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IBM Reports 2017 Second-Quarter Results
[July 18, 2017]

IBM Reports 2017 Second-Quarter Results


IBM (NYSE:IBM)

Continued Growth in Strategic Imperatives Led by IBM Cloud

Highlights

  • Diluted EPS from continuing operations: GAAP of $2.48; Operating (non-GAAP) of $2.97
  • Revenue from continuing operations of $19.3 billion
  • Strategic imperatives revenue of $34.1 billion over the trailing 12 months, up 11 percent (up 12 percent adjusting for currency); represents 43 percent of IBM revenue

    -- First half revenue up 8 percent (up 10 percent adjusting for currency)

    -- Second quarter revenue up 5 percent (up 7 percent adjusting for currency)
  • Cloud revenue of $15.1 billion over the trailing 12 months

    -- As-a-service annual exit run rate of $8.8 billion in the quarter, up 30 percent year to year (up 32 percent adjusting for currency)
  • Maintains full-year EPS and free cash flow expectations

IBM (NYSE:IBM) today announced second-quarter earnings results.

"In the second quarter, we strengthened our position as the enterprise cloud leader and added more of the world's leading companies to the IBM Cloud," said Ginni Rometty, IBM chairman, president and chief executive officer. "We continue to innovate, adding regtech capabilities to our portfolio of Watson offerings; developing solutions based on emerging technologies such as Blockchain; and reinventing the IBM mainframe by enabling clients to encrypt all data, all the time."



    SECOND QUARTER 2017
    Gross Profit  
Diluted EPS   Net Income   Margin
 
GAAP from Continuing Operations $2.48 $2.3B 45.6%
Year/Year   -5%   -7%   -2.3Pts
 
Operating (Non-GAAP) $2.97 $2.8B 47.2%
Year/Year   1%   -2%   -1.8Pts
As-a-service
Strategic annual exit
REVENUE   Total IBM   Imperatives   Cloud   run rate
 
As reported (US$) $19.3B $8.8B $3.9B $8.8B
 
Year/Year   -5%   5%   15%   30%
 
Year/Year adjusting for currency   -3%   7%   17%   32%
 

"We finished the first half of the year where we expected, including continued strong free cash flow generation," said Martin Schroeter, IBM senior vice president and chief financial officer. "This allowed us to continue our strong R&D investment levels and return more than $5 billion to shareholders through dividends and gross share repurchases during the first half."

Strategic Imperatives

Second-quarter cloud revenues increased 15 percent (up 17 percent adjusting for currency) to $3.9 billion. Cloud revenue over the last 12 months was $15.1 billion. The annual exit run rate for as-a-service revenue increased to $8.8 billion from $6.7 billion in the second quarter of 2016. Revenues from analytics increased 4 percent (up 6 percent adjusting for currency). Revenues from mobile increased 27 percent (up 29 percent adjusting for currency) and revenues from security increased 4 percent (up 5 percent adjusting for currency).

Full-Year 2017 Expectations

The company continues to expect operating (non-GAAP) diluted earnings per share of at least $13.80 and GAAP diluted earnings per share of at least $11.95. Operating (non-GAAP) diluted earnings per share exclude $1.85 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges. IBM continues to expect free cash flow to be relatively flat year to year.

Cash Flow and Balance Sheet

In the second quarter, the company generated net cash from operating activities of $3.5 billion; or $3.3 billion excluding Global Financing receivables. IBM's free cash flow was $2.6 billion. IBM returned $1.4 billion in dividends and $1.4 billion of gross share repurchases to shareholders. At the end of June 2017, IBM had $2.4 billion remaining in the current share repurchase authorization.

IBM ended the second quarter of 2017 with $12.3 billion of cash on hand. Debt totaled $45.7 billion, including Global Financing debt of $29.0 billion. The balance sheet remains strong and, with the completion of the reorganization of its client and commercial financing business, the company is better positioned over the long term.

