8-K 1 a13-16645_18k.htm 8-K

 

 

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, 2013

(Date of earliest event reported)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

 

1-2360

 

13-0871985

(State of Incorporation)

 

(Commission File Number)

 

(IRS employer Identification No.)

 

ARMONK, NEW YORK

 

10504

(Address of principal executive offices)

 

(Zip Code)

 

914-499-1900

(Registrant’s telephone number)

 

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

 

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

 

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

 

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

 

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

 

 

 



 

Item 2.02.  Results of Operations and Financial Condition.

 

The registrant’s press release dated July 17, 2013, regarding its financial results for the periods ended June 30, 2013, including consolidated financial statements for the periods ended June 30, 2013, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Mark Loughridge’s second quarter earnings presentation on July 17, 2013, 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. Loughridge’s presentation. All of the information in Attachment I and II is hereby filed.

 

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

 

2



 

SIGNATURE

 

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

 

 

Date: July 17, 2013

 

 

 

 

 

 

By:

/s/ James J. Kavanaugh

 

 

 

 

James J. Kavanaugh

 

 

Vice President and Controller

 

3



 

ATTACHMENT I

 

IBM REPORTS 2013 SECOND-QUARTER RESULTS

RAISES 2013 OPERATING EPS EXPECTATION BY $0.20 to $16.90,

EXCLUDING $1 BILLION SECOND-QUARTER WORKFORCE REBALANCING CHARGE

 

·      GAAP Results:

 

·      Diluted EPS: $2.91, down 13 percent;

·      Net income: $3.2 billion, down 17 percent;

·      Gross profit margin: 48.7 percent, up 1.0 points;

 

·      Operating(non-GAAP) Results, excluding workforce rebalancing charges (most indicative of operational trajectory):

 

·      Diluted EPS: $3.91, up 8 percent, excluding workforce rebalancing charges;

·      Net income: $4.3 billion, up 3 percent, excluding workforce rebalancing charges;

·      Gross profit margin: 49.7 percent, up 1.4 points;

 

·      2013 full-year operating (non-GAAP) EPS expectations excluding $1 billion second-quarter workforce rebalancing charge: up $0.20 to at least $16.90;

 

·      Operating (non-GAAP) Results, including workforce rebalancing charges:

 

·      Diluted EPS: $3.22, down 8 percent; including workforce rebalancing charges;

·      Net income: $3.6 billion, down 12 percent; including workforce rebalancing charges;

·      Gross profit margin: 49.7 percent, up 1.4 points;

 

·      2013 full-year “all in” operating (non-GAAP) EPS expectations, including $1 billion second-quarter workforce rebalancing charge: down $0.45 to at least $16.25, driven by reduction in anticipated second-half gains and $0.20 operating improvement;

 

·      Revenue: $24.9 billion, down 3 percent, down 1 percent adjusting for currency:

 

·      Software revenue up 4 percent, up 5 percent adjusting for currency;

·       Key branded middleware up 9 percent; up 10 percent adjusting for currency;

·      Services revenue down 4 percent, down 1 percent adjusting for currency;

·       Global Business Services revenue down 1 percent, up 2 percent adjusting for currency;

·      Services backlog of $141 billion, up 3 percent, up 7 percent adjusting for currency;

·      Systems and Technology revenue down 12 percent, down 11 percent adjusting for currency:

·       System z mainframe revenue up 10 percent; up 11 percent adjusting for currency;

·      Growth markets revenue flat, up 1 percent adjusting for currency;

·      Business analytics revenue up 11 percent;

·      Smarter Planet revenue up more than 25 percent in first half;

·      Cloud revenue up more than 70 percent in first half;

 

ARMONK, N.Y., July 17, 2013 . . . IBM (NYSE: IBM) today announced second-quarter 2013 diluted earnings of $2.91 per share, compared with diluted earnings of $3.34 per share in the second quarter of 2012, a decrease of 13 percent.  Operating (non-GAAP) diluted earnings were $3.22 per share, including workforce rebalancing charges, compared with operating diluted earnings of $3.51 per share in the second quarter of 2012, a decrease of 8 percent.  Operating (non-GAAP) diluted earnings per share were $3.91, an increase of 8 percent, excluding the impact of workforce rebalancing charges.

