4Q10 charts (pdf, 987 KB)

®
4Q 2010 Earnings Presentation
January 18, 2011
www.ibm.com/investor
Forward Looking Statements
Certain comments made in this presentation may be characterized as forward
looking under the Private Securities Litigation Reform Act of 1995. Forwardlooking 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.
www.ibm.com/investor
2
4Q 2010 Financial Highlights
Revenue
$29.0B
+7% yr/yr
EPS
$4.18
+16% yr/yr
Free Cash Flow*
$8.7B
+$1.5B yr/yr
* Excluding Global Financing Receivables
¾ Best constant currency revenue growth in a decade,
led by Hardware and Software
• Systems & Technology +22% yr/yr @CC with growth in all platforms
• Software +12% yr/yr @CC, excluding PLM divestiture
• Growth markets +13% yr/yr @CC
¾ Services backlog of $142B, up $4B yr/yr and $7B qtr/qtr
excluding currency
¾ Continued margin expansion
32nd consecutive quarter of EPS growth
www.ibm.com/investor
3
4Q 2010 Financial Summary
$ in Billions, except EPS
Revenue
4Q10
B/(W)
Yr/Yr
$29.0
7%
@CC
GP %
7%
49.0%
0.8 pts
Expense
$7.3
(7%)
Pre-Tax Income
$7.0
9%
PTI Margin
24.0%
0.5 pts
Tax Rate
24.4%
0.2 pts
Net Income
Shares (Diluted) (M)
EPS
$5.3
1,258.4
$4.18
9%
6%
16%
Strong revenue growth drives profit performance
www.ibm.com/investor
4
4Q Earnings Presentation Agenda
¾4Q Highlights
¾2010 Roadmap Recap
¾4Q Results and FY 2010 Summary
¾2015 Roadmap
www.ibm.com/investor
5
2010 Long-Term EPS Roadmap (May 2007)
14%
CGR
10%
CGR
16%
CGR
~$11
~$10
10% -12% CGR EPS Model
~$0.90
~$9
~$1.10
~$1.20
~$1.00
$6.05
~$0.75
5%
Revenue
Growth
2006 EPS
Historical
Revenue
Growth
of 3%
Margin
Expansion
Share
Repurchases
Estimated
2010 EPS
(Base)
Growth
Initiatives
+1 to 2 pts
Revenue
Growth
Future
Acquisitions
2010 EPS Retirement
w/o
Related
Retirement
Yr/Yr
Related Yr/Yr
Costs
2010 EPS
Objective
Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share”
www.ibm.com/investor
6
$10 -$11
2010 EPS Roadmap Results
Retirement-Related
Costs
Share
Repurchases
Growth Initiatives
& Acquisitions
2007 – 2010 Performance
~ 0.20
~ 1.35
~ 2.10
~ 1.30
~ 0.55
Revenue
achievement
impacted by
market
downturn
Margin
expansion
within model
Mix and
productivity
driving margin
expansion above
model
Share
repurchases of
~ $52B
Market
performance
impacting
pension expense
$11.52
Margin
Expansion
Historical Revenue
Growth
2006
EPS
$6.05
2010
EPS Objective
$6.05
2006
EPS
Historical
Revenue
Growth of 3%
Margin
Expansion
Growth
Initiatives &
Acquisitions
Share
Repurchases
Retirement
Related
Yr/Yr Costs
2010
EPS
Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share”
www.ibm.com/investor
7
2010 EPS Roadmap Annual Progress
$11.52
$10.01
$8.89
$10
24%
Yr/Yr
18%
Yr/Yr
2006
Yr/Yr
13%
Yr/Yr
$7.15
$6.05
15%
2007
2008
2009
2010
Exceeded high end of objective by $0.52
Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share”
www.ibm.com/investor
8
Success of IBM’s Business Model
4Q 06
1Q 07
2Q 07
3Q 07
4Q 07
1Q 08
2Q 08
3Q 08
4Q 08
1Q 09
2Q 09
3Q 09
4Q 09
2.00
IBM EPS Indexed with S&P 500
1.75
1Q 10
2Q 10
3Q 10
4Q’10
+17%
CGR
1.50
1.25
IBM EPS $6.05
~0%
1.00
0.75
CGR
S&P 500 EPS ~$85
0.50
0.25
Created $47B of Shareholder Value
$36B Market Capitalization + $11B Dividends Paid
Total Return
62%
(3%)
Source: Bloomberg/CapitalIQ
IBM
S&P 500
www.ibm.com/investor
9
IBM Transformation
GAAP PTI / EPS
Highlights since 2000
$11.52
Segment PTI$
¾ Added $10B revenue in growth markets
• 21% of geo revenue
EPS
¾ Tripled Software profit to $9.1B
• 44% of segment profit, up from 25%
¾ Added $10B of Pre-Tax Income
¾ EPS nearly tripled
¾ Generated $109B Free Cash Flow
¾ Returned $107B to shareholders
¾ Invested $32B to acquire 116 companies
'00
'01
'02
'03
Hardware / Financing
'04
'05
'06
Services
'07
'08
Software
'09
'10
Sum of external segment pre-tax income not equal to IBM pre-tax income
2000 & 2001 segments not restated for stock based compensation
Strong performance through the decade driven by IBM transformation
www.ibm.com/investor
10
4Q Earnings Presentation Agenda
¾4Q Highlights
¾2010 Roadmap Recap
¾4Q Results and FY 2010 Summary
¾2015 Roadmap
www.ibm.com/investor
11
Revenue by Geography
$ in Billions
Americas
B/(W) Yr/Yr
Rptd
@CC
4Q10
$12.2
9%
9%
Europe/ME/A
9.5
(2%)
4%
Asia Pacific
6.6
14%
7%
OEM
0.8
21%
21%
$29.0
7%
7%
4%
5%
15%
13%
19%
17%
IBM
Major Markets
Growth Markets
BRIC Countries
Canada/
LA
EMEA
U.S.
