IBM Reports 2020 Second-Quarter Results

ARMONK, N.Y.–(BUSINESS WIRE)–IBM (NYSE: IBM) today announced second-quarter 2020 earnings results.

“Our clients see the value of IBM’s hybrid cloud platform, based on open technologies, at a time of unprecedented business disruption,” said Arvind Krishna, IBM chief executive officer. “We are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform that will serve as a powerful catalyst for innovation for our clients and the world.”

Highlights for the second quarter include:

• GAAP EPS from continuing operations of $1.52
• Operating (non-GAAP) EPS of $2.18
• Revenue of $18.1 billion, down 5.4 percent (down 1.9 percent adjusting for divested businesses and currency)
  — Cloud & Cognitive Software revenue up 3 percent (up 5 percent adjusting for currency)
  — Systems revenue up 6 percent
• Total cloud revenue of $6.3 billion, up 30 percent (up 34 percent adjusting for divested businesses and currency)
  — Total cloud revenue of $23.5 billion over the last 12 months, up 20 percent (up 23 percent adjusting for divested businesses and currency)
• Red Hat revenue up 17 percent (up 18 percent adjusting for currency), normalized for historical comparability
• GAAP gross profit margin of 48 percent, up 100 basis points; Operating (non-GAAP) gross profit margin of 49 percent up 160 basis points
• Net cash from operating activities of $15.1 billion and free cash flow of $11.5 billion, over the last 12 months

		SECOND QUARTER 2020
		Results Reflect the Impact of Items Related to
		the Red Hat Acquisition Closed in July 2019
											Pre-tax		Gross
		Diluted			Net			Pre-tax			Income		Profit
		EPS			Income			Income			Margin		Margin
GAAP from Continuing Operations		$	1.52		$	1.4B		$	1.6B		8.7	%	48.0	%
Year/Year			(46)	%		(46)	%		(43)	%	(5.8)	Pts	1.0	Pts
Operating (Non-GAAP)		$	2.18		$	1.9B		$	2.3B		12.8	%	49.0	%
Year/Year			(31)	%		(31)	%		(27)	%	(3.8)	Pts	1.6	Pts

“Our prudent financial management in these turbulent times enabled us to expand our gross profit margin, generate strong free cash flow and improve our liquidity position,” said James Kavanaugh, IBM senior vice president and chief financial officer. “We have the financial flexibility to continue to invest in our business and return value to our shareholders through our dividend policy.”

Cash Flow and Balance Sheet

In the second quarter, the company generated net cash from operating activities of $3.6 billion, or $3.0 billion excluding Global Financing receivables. IBM’s free cash flow was $2.3 billion. The company returned $1.5 billion to shareholders in dividends.

IBM ended the second quarter with $14.3 billion of cash on hand which includes marketable securities, up $5.2 billion from year-end 2019. Debt, including Global Financing debt of $21.9 billion, totaled $64.7 billion.

Segment Results for Second Quarter

Segment results reflect growing adoption of IBM’s hybrid cloud platform while clients continue to shift priorities to preserve cash and maintain operational stability.

• Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat, Cognitive Applications and Transaction Processing Platforms) — revenues of $5.7 billion, up 3 percent (up 5 percent adjusting for currency), with growth in Cloud & Data Platforms, up 29 percent (up 30 percent adjusting for currency) led by Red Hat. Cognitive Applications and Transaction Processing Platforms declined. Cloud revenue more than doubled.
• Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $3.9 billion, down 7 percent (down 6 percent adjusting for currency), driven by declines in Application Management and Consulting. Cloud revenue up 12 percent (up 13 percent adjusting for currency). Gross profit margin up 240 basis points.
• Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.3 billion, down 8 percent (down 5 percent adjusting for currency). Cloud revenue up 18 percent (up 20 percent adjusting for currency).
• Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.9 billion, up 6 percent, led by IBM Z, up 69 percent (up 68 percent adjusting for currency). Storage Systems revenue up 2 percent (up 3 percent adjusting for currency); Power declined. Cloud revenue up 22 percent. Gross profit margin up 430 basis points.
• Global Financing (includes financing and used equipment sales) — revenues of $265 million, down 25 percent (down 23 percent adjusting for currency), reflecting the wind-down of OEM commercial financing. Gross profit margin up 360 basis points.

