UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
(Exact name of registrant as specified in its charter)
(State of Incorporation) | (Commission File Number) | (IRS employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
The registrant’s press release dated January 25, 2023, regarding its financial results for the periods ended December 31, 2022, including consolidated financial statements for the periods ended December 31, 2022, is Exhibit 99.1 of this Form 8-K.
In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has disclosed in the attached press release certain non-GAAP information which management believes provides useful information to investors. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in the press release, which is Exhibit 99.1 to this Form 8-K. The rationale for management’s use of non-GAAP measures is included in Exhibit 99.2 to this Form 8-K.
The information in this Item 2.02, including the corresponding Exhibits 99.1 and 99.2, is being furnished with the Commission and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being furnished as part of this report:
Exhibit No. | Description of Exhibit | |
99.1 | ||
99.2 |
The following exhibit is being filed as part of this report:
Exhibit No. | Description of Exhibit | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document) |
IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
Date: January 25, 2023 | ||
By: | /s/ Robert F. Del Bene | |
Robert F. Del Bene | ||
Vice President and Controller | ||
3
Exhibit 99.1
IBM RELEASES FOURTH-QUARTER RESULTS
Revenue Growth in All Key Segments; Expanded Margins; Solid Cash Generation
ARMONK, N.Y., January 25, 2023 . . . IBM (NYSE: IBM) today announced fourth-quarter 2022 earnings results.
“Our solid fourth-quarter performance capped a year in which we grew revenue above our mid-single digit model. Clients in all geographies increasingly embraced our hybrid cloud and AI solutions as technology remains a differentiating force in today’s business environment," said Arvind Krishna, IBM chairman and chief executive officer. "Looking ahead to 2023, we expect full-year revenue growth consistent with our mid-single digit model.”
Fourth-Quarter Highlights
| ● | Revenue of $16.7 billion, flat, up 6 percent at constant currency |
| − | Software revenue up 3 percent, up 8 percent at constant currency |
| − | Consulting revenue up 0.5 percent, up 9 percent at constant currency |
| − | Infrastructure revenue up 2 percent, up 7 percent at constant currency |
Full-Year Highlights
| ● | Revenue of $60.5 billion, up 6 percent, up 12 percent at constant currency (about 4 points from sales to Kyndryl) |
| − | Hybrid cloud revenue of $22.4 billion, up 11 percent, up 17 percent at constant currency |
| ● | On a consolidated basis, net cash from operating activities of $10.4 billion; free cash flow of $9.3 billion |
Full-Year 2023 Expectations
| ● | The company expects constant currency revenue growth consistent with its mid-single digit model and about $10.5 billion in consolidated free cash flow, up more than $1 billion year to year |
| | FOURTH QUARTER 2022 INCOME STATEMENT SUMMARY | ||||||||||||||||
|
| | |
| | |
| | |
| Pre-tax |
| | |
| | Diluted |
|
| | | | | | Gross |
| | Pre-tax | | Income | | | Net | | | Earnings | |
| | | Revenue | | | Profit | | | Income | | Margin | | | Income | | | Per Share | |
GAAP from Continuing Operations | | $ | 16.7B | | $ | 9.6B | | $ | 3.3B | | 19.8 | % | $ | 2.9B | | $ | 3.13 | |
Year/Year | |
| 0 | %* | | 1 | % | | 15 | % | 2.7 | Pts |
| 17 | % | | 15 | % |
Operating | | | | | $ | 9.8B | | $ | 3.8B |
| 22.9 | % | $ | 3.3B | | $ | 3.60 | |
Year/Year | | | | | | 1 | % | | 8 | % | 1.7 | Pts |
| 9 | % | | 7 | % |
* 6% at constant currency
“IBM’s revenue growth and operating profit in 2022 demonstrate the strength and multiplier effect of our platform-centric approach to hybrid cloud and AI," said James Kavanaugh, IBM senior vice president and chief financial officer. "Our client-focused portfolio and strong recurring revenue stream position IBM well for continued growth, solid cash generation and returning value to shareholders through dividends.”
