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IBM REPORTS 2014 THIRD-QUARTER RESULTS
NOTE: Results from continuing operations exclude discontinued Microelectronics
business, to be acquired by GLOBALFOUNDRIES as announced today.
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Diluted EPS from continuing operations:
- GAAP: $3.46, down 8 percent;
- Operating (non-GAAP): $3.68, down 10 percent;
Net income from continuing operations:
- GAAP: $3.5 billion, down 17 percent;
- Operating (non-GAAP): $3.7 billion, down 18 percent;
Consolidated results, including net loss on discontinued operations
of $3.4 billion:
- Net income: $18 million
- EPS: $0.02
Gross profit margin from continuing operations:
- GAAP: 48.6 percent, down 40 basis points;
- Operating (non-GAAP): 49.2 percent, down 90 basis points;
Revenue from continuing operations: $22.4 billion:
- Down 4 percent; down 2 percent adjusting for divested customer care
outsourcing business and currency;
Strategic imperatives grew double digits year-to-date:
- Cloud revenue up more than 50 percent year-to-date;
-- For cloud delivered as a service, up 80 percent year-to-date with
a third-quarter annual run rate of $3.1 billion;
- Business analytics revenue up 8 percent year-to-date;
- Mobile revenue more than doubled year-to-date;
- Security revenue up more than 20 percent year-to-date;
Impact of customer care outsourcing, industry standard server and
Microelectronics business divestitures, based on full-year 2013:
- Generated more than $7.0 billion of annual revenue;
- Incurred more than $0.5 billion in annual pre-tax losses.
ARMONK, N.Y., October 20, 2014 . . . IBM (NYSE: IBM) today announced thirdquarter 2014 diluted earnings from continuing operations of $3.46 per share, compared
with diluted earnings of $3.77 per share in the third-quarter of 2013, a decrease of
8 percent. Operating (non-GAAP) diluted earnings from continuing operations were
$3.68 per share compared with operating diluted earnings of $4.08 per share in the
third-quarter of 2013, a decrease of 10 percent.
Third-quarter net income from continuing operations was $3.5 billion compared
with $4.1 billion in the third-quarter of 2013, a decrease of 17 percent. Operating
(non-GAAP) net income from continuing operations was $3.7 billion, as compared with
$4.5 billion in the third-quarter of 2013, a decrease of 18 percent.
For the third-quarter of 2014, IBM reported consolidated net income of $18
million or $0.02 of diluted earnings per share, which includes a net loss from
discontinued operations of $3.4 billion, or $3.44 per diluted common share.
Total revenues from continuing operations for the third-quarter of 2014 of $22.4
billion were down 4 percent (down 2 percent, adjusting for the impact of the divested
customer care outsourcing business and for currency) from the third-quarter of 2013.
“We are disappointed in our performance. We saw a marked slowdown in September
in client buying behavior, and our results also point to the unprecedented pace of
change in our industry. While we did not produce the results we expected to achieve,
we again performed well in our strategic growth areas – cloud, data and analytics,
security, social and mobile - where we continue to shift our business. We will
accelerate this transformation,” said Ginni Rometty, IBM chairman, president and
chief executive officer.
“We are executing on a clear strategy that is moving IBM to higher value, and
we've taken significant actions to exit nonstrategic elements of the business. This
includes the announcement that we will divest semiconductor manufacturing to focus on
research and development that will differentiate our systems. We will continue to
make the investments and the changes necessary to manage our business for the long
term. And we remain fully committed to returning significant value to shareholders
through dividends and share repurchase."
Discontinued Operations
The company has reached an agreement under which GLOBALFOUNDRIES will acquire
IBM’s Microelectronics OEM semiconductor business and manufacturing operations. The
transaction with GLOBALFOUNDRIES is expected to close in 2015. The results from
continuing operations exclude the Microelectronics business, which is presented
separately as discontinued operations.
