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International Business Machines Corp - Half-year Report

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·19-min read
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IBM RELEASES SECOND QUARTER RESULTS

Growth Across Key Segments Led by Hybrid Cloud Adoption; Solid Cash and Profit Generation

ARMONK, N.Y., July 19, 2022 /PRNewswire/ -- IBM (NYSE: IBM) today announced second-quarter 2022 earnings results.

"In the quarter we delivered good revenue performance with balanced growth across our geographies, driven by client demand for our hybrid cloud and AI offerings. The IBM team executed our strategy well," said Arvind Krishna, IBM chairman and chief executive officer. "With our first half results, we continue to expect full-year revenue growth at the high end of our mid-single digit model."

Second-Quarter Highlights

  • Revenue
    - Revenue of $15.5 billion, up 9 percent, up 16 percent at constant currency (about 5 points from sales to Kyndryl)
    - Software revenue up 6 percent, up 12 percent at constant currency (about 7 points from sales to Kyndryl)
    - Consulting revenue up 10 percent, up 18 percent at constant currency
    - Infrastructure revenue up 19 percent, up 25 percent at constant currency (about 7 points from sales to Kyndryl)
    - Hybrid cloud revenue, over the last 12 months, of $21.7 billion, up 16 percent, up 19 percent at constant currency

  • Cash Flow
    - On a consolidated basis, year to date, net cash from operating activities of $4.6 billion; free cash flow of $3.3 billion

SECOND QUARTER 2022 INCOME STATEMENT SUMMARY

Pre-tax

Gross

Pre-tax

Income

Net

Diluted

Revenue

Profit

Income

Margin

Income

EPS

GAAP from
Continuing
Operations

$

15.5B

$

8.3B

$

1.7B

11.1

%

$

1.5B

$

1.61

Year/Year

9

%*

6

%

89

%

4.7

Pts

81

%

79

%

Operating
(Non-GAAP)

$

8.5B

$

2.5B

16.2

%

$

2.1B

$

2.31

Year/Year

5

%

48

%

4.2

Pts

45

%

43

%

*16% at constant currency

"We are a faster-growing, focused, disciplined company with sound business fundamentals," said James Kavanaugh, IBM senior vice president and chief financial officer. "Our recurring revenue stream and solid cash generation position us well to continue to invest in R&D, acquire new companies, and strengthen our talent in every part of the business, while also returning value to shareholders through our dividend."

Segment Results for Second Quarter

  • Software (includes Hybrid Platform & Solutions, Transaction Processing)— revenues of $6.2 billion, up 6.4 percent, up 11.6 percent at constant currency (about 7 points from sales to Kyndryl):
    - Hybrid Platform & Solutions up 4 percent, up 9 percent at constant currency (about 1.5 points from sales to Kyndryl):
    -- Red Hat up 12 percent, up 17 percent at constant currency
    -- Automation up 4 percent, up 8 percent at constant currency
    -- Data & AI flat, up 4 percent at constant currency
    -- Security flat, up 5 percent at constant currency
    - Transaction Processing up 12 percent, up 19 percent at constant currency (about 22 points from sales to Kyndryl)
    - Software segment hybrid cloud revenue up 14 percent, up 18 percent at constant currency

  • Consulting (includes Business Transformation, Technology Consulting and Application Operations)— revenues of $4.8 billion, up 9.8 percent, up 17.8 percent at constant currency:
    - Business Transformation up 9 percent, up 16 percent at constant currency
    - Technology Consulting up 14 percent, up 23 percent at constant currency
    - Application Operations up 9 percent, up 17 percent at constant currency
    - Consulting segment hybrid cloud revenue up 20 percent, up 29 percent at constant currency

  • Infrastructure (includes Hybrid Infrastructure, Infrastructure Support)— revenues of $4.2 billion, up 19.0 percent, up 25.4 percent at constant currency (about 7 points from sales to Kyndryl):
    - Hybrid Infrastructure up 34 percent, up 41 percent at constant currency (about 7 points from sales to Kyndryl)
    -- IBM z Systems up 69 percent, up 77 percent at constant currency
    -- Distributed Infrastructure up 11 percent, up 17 percent at constant currency
    - Infrastructure Support down 2 percent, up 5 percent at constant currency (about 8 points from sales to Kyndryl)
    - Infrastructure segment hybrid cloud revenue up 24 percent, up 30 percent at constant currency

  • Financing (includes client and commercial financing)— revenues of $0.1 billion, down 29.9 percent, down 26.6 percent at constant currency

Cash Flow and Balance Sheet
On a consolidated basis, in the second quarter, the company generated net cash from operating activities of $1.3 billion or $2.6 billion excluding IBM Financing receivables. IBM's free cash flow was $2.1 billion. The company returned $1.5 billion to shareholders in dividends in the second quarter.

