IBM Reports 2011 Second-Quarter Results

IBM Reports 2011 Second-Quarter Results

IBM

IBM (NYSE: IBM)

• Diluted EPS:
  • GAAP: $3.00, up 15 percent;
  • Operating (non-GAAP): $3.09, up 18 percent;
• Revenue: $26.7 billion, up 12 percent, up 5 percent adjusting for currency;
• Net income:
  • GAAP: $3.7 billion, up 8 percent;
  • Operating (non-GAAP): $3.8 billion, up 11 percent;
• Pre-tax income:
  • GAAP: $4.9 billion, up 7 percent;
  • Operating (non-GAAP): $5.0 billion, up 10 percent;
• Gross profit margin:
  • GAAP: 46.4 percent, up 0.9 points;
  • Operating (non-GAAP): 46.8 percent, up 1.2 points;
• Software revenue up 17 percent, 10 percent adjusting for currency;
• Systems and Technology revenue up 17 percent, 12 percent adjusting for currency:
  • System z mainframe revenue up 61 percent; MIPS up 86 percent;
  • Power Systems up 12 percent;
• Services revenue up 10 percent, 2 percent adjusting for currency;
• Services backlog of $144 billion, up $15 billion;
• Growth markets revenue up 23 percent, 13 percent adjusting for currency;
• Business analytics revenue up more than 20 percent in the first half;
• Smarter Planet revenue up more than 50 percent in the first half;
• Cloud revenue on track to double in 2011;
• Full-year 2011 Operating (non-GAAP) EPS expectations raised to at least $13.25 from at least $13.15.

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 --

• presenting operating (non-GAAP) earnings per share amounts and related income statement items;
• presenting non-global financing debt-to-capitalization ratio;
• adjusting for free cash flow;
• adjusting for currency (i.e., at constant currency).

The rationale for management’s use of non-GAAP measures is included as part of the 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)
Â
	Â	Three Months Ended										Â	Six Months Ended
		June 30,											June 30,
					Â				Â	Percent						Â				Â	Percent
		2011				2010*				Change			2011				2010*				Change
REVENUE
																					Â
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	%
																					Â
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	%
																					Â
Software			6,169				5,277			16.9	%			11,478				10,296			11.5	%
Gross margin			88.4	%			88.1	%						87.8	%			86.8	%
																					Â
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	%
																					Â
Global Financing			519				544			-4.6	%			1,035				1,081			-4.3	%
Gross margin			48.7	%			50.1	%						51.1	%			50.0	%
																					Â
Other			191				200			-4.8	%			381				400			-4.7	%
Gross margin			-57.7	%			16.4	%						-75.5	%			-14.6	%
																					Â
TOTAL REVENUE			26,666				23,724			12.4	%			51,273				46,581			10.1	%
																					Â
																					Â
GROSS PROFIT			12,385				10,809			14.6	%			23,243				20,785			11.8	%
Gross margin			46.4	%			45.6	%						45.3	%			44.6	%
																					Â
																					Â
EXPENSE AND OTHER INCOME
																					Â
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	%
																					Â
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	%
																					Â
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	%
																					Â
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	%
																					Â
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	%
																					Â
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	%
																					Â
																					Â
NET INCOME		$	3,664	Â		$	3,386	Â		8.2	%		$	6,526	Â		$	5,987	Â		9.0	%
Net margin			13.7	%			14.3	%						12.7	%			12.9	%
																					Â
																					Â
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	%
																					Â
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
Â
NM -- Not Meaningful
Â
* Segment gross profit margins in 2010 reclassified to conform with 2011 presentation.
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INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
Â
	Â	At			Â	At
(Dollars in Millions)		June 30,				December 31,
		2011				2010
ASSETS
						Â
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		Â	2,013	Â		Â	2,018	Â
Total inventories			2,573				2,450
Deferred taxes			1,557				1,564
Prepaid expenses and other current assets		Â	4,662	Â		Â	4,226	Â
Total Current Assets			46,937				48,116
						Â
Plant, rental machines, and other property			41,126				40,289
Less: Accumulated depreciation		Â	26,887	Â		Â	26,193	Â
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		Â	5,329	Â		Â	5,778	Â
Total Assets		$	113,474	Â		$	113,452	Â
Â
LIABILITIES
						Â
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		Â	5,144	Â		Â	5,156	Â
Total Current Liabilities			39,843				40,562
						Â
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		Â	8,851	Â		Â	8,226	Â
Total Liabilities			90,263				90,279
Â
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)		Â	(17,109	)		Â	(18,743	)
Total IBM stockholders' equity			23,127				23,046
						Â
Noncontrolling interests		Â	84	Â		Â	126	Â
Total Equity		Â	23,210	Â		Â	23,172	Â
Total Liabilities and Equity		$	113,474	Â		$	113,452	Â
Â

INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
Â
	Â	Three Months Ended							Â	Six Months Ended
(Dollars in Millions)		June 30,								June 30,
		2011			Â	2010				2011			Â	2010
Net Cash from Operating Activities per GAAP:		$	4,279			$	3,766			$	8,071			$	8,203
														Â
Less: the change in Global Financing (GF)
Receivables		Â	(33	)		Â	(218	)		Â	1,903	Â		Â	1,883	Â
Net Cash from Operating Activities
(Excluding GF Receivables)			4,313				3,985				6,168				6,320
														Â
Capital Expenditures, Net			(952	)			(970	)			(2,010	)			(1,873	)
														Â
Free Cash Flow
(Excluding GF Receivables)			3,361				3,015				4,159				4,446
														Â
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
														Â
Change in Cash, Cash Equivalents and
Short-term Marketable Securities			($1,481	)			($1,736	)		$	113				($1,732	)
Â

INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Â
	Â	SECOND-QUARTER 2011
					Â				Â				Â	Pre-tax			Â
(Dollars in Millions)		Revenue												Income/				Pre-tax
		External				Internal				Total				(Loss)				Margin
SEGMENTS
																		Â
Global Technology Services		$	10,241			$	320			$	10,561			$	1,420			13.4	%
Y-T-Y change			10.9	%			-3.6	%			10.4	%			1.5	%
																		Â
Global Business Services			4,866				205				5,071				750			14.8	%
Y-T-Y change			8.5	%			4.3	%			8.3	%			10.7	%
																		Â
Software			6,169				792				6,961				2,310			33.2	%
Y-T-Y change			16.9	%			14.8	%			16.7	%			12.0	%
																		Â
Systems and Technology			4,681				218				4,899				393			8.0	%
Y-T-Y change			17.5	%			7.9	%			17.0	%			112.1	%
																		Â
Global Financing			519				547				1,066				496			46.5	%
Y-T-Y change			-4.6	%			26.8	%			9.3	%			7.4	%
																		Â
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	%
																		Â
Eliminations / Other			191				(2,082	)			(1,891	)			(485	)
																		Â
TOTAL IBM CONSOLIDATED		$	26,666			$	(0	)		$	26,666			$	4,885			18.3	%
Y-T-Y change			12.4	%							12.4	%			6.8	%
Â
Â
		SECOND-QUARTER 2010
														Pre-tax
(Dollars in Millions)		Revenue												Income/				Pre-tax
		External				Internal				Total				(Loss)*				Margin*
SEGMENTS
																		Â
Global Technology Services		$	9,234			$	332			$	9,566			$	1,399			14.6	%
																		Â
Global Business Services			4,483				197				4,680				678			14.5	%
																		Â
Software			5,277				690				5,967				2,062			34.5	%
																		Â
Systems and Technology			3,985				202				4,187				185			4.4	%
																		Â
Global Financing			544				431				975				462			47.3	%
																		Â
TOTAL REPORTABLE SEGMENTS		$	23,523			$	1,852			$	25,376			$	4,786			18.9	%
																		Â
Eliminations / Other			200				(1,852	)			(1,652	)			(211	)
																		Â
TOTAL IBM CONSOLIDATED		$	23,724			$	(0	)		$	23,724			$	4,575			19.3	%
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* Reclassified to conform with 2011 presentation.
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INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Â
	Â	SIX-MONTHS 2011
					Â				Â				Â	Pre-tax			Â
(Dollars in Millions)		Revenue												Income/				Pre-tax
		External				Internal				Total				(Loss)				Margin
SEGMENTS
																		Â
Global Technology Services		$	20,104			$	627			$	20,732			$	2,658			12.8	%
Y-T-Y change			8.4	%			-3.9	%			8.0	%			12.8	%
																		Â
Global Business Services			9,575				405				9,980				1,390			13.9	%
