2Q12 charts (pdf, 588 KB)

®
2Q 2012 Earnings Presentation
July 18, 2012
www.ibm.com/investor
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/2q12/
The Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s
Form 8-K dated July 18, 2012.
www.ibm.com/investor
2
2Q 2012 Highlights
Revenue
$25.8B (3%), +1% yr/yr @CC
Operating Net Income
$4.1B +8% yr/yr
Operating (Non-GAAP) EPS
$3.51 +14% yr/yr
Free Cash Flow
$3.7B +9% yr/yr
 2Q Segment highlights:
• Software revenue @CC led by Europe, Japan, Growth Markets
• Services profit +18%; backlog flat @CC
• Systems & Technology impacted by product cycle; gained share in Power
 Expanded gross, pre-tax, and net operating margins
 Strong cash flow supports investment and shareholder returns
Increasing expectations to at least $15.10 of Operating EPS in 2012
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3
Key Financial Metrics
$ in Billions, except EPS
P&L Highlights
Revenue
2Q12
$25.8
(3%)
GP Margin
48.2% 1.5 pts
1%
PTI Margin
21.1% 2.2 pts
$4.1
8%
Tax Rate
25.0%
$3.51
14%
NI Margin
15.8% 1.6 pts
@CC
NI – Operating
EPS – Operating
P&L Ratios
(Operating)
B/(W)
Yr/Yr
Cash Highlights
2Q12
2Q12
Last
12 Mos.
$3.7
$18.0
Share Repurchase
3.0
13.0
Dividends
1.0
3.6
Free Cash Flow (excl GF Receivables)
Cash Balance @ June 30
B/(W)
Yr/Yr
Flat
11.2
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4
Revenue by Geography
$ in Billions
2Q12
Americas
B/(W) Yr/Yr
Rptd
@CC
$11.1
(1%)
1%
Europe/ME/A
7.9
(9%)
Flat
Asia Pacific
6.3
2%
OEM
0.5
IBM
$25.8
Major Markets
Growth Markets
BRIC Countries
(24%)
4%
(24%)
(3%)
1%
(4%)
(1%)
2%
8%
5%
12%
Canada/
LA
EMEA
U.S.
Flat
Japan APac
- 5%
@CC
OEM
Performance led by Growth Markets
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5
Revenue and Gross Profit Margin by Segment
Operating
Gross Profit Margin
Revenue
$ in Billions
2Q12
B/(W) Yr/Yr
Rptd
@CC
2Q12
B/(W)
Yr/Yr Pts
$10.0
(2%)
2%
36.3%
2.3 pts
Global Business Services
4.7
(4%)
(1%)
30.7%
1.9 pts
Software
6.2
Flat
4%
88.4%
Flat
Systems & Technology
4.3
(9%)
(7%)
38.3%
(2.3 pts)
Global Financing
0.5
Flat
4%
46.0%
(2.7 pts)
(3%)
1%
48.2%
1.5 pts
Global Technology Services
Total Revenue &
Operating GP Margin
$25.8
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6
Expense Summary
$ in Billions
2Q12
B/(W)
Yr/Yr
SG&A – Operating
$5.7
RD&E – Operating
1.6
Currency
Acq.*
Base
4%
5 pts
(2 pts)
1 pts
Flat
3 pts
(3 pts)
1 pts
7 pts
(2 pts)
1 pts
IP and Development Income
(0.3)
(2%)
Other (Income)/Expense
(0.1)
nm
0.1
(20%)
Interest Expense
Operating Expense & Other Income
$7.0
B/(W) Yr/Yr Drivers
6%
* Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges
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7
Services Segments
Global Technology Services (GTS)
$ in Billions
2Q12
Revenue (External)
Gross Margin (External)
$10.0
36.3%
Pre-Tax Income
$1.8
PTI Margin
17.1%
2Q12 Revenue
Global Business Services (GBS)
B/(W) Yr/Yr
@CC
Rptd
(2%)
2.3 pts
2%
3.6 pts
PTI Margin
Rptd
(3%)
Flat
(3%)
@CC
2%
4%
2%
(5%)
(4%)
(1%)
Flat
GBS
GBS Outsourcing
Consulting & Systems Integration
Services Backlog
2Q12
$136B
(6%)
(4%)
30.7%
1.9 pts
$0.8
7%
16.6%
1.8 pts
Pre-Tax Income
Yr/Yr
GTS
GTS Outsourcing
Integrated Technology Services
Maintenance
$4.7
Revenue (External)
Gross Margin (External)
24%
2Q12
B/(W) Yr/Yr
Rptd
@CC
$ in Billions
Flat
(1%)
2Q12 Revenue
(% of Total Services)
Maint.
