IBM Reports 2011 Third-Quarter Results

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

  • Diluted EPS:
    • GAAP: $3.19, up 13 percent;
    • Operating (non-GAAP): $3.28, up 15 percent;
  • Revenue: $26.2 billion, up 8 percent, up 3 percent adjusting for currency;
  • Net income:
    • GAAP: $3.8 billion, up 7 percent;
    • Operating (non-GAAP): $4.0 billion, up 9 percent;
  • Pre-tax income:
    • GAAP: $5.0 billion, up 7 percent;
    • Operating (non-GAAP): $5.2 billion, up 10 percent;
  • Gross profit margin:
    • GAAP: 46.5 percent, up 1.2 points;
    • Operating (non-GAAP): 46.8 percent, up 1.5 points;
  • Software revenue up 13 percent, 8 percent adjusting for currency;
  • Services revenue up 8 percent, 2 percent adjusting for currency;
    • Services backlog of $137 billion, up $2.4 billion;
  • Systems and Technology revenue up 4 percent, 1 percent adjusting for currency:
    • Power Systems up 15 percent;
  • Growth markets revenue up 19 percent, 13 percent adjusting for currency;
  • Business analytics revenue up 19 percent year to date;
  • Smarter Planet revenue up 50 percent year to date;
  • Cloud revenue year to date has doubled full-year 2010 revenue;
  • Full-year 2011 Operating (non-GAAP) EPS expectations raised to at least $13.35 from at least $13.25.

IBM (NYSE: IBM) today announced third-quarter 2011 diluted earnings of $3.19 per share, compared with diluted earnings of $2.82 per share in the third quarter of 2010, an increase of 13 percent. Operating (non-GAAP) diluted earnings were $3.28 per share, compared with operating diluted earnings of $2.85 per share in the third quarter of 2010, an increase of 15 percent.

Third-quarter net income was $3.8 billion compared with $3.6 billion in the third quarter of 2010, an increase of 7 percent. Operating (non-GAAP) net income was $4.0 billion compared with $3.6 billion in the third quarter of 2010, an increase of 9 percent.

Total revenues for the third quarter of 2011 of $26.2 billion increased 8 percent (3 percent, adjusting for currency) from the third quarter of 2010.

"In the third quarter, we drove revenue growth, margin expansion and increased earnings as a result of our innovation-based strategy and continued investment in growth initiatives," said Samuel J. Palmisano, IBM chairman, president and chief executive officer. “Growth markets delivered outstanding revenue performance across software, hardware, and services and contributed to the company's expanded margins. We also achieved strong results in Smarter Planet, business analytics and cloud.

"Based on this performance, we are raising our 2011 full-year operating earnings per share expectations to at least $13.35."

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

Third-quarter operating (non-GAAP) diluted earnings exclude $0.09 per share of net charges: $0.11 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 $12.95 from at least $12.87; and operating (non-GAAP) diluted earnings per share to at least $13.35 from at least $13.25. The 2011 operating (non-GAAP) earnings exclude $0.40 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’ third-quarter revenues were $10.9 billion, an increase of 7 percent (6 percent, adjusting for currency) from the 2010 period. Revenues from Europe/Middle East/Africa were $8.0 billion, up 9 percent (flat, adjusting for currency). Asia-Pacific revenues increased 10 percent (1 percent, adjusting for currency) to $6.5 billion. OEM revenues were $743 million, down 8 percent (8 percent, adjusting for currency) compared with the 2010 third quarter.

Growth Markets

Revenues from the company’s growth markets increased 19 percent (13 percent, adjusting for currency). Revenues in the BRIC countries — Brazil, Russia, India and China — increased 17 percent (13 percent, adjusting for currency). Growth markets revenue represents 23 percent of IBM’s total geographic revenue for the third quarter.

Services

Total Global Services revenues increased 8 percent (2 percent, adjusting for currency). Global Technology Services segment revenues increased 9 percent (3 percent, adjusting for currency) to $10.3 billion. Global Business Services segment revenues were up 6 percent (flat, adjusting for currency) at $4.8 billion.

Total Global Services pre-tax income increased to $2.5 billion, up 13 percent year over year. Pre-tax income from both Global Technology Services and Global Business Services also increased 13 percent.

