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 IBM Reports 2017 Third-Quarter Results
   Tuesday, October 17, 2017 4:11:00 PM ET

IBM (IBM )

Highlights

-- Diluted EPS from continuing operations: GAAP of $2.92; Operating (non-GAAP) of $3.30

-- Revenue of $19.2 billion

-- Strategic imperatives revenue of $34.9 billion over the trailing 12 months, up 10 percent; represents 45 percent of IBM revenue -- Third-quarter revenue up 11 percent (up 10 percent adjusting for currency)

-- Cloud revenue of $15.8 billion over the trailing 12 months, up 25 percent year to year (up 26 percent adjusting for currency) -- As-a-service annual exit run rate of $9.4 billion in the quarter, up 25 percent year to year (up 24 percent adjusting for currency)

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

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

"In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business," said Ginni Rometty, IBM chairman, president and chief executive officer. "There was enthusiastic adoption of IBM’s new z Systems mainframe, which delivers breakthrough security capabilities to our clients.

                                                                                          THIRD QUARTER 2017
                                                                                                    -----------------------------------------------------------------------------------------------------------------
                                                                                                                                Gross Profit  
                                                                                                    Diluted EPS    Net Income         Margin
                                                                                                    ----------- -------------------- ----------- -------------------- ------------
                                          GAAP from Continuing Operations                                 $2.92                            $2.7B                             45.9%
                                              Year/Year                                  -2%           -4%        -0.9Pts
                                          ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------
                                          Operating (Non-GAAP)                                            $3.30                            $3.1B                             47.6%
                                              Year/Year                                   0%           -2%        -0.4Pts
                                          ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------
                                                                                                                                                                                                        As-a-service
                                                                                                                                       Strategic                                                         annual exit
                                          REVENUE                                  Total IBM   Imperatives          Cloud       run rate
                                          ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------ -------------------- ------------
                                          As reported (US$)                                              $19.2B                            $8.8B                             $4.1B                             $9.4B
                                              Year/Year                                   0%           11%            20%            25%
                                          ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------ -------------------- ------------
                                              Year/Year adjusting for currency           -1%           10%            20%            24%
                                          ------------------------------------ -------------------- ----------- -------------------- ----------- -------------------- ------------ -------------------- ------------
 

"During the first three quarters of the year, our strong free cash flow has enabled us to maintain our R&D investments and to expand IBM’s cloud and cognitive capabilities through capital investments," said Martin Schroeter, IBM senior vice president and chief financial officer. "In addition, we have returned nearly $8 billion to shareholders through dividends and share repurchases."

Strategic Imperatives Revenue

Third-quarter cloud revenues increased 20 percent to $4.1 billion. Cloud revenue over the last 12 months was $15.8 billion, including $8.8 billion delivered as-a-service and $7.0 billion for hardware, software and services to enable IBM clients to implement comprehensive cloud solutions. The annual exit run rate for as-a-service revenue increased to $9.4 billion from $7.5 billion in the third quarter of 2016. In the quarter, revenues from analytics increased 5 percent. Revenues from mobile increased 7 percent and revenues from security increased 51 percent (up 49 percent adjusting for currency).

Full-Year 2017 Expectations

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

Cash Flow and Balance Sheet

In the third quarter, the company generated net cash from operating activities of $3.6 billion, or $3.3 billion excluding Global Financing receivables. IBM’s free cash flow was $2.5 billion. IBM returned $1.4 billion in dividends and $0.9 billion of gross share repurchases to shareholders. At the end of September 2017, IBM had $1.5 billion remaining in the current share repurchase authorization.

IBM ended the third quarter of 2017 with $11.5 billion of cash on hand. Debt totaled $45.6 billion, including Global Financing debt of $29.4 billion. The balance sheet remains strong and is well positioned over the long term.

Segment Results for Third Quarter

-- Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of $4.4 billion, up 4 percent (up 3 percent adjusting for currency), driven by solutions software, including security and analytics, and transaction processing software.

-- Global Business Services (includes consulting, global process services and application management) -- revenues of $4.1 billion, down 2 percent. Strategic imperatives revenue grew 10 percent led by the cloud practice.

-- Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) -- revenues of $8.5 billion, down 3 percent (down 4 percent adjusting for currency). Strategic imperatives revenue grew 12 percent, driven by hybrid cloud services, security and mobile.

-- Systems (includes systems hardware and operating systems software) -- revenues of $1.7 billion, up 10 percent, driven by growth in z Systems and storage.

-- Global Financing (includes financing and used equipment sales) -- revenues of $427 million, up 4 percent (up 3 percent adjusting for currency).

