Thursday, December 9

IBM Reports 2021 Third-Quarter Results


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Revenue Performance Led by Consulting and Software; Solid Cash Generation

Highlights

Third Quarter:

  • Revenue of $17.6 billion, up 0.3 percent (down 0.2 percent adjusting for divested businesses and currency)
    – Cloud & Cognitive Software up 3 percent (up 2 percent adjusting for currency)
    – Global Business Services up 12 percent (up 11 percent adjusting for currency)
  • Revenue, up 2.5 percent (up 1.9 percent adjusting for divested businesses and currency), normalized to exclude Kyndryl to be separated in November
  • Net cash from operating activities of $16.1 billion and adjusted free cash flow of $11.1 billion, both up $0.3 billion over last 12 months
  • Total cloud revenue over last 12 months of $27.8 billion, up 14 percent (up 11 percent adjusting for divested businesses and currency)
    – Cloud & Cognitive Software cloud revenue up 31 percent (up 28 percent adjusting for currency)
    – Global Business Services cloud revenue up 30 percent (up 27 percent adjusting for currency)
  • Red Hat revenue up 17 percent, normalized for historical comparability
  • Debt reduced by $7.0 billion since year-end 2020

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ARMONK, N.Y. — IBM (NYSE: IBM) today announced third-quarter 2021 earnings results.

“With the separation of Kyndryl early next month, IBM takes the next step in our evolution as a platform-centric hybrid cloud and AI company,” said Arvind Krishna, IBM chairman and chief executive officer. “We continue to make progress in our software and consulting businesses, which represent our higher growth opportunities. With our increased focus and agility to better serve clients, we are confident in achieving our medium-term objectives of mid-single digit revenue growth and strong free cash flow generation.”

THIRD QUARTER 2021

All GAAP results include the impact of Kyndryl separation costs*

Pre-tax

Gross

Diluted

Net

Pre-tax

Income

Profit

EPS

Income

Income

Margin

Margin

GAAP from Continuing Operations

$

1.25

$

1.1B

$

1.3B

7.5

%

46.4

%

Year/Year

(34

)%

(33

)%

(28

)%

(2.9

)Pts

(1.6

)Pts

Operating (Non-GAAP)

$

2.52

$

2.3B

$

2.4B

13.6

%

48.0

%

Year/Year

(2

)%

(1

)%

(7

)%

(1.0

)Pts

(1.0

)Pts

GAAP EPS results include impacts related to the amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation.

* Impact of Kyndryl separation costs for third quarter 2021 GAAP results: EPS ($0.56) per share; Net Income ($0.5B); Pre-tax Income ($0.3B); Pre-Tax Income Margin (1.6) points; Gross Profit Margin (0.6) points

“We again had solid cash generation for the quarter and over the last year, while maintaining a strong balance sheet and the liquidity to support our hybrid cloud and AI strategy,” said James Kavanaugh, IBM senior vice president and chief financial officer. “Our post-separation portfolio mix is shifted toward our growth vectors, with a higher-value recurring revenue stream and strong cash generation, allowing us to continue to invest in the business and provide attractive shareholder returns.”

Cash Flow and Balance Sheet

In the third quarter, the company generated net cash from operating activities of $2.7 billion. IBM’s free cash flow was $0.6 billion, which includes $0.6 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of Kyndryl. IBM’s adjusted free cash flow, excluding these cash impacts, was $1.2 billion. The company returned $1.5 billion to shareholders in dividends.

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Over the last 12 months, the company generated net cash from operating activities of $16.1 billion. IBM’s free cash flow for the last 12 months was $9.2 billion. The company’s adjusted free cash flow, excluding cash impacts of $1.8 billion for the structural actions and transaction separation costs, was $11.1 billion.

IBM ended the third quarter with $8.4 billion of cash on hand (includes marketable securities), down $5.9 billion from year-end 2020 reflecting acquisitions of $3.0 billion and debt reduction payments. Debt, including Global Financing debt of $15.9 billion, totaled $54.5 billion, down $7.0 billion since the end of 2020, and down $18.5 billion since closing the Red Hat acquisition.

