IBM Reports 2020 Fourth-Quarter and Full-Year Results
IBM (NYSE: IBM) today announced fourth-quarter and full-year 2020 earnings results.
“We made progress in 2020 growing our hybrid cloud platform as the foundation for our clients’ digital transformations while dealing with the broader uncertainty of the macro environment," said Arvind Krishna, IBM chairman and chief executive officer. "The actions we are taking to focus on hybrid cloud and AI will take hold, giving us confidence we can achieve revenue growth in 2021.”
Highlights
Fourth Quarter:
GAAP EPS from continuing operations of $1.41; Operating (non-GAAP) EPS of $2.07-- EPS includes the impact of a pre-tax charge of more than $2.0 billion for structural actions in the fourth quarter Revenue of $20.4 billion, down 6 percent (down 8 percent adjusting for divested businesses and currency) Total cloud revenue of $7.5 billion, up 10 percent (up 8 percent adjusting for divested businesses and currency) Red Hat revenue up 19 percent (up 17 percent adjusting for currency), normalized for historical comparability GAAP gross profit margin of 51.7 percent, up 70 basis points; Operating (non-GAAP) gross profit margin of 52.5 percent, up 70 basis points Debt reduced by $3.9 billion since end of third quarter
Full Year:
GAAP EPS from continuing operations of $6.13; Operating (non-GAAP) EPS of $8.67 Revenue of $73.6 billion, down 5 percent (down 4 percent adjusting for divested businesses and currency) Total cloud revenue of $25.1 billion, up 19 percent (up 20 percent adjusting for divested businesses and currency) Red Hat revenue up 18 percent, normalized for historical comparability GAAP gross profit margin up 100 basis points; operating (non-GAAP) gross profit margin up 130 basis points Net cash from operating activities of $18.2 billion; free cash flow of $10.8 billion Cash on hand of $14.3 billion; debt reduced by more than $11 billion since closing the Red Hat acquisition
FOURTH QUARTER 2020
Results include the impact of $2.04 billion pre-tax charge
Pre-tax
Gross
Diluted
Net
Pre-tax
Income
Profit
EPS *
Income *
Income *
Margin *
Margin
GAAP from Continuing Operations
$
1.41
$
1.3B
$
1.3B
6.3
%
51.7
%
Year/Year
(66)
%
(66)
%
(68)
%
(12.0)
Pts
0.7
Pts
Operating (Non-GAAP)
$
2.07
$
1.9B
$
2.1B
10.2
%
52.5
%
Year/Year
(56)
%
(56)
%
(56)
%
(11.4)
Pts
0.7
Pts
* Results include the impact of pre-tax charge of $2.04 billion for structural actions in the fourth quarter.
“In 2020 we increased investment in our business across R&D and CAPEX, and since October, announced the acquisition of seven companies focused on hybrid cloud and AI," said James Kavanaugh, IBM senior vice president and chief financial officer. "With solid cash generation, steadily expanding gross profit margins, disciplined financial management and ample liquidity, we are well positioned for success as the leading hybrid cloud platform company.”
Cash Flow and Balance Sheet
In the fourth quarter, the company generated net cash from operating activities of $5.9 billion, or $6.8 billion excluding Global Financing receivables. IBM’s free cash flow was $6.1 billion. The company returned $1.5 billion to shareholders in dividends.
For the full year, the company generated net cash from operating activities of $18.2 billion, or $13.8 billion excluding Global Financing receivables. Net capital expenditures of $3 billion increased $0.7 billion, primarily for cloud infrastructure. Free cash flow was $10.8 billion. IBM returned $5.8 billion to shareholders in dividends.
IBM ended the fourth quarter with $14.3 billion of cash on hand, which includes marketable securities, up $5.3 billion from year-end 2019. Debt, including Global Financing debt of $21.2 billion, totaled $61.5 billion, down $3.9 billion since the end of the third quarter, and down $11.5 billion since closing the Red Hat acquisition.
