Moments ago IBM reported results that "beat" expectations, with non-GAAP EPS printing at $2.91 vs consensus looking for $2.80. Why did IBM "beat" expectations? Because this is what happened to expectations in the past few weeks: a desperate scramble to lower the bogey just so IBM could print at least a few cents above it.

If one ignores expectations, this is what happened to the overall business: revenues of $19.6 billion were the worst since Q1 of 2002!

The annual collapse in revenue is just shy of that recorded during the financial crisis, with another consecutive Y/Y 11.9% drop in a row.

A more detailed breakdown of what actually happened:

• Revenue dropped by 11.9% to $19.6 billion
• Net Income dropped by 2.4% to $2.3 billion

And yet... GAAP EPS rose by 2.6% to $2.36

How did this happen?

Simple: IBM's diluted shares outstanding plunged from 1041.8 billion to 992.3 billion in the past year due to a return in buybacks, as IBM repurchased $1.2 billion of its stock in Q1, after going on hiatus in Q4, and a total of $6.7 billion in the past year.

Why did IBM resume buybacks when several quarters ago it had no choice but to halt these once its debt was getting dangerously close to downgrade territory? The reason is that Net Debt declined substantially from $32.3 billion to $30.0 billion in the past quarter.

And how, one may ask, did IBM repay so much debt? Because a quick look at the current assets shows a $3.5 billion source of cash coming from short-term financing receivables which plunged from $19.8 billion to $16.3 billion, reducing total assets from $117.5 billion to $112 billion.

In other words, IBM is now in the aggressive collections business, just so it has the leeway to repurchase its own stock.

And finally, for good accounting gimmickry measure, IBM's effective tax rate dropped once again, from 20.5% to 19.5%, meaning its provision for income taxes tumbled 10.3%. This, as EPS rose if only on paper.

Taking all of the above together is why it took the algos to realize that earnings were quite a bit worse than the original kneejerk reaction higher suggested, and are now trading lower in the after hours.