+10%
APac
Japan +14%
- 2% @CC
@CC
OEM
+21%
Strong major market and growth market performance
www.ibm.com/investor
12
Revenue by Segment
$ in Billions
4Q10
Global Technology Services
B/(W) Yr/Yr
@CC
Rptd
$10.2
1%
1%
Global Business Services
4.8
4%
4%
Software *
7.0
11%
12%
Systems & Technology
6.3
21%
22%
Global Financing
0.6
1%
1%
$29.0
7%
7%
Total IBM
Global
Systems
Business
&
Services Technology
Global
Technology
Services
* Software revenue growth excludes PLM;
growth including divested PLM is 7% as reported and 8% @CC
Software
Global
Financing
Transaction businesses drove revenue performance
www.ibm.com/investor
13
Expense Summary
$ in Billions
4Q10
B/(W)
Yr/Yr
SG&A
$6.0
(7%)
RD&E
1.6
(8%)
(0.3)
2%
IP and Development Income
Other (Income)/Expense
0.0
70%
Interest Expense
0.1
(26%)
$7.3
(7%)
Total Expense & Other Income
B/(W) Yr/Yr Drivers
Currency
Acq.*
Base
2 pts
(4 pts)
(5 pts)
2 pts
(4 pts)
(5 pts)
* Includes total expense for acquisitions made in the last twelve months
Expense growth in line with revenue growth
www.ibm.com/investor
14
Services Segments
Global Technology Services (GTS)
$ in Billions
Global Business Services (GBS)
4Q10
B/(W) Yr/Yr
Rptd
@CC
Revenue (External)
$10.2
1%
Gross Margin (External)
34.7%
(1.1 pts)
PTI Margin
15.8%
0.9 pts
1%
Global Services Signings
$ in Billions
4Q10
B/(W) Yr/Yr
Rptd
@CC
$14.1
24%
Outsourcing
- GTS O/S, Appl. O/S (AMS)
Transactional
- ITS, Consulting, AMS SI
Total Signings
8.0
8%
9%
$22.1
18%
18%
Total Backlog
$142
$5
$4
$ in Billions
4Q10
B/(W) Yr/Yr
@CC
Rptd
$4.8
4%
Gross Margin (External)
28.3%
(2.0 pts)
PTI Margin
15.0%
(0.9 pts)
Revenue (External)
4Q10 Revenues
(% of Total Services)
(Growth @CC)
23%
1%
Yr/Yr
GTS
Outsourcing
39%
4%
Flat Yr/Yr
Integrated
Technology
Services
16% Maint.
13%
Global Business
Services
32%
3%
Yr/Yr
4%
Yr/Yr
Services backlog up $4B yr/yr, $7B qtr/qtr @CC
www.ibm.com/investor
15
Outsourcing Services Trending
Outsourcing* - Yr/Yr Revenue & Signings Growth @CC
25%
15%
5%
-5%
-15%
-25%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
Signings Yr/Yr
4Q09
1Q10
2Q10
3Q10
88
91
4Q10
Revenue Yr/Yr
Outsourcing* Backlog ($B) @ actual rates
100
98
89
Yr/Yr
Change
@CC
90
87
91
92
(1.5%)
1Q08
2Q08
3Q08
4Q08
94
91
0%
1Q09
2Q09
3Q09
4Q09
97
1.2%
1Q10
2Q10
3Q10
4Q10
* Outsourcing includes Strategic Outsourcing, Business Transformation Outsourcing and Application Outsourcing
(excludes U.S. Federal Business)
www.ibm.com/investor
16
Outsourcing Services Backlog Run Out
30
Revenue from
base growth and
new signings
25
($B)
20
15
Revenue from
12/31/09
Backlog
Projected
Revenue from
12/31/10
Backlog
Revenue from
Backlog
+3% Yr/Yr
@CC
10
5
0
2010
Revenue from Backlog
2011
Revenue from Base Growth Signings
Revenue from New Signings
Note: See supplemental Services chart for additional details on analysis
Projected 2011 Revenue from Outsourcing Backlog +3% yr/yr @CC
www.ibm.com/investor
17
Transactional Services Trending
Transactional* - Yr/Yr Revenue & Signings Growth @CC
15%
10%
5%
0%
-5%
-10%
-15%
-20%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
Signings Yr/Yr
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Revenue Yr/Yr
* Transactional includes Integrated Technology Services and Consulting and Systems Integration (includes U.S. Federal Business)
www.ibm.com/investor
18
Software Segment
$ in Billions
Revenue (External) - Growth excl. PLM
4Q10
$7.0
Growth incl. PLM
B/(W) Yr/Yr
Rptd
@CC
11%
12%
7%
Gross Margin (External)
88.5%
0.9 pts
PTI Margin
40.6%
(0.9 pts)
4Q10 Revenue
Yr/Yr
Rptd
@CC
WebSphere Family
32%
34%
Information Management
10%
12%
Tivoli
12%
14%
Lotus
(3%)
(1%)
Rational
10%
12%
Key Branded Middleware
13%
15%
Total Middleware
