International Business Machines Corp 8-K 2016-07-18
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Exhibit 99.1
IBM REPORTS 2016 SECOND-QUARTER EARNINGS
Continued Strong Growth in Strategic Imperatives Led by IBM Cloud
Highlights
· Diluted EPS: GAAP of $2.61; Operating (non-GAAP) of $2.95
· Revenue from continuing operations of $20.2 billion
· Strategic imperatives revenue of $30.7 billion over the last 12 months represents 38 percent of IBM revenue
- Strategic imperatives revenue of $8.3 billion in the quarter, up 12 percent year to year
· Cloud revenue of $11.6 billion over the last 12 months
- Cloud as-a-service annual run rate of $6.7 billion in the quarter, up 50 percent year to year
ARMONK, N.Y., July 18, 2016 . . . IBM (NYSE: IBM) today announced second-quarter 2016 earnings results.
IBM continues to establish itself as the leading cognitive solutions and cloud platform company. In doing so, IBM is pioneering new business opportunities beyond the traditional IT marketplace, said Ginni Rometty, IBM chairman, president and chief executive officer. In the second quarter we delivered double-digit revenue growth in our strategic imperatives, driven by innovations in areas such as analytics, security, cloud video services and Watson Health, all powered by the IBM Cloud and differentiated by industry. And we continue to invest for growth with recent breakthroughs in quantum computing, Internet of Things and Blockchain solutions for the IBM Cloud.
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SECOND-QUARTER 2016 |
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Gross Profit |
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Diluted EPS |
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Net Income |
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Margin |
| |||
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|
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|
|
|
|
|
| |||
|
GAAP from Continuing Operations |
|
$ |
2.61 |
|
$ |
2.5B |
|
47.9 |
% | |
|
Year/Year |
|
-27 |
% |
-29 |
% |
-2.0Pts |
| |||
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|
|
|
|
|
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|
| |||
|
Operating (Non-GAAP) |
|
$ |
2.95 |
|
$ |
2.8B |
|
49.0 |
% | |
|
Year/Year |
|
-23 |
% |
-25 |
% |
-1.9Pts |
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|
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Strategic |
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REVENUE |
|
Total IBM |
|
Imperatives |
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Cloud |
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|
| |||
|
As reported (US$) |
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$ |
20.2B |
|
$ |
8.3B |
|
$ |
3.4B |
|
|
Year/Year |
|
-3 |
% |
12 |
% |
30 |
% | |||
In the first half of 2016, we grew our R&D investment, closed 11 acquisitions for more than $5 billion and invested nearly $2 billion in capital expenditures, while returning more than $4 billion to shareholders through dividends and gross share repurchases, said Martin Schroeter, IBM senior vice president and chief financial officer. These investments are key in helping us build new markets and maintain our leadership in enterprise IT.
Strategic Imperatives
Second-quarter revenues from the companys strategic imperatives cloud, analytics and engagement increased 12 percent year to year. Cloud revenues (public, private and hybrid) for the quarter increased 30 percent. Cloud revenue over the trailing 12 months was $11.6 billion. The annual run rate for cloud as-a-service revenue a subset of total cloud revenue increased to $6.7 billion from $4.5 billion in the second quarter of 2015. Revenues from analytics increased 5 percent (up 4 percent adjusting for currency). Revenues from mobile increased 43 percent and from security increased 18 percent.
Full-Year 2016 Expectations
The company continues to expect operating (non-GAAP) diluted earnings per share of at least $13.50. This excludes $1.27 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges. As a result, GAAP diluted earnings per share are now expected to be at least $12.23.
There is no change to IBMs previously provided free cash flow guidance.
Cash Flow and Balance Sheet
The company generated net cash from operating activities of $3.4 billion; or $3.1 billion excluding Global Financing receivables. IBMs free cash flow was $2.1 billion in the second quarter. IBM returned $1.3 billion in dividends and $0.8 billion of gross share repurchases to shareholders. At the end of June 2016, IBM had $3.9 billion remaining in the current share repurchase authorization.
IBM ended the second-quarter 2016 with $10.6 billion of cash on hand. Debt, including Global Financing debt of $26.5 billion, totaled $44.5 billion. Core (non-global financing) debt totaled $18.0 billion. The balance sheet remains strong and is well positioned to support the business over the long term.
Segment Results
· Cognitive Solutions (includes solutions software and transaction processing software) revenues of $4.7 billion, up 3.5 percent (up 3.8 percent adjusting for currency). Cloud revenue within the segment grew 54 percent. Solutions software revenue grew, led by Analytics (including Watson) and Security.
