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International Business Machines 8-K 2015

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report: January 20, 2015

(Date of earliest event reported)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

 

1-2360

 

13-0871985

(State of Incorporation)

 

(Commission File Number)

 

(IRS employer Identification No.)

 

ARMONK, NEW YORK

 

10504

(Address of principal executive offices)

 

(Zip Code)

 

914-499-1900

(Registrant’s telephone number)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02.   Results of Operations and Financial Condition.

 

The registrant’s press release dated January 20, 2015, regarding its financial results for the periods ended December 31, 2014, including consolidated financial statements for the periods ended December 31, 2014, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Martin Schroeter’s fourth quarter earnings presentation on January 20, 2015, as well as certain reconciliation and other information (“Non-GAAP Supplemental Materials”) for information in Attachment I (press release), Attachment II (slides) and in Mr. Schroeter’s presentation. All of the information in Attachment I and II is hereby filed.

 

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/).  IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

 

Date: January 20, 2015

 

 

 

 

 

 

By:

/s/ Stanley J. Sutula III

 

 

 

 

 

Stanley J. Sutula III

 

 

Vice President and Controller

 

3



 

ATTACHMENT I

 

IBM REPORTS 2014 FOURTH-QUARTER AND FULL-YEAR RESULTS

 

Fourth-Quarter 2014:

·      Diluted EPS from continuing operations:

·      GAAP: $5.54, down 4 percent;

·      Operating (non-GAAP): $5.81, down 6 percent;

·      Pre-tax income from continuing operations:

·      GAAP: $7.1 billion, flat year-to-year;

·      Operating (non-GAAP): $7.4 billion, down 2 percent;

·      Net income from continuing operations:

·      GAAP: $5.5 billion, down 11 percent;

·      Operating (non-GAAP): $5.8 billion, down 13 percent;

·      Gross profit margin from continuing operations:

·      GAAP: 53.3 percent, up 100 basis points;

·      Operating (non-GAAP): 53.9 percent, up 60 basis points;

·      Revenue from continuing operations: $24.1 billion:

·      Down 12 percent; down 2 percent adjusting for divested businesses and currency.

 

Full-Year 2014:

·      Diluted EPS from continuing operations:

·      GAAP: $15.59, up 2 percent;

·      Operating (non-GAAP): $16.53, down 1 percent;

·      Pre-tax income from continuing operations:

·      GAAP: $20.0 billion, down 1 percent;

·      Operating (non-GAAP): $21.1 billion, down 4 percent;

·      Net income from continuing operations:

·      GAAP: $15.8 billion, down 7 percent;

·      Operating (non-GAAP): $16.7 billion, down 9 percent;

·      Gross profit margin from continuing operations:

·      GAAP: 50.0 percent, up 50 basis points;

·      Operating (non-GAAP): 50.6 percent, up 10 basis points;

·      Revenue from continuing operations: $92.8 billion:

·      Down 6 percent; down 1 percent adjusting for divested businesses and currency;

·      Strategic imperatives grew 16 percent to $25 billion, and now represent 27 percent of total IBM revenue:

·      Total Cloud revenue of $7 billion, up 60 percent;

·      Cloud delivered as a service revenues of $3 billion, up approximately 75 percent;

·      Year-end annual run rate of $3.5 billion for cloud delivered as a service;

·      Business analytics revenue up 7 percent to nearly $17 billion;

·      Mobile revenue more than tripled;

·      Security revenue up 19 percent.

 

ARMONK, N.Y., January 20, 2015 . . . IBM (NYSE: IBM) today announced fourth-quarter 2014 diluted earnings from continuing operations of $5.54 per share, compared with diluted earnings of $5.76 per share in the fourth-quarter of 2013, a decrease of 4 percent.  Operating (non-GAAP) diluted earnings from continuing operations were $5.81 per share compared with operating diluted earnings of $6.16 per share in the fourth-quarter of 2013, a decrease of 6 percent.

 

Fourth-quarter net income from continuing operations was $5.5 billion compared with $6.2 billion in the fourth-quarter of 2013, a decrease of 11 percent.  Operating (non-GAAP) net income from continuing operations was $5.8 billion, as compared with $6.6 billion in the fourth-quarter of 2013, a decrease of 13 percent.

 



 

For the fourth-quarter of 2014, IBM reported consolidated net income of $5.5 billion or $5.51 of diluted earnings per share, including operating net losses in discontinued operations related to the microelectronics manufacturing business.

