t
| Date | 20 Oct 2022 |
| Time | 07:00:00 |
| Category | 3rd Quarter Results |
| ID | nsm:202210200200PR_NEWS_UKDISCLO_0017.html |
Disseminated via PRN on 20 October 2022
PR Newswire
London, October 19
IBM RELEASES THIRD QUARTER RESULTS
Revenue Growth in All Key Segments Led by Global Hybrid Cloud Adoption; Solid Cash Generation
ARMONK, N.Y., Oct. 19, 2022 -- IBM (NYSE: IBM) today announced third-quarter 2022 earnings results.
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"IBM delivered strong revenue growth in the quarter, reflecting our continued focus on the execution of our strategy. Globally, clients view technology as an opportunity to enhance their business, which is evident in the results across our portfolio," said Arvind Krishna, IBM chairman and chief executive officer. "With our year-to-date performance, we now expect full-year revenue growth above our mid-single digit model."
Third-Quarter Highlights
| THIRD QUARTER 2022 INCOME STATEMENT SUMMARY | ||||||||||||||||||
| GAAP results include impact of one-time, non-cash pension settlement charge* | ||||||||||||||||||
| Pre-tax | Diluted | |||||||||||||||||
| Gross | Pre-tax | Income/(Loss) | Net | Earnings/(Loss) | ||||||||||||||
| Revenue | Profit | Income/(Loss) | Margin | Income/(Loss) | Per Share | |||||||||||||
| GAAP from Continuing Operations |
$ | 14.1B | $ | 7.4B | $ | (4.5B) | * | (31.9) | %* | $ | (3.2B) | * | $ | (3.55) | * | |||
| Year/Year | 6 | %** | 5 | % | NM | * | (38.0) | Pts* | NM | * | NM | * | ||||||
| Operating (Non-GAAP) |
$ | 7.6B | $ | 2.0B | 13.9 | % | $ | 1.7B | $ | 1.81 | ||||||||
| Year/Year | 4 | % | 23 | % | 1.8 | Pts | (1) | % | (2) | % | ||||||||
| * GAAP results include the impact of a one-time, non-cash pension settlement charge 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, announced on September 13, 2022. | ||||||||||||||||||
| ** 15% at constant currency | ||||||||||||||||||
"Both our revenue growth and operating profit profile for the first three quarters of the year align to the investment thesis we outlined last fall," said James Kavanaugh, IBM senior vice president and chief financial officer. "Our portfolio mix, business fundamentals, strong recurring revenue stream and solid cash generation allow us to invest for continued growth and return value to shareholders through dividends."
Segment Results for Third Quarter
Cash Flow and Balance Sheet
On a consolidated basis, in the third quarter, the company generated net cash from operating activities of $1.9 billion or $1.2 billion excluding IBM Financing receivables. IBM's free cash flow was $0.8 billion. The company returned $1.5 billion to shareholders in dividends in the third quarter.
On a consolidated basis, for the first nine months of the year, the company generated net cash from operating activities of $6.5 billion or $5.4 billion excluding IBM Financing receivables. IBM's free cash flow was $4.1 billion, which includes cash impacts from the company's structural actions initiated at the end of 2020.
IBM ended the third quarter with $9.7 billion of cash on hand (which includes marketable securities), up $2.2 billion from year-end 2021. Debt, including IBM Financing debt of $11.2 billion, totaled $50.9 billion, down $0.8 billion since the end of 2021.
Full-Year 2022 Expectations
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. All references to revenue impacts from sales to Kyndryl are incremental sales post-separation.
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 —
The rationale for management's use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8?K that includes this press release and is being submitted today to the SEC.