10%
11%
Total Software excl. PLM
11%
12%
8%
4Q10 Revenue
(% of Total Software)
Key
Branded
Middleware
66%
Other
Middleware
17%
Operating
Systems
Other 10%
7%
Strong Branded Middleware growth
www.ibm.com/investor
19
Systems & Technology Segment
4Q10
B/(W) Yr/Yr
Rptd
@CC
$6.3
21%
Gross Margin (External)
43.9%
1.4 pts
PTI Margin
18.6%
3.2 pts
$ in Billions
Revenue (External)
4Q10 Revenue
Yr/Yr
System z
Power Systems
System x
Storage
Retail Store Solutions
Total Systems
Microelectronics OEM
Total Systems & Technology
Rptd
69%
2%
18%
8%
26%
20%
30%
21%
@CC
72%
3%
18%
10%
27%
21%
30%
22%
22%
4Q10 Revenue
(% of Total Sys & Tech)
Servers
68%
Storage
19%
Micr
o OE RSS
10% M
Best Revenue growth in over a decade
www.ibm.com/investor
20
Cash Flow Analysis
4Q10
B/(W)
Yr/Yr
FY10
B/(W)
Yr/Yr
$6.8
$0.3
$19.5
($1.2)
(3.0)
(1.1)
9.8
1.4
20.3
(1.1)
0.0
(4.0)
8.7
1.5
16.3
Acquisitions
(2.9)
(1.9)
(5.9)
(4.7)
Divestitures
0.1
0.1
0.1
(0.3)
Dividends
(0.8)
(0.1)
(3.2)
(0.3)
Share Repurchases
(3.6)
(0.5)
(15.4)
(7.9)
0.7
(0.7)
2.3
7.0
(1.6)
(0.2)
3.5
1.8
0.6
(1.9)
(2.3)
(3.4)
$ 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
www.ibm.com/investor
(0.7)
(2.6)
1.4
(0.2)
1.2
21
Balance Sheet Summary
Dec. 09
$ in Billions
Cash & Marketable Securities
Dec. 10
$14.0
$11.7
Non-GF Assets*
61.7
67.3
Global Financing Assets
33.3
34.5
109.0
113.5
Other Liabilities
60.2
61.7
Non-GF Debt*
3.7
5.8
22.4
22.8
26.1
28.6
Total Liabilities
86.3
90.3
Equity
22.8
23.2
Total Assets
Global Financing Debt
Total Debt
Non-GF Debt / Capital
Global Financing Leverage
16%
23%
7.1
7.0
* Includes eliminations of inter-company activity
www.ibm.com/investor
22
EPS Bridge – 4Q09 to 4Q10
$0.24
$0.26
$4.18
Share
Repurchases
4Q10 EPS
$0.09
$3.59
4Q09 EPS
Revenue Growth
@ Actual
Operating
Leverage
www.ibm.com/investor
23
EPS Bridge – FY09 to FY10
$0.46
$11.52
Share
Repurchases
2010 EPS
$0.62
$0.43
$10.01
2009 EPS
Revenue Growth
@ Actual
Operating
Leverage
www.ibm.com/investor
24
2010 FY Summary
Revenue
EPS
Free Cash Flow*
$99.9B
$11.52
$16.3B
+4% yr/yr
+15% yr/yr
+$1.2B yr/yr
* Excluding Global Financing Receivables
¾ Improved revenue growth, led by transaction business
• Systems & Technology +11% yr/yr
• Software +8% yr/yr @CC, excluding PLM divestiture
¾ Leveraged growth initiatives
• Growth markets +11% yr/yr @CC, 21% of IBM’s revenue
• Business Analytics +15% yr/yr
¾ Continued margin expansion
• Pre-tax and net margin expansion of 0.8 pts, above model level
¾ Invested in innovation
• Introduced new mainframe, Power7
• Acquired 17 companies, @$6B spend
¾ Returned capital to shareholders
• $15B share repurchase
• Increased dividend 18%
EPS of $11.52 exceeded high end of 2010 Roadmap objective by $.52
www.ibm.com/investor
25
4Q Earnings Presentation Agenda
¾4Q Highlights
¾2010 Roadmap Recap
¾4Q Results and FY 2010 Summary
¾2015 Roadmap
www.ibm.com/investor
26
Transition to Operating Earnings (Non-GAAP)
Implementation Schedule
May
2010
2Q’10
Earnings
3Q’10
Merits of Operating Earnings
Introduced with 2015 roadmap
objectives; effective 1Q 2011
Provide supplemental information on
IBM current period operating earnings
Provide historic information on IBM
and segment level operating profit
January
2011
Introduce 2011 guidance on an
operating earnings basis
Starting
1Q’11
Earnings
Earnings presentation to address
operating earnings in addition to GAAP
reporting
9
Provides better transparency to operational
results and pension plan performance
9
Improves visibility to management decisions
and operational effects
9
Enables comparison to peers
9
Allows for long term view of business
Operating Earnings will reflect the operational performance of the business
