Form 8-K INTERNATIONAL BUSINESS For: Jan 19
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 19, 2017
(Date of earliest event reported)
INTERNATIONAL BUSINESS MACHINES
CORPORATION
(Exact name of registrant as specified in its charter)
New York |
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1-2360 |
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13-0871985 |
(State of Incorporation) |
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(Commission File Number) |
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(IRS employer Identification No.) |
ARMONK, NEW YORK |
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10504 |
(Address of principal executive offices) |
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(Zip Code) |
914-499-1900
(Registrants telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition.
The registrants press release dated January 19, 2017, regarding its financial results for the periods ended December 31, 2016, including consolidated financial statements for the periods ended December 31, 2016, is Exhibit 99.1 of this Form 8-K.
In an effort to provide investors with additional information regarding the companys results as determined by generally accepted accounting principles (GAAP), the company has disclosed in the attached press release certain non-GAAP information which management believes provides useful information to investors. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in the press release, which is Exhibit 99.1 to this Form 8-K. The rationale for managements use of non-GAAP measures is included in Exhibit 99.2 to this Form 8-K.
The information in this Item 2.02, including the corresponding Exhibits 99.1 and 99.2, is hereby filed.
Item 7.01. Regulation FD Disclosure.
The slides for IBMs Chief Financial Officer Martin Schroeters fourth-quarter and full-year 2016 earnings presentation on January 19, 2017 are Exhibit 99.3 to this Form 8-K.
The information in this Item 7.01, including the corresponding Exhibit 99.3, is being furnished with the Commission and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being filed as part of this report:
Exhibit No. |
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Description of Exhibit |
99.1 |
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Earnings Release of the Registrant, dated January 19, 2017 |
99.2 |
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Non-GAAP Financial Information |
The following exhibit is being furnished as part of this report:
Exhibit No. |
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Description of Exhibit |
99.3 |
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Earnings Presentation of the Registrant, dated January 19, 2017 |
IBMs web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
Date: January 19, 2017 |
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By: |
/s/ Stanley J. Sutula III |
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Stanley J. Sutula III |
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Vice President and Controller |
EXHIBIT 99.1
IBM REPORTS 2016 FOURTH-QUARTER AND FULL-YEAR RESULTS
Continued Strong Growth in Strategic Imperatives Led by IBM Cloud
Highlights
· Diluted EPS from continuing operations: GAAP of $4.73; Operating (non-GAAP) of $5.01
· Revenue from continuing operations of $21.8 billion
· Strategic imperatives revenue for full-year 2016 of $32.8 billion up 13 percent (up 14 percent adjusting for currency) represents 41 percent of IBM revenue
· Cloud revenue of $13.7 billion for full-year 2016, up 35 percent
Cloud as-a-service annual exit run rate of $8.6 billion at year end, up 61 percent year to year (up 63 percent adjusting for currency)
· 2017 EPS Expectations: GAAP of at least $11.95; Operating (non-GAAP) of at least $13.80
ARMONK, N.Y., January 19, 2017 . . . IBM (NYSE: IBM) today announced fourth-quarter and full-year 2016 earnings results.
In 2016, our strategic imperatives grew to represent more than 40 percent of our total revenue and we have established ourselves as the industrys leading cognitive solutions and cloud platform company, said Ginni Rometty, IBM chairman, president and chief executive officer. IBM Watson is the worlds leading AI platform for business, and emerging solutions such as IBM Blockchain are enabling new levels of trust in transactions of every kind. More and more clients are choosing the IBM Cloud because of its differentiated capabilities, which are helping to transform industries, such as financial services, airlines and retail.
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FOURTH QUARTER 2016 |
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Gross Profit |
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Diluted EPS |
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Net Income |
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Margin |
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GAAP from Continuing Operations |
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$ |
4.73 |
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$ |
4.5 |
B |
50.0 |
% |
Year/Year |
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3 |
% |
1 |
% |
-1.7 |
Pts | ||
Operating (Non-GAAP) |
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$ |
5.01 |
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$ |
4.8 |
B |
51.0 |
% |
Year/Year |
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4 |
% |
1 |
% |
-1.8 |
Pts |
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Strategic |
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REVENUE |
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Total IBM |
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Imperatives |
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Cloud |
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As reported (US$) |
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$ |
21.8 |
B |
$ |
9.5 |
B |
$ |
4.2 |
B |
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Year/Year |
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-1 |
% |
11 |
% |
33 |
% | |||
Year/Year adjusting for currency |
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-1 |
% |
12 |
% |
33 |
% | |||
In 2016, we again made substantial capital investments, increased our R&D spending and acquired 15 companies - a total of more than $15 billion across these elements. The acquisitions further strengthened our capabilities in analytics, security, cognitive and cloud, while expanding our level of industry expertise with additions such as Truven Health Analytics and Promontory Financial Group, said Martin Schroeter, IBM senior vice president and chief financial officer. At the same time, we returned almost $9 billion to shareholders through dividends and gross share repurchases.
Strategic Imperatives
Fourth-quarter cloud revenues increased 33 percent. The annual exit run rate for cloud as-a-service revenue increased to $8.6 billion from $5.3 billion at year-end 2015. Revenues from analytics increased 9 percent. Revenues from mobile increased 16 percent (up 17 percent adjusting for currency) and revenues from security increased 7 percent (up 8 percent adjusting for currency).
For the full year, revenues from strategic imperatives increased 13 percent (up 14 percent adjusting for currency). Cloud revenues increased 35 percent to $13.7 billion. The annual exit run rate for cloud as-a-service revenue increased 61 percent (up 63 percent adjusting for currency) year to year. Revenues from analytics increased 9 percent. Revenues from mobile increased 34 percent (up 35 percent adjusting for currency) and from security increased 13 percent (up 14 percent adjusting for currency).
Full-Year 2017 Expectations
The company expects 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 expects a free cash flow realization rate in excess of 90 percent of GAAP net income.
Cash Flow and Balance Sheet
In the fourth quarter, the company generated net cash from operating activities of $3.2 billion; or $5.6 billion excluding Global Financing receivables. IBMs free cash flow was $4.7 billion. IBM returned $1.3 billion in dividends and $0.9 billion of gross share repurchases to shareholders. At the end of December 2016, IBM had $5.1 billion remaining in the current share repurchase authorization.
The company generated full-year free cash flow of $11.6 billion, excluding Global Financing receivables. The company returned $8.8 billion to shareholders through $5.3 billion in dividends and $3.5 billion of gross share repurchases.
IBM ended the fourth-quarter 2016 with $8.5 billion of cash on hand. Debt, including Global Financing debt of $27.9 billion, totaled $42.2 billion. Core (non-Global Financing) debt totaled $14.3 billion. The balance sheet remains strong and is well positioned to support the business over the long term.
Segment Results for Fourth Quarter
· Cognitive Solutions (includes solutions software and transaction processing software) revenues of $5.3 billion, up 1.4 percent (up 2.2 percent adjusting for currency) were driven by growth in cloud, analytics and security.
· Global Business Services (includes consulting, global process services and application management) revenues of $4.1 billion, down 4.1 percent (down 3.6 percent adjusting for currency).
· Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) revenues of $9.3 billion, up 1.7 percent (up 2.4 percent adjusting for currency). Growth was driven by strong hybrid cloud services, analytics and security performance.
