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IBM Reports 2016 Third-Quarter Earnings

Montag, 17.10.2016 22:15



ARMONK, N.Y. --(BUSINESS WIRE)--

IBM (NYSE:IBM) today announced third-quarter 2016 earnings results.

"IBM's third-quarter performance, led by continued double-digit growth in our strategic imperatives, is a testament to our leadership in cognitive solutions and cloud," said Ginni Rometty, IBM chairman, president and chief executive officer. "Our ability to apply deep expertise and breakthrough technology, led by Watson and the IBM Cloud, to massive amounts of data is enabling us to build new markets and transform industries. Whether it is banks implementing IBM blockchain solutions, hospitals leveraging Watson to fight cancer, or retailers using cognitive apps built on the IBM Cloud to transform the customer experience, clients across all industries are tapping into a new kind of innovation value from IBM."

  THIRD QUARTER 2016
    Gross Profit
Diluted EPS   Net Income   Margin
 
GAAP from Continuing Operations $2.98 $2.9B 46.9%
Year/Year   -1%   -4%   -2.1Pts
 
Operating (Non-GAAP) $3.29 $3.1B 48.0%
Year/Year   -1%   -4%   -2.1Pts
 
Strategic
REVENUE   Total IBM   Imperatives   Cloud
 
As reported (US$) $19.2B $8.0B $3.4B
 
Year/Year   0%   16%   44%
Year/Year adjusting for currency   -1%   15%   42%
 

"Throughout the year, we have continued to invest where we see the greatest opportunities to create new markets and strengthen our enterprise IT leadership position," said Martin Schroeter, IBM senior vice president and chief financial officer. "This has included more than $12 billion across capital expenditures, R&D and acquisitions so far this year. At the same time, we have returned more than $6 billion to shareholders through dividends and share repurchases."

Strategic Imperatives

Third-quarter revenues from the company’s strategic imperatives --- cloud, analytics, mobility and security --- increased 16 percent year to year (up 15 percent adjusting for currency). Cloud revenues (public, private and hybrid) for the quarter increased 44 percent (up 42 percent adjusting for currency). Cloud revenue over the trailing 12 months was $12.7 billion. The annual run rate for cloud as-a-Service revenue --- a subset of total cloud revenue --- increased to $7.5 billion from $4.5 billion in the third quarter of 2015. Revenues from analytics increased 15 percent (up 14 percent adjusting for currency). Revenues from mobile increased 19 percent and revenues from security increased 11 percent.

Full-Year 2016 Expectations

The company continues to expect operating (non-GAAP) diluted earnings per share of at least $13.50 and GAAP diluted earnings per share of at least $12.23. Operating (non-GAAP) diluted earnings per share exclude $1.27 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges. There is no change to IBM's previously-provided free cash flow guidance.

Cash Flow and Balance Sheet

The company generated net cash from operating activities of $4.2 billion; or $3.3 billion excluding Global Financing receivables. IBM’s free cash flow was $2.4 billion in the third quarter. IBM returned $1.3 billion in dividends and $0.9 billion of gross share repurchases to shareholders. At the end of September 2016, IBM had $3.0 billion remaining in the current share repurchase authorization.

IBM ended the third-quarter 2016 with $10.0 billion of cash on hand. Debt, including Global Financing debt of $26.1 billion, totaled $42.5 billion. Core (non-Global Financing) debt totaled $16.4 billion. The balance sheet remains strong and is well positioned to support the business over the long term.

Segment Results

  • Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of $4.2 billion, up 4.5 percent. Cloud revenue within the segment grew 74 percent (up 75 percent adjusting for currency), and Solutions Software grew 8 percent.
  • Global Business Services (includes consulting, global process services, application management) -- revenues of $4.2 billion, down 0.4 percent (down 1.6 percent adjusting for currency). Strategic imperatives revenue within the segment was up 13 percent (up 12 percent adjusting for currency).
  • Technology Services & Cloud Platforms (includes infrastructure services, technical support services, integration software) -- revenues of $8.7 billion, up 2.4 percent (up 1.4 percent adjusting for currency). Growth of 45 percent (up 42 percent adjusting for currency) in strategic imperatives revenue within the segment was driven by strong hybrid cloud services performance.
  • Systems (includes systems hardware and operating systems software) -- revenues of $1.6 billion, down 21.0 percent (down 21.5 percent adjusting for currency). Revenue reflects z Systems product cycle dynamics.
  • Global Financing (includes financing and used equipment sales) -- revenues of $412 million, down 7.9 percent (down 9.2 percent adjusting for currency).