 

Total revenues from continuing operations for the fourth-quarter of 2014 of $24.1 billion were down 12 percent (down 2 percent, adjusting for the impact of the divested customer care outsourcing and System x businesses and for currency) from the fourth-quarter of 2013 and were down 1 percent for the full year 2014, adjusting for the impact of the divested businesses and for currency.

 

“We are making significant progress in our transformation, continuing to shift IBM’s business to higher value, and investing and positioning ourselves for the longer term,” said Ginni Rometty, IBM chairman, president and chief executive officer.

 

“In 2014, we repositioned our hardware portfolio for higher value, maintained a services backlog of $128 billion and achieved strong revenue growth across cloud, analytics, mobile, social and security.  Together these strategic imperatives grew 16 percent in 2014 and now represent $25 billion and 27 percent of our revenue.”

 

Fourth-Quarter GAAP — Operating (non-GAAP) Reconciliation

 

Fourth-quarter operating (non-GAAP) diluted earnings from continuing operations exclude $0.27 per share of charges; $0.19 per share for the amortization of purchased intangible assets and other acquisition-related charges; and $0.08 per share for retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.

 

Full-Year 2015 Expectations

 

The company will provide 2015 earnings expectations during today’s quarterly earnings conference call.

 

Geographic Regions

 

The Americas’ fourth-quarter revenues were $11.1 billion, a decrease of 9 percent (down 4 percent, adjusting for divested businesses and currency) from the 2013 period.  Revenues from Europe/Middle East/Africa were down 13 percent to $8.0 billion (down 1 percent, adjusting for divested businesses and currency).  Asia-Pacific revenues decreased 17 percent (down 2 percent, adjusting for divested businesses and currency) to $4.9 billion.

 

Growth Markets and Major Markets

 

Revenues from the company’s growth markets were down 16 percent (down 2 percent, adjusting for divested businesses and currency).  Revenues in the BRIC countries — Brazil, Russia, India and China — were down 21 percent (down 8 percent, adjusting for divested businesses and currency). China revenues were down 1 percent, adjusting for divested businesses and currency.  Revenues from the company’s major markets were down 11 percent (down 2 percent, adjusting for divested businesses and currency).

 

Services

 

Global Services segment revenues decreased 8 percent (flat adjusting for the impact of the divested customer care outsourcing and System x businesses and for currency) to $13.5 billion.  Global Technology Services segment revenues decreased 8 percent (up 2 percent adjusting for the impact of the divested customer care outsourcing and System x businesses and for currency) to $9.2 billion.  Global Business Services segment revenues were down 8 percent (down 3 percent, adjusting for currency) to $4.3 billion.

 

Pre-tax income from Global Technology Services decreased 26 percent and pre-tax margin decreased to 15.6 percent.  Global Business Services pre-tax income decreased 22 percent and pre-tax margin decreased to 16.4 percent.  Pre-tax income and margin include the impact of the fourth-quarter workforce rebalancing charge.

 



 

The estimated services backlog at December 31, 2014 was $128 billion, flat year to year adjusting for the divested customer care outsourcing and System x businesses and currency.

 

Software

 

Revenues from the Software segment were $7.6 billion, down 7 percent (down 3 percent, adjusting for currency) compared with the fourth-quarter of 2013.  Software pre-tax income decreased 11 percent and pre-tax margin decreased to 44.7 percent.  Pre-tax income and margin include the impact of the fourth-quarter workforce rebalancing charge.

 

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $5.4 billion, down 6 percent (down 3 percent, adjusting for currency) versus the fourth-quarter of 2013.  Operating systems revenues of $557 million were down 19 percent (down 16 percent, adjusting for currency) compared with the prior-year quarter.

 

Financing

 

Global Financing segment revenues were flat (up 5 percent, adjusting for currency) in the fourth-quarter to $532 million.  Pre-tax income for the segment decreased 11 percent to $526 million.

 

Hardware

 

Revenues from continuing operations for the Systems and Technology segment totaled $2.4 billion for the quarter, down 39 percent (down 12 percent, adjusting for the impact of the divested System x business and currency) from the fourth-quarter of 2013.  Systems and Technology pre-tax income increased 12 percent and pre-tax margin increased to 15.5 percent.  Pre-tax income and margin include the impact of the fourth-quarter workforce rebalancing charge.

