Charts (2.93MB)

2Q 2015 Earnings Presentation
July!20,!2015!
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Forward Looking Statements and Non-GAAP Information
Certain comments made in this presentation may be characterized as forward looking under the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the
company's current assumptions regarding future business and financial performance. Those
statements by their nature address matters that are uncertain to different degrees. Those
statements involve a number of factors that could cause actual results to differ materially.
Additional information concerning these factors is contained in the Company's filings with the
SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations.
Any forward-looking statement made during this presentation speaks only as of the date on
which it is made. The company assumes no obligation to update or revise any forward-looking
statements. These charts and the associated remarks and comments are integrally related, and
are intended to be presented and understood together.
In an effort to provide additional and useful information regarding the company’s financial
results and other financial information as determined by generally accepted accounting
principles (GAAP), the company also discusses, in its earnings press release and earnings
presentation materials, certain non-GAAP information including "operating earnings" and other
"operating" financial measures. The rationale for management’s use of this non-GAAP
information, the reconciliation of that information to GAAP, and other related information are
included in supplemental materials entitled “Non-GAAP Supplemental Materials” that are posted
on the Company’s investor relations web site at
http://www.ibm.com/investor/events/earnings/2q15.html The Non-GAAP Supplemental Materials
are also included as Attachment II to the Company’s Form 8-K dated July 20, 2015.
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2Q and 1H 2015 Overview
Revenue ($B)
Yr/Yr As Reported
Operating (Non-GAAP) EPS
2Q15
Yr/Yr
1H15
Yr/Yr
$20.8
(1%)*
(13%)
(13%)
$40.4
0%*
(13%)
(5%)
$3.84
$6.75
* Revenue growth rate @CC and excluding divested businesses
! First half revenue roughly flat yr/yr
•  Strategic imperatives up >30% yr/yr
•  Services improving revenue trend, Backlog up yr/yr
•  Systems strength driven by z and Power Systems
•  BRIC countries impact growth
! Margin expansion reflects shift to higher value
! Shifting investments to address long-term opportunities in Enterprise IT
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Key Financial Metrics
$ in Billions, except EPS
P&L Highlights
2Q15
Yr/Yr
P&L Ratios
(Operating)
$20.8
(1%)
PTI – Operating
$4.6
NI – Operating
2Q15
B/(W)
Yr/Yr
GP Margin
50.9%
0.2 pts
(18%)
PTI Margin
22.0%
(1.3 pts)
$3.8
(15%)
Tax Rate
17.2%
3.3 pts
$3.84
(13%)
NI Margin
18.2%
(0.3 pts)
2Q15
Last
12 Mos.
$3.4
$13.2
Share Repurchase (Gross)
1.1
4.2
Dividends
1.3
4.5
Cash Balance @ June 30
8.8
Revenue
EPS – Operating
Revenue growth rate @CC and excluding System x business
Cash Highlights
Free Cash Flow (excl. GF Receivables)
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Revenue by Geography
$ in Billions
Americas
2Q15
Yr/Yr
$9.8
(2%)
Europe/ME/Africa
6.6
1%
Asia Pacific
4.3
(1%)
$20.8
(1%)
IBM
Major Markets
Growth Markets
BRIC Countries
Flat
Canada/!!!!!
LA!!!
U.S.!
23%!!
EMEA!
!!!!
Japan! AP!
ex.!Japan!
+7%!
(5%)
(18%)
Revenue growth rate @CC and excluding System x business
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Revenue and Gross Profit Margin by Segment
$ in Billions
Global Technology Services
Revenue
Operating
Gross Profit Margin
2Q15
Yr/Yr
2Q15
Yr/Yr Pts
$8.1
1%
36.6%
(2.3 pts)
Global Business Services
4.3
(3%)
27.4%
(2.4 pts)
Software
5.8
(3%)
87.8%
(1.0 pts)
Systems Hardware
2.1
5%
48.2%
8.5 pts
Global Financing
0.5
7%
44.7%
(10.1 pts)
(1%)
50.9%
0.2 pts
Total Revenue & Op. GP Margin
$20.8
Revenue growth rates @CC and excluding System x business
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Expense Summary
$ in Billions
2Q15
B/(W)
Yr/Yr
SG&A – Operating
$5.0
8%
RD&E – Operating
1.3
7%
IP and
Development Income
(0.1)
(33%)
Other (Income)/
Expense
(0.3)
52%
Interest Expense
0.1
15%
$6.0
9%
Operating Expense &
Other Income
Drivers
B/(W)
Yr/Yr
Currency
11 pts
System x Divestiture
2 pts
Workforce Rebalancing
(3 pts)
Divestiture Gains
(1 pts)
Operating Expense &
Other Income
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9%
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Services Segments
Global!Technology!Services!(GTS)!