Year-To-Date 2016 Results

Diluted earnings per share from continuing operations were $7.67, down 15 percent compared to the 2015 period. Net income from continuing operations for the nine months ended September 30, 2016 was $7.4 billion compared with $8.9 billion in the year-ago period, a decrease of 17 percent.

Consolidated net income was $7.4 billion compared to $8.7 billion in the year-ago period. Consolidated diluted earnings per share were $7.67 compared to $8.85, down 13 percent year to year. Revenues from continuing operations for the nine-month period totaled $58.1 billion, a decrease of 3 percent year to year (down 2 percent adjusting for currency) compared with $59.7 billion for the first nine months of 2015.

Operating (non-GAAP) diluted earnings per share from continuing operations were $8.59 compared with $10.09 per diluted share for the 2015 period, a decrease of 15 percent. Operating (non-GAAP) net income from continuing operations for the nine months ended September 30, 2016 was $8.3 billion compared with $10.0 billion in the year-ago period, a decrease of 17 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/3q16.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,
2016   2015* 2016   2015*
 
REVENUE
Cognitive Solutions $ 4,235 $ 4,052 $ 12,889 $ 12,616
Global Business Services 4,191 4,206 12,578 12,869
Technology Services & Cloud Platforms 8,748 8,541 26,029 25,993
Systems 1,558 1,973 5,184 6,656
Global Financing 412 447 1,245 1,386
Other   81     60     223     162  
TOTAL REVENUE 19,226 19,280 58,149 59,682
 
GROSS PROFIT 9,013 9,436 27,401 29,278
 
GROSS PROFIT MARGIN
Cognitive Solutions 80.4 % 84.4 % 81.5 % 84.9 %
Global Business Services 28.8 % 29.7 % 27.0 % 28.2 %
Technology Services & Cloud Platforms 42.0 % 42.2 % 41.5 % 42.2 %
Systems 51.1 % 55.9 % 55.1 % 55.8 %
Global Financing 37.8 % 48.4 % 39.6 % 47.5 %
 
TOTAL GROSS PROFIT MARGIN 46.9 % 48.9 % 47.1 % 49.1 %
 
 
EXPENSE AND OTHER INCOME
S,G&A 4,732 4,731 16,093 15,273
R,D&E 1,397 1,287 4,320 3,885
Intellectual property and
custom development income (528 ) (188 ) (1,110 ) (489 )
Other (income) and expense (8 ) (133 ) 281 (578 )
Interest expense 158 117 473 340
       
TOTAL EXPENSE AND OTHER INCOME 5,751 5,815 20,056 18,431
 
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 3,263 3,621 7,345 10,846
Pre-tax margin 17.0 % 18.8 % 12.6 % 18.2 %
 
Provision for / (Benefit) from income taxes 409 659 (31 ) 1,943
Effective tax rate 12.5 % 18.2 % (0.4 %) 17.9 %
 
INCOME FROM CONTINUING OPERATIONS $ 2,854 $ 2,962 $ 7,375 $ 8,904
 
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of taxes   (1 )   (12 )   (4 )   (176 )
 
NET INCOME $ 2,853   $ 2,950   $ 7,371   $ 8,727  
 
 
EARNINGS PER SHARE OF COMMON STOCK:
Assuming Dilution
Continuing Operations $ 2.98 $ 3.02 $ 7.67 $ 9.03
Discontinued Operations $ 0.00     ($0.01 ) $ 0.00     ($0.18 )
TOTAL $ 2.98   $ 3.01   $ 7.67   $ 8.85  
 
Basic
Continuing Operations $ 2.99 $ 3.04 $ 7.70 $ 9.07
Discontinued Operations $ 0.00     ($0.01 ) $ 0.00     ($0.18 )
TOTAL $ 2.99   $ 3.03   $ 7.70   $ 8.89  
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (M's):
Assuming Dilution 957.3 979.0 960.7 986.0
Basic 954.0 975.1 957.7 981.8
 
* Recast to conform with 2016 segment presentation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
 
  At   At
(Dollars in Millions) September 30, December 31,
2016 2015
ASSETS:
 
Current Assets:
Cash and cash equivalents $ 9,039 $ 7,686
Marketable securities 929 508
Notes and accounts receivable - trade, net 8,291 8,333
Short-term financing receivables, net 16,032 19,020
Other accounts receivable, net 873 1,201
Inventory 1,729 1,551
Prepaid expenses and other current assets 4,539 4,205
   
