IBM Reports 2014 Fourth-Quarter and Full-Year Results

ARMONK, N.Y.--()--IBM (NYSE:IBM)

Fourth-Quarter 2014:

  • Diluted EPS from continuing operations:
    • GAAP: $5.54, down 4 percent;
    • Operating (non-GAAP): $5.81, down 6 percent;
  • Pre-tax income from continuing operations:
    • GAAP: $7.1 billion, flat year-to-year;
    • Operating (non-GAAP): $7.4 billion, down 2 percent;
  • Net income from continuing operations:
    • GAAP: $5.5 billion, down 11 percent;
    • Operating (non-GAAP): $5.8 billion, down 13 percent;
  • Gross profit margin from continuing operations:
    • GAAP: 53.3 percent, up 100 basis points;
    • Operating (non-GAAP): 53.9 percent, up 60 basis points;
  • Revenue from continuing operations: $24.1 billion:
    • Down 12 percent; down 2 percent adjusting for divested businesses and currency.

Full-Year 2014:

  • Diluted EPS from continuing operations:
    • GAAP: $15.59, up 2 percent;
    • Operating (non-GAAP): $16.53, down 1 percent;
  • Pre-tax income from continuing operations:
    • GAAP: $20.0 billion, down 1 percent;
    • Operating (non-GAAP): $21.1 billion, down 4 percent;
  • Net income from continuing operations:
    • GAAP: $15.8 billion, down 7 percent;
    • Operating (non-GAAP): $16.7 billion, down 9 percent;
  • Gross profit margin from continuing operations:
    • GAAP: 50.0 percent, up 50 basis points;
    • Operating (non-GAAP): 50.6 percent, up 10 basis points;
  • Revenue from continuing operations: $92.8 billion:
    • Down 6 percent; down 1 percent adjusting for divested businesses and currency;
  • Strategic imperatives grew 16 percent to $25 billion, and now represent 27 percent of total IBM revenue:
    • Total Cloud revenue of $7 billion, up 60 percent;
      • Cloud delivered as a service revenues of $3 billion, up approximately 75 percent;
      • Year-end annual run rate of $3.5 billion for cloud delivered as a service;
    • Business analytics revenue up 7 percent to nearly $17 billion;
    • Mobile revenue more than tripled;
    • Security revenue up 19 percent.

IBM (NYSE:IBM) today announced fourth-quarter 2014 diluted earnings from continuing operations of $5.54 per share, compared with diluted earnings of $5.76 per share in the fourth-quarter of 2013, a decrease of 4 percent. Operating (non-GAAP) diluted earnings from continuing operations were $5.81 per share compared with operating diluted earnings of $6.16 per share in the fourth-quarter of 2013, a decrease of 6 percent.

Fourth-quarter net income from continuing operations was $5.5 billion compared with $6.2 billion in the fourth-quarter of 2013, a decrease of 11 percent. Operating (non-GAAP) net income from continuing operations was $5.8 billion, as compared with $6.6 billion in the fourth-quarter of 2013, a decrease of 13 percent.

For the fourth-quarter of 2014, IBM reported consolidated net income of $5.5 billion or $5.51 of diluted earnings per share, including operating net losses in discontinued operations related to the microelectronics manufacturing business.

Total revenues from continuing operations for the fourth-quarter of 2014 of $24.1 billion were down 12 percent (down 2 percent, adjusting for the impact of the divested customer care outsourcing and System x businesses and for currency) from the fourth-quarter of 2013 and were down 1 percent for the full year 2014, adjusting for the impact of the divested businesses and for currency.

“We are making significant progress in our transformation, continuing to shift IBM’s business to higher value, and investing and positioning ourselves for the longer term," said Ginni Rometty, IBM chairman, president and chief executive officer.

"In 2014, we repositioned our hardware portfolio for higher value, maintained a services backlog of $128 billion and achieved strong revenue growth across cloud, analytics, mobile, social and security. Together these strategic imperatives grew 16 percent in 2014 and now represent $25 billion and 27 percent of our revenue.”

