UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 21, 2020
(Date of earliest event reported)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
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New York |
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1-2360 |
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13-0871985 |
(State of Incorporation) |
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(Commission File Number) |
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(IRS employer Identification No.) |
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One New Orchard Road Armonk, New York |
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10504 |
(Address of principal executive offices) |
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(Zip Code) |
914-499-1900
(Registrant’s telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading symbol(s) |
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Name of each exchange
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Capital stock, par value $.20 per share |
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IBM |
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New York Stock Exchange |
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Chicago Stock Exchange |
2.750% Notes due 2020 |
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IBM 20B |
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New York Stock Exchange |
1.875% Notes due 2020 |
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IBM 20A |
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New York Stock Exchange |
0.500% Notes due 2021 |
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IBM 21B |
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New York Stock Exchange |
2.625% Notes due 2022 |
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IBM 22A |
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New York Stock Exchange |
1.250% Notes due 2023 |
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IBM 23A |
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New York Stock Exchange |
0.375% Notes due 2023 |
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IBM 23B |
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New York Stock Exchange |
1.125% Notes due 2024 |
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IBM 24A |
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New York Stock Exchange |
2.875% Notes due 2025 |
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IBM 25A |
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New York Stock Exchange |
0.950% Notes due 2025 |
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IBM 25B |
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New York Stock Exchange |
0.875% Notes due 2025 |
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IBM 25C |
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New York Stock Exchange |
0.300% Notes due 2026 |
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IBM 26B |
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New York Stock Exchange |
1.250% Notes due 2027 |
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IBM 27B |
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New York Stock Exchange |
1.750% Notes due 2028 |
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IBM 28A |
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New York Stock Exchange |
1.500% Notes due 2029 |
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IBM 29 |
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New York Stock Exchange |
1.750% Notes due 2031 |
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IBM 31 |
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New York Stock Exchange |
7.00% Debentures due 2025 |
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IBM 25 |
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New York Stock Exchange |
6.22% Debentures due 2027 |
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IBM 27 |
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New York Stock Exchange |
6.50% Debentures due 2028 |
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IBM 28 |
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New York Stock Exchange |
7.00% Debentures due 2045 |
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IBM 45 |
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New York Stock Exchange |
7.125% Debentures due 2096 |
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IBM 96 |
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New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
The registrant’s press release dated January 21, 2020, regarding its financial results for the periods ended December 31, 2019, including consolidated financial statements for the periods ended December 31, 2019, is Exhibit 99.1 of this Form 8-K.
In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has disclosed in the attached press release certain non-GAAP information which management believes provides useful information to investors. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in the press release, which is Exhibit 99.1 to this Form 8-K. The rationale for management’s use of non-GAAP measures is included in Exhibit 99.2 to this Form 8-K.
The information in this Item 2.02, including the corresponding Exhibits 99.1 and 99.2, is hereby filed.
Item 7.01. Regulation FD Disclosure.
The slides for IBM’s Chief Financial Officer Jim Kavanaugh’s fourth-quarter and full-year 2019 earnings presentation on January 21, 2020, are Exhibit 99.3 to this Form 8-K.
The information in this Item 7.01, including the corresponding Exhibit 99.3, is being furnished with the Commission and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being filed as part of this report:
The following exhibit is being furnished as part of this report:
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Exhibit No. |
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Description of Exhibit |
99.3 |
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Earnings Presentation of the Registrant, dated January 21, 2020 |
IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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Date: January 21, 2020 |
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By: |
/s/ Robert F. Del Bene |
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Robert F. Del Bene |
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Vice President and Controller |
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Exhibit 99.1
IBM REPORTS 2019 FOURTH-QUARTER AND FULL-YEAR RESULTS
Revenue Growth Driven by Accelerated Cloud Performance; Strong Gross Margin Expansion
Highlights
Fourth Quarter:
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GAAP EPS from continuing operations of $4.11 |
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Operating (non-GAAP) EPS of $4.71 |
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Revenue of $21.8 billion, up 0.1 percent |
-- up 1 percent adjusting for currency
-- up 3 percent adjusting for divested businesses and currency
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Red Hat revenue, up 24 percent, normalized for historical comparability |
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Revenue growth in Cloud & Cognitive Software and Systems segments |
-- Cloud & Cognitive Software up 9 percent
-- Systems up 16 percent
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Total cloud revenue of $6.8 billion, up 21 percent (up 23 percent adjusting for divested businesses and currency) |
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GAAP gross profit margin up 190 basis points; Operating (non-GAAP) gross profit margin up 230 basis points |
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Debt reduced by $10 billion since closing the Red Hat acquisition |
Full Year:
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GAAP EPS from continuing operations of $10.57; Operating (non-GAAP) EPS of $12.81 |
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Revenue of $77.1 billion, down 3.1 percent (up 0.2 percent adjusting for divested businesses and currency) |
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Total cloud revenue of $21.2 billion, up 11 percent (up 14 percent adjusting for divested businesses and currency) |
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Net cash from operating activities of $14.8 billion and free cash flow of $11.9 billion |
2020 Expectations:
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GAAP EPS of at least $10.57; Operating (non-GAAP) EPS of at least $13.35 |
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Free cash flow of approximately $12.5 billion |
ARMONK, N.Y., January 21, 2020 . . . IBM (NYSE: IBM) today announced fourth-quarter and full-year 2019 earnings results.
