IBM Reports 2021 Third-Quarter Results
IBM (NYSE: IBM) today announced third-quarter 2021 earnings results.
“With the separation of Kyndryl early next month, IBM takes the next step in our evolution as a platform-centric hybrid cloud and AI company," said Arvind Krishna, IBM chairman and chief executive officer. “We continue to make progress in our software and consulting businesses, which represent our higher growth opportunities. With our increased focus and agility to better serve clients, we are confident in achieving our medium-term objectives of mid-single digit revenue growth and strong free cash flow generation.”
THIRD QUARTER 2021
All GAAP results include the impact of Kyndryl separation costs*
Pre-tax
Gross
Diluted
Net
Pre-tax
Income
Profit
EPS
Income
Income
Margin
Margin
GAAP from Continuing Operations
$
1.25
$
1.1B
$
1.3B
7.5
%
46.4
%
Year/Year
(34
)%
(33
)%
(28
)%
(2.9
)Pts
(1.6
)Pts
Operating (Non-GAAP)
$
2.52
$
2.3B
$
2.4B
13.6
%
48.0
%
Year/Year
(2
)%
(1
)%
(7
)%
(1.0
)Pts
(1.0
)Pts
GAAP EPS results include impacts related to the amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation.
* Impact of Kyndryl separation costs for third quarter 2021 GAAP results: EPS ($0.56) per share; Net Income ($0.5B); Pre-tax Income ($0.3B); Pre-Tax Income Margin (1.6) points; Gross Profit Margin (0.6) points
“We again had solid cash generation for the quarter and over the last year, while maintaining a strong balance sheet and the liquidity to support our hybrid cloud and AI strategy,” said James Kavanaugh, IBM senior vice president and chief financial officer. "Our post-separation portfolio mix is shifted toward our growth vectors, with a higher-value recurring revenue stream and strong cash generation, allowing us to continue to invest in the business and provide attractive shareholder returns.”
Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities of $2.7 billion. IBM’s free cash flow was $0.6 billion, which includes $0.6 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 Kyndryl. IBM’s adjusted free cash flow, excluding these cash impacts, was $1.2 billion. The company returned $1.5 billion to shareholders in dividends.
Over the last 12 months, the company generated net cash from operating activities of $16.1 billion. IBM’s free cash flow for the last 12 months was $9.2 billion. The company’s adjusted free cash flow, excluding cash impacts of $1.8 billion for the structural actions and transaction separation costs, was $11.1 billion.
IBM ended the third quarter with $8.4 billion of cash on hand (includes marketable securities), down $5.9 billion from year-end 2020 reflecting acquisitions of $3.0 billion and debt reduction payments. Debt, including Global Financing debt of $15.9 billion, totaled $54.5 billion, down $7.0 billion since the end of 2020, and down $18.5 billion since closing the Red Hat acquisition.
Segment Results for Third Quarter
Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive Applications and Transaction Processing Platforms) —revenues of $5.7 billion, up 2.5 percent (up 1.9 percent adjusting for currency). Cloud & Data Platforms grew 10 percent (up 9 percent adjusting for currency), Cognitive Applications revenue was flat (down 1 percent adjusting for currency) and Transaction Processing Platforms declined 9 percent. Cloud revenue up 21 percent (up 20 percent adjusting for currency). Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.4 billion, up 11.6 percent (up 11.0 percent adjusting for currency), with growth in Consulting, up 17 percent (up 16 percent adjusting for currency), Application Management up 5 percent, and Global Process Services up 19 percent. Cloud revenue up 38 percent (up 37 percent adjusting for currency). Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.2 billion, down 4.8 percent (down 5.4 percent adjusting for currency). Infrastructure & Cloud Services declined 5 percent (down 6 percent adjusting for currency) and Technology Support Services declined 4 percent (down 5 percent adjusting for currency). Cloud revenue up 1 percent (flat adjusting for currency). Gross profit margin up 120 basis points. Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.1 billion, down 11.9 percent (down 12.4 percent adjusting for currency), driven by declines in IBM Z (down 33 percent) and Power systems down 24 percent (down 25 percent adjusting for currency). Storage Systems grew 11 percent. Cloud revenue down 42 percent (down 43 percent adjusting for currency). Global Financing (includes financing and used equipment sales) — revenues of $220 million, down 19.2 percent (down 19.8 percent adjusting for currency).Year-To-Date 2021 Results
Revenues for the nine-month period ended September 30, 2021 totaled $54.1 billion, an increase of 1.6 percent year to year (down 1 percent adjusting for divested businesses and currency) compared with $53.3 billion for the first nine months of 2020. Net income was $3.4 billion, down 19 percent year to year, reflecting the impact of $0.7 billion of transaction costs associated with the Kyndryl separation. Diluted earnings per share was $3.77 compared with $4.72 per diluted share for the 2020 period, a decrease of 20 percent.