Fourth-Quarter GAAP – Operating (non-GAAP) Reconciliation

Fourth-quarter operating (non-GAAP) diluted earnings from continuing operations exclude $0.27 per share of charges; $0.19 per share for the amortization of purchased intangible assets and other acquisition-related charges; and $0.08 per share for retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.

Full-Year 2015 Expectations

The company will provide 2015 earnings expectations during today’s quarterly earnings conference call.

Geographic Regions

The Americas’ fourth-quarter revenues were $11.1 billion, a decrease of 9 percent (down 4 percent, adjusting for divested businesses and currency) from the 2013 period. Revenues from Europe/Middle East/Africa were down 13 percent to $8.0 billion (down 1 percent, adjusting for divested businesses and currency). Asia-Pacific revenues decreased 17 percent (down 2 percent, adjusting for divested businesses and currency) to $4.9 billion.

Growth Markets and Major Markets

Revenues from the company’s growth markets were down 16 percent (down 2 percent, adjusting for divested businesses and currency). Revenues in the BRIC countries — Brazil, Russia, India and China — were down 21 percent (down 8 percent, adjusting for divested businesses and currency). China revenues were down 1 percent, adjusting for divested businesses and currency. Revenues from the company’s major markets were down 11 percent (down 2 percent, adjusting for divested businesses and currency).

Services

Global Services segment revenues decreased 8 percent (flat adjusting for the impact of the divested customer care outsourcing and System x businesses and for currency) to $13.5 billion. Global Technology Services segment revenues decreased 8 percent (up 2 percent adjusting for the impact of the divested customer care outsourcing and System x businesses and for currency) to $9.2 billion. Global Business Services segment revenues were down 8 percent (down 3 percent, adjusting for currency) to $4.3 billion.

Pre-tax income from Global Technology Services decreased 26 percent and pre-tax margin decreased to 15.6 percent. Global Business Services pre-tax income decreased 22 percent and pre-tax margin decreased to 16.4 percent. Pre-tax income and margin include the impact of the fourth-quarter workforce rebalancing charge.

The estimated services backlog at December 31, 2014 was $128 billion, flat year to year adjusting for the divested customer care outsourcing and System x businesses and currency.

Software

Revenues from the Software segment were $7.6 billion, down 7 percent (down 3 percent, adjusting for currency) compared with the fourth-quarter of 2013. Software pre-tax income decreased 11 percent and pre-tax margin decreased to 44.7 percent. Pre-tax income and margin include the impact of the fourth-quarter workforce rebalancing charge.

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $5.4 billion, down 6 percent (down 3 percent, adjusting for currency) versus the fourth-quarter of 2013. Operating systems revenues of $557 million were down 19 percent (down 16 percent, adjusting for currency) compared with the prior-year quarter.

Financing

Global Financing segment revenues were flat (up 5 percent, adjusting for currency) in the fourth-quarter to $532 million. Pre-tax income for the segment decreased 11 percent to $526 million.

Hardware

Revenues from continuing operations for the Systems and Technology segment totaled $2.4 billion for the quarter, down 39 percent (down 12 percent, adjusting for the impact of the divested System x business and currency) from the fourth-quarter of 2013. Systems and Technology pre-tax income increased 12 percent and pre-tax margin increased to 15.5 percent. Pre-tax income and margin include the impact of the fourth-quarter workforce rebalancing charge.

Revenues from Power Systems were down 13 percent (down 11 percent, adjusting for currency) compared with the 2013 period. Revenues from System z mainframe server products decreased 26 percent (down 23 percent, adjusting for currency). Revenues from System Storage decreased 8 percent (down 5 percent, adjusting for currency).

Gross Profit

The company’s total gross profit margin from continuing operations was 53.3 percent in the 2014 fourth-quarter period compared with 52.4 percent in the 2013 fourth-quarter period. Total operating (non-GAAP) gross profit margin from continuing operations was 53.9 percent in the 2014 fourth-quarter compared with 53.3 percent in the 2013 fourth-quarter period.