· Global Business Services (includes consulting, global process services, application management) revenues of $4.3 billion, down 2.0 percent (down 2.5 percent adjusting for currency). Strategic imperatives revenue within the segment was up 14 percent (up 13 percent adjusting for currency).
· Technology Services & Cloud Platforms (includes infrastructure services, technical support services, integration software) revenues of $8.9 billion, down 0.5 percent (flat adjusting for currency). Growth of 35 percent in strategic imperatives revenue within the segment was driven by strong hybrid cloud infrastructure services performance.
· Systems (includes systems hardware and operating systems software) revenues of $2.0 billion, down 23.2 percent (down 23.3 percent adjusting for currency). Revenue reflects z Systems product cycle dynamics; gross profit margin improved in both z Systems and Power.
· Global Financing (includes financing and used equipment sales) revenues of $424 million, down 11.3 percent (down 10.0 percent adjusting for currency).
Year-To-Date 2016 Results
Diluted earnings per share from continuing operations were $4.69, down 22 percent compared to the 2015 period. Net income from continuing operations for the six months ended June 30, 2016 was $4.5 billion compared with $5.9 billion in the year-ago period, a decrease of 24 percent.
Consolidated net income was $4.5 billion compared to $5.8 billion in the year-ago period. Consolidated diluted earnings per share were $4.69 compared to $5.84, down 20 percent year to year. Revenues from continuing operations for the six-month period totaled $38.9 billion, a decrease of 4 percent (down 2 percent year to year, adjusting for currency) compared with $40.4 billion for the first six months of 2015.
Operating (non-GAAP) diluted earnings per share from continuing operations were $5.30 compared with $6.75 per diluted share for the 2015 period, a decrease of 21 percent. Operating (non-GAAP) net income from continuing operations for the six months ended June 30, 2016 was $5.1 billion compared with $6.7 billion in the year-ago period, a decrease of 24 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 companys current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and client spending budgets; the companys failure to meet growth and productivity objectives, a failure of the companys innovation initiatives; risks from investing in growth opportunities; failure of the companys 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 companys pension plans; ineffective internal controls; the companys use of accounting estimates; the companys ability to attract and retain key personnel 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 companys ability to successfully manage acquisitions, alliances and dispositions; risks from legal proceedings; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the companys Form 10-Qs, Form 10-K and in the companys other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding the companys results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:
IBM results
· presenting operating (non-GAAP) earnings per share amounts and related income statement items;
· adjusting for free cash flow;
· adjusting for currency (i.e., at constant currency).
Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. The company views Global Financing receivables as a profit-generating investment, which it seeks to maximize and therefore it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.
The rationale for managements 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
IBMs 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/2q16.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).
Contact: IBM
Ian Colley, 914-434-3043
colley@us.ibm.com
