IBM Reports 2012 Third-Quarter Results

ARMONK, N.Y.--()--

IBM (NYSE: IBM)

  • Diluted EPS:
    • GAAP: $3.33, up 4 percent; $3.44, up 8 percent excluding UK pension-related charges;
    • Operating (non-GAAP): $3.62, up 10 percent;
  • Net income:
    • GAAP: $3.8 billion, flat; $3.9 billion, up 3 percent excluding UK pension-related charges;
    • Operating (non-GAAP): $4.2 billion, up 5 percent;
  • Gross profit margin:
    • GAAP: 47.4 percent, up 0.9 points;
    • Operating (non-GAAP): 48.1 percent, up 1.2 points;
  • Revenue: $24.7 billion, down 5 percent, down 2 percent adjusting for currency;
    • Negative currency impact of nearly $1 billion;
    • Divestiture of Retail Store Solutions (RSS) reduced revenue by 1 percent;
  • Software revenue down 1 percent, up 3 percent adjusting for currency;
  • Services revenue down 5 percent, flat adjusting for currency;
  • Services backlog of $138 billion, up 1 percent;
  • Systems and Technology revenue down 13 percent, down 12 percent adjusting for currency;
  • Growth markets revenue down 1 percent, up 4 percent adjusting for currency;
    • BRIC countries up 4 percent, up 11 percent adjusting for currency;
  • Business analytics revenue up 14 percent year to date;
  • Smarter Planet revenue up more than 20 percent year to date;
  • Cloud revenue year to date has exceeded full-year 2011 revenue;
  • Reiterating full-year 2012 operating (non-GAAP) EPS expectation of at least $15.10.

IBM (NYSE: IBM) today announced third-quarter 2012 diluted earnings of $3.33 per share, a year-to-year increase of 4 percent, or $3.44 per share, up 8 percent excluding the impact of UK pension-related charges. Operating (non-GAAP) diluted earnings were $3.62 per share, compared with operating diluted earnings of $3.28 per share in the third quarter of 2011, an increase of 10 percent.

Third-quarter net income was $3.8 billion, flat year-to-year; or $3.9 billion, up 3 percent excluding the impact of UK pension-related charges. Operating (non-GAAP) net income was $4.2 billion compared with $4.0 billion in the third quarter of 2011, an increase of 5 percent.

Total revenues for the third quarter of 2012 of $24.7 billion were down 5 percent (down 2 percent, adjusting for currency) from the third quarter of 2011. Currency negatively impacted revenue growth by nearly $1 billion.

“In the third quarter, we continued to drive margin, profit and earnings growth through our focus on higher-value businesses, strategic growth initiatives and productivity,” said Ginni Rometty, IBM chairman, president and chief executive officer.

“Looking ahead, we see good opportunity with a strong product lineup heading into this quarter and annuity businesses that provide a solid base of revenue, profit and cash. We are reiterating our full-year 2012 operating earnings per share expectation of at least $15.10.”

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

Third-quarter operating (non-GAAP) diluted earnings exclude $0.29 per share of charges: $0.12 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.17 per share for retirement-related charges, including $0.11 per share for the impact of UK pension-related charges.

Full-Year 2012 Expectations

IBM is adjusting its expectation for full-year 2012 GAAP diluted earnings per share to at least $14.29, to reflect the impact of UK pension-related charges. Operating (non-GAAP) diluted earnings per share expectations remain at least $15.10. The 2012 operating (non-GAAP) earnings expectations exclude $0.81 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related charges.

Geographic Regions

The Americas’ third-quarter revenues were $10.4 billion, a decrease of 4 percent (down 3 percent, adjusting for currency) from the 2011 period. Revenues from Europe/Middle East/Africa were $7.2 billion, down 9 percent (down 1 percent, adjusting for currency). Asia-Pacific revenues increased 1 percent (up 2 percent, adjusting for currency) to $6.5 billion. OEM revenues were $538 million, down 28 percent compared with the 2011 third quarter.

Growth Markets

Revenues from the company’s growth markets decreased 1 percent (up 4 percent, adjusting for currency) and 35 countries had double-digit revenue growth, adjusting for currency. Revenues in the BRIC countries — Brazil, Russia, India and China — increased 4 percent (up 11 percent, adjusting for currency).

