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IBM REPORTS 2014 SECOND-QUARTER RESULTS
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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 retirementrelated 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 company’s 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 IBM’s 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 company’s 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.
***
IBM’s tax rate was 20.0 percent, down 2.1 points year over year; operating (nonGAAP) 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 (nonGAAP) net income margin increased 3.5 points to 17.8 percent.
The weighted-average number of diluted common shares outstanding in the secondquarter 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-toequity 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 yearend 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 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 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 forwardlooking 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 -o presenting operating (non-GAAP) earnings per share amounts and related income
statement items;
o presenting non-global financing debt-to-capitalization ratio;
o adjusting for free cash flow;
o adjusting for currency (i.e., at constant currency);
o adjusting for the divestiture of the customer care outsourcing business.
The rationale for management’s 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
IBM’s 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.
available shortly before the Webcast.
Presentation charts will be
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
Six Months Ended
June 30,
June 30,
Percent
Percent
2014
2013
Change
2014
2013
Change
------- ------------- ------- ------- ------REVENUE
Global Technology
Services
Gross profit margin
$9,414
38.4%
$9,536
37.8%
Global Business
Services
Gross profit margin
4,534
30.0%
4,606
31.2%
-1.6%
Software
Gross profit margin
6,488
88.8%
6,423
88.8%
Systems and
Technology
Gross profit margin
3,331
33.9%
Global Financing
Gross profit margin
Other
Gross profit margin
-1.3% $18,744
38.2%
$19,140
37.3%
-2.1%
9,017
30.0%
9,091
29.9%
-0.8%
1.0%
12,149
88.2%
11,995
88.1%
1.3%
3,758
36.7%
-11.4%
5,722
31.0%
6,864
34.7%
-16.6%
504
54.8%
487
46.3%
3.5%
1,016
50.4%
985
46.0%
3.1%
93
-179.7%
115
-190.5%
-19.1%
200
-171.1%
257
-172.8%
-22.0%
TOTAL REVENUE
24,364
24,924
-2.2%
46,848
48,332
-3.1%
GROSS PROFIT
Gross margin
11,975
49.1%
12,132
48.7%
-1.3%
22,518
48.1%
22,810
47.2%
-1.3%
S,G&A
Expense to revenue
5,603
23.0%
6,680
26.8%
-16.1%
11,892
25.4%
12,257
25.4%
-3.0%
R,D&E
Expense to revenue
1,457
6.0%
1,548
6.2%
-5.9%
2,958
6.3%
3,193
6.6%
-7.3%
Intellectual property
and custom development
income
(191)
(247)
-22.7%
(398)
(430)
-7.5%
(201)
(91)
120.7%
(326)
(151)
115.7%
136
98
38.3%
240
192
25.3%
TOTAL EXPENSE AND
OTHER INCOME
Expense to revenue
6,804
27.9%
7,988
32.0%
-14.8%
14,367
30.7%
15,060
31.2%
-4.6%
INCOME BEFORE
INCOME TAXES
Pre-tax margin
5,171
21.2%
4,144
16.6%
24.8%
8,151
17.4%
7,750
16.0%
5.2%
1,034
918
12.7%
1,630
1,492
9.3%
20.0%
22.1%
20.0%
19.2%
EXPENSE AND OTHER INCOME
Other (income)
and expense
Interest expense
Provision for
income taxes
Effective tax
rate
NET INCOME
$3,226
======
12.9%
28.2%
$6,521
======
13.9%
$6,258
======
12.9%
4.2%
Net income margin
$4,137
======
17.0%
EARNINGS PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
BASIC
$4.12
$4.14
$2.91
$2.93
41.6%
41.3%
$6.37
$6.41
$5.60
$5.65
13.8%
13.5%
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING (M's):
ASSUMING DILUTION
1,005.1
BASIC
999.6
1,109.4
1,100.9
1,023.5
1,017.4
1,116.7
1,107.3
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
(Dollars in Millions)
At
June 30,
2014
-------------
At
December 31,
2013
------------
ASSETS:
Current Assets:
Cash and cash equivalents
Marketable securities
Notes and accounts receivable - trade
(net of allowances of $294 in 2014 and $291 in 2013)
Short-term financing receivables
(net of allowances of $404 in 2014 and $308 in 2013)
Other accounts receivable
(net of allowances of $45 in 2014 and $36 in 2013)
