IBM Reports 2011 Second-Quarter Results

ARMONK, N.Y.--()--IBM (NYSE: IBM)

  • Diluted EPS:
    • GAAP: $3.00, up 15 percent;
    • Operating (non-GAAP): $3.09, up 18 percent;
  • Revenue: $26.7 billion, up 12 percent, up 5 percent adjusting for currency;
  • Net income:
    • GAAP: $3.7 billion, up 8 percent;
    • Operating (non-GAAP): $3.8 billion, up 11 percent;
  • Pre-tax income:
    • GAAP: $4.9 billion, up 7 percent;
    • Operating (non-GAAP): $5.0 billion, up 10 percent;
  • Gross profit margin:
    • GAAP: 46.4 percent, up 0.9 points;
    • Operating (non-GAAP): 46.8 percent, up 1.2 points;
  • Software revenue up 17 percent, 10 percent adjusting for currency;
  • Systems and Technology revenue up 17 percent, 12 percent adjusting for currency:
    • System z mainframe revenue up 61 percent; MIPS up 86 percent;
    • Power Systems up 12 percent;
  • Services revenue up 10 percent, 2 percent adjusting for currency;
  • Services backlog of $144 billion, up $15 billion;
  • Growth markets revenue up 23 percent, 13 percent adjusting for currency;
  • Business analytics revenue up more than 20 percent in the first half;
  • Smarter Planet revenue up more than 50 percent in the first half;
  • Cloud revenue on track to double in 2011;
  • Full-year 2011 Operating (non-GAAP) EPS expectations raised to at least $13.25 from at least $13.15.

IBM (NYSE: IBM) today announced second-quarter 2011 diluted earnings of $3.00 per share, compared with diluted earnings of $2.61 per share in the second quarter of 2010, an increase of 15 percent. Operating (non-GAAP) diluted earnings were $3.09 per share, compared with operating diluted earnings of $2.62 per share in the second quarter of 2010, an increase of 18 percent.

Second-quarter net income was $3.7 billion compared with $3.4 billion in the second quarter of 2010, an increase of 8 percent. Operating (non-GAAP) net income was $3.8 billion compared with $3.4 billion in the second quarter of 2010, an increase of 11 percent.

Total revenues for the second quarter of 2011 of $26.7 billion increased 12 percent (5 percent, adjusting for currency) from the second quarter of 2010.

"In the second quarter our long-term strategic investments in the company's growth initiatives again helped drive strong revenue performance," said Samuel J. Palmisano, IBM chairman, president and chief executive officer. "Hardware, software and services revenue grew at double digits, and we achieved strong profit and free cash flow growth.

"As IBM begins its second century, we continue a process of transformation, positioning the company to lead in the future and deliver higher value to our clients and our shareholders. Given our strong start to 2011, we are raising our full-year operating earnings per share expectations to at least $13.25."

Second-Quarter GAAP - Operating (non-GAAP) Reconciliation

Second-quarter operating (non-GAAP) diluted earnings exclude $0.09 per share of net charges: $0.10 per share for the amortization of purchased intangible assets and other acquisition-related charges, offset by ($0.01) per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

Full-Year 2011 Expectations

IBM raised its expectations for full-year 2011 GAAP diluted earnings per share to at least $12.87 from at least $12.73; and operating (non-GAAP) diluted earnings per share to at least $13.25 from at least $13.15. The 2011 operating (non-GAAP) earnings exclude $0.38 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

Geographic Regions

The Americas’ second-quarter revenues were $11.2 billion, an increase of 10 percent (8 percent, adjusting for currency) from the 2010 period. Revenues from Europe/Middle East/Africa were $8.6 billion, up 16 percent (3 percent, adjusting for currency). Asia-Pacific revenues increased 14 percent (3 percent, adjusting for currency) to $6.2 billion. OEM revenues were $674 million, flat (down 1 percent, adjusting for currency) compared with the 2010 second quarter.

