EX-99.1 2 a18-17133_1ex99d1.htm EX-99.1

Exhibit 99.1

 

IBM REPORTS 2018 SECOND-QUARTER RESULTS

Revenue Up 4 Percent Year to Year; Strong Profit Performance

 

Highlights

 

·             GAAP EPS from continuing operations of $2.61; Operating (non-GAAP) EPS of $3.08; both up 5 percent

·             GAAP Pre-tax income up 14 percent; Operating (non-GAAP) pre-tax income up 11 percent — Pre-tax margins expanded more than 100 basis points year to year

·             Revenue of $20.0 billion, up 4 percent (up 2 percent adjusting for currency)

·             Strategic imperatives revenue of $39.0 billion over last 12 months, up 15 percent (up 12 percent adjusting for currency); represents 48 percent of IBM revenue

·             Cloud revenue of $18.5 billion over last 12 months, up 23 percent (up 20 percent adjusting for currency)

·             As-a-service annual exit run rate for cloud revenue of $11.1 billion in the quarter, up 26 percent year to year (up 24 percent adjusting for currency)

·             Maintains full-year operating (non-GAAP) EPS and free cash flow expectations

 

ARMONK, N.Y., July 18, 2018 . . . IBM (NYSE: IBM) today announced second-quarter results.

 

“We delivered strong revenue and profit growth in the quarter, underscoring IBM’s progress and momentum in the emerging, high-value segments of the IT industry,” said Ginni Rometty, IBM chairman, president and chief executive officer.  “More clients are engaging IBM on their journey to the cloud, and deploying IBM Cloud, Watson AI, analytics, blockchain and security solutions.  This demonstrates IBM’s unique leadership in providing innovative technology coupled with deep industry expertise, trust and security.”

 

 

 

SECOND QUARTER 2018

 

 

 

 

 

 

 

Pre-tax

 

Gross Profit

 

 

 

Diluted EPS

 

Net Income

 

Income

 

Margin

 

 

 

 

 

 

 

 

 

 

 

GAAP from Continuing Operations

 

$

2.61

 

$

2.4

B

$

2.8

B

46.0

%

Year/Year

 

5

%

3

%

14

%

(0.5

)Pts

 

 

 

 

 

 

 

 

 

 

Operating (Non-GAAP)

 

$

3.08

 

$

2.8

B

$

3.4

B

46.5

%

Year/Year

 

5

%

3

%

11

%

(0.6

)Pts

 

 

 

 

 

 

 

 

 

As-a-service

 

 

 

 

 

Strategic

 

 

 

annual exit

 

REVENUE

 

Total IBM

 

Imperatives

 

Cloud

 

run rate

 

 

 

 

 

 

 

 

 

 

 

As reported (US$)

 

$

20.0

B

$

10.1

B

$

4.7

B

$

11.1

B

Year/Year

 

4

%

15

%

20

%

26

%

Year/Year adjusting for currency

 

2

%

13

%

18

%

24

%

 

“We increased revenue, grew pre-tax income double digits and expanded pre-tax income margins year to year, while continuing to invest in the business and return capital to shareholders,” said James Kavanaugh, IBM senior vice president and chief financial officer.  “We remain focused on delivering consistent operational performance, in line with our longer-term model.”

 


 

Strategic Imperatives Revenue

 

Strategic imperatives revenue over the last 12 months was $39.0 billion, up 15 percent (up 12 percent adjusting for currency).  Total cloud revenue over the last 12 months was $18.5 billion, up 23 percent (up 20 percent adjusting for currency), with $8.2 billion from hardware, software and services to enable IBM clients to implement hybrid cloud solutions across public, private and multi-cloud environments, and $10.4 billion delivered as a service.  The annual exit run rate for as-a-service revenue increased in the quarter to $11.1 billion, up 26 percent (up 24 percent adjusting for currency).

 

In the second quarter, revenues from analytics increased 7 percent to $5.4 billion (up 5 percent adjusting for currency);  revenues from mobile increased 5 percent to $1.3 billion (up 3 percent adjusting for currency); and revenues from security increased 81 percent to $1.0 billion (up 79 percent adjusting for currency).

