IBM
$154.37
IBM
$1.19
.78%
Earnings Details
4th Quarter December 2017
Thursday, January 18, 2018 4:06:00 PM
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Summary

IBM Misses

IBM (IBM) reported 4th Quarter December 2017 earnings of $5.18 per share on revenue of $22.5 billion. The consensus earnings estimate was $5.17 per share on revenue of $21.9 billion. The Earnings Whisper number was $5.22 per share. Revenue grew 3.6% on a year-over-year basis.

The company said during its conference call it expects 2018 earnings of at least $13.80 per share. The current consensus earnings estimate is $13.92 per share for the year ending December 31, 2018.

International Business Machines Corp is an Information Technology (IT) company. It creates business value for clients and solves business problems through integrated solutions that leverage information technology & knowledge of business processes.

Results
Reported Earnings
$5.18
Earnings Whisper
$5.22
Consensus Estimate
$5.17
Reported Revenue
$22.54 Bil
Revenue Estimate
$21.94 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

IBM Reports 2017 Fourth-Quarter and Full-Year Results

IBM (IBM)

Highlights

Fourth-quarter GAAP EPS from continuing operations of $(1.14) -- Includes a one-time charge of $5.5 billion associated with the enactment of U.S. tax reform

Fourth-quarter operating (non-GAAP) EPS of $5.18 -- Excludes the one-time charge of $5.5 billion associated with the enactment of U.S. tax reform -- Consistent with the basis of previously-provided 2017 expectations

Fourth-quarter revenue of $22.5 billion, up 4 percent (up 1 percent adjusting for currency)

Full-year strategic imperatives revenue of $36.5 billion, up 11 percent; represents 46 percent of IBM revenue -- Fourth-quarter strategic imperatives revenue up 17 percent (up 14 percent adjusting for currency)

Full-year cloud revenue of $17.0 billion, up 24 percent year to year -- As-a-service annual exit run rate of $10.3 billion in the quarter, up 20 percent year to year (up 18 percent adjusting for currency)

IBM (IBM) today announced fourth-quarter and full-year 2017 earnings results.

"Our strategic imperatives revenue again grew at a double-digit rate and now represents 46 percent of our total revenue, and we are pleased with our overall revenue growth in the quarter," said Ginni Rometty, IBM chairman, president and chief executive officer. "During 2017, we strengthened our position as the leading enterprise cloud provider and established IBM as the blockchain leader for business. Looking ahead, we are uniquely positioned to help clients use data and AI to build smarter businesses."

FOURTH QUARTER 2017
Net Income
Gross Profit
Diluted EPS
(Loss)
Margin
GAAP from Continuing Operations
$(1.14)
*
$(1.1B)
*
48.2%
Year/Year
-124%
*
-123%
*
-1.9Pts
Operating (Non-GAAP)
$5.18
$4.8B
49.5%
Year/Year
3%
1%
-1.4Pts
As-a-service
Strategic
annual exit
REVENUE
Total IBM
Imperatives
Cloud
run rate
As reported (US$)
$22.5B
$11.1B
$5.5B
$10.3B
Year/Year
4%
17%
30%
20%
Year/Year adjusting for currency
1%
14%
27%
18%
* Includes a one-time charge of $5.5 billion associated with the
enactment of U.S. tax reform.

"Over the past several years we have invested aggressively in technology and our people to reposition IBM," said James Kavanaugh, IBM senior vice president and chief financial officer. "2018 will be all about reinforcing IBM’s leadership position in key high-value segments of the IT industry, including cloud, AI, security and blockchain."

Strategic Imperatives Revenue

Fourth-quarter cloud revenues increased 30 percent to $5.5 billion (up 27 percent adjusting for currency). Cloud revenue over the last 12 months was $17.0 billion, including $9.3 billion delivered as-a-service and $7.8 billion for hardware, software and services to enable IBM clients to implement comprehensive cloud solutions. The annual exit run rate for as-a-service revenue increased to $10.3 billion from $8.6 billion in the fourth quarter of 2016. In the quarter, revenues from analytics increased 9 percent (up 6 percent adjusting for currency). Revenues from mobile increased 23 percent (up 21 percent adjusting for currency) and revenues from security increased 132 percent (up 127 percent adjusting for currency).

