IBM 2011 Annual Report Download - page 54

52
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Other (Income) and Expense
($ in millions)
For the year ended December 31: 2010 2009
Yr.-to-Yr.
Percent
Change
Other (income) and expense
Foreign currency transaction
losses/(gains) $ 303 $ (1) NM
(Gains)/losses on
derivative instruments (239) (12)NM
Interest income (92) (94)(2.3)%
Net (gains)/losses from securities
and investment assets 31 112 (72.1)
Other (790)(357)121.2
Total consolidated other
(income) and expense $(787)$(351)124.5%
Non-operating adjustment
Acquisition-related charges (4) (1) 27 7.4
Operating (non-GAAP) other
(income) and expense $(791)$(352)125.0%
NM—Not meaningful
Other (income) and expense was income of $787 million in 2010, an
increase in income of $436 million year to year. The increase in
income was primarily driven by several key factors reflected in Other
in the table above: the net gain from the PLM transaction in the first
quarter of 2010 ($591 million); a net gain associated with the disposition
of a joint venture in third quarter of 2010 ($57 million) versus a gain
from the divestiture of the core logistics operations to Geodis in the
first quarter of 2009 ($298 million); and a provision for losses related
to a joint venture investment ($119 million) recorded in the second
quarter of 2009. In addition, foreign currency rate volatility drove higher
foreign currency transaction losses ($304 million) and increased gains
on derivative instruments ($227 million). Operating (non-GAAP) other
(income) and expense reflected increased income of $439 million in
2010 compared to 2009 driven by the same factors.
Research, Development and Engineering
($ in millions)
For the year ended December 31: 2010 2009
Yr.-to-Yr.
Percent
Change
Total consolidated research,
development and engineering $6,026 $5,820 3.5%
Non-operating adjustment
Non-operating retirement-related
(costs)/income 126 123 2.6
Operating (non-GAAP) research,
development and engineering $6,152 $5,943 3.5%
The company continued to invest in research and development,
focusing its investments on high-value, high-growth opportunities
and to extend its technology leadership. Total research, development
and engineering (RD&E) expense increased 3.5 percent in 2010
versus 2009, primarily driven by acquisitions (up 2 points) and
Selling, General and Administrative
($ in millions)
For the year ended December 31: 2010 2009
Yr.-to-Yr.
Percent
Change
Selling, general and administrative
expense
Selling, general and
administrative—other $18,585 $17,872 4.0%
Advertising and promotional expense 1,337 1,255 6.6
Workforce rebalancing charges 641 474 35.3
Retirement-related costs 494 503 (1.7)
Amortization of acquired
intangibles assets 253 285 (11.3)
Stock-based compensation 488 417 16.9
Bad debt expense 40 147 (72.5)
Total consolidated selling, general
and administrative expense $21,837 $20,952 4.2%
Non-operating adjustments
Amortization of acquired
intangible assets (253) (285) (11.3)
Acquisition-related charges (41)(8)NM
Non-operating retirement-related
(costs)/income 84 127 (33.8)
Operating (non-GAAP)
selling, general and
administrative expense $21,628 $20,787 4.0%
NM—Not meaningful
Total selling, general and administrative (SG&A) expense increased
4.2 percent (3 percent adjusted for currency) in 2010 versus 2009.
Overall, the increase was driven by acquisition-related spending
(3 points) and currency impacts (1 point), while base expense was
essentially flat. Workforce reductions expense increased $167 million
due primarily to actions taken in the first quarter of 2010, with the
majority of the spending in Europe and Asia Pacific. Bad debt expense
decreased $107 million reflecting the improved credit environment.
The allowance for credit losses coverage rate at December 31, 2010
was 1.8 percent, a decrease of 20 basis points from year-end 2009.
Operating (non-GAAP) SG&A expense increased 4.0 percent
(3 percent adjusted for currency) primarily driven by the same factors.