UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report: July 17, 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 July 17, 2014, regarding its financial results for the periods ended June 30, 2014, including consolidated financial statements for the periods ended June 30, 2014, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Martin Schroeter’s second quarter earnings presentation on July 17, 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: July 17, 2014

 

 

 

 

 

 

By:

/s/ James J. Kavanaugh

 

 

 

 

 

 James J. Kavanaugh

 

 

 Vice President and Controller

 

3



 

ATTACHMENT I

 

IBM REPORTS 2014 SECOND-QUARTER RESULTS

 

·                 Diluted EPS:

·                 GAAP: $4.12, up 42 percent;

·                 Operating (non-GAAP): $4.32, up 34 percent;

·                 Net income:

·                 GAAP: $4.1 billion, up 28 percent;

·                 Operating (non-GAAP): $4.3 billion, up 21 percent;

·                 Gross profit margin:

·                 GAAP: 49.1 percent, up 50 basis points;

·                 Operating (non-GAAP): 49.8 percent, up 10 basis points;

·                 Revenue: $24.4 billion:

·                 Down 2 percent; down 1 percent adjusting for divested customer care outsourcing business;

·                  Software, Services adjusting for divested customer care outsourcing business and Global Financing grew; Systems and Technology declined;

·                 Services backlog of $136 billion, down 1 percent adjusting for divested customer care outsourcing business;

·                 Strategic growth initiatives grew double digits:

·                 Cloud revenue up more than 50 percent year-to-date;

·                 For cloud delivered as a service, second-quarter annual run rate up nearly 100 percent to $2.8 billion year-to-year;

·                  Business analytics revenue up 7 percent year-to-date;

·                 Mobile revenue up more than 100 percent year-to-date;

·                 Security revenue up more than 20 percent year-to-date;

·                 Continue to expect full-year operating (non-GAAP) EPS of at least $18.00.

 

ARMONK, N.Y., July 17, 2014 . . . IBM (NYSE: IBM) today announced second-quarter 2014 diluted earnings of $4.12 per share, compared with diluted earnings of $2.91 per share in the second quarter of 2013, an increase of 42 percent.  Operating (non-GAAP) diluted earnings were $4.32 per share, compared with operating diluted earnings of $3.22 per share in the second quarter of 2013, an increase of 34 percent.

 

Second-quarter net income was $4.1 billion compared with $3.2 billion in the second quarter of 2013, an increase of 28 percent.  Operating (non-GAAP) net income was $4.3 billion compared with $3.6 billion in the second quarter of 2013, an increase of 21 percent.  The year-to-year results include the impact of a charge in the prior year period of $1 billion for workforce rebalancing.

 

Total revenues for the second quarter of 2014 of $24.4 billion were down 2 percent (down 1 percent, as reported and adjusting for currency, adjusting for the divested customer care outsourcing business) from the second quarter of 2013.

 

“In the second quarter, we made further progress on our transformation.  We performed well in our strategic imperatives around cloud, big data and analytics, security and mobile,” said Ginni Rometty, IBM chairman, president and chief executive officer.  “We will continue to extend and leverage our unique strengths to address the emerging trends in enterprise IT and transform our business, positioning ourselves for growth over the long term.”

 

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

 

Second-quarter operating (non-GAAP) diluted earnings exclude $0.20 per share of charges: $0.16 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.04 per share for non-operating retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.

 



 

Full-Year 2014 Expectations

 

IBM expects full-year 2014 GAAP diluted earnings per share of at least $17.00, and operating (non-GAAP) diluted earnings per share of at least $18.00.  The 2014 operating (non-GAAP) earnings expectations exclude $1.00 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related charges.

 

Geographic Regions

 

The Americas’ second-quarter revenues were $10.6 billion, a decrease of 1 percent (up 1 percent, adjusting for currency) from the 2013 period.  Revenues from Europe/Middle East/Africa were up 1 percent at $7.9 billion (down 3 percent adjusting for currency).  Asia-Pacific revenues decreased 9 percent (down 6 percent adjusting for currency) to $5.3 billion.  OEM revenues were $433 million, down 19 percent (down 19 percent adjusting for currency) compared with the 2013 second quarter.

 

Growth Markets

 

Revenues from the company’s growth markets were down 7 percent (down 4 percent, adjusting for currency).  Revenues in the BRIC countries — Brazil, Russia, India and China — were down 2 percent (up 1 percent, adjusting for currency).

