IBM 2012 Annual Report Download - page 45

4444 Management Discussion
International Business Machines Corporation and Subsidiary Companies
Prior Year in Review
The “Prior Year in Review” section provides a summary of the
company’s financial performance in 2011 as compared to 2010.
For a detailed discussion of prior-year performance, see the 2011
Annual Report.
($ and shares in millions except per share amounts)
For the year ended December 31: 2011 2010
Yr.-to-Yr.
Percent/
Margin
Change
Revenue $106,916 $ 99,870 7.1%*
Gross profit margin 46.9% 46.1% 0.8 pts.
Total expense and other income $ 29,135 $ 26,291 10.8%
Total expense and other
income-to-revenue ratio 27.3% 26.3%0.9 pts.
Income before income taxes $ 21,003 $ 19,723 6.5%
Provision for income taxes 5,148 4,890 5.3%
Net income $ 15,855 $ 14,833 6.9%
Net income margin 14.8% 14.9%0.0 pts.
Earnings per share of common stock
Assuming dilution $ 13.06 $ 11.52 13.4%
Weighted-average shares outstanding
Assuming dilution 1,213.8 1,287.4 (5.7)%
Assets** $116,433 $113,452 2.6%
Liabilities** $ 96,197 $ 90,279 6.6%
Equity** $ 20,236 $ 23,172 (12.7)%
* 3.4 percent adjusted for currency.
** At December 31.
The following table provides the company’s operating (non-GAAP)
earnings for 2011 and 2010.
($ in millions except per share amounts)
For the year ended December 31: 2011 2010
Yr.-to-Yr.
Percent
Change
Net income as reported $15,855 $14,833 6.9%
Non-operating adjustments
(net of tax)
Acquisition-related charges 495 443 12.0
Non-operating retirement-related
costs/(income) (32) (253)(87.3)
Operating (non-GAAP) earnings* $16,318 $15,023 8.6%
Diluted operating (non-GAAP)
earnings per share $ 13.44 $ 11.67 15.2%
* See page 54 for a more detailed reconciliation of net income to operating earnings.
Snapshot
In 2011, the company delivered strong financial results highlighted
by solid revenue performance, continued margin expansion, strong
profit and cash generation and effective use of cash. In its centennial
year, the company achieved record levels of revenue, profit, free cash
flow and earnings per share. The financial performance was the
result of the transformation of the company which began years ago.
This transformation has been focused on shifting the business to
higher value areas of the market, improving productivity and invest-
ing in opportunities to drive future growth. These changes have
contributed to nine consecutive years of double-digit earnings per
share growth. More importantly, this transformation has strength-
ened the business and put the company on track to achieve its
2015 road map objective of at least $20 of operating (non-GAAP)
earnings per share.
The focus on key growth initiatives and investments in innova-
tion have enabled the company to expand into new markets and
capitalize on trends like business analytics and cloud computing.
The growth markets strategy to expand into new markets, build out
IT infrastructures and lead in specific industries is driving strong
performance and market share gains. Growth markets revenue
increased 16.0 percent (11 percent adjusted for currency) in 2011
contributing approximately two-thirds of the total constant currency
revenue growth for the year and represented 22 percent of total
geographic revenue. The company’s business analytics solutions
helps clients leverage massive amounts of data and content to gain
business insight and optimize results. Business analytics revenue
increased 16 percent compared to 2010. The Smarter Planet offer-
ings generated close to 50 percent growth year to year, with Smarter
Commerce demonstrating strong market momentum. In Cloud
Computing, the company is helping its clients improve the economics
of information technology. In 2011, the company continued to
expand its offerings and cloud revenue for the year was more than
three times the prior year results. With strong contribution from
these growth initiatives, the company delivered revenue growth of
7.1 percent (3 percent adjusted for currency) compared to 2010.
Segment performance was led by Software which increased
revenue 10.9 percent (8 percent adjusted for currency) driven by key
branded middleware which increased 15.6 percent (13 percent
adjusted for currency) and continued to extend its lead in the middle-
ware market. In the Global Services business, Global Technology
Services increased 7.0 percent (3 percent adjusted for currency)
and Global Business Services grew revenue 5.8 percent (1 percent
adjusted for currency) driven by strong performance in the growth
markets where both segments grew revenue 11 percent at constant
currency. Systems and Technology delivered revenue growth of
5.6 percent (3 percent adjusted for currency) driven by strong per-
formance in Power Systems which increased 12.0 percent (9 percent
adjusted for currency) and the growth markets which increased
14.9 percent (12 percent adjusted for currency).