 

Second-quarter net income was $3.2 billion compared with $3.9 billion in the second quarter of 2012, a decrease of 17 percent.  Operating (non-GAAP) net income

 

1



 

was $3.6 billion, including workforce rebalancing charges, compared with $4.1 billion in the second quarter of 2012, a decrease of 12 percent.  Operating (non-GAAP) net income, excluding the impact of workforce rebalancing, was $4.3 billion, an increase of 3 percent.

 

Total revenues for the second quarter of 2013 of $24.9 billion were down 3 percent (down 1 percent, adjusting for currency) from the second quarter of 2012.

 

“In the second quarter, we delivered strong performance in our higher-value software and mainframe businesses and again significantly increased our services backlog on growth in new business,” said Ginni Rometty, IBM chairman, president and chief executive officer.

 

“Going forward, we will continue investing in our strategic growth initiatives, acquiring and divesting capabilities, re-balancing skills and taking action in the areas that are not performing.  We expect continued improvement through the second half of the year and remain confident that we will achieve our increased 2013 operating EPS expectation of at least $16.90, excluding the $1 billion workforce rebalancing charge in the second quarter.”

 

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

 

Second-quarter operating (non-GAAP) diluted earnings exclude $0.31 per share of charges: $0.15 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.16 per share for retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.

 

Full-Year 2013 Expectations

 

The company said that a substantial second-half gain that it was expecting in its prior view of earnings per share will not likely be achieved the end of 2013.  As a result, the company updated its prior full-year EPS expectations, including the impact of a second-quarter $1 billion workforce rebalancing charge, to at least $16.25, with the net impact of $0.45 driven by the elongated discussions for its larger divestiture project.  IBM’s full-year 2013 EPS expectations are as follows:

 

Full-year GAAP diluted earnings per share expectations are at least $15.08. Operating (non-GAAP) diluted earnings per share expectations are being raised to at least $16.90, excluding the second-quarter $1 billion workforce rebalancing charge. Operating (non-GAAP) earnings per share expectations are at least $16.25, including the second-quarter $1 billion workforce rebalancing charge.

 

The 2013 operating (non-GAAP) earnings expectations exclude $1.17 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 $10.7 billion, a decrease of 3 percent (down 3 percent, adjusting for currency) from the 2012 period.  Revenues from Europe/Middle East/Africa were flat at $7.8 billion (down 1 percent adjusting for currency).  Asia-Pacific revenues decreased 8 percent (flat, adjusting for currency) to $5.8 billion.  OEM revenues were $538 million, up 5 percent (up 6 percent adjusting for currency) compared with the 2012 second quarter.

 

Growth Markets

 

Revenues from the company’s growth markets were flat (up 1 percent, adjusting for currency).  Revenues in the BRIC countries — Brazil, Russia, India and China — were flat (up 1 percent, adjusting for currency).

 

Services

 

Global Technology Services segment revenues decreased 5 percent (down 2 percent, adjusting for currency) to $9.5 billion.  Global Business Services segment revenues were down 1 percent (up 2 percent, adjusting for currency) to $4.6 billion.

 

Pre-tax income from Global Technology Services decreased 14 percent and pre-tax margin decreased to 15.4 percent.  Pre-tax income from Global Technology Services increased 3 percent and pre-tax margin increased to 19.0 percent, excluding the impact of workforce rebalancing.  Global Business Services pre-tax income decreased

 

2



 

22 percent and pre-tax margin decreased to 13.0 percent.  Global Business Services pre-tax income increased 2 percent and pre-tax margin increased to 17.9 percent, excluding the impact of workforce rebalancing.

 

The estimated services backlog at June 30 was $141 billion, up 3 percent year over year at actual rates (up 7 percent, adjusting for currency).

 

Software

 

Revenues from the Software segment were $6.4 billion, up 4 percent (up 5 percent, adjusting for currency) compared with the second quarter of 2012.  Software pre-tax income decreased 2 percent and pre-tax margin decreased to 34.1 percent. Software pre-tax income increased 6 percent and pre-tax margin increased to 37.2 percent, excluding the impact of workforce rebalancing.

