Form 8-K INTERNATIONAL BUSINESS For: Oct 20
Exhibit 99.1
IBM REPORTS 2021 THIRD-QUARTER RESULTS
Revenue Performance Led by Consulting and Software; Solid Cash Generation
Highlights
Third Quarter:
| ● | Revenue of $17.6 billion, up 0.3 percent (down 0.2 percent adjusting for divested businesses and currency) |
- Cloud & Cognitive Software up 3 percent (up 2 percent adjusting for currency)
- Global Business Services up 12 percent (up 11 percent adjusting for currency)
| ● | Revenue, up 2.5 percent (up 1.9 percent adjusting for divested businesses and currency), normalized to exclude Kyndryl to be separated in November |
| ● | Net cash from operating activities of $16.1 billion and adjusted free cash flow of $11.1 billion, both up $0.3 billion over last 12 months |
| ● | Total cloud revenue over last 12 months of $27.8 billion, up 14 percent (up 11 percent adjusting for divested businesses and currency) |
- Cloud & Cognitive Software cloud revenue up 31 percent (up 28 percent adjusting for currency)
- Global Business Services cloud revenue up 30 percent (up 27 percent adjusting for currency)
| ● | Red Hat revenue up 17 percent, normalized for historical comparability |
| ● | Debt reduced by $7.0 billion since year-end 2020 |
ARMONK, N.Y., October 20, 2021 . . . IBM (NYSE: IBM) today announced third-quarter 2021 earnings results.
“With the separation of Kyndryl early next month, IBM takes the next step in our evolution as a platform-centric hybrid cloud and AI company," said Arvind Krishna, IBM chairman and chief executive officer. "We continue to make progress in our software and consulting businesses, which represent our higher growth opportunities. With our increased focus and agility to better serve clients, we are confident in achieving our medium-term objectives of mid-single digit revenue growth and strong free cash flow generation.”
| | THIRD QUARTER 2021 | ||||||||||||
| | All GAAP results include the impact of Kyndryl separation costs* | ||||||||||||
|
| | |
| | |
| | |
| Pre-tax |
| Gross |
|
| | | Diluted | | | Net | | | Pre-tax | | Income | | Profit |
|
| | | EPS | | | Income | | | Income | | Margin | | Margin |
|
GAAP from Continuing Operations | | $ | 1.25 | | $ | 1.1B | | $ | 1.3B |
| 7.5 | % | 46.4 | % |
Year/Year | |
| (34) | % |
| (33) | % |
| (28) | % | (2.9) | Pts | (1.6) | Pts |
| | | | | | | | | | | | | | |
Operating (Non-GAAP) | | $ | 2.52 | | $ | 2.3B | | $ | 2.4B |
| 13.6 | % | 48.0 | % |
Year/Year | |
| (2) | % |
| (1) | % |
| (7) | % | (1.0) | Pts | (1.0) | 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.
* Impact of Kyndryl separation costs for third quarter 2021 GAAP results: EPS ($0.56) per share; Net Income ($0.5B); Pre-tax Income ($0.3B); Pre-Tax Income Margin (1.6) points; Gross Profit Margin (0.6) points
“We again had solid cash generation for the quarter and over the last year, while maintaining a strong balance sheet and the liquidity to support our hybrid cloud and AI strategy," said James Kavanaugh, IBM senior vice president and chief financial officer. "Our post-separation portfolio mix is shifted toward our growth vectors, with a higher-value recurring revenue stream and strong cash generation, allowing us to continue to invest in the business and provide attractive shareholder returns.”
Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities of $2.7 billion. IBM’s free cash flow was $0.6 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 $1.2 billion. The company returned $1.5 billion to shareholders in dividends.
Over the last 12 months, the company generated net cash from operating activities of $16.1 billion. IBM’s free cash flow for the last 12 months was $9.2 billion. The company’s adjusted free cash flow, excluding cash impacts of $1.8 billion for the structural actions and transaction separation costs, was $11.1 billion.
IBM ended the third quarter with $8.4 billion of cash on hand (includes marketable securities), down $5.9 billion from year-end 2020 reflecting acquisitions of $3.0 billion and debt reduction payments. Debt, including Global Financing debt of $15.9 billion, totaled $54.5 billion, down $7.0 billion since the end of 2020, and down $18.5 billion since closing the Red Hat acquisition.
Segment Results for Third Quarter
| ● | Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive Applications and Transaction Processing Platforms) — revenues of $5.7 billion, up 2.5 percent (up 1.9 percent adjusting for currency). Cloud & Data Platforms grew 10 percent (up 9 percent adjusting for currency), Cognitive Applications revenue was flat (down 1 percent adjusting for currency) and Transaction Processing Platforms declined 9 percent. Cloud revenue up 21 percent (up 20 percent adjusting for currency). |
| ● | Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.4 billion, up 11.6 percent (up 11.0 percent adjusting for currency), with growth in Consulting, up 17 percent (up 16 percent adjusting for currency), Application Management up 5 percent, and Global Process Services up 19 percent. Cloud revenue up 38 percent (up 37 percent adjusting for currency). |
| ● | Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.2 billion, down 4.8 percent (down 5.4 percent adjusting for currency). Infrastructure & Cloud Services declined 5 percent (down 6 percent adjusting for currency) and Technology Support Services declined 4 percent (down 5 percent adjusting for currency). Cloud revenue up 1 percent (flat adjusting for currency). Gross profit margin up 120 basis points. |
| ● | Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.1 billion, down 11.9 percent (down 12.4 percent adjusting for currency), driven by declines in IBM Z (down 33 percent) and Power systems down 24 percent (down 25 percent adjusting for currency). Storage Systems grew 11 percent. Cloud revenue down 42 percent (down 43 percent adjusting for currency). |
| ● | Global Financing (includes financing and used equipment sales) — revenues of $220 million, down 19.2 percent (down 19.8 percent adjusting for currency). |
Year-To-Date 2021 Results
Revenues for the nine-month period ended September 30, 2021 totaled $54.1 billion, an increase of 1.6 percent year to year (down 1 percent adjusting for divested businesses and currency) compared with $53.3 billion for the first nine months of 2020. Net income was $3.4 billion, down 19 percent year to year, reflecting the impact of $0.7 billion of transaction costs associated with the Kyndryl separation. Diluted earnings per share was $3.77 compared with $4.72 per diluted share for the 2020 period, a decrease of 20 percent.
GAAP earnings per share results include a ($2.85) 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 ($0.76) per share.
Operating (non-GAAP) net income for the nine months ended September 30, 2021 was $6.0 billion compared with $5.9 billion in the prior-year period, an increase of 1.3 percent. Operating (non-GAAP) diluted earnings per share from continuing operations was $6.62 compared with $6.60 per diluted share for the 2020 period, flat year to year.
