Q1

Quarterly earnings



IBM reports 2012 first-quarter results

First-Quarter 2012

ARMONK, N.Y., April 17, 2012 . . . IBM (NYSE: IBM) today announced first-quarter 2012 diluted earnings of $2.61 per share, compared with diluted earnings of $2.31 per share in the first quarter of 2011, an increase of 13 percent. Operating (non-GAAP) diluted earnings were $2.78 per share, compared with operating diluted earnings of $2.41 per share in the first quarter of 2011, an increase of 15 percent.

First-quarter net income was $3.1 billion compared with $2.9 billion in the first quarter of 2011, an increase of 7 percent. Operating (non-GAAP) net income was $3.3 billion compared with $3.0 billion in the first quarter of 2011, an increase of 9 percent.

Total revenues for the first quarter of 2012 of $24.7 billion were flat (up 1 percent, adjusting for currency) from the first quarter of 2011.

"In the first quarter, we drove strong profit and earnings per share growth. We delivered another excellent software performance, expanded services margins, and continued the momentum in our growth initiatives," said Ginni Rometty, IBM president and chief executive officer. "Our investments in growth market countries continued to generate strong revenue growth across software, hardware and services while contributing to the company's ongoing margin expansion.

"Based on this performance, we are raising our 2012 full-year operating earnings per share expectations to at least $15.00."

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

First-quarter operating (non-GAAP) diluted earnings exclude $0.17 per share of charges: $0.11 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.06 per share for retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance

Full-Year 2012 Expectations

IBM raised its expectations for full-year 2012 GAAP diluted earnings per share to at least $14.27 from at least $14.16; and operating (non-GAAP) diluted earnings per share to at least $15.00 from at least $14.85. The 2012 operating (non-GAAP) earnings expectations exclude $0.73 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 $10.5 billion, an increase of 1 percent (up 2 percent, adjusting for currency) from the 2011 period. Revenues from Europe/Middle East/Africa were $7.6 billion, down 2 percent (up 1 percent, adjusting for currency). Asia-Pacific revenues increased 4 percent (up 1 percent, adjusting for currency) to $6.1 billion. OEM revenues were $509 million, down 17 percent compared with the 2011 first quarter.

Growth Markets

Revenues from the company's growth markets increased 9 percent (up 9 percent, adjusting for currency) and 40 countries had double digit revenue growth at constant currency. Revenues in the BRIC countries - Brazil, Russia, India and China - increased 10 percent (up 11 percent, adjusting for currency).

Services

Global Technology Services segment revenues increased 2 percent (up 3 percent, adjusting for currency) to $10.0 billion. Global Business Services segment revenues were down 2 percent (down 1 percent, adjusting for currency) to $4.6 billion.

Pre-tax income from Global Technology Services increased 20 percent and pre-tax margin increased to 14.3 percent. Global Business Services pre-tax income decreased 6 percent and pre-tax margin decreased to 12.5 percent.

The estimated services backlog at March 31 was $139 billion, down 2 percent year over year at actual rates (up 1 percent, adjusting for currency). Services backlog at the end of a quarter measures the current value of work under contract expected to be recognized as revenue in future quarters.

Software

Revenues from the Software segment were $5.6 billion, an increase of 5 percent (up 7 percent, adjusting for currency) compared with the first quarter of 2011. Software pre-tax income increased 12 percent and pre-tax margin increased to 30.2 percent.

Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.5 billion, an increase of 7 percent (up 8 percent, adjusting for currency) versus the first quarter of 2011. Operating systems revenues of $590 million increased 9 percent (up 10 percent, adjusting for currency) compared with the prior-year quarter.

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

Revenues from the company's business analytics operations across services, software and hardware segments increased 14 percent.

Hardware

Revenues from the Systems and Technology segment totaled $3.7 billion for the quarter, down 7 percent (down 6 percent, adjusting for currency) from the first quarter of 2011. Systems and Technology pre-tax income decreased $236 million.

Total systems revenues decreased 6 percent (down 6 percent, adjusting for currency). Revenues from Power Systems were flat compared with the 2011 period. Revenues from System x were also flat. Revenues from System z mainframe server products decreased 25 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 5 percent. Revenues from System Storage decreased 4 percent, and revenues from Retail Store Solutions decreased 13 percent year over year. Revenues from Microelectronics OEM decreased 13 percent.