Segment Results for Fourth Quarter
| ● | Software (includes Hybrid Platform & Solutions, Transaction Processing)— revenues of $7.3 billion, up 2.8 percent, up 8.0 percent at constant currency: |
| − | Hybrid Platform & Solutions up 5 percent, up 10 percent at constant currency: |
-- Red Hat up 10 percent, up 15 percent at constant currency
-- Automation up 4 percent, up 9 percent at constant currency
-- Data & AI up 4 percent, up 8 percent at constant currency
-- Security up 4 percent, up 10 percent at constant currency
| − | Transaction Processing down 3 percent, up 3 percent at constant currency |
| ● | Consulting (includes Business Transformation, Technology Consulting and Application Operations)— revenues of $4.8 billion, up 0.5 percent, up 9.3 percent at constant currency: |
| − | Business Transformation down 1 percent, up 7 percent at constant currency |
| − | Technology Consulting up 1 percent, up 10 percent at constant currency |
| − | Application Operations up 2 percent, up 12 percent at constant currency |
| ● | Infrastructure (includes Hybrid Infrastructure, Infrastructure Support)— revenues of $4.5 billion, up 1.6 percent, up 7.4 percent at constant currency: |
| − | Hybrid Infrastructure up 6 percent, up 11 percent at constant currency: |
-- IBM z Systems up 16 percent, up 21 percent at constant currency
-- Distributed Infrastructure flat, up 5 percent at constant currency
| − | Infrastructure Support down 8 percent, flat at constant currency |
| ● | Financing (includes client and commercial financing)— revenues of $0.2 billion, down 0.4 percent, up 3.9 percent at constant currency |
Cash Flow and Balance Sheet
On a consolidated basis, in the fourth quarter, the company generated net cash from operating activities of $4.0 billion, up $1.4 billion. Net cash from operating activities excluding IBM Financing receivables was $5.8 billion, up $1.9 billion. IBM’s free cash flow was $5.2 billion, up $1.9 billion. The company returned $1.5 billion to shareholders in dividends in the fourth quarter.
On a consolidated basis, for the full year, the company generated net cash from operating activities of $10.4 billion, down $2.4 billion. Net cash from operating activities excluding IBM Financing receivables was $11.2 billion, up $2.3 billion. IBM’s free cash flow was $9.3 billion, up $2.8 billion. IBM returned $5.9 billion to shareholders in dividends.
IBM ended the fourth quarter with $8.8 billion of cash on hand (which includes marketable securities), up $1.3 billion from year-end 2021. Debt, including IBM Financing debt of $12.9 billion, totaled $50.9 billion, down $0.8 billion since the end of 2021.
Full-Year 2022 Results
| | FULL-YEAR 2022 INCOME STATEMENT | ||||||||||||||||
| | GAAP results include impact of one-time, non-cash pension settlement charge* | ||||||||||||||||
|
| | |
| | |
| | |
| Pre-tax |
| | |
| | |
|
| | | | | | Gross |
| | Pre-tax | | Income | | | Net | | | Diluted | |
| | | Revenue | | | Profit |
| | Income | | Margin | | | Income | | | EPS | |
GAAP from Continuing Operations | | $ | 60.5B | | $ | 32.7B | | $ | 1.2B | * | 1.9 | %* | $ | 1.8B | * | $ | 1.95 | * |
Year/Year | |
| 6 | %** | | 4 | % | | (76) | %* | (6.5) | Pts* |
| (62) | %* |
| (63) | %* |
| | | | | | | | | | | | | | | | | | |
Operating | | | | | $ | 33.4B | | $ | 9.8B |
| 16.2 | % | $ | 8.3B | | $ | 9.13 | |
Year/Year | |
| | |
| 4 | % |
| 25 | % | 2.5 | Pts |
| 16 | % |
| 15 | % |
* GAAP results include the impact of a one-time, non-cash pension settlement charge in the third quarter of $5.9 billion ($4.4 billion net of tax) related to the transfer of a portion of the company’s U.S. defined benefit pension obligations and related plan assets to third party insurers.
** 12% at constant currency
Full-Year 2023 Expectations
| ● | Revenue Growth: The company expects constant currency revenue growth consistent with its mid-single digit model. At current foreign exchange rates, currency is expected to be neutral to a one-point tailwind to revenue growth. |
| ● | Free Cash Flow: The company expects about $10.5 billion in consolidated free cash flow, up more than $1 billion 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 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 related to climate change and 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; potential failure of the separation of Kyndryl Holdings, Inc. to qualify for tax-free treatment; 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.
Presentation of Information in this Press Release
On November 3, 2021, IBM completed the separation of Kyndryl. Unless otherwise specified, results are presented on a continuing operations basis. The reference in Full-Year Highlights to the revenue impacts from sales to Kyndryl are incremental sales post-separation, year to date through October.
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); |
| ● | presenting operating (non-GAAP) earnings per share amounts and related income statement items; |
| ● | consolidated free cash flow; |
| ● | consolidated cash from operating activities excluding IBM Financing receivables. |
The rationale for management’s use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8-K that includes this press release and is being submitted today to the SEC.
