8-K 1 a14-22457_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: October 20, 2014

(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 October 20, 2014, regarding its financial results for the periods ended September 30, 2014, including consolidated financial statements for the periods ended September 30, 2014, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Martin Schroeter’s third quarter earnings presentation on October 20, 2014, as well as certain reconciliation and other information (“Non-GAAP Supplemental Materials”) for information in Attachment I (press release), Attachment II (slides) and in Mr. Schroeter’s presentation. All of the information in Attachment I and II is hereby filed.

 

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

 

2



 

SIGNATURE

 

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

 

 

Date: October 20, 2014

 

 

 

 

 

 

 

 

 

By:

/s/ James J. Kavanaugh

 

 

 

 

 

James J. Kavanaugh

 

 

Vice President and Controller
(Principal Accounting Officer)

 

3



 

ATTACHMENT I

 

IBM REPORTS 2014 THIRD-QUARTER RESULTS

 

NOTE: Results from continuing operations exclude discontinued Microelectronics business, to be acquired by GLOBALFOUNDRIES as announced today.

 

·                  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 third-quarter 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 non-recurring 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 year-ago 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 third-quarter 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-to-equity 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 year-ago 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 —

 

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

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

·                  adjusting for free cash flow;

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

 

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

 

$

9,218

 

$

9,494

 

-2.9

%

$

27,962

 

$

28,634

 

-2.3

%

Gross profit margin

 

38.5

%

39.0

%

 

 

38.3

%

37.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,459

 

4,558

 

-2.2

%

13,476

 

13,649

 

-1.3

%

Gross profit margin

 

31.3

%

32.9

%

 

 

30.4

%

30.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

5,708

 

5,798

 

-1.6

%

17,857

 

17,792

 

0.4

%

Gross profit margin

 

87.6

%

88.0

%

 

 

88.0

%

88.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

2,434

 

2,864

 

-15.0

%

7,590

 

9,041

 

-16.0

%

Gross profit margin

 

33.9

%

39.9

%

 

 

36.3

%

40.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

487

 

502

 

-3.2

%

1,502

 

1,488

 

1.0

%

Gross profit margin

 

47.8

%

47.2

%

 

 

49.6

%

46.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

92

 

122

 

-24.3

%

292

 

378

 

-22.8

%

Gross profit margin

 

-143.8

%

-211.6

%

 

 

-162.5

%

-185.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

22,397

 

23,338

 

-4.0

%

68,680

 

70,982

 

-3.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

10,874

 

11,429

 

-4.9

%

33,545

 

34,347

 

-2.3

%

Gross profit margin

 

48.6

%

49.0

%

 

 

48.8

%

48.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,281

 

5,260

 

0.4

%

17,146

 

17,463

 

-1.8

%

Expense to revenue

 

23.6

%

22.5

%

 

 

25.0

%

24.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,354

 

1,356

 

-0.1

%

4,117

 

4,291

 

-4.0

%

Expense to revenue

 

6.0

%

5.8

%

 

 

6.0

%

6.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

126

 

97

 

30.2

%

367

 

289

 

26.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL EXPENSE AND OTHER INCOME

 

6,513

 

6,458

 

0.9

%

20,654

 

21,205

 

-2.6

%

Expense to revenue

 

29.1

%

27.7

%

 

 

30.1

%

29.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

4,361

 

4,972

 

-12.3

%

12,891

 

13,142

 

-1.9

%

Pre-tax margin

 

19.5

%

21.3

%

 

 

18.8

%

18.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

906

 

832

 

8.8

%

2,655

 

2,478

 

7.1

%

Effective tax rate

 

20.8

%

16.7

%

 

 

20.6

%

18.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

3,455

 

$

4,139

 

-16.5

%

$

10,237

 

$

10,665

 

-4.0

%

Net margin

 

15.4

%

17.7

%

 

 

14.9

%

15.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

(3,437

)

(98

)

 

 

(3,698

)

(366

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

18

 

$

4,041

 