Segment Results for Second Quarter

  • Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of $4.6 billion, down 2.5 percent (down 1.4 percent adjusting for currency). Pre-tax income increased at a double-digit rate.
  • Global Business Services (includes consulting, global process services and application management) -- revenues of $4.1 billion, down 3.7 percent (down 1.7 percent adjusting for currency). Strategic imperatives grew 8 percent led by the cloud and mobile practices.
  • Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) -- revenues of $8.4 billion, down 5.1 percent (down 3.6 percent adjusting for currency). Strategic imperatives, driven by hybrid cloud services, grew 20 percent.
  • Systems (includes systems hardware and operating systems software) -- revenues of $1.7 billion, down 10.4 percent (down 9.6 percent adjusting for currency).
  • Global Financing (includes financing and used equipment sales) -- revenues of $415 million, down 2.2 percent (down 1.7 percent adjusting for currency).

Tax Rate

IBM's reported GAAP and operating (non-GAAP) tax rates of 4.5 percent and 9.2 percent, respectively, include the effect of discrete tax benefits in the quarter, which contributed $0.18 to the company's earnings per share. For the second quarter, IBM's ongoing effective GAAP and operating (non-GAAP) tax rates were approximately 12 percent and approximately 15 percent, respectively. The company continues to expect a full-year ongoing effective operating (non-GAAP) tax rate of 15 percent plus or minus 3 points, excluding discrete items.

Year-To-Date 2017 Results

Consolidated diluted earnings per share were $4.32 compared to $4.69, down 8 percent year to year. Consolidated net income was $4.1 billion compared to $4.5 billion in the year-ago period, a decrease of 10 percent. Revenues from continuing operations for the six-month period totaled $37.4 billion, a decrease of 4 percent year to year (decrease of 3 percent adjusting for currency) compared with $38.9 billion for the first six months of 2016.

Operating (non-GAAP) diluted earnings per share from continuing operations were $5.35 compared with $5.30 per diluted share for the 2016 period, an increase of 1 percent. Operating (non-GAAP) net income for the six months ended June 30, 2017 was $5.0 billion compared with $5.1 billion in the year-ago period, a decrease of 1 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 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).

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/2q17.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, June 30,
2017   2016 2017   2016
   
REVENUE
Cognitive Solutions $ 4,559 $ 4,675 $ 8,621 $ 8,654
Global Business Services 4,097 4,255 8,103 8,387
Technology Services & Cloud Platforms 8,406 8,857 16,622 17,280
Systems 1,747 1,950 3,142 3,626
Global Financing 415 424 819 834
Other   65       76     136       142  
TOTAL REVENUE 19,289 20,238 37,443 38,923
 
GROSS PROFIT 8,794 9,702 16,565 18,388
 
GROSS PROFIT MARGIN
Cognitive Solutions 79.0 % 82.2 % 78.2 % 82.1 %
Global Business Services 24.9 % 26.3 % 24.3 % 26.1 %
Technology Services & Cloud Platforms 40.6 % 41.6 % 39.8 % 41.3 %
Systems 52.7 % 56.5 % 50.4 % 56.9 %
Global Financing 30.8 % 38.7 % 31.3 % 40.5 %
 
TOTAL GROSS PROFIT MARGIN 45.6 % 47.9 % 44.2 % 47.2 %
 
 
EXPENSE AND OTHER INCOME
S,G&A 5,160 5,349 10,312 11,361
R,D&E 1,484 1,465 3,018 2,923

Intellectual property and custom development income

(365 ) (365 ) (810 ) (582 )
Other (income) and expense (76 ) 37 (104 ) 289
Interest expense 147 167 283 315
           
TOTAL EXPENSE AND OTHER INCOME 6,351 6,653 12,699 14,306
 
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 2,443 3,049 3,867 4,082
Pre-tax margin 12.7 % 15.1 % 10.3 % 10.5 %
Provision for / (Benefit) from income taxes 111 544 (218 ) (439 )
Effective tax rate 4.5 % 17.8 % (5.6 %) (10.8 %)
 
INCOME FROM CONTINUING OPERATIONS $ 2,332 $ 2,505 $ 4,085 $ 4,521
 
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes   (1 )     (0 )   (3 )     (3 )
 
NET INCOME $ 2,331     $ 2,504   $ 4,082     $ 4,518  
 
 
EARNINGS PER SHARE OF COMMON STOCK:
Assuming Dilution
Continuing Operations $ 2.48 $ 2.61 $ 4.32 $ 4.69
Discontinued Operations $ 0.00     $ 0.00   $ 0.00     $ 0.00  
TOTAL $ 2.48     $ 2.61   $ 4.32     $ 4.69  
Basic
Continuing Operations $ 2.49 $ 2.62 $ 4.35 $ 4.71
Discontinued Operations $ 0.00     $ 0.00   $ 0.00     $ 0.00  
TOTAL $ 2.49     $ 2.62   $ 4.35     $ 4.71  
 

