Form 8-K. The rationale for management’s use of non-GAAP measures is included in Exhibit 99.2 to this Form 8-K.
The information in this Item 2.02, including the corresponding Exhibits 99.1 and 99.2, is hereby filed.
Item 7.01. Regulation FD Disclosure.
The slides for IBM’s Chief Financial Officer Jim Kavanaugh’s third-quarter 2019 earnings presentation on October 16, 2019, are Exhibit 99.3 to this Form 8-K.
The information in this Item 7.01, including the corresponding Exhibits 99.3, is being furnished with the Commission and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being filed as part of this report:
Exhibit No. | Description of Exhibit | |
99.1 | ||
99.2 | ||
104 | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
The following exhibit is being furnished as part of this report:
Exhibit No. | Description of Exhibit | |
99.3 | Earnings Presentation of the Registrant, dated October 16, 2019 |
IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
Date: October 16, 2019 | ||
By: | /s/ Robert F. Del Bene | |
Robert F. Del Bene | ||
Vice President and Controller |
3
Exhibit 99.1
IBM REPORTS 2019 THIRD-QUARTER RESULTS
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 |
ARMONK, N.Y., October 16, 2019 . . . 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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|||||||||||
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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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|
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Diluted |
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Net |
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Pre-tax |
|
Income |
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Profit |
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|||
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EPS |
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Income |
|
Income |
|
Margin |
|
Margin |
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|||
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 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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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).
Contact: |
IBM |
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Edward Barbini, 914‑499‑6565 |
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barbini@us.ibm.com |
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John Bukovinsky, 732‑618‑3531 |
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jbuko@us.ibm.com |
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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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||||||||
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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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Exhibit 99.2
Non-GAAP Financial Information
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, supplementally, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization expense resulting from basis differences on equity method investments, retirement-related costs and discontinued operations and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (“U.S. tax reform”), the company characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments include true-ups, accounting elections, any changes to regulations, laws, audit adjustments, etc. that affect the recorded one-time charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of the company’s acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the company characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan 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. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and the company considers these costs to be outside of the operational performance of the business.
Overall, the company believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The company’s reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with the company’s management and measurement system. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the company routinely receives from investors and analysts.
Free Cash Flow
The company uses free cash flow as a measure to evaluate its operating results, plan share repurchase levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of Global Financing receivables. Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. Since the company views Global Financing receivables as a profit-generating investment which it seeks to maximize, 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.
Constant Currency
When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
Revenue adjusted for divested businesses and constant currency
To provide better transparency on the recurring performance of the ongoing business, the company provides revenue growth rates excluding divested businesses and at constant currency. These divested businesses are included in the company’s “other” segment.
Revenue for Red Hat, normalized for historical comparability
On July 9, 2019, the company completed the acquisition of Red Hat, Inc. (Red Hat) and began including Red Hat’s financial results in the company’s consolidated results. As part of the accounting for this acquisition, the company recorded certain adjustments, including a purchase accounting deferred revenue fair value adjustment and intercompany eliminations, each of which impact IBM’s post-acquisition revenue. To help investors better understand the underlying performance of Red Hat, management presents a non-GAAP growth rate of Red Hat’s revenue performance year to year, normalized for historical comparability.. The normalized (non-GAAP) Red Hat revenue for the three months ended September 30, 2019 includes Red Hat standalone pre-acquisition revenue for July 1 - 8, 2019, adjustments to reverse the purchase accounting deferred revenue fair value adjustment and adjustments to add back revenue which was eliminated for post-acquisition sales between Red Hat and IBM. The deferred revenue adjustment 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. The sales between Red Hat and IBM, which were eliminated post-acquisition, are added back in this presentation to provide a comparative view of Red Hat on a pre-acquisition basis. This information is included to provide additional transparency and for comparative purposes only.
