IBM Reports 2019 Second-Quarter Results

Growth in Software, Consulting and Cloud Revenue; Continued Margin Expansion

Highlights

Second Quarter:

  • GAAP EPS from continuing operations of $2.81
  • Operating (non-GAAP) EPS of $3.17
  • Revenue of $19.2 billion, down 4.2 percent (down 1.6 percent adjusting for currency)
  • Revenue growth in Cloud & Cognitive Software, and Global Business Services segments
    -- Cloud & Cognitive Software up 3.2 percent (up 5.4 percent adjusting for currency)
    -- Global Business Services up 0.5 percent (up 3.4 percent adjusting for currency)
  • Cloud revenue of $19.5 billion over the last 12 months, up 5 percent (up 8 percent adjusting for currency)
  • Gross profit margin up 100 basis points; largest year-to-year expansion in more than 5 years
  • Net cash from operating activities of $16.1 billion over the last 12 months; free cash flow of $12.7 billion over the last 12 months
  • Through the second quarter, on track to achieve full-year 2019 EPS and free cash flow expectations excluding impact of Red Hat acquisition

Full-Year Expectations Update:

  • Company to update full-year 2019 expectations, including the impact of Red Hat acquisition, on August 2
  • Continues to expect Red Hat, including related activity, to be accretive to free cash flow in the first year, and accretive to operating (non-GAAP) earnings per share by the end of the second year after closing, as previously stated

IBM Reports 2019 Second-Quarter Results

IBM

 

IBM (NYSE:IBM) today announced second-quarter results.

“In the second quarter, we continued to grow in the high-value areas of the business, led by a strong performance across our Cloud and Cognitive Software segment,” said Ginni Rometty, IBM chairman, president and chief executive officer. “With the completion of our acquisition of Red Hat, we will provide the only true open hybrid multicloud platform in the industry, strengthening our leadership position and uniquely helping clients succeed in chapter 2 of their digital reinventions.”

 

SECOND QUARTER 2019

 

 

 

 

 

 

 

 

 

 

 

Pre-tax

 

Gross

 

 

Diluted

 

Net

 

Pre-tax

 

Income

 

Profit

 

 

EPS

 

Income

 

Income

 

Margin

 

Margin

 

GAAP from Continuing Operations

$

2.81

 

$

2.5B

 

$

2.8B

 

14.4

%

47.0

%

Year/Year

 

8

%

 

4

%

 

0

%

0.6

Pts

1.0

Pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Non-GAAP)

$

3.17

 

$

2.8B

 

$

3.2B

 

16.6

%

47.4

%

Year/Year

 

3

%

 

0

%

 

(6)

%

(0.3)

Pts

1.0

Pts

“We maintained our momentum in the second quarter, again expanding gross profit margin and growing free cash flow, driven to a great extent by our increasing mix of high-value offerings for clients,” said James Kavanaugh, IBM senior vice president and chief financial officer. “On August 2, we will discuss how the acquisition of Red Hat will accelerate IBM's revenue growth, contribute to our high-value model and enhance our free cash flow generation going forward.”

Cash Flow and Balance Sheet

In the second quarter, the company generated net cash from operating activities of $2.9 billion, or $2.8 billion, excluding Global Financing receivables. IBM’s free cash flow was $2.4 billion. IBM returned $1.8 billion to shareholders through $1.4 billion in dividends and $0.3 billion in gross share repurchases. The company suspended its share repurchase program on July 9.

IBM ended the second quarter with $46.4 billion of cash on hand, of which approximately $34 billion was used in July to close the acquisition of Red Hat. Debt totaled $73.0 billion, including Global Financing debt of $25.0 billion.

