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Second-Quarter 2015:
o Diluted EPS from continuing operations:
- Operating (non-GAAP): $3.84, down 13 percent;
- GAAP: $3.58, down 15 percent year-to-year;
o Net income from continuing operations:
- Operating (non-GAAP): $3.8 billion, down 15 percent;
- GAAP: $3.5 billion, down 17 percent;
o Gross profit margin from continuing operations:
- Operating (non-GAAP): 50.9 percent, up 20 basis points;
- GAAP: 49.9 percent, down 20 basis points;
o Revenue from continuing operations: $20.8 billion:
- Down 1 percent year-to-year adjusting for currency and the divested System x
business (9 points and 4 points, respectively); down 13 percent as reported;
o Strategic imperatives revenue up more than 30 percent adjusting for currency and
the divested System x business; up more than 20 percent as reported;
- Cloud revenue up more than 70 percent adjusting for currency and divested
businesses; up more than 50 percent as reported;
-- For cloud delivered as a service, annual run rate of $4.5 billion compared
to $2.8 billion in the second quarter of 2014;
- Business analytics revenue up more than 20 percent adjusting for currency; up
more than 10 percent as reported.
Full-Year Expectations:
o Maintains operating (non-GAAP) EPS of $15.75 to $16.50;
o Now expects modest increase in free cash flow year-to-year.
ARMONK, N.Y., July 20, 2015 . . . IBM (NYSE: IBM) today announced second-quarter
2015 diluted earnings from continuing operations of $3.58 per share, down 15 percent
year-to-year. Operating (non-GAAP) diluted earnings from continuing operations were
$3.84 per share, compared with operating diluted earnings of $4.43 per share in the
second quarter of 2014, a decrease of 13 percent.
Second-quarter net income from continuing operations was $3.5 billion compared
with $4.3 billion in the second quarter of 2014, a decrease of 17 percent. Operating
(non-GAAP) net income was $3.8 billion compared with $4.5 billion in the second
quarter of 2014, a decrease of 15 percent, significantly impacted by currency, an
increase in workforce rebalancing charges, and a year-earlier gain from the
divestiture of the customer care outsourcing business.
For the second-quarter of 2015, IBM reported consolidated net income of $3.4
billion or $3.50 of diluted earnings per share, including operating net losses in
discontinued operations related to the Microelectronics business.
Total revenues from continuing operations for the second quarter of 2015 of
$20.8 billion were down 13 percent (down 1 percent, adjusting for currency and the
divested System x business) from the second quarter of 2014.
"Our results for the first half of 2015 demonstrate that we continue to
transform our business to higher value and return value to shareholders. We expanded
margins, continued to innovate across our portfolio and delivered strong growth in
our strategic imperatives of cloud, analytics and engagement, which are becoming a
significant part of our business," said Ginni Rometty, IBM chairman, president and
chief executive officer.
Strategic Imperatives
Revenues from the company’s strategic imperatives --- cloud, analytics, and
engagement --- increased more than 20 percent year-to-date (more than 30 percent
adjusting for currency and the divested System x business). Total cloud revenues
increased more than 50 percent (more than 70 percent adjusting for currency and the
divested System x business) year-to-date, and is $8.7 billion over the last 12
months, adjusted for the divested System x business. The annual run rate for cloud
delivered as a service -- a subset of the total cloud revenue -- increased to $4.5
billion from $2.8 billion in the second quarter of 2014. Revenues from business
analytics increased more than 10 percent (more than 20 percent adjusting for
currency) year-to-date. Revenues from mobile more than quadrupled, and social
revenues increased more than 30 percent (more than 40 percent adjusting for
currency), both year-to-date.
Geographic Regions
The Americas’ second-quarter revenues were $9.8 billion, a decrease of 8 percent
(down 2 percent adjusting for currency and the divested System x business) from the
2014 period. Revenues from Europe/Middle East/Africa were $6.6 billion, down 17
percent (up 1 percent adjusting for currency and the divested System x business).
Asia-Pacific revenues decreased 19 percent (down 1 percent adjusting for currency and
the divested System x business) to $4.3 billion. Revenues from the BRIC countries
were down 35 percent as reported (down 18 percent adjusting for currency and the
divested System x business). The BRIC performance had a negative two-point impact on
IBM’s overall revenue growth rate, adjusting for currency and the divested System x
business.
