4Q09 charts (pdf, 695 KB)

®
4Q 2009 Earnings Presentation
January 19, 2010
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.
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.
These charts and the associated remarks and comments are integrally related,
and are intended to be presented and understood together.
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2
2009 Financial Highlights
4Q 2009
Full Year
¾EPS $3.59 +10% yr/yr
¾EPS $10.01 +13% yr/yr
¾Hardware / Software Share Gains
¾Hardware / Software Share Gains
•POWER, System x, Blades, Storage
•WebSphere, Tivoli, Branded MW
¾Services Signings $18.8B @ Actual
•POWER, System x, Blades, Storage,
Total Servers
•Middleware, WebSphere, Tivoli, Rational
¾Signings $57B @ Actual, Backlog $137B
•Outsourcing +9% yr/yr, 11% @CC
¾PTI Margin +1.9 pts yr/yr
¾PTI Margin +2.8 pts yr/yr
¾ $7.2B Free Cash Flow*
¾ $15.1B Free Cash Flow* +$800M yr/yr
* Excluding GF Receivables
7th consecutive year of double-digit EPS growth in 2009
Expect at least $11.00 EPS in 2010
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3
IBM Financial Performance History
$22
$11
$20
$10
$18
$9
Pre-tax income
$16
$8
EPS
$14
$7
$12
$6
$10
$5
$8
$4
$6
$3
$4
$2
Divested Revenue
Free Cash Flow*
2000
2001
2002
2003
2004
2005
2006
2007
2008
Note: 2005-2008 EPS reflects the adoption of amendments to ASC 260, “Earnings Per Share”
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2009
EPS
Pre-tax Income & Free Cash Flow ($B)
Revenue
* Excluding GF Receivables
4
Transformational Impact on Profit Mix
Segment Pre-tax Income *
% of
Segments
$8.1B
42%
$8.1B
42%
$1.7B
$1.4B
9%
7%
% of
Segments
$2.8B
25%
$4.5B
40%
$1.2B
11%
$2.7B
24%
2000**
Hardware
2009
Financing
Services
Software
* Sum of external segment pre-tax income not equal to IBM pre-tax income
** Stock-based compensation expense was not recorded at the segment level
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5
Transformational Drivers
Initiative
2009 Result
¾ Shifting to Higher Value Areas
¾ Software $8B PTI Î 42% of total segments
¾ Services $8B PTI Î 42% of total segments
¾ Continued acquisitions; 108 companies since 2000
¾ Improving Operating Leverage
through Productivity
¾ $3.7B cost & expense savings
¾ 9% operational expense improvement
¾ Expanded margins
¾ Investing for Growth
¾ Growth Markets revenue +8 pts > Major Markets
¾ #1 patents for 17th consecutive year
¾ Business Analytics acquisitions +9% revenue
growth @CC
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6
4Q / FY 2009 Financial Summary
$ in Billions, except EPS
Revenue
4Q09
B/(W)
Yr/Yr
FY09
B/(W)
Yr/Yr
$27.2
1%
$95.8
(8%)
@CC
(5%)
GP %
48.3%
0.4 pts
(5%)
45.7%
1.7 pts
Expense
$6.8
5%
$25.6
11%
Pre-Tax Income
$6.4
10%
$18.1
9%
PTI Margin
23.4%
1.9 pts
18.9%
2.8 pts
Tax Rate
24.6%
(0.8 pts)
26.0%
0.2 pts
Net Income
$4.8
Shares (Diluted) (M)
EPS
1,340.7
$3.59
9%
$13.4
9%
1%
1,341.4
3%
10%
$10.01
13%
Strong margins drive record profit performance
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7
Revenue by Geography
$ in Billions
Americas
4Q09
$11.1
B/(W) Yr/Yr
Rptd
@CC
(3%)
(6%)
Europe/ME/A
9.7
2%
(7%)
Asia Pacific
5.8
6%
(3%)
Total Geographies
$26.6
1%
(6%)
IBM
$27.2
1%
(5%)
Major Markets
(2%)
(7%)
Growth Markets
14%
2%
18%
7%
BRIC Countries
Canada/
LA
U.S.