Segment Results for Second Quarter

  • Cloud & Cognitive Software (includes cloud and data platforms, cognitive applications and transaction processing platforms) --revenues of $5.6 billion, up 3.2 percent (up 5.4 percent adjusting for currency), with growth in cloud and data platforms, up 5 percent (up 7 percent adjusting for currency); cognitive applications, up 3 percent (up 5 percent adjusting for currency); and transaction processing platforms, up 2 percent (up 4 percent adjusting for currency).
  • Global Business Services (includes consulting, application management and global process services) -- revenues of $4.2 billion, up 0.5 percent (up 3.4 percent adjusting for currency), with broad-based strength led by growth in consulting, up 2 percent (up 5 percent adjusting for currency).
  • Global Technology Services (includes infrastructure and cloud services and technology support services) -- revenues of $6.8 billion, down 6.7 percent (down 3.5 percent adjusting for currency). Gross profit margin increased 120 basis points.
  • Systems (includes systems hardware and operating systems software) -- revenues of $1.8 billion, down 19.5 percent (down 18.0 percent adjusting for currency), with growth in Power, more than offset by the impact of product cycle dynamics in IBM Z and Storage.
  • Global Financing (includes financing and used equipment sales) -- revenues of $351 million, down 11.0 percent (down 8.5 percent adjusting for currency), reflects the wind-down of OEM commercial financing.

Full-Year 2019 Expectations

Through the second quarter, IBM remains on track to achieve GAAP diluted earnings per share of at least $12.45, operating (non-GAAP) diluted earnings per share of at least $13.90 and free cash flow of approximately $12 billion, all excluding the impact of Red Hat and related activity. Operating (non-GAAP) diluted earnings per share expectations exclude $1.45 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. It does not include any other amounts for Red Hat or Red Hat related activity. The company will provide an update to these full-year expectations (including GAAP EPS expectations) on August 2, 2019 to reflect the addition of the recently-closed Red Hat acquisition. IBM continues to expect Red Hat, including related activity, to be accretive to free cash flow in the first year; accretive to operating (non-GAAP) earnings per share by the end of the second year after closing; and dilutive to full-year 2019 earnings per share due primarily to a non-cash purchase accounting adjustment.

Year-To-Date 2019 Results

Consolidated diluted earnings per share was $4.58 compared to $4.43, up 3 percent year to year. Consolidated net income was $4.1 billion, flat year to year. Revenues for the six-month period ended June 30, 2019 totaled $37.3 billion, a decrease of 4 percent year to year (down 1 percent adjusting for currency) compared with $39.1 billion for the first six months of 2018.

Operating (non-GAAP) diluted earnings per share from continuing operations was $5.42 compared with $5.53 per diluted share for the 2018 period, a decrease of 2 percent. Operating (non-GAAP) net income for the six months ended June 30, 2019 was $4.8 billion compared with $5.1 billion in the prior-year period, a decrease of 5 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 --

  • 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;
  • adjusting for currency (i.e., at constant currency).

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/2q19.html. Presentation charts will be available shortly before the Webcast.

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

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

 

June 30,

 

 

 

 

2019

 

2018

 

 

 

2019

 

2018

 

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud & Cognitive Software

 

$

5,645

 

 

$

5,470

 

 

*

 

$

10,682

 

 

$

10,586

 

 

*

Global Business Services

 

 

4,155

 

 

 

4,135

 

 

*

 

 

8,274

 

 

 

8,250

 

 

*

Global Technology Services

 

 

6,837

 

 

 

7,325

 

 

*

 

 

13,711

 

 

 

14,746

 

 

*

Systems

 

 

1,753

 

 

 

2,177

 

 

 

 

 

3,081

 

 

 

3,676

 

 

 

Global Financing

 

 

351

 

 

 

394

 

 

 

 

 

757

 

 

 

799

 

 

 

Other

 

 

420

 

 

 

503

 

 

*

 

 

837

 

 

 

1,017

 

 

*

TOTAL REVENUE

 

 

19,161

 

 

 

20,003

 

 

 

 

 

37,342

 

 

 

39,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

9,010

 

 

 

9,199

 

 

 

 

 

17,053

 

 

 

17,445

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT MARGIN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud & Cognitive Software

 

 

77.3

 

%

 

77.7

 

%

*

 

 

76.3

 

%

 

77.1

 

%

*

Global Business Services

 

 

26.0

 

%

 

26.0

 