· Systems (includes systems hardware and operating systems software) revenues of $2.5 billion, down 12.5 percent (down 12.1 percent adjusting for currency). Gross profit margins improved driven by z Systems performance.
· Global Financing (includes financing and used equipment sales) revenues of $447 million, down 1.5 percent (down 2.1 percent adjusting for currency).
Full-Year 2016 Results
Diluted earnings per share from continuing operations were $12.39, down 9 percent compared to the 2015 period. Net income from continuing operations for the twelve months ended December 31, 2016 was $11.9 billion compared with $13.4 billion in the year-ago period, a decrease of 11 percent.
Consolidated net income was $11.9 billion compared to $13.2 billion in the year-ago period. Consolidated diluted earnings per share were $12.38 compared to $13.42, down 8 percent year to year. Revenues from continuing operations for the twelve-month period totaled $79.9 billion, a decrease of 2 percent year to year compared with $81.7 billion for the twelve months of 2015.
Operating (non-GAAP) diluted earnings per share from continuing operations were $13.59 compared with $14.92 per diluted share for the 2015 period, a decrease of 9 percent. Operating (non-GAAP) net income from continuing operations for the twelve months ended December 31, 2016 was $13.0 billion compared with $14.7 billion in the year-ago period, a decrease of 11 percent.
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FULL YEAR 2016 |
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Gross Profit |
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Diluted EPS |
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Net Income |
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Margin |
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GAAP from Continuing Operations |
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$ |
12.39 |
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$ |
11.9 |
B |
47.9 |
% |
Year/Year |
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-9 |
% |
-11 |
% |
-1.9 |
Pts | ||
Operating (Non-GAAP) |
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$ |
13.59 |
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$ |
13.0 |
B |
48.9 |
% |
Year/Year |
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-9 |
% |
-11 |
% |
-1.9 |
Pts |
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Strategic |
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REVENUE |
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Total IBM |
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Imperatives |
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Cloud |
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As reported (US$) |
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$ |
79.9 |
B |
$ |
32.8 |
B |
$ |
13.7 |
B |
Year/Year |
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-2 |
% |
13 |
% |
35 |
% | |||
Year/Year adjusting for currency |
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-2 |
% |
14 |
% |
35 |
% | |||
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. EST, today. The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/4q16.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).
Contact: |
IBM |
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Ian Colley, 914-434-3043 |
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John Bukovinsky, 732-618-3531 |
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INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
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Three Months Ended |
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Twelve Months Ended |
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December 31, |
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December 31, |
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2016 |
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2015* |
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2016 |
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2015* |
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REVENUE |
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Cognitive Solutions |
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$ |
5,297 |
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$ |
5,225 |
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$ |
18,187 |
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$ |
17,841 |
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Global Business Services |
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4,121 |
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4,297 |
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16,700 |
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17,166 |
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Technology Services & Cloud Platforms |
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9,308 |
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9,149 |
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35,337 |
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35,142 |
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Systems |
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2,530 |
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2,892 |
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7,714 |
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9,547 |
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Global Financing |
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447 |
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454 |
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1,692 |
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1,840 |
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Other |
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66 |
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43 |
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289 |
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206 |
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TOTAL REVENUE |
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21,770 |
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22,059 |
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79,919 |
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81,741 |
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GROSS PROFIT |
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10,893 |
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11,407 |
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38,294 |
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40,684 |
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GROSS PROFIT MARGIN |
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Cognitive Solutions |
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82.7 |
% |
85.7 |
% |
81.9 |
% |
85.1 |
% | ||||
Global Business Services |
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26.9 |
% |
28.2 |
% |
27.0 |
% |
28.2 |
% | ||||
Technology Services & Cloud Platforms |
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42.9 |
% |
44.3 |
% |
41.9 |
% |
42.7 |
% | ||||
Systems |
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56.9 |
% |
55.8 |
% |
55.7 |
% |
55.8 |
% | ||||
Global Financing |
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36.2 |
% |
39.9 |
% |
38.7 |
% |
45.6 |
% | ||||
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TOTAL GROSS PROFIT MARGIN |
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50.0 |
% |
51.7 |
% |
47.9 |
% |
49.8 |
% | ||||
