8-K 1 a12-23956_28k.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:  October 16, 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 October 16, 2012, regarding its financial results for the periods ended September 30, 2012, including consolidated financial statements for the periods ended September 30, 2012, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Mark Loughridge’s third quarter earnings presentation on October 16, 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 information is posted.

 

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: October 16, 2012

 

 

 

 

By:

/s/ James J. Kavanaugh

 

 

 

 

 

James J. Kavanaugh

 

 

Vice President and Controller

 

3



 

ATTACHMENT I

 

IBM REPORTS 2012 THIRD-QUARTER RESULTS

 

·     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.

 

ARMONK, N.Y., October 16, 2012 . . . 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

 

 

 

September 30,

 

December 31,

 

(Dollars in Millions)

 

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

 

 

 

September 30,

 

September 30,

 

(Dollars in Millions)

 

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

 

 

 

 

 

 Revenue 

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

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

 

 

 

 

 

 Revenue 

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

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

 

 

 

 

 

 Revenue 

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

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

 

 

 

 

 

 Revenue 

 

Income/

 

Pre-tax

 

(Dollars in Millions)

 

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.

 

Contact:

IBM

 

 

Mike Fay, 914-499-6107

 

 

mikefay@us.ibm.com

 

 

 

 

 

John Bukovinsky, 732-618-3531

 

 

jbuko@us.ibm.com

 

 



 

ATTACHMENT II

 

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 3Q 2012 Earnings Presentation October 16, 2012

 


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2 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/3q12/ The Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s Form 8-K dated October 16, 2012.

 


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3 3Q 2012 Revenue performance: Europe consistent with 2Q Japan stabilized BRIC double-digit growth North America declined Continued strong performance in key solution areas of Smarter Planet, Business Analytics and Cloud Annuity businesses provide solid base of revenue and profit Expanded gross, pre-tax, and net margins Revenue $24.7B (5%), (2%) yr/yr @CC Operating Pre-Tax Income $5.5B +7% yr/yr Operating (Non-GAAP) EPS $3.62 +10% yr/yr Continue to expect at least $15.10 of Operating EPS in 2012

 


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4 Key Financial Metrics P&L Ratios (Operating) 3Q12 B/(W) Yr/Yr GP Margin 48.1% 1.2 pts PTI Margin 22.3% 2.5 pts Tax Rate 24.7% (1.1 pts) NI Margin 16.8% 1.7 pts P&L Highlights 3Q12 B/(W) Yr/Yr Revenue $24.7 (5%) @CC (2%)* NI – Operating $4.2 5% EPS – Operating $3.62 10% Cash Highlights 3Q12 Last 12 Mos. Free Cash Flow (excl GF Receivables) $3.1 $17.6 Share Repurchase 3.0 12.6 Dividends 1.0 3.7 Cash Balance @ Sept. 30 12.3 $ in Billions, except EPS * Revenue down 1% @CC excluding impact of divested Retail Store Solutions business

 


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5 3Q11 Operating EPS Revenue Growth @ Actual Margin Expansion Share Repurchases 3Q12 Operating EPS Operating EPS Bridge – 3Q11 to 3Q12 $3.28 Gross Margin Expansion $0.19 RSS Divestiture Gain * $0.23 Expense Productivity $0.16 W/F Rebalancing Charge ($0.24) * Based on discrete tax rate ($0.17) $0.34 $0.17 $3.62

 


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6 1H11 Operating EPS Revenue Growth @ Actual Margin Expansion Share Repurchases 1H12 Operating EPS Operating EPS Bridge – 1H11 to 1H12 $5.50 ($0.09) $0.56 $0.32 $6.29

 


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7 Revenue by Geography 3Q12 B/(W) Yr/Yr Rptd @CC Americas $10.4 (4%) (3%) Europe/ME/A 7.2 (9%) (1%) Asia Pacific 6.5 1% 2% Total Geographies excl. Retail Store Solutions $24.2 (5%) (4%) (1%) Flat IBM excl. Retail Store Solutions $24.7 (5%) (5%) (2%) (1%) Major Markets (6%) (2%) Growth Markets (1%) 4% BRIC Countries 4% 11% $ in Billions APac U.S. -4% EMEA Canada/ LA Japan Flat @CC EMEA steady, Japan stabilized, BRIC strength, North America declined OEM -28%

