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IBM Reports 2013 Second-Quarter Results

Stocks in this article: IBM

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 RSS;
  • adjusting for workforce rebalancing.

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 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/2q13.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   Six Months Ended
June 30, June 30,
    Percent     Percent
2013 2012 Change 2013 2012 Change
REVENUE
 
Global Technology
Services $ 9,536 $ 9,995 -4.6 % $ 19,140 $ 20,031 -4.4 %
Gross profit margin 37.8 % 36.3 % 37.3 % 35.8 %
 
Global Business
Services 4,606 4,667 -1.3 % 9,091 9,304 -2.3 %
Gross profit margin 31.2 % 30.7 % 29.9 % 29.4 %
 
Software 6,423 6,171 4.1 % 11,995 11,770 1.9 %
Gross profit margin 88.8 % 88.4 % 88.1 % 87.7 %
 
Systems and
Technology 3,758 4,259 -11.8 % 6,864 8,008 -14.3 %
Gross profit margin 36.7 % 38.3 % 34.7 % 36.4 %
 
Global Financing 487 517 -5.8 % 985 1,006 -2.1 %
Gross profit margin 46.3 % 46.0 % 46.0 % 48.3 %
 
Other 115 175 -34.2 % 257 336 -23.7 %
Gross profit margin -190.5 % -60.0 % -172.8 % -67.1 %
 
TOTAL REVENUE 24,924 25,783 -3.3 % 48,332 50,456 -4.2 %
 
GROSS PROFIT 12,132 12,281 -1.2 % 22,810 23,400 -2.5 %
Gross margin 48.7 % 47.6 % 47.2 % 46.4 %
 
 
EXPENSE AND OTHER INCOME
 
S,G&A 6,680 5,837 14.4 % 12,257 11,723 4.6 %
Expense to revenue 26.8 % 22.6 % 25.4 % 23.2 %
R,D&E 1,548 1,587 -2.4 % 3,193 3,188 0.2 %
Expense to revenue 6.2 % 6.2 % 6.6 % 6.3 %
 
Intellectual property
and custom development
income (247 ) (289 ) -14.5 % (430 ) (545 ) -21.0 %
Other (income)
and expense (91 ) (132 ) -31.0 % (151 ) (190 ) -20.4 %
Interest expense 98 117 -16.1 % 192 226 -15.3 %
 
TOTAL EXPENSE AND
OTHER INCOME 7,988 7,120 12.2 % 15,060 14,403 4.6 %
Expense to revenue 32.0 % 27.6 % 31.2 % 28.5 %
 
INCOME BEFORE
INCOME TAXES 4,144 5,161 -19.7 % 7,750 8,997 -13.9 %
Pre-tax margin 16.6 % 20.0 % 16.0 % 17.8 %
 
Provision for
income taxes 918 1,280 -28.3 % 1,492 2,049 -27.2 %
Effective tax
rate 22.1 % 24.8 % 19.2 % 22.8 %
 
NET INCOME $ 3,226   $ 3,881   -16.9 % $ 6,258   $ 6,948   -9.9 %
Net income margin 12.9 % 15.1 % 12.9 % 13.8 %
 
EARNINGS PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION $ 2.91 $ 3.34 -12.9 % $ 5.60 $ 5.95 -5.9 %
BASIC $ 2.93 $ 3.38 -13.3 % $ 5.65 $ 6.02 -6.1 %
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING (M's):
ASSUMING DILUTION 1,109.4 1,161.9 1,116.7 1,168.1
BASIC 1,100.9 1,149.0 1,107.3 1,154.1
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
 