Segment Results for Third Quarter

  • Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive Applications and Transaction Processing Platforms) —revenues of $5.7 billion, up 2.5 percent (up 1.9 percent adjusting for currency). Cloud & Data Platforms grew 10 percent (up 9 percent adjusting for currency), Cognitive Applications revenue was flat (down 1 percent adjusting for currency) and Transaction Processing Platforms declined 9 percent. Cloud revenue up 21 percent (up 20 percent adjusting for currency).
  • Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.4 billion, up 11.6 percent (up 11.0 percent adjusting for currency), with growth in Consulting, up 17 percent (up 16 percent adjusting for currency), Application Management up 5 percent, and Global Process Services up 19 percent. Cloud revenue up 38 percent (up 37 percent adjusting for currency).
  • Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.2 billion, down 4.8 percent (down 5.4 percent adjusting for currency). Infrastructure & Cloud Services declined 5 percent (down 6 percent adjusting for currency) and Technology Support Services declined 4 percent (down 5 percent adjusting for currency). Cloud revenue up 1 percent (flat adjusting for currency). Gross profit margin up 120 basis points.
  • Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.1 billion, down 11.9 percent (down 12.4 percent adjusting for currency), driven by declines in IBM Z (down 33 percent) and Power systems down 24 percent (down 25 percent adjusting for currency). Storage Systems grew 11 percent. Cloud revenue down 42 percent (down 43 percent adjusting for currency).
  • Global Financing (includes financing and used equipment sales) — revenues of $220 million, down 19.2 percent (down 19.8 percent adjusting for currency).

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Year-To-Date 2021 Results

Revenues for the nine-month period ended September 30, 2021 totaled $54.1 billion, an increase of 1.6 percent year to year (down 1 percent adjusting for divested businesses and currency) compared with $53.3 billion for the first nine months of 2020. Net income was $3.4 billion, down 19 percent year to year, reflecting the impact of $0.7 billion of transaction costs associated with the Kyndryl separation. Diluted earnings per share was $3.77 compared with $4.72 per diluted share for the 2020 period, a decrease of 20 percent.

GAAP earnings per share results include a ($2.85) per-share impact for charges related to amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation. The impact of the Kyndryl separation costs was ($0.76) per share.

Operating (non-GAAP) net income for the nine months ended September 30, 2021 was $6.0 billion compared with $5.9 billion in the prior-year period, an increase of 1.3 percent. Operating (non-GAAP) diluted earnings per share from continuing operations was $6.62 compared with $6.60 per diluted share for the 2020 period, flat year to year.

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; 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; the possibility that the proposed separation of the managed infrastructure services unit of the company’s Global Technology Services segment will not be completed within the anticipated time period or at all, the possibility of disruption or unanticipated costs in connection with the proposed separation or the possibility that the separation will not achieve its intended benefits; 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; fluctuations in financial results; impact of local legal, economic, political, health and other conditions; the company’s failure to meet growth and productivity objectives; 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; reliance on third party distribution channels and ecosystems; cybersecurity and data privacy considerations; adverse effects from environmental matters, tax matters; legal proceedings and investigatory risks; the company’s pension plans; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; 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 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.

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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;
  • total revenue normalized to exclude Kyndryl to be separated in November;
  • Red Hat revenue normalized for historical comparability;
  • presenting operating (non-GAAP) earnings per share amounts and related income statement items;
  • free cash flow;
  • adjusted free cash flow.

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/earnings-3q21 . Presentation charts will be available shortly before the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

REVENUE

Cloud & Cognitive Software

$

5,692

$

5,553

$

17,227

$

16,540

Global Business Services

4,427

3,965

13,002

11,992

Global Technology Services

6,154

6,462

18,866

19,245

Systems

1,107

1,257

4,251

4,477

Global Financing

220

273

702

837

Other

18

50

45

163

TOTAL REVENUE

17,618

17,560

54,093

53,253

GROSS PROFIT

8,171

8,430

25,379

25,052

GROSS PROFIT MARGIN

Cloud & Cognitive Software

77.0

%

77.1

%

77.1

%

76.6

%

Global Business Services

29.8

%

32.9

%

28.6

%

29.5

%

Global Technology Services

36.2

%

35.0

%

35.3

%

34.4

%

Systems

41.3

%

51.2

%

51.3

%

53.7

%

Global Financing

25.6

%

37.5

%

28.4

%

39.0

%

TOTAL GROSS PROFIT MARGIN

46.4

%

48.0

%

46.9

%

47.0

%

EXPENSE AND OTHER INCOME

S,G&A

4,860

4,647

15,368

15,849

R,D&E

1,621

1,515

4,907

4,722

Intellectual property and custom development income

(153

)