www.ibm.com/investor
27
Operating Earnings
¾ Separate operating & non-operating elements of retirement-related charges
¾ Exclude amortization of purchased intangibles and acquisition-related charges
¾ No change to balance sheet and free cash flow
2010
IBM Operating EPS (Non-GAAP)
$11.67
IBM GAAP EPS
$11.52
Adjustments
Acquisition-Related Charges
$0.34
Amortization of Purchased Intangibles
$0.31
Other Acquisition-Related Charges
$0.03
Non-Operating Retirement-Related Charges
($0.20)
Moving to operating earnings (Non-GAAP) objectives for 2015 Roadmap
www.ibm.com/investor
28
Retirement-Related Charges – Operating
Operating
Pre-Tax Retirement-Related (Cost) / Income ($B)
($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9)
2009
2010
2011
2012
2013
2014
2015
Retirement-Related Cash Drivers ($B)
($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9)
2009
2010
2011
2012
2013
Actual
2014
2015
Projection based on Dec ‘10 assumptions
www.ibm.com/investor
29
Retirement-Related Charges – Non-Operating
Funded Status *
WW US
Expected ROA
WW
99% 101%
99% 101%
7.4%
7.3%
YE 2009
YE 2010
Actual ROA
WW
Discount Rate
WW
11.8%
11.7%
Operating
5.2%
4.7%
Non-Operating
Pre-Tax Retirement-Related (Cost) / Income ($B)
$0.5
$0.4
$0.1
($0.0)
($0.3)
($0.7)
($0.2)
($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9)
2009
2010
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
Retirement-Related Cash Drivers ($B)
($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9)
2009
2010
2011
2012
2013
Actual
2014
2015
($1.3) ($1.3)
($1.7) ($1.5) ($1.6) ($1.6) ($1.6)
2009
2010
2011
Projection based on Dec ‘10 assumptions
www.ibm.com/investor
2012
2013
2014
2015
* Tax-qualified defined benefit plans
30
Retirement-Related Charges – Non-Operating Yr/Yr
Non-Operating
Pre-tax (Cost) / Income ($B)
$0.5
$0.4
$0.1
($0.0)
($0.3)
($0.2)
($0.7)
($0.1) ($0.4) ($0.2) ($0.4) $0.4
B/(W) Y/Y
2009
2010
2011
2012
2013
2014
$0.4
2015
Cash Drivers ($B)
($1.3) ($1.3)
($1.7) ($1.5) ($1.6) ($1.6) ($1.6)
B/(W) Y/Y
$0.2 ($0.1) $0.0
2009
Actual
2010
2011
2012
$0.1
$0.2
$0.0
2013
2014
2015
Projection based on Dec ‘10 assumptions
www.ibm.com/investor
31
2015 Roadmap
Share
Repurchase
11%
CAGR
At Least
$20
Operating
Leverage
Margin Mix
Revenue
Growth
Enterprise
Productivity
Future Acquisitions
Revenue Mix
Base
Revenue Growth
$11.67
2010 Operating EPS*
Revenue
Margin
Shares
2015 Operating EPS*
* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related charges
Model supports balanced EPS performance from revenue, margin and share repurchase
www.ibm.com/investor
32
IBM Transformation Continues
At Least $20
Operating PTI / EPS *
Segment Operating PTI$
Operating EPS
'00
'01
'02
'03
'04
'05
Hardware / Financing
'06
At Least
$13
'07
'08
'09
'10
'11e '12e '13e '14e '15e
Software
Services
* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related charges
2000 & 2001 segments not restated for stock based compensation
Sum of external segment pre-tax income not equal to IBM pre-tax income
Expect at least $13.00 of Operating (Non-GAAP) EPS in 2011
www.ibm.com/investor
33
www.ibm.com/investor
34
Supplemental Materials
Some columns and rows in these materials, including the supplemental exhibits, may not add
due to rounding
¾ Currency – Year/Year Comparison
¾ Supplemental Segment Information – Global Services
¾ Supplemental Segment Information – Systems & Technology, Software
¾ Global Financing Portfolio
¾ Margins by Segment – 4Q 2010
¾ Financial Summary – FY 2010
¾ Revenue by Geography – FY 2010
¾ Revenue by Segment – FY 2010
¾ Revenue by Key Industry Sales Unit – 4Q and FY 2010
¾ Expense Summary – FY 2010
¾ Margins by Segment – FY 2010
¾ Cash Flow (FAS 95)
