IBM Reports 2019 Fourth-Quarter and Full-Year Results
IBM (NYSE: IBM) today announced fourth-quarter and full-year 2019 earnings results.
“We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance," said Ginni Rometty, IBM chairman, president and chief executive officer. "Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise.”
FOURTH QUARTER 2019
Results Reflect the Impact of Items Related to
the Red Hat Acquisition Closed in July 2019
Pre-tax
Gross
Diluted
Net
Pre-tax
Income
Profit
EPS
Income
Income
Margin
Margin
GAAP from Continuing Operations
$
4.11
$
3.7B
$
4.0B
18.3
%
51.0
%
Year/Year *
91
%
88
%
(10)
%
(2.0)
Pts
1.9
Pts
Operating (Non-GAAP)
$
4.71
$
4.2B
$
4.7B
21.6
%
51.8
%
Year/Year
(3)
%
(5)
%
(7)
%
(1.5)
Pts
2.3
Pts
* GAAP Diluted EPS and Net Income include charges related to the U.S. Tax Cuts and Jobs Act of 2017 of $1.9 billion in 2018.
“In 2019, we continued to invest in the higher-value growth areas of the industry and took bold actions — including several divestitures and a major acquisition — to position our business, which are reflected in our strong gross margin performance," said James Kavanaugh, IBM senior vice president and chief financial officer. "After completing the acquisition of Red Hat, and with strong free cash flow and disciplined financial management, we significantly deleveraged in the second half.”
Cash Flow and Balance Sheet
In the fourth quarter, the company generated net cash from operating activities of $3.5 billion, or $6.7 billion excluding Global Financing receivables. IBM’s free cash flow was $6.0 billion. IBM returned $1.4 billion to shareholders in dividends.
For the full year, the company generated net cash from operating activities of $14.8 billion, or $14.3 billion excluding Global Financing receivables, and full-year free cash flow of $11.9 billion. IBM returned $7.1 billion to shareholders through $5.7 billion in dividends and $1.4 billion of gross share repurchases.
IBM ended the fourth quarter with $9.0 billion of cash on hand which includes marketable securities. Debt, including Global Financing debt of $24.7 billion, totaled $62.9 billion – down $3.4 billion since the end of the third quarter, down $10.1 billion since the end of the second quarter.
Segment Results for Fourth Quarter
Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat; Cognitive Applications; and Transaction Processing Platforms) — revenues of $7.2 billion, up 8.7 percent (up 9.4 percent adjusting for currency), led by cloud, Security, and IoT; Cloud & Data Platforms, up 19 percent (up 20 percent adjusting for currency); Cognitive Applications, up 1 percent; Transaction Processing Platforms, up 3 percent (up 4 percent adjusting for currency). Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.2 billion, down 0.6 percent (down 0.3 percent adjusting for currency), with growth in Consulting, up 4 percent. Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.9 billion, down 4.8 percent (down 4.0 percent adjusting for currency). Systems (includes Systems Hardware and Operating Systems Software) — revenues of $3.0 billion, up 16.0 percent (up 16.5 percent adjusting for currency), led by IBM Z, up 62 percent (up 63 percent adjusting for currency); Storage Systems revenue grew 3 percent. Global Financing (includes financing and used equipment sales) — revenues of $301 million, down 25.3 percent (down 24.9 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing.Full-Year 2019 Results
Full-year results reflect the impact of items related to the Red Hat acquisition closed in July 2019. Consolidated diluted earnings per share was $10.56 compared to $9.52 for 2018, up 11 percent year to year. Consolidated net income was $9.4 billion, up 8 percent year to year. Revenues for the full year totaled $77.1 billion, a decrease of 3.1 percent year to year (up 0.2 percent adjusting for divested businesses and currency) compared with $79.6 billion for the full-year 2018.
Operating (non-GAAP) diluted earnings per share from continuing operations was $12.81 compared with $13.81 per diluted share for the 2018 period, a decrease of 7 percent. Operating (non-GAAP) net income for the full year was $11.4 billion compared with $12.7 billion in the prior-year period, a decrease of 10 percent.