(134

)

(435

)

(453

)

Other (income) and expense

234

253

911

614

Interest expense

291

323

852

971

TOTAL EXPENSE AND OTHER INCOME

6,852

6,603

21,603

21,704

INCOME/(LOSS) FROM CONTINUING OPERATIONS

BEFORE INCOME TAXES

1,319

1,827

3,776

3,348

Pre-tax margin

7.5

%

10.4

%

7.0

%

6.3

%

Provision for/(Benefit from) income taxes

188

128

365

(888

)

Effective tax rate

14.3

%

7.0

%

9.7

%

(26.5

)

%

INCOME FROM CONTINUING OPERATIONS

$

1,130

$

1,698

$

3,411

$

4,237

DISCONTINUED OPERATIONS

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

(1

)

(1

)

(2

)

NET INCOME

$

1,130

$

1,698

$

3,410

$

4,234

EARNINGS/(LOSS) PER SHARE OF COMMON STOCK

Assuming Dilution

Continuing Operations

$

1.25

$

1.89

$

3.77

$

4.72

Discontinued Operations

$

0.00

$

0.00

$

0.00

$

0.00

TOTAL

$

1.25

$

1.89

$

3.77

$

4.72

Basic

Continuing Operations

$

1.26

$

1.90

$

3.81

$

4.76

Discontinued Operations

$

0.00

$

0.00

$

0.00

$

0.00

TOTAL

$

1.26

$

1.90

$

3.81

$

4.76

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

Assuming Dilution

906.0

897.3

904.0

895.8

Basic

897.1

891.4

895.3

889.6

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INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

At

At

September 30,

December 31,

(Dollars in Millions)

2021

2020

ASSETS:

Current Assets:

Cash and cash equivalents

$

7,455

$

13,212

Restricted cash

352

463

Marketable securities

600

600

Notes and accounts receivable – trade, net

6,609

7,132

Short-term financing receivables, net

7,161

10,892

Other accounts receivable, net

899

714

Inventories

1,891

1,839

Deferred costs

2,046

2,107

Prepaid expenses and other current assets

2,954

2,206

Total Current Assets

29,967

39,165

Property, plant and equipment, net

9,138

10,040

Operating right-of-use assets, net

4,253

4,686

Long-term financing receivables, net

5,046

7,086

Prepaid pension assets

8,197

7,610

Deferred costs

2,248

2,449

Deferred taxes

8,967

9,241

Goodwill

61,378

59,617

Intangibles, net

13,025

13,796

Investments and sundry assets

1,996

2,282

Total Assets

$

144,214

$

155,971

LIABILITIES:

Current Liabilities:

Taxes

$

2,159

$

3,301

Short-term debt

7,575

7,183

Accounts payable

4,248

4,908

Deferred income

12,264

12,833

Operating lease liabilities

1,285

1,357

Other liabilities

8,300

10,287

Total Current Liabilities

35,832

39,869

Long-term debt

46,926

54,355

Retirement related obligations

16,764

18,248

Deferred income

3,965

4,301

Operating lease liabilities

3,192

3,574

Other liabilities

15,179

14,897

Total Liabilities

121,858

135,244

EQUITY:

IBM Stockholders’ Equity:

Common stock

57,189

56,556

Retained earnings

161,747

162,717

Treasury stock — at cost

(169,406

)

(169,339

)

Accumulated other comprehensive income/(loss)

(27,302

)

(29,337

)

Total IBM Stockholders’ Equity

22,228

20,597

Noncontrolling interests

129

129

Total Equity

22,357

20,727

Total Liabilities and Equity

$

144,214

$

155,971

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

Trailing Twelve

Three Months Ended

Nine Months Ended

Months Ended

September 30,

September 30,

September 30,

(Dollars in Millions)

2021

2020

2021

2020

2021

Net Cash Provided by Operating Activities per GAAP:

$

2,713

$

4,286

$

10,252

$

12,337

$

16,111

Less: Change in Global Financing (GF) Receivables

1,472

2,353

5,235

5,324

4,260

Capital Expenditures, net

(638

)

