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: July 17, 2014
(Date of earliest event reported)
INTERNATIONAL BUSINESS MACHINES
CORPORATION
(Exact name of registrant as specified in its charter)
New York |
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1-2360 |
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13-0871985 |
(State of Incorporation) |
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(Commission File Number) |
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(IRS employer Identification No.) |
ARMONK, NEW YORK |
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10504 |
(Address of principal executive offices) |
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(Zip Code) |
914-499-1900
(Registrants 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 registrants press release dated July 17, 2014, regarding its financial results for the periods ended June 30, 2014, including consolidated financial statements for the periods ended June 30, 2014, is Attachment I of this Form 8-K. Attachment II are the slides for IBMs Chief Financial Officer Martin Schroeters second quarter earnings presentation on July 17, 2014, 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. Schroeters presentation. All of the information in Attachment I and II is hereby filed.
IBMs 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.
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: July 17, 2014 |
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By: |
/s/ James J. Kavanaugh |
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James J. Kavanaugh |
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Vice President and Controller |
ATTACHMENT I
IBM REPORTS 2014 SECOND-QUARTER RESULTS
· Diluted EPS:
· GAAP: $4.12, up 42 percent;
· Operating (non-GAAP): $4.32, up 34 percent;
· Net income:
· GAAP: $4.1 billion, up 28 percent;
· Operating (non-GAAP): $4.3 billion, up 21 percent;
· Gross profit margin:
· GAAP: 49.1 percent, up 50 basis points;
· Operating (non-GAAP): 49.8 percent, up 10 basis points;
· Revenue: $24.4 billion:
· Down 2 percent; down 1 percent adjusting for divested customer care outsourcing business;
· Software, Services adjusting for divested customer care outsourcing business and Global Financing grew; Systems and Technology declined;
· Services backlog of $136 billion, down 1 percent adjusting for divested customer care outsourcing business;
· Strategic growth initiatives grew double digits:
· Cloud revenue up more than 50 percent year-to-date;
· For cloud delivered as a service, second-quarter annual run rate up nearly 100 percent to $2.8 billion year-to-year;
· Business analytics revenue up 7 percent year-to-date;
· Mobile revenue up more than 100 percent year-to-date;
· Security revenue up more than 20 percent year-to-date;
· Continue to expect full-year operating (non-GAAP) EPS of at least $18.00.
ARMONK, N.Y., July 17, 2014 . . . IBM (NYSE: IBM) today announced second-quarter 2014 diluted earnings of $4.12 per share, compared with diluted earnings of $2.91 per share in the second quarter of 2013, an increase of 42 percent. Operating (non-GAAP) diluted earnings were $4.32 per share, compared with operating diluted earnings of $3.22 per share in the second quarter of 2013, an increase of 34 percent.
Second-quarter net income was $4.1 billion compared with $3.2 billion in the second quarter of 2013, an increase of 28 percent. Operating (non-GAAP) net income was $4.3 billion compared with $3.6 billion in the second quarter of 2013, an increase of 21 percent. The year-to-year results include the impact of a charge in the prior year period of $1 billion for workforce rebalancing.
Total revenues for the second quarter of 2014 of $24.4 billion were down 2 percent (down 1 percent, as reported and adjusting for currency, adjusting for the divested customer care outsourcing business) from the second quarter of 2013.
In the second quarter, we made further progress on our transformation. We performed well in our strategic imperatives around cloud, big data and analytics, security and mobile, said Ginni Rometty, IBM chairman, president and chief executive officer. We will continue to extend and leverage our unique strengths to address the emerging trends in enterprise IT and transform our business, positioning ourselves for growth over the long term.
Second-Quarter GAAP Operating (non-GAAP) Reconciliation
Second-quarter operating (non-GAAP) diluted earnings exclude $0.20 per share of charges: $0.16 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.04 per share for non-operating retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.
Full-Year 2014 Expectations
IBM expects full-year 2014 GAAP diluted earnings per share of at least $17.00, and operating (non-GAAP) diluted earnings per share of at least $18.00. The 2014 operating (non-GAAP) earnings expectations exclude $1.00 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related charges.
Geographic Regions
The Americas second-quarter revenues were $10.6 billion, a decrease of 1 percent (up 1 percent, adjusting for currency) from the 2013 period. Revenues from Europe/Middle East/Africa were up 1 percent at $7.9 billion (down 3 percent adjusting for currency). Asia-Pacific revenues decreased 9 percent (down 6 percent adjusting for currency) to $5.3 billion. OEM revenues were $433 million, down 19 percent (down 19 percent adjusting for currency) compared with the 2013 second quarter.
Growth Markets
Revenues from the companys growth markets were down 7 percent (down 4 percent, adjusting for currency). Revenues in the BRIC countries Brazil, Russia, India and China were down 2 percent (up 1 percent, adjusting for currency).
Services
Global Services segment revenues decreased 1 percent (down 1 percent, adjusting for currency) to $13.9 billion. Revenues increased 1 percent adjusting for the impact of the divested customer care outsourcing business. Global Technology Services segment revenues decreased 1 percent (down 1 percent, adjusting for currency) to $9.4 billion. Adjusting for the impact of the divested customer care outsourcing business, revenues were up 2 percent (up 2 percent adjusting for currency). Global Business Services segment revenues were down 2 percent (down 2 percent, adjusting for currency) to $4.5 billion.
Pre-tax income from Global Technology Services increased 22 percent and pre-tax margin increased to 19.2 percent, including the impact of a $0.4 billion workforce rebalancing charge in the prior year. Global Business Services pre-tax income increased 34 percent and pre-tax margin increased to 17.8 percent, including the impact of a $0.2 billion workforce rebalancing charge in the prior year.
The estimated services backlog at June 30 was $136 billion, down 1 percent adjusting for the divested customer care outsourcing business (down 3 percent adjusting for currency).
Software
Revenues from the Software segment were $6.5 billion, up 1 percent (flat adjusting for currency) compared with the second quarter of 2013. Software pre-tax income increased 10 percent and pre-tax margin increased to 36.5 percent, including the impact of a $0.2 billion workforce rebalancing charge in the prior year.
Revenues from IBMs key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $4.3 billion, up 1 percent (flat adjusting for currency) versus the second quarter of 2013. Operating systems revenues of $530 million were down 13 percent (down 13 percent, adjusting for currency) compared with the prior-year quarter.
Financing
Global Financing segment revenues increased 4 percent (up 4 percent, adjusting for currency) in the second quarter at $504 million. Pre-tax income for the segment increased 8 percent to $593 million.
Hardware
Revenues from the Systems and Technology segment totaled $3.3 billion for the quarter, down 11 percent (down 12 percent, adjusting for currency) from the second quarter of 2013. Systems and Technology segment pre-tax income increased $0.2 billion, including the impact of a $0.2 billion workforce rebalancing charge in the prior year.
Total systems revenues decreased 11 percent (down 11 percent, adjusting for currency). Revenues from System z mainframe server products, in the seventh quarter
since they were announced, decreased 1 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), was flat. Revenues from Power Systems were down 28 percent compared with the 2013 period. Revenues from System x were down 3 percent. Revenues from System Storage decreased 12 percent and within this business area, flash storage grew more than 100 percent. Revenues from Microelectronics OEM decreased 18 percent.
Gross Profit
The companys total gross profit margin was 49.1 percent in the 2014 second quarter compared with 48.7 percent in the 2013 second-quarter period. Total operating (non-GAAP) gross profit margin was 49.8 percent in the 2014 second quarter compared with 49.7 percent in the 2013 second-quarter period, with increases in Global Technology Services and Global Financing.