Expense and Other Income

Third-quarter GAAP expense and other income year-to-year performance reflects lower IP income of $221 million, an impact of $105 million year to year related to several commercial disputes and a benefit of $91 million resulting from the favorable resolution of pension-related litigation in the U.K.

Operating (non-GAAP) expense and other income for the third quarter of 2017 compared to 2016 reflects lower IP income of $221 million and an impact of $105 million year to year related to several commercial disputes.

Tax Rate

IBM’s third-quarter effective GAAP and operating (non-GAAP) tax rates were 11.0 percent and 14.7 percent, respectively. The company continues to expect a full-year effective operating (non-GAAP) tax rate of 15 percent, plus or minus 3 points, excluding discrete items.

Year-To-Date 2017 Results

Consolidated diluted earnings per share were $7.24 compared to $7.67, down 6 percent year to year. Consolidated net income was $6.8 billion compared to $7.4 billion in the year-ago period, a decrease of 8 percent. Revenues from continuing operations for the nine-month period totaled $56.6 billion, a decrease of 3 percent year to year (decrease of 2 percent adjusting for currency) compared with $58.1 billion for the first nine months of 2016.

Operating (non-GAAP) diluted earnings per share from continuing operations were $8.64 compared with $8.59 per diluted share for the 2016 period, an increase of 1 percent. Operating (non-GAAP) net income for the nine months ended September 30, 2017 was $8.1 billion compared with $8.3 billion in the year-ago period, a decrease of 2 percent.

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the 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/3q17.html . Presentation charts will be available shortly before the Webcast.

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

                                                                                                                                                     INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                                                                            COMPARATIVE FINANCIAL RESULTS
                                                                                                                                              (Unaudited; Dollars in millions except per share amounts)
 
                                                                                                                 Three Months Ended                                                                                                        Nine Months Ended
                                                                                                                                       September 30,                                                                                                                               September 30,
                                                                                  -----------------------------------------------------------------------------------------------------------------------                     -----------------------------------------------------------------------------------------------------------------------
                                                                                                        2017                                               2016                                                                  2017                                               2016
                                                                                  --------------------------------------------------------------------- -------------------------------------------------                     --------------------------------------------------------------------- -------------------------------------------------
                                                                                                                                                                                                                                                             
REVENUE
Cognitive Solutions                                                                                  $  4,400                                                              $  4,235                                                              $ 13,021                                                              $ 12,889
Global Business Services                                                                                4,093                                                                 4,191                                                                12,196                                                                12,578
Technology Services & Cloud Platforms                                                                   8,457                                                                 8,748                                                                25,079                                                                26,029
Systems                                                                                                 1,721                                                                 1,558                                                                 4,863                                                                 5,184
Global Financing                                                                                          427                                                                   412                                                                 1,246                                                                 1,245
Other                                                                                   56           81                             192          223  
                                                                                  -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------                      -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------
TOTAL REVENUE                                                                                          19,153                                                                19,226                                                                56,597                                                                58,149
                                                                                                                                                                                                                                                                                                     
GROSS PROFIT                                                                                            8,800                                                                 9,013                                                                25,365                                                                27,401
                                                                                                                                                                                                                                                                                                     
GROSS PROFIT MARGIN
Cognitive Solutions                                                                                      78.7 %                                                                80.4 %                                                                78.4 %                                                                81.5 %
Global Business Services                                                                                 27.3 %                                                                28.8 %                                                                25.3 %                                                                27.0 %
Technology Services & Cloud Platforms                                                                    41.1 %                                                                42.0 %                                                                40.2 %                                                                41.5 %
Systems                                                                                                  53.6 %                                                                51.1 %                                                                51.5 %                                                                55.1 %
Global Financing                                                                                         25.2 %                                                                37.8 %                                                                29.2 %                                                                39.6 %
                                                                                                                                                                                                                                                                                                     
TOTAL GROSS PROFIT MARGIN                                                                                45.9 %                                                                46.9 %                                                                44.8 %                                                                47.1 %
                                                                                                                                                                                                                                                                                                     
                                                                                                                                                                                                                                                                                                     
EXPENSE AND OTHER INCOME
S,G&A                                                                                                   4,648                                                                 4,732                                                                14,959                                                                16,093
R,D&E                                                                                                   1,342                                                                 1,397                                                                 4,360                                                                 4,320
Intellectual property and
  custom development income                                                                              (308 )                                                                (528 )                                                              (1,118 )                                                              (1,110 )
Other (income) and expense                                                                               (114 )                                                                  (8 )                                                                (218 )                                                                 281
Interest expense                                                                                          168                                                                   158                                                                   451                                                                   473
                                                                                                                                                                                                      
