IBM 2014 Annual Report Download - page 62

61
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Total SG&A expense decreased 0.1percent in 2013 versus 2012.
The decrease was primarily driven by the effects of currency
(1point), offset by acquisition-related spending (2points). Oper-
ating (non-GAAP) SG&A expense decreased 0.6percent primarily
driven by the effects of currency (1point) and lower base spending
(1point), partially offset by acquisition-related spending (1point).
The decrease was driven by lower SG&A—other expense, as the
company continued to shift its spending. The company continued
to drive productivity across the business, primarily through its
enterprise productivity initiatives, and reinvested most of those
savings into the business to drive its growth areas. The increase in
workforce rebalancing charges was due to actions the company
took in the second quarter of 2013. Bad debt expense increased
$106 million in 2013 versus 2012, primarily driven by higher specific
account reserves. The accounts receivable provision cover-
age was 1.6percent at December31, 2013, an increase of 20
basispoints from year-end 2012.
Research, Development and Engineering
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent
Change
Total consolidated research,
development and engineering $5,743 $5,816 (1.3)%
Non-operating adjustment
Non-operating retirement-related
(costs)/income (57)20 NM
Operating (non-GAAP) research,
development and engineering $5,686 $5,837 (2.6)%
NM—Not meaningful
Total RD&E expense decreased 1.3percent in 2013 versus 2012,
primarily driven by lower base spending (3points), partially offset
by acquisitions (2points). Operating (non-GAAP) RD&E expense
decreased 2.6percent in 2013 compared to the prior year pri-
marily driven by lower base spending (5points), partially offset by
acquisitions (2points).
Intellectual Property and Custom Development Income
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent
Change
Sales and other transfers of
intellectual property $352 $ 324 8.8%
Licensing/royalty-based fees 150 251 (40.1)
Custom development income 320 500 (36.0)
Total $822 $1,074 (23.5)%
There were no significant individual IP transactions in 2013 or
2012. Custom development income declined 36percent com-
pared to the prior year due to a reduction in payments from the
company’s technology alliance partners.
Other (Income) and Expense
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent
Change
Other (income) and expense
Foreign currency transaction
losses/(gains) $(260) $(240) 8.4%
(Gains)/losses on
derivative instruments 166 72 132.5
Interest income (74) (109)(32.2)
Net (gains)/losses from securities
and investment assets (29)(55)(48.0)
Other (137)(511)(73.3)
Total consolidated other
(income) and expense $(333)$(843)(60.5)%
Non-operating adjustment
Acquisition-related charges (16)(13)17.4
Operating (non-GAAP) other
(income) and expense $(349)$(857)(59.3)%
The decrease in income of $510 million in 2013 was primarily driven
by lower income from divestitures ($405 million) driven by the gain
associated with the divested RSS business ($446 million) in 2012
reflected in Other in the table above, and increased losses on
derivative instruments ($95 million) due to foreign currency rate
volatility year to year.
Interest Expense
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent
Change
Interest expense
Total $402 $459 (12.5)%
The decrease in interest expense in 2013 versus 2012 was pri-
marily driven by lower average interest rates, partially offset by
higher average debt levels. Overall interest expense, including
interest presented in the cost of financing, and excluding capital-
ized interest, for 2013 was $989 million, a decrease of $15 million
year to year.