IBM (NYSE:IBM)
- Diluted EPS:
- GAAP: $2.29, down 15
percent;
- Operating (non-GAAP): $2.54, down 15
percent;
- Net income:
- GAAP: $2.4 billion, down 21
percent;
- Operating (non-GAAP): $2.6 billion,
down 22 percent;
- Results include impact of
approximately $870 million workforce rebalancing charge and nearly
$100 million gain for the divested customer care outsourcing
business;
- Gross profit margin:
- GAAP: 46.9 percent, up 130 basis
points;
- Operating (non-GAAP): 47.6 percent,
up 90 basis points;
- Revenue: $22.5 billion, down 4
percent; down 1 percent adjusting for currency, excluding divested
customer care outsourcing business:
- Software, Services and Global
Financing each grew, adjusting for currency;
- Software up 2 percent as reported
and adjusting for currency
- Services down 2 percent; up 2
percent adjusting for currency and excluding divested customer care
outsourcing business
- Global Financing up 3 percent, up 6
percent adjusting for currency
- Systems and Technology down 23
percent as reported and adjusting for currency;
- Services backlog of $138 billion, up
1 percent adjusting for currency and excluding divested customer
care outsourcing business;
- Business analytics revenue up 5
percent, up 6 percent adjusting for currency;
- Cloud revenue up more than 50
percent:
- For cloud delivered as a service,
first-quarter annual run rate of $2.3 billion doubled year to
year;
- Expect full-year operating
(non-GAAP) EPS of at least $18.00.
IBM (NYSE:IBM) today announced first-quarter 2014 diluted
earnings of $2.29 per share, a year-to-year decrease of 15 percent.
Operating (non-GAAP) diluted earnings were $2.54 per share,
compared with operating diluted earnings of $3.00 per share in the
first quarter of 2013, a decrease of 15 percent.
First-quarter net income was $2.4 billion, down 21 percent
year-to-year. Operating (non-GAAP) net income was $2.6 billion
compared with $3.4 billion in the first quarter of 2013, a decrease
of 22 percent. The results include the impact of a charge of
approximately $870 million for workforce rebalancing and a gain of
nearly $100 million for the divestiture of the customer care
outsourcing business, consistent with the company’s full-year
guidance in January 2014.
Total revenues for the first quarter of 2014 of $22.5 billion
were down 4 percent (down 2 percent, adjusting for currency; down 1
percent, excluding the customer care outsourcing business) from the
first quarter of 2013.
“In the first quarter, we continued to take actions to transform
parts of the business and to shift aggressively to our strategic
growth areas including cloud, big data analytics, social, mobile
and security,” said Ginni Rometty, IBM chairman, president and
chief executive officer.
“As we move through 2014, we will begin to see the benefits from
these actions. Over the long term, they will position us to drive
growth and higher value for our clients.”
First-Quarter GAAP – Operating (non-GAAP)
Reconciliation
First-quarter operating (non-GAAP) diluted earnings exclude
$0.25 per share of charges: $0.16 per share for the amortization of
purchased intangible assets and other acquisition-related charges,
and $0.09 per share for retirement-related charges.
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’ first-quarter revenues were $9.6 billion, a
decrease of 4 percent (down 2 percent, adjusting for currency) from
the 2013 period. Revenues from Europe/Middle East/Africa were $7.6
billion, up 4 percent (up 1 percent, adjusting for currency).
Asia-Pacific revenues decreased 12 percent (down 6 percent,
adjusting for currency) to $5.0 billion. OEM revenues were $355
million, down 17 percent compared with the 2013 first quarter.
Growth Markets
Revenues from the company’s growth markets decreased 11 percent
(down 5 percent, adjusting for currency). Revenues in the BRIC
countries — Brazil, Russia, India and China — decreased 11
percent (down 6 percent, adjusting for currency).