 

Services

 

Global Services segment revenues decreased 1 percent (down 1 percent, adjusting for currency) to $13.9 billion. Revenues increased 1 percent adjusting for the impact of the divested customer care outsourcing business.  Global Technology Services segment revenues decreased 1 percent (down 1 percent, adjusting for currency) to $9.4 billion.  Adjusting for the impact of the divested customer care outsourcing business, revenues were up 2 percent (up 2 percent adjusting for currency).  Global Business Services segment revenues were down 2 percent (down 2 percent, adjusting for currency) to $4.5 billion.

 

Pre-tax income from Global Technology Services increased 22 percent and pre-tax margin increased to 19.2 percent, including the impact of a $0.4 billion workforce rebalancing charge in the prior year.  Global Business Services pre-tax income increased 34 percent and pre-tax margin increased to 17.8 percent, including the impact of a $0.2 billion workforce rebalancing charge in the prior year.

 

The estimated services backlog at June 30 was $136 billion, down 1 percent adjusting for the divested customer care outsourcing business (down 3 percent adjusting for currency).

 

Software

 

Revenues from the Software segment were $6.5 billion, up 1 percent (flat adjusting for currency) compared with the second quarter of 2013.  Software pre-tax income increased 10 percent and pre-tax margin increased to 36.5 percent, including the impact of a $0.2 billion workforce rebalancing charge in the prior year.

 

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $4.3 billion, up 1 percent (flat adjusting for currency) versus the second quarter of 2013.  Operating systems revenues of $530 million were down 13 percent (down 13 percent, adjusting for currency) compared with the prior-year quarter.

 

Financing

 

Global Financing segment revenues increased 4 percent (up 4 percent, adjusting for currency) in the second quarter at $504 million.  Pre-tax income for the segment increased 8 percent to $593 million.

 

Hardware

 

Revenues from the Systems and Technology segment totaled $3.3 billion for the quarter, down 11 percent (down 12 percent, adjusting for currency) from the second quarter of 2013.  Systems and Technology segment pre-tax income increased $0.2 billion, including the impact of a $0.2 billion workforce rebalancing charge in the prior year.

 

Total systems revenues decreased 11 percent (down 11 percent, adjusting for currency).  Revenues from System z mainframe server products, in the seventh quarter

 



 

since they were announced, decreased 1 percent compared with the year-ago period.  Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), was flat.  Revenues from Power Systems were down 28 percent compared with the 2013 period.  Revenues from System x were down 3 percent.  Revenues from System Storage decreased 12 percent and within this business area, flash storage grew more than 100 percent.  Revenues from Microelectronics OEM decreased 18 percent.

 

Gross Profit

 

The company’s total gross profit margin was 49.1 percent in the 2014 second quarter compared with 48.7 percent in the 2013 second-quarter period.  Total operating (non-GAAP) gross profit margin was 49.8 percent in the 2014 second quarter compared with 49.7 percent in the 2013 second-quarter period, with increases in Global Technology Services and Global Financing.

 

Expense

 

Total expense and other income decreased to $6.8 billion or 15 percent, including a gain of $121 million from the divestiture of the customer care outsourcing business and the impact of a $1.0 billion workforce rebalancing charge in the prior year period.  S,G&A expense of $5.6 billion decreased 16 percent year over year.  R,D&E expense of $1.5 billion decreased 6 percent compared with the year-ago period, and was 6 percent of revenue, consistent with the second-quarter of 2013.  Intellectual property and custom development income decreased to $191 million compared with $247 million a year ago.  Other (income) and expense was income of $201 million compared with prior-year income of $91 million.  Interest expense increased to $136 million compared with $98 million in the prior year.

 

Total operating (non-GAAP) expense and other income decreased 14 percent to $6.7 billion compared with the prior-year period, including the impact of a $1.0 billion workforce rebalancing charge in the prior year period.  Operating (non-GAAP) S,G&A expense decreased 16 percent to $5.5 billion compared with the prior-year period.  Operating (non-GAAP) R,D&E expense of $1.5 billion was down 4 percent compared with the year-ago period.

 

Pre-Tax Income

 

Pre-tax income increased 25 percent to $5.2 billion and pre-tax margin of 21.2 percent was up 4.6 points compared with the prior-year period.  Operating (non-GAAP) pre-tax income increased 18 percent to $5.4 billion and pre-tax margin was 22.3 percent, up 3.9 points.

 

***

 

IBM’s tax rate was 20.0 percent, down 2.1 points year over year; operating (non-GAAP) tax rate was 20.0 percent, down 2.0 points compared to the year-ago period.