 

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Social Workforce Solutions (formerly Lotus) and Rational products, were $4.3 billion, up 9 percent (up 10 percent, adjusting for currency) versus the second quarter of 2012.  Operating systems revenues of $606 million were down 4 percent (down 2 percent, adjusting for currency) compared with the prior-year quarter.

 

Revenues from the WebSphere family of software products increased 9 percent year over year.  Information Management software revenues increased 5 percent.  Revenues from Tivoli software increased 13 percent.  Revenues from Social Workforce Solutions increased 22 percent, and Rational software increased 12 percent.

 

Hardware

 

Revenues from the Systems and Technology segment totaled $3.8 billion for the quarter, down 12 percent (down 11 percent, adjusting for currency) from the second quarter of 2012.  Excluding Retail Store Solutions (RSS), revenues were down 8 percent (down 7 percent adjusting for currency).  Systems and Technology pre-tax income decreased $375 million.  Systems and Technology pre-tax income decreased $199 million, excluding the impact of workforce rebalancing.

 

Total systems revenues, excluding RSS, decreased 10 percent (down 9 percent, adjusting for currency).  Revenues from Power Systems were down 25 percent compared with the 2012 period.  Revenues from System x were down 11 percent.  Revenues from System z mainframe server products increased 10 percent compared with the year-ago period.  Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 23 percent.  Revenues from System Storage decreased 7 percent.  Revenues from Microelectronics OEM increased 6 percent.

 

Financing

 

Global Financing segment revenues decreased 6 percent (down 4 percent, adjusting for currency) in the second quarter at $487 million.  Pre-tax income for the segment increased 4 percent to $550 million, excluding the impact of workforce rebalancing, pre-tax income increased 5 percent to $552 million.

 

Gross Profit

 

The company’s total gross profit margin was 48.7 percent in the 2013 second quarter compared with 47.6 percent in the 2012 second-quarter period.  Total operating (non-GAAP) gross profit margin was 49.7 percent in the 2013 second quarter compared with 48.2 percent in the 2012 second-quarter period, with increases in Global Technology Services, Global Business Services, Software and Global Financing.

 

Expense

 

Total expense and other income increased 12 percent to $8.0 billion compared with the prior year period.  Total expense and other income was $7.0 billion, excluding the impact of workforce rebalancing.  S,G&A expense of $6.7 billion increased 14 percent year over year.  S,G&A expense was $5.7 billion, excluding the impact of workforce rebalancing.  R,D&E expense of $1.5 billion decreased 2 percent compared with the year-ago period.  Intellectual property and custom development income decreased to $247 million compared with $289 million a year ago.  Other (income) and expense was income of $91 million compared with prior-year income of

 

3



 

$132 million.  Interest expense decreased to $98 million compared with $117 million in the prior year.

 

Total operating (non-GAAP) expense and other income increased 11 percent to $7.8 billion compared with the prior-year period.  Total operating (non-GAAP) expense and other income was $6.8 billion, excluding the impact of workforce rebalancing. Operating (non-GAAP) S,G&A expense increased 14 percent to $6.5 billion compared with the prior-year period.  Operating (non-GAAP) S,G&A expense, excluding the impact of workforce rebalancing, was $5.5 billion.  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 decreased 20 percent to $4.1 billion and pre-tax margin of 16.6 percent was down 3.4 points compared with the prior-year period.  Operating (non-GAAP) pre-tax income decreased 16 percent to $4.6 billion and pre-tax margin was 18.4 percent, down 2.7 points.  Operating (non-GAAP) pre-tax income, excluding the impact of workforce rebalancing, was $5.6 billion.

 

***

 

IBM’s tax rate was 22.1 percent, down 2.7 points year over year; operating (non-GAAP) tax rate was 22.0 percent, down 3.0 points compared to the year-ago period.

 

Net income margin decreased 2.1 points to 12.9 percent.  Total operating (non-GAAP) net income margin decreased 1.5 points to 14.4 percent.  Total operating (non-GAAP) net income margin, excluding the impact of workforce rebalancing, was 17.4 percent.

