3Q11 charts (pdf, 564 KB)

®
3Q 2011 Earnings Presentation
October 17, 2011
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 supplementary materials entitled “Non-GAAP Supplementary Materials” that are
posted on the Company’s investor relations web site at http://www.ibm.com/investor/3q11/
The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s
Form 8-K dated October 17, 2011.
www.ibm.com/investor
2
3Q 2011 Highlights
Revenue
$26.2B +8%, 3% yr/yr @CC
Operating (Non-GAAP) EPS
$3.28
+15% yr/yr
¾ Performance driven by:
•
•
•
•
Software PTI +12% yr/yr; Key Branded Middleware revenue +17%
Hardware PTI +8% yr/yr; Power Systems revenue +15%
Services PTI +13% yr/yr; revenue led by Growth Markets
Growth Markets revenue +19%, +13% @CC
¾ Continued strength across growth initiatives
¾ Expanded operating gross, pre-tax and net margins
¾ Returned over $4B to shareholders
Increasing 2011 Operating (Non-GAAP) EPS expectations to at least $13.35
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3
Key Financial Metrics
$ in Billions, except EPS
P&L Highlights
Revenue
3Q11
B/(W)
Yr/Yr
$26.2
8%
@CC
3%
P&L Ratios
(Operating)
3Q11
B/(W)
Yr/Yr
GP Margin
46.8%
1.5 pts
PTI Margin
19.8%
0.4 pts
0.2 pts
PTI – Operating
$5.2
10%
NI Margin
15.1%
EPS – Operating
$3.28
15%
Tax Rate
23.6% (0.6 pts)
Cash Highlights
3Q11
Last
12 Mos.
$3.5
$16.3
Share Repurchase
3.4
15.1
Dividends
0.9
3.4
Free Cash Flow
(excl GF Receivables)
Cash Balance @ Sept. 30
11.3
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4
Revenue by Geography
$ in Billions
Americas
3Q11
B/(W) Yr/Yr
Rptd
@CC
$10.9
7%
6%
Europe/ME/A
8.0
9%
Flat
Asia Pacific
6.5
10%
1%
OEM
0.7
(8%)
IBM
$26.2
Major Markets
Growth Markets
BRIC Countries
(8%)
8%
3%
5%
Flat
19%
13%
17%
13%
Canada/
LA
EMEA
U.S.
+4%
Japan
- 10%
@CC
APac
OEM
Performance led by Growth Markets and North America
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5
Revenue and Gross Profit Margin by Segment
Operating
Gross Profit Margin
Revenue
$ in Billions
3Q11
Global Technology Services
B/(W) Yr/Yr
Rptd
@CC
3Q11
B/(W)
Yr/Yr Pts
$10.3
9%
3%
35.7%
0.6 pts
Global Business Services
4.8
6%
Flat
29.4%
0.8 pts
Software
5.8
13%
8%
88.1%
0.2 pts
Systems & Technology
4.5
4%
1%
39.8%
3.4 pts
Global Financing
0.5
(2%)
(6%)
47.4%
(5.9 pts)
8%
3%
46.8%
1.5 pts
Total Revenue &
Operating GP Margin
$26.2
Revenue growth led by Software; broad-based margin expansion
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6
Expense Summary
B/(W) Yr/Yr Drivers
$ in Billions
3Q11
B/(W)
Yr/Yr
SG&A – Operating
$5.6
(10%)
(5 pts)
(2 pts)
(3 pts)
RD&E – Operating
1.6
(5%)
(2 pts)
(4 pts)
2 pts
(0.3)
7%
(7 pts)
(3 pts)
(2 pts)
IP and Development Income
Other (Income)/Expense
0.1
nm
Interest Expense
0.1
(14%)
$7.1
(12%)
Operating Expense & Other Income
Currency
Acq.*
Base
* 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
3Q11
Revenue (External)
Gross Margin (External)
$10.3
35.7%
Pre-Tax Income
$1.7
PTI Margin
15.9%
Global Business Services (GBS)
B/(W) Yr/Yr
@CC
Rptd
9%
0.6 pts
3%
0.7 pts
PTI Margin
B/(W) Yr/Yr
Rptd
@CC
6%
29.4%
0.8 pts
$0.8
13%
15.4%
1.0 pts
Flat
3Q11 Revenues
(% of Total Services)
Rptd
9%
11%
5%
@CC
3%
5%
(1%)
GBS
GBS Outsourcing
Consulting & Systems Integration
11%
4%
5%
(1%)
+$2B
$4.8
Pre-Tax Income
GTS
GTS Outsourcing
Integrated Technology Services
Maintenance
Services Backlog
Revenue (External)
Yr/Yr
3Q11
$137B
3Q11
Gross Margin (External)
13%
3Q11 Revenue
$ in Billions
+$2B
Maint.