Expense
Total expense and other income decreased to $6.8 billion or 15 percent, including a gain of $121 million from the divestiture of the customer care outsourcing business and the impact of a $1.0 billion workforce rebalancing charge in the prior year period. S,G&A expense of $5.6 billion decreased 16 percent year over year. R,D&E expense of $1.5 billion decreased 6 percent compared with the year-ago period, and was 6 percent of revenue, consistent with the second-quarter of 2013. Intellectual property and custom development income decreased to $191 million compared with $247 million a year ago. Other (income) and expense was income of $201 million compared with prior-year income of $91 million. Interest expense increased to $136 million compared with $98 million in the prior year.
Total operating (non-GAAP) expense and other income decreased 14 percent to $6.7 billion compared with the prior-year period, including the impact of a $1.0 billion workforce rebalancing charge in the prior year period. Operating (non-GAAP) S,G&A expense decreased 16 percent to $5.5 billion compared with the prior-year period. Operating (non-GAAP) R,D&E expense of $1.5 billion was down 4 percent compared with the year-ago period.
Pre-Tax Income
Pre-tax income increased 25 percent to $5.2 billion and pre-tax margin of 21.2 percent was up 4.6 points compared with the prior-year period. Operating (non-GAAP) pre-tax income increased 18 percent to $5.4 billion and pre-tax margin was 22.3 percent, up 3.9 points.
***
IBMs tax rate was 20.0 percent, down 2.1 points year over year; operating (non-GAAP) tax rate was 20.0 percent, down 2.0 points compared to the year-ago period.
Net income margin increased 4.0 points to 17.0 percent. Total operating (non-GAAP) net income margin increased 3.5 points to 17.8 percent.
The weighted-average number of diluted common shares outstanding in the second-quarter 2014 was 1.01 billion compared with 1.11 billion shares in the same period of 2013. As of June 30, 2014, there were 998 million basic common shares outstanding.
Debt, including Global Financing, totaled $46.5 billion, compared with $39.7 billion at year-end 2013. From a management segment view, Global Financing debt totaled $29.4 billion versus $27.5 billion at year-end 2013, resulting in a debt-to-equity ratio of 7.1 to 1. Non-global financing debt totaled $17.1 billion, an increase of $4.9 billion since year-end 2013, resulting in a debt-to-capitalization ratio of 56.1, essentially flat quarter-to-quarter and higher than the ratio at year-end 2013.
IBM ended the second-quarter 2014 with $9.7 billion of cash on hand and generated free cash flow of $3.0 billion, excluding Global Financing receivables, up $0.3 billion year over year. The company returned $4.8 billion to shareholders through $1.1 billion in dividends and $3.7 billion of gross share repurchases.
Year-To-Date 2014 Results
Net income for the six months ended June 30, 2014 was $6.5 billion compared with $6.3 billion in the year-ago period, an increase of 4 percent. Diluted earnings per share were $6.37 compared with $5.60 per diluted share for the 2013 period, an
increase of 14 percent. Revenues for the six-month period totaled $46.8 billion, a decrease of 3 percent (down 2 percent, adjusting for currency) compared with $48.3 billion for the first six months of 2013.
Operating (non-GAAP) net income for the six months ended June 30, 2014 was $7.0 billion, flat year to year. Operating (non-GAAP) diluted earnings per share were $6.82 compared with $6.23 per diluted share for the 2013 period, an increase of 9.5 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 companys 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 companys failure to meet growth and productivity objectives, a failure of the companys innovation initiatives; risks from investing in growth opportunities; failure of the companys intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and privacy considerations; fluctuations in financial results, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the companys pension plans; ineffective internal controls; the companys use of accounting estimates; the companys 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 companys 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 companys Form 10-Qs, Form 10-K and in the companys 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 companys 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 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 customer care outsourcing business.
The rationale for managements use of non-GAAP measures is included as part of the supplemental materials presented within the second-quarter earnings materials. These materials are available via a link 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
IBMs regular quarterly earnings conference call is scheduled to begin at 4:30 p.m. EDT, today. The Webcast may be accessed via a link at
http://www.ibm.com/investor/events/earnings/2q14.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)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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Percent |
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Percent |
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2014 |
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2013 |
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Change |
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2014 |
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2013 |
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Change |
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REVENUE |
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Global Technology Services |
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$ |
9,414 |
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$ |
9,536 |
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-1.3 |
% |
$ |
18,744 |
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$ |
19,140 |
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-2.1 |
% |
Gross profit margin |
|
38.4 |
% |
37.8 |
% |
|
|
38.2 |
% |
37.3 |
% |
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| ||||
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|
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Global Business Services |
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4,534 |
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4,606 |
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-1.6 |
% |
9,017 |
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9,091 |
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-0.8 |
% | ||||
Gross profit margin |
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30.0 |
% |
31.2 |
% |
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30.0 |
% |
29.9 |
% |
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Software |
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6,488 |
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6,423 |
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1.0 |
% |
12,149 |
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11,995 |
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1.3 |
% | ||||
Gross profit margin |
|
88.8 |
% |
88.8 |
% |
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|
88.2 |
% |
88.1 |
% |
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Systems and Technology |
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3,331 |
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3,758 |
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-11.4 |
% |
5,722 |
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6,864 |
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-16.6 |
% | ||||
Gross profit margin |
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33.9 |
% |
36.7 |
% |
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31.0 |