(829

)

(1,855

)

(2,262

)

(2,635

)

Free Cash Flow

603

1,104

3,162

4,751

9,216

Structural actions initiated in 4Q20 & Separation charges (1)

566

1,792

1,841

Adjusted Free Cash Flow

1,170

1,104

4,954

4,751

11,057

Free Cash Flow

603

1,104

3,162

4,751

9,216

Acquisitions

(152

)

(17

)

(3,018

)

(37

)

(3,317

)

Divestitures

51

(248

)

26

510

19

Dividends

(1,471

)

(1,453

)

(4,395

)

(4,343

)

(5,850

)

Non-GF Debt

1,187

1,019

(1,143

)

4,977

(5,899

)

Other (includes GF Net Receivables and GF Debt)

22

1,098

(500

)

886

(1,516

)

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

$

241

$

1,503

$

(5,868

)

$

6,744

$

(7,347

)

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_______________

(1)

Includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and separation related costs.

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in Millions)

2021

2020

2021

2020

Net Income from Operations

$

1,130

$

1,698

$

3,410

$

4,234

Depreciation/Amortization of Intangibles

1,684

1,683

5,036

4,996

Stock-based Compensation

262

222

719

658

Working Capital / Other

(1,834

)

(1,670

)

(4,147

)

(2,874

)

Global Financing A/R

1,472

2,353

5,235

5,324

Net Cash Provided by Operating Activities

$

2,713

$

4,286

$

10,252

$

12,337

Capital Expenditures, net of payments & proceeds

(638

)

(829

)

(1,855

)

(2,262

)

Divestitures, net of cash transferred

51

(248

)

26

510

Acquisitions, net of cash acquired

(152

)

(17

)

(3,018

)

(37

)

Marketable Securities / Other Investments, net

109

762

(453

)

(680

)

Net Cash Provided by/(Used in) Investing Activities

$

(629

)

$

(332

)

$

(5,300

)

$

(2,470

)

Debt, net of payments & proceeds

(287

)

(252

)

(6,086

)

1,067

Dividends

(1,471

)

(1,453

)

(4,395

)

(4,343

)

Common Stock Transactions – Other

9

16

(181

)

(152

)

Net Cash Provided by/(Used in) Financing Activities

$

(1,748

)

$

(1,689

)

$

(10,662

)

$

(3,428

)

Effect of Exchange Rate changes on Cash

(94

)

101

(159

)

(200

)

Net Change in Cash, Cash Equivalents and Restricted Cash

$

241

$

2,366

$

(5,868

)

$

6,239

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

Three Months Ended September 30, 2021

Cloud &

Global

Global

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software

Services

Services

Systems

Financing

Revenue

External

$

5,692

$

4,427

$

6,154

$

1,107

$

220

Internal

764

53

317

176

153

Total Segment Revenue

$

6,456

$

4,480

$

6,471

$

1,283

$

373

Pre-tax Income/(Loss) from Continuing Operations

1,675

587

383

(207

)

206

Pre-tax Margin

25.9

%

13.1

%

5.9

%

(16.1

)

%

55.1

%

Change YTY Revenue – External

2.5

%

11.6

%

(4.8

)

%

(11.9

)

%

(19.2

)

%

Change YTY Revenue – External @constant currency

1.9

%

11.0

%

(5.4

)

%

(12.4

)

%

(19.8

)

%

Three Months Ended September 30, 2020

Cloud &

Global

Global

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software

Services

Services

Systems

Financing

Revenue

External

$

5,553

$

3,965

$

6,462

$

1,257

$

273

Internal

875

49

312

240

208

Total Segment Revenue

$

6,428

$

4,014

$

6,774

$

1,497

$

480

Pre-tax Income/(Loss) from Continuing Operations

1,834

570

399

(37

)

196

Pre-tax Margin

28.5

%

14.2

%

5.9

%

(2.5

)

%

40.7

%

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INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

Nine Months Ended September 30, 2021

Cloud &

Global

Global

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software

Services

Services

Systems

Financing

Revenue

External

$

17,227

$

13,002

$

18,866

$

4,251

$

702

Internal

2,322

166

956

606

581

Total Segment Revenue

$

19,549

$

13,168

$

19,822

$

4,857

$

1,283

Pre-tax Income/(Loss) from Continuing Operations

4,822

1,349

903

(33

)