Segment Results for Fourth Quarter
Segment pre-tax results reflect the impact of the $2.04 billion pre-tax charge for structural actions in the fourth quarter.
Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat, Cognitive Applications and Transaction Processing Platforms) — revenues of $6.8 billion, down 4.5 percent (down 6.6 percent adjusting for currency). Cloud & Data Platforms grew 9 percent (up 6 percent adjusting for currency) led by Red Hat. Cognitive Applications revenue was flat (down 2 percent adjusting for currency), with growth in Security and IoT. Transaction Processing Platforms declined 24 percent (down 26 percent adjusting for currency). Cloud revenue up 39 percent (up 36 percent adjusting for currency). Gross profit margin up 20 basis points. Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.2 billion, down 2.7 percent (down 5.2 percent adjusting for currency), driven by declines in Application Management and Consulting. Global Process Services revenue grew. Cloud revenue up 16 percent (up 14 percent adjusting for currency). Gross profit margin up 260 basis points. Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.6 billion, down 5.5 percent (down 7.8 percent adjusting for currency). Cloud revenue up 4 percent (up 1 percent adjusting for currency). Gross profit margin up 70 basis points. Systems (includes Systems Hardware and Operating Systems Software) — revenues of $2.5 billion, down 17.8 percent (down 19.4 percent adjusting for currency), as a result of declines in all Systems Hardware platforms, reflecting the impact of product cycle dynamics. Cloud revenue down 18 percent (down 19 percent adjusting for currency). Gross profit margin up 380 basis points. Global Financing (includes financing and used equipment sales) — revenues of $286 million, down 4.8 percent (down 6.0 percent adjusting for currency), reflecting the wind-down of OEM commercial financing.Full-year 2020 Results
Full-year results reflect transaction-related impacts associated with the Red Hat acquisition, which closed in July 2019, and the impact of the $2.04 billion pre-tax charge for structural actions in the fourth quarter.
Diluted earnings per share from continuing operations was $6.13 compared to $10.57 in 2019, a decrease of 42 percent. Net income from continuing operations was $5.5 billion, down 42 percent year to year. Revenues for the full year 2020 totaled $73.6 billion, a decrease of 4.6 percent year to year (down 3.5 percent adjusting for divested businesses and currency) compared with $77.1 billion for the full year 2019.
Operating (non-GAAP) diluted earnings per share from continuing operations was $8.67 compared with $12.81 per diluted share for 2019, a decrease of 32 percent. Operating (non-GAAP) net income for the full year ended December 31, 2020 was $7.8 billion compared with $11.4 billion in the prior-year period, a decrease of 32 percent.
FULL YEAR 2020
Results include the impact of $2.04 billion pre-tax charge
Pre-tax
Gross
Diluted
Net
Pre-tax
Income
Profit
EPS *
Income *
Income *
Margin *
Margin
GAAP from Continuing Operations
$
6.13
**
$
5.5B
**
$
4.6B
6.3
%
48.3
%
Year/Year
(42)
%
(42)
%
(54)
%
(6.9)
Pts
1.0
Pts
Operating (Non-GAAP)
$
8.67
$
7.8B
$
7.7B
10.4
%
49.3
%
Year/Year
(32)
%
(32)
%
(39)
%
(5.8)
Pts
1.3
Pts
* Results include the impact of pre-tax charge of $2.04 billion for structural actions in the fourth quarter.
** Consolidated diluted earnings per share was $6.23 compared to $10.56 in 2019, a decrease of 41 percent. Consolidated net income was $5.6 billion, down 41 percent year to year.