Conference Call and Webcast
IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EST, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-4q22. 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 |
| Sarah Meron, 347-891-1770 |
| sarah.meron@ibm.com |
| |
| Tim Davidson, 914-844-7847 |
| tfdavids@us.ibm.com |
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
| | Three Months Ended |
| | | Year Ended |
| | ||||||||
| | December 31, |
| | | December 31, |
| | ||||||||
|
| 2022 |
| 2021* | | | | 2022** |
| 2021* |
| | ||||
REVENUE BY SEGMENT |
| |
|
| |
| | | | |
|
| |
| | |
Software | | $ | 7,288 | | $ | 7,087 | | | | $ | 25,037 | | $ | 23,426 | | |
Consulting | |
| 4,770 | |
| 4,746 | | | |
| 19,107 | |
| 17,844 | | |
Infrastructure | |
| 4,483 | |
| 4,414 | | | |
| 15,288 | |
| 14,188 | | |
Financing | |
| 172 | |
| 172 | | | |
| 645 | |
| 774 | | |
Other | |
| (22) | |
| 275 | | | |
| 453 | |
| 1,119 | | |
TOTAL REVENUE | |
| 16,690 | |
| 16,695 | | | |
| 60,530 | |
| 57,350 | | |
| | | | | | | | | | | | | | | | |
GROSS PROFIT | |
| 9,632 | |
| 9,500 | | | |
| 32,687 | |
| 31,486 | | |
| | | | | | | | | | | | | | | | |
GROSS PROFIT MARGIN | |
| | |
| | | | |
| | |
| | | |
Software | |
| 81.2 | % |
| 81.6 | % | | |
| 79.6 | % |
| 79.6 | % | |
Consulting | |
| 27.4 | % |
| 27.0 | % | | |
| 25.5 | % |
| 28.0 | % | |
Infrastructure | |
| 54.9 | % |
| 54.8 | % | | |
| 52.8 | % |
| 55.3 | % | |
Financing | |
| 47.1 | % |
| 32.5 | % | | |
| 38.3 | % |
| 31.7 | % | |
| | | | | | | | | | | | | | | | |
TOTAL GROSS PROFIT MARGIN | |
| 57.7 | % |
| 56.9 | % | | |
| 54.0 | % |
| 54.9 | % | |
| | | | | | | | | | | | | | | | |
EXPENSE AND OTHER INCOME | |
| | |
|
| | | |
|
| |
|
| | |
S,G&A | |
| 4,765 | |
| 4,903 | | | |
| 18,609 | |
| 18,745 | | |
R,D&E | |
| 1,604 | |
| 1,625 | | | |
| 6,567 | |
| 6,488 | | |
Intellectual property and custom development income | |
| (245) | |
| (181) | | | |
| (663) | |
| (612) | | |
Other (income) and expense | |
| (118) | |
| (18) | | | |
| 5,803 | |
| 873 | | |
Interest expense | |
| 313 | |
| 303 | | | |
| 1,216 | |
| 1,155 | | |
TOTAL EXPENSE AND OTHER INCOME | |
| 6,320 | |
| 6,632 | | | |
| 31,531 | |
| 26,649 | | |
| | | | | | | | | | | | | | | | |
INCOME FROM CONTINUING OPERATIONS | |
| | |
| | | | |
| | |
| | | |
BEFORE INCOME TAXES | |
| 3,312 | |
| 2,869 | | | |
| 1,156 | |
| 4,837 | | |
Pre-tax margin | |
| 19.8 | % |
| 17.2 | % | | |
| 1.9 | % |
| 8.4 | % | |
Provision for/(Benefit from) income taxes | |
| 443 | |
| 407 | | | |
| (626) | |
| 124 | | |
Effective tax rate | |
| 13.4 | % |
| 14.2 | % | | |
| (54.2) | % |
| 2.6 | % | |
| | | | | | | | | | | | | | | | |
INCOME FROM CONTINUING OPERATIONS | | $ | 2,869 | | $ | 2,462 | | | | $ | 1,783 | | $ | 4,712 | | |
| | | | | | | | | | | | | | | | |
DISCONTINUED OPERATIONS | |
| | |
| | | | |
| | |
| | | |
Income/(loss) from discontinued operations, net of taxes | |
| (159) | |
| (129) | | | |
| (143) | |
| 1,030 | | |
| | | | | | | | | | | | | | | | |
NET INCOME | | $ | 2,711 | | $ | 2,332 | | | | $ | 1,639 | | $ | 5,743 | | |
| | | | | | | | | | | | | | | | |
EARNINGS PER SHARE OF COMMON STOCK | |
| | |
| | | | |
| | |
| | | |
Assuming Dilution | |
| | |
| | | | |
| | |
| | | |
Continuing Operations | | $ | 3.13 | | $ | 2.72 | | | | $ | 1.95 | | $ | 5.21 | | |
Discontinued Operations | | $ | (0.17) | | $ | (0.14) | | | | $ | (0.16) | | $ | 1.14 | | |
TOTAL | | $ | 2.96 | | $ | 2.57 | | | | $ | 1.80 | | $ | 6.35 | | |
| | | | | | | | | | | | | | | | |
Basic | |
| | |
| | | | |
| | |
| | | |
Continuing Operations | | $ | 3.17 | | $ | 2.74 | | | | $ | 1.97 | | $ | 5.26 | | |
Discontinued Operations | | $ | (0.18) | | $ | (0.14) | | | | $ | (0.16) | | $ | 1.15 | | |
TOTAL | | $ | 2.99 | | $ | 2.60 | | | | $ | 1.82 | | $ | 6.41 | | |
| | | | | | | | | | | | | | | | |
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s) | |
| | |
| | | | |
| | |
| | | |
Assuming Dilution | |
| 915.9 | |
| 906.6 | | | |
| 912.3 | |
| 904.6 | | |
Basic | |
| 905.8 | |
| 898.2 | | | |
| 902.7 | |
| 896.0 | | |
* Recast to conform with 2022 presentation.