 

Net income margin increased 4.0 points to 17.0 percent.  Total operating (non-GAAP) net income margin increased 3.5 points to 17.8 percent.

 

The weighted-average number of diluted common shares outstanding in the second-quarter 2014 was 1.01 billion compared with 1.11 billion shares in the same period of 2013.  As of June 30, 2014, there were 998 million basic common shares outstanding.

 

Debt, including Global Financing, totaled $46.5 billion, compared with $39.7 billion at year-end 2013.  From a management segment view, Global Financing debt totaled $29.4 billion versus $27.5 billion at year-end 2013, resulting in a debt-to-equity ratio of 7.1 to 1.  Non-global financing debt totaled $17.1 billion, an increase of $4.9 billion since year-end 2013, resulting in a debt-to-capitalization ratio of 56.1, essentially flat quarter-to-quarter and higher than the ratio at year-end 2013.

 

IBM ended the second-quarter 2014 with $9.7 billion of cash on hand and generated free cash flow of $3.0 billion, excluding Global Financing receivables, up $0.3 billion year over year.  The company returned $4.8 billion to shareholders through $1.1 billion in dividends and $3.7 billion of gross share repurchases.

 

Year-To-Date 2014 Results

Net income for the six months ended June 30, 2014 was $6.5 billion compared with $6.3 billion in the year-ago period, an increase of 4 percent.  Diluted earnings per share were $6.37 compared with $5.60 per diluted share for the 2013 period, an

 



 

increase of 14 percent.  Revenues for the six-month period totaled $46.8 billion, a decrease of 3 percent (down 2 percent, adjusting for currency) compared with $48.3 billion for the first six months of 2013.

 

Operating (non-GAAP) net income for the six months ended June 30, 2014 was $7.0 billion, flat year to year.  Operating (non-GAAP) diluted earnings per share were $6.82 compared with $6.23 per diluted share for the 2013 period, an increase of 9.5 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 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 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 customer care outsourcing business.

 

The rationale for management’s use of non-GAAP measures is included as part of the supplemental materials presented within the second-quarter earnings materials.  These materials are available via a link on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II (“Non-GAAP Supplemental Materials”) to the Form 8-K that includes this press release and is being submitted today to the SEC.

 

Conference Call and Webcast

 

IBM’s regular quarterly earnings conference call is scheduled to begin at 4:30 p.m. EDT, today.  The Webcast may be accessed via a link at

 



 

http://www.ibm.com/investor/events/earnings/2q14.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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

 

 

 

 

Percent

 

 

 

 

 

Percent

 

 

 

2014

 

2013

 

Change

 

2014

 

2013

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,414

 

$

9,536

 

-1.3 

%

$

18,744

 

$

19,140

 

-2.1

%

Gross profit margin

 

38.4

%

37.8

%

 

 

38.2

%

37.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,534

 

4,606

 

-1.6

%

9,017

 

9,091

 

-0.8

%

Gross profit margin

 

30.0

%

31.2

%

 

 

30.0

%

29.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

6,488

 

6,423

 

1.0

%

 12,149

 

11,995

 

1.3

%

Gross profit margin

 

88.8

%

88.8

%

 

 

88.2

%

88.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

3,331

 

3,758

 

-11.4

%

5,722

 

6,864

 

-16.6

%

Gross profit margin

 

33.9

%

36.7

%

 

 

31.0

%

34.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

504

 

487

 

3.5

%

1,016

 

985

 

3.1

%

Gross profit margin

 

54.8

%

46.3

%

 

 

50.4

%

46.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

93

 

115

 

-19.1

%

200

 

257

 

-22.0

%

Gross profit margin

 

-179.7

%

-190.5

%

 

 

-171.1

%

 -172.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

24,364

 

24,924

 

-2.2

%

 46,848

 

48,332

 

-3.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

11,975

 

12,132

 

-1.3

%

 22,518

 

22,810

 

-1.3

%

Gross margin

 

49.1

%

48.7

%

 

 

48.1

%

47.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,603

 

6,680

 

-16.1

%

11,892

 

12,257

 

-3.0

%

Expense to revenue

 

23.0

%

26.8

%

 

 

25.4

%

25.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,457

 

1,548

 

-5.9

%

2,958

 

3,193

 

-7.3

%

Expense to revenue

 

6.0

%

6.2

%

 

 

6.3

%

6.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intellectual property and custom development income

 

(191

)

(247

)

-22.7

%

(398

)

(430

)

-7.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) and expense

 

(201

)

(91

)

120.7

%

(326

)

(151

)

115.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

136

 

98

 