Inventories, at lower of average cost or market:
Finished goods
Work in process and raw materials
Total inventories
Deferred taxes
Prepaid expenses and other current assets
Total Current Assets
Property, plant and equipment
Less: Accumulated depreciation
Property, plant and equipment - net
Long-term financing receivables
(net of allowances of $68 in 2014 and $80 in 2013)
Prepaid pension assets
Deferred taxes
Goodwill
Intangible assets - net
Investments and sundry assets
Total Assets
$9,715
5
$10,716
350
9,902
10,465
18,620
19,787
1,555
1,584
449
1,889
-------2,338
1,783
4,263
-------48,182
444
1,866
-------2,310
1,651
4,488
-------51,350
40,936
27,188
-------13,748
40,475
26,654
-------13,821
12,140
6,894
2,828
31,568
3,585
5,369
-------$124,314
========
12,755
5,551
3,051
31,184
3,871
4,639
-------$126,223
========
$2,335
12,462
6,271
$4,633
6,862
7,461
LIABILITIES:
Current Liabilities:
Taxes
Short-term debt
Accounts payable
Compensation and benefits
Deferred income
Other accrued expenses and liabilities
Total Current Liabilities
Long-term debt
Retirement and nonpension postretirement
benefit obligations
Deferred income
Other liabilities
Total Liabilities
4,037
12,591
4,737
-------42,433
3,893
12,557
4,748
-------40,154
34,008
32,856
15,984
4,152
10,224
-------106,801
16,242
4,108
9,934
-------103,294
52,163
134,483
(148,900)
(20,369)
-------17,377
51,594
130,042
(137,242)
(21,602)
-------22,792
136
-------17,513
-------$124,314
========
137
-------22,929
-------$126,223
========
EQUITY:
IBM Stockholders' Equity:
Common stock
Retained earnings
Treasury stock -- at cost
Accumulated other comprehensive income/(loss)
Total IBM stockholders' equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
(Dollars in Millions)
Net Cash from Operating Activities per GAAP:
Less: the change in Global Financing (GF)
Receivables
Net Cash from Operating Activities
(Excluding GF Receivables)
Capital Expenditures, Net
Free Cash Flow
(Excluding GF Receivables)
Acquisitions
Divestitures
Dividends
Share Repurchase
Non-GF Debt
Other (includes GF Receivables, and
GF Debt)
Change in Cash, Cash Equivalents and
Short-term Marketable Securities
Three Months Ended
June 30,
2014
2013
------------$3,579
$3,175
Six Months Ended
June 30,
2014
2013
------------$6,905
$7,197
(304)
------
(450)
------
1,503
------
1,147
------
3,883
3,625
5,402
6,051
(909)
(939)
(1,796)
(1,668)
2,975
2,686
3,606
4,382
(339)
17
(1,096)
(3,662)
1,385
(121)
2
(1,048)
(3,552)
922
(603)
408
(2,086)
(11,828)
5,019
(179)
12
(1,996)
(6,145)
205
738
(524)
4,140
2,949
$17
========
($1,635)
========
($1,345)
=======
($772)
=======
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
(Dollars in Millions)
SECOND-QUARTER 2014
----------------------------------------------Pre-tax
--------- Revenue --------- Income/ Pre-tax
External Internal
Total (Loss)
Margin
-------- -------- --------- ------- -------
SEGMENTS
Global Technology Services $9,414
Y-T-Y change
-1.3%
$247
-15.4%
$9,661
-1.7%
$1,850
22.2%
19.2%
Global Business Services
Y-T-Y change
4,534
-1.6%
140
-25.6%
4,674
-2.5%
832
33.7%
17.8%
Software
Y-T-Y change
6,488
1.0%
857
16.1%
7,345
2.6%
2,683
9.8%
36.5%
3,331
-11.4%
190
40.9%
3,521
-9.5%
25
117.9%
0.7%
504
3.5%
685
19.2%
1,189
12.0%
593
7.7%
49.8%
TOTAL REPORTABLE SEGMENTS $24,271
Y-T-Y change
-2.2%
$2,119
9.9%
$26,390
-1.3%
$5,983
19.9%
22.7%
93
(2,119)
(2,026)
(812)
$24,364
-2.2%
$0
$24,364
-2.2%
$5,171
24.8%
Systems and Technology
Y-T-Y change
Global Financing
Y-T-Y change
Eliminations / Other
TOTAL IBM CONSOLIDATED
Y-T-Y change
21.2%
SECOND-QUARTER 2013
------------------------------------------------Pre-tax
--------- Revenue --------Income/
Pre-tax
External Internal
Total
(Loss)
Margin
-------- -------- --------- ---------------
(Dollars in Millions)
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%
487
575
1,061
550
51.8%
$24,809
$1,928
$26,737
$4,989
18.7%
115
(1,928)
(1,813)
(846)
$24,924
$0
$24,924
$4,144
Global Financing
TOTAL REPORTABLE SEGMENTS
Eliminations / Other
TOTAL IBM CONSOLIDATED
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
16.6%
(Dollars in Millions)
SIX-MONTHS 2014
------------------------------------------------Pre-tax
--------- Revenue --------Income/ Pre-tax