Financing

Global Financing segment revenues decreased 5 percent (down 4 percent, adjusting for currency) in the first quarter to $490 million. Pre-tax income for the segment decreased 1 percent to $512 million.

***

The company's total gross profit margin was 45.1 percent in the 2012 first quarter compared with 44.1 percent in the 2011 first-quarter period. Total operating (non-GAAP) gross profit margin was 45.7 percent in the 2012 first quarter compared with 44.5 percent in the 2011 first-quarter period, with increases in Global Technology Services and Global Business Services.

Total expense and other income increased 3 percent to $7.3 billion compared with the prior-year period. S,G&A expense of $5.9 billion increased 1 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 $255 million compared with $262 million a year ago. Other (income) and expense was income of $58 million compared with prior-year income of $202 million. Interest expense increased to $110 million compared with $93 million in the prior year.

Total operating (non-GAAP) expense and other income increased 3 percent to $7.2 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $5.8 billion was flat 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 of $3.8 billion and pre-tax margin of 15.5 percent were flat compared with the prior-year period. Operating (non-GAAP) pre-tax income increased 3 percent to $4.1 billion and pre-tax margin was 16.7 percent, up 0.5 points.

IBM's tax rate was 20.1 percent, down 4.9 points year over year; operating (non-GAAP) tax rate was 20.6 percent, down 4.4 points. The lower tax rate was due to a one-time benefit associated with a tax restructuring in Latin America. The benefit offset the company's first-quarter workforce rebalancing expense, similar to first-quarter 2011 when a one-time gain from asset sales offset workforce rebalancing expenses. The company expects its full-year 2012 effective tax rate on a GAAP and operating (non-GAAP) basis to be in the range of 24 percent; and excluding the one-time benefit in the first quarter, the rate is expected to be in the range of 25 percent.

Net income margin increased 0.8 points to 12.4 percent. Total operating (non-GAAP) net income margin increased 1.1 points to 13.2 percent.

The weighted-average number of diluted common shares outstanding in the first-quarter 2012 was 1.17 billion compared with 1.24 billion shares in the same period of 2011. As of March 31, 2012, there were 1.15 billion basic common shares outstanding.

Debt, including Global Financing, totaled $32.1 billion, compared with $31.3 billion at year-end 2011. From a management segment view, Global Financing debt totaled $23.6 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 $8.5 billion, an increase of $469 million since year-end 2011, resulting in a debt-to-capitalization ratio of 32.7 percent from 32.0 percent.

IBM ended the first-quarter 2012 with $12.3 billion of cash on hand and generated free cash flow of $1.9 billion, excluding Global Financing receivables, up approximately $1.1 billion year over year. The company returned $3.9 billion to shareholders through $0.9 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.

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 —

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/1q12. 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
                                 2012     2011       Change
                              -------   -------     -------
REVENUE
 
 Global Technology Services   $10,035    $9,863        1.7%
  Gross profit margin            35.3%     33.8%
 
 Global Business Services       4,637     4,710       -1.5%
  Gross profit margin            28.0%     27.4%
 
 Software                       5,600     5,308        5.5%
  Gross profit margin            87.0%     87.0%
 
 Systems and Technology         3,749     4,019       -6.7%
  Gross profit margin            34.2%     37.8%
 
 Global Financing                 490       516       -5.1%
  Gross profit margin            50.7%     53.5%
 
 Other                            162       190      -14.9%
  Gross profit margin           -74.8%    -93.3%
 
TOTAL REVENUE                  24,673    24,607        0.3%
 
 
GROSS PROFIT                   11,118    10,858        2.4%
  Gross profit margin            45.1%     44.1%
 
 
EXPENSE AND OTHER INCOME
 
 S,G&A                          5,886     5,826        1.0%
  Expense to revenue             23.9%     23.7%
 
 R,D&E                          1,601     1,587        0.9%
  Expense to revenue              6.5%      6.4%
 
 Intellectual property
  and custom development
  income                         (255)     (262)      -2.5%
 Other (income) and expense       (58)     (202)     -71.2%
 Interest expense                 110        93       17.7%
  