Expense

Total reported expense and other income from continuing operations declined 20 percent to $5.8 billion compared with the prior year period. The reported reduction was driven by the gain of $1.4 billion ($1.1 billion pre-tax income benefit, net of related transaction and performance-based costs) from the divestiture of the System x business and the elimination of the expense for the System x business from the company’s run rate. Without these items, expense and other income would have been up approximately 2 percent. S,G&A expense of $6.0 billion was up 1 percent from the prior-year period and includes the workforce rebalancing charge of approximately $580 million. R,D&E expense of $1.3 billion decreased 9 percent compared with the year-ago period, reflecting the divestiture of the System x business and currency impact. Intellectual property and custom development income decreased to $199 million compared with $201 million a year ago. Other (income) and expense was income of $1.5 billion, including the gain from the divested System x business, compared with prior-year income of $116 million. Interest expense increased to $117 million compared with $113 million in the prior-year period.

Total operating (non-GAAP) expense and other income from continuing operations decreased 20 percent to $5.6 billion compared with the prior-year period, including the gain from the divestiture of the System x business. Operating (non-GAAP) S,G&A expense increased 1 percent to $5.8 billion compared with the prior-year period and includes the workforce rebalancing charge. Operating (non-GAAP) R,D&E expense of $1.3 billion was down 7 percent compared with the year-ago period, reflecting the divestiture of the System x business and currency impact.

Pre-Tax Income

Pre-tax income from continuing operations was flat year over year at $7.1 billion; pre-tax margin of 29.4 percent was up 3.5 points compared with the prior-year period. Operating (non-GAAP) pre-tax income from continuing operations decreased 2 percent to $7.4 billion and pre-tax margin was 30.7 percent, up 3.0 points, compared to the year-ago period.

***

IBM’s tax rate from continuing operations was 22.3 percent, up 9.8 points year over year; operating (non-GAAP) tax rate was 21.8 percent, up 9.6 points compared to the year-ago period. The change in the fourth-quarter tax rate is driven by prior year discrete tax items, including benefits from tax audit settlements.

Net income margin from continuing operations increased 0.2 points to 22.9 percent. Total operating (non-GAAP) net income margin from continuing operations decreased 0.3 points to 24.0 percent.

The weighted-average number of diluted common shares outstanding in the fourth-quarter 2014 was 995 million, a decrease of 8 percent compared with the same period of 2013. As of December 31, 2014, there were 991 million basic common shares outstanding.

Debt, including Global Financing, totaled $40.8 billion, compared with $39.7 billion at year-end 2013, and down $4.9 billion from the third quarter of 2014. From a management segment view, Global Financing debt totaled $29.1 billion versus $27.5 billion at year-end 2013, resulting in a debt-to-equity ratio of 7.2 to 1. Core (non-global financing) debt totaled $11.7 billion, a decrease of $0.5 billion since year-end 2013, resulting in a debt-to-capitalization ratio of 59 percent, which includes impacts from retirement plan remeasurement that take into account changes in discount rates and recently released U.S. mortality tables, the announced Microelectronics business divestiture and foreign exchange translation.

IBM ended the fourth-quarter 2014 with $8.5 billion of cash on hand and generated free cash flow of $6.6 billion, excluding Global Financing receivables, down approximately $1.8 billion year over year. In the fourth quarter of 2014, the company returned $1.2 billion to shareholders through $1.1 billion in dividends and $0.1 billion of gross share repurchases.

At the end of December 2014, IBM had approximately $6.3 billion remaining from the current share repurchase authorization.

Full-Year 2014 Results

Net income from continuing operations for the twelve months ended December 31, 2014 was $15.8 billion compared with $16.9 billion in the year-ago period, a decrease of 7 percent. Diluted earnings per share from continuing operations were $15.59, up 2 percent compared to the 2013 period.