Growth Markets

Revenues from the company’s growth markets increased 23 percent (13 percent, adjusting for currency). Revenues in the BRIC countries -- Brazil, Russia, India and China -- increased 27 percent (21 percent, adjusting for currency). Growth markets revenue represents 22 percent of IBM’s total geographic revenue for the second quarter.

Services

Total Global Services revenues increased 10 percent (2 percent, adjusting for currency). Global Technology Services segment revenues increased 11 percent (3 percent, adjusting for currency) to $10.2 billion. Global Business Services segment revenues were up 9 percent (1 percent, adjusting for currency) at $4.9 billion.

Global Services pre-tax income increased to $2.2 billion, up 4 percent year over year. Pre-tax income from Global Technology Services increased 1 percent; pre-tax income growth was reduced by 7 points as a result of increased workforce rebalancing expenses. Global Business Services pre-tax income increased 11 percent.

The estimated services backlog at June 30 was $144 billion, up $15 billion year over year at actual rates ($2 billion, adjusting for currency). Services backlog at the end of a quarter measures the current value of work under contract expected to be recognized as revenue in future quarters.

Software

Revenues from the Software segment were $6.2 billion, an increase of 17 percent (10 percent, adjusting for currency). Software pre-tax income of $2.3 billion was up 12 percent year over year.

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.9 billion, an increase of 21 percent (14 percent, adjusting for currency) versus the second quarter of 2010. Operating systems revenues of $630 million increased 16 percent (9 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products increased 55 percent year over year. Information Management software revenues increased 18 percent. Revenues from Tivoli software increased 9 percent. Revenues from Lotus software increased 12 percent, and Rational software increased 4 percent.

Hardware

Revenues from the Systems and Technology segment totaled $4.7 billion for the quarter, up 17 percent (12 percent, adjusting for currency) from the second quarter of 2010. Systems and Technology pre-tax income was $393 million, an increase of 112 percent year over year.

Systems revenues increased 20 percent (13 percent, adjusting for currency). Revenues from System z mainframe server products increased 61 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 86 percent. Revenues from Power Systems increased 12 percent compared with the 2010 period. Revenues from System x increased 15 percent. Revenues from System Storage increased 10 percent, and revenues from Retail Store Solutions increased 8 percent year over year. Revenues from Microelectronics OEM increased 4 percent.

Financing

Global Financing segment revenues decreased 5 percent (11 percent, adjusting for currency) in the second quarter to $519 million. Pre-tax income for the segment increased 7 percent to $496 million.

***

The company’s total gross profit margin was 46.4 percent in the 2011 second quarter compared with 45.6 percent in the 2010 second-quarter period. Total operating (non-GAAP) gross profit margin was 46.8 percent in the 2011 second quarter compared with 45.6 percent in the 2010 second-quarter period, with increases in Systems and Technology, Global Business Services and Software.

Total expense and other income increased 20 percent to $7.5 billion compared with the prior-year period. SG&A expense of $6.0 billion increased 19 percent compared with prior-year expense. RD&E expense of $1.6 billion increased 6 percent compared with the year-ago period. Intellectual property and custom development income decreased to $295 million compared with $297 million a year ago. Other (income) and expense was expense of $97 million compared with prior-year income of $95 million. Interest expense increased to $97 million compared with $90 million in the prior year.

Total operating (non-GAAP) expense and other income increased 20 percent to $7.4 billion compared with the prior-year period. Operating (non-GAAP) SG&A expense of $5.9 billion increased 18 percent year over year compared with prior-year expense. Operating (non-GAAP) RD&E expense of $1.6 billion increased 6 percent compared with the year-ago period.

Pre-tax income increased 7 percent to $4.9 billion, and pre-tax margin was 18.3 percent, down 1.0 points. Operating (non-GAAP) pre-tax income increased 10 percent to $5.0 billion and pre-tax margin was 18.9 percent, down 0.4 points.

