IBM REPORTS 20182018 FOURTHFOURTH-QUARTER AND FULLFULL-YEAR RESULTS
Margin Expansion Year to Year in Fourth Quarter; Return to Full-Year Revenue GrowthHighlights
Fourth Quarter:• GAAP EPS from continuing operations of $2.15-- Includes charge of $1.9 billion related to the U.S. Tax Cuts and Jobs Act of 2017
• Operating (non-GAAP) EPS of $4.87• Revenue of $21.8 billion, down 3 percent (down 1 percent adjusting for currency)-- Global Business Services and Cognitive Solutions revenue grew year to year
• Gross profit margin up 10 basis points year to year; pre-tax income margin up more than 50 basis
points year to year-- Continued strong services gross profit margin expansion year to year
Full Year:• GAAP EPS from continuing operations of $9.51-- Includes charge of $2.0 billion related to the U.S. Tax Cuts and Jobs Act of 2017
• Operating (non-GAAP) EPS of $13.81• Revenue of $79.6 billion, up 1 percent (flat year to year adjusting for currency)• Strategic imperatives revenue of $39.8 billion, up 9 percent• Cloud revenue of $19.2 billion, up 12 percent-- As-a-service annual exit run rate for cloud revenue of $12.2 billion in the quarter, up 18 percent
year to year (up 21 percent adjusting for currency)
2019 Expectations:
Expectations:• GAAP EPS of at least $12.45; Operating (non-GAAP) EPS of at least $13.90• Free cash flow of approximately $12 billion
ARMONK, N.Y., January 22, 2019 . . . IBM (NYSE: IBM) today announced fourth-quarter andfull-year 2018 earnings results.
"In 2018 we returned to full-year revenue growth, reflecting growing demand for our services
and leadership solutions in hybrid cloud, AI, analytics and security," said Ginni Rometty, IBM
chairman, president and chief executive officer. "Major clients worldwide, such as BNP Paribas, areturning to the IBM Cloud and our unmatched industry expertise to transform their businesses anddrive innovation."
FOURTH QUARTER 2018
DilutedEPSNet
IncomePrePre-tax
IncomePrePre-tax
IncomeMarginGrossProfitMarginGAAP from Continuing Operations *Year/Year

$2.
$2.15
289%

$2.0B
286%

$4.4B
-1%

20.4%
0.6Pts

49.1%
0.1PtsOperating (Non(Non-GAAP)
Year/Year

$4.
$4.87
-5%

$4.4B
-8%

$5.0B
-1%

23.1%
0.5Pts

49.5%
0.1Pts* Diluted EPS and Net Income include charges related to the U.S. Tax Cuts and Jobs Act of 2017 of $1.9 billion
in the fourth quarter of 2018, and $5.5 billion in the fourth quarter of 2017.

"In the quarter we expanded both gross margin and pre-tax income margin," said
James Kavanaugh, IBM senior vice president and chief financial officer. "In 2018 we repositioned ourbusiness model and delivered revenue, operating profit and EPS growth along with strong free cash
flow realization. We continue to optimize our portfolio for the high-value, emerging segments of ourindustry, while returning capital to our shareholders."
Cash Flow and Balance Sheet
In the fourth quarter, the company generated net cash from operating activities of $4.1 billion,
or $7.3 billion, excluding Global Financing receivables. IBM’s free cash flow was $6.5 billion. IBM
returned $3.5 billion to shareholders through $1.4 billion in dividends and $2.0 billion in gross share
repurchases. At the end of December 2018, IBM had $3.3 billion remaining in the current share
repurchase authorization.
The company generated full-year free cash flow of $11.9 billion, excluding Global Financing
receivables, and returned $10.1 billion to shareholders through $5.7 billion in dividends and $4.4
billion of gross share repurchases.
IBM ended the fourth quarter with $12.2 billion of cash on hand. Debt totaled $45.8 billion,
including Global Financing debt of $31.2 billion. The balance sheet remains strong and is well
positioned for the long term.
Segment Results for Fourth Quarter• Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of$5.5 billion, flat year to year (up 2 percent adjusting for currency), led by growth in solutions
software, including analytics and AI.
• Global Business Services (includes consulting, application management and global process services)-- revenues of $4.3 billion, up 4 percent (up 6 percent adjusting for currency), with growth acrossconsulting, application management and global process services. Gross profit margin increased
300 basis points.
• Technology Services & Cloud Platforms (includes infrastructure services, technical support services
and integration software) -- revenues of $8.9 billion, down 3 percent (flat year to year adjusting for
currency), with growth in hybrid cloud revenue. Gross profit margin increased more than 140 basis
points.
• Systems (includes systems hardware and operating systems software) -- revenues of $2.6 billion,
down 21 percent (down 20 percent adjusting for currency), with growth in Power, offset by the
impact of the IBM Z product cycle dynamics.
• Global Financing (includes financing and used equipment sales) -- revenues of $402 million, down
11 percent (down 9 percent adjusting for currency).
Tax Rate
As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017, IBM recorded charges
of $2.0 billion in 2018, including $1.9 billion in the fourth quarter, primarily related to deferred taxes
for the new Global Intangible Low-Taxed Income (GILTI) tax. This is in addition to the charge of $5.5
billion the company recorded in the fourth quarter of 2017 related to the one-time U.S. transition tax,
foreign tax costs on undistributed foreign earnings and the remeasurement of deferred taxes. Thesecharges are included in the GAAP results for the fourth quarter and full year for 2017 and 2018.
IBM's reported GAAP tax rate, which includes the charge, for the fourth quarter was 56 percent
in 2018 compared with 124 percent in 2017; and for the full year was 23 percent compared with 49
percent in 2017.