 

Cash Flow and Balance Sheet

 

In the second quarter, the company generated net cash from operating activities of $2.3 billion, or $2.9 billion, excluding Global Financing receivables.  IBM’s free cash flow was $1.9 billion.  IBM returned $2.4 billion to shareholders through $1.4 billion in dividends and $1.0 billion in gross share repurchases.  At the end of June 2018, IBM had $2.0 billion remaining in the current share repurchase authorization.

 

IBM ended the second quarter with $11.9 billion of cash on hand.  Debt totaled $45.5 billion, including Global Financing debt of $31.1 billion.  The balance sheet remains strong and is well positioned for the long term.

 

Segment Results for Second Quarter

 

·                  Cognitive Solutions (includes solutions software and transaction processing software) — revenues of $4.6 billion, flat year to year (down 1 percent adjusting for currency), with growth in analytics and industry vertical solutions led by financial services and IoT.

·                  Global Business Services (includes consulting, global process services and application management) — revenues of $4.2 billion, up 2 percent (flat year to year adjusting for currency), with growth in consulting driven by digital offerings.

·                  Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) — revenues of $8.6 billion, up 2 percent (flat year to year adjusting for currency).  Strategic imperatives revenue grew 26 percent, led by hybrid cloud services, security and mobile.

·                  Systems (includes systems hardware and operating systems software) — revenues of $2.2 billion, up 25 percent (up 23 percent adjusting for currency) driven by growth in IBM Z, Power Systems and storage.

·                  Global Financing (includes financing and used equipment sales) — revenues of $394 million, down 5 percent (down 6 percent adjusting for currency).

 

Full-Year 2018 Expectations

 

The company expects operating (non-GAAP) diluted earnings per share of at least $13.80 and GAAP diluted earnings per share of at least $11.60.  Operating (non-GAAP) diluted earnings per share exclude $2.20 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges as well as impacts from the enactment of U.S. Tax Reform.

 

IBM expects free cash flow of approximately $12 billion, with a realization rate greater than 100 percent.

 


 

Year-To-Date 2018 Results

 

Consolidated diluted earnings per share were $4.43 compared to $4.32, up 3 percent year to year.  Consolidated net income was $4.1 billion, flat year to year.  Revenues from continuing operations for the six-month period totaled $39.1 billion, an increase of 4 percent year to year (up 1 percent adjusting for currency) compared with $37.4 billion for the first six months of 2017.

 

Operating (non-GAAP) diluted earnings per share from continuing operations was $5.53 compared with $5.28 per diluted share for the 2017 period, an increase of 5 percent.  Operating (non-GAAP) net income for the six months ended June 30, 2018 was $5.1 billion compared with $5.0 billion in the year-ago period, an increase of 2 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 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; risks from legal proceedings; 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.  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;

·            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/2q18.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

Ian Colley, 914-434-3043

colley@us.ibm.com

 

John Bukovinsky, 732-618-3531

jbuko@us.ibm.com

 


 

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,

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

 

 

 

 

 

 

 

 

Cognitive Solutions

 

$

4,580

 

$

4,559

 

$

8,879

 

$

8,621

 

Global Business Services

 

4,192

 

4,097

 

8,365

 

8,103

 

Technology Services & Cloud Platforms

 

8,615

 

8,406

 

17,240

 

16,622

 

Systems

 

2,177

 

1,747

 

3,676

 

3,142

 

Global Financing

 

394

 

415

 

799

 

819

 

Other

 

45

 

65

 

114

 

136

 

TOTAL REVENUE

 

20,003

 

19,289

 

39,075

 

37,443

 

 

GROSS PROFIT

 

9,199

 

8,968

*

17,445

 

16,912

*

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT MARGIN

 

 

 

 

 

 

 

 

 

Cognitive Solutions

 

77.7

%

79.0

%*

77.0

%

78.2

%*

Global Business Services

 