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

Assuming Dilution 939.6 960.5 943.7 962.4
Basic 934.9 957.4 938.7 959.5
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
 
  At   At
(Dollars in Millions) June 30, December 31,
2017 2016
ASSETS:
 
Current Assets:
Cash and cash equivalents $ 11,696 $ 7,826
Marketable securities 599 701
Notes and accounts receivable - trade, net 8,401 9,182
Short-term financing receivables, net 17,563 19,006
Other accounts receivable, net 994 1,057
Inventory 1,604 1,553
Prepaid expenses and other current assets 4,155 4,564
   
Total Current Assets 45,013 43,888
 
Property, plant and equipment, net 10,903 10,830
Long-term financing receivables, net 8,296 9,021
Prepaid pension assets 4,015 3,034
Deferred taxes 6,812 5,224
Goodwill and intangibles, net 40,696 40,887
Investments and sundry assets 4,759 4,585
   
Total Assets $ 120,495   $ 117,470  
 
 
LIABILITIES:
 
Current Liabilities:
Taxes $ 2,779 $ 3,235
Short-term debt 8,061 7,513
Accounts payable 5,126 6,209
Deferred income 11,541 11,035
Other liabilities 8,458 8,283
   
Total Current Liabilities 35,966 36,275
 
Long-term debt 37,612 34,655
Retirement related obligations 17,320 17,070
Deferred income 3,617 3,600
Other liabilities 7,437 7,477
   
Total Liabilities 101,951 99,078
 
 
EQUITY:
 
IBM Stockholders' Equity:
Common stock 54,235 53,935
Retained earnings 154,234 152,759
Treasury stock -- at cost (161,860 ) (159,050 )
Accumulated other comprehensive income/(loss) (28,189 ) (29,398 )
   
Total IBM stockholders' equity 18,419 18,246
 
Noncontrolling interests 125 146
   
Total Equity 18,544 18,392
   
Total Liabilities and Equity $ 120,495   $ 117,470  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended   Six Months Ended
(Dollars in Millions) June 30, June 30,
2017   2016 2017   2016
 
Net Cash Provided by Operating Activities per GAAP: $ 3,467 $ 3,458 * ** $ 7,421 $ 8,988 * **
 
Less: change in Global Financing (GF)
Receivables 163 264 * 2,210 2,501 *
Capital Expenditures, Net (749 ) (979 ) (1,567 ) (1,949 )
 
Free Cash Flow 2,555 2,215 ** 3,644 4,538 **
 
Acquisitions (60 ) (2,815 ) (169 ) (5,405 )
Divestitures 30 (12 ) 29 35
Dividends (1,403 ) (1,340 ) (2,724 ) (2,590 )
Share Repurchase (1,432 ) (836 ) (2,725 ) (1,775 )
Non-GF Debt 2,119 (810 ) 2,363 5,061
Other (includes GF Receivables and GF Debt) (210 ) (654 ) * ** 3,350 2,558 * **
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities $ 1,600       ($4,253 ) $ 3,768   $ 2,421  
 

* Revised classification of certain financing receivables.

** Reclassified to reflect adoption of the FASB guidance on stock-based compensation.

 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
 
  Three Months Ended   Six Months Ended
(Dollars in Millions) June 30, June 30,
2017   2016 2017   2016
 