FULL YEAR 2019
Results Reflect the Impact of Items Related to
the Red Hat Acquisition Closed in July 2019
Pre-tax
Gross
Diluted
Net
Pre-tax
Income
Profit
EPS
Income
Income
Margin
Margin
GAAP from Continuing Operations
$
10.57
$
9.4B
$
10.2B
13.2
%
47.3
%
Year/Year *
11
%
8
%
(10)
%
(1.1)
Pts
0.9
Pts
Operating (Non-GAAP)
$
12.81
$
11.4B
$
12.5B
16.2
%
48.0
%
Year/Year
(7)
%
(10)
%
(9)
%
(1.1)
Pts
1.1
Pts
* GAAP Diluted EPS and Net Income include charges related to the U.S. Tax Cuts and Jobs Act of 2017 of $2.0 billion in 2018 versus $0.1 billion in 2019.
Full-Year 2020 Expectations
The company expects GAAP diluted earnings per share of at least $10.57, and operating (non-GAAP) diluted earnings per share of at least $13.35. Operating (non-GAAP) diluted earnings per share excludes $2.78 per share of charges for: amortization of purchased intangible assets and other acquisition-related charges, including pre-closing charges, such as financing costs; retirement-related charges; and tax reform enactment impacts. IBM expects free cash flow of approximately $12.5 billion.
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, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product quality issues; impacts of business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels and ecosystems; the company’s ability to successfully manage acquisitions, alliances and dispositions, 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; revenue for Red Hat normalized for historical comparability; presenting operating (non-GAAP) earnings per share amounts and related income statement items; adjusting for free cash flow; net cash from operating activities, excluding Global Financing receivables.Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. The company views Global Financing receivables as a profit-generating investment, which it seeks to maximize and therefore it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.
The rationale for management’s use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8‑K that includes this press release and is being submitted today to the SEC.
Conference Call and Webcast
IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EST, today. The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/4q19.html. Presentation charts will be available shortly before the Webcast.
Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
REVENUE
Cloud & Cognitive Software
$
7,238
$
6,661
*
$
23,200
$
22,209
*
Global Business Services
4,243
4,269
*
16,634
16,595
*
Global Technology Services
6,949
7,299
*
27,361
29,146
*
Systems
3,042
2,621
7,604
8,034
Global Financing
301
402
1,400
1,590
Other
4
507
*
948
2,018
*
TOTAL REVENUE
21,777
21,760
77,147
79,591
GROSS PROFIT
11,100
10,687
36,488
36,936
GROSS PROFIT MARGIN
Cloud & Cognitive Software
79.2
%
79.4
%
*
76.7
%
77.6
%
*
Global Business Services
27.5
%
27.8
%
*
27.7
%
26.8
%
*
Global Technology Services
35.2
%
34.9
%
*
34.8
%
34.4
%
*
Systems
56.0
%
50.8
%
53.1
%
49.8
%
Global Financing
35.6
%
29.1
%
35.6
%
29.1
%
TOTAL GROSS PROFIT MARGIN
51.0
%
49.1
%
47.3
%
46.4
%
EXPENSE AND OTHER INCOME
S,G&A
5,433
4,701
20,604
19,366
R,D&E
1,596
1,358
5,989
5,379
Intellectual property and custom development income
(159)
(184)
(648)
(1,026)
Other (income) and expense
(117)
185
(968)
1,152
Interest expense
354
193
1,344
723
TOTAL EXPENSE AND OTHER INCOME
7,107
6,253
26,322
25,594
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
3,993
4,434
10,166
11,342
Pre-tax margin
18.3
%
20.4
%
13.2
%
14.3
%
Provision for / (Benefit from) income taxes
324
2,481
731
2,619
Effective tax rate
8.1
%
55.9
%
7.2
%
23.1
%
INCOME FROM CONTINUING OPERATIONS
$
3,669
$
1,954
$
9,435
$
8,723
DISCONTINUED OPERATIONS
Income / (Loss) from discontinued operations, net of taxes
0
(2)
(4)
5
NET INCOME
$
3,670
$
1,951
$
9,431
$
8,728
EARNINGS / (LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations
$
4.11
$
2.15
$
10.57
$
9.51
Discontinued Operations
