UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2022
1-2360
(Commission file number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
New York | 13-0871985 |
(State of incorporation) | (IRS employer identification number) |
One New Orchard Road Armonk, New York | 10504 |
(Address of principal executive offices) | (Zip Code) |
914-499-1900
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol(s) |
| Name of each exchange |
Capital stock, par value $.20 per share |
| IBM |
| New York Stock Exchange |
|
|
|
| |
2.625% Notes due 2022 |
| IBM 22A |
| New York Stock Exchange |
1.250% Notes due 2023 |
| IBM 23A |
| New York Stock Exchange |
0.375% Notes due 2023 |
| IBM 23B |
| New York Stock Exchange |
1.125% Notes due 2024 |
| IBM 24A |
| New York Stock Exchange |
2.875% Notes due 2025 |
| IBM 25A |
| New York Stock Exchange |
0.950% Notes due 2025 |
| IBM 25B |
| New York Stock Exchange |
0.875% Notes due 2025 |
| IBM 25C |
| New York Stock Exchange |
0.300% Notes due 2026 |
| IBM 26B |
| New York Stock Exchange |
1.250% Notes due 2027 |
| IBM 27B |
| New York Stock Exchange |
0.300% Notes due 2028 | IBM 28B | New York Stock Exchange | ||
1.750% Notes due 2028 |
| IBM 28A |
| New York Stock Exchange |
1.500% Notes due 2029 |
| IBM 29 |
| New York Stock Exchange |
0.875% Notes due 2030 | IBM 30 | New York Stock Exchange | ||
1.750% Notes due 2031 |
| IBM 31 |
| New York Stock Exchange |
0.650% Notes due 2032 | IBM 32A | New York Stock Exchange | ||
1.250% Notes due 2034 | IBM 34 | New York Stock Exchange | ||
1.200% Notes due 2040 | IBM 40 | New York Stock Exchange | ||
7.00% Debentures due 2025 |
| IBM 25 |
| New York Stock Exchange |
6.22% Debentures due 2027 |
| IBM 27 |
| New York Stock Exchange |
6.50% Debentures due 2028 |
| IBM 28 |
| New York Stock Exchange |
7.00% Debentures due 2045 |
| IBM 45 |
| New York Stock Exchange |
7.125% Debentures due 2096 |
| IBM 96 |
| New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
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). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 903,180,353 shares of common stock outstanding at June 30, 2022.
Index
2
Part I - Financial Information
Item 1. Consolidated Financial Statements:
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||||
(Dollars in millions except per share amounts) |
| 2022 |
| 2021* |
| 2022 |
| 2021* | |||||
Revenue: |
|
|
|
|
|
|
| ||||||
Services | $ | 7,640 | $ | 7,201 | $ | 15,343 | $ | 14,297 | |||||
Sales |
| 7,748 |
| 6,808 | ** |
| 14,087 |
| 12,687 | ** | |||
Financing |
| 147 |
| 209 | ** |
| 303 |
| 420 | ** | |||
Total revenue |
| 15,535 |
| 14,218 |
| 29,732 |
| 27,405 | |||||
Cost: |
|
|
|
|
|
|
|
| |||||
Services |
| 5,399 |
| 4,720 |
| 10,747 |
| 9,364 | |||||
Sales |
| 1,750 |
| 1,499 | ** |
| 3,165 |
| 2,878 | ** | |||
Financing |
| 96 |
| 146 | ** |
| 194 |
| 283 | ** | |||
Total cost |
| 7,246 |
| 6,366 |
| 14,107 |
| 12,526 | |||||
Gross profit |
| 8,290 |
| 7,852 |
| 15,625 |
| 14,879 | |||||
Expense and other (income): |
|
|
|
|
|
|
|
| |||||
Selling, general and administrative |
| 4,855 |
| 4,849 |
| 9,452 |
| 9,536 | |||||
Research, development and engineering |
| 1,673 |
| 1,641 |
| 3,352 |
| 3,257 | |||||
Intellectual property and custom development income |
| (176) |
| (133) |
| (297) |
| (278) | |||||
Other (income) and expense |
| (81) |
| 302 |
| 166 |
| 647 | |||||
Interest expense |
| 297 |
| 281 |
| 607 |
