1Q11 charts (pdf, 741 KB)

®
1Q 2011 Earnings Presentation
April 19, 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/1q11/
The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s
Form 8-K dated April 19, 2011.
www.ibm.com/investor
2
1Q 2011 Highlights
Revenue
$24.6B +8%, 5% yr/yr @CC
Operating (Non-GAAP) EPS
$2.41
+21% yr/yr
¾ 8% revenue growth driven by:
• Double-digit growth in every hardware platform
• Software growth of 10% excluding PLM
• Outsourcing growth of 7%
¾ Momentum in growth initiatives
• Growth markets +12% yr/yr @CC
• Cloud revenue 5X yr/yr
• Business analytics +20% yr/yr
• Smarter Planet +20% yr/yr
¾ Continued margin expansion
¾ Returned $5B to shareholders
Increasing 2011 Operating (Non-GAAP) EPS expectations to at least $13.15
www.ibm.com/investor
3
Key Financial Metrics
$ in Billions, except EPS
P&L Highlights
Revenue
1Q11
B/(W)
Yr/Yr
$24.6
8%
@CC
5%
P&L Ratios
(Operating)
1Q11
B/(W)
Yr/Yr
GP Margin
44.5%
0.8 pts
PTI Margin
16.2%
0.6 pts
PTI – Operating
$4.0
12%
NI Margin
12.1%
0.6 pts
EPS – Operating
$2.41
21%
Tax Rate
25.0%
0.8 pts
Cash Highlights
1Q11
Last
12 Mos.
$0.8
$15.7
Share Repurchase
4.0
15.4
Dividends
0.8
3.3
Free Cash Flow
(excl GF Receivables)
Cash Balance @ Mar. 31
13.2
www.ibm.com/investor
4
Revenue by Geography
$ in Billions
Americas
1Q11
B/(W) Yr/Yr
Rptd
@CC
$10.3
9%
8%
Europe/ME/A
7.8
3%
2%
Asia Pacific
5.9
12%
4%
OEM
0.6
13%
13%
$24.6
8%
5%
5%
3%
18%
12%
26%
22%
IBM
Major Markets
Growth Markets
BRIC Countries
Canada/
LA
EMEA
U.S.
+7%
APac
Japan +14%
- 5% @CC
@CC
OEM
+13%
Performance led by Growth Markets and North America
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5
Revenue and Gross Profit Margin by Segment
Revenue
$ in Billions
1Q11
Global Technology Services
Gross Profit Margin
B/(W) Yr/Yr
Rptd
@CC
1Q11
B/(W)
Yr/Yr Pts
$9.9
6%
3%
33.8%
(0.5 pts)
Global Business Services
4.7
7%
3%
27.4%
0.2 pts
Software
5.3
10%*
8%*
87.0%
1.5 pts
Systems & Technology
4.0
19%
16%
37.8%
4.7 pts
Global Financing
0.5
(4%)
(6%)
53.5%
3.7 pts
8%
5%
44.5%
0.8 pts
Total Revenue &
Operating GP Margin
$24.6
* Software revenue growth excludes PLM;
growth including divested PLM is 6% as reported and 4% @CC
Strong revenue growth and margin expansion
www.ibm.com/investor
6
Expense Summary
$ in Billions
SG&A – Operating
(2)
RD&E – Operating
1Q11
B/(W)
Yr/Yr
$5.7
(2%)
1.6
(4%)
IP and Development Income
(0.3)
Flat
Other (Income)/Expense
(0.2)
(62%)
0.1
(13%)
$7.0
(8%)
(3)
Interest Expense
Operating Expense & Other Income
B/(W) Yr/Yr Drivers
Currency
(1)
Base
(1 pts)
(3 pts)
2 pts
(1 pts)
(5 pts)
1 pts
(1 pts)
(4 pts)
(4 pts)
Acq.