12%
GTS
Outsourcing
40%
GBS
Outsourcing
7%
ITS
16%
GBS C&SI
25%
Profit growth and margin expansion
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8
Software Segment
$ in Billions
3Q11
$5.8
88.1%
$2.2
33.4%
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
3Q11 Revenue
Yr/Yr
Rptd
@CC
WebSphere Family
52%
46%
Information Management
12%
7%
Tivoli
8%
3%
Lotus
6%
1%
Rational
7%
3%
Key Branded Middleware
17%
12%
Total Middleware
13%
8%
Total Software
13%
8%
B/(W) Yr/Yr
Rptd
@CC
13%
8%
0.2 pts
12%
(0.2 pts)
3Q11 Revenue
(% of Total Software)
Key
Branded
Middleware
63%
Other
Middleware
19%
Operating
Systems
Other 10%
8%
Middleware share gains for 16th consecutive quarter
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9
Systems & Technology Segment
3Q11
B/(W) Yr/Yr
Rptd
@CC
$4.5
4%
39.8%
3.4 pts
Pre-Tax Income
$0.3
8%
PTI Margin
6.8%
$ in Billions
Revenue (External)
Gross Margin (External)
3Q11 Revenue
Yr/Yr
System z
Power Systems
System x
Storage
Retail Store Solutions
Total Systems
Microelectronics OEM
Total Systems & Technology
Rptd
(5%)
15%
1%
8%
14%
6%
(6%)
4%
@CC
(7%)
12%
(3%)
5%
11%
2%
(6%)
1%
1%
0.3 pts
3Q11 Revenue
(% of Total Sys & Tech)
Storage
19%
Servers
64%
RSS
Micr
o OE
14% M
Power Systems extend Unix leadership
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10
Cash Flow Analysis
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
3Q11
B/(W)
Yr/Yr
YTD
3Q11
B/(W)
Yr/Yr
$4.7
$0.1
$12.7
$0.0
0.2
(0.2)
4.5
0.3
10.6
(1.0)
0.0
(3.0)
(0.1)
3.5
0.3
7.6
0.0
Acquisitions
(0.1)
1.9
(0.2)
2.8
Divestitures
0.0
0.0
0.0
0.0
Dividends
(0.9)
(0.1)
(2.6)
(0.2)
Share Repurchases
(3.4)
0.2
Non-GF Debt
0.1
(0.2)
1.1
(0.4)
Other (includes GF A/R & GF Debt)
0.4
(1.5)
5.2
0.1
Net Cash from Operations
(excluding GF Receivables)
Net Capital Expenditures
Free Cash Flow (excluding GF Receivables)
Change in Cash & Marketable Securities
($0.5)
www.ibm.com/investor
$0.7
2.1
(11.5)
($0.3)
(0.1)
0.1
0.3
$2.5
11
Balance Sheet Summary
Sept. 10
Dec. 10
Sept. 11
$11.1
$11.7
$11.3
Non-GF Assets*
65.7
67.3
67.5
Global Financing Assets
30.4
34.5
31.4
107.2
113.5
110.2
Other Liabilities
57.4
61.7
57.6
Non-GF Debt*
5.5
5.8
7.4
22.0
22.8
22.8
27.5
28.6
30.2
Total Liabilities
84.8
90.3
87.8
Equity
22.4
23.2
22.4
22%
23%
28%
7.1
7.0
7.1
$ 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 – 3Q10 to 3Q11
$0.18
$0.22
$3.28
$0.03
Gross Margin 0.23
$2.85
Expense E/R (0.17)
Tax (0.03)
3Q10
Operating EPS
Revenue Growth
@ Actual
Margin
Expansion
www.ibm.com/investor
Share
Repurchases
3Q11
Operating EPS
13
2015
At least
$20
3Q 2011 Summary
¾ Continued strength in growth initiatives
• Growth markets YTD revenue up 20% yr/yr, 13% @CC,
more than half of IBM’s revenue growth @CC
• Business analytics YTD revenue up 19% yr/yr
2010
$11.67
• Cloud YTD revenue doubled full year 2010 revenue
• Smarter Planet YTD revenue up ~50% yr/yr