-99.6

%

$

6,539

 

$

10,299

 

-36.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

$

3.46

 

$

3.77

 

-8.2

%

$

10.09

 

$

9.60

 

5.1

%

DISCOUNTINUED OPERATIONS

 

$

(3.44

)

$

(0.09

)

 

 

$

(3.65

)

$

(0.33

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

0.02

 

$

3.68

 

-99.5

%

$

6.44

 

$

9.27

 

-30.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

$

3.48

 

$

3.79

 

-8.2

%

$

10.15

 

$

9.68

 

4.9

%

DISCOUNTINUED OPERATIONS

 

$

(3.46

)

$

(0.09

)

 

 

$

(3.67

)

$

(0.33

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

0.02

 

$

3.70

 

-99.5

%

$

6.48

 

$

9.35

 

-30.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

997.7

 

1,098.8

 

 

 

1,014.9

 

1,110.7

 

 

 

BASIC

 

991.8

 

1,090.9

 

 

 

1,008.9

 

1,101.8

 

 

 

 


* Reclassified to reflect discontinued operations presentation.

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

 

 

 

At

 

At

 

 

 

September 30,

 

December 31,

 

(Dollars in Millions)

 

2014

 

2013

 

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,561

 

$

10,716

 

Marketable securities

 

4

 

350

 

Notes and accounts receivable - trade
(net of allowances of $316 in 2014 and $291 in 2013)

 

9,122

 

10,465

 

Short-term financing receivables
(net of allowances of $432 in 2014 and $308 in 2013)

 

17,411

 

19,787

 

Other accounts receivable
(net of allowances of $46 in 2014 and $36 in 2013)

 

1,469

 

1,584

 

Inventories, at lower of average cost or market:

 

 

 

 

 

Finished goods

 

508

 

444

 

Work in process and raw materials

 

1,848

 

1,866

 

 

 

 

 

 

 

Total inventories

 

2,356

 

2,310

 

Deferred taxes

 

2,219

 

1,651

 

Prepaid expenses and other current assets

 

5,022

 

4,488

 

 

 

 

 

 

 

Total Current Assets

 

47,163

 

51,350

 

 

 

 

 

 

 

Property, plant and equipment

 

39,950

 

40,475

 

Less: Accumulated depreciation

 

28,882

 

26,654

 

 

 

 

 

 

 

Property, plant and equipment - net

 

11,068

 

13,821

 

Long-term financing receivables
(net of allowances of $87 in 2014 and $80 in 2013)

 

10,993

 

12,755

 

Prepaid pension assets

 

7,443

 

5,551

 

Deferred taxes

 

2,697

 

3,051

 

Goodwill

 

31,045

 

31,184

 

Intangible assets - net

 

3,373

 

3,871

 

Investments and sundry assets

 

5,126

 

4,639

 

 

 

 

 

 

 

Total Assets

 

$

118,911

 

$

126,223

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Taxes

 

$

2,475

 

$

4,633

 

Short-term debt

 

12,876

 

6,862

 

Accounts payable

 

5,855

 

7,461

 

Compensation and benefits

 

3,965

 

3,893

 

Deferred income

 

11,346

 

12,557

 

Other accrued expenses and liabilities

 

5,788

 

4,748

 

 

 

 

 

 

 

Total Current Liabilities

 

42,306

 

40,154

 

 

 

 

 

 

 

Long-term debt

 

32,821

 

32,856

 

Retirement and nonpension postretirement benefit obligations

 

15,093

 

16,242

 

Deferred income

 

3,683

 

4,108

 

Other liabilities

 

10,613

 

9,934

 

 

 

 

 

 

 

Total Liabilities

 

104,515

 

103,294

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

Common stock

 

52,446

 

51,594

 

Retained earnings

 

133,403

 

130,042

 

Treasury stock — at cost

 

(150,616

)

(137,242

)

Accumulated other comprehensive income/(loss)

 

(20,978

)

(21,602

)

 

 

 

 

 

 

Total IBM stockholders’ equity

 