Services
Global Technology Services segment revenues were down 10 percent (up 1 percent
adjusting for currency and the divested System x business) to $8.1 billion. Global
Business Services segment revenues were down 12 percent (down 3 percent adjusting for
currency) to $4.3 billion.
The estimated services backlog as of June 30 was $122 billion, up more than 1
percent year-to-year adjusting for currency.
Software
Revenues from the Software segment were down 10 percent to $5.8 billion (down
3 percent adjusting for currency) compared with the second quarter of 2014.
Revenues from IBM’s key middleware products, which include WebSphere,
Information Management, Tivoli, Workforce Solutions and Rational products, were $4.0
billion, down 7 percent (flat adjusting for currency) year-to-year. Operating
systems revenues of $0.4 billion were down 17 percent (down 9 percent adjusting for
currency) year-to-year.
Hardware
Revenues from the Systems Hardware segment totaled $2.1 billion for the quarter,
down 32 percent (up 5 percent adjusting for currency and the impact of the divested
System x business) year-to-year.
Revenues from z Systems mainframe server products increased 9 percent compared
with the year-ago period (up 15 percent adjusting for currency). Total delivery of z
Systems computing power, as measured in MIPS (millions of instructions per second),
increased 24 percent. Revenues from Power Systems were down 1 percent compared with
the 2014 period (up 5 percent adjusting for currency). Revenues from System Storage
decreased 10 percent (down 4 percent adjusting for currency).
Financing
Global Financing segment revenues decreased 5 percent (up 7 percent, adjusting
for currency) in the second quarter at $0.5 billion.
Gross Profit
The company’s total gross profit margin from continuing operations was 49.9
percent in the 2015 second quarter compared with 50.1 percent in the 2014 second
quarter. Total operating (non-GAAP) gross profit margin from continuing operations
was 50.9 percent in the 2015 second quarter compared with 50.7 percent in the 2014
second quarter, with an increase in Hardware and an improving segment mix partially
offset by a decline in Services.
Expense
Total expense and other income from continuing operations decreased to $6.2
billion, down 8 percent compared to the prior-year period. Year-to-year results
include the impact of currency and the divested System x business, partially offset
by higher workforce rebalancing charges and the year-earlier gain from the
divestiture of the customer care outsourcing business. S,G&A expense of $5.2 billion
decreased 7 percent year over year. R,D&E expense of $1.3 billion decreased 4
percent year-to-year; the related expense-to-revenue ratio increased to 6.2 percent
compared with 5.7 percent in the year-ago period. Intellectual property and custom
development income decreased to $128 million compared with $191 million a year ago.
Other (income) and expense was income of $301 million compared with prior-year income
of $202 million. Interest expense decreased to $115 million compared with $136
million in the prior year.
Total operating (non-GAAP) expense and other income from continuing operations
decreased to $6.0 billion, down 9 percent compared with the prior-year period.
Operating (non-GAAP) S,G&A expense of $5.0 billion decreased 8 percent compared with
prior-year expense. Operating (non-GAAP) R,D&E expense of $1.3 billion decreased
7 percent year-to-year, reflecting the impact of currency and the divested System x
business; the related expense-to-revenue ratio increased to 6.2 percent compared with
5.7 percent in the year-ago period.
Pre-Tax Income
Pre-tax income from continuing operations decreased 21 percent to $4.2 billion.
Pre-tax margin from continuing operations decreased 1.9 points to 20.3 percent.
Operating (non-GAAP) pre-tax income from continuing operations decreased 18 percent
to $4.6 billion and pre-tax margin was 22.0 percent, down 1.3 points.
***
IBM’s tax rate from continuing operations was 16.5 percent, down 4.0 points year
over year; the operating (non-GAAP) tax rate was 17.2 percent, down 3.3 points
compared to the year-ago period.
Net income margin from continuing operations decreased 0.7 points to 16.9
percent. Total operating (non-GAAP) net income margin from continuing operations
decreased 0.3 points to 18.2 percent.