** Includes a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net of tax).
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
| At |
| At | ||
| | December 31, | | December 31, | ||
(Dollars in Millions) | | 2022 | | 2021 | ||
ASSETS: |
| |
|
| |
|
Current Assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 7,886 | | $ | 6,650 |
Restricted cash | |
| 103 | |
| 307 |
Marketable securities | |
| 852 | |
| 600 |
Notes and accounts receivable - trade, net | |
| 6,541 | |
| 6,754 |
Short-term financing receivables, net | |
| 7,790 | |
| 8,014 |
Other accounts receivable, net | |
| 817 | |
| 1,002 |
Inventories | |
| 1,552 | |
| 1,649 |
Deferred costs | |
| 967 | |
| 1,097 |
Prepaid expenses and other current assets | |
| 2,611 | |
| 3,466 |
Total Current Assets | |
| 29,118 | |
| 29,539 |
| | | | | | |
Property, plant and equipment, net | |
| 5,334 | |
| 5,694 |
Operating right-of-use assets, net | |
| 2,878 | |
| 3,222 |
Long-term financing receivables, net | |
| 5,806 | |
| 5,425 |
Prepaid pension assets | |
| 8,236 | |
| 9,850 |
Deferred costs | |
| 866 | |
| 924 |
Deferred taxes | |
| 6,256 | |
| 7,370 |
Goodwill | |
| 55,949 | |
| 55,643 |
Intangibles, net | | | 11,184 | | | 12,511 |
Investments and sundry assets | |
| 1,617 | |
| 1,823 |
Total Assets | | $ | 127,243 | | $ | 132,001 |
| | | | | | |
LIABILITIES: | |
|
| |
|
|
Current Liabilities: | |
|
| |
|
|
Taxes | | $ | 2,196 | | $ | 2,289 |
Short-term debt | |
| 4,760 | |
| 6,787 |
Accounts payable | |
| 4,051 | |
| 3,955 |
Deferred income | |
| 12,032 | |
| 12,518 |
Operating lease liabilities | |
| 874 | |
| 974 |
Other liabilities | |
| 7,592 | |
| 7,097 |
Total Current Liabilities | |
| 31,505 | |
| 33,619 |
| | | | | | |
Long-term debt | |
| 46,189 | |
| 44,917 |
Retirement related obligations | |
| 9,596 | |
| 14,435 |
Deferred income | |
| 3,499 | |
| 3,577 |
Operating lease liabilities | |
| 2,190 | |
| 2,462 |
Other liabilities | |
| 12,243 | |
| 13,996 |
Total Liabilities | |
| 105,222 | |
| 113,005 |
| | | | | | |
EQUITY: | |
| | |
| |
IBM Stockholders’ Equity: | |
| | |
| |
Common stock | |
| 58,343 | |
| 57,319 |
Retained earnings | |
| 149,825 | |
| 154,209 |
Treasury stock — at cost | |
| (169,484) | |
| (169,392) |
Accumulated other comprehensive income/(loss) | |
| (16,740) | |
| (23,234) |
Total IBM Stockholders’ Equity | |
| 21,944 | |
| 18,901 |
| | | | | | |
Noncontrolling interests | |
| 77 | |
| 95 |
Total Equity | |
| 22,021 | |
| 18,996 |
| | | | | | |
Total Liabilities and Equity | | $ | 127,243 | | $ | 132,001 |
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
| | | | | ||||||||
| | Three Months Ended | | Year Ended | ||||||||
| | December 31, | | December 31, | ||||||||
(Dollars in Millions) | | 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Consolidated Net Cash from Operations per GAAP | | $ | 3,965 | | $ | 2,543 | | $ | 10,435 | | $ | 12,796 |
| | | | | | | | | | | | |
Less: change in IBM Financing receivables | |
| (1,788) | | | (1,328) | |
| (717) | | | 3,907 |
Capital Expenditures, net | |
| (544) | | | (526) | |
| (1,860) | | | (2,381) |
| | | | | | | | | | | | |
Consolidated Free Cash Flow | |
| 5,209 | | | 3,345 | |
| 9,291 | | | 6,508 |
| | | | | | | | | | | | |
Acquisitions | |
| (1,329) | | | (275) | |
| (2,348) | | | (3,293) |
Divestitures | |
| 1 | | | 88 | |
| 1,272 | | | 114 |
Dividends | |
| (1,494) | | | (1,474) | |
