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 IBM Reports 2017 Second-Quarter Results
   Tuesday, July 18, 2017 4:06:00 PM ET

IBM (IBM )

Continued Growth in Strategic Imperatives Led by IBM Cloud

Highlights

-- Diluted EPS from continuing operations: GAAP of $2.48; Operating (non-GAAP) of $2.97

-- Revenue from continuing operations of $19.3 billion

-- Strategic imperatives revenue of $34.1 billion over the trailing 12 months, up 11 percent (up 12 percent adjusting for currency); represents 43 percent of IBM revenue -- First half revenue up 8 percent (up 10 percent adjusting for currency) -- Second quarter revenue up 5 percent (up 7 percent adjusting for currency)

-- Cloud revenue of $15.1 billion over the trailing 12 months -- As-a-service annual exit run rate of $8.8 billion in the quarter, up 30 percent year to year (up 32 percent adjusting for currency)

-- Maintains full-year EPS and free cash flow expectations

IBM (IBM ) today announced second-quarter earnings results.

"In the second quarter, we strengthened our position as the enterprise cloud leader and added more of the world’s leading companies to the IBM Cloud," said Ginni Rometty, IBM chairman, president and chief executive officer. "We continue to innovate, adding regtech capabilities to our portfolio of Watson offerings; developing solutions based on emerging technologies such as Blockchain; and reinventing the IBM mainframe by enabling clients to encrypt all data, all the time."

                                                                                            SECOND QUARTER 2017
                                                                               -------------------------------------------------------------------------------------------------------------------------
                                                                                                           Gross Profit  
                                                                               Diluted EPS    Net Income         Margin
                                                                               ----------- -------------------- ----------- -------------------- ------------
                                                                                                                                                                                    
                     GAAP from Continuing Operations                                 $2.48                            $2.3B                             45.6%
                         Year/Year                                  -5%           -7%        -2.3Pts
                     ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------
                                                                                                                                                                                    
                     Operating (Non-GAAP)                                            $2.97                            $2.8B                             47.2%
                         Year/Year                                   1%           -2%        -1.8Pts
                     ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------
                                                                                                                                                                                           As-a-service
                                                                                                                  Strategic                                                                 annual exit
                     REVENUE                                  Total IBM   Imperatives          Cloud               run rate
                     ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------ -------------------- --------------------
                                                                                                                                                                                    
                     As reported (US$)                                              $19.3B                            $8.8B                             $3.9B                                     $8.8B
                                                                                                                                                                                    
                         Year/Year                                  -5%            5%            15%                    30%
                     ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------ -------------------- --------------------
                                                                                                                                                                                    
                         Year/Year adjusting for currency           -3%            7%            17%                    32%
                     ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------ -------------------- --------------------
 

"We finished the first half of the year where we expected, including continued strong free cash flow generation," said Martin Schroeter, IBM senior vice president and chief financial officer. "This allowed us to continue our strong R&D investment levels and return more than $5 billion to shareholders through dividends and gross share repurchases during the first half."

Strategic Imperatives

Second-quarter cloud revenues increased 15 percent (up 17 percent adjusting for currency) to $3.9 billion. Cloud revenue over the last 12 months was $15.1 billion. The annual exit run rate for as-a-service revenue increased to $8.8 billion from $6.7 billion in the second quarter of 2016. Revenues from analytics increased 4 percent (up 6 percent adjusting for currency). Revenues from mobile increased 27 percent (up 29 percent adjusting for currency) and revenues from security increased 4 percent (up 5 percent adjusting for currency).

Full-Year 2017 Expectations

The company continues to expect operating (non-GAAP) diluted earnings per share of at least $13.80 and GAAP diluted earnings per share of at least $11.95. Operating (non-GAAP) diluted earnings per share exclude $1.85 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges. IBM continues to expect free cash flow to be relatively flat year to year.

Cash Flow and Balance Sheet

In the second quarter, the company generated net cash from operating activities of $3.5 billion; or $3.3 billion excluding Global Financing receivables. IBM’s free cash flow was $2.6 billion. IBM returned $1.4 billion in dividends and $1.4 billion of gross share repurchases to shareholders. At the end of June 2017, IBM had $2.4 billion remaining in the current share repurchase authorization.

IBM ended the second quarter of 2017 with $12.3 billion of cash on hand. Debt totaled $45.7 billion, including Global Financing debt of $29.0 billion. The balance sheet remains strong and, with the completion of the reorganization of its client and commercial financing business, the company is better positioned over the long term.

Segment Results for Second Quarter

-- Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of $4.6 billion, down 2.5 percent (down 1.4 percent adjusting for currency). Pre-tax income increased at a double-digit rate.