$ in Billions
2Q15
Yr/Yr
$8.1
1%
Gross Margin (External)
36.6%
(2.3 pts)
PTI Margin
15.1%
(2.9 pts)
Revenue (External)
GTS 2Q15 Revenue
Global!Business!Services!(GBS)!
$ in Billions
2Q15
Yr/Yr
$4.3
(3%)
Gross Margin (External)
27.4%
(2.4 pts)
PTI Margin
14.7%
(5.3 pts)
Revenue (External)
Yr/Yr
GTS Outsourcing
Integrated Technology Services
Maintenance
GBS 2Q15 Revenue
GBS Outsourcing
Consulting & Systems Integration
1%
1%
2%
Flat
(4%)
2Q15
Backlog
$122B
1%
2Q15!Revenue!
(%!of!Total!Services)!
Maint.!!!
13%!
GTS!
Outsourcing!!!
35%!!
ITS!
17%!
GBS!C&SI!!!!!!!!!
25%!
GBS!
Outsourcing!!!
10%!!
Revenue growth rates @CC and excluding System x business; Backlog @CC
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Software Segment
$ in Billions
Revenue (External)
Gross Margin (External)
PTI Margin
2Q15 Revenue
Yr/Yr
WebSphere
5%
Information Management
Flat
Tivoli
(1%)
Workforce Solutions
(3%)
Rational
(2%)
Key Branded Middleware
Flat
Total Middleware
(2%)
Total Software
(3%)
2Q15
Yr/Yr
$5.8
87.8%
34.4%
(3%)
(1.0 pts)
(2.1 pts)
2Q15!Revenue!!!!!!!!!!!!!
(%!of!Total!SoUware)!
Key!!!!!!!
Branded!
Middleware!!
69%!!
Other!
Middleware!!
16%!
OperaZng!
Systems!!!!!!!
8%!
Other!!!!!!!!!
7%!
Revenue growth rates @CC
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Systems Hardware Segment
$ in Billions
Revenue (External)
Gross Margin (External)
PTI Margin
2Q15
Yr/Yr
$2.1
48.2%
11.8%
5%
8.5 pts
5.5 pts
2Q15 Revenue
Yr/Yr
z Systems
Power Systems
Storage
Total Systems Hardware
2Q15!Revenue!
(%!of!Total!Sys!Hardware)!
15%
5%
(4%)
5%
Revenue growth rates @CC and excluding System x business
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Servers!!!!!!!!
67%!!
Storage!!!!!!!
30%!!
Other!
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Cash Flow Summary
2Q15
B/(W)
Yr/Yr
YTD
2Q15
B/(W)
Yr/Yr
$3.9
$0.3
$7.5
$0.6
(0.4)
(0.1)
1.2
(0.3)
4.3
0.4
6.3
0.9
(0.9)
0.0
(1.8)
0.0
3.4
0.4
4.5
0.8
Acquisitions
(0.6)
(0.2)
(0.7)
(0.1)
Divestitures
0.1
0.0
0.1
(0.3)
Dividends
(1.3)
(0.2)
(2.4)
(0.3)
Share Repurchases (Gross)
(1.1)
2.5
(2.3)
9.5
0.0
(1.4)
0.4
(4.6)
(0.5)
(1.3)
0.7
(3.4)
($0.1)
$0.3
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
Net Cash from Operations
(excluding GF Receivables)
Net Capital Expenditures
Free Cash Flow (excluding GF Receivables)
Non-GF Debt
Other (includes GF A/R & GF Debt)
Change in Cash & Marketable Securities
$0.0
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$1.6
11
Balance Sheet Summary
Jun. 14
$ in Billions
Dec. 14
Jun.15
Cash & Marketable Securities
$9.7
$8.5
$8.8
Non-GF Assets*
77.3
71.7
70.7
Global Financing Assets
37.3
37.3
33.3
124.3
117.5
112.7
Other Liabilities
60.3
64.7
60.2
Non-GF Debt*
17.1
11.7
12.6
Global Financing Debt
29.4
29.1
26.1
46.5
40.8
38.7
106.8
105.5
98.9
17.5
12.0
13.8
56%
59%
55%
7.1
7.2
7.0
Total Assets
Total Debt
Total Liabilities
Equity
Non-GF Debt / Capital
Global Financing Leverage
* Includes eliminations of inter-company activity
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Summary
! Strategic imperatives up >30% yr/yr in second quarter and first half
•  Core portfolio declining in declining market
! Margin improvements driven by shift to higher value
! Continuing high level of investment and shareholder returns
! Full year 2015 expectations
•  Continue to expect Operating EPS of $15.75 to $16.50
•  Now expect modest yr/yr increase in Free Cash Flow
Transforming!to!address!long2term!value!in!Enterprise!IT!
