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IBM Reports 2019 Second-Quarter Results

18 Jul 2019 07:00

IBM (NYSE:IBM) today announced second-quarter results.

“In the second quarter, we continued to grow in the high-value areas of the business, led by a strong performance across our Cloud and Cognitive Software segment,” said Ginni Rometty, IBM chairman, president and chief executive officer. “With the completion of our acquisition of Red Hat, we will provide the only true open hybrid multicloud platform in the industry, strengthening our leadership position and uniquely helping clients succeed in chapter 2 of their digital reinventions.”

	SECOND QUARTER 2019
										Pre-tax		Gross
	Diluted			Net			Pre-tax			Income		Profit
	EPS			Income			Income			Margin		Margin
GAAP from Continuing Operations	$	2.81		$	2.5B		$	2.8B		14.4	%	47.0	%
Year/Year		8	%		4	%		0	%	0.6	Pts	1.0	Pts

Operating (Non-GAAP)	$	3.17		$	2.8B		$	3.2B		16.6	%	47.4	%
Year/Year		3	%		0	%		(6)	%	(0.3)	Pts	1.0	Pts

“We maintained our momentum in the second quarter, again expanding gross profit margin and growing free cash flow, driven to a great extent by our increasing mix of high-value offerings for clients,” said James Kavanaugh, IBM senior vice president and chief financial officer. “On August 2, we will discuss how the acquisition of Red Hat will accelerate IBM's revenue growth, contribute to our high-value model and enhance our free cash flow generation going forward.”

Cash Flow and Balance Sheet

In the second quarter, the company generated net cash from operating activities of $2.9 billion, or $2.8 billion, excluding Global Financing receivables. IBM’s free cash flow was $2.4 billion. IBM returned $1.8 billion to shareholders through $1.4 billion in dividends and $0.3 billion in gross share repurchases. The company suspended its share repurchase program on July 9.

IBM ended the second quarter with $46.4 billion of cash on hand, of which approximately $34 billion was used in July to close the acquisition of Red Hat. Debt totaled $73.0 billion, including Global Financing debt of $25.0 billion.

Segment Results for Second Quarter

Cloud & Cognitive Software (includes cloud and data platforms, cognitive applications and transaction processing platforms) --revenues of $5.6 billion, up 3.2 percent (up 5.4 percent adjusting for currency), with growth in cloud and data platforms, up 5 percent (up 7 percent adjusting for currency); cognitive applications, up 3 percent (up 5 percent adjusting for currency); and transaction processing platforms, up 2 percent (up 4 percent adjusting for currency).Global Business Services (includes consulting, application management and global process services) -- revenues of $4.2 billion, up 0.5 percent (up 3.4 percent adjusting for currency), with broad-based strength led by growth in consulting, up 2 percent (up 5 percent adjusting for currency).Global Technology Services (includes infrastructure and cloud services and technology support services) -- revenues of $6.8 billion, down 6.7 percent (down 3.5 percent adjusting for currency). Gross profit margin increased 120 basis points.Systems (includes systems hardware and operating systems software) -- revenues of $1.8 billion, down 19.5 percent (down 18.0 percent adjusting for currency), with growth in Power, more than offset by the impact of product cycle dynamics in IBM Z and Storage.Global Financing (includes financing and used equipment sales) -- revenues of $351 million, down 11.0 percent (down 8.5 percent adjusting for currency), reflects the wind-down of OEM commercial financing.

Full-Year 2019 Expectations

Through the second quarter, IBM remains on track to achieve GAAP diluted earnings per share of at least $12.45, operating (non-GAAP) diluted earnings per share of at least $13.90 and free cash flow of approximately $12 billion, all excluding the impact of Red Hat and related activity. Operating (non-GAAP) diluted earnings per share expectations exclude $1.45 per share of charges for amortization of purchased intangible assets and other acquisition-related charges, including pre-closing charges, such as financing costs associated with the Red Hat acquisition; retirement-related charges; and tax reform enactment impacts. It does not include any other amounts for Red Hat or Red Hat related activity. The company will provide an update to these full-year expectations (including GAAP EPS expectations) on August 2, 2019 to reflect the addition of the recently-closed Red Hat acquisition. IBM continues to expect Red Hat, including related activity, to be accretive to free cash flow in the first year; accretive to operating (non-GAAP) earnings per share by the end of the second year after closing; and dilutive to full-year 2019 earnings per share due primarily to a non-cash purchase accounting adjustment.

