IBM 2014 Annual Report Download - page 47

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46 Management Discussion
International Business Machines Corporation and Subsidiary Companies
($ in millions except per share amounts)
For the year ended December 31, 2013: GAAP
Acquisition-
Related
Adjustments
Retirement-
Related
Adjustments
Operating
(non-GAAP)
Gross profit $48,684 $ 394 $ 629 $49,706
Gross profit margin 49.5% 0.4 pts. 0.6 pts. 50.5%
SG&A $23,451 $(394) $ (376 ) $22,680
RD&E 5,743 — (57) 5,686
Other (income) and expense (333) (16) — (349)
Total expense and other (income) 28,440 (410) (433) 27,597
Pre-tax income from continuing operations 20,244 804 1,062 22,110
Pre-tax margin from continuing operations 20.6% 0.8 pts. 1.1 pts. 22.5%
Provision for income taxes* $ 3,363 $ 57 $ 333 $ 3,753
Effective tax rate 16.6% (0.4) pts. 0.7 pts. 17.0%
Income from continuing operations $16,881 $ 747 $ 729 $18,356
Income margin from continuing operations 17.2% 0.8 pts. 0.7 pts. 18.7%
Loss from discontinued operations, net of tax $ (398) $ — $ — $ (398 )
Net income $16,483 $ 747 $ 729 $17,959
Diluted earnings per share:
Continuing operations $ 15.30 $0.68 $ 0.66 $ 16.64
Discontinued operations $ (0.36) $ — $ — $ (0.36 )
* The 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.
Consolidated Fourth-Quarter Results
($ and shares in millions except per share amounts)
For the fourth quarter: 2014 2013
Yr.-to-Yr.
Percent/
Margin
Change
Revenue $24,113 $ 27,385 (11.9)%*
Gross profit margin 53.3% 52.4% 1.0 pts.
Total expense and other (income) $ 5,767 $ 7,235 (20.3)%
Total expense and other
(income)-to-revenue ratio 23.9% 26.4% (2.5) pts.
Income from continuing operations
before income taxes $ 7,094 $ 7,102 (0.1)%
Provision for income taxes from
continuing operations $ 1,580 $ 885 78.4%
Income from continuing operations $ 5,515 $ 6,216 (11.3)%
Income from continuing
operations margin 22.9% 22.7% 0.2 pts.
Loss from discontinued operations,
net of tax (31) (32) (1.7)%
Net income $ 5,484 $ 6,185 (11.3)%
Earnings per share from continuing
operations:
Assuming dilution $ 5.54 $ 5.76 (3.8)%
Consolidated earnings per share—
assuming dilution $ 5.51 $ 5.73 (3.8)%
Weighted-average shares outstanding
Assuming dilution 995.4 1,080.0 (7.8)%
* (7.6)percent adjusted for currency; (2.3) percent adjusted for divestitures and currency.
The following table provides the company’s operating (non-GAAP)
earnings for the fourth quarter of 2014 and 2013.
($ in millions except per share amounts)
For the fourth quarter: 2014 2013
Yr.-to-Yr.
Percent
Change
Net income as reported $5,484 $6,185 (11.3)%
Loss from discontinued operations,
net of tax (31) (32)(1.7)
Income from continuing operations 5,515 6,216 (11.3)
Non-operating adjustments
(net of tax):
Acquisition-related charges 186 268 (30.5)
Non-operating retirement-related
costs/(income) 84 164 (49.1)
Operating (non-GAAP) earnings* $5,785 $ 6,649 (13.0)%
Diluted operating (non-GAAP)
earnings per share $ 5.81 $ 6.16 (5.7)%
* See page 52 for a more detailed reconciliation of net income to operating earning.
Snapshot
In the fourth quarter of 2014, the company reported $24.1 billion
in revenue and delivered diluted earnings per share from continu-
ing operations of $5.54 as reported and $5.81 on an operating
(non-GAAP) basis. The results of continuing operations exclude a
net loss from discontinued operations of $31 million related to the
announced divestiture of the Microelectronics business. On a con-
solidated basis, net income in the fourth quarter was $5.5 billion,