IBM Reports 2017 Third-Quarter Results

IBM Reports 2017 Third-Quarter Results

Intnl Bus. Mach

IBM (NYSE:IBM)

Highlights

  • Diluted EPS from continuing operations: GAAP of $2.92; Operating (non-GAAP) of $3.30
  • Revenue of $19.2 billion
  • Strategic imperatives revenue of $34.9 billion over the trailing 12 months, up 10 percent; represents 45 percent of IBM revenue

    -- Third-quarter revenue up 11 percent (up 10 percent adjusting for currency)
  • Cloud revenue of $15.8 billion over the trailing 12 months, up 25 percent year to year (up 26 percent adjusting for currency)

    -- As-a-service annual exit run rate of $9.4 billion in the quarter, up 25 percent year to year (up 24 percent adjusting for currency)
  • Maintains full-year EPS and free cash flow expectations

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

"In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business," said Ginni Rometty, IBM chairman, president and chief executive officer. "There was enthusiastic adoption of IBM's new z Systems mainframe, which delivers breakthrough security capabilities to our clients.

      THIRD QUARTER 2017
    Gross Profit  
Diluted EPS   Net Income   Margin
GAAP from Continuing Operations $2.92 $2.7B 45.9%
Year/Year   -2%   -4%   -0.9Pts
Operating (Non-GAAP) $3.30 $3.1B 47.6%
Year/Year   0%   -2%   -0.4Pts
As-a-service
Strategic annual exit
REVENUE   Total IBM   Imperatives   Cloud   run rate
As reported (US$) $19.2B $8.8B $4.1B $9.4B
Year/Year   0%   11%   20%   25%
Year/Year adjusting for currency   -1%   10%   20%   24%
 

"During the first three quarters of the year, our strong free cash flow has enabled us to maintain our R&D investments and to expand IBM's cloud and cognitive capabilities through capital investments," said Martin Schroeter, IBM senior vice president and chief financial officer. "In addition, we have returned nearly $8 billion to shareholders through dividends and share repurchases."

Strategic Imperatives Revenue

Third-quarter cloud revenues increased 20 percent to $4.1 billion. Cloud revenue over the last 12 months was $15.8 billion, including $8.8 billion delivered as-a-service and $7.0 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 $9.4 billion from $7.5 billion in the third quarter of 2016. In the quarter, revenues from analytics increased 5 percent. Revenues from mobile increased 7 percent and revenues from security increased 51 percent (up 49 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 third quarter, the company generated net cash from operating activities of $3.6 billion, or $3.3 billion excluding Global Financing receivables. IBM’s free cash flow was $2.5 billion. IBM returned $1.4 billion in dividends and $0.9 billion of gross share repurchases to shareholders. At the end of September 2017, IBM had $1.5 billion remaining in the current share repurchase authorization.

IBM ended the third quarter of 2017 with $11.5 billion of cash on hand. Debt totaled $45.6 billion, including Global Financing debt of $29.4 billion. The balance sheet remains strong and is well positioned over the long term.

Segment Results for Third Quarter

  • Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of $4.4 billion, up 4 percent (up 3 percent adjusting for currency), driven by solutions software, including security and analytics, and transaction processing software.
  • Global Business Services (includes consulting, global process services and application management) -- revenues of $4.1 billion, down 2 percent. Strategic imperatives revenue grew 10 percent led by the cloud practice.
  • Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) -- revenues of $8.5 billion, down 3 percent (down 4 percent adjusting for currency). Strategic imperatives revenue grew 12 percent, driven by hybrid cloud services, security and mobile.
  • Systems (includes systems hardware and operating systems software) -- revenues of $1.7 billion, up 10 percent, driven by growth in z Systems and storage.
  • Global Financing (includes financing and used equipment sales) -- revenues of $427 million, up 4 percent (up 3 percent adjusting for currency).

Expense and Other Income

Third-quarter GAAP expense and other income year-to-year performance reflects lower IP income of $221 million, an impact of $105 million year to year related to several commercial disputes and a benefit of $91 million resulting from the favorable resolution of pension-related litigation in the U.K.