“We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance," said Ginni Rometty, IBM chairman, president and chief executive officer. "Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise.”
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FOURTH QUARTER 2019 |
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Results Reflect the Impact of Items Related to |
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the Red Hat Acquisition Closed in July 2019 |
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Pre-tax |
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Gross |
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Diluted |
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Net |
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Pre-tax |
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Income |
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Profit |
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EPS |
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Income |
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Income |
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Margin |
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Margin |
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GAAP from Continuing Operations |
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$ |
4.11 |
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$ |
3.7B |
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$ |
4.0B |
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18.3 |
% |
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% |
Year/Year * |
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91 |
% |
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88 |
% |
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(10) |
% |
(2.0) |
Pts |
1.9 |
Pts |
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Operating (Non-GAAP) |
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$ |
4.71 |
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$ |
4.2B |
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$ |
4.7B |
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21.6 |
% |
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% |
Year/Year |
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(3) |
% |
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% |
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(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
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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). |
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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. |
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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). |
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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. |
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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 $12.7 billion in the prior-year period, a decrease of 10 percent.
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FULL YEAR 2019 |
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Results Reflect the Impact of Items Related to |
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the Red Hat Acquisition Closed in July 2019 |
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Pre-tax |
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Gross |
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Diluted |
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Net |
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Pre-tax |
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Income |
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Profit |
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EPS |
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Income |
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Income |
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Margin |
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Margin |
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GAAP from Continuing Operations |
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$ |
10.57 |
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$ |
9.4B |
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$ |
10.2B |
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13.2 |
% |
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% |
Year/Year * |
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11 |
% |
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8 |
% |
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(10) |
% |
(1.1) |
Pts |
0.9 |
Pts |
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Operating (Non-GAAP) |
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$ |
12.81 |
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$ |
11.4B |
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$ |
12.5B |
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16.2 |
% |
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% |
Year/Year |
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(7) |
% |
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% |
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(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 —
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adjusting for currency (i.e., at constant currency); |
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total revenue and cloud revenue adjusting for divested businesses and currency; |
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revenue for Red Hat normalized for historical comparability; |
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presenting operating (non-GAAP) earnings per share amounts and related income statement items; |
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adjusting for free cash flow; |
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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).
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Contact: |
IBM |
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Edward Barbini, 914‑499‑6565 |
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barbini@us.ibm.com |
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John Bukovinsky, 732‑618‑3531 |
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jbuko@us.ibm.com |
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INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
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Three Months Ended |
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Year Ended |
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December 31, |
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December 31, |
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2019 |
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2018 |
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2019 |
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2018 |
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REVENUE |
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Cloud & Cognitive Software |
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$ |
7,238 |
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$ |
6,661 |
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* |
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$ |
23,200 |
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$ |
22,209 |
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* |
Global Business Services |
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4,243 |
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4,269 |
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* |
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16,634 |
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16,595 |
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* |
Global Technology Services |
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6,949 |
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7,299 |
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* |
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27,361 |
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29,146 |
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* |
Systems |
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3,042 |
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2,621 |
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7,604 |
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8,034 |
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Global Financing |
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301 |
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402 |
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1,400 |
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1,590 |
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Other |
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4 |
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507 |
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* |
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948 |
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2,018 |
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* |
TOTAL REVENUE |
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21,777 |
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21,760 |
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77,147 |
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79,591 |
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GROSS PROFIT |
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11,100 |
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10,687 |
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36,488 |
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36,936 |
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GROSS PROFIT MARGIN |
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Cloud & Cognitive Software |
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79.2 |
% |
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79.4 |
% |
* |
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76.7 |
% |
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77.6 |
% |
* |
Global Business Services |
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27.5 |
% |
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27.8 |
% |
* |
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27.7 |
% |