(1) Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges
(2) Includes yr/yr decrease of $336M in workforce rebalancing
(3) Includes investment gain of $203M in 1Q11 and PLM gain of $591M in 1Q10
Expense growth in line with revenue growth
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7
Pre-Tax Income by Segment
Segment PTI $
Segment PTI Margin
PTI $
B/(W)
Yr/Yr
B/(W) Yr/Yr
w/o Unique
Items*
PTI %
B/(W)
Yr/Yr
B/(W) Yr/Yr
w/o Unique
Items*
$1.2
29%
10%
12.2%
2.2 pts
0.5 pts
Global Business Services
0.6
44%
19%
13.0%
3.4 pts
1.5 pts
Software
1.7
(18%)
9%
28.3%
(8.6 pts)
0.6 pts
Systems & Technology
0.1
$0.3
$0.3
3.1%
8.6 pts
7.5 pts
Global Financing
0.5
22%
21%
51.3%
5.8 pts
5.8 pts
$4.0
12%
16.2%
0.6 pts
$ in Billions
Global Technology Services
Total Operating PTI
* 1Q11 Workforce Rebalancing charge of $221M
1Q10 PLM gain of $591M (Software) and Workforce Rebalancing charge of $557M
Broad-based profit growth and margin expansion
www.ibm.com/investor
8
Services Segments
Global Technology Services (GTS)
$ in Billions
1Q11
Global Business Services (GBS)
B/(W) Yr/Yr
Rptd
@CC
Revenue (External)
Gross Margin (External)
$9.9
33.8%
6%
(0.5 pts)
PTI Margin
12.2%
2.2 pts
excluding Unique Items
3%
0.5 pts
$4.7
7%
Gross Margin (External)
27.4%
0.2 pts
PTI Margin
13.0%
3.4 pts
Revenue (External)
excluding Unique Items
GTS
1Q11
GTS Outsourcing
Integrated Technology Services
Maintenance
Rptd
6%
7%
4%
@CC
3%
4%
1%
GBS
GBS Outsourcing
Consulting & Systems Integration
10%
6%
6%
2%
$142B
+$8B
3%
1.5 pts
1Q11 Revenues
(% of Total Services)
Yr/Yr
1Q11 Revenue
Services Backlog
1Q11
B/(W) Yr/Yr
Rptd
@CC
$ in Billions
+$1.5B
Maint.
13%
GTS
Outsourcing
40%
GBS
Outsourcing
7%
ITS
15%
GBS C&SI
25%
Improved revenue growth, profit growth and margin
www.ibm.com/investor
9
Software Segment
$ in Billions
Revenue (External) - excluding PLM
1Q11
$5.3
Gross Margin (External)
PTI Margin
87.0%
28.3%
including PLM
excluding Unique Items
1Q11 Revenue
Yr/Yr
Rptd
@CC
WebSphere Family
51%
50%
Information Management
13%
11%
Tivoli
8%
6%
Lotus
1%
(1%)
Rational
5%
3%
16%
14%
9%
7%
10%
8%
Key Branded Middleware
Total Middleware
Total Software excl. PLM
B/(W) Yr/Yr
Rptd
@CC
10%
8%
6%
4%
1.5 pts
(8.6 pts)
0.6 pts
1Q11 Revenue
(% of Total Software)
Key
Branded
Middleware
61%
Other
Middleware
21%
Operating
Systems
Other 10%
8%
Branded Middleware grew 16%, represents 61% of total Software
www.ibm.com/investor
10
Systems & Technology Segment
$ in Billions
Revenue (External)
Gross Margin (External)
PTI Margin
1Q11
B/(W) Yr/Yr
Rptd
@CC
$4.0
19%
37.8%
4.7 pts
3.1%
8.6 pts
excluding Unique Items
1Q11 Revenue
7.5 pts
Yr/Yr
System z
Power Systems
System x
Storage
Retail Store Solutions
Total Systems
Microelectronics OEM
Total Systems & Technology
Rptd
41%
19%
13%
10%
18%
18%
23%
19%
16%
@CC
38%
17%
10%
8%
17%
16%
23%
16%
1Q11 Revenue
(% of Total Sys & Tech)
Storage
19%
Servers
65%
RSS
Micr
o OE
12% M
Double-digit growth in every brand
www.ibm.com/investor
11
Cash Flow Analysis
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
1Q11
B/(W)
Yr/Yr *
FY10
$3.8
($0.6)
$19.5
(1.9)
(0.2)
(0.7)
1.9
(0.5)
20.3
(1.1)
(0.2)
(4.0)
0.8
(0.6)
16.3
Acquisitions
(0.1)