On a consolidated basis, for the first six months of the year, the company generated net cash from operating activities of $4.6 billion or $4.2 billion excluding IBM Financing receivables. IBM's free cash flow was $3.3 billion, which includes cash impacts from the company's structural actions initiated at the end of 2020.

IBM ended the second quarter with $7.8 billion of cash on hand (which includes marketable securities), up $0.2 billion from year-end 2021. Debt, including IBM Financing debt of $12.3 billion, totaled $50.3 billion, down $1.4 billion since the end of 2021.

Full-Year 2022 Expectations

  • Revenue growth: The company continues to expect constant currency revenue growth at the high end of its mid-single digit model. The company also expects an additional 3.5 point contribution from incremental sales to Kyndryl. At mid-July 2022 foreign exchange rates, currency is expected to be about a six-point headwind.

  • Free Cash Flow: The company now expects about $10 billion in consolidated free cash flow.

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; 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; 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; fluctuations in financial results; impact of local legal, economic, political, health and other conditions; the company's failure to meet growth and productivity objectives; 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; reliance on third party distribution channels and ecosystems; cybersecurity and data privacy considerations; adverse effects related to climate change and environmental matters, tax matters; legal proceedings and investigatory risks; the company's pension plans; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; potential failure of the separation of Kyndryl Holdings, Inc. to qualify for tax-free treatment; 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 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
On November 3, 2021, IBM completed the separation of Kyndryl. Unless otherwise specified, results are presented on a continuing operations basis. All references to revenue impacts from sales to Kyndryl are incremental sales post-separation.

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);

  • presenting operating (non-GAAP) earnings per share amounts and related income statement items;

  • consolidated free cash flow;

  • consolidated cash from operating activities excluding IBM 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/earnings-2q22. 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
Sarah Meron, 347 891 1770
sarah.meron@ibm.com

Tim Davidson, 914 844 7847
tfdavids@us.ibm.com

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,

2022

2021*

2022

2021*

REVENUE

Software

$

6,166

$

5,795

$

11,938

$

10,933

Consulting

4,809

4,378

9,637

8,641

Infrastructure

4,235

3,560

7,453

6,853

Financing

146

209

300

417

Other

180

277

404

561

TOTAL REVENUE

15,535

14,218

29,732

27,405

GROSS PROFIT

8,290

7,852

15,625

14,879

GROSS PROFIT MARGIN

Software

79.2

%

79.7

%

79.0

%

78.8

%

Consulting

24.2

%

27.6

%

24.3

%

27.7

%

Infrastructure

53.8

%

57.1

%

52.4

%

56.7

%

Financing

35.3

%

29.9

%

36.5

%

32.7

%

TOTAL GROSS PROFIT MARGIN

53.4

%

55.2

%

52.6

%

54.3

%

EXPENSE AND OTHER INCOME

S,G&A

4,855

4,849

9,452

9,536

R,D&E

1,673

1,641

3,352

3,257

Intellectual property and custom development income

(176)

(133)

(297)

(278)

Other (income) and expense

(81)

302

166

647

Interest expense

297

281

607

561

TOTAL EXPENSE AND OTHER INCOME

6,568

6,940

13,280

13,724

INCOME/(LOSS) FROM CONTINUING OPERATIONS

BEFORE INCOME TAXES

1,722

912

2,345

1,155

Pre-tax margin

11.1

%

6.4

%

7.9

%

4.2

%

Provision for/(Benefit from) income taxes

257

101

218

(58)

Effective tax rate

14.9

%

11.1

%

9.3

%

(5.0)

%

INCOME FROM CONTINUING OPERATIONS

$

1,465

$

810

$

2,127

$

1,213

DISCONTINUED OPERATIONS

Income/(Loss) from discontinued operations, net of taxes

(73)

515

(2)

1,067

NET INCOME

$

1,392

$

1,325

$

2,125

$

2,280

EARNINGS/(LOSS) PER SHARE OF COMMON STOCK

Assuming Dilution

Continuing Operations

$

1.61

$

0.90

$

2.34

$

1.34

Discontinued Operations

$

(0.08)