Exhibit 99.3
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IBM 3Q 2019 Earnings Oct 16, 2019 ibm.com/investor 1 |
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Forward Looking Statements and Non-GAAP Information 2 Certain comments made in this presentation may be characterized as forward looking under 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. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company’s filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements except as required by law; these charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including revenue for Red Hat normalized for historical comparability, revenue adjusting for divested businesses and currency, operating earnings, other “operating” financial measures, including free cash flow, net cash from operating activities excluding Global Financing receivables, and adjustments for currency. The rationale for management’s use of this non-GAAP information is included as Exhibit 99.2 to the company’s Form 8-K filed with the SEC on October 16, 2019. The reconciliation of non-GAAP information to GAAP is included on the slides entitled “Non-GAAP Supplemental Materials” in this presentation, as well as in Exhibit 99.1 to the company’s Form 8-K filed with the SEC on October 16, 2019. For other related information please visit the Company’s investor relations web site at: http://www.ibm.com/investor/events/earnings/3q19.html |
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3 Overview 3Q19 $18.0B Revenue $2.68 Operating (non-GAAP) EPS $12.3B Free Cash Flow Last 12 Months Strong performance in cloud, data/AI, security and digital − Led by Cloud & Cognitive Software and Global Business Services Momentum in hybrid cloud − Cloud revenue +14% yr/yr @CC*, $20 billion cloud revenue over last 12 months − >60% growth in cloud signings − Red Hat revenue growth accelerated to 20% yr/yr @CC** Investing to deliver innovation − Launched z15 at the end of September − Modernized software portfolio to be cloud native Strong cash generation and balance sheet − $6.7 billion debt reduction in the quarter y y y y *Yr/Yr excludes impact of divested businesses ** Normalized for comparability to Red Hat historical performance |
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4 Red Hat Update Completed acquisition of Red Hat on July 9 Red Hat revenue growth accelerated to 20% yr/yr @CC* ● ● Double-digit growth in Infrastructure, led by RHEL Continued strong growth in App Dev & emerging tech, led by OpenShift and Ansible − − Bringing innovation to market, leveraging Linux + containers + Kubernetes ● Standardized on Red Hat OpenShift platform Modernized IBM middleware portfolio to be cloud native; introduced Cloud Paks Announced OpenShift on IBM Cloud and IBM Z Introduced consulting and technology services for Red Hat − − − − Adding new OpenShift clients and expanding in existing Red Hat clients ● Aggressive hiring to address client demand, with stable employee attrition ● * Normalized for comparability to Red Hat historical performance |
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5 Key Financial Metrics Expanded operating gross margin, excluding impact of divested businesses Solid free cash flow performance, with normalized free cash flow realization of 126% over the last 12 months y y Financial results reflect impact of transaction-related adjustments associated with the acquisition of Red Hat B/(W) Yr/Yr B/(W) Yr/Yr Revenue Highlights 3Q19 P&L Highlights (Operating) 3Q19 (0.6%)* 8% 2% (4%) (14%) Revenue Cloud & Cognitive Software Global Business Services Global Technology Services Systems $18.0 $5.3 $4.1 $6.7 $1.5 Gross Profit Margin Expense Tax Rate Net Income Earnings Per Share 47.4% $6.1 0.1% $2.4 $2.68 Flat (16%) 12.7 pts (24%) (22%) Cash Highlights LTM 14%* Cloud Revenue $5.0 Free Cash Flow (excl. GF Receivables) Share Repurchase (Gross) Dividends Cash Balance @ September 30 $1.8 $0.1 $1.4 $11.0 $12.3 $3.4 $5.7 Revenue growth rates @CC, $ in billions *Yr/Yr excludes impact of divested businesses |
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6 Debt Update Total Debt $73B ●Debt reduction of nearly $7 billion since Red Hat close Global Financing bt ●Suspended share repurchase to focus on debt reduction ●Committed to achieving leverage ratio consistent with mid to high single-A credit rating within a couple of years Core Debt 2Q19 (Pre-Red Hat Close) 3Q19 $25B $66B $23B De $48B $43B |