 

The weighted-average number of diluted common shares outstanding in the second-quarter 2013 was 1.11 billion compared with 1.16 billion shares in the same period of 2012.  As of June 30, 2013, there were 1.10 billion basic common shares outstanding.

 

Debt, including Global Financing, totaled $34.1 billion, compared with $33.3 billion at year-end 2012.  From a management segment view, Global Financing debt totaled $24.9 billion versus $24.5 billion at year-end 2012, resulting in a debt-to-equity ratio of 7.2 to 1.  Non-global financing debt totaled $9.3 billion, an increase of $0.5 billion since year-end 2012, resulting in a debt-to-capitalization ratio of 39.1 percent from 36.1 percent.

 

IBM ended the second-quarter 2013 with $10.4 billion of cash on hand and generated free cash flow of $2.7 billion, excluding Global Financing receivables, down approximately $1.0 billion year over year.  The company returned $4.6 billion to shareholders through $1.0 billion in dividends and $3.6 billion of share repurchases.

 

Year-To-Date 2013 Results

 

Net income for the six months ended June 30, 2013 was $6.3 billion compared with $6.9 billion in the year-ago period, a decrease of 10 percent.  Diluted earnings per share were $5.60 compared with $5.95 per diluted share for the 2012 period, a decrease of 6 percent.  Revenues for the six-month period totaled $48.3 billion, a decrease of 4 percent (down 2 percent, adjusting for currency) compared with $50.5 billion for the six months of 2012.

 

Operating (non-GAAP) net income for the six months ended June 30, 2013 was $7.0 billion compared with $7.3 billion in the year-ago period, a decrease of 5 percent.  Operating (non-GAAP) net income, excluding the impact of second-quarter workforce rebalancing charges, was $7.7 billion.  Operating (non-GAAP) diluted earnings per share were $6.23 compared with $6.29 per diluted share for the 2012 period, a decrease of 1 percent.  Operating (non-GAAP) diluted earnings per share, excluding the impact of second-quarter workforce rebalancing charges, was $6.90 per share, an increase of 8 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

 

4



 

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 corporate IT 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 and purchases, 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 and alliances; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Q, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference.  Any forward-looking statement in this release speaks only as of the date on which it is made.  The company assumes no obligation to update or revise any forward-looking statements.

 

Presentation of Information in this Press Release

 

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

 

IBM results and expectations —

 

·                       presenting operating (non-GAAP) earnings per share 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 RSS;

·                       adjusting for workforce rebalancing.

 

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 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/2q13.phtml.  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).

 

5



 

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,

 

 

 

2013

 

2012

 

Percent
Change

 

2013

 

2012

 

Percent
Change

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,536

 

$

9,995

 

-4.6

%

$

19,140

 

$

20,031

 

-4.4

%

Gross profit margin

 

37.8

%

36.3

%

 

 

37.3

%

35.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,606

 

4,667

 

-1.3

%

9,091

 

9,304

 

-2.3

%

Gross profit margin

 

31.2

%

30.7

%

 

 

29.9

%

29.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

6,423

 

6,171

 

4.1

%

11,995

 

11,770

 

1.9

%

Gross profit margin

 

88.8

%

88.4

%

 

 

88.1

%

87.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

3,758

 

4,259

 

-11.8

%

6,864

 

8,008

 

-14.3

%

Gross profit margin

 

36.7

%

38.3

%

 

 

34.7

%

36.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

487

 

517

 

-5.8

%

985

 

1,006

 

-2.1

%

Gross profit margin

 

46.3

%

46.0

%

 

 

46.0

%

48.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

115

 

175

 

-34.2

%

257

 

336

 

-23.7

%

Gross profit margin

 

-190.5

%

-60.0

%

 

 

-172.8

%

-67.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

24,924

 

25,783

 

-3.3

%

48,332

 

50,456

 

-4.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

12,132

 

12,281

 

-1.2

%

22,810

 

23,400

 

-2.5

%

Gross margin

 

48.7

%

47.6

%

 

 

47.2

%

46.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

6,680

 

5,837

 

14.4

%

12,257

 

11,723

 

4.6

%

Expense to revenue

 

26.8

%

22.6

%

 

 

