IBM Reports 2020 Fourth-Quarter and Full-Year Results

·12 min read

Strong hybrid cloud adoption; Gross margin expansion; Solid cash generation

IBM (NYSE: IBM) today announced fourth-quarter and full-year 2020 earnings results.

"We made progress in 2020 growing our hybrid cloud platform as the foundation for our clients digital transformations while dealing with the broader uncertainty of the macro environment," said Arvind Krishna, IBM chairman and chief executive officer. "The actions we are taking to focus on hybrid cloud and AI will take hold, giving us confidence we can achieve revenue growth in 2021."

Highlights

Fourth Quarter:

  • GAAP EPS from continuing operations of $1.41; Operating (non-GAAP) EPS of $2.07
    -- EPS includes the impact of a pre-tax charge of more than $2.0 billion for structural actions in the fourth quarter

  • Revenue of $20.4 billion, down 6 percent (down 8 percent adjusting for divested businesses and currency)

  • Total cloud revenue of $7.5 billion, up 10 percent (up 8 percent adjusting for divested businesses and currency)

  • Red Hat revenue up 19 percent (up 17 percent adjusting for currency), normalized for historical comparability

  • GAAP gross profit margin of 51.7 percent, up 70 basis points; Operating (non-GAAP) gross profit margin of 52.5 percent, up 70 basis points

  • Debt reduced by $3.9 billion since end of third quarter

Full Year:

  • GAAP EPS from continuing operations of $6.13; Operating (non-GAAP) EPS of $8.67

  • Revenue of $73.6 billion, down 5 percent (down 4 percent adjusting for divested businesses and currency)

  • Total cloud revenue of $25.1 billion, up 19 percent (up 20 percent adjusting for divested businesses and currency)

  • Red Hat revenue up 18 percent, normalized for historical comparability

  • GAAP gross profit margin up 100 basis points; operating (non-GAAP) gross profit margin up 130 basis points

  • Net cash from operating activities of $18.2 billion; free cash flow of $10.8 billion

  • Cash on hand of $14.3 billion; debt reduced by more than $11 billion since closing the Red Hat acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOURTH QUARTER 2020

 

 

Results include the impact of $2.04 billion pre-tax charge

 

 

 

 

 

 

 

 

 

 

 

Pre-tax

 

Gross

 

 

 

 

Diluted

 

 

Net

 

 

Pre-tax

 

Income

 

Profit

 

 

 

 

EPS *

 

 

Income *

 

 

Income *

 

Margin *

 

Margin

 

GAAP from Continuing Operations

 

$

1.41

 

$

1.3B

 

$

1.3B

 

6.3

%

51.7

%

Year/Year

 

 

(66)

%

 

(66)

%

 

(68)

%

(12.0)

Pts

0.7

Pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Non-GAAP)

 

$

2.07

 

$

1.9B

 

$

2.1B

 

10.2

%

52.5

%

Year/Year

 

 

(56)

%

 

(56)

%

 

(56)

%

(11.4)

Pts

0.7

Pts

* Results include the impact of pre-tax charge of $2.04 billion for structural actions in the fourth quarter.

"In 2020 we increased investment in our business across R&D and CAPEX, and since October, announced the acquisition of seven companies focused on hybrid cloud and AI," said James Kavanaugh, IBM senior vice president and chief financial officer. "With solid cash generation, steadily expanding gross profit margins, disciplined financial management and ample liquidity, we are well positioned for success as the leading hybrid cloud platform company."

Cash Flow and Balance Sheet

In the fourth quarter, the company generated net cash from operating activities of $5.9 billion, or $6.8 billion excluding Global Financing receivables. IBMs free cash flow was $6.1 billion. The company returned $1.5 billion to shareholders in dividends.

For the full year, the company generated net cash from operating activities of $18.2 billion, or $13.8 billion excluding Global Financing receivables. Net capital expenditures of $3 billion increased $0.7 billion, primarily for cloud infrastructure. Free cash flow was $10.8 billion. IBM returned $5.8 billion to shareholders in dividends.