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26.8 |
% |
* |
Global Technology Services |
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35.2 |
% |
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34.9 |
% |
* |
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34.8 |
% |
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34.4 |
% |
* |
Systems |
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56.0 |
% |
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50.8 |
% |
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53.1 |
% |
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49.8 |
% |
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Global Financing |
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35.6 |
% |
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29.1 |
% |
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35.6 |
% |
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29.1 |
% |
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TOTAL GROSS PROFIT MARGIN |
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51.0 |
% |
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49.1 |
% |
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47.3 |
% |
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46.4 |
% |
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EXPENSE AND OTHER INCOME |
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S,G&A |
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5,433 |
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4,701 |
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20,604 |
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19,366 |
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R,D&E |
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1,596 |
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1,358 |
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5,989 |
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5,379 |
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Intellectual property and custom development income |
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(159) |
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(184) |
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(648) |
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(1,026) |
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Other (income) and expense |
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(117) |
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185 |
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(968) |
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1,152 |
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Interest expense |
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354 |
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193 |
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1,344 |
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723 |
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TOTAL EXPENSE AND OTHER INCOME |
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7,107 |
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6,253 |
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26,322 |
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25,594 |
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INCOME FROM CONTINUING OPERATIONS |
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BEFORE INCOME TAXES |
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3,993 |
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4,434 |
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10,166 |
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11,342 |
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Pre-tax margin |
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18.3 |
% |
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20.4 |
% |
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13.2 |
% |
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14.3 |
% |
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Provision for / (Benefit from) income taxes |
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324 |
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2,481 |
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731 |
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2,619 |
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Effective tax rate |
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8.1 |
% |
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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: |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: change in Global Financing (GF) Receivables |
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash Flow |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
— |
|
|
|
|
|
|
|
|
|
Divestitures |
|
|
|
|
|
— |
|
|
|
|
|
— |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
Share Repurchase |
|
|
— |
|
|
|
|
|
|
|
|
|
Non-GF Debt |
|
|
|
|
|
|
|
|
|
|
|
|
Other (includes GF Net Receivables and GF Debt) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Depreciation/Amortization of Intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital / Other |
|
|
|
|
|
|
|
|
|
|
|
|
Global Financing A/R |
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Capital Expenditures, net of payments & proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures, net of cash transferred |
|
|
|
|
|
— |
|
|
|
|
|
— |
Acquisitions, net of cash acquired |
|
|
— |
|
|
|
|
|
|
|
|
|
Marketable Securities / Other Investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by / (Used in) Investing Activities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Debt, net of payments & proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Repurchases |
|
|
— |
|
|
|
|
|
|
|
|
|
Common Stock Transactions - Other |
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by / (Used in) Financing Activities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Effect of Exchange Rate changes on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash, Cash Equivalents and Restricted Cash |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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)
|
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|
|
|
|
|
|
|
|
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Three Months Ended |
|
|
Year Ended |
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||||||||
|
|
December 31, 2019 |
|
|
December 31, 2019 |
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||||||||
|
|
Change YTY |
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|
Change YTY |
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||||||||
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 |
|
|
|
Pts |
|
|
Pts |
|
|
2.2 |
Pts |
|
2.1 |
Pts |
Revenue adjusting for divested businesses and currency (non-GAAP) |
|
|
|
% |
|
2.8 |
% |
|
|
13.9 |
% |
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
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||||||
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.
Exhibit 99.2
Non-GAAP Financial Information
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, supplementally, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization expense resulting from basis differences on equity method investments, retirement-related costs and discontinued operations and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (“U.S. tax reform”), the company characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments include true-ups, accounting elections, any changes to regulations, laws, audit adjustments, etc. that affect the recorded one-time charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of the company’s acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the company characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and the company considers these costs to be outside of the operational performance of the business.
Overall, the company believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The company’s reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with the company’s management and measurement system. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the company routinely receives from investors and analysts.
Free Cash Flow
The company uses free cash flow as a measure to evaluate its operating results, plan share repurchase levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of Global Financing receivables. Free cash flow guidance is derived using an estimate of profit, working capital and operational cash flows. Since the company views Global Financing receivables as a profit-generating investment which it seeks to maximize, it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.
Constant Currency
When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
Revenue adjusted for divested businesses and constant currency
To provide better transparency on the recurring performance of the ongoing business, the company provides total revenue, cloud and geographic revenue growth rates excluding divested businesses and at constant currency. These divested businesses are included in the company’s Other segment.
Revenue for Red Hat, normalized for historical comparability
On July 9, 2019, the company completed the acquisition of Red Hat, Inc. (Red Hat) and began including Red Hat’s financial results in the company’s consolidated results. As part of the accounting for this acquisition, the company recorded certain adjustments, including a purchase accounting deferred revenue fair value adjustment and intercompany eliminations, each of which impact IBM’s post-acquisition revenue. To help investors better understand the underlying performance of Red Hat, management presents a non-GAAP growth rate of Red Hat’s revenue performance year to year, normalized for historical comparability. The normalized (non-GAAP) Red Hat revenue for the three months ended December 31, 2019 includes adjustments to reverse the purchase accounting deferred revenue fair value adjustment and adjustments to add back revenue which was eliminated for post-acquisition sales between Red Hat and IBM. The deferred revenue adjustment 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. The sales between Red Hat and IBM, which were eliminated post-acquisition, are added back in this presentation to provide a comparative view of Red Hat on a pre-acquisition basis. This information is included to provide additional transparency and for comparative purposes only.