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EXPENSE AND OTHER INCOME |
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S,G&A |
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4,976 |
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5,157 |
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21,069 |
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20,430 |
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R,D&E |
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1,431 |
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1,362 |
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5,751 |
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5,247 |
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Intellectual property and custom development income |
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(521 |
) |
(193 |
) |
(1,631 |
) |
(682 |
) | ||||
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Other (income) and expense |
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(136 |
) |
(146 |
) |
145 |
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(724 |
) | ||||
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Interest expense |
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157 |
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128 |
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630 |
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468 |
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TOTAL EXPENSE AND OTHER INCOME |
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5,907 |
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6,308 |
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25,964 |
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24,740 |
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INCOME FROM CONTINUING OPERATIONS |
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BEFORE INCOME TAXES |
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4,986 |
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5,098 |
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12,330 |
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15,945 |
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Pre-tax margin |
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22.9 |
% |
23.1 |
% |
15.4 |
% |
19.5 |
% | ||||
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Provision for / (Benefit) from income taxes |
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480 |
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638 |
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449 |
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2,581 |
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Effective tax rate |
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9.6 |
% |
12.5 |
% |
3.6 |
% |
16.2 |
% | ||||
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INCOME FROM CONTINUING OPERATIONS |
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$ |
4,505 |
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$ |
4,460 |
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$ |
11,881 |
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$ |
13,364 |
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DISCONTINUED OPERATIONS |
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Income/(Loss) from discontinued operations, net of taxes |
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(4 |
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3 |
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(9 |
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(174 |
) | ||||
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NET INCOME |
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$ |
4,501 |
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$ |
4,463 |
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$ |
11,872 |
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$ |
13,190 |
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EARNINGS PER SHARE OF COMMON STOCK: |
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Assuming Dilution |
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Continuing Operations |
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$ |
4.73 |
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$ |
4.59 |
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$ |
12.39 |
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$ |
13.60 |
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Discontinued Operations |
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$ |
(0.01 |
) |
$ |
0.00 |
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$ |
(0.01 |
) |
$ |
(0.18 |
) |
TOTAL |
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$ |
4.72 |
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$ |
4.59 |
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$ |
12.38 |
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$ |
13.42 |
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Basic |
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Continuing Operations |
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$ |
4.75 |
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$ |
4.60 |
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$ |
12.44 |
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$ |
13.66 |
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Discontinued Operations |
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$ |
(0.01 |
) |
$ |
0.00 |
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$ |
(0.01 |
) |
$ |
(0.18 |
) |
TOTAL |
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$ |
4.74 |
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$ |
4.60 |
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$ |
12.43 |
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$ |
13.48 |
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WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Ms): |
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Assuming Dilution |
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952.7 |
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972.8 |
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958.7 |
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982.7 |
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Basic |
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948.6 |
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969.4 |
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955.4 |
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978.7 |
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* Recast to conform with 2016 segment presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
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At |
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At |
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December 31, |
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December 31, |
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(Dollars in Millions) |
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2016 |
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2015 |
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ASSETS: |
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Current Assets: |
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Cash and cash equivalents |
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$ |
7,826 |
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$ |
7,686 |
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Marketable securities |
|
701 |
