Form 8-K INTERNATIONAL BUSINESS For: Jul 19
Exhibit 99.1
IBM REPORTS 2021 SECOND-QUARTER RESULTS
Improved Revenue Growth Led by Hybrid Cloud Platform Adoption, Consulting and Software
Highlights
Second Quarter:
| ● | Revenue of $18.7 billion, up 3 percent (flat adjusting for divested businesses and currency) |
- Cloud & Cognitive Software up 6 percent (up 2 percent adjusting for currency)
- Global Business Services up 12 percent (up 7 percent adjusting for currency)
| ● | Net cash from operating activities of $17.7 billion and adjusted free cash flow of $11.0 billion, over last 12 months |
| ● | Total cloud revenue over last 12 months of $27.0 billion, up 15 percent (up 13 percent adjusting for divested businesses and currency) |
| ● | Total cloud revenue in the quarter of $7.0 billion, up 13 percent (up 9 percent adjusting for divested businesses and currency) led by: |
- Cloud & Cognitive Software cloud revenue up 29 percent (up 25 percent adjusting for currency)
- Global Business Services cloud revenue up 35 percent (up 30 percent adjusting for currency)
| ● | Red Hat revenue up 20 percent (up 17 percent adjusting for currency), normalized for historical comparability |
| ● | GAAP gross profit margin of 48.0 percent, flat; Operating (non-GAAP) gross profit margin of 49.3 percent, up 30 basis points |
| ● | Debt reduced by $6.4 billion since year-end 2020 |
ARMONK, N.Y., July 19, 2021 . . . IBM (NYSE: IBM) today announced second-quarter 2021 earnings results.
“In the second quarter client adoption of our hybrid cloud platform contributed to strong performance in Global Business Services and software and drove improved overall revenue growth. At the same time, we continued to help clients infuse our AI-based technology offerings into their core business workflows," said Arvind Krishna, IBM chairman and chief executive officer. "We are pleased with our progress and we remain on track to deliver full-year revenue growth and meet our cash flow objective.”
| | SECOND QUARTER 2021 | ||||||||||||
|
| | |
| | |
| | |
| Pre-tax |
| Gross |
|
| | | Diluted | | | Net | | | Pre-tax | | Income | | Profit |
|
| | | EPS | | | Income | | | Income | | Margin | | Margin |
|
GAAP from Continuing Operations | | $ | 1.47 | | $ | 1.3B | | $ | 1.6B |
| 8.3 | % | 48.0 | % |
Year/Year | |
| (3) | % |
| (3) | % |
| (1) | % | (0.4) | Pts | 0.0 | Pts |
| | | | | | | | | | | | | | |
Operating (Non-GAAP) | | $ | 2.33 | | $ | 2.1B | | $ | 2.5B |
| 13.5 | % | 49.3 | % |
Year/Year | |
| 7 | % |
| 8 | % |
| 9 | % | 0.7 | Pts | 0.3 | Pts |
GAAP EPS results include impacts related to the amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation. The impact of the Kyndryl separation costs for second-quarter 2021 was ($0.15) per share.
“We expanded operating margins and grew profit dollars in the quarter, providing a key contribution to our cash performance," said James Kavanaugh, IBM senior vice president and chief financial officer. "In the first half of the year we increased adjusted free cash flow, invested in strategic acquisitions to strengthen our hybrid cloud and AI capabilities, continued to deleverage and, consistent with our commitment, again increased our dividend.”
Cash Flow and Balance Sheet
In the second quarter, the company generated net cash from operating activities of $2.6 billion. IBM’s free cash flow was $1.0 billion, which includes $0.6 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of Kyndryl. IBM’s adjusted free cash flow, excluding these cash impacts, was $1.6 billion. The company returned $1.5 billion to shareholders in dividends.
In the first six months of the year, the company generated net cash from operating activities of $7.5 billion. Free cash flow for the first six months was $2.6 billion. The company’s adjusted free cash flow, excluding cash impacts of $1.2 billion for the structural actions and transaction separation costs, was $3.8 billion.
Over the last 12 months, the company generated net cash from operating activities of $17.7 billion. IBM’s free cash flow for the last 12 months was $9.7 billion. The company’s adjusted free cash flow, excluding cash impacts of $1.3 billion for the structural actions and transaction separation costs, was $11.0 billion.
IBM ended the second quarter with $8.2 billion of cash on hand (includes marketable securities), down $6.1 billion from year-end 2020 due primarily to acquisitions and debt reduction payments. Debt, including Global Financing debt of $17.5 billion, totaled $55.2 billion, down $6.4 billion since the end of 2020, and down $17.9 billion since closing the Red Hat acquisition.
Segment Results for Second Quarter
| ● | Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive Applications and Transaction Processing Platforms) — revenues of $6.1 billion, up 6.1 percent (up 2.5 percent adjusting for currency). Cloud & Data Platforms grew 12 percent (up 8 percent adjusting for currency), led by the company’s hybrid cloud platform and Cloud Pak growth. Cognitive Applications grew 12 percent (up 8 percent adjusting for currency), led by growth in Security and AI applications. Transaction Processing Platforms declined 7 percent (down 11 percent adjusting for currency). Cloud revenue up 29 percent (up 25 percent adjusting for currency). |
| ● | Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.3 billion, up 11.6 percent (up 7.3 percent adjusting for currency), with growth in Consulting, up 16 percent (up 11 percent adjusting for currency), Application Management up 5 percent (up 1 percent adjusting for currency) and Global Process Services up 28 percent (up 25 percent adjusting for currency). Cloud revenue up 35 percent (up 30 percent adjusting for currency). Gross profit margin declined 60 basis points. |
| ● | Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.3 billion, up 0.4 percent (down 4.1 percent adjusting for currency). Both Infrastructure & Cloud Services and Technology Support Services were flat (down 4 percent adjusting for currency). Cloud revenue down 1 percent (down 5 percent adjusting for currency). Gross profit margin up 110 basis points. |
| ● | Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.7 billion, down 7.3 percent (down 10.2 percent adjusting for currency), driven by declines in IBM Z (down 11 percent; down 13 percent adjusting for currency) and Storage Systems (down 7 percent, down 10 percent adjusting for currency). Power systems declined 2 percent (down 5 percent adjusting for currency). Cloud revenue down 16 percent (down 19 percent adjusting for currency). |
| ● | Global Financing (includes financing and used equipment sales) — revenues of $242 million, down 8.6 percent (down 11.6 percent adjusting for currency). |
Year-To-Date 2021 Results
Revenues for the six-month period ended June 30, 2021 totaled $36.5 billion, an increase of 2 percent year to year (down 1 percent adjusting for divested businesses and currency) compared with $35.7 billion for the first six months of 2020. Net income was $2.3 billion, down 10 percent year to year. Diluted earnings per share was $2.52 compared with $2.83 per diluted share for the 2020 period, a decrease of 11 percent.
GAAP earnings per share results include a ($1.58) per-share impact for charges related to amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation. The impact of the Kyndryl separation costs was ($0.20) per share.
Operating (non-GAAP) net income for the six months ended June 30, 2021 was $3.7 billion compared with $3.6 billion in the prior-year period, an increase of 3 percent. Operating (non-GAAP) diluted earnings per share from continuing operations was $4.10 compared with $4.02 per diluted share for the 2020 period, an increase of 2 percent.