Year-To-Date 2019 Results

Consolidated diluted earnings per share was $4.58 compared to $4.43, up 3 percent year to year. Consolidated net income was $4.1 billion, flat year to year. Revenues for the six-month period ended June 30, 2019 totaled $37.3 billion, a decrease of 4 percent year to year (down 1 percent adjusting for currency) compared with $39.1 billion for the first six months of 2018.

Operating (non-GAAP) diluted earnings per share from continuing operations was $5.42 compared with $5.53 per diluted share for the 2018 period, a decrease of 2 percent. Operating (non-GAAP) net income for the six months ended June 30, 2019 was $4.8 billion compared with $5.1 billion in the prior-year period, a decrease of 5 percent.

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; the company’s failure to meet growth and productivity objectives; a failure of the company’s innovation initiatives; damage to the company’s reputation; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product quality issues; impacts of business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels and ecosystems; the company’s ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities, and higher debt levels; legal proceedings and investigatory risks; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10‑Qs, Form 10‑K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. 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 --

presenting operating (non-GAAP) earnings per share amounts and related income statement items;adjusting for free cash flow;net cash from operating activities, excluding Global Financing receivables;adjusting for currency (i.e., at constant currency).

Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. The company views Global Financing receivables as a profit-generating investment, which it seeks to maximize and therefore it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.

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

Conference Call and Webcast

IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EDT, today. The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/2q19.html. Presentation charts will be available shortly before the Webcast.

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

INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts)

	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2019				2018					2019				2018
REVENUE
Cloud & Cognitive Software	$	5,645			$	5,470			*	$	10,682			$	10,586			*
Global Business Services		4,155				4,135			*		8,274				8,250			*
Global Technology Services		6,837				7,325			*		13,711				14,746			*
Systems		1,753				2,177					3,081				3,676
Global Financing		351				394					757				799
Other		420				503			*		837				1,017			*
TOTAL REVENUE		19,161				20,003					37,342				39,075

GROSS PROFIT		9,010				9,199					17,053				17,445

GROSS PROFIT MARGIN
Cloud & Cognitive Software		77.3		%		77.7		%	*		76.3		%		77.1		%	*
Global Business Services		26.0		%		26.0		%	*		26.1		%		24.7		%	*
Global Technology Services		34.4		%		33.2		%	*		34.1		%		32.9		%	*
Systems		53.5		%		50.6		%			50.3		%		47.8		%
Global Financing		35.0		%		26.6		%			34.9		%		30.6		%

TOTAL GROSS PROFIT MARGIN		47.0		%		46.0		%			45.7		%		44.6		%

EXPENSE AND OTHER INCOME
S,G&A		5,456				4,857					10,147				10,302
R,D&E		1,407				1,364					2,840				2,769
Intellectual property and custom development income		(222	)			(250	)				(323	)			(567	)
Other (income) and expense		(747	)			280					(820	)			692
Interest expense		348				173					558				338
TOTAL EXPENSE AND OTHER INCOME		6,242				6,423					12,402				13,534

INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES		2,768				2,776					4,651				3,911
Pre-tax margin		14.4		%		13.9		%			12.5		%		10.0		%
Provision for / (Benefit from) income taxes		269				373					558				(166	)
Effective tax rate		9.7		%		13.5		%			12.0		%		(4.3	)	%

INCOME FROM CONTINUING OPERATIONS	$	2,499			$	2,402				$	4,093			$	4,078
DISCONTINUED OPERATIONS
Income / (Loss) from discontinued operations, net of taxes		(1	)			1					(4	)			5

NET INCOME	$	2,498			$	2,404				$	4,089			$	4,083

EARNINGS / (LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations	$	2.81			$	2.61				$	4.58			$	4.42
Discontinued Operations	$	0.00			$	0.00				$	0.00			$	0.01
TOTAL	$	2.81			$	2.61				$	4.58			$	4.43

Basic
Continuing Operations	$	2.82			$	2.63				$	4.61			$	4.44
Discontinued Operations	$	0.00			$	0.00				$	0.00			$	0.01
TOTAL	$	2.82			$	2.63				$	4.61			$	4.45

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution		890.8				919.4					892.4				922.4
Basic		886.3				915.1					887.9				917.9
_________________________________* Recast to conform with 2019 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

	At			At
	June 30,			December 31,
(Dollars in Millions)	2019			2018
ASSETS:

Current Assets:
Cash and cash equivalents	$	45,399		$	11,379
Restricted cash		135			225
Marketable securities		874			618
Notes and accounts receivable - trade, net		7,414			7,432
Short-term financing receivables, net		15,543			22,388
Other accounts receivable, net		1,781			743
Inventories		1,745			1,682
Deferred costs		2,217			2,300
Prepaid expenses and other current assets		2,409			2,378
Total Current Assets		77,517			49,146