TOTAL EXPENSE AND
OTHER INCOME                    7,283     7,041        3.4%
  Expense to revenue             29.5%     28.6%
 
INCOME BEFORE
INCOME TAXES                    3,836     3,817        0.5%
  Pre-tax margin                 15.5%     15.5%
 
Provision for
income taxes                      769       954      -19.4%
  Effective tax rate             20.1%     25.0%
 
NET INCOME                     $3,066    $2,863        7.1%
                               ======    ======
  Net income margin              12.4%     11.6%
 
EARNINGS PER SHARE
OF COMMON STOCK:
  ASSUMING DILUTION             $2.61     $2.31       13.0%
  BASIC                         $2.65     $2.34       13.2%
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING(M's):
  ASSUMING DILUTION           1,174.2   1,240.0
  BASIC                       1,159.1   1,222.2
 

 

                     INTERNATIONAL BUSINESS MACHINES CORPORATION
                     CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                  (Unaudited)
 
                                                             At 	    At
(Dollars in Millions)                                     March 31,    December 31,
                                                            2012           2011
                                                       ------------   -------------
ASSETS
 
Current Assets:
Cash and cash equivalents                                   $11,835         $11,922
Marketable securities                                           500             -- 
Notes and accounts receivable - trade
    (net of allowances of $272 in 2012 and $256 in 2011)     10,012          11,179
Short-term financing receivables
    (net of allowances of $282 in 2012 and $311 in 2011)     15,160          16,901
Other accounts receivable
    (net of allowances of $9 in 2012 and $11 in 2011)         1,669           1,481
Inventories, at lower of average cost or market:
  Finished goods                                                696             589
  Work in process and raw materials                           2,058           2,007
                                                      -------------   -------------
Total inventories                                             2,754           2,595
Deferred taxes                                                1,617           1,601
Prepaid expenses and other current assets                     5,299           5,249
                                                      -------------   -------------
Total Current Assets                                         48,847          50,928
 
Property, plant and equipment                                40,441          40,124
   Less: Accumulated depreciation                            26,496          26,241
                                                      -------------   -------------
Property, plant and equipment - net                          13,946          13,883
Long-term financing receivables
    (net of allowances of $58 in 2012 and $38 in 2011)       10,549          10,776
Prepaid pension assets                                        2,974           2,843
Deferred taxes                                                3,100           3,503
Goodwill                                                     27,468          26,213
Intangible assets - net                                       3,641           3,392
Investments and sundry assets                                 4,822           4,895
                                                      -------------   -------------
Total Assets                                               $115,347        $116,433
                                                      =============   =============
LIABILITIES AND EQUITY
 
Current Liabilities:
Taxes                                                        $2,184          $3,313
Short-term debt                                               6,293           8,463	
Accounts payable                                              7,416           8,517
Compensation and benefits                                     4,370           5,099
Deferred income                                              13,269          12,197
Other accrued expenses and liabilities                        4,677           4,535
                                                      -------------   -------------
Total Current Liabilities                                    38,209          42,123
 
Long-term debt                                               25,760          22,857
Retirement and nonpension postretirement
   benefit obligations                                       17,579          18,374
Deferred income                                               3,904           3,847
Other liabilities                                             9,112           8,996
                                                      -------------   -------------
Total Liabilities                                            94,563          96,197

Equity:
IBM Stockholders' Equity:
  Common stock                                               48,800          48,129
  Retained earnings                                         107,036         104,857
  Treasury stock -- at cost                                (114,020)       (110,963)
  Accumulated other comprehensive income/(loss)             (21,115)        (21,885)
                                                      -------------   -------------
  Total IBM stockholders' equity                             20,701          20,138
 
Noncontrolling interests                                         82              97
                                                      -------------   -------------
Total Equity                                                 20,783          20,236
                                                      -------------   -------------
Total Liabilities and Equity                               $115,347        $116,433        
                                                      =============   =============

 
          INTERNATIONAL BUSINESS MACHINES CORPORATION
                        CASH FLOW ANALYSIS
                           (Unaudited)
 
 
(Dollars in Millions)                          Three Months Ended
                                                     March 31,
                                                   2012      2011
                                               --------   ------- 
Net Cash from Operating Activities per GAAP:     $4,291    $3,792
 
