IBM Reports 2019 Second-Quarter Results

Growth in Software, Consulting and Cloud Revenue; Continued Margin Expansion

Highlights

Second Quarter:

GAAP EPS from continuing operations of $2.81
Operating (non-GAAP) EPS of $3.17
Revenue of $19.2 billion, down 4.2 percent (down 1.6 percent adjusting for currency)
Revenue growth in Cloud & Cognitive Software, and Global Business Services segments -- Cloud & Cognitive Software up 3.2 percent (up 5.4 percent adjusting for currency) -- Global Business Services up 0.5 percent (up 3.4 percent adjusting for currency)
Cloud revenue of $19.5 billion over the last 12 months, up 5 percent (up 8 percent adjusting for currency)
Gross profit margin up 100 basis points; largest year-to-year expansion in more than 5 years
Net cash from operating activities of $16.1 billion over the last 12 months; free cash flow of $12.7 billion over the last 12 months
Through the second quarter, on track to achieve full-year 2019 EPS and free cash flow expectations excluding impact of Red Hat acquisition

Full-Year Expectations Update:

Company to update full-year 2019 expectations, including the impact of Red Hat acquisition, on August 2
Continues to expect Red Hat, including related activity, to be accretive to free cash flow in the first year, and accretive to operating (non-GAAP) earnings per share by the end of the second year after closing, as previously stated

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

Margin

GAAP from Continuing Operations

2.81

2.5B

2.8B

14.4

47.0

Year/Year

0.6

Pts

1.0

Pts

Operating (Non-GAAP)

3.17

2.8B

3.2B

16.6

47.4

Year/Year

(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,

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

26.1

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

)

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

0.01

TOTAL

2.81

2.61

4.58

4.43

Basic

Continuing Operations

2.82

2.63

4.61

4.44

Discontinued Operations

0.00

0.01

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)

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,

(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,

(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

)

(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

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software

Services

Systems

Financing

Revenue

External

5,645

4,155

6,837

1,753

351

Internal

607

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

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

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software*

Services*

Systems

Financing

Revenue

External

5,470

4,135

7,325

2,177

394

Internal

811

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

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software

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

Cognitive

Business

Technology

Global

(Dollars in Millions)

Software*

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

Reform

Operating

GAAP

Adjustments*

Adjustments**

Impacts

(Non-GAAP)

Gross Profit

9,010

—

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

(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

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

Reform

Operating

GAAP

Adjustments*

Adjustments**

Impacts

(Non-GAAP)

Gross Profit

9,199

—

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

109

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

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

(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

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)

185

(93)

Effective Tax Rate

(4.3)

2.0

Pts

4.3

Pts

(1.8)

Pts

0.2

Income from Continuing Operations

4,078

324

611

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190717005773/en/

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

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

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