¾ Computation of 2010 Global Financing Return on Equity
¾ Supplemental Information – Operating Earnings
¾ Non-GAAP Supplementary Materials
•
Operating (Non-GAAP) Earnings
•
Constant Currency, Cash Flow, Debt-to-Capital Ratio, PLM Sale
•
Reconciliation of Free Cash Flows (excluding GF Receivables)
•
Reconciliation of Revenue Growth
•
Reconciliation of Outsourcing Services Revenue Growth
•
Reconciliation of Transactional Services Revenue Growth
•
Reconciliation of Debt-to-Capital Ratio
www.ibm.com/investor
35
Currency – Year/Year Comparison
Quarterly Averages per US $
Yr/Yr @ 1/17 Spot
3Q10
Yr/Yr
4Q10
Yr/Yr
1/17
Spot
Euro
0.77
(11%)
0.74
(9%)
0.75
(4%)
Pound
0.65
(6%)
0.63
(3%)
0.63
86
8%
83
8%
83
Yen
IBM Revenue
Impact
(1 pts)
Revenue As Reported
Currency Impact
Revenue @CC
(1 pts)
(US$B)
Yr/Yr
$29.0
7%
(0.2)
$29.2
1Q11
2Q11
3Q11
4Q11
4%
3%
(2%)
2%
6%
3%
1%
9%
10%
4%
0%
1-2 pts
4 pts
2-3 pts
0 pts
(1 pts)
7%
www.ibm.com/investor
36
Supplemental Segment Information – 4Q 2010
Revenue Growth
Global Services
Backlog
Yr/Yr
@CC
Global Services
4Q10
1%
1%
Backlog
$142B
(1%)
Flat
Change in Backlog due to Currency
3%
3%
Quarter-to-Quarter
$1B
Global Technology Services
1%
1%
Year-to-Year
$2B
Global Business Services
4%
4%
GTS Outsourcing
Integrated Tech Services
Maintenance
Notes to Backlog Run Out analysis
1. Analysis includes specific contract run out of contracts over $25M (~85% of total). Remaining contracts are modeled
2. Analysis assumes 2011 contract erosion equal to 2010 levels
www.ibm.com/investor
37
Supplemental Segment Information – 4Q 2010
Revenue Growth
Revenue Growth
Systems & Technology
Yr/Yr
@CC
WebSphere Family
32%
34%
Information Management
10%
12%
Tivoli
12%
14%
Lotus
(3%)
(1%)
Rational
10%
12%
13%
15%
(3%)
(1%)
Total Middleware
10%
11%
30%
Operating Systems
11%
12%
22%
Other Software/Services
(21%)
(20%)
Total Software excl. PLM
11%
12%
Total Software incl. PLM
7%
8%
Yr/Yr
@CC
69%
72%
2%
3%
18%
18%
8%
10%
26%
27%
Total Systems
20%
21%
Microelectronics OEM
30%
Total Systems & Technology
21%
System z
Power Systems
System x
Storage
Retail Store Solutions
GP%
Share
Software
=
Key Branded Middleware
Other Middleware
www.ibm.com/investor
38
Global Financing Portfolio
4Q10 – $26.2B Net External Receivables
Investm ent Grade
65%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Non-Investm ent Grade
35%
40%
25%
Aaa-A3
18%
Baa1-Baa3
Ba1-Ba2
4%
2%
Ba3-B1
B2-B3
Caa-D
4Q10
3Q10
4Q09
Identified Loss Rate
1.1%
1.6%
1.6%
Anticipated Loss Rate
0.4%
0.3%
0.5%
Reserve Coverage
1.5%
1.9%
2.1%
Client Days Delinquent Outstanding
2.4
3.2
2.4
$20M
$35M
$28M
Commercial A/R > 30 Days
39
11%
www.ibm.com/investor
39
Margins by Segment – 4Q 2010
External
Gross Profit Margins
Total
Pre-Tax Margins
4Q10
B/(W)
Yr/Yr Pts
4Q10
B/(W)
Yr/Yr Pts
Global Technology Services
34.7%
(1.1 pts)
15.8%
0.9 pts
Global Business Services
28.3%
(2.0 pts)
15.0%
(0.9 pts)
Software
88.5%
0.9 pts
40.6%
(0.9 pts)
Systems & Technology
43.9%
1.4 pts
18.6%
3.2 pts
Global Financing
51.8%
(0.1 pts)
47.1%
3.4 pts
Total IBM
49.0%
0.8 pts
24.0%
0.5 pts
www.ibm.com/investor
40
Financial Summary – FY 2010
$ in Billions, except EPS
Revenue
FY10
B/(W)
Yr/Yr
$99.9
4%
@CC
3%
GP %
46.1%
0.3 pts
Expense
$26.3
(3%)
Pre-Tax Income
$19.7
9%
PTI Margin
19.7%
0.8 pts
Tax Rate
24.8%
1.2 pts
Net Income
$14.8
10%
Shares (Diluted) (M)
1,287.4
4%
EPS
$11.52
15%
www.ibm.com/investor
41
Revenue by Geography – FY 2010
$ in Billions
Americas
FY10
$42.0
B/(W) Yr/Yr
Rptd
@CC
5%
3%
Europe/ME/A
31.9
(2%)
1%
Asia Pacific
23.2
12%
5%
Total Geographies
$97.1
4%
3%
IBM
$99.9
4%
3%
Major Markets
Growth Markets
BRIC Countries
1%
1%
16%
11%
23%
18%
www.ibm.com/investor
Canada/
LA
U.S.
