ARMONK, N.Y.--(BUSINESS WIRE)--IBM (NYSE:IBM)
Highlights
Fourth Quarter:
-
GAAP EPS from continuing operations of $2.15
-- Includes charge of $1.9 billion related to the U.S. Tax Cuts and Jobs Act of 2017 - Operating (non-GAAP) EPS of $4.87
-
Revenue of $21.8 billion, down 3 percent (down 1 percent adjusting for
currency)
-- Global Business Services and Cognitive Solutions revenue grew year to year -
Gross profit margin up 10 basis points year to year; pre-tax income
margin up more than 50 basis points year to year
-- Continued strong services gross profit margin expansion year to year
Full Year:
-
GAAP EPS from continuing operations of $9.51
-- Includes charge of $2.0 billion related to the U.S. Tax Cuts and Jobs Act of 2017 - Operating (non-GAAP) EPS of $13.81
- Revenue of $79.6 billion, up 1 percent (flat year to year adjusting for currency)
- Strategic imperatives revenue of $39.8 billion, up 9 percent
-
Cloud revenue of $19.2 billion, up 12 percent
-- As-a-service annual exit run rate for cloud revenue of $12.2 billion in the quarter, up 18 percent year to year (up 21 percent adjusting for currency)
2019 Expectations:
- GAAP EPS of at least $12.45; Operating (non-GAAP) EPS of at least $13.90
- Free cash flow of approximately $12 billion
IBM (NYSE:IBM) today announced fourth-quarter and full-year 2018 earnings results.
"In 2018 we returned to full-year revenue growth, reflecting growing demand for our services and leadership solutions in hybrid cloud, AI, analytics and security," said Ginni Rometty, IBM chairman, president and chief executive officer. "Major clients worldwide, such as BNP Paribas, are turning to the IBM Cloud and our unmatched industry expertise to transform their businesses and drive innovation."
| FOURTH QUARTER 2018 | ||||||||||||||
| Pre-tax | Gross | |||||||||||||
| Diluted | Net | Pre-tax | Income | Profit | ||||||||||
| EPS | Income | Income | Margin | Margin | ||||||||||
| GAAP from Continuing Operations * | $2.15 | $2.0B | $4.4B | 20.4% | 49.1% | |||||||||
| Year/Year | 289% | 286% | -1% | 0.6Pts | 0.1Pts | |||||||||
| Operating (Non-GAAP) | $4.87 | $4.4B | $5.0B | 23.1% | 49.5% | |||||||||
| Year/Year | -5% | -8% | -1% | 0.5Pts | 0.1Pts | |||||||||
| * Diluted EPS and Net Income include charges related to the U.S. Tax Cuts and Jobs Act of 2017 of $1.9 billion in the fourth quarter of 2018, and $5.5 billion in the fourth quarter of 2017. |
"In the quarter we expanded both gross margin and pre-tax income margin," said James Kavanaugh, IBM senior vice president and chief financial officer. "In 2018 we repositioned our business model and delivered revenue, operating profit and EPS growth along with strong free cash flow realization. We continue to optimize our portfolio for the high-value, emerging segments of our industry, while returning capital to our shareholders."
Cash Flow and Balance Sheet
In the fourth quarter, the company generated net cash from operating activities of $4.1 billion, or $7.3 billion, excluding Global Financing receivables. IBM’s free cash flow was $6.5 billion. IBM returned $3.5 billion to shareholders through $1.4 billion in dividends and $2.0 billion in gross share repurchases. At the end of December 2018, IBM had $3.3 billion remaining in the current share repurchase authorization.
The company generated full-year free cash flow of $11.9 billion, excluding Global Financing receivables, and returned $10.1 billion to shareholders through $5.7 billion in dividends and $4.4 billion of gross share repurchases.
IBM ended the fourth quarter with $12.2 billion of cash on hand. Debt totaled $45.8 billion, including Global Financing debt of $31.2 billion. The balance sheet remains strong and is well positioned for the long term.
Segment Results for Fourth Quarter
- Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of $5.5 billion, flat year to year (up 2 percent adjusting for currency), led by growth in solutions software, including analytics and AI.