IBM's operating (non-GAAP) earnings and tax rate for 2018 exclude the charges. IBM's
reported operating (non-GAAP) tax rate for the fourth quarter was 12 percent in 2018 compared with
6 percent in 2017; and for the full year was 8 percent in 2018 compared with 7 percent in 2017.
FullFull-Year 2018 Results
Consolidated diluted earnings per share from continuing operations was $9.51 compared with
$6.14 for 2017, up 55 percent year to year. Consolidated net income was $8.7 billion, up 52 percent.
Revenues for the full year totaled $79.6 billion, an increase of 1 percent year to year (flat year to year
adjusting for currency), compared with $79.1 billion for the full-year 2017.
Operating (non-GAAP) diluted earnings per share from continuing operations was $13.81
compared with $13.66 per diluted share for 2017, an increase of 1 percent. Operating (non-GAAP) net
income for the full year was $12.7 billion compared with $12.8 billion in the year-ago period, adecrease of 1 percent.
Strategic imperatives revenue for the full year was $39.8 billion, up 9 percent. Full-year cloud
revenue was $19.2 billion, up 12 percent, with $11.3 billion delivered as a service and $7.8 billion forcloud-related hardware, software and services to enable IBM clients to implement cloud solutions
across public, private and multi-cloud environments. The annual exit run rate for as-a-service revenue
increased in the quarter to $12.2 billion, up 18 percent (up 21 percent adjusting for currency).
FULL YEAR 2018

GAAP from Continuing Operations *Year/Year

DilutedEPSNet
IncomePrePre-tax
IncomePrePre-tax
IncomeMarginGrossProfitMargin

$9.51
55%

$8.7B
51%

$11.3B
-1%

14.3%-0.2Pts

46.4%-0.3Pts

Operating (Non$13.81$12.7B$13.7B
17.3%
46.9%(Non-GAAP)
Year/Year1%-1%
0%-0.1Pts-0.4Pts* Diluted EPS and Net Income include charges related to the U.S. Tax Cuts and Jobs Act of 2017 of $2.0 billion
in 2018, and $5.5 billion in 2017.

FullFull-Year 2019 Expectations
The company expects GAAP diluted earnings per share of at least $12.45, and operating (nonGAAP) diluted earnings per share of at least $13.90. Operating (non-GAAP) diluted earnings per shareexclude $1.45 per share of charges for: amortization of purchased intangible assets and otheracquisition-related charges, including pre-closing charges, such as financing costs, associated with the
Red Hat acquisition; retirement-related charges; and tax reform enactment impacts.
IBM expects free cash flow of approximately $12 billion, with a realization rate of
approximately 100 percent of GAAP Net Income.
ForwardForward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained inthis 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; thecompany’s failure to meet growth and productivity objectives; a failure of the company’s innovation

initiatives; damage to the company’s reputation; risks from investing in growth opportunities; failure of
the company’s intellectual property portfolio to prevent competitive offerings and the failure of thecompany to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations infinancial results, impact of local legal, economic, political and health conditions; adverse effects fromenvironmental matters, tax matters and the company’s pension plans; ineffective internal controls; thecompany’s use of accounting estimates; the company’s ability to attract and retain key employees andits 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 onthird 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 releasespeaks only as of the date on which it is made. The company assumes no obligation to update orrevise 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 asdetermined by generally accepted accounting principles (GAAP), the company has also disclosed inthis 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. EST,
today. The Webcast may be accessed via a link at
http://www.ibm.com/investor/events/earnings/4q18.html. Presentation charts will be available
shortly before the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages
presented are calculated from the underlying whole-dollar amounts).
Contact: IBM
Ian Colley, 914-434-3043
colley@us.ibm.com
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com