25.9

%

24.7

%*

24.6

%

24.0

%*

Technology Services & Cloud Platforms

 

39.4

%

40.4

%*

38.8

%

39.6

%*

Systems

 

50.6

%

52.7

%*

47.8

%

50.3

%*

Global Financing

 

26.6

%

30.8

%*

30.6

%

31.3

%*

 

 

 

 

 

 

 

 

 

 

TOTAL GROSS PROFIT MARGIN

 

46.0

%

46.5

%*

44.6

%

45.2

%*

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

S,G&A

 

4,857

 

5,033

*

10,302

 

10,060

*

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,364

 

1,436

*

2,769

 

2,921

*

 

 

 

 

 

 

 

 

 

 

Intellectual property and custom development income

 

(250

)

(365

)

(567

)

(810

)

 

 

 

 

 

 

 

 

 

 

Other (income) and expense

 

280

 

273

*

692

 

592

*

 

 

 

 

 

 

 

 

 

 

Interest expense

 

173

 

147

 

338

 

283

 

TOTAL EXPENSE AND OTHER INCOME

 

6,423

 

6,525

*

13,534

 

13,046

*

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

 

BEFORE INCOME TAXES

 

2,776

 

2,443

 

3,911

 

3,867

 

Pre-tax margin

 

13.9

%

12.7

%

10.0

%

10.3

%

 

 

 

 

 

 

 

 

 

 

Provision for / (Benefit from) income taxes

 

373

 

111

 

(166

)

(218

)

Effective tax rate

 

13.5

%

4.5

%

(4.3

)%

(5.6

)%

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

2,402

 

$

2,332

 

$

4,078

 

$

4,085

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

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

 

1

 

(1

)

5

 

(3

)

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,404

 

$

2,331

 

$

4,083

 

$

4,082

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

2.61

 

$

2.48

 

$

4.42

 

$

4.32

 

Discontinued Operations

 

$

0.00

 

$

0.00

 

$

0.01

 

$

0.00

 

TOTAL

 

$

2.61

 

$

2.48

 

$

4.43

 

$

4.32

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

2.63

 

$

2.49

 

$

4.44

 

$

4.35

 

Discontinued Operations

 

$

0.00

 

$

0.00

 

$

0.01

 

$

0.00

 

TOTAL

 

$

2.63

 

$

2.49

 

$

4.45

 

$

4.35

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

919.4

 

939.6

 

922.4

 

943.7

 

Basic

 

915.1

 

934.9

 

917.9

 

938.7

 

 

 

 

 

 

 

 

 

 

 

* Recast to reflect adoption of the FASB guidance on presentation of net benefit cost.

 


 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(Dollars in Millions)

 

2018

 

2017

 

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

10,741

 

$

11,972

 

Restricted cash

 

219

 

262

*

Marketable securities

 

966

 

608

 

Notes and accounts receivable - trade, net

 

7,445

 

8,928

 

Short-term financing receivables, net

 

19,806

 

21,721

 

Other accounts receivable, net

 

1,089

 

981

 

Inventory

 

1,742

 

1,583

 

Deferred Costs

 

2,344

 

1,820

**

Prepaid expenses and other current assets

 

2,443

 

1,860

* **

Total Current Assets

 

46,795

 

49,735

 

 

 

 

 

 

 

Property, plant and equipment, net

 

11,024

 

11,116

 

Long-term financing receivables, net

 

8,783

 

9,550

 

Prepaid pension assets

 

5,375

 

4,643

 

Deferred costs

 

2,613

 

2,136

**

Deferred taxes

 

4,689

 

4,862

 

Goodwill and intangibles, net

 

39,826

 

40,531

 

Investments and sundry assets

 

2,518

 

2,783

**

Total Assets

 

$

121,622

 

$

125,356

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Taxes

 

$

2,780

 

$

4,219

 

Short-term debt

 

7,646

 

6,987

 

Accounts payable

 

5,518

 

6,451

 

Deferred income

 

11,752

 

11,552

 