Property, plant and equipment, net		10,202			10,792
Operating right-of-use assets, net*		4,998			—
Long-term financing receivables, net		8,441			9,148
Prepaid pension assets		5,319			4,666
Deferred costs		2,662			2,676
Deferred taxes		5,274			5,216
Goodwill and intangibles, net		38,011			39,353
Investments and sundry assets		2,228			2,386
Total Assets	$	154,652		$	123,382

LIABILITIES:

Current Liabilities:
Taxes	$	2,439		$	3,046
Short-term debt		14,594			10,207
Accounts payable		4,724			6,558
Deferred income		11,261			11,165
Operating lease liabilities*		1,319			—
Other liabilities		8,014			7,251
Total Current Liabilities		42,351			38,227

Long-term debt		58,445			35,605
Retirement related obligations		16,471			17,002
Deferred income		3,474			3,445
Operating lease liabilities*		3,946			—
Other liabilities		12,190			12,174
Total Liabilities		136,876			106,452

EQUITY:

IBM Stockholders’ Equity:
Common stock		55,404			55,151
Retained earnings		160,467			159,206
Treasury stock — at cost		(169,385	)		(168,071	)
Accumulated other comprehensive income/(loss)		(28,841	)		(29,490	)
Total IBM Stockholders’ Equity		17,645			16,796

Noncontrolling interests		131			134
Total Equity		17,776			16,929

Total Liabilities and Equity	$	154,652		$	123,382
________________________* Reflects the adoption of the FASB guidance on leases.

INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in Millions)	2019			2018			2019			2018
Net Cash Provided by Operating Activities per GAAP:	$	2,941		$	2,295		$	7,700		$	6,896

Less: change in Global Financing (GF) Receivables		119			(582	)		2,577			1,778
Capital Expenditures, Net		(431	)		(1,004	)		(1,045	)		(1,897	)

Free Cash Flow		2,391			1,873			4,078			3,221

Acquisitions		(42	)		(51	)		(43	)		(122	)
Divestitures		855			—			888			—
Dividends		(1,435	)		(1,437	)		(2,833	)		(2,819	)
Share Repurchase		(316	)		(989	)		(1,236	)		(1,767	)
Non-GF Debt		27,509			(65	)		33,399			(611	)
Other (includes GF Net Receivables and GF Debt)		(698	)		(559	)		(68	)		1,182

Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities	$	28,264		$	(1,229	)	$	34,186		$	(916	)

INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in Millions)	2019			2018			2019			2018
Net Income from Operations	$	2,498		$	2,404		$	4,089		$	4,083
Depreciation/Amortization of Intangibles		1,294			1,116			2,740			2,230
Stock-based Compensation		135			125			248			242
Working Capital / Other		(1,106	)		(768	)		(1,954	)		(1,436	)
Global Financing A/R		119			(582	)		2,577			1,778
Net Cash Provided by Operating Activities	$	2,941		$	2,295		$	7,700		$	6,896
Capital Expenditures, net of payments & proceeds		(431	)		(1,004	)		(1,045	)		(1,897	)
Divestitures, net of cash transferred		855			—			888			—
Acquisitions, net of cash acquired		(42	)		(51	)		(43	)		(122	)
Marketable Securities / Other Investments, net		3,779			420			3,509			(380	)
Net Cash Provided by / (Used in) Investing Activities	$	4,162		$	(634	)	$	3,309		$	(2,399	)
Debt, net of payments & proceeds		22,841			(37	)		27,073			(751	)
Dividends		(1,435	)		(1,437	)		(2,833	)		(2,819	)
Common Stock Repurchases		(316	)		(989	)		(1,236	)		(1,767	)
Common Stock Transactions – Other		(59	)		(55	)		(111	)		(91	)
Net Cash Provided by / (Used in) Financing Activities	$	21,031		$	(2,519	)	$	22,894		$	(5,428	)
Effect of Exchange Rate changes on Cash		129			(444	)		27			(344	)
Net Change in Cash, Cash Equivalents and Restricted Cash	$	28,263		$	(1,302	)	$	33,930		$	(1,274	)

INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)

	SECOND - QUARTER 2019
	Cloud &			Global			Global
	Cognitive			Business			Technology								Global
(Dollars in Millions)	Software			Services			Services				Systems				Financing
Revenue
External	$	5,645		$	4,155		$	6,837			$	1,753			$	351
Internal		607			69			302				171				281
Total Segment Revenue	$	6,252		$	4,224		$	7,139			$	1,924			$	632

Pre-tax Income / (Loss) from Continuing Operations		2,001			300			235				61				239