Full-Year 2021 Expectations
The company expects to grow revenue for the full year 2021 based on mid-July 2021 foreign exchange rates. The company continues to expect adjusted free cash flow of $11 billion to $12 billion in 2021. Adjusted free cash flow expectations exclude approximately $3 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of Kyndryl.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, but not limited to, the following: a downturn in economic environment and client spending budgets; 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; the possibility that the proposed separation of the managed infrastructure services unit of the company’s 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; the company’s ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities, and higher debt levels; fluctuations in financial results; impact of local legal, economic, political, health and other conditions; the company’s failure to meet growth and productivity objectives; ineffective internal controls; the company’s use of accounting estimates; impairment of the company’s goodwill or amortizable intangible assets; 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; reliance on third party distribution channels and ecosystems; cybersecurity and data privacy considerations; adverse effects from environmental matters, tax matters; legal proceedings and investigatory risks; the company’s pension plans; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; 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 or in materials incorporated therein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information, which management believes provides useful information to investors:
IBM results —
| ● | adjusting for currency (i.e., at constant currency); |
| ● | total revenue and cloud revenue adjusting for divested businesses and currency; |
| ● | Red Hat revenue normalized for historical comparability; |
| ● | presenting operating (non-GAAP) earnings per share amounts and related income statement items; |
| ● | free cash flow; |
| ● | adjusted free cash flow. |
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. EDT, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-2q21. 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).
Contact: | IBM |
| Sarah Meron, 347-891-1770 |
| |
| |
| John Bukovinsky, 732-618-3531 |
|
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
| | Three Months Ended |
| | | Six Months Ended |
| | ||||||||
| | June 30, |
| | | June 30, |
| | ||||||||
|
| 2021 |
| 2020 |
| | | 2021 |
| 2020 |
| | ||||
REVENUE |
| |
|
| |
| | | | |
|
| |
| | |
Cloud & Cognitive Software | | $ | 6,098 | | $ | 5,748 | | | | $ | 11,534 | | $ | 10,987 | | |
Global Business Services | |
| 4,341 | |
| 3,890 | | | |
| 8,575 | |
| 8,027 | | |
Global Technology Services | |
| 6,342 | |
| 6,316 | | | |
| 12,712 | |
| 12,783 | | |
Systems | |
| 1,717 | |
| 1,852 | | | |
| 3,144 | |
| 3,220 | | |
Global Financing | |
| 242 | |
| 265 | | | |
| 482 | |
| 564 | | |
Other | |
| 5 | |
| 50 | | | |
| 28 | |
| 113 | | |
TOTAL REVENUE | |
| 18,745 | |
| 18,123 | | | |
| 36,474 | |
| 35,694 | | |
| | | | | | | | | | | | | | | | |
GROSS PROFIT | |
| 9,004 | |
| 8,700 | | | |
| 17,208 | |
| 16,622 | | |
| | | | | | | | | | | | | | | | |
GROSS PROFIT MARGIN | |
| | |
| | | | |
| | |
| | | |
Cloud & Cognitive Software | |
| 78.1 | % |
| 77.1 | % | | |
| 77.1 | % |
| 76.3 | % | |
Global Business Services | |
| 27.9 | % |
| 28.4 | % | | |
| 28.0 | % |
| 27.8 | % | |
Global Technology Services | |
| 35.3 | % |
| 34.2 | % | | |
| 34.9 | % |
| 34.1 | % | |
Systems | |
| 55.1 | % |
| 57.8 | % | | |
| 54.8 | % |
| 54.6 | % | |
Global Financing | |
| 27.4 | % |
| 38.6 | % | | |
| 29.7 | % |
| 39.7 | % | |
| | | | | | | | | | | | | | | | |
TOTAL GROSS PROFIT MARGIN | |
| 48.0 | % |
| 48.0 | % | | |
| 47.2 | % |
| 46.6 | % | |
| | | | | | | | | | | | | | | | |
EXPENSE AND OTHER INCOME | |
| | |
|
| | | |
|
| |
|
| | |
S,G&A | |
| 5,334 | |
| 5,248 | | | |
| 10,508 | |
| 11,203 | | |
R,D&E | |
| 1,657 | |
| 1,582 | | | |
| 3,286 | |
| 3,207 | | |
Intellectual property and custom development income | |
| (135) | |
| (203) | | | |
| (282) | |
| (319) | | |
Other (income) and expense | |
| 315 | |
| 179 | | | |
| 676 | |
| 361 | | |
Interest expense | |
| 281 | |
| 323 | | | |
| 562 | |
| 649 | | |
TOTAL EXPENSE AND OTHER INCOME | |
| 7,451 | |
| 7,129 | | | |
| 14,751 | |
| 15,101 | | |
| | | | | | | | | | | | | | | | |
INCOME/(LOSS) FROM CONTINUING OPERATIONS | |
| | |
| | | | |
| | |
| | | |
BEFORE INCOME TAXES | |
| 1,552 | |
| 1,571 | | | |
| 2,457 | |
| 1,522 | | |
Pre-tax margin | |
| 8.3 | % |
| 8.7 | % | | |
| 6.7 | % |
| 4.3 | % | |
Provision for/(Benefit from) income taxes | |
| 227 | |
| 209 | | | |
| 177 | |
| (1,017) | | |
Effective tax rate | |
| 14.7 | % |
| 13.3 | % | | |
| 7.2 | % |
| (66.8) | % | |
| | | | | | | | | | | | | | | | |
INCOME FROM CONTINUING OPERATIONS | | $ | 1,325 | | $ | 1,362 | | | | $ | 2,281 | | $ | 2,538 | | |
| | | | | | | | | | | | | | | | |
DISCONTINUED OPERATIONS | |
| | |
| | | | |
| | |
| | | |
Income/(Loss) from discontinued operations, net of taxes | |
| — | |
| (1) | | | |
| (1) | |
| (2) | | |
| | | | | | | | | | | | | | | | |
NET INCOME | | $ | 1,325 | | $ | 1,361 | | | | $ | 2,280 | | $ | 2,536 | | |
| | | | | | | | | | | | | | | | |
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK | |
| | |
|
| | | |
|
| |
|
| | |
Assuming Dilution | |
| | |
|
| | | |
|
| |
|
| | |
Continuing Operations | | $ | 1.47 | | $ | 1.52 | | | | $ | 2.52 | | $ | 2.83 | | |
Discontinued Operations | | $ | 0.00 | | $ | 0.00 | | | | $ | 0.00 | | $ | 0.00 | | |
TOTAL | | $ | 1.47 | | $ | 1.52 | | | | $ | 2.52 | | $ | 2.83 | | |
| | | | | | | | | | | | | | | | |
Basic | |
| | |
| | | | |
| | |
| | | |
Continuing Operations | | $ | 1.48 | | $ | 1.53 | | | | $ | 2.55 | | $ | 2.85 | | |
Discontinued Operations | | $ | 0.00 | | $ | 0.00 | | | | $ | 0.00 | | $ | 0.00 | | |
TOTAL | | $ | 1.48 | | $ | 1.53 | | | | $ | 2.55 | | $ | 2.85 | | |
| | | | | | | | | | | | | | | | |
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s) | |
| | |
| | | | |
| | |
| | | |
Assuming Dilution | |
| 904.2 | |
| 894.9 | | | |
| 903.0 | |
| 895.0 | | |
Basic | |
| 895.0 | |
| 889.4 | | | |
| 894.3 | |
| 888.7 | | |
INTERNATIONAL BUSINESS
MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
| At |
| At | ||
| | June 30, | | December 31, | ||
(Dollars in Millions) | | 2021 | | 2020 | ||
ASSETS: |
| |
|
| |
|
| | | | | | |
Current Assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 7,350 | | $ | 13,212 |
Restricted cash | |
| 215 | |
| 463 |
Marketable securities | |