| 561 | |||||
Total expense and other (income) |
| 6,568 |
| 6,940 |
| 13,280 |
| 13,724 | |||||
Income from continuing operations before income taxes |
| 1,722 |
| 912 |
| 2,345 |
| 1,155 | |||||
Provision for/(benefit from) income taxes |
| 257 |
| 101 |
| 218 |
| (58) | |||||
Income from continuing operations | $ | 1,465 | $ | 810 | $ | 2,127 | $ | 1,213 | |||||
Income/(loss) from discontinued operations, net of tax |
| (73) |
| 515 |
| (2) |
| 1,067 | |||||
Net income | $ | 1,392 | $ | 1,325 | $ | 2,125 | $ | 2,280 | |||||
Earnings/(loss) per share of common stock: |
|
|
|
|
|
|
|
| |||||
Assuming dilution: |
|
|
|
|
|
|
|
| |||||
Continuing operations | $ | 1.61 | $ | 0.90 | $ | 2.34 | $ | 1.34 | |||||
Discontinued operations |
| (0.08) |
| 0.57 |
| 0.00 |
| 1.18 | |||||
Total | $ | 1.53 | $ | 1.47 | $ | 2.34 | $ | 2.52 | |||||
Basic: |
|
|
|
|
|
|
|
| |||||
Continuing operations | $ | 1.62 | $ | 0.91 | $ | 2.36 | $ | 1.36 | |||||
Discontinued operations |
| (0.08) |
| 0.57 |
| 0.00 |
| 1.19 | |||||
Total | $ | 1.54 | $ | 1.48 | $ | 2.36 | $ | 2.55 | |||||
Weighted-average number of common shares outstanding: (millions) |
|
|
|
|
|
|
|
| |||||
Assuming dilution |
| 910.7 |
| 904.2 |
| 910.0 |
| 903.0 | |||||
Basic |
| 901.5 |
| 895.0 |
| 900.4 |
| 894.3 | |||||
* | Reclassified to reflect discontinued operations presentation. |
** | Reclassified to conform to current year presentation. |
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
3
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||
(Dollars in millions) |
| 2022 |
| 2021* |
| 2022 |
| 2021* | ||||
Net income | $ | 1,392 | $ | 1,325 | $ | 2,125 | $ | 2,280 | ||||
Other comprehensive income/(loss), before tax: |
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
| 213 |
| 28 |
| 655 |
| 577 | ||||
Net changes related to available-for-sale securities: |
|
|
|
|
|
|
|
| ||||
Unrealized gains/(losses) arising during the period |
| 0 |
| 0 |
| (1) |
| 0 | ||||
Reclassification of (gains)/losses to net income |
| — |
| — |
| — |
| — | ||||
Total net changes related to available-for-sale securities |
| 0 |
| 0 |
| (1) |
| 0 | ||||
Unrealized gains/(losses) on cash flow hedges: |
|
|
|
|
|
|
|
| ||||
Unrealized gains/(losses) arising during the period |
| 200 |
| (34) |
| 260 |
| 153 | ||||
Reclassification of (gains)/losses to net income |
| 16 |
| 90 |
| 16 |
| 251 | ||||
Total unrealized gains/(losses) on cash flow hedges |
| 217 |
| 56 |
| 276 |
| 404 | ||||
Retirement-related benefit plans: |
|
|
|
|
|
|
|
| ||||
Prior service costs/(credits) |
| — |
| 0 |
| (5) |
| 0 | ||||
Net (losses)/gains arising during the period |
| 1 |
| 2 |
| 10 |
| 22 | ||||
Curtailments and settlements |
| 11 |
| 16 |
| 19 |
| 34 | ||||
Amortization of prior service (credits)/costs |
| 6 |
| 1 |
| 13 |
| 4 | ||||
Amortization of net (gains)/losses | 450 | 643 | 917 | 1,291 | ||||||||
Total retirement-related benefit plans |
| 468 |
| 661 |
| 954 |
| 1,350 | ||||
Other comprehensive income/(loss), before tax |
| 897 |
| 745 |
| 1,885 |
| 2,330 | ||||
Income tax (expense)/benefit related to items of other comprehensive income |
| (534) |
| (140) |
| (819) |
| (645) | ||||
Other comprehensive income/(loss), net of tax |
| 363 |
| 605 |
| 1,066 |
| 1,685 | ||||
Total comprehensive income | $ | 1,755 | $ | 1,930 | $ | 3,191 | $ | 3,965 | ||||
* Amounts presented have not been recast to exclude discontinued operations.