  At   At
(Dollars in Millions) June 30, December 31,
2013 2012
ASSETS
 
Current Assets:
Cash and cash equivalents $ 9,558 $ 10,412
Marketable securities 799 717
Notes and accounts receivable - trade
(net of allowances of $258 in 2013 and $255 in 2012) 10,277 10,667
Short-term financing receivables
(net of allowances of $279 in 2013 and $288 in 2012) 16,661 18,038
Other accounts receivable
(net of allowances of $25 in 2013 and $17 in 2012) 1,898 1,873
Inventories, at lower of average cost or market:
Finished goods 482 475
Work in process and raw materials   1,906     1,812  
Total inventories 2,389 2,287
Deferred taxes 1,584 1,415
Prepaid expenses and other current assets   4,746     4,024  
Total Current Assets 47,911 49,433
 
Property, plant and equipment 39,552 40,501
Less: Accumulated depreciation   26,196     26,505  
Property, plant and equipment - net 13,356 13,996
Long-term financing receivables
(net of allowances of $64 in 2013 and $66 in 2012) 11,828 12,812
Prepaid pension assets 922 945
Deferred taxes 4,150 3,973
Goodwill 28,846 29,247
Intangible assets - net 3,418 3,787
Investments and sundry assets   4,721     5,021  
Total Assets $ 115,153   $ 119,213  
 
LIABILITIES AND EQUITY
 
Current Liabilities:
Taxes $ 4,708 $ 4,948
Short-term debt 7,830 9,181
Accounts payable 6,821 7,952
Compensation and benefits 4,223 4,745
Deferred income 12,241 11,952
Other accrued expenses and liabilities   5,214     4,847  
Total Current Liabilities 41,037 43,625
 
Long-term debt 26,292 24,088
Retirement and nonpension postretirement
benefit obligations 17,962 20,418
Deferred income 4,166 4,491
Other liabilities   7,812     7,607  
Total Liabilities 97,269 100,229
 
Equity:
IBM Stockholders' Equity:
Common stock 50,886 50,110
Retained earnings 121,883 117,641
Treasury stock -- at cost (129,239 ) (123,131 )
Accumulated other comprehensive income/(loss)   (25,774 )   (25,759 )
Total IBM stockholders' equity 17,756 18,860
 
 
Noncontrolling interests   127     124  
Total Equity   17,883     18,984  
Total Liabilities and Equity $ 115,153   $ 119,213  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended   Six Months Ended
(Dollars in Millions) June 30, June 30,
2013   2012 2013   2012
Net Cash from Operating Activities per GAAP: $ 3,175 $ 4,435 $ 7,197 $ 8,726
 
Less: the change in Global Financing (GF)
Receivables   (450 )   (507 )   1,147     918  
Net Cash from Operating Activities
(Excluding GF Receivables) 3,625 4,942 6,051 7,809
 
Capital Expenditures, Net (939 ) (1,278 ) (1,668 ) (2,279 )
 
Free Cash Flow
(Excluding GF Receivables) 2,686 3,664 4,382 5,529
 
Acquisitions (121 ) (606 ) (179 ) (1,925 )
Divestitures 2 13 12 13
Dividends (1,048 ) (978 ) (1,996 ) (1,848 )
Share Repurchase (3,552 ) (2,988 ) (6,145 ) (6,002 )
Non-GF Debt 922 933 205 1,590
Other (includes GF Receivables, and
GF Debt) (524 ) (1,187 ) 2,949 1,907
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities   ($1,635 )   ($1,148 )   ($772 )   ($736 )
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  SECOND-QUARTER 2013    
-Normalized*-
  Pre-tax   Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax Income/ Pre-tax
External   Internal   Total (Loss) Margin (Loss) Margin
SEGMENTS
 
Global Technology Services $ 9,536 $ 292 $ 9,828 $ 1,514 15.4 % $ 1,866 19.0 %
Y-T-Y change -4.6 % 0.3 % -4.5 % -13.8 % 2.7 %
 
Global Business Services 4,606 188 4,795 623 13.0 % 856 17.9 %
Y-T-Y change -1.3 % 4.5 % -1.1 % -22.4 % 1.9 %
 