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508 |
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Notes and accounts receivable - trade, net |
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9,182 |
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8,333 |
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Short-term financing receivables, net |
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19,006 |
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19,020 |
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Other accounts receivable, net |
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1,057 |
|
1,201 |
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Inventory |
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1,553 |
|
1,551 |
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Prepaid expenses and other current assets |
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4,564 |
|
4,205 |
| ||
|
|
|
|
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| ||
Total Current Assets |
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43,888 |
|
42,504 |
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Property, plant and equipment, net |
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10,830 |
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10,727 |
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Long-term financing receivables, net |
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9,021 |
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10,013 |
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Prepaid pension assets |
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3,034 |
|
1,734 |
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Deferred taxes |
|
5,224 |
|
4,822 |
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Goodwill and intangibles, net |
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40,887 |
|
35,508 |
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Investments and sundry assets |
|
4,585 |
|
5,187 |
| ||
|
|
|
|
|
| ||
Total Assets |
|
$ |
117,470 |
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$ |
110,495 |
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|
|
|
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| ||
LIABILITIES: |
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Current Liabilities: |
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| ||
Taxes |
|
$ |
3,235 |
|
$ |
2,847 |
|
Short-term debt |
|
7,513 |
|
6,461 |
| ||
Accounts payable |
|
6,209 |
|
6,028 |
| ||
Deferred income |
|
11,035 |
|
11,021 |
| ||
Other liabilities |
|
8,283 |
|
7,913 |
| ||
|
|
|
|
|
| ||
Total Current Liabilities |
|
36,275 |
|
34,269 |
| ||
|
|
|
|
|
| ||
Long-term debt |
|
34,655 |
|
33,428 |
| ||
Retirement related obligations |
|
17,070 |
|
16,504 |
| ||
Deferred income |
|
3,600 |
|
3,771 |
| ||
Other liabilities |
|
7,477 |
|
8,099 |
| ||
|
|
|
|
|
| ||
Total Liabilities |
|
99,078 |
|
96,071 |
| ||
|
|
|
|
|
| ||
EQUITY: |
|
|
|
|
| ||
|
|
|
|
|
| ||
IBM Stockholders Equity: |
|
|
|
|
| ||
Common stock |
|
53,935 |
|
53,262 |
| ||
Retained earnings |
|
152,759 |
|
146,124 |
| ||
Treasury stock at cost |
|
(159,050 |
) |
(155,518 |
) | ||
Accumulated other comprehensive income/(loss) |
|
(29,398 |
) |
(29,607 |
) | ||
|
|
|
|
|
| ||
Total IBM stockholders equity |
|
18,246 |
|
14,262 |
| ||
|
|
|
|
|
| ||
Noncontrolling interests |
|
146 |
|
162 |
| ||
|
|
|
|
|
| ||
Total Equity |
|
18,392 |
|
14,424 |
| ||
|
|
|
|
|
| ||
Total Liabilities and Equity |
|
$ |
117,470 |
|
$ |
110,495 |
|
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
|
|
Three Months Ended |
|
Twelve Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
| ||||||||
(Dollars in Millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Cash Provided by Operating Activities per GAAP: |
|
$ |
3,217 |
|
$ |
5,278 |
|
$ |
16,518 |
|
$ |
17,008 |
|
|
|
|
|
|
|
|
|
|
| ||||
Less: change in Global Financing (GF) Receivables |
|
(2,429 |
) |
(1,810 |
) |
1,218 |
|
152 |
| ||||
Capital Expenditures, Net |
|
(925 |
) |
(1,016 |
) |
(3,726 |
) |
(3,780 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Free Cash Flow |
|
4,721 |
|
6,072 |
|
11,574 |
|
13,075 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Acquisitions |
|
(235 |
) |
(2,529 |
) |
(5,679 |
) |
(3,349 |
) | ||||
Divestitures |
|
(490 |
) |
87 |
|
(454 |
) |
(401 |
) | ||||
Dividends |
|
(1,329 |
) |
(1,261 |
) |
(5,256 |
) |
(4,897 |
) | ||||
Share Repurchase |
|
(871 |
) |
(764 |
) |
(3,502 |
) |
(4,609 |
) | ||||
Non-GF Debt |
|
(2,048 |
) |
(898 |
) |
1,317 |
|
(128 |
) | ||||
Other (includes GF Receivables and GF Debt) |
|
(1,189 |
) |
(2,080 |
) |
2,333 |
|
28 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Change in Cash, Cash Equivalents and Short-term Marketable Securities |
|
$ |
(1,441 |
) |
$ |
(1,373 |
) |
$ |
332 |
|
$ |
(282 |
) |
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
|
|
Three Months Ended |
|
Twelve Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
| ||||||||
(Dollars in Millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income from Operations |
|
$ |
4,501 |
|
$ |
4,463 |
|
$ |
11,872 |
|
$ |
13,190 |
|
Depreciation/Amortization of Intangibles |
|
1,127 |
|
990 |
|
4,381 |
|
3,856 |
| ||||
Stock-based Compensation |
|
141 |
|
99 |
|
544 |
|
468 |
| ||||
Working Capital / Other |
|
(124 |
) |
1,514 |
|
(1,497 |
) |
(729 |
) | ||||
Global Financing A/R |
|
(2,429 |
) |
(1,810 |
) |
1,218 |
|
152 |
| ||||
Loss on Microelectronics Business Disposal |
|
0 |
|
23 |
|
0 |
|
71 |
| ||||
Net Cash Provided by Operating Activities |
|
$ |
3,217 |
|
$ |
5,278 |
|
$ |
16,518 |
|
$ |
17,008 |
|
Capital Expenditures, net of payments & proceeds |
|
(925 |
) |
(1,016 |
) |
(3,726 |
) |
(3,780 |
) | ||||
Divestitures, net of cash transferred |
|
(490 |
) |
87 |
|
(454 |
) |
(401 |
) | ||||
Acquisitions, net of cash acquired |
|
(235 |
) |
(2,529 |
) |
(5,679 |
) |
(3,349 |
) | ||||
Marketable Securities / Other Investments, net |
|
(1,286 |
) |
(1,987 |
) |
(676 |
) |
(629 |
) | ||||
Net Cash Used in Investing Activities |
|
$ |
(2,936 |
) |
$ |
(5,445 |
) |
$ |
(10,536 |
) |
$ |
(8,159 |
) |
Debt, net of payments & proceeds |
|
875 |
|
626 |
|
2,763 |
|
19 |
| ||||
Dividends |
|
(1,329 |
) |
(1,261 |
) |
(5,256 |
) |
(4,897 |
) | ||||
Common Stock Repurchases |
|
(871 |
) |
(764 |
) |
(3,502 |
) |
(4,609 |
) | ||||
Common Stock Transactions - Other |
|
37 |
|
50 |
|
204 |
|
322 |
| ||||
Net Cash Used in Financing Activities |
|
$ |
(1,287 |
) |
$ |
(1,348 |
) |
$ |
(5,791 |
) |
$ |
(9,166 |
) |
Effect of Exchange Rate changes on Cash |
|
(206 |
) |
(279 |
) |
(51 |
) |
(473 |
) | ||||
Net Change in Cash & Cash Equivalents |
|
$ |
(1,213 |
) |
$ |
(1,794 |
) |
$ |
140 |
|
$ |
(790 |
) |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
|
|
FOURTH - QUARTER 2016 |
| |||||||||||||
|
|
Cognitive Solutions & |
|
|
|
|
|
|
| |||||||
|
|
Industry Services |
|
Technology |
|
|
|
|
| |||||||
|
|
|
|
Global |
|
Services & |
|
|
|
|
| |||||
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
(Dollars in Millions) |
|
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 |
% | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Change YTY Revenue - External |
|
1.4 |
% |
(4.1 |
)% |
1.7 |
% |
(12.5 |
)% |
(1.5 |
)% | |||||
Change YTY Revenue - External @constant currency |
|
2.2 |
% |
(3.6 |
)% |
2.4 |
% |
(12.1 |
)% |
(2.1 |
)% |
|
|
FOURTH - QUARTER 2015* |
| |||||||||||||
|
|
Cognitive Solutions & |
|
|
|
|
|
|
| |||||||
|
|
Industry Services |
|
Technology |
|
|
|
|
| |||||||
|
|
|
|
Global |
|
Services & |
|
|
|
|
| |||||