-- Global Business Services (includes consulting, global process services and application management) -- revenues of $4.1 billion, down 3.7 percent (down 1.7 percent adjusting for currency). Strategic imperatives grew 8 percent led by the cloud and mobile practices.

-- Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) -- revenues of $8.4 billion, down 5.1 percent (down 3.6 percent adjusting for currency). Strategic imperatives, driven by hybrid cloud services, grew 20 percent.

-- Systems (includes systems hardware and operating systems software) -- revenues of $1.7 billion, down 10.4 percent (down 9.6 percent adjusting for currency).

-- Global Financing (includes financing and used equipment sales) -- revenues of $415 million, down 2.2 percent (down 1.7 percent adjusting for currency).

Tax Rate

IBM’s reported GAAP and operating (non-GAAP) tax rates of 4.5 percent and 9.2 percent, respectively, include the effect of discrete tax benefits in the quarter, which contributed $0.18 to the company’s earnings per share. For the second quarter, IBM’s ongoing effective GAAP and operating (non-GAAP) tax rates were approximately 12 percent and approximately 15 percent, respectively. The company continues to expect a full-year ongoing effective operating (non-GAAP) tax rate of 15 percent plus or minus 3 points, excluding discrete items.

Year-To-Date 2017 Results

Consolidated diluted earnings per share were $4.32 compared to $4.69, down 8 percent year to year. Consolidated net income was $4.1 billion compared to $4.5 billion in the year-ago period, a decrease of 10 percent. Revenues from continuing operations for the six-month period totaled $37.4 billion, a decrease of 4 percent year to year (decrease of 3 percent adjusting for currency) compared with $38.9 billion for the first six months of 2016.

Operating (non-GAAP) diluted earnings per share from continuing operations were $5.35 compared with $5.30 per diluted share for the 2016 period, an increase of 1 percent. Operating (non-GAAP) net income for the six months ended June 30, 2017 was $5.0 billion compared with $5.1 billion in the year-ago period, a decrease of 1 percent.

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and client spending budgets; the company’s failure to meet growth and productivity objectives, a failure of the company’s innovation initiatives; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key personnel and its reliance on critical skills; impacts of relationships with critical suppliers; product quality issues; impacts of business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels and ecosystems; the company’s ability to successfully manage acquisitions, alliances and dispositions; risks from legal proceedings; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Qs, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements.

Presentation of Information in this Press Release

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

IBM results --

-- presenting operating (non-GAAP) earnings per share amounts and related income statement items;

-- adjusting for free cash flow;

-- adjusting for currency (i.e., at constant currency).

Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. The company views Global Financing receivables as a profit-generating investment, which it seeks to maximize and therefore it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.

The rationale for management’s use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8-K that includes this press release and is being submitted today to the SEC.

Conference Call and Webcast

IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EDT, today. The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/2q17.html . Presentation charts will be available shortly before the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

                                                                                                                                                     INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                                                                            COMPARATIVE FINANCIAL RESULTS
                                                                                                                                              (Unaudited; Dollars in millions except per share amounts)
 
                                                                                                                Three Months Ended                                                                                                        Six Months Ended
                                                                                                                                        June 30,                                                                                                                                    June 30,
                                                                                 -----------------------------------------------------------------------------------------------------------------------                     -----------------------------------------------------------------------------------------------------------------------
                                                                                                       2017                                               2016                                                                  2017                                               2016
                                                                                 --------------------------------------------------------------------- -------------------------------------------------                     --------------------------------------------------------------------- -------------------------------------------------
                                                                                                                                                                                                                                                            
REVENUE
Cognitive Solutions                                                                                 $  4,559                                                              $  4,675                                                              $  8,621                                                              $  8,654
Global Business Services                                                                               4,097                                                                 4,255                                                                 8,103                                                                 8,387
Technology Services & Cloud Platforms                                                                  8,406                                                                 8,857                                                                16,622                                                                17,280
Systems                                                                                                1,747                                                                 1,950                                                                 3,142                                                                 3,626
Global Financing                                                                                         415                                                                   424                                                                   819                                                                   834
Other                                                                                  65           76                             136          142  
                                                                                 -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------                      -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------
TOTAL REVENUE                                                                                         19,289                                                                20,238                                                                37,443                                                                38,923
                                                                                                                                                                                                                                                                                                    
GROSS PROFIT                                                                                           8,794                                                                 9,702                                                                16,565                                                                18,388
                                                                                                                                                                                                                                                                                                    