- Global Business Services (includes consulting, application management and global process services) -- revenues of $4.3 billion, up 4 percent (up 6 percent adjusting for currency), with growth across consulting, application management and global process services. Gross profit margin increased 300 basis points.
- Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) -- revenues of $8.9 billion, down 3 percent (flat year to year adjusting for currency), with growth in hybrid cloud revenue. Gross profit margin increased more than 140 basis points.
- Systems (includes systems hardware and operating systems software) -- revenues of $2.6 billion, down 21 percent (down 20 percent adjusting for currency), with growth in Power, offset by the impact of the IBM Z product cycle dynamics.
- Global Financing (includes financing and used equipment sales) -- revenues of $402 million, down 11 percent (down 9 percent adjusting for currency).
Tax Rate
As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017, IBM recorded charges of $2.0 billion in 2018, including $1.9 billion in the fourth quarter, primarily related to deferred taxes for the new Global Intangible Low-Taxed Income (GILTI) tax. This is in addition to the charge of $5.5 billion the company recorded in the fourth quarter of 2017 related to the one-time U.S. transition tax, foreign tax costs on undistributed foreign earnings and the remeasurement of deferred taxes. These charges are included in the GAAP results for the fourth quarter and full year for 2017 and 2018.
IBM's reported GAAP tax rate, which includes the charge, for the fourth quarter was 56 percent in 2018 compared with 124 percent in 2017; and for the full year was 23 percent compared with 49 percent in 2017.
IBM's operating (non-GAAP) earnings and tax rate for 2018 exclude the charges. IBM's reported operating (non-GAAP) tax rate for the fourth quarter was 12 percent in 2018 compared with 6 percent in 2017; and for the full year was 8 percent in 2018 compared with 7 percent in 2017.
Full-Year 2018 Results
Consolidated diluted earnings per share from continuing operations was $9.51 compared with $6.14 for 2017, up 55 percent year to year. Consolidated net income was $8.7 billion, up 52 percent. Revenues for the full year totaled $79.6 billion, an increase of 1 percent year to year (flat year to year adjusting for currency), compared with $79.1 billion for the full-year 2017.
Operating (non-GAAP) diluted earnings per share from continuing operations was $13.81 compared with $13.66 per diluted share for 2017, an increase of 1 percent. Operating (non-GAAP) net income for the full year was $12.7 billion compared with $12.8 billion in the year-ago period, a decrease of 1 percent.
Strategic imperatives revenue for the full year was $39.8 billion, up 9 percent. Full-year cloud revenue was $19.2 billion, up 12 percent, with $11.3 billion delivered as a service and $7.8 billion for cloud-related hardware, software and services to enable IBM clients to implement cloud solutions across public, private and multi-cloud environments. The annual exit run rate for as-a-service revenue increased in the quarter to $12.2 billion, up 18 percent (up 21 percent adjusting for currency).
| FULL YEAR 2018 | ||||||||||||||
| Pre-tax | Gross | |||||||||||||
| Diluted | Net | Pre-tax | Income | Profit | ||||||||||
| EPS | Income | Income | Margin | Margin | ||||||||||
| GAAP from Continuing Operations * | $9.51 | $8.7B | $11.3B | 14.3% | 46.4% | |||||||||
| Year/Year | 55% | 51% | -1% | -0.2Pts | -0.3Pts | |||||||||
| Operating (Non-GAAP) | $13.81 | $12.7B | $13.7B | 17.3% | 46.9% | |||||||||
| Year/Year | 1% | -1% | 0% | -0.1Pts | -0.4Pts | |||||||||
| * 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, and $5.5 billion in 2017. |
Full-Year 2019 Expectations
The company expects GAAP diluted earnings per share of at least $12.45, and operating (non-GAAP) diluted earnings per share of at least $13.90. Operating (non-GAAP) diluted earnings per share exclude $1.45 per share of charges for: amortization of purchased intangible assets and other acquisition-related charges, including pre-closing charges, such as financing costs, associated with the Red Hat acquisition; retirement-related charges; and tax reform enactment impacts.
IBM expects free cash flow of approximately $12 billion, with a realization rate of approximately 100 percent of GAAP Net Income.