38.3

%

240

 

192

 

25.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL EXPENSE AND OTHER INCOME

 

6,804

 

7,988

 

-14.8

%

14,367

 

15,060

 

-4.6

%

Expense to revenue

 

27.9

%

32.0

%

 

 

30.7

%

31.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

5,171

 

4,144

 

24.8

%

8,151

 

7,750

 

5.2

%

Pre-tax margin

 

21.2

%

16.6

%

 

 

17.4

%

16.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

1,034

 

918

 

12.7

%

1,630

 

1,492

 

9.3

%

Effective tax rate

 

20.0

%

22.1

%

 

 

20.0

%

19.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

4,137

 

$

3,226

 

28.2

%

$

6,521

 

$

6,258

 

4.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income margin

 

17.0

%

12.9

%

 

 

13.9

%

12.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

$

4.12

 

$

2.91

 

41.6

%

$

6.37

 

$

5.60

 

13.8

%

BASIC

 

$

4.14

 

$

2.93

 

41.3

%

$

6.41

 

$

5.65

 

13.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

1,005.1

 

1,109.4

 

 

 

1,023.5

 

1,116.7

 

 

 

BASIC

 

999.6

 

1,100.9

 

 

 

1,017.4

 

1,107.3

 

 

 

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(Dollars in Millions)

 

2014

 

2013

 

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,715

 

$

10,716

 

Marketable securities

 

5

 

350

 

Notes and accounts receivable - trade
(net of allowances of $294 in 2014 and $291 in 2013)

 

9,902

 

10,465

 

Short-term financing receivables
(net of allowances of $404 in 2014 and $308 in 2013)

 

18,620

 

19,787

 

Other accounts receivable
(net of allowances of $45 in 2014 and $36 in 2013)

 

1,555

 

1,584

 

Inventories, at lower of average cost or market:

 

 

 

 

 

Finished goods

 

449

 

444

 

Work in process and raw materials

 

1,889

 

1,866

 

Total inventories

 

2,338

 

2,310

 

Deferred taxes

 

1,783

 

1,651

 

Prepaid expenses and other current assets

 

4,263

 

4,488

 

Total Current Assets

 

48,182

 

51,350

 

 

 

 

 

 

 

Property, plant and equipment

 

40,936

 

40,475

 

Less: Accumulated depreciation

 

27,188

 

26,654

 

Property, plant and equipment - net

 

13,748

 

13,821

 

Long-term financing receivables
(net of allowances of $68 in 2014 and $80 in 2013)

 

12,140

 

12,755

 

Prepaid pension assets

 

6,894

 

5,551

 

Deferred taxes

 

2,828

 

3,051

 

Goodwill

 

31,568

 

31,184

 

Intangible assets - net

 

3,585

 

3,871

 

Investments and sundry assets

 

5,369

 

4,639

 

Total Assets

 

$

124,314

 

$

126,223

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Taxes

 

$

2,335

 

$

4,633

 

Short-term debt

 

12,462

 

6,862

 

Accounts payable

 

6,271

 

7,461

 

Compensation and benefits

 

4,037

 

3,893

 

Deferred income

 

12,591

 

12,557

 

Other accrued expenses and liabilities

 

4,737

 

4,748

 

Total Current Liabilities

 

42,433

 

40,154

 

 

 

 

 

 

 

Long-term debt

 

34,008

 

32,856

 

Retirement and nonpension postretirement benefit obligations

 

15,984

 

16,242

 

Deferred income

 

4,152

 

4,108

 

Other liabilities

 

10,224

 

9,934

 

Total Liabilities

 

106,801

 

103,294

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

Common stock

 

52,163

 

51,594

 

Retained earnings

 

134,483

 

130,042

 

Treasury stock — at cost

 

(148,900

)

(137,242

)

Accumulated other comprehensive income/(loss)

 

(20,369

)

(21,602

)

Total IBM stockholders’ equity

 

17,377

 

22,792

 

 

 

 

 

 

 

Noncontrolling interests

 

136

 

137

 

Total Equity

 

17,513

 

22,929

 

Total Liabilities and Equity

 

$

124,314

 

$

126,223

 

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(Dollars in Millions)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net Cash from Operating Activities per GAAP:

 

$

3,579

 

$

3,175

 

$

6,905

 

$

7,197

 

Less: the change in Global Financing (GF) Receivables

 

(304

)

(450

)

1,503

 

1,147

 

 

 

 

 

 

 

 

 

 

 

Net Cash from Operating Activities
(Excluding GF Receivables)

 