GROSS PROFIT MARGIN
Cognitive Solutions                                                                                     79.0 %                                                                82.2 %                                                                78.2 %                                                                82.1 %
Global Business Services                                                                                24.9 %                                                                26.3 %                                                                24.3 %                                                                26.1 %
Technology Services & Cloud Platforms                                                                   40.6 %                                                                41.6 %                                                                39.8 %                                                                41.3 %
Systems                                                                                                 52.7 %                                                                56.5 %                                                                50.4 %                                                                56.9 %
Global Financing                                                                                        30.8 %                                                                38.7 %                                                                31.3 %                                                                40.5 %
                                                                                                                                                                                                                                                                                                    
TOTAL GROSS PROFIT MARGIN                                                                               45.6 %                                                                47.9 %                                                                44.2 %                                                                47.2 %
                                                                                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                                                                                    
EXPENSE AND OTHER INCOME
S,G&A                                                                                                  5,160                                                                 5,349                                                                10,312                                                                11,361
R,D&E                                                                                                  1,484                                                                 1,465                                                                 3,018                                                                 2,923
Intellectual property and custom development income                                                     (365 )                                                                (365 )                                                                (810 )                                                                (582 )
Other (income) and expense                                                                               (76 )                                                                  37                                                                  (104 )                                                                 289
Interest expense                                                                                         147                                                                   167                                                                   283                                                                   315
                                                                                                                                                                                                     
                                                                                 --------------------------------------------------------------------- -------------------------------------------------                     --------------------------------------------------------------------- -------------------------------------------------
TOTAL EXPENSE AND OTHER INCOME                                                                         6,351                                                                 6,653                                                                12,699                                                                14,306
                                                                                                                                                                                                                                                                                                    
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES                                                                                    2,443                                                                 3,049                                                                 3,867                                                                 4,082
    Pre-tax margin                                                                                      12.7 %                                                                15.1 %                                                                10.3 %                                                                10.5 %
Provision for / (Benefit) from income taxes                                                              111                                                                   544                                                                  (218 )                                                                (439 )
    Effective tax rate                                                                                   4.5 %                                                                17.8 %                                                                (5.6 %)                                                              (10.8 %)
                                                                                                                                                                                                                                                                                                    
INCOME FROM CONTINUING OPERATIONS                                                                   $  2,332                                                              $  2,505                                                              $  4,085                                                              $  4,521
                                                                                                                                                                                                                                                                                                    
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes                               (1 )                            (0 )                                               (3 )                            (3 )
                                                                                 -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------                      -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------
                                                                                                                                                                                                                                                                                                    
NET INCOME                                                                                          $  2,331                        $  2,504                                           $  4,082                        $  4,518  
                                                                                 ==================== ====== ==================== ==================== ==================== ====== ====================                      ==================== ====== ==================== ==================== ==================== ====== ====================
                                                                                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                                                                                    
EARNINGS PER SHARE OF COMMON STOCK:
    Assuming Dilution
        Continuing Operations                                                                       $   2.48                                                              $   2.61                                                              $   4.32                                                              $   4.69
        Discontinued Operations                                                                     $   0.00                        $   0.00                                           $   0.00                        $   0.00  
                                                                                 -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------                      -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------
    TOTAL                                                                                           $   2.48                        $   2.61                                           $   4.32                        $   4.69  
                                                                                 ==================== ====== ==================== ==================== ==================== ====== ====================                      ==================== ====== ==================== ==================== ==================== ====== ====================
    Basic
        Continuing Operations                                                                       $   2.49                                                              $   2.62                                                              $   4.35                                                              $   4.71
        Discontinued Operations                                                                     $   0.00                        $   0.00                                           $   0.00                        $   0.00  
                                                                                 -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------                      -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------
    TOTAL                                                                                           $   2.49                        $   2.62                                           $   4.35                        $   4.71  
                                                                                 ==================== ====== ==================== ==================== ==================== ====== ====================                      ==================== ====== ==================== ==================== ==================== ====== ====================
                                                                                                                                                                                                                                                                                                    
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s):
    Assuming Dilution                                                                                  939.6                                                                 960.5                                                                 943.7                                                                 962.4
    Basic                                                                                              934.9                                                                 957.4                                                                 938.7                                                                 959.5
 
                                                            INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                               CONDENSED CONSOLIDATED BALANCE SHEET
                                                                            (Unaudited)
 
                                                                 At                                     At
(Dollars in Millions)                                                            June 30,                                                December 31,
                                                                                   2017                                                      2016
                                                                   -------------------------------------                     -------------------------------------
ASSETS:
                                                                                                                              
Current Assets:
Cash and cash equivalents                                               $   11,696                                                $    7,826
Marketable securities                                                          599                                                       701
Notes and accounts receivable - trade, net                                   8,401                                                     9,182
Short-term financing receivables, net                                       17,563                                                    19,006
Other accounts receivable, net                                                 994                                                     1,057
Inventory                                                                    1,604                                                     1,553
Prepaid expenses and other current assets                                    4,155                                                     4,564
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Current Assets                                                        45,013                                                    43,888
                                                                                                                              
