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IBM RELEASES SECOND-QUARTER RESULTS

Jul 19, 2023

Solid Software and Consulting Revenue Growth; Strong Gross Profit Margin Expansion

ARMONK, N.Y., July 19, 2023 /PRNewswire/ -- IBM (NYSE: IBM) today announced second-quarter 2023 earnings results.

"Organizations are using our hybrid cloud and AI technology, and our consulting capabilities, to transform their operations," said Arvind Krishna, IBM chairman and chief executive officer. "We continue to respond to the needs of our clients who seek trusted, enterprise AI solutions, and we are particularly excited about the response to the recently launched watsonx AI platform. Finally, we remain confident in our revenue and free cash flow growth expectations for the full year."

Second-Quarter Highlights

  • Revenue
    -  Revenue of $15.5 billion, down 0.4 percent, up 0.4 percent at constant currency
    -  Software revenue up 7 percent, up 8 percent at constant currency
    -  Consulting revenue up 4 percent, up 6 percent at constant currency
    -  Infrastructure revenue down 15 percent, down 14 percent at constant currency
     
  • Profit Margin
    -  Gross Profit Margin: GAAP: 54.9 percent, up 160 basis points; Operating (Non-GAAP): 55.9 percent, up 140 basis points
    -  Pre-Tax Income Margin: GAAP: 12.9 percent, up 180 basis points; Operating (Non-GAAP): 15.5 percent, down 70 basis points
     
  • Cash Flow
    -  Year to date net cash from operating activities of $6.4 billion, up $1.8 billion; free cash flow of $3.4 billion, up $0.1 billion
 

SECOND QUARTER 2023 INCOME STATEMENT SUMMARY

 
 

Results include YTY impact from gains on the 2Q22 sale of healthcare software assets*

 
 

Revenue

 

Gross

Profit

   

Gross

Profit

 Margin

 

Pre-tax

Income*

 

Pre-tax

Income

Margin*

 

Net

Income*

 

Diluted

Earnings

Per Share*

GAAP from

Continuing

Operations

$   15.5 B

   

$     8.5 B

   

54.9

%

 

$     2.0 B

   

12.9

%

 

$     1.6 B

   

$     1.72

 

Year/Year

(0.4)

%**

 

3

%

 

1.6

Pts

 

16

%

 

1.8

Pts

 

8

%

 

7

%

Operating

(Non-GAAP)

     

$     8.7 B

   

55.9

%

 

$     2.4 B

   

15.5

%

 

$     2.0 B

   

$     2.18

 

Year/Year

     

2

%

 

1.4

Pts

 

(5)

%

 

(0.7)

Pts

 

(5)

%

 

(6)

%

* Results include the YTY impact from the gains on the 2Q22 sale of healthcare software assets.  GAAP: Pre-Tax Income (17 pts); Pre-Tax 
  Income Margin (1.4 pts); Net Income (15 pts); EPS (15 pts).  Operating (Non-GAAP):  Pre-Tax Income (9 pts); Pre-Tax Income Margin (1.4
  pts); Net Income (9 pts); EPS (9 pts).

** 0.4% at constant currency

"In the quarter, revenue performance was led by our growth vectors of software and consulting, and we continued to expand our gross profit margin, driven by our improving portfolio mix and productivity initiatives," said James Kavanaugh, IBM senior vice president and chief financial officer. "This year we have leveraged our strong cash position to invest for growth, announcing seven acquisitions to bolster our hybrid cloud and AI strategy, while continuing to return value to shareholders through dividends."