IBM ended the fourth quarter with $14.3 billion of cash on hand, which includes marketable securities, up $5.3 billion from year-end 2019. Debt, including Global Financing debt of $21.2 billion, totaled $61.5 billion, down $3.9 billion since the end of the third quarter, and down $11.5 billion since closing the Red Hat acquisition.

Segment Results for Fourth Quarter

Segment pre-tax results reflect the impact of the $2.04 billion pre-tax charge for structural actions in the fourth quarter.

  • Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat, Cognitive Applications and Transaction Processing Platforms) revenues of $6.8 billion, down 4.5 percent (down 6.6 percent adjusting for currency). Cloud & Data Platforms grew 9 percent (up 6 percent adjusting for currency) led by Red Hat. Cognitive Applications revenue was flat (down 2 percent adjusting for currency), with growth in Security and IoT. Transaction Processing Platforms declined 24 percent (down 26 percent adjusting for currency). Cloud revenue up 39 percent (up 36 percent adjusting for currency). Gross profit margin up 20 basis points.

  • Global Business Services (includes Consulting, Application Management and Global Process Services) revenues of $4.2 billion, down 2.7 percent (down 5.2 percent adjusting for currency), driven by declines in Application Management and Consulting. Global Process Services revenue grew. Cloud revenue up 16 percent (up 14 percent adjusting for currency). Gross profit margin up 260 basis points.

  • Global Technology Services ( includes Infrastructure & Cloud Services and Technology Support Services) revenues of $6.6 billion, down 5.5 percent (down 7.8 percent adjusting for currency). Cloud revenue up 4 percent (up 1 percent adjusting for currency). Gross profit margin up 70 basis points.

  • Systems (includes Systems Hardware and Operating Systems Software) revenues of $2.5 billion, down 17.8 percent (down 19.4 percent adjusting for currency), as a result of declines in all Systems Hardware platforms, reflecting the impact of product cycle dynamics. Cloud revenue down 18 percent (down 19 percent adjusting for currency). Gross profit margin up 380 basis points.

  • Global Financing (includes financing and used equipment sales) revenues of $286 million, down 4.8 percent (down 6.0 percent adjusting for currency), reflecting the wind-down of OEM commercial financing.

Full-year 2020 Results

Full-year results reflect transaction-related impacts associated with the Red Hat acquisition, which closed in July 2019, and the impact of the $2.04 billion pre-tax charge for structural actions in the fourth quarter.

Diluted earnings per share from continuing operations was $6.13 compared to $10.57 in 2019, a decrease of 42 percent. Net income from continuing operations was $5.5 billion, down 42 percent year to year. Revenues for the full year 2020 totaled $73.6 billion, a decrease of 4.6 percent year to year (down 3.5 percent adjusting for divested businesses and currency) compared with $77.1 billion for the full year 2019.

Operating (non-GAAP) diluted earnings per share from continuing operations was $8.67 compared with $12.81 per diluted share for 2019, a decrease of 32 percent. Operating (non-GAAP) net income for the full year ended December 31, 2020 was $7.8 billion compared with $11.4 billion in the prior-year period, a decrease of 32 percent.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FULL YEAR 2020

 

 

Results include the impact of $2.04 billion pre-tax charge

 

 

 

 

 

 

 

 

 

 

 

Pre-tax

 

Gross

 

 

 

 

Diluted

 

 

Net

 

 

Pre-tax

 

Income

 

Profit

 

 

 

 

EPS *

 

 

Income *

 

 

Income *

 

Margin *

 

Margin

 

GAAP from Continuing Operations

 

$

6.13

**

$

5.5B

**

$

4.6B

 

6.3

%

48.3

%

Year/Year

 

 

(42)

%

 

(42)

%

 

(54)

%

(6.9)

Pts

1.0

Pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Non-GAAP)

 

$

8.67

 

$

7.8B

 

$

7.7B

 

10.4

%

49.3

%

Year/Year

 

 

(32)

%

 

(32)

%

 

(39)

%

(5.8)

Pts

1.3

Pts

* Results include the impact of pre-tax charge of $2.04 billion for structural actions in the fourth quarter.

** Consolidated diluted earnings per share was $6.23 compared to $10.56 in 2019, a decrease of 41 percent. Consolidated net income was $5.6 billion, down 41 percent year to year.