Property, plant and equipment, net                                          10,903                                                    10,830
Long-term financing receivables, net                                         8,296                                                     9,021
Prepaid pension assets                                                       4,015                                                     3,034
Deferred taxes                                                               6,812                                                     5,224
Goodwill and intangibles, net                                               40,696                                                    40,887
Investments and sundry assets                                                4,759                                                     4,585
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Assets                                                            $  120,495                             $  117,470  
                                                                   ====== ======== ====================                      ====== ======== ====================
                                                                                                                              
                                                                                                                              
LIABILITIES:
                                                                                                                              
Current Liabilities:
Taxes                                                                   $    2,779                                                $    3,235
Short-term debt                                                              8,061                                                     7,513
Accounts payable                                                             5,126                                                     6,209
Deferred income                                                             11,541                                                    11,035
Other liabilities                                                            8,458                                                     8,283
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Current Liabilities                                                   35,966                                                    36,275
                                                                                                                              
Long-term debt                                                              37,612                                                    34,655
Retirement related obligations                                              17,320                                                    17,070
Deferred income                                                              3,617                                                     3,600
Other liabilities                                                            7,437                                                     7,477
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Liabilities                                                          101,951                                                    99,078
                                                                                                                              
                                                                                                                              
EQUITY:
                                                                                                                              
IBM Stockholders’ Equity:
Common stock                                                                54,235                                                    53,935
Retained earnings                                                          154,234                                                   152,759
Treasury stock -- at cost                                                 (161,860 )                                                (159,050 )
Accumulated other comprehensive income/(loss)                              (28,189 )                                                 (29,398 )
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total IBM stockholders’ equity                                              18,419                                                    18,246
                                                                                                                              
Noncontrolling interests                                                       125                                                       146
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Equity                                                                18,544                                                    18,392
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Liabilities and Equity                                            $  120,495                             $  117,470  
                                                                   ====== ======== ====================                      ====== ======== ====================
 
                                                                                                                            INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                                                        CASH FLOW ANALYSIS
                                                                                                                                            (Unaudited)
 
                                                                                        Three Months Ended                                                                           Six Months Ended
(Dollars in Millions)                                                                                           June 30,                                                                                                       June 30,
                                                                         --------------------------------------------------------------------------------------                          -------------------------------------------------------------------------------------
                                                                                       2017                              2016                                                       2017                              2016
                                                                         --------------------------------                     ---------------------------------                          --------------------------------                     --------------------------------
                                                                                                                                                                                                                                                                               
Net Cash Provided by Operating Activities per GAAP:                        $  3,467                                                              $   3,458     * **                        $  7,421                                             $  8,988                      * **
                                                                                                                                                                                                                                                                               
    Less: change in Global Financing (GF)
        Receivables                                                             163                                                                    264     *                              2,210                                                2,501                      *
    Capital Expenditures, Net                                                  (749 )                                                                 (979 )                                 (1,567 )                                             (1,949 )
                                                                                                                                                                                                                                                                               
Free Cash Flow                                                                2,555                                                                  2,215     **                             3,644                                                4,538                      **
                                                                                                                                                                                                                                                                               
    Acquisitions                                                                (60 )                                                               (2,815 )                                   (169 )                                             (5,405 )
    Divestitures                                                                 30                                                                    (12 )                                     29                                                   35
    Dividends                                                                (1,403 )                                                               (1,340 )                                 (2,724 )                                             (2,590 )
    Share Repurchase                                                         (1,432 )                                                                 (836 )                                 (2,725 )                                             (1,775 )
    Non-GF Debt                                                               2,119                                                                   (810 )                                  2,363                                                5,061
    Other (includes GF Receivables and GF Debt)                                (210 )                                                                 (654 )   * **                           3,350                                                2,558                      * **
                                                                                                                                                                                                                                                                               
Change in Cash, Cash Equivalents and
Short-term Marketable Securities                                           $  1,600       ($4,253 )                               $  3,768                          $  2,421  
                                                                         === ====== ==================== ==================== ==================== ======= ===                           === ====== ====================                      === ====== ====================
 
* Revised classification of certain financing receivables.
** Reclassified to reflect adoption of the FASB guidance on
stock-based compensation.
 