INTERNATIONAL BUSINESS MACHINES CORPORATIONCOMPARATIVE FINANCIAL RESULTS(Unaudited; Dollars in millions except per share amounts)
Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

REVENUE
Cognitive Solutions
Global Business Services
Technology Services & Cloud Platforms
Systems
Global Financing
Other
TOTAL REVENUE$5,455
4,322
8,929
2,621
402
32
21,760$5,432
4,152
9,198
3,332
450
(20)
22,543$18,481
16,817
34,462
8,034
1,590
207
79,591$18,453
16,34834,277
8,194
1,696
171
79,139GROSS PROFIT

10,687

11,049 *36,93636,943 *GROSS PROFIT MARGIN
Cognitive Solutions
Global Business Services
Technology Services & Cloud Platforms
Systems
Global Financing

79.4%
27.6%
42.3%
50.8%
29.1%

79.2% *
24.6% *
40.8% *
55.7% *
29.5% *

77.5%
26.7%
40.5%
49.8%
29.1%

78.6% *
24.9% *
40.3% *
53.2% *
29.3% *TOTAL GROSS PROFIT MARGIN

49.1%

49.0% *

46.4%

46.7% *

EXPENSE AND OTHER INCOME
S,G&A

4,701

5,013 *

19,366

19,680 *

R,D&E

1,358

1,378 *

5,379

5,590 *

Intellectual property andcustom development income

(184)

(348)

(1,026)(1,466)

Other (income) and expense

185

374 *

1,152

1,125 *

Interest expense
TOTAL EXPENSE AND OTHER INCOME

193
6,253

164
6,580 *

723
25,594615
25,543 *INCOME FROM CONTINUING OPERATIONSBEFORE INCOME TAXES
Pre-tax margin

4,434
20.4%

4,469
19.8%

11,342
14.3%

11,40014.4%

Provision for income taxes
Effective tax rate

2,481
55.9%

5,522
123.6%

2,619
23.1%

5,642
49.5%

INCOME / (LOSS) FROM CONTINUING OPERATIONS$1,954($1,053)$8,723$5,758

(2)

(1)

5

(5)

NET INCOME / (LOSS)$1,951($1,054)$8,728$5,753EARNINGS / (LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations
Discontinued Operations
TOTAL

$2.15
$0.00
$2.15

($1.14)$0.00($1.14)

$9.51
$0.01
$9.52

$6.14
$0.00
$6.14

Basic
Continuing Operations
Discontinued Operations
TOTAL

$2.17
$0.00
$2.17

($1.14)$0.00($1.14)

$9.56
$0.01
$9.57

$6.17
$0.00
$6.17

WEIGHTEDWEIGHTED-AVERAGE NUMBER OF COMMON SHARESOUTSTANDING (M's)
Assuming Dilution
Basic

905.2
901.3

928.9
924.5

916.3
912.0

937.4
932.8

DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes* Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost.

(Dollars in Millions)

INTERNATIONAL BUSINESS MACHINES CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEET(Unaudited)At
December 31,
2018

At
December 31,
2017

ASSETS:
Current Assets:
Cash and cash equivalents
Restricted cash
Marketable securities
Notes and accounts receivable - trade, net
Short-term financing receivables, net
Other accounts receivable, net
Inventory
Deferred Costs
Prepaid expenses and other current assets$11,379
225
618
7,432
22,388
743
1,682
2,300
2,378

$11,972
262 *
608
8,928
21,721981
1,583
1,820 **
1,860 * **Total Current Assets

49,14649,735

Property, plant and equipment, net
Long-term financing receivables, net
Prepaid pension assets
Deferred costs
Deferred taxes
Goodwill and intangibles, net
Investments and sundry assets

10,792
9,148
4,666
2,676
5,216
39,353
2,386

11,1169,550
4,643
2,136 **
4,862
40,5312,783 **

Total Assets$123,382$125,356

Current Liabilities:
Taxes
Short-term debt
Accounts payable
Deferred income
Other liabilities$3,046
10,207
6,558
11,165
7,251$4,2196,987
6,451
11,552
8,153