Operating (non-GAAP) expense and other income for the third quarter of 2017 compared to 2016 reflects lower IP income of $221 million and an impact of $105 million year to year related to several commercial disputes.

Tax Rate

IBM's third-quarter effective GAAP and operating (non-GAAP) tax rates were 11.0 percent and 14.7 percent, respectively. The company continues to expect a full-year 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 $7.24 compared to $7.67, down 6 percent year to year. Consolidated net income was $6.8 billion compared to $7.4 billion in the year-ago period, a decrease of 8 percent. Revenues from continuing operations for the nine-month period totaled $56.6 billion, a decrease of 3 percent year to year (decrease of 2 percent adjusting for currency) compared with $58.1 billion for the first nine months of 2016.

Operating (non-GAAP) diluted earnings per share from continuing operations were $8.64 compared with $8.59 per diluted share for the 2016 period, an increase of 1 percent. Operating (non-GAAP) net income for the nine months ended September 30, 2017 was $8.1 billion compared with $8.3 billion in the year-ago period, a decrease of 2 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/3q17.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   Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
   
REVENUE
Cognitive Solutions $ 4,400 $ 4,235 $ 13,021 $ 12,889
Global Business Services 4,093 4,191 12,196 12,578
Technology Services & Cloud Platforms 8,457 8,748 25,079 26,029
Systems 1,721 1,558 4,863 5,184
Global Financing 427 412 1,246 1,245
Other   56       81     192       223  
TOTAL REVENUE 19,153 19,226 56,597 58,149
 
GROSS PROFIT 8,800 9,013 25,365 27,401
 
GROSS PROFIT MARGIN
Cognitive Solutions 78.7 % 80.4 % 78.4 % 81.5 %
Global Business Services 27.3 % 28.8 % 25.3 % 27.0 %
Technology Services & Cloud Platforms 41.1 % 42.0 % 40.2 % 41.5 %
Systems 53.6 % 51.1 % 51.5 % 55.1 %
Global Financing 25.2 % 37.8 % 29.2 % 39.6 %
 
TOTAL GROSS PROFIT MARGIN 45.9 % 46.9 % 44.8 % 47.1 %
 
 
EXPENSE AND OTHER INCOME
S,G&A 4,648 4,732 14,959 16,093
R,D&E 1,342 1,397 4,360 4,320
Intellectual property and
custom development income (308 ) (528 ) (1,118 ) (1,110 )
Other (income) and expense (114 ) (8 ) (218 ) 281
Interest expense 168 158 451 473
           
TOTAL EXPENSE AND OTHER INCOME 5,735 5,751 18,434 20,056
 
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 3,065 3,263 6,931 7,345
Pre-tax margin 16.0 % 17.0 % 12.2 % 12.6 %
Provision for / (Benefit from) income taxes 339 409 120 (31 )
Effective tax rate 11.0 % 12.5 % 1.7 % (0.4 %)
 
INCOME FROM CONTINUING OPERATIONS $ 2,726 $ 2,854 $ 6,811 $ 7,375
 
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes   (0 )     (1 )   (3 )     (4 )
 
NET INCOME $ 2,726     $ 2,853   $ 6,807     $ 7,371  
 
 
EARNINGS PER SHARE OF COMMON STOCK:
Assuming Dilution
Continuing Operations $ 2.92 $ 2.98 $ 7.24 $ 7.67
Discontinued Operations $ 0.00     $ 0.00   $ 0.00     $ 0.00  
TOTAL $ 2.92     $ 2.98   $ 7.24     $ 7.67  
 
Basic
Continuing Operations $ 2.93 $ 2.99 $ 7.28 $ 7.70
Discontinued Operations $ 0.00     $ 0.00   $ 0.00     $ 0.00  
TOTAL $ 2.93     $ 2.99   $ 7.28     $ 7.70  
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (M's):
Assuming Dilution 933.2 957.3 940.2 960.7
Basic 929.4 954.0 935.6 957.7
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
 
  At   At
(Dollars in Millions) September 30, December 31,
2017 2016
ASSETS:
 