0.8
(5.9)
Divestitures
0.0
0.0
0.1
Dividends
(0.8)
(0.1)
(3.2)
Share Repurchases
(4.0)
0.0
Non-GF Debt
1.0
0.7
2.3
Other (includes GF A/R & GF Debt)
4.7
0.9
3.5
$1.6
$1.6
Net Cash from Operations
(excluding GF Receivables)
Net Capital Expenditures
Free Cash Flow (excluding GF Receivables)
Change in Cash & Marketable Securities
(15.4)
($2.3)
* Net Cash from Operations and Free Cash Flow include ($0.8B) yr/yr impact from net income tax settlement payments
www.ibm.com/investor
12
Balance Sheet Summary
Mar. 10
$ in Billions
Cash & Marketable Securities
Dec. 10
Mar. 11
$14.0
$11.7
$13.2
Non-GF Assets*
61.3
67.3
67.4
Global Financing Assets
29.9
34.5
32.3
105.2
113.5
113.0
Other Liabilities
56.7
61.7
59.9
Non-GF Debt*
4.1
5.8
6.5
22.2
22.8
23.7
26.3
28.6
30.3
Total Liabilities
83.1
90.3
90.2
Equity
22.1
23.2
22.8
Total Assets
Global Financing Debt
Total Debt
Non-GF Debt / Capital
Global Financing Leverage
18%
23%
25%
7.0
7.0
7.0
* Includes eliminations of inter-company activity
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13
Operating EPS Bridge – 1Q10 to 1Q11
$0.15
$2.41
$0.11
$0.15
$2.00
1Q10
Operating EPS
Revenue Growth
@ Actual
Margin
Expansion
www.ibm.com/investor
Share
Repurchases
1Q11
Operating EPS
14
2015
At least
$20
1Q 2011 Summary
¾ Revenue growth driven by transaction businesses
and outsourcing
¾ Momentum in growth initiatives
• Growth markets +12% yr/yr @CC,
48% of 1Q geographic revenue growth
2010
$11.67
• Business analytics +20%
• Cloud revenue on track to double in 2011
• Smarter planet +20%
¾ Continued margin expansion
¾ Leveraging strong financial position to return
value to shareholders
Operating EPS
Increasing 2011 Operating (Non-GAAP) EPS
expectations to at least $13.15
www.ibm.com/investor
15
www.ibm.com/investor
16
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
¾
Currency – Year/Year Comparison
Supplemental Segment Information – Global Services
Outsourcing Services Backlog Run Out
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, Unique Items (PLM Sale and/or Workforce Rebalancing)
• Reconciliation of Operating Earnings Per Share
• GAAP to Operating (Non-GAAP) Bridge – 1Q 2011
• GAAP to Operating (Non-GAAP) Bridge – 1Q 2010
• Reconciliation of Free Cash Flow (excluding GF Receivables)
• Reconciliation of Revenue Growth Rates – Geographies, Segments
• Reconciliation of Revenue Growth – GTS
• Reconciliation of Yr/Yr Expense Drivers
• Reconciliation of Segment Pre-Tax Income / Margin Growth
• Reconciliation of Debt-to-Capital Ratio
• Reconciliation of Operating EPS Bridge 1Q10 to 1Q11
www.ibm.com/investor
17
Supplemental Materials
Currency – Year/Year Comparison
Quarterly Averages per US $
Yr/Yr @ 4/18 Spot
2Q11
3Q11
4Q11
1Q11
Yr/Yr
4/18
Spot
Euro
0.73
(1%)
0.70
11%
9%
5%
Pound
0.62
3%
0.62
8%
5%
3%
82
9%
82
11%
4%
0%
~6-7 pts
~4-5 pts
~2-3 pts
Yen
IBM Revenue Impact
Revenue As Reported
Currency Impact
Revenue @CC
3 pts
(US$B)
Yr/Yr
$24.6
8%
0.6
$24.0
3 pts
5%
www.ibm.com/investor
18
Supplemental Materials
Supplemental Segment Information – 1Q 2011
Supplemental Revenue Information
Supplemental Backlog / Signings Information
Revenue Growth
$ in Billions
Yr/Yr
@CC