Segment Results for Second Quarter

  • Software — revenues of $6.6 billion, up 7.2 percent, up 7.5 percent at constant currency:
    -  Hybrid Platform & Solutions up 6 percent, up 7 percent at constant currency:
       --  Red Hat up 11 percent
       --  Automation up 1 percent, up 2 percent at constant currency
       --  Data & AI up 10 percent, up 11 percent at constant currency
       --  Security down 2 percent, down 1 percent at constant currency
    -  Transaction Processing up 9 percent, up 10 percent at constant currency
     
  • Consulting — revenues of $5.0 billion, up 4.3 percent, up 5.9 percent at constant currency:
    -  Business Transformation up 3 percent, up 5 percent at constant currency
    -  Technology Consulting up 4 percent, up 5 percent at constant currency
    -  Application Operations up 6 percent, up 8 percent at constant currency
     
  • Infrastructure — revenues of $3.6 billion, down 14.6 percent, down 13.8 percent at constant currency:
    -  Hybrid Infrastructure down 18 percent:
       --  IBM z Systems down 30 percent
       --  Distributed Infrastructure down 6 percent
    -  Infrastructure Support down 8 percent, down 6 percent at constant currency
     
  • Financing — revenues of $0.2 billion, up 26.2 percent, up 27.1 percent at constant currency

Cash Flow and Balance Sheet
In the second quarter, the company generated net cash from operating activities of $2.6 billion, up $1.3 billion year to year. Net cash from operating activities excluding IBM Financing receivables was $2.6 billion. IBM's free cash flow was $2.1 billion, flat year to year. The company returned $1.5 billion to shareholders in dividends in the second quarter.

For the first six months of the year, the company generated net cash from operating activities of $6.4 billion, up $1.8 billion year to year. Net cash from operating activities excluding IBM Financing receivables was $4.4 billion. IBM's free cash flow was $3.4 billion, up $0.1 billion year to year.

IBM ended the second quarter with $16.3 billion of cash and marketable securities, up $7.5 billion from year-end 2022. Debt, including IBM Financing debt of $10.6 billion, totaled $57.5 billion, up $6.5 billion since the end of 2022.

Full-Year 2023 Expectations

  • Revenue: The company continues to expect constant currency revenue growth of three percent to five percent. At current foreign exchange rates, currency is expected to be neutral to revenue growth.
  • Free cash flow: The company continues to expect about $10.5 billion in free cash flow, up more than $1 billion 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 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 related to climate change and 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; potential failure of the separation of Kyndryl Holdings, Inc. to qualify for tax-free treatment; 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);
  • presenting operating (non-GAAP) earnings per share amounts and related income statement items;
  • free cash flow;
  • cash from operating activities excluding IBM Financing receivables.

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-2q23. 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
                    sarah.meron@ibm.com
    
                    Tim Davidson, 914-844-7847
                    tfdavids@us.ibm.com 

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

 
 

Three Months Ended
June 30,

   

Six Months Ended
June 30,

 
 

2023

   

2022

   

2023

   

2022

 

REVENUE BY SEGMENT

                     

Software

$                   6,608

   

$                   6,166

   

$                12,529

   

$                11,938

 

Consulting

5,013

   

4,809

   

9,975

   

9,637

 

Infrastructure

3,618

   

4,235

   

6,716

   

7,453

 

Financing

185

   

146

   

380

   

300

 

Other

51

   

180

   

126

   

404

 

TOTAL REVENUE

15,475

   

15,535

   

29,727

   

29,732

 
                       

GROSS PROFIT

8,501

   

8,290

   

16,010

   

15,625

 
                       

GROSS PROFIT MARGIN

                     

Software

79.3

%

 

79.2

%

 

79.4

%

 

79.0

%

Consulting

25.9

%

 

24.2

%

 

25.6

%

 

24.3

%

Infrastructure

55.8

%

 

53.8

%

 

53.9

%

 

52.4

%

Financing

49.2

%

 

35.3

%

 

46.5

%

 

36.5

%

                       

TOTAL GROSS PROFIT MARGIN

54.9

%

 

53.4

%

 

53.9

%

 

52.6

%

                       

EXPENSE AND OTHER INCOME

                     

S,G&A

4,900

   

4,855

   

9,754

   

9,452

 

R,D&E

1,687

   

1,673

   