Current Assets:
Cash and cash equivalents $ 10,915 $ 7,826
Marketable securities 600 701
Notes and accounts receivable - trade, net 8,150 9,182
Short-term financing receivables, net 18,050 19,006
Other accounts receivable, net 926 1,057
Inventory 1,711 1,553
Prepaid expenses and other current assets 4,389 4,564
   
Total Current Assets 44,742 43,888
 
Property, plant and equipment, net 11,057 10,830
Long-term financing receivables, net 8,459 9,021
Prepaid pension assets 4,521 3,034
Deferred taxes 7,289 5,224
Goodwill and intangibles, net 40,763 40,887
Investments and sundry assets 4,806 4,585
   
Total Assets $ 121,636   $ 117,470  
 
 
LIABILITIES:
 
Current Liabilities:
Taxes $ 3,038 $ 3,235
Short-term debt 4,299 7,513
Accounts payable 5,442 6,209
Deferred income 10,649 11,035
Other liabilities 8,270 8,283
   
Total Current Liabilities 31,697 36,275
 
Long-term debt 41,327 34,655
Retirement related obligations 17,554 17,070
Deferred income 3,579 3,600
Other liabilities 7,723 7,477
   
Total Liabilities 101,879 99,078
 
 
EQUITY:
 
IBM Stockholders' Equity:
Common stock 54,395 53,935
Retained earnings 155,565 152,759
Treasury stock -- at cost (162,812 ) (159,050 )
Accumulated other comprehensive income/(loss) (27,521 ) (29,398 )
   
Total IBM stockholders' equity 19,627 18,246
 
Noncontrolling interests 130 146
   
Total Equity 19,757 18,392
   
Total Liabilities and Equity $ 121,636   $ 117,470  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended   Nine Months Ended
(Dollars in Millions) September 30, September 30,
2017   2016 2017   2016
 
Net Cash Provided by Operating Activities per GAAP: $ 3,570 $ 4,118 * ** $ 10,991 $ 13,105 * **
 
Less: change in Global Financing (GF)
Receivables 258 835 * 2,468 3,336 *
Capital Expenditures, Net (780 ) (851 ) (2,347 ) (2,801 )
 
Free Cash Flow 2,532 2,431 ** 6,176 6,969 **
 
Acquisitions (274 ) (40 ) (442 ) (5,445 )
Divestitures 6 0 35 35
Dividends (1,396 ) (1,337 ) (4,119 ) (3,927 )
Share Repurchase (949 ) (856 ) (3,674 ) (2,632 )
Non-GF Debt (467 ) (1,696 ) 1,896 3,365
Other (includes GF Receivables and GF Debt) (233 ) 850 * ** 3,117 3,408 * **
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities   ($780 )   ($648 ) $ 2,988   $ 1,773  
 
* 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   Nine Months Ended
(Dollars in Millions) September 30, September 30,
2017   2016 2017   2016
 
Net Income from Operations $ 2,726 $ 2,853 $ 6,807 $ 7,371
Depreciation/Amortization of Intangibles 1,175 1,126 3,392 3,253
Stock-based Compensation 123 142 388 403
Working Capital / Other (713 ) (839 ) ** (2,064 ) (1,258 ) **
Global Financing A/R 258 835 * 2,468 3,336 *
Net Cash Provided by Operating Activities $ 3,570 $ 4,118 * ** $ 10,991 $ 13,105 * **
Capital Expenditures, net of payments & proceeds (780 ) (851 ) (2,347 ) (2,801 )
Divestitures, net of cash transferred 6 - 35 35
Acquisitions, net of cash acquired (274 ) (40 ) (442 ) (5,445 )
Marketable Securities / Other Investments, net (875 ) (60 ) * (523 ) 921 *
Net Cash Used in Investing Activities ($1,923 ) ($951 ) * ($3,278 ) ($7,289 ) *
Debt, net of payments & proceeds (446 ) (2,041 ) 2,310 1,888
Dividends (1,396 ) (1,337 ) (4,119 ) (3,927 )
Common Stock Repurchases (949 ) (856 ) (3,674 ) (2,632 )
Common Stock Transactions - Other 35 49 ** (15 ) 52 **
Net Cash Used in Financing Activities ($2,756 ) ($4,185 ) ** ($5,499 ) ($4,619 ) **
Effect of Exchange Rate changes on Cash 328 41 875 155
Net Change in Cash & Cash Equivalents ($781 ) ($978 ) $ 3,089 $ 1,352
 