Total Current Assets 41,433 42,504
 
Property, plant and equipment, net 11,104 10,727
Long-term financing receivables, net 8,936 10,013
Prepaid pension assets 3,487 1,734
Deferred taxes 4,289 4,822
Goodwill and intangibles, net 41,282 35,508
Investments and sundry assets 5,075 5,187
   
Total Assets $ 115,606   $ 110,495  
 
 
LIABILITIES:
 
Current Liabilities:
Taxes $ 2,137 $ 2,847
Short-term debt 6,920 6,461
Accounts payable 5,271 6,028
Deferred income 10,815 11,021
Other liabilities 9,304 7,913
   
Total Current Liabilities 34,447 34,269
 
Long-term debt 35,563 33,428
Retirement related obligations 16,688 16,504
Deferred income 3,611 3,771
Other liabilities 8,138 8,099
   
Total Liabilities 98,447 96,071
 
 
EQUITY:
 
IBM Stockholders' Equity:
Common stock 53,759 53,262
Retained earnings 149,585 146,124
Treasury stock -- at cost (158,170 ) (155,518 )
Accumulated other comprehensive income/(loss) (28,164 ) (29,607 )
   
Total IBM stockholders' equity 17,010 14,262
 
Noncontrolling interests 149 162
   
Total Equity 17,159 14,424
   
Total Liabilities and Equity $ 115,606   $ 110,495  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended   Nine Months Ended
(Dollars in Millions) September 30, September 30,
2016   2015 2016   2015
 
Net Cash Provided by Operating Activities per GAAP: $ 4,213 $ 4,235 $ 13,301 $ 11,729
 
Less: change in Global Financing (GF)
Receivables 934 749 3,647 1,962
Capital Expenditures, Net (851 ) (934 ) (2,801 ) (2,764 )
 
Free Cash Flow 2,428 2,553 6,854 7,003
 
Acquisitions (40 ) (112 ) (5,445 ) (821 )
Divestitures 0 (568 ) 35 (488 )
Dividends (1,337 ) (1,271 ) (3,927 ) (3,636 )
Share Repurchase (856 ) (1,542 ) (2,632 ) (3,846 )
Non-GF Debt (1,696 ) 379 3,365 770
Other (includes GF Receivables and GF Debt) 853 1,370 3,523 2,108
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities   ($648 )   $ 808   $ 1,773   $ 1,091  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
 
  Three Months Ended   Nine Months Ended
(Dollars in Millions) September 30, September 30,
2016   2015 2016   2015
 
Net Income from Operations $ 2,853 $ 2,950 $ 7,371 $ 8,727
Depreciation/Amortization of Intangibles 1,126 936 3,253 2,865
Stock-based Compensation 142 111 403 369
Working Capital / Other (842 ) (522 ) (1,373 ) (2,243 )
Global Financing A/R 934 749 3,647 1,962
Loss on Microelectronics Business Disposal 0 12 0 48
Net Cash Provided by Operating Activities $ 4,213 $ 4,235 $ 13,301 $ 11,729
Capital Expenditures, net of payments & proceeds (851 ) (934 ) (2,801 ) (2,764 )
Divestitures, net of cash transferred 0 (568 ) 35 (488 )
Acquisitions, net of cash acquired (40 ) (112 ) (5,445 ) (821 )
Marketable Securities / Other Investments, net (159 ) 272 610 1,358
Net Cash Used in Investing Activities ($1,050 ) ($1,343 ) ($7,600 ) ($2,714 )
Debt, net of payments & proceeds (2,041 ) 915 1,888 (607 )
Dividends (1,337 ) (1,271 ) (3,927 ) (3,636 )
Common Stock Repurchases (856 ) (1,542 ) (2,632 ) (3,846 )
Common Stock Transactions - Other 52 51 166 271
Net Cash Used in Financing Activities ($4,182 ) ($1,848 ) ($4,504 ) ($7,818 )
Effect of Exchange Rate changes on Cash 41 42 155 (194 )
Net Change in Cash & Cash Equivalents ($978 ) $ 1,087 $ 1,352 $ 1,004
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  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 %
 
 
Change YTY Revenue - External 4.5 % (0.4 )% 2.4 % (21.0 )% (7.9 )%
Change YTY Revenue - External @constant currency 4.5 % (1.6 )% 1.4 % (21.5 )% (9.2 )%
 