The consolidated diluted earnings per share were $11.90 as compared to $14.94 per share in 2013, down 20 percent. Revenues from continuing operations for the twelve-month period totaled $92.8 billion, a decrease of 6 percent (down 1 percent, adjusting for divested businesses and currency) compared with $98.4 billion for the twelve months of 2013.

Full year results include a non-recurring pre-tax charge of $4.7 billion, or $3.4 billion, net of tax. The charge includes an impairment to reflect fair value less estimated costs to sell the Microelectronics manufacturing business assets, which the company has classified as held for sale at December 31, 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.

Operating (non-GAAP) net income from continuing operations for the twelve months ended December 31, 2014 was $16.7 billion compared with $18.4 billion in the year-ago period, a decrease of 9 percent. Operating (non-GAAP) diluted earnings per share from continuing operations were $16.53 compared with $16.64 per diluted share for the 2013 period, a decrease of less than 1 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);
  • adjusting for the divestiture of the System x and the customer care outsourcing businesses.

The rationale for management’s use of non-GAAP measures is included as part of the supplemental materials presented within the fourth-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. EST, today. The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/4q14.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

 

Twelve Months Ended

December 31,

December 31,

    Percent     Percent
2014 2013* Change 2014 2013* Change
REVENUE
 
Global Technology Services $ 9,167 $ 9,917 -7.6 % $ 37,130 $ 38,551 -3.7 %
Gross profit margin 38.5 % 38.8 % 38.3 % 38.1 %
 
Global Business Services 4,349 4,747 -8.4 % 17,825 18,396 -3.1 %
Gross profit margin 32.0 % 30.7 % 30.8 % 30.9 %
 
Software 7,578 8,140 -6.9 % 25,434 25,932 -1.9 %
Gross profit margin 90.0 % 90.5 % 88.6 % 88.8 %
 
Systems and Technology 2,406 3,947 -39.0 % 9,996 12,988 -23.0 %
Gross profit margin 49.6 % 42.2 % 39.5 % 40.8 %
 
Global Financing 532 534 -0.5 % 2,034 2,022 0.6 %
Gross profit margin 48.7 % 43.3 % 49.4 % 45.6 %
 
Other 82 100 -17.7 % 374 478 -21.7 %
Gross profit margin -401.7 % -234.8 % -215.0 % -195.6 %
 
TOTAL REVENUE 24,113 27,385 -11.9 % 92,793 98,367 -5.7 %
 
GROSS PROFIT 12,862 14,337 -10.3 % 46,407 48,684 -4.7 %
Gross profit margin 53.3 % 52.4 % 50.0 % 49.5 %
 
EXPENSE AND OTHER INCOME
 
S,G&A 6,034 5,987 0.8 % 23,180 23,451 -1.2 %
Expense to revenue 25.0 % 21.9 % 25.0 % 23.8 %
 
R,D&E 1,320 1,452 -9.1 % 5,437 5,743 -5.3 %
Expense to revenue 5.5 % 5.3 % 5.9 % 5.8 %
 
Intellectual property and¬¬
custom development income (199 ) (201 ) -1.2 % (742 ) (822 ) -9.8 %
 
Other (income) and expense (1,506 ) (116 ) NM (1,938 ) (333 ) NM
 
Interest expense 117 113 3.6 % 484 402 20.4 %
 
TOTAL EXPENSE AND
OTHER INCOME 5,767 7,235 -20.3 % 26,421 28,440 -7.1 %
Expense to revenue 23.9 % 26.4 % 28.5 % 28.9 %
 
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 7,094 7,102 -0.1 % 19,986 20,244 -1.3 %
Pre-tax margin 29.4 % 25.9 % 21.5 % 20.6 %
 
Provision for income taxes 1,580 885 78.4 % 4,234 3,363 25.9 %
Effective tax rate 22.3 % 12.5 % 21.2 % 16.6 %
 