The estimated services backlog at September 30 was $137 billion, up $2.4 billion year over year at actual rates ($2.3 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 $5.8 billion, an increase of 13 percent (8 percent, adjusting for currency). Software pre-tax income of $2.2 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 $3.6 billion, an increase of 17 percent (12 percent, adjusting for currency) versus the third quarter of 2010. Operating systems revenues of $598 million increased 9 percent (4 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products increased 52 percent year over year. Information Management software revenues increased 12 percent. Revenues from Tivoli software increased 8 percent. Revenues from Lotus software increased 6 percent, and Rational software increased 7 percent.

Hardware

Revenues from the Systems and Technology segment totaled $4.5 billion for the quarter, up 4 percent (1 percent, adjusting for currency) from the third quarter of 2010. Systems and Technology pre-tax income was $318 million, an increase of 8 percent year over year.

Systems revenues increased 6 percent (2 percent, adjusting for currency). Revenues from Power Systems increased 15 percent compared with the 2010 period. Revenues from System x increased 1 percent. Revenues from System z mainframe server products decreased 5 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 11 percent. Revenues from System Storage increased 8 percent, and revenues from Retail Store Solutions increased 14 percent year over year. Revenues from Microelectronics OEM decreased 6 percent.

Financing

Global Financing segment revenues decreased 2 percent (6 percent, adjusting for currency) in the third quarter to $520 million. Pre-tax income for the segment decreased 4 percent to $481 million.

***

The company’s total gross profit margin was 46.5 percent in the 2011 third quarter compared with 45.3 percent in the 2010 third-quarter period. Total operating (non-GAAP) gross profit margin was 46.8 percent in the 2011 third quarter compared with 45.4 percent in the 2010 third-quarter period, with increases in Software, Services and Systems and Technology.

Total expense and other income increased 13 percent to $7.1 billion compared with the prior-year period. S,G&A expense of $5.7 billion increased 10 percent compared with prior-year expense. R,D&E expense of $1.5 billion increased 6 percent compared with the year-ago period. Intellectual property and custom development income increased to $298 million compared with $278 million a year ago. Other (income) and expense was expense of $128 million compared with prior-year income of $106 million. Interest expense increased to $107 million compared with $95 million in the prior year.

Total operating (non-GAAP) expense and other income increased 12 percent to $7.1 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $5.6 billion increased 10 percent year over year compared with prior-year expense. Operating (non-GAAP) R,D&E expense of $1.6 billion increased 5 percent compared with the year-ago period.

Pre-tax income increased 7 percent to $5.0 billion, and pre-tax margin was 19.2 percent, down 0.1 points. Operating (non-GAAP) pre-tax income increased 10 percent to $5.2 billion and pre-tax margin was 19.8 percent, up 0.4 points.

IBM’s tax rate was 23.6 percent, up 0.4 points year over year; operating (non-GAAP) tax rate was also 23.6 percent, up 0.6 points.

Net income margin decreased 0.1 points to 14.7 percent. Operating (non-GAAP) net income margin increased 0.2 points to 15.1 percent.

The weighted-average number of diluted common shares outstanding in the third-quarter 2011 was 1.20 billion compared with 1.27 billion shares in the same period of 2010. As of September 30, 2011, there were 1.18 billion basic common shares outstanding.

Debt, including Global Financing, totaled $30.2 billion, compared with $28.6 billion at year-end 2010. From a management segment view, Global Financing debt totaled $22.8 billion versus $22.8 billion at year-end 2010, resulting in a debt-to-equity ratio of 7.1 to 1. Non-global financing debt totaled $7.4 billion, an increase of $1.6 billion since year-end 2010, resulting in a debt-to-capitalization ratio of 27.8 percent from 22.6 percent.

IBM ended the third-quarter 2011 with $11.3 billion of cash on hand and generated free cash flow of $3.5 billion, up approximately $300 million year over year. The company returned $4.3 billion to shareholders through $0.9 billion in dividends and $3.4 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 nine months ended September 30, 2011 was $10.4 billion compared with $9.6 billion in the year-ago period, an increase of 8 percent. Diluted earnings per share were $8.48 compared with $7.38 per diluted share for the 2010 period, an increase of 15 percent. Revenues for the nine-month period totaled $77.4 billion, an increase of 9 percent (4 percent, adjusting for currency) compared with $70.9 billion for the nine months of 2010.