The loss from discontinued operations in the third quarter includes a nonrecurring pre-tax charge of $4.7 billion, or $3.3 billion, net of tax. The charge
includes an impairment to reflect fair value less estimated costs to sell the
Microelectronics business assets, which the company has classified as held for sale
at September 30, 2014. The charge also includes other estimated costs related to the
transaction, including cash consideration expected to be transferred to
GLOBALFOUNDRIES of approximately $1.5 billion. The cash consideration is expected to
be paid to GLOBALFOUNDRIES over the next three years and will be adjusted by the
amount of the working capital due by GLOBALFOUNDRIES to IBM, estimated to be $0.2
billion. In addition, discontinued operations includes operational net losses from
the Microelectronics business of $0.1 billion in both the third quarter of 2014 and
the third quarter of 2013.
Third-Quarter GAAP – Operating (non-GAAP) Reconciliation
Third-quarter operating (non-GAAP) diluted earnings from continuing operations
exclude $0.22 per share of charges; $0.16 per share for the amortization of purchased
intangible assets and other acquisition-related charges; and $0.06 per share for
retirement-related charges driven by changes to plan assets and liabilities primarily
related to market performance.
Earnings Guidance
The company will provide earnings guidance during today’s quarterly earnings
conference call, and it is included in the presentation charts.
Geographic Regions
The Americas’ third-quarter revenues were $10.1 billion, a decrease of 2 percent
(down 1 percent, adjusting for currency) from the 2013 period. Revenues from
Europe/Middle East/Africa were down 2 percent to $7.2 billion (down 3 percent,
adjusting for currency). Asia-Pacific revenues decreased 9 percent (down 8 percent,
adjusting for currency) to $5.0 billion.
Growth Markets
Revenues from the company’s growth markets were down 6 percent (down 5 percent,
adjusting for currency). Revenues in the BRIC countries — Brazil, Russia, India and
China — were down 7 percent (down 7 percent, adjusting for currency).
Services
Global Services segment revenues decreased 3 percent (flat adjusting for the
impact of the divested customer care outsourcing business and for currency) to $13.7
billion. Global Technology Services segment revenues decreased 3 percent (up 1
percent adjusting for the impact of the divested customer care outsourcing business
and for currency) to $9.2 billion. Global Business Services segment revenues were
down 2 percent (down 1 percent, adjusting for currency) to $4.5 billion.
Pre-tax income from Global Technology Services decreased 11 percent and pre-tax
margin decreased to 17.7 percent. Global Business Services pre-tax income decreased
15 percent and pre-tax margin decreased to 17.5 percent.
The estimated services backlog at September 30, 2014 was $128 billion, down 7
percent year to year adjusting for the divested customer care outsourcing business
(down 2 percent, adjusting for currency).
Software
Revenues from the Software segment were $5.7 billion, down 2 percent (down 2
percent, adjusting for currency) compared with the third-quarter of 2013. Software
pre-tax income decreased 3 percent and pre-tax margin decreased to 35.5 percent.
Revenues from IBM’s key middleware products, which include WebSphere,
Information Management, Tivoli, Workforce Solutions and Rational products, were
$3.7 billion, down 1 percent (down 1 percent, adjusting for currency) versus the
third-quarter of 2013. Operating systems revenues of $513 million were down 11
percent (down 11 percent, adjusting for currency) compared with the prior-year
quarter.
Financing
Global Financing segment revenues decreased 3 percent (down 3 percent, adjusting
for currency) in the third-quarter to $487 million. Pre-tax income for the segment
decreased 4 percent to $475 million.
Hardware
Revenues from continuing operations from the Systems and Technology segment
totaled $2.4 billion for the quarter, down 15 percent (down 15 percent, adjusting for
currency) from the third-quarter of 2013. Systems and Technology pre-tax loss
increased $91 million to a loss of $99 million.
Revenues from Power Systems were down 12 percent compared with the 2013 period.
Revenues from System x were down 10 percent. Revenues from System z mainframe server
products decreased 35 percent compared with the year-ago period. Revenues from
System Storage decreased 6 percent.
