Quarterly earnings



IBM reports 2011 first-quarter results

First-Quarter 2011

ARMONK, N.Y., April 19, 2011 . . . IBM (NYSE: IBM) today announced first-quarter 2011 diluted earnings of $2.31 per share, compared with diluted earnings of $1.97 per share in the first quarter of 2010, an increase of 17 percent. Operating (non-GAAP) diluted earnings were $2.41 per share, compared with operating diluted earnings of $2.00 per share in the first quarter of 2010, an increase of 21 percent.

First-quarter net income was $2.9 billion compared with $2.6 billion in the first quarter of 2010, an increase of 10 percent. Operating (non-GAAP) net income was $3.0 billion compared with $2.6 billion in the first quarter of 2010, an increase of 13 percent.

Total revenues for the first quarter of 2011 of $24.6 billion increased 8 percent (5 percent, adjusting for currency) from the first quarter of 2010.

"We delivered a strong first quarter with revenue growth across hardware, software and services and with more than 40 countries growing in double digits. We continued to see excellent momentum in our growth initiatives - smarter planet, cloud, business analytics, and growth markets - which bring together the full value of the IBM portfolio," said Samuel J. Palmisano, IBM chairman, president and chief executive officer. "We achieved broad-based margin improvement, while our cash flow and strong financial position enabled us to continue to return value to our shareholders.

"On the strength of this performance, we are raising our full-year 2011 operating earnings per share expectations to at least $13.15."

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

First-quarter operating (non-GAAP) diluted earnings exclude $0.10 per share of charges: $0.09 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.01 per share for retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.

Full-Year 2011 Expectations

IBM raised its expectations for full-year 2011 GAAP diluted earnings per share to at least $12.73 from at least $12.56; and operating (non-GAAP) diluted earnings per share to at least $13.15 from at least $13.00. The 2011 operating (non-GAAP) earnings exclude $0.42 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' first-quarter revenues were $10.3 billion, an increase of 9 percent (8 percent, adjusting for currency) from the 2010 period. Revenues from Europe/Middle East/Africa were $7.8 billion, up 3 percent (2 percent, adjusting for currency). Asia-Pacific revenues increased 12 percent (4 percent, adjusting for currency) to $5.9 billion. OEM revenues were $600 million, up 13 percent compared with the 2010 first quarter.

Growth Markets

Revenues from the company's growth markets increased 18 percent (12 percent, adjusting for currency). Revenues in the BRIC countries — Brazil, Russia, India and China — increased 26 percent (22 percent, adjusting for currency). Growth markets revenue represents 21 percent of IBM's total geographic revenue for the first quarter.

Services

Total Global Services revenues increased 6 percent (3 percent, adjusting for currency). Global Technology Services segment revenues increased 6 percent (3 percent, adjusting for currency) to $9.9 billion. Global Business Services segment revenues were up 7 percent (3 percent, adjusting for currency) at $4.7 billion.

Global Services pre-tax income increased to $1.9 billion, up 34 percent year over year. Pre-tax income from Global Technology Services increased 29 percent and pre-tax margin increased to 12.2 percent (10 percent and 13.3 percent, respectively, when adjusted for workforce rebalancing charges in the first quarters of 2010 and 2011). Global Business Services pre-tax income increased 44 percent and pre-tax margin increased to 13.0 percent (19 percent and 14.0 percent, respectively, when adjusted for workforce rebalancing charges in the first quarters of 2010 and 2011).

The estimated services backlog at March 31 was $142 billion, up $8 billion year over year at actual rates ($1.5 billion, adjusting for currency).

Software

Revenues from the Software segment were $5.3 billion, an increase of 6 percent (4 percent, adjusting for currency), or 10 percent (8 percent, adjusting for currency) excluding the first-quarter 2010 divestiture of the Product Lifecycle Management operations (PLM), compared with the first quarter of 2010. Software pre-tax income of $1.7 billion was down 18 percent (up 9 percent when adjusted for the gain on the sale of IBM's PLM operations in first-quarter 2010 and for workforce rebalancing charges in the first quarters of 2010 and 2011) year over year.

Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.3 billion, an increase of 16 percent (14 percent, adjusting for currency) versus the first quarter of 2010. Operating systems revenues of $542 million increased 9 percent (7 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products increased 51 percent year over year. Information Management software revenues increased 13 percent. Revenues from Tivoli software increased 8 percent. Revenues from Lotus software increased 1 percent, and Rational software increased 5 percent.

Revenues from the company's business analytics operations across services and software segments increased 20 percent.

Hardware

Revenues from the Systems and Technology segment totaled $4.0 billion for the quarter, up 19 percent (16 percent, adjusting for currency) from the first quarter of 2010. Systems and Technology pre-tax income was $132 million, an increase of $329 million.

Systems revenues increased 18 percent (16 percent, adjusting for currency). Revenues from System z mainframe server products increased 41 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 34 percent. Revenues from Power Systems increased 19 percent compared with the 2010 period. Revenues from System x increased 13 percent. Revenues from System Storage increased 10 percent, and revenues from Retail Store Solutions increased 18 percent year over year. Revenues from Microelectronics OEM increased 23 percent.

Financing

Global Financing segment revenues decreased 4 percent (6 percent, adjusting for currency) in the first quarter to $516 million. Pre-tax income for the segment increased 22 percent to $519 million.

***

The company's total gross profit margin was 44.1 percent in the 2011 first quarter compared with 43.6 percent in the 2010 first-quarter period. Total operating (non-GAAP) gross profit margin was 44.5 percent in the 2011 first quarter compared with 43.7 percent in the 2010 first-quarter period, with increases in Systems and Technology and Software.

Total expense and other income increased 9 percent to $7.0 billion compared with the prior-year period. SG&A expense of $5.8 billion increased 3 percent year over year compared with prior-year expense. RD&E expense of $1.6 billion increased 5 percent compared with the year-ago period. Intellectual property and custom development income increased to $262 million compared with $261 million a year ago. Other (income) and expense was income of $202 million compared with prior-year income of $545 million. Interest expense increased to $93 million compared with $82 million in the prior year.

Total operating (non-GAAP) expense and other income increased 8 percent to $7.0 billion compared with the prior-year period. Operating (non-GAAP) SG&A expense of $5.7 billion increased 2 percent year over year compared with prior-year expense. Operating (non-GAAP) RD&E expense of $1.6 billion increased 4 percent compared with the year-ago period.

Pre-tax income increased 9 percent to $3.8 billion, and pre-tax margin was 15.5 percent, up 0.1 points. Operating (non-GAAP) pre-tax income increased 12 percent to $4.0 billion and pre-tax margin was 16.2 percent, up 0.6 points.

IBM's tax rate was 25.0 percent, down 1 point year over year; operating (non-GAAP) tax rate was also 25.0 percent, down 0.8 points.

Net income margin increased 0.3 points to 11.6 percent. Operating (non-GAAP) net income margin increased 0.6 points to 12.1 percent.

The weighted-average number of diluted common shares outstanding in the first-quarter 2011 was 1.24 billion compared with 1.32 billion shares in the same period of 2010. As of March 31, 2011, there were 1.21 billion basic common shares outstanding.

Debt, including Global Financing, totaled $30.3 billion, compared with $28.6 billion at year-end 2010. From a management segment view, Global Financing debt totaled $23.7 billion versus $22.8 billion at year-end 2010, resulting in a debt-to-equity ratio of 7.0 to 1. Non-global financing debt totaled $6.5 billion, an increase of $712 million since year-end 2010, resulting in a debt-to-capitalization ratio of 25.1 percent from 22.6 percent.

IBM ended the first-quarter 2011 with $13.2 billion of cash on hand and generated free cash flow of $0.8 billion, down approximately $600 million year over year primarily due to net income tax payments. The company returned $4.8 billion to shareholders through $0.8 billion in dividends and $4.0 billion of share repurchases. The balance sheet remains strong, and the company is well positioned to support the business over the long term.