3,883

 

3,625

 

5,402

 

6,051

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures, Net

 

(909

)

(939

)

(1,796

)

(1,668

)

 

 

 

 

 

 

 

 

 

 

Free Cash Flow
(Excluding GF Receivables)

 

2,975

 

2,686

 

3,606

 

4,382

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(339

)

(121

)

(603

)

(179

)

Divestitures

 

17

 

2

 

408

 

12

 

Dividends

 

(1,096

)

(1,048

)

(2,086

)

(1,996

)

Share Repurchase

 

(3,662

)

(3,552

)

(11,828

)

(6,145

)

Non-GF Debt

 

1,385

 

922

 

5,019

 

205

 

Other (includes GF Receivables, and GF Debt)

 

738

 

(524

)

4,140

 

2,949

 

 

 

 

 

 

 

 

 

 

 

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

 

$

17

 

$

(1,635

)

$

(1,345

)

$

(772

)

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SECOND-QUARTER 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

(Loss)

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,414

 

$

247

 

$

9,661

 

$

1,850

 

19.2

%

Y-T-Y change

 

-1.3

%

-15.4

%

-1.7

%

22.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,534

 

140

 

4,674

 

832

 

17.8

%

Y-T-Y change

 

-1.6

%

-25.6

%

-2.5

%

33.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

6,488

 

857

 

7,345

 

2,683

 

36.5

%

Y-T-Y change

 

1.0

%

16.1

%

2.6

%

9.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

3,331

 

190

 

3,521

 

25

 

0.7

%

Y-T-Y change

 

-11.4

%

40.9

%

-9.5

%

117.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

504

 

685

 

1,189

 

593

 

49.8

%

Y-T-Y change

 

3.5

%

19.2

%

12.0

%

7.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

24,271

 

$

2,119

 

$

26,390

 

$

5,983

 

22.7

%

Y-T-Y change

 

-2.2

%

9.9

%

-1.3

%

19.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

93

 

(2,119

)

(2,026

)

(812

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

24,364

 

$

0

 

$

24,364

 

$

5,171

 

21.2

%

Y-T-Y change

 

-2.2

%

 

 

-2.2

%

24.8

%

 

 

 

 

 

SECOND-QUARTER 2013

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

(Loss)

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,536

 

$

292

 

$

9,828

 

$

1,514

 

15.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,606

 

188

 

4,795

 

623

 

13.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

6,423

 

738

 

7,161

 

2,443

 

34.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

3,758

 

135

 

3,893

 

(141

)

-3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

487

 

575

 

1,061

 

550

 

51.8

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

24,809

 

$

1,928

 

$

26,737

 

$

4,989

 

18.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

115

 

(1,928

)

(1,813

)

(846

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

24,924

 

$

0

 

$

24,924

 

$

4,144

 

16.6

%

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SIX-MONTHS 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

(Loss)

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

18,744

 

$

488

 

$

19,232

 

$

3,196

 

16.6

%

Y-T-Y change

 

-2.1

%

-9.7

%

-2.3

%

3.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

9,017

 

281

 

9,298

 

1,461

 

15.7

%

Y-T-Y change

 

-0.8

%

-23.7

%

-1.7

%

10.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

12,149

 

1,789

 

13,939

 

4,601

 

33.0

%

Y-T-Y change

 

1.3

%

14.1

%

2.8

%

3.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

5,722

 

358

 

6,080

 

(635

)

-10.4

%

Y-T-Y change

 

-16.6

%

40.7

%

-14.6

%

-16.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

1,016

 

1,303

 

2,318

 

1,188

 

51.3

%

Y-T-Y change

 

3.1

%

16.7

%

10.3

%

9.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

46,648

 

$

4,218

 

$

50,866

 

$

9,812

 

19.3

%

Y-T-Y change

 

-3.0

%

9.7

%

-2.0

%

4.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

200

 

(4,218

)

(4,018

)

(1,660

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

46,848

 

$

0

 

$

46,848

 

$

8,151

 

17.4

%

Y-T-Y change

 

-3.1

%

 

 

-3.1

%

5.2

%

 

 

 

 

 

SIX-MONTHS 2013

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

(Loss)

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

19,140

 

$

540

 

$

19,680

 

$

3,099

 

15.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

9,091

 

368

 

9,459

 

1,326

 

14.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

11,995

 

1,569

 

13,563

 

4,457

 

32.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

6,864

 

255

 

7,118

 

(546

)

-7.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

985

 

1,116

 

2,101

 

1,088

 

51.8

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

48,075

 

