IBM Reports 2012 Second-Quarter Results

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

  • Diluted EPS:
    • GAAP: $3.34, up 11 percent;
    • Operating (non-GAAP): $3.51, up 14 percent;
  • Net income:
    • GAAP: $3.9 billion, up 6 percent;
    • Operating (non-GAAP): $4.1 billion, up 8 percent;
  • Gross profit margin:
    • GAAP: 47.6 percent, up 1.2 points;
    • Operating (non-GAAP): 48.2 percent, up 1.5 points;
  • Revenue: $25.8 billion, down 3 percent, up 1 percent adjusting for currency;
  • Free cash flow of $3.7 billion, up 9 percent;
  • Software revenue, flat, up 4 percent adjusting for currency;
  • Services revenue down 3 percent, up 1 percent adjusting for currency:
    • Services pre-tax income up 18 percent;
  • Services backlog of $136 billion, down 6 percent, flat adjusting for currency;
  • Systems and Technology revenue down 9 percent, down 7 percent adjusting for currency;
  • Growth markets revenue up 2 percent, up 8 percent adjusting for currency;
  • Business analytics revenue up 13 percent in the first half;
  • Smarter Planet revenue up more than 20 percent in the first half;
  • Cloud revenue doubled first-half 2011 revenue;
  • Full-year 2012 operating (non-GAAP) EPS expectations raised to at least $15.10 from at least $15.00.

IBM (NYSE: IBM) today announced second-quarter 2012 diluted earnings of $3.34 per share, compared with diluted earnings of $3.00 per share in the second quarter of 2011, an increase of 11 percent. Operating (non-GAAP) diluted earnings were $3.51 per share, compared with operating diluted earnings of $3.09 per share in the second quarter of 2011, an increase of 14 percent.

Second-quarter net income was $3.9 billion compared with $3.7 billion in the second quarter of 2011, an increase of 6 percent. Operating (non-GAAP) net income was $4.1 billion compared with $3.8 billion in the second quarter of 2011, an increase of 8 percent.

Total revenues for the second quarter of 2012 of $25.8 billion were down 3 percent (up 1 percent, adjusting for currency) from the second quarter of 2011. Currency negatively impacted revenue growth by approximately $1 billion.

“In the second quarter, we delivered strong profit, earnings per share and free cash flow growth. This performance reflects continued strength in our growth initiatives and investments in higher value opportunities,” said Ginni Rometty, IBM president and chief executive officer. “These are fundamental elements of our long-term business model.

“Looking ahead, we are well positioned to deliver greater value to a wider range of clients and to our shareholders. Given our performance in the first half and our outlook for the second half, we are raising our full-year operating earnings per share expectations to at least $15.10.”

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

Second-quarter operating (non-GAAP) diluted earnings exclude $0.17 per share of charges: $0.11 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.06 per share for retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.

Full-Year 2012 Expectations

IBM raised its expectations for full-year 2012 GAAP diluted earnings per share to at least $14.40 from at least $14.27 and operating (non-GAAP) diluted earnings per share to at least $15.10 from at least $15.00. The 2012 operating (non-GAAP) earnings expectations exclude $0.70 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.

Geographic Regions

The Americas’ second-quarter revenues were $11.1 billion, a decrease of 1 percent (up 1 percent, adjusting for currency) from the 2011 period. Revenues from Europe/Middle East/Africa were $7.9 billion, down 9 percent (flat, adjusting for currency). Asia-Pacific revenues increased 2 percent (up 4 percent, adjusting for currency) to $6.3 billion. OEM revenues were $512 million, down 24 percent compared with the 2011 second quarter.

Growth Markets

Revenues from the company’s growth markets increased 2 percent (up 8 percent, adjusting for currency) and more than 30 countries had double-digit revenue growth, adjusting for currency. Revenues in the BRIC countries — Brazil, Russia, India and China — increased 5 percent (up 12 percent, adjusting for currency).

Services

Global Technology Services segment revenues decreased 2 percent (up 2 percent, adjusting for currency) to $10.0 billion. Global Business Services segment revenues were down 4 percent (down 1 percent, adjusting for currency) to $4.7 billion.

Pre-tax income from Global Technology Services increased 24 percent and pre-tax margin increased to 17.1 percent. Global Business Services pre-tax income increased 7 percent and pre-tax margin increased to 16.6 percent.

The estimated services backlog at June 30 was $136 billion, down 6 percent year over year at actual rates (flat, adjusting for currency).