3,342

   

3,352

 

Intellectual property and custom development income

(248)

   

(176)

   

(428)

   

(297)

 

Other (income) and expense

(261)

   

(81)

   

(506)

   

166

 

Interest expense

423

   

297

   

790

   

607

 

TOTAL EXPENSE AND OTHER INCOME

6,501

   

6,568

   

12,952

   

13,280

 
                       

INCOME FROM CONTINUING OPERATIONS

BEFORE INCOME TAXES

2,000

   

1,722

   

3,058

   

2,345

 

Pre-tax margin

12.9

%

 

11.1

%

 

10.3

%

 

7.9

%

Provision for/(Benefit from) income taxes

419

   

257

   

543

   

218

 

Effective tax rate

21.0

%

 

14.9

%

 

17.8

%

 

9.3

%

                       

INCOME FROM CONTINUING OPERATIONS

$                   1,581

   

$                   1,465

   

$                   2,515

   

$                   2,127

 
                       

DISCONTINUED OPERATIONS

                     

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

2

   

(73)

   

(4)

   

(2)

 
                       

NET INCOME

$                   1,583

   

$                   1,392

   

$                   2,511

   

$                   2,125

 
                       

EARNINGS/(LOSS) PER SHARE OF COMMON STOCK

                     

Assuming Dilution

                     

Continuing Operations

$                      1.72

   

$                      1.61

   

$                      2.74

   

$                      2.34

 

Discontinued Operations

$                      0.00

   

$                    (0.08)

   

$                      0.00

   

$                      0.00

 

TOTAL

$                      1.72

   

$                      1.53

   

$                      2.73

   

$                      2.34

 
                       

Basic

                     

Continuing Operations

$                      1.74

   

$                      1.62

   

$                      2.77

   

$                      2.36

 

Discontinued Operations

$                      0.00

   

$                    (0.08)

   

$                      0.00

   

$                      0.00

 

TOTAL

$                      1.74

   

$                      1.54

   

$                      2.76

   

$                      2.36

 
                       

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

                     

Assuming Dilution

919.5

   

910.7

   

918.6

   

910.0

 

Basic

909.9

   

901.5

   

908.7

   

900.4

 

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

(Dollars in Millions)

 

At

June 30,
2023

 

At

December 31,
2022

ASSETS:

       

Current Assets:

       

Cash and cash equivalents

 

$                      9,394

 

$                      7,886

Restricted cash

 

31

 

103

Marketable securities

 

6,904

 

852

Notes and accounts receivable - trade, net

 

5,673

 

6,541

Short-term financing receivables, net

 

6,429

 

7,790

Other accounts receivable, net

 

838

 

817

Inventories

 

1,501

 

1,552

Deferred costs

 

957

 

967

Prepaid expenses and other current assets

 

2,730

 

2,611

Total Current Assets

 

34,458

 

29,118

         

Property, plant and equipment, net

 

5,443

 

5,334

Operating right-of-use assets, net

 

2,653

 

2,878

Long-term financing receivables, net

 

5,221

 

5,806

Prepaid pension assets

 

8,735

 

8,236

Deferred costs

 

897

 

866

Deferred taxes

 

6,340

 

6,256

Goodwill

 

56,385

 

55,949

Intangibles, net

 

10,496

 

11,184

Investments and sundry assets

 

1,585

 

1,617

Total Assets

 

$                132,213

 

$                127,243

         

LIABILITIES:

       

Current Liabilities:

       

Taxes

 

$                      1,606

 

$                      2,196

Short-term debt

 

6,785

 

4,760

Accounts payable

 

3,732

 

4,051

Deferred income

 

12,712

 

12,032

Operating lease liabilities

 

842

 

874

Other liabilities

 

6,836

 

7,592

Total Current Liabilities

 

32,513

 

31,505

         

Long-term debt

 

50,691

 

46,189

Retirement related obligations

 

9,385

 