¾ Expanded operating gross, pre-tax and net income
margins
¾ Leveraging cash generation to return value to
shareholders
Operating EPS
Increasing 2011 Operating (Non-GAAP) EPS expectations
to at least $13.35
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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
¾
¾
¾
¾
¾
¾
¾
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 Supplementary Materials
• Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency
• Cash Flow, Debt-to-Capital Ratio, Income Tax Settlement
• Reconciliation of Operating Earnings Per Share
• GAAP to Operating (Non-GAAP) Bridge – 3Q 2011
• GAAP to Operating (Non-GAAP) Bridge – 3Q 2010
• GAAP to Operating (Non-GAAP) Bridge – YTD
• GAAP to Operating (Non-GAAP) Bridge – 3Q 2011
• GAAP to Operating (Non-GAAP) Bridge – 3Q 2010
• GAAP to Operating (Non-GAAP) Bridge – YTD 3Q 2011
• GAAP to Operating (Non-GAAP) Bridge – YTD 3Q 2010
• Reconciliation of Free Cash Flow (excluding GF Receivables)
• Reconciliation of Revenue Growth Rates – Geographies
• Reconciliation of B/(W) Yr/Yr Expense Drivers
• Reconciliation of Debt-to-Capital Ratio
• Reconciliation of Operating EPS Bridge 3Q10 to 3Q11
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16
Supplemental Materials
Currency – Year/Year Comparison
Quarterly Averages per US $
@ 10/14 Spot
4Q11
FY11
1Q11
Yr/Yr
2Q11
Yr/Yr
3Q11
Yr/Yr
10/14
Spot
Euro
0.73
(1%)
0.69
12%
0.71
8%
0.72
2%
5%
Pound
0.62
3%
0.61
9%
0.62
4%
0.63
0%
4%
82
9%
82
78
9%
77
6%
9%
5 pts
1 pts
4 pts
(0.3 pts)
(1.7 pts)
($0.1)
($0.5)
Yen
Revenue Impact - Pts
11%
3 pts
7 pts
Vs. 7/18 View - Pts B/(W)
- $B B/(W)
(US$B)
Revenue As Reported $26.2
Currency Impact
Revenue @CC
1.2
$24.9
www.ibm.com/investor
Yr/Yr
8%
5 pts
3%
17
Supplemental Materials
Supplemental Segment Information – 3Q 2011
Supplemental Revenue Information
Supplemental Backlog / Signings Information
Revenue Growth
$ in Billions
Yr/Yr
@CC
Global Services
3Q11
Yr/Yr
@CC
GTS Outsourcing
9%
3%
Total Backlog
$137
+2
+2
Integrated Tech Services
11%
5%
Outsourcing Backlog
90
Flat
Flat
Global Services
Maintenance
Total GTS
GBS Outsourcing
GBS C&SI
5%
(1%)
9%
3%
11%
5%
4%
(1%)
Total GBS
6%
Flat
Total Outsourcing
9%
3%
Total Transactional
7%
1%
Maintenance
5%
(1%)
Backlog
$ in Billions
Signings
Global Services
3Q11
Yr/Yr
@CC
Outsourcing
$5.8
16%
10%
6.5
8%
3%
$12.3
12%
6%
- GTS O/S, GBS O/S (AMS)
Transactional
- ITS, Consulting & AMS SI
(incl. US Federal)
Total Signings
Note: YTY signings growth reflects 2010 signings categories consistent with 2011
Actual backlog calculated using September 30 currency spot rates
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18
Supplemental Materials
Supplemental Segment Information – 3Q 2011
Revenue Growth
Revenue Growth
Systems & Technology
Yr/Yr
@CC
GP%
System z
(5%)
(7%)
Power Systems
15%
12%
System x
1%
