8-K 1 a12-16438_18k.htm 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report:  July 18, 2012

(Date of earliest event reported)

 

INTERNATIONAL BUSINESS MACHINES
CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

 

1-2360

 

13-0871985

(State of Incorporation)

 

(Commission File Number)

 

(IRS employer Identification No.)

 

ARMONK, NEW YORK

 

10504

(Address of principal executive offices)

 

(Zip Code)

 

914-499-1900

(Registrant’s telephone number)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02.   Results of Operations and Financial Condition.

 

The registrant’s press release dated July 18, 2012, regarding its financial results for the periods ended June 30, 2012, including consolidated financial statements for the periods ended June 30, 2012, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Mark Loughridge’s second quarter earnings presentation on July 18, 2012, as well as certain reconciliation and other information (“Non-GAAP Supplemental Materials”) for information in Attachment I (press release), Attachment II (slides) and in Mr. Loughridge’s presentation. All of the information in Attachment I and II is hereby filed.

 

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/).  IBM encourages investors to visit its various web sites from time to time, as information is updated and new

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

 

Date: July18, 2012

 

 

 

 

By:

/s/ James J. Kavanaugh

 

 

 

 

 

James J. Kavanaugh

 

 

Vice President and Controller

 

3



 

ATTACHMENT I

 

IBM REPORTS 2012 SECOND-QUARTER RESULTS

 

·                  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.

 

ARMONK, N.Y., July 18, 2012 . . . 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.

 

1



 

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.

 

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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

 

3



 

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).

 

4



 

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

 

5



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(Dollars in Millions)

 

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

 

 

6



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(Dollars in Millions)

 

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

 

 

7



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SECOND-QUARTER 2012

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

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

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

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

%

 

8



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SIX-MONTHS 2012

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

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

 

 

 

 

 

Revenue

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

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

%

 

9



 

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

%

0.4

Pts

0.3

Pts

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

%

0.7

Pts

0.4

Pts

21.1

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

1,280

 

49

 

30

 

1,359

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

24.8

%

0.1

Pts

0.1

Pts

25.0

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

3,881

 

132

 

64

 

4,077

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

15.1

%

0.5

Pts

0.2

Pts

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

%

0.3

Pts

0.0

pts

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

%

0.6

Pts

-0.0

Pts

18.9

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

1,221

 

38

 

0

 

1,259

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

25.0

%

-0.1

Pts

0.1

Pts

25.0

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

3,664

 

126

 

(13

)

3,777

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

13.7

%

0.5

Pts

-0.0

Pts

14.2

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$

3.00

 

$

0.10

 

$

(0.01

)

$

3.09

 

 

10



 


*  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.

 

11



 

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

%

0.4

Pts

0.3

Pts

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

%

0.7

Pts

0.4

Pts

18.9

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

2,049

 

96

 

60

 

2,205

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

22.8

%

0.2

Pts

0.2

Pts

23.1

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

6,948

 

258

 

137

 

7,342

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

13.8

%

0.5

Pts

0.3

Pts

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

%

0.3

Pts

0.0

Pts

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

%

0.6

Pts

-0.0

Pts

17.6

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

2,175

 

86

 

(5

)

2,256

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

25.0

%

0.0

Pts

0.0

Pts

25.0

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

6,526

 

243

 

(3

)

6,767

 

 

 

 

 

 

 

 

 

 

 

Net Income Margin

 

12.7

%

0.5

Pts

-0.0

Pts

13.2

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$

5.30

 

$

0.20

 

$

(0.00

)

$

5.50

 

 

12



 


*  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.

 

Contact:

IBM

 

Mike Fay, 914/499-6107

 

mikefay@us.ibm.com

 

 

 

John Bukovinsky, 732/618-3531

 

jbuko@us.ibm.com

 

13



 

ATTACHMENT II

 

GRAPHIC

 2Q 2012 Earnings Presentation July 18, 2012

 


GRAPHIC

Forward Looking Statements and Non-GAAP Information Certain comments made in this presentation may be characterized as forward looking under 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. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including "operating earnings" and other "operating" financial measures. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information are included in supplemental materials entitled “Non-GAAP Supplemental Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/2q12/ The Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s Form 8-K dated July 18, 2012.

 


GRAPHIC

2Q 2012 Highlights 2Q Segment highlights: Software revenue @CC led by Europe, Japan, Growth Markets Services profit +18%; backlog flat @CC Systems & Technology impacted by product cycle; gained share in Power Expanded gross, pre-tax, and net operating margins Strong cash flow supports investment and shareholder returns +9% yr/yr $3.7B Free Cash Flow +8% yr/yr $4.1B Operating Net Income +14% yr/yr $3.51 Operating (Non-GAAP) EPS (3%), +1% yr/yr @CC $25.8B Revenue Increasing expectations to at least $15.10 of Operating EPS in 2012

 