GAAP earnings per share results include a ($2.85) per-share impact for charges related to amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation. The impact of the Kyndryl separation costs was ($0.76) per share.
Operating (non-GAAP) net income for the nine months ended September 30, 2021 was $6.0 billion compared with $5.9 billion in the prior-year period, an increase of 1.3 percent. Operating (non-GAAP) diluted earnings per share from continuing operations was $6.62 compared with $6.60 per diluted share for the 2020 period, flat 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 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; 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 from 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; 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
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; total revenue normalized to exclude Kyndryl to be separated in November; Red Hat revenue normalized for historical comparability; presenting operating (non-GAAP) earnings per share amounts and related income statement items; free cash flow; adjusted free cash flow.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-3q21. 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
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
REVENUE
Cloud & Cognitive Software
$
5,692
$
5,553
$
17,227
$
16,540
Global Business Services
4,427
3,965
13,002
11,992
Global Technology Services
6,154
6,462
18,866
19,245
Systems
1,107
1,257
4,251
4,477
Global Financing
220
273
702
837
Other
18
50
45
163
TOTAL REVENUE
17,618
17,560
54,093
53,253
GROSS PROFIT
8,171
8,430
25,379
25,052
GROSS PROFIT MARGIN
Cloud & Cognitive Software
77.0
%
77.1
%
77.1
%
76.6
%
Global Business Services
29.8
%
32.9
%
28.6
%
29.5
%
Global Technology Services
36.2
%
35.0
%
35.3
%
34.4
%
Systems
41.3
%
51.2
%
51.3
%
53.7
%
Global Financing
25.6
%
37.5
%
28.4
%
39.0
%
TOTAL GROSS PROFIT MARGIN
46.4
%
48.0
%
46.9
%
47.0
%
EXPENSE AND OTHER INCOME
S,G&A
4,860
4,647
15,368
15,849
R,D&E
1,621
1,515
4,907
4,722
Intellectual property and custom development income
(153
)
(134
)
(435
)
(453
)
Other (income) and expense
234
253
911
614
Interest expense
291
323
852
971
TOTAL EXPENSE AND OTHER INCOME
6,852
6,603
21,603
21,704
INCOME/(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
1,319
1,827
3,776
3,348
Pre-tax margin
7.5
%
10.4
%
7.0
%
6.3
%
Provision for/(Benefit from) income taxes
188
128
365
(888
)
Effective tax rate
14.3
%
7.0
%
9.7
%
(26.5
)
%
INCOME FROM CONTINUING OPERATIONS
$
1,130
$
1,698
$
3,411
$
4,237
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes
—
(1
)
(1
)
(2
)
NET INCOME
$
1,130
$
1,698
$
3,410
$
4,234
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations
$
1.25
$
1.89
$
3.77
$
4.72
Discontinued Operations
$
0.00
$
0.00
$
0.00
$
0.00
TOTAL
$
1.25
$
1.89
$
3.77
$
4.72
Basic
Continuing Operations
$
1.26
$
1.90
$
3.81
$
4.76
Discontinued Operations
$
0.00
$
0.00
$
0.00
$
0.00
TOTAL
$
1.26
$
1.90
$
3.81
$
4.76
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution
906.0
897.3
904.0
895.8
Basic
897.1
891.4
895.3
889.6
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
At
At
September 30,
December 31,
(Dollars in Millions)
2021
2020
ASSETS:
Current Assets:
Cash and cash equivalents
$
7,455
$
13,212
Restricted cash
352
463
Marketable securities
600
600
Notes and accounts receivable - trade, net
6,609
7,132
Short-term financing receivables, net
7,161
10,892
Other accounts receivable, net
899
714
Inventories
1,891
1,839
Deferred costs
2,046
2,107
Prepaid expenses and other current assets
2,954
2,206
Total Current Assets
29,967
39,165
Property, plant and equipment, net
9,138
10,040
Operating right-of-use assets, net
4,253
4,686
Long-term financing receivables, net
5,046
7,086
Prepaid pension assets
8,197
7,610
Deferred costs
2,248
2,449
Deferred taxes
8,967
9,241
Goodwill
61,378
59,617
Intangibles, net
13,025
13,796
Investments and sundry assets
1,996
2,282
Total Assets
$
144,214
$
155,971
LIABILITIES:
Current Liabilities:
Taxes
$
2,159
$
3,301
Short-term debt
7,575
7,183
Accounts payable
4,248
4,908
Deferred income
12,264
12,833
Operating lease liabilities
1,285
1,357
Other liabilities
8,300
10,287
Total Current Liabilities
35,832
39,869
Long-term debt
46,926
54,355
Retirement related obligations
16,764
18,248
Deferred income
3,965
4,301
Operating lease liabilities
3,192
3,574
Other liabilities
15,179
14,897
Total Liabilities
121,858
135,244
EQUITY:
IBM Stockholders’ Equity:
Common stock
57,189
56,556
Retained earnings
161,747
162,717
Treasury stock — at cost
(169,406
)
(169,339
)
Accumulated other comprehensive income/(loss)
(27,302
)
(29,337
)
Total IBM Stockholders’ Equity
22,228
20,597
Noncontrolling interests
129
129
Total Equity
22,357
20,727
Total Liabilities and Equity
$
144,214
$
155,971
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)
2021
2020
2021
2020
2021
Net Cash Provided by Operating Activities per GAAP:
$
2,713
$
4,286
$
10,252
$
12,337
$
16,111
Less: Change in Global Financing (GF) Receivables
1,472
2,353
5,235
5,324
4,260
Capital Expenditures, net
(638
)
(829
)
(1,855
)
(2,262
)
(2,635
)
Free Cash Flow
603
1,104
3,162
4,751
9,216
Structural actions initiated in 4Q20 & Separation charges (1)
566
—
1,792
—
1,841
Adjusted Free Cash Flow
1,170
1,104
4,954
4,751
11,057
Free Cash Flow
603
1,104
3,162
4,751
9,216
Acquisitions
(152
)
(17
)
(3,018
)
(37
)
(3,317
)
Divestitures
51
(248
)
26
510
19
Dividends
(1,471
)
(1,453
)
(4,395
)
(4,343
)
(5,850
)
Non-GF Debt
1,187
1,019
(1,143
)
4,977
(5,899
)
Other (includes GF Net Receivables and GF Debt)
22
1,098
(500
)
886
(1,516
)
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities
$
241
$
1,503
$
(5,868
)
$
6,744
$
(7,347
)
_______________(1)
Includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and separation related costs.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in Millions)
2021
2020
2021
2020
Net Income from Operations
$
1,130
$
1,698
$
3,410
$
4,234
Depreciation/Amortization of Intangibles
1,684
1,683
5,036
4,996
Stock-based Compensation
262
222
719
