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Reconciliations

Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
($ in millions, except per share data)

Years ended December 31, 2016 2015 2014
GAAP operating income $9,794 $8,470 $6,191
Adjustments to operating income:
Acquisition-related expenses(a) 1,510 1,377 1,546
Certain charges pursuant to our restructuring and other cost savings initiatives(b) 37 114 596
Expense/(benefit) related to various legal proceedings 105 91 (3)
Expense resulting from clarified guidance on branded prescription drug fee(c) 129
Stock option expense 16
Total adjustments to operating income 1,652 1,582 2,284
Non-GAAP operating income $11,446 $10,052 $8,475
GAAP operating margin 44.7%
Impact of total adjustments to operating income 7.6
Non-GAAP operating margin 52.3%
GAAP tax rate as a percentage of income before taxes 15.7%
Adjustments to provision for income taxes:
Income tax effect of the above adjustments to operating expenses(d) 2.5
Other income tax adjustments(e) 0.6
Total adjustments to provision for income taxes 3.1
Non-GAAP tax rate as a percentage of income before taxes 18.8%
GAAP net income $7,722 $6,939 $5,158
Adjustments to net income:
Adjustments to operating income 1,652 1,582 2,284
Income tax effect of the above adjustments(d) (525) (496) (717)
Other income tax adjustments(e) (64) (71) (25)
Non-GAAP net income $8,785 $7,954 $6,700
Weighted-average shares for diluted EPS 754 766
GAAP diluted EPS $10.24 $9.06
Non-GAAP diluted EPS $11.65 $10.38
  1. (a) The adjustments related primarily to non-cash amortization of intangible assets acquired in business combinations.
  2. (b) The adjustments related primarily to asset impairments, accelerated depreciation and other charges related to the closure of our facilities, as well as severance. 2015 also included gains recognized on the sale of assets related to our site closures.
  3. (c) The adjustments related to the recognition of an additional year of the non-tax deductible branded prescription drug fee, as required by final regulations issued by the Internal Revenue Service.
  4. (d) The tax effect of the adjustments between our GAAP and non-GAAP results takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). Generally, this results in a tax impact at the U.S. marginal tax rate for certain adjustments, including the majority of amortization of intangible assets, whereas the tax impact of other adjustments, including restructuring expense, depends on whether the amounts are deductible in the respective tax jurisdictions and the applicable tax rate(s) in those jurisdictions.
  5. (e) The adjustments related to certain prior period items excluded from non-GAAP earnings.

Reconciliation of Future GAAP to Non-GAAP Financial Measures

Management has presented herein certain forward-looking statements about the company's future financial performance that include non-GAAP net income, earnings per share, operating income and operating margin for various years through December 31, 2018. These non-GAAP financial measures are derived by excluding certain amounts, expenses or income, from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts that are excluded from these non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period. We are unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because management cannot reliably predict all of the necessary components of such GAAP measures. Historically, management has excluded the following items from these non-GAAP financial measures, and such items may also be excluded in future periods and could be significant:

  • Expenses related to the acquisition of businesses, including amortization and/or impairment of acquired intangible assets, including in-process research and development, adjustments to contingent consideration, integration costs, severance and retention costs and transaction costs;
  • Charges associated with restructuring or cost-saving initiatives, including but not limited to asset impairments, accelerated depreciation, severance costs and lease abandonment charges;
  • Legal settlements or awards;
  • The tax effect of the above items; and
  • Non-routine settlements with tax authorities.