$

3,847

 

$

51,922

 

$

9,425

 

18.2

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

257

 

(3,847

)

(3,590

)

(1,675

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

48,332

 

$

0

 

$

48,332

 

$

7,750

 

16.0

%

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

SECOND-QUARTER 2014

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

Gross Profit

 

$

11,975

 

$

105

 

$

45

 

$

12,126

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

49.1

%

0.4

Pts

0.2

Pts

49.8

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,603

 

(98

)

(27

)

5,478

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,457

 

0

 

20

 

1,477

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(201

)

0

 

0

 

(201

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

6,804

 

(98

)

(7

)

6,699

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income

 

5,171

 

203

 

52

 

5,427

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income Margin

 

21.2

%

0.8

Pts

0.2

Pts

22.3

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

1,034

 

41

 

10

 

1,085

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

20.0

%

0.0

Pts

0.0

Pts

20.0

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

4,137

 

163

 

42

 

4,341

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

17.0

%

0.7

Pts

0.2

Pts

17.8

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$

4.12

 

$

0.16

 

$

0.04

 

$

4.32

 

 

 

 

SECOND-QUARTER 2013

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

Gross Profit

 

$

12,132

 

$

91

 

$

156

 

$

12,379

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

48.7

%

0.4

Pts

0.6

Pts

49.7

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

6,680

 

(91

)

(93

)

6,496

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,548

 

0

 

(13

)

1,535

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(91

)

0

 

0

 

(91

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

7,988

 

(91

)

(106

)

7,791

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income

 

4,144

 

182

 

262

 

4,588

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income Margin

 

16.6

%

0.7

Pts

1.1

Pts

18.4

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

918

 

9

 

82

 

1,009

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

22.1

%

-0.7

Pts

0.6

Pts

22.0

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

3,226

 

173

 

180

 

3,579

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

12.9

%

0.7

Pts

0.7

Pts

14.4

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$

2.91

 

$

0.15

 

$

0.16

 

$

3.22

 

 


*  Includes amortization of acquired intangible assets and other acquisition-related charges.

 



 

**  Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

***  Tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

SIX-MONTHS 2014

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

Gross Profit

 

$

22,518

 

$

209

 

$

98

 

$

22,825

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

48.1

%

0.4

Pts

0.2

Pts

48.7

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

11,892

 

(196

)

(114

)

11,583

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

2,958

 

0

 

37

 

2,995

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(326

)

0

 

0

 

(326

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

14,367

 

(196

)

(77

)

14,094

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income

 

8,151

 

405

 

175

 

8,731

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income Margin

 

17.4

%

0.9

Pts

0.4

Pts

18.6

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

1,630

 

81

 

35

 

1,746

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

20.0

%

0.0

Pts

0.0

Pts

20.0

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

6,521

 

324

 

140

 

6,985

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

13.9

%

0.7

Pts

0.3

Pts

14.9

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$

6.37

 

$

0.31

 

$

0.14

 

$

6.82

 

 

 

 

SIX-MONTHS 2013

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

Gross Profit

 

$

22,810

 

$

186

 

$

320

 

$

23,316

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

47.2

%

0.4

Pts

0.7

Pts

48.2

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

12,257

 

(183

)

(197

)

11,878

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

3,193

 

0

 

(29

)

3,163

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(151

)

(7

)

0

 

(158

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

15,060

 

(190

)

(226

)

14,644

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income

 

7,750

 

376

 

546

 

8,672

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Income Margin

 

16.0

%

0.8

Pts

1.1

Pts

17.9

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

1,492

 

63

 

162

 

1,717

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

19.2

%

-0.1

Pts

0.7

Pts

19.8

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

6,258

 

313

 

384

 

6,955

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

12.9

%

0.6

Pts

0.8

Pts

14.4

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$

5.60

 

$

0.28

 

$

0.35

 

$

6.23

 

 



 


*  Includes amortization of acquired intangible assets and other acquisition-related charges.

**  Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

***  Tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.

 

Contact:     IBM

Mike Fay, 914-525-8476

mikefay@us.ibm.com

 

John Bukovinsky, 732-618-3531

jbuko@us.ibm.com

 



 

ATTACHMENT II

 

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 2Q 2014 Earnings Presentation July 17, 2014

 


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2 Forward Looking Statements and Non-GAAP Information Certain comments made in this presentation may be characterized as forward looking under 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. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including "operating earnings" and other "operating" financial measures. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information are included in supplemental materials entitled “Non-GAAP Supplemental Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/earnings/2q14.html The Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s Form 8-K dated July 17, 2014.