INCOME FROM CONTINUING
OPERATIONS $ 5,515 $ 6,216 -11.3 % $ 15,751 $ 16,881 -6.7 %
Net margin 22.9 % 22.7 % 17.0 % 17.2 %
 
DISCONTINUED OPERATIONS
Loss from discontinued
operations, net of taxes (31 ) (32 ) (3,729 ) (398 )
 
NET INCOME $ 5,484   $ 6,185   -11.3 % $ 12,022   $ 16,483   -27.1 %
 
EARNINGS PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING OPERATIONS $ 5.54 $ 5.76 -3.8 % $ 15.59 $ 15.30 1.9 %

DISCONTINUED OPERATIONS

  ($0.03 )   ($0.03 )   ($3.69 )   ($0.36 )
TOTAL $ 5.51   $ 5.73   -3.8 % $ 11.90   $ 14.94   -20.3 %
 
BASIC
CONTINUING OPERATIONS $ 5.57 $ 5.80 -4.0 % $ 15.68 $ 15.42 1.7 %

DISCONTINUED OPERATIONS

  ($0.03 )   ($0.03 )   ($3.71 )   ($0.36 )
TOTAL $ 5.54   $ 5.77   -4.0 % $ 11.97   $ 15.06   -20.5 %
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING (M's):
ASSUMING DILUTION 995.4 1,080.0 1,010.0 1,103.0
BASIC 990.4 1,072.5 1,004.3 1,094.5
 
* Reclassified to reflect discontinued operations presentation.
NM = Not Meaningful
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
 
  At   At
(Dollars in Millions) December 31, December 31,
2014 2013
ASSETS:
 
Current Assets:
Cash and cash equivalents $ 8,476 $ 10,716
Marketable securities 0 350
Notes and accounts receivable - trade
(net of allowances of $336 in 2014 and $291 in 2013) 9,090 10,465
Short-term financing receivables
(net of allowances of $452 in 2014 and $308 in 2013) 19,835 19,787
Other accounts receivable
(net of allowances of $40 in 2014 and $36 in 2013) 2,906 1,584
Inventories, at lower of average cost or market:
Finished goods 430 444
Work in process and raw materials   1,674     1,866  
Total inventories 2,103 2,310
Deferred taxes 2,044 1,651
Prepaid expenses and other current assets   4,967     4,488  
Total Current Assets 49,422 51,350
 
Property, plant and equipment 39,034 40,475
Less: Accumulated depreciation   28,263     26,654  
Property, plant and equipment - net 10,771 13,821
Long-term financing receivables
(net of allowances of $126 in 2014 and $80 in 2013) 11,109 12,755
Prepaid pension assets 2,160 5,551
Deferred taxes 4,808 3,051
Goodwill 30,556 31,184
Intangible assets - net 3,104 3,871
Investments and sundry assets   5,603     4,639  
Total Assets $ 117,532   $ 126,223  
 
LIABILITIES:
 
Current Liabilities:
Taxes $ 5,084 $ 4,633
Short-term debt 5,731 6,862
Accounts payable 6,864 7,461
Compensation and benefits 4,031 3,893
Deferred income 11,877 12,557
Other accrued expenses and liabilities   6,013     4,748  
Total Current Liabilities 39,600 40,154
 
Long-term debt 35,073 32,856
Retirement and nonpension postretirement
benefit obligations 18,261 16,242
Deferred income 3,691 4,108
Other liabilities   8,892     9,934  
Total Liabilities 105,518 103,294
 
EQUITY:
 
IBM Stockholders' Equity:
Common stock 52,666 51,594
Retained earnings 137,793 130,042
Treasury stock -- at cost (150,715 ) (137,242 )
Accumulated other comprehensive income/(loss)   (27,875 )   (21,602 )
Total IBM stockholders' equity 11,868 22,792
 
Noncontrolling interests   146     137  
Total Equity   12,014     22,929  
Total Liabilities and Equity $ 117,532   $ 126,223  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended   Twelve Months Ended
(Dollars in Millions) December 31, December 31,
2014   2013 2014   2013
Net Cash from Operating Activities per GAAP: $ 6,059 $ 6,528 $ 16,868 $ 17,485
 