Conference Call and Webcast
IBM's regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EDT, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-3q22. 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
[email protected]
Tim Davidson, 914 844 7847
[email protected]
| INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts) |
||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022* | 2021** | 2022* | 2021** | |||||||||||||
| REVENUE | ||||||||||||||||
| Software | $ | 5,811 | $ | 5,406 | $ | 17,749 | $ | 16,339 | ||||||||
| Consulting | 4,700 | 4,457 | 14,337 | 13,098 | ||||||||||||
| Infrastructure | 3,352 | 2,921 | 10,805 | 9,774 | ||||||||||||
| Financing | 174 | 184 | 474 | 601 | ||||||||||||
| Other | 70 | 282 | 475 | 844 | ||||||||||||
| TOTAL REVENUE | 14,107 | 13,251 | 43,840 | 40,656 | ||||||||||||
| GROSS PROFIT | 7,430 | 7,106 | 23,055 | 21,985 | ||||||||||||
| GROSS PROFIT MARGIN | ||||||||||||||||
| Software | 79.0 | % | 78.6 | % | 79.0 | % | 78.7 | % | ||||||||
| Consulting | 26.0 | % | 29.5 | % | 24.8 | % | 28.3 | % | ||||||||
| Infrastructure | 50.8 | % | 52.8 | % | 51.9 | % | 55.6 | % | ||||||||
| Financing | 32.8 | % | 28.7 | % | 35.1 | % | 31.5 | % | ||||||||
| TOTAL GROSS PROFIT MARGIN | 52.7 | % | 53.6 | % | 52.6 | % | 54.1 | % | ||||||||
| EXPENSE AND OTHER INCOME | ||||||||||||||||
| S,G&A | 4,391 | 4,306 | 13,843 | 13,842 | ||||||||||||
| R,D&E | 1,611 | 1,606 | 4,963 | 4,863 | ||||||||||||
| Intellectual property and custom development income | (121) | (153) | (418) | (431) | ||||||||||||
| Other (income) and expense | 5,755 | 244 | 5,921 | 891 | ||||||||||||
| Interest expense | 295 | 290 | 903 | 852 | ||||||||||||
| TOTAL EXPENSE AND OTHER INCOME | 11,931 | 6,293 | 25,212 | 20,017 | ||||||||||||
| INCOME/(LOSS) FROM CONTINUING OPERATIONS | ||||||||||||||||
| BEFORE INCOME TAXES | (4,501) | 813 | (2,156) | 1,968 | ||||||||||||
| Pre-tax margin | (31.9) | % | 6.1 | % | (4.9) | % | 4.8 | % | ||||||||
| Provision for/(Benefit from) income taxes | (1,287) | (224) | (1,070) | (282) | ||||||||||||
| Effective tax rate | 28.6 | % | (27.6) | % | 49.6 | % | (14.4) | % | ||||||||
| INCOME/(LOSS) FROM CONTINUING OPERATIONS | $ | (3,214) | $ | 1,037 | $ | (1,087) | $ | 2,250 | ||||||||
| DISCONTINUED OPERATIONS | ||||||||||||||||
| Income from discontinued operations, net of taxes | 18 | 93 | 16 | 1,160 | ||||||||||||
| NET INCOME/(LOSS) | $ | (3,196) | $ | 1,130 | $ | (1,071) | $ | 3,410 | ||||||||
| EARNINGS/(LOSS) PER SHARE OF COMMON STOCK | ||||||||||||||||
| Assuming Dilution | ||||||||||||||||
| Continuing Operations | $ | (3.55) | $ | 1.14 | $ | (1.21) | $ | 2.49 | ||||||||
| Discontinued Operations | $ | 0.02 | $ | 0.10 | $ | 0.02 | $ | 1.28 | ||||||||
| TOTAL | $ | (3.54) | $ | 1.25 | $ | (1.19) | $ | 3.77 | ||||||||
| Basic | ||||||||||||||||
| Continuing Operations | $ | (3.55) | $ | 1.16 | $ | (1.21) | $ | 2.51 | ||||||||
| Discontinued Operations | $ | 0.02 | $ | 0.10 | $ | 0.02 | $ | 1.30 | ||||||||
| TOTAL | $ | (3.54) | $ | 1.26 | $ | (1.19) | $ | 3.81 | ||||||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's) | ||||||||||||||||
| Assuming Dilution | 904.1 | 906.0 | 901.6 | 904.0 | ||||||||||||
| Basic | 904.1 | 897.1 | 901.6 | 895.3 | ||||||||||||
| _________________________ | ||||||||||||||||