Services

Global Technology Services segment revenues decreased 4 percent (up 1 percent, adjusting for currency) to $9.9 billion. Global Business Services segment revenues were down 6 percent (down 3 percent, adjusting for currency) to $4.5 billion.

Pre-tax income from Global Technology Services was flat and pre-tax margin increased to 16.6 percent (up 9 percent and 18.1 percent, respectively, when adjusted for workforce rebalancing charges in the third quarters of 2011 and 2012). Global Business Services pre-tax income decreased 5 percent and pre-tax margin increased to 15.6 percent (up 9 percent and 18 percent, respectively, when adjusted for workforce rebalancing charges in the third quarters of 2011 and 2012).

The estimated services backlog at September 30 was $138 billion, up 1 percent year over year at actual rates (up 1 percent, adjusting for currency).

Software

Revenues from the Software segment were $5.8 billion, down 1 percent (up 3 percent, adjusting for currency) compared with the third quarter of 2011. Software pre-tax income increased 6 percent and pre-tax margin increased to 35.6 percent (up 10 percent and 37.1 percent, respectively, when adjusted for workforce rebalancing charges in the third quarters of 2011 and 2012).

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.6 billion, down 1 percent (up 3 percent, adjusting for currency) versus the third quarter of 2011. Operating systems revenues of $597 million were flat (up 4 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products increased 2 percent year over year. Information Management software revenues decreased 1 percent. Revenues from Tivoli software increased 5 percent. Revenues from Lotus software decreased 10 percent, and Rational software decreased 16 percent.

Hardware

Revenues from the Systems and Technology segment totaled $3.9 billion for the quarter, down 13 percent (down 12 percent, adjusting for currency) from the third quarter of 2011. Excluding Retail Store Solutions (RSS), revenues were down 11 percent (9 percent, adjusting for currency). Systems and Technology pre-tax income decreased $0.2 billion.

Total systems revenues, excluding RSS, decreased 8 percent (down 6 percent, adjusting for currency). Revenues from Power Systems were down 2 percent compared with the 2011 period. Revenues from System x were down 5 percent. Revenues from System z mainframe server products decreased 20 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 2 percent. Revenues from System Storage decreased 10 percent. Revenues from Retail Store Solutions decreased 79 percent year over year as a result of the divestiture in the quarter. Revenues from Microelectronics OEM decreased 25 percent.

Financing

Global Financing segment revenues were down 9 percent (down 5 percent, adjusting for currency) in the third quarter at $472 million. Pre-tax income for the segment decreased 1 percent to $476 million.

Gross Profit

The company’s total gross profit margin was 47.4 percent in the 2012 third quarter compared with 46.5 percent in the 2011 third-quarter period. Total operating (non-GAAP) gross profit margin was 48.1 percent in the 2012 third quarter compared with 46.8 percent in the 2011 third-quarter period, with increases in Global Technology Services and Global Business Services.

Expense

Total expense and other income decreased 7 percent to $6.7 billion, or a decrease of 9 percent to $6.5 billion, excluding $162 million for UK pension-related charges, compared with the prior-year period. S,G&A expense of $5.9 billion increased 4 percent year over year, or expense of $5.7 billion, up 1 percent excluding the impact of UK pension-related charges. S,G&A expense includes $408 million for workforce rebalancing, which negatively impacted net income by approximately $310 million. R,D&E expense of $1.5 billion decreased 1 percent compared with the year-ago period. Intellectual property and custom development income increased to $303 million compared with $298 million a year ago. Other (income) and expense was income of $606 million compared with prior-year expense of $128 million. This increase in income was primarily due to a $447 million gain from the divestiture of Retail Store Solutions, which contributed approximately $280 million to net income. Interest expense increased to $124 million compared with $107 million in the prior year.

Total operating (non-GAAP) expense and other income decreased 10 percent to $6.4 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $5.6 billion increased 1 percent compared with prior-year expense. Operating (non-GAAP) R,D&E expense of $1.5 billion decreased 2 percent compared with the year-ago period.