%

*

 

 

26.1

 

%

 

24.7

 

%

*

Global Technology Services

 

 

34.4

 

%

 

33.2

 

%

*

 

 

34.1

 

%

 

32.9

 

%

*

Systems

 

 

53.5

 

%

 

50.6

 

%

 

 

 

50.3

 

%

 

47.8

 

%

 

Global Financing

 

 

35.0

 

%

 

26.6

 

%

 

 

 

34.9

 

%

 

30.6

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL GROSS PROFIT MARGIN

 

 

47.0

 

%

 

46.0

 

%

 

 

 

45.7

 

%

 

44.6

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

5,456

 

 

 

4,857

 

 

 

 

 

10,147

 

 

 

10,302

 

 

 

R,D&E

 

 

1,407

 

 

 

1,364

 

 

 

 

 

2,840

 

 

 

2,769

 

 

 

Intellectual property and custom development income

 

 

(222

)

 

 

(250

)

 

 

 

 

(323

)

 

 

(567

)

 

 

Other (income) and expense

 

 

(747

)

 

 

280

 

 

 

 

 

(820

)

 

 

692

 

 

 

Interest expense

 

 

348

 

 

 

173

 

 

 

 

 

558

 

 

 

338

 

 

 

TOTAL EXPENSE AND OTHER INCOME

 

 

6,242

 

 

 

6,423

 

 

 

 

 

12,402

 

 

 

13,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEFORE INCOME TAXES

 

 

2,768

 

 

 

2,776

 

 

 

 

 

4,651

 

 

 

3,911

 

 

 

Pre-tax margin

 

 

14.4

 

%

 

13.9

 

%

 

 

 

12.5

 

%

 

10.0

 

%

 

Provision for / (Benefit from) income taxes

 

 

269

 

 

 

373

 

 

 

 

 

558

 

 

 

(166

)

 

 

Effective tax rate

 

 

9.7

 

%

 

13.5

 

%

 

 

 

12.0

 

%

 

(4.3

)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

2,499

 

 

$

2,402

 

 

 

 

$

4,093

 

 

$

4,078

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(1

)

 

 

1

 

 

 

 

 

(4

)

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,498

 

 

$

2,404

 

 

 

 

$

4,089

 

 

$

4,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS / (LOSS) PER SHARE OF COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

2.81

 

 

$

2.61

 

 

 

 

$

4.58

 

 

$

4.42

 

 

 

Discontinued Operations

 

$

0.00

 

 

$

0.00

 

 

 

 

$

0.00

 

 

$

0.01

 

 

 

TOTAL

 

$

2.81

 

 

$

2.61

 

 

 

 

$

4.58

 

 

$

4.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

2.82

 

 

$

2.63

 

 

 

 

$

4.61

 

 

$

4.44

 

 

 

Discontinued Operations

 

$

0.00

 

 

$

0.00

 

 

 

 

$

0.00

 

 

$

0.01

 

 

 

TOTAL

 

$

2.82

 

 

$

2.63

 

 

 

 

$

4.61

 

 

$

4.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

890.8

 

 

 

919.4

 

 

 

 

 

892.4

 

 

 

922.4

 

 

 

Basic

 

 

886.3

 

 

 

915.1

 

 

 

 

 

887.9

 

 

 

917.9

 

 

 

_________________________________
* Recast to conform with 2019 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

At

 

At

 

 

June 30,

 

December 31,

(Dollars in Millions)

 

2019

 

2018

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,399

 

 

$

11,379

 

Restricted cash

 

 

135

 

 

 

225

 

Marketable securities

 

 

874

 

 

 

618

 

Notes and accounts receivable - trade, net

 

 

7,414

 

 

 

7,432

 

Short-term financing receivables, net

 

 

15,543

 

 

 

22,388

 

Other accounts receivable, net

 

 

1,781

 

 

 

743

 

Inventories

 

 

1,745

 

 

 

1,682

 

Deferred costs

 

 

2,217

 

 

 

2,300

 

Prepaid expenses and other current assets

 

 