Services
Global Technology Services segment revenues were down 3 percent
(down 1 percent, adjusting for currency) to $9.3 billion. Excluding
the impact of the divested customer care outsourcing business,
revenues were down 1 percent (up 2 percent, adjusting for
currency). Global Business Services segment revenues were flat (up
2 percent, adjusting for currency) to $4.5 billion.
Pre-tax income from Global Technology Services was down 15
percent and pre-tax margin decreased to 14.1 percent, including an
impact of approximately $0.3 billion for the workforce rebalancing
charge. Global Business Services pre-tax income decreased 11
percent and pre-tax margin decreased to 13.6 percent, including an
impact of approximately $0.2 billion for the workforce rebalancing
charge.
The estimated services backlog as of March 31 was $138 billion,
up 1 percent adjusting for currency and excluding the divested
customer care outsourcing business.
Software
Revenues from the Software segment were up 2 percent to $5.7
billion (up 2 percent, adjusting for currency) compared with the
first quarter of 2013. Software pre-tax income decreased 5 percent
and pre-tax margin decreased to 29.1 percent, including an impact
of approximately $0.2 billion for the workforce rebalancing
charge.
Revenues from IBM’s key middleware products, which include
WebSphere, Information Management, Tivoli, Workforce Solutions and
Rational products, were $3.7 billion, up 4 percent (up 5 percent,
adjusting for currency) versus the first quarter of 2013. Operating
systems revenues of $519 million were down 10 percent (down 9
percent, adjusting for currency) compared with the prior-year
quarter.
Revenues from WebSphere increased 12 percent year over year.
Information Management software revenues increased 1 percent.
Revenues from Tivoli software increased 7 percent. Revenues from
Workforce Solutions software decreased 4 percent, and Rational
software increased 1 percent.
Financing
Global Financing segment revenues were up 3 percent (up 6
percent, adjusting for currency) in the first quarter at $512
million. Pre-tax income for the segment increased 11 percent to
$596 million.
Hardware
Revenues from the Systems and Technology segment totaled $2.4
billion for the quarter, down 23 percent (down 23 percent,
adjusting for currency) from the first quarter of 2013. Systems and
Technology pre-tax loss increased $0.3 billion, including an impact
of approximately $0.2 billion for the workforce rebalancing
charge.
Total systems revenues decreased 24 percent (down 24 percent,
adjusting for currency). Revenues from System z mainframe server
products decreased 40 percent compared with the year-ago period.
Total delivery of System z computing power, as measured in MIPS
(millions of instructions per second), decreased 19 percent.
Revenues from Power Systems were down 22 percent compared with the
2013 period. Revenues from System x were down 18 percent. Revenues
from System Storage decreased 23 percent. Revenues from
Microelectronics OEM decreased 16 percent.
Gross Profit
The company’s total gross profit margin was 46.9 percent in the
2014 first quarter compared with 45.6 percent in the 2013
first-quarter period. Total operating (non-GAAP) gross profit
margin was 47.6 percent in the 2014 first quarter compared with
46.7 percent in the 2013 first-quarter period, with increases in
both Services segments and a mix to Software, partially offset by a
decline in the Systems and Technology margin.
Expense
Total expense and other income increased to $7.6 billion,
including a workforce rebalancing charge of approximately $870
million and a gain of nearly $100 million from the divestiture of
the customer care outsourcing business, up 7 percent compared to
the prior-year period. S,G&A expense of $6.3 billion increased
13 percent year over year. R,D&E expense of $1.5 billion
decreased 9 percent, compared with the year-ago period.
Intellectual property and custom development income increased to
$207 million compared with $183 million a year ago. Other (income)
and expense was income of $126 million compared with prior-year
income of $60 million. Interest expense increased to $105 million
compared with $94 million in the prior year.
Total operating (non-GAAP) expense and other income increased to
$7.4 billion, including a workforce rebalancing charge of
approximately $870 million and a gain of nearly $100 million from
the divestiture of the customer care outsourcing business, up 8
percent compared with the prior-year period. Operating (non-GAAP)
S,G&A expense of $6.1 billion increased 13 percent compared
with prior-year expense. Operating (non-GAAP) R,D&E expense of
$1.5 billion decreased 7 percent compared with the year-ago
period.