Pre-tax margin		32.0	%		7.1	%		3.3		%		3.2		%		37.8		%

Change YTY Revenue – External		3.2	%		0.5	%		(6.7	)	%		(19.5	)	%		(11.0	)	%
Change YTY Revenue - External @constant currency		5.4	%		3.4	%		(3.5	)	%		(18.0	)	%		(8.5	)	%

	SECOND - QUARTER 2018
	Cloud &			Global			Global
	Cognitive			Business			Technology						Global
(Dollars in Millions)	Software*			Services*			Services*			Systems			Financing
Revenue
External	$	5,470		$	4,135		$	7,325		$	2,177		$	394
Internal		811			83			169			242			473
Total Segment Revenue	$	6,280		$	4,218		$	7,494		$	2,419		$	867

Pre-tax Income / (Loss) from Continuing Operations		2,029			372			451			346			357

Pre-tax margin		32.3	%		8.8	%		6.0	%		14.3	%		41.2	%
______________________* Recast to conform with 2019 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)

	SIX MONTHS 2019
	Cloud &			Global			Global
	Cognitive			Business			Technology								Global
(Dollars in Millions)	Software			Services			Services				Systems				Financing
Revenue
External	$	10,682		$	8,274		$	13,711			$	3,081			$	757
Internal		1,448			143			591				334				581
Total Segment Revenue	$	12,131		$	8,417		$	14,303			$	3,415			$	1,338

Pre-tax Income / (Loss) from Continuing Operations		3,768			615			510				(141	)			527

Pre-tax margin		31.1	%		7.3	%		3.6		%		(4.1	)	%		39.4		%

Change YTY Revenue – External		0.9	%		0.3	%		(7.0	)	%		(16.2	)	%		(5.3	)	%
Change YTY Revenue - External @constant currency		3.6	%		3.9	%		(3.3	)	%		(14.2	)	%		(2.2	)	%

	SIX MONTHS 2018
	Cloud &			Global			Global
	Cognitive			Business			Technology						Global
(Dollars in Millions)	Software*			Services*			Services*			Systems			Financing
Revenue
External	$	10,586		$	8,250		$	14,746		$	3,676		$	799
Internal		1,741			172			310			395			902
Total Segment Revenue	$	12,327		$	8,422		$	15,055		$	4,072		$	1,701

Pre-tax Income / (Loss) from Continuing Operations		3,709			497			517			143			734

Pre-tax margin		30.1	%		5.9	%		3.4	%		3.5	%		43.1	%
___________________* Recast to conform with 2019 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts)

	SECOND - QUARTER 2019
	CONTINUING OPERATIONS
					Acquisition-				Retirement-				Tax
					Related				Related				Reform				Operating
	GAAP				Adjustments*				Adjustments**				Impacts				(Non-GAAP)
Gross Profit	$	9,010			$	73				—				—			$	9,083

Gross Profit Margin		47.0		%		0.4		Pts		—				—				47.4		%

S,G&A		5,456				(149	)			—				—				5,307

R,D&E		1,407				—				—				—				1,407

Other (Income) & Expense		(747	)			119				(136	)			—				(764	)

Interest Expense		348				(168	)			—				—				180

Total Expense & Other (Income)		6,242				(198	)			(136	)			—				5,907

Pre-tax Income from Continuing Operations		2,768				272				136				—				3,176

Pre-tax Income Margin from Continuing Operations		14.4		%		1.4		Pts		0.7		Pts		—				16.6		%

Provision for Income Taxes***		269				55				40				(14	)			349

Effective Tax Rate		9.7		%		0.9		Pts		0.8		Pts		(0.4	)	Pts		11.0		%

Income from Continuing Operations		2,499				217				97				14				2,827

Income Margin from Continuing Operations		13.0		%		1.1		Pts		0.5		Pts		0.1		Pts		14.8		%

Diluted Earnings / (Loss) Per Share: Continuing Operations	$	2.81			$	0.24			$	0.11			$	0.01			$	3.17

	SECOND - QUARTER 2018
	CONTINUING OPERATIONS
				Acquisition-				Retirement-				Tax
				Related				Related				Reform				Operating
	GAAP			Adjustments*				Adjustments**				Impacts				(Non-GAAP)
Gross Profit	$	9,199		$	94				—				—			$	9,292

Gross Profit Margin		46.0	%		0.5		Pts		—				—				46.5		%

S,G&A		4,857			(110	)			—				—				4,746

R,D&E		1,364			—				—				—				1,364

Other (Income) & Expense		280			—				(394	)			—				(115	)