618

Pre-tax Margin

24.7

%

10.2

%

4.6

%

(0.7

)

%

48.1

%

Change YTY Revenue – External

4.2

%

8.4

%

(2.0

)

%

(5.1

)

%

(16.2

)

%

Change YTY Revenue – External @constant currency

1.7

%

5.5

%

(4.9

)

%

(7.0

)

%

(18.0

)

%

Nine Months Ended September 30, 2020

Cloud &

Global

Global

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software

Services

Services

Systems

Financing

Revenue

External

$

16,540

$

11,992

$

19,245

$

4,477

$

837

Internal

2,431

150

911

628

660

Total Segment Revenue

$

18,971

$

12,142

$

20,155

$

5,106

$

1,497

Pre-tax Income/(Loss) from Continuing Operations

4,475

1,203

471

(7

)

566

Pre-tax Margin

23.6

%

9.9

%

2.3

%

(0.1

)

%

37.8

%

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, 2021

Continuing Operations

Acquisition-

Retirement-

Tax

Separation-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Charges (4)

(Non-GAAP)

Gross Profit

$

8,171

$

184

$

$

$

108

$

8,463

Gross Profit Margin

46.4

%

1.0

Pts

Pts

Pts

0.6

Pts

48.0

%

S,G&A

4,860

(293)

(169)

4,398

R,D&E

1,621

(1)

1,620

Other (Income) & Expense

234

(1)

(328)

(94)

Interest Expense

291

291

Total Expense & Other (Income)

6,852

(294)

(328)

(169)

6,061

Pre-tax Income from Continuing Operations

1,319

478

328

277

2,402

Pre-tax Income Margin from Continuing Operations

7.5

%

2.7

Pts

1.9

Pts

Pts

1.6

Pts

13.6

%

Provision for/(Benefit from) Income Taxes (3)

188

103

57

(233)

115

Effective Tax Rate

14.3

%

1.5

Pts

0.4

Pts

Pts

(11.4)

Pts

4.8

%

Income from Continuing Operations

1,130

375

271

510

2,286

Income Margin from Continuing Operations

6.4

%

2.1

Pts

1.5

Pts

Pts

2.9

Pts

13.0

%

Diluted Earnings/(Loss) Per Share: Continuing Operations

$

1.25

$

0.41

$

0.30

$

$

0.56

$

2.52

Three Months Ended September 30, 2020

Continuing Operations

Acquisition-

Retirement-

Tax

Separation-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Charges (4)

(Non-GAAP)

Gross Profit

$

8,430

$

180

$

$

$

$

8,610

Gross Profit Margin

48.0

%

1.0

Pts

Pts

Pts

Pts

49.0

%

S,G&A

4,647

(279)

4,367

R,D&E

1,515

1,515

Other (Income) & Expense

253

(1)

(291)

(39)

Interest Expense

323

323

Total Expense & Other (Income)

6,603

(280)

(291)

6,032

Pre-tax Income/(Loss) from Continuing Operations

1,827

460

291

2,578

Pre-tax Income Margin from Continuing Operations

10.4

%

2.6

Pts

1.7

Pts

Pts

Pts

14.7

%

Provision for/(Benefit from) Income Taxes (3)

128

102

54

(21)

263

Effective Tax Rate

7.0

%

2.7

Pts

1.3

Pts

(0.8)

Pts

Pts

10.2

%

Income from Continuing Operations

1,698

358

237

21

2,315

Income Margin from Continuing Operations

9.7

%

2.0

Pts

1.4

Pts

0.1

Pts

Pts

13.2

%

Diluted Earnings/(Loss) Per Share: Continuing Operations

$

1.89

$

0.40

$

0.26

$

0.03

$

$

2.58

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_______________

(1)

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.

(2)

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.

(3)

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.

(4)

Kyndryl separation charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax separation charges.