% |
34.7 |
% |
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Global Financing |
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504 |
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487 |
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3.5 |
% |
1,016 |
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985 |
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3.1 |
% | ||||
Gross profit margin |
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54.8 |
% |
46.3 |
% |
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50.4 |
% |
46.0 |
% |
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Other |
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93 |
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115 |
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-19.1 |
% |
200 |
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257 |
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-22.0 |
% | ||||
Gross profit margin |
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-179.7 |
% |
-190.5 |
% |
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-171.1 |
% |
-172.8 |
% |
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TOTAL REVENUE |
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24,364 |
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24,924 |
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-2.2 |
% |
46,848 |
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48,332 |
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-3.1 |
% | ||||
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GROSS PROFIT |
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11,975 |
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12,132 |
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-1.3 |
% |
22,518 |
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22,810 |
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-1.3 |
% | ||||
Gross margin |
|
49.1 |
% |
48.7 |
% |
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48.1 |
% |
47.2 |
% |
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EXPENSE AND OTHER INCOME |
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S,G&A |
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5,603 |
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6,680 |
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-16.1 |
% |
11,892 |
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12,257 |
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-3.0 |
% | ||||
Expense to revenue |
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23.0 |
% |
26.8 |
% |
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25.4 |
% |
25.4 |
% |
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R,D&E |
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1,457 |
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1,548 |
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-5.9 |
% |
2,958 |
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3,193 |
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-7.3 |
% | ||||
Expense to revenue |
|
6.0 |
% |
6.2 |
% |
|
|
6.3 |
% |
6.6 |
% |
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| ||||
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Intellectual property and custom development income |
|
(191 |
) |
(247 |
) |
-22.7 |
% |
(398 |
) |
(430 |
) |
-7.5 |
% | ||||
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Other (income) and expense |
|
(201 |
) |
(91 |
) |
120.7 |
% |
(326 |
) |
(151 |
) |
115.7 |
% | ||||
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Interest expense |
|
136 |
|
98 |
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38.3 |
% |
240 |
|
192 |
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25.3 |
% | ||||
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TOTAL EXPENSE AND OTHER INCOME |
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6,804 |
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7,988 |
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-14.8 |
% |
14,367 |
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15,060 |
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-4.6 |
% | ||||
Expense to revenue |
|
27.9 |
% |
32.0 |
% |
|
|
30.7 |
% |
31.2 |
% |
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INCOME BEFORE INCOME TAXES |
|
5,171 |
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4,144 |
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24.8 |
% |
8,151 |
|
7,750 |
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5.2 |
% | ||||
Pre-tax margin |
|
21.2 |
% |
16.6 |
% |
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|
17.4 |
% |
16.0 |
% |
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Provision for income taxes |
|
1,034 |
|
918 |
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12.7 |
% |
1,630 |
|
1,492 |
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9.3 |
% | ||||
Effective tax rate |
|
20.0 |
% |
22.1 |
% |
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|
20.0 |
% |
19.2 |
% |
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|
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NET INCOME |
|
$ |
4,137 |
|
$ |
3,226 |
|
28.2 |
% |
$ |
6,521 |
|
$ |
6,258 |
|
4.2 |
% |
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|
|
|
|
|
|
|
|
|
|
|
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| ||||
Net income margin |
|
17.0 |
% |
12.9 |
% |
|
|
13.9 |
% |
12.9 |
% |
|
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EARNINGS PER SHARE OF COMMON STOCK: |
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ASSUMING DILUTION |
|
$ |
4.12 |
|
$ |
2.91 |
|
41.6 |
% |
$ |
6.37 |
|
$ |
5.60 |
|
13.8 |
% |
BASIC |
|
$ |
4.14 |
|
$ |
2.93 |
|
41.3 |
% |
$ |
6.41 |
|
$ |
5.65 |
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Ms): |
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|
|
|
|
|
|
|
|
|
|
|
| ||||
ASSUMING DILUTION |
|
1,005.1 |
|
1,109.4 |
|
|
|
1,023.5 |
|
1,116.7 |
|
|
| ||||
BASIC |
|
999.6 |
|
1,100.9 |
|
|
|
1,017.4 |
|
1,107.3 |
|
|
|
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
|
|
At |
|
At |
| ||
|
|
June 30, |
|
December 31, |
| ||
(Dollars in Millions) |
|
2014 |
|
2013 |
| ||
ASSETS: |
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|
|
|
| ||
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
9,715 |
|
$ |
10,716 |
|
Marketable securities |
|
5 |
|
350 |
| ||
Notes and accounts receivable - trade |
|
9,902 |
|
10,465 |
| ||
Short-term financing receivables |
|
18,620 |
|
19,787 |
| ||
Other accounts receivable |
|
1,555 |
|
1,584 |
| ||
Inventories, at lower of average cost or market: |
|
|
|
|
| ||
Finished goods |
|
449 |
|
444 |
| ||
Work in process and raw materials |
|
1,889 |
|
1,866 |
| ||
Total inventories |
|
2,338 |
|
2,310 |
| ||
Deferred taxes |
|
1,783 |
|
1,651 |
| ||
Prepaid expenses and other current assets |
|
4,263 |
|
4,488 |
| ||
Total Current Assets |
|
48,182 |
|
51,350 |
| ||
|
|
|
|
|
| ||
Property, plant and equipment |
|
40,936 |
|
40,475 |
| ||
Less: Accumulated depreciation |
|
27,188 |
|
26,654 |
| ||
Property, plant and equipment - net |
|
13,748 |
|
13,821 |
| ||
Long-term financing receivables |
|
12,140 |
|
12,755 |
| ||
Prepaid pension assets |
|
6,894 |
|
5,551 |
| ||
Deferred taxes |
|
2,828 |
|
3,051 |
| ||
Goodwill |
|
31,568 |
|
31,184 |
| ||
Intangible assets - net |
|
3,585 |
|
3,871 |
| ||
Investments and sundry assets |
|
5,369 |
|
4,639 |
| ||
Total Assets |
|
$ |
124,314 |
|
$ |
126,223 |
|
|
|
|
|
|
| ||
LIABILITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Taxes |
|
$ |
2,335 |
|
$ |
4,633 |
|
Short-term debt |
|
12,462 |
|
6,862 |
| ||
Accounts payable |
|
6,271 |
|
7,461 |
| ||
Compensation and benefits |
|
4,037 |
|
3,893 |
| ||
Deferred income |
|
12,591 |
|
12,557 |
| ||
Other accrued expenses and liabilities |
|
4,737 |
|
4,748 |
| ||
Total Current Liabilities |
|
42,433 |
|
40,154 |