Full-Year 2021 Expectations

The company expects to grow revenue for the full year 2021 based on the current foreign exchange rates. The company also expects adjusted free cash flow of $11 billion to $12 billion in 2021. Adjusted free cash flow excludes approximately $3 billion of cash impacts from the companys structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of the managed infrastructure services business.

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the companys 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 companys failure to meet growth and productivity objectives; a failure of the companys innovation initiatives; damage to the companys reputation; risks from investing in growth opportunities; failure of the companys intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results; the possibility that the proposed separation of the managed infrastructure services unit of the companys Global Technology Services segment will not be completed within the anticipated time period or at all, the possibility of disruption or unanticipated costs in connection with the proposed separation or the possibility that the separation will not achieve its intended benefits; impact of local legal, economic, political, health and other conditions; adverse effects from environmental matters, tax matters and the companys pension plans; ineffective internal controls; the companys use of accounting estimates; impairment of the companys goodwill or amortizable intangible assets; the companys 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 companys 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 companys Form 10-Qs, Form 10-K and in the companys 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 companys results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information, which management believes provides useful information to investors:

IBM results

  • adjusting for currency (i.e., at constant currency);

  • total revenue and cloud revenue adjusting for divested businesses and currency;

  • Red Hat revenue normalized for historical comparability;

  • presenting operating (non-GAAP) earnings per share amounts and related income statement items;

  • net cash from operating activities, excluding Global Financing receivables;

  • free cash flow;

  • adjusted free cash flow (expectations).

The rationale for managements use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8K that includes this press release and is being submitted today to the SEC.

Conference Call and Webcast

IBMs regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EST, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-4q20 . Presentation charts will be available shortly before the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

 

 

 

Three Months Ended

 

 

 

Year Ended

 

 

 

 

December 31,

 

 

 

December 31,

 

 

 

 

2020

 

2019

 

 

 

2020

 

2019

 

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud & Cognitive Software

 

$

6,837

 

$

7,160

*

 

 

$

23,376

 

$

22,891

*

 

Global Business Services

 

 

4,170

 

 

4,285

*

 

 

 

16,162

 

 

16,798

*

 

Global Technology Services

 

 

6,568

 

 

6,949

 

 

 

 

25,812

 

 

27,361

 

 

Systems

 

 

2,501

 

 

3,042

 

 

 

 

6,978

 

 

7,604

 

 

Global Financing

 

 

286

 

 

301

 

 

 

 

1,123

 

 

1,400

 

 

Other

 

 

6

 

 

40

*

 

 

 

169

 

 

1,092

*

 

TOTAL REVENUE

 

 

20,367

 

 

21,777

 

 

 

 

73,620

 

 

77,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

10,523

 

 

11,100

 

 

 

 

35,575

 

 

36,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT MARGIN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud & Cognitive Software

 

 

79.8

%

 

79.5

%

*

 

 

77.5

%

 

77.1

%

*

Global Business Services

 

 

30.1

%

 

27.6

%

*

 

 

29.7

%

 

27.7

%

*

Global Technology Services

 

 

35.9

%

 

35.2

%

 

 

 

34.8

%

 

34.8

%

 

Systems

 

 

59.9

%

 

56.0

%

 

 

 

55.9

%

 

53.1

%

 

Global Financing

 

 

33.8

%

 

35.6

%

 

 

 

37.7

%

 

35.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL GROSS PROFIT MARGIN

 

 

51.7

%

 

51.0

%

 

 

 

48.3

%

 

47.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

7,232

 

 

5,433

 

 

 

 

23,082

 

 

20,604

 

 

R,D&E

 

 

1,611

 

 

1,596

 

 

 

 

6,333

 

 

5,989

 

 

Intellectual property and custom development income

 

 

(173)

 

 

(159)

 

 

 

 

(626)

 

 

(648)

 

 

Other (income) and expense

 

 

247

 

 

(117)

 

 

 

 

861

 

 

(968)

 

 

Interest expense

 

 

317

 

 

354

 

 

 

 

1,288

 

 

1,344

 

 

TOTAL EXPENSE AND OTHER INCOME

 

 

9,234

 

 

7,107

 

 

 

 

30,937

 

 

26,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEFORE INCOME TAXES

 