| * Includes a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net of tax). | ||||||||||||||||
| ** Recast to conform with 2022 presentation. | ||||||||||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) |
||||||
| At | At | |||||
| September 30, | December 31, | |||||
| (Dollars in Millions) | 2022 | 2021 | ||||
| ASSETS: | ||||||
| Current Assets: | ||||||
| Cash and cash equivalents | $ | 7,816 | $ | 6,650 | ||
| Restricted cash | 159 | 307 | ||||
| Marketable securities | 1,753 | 600 | ||||
| Notes and accounts receivable - trade, net | 5,526 | 6,754 | ||||
| Short-term financing receivables, net | 6,676 | 8,014 | ||||
| Other accounts receivable, net | 902 | 1,002 | ||||
| Inventories | 1,794 | 1,649 | ||||
| Deferred costs | 921 | 1,097 | ||||
| Prepaid expenses and other current assets | 3,452 | 3,466 | ||||
| Total Current Assets | 28,999 | 29,539 | ||||
| Property, plant and equipment, net | 5,150 | 5,694 | ||||
| Operating right-of-use assets, net | 2,740 | 3,222 | ||||
| Long-term financing receivables, net | 4,781 | 5,425 | ||||
| Prepaid pension assets | 9,695 | 9,850 | ||||
| Deferred costs | 818 | 924 | ||||
| Deferred taxes | 6,868 | 7,370 | ||||
| Goodwill | 54,218 | 55,643 | ||||
| Intangibles, net | 10,967 | 12,511 | ||||
| Investments and sundry assets | 1,614 | 1,823 | ||||
| Total Assets | $ | 125,850 | $ | 132,001 | ||
| LIABILITIES: | ||||||
| Current Liabilities: | ||||||
| Taxes | $ | 1,667 | $ | 2,289 | ||
| Short-term debt | 5,937 | 6,787 | ||||
| Accounts payable | 3,806 | 3,955 | ||||
| Deferred income | 11,139 | 12,518 | ||||
| Operating lease liabilities | 844 | 974 | ||||
| Other liabilities | 7,072 | 7,097 | ||||
| Total Current Liabilities | 30,466 | 33,619 | ||||
| Long-term debt | 44,942 | 44,917 | ||||
| Retirement related obligations | 11,760 | 14,435 | ||||
| Deferred income | 3,018 | 3,577 | ||||
| Operating lease liabilities | 2,103 | 2,462 | ||||
| Other liabilities | 13,413 | 13,996 | ||||
| Total Liabilities | 105,703 | 113,005 | ||||
| EQUITY: | ||||||
| IBM Stockholders' Equity: | ||||||
| Common stock | 58,117 | 57,319 | ||||
| Retained earnings | 148,611 | 154,209 | ||||
| Treasury stock — at cost | (169,514) | (169,392) | ||||
| Accumulated other comprehensive income/(loss) | (17,138) | (23,234) | ||||
| Total IBM Stockholders' Equity | 20,076 | 18,901 | ||||
| Noncontrolling interests | 71 | 95 | ||||
| Total Equity | 20,147 | 18,996 | ||||
| Total Liabilities and Equity | $ | 125,850 | $ | 132,001 | ||
| INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited) |
|||||||||||||||
| Trailing Twelve | |||||||||||||||
| Three Months Ended | Nine Months Ended | Months Ended | |||||||||||||
| September 30, | September 30, | September 30, | |||||||||||||
| (Dollars in Millions) | 2022 | 2021 | 2022 | 2021 | 2022 | ||||||||||
| Consolidated Net Cash from Operations per GAAP | $ | 1,901 | $ | 2,713 | $ | 6,470 | $ | 10,252 | $ | 9,014 | |||||
| Less: change in IBM Financing receivables | 704 | 1,472 | 1,071 | 5,235 | (257) | ||||||||||
| Capital Expenditures, net | (445) | (638) | (1,317) | (1,855) | (1,843) | ||||||||||
| Consolidated Free Cash Flow | 752 | 603 | 4,082 | 3,162 | 7,428 | ||||||||||
| Acquisitions | (62) | (152) | (1,020) | (3,018) | (1,295) | ||||||||||