Total Current Liabilities

38,22737,363Long-term debt
Retirement related obligations
Deferred income
Other liabilities

35,60517,002
3,445
12,174

39,837
16,7203,746
9,965

Total Liabilities

106,452

107,631

55,151
159,206(168,071)(29,490)

54,566
153,126(163,507)(26,592)

16,796

17,594134

131

16,92917,725$123,382$125,356

LIABILITIES:EQUITY:IBM Stockholders' Equity:
Common stock
Retained earnings
Treasury stock -- at cost
Accumulated other comprehensive income/(loss)
Total IBM Stockholders' Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity* Recast to reflect adoption of the FASB guidance on restricted cash.
** Recast to conform to current period presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATIONCASH FLOW ANALYSIS(Unaudited)(Dollars in Millions)

Net Cash Provided by Operating Activities per GAAP:
Less: change in Global Financing (GF) Receivables
Capital Expenditures, Net
Free Cash Flow
Acquisitions
Divestitures
Dividends
Share Repurchase
Non-GF Debt
Other (includes GF Net Receivables and GF Debt)
Change in Cash, Cash Equivalents, Restricted Cashand ShortShort-term Marketable Securities* Recast to reflect adoption of the FASB guidance on restricted cash.

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

$4,119$5,733$15,247$16,724(3,219)(877)(2,049)
(965)

(345)
(3,716)419(3,312)

6,460

6,817

11,876

12,992(16)(1,416)(2,050)(2,128)(3,291)(53)(240)(1,387)(666)(840)(2,556) *(139)(5,666)(4,443)(521)(1,727)

(496)
(205)
(5,506)(4,340)
1,056
568 *

($2,440)$1,074 *($620)$4,069 *INTERNATIONAL BUSINESS MACHINES CORPORATIONCASH FLOW(Unaudited)(Dollars in Millions)Three Months Ended
December 31,
2018

Net Income from Operations
Depreciation/Amortization of Intangibles
Stock-based Compensation
Working Capital / Other
Global Financing A/R
Net Cash Provided by Operating Activities
Capital Expenditures, net of payments & proceeds
Divestitures, net of cash transferred
Acquisitions, net of cash acquiredMarketable Securities / Other Investments, net
Net Cash Used in Investing Activities
Debt, net of payments & proceeds
Dividends
Common Stock Repurchases
Common Stock Transactions - Other
Net Cash Used in Financing Activities
Effect of Exchange Rate changes on CashNet Change in Cash, Cash Equivalents and Restricted Cash
* Recast to reflect adoption of the FASB guidance on restricted cash.

$1,951
1,111
139
4,135
(3,219)$4,119
(877)
(16)
1,348
$455
(1,145)(1,416)(2,050)
5($4,605)(95)($127)

Twelve Months Ended
December 31,
2017($1,054)
1,150
146
7,540
(2,049)$5,733
(965)
(240)
(53)
(2,551) *($3,809) *1,137(1,387)(666)(3)($919)
62$1,066 *2018$8,728
4,479
510
1,874
(345)
$15,247(3,716)(139)(1,058)($4,913)(300)(5,666)(4,443)(60)($10,469)(495)($630)

2017$5,753
4,541
534
5,476
419
$16,724(3,312)(205)(496)(3,068) *($7,081) *3,446(5,506)(4,340)(18)($6,418)
937$4,161 *INTERNATIONAL BUSINESS MACHINES CORPORATIONSEGMENT DATA
(Unaudited)
FOURTH - QUARTER 2018

(Dollars in Millions)

Cognitive
SolutionsGlobalBusiness
ServicesTechnology
Services &Cloud
Platforms

Systems

GlobalFinancing

Revenue
External
Internal
Total Segment Revenue$5,455593$6,048$4,32277$4,398$8,929245$9,174$2,621238$2,860

$402
370
$773

PrePre-tax Income from Continuing Operations

2,437

566

1,392

551

319

PrePre-tax margin

40.3%

12.9%

15.2%

19.3%

41.3%

Change YTY Revenue - External
Change YTY Revenue - External @constant currency

0.4%
2.2%

4.1%
6.5%

(2.9)%
0.0%(21.3)%(20.1)%(10.7)%(8.6)%FOURTH - QUARTER 2017

(Dollars in Millions)

Cognitive
SolutionsGlobalBusiness
ServicesTechnology
Services &Cloud
Platforms

Systems

GlobalFinancing

Revenue
External
Internal
Total Segment Revenue$5,432646$6,078$4,15292$4,244$9,198160$9,358$3,332179$3,511

$450
546
$997

PrePre-tax Income from Continuing Operations *

2,273

327

1,441

906

443

PrePre-tax margin *

37.4%

7.7%

15.4%

25.8%

44.4%

* Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost.

