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INTERNATIONAL BUSINESS MACHINES CORP Annual Report, Year Ended Dec 31, 2004

Filing Date
Filed February 24, 2005
Period End
December 31, 2004
Security
IBM
In the record · 2016–202610-K1110-Q338-K210

IBM filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 210 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Oct ’17Oct ’17
  2. Leadership change8-K · Nov ’19Nov ’19
  3. Deal closed8-K · Nov ’21Nov ’21
  4. Material agreement8-K · Jun ’25Jun ’25

01—Abstract

Summary

Summary of the 10-K filed February 24, 2005. Cited figures are marked; the original filing is the authoritative source.

International Business Machines (IBM) closed 2004 with revenue of $96.3 billiona, up 8.0% (3.4% at constant currency), and diluted EPS from continuing operations of $4.94, up 13.8%.

Growth was led by Global Services (revenue up 8.4% to $46.2 billionb, about 48% of total), with broad gains in Hardware (up 10.3%, driven by zSeries, xSeries, pSeries and BladeCenter) and Software (up 5.5%, led by WebSphere, Tivoli and Rational). Gross margin edged up 0.4 points to 37.4%, while total expense rose 8.4% to 24.9% of revenue, pressured by a $1.08 billion increase in retirement-related plan costs, including a $320 million one-time pension settlement charge. Net income was $8.43 billion, and operating cash flow was $15.4 billion.

Capital deployment was shareholder-focused. IBM repurchased roughly $7.3 billionc of stock in 2004, returned about $8.3 billion to shareholders in total, and had $3.7 billion of Board authorization remaining at year-end. Non-Global Financing debt remained low at 2.2% of capitalization, and ratings stayed at A+/A1/AA-.

Services backlog declined to $111 billiond from $120 billion, and Global Services signings fell to $43 billion from $55 billion, a leading indicator investors will watch closely. Key forward-looking items include the pending sale of the Personal Computing Division to Lenovo (expected to close in Q2 2005), a roughly $1 billion year-over-year increase in pre-tax retirement-related costs projected for 2005, a Q4 subsequent-event revenue reduction of $260 million tied to Japan third-party hardware sales, and legal exposure including the Compuware and SCO litigation, SEC inquiries, and an up-to-$1.4 billion pension claim contingency.

02—Key points

Key Highlights

  1. Revenue rose 8.0% to $96.3 billion (3.4% at constant currency); diluted EPS from continuing operations grew 13.8% to $4.94.
  2. Global Services, about 48% of revenue, grew 8.4% to $46.2 billion, but services backlog fell to $111 billion from $120 billion and signings dropped to $43 billion from $55 billion.
  3. Hardware revenue grew 10.3%, led by zSeries (+14.9%), xSeries (+22.8%) and POWER5-based pSeries, while iSeries declined on a slower transition.
  4. Gross margin improved 0.4 points to 37.4%, but total expense rose 8.4%, including a $1.08 billion increase in retirement-related plan costs and a $320 million pension settlement charge.
  5. Shareholder returns were heavy: about $7.3 billion of 2004 buybacks and $1.17 billion of dividends, with $3.7 billion of repurchase authorization remaining.
  6. Pending divestiture of the Personal Computing Division to Lenovo (expected Q2 2005) and 14 acquisitions in 2004 totaling about $2.1 billion reshape the portfolio toward software and services.
  7. Balance sheet stayed strong: $10.6 billion of cash and marketable securities, non-Global Financing debt at 2.2% of capitalization, and A+/A1/AA- senior debt ratings.

03—Questions

Frequently Asked Questions

  1. Why did IBM's earnings grow faster than its revenue in 2004?

    Diluted EPS rose 13.8% versus 8.0% revenue growth, largely because diluted weighted-average shares fell 2.7% to 1,708.9 million on continued share repurchases. Pre-tax income also rose faster than revenue, with income from continuing operations up 11.0%.

  2. What are the main risks to IBM's future growth highlighted in the filing?

    Key risks include falling services signings and backlog, pricing pressure from closed-architecture competitors, reliance on Global Services and Software growth, currency swings (about 58% of net income is earned in non-dollar currencies), rising pension costs (about $1.0 billion higher pre-tax in 2005), and the expected decline in IP income.

  3. What legal and regulatory matters could affect IBM's financial results?

    The company faces an age-discrimination pension case with up to $1.4 billion of additional liability if its appeal fails, the Compuware and SCO litigation, an SEC investigation of 2000-2001 revenue recognition, a Wells Notice related to Dollar General, and a Korean bid-rigging matter. Management says the damages claimed are not a meaningful indicator of potential liability.

  4. How is IBM's Personal Computing Division sale expected to affect the company?

    IBM agreed in December 2004 to sell the Personal Computing Division to Lenovo for cash and Lenovo equity, with IBM retaining preferred rights to maintenance, warranty and financing services. Management warned that first-half results may be more volatile during the transition, and closing is expected in Q2 2005.

04—Continue

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