Other liabilities

 

7,745

 

8,153

 

Total Current Liabilities

 

35,442

 

37,363

 

 

 

 

 

 

 

Long-term debt

 

37,851

 

39,837

 

Retirement related obligations

 

15,963

 

16,720

 

Deferred income

 

3,718

 

3,746

 

Other liabilities

 

10,000

 

9,965

 

Total Liabilities

 

102,974

 

107,631

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

Common stock

 

54,827

 

54,566

 

Retained earnings

 

157,349

 

153,126

 

Treasury stock — at cost

 

(165,366

)

(163,507

)

Accumulated other comprehensive income/(loss)

 

(28,290

)

(26,592

)

Total IBM Stockholders’ Equity

 

18,520

 

17,594

 

 

 

 

 

 

 

Noncontrolling interests

 

128

 

131

 

Total Equity

 

18,648

 

17,725

 

Total Liabilities and Equity

 

$

121,622

 

$

125,356

 

 

* Recast to reflect adoption of the FASB guidance on restricted cash.

** Recast to conform to current period presentation.

 


 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(Dollars in Millions)

 

2018

 

2017

 

2018

 

2017

 

Net Cash Provided by Operating Activities per GAAP:

 

$

2,295

 

$

3,467

 

$

6,896

 

$

7,421

 

 

 

 

 

 

 

 

 

 

 

Less: change in Global Financing (GF) Receivables

 

(582

)

163

 

1,778

 

2,210

 

Capital Expenditures, Net

 

(1,004

)

(749

)

(1,897

)

(1,567

)

 

 

 

 

 

 

 

 

 

 

Free Cash Flow

 

1,873

 

2,555

 

3,221

 

3,644

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(51

)

(60

)

(122

)

(169

)

Divestitures

 

—

 

30

 

—

 

29

 

Dividends

 

(1,437

)

(1,403

)

(2,819

)

(2,724

)

Share Repurchase

 

(989

)

(1,432

)

(1,767

)

(2,725

)

Non-GF Debt

 

(65

)

2,119

 

(611

)

2,363

 

Other (includes GF Net Receivables and GF Debt)

 

(559

)

(173

)*

1,182

 

3,339

*

 

 

 

 

 

 

 

 

 

 

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

 

$

(1,229

)

$

1,636

*

$

(916

)

$

3,758

*

 

* Recast to reflect adoption of the FASB guidance on restricted cash.

 


 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(Dollars in Millions)

 

2018

 

2017

 

2018

 

2017

 

Net Income from Operations

 

$

2,404

 

$

2,331

 

$

4,083

 

$

4,082

 

Depreciation/Amortization of Intangibles

 

1,116

 

1,118

 

2,230

 

2,216

 

Stock-based Compensation

 

125

 

136

 

242

 

265

 

Working Capital / Other

 

(768

)

(281

)

(1,436

)

(1,351

)

Global Financing A/R

 

(582

)

163

 

1,778

 

2,210

 

Net Cash Provided by Operating Activities

 

$

2,295

 

$

3,467

 

$

6,896

 

$

7,421

 

Capital Expenditures, net of payments & proceeds

 

(1,004

)

(749

)

(1,897

)

(1,567

)

Divestitures, net of cash transferred

 

—

 

30

 

—

 

29

 

Acquisitions, net of cash acquired

 

(51

)

(60

)

(122

)

(169

)

Marketable Securities / Other Investments, net

 

420

 

(889

)*

(380

)

342

*

Net Cash Used in Investing Activities

 

$

(634

)

$

(1,668

)*

$

(2,399

)

$

(1,365

)*

Debt, net of payments & proceeds

 

(37

)

2,279

 

(751

)

2,756

 

Dividends

 

(1,437

)

(1,403

)

(2,819

)

(2,724

)

Common Stock Repurchases

 

(989

)

(1,432

)

(1,767

)

(2,725

)

Common Stock Transactions - Other

 

(55

)

(54

)

(91

)

(50

)

Net Cash Used in Financing Activities

 

$

(2,519

)

$

(609

)

$

(5,428

)

$

(2,743

)

Effect of Exchange Rate changes on Cash

 

(444

)

447

 

(344

)

547

 

Net Change in Cash, Cash Equivalents and Restricted Cash

 

$

(1,302

)

$

1,637

*

$

(1,274

)

$

3,860

*

 

* Recast to reflect adoption of the FASB guidance on restricted cash.