Exhibit 99.3
|
|
|
IBM 4Q 2019 Earnings Jan 21, 2020 ibm.com/investor 1
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|
Forward Looking Statements and Non-GAAP Information 2 Certain comments made in this presentation may be characterized as forward looking under 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. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company’s filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements except as required by law; these charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including revenue for Red Hat normalized for historical comparability, revenue adjusting for divested businesses and currency, operating earnings, other “operating” financial measures, including free cash flow, net cash from operating activities excluding Global Financing receivables, and adjustments for currency. The rationale for management’s use of this non-GAAP information is included as Exhibit 99.2 to the company’s Form 8-K filed with the SEC on January 21, 2020. The reconciliation of non-GAAP information to GAAP is included on the slides entitled “Non-GAAP Supplemental Materials” in this presentation, as well as in Exhibit 99.1 to the company’s Form 8-K filed with the SEC on January 21, 2020. For other related information please visit the Company’s investor relations web site at: http://www.ibm.com/investor/events/earnings/4q19.html |
|
3 Overview 4Q19 FY19 $21.8B $77.1B Revenue $4.71 $12.81 Operating (non-GAAP) EPS $11.9B Free Cash Flow Significant actions in 2019 strengthened IBM’s foundation for Chapter 2 Solid fourth quarter revenue and gross margin performance y y Revenue growth of 3% yr/yr @CC* Operating gross margin expansion of 2.3 points − − Continued momentum in hybrid cloud y Cloud revenue +23% yr/yr @CC* in the fourth quarter $21 billion cloud revenue for the year − − Strong cash generation − $10 billion debt reduction since Red Hat closing *Yr/Yr excludes impact of divested businesses y |
|
4 Hybrid Cloud and Red Hat Update Red Hat continued strong performance: revenue +24% yr/yr @CC ● Record revenue, with > $1 billion in the quarter Infrastructure, led by RHEL continued double-digit growth App Dev & emerging tech growth accelerated, led by OpenShift and Ansible − − − Red Hat + IBM driving synergies ● Strong Cloud Pak adoption leverages IBM containerized software + OpenShift Accelerated new services engagements based on Red Hat Doubled number of Red Hat large client deals vs. 3Q Expanding client base: >2,000 clients using Red Hat and IBM’s hybrid cloud platform Expanded partnerships − − − − − Normalized for comparability to Red Hat historical performance |
|
5 Key Financial Metrics Grew revenue and expanded gross margin Solid free cash flow performance; free cash flow realization of 126% for the year y y Financial results reflect impact of transaction-related adjustments associated with the acquisition of Red Hat B/(W) Yr/Yr B/(W) Yr/Yr Revenue Highlights 4Q19 P&L Highlights (Operating) 4Q19 3%* 9% Flat (4%) 16% Revenue Cloud & Cognitive Software Global Business Services Global Technology Services Systems $21.8 $7.2 $4.2 $6.9 $3.0 Gross Profit Margin Expense Tax Rate Net Income Earnings Per Share 51.8% $6.6 10.5% $4.2 $4.71 2.3 pts (15%) 1.7 pts (5%) (3%) Cash Highlights 4Q19 FY19 23%* Cloud Revenue $6.8 Free Cash Flow (excl. GF Receivables) Share Repurchase (Gross) Dividends Cash Balance @ December 31 $6.0 $0.0 $1.4 $9.0 $11.9 $1.4 $5.7 Revenue growth rates @CC, $ in billions *Yr/Yr excludes impact of divested businesses |
|
6 Cloud & Cognitive Software Segment Cloud & Data Platforms growth driven by IBM + Red Hat hybrid cloud strategy Cognitive Applications performance led by integrated security solutions and verticals such as IoT Segment results reflect impact of transaction-related adjustments associated with the Red Hat acquisition y y y Segment Revenue Elements Segment Results Overview B/(W) Yr/Yr Segment 4Q19 Cognitive Applications +1% Yr/Yr Revenue (External) Pre-Tax Income Pre-Tax Income Margin $7.2 $2.9 36.6% 9% (7%) (6.0 pts) Cloud & Data Platforms +20% Yr/Yr includes Red Hat Transaction Processing Platforms +4% Yr/Yr Cloud Revenue $1.6 78% Revenue growth rates @CC, $ in billions |