                                                                                  --------------------------------------------------------------------- -------------------------------------------------                     --------------------------------------------------------------------- -------------------------------------------------
TOTAL EXPENSE AND OTHER INCOME                                                                          5,735                                                                 5,751                                                                18,434                                                                20,056
                                                                                                                                                                                                                                                                                                     
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES                                                                                     3,065                                                                 3,263                                                                 6,931                                                                 7,345
    Pre-tax margin                                                                                       16.0 %                                                                17.0 %                                                                12.2 %                                                                12.6 %
Provision for / (Benefit from) income taxes                                                               339                                                                   409                                                                   120                                                                   (31 )
    Effective tax rate                                                                                   11.0 %                                                                12.5 %                                                                 1.7 %                                                                (0.4 %)
                                                                                                                                                                                                                                                                                                     
INCOME FROM CONTINUING OPERATIONS                                                                    $  2,726                                                              $  2,854                                                              $  6,811                                                              $  7,375
                                                                                                                                                                                                                                                                                                     
DISCONTINUED OPERATIONS
    Income/(Loss) from discontinued operations, net of taxes                            (0 )                            (1 )                                               (3 )                            (4 )
                                                                                  -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------                      -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------
                                                                                                                                                                                                                                                                                                     
NET INCOME                                                                                           $  2,726                        $  2,853                                           $  6,807                        $  7,371  
                                                                                  ==================== ====== ==================== ==================== ==================== ====== ====================                      ==================== ====== ==================== ==================== ==================== ====== ====================
                                                                                                                                                                                                                                                                                                     
                                                                                                                                                                                                                                                                                                     
EARNINGS PER SHARE OF COMMON STOCK:
    Assuming Dilution
        Continuing Operations                                                                        $   2.92                                                              $   2.98                                                              $   7.24                                                              $   7.67
        Discontinued Operations                                                                      $   0.00                        $   0.00                                           $   0.00                        $   0.00  
                                                                                  -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------                      -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------
    TOTAL                                                                                            $   2.92                        $   2.98                                           $   7.24                        $   7.67  
                                                                                  ==================== ====== ==================== ==================== ==================== ====== ====================                      ==================== ====== ==================== ==================== ==================== ====== ====================
                                                                                                                                                                                                                                                                                                     
    Basic
        Continuing Operations                                                                        $   2.93                                                              $   2.99                                                              $   7.28                                                              $   7.70
        Discontinued Operations                                                                      $   0.00                        $   0.00                                           $   0.00                        $   0.00  
                                                                                  -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------                      -------------------- ------ -------------------- -------------------- -------------------- ------ --------------------
    TOTAL                                                                                            $   2.93                        $   2.99                                           $   7.28                        $   7.70  
                                                                                  ==================== ====== ==================== ==================== ==================== ====== ====================                      ==================== ====== ==================== ==================== ==================== ====== ====================
                                                                                                                                                                                                                                                                                                     
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (M’s):
    Assuming Dilution                                                                                   933.2                                                                 957.3                                                                 940.2                                                                 960.7
    Basic                                                                                               929.4                                                                 954.0                                                                 935.6                                                                 957.7
 
                                                            INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                               CONDENSED CONSOLIDATED BALANCE SHEET
                                                                            (Unaudited)
 
                                                                 At                                     At
(Dollars in Millions)                                                          September 30,                                             December 31,
                                                                                   2017                                                      2016
                                                                   -------------------------------------                     -------------------------------------
ASSETS:
                                                                                                                              
Current Assets:
Cash and cash equivalents                                               $   10,915                                                $    7,826
Marketable securities                                                          600                                                       701
Notes and accounts receivable - trade, net                                   8,150                                                     9,182
Short-term financing receivables, net                                       18,050                                                    19,006
Other accounts receivable, net                                                 926                                                     1,057
Inventory                                                                    1,711                                                     1,553
Prepaid expenses and other current assets                                    4,389                                                     4,564
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Current Assets                                                        44,742                                                    43,888
                                                                                                                              
Property, plant and equipment, net                                          11,057                                                    10,830
Long-term financing receivables, net                                         8,459                                                     9,021
Prepaid pension assets                                                       4,521                                                     3,034
Deferred taxes                                                               7,289                                                     5,224
Goodwill and intangibles, net                                               40,763                                                    40,887
Investments and sundry assets                                                4,806                                                     4,585
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Assets                                                            $  121,636                             $  117,470  
                                                                   ====== ======== ====================                      ====== ======== ====================
                                                                                                                              
                                                                                                                              
LIABILITIES:
                                                                                                                              