9,596

Deferred income

 

3,264

 

3,499

Operating lease liabilities

 

1,986

 

2,190

Other liabilities

 

12,103

 

12,243

Total Liabilities

 

109,942

 

105,222

         

EQUITY:

       

IBM Stockholders' Equity:

       

Common stock

 

58,963

 

58,343

Retained earnings

 

149,318

 

149,825

Treasury stock — at cost

 

(169,581)

 

(169,484)

Accumulated other comprehensive income/(loss)

 

(16,499)

 

(16,740)

Total IBM Stockholders' Equity

 

22,201

 

21,944

         

Noncontrolling interests

 

70

 

77

Total Equity

 

22,271

 

22,021

         

Total Liabilities and Equity

 

$                132,213

 

$                127,243

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 
   

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

Trailing Twelve

Months Ended

June 30,

(Dollars in Millions)

 

2023

 

2022*

 

2023

 

2022*

 

2023

Net Cash from Operations per GAAP

 

$            2,638

 

$            1,321

 

$            6,412

 

$            4,569

 

$                      12,278

                     

Less: change in IBM Financing receivables

 

50

 

(1,264)

 

2,028

 

367

 

944

Capital Expenditures, net

 

(487)

 

(494)

 

(944)

 

(871)

 

(1,933)

                     

Free Cash Flow

 

2,101

 

2,091

 

3,441

 

3,331

 

9,402

                     

Acquisitions

 

(334)

 

(260)

 

(356)

 

(958)

 

(1,747)

Divestitures

 

6

 

1,207

 

6

 

1,268

 

10

Dividends

 

(1,510)

 

(1,488)

 

(3,007)

 

(2,963)

 

(5,992)

Non-Financing Debt

 

(1,178)

 

(2,934)

 

8,514

 

1,740

 

8,683

Other (includes IBM Financing net receivables and debt)

 

(347)

 

(1,607)

 

(1,109)

 

(2,197)

 

(1,805)

                     

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

 

$          (1,263)

 

$          (2,991)

 

$            7,489

 

$                 221

 

$                         8,551

____________________

*   Includes immaterial cash flows from discontinued operations.

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW

(Unaudited)

 
   

Three Months Ended
June 30,

 

Six Months Ended
June 30,

(Dollars in Millions)

 

2023

 

2022*

 

2023

 

2022*

Net Income from Operations

 

$                      1,583

 

$                      1,392

 

$                      2,511

 

$                      2,125

Depreciation/Amortization of Intangibles

 

1,076

 

1,245

 

2,150

 

2,501

Stock-based Compensation

 

288

 

254

 

556

 

488

Working Capital / Other

 

(359)

 

(307)

 

(832)

 

(912)

IBM Financing A/R

 

50

 

(1,264)

 

2,028

 

367

Net Cash Provided by Operating Activities

 

$                      2,638

 

$                      1,321

 

$                      6,412

 

$                      4,569

                 

Capital Expenditures, net of payments & proceeds

 

(487)

 

(494)

 

(944)

 

(871)

Divestitures, net of cash transferred

 

6

 

1,207

 

6

 

1,268

Acquisitions, net of cash acquired

 

(334)

 

(260)

 

(356)

 

(958)

Marketable Securities / Other Investments, net

 

822

 

(281)

 

(6,659)

 

(625)

Net Cash Provided by/(Used in) Investing Activities

 

$                               7

 

$                          172

 

$                    (7,953)

 

$                    (1,186)

                 

Debt, net of payments & proceeds

 

(1,135)

 

(2,514)

 

6,169

 

434

Dividends

 

(1,510)

 

(1,488)

 

(3,007)

 

(2,963)

Financing - Other

 

(86)

 

(195)

 

(185)

 

(290)

Net Cash Provided by/(Used in) Financing Activities

 

$                      (2,731)

 

$                    (4,197)

 

$                      2,978

 

$                    (2,819)

                 

Effect of Exchange Rate changes on Cash

 

(25)

 

(262)

 

(1)

 

(267)

Net Change in Cash, Cash Equivalents and Restricted Cash

 

$                         (110)

 

$                    (2,965)

 

$                      1,436

 

$                         297

____________________

*   Includes immaterial cash flows from discontinued operations.