Net Income from Operations $ 2,331 $ 2,504 $ 4,082 $ 4,518
Depreciation/Amortization of Intangibles 1,118 1,103 2,216 2,127
Stock-based Compensation 136 128 265 261
Working Capital / Other (281 ) (541 ) ** (1,351 ) (419 ) **
Global Financing A/R 163 264 * 2,210 2,501 *
Net Cash Provided by Operating Activities $ 3,467 $ 3,458 * ** $ 7,421 $ 8,988 * **
Capital Expenditures, net of payments & proceeds (749 ) (979 ) (1,567 ) (1,949 )
Divestitures, net of cash transferred 30 (12 ) 29 35
Acquisitions, net of cash acquired (60 ) (2,815 ) (169 ) (5,405 )
Marketable Securities / Other Investments, net (926 ) (647 ) * 352 981 *
Net Cash Used in Investing Activities ($1,705 ) ($4,452 ) * ($1,355 ) ($6,338 ) *
Debt, net of payments & proceeds 2,279 (1,035 ) 2,756 3,929
Dividends (1,403 ) (1,340 ) (2,724 ) (2,590 )
Common Stock Repurchases (1,432 ) (836 ) (2,725 ) (1,775 )
Common Stock Transactions - Other (54 ) (29 ) ** (50 ) 3 **
Net Cash Used in Financing Activities ($609 ) ($3,240 ) ** ($2,743 ) ($434 ) **
Effect of Exchange Rate changes on Cash 447 (103 ) 547 114
Net Change in Cash & Cash Equivalents $ 1,600 ($4,338 ) $ 3,870 $ 2,330
 
* Revised classification of certain financing receivables.
** Reclassified to reflect adoption of the FASB guidance on stock-based compensation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  SECOND - QUARTER 2017
Cognitive Solutions &      
Industry Services
  Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions   Services   Platforms   Systems   Financing
Revenue
External $4,559 $4,097 $8,406 $1,747 $415
Internal 655   93   173   177   290
Total Segment Revenue $5,214 $4,190 $8,579 $1,924 $705
 
Pre-tax Income from Continuing Operations 1,615 321 1,009 74 282
 
Pre-tax margin 31.0% 7.7% 11.8% 3.9% 40.0%
 
Change YTY Revenue - External (2.5)% (3.7)% (5.1)% (10.4)% (2.2)%
Change YTY Revenue - External @constant currency (1.4)% (1.7)% (3.6)% (9.6)% (1.7)%
 
 
SECOND - QUARTER 2016
Cognitive Solutions &
Industry Services
Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions   Services   Platforms   Systems   Financing
Revenue
External $4,675 $4,255 $8,857 $1,950 $424
Internal 594   103   156   206   502
Total Segment Revenue $5,269 $4,359 $9,013 $2,156 $926
 
Pre-tax Income from Continuing Operations 1,451 476 1,279 229 467
 
Pre-tax margin 27.5% 10.9% 14.2% 10.6% 50.5%
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  SIX - MONTHS 2017
Cognitive Solutions &      
Industry Services
  Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions   Services   Platforms   Systems   Financing
Revenue
External $8,621 $8,103 $16,622 $3,142 $819
Internal 1,371   179   333   344   653
Total Segment Revenue $9,992 $8,282 $16,955 $3,486 $1,473
 
Pre-tax Income from Continuing Operations 2,889 612 1,696 (112) 593
 
Pre-tax margin 28.9% 7.4% 10.0% (3.2)% 40.3%
 
Change YTY Revenue - External (0.4)% (3.4)% (3.8)% (13.3)% (1.7)%
Change YTY Revenue - External @constant currency 0.5% (1.8)% (2.8)% (12.6)% (1.9)%
 
 
SIX - MONTHS 2016
Cognitive Solutions &
Industry Services
Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions   Services   Platforms   Systems   Financing
Revenue
External $8,654 $8,387 $17,280 $3,626 $834
Internal 1,262   216   321   418   988
Total Segment Revenue $9,916 $8,603 $17,602 $4,044 $1,822
 
Pre-tax Income from Continuing Operations 2,465 665 1,537 218 853
 
Pre-tax margin 24.9% 7.7% 8.7% 5.4% 46.8%
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
 
SECOND - QUARTER 2017
CONTINUING OPERATIONS
  Acquisition-   Retirement-  
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $8,794 $117 $195 $9,105
 
Gross Profit Margin 45.6% 0.6Pts 1.0Pts 47.2%
 
S,G&A 5,160 (129) (138) 4,893
 
R,D&E 1,484 - (48) 1,436
 
Other (Income) & Expense (76) (4) - (80)
 