Current Liabilities:
Taxes                                                                   $    3,038                                                $    3,235
Short-term debt                                                              4,299                                                     7,513
Accounts payable                                                             5,442                                                     6,209
Deferred income                                                             10,649                                                    11,035
Other liabilities                                                            8,270                                                     8,283
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Current Liabilities                                                   31,697                                                    36,275
                                                                                                                              
Long-term debt                                                              41,327                                                    34,655
Retirement related obligations                                              17,554                                                    17,070
Deferred income                                                              3,579                                                     3,600
Other liabilities                                                            7,723                                                     7,477
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Liabilities                                                          101,879                                                    99,078
                                                                                                                              
                                                                                                                              
EQUITY:
                                                                                                                              
IBM Stockholders’ Equity:
Common stock                                                                54,395                                                    53,935
Retained earnings                                                          155,565                                                   152,759
Treasury stock -- at cost                                                 (162,812 )                                                (159,050 )
Accumulated other comprehensive income/(loss)                              (27,521 )                                                 (29,398 )
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total IBM stockholders’ equity                                              19,627                                                    18,246
                                                                                                                              
Noncontrolling interests                                                       130                                                       146
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Equity                                                                19,757                                                    18,392
                                                                                                           
                                                                   -------------------------------------                     -------------------------------------
Total Liabilities and Equity                                            $  121,636                             $  117,470  
                                                                   ====== ======== ====================                      ====== ======== ====================
 
                                                                                                                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                                             CASH FLOW ANALYSIS
                                                                                                                                 (Unaudited)
                                                                                                                                                                                                                                      
                                                                                       Three Months Ended                                                                           Nine Months Ended
(Dollars in Millions)                                                                                        September 30,                                                                                                  September 30,
                                                                         -------------------------------------------------------------------------------------                          -------------------------------------------------------------------------------------
                                                                                       2017                              2016                                                      2017                              2016
                                                                         --------------------------------                     --------------------------------                          --------------------------------                     --------------------------------
                                                                                                                                                                                                                                                                              
Net Cash Provided by Operating Activities per GAAP:                                         $  3,570                                             $  4,118     * **                        $ 10,991                                             $ 13,105                      * **
                                                                                                                                                                                                                                                                              
    Less: change in Global Financing (GF)
        Receivables                                                                              258                                                  835     *                              2,468                                                3,336                      *
    Capital Expenditures, Net                                                                   (780 )                                               (851 )                                 (2,347 )                                             (2,801 )
                                                                                                                                                                                                                                                                              
Free Cash Flow                                                                                 2,532                                                2,431     **                             6,176                                                6,969                      **
                                                                                                                                                                                                                                                                              
    Acquisitions                                                                                (274 )                                                (40 )                                   (442 )                                             (5,445 )
    Divestitures                                                                                   6                                                    0                                       35                                                   35
    Dividends                                                                                 (1,396 )                                             (1,337 )                                 (4,119 )                                             (3,927 )
    Share Repurchase                                                                            (949 )                                               (856 )                                 (3,674 )                                             (2,632 )
    Non-GF Debt                                                                                 (467 )                                             (1,696 )                                  1,896                                                3,365
    Other (includes GF Receivables and GF Debt)                                                 (233 )                                                850     * **                           3,117                                                3,408                      * **
                                                                                                                                                                                                                                                                              
Change in Cash, Cash Equivalents and
Short-term Marketable Securities                                            ($780 )                           ($648 )                               $  2,988                          $  1,773  
                                                                         ==================== ====== ===                      ==================== ====== ===                           === ====== ====================                      === ====== ====================
 
* Revised classification of certain financing receivables.
** Reclassified to reflect adoption of the FASB guidance on
stock-based compensation.
 
                                                                                            INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                             CASH FLOW
                                                                                                            (Unaudited)
 
                                                                        Three Months Ended                                           Nine Months Ended
(Dollars in Millions)                                                                         September 30,                                                                  September 30,
                                                                          -----------------------------------------------------                          -----------------------------------------------------
                                                                                2017              2016                                      2017              2016
                                                                          ----------------                     ----------------                          ----------------                     ----------------
                                                                                                                                                                                                               