IBM’s tax rate was 25.0 percent, down 1.0 points year over year; operating (non-GAAP) tax rate was also 25.0 percent, down 0.8 points.

Net income margin decreased 0.5 points to 13.7 percent. Operating (non-GAAP) net income margin decreased 0.2 points to 14.2 percent.

The weighted-average number of diluted common shares outstanding in the second-quarter 2011 was 1.22 billion compared with 1.30 billion shares in the same period of 2010. As of June 30, 2011, there were 1.19 billion basic common shares outstanding.

Debt, including Global Financing, totaled $29.8 billion, compared with $28.6 billion at year-end 2010. From a management segment view, Global Financing debt totaled $23.4 billion versus $22.8 billion at year-end 2010, resulting in a debt-to-equity ratio of 7.0 to 1. Non-global financing debt totaled $6.4 billion, an increase of $581 million since year-end 2010, resulting in a debt-to-capitalization ratio of 24.3 percent from 22.6 percent.

IBM ended the second-quarter 2011 with $11.8 billion of cash on hand and generated free cash flow of $3.4 billion, up approximately $350 million year over year. The company returned $4.9 billion to shareholders through $0.9 billion in dividends and $4.0 billion of share repurchases. The balance sheet remains strong, and the company is well positioned to support the business over the long term.

Year-To-Date 2011 Results

Net income for the six months ended June 30, 2011 was $6.5 billion compared with $6.0 billion in the year-ago period, an increase of 9 percent. Diluted earnings per share were $5.30 compared with $4.57 per diluted share for the 2010 period, an increase of 16 percent. Revenues for the six-month period totaled $51.3 billion, an increase of 10 percent (5 percent, adjusting for currency) compared with $46.6 billion for the six months of 2010.

Operating (non-GAAP) net income for the six months ended June 30, 2011 was $6.8 billion compared with $6.0 billion in the year-ago period, an increase of 12 percent. Operating (non-GAAP) diluted earnings per share were $5.50 compared with $4.61 per diluted share for the 2010 period, an increase of 19 percent.

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and corporate IT spending budgets; the company’s failure to meet growth and productivity objectives, a failure of the company’s innovation initiatives; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; breaches of data security; fluctuations in financial results and purchases, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key personnel and its reliance on critical skills; impacts of relationships with critical suppliers and business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels; the company’s ability to successfully manage acquisitions and alliances; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Q, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements.

Presentation of Information in this Press Release

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

IBM results and expectations --

  • presenting operating (non-GAAP) earnings per share amounts and related income statement items;
  • presenting non-global financing debt-to-capitalization ratio;
  • adjusting for free cash flow;
  • adjusting for currency (i.e., at constant currency).

The rationale for management’s use of non-GAAP measures is included as part of the supplementary materials presented within the second-quarter earnings materials. These materials are available on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II ("Non-GAAP Supplementary Materials") to the Form 8-K that includes this press release and is being submitted today to the SEC.

Conference Call and Webcast

IBM’s regular quarterly earnings conference call is scheduled to begin at 4:30 p.m. EDT, today. Investors may participate by viewing the Webcast at www.ibm.com/investor/2q11. Presentation charts will be available on the Web site shortly before the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
 
  Three Months Ended   Six Months Ended
June 30, June 30,
    Percent     Percent
2011 2010* Change 2011 2010* Change
REVENUE
 
Global Technology
Services $ 10,241 $ 9,234 10.9 % $ 20,104 $ 18,540 8.4 %
Gross margin 34.0 % 34.3 % 33.9 % 34.3 %
 
Global Business
Services 4,866 4,483 8.5 % 9,575 8,893 7.7 %
Gross margin 28.9 % 28.2 % 28.2 % 27.7 %
 
Software 6,169 5,277 16.9 % 11,478 10,296 11.5 %
Gross margin 88.4 % 88.1 % 87.8 % 86.8 %
 