Full-Year 2021 Expectations
The company expects to grow revenue for the full year 2021 based on the current foreign exchange rates. The company also expects adjusted free cash flow of $11 billion to $12 billion in 2021. Adjusted free cash flow excludes approximately $3 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of the managed infrastructure services business.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, but not limited to, the following: a downturn in economic environment and client spending budgets; the company’s failure to meet growth and productivity objectives; a failure of the company’s innovation initiatives; damage to the company’s reputation; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results; the possibility that the proposed separation of the managed infrastructure services unit of the company’s Global Technology Services segment will not be completed within the anticipated time period or at all, the possibility of disruption or unanticipated costs in connection with the proposed separation or the possibility that the separation will not achieve its intended benefits; impact of local legal, economic, political, health and other conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; 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; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels and ecosystems; the company’s ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities, and higher debt levels; legal proceedings and investigatory risks; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Qs, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information, which management believes provides useful information to investors:
IBM results —
adjusting for currency (i.e., at constant currency); total revenue and cloud revenue adjusting for divested businesses and currency; Red Hat revenue normalized for historical comparability; presenting operating (non-GAAP) earnings per share amounts and related income statement items; net cash from operating activities, excluding Global Financing receivables; free cash flow; adjusted free cash flow (expectations).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-4q20. Presentation charts will be available shortly before the Webcast.
Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended
Year Ended
December 31,
December 31,
2020
2019
2020
2019
REVENUE
Cloud & Cognitive Software
$
6,837
$
7,160
*
$
23,376
$
22,891
*
Global Business Services
4,170
4,285
*
16,162
16,798
*
Global Technology Services
6,568
6,949
25,812
27,361
Systems
2,501
3,042
6,978
7,604
Global Financing
286
301
1,123
1,400
Other
6
40
*
169
1,092
*
TOTAL REVENUE
20,367
21,777
73,620
77,147
GROSS PROFIT
10,523
11,100
35,575
36,488
GROSS PROFIT MARGIN
Cloud & Cognitive Software
79.8
%
79.5
%
*
77.5
%
77.1
%
*
Global Business Services
30.1
%
27.6
%
*
29.7
%
27.7
%
*
Global Technology Services
35.9
%
35.2
%
34.8
%
34.8
%
Systems
59.9
%
56.0
%
55.9
%
53.1
%
Global Financing
33.8
%
35.6
%
37.7
%
35.6
%
TOTAL GROSS PROFIT MARGIN
51.7
%
51.0
%
48.3
%
47.3
%
EXPENSE AND OTHER INCOME
S,G&A
7,232
5,433
23,082
20,604
R,D&E
1,611
1,596
6,333
5,989
Intellectual property and custom development income
(173)
(159)
(626)
(648)
Other (income) and expense
247
(117)
861
(968)
Interest expense