Pre-Tax Income
Pre-tax income decreased 17 percent to $3.0 billion. Pre-tax
margin decreased 2.1 points to 13.3 percent. Operating (non-GAAP)
pre-tax income decreased 19 percent to $3.3 billion and pre-tax
margin was 14.7 percent, down 2.7 points.
***
IBM’s tax rate was 20.0 percent, up 4.1 points year over year;
operating (non-GAAP) tax rate was 20.0 percent, up 2.7 points
compared to the year-ago period. Net income margin decreased 2.3
points to 10.6 percent. The company expects an annual effective tax
rate of 20 percent for 2014, before any potential discrete tax
items. Total operating (non-GAAP) net income margin decreased 2.7
points to 11.8 percent.
The weighted-average number of diluted common shares outstanding
in the first-quarter 2014 was 1.04 billion compared with 1.12
billion shares in the same period of 2013. As of March 31, 2014,
there were 1.01 billion basic common shares outstanding.
Debt, including Global Financing, totaled $44.0 billion,
compared with $39.7 billion at year-end 2013. From a management
segment view, Global Financing debt totaled $28.3 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 $15.7 billion, an
increase of $3.5 billion since year-end 2013, resulting in a
debt-to-capitalization ratio of 55.3 percent up from 39.0
percent.
IBM ended the first-quarter 2014 with $9.7 billion of cash on
hand and generated free cash flow of $0.6 billion, excluding Global
Financing receivables, down approximately $1.1 billion year over
year. The company returned $9.2 billion to shareholders through
$1.0 billion in dividends and $8.2 billion of gross share
repurchases. The balance sheet remains strong, and the company is
well positioned to support the business over the long term.
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
first-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/1q14.phtml.
Presentation charts will be available shortly before the
Webcast.
Financial Results Below (certain amounts may not add due
to use of rounded numbers; percentages presented are calculated
from the underlying whole-dollar amounts).
INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL
RESULTS (Unaudited; Dollars in millions except per share amounts)
Three Months Ended March 31, Percent
2014 2013 Change REVENUE Global Technology Services $ 9,330
$ 9,605 -2.9 % Gross profit margin 37.9 % 36.7 % Global
Business Services 4,483 4,484 0.0 % Gross profit margin 30.0 % 28.6
% Software 5,661 5,572 1.6 % Gross profit margin 87.5 % 87.2
% Systems and Technology 2,391 3,106 -23.0 % Gross profit
margin 27.0 % 32.3 % Global Financing 512 499 2.6 % Gross
profit margin 46.1 % 45.8 % Other 107 142 -24.4 % Gross
profit margin -163.7 % -158.5 % TOTAL REVENUE 22,484 23,408
-3.9 % GROSS PROFIT 10,543 10,678 -1.3 % Gross profit margin
46.9 % 45.6 % EXPENSE AND OTHER INCOME S,G&A 6,289 5,577
12.8 % Expense to revenue 28.0 % 23.8 % R,D&E 1,501
1,644 -8.7 % Expense to revenue 6.7 % 7.0 % Intellectual
property and custom development income (207 ) (183 ) 13.1 %
Other (income) and expense (126 ) (60 ) 108.2 % Interest
expense 105 94 11.7 % TOTAL EXPENSE AND OTHER INCOME 7,563