| (5,948) | | | (5,869) |
Non-Financing Debt | |
| (2,777) | | | (20) | |
| 1,909 | | | (1,191) |
Other (includes IBM Financing net receivables and debt) | |
| (498) | | | (2,514) | |
| (2,893) | | | (2,987) |
| | | | | | | | | | | | |
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities* | | $ | (888) | | $ | (850) | | $ | 1,283 | | $ | (6,718) |
* Cash flows are presented on a consolidated basis.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
| | Three Months Ended | | Year Ended | ||||||||
| | December 31, | | December 31, | ||||||||
(Dollars in Millions) | | 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net Income from Operations | | $ | 2,711 | | $ | 2,332 | | $ | 1,639 | | $ | 5,743 |
Pension Settlement Charge | |
| - | |
| - | |
| 5,894 | |
| - |
Depreciation/Amortization of Intangibles | |
| 1,137 | |
| 1,380 | |
| 4,802 | |
| 6,416 |
Stock-based Compensation | |
| 248 | |
| 264 | |
| 987 | |
| 982 |
Working Capital / Other | |
| 1,657 | |
| (105) | |
| (2,170) | |
| (4,253) |
IBM Financing A/R | |
| (1,788) | |
| (1,328) | |
| (717) | |
| 3,907 |
Net Cash Provided by Operating Activities | | $ | 3,965 | | $ | 2,543 | | $ | 10,435 | | $ | 12,796 |
| | | | | | | | | | | | |
Capital Expenditures, net of payments & proceeds | |
| (544) | |
| (526) | |
| (1,860) | |
| (2,381) |
Divestitures, net of cash transferred | |
| 1 | |
| 88 | |
| 1,272 | |
| 114 |
Acquisitions, net of cash acquired | |
| (1,329) | |
| (275) | |
| (2,348) | |
| (3,293) |
Marketable Securities / Other Investments, net | |
| 553 | |
| 38 | |
| (1,265) | |
| (414) |
Net Cash Provided by/(Used in) Investing Activities | | $ | (1,318) | | $ | (675) | | $ | (4,202) | | $ | (5,975) |
| | | | | | | | | | | | |
Debt, net of payments & proceeds | |
| (1,350) | |
| (2,030) | |
| 1,221 | |
| (8,116) |
Dividends | |
| (1,494) | |
| (1,474) | |
| (5,948) | |
| (5,869) |
Financing - Other | |
| (8) | |
| 811 | |
| (231) | |
| 630 |
Net Cash Provided by/(Used in) Financing Activities | | $ | (2,852) | | $ | (2,692) | | $ | (4,958) | | $ | (13,354) |
| | | | | | | | | | | | |
Effect of Exchange Rate changes on Cash | |
| 219 | |
| (26) | |
| (244) | |
| (185) |
Net Change in Cash, Cash Equivalents and Restricted Cash* | | $ | 13 | | $ | (850) | | $ | 1,032 | | $ | (6,718) |
* Cash flows are presented on a consolidated basis.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
| | Three Months Ended December 31, 2022 |
| ||||||||||
|
| | | | | | | | |
| |||
(Dollars in Millions) | | Software | | Consulting | | Infrastructure | | Financing |
| ||||
Revenue | | $ | 7,288 | | $ | 4,770 | | $ | 4,483 | | $ | 172 | |
Pre-tax Income from Continuing Operations | | $ | 2,347 | | $ | 523 | | $ | 1,026 | | $ | 75 | |
Pre-tax Margin | |
| 32.2 | % |
| 11.0 | % |
| 22.9 | % |
| 43.6 | % |
Change YTY Revenue | |
| 2.8 | % |
| 0.5 | % |
| 1.6 | % |
| (0.4) | % |
Change YTY Revenue - constant currency | |
| 8.0 | % |
| 9.3 | % |
| 7.4 | % |
| 3.9 | % |
| | Three Months Ended December 31, 2021 |
| ||||||||||
|
| | | | | | | | |
| |||
(Dollars in Millions) | | Software * | | Consulting | | Infrastructure | | Financing |
| ||||
Revenue | | $ | 7,087 | | $ | 4,746 | | $ | 4,414 | | $ | 172 | |
Pre-tax Income from Continuing Operations | | $ | 2,142 | | $ | 436 | | $ | 1,036 | | $ | 79 | |
Pre-tax Margin | |
| 30.2 | % |
| 9.2 | % |
| 23.5 | % |
| 46.0 | % |
* Recast to conform with 2022 presentation.