2,409

 

 

 

2,378

 

Total Current Assets

 

 

77,517

 

 

 

49,146

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

10,202

 

 

 

10,792

 

Operating right-of-use assets, net*

 

 

4,998

 

 

 

—

Long-term financing receivables, net

 

 

8,441

 

 

 

9,148

 

Prepaid pension assets

 

 

5,319

 

 

 

4,666

 

Deferred costs

 

 

2,662

 

 

 

2,676

 

Deferred taxes

 

 

5,274

 

 

 

5,216

 

Goodwill and intangibles, net

 

 

38,011

 

 

 

39,353

 

Investments and sundry assets

 

 

2,228

 

 

 

2,386

 

Total Assets

 

$

154,652

 

 

$

123,382

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Taxes

 

$

2,439

 

 

$

3,046

 

Short-term debt

 

 

14,594

 

 

 

10,207

 

Accounts payable

 

 

4,724

 

 

 

6,558

 

Deferred income

 

 

11,261

 

 

 

11,165

 

Operating lease liabilities*

 

 

1,319

 

 

 

—

Other liabilities

 

 

8,014

 

 

 

7,251

 

Total Current Liabilities

 

 

42,351

 

 

 

38,227

 

 

 

 

 

 

 

 

Long-term debt

 

 

58,445

 

 

 

35,605

 

Retirement related obligations

 

 

16,471

 

 

 

17,002

 

Deferred income

 

 

3,474

 

 

 

3,445

 

Operating lease liabilities*

 

 

3,946

 

 

 

—

Other liabilities

 

 

12,190

 

 

 

12,174

 

Total Liabilities

 

 

136,876

 

 

 

106,452

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

 

Common stock

 

 

55,404

 

 

 

55,151

 

Retained earnings

 

 

160,467

 

 

 

159,206

 

Treasury stock — at cost

 

 

(169,385

)

 

 

(168,071

)

Accumulated other comprehensive income/(loss)

 

 

(28,841

)

 

 

(29,490

)

Total IBM Stockholders’ Equity

 

 

17,645

 

 

 

16,796

 

 

 

 

 

 

 

 

Noncontrolling interests

 

 

131

 

 

 

134

 

Total Equity

 

 

17,776

 

 

 

16,929

 

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$

154,652

 

 

$

123,382

 

________________________
* Reflects the adoption of the FASB guidance on leases.

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(Dollars in Millions)

 

2019

 

2018

 

2019

 

2018

Net Cash Provided by Operating Activities per GAAP:

 

$

2,941

 

 

$

2,295

 

 

$

7,700

 

 

$

6,896

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: change in Global Financing (GF) Receivables

 

 

119

 

 

 

(582

)

 

 

2,577

 

 

 

1,778

 

Capital Expenditures, Net

 

 

(431

)

 

 

(1,004

)

 

 

(1,045

)

 

 

(1,897

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Free Cash Flow

 

 

2,391

 

 

 

1,873

 

 

 

4,078

 

 

 

3,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(42

)

 

 

(51

)

 

 

(43

)

 

 

(122

)

Divestitures

 

 

855

 

 

 

—

 

 

888

 

 

 

—

Dividends

 

 

(1,435

)

 

 

(1,437

)

 

 

(2,833

)

 

 

(2,819

)

Share Repurchase

 

 

(316

)

 

 

(989

)

 

 

(1,236

)

 

 

(1,767

)

Non-GF Debt

 

 

27,509

 

 

 

(65

)

 

 

33,399

 

 

 

(611

)

Other (includes GF Net Receivables and GF Debt)

 

 

(698

)

 

 

(559

)

 

 

(68

)

 

 

1,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

28,264

 

 

$

(1,229

)

 

$

34,186

 

 

$

(916

)

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(Dollars in Millions)

 

2019

 

2018

 

2019

 

2018

Net Income from Operations

 

$

2,498

 

 

$

2,404

 

 

$

4,089

 

 

$

4,083

 

Depreciation/Amortization of Intangibles

 

 

1,294

 

 

 