|
7 Global Business Services Segment Consulting revenue reflects strength in application modernization and next gen enterprise applications Strong signings growth across all lines of business Accelerated synergy with Red Hat y y y Segment Results Overview Segment Revenue Elements B/(W) Yr/Yr Segment 4Q19 Revenue (External) Gross Profit Margin (External) Pre-Tax Income Pre-Tax Income Margin $4.2 27.5% $0.5 11.1% Flat (0.3 pts) (16%) (1.9 pts) Consulting +4% Yr/Yr Application Management (3%) Yr/Yr Global Process Services (10%) Yr/Yr Cloud Revenue $1.5 4% Revenue growth rates @CC, $ in billions |
|
8 Global Technology Services Segment Continued revenue impact from client business volumes Gross margin expansion driven by productivity and cloud scale Double-digit cloud signings growth y y y Segment Results Overview Segment Revenue Elements B/(W) Yr/Yr Segment 4Q19 Revenue (External) Gross Profit Margin (External) Pre-Tax Income Pre-Tax Income Margin $6.9 35.2% $0.6 8.9% (4%) 0.2 pts (2%) 0.3 pts Infrastructure & Cloud Services (5%) Yr/Yr Technology Support Services (2%) Yr/Yr Cloud Revenue $2.4 13% Revenue growth rates @CC, $ in billions |
|
9 Systems Segment Good start to z15 mainframe cycle with >60% revenue growth Storage growth driven by new high-end DS8900 release Pre-tax income reflects strength in high-value offerings from recent portfolio innovation y y y Segment Revenue Elements Segment Results Overview B/(W) Yr/Yr Segment 4Q19 Revenue (External) Pre-Tax Income Pre-Tax Income Margin $3.0 $0.8 24.8% 16% 46% 5.5 pts Systems Hardware +18% Yr/Yr Operating Systems Software +8% Yr/Yr Cloud Revenue $1.4 21% Revenue growth rates @CC, $ in billions |
|
10 Cash Flow and Balance Free cash flow realization 126% for the year Debt reduction of $10 billion since Red Hat close Sheet Highlights ● ● Balance Sheet Dec 19 Dec 18 Cash & Marketable Securities $9.0 $12.2 Global Financing Debt Core (non-GF) Debt Total Debt $24.7 $38.2 $62.9 $31.2 $14.6 $45.8 $ in billions *Non-GAAP metrics; excludes Global Financing receivables Cash Flow 4Q19 Yr/Yr FY19 Net Cash from Operations* $6.7 ($0.7) Free Cash Flow* $6.0 ($0.4) Selected Uses of Cash Net Capital Expenditures $0.6 Acquisitions $0.0 Dividends/Share Repurchase$1.4 $14.3 $11.9 $2.4 $32.6 $7.1 |
|
11 Debt Update Total Debt $73B ●Debt reduction of $10 billion since Red Hat close Global Financing bt ●Suspended share repurchase to focus on debt reduction ●Committed to achieving leverage ratio consistent with mid to high single-A credit rating within a couple of years Core Debt 2Q19 (Pre-Red Hat Close) 4Q19 $25B $63B $25B De $48B $38B |
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12 Summary Significant actions in 2019 strengthened IBM’s foundation for Chapter 2 y Good trajectory exiting the year y Revenue growth and gross margin expansion Continued momentum in hybrid cloud, including IBM + Red Hat synergies Strong cash generation − − − 2020 expectations: y Growth in revenue, operating EPS, and free cash flow At least $13.35 of operating earnings per share Approximately $12.5 billion free cash flow − − − |
|
13 ibm.com/investor |
|
14 Supplemental Materials • • • • • Key Financial Metrics – FY 2019 Additional Revenue Information – FY 2019 Expense Summary – FY 2019 Retirement–Related Summary Non-GAAP Supplemental Materials Currency – Impact on Revenue Growth Additional Revenue Information Additional Revenue, Gross Profit & Backlog Information Expense Summary Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) ● ● ● ● ● ● ● Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding |
|
15 Currency – Impact on Revenue Growth US$B Yr/Yr Revenue As Reported Currency Impact Revenue @ CC $21.8 ($0.1) 0.1% (0.6 pts) 0.7% Supplemental Materials Quarterly Averages per US $ 4Q19 Yr/Yr 1/17/2020 Spot 1Q20 2Q20 3Q20 4Q20 FY20 Euro 0.90 (3%) Pound 0.78 0% Yen 109 4% Revenue Impact, Future @ 1/17/20 Spot (0.6 pts) 0.90 0.77 110 (2%) (1%) 0% 0% (1%) 0% 1% 5% 1% 2% 0% 0% (3%) (1%) (1%) ~(1-1.5 pts) ~(0-1pts) 0 pts 0 pts ~(0-1pts) |
|