Total Expense & Other (Income) 6,351 (133) (186) 6,032
 
Pre-tax Income from Continuing Operations 2,443 250 381 3,073
 
Pre-tax Income Margin from Continuing Operations 12.7% 1.3Pts 2.0Pts 15.9%
 
Provision for / (Benefit) from Income Taxes*** 111 66 105 282
 
Effective Tax Rate 4.5% 1.8Pts 2.8Pts 9.2%
 
Income from Continuing Operations 2,332 183 276 2,792
 
Income Margin from Continuing Operations 12.1% 1.0Pts 1.4Pts 14.5%
 
Diluted Earnings Per Share: Continuing Operations $2.48 $0.20 $0.29 $2.97
 
SECOND - QUARTER 2016
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $9,702 $129 $81 $9,912
 
Gross Profit Margin 47.9% 0.6Pts 0.4Pts 49.0%
 
S,G&A 5,349 (159) (75) 5,114
 
R,D&E 1,465 - (7) 1,458
 
Other (Income) & Expense 37 - - 37
 
Total Expense & Other (Income) 6,653 (159) (83) 6,411
 
Pre-tax Income from Continuing Operations 3,049 289 163 3,501
 
Pre-tax Income Margin from Continuing Operations 15.1% 1.4Pts 0.8Pts 17.3%
 
Provision for / (Benefit) from Income Taxes*** 544 82 39 665
 
Effective Tax Rate 17.8% 0.9Pts 0.3Pts 19.0%
 
Income from Continuing Operations 2,505 207 124 2,835
 
Income Margin from Continuing Operations 12.4% 1.0Pts 0.6Pts 14.0%
 
Diluted Earnings Per Share: Continuing Operations $2.61 $0.21 $0.13 $2.95

*

 

Includes amortization of purchased intangible assets, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges.

**

Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance.

***

Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
 
SIX - MONTHS 2017
CONTINUING OPERATIONS
  Acquisition-   Retirement-  
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $16,565 $236 $388 $17,189
 
Gross Profit Margin 44.2% 0.6Pts 1.0Pts 45.9%
 
S,G&A 10,312 (269) (274) 9,769
 
R,D&E 3,018 - (97) 2,921
 
Other (Income) & Expense (104) (7) - (111)
 
Total Expense & Other (Income) 12,699 (276) (371) 12,052
 
Pre-tax Income from Continuing Operations 3,867 512 759 5,137
 
Pre-tax Income Margin from Continuing Operations 10.3% 1.4Pts 2.0Pts 13.7%
 
Provision for / (Benefit) from Income Taxes*** (218) 134 175 90
 
Effective Tax Rate (5.6)% 3.2Pts 4.2Pts 1.8%
 
Income from Continuing Operations 4,085 378 584 5,047
 
Income Margin from Continuing Operations 10.9% 1.0Pts 1.6Pts 13.5%
 
Diluted Earnings Per Share: Continuing Operations $4.32 $0.40 $0.63 $5.35
 
 
SIX - MONTHS 2016
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $18,388 $241 $160 $18,789
 
Gross Profit Margin 47.2% 0.6Pts 0.4Pts 48.3%
 
S,G&A 11,361 (227) (130) 11,004
 
R,D&E 2,923 - (16) 2,907
 
Other (Income) & Expense 289 (6) - 284
 
Total Expense & Other (Income) 14,306 (232) (146) 13,928
 
Pre-Tax Income from Continuing Operations 4,082 473 306 4,861
 
Pre-tax Income Margin from Continuing Operations 10.5% 1.2Pts 0.8Pts 12.5%
 
Provision for / (Benefit) from Income Taxes*** (439) 129 66 (244)
 
Effective Tax Rate (10.8)% 3.7Pts 2.0Pts (5.0)%
 
Income from Continuing Operations 4,521 345 239 5,105
 
Income Margin from Continuing Operations 11.6% 0.9Pts 0.6Pts 13.1%
 
Diluted Earnings Per Share: Continuing Operations $4.69 $0.36 $0.25 $5.30

*

 

Includes amortization of purchased intangible assets, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges.

**

Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance.

***

Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 

INTERNATIONAL BUSINESS MACHINES CORPORATION
RECONCILIATION OF OPERATING EARNINGS PER SHARE
(Unaudited)
 
          2017

EPS Guidance

Expectations
 
IBM GAAP EPS at least $11.95
 
IBM Operating EPS (non-GAAP) at least $13.80
 
 
Adjustments
 
Acquisition related charges * $0.75
 
Non-Operating Retirement-Related Items $1.10
 
* Includes acquisitions through June 30, 2017


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