| | Year Ended December 31, 2022 |
| ||||||||||
|
| | | | | | | | |
| |||
(Dollars in Millions) | | Software | | Consulting | | Infrastructure | | Financing |
| ||||
Revenue | | $ | 25,037 | | $ | 19,107 | | $ | 15,288 | | $ | 645 | |
Pre-tax Income from Continuing Operations | | $ | 6,162 | | $ | 1,677 | | $ | 2,262 | | $ | 340 | |
Pre-tax Margin | |
| 24.6 | % |
| 8.8 | % |
| 14.8 | % |
| 52.6 | % |
Change YTY Revenue | |
| 6.9 | % |
| 7.1 | % |
| 7.8 | % |
| (16.6) | % |
Change YTY Revenue - constant currency | |
| 11.9 | % |
| 14.9 | % |
| 13.5 | % |
| (13.0) | % |
| | Year Ended December 31, 2021 |
| ||||||||||
|
| | | | | | | | | | |||
(Dollars in Millions) | | Software * | | Consulting | | Infrastructure | | Financing |
| ||||
Revenue | | $ | 23,426 | | $ | 17,844 | | $ | 14,188 | | $ | 774 | |
Pre-tax Income from Continuing Operations | | $ | 4,849 | | $ | 1,449 | | $ | 2,025 | | $ | 441 | |
Pre-tax Margin | |
| 20.7 | % |
| 8.1 | % |
| 14.3 | % |
| 57.0 | % |
* Recast to conform with 2022 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
| | Three Months Ended December 31, 2022 |
| ||||||||||||||||
| | Continuing Operations |
| ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax |
| Kyndryl- |
| | |
| ||||
| | | | | Related | | Related | | Reform | | Related | | Operating |
| |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts | | Impacts (3) |
| (Non-GAAP) | | ||||||
Gross Profit | | $ | 9,632 | | $ | 156 | | $ | — | | $ | — | | $ | — | | $ | 9,788 | |
Gross Profit Margin | |
| 57.7 | % |
| 0.9 | pts. |
| — | pts. |
| — | pts. | | — | pts. |
| 58.6 | % |
S,G&A | | $ | 4,765 | | $ | (262) | | $ | — | | $ | — | | $ | (0) | | $ | 4,503 | |
Other (Income) & Expense | |
| (118) | |
| (1) | |
| (93) | |
| — | | | 2 | |
| (210) | |
Total Expense & Other (Income) | |
| 6,320 | |
| (263) | |
| (93) | |
| — | | | 2 | |
| 5,965 | |
Pre-tax Income from Continuing Operations | |
| 3,312 | |
| 419 | |
| 93 | |
| — | | | (2) | |
| 3,823 | |
Pre-tax Income Margin from Continuing Operations | |
| 19.8 | % |
| 2.5 | pts. |
| 0.6 | pts. |
| — | pts. | | (0.0) | pts. |
| 22.9 | % |
Provision for/(Benefit from) Income Taxes (4) | | $ | 443 | | $ | 109 | | $ | 16 | | $ | (42) | | $ | — | | $ | 526 | |
Effective Tax Rate | |
| 13.4 | % |
| 1.4 | pts. |
| 0.1 | pts. |
| (1.1) | pts. | | 0.0 | pts. |
| 13.8 | % |
Income from Continuing Operations | | $ | 2,869 | | $ | 310 | | $ | 77 | | $ | 42 | | $ | (2) | | $ | 3,296 | |
Income Margin from Continuing Operations | |
| 17.2 | % |
| 1.9 | pts. |
| 0.5 | pts. |
| 0.3 | pts. | | (0.0) | pts. |
| 19.8 | % |
Diluted Earnings Per Share: Continuing Operations | | $ | 3.13 | | $ | 0.34 | | $ | 0.08 | | $ | 0.05 | | $ | (0.00) | | $ | 3.60 | |
| | Three Months Ended December 31, 2021 | | ||||||||||||||||
| | Continuing Operations | | ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax | | Kyndryl- | | |
| | ||||
| | | | | Related | | Related | | Reform | | Related | | Operating | | |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts | | Impacts (3) |
| (Non-GAAP) | | ||||||
Gross Profit | | $ | 9,500 | | $ | 182 | | $ | — | | $ | — | | $ | — | | $ | 9,682 | |
Gross Profit Margin | |
| 56.9 | % |
| 1.1 | pts. |
| — | pts. |