Gross Profit
The company’s total gross profit margin from continuing operations was 48.6
percent in the 2014 third-quarter period compared with 49.0 percent in the 2013
third-quarter period. Total operating (non-GAAP) gross profit margin from continuing
operations was 49.2 percent in the 2014 third-quarter compared with 50.1 percent in
the 2013 third-quarter period.
Expense
Total expense and other income from continuing operations increased 1 percent to
$6.5 billion compared with the prior year period. S,G&A expense of $5.3 billion was
flat year over year. R,D&E expense of $1.4 billion was flat compared with the yearago period. Intellectual property and custom development income decreased to $145
million compared with $191 million a year ago. Other (income) and expense was income
of $103 million compared with prior-year income of $63 million. Interest expense
increased to $126 million compared with $97 million in the prior year period.
Total operating (non-GAAP) expense and other income from continuing operations
increased 2 percent to $6.4 billion compared with the prior-year period. Operating
(non-GAAP) S,G&A expense increased 2 percent to $5.1 billion compared with the
prior-year period. Operating (non-GAAP) R,D&E expense of $1.4 billion was up
2 percent compared with the year-ago period.
Pre-Tax Income
Pre-tax income from continuing operations decreased 12 percent to $4.4 billion
and pre-tax margin of 19.5 percent was down 1.8 points compared with the prior-year
period. Operating (non-GAAP) pre-tax income decreased 15 percent to $4.6 billion and
pre-tax margin was 20.7 percent, down 2.6 points, compared to the year-ago period.
***
IBM’s tax rate from continuing operations was 20.8 percent, up 4.0 points year
over year; operating (non-GAAP) tax rate was 20.8 percent, up 3.2 points compared to
the year-ago period. The change in the third-quarter tax rate is driven by discrete
benefits associated with foreign tax audits in the third-quarter 2013.
Net income margin from continuing operations decreased 2.3 points to 15.4
percent. Total operating (non-GAAP) net income margin decreased 2.8 points to 16.4
percent.
The weighted-average number of diluted common shares outstanding in the thirdquarter 2014 was 998 million compared with 1.10 billion shares in the same period of
2013. As of September 30, 2014, there were 990 million basic common shares
outstanding.
Debt, including Global Financing, totaled $45.7 billion, compared with $39.7
billion at year-end 2013. From a management segment view, Global Financing debt
totaled $28.6 billion versus $27.5 billion at year-end 2013, resulting in a debt-toequity ratio of 7.4 to 1. Non-global financing debt totaled $17.1 billion, an
increase of $4.8 billion since year-end 2013, resulting in a debt-to-capitalization
ratio of 61.9 percent (higher than the ratio at year-end 2013).
IBM ended the third-quarter 2014 with $9.6 billion of cash on hand and generated
free cash flow of $2.2 billion, excluding Global Financing receivables, down
approximately $0.1 billion year over year. In the third quarter of 2014, the company
returned $2.8 billion to shareholders through $1.1 billion in dividends and $1.7
billion of gross share repurchases.
At the end of September 2014, IBM had approximately $1.4 billion remaining from
the current share repurchase authorization. The company expects to request an
additional share repurchase authorization at the October 2014 board meeting.
Year-To-Date 2014 Results
Net income from continuing operations for the nine months ended September 30,
2014 was $10.2 billion compared with $10.7 billion in the year-ago period, a decrease
of 4 percent. Diluted earnings per share from continuing operations were $10.09, up
5 percent compared to the 2013 period. The consolidated diluted earnings per share
were $6.44 as compared to $9.27, down 31 percent as compared to the 2013 period.
Revenues from continuing operations for the nine-month period totaled $68.7 billion,
a decrease of 3 percent (down 3 percent, adjusting for currency) compared with $71.0
billion for the first nine months of 2013.
