IBM 2011 Annual Report Download - page 35

33
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Total expense and other (income) increased 10.8 percent in 2011
versus 2010. Total operating (non-GAAP) expense and other (income)
increased 10.2 percent versus the prior year. The key drivers of the
year-to-year change in total expense and other (income) for both
expense presentations were approximately:
• Currency* 4 points
• Acquisitions** 3 points
• Base expense 3 points
* Reflects impacts of translation and hedging programs.
** Includes acquisitions completed in prior 12-month period.
In the execution of its strategy, the company continues to invest
in its growth initiatives, innovation and strategic acquisitions. The
company also has had an ongoing focus on increasing efficiency
and productivity across the business.
For additional information regarding total expense and other
income, see the following analyses by category.
Selling, General and Administrative
($ in millions)
For the year ended December 31: 2011 2010
Yr.-to-Yr.
Percent
Change
Selling, general and
administrative expense
Selling, general and
administrative—other $20,287 $18,585 9.2%
Advertising and promotional expense 1,373 1,337 2.7
Workforce rebalancing charges 440 641 (31.3)
Retirement-related costs 603 494 22.1
Amortization of acquired
intangibles assets 289 253 14.4
Stock-based compensation 514 488 5.4
Bad debt expense 88 40 116.6
Total consolidated selling, general
and administrative expense $23,594 $21,837 8.0%
Non-operating adjustments
Amortization of acquired
intangible assets (289) (253)14.4
Acquisition-related charges (20) (41)(52.3)
Non-operating retirement-related
(costs)/income (13) 84 NM
Operating (non-GAAP)
selling, general and
administrative expense $23,272 $21,628 7.6%
NM—Not meaningful
Total Selling, general and administrative (SG&A) expense increased
8.0 percent (5 percent adjusted for currency) in 2011 versus 2010.
Overall the increase was driven by currency impacts (3 points),
acquisition-related spending (3 points) and base expense (2 points).
Operating (non-GAAP) SG&A expense increased 7.6 percent (5 percent
adjusted for currency) primarily driven by the same factors. Workforce
rebalancing charges decreased $201 million due primarily to
actions taken in the first quarter of 2010 ($558 million). Bad debt
expense increased $47 million in 2011 primarily due to higher
receivable balances and the current economic environment in
Europe. The accounts receivable provision coverage was 1.5 percent
at December 31, 2011, a decrease of 30 basis points from year-
end 2010.
Other (Income) and Expense
($ in millions)
For the year ended December 31: 2011 2010
Yr.-to-Yr.
Percent
Change
Other (income) and expense
Foreign currency transaction
losses/(gains) $ 513 $ 303 69.2%
(Gains)/losses on derivative
instruments (113) (239) (52.9)
Interest income (136) (92) 48.4
Net (gains)/losses from securities
and investment assets (227) 31 NM
Other (58) (790)(92.7)
Total consolidated other
(income) and expense $ (20) $(787)(97.4)%
Non-operating adjustment
Acquisition-related charges (25) (4)NM
Operating (non-GAAP)
other (income) and expense $ (45) $(791)(94.3)%
NM—Not meaningful
Other (income) and expense was income of $20 million and
$787 million for 2011 and 2010, respectively. The decrease in income
in 2011 was primarily driven by the net gain ($591 million) from the
PLM transaction recorded in the first quarter of 2010 and a net gain
associated with the disposition of a joint venture in the third quarter
of 2010 ($57 million) reflected in Other in the table above. In addition,
foreign currency rate volatility drove higher foreign currency transaction
losses ($210 million) and lower gains on derivative instruments
($126 million). These decreases in income were partially offset
by higher net gains from securities and investment asset sales
($258 million), primarily in the first quarter of 2011.