External Internal
Total
(Loss)
Margin
-------- -------- --------- --------- -------
SEGMENTS
Global Technology Services
Y-T-Y change
$18,744
-2.1%
$488
-9.7%
$19,232
-2.3%
$3,196
3.1%
16.6%
9,017
-0.8%
281
-23.7%
9,298
-1.7%
1,461
10.2%
15.7%
Software
Y-T-Y change
12,149
1.3%
1,789
14.1%
13,939
2.8%
4,601
3.2%
33.0%
Systems and Technology
Y-T-Y change
5,722
-16.6%
358
40.7%
6,080
-14.6%
(635)
-16.3%
-10.4%
1,016
3.1%
1,303
16.7%
2,318
10.3%
1,188
9.2%
51.3%
$46,648
-3.0%
$4,218
9.7%
$50,866
-2.0%
$9,812
4.1%
19.3%
200
(4,218)
(4,018)
(1,660)
$46,848
-3.1%
$0
$46,848
-3.1%
$8,151
5.2%
Global Business Services
Y-T-Y change
Global Financing
Y-T-Y change
TOTAL REPORTABLE SEGMENTS
Y-T-Y change
Eliminations / Other
TOTAL IBM CONSOLIDATED
Y-T-Y change
(Dollars in Millions)
17.4%
SIX-MONTHS 2013
------------------------------------------------Pre-tax
--------- Revenue --------Income/
Pre-tax
External Internal
Total
(Loss)
Margin
-------- -------- --------- ---------------
SEGMENTS
Global Technology Services
Global Business Services
Software
Systems and Technology
Global Financing
TOTAL REPORTABLE SEGMENTS
Eliminations / Other
TOTAL IBM CONSOLIDATED
$19,140
$540
$19,680
$3,099
15.7%
9,091
368
9,459
1,326
14.0%
11,995
1,569
13,563
4,457
32.9%
6,864
255
7,118
(546)
-7.7%
985
1,116
2,101
1,088
51.8%
$48,075
$3,847
$51,922
$9,425
18.2%
257
(3,847)
(3,590)
(1,675)
$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-
Gross Profit
Related
GAAP
Adjustments*
-------- -----------$11,975
$105
Related
Operating
Adjustments** (Non-GAAP)
------------ ----------$45
$12,126
Gross Profit Margin
49.1%
0.4Pts
0.2Pts
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%
0.8Pts
0.2Pts
22.3%
Provision for Income Taxes***
1,034
41
10
1,085
Effective Tax Rate
20.0%
0.0Pts
0.0Pts
20.0%
Net Income
4,137
163
42
4,341
Net Income Margin
17.0%
0.7Pts
0.2Pts
17.8%
Diluted Earnings Per Share
$4.12
$0.16
$0.04
$4.32
Gross Profit
SECOND-QUARTER 2013
-----------------------------------------------Acquisition- RetirementRelated
Related
Operating
GAAP
Adjustments* Adjustments** (Non-GAAP)
-------- ------------ --------------------$12,132
$91
$156
$12,379
Gross Profit Margin
48.7%
0.4Pts
0.6Pts
49.7%
S,G&A
6,680
(91)
(93)
6,496
R,D&E
1,548
0
(13)
1,535
(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%
0.7Pts
1.1Pts
18.4%
918
9
82
1,009
Effective Tax Rate
22.1%
-0.7Pts
0.6Pts
22.0%
Net Income
3,226
173
180
3,579
Net Income Margin
12.9%
0.7Pts
0.7Pts
14.4%
Diluted Earnings Per Share
$2.91
$0.15
$0.16
$3.22
Other (Income) & Expense
Provision for Income Taxes***
* 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)
Gross Profit
Gross Profit Margin
SIX-MONTHS 2014
-----------------------------------------------Acquisition- RetirementRelated
Related
Operating
GAAP
Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ------------ ----------$22,518
$209
$98
$22,825
48.1%
0.4Pts
S,G&A
11,892
(196)
R,D&E
2,958
0
37
2,995
Other (Income) & Expense
(326)
0
0
(326)
14,367
(196)
(77)
14,094
Pre-Tax Income
8,151
405
175
8,731
Pre-Tax Income Margin
17.4%
0.9Pts
0.4Pts
18.6%
Provision for Income Taxes***
1,630
81
35
1,746
Effective Tax Rate
20.0%
0.0Pts
0.0Pts
20.0%
Net Income
6,521
324
140
6,985
Net Income Margin
13.9%
0.7Pts
0.3Pts
14.9%
Diluted Earnings Per Share
$6.37
$0.31
$0.14
$6.82
Total Expense & Other (Income)
Gross Profit
Gross Profit Margin
0.2Pts
(114)
48.7%
11,583
SIX-MONTHS 2013
-----------------------------------------------Acquisition- RetirementRelated
Related
Operating
GAAP
Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ------------ ----------$22,810
$186
$320
$23,316
47.2%
0.4Pts
0.7Pts
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)
15,060
(190)
(226)
14,644
7,750
376
546
8,672
Total Expense & Other (Income)
Pre-Tax Income
Pre-Tax Income Margin
16.0%
0.8Pts
1.1Pts
17.9%
Provision for Income Taxes***
1,492
63
162
1,717
Effective Tax Rate
19.2%
-0.1Pts
0.7Pts
19.8%
Net Income
6,258
313
384
6,955
Net Income Margin
12.9%
0.6Pts
0.8Pts
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
[email protected]
John Bukovinsky, 732-618-3531
[email protected]
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