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 
   

Three Months Ended June 30, 2023

 
                         

(Dollars in Millions)

 

Software

   

Consulting

   

Infrastructure

   

Financing

 

Revenue

 

$                       6,608

   

$                        5,013

   

$                        3,618

   

$                            185

 

Pre-tax Income from Continuing Operations*

 

$                       1,504

   

$                           446

   

$                           633

   

$                              64

 

Pre-tax Margin*

 

22.8

%

 

8.9

%

 

17.5

%

 

34.9

%

Change YTY Revenue

 

7.2

%

 

4.3

%

 

(14.6)

%

 

26.2

%

Change YTY Revenue - Constant Currency

 

7.5

%

 

5.9

%

 

(13.8)

%

 

27.1

%

   
   

Three Months Ended June 30, 2022

 
                         

(Dollars in Millions)

 

 Software

   

Consulting

   

Infrastructure

   

Financing

 

Revenue

 

$                       6,166

   

$                        4,809

   

$                        4,235

   

$                           146

 

Pre-tax Income from Continuing Operations

 

$                       1,375

   

$                           343

   

$                           757

   

$                           102

 

Pre-tax Margin

 

22.3

%

 

7.1

%

 

17.9

%

 

69.7

%

____________________

*   The second quarter 2023 pre-tax charge of approximately $0.12 billion for stranded costs related to portfolio actions is not included in the measure of segment
    pre-tax income, consistent with the company's management system.

 
 
   

Six Months Ended June 30, 2023

 
                         

(Dollars in Millions)

 

Software

   

Consulting

   

Infrastructure

   

Financing

 

Revenue

 

$                     12,529

   

$                        9,975

   

$                        6,716

   

$                           380

 

Pre-tax Income from Continuing Operations*

 

$                       2,668

   

$                           828

   

$                           849

   

$                           165

 

Pre-tax Margin*

 

21.3

%

 

8.3

%

 

12.6

%

 

43.3

%

Change YTY Revenue

 

5.0

%

 

3.5

%

 

(9.9)

%

 

26.8

%

Change YTY Revenue - Constant Currency

 

6.6

%

 

7.0

%

 

(7.8)

%

 

29.1

%

 
   

Six Months Ended June 30, 2022

 
                         

(Dollars in Millions)

 

 Software

   

Consulting

   

Infrastructure

   

Financing

 

Revenue

 

$                     11,938

   

$                        9,637

   

$                        7,453

   

$                           300

 

Pre-tax Income from Continuing Operations

 

$                       2,509

   

$                           691

   

$                           956

   

$                           186

 

Pre-tax Margin

 

21.0

%

 

7.2

%

 

12.8

%

 

62.0

%

____________________

*   The year-to-date 2023 pre-tax charge of approximately $0.38 billion for stranded costs related to portfolio actions is not included in the measure of segment
    pre-tax income, consistent with the company's management system.

 

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, 2023

 
 

Continuing Operations

 
 

GAAP

   

Acquisition-

Related

Adjustments (1)

   

Retirement-

Related

Adjustments (2)

   

Tax

Reform

Impacts

   

Kyndryl-

Related

Impacts (3)

   

Operating

(Non-GAAP)

 

Gross Profit

$      8,501

   

$                         150

   

$                               —

   

$                —

   

$                   —

   

$         8,650

 

Gross Profit Margin

54.9

%

 

1.0

pts.

 

pts.

 

pts.

 

pts.