 


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3 2Q 2014 Overview 2Q14 $ Yr/Yr Revenue $24.4 (2%) @CC excl. Cust. Care BPO (1%) Operating (Non-GAAP) EPS $4.32 34% 2Q and 1H results reflect portfolio dynamics: Strategic imperatives deliver double-digit revenue growth Core franchises stable Some high value transactional businesses impacted by secular shifts Divested customer care business Continuing investment aligned with strategic shifts of Data, Cloud, Engagement Expanded margins; yr/yr profit metrics reflect charge in prior year Continuing returns to shareholders Continuing shift to growth and high value

 


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4 Key Financial Metrics – 2Q 2014 P&L Ratios (Operating) 2Q14 B/(W) Yr/Yr GP Margin 49.8% 0.1 pts PTI Margin 22.3% 3.9 pts Tax Rate 20.0% 2.0 pts NI Margin 17.8% 3.5 pts Cash Highlights 2Q14 Last 12 Mos. Free Cash Flow (excl GF Receivables) $3.0 $14.2 Share Repurchase (Gross) 3.7 19.5 Dividends 1.1 4.1 Cash Balance @ June 30 9.7 $ in Billions, except EPS Yr/Yr PTI and NI profit metrics reflect Workforce Rebalancing pre-tax charge of $1B in 2Q13 P&L Highlights 2Q14 B/(W) Yr/Yr Revenue $24.4 (2%) @CC (3%) @CC excl. Cust. Care (1%) PTI – Operating $5.4 18% NI – Operating $4.3 21% EPS – Operating $4.32 34%

 


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5 Key Financial Metrics – 1H 2014 P&L Ratios (Operating) 1H14 B/(W) Yr/Yr GP Margin 48.7% 0.5 pts PTI Margin 18.6% 0.7 pts Tax Rate 20.0% (0.2 pts) NI Margin 14.9% 0.5 pts Cash Highlights 1H14 Free Cash Flow (excl GF Receivables) $3.6 Share Repurchase (Gross) 11.8 Dividends 2.1 Cash Balance @ June 30 9.7 $ in Billions, except EPS P&L Highlights 1H14 B/(W) Yr/Yr Revenue $46.8 (3%) @CC excl. Cust. Care (1%) PTI – Operating $8.7 1% NI – Operating $7.0 Flat EPS – Operating $6.82 9%

 


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6 Revenue by Geography 2Q14 B/(W) Yr/Yr Rptd @CC Americas $10.6 (1%) 1% Europe/ME/A 7.9 1% (3%) Asia Pacific 5.3 (9%) (6%) Total Geographies $23.9 (2%) (2%) IBM excl. Cust. Care BPO $24.4 (2%) (1%) (3%) (1%) Major Markets Flat (1%) Growth Markets (7%) (4%) BRIC Countries (2%) 1% $ in Billions AP ex. Japan U.S. -1% EMEA Canada/ LA Japan +2% @CC OEM -19%

 


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7 Revenue and Gross Profit Margin by Segment 2Q14 B/(W) Yr/Yr Rptd @CC 2Q14 B/(W) Yr/Yr Pts Global Technology Services excl. Cust. Care BPO $9.4 (1%) 2% (1%) 2% 38.4% 0.6 pts Global Business Services 4.5 (2%) (2%) 30.0% (1.2 pts) Software 6.5 1% Flat 88.8% 0.0 pts Systems & Technology 3.3 (11%) (12%) 33.9% (2.8 pts) Global Financing 0.5 4% 4% 54.8% 8.5 pts Total Revenue & Op. GP Margin $24.4 (2%) (3%) 49.8% 0.1 pts excl. Cust. Care BPO (1%) (1%) $ in Billions Operating Gross Profit Margin Revenue

 


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8 Expense Summary 2Q14 B/(W) Yr/Yr Currency Acq.* Base SG&A – Operating $5.5 16%** 0 pts (2 pts) 17 pts RD&E – Operating 1.5 4% 0 pts (2 pts) 6 pts IP and Development Income (0.2) (23%) Other (Income)/Expense (0.2) 120% Interest Expense 0.1 (38%) Operating Expense & Other Income $6.7 14%** (1 pts) (2 pts) 17 pts $ in Billions B/(W) Yr/Yr Drivers * Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges ** Yr/Yr reflects Workforce Rebalancing charge of $1.0B in 2Q13

 