Revenue growth rates @CC and excluding System x business
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Supplemental Materials
Supplemental Materials
Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding
! 
! 
! 
! 
! 
! 
Currency – Year/Year Comparison
Supplemental Segment Information – Global Services
Supplemental Segment Information – Systems Hardware, Software
Global Financing Portfolio
Cash Flow (FAS 95)
Non-GAAP Supplemental Materials
•  Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency
•  Cash Flow, Debt-to-Capital Ratio, Customer Care Outsourcing and System x Business Divestiture
•  Reconciliation of Operating Earnings Per Share
•  GAAP to Operating (Non-GAAP) Bridge – 2Q 2015
•  GAAP to Operating (Non-GAAP) Bridge – 2Q 2014
•  GAAP to Operating (Non-GAAP) Bridge – 2Q YTD 2015
•  GAAP to Operating (Non-GAAP) Bridge – 2Q YTD 2014
•  GAAP to Operating (Non-GAAP) Bridge – 2Q 2015 and 2Q 2014
•  Reconciliation of Free Cash Flow (excluding GF Receivables) – 12 months ended 6/30/15
•  Reconciliation of Debt-to-Capital Ratio
•  Reconciliation of Revenue Growth
•  Reconciliation of Revenue Growth
•  Reconciliation of Revenue Growth
•  Reconciliation of Revenue Growth
•  Reconciliation of Revenue
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Supplemental Materials
Currency – Year/Year Comparison
Quarterly!Averages!per!US!$!
Yr/Yr @ 7/17 Spot
3Q15
4Q15
FY15
1Q15
Yr/Yr
2Q15
Yr/Yr
7/17
Spot
Euro
0.89
(22%)
0.90
(24%)
0.92
(22%)
(15%)
(21%)
Pound
0.66
(9%)
0.65
(10%)
0.64
(7%)
(1%)
(7%)
Yen
119
(16%)
121
(19%)
124
(19%)
(8%)
(15%)
IBM Revenue Impact
(8 pts)
(9 pts)
Prior View (April 2015)
Revenue As Reported
Currency Impact
Revenue @CC
(9 pts)
(US$B)
Yr/Yr
$20.8
(13%)
(8-9 pts) (5-6 pts) (7-8 pts)
(8 pts)
(5 pts)
~(7 pts)
(2.1) (9 pts)
(5%)
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Supplemental Materials
Supplemental Segment Information – 2Q 2015
Global Services Revenue
Global Services Backlog / Signings
$!in!Billions!
Revenue!Growth!
Yr/Yr!
Backlog!
2Q15!
Yr/Yr!
$122
1%
GTS Outsourcing
1%
Total Backlog
Integrated Tech Services
1%
Change in Backlog due to Currency
Maintenance
2%
Quarter-to-Quarter
1%
Year-to-Year
Total GTS
GBS Outsourcing
GBS C&SI
Total GBS
Flat
(4%)
!
Signings!
(3%)
Total Outsourcing
Flat
Total Transactional
(2%)
Maintenance
Outsourcing Backlog
Outsourcing
- GTS O/S, GBS O/S
Transactional
- ITS, Consulting & AMS SI
(incl. US Federal)
2%
Total Signings
All growth rates @CC and excluding System x business
$2
($16)
$77
4%
!
2Q15!
!