Global Services
1Q11
Yr/Yr
@CC
GTS Outsourcing
6%
3%
Total Backlog
$142
+$8
+~$1.5
Integrated Tech Services
7%
4%
Outsourcing Backlog
95
+4
~(0.5)
Maintenance
4%
1%
10%
6%
$ in Billions
6%
2%
Global Services
Global Services
GBS Outsourcing
GBS C&SI
Outsourcing
Total GTS
6%
3%
Total GBS
7%
3%
Total Outsourcing
7%
4%
Total Transactional
6%
3%
Maintenance
4%
1%
Backlog
Signings
1Q11
Yr/Yr
@CC
$4.7
(27%)
(30%)
5.8
(1%)
(5%)
$10.5
(14%)
(18%)
- GTS O/S, GBS O/S (AMS)
Transactional
- ITS, Consulting & AMS SI
(incl. US Federal)
Total Signings
Note: YTY signings growth reflects 2010 signings categories consistent with 2011
www.ibm.com/investor
19
Supplemental Materials
Outsourcing Services Backlog Run Out
30
As presented in the 4Q 2010 Earnings Presentation
Revenue from
base growth and
new signings
25
($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
Projected 2011 Revenue from Outsourcing Backlog +3% yr/yr @CC
www.ibm.com/investor
20
Supplemental Materials
Supplemental Segment Information – 1Q 2011
Revenue Growth
Revenue Growth
Systems & Technology
Yr/Yr
@CC
WebSphere Family
51%
50%
Information Management
13%
11%
Tivoli
8%
6%
=
Lotus
1%
(1%)
=
Rational
5%
3%
16%
14%
(8%)
(9%)
Total Middleware
9%
7%
23%
Operating Systems
9%
7%
16%
Other Software/Services
(19%)
Total Software excl. PLM
10%
8%
Total Software incl. PLM
6%
4%
Yr/Yr
@CC
System z
41%
38%
Power Systems
19%
17%
System x
13%
10%
Storage
10%
8%
Retail Store Solutions
18%
17%
Total Systems
18%
16%
Microelectronics OEM
23%
Total Systems & Technology
19%
GP%
Share
Software
Key Branded Middleware
Other Middleware
www.ibm.com/investor
(20%)
21
Supplemental Materials
Global Financing Portfolio
1Q11 – $23.9B Net External Receivables
Investm ent Grade
66%
Non-Investm ent Grade
34%
50%
40%
30%
20%
10%
40%
26%
18%
10%
4%
2%
Ba3-B1
B2-B3
Caa-D
0%
Aaa-A3
Baa1-Baa3
Ba1-Ba2
Identified Loss Rate
Anticipated Loss Rate
Reserve Coverage
Client Days Delinquent Outstanding
Commercial A/R > 30 Days
22
1Q11
1.2%
0.3%
1.5%
4Q10
1.1%
0.4%
1.5%
1Q10
1.9%
0.4%
2.3%
3.3
$25M
2.4
$20M
3.3
$49M
www.ibm.com/investor
22
Supplemental Materials
Revenue by Key Industry Sales Unit
$ in Billions
Financial Services
1Q11
B/(W) Yr/Yr
Rptd
@CC
$7.3
14%
Public
3.7
1%
(1%)
Industrial
2.5
(1%)
(4%)
Distribution
2.4
4%
2%
Communications
2.3
7%
5%
General Business
4.8
10%
8%
$24.6
8%
5%
Total IBM
Public
10%
www.ibm.com/investor
Financial
Services
Industrial
Distribution
Comms
General
Business
23
Supplemental Materials
Cash Flow (FAS 95)
$ in Billions
1Q11
1Q10
Net Income from Operations
$2.9
$2.6
Depreciation / Amortization of Intangibles
1.2
1.2
Stock-based Compensation
0.2
0.2
(2.4)
(1.6)
1.9
2.1
3.8
4.4
(1.1)
(0.9)
0.0
0.0
(0.1)
(0.8)
1.6
1.0
Net Cash used in Investing Activities
0.5
(0.7)
Debt, net of payments & proceeds
1.6
0.5
Dividends
(0.8)
(0.7)
Common Stock Repurchases
(4.0)
(4.0)
0.9
0.9
(2.3)
(3.4)
0.1
(0.1)
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
Common Stock Transactions - Other
Net Cash used in Financing Activities
Effect of Exchange Rate changes on Cash
Net Change in Cash & Cash Equivalents
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$2.1
$0.3
24