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
4
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
| At June 30, |
| At December 31, |
| |||
(Dollars in millions) | 2022 |
| 2021 |
| |||
Assets: |
|
|
|
| |||
Current assets: |
|
|
|
| |||
Cash and cash equivalents | $ | 7,034 | $ | 6,650 | |||
Restricted cash |
| 220 |
| 307 | |||
Marketable securities |
| 524 |
| 600 | |||
Notes and accounts receivable — trade (net of allowances of $213 in 2022 and $218 in 2021) |
| 5,867 |
| 6,754 | |||
Short-term financing receivables: |
|
| |||||
Held for investment (net of allowances of $150 in 2022 and $176 in 2021) |
| 6,619 |
| 7,221 | |||
Held for sale |
| 614 |
| 793 | |||
Other accounts receivable (net of allowances of $35 in 2022 and $24 in 2021) |
| 909 |
| 1,002 | |||
Inventory, at lower of average cost or net realizable value: |
|
| |||||
Finished goods |
| 184 |
| 208 | |||
Work in process and raw materials |
| 1,499 |
| 1,442 | |||
Total inventory |
| 1,684 |
| 1,649 | |||
Deferred costs |
| 1,010 |
| 1,097 | |||
Prepaid expenses and other current assets |
| 3,414 |
| 3,466 | |||
Total current assets |
| 27,896 |
| 29,539 | |||
Property, plant and equipment |
| 19,079 |
| 20,085 | |||
Less: Accumulated depreciation |
| 13,804 |
| 14,390 | |||
Property, plant and equipment — net |
| 5,275 |
| 5,694 | |||
Operating right-of-use assets — net |
| 2,848 |
| 3,222 | |||
Long-term financing receivables (net of allowances of $22 in 2022 and $25 in 2021) |
| 5,316 |
| 5,425 | |||
Prepaid pension assets |
| 9,930 |
| 9,850 | |||
Deferred costs |
| 865 |
| 924 | |||
Deferred taxes |
| 7,073 |
| 7,370 | |||
Goodwill |
| 55,039 |
| 55,643 | |||
Intangible assets — net |
| 11,571 |
| 12,511 | |||
Investments and sundry assets |
| 1,689 |
| 1,823 | |||
Total assets | $ | 127,503 | $ | 132,001 | |||
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
5
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET – (CONTINUED)
(UNAUDITED)
LIABILITIES AND EQUITY
| At June 30, |
| At December 31, | |||
(Dollars in millions except per share amounts) | 2022 |
| 2021 | |||
Liabilities: | ||||||
Current liabilities: |
|
|
|
| ||
Taxes | $ | 1,742 | $ | 2,289 | ||
Short-term debt |
| 5,981 |
| 6,787 | ||
Accounts payable |
| 3,707 |
| 3,955 | ||
Compensation and benefits |
| 3,327 |
| 3,204 | ||
Deferred income |
| 12,522 |
| 12,518 | ||
Operating lease liabilities |
| 884 |
| 974 | ||
Other accrued expenses and liabilities |
| 3,682 |
| 3,892 | ||
Total current liabilities |
| 31,844 |
| 33,619 | ||
Long-term debt |
| 44,328 |
| 44,917 | ||
Retirement and nonpension postretirement benefit obligations |
| 13,118 |
| 14,435 | ||
Deferred income |
| 3,069 |
| 3,577 | ||
Operating lease liabilities |
| 2,182 |
| 2,462 | ||
Other liabilities |
| 13,486 |
| 13,996 | ||
Total liabilities |
| 108,026 |
| 113,005 | ||
Equity: |
|
|
| |||
IBM stockholders’ equity: |
|
|
| |||
Common stock, par value $0.20 per share, and additional paid-in capital |
| 57,802 |
| 57,319 | ||
Shares authorized: 4,687,500,000 |
|
|
| |||
Shares issued: 2022 - 2,254,538,572 |
|
|
| |||
2021 - 2,248,577,848 |
|
| ||||
Retained earnings |
| 153,298 |
| 154,209 | ||
Treasury stock - at cost |
| (169,522) |
| (169,392) | ||
Shares: 2022 - 1,351,358,219 |
|
| ||||
2021 - 1,350,509,249 |
|
| ||||
Accumulated other comprehensive income/(loss) |
| (22,169) |
| (23,234) | ||
Total IBM stockholders’ equity |
| 19,409 |
| 18,901 | ||
Noncontrolling interests |
| 67 |
| 95 | ||
Total equity |
| 19,476 |
| 18,996 | ||
Total liabilities and equity | $ | 127,503 | $ | 132,001 | ||
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
6
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, | ||||||
(Dollars in millions) |
| 2022 |
| 2021 | ||
Cash flows from operating activities: |
|
|
|
| ||
Net income | $ | 2,125 | $ | 2,280 | ||
Adjustments to reconcile net income to cash provided by operating activities |
|
|
|
| ||
Depreciation |
| 1,251 |
| 2,102 | ||
Amortization of intangibles |
| 1,251 |
| 1,250 | ||
Stock-based compensation |
| 488 |
| 457 | ||
Net (gain)/loss on asset sales and other |