***

Pre-tax income increased 1 percent to $5.1 billion, or 4 percent to $5.2 billion excluding the impact of UK pension-related charges. Pre-tax margin increased 1.3 points to 20.5 percent, or 1.9 points to 21.2 percent excluding the impact of UK pension-related charges, compared with the prior-year period. Operating (non-GAAP) pre-tax income increased 7 percent to $5.5 billion and pre-tax margin was 22.3 percent, up 2.5 points.

IBM’s tax rate was 24.6 percent, up 1.0 points year over year; operating (non-GAAP) tax rate was 24.7 percent, up 1.1 points compared to the year-ago period.

Net income margin increased 0.8 points to 15.5 percent, or 1.3 points to 16.0 percent excluding the impact of UK pension-related charges. Total operating (non-GAAP) net income margin increased 1.7 points to 16.8 percent.

The weighted-average number of diluted common shares outstanding in the third-quarter 2012 was 1.15 billion compared with 1.20 billion shares in the same period of 2011. As of September 30, 2012, there were 1.13 billion basic common shares outstanding.

Debt, including Global Financing, totaled $33.7 billion, compared with $31.3 billion at year-end 2011. From a management segment view, Global Financing debt totaled $23.3 billion versus $23.3 billion at year-end 2011, resulting in a debt-to-equity ratio of 7.1 to 1. Non-global financing debt totaled $10.3 billion, an increase of $2.4 billion since year-end 2011, resulting in a debt-to-capitalization ratio of 36.0 percent from 32.0 percent.

IBM ended the third-quarter 2012 with $12.3 billion of cash on hand and generated free cash flow of $3.1 billion, excluding Global Financing receivables, down 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. The balance sheet remains strong, and the company is well positioned to support the business over the long term.

Year-To-Date 2012 Results

Net income for the nine months ended September 30, 2012 was $10.8 billion, a year-to-year increase of 4 percent, or $10.9 billion, up 5 percent, excluding the impact of UK pension-related charges. Diluted earnings per share were $9.27 compared with $8.48 per diluted share for the 2011 period, an increase of 9 percent, or $9.38, up 11 percent excluding the impact of UK pension-related charges. Revenues for the nine-month period totaled $75.2 billion, a decrease of 3 percent (flat, adjusting for currency) compared with $77.4 billion for the nine months of 2011.

Operating (non-GAAP) net income for the nine months ended September 30, 2012 was $11.5 billion compared with $10.7 billion in the year-ago period, an increase of 7 percent. Operating (non-GAAP) diluted earnings per share were $9.90 compared with $8.77 per diluted share for the 2011 period, an increase of 13 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);
  • adjusting for workforce rebalancing charges.

The rationale for management’s use of non-GAAP measures is included as part of the supplemental 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 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/3q12. 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
2012 2011 Change 2012 2011 Change
 
REVENUE
 
Global Technology Services $ 9,922 $ 10,322 -3.9 % $ 29,952 $ 30,427 -1.6 %
Gross profit margin 37.3 % 35.7 % 36.3 % 34.5 %
 
Global Business Services 4,542 4,832 -6.0 % 13,846 14,407 -3.9 %
Gross profit margin 31.2 % 29.4 % 30.0 % 28.6 %
 
Software 5,763 5,817 -0.9 % 17,533 17,295 1.4 %
Gross profit margin 88.0 % 88.1 % 87.8 % 87.9 %
 
Systems and Technology 3,895 4,482 -13.1 % 11,903 13,182 -9.7 %
Gross profit margin 37.3 % 39.8 % 36.7 % 39.5 %
 
Global Financing 472 520 -9.2 % 1,478 1,555 -4.9 %
Gross profit margin 45.8 % 47.4 % 47.5 % 49.9 %
 
Other 154 182 -15.9 % 490 563 -13.0 %
Gross profit margin -80.4 % -48.3 % -71.3 % -66.7 %
 
TOTAL REVENUE 24,747 26,157 -5.4 % 75,203 77,430 -2.9 %
 
 
GROSS PROFIT 11,732 12,173 -3.6 % 35,131 35,416 -0.8 %
Gross profit margin 47.4 % 46.5 % 46.7 % 45.7 %
 