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 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; risks from legal proceedings; 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. 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 --
- presenting operating (non-GAAP) earnings per share amounts and related income statement items;
- adjusting for free cash flow;
- adjusting for currency (i.e., at constant currency).
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/4q18.html. Presentation charts will be available shortly before the Webcast.
Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).
| INTERNATIONAL BUSINESS MACHINES CORPORATION | |||||||||||||||||
| COMPARATIVE FINANCIAL RESULTS | |||||||||||||||||
| (Unaudited; Dollars in millions except per share amounts) | |||||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||
| REVENUE | |||||||||||||||||
| Cognitive Solutions | $ | 5,455 | $ | 5,432 | $ | 18,481 | $ | 18,453 | |||||||||
| Global Business Services | 4,322 | 4,152 | 16,817 | 16,348 | |||||||||||||
| Technology Services & Cloud Platforms | 8,929 | 9,198 | 34,462 | 34,277 | |||||||||||||
| Systems | 2,621 | 3,332 | 8,034 | 8,194 | |||||||||||||
| Global Financing | 402 | 450 | 1,590 | 1,696 | |||||||||||||
| Other | 32 | (20 | ) | 207 | 171 | ||||||||||||
| TOTAL REVENUE | 21,760 | 22,543 | 79,591 | 79,139 | |||||||||||||
| GROSS PROFIT | 10,687 | 11,049 | * | 36,936 | 36,943 | * | |||||||||||
| GROSS PROFIT MARGIN | |||||||||||||||||
| Cognitive Solutions | 79.4 | % | 79.2 | % | * | 77.5 | % | 78.6 | % | * | |||||||
| Global Business Services | 27.6 | % | 24.6 | % | * | 26.7 | % | 24.9 | % | * | |||||||
| Technology Services & Cloud Platforms | 42.3 | % | 40.8 | % | * | 40.5 | % | 40.3 | % | * | |||||||
| Systems | 50.8 | % | 55.7 | % | * | 49.8 | % | 53.2 | % | * | |||||||
| Global Financing | 29.1 | % | 29.5 | % | * | 29.1 | % | 29.3 | % | * | |||||||
| TOTAL GROSS PROFIT MARGIN | 49.1 | % | 49.0 | % | * | 46.4 | % | 46.7 | % | * | |||||||
| EXPENSE AND OTHER INCOME | |||||||||||||||||
| S,G&A | 4,701 | 5,013 | * | 19,366 | 19,680 | * | |||||||||||
| R,D&E | 1,358 | 1,378 | * | 5,379 | 5,590 | * | |||||||||||
|
Intellectual property and custom development income |
(184 | ) | (348 | ) | (1,026 | ) | (1,466 | ) | |||||||||
| Other (income) and expense | 185 | 374 | * | 1,152 | 1,125 | * | |||||||||||
| Interest expense | 193 | 164 | 723 | 615 | |||||||||||||
| TOTAL EXPENSE AND OTHER INCOME | 6,253 | 6,580 | * | 25,594 | 25,543 | * | |||||||||||
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
4,434 | 4,469 | 11,342 | 11,400 | |||||||||||||
| Pre-tax margin | 20.4 | % | 19.8 | % | 14.3 | % | 14.4 | % | |||||||||
| Provision for income taxes | 2,481 | 5,522 | 2,619 | 5,642 | |||||||||||||
| Effective tax rate | 55.9 | % | 123.6 | % | 23.1 | % | 49.5 | % | |||||||||
| INCOME / (LOSS) FROM CONTINUING OPERATIONS | $ | 1,954 | ($1,053 | ) | $ | 8,723 | $ | 5,758 | |||||||||
| DISCONTINUED OPERATIONS | |||||||||||||||||
| Income/(Loss) from discontinued operations, net of taxes | (2 | ) | (1 | ) | 5 | (5 | ) | ||||||||||
| NET INCOME / (LOSS) | $ | 1,951 | ($1,054 | ) | $ | 8,728 | $ | 5,753 | |||||||||
| EARNINGS / (LOSS) PER SHARE OF COMMON STOCK | |||||||||||||||||
| Assuming Dilution | |||||||||||||||||