| 600 | |
| 600 |
Notes and accounts receivable - trade, net | |
| 6,827 | |
| 7,132 |
Short-term financing receivables, net | |
| 8,194 | |
| 10,892 |
Other accounts receivable, net | |
| 802 | |
| 714 |
Inventories | |
| 1,807 | |
| 1,839 |
Deferred costs | |
| 2,211 | |
| 2,107 |
Prepaid expenses and other current assets | |
| 2,768 | |
| 2,206 |
Total Current Assets | |
| 30,774 | |
| 39,165 |
| | | | | | |
Property, plant and equipment, net | |
| 9,423 | |
| 10,040 |
Operating right-of-use assets, net | |
| 4,387 | |
| 4,686 |
Long-term financing receivables, net | |
| 5,674 | |
| 7,086 |
Prepaid pension assets | |
| 8,046 | |
| 7,610 |
Deferred costs | |
| 2,362 | |
| 2,449 |
Deferred taxes | |
| 8,954 | |
| 9,241 |
Goodwill | |
| 61,645 | |
| 59,617 |
Intangibles, net | | | 13,539 | | | 13,796 |
Investments and sundry assets | |
| 2,010 | |
| 2,282 |
Total Assets | | $ | 146,814 | | $ | 155,971 |
| | | | | | |
LIABILITIES: | |
|
| |
|
|
| | | | | | |
Current Liabilities: | |
|
| |
|
|
Taxes | | $ | 2,260 | | $ | 3,301 |
Short-term debt | |
| 6,442 | |
| 7,183 |
Accounts payable | |
| 4,214 | |
| 4,908 |
Deferred income | |
| 13,272 | |
| 12,833 |
Operating lease liabilities | |
| 1,334 | |
| 1,357 |
Other liabilities | |
| 9,095 | |
| 10,287 |
Total Current Liabilities | |
| 36,616 | |
| 39,869 |
| | | | | | |
Long-term debt | |
| 48,735 | |
| 54,355 |
Retirement related obligations | |
| 17,265 | |
| 18,248 |
Deferred income | |
| 4,113 | |
| 4,301 |
Operating lease liabilities | |
| 3,278 | |
| 3,574 |
Other liabilities | |
| 14,741 | |
| 14,897 |
Total Liabilities | |
| 124,747 | |
| 135,244 |
| | | | | | |
EQUITY: | |
| | |
|
|
| | | | | | |
IBM Stockholders’ Equity: | |
| | |
|
|
Common stock | |
| 56,912 | |
| 56,556 |
Retained earnings | |
| 162,086 | |
| 162,717 |
Treasury stock — at cost | |
| (169,404) | |
| (169,339) |
Accumulated other comprehensive income/(loss) | |
| (27,652) | |
| (29,337) |
Total IBM Stockholders’ Equity | |
| 21,942 | |
| 20,597 |
| | | | | | |
Noncontrolling interests | |
| 125 | |
| 129 |
Total Equity | |
| 22,067 | |
| 20,727 |
| | | | | | |
Total Liabilities and Equity | | $ | 146,814 | | $ | 155,971 |
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
| | | | | | | | | | | | | | Trailing Twelve | |
| | Three Months Ended | | Six Months Ended |
| Months Ended | |||||||||
| | June 30, | | June 30, |
| June 30, | |||||||||
(Dollars in Millions) | | 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 | |||||
Net Cash Provided by Operating Activities per GAAP: | | $ | 2,625 | | $ | 3,576 | | $ | 7,539 | | $ | 8,052 | | $ | 17,684 |
| | | | | | | | | | | | | | | |
Less: Change in Global Financing (GF) Receivables | |
| 900 | | | 589 | |
| 3,763 | | | 2,971 | | | 5,142 |
Capital Expenditures, net | |
| (688) | | | (697) | |
| (1,217) | | | (1,434) | | | (2,826) |
| | | | | | | | | | | | | | | |
Free Cash Flow | |
| 1,037 | | | 2,290 | |
| 2,559 | | | 3,647 | | | 9,716 |
| | | | | | | | | | | | | | | |
Structural actions initiated in 4Q20 & Separation charges (1) | |
| 595 | | | — | |
| 1,224 | | | — | | | 1,274 |
| | | | | | | | | | | | | | | |
Adjusted Free Cash Flow | |
| 1,631 | | | 2,290 | |
| 3,783 | | | 3,647 | | | 10,990 |
| | | | | | | | | | | | | | | |
Free Cash Flow | |
| 1,037 | | | 2,290 | |
| 2,559 | | | 3,647 | | | 9,716 |
| | | | | | | | | | | | | | | |
Acquisitions | |
| (1,747) | | | (6) | |
| (2,866) | | | (19) | | | (3,182) |
Divestitures | |
| (10) | | | 731 | |
| (25) | | | 757 | | | (280) |
Dividends | |
| (1,467) | | | (1,450) | |
| (2,924) | | | (2,890) | | | (5,832) |
Non-GF Debt | |
| (586) | | | 455 | |
| (2,331) | | | 3,958 | | | (6,068) |
Other (includes GF Net Receivables and GF Debt) | |
| (335) | | | 213 | |
| (522) | | | (213) | | | (440) |
| | | | | | | | | | | | | | | |
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities | | $ | (3,108) | | $ | 2,233 | | $ | (6,110) | | $ | 5,241 | | $ | (6,085) |
(1) Includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and separation related costs.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
(Dollars in Millions) | | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net Income from Operations | | $ | 1,325 | | $ | 1,361 | | $ | 2,280 | | $ | 2,536 |
Depreciation/Amortization of Intangibles | |
| 1,680 | |
| 1,678 | |
| 3,352 | |
| 3,313 |
Stock-based Compensation | |
| 243 | |
| 247 | |
| 457 | |
| 436 |
Working Capital / Other | |
| (1,524) | |
| (300) | |
| (2,313) | |
| (1,204) |
Global Financing A/R | |
| 900 | |
| 589 | |
| 3,763 | |
| 2,971 |
Net Cash Provided by Operating Activities | | $ | 2,625 | | $ | 3,576 | | $ | 7,539 | | $ | 8,052 |
Capital Expenditures, net of payments & proceeds | |
| (688) | |
| (697) | |
| (1,217) | |
| (1,434) |
Divestitures, net of cash transferred | |
| (10) | |
| 731 | |
| (25) | |
| 757 |
Acquisitions, net of cash acquired | |
| (1,747) | |
| (6) | |
| (2,866) | |
| (19) |
Marketable Securities / Other Investments, net | |
| (227) | |
| (1,264) | |
| (562) | |
| (1,442) |
Net Cash Provided by/(Used in) Investing Activities | | $ | (2,671) | | $ | (1,236) | | $ | (4,671) | | $ | (2,138) |
Debt, net of payments & proceeds | |
| (1,500) | |
| (38) | |
| (5,799) | |
| 1,319 |
Dividends | |
| (1,467) | |
| (1,450) | |
| (2,924) | |
| (2,890) |
Common Stock Transactions - Other | |
| (163) | |
| (137) | |
| (190) | |
| (168) |
Net Cash Provided by/(Used in) Financing Activities | | $ | (3,131) | | $ | (1,624) | | $ | (8,914) | | $ | (1,739) |
Effect of Exchange Rate changes on Cash | |
| 69 | |
| 101 | |
| (65) | |
| (301) |
Net Change in Cash, Cash Equivalents and Restricted Cash | | $ | (3,108) | | $ | 817 | | $ | (6,110) | | $ | 3,874 |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
| | Three Months Ended June 30, 2021 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 6,098 | | $ | 4,341 | | $ | 6,342 | | $ | 1,717 | | $ | 242 | |
Internal | |
| 726 | |
| 58 | |
| 326 | |
| 241 | |
| 260 | |
Total Segment Revenue | | $ | 6,824 | | $ | 4,399 | | $ | 6,668 | | $ | 1,958 | | $ | 502 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 1,720 | |
| 371 | |
| 381 | |
| 176 | |
| 246 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 25.2 | % |
| 8.4 | % |
| 5.7 | % |
| 9.0 | % |
| 48.9 | % |
| | | | | | | | | | | | | | | | |
Change YTY Revenue - External | |
| 6.1 | % |
| 11.6 | % |
| 0.4 | % |
| (7.3) | % |
| (8.6) | % |
Change YTY Revenue - External @constant currency | |
| 2.5 | % |
| 7.3 | % |
| (4.1) | % |
| (10.2) | % |
| (11.6) | % |
| | Three Months Ended June 30, 2020 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 5,748 | | $ | 3,890 | | $ | 6,316 | | $ | 1,852 | | $ | 265 | |