 


 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SECOND - QUARTER 2018

 

 

 

 

 

 

 

Technology

 

 

 

 

 

 

 

 

 

Global

 

Services &

 

 

 

 

 

 

 

Cognitive

 

Business

 

Cloud

 

 

 

Global

 

(Dollars in Millions)

 

Solutions

 

Services

 

Platforms

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

External

 

$

4,580

 

$

4,192

 

$

8,615

 

$

2,177

 

$

394

 

Internal

 

703

 

83

 

169

 

242

 

473

 

Total Segment Revenue

 

$

5,283

 

$

4,275

 

$

8,784

 

$

2,419

 

$

867

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

1,756

 

385

 

883

 

346

 

357

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

33.2

%

9.0

%

10.1

%

14.3

%

41.2

%

 

 

 

 

 

 

 

 

 

 

 

 

Change YTY Revenue - External

 

0.5

%

2.3

%

2.5

%

24.6

%

(4.9

)%

Change YTY Revenue - External @constant currency

 

(1.3

)%

0.0

%

0.2

%

22.9

%

(6.2

)%

 

 

 

SECOND - QUARTER 2017

 

 

 

 

 

 

 

Technology

 

 

 

 

 

 

 

 

 

Global

 

Services &

 

 

 

 

 

 

 

Cognitive

 

Business

 

Cloud

 

 

 

Global

 

(Dollars in Millions)

 

Solutions

 

Services

 

Platforms

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

External

 

$

4,559

 

$

4,097

 

$

8,406

 

$

1,747

 

$

415

 

Internal

 

655

 

93

 

173

 

177

 

290

 

Total Segment Revenue

 

$

5,214

 

$

4,190

 

$

8,579

 

$

1,924

 

$

705

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations *

 

1,610

 

312

 

994

 

73

 

282

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin *

 

30.9

%

7.4

%

11.6

%

3.8

%

40.0

%

 

* Recast to reflect adoption of the FASB guidance on presentation of net benefit cost.

 


 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SIX - MONTHS 2018

 

 

 

 

 

 

 

Technology

 

 

 

 

 

 

 

 

 

Global

 

Services &

 

 

 

 

 

 

 

Cognitive

 

Business

 

Cloud

 

 

 

Global

 

(Dollars in Millions)

 

Solutions

 

Services

 

Platforms

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

External

 

$

8,879

 

$

8,365

 

$

17,240

 

$

3,676

 

$

799

 

Internal

 

1,483

 

172

 

310

 

395

 

902

 

Total Segment Revenue

 

$

10,362

 

$

8,538

 

$

17,550

 

$

4,072

 

$

1,701

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

3,089

 

530

 

1,320

 

143

 

734

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

29.8

%

6.2

%

7.5

%

3.5

%

43.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Change YTY Revenue - External

 

3.0

%

3.2

%

3.7

%

17.0

%

(2.5

)%

Change YTY Revenue - External @constant currency

 

0.2

%

(0.6

)%

(0.2

)%

14.4

%

(5.1

)%

 

 

 

SIX - MONTHS 2017

 

 

 

 

 

 

 

Technology

 

 

 

 

 

 

 

 

 

Global

 

Services &

 

 

 

 

 

 

 

Cognitive

 

Business

 

Cloud

 

 

 

Global

 

(Dollars in Millions)

 

Solutions

 

Services

 

Platforms

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

External

 

$

8,621

 

$

8,103

 

$

16,622

 

$

3,142

 

$

819

 

Internal

 

1,371

 

179

 

333

 

344

 

653

 

Total Segment Revenue

 

$

9,992

 

$

8,282

 

$

16,955

 

$

3,486

 

$

1,473

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income /(Loss) from Continuing Operations *

 

2,878

 

593

 

1,668

 

(115

)

592

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin *

 

28.8

%

7.2

%

9.8

%

(3.3

)%

40.2

%

 

* Recast to reflect adoption of the FASB guidance on presentation of net benefit cost.