12%
ITS
16%
GTS
Outsourcing
40%
GBS
Outsourcing
7%
GBS C&SI
25%
Total Services Pre-Tax Income +18% yr/yr
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8
Software Segment
$ in Billions
2Q12
$6.2
88.4%
$2.5
35.9%
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
2Q12 Revenue
Yr/Yr
Rptd
@CC
3%
7%
(1%)
3%
Tivoli
2%
6%
Lotus
(8%)
(4%)
Rational
(7%)
(3%)
Flat
4%
(1%)
3%
Flat
4%
WebSphere Family
Information Management
Key Branded Middleware
Total Middleware
Total Software
B/(W) Yr/Yr
Rptd
@CC
Flat
4%
Flat
8%
2.7 pts
2Q12 Revenue
(% of Total Software)
Key
Branded
Middleware
64%
Other
Middleware
18%
Operating
Systems
Other 10%
8%
Share gains in WebSphere and Tivoli
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9
Systems & Technology Segment
$ in Billions
Revenue (External)
Gross Margin (External)
2Q12
B/(W) Yr/Yr
Rptd
@CC
$4.3
(9%)
38.3%
(2.3 pts)
Pre-Tax Income
$0.2
(40%)
PTI Margin
5.3%
2Q12 Revenue
System z
Power Systems
System x
Storage
Retail Store Solutions
Total Systems
Microelectronics OEM
Total Systems & Technology
Yr/Yr
Rptd
(11%)
(7%)
(8%)
(4%)
(4%)
(7%)
(22%)
(9%)
@CC
(9%)
(4%)
(5%)
Flat
(1%)
(5%)
(22%)
(7%)
(7%)
(2.7 pts)
2Q12 Revenue
(% of Total Sys & Tech)
Servers
66%
Storage
20%
M i cr
RSS
o OE
1 0% M
Continued share gains in Power driven by competitive displacements
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10
Cash Flow Analysis
2Q12
B/(W)
Yr/Yr
YTD
1H12
B/(W)
Yr/Yr
$4.4
$0.2
$8.7
$0.7
(0.5)
(0.5)
0.9
(1.0)
4.9
0.6
7.8
1.6
(1.3)
(0.3)
(2.3)
(0.3)
3.7
0.3
5.5
1.4
Acquisitions
(0.6)
(0.5)
(1.9)
(1.8)
Divestitures
0.0
0.0
0.0
0.0
Dividends
(1.0)
(0.1)
(1.8)
(0.1)
Share Repurchases
(3.0)
1.0
(6.0)
2.0
0.9
1.0
1.6
0.6
(1.2)
(1.3)
1.9
(2.9)
$ 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
($1.1)
$0.3
($0.7)
($0.8)
Strong Free Cash Flow performance
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11
Balance Sheet Summary
June 11
Dec. 11
June 12
$11.8
$11.9
$11.2
Non-GF Assets*
68.8
69.4
70.2
Global Financing Assets
32.9
35.1
32.5
113.5
116.4
113.8
Other Liabilities
60.5
64.9
60.8
Non-GF Debt*
6.4
8.0
9.8
23.4
23.3
22.6
29.8
31.3
32.4
Total Liabilities
90.3
96.2
93.3
Equity
23.2
20.2
20.6
24%
32%
36%
7.0
7.2
7.0
$ in Billions
Cash & Marketable Securities
Total Assets
Global Financing Debt
Total Debt
Non-GF Debt / Capital
Global Financing Leverage
* Includes eliminations of inter-company activity
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12
Operating EPS Bridge – 2Q11 to 2Q12
$0.17
$3.51
$0.35
$3.09
($0.10)
2Q11
Operating EPS
Revenue Growth
@ Actual
Margin
Expansion
www.ibm.com/investor
Share
Repurchases
2Q12
Operating EPS
13
2015e
At least
$20
2Q 2012 Summary
 Continued strength in growth initiatives
• Growth markets YTD revenue up 9% yr/yr @CC
2012e
$15.10+
2011
$13.44
2010
$11.67
• Business analytics YTD revenue up 13% yr/yr
• Cloud YTD revenue doubled yr/yr
• Smarter Planet YTD revenue >20% yr/yr
 Annuity businesses provide solid base of revenue,
profit and cash
 Productivity initiatives drive structural improvements
and contribute to margin expansion
 Strong cash performance supports investment and
shareholder returns
Operating EPS
Increasing expectations to at least $15.10 of Operating EPS in 2012
www.ibm.com/investor
14
www.ibm.com/investor
15
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 & Technology, Software
Global Financing Portfolio
Revenue by Key Industry Sales Unit
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
• Reconciliation of Operating Earnings Per Share
• GAAP to Operating (Non-GAAP) Bridge – 2Q 2012
• GAAP to Operating (Non-GAAP) Bridge – 2Q 2011
• GAAP to Operating (Non-GAAP) Bridge – 2Q 2012
• GAAP to Operating (Non-GAAP) Bridge – 2Q 2011
• Reconciliation of Free Cash Flow (excluding GF Receivables)
