Ibm Regulatory News (IBM)

19 Jul 2012 07:00

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.

IBMMike Fay, 914-499-6107mikefay@us.ibm.comorJohn Bukovinsky, 732-618-3531jbuko@us.ibm.com

Copyright Business Wire 2012