$
0.00
$
0.00
$
(0.01)
$
0.01
TOTAL
$
4.11
$
2.15
$
10.56
$
9.52
Basic
Continuing Operations
$
4.14
$
2.17
$
10.63
$
9.56
Discontinued Operations
$
0.00
$
0.00
$
0.00
$
0.01
TOTAL
$
4.14
$
2.17
$
10.63
$
9.57
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution
893.7
905.2
892.8
916.3
Basic
887.1
901.3
887.2
912.0
_____________________________
* Recast to conform with 2019 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
At
At
December 31,
December 31,
(Dollars in Millions)
2019
2018
ASSETS:
Current Assets:
Cash and cash equivalents
$
8,172
$
11,379
Restricted cash
141
225
Marketable securities
696
618
Notes and accounts receivable - trade, net
7,870
7,432
Short-term financing receivables, net
14,192
22,388
Other accounts receivable, net
1,733
743
Inventories
1,619
1,682
Deferred costs
1,896
2,300
Prepaid expenses and other current assets
2,101
2,378
Total Current Assets
38,420
49,146
Property, plant and equipment, net
10,010
10,792
Operating right-of-use assets, net*
4,996
—
Long-term financing receivables, net
8,712
9,148
Prepaid pension assets
6,865
4,666
Deferred costs
2,472
2,676
Deferred taxes
5,182
5,216
Goodwill and intangibles, net
73,456
39,353
Investments and sundry assets
2,074
2,386
Total Assets
$
152,186
$
123,382
LIABILITIES:
Current Liabilities:
Taxes
$
2,839
$
3,046
Short-term debt
8,797
10,207
Accounts payable
4,896
6,558
Deferred income
12,026
11,165
Operating lease liabilities*
1,380
—
Other liabilities
7,763
7,251
Total Current Liabilities
37,701
38,227
Long-term debt
54,102
35,605
Retirement related obligations
17,142
17,002
Deferred income
3,851
3,445
Operating lease liabilities*
3,879
—
Other liabilities
14,526
12,174
Total Liabilities
131,202
106,452
EQUITY:
IBM Stockholders’ Equity:
Common stock
55,895
55,151
Retained earnings
162,954
159,206
Treasury stock — at cost
(169,413)
(168,071)
Accumulated other comprehensive income/(loss)
(28,597)
(29,490)
Total IBM Stockholders’ Equity
20,841
16,796
Noncontrolling interests
144
134
Total Equity
20,985
16,929
Total Liabilities and Equity
$
152,186
$
123,382
_____________________________
* Reflects the adoption of the FASB guidance on leases.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
(Dollars in Millions)
2019
2018
2019
2018
Net Cash Provided by Operating Activities per GAAP:
$
3,451
$
4,119
$
14,770
15,247
Less: change in Global Financing (GF) Receivables
(3,220)
(3,219)
491
(345)
Capital Expenditures, Net
(645)
(877)
(2,370)
(3,716)
Free Cash Flow
6,027
6,460
11,909
11,876
Acquisitions
—
(16)
(32,630)
(139)
Divestitures
149
—
1,076
—
Dividends
(1,438)
(1,416)
(5,707)
(5,666)
Share Repurchase
—
(2,050)
(1,361)
(4,443)
Non-GF Debt
(5,640)
(2,128)
22,792
(521)
Other (includes GF Net Receivables and GF Debt)
(1,046)
(3,291)
709
(1,727)
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities
$
(1,948)
(2,440)
$
(3,213)
(620)
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
(Dollars in Millions)
2019
2018
2019
2018
Net Income from Operations
$
3,670
$
1,951
$
9,431
$
8,728
Depreciation/Amortization of Intangibles
1,650
1,111
6,059
4,479
Stock-based Compensation
210
139
679
510
Working Capital / Other
1,142
4,135
(1,890)
1,874
Global Financing A/R
(3,220)
(3,219)
491
(345)
Net Cash Provided by Operating Activities
$
3,451
$
4,119
$
14,770
$
15,247
Capital Expenditures, net of payments & proceeds
(645)
(877)
(2,370)
(3,716)
Divestitures, net of cash transferred
149
—
1,076
—
Acquisitions, net of cash acquired
—
(16)
(32,630)
(139)
Marketable Securities / Other Investments, net
624
1,348
6,988
(1,058)
Net Cash Provided by / (Used in) Investing Activities
$
127
$
455
$
(26,936)
$
(4,913)
Debt, net of payments & proceeds
(4,181)
(1,145)
16,284
(300)
Dividends
(1,438)
(1,416)
(5,707)
(5,666)
Common Stock Repurchases
—
(2,050)
(1,361)
(4,443)
Common Stock Transactions - Other
(55)
5
(173)
(60)
Net Cash Provided by / (Used in) Financing Activities
$
(5,674)
$
(4,605)
$