 

1,289

 

 

3,993

 

 

 

 

4,637

 

 

10,166

 

 

Pre-tax margin

 

 

6.3

%

 

18.3

%

 

 

 

6.3

%

 

13.2

%

 

Provision for/(Benefit from) income taxes

 

 

25

 

 

324

 

 

 

 

(864)

 

 

731

 

 

Effective tax rate

 

 

1.9

%

 

8.1

%

 

 

 

(18.6)

%

 

7.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

1,264

 

$

3,669

 

 

 

$

5,501

 

$

9,435

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income/(Loss) from discontinued operations, net of taxes

 

 

92

 

 

0

 

 

 

 

89

 

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

1,356

 

$

3,670

 

 

 

$

5,590

 

$

9,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS/(LOSS) PER SHARE OF COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

1.41

 

$

4.11

 

 

 

$

6.13

 

$

10.57

 

 

Discontinued Operations

 

$

0.10

 

$

0.00

 

 

 

$

0.10

 

$

(0.01)

 

 

TOTAL

 

$

1.51

 

$

4.11

 

 

 

$

6.23

 

$

10.56

 

 

 

 

 

...

Basic

Continuing Operations

$

1.42

$

4.14

$

6.18

$

10.63

Discontinued Operations

$

0.10

$

0.00

$

0.10

$

0.00

TOTAL

$

1.52

$

4.14

$

6.28

$

10.63

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)

Assuming Dilution

899.0

893.7

896.6

892.8

Basic

892.6

887.1

890.3

887.2

_____________________

* Recast to conform with 2020 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

At

At

December 31,

December 31,

(Dollars in Millions)

2020

2019

ASSETS:

Current Assets:

Cash and cash equivalents

$

13,212

$

8,172

Restricted cash

463

141

Marketable securities

600

696

Notes and accounts receivable - trade, net

7,132

7,870

Short-term financing receivables, net

10,892

14,192

Other accounts receivable, net

714

1,733

Inventories

1,839

1,619

Deferred costs

2,107

1,896

Prepaid expenses and other current assets

2,206

2,101

Total Current Assets

39,165

38,420

Property, plant and equipment, net

10,040

10,010

Operating right-of-use assets, net

4,686

4,996

Long-term financing receivables, net

7,086

8,712

Prepaid pension assets

7,610

6,865

Deferred costs

2,449

2,472

Deferred taxes

9,241

5,182

Goodwill

59,617

58,222

Intangibles, net

13,796

15,235

Investments and sundry assets

2,282

2,074

Total Assets

$

155,971

$

152,186

LIABILITIES:

Current Liabilities:

Taxes

$

3,301

$

2,839

Short-term debt

7,183

8,797

Accounts payable

4,908

4,896

Deferred income

12,833

12,026

Operating lease liabilities

1,357

1,380

Other liabilities

10,287

7,763

Total Current Liabilities

39,869

37,701

Long-term debt

54,355

54,102

Retirement related obligations

18,248

17,142

Deferred income

4,301

3,851

Operating lease liabilities

3,574

3,879

Other liabilities

14,897

14,526

Total Liabilities

135,244

131,202

EQUITY:

IBM Stockholders’ Equity:

Common stock

56,556

55,895

Retained earnings

162,717

162,954

Treasury stock — at cost

(169,339)

(169,413)

Accumulated other comprehensive income/(loss)

(29,337)

(28,597)

Total IBM Stockholders’ Equity

20,597

20,841

Noncontrolling interests

129

144

Total Equity

20,727

20,985

Total Liabilities and Equity

$

155,971

$

152,186

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

(Dollars in Millions)

2020

2019

2020

2019

Net Cash Provided by Operating Activities per GAAP:

$

5,859

$

3,451

$

18,197

$

14,770

Less: change in Global Financing (GF) Receivables

(974)

(3,220)

4,349

491

Capital Expenditures, Net

(780)

(645)

(3,042)

(2,370)

Free Cash Flow

6,054

6,027

10,805

11,909

Acquisitions

(299)

(336)

(32,630)

Divestitures

(7)

149

503

1,076

Dividends

(1,455)

(1,438)

(5,797)

(5,707)

Share Repurchase

(1,361)