-8%
EMEA
APac
Japan +3%
-9% @CC
@CC
OEM
+5%
Growth markets outpace major markets by 8 points in 2009
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8
Revenue and Gross Margin by Segment
Revenue
$ in Billions
4Q09
Global Technology Services
$10.1
Gross Profit Margin
B/(W) Yr/Yr
Rptd
@CC
4Q09
B/(W)
Yr/Yr Pts
4%
(3%)
35.8%
0.9 pts
Global Business Services
4.6
(3%)
(9%)
30.3%
1.7 pts
Software
6.6
2%
(4%)
87.7%
Flat
Systems & Technology
5.2
(4%)
(9%)
42.5%
2.6 pts
Global Financing
0.6
(6%)
(12%)
52.0%
2.0 pts
Total Segments
$27.0
1%
(6%)
49.1%
1.3 pts
Total IBM
$27.2
1%
(5%)
48.3%
0.4 pts
Margin expansion in 21 of last 22 quarters
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9
Expense Summary
$ in Billions
4Q09
B/(W)
Yr/Yr
SG&A
$5.6
RD&E
IP and Development Income
Currency
Acq.*
Ops
5%
(7 pts)
(1 pts)
13 pts
1.5
4%
(3 pts)
(1 pts)
8 pts
(0.3)
(5%)
(9 pts)
(1 pts)
15 pts
Other (Income)/Expense
0.0
nm
Interest Expense
0.1
58%
$6.8
5%
Total Expense & Other Income
B/(W) Yr/Yr Drivers
* Includes acquisitions made in the last twelve months
Improving operating leverage through productivity
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10
Margins by Segment
External
Gross Profit Margins
Total
Pre-Tax Margins
4Q09
B/(W)
Yr/Yr Pts
4Q09
B/(W)
Yr/Yr Pts
Global Technology Services
35.8%
0.9 pts
15.0%
0.6 pts
Global Business Services
30.3%
1.7 pts
16.0%
1.1 pts
Software
87.7%
Flat
41.5%
2.4 pts
Systems & Technology
42.5%
2.6 pts
15.4%
2.6 pts
Global Financing
52.0%
2.0 pts
43.6%
5.5 pts
Total Segments
49.1%
1.3 pts
23.0%
1.9 pts
Total IBM
48.3%
0.4 pts
23.4%
1.9 pts
Broad-based margin expansion
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11
Services Segments
Global Technology Services (GTS)
Global Business Services (GBS)
4Q09
B/(W) Yr/Yr
Rptd
@CC
$ in Billions
Revenue (External)
$10.1
4%
Revenue (External)
Gross Margin (External)
35.8%
0.9 pts
PTI Margin
15.0%
0.6 pts
$ in Billions
GTS Signings
4Q09
Integrated Technology Svcs
GTS Outsourcing
$2.7
Yr/Yr
(3%)
(3%)
@CC
(10%)
8.6
5%
(1%)
Total GTS Signings
$11.4
3%
(4%)
GBS Signings
4Q09
Yr/Yr
$4.6
3%
2.8
65%
55%
$7.4
20%
13%
$18.8
9%
2%
Consulting & Systems Integ.
Application Outsourcing
Total GBS Signings
Total Global Services Signings
@CC
(3%)
4Q09
B/(W) Yr/Yr
Rptd
@CC
$4.6
(3%)
Gross Margin (External)
30.3%
1.7 pts
PTI Margin
16.0%
1.1 pts
(9%)
(7%) Yr/Yr
4Q09 Revenues
Integrated
(1%)
(% of Total Services)
Technology
Yr/Yr
(Growth @CC)
Services
Maint.