+3%
EMEA
APac
Japan +11%
-2% @CC
@CC
OEM
+23%
42
Revenue by Segment – FY 2010
$ in Billions
FY10
Global Technology Services
B/(W) Yr/Yr
Rptd
@CC
$38.2
2%
1%
Global Business Services
18.2
3%
2%
Software *
22.5
8%
8%
Systems & Technology
18.0
11%
11%
(3%)
(4%)
Global Financing
Total IBM
2.2
$99.9
4%
3%
Global
Business Systems
&
Services
Technology
Global
Technology
Services
Software
Global
Financing
* Software revenue growth excludes PLM;
growth including divested PLM is 5% as reported and 5% @CC
www.ibm.com/investor
43
Revenue by Key Industry Sales Unit – 4Q & FY 2010
B/(W) Yr/Yr
Rptd
@CC
B/(W) Yr/Yr
Rptd
@CC
FY10
$9.0
15%
15%
$29.3
7%
6%
Public
4.5
4%
5%
16.0
2%
1%
Industrial
2.9
2%
2%
10.3
Flat
(1%)
Distribution
2.8
5%
6%
9.8
6%
5%
Communications
2.7
Flat
(1%)
9.5
(1%)
(2%)
General Business
5.8
7%
9%
19.4
7%
6%
All Sectors
$28.3
6%
7%
$97.4
4%
3%
Total IBM
$29.0
7%
7%
$99.9
4%
3%
$ in Billions
Financial Services
4Q10
www.ibm.com/investor
44
Expense Summary – FY 2010
B/(W) Yr/Yr Drivers
FY10
B/(W)
Yr/Yr
Currency
Acq.*
Base
SG&A
$21.8
(4%)
(1 pts)
(3 pts)
Flat
RD&E
6.0
(4%)
IP and Development Income
(1.2)
(2%)
Other (Income)/Expense
(0.8)
nm
0.4
9%
(1 pts)
(3 pts)
2 pts
$ in Billions
Interest Expense
Total Expense & Other Income
$26.3
(3%)
* Includes acquisitions made in the last twelve months
www.ibm.com/investor
45
Margins by Segment – FY 2010
External
Gross Profit Margins
Total
Pre-Tax Margins
FY10
B/(W)
Yr/Yr Pts
FY10
B/(W)
Yr/Yr Pts
Global Technology Services
34.7%
(0.3 pts)
14.1%
(0.2 pts)
Global Business Services
28.3%
Flat
13.5%
(0.3 pts)
Software
86.9%
0.9 pts
35.8%
2.1 pts
Systems & Technology
38.5%
0.7 pts
8.4%
0.2 pts
Global Financing
51.3%
3.8 pts
48.0%
5.6 pts
Total IBM
46.1%
0.3 pts
19.7%
0.8 pts
www.ibm.com/investor
46
Cash Flow (FAS 95)
4Q10
4Q09
FY10
FY09
$5.3
$4.8
$14.8
$13.4
Depreciation / Amortization of Intangibles
1.2
1.3
4.8
5.0
Stock-based Compensation
0.2
0.1
0.6
0.6
Working Capital / Other
3.1
2.2
0.0
(0.1)
(3.0)
(1.9)
(0.7)
1.9
6.8
6.4
(1.1)
$ in Billions
Net Income from Operations
Global Financing A/R
19.5
20.8
(1.1)
(4.0)
(3.7)
0.1
0.0
0.1
0.4
Acquisitions, net of cash acquired
(2.9)
(1.1)
(5.9)
(1.2)
Marketable Securities / Other Investments, net
(0.1)
(0.3)
1.3
(2.2)
(4.1)
(2.5)
(8.5)
(6.7)
1.4
1.0
2.3
(7.5)
Dividends
(0.8)
(0.7)
(3.2)
(2.9)
Common Stock Repurchases
(3.6)
(3.1)
(15.4)
(7.4)
1.1
1.5
Net Cash used in Financing Activities
(1.9)
(1.2)
(12.4)
Effect of Exchange Rate changes on Cash
(0.1)
(0.1)
(0.1)
Net Change in Cash & Cash Equivalents
$0.8
$2.7
Net Cash provided by Operating Activities
Capital Expenditures, net of payments & proceeds
Divestitures, net of cash transferred
Net Cash used in Investing Activities
Debt, net of payments & proceeds
Common Stock Transactions - Other
www.ibm.com/investor
3.8
($1.5)
3.1
(14.7)
0.1
($0.6)
47
Computation of 2010 Global Financing Return on Equity
The following are details on the computation of IBM’s Global Financing Return on Equity. The Global Financing segment is
in the business of providing financing to IBM’s clients and its business partners, and is measured as if it were a standalone
entity. A financing business is managed on a leveraged basis and therefore, we measure the profitability of a financing
entity based on its after-tax earnings in relation to the equity employed in the business.
FY 2010
$ in Billions
Numerator:
Global Financing After Tax Income*
(a)
$1,295
Average Global Financing Equity**
(b)
$3,145
Global Financing Return on Equity
(a)/(b)
41%*
Denominator:
* Calculated based upon an estimated tax rate principally based on Global Financing’s geographic
mix of earnings as IBM’s provision for income taxes is determined on a consolidated basis.