Internal | |
| 743 | |
| 55 | |
| 304 | |
| 240 | |
| 241 | |
Total Segment Revenue | | $ | 6,491 | | $ | 3,945 | | $ | 6,621 | | $ | 2,092 | | $ | 506 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 1,708 | |
| 362 | |
| 250 | |
| 248 | |
| 176 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 26.3 | % |
| 9.2 | % |
| 3.8 | % |
| 11.8 | % |
| 34.9 | % |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
| | Six Months Ended June 30, 2021 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 11,534 | | $ | 8,575 | | $ | 12,712 | | $ | 3,144 | | $ | 482 | |
Internal | |
| 1,558 | |
| 113 | |
| 639 | |
| 430 | |
| 428 | |
Total Segment Revenue | | $ | 13,093 | | $ | 8,688 | | $ | 13,351 | | $ | 3,574 | | $ | 910 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 3,147 | |
| 761 | |
| 520 | |
| 174 | |
| 412 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 24.0 | % |
| 8.8 | % |
| 3.9 | % |
| 4.9 | % |
| 45.3 | % |
| | | | | | | | | | | | | | | | |
Change YTY Revenue - External | |
| 5.0 | % |
| 6.8 | % |
| (0.6) | % |
| (2.4) | % |
| (14.7) | % |
Change YTY Revenue - External @constant currency | |
| 1.6 | % |
| 2.8 | % |
| (4.7) | % |
| (5.0) | % |
| (17.1) | % |
| | Six Months Ended June 30, 2020 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 10,987 | | $ | 8,027 | | $ | 12,783 | | $ | 3,220 | | $ | 564 | |
Internal | |
| 1,556 | |
| 101 | |
| 599 | |
| 388 | |
| 453 | |
Total Segment Revenue | | $ | 12,543 | | $ | 8,128 | | $ | 13,382 | | $ | 3,608 | | $ | 1,017 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 2,641 | |
| 633 | |
| 72 | |
| 31 | |
| 370 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 21.1 | % |
| 7.8 | % |
| 0.5 | % |
| 0.9 | % |
| 36.4 | % |
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
| | Three Months Ended June 30, 2021 |
| ||||||||||||||||
| | Continuing Operations |
| ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax |
| Separation- |
| | |
| ||||
| | | | | Related | | Related | | Reform | | Related | | Operating |
| |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts | | Charges (4) | | (Non-GAAP) |
| ||||||
Gross Profit | | $ | 9,004 | | $ | 180 | | $ | — | | $ | — | | $ | 58 | | $ | 9,242 | |
Gross Profit Margin | |
| 48.0 | % |
| 1.0 | Pts | | — | Pts | | — | Pts | | 0.3 | Pts |
| 49.3 | % |
S,G&A | |
| 5,334 | |
| (298) | | | — | | | — | | | (116) | |
| 4,919 | |
R,D&E | |
| 1,657 | |
| — | | | — | | | — | | | (0) | |
| 1,656 | |
Other (Income) & Expense | |
| 315 | |
| (1) | | | (328) | | | — | | | — | |
| (14) | |
Interest Expense | |
| 281 | |
| — | | | — | | | — | | | — | |
| 281 | |
Total Expense & Other (Income) | |
| 7,451 | |
| (299) | | | (328) | | | — | | | (117) | |
| 6,708 | |
Pre-tax Income from Continuing Operations | |
| 1,552 | |
| 479 | | | 328 | | | — | | | 175 | |
| 2,534 | |
Pre-tax Income Margin from Continuing Operations | |
| 8.3 | % |
| 2.6 | Pts | | 1.7 | Pts | | — | Pts | | 0.9 | Pts |
| 13.5 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| 227 | |
| 107 | | | 67 | | | (14) | | | 44 | |
| 431 | |
Effective Tax Rate | |
| 14.7 | % |
| 1.4 | Pts | | 0.7 | Pts | | (0.5) | Pts | | 0.7 | Pts |
| 17.0 | % |
Income from Continuing Operations | |
| 1,325 | |
| 373 | | | 261 | | | 14 | | | 131 | |
| 2,103 | |
Income Margin from Continuing Operations | |
| 7.1 | % |
| 2.0 | Pts | | 1.4 | Pts | | 0.1 | Pts | | 0.7 | Pts |
| 11.2 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 1.47 | | $ | 0.41 | | $ | 0.29 | | $ | 0.01 | | $ | 0.15 | | $ | 2.33 | |
| | Three Months Ended June 30, 2020 | | ||||||||||||||||
| | Continuing Operations | | ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax | | Separation- | | |
| | ||||
| | | | | Related | | Related | | Reform | | Related | | Operating | | |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts |
| Charges (4) |
| (Non-GAAP) | | ||||||
Gross Profit | | $ | 8,700 | | $ | 187 | | $ | — | | $ | — | | $ | — | | $ | 8,887 | |
Gross Profit Margin | |
| 48.0 | % |
| 1.0 | Pts | | — | Pts | | — | Pts | | — | Pts |
| 49.0 | % |
S,G&A | |
| 5,248 | |
| (285) | | | — | | | — | | | — | |
| 4,962 | |
R,D&E | |
| 1,582 | |
| — | | | — | | | — | | | — | |
| 1,582 | |
Other (Income) & Expense | |
| 179 | |
| (1) | | | (273) | | | — | | | — | |
| (95) | |
Interest Expense | |
| 323 | |
| — | | | — | | | — | | | — | |
| 323 | |
Total Expense & Other (Income) | |
| 7,129 | |
| (286) | | | (273) | | | — | | | — | |
| 6,570 | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 1,571 | |
| 473 | | | 273 | | | — | | | — | |
| 2,318 | |
Pre-tax Income Margin from Continuing Operations | |
| 8.7 | % |
| 2.6 | Pts | | 1.5 | Pts | | — | Pts | | — | Pts |
| 12.8 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| 209 | |
| 108 | | | 52 | | | — | | | — | |
| 369 | |
Effective Tax Rate | |
| 13.3 | % |
| 1.9 | Pts | | 0.7 | Pts | | — | Pts | | — | Pts |
| 15.9 | % |
Income from Continuing Operations | |
| 1,362 | |
| 365 | | | 222 | | | — | | | — | |
| 1,949 | |
Income Margin from Continuing Operations | |
| 7.5 | % |
| 2.0 | Pts | | 1.2 | Pts | | — | Pts | | — | Pts |
| 10.8 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 1.52 | | $ | 0.41 | | $ | 0.25 | | $ | — | | $ | — | | $ | 2.18 | |
(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) Kyndryl separation 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)
| | Six Months Ended June 30, 2021 |
| ||||||||||||||||
| | Continuing Operations |
| ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax |
| Separation- |
| | |
| ||||
| | | | | Related | | Related | | Reform | | Related | | Operating |
| |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts | | Charges (4) | | (Non-GAAP) |
| ||||||
Gross Profit | | $ | 17,208 | | $ | 355 | | $ | — | | $ | — | | $ | 61 | | $ | 17,624 | |
Gross Profit Margin | |
| 47.2 | % |
| 1.0 | Pts | | — | Pts | | — | Pts | | 0.2 | Pts |
| 48.3 | % |
S,G&A | |
| 10,508 | |
| (591) | | | — | | | — | | | (175) | |
| 9,742 | |
R,D&E | |
| 3,286 | |
| — | | | — | | | — | | | (0) | |
| 3,286 | |
Other (Income) & Expense | |
| 676 | |
| (1) | | | (670) | | | — | | | — | |
| 5 | |
Interest Expense | |
| 562 | |
| — | | | — | | | — | | | — | |
| 562 | |
Total Expense & Other (Income) | |
| 14,751 | |
| (593) | | | (670) | | | — | | | (175) | |
| 13,313 | |
Pre-tax Income from Continuing Operations | |
| 2,457 | |
| 948 | | | 670 | | | — | | | 236 | |
| 4,312 | |
Pre-tax Income Margin from Continuing Operations | |
| 6.7 | % |
| 2.6 | Pts | | 1.8 | Pts | | — | Pts | | 0.6 | Pts |
| 11.8 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| 177 | |
| 240 | | | 128 | | | 6 | | | 59 | |
| 610 | |