* 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)
 
  THIRD - QUARTER 2017
Cognitive Solutions &      
Industry Services
  Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions   Services   Platforms   Systems   Financing
Revenue
External $ 4,400 $ 4,093 $ 8,457 $ 1,721 $ 427
Internal   629       92       164       227       272  
Total Segment Revenue $ 5,030 $ 4,185 $ 8,621 $ 1,948 $ 698
 
Pre-tax Income from Continuing Operations 1,649 453 1,192 339 244
 
Pre-tax margin 32.8 % 10.8 % 13.8 % 17.4 % 34.9 %
 
Change YTY Revenue - External 3.9 % (2.3 )% (3.3 )% 10.4 % 3.7 %
Change YTY Revenue - External @constant currency 3.0 % (2.2 )% (4.1 )% 9.6 % 2.8 %
 
 
THIRD - QUARTER 2016
Cognitive Solutions &
Industry Services
Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions   Services   Platforms   Systems   Financing
Revenue
External $ 4,235 $ 4,191 $ 8,748 $ 1,558 $ 412
Internal   667       93       180       176       352  
Total Segment Revenue $ 4,902 $ 4,284 $ 8,929 $ 1,734 $ 763
 
Pre-tax Income from Continuing Operations 1,574 544 1,288 136 355
 
Pre-tax margin 32.1 % 12.7 % 14.4 % 7.8 % 46.5 %
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  NINE - MONTHS 2017
Cognitive Solutions &      
Industry Services
  Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions   Services   Platforms   Systems   Financing
Revenue
External $ 13,021 $ 12,196 $ 25,079 $ 4,863 $ 1,246
Internal   2,001       271       497       571       925  
Total Segment Revenue $ 15,022 $ 12,467 $ 25,576 $ 5,434 $ 2,171
 
Pre-tax Income from Continuing Operations 4,539 1,065 2,888 227 836
 
Pre-tax margin 30.2 % 8.5 % 11.3 % 4.2 % 38.5 %
 
Change YTY Revenue - External 1.0 % (3.0 )% (3.7 )% (6.2 )% 0.1 %
Change YTY Revenue - External @constant currency 1.3 % (1.9 )% (3.3 )% (5.9 )% (0.4 )%
 
 
NINE - MONTHS 2016
Cognitive Solutions &
Industry Services
Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions   Services   Platforms   Systems   Financing
Revenue
External $ 12,889 $ 12,578 $ 26,029 $ 5,184 $ 1,245
Internal   1,929       310       501       594       1,340  
Total Segment Revenue $ 14,818 $ 12,888 $ 26,530 $ 5,778 $ 2,585
 
Pre-tax Income from Continuing Operations 4,039 1,210 2,825 354 1,208
 
Pre-tax margin 27.3 % 9.4 % 10.6 % 6.1 % 46.7 %
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
 
  THIRD - QUARTER 2017
CONTINUING OPERATIONS
  Acquisition-   Retirement-  
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $ 8,800 $ 114 $ 203 $ 9,116
 
Gross Profit Margin 45.9 % 0.6Pts 1.1Pts 47.6 %
 
S,G&A 4,648 (125 ) (53 ) 4,470
 
R,D&E 1,342 - (51 ) 1,291
 
Other (Income) & Expense (114 ) 0 - (114 )
 