| — | pts. | | — | pts. |
| 58.0 | % |
S,G&A | | $ | 4,903 | | $ | (290) | | $ | — | | $ | — | | $ | (8) | | $ | 4,605 | |
Other (Income) & Expense | |
| (18) | |
| (1) | |
| (315) | |
| — | | | 126 | |
| (208) | |
Total Expense & Other (Income) | |
| 6,632 | |
| (290) | |
| (315) | |
| — | | | 118 | |
| 6,145 | |
Pre-tax Income from Continuing Operations | |
| 2,869 | |
| 472 | |
| 315 | |
| — | | | (118) | |
| 3,537 | |
Pre-tax Income Margin from Continuing Operations | |
| 17.2 | % |
| 2.8 | pts. |
| 1.9 | pts. |
| — | pts. | | (0.7) | pts. |
| 21.2 | % |
Provision for/(Benefit from) Income Taxes (4) | | $ | 407 | | $ | 117 | | $ | 109 | | $ | (94) | | $ | (37) | | $ | 502 | |
Effective Tax Rate | |
| 14.2 | % |
| 1.4 | pts. |
| 1.8 | pts. |
| (2.7) | pts. | | (0.6) | pts. |
| 14.2 | % |
Income from Continuing Operations | | $ | 2,462 | | $ | 355 | | $ | 206 | | $ | 94 | | $ | (81) | | $ | 3,035 | |
Income Margin from Continuing Operations | |
| 14.7 | % |
| 2.1 | pts. |
| 1.2 | pts. |
| 0.6 | pts. | | (0.5) | pts. |
| 18.2 | % |
Diluted Earnings Per Share: Continuing Operations | | $ | 2.72 | | $ | 0.39 | | $ | 0.23 | | $ | 0.10 | | $ | (0.09) | | $ | 3.35 | |
(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) Primarily relates to the realized gain/(loss) and unrealized fair value changes in Kyndryl common stock and the related 2022 cash-settled swap.
(4) 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)
| | Year Ended December 31, 2022 |
| ||||||||||||||||
| | Continuing Operations |
| ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax |
| Kyndryl- |
| | |
| ||||
| | | | | Related | | Related | | Reform | | Related | | Operating |
| |||||
| | GAAP | | Adjustments (1) | | Adjustments* (2) | | Impacts | | Impacts (3) | | (Non-GAAP) |
| ||||||
Gross Profit | | $ | 32,687 | | $ | 682 | | $ | — | | $ | — | | $ | — | | $ | 33,370 | |
Gross Profit Margin | |
| 54.0 | % |
| 1.1 | pts. |
| — | pts. |
| — | pts. | | — | pts. |
| 55.1 | % |
S,G&A | | $ | 18,609 | | $ | (1,080) | | $ | — | | $ | — | | $ | (0) | | $ | 17,529 | |
Other (Income) & Expense | |
| 5,803 | |
| (3) | |
| (6,548) | |
| — | | | (351) | |
| (1,099) | |
Total Expense & Other (Income) | |
| 31,531 | |
| (1,083) | |
| (6,548) | |
| — | | | (351) | |
| 23,549 | |
Pre-tax Income from Continuing Operations | |
| 1,156 | |
| 1,765 | |
| 6,548 | |
| — | | | 351 | |
| 9,821 | |
Pre-tax Income Margin from Continuing Operations | |
| 1.9 | % |
| 2.9 | pts. |
| 10.8 | pts. |
| — | pts. | | 0.6 | pts. |
| 16.2 | % |
Provision for/(Benefit from) Income Taxes (4) | | $ | (626) | | $ | 436 | | $ | 1,615 | | $ | 70 | | $ | — | | $ | 1,495 | |
Effective Tax Rate | |
| (54.2) | % |
| 14.2 | pts. |
| 52.6 | pts. |
| 0.7 | pts. | | 1.9 | pts. |
| 15.2 | % |
Income from Continuing Operations | | $ | 1,783 | | $ | 1,329 | | $ | 4,933 | | $ | (70) | | $ | 351 | | $ | 8,326 | |
Income Margin from Continuing Operations | |
| 2.9 | % |
| 2.2 | pts. |
| 8.1 | pts. |
| (0.1) | pts. | | 0.6 | pts. |
| 13.8 | % |
Diluted Earnings Per Share: Continuing Operations | | $ | 1.95 | | $ | 1.46 | | $ | 5.41 | | $ | (0.08) | | $ | 0.38 | | $ | 9.13 | |
* Includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax).