Operating (non-GAAP) net income for the nine months ended September 30, 2011 was $10.7 billion compared with $9.7 billion in the year-ago period, an increase of 11 percent. Operating (non-GAAP) diluted earnings per share were $8.77 compared with $7.45 per diluted share for the 2010 period, an increase of 18 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 third-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/3q11. 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     Nine Months Ended

September 30,

September 30,
    Percent     Percent
2011 2010* Change 2011 2010* Change
REVENUE
 
Global Technology
Services $ 10,322 $ 9,496 8.7 % $ 30,427 $ 28,036 8.5 %
Gross margin 35.7 % 35.1 % 34.5 % 34.5 %
 
Global Business
Services 4,832 4,572 5.7 % 14,407 13,465 7.0 %
Gross margin 29.4 % 28.6 % 28.6 % 28.0 %
 
Software 5,817 5,151 12.9 % 17,295 15,447 12.0 %
Gross margin 88.1 % 87.9 % 87.9 % 87.2 %
 
Systems and
Technology 4,482 4,325 3.6 % 13,182 11,696 12.7 %
Gross margin 39.8 % 36.4 % 39.5 % 35.2 %
 
Global Financing 520 529 -1.7 % 1,555 1,610 -3.4 %
Gross margin 47.4 % 53.3 % 49.9 % 51.1 %
 
Other 182 199 -8.3 % 563 599 -5.9 %
Gross margin -48.3 % -10.8 % -66.7 % -13.3 %
 
TOTAL REVENUE 26,157 24,271 7.8 % 77,430 70,852 9.3 %
 
 
GROSS PROFIT 12,173 11,001 10.6 % 35,416 31,787 11.4 %
Gross margin 46.5 % 45.3 % 45.7 % 44.9 %
 
 
EXPENSE AND OTHER INCOME
 
S,G&A 5,662 5,149 10.0 % 17,518 15,886 10.3 %
% of revenue 21.6 % 21.2 % 22.6 % 22.4 %
 
R,D&E 1,546 1,464 5.6 % 4,703 4,448 5.7 %
% of revenue 5.9 % 6.0 % 6.1 % 6.3 %
 
Intellectual property
and custom development
income (298 ) (278 ) 7.2 % (855 ) (836 ) 2.2 %
Other (income)
and expense 128 (106 ) nm 23 (746 ) nm
Interest expense 107 95 13.5 % 298 267 11.6 %
 
TOTAL EXPENSE AND
OTHER INCOME 7,146 6,324 13.0 % 21,687 19,019 14.0 %
% of revenue 27.3 % 26.1 % 28.0 % 26.8 %
 
INCOME BEFORE
INCOME TAXES 5,027 4,677 7.5 % 13,729 12,767 7.5 %
Pre-tax margin 19.2 % 19.3 % 17.7 % 18.0 %
 
Provision for
income taxes 1,188 1,088 9.2 % 3,364 3,192 5.4 %
Effective tax
rate 23.6 % 23.3 % 24.5 % 25.0 %
 
 
NET INCOME $ 3,839   $ 3,589   7.0 % $ 10,365   $ 9,576   8.2 %
Net margin 14.7 % 14.8 % 13.4 % 13.5 %
 
 
EARNINGS PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION $ 3.19 $ 2.82 13.1 % $ 8.48 $ 7.38 14.9 %
BASIC $ 3.23 $ 2.86 12.9 % $ 8.60 $ 7.49 14.8 %
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING (M's):
ASSUMING DILUTION 1,204.9 1,272.8 1,222.1 1,297.0
BASIC 1,188.6 1,255.2 1,205.2 1,278.3
 
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) September 30, December 31,
2011 2010
 