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
|
|
|
Three Months Ended |
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Six Months Ended |
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|
|
June 30, |
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June 30, |
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|
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2016 |
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2015* |
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2016 |
|
2015* |
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|
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REVENUE |
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|
|
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|
| ||||
|
Cognitive Solutions |
|
$ |
4,675 |
|
$ |
4,516 |
|
$ |
8,654 |
|
$ |
8,564 |
|
|
Global Business Services |
|
4,255 |
|
4,345 |
|
8,387 |
|
8,663 |
| ||||
|
Technology Services & Cloud Platforms |
|
8,857 |
|
8,898 |
|
17,280 |
|
17,452 |
| ||||
|
Systems |
|
1,950 |
|
2,541 |
|
3,626 |
|
4,683 |
| ||||
|
Global Financing |
|
424 |
|
478 |
|
834 |
|
939 |
| ||||
|
Other |
|
76 |
|
35 |
|
142 |
|
102 |
| ||||
|
TOTAL REVENUE |
|
20,238 |
|
20,813 |
|
38,923 |
|
40,403 |
| ||||
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|
|
|
|
|
|
|
|
|
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|
GROSS PROFIT |
|
9,702 |
|
10,390 |
|
18,388 |
|
19,842 |
| ||||
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|
|
|
|
|
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GROSS PROFIT MARGIN |
|
|
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|
|
|
|
|
| ||||
|
Cognitive Solutions |
|
82.2 |
% |
85.7 |
% |
82.1 |
% |
85.1 |
% | ||||
|
Global Business Services |
|
26.3 |
% |
27.4 |
% |
26.1 |
% |
27.4 |
% | ||||
|
Technology Services & Cloud Platforms |
|
41.6 |
% |
42.2 |
% |
41.3 |
% |
42.1 |
% | ||||
|
Systems |
|
56.5 |
% |
56.5 |
% |
56.9 |
% |
55.7 |
% | ||||
|
Global Financing |
|
38.7 |
% |
44.7 |
% |
40.5 |
% |
47.1 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
TOTAL GROSS PROFIT MARGIN |
|
47.9 |
% |
49.9 |
% |
47.2 |
% |
49.1 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
EXPENSE AND OTHER INCOME |
|
|
|
|
|
|
|
|
| ||||
|
S,G&A |
|
5,349 |
|
5,179 |
|
11,361 |
|
10,541 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
R,D&E |
|
1,465 |
|
1,300 |
|
2,923 |
|
2,598 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Intellectual property and custom development income |
|
(365 |
) |
(128 |
) |
(582 |
) |
(301 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Other (income) and expense |
|
37 |
|
(301 |
) |
289 |
|
(444 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest expense |
|
167 |
|
115 |
|
315 |
|
223 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
TOTAL EXPENSE AND OTHER INCOME |
|
6,653 |
|
6,165 |
|
14,306 |
|
12,617 |
| ||||
|
|
|
|
|
|
|
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|
|
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|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
3,049 |
|
4,224 |
|
4,082 |
|
7,225 |
| ||||
|
Pre-tax margin |
|
15.1 |
% |
20.3 |
% |
10.5 |
% |
17.9 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Provision for / (Benefit) from income taxes |
|
544 |
|
698 |
|
(439 |
) |
1,283 |
| ||||
|
Effective tax rate |
|
17.8 |
% |
16.5 |
% |
(10.8 |
)% |
17.8 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
INCOME FROM CONTINUING OPERATIONS |
|
$ |
2,505 |
|
$ |
3,526 |
|
$ |
4,521 |
|
$ |
5,942 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
| ||||
|
Loss from discontinued operations, net of taxes |
|
0 |
|
(77 |
) |
(3 |
) |
(165 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
NET INCOME |
|
$ |
2,504 |
|
$ |
3,449 |
|
$ |
4,518 |
|
$ |