Effective Tax Rate | |
| 7.2 | % |
| 4.0 | Pts | | 1.9 | Pts | | 0.1 | Pts | | 1.0 | Pts |
| 14.1 | % |
Income from Continuing Operations | |
| 2,281 | |
| 707 | | | 542 | | | (6) | | | 177 | |
| 3,702 | |
Income Margin from Continuing Operations | |
| 6.3 | % |
| 1.9 | Pts | | 1.5 | Pts | | (0.0) | Pts | | 0.5 | Pts |
| 10.1 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 2.52 | | $ | 0.79 | | $ | 0.60 | | $ | (0.01) | | $ | 0.20 | | $ | 4.10 | |
| | Six Months Ended June 30, 2020 |
| ||||||||||||||||
| | Continuing Operations |
| ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax |
| Separation- |
| | |
| ||||
| | | | | Related | | Related | | Reform | | Related | | Operating |
| |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts | | Charges (4) | | (Non-GAAP) |
| ||||||
Gross Profit | | $ | 16,622 | | $ | 375 | | $ | — | | $ | — | | $ | — | | $ | 16,998 | |
Gross Profit Margin | |
| 46.6 | % |
| 1.1 | Pts | | — | Pts | | — | Pts | | — | Pts |
| 47.6 | % |
S,G&A | |
| 11,203 | |
| (570) | | | — | | | — | | | — | |
| 10,633 | |
R,D&E | |
| 3,207 | |
| — | | | — | | | — | | | — | |
| 3,207 | |
Other (Income) & Expense | |
| 361 | |
| (1) | | | (538) | | | — | | | — | |
| (178) | |
Interest Expense | |
| 649 | |
| — | | | — | | | — | | | — | |
| 649 | |
Total Expense & Other (Income) | |
| 15,101 | |
| (571) | | | (538) | | | — | | | — | |
| 13,992 | |
Pre-tax Income from Continuing Operations | |
| 1,522 | |
| 946 | | | 538 | | | — | | | — | |
| 3,006 | |
Pre-tax Income Margin from Continuing Operations | |
| 4.3 | % |
| 2.7 | Pts | | 1.5 | Pts | | — | Pts | | — | Pts |
| 8.4 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| (1,017) | |
| 210 | | | 65 | | | 149 | | | — | |
| (592) | |
Effective Tax Rate | |
| (66.8) | % |
| 28.0 | Pts | | 14.1 | Pts | | 5.0 | Pts | | — | Pts |
| (19.7) | % |
Income from Continuing Operations | |
| 2,538 | |
| 736 | | | 472 | | | (149) | | | — | |
| 3,598 | |
Income Margin from Continuing Operations | |
| 7.1 | % |
| 2.1 | Pts | | 1.3 | Pts | | (0.4) | Pts | | — | Pts |
| 10.1 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 2.83 | | $ | 0.83 | | $ | 0.53 | | $ | (0.17) | | $ | — | | $ | 4.02 | |
(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) Kyndryl separation 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)
| | | | | | | | | | | | | Trailing | | |
| | Three Months Ended | | | Six Months Ended | | | Twelve Months Ended | | ||||||
| | June 30, 2021 | | | June 30, 2021 | | | June 30, 2021 | | ||||||
| | Change YTY | | | Change YTY | | | Change YTY | | ||||||
Revenue Adjusting for Divested Businesses and Currency | | Cloud |
| Total IBM |
| | Total IBM |
| | Cloud |
| ||||
| | | | | | | | | | | | | | | |
Revenue as reported | | | 12.6 | % | | 3.4 | % | | | 2.2 | % | | | 15.2 | % |
Impact from divested businesses | |
| 0.2 | Pts |
| 0.1 | Pts | |
| 0.1 | Pts | |
| 0.5 | Pts |
Currency impact | | | (4.1) | Pts | | (4.0) | Pts | | | (3.7) | Pts | | | (3.1) | Pts |
Revenue adjusting for divested businesses and currency (non-GAAP) | | | 8.7 | % | | (0.5) | % | | | (1.4) | % | | | 12.6 | % |
| | Three Months Ended | | |
| | June 30, 2021 | | |
Red Hat Revenue, Normalized for Historical Comparability | | Change YTY | | |
| | | | |
Red Hat Revenue GAAP growth rate (1) | | | 36 | % |
Impact from purchase accounting deferred revenue and intercompany adjustments (2) | | | (16) | Pts |
Red Hat revenue growth rate, normalized for historical comparability (non-GAAP) | | | 20 | % |
Impact from currency | | | (3) | Pts |
Red Hat revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP) | | | 17 | % |
(1) Represents change in GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
(2) Represents change in the second-quarter 2021 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.
Exhibit 99.2
Non-GAAP Financial Information
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, supplementally, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition- related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs, discontinued operations and certain Kyndryl separation-related charges and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform), the company characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments include true-ups, accounting elections and any changes to regulations, laws, audit adjustments, etc. that affect the recorded one-time charge. Management also characterizes direct and incremental charges incurred to accomplish the Kyndryl separation as non-operating given their unique and non-recurring nature. 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. All other spending for Kyndryl is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of the company’s acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the company characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs. Non-operating retirement- related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and the company considers these costs to be outside of the operational performance of the business.
Overall, the company believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The company’s reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with the company’s management and measurement system. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the company routinely receives from investors and analysts.
The company has provided operating (non-GAAP) tax rate directional statements for the third quarter of 2021 in its second-quarter 2021 earnings presentation prepared remarks. The company is not able to provide such directional statements on its third-quarter GAAP tax rate as it is difficult to predict certain tax impacts associated with the separation of Kyndryl.
Free Cash Flow / Adjusted Free Cash Flow
The company uses free cash flow as a measure to evaluate its operating results, plan shareholder return levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and our Global Financing receivables are the basis for growth.
Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of Global Financing receivables. Adjusted free cash flow refers to the company’s free cash flow adjusted for the cash impacts of the structural actions (primarily workforce reduction) initiated in the fourth quarter of 2020 and the direct and incremental cash impacts of the Kyndryl separation. Adjusted free cash flow guidance is derived using an estimate of profit, working capital and operational cash flows. Since the company views Global Financing receivables as a profit-generating investment which it seeks to maximize, it is not considered when formulating guidance for adjusted free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.
