Skip to main content

Quarterly earnings

Second-Quarter Results Announcement

IBM REPORTS 2011 SECOND-QUARTER RESULTS

ARMONK, N.Y., July 18, 2011 . . . IBM (NYSE: IBM) today announced second-quarter 2011 diluted earnings of $3.00 per share, compared with diluted earnings of $2.61 per share in the second quarter of 2010, an increase of 15 percent. Operating (non-GAAP) diluted earnings were $3.09 per share, compared with operating diluted earnings of $2.62 per share in the second quarter of 2010, an increase of 18 percent.

Second-quarter net income was $3.7 billion compared with $3.4 billion in the second quarter of 2010, an increase of 8 percent. Operating (non-GAAP) net income was $3.8 billion compared with $3.4 billion in the second quarter of 2010, an increase of 11 percent.

Total revenues for the second quarter of 2011 of $26.7 billion increased 12 percent (5 percent, adjusting for currency) from the second quarter of 2010.

"In the second quarter our long-term strategic investments in the company's growth initiatives again helped drive strong revenue performance," said Samuel J. Palmisano, IBM chairman, president and chief executive officer. "Hardware, software and services revenue grew at double digits, and we achieved strong profit and free cash flow growth.

"As IBM begins its second century, we continue a process of transformation, positioning the company to lead in the future and deliver higher value to our clients and our shareholders. Given our strong start to 2011, we are raising our full-year operating earnings per share expectations to at least $13.25."

Second-Quarter GAAP - Operating (non-GAAP) Reconciliation

Second-quarter operating (non-GAAP) diluted earnings exclude $0.09 per share of net charges: $0.10 per share for the amortization of purchased intangible assets and other acquisition-related charges, offset by ($0.01) per share for retirement-related items 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 $12.87 from at least $12.73; and operating (non-GAAP) diluted earnings per share to at least $13.25 from at least $13.15. The 2011 operating (non-GAAP) earnings exclude $0.38 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

Geographic Regions

The Americas' second-quarter revenues were $11.2 billion, an increase of 10 percent (8 percent, adjusting for currency) from the 2010 period. Revenues from Europe/Middle East/Africa were $8.6 billion, up 16 percent (3 percent, adjusting for currency). Asia-Pacific revenues increased 14 percent (3 percent, adjusting for currency) to $6.2 billion. OEM revenues were $674 million, flat (down 1 percent, adjusting for currency) compared with the 2010 second quarter.

Growth Markets

Revenues from the company's growth markets increased 23 percent (13 percent, adjusting for currency). Revenues in the BRIC countries -- Brazil, Russia, India and China -- increased 27 percent (21 percent, adjusting for currency). Growth markets revenue represents 22 percent of IBM's total geographic revenue for the second quarter.

Services

Total Global Services revenues increased 10 percent (2 percent, adjusting for currency). Global Technology Services segment revenues increased 11 percent (3 percent, adjusting for currency) to $10.2 billion. Global Business Services segment revenues were up 9 percent (1 percent, adjusting for currency) at $4.9 billion.

Global Services pre-tax income increased to $2.2 billion, up 4 percent year over year. Pre-tax income from Global Technology Services increased 1 percent; pre-tax income growth was reduced by 7 points as a result of increased workforce rebalancing expenses. Global Business Services pre-tax income increased 11 percent.

The estimated services backlog at June 30 was $144 billion, up $15 billion year over year at actual rates ($2 billion, 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 $6.2 billion, an increase of 17 percent (10 percent, adjusting for currency). Software pre-tax income of $2.3 billion was up 12 percent year over year.

Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.9 billion, an increase of 21 percent (14 percent, adjusting for currency) versus the second quarter of 2010. Operating systems revenues of $630 million increased 16 percent (9 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products increased 55 percent year over year. Information Management software revenues increased 18 percent. Revenues from Tivoli software increased 9 percent. Revenues from Lotus software increased 12 percent, and Rational software increased 4 percent.

Hardware

Revenues from the Systems and Technology segment totaled $4.7 billion for the quarter, up 17 percent (12 percent, adjusting for currency) from the second quarter of 2010. Systems and Technology pre-tax income was $393 million, an increase of 112 percent year over year.

Systems revenues increased 20 percent (13 percent, adjusting for currency). Revenues from System z mainframe server products increased 61 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 86 percent. Revenues from Power Systems increased 12 percent compared with the 2010 period. Revenues from System x increased 15 percent. Revenues from System Storage increased 10 percent, and revenues from Retail Store Solutions increased 8 percent year over year. Revenues from Microelectronics OEM increased 4 percent.