| Divestitures | 3 | 51 | 1,271 | 26 | 1,359 | ||||||||||
| Dividends | (1,491) | (1,471) | (4,454) | (4,395) | (5,927) | ||||||||||
| Non-Financing Debt | 2,946 | 1,187 | 4,686 | (1,143) | 4,638 | ||||||||||
| Other (includes IBM Financing net receivables and debt) | (198) | 22 | (2,395) | (500) | (4,881) | ||||||||||
| Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities* |
$ | 1,950 | $ | 241 | $ | 2,171 | $ | (5,868) | $ | 1,322 | |||||
| _________________________ | |||||||||||||||
| * Cash flows are presented on a consolidated basis. | |||||||||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited) |
||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| (Dollars in Millions) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Net Income/(Loss) from Operations | $ | (3,196) | $ | 1,130 | $ | (1,071) | $ | 3,410 | ||||
| Pension Settlement Charge | 5,894 | - | 5,894 | - | ||||||||
| Depreciation/Amortization of Intangibles | 1,163 | 1,684 | 3,665 | 5,036 | ||||||||
| Stock-based Compensation | 251 | 262 | 739 | 719 | ||||||||
| Working Capital / Other | (2,914) | (1,834) | (3,827) | (4,147) | ||||||||
| IBM Financing A/R | 704 | 1,472 | 1,071 | 5,235 | ||||||||
| Net Cash Provided by Operating Activities | $ | 1,901 | $ | 2,713 | $ | 6,470 | $ | 10,252 | ||||
| Capital Expenditures, net of payments & proceeds | (445) | (638) | (1,317) | (1,855) | ||||||||
| Divestitures, net of cash transferred | 3 | 51 | 1,271 | 26 | ||||||||
| Acquisitions, net of cash acquired | (62) | (152) | (1,020) | (3,018) | ||||||||
| Marketable Securities / Other Investments, net | (1,193) | 109 | (1,818) | (453) | ||||||||
| Net Cash Provided by/(Used in) Investing Activities | $ | (1,697) | $ | (629) | $ | (2,883) | $ | (5,300) | ||||
| Debt, net of payments & proceeds | 2,138 | (287) | 2,572 | (6,086) | ||||||||
| Dividends | (1,491) | (1,471) | (4,454) | (4,395) | ||||||||
| Financing - Other | 67 | 9 | (223) | (181) | ||||||||
| Net Cash Provided by/(Used in) Financing Activities | $ | 714 | $ | (1,748) | $ | (2,106) | $ | (10,662) | ||||
| Effect of Exchange Rate changes on Cash | (197) | (94) | (463) | (159) | ||||||||
| Net Change in Cash, Cash Equivalents and Restricted Cash* | $ | 721 | $ | 241 | $ | 1,018 | $ | (5,868) | ||||
| _________________________ | ||||||||||||
| * Cash flows are presented on a consolidated basis. | ||||||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) |
|||||||||||||
| Three Months Ended September 30, 2022 | |||||||||||||
| (Dollars in Millions) | Software | Consulting | Infrastructure | Financing | |||||||||
| Revenue | $ | 5,811 | $ | 4,700 | $ | 3,352 | $ | 174 | |||||
| Pre-tax Income/(Loss) from Continuing Operations | $ | 1,306 | $ | 462 | $ | 280 | $ | 79 | |||||
| Pre-tax Margin | 22.5 | % | 9.8 | % | 8.3 | % | 45.4 | % | |||||
| Change YTY Revenue | 7.5 | % | 5.4 | % | 14.8 | % | (5.7) | % | |||||
| Change YTY Revenue - constant currency | 14.2 | % | 15.6 | % | 23.1 | % | (0.6) | % | |||||
| Three Months Ended September 30, 2021* | |||||||||||||
| (Dollars in Millions) | Software | Consulting | Infrastructure | Financing | |||||||||
| Revenue | $ | 5,406 | $ | 4,457 | $ | 2,921 | $ | 184 | |||||
| Pre-tax Income/(Loss) from Continuing Operations | $ | 990 | $ | 466 | $ | 209 | $ | 132 | |||||