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
(Dollars in Millions) |
|
Solutions |
|
Services |
|
Platforms |
|
Systems |
|
Financing |
| |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||
External |
|
$ |
5,225 |
|
$ |
4,297 |
|
$ |
9,149 |
|
$ |
2,892 |
|
$ |
454 |
|
Internal |
|
520 |
|
118 |
|
198 |
|
207 |
|
763 |
| |||||
Total Segment Revenue |
|
$ |
5,744 |
|
$ |
4,415 |
|
$ |
9,347 |
|
$ |
3,099 |
|
$ |
1,216 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Pre-tax Income from Continuing Operations |
|
2,296 |
|
707 |
|
1,808 |
|
674 |
|
674 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Pre-tax margin |
|
40.0 |
% |
16.0 |
% |
19.3 |
% |
21.7 |
% |
55.4 |
% |
* Recast to conform with 2016 segment presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
|
|
TWELVE - MONTHS 2016 |
| |||||||||||||
|
|
Cognitive Solutions & |
|
|
|
|
|
|
| |||||||
|
|
Industry Services |
|
Technology |
|
|
|
|
| |||||||
|
|
|
|
Global |
|
Services & |
|
|
|
|
| |||||
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
(Dollars in Millions) |
|
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 |
% | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Change YTY Revenue - External |
|
1.9 |
% |
(2.7 |
)% |
0.6 |
% |
(19.2 |
)% |
(8.0 |
)% | |||||
Change YTY Revenue - External @constant currency |
|
2.7 |
% |
(2.5 |
)% |
1.4 |
% |
(18.9 |
)% |
(6.9 |
)% |
|
|
TWELVE - MONTHS 2015* |
| |||||||||||||
|
|
Cognitive Solutions & |
|
|
|
|
|
|
| |||||||
|
|
Industry Services |
|
Technology |
|
|
|
|
| |||||||
|
|
|
|
Global |
|
Services & |
|
|
|
|
| |||||
|
|
Cognitive |
|
Business |
|
Cloud |
|
|
|
Global |
| |||||
(Dollars in Millions) |
|
Solutions |
|
Services |
|
Platforms |
|
Systems |
|
Financing |
| |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||
External |
|
$ |
17,841 |
|
$ |
17,166 |
|
$ |
35,142 |
|
$ |
9,547 |
|
$ |
1,840 |
|
Internal |
|
2,215 |
|
499 |
|
698 |
|
778 |
|
2,637 |
| |||||
Total Segment Revenue |
|
$ |
20,055 |
|
$ |
17,664 |
|
$ |
35,840 |
|
$ |
10,325 |
|
$ |
4,477 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Pre-tax Income from Continuing Operations |
|
7,245 |
|
2,602 |
|
5,669 |
|
1,722 |
|
2,364 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Pre-tax margin |
|
36.1 |
% |
14.7 |
% |
15.8 |
% |
16.7 |
% |
52.8 |
% |
* 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)
|
|
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 |
% |
0.6 |
Pts |
0.4 |
Pts |
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 |
% |
1.2 |
Pts |
0.7 |
Pts |
24.8 |
% | ||||
Provision for Income Taxes*** |
|
480 |
|
66 |
|
77 |
|
623 |
| ||||
Effective Tax Rate |
|
9.6 |
% |
0.8 |
Pts |
1.2 |
Pts |
11.5 |
% | ||||
Income from Continuing Operations |
|
4,505 |
|
193 |
|
77 |
|
4,776 |
| ||||
Income Margin from Continuing Operations |
|
20.7 |
% |
0.9 |
Pts |
0.4 |
Pts |
21.9 |
% | ||||
Diluted Earnings Per Share: Continuing Operations |
|
$ |
4.73 |
|
$ |
0.20 |
|
$ |
0.08 |
|
$ |
5.01 |
|
|
|
FOURTH - QUARTER 2015 |
| ||||||||||
|
|
CONTINUING OPERATIONS |
| ||||||||||
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
Gross Profit |
|
$ |
11,407 |
|
$ |
105 |
|
$ |
119 |
|
$ |
11,630 |
|
Gross Profit Margin |
|
51.7 |
% |
0.5 |
Pts |
0.5 |
Pts |
52.7 |
% | ||||
S,G&A |
|
5,157 |
|
(95 |
) |
(88 |
) |
4,975 |
| ||||
R,D&E |
|
1,362 |
|
|
|
(12 |
) |
1,350 |
| ||||
Other (Income) & Expense |
|
(146 |
) |
0 |
|
|
|
(146 |
) | ||||
Total Expense & Other (Income) |
|
6,308 |
|
(95 |
) |
(100 |
) |
6,114 |
| ||||
Pre-tax Income from Continuing Operations |
|
5,098 |
|
199 |
|
218 |
|
5,516 |
| ||||
Pre-tax Income Margin from Continuing Operations |
|
23.1 |
% |
0.9 |
Pts |
1.0 |
Pts |
25.0 |
% | ||||
Provision for Income Taxes*** |
|
638 |
|
89 |
|
82 |
|
809 |
| ||||
Effective Tax Rate |
|
12.5 |
% |
1.2 |
Pts |
1.0 |
Pts |
14.7 |
% | ||||
Income from Continuing Operations |
|
4,460 |
|
110 |
|
137 |
|
4,707 |
| ||||
Income Margin from Continuing Operations |
|
20.2 |
% |
0.5 |
Pts |
0.6 |
Pts |
21.3 |
% | ||||
Diluted Earnings Per Share: Continuing Operations |
|
$ |
4.59 |
|
$ |
0.11 |
|
$ |
0.14 |
|
$ |
4.84 |
|
* 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 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 |
% |
0.6 |
Pts |
0.4 |
Pts |
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 |
% |
1.3 |
Pts |
0.7 |
Pts |
17.4 |
% | ||||
Provision for / (Benefit) from Income Taxes*** |
|
449 |
|
268 |
|
183 |
|
900 |
| ||||
Effective Tax Rate |
|
3.6 |
% |
1.7 |
Pts |
1.2 |
Pts |
6.5 |
% | ||||
Income from Continuing Operations |
|
11,881 |
|
735 |
|
415 |
|
13,031 |
| ||||
Income Margin from Continuing Operations |
|
14.9 |
% |
0.9 |
Pts |
0.5 |
Pts |
16.3 |
% | ||||
Diluted Earnings Per Share: Continuing Operations |
|
$ |
12.39 |
|
$ |
0.77 |
|
$ |
0.43 |
|
$ |
13.59 |
|
|
|
TWELVE - MONTHS 2015 |
| ||||||||||
|
|
CONTINUING OPERATIONS |
| ||||||||||
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
Gross Profit |
|
$ |
40,684 |
|
$ |
373 |
|
$ |
469 |
|
$ |
41,526 |
|
Gross Profit Margin |
|
49.8 |
% |
0.5 |
Pts |
0.6 |
Pts |
50.8 |
% | ||||
S,G&A |
|
20,430 |
|
(324 |
) |
(533 |
) |
19,573 |
| ||||
R,D&E |
|
5,247 |
|
|
|
(48 |
) |
5,200 |
| ||||
Other (Income) & Expense |
|
(724 |
) |
(5 |
) |
|
|
(729 |
) | ||||
Total Expense & Other (Income) |
|
24,740 |
|
(330 |
) |
(581 |
) |
23,830 |
| ||||
Pre-Tax Income from Continuing Operations |
|
15,945 |
|
703 |
|
1,050 |
|
17,697 |
| ||||
Pre-tax Income Margin from Continuing Operations |
|
19.5 |
% |
0.9 |
Pts |
1.3 |
Pts |
21.6 |
% | ||||
Provision for Income Taxes*** |
|
2,581 |
|
141 |
|
316 |
|
3,037 |
| ||||
Effective Tax Rate |
|
16.2 |
% |
0.2 |
Pts |
0.9 |
Pts |
17.2 |
% | ||||
Income from Continuing Operations |
|
13,364 |
|
562 |
|
734 |
|
14,659 |
| ||||
Income Margin from Continuing Operations |
|
16.3 |
% |
0.7 |
Pts |
0.9 |
Pts |
17.9 |
% | ||||
Diluted Earnings Per Share: Continuing Operations |
|
$ |
13.60 |
|
$ |
0.57 |
|
$ |
0.75 |
|
$ |
14.92 |
|
* 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 December 31, 2016
Exhibit 99.2
Non-GAAP Financial Information
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, retirement-related costs, discontinued operations and their related tax impacts. For acquisitions, operating earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable restructuring and related expenses and tax charges related to acquisition integration. These charges are excluded as they may be inconsistent in amount and timing from period to period and are dependent on the size, type and frequency of the companys acquisitions. For retirement-related costs, the company characterizes certain items as operating and others as non-operating. The company includes defined benefit plan and nonpension postretirement benefit plan service cost, amortization of prior service cost and the cost of defined contribution plans in operating earnings. Non-operating retirement-related cost includes defined benefit plan and nonpension postretirement benefit plan interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/ settlements and multi-employer plan costs, pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and the company considers these costs to be outside of the operational performance of the business.
Overall, the company believes that providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the companys pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The companys reportable segment financial results reflect operating earnings from continuing operations, consistent with the companys management and measurement system.
Free Cash Flow