Financing

Global Financing segment revenues decreased 5 percent (11 percent, adjusting for currency) in the second quarter to $519 million. Pre-tax income for the segment increased 7 percent to $496 million.

***

The company's total gross profit margin was 46.4 percent in the 2011 second quarter compared with 45.6 percent in the 2010 second-quarter period. Total operating (non-GAAP) gross profit margin was 46.8 percent in the 2011 second quarter compared with 45.6 percent in the 2010 second-quarter period, with increases in Systems and Technology, Global Business Services and Software.

Total expense and other income increased 20 percent to $7.5 billion compared with the prior-year period. SG&A expense of $6.0 billion increased 19 percent compared with prior-year expense. RD&E expense of $1.6 billion increased 6 percent compared with the year-ago period. Intellectual property and custom development income decreased to $295 million compared with $297 million a year ago. Other (income) and expense was expense of $97 million compared with prior-year income of $95 million. Interest expense increased to $97 million compared with $90 million in the prior year.

Total operating (non-GAAP) expense and other income increased 20 percent to $7.4 billion compared with the prior-year period. Operating (non-GAAP) SG&A expense of $5.9 billion increased 18 percent year over year compared with prior-year expense. Operating (non-GAAP) RD&E expense of $1.6 billion increased 6 percent compared with the year-ago period.

Pre-tax income increased 7 percent to $4.9 billion, and pre-tax margin was 18.3 percent, down 1.0 points. Operating (non-GAAP) pre-tax income increased 10 percent to $5.0 billion and pre-tax margin was 18.9 percent, down 0.4 points.

IBM's tax rate was 25.0 percent, down 1.0 points year over year; operating (non-GAAP) tax rate was also 25.0 percent, down 0.8 points.

Net income margin decreased 0.5 points to 13.7 percent. Operating (non-GAAP) net income margin decreased 0.2 points to 14.2 percent.

The weighted-average number of diluted common shares outstanding in the second-quarter 2011 was 1.22 billion compared with 1.30 billion shares in the same period of 2010. As of June 30, 2011, there were 1.19 billion basic common shares outstanding.

Debt, including Global Financing, totaled $29.8 billion, compared with $28.6 billion at year-end 2010. From a management segment view, Global Financing debt totaled $23.4 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 $6.4 billion, an increase of $581 million since year-end 2010, resulting in a debt-to-capitalization ratio of 24.3 percent from 22.6 percent.

IBM ended the second-quarter 2011 with $11.8 billion of cash on hand and generated free cash flow of $3.4 billion, up approximately $350 million year over year. The company returned $4.9 billion to shareholders through $0.9 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.

Year-To-Date 2011 Results

Net income for the six months ended June 30, 2011 was $6.5 billion compared with $6.0 billion in the year-ago period, an increase of 9 percent. Diluted earnings per share were $5.30 compared with $4.57 per diluted share for the 2010 period, an increase of 16 percent. Revenues for the six-month period totaled $51.3 billion, an increase of 10 percent (5 percent, adjusting for currency) compared with $46.6 billion for the six months of 2010.

Operating (non-GAAP) net income for the six months ended June 30, 2011 was $6.8 billion compared with $6.0 billion in the year-ago period, an increase of 12 percent. Operating (non-GAAP) diluted earnings per share were $5.50 compared with $4.61 per diluted share for the 2010 period, an increase of 19 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; 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 second-quarter earnings materials. These materials are available on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II ("Non-GAAP 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/2q11. Presentation charts will be available on the Web site shortly before the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).



                INTERNATIONAL BUSINESS MACHINES CORPORATION
                       COMPARATIVE FINANCIAL RESULTS
          (Unaudited; Dollars in millions except per share amounts)
 
                        Three Months Ended          Six Months Ended
                             June 30,                   June 30,                                      
                                      Percent                    Percent
                       2011     2010*  Change     2011     2010*  Change
                    -------  -------  -------  -------  -------  -------
REVENUE
 
 Global Technology
 Services           $10,241   $9,234     10.9% $20,104  $18,540      8.4%
  Gross margin         34.0%    34.3%             33.9%    34.3%
 
 Global Business
 Services             4,866    4,483      8.5%   9,575    8,893      7.7%
  Gross margin         28.9%    28.2%             28.2%    27.7%
 