• Reconciliation of Revenue Growth
• Reconciliation of B/(W) Yr/Yr Expense Drivers – 2Q12
• Reconciliation of Debt-to-Capital Ratio
• Reconciliation of Operating EPS Bridge 2Q11 to 2Q12
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16
Currency – Year/Year Comparison
Quarterly Averages per US $
Yr/Yr @ 7/17 Spot
3Q12
4Q12
FY12
1Q12
Yr/Yr
2Q12
Yr/Yr
7/17
Spot
Euro
0.76
(4%)
0.78
(12%)
0.82
(15%)
(10%)
(10%)
Pound
0.64
(2%)
0.63
(3%)
0.64
(3%)
(1%)
(2%)
79
4%
80
2%
79
(2%)
(2%)
0%
Yen
IBM Revenue Impact
(1 pts)
(4 pts)
~(4-5 pts)
~(2-3 pts)
~(3 pts)
~(3 pts)
~(3 pts)
~(0-1 pts)
(2 pts)
(US$B)
Yr/Yr
(US$B)
(US$B)
(US$B)
$25.8
(3%)
($1.2)
($0.8)
($3.1)
April 17 View
2Q12
Revenue As Reported
Currency Impact
Revenue @CC
(1.0)
(4 pts)
1%
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17
Supplemental Materials
Supplemental Segment Information – 2Q 2012
Supplemental Revenue Information
Supplemental Backlog / Signings Information
Revenue Growth
$ in Billions
Yr/Yr
@CC
Global Services
2Q12
Yr/Yr
@CC
(3%)
2%
Total Backlog
$136
($8)
$1
Flat
4%
Change in Backlog due to Currency
(3%)
2%
(2%)
2%
($8)
($2)
GBS Outsourcing
(5%)
(1%)
GBS C&SI
(4%)
Flat
(4%)
(1%)
Global Services
GTS Outsourcing
Integrated Tech Services
Maintenance
Total GTS
Total GBS
Backlog
Quarter-to-Quarter
($3)
Year-to-Year
($9)
Outsourcing Backlog
$88
$ in Billions
Global Services
Outsourcing
Signings
2Q12
Yr/Yr
@CC
$6.8
(5%)
(1%)
6.9
(3%)
1%
$13.7
(4%)
Flat
- GTS O/S, GBS O/S (AMS)
Total Outsourcing
(3%)
1%
Total Transactional
(3%)
1%
Maintenance
(3%)
2%
Transactional
- ITS, Consulting & AMS SI
(incl. US Federal)
Total Signings
Note: Actual backlog calculated using June 30 currency spot rates
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18
Supplemental Materials
Supplemental Segment Information – 2Q 2012
Revenue Growth
Revenue Growth
Systems & Technology
Yr/Yr
@CC
GP%
Share
Software
Yr/Yr
@CC
3%
7%
(1%)
3%
Tivoli
2%
6%
WebSphere Family
(11%)
(9%)
Power Systems
(7%)
(4%)
System x
(8%)
(5%)
Lotus
(8%)
(4%)
Storage
(4%)
Flat
Rational
(7%)
(3%)
Retail Store Solutions
(4%)
(1%)
Flat
4%
(7%)
(5%)
(3%)
1%
(1%)
3%
(22%)
(22%)
Operating Systems
Flat
3%
(9%)
(7%)
Other Software/Services
8%
12%
Total Software
Flat
4%
System z
Total Systems
Microelectronics OEM
Total Systems & Technology
Information Management
=
Key Branded Middleware
Other Middleware
Total Middleware
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19
Supplemental Materials
Global Financing Portfolio
2Q12 – $25.1B Net External Receivables
40%
Investment Grade
61%
Non-Investment Grade
39%
37%
30%
20%
24%
21%
10%
12%
0%
Aaa-A3
Baa1-Baa3
Ba1-Ba2
1%
B2-B3
Caa-D
2Q12
1Q12
2Q11
Identified Loss Rate
0.8%
0.8%
1.0%
Anticipated Loss Rate
0.5%
0.5%
0.3%
Reserve Coverage
1.3%
1.3%
1.3%
2.6
2.8
2.4
$33M
$68M
$32M
Client Days Delinquent Outstanding
Commercial A/R > 30 days
20
Ba3-B1
5%
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20
Supplemental Materials
Revenue by Key Industry Sales Unit
$ in Billions
Financial Services
2Q12
$7.5
B/(W) Yr/Yr
Rptd
@CC
(3%)
1%
Public
4.0
1%
4%
Industrial
2.6
(1%)
3%
Distribution
2.4
(7%)
(4%)
Communications
2.4
(9%)
(5%)
General Business
5.5
Flat
5%
(3%)
1%
Total IBM
$25.8
www.ibm.com/investor
Public
Financial
Services
Industrial
Distribution
Comms
General
Business
21
Supplemental Materials
$ in Billions
Cash Flow (FAS 95)
QTD
2Q12
QTD
2Q11
YTD
1H12
YTD
1H11
$3.9
$3.7
$6.9
$6.5
Depreciation / Amortization of Intangibles
1.2
1.2
2.3
2.4
Stock-based Compensation
0.2
0.2
0.3
0.3
Working Capital / Other
(0.3)
(0.7)
(1.8)
(3.1)
Global Financing A/R
(0.5)
0.0
0.9
1.9
4.4
4.3
8.7
8.1
(1.3)
(1.0)
(2.3)
(2.0)
0.0
0.0
0.0
0.0
(0.6)
(0.1)
(1.9)
(0.2)
0.2
0.5
0.3
2.1
(1.7)
(0.6)
(3.9)