16 Additional Revenue Information B/(W) Yr/Yr* B/(W) Yr/Yr Geography Revenue 4Q19 Segment Revenue 4Q19 Cloud & Cognitive Software Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Global Business Services Consulting Global Process Services Application Management Global Technology Services Infrastructure & Cloud Services Technology Support Services Systems Systems Hardware Operating Systems Software Global Financing Revenue growth rates @CC, $ in billions *Yr/Yr excludes impact of divested businesses Supplemental Materials $7.2 $1.6 $3.1 $2.5 $4.2 $2.1 $0.2 $1.9 $6.9 $5.3 $1.7 $3.0 $2.6 $0.5 $0.3 9% 1% 20% 4% Flat 4% (10%) (3%) (4%) (5%) (2%) 16% 18% 8% (25%) Americas Europe/ME/Africa Asia Pacific $10.5 $7.1 $4.2 6% 4% (6%) B/(W) Yr/Yr * Cloud Revenue 4Q19 Total Cloud $6.8 23% |
|
17 Additional Revenue, Gross Profit & Backlog Information B/(W) Yr/Yr B/(W) Yr/Yr Systems Revenue 4Q19 Signings & Backlog* 4Q19 Systems Hardware Revenue IBM Z Power Storage $2.6 18% 63% (23%) 3% Signings Backlog Backlog Yr/Yr @Actual $14.4 $112.4 (9%) (3%) (3%) B/(W) Yr/Yr Systems Gross Profit 4Q19 Systems Gross Profit Systems Hardware Operating Systems Software 56.0% 50.8% 83.8% 5.2 pts 7.2 pts (2.4 pts) Growth rates @CC, $ in billions, Services Backlog calculated using December 31 currency spot rates *Signings & Backlog includes Global Technology Services, Global Business Services and Security Services; consistent with 2018 reporting Supplemental Materials |
|
18 Expense Summary $ in billions *includes acquisitions in the last twelve months net of non-operating acquisition-related charges and includes impact of divested businesses **represents the percentage change after excluding the impact of currency, acquisitions and divestitures Supplemental Materials B/(W) Expense4Q19 Yr/Yr Acq/ CurrencyDivest*Base** SG&A – Operating $5.1 (12%) RD&E – Operating $1.6 (18%) IP and Custom Development Income ($0.2) (14%) Other (Income)/Expense - Operating ($0.3) 55% Interest Expense $0.4 (83%) Operating Expense & Other Income $6.6 (15%) 1 pts (8 pts) (4 pts) 0 pts (14 pts) (4 pts) (1 pts)(10 pts)(4 pts) |
|
19 Balance Sheet Summary Jun 19** Dec 19 Dec 18 Cash & Marketable Securities Core (non-GF) Assets* Global Financing Assets Total Assets $9.0 $115.3 $27.9 $152.2 $46.4 $79.0 $29.3 $154.7 $12.2 $71.7 $39.5 $123.4 Other Liabilities Core (non-GF) Debt* Global Financing Debt Total Debt Total Liabilities Equity $68.3 $38.2 $24.7 $62.9 $131.2 $21.0 $63.8 $48.1 $25.0 $73.0 $136.9 $17.8 $60.6 $14.6 $31.2 $45.8 $106.5 $16.9 $ in billions *includes eliminations of inter-company activity **pre-Red Hat acquisition close Supplemental Materials |
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20 Cash Flow Summary $ in billions Supplemental Materials B/(W) 4Q19Yr/Yr B/(W) FY19 Yr/Yr Net Cash from Operations $3.5 ($0.7) Less: Global Financing Receivables($3.2) ($0.0) Net Cash from Operations (excluding GF Receivables)$6.7 ($0.7) Net Capital Expenditures ($0.6) $0.2 Free Cash Flow (excluding GF Receivables)$6.0 ($0.4) Acquisitions $0.0 $0.0 Divestitures $0.1 $0.1 Dividends ($1.4) ($0.0) Share Repurchases (Gross) $0.0 $2.0 Non-GF Debt ($5.6) ($3.5) Other (includes GF Net A/R & GF Debt) ($1.0) $2.2 Change in Cash & Marketable Securities ($1.9) $0.5 $14.8 ($0.5) $0.5 $0.8 $14.3 ($1.3) ($2.4) $1.3 $11.9 $0.0 ($32.6) ($32.5) $1.1 $1.1 ($5.7) ($0.0) ($1.4) $3.1 $22.8 $23.3 $0.7 $2.4 ($3.2) ($2.6) |
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21 Cash Flow (ASC 230) $ in billions Supplemental Materials 4Q194Q18 FY19 FY18 Net Income from Operations$3.7 $2.0 Depreciation / Amortization of Intangibles $1.6 $1.1 Stock-based Compensation $0.2 $0.1 Working Capital / Other $1.1 $4.1 Global Financing A/R ($3.2) ($3.2) Net Cash provided by Operating Activities$3.5 $4.1 Capital Expenditures, net of payments & proceeds ($0.6) ($0.9) Divestitures, net of cash transferred $0.1 $0.0 Acquisitions, net of cash acquired $0.0 ($0.0) Marketable Securities / Other Investments, net $0.6 $1.3 Net Cash provided by/(used in) Investing Activities$0.1 $0.5 Debt, net of payments & proceeds ($4.2) ($1.1) Dividends ($1.4) ($1.4) Common Stock Repurchases $0.0 ($2.0) Common Stock Transactions - Other ($0.1) $0.0 Net Cash provided by/(used in) Financing Activities($5.7) ($4.6) Effect of Exchange Rate changes on Cash $0.2 ($0.1) Net Change in Cash, Cash Equivalents & Restricted Cash($1.9) ($0.1) $9.4 $8.7 $6.1 $4.5 $0.7 $0.5 ($1.9) $1.9 $0.5 ($0.3) $14.8 $15.2 ($2.4) ($3.7) $1.1 $0.0 ($32.6) ($0.1) $7.0 ($1.1) ($26.9) ($4.9) $16.3 ($0.3) ($5.7) ($5.7) ($1.4) ($4.4) ($0.2) ($0.1) $9.0 ($10.5) ($0.2) ($0.5) ($3.3) ($0.6) |