Systems and
Technology 4,681 3,985 17.5 % 8,700 7,370 18.0 %
Gross margin 40.6 % 35.7 % 39.3 % 34.5 %
 
Global Financing 519 544 -4.6 % 1,035 1,081 -4.3 %
Gross margin 48.7 % 50.1 % 51.1 % 50.0 %
 
Other 191 200 -4.8 % 381 400 -4.7 %
Gross margin -57.7 % 16.4 % -75.5 % -14.6 %
 
TOTAL REVENUE 26,666 23,724 12.4 % 51,273 46,581 10.1 %
 
 
GROSS PROFIT 12,385 10,809 14.6 % 23,243 20,785 11.8 %
Gross margin 46.4 % 45.6 % 45.3 % 44.6 %
 
 
EXPENSE AND OTHER INCOME
 
S,G&A 6,030 5,061 19.2 % 11,856 10,737 10.4 %
% of revenue 22.6 % 21.3 % 23.1 % 23.1 %
 
R,D&E 1,569 1,475 6.4 % 3,156 2,984 5.8 %
% of revenue 5.9 % 6.2 % 6.2 % 6.4 %
 
Intellectual property
and custom development
income (295 ) (297 ) -0.8 % (557 ) (558 ) -0.3 %
Other (income)
and expense 97 (95 ) NM (105 ) (640 ) -83.6 %
Interest expense 97 90 8.3 % 190 172 10.6 %
 
TOTAL EXPENSE AND
OTHER INCOME 7,500 6,234 20.3 % 14,541 12,695 14.5 %
% of revenue 28.1 % 26.3 % 28.4 % 27.3 %
 
INCOME BEFORE
INCOME TAXES 4,885 4,575 6.8 % 8,702 8,090 7.6 %
Pre-tax margin 18.3 % 19.3 % 17.0 % 17.4 %
 
Provision for
income taxes 1,221 1,190 2.7 % 2,175 2,103 3.4 %
Effective tax
rate 25.0 % 26.0 % 25.0 % 26.0 %
 
 
NET INCOME $ 3,664   $ 3,386   8.2 % $ 6,526   $ 5,987   9.0 %
Net margin 13.7 % 14.3 % 12.7 % 12.9 %
 
 
EARNINGS PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION $ 3.00 $ 2.61 14.9 % $ 5.30 $ 4.57 16.0 %
BASIC $ 3.04 $ 2.65 14.7 % $ 5.38 $ 4.64 15.9 %
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING (M's):
ASSUMING DILUTION 1,221.4 1,296.7 1,230.7 1,309.2
BASIC 1,204.8 1,278.6 1,213.5 1,289.9
 
NM -- Not Meaningful
 
* Segment gross profit margins in 2010 reclassified to conform with 2011 presentation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
 
  At   At
(Dollars in Millions) June 30, December 31,
2011 2010
ASSETS
 
Current Assets:
Cash and cash equivalents $ 11,714 $ 10,661
Marketable securities 50 990
Notes and accounts receivable - trade
(net of allowances of $305 in 2011 and $324 in 2010) 10,539 10,834
Short-term financing receivables
(net of allowances of $286 in 2011 and $342 in 2010) 14,715 16,257
Other accounts receivable
(net of allowances of $12 in 2011 and $10 in 2010) 1,127 1,134
Inventories, at lower of average cost or market:
Finished goods 560 432
Work in process and raw materials   2,013     2,018  
Total inventories 2,573 2,450
Deferred taxes 1,557 1,564
Prepaid expenses and other current assets   4,662     4,226  
Total Current Assets 46,937 48,116
 
Plant, rental machines, and other property 41,126 40,289
Less: Accumulated depreciation   26,887     26,193  
Plant, rental machines, and other property - net 14,239 14,096
Long-term financing receivables
(net of allowances of $40 in 2011 and $58 in 2010) 10,422 10,548
Prepaid pension assets 4,855 3,068
Deferred taxes 2,877 3,220
Goodwill 25,609 25,136
Intangible assets - net 3,205 3,488
Investments and sundry assets   5,329     5,778  
Total Assets $ 113,474   $ 113,452  
 