5,777 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
EARNINGS PER SHARE OF COMMON STOCK: |
|
|
|
|
|
|
|
|
| ||||
|
Assuming Dilution |
|
|
|
|
|
|
|
|
| ||||
|
Continuing Operations |
|
$ |
2.61 |
|
$ |
3.58 |
|
$ |
4.69 |
|
$ |
6.01 |
|
|
Discontinued Operations |
|
$ |
0.00 |
|
$ |
(0.08 |
) |
$ |
0.00 |
|
$ |
(0.17 |
) |
|
TOTAL |
|
$ |
2.61 |
|
$ |
3.50 |
|
$ |
4.69 |
|
$ |
5.84 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
|
|
|
|
|
|
|
| ||||
|
Continuing Operations |
|
$ |
2.62 |
|
$ |
3.59 |
|
$ |
4.71 |
|
$ |
6.03 |
|
|
Discontinued Operations |
|
$ |
0.00 |
|
$ |
(0.08 |
) |
$ |
0.00 |
|
$ |
(0.17 |
) |
|
TOTAL |
|
$ |
2.62 |
|
$ |
3.51 |
|
$ |
4.71 |
|
$ |
5.86 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Ms): |
|
|
|
|
|
|
|
|
| ||||
|
Assuming Dilution |
|
960.5 |
|
986.7 |
|
962.4 |
|
989.5 |
| ||||
|
Basic |
|
957.4 |
|
982.3 |
|
959.5 |
|
985.2 |
| ||||
*Recast to conform with 2016 segment presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
|
|
At |
|
At |
| ||
|
|
|
June 30, |
|
December 31, |
| ||
|
(Dollars in Millions) |
|
2016 |
|
2015 |
| ||
|
ASSETS: |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Current Assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
10,017 |
|
$ |
7,686 |
|
|
Marketable securities |
|
600 |
|
508 |
| ||
|
Notes and accounts receivable - trade, net |
|
8,782 |
|
8,333 |
| ||
|
Short-term financing receivables, net |
|
16,635 |
|
19,020 |
| ||
|
Other accounts receivable, net |
|
1,130 |
|
1,201 |
| ||
|
Inventory |
|
1,685 |
|
1,551 |
| ||
|
Prepaid expenses and other current assets |
|
4,676 |
|
4,205 |
| ||
|
|
|
|
|
|
| ||
|
Total Current Assets |
|
43,524 |
|
42,504 |
| ||
|
|
|
|
|
|
| ||
|
Property, plant and equipment, net |
|
11,092 |
|
10,727 |
| ||
|
Long-term financing receivables, net |
|
9,267 |
|
10,013 |
| ||
|
Prepaid pension assets |
|
2,957 |
|
1,734 |
| ||
|
Deferred taxes |
|
4,387 |
|
4,822 |
| ||
|
Goodwill and intangibles, net |
|
41,570 |
|
35,508 |
| ||
|
Investments and sundry assets |
|
5,259 |
|
5,187 |
| ||
|
|
|
|
|
|
| ||
|
Total Assets |
|
$ |
118,056 |
|
$ |
110,495 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES: |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Current Liabilities: |
|
|
|
|
| ||
|
Taxes |
|
$ |
2,275 |
|
$ |
2,847 |
|
|
Short-term debt |
|
4,887 |
|
6,461 |
| ||
|
Accounts payable |
|
5,484 |
|
6,028 |
| ||
|
Deferred income |
|
11,508 |
|
11,021 |
| ||
|
Other liabilities |
|
9,430 |
|
7,913 |
| ||
|
|
|
|
|
|
| ||
|
Total Current Liabilities |
|
33,585 |
|
34,269 |
| ||
|
|
|
|
|
|
| ||
|
Long-term debt |
|
39,638 |
|
33,428 |
| ||
|
Retirement related obligations |
|
16,723 |
|
16,504 |
| ||
|
Deferred income |
|
3,837 |
|
3,771 |
| ||
|
Other liabilities |
|
8,385 |
|
8,099 |
| ||
|
|
|
|
|
|
| ||
|
Total Liabilities |
|
102,167 |
|
96,071 |
| ||
|
|
|
|
|
|
| ||
|
EQUITY: |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
IBM Stockholders Equity: |
|
|
|
|
| ||
|
Common stock |
|
53,565 |
|
53,262 |
| ||
|
Retained earnings |
|
148,071 |
|
146,124 |
| ||
|
Treasury stock at cost |
|
(157,298 |
) |
(155,518 |
) | ||
|
Accumulated other comprehensive income/(loss) |
|
(28,604 |
) |
(29,607 |
) | ||
|
Total IBM stockholders equity |
|
15,733 |
|
14,262 |
| ||
|
|
|
|
|
|
| ||
|
Noncontrolling interests |
|
156 |
|
162 |
| ||
|
|
|
|
|
|
| ||
|
Total Equity |
|
15,889 |
|
14,424 |
| ||
|
|
|
|
|
|
| ||
|
Total Liabilities and Equity |
|
$ |
118,056 |
|
$ |
110,495 |
|
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30 |
|
June 30 |
| ||||||||
|
(Dollars in Millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net Cash Provided by Operating Activities per GAAP: |
|
$ |
3,443 |
|
$ |
3,884 |
|
$ |
9,088 |
|
$ |
7,494 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Less: change in Global Financing (GF) |