Software 6,423 738 7,161 2,443 34.1 % 2,662 37.2 %
Y-T-Y change 4.1 % -4.9 % 3.1 % -2.0 % 5.6 %
 
Systems and Technology 3,758 135 3,893 (141 ) -3.6 % 62 1.6 %
Y-T-Y change -11.8 % -15.0 % -11.9 % -160.2 % -76.3 %
 
Global Financing 487 575 1,061 550 51.8 % 552 52.0 %
Y-T-Y change -5.8 % 11.6 % 2.9 % 4.2 % 4.5 %
 
TOTAL REPORTABLE SEGMENTS $ 24,809 $ 1,928 $ 26,737 $ 4,989 18.7 % $ 5,998 22.4 %
Y-T-Y change -3.1 % 0.4 % -2.9 % -14.2 % 0.5 %
 
Eliminations / Other 115 (1,928 ) (1,813 ) (846 ) (844 )
 
TOTAL IBM CONSOLIDATED $ 24,924 $ (0 ) $ 24,924 $ 4,144 16.6 % $ 5,154 20.7 %
Y-T-Y change -3.3 % -3.3 % -19.7 % -3.0 %
 
*Normalized for second-quarter workforce rebalancing charges
 
 
SECOND-QUARTER 2012
Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 9,995 $ 291 $ 10,286 $ 1,757 17.1 %
 
Global Business Services 4,667 180 4,847 803 16.6 %
 
Software 6,171 776 6,946 2,493 35.9 %
 
Systems and Technology 4,259 159 4,418 234 5.3 %
 
Global Financing 517 515 1,032 528 51.1 %
 
TOTAL REPORTABLE SEGMENTS $ 25,608 $ 1,921 $ 27,529 $ 5,814 21.1 %
 
Eliminations / Other 175 (1,921 ) (1,746 ) (653 )
 
TOTAL IBM CONSOLIDATED $ 25,783 $ (0 ) $ 25,783 $ 5,161 20.0 %
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  SIX-MONTHS 2013    
-Normalized*-
  Pre-tax   Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax Income/ Pre-tax
External   Internal   Total (Loss) Margin (Loss) Margin
SEGMENTS

 

 
Global Technology Services $ 19,140 $ 540 $ 19,680 $ 3,099 15.7 % $ 3,451 17.5 %
Y-T-Y change -4.4 % -7.6 % -4.5 % -4.3 % 4.6 %
 
Global Business Services 9,091 368 9,459 1,326 14.0 % 1,559 16.5 %
Y-T-Y change -2.3 % 1.5 % -2.2 % -5.6 % 8.2 %
 
Software 11,995 1,569 13,563 4,457 32.9 % 4,676 34.5 %
Y-T-Y change 1.9 % -2.9 % 1.3 % 0.4 % 4.7 %
 
Systems and Technology 6,864 255 7,118 (546 ) -7.7 % (343 ) -4.8 %
Y-T-Y change -14.3 % -17.7 % -14.4 % NM NM
 
Global Financing 985 1,116 2,101 1,088 51.8 % 1,090 51.9 %
Y-T-Y change -2.1 % 11.6 % 4.7 % 4.6 % 4.8 %
 
TOTAL REPORTABLE SEGMENTS $ 48,075 $ 3,847 $ 51,922 $ 9,425 18.2 % $ 10,433 20.1 %
Y-T-Y change -4.1 % -0.6 % -3.8 % -8.0 % 0.3 %
 
Eliminations / Other 257 (3,847 ) (3,590 ) (1,675 ) (1,673 )
 
 
TOTAL IBM CONSOLIDATED $ 48,332 $ (0 ) $ 48,332 $ 7,750 16.0 % $ 8,760 18.1 %
Y-T-Y change -4.2 % -4.2 % -13.9 % -4.3 %
 
*Normalized for second-quarter workforce rebalancing charges
NM - Not Meaningful
 
 
SIX-MONTHS 2012
Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 20,031 $ 584 $ 20,615 $ 3,237 15.7 %
 