Constant Currency
When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
Revenue adjusted for divested businesses and constant currency
To provide better transparency on the recurring performance of the ongoing business, the company provides total revenue, cloud and geographic revenue growth rates excluding divested businesses and at constant currency. These divested businesses are included in the company’s Other segment.
Revenue for Red Hat, normalized for historical comparability
On July 9, 2019, the company completed the acquisition of Red Hat, Inc. (Red Hat) and began including Red Hat’s financial results in the company’s consolidated results. As part of the accounting for this acquisition, the company recorded certain adjustments, including a purchase accounting deferred revenue fair value adjustment and intercompany eliminations, each of which impact IBM’s post-acquisition revenue. To help investors better understand the underlying performance of Red Hat, management presents a non-GAAP growth rate of Red Hat’s revenue performance year to year, normalized for historical comparability. The normalized (non-GAAP) growth rate of revenue includes adjustments to reverse the purchase accounting deferred revenue fair value adjustment and adjustments to add back revenue which was eliminated for post-acquisition sales between Red Hat and IBM. The deferred revenue adjustment represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting. The sales between Red Hat and IBM, which were eliminated post-acquisition, are added back in this presentation to provide a comparative view of Red Hat on a pre-acquisition basis. This information is included to provide additional transparency and for comparative purposes only.
Exhibit 99.3
| IBM 2Q 2021 Earnings July 19, 2021 ibm.com/investor |
| Forward Looking Statements and Non-GAAP Information Certain comments made in this presentation may be In an effort to provide additional and useful information regarding characterized as forward looking under the Private Securities the company’s financial results and other financial information as Litigation Reform Act of 1995. Forward-looking statements aredetermined by generally accepted accounting principles (GAAP), the based on the company’s current assumptions regarding future company also discusses, in its earnings press release and earnings business and financial performance. Those statements by their presentation materials, certain non-GAAP information including year nature address matters that are uncertain to different degrees.to year change in revenue for Red Hat normalized for historical Those statements involve a number of factors that could causecomparability, revenue adjusting for divested businesses and actual results to differ materially. Additional information currency, operating earnings, other “operating” financial measures, concerning these factors is contained in the Company’s filings including free cash flow, adjusted free cash flow, net cash from with the SEC. Copies are available from the SEC, from the IBMoperating activities excluding Global Financing receivables, and website, or from IBM Investor Relations. Any forward-looking adjustments for currency. The rationale for management’s use of statement made during this presentation speaks only as of the this non-GAAP information is included as Exhibit 99.2 to the date on which it is made. The company assumes no obligation to company’s Form 8-K submitted to the SEC on July 19, 2021. The update or revise any forward-looking statements except asreconciliation of non-GAAP information to GAAP is included on the required by law; these charts and the associated remarks andslides entitled “Non-GAAP Supplemental Materials” in this comments are integrally related and are intended to be presentation, as well as in Exhibit 99.1 to the company’s Form 8-K presented and understood together. submitted to the SEC on July 19, 2021. For other related information please visit the Company’s investor relations website at: https://www.ibm.com/investor/events/earnings-2q21 2 |
| Arvind Krishna Chairman and Chief Executive Officer James Kavanaugh SVP, Finance & Operations, Chief Financial Officer 3 |
| performance in Global Business Services and clients infuse our AI-based technology offerings CEO Perspective “In the second quarter client adoption of our hybrid cloud platform contributed to strong 2Q21 Performance software and drove improved overall revenue growth. At the same time, we continued to help Hybrid Cloud and AI Progress into their core business workflows. We are pleased with our progress, and we Clients, Ecosystems and Innovation remain on track to deliver full-year revenue growth and meet our cash flow objective.” - Arvind Krishna, IBM Chairman and CEO 4 |
| enhancing portfolio Hybrid Cloud & AI Progress Our Platform Approach SERVICES Accelerating client adoption of hybrid cloud & AI Partners SOFTWARE IBM Software Leveraging go-to-market changes and Cloud Paksexpanding partner ecosystem HYBRID CLOUD PLATFORM Delivering innovation and INFRASTRUCTURE IBM IBM Public CloudsEnterprise Executing actions to drive change SystemsPublic CloudAWS | Azure | OthersInfrastructure 5 Hybrid Cloud Platform Dev Sec Ops Software and SaaS Partners System Integrator IBM Global Business Services |
| growth rates improved Cloud revenue growth Financial Highlights 2Q21 $18.7B $11.0B RevenueFree Cash Flow, Adjusted (LTM) “We expanded operating margins and grew profit dollars in the quarter, providing a key contribution to our cash performance. In the first half of the year we increased adjusted free cash flow, invested in strategic acquisitions to strengthen our hybrid cloud and AI capabilities, continued to deleverage and, consistent with our commitment, again increased our dividend.” – James Kavanaugh, IBM SVP & CFO Cloud growth @CC excludes impact of divested businesses; Gross margin expansion is operating; Adjusted FCF excludes cash impacts related to structural actions initiated in 4Q20 and separation related costs; Cash includes marketable securities 6 Continued progress in revenue growth Services & Software 13% (LTM) Solid business model fundamentals 30 bps$3.8B Gross margin expansionAdjusted FCF (YTD) Strong balance sheet & liquidity $8B $6B Cash balance Debt reduction (YTD) |
| Cloud & Data Platforms growth led by yr/yr +2% yr/yr Segment Elements +8% yr/yr Strong renewal rates for subscription Processing (11%) yr/yr Cloud & Cognitive Software Revenue C&CS Cloud Revenue Growth $6.1B +25% Red Hat and Cloud Pak strength Cognitive Applications growth driven by Security and supply chain Transaction Processing Platforms Cognitive impacted by preference for opex Applications over capex Cloud & Data Platforms +8% yr/yr Transaction and support Platforms 2Q21 Results; Revenue growth rates @CC 7 |