7,072 6.9 % Expense to revenue 33.6 % 30.2 % INCOME BEFORE
INCOME TAXES 2,980 3,606 -17.3 % Pre-tax margin 13.3 % 15.4 %
Provision for income taxes 596 574 3.8 % Effective tax rate
20.0 % 15.9 % NET INCOME $ 2,384 $ 3,032 -21.4
% Net income margin 10.6 % 13.0 % EARNINGS PER SHARE OF
COMMON STOCK: ASSUMING DILUTION $ 2.29 $ 2.70 -15.2 % BASIC $ 2.30
$ 2.72 -15.4 % WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUT-
STANDING (M's): ASSUMING DILUTION 1,041.8 1,124.0 BASIC 1,035.2
1,113.7 INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
At At (Dollars in Millions) March 31, December 31,
2014 2013 ASSETS: Current Assets: Cash and cash
equivalents $ 9,409 $ 10,716 Marketable securities 295 350 Notes
and accounts receivable - trade (net of allowances of $305 in 2014
and $291 in 2013) 9,682 10,465 Short-term financing receivables
(net of allowances of $317 in 2014 and $308 in 2013) 18,329 19,787
Other accounts receivable (net of allowances of $36 in 2014 and $36
in 2013) 1,650 1,584 Inventories, at lower of average cost or
market: Finished goods 472 444 Work in process and raw materials
1,984 1,866 Total inventories 2,456
2,310 Deferred taxes 1,708 1,651 Prepaid expenses and other current
assets 4,430 4,488 Total Current Assets
47,959 51,350 Property, plant and equipment 40,478 40,475
Less: Accumulated depreciation 26,795 26,654
Property, plant and equipment - net 13,683 13,821 Long-term
financing receivables (net of allowances of $93 in 2014 and $80 in
2013) 11,918 12,755 Prepaid pension assets 6,110 5,551 Deferred
taxes 3,034 3,051 Goodwill 31,214 31,184 Intangible assets - net
3,698 3,871 Investments and sundry assets 5,030
4,639 Total Assets $ 122,646 $ 126,223
LIABILITIES: Current Liabilities: Taxes $ 2,245 $
4,633 Short-term debt 9,312 6,862 Accounts payable 6,865 7,461
Compensation and benefits 3,664 3,893 Deferred income 13,681
12,557 Other accrued expenses and liabilities 5,292
4,748 Total Current Liabilities 41,058 40,154
Long-term debt 34,668 32,856 Retirement and nonpension
postretirement benefit obligations 16,031 16,242 Deferred income
4,042 4,108 Other liabilities 10,106 9,934
Total Liabilities 105,906 103,294 EQUITY: IBM
Stockholders' Equity: Common stock 51,943 51,594 Retained earnings
131,431 130,042 Treasury stock -- at cost (145,612 ) (137,242 )
Accumulated other comprehensive income/(loss) (21,156 )
(21,602 ) Total IBM stockholders' equity 16,607 22,792
Noncontrolling interests 133 137
Total Equity 16,740 22,929 Total
Liabilities and Equity $ 122,646 $ 126,223
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS
(Unaudited) Three Months Ended (Dollars in Millions)
March 31, 2014 2013 Net Cash from Operating
Activities per GAAP: $ 3,326 $ 4,023 Less: the change in
Global Financing (GF) Receivables 1,807 1,597
Net Cash from Operating Activities (Excluding GF
Receivables) 1,518 2,425 Capital Expenditures, Net (887 )
(729 ) Free Cash Flow (Excluding GF Receivables) 631 1,696
Acquisitions (264 ) (58 ) Divestitures 391 10 Dividends (990
) (948 ) Share Repurchase (8,166 ) (2,593 ) Non-GF Debt 3,634 (717
) Other (includes GF Receivables, and GF Debt) 3,402 3,473