 

Revenues from Power Systems were down 13 percent (down 11 percent, adjusting for currency) compared with the 2013 period.  Revenues from System z mainframe server products decreased 26 percent (down 23 percent, adjusting for currency).  Revenues from System Storage decreased 8 percent (down 5 percent, adjusting for currency).

 

Gross Profit

 

The company’s total gross profit margin from continuing operations was 53.3 percent in the 2014 fourth-quarter period compared with 52.4 percent in the 2013 fourth-quarter period.  Total operating (non-GAAP) gross profit margin from continuing operations was 53.9 percent in the 2014 fourth-quarter compared with 53.3 percent in the 2013 fourth-quarter period.

 

Expense

 

Total reported expense and other income from continuing operations declined 20 percent to $5.8 billion compared with the prior year period.  The reported reduction was driven by the gain of $1.4 billion ($1.1 billion pre-tax income benefit, net of related transaction and performance-based costs) from the divestiture of the System x business and the elimination of the expense for the System x business from the company’s run rate.  Without these items, expense and other income would have been up approximately 2 percent.  S,G&A expense of $6.0 billion was up 1 percent from the prior-year period and includes the workforce rebalancing charge of approximately $580 million.  R,D&E expense of $1.3 billion decreased 9 percent compared with the year-ago period, reflecting the divestiture of the System x business and currency impact.  Intellectual property and custom development income decreased to $199 million compared with $201 million a year ago.  Other (income) and expense was income of $1.5 billion, including the gain from the divested System x business, compared with prior-year income of $116 million.  Interest expense increased to $117 million compared with $113 million in the prior-year period.

 

Total operating (non-GAAP) expense and other income from continuing operations decreased 20 percent to $5.6 billion compared with the prior-year period, including

 



 

the gain from the divestiture of the System x business.  Operating (non-GAAP) S,G&A expense increased 1 percent to $5.8 billion compared with the prior-year period and includes the workforce rebalancing charge.  Operating (non-GAAP) R,D&E expense of $1.3 billion was down 7 percent compared with the year-ago period, reflecting the divestiture of the System x business and currency impact.

 

Pre-Tax Income

 

Pre-tax income from continuing operations was flat year over year at $7.1 billion; pre-tax margin of 29.4 percent was up 3.5 points compared with the prior-year period.  Operating (non-GAAP) pre-tax income from continuing operations decreased 2 percent to $7.4 billion and pre-tax margin was 30.7 percent, up 3.0 points, compared to the year-ago period.

 

***

 

IBM’s tax rate from continuing operations was 22.3 percent, up 9.8 points year over year; operating (non-GAAP) tax rate was 21.8 percent, up 9.6 points compared to the year-ago period.  The change in the fourth-quarter tax rate is driven by prior year discrete tax items, including benefits from tax audit settlements.

 

Net income margin from continuing operations increased 0.2 points to 22.9 percent.  Total operating (non-GAAP) net income margin from continuing operations decreased 0.3 points to 24.0 percent.

 

The weighted-average number of diluted common shares outstanding in the fourth-quarter 2014 was 995 million, a decrease of 8 percent compared with the same period of 2013.  As of December 31, 2014, there were 991 million basic common shares outstanding.

 

Debt, including Global Financing, totaled $40.8 billion, compared with $39.7 billion at year-end 2013, and down $4.9 billion from the third quarter of 2014.  From a management segment view, Global Financing debt totaled $29.1 billion versus $27.5 billion at year-end 2013, resulting in a debt-to-equity ratio of 7.2 to 1.  Core (non-global financing) debt totaled $11.7 billion, a decrease of $0.5 billion since year-end 2013, resulting in a debt-to-capitalization ratio of 59 percent, which includes impacts from retirement plan remeasurement that take into account changes in discount rates and recently released U.S. mortality tables, the announced Microelectronics business divestiture and foreign exchange translation.

 

IBM ended the fourth-quarter 2014 with $8.5 billion of cash on hand and generated free cash flow of $6.6 billion, excluding Global Financing receivables, down approximately $1.8 billion year over year.  In the fourth quarter of 2014, the company returned $1.2 billion to shareholders through $1.1 billion in dividends and $0.1 billion of gross share repurchases.

 

At the end of December 2014, IBM had approximately $6.3 billion remaining from the current share repurchase authorization.

 

Full-Year 2014 Results

 

Net income from continuing operations for the twelve months ended December 31, 2014 was $15.8 billion compared with $16.9 billion in the year-ago period, a decrease of 7 percent.  Diluted earnings per share from continuing operations were $15.59, up 2 percent compared to the 2013 period.