| (100) |
| (144) | ||
Changes in operating assets and liabilities, net of acquisitions/divestitures |
| (446) |
| 1,594 | ||
Net cash provided by operating activities |
| 4,569 |
| 7,539 | ||
Cash flows from investing activities: |
|
|
|
| ||
Payments for property, plant and equipment |
| (620) |
| (1,054) | ||
Proceeds from disposition of property, plant and equipment |
| 90 |
| 215 | ||
Investment in software |
| (341) |
| (379) | ||
Acquisition of businesses, net of cash acquired |
| (958) |
| (2,866) | ||
Divestitures of businesses, net of cash transferred |
| 1,268 |
| (25) | ||
Non-operating finance receivables — net |
| 0 |
| 16 | ||
Purchases of marketable securities and other investments |
| (2,336) |
| (1,890) | ||
Proceeds from disposition of marketable securities and other investments |
| 1,711 |
| 1,312 | ||
Net cash provided by/(used in) investing activities |
| (1,186) |
| (4,671) | ||
Cash flows from financing activities: |
|
|
|
| ||
Proceeds from new debt |
| 4,402 |
| 243 | ||
Payments to settle debt |
| (3,959) |
| (5,974) | ||
Short-term borrowings/(repayments) less than 90 days — net |
| (9) |
| (68) | ||
Common stock repurchases for tax withholdings |
| (315) |
| (234) | ||
Financing — other |
| 25 |
| 44 | ||
Cash dividends paid |
| (2,963) |
| (2,924) | ||
Net cash provided by/(used in) financing activities |
| (2,819) |
| (8,914) | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| (267) |
| (65) | ||
Net change in cash, cash equivalents and restricted cash |
| 297 |
| (6,110) | ||
Cash, cash equivalents and restricted cash at January 1 |
| 6,957 |
| 13,675 | ||
Cash, cash equivalents and restricted cash at June 30 | $ | 7,254 | $ | 7,565 | ||
Cash flows are presented on an IBM consolidated basis. Refer to note 3, “Separation of Kyndryl,” for additional information related to cash flows from Kyndryl discontinued operations.
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
7
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EQUITY
(UNAUDITED)
| Common | ||||||||||||||||||||
Stock and | Accumulated | ||||||||||||||||||||
Additional | Other | Total IBM | Non- | ||||||||||||||||||
Paid-in | Retained | Treasury | Comprehensive | Stockholders’ | Controlling | Total | |||||||||||||||
(Dollars in millions except per share amounts) |
| Capital |
| Earnings |
| Stock |
| Income/(Loss) |
| Equity |
| Interests |
| Equity | |||||||
Equity - April 1, 2022 | $ | 57,603 | $ | 153,401 | $ | (169,422) | $ | (22,532) | $ | 19,050 | $ | 62 | $ | 19,112 | |||||||
Net income plus other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
|
|
| 1,392 |
|
|
|
|
| 1,392 |
|
|
| 1,392 | |||||||
Other comprehensive income/(loss) |
|
|
|
|
|
|
| 363 |
| 363 |
|
|
| 363 | |||||||
Total comprehensive income/(loss) |
|
|
|
|
|
|
|
| $ | 1,755 |
|
| $ | 1,755 | |||||||
Cash dividends paid — common stock ($1.65 per share) |
|
|
| (1,488) |
|
|
|
|
| (1,488) |
|
|
| (1,488) | |||||||
Common stock issued under employee plans (4,398,589 shares) |
| 199 |
|
|
|
|
|
|
| 199 |
|
|
| 199 | |||||||
Purchases (1,723,774 shares) and sales (1,070,214 shares) of treasury stock under employee plans — net |
|
|
| (7) |
| (100) |
|
|
| (107) |
|
|
| (107) | |||||||
Changes in noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
| 6 |
| 6 | |||||||
Equity – June 30, 2022 | $ | 57,802 | $ | 153,298 | $ | (169,522) | $ | (22,169) | $ | 19,409 | $ | 67 | $ | 19,476 | |||||||
| Common |
|
|
|
|
|
| ||||||||||||||
Stock and | Accumulated | ||||||||||||||||||||
Additional | Other | Total IBM | Non- | ||||||||||||||||||
Paid-in | Retained | Treasury | Comprehensive | Stockholders’ | Controlling | Total | |||||||||||||||
(Dollars in millions except per share amounts) | Capital | Earnings | Stock | Income/(Loss) | Equity | Interests | Equity | ||||||||||||||
Equity - April 1, 2021 | $ | 56,788 | $ | 162,218 | $ | (169,360) | $ | (28,257) | $ | 21,389 | $ | 124 | $ | 21,513 | |||||||
Net income plus other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
|
|
| 1,325 |
|
|
|
|
| 1,325 |
|
|
| 1,325 | |||||||
Other comprehensive income/(loss) |
|
|
|
|
|
|