| | Year Ended December 31, 2021 |
| ||||||||||||||||
| | Continuing Operations |
| ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax |
| Kyndryl- |
| | |
| ||||
| | | | | Related | | Related | | Reform | | Related | | Operating |
| |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts | | Impacts (3) | | (Non-GAAP) |
| ||||||
Gross Profit | | $ | 31,486 | | $ | 719 | | $ | — | | $ | — | | $ | — | | $ | 32,205 | |
Gross Profit Margin | |
| 54.9 | % |
| 1.3 | pts. |
| — | pts. |
| — | pts. | | — | pts. |
| 56.2 | % |
S,G&A | | $ | 18,745 | | $ | (1,160) | | $ | — | | $ | — | | $ | (8) | | $ | 17,577 | |
Other (Income) & Expense | |
| 873 | |
| (2) | |
| (1,282) | |
| — | | | 126 | |
| (285) | |
Total Expense & Other (Income) | |
| 26,649 | |
| (1,162) | |
| (1,282) | |
| — | | | 118 | |
| 24,324 | |
Pre-tax Income from Continuing Operations | |
| 4,837 | |
| 1,881 | |
| 1,282 | |
| — | | | (118) | |
| 7,881 | |
Pre-tax Income Margin from Continuing Operations | |
| 8.4 | % |
| 3.3 | pts. |
| 2.2 | pts. |
| — | pts. | | (0.2) | pts. |
| 13.7 | % |
Provision for/(Benefit from) Income Taxes (4) | | $ | 124 | | $ | 457 | | $ | 251 | | $ | (89) | | $ | (37) | | $ | 706 | |
Effective Tax Rate | |
| 2.6 | % |
| 5.2 | pts. |
| 2.8 | pts. |
| (1.1) | pts. | | (0.4) | pts. |
| 9.0 | % |
Income from Continuing Operations | | $ | 4,712 | | $ | 1,424 | | $ | 1,031 | | $ | 89 | | $ | (81) | | $ | 7,174 | |
Income Margin from Continuing Operations | |
| 8.2 | % |
| 2.5 | pts. |
| 1.8 | pts. |
| 0.2 | pts. | | (0.1) | pts. |
| 12.5 | % |
Diluted Earnings Per Share: Continuing Operations | | $ | 5.21 | | $ | 1.57 | | $ | 1.14 | | $ | 0.10 | | $ | (0.09) | | $ | 7.93 | |
(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) Primarily relates to the realized gain/(loss) and unrealized fair value changes in Kyndryl common stock and the related 2022 cash-settled swap.
(4) 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.
Exhibit 99.2
Non-GAAP Financial Information
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, supplementally, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs, certain impacts from the Kyndryl separation and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform), the company characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments primarily include true-ups, accounting elections and any changes to regulations, laws, audit adjustments. that affect the recorded one-time charge. Management characterizes direct and incremental charges incurred related to the Kyndryl separation as non-operating given their unique and non-recurring nature. These charges primarily relate to any net gains or losses on the Kyndryl common stock and the related cash-settled swap with a third-party financial institution, which are recorded in other (income) and expense in the Consolidated Income Statement. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of the company’s acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the company characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements including the one-time, non-cash, pre-tax settlement charge of $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022 and pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and the company considers these costs to be outside of the operational performance of the business.
Overall, the company believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the company routinely receives from investors and analysts. The company’s reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with the company’s management and measurement system.
Consolidated Free Cash Flow
The company uses free cash flow as a measure to evaluate its operating results, plan shareholder return levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines consolidated free cash flow as consolidated net cash from operating activities less the change in Financing receivables and net capital expenditures, including the investment in software. A key objective of the Financing business is to generate strong returns on equity, and our Financing receivables are the basis for that growth. Accordingly, management considers Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management presents both free cash flow and net cash from operating activities that exclude the effect of Financing receivables. Consolidated free cash flow guidance is derived using an estimate of profit, working capital and operational cash flows. Since the company views Financing receivables as a profit-generating investment which it seeks to maximize, it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP consolidated net cash from operations expectation metric.
Constant Currency
When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.