Net Income from Operations                                                  $   2,726                            $   2,853                                 $   6,807                            $   7,371
    Depreciation/Amortization of Intangibles                                    1,175                                1,126                                     3,392                                3,253
    Stock-based Compensation                                                      123                                  142                                       388                                  403
    Working Capital / Other                                                      (713 )                               (839 )   **                             (2,064 )                             (1,258 )   **
    Global Financing A/R                                                          258                                  835     *                               2,468                                3,336     *
Net Cash Provided by Operating Activities                                   $   3,570                            $   4,118     * **                        $  10,991                            $  13,105     * **
    Capital Expenditures, net of payments & proceeds                             (780 )                               (851 )                                  (2,347 )                             (2,801 )
    Divestitures, net of cash transferred                                           6                                    -                                        35                                   35
    Acquisitions, net of cash acquired                                           (274 )                                (40 )                                    (442 )                             (5,445 )
    Marketable Securities / Other Investments, net                               (875 )                                (60 )   *                                (523 )                                921     *
Net Cash Used in Investing Activities                                         ($1,923 )                              ($951 )   *                             ($3,278 )                            ($7,289 )   *
    Debt, net of payments & proceeds                                             (446 )                             (2,041 )                                   2,310                                1,888
    Dividends                                                                  (1,396 )                             (1,337 )                                  (4,119 )                             (3,927 )
    Common Stock Repurchases                                                     (949 )                               (856 )                                  (3,674 )                             (2,632 )
    Common Stock Transactions - Other                                              35                                   49     **                                (15 )                                 52     **
Net Cash Used in Financing Activities                                         ($2,756 )                            ($4,185 )   **                            ($5,499 )                            ($4,619 )   **
Effect of Exchange Rate changes on Cash                                           328                                   41                                       875                                  155
Net Change in Cash & Cash Equivalents                                           ($781 )                              ($978 )                               $   3,089                            $   1,352
 
* Revised classification of certain financing receivables.
** Reclassified to reflect adoption of the FASB guidance on
stock-based compensation.
 
                                                                                                                                                                                INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                                                                                                               SEGMENT DATA
                                                                                                                                                                                                (Unaudited)
 
                                                                                                                                                                                                           THIRD - QUARTER 2017
                                                                      ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Cognitive Solutions &                                                                                                                                                     
                                                                                                                        Industry Services
                                                                      ---------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                Technology
                                                                                                                                                                Global                                                             Services &
(Dollars in Millions)                                                                     Cognitive                                                            Business                                                               Cloud                                                                                                                                    Global
                                                                                          Solutions                                         Services                                          Platforms                                          Systems                                          Financing
                                                                      -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------
Revenue
External                                                                                 $ 4,400                                                              $ 4,093                                                              $ 8,457                                                              $ 1,721                                                              $    427
Internal                                                                  629          92         164         227          272  
                                                                      -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -------------------- ------ --------------------
Total Segment Revenue                                                                    $ 5,030                                                              $ 4,185                                                              $ 8,621                                                              $ 1,948                                                              $    698
                                                                                                                                                                                                                                                                                                                                                           
Pre-tax Income from Continuing Operations                                                  1,649                                                                  453                                                                1,192                                                                  339                                                                   244
                                                                                                                                                                                                                                                                                                                                                           
Pre-tax margin                                                                              32.8 %                                                               10.8 %                                                               13.8 %                                                               17.4 %                                                                34.9 %
                                                                                                                                                                                                                                                                                                                                                           
Change YTY Revenue - External                                                                3.9 %                                                               (2.3 )%                                                              (3.3 )%                                                              10.4 %                                                                 3.7 %
Change YTY Revenue - External @constant currency                                             3.0 %                                                               (2.2 )%                                                              (4.1 )%                                                               9.6 %                                                                 2.8 %
 
 
                                                                                                                                                                                                                              THIRD - QUARTER 2016
                                                                      ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Cognitive Solutions &
                                                                                                                        Industry Services
                                                                      ---------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                                   Technology
                                                                                                                                                                Global                                                             Services &
(Dollars in Millions)                                                                     Cognitive                                                            Business                                                               Cloud                                                                                                                                    Global
                                                                                          Solutions                                         Services                                          Platforms                                          Systems                                          Financing
                                                                      -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------
Revenue
External                                                                                 $ 4,235                                                              $ 4,191                                                              $ 8,748                                                              $ 1,558                                                              $    412
Internal                                                                  667          93         180         176          352  
                                                                      -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -------------------- ------ --------------------
Total Segment Revenue                                                                    $ 4,902                                                              $ 4,284                                                              $ 8,929                                                              $ 1,734                                                              $    763
                                                                                                                                                                                                                                                                                                                                                           
Pre-tax Income from Continuing Operations                                                  1,574                                                                  544                                                                1,288                                                                  136                                                                   355
                                                                                                                                                                                                                                                                                                                                                           
Pre-tax margin                                                                              32.1 %                                                               12.7 %                                                               14.4 %                                                                7.8 %                                                                46.5 %
 
                                                                                                                                                                                  INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                                                                                                                                                 SEGMENT DATA
                                                                                                                                                                                                  (Unaudited)
 