14,255

 

22,792

 

 

 

 

 

 

 

Noncontrolling interests

 

140

 

137

 

 

 

 

 

 

 

Total Equity

 

14,395

 

22,929

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$

118,911

 

$

126,223

 

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(Dollars in Millions)

 

2014

 

2013

 

2014

 

2013

 

Net Cash from Operating Activities per GAAP:

 

$

3,904

 

$

3,760

 

$

10,809

 

$

10,957

 

 

 

 

 

 

 

 

 

 

 

Less: the change in Global Financing (GF) Receivables

 

719

 

481

 

2,223

 

1,628

 

 

 

 

 

 

 

 

 

 

 

Net Cash from Operating Activities

 

 

 

 

 

 

 

 

 

(Excluding GF Receivables)

 

3,185

 

3,279

 

8,587

 

9,329

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures, Net

 

(1,008

)

(1,041

)

(2,803

)

(2,709

)

 

 

 

 

 

 

 

 

 

 

Free Cash Flow

 

 

 

 

 

 

 

 

 

(Excluding GF Receivables)

 

2,177

 

2,238

 

5,783

 

6,620

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(47

)

(2,382

)

(650

)

(2,562

)

Divestitures

 

81

 

235

 

489

 

247

 

Dividends

 

(1,090

)

(1,037

)

(3,176

)

(3,033

)

Share Repurchase

 

(1,719

)

(1,917

)

(13,547

)

(8,062

)

Non-GF Debt

 

(483

)

1,351

 

4,536

 

1,556

 

Other (includes GF Receivables, and GF Debt)

 

925

 

1,388

 

5,065

 

4,337

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(156

)

$

(125

)

$

(1,501

)

$

(897

)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

THIRD-QUARTER 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,218

 

$

252

 

$

9,470

 

$

1,680

 

17.7

%

Y-T-Y change

 

-2.9

%

-3.8

%

-2.9

%

-11.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,459

 

135

 

4,594

 

805

 

17.5

%

Y-T-Y change

 

-2.2

%

-23.7

%

-3.0

%

-15.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

5,708

 

862

 

6,570

 

2,333

 

35.5

%

Y-T-Y change

 

-1.6

%

15.9

%

0.4

%

-3.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

2,434

 

182

 

2,616

 

(99

)

-3.8

%

Y-T-Y change

 

-15.0

%

8.7

%

-13.7

%

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

487

 

598

 

1,084

 

475

 

43.9

%

Y-T-Y change

 

-3.2

%

16.7

%

6.9

%

-3.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

22,305

 

$

2,029

 

$

24,334

 

$

5,195

 

21.3

%

Y-T-Y change

 

-3.9

%

8.9

%

-3.0

%

-9.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

92

 

(2,029

)

(1,937

)

(835

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

22,397

 

$

0

 

$

22,397

 

$

4,361

 

19.5

%

Y-T-Y change

 

-4.0

%

 

 

-4.0

%

-12.3

%

 

 

 



 

 

 

THIRD-QUARTER 2013*

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue 

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

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

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

502

 

512

 

1,015

 

494

 

48.7

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

23,216

 

$

1,863

 

$

25,079

 

$

5,738

 

22.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

122

 

(1,863

)

(1,741

)

(766

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

23,338

 

$

0

 

$

23,338

 

$

4,972

 

21.3

%

 


* Reclassified to reflect discontinued operations presentation.