Year-To-Date 2020 Results

Consolidated diluted earnings per share was $2.83 compared to $4.58, down 38 percent year to year. Consolidated net income was $2.5 billion, down 38 percent year to year. Revenues for the six-month period ended June 30, 2020 totaled $35.7 billion, a decrease of 4 percent year to year (down 1 percent adjusting for divested businesses and currency) compared with $37.3 billion for the first six months of 2019.

Operating (non-GAAP) diluted earnings per share from continuing operations was $4.02 compared with $5.42 per diluted share for the 2019 period, a decrease of 26 percent. Operating (non-GAAP) net income for the six months ended June 30, 2020 was $3.6 billion compared with $4.8 billion in the prior-year period, a decrease of 26 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, health and other conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; 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; 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 —

• adjusting for currency (i.e., at constant currency);
• total revenue and cloud revenue adjusting for divested businesses and currency;
• Red Hat revenue normalized for historical comparability;
• presenting operating (non-GAAP) earnings per share amounts and related income statement items;
• adjusting for free cash flow;
• net cash from operating activities, excluding Global 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/ibm-2q-2020-earnings-announcement. 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,
		2020			2019					2020			2019
REVENUE
Cloud & Cognitive Software		$	5,748		$	5,563	*			$	10,987		$	10,530	*
Global Business Services			3,890			4,197	*				8,027			8,353	*
Global Technology Services			6,316			6,837					12,783			13,711
Systems			1,852			1,753					3,220			3,081
Global Financing			265			351					564			757
Other			50			460	*				113			911	*
TOTAL REVENUE			18,123			19,161					35,694			37,342
GROSS PROFIT			8,700			9,010					16,622			17,053
GROSS PROFIT MARGIN
Cloud & Cognitive Software			77.1	%		77.7	%	*			76.3	%		76.7	%	*
Global Business Services			28.4	%		26.0	%	*			27.8	%		26.1	%	*
Global Technology Services			34.2	%		34.4	%				34.1	%		34.1	%
Systems			57.8	%		53.5	%				54.6	%		50.3	%
Global Financing			38.6	%		35.0	%				39.7	%		34.9	%
TOTAL GROSS PROFIT MARGIN			48.0	%		47.0	%				46.6	%		45.7	%
EXPENSE AND OTHER INCOME
S,G&A			5,248			5,456					11,203			10,147
R,D&E			1,582			1,407					3,207			2,840
Intellectual property and custom development income			(203)			(222)					(319)			(323)
Other (income) and expense			179			(747)					361			(820)
Interest expense			323			348					649			558
TOTAL EXPENSE AND OTHER INCOME			7,129			6,242					15,101			12,402
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES			1,571			2,768					1,522			4,651
Pre-tax margin			8.7	%		14.4	%				4.3	%		12.5	%
Provision for / (Benefit from) income taxes			209			269					(1,017)			558
Effective tax rate			13.3	%		9.7	%				(66.8)	%		12.0	%
INCOME FROM CONTINUING OPERATIONS		$	1,362		$	2,499				$	2,538		$	4,093
DISCONTINUED OPERATIONS
Income / (Loss) from discontinued operations, net of taxes			(1)			(1)					(2)			(4)
NET INCOME		$	1,361		$	2,498				$	2,536		$	4,089
EARNINGS / (LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations		$	1.52		$	2.81				$	2.83		$	4.58
Discontinued Operations		$	0.00		$	0.00				$	0.00		$	0.00
TOTAL		$	1.52		$	2.81				$	2.83		$	4.58
Basic
Continuing Operations		$	1.53		$	2.82				$	2.85		$	4.61
Discontinued Operations		$	0.00		$	0.00				$	0.00		$	0.00
TOTAL		$	1.53		$	2.82				$	2.85		$	4.61
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution			894.9			890.8					895.0			892.4
Basic			889.4			886.3					888.7			887.9