                                                                                                                                                                                                              NINE - MONTHS 2017
                                                                      ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       Cognitive Solutions &                                                                                                                                                       
                                                                                                                         Industry Services
                                                                      -----------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                  Technology
                                                                                                                                                                 Global                                                              Services &
(Dollars in Millions)                                                                     Cognitive                                                             Business                                                                Cloud                                                                                                                                     Global
                                                                                          Solutions                                          Services                                           Platforms                                           Systems                                          Financing
                                                                      --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------
Revenue
External                                                                                 $ 13,021                                                              $ 12,196                                                              $ 25,079                                                              $ 4,863                                                              $  1,246
Internal                                                                 2,001          271          497         571          925  
                                                                      -------------------- ------ -------------------- -------------------- -------------------- ------ -------------------- -------------------- -------------------- ------ -------------------- -------------------- -------------------- ----- -------------------- -------------------- -------------------- ------ --------------------
Total Segment Revenue                                                                    $ 15,022                                                              $ 12,467                                                              $ 25,576                                                              $ 5,434                                                              $  2,171
                                                                                                                                                                                                                                                                                                                                                              
Pre-tax Income from Continuing Operations                                                   4,539                                                                 1,065                                                                 2,888                                                                  227                                                                   836
                                                                                                                                                                                                                                                                                                                                                              
Pre-tax margin                                                                               30.2 %                                                                 8.5 %                                                                11.3 %                                                                4.2 %                                                                38.5 %
                                                                                                                                                                                                                                                                                                                                                              
Change YTY Revenue - External                                                                 1.0 %                                                                (3.0 )%                                                               (3.7 )%                                                              (6.2 )%                                                                0.1 %
Change YTY Revenue - External @constant currency                                              1.3 %                                                                (1.9 )%                                                               (3.3 )%                                                              (5.9 )%                                                               (0.4 )%
 
 
                                                                                                                                                                                                                                 NINE - MONTHS 2016
                                                                      ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       Cognitive Solutions &
                                                                                                                         Industry Services
                                                                      -----------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                                     Technology
                                                                                                                                                                 Global                                                              Services &
(Dollars in Millions)                                                                     Cognitive                                                             Business                                                                Cloud                                                                                                                                     Global
                                                                                          Solutions                                          Services                                           Platforms                                           Systems                                          Financing
                                                                      --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------
Revenue
External                                                                                 $ 12,889                                                              $ 12,578                                                              $ 26,029                                                              $ 5,184                                                              $  1,245
Internal                                                                 1,929          310          501         594        1,340  
                                                                      -------------------- ------ -------------------- -------------------- -------------------- ------ -------------------- -------------------- -------------------- ------ -------------------- -------------------- -------------------- ----- -------------------- -------------------- -------------------- ------ --------------------
Total Segment Revenue                                                                    $ 14,818                                                              $ 12,888                                                              $ 26,530                                                              $ 5,778                                                              $  2,585
                                                                                                                                                                                                                                                                                                                                                              
Pre-tax Income from Continuing Operations                                                   4,039                                                                 1,210                                                                 2,825                                                                  354                                                                 1,208
                                                                                                                                                                                                                                                                                                                                                              
Pre-tax margin                                                                               27.3 %                                                                 9.4 %                                                                10.6 %                                                                6.1 %                                                                46.7 %
 
                                                                              INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                       U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
                                                                       (Unaudited; Dollars in millions except per share amounts)
 
                                                                                                          THIRD - QUARTER 2017
                                                                                                                             CONTINUING OPERATIONS
                                                                       --------------------------------------------------------------------------------------------------------------------------------
                                                                                        Acquisition-      Retirement-   
                                                                                                              Related                             Related                               Operating
                                                                            GAAP        Adjustments*     Adjustments**        (Non-GAAP)
                                                                       ---------------------------------- ----------------------------------- ----------------------------------- ---------------------
                                                                                                                                                                                   
Gross Profit                                                             $ 8,800                             $  114                              $  203                                $  9,116
                                                                                                                                                                                   
Gross Profit Margin                                                         45.9 %                                0.6Pts                              1.1Pts                               47.6 %
                                                                                                                                                                                   
S,G&A                                                                      4,648                               (125 )                               (53 )                                 4,470
                                                                                                                                                                                   
R,D&E                                                                      1,342                                  -                                 (51 )                                 1,291
                                                                                                                                                                                   
Other (Income) & Expense                                                    (114 )                                0                                   -                                    (114 )
                                                                                                                                                                                   
Total Expense & Other (Income)                                             5,735                               (125 )                              (103 )                                 5,507
                                                                                                                                                                                   
Pre-tax Income from Continuing Operations                                  3,065                                238                                 306                                   3,609
                                                                                                                                                                                   
Pre-tax Income Margin from Continuing Operations                            16.0 %                                1.2Pts                              1.6Pts                               18.8 %
                                                                                                                                                                                   