 

55.9

%

S,G&A

$      4,900

   

$                        (245)

   

$                               —

   

$                —

   

$                   —

   

$         4,655

 

Other (Income) & Expense

(261)

   

0

   

(1)

   

   

   

(262)

 

Total Expense & Other
(Income)

6,501

   

(246)

   

(1)

   

   

   

6,254

 

Pre-tax Income from
Continuing Operations

2,000

   

395

   

1

   

   

   

2,396

 

Pre-tax Income Margin from
Continuing Operations

12.9

%

 

2.6

pts.

 

0.0

pts.

 

pts.

 

pts.

 

15.5

%

Provision for/(Benefit from)
Income Taxes (4)

$          419

   

$                            87

   

$                               (3)

   

$            (110)

   

$                   —

   

$              393

 

Effective Tax Rate

21.0

%

 

0.2

pts.

 

(0.2)

pts.

 

(4.6)

pts.

 

pts.

 

16.4

%

Income from Continuing
Operations

$       1,581

   

$                          308

   

$                                5

   

$             110

   

$                   —

   

$          2,003

 

Income Margin from
Continuing Operations

10.2

%

 

2.0

pts.

 

0.0

pts.

 

0.7

pts.

 

pts.

 

12.9

%

Diluted Earnings Per Share:
Continuing Operations

$         1.72

   

$                         0.34

   

$                           0.00

   

$            0.12

   

$                   —

   

$            2.18

 
 
 

Three Months Ended June 30, 2022

 
 

Continuing Operations

 
 

GAAP

   

Acquisition-

Related

Adjustments (1)

   

Retirement-

Related

Adjustments (2)

   

Tax

Reform

Impacts

   

Kyndryl-

Related

Impacts (3)

   

Operating

(Non-GAAP)

 

Gross Profit

$      8,290

   

$                         180

   

$                               —

   

$                —

   

$                   —

   

$         8,470

 

Gross Profit Margin

53.4

%

 

1.2

pts.

 

pts.

 

pts.

 

pts.

 

54.5

%

S,G&A

$      4,855

   

$                        (279)

   

$                               —

   

$                —

   

$                   0

   

$         4,576

 

Other (Income) & Expense

(81)

   

(1)

   

(192)

   

   

(145)

   

(418)

 

Total Expense & Other
(Income)

6,568

   

(280)

   

(192)

   

   

(145)

   

5,952

 

Pre-tax Income from
Continuing Operations

1,722

   

460

   

192

   

   

145

   

2,518

 

Pre-tax Income Margin from
Continuing Operations

11.1

%

 

3.0

pts.

 

1.2

pts.

 

pts.

 

0.9

pts.

 

16.2

%

Provision for/(Benefit from)
Income Taxes (4)

$          257

   

$                         115

   

$                             46

   

$               (4)

   

$                   —

   

$              413

 

Effective Tax Rate

14.9

%

 

1.8

pts.

 

0.7

pts.

 

(0.2)

pts.

 

(0.9)

pts.

 

16.4

%

Income from Continuing
Operations

$       1,465

   

$                         345

   

$                           146

   

$                 4

   

$                145

   

$          2,105

 

Income Margin from
Continuing Operations

9.4

%

 

2.2

pts.

 

0.9

pts.

 

0.0

pts.

 

0.9

pts.

 

13.5

%

Diluted Earnings Per Share:
Continuing Operations

$         1.61

   

$                        0.38

   

$                          0.16

   

$           0.00

   

$               0.16

   

$             2.31

 

____________________

(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)

Primarily relates to fair value changes in shares of Kyndryl common stock that were retained by IBM and the related cash-settled swap.

(4)

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

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

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

(Unaudited; Dollars in millions except per share amounts)

 
 

Six Months Ended June 30, 2023

 
 

Continuing Operations

 
 

GAAP

   

Acquisition-

Related

Adjustments (1)

   

Retirement-

Related

Adjustments (2)

   

Tax

Reform

Impacts

   

Kyndryl-

Related

Impacts (3)

   

Operating

(Non-GAAP)

 

Gross Profit

$    16,010

   

$                         298

   

$                                  —

   

$                —

   

$                   —

   

$       16,308

 

Gross Profit Margin

53.9

%

 

1.0

pts.