Full-Year 2018 Expectations

The company will discuss 2018 expectations during today’s quarterly earnings conference call.

Cash Flow and Balance Sheet

In the fourth quarter, the company generated net cash from operating activities of $5.7 billion, or $7.8 billion excluding Global Financing receivables. IBM’s free cash flow was $6.8 billion. IBM returned $1.4 billion in dividends and $0.7 billion of gross share repurchases to shareholders. At the end of December 2017, IBM had $3.8 billion remaining in the current share repurchase authorization.

The company generated full-year free cash flow of $13.0 billion, excluding Global Financing receivables. The company returned $9.8 billion to shareholders through $5.5 billion in dividends and $4.3 billion of gross share repurchases.

IBM ended the fourth quarter of 2017 with $12.6 billion of cash on hand. Debt totaled $46.8 billion, including Global Financing debt of $31.4 billion. The balance sheet remains strong and is well positioned over the long term.

Segment Results for Fourth Quarter

Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of $5.4 billion, up 3 percent (flat adjusting for currency), driven by security and transaction processing software.

Global Business Services (includes consulting, global process services and application management) -- revenues of $4.2 billion, up 1 percent (down 2 percent adjusting for currency). Strategic imperatives revenue grew 9 percent led by the cloud practice, mobile and analytics.

Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) -- revenues of $9.2 billion, down 1 percent (down 4 percent adjusting for currency). Strategic imperatives revenue grew 15 percent, driven by hybrid cloud services, security and mobile.

Systems (includes systems hardware and operating systems software) -- revenues of $3.3 billion, up 32 percent (up 28 percent adjusting for currency) driven by growth in IBM Z, Power Systems and storage.

Global Financing (includes financing and used equipment sales) -- revenues of $450 million, up 1 percent (down 2 percent adjusting for currency).

Tax Rate

The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in a one-time charge of $5.5 billion in the fourth quarter. The charge encompasses several elements, including a tax on accumulated overseas profits and the revaluation of deferred tax assets and liabilities. As a result, IBM’s reported GAAP tax rate, which includes the one-time charge, was 124 percent for the fourth quarter, and 49 percent for the full year. IBM’s operating (non-GAAP) tax rate, which excludes the one-time charge, was 6 percent for the fourth quarter; and 7 percent for the full year, which includes the effect of discrete tax benefits in the first and second quarters. Without discrete tax items, the full-year operating (non-GAAP) tax rate was 12 percent, at the low end of the company’s previously estimated range.

Full-Year Results

Full-year GAAP EPS from continuing operations of $6.14 -- Includes a one-time charge of $5.5 billion associated with the enactment of U.S. tax reform

Full-year operating (non-GAAP) EPS of $13.80 -- Excludes the one-time charge of $5.5 billion associated with the enactment of U.S. tax reform

-- Full-year revenue of $79.1 billion, down 1 percent

FULL YEAR 2017
Gross Profit
Diluted EPS
Net Income
Margin
GAAP from Continuing Operations
$6.14
*
$5.8B
*
45.8%
Year/Year
-50%
*
-52%
*
-2.1Pts
Operating (Non-GAAP)
$13.80
$12.9B
47.4%
Year/Year
2%
-1%
-1.6Pts
As-a-service
Strategic
annual exit
REVENUE
Total IBM
Imperatives
Cloud
run rate
As reported (US$)
$79.1B
$36.5B
$17.0B
$10.3B
Year/Year
-1%
11%
24%
20%
Year/Year adjusting for currency
-1%
11%
24%
18%
* Includes a one-time charge of $5.5 billion associated with the
enactment of U.S. tax reform.