| Continuing Operations | $ | 2.15 | ($1.14 | ) | $ | 9.51 | $ | 6.14 | |||||||||
| Discontinued Operations | $ | 0.00 | $ | 0.00 | $ | 0.01 | $ | 0.00 | |||||||||
| TOTAL | $ | 2.15 | ($1.14 | ) | $ | 9.52 | $ | 6.14 | |||||||||
| Basic | |||||||||||||||||
| Continuing Operations | $ | 2.17 | ($1.14 | ) | $ | 9.56 | $ | 6.17 | |||||||||
| Discontinued Operations | $ | 0.00 | $ | 0.00 | $ | 0.01 | $ | 0.00 | |||||||||
| TOTAL | $ | 2.17 | ($1.14 | ) | $ | 9.57 | $ | 6.17 | |||||||||
|
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's) |
|||||||||||||||||
| Assuming Dilution | 905.2 | 928.9 | 916.3 | 937.4 | |||||||||||||
| Basic | 901.3 | 924.5 | 912.0 | 932.8 | |||||||||||||
| * Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost. | |||||||||||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION | |||||||||
| CONDENSED CONSOLIDATED BALANCE SHEET | |||||||||
| (Unaudited) | |||||||||
| At | At | ||||||||
| (Dollars in Millions) | December 31, | December 31, | |||||||
| 2018 | 2017 | ||||||||
| ASSETS: | |||||||||
| Current Assets: | |||||||||
| Cash and cash equivalents | $ | 11,379 | $ | 11,972 | |||||
| Restricted cash | 225 | 262 | * | ||||||
| Marketable securities | 618 | 608 | |||||||
| Notes and accounts receivable - trade, net | 7,432 | 8,928 | |||||||
| Short-term financing receivables, net | 22,388 | 21,721 | |||||||
| Other accounts receivable, net | 743 | 981 | |||||||
| Inventory | 1,682 | 1,583 | |||||||
| Deferred Costs | 2,300 | 1,820 | ** | ||||||
| Prepaid expenses and other current assets | 2,378 | 1,860 | * ** | ||||||
| Total Current Assets | 49,146 | 49,735 | |||||||
| Property, plant and equipment, net | 10,792 | 11,116 | |||||||
| Long-term financing receivables, net | 9,148 | 9,550 | |||||||
| Prepaid pension assets | 4,666 | 4,643 | |||||||
| Deferred costs | 2,676 | 2,136 | ** | ||||||
| Deferred taxes | 5,216 | 4,862 | |||||||
| Goodwill and intangibles, net | 39,353 | 40,531 | |||||||
| Investments and sundry assets | 2,386 | 2,783 | ** | ||||||
| Total Assets | $ | 123,382 | $ | 125,356 | |||||
| LIABILITIES: | |||||||||
| Current Liabilities: | |||||||||
| Taxes | $ | 3,046 | $ | 4,219 | |||||
| Short-term debt | 10,207 | 6,987 | |||||||
| Accounts payable | 6,558 | 6,451 | |||||||
| Deferred income | 11,165 | 11,552 | |||||||
| Other liabilities | 7,251 | 8,153 | |||||||
| Total Current Liabilities | 38,227 | 37,363 | |||||||
| Long-term debt | 35,605 | 39,837 | |||||||
| Retirement related obligations | 17,002 | 16,720 | |||||||
| Deferred income | 3,445 | 3,746 | |||||||
| Other liabilities | 12,174 | 9,965 | |||||||
| Total Liabilities | 106,452 | 107,631 | |||||||
| EQUITY: | |||||||||
| IBM Stockholders' Equity: | |||||||||
| Common stock | 55,151 | 54,566 | |||||||
| Retained earnings | 159,206 | 153,126 | |||||||
| Treasury stock -- at cost | (168,071 | ) | (163,507 | ) | |||||
| Accumulated other comprehensive income/(loss) | (29,490 | ) | (26,592 | ) | |||||
| Total IBM Stockholders' Equity | 16,796 | 17,594 | |||||||
| Noncontrolling interests | 134 | 131 | |||||||
| Total Equity | 16,929 | 17,725 | |||||||
| Total Liabilities and Equity | $ | 123,382 | $ | 125,356 | |||||
| * Recast to reflect adoption of the FASB guidance on restricted cash. | |||||||||