Non-GF Debt

(4,756)

(5,640)

221

22,792

Other (includes GF Net Receivables and GF Debt)

(1,016)

(1,046)

(130)

709

Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities

$

(1,478)

$

(1,948)

$

5,265

$

(3,213)

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW

(Unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

(Dollars in Millions)

2020

2019

2020

2019

Net Income from Operations

$

1,356

$

3,670

$

5,590

$

9,431

Depreciation/Amortization of Intangibles

1,699

1,650

6,695

6,059

Stock-based Compensation

279

210

937

679

Working Capital / Other

3,499

1,142

625

(1,890)

Global Financing A/R

(974)

(3,220)

4,349

491

Net Cash Provided by Operating Activities

$

5,859

$

3,451

$

18,197

$

14,770

Capital Expenditures, net of payments & proceeds

(780)

(645)

(3,042)

(2,370)

Divestitures, net of cash transferred

(7)

149

503

1,076

Acquisitions, net of cash acquired

(299)

(336)

(32,630)

Marketable Securities / Other Investments, net

528

624

(153)

6,988

Net Cash Provided by/(Used in) Investing Activities

$

(558)

$

127

$

(3,028)

$

(26,936)

Debt, net of payments & proceeds

(4,781)

(4,181)

(3,714)

16,284

Dividends

(1,455)

(1,438)

(5,797)

(5,707)

Common Stock Repurchases

(1,361)

Common Stock Transactions - Other

(57)

(55)

(210)

(173)

Net Cash Provided by/(Used in) Financing Activities

$

(6,293)

$

(5,674)

$

(9,721)

$

9,042

Effect of Exchange Rate changes on Cash

113

185

(87)

(167)

Net Change in Cash, Cash Equivalents and Restricted Cash

$

(878)

$

(1,911)

$

5,361

$

(3,290)

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

Three Months Ended December 31, 2020

Cloud &

Global

Global

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software

Services

Services

Systems

Financing

Revenue

External

$

6,837

$

4,170

$

6,568

$

2,501

$

286

Internal

738

43

316

196

233

Total Segment Revenue

$

7,575

$

4,213

$

6,884

$

2,697

$

519

Pre-tax Income/(Loss) from Continuing Operations

1,887

148

(353)

455

195

Pre-tax Margin

24.9

%

3.5

%

(5.1)

%

16.9

%

37.6

%

Change YTY Revenue - External

(4.5)

%

(2.7)

%

(5.5)

%

(17.8)

%

(4.8)

%

Change YTY Revenue - External @constant currency

(6.6)

%

(5.2)

%

(7.8)

%

(19.4)

%

(6.0)

%

Three Months Ended December 31, 2019

Cloud &

Global

Global

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software*

Services*

Services

Systems

Financing

Revenue

External

$

7,160

$

4,285

$

6,949

$

3,042

$

301

Internal

692

65

278

198

348

Total Segment Revenue

$

7,853

$

4,350

$

7,227

$

3,240

$

649

Pre-tax Income/(Loss) from Continuing Operations

2,729

469

645

802

252

Pre-tax Margin

34.8

%

10.8

%

8.9

%

24.8

%

38.9

%

_____________________

* Recast to conform with 2020 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

Year Ended December 31, 2020

Cloud &

Global

Global

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software

Services

Services

Systems

Financing

Revenue

External

$

23,376

$

16,162

$

25,812

$

6,978

$

1,123

Internal

3,169

193

1,226

824

894

Total Segment Revenue

$

26,545

$

16,355

$

27,039

$

7,802

$

2,017

Pre-tax Income/(Loss) from Continuing Operations

6,362

1,351

117

449

761

Pre-tax Margin

24.0

%

8.3

%

0.4

%

5.8

%

37.7

%

Change YTY Revenue - External

2.1

%

(3.8)

%

(5.7)

%

(8.2)

%

(19.8)

%

Change YTY Revenue - External @constant currency

1.9

%

(4.1)

%

(5.4)

%

(8.7)

%

(19.2)