(3%)
Storage
8%
5%
14%
11%
6%
2%
(6%)
(6%)
4%
1%
Retail Store Solutions
Total Systems
Microelectronics OEM
Total Systems & Technology
Share
=
=
Software
Yr/Yr
@CC
WebSphere Family
52%
46%
Information Management
12%
7%
Tivoli
8%
3%
Lotus
6%
1%
Rational
7%
3%
17%
12%
Key Branded Middleware
Other Middleware
Total Middleware
4%
(1%)
13%
8%
9%
4%
Other Software/Services
14%
10%
Total Software
13%
8%
Operating Systems
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19
Supplemental Materials
Global Financing Portfolio
3Q11 – $23.3B Net External Receivables
Investm ent Grade
65%
Non-Investm ent Grade
35%
50%
40%
30%
20%
10%
39%
26%
19%
10%
4%
2%
Ba3-B1
B2-B3
Caa-D
0%
Aaa-A3
Baa1-Baa3
Ba1-Ba2
3Q11
2Q11
3Q10
Identified Loss Rate
1.0%
1.0%
1.6%
Anticipated Loss Rate
0.3%
0.3%
0.3%
Reserve Coverage
1.3%
1.3%
1.9%
2.7
2.4
3.2
$46M
$32M
$36M
Client Days Delinquent Outstanding
Commercial A/R > 30 Days
20
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20
Supplemental Materials
Revenue by Key Industry Sales Unit
$ in Billions
Financial Services
3Q11
B/(W) Yr/Yr
Rptd
@CC
$7.7
10%
3%
Public
4.0
5%
1%
Industrial
2.6
8%
2%
Distribution
2.6
11%
7%
Communications
2.6
9%
5%
General Business
5.4
16%
11%
$26.2
8%
3%
Total IBM
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Public
Financial
Services
Industrial
Distribution
Comms
General
Business
21
Supplemental Materials
$ in Billions
Cash Flow (FAS 95)
QTD
3Q11
QTD
3Q10
YTD
3Q11
YTD
3Q10
$3.8
$3.6
$10.4
$9.6
Depreciation / Amortization of Intangibles
1.2
1.2
3.6
3.6
Stock-based Compensation
0.2
0.2
0.5
0.5
(0.7)
(0.8)
(3.9)
(3.1)
0.2
0.4
2.1
2.3
4.7
4.6
12.7
12.8
(1.0)
(1.0)
(3.0)
(2.9)
0.0
0.0
0.0
0.0
(0.1)
(2.0)
(0.2)
(3.0)
0.2
1.2
2.3
1.4
(0.8)
(1.8)
(0.9)
(4.4)
0.2
0.2
1.1
0.9
Dividends
(0.9)
(0.8)
(2.6)
(2.4)
Common Stock Repurchases
(3.4)
(3.7)
(11.5)
(11.8)
0.5
0.8
Net Cash used in Financing Activities
(3.7)
(3.5)
Effect of Exchange Rate changes on Cash
(0.6)
0.2
Net Income from Operations
Working Capital / Other
Global Financing A/R
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
($0.4)
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($0.5)
2.0
2.6
(10.9)
(10.6)
(0.3)
(0.1)
$0.6
($2.3)
22
Supplemental Materials
Non-GAAP Supplementary 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.
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23
Supplemental Materials
Non-GAAP Supplementary 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.
Income Tax Settlement
Management presents free cash flow excluding the effects of certain income tax settlement payments.
Management believes that presenting free cash flow without this item is more representative of the
company’s operational performance and provides additional insight into, and clarifies the basis for,
historical and/or future performance, which may be more useful for investors.