 Software             6,169    5,277     16.9%  11,478   10,296     11.5%
  Gross margin         88.4%    88.1%             87.8%    86.8%
 
 Systems and
 Technology           4,681    3,985     17.5%   8,700    7,370     18.0%
  Gross margin         40.6%    35.7%             39.3%    34.5%
 
 Global Financing       519      544     -4.6%   1,035    1,081     -4.3%
  Gross margin         48.7%    50.1%             51.1%    50.0%
 
 Other                  191      200     -4.8%     381      400     -4.7%
  Gross margin        -57.7%    16.4%            -75.5%   -14.6%
 
TOTAL REVENUE        26,666   23,724     12.4%  51,273   46,581     10.1%
 
 
GROSS PROFIT         12,385   10,809     14.6%  23,243   20,785     11.8%
  Gross margin         46.4%    45.6%             45.3%    44.6%
 
 
EXPENSE AND OTHER INCOME
 
 S,G&A                6,030    5,061     19.2%  11,856   10,737     10.4%
  % of revenue         22.6%    21.3%             23.1%    23.1%
 
 R,D&E                1,569    1,475      6.4%   3,156    2,984      5.8%
  % of revenue          5.9%     6.2%              6.2%     6.4%
 
 Intellectual property
  and custom development
  income               (295)    (297)    -0.8%    (557)    (558)    -0.3%
 Other (income)
   and expense           97      (95)      NM     (105)    (640)   -83.6%
 Interest expense        97       90      8.3%     190      172     10.6%
 
TOTAL EXPENSE AND
OTHER INCOME          7,500    6,234     20.3%  14,541   12,695     14.5%
  % of revenue         28.1%    26.3%             28.4%    27.3%
 
INCOME BEFORE
INCOME TAXES          4,885    4,575      6.8%   8,702    8,090      7.6%
  Pre-tax margin       18.3%    19.3%             17.0%    17.4%
 
Provision for
income taxes          1,221    1,190      2.7%   2,175    2,103      3.4%
  Effective tax
  rate                 25.0%    26.0%             25.0%    26.0%
 
 
NET INCOME           $3,664   $3,386      8.2%  $6,526   $5,987      9.0%
                     ======   ======            ======   ======
  Net margin           13.7%    14.3%             12.7%    12.9%
 
 
EARNINGS PER SHARE
OF COMMON STOCK:
 ASSUMING DILUTION    $3.00    $2.61     14.9%   $5.30    $4.57     16.0%
 BASIC                $3.04    $2.65     14.7%   $5.38    $4.64     15.9%
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES OUT-
STANDING (M's):
  ASSUMING DILUTION 1,221.4  1,296.7           1,230.7  1,309.2
  BASIC             1,204.8  1,278.6           1,213.5  1,289.9

NM -- Not Meaningful

* 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)                                     June 30,    December 31,
                                                            2011           2010
                                                       ------------   -------------
ASSETS
 
Current Assets:
Cash and cash equivalents                                   $11,714         $10,661
Marketable securities                                            50             990
Notes and accounts receivable - trade
    (net of allowances of $305 in 2011 and $324 in 2010)     10,539          10,834
Short-term financing receivables
    (net of allowances of $286 in 2011 and $342 in 2010)     14,715          16,257
Other accounts receivable
    (net of allowances of $12 in 2011 and $10 in 2010)        1,127           1,134
Inventories, at lower of average cost or market:
  Finished goods                                                560             432
  Work in process and raw materials                           2,013           2,018
                                                      -------------   -------------
Total inventories                                             2,573           2,450
Deferred taxes                                                1,557           1,564
Prepaid expenses and other current assets                     4,662           4,226
                                                      -------------   -------------
Total Current Assets                                         46,937          48,116
 
Plant, rental machines, and other property                   41,126          40,289
   Less: Accumulated depreciation                            26,887          26,193
                                                      -------------   -------------
Plant, rental machines, and other property - net             14,239          14,096
Long-term financing receivables
    (net of allowances of $40 in 2011 and $58 in 2010)       10,422          10,548
Prepaid pension assets                                        4,855           3,068
Deferred taxes                                                2,877           3,220
Goodwill                                                     25,609          25,136
Intangible assets - net                                       3,205           3,488
Investments and sundry assets                                 5,329           5,778
                                                      -------------   -------------
Total Assets                                               $113,474        $113,452
                                                      =============   =============
LIABILITIES 
 