Yr/Yr!
$6.2
46%
5.4
(5%)
$11.6
17%
Actual backlog calculated using June 30 currency spot rates
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Supplemental Materials
Supplemental Segment Information – 2Q 2015
Systems Hardware
Revenue!Growth!
z Systems
Power Systems
Storage
Total Systems Hardware
Yr/Yr!
Software
GP%!
15%
5%
(4%)
5%
Revenue!Growth!
Yr/Yr!
WebSphere
5%
Information Management
Flat
Tivoli
(1%)
Workforce Solutions
(3%)
Rational
(2%)
Key Branded Middleware
Other Middleware
Flat
(12%)
Total Middleware
(2%)
Operating Systems
(9%)
Other Software/Services
(4%)
Total Software
(3%)
Revenue growth rates @CC and excluding System x business
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Supplemental Materials
Global Financing Portfolio
2Q15 – $26.7B Net External Receivables
40%
Investment Grade
57%
35%
30%
20%
Non-Investment Grade
43%
22%
21%
10%
12%
8%
2%
0%
Aaa to A3
Baa1 to Baa3
Ba1 to Ba2
B2 to B3
2Q15
1Q15
2Q14
Identified Loss Rate
2.1%
1.9%
1.1%
Anticipated Loss Rate
0.3%
0.4%
0.4%
Reserve Coverage
2.4%
2.3%
1.5%
3.8
4.2
3.8
$45M
$93M
$30M
Client Days Delinquent Outstanding
Commercial A/R > 30 days
19
Ba3 to B1
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Caa1 to D
19
Supplemental Materials
Cash Flow (FAS 95)
$ in Billions
QTD
2Q15
QTD
2Q14
YTD
2Q15
YTD
2Q14
Net Income from Operations
$3.4
$4.1
$5.8
$6.5
Depreciation / Amortization of Intangibles
1.0
1.2
1.9
2.3
Stock-based Compensation
0.1
0.1
0.3
0.3
Working Capital / Other
(0.3)
(1.6)
(1.7)
(3.7)
Global Financing A/R
(0.4)
(0.3)
1.2
1.5
3.9
3.6
7.5
6.9
(0.9)
(0.9)
(1.8)
(1.8)
0.1
0.0
0.1
0.4
Acquisitions, net of cash acquired
(0.6)
(0.3)
(0.7)
(0.6)
Marketable Securities / Other Investments, net
(0.5)
0.2
1.1
1.0
Net Cash used in Investing Activities
(1.9)
(1.0)
(1.4)
(1.0)
Debt, net of payments & proceeds
(0.2)
2.4
(1.5)
6.6
Dividends
(1.3)
(1.1)
(2.4)
(2.1)
Common Stock Repurchases
(1.1)
(3.7)
(2.3)
(11.8)
0.1
0.1
0.2
0.4
Net Cash used in Financing Activities
(2.6)
(2.3)
(6.0)
(6.9)
Effect of Exchange Rate changes on Cash
(0.2)
0.0
(0.2)
0.0
($0.4)
$0.3
($0.1)
Net Cash provided by Operating Activities
Capital Expenditures, net of payments & proceeds
Divestitures, net of cash transferred
Common Stock Transactions - Other
Net Change in Cash & Cash Equivalents
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($1.0)
20
Supplemental Materials
Non-GAAP Supplemental Materials
In an effort to provide investors with additional information regarding the company's results as determined by generally
accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation
materials, the following Non-GAAP information which management believes provides useful information to investors.
Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items
Management presents certain financial measures from continuing operations excluding the effects of certain acquisitionrelated charges, non-operating retirement-related costs and any related tax impacts. Management uses the term
"operating" to describe this view of the company's financial results and other financial information. For acquisitions, these
measures exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process
research and development, transaction costs, applicable restructuring and related expenses, and tax charges related to
acquisition integration. For retirement-related costs, the company has characterized certain items as operating and others
as non-operating. The company includes service cost, amortization of prior service cost and the cost of defined contribution
plans in its operating results. Non-operating retirement-related costs include interest cost, expected return on plan assets,
amortized actuarial gains/losses, the impacts of any plan curtailments/settlements, multi-employer plan costs, pension
insolvency costs, and other costs. Non-operating costs primarily relate to changes in pension plan assets and liabilities
which are tied to market performance, and management considers these costs to be outside the operational performance of
the business. Management s calculation of these operating measures, as presented, may differ from similarly titled
measures reported by other companies.