25.4

%

23.2

%

 

 

R,D&E

 

1,548

 

1,587

 

-2.4

%

3,193

 

3,188

 

0.2

%

Expense to revenue

 

6.2

%

6.2

%

 

 

6.6

%

6.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intellectual property and custom development income

 

(247

)

(289

)

-14.5

%

(430

)

(545

)

-21.0

%

Other (income) and expense

 

(91

)

(132

)

-31.0

%

(151

)

(190

)

-20.4

%

Interest expense

 

98

 

117

 

-16.1

%

192

 

226

 

-15.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL EXPENSE AND OTHER INCOME

 

7,988

 

7,120

 

12.2

%

15,060

 

14,403

 

4.6

%

Expense to revenue

 

32.0

%

27.6

%

 

 

31.2

%

28.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

4,144

 

5,161

 

-19.7

%

7,750

 

8,997

 

-13.9

%

Pre-tax margin

 

16.6

%

20.0

%

 

 

16.0

%

17.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

918

 

1,280

 

-28.3

%

1,492

 

2,049

 

-27.2

%

Effective tax rate

 

22.1

%

24.8

%

 

 

19.2

%

22.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

3,226

 

$

3,881

 

-16.9

%

$

6,258

 

$

6,948

 

-9.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income margin

 

12.9

%

15.1

%

 

 

12.9

%

13.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

$

2.91

 

$

3.34

 

-12.9

%

$

5.60

 

$

5.95

 

-5.9

%

BASIC

 

$

2.93

 

$

3.38

 

-13.3

%

$

5.65

 

$

6.02

 

-6.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

1,109.4

 

1,161.9

 

 

 

1,116.7

 

1,168.1

 

 

 

BASIC

 

1,100.9

 

1,149.0

 

 

 

1,107.3

 

1,154.1

 

 

 

 

6



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(Dollars in Millions)

 

2013

 

2012

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,558

 

$

10,412

 

Marketable securities

 

799

 

717

 

Notes and accounts receivable - trade
(net of allowances of $258 in 2013 and $255 in 2012)

 

10,277

 

10,667

 

Short-term financing receivables
(net of allowances of $279 in 2013 and $288 in 2012)

 

16,661

 

18,038

 

Other accounts receivable
(net of allowances of $25 in 2013 and $17 in 2012)

 

1,898

 

1,873

 

Inventories, at lower of average cost or market:

 

 

 

 

 

Finished goods

 

482

 

475

 

Work in process and raw materials

 

1,906

 

1,812

 

 

 

 

 

 

 

Total inventories

 

2,389

 

2,287

 

Deferred taxes

 

1,584

 

1,415

 

Prepaid expenses and other current assets

 

4,746

 

4,024

 

 

 

 

 

 

 

Total Current Assets

 

47,911

 

49,433

 

 

 

 

 

 

 

Property, plant and equipment

 

39,552

 

40,501

 

Less: Accumulated depreciation

 

26,196

 

26,505

 

 

 

 

 

 

 

Property, plant and equipment - net

 

13,356

 

13,996

 

Long-term financing receivables
(net of allowances of $64 in 2013 and $66 in 2012)

 

11,828

 

12,812

 

Prepaid pension assets

 

922

 

945

 

Deferred taxes

 

4,150

 

3,973

 

Goodwill

 

28,846

 

29,247

 

Intangible assets - net

 

3,418

 

3,787

 

Investments and sundry assets

 

4,721

 

5,021

 

 

 

 

 

 

 

Total Assets

 

$

115,153

 

$

119,213

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Taxes

 

$

4,708

 

$

4,948

 

Short-term debt

 

7,830

 

9,181

 

Accounts payable

 

6,821

 

7,952

 

Compensation and benefits

 

4,223

 

4,745

 

Deferred income

 

12,241

 

11,952

 

Other accrued expenses and liabilities

 

5,214

 

4,847

 

 

 

 

 

 

 

Total Current Liabilities

 

41,037

 

43,625

 

 

 

 

 

 

 

Long-term debt

 

26,292

 

24,088

 

Retirement and nonpension postretirement benefit obligations

 

17,962

 

20,418

 

Deferred income

 

4,166

 