|
|
|
|
|
|
|
|
| ||||
|
Receivables |
|
334 |
|
(392 |
) |
2,713 |
|
1,214 |
| ||||
|
Capital Expenditures, Net |
|
(979 |
) |
(906 |
) |
(1,949 |
) |
(1,830 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Free Cash Flow |
|
2,130 |
|
3,369 |
|
4,426 |
|
4,450 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Acquisitions |
|
(2,815 |
) |
(560 |
) |
(5,405 |
) |
(708 |
) | ||||
|
Divestitures |
|
(12 |
) |
61 |
|
35 |
|
81 |
| ||||
|
Dividends |
|
(1,340 |
) |
(1,278 |
) |
(2,590 |
) |
(2,366 |
) | ||||
|
Share Repurchase |
|
(836 |
) |
(1,138 |
) |
(1,775 |
) |
(2,303 |
) | ||||
|
Non-GF Debt |
|
(810 |
) |
30 |
|
5,061 |
|
391 |
| ||||
|
Other (includes GF Receivables, and GF Debt) |
|
(570 |
) |
(528 |
) |
2,670 |
|
739 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Change in Cash, Cash Equivalents and Short-term Marketable Securities |
|
$ |
(4,253 |
) |
$ |
(43 |
) |
$ |
2,421 |
|
$ |
284 |
|
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30 |
|
June 30 |
| ||||||||
|
(Dollars in Millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net Income from Operations |
|
$ |
2,504 |
|
$ |
3,449 |
|
$ |
4,518 |
|
$ |
5,777 |
|
|
Depreciation/Amortization of Intangibles |
|
1,103 |
|
961 |
|
2,127 |
|
1,930 |
| ||||
|
Stock-based Compensation |
|
128 |
|
131 |
|
261 |
|
257 |
| ||||
|
Working Capital / Other |
|
(626 |
) |
(302 |
) |
(531 |
) |
(1,721 |
) | ||||
|
Global Financing A/R |
|
334 |
|
(392 |
) |
2,713 |
|
1,214 |
| ||||
|
Loss on Microelectronics Business Disposal |
|
0 |
|
37 |
|
0 |
|
37 |
| ||||
|
Net Cash Provided by Operating Activities |
|
$ |
3,443 |
|
$ |
3,884 |
|
$ |
9,088 |
|
$ |
7,494 |
|
|
Capital Expenditures, net of payments & proceeds |
|
(979 |
) |
(906 |
) |
(1,949 |
) |
(1,830 |
) | ||||
|
Divestitures, net of cash transferred |
|
(12 |
) |
61 |
|
35 |
|
81 |
| ||||
|
Acquisitions, net of cash acquired |
|
(2,815 |
) |
(560 |
) |
(5,405 |
) |
(708 |
) | ||||
|
Marketable Securities / Other Investments, net |
|
(717 |
) |
(526 |
) |
769 |
|
1,086 |
| ||||
|
Net Cash Used in Investing Activities |
|
$ |
(4,522 |
) |
$ |
(1,931 |
) |
$ |
(6,550 |
) |
$ |
(1,371 |
) |
|
Debt, net of payments & proceeds |
|
(1,035 |
) |
(212 |
) |
3,929 |
|
(1,522 |
) | ||||
|
Dividends |
|
(1,340 |
) |
(1,278 |
) |
(2,590 |
) |
(2,366 |
) | ||||
|
Common Stock Repurchases |
|
(836 |
) |
(1,138 |
) |
(1,775 |
) |
(2,303 |
) | ||||
|
Common Stock Transactions - Other |
|
55 |
|
59 |
|
115 |
|
221 |
| ||||
|
Net Cash Used in Financing Activities |
|
$ |
(3,156 |
) |
$ |
(2,568 |
) |
$ |
(322 |
) |
$ |
(5,970 |
) |
|
Effect of Exchange Rate changes on Cash |
|
(103 |
) |
213 |
|
114 |
|
(236 |
) | ||||
|
Net Change in Cash & Cash Equivalents |
|
$ |
(4,338 |
) |
$ |
(402 |
) |
$ |
2,330 |
|
$ |
(83 |
) |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
|
|
|
SECOND - QUARTER 2016 |
| |||||||||||||
|
|
|
Cognitive Solutions & |
|
|
|
|
|
|
| |||||||
|
|
|
Industry Services |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
Technology |
|
|
|
|
| |||||
|
|
|
|
|
Global |
|
Services & |
|
|
|
|
| |||||
|
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
|
(Dollars in Millions) |
|
Solutions |
|
Services |
|
Platforms |
|
Systems |
|
Financing |
| |||||
|
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||
|
External |
|
$ |
4,675 |
|
$ |
4,255 |
|
$ |
8,857 |
|
$ |
1,950 |
|
$ |
424 |
|
|
Internal |
|
594 |
|
103 |
|
156 |
|
206 |
|
502 |
| |||||
|
Total Segment Revenue |
|
$ |
5,269 |
|
$ |
4,359 |
|
$ |
9,013 |
|
$ |
2,156 |
|
$ |
926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Pre-tax Income / (Loss) from Continuing Operations |
|
1,451 |
|
476 |
|
1,279 |
|
229 |
|
467 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Pre-tax margin |
