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49
Management Discussion
International Business Machines Corporation and Subsidiary Companies
PRIOR YEAR IN REVIEW
The “Prior Year in Review” section provides a summary of the
company’s financial performance in 2014 as compared to 2013.
For additional information, see the company’s 2014 Annual Report.
($ and shares inmillions except per share amounts)
For the year ended December 31: 2014 2013
Yr.-to-Yr.
Percent/
Margin
Change
Revenue $ 92,793 $ 98,367 (5.7)%*
Gross profi t margin 50.0% 49.5% 0.5 pts.
Total expense and other (income) $ 26,421 $ 28,440 (7.1)%
Total expense and other
(income)-to-revenue ratio 28.5% 28.9%(0.4) pts.
Income before income taxes from
continuing operations $ 19,986 $ 20,244 (1.3)%
Provision for income taxes from
continuing operations 4,234 3,363 25.9%
Income from continuing
operations $ 15,751 $ 16,881 (6.7)%
Income from continuing
operations margin 17.0% 17.2%(0.2) pts.
Loss from discontinued
operations, net of tax $ (3,729) $ (398)NM
Net income $ 12,022 $ 16,483 (27.1)%
Earnings per share from
continuing operations:
Assuming dilution $ 15.59 $ 15.30 1.9%
Consolidated earnings per share—
assuming dilution $ 11.90 $ 14.94 (20.3)%
Weighted-average shares
outstanding:
Assuming dilution 1,010.0 1,103.0 (8.4)%
Assets** $117,271+$125,641+(6.7)%
Liabilities** $105,257+$102,711+2.5%
Equity** $ 12,014 $ 22,929 (47.6)%
*
(4.0)percent adjusted for currency; (1.5)percent adjusted for divestitures and
currency.
** At December31.
+ Reclassified to reflect adoption of the FASB guidance on deferred taxes and debt
issuance costs in consolidated financial statements. Refer to noteB, “Accounting
Changes,” for additional information.
NM—Not meaningful
The following table provides the company’s operating (non-GAAP)
earnings for 2014 and 2013.
($ inmillions except per share amounts)
For the year ended December 31: 2014 2013
Yr.-to-Yr.
Percent
Change
Net income as reported $12,022 $16,483 (27.1)%
Loss from discontinued operations,
net of tax (3,729) (398) NM
Income from continuing operations $15,751 $16,881 (6.7)%
Non-operating adjustments
(net of tax)
Acquisition-related charges 670 747 (10.3)
Non-operating retirement-related
costs/(income) 280 729 (61.5)
Operating (non-GAAP) earnings* $16,702 $18,356 (9.0)%
Diluted operating (non-GAAP)
earnings per share $ 16.53 $ 16.64 (0.7)%
* See page59 for a more detailed reconciliation of net income to operating (non-
GAAP) earnings.
NM—Not meaningful
Snapshot
In 2014, the company reported $92.8billion in revenue, and deliv-
ered $20.0billion in pre-tax income and diluted earnings per share
from continuing operations of $15.59 as reported and $16.53 on an
operating (non-GAAP) basis. The results of continuing operations
excluded net losses from discontinued operations of $3.7billion
in 2014 and $0.4billion in 2013 related to the divestiture of the
Microelectronics business. On a consolidated basis, net income
in 2014 was $12.0billion, with diluted earnings per share of $11.90.
The company generated $16.9billion in cash from operations and
$12.4billion in free cash flow in 2014, driving shareholder returns of
$17.9billion in gross common stock repurchases and dividends.
Total consolidated revenue decreased 5.7percent as reported
and 1percent adjusted for divestitures (3points) and currency
(2points) in 2014 versus 2013. In 2014, the company divested its
Systemx and customer care businesses. The company made
progress in 2014 in repositioning its portfolio and making invest-
ments to shift into the areas with the most value in enterprise
information technology.