Less: the change in Global Financing (GF)
Receivables   (1,505 )   (2,932 )   718     (1,304 )
Net Cash from Operating Activities
(Excluding GF Receivables) 7,564 9,460 16,151 18,789
 
Capital Expenditures, Net (976 ) (1,059 ) (3,779 ) (3,768 )
 
Free Cash Flow
(Excluding GF Receivables) 6,588 8,401 12,372 15,021
 
Acquisitions (6 ) (495 ) (656 ) (3,056 )
Divestitures 1,869 50 2,357 297
Dividends (1,089 ) (1,025 ) (4,265 ) (4,058 )
Share Repurchase (132 ) (5,797 ) (13,679 ) (13,859 )
Non-GF Debt (5,883 ) 1,637 (1,348 ) 3,193
Other (includes GF Receivables, and
GF Debt) (2,435 ) (1,937 ) 2,629 2,400
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities   ($1,088 ) $ 834     ($2,589 )   ($63 )
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  FOURTH-QUARTER 2014
      Pre-tax  
Income/
(Loss)
(Dollars in Millions) Revenue Continuing Pre-tax
External Internal Total Operations Margin
SEGMENT
 
Global Technology Services $ 9,167 $ 195 $ 9,362 $ 1,464 15.6 %
Y-T-Y change -7.6 % -25.7 % -8.0 % -26.4 %
 
Global Business Services 4,349 127 4,476 733 16.4 %
Y-T-Y change -8.4 % -24.9 % -8.9 % -22.0 %
 
Software 7,578 845 8,422 3,765 44.7 %
Y-T-Y change -6.9 % -3.8 % -6.6 % -11.2 %
 
Systems and Technology 2,406 107 2,512 388 15.5 %
Y-T-Y change -39.0 % -37.4 % -39.0 % 12.2 %
 
Global Financing 532 588 1,119 526 47.0 %
Y-T-Y change -0.5 % -10.1 % -5.8 % -10.8 %
 
TOTAL REPORTABLE SEGMENTS $ 24,031 $ 1,860 $ 25,891 $ 6,876 26.6 %
Y-T-Y change -11.9 % -12.8 % -12.0 % -15.2 %
 
Eliminations / Other 82 (1,860 ) (1,778 ) 219
 
TOTAL IBM CONSOLIDATED $ 24,113 $ 0 $ 24,113 $ 7,094 29.4 %
Y-T-Y change -11.9 % -11.9 % -0.1 %
 
 
FOURTH-QUARTER 2013*
Pre-tax
Income/
(Loss)
(Dollars in Millions) Revenue Continuing Pre-tax
External Internal Total Operations Margin
SEGMENTS
 
Global Technology Services $ 9,917 $ 262 $ 10,179 $ 1,989 19.5 %
 
Global Business Services 4,747 169 4,915 940 19.1 %
 
Software 8,140 878 9,018 4,239 47.0 %
 
Systems and Technology* 3,947 170 4,117 346 8.4 %
 
Global Financing 534 654 1,188 589 49.6 %
 
TOTAL REPORTABLE SEGMENTS $ 27,285 $ 2,133 $ 29,418 $ 8,104 27.5 %
 
Eliminations / Other 100 (2,133 ) (2,033 ) (1,002 )
 
TOTAL IBM CONSOLIDATED $ 27,385 $ 0 $ 27,385 $ 7,102 25.9 %
 
* Reclassified to reflect discontinued operations presentation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
         
TWELVE-MONTHS 2014
Pre-tax
Income/
(Loss)
(Dollars in Millions) Revenue Continuing Pre-tax
External Internal Total Operations Margin
SEGMENTS
 
Global Technology Services $ 37,130 $ 934 $ 38,063 $ 6,340 16.7 %
Y-T-Y change -3.7 % -12.2 % -3.9 % -9.2 %
 