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; |
| ● | total revenue normalized to exclude Kyndryl to be separated in November; |
| ● | 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-3q21. 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 |
| |
| |
| Tim Davidson, 914-844-7847 |
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INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
| | Three Months Ended |
| | | Nine Months Ended |
| | ||||||||
| | September 30, |
| | | September 30, |
| | ||||||||
|
| 2021 |
| 2020 |
| | | 2021 |
| 2020 |
| | ||||
REVENUE |
| |
|
| |
| | | | |
|
| |
| | |
Cloud & Cognitive Software | | $ | 5,692 | | $ | 5,553 | | | | $ | 17,227 | | $ | 16,540 | | |
Global Business Services | |
| 4,427 | |
| 3,965 | | | |
| 13,002 | |
| 11,992 | | |
Global Technology Services | |
| 6,154 | |
| 6,462 | | | |
| 18,866 | |
| 19,245 | | |
Systems | |
| 1,107 | |
| 1,257 | | | |
| 4,251 | |
| 4,477 | | |
Global Financing | |
| 220 | |
| 273 | | | |
| 702 | |
| 837 | | |
Other | |
| 18 | |
| 50 | | | |
| 45 | |
| 163 | | |
TOTAL REVENUE | |
| 17,618 | |
| 17,560 | | | |
| 54,093 | |
| 53,253 | | |
| | | | | | | | | | | | | | | | |
GROSS PROFIT | |
| 8,171 | |
| 8,430 | | | |
| 25,379 | |
| 25,052 | | |
| | | | | | | | | | | | | | | | |
GROSS PROFIT MARGIN | |
| | |
| | | | |
| | |
| | | |
Cloud & Cognitive Software | |
| 77.0 | % |
| 77.1 | % | | |
| 77.1 | % |
| 76.6 | % | |
Global Business Services | |
| 29.8 | % |
| 32.9 | % | | |
| 28.6 | % |
| 29.5 | % | |
Global Technology Services | |
| 36.2 | % |
| 35.0 | % | | |
| 35.3 | % |
| 34.4 | % | |
Systems | |
| 41.3 | % |
| 51.2 | % | | |
| 51.3 | % |
| 53.7 | % | |
Global Financing | |
| 25.6 | % |
| 37.5 | % | | |
| 28.4 | % |
| 39.0 | % | |
| | | | | | | | | | | | | | | | |
TOTAL GROSS PROFIT MARGIN | |
| 46.4 | % |
| 48.0 | % | | |
| 46.9 | % |
| 47.0 | % | |
| | | | | | | | | | | | | | | | |
EXPENSE AND OTHER INCOME | |
| | |
|
| | | |
|
| |
|
| | |
S,G&A | |
| 4,860 | |
| 4,647 | | | |
| 15,368 | |
| 15,849 | | |
R,D&E | |
| 1,621 | |
| 1,515 | | | |
| 4,907 | |
| 4,722 | | |
Intellectual property and custom development income | |
| (153) | |
| (134) | | | |
| (435) | |
| (453) | | |
Other (income) and expense | |
| 234 | |
| 253 | | | |
| 911 | |
| 614 | | |
Interest expense | |
| 291 | |
| 323 | | | |
| 852 | |
| 971 | | |
TOTAL EXPENSE AND OTHER INCOME | |
| 6,852 | |
| 6,603 | | | |
| 21,603 | |
| 21,704 | | |
| | | | | | | | | | | | | | | | |
INCOME/(LOSS) FROM CONTINUING OPERATIONS | |
| | |
| | | | |
| | |
| | | |
BEFORE INCOME TAXES | |
| 1,319 | |
| 1,827 | | | |
| 3,776 | |
| 3,348 | | |
Pre-tax margin | |
| 7.5 | % |
| 10.4 | % | | |
| 7.0 | % |
| 6.3 | % | |
Provision for/(Benefit from) income taxes | |
| 188 | |
| 128 | | | |
| 365 | |
| (888) | | |
Effective tax rate | |
| 14.3 | % |
| 7.0 | % | | |
| 9.7 | % |
| (26.5) | % | |
| | | | | | | | | | | | | | | | |
INCOME FROM CONTINUING OPERATIONS | | $ | 1,130 | | $ | 1,698 | | | | $ | 3,411 | | $ | 4,237 | | |
| | | | | | | | | | | | | | | | |
DISCONTINUED OPERATIONS | |
| | |
| | | | |
| | |
| | | |
Income/(Loss) from discontinued operations, net of taxes | |
| — | |
| (1) | | | |
| (1) | |
| (2) | | |
| | | | | | | | | | | | | | | | |
NET INCOME | | $ | 1,130 | | $ | 1,698 | | | | $ | 3,410 | | $ | 4,234 | | |
| | | | | | | | | | | | | | | | |
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK | |
| | |
|
| | | |
|
| |
|
| | |
Assuming Dilution | |
| | |
|
| | | |
|
| |
|
| | |
Continuing Operations | | $ | 1.25 | | $ | 1.89 | | | | $ | 3.77 | | $ | 4.72 | | |
Discontinued Operations | | $ | 0.00 | | $ | 0.00 | | | | $ | 0.00 | | $ | 0.00 | | |
TOTAL | | $ | 1.25 | | $ | 1.89 | | | | $ | 3.77 | | $ | 4.72 | | |
| | | | | | | | | | | | | | | | |
Basic | |
| | |
| | | | |
| | |
| | | |
Continuing Operations | | $ | 1.26 | | $ | 1.90 | | | | $ | 3.81 | | $ | 4.76 | | |
Discontinued Operations | | $ | 0.00 | | $ | 0.00 | | | | $ | 0.00 | | $ | 0.00 | | |
TOTAL | | $ | 1.26 | | $ | 1.90 | | | | $ | 3.81 | | $ | 4.76 | | |
| | | | | | | | | | | | | | | | |
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s) | |
| | |
| | | | |
| | |
| | | |
Assuming Dilution | |
| 906.0 | |
| 897.3 | | | |
| 904.0 | |
| 895.8 | | |
Basic | |
| 897.1 | |
| 891.4 | | | |
| 895.3 | |
| 889.6 | | |
INTERNATIONAL BUSINESS
MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
| At |
| At | ||
| | September 30, | | December 31, | ||
(Dollars in Millions) | | 2021 | | 2020 | ||
ASSETS: |
| |
|
| |
|
| | | | | | |
Current Assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 7,455 | | $ | 13,212 |
Restricted cash | |
| 352 | |
| 463 |
Marketable securities | |
| 600 | |
| 600 |
Notes and accounts receivable - trade, net | |
| 6,609 | |
| 7,132 |
Short-term financing receivables, net | |
| 7,161 | |
| 10,892 |
Other accounts receivable, net | |
| 899 | |
| 714 |
Inventories | |
| 1,891 | |
| 1,839 |
Deferred costs | |
| 2,046 | |
| 2,107 |
Prepaid expenses and other current assets | |
| 2,954 | |
| 2,206 |
Total Current Assets | |
| 29,967 | |
| 39,165 |
| | | | | | |
Property, plant and equipment, net | |
| 9,138 | |
| 10,040 |
Operating right-of-use assets, net | |
| 4,253 | |
| 4,686 |
Long-term financing receivables, net | |
| 5,046 | |
| 7,086 |
Prepaid pension assets | |
| 8,197 | |
| 7,610 |
Deferred costs | |
| 2,248 | |
| 2,449 |
Deferred taxes | |
| 8,967 | |