The company uses free cash flow as a measure to evaluate its operating results, plan share repurchase levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of Global Financing receivables. 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.
Constant Currency
When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year periods currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
EXHIBIT 99.3
IBM 4Q 2016 Earnings January 19, 2017 ibm.com/investor
2 Certain comments made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the companys current assumptions regarding future business and financial performance. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Companys filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the companys financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earning presentation materials, certain non-GAAP information including operating earnings and other operating financial measures. The rationale for managements use of this non-GAAP information is included as Exhibit 99.2 to the companys Form 8-K submitted to the SEC on January 19, 2017. The reconciliation of non-GAAP information to GAAP is included on the slides entitled Non-GAAP Supplemental Materials in this presentation. For other related information please visit the Companys investor relations web site at: http://www.ibm.com/investor/events/earnings/4q16.html Forward Looking Statements and Non-GAAP Information
3 Overview Continued strength in strategic imperatives Progress in building new businesses and creating new markets Delivering innovation in more traditional businesses and monetizing core technologies Returning capital to shareholders 4Q16 $21.8B $ 5.01 FY16 $79.9B $13.59 $11.6B Revenue Operating EPS Free Cash Flow
4 A Cognitive Solutions & Cloud Platform Company Revenue growth rates @CC, $ in billions Overlap in Strategic Imperatives revenue primarily reflects solutions delivered via cloud 4Q16 Performance Strategic Imperatives revenue $10B, up 12% yr/yr 2016 Progress Solving real business problems in new era requires: Cognitive + Cloud + Industry Expanding cognitive offerings and capabilities Watson Health, Watson IOT, Watson Financial Services Building scale through data, expertise, partnerships Expanding capabilities and reach of IBM Cloud Cloud centers, cloud video platform, Bluemix Partnerships to accelerate adoption Building blockchain platforms and services Strategic Imperatives Revenue FY16 Yr/Yr Total $32.8 14% Analytics $19.5 9% Cloud $13.7 35% aaS annual run rate $8.6 63% Mobile $4.1 35% Security $2.0 14% Social $1.0 (10%) FY16 $33B 41% Strategic Imperatives of IBM Revenue Revenue
5 Key Financial Metrics Revenue growth rates @CC, $ in billions except for EPS B/(W) Continued growth in annuity businesses Gross margin reflects high level of investment and mix to as-a-Service Expense reflects continued high level of investment, yield from workforce savings and success in rebuilding IP income P&L Highlights 4Q16 Yr/Yr Revenue $21.8 (1%) Expense - Operating $5.7 7% PTI - Operating $5.4 (2%) NI - Operating $4.8 1% EPS - Operating $5.01 4% P&L Ratios (Operating) GP Margin 51.0% (1.8 pts) Expense E/R 26.2% 1.6 pts PTI Margin 24.8% (0.2 pts) Tax Rate 11.5% 3.1 pts NI Margin 21.9% 0.6 pts Cash Highlights 4Q16 FY16 Free Cash Flow (excl. GF Receivables) $4.7 $11.6 Share Repurchase (Gross) $0.9 $3.5 Dividends $1.3 $5.3 Cash Balance @ Dec 31 $8.5
6 Cognitive Solutions Segment Analytics including Watson and security led growth in Solutions Software Continuing to scale our platforms and extend cognitive across offerings Margins impacted by investment levels and SaaS ramp Highlights Revenue growth rates @CC, $ in billions Segment Results 4Q16 Yr/Yr Revenue (External) $5.3 2% Gross Margin (External) 82.7% (3.0 pts) PTI $2.3 1% PTI Margin 38.6% (1.4 pts) Segment Revenue Elements Transaction Processing Software (4%) Yr/Yr Solutions Software +5% Yr / Yr Strategic Imperatives Revenue within Cognitive Solutions 4Q16 Yr/Yr Strategic Imperatives $3.5 7% Cloud $0.6 53% as-a-Service annual run rate $1.8
7 Global Business Services Segment Accelerated growth in digital practices led by cloud and mobile Revenue declines in more traditional areas like ERP Margins reflect continued investment to shift the business to new areas Highlights Revenue growth rates @CC, $ in billions Segment Revenue Elements Application Management ( 2%) Yr/Yr Global P rocess Services (4%) Yr/Yr Consulting (5%) Yr/Yr Strategic Imperatives Revenue within Global Business Services 4Q16 Yr/Yr Strategic Imperatives $2.4 19% Cloud $0.9 77% as-a-Service annual run rate $1.1 Segment Results 4Q16 Yr/Yr Revenue (External) $4.1 (4%) Gross Margin (External) 26.9% (1.3 pts) PTI $0.5 (26%) PTI Margin 12.4% (3.6 pts)
8 Technology Services and Cloud Platforms Segment Leader in hybrid services integration with growth in Infrastructure Services Growth in Integration Software driven by hybrid cloud and WebSphere Gross margin reflects business mix Highlights Revenue growth rates @CC, $ in billions Strategic Imperatives Revenue within Technology Svcs & Cloud Platforms 4Q16 Yr/Yr Strategic Imperatives $2.6 37% Cloud $1.8 50% as-a-Service annual run rate $5.8 Segment Results 4Q16 Yr/Yr Revenue (External) $9.3 2% Gross Margin (External) 42.9% (1.4 pts) PTI $1.9 4% PTI Margin 19.8% 0.4 pts Segment Revenue Elements Integration Software +1% Yr/Yr Infrastructure Services +3% Yr / Yr Technical Support Services Flat Yr/Yr
9 Systems Segment Systems revenue and gross margin reflect growth in z Systems offset by Power and Storage declines Strong performance in z Systems, with revenue growth, margin expansion and new workloads added Continued to address shifting markets in Power and Storage Highlights Revenue growth rates @CC, $ in billions Segment Revenue Elements Systems Hardware (12%) Yr / Yr Operating Systems Software (12%) Yr / Yr Strategic Imperatives Revenue within Systems 4Q16 Yr/Yr Strategic Imperatives $1.1 (18%) Cloud $0.9 (15%) Segment Results 4Q16 Yr/Yr Revenue (External) $2.5 (12%) Gross Margin (External) 56.9% 1.1 pts PTI $0.6 (14%) PTI Margin 21.6% (0.2 pts)
10 Software Revenue Highlights Software Revenue Composition Cognitive Solutions Annuity +5% Yr/Yr Transactional (4%) Yr/Yr Operating Systems Annuity (7%) Yr/Yr Integration Software Annuity +3% Yr/Yr Revenue growth rates @CC Growth in total software revenue in 4Q and full year Continued growth in Cognitive Solutions and Integration Software, while Operating Systems declined Continued growth in annuity content led by SaaS; moderation of transaction weakness 4Q16 - $7.1B Total Software revenue, +1% Yr/Yr
11 Cash Flow and Balance Sheet Highlights Free Cash Flow realization of 97%, in line with longer term model 15 acquisitions in 2016 add to capabilities in cognitive and analytics, cloud and security Returned ~75% of free cash flow to shareholders Pension funding levels remain solid Implementing changes to financing structure in 2017 Positioned to support business over the longer term $ in billions *Excludes Global Financing receivables Balance Sheet Dec 16 Dec 15 Cash & Marketable Securities $8.5 $8.2 Total Debt $42.2 $39.9 Global Financing Debt $27.9 $27.2 Global Financing Leverage 7.3 7.3 Non-GF Debt $14.3 $12.7 Non-GF Debt/Capital 50% 54% Cash Flow 4Q16 Yr/Yr FY16 Net Cash from Operations* $5.6 ($1.4) $15.3 Free Cash Flow* $4.7 ($1.4) $11.6 Selected Uses of Cash Net Capital Expenditures $0.9 $3.7 Acquisitions $0.2 $5.7 Dividends/Share Repurchase $2.2 $8.8