$

0.57

$

0.00

$

1.18

TOTAL

$

1.53

$

1.47

$

2.34

$

2.52

Basic

Continuing Operations

$

1.62

$

0.91

$

2.36

$

1.36

Discontinued Operations

$

(0.08)

$

0.57

$

0.00

$

1.19

TOTAL

$

1.54

$

1.48

$

2.36

$

2.55

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's)

Assuming Dilution

910.7

904.2

910.0

903.0

Basic

901.5

895.0

900.4

894.3

____________________

* Recast to conform with 2022 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)

At

At

June 30,

December 31,

(Dollars in Millions)

2022

2021

ASSETS:

Current Assets:

Cash and cash equivalents

$

7,034

$

6,650

Restricted cash

220

307

Marketable securities

524

600

Notes and accounts receivable - trade, net

5,867

6,754

Short-term financing receivables, net

7,233

8,014

Other accounts receivable, net

909

1,002

Inventories

1,684

1,649

Deferred costs

1,010

1,097

Prepaid expenses and other current assets

3,414

3,466

Total Current Assets

27,896

29,539

Property, plant and equipment, net

5,275

5,694

Operating right-of-use assets, net

2,848

3,222

Long-term financing receivables, net

5,316

5,425

Prepaid pension assets

9,930

9,850

Deferred costs

865

924

Deferred taxes

7,073

7,370

Goodwill

55,039

55,643

Intangibles, net

11,571

12,511

Investments and sundry assets

1,689

1,823

Total Assets

$

127,503

$

132,001

LIABILITIES:

Current Liabilities:

Taxes

$

1,742

$

2,289

Short-term debt

5,981

6,787

Accounts payable

3,707

3,955

Deferred income

12,522

12,518

Operating lease liabilities

884

974

Other liabilities

7,008

7,097

Total Current Liabilities

31,844

33,619

Long-term debt

44,328

44,917

Retirement related obligations

13,118

14,435

Deferred income

3,069

3,577

Operating lease liabilities

2,182

2,462

Other liabilities

13,486

13,996

Total Liabilities

108,026

113,005

EQUITY:

IBM Stockholders' Equity:

Common stock

57,802

57,319

Retained earnings

153,298

154,209

Treasury stock — at cost

(169,522)

(169,392)

Accumulated other comprehensive income/(loss)

(22,169)

(23,234)

Total IBM Stockholders' Equity

19,409

18,901

Noncontrolling interests

67

95

Total Equity

19,476

18,996

Total Liabilities and Equity

$

127,503

$

132,001

INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)

Trailing Twelve

Three Months Ended

Six Months Ended

Months Ended

June 30,

June 30,

June 30,

(Dollars in Millions)

2022

2021

2022

2021

2022

Consolidated Net Cash from Operations per GAAP

$

1,321

$

2,625

$

4,569

$

7,539

$

9,826

Less: change in IBM Financing receivables

(1,264)

900

367

3,763

511

Capital Expenditures, net

(494)

(688)

(871)

(1,217)

(2,035)

Consolidated Free Cash Flow

2,091

1,037

3,331

2,559

7,279

Acquisitions

(260)

(1,747)

(958)

(2,866)

(1,385)

Divestitures

1,207

(10)

1,268

(25)

1,408

Dividends

(1,488)

(1,467)

(2,963)

(2,924)

(5,907)

Non-Financing Debt

(2,934)

(586)

1,740

(2,331)

2,880

Other (includes IBM Financing net receivables and debt)

(1,607)

(335)

(2,197)

(522)

(4,661)

Change in Cash, Cash Equivalents, Restricted Cash and Short-term
Marketable Securities*

$

(2,991)

$

(3,108)

$

221

$

(6,110)

$

(387)

____________________

* Cash flows are presented on a consolidated basis.

INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

(Dollars in Millions)

2022

2021

2022

2021

Net Income from Operations

$

1,392

$

1,325

$

2,125

$

2,280

Depreciation/Amortization of Intangibles

1,245

1,680

2,501

3,352

Stock-based Compensation

254

243

488

457

Working Capital / Other

(307)

(1,524)

(912)

(2,313)

IBM Financing A/R

(1,264)

900

367

3,763

Net Cash Provided by Operating Activities

$

1,321

$

2,625

$

4,569

$

7,539

Capital Expenditures, net of payments & proceeds

(494)

(688)

(871)

(1,217)

Divestitures, net of cash transferred

1,207

(10)

1,268

(25)

Acquisitions, net of cash acquired

(260)

(1,747)

(958)

(2,866)

Marketable Securities / Other Investments, net

(281)