| 9,241 |
Goodwill | |
| 61,378 | |
| 59,617 |
Intangibles, net | | | 13,025 | | | 13,796 |
Investments and sundry assets | |
| 1,996 | |
| 2,282 |
Total Assets | | $ | 144,214 | | $ | 155,971 |
| | | | | | |
LIABILITIES: | |
|
| |
|
|
| | | | | | |
Current Liabilities: | |
|
| |
|
|
Taxes | | $ | 2,159 | | $ | 3,301 |
Short-term debt | |
| 7,575 | |
| 7,183 |
Accounts payable | |
| 4,248 | |
| 4,908 |
Deferred income | |
| 12,264 | |
| 12,833 |
Operating lease liabilities | |
| 1,285 | |
| 1,357 |
Other liabilities | |
| 8,300 | |
| 10,287 |
Total Current Liabilities | |
| 35,832 | |
| 39,869 |
| | | | | | |
Long-term debt | |
| 46,926 | |
| 54,355 |
Retirement related obligations | |
| 16,764 | |
| 18,248 |
Deferred income | |
| 3,965 | |
| 4,301 |
Operating lease liabilities | |
| 3,192 | |
| 3,574 |
Other liabilities | |
| 15,179 | |
| 14,897 |
Total Liabilities | |
| 121,858 | |
| 135,244 |
| | | | | | |
EQUITY: | |
| | |
|
|
| | | | | | |
IBM Stockholders’ Equity: | |
| | |
|
|
Common stock | |
| 57,189 | |
| 56,556 |
Retained earnings | |
| 161,747 | |
| 162,717 |
Treasury stock — at cost | |
| (169,406) | |
| (169,339) |
Accumulated other comprehensive income/(loss) | |
| (27,302) | |
| (29,337) |
Total IBM Stockholders’ Equity | |
| 22,228 | |
| 20,597 |
| | | | | | |
Noncontrolling interests | |
| 129 | |
| 129 |
Total Equity | |
| 22,357 | |
| 20,727 |
| | | | | | |
Total Liabilities and Equity | | $ | 144,214 | | $ | 155,971 |
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
| | | | | | | | | | | | | | Trailing Twelve | |
| | Three Months Ended | | Nine Months Ended |
| Months Ended | |||||||||
| | September 30, | | September 30, |
| September 30, | |||||||||
(Dollars in Millions) | | 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 | |||||
Net Cash Provided by Operating Activities per GAAP: | | $ | 2,713 | | $ | 4,286 | | $ | 10,252 | | $ | 12,337 | | $ | 16,111 |
| | | | | | | | | | | | | | | |
Less: Change in Global Financing (GF) Receivables | |
| 1,472 | | | 2,353 | |
| 5,235 | | | 5,324 | | | 4,260 |
Capital Expenditures, net | |
| (638) | | | (829) | |
| (1,855) | | | (2,262) | | | (2,635) |
| | | | | | | | | | | | | | | |
Free Cash Flow | |
| 603 | | | 1,104 | |
| 3,162 | | | 4,751 | | | 9,216 |
| | | | | | | | | | | | | | | |
Structural actions initiated in 4Q20 & Separation charges (1) | |
| 566 | | | — | |
| 1,792 | | | — | | | 1,841 |
| | | | | | | | | | | | | | | |
Adjusted Free Cash Flow | |
| 1,170 | | | 1,104 | |
| 4,954 | | | 4,751 | | | 11,057 |
| | | | | | | | | | | | | | | |
Free Cash Flow | |
| 603 | | | 1,104 | |
| 3,162 | | | 4,751 | | | 9,216 |
| | | | | | | | | | | | | | | |
Acquisitions | |
| (152) | | | (17) | |
| (3,018) | | | (37) | | | (3,317) |
Divestitures | |
| 51 | | | (248) | |
| 26 | | | 510 | | | 19 |
Dividends | |
| (1,471) | | | (1,453) | |
| (4,395) | | | (4,343) | | | (5,850) |
Non-GF Debt | |
| 1,187 | | | 1,019 | |
| (1,143) | | | 4,977 | | | (5,899) |
Other (includes GF Net Receivables and GF Debt) | |
| 22 | | | 1,098 | |
| (500) | | | 886 | | | (1,516) |
| | | | | | | | | | | | | | | |
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities | | $ | 241 | | $ | 1,503 | | $ | (5,868) | | $ | 6,744 | | $ | (7,347) |
(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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(Dollars in Millions) | | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net Income from Operations | | $ | 1,130 | | $ | 1,698 | | $ | 3,410 | | $ | 4,234 |
Depreciation/Amortization of Intangibles | |
| 1,684 | |
| 1,683 | |
| 5,036 | |
| 4,996 |
Stock-based Compensation | |
| 262 | |
| 222 | |
| 719 | |
| 658 |
Working Capital / Other | |
| (1,834) | |
| (1,670) | |
| (4,147) | |
| (2,874) |
Global Financing A/R | |
| 1,472 | |
| 2,353 | |
| 5,235 | |
| 5,324 |
Net Cash Provided by Operating Activities | | $ | 2,713 | | $ | 4,286 | | $ | 10,252 | | $ | 12,337 |
Capital Expenditures, net of payments & proceeds | |
| (638) | |
| (829) | |
| (1,855) | |
| (2,262) |
Divestitures, net of cash transferred | |
| 51 | |
| (248) | |
| 26 | |
| 510 |
Acquisitions, net of cash acquired | |
| (152) | |
| (17) | |
| (3,018) | |
| (37) |
Marketable Securities / Other Investments, net | |
| 109 | |
| 762 | |
| (453) | |
| (680) |
Net Cash Provided by/(Used in) Investing Activities | | $ | (629) | | $ | (332) | | $ | (5,300) | | $ | (2,470) |
Debt, net of payments & proceeds | |
| (287) | |
| (252) | |
| (6,086) | |
| 1,067 |
Dividends | |
| (1,471) | |
| (1,453) | |
| (4,395) | |
| (4,343) |
Common Stock Transactions - Other | |
| 9 | |
| 16 | |
| (181) | |
| (152) |
Net Cash Provided by/(Used in) Financing Activities | | $ | (1,748) | | $ | (1,689) | | $ | (10,662) | | $ | (3,428) |
Effect of Exchange Rate changes on Cash | |
| (94) | |
| 101 | |
| (159) | |
| (200) |
Net Change in Cash, Cash Equivalents and Restricted Cash | | $ | 241 | | $ | 2,366 | | $ | (5,868) | | $ | 6,239 |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
| | Three Months Ended September 30, 2021 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 5,692 | | $ | 4,427 | | $ | 6,154 | | $ | 1,107 | | $ | 220 | |
Internal | |
| 764 | |
| 53 | |
| 317 | |
| 176 | |
| 153 | |
Total Segment Revenue | | $ | 6,456 | | $ | 4,480 | | $ | 6,471 | | $ | 1,283 | | $ | 373 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 1,675 | |
| 587 | |
| 383 | |
| (207) | |