Operating (non-GAAP) net income from continuing operations for the nine months
ended September 30, 2014 was $10.9 billion compared with $11.7 billion in the yearago period, a decrease of 7 percent. Operating (non-GAAP) diluted earnings per share
from continuing operations were $10.76 compared with $10.54 per diluted share for the
2013 period, an increase of 2 percent.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein,
statements contained in this release may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on the company’s current assumptions regarding
future business and financial performance. These statements involve a number of
risks, uncertainties and other factors that could cause actual results to differ
materially, including the following: a downturn in economic environment and client
spending budgets; the company’s failure to meet growth and productivity objectives; a
failure of the company’s innovation initiatives; risks from investing in growth
opportunities; failure of the company’s intellectual property portfolio to prevent
competitive offerings and the failure of the company to obtain necessary licenses;
cybersecurity and data privacy considerations; fluctuations in financial results,
impact of local legal, economic, political and health conditions; adverse effects
from environmental matters, tax matters and the company’s pension plans; ineffective
internal controls; the company’s use of accounting estimates; the company’s ability
to attract and retain key personnel and its reliance on critical skills; impacts of
relationships with critical suppliers and business with government clients; currency
fluctuations and customer financing risks; impact of changes in market liquidity
conditions and customer credit risk on receivables; reliance on third party
distribution channels; the company’s ability to successfully manage acquisitions,
alliances and dispositions; risks from legal proceedings; risk factors related to IBM
securities; and other risks, uncertainties and factors discussed in the company’s
Form 10-Qs, Form 10-K and in the company’s other filings with the U.S. Securities and
Exchange Commission (SEC) or in materials incorporated therein by reference. Any
forward-looking statement in this release speaks only as of the date on which it is
made. The company assumes no obligation to update or revise any forward-looking
statements.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding
the company’s results as determined by generally accepted accounting principles
(GAAP), the company has also disclosed in this press release the following non-GAAP
information which management believes provides useful information to investors:
IBM results and expectations -o presenting operating (non-GAAP) earnings per share from continuing operations
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).
The rationale for management’s use of non-GAAP measures is included as part of
the supplemental materials presented within the third-quarter earnings materials.
These materials are available on the IBM investor relations Web site at
www.ibm.com/investor and are being included in Attachment II (“Non-GAAP Supplemental
Materials”) to the Form 8-K that includes this press release and is being submitted
today to the SEC.