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, 2021

Continuing Operations

Acquisition-

Retirement-

Tax

Separation-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Charges (4)

(Non-GAAP)

Gross Profit

$

25,379

$

540

$

$

$

168

$

26,087

Gross Profit Margin

46.9

%

1.0

Pts

Pts

Pts

0.3

Pts

48.2

%

S,G&A

15,368

(884)

(343)

14,141

R,D&E

4,907

(1)

4,906

Other (Income) & Expense

911

(2)

(998)

(90)

Interest Expense

852

852

Total Expense & Other (Income)

21,603

(886)

(998)

(344)

19,374

Pre-tax Income from Continuing Operations

3,776

1,426

998

513

6,713

Pre-tax Income Margin from Continuing Operations

7.0

%

2.6

Pts

1.8

Pts

Pts

0.9

Pts

12.4

%

Provision for/(Benefit from) Income Taxes (3)

365

344

185

6

(174)

725

Effective Tax Rate

9.7

%

3.1

Pts

1.3

Pts

0.1

Pts

(3.3)

Pts

10.8

%

Income from Continuing Operations

3,411

1,082

813

(6)

687

5,988

Income Margin from Continuing Operations

6.3

%

2.0

Pts

1.5

Pts

(0.0)

Pts

1.3

Pts

11.1

%

Diluted Earnings/(Loss) Per Share: Continuing Operations

$

3.77

$

1.20

$

0.90

$

(0.01)

$

0.76

$

6.62

Nine Months Ended September 30, 2020

Continuing Operations

Acquisition-

Retirement-

Tax

Separation-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Charges (4)

(Non-GAAP)

Gross Profit

$

25,052

$

556

$

$

$

$

25,608

Gross Profit Margin

47.0

%

1.0

Pts

Pts

Pts

Pts

48.1

%

S,G&A

15,849

(849)

15,000

R,D&E

4,722

4,722

Other (Income) & Expense

614

(2)

(829)

(217)

Interest Expense

971

971

Total Expense & Other (Income)

21,704

(851)

(829)

20,024

Pre-tax Income from Continuing Operations

3,348

1,407

829

5,584

Pre-tax Income Margin from Continuing Operations

6.3

%

2.6

Pts

1.6

Pts

Pts

Pts

10.5

%

Provision for/(Benefit from) Income Taxes (3)

(888)

312

119

128

(329)

Effective Tax Rate

(26.5)

%

12.3

Pts

6.1

Pts

2.3

Pts

Pts

(5.9)

%

Income from Continuing Operations

4,237

1,095

710

(128)

5,913

Income Margin from Continuing Operations

8.0

%

2.1

Pts

1.3

Pts

(0.2)

Pts

Pts

11.1

%

Diluted Earnings/(Loss) Per Share: Continuing Operations

$

4.72

$

1.23

$

0.79

$

(0.14)

$

$

6.60

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_______________

(1)

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.

(2)

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.

(3)

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.

(4)

Kyndryl separation charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax separation charges.

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

Nine Months Ended

Twelve Months Ended

September 30, 2021

September 30, 2021

September 30, 2021

Change YTY

Change YTY

Change YTY

Revenue Adjusting for Divested Businesses and Currency

Total IBM

Total IBM

Cloud

Revenue as reported

0.3

%

1.6

%

13.6

%

Impact from divested businesses

0.0

Pts

0.1

Pts

0.3

Pts

Currency impact

(0.6)

Pts

(2.7)

Pts

(2.8)

Pts

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

(0.2)

%

(1.0)

%

11.1

%

Three Months Ended

September 30, 2021

Total IBM Revenue, Normalized to Exclude Kyndryl

Change YTY

Revenue as reported

0.3

%

Impact from Kyndryl (1)

2.1

Pts

Revenue normalized to exclude Kyndryl (non-GAAP)

2.5

%

Impact from divested businesses

0.1

Pts

Currency impact

(0.7)

Pts

Revenue normalized to exclude Kyndryl, adjusted for divested businesses and currency (non-GAAP)

1.9

%

_______________

(1)

Estimated as of September 30, 2021.

Three Months Ended

September 30, 2021

Red Hat Revenue, Normalized for Historical Comparability

Change YTY

Red Hat Revenue GAAP growth rate (1)

23

%

Impact from purchase accounting deferred revenue and intercompany adjustments (2)

(6)

Pts

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

17

%

Impact from currency

(0)

Pts

Red Hat revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP)

17

%

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_______________

(1)

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

(2)

Represents change in the third-quarter 2021 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/20211020006053/en/

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Contacts

IBM
Sarah Meron, 347-891-1770
[email protected]

Tim Davidson, 914-844-7847
[email protected]

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