| Pre-tax Margin | 18.3 | % | 10.5 | % | 7.1 | % | 71.7 | % | |||||
| _________________________ | |||||||||||||
| * Recast to conform with 2022 presentation. | |||||||||||||
| Nine Months Ended September 30, 2022 | |||||||||||||
| (Dollars in Millions) | Software | Consulting | Infrastructure | Financing | |||||||||
| Revenue | $ | 17,749 | $ | 14,337 | $ | 10,805 | $ | 474 | |||||
| Pre-tax Income/(Loss) from Continuing Operations | $ | 3,816 | $ | 1,154 | $ | 1,236 | $ | 265 | |||||
| Pre-tax Margin | 21.5 | % | 8.0 | % | 11.4 | % | 55.9 | % | |||||
| Change YTY Revenue | 8.6 | % | 9.5 | % | 10.6 | % | (21.2) | % | |||||
| Change YTY Revenue - constant currency | 13.7 | % | 16.9 | % | 16.3 | % | (17.9) | % | |||||
| Nine Months Ended September 30, 2021* | |||||||||||||
| (Dollars in Millions) | Software | Consulting | Infrastructure | Financing | |||||||||
| Revenue | $ | 16,339 | $ | 13,098 | $ | 9,774 | $ | 601 | |||||
| Pre-tax Income/(Loss) from Continuing Operations | $ | 2,707 | $ | 1,013 | $ | 989 | $ | 362 | |||||
| Pre-tax Margin | 16.6 | % | 7.7 | % | 10.1 | % | 60.1 | % | |||||
| _________________________ | |||||||||||||
| * 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 September 30, 2022 | |||||||||||||||||||
| Continuing Operations | |||||||||||||||||||
| Acquisition- | Retirement- | Tax | Kyndryl- | ||||||||||||||||
| Related | Related | Reform | Related | Operating | |||||||||||||||
| GAAP | Adjustments (1) | Adjustments* (2) | Impacts | Impacts (3) | (Non-GAAP) | ||||||||||||||
| Gross Profit | $ | 7,430 | $ | 165 | $ | — | $ | — | $ | — | $ | 7,595 | |||||||
| Gross Profit Margin | 52.7 | % | 1.2 | pts. | — | pts. | — | pts. | — | pts. | 53.8 | % | |||||||
| S,G&A | $ | 4,391 | $ | (253) | $ | — | $ | — | $ | (0) | $ | 4,138 | |||||||
| Other (Income) & Expense | 5,755 | (1) | (6,062) | — | 14 | (293) | |||||||||||||
| Total Expense & Other (Income) | 11,931 | (253) | (6,062) | — | 14 | 5,630 | |||||||||||||
| Pre-tax Income/(Loss) from Continuing Operations |
(4,501) | 418 | 6,062 | — | (14) | 1,965 | |||||||||||||
| Pre-tax Income/(Loss) Margin from Continuing Operations |
(31.9) | % | 3.0 | pts. | 43.0 | pts. | — | pts. | (0.1) | pts. | 13.9 | % | |||||||
| Provision for/(Benefit from) Income Taxes (4) |
$ | (1,287) | $ | 103 | $ | 1,495 | $ | — | $ | — | $ | 312 | |||||||
| Effective Tax Rate | 28.6 | % | (0.8) | pts. | (12.1) | pts. | — | pts. | 0.2 | pts. | 15.9 | % | |||||||
| Income/(Loss) from Continuing Operations |
$ | (3,214) | $ | 315 | $ | 4,566 | $ | — | $ | (14) | $ | 1,653 | |||||||
| Income/(Loss) Margin from Continuing Operations |
(22.8) | % | 2.2 | pts. | 32.4 | pts. | — | pts. | (0.1) | pts. | 11.7 | % | |||||||
| Diluted Earnings/(Loss) Per Share: Continuing Operations ** |
$ | (3.55) | $ | 0.35 | $ | 5.05 | $ | — | $ | (0.02) | $ | 1.81 | |||||||
| _________________________ | |||||||||||||||||||
| * Includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax). | |||||||||||||||||||
| ** Operating (non-GAAP) earnings per share was calculated using 912.8 million shares, which includes 8.8 million dilutive potential shares under our stock-based compensation plans and contingently issuable shares. Due to the GAAP net loss for the three months ended September 30, 2022, these dilutive potential shares were excluded from the GAAP loss per share calculation as the effect would have been antidilutive. The difference in share count resulted in an additional ($0.02) reconciling item. | |||||||||||||||||||