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. EST, today. The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/4q17.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
Twelve Months Ended
December 31,
December 31,
2017
2016
2017
2016
REVENUE
Cognitive Solutions
$
5,432
$
5,297
$ 18,453
$ 18,187
Global Business Services
4,152
4,121
16,348
16,700
Technology Services & Cloud Platforms
9,198
9,308
34,277
35,337
Systems
3,332
2,530
8,194
7,714
Global Financing
450
447
1,696
1,692
Other
(20 )
66
171
289
TOTAL REVENUE
22,543
21,770
79,139
79,919
GROSS PROFIT
10,862
10,893
36,227
38,294
GROSS PROFIT MARGIN
Cognitive Solutions
79.2 %
82.7 %
78.6 %
81.9 %
Global Business Services
24.8 %
26.9 %
25.2 %
27.0 %
Technology Services & Cloud Platforms
40.9 %
42.9 %
40.4 %
41.9 %
Systems
55.7 %
56.9 %
53.2 %
55.7 %
Global Financing
29.5 %
36.2 %
29.3 %
38.7 %
TOTAL GROSS PROFIT MARGIN
48.2 %
50.0 %
45.8 %
47.9 %
EXPENSE AND OTHER INCOME
S,G&A
5,147
4,976
20,107
21,069
R,D&E
1,427
1,431
5,787
5,751
Intellectual property and
custom development income
(348 )
(521 )
(1,466 )
(1,631 )
Other (income) and expense
2
(136 )
(216 )
145
Interest expense
164
157
615
630
TOTAL EXPENSE AND OTHER INCOME
6,393
5,907
24,827
25,964
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
4,469
4,986
11,400
12,330
Pre-tax margin
19.8 %
22.9 %
14.4 %
15.4 %
Provision for / (Benefit from) income taxes
5,522
480
5,642
449
Effective tax rate
123.6 %
9.6 %
49.5 %
3.6 %
INCOME / (LOSS) FROM CONTINUING OPERATIONS
($1,053 )
$
4,505
$
5,758
$ 11,881
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes
(1 )
(4 )
(5 )
(9 )
NET INCOME / (LOSS)
($1,054 )
$
4,501
$
5,753
$ 11,872
EARNINGS / (LOSS) PER SHARE OF COMMON STOCK:
Assuming Dilution
Continuing Operations
($1.14 )
$
4.73
$
6.14
$
12.39
Discontinued Operations
$
0.00
($0.01 )
$
0.00
($0.01 )
TOTAL
($1.14 )
$
4.72
$
6.14
$
12.38
Basic
Continuing Operations
($1.14 )
$
4.75
$
6.17
$
12.44
Discontinued Operations
$
0.00
($0.01 )
$
0.00
($0.01 )
TOTAL
($1.14 )
$
4.74
$
6.17
$
12.43
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (M’s):
Assuming Dilution
928.9
952.7
937.4
958.7
Basic
924.5
948.6
932.8
955.4
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
At
At
(Dollars in Millions)
December 31,
December 31,
2017
2016
ASSETS:
Current Assets:
Cash and cash equivalents
$
11,972
$
7,826
Marketable securities
608
701
Notes and accounts receivable - trade, net
8,928
9,182
Short-term financing receivables, net
21,721
19,006
Other accounts receivable, net
981
1,057
Inventory
1,583
1,553
Prepaid expenses and other current assets
3,942
4,564
Total Current Assets
49,735
43,888
Property, plant and equipment, net
11,116
10,830
Long-term financing receivables, net
9,550
9,021
Prepaid pension assets
4,643
3,034
Deferred taxes
4,862
5,224
Goodwill and intangibles, net
40,531
40,887
Investments and sundry assets
4,919
4,585
Total Assets
$
125,356
$
117,470
LIABILITIES:
Current Liabilities:
Taxes
$
4,219
$
3,235
Short-term debt
6,987
7,513
Accounts payable
6,451
6,209
Deferred income
11,552
11,035