     Less: the change in Global Financing (GF)
           Receivables                            1,424     1,936
                                               --------   ------- 

Net Cash from Operating Activities
    (Excluding GF Receivables)                    2,867     1,856
 
     Capital Expenditures, Net                   (1,002)   (1,058)
 
Free Cash Flow
    (Excluding GF Receivables)                    1,865       798
 
     Acquisitions                                (1,319)      (51)
     Dividends                                     (870)     (795)
     Share Repurchase                            (3,015)   (4,045)
     Non-GF Debt                                    657     1,027
     Other (includes GF Receivables, GF Debt)     3,094     4,660
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities                   $413    $1,594
                                                 ======    ======


                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                                SEGMENT DATA
                                (Unaudited)
 
 
                                         FIRST-QUARTER 2012
                          -------------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/   Pre-tax
                            External Internal     Total    (Loss)    Margin
                            -------- --------   ------- ---------   -------
SEGMENTS
 
Global Technology Services  $10,035     $293   $10,328    $1,480      14.3%
  % change                      1.7%    -4.6%      1.6%     19.6%
 
Global Business Services      4,637      182     4,820       601      12.5%
  % change                     -1.5%    -8.8%     -1.8%     -6.1%
 
Software                      5,600      840     6,439     1,945      30.2%
  % change                      5.5%     1.2%      4.9%     12.1%
 
Systems and Technology        3,749      151     3,900      (105)     -2.7%
  % change                     -6.7%   -38.2%     -8.5%      NM
 
Global Financing                490      485       975       512      52.6%
  % change                     -5.1%    -2.5%     -3.8%     -1.3%
 
TOTAL REPORTABLE SEGMENTS   $24,511   $1,951   $26,462    $4,434      16.8%
  % change                      0.4%    -6.1%     -0.1%      4.0% 
 
Eliminations / Other            162   (1,951)   (1,789)     (598)       
 
TOTAL IBM CONSOLIDATED      $24,673       $0   $24,673    $3,836      15.5%
  % change                      0.3%               0.3%      0.5%

NM - Not Meaningful

 
 
                                         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%
 
Global Business Services      4,710      200     4,910       640      13.0%
 
Software                      5,308      830     6,138     1,735      28.3%
 
Systems and Technology        4,019      244     4,263       132       3.1%
 
Global Financing                516      497     1,013       519      51.3%
 
TOTAL REPORTABLE SEGMENTS   $24,416   $2,078   $26,494    $4,264      16.1%
 
Eliminations / Other            190   (2,078)   (1,887)     (447)
 
TOTAL IBM CONSOLIDATED      $24,607       $0   $24,607    $3,817      15.5%
 

                   INTERNATIONAL BUSINESS MACHINES CORPORATION 
                  U.S. GAAP TO OPERATING RESULTS RECONCILIATION
                 (Unaudited; Dollars in millions except per share amounts)



                                               FIRST-QUARTER 2012
                                -----------------------------------------------
                                          Acquisition-  Retirement-
                                            Related       Related      Operating
                                  GAAP    Adjustments*  Adjustments** (Non-GAAP)
                                -------- ------------  ------------   ----------
Gross Profit                     $11,118          $89          $71      $11,278
 
Gross Profit Margin                 45.1%      0.4Pts       0.3Pts         45.7%
  
S,G&A                              5,886          (84)         (36)       5,766
 
R,D&E                              1,601            0            4        1,605
  
Other (Income) & Expense             (58)          (1)           0          (59)

Total Expense & Other (Income)     7,283          (85)         (32)       7,166
 
Pre-Tax Income                     3,836          173          102        4,111
 
Pre-Tax Income Margin               15.5%      0.7Pts       0.4Pts         16.7%
  
Provision for Income Taxes***        769           47           30          846
 
Effective Tax Rate                  20.1%      0.3Pts       0.2Pts         20.6%
 
Net Income                         3,066          126           73        3,265
 
Net Income Margin                   12.4%      0.5Pts       0.3Pts         13.2%
 
Diluted Earnings Per Share         $2.61        $0.11        $0.06        $2.78



                                               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
 
Other (Income) & Expense            (202)          (4)           0         (206)

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


*  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