317
354
1,288
1,344
TOTAL EXPENSE AND OTHER INCOME
9,234
7,107
30,937
26,322
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
1,289
3,993
4,637
10,166
Pre-tax margin
6.3
%
18.3
%
6.3
%
13.2
%
Provision for/(Benefit from) income taxes
25
324
(864)
731
Effective tax rate
1.9
%
8.1
%
(18.6)
%
7.2
%
INCOME FROM CONTINUING OPERATIONS
$
1,264
$
3,669
$
5,501
$
9,435
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes
92
0
89
(4)
NET INCOME
$
1,356
$
3,670
$
5,590
$
9,431
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations
$
1.41
$
4.11
$
6.13
$
10.57
Discontinued Operations
$
0.10
$
0.00
$
0.10
$
(0.01)
TOTAL
$
1.51
$
4.11
$
6.23
$
10.56
Basic
Continuing Operations
$
1.42
$
4.14
$
6.18
$
10.63
Discontinued Operations
$
0.10
$
0.00
$
0.10
$
0.00
TOTAL
$
1.52
$
4.14
$
6.28
$
10.63
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution
899.0
893.7
896.6
892.8
Basic
892.6
887.1
890.3
887.2
_____________________
* Recast to conform with 2020 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
At
At
December 31,
December 31,
(Dollars in Millions)
2020
2019
ASSETS:
Current Assets:
Cash and cash equivalents
$
13,212
$
8,172
Restricted cash
463
141
Marketable securities
600
696
Notes and accounts receivable - trade, net
7,132
7,870
Short-term financing receivables, net
10,892
14,192
Other accounts receivable, net
714
1,733
Inventories
1,839
1,619
Deferred costs
2,107
1,896
Prepaid expenses and other current assets
2,206
2,101
Total Current Assets
39,165
38,420
Property, plant and equipment, net
10,040
10,010
Operating right-of-use assets, net
4,686
4,996
Long-term financing receivables, net
7,086
8,712
Prepaid pension assets
7,610
6,865
Deferred costs
2,449
2,472
Deferred taxes
9,241
5,182
Goodwill
59,617
58,222
Intangibles, net
13,796
15,235
Investments and sundry assets
2,282
2,074
Total Assets
$
155,971
$
152,186
LIABILITIES:
Current Liabilities:
Taxes
$
3,301
$
2,839
Short-term debt
7,183
8,797
Accounts payable
4,908
4,896
Deferred income
12,833
12,026
Operating lease liabilities
1,357
1,380
Other liabilities
10,287
7,763
Total Current Liabilities
39,869
37,701
Long-term debt
54,355
54,102
Retirement related obligations
18,248
17,142
Deferred income
4,301
3,851
Operating lease liabilities
3,574
3,879
Other liabilities
14,897
14,526
Total Liabilities
135,244
131,202
EQUITY:
IBM Stockholders’ Equity:
Common stock
56,556
55,895
Retained earnings
162,717
162,954
Treasury stock — at cost
(169,339)
(169,413)
Accumulated other comprehensive income/(loss)
(29,337)
(28,597)
Total IBM Stockholders’ Equity
20,597
20,841
Noncontrolling interests
129
144
Total Equity
20,727
20,985
Total Liabilities and Equity
$
155,971
$
152,186
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
(Dollars in Millions)
2020
2019
2020
2019
Net Cash Provided by Operating Activities per GAAP:
$
5,859
$
3,451
$
18,197
$
14,770
Less: change in Global Financing (GF) Receivables
(974)
(3,220)
4,349
491
Capital Expenditures, Net
(780)
(645)
(3,042)
(2,370)
Free Cash Flow
6,054
6,027
10,805
11,909
Acquisitions
(299)
—
(336)
(32,630)
Divestitures
(7)
149
503
1,076
Dividends
(1,455)
(1,438)
(5,797)
(5,707)
Share Repurchase
—
—
—
(1,361)
Non-GF Debt
(4,756)
(5,640)
221
22,792
Other (includes GF Net Receivables and GF Debt)
(1,016)
(1,046)
(130)
709