| 605 |
| 605 |
|
|
| 605 | |||||||
Total comprehensive income/(loss) |
|
|
|
|
|
|
|
| $ | 1,930 |
|
| $ | 1,930 | |||||||
Cash dividends paid — common stock ($1.64 per share) |
|
|
| (1,467) |
|
|
|
|
| (1,467) |
|
|
| (1,467) | |||||||
Common stock issued under employee plans (2,967,655 shares) |
| 124 |
|
|
|
|
|
|
| 124 |
|
|
| 124 | |||||||
Purchases (1,334,081 shares) and sales (1,163,671 shares) of treasury stock under employee plans — net |
|
|
| 11 |
| (44) |
|
|
| (33) |
|
|
| (33) | |||||||
Changes in noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
| 1 |
| 1 | |||||||
Equity - June 30, 2021 | $ | 56,912 | $ | 162,086 | $ | (169,404) | $ | (27,652) | $ | 21,942 | $ | 125 | $ | 22,067 | |||||||
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
8
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EQUITY – (CONTINUED)
(UNAUDITED)
Common | |||||||||||||||||||||
Stock and | Accumulated | ||||||||||||||||||||
Additional | Other | Total IBM | Non- | ||||||||||||||||||
Paid-in | Retained | Treasury | Comprehensive | Stockholders’ | Controlling | Total | |||||||||||||||
(Dollars in millions except per share amounts) |
| Capital |
| Earnings |
| Stock |
| Income/(Loss) |
| Equity |
| Interests |
| Equity | |||||||
Equity - January 1, 2022 | $ | 57,319 | $ | 154,209 | $ | (169,392) | $ | (23,234) | $ | 18,901 | $ | 95 | $ | 18,996 | |||||||
Net income plus other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
|
|
| 2,125 |
|
|
|
|
| 2,125 |
|
|
| 2,125 | |||||||
Other comprehensive income/(loss) |
|
|
|
|
|
|
| 1,066 |
| 1,066 |
|
|
| 1,066 | |||||||
Total comprehensive income/(loss) |
|
|
|
|
|
|
|
| $ | 3,191 |
|
| $ | 3,191 | |||||||
Cash dividends paid — common stock ($3.29 per share) |
|
|
| (2,963) |
|
|
|
|
| (2,963) |
|
|
| (2,963) | |||||||
Common stock issued under employee plans (5,960,724 shares) |
| 420 |
|
|
|
|
|
|
| 420 |
|
|
| 420 | |||||||
Purchases (2,319,484 shares) and sales (1,470,514 shares) of treasury stock under employee plans — net |
|
|
| (11) |
| (130) |
|
|
| (141) |
|
|
| (141) | |||||||
Other equity |
| 63 |
| (63) |
|
|
|
|
| 0 |
|
|
| 0 | |||||||
Changes in noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
| (27) |
| (27) | |||||||
Equity - June 30, 2022 | $ | 57,802 | $ | 153,298 | $ | (169,522) | $ | (22,169) | $ | 19,409 | $ | 67 | $ | 19,476 | |||||||
| Common |
|
|
|
|
|
| ||||||||||||||
Stock and | Accumulated | ||||||||||||||||||||
Additional | Other | Total IBM | Non- | ||||||||||||||||||
Paid-in | Retained | Treasury | Comprehensive | Stockholders’ | Controlling | Total | |||||||||||||||
(Dollars in millions except per share amounts) | Capital | Earnings | Stock | Income/(Loss) | Equity | Interests | Equity | ||||||||||||||
Equity - January 1, 2021 | $ | 56,556 | $ | 162,717 | $ | (169,339) | $ | (29,337) | $ | 20,597 | $ | 129 | $ | 20,727 | |||||||
Net income plus other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
|
|
| 2,280 |
|
|
|
|
| 2,280 |
|
|
| 2,280 | |||||||
Other comprehensive income/(loss) |
|
|
|
|
|
|
| 1,685 |
| 1,685 |
|
|
| 1,685 | |||||||
Total comprehensive income/(loss) |
|
|
|
|
|
|
|
| $ | 3,965 |
|
| $ | 3,965 | |||||||
Cash dividends paid — common stock ($3.27 per share) |
|
|
| (2,924) |
|
|
|
|
| (2,924) |
|
|
| (2,924) | |||||||
Common stock issued under employee plans (4,013,839 shares) |
| 355 |
|
|
|
|
|
|
| 355 |
|
|
| 355 | |||||||
Purchases (1,673,587 shares) and sales (1,326,397 shares) of treasury stock under employee plans — net |
|
|
| 13 |
| (65) |
|
|
| (51) |
|
|
| (51) | |||||||
Changes in noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
| (4) |
| (4) | |||||||
Equity - June 30, 2021 | $ | 56,912 | $ | 162,086 | $ | (169,404) | $ | (27,652) | $ | 21,942 | $ | 125 | $ | 22,067 | |||||||
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
9
1. Basis of Presentation:
The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company’s management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company’s results of operations, financial position and cash flows.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates.