Overall, management believes that providing investors with an operating view as described above provides increased
transparency and clarity into both the operational results of the business and the performance of the company s pension
plans, improves visibility to management decisions and their impacts on operational performance, enables better
comparison to peer companies, and allows the company to provide a long term strategic view of the business going
forward. For its earnings per share guidance, the company is utilizing an operating view to establish its objectives and track
its progress. The company s segment financial results and performance reflect operating earnings, consistent with the
company s management and measurement system.
Constant Currency
Management refers to growth rates at constant currency or adjusting for currency so that certain financial results can be
viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period
comparisons of the company's business performance. Financial results adjusted for currency are calculated by translating
current period activity in local currency using the comparable prior year period s currency conversion rate. This approach is
used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or
weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower
than growth reported at actual exchange rates.
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21
Supplemental Materials
Non-GAAP Supplemental Materials
Cash Flow
Management uses a free cash flow measure to evaluate the company s operating results, plan share repurchase levels,
evaluate strategic investments and assess the company s ability and need to incur and service debt. The entire free cash
flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash
from operating activities less the change in Global Financing receivables and net capital expenditures, including the
investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and
increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profitgenerating investment, not as working capital that should be minimized for efficiency. Therefore, management includes
presentations of both free cash flow and cash flow from operations that exclude the effect of Global Financing receivables.
Debt-to-Capital Ratio
Management presents its debt-to-capital ratio excluding the Global Financing business. A financing business is managed on
a leveraged basis. The company funds its Global Financing segment using a debt-to-equity ratio target of approximately 7
to 1. Given this significant leverage, the company presents a debt-to-capital ratio which excludes the Global Financing
segment debt and equity because the company believes this is more representative of the company’s core business
operations.
Customer Care Outsourcing and System x Business Divestiture
With respect to the sale of IBM's worldwide customer care outsourcing services business to SYNNEX, the initial closing date
was January 31, 2014. With respect to the sale of IBM s x86 server business to Lenovo, the initial closing date was October
1, 2014. Management believes that presenting financial information without either or both of these items is more
representative of operational performance and provides additional insight into, and clarifies the basis for, historical and/or
future performance, which may be more useful to investors.
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22
Supplemental Materials
Non-GAAP Supplemental Materials
ReconciliaZon!of!OperaZng!Earnings!Per!Share!
2015
Expectations
IBM GAAP EPS
$14.25 - $15.00
IBM Operating EPS (Non-GAAP)
$15.75 - $16.50
Adjustments
Acquisition-Related Charges *
$0.70
Non-Operating Retirement-Related Items
$0.80
* Includes acquisitions through June 30, 2015
The above serves to reconcile the Non-GAAP financial information contained in Full Year Expectations and “Summary” discussions in the company s
earnings presentation. See Slide 21 of this presentation for additional information on the use of these Non-GAAP financial measures.
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23
23
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!2015!
$ in Millions, except EPS
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$10,390
$88
$112
$10,590
SG&A
5,179
(74)
(63)
5,042
RD&E
1,300
-
(11)
1,289
Other Income & Expense
(301)
(5)
-
(306)
Total Operating Expense & Other Income
6,165
(80)
(74)
6,012
Pre-Tax Income from Continuing Operations
4,224
168
186
4,578
698
28
61
788
Net Income from Continuing Operations
3,526
140
124
3,790
Diluted Earnings Per Share from Continuing
Operations
$3.58
$0.14
$0.12
$3.84
Gross Profit
Tax ***
*""Includes"amor/za/on"of""purchased"Intangibles,"in"process"R&D,"severance"cost"for"acquired"employees,"vacant"space"for"acquired"companies,"deal"costs"and"
acquisi/on"integra/on"tax"charges"
**"Includes"re/rement"related"interest"cost,"expected"return"on"plan"assets,"recognized"actuarial"losses"or"gains,"amor/za/on"of"transi/on"assets,"other"[email protected],"
curtailments,"mul/Aemployer"plans"and"insolvency"insurance"
***The"tax"impact"on"the"Opera/ng"(NonAGAAP)"PreATax"Income"from"con/nuing"opera/ons"is"calculated"under"the"same"accoun/ng"principles"applied"to"the"As"
Reported"PreATax"Income"under"ASC"740,"which"employs"an"annual"effec/ve"tax"rate"method"to"the"results."