ASSETS
 
Current Assets:
Cash and cash equivalents $ 11,303 $ 10,661
Marketable securities -- 990
Notes and accounts receivable - trade
(net of allowances of $282 in 2011 and $324 in 2010) 9,719 10,834
Short-term financing receivables
(net of allowances of $266 in 2011 and $342 in 2010) 14,145 16,257
Other accounts receivable
(net of allowances of $11 in 2011 and $10 in 2010) 1,123 1,134
Inventories, at lower of average cost or market:
Finished goods 618 432
Work in process and raw materials   2,045     2,018  
Total inventories 2,663 2,450
Deferred taxes 1,247 1,564
Prepaid expenses and other current assets   5,172     4,226  
Total Current Assets 45,373 48,116
 
Plant, rental machines, and other property 40,139 40,289
Less: Accumulated depreciation   26,252     26,193  
Plant, rental machines, and other property - net 13,887 14,096
Long-term financing receivables
(net of allowances of $37 in 2011 and $58 in 2010) 9,830 10,548
Prepaid pension assets 5,131 3,068
Deferred taxes 2,570 3,220
Goodwill 24,913 25,136
Intangible assets - net 3,033 3,488
Investments and sundry assets   5,422     5,778  
Total Assets $ 110,158   $ 113,452  
 
LIABILITIES
 
Current Liabilities:
Taxes $ 2,360 $ 4,216
Short-term debt 6,071 6,778
Accounts payable 7,093 7,804
Compensation and benefits 4,826 5,028
Deferred income 11,252 11,580
Other accrued expenses and liabilities   4,426     5,156  
Total Current Liabilities 36,028 40,562
 
Long-term debt 24,089 21,846
Retirement and nonpension postretirement
benefit obligations 15,375 15,978
Deferred income 3,634 3,666
Other liabilities   8,654     8,226  
Total Liabilities 87,781 90,279
 
EQUITY
IBM Stockholders' Equity:
Common stock 47,558 45,418
Retained earnings 100,266 92,532
Treasury stock -- at cost (107,434 ) (96,161 )
Accumulated other comprehensive income/(loss)   (18,099 )   (18,743 )
Total IBM stockholders' equity 22,291 23,046
 
Noncontrolling interests   87     126  
Total Equity   22,378     23,172  
Total Liabilities and Equity $ 110,158   $ 113,452  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended     Nine Months Ended
(Dollars in Millions) September 30, September 30,
2011   2010 2011   2010
 
Net Cash from Operating Activities per GAAP: $ 4,678 $ 4,551 $ 12,750 $ 12,754
 
Less: the change in Global Financing (GF)
Receivables   207     374     2,110     2,257  
 
Net Cash from Operating Activities
(Excluding GF Receivables) 4,471 4,177 10,640 10,497
 
Capital Expenditures, Net (991 ) (1,007 ) (3,000 ) (2,881 )
 
Free Cash Flow
(Excluding GF Receivables) 3,481 3,169 7,640 7,616
 
Acquisitions (64 ) (1,984 ) (223 ) (2,993 )
Divestitures 0 0 4 0
Dividends (893 ) (818 ) (2,593 ) (2,369 )
Share Repurchase (3,444 ) (3,653 ) (11,465 ) (11,774 )
Non-GF Debt 86 273 1,093 1,534
Other (includes GF Receivables, and
GF Debt) 374 1,858 5,196 5,099
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities ($461 ) ($1,154 ) ($348 ) ($2,887 )
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  THIRD-QUARTER 2011
(Dollars in Millions) Revenue   Pre-tax   Pre-tax
External   Internal   Total Income Margin
SEGMENTS
 
Global Technology Services $ 10,322 $ 316 $ 10,638 $ 1,695 15.9 %
Y-T-Y change 8.7 % -12.6 % 7.9 % 12.5 %
 
Global Business Services 4,832 199 5,031 775 15.4 %
Y-T-Y change 5.7 % 0.1 % 5.5 % 12.8 %
 
Software 5,817 804 6,621 2,214 33.4 %
Y-T-Y change 12.9 % 10.4 % 12.6 % 12.0 %
 
Systems and Technology 4,482 190 4,672 318 6.8 %
Y-T-Y change 3.6 % -3.2 % 3.3 % 7.8 %
 