Conference Call and Webcast
IBM’s regular quarterly earnings conference call is scheduled to begin at 8:00
a.m. EDT, today. The Webcast may be accessed via a link at
http://www.ibm.com/investor/events/earnings/3q14.html. Presentation charts will be
available shortly before the Webcast.
Financial Results Below (certain amounts may not add due to use of rounded numbers;
percentages presented are calculated from the underlying whole-dollar amounts).
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
Percent
Percent
2014
2013*
Change
2014
2013* Change
------- ------------- ------- ------- ------REVENUE
Global Technology Services
Gross profit margin
$9,218
38.5%
$9,494
39.0%
$28,634
37.9%
-2.3%
Global Business Services
Gross profit margin
4,459
31.3%
4,558
32.9%
-2.2%
13,476
30.4%
13,649
30.9%
-1.3%
Software
Gross profit margin
5,708
87.6%
5,798
88.0%
-1.6%
17,857
88.0%
17,792
88.0%
0.4%
Systems and Technology
Gross profit margin
2,434
33.9%
2,864
39.9%
-15.0%
7,590
36.3%
9,041
40.2%
-16.0%
Global Financing
Gross profit margin
487
47.8%
502
47.2%
-3.2%
1,502
49.6%
1,488
46.4%
1.0%
92
-143.8%
122
-211.6%
-24.3%
292
-162.5%
378
-185.3%
-22.8%
TOTAL REVENUE
22,397
23,338
-4.0%
68,680
70,982
-3.2%
GROSS PROFIT
Gross profit margin
10,874
48.6%
11,429
49.0%
-4.9%
33,545
48.8%
34,347
48.4%
-2.3%
S,G&A
Expense to revenue
5,281
23.6%
5,260
22.5%
0.4%
17,146
25.0%
17,463
24.6%
-1.8%
R,D&E
Expense to revenue
1,354
6.0%
1,356
5.8%
-0.1%
4,117
6.0%
4,291
6.0%
-4.0%
Intellectual property and
custom development income
(145)
(191)
-23.9%
(543)
(621)
-12.5%
Other (income) and expense
(103)
(63)
62.3%
(433)
(217)
99.3%
126
97
30.2%
367
289
26.9%
TOTAL EXPENSE AND
OTHER INCOME
Expense to revenue
6,513
29.1%
6,458
27.7%
0.9%
20,654
30.1%
21,205
29.9%
-2.6%
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
Pre-tax margin
4,361
19.5%
4,972
21.3%
-12.3%
12,891
18.8%
13,142
18.5%
-1.9%
Other
Gross profit margin
-2.9% $27,962
38.3%
EXPENSE AND OTHER INCOME
Interest expense
Provision for income taxes
Effective tax rate
INCOME FROM CONTINUING
OPERATIONS
Net margin
DISCONTINUED OPERATIONS
Loss from discontinued
operations, net of taxes
NET INCOME
EARNINGS PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING OPERATIONS
DISCOUNTINUED OPERATIONS
TOTAL
BASIC
CONTINUING OPERATIONS
DISCOUNTINUED OPERATIONS
TOTAL
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING (M's):
ASSUMING DILUTION
BASIC
906
20.8%
832
16.7%
$3,455
15.4%
8.8%
2,655
20.6%
2,478
18.9%
7.1%
$4,139
17.7%
-16.5% $10,237
14.9%
$10,665
15.0%
-4.0%
(3,437)
(98)
(3,698)
(366)
$18
======
$4,041
======
-99.6%
$6,539
======
$10,299
=======
-36.5%
$3.46
($3.44)
----$0.02
$3.77
($0.09)
----$3.68
-8.2%
$10.09
($3.65)
-----99.5%
$6.44
$9.60
($0.33)
----$9.27
5.1%
$3.48
($3.46)
----$0.02
$3.79
($0.09)
----$3.70
$10.15
($3.67)
-----99.5%
$6.48
$9.68
($0.33)
----$9.35
997.7
991.8
1,098.8
1,090.9
1,014.9
1,008.9
1,110.7
1,101.8
-8.2%
-30.5%
4.9%
-30.7%
* Reclassified to reflect discontinued operations presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
(Dollars in Millions)
At
September 30,
2014
------------
At
December 31,
2013
------------
ASSETS:
Current Assets:
Cash and cash equivalents
Marketable securities
Notes and accounts receivable - trade
(net of allowances of $316 in 2014 and $291 in 2013)