16%
13%
Strategic
+1%
(2%)
Outsourcing
BTO 4% Yr/Yr
Yr/Yr
36%
Global Business
Services
31%
(9%)
Yr/Yr
Services profit +7% yr/yr, growth in both GTS and GBS
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12
Software Segment
B/(W) Yr/Yr
4Q09
Rptd
@CC
$6.6
2%
(4%)
Gross Margin (External)
87.7%
Flat
PTI Margin
41.5%
2.4 pts
$ in Billions
Revenue (External)
4Q09 Revenue
WebSphere Family
Information Management
4Q09 Revenue
(% of Total Software)
Yr/Yr
Rptd
@CC
13%
6%
7%
1%
1%
Tivoli
7%
Lotus
(5%)
(11%)
Rational
(4%)
(10%)
Key Branded Middleware
6%
Flat
Total Middleware
4%
(3%)
Total Software
2%
(4%)
Key
Branded
Middleware
63%
Other
Middleware
19%
Operating
Systems
Other 9%
9%
Share gain in Branded Middleware, 10% yr/yr profit growth
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13
Systems & Technology Segment
B/(W) Yr/Yr
$ in Billions
4Q09
Rptd
@CC
$5.2
(4%)
(9%)
Gross Margin (External)
42.5%
2.6 pts
PTI Margin
15.4%
2.6 pts
Revenue (External)
4Q09 Revenue
Yr/Yr
Rptd
@CC
System z
(27%)
(31%)
Converged System p
(14%)
(18%)
37%
31%
System x Servers
Storage
1%
(4%)
Retail Store Solutions
(5%)
(9%)
Total Systems
(5%)
(10%)
Microelectronics OEM
Total Systems & Technology
2%
2%
(4%)
(9%)
4Q09 Revenue
(% of Total Sys & Tech)
Servers
66%
Storage
21%
RSS
Micr
o OE
9% M
Share gains in System x, System p and Storage; 15% yr/yr profit growth
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14
Cash Flow Analysis
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
4Q09
B/(W)
Yr/Yr
FY09
B/(W)
Yr/Yr
$6.4
($0.2)
$20.8
$2.0
1.9
1.9
(1.9)
0.3
8.4
(0.5)
18.9
0.0
(1.1)
(0.1)
(3.7)
0.8
7.2
(0.6)
15.1
0.8
Acquisitions
(1.1)
(0.8)
(1.2)
5.1
Divestitures
0.0
0.0
0.4
0.3
Dividends
(0.7)
(0.1)
(2.9)
(0.3)
Share Repurchases
(3.1)
(2.3)
(7.4)
3.1
1.5
3.3
(4.7)
(1.5)
(1.4)
(0.1)
1.7
(3.3)
($0.7)
$1.1
$4.3
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
$2.5
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15
Balance Sheet Summary
Dec. 08
$ in Billions
Cash & Marketable Securities
Dec. 09
$12.9
$14.0
Non-GF Assets*
61.8
61.7
Global Financing Assets
34.9
33.3
109.5
109.0
Other Liabilities
62.0
60.2
Non-GF Debt*
9.6
3.7
24.4
22.4
33.9
26.1
Total Liabilities
95.9
86.3
Equity
13.6
22.8
Total Assets
Global Financing Debt
Total Debt
Non-GF Debt / Capital
Global Financing Leverage
49%
16%
7.0
7.1
* Includes eliminations of inter-company activity
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16
EPS Bridge – 4Q08 to 4Q09
$0.24
$3.27
$0.03
($0.04)
$0.03
$3.59
Share
Repurchases
4Q09 EPS
$0.06
Operating Leverage
4Q08 EPS*
Revenue Growth
@ Actual
Gross Margin
Expense
Productivity
Tax
Rate
* Reflects the adoption of amendments to ASC 260, “Earnings Per Share”
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17
EPS Bridge – FY08 to FY09
$0.58
$8.89
($0.68)
$0.34
$10.01
Share
Repurchases
2009 EPS
$0.03
$0.85
Operating Leverage
2008 EPS*
Revenue Growth
@ Actual
Gross Margin
Expense
Productivity
Tax
Rate
* Reflects the adoption of amendments to ASC 260, “Earnings Per Share”
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18
2010
$11.00+
2009
$10.01
2008
$8.89
2007
$7.15
2006
$6.05
Well-Positioned for 2010
¾ Shifting portfolio to higher value spaces
¾ Improving operating leverage through
productivity
¾ Investing in skills and capabilities to drive
future growth
EPS
Expect EPS of at least $11.00 in 2010
Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “Earnings Per Share”
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19
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20
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
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 – 4Q and FY 2009
Revenue by Geography – FY 2009
Revenue by Segment – FY 2009
Expense Summary – FY 2009
Margins by Segment – FY 2009
Summary and Selected Items – FY 2009
Cash Flow (FAS 95)
Computation of 2009 Global Financing Return on Equity
Supplemental EPS Information – Acquisition-Related Activity
Non-GAAP Supplementary Materials
• Constant Currency, Cash Flow, Debt-to-Capital Ratio
• Reconciliation of Free Cash Flows (excluding GF Receivables)
• Reconciliation of Acquired Business Revenue Growth
• Reconciliation of Geography Revenue Growth
• Reconciliation of Software Segment Revenue Growth
• Reconciliation of Debt-to-Capital Ratio
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21
Currency – Year/Year Comparison
Quarterly Averages per US $
3Q09
Yr/Yr
4Q09
Yr/Yr
1/18
Spot
Euro
0.70
(5%)
0.68
11%
0.70
Pound
0.61
(15%)
0.61
4%
0.61
94
13%
90
6%
91
Yen
IBM Revenue
Impact
(2 pts)
Revenue As Reported
Currency Impact
Revenue @CC
6 pts
(US$B)
Yr/Yr
$27.2
1%
1.7
6 pts
$25.5
(5%)
Yr/Yr @ 1/18 Spot
1Q10
2Q10
3Q10
4Q10
9%
5%
1%
(3%)
12%
5%
0%
0%
3%
7%
3%
(1%)
~6-7 pts
~4-5 pts
~1-2 pts ~(1)-0 pts
IBM hedges its major cross-border cash
flows to mitigate the effect of currency
volatility. The impact of these hedging
programs is principally reflected in Other
Income and Expense, as well as Cost of
Goods Sold.