Global Financing 520 480 999 481 48.2 %
Y-T-Y change -1.7 % 10.9 % 4.0 % -4.0 %
 
TOTAL REPORTABLE SEGMENTS $ 25,974 $ 1,989 $ 27,963 $ 5,484 19.6 %
Y-T-Y change 7.9 % 3.7 % 7.6 % 10.4 %
 
Eliminations / Other 182 (1,989 ) (1,806 ) (457 )
 
TOTAL IBM CONSOLIDATED $ 26,157 $ 0 $ 26,157 $ 5,027 19.2 %
Y-T-Y change 7.8 % 7.8 % 7.5 %
 
 
THIRD-QUARTER 2010
(Dollars in Millions) Revenue Pre-tax Pre-tax
External Internal Total Income* Margin*
SEGMENTS
 
Global Technology Services $ 9,496 $ 362 $ 9,857 $ 1,506 15.3 %
 
Global Business Services 4,572 199 4,771 687 14.4 %
 
Software 5,151 728 5,879 1,978 33.6 %
 
Systems and Technology 4,325 196 4,521 295 6.5 %
 
Global Financing 529 432 961 502 52.2 %
 
TOTAL REPORTABLE SEGMENTS $ 24,072 $ 1,917 $ 25,990 $ 4,968 19.1 %
 
Eliminations / Other 199 (1,917 ) (1,718 ) (291 )
 
TOTAL IBM CONSOLIDATED $ 24,271 $ 0 $ 24,271 $ 4,677 19.3 %
 
* Reclassified to conform with 2011 presentation.
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  NINE-MONTHS 2011
(Dollars in Millions) Revenue   Pre-tax   Pre-tax
External   Internal   Total Income Margin
SEGMENTS
 
Global Technology Services $ 30,427 $ 943 $ 31,370 $ 4,353 13.9 %
Y-T-Y change 8.5 % -7.0 % 8.0 % 12.7 %
 
Global Business Services 14,407 604 15,012 2,166 14.4 %
Y-T-Y change 7.0 % 0.9 % 6.7 % 19.6 %
 
Software 17,295 2,425 19,720 6,260 31.7 %
Y-T-Y change 12.0 % 11.4 % 11.9 % 1.5 %
 
Systems and Technology 13,182 652 13,834 843 6.1 %
Y-T-Y change 12.7 % 14.1 % 12.8 % 197.9 %
 
Global Financing 1,555 1,524 3,078 1,497 48.6 %
Y-T-Y change -3.4 % 20.3 % 7.0 % 7.6 %
 
TOTAL REPORTABLE SEGMENTS $ 76,866 $ 6,148 $ 83,015 $ 15,118 18.2 %
Y-T-Y change 9.4 % 9.3 % 9.4 % 11.9 %
 
Eliminations / Other 563 (6,148 ) (5,585 ) (1,389 )
 
TOTAL IBM CONSOLIDATED $ 77,430 $ 0 $ 77,430 $ 13,729 17.7 %
Y-T-Y change 9.3 % 9.3 % 7.5 %
 
 
NINE-MONTHS 2010
(Dollars in Millions) Revenue Pre-tax Pre-tax
External Internal Total Income* Margin*
SEGMENTS
 
Global Technology Services $ 28,036 $ 1,014 $ 29,050 $ 3,863 13.3 %
 
Global Business Services 13,465 599 14,064 1,811 12.9 %
 
Software 15,447 2,176 17,623 6,167 35.0 %
 
Systems and Technology 11,696 572 12,267 283 2.3 %
 
Global Financing 1,610 1,267 2,877 1,391 48.3 %
 
TOTAL REPORTABLE SEGMENTS $ 70,253 $ 5,627 $ 75,880 $ 13,514 17.8 %
 
Eliminations / Other 599 (5,627 ) (5,028 ) (747 )
 
TOTAL IBM CONSOLIDATED $ 70,852 $ 0 $ 70,852 $ 12,767 18.0 %
 
* 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)
 
  THIRD-QUARTER 2011
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments (Non-GAAP)
Gross Profit $ 12,173 $ 87 ($7 ) $ 12,253
 