______________________________ * Recast to conform with 2020 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
		At			At
		June 30,			December 31,
(Dollars in Millions)		2020			2019
ASSETS:
Current Assets:
Cash and cash equivalents		$	12,041		$	8,172
Restricted cash			147			141
Marketable securities			2,063			696
Notes and accounts receivable – trade, net			6,543			7,870
Short-term financing receivables, net			11,967			14,192
Other accounts receivable, net			937			1,733
Inventories			1,869			1,619
Deferred costs			2,127			1,896
Prepaid expenses and other current assets			2,260			2,101
Total Current Assets			39,953			38,420
Property, plant and equipment, net			9,709			10,010
Operating right-of-use assets, net			4,774			4,996
Long-term financing receivables, net			7,351			8,712
Prepaid pension assets			7,254			6,865
Deferred costs			2,445			2,472
Deferred taxes			8,689			5,182
Goodwill			57,833			58,222
Intangibles, net			14,270			15,235
Investments and sundry assets			1,921			2,074
Total Assets		$	154,200		$	152,186
LIABILITIES:
Current Liabilities:
Taxes		$	2,627		$	2,839
Short-term debt			9,289			8,797
Accounts payable			4,719			4,896
Deferred income			12,469			12,026
Operating lease liabilities			1,343			1,380
Other liabilities			7,995			7,763
Total Current Liabilities			38,442			37,701
Long-term debt			55,449			54,102
Retirement related obligations			16,483			17,142
Deferred income			3,787			3,851
Operating lease liabilities			3,684			3,879
Other liabilities			15,666			14,526
Total Liabilities			133,512			131,202
EQUITY:
IBM Stockholders’ Equity:
Common stock			56,135			55,895
Retained earnings			162,559			162,954
Treasury stock — at cost			(169,386)			(169,413)
Accumulated other comprehensive income/(loss)			(28,757)			(28,597)
Total IBM Stockholders’ Equity			20,551			20,841
Noncontrolling interests			137			144
Total Equity			20,688			20,985
Total Liabilities and Equity		$	154,200		$	152,186

INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited)
		Three Months Ended						Six Months Ended						Trailing Twelve Months
		June 30,						June 30,						Ended June 30,
(Dollars in Millions)		2020			2019			2020			2019			2020
Net Cash Provided by Operating Activities per GAAP:		$	3,576		$	2,941		$	8,052		$	7,700		$	15,122
Less: change in Global Financing (GF) Receivables			589			119			2,971			2,577			885
Capital Expenditures, Net			(697)			(431)			(1,434)			(1,045)			(2,759)
Free Cash Flow			2,290			2,391			3,647			4,078			11,477
Acquisitions			(6)			(42)			(19)			(43)			(32,607)
Divestitures			731			855			757			888			945
Dividends			(1,450)			(1,435)			(2,890)			(2,833)			(5,764)
Share Repurchase			—			(316)			—			(1,236)			(126)
Non-GF Debt			455			27,509			3,958			33,399			(6,649)
Other (includes GF Net Receivables and GF Debt)			213			(698)			(213)			(68)			564
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities		$	2,233		$	28,264		$	5,241		$	34,186		$	(32,158)

INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited)
		Three Months Ended						Six Months Ended
		June 30,						June 30,
(Dollars in Millions)		2020			2019			2020			2019
Net Income from Operations		$	1,361		$	2,498		$	2,536		$	4,089
Depreciation/Amortization of Intangibles			1,678			1,294			3,313			2,740
Stock-based Compensation			247			135			436			248
Working Capital / Other			(300)			(1,106)			(1,204)			(1,954)
Global Financing A/R			589			119			2,971			2,577
Net Cash Provided by Operating Activities		$	3,576		$	2,941		$	8,052		$	7,700
Capital Expenditures, net of payments & proceeds			(697)			(431)			(1,434)			(1,045)
Divestitures, net of cash transferred			731			855			757			888
Acquisitions, net of cash acquired			(6)			(42)			(19)			(43)
Marketable Securities / Other Investments, net			(1,264)			3,779			(1,442)			3,509
Net Cash Provided by / (Used in) Investing Activities		$	(1,236)		$	4,162		$	(2,138)		$	3,309
Debt, net of payments & proceeds			(38)			22,841			1,319			27,073
Dividends			(1,450)			(1,435)			(2,890)			(2,833)
Common Stock Repurchases			—			(316)			—			(1,236)
Common Stock Transactions – Other			(137)			(59)			(168)			(111)
Net Cash Provided by / (Used in) Financing Activities		$	(1,624)		$	21,031		$	(1,739)		$	22,894
Effect of Exchange Rate changes on Cash			101			129			(301)			27
Net Change in Cash, Cash Equivalents and Restricted Cash		$	817		$	28,263		$	3,874		$	33,930

INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)
		Three Months Ended June 30, 2020
		Cloud &			Global			Global
		Cognitive			Business			Technology						Global
(Dollars in Millions)		Software			Services			Services			Systems			Financing
Revenue
External		$	5,748		$	3,890		$	6,316		$	1,852		$	265
Internal			743			55			304			240			241
Total Segment Revenue		$	6,491		$	3,945		$	6,621		$	2,092		$	506
Pre-tax Income / (Loss) from Continuing Operations			1,708			362			250			248			176
Pre-tax Margin			26.3	%		9.2	%		3.8	%		11.8	%		34.9	%
Change YTY Revenue – External			3.3	%		(7.3)	%		(7.6)	%		5.7	%		(24.5)	%
Change YTY Revenue – External @constant currency			4.6	%		(6.0)	%		(5.4)	%		6.3	%		(22.7)	%

		Three Months Ended June 30, 2019
		Cloud &			Global			Global
		Cognitive			Business			Technology						Global
(Dollars in Millions)		Software*			Services*			Services			Systems			Financing
Revenue
External		$	5,563		$	4,197		$	6,837		$	1,753		$	351
Internal			607			69			302			171			281
Total Segment Revenue		$	6,170		$	4,266		$	7,139		$	1,924		$	632
Pre-tax Income / (Loss) from Continuing Operations			2,007			290			235			61			239
Pre-tax Margin			32.5	%		6.8	%		3.3	%		3.2	%		37.8	%

______________________________ * Recast to conform with 2020 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)
		Six Months Ended June 30, 2020
		Cloud &			Global			Global
		Cognitive			Business			Technology						Global
(Dollars in Millions)		Software			Services			Services			Systems			Financing
Revenue
External		$	10,987		$	8,027		$	12,783		$	3,220		$	564
Internal			1,556			101			599			388			453
Total Segment Revenue		$	12,543		$	8,128		$	13,382		$	3,608		$	1,017
Pre-tax Income / (Loss) from Continuing Operations			2,641			633			72			31			370
Pre-tax Margin			21.1	%		7.8	%		0.5	%		0.9	%		36.4	%
Change YTY Revenue – External			4.3	%		(3.9)	%		(6.8)	%		4.5	%		(25.4)	%
Change YTY Revenue – External @constant currency			5.6	%		(2.6)	%		(4.7)	%		5.4	%		(23.9)	%

		Six Months Ended June 30, 2019
		Cloud &			Global			Global
		Cognitive			Business			Technology						Global
(Dollars in Millions)		Software*			Services*			Services			Systems			Financing
Revenue
External		$	10,530		$	8,353		$	13,711		$	3,081		$	757
Internal			1,448			143			591			334			581
Total Segment Revenue		$	11,978		$	8,495		$	14,303		$	3,415		$	1,338
Pre-tax Income / (Loss) from Continuing Operations			3,792			587			510			(141)			527
Pre-tax Margin			31.7	%		6.9	%		3.6	%		(4.1)	%		39.4	%