|
27.5 |
% |
10.9 |
% |
14.2 |
% |
10.6 |
% |
50.5 |
% | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Change YTY Revenue - External |
|
3.5 |
% |
(2.0 |
)% |
(0.5 |
)% |
(23.2 |
)% |
(11.3 |
)% | |||||
|
Change YTY Revenue - External @constant currency |
|
3.8 |
% |
(2.5 |
)% |
0.0 |
% |
(23.3 |
)% |
(10.0 |
)% | |||||
|
|
|
SECOND - QUARTER 2015* |
| |||||||||||||
|
|
|
Cognitive Solutions & |
|
|
|
|
|
|
| |||||||
|
|
|
Industry Services |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
Technology |
|
|
|
|
| |||||
|
|
|
|
|
Global |
|
Services & |
|
|
|
|
| |||||
|
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
|
(Dollars in Millions) |
|
Solutions |
|
Services |
|
Platforms |
|
Systems |
|
Financing |
| |||||
|
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||
|
External |
|
$ |
4,516 |
|
$ |
4,345 |
|
$ |
8,898 |
|
$ |
2,541 |
|
$ |
478 |
|
|
Internal |
|
532 |
|
130 |
|
173 |
|
189 |
|
704 |
| |||||
|
Total Segment Revenue |
|
$ |
5,049 |
|
$ |
4,475 |
|
$ |
9,071 |
|
$ |
2,730 |
|
$ |
1,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Pre-tax Income / (Loss) from Continuing Operations |
|
1,825 |
|
643 |
|
1,414 |
|
538 |
|
613 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Pre-tax margin |
|
36.1 |
% |
14.4 |
% |
15.6 |
% |
19.7 |
% |
51.9 |
% | |||||
* Recast to conform with 2016 segment presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
|
|
|
SIX - MONTHS 2016 |
| |||||||||||||
|
|
|
Cognitive Solutions & |
|
|
|
|
|
|
| |||||||
|
|
|
Industry Services |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
Technology |
|
|
|
|
| |||||
|
|
|
|
|
Global |
|
Services & |
|
|
|
|
| |||||
|
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
|
(Dollars in Millions) |
|
Solutions |
|
Services |
|
Platforms |
|
Systems |
|
Financing |
| |||||
|
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||
|
External |
|
$ |
8,654 |
|
$ |
8,387 |
|
$ |
17,280 |
|
$ |
3,626 |
|
$ |
834 |
|
|
Internal |
|
1,262 |
|
216 |
|
321 |
|
418 |
|
988 |
| |||||
|
Total Segment Revenue |
|
$ |
9,916 |
|
$ |
8,603 |
|
$ |
17,602 |
|
$ |
4,044 |
|
$ |
1,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Pre-tax Income / (Loss) from Continuing Operations |
|
2,465 |
|
665 |
|
1,537 |
|
218 |
|
853 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Pre-tax margin |
|
24.9 |
% |
7.7 |
% |
8.7 |
% |
5.4 |
% |
46.8 |
% | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Change YTY Revenue - External |
|
1.1 |
% |
(3.2 |
)% |
(1.0 |
)% |
(22.6 |
)% |
(11.2 |
)% | |||||
|
Change YTY Revenue - External @constant currency |
|
2.2 |
% |
(2.4 |
)% |
0.9 |
% |
(22.1 |
)% |
(8.2 |
)% | |||||
|
|
|
SIX - MONTHS 2015* |
| |||||||||||||
|
|
|
Cognitive Solutions & |
|
|
|
|
|
|
| |||||||
|
|
|
Industry Services |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
Technology |
|
|
|
|
| |||||
|
|
|
|
|
Global |
|
Services & |
|
|
|
|
| |||||
|
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
|
(Dollars in Millions) |
|
Solutions |
|
Services |
|
Platforms |
|
Systems |
|
Financing |
| |||||
|
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||
|
External |
|
$ |
8,564 |
|
$ |
8,663 |
|
$ |
17,452 |
|
$ |
4,683 |
|
$ |
939 |
|
|
Internal |
|
1,167 |
|
261 |
|
339 |
|
362 |
|
1,290 |
| |||||
|
Total Segment Revenue |
|
$ |
9,731 |
|
$ |
8,923 |
|
$ |
17,791 |
|
$ |
5,044 |
|
$ |
2,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Pre-tax Income / (Loss) from Continuing Operations |
|
3,353 |
|
1,231 |
|
2,544 |
|
800 |
|
1,128 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Pre-tax margin |
|
34.5 |
% |
13.8 |
% |
14.3 |
% |
15.9 |
% |
50.6 |
% | |||||
* Recast to conform with 2016 segment presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
|
|
|
SECOND - QUARTER 2016 |