Other liabilities
8,153
8,283
Total Current Liabilities
37,363
36,275
Long-term debt
39,837
34,655
Retirement related obligations
16,720
17,070
Deferred income
3,746
3,600
Other liabilities
9,965
7,477
Total Liabilities
107,631
99,078
EQUITY:
IBM Stockholders’ Equity:
Common stock
54,566
53,935
Retained earnings
153,126
152,759
Treasury stock -- at cost
(163,507 )
(159,050 )
Accumulated other comprehensive income/(loss)
(26,592 )
(29,398 )
Total IBM stockholders’ equity
17,594
18,246
Noncontrolling interests
131
146
Total Equity
17,725
18,392
Total Liabilities and Equity
$
125,356
$
117,470
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
Three Months Ended
Twelve Months Ended
(Dollars in Millions)
December 31,
December 31,
2017
2016
2017
2016
Net Cash Provided by Operating Activities per GAAP:
$
5,733
$
3,979
*
$ 16,724
$ 17,084
*
Less: change in Global Financing (GF)
Receivables
(2,049 )
(1,678 )
419
1,658
Capital Expenditures, Net
(965 )
(925 )
(3,312 )
(3,726 )
Free Cash Flow
6,817
4,731
*
12,992
11,700
*
Acquisitions
(53 )
(235 )
(496 )
(5,679 )
Divestitures
(240 )
(490 )
(205 )
(454 )
Dividends
(1,387 )
(1,329 )
(5,506 )
(5,256 )
Share Repurchase
(666 )
(871 )
(4,340 )
(3,502 )
Non-GF Debt
(840 )
(2,048 )
1,056
1,317
Other (includes GF Receivables and GF Debt)
(2,565 )
(1,200 )
*
552
2,208
*
Change in Cash, Cash Equivalents and
Short-term Marketable Securities
$
1,065
($1,441 )
$
4,053
$
332
* Reclassified to reflect adoption of the FASB guidance on
stock-based compensation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
Three Months Ended
Twelve Months Ended
(Dollars in Millions)
December 31,
December 31,
2017
2016
2017
2016
Net Income from Operations
($1,054 )
$
4,501
$
5,753
$
11,872
Depreciation/Amortization of Intangibles
1,150
1,127
4,541
4,381
Stock-based Compensation
146
141
534
544
Working Capital / Other
7,540
(113 )
*
5,476
(1,371 )
*
Global Financing A/R
(2,049 )
(1,678 )
419
1,658
Net Cash Provided by Operating Activities
$
5,733
$
3,979
*
$
16,724
$
17,084
*
Capital Expenditures, net of payments & proceeds
(965 )
(925 )
(3,312 )
(3,726 )
Divestitures, net of cash transferred
(240 )
(490 )
(205 )
(454 )
Acquisitions, net of cash acquired
(53 )
(235 )
(496 )
(5,679 )
Marketable Securities / Other Investments, net
(2,559 )
(2,038 )
(3,083 )
(1,116 )
Net Cash Used in Investing Activities
($3,818 )
($3,687 )
($7,096 )
($10,976 )
Debt, net of payments & proceeds
1,137
875
3,446
2,763
Dividends
(1,387 )
(1,329 )
(5,506 )
(5,256 )
Common Stock Repurchases
(666 )
(871 )
(4,340 )
(3,502 )
Common Stock Transactions - Other
(3 )
26
*
(18 )
78
*
Net Cash Used in Financing Activities
($919 )
($1,298 )
*
($6,418 )
($5,917 )
*
Effect of Exchange Rate changes on Cash
62
(206 )
937
(51 )
Net Change in Cash & Cash Equivalents
$
1,057
($1,213 )
$
4,146
$
140
* Reclassified to reflect adoption of the FASB guidance on
stock-based compensation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
FOURTH - QUARTER 2017
Cognitive Solutions &
Industry Services
Technology
Global
Services &
(Dollars in Millions)
