TIDMIBM
IBM (NYSE:IBM) today announced first-quarter 2016 earnings
results.
"We are pleased with the progress we have made helping our
clients apply new cognitive solutions and hybrid cloud platforms,"
said Ginni Rometty, IBM chairman, president and chief executive
officer. "IBM has established itself as the industry leader in
total cloud, analytics and cognitive, all of which helped drive our
strategic imperatives revenue growth at a strong double-digit rate,
substantially faster than the market."
FIRST - QUARTER 2016
Gross Profit
Diluted EPS Net Income Margin
Operating (Non-GAAP) $2.35 $2.3B 47.5%
Year/Year -19% -21% -1.8Pts
GAAP from Continuing $2.09 $2.0B 46.5%
Operations
Year/Year -14% -17% -1.8Pts
Strategic
REVENUE Total IBM Imperatives Cloud
As reported (US$) $18.7B $7.0B $2.6B
Year/Year -5% 14% 34%
Year/Year adjusting -2% 17% 36%
for currency
"In the first quarter, we invested $3.6 billion in acquisitions
and capital expenditures, and returned $2.2 billion to shareholders
through dividends and gross share repurchases," said Martin
Schroeter, IBM senior vice president and chief financial officer.
"We will continue to invest as we transform our operations,
expanding our industry expertise and our cognitive and cloud
capabilities."
Strategic Imperatives
First-quarter revenues from the company's strategic imperatives
--- cloud, analytics and engagement --- increased 14 percent year
to year (up 17 percent adjusting for currency). Total cloud
revenues (public, private and hybrid) for the quarter increased 34
percent (up 36 percent adjusting for currency). Cloud revenue over
the trailing 12 months was $10.8 billion. The annual exit run rate
for cloud delivered as a service -- a subset of the total cloud
revenue -- increased to $5.4 billion from $3.8 billion in the first
quarter of 2015. Revenues from analytics increased 7 percent (up 9
percent adjusting for currency). Revenues from mobile increased 88
percent (up 93 percent adjusting for currency) and from security
increased 18 percent (up 20 percent adjusting for currency).
Full-Year 2016 Expectations
IBM continues to expect full-year 2016 operating (non-GAAP)
diluted earnings per share of at least $13.50. The company expects
GAAP diluted earnings per share of at least $12.35. The 2016
operating (non-GAAP) earnings expectation excludes $1.15 per share
of charges for amortization of purchased intangible assets, other
acquisition-related charges and retirement-related charges.
IBM had previously expected a free cash flow realization of GAAP
net income which implied a full-year free cash flow range of $11
billion to $12 billion. The company now expects free cash flow to
be at the high end of that range at the same base level of
operating (non-GAAP) EPS.
Pre-Tax Income and Tax Rate
The decrease in the company's pre-tax income was primarily the
result of increased expenses for workforce transformation, real
estate actions, and actions in Latin America, which totaled nearly
$1.5 billion.
IBM's tax rate for the first quarter includes a $1.0 billion
refund of previously paid non-U.S. taxes, plus interest, for a
total benefit of $1.2 billion. This is the result of a
long-standing tax matter which was resolved in the company's favor
in February and was disclosed in the 2015 IBM Annual Report. The
impact of the tax refund on the company's first-quarter net income
was largely equivalent on an after-tax basis to the expenses for
workforce transformation, real estate actions, and actions in Latin
America.
Cash Flow and Balance Sheet
The company generated free cash flow of $2.3 billion in the
first quarter, excluding Global Financing receivables, up $1.2
billion year to year. IBM returned $1.2 billion in dividends and
$0.9 billion of gross share repurchases to shareholders. At the end
of March 2016, IBM had $4.7 billion remaining in the current share
repurchase authorization.