%

Year Ended December 31, 2019

Cloud &

Global

Global

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software*

Services*

Services

Systems

Financing

Revenue

External

$

22,891

$

16,798

$

27,361

$

7,604

$

1,400

Internal

2,827

278

1,157

726

1,232

Total Segment Revenue

$

25,718

$

17,076

$

28,518

$

8,330

$

2,632

Pre-tax Income/(Loss) from Continuing Operations

7,811

1,623

1,645

701

1,055

Pre-tax Margin

30.4

%

9.5

%

5.8

%

8.4

%

40.1

%

_____________________

* Recast to conform with 2020 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

Three Months Ended December 31, 2020

Continuing Operations

Acquisition-

Retirement-

Tax

Spin-off-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Charges (4)

(Non-GAAP)

Gross Profit

$

10,523

$

177

$

$

$

1

$

10,700

Gross Profit Margin

51.7

%

0.9

Pts

Pts

Pts

0.0

Pts

52.5

%

S,G&A

7,232

(287)

(28)

6,917

R,D&E

1,611

1,611

Other (Income) & Expense

247

(1)

(295)

(48)

Interest Expense

317

317

Total Expense & Other (Income)

9,234

(288)

(295)

(28)

8,623

Pre-tax Income from Continuing Operations

1,289

465

295

28

2,077

Pre-tax Income Margin from Continuing Operations

6.3

%

2.3

Pts

1.4

Pts

Pts

0.1

Pts

10.2

%

Provision for/(Benefit from) Income Taxes (3)

25

105

96

(18)

7

216

Effective Tax Rate

1.9

%

4.6

Pts

4.4

Pts

(0.9)

Pts

0.3

Pts

10.4

%

Income from Continuing Operations

1,264

359

198

18

21

1,861

Income Margin from Continuing Operations

6.2

%

1.8

Pts

1.0

Pts

0.1

Pts

0.1

Pts

9.1

%

Diluted Earnings/(Loss) Per Share: Continuing Operations

$

1.41

$

0.40

$

0.22

$

0.02

$

0.02

$

2.07

Three Months Ended December 31, 2019

Continuing Operations

Acquisition-

Retirement-

Tax

Spin-off-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Charges (4)

(Non-GAAP)

Gross Profit

$

11,100

$

189

$

$

$

$

11,289

Gross Profit Margin

51.0

%

0.9

Pts

Pts

Pts

Pts

51.8

%

S,G&A

5,433

(320)

5,113

R,D&E

1,596

(0)

1,596

Other (Income) & Expense

(117)

(1)

(196)

(314)

Interest Expense

354

354

Total Expense & Other (Income)

7,107

(320)

(196)

6,591

Pre-tax Income from Continuing Operations

3,993

509

196

4,698

Pre-tax Income Margin from Continuing Operations

18.3

%

2.3

Pts

0.9

Pts

Pts

Pts

21.6

%

Provision for/(Benefit from) Income Taxes (3)

324

133

21

14

492

Effective Tax Rate

8.1

%

2.0

Pts

0.1

Pts

0.3

Pts

Pts

10.5

%

Income from Continuing Operations

3,669

376

175

(14)

4,206

Income Margin from Continuing Operations

16.8

%

1.7

Pts

0.8

Pts

(0.1)

Pts

Pts

19.3

%

Diluted Earnings/(Loss) Per Share: Continuing Operations

$

4.11

$

0.42

$

0.20

$

(0.02)

$

$

4.71

_____________________

(1)

Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs.

(2)

Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs.

(3)

Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

(4)

Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

Year Ended December 31, 2020

Continuing Operations

Acquisition-

Retirement-

Tax

Spin-off-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Charges (4)

(Non-GAAP)

Gross Profit

$

35,575

$

732

$

$

$

1

$

36,308

Gross Profit Margin

48.3

%

1.0

Pts

Pts

Pts

0.0

Pts

49.3

%

S,G&A

23,082

(1,137)

(28)

21,917

R,D&E

6,333

6,333

Other (Income) & Expense

861

(2)

(1,123)

(265)

Interest Expense

1,288

1,288

Total Expense & Other (Income)

30,937

(1,139)

(1,123)

(28)

28,648

Pre-tax Income from Continuing Operations

4,637

1,871

1,123

28

7,660

Pre-tax Income Margin from Continuing Operations

6.3

%

2.5

Pts

1.5

Pts

Pts

0.0

Pts

10.4

%

Provision for/(Benefit from) Income Taxes (3)