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24
Supplemental Materials
Non
-GAAP Supplementary Materials
Non-GAAP
Reconciliation of Operating Earnings Per Share
2011
Expectations
IBM GAAP EPS
$12.95+
IBM Operating EPS (Non-GAAP)
$13.35+
Adjustments
Acquisition-Related Charges *
$0.42
Amortization of Purchased Intangibles
$0.39
Other Acquisition-Related Charges
$0.03
Non-Operating Retirement-Related Items
($0.02)
* Includes acquisitions closed as of 9/30/2011
The above serves to reconcile the Non-GAAP financial information contained in the “3Q 2011 Highlights” and “3Q 2011 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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25
Supplemental Materials
Non-GAAP Supplementary Materials
GAAP to Operating (Non-GAAP) Bridge – 3Q 2011
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$12,173
$87
($7)
$12,253
SG&A
5,662
RD&E
1,546
Other Income & Expense
(75)
0
0
5,587
22
1,568
128
(18)
0
111
Total Operating Expense & Other Income
7,146
(92)
21
7,075
Pre-Tax Income
5,027
180
(29)
5,178
Tax ***
1,188
47
(11)
1,224
Net Income
3,839
133
(17)
3,954
$0.11
($0.01)
Diluted Earnings Per Share
$3.19
$3.28
* Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs
** 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 “3Q 2011 Highlights,” “Key Financial Metrics” and “Expense
Summary” discussion 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 Supplementary Materials
GAAP to Operating (Non-GAAP) Bridge – 3Q 2010
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$11,001
$65
($53)
$11,013
SG&A
5,149
RD&E
1,464
Other Income & Expense
(106)
(76)
20
5,094
0
31
1,495
1
0
Total Operating Expense & Other Income
6,324
(75)
Pre-Tax Income
4,677
139
(104)
4,712
Tax ***
1,088
34
(38)
1,084
Net Income
3,589
105
(66)
3,628
Diluted Earnings Per Share
$2.82
$0.08
51
(105)
($0.05)
6,301
$2.85
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs
** 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 “3Q 2011 Highlights,” “Key Financial Metrics” and “Expense
Summary” discussion 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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27
Supplemental Materials
Non-GAAP Supplementary Materials
GAAP to Operating (Non-GAAP) Bridge – YTD
$ in Millions, except EPS
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
Total Operating Expense & Other Income
21,687
(249)
49
21,487
Pre-Tax Income
13,729
508
(37)
14,200
Net Income
10,365
376
$8.48
$0.31
($0.02)
$8.77
Total Operating Expense & Other Income
19,019
(200)
149
18,968
Pre-Tax Income
12,767
378
(293)
12,853
YTD 3Q 2011
Diluted Earnings Per Share
(20)
10,721
YTD 3Q 2010
Net Income
9,576
272
(179)
9,669
Diluted Earnings Per Share
$7.38
$0.21
($0.14)
$7.45
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs
** 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 “3Q 2011 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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28
Supplemental Materials
Non-GAAP Supplementary Materials
GAAP to Operating (Non-GAAP) Bridge -- 3Q 2011
GAAP
Acquisitionrelated *
adjustments
Retirementrelated **
adjustments
Operating
(Non-GAAP)
Gross Profit Margin
46.5%
0.3 pts
0.0 pts
46.8%
PTI Margin
19.2%
0.7 pts
(0.1) pts
19.8%
Tax Rate ***
23.6%
0.1 pts
(0.1) pts
23.6%
Net Income Margin
14.7 %
0.5 pts
(0.1) pts
15.1%
* Includes Amortization of Purchased Intangibles, In Process R&D, Severance Cost for Acquired employees, vacant space for acquired
companies, deal costs
** Includes Retirement Related Interest Cost, Expected ROA, 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” and “3Q 2011 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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29
Supplemental Materials
Non-GAAP Supplementary Materials
GAAP to Operating (Non-GAAP) Bridge -- 3Q 2010
GAAP
Acquisitionrelated *
adjustments
Retirementrelated **
adjustments
Operating
(Non-GAAP)
Gross Profit Margin
45.3%
0.3 pts
(0.2) pts
45.4 %
PTI Margin
19.3%
0.6 pts
(0.4) pts
19.4 %
Tax Rate ***
23.3 %
0.0 pts
(0.3) pts
23.0 %
Net Income Margin
14.8 %
0.4 pts
(0.3) pts
14.9 %
* Includes Amortization of Purchased Intangibles, In Process R&D, Severance Cost for Acquired employees, vacant space for acquired
companies, deal costs
** Includes Retirement Related Interest Cost, Expected ROA, 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” and “3Q 2011 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.