Software

Revenues from the Software segment were $6.2 billion, flat (up 4 percent, adjusting for currency) compared with the second quarter of 2011. Software pre-tax income increased 8 percent and pre-tax margin increased to 35.9 percent.

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.9 billion, flat (up 4 percent, adjusting for currency) versus the second quarter of 2011. Operating systems revenues of $628 million were flat (up 3 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products increased 3 percent year over year. Information Management software revenues decreased 1 percent. Revenues from Tivoli software increased 2 percent. Revenues from Lotus software decreased 8 percent, and Rational software decreased 7 percent.

Hardware

Revenues from the Systems and Technology segment totaled $4.3 billion for the quarter, down 9 percent (down 7 percent, adjusting for currency) from the second quarter of 2011. Systems and Technology pre-tax income decreased $159 million.

Total systems revenues decreased 7 percent (down 5 percent, adjusting for currency). Revenues from Power Systems were down 7 percent compared with the 2011 period. Revenues from System x were down 8 percent. Revenues from System z mainframe server products decreased 11 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 8 percent. Revenues from System Storage decreased 4 percent, and revenues from Retail Store Solutions decreased 4 percent year over year. Revenues from Microelectronics OEM decreased 22 percent.

Financing

Global Financing segment revenues were flat (up 4 percent, adjusting for currency) in the second quarter at $517 million. Pre-tax income for the segment increased 6 percent to $528 million.

***

The company’s total gross profit margin was 47.6 percent in the 2012 second quarter compared with 46.4 percent in the 2011 second-quarter period. Total operating (non-GAAP) gross profit margin was 48.2 percent in the 2012 second quarter compared with 46.8 percent in the 2011 second-quarter period, with increases in Global Technology Services and Global Business Services.

Total expense and other income decreased 5 percent to $7.1 billion compared with the prior-year period. S,G&A expense of $5.8 billion decreased 3 percent year over year. R,D&E expense of $1.6 billion increased 1 percent compared with the year-ago period. Intellectual property and custom development income decreased to $289 million compared with $295 million a year ago. Other (income) and expense was income of $132 million compared with prior-year expense of $97 million. Interest expense increased to $117 million compared with $97 million in the prior year.

Total operating (non-GAAP) expense and other income decreased 6 percent to $7.0 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $5.7 billion decreased 4 percent compared with prior-year expense. Operating (non-GAAP) R,D&E expense of $1.6 billion was flat compared with the year-ago period.

Pre-tax income increased 6 percent to $5.2 billion and pre-tax margin of 20.0 percent, up 1.7 points compared with the prior-year period. Operating (non-GAAP) pre-tax income increased 8 percent to $5.4 billion and pre-tax margin was 21.1 percent, up 2.2 points.

IBM’s tax rate was 24.8 percent, down 0.2 points year over year; operating (non-GAAP) tax rate was 25.0 percent, flat compared to the year-ago period.

Net income margin increased 1.3 points to 15.1 percent. Total operating (non-GAAP) net income margin increased 1.6 points to 15.8 percent.

The weighted-average number of diluted common shares outstanding in the second-quarter 2012 was 1.16 billion compared with 1.22 billion shares in the same period of 2011. As of June 30, 2012, there were 1.14 billion basic common shares outstanding.

Debt, including Global Financing, totaled $32.4 billion, compared with $31.3 billion at year-end 2011. From a management segment view, Global Financing debt totaled $22.6 billion versus $23.3 billion at year-end 2011, resulting in a debt-to-equity ratio of 7.0 to 1. Non-global financing debt totaled $9.8 billion, an increase of $1.8 billion since year-end 2011, resulting in a debt-to-capitalization ratio of 36.1 percent from 32.0 percent.

IBM ended the second-quarter 2012 with $11.2 billion of cash on hand and generated free cash flow of $3.7 billion, excluding Global Financing receivables, up approximately $0.3 billion year over year. The company returned $4.0 billion to shareholders through $1.0 billion in dividends and $3.0 billion of share repurchases.

Year-To-Date 2012 Results

Net income for the six months ended June 30, 2012 was $6.9 billion compared with $6.5 billion in the year-ago period, an increase of 6 percent. Diluted earnings per share were $5.95 compared with $5.30 per diluted share for the 2011 period, an increase of 12 percent. Revenues for the six-month period totaled $50.5 billion, a decrease of 2 percent (up 1 percent, adjusting for currency) compared with $51.3 billion for the six months of 2011.