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; breaches of data security; 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 —

The rationale for management's use of non-GAAP measures is included as part of the supplementary materials presented within the first-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 Supplementary 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. Investors may participate by viewing the Webcast at www.ibm.com/investor/1q11. 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 March 31,
                                                    Percent
                                 2011     2010*      Change
                              -------   -------     -------
REVENUE
 
 Global Technology Services    $9,863    $9,306        6.0%
  Gross profit margin            33.8%     34.2%
 
 Global Business Services       4,710     4,410        6.8%
  Gross profit margin            27.4%     27.2%
 
 Software                       5,308     5,018        5.8%
  Gross profit margin            87.0%     85.6%
 
 Systems and Technology         4,019     3,385       18.7%
  Gross profit margin            37.8%     33.1%
 
 Global Financing                 516       537       -4.0%
  Gross profit margin            53.5%     49.8%
 
 Other                            190       200       -4.6%
  Gross profit margin           -93.3%    -45.6%
 
TOTAL REVENUE                  24,607    22,857        7.7%
 
 
GROSS PROFIT                   10,858     9,976        8.8%
  Gross profit margin            44.1%     43.6%
 
 
EXPENSE AND OTHER INCOME
 
 S,G&A                          5,826     5,677        2.6%
  Expense to revenue             23.7%     24.8%
 
 R,D&E                          1,587     1,509        5.2%
  Expense to revenue              6.4%      6.6%
 
 Intellectual property
  and custom development
  income                         (262)     (261)       0.3%
 Other (income) and expense      (202)     (545)     -62.9%
 Interest expense                  93        82       13.1%
 
TOTAL EXPENSE AND
OTHER INCOME                    7,041     6,462        9.0%
  Expense to revenue             28.6%     28.3%
 
INCOME BEFORE
INCOME TAXES                    3,817     3,515        8.6%
  Pre-tax margin                 15.5%     15.4%
 
Provision for
income taxes                      954       914        4.4%
  Effective tax rate             25.0%     26.0%
 
NET INCOME                     $2,863    $2,601       10.1%
                               ======    ======
  Net income margin              11.6%     11.4%
 
EARNINGS PER SHARE
OF COMMON STOCK:
  ASSUMING DILUTION             $2.31     $1.97       17.3%
  BASIC                         $2.34     $2.00       17.0%
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING(M's):
  ASSUMING DILUTION           1,240.0   1,321.6
  BASIC                       1,222.2   1,301.2
 
* Segment gross profit margins in 2010 reclassified to 
  conform with 2011 presentation.
 

                  INTERNATIONAL BUSINESS MACHINES CORPORATION
                  CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                  (Unaudited)
 
                                                             At 	    At
(Dollars in Millions)                                     March 31,    December 31,
                                                            2011           2010
                                                       ------------   -------------
ASSETS
 
Current Assets:
Cash and cash equivalents                                   $12,763         $10,661
Marketable securities                                           482             990
Notes and accounts receivable - trade
    (net of allowances of $328 in 2011 and $324 in 2010)     10,148          10,834
Short-term financing receivables
    (net of allowances of $318 in 2011 and $342 in 2010)     14,365          16,257
Other accounts receivable
    (net of allowances of $12 in 2011 and $10 in 2010)        1,145           1,134
Inventories, at lower of average cost or market:
  Finished goods                                                548             432
  Work in process and raw materials                           2,001           2,018
                                                      -------------   -------------
Total inventories                                             2,549           2,450
Deferred taxes                                                1,695           1,564
Prepaid expenses and other current assets                     4,376           4,226
                                                      -------------   -------------
Total Current Assets                                         47,524          48,116
 
