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59
Management Discussion
International Business Machines Corporation and Subsidiary Companies
requirements related to these plans remain stable going forward at
approximately $600million per year through 2019. In 2014, the return
on the U.S. Personal Pension Plan assets was 10.1percent and the
plan was 102percent funded at December31. Overall, global asset
returns were 12.2percent and the qualified defined benefit plans
worldwide were 97percent funded at December31, 2014.
During 2014, the company generated $16,868 million in cash
from operations, a decrease of $616million compared to 2013. In
addition, the company generated $12,372 million in free cash flow,
a decrease of $2,649 million versus 2013. The company returned
$17,944 million to shareholders in 2014, with $13,679 million in gross
share repurchases and $4,265 million in dividends. In 2014, the
company repurchased 71.5million shares and had $6.3billion
remaining in share repurchase authorization at year end.
GAAP Reconciliation
The tables below provide a reconciliation of the company’s income
statement results as reported under GAAP to its operating earn-
ings presentation which is a non-GAAP measure. The company’s
calculation of operating (non-GAAP) earnings, as presented, may
differ from similarly titled measures reported by other companies.
Please refer to the “Operating (non-GAAP) Earnings” section on
pages 18 and 19 for the company’s rationale for presenting oper-
ating earnings information.
($ inmillions except per share amount)
For the year ended December 31, 2014: GAAP
Acquisition-
Related
Adjustments
Retirement-
Related
Adjustments
Operating
(non-GAAP)
Gross profi t $46,407 $ 416 $ 173 $46,996
Gross profi t margin 50.0% 0.4 pts. 0.2 pts. 50.6%
SG&A $23,180 $(385) $(257) $22,537
RD&E 5,437 — 77 5,514
Other (income) and expense (1,938) (1) — (1,939)
Total expense and other (income) 26,421 (386) (180) 25,855
Pre-tax income from continuing operations 19,986 803 353 21,142
Pre-tax margin from continuing operations 21.5% 0.9 pts. 0.4 pts. 22.8%
Provision for income taxes* $ 4,234 $ 133 $ 73 $ 4,440
Effective tax rate 21.2% (0.2) pts. 0.0 pts. 21.0%
Income from continuing operations $15,751 $ 670 $ 280 $16,702
Income margin from continuing operations 17.0% 0.7 pts. 0.3 pts. 18.0%
Diluted earnings per share from continuing operations $ 15.59 $0.66 $0.28 $ 16.53
* 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.
($ inmillions except per share amount)
For the year ended December 31, 2013: GAAP
Acquisition-
Related
Adjustments
Retirement-
Related
Adjustments
Operating
(non-GAAP)
Gross profi t $48,684 $ 394 $ 629 $49,706
Gross profi t 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%
Diluted earnings per share from continuing operations $ 15.30 $0.68 $ 0.66 $ 16.64
* 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.