 

pts.

 

pts.

 

pts.

 

54.9

%

S,G&A

$      9,754

   

$                       (491)

   

$                                  —

   

$                —

   

$                   —

   

$         9,263

 

Other (Income) & Expense

(506)

   

(2)

   

4

   

   

   

(504)

 

Total Expense & Other
(Income)

12,952

   

(493)

   

4

   

   

   

12,463

 

Pre-tax Income from
Continuing Operations

3,058

   

791

   

(4)

   

   

   

3,845

 

Pre-tax Income Margin from
Continuing Operations

10.3

%

 

2.7

pts.

 

0.0

pts.

 

pts.

 

pts.

 

12.9

%

Provision for/(Benefit from)
Income Taxes 
(4)

$          543

   

$                         178

   

$                              (14)

   

$            (115)

   

$                   —

   

$              593

 

Effective Tax Rate

17.8

%

 

1.0

pts.

 

(0.3)

pts.

 

(3.0)

pts.

 

pts.

 

15.4

%

Income from Continuing
Operations

$       2,515

   

$                         613

   

$                                10

   

$             115

   

$                   —

   

$           3,252

 

Income Margin from
Continuing Operations

8.5

%

 

2.1

pts.

 

0.0

pts.

 

0.4

pts.

 

pts.

 

10.9

%

Diluted Earnings Per Share:
Continuing Operations

$         2.74

   

$                        0.67

   

$                             0.01

   

$            0.13

   

$                   —

   

$             3.54

 
 
 

Six Months Ended June 30, 2022

 
 

Continuing Operations

 
 

GAAP

   

Acquisition-

Related

Adjustments (1)

   

Retirement-

Related

Adjustments (2)

   

Tax

Reform

Impacts

   

Kyndryl-

Related

Impacts (3)

   

Operating

(Non-GAAP)

 

Gross Profit

$    15,625

   

$                         361

   

$                               —

   

$                —

   

$                   —

   

$       15,986

 

Gross Profit Margin

52.6

%

 

1.2

pts.

 

pts.

 

pts.

 

pts.

 

53.8

%

S,G&A

$      9,452

   

$                       (565)

   

$                               —

   

$                —

   

$                    0

   

$         8,887

 

Other (Income) & Expense

166

   

(1)

   

(394)

   

   

(367)

   

(596)

 

Total Expense & Other
(Income)

13,280

   

(566)

   

(394)

   

   

(367)

   

11,953

 

Pre-tax Income from
Continuing Operations

2,345

   

928

   

394

   

   

367

   

4,033

 

Pre-tax Income Margin from
Continuing Operations

7.9

%

 

3.1

pts.

 

1.3

pts.

 

pts.

 

1.2

pts.

 

13.6

%

Provision for/(Benefit from)
Income Taxes 
(4)

$          218

   

$                         224

   

$                         104

   

$             112

   

$                   —

   

$              657

 

Effective Tax Rate

9.3

%

 

3.4

pts.

 

1.7

pts.

 

2.8

pts.

 

(0.8)

pts.

 

16.3

%

Income from Continuing
Operations

$       2,127

   

$                         704

   

$                         290

   

$           (112)

   

$                 367

   

$           3,376

 

Income Margin from
Continuing Operations

7.2

%

 

2.4

pts.

 

1.0

pts.

 

(0.4)

pts.

 

1.2

pts.

 

11.4

%

Diluted Earnings Per Share:
Continuing Operations

$         2.34

   

$                        0.77

   

$                        0.32

   

$         (0.12)

   

$               0.40

   

$             3.71

 

____________________

(1)

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

(2)

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

(3)

Primarily relates to fair value changes in shares of Kyndryl common stock that were retained by IBM and the related cash-settled swap.

(4)

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.

 

SOURCE IBM

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