Plant, rental machines, and other property                   40,765          40,289
   Less: Accumulated depreciation                            26,557          26,193
                                                      -------------   -------------
Plant, rental machines, and other property - net             14,208          14,096
Long-term financing receivables
    (net of allowances of $39 in 2011 and $58 in 2010)       10,254          10,548
Prepaid pension assets                                        3,788           3,068
Deferred taxes                                                3,076           3,220
Goodwill                                                     25,408          25,136
Intangible assets - net                                       3,324           3,488
Investments and sundry assets                                 5,380           5,778
                                                      -------------   -------------
Total Assets                                               $112,960        $113,452
                                                      =============   =============
LIABILITIES AND EQUITY
 
Current Liabilities:
Taxes                                                        $2,531          $4,216
Short-term debt                                               8,508           6,778
Accounts payable                                              6,747           7,804
Compensation and benefits                                     4,446           5,028
Deferred income                                              12,820          11,580
Other accrued expenses and liabilities                        5,336           5,156
                                                      -------------   -------------
Total Current Liabilities                                    40,387          40,562
 
Long-term debt                                               21,749          21,846
Retirement and nonpension postretirement
   benefit obligations                                       15,995          15,978
Deferred income                                               3,724           3,666
Other liabilities                                             8,330           8,226
                                                      -------------   -------------
Total Liabilities                                            90,185          90,279

Equity:
IBM Stockholders' Equity:
  Common stock                                               46,278          45,418
  Retained earnings                                          94,590          92,532
  Treasury stock -- at cost                                (100,078)        (96,161)
  Accumulated other comprehensive income/(loss)             (18,119)        (18,743)
                                                      -------------   -------------
  Total IBM stockholders' equity                             22,671          23,046
 
Noncontrolling interests                                        104             126
                                                      -------------   -------------
Total Equity                                                 22,776          23,172
                                                      -------------   -------------
Total Liabilities and Equity                               $112,960        $113,452
                                                      =============   =============

 
         INTERNATIONAL BUSINESS MACHINES CORPORATION
                    CASH FLOW ANALYSIS
                        (Unaudited)
 
 
(Dollars in Millions)                          Three Months Ended
                                                     March 31,
                                                   2011      2010
                                               --------   ------- 
Net Cash from Operating Activities per GAAP:     $3,792    $4,437
 
     Less: the change in Global Financing (GF)
           receivables                            1,936     2,101
 
Net Cash from Operating Activities
    (Excluding GF receivables)                    1,856     2,335
 
     Capital expenditures, net                   (1,058)     (904)
 
Free Cash Flow
    (Excluding GF receivables)                      798     1,432
 
     Acquisitions                                   (51)     (824)
     Share repurchase                            (4,045)   (4,017)
     Dividends                                     (795)     (718)
     Non-GF debt                                  1,027       341
     Other (includes GF receivables, GF debt)     4,660     3,789
 
Change in Cash, Cash Equivalents and 
Short-term Marketable Securities                 $1,594        $3



               INTERNATIONAL BUSINESS MACHINES CORPORATION
                              SEGMENT DATA
                              (Unaudited)
 
 
                                         FIRST-QUARTER 2011
                          -------------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/   Pre-tax
                            External Internal     Total    (Loss)    Margin
                            -------- --------   ------- ---------   -------
SEGMENTS
 
Global Technology Services   $9,863     $307   $10,170    $1,238      12.2%
  Y-T-Y change                  6.0%    -4.1%      5.7%     29.3%
 
Global Business Services      4,710      200     4,910       640      13.0%
  Y-T-Y change                  6.8%    -1.5%      6.4%     43.6%
 
Software                      5,308      830     6,138     1,735      28.3%
  Y-T-Y change                  5.8%     9.5%      6.3%    -18.4%
 
Systems and Technology        4,019      244     4,263       132       3.1%
  Y-T-Y change                 18.7%    40.7%     19.8%      nm
 
Global Financing                516      497     1,013       519      51.3%
  Y-T-Y change                 -4.0%    23.3%      7.7%     21.5%
 