| 206 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 25.9 | % |
| 13.1 | % |
| 5.9 | % |
| (16.1) | % |
| 55.1 | % |
| | | | | | | | | | | | | | | | |
Change YTY Revenue - External | |
| 2.5 | % |
| 11.6 | % |
| (4.8) | % |
| (11.9) | % |
| (19.2) | % |
Change YTY Revenue - External @constant currency | |
| 1.9 | % |
| 11.0 | % |
| (5.4) | % |
| (12.4) | % |
| (19.8) | % |
| | Three Months Ended September 30, 2020 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 5,553 | | $ | 3,965 | | $ | 6,462 | | $ | 1,257 | | $ | 273 | |
Internal | |
| 875 | |
| 49 | |
| 312 | |
| 240 | |
| 208 | |
Total Segment Revenue | | $ | 6,428 | | $ | 4,014 | | $ | 6,774 | | $ | 1,497 | | $ | 480 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 1,834 | |
| 570 | |
| 399 | |
| (37) | |
| 196 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 28.5 | % |
| 14.2 | % |
| 5.9 | % |
| (2.5) | % |
| 40.7 | % |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
| | Nine Months Ended September 30, 2021 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 17,227 | | $ | 13,002 | | $ | 18,866 | | $ | 4,251 | | $ | 702 | |
Internal | |
| 2,322 | |
| 166 | |
| 956 | |
| 606 | |
| 581 | |
Total Segment Revenue | | $ | 19,549 | | $ | 13,168 | | $ | 19,822 | | $ | 4,857 | | $ | 1,283 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 4,822 | |
| 1,349 | |
| 903 | |
| (33) | |
| 618 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 24.7 | % |
| 10.2 | % |
| 4.6 | % |
| (0.7) | % |
| 48.1 | % |
| | | | | | | | | | | | | | | | |
Change YTY Revenue - External | |
| 4.2 | % |
| 8.4 | % |
| (2.0) | % |
| (5.1) | % |
| (16.2) | % |
Change YTY Revenue - External @constant currency | |
| 1.7 | % |
| 5.5 | % |
| (4.9) | % |
| (7.0) | % |
| (18.0) | % |
| | Nine Months Ended September 30, 2020 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 16,540 | | $ | 11,992 | | $ | 19,245 | | $ | 4,477 | | $ | 837 | |
Internal | |
| 2,431 | |
| 150 | |
| 911 | |
| 628 | |
| 660 | |
Total Segment Revenue | | $ | 18,971 | | $ | 12,142 | | $ | 20,155 | | $ | 5,106 | | $ | 1,497 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 4,475 | |
| 1,203 | |
| 471 | |
| (7) | |
| 566 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 23.6 | % |
| 9.9 | % |
| 2.3 | % |
| (0.1) | % |
| 37.8 | % |
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
| | Three Months Ended September 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 | | $ | 8,171 | | $ | 184 | | $ | — | | $ | — | | $ | 108 | | $ | 8,463 | |
Gross Profit Margin | |
| 46.4 | % |
| 1.0 | Pts | | — | Pts | | — | Pts | | 0.6 | Pts |
| 48.0 | % |
S,G&A | |
| 4,860 | |
| (293) | | | — | | | — | | | (169) | |
| 4,398 | |
R,D&E | |
| 1,621 | |
| — | | | — | | | — | | | (1) | |
| 1,620 | |
Other (Income) & Expense | |
| 234 | |
| (1) | | | (328) | | | — | | | — | |
| (94) | |
Interest Expense | |
| 291 | |
| — | | | — | | | — | | | — | |
| 291 | |
Total Expense & Other (Income) | |
| 6,852 | |
| (294) | | | (328) | | | — | | | (169) | |
| 6,061 | |
Pre-tax Income from Continuing Operations | |
| 1,319 | |
| 478 | | | 328 | | | — | | | 277 | |
| 2,402 | |
Pre-tax Income Margin from Continuing Operations | |
| 7.5 | % |
| 2.7 | Pts | | 1.9 | Pts | | — | Pts | | 1.6 | Pts |
| 13.6 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| 188 | |
| 103 | | | 57 | | | — | | | (233) | |
| 115 | |
Effective Tax Rate | |
| 14.3 | % |
| 1.5 | Pts | | 0.4 | Pts | | — | Pts | | (11.4) | Pts |
| 4.8 | % |
Income from Continuing Operations | |
| 1,130 | |
| 375 | | | 271 | | | — | | | 510 | |
| 2,286 | |
Income Margin from Continuing Operations | |
| 6.4 | % |
| 2.1 | Pts | | 1.5 | Pts | | — | Pts | | 2.9 | Pts |
| 13.0 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 1.25 | | $ | 0.41 | | $ | 0.30 | | $ | — | | $ | 0.56 | | $ | 2.52 | |
| | Three Months Ended September 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 | | $ | 8,430 | | $ | 180 | | $ | — | | $ | — | | $ | — | | $ | 8,610 | |
Gross Profit Margin | |
| 48.0 | % |
| 1.0 | Pts | | — | Pts | | — | Pts | | — | Pts |
| 49.0 | % |
S,G&A | |
| 4,647 | |
| (279) | | | — | | | — | | | — | |
| 4,367 | |
R,D&E | |
| 1,515 | |
| — | | | — | | | — | | | — | |
| 1,515 | |
Other (Income) & Expense | |
| 253 | |
| (1) | | | (291) | | | — | | | — | |
| (39) | |
Interest Expense | |
| 323 | |
| — | | | — | | | — | | | — | |
| 323 | |
Total Expense & Other (Income) | |
| 6,603 | |
| (280) | | | (291) | | | — | | | — | |
| 6,032 | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 1,827 | |
| 460 | | | 291 | | | — | | | — | |
| 2,578 | |
Pre-tax Income Margin from Continuing Operations | |
| 10.4 | % |
| 2.6 | Pts | | 1.7 | Pts | | — | Pts | | — | Pts |
| 14.7 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| 128 | |
| 102 | | | 54 | | | (21) | | | — | |
| 263 | |
Effective Tax Rate | |
| 7.0 | % |
| 2.7 | Pts | | 1.3 | Pts | | (0.8) | Pts | | — | Pts |
| 10.2 | % |
Income from Continuing Operations | |
| 1,698 | |
| 358 | | | 237 | | | 21 | | | — | |
| 2,315 | |
Income Margin from Continuing Operations | |
| 9.7 | % |
| 2.0 | Pts | | 1.4 | Pts | | 0.1 | Pts | | — | Pts |
| 13.2 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 1.89 | | $ | 0.40 | | $ | 0.26 | | $ | 0.03 | | $ | — | | $ | 2.58 | |
(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 separation charges.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
