News Column

IBM Reports 2012 4Q and Full-Year Results

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IBM (NYSE: IBM) today announced fourth-quarter 2012 diluted earnings of $5.13 per share, compared with diluted earnings of $4.62 per share in the fourth quarter of 2011, an increase of 11 percent. Operating (non-GAAP) diluted earnings were $5.39 per share, compared with operating diluted earnings of $4.71 per share in the fourth quarter of 2011, an increase of 14 percent.

Fourth-quarter net income was $5.8 billion compared with $5.5 billion in the fourth quarter of 2011, an increase of 6 percent. Operating (non-GAAP) net income was $6.1 billion compared with $5.6 billion in the fourth quarter of 2011, an increase of 10 percent.

Total revenues for the fourth quarter of 2012 of $29.3 billion decreased 1 percent (flat adjusting for currency) from the fourth quarter of 2011. Without the impact of the divested Retail Store Solutions (RSS) business, revenue increased 1 percent, adjusting for currency.

"We achieved record profit, earnings per share and free cash flow in 2012. Our performance in the fourth quarter and for the full year was driven by our strategic growth initiatives -- growth markets, analytics, cloud computing, Smarter Planet solutions -- which support our continued shift to higher-value businesses," said Ginni Rometty, IBM chairman, president and chief executive officer.

"Looking ahead, we continue to invest to deliver innovations for the enterprise in key areas such as big data, mobile solutions, social business and security, while expanding into new markets and reaching new clients. We are well on track toward our long-term roadmap for operating EPS of at least $20 in 2015."

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

Fourth-quarter operating (non-GAAP) diluted earnings exclude $0.26 per share of net charges: $0.21 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.05 per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

Full-Year 2013 Expectation

IBM said that it expects to deliver full-year 2013 GAAP earnings per share of at least $15.53; and operating (non-GAAP) earnings per share of at least $16.70. The 2013 operating (non-GAAP) earnings exclude $1.17 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' fourth-quarter revenues were $12.5 billion, flat (up 1 percent, adjusting for currency) from the 2011 period. Revenues from Europe/Middle East/Africa were $9.1 billion, down 5 percent (down 3 percent, adjusting for currency). Asia-Pacific revenues increased 4 percent (up 5 percent, adjusting for currency) to $7.0 billion. OEM revenues were $679 million, down 5 percent compared with the 2011 fourth quarter.

Growth Markets

Revenues from the company's growth markets increased 7 percent. Revenues in the BRIC countries ” Brazil, Russia,India and China ” increased 11 percent (up 14 percent, adjusting for currency).

Services

Global Technology Services segment revenues decreased 2 percent (flat adjusting for currency) to $10.3 billion. Global Business Services segment revenues were down 3 percent (down 2 percent, adjusting for currency) at $4.7 billion.

Pre-tax income from Global Technology Services increased 5 percent; pre-tax margin increased to 19.2 percent. Global Business Services pre-tax income was flat; pre-tax margin increased to 17.2 percent.

The estimated services backlog at December31 was $140 billion, flat (up $1 billion, adjusting for currency).

Software

Revenues from the Software segment were $7.9 billion, an increase of 3 percent (up 4 percent, adjusting for currency) from the fourth quarter of 2011. Software pre-tax income of $4.0 billion increased 8 percent year over year.

Revenues from IBM's key middleware products, which include WebSphere,Information Management, Tivoli, Lotus and Rational products, were $5.5 billion, an increase of 5 percent (up 6 percent, adjusting for currency) versus the fourth quarter of 2011. Operating systems revenues of $709 million were flat (up 1 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products increased 11 percent year over year. Information Management software revenues increased 2 percent. Revenues from Tivoli software increased 4 percent. Revenues from Lotus software increased 9 percent, and Rational software increased 12 percent.