Provision for / (Benefit from) Income Taxes***                               339                                 79                                 113                                     531
                                                                                                                                                                                   
Effective Tax Rate                                                          11.0 %                                1.5Pts                              2.2Pts                               14.7 %
                                                                                                                                                                                   
Income from Continuing Operations                                          2,726                                159                                 193                                   3,079
                                                                                                                                                                                   
Income Margin from Continuing Operations                                    14.2 %                                0.8Pts                              1.0Pts                               16.1 %
                                                                                                                                                                                   
Diluted Earnings Per Share: Continuing Operations                        $  2.92                             $ 0.17                              $ 0.21                                $   3.30
 
 
                                                                                                                             THIRD - QUARTER 2016
                                                                                                                             CONTINUING OPERATIONS
                                                                       --------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Acquisition-                         Retirement-
                                                                                                              Related                             Related                               Operating
                                                                            GAAP        Adjustments*     Adjustments**        (Non-GAAP)
                                                                       ---------------------------------- ----------------------------------- ----------------------------------- ---------------------
                                                                                                                                                                                   
Gross Profit                                                             $ 9,013                             $  129                              $   79                                $  9,221
                                                                                                                                                                                   
Gross Profit Margin                                                         46.9 %                                0.7Pts                              0.4Pts                               48.0 %
                                                                                                                                                                                   
S,G&A                                                                      4,732                               (138 )                               (53 )                                 4,541
                                                                                                                                                                                   
R,D&E                                                                      1,397                                  -                                  (7 )                                 1,390
                                                                                                                                                                                   
Other (Income) & Expense                                                      (8 )                               (2 )                                 -                                     (10 )
                                                                                                                                                                                   
Total Expense & Other (Income)                                             5,751                               (140 )                               (60 )                                 5,550
                                                                                                                                                                                   
Pre-tax Income from Continuing Operations                                  3,263                                269                                 139                                   3,671
                                                                                                                                                                                   
Pre-tax Income Margin from Continuing Operations                            17.0 %                                1.4Pts                              0.7Pts                               19.1 %
                                                                                                                                                                                   
Provision for / (Benefit from) Income Taxes***                               409                                 73                                  40                                     521
                                                                                                                                                                                   
Effective Tax Rate                                                          12.5 %                                1.1Pts                              0.6Pts                               14.2 %
                                                                                                                                                                                   
Income from Continuing Operations                                          2,854                                197                                  99                                   3,149
                                                                                                                                                                                   
Income Margin from Continuing Operations                                    14.8 %                                1.0Pts                              0.5Pts                               16.4 %
                                                                                                                                                                                   
Diluted Earnings Per Share: Continuing Operations                        $  2.98                             $ 0.21                              $ 0.10                                $   3.29
*     Includes amortization of purchased intangible assets, in
                         process R&D, severance cost for acquired employees, vacant space
                         for acquired companies, deal costs and acquisition integration tax
                         charges.
**                       Includes retirement-related interest cost, expected return on
                         plan assets, recognized actuarial losses or gains, amortization of
                         transition assets, other settlements, curtailments, multi-employer
                         plans and insolvency insurance.
***                      Tax impact on operating (non-GAAP) pre-tax income from
                         continuing operations is calculated under the same accounting
                         principles applied to the As Reported pre-tax income under ASC
                         740, which employs an annual effective tax rate method to the
                         results.
                               
                                                                               INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                                        U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
                                                                        (Unaudited; Dollars in millions except per share amounts)
 
                                                                                                            NINE - MONTHS 2017
                                                                                                                              CONTINUING OPERATIONS
                                                                       ----------------------------------------------------------------------------------------------------------------------------------
                                                                                         Acquisition-       Retirement-   
                                                                                                               Related                              Related                               Operating
                                                                            GAAP         Adjustments*      Adjustments**        (Non-GAAP)
                                                                       ----------------------------------- ----------------------------------- ------------------------------------ ---------------------
                                                                                                                                                                                     
Gross Profit                                                             $ 25,365                             $  349                              $   591                                $ 26,305
                                                                                                                                                                                     
Gross Profit Margin                                                          44.8 %                                0.6Pts                               1.0Pts                               46.5 %
                                                                                                                                                                                     
S,G&A                                                                      14,959                               (393 )                               (326 )                                14,240
                                                                                                                                                                                     
R,D&E                                                                       4,360                                  -                                 (148 )                                 4,212
                                                                                                                                                                                     
Other (Income) & Expense                                                     (218 )                               (7 )                                  -                                    (225 )
                                                                                                                                                                                     