| ** Recast to conform to current period presentation. | |||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION | ||||||||||||||||||
| CASH FLOW ANALYSIS | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||
| (Dollars in Millions) | December 31, | December 31, | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||
| Net Cash Provided by Operating Activities per GAAP: | $ | 4,119 | $ | 5,733 | $ | 15,247 | $ | 16,724 | ||||||||||
| Less: change in Global Financing (GF) Receivables | (3,219 | ) | (2,049 | ) | (345 | ) | 419 | |||||||||||
| Capital Expenditures, Net | (877 | ) | (965 | ) | (3,716 | ) | (3,312 | ) | ||||||||||
| Free Cash Flow | 6,460 | 6,817 | 11,876 | 12,992 | ||||||||||||||
| Acquisitions | (16 | ) | (53 | ) | (139 | ) | (496 | ) | ||||||||||
| Divestitures | - | (240 | ) | - | (205 | ) | ||||||||||||
| Dividends | (1,416 | ) | (1,387 | ) | (5,666 | ) | (5,506 | ) | ||||||||||
| Share Repurchase | (2,050 | ) | (666 | ) | (4,443 | ) | (4,340 | ) | ||||||||||
| Non-GF Debt | (2,128 | ) | (840 | ) | (521 | ) | 1,056 | |||||||||||
| Other (includes GF Net Receivables and GF Debt) | (3,291 | ) | (2,556 | ) | * | (1,727 | ) | 568 | * | |||||||||
|
Change in Cash, Cash Equivalents, Restricted Cashand Short-term Marketable Securities |
($2,440 | ) | $ | 1,074 | * | ($620 | ) | $ | 4,069 | * | ||||||||
| * Recast to reflect adoption of the FASB guidance on restricted cash. | ||||||||||||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION | |||||||||||||||||||||||||
| CASH FLOW | |||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| (Dollars in Millions) | December 31, | December 31, | |||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||
| Net Income from Operations | $ | 1,951 | ($1,054 | ) | $ | 8,728 | $ | 5,753 | |||||||||||||||||
| Depreciation/Amortization of Intangibles | 1,111 | 1,150 | 4,479 | 4,541 | |||||||||||||||||||||
| Stock-based Compensation | 139 | 146 | 510 | 534 | |||||||||||||||||||||
| Working Capital / Other | 4,135 | 7,540 | 1,874 | 5,476 | |||||||||||||||||||||
| Global Financing A/R | (3,219 | ) | (2,049 | ) | (345 | ) | 419 | ||||||||||||||||||
| Net Cash Provided by Operating Activities | $ | 4,119 | $ | 5,733 | $ | 15,247 | $ | 16,724 | |||||||||||||||||
| Capital Expenditures, net of payments & proceeds | (877 | ) | (965 | ) | (3,716 | ) | (3,312 | ) | |||||||||||||||||
| Divestitures, net of cash transferred | - | (240 | ) | - | (205 | ) | |||||||||||||||||||
| Acquisitions, net of cash acquired | (16 | ) | (53 | ) | (139 | ) | (496 | ) | |||||||||||||||||
| Marketable Securities / Other Investments, net | 1,348 | (2,551 | ) | * | (1,058 | ) | (3,068 | ) | * | ||||||||||||||||
| Net Cash Used in Investing Activities | $ | 455 | ($3,809 | ) | * | ($4,913 | ) | ($7,081 | ) | * | |||||||||||||||
| Debt, net of payments & proceeds | (1,145 | ) | 1,137 | (300 | ) | 3,446 | |||||||||||||||||||
| Dividends | (1,416 | ) | (1,387 | ) | (5,666 | ) | (5,506 | ) | |||||||||||||||||
| Common Stock Repurchases | (2,050 | ) | (666 | ) | (4,443 | ) | (4,340 | ) | |||||||||||||||||
| Common Stock Transactions - Other | 5 | (3 | ) | (60 | ) | (18 | ) | ||||||||||||||||||
| Net Cash Used in Financing Activities | ($4,605 | ) | ($919 | ) | ($10,469 | ) | ($6,418 | ) | |||||||||||||||||
| Effect of Exchange Rate changes on Cash | (95 | ) | 62 | (495 | ) | 937 | |||||||||||||||||||