| | Nine Months Ended September 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 | | $ | 25,379 | | $ | 540 | | $ | — | | $ | — | | $ | 168 | | $ | 26,087 | |
Gross Profit Margin | |
| 46.9 | % |
| 1.0 | Pts | | — | Pts | | — | Pts | | 0.3 | Pts |
| 48.2 | % |
S,G&A | |
| 15,368 | |
| (884) | | | — | | | — | | | (343) | |
| 14,141 | |
R,D&E | |
| 4,907 | |
| — | | | — | | | — | | | (1) | |
| 4,906 | |
Other (Income) & Expense | |
| 911 | |
| (2) | | | (998) | | | — | | | — | |
| (90) | |
Interest Expense | |
| 852 | |
| — | | | — | | | — | | | — | |
| 852 | |
Total Expense & Other (Income) | |
| 21,603 | |
| (886) | | | (998) | | | — | | | (344) | |
| 19,374 | |
Pre-tax Income from Continuing Operations | |
| 3,776 | |
| 1,426 | | | 998 | | | — | | | 513 | |
| 6,713 | |
Pre-tax Income Margin from Continuing Operations | |
| 7.0 | % |
| 2.6 | Pts | | 1.8 | Pts | | — | Pts | | 0.9 | Pts |
| 12.4 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| 365 | |
| 344 | | | 185 | | | 6 | | | (174) | |
| 725 | |
Effective Tax Rate | |
| 9.7 | % |
| 3.1 | Pts | | 1.3 | Pts | | 0.1 | Pts | | (3.3) | Pts |
| 10.8 | % |
Income from Continuing Operations | |
| 3,411 | |
| 1,082 | | | 813 | | | (6) | | | 687 | |
| 5,988 | |
Income Margin from Continuing Operations | |
| 6.3 | % |
| 2.0 | Pts | | 1.5 | Pts | | (0.0) | Pts | | 1.3 | Pts |
| 11.1 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 3.77 | | $ | 1.20 | | $ | 0.90 | | $ | (0.01) | | $ | 0.76 | | $ | 6.62 | |
| | Nine Months Ended September 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 | | $ | 25,052 | | $ | 556 | | $ | — | | $ | — | | $ | — | | $ | 25,608 | |
Gross Profit Margin | |
| 47.0 | % |
| 1.0 | Pts | | — | Pts | | — | Pts | | — | Pts |
| 48.1 | % |
S,G&A | |
| 15,849 | |
| (849) | | | — | | | — | | | — | |
| 15,000 | |
R,D&E | |
| 4,722 | |
| — | | | — | | | — | | | — | |
| 4,722 | |
Other (Income) & Expense | |
| 614 | |
| (2) | | | (829) | | | — | | | — | |
| (217) | |
Interest Expense | |
| 971 | |
| — | | | — | | | — | | | — | |
| 971 | |
Total Expense & Other (Income) | |
| 21,704 | |
| (851) | | | (829) | | | — | | | — | |
| 20,024 | |
Pre-tax Income from Continuing Operations | |
| 3,348 | |
| 1,407 | | | 829 | | | — | | | — | |
| 5,584 | |
Pre-tax Income Margin from Continuing Operations | |
| 6.3 | % |
| 2.6 | Pts | | 1.6 | Pts | | — | Pts | | — | Pts |
| 10.5 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| (888) | |
| 312 | | | 119 | | | 128 | | | — | |
| (329) | |
Effective Tax Rate | |
| (26.5) | % |
| 12.3 | Pts | | 6.1 | Pts | | 2.3 | Pts | | — | Pts |
| (5.9) | % |
Income from Continuing Operations | |
| 4,237 | |
| 1,095 | | | 710 | | | (128) | | | — | |
| 5,913 | |
Income Margin from Continuing Operations | |
| 8.0 | % |
| 2.1 | Pts | | 1.3 | Pts | | (0.2) | Pts | | — | Pts |
| 11.1 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 4.72 | | $ | 1.23 | | $ | 0.79 | | $ | (0.14) | | $ | — | | $ | 6.60 | |
(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 separation 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 | | | Nine Months Ended | | | Twelve Months Ended | | |
| | September 30, 2021 | | | September 30, 2021 | | | September 30, 2021 | | |
| | Change YTY | | | Change YTY | | | Change YTY | | |
Revenue Adjusting for Divested Businesses and Currency | | Total IBM |
| | Total IBM | |
| Cloud | |
|
| | | | | | | | | | |
Revenue as reported | | 0.3 | % | | 1.6 | % | | 13.6 | % | |
Impact from divested businesses | | 0.0 | Pts | | 0.1 | Pts | | 0.3 | Pts | |
Currency impact | | (0.6) | Pts | | (2.7) | Pts | | (2.8) | Pts | |
Revenue adjusting for divested businesses and currency (non-GAAP) | | (0.2) | % | | (1.0) | % | | 11.1 | % | |
| | Three Months Ended | |
| | September 30, 2021 | |
Total IBM Revenue, Normalized to Exclude Kyndryl | | Change YTY | |
| | | |
Revenue as reported | | 0.3 | % |
Impact from Kyndryl (1) | | 2.1 | Pts |
Revenue normalized to exclude Kyndryl (non-GAAP) | | 2.5 | % |
Impact from divested businesses | | 0.1 | Pts |
Currency impact | | (0.7) | Pts |
Revenue normalized to exclude Kyndryl, adjusted for divested businesses and currency (non-GAAP) | | 1.9 | % |
(1) Estimated as of September 30, 2021.
| | Three Months Ended | |
| | September 30, 2021 | |
Red Hat Revenue, Normalized for Historical Comparability | | Change YTY | |
| | | |
Red Hat Revenue GAAP growth rate (1) | | 23 | % |
Impact from purchase accounting deferred revenue and intercompany adjustments (2) | | (6) | Pts |
Red Hat revenue growth rate, normalized for historical comparability (non-GAAP) | | 17 | % |
Impact from currency | | (0) | 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 third-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 separation 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.
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 certain divested businesses and at constant currency. These divested businesses are included in the company’s Other segment.
Revenue normalized to exclude Kyndryl
To provide investors with insight on the recurring performance and trends of the ongoing business, the company provides total and cloud revenue growth rates excluding Kyndryl, which is expected to separate on November 3, 2021. The historical results of Kyndryl will be presented as discontinued operations in our Consolidated Financial Statements after separation, beginning in the fourth quarter of 2021.