Y-T-Y change			7.7	%			1.3	%			7.4	%			23.7	%
																		Â
Software			11,478				1,621				13,099				4,045			30.9	%
Y-T-Y change			11.5	%			12.0	%			11.5	%			-3.4	%
																		Â
Systems and Technology			8,700				462				9,162				525			5.7	%
Y-T-Y change			18.0	%			23.1	%			18.3	%			NM
																		Â
Global Financing			1,035				1,044				2,079				1,015			48.8	%
Y-T-Y change			-4.3	%			25.1	%			8.5	%			14.2	%
																		Â
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	%
																		Â
Eliminations / Other			381				(4,160	)			(3,779	)			(932	)
																		Â
TOTAL IBM CONSOLIDATED		$	51,273			$	(0	)		$	51,273			$	8,702			17.0	%
Y-T-Y change			10.1	%							10.1	%			7.6	%
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NM -- Not Meaningful
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		SIX-MONTHS 2010
														Pre-tax
(Dollars in Millions)		Revenue												Income/				Pre-tax
		External				Internal				Total				(Loss)*				Margin*
SEGMENTS
																		Â
Global Technology Services		$	18,540			$	652			$	19,192			$	2,357			12.3	%
																		Â
Global Business Services			8,893				400				9,293				1,124			12.1	%
																		Â
Software			10,296				1,448				11,743				4,189			35.7	%
																		Â
Systems and Technology			7,370				376				7,746				(12	)		-0.2	%
																		Â
Global Financing			1,081				834				1,916				889			46.4	%
																		Â
TOTAL REPORTABLE SEGMENTS		$	46,181			$	3,710			$	49,891			$	8,546			17.1	%
																		Â
Eliminations / Other			400				(3,710	)			(3,310	)			(456	)
																		Â
TOTAL IBM CONSOLIDATED		$	46,581			$	(0	)		$	46,581			$	8,090			17.4	%
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* Reclassified to conform with 2011 presentation.
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INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited, Dollars in millions except per share amounts)
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	Â	SECOND-QUARTER 2011
					Â	Acquisition-			Â	Retirement-			Â
						Related				Related				Operating
		GAAP				Adjustments*				Adjustments				(Non-GAAP)
Gross Profit		$	12,385			$	87			$	6			$	12,477
														Â
Gross Profit Margin			46.4	%		0.3Pts				0.0Pts					46.8	%
														Â
S,G&A			6,030				(76	)			(5	)			5,950
														Â
R,D&E			1,569				0				24				1,593
														Â
Other (Income) & Expense			97				(1	)			0				96
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Total Expense & Other (Income)			7,500				(77	)			18				7,441
														Â
Pre-Tax Income			4,885				163				(12	)			5,036
														Â
Pre-Tax Income Margin			18.3	%		0.6Pts				-0.0Pts					18.9	%
														Â
Provision for Income Taxes**			1,221				38				0				1,259
														Â
Effective Tax Rate			25.0	%		-0.1Pts				-0.1Pts					25.0	%
														Â
Net Income			3,664				126				(13	)			3,777
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Net Income Margin			13.7	%		0.5Pts				-0.0Pts					14.2	%
														Â
Diluted Earnings Per Share		$	3.00			$	0.10				($0.01	)		$	3.09
														Â
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		SECOND-QUARTER 2010
						Acquisition-				Retirement-
						Related				Related				Operating
		GAAP				Adjustments*				Adjustments				(Non-GAAP)
														Â
Gross Profit		$	10,809			$	58				($ 56	)		$	10,811
														Â
Gross Profit Margin			45.6	%		0.2Pts				-0.2Pts					45.6	%