658
Working Capital / Other
(1,834
)
(1,670
)
(4,147
)
(2,874
)
Global Financing A/R
1,472
2,353
5,235
5,324
Net Cash Provided by Operating Activities
$
2,713
$
4,286
$
10,252
$
12,337
Capital Expenditures, net of payments & proceeds
(638
)
(829
)
(1,855
)
(2,262
)
Divestitures, net of cash transferred
51
(248
)
26
510
Acquisitions, net of cash acquired
(152
)
(17
)
(3,018
)
(37
)
Marketable Securities / Other Investments, net
109
762
(453
)
(680
)
Net Cash Provided by/(Used in) Investing Activities
$
(629
)
$
(332
)
$
(5,300
)
$
(2,470
)
Debt, net of payments & proceeds
(287
)
(252
)
(6,086
)
1,067
Dividends
(1,471
)
(1,453
)
(4,395
)
(4,343
)
Common Stock Transactions - Other
9
16
(181
)
(152
)
Net Cash Provided by/(Used in) Financing Activities
$
(1,748
)
$
(1,689
)
$
(10,662
)
$
(3,428
)
Effect of Exchange Rate changes on Cash
(94
)
101
(159
)
(200
)
Net Change in Cash, Cash Equivalents and Restricted Cash
$
241
$
2,366
$
(5,868
)
$
6,239
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Three Months Ended September 30, 2021
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
5,692
$
4,427
$
6,154
$
1,107
$
220
Internal
764
53
317
176
153
Total Segment Revenue
$
6,456
$
4,480
$
6,471
$
1,283
$
373
Pre-tax Income/(Loss) from Continuing Operations
1,675
587
383
(207
)
206
Pre-tax Margin
25.9
%
13.1
%
5.9
%
(16.1
)
%
55.1
%
Change YTY Revenue - External
2.5
%
11.6
%
(4.8
)
%
(11.9
)
%
(19.2
)
%
Change YTY Revenue - External @constant currency
1.9
%
11.0
%
(5.4
)
%
(12.4
)
%
(19.8
)
%
Three Months Ended September 30, 2020
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
5,553
$
3,965
$
6,462
$
1,257
$
273
Internal
875
49
312
240
208
Total Segment Revenue
$
6,428
$
4,014
$
6,774
$
1,497
$
480
Pre-tax Income/(Loss) from Continuing Operations
1,834
570
399
(37
)
196
Pre-tax Margin
28.5
%
14.2
%
5.9
%
(2.5
)
%
40.7
%
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Nine Months Ended September 30, 2021
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
17,227
$
13,002
$
18,866
$
4,251
$
702
Internal
2,322
166
956
606
581
Total Segment Revenue
$
19,549
$
13,168
$
19,822
$
4,857
$
1,283
Pre-tax Income/(Loss) from Continuing Operations
4,822
1,349
903
(33
)
618
Pre-tax Margin
24.7
%
10.2
%
4.6
%
(0.7
)
%
48.1
%
Change YTY Revenue - External
4.2
%
8.4
%
(2.0
)
%
(5.1
)
%
(16.2
)
%
Change YTY Revenue - External @constant currency
1.7
%
5.5
%
(4.9
)
%
(7.0
)
%
(18.0
)
%
Nine Months Ended September 30, 2020
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
16,540
$
11,992
$
19,245
$
4,477
$
837
Internal
2,431
150
911
628
660
Total Segment Revenue
$
18,971
$
12,142
$
20,155
$
5,106
$
1,497
Pre-tax Income/(Loss) from Continuing Operations
4,475
1,203
471
(7
)
566
Pre-tax Margin
23.6
%
9.9
%
2.3
%
(0.1
)
%
37.8
%
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, 2021
Continuing Operations
Acquisition-
Retirement-
Tax
Separation-
Related
Related
Reform
Related
Operating
GAAP
Adjustments (1)
Adjustments (2)
Impacts
Charges (4)
(Non-GAAP)
Gross Profit
$
8,171
$
184
$
—
$
—
$
108