(227)

(625)

(562)

Net Cash Provided by/(Used in) Investing Activities

$

172

$

(2,671)

$

(1,186)

$

(4,671)

Debt, net of payments & proceeds

(2,514)

(1,500)

434

(5,799)

Dividends

(1,488)

(1,467)

(2,963)

(2,924)

Financing - Other

(195)

(163)

(290)

(190)

Net Cash Provided by/(Used in) Financing Activities

$

(4,197)

$

(3,131)

$

(2,819)

$

(8,914)

Effect of Exchange Rate changes on Cash

(262)

69

(267)

(65)

Net Change in Cash, Cash Equivalents and Restricted Cash*

$

(2,965)

$

(3,108)

$

297

$

(6,110)

____________________

* Cash flows are presented on a consolidated basis.

INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)

Three Months Ended June 30, 2022

(Dollars in Millions)

Software

Consulting

Infrastructure

Financing

Revenue

$

6,166

$

4,809

$

4,235

$

146

Pre-tax Income/(Loss) from Continuing Operations

$

1,375

$

343

$

757

$

102

Pre-tax Margin

22.3

%

7.1

%

17.9

%

69.7

%

Change YTY Revenue

6.4

%

9.8

%

19.0

%

(29.9)

%

Change YTY Revenue - constant currency

11.6

%

17.8

%

25.4

%

(26.6)

%

Three Months Ended June 30, 2021*

(Dollars in Millions)

Software

Consulting

Infrastructure

Financing

Revenue

$

5,795

$

4,378

$

3,560

$

209

Pre-tax Income/(Loss) from Continuing Operations

$

1,059

$

270

$

489

$

131

Pre-tax Margin

18.3

%

6.2

%

13.7

%

63.0

%

____________________

* Recast to conform with 2022 presentation.

Six Months Ended June 30, 2022

(Dollars in Millions)

Software

Consulting

Infrastructure

Financing

Revenue

$

11,938

$

9,637

$

7,453

$

300

Pre-tax Income/(Loss) from Continuing Operations

$

2,509

$

691

$

956

$

186

Pre-tax Margin

21.0

%

7.2

%

12.8

%

62.0

%

Change YTY Revenue

9.2

%

11.5

%

8.8

%

(28.0)

%

Change YTY Revenue - constant currency

13.4

%

17.6

%

13.4

%

(25.5)

%

Six Months Ended June 30, 2021*

(Dollars in Millions)

Software

Consulting

Infrastructure

Financing

Revenue

$

10,933

$

8,641

$

6,853

$

417

Pre-tax Income/(Loss) from Continuing Operations

$

1,717

$

547

$

780

$

229

Pre-tax Margin

15.7

%

6.3

%

11.4

%

55.0

%

____________________

* Recast to conform with 2022 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, 2022

Continuing Operations

Acquisition-

Retirement-

Tax

Kyndryl-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Impacts (3)

(Non-GAAP)

Gross Profit

$

8,290

$

180

$

$

$

$

8,470

Gross Profit Margin

53.4

%

1.2

pts.

pts.

pts.

pts.

54.5

%

S,G&A

$

4,855

$

(279)

$

$

$

(0)

$

4,576

Other (Income) & Expense

(81)

(1)

(192)

(145)

(418)

Total Expense & Other (Income)

6,568

(280)

(192)

(145)

5,952

Pre-tax Income from Continuing
Operations

1,722

460

192

145

2,518

Pre-tax Income Margin from
Continuing Operations

11.1

%

3.0

pts.

1.2

pts.

pts.

0.9

pts.

16.2

%

Provision for/(Benefit from) Income
Taxes (4)

$

257

$

115

$

46

$

(4)

$

$

413

Effective Tax Rate

14.9

%

1.8

pts.

0.7

pts.

(0.2)

pts.

(0.9)

pts.

16.4

%

Income from Continuing Operations

$

1,465

$

345

$

146

$

4

$

145

$

2,105

Income Margin from Continuing
Operations

9.4

%

2.2

pts.

0.9

pts.

0.0

pts.

0.9

pts.

13.5

%

Diluted Earnings/(Loss) Per Share:
Continuing Operations

$

1.61

$

0.38

$

0.16

$

0.00

$

0.16

$

2.31

Three Months Ended June 30, 2021

Continuing Operations

Acquisition-

Retirement-

Tax

Kyndryl-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Impacts (3)

(Non-GAAP)

Gross Profit

$

7,852

$

179

$

$

$

$

8,031

Gross Profit Margin

55.2

%

1.3

pts.

pts.

pts.

pts.