On November 3, 2021, the company completed the separation of its managed infrastructure services unit into a new public company with the distribution of 80.1 percent of the outstanding common stock of Kyndryl Holdings, Inc. (Kyndryl) to IBM stockholders on a pro rata basis. To effect the separation, IBM stockholders received share of Kyndryl common stock for every five shares of IBM common stock held at the close of business on October 25, 2021, the record date for the distribution. The company retained 19.9 percent of the shares of Kyndryl common stock immediately following the separation with the intent to dispose of such shares within twelve months after the distribution. The company accounts for the retained Kyndryl common stock as a fair value equity investment included within prepaid expenses and other current assets in the Consolidated Balance Sheet with subsequent fair value changes included in other (income) and expense in the Consolidated Income Statement. On May 23, 2022, the company transferred 22,301,536 (22.3 million) shares of Kyndryl common stock, equal to 9.95 percent or half of the company’s 19.9 percent retained interest, to a third-party financial institution pursuant to an exchange agreement. Refer to note 8, “Financial Assets & Liabilities,” for additional information.
The accounting requirements for reporting the separation of Kyndryl as a discontinued operation were met when the separation was completed. Accordingly, the historical results of Kyndryl are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. Refer to note 3, “Separation of Kyndryl,” for additional information.
In the first quarter of 2022, the company realigned its management structure to reflect the planned divestiture of its healthcare software assets which was completed in the second quarter of 2022. This change impacted the company’s Software segment and Other–divested businesses category. In the fourth quarter of 2021, immediately prior to the separation of Kyndryl, the company made a number of changes to its organizational structure and management system. These changes impacted the company’s reportable segments but did not impact the Consolidated Financial Statements. Refer to note 5, “Segments,” for additional information on the company’s reportable segments. The segments are reported on a comparable basis for all periods.
For the three and six months ended June 30, 2022, the company reported a provision for income taxes of $257 million and $218 million, respectively, and its effective tax rate was 14.9 percent and 9.3 percent, respectively. The company reported a tax benefit in the first quarter of 2022 primarily due to the impacts of foreign tax credit regulations, geographical mix of income, incentives and changes in unrecognized tax benefits. For the three and six months ended June 30, 2021, the company reported a provision for income taxes of $101 million and a benefit from income taxes of $58 million, respectively, and its effective tax rate was 11.1 percent and (5.0) percent, respectively. The company reported a tax benefit in the first quarter of 2021 which was primarily driven by the resolution of certain tax audits.
Noncontrolling interest amounts of $5.5 million and $4.2 million, net of tax, for the three months ended June 30, 2022 and 2021, respectively, and $10.5 million and $9.1 million, net of tax, for the six months ended June 30, 2022 and 2021, respectively, are included as a reduction within other (income) and expense in the Consolidated Income Statement.
10
Notes to Consolidated Financial Statements — (continued)
Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company’s 2021 Annual Report.
Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain prior-period amounts have been reclassified to conform to the current-period presentation. This is annotated where applicable. In addition, in the first quarter of 2022, an adjustment of $63 million was recorded between common stock and retained earnings related to the issuance of treasury stock in connection with certain previously stock-based compensation awards and is reflected in the Consolidated Balance Sheet and Consolidated Statement of Equity at June 30, 2022.
2. Accounting Changes:
New Standards to be Implemented
Disclosures about Government Assistance
Standard/Description–Issuance date: November 2021. This guidance requires an entity to provide certain annual disclosures about government assistance received and accounted for by applying a grant or contribution accounting model by analogy.
Effective Date and Adoption Considerations–The guidance is effective for annual disclosures beginning in 2022 and early adoption was permitted. The company will adopt the guidance as of the effective date.
Effect on Financial Statements or Other Significant Matters–As the guidance is a change to disclosures only, the company does not expect it to have a material impact in the consolidated financial results.
Troubled Debt Restructurings and Vintage Disclosures
Standard/Description–Issuance date: March 2022. This eliminates the accounting guidance for troubled debt restructurings and requires an entity to apply the general loan modification guidance to all loan modifications, including those made to customers experiencing financial difficulty, to determine whether the modification results in a new loan or a continuation of an existing loan. The guidance also requires presenting current period gross write-offs by year of origination for financing receivables and net investment in leases.
Effective Date and Adoption Considerations–The amendment is effective January 1, 2023 and early adoption is permitted. The company will adopt the guidance as of the effective date.
Effect on Financial Statements or Other Significant Matters–The guidance is not expected to have a material impact in the consolidated financial results.