(0.1)
0.3
(0.7)
1.3
1.0
Dividends
(1.0)
(0.9)
(1.8)
(1.7)
Common Stock Repurchases
(3.0)
(4.0)
(6.0)
(8.0)
0.3
0.7
0.9
1.6
Net Cash used in Financing Activities
(3.4)
(4.9)
(5.7)
(7.2)
Effect of Exchange Rate changes on Cash
(0.4)
0.2
(0.2)
0.3
($1.1)
$1.1
Net Income from Operations
Net Cash provided by Operating Activities
Capital Expenditures, net of payments & proceeds
Divestitures, net of cash transferred
Acquisitions, net of cash acquired
Marketable Securities / Other Investments, net
Net Cash used in Investing Activities
Debt, net of payments & proceeds
Common Stock Transactions - Other
Net Change in Cash & Cash Equivalents
($1.0)
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($1.0)
22
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 excluding the effects of certain acquisition-related 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 retirementrelated 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 the 2015 earnings per share roadmap, the company is utilizing an operating view to establish its objectives
and track its progress. Effective January 1, 2011, 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.
www.ibm.com/investor
23
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
profit-generating 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.
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24
Supplemental Materials
Non
-GAAP Supplemental Materials
Non-GAAP
Reconciliation of Operating Earnings Per Share
2012
Expectations
IBM GAAP EPS
$14.40+
IBM Operating EPS (Non-GAAP)
$15.10+
Adjustments
Acquisition-Related Charges *
$0.46
Amortization of Purchased Intangibles
$0.43
Other Acquisition-Related Charges
$0.03
Non-Operating Retirement-Related Items
$0.24
* Includes acquisitions closed as of 6/30/2012
The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2012 Highlights” and “2Q 2012 Summary” discussions in the
company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
25
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – 2Q 2012
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$12,281
$93
$66
$12,440
SG&A
5,837
(87)
(33)
5,717
RD&E
1,587
0
5
1,592
(132)
(1)
0
(133)
Total Operating Expense & Other Income
7,120
(88)
(28)
7,004
Pre-Tax Income
5,161
181
94
5,436
Tax ***
1,280
49
30
1,359
Net Income
3,881
132
64
4,077
Diluted Earnings Per Share
$3.34
$0.11
Other Income & Expense
$0.06
$3.51
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and
acquisition integration tax charges
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements,
curtailments, multi-employer plans and insolvency insurance
***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under
ASC 740, which employs an annual effective tax rate method to the results.
The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2012 Highlights,” “Key Financial Metrics” and “Expense
Summary” discussions in the company’s earnings presentation. See Slide 23 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 Operating (Non-GAAP) Bridge – 2Q 2011
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$12,385
$87
$6
$12,477
(76)
(5)
5,950
24
1,593
SG&A
6,030
RD&E
1,569
Other Income & Expense
0
97
(1)
0
96
Total Operating Expense & Other Income
7,500
(77)
18
7,441
Pre-Tax Income
4,885
163
(12)
5,036
Tax ***
1,221
38
0
1,259
Net Income
3,664
126
(13)
3,777
Diluted Earnings Per Share
$3.00
$0.10
($0.01)
$3.09
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and
acquisition integration tax charges
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements,
curtailments, multi-employer plans and insolvency insurance
***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under
ASC 740, which employs an annual effective tax rate method to the results.