                                                                                            INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                             CASH FLOW
                                                                                                            (Unaudited)
 
                                                                        Three Months Ended                                           Six Months Ended
(Dollars in Millions)                                                                           June 30,                                                                       June 30,
                                                                          -----------------------------------------------------                          -----------------------------------------------------
                                                                                2017              2016                                      2017              2016
                                                                          ----------------                     ----------------                          ----------------                     ----------------
                                                                                                                                                                                                               
Net Income from Operations                                                  $   2,331                            $   2,504                                 $   4,082                            $   4,518
    Depreciation/Amortization of Intangibles                                    1,118                                1,103                                     2,216                                2,127
    Stock-based Compensation                                                      136                                  128                                       265                                  261
    Working Capital / Other                                                      (281 )                               (541 )   **                             (1,351 )                               (419 )   **
    Global Financing A/R                                                          163                                  264     *                               2,210                                2,501     *
Net Cash Provided by Operating Activities                                   $   3,467                            $   3,458     * **                        $   7,421                            $   8,988     * **
    Capital Expenditures, net of payments & proceeds                             (749 )                               (979 )                                  (1,567 )                             (1,949 )
    Divestitures, net of cash transferred                                          30                                  (12 )                                      29                                   35
    Acquisitions, net of cash acquired                                            (60 )                             (2,815 )                                    (169 )                             (5,405 )
    Marketable Securities / Other Investments, net                               (926 )                               (647 )   *                                 352                                  981     *
Net Cash Used in Investing Activities                                         ($1,705 )                            ($4,452 )   *                             ($1,355 )                            ($6,338 )   *
    Debt, net of payments & proceeds                                            2,279                               (1,035 )                                   2,756                                3,929
    Dividends                                                                  (1,403 )                             (1,340 )                                  (2,724 )                             (2,590 )
    Common Stock Repurchases                                                   (1,432 )                               (836 )                                  (2,725 )                             (1,775 )
    Common Stock Transactions - Other                                             (54 )                                (29 )   **                                (50 )                                  3     **
Net Cash Used in Financing Activities                                           ($609 )                            ($3,240 )   **                            ($2,743 )                              ($434 )   **
Effect of Exchange Rate changes on Cash                                           447                                 (103 )                                     547                                  114
Net Change in Cash & Cash Equivalents                                       $   1,600                              ($4,338 )                               $   3,870                            $   2,330
                                                                                                                                                                                                               
* Revised classification of certain financing receivables.
** Reclassified to reflect adoption of the FASB guidance on
stock-based compensation.
 
                                                                                     INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                    SEGMENT DATA
                                                                                                     (Unaudited)
 
                                                                                                                SECOND - QUARTER 2017
                                                                      -----------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Cognitive Solutions &                                 
                                                                                  Industry Services
                                                                      ----------------------------------------
                                                                                                                Technology
                                                                                                      Global                       Services &
(Dollars in Millions)                                                  Cognitive                     Business                         Cloud                                                            Global
                                                                       Solutions  Services    Platforms    Systems        Financing
                                                                      --------- -------------------- -------- -------------------- ---------- -------------------- ------- -------------------- --------------------
Revenue
External                                                                 $4,559                        $4,097                          $8,406                       $1,747                                      $415
Internal                                                                    655         93          173       177                    290
                                                                      --------- -------------------- -------- -------------------- ---------- -------------------- ------- -------------------- --------------------
Total Segment Revenue                                                    $5,214                        $4,190                          $8,579                       $1,924                                      $705
                                                                                                                                                                                                 
Pre-tax Income from Continuing Operations                                 1,615                           321                           1,009                           74                                       282
                                                                                                                                                                                                 
Pre-tax margin                                                            31.0%                          7.7%                           11.8%                         3.9%                                     40.0%
                                                                                                                                                                                                 
Change YTY Revenue - External                                            (2.5)%                        (3.7)%                          (5.1)%                      (10.4)%                                    (2.2)%
Change YTY Revenue - External @constant currency                         (1.4)%                        (1.7)%                          (3.6)%                       (9.6)%                                    (1.7)%
                                                                                                                                                                                                 
                                                                                                                                                                                                 
                                                                                                                                   SECOND - QUARTER 2016
                                                                      -----------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Cognitive Solutions &
                                                                                  Industry Services
                                                                      ----------------------------------------
                                                                                                                                   Technology
                                                                                                      Global                       Services &
(Dollars in Millions)                                                  Cognitive                     Business                         Cloud                                                            Global
                                                                       Solutions  Services    Platforms    Systems        Financing
                                                                      --------- -------------------- -------- -------------------- ---------- -------------------- ------- -------------------- --------------------
Revenue
External                                                                 $4,675                        $4,255                          $8,857                       $1,950                                      $424
Internal                                                                    594        103          156       206                    502
                                                                      --------- -------------------- -------- -------------------- ---------- -------------------- ------- -------------------- --------------------
Total Segment Revenue                                                    $5,269                        $4,359                          $9,013                       $2,156                                      $926
                                                                                                                                                                                                 