 
EXPENSE AND OTHER INCOME
S,G&A 5,908 5,662 4.3 % 17,632 17,518 0.6 %
Expense to revenue 23.9 % 21.6 % 23.4 % 22.6 %
 
R,D&E 1,534 1,546 -0.8 % 4,722 4,703 0.4 %
Expense to revenue 6.2 % 5.9 % 6.3 % 6.1 %
 
Intellectual property
and custom development
income (303 ) (298 ) 1.4 % (847 ) (855 ) -0.9 %
 
Other (income) and expense (606 ) 128 NM (796 ) 23 NM
 
Interest expense 124 107 15.2 % 350 298 17.7 %
 
TOTAL EXPENSE AND
OTHER INCOME 6,657 7,146 -6.8 % 21,060 21,687 -2.9 %
Expense to revenue 26.9 % 27.3 % 28.0 % 28.0 %
 
INCOME BEFORE
INCOME TAXES 5,074 5,027 0.9 % 14,071 13,729 2.5 %
Pre-tax margin 20.5 % 19.2 % 18.7 % 17.7 %
 
Provision for income taxes 1,251 1,188 5.2 % 3,300 3,364 -1.9 %
Effective tax rate 24.6 % 23.6 % 23.5 % 24.5 %
 
NET INCOME $ 3,824   $ 3,839   -0.4 % $ 10,771   $ 10,365   3.9 %
Net income margin 15.5 % 14.7 % 14.3 % 13.4 %
 
EARNINGS PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION $ 3.33 $ 3.19 4.4 % $ 9.27 $ 8.48 9.3 %
BASIC $ 3.36 $ 3.23 4.0 % $ 9.38 $ 8.60 9.1 %
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING (M's):
ASSUMING DILUTION 1,149.3 1,204.9 1,161.8 1,222.1
BASIC 1,137.2 1,188.6 1,148.4 1,205.2
 
NM -- Not Meaningful
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
 
  At   At
(Dollars in Millions) September 30, December 31,
2012 2011
 
ASSETS:
 
Current Assets:
Cash and cash equivalents $ 11,909 $ 11,922
Marketable securities 345 --
Notes and accounts receivable - trade
(net of allowances of $250 in 2012 and $256 in 2011) 9,772 11,179
Short-term financing receivables
(net of allowances of $277 in 2012 and $311 in 2011) 14,925 16,901
Other accounts receivable
(net of allowances of $20 in 2012 and $11 in 2011) 2,066 1,481
Inventories, at lower of average cost or market:
Finished goods 649 589
Work in process and raw materials   1,937     2,007  
Total inventories 2,586 2,595
Deferred taxes 1,522 1,601
Prepaid expenses and other current assets   5,016     5,249  
Total Current Assets 48,141 50,928
 
Property, plant and equipment 40,716 40,124
Less: Accumulated depreciation   26,688     26,241  
Property, plant and equipment - net 14,027 13,883
Long-term financing receivables
(net of allowances of $65 in 2012 and $38 in 2011) 10,791 10,776
Prepaid pension assets 3,424 2,843
Deferred taxes 2,555 3,503
Goodwill 28,270 26,213
Intangible assets - net 3,565 3,392
Investments and sundry assets   5,006     4,895  
Total Assets $ 115,778   $ 116,433  
 
LIABILITIES:
 
Current Liabilities:
Taxes $ 2,147 $ 3,313
Short-term debt 9,334 8,463
Accounts payable 7,085 8,517
Compensation and benefits 4,730 5,099
Deferred income 11,230 12,197
Other accrued expenses and liabilities   4,973     4,535  
Total Current Liabilities 39,499 42,123
 
Long-term debt 24,333 22,857
Retirement and nonpension postretirement
benefit obligations 16,682 18,374
Deferred income 4,263 3,847
Other liabilities   9,335     8,996  
Total Liabilities 94,112 96,197
 
EQUITY:
 