|
22 Key Financial Metrics – FY 2019 Financial results reflect impact of transaction-related adjustments associated with the acquisition of Red Hat B/(W) Yr/Yr B/(W) Yr/Yr Revenue Highlights FY19 P&L Highlights (Operating) FY19 Flat* 6% 2% (4%) (4%) Revenue Cloud & Cognitive Software Global Business Services Global Technology Services Systems $77.1 $23.2 $16.6 $27.4 $7.6 Gross Profit Margin Expense Tax Rate Net Income Earnings Per Share Cash Highlights 48.0% $24.5 8.5% $11.4 $12.81 FY19 1.1 pts (4%) (0.7 pts) (10%) (7%) 14%* Cloud Revenue $21.2 Free Cash Flow (excl. GF Receivables) Share Repurchase (Gross) Dividends $11.9 $1.4 $5.7 Revenue growth rates @CC, $ in billions *Yr/Yr excludes impact of divested businesses Supplemental Materials |
|
23 Additional Revenue Information – FY 2019 B/(W) Yr/Yr * B/(W) Yr/Yr FY19 Segment Revenue FY19 Geography Revenue Cloud & Cognitive Software Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Global Business Services Consulting Global Process Services Application Management Global Technology Services Infrastructure & Cloud Services Technology Support Services Systems Systems Hardware Operating Systems Software Global Financing Revenue growth rates @CC, $ in billions *Yr/Yr excludes impact of divested businesses Supplemental Materials $23.2 $5.8 $9.5 $7.9 $16.6 $8.0 $1.0 $7.6 $27.4 $20.7 $6.6 $7.6 $5.9 $1.7 $1.4 6% 4% 12% 1% 2% 6% (1%) Flat (4%) (4%) (2%) (4%) (6%) 3% (10%) Americas Europe/ME/Africa Asia Pacific $36.3 $24.4 $16.4 1% 1% (2%) B/(W) Yr/Yr * Cloud Revenue FY19 Total Cloud $21.2 14% |
|
24 Expense Summary – FY 2019 $ in billions *includes acquisitions in the last twelve months net of non-operating acquisition-related charges and includes impact of divested businesses **represents the percentage change after excluding the impact of currency, acquisitions and divestitures Supplemental Materials B/(W) Expense MetricsFY19 Yr/Yr Acq/ CurrencyDivest*Base** SG&A – Operating $19.6 (3%) RD&E – Operating $5.9 (10%) IP and Custom Development Income ($0.6) (37%) Other (Income)/Expense - Operating ($1.4) NM Interest Expense - Operating $1.1 (54%) Operating Expense & Other Income $24.5 (4%) 2 pts (4 pts) (1 pts) 1 pts (6 pts) (5 pts) 3 pts(4 pts)(3 pts) |
|
25 Retirement-Related Summary Expected $ in billions *Qualified defined benefit plans **includes cash and non-cash contributions Supplemental Materials Key Assumptions and Metrics 2018 2019 2020 Cost and Contributions2019 2020 Funded Status at Year end* US104% 107% WW99% 102% Discount Rate at Year end US4.1% 3.1% WW3.0% 2.2% Expected ROA at Prior Year end US5.3% 5.3% 4.5% WW4.5% 4.9% 4.0% Actual ROA US(1.8%) 14.9% WW(1.9%) 13.6% Operating Cost$1.5 $1.5 Non-operating Cost$0.6 $1.2 Total Cost$2.1 $2.7 Contributions** $2.2 $2.3 |
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26 Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share – FY 2020 Expectations Full Year 2020 Expectations GAAP Diluted EPS Operating EPS (Non-GAAP) at least $10.57 at least $13.35 Adjustments Acquisition-Related Charges* Non-Operating Retirement-Related Items Tax Reform Enactment Impacts $1.70 $1.02 $0.06 *Includes acquisitions as of December 31, 2019 The above reconciles the Non-GAAP financial information contained in the “Summary” and “4Q19 Prepared Remarks” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated January 21, 2020 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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27 Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 4Q 2019 4Q19 Yr/Yr 4Q19 Yr/Yr GAAP @CC GAAP @CC Global Technology Services Infrastructure & Cloud Services Technology Support Services Cloud Systems Systems Hardware IBM Z Power Storage Operating Systems Software Cloud Global Financing (5%) (5%) (3%) 12% 16% 18% 62% (24%) 3% 8% 21% (25%) (4%) (5%) (2%) 13% 16% 18% 63% (23%) 3% 8% 21% (25%) Cloud & Cognitive