IBM (NYSE:IBM):
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.
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 --
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
$
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 OUT-
STANDING (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 (Dollars in Millions)
September 30, December 31, 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 (Dollars in Millions)
September 30,
September 30,
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)
(Dollars in Millions)
----------- Revenue ------------
Continuing
Pre-tax
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) (Dollars in Millions)
----------- Revenue ------------
Continuing Pre-tax 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) (Dollars in Millions) ----------Revenue -----------
Continuing Pre-tax 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)/ (Dollars in Millions) --------Revenue
------------ Continuing Pre-tax 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 reflectdiscontinued operations
presentation. INTERNATIONAL BUSINESS MACHINES
CORPORATION U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except pershare 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% 0.5Pts 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 - (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% 0.9Pts 0.3Pts 20.7%
Provision for Income Taxes*** 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% 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% 0.4Pts 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) - (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%
0.9Pts 1.1Pts 23.3% Provision for Income Taxes*** 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%
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% 0.5Pts 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 - (433)
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
Income Margin from Continuing Operations 14.9% 0.7Pts 0.3Pts 15.9%
Loss from Discontinued Operations Net of Taxes (3,698) - -
(3,698) Net Income 6,539 483 197 7,219 Diluted
Earnings Per Share: Continuing Operations
$10.09
$0.48
$0.19
$10.76
Discontinued Operations ($3.65) - - ($3.65)
NINE-MONTHS 2013****
CONTINUING OPERATIONS Acquisition- Retirement- Related Related
Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit
$34,347
$289
$474
$35,110
Gross Profit Margin 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) - (225)
Total Expense & Other (Income) 21,205 (302) (329) 20,574
Pre-Tax Income from Continuing Operations 13,142 590 803 14,536
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
Income Margin from Continuing Operations 15.0% 0.7Pts 0.8Pts
16.5% Loss from Discontinued Operations Net of Taxes (366) -
- (366) Net Income 10,299 479 564 11,342 Diluted
Earnings Per Share: Continuing Operations
$9.60
$0.43
$0.51
$10.54
Discontinued Operations ($0.33) - - ($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.
IBMMike Fay, 914-525-8476mikefay@us.ibm.comorJohn Bukovinsky,
732-618-3531jbuko@us.ibm.com
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