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.
www.ibm.com/investor
25
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.
Unique Items (PLM Sale and/or Workforce Rebalancing)
Management presents certain financial results excluding the effects of the company's PLM sale and/or
workforce rebalancing. 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. In addition, the company has taken certain
charges in connection with workforce rebalancing actions. Management believes that presenting certain
financial information without one or both of these items 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.
www.ibm.com/investor
26
Supplemental Materials
Non
-GAAP Supplementary Materials
Non-GAAP
Reconciliation of Operating Earnings Per Share
2011
Expectations
IBM Operating EPS (Non-GAAP)
$13.15+
IBM GAAP EPS
$12.73+
Adjustments
Acquisition-Related Charges *
$0.38
Amortization of Purchased Intangibles
$0.36
Other Acquisition-Related Charges
$0.03
Non-Operating Retirement-Related Charges
$0.05
* Includes acquisitions as of 3/31/2011
The above serves to reconcile the Non-GAAP financial information contained in the “1Q 2011 Highlights” and “1Q 2011 Summary” discussion in the
company’s earnings presentation. See Slide 25 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
GAAP to Operating (Non-GAAP) Bridge – 1Q 2011
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$10,858
$85
$14
$10,957
(76)
(10)
5,740
19
1,606
10
6,971
4
3,986
SG&A
5,826
RD&E
1,587
Total Operating Expense & Other Income
7,041
(80)
Pre-Tax Income
3,817
165
954
48
2,863
117
Tax ***
Net Income
Diluted Earnings Per Share
$2.31
0
$0.09
(6)
10
$0.01
997
2,990
$2.41
* 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 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 ACS 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 “1Q 2011 Highlights,” “Key Financial Metrics” and “Expense
Summary” discussion in the company’s earnings presentation. See Slide 25 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 – 1Q 2010
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$9,976
$55
($35)
$9,996
SG&A
5,677
RD&E
1,509
Total Operating Expense & Other Income
6,462
(61)
Pre-Tax Income
3,515
Tax ***
Net Income
Diluted Earnings Per Share
10
5,626
30
1,539
40
6,441
116
(76)
3,556
914
34
(31)
917
2,601
82
(45)
2,638
$1.97
(61)
0
$0.06
($0.03)
$2.00
* 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 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 ACS 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 “1Q 2011 Highlights,” “Key Financial Metrics” and “Expense
Summary” discussion in the company’s earnings presentation. See Slide 25 of this presentation for additional information on the use of these NonGAAP 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 3/31/11
Net Cash from Operations
$18.9
Less: Global Financing Receivables
Net Cash from Operations (excluding GF Receivables)
Net Capital Expenditures
(0.9)
19.8
(4.1)
Free Cash Flow (excluding GF Receivables)
$15.7
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 26 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 Revenue Growth
1Q11 Yr/Yr
As Rptd
@CC
Asia Pacific, other than Japan