| ||||||||||
|
|
|
CONTINUING OPERATIONS |
| ||||||||||
|
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
|
Gross Profit |
|
$ |
9,702 |
|
$ |
129 |
|
$ |
81 |
|
$ |
9,912 |
|
|
Gross Profit Margin |
|
47.9 |
% |
0.6Pts |
|
0.4Pts |
|
49.0 |
% | ||||
|
S,G&A |
|
5,349 |
|
(159 |
) |
(75 |
) |
5,114 |
| ||||
|
R,D&E |
|
1,465 |
|
|
|
(7 |
) |
1,458 |
| ||||
|
Other (Income) & Expense |
|
37 |
|
|
|
|
|
37 |
| ||||
|
Total Expense & Other (Income) |
|
6,653 |
|
(159 |
) |
(83 |
) |
6,411 |
| ||||
|
Pre-tax Income from Continuing Operations |
|
3,049 |
|
289 |
|
163 |
|
3,501 |
| ||||
|
Pre-tax Income Margin from Continuing Operations |
|
15.1 |
% |
1.4Pts |
|
0.8Pts |
|
17.3 |
% | ||||
|
Provision for Income Taxes*** |
|
544 |
|
82 |
|
39 |
|
665 |
| ||||
|
Effective Tax Rate |
|
17.8 |
% |
0.9Pts |
|
0.3Pts |
|
19.0 |
% | ||||
|
Income from Continuing Operations |
|
2,505 |
|
207 |
|
124 |
|
2,835 |
| ||||
|
Income Margin from Continuing Operations |
|
12.4 |
% |
1.0Pts |
|
0.6Pts |
|
14.0 |
% | ||||
|
Diluted Earnings Per Share: Continuing Operations |
|
$ |
2.61 |
|
$ |
0.21 |
|
$ |
0.13 |
|
$ |
2.95 |
|
|
|
|
SECOND - QUARTER 2015 |
| ||||||||||
|
|
|
CONTINUING OPERATIONS |
| ||||||||||
|
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
|
Gross Profit |
|
$ |
10,390 |
|
$ |
88 |
|
$ |
112 |
|
$ |
10,590 |
|
|
Gross Profit Margin |
|
49.9 |
% |
0.4Pts |
|
0.5Pts |
|
50.9 |
% | ||||
|
S,G&A |
|
5,179 |
|
(74 |
) |
(63 |
) |
5,042 |
| ||||
|
R,D&E |
|
1,300 |
|
|
|
(11 |
) |
1,289 |
| ||||
|
Other (Income) & Expense |
|
(301 |
) |
(5 |
) |
|
|
(306 |
) | ||||
|
Total Expense & Other (Income) |
|
6,165 |
|
(80 |
) |
(74 |
) |
6,012 |
| ||||
|
Pre-tax Income from Continuing Operations |
|
4,224 |
|
168 |
|
186 |
|
4,578 |
| ||||
|
Pre-tax Income Margin from Continuing Operations |
|
20.3 |
% |
0.8Pts |
|
0.9Pts |
|
22.0 |
% | ||||
|
Provision for Income Taxes*** |
|
698 |
|
28 |
|
61 |
|
788 |
| ||||
|
Effective Tax Rate |
|
16.5 |
% |
0.0Pts |
|
0.7Pts |
|
17.2 |
% | ||||
|
Income from Continuing Operations |
|
3,526 |
|
140 |
|
124 |
|
3,790 |
| ||||
|
Income Margin from Continuing Operations |
|
16.9 |
% |
0.7Pts |
|
0.6Pts |
|
18.2 |
% | ||||
|
Diluted Earnings Per Share: Continuing Operations |
|
$ |
3.58 |
|
$ |
0.14 |
|
$ |
0.12 |
|
$ |
3.84 |
|
* Includes amortization of purchased intangible assets, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges.
** Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance.
*** Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
|
|
|
SIX - MONTHS 2016 |
| ||||||||||
|
|
|
CONTINUING OPERATIONS |
| ||||||||||
|
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
|
Gross Profit |
|
$ |
18,388 |
|
$ |
241 |
|
$ |
160 |
|
$ |
18,789 |
|
|
Gross Profit Margin |
|
47.2 |
% |
0.6Pts |
|
0.4Pts |
|
48.3 |
% | ||||
|
S,G&A |
|
11,361 |
|
(227 |
) |
(130 |
) |
11,004 |
| ||||
|
R,D&E |
|
2,923 |
|
|
|
(16 |
) |
2,907 |
| ||||
|
Other (Income) & Expense |
|
289 |
|
(6 |
) |
|
|
284 |
| ||||
|
Total Expense & Other (Income) |
|
14,306 |
|
(232 |
) |
(146 |
) |
13,928 |
| ||||
|
Pre-tax Income from Continuing Operations |
|
4,082 |
|
473 |
|
306 |
|
4,861 |
| ||||
|
Pre-tax Income Margin from Continuing Operations |
|
10.5 |
% |
1.2Pts |
|
0.8Pts |
|
12.5 |
% | ||||
|
Provision for / (Benefit) from Income Taxes*** |
|
(439 |
) |
129 |
|
66 |
|
(244 |
) | ||||
|
Effective Tax Rate |
|
(10.8 |
)% |
3.9Pts |
|
2.3Pts |
|
(5.0 |
)% | ||||
|
Income from Continuing Operations |
|
4,521 |
|
345 |
|
239 |
|
5,105 |
| ||||
|
Income Margin from Continuing Operations |
|
11.6 |
% |
0.9Pts |
|
0.6Pts |
|
13.1 |
% | ||||
|
Diluted Earnings Per Share: Continuing Operations |
|
$ |
4.69 |
|
$ |
0.36 |
|
$ |
0.25 |
|
$ |
5.30 |
|
|
|
|
SIX - MONTHS 2015 |
| ||||||||||
|
|
|