Standards Implemented
Lessors–Certain Leases with Variable Lease Payments
Standard/Description–Issuance date: July 2021. This guidance modifies a lessor’s accounting for certain leases with variable lease payments that resulted in the recognition of a day-one loss even if the lessor expected the arrangement to be profitable overall. The amendment requires these types of lease contracts to be classified as operating leases which eliminates any recognition of a day-one loss.
Effective Date and Adoption Considerations–The amendment was effective January 1, 2022 and early adoption was permitted. The company adopted the guidance on a prospective basis as of the effective date.
Effect on Financial Statements or Other Significant Matters–The guidance did not have a material impact in the consolidated financial results.
11
Notes to Consolidated Financial Statements — (continued)
Revenue Contracts with Customers Acquired in a Business Combination
Standard/Description–Issuance date: October 2021. This guidance requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with revenue guidance, as if it had originated the contracts. Deferred revenue acquired in a business combination is no longer required to be measured at its fair value, but rather will generally be recognized at the same basis as the acquiree.
Effective Date and Adoption Considerations–The amendment is effective January 1, 2023 and early adoption is permitted including adoption in an interim period. The company adopted the guidance as of October 1, 2021 using the retrospective transition method whereby the new guidance was applied to all business combinations that occurred on or after January 1, 2021.
Effect on Financial Statements or Other Significant Matters–The guidance did not have a material impact in the consolidated financial results. The impact of the guidance in IBM’s future financial results will be dependent on the nature and size of its acquisitions.
Simplifying the Accounting for Income Taxes
Standard/Description–Issuance date: December 2019. This guidance simplifies various aspects of income tax accounting by removing certain exceptions to the general principle of the guidance and also clarifies and amends existing guidance to improve consistency in application.
Effective Date and Adoption Considerations–The guidance was effective January 1, 2021 and early adoption was permitted. The company adopted the guidance on a prospective basis as of the effective date.
Effect on Financial Statements or Other Significant Matters–The guidance did not have a material impact in the consolidated financial results.
3. Separation of Kyndryl:
On November 3, 2021, the company completed the separation of its managed infrastructure services unit into a new public company with the distribution of 80.1 percent of the outstanding shares of Kyndryl to IBM stockholders on a pro rata basis. The company retained 19.9 percent of the shares of Kyndryl common stock. On May 23, 2022, the company transferred 22.3 million shares, equal to 9.95 percent or half of the company’s 19.9 percent retained interest, to a third-party financial institution pursuant to an exchange agreement. Refer to note 8, “Financial Assets & Liabilities,” for additional information.
The historical results of Kyndryl have been presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The company’s presentation of discontinued operations excludes general corporate overhead costs which were historically allocated to Kyndryl, consistent with the company’s management system, that did not meet the requirements to be presented in discontinued operations in 2021. Such allocations include labor and non-labor expenses related to IBM’s corporate support functions (e.g., finance, accounting, tax, treasury, IT, HR, legal, among others) that historically provided support to Kyndryl and transferred to Kyndryl at separation. In addition, discontinued operations excludes the historical intercompany purchases and sales between IBM and Kyndryl that were eliminated in consolidation.
IBM will provide transition services to Kyndryl predominantly consisting of information technology services for a period no longer than two years after the separation. The impact of these transition services on the company’s Consolidated Financial Statements for the three and six months ended June 30, 2022 was not material.
IBM and Kyndryl entered into various commercial agreements pursuant to which Kyndryl will purchase hardware, software and services from IBM and under which IBM will receive hosting and information infrastructure services from Kyndryl. As part of the separation, IBM has also committed to provide upgraded hardware at no cost to Kyndryl over a two-year period after the separation. IBM recorded an estimate of its obligation under the agreement in other accrued expenses and liabilities in the Consolidated Balance Sheet.
12
The following table presents the major categories of income/(loss) from discontinued operations, net of tax:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(Dollars in millions) |
| 2022 |
| 2021* | 2022 |
| 2021* | |||||
Revenue | $ | (11) | $ | 4,527 | $ | 7 | $ | 9,070 | ||||
Cost of sales |
| (4) |
| 3,375 |
| 17 |
| 6,741 | ||||
Selling, general and administrative expense |
| 73 |
| 485 |
| 66 |
| 972 | ||||
RD&E and Other (income) and expense |
| 0 |
| 26 |
| (69) |
| 55 | ||||
Income/(loss) from discontinued operations before income taxes | $ | (80) | $ | 641 | $ | (7) | $ | 1,302 | ||||
Provision for/(benefit from) income taxes |
| (7) |
| 126 |
| (5) |
| 235 | ||||
Income/(loss) from discontinued operations, net of tax | $ | (73) | $ | 515 | $ | (2) | $ | 1,067 | ||||
* | Excludes intercompany transactions between IBM and Kyndryl and general corporate overhead costs transferred to Kyndryl as discussed above. |
Loss from discontinued operations, net of tax, for the three months ended June 30, 2022 primarily reflects the net impact of changes in separation-related estimates and the settlement of assets and liabilities in accordance with the separation and distribution agreement. Loss from discontinued operations, net of tax, for the six months ended June 30, 2022 reflects the same drivers as above and also includes a joint venture historically managed by Kyndryl, which did not transfer at separation due to the transfer being subject to regulatory approval. Upon receiving regulatory approval in the first quarter of 2022, the company sold its majority shares in the joint venture to Kyndryl, resulting in a pre-tax gain on sale of $68 million.