Cognitive
Business
Cloud
Global
Solutions
Services
Platforms
Systems
Financing
Revenue
External
$ 5,432
$ 4,152
$ 9,198
$ 3,332
$
450
Internal
646
92
160
179
546
Total Segment Revenue
$ 6,078
$ 4,244
$ 9,358
$ 3,511
$
997
Pre-tax Income from Continuing Operations
2,279
337
1,456
908
443
Pre-tax margin
37.5 %
7.9 %
15.6 %
25.9 %
44.4 %
Change YTY Revenue - External
2.5 %
0.7 %
(1.2 )%
31.7 %
0.8 %
Change YTY Revenue - External @constant currency
0.0 %
(1.5 )%
(4.0 )%
28.5 %
(1.8 )%
FOURTH - QUARTER 2016
Cognitive Solutions &
Industry Services
Technology
Global
Services &
(Dollars in Millions)
Cognitive
Business
Cloud
Global
Solutions
Services
Platforms
Systems
Financing
Revenue
External
$ 5,297
$ 4,121
$ 9,308
$ 2,530
$
447
Internal
701
100
214
156
462
Total Segment Revenue
$ 5,999
$ 4,221
$ 9,522
$ 2,686
$
909
Pre-tax Income from Continuing Operations
2,313
522
1,882
579
448
Pre-tax margin
38.6 %
12.4 %
19.8 %
21.6 %
49.3 %
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
TWELVE - MONTHS 2017
Cognitive Solutions &
Industry Services
Technology
Global
Services &
(Dollars in Millions)
Cognitive
Business
Cloud
Global
Solutions
Services
Platforms
Systems
Financing
Revenue
External
$ 18,453
$ 16,348
$ 34,277
$ 8,194
$
1,696
Internal
2,647
363
657
750
1,471
Total Segment Revenue
$ 21,100
$ 16,711
$ 34,934
$ 8,945
$
3,168
Pre-tax Income from Continuing Operations
6,817
1,401
4,344
1,135
1,279
Pre-tax margin
32.3 %
8.4 %
12.4 %
12.7 %
40.4 %
Change YTY Revenue - External
1.5 %
(2.1 )%
(3.0 )%
6.2 %
0.3 %
Change YTY Revenue - External @constant currency
1.0 %
(1.8 )%
(3.4 )%
5.4 %
(0.7 )%
TWELVE - MONTHS 2016
Cognitive Solutions &
Industry Services
Technology
Global
Services &
(Dollars in Millions)
Cognitive
Business
Cloud
Global
Solutions
Services
Platforms
Systems
Financing
Revenue
External
$ 18,187
$ 16,700
$ 35,337
$ 7,714
$
1,692
Internal
2,630
409
715
750
1,802
Total Segment Revenue
$ 20,817
$ 17,109
$ 36,052
$ 8,464
$
3,494
Pre-tax Income from Continuing Operations
6,352
1,732
4,707
933
1,656
Pre-tax margin
30.5 %
10.1 %
13.1 %
11.0 %
47.4 %
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
FOURTH - QUARTER 2017
CONTINUING OPERATIONS
Acquisition-
Retirement-
Tax Reform
Related
Related
One-Time
Operating
GAAP
Adjustments*
Adjustments**
Charge (1)
(Non-GAAP)
Gross Profit
$ 10,862
$
99
$
209
-
$ 11,170
Gross Profit Margin
48.2 %
0.4Pts
0.9Pts
-
49.5 %
S,G&A
5,147
(116 )
(145 )
-
4,886
R,D&E
1,427
-
(50 )
-
1,378
Other (Income) & Expense
2
(32 )
-
-
(30 )
Total Expense & Other (Income)
6,393
(148 )
(195 )
-
6,050
Pre-tax Income from Continuing Operations
4,469
247
404
-
5,120
Pre-tax Income Margin from Continuing Operations
19.8 %
1.1Pts
1.8Pts
-
22.7 %
Provision for Income Taxes***
5,522
67
197
(5,475 )
310
Effective Tax Rate
123.6 %
-4.7Pts
-5.9Pts
-106.9Pts
6.1 %
Income / (Loss) from Continuing Operations
(1,053 )
181
206
5,475
4,809
Income / (Loss) Margin from Continuing Operations
(4.7 )%
0.8Pts
0.9Pts
24.3Pts
21.3 %
Diluted Earnings / (Loss) Per Share: Continuing Operations
($1.14 )
$ 0.19