Interest Expense		173			—				—				—				173

Total Expense & Other (Income)		6,423			(110	)			(394	)			—				5,918

Pre-tax Income from Continuing Operations		2,776			204				394				—				3,374

Pre-tax Income Margin from Continuing Operations		13.9	%		1.0		Pts		2.0		Pts		—				16.9		%

Provision for Income Taxes***		373			44				109				14				540

Effective Tax Rate		13.5	%		0.5		Pts		1.6		Pts		0.4		Pts		16.0		%

Income from Continuing Operations		2,402			160				286				(14	)			2,834

Income Margin from Continuing Operations		12.0	%		0.8		Pts		1.4		Pts		(0.1	)	Pts		14.2		%

Diluted Earnings / (Loss) Per Share: Continuing Operations	$	2.61		$	0.17			$	0.31			$	(0.01	)		$	3.08

______________________________

* 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.

** 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.

*** 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 2019
	CONTINUING OPERATIONS
				Acquisition-			Retirement-			Tax
				Related			Related			Reform			Operating
	GAAP			Adjustments*			Adjustments**			Impacts			(Non-GAAP)
Gross Profit	$	17,053		$	149			—			—		$	17,202

Gross Profit Margin		45.7	%		0.4	Pts		—			—			46.1	%

S,G&A		10,147			(273)			—			—			9,873

R,D&E		2,840			—			—			—			2,840

Other (Income) & Expense		(820)			142			(274)			—			(951)

Interest Expense		558			(204)			—			—			354

Total Expense & Other (Income)		12,402			(335)			(274)			—			11,793

Pre-tax Income from Continuing Operations		4,651			484			274			—			5,409

Pre-tax Income Margin from Continuing Operations		12.5	%		1.3	Pts		0.7	Pts		—			14.5	%

Provision for / (Benefit from) Income Taxes***		558			104			66			(155)			574

Effective Tax Rate		12.0	%		0.8	Pts		0.6	Pts		(2.9)	Pts		10.6	%

Income from Continuing Operations		4,093			381			208			155			4,836

Income Margin from Continuing Operations		11.0	%		1.0	Pts		0.6	Pts		0.4	Pts		13.0	%

Diluted Earnings / (Loss) Per Share: Continuing Operations	$	4.58		$	0.44		$	0.23		$	0.17		$	5.42

	SIX MONTHS 2018
	CONTINUING OPERATIONS
				Acquisition-			Retirement-			Tax
				Related			Related			Reform			Operating
	GAAP			Adjustments*			Adjustments**			Impacts			(Non-GAAP)
Gross Profit	$	17,445		$	187			—			—		$	17,633

Gross Profit Margin		44.6	%		0.5	Pts		—			—			45.1	%

S,G&A		10,302			(220)			—			—			10,082

R,D&E		2,769			—			—			—			2,769

Other (Income) & Expense		692			—			(796)			—			(104)

Interest Expense		338			—			—			—			338

Total Expense & Other (Income)		13,534			(220)			(796)			—			12,518

Pre-tax Income from Continuing Operations		3,911			407			796			—			5,114

Pre-tax Income Margin from Continuing Operations		10.0	%		1.0	Pts		2.0	Pts		—			13.1	%

Provision for / (Benefit from) Income Taxes***		(166)			83			185			(93)			8

Effective Tax Rate		(4.3)	%		2.0	Pts		4.3	Pts		(1.8)	Pts		0.2	%

Income from Continuing Operations		4,078			324			611			93			5,106

Income Margin from Continuing Operations		10.4	%		0.8	Pts		1.6	Pts		0.2	Pts		13.1	%

Diluted Earnings / (Loss) Per Share: Continuing Operations	$	4.42		$	0.35		$	0.66		$	0.10		$	5.53

____________________________

INTERNATIONAL BUSINESS MACHINES CORPORATION NON – GAAP RECONCILIATION (Unaudited)

EPS expectations (GAAP and Operating (non-GAAP)) will be updated on August 2 to include the impact of the Red Hat acquisition.

2019 Full Year Expectations (through second-quarter 2019, prior to the completion of the Red Hat acquisition)
GAAP Diluted EPS		at least $12.45

Operating EPS (non-GAAP)		at least $13.90

Adjustments

Acquisition-related Charges *	$	0.76

Non-Operating Retirement-Related Items	$	0.45

Tax Reform Enactment Impacts	$	0.24

_______________________

* Includes acquisitions as of June 30, 2019. This amount includes pre-closing charges, such as financing costs, associated with the Red Hat acquisition. It does not include any other amounts for Red Hat or Red Hat related activity.

IBMMelinda Zurich, 914‑499‑4034melinda.zurich@us.ibm.com

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20190717005781/en/

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