Operating (non-GAAP) net income for the six months ended June 30, 2012 was $7.3 billion compared with $6.8 billion in the year-ago period, an increase of 9 percent. Operating (non-GAAP) diluted earnings per share were $6.29 compared with $5.50 per diluted share for the 2011 period, an increase of 14 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; cybersecurity and data privacy considerations; 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 supplemental 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 Supplemental 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. The Webcast may be viewed at www.ibm.com/investor/2q12. 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
2012 2011 Change 2012 2011 Change
REVENUE
 
Global Technology
Services $ 9,995 $ 10,241 -2.4 % $ 20,031 $ 20,104 -0.4 %
Gross profit margin 36.3 % 34.0 % 35.8 % 33.9 %
 
Global Business
Services 4,667 4,866 -4.1 % 9,304 9,575 -2.8 %
Gross profit margin 30.7 % 28.9 % 29.4 % 28.2 %
 
Software 6,171 6,169 0.0 % 11,770 11,478 2.5 %
Gross profit margin 88.4 % 88.4 % 87.7 % 87.8 %
 
Systems and
Technology 4,259 4,681 -9.0 % 8,008 8,700 -7.9 %
Gross profit margin 38.3 % 40.6 % 36.4 % 39.3 %
 
Global Financing 517 519 -0.4 % 1,006 1,035 -2.8 %
Gross profit margin 46.0 % 48.7 % 48.3 % 51.1 %
 
Other 175 191 -8.4 % 336 381 -11.7 %
Gross profit margin -60.0 % -57.7 % -67.1 % -75.5 %
 
TOTAL REVENUE 25,783 26,666 -3.3 % 50,456 51,273 -1.6 %
 
GROSS PROFIT 12,281 12,385 -0.8 % 23,400 23,243 0.7 %
Gross margin 47.6 % 46.4 % 46.4 % 45.3 %
 
 
EXPENSE AND OTHER INCOME
 
S,G&A 5,837 6,030 -3.2 % 11,723 11,856 -1.1 %
Expense to revenue 22.6 % 22.6 % 23.2 % 23.1 %
 
R,D&E 1,587 1,569 1.1 % 3,188 3,156 1.0 %
Expense to revenue 6.2 % 5.9 % 6.3 % 6.2 %
 
Intellectual property
and custom development
income (289 ) (295 ) -1.8 % (545 ) (557 ) -2.2 %
Other (income)
and expense (132 ) 97 NM (190 ) (105 ) 80.9 %
Interest expense 117 97 20.4 % 226 190 19.1 %
 
TOTAL EXPENSE AND
OTHER INCOME 7,120 7,500 -5.1 % 14,403 14,541 -0.9 %
Expense to revenue 27.6 % 28.1 % 28.5 % 28.4 %
 
INCOME BEFORE
INCOME TAXES 5,161 4,885 5.7 % 8,997 8,702 3.4 %
Pre-tax margin 20.0 % 18.3 % 17.8 % 17.0 %
 
Provision for
income taxes 1,280 1,221 4.8 % 2,049 2,175 -5.8 %
Effective tax
rate 24.8 % 25.0 % 22.8 % 25.0 %
 
NET INCOME $ 3,881   $ 3,664   5.9 % $ 6,948   $ 6,526   6.5 %
Net income margin 15.1 % 13.7 % 13.8 % 12.7 %
 
EARNINGS PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION $ 3.34 $ 3.00 11.3 % $ 5.95 $ 5.30 12.3 %
BASIC $ 3.38 $ 3.04 11.2 % $ 6.02 $ 5.38 11.9 %
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING (M's):
ASSUMING DILUTION 1,161.9 1,221.4 1,168.1 1,230.7
BASIC 1,149.0 1,204.8 1,154.1 1,213.5
 
NM -- Not Meaningful
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
 
  At   At
(Dollars in Millions) June 30, December 31,
2012 2011
ASSETS
 
Current Assets:
Cash and cash equivalents $ 10,864 $ 11,922
Marketable securities 323 --
Notes and accounts receivable - trade
(net of allowances of $264 in 2012 and $256 in 2011) 10,172 11,179
Short-term financing receivables
(net of allowances of $271 in 2012 and $311 in 2011) 14,982 16,901
Other accounts receivable
(net of allowances of $11 in 2012 and $11 in 2011) 1,703 1,481
Inventories, at lower of average cost or market:
Finished goods 752 589
Work in process and raw materials   2,006     2,007  
Total inventories 2,758 2,595
Deferred taxes 1,478 1,601
Prepaid expenses and other current assets   5,113     5,249  
Total Current Assets 47,392 50,928
 