9,042
$
(10,469)
Effect of Exchange Rate changes on Cash
185
(95)
(167)
(495)
Net Change in Cash, Cash Equivalents and Restricted Cash
$
(1,911)
$
(127)
$
(3,290)
$
(630)
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Three Months Ended December 31, 2019
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
7,238
$
4,243
$
6,949
$
3,042
$
301
Internal
692
65
278
198
348
Total Segment Revenue
$
7,930
$
4,308
$
7,227
$
3,240
$
649
Pre-tax Income / (Loss) from Continuing Operations
2,901
478
645
802
252
Pre-tax margin
36.6
%
11.1
%
8.9
%
24.8
%
38.9
%
Change YTY Revenue - External
8.7
%
(0.6)
%
(4.8)
%
16.0
%
(25.3)
%
Change YTY Revenue - External @constant currency
9.4
%
(0.3)
%
(4.0)
%
16.5
%
(24.9)
%
Three Months Ended December 31, 2018
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software*
Services*
Services*
Systems
Financing
Revenue
External
$
6,661
$
4,269
$
7,299
$
2,621
$
402
Internal
672
77
283
238
370
Total Segment Revenue
$
7,334
$
4,346
$
7,583
$
2,860
$
773
Pre-tax Income / (Loss) from Continuing Operations
3,122
566
656
551
319
Pre-tax margin
42.6
%
13.0
%
8.7
%
19.3
%
41.3
%
_____________________________
* Recast to conform with 2019 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Year Ended December 31, 2019
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software
Services
Services
Systems
Financing
Revenue
External
$
23,200
$
16,634
$
27,361
$
7,604
$
1,400
Internal
2,827
278
1,157
726
1,232
Total Segment Revenue
$
26,027
$
16,911
$
28,518
$
8,330
$
2,632
Pre-tax Income / (Loss) from Continuing Operations
7,952
1,666
1,645
701
1,055
Pre-tax margin
30.6
%
9.9
%
5.8
%
8.4
%
40.1
%
Change YTY Revenue - External
4.5
%
0.2
%
(6.1)
%
(5.3)
%
(11.9)
%
Change YTY Revenue - External @constant currency
6.2
%
2.4
%
(3.7)
%
(4.1)
%
(10.0)
%
Year Ended December 31, 2018
Cloud &
Global
Global
Cognitive
Business
Technology
Global
(Dollars in Millions)
Software*
Services*
Services*
Systems
Financing
Revenue
External
$
22,209
$
16,595
$
29,146
$
8,034
$
1,590
Internal
3,190
326
872
815
1,610
Total Segment Revenue
$
25,399
$
16,921
$
30,018
$
8,848
$
3,200
Pre-tax Income / (Loss) from Continuing Operations
8,882
1,629
1,781
904
1,361
Pre-tax margin
35.0
%
9.6
%
5.9
%
10.2
%
42.5
%
_____________________________
* Recast to conform with 2019 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, 2019
Continuing Operations
Acquisition-
Retirement-
Tax
Related
Related
Reform
Operating
GAAP
Adjustments*
Adjustments**
Impacts
(Non-GAAP)
Gross Profit
$
11,100
$
189
—
—
$
11,289
Gross Profit Margin
51.0
%
0.9
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
—
21.6
%
Provision for / (Benefit from) Income Taxes***
324
133
21
14
492
Effective Tax Rate
8.1
%
2.0
Pts
0.1
Pts
0.3
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
19.3
%
Diluted Earnings / (Loss) Per Share: Continuing Operations
$
4.11
$
0.42
$
0.20
$
(0.02)
$
4.71
Three Months Ended December 31, 2018
Continuing Operations
Acquisition-
Retirement-
Tax
Related
Related
Reform
Operating
GAAP
Adjustments*
Adjustments**
Impacts
(Non-GAAP)
Gross Profit
$
10,687
$
89
—
—
$
10,776
Gross Profit Margin
49.1
%
0.4
Pts
—
—
49.5
%
S,G&A
4,701
(119)
—
—
4,582
R,D&E
1,358
—
—
—
1,358
Other (Income) & Expense
185
(1)
(387)
—
(203)
Interest Expense
193
—
—
—
193
Total Expense & Other (Income)
6,253
(119)
(387)
—
5,746
Pre-tax Income from Continuing Operations
4,434
208
387
—
5,030
Pre-tax Income Margin from Continuing Operations
20.4
%
1.0
Pts
1.8
Pts
—
23.1
%
Provision for / (Benefit from) Income Taxes***
2,481
37
39
(1,944)
613
Effective Tax Rate
55.9
%
(1.6)
Pts
(3.5)
Pts
(38.7)
Pts
12.2
%
Income from Continuing Operations
1,954
171
348
1,944
4,417
Income Margin from Continuing Operations
9.0
%
0.8
Pts
1.6
Pts
8.9
Pts
20.3
%
Diluted Earnings / (Loss) Per Share: Continuing Operations
$
2.15
$
0.19
$
0.38
$
2.15
$
4.87
_____________________________
* 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.