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9 B/(W) Yr/Yr 2Q14 Rptd @CC Revenue (External) $9.4 (1%) (1%) excl. Cust. Care BPO 2% 2% Gross Margin (External) 38.4% 0.6 pts PTI Margin 19.2% 3.7 pts* Services Segments Global Technology Services (GTS) Global Business Services (GBS) Growth in total Services revenue, excluding divested business 2Q14 Revenue (% of Total Services) $ in Billions B/(W) Yr/Yr 2Q14 Rptd @CC Revenue (External) $4.5 (2%) (2%) Gross Margin (External) 30.0% (1.2 pts) PTI Margin 17.8% 4.8 pts* $ in Billions Yr/Yr GTS 2Q14 Revenue Rptd @CC GTS Outsourcing (4%) (4%) excl. Cust. Care BPO 2% 2% Integrated Technology Services 5% 5% Maintenance (1%) (1%) GBS 2Q14 Revenue GBS Outsourcing (9%) (9%) Consulting & Systems Integration 1% Flat 2Q14 Backlog adj. for Cust. Care BPO $136B (1%) (3%) GTS Outsourcing 38% GBS C&SI 26% Maint. 12% ITS 17% GBS Outsourcing 7% * GTS yr/yr reflects Workforce Rebalancing charge in 2Q13 * GBS yr/yr reflects Workforce Rebalancing charge in 2Q13

 


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10 Software Segment B/(W) Yr/Yr 2Q14 Rptd @CC Revenue (External) $6.5 1% Flat Gross Margin (External) 88.8% 0.0 pts PTI Margin 36.5% 2.4 pts* 2Q14 Revenue Yr/Yr Rptd @CC WebSphere 5% 5% Information Management (1%) (2%) Tivoli 4% 3% Workforce Solutions (7%) (8%) Rational (9%) (10%) Key Branded Middleware 1% Flat Total Middleware 3% 3% Total Software 1% Flat 2Q14 Revenue (% of Total Software) Key Branded Middleware 67% Operating Systems 8% Other Middleware 18% Other 7% $ in Billions Growth in Middleware; strength in strategic imperatives * Yr/Yr reflects Workforce Rebalancing charge in 2Q13

 


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11 Systems & Technology Segment B/(W) Yr/Yr 2Q14 Rptd @CC Revenue (External) $3.3 (11%) (12%) Gross Margin (External) 33.9% (2.8 pts) PTI Margin 0.7% 4.3 pts* $ in Billions 2Q14 Revenue (% of Total Sys & Tech) Significant sequential improvement; on track to stabilize full year profit Servers 68% Storage 21% Micro OEM 11% * Yr/Yr reflects Workforce Rebalancing charge in 2Q13 2Q14 Revenue Yr/Yr Rptd @CC System z (1%) (1%) Power Systems (28%) (29%) System x (3%) (3%) Storage (12%) (13%) Total Systems (11%) (11%) Microelectronics OEM (18%) (18%) Total Systems & Technology (11%) (12%)

 


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12 Cash Flow Analysis 2Q14 B/(W) Yr/Yr YTD 2Q14 B/(W) Yr/Yr Net Cash from Operations $3.6 $0.4 $6.9 ($0.3) Less: Global Financing Receivables (0.3) 0.1 1.5 0.4 Net Cash from Operations (excluding GF Receivables) 3.9 0.3 5.4 (0.6) Net Capital Expenditures (0.9) 0.0 (1.8) (0.1) Free Cash Flow (excluding GF Receivables) 3.0 0.3 3.6 (0.8) Acquisitions (0.3) (0.2) (0.6) (0.4) Divestitures 0.0 0.0 0.4 0.4 Dividends (1.1) 0.0 (2.1) (0.1) Share Repurchases (Gross) (3.7) (0.1) (11.8) (5.7) Non-GF Debt 1.4 0.5 5.0 4.8 Other (includes GF A/R & GF Debt) 0.7 1.3 4.1 1.2 Change in Cash & Marketable Securities $0.0 $1.7 ($1.3) ($0.6) $ in Billions

 


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13 June 13 Dec. 13 June 14 Cash & Marketable Securities $10.4 $11.1 $9.7 Non-GF Assets* 70.1 76.5 77.3 Global Financing Assets 34.7 38.7 37.3 Total Assets 115.2 126.2 124.3 Other Liabilities 63.1 63.6 60.3 Non-GF Debt* 9.3 12.2 17.1 Global Financing Debt 24.9 27.5 29.4 Total Debt 34.1 39.7 46.5 Total Liabilities 97.3 103.3 106.8 Equity 17.9 22.9 17.5 Non-GF Debt / Cap