Global Business Services 17,825 543 18,367 2,999 16.3 %
Y-T-Y change -3.1 % -24.0 % -3.9 % -6.7 %
 
Software 25,434 3,496 28,931 10,699 37.0 %
Y-T-Y change -1.9 % 9.6 % -0.7 % -3.7 %
 
Systems and Technology 9,996 647 10,643 34 0.3 %
Y-T-Y change -23.0 % 9.2 % -21.6 % -84.1 %
 
Global Financing 2,034 2,488 4,522 2,189 48.4 %
Y-T-Y change 0.6 % 9.0 % 5.1 % 0.8 %
 
TOTAL REPORTABLE SEGMENTS $ 92,418 $ 8,108 $ 100,527 $ 22,262 22.1 %
Y-T-Y change -5.6 % 3.4 % -4.9 % -6.0 %
 
Eliminations / Other 374 (8,108 ) (7,734 ) (2,276 )
 
TOTAL IBM CONSOLIDATED $ 92,793 $ 0 $ 92,793 $ 19,986 21.5 %
Y-T-Y change -5.7 % -5.7 % -1.3 %
 
 
TWELVE-MONTHS 2013*
Pre-tax
Income
(Loss)/
(Dollars in Millions) Revenue Continuing Pre-tax
External Internal Total Operations Margin
SEGMENTS
 
 
Global Technology Services $ 38,551 $ 1,063 $ 39,615 $ 6,983 17.6 %
 
Global Business Services 18,396 714 19,109 3,214 16.8 %
 
Software 25,932 3,191 29,123 11,106 38.1 %
 
Systems and Technology* 12,988 593 13,581 213 1.6 %
 
Global Financing 2,022 2,282 4,304 2,171 50.4 %
 
TOTAL REPORTABLE SEGMENTS $ 97,889 $ 7,843 $ 105,732 $ 23,687 22.4 %
 
Eliminations / Other 478 (7,843 ) (7,365 ) (3,443 )
 
TOTAL IBM CONSOLIDATED $ 98,367 $ 0 $ 98,367 $ 20,244 20.6 %
 
* 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)
 
  FOURTH-QUARTER 2014
CONTINUING OPERATIONS
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 12,862 $ 101 $ 33 $ 12,996
 
Gross Profit Margin 53.3 % 0.4Pts 0.1Pts 53.9 %
 
S,G&A 6,034 (94 ) (95 ) 5,845
 
R,D&E 1,320 - 21 1,341
 
Other (Income) & Expense (1,506 ) (1 ) - (1,506 )
 
Total Expense & Other (Income) 5,767 (95 ) (74 ) 5,598
 
Pre-Tax Income from
Continuing Operations 7,094 196 107 7,398
 
Pre-Tax Income Margin from
Continuing Operations 29.4 % 0.8Pts 0.4Pts 30.7 %
 
Provision for Income Taxes*** 1,580 10 24 1,613
 
Effective Tax Rate 22.3 % -0.5Pts 0.0Pts 21.8 %
 
Income from Continuing Operations 5,515 186 84 5,785
 
Income Margin from
Continuing Operations 22.9 % 0.8Pts 0.3Pts 24.0 %
 
Loss from Discontinued Operations
Net of Taxes (31 ) - - (31 )
 
Net Income 5,484 186 84 5,753
 
Diluted Earnings Per Share:
Continuing Operations $ 5.54 $ 0.19 $ 0.08 $ 5.81
Discontinued Operations ($0.03 ) - - ($0.03 )
 
 
FOURTH-QUARTER 2013****
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 14,337 $ 105 $ 154 $ 14,596
 
Gross Profit Margin 52.4 % 0.4Pts 0.6Pts 53.3 %
 
S,G&A 5,987 (101 ) (90 ) 5,796
 
R,D&E 1,452 - (14 ) 1,438
 
Other (Income) & Expense (116 ) (8 ) - (124 )
 