| ||
|
|
|
|
|
| ||
Long-term debt |
|
34,008 |
|
32,856 |
| ||
Retirement and nonpension postretirement benefit obligations |
|
15,984 |
|
16,242 |
| ||
Deferred income |
|
4,152 |
|
4,108 |
| ||
Other liabilities |
|
10,224 |
|
9,934 |
| ||
Total Liabilities |
|
106,801 |
|
103,294 |
| ||
|
|
|
|
|
| ||
EQUITY: |
|
|
|
|
| ||
|
|
|
|
|
| ||
IBM Stockholders Equity: |
|
|
|
|
| ||
Common stock |
|
52,163 |
|
51,594 |
| ||
Retained earnings |
|
134,483 |
|
130,042 |
| ||
Treasury stock at cost |
|
(148,900 |
) |
(137,242 |
) | ||
Accumulated other comprehensive income/(loss) |
|
(20,369 |
) |
(21,602 |
) | ||
Total IBM stockholders equity |
|
17,377 |
|
22,792 |
| ||
|
|
|
|
|
| ||
Noncontrolling interests |
|
136 |
|
137 |
| ||
Total Equity |
|
17,513 |
|
22,929 |
| ||
Total Liabilities and Equity |
|
$ |
124,314 |
|
$ |
126,223 |
|
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
(Dollars in Millions) |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Cash from Operating Activities per GAAP: |
|
$ |
3,579 |
|
$ |
3,175 |
|
$ |
6,905 |
|
$ |
7,197 |
|
Less: the change in Global Financing (GF) Receivables |
|
(304 |
) |
(450 |
) |
1,503 |
|
1,147 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Cash from Operating Activities |
|
3,883 |
|
3,625 |
|
5,402 |
|
6,051 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Capital Expenditures, Net |
|
(909 |
) |
(939 |
) |
(1,796 |
) |
(1,668 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Free Cash Flow |
|
2,975 |
|
2,686 |
|
3,606 |
|
4,382 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Acquisitions |
|
(339 |
) |
(121 |
) |
(603 |
) |
(179 |
) | ||||
Divestitures |
|
17 |
|
2 |
|
408 |
|
12 |
| ||||
Dividends |
|
(1,096 |
) |
(1,048 |
) |
(2,086 |
) |
(1,996 |
) | ||||
Share Repurchase |
|
(3,662 |
) |
(3,552 |
) |
(11,828 |
) |
(6,145 |
) | ||||
Non-GF Debt |
|
1,385 |
|
922 |
|
5,019 |
|
205 |
| ||||
Other (includes GF Receivables, and GF Debt) |
|
738 |
|
(524 |
) |
4,140 |
|
2,949 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Change in Cash, Cash Equivalents and Short-term Marketable Securities |
|
$ |
17 |
|
$ |
(1,635 |
) |
$ |
(1,345 |
) |
$ |
(772 |
) |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
|
|
SECOND-QUARTER 2014 |
| ||||||||||||
|
|
|
|
|
|
|
|
Pre-tax |
|
|
| ||||
|
|
Revenue |
|
Income/ |
|
Pre-tax |
| ||||||||
(Dollars in Millions) |
|
External |
|
Internal |
|
Total |
|
(Loss) |
|
Margin |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
SEGMENTS |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Technology Services |
|
$ |
9,414 |
|
$ |
247 |
|
$ |
9,661 |
|
$ |
1,850 |
|
19.2 |
% |
Y-T-Y change |
|
-1.3 |
% |
-15.4 |
% |
-1.7 |
% |
22.2 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Business Services |
|
4,534 |
|
140 |
|
4,674 |
|
832 |
|
17.8 |
% | ||||
Y-T-Y change |
|
-1.6 |
% |
-25.6 |
% |
-2.5 |
% |
33.7 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Software |
|
6,488 |
|
857 |
|
7,345 |
|
2,683 |
|
36.5 |
% | ||||
Y-T-Y change |
|
1.0 |
% |
16.1 |
% |
2.6 |
% |
9.8 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Systems and Technology |
|
3,331 |
|
190 |
|
3,521 |
|
25 |
|
0.7 |
% | ||||
Y-T-Y change |
|
-11.4 |
% |
40.9 |
% |
-9.5 |
% |
117.9 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Financing |
|
504 |
|
685 |
|
1,189 |
|
593 |
|
49.8 |
% | ||||
Y-T-Y change |
|
3.5 |
% |
19.2 |
% |
12.0 |
% |
7.7 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL REPORTABLE SEGMENTS |
|
$ |
24,271 |
|
$ |
2,119 |
|
$ |
26,390 |
|
$ |
5,983 |
|
22.7 |
% |
Y-T-Y change |
|
-2.2 |
% |
9.9 |
% |
-1.3 |
% |
19.9 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Eliminations / Other |
|
93 |
|
(2,119 |
) |
(2,026 |
) |
(812 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL IBM CONSOLIDATED |
|
$ |
24,364 |
|
$ |
0 |
|
$ |
24,364 |
|
$ |
5,171 |
|
21.2 |
% |
Y-T-Y change |
|
-2.2 |
% |
|
|
-2.2 |
% |
24.8 |
% |
|
|
|
|
SECOND-QUARTER 2013 |
| ||||||||||||
|
|
|
|
|
|
|
|
Pre-tax |
|
|
| ||||
|
|
Revenue |
|
Income/ |
|
Pre-tax |
| ||||||||
(Dollars in Millions) |
|
External |
|
Internal |
|
Total |
|
(Loss) |
|
Margin |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
SEGMENTS |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Technology Services |
|
$ |
9,536 |
|
$ |
292 |
|
$ |
9,828 |
|
$ |
1,514 |
|
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Business Services |
|
4,606 |
|
188 |
|
4,795 |
|
623 |
|
13.0 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Software |
|
6,423 |
|
738 |
|
7,161 |
|
2,443 |
|
34.1 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Systems and Technology |
|
3,758 |
|
135 |
|
3,893 |
|
(141 |
) |
-3.6 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Financing |
|
487 |
|
575 |
|
1,061 |
|
550 |
|
51.8 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL REPORTABLE SEGMENTS |
|
$ |
24,809 |
|
$ |
1,928 |
|
$ |
26,737 |
|
$ |
4,989 |
|
18.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Eliminations / Other |
|
115 |
|
(1,928 |
) |
(1,813 |
) |
(846 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL IBM CONSOLIDATED |
|
$ |
24,924 |
|
$ |
0 |
|
$ |
24,924 |
|
$ |
4,144 |
|
16.6 |
% |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
|
|
SIX-MONTHS 2014 |
| ||||||||||||
|
|
|
|
|
|
|
|
Pre-tax |
|
|
| ||||
|
|
Revenue |
|
Income/ |
|
Pre-tax |
| ||||||||
(Dollars in Millions) |
|
External |
|
Internal |
|
Total |
|
(Loss) |
|
Margin |
| ||||
SEGMENTS |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Technology Services |
|
$ |
18,744 |
|
$ |
488 |
|
$ |
19,232 |
|
$ |
3,196 |
|
16.6 |
% |
Y-T-Y change |
|
-2.1 |
% |
-9.7 |
% |
-2.3 |
% |
3.1 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Business Services |
|
9,017 |
|
281 |
|
9,298 |
|
1,461 |
|
15.7 |
% | ||||
Y-T-Y change |
|
-0.8 |
% |
-23.7 |
% |
-1.7 |
% |
10.2 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Software |
|
12,149 |
|
1,789 |
|
13,939 |
|
4,601 |
|
33.0 |
% | ||||
Y-T-Y change |
|
1.3 |
% |
14.1 |
% |
2.8 |
% |
3.2 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Systems and Technology |
|
5,722 |
|
358 |
|
6,080 |
|
(635 |
) |
-10.4 |
% | ||||
Y-T-Y change |
|
-16.6 |
% |
40.7 |
% |
-14.6 |
% |
-16.3 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Financing |
|
1,016 |
|
1,303 |
|
2,318 |
|
1,188 |
|
51.3 |
% | ||||
Y-T-Y change |
|
3.1 |
% |
16.7 |
% |
10.3 |
% |
9.2 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL REPORTABLE SEGMENTS |
|
$ |
46,648 |
|
$ |
4,218 |
|
$ |
50,866 |
|
$ |
9,812 |
|
19.3 |
% |
Y-T-Y change |
|
-3.0 |
% |
9.7 |
% |
-2.0 |
% |
4.1 |
% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Eliminations / Other |
|
200 |
|
(4,218 |
) |
(4,018 |
) |
(1,660 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL IBM CONSOLIDATED |
|
$ |
46,848 |
|
$ |
0 |
|
$ |
46,848 |
|
$ |
8,151 |
|
17.4 |
% |
Y-T-Y change |
|
-3.1 |
% |
|
|
-3.1 |
% |
5.2 |
% |
|
|
|
|
SIX-MONTHS 2013 |
| ||||||||||||
|
|
|
|
|
|
|
|
Pre-tax |
|
|
| ||||
|
|
Revenue |
|
Income/ |
|
Pre-tax |
| ||||||||
(Dollars in Millions) |
|
External |
|
Internal |
|
Total |
|
(Loss) |
|
Margin |
| ||||
SEGMENTS |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Technology Services |
|
$ |
19,140 |
|
$ |
540 |
|
$ |
19,680 |
|
$ |
3,099 |
|
15.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Business Services |
|
9,091 |
|
368 |
|
9,459 |
|
1,326 |
|
14.0 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Software |
|
11,995 |
|
1,569 |
|
13,563 |
|
4,457 |
|
32.9 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Systems and Technology |
|
6,864 |
|
255 |
|
7,118 |
|
(546 |
) |
-7.7 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Financing |
|
985 |
|
1,116 |
|
2,101 |
|
1,088 |
|
51.8 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL REPORTABLE SEGMENTS |
|
$ |
48,075 |
|
$ |
3,847 |
|
$ |
51,922 |
|
$ |
9,425 |
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Eliminations / Other |