| Three Months Ended September 30, 2021 | |||||||||||||||||||
| Continuing Operations | |||||||||||||||||||
| Acquisition- | Retirement- | Tax | Kyndryl- | ||||||||||||||||
| Related | Related | Reform | Related | Operating | |||||||||||||||
| GAAP | Adjustments (1) | Adjustments (2) | Impacts | Impacts (3) | (Non-GAAP) | ||||||||||||||
| Gross Profit | $ | 7,106 | $ | 183 | $ | — | $ | — | $ | — | $ | 7,290 | |||||||
| Gross Profit Margin | 53.6 | % | 1.4 | pts. | — | pts. | — | pts. | — | pts. | 55.0 | % | |||||||
| S,G&A | $ | 4,306 | $ | (288) | $ | — | $ | — | $ | — | $ | 4,018 | |||||||
| Other (Income) & Expense | 244 | (1) | (318) | — | — | (74) | |||||||||||||
| Total Expense & Other (Income) | 6,293 | (289) | (318) | — | — | 5,687 | |||||||||||||
| Pre-tax Income/(Loss) from Continuing Operations |
813 | 472 | 318 | — | — | 1,603 | |||||||||||||
| Pre-tax Income/(Loss) Margin from Continuing Operations |
6.1 | % | 3.6 | pts. | 2.4 | pts. | — | pts. | — | pts. | 12.1 | % | |||||||
| Provision for/(Benefit from) Income Taxes (4) |
$ | (224) | $ | 102 | $ | 55 | $ | — | $ | — | $ | (67) | |||||||
| Effective Tax Rate | (27.6) | % | 14.5 | pts. | 8.9 | pts. | — | pts. | — | pts. | (4.2) | % | |||||||
| Income/(Loss) from Continuing Operations |
$ | 1,037 | $ | 370 | $ | 262 | $ | — | $ | — | $ | 1,670 | |||||||
| Income/(Loss) Margin from Continuing Operations |
7.8 | % | 2.8 | pts. | 2.0 | pts. | — | pts. | — | pts. | 12.6 | % | |||||||
| Diluted Earnings/(Loss) Per Share: Continuing Operations |
$ | 1.14 | $ | 0.41 | $ | 0.29 | $ | — | $ | — | $ | 1.84 | |||||||
| _________________________ | |||||||||||||||||||
| (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. |
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| (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. |
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| (3) | Primarily relates to the realized gain/(loss) and unrealized fair value changes in Kyndryl common stock and the related 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. |
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| INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts) |
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| Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Continuing Operations | ||||||||||||||||||||
| Acquisition- | Retirement- | Tax | Kyndryl- | |||||||||||||||||
| Related | Related | Reform | Related | Operating | ||||||||||||||||
| GAAP | Adjustments (1) | Adjustments* (2) | Impacts | Impacts (3) | (Non-GAAP) | |||||||||||||||
| Gross Profit | $ | 23,055 | $ | 526 | $ | — | $ | — | $ | — | $ | 23,582 | ||||||||
| Gross Profit Margin | 52.6 | % | 1.2 | pts. | — | pts. | — | pts. | — | pts. | 53.8 | % | ||||||||
| S,G&A | $ | 13,843 | $ | (818) | $ | — | $ | — | $ | (0) | $ | 13,025 | ||||||||
| Other (Income) & Expense | 5,921 | (2) | (6,455) | — | (353) | (889) | ||||||||||||||
| Total Expense & Other (Income) | 25,212 | (820) | (6,455) | — | (353) | 17,584 | ||||||||||||||
| Pre-tax Income/(Loss) from Continuing Operations |
(2,156) | 1,346 | 6,455 | — | 353 | 5,998 | ||||||||||||||