Japan
Canada
China
Russia
20%
5%
15%
36%
54%
14%
(5%)
9%
33%
53%
Growth Markets
Systems and Technology
Storage Hardware
Software
Total Services Outsourcing
Global Technology Services Outsourcing
Integrated Technology Services (ITS)
22%
17%
20%
19%
18%
16%
19%
14%
16%
12%
11%
11%
7%
6%
Global Business Services – North America
The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography,” “Services Segments” and
“Systems and Technology Segment” discussion in the company’s earnings presentation. See Slide 25 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 Revenue Growth
1Q11 Yr/Yr vs. 4Q10 Yr/Yr
Global Technology Services Outsourcing
As Rptd
@CC
5 pts
2 pts
The above serves to reconcile the Non-GAAP financial information contained in the “Services Segments” discussion in the company’s earnings
presentation. The above reconciles the sequential change from 4Q10 to 1Q11. See Slide 25 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 Yr/Yr Expense Drivers
GAAP
Non-GAAP
Adjustments
Operating
(Non-GAAP)
Currency
(1 pt)
0 pts
(1 pt)
Acquisitions
(4 pts)
1 pt
(3 pts)
2 pts
0 pts
2 pts
Currency
(1 pt)
0 pts
(1 pt)
Acquisitions
(5 pts)
0 pts
(5 pts)
1 pt
1 pt
1 pt
Currency
(1 pt)
0 pts
(1 pt)
Acquisitions
(4 pts)
0 pts
(4 pts)
Base
(4 pts)
0 pts
(4 pts)
SG&A
Base
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 25 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 Segment Pre-Tax Income/Margin Growth
1Q11 Yr/Yr
As Rptd
Workforce
Rebalancing
PLM Gain
Normalized
Global Technology Services
Global Business Services
Software
29%
44%
(18%)
19 pts
24 pts
3 pts
0 pts
0 pts
(30 pts)
10%
19%
9%
Systems & Technology
$329M
$38M
$0
$291M
Pre-Tax Income Growth
Pre-Tax Margin Growth
Global Technology Services
Global Business Services
Software
Systems & Technology
2.2
3.4
(8.6
8.6
pts
pts
pts)
pts
1.7
1.8
1.1
1.2
pts
pts
pts
pts
0 pts
0 pts
(10.2 pts)
0 pts
0.5
1.5
0.6
7.5
pts
pts
pts
pts
The above serves to reconcile the Non-GAAP financial information contained in the “Services Segments,” “Software Segment” and
“Systems & Technology Segment” discussion in the company’s earnings presentation. See Slide 25 of this presentation for additional
information on the use of these Non-GAAP financial measures.
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34
Supplemental Materials
Non-GAAP Supplementary Materials
Reconciliation of Debt-to-Capital Ratio
1Q11
FY10
1Q10
Non-Global Financing Debt / Capital
25%
23%
18%
IBM Consolidated Debt / Capital
27%
55%
54%
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 26 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 Operating EPS Bridge 1Q10 to 1Q11
1Q10 EPS
GAAP
Acquisitionrelated
adjustments*
Retirement-related
adjustments**
Operating
(Non-GAAP)
$1.97
$0.06
($0.03)
$2.00
-
-
Revenue growth @
actual
0.15
Margin expansion
0.05
0.02
Share repurchases
0.14
0.01
$2.31
$0.09
1Q11 EPS
0.04
$0.01
0.15
0.11
0.15
$2.41
* 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 – 1Q10 to 1Q11” discussion in the
company’s earnings presentation. See Slide 25 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
36
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