 

The consolidated diluted earnings per share were $11.90 as compared to $14.94 per share in 2013, down 20 percent. Revenues from continuing operations for the twelve-month period totaled $92.8 billion, a decrease of 6 percent (down 1 percent, adjusting for divested businesses and currency) compared with $98.4 billion for the twelve months of 2013.

 

Full year results include a non-recurring pre-tax charge of $4.7 billion, or $3.4 billion, net of tax.  The charge includes an impairment to reflect fair value less estimated costs to sell the Microelectronics manufacturing business assets, which the company has classified as held for sale at December 31, 2014.  The charge also includes other estimated costs related to the transaction, including cash consideration expected to be transferred to GLOBALFOUNDRIES of approximately $1.5 billion.

 



 

Operating (non-GAAP) net income from continuing operations for the twelve months ended December 31, 2014 was $16.7 billion compared with $18.4 billion in the year-ago period, a decrease of 9 percent.  Operating (non-GAAP) diluted earnings per share from continuing operations were $16.53 compared with $16.64 per diluted share for the 2013 period, a decrease of less than 1 percent.

 

Forward-Looking and Cautionary Statements

 

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance.  These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and client spending budgets; the company’s failure to meet growth and productivity objectives; a failure of the company’s innovation initiatives; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key personnel and its reliance on critical skills; impacts of relationships with critical suppliers and 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; 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 and expectations —

 

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

·      presenting non-global financing debt-to-capitalization ratio;

·      adjusting for free cash flow;

·      adjusting for currency (i.e., at constant currency);

·      adjusting for the divestiture of the System x and the customer care outsourcing businesses.

 

The rationale for management’s use of non-GAAP measures is included as part of the supplemental materials presented within the fourth-quarter earnings materials.  These materials are available on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II (“Non-GAAP Supplemental Materials”) to 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 4:30 p.m. EST, today.  The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/4q14.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

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

 

 

 

 

Percent

 

 

 

 

 

Percent

 

 

 

2014

 

2013*

 

Change

 

2014

 

2013* 

 

Change

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,167

 

$

9,917

 

-7.6

%

$

37,130

 

$

38,551

 

-3.7

%

Gross profit margin

 

38.5

%

38.8

%

 

 

38.3

%

38.1

%

 

 

Global Business Services

 

4,349

 

4,747

 

-8.4

%

17,825

 

18,396

 

-3.1

%

Gross profit margin

 

32.0

%

30.7

%

 

 

30.8

%

30.9

%

 

 

Software

 

7,578

 

8,140

 

-6.9

%

25,434

 

25,932

 

-1.9

%

Gross profit margin

 

90.0

%

90.5

%

 

 

88.6

%

88.8

%

 

 

Systems and Technology

 

2,406

 

3,947

 

-39.0

%

9,996

 

12,988

 

-23.0

%

Gross profit margin

 

49.6

%

42.2

%

 

 

39.5

%

40.8

%

 

 

Global Financing

 

532

 

534

 

-0.5

%

2,034

 

2,022

 

0.6

%

Gross profit margin

 

48.7

%

43.3

%

 

 

49.4

%

45.6

%

 

 

Other

 

82

 

100

 

-17.7

%

374

 

478

 

-21.7

%

Gross profit margin

 

-401.7

%

-234.8

%

 

 

-215.0

%

-195.6

%

 

 

TOTAL REVENUE

 

24,113

 

27,385

 

-11.9

%

92,793

 

98,367

 

-5.7

%

GROSS PROFIT

 

12,862

 

14,337

 

-10.3

%

46,407

 

48,684

 

-4.7

%

Gross profit margin

 

53.3

%

52.4

%

 

 

50.0

%

49.5

%

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

6,034

 

5,987

 

0.8

%

23,180

 

23,451

 

-1.2

%

Expense to revenue

 

25.0

%

21.9

%

 

 

25.0

%

23.8

%

 

 

R,D&E

 

1,320

 

1,452

 

-9.1

%

5,437

 

5,743

 

-5.3

%

Expense to revenue

 

5.5

%

5.3

%

 

 

5.9

%

5.8

%

 

 

Intellectual property and custom development income

 

(199

)

(201

)

-1.2

%

(742

)

(822

)

-9.8

%

Other (income) and expense

 

(1,506

)

(116

)

NM

 

(1,938

)

(333

)