| Net Change in Cash, Cash Equivalents and Restricted Cash | ($127 | ) | $ | 1,066 | * | ($630 | ) | $ | 4,161 | * | |||||||||||||||
| * Recast to reflect adoption of the FASB guidance on restricted cash. | |||||||||||||||||||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION | ||||||||||||||||||||
| SEGMENT DATA | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| FOURTH - QUARTER 2018 | ||||||||||||||||||||
| Technology | ||||||||||||||||||||
| Global | Services & | |||||||||||||||||||
| (Dollars in Millions) | Cognitive | Business | Cloud | Global | ||||||||||||||||
| Solutions | Services | Platforms | Systems | Financing | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| External | $ | 5,455 | $ | 4,322 | $ | 8,929 | $ | 2,621 | $ | 402 | ||||||||||
| Internal | 593 | 77 | 245 | 238 | 370 | |||||||||||||||
| Total Segment Revenue | $ | 6,048 | $ | 4,398 | $ | 9,174 | $ | 2,860 | $ | 773 | ||||||||||
| Pre-tax Income from Continuing Operations | 2,437 | 566 | 1,392 | 551 | 319 | |||||||||||||||
| Pre-tax margin | 40.3 | % | 12.9 | % | 15.2 | % | 19.3 | % | 41.3 | % | ||||||||||
| Change YTY Revenue - External | 0.4 | % | 4.1 | % | (2.9 | )% | (21.3 | )% | (10.7 | )% | ||||||||||
| Change YTY Revenue - External @constant currency | 2.2 | % | 6.5 | % | 0.0 | % | (20.1 | )% | (8.6 | )% | ||||||||||
| FOURTH - QUARTER 2017 | ||||||||||||||||||||
| Technology | ||||||||||||||||||||
| Global | Services & | |||||||||||||||||||
| (Dollars in Millions) | Cognitive | Business | Cloud | Global | ||||||||||||||||
| Solutions | Services | Platforms | Systems | Financing | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| External | $ | 5,432 | $ | 4,152 | $ | 9,198 | $ | 3,332 | $ | 450 | ||||||||||
| Internal | 646 | 92 | 160 | 179 | 546 | |||||||||||||||
| Total Segment Revenue | $ | 6,078 | $ | 4,244 | $ | 9,358 | $ | 3,511 | $ | 997 | ||||||||||
| Pre-tax Income from Continuing Operations * | 2,273 | 327 | 1,441 | 906 | 443 | |||||||||||||||
| Pre-tax margin * | 37.4 | % | 7.7 | % | 15.4 | % | 25.8 | % | 44.4 | % | ||||||||||
| * Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost. | ||||||||||||||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION | ||||||||||||||||||||
| SEGMENT DATA | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| TWELVE - MONTHS 2018 | ||||||||||||||||||||
| Technology | ||||||||||||||||||||
| Global | Services & | |||||||||||||||||||
| (Dollars in Millions) | Cognitive | Business | Cloud | Global | ||||||||||||||||
| Solutions | Services | Platforms | Systems | Financing | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| External | $ | 18,481 | $ | 16,817 | $ | 34,462 | $ | 8,034 | $ | 1,590 | ||||||||||
| Internal | 2,715 | 326 | 795 | 815 | 1,610 | |||||||||||||||
| Total Segment Revenue | $ | 21,197 | $ | 17,143 | $ | 35,257 | $ | 8,848 | $ | 3,200 | ||||||||||
| Pre-tax Income from Continuing Operations | 7,154 | 1,676 | 3,786 | 904 | 1,361 | |||||||||||||||
| Pre-tax margin | 33.8 | % | 9.8 | % | 10.7 | % | 10.2 | % | 42.5 | % | ||||||||||
| Change YTY Revenue - External | 0.2 | % | 2.9 | % | 0.5 | % | (2.0 | )% | (6.3 | )% | ||||||||||
| Change YTY Revenue - External @constant currency | (0.4 | )% | 2.0 | % | (0.1 | )% | (2.3 | )% | (6.5 | )% | ||||||||||