														Â
S,G&A			5,061				(62	)			25				5,024
														Â
R,D&E			1,475				0				32				1,507
														Â
Other (Income) & Expense			(95	)			(3	)			0				(97	)
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Total Expense & Other (Income)			6,234				(64	)			57				6,227
														Â
Pre-Tax Income			4,575				122				(113	)			4,584
														Â
Pre-Tax Income Margin			19.3	%		0.5Pts				-0.5Pts					19.3	%
														Â
Provision for Income Taxes**			1,190				38				(45	)			1,183
														Â
Effective Tax Rate			26.0	%		0.1Pts				-0.4Pts					25.8	%
														Â
Net Income			3,386				84				(68	)			3,402
														Â
Net Income Margin			14.3	%		0.4Pts				-0.3Pts					14.3	%
														Â
Diluted Earnings Per Share		$	2.61			$	0.06				($0.05	)		$	2.62
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* 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.
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INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING RESULTS RECONCILIATION
(Unaudited, Dollars in millions except per share amounts)
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	Â	SIX-MONTHS 2011
					Â	Acquisition-			Â	Retirement-			Â
						Related				Related				Operating
		GAAP				Adjustments*				Adjustments				(Non-GAAP)
Gross Profit		$	23,243			$	172			$	19			$	23,434
														Â
Gross Profit Margin			45.3	%		0.3Pts				0.0Pts					45.7	%
														Â
S,G&A			11,856				(152	)			(15	)			11,689
														Â
R,D&E			3,156				0				43				3,199
														Â
Other (Income) & Expense			(105	)			(5	)			0				(110	)
Â
Total Expense & Other (Income)			14,541				(157	)			28				14,412
														Â
Pre-Tax Income			8,702				329				(8	)			9,022
														Â
Pre-Tax Income Margin			17.0	%		0.6Pts				-0.0Pts					17.6	%
														Â
Provision for Income Taxes**			2,175				86				(5	)			2,256
														Â
Effective Tax Rate			25.0	%		0.0Pts				0.0Pts					25.0	%
														Â
Net Income			6,526				243				(3	)			6,767
														Â
Net Income Margin			12.7	%		0.5Pts				-0.0Pts					13.2	%
														Â
Diluted Earnings Per Share		$	5.30			$	0.20				($0.00	)		$	5.50
														Â
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		SIX-MONTHS 2010
						Acquisition-				Retirement-
						Related				Related				Operating
		GAAP				Adjustments*				Adjustments				(Non-GAAP)
														Â
Gross Profit		$	20,785			$	113				($ 91	)		$	20,807
														Â
Gross Profit Margin			44.6	%		0.2Pts				-0.2Pts					44.7	%
														Â
S,G&A			10,737				(123	)			36				10,650
														Â
R,D&E			2,984				0				62				3,046
														Â
Other (Income) & Expense			(640	)			(3	)			0				(643	)
Â
Total Expense & Other (Income)			12,695				(126	)			97				12,667
														Â
Pre-Tax Income			8,090				239				(189	)			8,140
														Â
Pre-Tax Income Margin			17.4	%		0.5Pts				-0.4Pts					17.5	%
														Â
Provision for Income Taxes**			2,103				72				(76	)			2,100
														Â
Effective Tax Rate			26.0	%		0.1Pts				-0.3Pts					25.8	%
														Â
Net Income			5,987				166				(113	)			6,040
														Â
Net Income Margin			12.9	%		0.4Pts				-0.2Pts					13.0	%
														Â
Diluted Earnings Per Share		$	4.57			$	0.13				($0.09	)		$	4.61
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* 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.

IBM
Mike Fay, 914-499-6107
[e-mail]
or
John Bukovinsky, 732-618-3531
[e-mail]