** 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.
*** 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, 2019
Continuing Operations
Acquisition-
Retirement-
Tax
Related
Related
Reform
Operating
GAAP
Adjustments*
Adjustments**
Impacts
(Non-GAAP)
Gross Profit
$
36,488
$
547
—
—
$
37,035
Gross Profit Margin
47.3
%
0.7
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
—
16.2
%
Provision for / (Benefit from) Income Taxes***
731
378
103
(146)
1,067
Effective Tax Rate
7.2
%
2.0
Pts
0.5
Pts
(1.2)
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
14.8
%
Diluted Earnings / (Loss) Per Share: Continuing Operations
$
10.57
$
1.50
$
0.58
$
0.16
$
12.81
Year Ended December 31, 2018
Continuing Operations
Acquisition-
Retirement-
Tax
Related
Related
Reform
Operating
GAAP
Adjustments*
Adjustments**
Impacts
(Non-GAAP)
Gross Profit
$
36,936
$
372
—
—
$
37,307
Gross Profit Margin
46.4
%
0.5
Pts
—
—
46.9
%
S,G&A
19,366
(451)
—
—
18,915
R,D&E
5,379
—
—
—
5,379
Other (Income) & Expense
1,152
(2)
(1,572)
—
(422)
Interest Expense
723
—
—
—
723
Total Expense & Other (Income)
25,594
(453)
(1,572)
—
23,569
Pre-tax Income from Continuing Operations
11,342
824
1,572
—
13,739
Pre-tax Income Margin from Continuing Operations
14.3
%
1.0
Pts
2.0
Pts
—
17.3
%
Provision for / (Benefit from) Income Taxes***
2,619
176
324
(2,037)
1,082
Effective Tax Rate
23.1
%
(0.1)
Pts
(0.3)
Pts
(14.8)
Pts
7.9
%
Income from Continuing Operations
8,723
649
1,248
2,037
12,657
Income Margin from Continuing Operations
11.0
%
0.8
Pts
1.6
Pts
2.6
Pts
15.9
%
Diluted Earnings / (Loss) Per Share: Continuing Operations
$
9.51
$
0.71
$
1.36
$
2.23
$
13.81
_____________________________
* 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.
** 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.
*** 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)
Three Months Ended
Year Ended
December 31, 2019
December 31, 2019
Change YTY
Change YTY
Revenue Adjusting for Divested Businesses and Currency
Cloud
Total IBM
Cloud
Total IBM
Revenue as reported
20.7
%
0.1
%
10.6
%
(3.1)
%
Impact from divested businesses
1.6
Pts
2.1
Pts
1.1
Pts
1.2
Pts
Currency impact
0.5
Pts
0.6
Pts
2.2
Pts
2.1
Pts
Revenue adjusting for divested businesses and currency (non-GAAP)
22.8
%
2.8
%
13.9
%
0.2
%
Three Months Ended
Change
Red Hat Revenue, Normalized for Historical Comparability
December 31, 2019
December 31, 2018
YTY
YTY
@constant
currency
Red Hat revenue as reported in IBM consolidated results (1)
$
573
$
—
Add: Red Hat revenue prior to acquisition (2)
—
863
Add: Purchase accounting deferred revenue and intercompany adjustments (3)
493
—
Red Hat revenue, normalized for historical comparability (non-GAAP)
$
1,066
$
863
24
%
24
%
(1) Represents GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
(2) Revenue for the three months ended December 31, 2018 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes.
(3) Represents the fourth-quarter 2019 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.
2020 Full Year Expectations
(as of fourth quarter 2019)
GAAP Diluted EPS
at least $10.57
Operating EPS (non-GAAP)
at least $13.35
Adjustments
Acquisition-related Charges *
$
1.70
Non-Operating Retirement-Related Items
$
1.02
Tax Reform Enactment Impacts
$
0.06
_____________________________
* Includes acquisitions as of December 31, 2019.
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