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7 Cloud & Cognitive Software Segment Cloud & Data Platforms growth driven by hybrid cloud strategy, including Red Hat Cognitive Applications performance led by integrated security solutions and verticals such as IoT Pre-tax income reflects investments for software innovation and impacts from transaction-related adjustments y y y Segment results reflect impact of transaction-related adjustments associated with the acquisition of Red Hat Segment Revenue Elements Segment Results Overview B/(W) Yr/Yr Segment 3Q19 Cognitive Applications +6% Yr/Yr Revenue (External) Pre-Tax Income Pre-Tax Income Margin $5.3 $1.3 21.5% 8% (37%) (14.2 pts) Cloud & Data Platforms +19% Yr/Yr includes Red Hat Transaction Processing Platforms (4%) Yr/Yr Cloud Revenue $1.1 63% Revenue growth rates @CC, $ in billions |
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8 Global Business Services Segment Revenue growth driven by application modernization for the cloud and next-generation enterprise apps Early progress with Red Hat with over 20 deals signed in 3Q19 Gross margin expansion reflects shift to higher value, leveraging global delivery footprint and productivity actions y y y Segment Results Overview Segment Revenue Elements B/(W) Yr/Yr Segment 3Q19 Revenue (External) Gross Profit Margin (External) Pre-Tax Income Pre-Tax Income Margin $4.1 31.1% $0.6 13.7% 2% 1.1 pts 1% 0.1 pts Consulting +5% Yr/Yr Application Management Flat Yr/Yr Global Process Services (3%) Yr/Yr Cloud Revenue $1.3 10% Revenue growth rates @CC, $ in billions |
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9 Global Technology Services Segment Revenue and gross margin impacted by in-period client business volumes Signings growth of 20% contributed to sequential improvement in yr/yr backlog growth Cloud signings grew over 60% yr/yr; cloud now represents over 40% of outsourcing backlog y y y Segment Revenue Elements Segment Results Overview B/(W) Yr/Yr Segment 3Q19 Revenue (External) Gross Profit Margin (External) Pre-Tax Income Pre-Tax Income Margin $6.7 35.8% $0.5 7.0% (4%) (1.2 pts) (19%) (1.2 pts) Infrastructure & Cloud Services (4%) Yr/Yr Technology Support Services (3%) Yr/Yr Cloud Revenue $2.1 10% Growth rates @CC, $ in billions |
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10 Systems Segment IBM Z revenue performance reflects back end of z14 cycle; new z15 shipments in last week of the quarter Power performance driven by challenging yr/yr compare Margin reflects mix headwinds and investments for portfolio innovation y y y Segment Revenue Elements Segment Results Overview B/(W) Yr/Yr Segment 3Q19 Revenue (External) Pre-Tax Income Pre-Tax Income Margin $1.5 $0.0 2.3% (14%) (81%) (8.6 pts) Systems Hardware (16%) Yr/Yr Operating Systems Software (7%) Yr/Yr Cloud Revenue $0.5 (19%) Revenue growth rates @CC, $ in billions |
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11 Cash Flow and Balance Sheet Highlights Free cash flow up $0.5 billion year-to-date; 3Q19 yr/yr impacted by cash tax payments Free cash flow realization 126%* over last 12 months Debt reduction of nearly $7 billion since Red Hat close ● ● ● $ in billions *Adjusted for charges associated with enactment of U.S. tax reform **Non-GAAP metrics; excludes Global Financing receivables Balance SheetSep 19 Dec 18 Sep 18 Cash & Marketable Securities $11.0 Global Financing Debt $23.1 Core (non-GF) Debt $43.2 Total Debt $66.3 $12.2 $14.7 $31.2 $30.4 $14.6 $16.6 $45.8 $46.9 Cash Flow 3Q19 Yr/Yr LTM Net Cash from Operations** $2.5 ($0.7) Free Cash Flow** $1.8 ($0.4) Selected Uses of Cash Net Capital Expenditures $0.7 Acquisitions $32.6 Dividends/Share Repurchase$1.6 $14.9 $12.3 $2.6 $32.6 $9.1 |
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12 Summary Strong performance in cloud, data/AI, security and digital y Momentum in hybrid cloud across IBM, including Red Hat y Investing to deliver innovation y Strong cash generation and balance sheet y Continue to expect at least $12.80 of operating earnings per share, and approximately $12 billion of free cash flow y |
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13 ibm.com/investor |