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities
$
(1,478)
$
(1,948)
$
5,265
$
(3,213)
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
(Dollars in Millions)
2020
2019
2020
2019
Net Income from Operations
$
1,356
$
3,670
$
5,590
$
9,431
Depreciation/Amortization of Intangibles
1,699
1,650
6,695
6,059
Stock-based Compensation
279
210
937
679
Working Capital / Other
3,499
1,142
625
(1,890)
Global Financing A/R
(974)
(3,220)
4,349
491
Net Cash Provided by Operating Activities
$
5,859
$
3,451
$
18,197
$
14,770
Capital Expenditures, net of payments & proceeds
(780)
(645)
(3,042)
(2,370)
Divestitures, net of cash transferred
(7)
149
503
1,076
Acquisitions, net of cash acquired
(299)
—
(336)
(32,630)
Marketable Securities / Other Investments, net
528
624
(153)
6,988
Net Cash Provided by/(Used in) Investing Activities
$
(558)
$
127
$
(3,028)
$
(26,936)
Debt, net of payments & proceeds
(4,781)
(4,181)
(3,714)
16,284
Dividends
(1,455)
(1,438)
(5,797)
(5,707)
Common Stock Repurchases
—
—
—
(1,361)
Common Stock Transactions - Other
(57)
(55)
(210)
(173)
Net Cash Provided by/(Used in) Financing Activities
$
(6,293)
$
(5,674)
$
(9,721)
$
9,042
Effect of Exchange Rate changes on Cash
113
185
(87)
(167)
Net Change in Cash, Cash Equivalents and Restricted Cash
$
(878)
$
(1,911)
$
5,361
$
(3,290)
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Three Months Ended December 31, 2020
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
6,837
$
4,170
$
6,568
$
2,501
$
286
Internal
738
43
316
196
233
Total Segment Revenue
$
7,575
$
4,213
$
6,884
$
2,697
$
519
Pre-tax Income/(Loss) from Continuing Operations
1,887
148
(353)
455
195
Pre-tax Margin
24.9
%
3.5
%
(5.1)
%
16.9
%
37.6
%
Change YTY Revenue - External
(4.5)
%
(2.7)
%
(5.5)
%
(17.8)
%
(4.8)
%
Change YTY Revenue - External @constant currency
(6.6)
%
(5.2)
%
(7.8)
%
(19.4)
%
(6.0)
%
Three Months Ended December 31, 2019
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software*
Services*
Services
Systems
Financing
Revenue
External
$
7,160
$
4,285
$
6,949
$
3,042
$
301
Internal
692
65
278
198
348
Total Segment Revenue
$
7,853
$
4,350
$
7,227
$
3,240
$
649
Pre-tax Income/(Loss) from Continuing Operations
2,729
469
645
802
252
Pre-tax Margin
34.8
%
10.8
%
8.9
%
24.8
%
38.9
%
_____________________* Recast to conform with 2020 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Year Ended December 31, 2020
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
23,376
$
16,162
$
25,812
$
6,978
$
1,123
Internal
3,169
193
1,226
824
894
Total Segment Revenue
$
26,545
$
16,355
$
27,039
$
7,802
$
2,017
Pre-tax Income/(Loss) from Continuing Operations
6,362
1,351
117
449
761
Pre-tax Margin
24.0
%
8.3
%
0.4
%
5.8
%
37.7
%
Change YTY Revenue - External
2.1
%
(3.8)
%
(5.7)
%
(8.2)
%
(19.8)
%
Change YTY Revenue - External @constant currency
1.9
%
(4.1)
%
(5.4)
%
(8.7)
%
(19.2)
%
Year Ended December 31, 2019
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software*
Services*
Services
Systems
Financing
Revenue
External
$
22,891
$
16,798
$
27,361
$
7,604
$
1,400
Internal
2,827
278
1,157
726
1,232
Total Segment Revenue
$
25,718
$
17,076
$
28,518
$
8,330
$
2,632
Pre-tax Income/(Loss) from Continuing Operations
7,811
1,623
1,645
701
1,055
Pre-tax Margin
30.4
%
9.5
%
5.8
%
8.4
%
40.1
%