NM

 

Interest expense

 

117

 

113

 

3.6

%

484

 

402

 

20.4

%

TOTAL EXPENSE AND OTHER INCOME

 

5,767

 

7,235

 

-20.3

%

26,421

 

28,440

 

-7.1

%

Expense to revenue

 

23.9

%

26.4

%

 

 

28.5

%

28.9

%

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

7,094

 

7,102

 

-0.1

%

19,986

 

20,244

 

-1.3

%

Pre-tax margin

 

29.4

%

25.9

%

 

 

21.5

%

20.6

%

 

 

Provision for income taxes

 

1,580

 

885

 

78.4

%

4,234

 

3,363

 

25.9

%

Effective tax rate

 

22.3

%

12.5

%

 

 

21.2

%

16.6

%

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

5,515

 

$

6,216

 

-11.3

%

$

15,751

 

$

16,881

 

-6.7

%

Net margin

 

22.9

%

22.7

%

 

 

17.0

%

17.2

%

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

(31

)

(32

)

 

 

(3,729

)

(398

)

 

 

NET INCOME

 

$

5,484

 

$

6,185

 

-11.3

%

$

12,022

 

$

16,483

 

-27.1

%

EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

$

5.54

 

$

5.76

 

-3.8

%

$

15.59

 

$

15.30

 

1.9

%

DISCOUNTINUED OPERATIONS

 

$

(0.03

)

$

(0.03

)

 

 

$

(3.69

)

$

(0.36

)

 

 

TOTAL

 

$

5.51

 

$

5.73

 

-3.8

%

$

11.90

 

$

14.94

 

-20.3

%

BASIC

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

$

5.57

 

$

5.80

 

-4.0

%

$

15.68

 

$

15.42

 

1.7

%

DISCOUNTINUED OPERATIONS

 

$

(0.03

)

$

(0.03

)

 

 

$

(3.71

)

$

(0.36

)

 

 

TOTAL

 

$

5.54

 

$

5.77

 

-4.0

%

$

11.97

 

$

15.06

 

-20.5

%

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s):

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

995.4

 

1,080.0

 

 

 

1,010.0

 

1,103.0

 

 

 

BASIC

 

990.4

 

1,072.5

 

 

 

1,004.3

 

1,094.5

 

 

 

 


* Reclassified to reflect discontinued operations presentation.

   NM = Not Meaningful

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

 

 

 

At

 

At

 

 

 

December 31,

 

December 31,

 

(Dollars in Millions)

 

2014

 

2013

 

ASSETS:

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

8,476

 

$

10,716

 

Marketable securities

 

0

 

350

 

Notes and accounts receivable - trade (net of allowances of $336 in 2014 and $291 in 2013)

 

9,090

 

10,465

 

Short-term financing receivables (net of allowances of $452 in 2014 and $308 in 2013)

 

19,835

 

19,787

 

Other accounts receivable (net of allowances of $40 in 2014 and $36 in 2013)

 

2,906

 

1,584

 

Inventories, at lower of average cost or market:

 

 

 

 

 

Finished goods

 

430

 

444

 

Work in process and raw materials

 

1,674

 

1,866

 

Total inventories

 

2,103

 

2,310

 

Deferred taxes

 

2,044

 

1,651

 

Prepaid expenses and other current assets

 

4,967

 

4,488

 

Total Current Assets

 

49,422

 

51,350

 

Property, plant and equipment

 

39,034

 

40,475

 

Less: Accumulated depreciation

 

28,263

 

26,654

 

Property, plant and equipment - net

 

10,771

 

13,821

 

Long-term financing receivables (net of allowances of $126 in 2014 and $80 in 2013)

 

11,109

 

12,755

 

Prepaid pension assets

 

2,160

 

5,551

 

Deferred taxes

 

4,808

 

3,051

 

Goodwill

 

30,556

 

31,184

 

Intangible assets - net

 

3,104

 

3,871

 

Investments and sundry assets

 

5,603

 

4,639

 

Total Assets

 

$

117,532

 

$

126,223

 

LIABILITIES:

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Taxes

 

$

5,084

 

$

4,633

 

Short-term debt

 

5,731

 

6,862

 

Accounts payable

 

6,864

 

7,461

 

Compensation and benefits

 

4,031

 

3,893

 

Deferred income

 

11,877

 

12,557

 

Other accrued expenses and liabilities

 

6,013

 

4,748

 

Total Current Liabilities

 