Negative Yr/Yr growth signifies a translation hurt
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22
Supplemental Segment Information – 4Q 2009
Revenue Growth
Global Services
Signings ($B)
Yr/Yr
@CC
Global Services
Strategic Outsourcing
6%
(2%)
Global Services (C&SI / ITS)
Business Transformation
Outsourcing
7%
1%
Integrated Tech Services
Flat
(7%)
Maintenance
6%
(1%)
4%
(3%)
Global Business Services
(3%)
(9%)
Backlog
$137B
Global Technology Services
4Q09
Yr/Yr
@CC
$7.4
1%
(6%)
GBS (C&SI)
4.6
3%
(3%)
GTS (ITS)
2.7
(3%)
Global Services Outsourcing
(10%)
$11.4
15%
8%
GBS (App. Outsourcing)
2.8
65%
55%
GTS (SO & BTO)
8.6
5%
(1%)
Change in Backlog due to Currency
Quarter-to-Quarter
Year-to-Year
($1B)
$6B
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23
Supplemental Segment Information – 4Q 2009
Revenue Growth
Revenue Growth
Systems & Technology
Yr/Yr
@CC
System z
(27%)
(31%)
Converged System p
(14%)
(18%)
37%
31%
System x Servers
Storage
Retail Store Solutions
Total Systems
Microelectronics OEM
Total Systems & Technology
GP%
1%
(4%)
(5%)
(9%)
(5%)
(10%)
2%
2%
(4%)
(9%)
Share
Software
Yr/Yr
@CC
13%
6%
Information Management
7%
1%
Tivoli
7%
1%
Lotus
(5%)
(11%)
Rational
(4%)
(10%)
6%
Flat
(4%)
(10%)
WebSphere Family
=
=
=
Key Branded Middleware
Other Middleware
Total Middleware
4%
(3%)
Operating Systems
Flat
(1%)
Other Software/Services
(4%)
Total Software
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2%
(10%)
(4%)
24
Global Financing Portfolio
4Q09 – $25.0B Net External Receivables
Investment Grade
59%
Non-Investment Grade
41%
40%
35%
30%
25%
20%
15%
10%
35%
24%
22%
11%
5%
3%
5%
0%
Aaa-A3
Baa1-Baa3
Ba1-Ba2
Identified Loss Rate
Anticipated Loss Rate
Reserve Coverage
Client Days Delinquent Outstanding
Commercial A/R > 30 Days
Ba3-B1
B2-B3
4Q09
1.6%
0.5%
2.1%
3Q09
1.7%
0.6%
2.3%
4Q08
1.4%
0.6%
2.0%
2.4
$28M
3.1
$34M
3.2
$41M
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Caa-D
25
Revenue by Key Industry Sales Unit
$ in Billions
Financial Services
4Q09
B/(W) Yr/Yr
Rptd
@CC
FY09
B/(W) Yr/Yr
Rptd
@CC
$27.2
(6%)
(4%)
1%
4%
$7.9
1%
(6%)
Public
4.3
5%
Flat
15.6
Industrial
2.8
(9%)
(15%)
10.1
Distribution
2.6
(1%)
Communications
2.6
General Business
(17%)
(15%)
(6%)
9.0 (10%)
(8%)
(3%)
(9%)
9.4
(8%)
(5%)
5.6
5%
(2%)
19.1
(8%)
(5%)
All Sectors
$26.7
1%
(6%)
$93.6
(7%)
(5%)
Total IBM
$27.2
1%
(5%)
$95.8
(8%)
(5%)
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26
Revenue by Geography – FY 2009
$ in Billions
Americas
FY09
B/(W) Yr/Yr
Rptd
@CC
$40.2
(6%)
(5%)
Europe/ME/A
32.6
(12%)
(6%)
Asia Pacific
20.7
(2%)
(4%)
Total Geographies
$93.5
(7%)
(5%)
IBM
$95.8
(8%)
(5%)
Major Markets
(8%)
(6%)
Growth Markets
(3%)
1%
1%
4%
BRIC Countries
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Canada/
LA
U.S.