** Average of ending equity for the Global Financing Segment for the last five quarters.
www.ibm.com/investor
48
Operating Earnings – 2011
2010
2011
B/(W)
Actual Expectations Yr/Yr
IBM Operating EPS (Non-GAAP)
$11.67
$13.00+
+11%
IBM GAAP EPS
$11.52
$12.56+
+9%
Adjustments
$0.34
$0.41
Amortization of Purchased Intangibles
$0.31
$0.38
Other Acquisition-Related Charges
$0.03
$0.03
($0.20)
$0.03
Acquisition-Related Charges *
Non-Operating Retirement-Related Charges
* Includes acquisitions as of 12/31/2010
Moving to operating earnings (Non-GAAP) objectives for 2015 Roadmap
www.ibm.com/investor
49
Retirement-Related Charges – Non-Operating Scenarios
Worldwide Discount Rate
YE ’10 Assumptions
Upside Case
Downside Case
2010
4.7%
4.7%
4.7%
Worldwide ROA
YE ’10 Assumptions
Upside Case
Downside Case
2011+
4.7%
5.2%
4.2%
2011
7%
14%
0%
2012+
7%
7%
7%
Non-Operating Retirement-Related
Pre-tax (Cost) / Income ($B)
$0.5
$0.4
$0.1
($0.0)
2009
2010
2011
($0.3)
2012
($0.7)
2013
~$2B range
($0.2)
2014
2015
Cash Drivers ($B)
($1.3) ($1.3)
($1.7) ($1.5) ($1.6) ($1.6) ($1.6)
2009
Actual
2010
2011
2012
2013
2014
2015
Projection based on Dec ‘10 assumptions
www.ibm.com/investor
Downside
Upside
50
Supplemental Information – Operating Earnings - 2010
1Q10
2Q10
3Q10
4Q10
FY10
Pre-Tax Income
$3,515
$4,575
$4,677
$6,956
$19,723
Net Income
$2,601
$3,386
$3,589
$5,257
$14,833
EPS
$1.97
$2.61
$2.82
$4.18
$11.52
$ in Millions, except EPS
As Reported
Adjustments
Pre-Tax Income Total
$41
Non-Operating Pension*
(76)
Acquisition-Related Charges**
116
Tax Impact***
($4)
Net Income
$37
EPS
$9
$35
$59
$144
(113)
(104)
(121)
(414)
122
139
180
558
7
5
37
46
$17
$39
$97
$190
$0.03
$0.01
$0.03
$0.08
$0.15
Pre-Tax Income
$3,556
$4,584
$4,712
$7,015
$19,867
Net Income
$2,638
$3,402
$3,628
$5,354
$15,023
EPS
$2.00
$2.62
$2.85
$4.25
$11.67
Operating (Non-GAAP)
* 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
** Includes Amortization of Purchased Intangibles, In Process R&D, Severance Cost for Acquired employees, vacant space for acquired companies, deal costs
*** The tax impact on the Operating (Non-GAAP) Pre Tax Income will be calculated under the same accounting principles applied to the As Reported Pre Tax Income under ACS
740, which employs an annual effective tax rate concept to the results.
www.ibm.com/investor
51
Supplemental Information – Operating Earnings – 4Q 2010
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$14,227
$82
($60)
$14,249
SG&A
5,951
RD&E
1,578
0
Pre-Tax Income
6,956
180
(121)
7,015
Net Income
5,257
170
(74)
5,354
Diluted Earnings Per Share
$4.18
(95)
$0.14
28
5,884
33
1,611
($0.06)
$4.25
* 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
www.ibm.com/investor
52
Supplemental Information – Operating Earnings – FY 2010
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$46,014
$260
($204)
$46,070
84
21,628
126
6,152
SG&A
21,837
RD&E
6,026
0
Pre-Tax Income
19,723
558
(414)
19,867
Net Income
14,833
443
(253)
15,023
$0.34
($0.20)
Diluted Earnings Per Share
$11.52
(294)
$11.67
* 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
www.ibm.com/investor
53
Supplemental Information – Segment Performance – 4Q 2010
GTS
GBS
Software
Systems
& Tech
External Gross Profit
$3,531
$1,348
$6,230
$2,753
$326
$14,188
External Gross Profit Margin
34.7%
28.3%
88.5%
43.9%
51.8%
49.1%
Pre-Tax Income
$1,657
$746
$3,172
$1,208
$567
Pre-Tax Income Margin
15.8%
15.0%
40.6%
18.6%
47.1%
$ in Millions, except EPS
Global
Financing
Total
Segments
As Reported
$7,349
23.7%
Non-Operating Adjustments to Gross Profit
Retirement-Related Charges
($24)
($16)
($4)
($16)
$0
Acquisition-Related Charges
1
0
81
0
0
($26)
($16)
($41)
($37)
2
($60)
82
Non-Operating Adjustments to Pre-Tax Income
Retirement-Related Charges
Acquisition-Related Charges
4
5
168
External Gross Profit
$3,509
$1,332
$6,307
External Gross Profit Margin
34.5%
28.0%
Pre-Tax Income
$1,635
Pre-Tax Income Margin
15.6%
($1)
($121)
0
180
$2,737
$326
$14,211
89.6%
43.6%
51.8%
49.2%
$735
$3,299
$1,173
$566
14.8%
42.2%
18.0%
47.0%
Operating (Non-GAAP)
www.ibm.com/investor
$7,408
23.9%
54
Supplemental Information – Segment Performance – FY 2010
GTS
GBS
Software
Systems
& Tech
$13,267
$5,148
$19,537
$6,920
$1,148
$46,020
External Gross Profit Margin
34.7%
28.3%
86.9%
38.5%
51.3%
46.4%
Pre-Tax Income
$5,568
$2,569
$9,097
$1,586
$1,959
$20,778
Pre-Tax Income Margin
14.1%
13.5%
35.8%
8.4%
48.0%
19.5%
$ in Millions, except EPS
Global
Financing
Total
Segments
As Reported
External Gross Profit
Non-Operating Adjustments to Gross Profit
Retirement-Related Charges
Acquisition-Related Charges
($80)
6
($43)
0
($16)
254
($64)
0
$0
0
($204)
260
Non-Operating Adjustments to Pre-Tax Income
Retirement-Related Charges
Acquisition-Related Charges
($88)
($42)
($148)
($133)
($3)
($414)
19
19
517
3
0
558
$13,194
$5,106
$19,774
$6,856
$1,148
$46,078
External Gross Profit Margin
34.5%
28.0%
87.9%
38.1%
51.3%
46.5%
Pre-Tax Income
$5,499
$2,546
$9,466
$1,456
$1,956
$20,923
Pre-Tax Income Margin
13.9%
13.4%
37.2%
7.8%
48.0%
19.6%
Operating (Non-GAAP)
External Gross Profit
www.ibm.com/investor
55
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/or
earnings presentation materials, the following Non-GAAP information which management believes provides useful
information to investors.