(864)

418

215

110

7

(114)

Effective Tax Rate

(18.6)

%

10.0

Pts

5.5

Pts

1.4

Pts

0.2

Pts

(1.5)

%

Income from Continuing Operations

5,501

1,454

908

(110)

21

7,774

Income Margin from Continuing Operations

7.5

%

2.0

Pts

1.2

Pts

(0.1)

Pts

0.0

Pts

10.6

%

Diluted Earnings/(Loss) Per Share: Continuing Operations

$

6.13

$

1.63

$

1.01

$

(0.12)

$

0.02

$

8.67

Year Ended December 31, 2019

Continuing Operations

Acquisition-

Retirement-

Tax

Spin-off-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Charges (4)

(Non-GAAP)

Gross Profit

$

36,488

$

547

$

$

$

$

37,035

Gross Profit Margin

47.3

%

0.7

Pts

Pts

Pts

Pts

48.0

%

S,G&A

20,604

(1,044)

19,560

R,D&E

5,989

(53)

5,936

Other (Income) & Expense

(968)

152

(615)

(1,431)

Interest Expense

1,344

(228)

1,116

Total Expense & Other (Income)

26,322

(1,173)

(615)

24,533

Pre-tax Income from Continuing Operations

10,166

1,721

615

12,503

Pre-tax Income Margin from Continuing Operations

13.2

%

2.2

Pts

0.8

Pts

Pts

Pts

16.2

%

Provision for/(Benefit from) Income Taxes (3)

731

378

103

(146)

1,067

Effective Tax Rate

7.2

%

2.0

Pts

0.5

Pts

(1.2)

Pts

Pts

8.5

%

Income from Continuing Operations

9,435

1,343

512

146

11,436

Income Margin from Continuing Operations

12.2

%

1.7

Pts

0.7

Pts

0.2

Pts

Pts

14.8

%

Diluted Earnings/(Loss) Per Share: Continuing Operations

$

10.57

$

1.50

$

0.58

$

0.16

$

$

12.81

_____________________

(1)

Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs.

(2)

Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs.

(3)

Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

(4)

Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

Three Months Ended

Year Ended

December 31, 2020

December 31, 2020

Change YTY

Change YTY

Revenue Adjusting for Divested Businesses and Currency

Total IBM

Cloud

Total IBM

Cloud

Revenue as reported

(6.5)

%

9.8

%

(4.6)

%

18.6

%

Impact from divested businesses

0.3

Pts

0.6

Pts

1.1

Pts

1.4

Pts

Currency impact

(2.2)

Pts

(2.7)

Pts

(0.1)

Pts

(0.4)

Pts

Revenue adjusting for divested businesses and currency (non-GAAP)

(8.4)

%

7.7

%

(3.5)

%

19.6

%

Three Months Ended

Year Ended

December 31, 2020

December 31, 2020

Red Hat Revenue, Normalized for Historical Comparability

Change YTY

Change YTY

Red Hat Revenue GAAP growth rate (1)

92

%

288

%

Impact from Red Hat revenue prior to acquisition (2)

Pts

(239)

Pts

Impact from purchase accounting deferred revenue and intercompany adjustments (3)

(73)

Pts

(31)

Pts

Red Hat revenue growth rate, normalized for historical comparability (non-GAAP)

19

%

18

%

Impact from currency

(2)

Pts

0

Pts

Red Hat revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP)

17

%

18

%

(1)

Represents change in GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.

(2)

Red Hat revenue was included in IBM’s consolidated results beginning July 9, 2019. Revenue for January 1 – July 8, 2019 represents pre-acquisition Red Hat standalone revenue and is included for computing year over year change purposes.

(3)

Represents change in the fourth-quarter and full-year 2020 impact of the deferred revenue purchase accounting adjustment and adjustments to add back revenue which was eliminated for sales between Red Hat and IBM. This line represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting and intercompany adjustments.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210121005929/en/

Contacts

IBM
Edward Barbini, 914‑499‑6565
barbini@us.ibm.com

John Bukovinsky, 732‑618‑3531
jbuko@us.ibm.com