39,600

 

40,154

 

Long-term debt

 

35,073

 

32,856

 

Retirement and nonpension postretirement benefit obligations

 

18,261

 

16,242

 

Deferred income

 

3,691

 

4,108

 

Other liabilities

 

8,892

 

9,934

 

Total Liabilities

 

105,518

 

103,294

 

EQUITY:

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

Common stock

 

52,666

 

51,594

 

Retained earnings

 

137,793

 

130,042

 

Treasury stock — at cost

 

(150,715

)

(137,242

)

Accumulated other comprehensive income/(loss)

 

(27,875

)

(21,602

)

Total IBM stockholders’ equity

 

11,868

 

22,792

 

Noncontrolling interests

 

146

 

137

 

Total Equity

 

12,014

 

22,929

 

Total Liabilities and Equity

 

$

117,532

 

$

126,223

 

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

(Dollars in Millions)

 

2014

 

2013

 

2014

 

2013

 

Net Cash from Operating Activities per GAAP:

 

$

6,059

 

$

6,528

 

$

16,868

 

$

17,485

 

Less: the change in Global Financing (GF) Receivables

 

(1,505

)

(2,932

)

718

 

(1,304

)

Net Cash from Operating Activities

 

 

 

 

 

 

 

 

 

(Excluding GF Receivables)

 

7,564

 

9,460

 

16,151

 

18,789

 

Capital Expenditures, Net

 

(976

)

(1,059

)

(3,779

)

(3,768

)

Free Cash Flow

 

 

 

 

 

 

 

 

 

(Excluding GF Receivables)

 

6,588

 

8,401

 

12,372

 

15,021

 

Acquisitions

 

(6

)

(495

)

(656

)

(3,056

)

Divestitures

 

1,869

 

50

 

2,357

 

297

 

Dividends

 

(1,089

)

(1,025

)

(4,265

)

(4,058

)

Share Repurchase

 

(132

)

(5,797

)

(13,679

)

(13,859

)

Non-GF Debt

 

(5,883

)

1,637

 

(1,348

)

3,193

 

Other (includes GF Receivables, and GF Debt)

 

(2,435

)

(1,937

)

2,629

 

2,400

 

Change in Cash, Cash Equivalents and Short-term Marketable Securities

 

$

(1,088

)

$

834

 

$

(2,589

)

$

(63

)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

FOURTH-QUARTER 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

 Revenue 

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,167

 

$

195

 

$

9,362

 

$

1,464

 

15.6

%

Y-T-Y change

 

-7.6

%

-25.7

%

-8.0

%

-26.4

%

 

 

Global Business Services

 

4,349

 

127

 

4,476

 

733

 

16.4

%

Y-T-Y change

 

-8.4

%

-24.9

%

-8.9

%

-22.0

%

 

 

Software

 

7,578

 

845

 

8,422

 

3,765

 

44.7

%

Y-T-Y change

 

-6.9

%

-3.8

%

-6.6

%

-11.2

%

 

 

Systems and Technology

 

2,406

 

107

 

2,512

 

388

 

15.5

%

Y-T-Y change

 

-39.0

%

-37.4

%

-39.0

%

12.2

%

 

 

Global Financing

 

532

 

588

 

1,119

 

526

 

47.0

%

Y-T-Y change

 

-0.5

%

-10.1

%

-5.8

%

-10.8

%

 

 

TOTAL REPORTABLE SEGMENTS

 

$

24,031

 

$

1,860

 

$

25,891

 

$

6,876

 

26.6

%

Y-T-Y change

 

-11.9

%

-12.8

%

-12.0

%

-15.2

%

 

 

Eliminations / Other

 

82

 

(1,860

)

(1,778

)

219

 

 

 

TOTAL IBM CONSOLIDATED

 

$

24,113

 

$

0

 

$

24,113

 

$

7,094

 

29.4

%

Y-T-Y change

 

-11.9

%

 

 

-11.9

%

-0.1

%

 

 

 



 

 

 

FOURTH-QUARTER 2013*

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,917

 

$

262

 

$

10,179

 

$

1,989

 

19.5

%

Global Business Services

 

4,747

 

169

 

4,915

 

940

 

19.1

%

Software

 

8,140

 

878

 

9,018

 

4,239

 

47.0

%

Systems and Technology*

 

3,947

 

170

 

4,117

 

346

 

8.4

%

Global Financing

 

534

 

654

 

1,188

 

589

 

49.6

%

TOTAL REPORTABLE SEGMENTS

 

$

27,285

 

$

2,133

 

$

29,418

 

$

8,104

 

27.5

%

Eliminations / Other

 

100

 

(2,133

)

(2,033

)

(1,002

)

 

 

TOTAL IBM CONSOLIDATED

 

$

27,385

 

$

0

 

$

27,385

 

$

7,102

 

25.9

%

 


* Reclassified to reflect discontinued operations presentation.