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14 Supplemental Materials Currency – Impact on Revenue Growth ● Additional Revenue Information ● Additional Revenue, Gross Profit & Backlog Information ● Global Technology Services Revenue Dynamics ● Expense Summary ● Balance Sheet Summary ● Cash Flow Summary ● Cash Flow (ASC 230) ● Non-GAAP Supplemental Materials ● Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding |
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15 Currency – Impact on Revenue Growth 20 %) % 0% s) Prior View @ 7/16/19 Spot ~(1 pts) 0 pts ~(2 pts) US$B Yr/Yr Revenue As Reported Currency Impact Revenue @ CC $18.0 ($0.2) (3.9%) (1.3 pts) (2.6%) Supplemental Materials Quarterly Averages per US $ 3Q19 Yr/Yr 10/15/2019 Spot 4Q19 FY19 1Q20 FY Euro 0.90 (5%) Pound 0.81 (6%) Yen 107 4% Revenue Impact, Future @ 10/15/19 Spot (1.3 pts) 0.91 0.78 109 (3%) (6%) (3%) (1 (1%) (5%) (2%) 0 4% 1% 1% ~(1-1.5 pts) ~(2 pts) ~(1-2 pts) ~(1 pt |
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16 Additional Revenue Information B/(W) Yr/Yr* B/(W) Yr/Yr Geography Revenue 3Q19 Segment Revenue 3Q19 Cloud & Cognitive Software Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Global Business Services Consulting Global Process Services Application Management Global Technology Services Infrastructure & Cloud Services Technology Support Services Systems Systems Hardware Operating Systems Software Global Financing Revenue growth rates @CC, $ in billions *Yr/Yr excludes impact of divested businesses Supplemental Materials $5.3 $1.4 $2.3 $1.6 $4.1 $2.0 $0.2 $1.9 $6.7 $5.1 $1.6 $1.5 $1.1 $0.4 $0.3 8% 6% 19% (4%) 2% 5% (3%) Flat (4%) (4%) (3%) (14%) (16%) (7%) (11%) Americas Europe/ME/Africa Asia Pacific $8.5 $5.5 $4.0 (1%) Flat (1%) B/(W) Yr/Yr* Cloud Revenue Revenue Total Cloud - 3Q19 Total Cloud - LTM $5.0 $20.0 14% |
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17 Additional Revenue, Gross Profit & Backlog Information B/(W) Yr/Yr B/(W) Yr/Yr Systems Revenue 3Q19 Signings & Backlog* 3Q19 Systems Hardware Revenue IBM Z Power Storage $1.1 (16%) (20%) (27%) (4%) Signings Backlog Backlog Yr/Yr @Actual $9.0 $107.6 15% (2%) (5%) B/(W) Yr/Yr Systems Gross Profit 3Q19 Systems Gross Profit Systems Hardware Operating Systems Software 52.6% 42.8% 82.6% Flat (0.2 pts) (2.4 pts) Growth rates @CC, $ in billions, Services Backlog calculated using September 30 currency spot rates *Signings & Backlog includes Global Technology Services, Global Business Services and Security Services; consistent with 2018 reporting Supplemental Materials |
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18 Global Technology Services Revenue Dynamics 2Q19 2H19 2Q19 3Q19 4Q19 Projected revenue from backlog run-out as of Jul 1 ~(3%) Yr/Yr Projected revenue from backlog run-out as of Jul 1 (1-2%) Yr/Yr 3Q19 Infrastructure Services Revenue Dynamics Revenue impacted by lower in-period client business volumes Positioned to win in chapter 2 of cloud ● Projected revenue impact from 3Q volumes ~(1 pt) 3Q19 cloud signings >60% yr/yr >40% of GTS outsourcing backlog is cloud Robust pipeline of cloud opportunities Repositioning portfolio with continued investment in cloud ● ● ● Actual revenue impact from 3Q volumes ~(1 pt) Projected revenue impact from 4Q volumes 0 to (1 pt) ● s (4%) Yr/Yr Revenue (4%) Yr/Yr Revenue 3Q19 client business volumes impact 2H19 revenue growth Revenue (4%) Yr/Yr, consistent with opening backlog run-out Revenue growth rates @CC Supplemental Materials Projected revenue from backlog run-out as of Apr 1 ~(4%) Yr/Yr Actual revenue impact from 2Q volume ~0 pts |
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19 Expense Summary $ in billions *includes acquisitions in the last twelve months net of non-operating acquisition-related charges and includes impact of divested businesses **represents the percentage change after excluding the impact of currency, acquisitions and divestitures Supplemental Materials B/(W) Expense3Q19 Yr/Yr Acq./ CurrencyDivest*Base** SG&A – Operating $4.6 (8%) RD&E – Operating $1.5 (20%) IP and Custom Development Income ($0.2) (40%) Other (Income)/Expense - Operating ($0.2) 45% Interest Expense - Operating $0.4 (113%) Operating Expense & Other Income $6.1 (16%) 2 pts (10 pts) 1 pts 1 pts (12 pts) (8 pts) 2 pts(14 pts)(4 pts) |
