IBM 2012 Annual Report Download - page 53

5252 Management Discussion
International Business Machines Corporation and Subsidiary Companies
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 transac-
tion 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 ($258
million), primarily in the first quarter of 2011.
Research, Development and Engineering
($ in millions)
For the year ended December 31: 2011 2010
Yr.-to-Yr.
Percent
Change
Total consolidated research,
development and engineering $6,258 $6,026 3.8%
Non-operating adjustment
Non-operating retirement-related
(costs)/income 88 126 (30.4)
Operating (non-GAAP) research,
development and engineering $6,345 $6,152 3.1%
The company continues to invest in research and development,
focusing its investments on high-value, high-growth opportunities
and to extend its technology leadership. Total RD&E expense
increased 3.8 percent in 2011 versus 2010, primarily driven by acqui-
sitions (up 4 points) and currency impacts (up 2 points), partially
offset by base expense (down 2 points). Operating (non-GAAP)
RD&E expense increased 3.1 percent in 2011 compared to the
prior year primarily driven by the same factors. RD&E investments
represented 5.9 percent of revenue in 2011, compared to 6.0 percent
in 2010.
Selling, General and Administrative
($ 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
intangible 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 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
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.