|
257 |
|
(3,847 |
) |
(3,590 |
) |
(1,675 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL IBM CONSOLIDATED |
|
$ |
48,332 |
|
$ |
0 |
|
$ |
48,332 |
|
$ |
7,750 |
|
16.0 |
% |
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
|
|
SECOND-QUARTER 2014 |
| ||||||||||
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
Gross Profit |
|
$ |
11,975 |
|
$ |
105 |
|
$ |
45 |
|
$ |
12,126 |
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Profit Margin |
|
49.1 |
% |
0.4 |
Pts |
0.2 |
Pts |
49.8 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
S,G&A |
|
5,603 |
|
(98 |
) |
(27 |
) |
5,478 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
R,D&E |
|
1,457 |
|
0 |
|
20 |
|
1,477 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other (Income) & Expense |
|
(201 |
) |
0 |
|
0 |
|
(201 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total Expense & Other (Income) |
|
6,804 |
|
(98 |
) |
(7 |
) |
6,699 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pre-Tax Income |
|
5,171 |
|
203 |
|
52 |
|
5,427 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pre-Tax Income Margin |
|
21.2 |
% |
0.8 |
Pts |
0.2 |
Pts |
22.3 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for Income Taxes*** |
|
1,034 |
|
41 |
|
10 |
|
1,085 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Effective Tax Rate |
|
20.0 |
% |
0.0 |
Pts |
0.0 |
Pts |
20.0 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
|
4,137 |
|
163 |
|
42 |
|
4,341 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income Margin |
|
17.0 |
% |
0.7 |
Pts |
0.2 |
Pts |
17.8 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted Earnings Per Share |
|
$ |
4.12 |
|
$ |
0.16 |
|
$ |
0.04 |
|
$ |
4.32 |
|
|
|
SECOND-QUARTER 2013 |
| ||||||||||
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
Gross Profit |
|
$ |
12,132 |
|
$ |
91 |
|
$ |
156 |
|
$ |
12,379 |
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Profit Margin |
|
48.7 |
% |
0.4 |
Pts |
0.6 |
Pts |
49.7 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
S,G&A |
|
6,680 |
|
(91 |
) |
(93 |
) |
6,496 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
R,D&E |
|
1,548 |
|
0 |
|
(13 |
) |
1,535 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other (Income) & Expense |
|
(91 |
) |
0 |
|
0 |
|
(91 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total Expense & Other (Income) |
|
7,988 |
|
(91 |
) |
(106 |
) |
7,791 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pre-Tax Income |
|
4,144 |
|
182 |
|
262 |
|
4,588 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pre-Tax Income Margin |
|
16.6 |
% |
0.7 |
Pts |
1.1 |
Pts |
18.4 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for Income Taxes*** |
|
918 |
|
9 |
|
82 |
|
1,009 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Effective Tax Rate |
|
22.1 |
% |
-0.7 |
Pts |
0.6 |
Pts |
22.0 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
|
3,226 |
|
173 |
|
180 |
|
3,579 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income Margin |
|
12.9 |
% |
0.7 |
Pts |
0.7 |
Pts |
14.4 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted Earnings Per Share |
|
$ |
2.91 |
|
$ |
0.15 |
|
$ |
0.16 |
|
$ |
3.22 |
|
* 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 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.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
|
|
SIX-MONTHS 2014 |
| ||||||||||
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
Gross Profit |
|
$ |
22,518 |
|
$ |
209 |
|
$ |
98 |
|
$ |
22,825 |
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Profit Margin |
|
48.1 |
% |
0.4 |
Pts |
0.2 |
Pts |
48.7 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
S,G&A |
|
11,892 |
|
(196 |
) |
(114 |
) |
11,583 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
R,D&E |
|
2,958 |
|
0 |
|
37 |
|
2,995 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other (Income) & Expense |
|
(326 |
) |
0 |
|
0 |
|
(326 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total Expense & Other (Income) |
|
14,367 |
|
(196 |
) |
(77 |
) |
14,094 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pre-Tax Income |
|
8,151 |
|
405 |
|
175 |
|
8,731 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pre-Tax Income Margin |
|
17.4 |
% |
0.9 |
Pts |
0.4 |
Pts |
18.6 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for Income Taxes*** |
|
1,630 |
|
81 |
|
35 |
|
1,746 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Effective Tax Rate |
|
20.0 |
% |
0.0 |
Pts |
0.0 |
Pts |
20.0 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
|
6,521 |
|
324 |
|
140 |
|
6,985 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income Margin |
|
13.9 |
% |
0.7 |
Pts |
0.3 |
Pts |
14.9 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted Earnings Per Share |
|
$ |
6.37 |
|
$ |
0.31 |
|
$ |
0.14 |
|
$ |
6.82 |
|
|
|
SIX-MONTHS 2013 |
| ||||||||||
|
|
|
|
Acquisition- |
|
Retirement- |
|
|
| ||||
|
|
|
|
Related |
|
Related |
|
Operating |
| ||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
(Non-GAAP) |
| ||||
Gross Profit |
|
$ |
22,810 |
|
$ |
186 |
|
$ |
320 |
|
$ |
23,316 |
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Profit Margin |
|
47.2 |
% |
0.4 |
Pts |
0.7 |
Pts |
48.2 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
S,G&A |
|
12,257 |
|
(183 |
) |
(197 |
) |
11,878 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
R,D&E |
|
3,193 |
|
0 |
|
(29 |
) |
3,163 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other (Income) & Expense |
|
(151 |
) |
(7 |
) |
0 |
|
(158 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total Expense & Other (Income) |
|
15,060 |
|
(190 |
) |
(226 |
) |
14,644 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pre-Tax Income |
|
7,750 |
|
376 |
|
546 |
|
8,672 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pre-Tax Income Margin |
|
16.0 |
% |
0.8 |
Pts |
1.1 |
Pts |
17.9 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for Income Taxes*** |
|
1,492 |
|
63 |
|
162 |
|
1,717 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Effective Tax Rate |
|
19.2 |
% |
-0.1 |
Pts |
0.7 |
Pts |
19.8 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
|
6,258 |
|
313 |
|
384 |
|
6,955 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income Margin |
|
12.9 |
% |
0.6 |
Pts |
0.8 |
Pts |
14.4 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted Earnings Per Share |
|
$ |
5.60 |
|
$ |
0.28 |
|
$ |
0.35 |
|
$ |
6.23 |
|
* 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 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.
Contact: IBM
Mike Fay, 914-525-8476
mikefay@us.ibm.com
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com
ATTACHMENT II
2Q 2014 Earnings Presentation July 17, 2014 |
2 Forward Looking Statements and Non-GAAP Information Certain comments made in this presentation may be characterized as forward looking under 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. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the companys financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including "operating earnings" and other "operating" financial measures. The rationale for managements use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information are included in supplemental materials entitled Non-GAAP Supplemental Materials that are posted on the Companys investor relations web site at http://www.ibm.com/investor/events/earnings/2q14.html The Non-GAAP Supplemental Materials are also included as Attachment II to the Companys Form 8-K dated July 17, 2014. |
3 2Q 2014 Overview 2Q14 $ Yr/Yr Revenue $24.4 (2%) @CC excl. Cust. Care BPO (1%) Operating (Non-GAAP) EPS $4.32 34% 2Q and 1H results reflect portfolio dynamics: Strategic imperatives deliver double-digit revenue growth Core franchises stable Some high value transactional businesses impacted by secular shifts Divested customer care business Continuing investment aligned with strategic shifts of Data, Cloud, Engagement Expanded margins; yr/yr profit metrics reflect charge in prior year Continuing returns to shareholders Continuing shift to growth and high value |
