IBM
$145.13
IBM
($.13)
(.09%)
Earnings Details
2nd Quarter June 2017
Tuesday, July 18, 2017 4:06:00 PM
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Summary

IBM Beats

IBM (IBM) reported 2nd Quarter June 2017 earnings of $2.97 per share on revenue of $19.3 billion. The consensus earnings estimate was $2.73 per share on revenue of $19.5 billion. The Earnings Whisper number was $2.79 per share. Revenue fell 4.7% compared to the same quarter a year ago.

The company said it continues to expect 2017 earnings of at least $13.80 per share. The current consensus earnings estimate is $13.73 per share for the year ending December 31, 2017

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
$2.97
Earnings Whisper
$2.79
Consensus Estimate
$2.73
Reported Revenue
$19.29 Bil
Revenue Estimate
$19.46 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

IBM Reports 2017 Second-Quarter Results

IBM (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 (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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