Separation costs of $2 million and $146 million incurred during the three months ended June 30, 2022 and 2021, respectively, and $5 million and $196 million incurred during the six months ended June 30, 2022 and 2021, respectively, are included in income/(loss) from discontinued operations, net of tax, in the Consolidated Income Statement. These charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlement charges and related tax charges.
The following table presents selected financial information related to cash flows from discontinued operations:
| Six Months Ended June 30, |
| |||||
(Dollars in millions) | 2022 | 2021 | |||||
Net cash provided by/(used in) operating activities | $ | — | $ | 1,465 | * | ||
Net cash provided by/(used in) investing activities |
| 48 |
| (321) | |||
* | Excludes intercompany transactions between IBM and Kyndryl and general corporate overhead costs transferred to Kyndryl as discussed above. |
13
Notes to Consolidated Financial Statements — (continued)
4. Revenue Recognition:
Disaggregation of Revenue
The following tables provide details of revenue by major products/service offerings, hybrid cloud revenue, and revenue by geography.
Revenue by Major Products/Service Offerings
|
|
| |||||||||||
Three Months Ended June 30, | Six Months Ended June 30, |
| |||||||||||
(Dollars in millions) | 2022 | 2021* | 2022 | 2021* | |||||||||
Hybrid Platform & Solutions | $ | 4,390 | $ | 4,208 | $ | 8,470 | $ | 8,008 | |||||
Transaction Processing | 1,776 | 1,587 | 3,468 | 2,925 | |||||||||
Total Software | $ | 6,166 | $ | 5,795 | $ | 11,938 | $ | 10,933 | |||||
Business Transformation |
| 2,227 |
| 2,049 |
| 4,482 |
| 4,002 | |||||
Application Operations |
| 1,653 |
| 1,514 |
| 3,272 |
| 2,989 | |||||
Technology Consulting |
| 928 |
| 814 |
| 1,884 |
| 1,649 | |||||
Total Consulting | $ | 4,809 | $ | 4,378 | $ | 9,637 | $ | 8,641 | |||||
Hybrid Infrastructure |
| 2,760 |
| 2,059 |
| 4,461 |
| 3,841 | |||||
Infrastructure Support |
| 1,474 |
| 1,501 |
| 2,993 |
| 3,012 | |||||
Total Infrastructure | $ | 4,235 | $ | 3,560 | $ | 7,453 | $ | 6,853 | |||||
Financing** |
| 146 |
| 209 |
| 300 |
| 417 | |||||
Other |
| 180 |
| 277 |
| 404 |
| 561 | |||||
Total revenue | $ | 15,535 | $ | 14,218 | $ | 29,732 | $ | 27,405 | |||||
* | Recast to reflect segment changes. |
** Contains lease and loan/working capital financing arrangements which are not subject to the guidance on revenue from contracts with customers.
Hybrid Cloud Revenue by Segment
| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||
(Dollars in millions) | 2022 | 2021* |
| 2022 | 2021* | |||||||
Software | $ | 2,288 | $ | 2,015 | $ | 4,418 | $ | 3,760 | ||||
Consulting |
| 2,286 |
| 1,901 |
| 4,421 |
| 3,623 | ||||
Infrastructure | 1,220 | 981 | 1,892 | 1,818 | ||||||||
Other |
| 69 |
| 82 |
| 141 |
| 169 | ||||
Total | $ | 5,863 | $ | 4,979 | $ | 10,872 | $ | 9,369 | ||||
* Recast to reflect segment changes.
Revenue by Geography
| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||
(Dollars in millions) | 2022 | 2021 |
| 2022 | 2021 | |||||||
Americas | $ | 8,142 | $ | 7,122 | $ | 15,198 | $ | 13,599 | ||||
Europe/Middle East/Africa |
| 4,526 |
| 4,314 |
| 8,757 |
| 8,242 | ||||
Asia Pacific |
| 2,868 | ||||||||||