Pre-tax Income from Continuing Operations                                 1,451                           476                           1,279                          229                                       467
                                                                                                                                                                                                 
Pre-tax margin                                                            27.5%                         10.9%                           14.2%                        10.6%                                     50.5%
 
                                                                                     INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                    SEGMENT DATA
                                                                                                     (Unaudited)
 
                                                                                                                  SIX - MONTHS 2017
                                                                      -----------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Cognitive Solutions &                                 
                                                                                  Industry Services
                                                                      ----------------------------------------
                                                                                                                Technology
                                                                                                      Global                       Services &
(Dollars in Millions)                                                  Cognitive                     Business                         Cloud                                                            Global
                                                                       Solutions  Services    Platforms    Systems        Financing
                                                                      --------- -------------------- -------- -------------------- ---------- -------------------- ------- -------------------- --------------------
Revenue
External                                                                 $8,621                        $8,103                         $16,622                       $3,142                                      $819
Internal                                                                  1,371        179          333       344                    653
                                                                      --------- -------------------- -------- -------------------- ---------- -------------------- ------- -------------------- --------------------
Total Segment Revenue                                                    $9,992                        $8,282                         $16,955                       $3,486                                    $1,473
                                                                                                                                                                                                 
Pre-tax Income from Continuing Operations                                 2,889                           612                           1,696                        (112)                                       593
                                                                                                                                                                                                 
Pre-tax margin                                                            28.9%                          7.4%                           10.0%                       (3.2)%                                     40.3%
                                                                                                                                                                                                 
Change YTY Revenue - External                                            (0.4)%                        (3.4)%                          (3.8)%                      (13.3)%                                    (1.7)%
Change YTY Revenue - External @constant currency                           0.5%                        (1.8)%                          (2.8)%                      (12.6)%                                    (1.9)%
                                                                                                                                                                                                 
                                                                                                                                                                                                 
                                                                                                                                     SIX - MONTHS 2016
                                                                      -----------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Cognitive Solutions &
                                                                                  Industry Services
                                                                      ----------------------------------------
                                                                                                                                   Technology
                                                                                                      Global                       Services &
(Dollars in Millions)                                                  Cognitive                     Business                         Cloud                                                            Global
                                                                       Solutions  Services    Platforms    Systems        Financing
                                                                      --------- -------------------- -------- -------------------- ---------- -------------------- ------- -------------------- --------------------
Revenue
External                                                                 $8,654                        $8,387                         $17,280                       $3,626                                      $834
Internal                                                                  1,262        216          321       418                    988
                                                                      --------- -------------------- -------- -------------------- ---------- -------------------- ------- -------------------- --------------------
Total Segment Revenue                                                    $9,916                        $8,603                         $17,602                       $4,044                                    $1,822
                                                                                                                                                                                                 
Pre-tax Income from Continuing Operations                                 2,465                           665                           1,537                          218                                       853
                                                                                                                                                                                                 
Pre-tax margin                                                            24.9%                          7.7%                            8.7%                         5.4%                                     46.8%
 
                                                                         INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                  U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
                                                                  (Unaudited; Dollars in millions except per share amounts)
                                                   
                                                                                                                        SECOND - QUARTER 2017
                                                                                                                        CONTINUING OPERATIONS
                                                                       ----------------------------------------------------------------------------------------------------------------------
                                                                                Acquisition-     Retirement-  
                                                                                                      Related                            Related                              Operating
                                                                        GAAP    Adjustments*    Adjustments**       (Non-GAAP)
                                                                       ------ -------------------- ------------ -------------------- ------------- -------------------- --------------------
                                                                                                                                                                         
Gross Profit                                                           $8,794                              $117                               $195                                    $9,105
                                                                                                                                                                         
Gross Profit Margin                                                     45.6%                            0.6Pts                             1.0Pts                                     47.2%
                                                                                                                                                                         
S,G&A                                                                   5,160                             (129)                              (138)                                     4,893
                                                                                                                                                                         
R,D&E                                                                   1,484                                 -                               (48)                                     1,436
                                                                                                                                                                         
Other (Income) & Expense                                                 (76)                               (4)                                  -                                      (80)
                                                                                                                                                                         
Total Expense & Other (Income)                                          6,351                             (133)                              (186)                                     6,032
                                                                                                                                                                         
Pre-tax Income from Continuing Operations                               2,443                               250                                381                                     3,073
                                                                                                                                                                         
Pre-tax Income Margin from Continuing Operations                        12.7%                            1.3Pts                             2.0Pts                                     15.9%
                                                                                                                                                                         