_____________________* Recast to conform with 2020 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, 2020
Continuing Operations
Acquisition-
Retirement-
Tax
Spin-off-
Related
Related
Reform
Related
Operating
GAAP
Adjustments (1)
Adjustments (2)
Impacts
Charges (4)
(Non-GAAP)
Gross Profit
$
10,523
$
177
$
—
$
—
$
1
$
10,700
Gross Profit Margin
51.7
%
0.9
Pts
—
Pts
—
Pts
0.0
Pts
52.5
%
S,G&A
7,232
(287)
—
—
(28)
6,917
R,D&E
1,611
—
—
—
—
1,611
Other (Income) & Expense
247
(1)
(295)
—
—
(48)
Interest Expense
317
—
—
—
—
317
Total Expense & Other (Income)
9,234
(288)
(295)
—
(28)
8,623
Pre-tax Income from Continuing Operations
1,289
465
295
—
28
2,077
Pre-tax Income Margin from Continuing Operations
6.3
%
2.3
Pts
1.4
Pts
—
Pts
0.1
Pts
10.2
%
Provision for/(Benefit from) Income Taxes (3)
25
105
96
(18)
7
216
Effective Tax Rate
1.9
%
4.6
Pts
4.4
Pts
(0.9)
Pts
0.3
Pts
10.4
%
Income from Continuing Operations
1,264
359
198
18
21
1,861
Income Margin from Continuing Operations
6.2
%
1.8
Pts
1.0
Pts
0.1
Pts
0.1
Pts
9.1
%
Diluted Earnings/(Loss) Per Share: Continuing Operations
$
1.41
$
0.40
$
0.22
$
0.02
$
0.02
$
2.07
Three Months Ended December 31, 2019
Continuing Operations
Acquisition-
Retirement-
Tax
Spin-off-
Related
Related
Reform
Related
Operating
GAAP
Adjustments (1)
Adjustments (2)
Impacts
Charges (4)
(Non-GAAP)
Gross Profit
$
11,100
$
189
$
—
$
—
$
—
$
11,289
Gross Profit Margin
51.0
%
0.9
Pts
—
Pts
—
Pts
—
Pts
51.8
%
S,G&A
5,433
(320)
—
—
—
5,113
R,D&E
1,596
(0)
—
—
—
1,596
Other (Income) & Expense
(117)
(1)
(196)
—
—
(314)
Interest Expense
354
—
—
—
—
354
Total Expense & Other (Income)
7,107
(320)
(196)
—
—
6,591
Pre-tax Income from Continuing Operations
3,993
509
196
—
—
4,698
Pre-tax Income Margin from Continuing Operations
18.3
%
2.3
Pts
0.9
Pts
—
Pts
—
Pts
21.6
%
Provision for/(Benefit from) Income Taxes (3)
324
133
21
14
—
492
Effective Tax Rate
8.1
%
2.0
Pts
0.1
Pts
0.3
Pts
—
Pts
10.5
%
Income from Continuing Operations
3,669
376
175
(14)
—
4,206
Income Margin from Continuing Operations
16.8
%
1.7
Pts
0.8
Pts
(0.1)
Pts
—
Pts
19.3
%
Diluted Earnings/(Loss) Per Share: Continuing Operations
$
4.11
$
0.42
$
0.20
$
(0.02)
$
—
$
4.71
_____________________
(1)
Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs.(2)
Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs.
(3)
Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
(4)
Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges.
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, 2020
Continuing Operations
Acquisition-
Retirement-
Tax
Spin-off-
Related
Related
Reform
Related
Operating
GAAP
Adjustments (1)
Adjustments (2)
Impacts
Charges (4)
(Non-GAAP)
Gross Profit
$
35,575
$
732
$
—
$
—
$
1
$
36,308
Gross Profit Margin
48.3
%
1.0
Pts
—
Pts
—
Pts
0.0
Pts
49.3
%
S,G&A
23,082
(1,137)
—
—
(28)
21,917
R,D&E
6,333
—
—
—
—
6,333
Other (Income) & Expense
861
(2)
(1,123)
—
—
(265)
Interest Expense
1,288
—
—
—
—
1,288
Total Expense & Other (Income)
30,937
(1,139)
(1,123)
—
(28)
28,648
Pre-tax Income from Continuing Operations
4,637
1,871
1,123
—
28
7,660
Pre-tax Income Margin from Continuing Operations
6.3
%
2.5
Pts
1.5
Pts
—
Pts
0.0
Pts
10.4
%
Provision for/(Benefit from) Income Taxes (3)
(864)
418
215
110
7
(114)
Effective Tax Rate
(18.6)
%
10.0
Pts
5.5
Pts
1.4
Pts