$
8,463
Gross Profit Margin
46.4
%
1.0
Pts
—
Pts
—
Pts
0.6
Pts
48.0
%
S,G&A
4,860
(293)
—
—
(169)
4,398
R,D&E
1,621
—
—
—
(1)
1,620
Other (Income) & Expense
234
(1)
(328)
—
—
(94)
Interest Expense
291
—
—
—
—
291
Total Expense & Other (Income)
6,852
(294)
(328)
—
(169)
6,061
Pre-tax Income from Continuing Operations
1,319
478
328
—
277
2,402
Pre-tax Income Margin from Continuing Operations
7.5
%
2.7
Pts
1.9
Pts
—
Pts
1.6
Pts
13.6
%
Provision for/(Benefit from) Income Taxes (3)
188
103
57
—
(233)
115
Effective Tax Rate
14.3
%
1.5
Pts
0.4
Pts
—
Pts
(11.4)
Pts
4.8
%
Income from Continuing Operations
1,130
375
271
—
510
2,286
Income Margin from Continuing Operations
6.4
%
2.1
Pts
1.5
Pts
—
Pts
2.9
Pts
13.0
%
Diluted Earnings/(Loss) Per Share: Continuing Operations
$
1.25
$
0.41
$
0.30
$
—
$
0.56
$
2.52
Three Months Ended September 30, 2020
Continuing Operations
Acquisition-
Retirement-
Tax
Separation-
Related
Related
Reform
Related
Operating
GAAP
Adjustments (1)
Adjustments (2)
Impacts
Charges (4)
(Non-GAAP)
Gross Profit
$
8,430
$
180
$
—
$
—
$
—
$
8,610
Gross Profit Margin
48.0
%
1.0
Pts
—
Pts
—
Pts
—
Pts
49.0
%
S,G&A
4,647
(279)
—
—
—
4,367
R,D&E
1,515
—
—
—
—
1,515
Other (Income) & Expense
253
(1)
(291)
—
—
(39)
Interest Expense
323
—
—
—
—
323
Total Expense & Other (Income)
6,603
(280)
(291)
—
—
6,032
Pre-tax Income/(Loss) from Continuing Operations
1,827
460
291
—
—
2,578
Pre-tax Income Margin from Continuing Operations
10.4
%
2.6
Pts
1.7
Pts
—
Pts
—
Pts
14.7
%
Provision for/(Benefit from) Income Taxes (3)
128
102
54
(21)
—
263
Effective Tax Rate
7.0
%
2.7
Pts
1.3
Pts
(0.8)
Pts
—
Pts
10.2
%
Income from Continuing Operations
1,698
358
237
21
—
2,315
Income Margin from Continuing Operations
9.7
%
2.0
Pts
1.4
Pts
0.1
Pts
—
Pts
13.2
%
Diluted Earnings/(Loss) Per Share: Continuing Operations
$
1.89
$
0.40
$
0.26
$
0.03
$
—
$
2.58
_______________
(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)
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)
Kyndryl separation charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax separation charges.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
Nine Months Ended September 30, 2021
Continuing Operations
Acquisition-
Retirement-
Tax
Separation-
Related
Related
Reform
Related
Operating
GAAP
Adjustments (1)
Adjustments (2)
Impacts
Charges (4)
(Non-GAAP)
Gross Profit
$
25,379
$
540
$
—
$
—
$
168
$
26,087
Gross Profit Margin
46.9
%
1.0
Pts
—
Pts
—
Pts
0.3
Pts
48.2
%
S,G&A
15,368
(884)
—
—
(343)
14,141
R,D&E
4,907
—
—
—
(1)
4,906
Other (Income) & Expense
911
(2)
(998)
—
—
(90)
Interest Expense
852
—
—
—
—
852
Total Expense & Other (Income)
21,603
(886)
(998)
—
(344)
19,374
Pre-tax Income from Continuing Operations
3,776
1,426
998
—
513
6,713
Pre-tax Income Margin from Continuing Operations
7.0
%
2.6
Pts
1.8
Pts
—
Pts
0.9
Pts
12.4
%
Provision for/(Benefit from) Income Taxes (3)
365
344
185
6
(174)
725
Effective Tax Rate
9.7
%
3.1
Pts
1.3
Pts
0.1
Pts
(3.3)
Pts
10.8
%
Income from Continuing Operations
3,411
1,082
813
(6)
687
5,988