4,491

 

Other liabilities

 

7,812

 

7,607

 

 

 

 

 

 

 

Total Liabilities

 

97,269

 

100,229

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

Common stock

 

50,886

 

50,110

 

Retained earnings

 

121,883

 

117,641

 

Treasury stock — at cost

 

(129,239

)

(123,131

)

Accumulated other comprehensive income/(loss)

 

(25,774

)

(25,759

)

 

 

 

 

 

 

Total IBM stockholders’ equity

 

17,756

 

18,860

 

 

 

 

 

 

 

Noncontrolling interests

 

127

 

124

 

 

 

 

 

 

 

Total Equity

 

17,883

 

18,984

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$

115,153

 

$

119,213

 

 

7



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(Dollars in Millions)

 

2013

 

2012

 

2013

 

2012

 

Net Cash from Operating Activities per GAAP:

 

$

3,175

 

$

4,435

 

$

7,197

 

$

8,726

 

 

 

 

 

 

 

 

 

 

 

Less: the change in Global Financing (GF) Receivables

 

(450

)

(507

)

1,147

 

918

 

 

 

 

 

 

 

 

 

 

 

Net Cash from Operating Activities

 

 

 

 

 

 

 

 

 

(Excluding GF Receivables)

 

3,625

 

4,942

 

6,051

 

7,809

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures, Net

 

(939

)

(1,278

)

(1,668

)

(2,279

)

Free Cash Flow

 

 

 

 

 

 

 

 

 

(Excluding GF Receivables)

 

2,686

 

3,664

 

4,382

 

5,529

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(121

)

(606

)

(179

)

(1,925

)

Divestitures

 

2

 

13

 

12

 

13

 

Dividends

 

(1,048

)

(978

)

(1,996

)

(1,848

)

Share Repurchase

 

(3,552

)

(2,988

)

(6,145

)

(6,002

)

Non-GF Debt

 

922

 

933

 

205

 

1,590

 

Other (includes GF Receivables, and GF Debt)

 

(524

)

(1,187

)

2,949

 

1,907

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(1,635

)

$

(1,148

)

$

(772

)

$

(736

)

 

8



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SECOND-QUARTER 2013

 

-Normalized*-

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

(Loss)

 

Margin

 

(Loss)

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,536

 

$

292

 

$

9,828

 

$

1,514

 

15.4

%

$

1,866

 

19.0

%

Y-T-Y change

 

-4.6

%

0.3

%

-4.5

%

-13.8

%

 

 

2.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,606

 

188

 

4,795

 

623

 

13.0

%

856

 

17.9

%

Y-T-Y change

 

-1.3

%

4.5

%

-1.1

%

-22.4

%

 

 

1.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

6,423

 

738

 

7,161

 

2,443

 

34.1

%

2,662

 

37.2

%

Y-T-Y change

 

4.1

%

-4.9

%

3.1

%

-2.0

%

 

 

5.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

3,758

 

135

 

3,893

 

(141

)

-3.6

%

62

 

1.6

%

Y-T-Y change

 

-11.8

%

-15.0

%

-11.9

%

-160.2

%

 

 

-76.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

487

 

575

 

1,061

 

550

 

51.8

%

552

 

52.0

%

Y-T-Y change

 

-5.8

%

11.6

%

2.9

%

4.2

%

 

 

4.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

24,809

 

$

1,928

 

$

26,737

 

$

4,989

 

18.7

%

$

5,998

 

22.4

%

Y-T-Y change

 

-3.1

%

0.4

%

-2.9

%

-14.2

%

 

 

0.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

115

 

(1,928

)

(1,813

)

(846

)

 

 

(844

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

24,924

 

$

(0

)

$

24,924

 

$

4,144

 

16.6 

%

$

5,154

 

20.7

%

Y-T-Y change

 

-3.3

%

 

 

-3.3

%

-19.7

%

 

 

-3.0

%

 

 

 


*Normalized for second-quarter workforce rebalancing charges

 

 

 

SECOND-QUARTER 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

 

 

 

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

(Loss)

 

Margin

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,995

 

$

291

 

$

10,286

 

$

1,757

 

17.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,667

 