Short-term financing receivables
(net of allowances of $432 in 2014 and $308 in 2013)
Other accounts receivable
(net of allowances of $46 in 2014 and $36 in 2013)
Inventories, at lower of average cost or market:
$9,561
4
$10,716
350
9,122
10,465
17,411
19,787
1,469
1,584
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 $87 in 2014 and $80 in 2013)
Prepaid pension assets
Deferred taxes
Goodwill
Intangible assets - net
Investments and sundry assets
Total Assets
508
1,848
--------2,356
2,219
5,022
--------47,163
444
1,866
--------2,310
1,651
4,488
--------51,350
39,950
28,882
--------11,068
40,475
26,654
--------13,821
10,993
7,443
2,697
31,045
3,373
5,126
--------$118,911
=========
12,755
5,551
3,051
31,184
3,871
4,639
--------$126,223
=========
$2,475
12,876
5,855
3,965
11,346
5,788
--------42,306
$4,633
6,862
7,461
3,893
12,557
4,748
--------40,154
32,821
32,856
15,093
3,683
10,613
--------104,515
16,242
4,108
9,934
--------103,294
52,446
133,403
(150,616)
(20,978)
--------14,255
51,594
130,042
(137,242)
(21,602)
--------22,792
140
--------14,395
--------$118,911
137
--------22,929
--------$126,223
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
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
September 30,
2014
2013
-----------$3,904
$3,760
Nine Months Ended
September 30,
2014
2013
------------$10,809
$10,957
719
------
481
------
2,223
------
1,628
------
3,185
3,279
8,587
9,329
(1,008)
(1,041)
(2,803)
(2,709)
2,177
2,238
5,783
6,620
(47)
81
(1,090)
(1,719)
(483)
(2,382)
235
(1,037)
(1,917)
1,351
(650)
489
(3,176)
(13,547)
4,536
(2,562)
247
(3,033)
(8,062)
1,556
925
1,388
5,065
4,337
($156)
========
($125)
========
($1,501)
=======
($897)
=======
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
(Dollars in Millions)
THIRD-QUARTER 2014
-------------------------------------------------------Pre-tax
Income/
(Loss)
----------- Revenue -----------Continuing
Pre-tax
External
Internal
Total
Operations
Margin
-------------------------------------
SEGMENTS
Global Technology Services
Y-T-Y change
$9,218
-2.9%
$252
-3.8%
$9,470
-2.9%
$1,680
-11.3%
17.7%
Global Business Services
Y-T-Y change
4,459
-2.2%
135
-23.7%
4,594
-3.0%
805
-15.0%
17.5%
Software
5,708
862
6,570
2,333
35.5%
Y-T-Y change
Systems and Technology
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
-1.6%
15.9%
0.4%
-3.2%
2,434
-15.0%
182
8.7%
2,616
-13.7%
(99)
NM
-3.8%
487
-3.2%
598
16.7%
1,084
6.9%
475
-3.7%
43.9%
$22,305
-3.9%
$2,029
8.9%
$24,334
-3.0%
$5,195
-9.5%
21.3%
92
(2,029)
(1,937)
(835)
$22,397
-4.0%
$0
$22,397
-4.0%
$4,361
-12.3%
19.5%
THIRD-QUARTER 2013*
-------------------------------------------------------Pre-tax
Income/
(Loss)
----------- Revenue -----------Continuing
Pre-tax
External
Internal
Total
Operations
Margin
-------------------------------------
(Dollars in Millions)
SEGMENTS
Global Technology Services
$9,494
$262
$9,755
$1,895
19.4%
Global Business Services
4,558
177
4,735
948
20.0%
Software
5,798
744
6,542
2,410
36.8%
Systems and Technology*
2,864
168
3,032
(8)
-0.3%
502
512
1,015
494
48.7%
$23,216
$1,863
$25,079
$5,738
22.9%
122
(1,863)
(1,741)
(766)
$23,338
$0
$23,338
$4,972
Global Financing
TOTAL REPORTABLE SEGMENTS
Eliminations / Other
TOTAL IBM CONSOLIDATED
21.3%
* Reclassified to reflect discontinued operations presentation.