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 3Q 2021 Earnings October 20, 2021 ibm.com/investor |
| Forward Looking Statements and Non-GAAP Information Certain comments made in this presentation may be characterized as forward looking under the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company’s filings with the SEC. Copies are available from the SEC, from the IBM website, or from IBM Investor Relations. Any forward -looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements except as required by law; these charts and the associated remarks and comments are integrally related and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including year to year change in revenue for Red Hat normalized for historical comparability, revenue normalized to exclude Kyndryl, revenue adjusting for divested businesses and currency, operating earnings, other “operating” financial measures, including free cash flow, adjusted free cash flow, net cash from operating activities excluding Global Financing receivables, and adjustments for currency. The rationale for management’s use of this non-GAAP information is included as Exhibit 99.2 to the company’s Form 8-K submitted to the SEC on October 20, 2021. The reconciliation of non-GAAP information to GAAP is included on the slides entitled “Non-GAAP Supplemental Materials” in this presentation, as well as in Exhibit 99.1 to the company’s Form 8-K submitted to the SECon October 20, 2021. For other related information please visit the Company’s investor relations website at: https://www.ibm.com/investor/events/earnings-3q21 2 |
| Arvind Krishna Chairman and Chief Executive Officer James Kavanaugh SVP, Finance & Operations, Chief Financial Officer 3 |
| CEO Perspective “With the separation of Kyndryl early next month, IBM takes the next step in our evolution as a platform-centric hybrid cloud and AI company. 3Q21 Performance We continue to make progress in our software and consulting businesses, which represent our higher growth opportunities. With our increased focus and agility to better serve clients, we are confident in achieving our medium-term objectives of mid-single-digit revenue growth and strong free cash flow generation.” Hybrid Cloud and AI Progress Clients, Ecosystems and Innovation - Arvind Krishna, IBM Chairman and CEO 4 |
| Hybrid Cloud & AI Our Platform Approach Progress Accelerating client adoption of hybrid cloud & AI IBM Software (IBM Cloud Paks) Leveraging partner ecosystem Delivering innovation and enhancing portfolio 5 Enterprise Infrastructure Public Clouds IBM Infrastructure Edge Red Hat Hybrid Cloud Platform Software and SaaS Partners System Integrator Partners IBM Consulting |
| Revenue growth Revenue growth (LTM) 6 Financial Highlights 3Q21 $17.6B $11.1B RevenueFree Cash Flow, Adjusted (LTM) “We again had solid cash generation for the quarter and over the last year, while maintaining a strong balance sheet and the liquidity to support our hybrid cloud and AI strategy. Our post-separation portfolio mix is shifted toward our growth vectors, with a higher-value recurring revenue stream and strong cash generation, allowing us to continue to invest in the business and provide attractive shareholder returns.” – James Kavanaugh, IBM SVP & CFO Revenue growth @CC excludes impact of divested businesses; Adjusted FCF excludes cash impacts related to structural actions initiated in 4Q20 and separation related costs; Cash includes marketable securities Continued progress in revenue growth 11% GBS & 2% Software 11% Cloud Investing for Growth $6.5B $3.0B R&D spending (LTM)Acquisitions (YTD) Strong balance sheet & liquidity $8.4B $7.0B Cash balance Debt reduction (YTD) |
| Cloud & Cognitive Software Revenue C&CS Cloud Revenue Growth +20% yr/yr $5.7B +2% yr/yr Software growth led by Red Hat, Security and Automation Over 3,500 clients using hybrid cloud platform Segment Elements Annual Recurring Revenue* +7% yr/yr; Software renewal rates remain strong Cognitive Applications (1%) yr/yr Cloud & Data Platforms +9% yr/yr Transaction Processing Platforms reflects continued preference for opex over capex Transaction Processing Platforms (9%) yr/yr 3Q21 Results; Revenue growth rates @CC *Annual Recurring Revenue for Cloud & Data Platforms and Cognitive Applications 7 |
| Global Business Services Revenue $4.4B +11% yr/yr GBS Cloud Revenue Growth +37% yr/yr Revenue growth acceleration driven by ecosystem and cloud offerings Book-to-bill ratio of 1.1x (LTM) Segment Elements Consulting +16% yr/yr Continued momentum in Red Hat engagements Application Management +5% yr/yr Gross margin reflects increased investments and labor cost dynamics Global Process Services +19% yr/yr 3Q21 Results; Revenue growth rates @CC 8 |
| Systems Revenue $1.1B (12%) yr/yr IBM Z Program Revenue >100% z15 vs. z14 IBM Z and Power impacted by product cycle dynamics Growth in Storage driven by entry-level all-flash storage and tape Segment Elements Segment profit margins reflect mix headwind Systems Hardware (14%) yr/yr Operating Systems Software (8%) yr/yr 3Q21 Results; Revenue growth rates @CC 9 |
| Global Technology Services Revenue Gross Margin Expansion $6.2B (5%) yr/yr +120 yr/yr bps Kyndryl separation on track for November 3, 2021 Gross margin expansion reflects actions to improve profit profile Segment Elements Revenue reflects clients pausing on projects in advance of separation Infrastructure & Cloud Services (6%) yr/yr Technology Support Services (5%) yr/yr 3Q21 Results; Revenue growth rates @CC 10 |
| Summary Improving revenue trajectory led by Software and Consulting Kyndryl separation creates value through focus ƒ ƒ Increasing investments in skills, innovation, ecosystem Solid free cash flow generation Fourth quarter important milestone in the transition to future IBM Exit 2021 in position to deliver: mid-single-digit revenue growth and $35 billion free cash flow in 2022-2024 ƒ ƒ ƒ ƒ 11 Moving IBM to the Future Continued Progress in Third Quarter |
| ibm.com/investor |
| Supplemental Materials Future Investor Communications 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 |