-6%
EMEA
APac
Japan +3%
-10% @CC
@CC
OEM
-15%
27
Revenue by Segment – FY 2009
Revenue
$ in Billions
FY09
Global Technology Services
B/(W) Yr/Yr
Rptd
@CC
$37.3
(5%)
(2%)
Global Business Services
17.7
(10%)
(8%)
Software
21.4
(3%)
(1%)
Systems & Technology
16.2
(16%)
(15%)
2.3
(10%)
(7%)
Total Segments
$94.9
(8%)
(5%)
Total IBM
$95.8
(8%)
(5%)
Global Financing
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Global
Business Systems
&
Services
Technology
Global
Technology
Services
Software
Global
Financing
28
Expense Summary – FY 2009
B/(W) Yr/Yr Drivers
FY09
B/(W)
Yr/Yr
Currency
Acq.*
Ops
SG&A
$21.0
10%
3 pts
(1 pts)
9 pts
RD&E
5.8
8%
2 pts
(2 pts)
8 pts
IP and Development Income
(1.2)
2%
Other (Income)/Expense
(0.4)
18%
0.4
40%
$25.6
11%
4 pts
(1 pts)
9 pts
$ in Billions
Interest Expense
Total Expense & Other Income
* Includes acquisitions made in the last twelve months
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29
Margins by Segment – FY 2009
External
Gross Profit Margins
Total
Pre-Tax Margins
FY09
B/(W)
Yr/Yr Pts
FY09
B/(W)
Yr/Yr Pts
Global Technology Services
35.0%
2.4 pts
14.3%
3.0 pts
Global Business Services
28.2%
1.5 pts
13.8%
0.8 pts
Software
86.0%
0.6 pts
33.6%
5.2 pts
Systems & Technology
37.8%
(0.2 pts)
8.3%
0.6 pts
Global Financing
47.5%
(3.8 pts)
42.4%
6.1 pts
Total Segments
46.0%
1.7 pts
18.9%
3.1 pts
Total IBM
45.7%
1.7 pts
18.9%
2.8 pts
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30
Summary and Selected Items – FY 2009
$ in Billions, except EPS
Revenue
FY09
B/(W)
Yr/Yr
$95.8
(8%)
Pre-Tax Income
$18.1
PTI Margin
18.9%
Net Income
$13.4
9%
EPS
$10.01
13%
Includes:
Pre-Tax
Income
Retirement-Related Benefits
(1.4)
Stock-Based Compensation
(0.6)
Amort. of Purchased Intangibles
(0.5)
Workforce Rebalancing
(0.5)
9%
2.8 pts
Reported results include almost $3B PTI impact from selected items
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31
Cash Flow (FAS 95)
4Q09
4Q08
FY09
FY08
$4.8
$4.4
$13.4
$12.3
Depreciation / Amortization of Intangibles
1.3
1.3
5.0
5.4
Stock-based Compensation
0.1
0.2
0.6
0.7
Working Capital / Other
2.2
3.0
(0.1)
0.4
(1.9)
(2.3)
1.9
0.0
6.4
6.6
20.8
18.8
(1.1)
(1.0)
(3.7)
(4.5)
0.0
0.0
0.4
0.1
Acquisitions, net of cash acquired
(1.1)
(0.3)
(1.2)
(6.3)
Marketable Securities / Other Investments, net
(0.3)
0.4
(2.2)
1.5
(2.5)
(0.9)
(6.7)
(9.3)
1.0
(1.6)
(7.5)
(2.4)
Dividends
(0.7)
(0.7)
(2.9)
(2.6)
Common Stock Repurchases
(3.1)
(0.7)
(7.4)
(10.6)
1.5
0.1
3.1
Net Cash used in Financing Activities
(1.2)
(2.9)
Effect of Exchange Rate changes on Cash
(0.1)
0.1
Net Change in Cash & Cash Equivalents
$2.7
$ in Billions
Net Income from Operations
Global Financing A/R
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
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$3.0
(14.7)
0.1
($0.6)
3.8
(11.8)
0.1
($2.2)
32
Computation of 2009 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 2009
$ in Billions
Numerator:
(a)
$1,138
Average Global Financing Equity**
(b)
$3,312
Global Financing Return on Equity
(a)/(b)
34%*
Global Financing After Tax Income*
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.