LIABILITIES
 
Current Liabilities:
Taxes $ 2,363 $ 4,216
Short-term debt 7,858 6,778
Accounts payable 7,112 7,804
Compensation and benefits 4,706 5,028
Deferred income 12,660 11,580
Other accrued expenses and liabilities   5,144     5,156  
Total Current Liabilities 39,843 40,562
 
Long-term debt 21,915 21,846
Retirement and nonpension postretirement
benefit obligations 16,014 15,978
Deferred income 3,641 3,666
Other liabilities   8,851     8,226  
Total Liabilities 90,263 90,279
 
EQUITY
IBM Stockholders' Equity:
Common stock 46,975 45,418
Retained earnings 97,334 92,532
Treasury stock -- at cost (104,073 ) (96,161 )
Accumulated other comprehensive income/(loss)   (17,109 )   (18,743 )
Total IBM stockholders' equity 23,127 23,046
 
Noncontrolling interests   84     126  
Total Equity   23,210     23,172  
Total Liabilities and Equity $ 113,474   $ 113,452  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended   Six Months Ended
(Dollars in Millions) June 30, June 30,
2011   2010 2011   2010
Net Cash from Operating Activities per GAAP: $ 4,279 $ 3,766 $ 8,071 $ 8,203
 
Less: the change in Global Financing (GF)
Receivables   (33 )   (218 )   1,903     1,883  
Net Cash from Operating Activities
(Excluding GF Receivables) 4,313 3,985 6,168 6,320
 
Capital Expenditures, Net (952 )

(970

)

(2,010

)

(1,873 )
 
Free Cash Flow
(Excluding GF Receivables) 3,361 3,015 4,159 4,446
 
Acquisitions (107 ) (185 ) (159 ) (1,009 )
Divestitures 4 0 4 0
Dividends (905 ) (833 ) (1,700 ) (1,551 )
Share Repurchase (3,976 ) (4,104 ) (8,021 ) (8,121 )
Non-GF Debt (20 ) 920 1,007 1,261
Other (includes GF Receivables,
GF Debt) 162 (548 ) 4,822 3,241
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities ($1,481 ) ($1,736 ) $ 113 ($1,732 )
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  SECOND-QUARTER 2011
      Pre-tax  
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 10,241 $ 320 $ 10,561 $ 1,420 13.4 %
Y-T-Y change 10.9 % -3.6 % 10.4 % 1.5 %
 
Global Business Services 4,866 205 5,071 750 14.8 %
Y-T-Y change 8.5 % 4.3 % 8.3 % 10.7 %
 
Software 6,169 792 6,961 2,310 33.2 %
Y-T-Y change 16.9 % 14.8 % 16.7 % 12.0 %
 
Systems and Technology 4,681 218 4,899 393 8.0 %
Y-T-Y change 17.5 % 7.9 % 17.0 % 112.1 %
 
Global Financing 519 547 1,066 496 46.5 %
Y-T-Y change -4.6 % 26.8 % 9.3 % 7.4 %
 
TOTAL REPORTABLE SEGMENTS $ 26,476 $ 2,082 $ 28,558 $ 5,370 18.8 %
Y-T-Y change 12.6 % 12.4 % 12.5 % 12.2 %
 
Eliminations / Other 191 (2,082 ) (1,891 ) (485 )
 
TOTAL IBM CONSOLIDATED $ 26,666 $ (0 ) $ 26,666 $ 4,885 18.3 %
Y-T-Y change 12.4 % 12.4 % 6.8 %
 
 
SECOND-QUARTER 2010
Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss)* Margin*
SEGMENTS
 
