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Intnl Bus. Mach (IBM)

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Friday 19 January, 2018

Intnl Bus. Mach

IBM Reports 2017 Fourth-Quarter and Full-Year Results

IBM Reports 2017 Fourth-Quarter and Full-Year Results

IBM

IBM (NYSE: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 (NYSE: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.

 

IBM
Ian Colley, 914-434-3043
[email protected]
or
John Bukovinsky, 732-618-3531
[email protected]


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