NM = Not Meaningful

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

NINE-MONTHS 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

27,962

 

$

739

 

$

28,701

 

$

4,876

 

17.0

%

Y-T-Y change

 

-2.3

%

-7.8

%

-2.5

%

-2.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

13,476

 

416

 

13,892

 

2,266

 

16.3

%

Y-T-Y change

 

-1.3

%

-23.7

%

-2.1

%

-0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

17,857

 

2,652

 

20,508

 

6,935

 

33.8

%

Y-T-Y change

 

0.4

%

14.7

%

2.0

%

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

7,590

 

541

 

8,131

 

(354

)

-4.4

%

Y-T-Y change

 

-16.0

%

27.9

%

-14.1

%

167.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

1,502

 

1,900

 

3,403

 

1,664

 

48.9

%

Y-T-Y change

 

1.0

%

16.7

%

9.2

%

5.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

68,387

 

$

6,248

 

$

74,635

 

$

15,386

 

20.6

%

Y-T-Y change

 

-3.1

%

9.4

%

-2.2

%

-1.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

292

 

(6,248

)

(5,955

)

(2,495

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

68,680

 

$

0

 

$

68,680

 

$

12,891

 

18.8

%

Y-T-Y change

 

-3.2

%

 

 

-3.2

%

-1.9

%

 

 

 

 

 

NINE-MONTHS 2013*

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income

 

 

 

 

 

 

 

 

 

 

 

(Loss)/

 

 

 

 

 

Revenue 

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External 

 

Internal

 

Total

 

Operations

 

Margin

 

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

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

70,604

 

$

5,710

 

$

76,314

 

$

15,583

 

20.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

378

 

(5,710

)

(5,331

)

(2,441

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

70,982

 

$

0

 

$

70,982

 

$

13,142

 

18.5

%

 


* 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)

 

 

 

THIRD-QUARTER 2014

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

Gross Profit

 

$

10,874

 

$

106

 

$

43

 

$

11,023

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

48.6

%

0.5

Pts

0.2

Pts

49.2

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,281

 

(96

)

(48

)

5,137

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,354

 

 

19

 

1,373

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(103

)

0

 

 

(103

)

 

 

 

 

 

 

 

 

 

 

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

%

0.9

Pts

0.3

Pts

20.7

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

906

 

42

 

14

 

963

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

20.8

%

0.0

Pts

0.0

Pts

20.8

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

3,455

 

159

 

57

 

3,671

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

15.4

%

0.7

Pts

0.3

Pts

16.4

%

 

 

 

 

 

 

 

 

 

 

Loss from Discontinued Operations

 

 

 

 

 

 

 

 

 

Net of Taxes

 

(3,437

)

 

 

(3,437

)

 

 

 

 

 

 

 

 

 

 

Net Income

 

18

 

159

 

57

 

234

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

3.46

 

$

0.16

 

$

0.06

 

$

3.68

 

Discontinued Operations

 

$

(3.44

)

 

 

$

(3.44

)

 



 

 

 

THIRD-QUARTER 2013****

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

Gross Profit

 

$

11,429

 

$

102

 

$

154

 

$

11,686

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

49.0

%

0.4

Pts

0.7

Pts

50.1

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,260

 

(111

)

(89

)

5,060

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,356

 

 

(14

)

1,342

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(63

)

(1

)

 

(64

)

 

 

 

 

 

 

 

 

 

 

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

%

0.9

Pts

1.1

Pts

23.3

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

832

 

48

 

77

 

958

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

16.7

%

0.2

Pts

0.6

Pts

17.6

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

4,139

 

166

 

181

 

4,485

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

17.7

%

0.7

Pts

0.8

Pts

19.2

%

 

 

 

 

 

 

 

 

 

 

Loss from Discontinued Operations

 

 

 

 

 

 

 

 

 

Net of Taxes

 

(98

)

 

 

(98

)

 

 

 

 

 

 

 

 

 

 

Net Income

 

4,041

 

166

 

181

 

4,387

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

3.77

 

$

0.15

 

$

0.16

 

$

4.08

 

Discontinued Operations

 

$

(0.09

)

 

 

$

(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-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

Gross Profit

 

$

33,545

 

$

315

 

$

141

 

$

34,001

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

48.8

%

0.5

Pts

0.2

Pts

49.5

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

17,146

 

(291

)

(162

)

16,693

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

4,117

 

 

56

 

4,173

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(433

)

0

 

 

(433

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

20,654

 

(292

)

(106

)

20,257

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income from Continuing Operations

 

12,891

 

607

 

246