10-QPeriod: Q3 FY2012

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q3 Ended Sep 30, 2012

Filed October 30, 2012For Securities:IBM

Summary

IBM's Q3 2012 report showed a slight decrease in revenue, down 5.4% to $24.7 billion, influenced by a 4% negative currency impact. Despite this, the company demonstrated improved profitability with gross profit margin increasing to 47.4% and net income margin rising to 15.5%. Diluted EPS increased by 4.4% to $3.33. The company highlighted strong performance in its solutions offerings like business analytics and cloud, and noted that its annuity businesses provided a stable revenue and profit base. Operationally, IBM continues to focus on productivity initiatives, aiming for $8 billion in improvements by 2015. The company also announced the agreement to acquire Kenexa Corporation, a talent management solutions provider, expected to close in Q4 2012. A significant event impacting reported results was a pre-tax charge of $162 million related to a UK pension plan ruling, which is excluded from operating (non-GAAP) earnings. Overall, the report indicates a company navigating revenue challenges through operational efficiency and strategic growth initiatives.

Financial Highlights

49 data points
Beta

Revenue

$24.75B

47.4% Gross Margin

Net Income

$3.82B

15.5% Net Margin

EPS (Diluted)

$3.33

Total Assets

$115.78B

Cash & Equivalents

$11.91B

Free Cash Flow

$3.57B

Financial Statements
Beta
Revenue$24.75B
Cost of Revenue$13.02B
Gross Profit$11.73B
R&D Expenses$1.53B
SG&A Expenses$5.91B
Interest Expense$124.00M
Net Income$3.82B
EPS (Basic)$3.36
EPS (Diluted)$3.33
Shares Outstanding (Basic)1.14B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Revenue for the quarter decreased by 5.4% year-over-year to $24.7 billion, impacted by currency fluctuations.
  • 2Net income remained relatively stable at $3.82 billion, with a slight decrease of 0.4% compared to the prior year.
  • 3Diluted earnings per share increased by 4.4% to $3.33, demonstrating effective share repurchases and margin improvements.
  • 4Gross profit margin improved to 47.4%, and net income margin expanded to 15.5%, reflecting operational efficiencies and a favorable business mix.
  • 5The company continued to invest in growth areas such as business analytics, cloud computing, and Smarter Planet solutions, which showed strong revenue growth.
  • 6IBM announced an agreement to acquire Kenexa Corporation, a talent management solutions provider, to enhance its software and services portfolio.
  • 7A $162 million pre-tax charge related to a UK pension plan ruling impacted reported results, but operating (non-GAAP) earnings showed a 10.4% increase in diluted EPS.

Frequently Asked Questions

IBM reported a revenue of $24.7 billion for the third quarter of 2012, a decrease of 5.4% compared to the same period in 2011. This decline was partly due to a 4% negative impact from currency fluctuations. Adjusted for currency, revenue was down 1.8%.

Despite the revenue decline, IBM demonstrated improved profitability. The gross profit margin increased to 47.4% from 46.5% in the prior year's quarter. Net income was $3.82 billion, down slightly by 0.4%. However, the net income margin expanded to 15.5% from 14.7%, driven by operational efficiencies and a favorable shift in business mix.

IBM announced its agreement to acquire Kenexa Corporation, a provider of recruiting and talent management solutions. This acquisition is expected to strengthen IBM's offerings in cloud-based technology and consulting services, enhancing its portfolio for critical business functions related to workforce management. The deal was anticipated to close in the fourth quarter of 2012.

Yes, IBM recorded a pre-tax charge of $162 million ($125 million after tax) in the third quarter of 2012 due to a UK court ruling concerning one of IBM UK's defined benefit pension plans. This charge is not included in the company's operating (non-GAAP) earnings, which showed a healthier increase in performance.