12 Summary Continued strength in strategic imperatives; growing annuity base Significant investments; remixing to best opportunity areas Building new businesses and creating new markets Delivering innovation in more traditional businesses and monetizing core technologies 2016 progress supports 2017 expectations Operating EPS of at least $13.80, compared with $13.59 in 2016 Free cash flow realization >90% of GAAP net income
13 ibm.com/investor
14 Supplemental Materials Currency Impact on Revenue Growth Strategic Imperatives Revenue Geographic Revenue Segment Revenue & Gross Profit Additional Revenue & Backlog Information Expense Summary Global Financing Portfolio Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Key Financial Metrics FY 2016 Segment Revenue & Gross Profit FY 2016 Expense Summary FY 2016 RetirementRelated Summary Non-GAAP Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding
15 Currency Impact on Revenue Growth Supplemental Materials 1/18/17 Quarterly Averages per US $ 3Q16 Yr/Yr 4Q16 Yr/Yr Spot 1Q17 2Q17 3Q17 4Q17 FY17 Euro 0.90 0% 0.93 (2%) 0.94 (3%) (6%) (4%) (1%) (4%) Pound 0.76 (18%) 0.81 (22%) 0.81 (16%) (16%) (6%) (1%) (9%) Yen 102 16% 110 10% 113 1% (5%) (11%) (3%) (4%) IBM Revenue Impact 0.8 pts (0.6 pts) (1Pts) (2-3Pts) (2-3Pts) (0-1Pts) (1-2Pts) Prior View (Oct 2016) 0-1Pts ~1Pts (1Pts) US$B Yr/Yr Revenue As Reported $21.8 (1.3%) Currency Impact ($0.1) (0.6 pts) Revenue @ CC $21.9 (0.7%) Yr/Yr @ 1/18/17 Spot
16 Strategic Imperatives Revenue Revenue growth rates @CC, $ in billions Overlap in Strategic Imperatives revenue primarily reflects solutions delivered via cloud Supplemental Materials 4Q16 Yr/Yr FY16 Yr/Yr Total Strategic Imperatives $9.5 12% $32.8 14% Analytics $5.6 9% $19.5 9% Cloud $4.2 33% $13.7 35% aaS annual run rate $8.6 63% Mobile $1.1 17% $4.1 35% Security $0.6 8% $2.0 14% Social $0.3 (3%) $1.0 (10%)
17 Geographic Revenue Sequential improvement in the Americas and Asia Pacific performance US returned to growth (+2%) Asia Pacific performance mixed, with double-digit growth in China, modest growth in India, and modest decline in Japan (-2%) EMEA reflects weakness in UK, Germany, Eastern Europe Revenue growth rates @CC, $ in billions Supplemental Materials Geography Revenue 4Q16 Yr/Yr Americas $10.3 Flat Europe/ME/Africa $6.7 (3%) Asia Pacific $4.6 1%
18 Segment Revenue & Gross Profit Revenue growth rates @CC, $ in billions Supplemental Materials Segment Revenue & Gross Profit Metrics - 4Q16 Revenue Yr/Yr GP% Yr/Yr Cognitive Solutions $5.3 2% 82.7% (3.0) pts Global Business Services $4.1 (4%) 26.9% (1.3) pts Cognitive Solutions & Industry Services $9.4 0% 58.3% (1.5) pts Technology Services & Cloud Platforms $9.3 2% 42.9% (1.4) pts Global Technology Services $7.9 3% 35.3% (1.1) pts Integration Software $1.4 1% 86.0% (2.6) pts Systems $2.5 (12%) 56.9% 1.1 pts Systems Hardware $2.1 (12%) 50.4% 2.4 pts Operating Systems Software $0.5 (12%) 86.6% (4.9) pts Global Financing $0.4 (2%) 36.2% (3.6) pts
19 Additional Revenue & Backlog Information Growth rates @CC, $ in billions, Actual backlog calculated using December 31 currency spot rates *Total Software = Cognitive Solutions + Integration Software + Operating Systems Software **Prior year reclassified to reflect current segment structure Supplemental Materials 4Q16 Yr/Yr Services Revenue Global Technology Services $7.9 3% Infrastructure Services $6.1 3% Technical Support Services $1.8 Flat Global Business Services $4.1 (4%) Consulting $1.8 (5%) Global Process Services $0.3 (4%) Application Management $2.0 (2%) Signings** $14.6 (8%) Services Backlog $119 (2%) Currency Impact Year to Year ($2) Currency Impact Quarter to Quarter ($5) 4Q16 Yr/Yr Software Revenue* $7.1 1% Cognitive Solutions $5.3 2% Solutions Software $3.7 5% Transaction Processing Software $1.6 (4%) Integration Software $1.4 1% Operating Systems Software $0.5 (12%) Hardware Revenue $2.1 (12%) z Systems 4% Power (34%) Storage (10%)
20 Expense Summary Supplemental Materials $ in billions *includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges B/(W) Expense Metrics 4Q16 Yr/Yr Currency Acq.* Base SG&A Operating $4.8 4% 1 pts (4 pts) 7 pts RD&E Operating $1.4 (6%) 1 pts (6 pts) (1 pts) IP and Development Income ($0.5) 170% Other (Income)/Expense ($0.1) (7%) Interest Expense $0.2 (22%) Operating Expense & Other Income $5.7 7% (1 pts) (4 pts) 12 pts
21 Global Financing Portfolio 4Q16 $27.6B Net External Receivables Global Financing Metrics 4Q16 3Q16 4Q15 Identified Loss Rate* 1.2% 2.1% 1.8% Anticipated Loss Rate 0.4% 0.5% 0.3% Reserve Coverage* 1.6% 2.6% 2.1% Client Days Delinquent Outstanding 4.0 3.9 3.8 Commercial A/R > 30 days $22M $19M $15M Supplemental Materials Investment Grade 52% Non-Investment Grade 48% *Reduction in 4Q16 reserve coverage reflects write-off of previously reserved receivables, which has no income statement or net asset impact 20% 32% 23% 16% 8% 1% 0% 10% 20% 30% 40% Aaa to A3 Baa1 to Baa3 Ba1 to Ba2 Ba3 to B1 B2 to B3 Caa1 to D
22 Balance Sheet Summary *includes eliminations of inter-company activity Supplemental Materials $ in billions Dec 16 Dec 15 Cash & Marketable Securities $8.5 $8.2 Non-GF Assets* $74.4 $67.7 Global Financing Assets $34.6 $34.6 Total Assets $117.5 $110.5 Other Liabilities $56.9 $56.2 Non-GF Debt* $14.3 $12.7 Global Financing Debt $27.9 $27.2 Total Debt $42.2 $39.9 Total Liabilities $99.1 $96.1 Equity $18.4 $14.4 Non-GF Debt / Capital 50% 54% Global Financing Leverage 7.3 7.3
23 Cash Flow Summary Supplemental Materials $ in billions B/(W) B/(W) 4Q16 Yr/Yr FY16 Yr/Yr Net Cash from Operations $3.2 ($2.1) $16.5 ($0.5) Less: Global Financing Receivables ($2.4) ($0.6) $1.2 $1.1 Net Cash from Operations (excluding GF Receivables) $5.6 ($1.4) $15.3 ($1.6) Net Capital Expenditures ($0.9) $0.1 ($3.7) $0.1 Free Cash Flow (excluding GF Receivables) $4.7 ($1.4) $11.6 ($1.5) Acquisitions ($0.2) $2.3 ($5.7) ($2.3) Divestitures ($0.5) ($0.6) ($0.5) ($0.1) Dividends ($1.3) ($0.1) ($5.3) ($0.4) Share Repurchases (Gross) ($0.9) ($0.1) ($3.5) $1.1 Non-GF Debt ($2.0) ($1.2) $1.3 $1.4 Other (includes GF A/R & GF Debt) ($1.2) $0.9 $2.3 $2.3 Change in Cash & Marketable Securities ($1.4) ($0.1) $0.3 $0.6
24 Cash Flow (ASC 230) Supplemental Materials $ in billions 4Q16 4Q15 FY16 FY15 Net Income from Operations $4.5 $4.5 $11.9 $13.2 Depreciation / Amortization of Intangibles $1.1 $1.0 $4.4 $3.9 Stock-based Compensation $0.1 $0.1 $0.5 $0.5 Working Capital / Other ($0.1) $1.5 ($1.5) ($0.7) Global Financing A/R ($2.4) ($1.8) $1.2 $0.2 Net Cash provided by Operating Activities $3.2 $5.3 $16.5 $17.0 Capital Expenditures, net of payments & proceeds ($0.9) ($1.0) ($3.7) ($3.8) Divestitures, net of cash transferred ($0.5) $0.1 ($0.5) ($0.4) Acquisitions, net of cash acquired ($0.2) ($2.5) ($5.7) ($3.3) Marketable Securities / Other Investments, net ($1.3) ($2.0) ($0.7) ($0.6) Net Cash used in Investing Activities ($2.9) ($5.4) ($10.5) ($8.2) Debt, net of payments & proceeds $0.9 $0.6 $2.8 $0.0 Dividends ($1.3) ($1.3) ($5.3) ($4.9) Common Stock Repurchases ($0.9) ($0.8) ($3.5) ($4.6) Common Stock Transactions - Other $0.0 $0.1 $0.2 $0.3 Net Cash used in Financing Activities ($1.3) ($1.3) ($5.8) ($9.2) Effect of Exchange Rate changes on Cash ($0.2) ($0.3) ($0.1) ($0.5) Net Change in Cash & Cash Equivalents ($1.2) ($1.8) $0.1 ($0.8)
25 Key Financial Metrics FY 2016 Revenue growth rates @CC, $ in billions except for EPS B/(W) Supplemental Materials P&L Highlights FY16 Yr/Yr Revenue $79.9 (2%) Expense - Operating $25.2 (6%) PTI - Operating $13.9 (21%) NI - Operating $13.0 (11%) EPS - Operating $13.59 (9%) P&L Ratios (Operating) GP Margin 48.9% (1.9 pts) Expense E/R 31.5% (2.3 pts) PTI Margin 17.4% (4.2 pts) Tax Rate 6.5% 10.7 pts NI Margin 16.3% (1.6 pts) Cash Highlights 4Q16 FY16 Free Cash Flow (excl. GF Receivables) $4.7 $11.6 Share Repurchase (Gross) $0.9 $3.5 Dividends $1.3 $5.3 Cash Balance @ Dec 31 $8.5