IBM Stockholders' Equity:
Common stock 49,603 48,129
Retained earnings 112,773 104,857
Treasury stock -- at cost (120,115 ) (110,963 )
Accumulated other comprehensive income/(loss)   (20,720 )   (21,885 )
Total IBM stockholders' equity 21,541 20,138
 
Noncontrolling interests   126     97  
Total Equity   21,666     20,236  
Total Liabilities and Equity $ 115,778   $ 116,433  
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
 
  Three Months Ended   Nine Months Ended
(Dollars in Millions) September 30, September 30,
2012   2011 2012   2011
Net Cash from Operating Activities per GAAP: $ 4,514 $ 4,678 $ 13,240 $ 12,750
 
Less: the change in Global Financing (GF)
Receivables   327     207     1,245     2,110  
Net Cash from Operating Activities
(Excluding GF Receivables) 4,187 4,471 11,995 10,640
 
Capital Expenditures, Net (1,046 ) (991 ) (3,326 ) (3,000 )
 
Free Cash Flow
(Excluding GF Receivables) 3,141 3,481 8,670 7,640
 
Acquisitions (342 ) (64 ) (2,266 ) (223 )
Divestitures 573 0 587 4
Dividends (968 ) (893 ) (2,816 ) (2,593 )
Share Repurchase (2,986 ) (3,444 ) (8,988 ) (11,465 )
Non-GF Debt 694 86 2,284 1,093
Other (includes GF Receivables and
GF Debt) 954 374 2,861 5,196
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities $ 1,067     ($461 ) $ 331     ($348 )
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  THIRD-QUARTER 2012
      Pre-tax  
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 9,922 $ 285 $ 10,206 $ 1,697 16.6 %
Y-T-Y change -3.9 % -10.0 % -4.1 % 0.1 %
 
Global Business Services 4,542 175 4,717 738 15.6 %
Y-T-Y change -6.0 % -12.0 % -6.2 % -4.8 %
 
Software 5,763 843 6,606 2,355 35.6 %
Y-T-Y change -0.9 % 4.9 % -0.2 % 6.3 %
 
Systems and Technology 3,895 181 4,076 124 3.0 %
Y-T-Y change -13.1 -4.6 % -12.8 % -61.1 %
 
Global Financing 472 491 963 476 49.4 %
Y-T-Y change -9.2 % 2.5 % -3.6 % -1.2 %
 
TOTAL REPORTABLE SEGMENTS $ 24,594 $ 1,976 $ 26,570 $ 5,389 20.3 %
Y-T-Y change -5.3 % -0.6 % -5.0 % -1.7 %
 
Eliminations / Other 154 (1,976 ) (1,822 ) (315 )
 
TOTAL IBM CONSOLIDATED $ 24,747 $ 0 $ 24,747 $ 5,074 20.5 %
Y-T-Y change -5.4 % -5.4 % 0.9 %
 
 
THIRD-QUARTER 2011
Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 10,322 $ 316 $ 10,638 $ 1,695 15.9 %
 
Global Business Services 4,832 199 5,031 775 15.4 %
 
Software 5,817 804 6,621 2,214 33.4 %
 
Systems and Technology 4,482 190 4,672 318 6.8 %
 
Global Financing 520 480 999 481 48.2 %
 
TOTAL REPORTABLE SEGMENTS $ 25,974 $ 1,989 $ 27,963 $ 5,484 19.6 %
 
Eliminations / Other 182 (1,989 ) (1,806 ) (457 )
 
TOTAL IBM CONSOLIDATED $ 26,157 $ 0 $ 26,157 $ 5,027 19.2 %
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
 
  NINE-MONTHS 2012
      Pre-tax  
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 29,952 $ 869 $ 30,821 $ 4,934 16.0 %
Y-T-Y change -1.6 % -7.9 % -1.8 % 13.3 %
 
Global Business Services 13,846 538 14,384 2,142 14.9 %
Y-T-Y change -3.9 % -11.0 % -4.2 % -1.1 %
 
Software 17,533 2,459 19,992 6,793 34.0 %
Y-T-Y change 1.4 % 1.4 % 1.4 % 8.5 %
 
Systems and Technology 11,903 491 12,394 253 2.0 %
Y-T-Y change -9.7 % -24.8 % -10.4 % -70.0 %
 