| Revenue returns to pre-pandemic yr/yr +7% yr/yr Segment Elements +11% yr/yr driven by ecosystem and cloud Gross margin (-60 bps yr/yr) Process Global Business ServicesRevenueGBS Cloud Revenue Growth $4.3B +30% levels Continued momentum in Red Hat engagements Consulting double-digit growth Consulting offerings Application Management +1% yr/yr Global reflects increased investment Services +25% yr/yr 2Q21 Results; Revenue growth rates @CC8 |
| IBM Z, Storage and Power Segment Elements secure, scalable, reliable Operating Systems RevenueIBM Z Program Revenue $1.7B >100% impacted by product cycle (10%) yr/yr z15 vs. z14 dynamics Strong z15 program performance: Gross margin up in IBM Z and Power; segment yr/yr margin Systems Hardware reflects mix (10%) yr/yr Systems Software (12%) yr/yr 2Q21 Results; Revenue growth rates @CC9 |
| Margin expansion reflects actions to yr/yr (4%) yr/yr Segment Elements activity Kyndryl separation remains on track (4%) yr/yr Technology Global Technology ServicesRevenueGross Margin Expansion $6.3B +110 bps improve profit profile Improved trends in client-based business volumes and project Strong and improving renewal rate Infrastructure & Cloud Services to be completed by the end of 2021 Support Services (4%) yr/yr 2Q21 Results; Revenue growth rates @CC10 |
| Summary Focus on hybrid cloud and AI strategy Continued progress in revenue trajectory; solid business model fundamentals Executing actions to accelerate change Maintaining expectations for full-year 2021 –Revenue growth based on mid-July spot rates –Adjusted free cash flow* of $11-12 billion *Adjusted FCF excludes cash impacts of ~$3B in 2021 from structural actions initiated in 4Q20 and transaction costs associated with the separation of Kyndryl 11 Accelerating IBM’s Performance |
| ibm.com/investor |
| Supplemental Materials ● Revenue and P&L Highlights ● Cash Flow and Balance Sheet Highlights ● Currency – Impact on Revenue Growth ● Services Segments Details ● Software and Systems Segment Details ● Expense Summary ● Balance Sheet Summary ● Cash Flow Summary ● Cash Flow (ASC 230) ● Non-GAAP Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding Supplemental Materials 13 |
| Revenue and P&L Highlights B/(W)B/(W) Revenue Highlights 2Q21 Yr/Yr* Operating P&L Highlights $ 2Q21 Yr/Yr Revenue$18.7 FlatGross Profit $9.2 4% Cloud $7.0 9% Expense $6.7 (2%) Cloud (LTM)$27.0 13% Pre-Tax Income $2.5 9% Net Income $2.1 8% B/(W) Earnings Per Share $2.33 7% Geography Revenue 2Q21 Yr/Yr* B/(W) Americas $8.8 3% Operating P&L Highlights % 2Q21 Yr/Yr Europe/ME/Africa$6.0 (3%) Gross Profit Margin49.3% 0.3 pts Asia Pacific $3.9 (4%) Expense E/R35.8% 0.5 pts Pre-Tax Income Margin13.5% 0.7 pts Net Income Margin11.2% 0.5 pts Tax Rate17.0% (1.1 pts) Revenue growth rates @CC, $ in billions *Yr/Yr excludes impact of divested businesses Supplemental Materials 14 |
| Cash Flow and Balance Sheet Highlights $ in billions *Non-GAAP financial measures; excludes financing receivables **Non-GAAP financial measures; excludes cash impacts incurred in the period related to structural actions initiated in 4Q20 and separation related costs Supplemental Materials 15 Cash Flow 2Q21 Yr/Yr LTM Balance SheetJun 21 Dec 20 Jun 20 Net Cash from Operations* $1.7 ($1.3) Adjusted Free Cash Flow** $1.6 ($0.7) Selected Uses of Cash Net Capital Expenditures $0.7 Acquisitions $1.7 Dividends $1.5 $12.5 $11.0 $2.8 $3.2 $5.8 Cash & Marketable Securities $8.2 $14.3 $14.3 Total Debt $55.2 $61.5 $64.7 Selected Debt Measures Global Financing Debt $17.5 $21.2 $21.9 Core (non-GF) Debt $37.7 $40.4 $42.8 |
| Currency – Impact on Revenue Growth Revenue Impact, Future @ 7/16/21 Spot4 pts 0-1 pts ~(1 pts) 1-2 pts Prior View @ 4/16/21 Spot~3 pts ~1 pts (1)-0 pts 1-2 pts US$B Yr/Yr Revenue As Reported $18.7 3% Currency Impact $0.7 4 pts Revenue @CC (1%) Supplemental Materials 16 Quarterly Averages per US $ 1Q21 Yr/Yr2Q21 Yr/Yr 7/16/2021 Spot 3Q21 4Q21 FY21 Euro 0.83 9% 0.83 9% Pound 0.73 7% 0.72 11% Yen 106 3% 109 (2%) 0.85 0.73 110 1% (1%) 4% 6% 4% 7% (4%) (5%) (2%) |
| Services Segments Details B/(W) B/(W) GBS Segment 2Q21 Yr/YrGTS Segment2Q21 Yr/Yr Revenue (External) $4.3 7% Revenue (External) $6.3 (4%) Consulting $2.2 11% Infrastructure & Cloud Services$4.8 (4%) Application Management$1.8 1% Technology Support Services$1.5 (4%) Global Process Services$0.3 25% Gross Profit Margin (External) 35.3% 1.1 pts Gross Profit Margin (External) 27.9% (0.6 pts) Pre-Tax Income$0.4 52% Pre-Tax Income $0.4 3% Pre-Tax Income Margin 5.7% 1.9 pts Pre-Tax Income Margin8.4% (0.7 pts) Cloud Revenue (External) $2.4 (5%) Cloud Revenue (External) $1.9 30% B/(W) Services Signings & Backlog 2Q21 Yr/Yr Signings $9.2 8% Backlog$103.7 (6%) Backlog Yr/Yr @Actual(3%) Revenue & Signings growth rates @CC, $ in billions, Services Backlog calculated using June 30 currency spot rates, Signings & Backlog includes Security Services Supplemental Materials 17 |
| Software and Systems Segment Details B/(W) B/(W) Cloud & Cognitive Software Segment 2Q21 Yr/Yr Systems Segment2Q21 Yr/Yr Revenue (External) $6.1 2% Revenue (External) $1.7 (10%) Cloud & Data Platforms $3.1 8% Systems Hardware $1.4 (10%) Cognitive Applications $1.4 8% IBM Z(13%) Transaction Processing Platforms $1.6 (11%) Power (5%) Pre-Tax Income$1.7 1% Storage(10%) Pre-Tax Income Margin25.2% (1.1 pts) Operating Systems Software $0.3 (12%) Cloud Revenue (External) $2.1 25% Gross Profit Margin (External) 55.1% (2.7 pts) Systems Hardware 49.1% (2.8 pts) Operating Systems Software 80.2% (1.8 pts) Pre-Tax Income $0.2 (29%) Pre-Tax Income Margin 9.0% (2.8 pts) Cloud Revenue (External)$0.7(19%) Revenue growth rates @CC, $ in billions Supplemental Materials 18 |
| Expense Summary $ in billions *includes acquisitions in the last twelve months net of non-operating acquisition-related charges and includes impact of divested businesses **represents the percentage change after excluding the impact of currency, acquisitions and divestitures Supplemental Materials 19 B/(W) Expense2Q21 Yr/Yr Acq/ CurrencyDivest*Base** SG&A – Operating $4.9 1% RD&E $1.7 (5%) IP and Custom Development Income ($0.1) (33%) Other (Income)/Expense - Operating ($0.0) (86%) Interest Expense $0.3 13% Operating Expense & Other Income $6.7 (2%) (3 pts) 0 pts 4 pts (2 pts) 0 pts (2 pts) (4 pts)(1 pts)3 pts |
| Balance Sheet Summary Jun 21 Dec 20 Jun 20 Cash & Marketable Securities $8.2 $14.3 $14.3 Core (non-GF) Assets* $119.1 $118.5 $115.2 Global Financing Assets$19.5 $23.2 $24.7 Total Assets$146.8 $156.0 $154.2 Other Liabilities $69.6 $73.7 $68.8 Core (non-GF) Debt* $37.7 $40.4 $42.8 Global Financing Debt $17.5 $21.2 $21.9 Total Debt $55.2 $61.5 $64.7 Total Liabilities $124.7 $135.2 $133.5 Equity $22.1 $20.7 $20.7 $ in billions *includes eliminations of inter-company activity Supplemental Materials 20 |