"
The above serves to reconcile the Non-GAAP financial information contained in the “2Q and 1H 2015 Overview”, Key Financial Metrics and
Expense Summary discussions in the company’s earnings presentation. See Slide 21 of this presentation for additional information on the use of
these Non-GAAP financial measures.
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24
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!2014!
$ in Millions, except EPS
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$12,044
$105
$45
$12,195
SG&A
5,593
(98)
(27)
5,468
RD&E
1,361
-
20
1,381
Other Income & Expense
(202)
0
-
(202)
Total Operating Expense & Other Income
6,696
(98)
(7)
6,591
Pre-Tax Income from Continuing Operations
5,348
203
52
5,603
Tax ***
1,096
41
10
1,147
Net Income from Continuing Operations
4,251
163
42
4,456
Diluted Earnings Per Share from Continuing
Operations
$4.23
$0.16
$0.04
$4.43
Gross Profit
*""Includes"amor/za/on"of"purchased"Intangibles,"in"process"R&D,"severance"cost"for"acquired"employees,"vacant"space"for"acquired"companies,"deal"costs"and"
acquisi/on"integra/on"tax"charges."
**"Includes"re/rement"related"interest"cost,"expected"return"on"plan"assets,"recognized"actuarial"losses"or"gains,"amor/za/on"of"transi/on"assets,"other"[email protected],"
curtailments,"mul/Aemployer"plans"and"insolvency"insurance."
***The"tax"impact"on"the"Opera/ng"(NonAGAAP)"PreATax"Income"from"con/nuing"opera/ons"is"calculated"under"the"same"accoun/ng"principles"applied"to"the"As"
Reported"PreATax"Income"under"ASC"740,"which"employs"an"annual"effec/ve"tax"rate"method"to"the"results."
"
The above serves to reconcile the Non-GAAP financial information contained in the “2Q and 1H 2015 Overview”, Key Financial Metrics and Expense
Summary discussions in the company’s earnings presentation. See Slide 21 of this presentation for additional information on the use of these NonGAAP financial measures.
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Supplemental Materials
Non-GAAP Supplemental Materials
GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!YTD!2015!
$ in Millions, except EPS
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$19,842
$179
$233
$20,253
SG&A
10,541
(154)
(371)
10,017
RD&E
2,598
-
(24)
2,574
Other Income & Expense
(444)
(5)
-
(450)
12,617
(159)
(395)
12,063
Pre-Tax Income from Continuing Operations
7,225
338
627
8,190
Tax ***
1,283
56
170
1,510
Net Income from Continuing Operations
5,942
281
457
6,680
Diluted Earnings Per Share from Continuing
Operations
$6.01
$0.28
$0.46
$6.75
Gross Profit
Total Operating Expense & Other Income
*""Includes"amor/za/on"of"purchased"Intangibles,"in"process"R&D,"severance"cost"for"acquired"employees,"vacant"space"for"acquired"companies,"deal"costs"and"
acquisi/on"integra/on"tax"charges"
**"Includes"re/rement"related"interest"cost,"expected"return"on"plan"assets,"recognized"actuarial"losses"or"gains,"amor/za/on"of"transi/on"assets,"other"[email protected],"
curtailments,"mul/Aemployer"plans"and"insolvency"insurance"
***The"tax"impact"on"the"Opera/ng"(NonAGAAP)"PreATax"Income"from"con/nuing"opera/ons"is"calculated"under"the"same"accoun/ng"principles"applied"to"the"As"
Reported"PreATax"Income"under"ASC"740,"which"employs"an"annual"effec/ve"tax"rate"method"to"the"results."
"
The above serves to reconcile the Non-GAAP financial information contained in the “2Q and 1H 2015 Overview” and Expense Summary discussions
in the company’s earnings presentation. See Slide 21 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
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Supplemental Materials
Non-GAAP Supplemental Materials
GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!YTD!2014!