Total Expense & Other (Income)                                             18,434                               (401 )                               (474 )                                17,559
                                                                                                                                                                                     
Pre-tax Income from Continuing Operations                                   6,931                                750                                1,065                                   8,746
                                                                                                                                                                                     
Pre-tax Income Margin from Continuing Operations                             12.2 %                                1.3Pts                               1.9Pts                               15.5 %
                                                                                                                                                                                     
Provision for / (Benefit from) Income Taxes***                                120                                212                                  288                                     621
                                                                                                                                                                                     
Effective Tax Rate                                                            1.7 %                                2.3Pts                               3.1Pts                                7.1 %
                                                                                                                                                                                     
Income from Continuing Operations                                           6,811                                537                                  777                                   8,125
                                                                                                                                                                                     
Income Margin from Continuing Operations                                     12.0 %                                0.9Pts                               1.4Pts                               14.4 %
                                                                                                                                                                                     
Diluted Earnings Per Share: Continuing Operations                        $   7.24                             $ 0.57                              $  0.83                                $   8.64
 
 
                                                                                                                               NINE - MONTHS 2016
                                                                                                                              CONTINUING OPERATIONS
                                                                       ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Acquisition-                          Retirement-
                                                                                                               Related                              Related                               Operating
                                                                            GAAP         Adjustments*      Adjustments**        (Non-GAAP)
                                                                       ----------------------------------- ----------------------------------- ------------------------------------ ---------------------
                                                                                                                                                                                     
Gross Profit                                                             $ 27,401                             $  371                              $   238                                $ 28,010
                                                                                                                                                                                     
Gross Profit Margin                                                          47.1 %                                0.6Pts                               0.4Pts                               48.2 %
                                                                                                                                                                                     
S,G&A                                                                      16,093                               (365 )                               (183 )                                15,545
                                                                                                                                                                                     
R,D&E                                                                       4,320                                  -                                  (23 )                                 4,297
                                                                                                                                                                                     
Other (Income) & Expense                                                      281                                 (7 )                                  -                                     274
                                                                                                                                                                                     
Total Expense & Other (Income)                                             20,056                               (372 )                               (206 )                                19,478
                                                                                                                                                                                     
Pre-Tax Income from Continuing Operations                                   7,345                                743                                  444                                   8,532
                                                                                                                                                                                     
Pre-tax Income Margin from Continuing Operations                             12.6 %                                1.3Pts                               0.8Pts                               14.7 %
                                                                                                                                                                                     
Provision for / (Benefit from) Income Taxes***                                (31 )                              201                                  106                                     277
                                                                                                                                                                                     
Effective Tax Rate                                                           (0.4 )%                               2.4Pts                               1.3Pts                                3.2 %
                                                                                                                                                                                     
Income from Continuing Operations                                           7,375                                542                                  338                                   8,255
                                                                                                                                                                                     
Income Margin from Continuing Operations                                     12.7 %                                0.9Pts                               0.6Pts                               14.2 %
                                                                                                                                                                                     
Diluted Earnings Per Share: Continuing Operations                        $   7.67                             $ 0.57                              $  0.35                                $   8.59
*     Includes amortization of purchased intangible assets, in
                         process R&D, severance cost for acquired employees, vacant space
                         for acquired companies, deal costs and acquisition integration tax
                         charges.
**                       Includes retirement-related interest cost, expected return on
                         plan assets, recognized actuarial losses or gains, amortization of
                         transition assets, other settlements, curtailments, multi-employer
                         plans and insolvency insurance.
***                      Tax impact on operating (non-GAAP) pre-tax income from
                         continuing operations is calculated under the same accounting
                         principles applied to the As Reported pre-tax income under ASC
                         740, which employs an annual effective tax rate method to the
                         results.
                               
                                                               INTERNATIONAL BUSINESS MACHINES CORPORATION
                                                             RECONCILIATION OF OPERATING EARNINGS PER SHARE
                                                                               (Unaudited)
 
                                                             2017
EPS Guidance                                                                                                                                            Expectations
------------------------------------------                                                                                                          --------------------
                                                                                                                                                     
IBM GAAP EPS                                                                                                                                             at least $11.95
                                                                                                                                                     
IBM Operating EPS (non-GAAP)                                                                                                                             at least $13.80
                                                                                                                                                     
                                                                                                                                                     
Adjustments
                                                                                                                                                     
    Acquisition-related charges *                                                                                                                                  $0.75
                                                                                                                                                     
    Non-Operating Retirement-Related Items                                                                                                                         $1.10
 
* Includes acquisitions through September 30, 2017

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20171017006744r1&sid=cmtx6&distro=nx&

View source version on businesswire.com: http://www.businesswire.com/news/home/20171017006744/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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