IBM ended the first-quarter 2016 with $14.9 billion of cash on
hand, an increase of $6.7 billion since year-end 2015. Debt,
including Global Financing debt of $26.8 billion, totaled $45.6
billion, compared with $39.9 billion at year-end 2015. Core
(non-global financing) debt totaled $18.8 billion, an increase of
$6.1 billion since year-end 2015. The balance sheet remains strong
and is well positioned to support the business over the long
term.
Segment Results
As announced in February during the company's Investor Briefing,
IBM has revised its financial reporting structure to reflect the
transformation of the business and provide investors with increased
visibility into the company's operating model by disclosing
additional information on its strategic imperatives revenue by
segment. Beginning with the first-quarter 2016, IBM's business
segments and results are:
-- Cognitive Solutions (includes solutions software and transaction
processing software) -- revenues of $4.0 billion, down 1.7
percent, up 0.4 percent adjusting for currency. Solutions
software
grew, led by security and analytics solutions, including strong
growth
in the Watson businesses.
-- Global Business Services (includes consulting, global process
services, application management) -- revenues of $4.1
billion,
down 4.3 percent, down 2.3 percent adjusting for currency.
Strategic
imperatives revenue within the segment was up 19 percent (up
22
percent adjusting for currency) and generated nearly one-half
of
segment revenue.
-- Technology Services and Cloud Platforms (includes
infrastructure services, technical support services,
integration
software) -- revenues of $8.4 billion, down 1.5 percent, up
1.9
percent adjusting for currency. Growth of 41 percent (45
percent
adjusting for currency) in strategic imperatives revenue within
the
segment was driven by hybrid cloud infrastructure
engagements.
-- Systems (includes systems hardware and operating systems software)
-- revenues of $1.7 billion, down 21.8 percent, down 20.6
percent
adjusting for currency. Revenue reflects z Systems product
cycle
dynamics; segment gross profit margins increased.
-- Global Financing (includes financing and used equipment sales) --
revenues of $410 million, down 11.2 percent, down 6.4
percent
adjusting for currency.
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 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; 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 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 company's 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 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. 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;
-- adjusting for currency (i.e., at constant currency).
The rationale for management's use of non-GAAP measures is
included as part of the supplemental materials presented within the
first-quarter earnings materials. These materials are available via
a link on the IBM investor relations Web site at
www.ibm.com/investor and are being included in Attachment II
("Non-GAAP Supplemental Materials") to the Form 8-K that includes
this press release and is being submitted today to the SEC.
Conference Call and Webcast
(MORE TO FOLLOW) Dow Jones Newswires
April 19, 2016 02:00 ET (06:00 GMT)
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/1q16.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
March 31,
2016 2015*
REVENUE
Cognitive Solutions $ 3,979 $ 4,047
Global Business Services 4,131 4,318
Technology Services & Cloud Platforms 8,424 8,554
Systems 1,675 2,142
Global Financing 410 461
Other 66 67
TOTAL REVENUE 18,684 19,590
GROSS PROFIT 8,686 9,452
GROSS PROFIT MARGIN
Cognitive Solutions 82.0 % 84.5 %
Global Business Services 25.8 % 27.4 %
Technology Services & Cloud Platforms 40.9 % 42.1 %
Systems 57.2 % 54.8 %
Global Financing 42.4 % 49.6 %
TOTAL GROSS PROFIT MARGIN 46.5 % 48.2 %
EXPENSE AND OTHER INCOME
S,G&A 6,012 5,362
R,D&E 1,458 1,298
Intellectual property and
custom development income (217 ) (173 )
Other (income) and expense 253 (143 )
Interest expense 147 108
TOTAL EXPENSE AND OTHER INCOME 7,652 6,451
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,034 3,001
Pre-tax margin 5.5 % 15.3 %
Provision for / (Benefit) from income taxes (983 ) 585
Effective tax rate (95.1 )% 19.5 %
INCOME FROM CONTINUING OPERATIONS $ 2,016 $ 2,415
DISCONTINUED OPERATIONS
Loss from discontinued operations, (3 ) (88 )
net of taxes
NET INCOME $ 2,014 $ 2,328
EARNINGS PER SHARE OF COMMON STOCK:
Assuming Dilution
Continuing Operations $ 2.09 $ 2.44
Discontinued Operations $ 0.00 ($0.09 )
TOTAL $ 2.09 $ 2.35
Basic
Continuing Operations $ 2.09 $ 2.45
Discontinued Operations $ 0.00 ($0.09 )
TOTAL $ 2.09 $ 2.36
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (M's):
Assuming Dilution 964.4 992.3
Basic 961.7 988.1
*Reclassified to conform
with 2016 presentation.