Provision for / (Benefit) from Income Taxes***                            111                                66                                105                                       282
                                                                                                                                                                         
Effective Tax Rate                                                       4.5%                            1.8Pts                             2.8Pts                                      9.2%
                                                                                                                                                                         
Income from Continuing Operations                                       2,332                               183                                276                                     2,792
                                                                                                                                                                         
Income Margin from Continuing Operations                                12.1%                            1.0Pts                             1.4Pts                                     14.5%
                                                                                                                                                                         
Diluted Earnings Per Share: Continuing Operations                       $2.48                             $0.20                              $0.29                                     $2.97
                                                                        
                                                                                                                        SECOND - QUARTER 2016
                                                                                                                        CONTINUING OPERATIONS
                                                                       ----------------------------------------------------------------------------------------------------------------------
                                                                                                   Acquisition-                        Retirement-
                                                                                                      Related                            Related                              Operating
                                                                        GAAP    Adjustments*    Adjustments**       (Non-GAAP)
                                                                       ------ -------------------- ------------ -------------------- ------------- -------------------- --------------------
                                                                                                                                                                         
Gross Profit                                                           $9,702                              $129                                $81                                    $9,912
                                                                                                                                                                         
Gross Profit Margin                                                     47.9%                            0.6Pts                             0.4Pts                                     49.0%
                                                                                                                                                                         
S,G&A                                                                   5,349                             (159)                               (75)                                     5,114
                                                                                                                                                                         
R,D&E                                                                   1,465                                 -                                (7)                                     1,458
                                                                                                                                                                         
Other (Income) & Expense                                                   37                                 -                                  -                                        37
                                                                                                                                                                         
Total Expense & Other (Income)                                          6,653                             (159)                               (83)                                     6,411
                                                                                                                                                                         
Pre-tax Income from Continuing Operations                               3,049                               289                                163                                     3,501
                                                                                                                                                                         
Pre-tax Income Margin from Continuing Operations                        15.1%                            1.4Pts                             0.8Pts                                     17.3%
                                                                                                                                                                         
Provision for / (Benefit) from Income Taxes***                            544                                82                                 39                                       665
                                                                                                                                                                         
Effective Tax Rate                                                      17.8%                            0.9Pts                             0.3Pts                                     19.0%
                                                                                                                                                                         
Income from Continuing Operations                                       2,505                               207                                124                                     2,835
                                                                                                                                                                         
Income Margin from Continuing Operations                                12.4%                            1.0Pts                             0.6Pts                                     14.0%
                                                                                                                                                                         
Diluted Earnings Per Share: Continuing Operations                       $2.61                             $0.21                              $0.13                                     $2.95
*        Includes amortization of purchased intangible assets, in
                            process R&D, severance cost for acquired employees, vacant space
                            for acquired companies, deal costs and acquisition integration tax
                            charges.
**                          Includes retirement-related interest cost, expected return on
                            plan assets, recognized actuarial losses or gains, amortization of
                            transition assets, other settlements, curtailments, multi-employer
                            plans and insolvency insurance.
***                         Tax impact on operating (non-GAAP) pre-tax income from
                            continuing operations is calculated under the same accounting
                            principles applied to the As Reported pre-tax income under ASC
                            740, which employs an annual effective tax rate method to the
                            results.
 
                                                                          INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                   U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
                                                                   (Unaudited; Dollars in millions except per share amounts)
                                                   
                                                                                                                          SIX - MONTHS 2017
                                                                                                                        CONTINUING OPERATIONS
                                                                       -----------------------------------------------------------------------------------------------------------------------
                                                                                 Acquisition-     Retirement-  
                                                                                                       Related                            Related                              Operating
                                                                         GAAP    Adjustments*    Adjustments**       (Non-GAAP)
                                                                       ------- -------------------- ------------ -------------------- ------------- -------------------- --------------------
                                                                                                                                                                          
Gross Profit                                                           $16,565                              $236                               $388                                   $17,189
                                                                                                                                                                          
Gross Profit Margin                                                      44.2%                            0.6Pts                             1.0Pts                                     45.9%
                                                                                                                                                                          
S,G&A                                                                   10,312                             (269)                              (274)                                     9,769
                                                                                                                                                                          
R,D&E                                                                    3,018                                 -                               (97)                                     2,921
                                                                                                                                                                          
Other (Income) & Expense                                                 (104)                               (7)                                  -                                     (111)
                                                                                                                                                                          
Total Expense & Other (Income)                                          12,699                             (276)                              (371)                                    12,052
                                                                                                                                                                          
Pre-tax Income from Continuing Operations                                3,867                               512                                759                                     5,137
                                                                                                                                                                          