| TWELVE - MONTHS 2017 | ||||||||||||||||||||
| Technology | ||||||||||||||||||||
| Global | Services & | |||||||||||||||||||
| (Dollars in Millions) | Cognitive | Business | Cloud | Global | ||||||||||||||||
| Solutions | Services | Platforms | Systems | Financing | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| External | $ | 18,453 | $ | 16,348 | $ | 34,277 | $ | 8,194 | $ | 1,696 | ||||||||||
| Internal | 2,647 | 363 | 657 | 750 | 1,471 | |||||||||||||||
| Total Segment Revenue | $ | 21,100 | $ | 16,711 | $ | 34,934 | $ | 8,945 | $ | 3,168 | ||||||||||
| Pre-tax Income from Continuing Operations * | 6,795 | 1,362 | 4,286 | 1,128 | 1,278 | |||||||||||||||
| Pre-tax margin * | 32.2 | % | 8.2 | % | 12.3 | % | 12.6 | % | 40.3 | % | ||||||||||
| * Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost. | ||||||||||||||||||||
| INTERNATIONAL BUSINESS MACHINES CORPORATION | ||||||||||||||||||||
| U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION | ||||||||||||||||||||
| (Unaudited; Dollars in millions except per share amounts) | ||||||||||||||||||||
| FOURTH - QUARTER 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 | % | 0.4Pts | - | - | 49.5 | % | |||||||||||||
| S,G&A | 4,701 | (119 | ) | - | - | 4,582 | ||||||||||||||
| R,D&E | 1,358 | - | - | - | 1,358 | |||||||||||||||
| Other (Income) & Expense | 185 | (1 | ) | (387 | ) | - | (203 | ) | ||||||||||||
| 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 | % | 1.0Pts | 1.8Pts | - | 23.1 | % | |||||||||||||
| Provision for 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 | % | 0.8Pts | 1.6Pts | 8.9Pts | 20.3 | % | |||||||||||||
| Diluted Earnings Per Share: Continuing Operations | $ | 2.15 | $ | 0.19 | $ | 0.38 | $ | 2.15 | $ | 4.87 | ||||||||||
| FOURTH - QUARTER 2017 | ||||||||||||||||||||
| CONTINUING OPERATIONS | ||||||||||||||||||||
| Acquisition- | Retirement- | Tax | ||||||||||||||||||
| Related | Related | Reform | Operating | |||||||||||||||||
| GAAP (1) | Adjustments* | Adjustments (1) ** | Impacts | (Non-GAAP) (1) | ||||||||||||||||
| Gross Profit | $ | 11,049 | $ | 99 | - | - | $ | 11,149 | ||||||||||||
| Gross Profit Margin | 49.0 | % | 0.4Pts | - | - | 49.5 | % | |||||||||||||
| S,G&A | 5,013 | (116 | ) | - | - | 4,897 | ||||||||||||||
| R,D&E | 1,378 | - | - | - | 1,378 | |||||||||||||||
| Other (Income) & Expense | 374 | (32 | ) | (371 | ) | - | (30 | ) | ||||||||||||
| Total Expense & Other (Income) | 6,580 | (148 | ) | (371 | ) | - | 6,061 | |||||||||||||
| Pre-tax Income from Continuing Operations | 4,469 | 247 | 371 | - | 5,087 | |||||||||||||||
| Pre-tax Income Margin from Continuing Operations | 19.8 | % | 1.1Pts | 1.6Pts | - | 22.6 | % | |||||||||||||
| Provision for Income Taxes*** | 5,522 | 67 | 197 | (5,475 | ) | 310 | ||||||||||||||
| Effective Tax Rate | 123.6 | % | (4.7)Pts | (5.1)Pts | (107.6)Pts | 6.1 | % | |||||||||||||
| Income / (Loss) from Continuing Operations | (1,053 | ) | 181 | 174 | 5,475 | 4,777 | ||||||||||||||
| Income / (Loss) Margin from Continuing Operations | (4.7 | )% | 0.8Pts | 0.8Pts | 24.3Pts | 21.2 | % | |||||||||||||
| Diluted Earnings / (Loss) Per Share: Continuing Operations | ($1.14 | ) | $ | 0.19 | $ | 0.19 | $ | 5.90 | $ | 5.14 | ||||||||||
| (1) Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost. | ||||||||||||||||||||