| Future IBM Investor Communications Assumes Kyndryl distribution date of November 3, 2021 Date (Estimated) Communication Content October 20, 2021 3Q 2021 Earnings Report IBM results @ pre-separation of Kyndryl Estimated impact of KD separation to IBM 4Q 2021 Consolidated Results November 3-4, 2021 (within 4 days of distribution date) 8-K Filing IBM 2018/2019/2020/1H21 – Pro Forma I&E * IBM 6/30/21 – Pro Forma Balance Sheet * Incl. Disc Ops adjustment for all periods, and transaction accounting adjustments for 2020/1H21 November 4-5, 2021 3Q 2021 10-Q Filing IBM @ pre-separation Late December, 2021 Investor Article & 8-K Filing (voluntary disclosure) IBM 2019/2020/3QYTD – Continuing Ops I&E by quarter (GAAP & Operating) IBM 2020/3QYTD – New segment revenue and PTI by quarter January 24, 2022 4Q 2021 Earnings Report IBM @ post separation – Continuing Ops (GAAP & Operating), New segments Late February, 2022 2021 10-K Filing IBM 2019/2020/2021 – Disc Ops/Continuing Ops I&E IBM 2020/2021 – Disc Ops/Continuing Ops I&E by quarter IBM 2020/2021 – Disc Ops/Continuing Ops Balance Sheet IBM 2019/2020/2021 – Disc Ops/Continuing Ops Cash Flow Supplemental Materials 14 |
| Revenue and P&L Highlights B/(W) Yr/Yr* B/(W) Yr/Yr Revenue Highlights 3Q21 Operating P&L Highlights $ 3Q21 Revenue Cloud Cloud (LTM) $17.6 $6.7 $27.8 Flat 12% 11% Gross Profit Expense Pre-Tax Income Net Income Earnings Per Share $8.5 $6.1 $2.4 $2.3 $2.52 (2%) Flat (7%) (1%) (2%) B/(W) Yr/Yr B/(W) Yr/Yr* Geography Revenue 3Q21 Americas Europe/ME/Africa Asia Pacific $8.2 $5.6 $3.8 Flat (1%) Flat Operating P&L Highlights % 3Q21 Gross Profit Margin Expense E/R Pre-Tax Income Margin Net Income Margin Tax Rate 48.0% 34.4% 13.6% 13.0% 4.8% (1.0 pts) Flat (1.0 pts) (0.2 pts) 5.4 pts Revenue growth rates @CC, $ in billions *Yr/Yr excludes impact of divested businesses Supplemental Materials 15 |
| 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 16 Cash Flow 3Q21 Yr/Yr LTM Balance SheetSep 21 Dec 20 Sep 20 Net Cash from Operations* $1.2 ($0.7) Adjusted Free Cash Flow** $1.2 $0.1 Selected Uses of Cash Net Capital Expenditures $0.6 Acquisitions $0.2 Dividends $1.5 $11.9 $11.1 $2.6 $3.3 $5.8 Cash & Marketable Securities $8.4 $14.3 $15.8 Total Debt $54.5 $61.5 $65.4 Selected Debt Measures Global Financing Debt $15.9 $21.2 $20.9 Core (non-GF) Debt $38.6 $40.4 $44.5 |
| Currency – Impact on Revenue Growth Revenue Impact, Future @ 10/19/21 Spot Prior View @ 7/16/21 Spot 1 pts 0-1 pts (2-1 pts) ~(1 pts) 1-2 pts 1-2 pts ~(2 pts) ~(2 pts) US$B Yr/Yr Revenue As Reported Currency Impact Revenue @CC $17.6 $0.1 0.3% 0.6 pts (0.3%) Supplemental Materials 17 Quarterly Averages per US $ 3Q21 Yr/Yr 10/19/2021 Spot 4Q21 FY21 1Q22 2Q22 Euro 0.85 1% Pound 0.73 6% Yen 110 (4%) 0.86 0.72 114 (2%) 4% (4%) (4%) 4% 7% 0% (1%) (9%) (3%) (8%) (4%) |
| Services Segments Details B/(W) Yr/Yr B/(W) Yr/Yr GBS Segment 3Q21 GTS Segment 3Q21 Revenue (External) Consulting Application Management Global Process Services Gross Profit Margin (External) Pre-Tax Income Pre-Tax Income Margin Cloud Revenue (External) $4.4 $2.3 $1.8 $0.3 29.8% $0.6 13.1% $2.0 11% 16% 5% 19% (3.1 pts) 3% (1.1 pts) 37% Revenue (External) Infrastructure & Cloud Services Technology Support Services Gross Profit Margin (External) Pre-Tax Income Pre-Tax Income Margin Cloud Revenue (External) $6.2 $4.7 $1.5 36.2% $0.4 5.9% $2.4 (5%) (6%) (5%) 1.2 pts (4%) Flat Flat Signings $5.0 3% Revenue & Signings growth rates @CC, $ in billions Supplemental Materials 18 |
| Software and Systems Segment Details B/(W) Yr/Yr B/(W) Yr/Yr Cloud & Cognitive Software Segment 3Q21 Systems Segment 3Q21 Revenue (External) Systems Hardware IBM Z Power Storage Operating Systems Software Gross Profit Margin (External) Systems Hardware Operating Systems Software Pre-Tax Income Pre-Tax Income Margin $1.1 $0.8 (12%) (14%) (33%) (25%) 11% (8%) (9.9 pts) (13.8 pts) (1.8 pts) NM (13.6 pts) Revenue (External) Cloud & Data Platforms Cognitive Applications Transaction Processing Platforms Pre-Tax Income Pre-Tax Income Margin Cloud Revenue (External) $5.7 $3.0 $1.3 $1.3 $1.7 25.9% $2.1 2% 9% (1%) (9%) (9%) (2.6 pts) 20% $0.3 41.3% 26.6% 79.0% ($0.2) (16.1%) Cloud Revenue (External) $0.3 (43%) Revenue growth rates @CC, $ in billions Supplemental Materials 19 |
| 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 20 B/(W) Expense3Q21 Yr/Yr Acq/ CurrencyDivest*Base** SG&A – Operating $4.4 (1%) RD&E $1.6 (7%) IP and Custom Development Income ($0.2) 14% Other (Income)/Expense - Operating ($0.1) 144% Interest Expense $0.3 10% Operating Expense & Other Income $6.1 (0%) 0 pts (2 pts) 1 pts (1 pts) (2 pts) (4 pts) 0 pts(1 pts)1 pts |
| Balance Sheet Summary Sep 21 Dec 20 Sep 20 Cash & Marketable Securities Core (non-GF) Assets* Global Financing Assets Total Assets $8.4 $117.8 $18.0 $144.2 $14.3 $118.5 $23.2 $156.0 $15.8 $115.7 $22.7 $154.1 Other Liabilities Core (non-GF) Debt* Global Financing Debt Total Debt Total Liabilities Equity $67.4 $38.6 $15.9 $54.5 $121.9 $22.4 $73.7 $40.4 $21.2 $61.5 $135.2 $20.7 $67.4 $44.5 $20.9 $65.4 $132.8 $21.3 $ in billions *includes eliminations of inter-company activity Supplemental Materials 21 |
| Cash Flow Summary QTD 3Q21 B/(W) Yr/Yr YTD 3Q21 B/(W) Yr/Yr Net Cash from Operations Less: Global Financing Receivables Net Cash from Operations (excluding GF Receivables) Net Capital Expenditures Free Cash Flow (excluding GF Receivables) Structural actions initiated in 4Q20 & separation charges* Adjusted Free Cash Flow $2.7 $1.5 $1.2 ($0.6) $0.6 $0.6 $1.2 ($1.6) ($0.9) ($0.7) $0.2 ($0.5) $0.6 $0.1 $10.3 $5.2 $5.0 ($1.9) $3.2 $1.8 $5.0 ($2.1) ($0.1) ($2.0) $0.4 ($1.6) $1.8 $0.2 Free Cash Flow (excluding GF Receivables) Acquisitions Divestitures Dividends Non-GF Debt Other (includes GF Net A/R & GF Debt) Change in Cash & Marketable Securities $ in billions $0.6 ($0.2) $0.1 ($1.5) $1.2 $0.0 $0.2 ($0.5) ($0.1) $0.3 ($0.0) $0.2 ($1.1) ($1.3) $3.2 ($3.0) $0.0 ($4.4) ($1.1) ($0.5) ($5.9) ($1.6) ($3.0) ($0.5) ($0.1) ($6.1) ($1.4) ($12.6) *includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and separation related costs Supplemental Materials 22 |