Total Expense & Other (Income) 5,735 (125 ) (103 ) 5,507
 
Pre-tax Income from Continuing Operations 3,065 238 306 3,609
 
Pre-tax Income Margin from Continuing Operations 16.0 % 1.2Pts 1.6Pts 18.8 %
 
Provision for / (Benefit from) Income Taxes*** 339 79 113 531
 
Effective Tax Rate 11.0 % 1.5Pts 2.2Pts 14.7 %
 
Income from Continuing Operations 2,726 159 193 3,079
 
Income Margin from Continuing Operations 14.2 % 0.8Pts 1.0Pts 16.1 %
 
Diluted Earnings Per Share: Continuing Operations $ 2.92 $ 0.17 $ 0.21 $ 3.30
 
 
THIRD - QUARTER 2016
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $ 9,013 $ 129 $ 79 $ 9,221
 
Gross Profit Margin 46.9 % 0.7Pts 0.4Pts 48.0 %
 
S,G&A 4,732 (138 ) (53 ) 4,541
 
R,D&E 1,397 - (7 ) 1,390
 
Other (Income) & Expense (8 ) (2 ) - (10 )
 
Total Expense & Other (Income) 5,751 (140 ) (60 ) 5,550
 
Pre-tax Income from Continuing Operations 3,263 269 139 3,671
 
Pre-tax Income Margin from Continuing Operations 17.0 % 1.4Pts 0.7Pts 19.1 %
 
Provision for / (Benefit from) Income Taxes*** 409 73 40 521
 
Effective Tax Rate 12.5 % 1.1Pts 0.6Pts 14.2 %
 
Income from Continuing Operations 2,854 197 99 3,149
 
Income Margin from Continuing Operations 14.8 % 1.0Pts 0.5Pts 16.4 %
 
Diluted Earnings Per Share: Continuing Operations $ 2.98 $ 0.21 $ 0.10 $ 3.29

*

 

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)
 
  NINE - MONTHS 2017
CONTINUING OPERATIONS
  Acquisition-   Retirement-  
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $ 25,365 $ 349 $ 591 $ 26,305
 
Gross Profit Margin 44.8 % 0.6Pts 1.0Pts 46.5 %
 
S,G&A 14,959 (393 ) (326 ) 14,240
 
R,D&E 4,360 - (148 ) 4,212
 
Other (Income) & Expense (218 ) (7 ) - (225 )
 
Total Expense & Other (Income) 18,434 (401 ) (474 ) 17,559
 
Pre-tax Income from Continuing Operations 6,931 750 1,065 8,746
 
Pre-tax Income Margin from Continuing Operations 12.2 % 1.3Pts 1.9Pts 15.5 %
 
Provision for / (Benefit from) Income Taxes*** 120 212 288 621
 
Effective Tax Rate 1.7 % 2.3Pts 3.1Pts 7.1 %
 
Income from Continuing Operations 6,811 537 777 8,125
 
Income Margin from Continuing Operations 12.0 % 0.9Pts 1.4Pts 14.4 %
 
Diluted Earnings Per Share: Continuing Operations $ 7.24 $ 0.57 $ 0.83 $ 8.64
 
 
NINE - MONTHS 2016
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $ 27,401 $ 371 $ 238 $ 28,010
 
Gross Profit Margin 47.1 % 0.6Pts 0.4Pts 48.2 %
 
S,G&A 16,093 (365 ) (183 ) 15,545
 
R,D&E 4,320 - (23 ) 4,297
 
Other (Income) & Expense 281 (7 ) - 274
 
Total Expense & Other (Income) 20,056 (372 ) (206 ) 19,478
 
Pre-Tax Income from Continuing Operations 7,345 743 444 8,532
 
Pre-tax Income Margin from Continuing Operations 12.6 % 1.3Pts 0.8Pts 14.7 %
 
Provision for / (Benefit from) Income Taxes*** (31 ) 201 106 277
 
Effective Tax Rate (0.4 )% 2.4Pts 1.3Pts 3.2 %
 
Income from Continuing Operations 7,375 542 338 8,255
 
Income Margin from Continuing Operations 12.7 % 0.9Pts 0.6Pts 14.2 %
 
Diluted Earnings Per Share: Continuing Operations $ 7.67 $ 0.57 $ 0.35 $ 8.59

*

 

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.

 

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 September 30, 2017
 

IBM
Ian Colley, 914-434-3043
colley@us.ibm.com
or
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com

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