180

 

4,847

 

803

 

16.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

6,171

 

776

 

6,946

 

2,493

 

35.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

4,259

 

159

 

4,418

 

234

 

5.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

517

 

515

 

1,032

 

528

 

51.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

25,608

 

$

1,921

 

$

27,529

 

$

5,814

 

21.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

175

 

(1,921

)

(1,746

)

(653

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

25,783

 

$

(0

)

$

25,783

 

$

5,161

 

20.0

%

 

 

 

 

 

9



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SIX-MONTHS 2013

 

-Normalized*-

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

Income/

 

Pre-tax

 

(Dollars in Millions) 

 

External 

 

Internal

 

Total

 

(Loss)

 

Margin

 

(Loss) 

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

19,140

 

$

540

 

$

19,680

 

$

3,099

 

15.7

%

$

3,451

 

17.5

%

Y-T-Y change

 

-4.4

%

-7.6

%

-4.5

%

-4.3

%

 

 

4.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

9,091

 

368

 

9,459

 

1,326

 

14.0

%

1,559

 

16.5

%

Y-T-Y change

 

-2.3

%

1.5

%

-2.2

%

-5.6

%

 

 

8.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

11,995

 

1,569

 

13,563

 

4,457

 

32.9

%

4,676

 

34.5

%

Y-T-Y change

 

1.9

%

-2.9

%

1.3

%

0.4

%

 

 

4.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

6,864

 

255

 

7,118

 

(546

)

-7.7

%

(343

)

-4.8

%

Y-T-Y change

 

-14.3

%

-17.7

%

-14.4

%

NM

 

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

985

 

1,116

 

2,101

 

1,088

 

51.8

%

1,090

 

51.9

%

Y-T-Y change

 

-2.1

%

11.6

%

4.7

%

4.6

%

 

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

48,075

 

$

3,847

 

$

51,922

 

$

9,425

 

18.2

%

$

10,433

 

20.1

%

Y-T-Y change

 

-4.1

%

-0.6

%

-3.8

%

-8.0

%

 

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

257

 

(3,847

)

(3,590

)

(1,675

)

 

 

(1,673

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

48,332

 

$

(0

)

$

48,332

 

$

7,750

 

16.0

%

$

8,760

 

18.1

%

Y-T-Y change

 

-4.2

%

 

 

-4.2

%

-13.9

%

 

 

-4.3

%

 

 

 


*Normalized for second-quarter workforce rebalancing charges

NM - Not Meaningful

 

 

 

SIX-MONTHS 2012

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

(Loss)

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

20,031

 

$

 584

 

$

 20,615

 

$

 3,237

 

15.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

9,304

 

363

 

9,667

 

1,404

 

14.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

11,770

 

1,615

 

13,386

 

4,438

 

33.2

%

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

8,008

 

309

 

8,317

 

130

 

1.6

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

1,006

 

1,000

 

2,006

 

1,040

 

51.8

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

50,120

 

$

3,872

 

$

53,991

 

$

10,248

 

19.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

336

 

(3,872

)

(3,535

)

(1,252

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

50,456

 

$

(0

)

$

50,456

 

$

8,997

 

17.8

%

 

10



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

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

 

 

 

 

SECOND-QUARTER 2012

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments* 

 

Adjustments** 

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

12,281

 

$

93

 

$

66

 

$

12,440

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

47.6

%

0.4

Pts

0.3

Pts

48.2

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,837

 

(87

)

(33

)

5,717

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,587

 

0

 

5

 

1,592

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(132

)

(1

)

0

 

(133

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

7,120

 

(88

)

(28

)

7,004

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income

 

5,161

 

181

 

94

 

5,436

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income Margin

 

20.0

%

0.7

Pts

0.4

Pts

21.1

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

1,280

 

49

 

30

 

1,359

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

24.8

%

0.1

Pts

0.1

Pts

25.0

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

3,881

 

132

 

64

 

4,077

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

15.1

%

0.5

Pts

0.2

Pts

15.8

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$

3.34

 

$

0.11

 

$

0.06

 

$

3.51

 

 

11



 


*  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 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

 

 

12



 

 

 

SIX-MONTHS 2012