4 Key Financial Metrics 2Q 2014 P&L Ratios (Operating) 2Q14 B/(W) Yr/Yr GP Margin 49.8% 0.1 pts PTI Margin 22.3% 3.9 pts Tax Rate 20.0% 2.0 pts NI Margin 17.8% 3.5 pts Cash Highlights 2Q14 Last 12 Mos. Free Cash Flow (excl GF Receivables) $3.0 $14.2 Share Repurchase (Gross) 3.7 19.5 Dividends 1.1 4.1 Cash Balance @ June 30 9.7 $ in Billions, except EPS Yr/Yr PTI and NI profit metrics reflect Workforce Rebalancing pre-tax charge of $1B in 2Q13 P&L Highlights 2Q14 B/(W) Yr/Yr Revenue $24.4 (2%) @CC (3%) @CC excl. Cust. Care (1%) PTI Operating $5.4 18% NI Operating $4.3 21% EPS Operating $4.32 34% |
5 Key Financial Metrics 1H 2014 P&L Ratios (Operating) 1H14 B/(W) Yr/Yr GP Margin 48.7% 0.5 pts PTI Margin 18.6% 0.7 pts Tax Rate 20.0% (0.2 pts) NI Margin 14.9% 0.5 pts Cash Highlights 1H14 Free Cash Flow (excl GF Receivables) $3.6 Share Repurchase (Gross) 11.8 Dividends 2.1 Cash Balance @ June 30 9.7 $ in Billions, except EPS P&L Highlights 1H14 B/(W) Yr/Yr Revenue $46.8 (3%) @CC excl. Cust. Care (1%) PTI Operating $8.7 1% NI Operating $7.0 Flat EPS Operating $6.82 9% |
6 Revenue by Geography 2Q14 B/(W) Yr/Yr Rptd @CC Americas $10.6 (1%) 1% Europe/ME/A 7.9 1% (3%) Asia Pacific 5.3 (9%) (6%) Total Geographies $23.9 (2%) (2%) IBM excl. Cust. Care BPO $24.4 (2%) (1%) (3%) (1%) Major Markets Flat (1%) Growth Markets (7%) (4%) BRIC Countries (2%) 1% $ in Billions AP ex. Japan U.S. -1% EMEA Canada/ LA Japan +2% @CC OEM -19% |
7 Revenue and Gross Profit Margin by Segment 2Q14 B/(W) Yr/Yr Rptd @CC 2Q14 B/(W) Yr/Yr Pts Global Technology Services excl. Cust. Care BPO $9.4 (1%) 2% (1%) 2% 38.4% 0.6 pts Global Business Services 4.5 (2%) (2%) 30.0% (1.2 pts) Software 6.5 1% Flat 88.8% 0.0 pts Systems & Technology 3.3 (11%) (12%) 33.9% (2.8 pts) Global Financing 0.5 4% 4% 54.8% 8.5 pts Total Revenue & Op. GP Margin $24.4 (2%) (3%) 49.8% 0.1 pts excl. Cust. Care BPO (1%) (1%) $ in Billions Operating Gross Profit Margin Revenue |
8 Expense Summary 2Q14 B/(W) Yr/Yr Currency Acq.* Base SG&A Operating $5.5 16%** 0 pts (2 pts) 17 pts RD&E Operating 1.5 4% 0 pts (2 pts) 6 pts IP and Development Income (0.2) (23%) Other (Income)/Expense (0.2) 120% Interest Expense 0.1 (38%) Operating Expense & Other Income $6.7 14%** (1 pts) (2 pts) 17 pts $ in Billions B/(W) Yr/Yr Drivers * Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges ** Yr/Yr reflects Workforce Rebalancing charge of $1.0B in 2Q13 |
9 B/(W) Yr/Yr 2Q14 Rptd @CC Revenue (External) $9.4 (1%) (1%) excl. Cust. Care BPO 2% 2% Gross Margin (External) 38.4% 0.6 pts PTI Margin 19.2% 3.7 pts* Services Segments Global Technology Services (GTS) Global Business Services (GBS) Growth in total Services revenue, excluding divested business 2Q14 Revenue (% of Total Services) $ in Billions B/(W) Yr/Yr 2Q14 Rptd @CC Revenue (External) $4.5 (2%) (2%) Gross Margin (External) 30.0% (1.2 pts) PTI Margin 17.8% 4.8 pts* $ in Billions Yr/Yr GTS 2Q14 Revenue Rptd @CC GTS Outsourcing (4%) (4%) excl. Cust. Care BPO 2% 2% Integrated Technology Services 5% 5% Maintenance (1%) (1%) GBS 2Q14 Revenue GBS Outsourcing (9%) (9%) Consulting & Systems Integration 1% Flat 2Q14 Backlog adj. for Cust. Care BPO $136B (1%) (3%) GTS Outsourcing 38% GBS C&SI 26% Maint. 12% ITS 17% GBS Outsourcing 7% * GTS yr/yr reflects Workforce Rebalancing charge in 2Q13 * GBS yr/yr reflects Workforce Rebalancing charge in 2Q13 |
10 Software Segment B/(W) Yr/Yr 2Q14 Rptd @CC Revenue (External) $6.5 1% Flat Gross Margin (External) 88.8% 0.0 pts PTI Margin 36.5% 2.4 pts* 2Q14 Revenue Yr/Yr Rptd @CC WebSphere 5% 5% Information Management (1%) (2%) Tivoli 4% 3% Workforce Solutions (7%) (8%) Rational (9%) (10%) Key Branded Middleware 1% Flat Total Middleware 3% 3% Total Software 1% Flat 2Q14 Revenue (% of Total Software) Key Branded Middleware 67% Operating Systems 8% Other Middleware 18% Other 7% $ in Billions Growth in Middleware; strength in strategic imperatives * Yr/Yr reflects Workforce Rebalancing charge in 2Q13 |
11 Systems & Technology Segment B/(W) Yr/Yr 2Q14 Rptd @CC Revenue (External) $3.3 (11%) (12%) Gross Margin (External) 33.9% (2.8 pts) PTI Margin 0.7% 4.3 pts* $ in Billions 2Q14 Revenue (% of Total Sys & Tech) Significant sequential improvement; on track to stabilize full year profit Servers 68% Storage 21% Micro OEM 11% * Yr/Yr reflects Workforce Rebalancing charge in 2Q13 2Q14 Revenue Yr/Yr Rptd @CC System z (1%) (1%) Power Systems (28%) (29%) System x (3%) (3%) Storage (12%) (13%) Total Systems (11%) (11%) Microelectronics OEM (18%) (18%) Total Systems & Technology (11%) (12%) |
12 Cash Flow Analysis 2Q14 B/(W) Yr/Yr YTD 2Q14 B/(W) Yr/Yr Net Cash from Operations $3.6 $0.4 $6.9 ($0.3) Less: Global Financing Receivables (0.3) 0.1 1.5 0.4 Net Cash from Operations (excluding GF Receivables) 3.9 0.3 5.4 (0.6) Net Capital Expenditures (0.9) 0.0 (1.8) (0.1) Free Cash Flow (excluding GF Receivables) 3.0 0.3 3.6 (0.8) Acquisitions (0.3) (0.2) (0.6) (0.4) Divestitures 0.0 0.0 0.4 0.4 Dividends (1.1) 0.0 (2.1) (0.1) Share Repurchases (Gross) (3.7) (0.1) (11.8) (5.7) Non-GF Debt 1.4 0.5 5.0 4.8 Other (includes GF A/R & GF Debt) 0.7 1.3 4.1 1.2 Change in Cash & Marketable Securities $0.0 $1.7 ($1.3) ($0.6) $ in Billions |
13 June 13 Dec. 13 June 14 Cash & Marketable Securities $10.4 $11.1 $9.7 Non-GF Assets* 70.1 76.5 77.3 Global Financing Assets 34.7 38.7 37.3 Total Assets 115.2 126.2 124.3 Other Liabilities 63.1 63.6 60.3 Non-GF Debt* 9.3 12.2 17.1 Global Financing Debt 24.9 27.5 29.4 Total Debt 34.1 39.7 46.5 Total Liabilities 97.3 103.3 106.8 Equity 17.9 22.9 17.5 Non-GF Debt / Capital 39% 39% 56% Global Financing Leverage 7.2 7.2 7.1 Balance Sheet Summary $ in Billions * Includes eliminations of inter-company activity |
14 1H 2014 Summary 1H results reflect portfolio dynamics: Strategic imperatives deliver double-digit revenue growth Core franchises stable Some high value transactional businesses impacted by secular shifts Divested customer care business Continuing investment aligned with strategic shifts of Data, Cloud, Engagement Expanded operating margins Gross margin +50 bps, pre-tax margin +70 bps, net income margin +50 bps Continuing returns to shareholders Allocating capital and managing business for long-term Along the way, continue to expect to deliver at least $20.00 of Operating EPS in 2015 Continue to expect at least $18.00 of Operating EPS in 2014 |
15 |
16 Supplemental Materials Currency Year/Year Comparison Supplemental Segment Information Global Services Supplemental Segment Information Systems & Technology, Software Global Financing Portfolio Cash Flow (FAS 95) Non-GAAP Supplemental Materials Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency Cash Flow, Debt-to-Capital Ratio, Customer Care Outsourcing Business Divestiture, Workforce Rebalancing, Reconciliation of Operating Earnings Per Share GAAP to Operating (Non-GAAP) Bridge 2Q 2014 GAAP to Operating (Non-GAAP) Bridge 2Q 2013 GAAP to Operating (Non-GAAP) Bridge 2Q YTD 2014 GAAP to Operating (Non-GAAP) Bridge 2Q YTD 2013 GAAP to Operating (Non-GAAP) Bridge 2Q 2014 and 2Q 2013 GAAP to Operating (Non-GAAP) Bridge 2Q YTD 2014 and 2Q YTD 2013 Reconciliation of B/(W) Yr/Yr Expense Drivers 2Q14 Reconciliation of B/(W) Yr/Yr Expense Drivers 2Q14 Reconciliation of Debt-to-Capital Ratio Reconciliation of Free Cash Flow (excluding GF Receivables) 12 months ended 6/30/14 Reconciliation of Revenue Growth Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding Supplemental Materials |
17 Currency Year/Year Comparison 1Q14 Yr/Yr 2Q14 Yr/Yr 7/16 Spot 3Q14 4Q14 FY14 Euro 0.73 4% 0.73 5% 0.74 2% (1%) 3% Pound 0.60 6% 0.59 9% 0.58 10% 6% 8% Yen 103 (11%) 102 (3%) 102 (3%) (1%) (5%) IBM Revenue Impact (2 pts) 0 pts ~0-1 pts ~0 pts ~0 pts 2Q14 (US$B) Yr/Yr Revenue As Reported $24.4 (2%) Currency Impact (0.1) 0 pts Revenue @CC (3%) Yr/Yr @ 7/16 Spot Quarterly Averages per US $ Supplemental Materials |