0.2
Pts
(1.5)
%
Income from Continuing Operations
5,501
1,454
908
(110)
21
7,774
Income Margin from Continuing Operations
7.5
%
2.0
Pts
1.2
Pts
(0.1)
Pts
0.0
Pts
10.6
%
Diluted Earnings/(Loss) Per Share: Continuing Operations
$
6.13
$
1.63
$
1.01
$
(0.12)
$
0.02
$
8.67
Year Ended December 31, 2019
Continuing Operations
Acquisition-
Retirement-
Tax
Spin-off-
Related
Related
Reform
Related
Operating
GAAP
Adjustments (1)
Adjustments (2)
Impacts
Charges (4)
(Non-GAAP)
Gross Profit
$
36,488
$
547
$
—
$
—
$
—
$
37,035
Gross Profit Margin
47.3
%
0.7
Pts
—
Pts
—
Pts
—
Pts
48.0
%
S,G&A
20,604
(1,044)
—
—
—
19,560
R,D&E
5,989
(53)
—
—
—
5,936
Other (Income) & Expense
(968)
152
(615)
—
—
(1,431)
Interest Expense
1,344
(228)
—
—
—
1,116
Total Expense & Other (Income)
26,322
(1,173)
(615)
—
—
24,533
Pre-tax Income from Continuing Operations
10,166
1,721
615
—
—
12,503
Pre-tax Income Margin from Continuing Operations
13.2
%
2.2
Pts
0.8
Pts
—
Pts
—
Pts
16.2
%
Provision for/(Benefit from) Income Taxes (3)
731
378
103
(146)
—
1,067
Effective Tax Rate
7.2
%
2.0
Pts
0.5
Pts
(1.2)
Pts
—
Pts
8.5
%
Income from Continuing Operations
9,435
1,343
512
146
—
11,436
Income Margin from Continuing Operations
12.2
%
1.7
Pts
0.7
Pts
0.2
Pts
—
Pts
14.8
%
Diluted Earnings/(Loss) Per Share: Continuing Operations
$
10.57
$
1.50
$
0.58
$
0.16
$
—
$
12.81
_____________________
(1)
Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs.
(2)
Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs.
(3)
Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
(4)
Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended
Year Ended
December 31, 2020
December 31, 2020
Change YTY
Change YTY
Revenue Adjusting for Divested Businesses and Currency
Total IBM
Cloud
Total IBM
Cloud
Revenue as reported
(6.5)
%
9.8
%
(4.6)
%
18.6
%
Impact from divested businesses
0.3
Pts
0.6
Pts
1.1
Pts
1.4
Pts
Currency impact
(2.2)
Pts
(2.7)
Pts
(0.1)
Pts
(0.4)
Pts
Revenue adjusting for divested businesses and currency (non-GAAP)
(8.4)
%
7.7
%
(3.5)
%
19.6
%
Three Months Ended
Year Ended
December 31, 2020
December 31, 2020
Red Hat Revenue, Normalized for Historical Comparability
Change YTY
Change YTY
Red Hat Revenue GAAP growth rate (1)
92
%
288
%
Impact from Red Hat revenue prior to acquisition (2)
—
Pts
(239)
Pts
Impact from purchase accounting deferred revenue and intercompany adjustments (3)
(73)
Pts
(31)
Pts
Red Hat revenue growth rate, normalized for historical comparability (non-GAAP)
19
%
18
%
Impact from currency
(2)
Pts
0
Pts
Red Hat revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP)
17
%
18
%
(1)
Represents change in GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
(2)
Red Hat revenue was included in IBM’s consolidated results beginning July 9, 2019. Revenue for January 1 – July 8, 2019 represents pre-acquisition Red Hat standalone revenue and is included for computing year over year change purposes.
(3)
Represents change in the fourth-quarter and full-year 2020 impact of the deferred revenue purchase accounting adjustment and adjustments to add back revenue which was eliminated for sales between Red Hat and IBM. This line represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting and intercompany adjustments.
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