Pre-tax Income Margin from Continuing Operations                         10.3%                            1.4Pts                             2.0Pts                                     13.7%
                                                                                                                                                                          
Provision for / (Benefit) from Income Taxes***                           (218)                               134                                175                                        90
                                                                                                                                                                          
Effective Tax Rate                                                      (5.6)%                            3.2Pts                             4.2Pts                                      1.8%
                                                                                                                                                                          
Income from Continuing Operations                                        4,085                               378                                584                                     5,047
                                                                                                                                                                          
Income Margin from Continuing Operations                                 10.9%                            1.0Pts                             1.6Pts                                     13.5%
                                                                                                                                                                          
Diluted Earnings Per Share: Continuing Operations                        $4.32                             $0.40                              $0.63                                     $5.35
                                                                                                                                                                          
                                                                                                                                                                          
                                                                                                                          SIX - MONTHS 2016
                                                                                                                        CONTINUING OPERATIONS
                                                                       -----------------------------------------------------------------------------------------------------------------------
                                                                                                    Acquisition-                        Retirement-
                                                                                                       Related                            Related                              Operating
                                                                         GAAP    Adjustments*    Adjustments**       (Non-GAAP)
                                                                       ------- -------------------- ------------ -------------------- ------------- -------------------- --------------------
                                                                                                                                                                          
Gross Profit                                                           $18,388                              $241                               $160                                   $18,789
                                                                                                                                                                          
Gross Profit Margin                                                      47.2%                            0.6Pts                             0.4Pts                                     48.3%
                                                                                                                                                                          
S,G&A                                                                   11,361                             (227)                              (130)                                    11,004
                                                                                                                                                                          
R,D&E                                                                    2,923                                 -                               (16)                                     2,907
                                                                                                                                                                          
Other (Income) & Expense                                                   289                               (6)                                  -                                       284
                                                                                                                                                                          
Total Expense & Other (Income)                                          14,306                             (232)                              (146)                                    13,928
                                                                                                                                                                          
Pre-Tax Income from Continuing Operations                                4,082                               473                                306                                     4,861
                                                                                                                                                                          
Pre-tax Income Margin from Continuing Operations                         10.5%                            1.2Pts                             0.8Pts                                     12.5%
                                                                                                                                                                          
Provision for / (Benefit) from Income Taxes***                           (439)                               129                                 66                                     (244)
                                                                                                                                                                          
Effective Tax Rate                                                     (10.8)%                            3.7Pts                             2.0Pts                                    (5.0)%
                                                                                                                                                                          
Income from Continuing Operations                                        4,521                               345                                239                                     5,105
                                                                                                                                                                          
Income Margin from Continuing Operations                                 11.6%                            0.9Pts                             0.6Pts                                     13.1%
                                                                                                                                                                          
Diluted Earnings Per Share: Continuing Operations                        $4.69                             $0.36                              $0.25                                     $5.30
*                      Includes amortization of purchased intangible assets, in
                                          process R&D, severance cost for acquired employees, vacant space
                                          for acquired companies, deal costs and acquisition integration tax
                                          charges.
**                                        Includes retirement-related interest cost, expected return on
                                          plan assets, recognized actuarial losses or gains, amortization of
                                          transition assets, other settlements, curtailments, multi-employer
                                          plans and insolvency insurance.
***                                       Tax impact on operating (non-GAAP) pre-tax income from
                                          continuing operations is calculated under the same accounting
                                          principles applied to the As Reported pre-tax income under ASC
                                          740, which employs an annual effective tax rate method to the
                                          results.
 
                                                               INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                             RECONCILIATION OF OPERATING EARNINGS PER SHARE
                                                                               (Unaudited)
 
                                                             2017
EPS Guidance                                                                                                                                            Expectations
------------------------------------------                                                                                                          --------------------
                                                                                                                                                     
IBM GAAP EPS                                                                                                                                             at least $11.95
                                                                                                                                                     
IBM Operating EPS (non-GAAP)                                                                                                                             at least $13.80
                                                                                                                                                     
                                                                                                                                                     
Adjustments
                                                                                                                                                     
    Acquisition related charges *                                                                                                                                  $0.75
                                                                                                                                                     
    Non-Operating Retirement-Related Items                                                                                                                         $1.10
 
* Includes acquisitions through June 30, 2017

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170718006375r1&sid=cmtx6&distro=nx&

View source version on businesswire.com: http://www.businesswire.com/news/home/20170718006375/en/

SOURCE: IBM"> <Property FormalName="PrimaryTwitterHandle" Value="@ibm

IBM 
Ian Colley, 914-434-3043 
colley@us.ibm.com 
or 
John Bukovinsky, 732-618-3531 
jbuko@us.ibm.com


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