Property, plant and equipment 40,158 40,124
Less: Accumulated depreciation   26,293     26,241  
Property, plant and equipment - net 13,865 13,883
Long-term financing receivables
(net of allowances of $55 in 2012 and $38 in 2011) 10,795 10,776
Prepaid pension assets 2,862 2,843
Deferred taxes 2,795 3,503
Goodwill 27,735 26,213
Intangible assets - net 3,657 3,392
Investments and sundry assets   4,730     4,895  
Total Assets $ 113,832   $ 116,433  
LIABILITIES AND EQUITY
 
Current Liabilities:
Taxes $ 2,183 $ 3,313
Short-term debt 7,669 8,463
Accounts payable 7,482 8,517
Compensation and benefits 4,656 5,099
Deferred income 12,311 12,197
Other accrued expenses and liabilities   4,602     4,535  
Total Current Liabilities 38,903 42,123
 
Long-term debt 24,766 22,857
Retirement and nonpension postretirement
benefit obligations 16,544 18,374
Deferred income 3,889 3,847
Other liabilities   9,166     8,996  
Total Liabilities 93,269 96,197
 
Equity:
IBM Stockholders' Equity:
Common stock 49,157 48,129
Retained earnings 109,928 104,857
Treasury stock -- at cost (117,116 ) (110,963 )
Accumulated other comprehensive income/(loss)   (21,498 )   (21,885 )
Total IBM stockholders' equity 20,472 20,138
 
Noncontrolling interests   92     97  
Total Equity   20,563     20,236  
Total Liabilities and Equity $ 113,832   $ 116,433  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended   Six Months Ended
(Dollars in Millions) June 30, June 30,
2012   2011 2012   2011
Net Cash from Operating Activities per GAAP: $ 4,435 $ 4,279 $ 8,726 $ 8,071
 
Less: the change in Global Financing (GF)
Receivables   (507 )   (33 )   918     1,903  
Net Cash from Operating Activities
(Excluding GF Receivables) 4,942 4,313 7,809 6,168
 
Capital Expenditures, Net (1,278 ) (952 ) (2,279 ) (2,010 )
 
Free Cash Flow
(Excluding GF Receivables) 3,664 3,361 5,529 4,159
 
Acquisitions (606 ) (107 ) (1,925 ) (159 )
Divestitures 13 4 13 4
Dividends (978 ) (905 ) (1,848 ) (1,700 )
Share Repurchase (2,988 ) (3,976 ) (6,002 ) (8,021 )
Non-GF Debt 933 (20 ) 1,590 1,007
Other (includes GF Receivables, and
GF Debt) (1,187 ) 162 1,907 4,822
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities   ($1,148 )   ($1,481 )   ($736 ) $ 113  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  SECOND-QUARTER 2012
  Pre-tax  
(Dollars in Millions) Revenue Income/ Pre-tax
External   Internal   Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 9,995 $ 291 $ 10,286 $ 1,757 17.1 %
Y-T-Y change -2.4 % -9.1 % -2.6 % 23.7 %
 
Global Business Services 4,667 180 4,847 803 16.6 %
Y-T-Y change -4.1 % -12.2 % -4.4 % 7.0 %
 
Software 6,171 776 6,946 2,493 35.9 %
Y-T-Y change 0.0 % -2.0 % -0.2 % 7.9 %
 
Systems and Technology 4,259 159 4,418 234 5.3 %
Y-T-Y change -9.0 % -27.3 % -9.8 % -40.4 %
 
Global Financing 517 515 1,032 528 51.1 %
Y-T-Y change -0.4 % -5.7 % -3.2 % 6.4 %
 
TOTAL REPORTABLE SEGMENTS $ 25,608 $ 1,921 $ 27,529 $ 5,814 21.1 %
Y-T-Y change -3.3 % -7.7 % -3.6 % 8.3 %
 
Eliminations / Other 175 (1,921 ) (1,746 ) (653 )
 
TOTAL IBM CONSOLIDATED $ 25,783 $ (0 ) $ 25,783 $ 5,161 20.0 %
Y-T-Y change -3.3 % -3.3 % 5.7 %
 
 
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 %
 
Global Business Services 4,866 205 5,071 750 14.8 %
 
Software 6,169 792 6,961 2,310 33.2 %
 
Systems and Technology 4,681 218 4,899 393 8.0 %
 
Global Financing 519 547 1,066 496 46.5 %
 
TOTAL REPORTABLE SEGMENTS $ 26,476 $ 2,082 $ 28,558 $ 5,370 18.8 %
 
Eliminations / Other 191 (2,082 ) (1,891 ) (485 )
 