Total Expense & Other (Income) 7,235 (109 ) (104 ) 7,023
 
Pre-Tax Income from
Continuing Operations 7,102 213 258 7,574
 
Pre-Tax Income Margin from
Continuing Operations 25.9 % 0.8Pts 0.9Pts 27.7 %
 
Provision for Income Taxes*** 885 (55 ) 94 925
 
Effective Tax Rate 12.5 % -1.1Pts 0.8Pts 12.2 %
 
Income from Continuing Operations 6,216 268 164 6,649
 
Income Margin from
Continuing Operations 22.7 % 1.0Pts 0.6Pts 24.3 %
 
Loss from Discontinued Operations
Net of Taxes (32 ) - - (32 )
 
Net Income 6,185 268 164 6,617
 
Diluted Earnings Per Share:
Continuing Operations $ 5.76 $ 0.25 $ 0.15 $ 6.16
Discontinued Operations ($0.03 ) - - ($0.03 )

* 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)

 
  TWELVE-MONTHS 2014
CONTINUING OPERATIONS
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 46,407 $ 416 $ 173 $ 46,996
 
Gross Profit Margin 50.0 % 0.4Pts 0.2Pts 50.6 %
 
S,G&A 23,180 (385 ) (257 ) 22,537
 
R,D&E 5,437 - 77 5,514
 
Other (Income) & Expense (1,938 ) (1 ) - (1,939 )
 
Total Expense & Other (Income) 26,421 (386 ) (180 ) 25,855
 
Pre-Tax Income from
Continuing Operations 19,986 803 353 21,142
 
Pre-Tax Income Margin from
Continuing Operations 21.5 % 0.9Pts 0.4Pts 22.8 %
 
Provision for Income Taxes*** 4,234 133 73 4,440
 
Effective Tax Rate 21.2 % -0.2Pts 0.0Pts 21.0 %
 
Income from Continuing Operations 15,751 670 280 16,702
 
Income Margin from
Continuing Operations 17.0 % 0.7Pts 0.3Pts 18.0 %
 
Loss from Discontinued Operations
Net of Taxes (3,729 ) - - (3,729 )
 
Net Income 12,022 670 280 12,973
 
Diluted Earnings Per Share:
Continuing Operations $ 15.59 $ 0.66 $ 0.28 $ 16.53
Discontinued Operations ($3.69 ) - - ($3.69 )
 
 
TWELVE-MONTHS 2013****
CONTINUING OPERATIONS
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 48,684 $ 394 $ 629 $ 49,706
 
Gross Profit Margin 49.5 % 0.4Pts 0.6Pts 50.5 %
 
S,G&A 23,451 (394 ) (376 ) 22,680
 
R,D&E 5,743 - (57 ) 5,686
 
Other (Income) & Expense (333 ) (16 ) - (349 )
 
Total Expense & Other (Income) 28,440 (410 ) (433 ) 27,597
 
Pre-Tax Income from
Continuing Operations 20,244 804 1,062 22,110
 
Pre-Tax Income Margin from
Continuing Operations 20.6 % 0.8Pts 1.1Pts 22.5 %
 
Provision for Income Taxes*** 3,363 57 333 3,753
 
Effective Tax Rate 16.6 % -0.4Pts 0.7Pts 17.0 %
 
Income from Continuing Operations 16,881 747 729 18,356
 
Income Margin from
Continuing Operations 17.2 % 0.8Pts 0.7Pts 18.7 %
 
Loss from Discontinued Operations
Net of Taxes (398 ) - - (398 )
 
Net Income 16,483 747 729 17,959
 
Diluted Earnings Per Share:
Continuing Operations $ 15.30 $ 0.68 $ 0.66 $ 16.64
Discontinued Operations ($0.36 ) - - ($0.36 )

* 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.

Contacts

IBM
Ian Colley, 914-434-3043
colley@us.ibm.com
or
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com

Contacts

IBM
Ian Colley, 914-434-3043
colley@us.ibm.com
or
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com