56.5

%

S,G&A

$

4,849

$

(294)

$

$

$

$

4,555

Other (Income) & Expense

302

(1)

(317)

(16)

Total Expense & Other (Income)

6,940

(294)

(317)

6,329

Pre-tax Income/(Loss) from Continuing
Operations

912

474

317

1,702

Pre-tax Income Margin from
Continuing Operations

6.4

%

3.3

pts.

2.2

pts.

pts.

pts.

12.0

%

Provision for/(Benefit from) Income
Taxes (4)

$

101

$

105

$

53

$

(14)

$

$

246

Effective Tax Rate

11.1

%

3.1

pts.

1.0

pts.

(0.8)

pts.

pts.

14.5

%

Income from Continuing Operations

$

810

$

368

$

264

$

14

$

$

1,456

Income Margin from Continuing
Operations

5.7

%

2.6

pts.

1.9

pts.

0.1

pts.

pts.

10.2

%

Diluted Earnings/(Loss) Per Share:
Continuing Operations

$

0.90

$

0.41

$

0.29

$

0.01

$

$

1.61

____________________

(1) 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.

(2) 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.

(3) Primarily relates to the fair value changes in the retained Kyndryl common stock and the related cash-settled swap.

(4) 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, 2022

Continuing Operations

Acquisition-

Retirement-

Tax

Kyndryl-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Impacts (3)

(Non-GAAP)

Gross Profit

$

15,625

$

361

$

$

$

$

15,986

Gross Profit Margin

52.6

%

1.2

pts.

pts.

pts.

pts.

53.8

%

S,G&A

$

9,452

$

(565)

$

$

$

(0)

$

8,887

Other (Income) & Expense

166

(1)

(394)

(367)

(596)

Total Expense & Other (Income)

13,280

(566)

(394)

(367)

11,953

Pre-tax Income from Continuing
Operations

2,345

928

394

367

4,033

Pre-tax Income Margin from
Continuing Operations

7.9

%

3.1

pts.

1.3

pts.

pts.

1.2

pts.

13.6

%

Provision for/(Benefit from) Income
Taxes (4)

$

218

$

224

$

104

$

112

$

$

657

Effective Tax Rate

9.3

%

3.4

pts.

1.7

pts.

2.8

pts.

(0.8)

pts.

16.3

%

Income from Continuing Operations

$

2,127

$

704

$

290

$

(112)

$

367

$

3,376

Income Margin from Continuing
Operations

7.2

%

2.4

pts.

1.0

pts.

(0.4)

pts.

1.2

pts.

11.4

%

Diluted Earnings/(Loss) Per Share:
Continuing Operations

$

2.34

$

0.77

$

0.32

$

(0.12)

$

0.40

$

3.71

Six Months Ended June 30, 2021

Continuing Operations

Acquisition-

Retirement-

Tax

Kyndryl-

Related

Related

Reform

Related

Operating

GAAP

Adjustments (1)

Adjustments (2)

Impacts

Impacts (3)

(Non-GAAP)

Gross Profit

$

14,879

$

353

$

$

$

$

15,232

Gross Profit Margin

54.3

%

1.3

pts.

pts.

pts.

pts.

55.6

%

S,G&A

$

9,536

$

(582)

$

$

$

$

8,954

Other (Income) & Expense

647

(1)

(649)

(3)

Total Expense & Other (Income)

13,724

(583)

(649)

12,491

Pre-tax Income from Continuing
Operations

1,155

936

649

2,741

Pre-tax Income Margin from
Continuing Operations

4.2

%

3.4

pts.

2.4

pts.

pts.

pts.

10.0

%

Provision for/(Benefit from) Income
Taxes (4)

$

(58)

$

238

$

86

$

6

$

$

272

Effective Tax Rate

(5.0)

%

10.4

pts.

4.3

pts.

0.2

pts.

pts.

9.9

%

Income from Continuing Operations

$

1,213

$

699

$

563

$

(6)

$

$

2,469

Income Margin from Continuing
Operations

4.4

%

2.5

pts.

2.1

pts.

(0.0)

pts.

pts.

9.0

%

Diluted Earnings/(Loss) Per Share:
Continuing Operations

$

1.34

$

0.77

$

0.62

$

(0.01)

$

$

2.73

____________________

(1) 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.

(2) 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.

(3) Primarily relates to the fair value changes in the retained Kyndryl common stock and the related cash-settled swap.

(4) 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.

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