Operating (Non-GAAP) Earnings
Management presents operating (Non-GAAP) earnings, excluding the effects of certain acquisition-related
charges, non-operating retirement-related costs, and their related tax impacts. For acquisitions, operating
earnings excludes the amortization of purchased intangible assets and acquisition-related charges such as inprocess 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 operating earnings. Non-operating retirement-related cost
includes 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 operating earnings, as presented, may differ from similarly titled measures reported by other
companies.
Overall, management believes that providing investors with a view of operating earnings 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 road map, the company will utilize
operating earnings to establish its objectives and track its progress.
www.ibm.com/investor
56
Non-GAAP Supplementary Materials
Constant Currency
Management refers to growth rates at constant currency or adjusting for currency so that the business results can
be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-toperiod comparisons of the company's business performance. Constant currency revenue results are calculated by
translating current period revenue in local currency using the prior year's currency conversion rate. This
consistent approach is based on the pricing currency for each country which is typically the functional 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.
Cash Flow
Management includes presentations of both cash flow from operations and free cash flow that exclude the effect
of Global Financing Receivables. For a financing business, increasing receivables is the basis for growth.
Receivables are viewed as an investment and an income-producing asset. Therefore, management presents
financing receivables as an investing activity. Management’s view is that this presentation gives the investor the
best perspective of cash available for new investment or for distribution to shareholders.
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.
PLM Sale
Management presents certain financial results excluding the effects of the PLM divestiture. In March 2010, the
company completed the sale of its activities associated with the sales and support of Dassault Systemes’
(Dassault) product lifecycle management (PLM) software, including customer contracts and related assets to
Dassault. Given this sale, management believes that presenting financial information regarding revenue and
software segment revenue without this item 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
for investors.
www.ibm.com/investor
57
Non-GAAP Supplementary Materials
Reconciliation of Free Cash Flows (excluding GF Receivables)
$ in Billions
2001
2002
2003
2004
2005
Net Cash from Operations
$13.7
$13.8
$14.5
$15.3
$14.9
2.0
3.3
1.9
2.5
1.8
11.7
10.5
12.6
12.9
13.1
(4.9)
(4.6)
(3.9)
(3.7)
(3.5)
6.8
5.9
8.7
9.1
9.6
2006
2007
2008
2009
2010
$15.0
$16.1
$18.8
$20.8
$19.5
(0.3)
(1.3)
0.0
1.9
(0.7)
15.3
17.4
18.8
18.9
20.3
(4.7)
(5.0)
(4.5)
(3.7)
(4.0)
10.5
12.4
14.3
15.1
16.3
Less: Global Financing Receivables
Net Cash from Operations (excluding GF Receivables)
Net Capital Expenditures
Free Cash Flow (excluding GF Receivables)
Net Cash from Operations
Less: Global Financing Receivables
Net Cash from Operations (excluding GF Receivables)
Net Capital Expenditures
Free Cash Flow (excluding GF Receivables)
The above serves to reconcile the Non-GAAP financial information contained in the “IBM Transformation”
discussion in the company’s earnings presentation. See Slide 57 of this presentation for additional information on
the use of these Non-GAAP financial measures.
www.ibm.com/investor
58
Non-GAAP Supplementary Materials
Reconciliation of Revenue Growth
4Q10 Yr/Yr
Japan
Asia Pacific, other than Japan
China
Russia
Global Business Services – North America
Growth Markets – Storage
As Rptd
@CC
7%
20%
27%
45%
11%
21%
(2%)
14%
25%
46%
11%
23%
FY10 Yr/Yr
Japan
Asia Pacific, other than Japan
As Rptd
5%
18%
@CC
(2%)
11%
The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography,”
“Services Segments,” and “Systems and Technology Segment” discussions regarding revenue growth in the
company’s earnings presentation. See Slide 57 of this presentation for additional information on the use of these
Non-GAAP financial measures.
www.ibm.com/investor
59
Non-GAAP Supplementary Materials
Reconciliation of Outsourcing Services Revenue Growth
Yr/Yr
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
As Rptd
@CC
18%
17%
9%
(5%)
(10%)
(11%)
(5%)
5%
7%
2%
2%
2%
10%
9%
5%
1%
(2%)
(3%)
(4%)
(3%)
0%
1%
2%
2%
The above serves to reconcile the Non-GAAP financial information contained in the “Outsourcing Services
Trending” discussion in the company’s earnings presentation. See Slide 57 of this presentation for additional
information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
60
Non-GAAP Supplementary Materials
Reconciliation of Transactional Services Revenue Growth
Yr/Yr
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
As Rptd
@CC
16%
15%
8%
(3%)
(10%)
(13%)
(9%)
(2%)
1%
1%
2%
2%
7%
7%
4%
2%
(2%)
(7%)
(8%)
(8%)
(5%)
1%
3%
2%
The above serves to reconcile the Non-GAAP financial information contained in the “Transactional Services
Trending” discussion in the company’s earnings presentation. See Slide 57 of this presentation for additional
information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
61
Non-GAAP Supplementary Materials
Reconciliation of Debt-to-Capital Ratio
FY10
FY09
Non-Global Financing Debt / Capital
23%
16%
IBM Consolidated Debt / Capital
55%
53%
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 57 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
62
www.ibm.com/investor
63