Global Technology Services $ 9,234 $ 332 $ 9,566 $ 1,399 14.6 %
 
Global Business Services 4,483 197 4,680 678 14.5 %
 
Software 5,277 690 5,967 2,062 34.5 %
 
Systems and Technology 3,985 202 4,187 185 4.4 %
 
Global Financing 544 431 975 462 47.3 %
 
TOTAL REPORTABLE SEGMENTS $ 23,523 $ 1,852 $ 25,376 $ 4,786 18.9 %
 
Eliminations / Other 200 (1,852 ) (1,652 ) (211 )
 
TOTAL IBM CONSOLIDATED $ 23,724 $ (0 ) $ 23,724 $ 4,575 19.3 %
 
* Reclassified to conform with 2011 presentation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  SIX-MONTHS 2011
      Pre-tax  
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 20,104 $ 627 $ 20,732 $ 2,658 12.8 %
Y-T-Y change 8.4 % -3.9 % 8.0 % 12.8 %
 
Global Business Services 9,575 405 9,980 1,390 13.9 %
Y-T-Y change 7.7 % 1.3 % 7.4 % 23.7 %
 
Software 11,478 1,621 13,099 4,045 30.9 %
Y-T-Y change 11.5 % 12.0 % 11.5 % -3.4 %
 
Systems and Technology 8,700 462 9,162 525 5.7 %
Y-T-Y change 18.0 % 23.1 % 18.3 % NM
 
Global Financing 1,035 1,044 2,079 1,015 48.8 %
Y-T-Y change -4.3 % 25.1 % 8.5 % 14.2 %
 
TOTAL REPORTABLE SEGMENTS $ 50,892 $ 4,160 $ 55,052 $ 9,634 17.5 %
Y-T-Y change 10.2 % 12.1 % 10.3 % 12.7 %
 
Eliminations / Other 381 (4,160 ) (3,779 ) (932 )
 
TOTAL IBM CONSOLIDATED $ 51,273 $ (0 ) $ 51,273 $ 8,702 17.0 %
Y-T-Y change 10.1 % 10.1 % 7.6 %
 
NM -- Not Meaningful
 
SIX-MONTHS 2010
Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss)* Margin*
SEGMENTS
 
Global Technology Services $ 18,540 $ 652 $ 19,192 $ 2,357 12.3 %
 
Global Business Services 8,893 400 9,293 1,124 12.1 %
 
Software 10,296 1,448 11,743 4,189 35.7 %
 
Systems and Technology 7,370 376 7,746 (12 ) -0.2 %
 
Global Financing 1,081 834 1,916 889 46.4 %
 
TOTAL REPORTABLE SEGMENTS $ 46,181 $ 3,710 $ 49,891 $ 8,546 17.1 %
 
Eliminations / Other 400 (3,710 ) (3,310 ) (456 )
 
TOTAL IBM CONSOLIDATED $ 46,581 $ (0 ) $ 46,581 $ 8,090 17.4 %
 
* Reclassified to conform with 2011 presentation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited, Dollars in millions except per share amounts)
 
  SECOND-QUARTER 2011
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments (Non-GAAP)
Gross Profit $ 12,385 $ 87 $ 6 $ 12,477
 
Gross Profit Margin 46.4 % 0.3Pts 0.0Pts 46.8 %
 
S,G&A 6,030 (76 ) (5 ) 5,950
 
R,D&E 1,569 0 24 1,593
 
Other (Income) & Expense 97 (1 ) 0 96
 
Total Expense & Other (Income) 7,500 (77 ) 18 7,441
 
Pre-Tax Income 4,885 163 (12 ) 5,036
 
Pre-Tax Income Margin 18.3 % 0.6Pts -0.0Pts 18.9 %
 
Provision for Income Taxes** 1,221 38 0 1,259
 
Effective Tax Rate 25.0 % -0.1Pts -0.1Pts 25.0 %
 
Net Income 3,664 126 (13 ) 3,777
 
Net Income Margin 13.7 % 0.5Pts -0.0Pts 14.2 %
 
Diluted Earnings Per Share $ 3.00 $ 0.10 ($0.01

)