Current Liabilities:
Taxes                                                        $2,363          $4,216
Short-term debt                                               7,858           6,778
Accounts payable                                              7,112           7,804
Compensation and benefits                                     4,706           5,028
Deferred income                                              12,660          11,580
Other accrued expenses and liabilities                        5,144           5,156
                                                      -------------   -------------
Total Current Liabilities                                    39,843          40,562
 
Long-term debt                                               21,915          21,846
Retirement and nonpension postretirement
   benefit obligations                                       16,014          15,978
Deferred income                                               3,641           3,666
Other liabilities                                             8,851           8,226
                                                      -------------   -------------
Total Liabilities                                            90,263          90,279

EQUITY
IBM Stockholders' Equity:
  Common stock                                               46,975          45,418
  Retained earnings                                          97,334          92,532
  Treasury stock -- at cost                                (104,073)        (96,161)
  Accumulated other comprehensive income/(loss)             (17,109)        (18,743)
                                                      -------------   -------------
  Total IBM stockholders' equity                             23,127          23,046
 
Noncontrolling interests                                         84             126
                                                      -------------   -------------
Total Equity                                                 23,210          23,172
                                                      -------------   -------------
Total Liabilities and Equity                               $113,474        $113,452
                                                      =============   =============

                INTERNATIONAL BUSINESS MACHINES CORPORATION
                              CASH FLOW ANALYSIS
                              (Unaudited)
  
                                            Three Months Ended   Six Months Ended
(Dollars in Millions)                        	 June 30,            June 30,
                                               2011      2010      2011      2010
                                             -------   -------   ------    -------
Net Cash from Operating Activities per GAAP: $4,279    $3,766    $8,071    $8,203
 
     Less: the change in Global Financing (GF) 
	     Receivables                       (33)     (218)     1,903     1,883
                                             ------    ------    ------    ------
Net Cash from Operating Activities
     (Excluding GF Receivables)               4,313     3,985     6,168     6,320
 
     Capital Expenditures, Net                 (952)     (970)   (2,010)   (1,873)
 
Free Cash Flow
     (Excluding GF Receivables)               3,361     3,015     4,159     4,446
 
     Acquisitions                              (107)     (185)     (159)   (1,009)
     Divestitures                                 4         0         4         0
     Dividends                                 (905)     (833)   (1,700)   (1,551)
     Share Repurchase                        (3,976)   (4,104)   (8,021)   (8,121)
     Non-GF Debt                                (20)      920     1,007     1,261
     Other (includes GF Receivables,
	      GF Debt)			        162      (548)    4,822     3,241 
 
Change in Cash, Cash Equivalents and
Short-term Marketable Securities            ($1,481)  ($1,736)    $113    ($1,732)

 
                INTERNATIONAL BUSINESS MACHINES CORPORATION
                              SEGMENT DATA
                              (Unaudited)
 
 
                                         SECOND-QUARTER 2011
                          -------------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/   Pre-tax
                            External Internal     Total    (Loss)    Margin
                            -------- --------   ------- ---------   -------
SEGMENTS
 
Global Technology Services  $10,241  $   320   $10,561    $1,420      13.4%
  Y-T-Y change                 10.9%    -3.6%     10.4%      1.5%
 
Global Business Services      4,866      205     5,071       750      14.8%
  Y-T-Y change                  8.5%     4.3%      8.3%     10.7%
 
Software                      6,169      792     6,961     2,310      33.2%
  Y-T-Y change                 16.9%    14.8%     16.7%     12.0%
 
Systems and Technology        4,681      218     4,899       393       8.0%
  Y-T-Y change                 17.5%     7.9%     17.0%    112.1%
 
Global Financing                519      547     1,066       496      46.5%
  Y-T-Y change                 -4.6%    26.8%      9.3%      7.4%
 
TOTAL REPORTABLE SEGMENTS   $26,476  $ 2,082   $28,558    $5,370      18.8%
  Y-T-Y change                 12.6%    12.4%     12.5%     12.2%
 
Eliminations / Other            191   (2,082)   (1,891)     (485)
 
TOTAL IBM CONSOLIDATED      $26,666  $    (0)  $26,666    $4,885      18.3%
  Y-T-Y change                 12.4%              12.4%      6.8%



                                         SECOND-QUARTER 2010
                          -------------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/   Pre-tax
                            External Internal     Total    (Loss)*   Margin*
                            -------- --------   ------- ---------   -------
SEGMENTS
 
Global Technology Services  $ 9,234  $   332   $ 9,566   $ 1,399      14.6%
 
Global Business Services      4,483      197     4,680       678      14.5%
 
Software                      5,277      690     5,967     2,062      34.5%
 
Systems and Technology        3,985      202     4,187       185       4.4%
 
Global Financing                544      431       975       462      47.3%
 
TOTAL REPORTABLE SEGMENTS   $23,523  $ 1,852   $25,376   $ 4,786      18.9%
 
Eliminations / Other            200   (1,852)   (1,652)     (211)
 
TOTAL IBM CONSOLIDATED      $23,724  $    (0)  $23,724   $ 4,575      19.3%
 
* Reclassified to conform with 2011 presentation.