18 Supplemental Segment Information 2Q 2014 $ in Billions Backlog 2Q14 Yr/Yr @CC Total Backlog excl. Cust. Care BPO $136 (3%) (1%) (5%) (3%) Change in Backlog due to Currency Quarter-to-Quarter $1 Year-to-Year $3 Outsourcing Backlog $85 (6%) (8%) Signings 2Q14 Yr/Yr @CC Outsourcing $4.8 (46%) (46%) - GTS O/S, GBS O/S (AMS) Transactional 6.2 (17%) (17%) - ITS, Consulting & AMS SI (incl. US Federal) Total Signings $11.0 (33%) (33%) Note: Actual backlog calculated using June 30 currency spot rates Revenue Growth Yr/Yr @CC GTS Outsourcing excl. Cust. Care BPO (4%) 2% (4%) 2% Integrated Tech Services 5% 5% Maintenance (1%) (1%) Total GTS excl. Cust. Care BPO (1%) 2% (1%) 2% GBS Outsourcing (9%) (9%) GBS C&SI 1% Flat Total GBS (2%) (2%) Total Outsourcing (5%) (5%) Total Transactional 2% 2% Maintenance (1%) (1%) Global Services Revenue Global Services Backlog / Signings Supplemental Materials |
19 Supplemental Segment Information 2Q 2014 Revenue Growth Yr/Yr @CC GP% System z (1%) (1%) Power Systems (28%) (29%) System x (3%) (3%) Storage (12%) (13%) Total Systems (11%) (11%) Microelectronics OEM (18%) (18%) Total Sys & Tech (11%) (12%) Supplemental Materials Systems & Technology Software Revenue Growth Yr/Yr @CC WebSphere 5% 5% Information Management (1%) (2%) Tivoli 4% 3% Workforce Solutions (7%) (8%) Rational (9%) (10%) Key Branded Middleware 1% Flat Other Middleware 16% 15% Total Middleware 3% 3% Operating Systems (13%) (13%) Other Software/Services (8%) (8%) Total Software 1% Flat |
20 20 Global Financing Portfolio 2Q14 $30.1B Net External Receivables Supplemental Materials Non-Investment Grade 41% Investment Grade 59% 2Q14 1Q14 2Q13 Identified Loss Rate 1.1% 1.0% 0.8% Anticipated Loss Rate 0.4% 0.4% 0.4% Reserve Coverage 1.5% 1.4% 1.2% Client Days Delinquent Outstanding 3.8 3.6 3.4 Commercial A/R > 30 Days $ 30 M $ 36 M $ 67 M 19% 40% 20% 12% 7% 2% 0% 10% 20% 30% 40% 50% AAA to A- BBB+ to BBB- BB+ to BB BB- to B+ B to B- CCC+ to D |
21 Cash Flow (FAS 95) QTD 2Q14 QTD 2Q13 YTD 2Q14 YTD 2Q13 Net Income from Operations $4.1 $3.2 $6.5 $6.3 Depreciation / Amortization of Intangibles 1.2 1.1 2.3 2.3 Stock-based Compensation 0.1 0.2 0.3 0.3 Working Capital / Other (1.6) (0.9) (3.7) (2.8) Global Financing A/R (0.3) (0.5) 1.5 1.1 Net Cash provided by Operating Activities 3.6 3.2 6.9 7.2 Capital Expenditures, net of payments & proceeds (0.9) (0.9) (1.8) (1.7) Divestitures, net of cash transferred 0.0 0.0 0.4 0.0 Acquisitions, net of cash acquired (0.3) (0.1) (0.6) (0.2) Marketable Securities / Other Investments, net 0.2 0.2 1.0 0.0 Net Cash used in Investing Activities (1.0) (0.9) (1.0) (1.9) Debt, net of payments & proceeds 2.4 1.0 6.6 1.4 Dividends (1.1) (1.0) (2.1) (2.0) Common Stock Repurchases (3.7) (3.6) (11.8) (6.1) Common Stock Transactions - Other 0.1 0.3 0.4 0.7 Net Cash used in Financing Activities (2.3) (3.3) (6.9) (6.0) Effect of Exchange Rate changes on Cash 0.0 0.0 0.0 (0.1) Net Change in Cash & Cash Equivalents $0.3 ($1.0) ($1.0) ($0.9) $ in Billions Supplemental Materials |
22 22 Non-GAAP Supplemental Materials In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, the following Non-GAAP information which management believes provides useful information to investors. Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items Management presents certain financial measures excluding the effects of certain acquisition-related charges, non-operating retirement-related costs, and any related tax impacts. Management uses the term "operating" to describe this view of the company's financial results and other financial information. For acquisitions, these measures exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable restructuring and related expenses, and tax charges related to acquisition integration. For retirement-related costs, the company has characterized certain items as operating and others as non-operating. The company includes service cost, amortization of prior service cost and the cost of defined contribution plans in its operating results. Non-operating retirement-related costs include interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements, multi-employer plan costs, pension insolvency costs, and other costs. Non-operating costs primarily relate to changes in pension plan assets and liabilities which are tied to market performance, and management considers these costs to be outside the operational performance of the business. Managements calculation of these operating measures, as presented, may differ from similarly titled measures reported by other companies. Overall, management believes that providing investors with an operating view as described above provides increased transparency and clarity into both the operational results of the business and the performance of the companys pension plans, improves visibility to management decisions and their impacts on operational performance, enables better comparison to peer companies, and allows the company to provide a long term strategic view of the business going forward. For the 2015 earnings per share roadmap, the company is utilizing an operating view to establish its objectives and track its progress. The companys segment financial results and performance reflect operating earnings, consistent with the companys management and measurement system. Constant Currency Management refers to growth rates at constant currency or adjusting for currency so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of the company's business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year periods currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates. Supplemental Materials |
23 23 Non-GAAP Supplemental Materials Cash Flow Management uses a free cash flow measure to evaluate the companys operating results, plan share repurchase levels, evaluate strategic investments and assess the companys ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and cash flow from operations that exclude the effect of Global Financing receivables. Debt-to-Capital Ratio Management presents its debt-to-capital ratio excluding the Global Financing business. A financing business is managed on a leveraged basis. The company funds its Global Financing segment using a debt-to-equity ratio target of approximately 7 to 1. Given this significant leverage, the company presents a debt-to-capital ratio which excludes the Global Financing segment debt and equity because the company believes this is more representative of the companys core business operations. Customer Care Outsourcing Business Divestiture On September 10, 2013, the company announced that it had signed a definitive agreement with SYNNEX for the sale of its worldwide customer care process outsourcing services business. Management presents certain financial results excluding the effects of the customer care outsourcing business divestiture. Management believes that presenting financial information without this item is more representative of operational performance and provides additional insight into, and clarifies the basis for, historical and/or future performance, which may be more useful to investors. Workforce Rebalancing Management presents certain financial results excluding the effects of charges in connection with workforce rebalancing actions. Management believes that presenting financial information without this item is more representative of operational performance and provides additional insight into, and clarifies the basis for, historical and/or future performance, which may be more useful to investors. Supplemental Materials |