NM = Not Meaningful
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
(Dollars in Millions)
NINE-MONTHS 2014
----------------------------------------------------Pre-tax
Income/
(Loss)
---------- Revenue ----------Continuing
Pre-tax
External
Internal
Total
Operations
Margin
--------
--------
--------
----------
-------
SEGMENTS
Global Technology Services
Y-T-Y change
$27,962
-2.3%
$739
-7.8%
$28,701
-2.5%
$4,876
-2.4%
17.0%
Global Business Services
Y-T-Y change
13,476
-1.3%
416
-23.7%
13,892
-2.1%
2,266
-0.3%
16.3%
Software
Y-T-Y change
17,857
0.4%
2,652
14.7%
20,508
2.0%
6,935
1.0%
33.8%
Systems and Technology
Y-T-Y change
7,590
-16.0%
541
27.9%
8,131
-14.1%
(354)
167.1%
-4.4%
1,502
1.0%
1,900
16.7%
3,403
9.2%
1,664
5.2%
48.9%
$68,387
-3.1%
$6,248
9.4%
$74,635
-2.2%
$15,386
-1.3%
20.6%
292
(6,248)
(5,955)
(2,495)
$68,680
-3.2%
$0
$68,680
-3.2%
$12,891
-1.9%
Global Financing
Y-T-Y change
TOTAL REPORTABLE SEGMENTS
Y-T-Y change
Eliminations / Other
TOTAL IBM CONSOLIDATED
Y-T-Y change
18.8%
NINE-MONTHS 2013*
----------------------------------------------------Pre-tax
Income
(Loss)/
-------- Revenue -----------Continuing
Pre-tax
External Internal
Total
Operations
Margin
-------- -----------------------------
(Dollars in Millions)
SEGMENTS
Global Technology Services
$28,634
$801
$29,435
$4,994
17.0%
Global Business Services
13,649
545
14,194
2,274
16.0%
Software
17,792
2,312
20,105
6,867
34.2%
Systems and Technology*
9,041
423
9,464
(133)
-1.4%
Global Financing
1,488
1,628
3,116
1,582
50.8%
$70,604
$5,710
$76,314
$15,583
20.4%
378
(5,710)
(5,331)
(2,441)
$70,982
$0
$70,982
$13,142
TOTAL REPORTABLE SEGMENTS
Eliminations / Other
TOTAL IBM CONSOLIDATED
* Reclassified to reflect discontinued operations presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
18.5%
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
Gross Profit
THIRD-QUARTER 2014
CONTINUING OPERATIONS
-----------------------------------------------Acquisition- RetirementRelated
Related
Operating
GAAP
Adjustments* Adjustments** (Non-GAAP)
-------- ------------ --------------------$10,874
$106
$43
$11,023
Gross Profit Margin
48.6%
0.5Pts
0.2Pts
49.2%
S,G&A
5,281
(96)
(48)
5,137
R,D&E
1,354
19
1,373
Other (Income) & Expense
(103)
0
Total Expense & Other (Income)
6,513
(96)
(29)
6,389
Pre-Tax Income from
Continuing Operations
4,361
202
71
4,634
Pre-Tax Income Margin from
Continuing Operations
19.5%
0.9Pts
0.3Pts
20.7%
906
42
14
963
Effective Tax Rate
20.8%
0.0Pts
0.0Pts
20.8%
Income from Continuing Operations
3,455
159
57
3,671
Income Margin from
Continuing Operations
15.4%
0.7Pts
0.3Pts
16.4%
Provision for Income Taxes***
-
(103)
Loss from Discontinued Operations
Net of Taxes
(3,437)
-
Net Income
18
159
57
234
$3.46
($3.44)
$0.16
-
$0.06
-
$3.68
($3.44)
Diluted Earnings Per Share:
Continuing Operations
Discontinued Operations
-
(3,437)
THIRD-QUARTER 2013****
CONTINUING OPERATIONS
-----------------------------------------------Acquisition- RetirementRelated
Related
Operating
GAAP
Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ---------------------
Gross Profit
$11,429
$102
$154
$11,686
Gross Profit Margin
49.0%
0.4Pts
0.7Pts
50.1%
S,G&A
5,260
(111)
(89)
5,060
R,D&E
1,356
-
(14)
1,342
Other (Income) & Expense
(63)
(1)
Total Expense & Other (Income)
6,458
(112)
(103)
6,243
Pre-Tax Income from
Continuing Operations
4,972
214
257
5,443
Pre-Tax Income Margin from
Continuing Operations
21.3%
0.9Pts
1.1Pts
23.3%
832
48
77
958
Effective Tax Rate
16.7%
0.2Pts
0.6Pts
17.6%
Income from Continuing Operations
4,139
166
181
4,485
Income Margin from
Continuing Operations
17.7%
0.7Pts
0.8Pts
19.2%
Provision for Income Taxes***
Loss from Discontinued Operations
Net of Taxes
Net Income
Diluted Earnings Per Share:
Continuing Operations
Discontinued Operations
(98)
-
(64)
-
-
(98)
4,041
166
181
4,387
$3.77
($0.09)
$0.15
-
$0.16
-
$4.08
($0.09)
* Includes amortization of acquired intangible assets and other acquisition-related
charges.
