IBM 2014 Annual Report Download - page 102

Download and view the complete annual report

Please find page 102 of the 2014 IBM annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 158

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
101
Summarized financial information for discontinued operations
is shown below.
($ in millions)
For the year ended December 31: 2014 2013 2012
Total revenue $ 1,335 $1,384 $1,633
Loss from discontinued operations,
before tax (619) (720)(638)
Loss on disposal, before tax (4,726) — —
Total loss from discontinued
operations, before income taxes (5,346) (720)(638)
Provision (benefit) for income taxes (1,617) (322)(243)
Loss from discontinued
operations, net of tax $(3,729) $ (398 ) $ (395 )
The assets and liabilities at December 31, 2014 presented below
are classified as held for sale.
($ in millions)
At December 31: 2014 2013
Assets:
Accounts receivable $245 $ 166
Inventory 380 481
Property, plant & equipment, net —2,322
Other assets 92 90
Total assets $717 $3,059
Liabilities:
Accounts payable $177 $ 172
Deferred income 87 84
Other liabilities 163 20
Total liabilities $427 $ 276
Industry Standard Server—On January23, 2014, IBM and Lenovo
Group Limited (Lenovo) announced a definitive agreement in which
Lenovo would acquire the company’s industry standard server
portfolio for an adjusted purchase price of $2.1 billion, consisting
of approximately $1.8 billion in cash, with the balance in Lenovo
common stock. The stock represented less than 5percent
equity ownership in Lenovo. The company would sell to Lenovo
its Systemx, BladeCenter and Flex System blade servers and
switches, x86-based Flex integrated systems, NeXtScale and
iDataPlex servers and associated software, blade networking and
maintenance operations.
IBM and Lenovo have entered into a strategic relationship
which will include a global OEM and reseller agreement for sales of
IBM’s industry-leading entry and midrange Storwize disk storage
systems, tape storage systems, General Parallel File System soft-
ware, SmartCloud Entry offering, and elements of IBM’s system
software, including Systems Director and Platform Computing
solutions. Effective with the initial closing of the transaction, Lenovo
has assumed related customer service and maintenance opera-
tions. IBM will continue to provide maintenance delivery and
warranty services on Lenovo’s behalf for an extended period of
time. In addition, as part of the transaction agreement, the com-
pany will provide Lenovo with certain transition services, including
IT and supply chain services. The initial term for these transition
services ranges from less than one year to three years. Lenovo
can renew certain services for an additional year.
The transaction will be completed in phases. The initial closing
occurred on October1, 2014. A subsequent closing occurred in
most other countries in which there was a large business footprint
on December31, 2014. The remaining countries are expected to
close in early 2015.
The company expects to recognize a total pre-tax gain on the
sale of approximately $1.5 billion, which does not include associ-
ated costs related to transition and performance-based costs. Net
of these charges, the pre-tax gain is approximately $1.2 billion, of
which $1.1 billion was recorded in the fourth quarter of 2014. The
balance of the gain is expected to be recognized in 2019 upon
conclusion of the maintenance delivery agreement.
The company’s industry standard server business is reported
in the Systems and Technology segment, and the associated main-
tenance operations are part of the Global Technology Services
segment. In 2013, this combined business delivered approximately
$4.6 billion of revenue and was essentially breakeven on a pre-tax
income basis.
The classification of the industry standard server business as
held for sale at September30, 2014 was based on meeting all
of the criteria for such classification in the applicable account-
ing guidance. While the company met certain criteria for held for
sale classification in prior periods, it did not meet the criteria that
the disposal group was available for immediate sale in its present
condition until September30, 2014. Prior to that date, the company
was engaged in the regulatory review process and in the activi-
ties necessary to separate the tangible assets and prepare such
assets for sale. At December31, 2014, the assets and liabilities
remaining as held for sale were immaterial.
In addition, at September30, 2014, the company concluded
that the industry standard server systems business did not meet
the criteria for discontinued operations reporting. The disposal
group consists of the industry standard server systems business
and associated maintenance operations. The industry standard
server systems business constitutes a component under account-
ing guidance, while the maintenance operations do not meet the
definition of a component. Due to the significance of the continuing
cash flows with the disposal group after the transaction closes, the
company did not meet the criteria to report the industry standard
server systems business as a discontinued operation.