 
THIRD - QUARTER 2015*
Cognitive Solutions &
Industry Services
Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions Services Platforms Systems Financing
Revenue
External $ 4,052 $ 4,206 $ 8,541 $ 1,973 $ 447
Internal   528     120     161     209     584  
Total Segment Revenue $ 4,580 $ 4,326 $ 8,702 $ 2,182 $ 1,031
 
Pre-tax Income from Continuing Operations 1,596 664 1,317 248 562
 
Pre-tax margin 34.9 % 15.4 % 15.1 % 11.4 % 54.5 %
 
* Recast to conform with 2016 segment presentation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  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 %
 
 
Change YTY Revenue - External 2.2 % (2.3 )% 0.1 % (22.1 )% (10.2 )%
Change YTY Revenue - External @constant currency 2.9 % (2.2 )% 1.0 % (21.9 )% (8.5 )%
 
 
NINE - MONTHS 2015*
Cognitive Solutions &
Industry Services
Technology
Global Services &
(Dollars in Millions) Cognitive Business Cloud Global
Solutions Services Platforms Systems Financing
Revenue
External $ 12,616 $ 12,869 $ 25,993 $ 6,656 $ 1,386
Internal   1,695     380     500     571     1,874  
Total Segment Revenue $ 14,311 $ 13,249 $ 26,493 $ 7,226 $ 3,261
 
Pre-tax Income from Continuing Operations 4,949 1,895 3,861 1,048 1,690
 
Pre-tax margin 34.6 % 14.3 % 14.6 % 14.5 % 51.8 %
 
* Recast to conform with 2016 segment presentation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
 
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 Income Taxes*** 409 73 40 521
 
Effective Tax Rate 12.5 % 1.1Pts 0.7Pts 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
 
THIRD - QUARTER 2015
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP   Adjustments*   Adjustments**   (Non-GAAP)
 
Gross Profit $ 9,436 $ 89 $ 118 $ 9,643
 
Gross Profit Margin 48.9 % 0.5Pts 0.6Pts 50.0 %
 
S,G&A 4,731 (76 ) (74 ) 4,581
 
R,D&E 1,287 - (12 ) 1,275
 
Other (Income) & Expense (133 ) 0 - (133 )
 
Total Expense & Other (Income) 5,815 (76 ) (86 ) 5,652
 
Pre-tax Income from Continuing Operations 3,621 165 204 3,991
 
Pre-tax Income Margin from Continuing Operations 18.8 % 0.9Pts 1.1Pts 20.7 %
 
Provision for Income Taxes*** 659 (5 ) 64 718
 
Effective Tax Rate 18.2 % -0.9Pts 0.7Pts 18.0 %
 
Income from Continuing Operations 2,962 170 140 3,272
 
Income Margin from Continuing Operations 15.4 % 0.9Pts 0.7Pts 17.0 %
 
Diluted Earnings Per Share: Continuing Operations $ 3.02 $ 0.18 $ 0.14 $ 3.34

* 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 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 )% 2.5Pts 1.4Pts 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
 
 
NINE - MONTHS 2015
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
 
Gross Profit $ 29,278 $ 268 $ 350 $ 29,896
 
Gross Profit Margin 49.1 % 0.4Pts 0.6Pts 50.1 %
 
S,G&A 15,273 (230 ) (445 ) 14,598
 
R,D&E 3,885 - (36 ) 3,849
 
Other (Income) & Expense (578 ) (5 ) - (583 )
 
Total Expense & Other (Income) 18,431 (235 ) (481 ) 17,715
 
Pre-Tax Income from Continuing Operations 10,846 503 831 12,181
 
Pre-tax Income Margin from Continuing Operations 18.2 % 0.8Pts 1.4Pts 20.4 %
 
Provision for Income Taxes*** 1,943 52 234 2,228
 
Effective Tax Rate 17.9 % -0.3Pts 0.7Pts 18.3 %
 
Income from Continuing Operations 8,904 452 597 9,953
 
Income Margin from Continuing Operations 14.9 % 0.8Pts 1.0Pts 16.7 %
 
Diluted Earnings Per Share: Continuing Operations $ 9.03 $ 0.46 $ 0.60 $ 10.09

* 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)
 
    2016

EPS Guidance

Expectations
 
IBM GAAP EPS

at least $12.23

IBM Operating EPS (non-GAAP)

at least $13.50

 
Adjustments
Acquisition related charges * $0.84
Non-Operating Retirement-Related Items $0.43
 
* Includes acquisitions through September 30, 2016

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