INTERNATIONAL BUSINESS
MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
At At
(Dollars in Millions) March 31, December 31,
2016 2015
ASSETS:
Current Assets:
Cash and cash equivalents $ 14,354 $ 7,686
Marketable securities 515 508
Notes and accounts receivable 8,527 8,333
- trade, net
Short-term financing receivables, net 16,646 19,020
Other accounts receivable, net 1,557 1,201
Inventory 1,690 1,551
Prepaid expenses and 4,334 4,205
other current assets
Total Current Assets 47,623 42,504
Property, plant and equipment, net 10,910 10,727
Long-term financing receivables, net 9,266 10,013
Prepaid pension assets 2,332 1,734
Deferred taxes 4,809 4,822
Goodwill and intangibles, net 38,695 35,508
Investments and sundry assets 5,223 5,187
Total Assets $ 118,856 $ 110,495
LIABILITIES:
Current Liabilities:
Taxes $ 2,203 $ 2,847
Short-term debt 5,303 6,461
Accounts payable 5,302 6,028
Deferred income 12,609 11,021
Other liabilities 9,248 7,913
Total Current Liabilities 34,664 34,269
Long-term debt 40,254 33,428
Retirement related obligations 16,939 16,504
Deferred income 3,662 3,771
Other liabilities 8,264 8,099
Total Liabilities 103,784 96,071
EQUITY:
IBM Stockholders' Equity:
Common stock 53,439 53,262
Retained earnings 146,888 146,124
Treasury stock -- at cost (156,404 ) (155,518 )
Accumulated other comprehensive (28,998 ) (29,607 )
income/(loss)
Total IBM stockholders' equity 14,925 14,262
Noncontrolling interests 147 162
Total Equity 15,072 14,424
Total Liabilities and Equity $ 118,856 $ 110,495
INTERNATIONAL BUSINESS
MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
Three Months Ended
(Dollars in Millions) March 31
2016 2015
Net Cash from Operating $ 5,645 $ 3,610
Activities per GAAP:
Less: the change in Global
Financing (GF)
Receivables 2,378 1,605
Net Cash from Operating Activities
(Excluding GF Receivables) 3,266 2,004
Capital Expenditures, Net (971 ) (923 )
Free Cash Flow
(Excluding GF Receivables) 2,295 1,081
Acquisitions (2,590 ) (148 )
Divestitures 47 19
Dividends (1,250 ) (1,088 )
Share Repurchase (939 ) (1,165 )
Non-GF Debt 5,871 361
Other (includes GF Receivables, 3,239 1,266
and GF Debt)
Change in Cash, Cash Equivalents and
Short-term Marketable Securities $ 6,674 $ 327
INTERNATIONAL
BUSINESS
MACHINES
CORPORATION
SEGMENT
DATA
(Unaudited)
FIRST - QUARTER 2016
Cognitive Solutions &
Industry Services
Technology
Global Services &
(Dollars Cognitive Business Cloud Global
in
Millions)
Solutions Services Platforms Systems Financing
Revenue
External $ 3,979 $ 4,131 $ 8,424 $ 1,675 $ 410
Internal 668 113 165 212 486
Total $ 4,647 $ 4,245 $ 8,589 $ 1,888 $ 896
Segment
Revenue
Pre-tax 1,013 190 258 (10 ) 386
Income
/ (Loss)
from
Continuing
Operations
Pre-tax 21.8 % 4.5 % 3.0 % (0.5 )% 43.1 %
margin
Change (1.7 )% (4.3 )% (1.5 )% (21.8 )% (11.2 )%
YTY
Revenue
-
External
Change 0.4 % (2.3 )% 1.9 % (20.6 )% (6.4 )%
YTY
Revenue
-
External
@constant
currency
FIRST - QUARTER 2015*
Cognitive Solutions &
Industry Services
Technology
Global Services &
(Dollars Cognitive Business Cloud Global
in
Millions)
Solutions Services Platforms Systems Financing
Revenue
External $ 4,047 $ 4,318 $ 8,554 $ 2,142 $ 461
Internal 635 131 166 173 586
Total $ 4,682 $ 4,449 $ 8,720 $ 2,314 $ 1,048
Segment
Revenue
Pre-tax 1,528 588 1,131 261 515
Income
/ (Loss)
from
Continuing
Operations
Pre-tax 32.6 % 13.2 % 13.0 % 11.3 % 49.2 %
margin
*
Reclassified
to
conform
with
2016
presentation.