| Pre-tax Income/(Loss) Margin from Continuing Operations |
(4.9) | % | 3.1 | pts. | 14.7 | pts. | — | pts. | 0.8 | pts. | 13.7 | % | ||||||||
| Provision for/(Benefit from) Income Taxes (4) |
$ | (1,070) | $ | 327 | $ | 1,599 | $ | 112 | $ | — | $ | 969 | ||||||||
| Effective Tax Rate | 49.6 | % | (5.7) | pts. | (26.7) | pts. | 1.9 | pts. | (2.9) | pts. | 16.1 | % | ||||||||
| Income/(Loss) from Continuing Operations |
$ | (1,087) | $ | 1,019 | $ | 4,856 | $ | (112) | $ | 353 | $ | 5,029 | ||||||||
| Income/(Loss) Margin from Continuing Operations |
(2.5) | % | 2.3 | pts. | 11.1 | pts. | (0.3) | pts. | 0.8 | pts. | 11.5 | % | ||||||||
| Diluted Earnings/(Loss) Per Share: Continuing Operations ** |
$ | (1.21) | $ | 1.13 | $ | 5.39 | $ | (0.12) | $ | 0.39 | $ | 5.52 | ||||||||
| _________________________ | ||||||||||||||||||||
| * Includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion net of tax). | ||||||||||||||||||||
| ** Operating (non-GAAP) earnings per share was calculated using 911.1 million shares, which includes 9.4 million dilutive potential shares under our stock-based compensation plans and contingently issuable shares. Due to the GAAP net loss for the nine months ended September 30, 2022, these dilutive potential shares were excluded from the GAAP loss per share calculation as the effect would have been antidilutive. The difference in share count resulted in an additional ($0.06) reconciling item. | ||||||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Continuing Operations | ||||||||||||||||||||
| Acquisition- | Retirement- | Tax | Kyndryl- | |||||||||||||||||
| Related | Related | Reform | Related | Operating | ||||||||||||||||
| GAAP | Adjustments (1) | Adjustments (2) | Impacts | Impacts (3) | (Non-GAAP) | |||||||||||||||
| Gross Profit | $ | 21,985 | $ | 537 | $ | — | $ | — | $ | — | $ | 22,522 | ||||||||
| Gross Profit Margin | 54.1 | % | 1.3 | pts. | — | pts. | — | pts. | — | pts. | 55.4 | % | ||||||||
| S,G&A | $ | 13,842 | $ | (870) | $ | — | $ | — | $ | — | $ | 12,972 | ||||||||
| Other (Income) & Expense | 891 | (2) | (967) | — | — | (77) | ||||||||||||||
| Total Expense & Other (Income) | 20,017 | (872) | (967) | — | — | 18,179 | ||||||||||||||
| Pre-tax Income/(Loss) from Continuing Operations |
1,968 | 1,409 | 967 | — | — | 4,343 | ||||||||||||||
| Pre-tax Income/(Loss) Margin from Continuing Operations |
4.8 | % | 3.5 | pts. | 2.4 | pts. | — | pts. | — | pts. | 10.7 | % | ||||||||
| Provision for/(Benefit from) Income Taxes (4) |
$ | (282) | $ | 340 | $ | 141 | $ | 6 | $ | — | $ | 204 | ||||||||
| Effective Tax Rate | (14.4) | % | 12.5 | pts. | 6.5 | pts. | 0.1 | pts. | — | pts. | 4.7 | % | ||||||||
| Income/(Loss) from Continuing Operations |
$ | 2,250 | $ | 1,069 | $ | 825 | $ | (6) | $ | — | $ | 4,139 | ||||||||
| Income/(Loss) Margin from Continuing Operations |
5.5 | % | 2.6 | pts. | 2.0 | pts. | (0.0) | pts. | — | pts. | 10.2 | % | ||||||||
| Diluted Earnings/(Loss) Per Share: Continuing Operations |
$ | 2.49 | $ | 1.18 | $ | 0.91 | $ | (0.01) | $ | — | $ | 4.58 | ||||||||
| _________________________ | ||||||||||||||||||||
| (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 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. |
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