INTERNATIONAL BUSINESS MACHINES CORPORATIONSEGMENT DATA
(Unaudited)
TWELVE - MONTHS 2018

(Dollars in Millions)
Revenue
External
Internal
Total Segment Revenue

Cognitive
SolutionsGlobalBusiness
ServicesTechnology
Services &Cloud
Platforms

Systems

GlobalFinancing$18,481
2,715$21,197$16,817326$17,143$34,462795$35,257$8,034815$8,848$1,5901,610$3,200PrePre-tax Income from Continuing Operations

7,154

1,676

3,786

904

1,361

PrePre-tax margin

33.8%

9.8%

10.7%

10.2%

42.5%

Change YTY Revenue - External
Change YTY Revenue - External @constant currency

0.2%(0.4)%

2.9%
2.0%

0.5%
(0.1)%(2.0)%(2.3)%(6.3)%(6.5)%TWELVE - MONTHS 2017

(Dollars in Millions)
Revenue
External
Internal
Total Segment Revenue

Cognitive
SolutionsGlobalBusiness
ServicesTechnology
Services &Cloud
Platforms

Systems

GlobalFinancing$18,453
2,647$21,100$16,348363$16,711$34,277
657$34,934$8,194750$8,945$1,696
1,471$3,168PrePre-tax Income from Continuing Operations *

6,795

1,362

4,286

1,128

1,278

PrePre-tax margin *

32.2%

8.2%

12.3%

12.6%

40.3%

* Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost.

INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non(Non-GAAP) RESULTS RECONCILIATION(Unaudited; Dollars in millions except per share amounts)

GAAP
Gross Profit

FOURTH - QUARTER 2018CONTINUING OPERATIONS
AcquisitionRetirementTax
AcquisitionRetirementRelated
RelatedReformAdjustments*
Adjustments**
Impacts

Operating(Non--GAAP)(Non$10,687$89--$10,776

Gross Profit Margin49.1%

0.4Pts

-

-

49.5%

S,G&A

4,701

(119)

-

-

4,582

R,D&E

1,358

-

-

-

1,358

Other (Income) & Expense

185

(1)

(387)

-

(203)

Total Expense & Other (Income)

6,253

(119)

(387)

-

5,746

PrePre-tax Income from Continuing Operations

4,434

208

387

-

5,030

PrePre-tax Income Margin from Continuing Operations

20.4%

1.0Pts

1.8Pts-23.1%

Provision for Income Taxes***

2,481

37

39

(1,944)613

Effective Tax Rate

55.9%(1.6)Pts(3.5)Pts(38.7)Pts

12.2%

Income from Continuing Operations

1,954

171

348

1,944

4,417

Income Margin from Continuing Operations

9.0%

0.8Pts

1.6Pts

8.9Pts20.3%

Diluted Earnings Per Share: Continuing Operations

$2.15

$0.19

$0.38

$2.15

$4.87

GAAP (1)Gross Profit

FOURTH - QUARTER 2017CONTINUING OPERATIONS
AcquisitionRetirementTax
AcquisitionRetirementRelated
RelatedReformAdjustments*
Adjustments (1) **Impacts

Operating(Non--GAAP) (1)(Non$11,049$99--$11,149

Gross Profit Margin

49.0%

0.4Pts

-

-

49.5%

S,G&A

5,013

(116)

-

-

4,897

R,D&E

1,378

-

-

-

1,378

374

(32)

(371)

-

(30)

Total Expense & Other (Income)

6,580

(148)

(371)

-

6,061

PrePre-tax Income from Continuing Operations

4,469

247

371

-

5,087

PrePre-tax Income Margin from Continuing Operations

19.8%

1.1Pts

1.6Pts-22.6%

Other (Income) & Expense

Provision for Income Taxes***

5,522

67

197

(5,475)310

Effective Tax Rate

123.6%(4.7)Pts(5.1)Pts(107.6)Pts

6.1%

Income / (Loss) from Continuing Operations(1,053)

181

174

5,475

4,777

Income / (Loss) Margin from Continuing Operations(4.7)%

0.8Pts

0.8Pts

24.3Pts

21.2%

Diluted Earnings / (Loss) Per Share: Continuing Operations($1.14)

$0.19

$0.19

$5.90

$5.14

(1) Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost.
* 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 retirementretirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains,amortization of transition assets, other settlements,
settlements, curtailments, amortization of prior service cost and insolvency
insurance.
*** Tax impact on operating (non(non-GAAP) prepre-tax income from continuing operations is calculated under the samepre--tax income under ASC 740, which employs an annual
accounting principles applied to the As Reported preeffective tax rate method to the results.

INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non(Non-GAAP) RESULTS RECONCILIATION(Unaudited; Dollars in millions except per share amounts)

GAAP
Gross Profit

TWELVE - MONTHS 2018CONTINUING OPERATIONS
AcquisitionRetirementTax
AcquisitionRetirementRelated
RelatedReformAdjustments*
Adjustments**
Impacts

Operating(Non--GAAP)(Non$36,936

$372

-

-

$37,307

Gross Profit Margin46.4%

0.5Pts

-

-

46.9%

S,G&A

19,366

(451)

-

-

18,915

R,D&E

5,379

-

-

-

5,379

Other (Income) & Expense

1,152

(2)

(1,572)-(422)

Total Expense & Other (Income)

25,594(453)(1,572)-

23,569PrePre-tax Income from Continuing Operations

11,342

824

1,572

-

13,739PrePre-tax Income Margin from Continuing Operations

14.3%

1.0Pts

2.0Pts-17.3%

Provision for Income Taxes***

2,619

176

324

(2,037)1,082

Effective Tax Rate

23.1%(0.1)Pts(0.3)Pts(14.8)Pts

7.9%

Income from Continuing Operations

8,723

649

1,248

2,037

12,657

Income Margin from Continuing Operations

11.0%

0.8Pts

1.6Pts

2.6Pts15.9%

Diluted Earnings Per Share: Continuing Operations

$9.51

$0.71

$1.36

$2.23

$13.81GAAP (1)Gross Profit

TWELVE - MONTHS 2017CONTINUING OPERATIONS
AcquisitionRetirementTax
AcquisitionRetirementRelated
RelatedReformAdjustments*
Adjustments (1) **Impacts

Operating(Non--GAAP) (1)(Non$36,943

$449

-

-

$37,392

Gross Profit Margin46.7%

0.6Pts

-

-

47.2%

S,G&A

19,680

(509)

-

-

19,170

R,D&E

5,590

-

-

-

5,590

Other (Income) & Expense

1,125

(39)

(1,341)-(255)

Total Expense & Other (Income)

25,543(548)(1,341)-

23,654

PrePre-Tax Income from Continuing Operations

11,400

997

1,341

-

13,738PrePre-tax Income Margin from Continuing Operations

14.4%

1.3Pts

1.7Pts-17.4%

Provision for Income Taxes***

5,642

279

485

(5,475)931

Effective Tax Rate

49.5%(1.6)Pts(1.3)Pts(39.9)Pts

6.8%

Income from Continuing Operations

5,758

718

856

5,475

12,807

Income Margin from Continuing Operations

7.3%

0.9Pts

1.1Pts

6.9Pts16.2%

Diluted Earnings Per Share: Continuing Operations

$6.14

$0.77

$0.91

$5.84

$13.66(1) Recast to reflect adoption of the FASB guidance on presentation of net postretirement benefit cost.
R&D,
D, severance cost for acquired employees,* Includes amortization of purchased intangible assets, in process R&
vacant space for acquired companies, deal costs and acquisition integration tax charges.
** Includes retirementretirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains,amortization of transition assets, other settlements, curtailments, amortization of prior service cost and insolvency
insurance.
insurance.
*** Tax impact on operating (non(non-GAAP) prepre-tax income from continuing operations is calculated under the samepre--tax income under ASC 740, which employs an annual
accounting principles applied to the As Reported preeffective tax rate method to the results.

INTERNATIONAL BUSINESS MACHINES CORPORATIONRECONCILIATION OF OPERATING EARNINGS PER SHARE(Unaudited)

EPS Guidance

2019
Expectations

GAAP Diluted EPS

at least $12.45

Operating EPS (non-GAAP)at least $13.90

Adjustments
Acquisition-related Charges *$0.91

Non-Operating Retirement-Related Items$0.45

Tax Reform Enactment Impacts$0.09* Includes acquisitions as of December 31, 2018, and pre-closing charges,
such as financing costs, associated with the Red Hat acquisition