Hardware

Revenues from the Systems and Technology segment totaled $5.8 billion for the quarter, down 1 percent from the fourth quarter of 2011. Excluding Retail Store Solutions (RSS), revenues were up 4 percent. Systems and Technology pre-tax income was $1.0 billion, an increase of 23 percent.

Total systems revenues, excluding RSS, increased 4 percent. Revenues from System z mainframe server products increased 56 percent compared with the year-ago period; revenue in the growth markets increased 68 percent. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 66 percent versus the prior year and represented the largest MIPS shipment quarter in the company's history. New workload specialty engines, including Linux, represented one-half of the MIPS shipped. Revenues from Power Systems decreased 19 percent compared with the 2011 period. Revenues from System x decreased 2 percent. Revenues from System Storage decreased 5 percent. Revenues from Retail Store Solutions decreased $239 million year over year as a result of the divestiture in the third quarter. Revenues from Microelectronics OEM increased 4 percent.

Financing

Global Financing segment revenues were down 2 percent (down 1 percent, adjusting for currency) in the fourth quarter to $535 million. Pre-tax income for the segment increased 1 percent to $518 million.

Gross Profit

The company's total gross profit margin was 51.8 percent in the 2012 fourth quarter compared with 49.9 percent in the 2011 fourth-quarter period. Total operating (non-GAAP) gross profit margin was 52.3 percent in the 2012 fourth quarter compared with 50.2 percent in the 2011 fourth-quarter period, with increases in Services, Software and Hardware.

Expense

Total expense and other income decreased 2 percent to $7.3 billion compared with the prior-year period. S,G&A expense of $5.9 billion decreased 3 percent year over year compared with prior-year expense. R,D&E expense of $1.6 billion increased 2 percent compared with the year-ago period. Intellectual property and custom development income decreased to $227 million compared with $253 million a year ago. Other (income) and expense was income of $47 million compared with prior-year income of $44 million. Interest expense decreased to $109 million compared with $113 million in the prior year.

Total operating (non-GAAP) expense and other income decreased 2 percent to $7.2 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $5.8 billion decreased 3 percent year over year compared with prior-year expense. Operating (non-GAAP) R,D&E expense of $1.6 billion increased 1 percent compared with the year-ago period.

***

Pre-tax income increased 8 percent to $7.8 billion; total operating (non-GAAP) pre-tax income increased 10 percent to $8.1 billion. Pre-tax margin was 26.7 percent, up 2.1 points; total operating (non-GAAP) pre-tax margin was 27.7 percent, up 2.6 points.

IBM's tax rate was 25.5 percent, up 1.0 points year over year; total operating (non-GAAP) tax rate was 24.4 percent, flat compared to the year-ago period.

Net income margin increased 1.3 points to 19.9 percent; total operating (non-GAAP) net income margin was 20.9 percent, an increase of 1.9 points.

The weighted-average number of diluted common shares outstanding in the fourth-quarter 2012 was 1.14 billion compared with 1.19 billion shares in the same period of 2011.

In the quarter, IBM generated free cash flow of $9.5 billion excluding Global Financing receivables, up $0.6 billion year over year.

Full-Year 2012 Results

Net income for the year ended December31, 2012 was $16.6 billion compared with $15.9 billion in the prior year, an increase of 5 percent. Operating (non-GAAP) net income was $17.6 billion compared with $16.3 billion in 2011, an increase of 8 percent.

Diluted earnings were $14.37 per share compared with $13.06 per diluted share in 2011, an increase of 10 percent. Operating (non-GAAP) diluted earnings were $15.25 per share, compared with operating diluted earnings of $13.44 per share in 2011, an increase of 13 percent. This was the company's 10thconsecutive year of double-digit EPS growth.

Revenues for 2012 totaled $104.5 billion, a decrease of 2 percent (flat adjusting for currency), compared with $106.9 billion in 2011.

GAAP - Operating (non-GAAP) Reconciliation

Operating (non-GAAP) diluted earnings for the year exclude $0.88 per share of net charges: $0.55 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.33 per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.


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