 


 

INTERNATIONAL BUSINESS MACHINES CORPORATION

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

(Unaudited; Dollars in millions except per share amounts)

 

 

 

SECOND - QUARTER 2018

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax Reform

 

 

 

 

 

 

 

Related

 

Related

 

One-Time

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impact

 

(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

)

 

 

 

 

 

 

 

 

 

 

 

 

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 (Benefit from) 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 Per Share: Continuing Operations

 

$

2.61

 

$

0.17

 

$

0.31

 

$

(0.01

)

$

3.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SECOND - QUARTER 2017

 

 

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

Gross Profit

 

$

8,968

 

$

117

 

—

 

$

9,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

46.5

%

0.6

Pts

—

 

47.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,033

 

(129

)

—

 

4,904

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,436

 

—

 

—

 

1,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

273

 

(4

)

(349

)

(80

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

6,525

 

(133

)

(349

)

6,043

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

2,443

 

250

 

349

 

3,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

12.7

%

1.3

Pts

1.8

Pts

15.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for (Benefit from) Income Taxes***

 

111

 

66

 

105

 

282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

4.5

%

1.8

Pts

2.9

Pts

9.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

2,332

 

183

 

244

 

2,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

12.1

%

1.0

Pts

1.3

Pts

14.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share: Continuing Operations

 

$

2.48

 

$

0.20

 

$

0.26

 

$

2.94

 

 

 

 

*

 

Includes amortization of purchased intangible assets, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges.

**

 

Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, amortization of prior service cost and insolvency insurance.  2017 adjustments were recast to reflect the adoption of the FASB guidance on net benefit cost.

***

 

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 2018

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax Reform

 

 

 

 

 

 

 

Related

 

Related

 

One-Time

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impact

 

(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

)

 

 

 

 

 

 

 

 

 

 

 

 

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 Per Share: Continuing Operations

 

$

4.42

 

$

0.35

 

$

0.66

 

$

0.10

 

$

5.53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIX - MONTHS 2017

 

 

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

16,912

 

$

236

 

—

 

$

17,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

45.2

%

0.6

Pts

—

 

45.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

10,060

 

(269

)

—

 

9,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

2,921

 

—

 

—

 

2,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

592

 

(7

)

(696

)

(111

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

13,046

 

(276

)

(696

)

12,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income from Continuing Operations

 

3,867

 

512

 

696

 

5,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

10.3

%

1.4

Pts

1.9

Pts

13.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for (Benefit from) Income Taxes***

 

(218

)

134

 

175

 

90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

(5.6

)%

3.2

Pts

4.2

Pts

1.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

4,085

 

378

 

521

 

4,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

10.9

%

1.0

Pts

1.4

Pts

13.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share: Continuing Operations

 

$

4.32

 

$

0.40

 

$

0.56

 

$

5.28

 

 

 

 

*

 

Includes amortization of purchased intangible assets, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges.

**

 

Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, amortization of prior service cost and insolvency insurance.  2017 adjustments were recast to reflect the adoption of the FASB guidance on net benefit cost.

***

 

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

RECONCILIATION OF OPERATING EARNINGS PER SHARE

(Unaudited)

 

 

 

2018

 

EPS Guidance

 

Expectations

 

GAAP Diluted EPS

 

at least $11.60

 

 

 

 

 

Operating EPS (non-GAAP)

 

at least $13.80

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Acquisition-related Charges *

 

$0.78

 

 

 

 

 

Non-Operating Retirement-Related Items

 

$1.32

 

 

 

 

 

Tax Reform One-time Charge

 

$0.10

 

 

* Includes acquisitions as of June 30, 2018