CONTINUING OPERATIONS |
| ||||||||||
|
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
|
Gross Profit |
|
$ |
19,842 |
|
$ |
179 |
|
$ |
233 |
|
$ |
20,253 |
|
|
Gross Profit Margin |
|
49.1 |
% |
0.4Pts |
|
0.6Pts |
|
50.1 |
% | ||||
|
S,G&A |
|
10,541 |
|
(154 |
) |
(371 |
) |
10,017 |
| ||||
|
R,D&E |
|
2,598 |
|
|
|
(24 |
) |
2,574 |
| ||||
|
Other (Income) & Expense |
|
(444 |
) |
(5 |
) |
|
|
(450 |
) | ||||
|
Total Expense & Other (Income) |
|
12,617 |
|
(159 |
) |
(395 |
) |
12,063 |
| ||||
|
Pre-Tax Income from Continuing Operations |
|
7,225 |
|
338 |
|
627 |
|
8,190 |
| ||||
|
Pre-tax Income Margin from Continuing Operations |
|
17.9 |
% |
0.8Pts |
|
1.6Pts |
|
20.3 |
% | ||||
|
Provision for Income Taxes*** |
|
1,283 |
|
56 |
|
170 |
|
1,510 |
| ||||
|
Effective Tax Rate |
|
17.8 |
% |
0.0Pts |
|
0.7Pts |
|
18.4 |
% | ||||
|
Income from Continuing Operations |
|
5,942 |
|
281 |
|
457 |
|
6,680 |
| ||||
|
Income Margin from Continuing Operations |
|
14.7 |
% |
0.7Pts |
|
1.1Pts |
|
16.5 |
% | ||||
|
Diluted Earnings Per Share: Continuing Operations |
|
$ |
6.01 |
|
$ |
0.28 |
|
$ |
0.46 |
|
$ |
6.75 |
|
* Includes amortization of purchased intangible assets, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges.
** Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance.
*** Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
INTERNATIONAL BUSINESS MACHINES CORPORATION
RECONCILIATION OF OPERATING EARNINGS PER SHARE
|
|
|
2016 |
| |
|
EPS Guidance |
|
Expectations |
| |
|
|
|
|
| |
|
IBM GAAP EPS |
|
at least $12.23 |
| |
|
IBM Operating EPS (non-GAAP) |
|
at least $13.50 |
| |
|
|
|
|
| |
|
Adjustments |
|
|
| |
|
Acquisition related charges * |
|
$ |
0.84 |
|
|
Non-Operating Retirement-Related Items |
|
$ |
0.43 |
|
* Includes acquisitions through June 30, 2016
Investors should focus on the company's strategic imperatives, which are its higher-growth cloud, mobile, security, and big data businesses,\. These segments collectively grew 12% last quarter, and now represent 38% of IBM’s total revenue. With continued growth, these businesses could eventually bring IBM back to sustained revenue growth.
$10B in cash with $45B in debt is hardly a strong balance sheet. The company has been riding the financial engineering train for a while now and with revenue falling quarter over quarter for over 16 consecutive quarters, investors should be very concerned.
IBM has a $2B debt repayment coming up in July 2016, which might explain why they did not execute on the share repurchase program. The company continues to borrow excessively and is poorly run and management needs to own up to the mistakes and direction they are taking this company.
This marked the 17th consecutive quarter with lower revenue for IBM. Management keep saying it will get better, but there won't be growth until their growing "new businesses" outpace the shrinkage of the "legacy businesses". Personally, I am getting really concerned about IBM's debt load.
The technicals are bullish with an increase in dividend since the mid 1990's. Cognitive solutions including cloud software seem to be the leader in IBM innovation. Global business, technology services, systems hardware, and global financing all produced a quarter that was nothing to write home about. I want you to take notice to the decrease in free cash flow, shares repurchased, total revenue, net income from operations, net cash provided by operating activities, and gross profit margin.
Q2 has brought upon itself an increase of net cash used in financing/investing activities as well as expenses and other incomes. With a 59% institutional and mutual fund ownership IBM share holders are in it for the long haul and really believe that this company can fit its head around all the debt incurred.