| Cash Flow (ASC 230) QTD 3Q21 QTD 3Q20 YTD 3Q21 YTD 3Q20 Net Income from Operations Depreciation / Amortization of Intangibles Stock-based Compensation Working Capital / Other Global Financing A/R Net Cash provided by Operating Activities Capital Expenditures, net of payments & proceeds Divestitures, net of cash transferred Acquisitions, net of cash acquired Marketable Securities / Other Investments, net Net Cash provided by/(used in) Investing Activities Debt, net of payments & proceeds Dividends Common Stock Repurchases Common Stock Transactions - Other Net Cash provided by/(used in) Financing Activities Effect of Exchange Rate changes on Cash Net Change in Cash, Cash Equivalents & Restricted Cash $ in billions Supplemental Materials $1.1 $1.7 $0.3 ($1.8) $1.5 $2.7 ($0.6) $0.1 ($0.2) $0.1 ($0.6) ($0.3) ($1.5) - $0.0 ($1.7) ($0.1) $0.2 $1.7 $1.7 $0.2 ($1.7) $2.4 $4.3 ($0.8) ($0.2) ($0.0) $0.8 ($0.3) ($0.3) ($1.5) - $0.0 ($1.7) $0.1 $2.4 $3.4 $5.0 $0.7 ($4.1) $5.2 $10.3 ($1.9) $0.0 ($3.0) ($0.5) ($5.3) ($6.1) ($4.4) - ($0.2) ($10.7) ($0.2) ($5.9) $4.2 $5.0 $0.7 ($2.9) $5.3 $12.3 ($2.3) $0.5 ($0.0) ($0.7) ($2.5) $1.1 ($4.3) - ($0.2) ($3.4) ($0.2) $6.2 23 |
| Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2021 3Q21 Yr/Yr 3Q21 Yr/Yr GAAP @CC GAAP @CC Cloud & Cognitive Software Cloud & Data Platforms Cognitive Applications Transaction Processing Platforms Cloud Global Business Services Consulting Application Management Global Process Services Cloud 3% 10% Flat (9%) 21% 12% 17% 5% 19% 38% 2% 9% (1%) (9%) 20% 11% 16% 5% 19% 37% Global Technology Services Infrastructure & Cloud Services Technology Support Services Cloud Systems Systems Hardware IBM Z Power Storage Operating Systems Software Cloud (5%) (5%) (4%) 1% (12%) (13%) (33%) (24%) 11% (8%) (42%) (5%) (6%) (5%) Flat (12%) (14%) (33%) (25%) 11% (8%) (43%) 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 October 20, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 24 |
| Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2021 3Q21 Yr/Yr GAAP Divest impact Currency impact Adjusted Total Revenue 0% 0 pts (1 pts) (0%) Americas Europe/ME/Africa Asia Pacific 1% 1% (1%) 0 pts 0 pts (0 pts) (1 pts) (2 pts) 1 pts 0% (1%) (0%) 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 October 20, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 25 3Q21 Yr/Yr GAAPDivest impact Currency impact Adjusted LTM Yr/Yr GAAPDivest impact Currency impact Adjusted Total Cloud 12% 0 pts (1 pts) 12% 14% 0 pts (3 pts) 11% |
| Non-GAAP Supplemental Materials Reconciliation of Revenue normalized to exclude Kyndryl – 2021 & Last 12 months *Estimated as of September 30, 2021 The above reconciles the Non-GAAP financial information contained in the “Prepared Remarks” discussion in the company’s earnings presentation. See Exhi bit 99.2 included in the company’s F orm 8 -K date d October 20, 2021, for additional information on the use of the se Non -GAAP financial measures. Supplemental Materials 26 1Q21 2Q21 3Q21 Yr/YrYr/YrYr/Yr Revenue, Normalized to Exclude KyndrylTotal IBM LTM Yr/Yr Cloud Revenue as reported0.9% 3.4% 0.3% Impact from Kyndryl* 0.8 pts 1.0 pts 2.1 pts Revenue normalized to exclude Kyndryl (non-GAAP)1.7% 4.4% 2.5% Impact from divested businesses0.1 pts 0.1 pts 0.1 pts Currency impact (3.1 pts) (3.8 pts) (0.7 pts) Revenue normalized to exclude Kyndryl, adjusting for divested businesses and currency (non-GAAP)(1.2%) 0.8% 1.9% 13.6% 5.5 pts 19.1% 0.5 pts (2.7 pts) 17.0% |
| Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat, Normalized - 3Q 2021 3Q21 Yr/Yr Red Hat Revenue, Normalized for Historical Comparability Revenue GAAP growth rate* Impact from purchase accounting deferred revenue and intercompany adjustments ** Revenue growth rate, normalized for historical comparability (non-GAAP) Impact from currency Revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP) 23% (6 pts) 17% (0 pts) 17% *Represents change in GAAP revenue as reported by IBM. Red Hat is included in the Cloud & Cognitive Software segment. **Represents change in the third-quarter 2021 impact of the deferred revenue purchase accounting adjustment and adjustments to a dd back revenue which was eliminated for sales between Red Hat and IBM. This line represents revenue that would have been recognized by Red Hat und er 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 October 20, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 27 |
| Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 3Q 2021 3Q21 Non-GAAP Adjustments Operating (Non-GAAP) GAAP SG&A Currency Acquisitions/Divestitures Base* RD&E Currency Acquisitions/Divestitures Base* Operating Expense & Other Income Currency Acquisitions/Divestitures Base* 0 pts (2 pts) (3 pts) 0 pts 0 pts 4 pts 0 pts (2 pts) 1 pts (1 pts) (2 pts) (4 pts) 0 pts 0 pts 0 pts (1 pts) (2 pts) (4 pts) 0 pts (1 pts) (2 pts) 0 pts 0 pts 3 pts 0 pts (1 pts) 1 pts The above reconciles the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings presentation. See Exhi bit 99.2 included in the company’s F orm 8 -K date d October 20, 2021, for additional information on the use of the se Non -GAAP financial measures. *Represents the percentage change after excluding the impact of currency, acquisitions and divestitures. Supplemental Materials 28 |
| Non-GAAP Supplemental Materials Reconciliation of Continuing Operations - 3Q 2021 3Q21 Acquisition-Related Adjustments Retirement-Related Adjustments Separation-Related Charges Tax Reform Impacts Adjusted GAAP Gross Profit Gross Profit Margin SG&A RD&E Other (Income) & Expense Total Expense Pre-tax Income Pre-tax Income Margin Tax Rate Net Income Net Income Margin Earnings Per Share $8,171 46.4% 4,860 1,621 234 6,852 1,319 7.5% 14.3% 1,130 6.4% $1.25 $184 1.0 pts (293) — (1) (294) 478 2.7 pts 1.5 pts 375 2.1 pts $0.41 — — — — (328) (328) 328 1.9 pts 0.4 pts 271 1.5 pts $0.30 — — — — — — — — 0.0 pts — 0.0 pts $0.00 $108 0.6 pts (169) (1) — (169) 277 1.6 pts -11.4 pts 510 2.9 pts $0.56 $8,463 48.0% 4,398 1,620 (94) 6,061 2,402 13.6% 4.8% 2,286 13.0% $2.52 $ 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 October 20, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 29 |
| Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow – Last 12 Months 12 Months Ended Sep 2021 Net Cash from Operating Activities per GAAP: $16.1 Less: change in Global Financing (GF) Receivables $4.3 Net Cash from Operating Activities (Excluding GF Receivables) $11.9 Capital Expenditures, Net ($2.6) Free Cash Flow (Excluding GF Receivables) $9.2 $1.8 Structural actions initiated in 4Q20 & separation charges* $11.1 Adjusted Free Cash Flow $ 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”, “Summary’, “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 October 20, 2021, for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 30 |
| ibm.com/investor |