Global Business Services 9,304 363 9,667 1,404 14.5 %
 
Software 11,770 1,615 13,386 4,438 33.2 %
 
Systems and Technology 8,008 309 8,317 130 1.6 %
 
Global Financing 1,006 1,000 2,006 1,040 51.8 %
 
TOTAL REPORTABLE SEGMENTS $ 50,120 $ 3,872 $ 53,991 $ 10,248 19.0 %
 
Eliminations / Other 336 (3,872 ) (3,535 ) (1,252 )
 
TOTAL IBM CONSOLIDATED $ 50,456 $ (0 ) $ 50,456 $ 8,997 17.8 %
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
 
  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 % 0.4Pts 0.6Pts 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 % 0.7Pts 1.1Pts 18.4 %
 
Provision for Income Taxes*** 918 9 82 1,009
 
Effective Tax Rate 22.1 % -0.7Pts 0.6Pts 22.0 %
 
Net Income 3,226 173 180 3,579
 
Net Income Margin 12.9 % 0.7Pts 0.7Pts 14.4 %
 
Diluted Earnings Per Share $ 2.91 $ 0.15 $ 0.16 $ 3.22
 
 
SECOND-QUARTER 2012
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 12,281 $ 93 $ 66 $ 12,440
 
Gross Profit Margin 47.6 % 0.4Pts 0.3Pts 48.2 %
 
S,G&A 5,837 (87 ) (33 ) 5,717
 
R,D&E 1,587 0 5 1,592
 
Other (Income) & Expense (132 ) (1 ) 0 (133 )
 
Total Expense & Other (Income) 7,120 (88 ) (28 ) 7,004
 
Pre-Tax Income 5,161 181 94 5,436
 
Pre-Tax Income Margin 20.0 % 0.7Pts 0.4Pts 21.1 %
 
Provision for Income Taxes*** 1,280 49 30 1,359
 
Effective Tax Rate 24.8 % 0.1Pts 0.1Pts 25.0 %
 
Net Income 3,881 132 64 4,077
 
Net Income Margin 15.1 % 0.5Pts 0.2Pts 15.8 %
 
Diluted Earnings Per Share $ 3.34 $ 0.11 $ 0.06 $ 3.51
* 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 2013
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 22,810 $ 186 $ 320 $ 23,316
 
Gross Profit Margin 47.2 % 0.4Pts 0.7Pts 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 % 0.8Pts 1.1Pts 17.9 %
 
Provision for Income Taxes*** 1,492 63 162 1,717
 
Effective Tax Rate 19.2 % -0.1Pts 0.7Pts 19.8 %
 
Net Income 6,258 313 384 6,955
 
Net Income Margin 12.9 % 0.6Pts 0.8Pts 14.4 %
 
Diluted Earnings Per Share $ 5.60 $ 0.28 $ 0.35 $ 6.23
 
 
SIX-MONTHS 2012
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 23,400 $ 181 $ 137 $ 23,718
 
Gross Profit Margin 46.4 % 0.4Pts 0.3Pts 47.0 %
 
S,G&A 11,723 (171 ) (69 ) 11,483
 
R,D&E 3,188 0 10 3,197
 
Other (Income) & Expense (190 ) (2 ) 0 (192 )
 
Total Expense & Other (Income) 14,403 (172 ) (60 ) 14,171
 
Pre-Tax Income 8,997 354 197 9,547
 
Pre-Tax Income Margin 17.8 % 0.7Pts 0.4Pts 18.9 %
 
Provision for Income Taxes*** 2,049 96 60 2,205
 
Effective Tax Rate 22.8 % 0.2Pts 0.2Pts 23.1 %
 
Net Income 6,948 258 137 7,342
 
Net Income Margin 13.8 % 0.5Pts 0.3Pts 14.6 %
 
Diluted Earnings Per Share $ 5.95 $ 0.22 $ 0.12 $ 6.29

* 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.

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