1,116

 

 

 

2,740

 

 

 

2,230

 

Stock-based Compensation

 

 

135

 

 

 

125

 

 

 

248

 

 

 

242

 

Working Capital / Other

 

 

(1,106

)

 

 

(768

)

 

 

(1,954

)

 

 

(1,436

)

Global Financing A/R

 

 

119

 

 

 

(582

)

 

 

2,577

 

 

 

1,778

 

Net Cash Provided by Operating Activities

 

$

2,941

 

 

$

2,295

 

 

$

7,700

 

 

$

6,896

 

Capital Expenditures, net of payments & proceeds

 

 

(431

)

 

 

(1,004

)

 

 

(1,045

)

 

 

(1,897

)

Divestitures, net of cash transferred

 

 

855

 

 

 

—

 

 

888

 

 

 

—

Acquisitions, net of cash acquired

 

 

(42

)

 

 

(51

)

 

 

(43

)

 

 

(122

)

Marketable Securities / Other Investments, net

 

 

3,779

 

 

 

420

 

 

 

3,509

 

 

 

(380

)

Net Cash Provided by / (Used in) Investing Activities

 

$

4,162

 

 

$

(634

)

 

$

3,309

 

 

$

(2,399

)

Debt, net of payments & proceeds

 

 

22,841

 

 

 

(37

)

 

 

27,073

 

 

 

(751

)

Dividends

 

 

(1,435

)

 

 

(1,437

)

 

 

(2,833

)

 

 

(2,819

)

Common Stock Repurchases

 

 

(316

)

 

 

(989

)

 

 

(1,236

)

 

 

(1,767

)

Common Stock Transactions – Other

 

 

(59

)

 

 

(55

)

 

 

(111

)

 

 

(91

)

Net Cash Provided by / (Used in) Financing Activities

 

$

21,031

 

 

$

(2,519

)

 

$

22,894

 

 

$

(5,428

)

Effect of Exchange Rate changes on Cash

 

 

129

 

 

 

(444

)

 

 

27

 

 

 

(344

)

Net Change in Cash, Cash Equivalents and Restricted Cash

 

$

28,263

 

 

$

(1,302

)

 

$

33,930

 

 

$

(1,274

)

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SECOND - QUARTER 2019

 

 

 

Cloud &

 

Global

 

Global

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software

 

Services

 

Services

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

5,645

 

$

4,155

 

$

6,837

 

 

$

1,753

 

 

$

351

 

 

Internal

 

 

607

 

 

69

 

 

302

 

 

 

171

 

 

 

281

 

 

Total Segment Revenue

 

$

6,252

 

$

4,224

 

$

7,139

 

 

$

1,924

 

 

$

632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

2,001

 

 

300

 

 

235

 

 

 

61

 

 

 

239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

32.0

%

 

7.1

%

 

3.3

 

%

 

3.2

 

%

 

37.8

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change YTY Revenue – External

 

 

3.2

%

 

0.5

%

 

(6.7

)

%

 

(19.5

)

%

 

(11.0

)

%

Change YTY Revenue - External @constant currency

 

 

5.4

%

 

3.4

%

 

(3.5

)

%

 

(18.0

)

%

 

(8.5

)

%

 

 

SECOND - QUARTER 2018

 

 

 

Cloud &

 

Global

 

Global

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software*

 

Services*

 

Services*

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

5,470

 

$

4,135

 

$

7,325

 

$

2,177

 

$

394

 

Internal

 

 

811

 

 

83

 

 

169

 

 

242

 

 

473

 

Total Segment Revenue

 

$

6,280

 

$

4,218

 

$

7,494

 

$

2,419

 

$

867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

2,029

 

 

372

 

 

451

 

 

346

 

 

357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

32.3

%

 

8.8

%

 

6.0

%

 

14.3

%

 

41.2

%

______________________
* Recast to conform with 2019 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

SIX MONTHS 2019

 

 

 

Cloud &

 

Global

 

Global

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software

 

Services

 

Services

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

10,682

 

$

8,274

 

$

13,711

 