Software Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Cloud Global Business Services Consulting Global Process Services Application Management Cloud 9% 1% 19% 3% 78% (1%) 4% (11%) (3%) 3% 9% 1% 20% 4% 78% Flat 4% (10%) (3%) 4% The above reconciles the Non-GAAP financial information contained in the “Key Financial Metrics”, “Cloud & Cognitive Software Segment”, “Global Business Services Segment”, “Global Technology Services Segment”, “Systems Segment”, “Additional Revenue Information”, “Additional Revenue, Gross Profit & Backlog Information”, and “4Q19 Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Fo rm 8-K dated January 21, 2020 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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28 Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 4Q & FY 2019 The above reconciles the Non-GAAP financial information contained in the “Overview”, “Key Financial Metrics”, “Additional Revenue Information” and “4Q19 Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated January 21, 2020 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 4Q19 Yr/Yr GAAPDivest impact Currency impact Adjusted FY19 Yr/Yr GAAPDivest impact Currency impact Adjusted Total Revenue 0.1% 2 pts1 pts2.8% (3.1%) 1 pts 2 pts 0.2% Americas 2% 3 pts 0 pts 6% Europe/ME/Africa Flat 2 pts 2 pts 4% Asia Pacific (5%) 1 pts (1 pts) (6%) Total Cloud 21% 2 pts 1 pts 23% (2%) 2 pts 1 pts 1% (4%) 1 pts 5 pts 1% (4%) 1 pts 1 pts (2%) 11% 1 pts 2 pts 14% |
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29 Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat, Normalized - 4Q 2019 Three Months Ended Red Hat Revenue, Normalized for Historical Comparability Dec 31 2019 Dec 31 2018 Yr/Yr Yr/Yr@CC Red Hat revenue as reported in IBM consolidated results (1) $573 $ - Add: Red Hat revenue prior to acquisition (2) Add: Purchase accounting deferred revenue and intercompany adjustments (3) Red Hat revenue normalized for historical comparability (non-GAAP) - 493 863 - $1,066 $863 24% 24% (1) (2) Represents GAAP Revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment. Red Hat revenue for the three months ended December 31, 2018 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes. 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. (3) The above reconciles the Non-GAAP financial information contained in the “Hybrid Cloud and Red Hat Update” and “4Q19 Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated January 21, 2020 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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30 Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 4Q & FY 2019 The above reconciles the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated January 21, 2020 for additional information on the use of these Non-GAAP financial measures. *Represents the percentage change after excluding the impact of currency, acquisitions and divestitures. Supplemental Materials 4Q19 Non-GAAPOperating GAAPAdjustments(Non-GAAP) FY19 Non-GAAPOperating GAAPAdjustments(Non-GAAP) SG&A Currency 1 pts 0 pts 1 pts Acquisitions/Divestitures(14 pts) 6 pts (8 pts) Base*(2 pts) (2 pts) (4 pts) RD&E Currency 0 pts 0 pts 0 pts Acquisitions/Divestitures(15 pts) 2 pts (14 pts) Base*(2 pts) (2 pts) (4 pts) Operating Expense & Other Income Currency(1 pts) 0 pts (1 pts) Acquisitions/Divestitures(15 pts) 5 pts (10 pts) Base*2 pts (6 pts) (4 pts) 2 pts 0 pts 2 pts (7 pts) 3 pts (4 pts) (1 pts) 0 pts (1 pts) 1 pts 0 pts 1 pts (7 pts) 1 pts (6 pts) (6 pts) 0 pts (5 pts) 3 pts 0 pts 3 pts (7 pts) 3 pts (4 pts) 1 pts (4 pts) (3 pts) |
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31 Non-GAAP Supplemental Materials Reconciliation of Tax Rate - FY 2020 Expectations Operating (Non-GAAP) Tax Rate Expectation GAAP Full-Year 2020* 3-6% 7-9% *includes estimate of discrete tax events for the year; actual events will be recorded as they occur The above reconciles the Non-GAAP financial information contained in the “4Q Prepared Remarks” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated January 21, 2020 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
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32 ibm.com/investor |