TOTAL REPORTABLE SEGMENTS    24,416    2,078    26,494     4,264      16.1%
  Y-T-Y change                  7.8%    11.8%      8.1%     13.4%
 
Eliminations / Other            190   (2,078)   (1,887)     (447)
 
TOTAL IBM CONSOLIDATED      $24,607       $0   $24,607    $3,817      15.5%
  Y-T-Y change                  7.7%               7.7%      8.6%

nm = not meaningful 
 
                                         FIRST-QUARTER 2010
                          -------------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/   Pre-tax
                            External Internal     Total    (Loss)*   Margin*
                            -------- --------   ------- ---------   -------
SEGMENTS
 
Global Technology Services   $9,306     $320    $9,626      $957       9.9%
 
Global Business Services      4,410      203     4,613       445       9.7%
 
Software                      5,018      758     5,776     2,127      36.8%
 
Systems and Technology        3,385      173     3,559      (197)     -5.5%
 
Global Financing                537      403       941       427      45.4%
 
TOTAL REPORTABLE SEGMENTS    22,657    1,858    24,515     3,760      15.3%
 
Eliminations / Other            200   (1,858)   (1,658)     (245)**
 
TOTAL IBM CONSOLIDATED      $22,857       $0   $22,857    $3,515      15.4%
 
*  Reclassified to conform with 2011 presentation.
** Includes acquisition-related and non-operating retirement-related cost.


                   INTERNATIONAL BUSINESS MACHINES CORPORATION
                  U.S. GAAP TO OPERATING RESULTS RECONCILIATION
             (Unaudited, Dollars in millions except per share amounts)
 
 
                                               FIRST-QUARTER 2011
                                -----------------------------------------------
                                        Acquisition-  Retirement-
                                           Related       Related      Operating
                                  GAAP   Adjustments   Adjustments   (Non-GAAP)
                                -------- ------------ ------------- -----------
Gross Profit                     $10,858          $85           $14     $10,957
 
Gross Profit Margin                 44.1%      0.3Pts        0.1Pts        44.5%
 
S,G&A                              5,826          (76)          (10)      5,740
 
R,D&E                              1,587            0            19       1,606
 
Total Expense & Other Income       7,041          (80)           10       6,971
 
Pre-Tax Income                     3,817          165             4       3,986
 
Pre-Tax Income Margin               15.5%      0.7Pts        0.0Pts        16.2%
 
Provision for Income Taxes           954           48            (6)        997
 
Effective Tax Rate                  25.0%      0.2Pts       -0.2Pts        25.0%
 
Net Income                         2,863          117            10       2,990
 
Net Income Margin                   11.6%      0.5Pts        0.0Pts        12.1%
 
Diluted Earnings Per Share         $2.31        $0.09         $0.01       $2.41
 

                                               FIRST-QUARTER 2010
                                -----------------------------------------------
                                         Acquisition-  Retirement-
                                           Related       Related      Operating
                                  GAAP   Adjustments   Adjustments   (Non-GAAP)
                                -------- ------------ ------------- ----------- 
  
Gross Profit                      $9,976          $55         ($35)      $9,996
 
Gross Profit Margin                 43.6%      0.2Pts      -0.2Pts         43.7%
 
S,G&A                              5,677          (61)          10        5,626
 
R,D&E                              1,509            0           30        1,539
 
Total Expense & Other Income       6,462          (61)          40        6,441
 
Pre-Tax Income                     3,515          116          (76)       3,556
 
Pre-Tax Income Margin               15.4%      0.5Pts      -0.3Pts         15.6%
  
Provision for Income Taxes           914           34          (31)         917
 
Effective Tax Rate                  26.0%      0.1Pts      -0.3Pts         25.8%
 
Net Income                         2,601           82          (45)       2,638
 
Net Income Margin                   11.4%      0.4Pts      -0.2Pts         11.5%
 
Diluted Earnings Per Share         $1.97        $0.06       ($0.03)       $2.00