TOTAL IBM CONSOLIDATED $ 26,666 $ (0 ) $ 26,666 $ 4,885 18.3 %
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  SIX-MONTHS 2012
  Pre-tax  
(Dollars in Millions) Revenue Income/ Pre-tax
External   Internal   Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 20,031 $ 584 $ 20,615 $ 3,237 15.7 %
Y-T-Y change -0.4 % -6.9 % -0.6 % 21.8 %
 
Global Business Services 9,304 363 9,667 1,404 14.5 %
Y-T-Y change -2.8 % -10.5 % -3.1 % 1.0 %
 
Software 11,770 1,615 13,386 4,438 33.2 %
Y-T-Y change 2.5 % -0.4 % 2.2 % 9.7 %
 
Systems and Technology 8,008 309 8,317 130 1.6 %
Y-T-Y change -7.9 % -33.1 % -9.2 % -75.3 %
 
Global Financing 1,006 1,000 2,006 1,040 51.8 %
Y-T-Y change -2.8 % -4.2 % -3.5 % 2.4 %
 
TOTAL REPORTABLE SEGMENTS $ 50,120 $ 3,872 $ 53,991 $ 10,248 19.0 %
Y-T-Y change -1.5 % -6.9 % -1.9 % 6.4 %
 
Eliminations / Other 336 (3,872 ) (3,535 ) (1,252 )
 
TOTAL IBM CONSOLIDATED $ 50,456 $ (0 ) $ 50,456 $ 8,997 17.8 %
Y-T-Y change -1.6 % -1.6 % 3.4 %
 
 
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 %
 
Global Business Services 9,575 405 9,980 1,390 13.9 %
 
Software 11,478 1,621 13,099 4,045 30.9 %
 
Systems and Technology 8,700 462 9,162 525 5.7 %
 
Global Financing 1,035 1,044 2,079 1,015 48.8 %
 
TOTAL REPORTABLE SEGMENTS $ 50,892 $ 4,160 $ 55,052 $ 9,634 17.5 %
 
Eliminations / Other 381 (4,160 ) (3,779 ) (932 )
 
TOTAL IBM CONSOLIDATED $ 51,273 $ (0 ) $ 51,273 $ 8,702 17.0 %
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
 
  SECOND-QUARTER 2012
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 12,281 $ 93 $ 66 $ 12,440
 
Gross Profit Margin 47.6 % 0.4Pts 0.3Pts 48.2 %
 
S,G&A 5,837 (87 ) (33 ) 5,717
 
R,D&E 1,587 0 5 1,592
 
Other (Income) & Expense (132 ) (1 ) 0 (133 )
 
Total Expense & Other (Income) 7,120 (88 ) (28 ) 7,004
 
Pre-Tax Income 5,161 181 94 5,436
 
Pre-Tax Income Margin 20.0 % 0.7Pts 0.4Pts 21.1 %
 
Provision for Income Taxes*** 1,280 49 30 1,359
 
Effective Tax Rate 24.8 % 0.1Pts 0.1Pts 25.0 %
 
Net Income 3,881 132 64 4,077
 
Net Income Margin 15.1 % 0.5Pts 0.2Pts 15.8 %
 
Diluted Earnings Per Share $ 3.34 $ 0.11 $ 0.06 $ 3.51
 
 
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
* Includes amortization of acquired intangible assets and other acquisition-related charges.
** Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.
*** 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 2012
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 23,400 $ 181 $ 137 $ 23,718
 
Gross Profit Margin 46.4 % 0.4Pts 0.3Pts 47.0 %
 
S,G&A 11,723 (171 ) (69 ) 11,483
 
R,D&E 3,188 0 10 3,197
 
Other (Income) & Expense (190 ) (2 ) 0 (192 )
 
Total Expense & Other (Income) 14,403 (172 ) (60 ) 14,171
 
Pre-Tax Income 8,997 354 197 9,547
 
Pre-Tax Income Margin 17.8 % 0.7Pts 0.4Pts 18.9 %
 
Provision for Income Taxes*** 2,049 96 60 2,205
 
Effective Tax Rate 22.8 % 0.2Pts 0.2Pts 23.1 %
 
Net Income 6,948 258 137 7,342
 
Net Income Margin 13.8 % 0.5Pts 0.3Pts 14.6 %
 
Diluted Earnings Per Share $ 5.95 $ 0.22 $ 0.12 $ 6.29
 
 
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

* Includes amortization of acquired intangible assets and other acquisition-related charges.
** Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.
*** 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