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20 Balance Sheet Summary $ in billions *includes eliminations of inter-company activity Supplemental Materials Sep 19 Dec 18 Sep 18 Cash & Marketable Securities $11.0 Core (non-GF) Assets* $113.3 Global Financing Assets$25.4 Total Assets$149.6 Other Liabilities $65.2 Core (non-GF) Debt* $43.2 Global Financing Debt $23.1 Total Debt $66.3 Total Liabilities $131.5 Equity $18.1 $12.2 $14.7 $71.7 $71.3 $39.5 $36.0 $123.4 $122.0 $60.6 $55.2 $14.6 $16.6 $31.2 $30.4 $45.8 $46.9 $106.5 $102.1 $16.9 $19.9 |
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21 Cash Flow Summary $ in billions Supplemental Materials QTDB/(W) 3Q19Yr/Yr YTDB/(W) 3Q19 Yr/Yr Net Cash from Operations $3.6 ($0.6) Less: Global Financing Receivables $1.1 $0.0 Net Cash from Operations (excluding GF Receivables)$2.5 ($0.7) Net Capital Expenditures ($0.7) $0.3 Free Cash Flow (excluding GF Receivables) $1.8 ($0.4) Acquisitions ($32.6) ($32.6) Divestitures $0.0 $0.0 Dividends ($1.4) ($0.0) Share Repurchases (Gross)($0.1) $0.5 Non-GF Debt ($5.0) ($7.2) Other (includes GF Net A/R & GF Debt) $1.8 $1.4 Change in Cash & Marketable Securities ($35.5) ($38.2) $11.3 $0.2 $3.7 $0.8 $7.6 ($0.6) ($1.7) $1.1 $5.9 $0.5 ($32.6) ($32.5) $0.9 $0.9 ($4.3) ($0.0) ($1.4) $1.0 $28.4 $26.8 $1.8 $0.2 ($1.3) ($3.1) |
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22 Cash Flow (ASC 230) QTD 3Q19 QTD 3Q18 YTD 3Q19 YTD 3Q18 Net Income from Operations Depreciation / Amortization of Intangibles Stock-based Compensation Working Capital / Other Global Financing A/R Net Cash provided by Operating Activities Capital Expenditures, net of payments & proceeds Divestitures, net of cash transferred Acquisitions, net of cash acquired Marketable Securities / Other Investments, net Net Cash provided by/(used in) Investing Activities Debt, net of payments & proceeds Dividends Common Stock Repurchases Common Stock Transactions - Other Net Cash provided by/(used in) Financing Activities Effect of Exchange Rate changes on Cash Net Change in Cash, Cash Equivalents & Restricted Cash $1.7 $1.7 $0.2 ($1.1) $1.1 $3.6 ($0.7) $0.0 ($32.6) $2.9 ($30.4) ($6.6) ($1.4) ($0.1) ($0.0) ($8.2) ($0.4) ($35.3) $2.7 $1.1 $0.1 ($0.8) $1.1 $4.2 ($0.9) $0.0 ($0.0) ($2.0) ($3.0) $1.6 ($1.4) ($0.6) $0.0 ($0.4) ($0.1) $0.8 $5.8 $4.4 $0.5 ($3.0) $3.7 $11.3 ($1.7) $0.9 ($32.6) $6.4 ($27.1) $20.5 ($4.3) ($1.4) ($0.1) $14.7 ($0.4) ($1.4) $6.8 $3.4 $0.4 ($2.3) $2.9 $11.1 ($2.8) $0.0 ($0.1) ($2.4) ($5.4) $0.8 ($4.2) ($2.4) ($0.1) ($5.9) ($0.4) ($0.5) $ in billions Supplemental Materials |
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23 Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share 2019 Full-Year Expectations GAAP Diluted EPS Operating EPS (Non-GAAP) at least $10.58 at least $12.80 Adjustments Acquisition-Related Charges* Non-Operating Retirement-Related Items Tax Reform Enactment Impacts $1.52 $0.51 $0.19 *Includes acquisitions as of September 30, 2019. The above reconciles the Non-GAAP financial information contained in the “3Q19 Prepared Remarks” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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24 Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2019 3Q19 Yr/Yr 3Q19 Yr/Yr GAAP @CC GAAP @CC Global Technology Services Infrastructure & Cloud Services Technology Support Services Cloud Systems Systems Hardware IBM Z Power Storage Operating Systems Software Cloud Global Financing (6%) (6%) (5%) 8% (15%) (17%) (21%) (27%) (6%) (8%) (20%) (12%) (4%) (4%) (3%) 10% (14%) (16%) (20%) (27%) (4%) (7%) (19%) (11%) Cloud & Cognitive Software Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Cloud Global Business Services Consulting Global Process Services Application Management Cloud 6% 4% 17% (5%) 61% 1% 4% (5%) (1%) 8% 8% 6% 19% (4%) 63% 2% 5% (3%) Flat 10% The above reconciles the Non-GAAP financial information contained in the “Key Financial Metrics”, “Cloud & Cognitive Software Segment”, “Global Business Services Segment”, “Global Technology Services Segment”, “Systems Segment”, “Additional Revenue Information”, “Additional Revenue, Gross Profit & Backlog Information”, and “3Q19 Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Fo rm 8-K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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25 Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2019 3Q19 Yr/Yr Divest impact Currency impact Adjusted GAAP Americas Europe/ME/Africa Asia Pacific (4%) (6%) (1%) 3 pts 2 pts 1 pts 0 pts 4 pts (1 pts) (1%) Flat (1%) 3Q19 Yr/Yr Divest impact Currency impact GAAP Adjusted Total Cloud Revenue 11% 2 pts 2 pts 14% The above reconciles the Non-GAAP financial information contained in the “Additional Revenue Information” and “3Q19 Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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26 Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2019 3Q19 Yr/Yr GAAP Divest impact Currency impact Adjusted Revenue (3.9%) 2.0 pts 1.3 pts (0.6%) The above reconciles the Non-GAAP financial information contained in the “Key Financial Metrics”, and “3Q19 Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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27 Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat, Normalized - 3Q 2019 Three Months Ended Revenue for Red Hat, Normalized for Historical Comparability Sep 30 2019 Sep 30 2018 Yr/Yr Yr/Yr@CC Red Hat revenue as reported in IBM consolidated results (1) $371 $ - Add: Red Hat revenue prior to acquisition (2) Add: Purchase accounting deferred revenue and intercompany adjustments (3) Red Hat revenue normalized for historical comparability (non-GAAP) 84 531 829 - $987 $829 19% 20% (1) (2) Represents GAAP Revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment. 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. 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. (3) The above reconciles the Non-GAAP financial information contained in the “Red Hat Update” and “3Q19 Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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28 Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 3Q 2019 3Q19 Non-GAAP Adjustments Operating (Non-GAAP) GAAP SG&A Currency Acquisitions/Divestitures Base* RD&E Currency Acquisitions/Divestitures Base* Operating Expense & Other Income Currency Acquisitions/Divestitures Base* 2 pts (18 pts) 1 pts 0 pts 8 pts 0 pts 2 pts (10 pts) 1 pts 1 pts (17 pts) (8 pts) 0 pts 4 pts 0 pts 1 pts (12 pts) (8 pts) 2 pts (20 pts) 1 pts 0 pts 6 pts (5 pts) 2 pts (14 pts) (4 pts) The above reconciles the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. *Represents the percentage change after excluding the impact of currency, acquisitions and divestitures. Supplemental Materials |
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29 Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow - Last 12 Months 12 Months Ended Sep 2019 Net Cash from Operating Activities per GAAP: $15.4 Less: change in Global Financing (GF) Receivables $0.5 Net Cash from Operating Activities (Excluding GF Receivables) $14.9 Capital Expenditures, Net ($2.6) Free Cash Flow (Excluding GF Receivables) $12.3 $ in billions The above reconciles the Non-GAAP financial information contained in the “Overview”, “Key Financial Metrics”, “Cash Flow and Balance Sheet Highlights” and “3Q Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8 -K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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30 Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow Realization - Last 12 Months LTM Excluding Tax Reform* LTM Free Cash Flow Realization 160% 126% The above reconciles the Non-GAAP financial information contained in the “Key Financial Metrics”, “Cash Flow and Balance Sheet Highlights” and “3Q Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. * Adjusted for the charges associated with enactment of U.S. tax reform Supplemental Materials |
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31 Non-GAAP Supplemental Reconciliation of Tax Rate Materials Tax Rate Expectation GAAP Non-GAAP Full Year 2019* 8-9% 9-10% *includes estimate of discrete tax events for the year; actual events will be recorded as they occur The above reconciles the Non-GAAP financial information contained in the “3Q Prepared Remarks” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated October 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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32 ibm.com/investor |
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