The weighted-average number of diluted common shares outstanding in the second-
quarter 2015 was 987 million compared with 1,005 million shares in the same period of
2014. As of June 30, 2015, there were 980 million basic common shares outstanding.
Debt, including Global Financing, totaled $38.7 billion, compared with $40.8
billion at year-end 2014. From a management segment view, Global Financing debt
totaled $26.1 billion versus $29.1 billion at year-end 2014. The debt-to-equity
ratio is 7.0 to 1. Core (non-global financing) debt totaled $12.6 billion, an
increase of $0.9 billion since year-end 2014 and a decrease of $4.5 billion from the
second quarter of 2014. IBM ended the second-quarter 2015 with $8.8 billion of cash
on hand.
The company generated free cash flow of $3.4 billion, excluding Global Financing
receivables, up $0.4 billion year over year. The company returned $2.4 billion to
shareholders through $1.3 billion in dividends and $1.1 billion of gross share
repurchases. The balance sheet remains strong, and is well positioned to support the
business over the long term.
Financial Results Below (certain amounts may not add due to use of rounded numbers;
percentages presented are calculated from the underlying whole-dollar amounts).
Other (income) and expense (301) (202) 48.9% (444) (330) 34.8%
Provision for income taxes 698 1,096 -36.3% 1,283 1,749 -26.6%
Effective tax rate 16.5% 20.5% 17.8% 20.5%
DISCONTINUED OPERATIONS
Loss from discontinued
operations, net of taxes (77) (115) (165) (261)
Basic
Continuing Operations $3.59 $4.25 -15.5% $6.03 $6.67 -9.6%
Discontinued Operations ($0.08) ($0.11) ($0.17) ($0.26)
----- ----- ----- -----
TOTAL $3.51 $4.14 -15.2% $5.86 $6.41 -8.6%
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING (M's):
Assuming Dilution 986.7 1,005.1 989.5 1,023.5
Basic 982.3 999.6 985.2 1,017.4
At At
(Dollars in Millions) June 30, December 31,
2015 2014
------------ ------------
ASSETS:
Current Assets:
Cash and cash equivalents $8,393 $8,476
Marketable securities 367 0
Notes and accounts receivable - trade
(net of allowances of $364 in 2015 and $336 in 2014) 8,632 9,090
Short-term financing receivables
(net of allowances of $528 in 2015 and $452 in 2014) 16,888 19,835
Other accounts receivable
(net of allowances of $52 in 2015 and $40 in 2014) 2,390 2,906
Inventories, at lower of average cost or market:
Finished goods 364 430
Work in process and raw materials 1,548 1,674
--------- ---------
Total inventories 1,912 2,103
Deferred taxes 2,133 2,044
Prepaid expenses and other current assets 4,470 4,967
--------- ---------
Total Current Assets 45,186 49,422
Current Liabilities:
Taxes $3,639 $5,084
Short-term debt 5,329 5,731
Accounts payable 5,943 6,864
Compensation and benefits 3,991 4,031
Deferred income 11,332 11,877
Other accrued expenses and liabilities 5,301 6,013
--------- ---------
Total Current Liabilities 35,535 39,600
EQUITY:
SECOND-QUARTER 2015
--------------------------------------------------------
Pre-tax
Income/
(Loss)
(Dollars in Millions) --------- Revenue --------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- -------- ---------- -------
SEGMENTS
SECOND-QUARTER 2014*
-----------------------------------------------------
Pre-tax
Income/
(Loss)
(Dollars in Millions) --------- Revenue --------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- -------- ---------- -------
SEGMENTS
SIX-MONTHS 2015
---------------------------------------------------
Pre-tax
Income/
(Loss)
(Dollars in Millions) --------- Revenue --------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- -------- ---------- -------
SEGMENTS
SIX-MONTHS 2014*
-------------------------------------------------
Pre-tax
Income
(Loss)/
(Dollars in Millions) --------- Revenue --------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
SECOND-QUARTER 2015
CONTINUING OPERATIONS
------------------------------------------------
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ------------ ----------
Gross Profit $10,390 $88 $112 $10,590
SECOND-QUARTER 2014****
CONTINUING OPERATIONS
------------------------------------------------
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ------------ ----------
SIX-MONTHS 2015
CONTINUING OPERATIONS
------------------------------------------------
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ------------ -----------
Gross Profit $19,842 $179 $233 $20,253
SIX-MONTHS 2014****
CONTINUING OPERATIONS
------------------------------------------------
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
-------- ------------ ------------ -----------
Gross Profit $22,671 $209 $98 $22,978
Contact: IBM
Ian Colley, 914-434-3043
colley@us.ibm.com