24 24 Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share IBM Operating EPS (Non-GAAP) Acquisition-Related Charges * Amortization of Purchased Intangibles Other Acquisition-Related Charges Non-Operating Retirement-Related Items IBM GAAP EPS Adjustments 2014 Expectations $17.00+ $18.00+ $0.72 $0.69 $0.03 $0.28 The above serves to reconcile the Non-GAAP financial information contained in 2Q 2014 Summary discussion in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials * Includes acquisitions through June 30, 2014 |
25 25 Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge 2Q 2014 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) Gross Profit $11,975 $105 $45 $12,126 SG&A 5,603 (98) (27) 5,478 RD&E 1,457 0 20 1,477 Other Income & Expense (201) 0 0 (201) Total Operating Expense & Other Income 6,804 (98) (7) 6,699 Pre-Tax Income 5,171 203 52 5,427 Tax *** 1,034 41 10 1,085 Net Income 4,137 163 42 4,341 Diluted Earnings Per Share $4.12 $0.16 $0.04 $4.32 * Includes amortization of purchased Intangibles, 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 ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income 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. The above serves to reconcile the Non-GAAP financial information contained in the 2Q 2014 Overview, Key Financial Metrics - 2Q 2014 and Expense Summary discussions in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
26 26 Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge 2Q 2013 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) Gross Profit $12,132 $91 $156 $12,379 SG&A 6,680 (91) (93) 6,496 RD&E 1,548 0 (13) 1,535 Other Income & Expense (91) 0 0 (91) Total Operating Expense & Other Income 7,988 (91) (106) 7,791 Pre-Tax Income 4,144 182 262 4,588 Tax *** 918 9 82 1,009 Net Income 3,226 173 180 3,579 Diluted Earnings Per Share $2.91 $0.15 $0.16 $3.22 * Includes amortization of purchased Intangibles, 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. ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income 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. The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics 2Q 2014 and Expense Summary discussions in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
27 27 Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge 2Q YTD 2014 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) Gross Profit $22,518 $209 $98 $22,825 SG&A 11,892 (196) (114) 11, 583 RD&E 2,958 0 37 2,995 Other Income & Expense (326) 0 0 (326) Total Operating Expense & Other Income 14,367 (196) (77) 14,094 Pre-Tax Income 8,151 405 175 8,731 Tax *** 1,630 81 35 1,746 Net Income 6,521 324 140 6,985 Diluted Earnings Per Share $6.37 $0.31 $0.14 $6.82 * Includes amortization of purchased Intangibles, 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 ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income 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. The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics -1H 2014 discussions in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
28 28 Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge 2Q YTD 2013 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) Gross Profit $22,810 $186 $320 $23,316 SG&A 12,257 (183) (197) 11,878 RD&E 3,193 0 (29) 3,163 Other Income & Expense (151) (7) 0 (158) Total Operating Expense & Other Income 15,060 (190) (226) 14,644 Pre-Tax Income 7,750 376 546 8,672 Tax *** 1,492 63 162 1,717 Net Income 6,258 313 384 6,955 Diluted Earnings Per Share $5.60 $0.28 $0.35 $6.23 * Includes amortization of purchased Intangibles, 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. ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income 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. The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics 1H 2014 discussions in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
29 29 2Q 2014 GAAP Acquisition- related Adjustments* Retirement-related Adjustments ** Operating (Non-GAAP) Gross Profit Margin 49.1% 0.4 pts 0.2 pts 49.8% PTI Margin 21.2% 0.8 pts 0.2 pts 22.3% Tax Rate *** 20.0% 0.0 pts 0.0 pts 20.0% Net Income Margin 17.0% 0.7 pts 0.2 pts 17.8% 2Q 2013 Gross Profit Margin 48.7% 0.4 pts 0.6 pts 49.7% PTI Margin 16.6% 0.7 pts 1.1 pts 18.4% Tax Rate *** 22.1% (0.7 pts) 0.6 pts 22.0% Net Income Margin 12.9% 0.7 pts 0.7 pts 14.4% * Includes amortization of purchased Intangibles, 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 ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income 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. The above serves to reconcile the Non-GAAP financial information contained in theKey Financial Metrics - 2Q 2014 and 1H 2014 Summary discussions in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge 2Q 2014 and 2Q 2013 Supplemental Materials |
30 30 2Q 2014 GAAP Acquisition- related Adjustments* Retirement-related Adjustments ** Operating (Non-GAAP) Gross Profit Margin 48.1% 0.4 pts 0.2 pts 48.7% PTI Margin 17.4% 0.9 pts 0.4 pts 18.6% Tax Rate *** 20.0% 0.0 pts 0.0 pts 20.0% Net Income Margin 13.9% 0.7 pts 0.3 pts 14.9% 2Q 2013 Gross Profit Margin 47.2% 0.4 pts 0.7 pts 48.2% PTI Margin 16.0% 0.8 pts 1.1 pts 17.9% Tax Rate *** 19.2% (0.1 pts) 0.7 pts 19.8% Net Income Margin 12.9% 0.6 pts 0.8 pts 14.4% * Includes amortization of purchased Intangibles, 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 ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income 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. The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics 1H 2014 discussions in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge 2Q YTD 2014 and 2Q YTD 2013 Supplemental Materials |
31 31 GAAP Non-GAAP Adjustments Operating (Non-GAAP) SG&A Currency 0 pts 0 pts 0 pts Acquisitions (2 pts) 0 pts (2 pts) Base 18 pts (1 pts) 17 pts RD&E Currency 0 pts 0 pts 0 pts Acquisitions (2 pts) 0 pts (2 pts) Base 8 pts (2 pts) 6 pts Operating Expense & Other Income Currency (1 pts) 0 pts (1 pts) Acquisitions (2 pts) 0 pts (2 pts) Base 18 pts (1 pts) 17 pts Non-GAAP Supplemental Materials The above serves to reconcile the Non-GAAP financial information contained in the Expense Summary discussion in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers 2Q14 |
32 32 GAAP Operating (Non-GAAP) Operating Expense & Other Income Base excluding workforce rebalancing 7 pts 5 pts Non-GAAP Supplemental Materials The above serves to reconcile the Non-GAAP financial information contained in the Expense Summary discussion in the companys earnings presentation. See Slides 22-23 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers 2Q14 |
33 33 Reconciliation of Debt-to-Capital Ratio June 2014 March 2014 Dec. 2013 Non-Global Financing Debt / Capital IBM Consolidated Debt / Capital 56% 73% 55% 72% 39% 63% The above serves to reconcile the Non-GAAP financial information contained in the Balance Sheet Summary discussion in the companys earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures. Non-GAAP Supplemental Materials Supplemental Materials |
34 34 Non-GAAP Supplemental Materials 12 months ended 6/30/14 Net Cash from Operations $17.2 Less: Global Financing Receivables (0.9) Net Cash from Operations (excluding GF Receivables) 18.1 Net Capital Expenditures (3.9) Free Cash Flow (excluding GF Receivables) $14.2 $ in Billions Reconciliation of Free Cash Flow (excluding GF Receivables) The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics 2Q 2014 discussion in the companys earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials |
35 35 Non-GAAP Supplemental Materials Americas BRIC Countries Japan As Reported (2%) At Constant Currency 2% Reconciliation of Revenue Growth 2Q14 Yr/Yr The above serves to reconcile the Non-GAAP financial information contained in the Revenue by Geography discussions in the companys earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 1Q14 Yr/Yr As Reported (4%) (11%) At Constant Currency (2%) (6%) |
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