Gross Profit Margin 46.5 % 0.3Pts 0.0Pts 46.8 %
 
S,G&A 5,662 (75 ) (0 ) 5,587
 
R,D&E 1,546 0 22 1,568
 
Other (Income) & Expense 128 (18 ) 0 111
 
Total Expense & Other (Income) 7,146 (92 ) 21 7,075
 
Pre-Tax Income 5,027 180 (29 ) 5,178
 
Pre-Tax Income Margin 19.2 % 0.7Pts -0.1Pts 19.8 %
 
Provision for Income Taxes** 1,188 47 (11 ) 1,224
 
Effective Tax Rate 23.6 % 0.1Pts -0.1Pts 23.6 %
 
Net Income 3,839 133 (17 ) 3,954
 
Net Income Margin 14.7 % 0.5Pts -0.1Pts 15.1 %
 
Diluted Earnings Per Share $ 3.19 $ 0.11 ($0.01 ) $ 3.28
 
 
 
THIRD-QUARTER 2010
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments (Non-GAAP)
 
Gross Profit $ 11,001 $ 65 ($53 ) $ 11,013
 
Gross Profit Margin 45.3 % 0.3Pts -0.2Pts 45.4 %
 
S,G&A 5,149 (76 ) 20 5,094
 
R,D&E 1,464 0 31 1,495
 
Other (Income) & Expense (106 ) 1 0 (105 )
 
Total Expense & Other (Income) 6,324 (75 ) 51 6,301
 
Pre-Tax Income 4,677 139 (104 ) 4,712
 
Pre-Tax Income Margin 19.3 % 0.6Pts -0.4Pts 19.4 %
 
Provision for Income Taxes** 1,088 34 (38 ) 1,084
 
Effective Tax Rate 23.3 % 0.0Pts -0.3Pts 23.0 %
 
Net Income 3,589 105 (66 ) 3,628
 
Net Income Margin 14.8 % 0.4Pts -0.3Pts 14.9 %
 
Diluted Earnings Per Share $ 2.82 $ 0.08 ($0.05 ) $ 2.85
 

* 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)
 
  NINE-MONTHS 2011
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments (Non-GAAP)
Gross Profit $ 35,416 $ 259 $ 12 $ 35,687
 
Gross Profit Margin 45.7 % 0.3Pts 0.0Pts 46.1 %
 
S,G&A 17,518 (226 ) (16 ) 17,276
 
R,D&E 4,703 0 65 4,768
 
Other (Income) & Expense 23 (23 ) 0 1
 
Total Expense & Other (Income) 21,687 (249 ) 49 21,487
 
Pre-Tax Income 13,729 508 (37 ) 14,200
 
Pre-Tax Income Margin 17.7 % 0.7Pts 0.0Pts 18.3 %
 
Provision for Income Taxes** 3,364 132 (17 ) 3,479
 
Effective Tax Rate 24.5 % 0.1Pts -0.1Pts 24.5 %
 
Net Income 10,365 376 (20 ) 10,721
 
Net Income Margin 13.4 % 0.5Pts 0.0Pts 13.8 %
 
Diluted Earnings Per Share $ 8.48 $ 0.31 ($0.02 ) $ 8.77
 
 
NINE-MONTHS 2010
Acquisition- Retirement-
Related Related Operating
GAAP Adjustments* Adjustments (Non-GAAP)
 
Gross Profit $ 31,787 $ 178 ($144 ) $ 31,820
 
Gross Profit Margin 44.9 % 0.3Pts -0.2Pts 44.9 %
 
S,G&A 15,886 (199 ) 56 15,744
 
R,D&E 4,448 0 93 4,541
 
Other (Income) & Expense (746 ) (2 ) 0 (747 )
 
Total Expense & Other (Income) 19,019 (200 ) 149 18,968
 
Pre-Tax Income 12,767 378 (293 ) 12,853
 
Pre-Tax Income Margin 18.0 % 0.5Pts -0.4Pts 18.1 %
 
Provision for Income Taxes** 3,192 106 (114 ) 3,184
 
Effective Tax Rate 25.0 % 0.1Pts -0.3Pts 24.8 %
 
Net Income 9,576 272 (179 ) 9,669
 
Net Income Margin 13.5 % 0.4Pts -0.3Pts 13.6 %
 
Diluted Earnings Per Share $ 7.38 $ 0.21 ($0.14 ) $ 7.45
 

* 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