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

TWELVE-MONTHS 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

37,130

 

$

934

 

$

38,063

 

$

6,340

 

16.7

%

Y-T-Y change

 

-3.7

%

-12.2

%

-3.9

%

-9.2

%

 

 

Global Business Services

 

17,825

 

543

 

18,367

 

2,999

 

16.3

%

Y-T-Y change

 

-3.1

%

-24.0

%

-3.9

%

-6.7

%

 

 

Software

 

25,434

 

3,496

 

28,931

 

10,699

 

37.0

%

Y-T-Y change

 

-1.9

%

9.6

%

-0.7

%

-3.7

%

 

 

Systems and Technology

 

9,996

 

647

 

10,643

 

34

 

0.3

%

Y-T-Y change

 

-23.0

%

9.2

%

-21.6

%

-84.1

%

 

 

Global Financing

 

2,034

 

2,488

 

4,522

 

2,189

 

48.4

%

Y-T-Y change

 

0.6

%

9.0

%

5.1

%

0.8

%

 

 

TOTAL REPORTABLE SEGMENTS

 

$

92,418

 

$

8,108

 

$

100,527

 

$

22,262

 

22.1

%

Y-T-Y change

 

-5.6

%

3.4

%

-4.9

%

-6.0

%

 

 

Eliminations / Other

 

374

 

(8,108

)

(7,734

)

(2,276

)

 

 

TOTAL IBM CONSOLIDATED

 

$

92,793

 

$

0

 

$

92,793

 

$

19,986

 

21.5

%

Y-T-Y change

 

-5.7

%

 

 

-5.7

%

-1.3

%

 

 

 



 

 

 

TWELVE-MONTHS 2013*

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income

 

 

 

 

 

 

 

 

 

 

 

(Loss)/

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

38,551

 

$

1,063

 

$

39,615

 

$

6,983

 

17.6

%

Global Business Services

 

18,396

 

714

 

19,109

 

3,214

 

16.8

%

Software

 

25,932

 

3,191

 

29,123

 

11,106

 

38.1

%

Systems and Technology*

 

12,988

 

593

 

13,581

 

213

 

1.6

%

Global Financing

 

2,022

 

2,282

 

4,304

 

2,171

 

50.4

%

TOTAL REPORTABLE SEGMENTS

 

$

97,889

 

$

7,843

 

$

105,732

 

$

23,687

 

22.4

%

Eliminations / Other

 

478

 

(7,843

)

(7,365

)

(3,443

)

 

 

TOTAL IBM CONSOLIDATED

 

$

98,367

 

$

0

 

$

98,367

 

$

20,244

 

20.6

%

 


* Reclassified to reflect discontinued operations presentation.

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

FOURTH-QUARTER 2014

CONTINUING OPERATIONS

 

 

 

GAAP

 

Acquisition-
Related
Adjustments* 

 

Retirement-
Related
Adjustments** 

 

Operating
(Non-GAAP)

 

Gross Profit

 

$

12,862

 

$

101

 

$

33

 

$

12,996

 

Gross Profit Margin

 

53.3

%

0.4

Pts

0.1

Pts

53.9

%

S,G&A

 

6,034

 

(94

)

(95

)

5,845

 

R,D&E

 

1,320

 

 

21

 

1,341

 

Other (Income) & Expense

 

(1,506

)

(1

)

 

(1,506

)

Total Expense & Other (Income)

 

5,767

 

(95

)

(74

)

5,598

 

Pre-Tax Income from Continuing Operations

 

7,094

 

196

 

107

 

7,398

 

Pre-Tax Income Margin from Continuing Operations

 

29.4

%

0.8

Pts

0.4

Pts

30.7

%

Provision for Income Taxes***

 

1,580

 

10

 

24

 

1,613

 

Effective Tax Rate

 

22.3

%

-0.5

Pts

0.0

Pts

21.8

%

Income from Continuing Operations

 

5,515

 

186

 

84

 

5,785

 