GRAPHIC

Key Financial Metrics Flat 25.0% Tax Rate 1.6 pts 15.8% NI Margin 2.2 pts 21.1% PTI Margin 1.5 pts 48.2% GP Margin B/(W) Yr/Yr 2Q12 P&L Ratios (Operating) 1% @CC 8% $4.1 NI – Operating 14% $3.51 EPS – Operating (3%) $25.8 Revenue B/(W) Yr/Yr 2Q12 P&L Highlights 3.6 13.0 $18.0 Last 12 Mos. Cash Balance @ June 30 Dividends Share Repurchase Free Cash Flow (excl GF Receivables) Cash Highlights 11.2 1.0 3.0 $3.7 2Q12 $ in Billions, except EPS

 


GRAPHIC

Revenue by Geography (1%) (4%) Major Markets 8% 2% Growth Markets 12% 5% BRIC Countries Flat (9%) 7.9 Europe/ME/A (24%) (24%) 0.5 OEM 1% (3%) $25.8 IBM 2Q12 4% 2% 6.3 Asia Pacific 1% (1%) $11.1 Americas Rptd @CC $ in Billions APac U.S. Flat EMEA Canada/ LA Japan - 5% @CC Performance led by Growth Markets B/(W) Yr/Yr OEM

 


GRAPHIC

Revenue and Gross Profit Margin by Segment 48.2% 46.0% 38.3% 88.4% 30.7% 36.3% 2Q12 1.5 pts (2.7 pts) (2.3 pts) Flat 1.9 pts 2.3 pts B/(W) Yr/Yr Pts 4% Flat 6.2 Software 2Q12 1% (3%) $25.8 Total Revenue & Operating GP Margin 4% Flat 0.5 Global Financing (7%) (9%) 4.3 Systems & Technology (1%) (4%) 4.7 Global Business Services 2% (2%) $10.0 Global Technology Services B/(W) Yr/Yr Rptd @CC $ in Billions Operating Gross Profit Margin Revenue

 


GRAPHIC

Expense Summary 1 pts 1 pts 1 pts Base (2 pts) 7 pts 6% $7.0 Operating Expense & Other Income (20%) 0.1 Interest Expense nm (0.1) Other (Income)/Expense (2%) (0.3) IP and Development Income (3 pts) 3 pts Flat 1.6 RD&E – Operating (2 pts) 5 pts 4% $5.7 SG&A – Operating Acq.* Currency B/(W) Yr/Yr 2Q12 $ in Billions B/(W) Yr/Yr Drivers * Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges

 


GRAPHIC

24% $1.8 Pre-Tax Income 3.6 pts 17.1% PTI Margin @CC Rptd 2Q12 2.3 pts 36.3% Gross Margin (External) 2% (2%) $10.0 Revenue (External) B/(W) Yr/Yr Services Segments Global Technology Services (GTS) Global Business Services (GBS) Total Services Pre-Tax Income +18% yr/yr 2Q12 Revenue (% of Total Services) $ in Billions 7% $0.8 Pre-Tax Income 1.8 pts 16.6% PTI Margin @CC Rptd 2Q12 1.9 pts 30.7% Gross Margin (External) (1%) (4%) $4.7 Revenue (External) B/(W) Yr/Yr $ in Billions 2Q12 @CC Rptd GTS Flat Flat (1%) 2% 4% 2% (6%) Services Backlog $136B (4%) Consulting & Systems Integration (5%) GBS Outsourcing GBS Yr/Yr 2Q12 Revenue (3%) Maintenance Flat Integrated Technology Services (3%) GTS Outsourcing GTS Outsourcing 40% GBS C&SI 25% Maint. 12% ITS 16% GBS Outsourcing 7%

 


GRAPHIC

Software Segment 8% $2.5 Pre-Tax Income @CC Rptd 2Q12 2.7 pts 35.9% PTI Margin Flat 88.4% Gross Margin (External) 4% Flat $6.2 Revenue (External) B/(W) Yr/Yr @CC Rptd 4% 3% 4% (3%) (4%) 6% 3% 7% Flat Total Software (1%) Total Middleware Flat Key Branded Middleware (7%) Rational (8%) Lotus Yr/Yr 2Q12 Revenue 2% Tivoli (1%) Information Management 3% WebSphere Family 2Q12 Revenue (% of Total Software) Key Branded Middleware 64% Operating Systems 10% Other Middleware 18% Other 8% $ in Billions Share gains in WebSphere and Tivoli

 


GRAPHIC

Systems & Technology Segment (40%) $0.2 Pre-Tax Income @CC Rptd 2Q12 (2.7 pts) 5.3% PTI Margin (2.3 pts) 38.3% Gross Margin (External) (7%) (9%) $4.3 Revenue (External) B/(W) Yr/Yr $ in Billions 2Q12 Revenue (% of Total Sys & Tech) Servers 66% Storage 20% Micro OEM 10% RSS Yr/Yr 2Q12 Revenue (7%) (22%) (5%) (1%) Flat (5%) (4%) (9%) @CC (7%) Power Systems (7%) Total Systems