The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2012 Highlights,” “Key Financial Metrics” and “Expense
Summary” discussions in the company’s earnings presentation. See Slide 23 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 Operating (Non-GAAP) Bridge – 2Q 2012
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments **
Operating
(Non-GAAP)
Gross Profit Margin
47.6%
0.4 pts
0.3 pts
48.2%
PTI Margin
20.0%
0.7 pts
0.4 pts
21.1%
Tax Rate ***
24.8%
0.1 pts
0.1 pts
25.0%
Net Income Margin
15.1%
0.5 pts
0.2 pts
15.8%
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs
and acquisition integration tax charges
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other
settlements, curtailments, multi-employer plans and insolvency insurance
***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax
Income under ASC 740, which employs an annual effective tax rate method to the results.
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 23 of this presentation for additional information on the use of these Non-GAAP financial measures.
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28
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – 2Q 2011
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments **
Operating
(Non-GAAP)
Gross Profit Margin
46.4%
0.3 pts
0.0 pts
46.8%
PTI Margin
18.3%
0.6 pts
(0.0 pts)
18.9%
Tax Rate ***
25.0%
(0.1 pts)
0.1 pts
25.0%
Net Income Margin
13.7%
0.5 pts
(0.0 pts)
14.2%
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs
and acquisition integration tax charges
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other
settlements, curtailments, multi-employer plans and insolvency insurance
***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax
Income under ASC 740, which employs an annual effective tax rate method to the results.
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 23 of this presentation for additional information on the use of these Non-GAAP financial measures.
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Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Free Cash Flow (excluding GF Receivables)
12 months ended
6/30/12
$ in Billions
Net Cash from Operations
$20.5
Less: Global Financing Receivables
Net Cash from Operations (excluding GF Receivables)
Net Capital Expenditures
(1.8)
22.3
(4.3)
Free Cash Flow (excluding GF Receivables)
$18.0
The above serves to reconcile the Non-GAAP financial information contained in the “Key Financial Metrics” discussion in the company’s
earnings presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures.
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Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Revenue Growth
2Q12 Yr/Yr
As Rptd
@CC
China
26%
24%
Japan
(3%)
(5%)
Major Markets – Services
(4%)
(1%)
Growth Markets – Services
Growth Markets – ITS
Europe – GBS
Storage Software
3%
10%
10%
16%
(11%)
9%
(3%)
13%
1H12 Yr/Yr
As Rptd
Growth Markets
5%
@CC
9%
The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography,” “Services Segments,”
“Software Segment,” “Systems and Technology Segment,” and “2Q 2012 Summary” discussions in the company’s earnings
presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures.
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Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of B/(W) Yr/Yr Expense Drivers – 2Q12
GAAP
Non-GAAP
Adjustments
Operating
(Non-GAAP)
5 pts
0 pts
5 pts
(2 pts)
0 pts
(2 pts)
1 pts
0 pts
1 pts
3 pts
0 pts
3 pts
(3 pts)
0 pts
(3 pts)
0 pts
1 pts
1 pts
7 pts
0 pts
7 pts
(3 pts)
0 pts
(2 pts)
0 pts
1 pts
1 pts
SG&A
Currency
Acquisitions
Base
RD&E
Currency
Acquisitions
Base
Operating Expense & Other Income
Currency
Acquisitions
Base
The above serves to reconcile the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings
presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures.
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Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Debt-to-Capital Ratio
2Q11
FY11
2Q12
Non-Global Financing Debt / Capital
24%
32%
36%
IBM Consolidated Debt / Capital
56%
61%
61%
The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet” discussion in the company’s
earnings presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures.
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33
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Operating EPS Bridge 2Q11 to 2Q12
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
2Q11 EPS
$3.00
$0.10
($0.01)
$3.09
Revenue growth @ actual
(0.10)
-
-
(0.10)
Margin expansion
0.28
-
0.07
0.35
Share repurchases
0.16
0.01
-
0.17
$3.34
$0.11
2Q12 EPS
$0.06
$3.51
* Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs
and acquisition integration tax charges
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other
settlements, curtailments, multi-employer plans and insolvency insurance
The above serves to reconcile the Non-GAAP financial information contained in the “Operating EPS Bridge – 2Q11 to 2Q12” discussion in the
company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures.
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34
www.ibm.com/investor
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