| Cash Flow Summary B/(W)YTDB/(W) 2Q21 Yr/Yr2Q21 Yr/Yr Net Cash from Operations$2.6 ($1.0) $7.5 ($0.5) Less: Global Financing Receivables$0.9 $0.3 $3.8$0.8 Net Cash from Operations (excluding GF Receivables)$1.7 ($1.3) $3.8 ($1.3) Net Capital Expenditures ($0.7) $0.0 ($1.2)$0.2 Free Cash Flow (excluding GF Receivables)$1.0 ($1.3) $2.6 ($1.1) Structural actions initiated in 4Q20 & separation charges* $0.6 $0.6 $1.2$1.2 Adjusted Free Cash Flow $1.6 ($0.7) $3.8 $0.1 Free Cash Flow (excluding GF Receivables) $1.0 ($1.3) $2.6 ($1.1) Acquisitions ($1.7) ($1.7) ($2.9) ($2.8) Divestitures ($0.0) ($0.7) ($0.0) ($0.8) Dividends ($1.5) ($0.0) ($2.9) ($0.0) Non-GF Debt ($0.6) ($1.0) ($2.3) ($6.3) Other (includes GF Net A/R & GF Debt) ($0.3) ($0.5) ($0.5) ($0.3) Change in Cash & Marketable Securities($3.1) ($5.3) ($6.1) ($11.4) $ in billions *includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and separation related costs Supplemental Materials 21 |
| Cash Flow (ASC 230) QTDQTDYTDYTD 2Q21 2Q20 2Q21 2Q20 Net Income from Operations$1.3 $1.4 $2.3 $2.5 Depreciation / Amortization of Intangibles$1.7 $1.7 $3.4 $3.3 Stock-based Compensation$0.2 $0.2 $0.5 $0.4 Working Capital / Other ($1.5) ($0.3) ($2.3) ($1.2) Global Financing A/R$0.9 $0.6 $3.8 $3.0 Net Cash provided by Operating Activities$2.6 $3.6 $7.5 $8.1 Capital Expenditures, net of payments & proceeds ($0.7) ($0.7) ($1.2) ($1.4) Divestitures, net of cash transferred ($0.0) $0.7 ($0.0) $0.8 Acquisitions, net of cash acquired ($1.7) ($0.0) ($2.9) ($0.0) Marketable Securities / Other Investments, net ($0.2) ($1.3) ($0.6) ($1.4) Net Cash provided by/(used in) Investing Activities($2.7) ($1.2) ($4.7) ($2.1) Debt, net of payments & proceeds ($1.5) ($0.0) ($5.8) $1.3 Dividends ($1.5) ($1.5) ($2.9) ($2.9) Common Stock Repurchases-- - - Common Stock Transactions - Other ($0.2) ($0.1) ($0.2) ($0.2) Net Cash provided by/(used in) Financing Activities($3.1) ($1.6) ($8.9) ($1.7) Effect of Exchange Rate changes on Cash$0.1 $0.1 ($0.1) ($0.3) Net Change in Cash, Cash Equivalents & Restricted Cash($3.1) $0.8 ($6.1) $3.9 $ in billions Supplemental Materials 22 |
| Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 2Q 2021 2Q21 Yr/Yr2Q21 Yr/Yr GAAP @CC GAAP @CC Cloud & Cognitive Software 6% 2% Global Technology Services Flat (4%) Cloud & Data Platforms 12% 8% Infrastructure & Cloud Services Flat (4%) Cognitive Applications 12% 8% Technology Support Services Flat (4%) Transaction Processing Platforms (7%) (11%) Cloud(1%) (5%) Cloud 29% 25% Systems(7%) (10%) Global Business Services 12% 7% Systems Hardware (7%) (10%) Consulting 16% 11% IBM Z(11%) (13%) Application Management 5% 1% Power(2%) (5%) Global Process Services 28% 25% Storage(7%) (10%) Cloud 35% 30% Operating Systems Software (9%) (12%) Cloud(16%) (19%) The above reconciles the Non-GAAP financial information contained in the “Cloud & Cognitive Software”, “Global Business Services”, “Global Technology Services”, “Systems”, “Services Segments Details”, “Software and Systems Segment Details”, and “Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated July 19, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 23 |
| Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 2Q 2021 2Q21 Yr/Yr GAAPDivest impact Currency impact Adjusted Total Revenue3% 0 pts (4 pts) (0%) Americas 4% 0 pts (1 pts) 3% Europe/ME/Africa 6% 0 pts (9 pts) (3%) Asia Pacific (2%) 0 pts (2 pts) (4%) Total Cloud13% 0 pts (4 pts) 9% The above reconciles the Non-GAAP financial information contained in the “Financial Highlights”, “Revenue and P&L Highlights”, and “Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated July 19, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 24 |
| Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat, Normalized - 2Q 2021 2Q21 Yr/Yr Revenue, Normalized for Historical ComparabilityRed Hat Revenue GAAP growth rate*36% Impact from purchase accounting deferred revenue and intercompany adjustments ** (16 pts) Revenue growth rate, normalized for historical comparability (non-GAAP)20% Impact from currency (3 pts) Revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP)17% *Represents change in GAAP revenue as reported by IBM. Red Hat is included in the Cloud & Cognitive Software segment. **Represents change in the second-quarter 2021 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. The above reconciles the Non-GAAP financial information contained in the “Prepared Remarks” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated July 19, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 25 |
| Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 2Q 2021 2Q21 Non-GAAPOperating GAAPAdjustments(Non-GAAP) SG&A Currency(3 pts) 0 pts (3 pts) Acquisitions/Divestitures0 pts 0 pts 0 pts Base*2 pts 3 pts 4 pts RD&E Currency(2 pts) 0 pts (2 pts) Acquisitions/Divestitures0 pts 0 pts 0 pts Base*(2 pts) 0 pts (2 pts) Operating Expense & Other Income Currency (4 pts) 0 pts (4 pts) Acquisitions/Divestitures (1 pts) 0 pts (1 pts) Base* 0 pts 3 pts 3 pts The above reconciles the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated July 19, 2021, for additional information on the use of these Non-GAAP financial measures. *Represents the percentage change after excluding the impact of currency, acquisitions and divestitures. Supplemental Materials 26 |
| Non-GAAP Supplemental Materials Reconciliation of Continuing Operations - 2Q 2021 2Q21 Acquisition-Retirement-Separation-Related Related Tax ReformRelated GAAPAdjustmentsAdjustmentsImpactsChargesAdjusted Gross Profit $9,004 $180 ——$58 $9,242 Gross Profit Margin48.0% 1.0 pts ——0.3 pts 49.3% SG&A 5,334 (298) ——(116) 4,919 RD&E1,657 ———(0) 1,656 Other (Income) & Expense315 (1) (328) ——(14) Total Expense7,451 (299) (328) —(117) 6,708 Pre-tax Income 1,552 479 328 —175 2,534 Pre-tax Income Margin 8.3% 2.6 pts 1.7 pts — 0.9 pts 13.5% Tax Rate 14.7% 1.4 pts 0.7 pts (0.5 pts) 0.7 pts 17.0% Net Income 1,325 373 261 14 131 2,103 Net Income Margin 7.1% 2.0 pts 1.4 pts 0.1 pts 0.7 pts 11.2% Earnings Per Share$1.47 $0.41 $0.29 $0.01 $0.15 $2.33 $ in millions (except EPS which is in whole dollars) The above reconciles the Non-GAAP financial information contained in the “Financial Highlights”, “Revenue and P&L Highlights”, “Expense Summary” and “Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated July 19, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 27 |
| Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow – YTD and Last 12 Months 12 Months YTDEnded Jun 2021 Jun 2021 Net Cash from Operating Activities per GAAP:$7.5 $17.7 Less: change in Global Financing (GF) Receivables$3.8 $5.1 Net Cash from Operating Activities (Excluding GF Receivables)$3.8 $12.5 Capital Expenditures, Net ($1.2) ($2.8) Free Cash Flow (Excluding GF Receivables)$2.6 $9.7 Structural actions initiated in 4Q20 & separation charges* $1.2 $1.3 Adjusted Free Cash Flow $3.8 $11.0 $ in billions *includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and separation related costs The above reconciles the Non-GAAP financial information contained in the “Financial Highlights”, “Cash Flow and Balance Sheet Highlights”, “Cash Flow Summary” and “Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8 -K dated July 19, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 28 |
| ibm.com/investor |