Income Margin from Continuing Operations

 

22.9

%

0.8

Pts

0.3

Pts

24.0

%

Loss from Discontinued Operations Net of Taxes

 

(31

)

 

 

(31

)

Net Income

 

5,484

 

186

 

84

 

5,753

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

5.54

 

$

0.19

 

$

0.08

 

$

5.81

 

Discontinued Operations

 

$

(0.03

)

 

 

$

(0.03

)

 



 

 

 

FOURTH-QUARTER 2013****

CONTINUING OPERATIONS

 

 

 

GAAP

 

Acquisition-
Related
Adjustments* 

 

Retirement-
Related
Adjustments** 

 

Operating
(Non-GAAP)

 

Gross Profit

 

$

14,337

 

$

105

 

$

154

 

$

14,596

 

Gross Profit Margin

 

52.4

%

0.4

Pts

0.6

Pts

53.3

%

S,G&A

 

5,987

 

(101

)

(90

)

5,796

 

R,D&E

 

1,452

 

 

(14

)

1,438

 

Other (Income) & Expense

 

(116

)

(8

)

 

(124

)

Total Expense & Other (Income)

 

7,235

 

(109

)

(104

)

7,023

 

Pre-Tax Income from Continuing Operations

 

7,102

 

213

 

258

 

7,574

 

Pre-Tax Income Margin from Continuing Operations

 

25.9

%

0.8

Pts

0.9

Pts

27.7

%

Provision for Income Taxes***

 

885

 

(55

)

94

 

925

 

Effective Tax Rate

 

12.5

%

-1.1

Pts

0.8

Pts

12.2

%

Income from Continuing Operations

 

6,216

 

268

 

164

 

6,649

 

Income Margin from Continuing Operations

 

22.7

%

1.0

Pts

0.6

Pts

24.3

%

Loss from Discontinued Operations Net of Taxes

 

(32

)

 

 

(32

)

Net Income

 

6,185

 

268

 

164

 

6,617

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

5.76

 

$

0.25

 

$

0.15

 

$

6.16

 

Discontinued Operations

 

$

(0.03

)

 

 

$

(0.03

)

 


*  Includes amortization of acquired intangible assets and other acquisition-related charges.

**  Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

***  Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.

**** Reclassified to reflect discontinued operations presentation.

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

TWELVE-MONTHS 2014

CONTINUING OPERATIONS

 

 

 

GAAP

 

Acquisition-
Related
Adjustments* 

 

Retirement-
Related
Adjustments** 

 

Operating
(Non-GAAP)

 

Gross Profit

 

$

46,407

 

$

416

 

$

173

 

$

46,996

 

Gross Profit Margin

 

50.0

%

0.4

Pts

0.2

Pts

50.6

%

S,G&A

 

23,180

 

(385

)

(257

)

22,537

 

R,D&E

 

5,437

 

 

77

 

5,514

 

Other (Income) & Expense

 

(1,938

)

(1

)

 

(1,939

)

Total Expense & Other (Income)

 

26,421

 

(386

)

(180

)

25,855

 

Pre-Tax Income from Continuing Operations

 

19,986

 

803

 

353

 

21,142

 

Pre-Tax Income Margin from Continuing Operations

 

21.5

%

0.9

Pts

0.4

Pts

22.8

%

Provision for Income Taxes***

 

4,234

 

133

 

73

 

4,440

 

Effective Tax Rate

 

21.2

%

-0.2

Pts

0.0

Pts

21.0

%

Income from Continuing Operations

 

15,751

 

670

 

280

 

16,702

 

Income Margin from Continuing Operations

 

17.0

%

0.7

Pts

0.3

Pts

18.0

%

Loss from Discontinued Operations Net of Taxes

 

(3,729

)

 

 

(3,729

)

Net Income

 

12,022

 

670

 

280

 

12,973

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

15.59

 

$

0.66

 

$

0.28

 

$

16.53

 

Discontinued Operations

 

$

(3.69

)

 

 

$

(3.69

)

 



 

 

 

TWELVE-MONTHS 2013****

CONTINUING OPERATIONS

 

 

 

GAAP

 

Acquisition-
Related
Adjustments* 

 

Retirement-
Related
Adjustments** 

 

Operating
(Non-GAAP)

 

Gross Profit

 

$

48,684

 

$

394

 

$

629

 

$

49,706

 

Gross Profit Margin

 

49.5

%

0.4

Pts

0.6

Pts

50.5