 


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8 Revenue and Gross Profit Margin by Segment 3Q12 B/(W) Yr/Yr Rptd @CC 3Q12 B/(W) Yr/Yr Pts Global Technology Services $9.9 (4%) 1% 37.3% 1.6 pts Global Business Services 4.5 (6%) (3%) 31.2% 1.7 pts Software 5.8 (1%) 3% 88.0% Flat Systems & Technology 3.9 (13%) (12%) 37.3% (2.6 pts) excl. Retail Store Solutions (11%) (9%) Global Financing 0.5 (9%) (5%) 45.8% (1.6 pts) Total Revenue & Op. GP Margin $24.7 (5%) (2%) 48.1% 1.2 pts excl. RSS (5%) (1%) $ in Billions Operating Gross Profit Margin Revenue

 


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9 Expense Summary 3Q12 B/(W) Yr/Yr Currency Acq.* Base SG&A – Operating includes Workforce Rebalancing $5.6 0.4 (1%) 4 pts (2 pts) (3 pts) SG&A excl. Workforce Rebalancing 5.2 6% 4 pts (2 pts) 5 pts RD&E – Operating 1.5 2% 3 pts (4 pts) 3 pts IP and Development Income (0.3) 1% Other (Income)/Expense includes Retail Store Solutions Gain (0.6) (0.4) Interest Expense 0.1 (15%) Operating Expense & Other Income $6.4 10% 8 pts (3 pts) 5 pts $ in Billions B/(W) Yr/Yr Drivers * Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges

 


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10 Pre-Tax Income by Segment $ in Billions PTI $ B/(W) Yr/Yr B/(W) Yr/Yr w/o Wkfrce Rebal.* PTI % B/(W) Yr/Yr B/(W) Yr/Yr w/o Wkfrce Rebal.* Global Technology Services $1.7 Flat 9% 16.6% 0.7 pts 2.1 pts Global Business Services 0.7 (5%) 9% 15.6% 0.2 pts 2.5 pts Software 2.4 6% 10% 35.6% 2.2 pts 3.5 pts Systems & Technology 0.1 (61%) (47%) 3.0% (3.8 pts) (2.7 pts) Global Financing 0.5 (1%) (1%) 49.4% 1.2 pts 1.5 pts Total Operating PTI $5.5 7% 14% 22.3% 2.5 pts 4.1 pts * 3Q12 Workforce Rebalancing charge of $407M, 3Q11 Workforce Rebalancing charge of $21M Segment PTI $ Segment PTI Margin Services and Software profit growth and margin expansion

 


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11 B/(W) Yr/Yr 3Q12 Rptd @CC Revenue (External) $9.9 (4%) 1% Gross Margin (External) 37.3% 1.6 pts Pre-Tax Income $1.7 Flat excluding Wkfrce Rebal. $1.8 9% PTI Margin 16.6% 0.7 pts excluding Wkfrce Rebal. 18.1% 2.1 pts Services Segments Global Technology Services (GTS) Global Business Services (GBS) Backlog growth and margin expansion 3Q12 Revenue (% of Total Services) $ in Billions B/(W) Yr/Yr 3Q12 Rptd @CC Revenue (External) $4.5 (6%) (3%) Gross Margin (External) 31.2% 1.7 pts Pre-Tax Income $0.7 (5%) excluding Wkfrce Rebal. $0.9 9% PTI Margin 15.6% 0.2 pts excluding Wkfrce Rebal. 18.0% 2.5 pts $ in Billions 3Q12 Revenue Yr/Yr GTS Rptd @CC GTS Outsourcing (5%) Flat Integrated Technology Services (1%) 3% Maintenance (5%) Flat GBS GBS Outsourcing (7%) (3%) Consulting & Systems Integration (6%) (3%) 3Q12 Services Backlog $138B 1% 1% GTS Outsourcing 40% GBS C&SI 24% Maint. 13% ITS 16% GBS Outsourcing 7%

 