|
* Includes amortization of purchased intangible assets, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges. |
|
** Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, amortization of prior service cost and insolvency insurance. |
|
*** 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) | ||||||||||||||||||||
| TWELVE - MONTHS 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 | % | 0.5Pts | - | - | 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 | ) | ||||||||||||
| 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 | % | 1.0Pts | 2.0Pts | - | 17.3 | % | |||||||||||||
| Provision for 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 | % | 0.8Pts | 1.6Pts | 2.6Pts | 15.9 | % | |||||||||||||
| Diluted Earnings Per Share: Continuing Operations | $ | 9.51 | $ | 0.71 | $ | 1.36 | $ | 2.23 | $ | 13.81 | ||||||||||
| TWELVE - MONTHS 2017 | ||||||||||||||||||||
| CONTINUING OPERATIONS | ||||||||||||||||||||
| Acquisition- | Retirement- | Tax | ||||||||||||||||||
| Related | Related | Reform | Operating | |||||||||||||||||
| GAAP (1) | Adjustments* | Adjustments (1) ** | Impacts | (Non-GAAP) (1) | ||||||||||||||||
| Gross Profit | $ | 36,943 | $ | 449 | - | - | $ | 37,392 | ||||||||||||
| Gross Profit Margin | 46.7 | % | 0.6Pts | - | - | 47.2 | % | |||||||||||||
| S,G&A | 19,680 | (509 | ) | - | - | 19,170 | ||||||||||||||
| R,D&E | 5,590 | - | - | - | 5,590 | |||||||||||||||
| Other (Income) & Expense | 1,125 | (39 | ) | (1,341 | ) | - | (255 | ) | ||||||||||||
| Total Expense & Other (Income) | 25,543 | (548 | ) | (1,341 | ) | - | 23,654 | |||||||||||||
| Pre-Tax Income from Continuing Operations | 11,400 | 997 | 1,341 | - | 13,738 | |||||||||||||||
| Pre-tax Income Margin from Continuing Operations | 14.4 | % | 1.3Pts | 1.7Pts | - | 17.4 | % | |||||||||||||
| Provision for Income Taxes*** | 5,642 | 279 | 485 | (5,475 | ) | 931 | ||||||||||||||
| Effective Tax Rate | 49.5 | % | (1.6)Pts | (1.3)Pts | (39.9)Pts | 6.8 | % | |||||||||||||
| Income from Continuing Operations | 5,758 | 718 | 856 | 5,475 | 12,807 | |||||||||||||||
| Income Margin from Continuing Operations | 7.3 | % | 0.9Pts | 1.1Pts | 6.9Pts | 16.2 | % | |||||||||||||
| Diluted Earnings Per Share: Continuing Operations | $ | 6.14 | $ | 0.77 | $ | 0.91 | $ | 5.84 | $ | 13.66 | ||||||||||
| (1) Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost. | ||||||||||||||||||||
|
* Includes amortization of purchased intangible assets, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges. |
|
** Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, amortization of prior service cost and insolvency insurance. |
|
*** 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 | ||||
| RECONCILIATION OF OPERATING EARNINGS PER SHARE | ||||
| (Unaudited) | ||||
| 2019 | ||||
|
EPS Guidance |
Expectations | |||
| GAAP Diluted EPS | at least $12.45 | |||
| Operating EPS (non-GAAP) | at least $13.90 | |||
| Adjustments | ||||
| Acquisition-related Charges * | $0.91 | |||
| Non-Operating Retirement-Related Items | $0.45 | |||
| Tax Reform Enactment Impacts | $0.09 | |||
|
* Includes acquisitions as of December 31, 2018, and pre-closing charges, such as financing costs, associated with the Red Hat acquisition |
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