______________________________ * Recast to conform with 2020 presentation.

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, 2020
		Continuing Operations
					Acquisition-			Retirement-			Tax
					Related			Related			Reform			Operating
		GAAP			Adjustments*			Adjustments**			Impacts			(Non-GAAP)
Gross Profit		$	8,700		$	187		$	—		$	—		$	8,887
Gross Profit Margin			48.0	%		1.0	Pts		—			—			49.0	%
S,G&A			5,248			(285)			—			—			4,962
R,D&E			1,582			—			—			—			1,582
Other (Income) & Expense			179			(1)			(273)			—			(95)
Interest Expense			323			—			—			—			323
Total Expense & Other (Income)			7,129			(286)			(273)			—			6,570
Pre-tax Income from Continuing Operations			1,571			473			273			—			2,318
Pre-tax Income Margin from Continuing Operations			8.7	%		2.6	Pts		1.5	Pts		—			12.8	%
Provision for / (Benefit from) Income Taxes***			209			108			52			—			369
Effective Tax Rate			13.3	%		1.9	Pts		0.7	Pts		—			15.9	%
Income from Continuing Operations			1,362			365			222			—			1,949
Income Margin from Continuing Operations			7.5	%		2.0	Pts		1.2	Pts		—			10.8	%
Diluted Earnings / (Loss) Per Share: Continuing Operations		$	1.52		$	0.41		$	0.25		$	—		$	2.18

		Three Months Ended June 30, 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 / (Benefit from) 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

______________________________
*	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 Ended June 30, 2020
		Continuing Operations
					Acquisition-			Retirement-			Tax
					Related			Related			Reform			Operating
		GAAP			Adjustments*			Adjustments**			Impacts			(Non-GAAP)
Gross Profit		$	16,622		$	375		$	—		$	—		$	16,998
Gross Profit Margin			46.6	%		1.1	Pts		—			—			47.6	%
S,G&A			11,203			(570)			—			—			10,633
R,D&E			3,207			—			—			—			3,207
Other (Income) & Expense			361			(1)			(538)			—			(178)
Interest Expense			649			—			—			—			649
Total Expense & Other (Income)			15,101			(571)			(538)			—			13,992
Pre-tax Income from Continuing Operations			1,522			946			538			—			3,006
Pre-tax Income Margin from Continuing Operations			4.3	%		2.7	Pts		1.5	Pts		—			8.4	%
Provision for / (Benefit from) Income Taxes***			(1,017)			210			65			149			(592)
Effective Tax Rate			(66.8)	%		28.0	Pts		14.1	Pts		5.0	Pts		(19.7)	%
Income from Continuing Operations			2,538			736			472			(149)			3,598
Income Margin from Continuing Operations			7.1	%		2.1	Pts		1.3	Pts		(0.4)	Pts		10.1	%
Diluted Earnings / (Loss) Per Share: Continuing Operations		$	2.83		$	0.83		$	0.53		$	(0.17)		$	4.02

		Six Months Ended June 30, 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

______________________________
*	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)
												Trailing
		Three Months Ended							Six Months Ended			Twelve Months Ended
		June 30, 2020							June 30, 2020			June 30, 2020
		Change YTY							Change YTY			Change YTY
Revenue Adjusting for Divested Businesses and Currency		Cloud			Total IBM				Total IBM			Cloud
Revenue as reported			30.1	%		(5.4)	%			(4.4)	%		20.2	%
Impact from divested businesses			2.4	Pts		2.0	Pts			2.0	Pts		1.8	Pts
Currency impact			1.8	Pts		1.6	Pts			1.6	Pts		1.3	Pts
Revenue adjusting for divested businesses and currency (non-GAAP)			34.3	%		(1.9)	%			(0.9)	%		23.4	%

		Three Months Ended						Change
Red Hat Revenue, Normalized for Historical Comparability		June 30, 2020			June 30, 2019			YTY		YTY @constant currency
Red Hat revenue as reported in IBM consolidated results (1)		$	867		$	—
Add: Red Hat revenue prior to acquisition (2)			—			936
Add: Purchase accounting deferred revenue and intercompany adjustments (3)			227			—
Red Hat revenue, normalized for historical comparability (non-GAAP)		$	1,094		$	936		17	%	18	%

(1) Represents GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
(2) Revenue for the three months ended June 30, 2019 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes.
(3) Represents the second-quarter 2020 impact of the deferred revenue purchase accounting adjustment and adjustments to add back revenue which was eliminated for sales between Red Hat and IBM. This line represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting and intercompany adjustments.

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July 21, 2020 at 09:09AM

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