 

$

3,081

 

 

$

757

 

 

Internal

 

 

1,448

 

 

143

 

 

591

 

 

 

334

 

 

 

581

 

 

Total Segment Revenue

 

$

12,131

 

$

8,417

 

$

14,303

 

 

$

3,415

 

 

$

1,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

3,768

 

 

615

 

 

510

 

 

 

(141

)

 

 

527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

31.1

%

 

7.3

%

 

3.6

 

%

 

(4.1

)

%

 

39.4

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change YTY Revenue – External

 

 

0.9

%

 

0.3

%

 

(7.0

)

%

 

(16.2

)

%

 

(5.3

)

%

Change YTY Revenue - External @constant currency

 

 

3.6

%

 

3.9

%

 

(3.3

)

%

 

(14.2

)

%

 

(2.2

)

%

 

 

SIX MONTHS 2018

 

 

 

Cloud &

 

Global

 

Global

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software*

 

Services*

 

Services*

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

10,586

 

$

8,250

 

$

14,746

 

$

3,676

 

$

799

 

Internal

 

 

1,741

 

 

172

 

 

310

 

 

395

 

 

902

 

Total Segment Revenue

 

$

12,327

 

$

8,422

 

$

15,055

 

$

4,072

 

$

1,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

3,709

 

 

497

 

 

517

 

 

143

 

 

734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

30.1

%

 

5.9

%

 

3.4

%

 

3.5

%

 

43.1

%

___________________
* 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)

 

 

 

SECOND - QUARTER 2019

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

9,010

 

 

$

73

 

 

 

—

 

 

—

 

$

9,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

47.0

 

%

 

0.4

 

Pts

 

—

 

 

—

 

 

47.4

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

5,456

 

 

 

(149

)

 

 

—

 

 

—

 

 

5,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

1,407

 

 

 

—

 

 

—

 

 

—

 

 

1,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

(747

)

 

 

119

 

 

 

(136

)

 

 

—

 

 

(764

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

348

 

 

 

(168

)

 

 

—

 

 

—

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

6,242

 

 

 

(198

)

 

 

(136

)

 

 

—

 

 

5,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

 

2,768

 

 

 

272

 

 

 

136

 

 

 

—

 

 

3,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

 

14.4

 

%

 

1.4

 

Pts

 

0.7

 

Pts

 

—

 

 

16.6

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

 

269

 

 

 

55

 

 

 

40

 

 

 

(14

)

 

 

349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

9.7

 

%

 

0.9

 

Pts

 

0.8

 

Pts

 

(0.4

)

Pts

 

11.0

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

2,499

 

 

 

217

 

 

 

97

 

 

 

14

 

 

 

2,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

13.0

 

%

 

1.1

 

Pts

 

0.5

 

Pts

 

0.1

 

Pts

 

14.8

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

2.81

 

 

$

0.24

 

 

$

0.11

 

 

$

0.01

 

 

$

3.17

 

 

 

 

SECOND - QUARTER 2018

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

9,199

 

$

94

 

 

 

—

 

 

—

 

$

9,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

46.0

%

 

0.5

 

Pts

 

—

 

 

—

 

 

46.5

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

4,857

 

 

(110

)

 

 

—

 

 

—

 

 

4,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

1,364

 

 

—

 

 

—

 

 

—

 

 

1,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

280

 

 

—

 

 

(394

)

 

 

—

 

 

(115

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

173

 

 

—

 

 

—

 

 

—

 

 

173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

6,423

 

 

(110

)

 

 

(394

)

 

 

—

 

 

5,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

 

2,776

 

 

204

 

 

 

394

 

 

 

—

 

 

3,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

 

13.9

%

 

1.0

 

Pts

 

2.0

 

Pts

 

—

 

 

16.9

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

 

373

 

 

44

 

 

 

109

 

 

 

14

 

 

 

540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

13.5

%

 

0.5

 

Pts

 

1.6

 

Pts

 

0.4

 

Pts

 

16.0

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

2,402

 

 

160

 

 

 

286

 

 

 

(14

)

 

 

2,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

12.0

%

 

0.8

 

Pts

 

1.4

 

Pts

 

(0.1

)

Pts

 

14.2

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

2.61

 

$

0.17

 

 

$

0.31

 

 

$

(0.01

)

 

$

3.08

 

 

______________________________

* Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs.

** Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs.

*** Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

INTERNATIONAL BUSINESS MACHINES CORPORATION

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

(Unaudited; Dollars in millions except per share amounts)

 

 

 

SIX MONTHS 2019

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

17,053

 

$

149

 

 

—

 

 

—

 

$

17,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

45.7

%

 

0.4

Pts

 

—

 

 

—

 

 

46.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

10,147

 

 

(273)

 

 

—

 

 

—

 

 

9,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

2,840

 

 

—

 

 

—

 

 

—

 

 

2,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

(820)

 

 

142

 

 

(274)

 

 

—

 

 

(951)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

558

 

 

(204)

 

 

—

 

 

—

 

 

354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

12,402

 

 

(335)

 

 

(274)

 

 

—

 

 

11,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

 

4,651

 

 

484

 

 

274

 

 

—

 

 

5,409

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

 

12.5

%

 

1.3

Pts

 

0.7

Pts

 

—

 

 

14.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

558

 

 

104

 

 

66

 

 

(155)

 

 

574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

12.0

%

 

0.8

Pts

 

0.6

Pts

 

(2.9)

Pts

 

10.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

4,093

 

 

381

 

 

208

 

 

155

 

 

4,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

11.0

%

 

1.0

Pts

 

0.6

Pts

 

0.4

Pts

 

13.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

4.58

 

$

0.44

 

$

0.23

 

$

0.17

 

$

5.42

 

 

 

SIX MONTHS 2018

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

17,445

 

$

187

 

 

—

 

 

—

 

$

17,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

44.6

%

 

0.5

Pts

 

—

 

 

—

 

 

45.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

10,302

 

 

(220)

 

 

—

 

 

—

 

 

10,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

2,769

 

 

—

 

 

—

 

 

—

 

 

2,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

692

 

 

—

 

 

(796)

 

 

—

 

 

(104)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

338

 

 

—

 

 

—

 

 

—

 

 

338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

13,534

 

 

(220)

 

 

(796)

 

 

—

 

 

12,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

 

3,911

 

 

407

 

 

796

 

 

—

 

 

5,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

 

10.0

%

 

1.0

Pts

 

2.0

Pts

 

—

 

 

13.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(166)

 

 

83

 

 

185

 

 

(93)

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

(4.3)

%

 

2.0

Pts

 

4.3

Pts

 

(1.8)

Pts

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

4,078

 

 

324

 

 

611

 

 

93

 

 

5,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

10.4

%

 

0.8

Pts

 

1.6

Pts

 

0.2

Pts

 

13.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

4.42

 

$

0.35

 

$

0.66

 

$

0.10

 

$

5.53

 

____________________________

* 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

NON – GAAP RECONCILIATION

(Unaudited)

EPS expectations (GAAP and Operating (non-GAAP)) will be updated on August 2 to include the impact of the Red Hat acquisition.

 

 

 

2019 Full Year Expectations

(through second-quarter 2019, prior to the completion of the Red Hat acquisition)

 

 

GAAP Diluted EPS

 

 

at least $12.45

 

 

 

 

Operating EPS (non-GAAP)

 

 

at least $13.90

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Acquisition-related Charges *

 

$

0.76

 

 

 

 

Non-Operating Retirement-Related Items

 

$

0.45

 

 

 

 

Tax Reform Enactment Impacts

 

$

0.24

_______________________

* Includes acquisitions as of June 30, 2019. This amount includes pre-closing charges, such as financing costs, associated with the Red Hat acquisition. It does not include any other amounts for Red Hat or Red Hat related activity.

 IBM
Melinda Zurich, 914‑499‑4034
melinda.zurich@us.ibm.com

John Bukovinsky, 732‑618‑3531
jbuko@us.ibm.com

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