Global Financing 1,478 1,492 2,970 1,516 51.0 %
Y-T-Y change -4.9 % -2.1 % -3.5 % 1.3 %
 
TOTAL REPORTABLE SEGMENTS $ 74,713 $ 5,848 $ 80,561 $ 15,637 19.4 %
Y-T-Y change -2.8 % -4.9 % -3.0 % 3.4 %
 
Eliminations / Other 490 (5,848 ) (5,358 ) (1,566 )
 
TOTAL IBM CONSOLIDATED $ 75,203 $ 0 $ 75,203 $ 14,071 18.7 %
Y-T-Y change -2.9 % -2.9 % 2.5 %
 
 
NINE-MONTHS 2011
Pre-tax
(Dollars in Millions) Revenue Income/ Pre-tax
External Internal Total (Loss) Margin
SEGMENTS
 
Global Technology Services $ 30,427 $ 943 $ 31,370 $ 4,353 13.9 %
 
Global Business Services 14,407 604 15,012 2,166 14.4 %
 
Software 17,295 2,425 19,720 6,260 31.7 %
 
Systems and Technology 13,182 652 13,834 843 6.1 %
 
Global Financing 1,555 1,524 3,078 1,497 48.6 %
 
TOTAL REPORTABLE SEGMENTS $ 76,866 $ 6,148 $ 83,015 $ 15,118 18.2 %
 
Eliminations / Other 563 (6,148 ) (5,585 ) (1,389 )
 
TOTAL IBM CONSOLIDATED $ 77,430 $ 0 $ 77,430 $ 13,729 17.7 %
 
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
 
  THIRD-QUARTER 2012
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 11,732 $ 95 $ 67 $ 11,894
 
Gross Profit Margin 47.4 % 0.4Pts 0.3Pts 48.1 %
 
S,G&A 5,908 (88 ) (196 ) 5,625
 
R,D&E 1,534 0 5 1,539
 
Other (Income) & Expense (606 ) (5 ) 0 (611 )
 
Total Expense & Other (Income) 6,657 (92 ) (191 ) 6,374
 
Pre-Tax Income 5,074 188 258 5,520
 
Pre-Tax Income Margin 20.5 % 0.8Pts 1.0Pts 22.3 %
 
Provision for Income Taxes*** 1,251 47 67 1,364
 
Effective Tax Rate 24.6 % 0.0Pts 0.1Pts 24.7 %
 
Net Income 3,824 141 191 4,155
 
Net Income Margin 15.5 % 0.6Pts 0.8Pts 16.8 %
 
Diluted Earnings Per Share $ 3.33 $ 0.12 $ 0.17 $ 3.62
 
 
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
* 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)
 
  NINE-MONTHS 2012
  Acquisition-   Retirement-  
Related Related Operating
GAAP Adjustments* Adjustments** (Non-GAAP)
Gross Profit $ 35,131 $ 276 $ 204 $ 35,611
 
Gross Profit Margin 46.7 % 0.4Pts 0.3Pts 47.4 %
 
S,G&A 17,632 (258 ) (265 ) 17,108
 
R,D&E 4,722 0 14 4,736
 
Other (Income) & Expense (796 ) (7 ) 0 (803 )
 
Total Expense & Other Income 21,060 (265 ) (251 ) 20,545
 
Pre-Tax Income 14,071 541 454 15,067
 
Pre-Tax Income Margin 18.7 % 0.7Pts 0.6Pts 20.0 %
 
Provision for Income Taxes*** 3,300 143 127 3,569
 
Effective Tax Rate 23.5 % 0.1Pts 0.1Pts 23.7 %
 
Net Income 10,771 399 328 11,498
 
Net Income Margin 14.3 % 0.5Pts 0.4Pts 15.3 %
 
Diluted Earnings Per Share $ 9.27 $ 0.34 $ 0.28 $ 9.90
 
 
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

* 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.

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

Short Name: Intnl Bus. Mach
Category Code: QRT
Sequence Number: 348250
Time of Receipt (offset from UTC): 20121016T190410+0100

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