Income Margin from Continuing Operations
6.3
%
2.0
Pts
1.5
Pts
(0.0)
Pts
1.3
Pts
11.1
%
Diluted Earnings/(Loss) Per Share: Continuing Operations
$
3.77
$
1.20
$
0.90
$
(0.01)
$
0.76
$
6.62
Nine Months Ended September 30, 2020
Continuing Operations
Acquisition-
Retirement-
Tax
Separation-
Related
Related
Reform
Related
Operating
GAAP
Adjustments (1)
Adjustments (2)
Impacts
Charges (4)
(Non-GAAP)
Gross Profit
$
25,052
$
556
$
—
$
—
$
—
$
25,608
Gross Profit Margin
47.0
%
1.0
Pts
—
Pts
—
Pts
—
Pts
48.1
%
S,G&A
15,849
(849)
—
—
—
15,000
R,D&E
4,722
—
—
—
—
4,722
Other (Income) & Expense
614
(2)
(829)
—
—
(217)
Interest Expense
971
—
—
—
—
971
Total Expense & Other (Income)
21,704
(851)
(829)
—
—
20,024
Pre-tax Income from Continuing Operations
3,348
1,407
829
—
—
5,584
Pre-tax Income Margin from Continuing Operations
6.3
%
2.6
Pts
1.6
Pts
—
Pts
—
Pts
10.5
%
Provision for/(Benefit from) Income Taxes (3)
(888)
312
119
128
—
(329)
Effective Tax Rate
(26.5)
%
12.3
Pts
6.1
Pts
2.3
Pts
—
Pts
(5.9)
%
Income from Continuing Operations
4,237
1,095
710
(128)
—
5,913
Income Margin from Continuing Operations
8.0
%
2.1
Pts
1.3
Pts
(0.2)
Pts
—
Pts
11.1
%
Diluted Earnings/(Loss) Per Share: Continuing Operations
$
4.72
$
1.23
$
0.79
$
(0.14)
$
—
$
6.60
_______________
(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)
Kyndryl separation charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax separation charges.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
Trailing
Three Months Ended
Nine Months Ended
Twelve Months Ended
September 30, 2021
September 30, 2021
September 30, 2021
Change YTY
Change YTY
Change YTY
Revenue Adjusting for Divested Businesses and Currency
Total IBM
Total IBM
Cloud
Revenue as reported
0.3
%
1.6
%
13.6
%
Impact from divested businesses
0.0
Pts
0.1
Pts
0.3
Pts
Currency impact
(0.6)
Pts
(2.7)
Pts
(2.8)
Pts
Revenue adjusting for divested businesses and currency (non-GAAP)
(0.2)
%
(1.0)
%
11.1
%
Three Months Ended
September 30, 2021
Total IBM Revenue, Normalized to Exclude Kyndryl
Change YTY
Revenue as reported
0.3
%
Impact from Kyndryl (1)
2.1
Pts
Revenue normalized to exclude Kyndryl (non-GAAP)
2.5
%
Impact from divested businesses
0.1
Pts
Currency impact
(0.7)
Pts
Revenue normalized to exclude Kyndryl, adjusted for divested businesses and currency (non-GAAP)
1.9
%
_______________(1)
Estimated as of September 30, 2021.
Three Months Ended
September 30, 2021
Red Hat Revenue, Normalized for Historical Comparability
Change YTY
Red Hat Revenue GAAP growth rate (1)
23
%
Impact from purchase accounting deferred revenue and intercompany adjustments (2)
(6)
Pts
Red Hat revenue growth rate, normalized for historical comparability (non-GAAP)
17
%
Impact from currency
(0)
Pts
Red Hat revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP)
17
%
_______________(1)
Represents change in GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
(2)
Represents change in the third-quarter 2021 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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