                INTERNATIONAL BUSINESS MACHINES CORPORATION
                              SEGMENT DATA
                              (Unaudited)
 
 
                                          SIX-MONTHS 2011
                          -------------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/   Pre-tax
                            External Internal     Total    (Loss)    Margin
                            -------- --------   ------- ---------   -------
SEGMENTS
 
Global Technology Services  $20,104  $   627   $20,732    $2,658      12.8%
  Y-T-Y change                  8.4%    -3.9%      8.0%     12.8%
 
Global Business Services      9,575      405     9,980     1,390      13.9%
  Y-T-Y change                  7.7%     1.3%      7.4%     23.7%
 
Software                     11,478    1,621    13,099     4,045      30.9%
  Y-T-Y change                 11.5%    12.0%     11.5%     -3.4%
 
Systems and Technology        8,700      462     9,162       525       5.7%
  Y-T-Y change                 18.0%    23.1%     18.3%      NM
 
Global Financing              1,035    1,044     2,079     1,015      48.8%
  Y-T-Y change                 -4.3%    25.1%      8.5%     14.2%
 
TOTAL REPORTABLE SEGMENTS   $50,892  $ 4,160   $55,052    $9,634      17.5%
  Y-T-Y change                 10.2%    12.1%     10.3%     12.7%
 
Eliminations / Other            381   (4,160)   (3,779)     (932)
 
TOTAL IBM CONSOLIDATED      $51,273  $    (0)  $51,273    $8,702      17.0%
  Y-T-Y change                 10.1%              10.1%      7.6%

NM -- Not Meaningful 
 
                                           SIX-MONTHS 2010
                          -------------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/   Pre-tax
                            External Internal     Total    (Loss)*   Margin*
                            -------- --------   ------- ---------   -------
SEGMENTS
 
Global Technology Services  $18,540  $   652   $19,192   $ 2,357      12.3%
 
Global Business Services      8,893      400     9,293     1,124      12.1%
 
Software                     10,296    1,448    11,743     4,189      35.7%
 
Systems and Technology        7,370      376     7,746       (12)     -0.2%
 
Global Financing              1,081      834     1,916       889      46.4%
 
TOTAL REPORTABLE SEGMENTS   $46,181  $ 3,710   $49,891   $ 8,546      17.1%
 
Eliminations / Other            400   (3,710)   (3,310)     (456)
 
TOTAL IBM CONSOLIDATED      $46,581  $    (0)  $46,581   $ 8,090      17.4%
 
* Reclassified to conform with 2011 presentation.



                   INTERNATIONAL BUSINESS MACHINES CORPORATION
                  U.S. GAAP TO OPERATING RESULTS RECONCILIATION
             (Unaudited, Dollars in millions except per share amounts)
 
 
                                               SECOND-QUARTER 2011
                                -----------------------------------------------
                                        Acquisition-  Retirement-
                                           Related       Related      Operating
                                  GAAP   Adjustments*  Adjustments   (Non-GAAP)
                                -------- ------------ ------------- -----------
Gross Profit                     $12,385        $  87         $   6     $12,477
 
Gross Profit Margin                 46.4%      0.3Pts        0.0Pts        46.8%
 
S,G&A                              6,030          (76)           (5)      5,950
 
R,D&E                              1,569            0            24       1,593
 
Other (Income) & Expense              97           (1)            0          96 

Total Expense & Other (Income)     7,500          (77)           18       7,441
 
Pre-Tax Income                     4,885          163           (12)      5,036
 
Pre-Tax Income Margin               18.3%      0.6Pts       -0.0Pts        18.9%
 
Provision for Income Taxes**       1,221           38             0       1,259
 
Effective Tax Rate                  25.0%     -0.1Pts       -0.1Pts        25.0%
 
Net Income                         3,664          126           (13)      3,777
 
Net Income Margin                   13.7%      0.5Pts       -0.0Pts        14.2%
 
Diluted Earnings Per Share       $  3.00        $0.10        ($0.01)    $  3.09
 

                                               SECOND-QUARTER 2010
                                -----------------------------------------------
                                         Acquisition-  Retirement-
                                           Related       Related      Operating
                                  GAAP   Adjustments*  Adjustments   (Non-GAAP)
                                -------- ------------ ------------- ----------- 
  