$

3.09
 
 
SECOND-QUARTER 2010
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments (Non-GAAP)
 
Gross Profit $ 10,809 $ 58 ($ 56 ) $ 10,811
 
Gross Profit Margin 45.6 % 0.2Pts -0.2Pts 45.6 %
 
S,G&A 5,061 (62 ) 25 5,024
 
R,D&E 1,475 0 32 1,507
 
Other (Income) & Expense (95 ) (3 ) 0 (97 )
 
Total Expense & Other (Income) 6,234 (64 ) 57 6,227
 
Pre-Tax Income 4,575 122 (113 ) 4,584
 
Pre-Tax Income Margin 19.3 % 0.5Pts -0.5Pts 19.3 %
 
Provision for Income Taxes** 1,190 38 (45 ) 1,183
 
Effective Tax Rate 26.0 % 0.1Pts -0.4Pts 25.8 %
 
Net Income 3,386 84 (68 ) 3,402
 
Net Income Margin 14.3 % 0.4Pts -0.3Pts 14.3 %
 
Diluted Earnings Per Share $ 2.61 $ 0.06 ($0.05 ) $ 2.62
 

* Includes amortization of acquired intangible assets and other acquisition-related
charges.

** 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.

 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited, Dollars in millions except per share amounts)
 
  SIX-MONTHS 2011
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments (Non-GAAP)
Gross Profit $ 23,243 $ 172 $ 19 $ 23,434
 
Gross Profit Margin 45.3 % 0.3Pts 0.0Pts 45.7 %
 
S,G&A 11,856 (152 ) (15 ) 11,689
 
R,D&E 3,156 0 43 3,199
 
Other (Income) & Expense (105 ) (5 ) 0 (110 )
 
Total Expense & Other (Income) 14,541 (157 ) 28 14,412
 
Pre-Tax Income 8,702 329 (8 ) 9,022
 
Pre-Tax Income Margin 17.0 % 0.6Pts -0.0Pts 17.6 %
 
Provision for Income Taxes** 2,175 86 (5 ) 2,256
 
Effective Tax Rate 25.0 % 0.0Pts 0.0Pts 25.0 %
 
Net Income 6,526 243 (3 ) 6,767
 
Net Income Margin 12.7 % 0.5Pts -0.0Pts 13.2 %
 
Diluted Earnings Per Share $ 5.30 $ 0.20 ($0.00 ) $ 5.50
 
 
SIX-MONTHS 2010
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments (Non-GAAP)
 
Gross Profit $ 20,785 $ 113 ($ 91 ) $ 20,807
 
Gross Profit Margin 44.6 % 0.2Pts -0.2Pts 44.7 %
 
S,G&A 10,737 (123 ) 36 10,650
 
R,D&E 2,984 0 62 3,046
 
Other (Income) & Expense (640 ) (3 ) 0 (643 )
 
Total Expense & Other (Income) 12,695 (126 ) 97 12,667
 
Pre-Tax Income 8,090 239 (189 ) 8,140
 
Pre-Tax Income Margin 17.4 % 0.5Pts -0.4Pts 17.5 %
 
Provision for Income Taxes** 2,103 72 (76 ) 2,100
 
Effective Tax Rate 26.0 % 0.1Pts -0.3Pts 25.8 %
 
Net Income 5,987 166 (113 ) 6,040
 
Net Income Margin 12.9 % 0.4Pts -0.2Pts 13.0 %
 
Diluted Earnings Per Share $ 4.57 $ 0.13 ($0.09 ) $ 4.61
 

* Includes amortization of acquired intangible assets and other acquisition-related
charges.

** 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.

Contacts

IBM
Mike Fay, 914-499-6107
mikefay@us.ibm.com
or
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com

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Contacts

IBM
Mike Fay, 914-499-6107
mikefay@us.ibm.com
or
John Bukovinsky, 732-618-3531
jbuko@us.ibm.com