International Business Machines Corp 8-K 2017-10-17
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IBM REPORTS 2017 THIRD-QUARTER RESULTS
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
ARMONK, N.Y., October 17, 2017 . . . 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 IBMs new z Systems mainframe, which delivers breakthrough security capabilities to our clients.
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THIRD QUARTER 2017 |
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| ||||||
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Gross Profit |
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| ||
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|
|
Diluted EPS |
|
Net Income |
|
Margin |
|
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| ||
|
GAAP from Continuing Operations |
|
$ |
2.92 |
|
$ |
2.7B |
|
45.9 |
% |
|
|
|
Year/Year |
|
-2 |
% |
-4 |
% |
-0.9 |
Pts |
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| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Operating (Non-GAAP) |
|
$ |
3.30 |
|
$ |
3.1B |
|
47.6 |
% |
|
|
|
Year/Year |
|
0 |
% |
-2 |
% |
-0.4 |
Pts |
|
| ||
|
|
|
|
|
|
|
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As-a-service |
| ||||
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Strategic |
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annual exit |
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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 IBMs 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. IBMs 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
IBMs 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 companys 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 companys failure to meet growth and productivity objectives, a failure of the companys innovation initiatives; risks from investing in growth opportunities; failure of the companys 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 companys pension plans; ineffective internal controls; the companys use of accounting estimates; the companys 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 companys 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 companys Form 10-Qs, Form 10-K and in the companys 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 companys 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 managements 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
IBMs 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).
IBM Contact: Ian Colley, 914-434-3043
colley@us.ibm.com
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com
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 (Ms): |
|
|
|
|
|
|
|
|
| ||||
|
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 |
| ||
|
|
|
September 30, |
|
December 31, |
| ||
|
(Dollars in Millions) |
|
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 |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
(Dollars in Millions) |
|
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 |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
(Dollars in Millions) |
|
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 & |
|
|
|
|
| |||||
|
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
|
(Dollars in Millions) |
|
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 & |
|
|
|
|
| |||||
|
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
|
(Dollars in Millions) |
|
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 & |
|
|
|
|
| |||||
|
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
|
(Dollars in Millions) |
|
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 & |
|
|
|
|
| |||||
|
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
|
(Dollars in Millions) |
|
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 |
% |
0.6 |
Pts |
1.1 |
Pts |
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 |
% |
1.2 |
Pts |
1.6 |
Pts |
18.8 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Provision for / (Benefit from) Income Taxes*** |
|
339 |
|
79 |
|
113 |
|
531 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Effective Tax Rate |
|
11.0 |
% |
1.5 |
Pts |
2.2 |
Pts |
14.7 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income from Continuing Operations |
|
2,726 |
|
159 |
|
193 |
|
3,079 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income Margin from Continuing Operations |
|
14.2 |
% |
0.8 |
Pts |
1.0 |
Pts |
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 |
% |
0.7 |
Pts |
0.4 |
Pts |
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 |
% |
1.4 |
Pts |
0.7 |
Pts |
19.1 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Provision for / (Benefit from) Income Taxes*** |
|
409 |
|
73 |
|
40 |
|
521 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Effective Tax Rate |
|
12.5 |
% |
1.1 |
Pts |
0.6 |
Pts |
14.2 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income from Continuing Operations |
|
2,854 |
|
197 |
|
99 |
|
3,149 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income Margin from Continuing Operations |
|
14.8 |
% |
1.0 |
Pts |
0.5 |
Pts |
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 |
% |
0.6 |
Pts |
1.0 |
Pts |
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 |
% |
1.3 |
Pts |
1.9 |
Pts |
15.5 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Provision for / (Benefit from) Income Taxes*** |
|
120 |
|
212 |
|
288 |
|
621 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Effective Tax Rate |
|
1.7 |
% |
2.3 |
Pts |
3.1 |
Pts |
7.1 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income from Continuing Operations |
|
6,811 |
|
537 |
|
777 |
|
8,125 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income Margin from Continuing Operations |
|
12.0 |
% |
0.9 |
Pts |
1.4 |
Pts |
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 |
% |
0.6 |
Pts |
0.4 |
Pts |
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 |
% |
1.3 |
Pts |
0.8 |
Pts |
14.7 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Provision for / (Benefit from) Income Taxes*** |
|
(31 |
) |
201 |
|
106 |
|
277 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Effective Tax Rate |
|
(0.4 |
)% |
2.4 |
Pts |
1.3 |
Pts |
3.2 |
% | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income from Continuing Operations |
|
7,375 |
|
542 |
|
338 |
|
8,255 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income Margin from Continuing Operations |
|
12.7 |
% |
0.9 |
Pts |
0.6 |
Pts |
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