Gross Profit                     $10,809        $  58       ($  56)     $10,811
 
Gross Profit Margin                 45.6%      0.2Pts      -0.2Pts         45.6%
 
S,G&A                              5,061          (62)          25        5,024
 
R,D&E                              1,475            0           32        1,507
 
Other (Income) & Expense             (95)          (3)           0         (97) 

Total Expense & Other (Income)     6,234          (64)          57        6,227
 
Pre-Tax Income                     4,575          122         (113)       4,584
 
Pre-Tax Income Margin               19.3%      0.5Pts      -0.5Pts         19.3%
  
Provision for Income Taxes**       1,190           38          (45)       1,183
 
Effective Tax Rate                  26.0%      0.1Pts      -0.4Pts         25.8%
 
Net Income                         3,386           84          (68)       3,402
 
Net Income Margin                   14.3%      0.4Pts      -0.3Pts         14.3%
 
Diluted Earnings Per Share       $  2.61        $0.06       ($0.05)     $  2.62


*  Includes amortization of acquired intangible assets and other acquisition-related charges.
**  Tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting 
principles applied to the GAAP pre-tax income which employs an annual effective tax rate method 
to the results.


                   INTERNATIONAL BUSINESS MACHINES CORPORATION
                  U.S. GAAP TO OPERATING RESULTS RECONCILIATION
             (Unaudited, Dollars in millions except per share amounts)
 
 
                                                SIX-MONTHS 2011
                                -----------------------------------------------
                                        Acquisition-  Retirement-
                                           Related       Related      Operating
                                  GAAP   Adjustments*  Adjustments   (Non-GAAP)
                                -------- ------------ ------------- -----------
Gross Profit                     $23,243        $ 172         $  19     $23,434
 
Gross Profit Margin                 45.3%      0.3Pts        0.0Pts        45.7%
 
S,G&A                             11,856         (152)          (15)     11,689
 
R,D&E                              3,156            0            43       3,199
 
Other (Income) & Expense            (105)          (5)            0        (110) 

Total Expense & Other (Income)    14,541         (157)           28      14,412
 
Pre-Tax Income                     8,702          329            (8)      9,022
 
Pre-Tax Income Margin               17.0%      0.6Pts       -0.0Pts        17.6%
 
Provision for Income Taxes**       2,175           86            (5)      2,256
 
Effective Tax Rate                  25.0%      0.0Pts        0.0Pts        25.0%
 
Net Income                         6,526          243            (3)       6,767
 
Net Income Margin                   12.7%      0.5Pts       -0.0Pts        13.2%
 
Diluted Earnings Per Share       $  5.30        $0.20        ($0.00)       $5.50
 

                                                 SIX-MONTHS 2010
                                -----------------------------------------------
                                         Acquisition-  Retirement-
                                           Related       Related      Operating
                                  GAAP   Adjustments*  Adjustments   (Non-GAAP)
                                -------- ------------ ------------- ----------- 
  
Gross Profit                     $20,785        $ 113       ($  91)     $20,807
 
Gross Profit Margin                 44.6%      0.2Pts      -0.2Pts         44.7%
 
S,G&A                             10,737         (123)          36       10,650
 
R,D&E                              2,984            0           62        3,046
 
Other (Income) & Expense            (640)          (3)           0         (643) 

Total Expense & Other (Income)    12,695         (126)          97       12,667
 
Pre-Tax Income                     8,090          239         (189)       8,140
 
Pre-Tax Income Margin               17.4%      0.5Pts      -0.4Pts         17.5%
  
Provision for Income Taxes**       2,103           72          (76)       2,100
 
Effective Tax Rate                  26.0%      0.1Pts      -0.3Pts         25.8%
 
Net Income                         5,987          166         (113)       6,040
 
Net Income Margin                   12.9%      0.4Pts      -0.2Pts         13.0%
 
Diluted Earnings Per Share       $  4.57        $0.13       ($0.09)     $  4.61

*  Includes amortization of acquired intangible assets and other acquisition-related charges.
**  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.