www.ibm.com/investor
30
Supplemental Materials
Non-GAAP Supplementary Materials
GAAP to Operating (Non-GAAP) Bridge – YTD 3Q 2011
GAAP
Acquisitionrelated *
adjustments
Retirementrelated **
adjustments
Operating
(Non-GAAP)
Gross Profit Margin
45.7%
0.3 pts
0.0 pts
46.1 %
PTI Margin
17.7%
0.7 pts
0.0 pts
18.3 %
Tax Rate ***
24.5 %
0.1 pts
(0.1) pts
24.5 %
Net Income Margin
13.4 %
0.5 pts
0.0 pts
13.8%
* Includes Amortization of Purchased Intangibles, In Process R&D, Severance Cost for Acquired employees, vacant space for acquired
companies, deal costs
** Includes Retirement Related Interest Cost, Expected ROA, 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 “3Q 2011 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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31
Supplemental Materials
Non-GAAP Supplementary Materials
GAAP to Operating (Non-GAAP) Bridge – YTD 3Q 2010
GAAP
Acquisitionrelated *
adjustments
Retirementrelated **
adjustments
Operating
(Non-GAAP)
Gross Profit Margin
44.9%
0.3 pts
(0.2) pts
44.9 %
PTI Margin
18.0%
0.5 pts
(0.4) pts
18.1 %
Tax Rate ***
25.0 %
0.1 pts
(0.3) pts
24.8 %
Net Income Margin
13.5 %
0.4 pts
(0.3) pts
13.6 %
* Includes Amortization of Purchased Intangibles, In Process R&D, Severance Cost for Acquired employees, vacant space for acquired
companies, deal costs
** Includes Retirement Related Interest Cost, Expected ROA, 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 “3Q 2011 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 Supplementary Materials
Reconciliation of Free Cash Flow (excluding GF Receivables)
$ in Billions
12 months ended 9/30/11
Net Cash from Operations
$19.5
Less: Global Financing Receivables
Net Cash from Operations (excluding GF Receivables)
Net Capital Expenditures
(0.9)
20.4
(4.1)
Free Cash Flow (excluding GF Receivables)
$16.3
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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33
Supplemental Materials
Non-GAAP Supplementary Materials
Reconciliation of Revenue Growth
3Q11 Yr/Yr
As Rptd
@CC
Canada
Spain
UK
Japan
14%
19%
9%
(0%)
7%
9%
5%
(10%)
Growth Markets
GTS Outsourcing
Systems & Technology
System x
20%
16%
21%
10%
12%
15%
The above serves to reconcile the Non-GAAP financial information contained in the "Revenue by Geography,” “Services Segments,” and
“Systems & Technology Segment” 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 Supplementary Materials
Reconciliation of B/(W) Yr/Yr Expense Drivers
GAAP
Non-GAAP
Adjustments
Operating
(Non-GAAP)
Currency
(5 pts)
0 pts
(5 pts)
Acquisitions
(3 pts)
0 pts
(2 pts)
Base
(2 pts)
0 pts
(3 pts)
Currency
(2 pts)
0 pts
(2 pts)
Acquisitions
(4 pts)
0 pts
(4 pts)
1 pts
1 pt
2 pts
Currency
(7 pts)
0 pts
(7 pts)
Acquisitions
(3 pts)
0 pts
(3 pts)
Base
(2 pts)
0 pts
(2 pts)
SG&A
RD&E
Base
Operating Expense & Other Income
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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35
Supplemental Materials
Non-GAAP Supplementary Materials
Reconciliation of Debt-to-Capital Ratio
3Q11
FY10
3Q10
Non-Global Financing Debt / Capital
28%
23%
22%
IBM Consolidated Debt / Capital
57%
55%
55%
The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary”
discussion regarding the non-Global Financing debt-to-capital ratio in the company’s earnings presentation. See
Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
36
Supplemental Materials
Non-GAAP Supplementary Materials
Reconciliation of Operating EPS Bridge 3Q10 to 3Q11
GAAP
Acquisitionrelated
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
3Q10 EPS
$2.82
$0.08
($0.05)
$2.85
Revenue growth @
actual
0.22
0.01
(0.01)
0.22
Margin expansion
Gross Margin
Expense
Tax
0.19
(0.20)
(0.01)
0.01
0.01
(0.01)
0.04
0.02
(0.01)
0.23
(0.17)
(0.03)
Share repurchases
0.17
0.01
0.00
3Q11 EPS
$3.19
$0.11
($0.01)
0.18
$3.28
* Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired
companies, deal costs
** 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 – 3Q10 to 3Q11” 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.
www.ibm.com/investor
37
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38