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12 Software Segment B/(W) Yr/Yr 3Q12 Rptd @CC Revenue (External) $5.8 (1%) 3% Gross Margin (External) 88.0% Flat Pre-Tax Income $2.4 6% excluding Wkfrce Rebal. $2.4 10% PTI Margin 35.6% 2.2 pts excluding Wkfrce Rebal. 37.1% 3.5 pts 3Q12 Revenue Yr/Yr Rptd @CC WebSphere Family 2% 5% Information Management (1%) 3% Tivoli 5% 9% Lotus (10%) (7%) Rational (16%) (13%) Key Branded Middleware (1%) 3% Total Middleware (2%) 2% Total Software (1%) 3% 3Q12 Revenue (% of Total Software) Key Branded Middleware 63% Operating Systems 10% Other Middleware 19% Other 8% $ in Billions Double-digit growth in Software Solutions

 


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13 Systems & Technology Segment B/(W) Yr/Yr 3Q12 Rptd @CC Revenue (External) – including RSS $3.9 (13%) (12%) excluding RSS (11%) (9%) Gross Margin (External) 37.3% (2.6 pts) Pre-Tax Income $0.1 (61%) excluding Wkfrce Rebal. $0.2 (47%) PTI Margin 3.0% (3.8 pts) excluding Wkfrce Rebal. 4.1% (2.7 pts) $ in Billions 3Q12 Revenue (% of Total Sys & Tech) 3Q12 Revenue Yr/Yr Rptd @CC System z (20%) (19%) Power Systems (2%) (1%) System x (5%) (3%) Storage (10%) (8%) Total Systems excl. RSS (8%) (6%) Microelectronics OEM (25%) (25%) Total Systems & Technology excl. RSS (11%) (9%) Retail Store Solutions (Divested) (79%) (79%) New Enterprise Servers and Storage in 4Q Servers 68% Storage 19% Micro OEM 12% RSS (Divested)

 


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14 Growth Initiatives Business Analytics Growth Markets Smarter Planet Cloud 3Q YTD Revenue > Full Year 2011 3Q YTD Revenue up 7% yr/yr @CC 3Q YTD Revenue up 14% yr/yr 3Q YTD Revenue up >20% yr/yr Continued strength in our key growth initiatives

 


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15 3Q11 Free Cash Flow Operating Net Income Cash Taxes Capex 3Q12 Free Cash Flow Free Cash Flow Bridge – 3Q11 to 3Q12 $3.5B Workforce Rebalancing Payments/Other $3.1B $0.2B ($0.3B) ($0.2B) ($0.1B) ($0.2B) $0.2B GAAP Net Income Flat Yr/Yr B/S Impact of Non-Operating, Non-Cash Adjs. Non-Operating Charges/ Cost

 


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16 Cash Flow Analysis 3Q12 B/(W) Yr/Yr YTD 3Q12 B/(W) Yr/Yr Net Cash from Operations $4.5 ($0.2) $13.2 $0.5 Less: Global Financing Receivables 0.3 0.1 1.2 (0.9) Net Cash from Operations (excluding GF Receivables) 4.2 (0.3) 12.0 1.4 Net Capital Expenditures (1.0) (0.1) (3.3) (0.3) Free Cash Flow (excluding GF Receivables) 3.1 (0.3) 8.7 1.0 Acquisitions (0.3) (0.3) (2.3) (2.0) Divestitures 0.6 0.6 0.6 0.6 Dividends (1.0) (0.1) (2.8) (0.2) Share Repurchases (3.0) 0.5 (9.0) 2.5 Non-GF Debt 0.7 0.6 2.3 1.2 Other (includes GF A/R & GF Debt) 1.0 0.6 2.9 (2.3) Change in Cash & Marketable Securities $1.1 $1.5 $0.3 $0.7 $ in Billions

 


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17 Sept. 11 Dec. 11 Sept. 12 Cash & Marketable Securities $11.3 $11.9 $12.3 Non-GF Assets* 67.5 69.4 71.2 Global Financing Assets 31.4 35.1 32.3 Total Assets 110.2 116.4 115.8 Other Liabilities 57.6 64.9 60.4 Non-GF Debt* 7.4 8.0 10.3 Global Financing Debt 22.8 23.3 23.3 Total Debt 30.2 31.3 33.7 Total Liabilities 87.8 96.2 94.1 Equity 22.4 20.2 21.7 Non-GF Debt / Capital 28% 32% 36% Global Financing Leverage 7.1 7.2 7.1 Balance Sheet Summary $ in Billions * Includes eliminations of inter-company activity

 


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