$ 0.22
$
5.91
$
5.18
(1)
Operating (non-GAAP) earnings excludes a one-time charge of
$5.5 billion associated with the enactment of U.S. tax reform due
to its unique non-recurring nature.
FOURTH - QUARTER 2016
CONTINUING OPERATIONS
Acquisition-
Retirement-
Related
Related
Operating
GAAP
Adjustments*
Adjustments**
(Non-GAAP)
Gross Profit
$ 10,893
$
124
$
78
$ 11,095
Gross Profit Margin
50.0 %
0.6Pts
0.4Pts
51.0 %
S,G&A
4,976
(136 )
(69 )
4,771
R,D&E
1,431
-
(6 )
1,425
Other (Income) & Expense
(136 )
0
-
(136 )
Total Expense & Other (Income)
5,907
(136 )
(76 )
5,696
Pre-tax Income from Continuing Operations
4,986
260
154
5,399
Pre-tax Income Margin from Continuing Operations
22.9 %
1.2Pts
0.7Pts
24.8 %
Provision for Income Taxes***
480
66
77
623
Effective Tax Rate
9.6 %
0.8Pts
1.1Pts
11.5 %
Income from Continuing Operations
4,505
193
77
4,776
Income Margin from Continuing Operations
20.7 %
0.9Pts
0.4Pts
21.9 %
Diluted Earnings Per Share: Continuing Operations
$
4.73
$ 0.20
$ 0.08
$
5.01
*
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)
TWELVE - MONTHS 2017
CONTINUING OPERATIONS
Acquisition-
Retirement-
Tax Reform
Related
Related
One-Time
Operating
GAAP
Adjustments*
Adjustments**
Charge (1)
(Non-GAAP)
Gross Profit
$ 36,227
$
449
$
799
-
$ 37,475
Gross Profit Margin
45.8 %
0.6Pts
1.0Pts
-
47.4 %
S,G&A
20,107
(509 )
(472 )
-
19,126
R,D&E
5,787
-
(197 )
-
5,590
Other (Income) & Expense
(216 )
(39 )
-
-
(255 )
Total Expense & Other (Income)
24,827
(548 )
(669 )
-
23,609
Pre-tax Income from Continuing Operations
11,400
997
1,468
-
13,866
Pre-tax Income Margin from Continuing Operations
14.4 %
1.3Pts
1.9Pts
-
17.5 %
Provision for Income Taxes***
5,642
279
485
(5,475 )
931
Effective Tax Rate
49.5 %
-1.5Pts
-1.7Pts
-39.5Pts
6.7 %
Income from Continuing Operations
5,758
718
983
5,475
12,935
Income Margin from Continuing Operations
7.3 %
0.9Pts
1.2Pts
6.9Pts
16.3 %
Diluted Earnings Per Share: Continuing Operations
$
6.14
$ 0.77
$
1.05
$
5.84
$
13.80
(1)
Operating (non-GAAP) earnings excludes a one-time charge of
$5.5 billion associated with the enactment of U.S. tax reform due
to its unique non-recurring nature.
TWELVE - MONTHS 2016
CONTINUING OPERATIONS
Acquisition-
Retirement-
Related
Related
Operating
GAAP
Adjustments*
Adjustments**
(Non-GAAP)
Gross Profit
$38,294
$494
$316
$39,104
Gross Profit Margin
47.9%
0.6Pts
0.4Pts
48.9%
S,G&A
21,069
(501)
(253)
20,315
R,D&E
5,751
-
(29)
5,722
Other (Income) & Expense
145
(7)
-
138
Total Expense & Other (Income)
25,964
(508)
(282)
25,174
Pre-Tax Income from Continuing Operations
12,330
1,003
598
13,931
Pre-tax Income Margin from Continuing Operations
15.4%
1.3Pts
0.7Pts
17.4%
Provision for Income Taxes***
449
268
183
900
Effective Tax Rate
3.6%
1.7Pts
1.2Pts
6.5%
Income from Continuing Operations
11,881
735
415
13,031
Income Margin from Continuing Operations
14.9%
0.9Pts
0.5Pts
16.3%
Diluted Earnings Per Share: Continuing Operations
$12.39
$0.77
$0.43
$13.59
*
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.

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