Change in Cash, Cash Equivalents and Short-term Marketable
Securities ($1,361 ) $ 863 INTERNATIONAL
BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)
FIRST-QUARTER 2014 Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax External Internal
Total (Loss) Margin SEGMENTS Global Technology Services $
9,330 $ 241 $ 9,570 $ 1,345 14.1 % Y-T-Y change -2.9 % -2.8 % -2.9
% -15.1 % Global Business Services 4,483 141 4,624 628 13.6
% Y-T-Y change 0.0 % -21.7 % -0.9 % -10.6 % Software 5,661
932 6,593 1,918 29.1 % Y-T-Y change 1.6 % 12.2 % 3.0 % -4.7 %
Systems and Technology 2,391 168 2,559 (660 ) -25.8 % Y-T-Y
change -23.0 % 40.4 % -20.7 % -63.1 % Global Financing 512
617 1,129 596 52.8 % Y-T-Y change 2.6 % 14.1 % 8.6 % 10.7 %
TOTAL REPORTABLE SEGMENTS $ 22,376 $ 2,099 $ 24,476 $ 3,828 15.6 %
Y-T-Y change -3.8 % 9.4 % -2.8 % -13.7 % Eliminations /
Other 107 (2,099 ) (1,992 ) (848 ) TOTAL IBM CONSOLIDATED $
22,484 $ 0 $ 22,484 $ 2,980 13.3 % Y-T-Y change -3.9 % -3.9 % -17.3
% FIRST-QUARTER 2013 Pre-tax (Dollars in Millions)
Revenue Income/ Pre-tax External Internal Total (Loss) Margin
SEGMENTS Global Technology Services $ 9,605 $ 248 $ 9,852 $
1,585 16.1 % Global Business Services 4,484 180 4,664 703
15.1 % Software 5,572 831 6,403 2,014 31.5 % Systems
and Technology 3,106 120 3,226 (405 ) -12.5 % Global
Financing 499 541 1,040 538 51.8 % TOTAL REPORTABLE SEGMENTS
$ 23,266 $ 1,919 $ 25,185 $ 4,435 17.6 % Eliminations /
Other 142 (1,919 ) (1,777 ) (829 ) TOTAL IBM CONSOLIDATED $
23,408 $ 0 $ 23,408 $ 3,606 15.4 % INTERNATIONAL BUSINESS
MACHINES CORPORATION U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
FIRST-QUARTER 2014 Acquisition- Retirement-
Related Related Operating GAAP Adjustments* Adjustments**
(Non-GAAP) Gross Profit $ 10,543 $ 104 $ 52 $ 10,699 Gross
Profit Margin 46.9 % 0.5Pts 0.2Pts 47.6 % S,G&A 6,289
(97 ) (87 ) 6,104 R,D&E 1,501 0 17 1,518 Other
(Income) & Expense (126 ) 0 0 (126 ) Total Expense &
Other (Income) 7,563 (98 ) (70 ) 7,395 Pre-Tax Income 2,980
201 123 3,304 Pre-Tax Income Margin 13.3 % 0.9Pts 0.5Pts
14.7 % Provision for Income Taxes*** 596 40 25 661
Effective Tax Rate 20.0 % 0.0Pts 0.0Pts 20.0 % Net Income
2,384 161 98 2,643 Net Income Margin 10.6 % 0.7Pts 0.4Pts
11.8 % Diluted Earnings Per Share $ 2.29 $ 0.16 $ 0.09 $
2.54 FIRST-QUARTER 2013 Acquisition- Retirement-
Related Related Operating GAAP Adjustments* Adjustments**
(Non-GAAP) Gross Profit $ 10,678 $ 95 $ 164 $ 10,937 Gross
Profit Margin 45.6 % 0.4Pts 0.7Pts 46.7 % S,G&A 5,577
(92 ) (104 ) 5,381 R,D&E 1,644 0 (16 ) 1,628
Other (Income) & Expense (60 ) (7 ) 0 (67 ) Total
Expense & Other (Income) 7,072 (99 ) (120 ) 6,853
Pre-Tax Income 3,606 194 283 4,084 Pre-Tax Income Margin
15.4 % 0.8Pts 1.2Pts 17.4 % Provision for Income Taxes***
574 54 79 708 Effective Tax Rate 15.9 % 0.6Pts 0.9Pts 17.3 %
Net Income 3,032 140 204 3,376 Net Income Margin 13.0
% 0.6Pts 0.9Pts 14.4 % Diluted Earnings Per Share $ 2.70 $
0.12 $ 0.18 $ 3.00
* 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.
IBMMike Fay, 914-525-8476mikefay@us.ibm.comorJohn Bukovinsky,
732-618-3531jbuko@us.ibm.com
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