$ in Millions, except EPS
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$22,671
$209
$98
$22,978
SG&A
11,865
(196)
(114)
11,555
RD&E
2,763
-
37
2,800
Other Income & Expense
(330)
0
-
(330)
14,140
(196)
(77)
13,868
Pre-Tax Income from Continuing Operations
8,531
405
175
9,110
Tax ***
1,749
81
35
1,865
Net Income from Continuing Operations
6,782
324
140
7,246
Diluted Earnings Per Share from Continuing
Operations
$6.62
$0.32
$0.14
$7.08
Gross Profit
Total Operating Expense & Other Income
*""Includes"amor/za/on"of"purchased"Intangibles,"in"process"R&D,"severance"cost"for"acquired"employees,"vacant"space"for"acquired"companies,"deal"costs"and"
acquisi/on"integra/on"tax"charges"
**"Includes"re/rement"related"interest"cost,"expected"return"on"plan"assets,"recognized"actuarial"losses"or"gains,"amor/za/on"of"transi/on"assets,"other"[email protected],"
curtailments,"mul/Aemployer"plans"and"insolvency"insurance"
***The"tax"impact"on"the"Opera/ng"(NonAGAAP)"PreATax"Income"from"con/nuing"opera/ons"is"calculated"under"the"same"accoun/ng"principles"applied"to"the"As"
Reported"PreATax"Income"under"ASC"740,"which"employs"an"annual"effec/ve"tax"rate"method"to"the"results."
"
The above serves to reconcile the Non-GAAP financial information contained in the “2Q and 1H 2015 Overview” and Expense Summary discussions
in the company’s earnings presentation. See Slide 21 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
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Supplemental Materials
Non-GAAP Supplemental Materials
GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!2015!and!2Q!2014!
GAAP
Acquisitionrelated
Adjustments*
Retirement-related
Adjustments **
Operating
(Non-GAAP)
Gross Profit Margin from Continuing Operations
49.9%
0.4 pts
0.5 pts
50.9%
PTI Margin from Continuing Operations
20.3%
0.8 pts
0.9 pts
22.0%
Tax Rate ***
16.5%
0.0 pts
0.7 pts
17.2%
Net Income Margin from Continuing Operations
16.9%
0.7 pts
0.6 pts
18.2%
Gross Profit Margin from Continuing Operations
50.1%
0.4 pts
0.2 pts
50.7%
PTI Margin from Continuing Operations
22.2%
0.8 pts
0.2 pts
23.3%
Tax Rate ***
20.5%
0.0 pts
0.0 pts
20.5%
Net Income Margin from Continuing Operations
17.7%
0.7 pts
0.2 pts
18.5%
2Q 2015
2Q 2014
*""Includes"amor/za/on"of"purchased"Intangibles,"in"process"R&D,"severance"cost"for"acquired"employees,"vacant"space"for"acquired"companies,"deal"costs"and"
acquisi/on"integra/on"tax"charges"
**"Includes"re/rement"related"interest"cost,"expected"return"on"plan"assets,"recognized"actuarial"losses"or"gains,"amor/za/on"of"transi/on"assets,"other"
[email protected],"curtailments,"mul/Aemployer"plans"and"insolvency"insurance"
***The"tax"impact"on"the"Opera/ng"(NonAGAAP)"PreATax"Income"from"con/nuing"opera/ons"is"calculated"under"the"same"accoun/ng"principles"applied"to"the"As"
Reported"PreATax"Income"under"ASC"740,"which"employs"an"annual"effec/ve"tax"rate"method"to"the"results."
"
"The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics and “Revenue and Gross Profit Margin by
Segment” discussions in the company’s earnings presentation. See Slide 21 of this presentation for additional information on the use of these NonGAAP financial measures.
www.ibm.com/investor
28
Supplemental Materials
Non-GAAP Supplemental Materials
ReconciliaZon!of!Free!Cash!Flow!(excluding!GF!Receivables)!
12 months
ended
6/30/15
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
Net Cash from Operations
(excluding GF Receivables)
Net Capital Expenditures
Free Cash Flow
(excluding GF Receivables)
$17.5
0.4
17.0
(3.8)
$13.2
The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics discussions in the company s
earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
29
29
Supplemental Materials
Non-GAAP Supplemental Materials
ReconciliaZon!of!Debt2to2Capital!RaZo!
