Global Business Services.
Total expense and other income decreased 7 percent to $6.7 billion, or a decrease of 9 percent to $6.5 billion, excluding $162 million for UK pension-related charges, compared with the prior-year period. S,G&A expense of $5.9 billion increased 4 percent year over year, or expense of $5.7 billion, up 1 percent excluding the impact of UK pension-related charges. S,G&A expense includes $408 million for workforce rebalancing, which negatively impacted net income by approximately $310 million. R,D&E expense of $1.5 billion decreased 1 percent compared with the year-ago period. Intellectual property and custom development income increased to $303 million compared with $298 million a year ago. Other (income) and expense was income of $606 million compared with prior-year expense of $128 million. This increase in income was primarily due to a $447 million gain from the divestiture of Retail Store Solutions, which contributed approximately $280 million to net income. Interest expense increased to $124 million compared with $107 million in the prior year.
Total operating (non-GAAP) expense and other income decreased 10 percent to $6.4 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $5.6 billion increased 1 percent compared with prior-year expense. Operating (non-GAAP) R,D&E expense of $1.5 billion decreased 2 percent compared with the year-ago period.
Pre-tax income increased 1 percent to $5.1 billion, or 4 percent to $5.2 billion excluding the impact of UK pension-related charges. Pre-tax margin increased 1.3 points to 20.5 percent, or 1.9 points to 21.2 percent excluding the impact of UK pension-related charges, compared with the prior-year period. Operating (non-GAAP) pre-tax income increased 7 percent to $5.5 billion and pre-tax margin was 22.3 percent, up 2.5 points.
IBM's tax rate was 24.6 percent, up 1.0 points year over year; operating (non-GAAP) tax rate was 24.7 percent, up 1.1 points compared to the year-ago period.
Net income margin increased 0.8 points to 15.5 percent, or 1.3 points to 16.0 percent excluding the impact of UK pension-related charges. Total operating (non-GAAP) net income margin increased 1.7 points to 16.8 percent.
The weighted-average number of diluted common shares outstanding in the third-quarter 2012 was 1.15 billion compared with 1.20 billion shares in the same period of 2011. As of September 30, 2012, there were 1.13 billion basic common shares outstanding.
Debt, including Global Financing, totaled $33.7 billion, compared with $31.3 billion at year-end 2011. From a management segment view, Global Financing debt totaled $23.3 billion versus $23.3 billion at year-end 2011, resulting in a debt-to-equity ratio of 7.1 to 1. Non-global financing debt totaled $10.3 billion, an increase of $2.4 billion since year-end 2011, resulting in a debt-to-capitalization ratio of 36.0 percent from 32.0 percent.
IBM ended the third-quarter 2012 with $12.3 billion of cash on hand and generated free cash flow of $3.1 billion, excluding Global Financing receivables, down approximately $0.3 billion year over year. The company returned $4.0 billion to shareholders through $1.0 billion in dividends and $3.0 billion of share repurchases. The balance sheet remains strong,
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