INTERNATIONAL
BUSINESS
MACHINES
CORPORATION
U.S. GAAP TO
OPERATING
RESULTS
RECONCILIATION
(Unaudited;
Dollars
in millions
except per
share
amounts)
FIRST - QUARTER 2016
(MORE TO FOLLOW) Dow Jones Newswires
April 19, 2016 02:00 ET (06:00 GMT)
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 8,686 $ 112 $ 79 $ 8,877
Gross Profit 46.5 % 0.6Pts 0.4Pts 47.5 %
Margin
S,G&A 6,012 (67 ) (55 ) 5,890
R,D&E 1,458 - - (9 ) 1,449
Other 253 (6 ) - - 247
(Income)
& Expense
Total Expense 7,652 (73 ) (63 ) 7,516
&
Other
(Income)
Pre-tax 1,034 185 142 1,361
Income
from
Continuing
Operations
Pre-tax 5.5 % 1.0Pts 0.8Pts 7.3 %
Income
Margin from
Continuing
Operations
Provision for (983 ) 47 27 (909 )
/ (Benefit)
from Income
Taxes***
Effective (95.1 )% 18.2Pts 13.8Pts (66.8 )%
Tax Rate
Income from 2,016 138 115 2,270
Continuing
Operations
Income Margin 10.8 % 0.7Pts 0.6Pts 12.1 %
from
Continuing
Operations
Diluted $ 2.09 $ 0.14 $ 0.12 $ 2.35
Earnings
Per Share:
Continuing
Operations
FIRST - QUARTER 2015
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 9,452 $ 91 $ 121 $ 9,664
Gross Profit 48.2 % 0.5Pts 0.6Pts 49.3 %
Margin
S,G&A 5,362 (79 ) (308 ) 4,975
R,D&E 1,298 - - (13 ) 1,285
Other (143 ) 0 - - (143 )
(Income)
& Expense
Total Expense 6,451 (79 ) (321 ) 6,051
&
Other
(Income)
Pre-tax 3,001 170 442 3,612
Income
from
Continuing
Operations
Pre-tax 15.3 % 0.9Pts 2.3Pts 18.4 %
Income
Margin from
Continuing
Operations
Provision for 585 28 109 722
Income
Taxes***
Effective 19.5 % -0.2Pts 0.7Pts 20.0 %
Tax Rate
Income from 2,415 142 333 2,890
Continuing
Operations
Income Margin 12.3 % 0.7Pts 1.7Pts 14.8 %
from
Continuing
Operations
Diluted $ 2.44 $ 0.14 $ 0.33 $ 2.91
Earnings
Per Share:
Continuing
Operations
*
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.
IBMIan Colley, 914-434-3043colley@us.ibm.comorJohn Bukovinsky,
732- 618-3531jbuko@us.ibm.com
View source version on businesswire.com:
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(END) Dow Jones Newswires
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