26 Segment Revenue & Gross Profit FY 2016 Revenue growth rates @CC, $ in billions Supplemental Materials Segment Revenue & Gross Profit Metrics - FY16 Revenue Yr/Yr GP% Yr/Yr Cognitive Solutions $18.2 3% 81.9% (3.3) pts Solutions Software $12.6 6% Transaction Processing Software $5.6 (3%) Global Business Services $16.7 (3%) 27.0% (1.2) pts Consulting $7.3 (5%) Global Process Services $1.4 (2%) Application Management $8.0 Flat Technology Services & Cloud Platforms $35.3 1% 41.9% (0.8) pts Global Technology Services $30.8 2% 35.6% (0.5) pts Infrastructure Services $23.5 3% Technical Support Services $7.3 (1%) Integration Software $4.5 (1%) 84.7% (1.6) pts Systems $7.7 (19%) 55.7% (0.1) pts Systems Hardware $5.9 (22%) 45.9% (0.8) pts Operating Systems Software $1.8 (9%) 88.2% (2.5) pts Global Financing $1.7 (7%) 38.7% (6.9) pts
27 Expense Summary FY 2016 Supplemental Materials $ in billions *includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges B/(W) Expense Metrics FY16 Yr/Yr Currency Acq.* Base SG&A Operating $20.3 (4%) 1 pts (3 pts) (1 pts) RD&E Operating $5.7 (10%) 1 pts (7 pts) (4 pts) IP and Development Income ($1.6) 139% Other (Income)/Expense $0.1 NM Interest Expense $0.6 (34%) Operating Expense & Other Income $25.2 (6%) (2 pts) (4 pts) 0 pts
28 Retirement-Related Summary $ in billions *Tax Qualified Defined Benefit Plans ** 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 ***includes cash and non-cash contributions Supplemental Materials Expected Cost and Contributions 2016 2017 Operating Cost $1.4 $1.4 Non-operating Cost** $0.6 $1.5 Total Cost $2.0 $2.9 Contributions*** $2.4 $2.5 Key Assumptions and Metrics 2015 2016 2017 Funded Status at Year-end* US 101% 102% WW 97% 98% Discount Rate at Year-end US 4.0% 3.8% WW 3.3% 2.9% Expected ROA at Prior Year-end US 7.5% 7.0% 5.8% WW 6.7% 6.4% 4.9% Actual ROA US (1.0%) 6.2% WW (0.2%) 8.5%
Reconciliation of Operating Earnings Per Share 29 Non-GAAP Supplemental Materials *Includes acquisitions through December 31, 2016 The above reconciles the Non-GAAP financial information contained in the Summary discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 2017 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
Reconciliation of Revenue Growth - 4Q 2016 30 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the Geographic Revenue discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials GAAP @CC Americas 0% 0% Europe/ME/Africa (8%) (3%) Asia Pacific 5% 1% U.S. 2% 2% Japan 8% (2%) 4Q16 Yr/Yr
Reconciliation of Revenue Growth - 4Q & FY 2016 31 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the A Cognitive Solutions & Cloud Platform Company and Strategic Imperatives Revenue discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials GAAP @CC GAAP @CC Strategic Imperatives 11% 12% 13% 14% Analytics 9% 9% 9% 9% Cloud 33% 33% 35% 35% Mobile 16% 17% 34% 35% Security 7% 8% 13% 14% Social (3%) (3%) (11%) (10%) 4Q16 Yr/Yr FY16 Yr/Yr
Reconciliation of Revenue Growth - 4Q 2016 32 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the Segment Revenue & Gross Profit, Additional Revenue & Backlog Information, Cognitive Solutions Segment, Global Business Services Segment, Technology Services & Cloud Platforms Segment ,Systems Segment and Software Revenue discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials GAAP @CC GAAP @CC Cognitive Solutions 1% 2% Tech Svcs & Cloud Platforms 2% 2% Solutions Software 4% 5% Global Technology Services 2% 3% Transaction Processing Software (4%) (4%) Infrastructure Services 3% 3% Strategic Imperatives 6% 7% Technical Support Services 0% 0% Cloud 52% 53% Integration Software 0% 1% Global Business Services (4%) (4%) Strategic Imperatives 36% 37% Consulting (5%) (5%) Cloud 48% 50% Global Process Services (5%) (4%) Systems (13%) (12%) Application Management (3%) (2%) Systems Hardware (12%) (12%) Strategic Imperatives 18% 19% z Systems 4% 4% Cloud 78% 77% Power (34%) (34%) Storage (11%) (10%) Cognitive Solutions & Industry Svcs (1%) 0% Operating Systems Software (13%) (12%) Strategic Imperatives (19%) (18%) Cloud (15%) (15%) Global Financing (2%) (2%) Total Software 0% 1% 4Q16 Yr/Yr 4Q16 Yr/Yr
Reconciliation of Revenue Growth - FY 2016 33 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the Segment Revenue & Gross Profit FY 2016 discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials GAAP @CC Cognitive Solutions 2% 3% Solutions Software 5% 6% Transaction Processing Software (4%) (3%) Global Business Services (3%) (3%) Consulting (5%) (5%) Global Process Services (3%) (2%) Application Management (1%) Flat Technology Services & Cloud Platforms 1% 1% Global Technology Services 1% 2% Infrastructure Services 2% 3% Technical Support Services (2%) (1%) Integration Software (3%) (1%) Systems (19%) (19%) Systems Hardware (22%) (22%) Operating Systems Software (9%) (9%) Global Financing (8%) (7%) Total Software 0% 1% FY16 Yr/Yr
Reconciliation of Expense Summary - 4Q 2016 34 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the Expense Summary discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 1 pts 0 pts 1 pts Acquisitions (5 pts) 1 pts (4 pts) Base 7 pts 0 pts 7 pts RD&E Currency 1 pts 0 pts 1 pts Acquisitions (6 pts) 0 pts (6 pts) Base 0 pts 0 pts (1 pts) Operating Expense & Other Income Currency (1 pts) 0 pts (1 pts) Acquisitions (5 pts) 1 pts (4 pts) Base 12 pts 0 pts 12 pts
Reconciliation of Expense Summary - FY 2016 35 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the Expense Summary FY 2016 discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 1 pts 0 pts 1 pts Acquisitions (4 pts) 1 pts (3 pts) Base 1 pts (2 pts) (1 pts) RD&E Currency 1 pts 0 pts 1 pts Acquisitions (7 pts) 0 pts (7 pts) Base (4 pts) 0 pts (4 pts) Operating Expense & Other Income Currency (2 pts) 0 pts (2 pts) Acquisitions (5 pts) 1 pts (4 pts) Base 2 pts (1 pts) 0 pts
Reconciliation of Software Revenue Growth - 4Q 2016 36 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the Software Revenue discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials GAAP @CC Transactional (5%) (4%) Cognitive Solutions Annuity 4% 5% Integration Software Annuity 2% 3% Operating Systems Annuity (8%) (7%) 4Q16 Yr/Yr
Reconciliation of GBS Strategic Imperatives (Analytics) Revenue Growth - 4Q 2016 37 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the 4Q16 Prepared Remarks discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials GAAP @CC GBS Strategic Imperatives- Analytics Revenue 9% 10% 4Q16 Yr/Yr
Reconciliation of Debt-to-Capital Ratio 38 Non-GAAP Supplemental Materials Supplemental Materials The above reconciles the Non-GAAP financial information contained in the Cash Flow and Balance Sheet Highlights and Balance Sheet Summary discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated January 19, 2017 for additional information on the use of these Non-GAAP financial measures. Management presents its debt-to-capital ratio excluding the Global Financing business. A financing business is managed on a leveraged basis. The company funds its Global Financing segment using a debt-to-equity ratio target of approximately 7 to 1. Given this significant leverage, the company presents a debt-to-capital ratio which excludes the Global Financing segment debt and equity because the company believes this is more representative of the companys core business operations Dec 2016 Dec 2015 Non-Global Financing Debt/Capital 50% 54% IBM Consolidated Debt/Capital 70% 73%
39 ibm.com/investor
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