June 2015
Dec. 2014
June 2014
Non-Global Financing Debt / Capital
55%
59%
56%
IBM Consolidated Debt / Capital
74%
77%
73%
The above serves to reconcile the Non-GAAP financial information contained in the Balance Sheet Summary discussions in the
company’s earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial
measures.
www.ibm.com/investor
30
Supplemental Materials
Non-GAAP Supplemental Materials
ReconciliaZon!of!Revenue!Growth!!
2Q15 Yr/Yr
GAAP
@CC
1Q15 Yr/Yr
@CC excl.
Divested
Businesses
IBM excluding BRIC countries
(11%)
(2%)
1%
Growth Markets excluding BRIC countries
(11%)
(2%)
5%
GAAP
(13%)
@CC
(6%)
@CC excl.
Divested
Businesses
1%
2Q YTD 2015 Yr/Yr
Security
GAAP
@CC
3%
10%
The above serves to reconcile the Non-GAAP financial information contained in the Revenue by Geography” and “2Q and 1H 2015 Overview”
discussions in the company s earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these NonGAAP financial measures.
www.ibm.com/investor
31
Supplemental Materials
Non-GAAP Supplemental Materials
ReconciliaZon!of!Revenue!Growth!!
2Q15 Yr/Yr
Americas
U.S.
Europe/ME/A
Asia Pacific
Japan
Major Markets
Growth Markets
BRIC Countries
Brazil
China
GAAP
(8%)
(5%)
(17%)
(19%)
(13%)
(11%)
(21%)
(35%)
(37%)
(40%)
@CC
(5%)
(5%)
(2%)
(8%)
4%
(2%)
(13%)
(28%)
(17%)
(40%)
@CC excl.
Divested
Businesses
(2%)
(3%)
1%
(1%)
7%
Flat
(5%)
(18%)
(16%)
(25%)
The above serves to reconcile the Non-GAAP financial information contained in the Revenue by Geography” discussions in the company s
earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
32
Supplemental Materials
Non-GAAP Supplemental Materials
ReconciliaZon!of!Revenue!Growth!!
2Q15 Yr/Yr
GTS Outsourcing
Integrated Technology Services
GBS Outsourcing
Consulting & Systems Integration
Total Outsourcing
Total Transactional
GAAP
(11%)
(8%)
(9%)
(13%)
(11%)
(11%)
@CC
1%
1%
Flat
(4%)
Flat
(2%)
2Q15 Yr/Yr
Global Technology Services (GTS)
Maintenance
GAAP
(10%)
(11%)
@CC
Flat
(1%)
@CC excl.
Divested
Businesses
1%
2%
@CC
(2%)
@CC excl.
Divested
Businesses
(1%)
1Q15 Yr/Yr
Global Technology Services (GTS)
GAAP
(11%)
The above serves to reconcile the Non-GAAP financial information contained in the Revenue and Gross Profit Margin by Segment”, “Services
Segment” and “Supplemental Segment Information-2Q 2015” discussions in the company s earnings presentation. See Slides 21-22 of this
presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
33
Supplemental Materials
Non-GAAP Supplemental Materials
ReconciliaZon!of!Revenue!Growth!!
2Q15 Yr/Yr
GAAP
(2%)
(8%)
(8%)
(12%)
(9%)
(9%)
(19%)
(11%)
WebSphere
Information Management
Tivoli
Workforce Solutions
Rational
Total Middleware
Other Middleware
Other Software/Services
@CC
5%
Flat
(1%)
(3%)
(2%)
(2%)
(12%)
(4%)
2Q15 Yr/Yr
Systems Hardware Segment
GAAP
(32%)
@CC
(28%)
@CC excl.
Divested
Businesses
5%
The above serves to reconcile the Non-GAAP financial information contained in the Revenue and Gross Profit Margin by Segment”,
“Software Segment”, “Systems Hardware Segment” and “Supplemental Segment Information-2Q 2015” discussions in the company s
earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
34
Supplemental Materials
Non-GAAP Supplemental Materials
ReconciliaZon!of!Revenue!!!
Trailing 12 months as of June 30, 2015
$ in Billions
Cloud
GAAP
$8.8
Excl. Divested
Business
$8.7
The above serves to reconcile the Non-GAAP financial information contained in the “2Q and 1H2015 Overview” discussions in the company s
earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
35
www.ibm.com/investor
36