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33
Supplemental EPS Information – Acquisition-Related Activity
The company is including a view of the impact of certain acquisitionrelated charges on IBM’s earnings results.
Management’s view is that this supplemental information provides
additional insight into the company’s ongoing operations and enables a
more meaningful comparison to other companies in the technology
sector who present similar information.
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34
Supplemental EPS Information – Acquisition-Related Activity - 2009
1Q09
2Q09
3Q09
4Q09
FY09
Pre-Tax Income
$3,122
$4,262
$4,373
$6,381
$18,138
Net Income
$2,295
$3,103
$3,214
$4,813
$13,425
EPS
$1.70
$2.32
$2.40
$3.59
$10.01
$ in Millions, except EPS
As Reported
Adjustments
Pre-Tax Income Total
$125
$122
$124
$127
$498
125
122
122
120
489
In Process R&D
0
0
0
0
0
Acquisition-Related Charges
0
0
2
7
9
$90
$88
$89
$91
$357
Amortization of Acquired Intangibles
Net Income
EPS
$0.07
$0.07
$0.07
$0.07
$0.27
Pre-Tax Income
$3,247
$4,384
$4,496
$6,507
$18,635
Net Income
$2,385
$3,191
$3,303
$4,904
$13,781
EPS
$1.77
$2.39
$2.47
$3.66
$10.27
Results excluding Acquisition-Related Activity
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35
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.
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-to-period 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.
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36
Non-GAAP Supplementary Materials
Reconciliation of Free Cash Flows (excluding GF Receivables)
$ in Billions
2000
2001
2002
2003
2004
Net Cash from Operations
$8.6
$13.7
$13.8
$14.5
$15.3
(2.5)
2.0
3.3
1.9
2.5
11.1
11.7
10.5
12.6
12.9
(4.3)
(4.9)
(4.6)
(3.9)
(3.7)
6.7
6.8
5.9
8.7
9.1
2005
2006
2007
2008
2009
$14.9
$15.0
$16.1
$18.8
$20.8
1.8
(0.3)
(1.3)
0.0
1.9
13.1
15.3
17.4
18.8
18.9
(3.5)
(4.7)
(5.0)
(4.5)
(3.7)
9.6
10.5
12.4
14.3
15.1
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 discussion regarding Cash
Flow in the company’s earnings presentation. See Slide 36 of this presentation for additional information on the
use of these Non-GAAP financial measures.
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37
Non-GAAP Supplementary Materials
Reconciliation of Acquired Business Revenue Growth
FY09 Yr/Yr
Business Analytics Acquisitions – Software
As Rptd
@CC
7%
9%
The above serves to reconcile the Non-GAAP financial information contained in the “Transformational Drivers”
discussion regarding revenue growth of acquired businesses in the company’s earnings presentation. See Slide
36 of this presentation for additional information on the use of these Non-GAAP financial measures.
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38
Non-GAAP Supplementary Materials
Reconciliation of Geography Revenue Growth
4Q09 Yr/Yr
As Rptd
@CC
Asia Pacific, other than Japan
14%
3%
Japan
(3%)
(9%)
FY09 Yr/Yr
As Rptd
11%
@CC
10%
Asia Pacific, other than Japan
(2%)
3%
Japan
(1%)
China
(10%)
The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography”
discussion regarding revenue growth in certain geographies/countries in the company’s earnings presentation.
See Slide 36 of this presentation for additional information on the use of these Non-GAAP financial measures.
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39
Non-GAAP Supplementary Materials
Reconciliation of Software Segment Revenue Growth
4Q09 Yr/Yr
Enterprise Asset Management –
Emerging Markets
As Rptd
@CC
63%
40%
The above serves to reconcile the Non-GAAP financial information contained in the “Software Segment”
discussion regarding revenue growth in certain products in the company’s earnings presentation. See Slide 36 of
this presentation for additional information on the use of these Non-GAAP financial measures.
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40
Non-GAAP Supplementary Materials
Reconciliation of Debt-to-Capital Ratio
FY08
FY09
Non-GF Debt / Capital
49%
16%
IBM Consolidated Debt / Capital
71%
53%
The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary”
discussion regarding the non-GF debt to capital ratio in the company’s earnings presentation. See Slide 36 of
this presentation for additional information on the use of these Non-GAAP financial measures.
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41
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