** Includes retirement-related items driven by changes to plan assets and
liabilities primarily related to market performance.
*** Tax impact on operating (non-GAAP) pre-tax income from continuing operations is
calculated under the same accounting principles applied to the GAAP pre-tax income
which employs an annual effective tax rate method to the results.
**** Reclassified to reflect discontinued operations presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
NINE-MONTHS 2014
CONTINUING OPERATIONS
-----------------------------------------------Acquisition- RetirementRelated
Related
Operating
GAAP
Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ------------ -----------
Gross Profit
$33,545
$315
$141
$34,001
48.8%
0.5Pts
0.2Pts
49.5%
S,G&A
17,146
(291)
(162)
16,693
R,D&E
4,117
56
4,173
Other (Income) & Expense
(433)
0
Total Expense & Other (Income)
20,654
(292)
(106)
20,257
Pre-Tax Income from
Continuing Operations
12,891
607
246
13,744
Pre-Tax Income Margin from
Continuing Operations
18.8%
0.9Pts
0.4Pts
20.0%
Provision for Income Taxes***
2,655
123
49
2,827
Effective Tax Rate
20.6%
0.0Pts
0.0Pts
20.6%
Income from Continuing Operations 10,237
483
197
10,917
0.7Pts
0.3Pts
15.9%
Gross Profit Margin
Income Margin from
Continuing Operations
14.9%
-
(433)
Loss from Discontinued Operations
Net of Taxes
(3,698)
-
-
Net Income
6,539
483
197
7,219
$10.09
($3.65)
$0.48
-
$0.19
-
$10.76
($3.65)
Diluted Earnings Per Share:
Continuing Operations
Discontinued Operations
Gross Profit
Gross Profit Margin
(3,698)
NINE-MONTHS 2013****
CONTINUING OPERATIONS
-----------------------------------------------Acquisition- RetirementRelated
Related
Operating
GAAP
Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ------------ ----------$34,347
$289
$474
$35,110
48.4%
0.4Pts
0.7Pts
49.5%
S,G&A
17,463
(294)
(286)
16,884
R,D&E
4,291
-
(43)
4,248
Other (Income) & Expense
(217)
(8)
Total Expense & Other (Income)
21,205
(302)
(329)
20,574
Pre-Tax Income from
Continuing Operations
13,142
590
803
14,536
-
(225)
Pre-Tax Income Margin from
Continuing Operations
18.5%
0.8Pts
1.1Pts
20.5%
Provision for Income Taxes***
2,478
112
239
2,828
Effective Tax Rate
18.9%
0.0Pts
0.6Pts
19.5%
Income from Continuing Operations 10,665
479
564
11,708
0.7Pts
0.8Pts
16.5%
Income Margin from
Continuing Operations
15.0%
Loss from Discontinued Operations
Net of Taxes
(366)
Net Income
Diluted Earnings Per Share:
Continuing Operations
Discontinued Operations
-
-
(366)
10,299
479
564
11,342
$9.60
($0.33)
$0.43
-
$0.51
-
$10.54
($0.33)
* Includes amortization of acquired intangible assets and other acquisition-related
charges.
** Includes retirement-related items driven by changes to plan assets and
liabilities primarily related to market performance.
*** Tax impact on operating (non-GAAP) pre-tax income from continuing operations is
calculated under the same accounting principles applied to the GAAP pre-tax income
which employs an annual effective tax rate method to the results.
**** Reclassified to reflect discontinued operations presentation.
Contact: IBM
Mike Fay, 914-525-8476
[email protected]
John Bukovinsky, 732-618-3531
[email protected]