3Q13 charts (pdf, 1771 KB)

3Q 2013 Earnings Presentation
October 16, 2013
www.ibm.com/investor
Forward Looking Statements and Non-GAAP Information
Certain comments made in this presentation may be characterized as forward looking under
the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on
the company's current assumptions regarding future business and financial performance.
Those statements by their nature address matters that are uncertain to different degrees.
Those statements involve a number of factors that could cause actual results to differ
materially. Additional information concerning these factors is contained in the Company's
filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM
Investor Relations. Any forward-looking statement made during this presentation speaks only
as of the date on which it is made. The company assumes no obligation to update or revise
any forward-looking statements. These charts and the associated remarks and comments are
integrally related, and are intended to be presented and understood together.
In an effort to provide additional and useful information regarding the company’s financial
results and other financial information as determined by generally accepted accounting
principles (GAAP), the company also discusses, in its earnings press release and earnings
presentation materials, certain non-GAAP information including "operating earnings" and other
"operating" financial measures. The rationale for management’s use of this non-GAAP
information, the reconciliation of that information to GAAP, and other related information are
included in supplemental materials entitled “Non-GAAP Supplemental Materials” that are
linked to the Company’s investor relations web site at
http://www.ibm.com/investor/events/3q13.phtml The Non-GAAP Supplemental Materials are
also included as Attachment II to the Company’s Form 8-K dated October 16, 2013.
www.ibm.com/investor
2
3Q 2013
Revenue
$23.7B
Operating (Non-GAAP) EPS
$3.99
-4%, -2% yr/yr @CC
10% yr/yr
Total Services returned to revenue growth @CC, led by GBS
Software Key Branded Middleware grew mid-single digits @CC
Hardware mainframe growth more than offset by declines in Power, System x
and Storage
Major markets yr/yr performance improved; growth markets declined
Continued strong performance in growth initiatives that address key market trends
• Smarter Planet revenue +20% YTD
• Business Analytics +8% YTD
• Cloud +>70% YTD; >$1B in revenue for first time in a quarter
Expanded gross and net margins
Continue to expect 2013 Operating EPS of at least $16.25,
$16.90 excluding 2Q Workforce Rebalancing charge
www.ibm.com/investor
3
Key Financial Metrics
$ in Billions, except EPS
P&L Highlights
Revenue
@CC
PTI – Operating
NI – Operating
EPS – Operating
3Q13
$23.7
$5.3
$4.4
$3.99
B/(W)
Yr/Yr
(4%)
(2%)
(4%)
6%
10%
P&L Ratios
(Operating)
GP Margin
3Q13
49.1%
B/(W)
Yr/Yr
1.0 pts
PTI Margin
NI Margin
Tax Rate
22.3%
18.5%
17.0%
Flat
1.7 pts
7.7 pts
Cash Highlights
Free Cash Flow (excl GF Receivables)
Share Repurchase (Gross)
Dividends
Cash Balance @ Sept. 30
3Q13
$2.2
1.9
1.0
10.2
www.ibm.com/investor
Last
12 Mos.
$16.1
11.1
4.0
4
Revenue by Geography
$ in Billions
3Q13
Americas
$10.3
B/(W) Yr/Yr
Rptd
@CC
(1%)
Europe/ME/A
7.3
Asia Pacific
5.5
(15%)
(4%)
$23.2
(4%)
(2%)
Total Geographies
1%
(2%)
(4%)
(2%)
Major Markets
(3%)
(1%)
Growth Markets
(9%)
(5%)
(15%)
(12%)
IBM
$23.7
BRIC Countries
Canada/
LA
Flat
EMEA
U.S.
-1%
Japan APac
+5%
@CC
OEM
Flat
Major markets yr/yr performance improved; growth markets declined
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5
Revenue and Gross Profit Margin by Segment
Operating
Gross Profit Margin
Revenue
$ in Billions
3Q13
Global Technology Services
$9.5
B/(W) Yr/Yr
Rptd
@CC
3Q13
B/(W)
Yr/Yr Pts
(4%)
(1%)
39.0%
1.7 pts
Global Business Services
4.6
Flat
5%
32.9%
1.8 pts
Software
5.8
1%
2%
88.0%
Flat
Systems & Technology
3.2
33.6%
(3.6 pts)
Global Financing
0.5
Total Revenue & Op. GP Margin
$23.7
(17%)
(16%)
6%
9%
47.2%
1.4 pts
(4%)
(2%)
49.1%
1.0 pts
Margin expansion driven by Services and mix to Software
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6
Expense Summary
$ in Billions
SG&A – Operating
3Q13
B/(W)
Yr/Yr
$5.1
10%
excl. Workforce Rebalancing**
RD&E – Operating
1.5
6%
(0.2)
(37%)
Other (Income)/Expense
(0.1)
(90%)
excl. 3Q12 RSS Sale Gain***
Operating Expense & Other Income
2 pts
(2 pts)
10 pts
0 pts
(2 pts)
8 pts
1 pts
(2 pts)
2 pts
3%
IP and Development Income
Interest Expense
B/(W) Yr/Yr Drivers
Currency
Acq.*
Base
(62%)
0.1
22%
$6.4
Flat
*
Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges
** Excludes $407M of Workforce Rebalancing in 3Q12 and $13M in 3Q13
*** Excludes $447M Retail Store Solutions sale gain
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7
Services Segments
Global Technology Services (GTS)
Global Business Services (GBS)
B/(W) Yr/Yr
$ in Billions
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
3Q13
Rptd
@CC
$9.5
(4%)
(1%)
39.0%
1.7 pts
$1.9
12%
19.4%
2.8 pts
3Q13 Revenue
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
Rptd
(6%)
(1%)
(2%)
@CC
(3%)
2%
Flat
(2%)
1%
3%
5%
2%
6%
GBS
GBS Outsourcing
Consulting & Systems Integration
Services Backlog
3Q13
$141B
3Q13
Rptd
@CC
$4.6
Flat
5%
32.9%
1.8 pts
$0.9
28%
20.0%
4.4 pts
3Q13 Revenue
Yr/Yr
GTS
GTS Outsourcing
Integrated Technology Services
Maintenance
B/(W) Yr/Yr
$ in Billions
(% of Total Services)
Maint.
13%
GTS
Outsourcing
38%
GBS
Outsourcing
7%
ITS
17%
GBS C&SI
25%
Total Services returned to revenue growth @CC
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8
Software Segment
B/(W) Yr/Yr
$ in Billions
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
3Q13 Revenue
Rptd
@CC
$5.8
1%
2%
88.0%
Flat
$2.4
2%
36.8%
1.2 pts
Yr/Yr
Rptd
@CC
Flat
1%
Information Management
2%
3%
Tivoli
2%
3%
Social Workforce Solutions
14%
15%
Rational
12%
14%
Key Branded Middleware
3%
4%
Total Middleware
1%
2%
Total Software
1%
2%
WebSphere Family
3Q13
3Q13 Revenue
(% of Total Software)
Key
Branded
Middleware
64%
Other
Middleware
18%
Operating
Systems
Other 10%
8%
Mid-single digit growth in Key Branded Middleware
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9
Systems & Technology Segment
B/(W) Yr/Yr
$ in Billions
3Q13
Rptd
@CC
$3.2
(17%)
(16%)
Gross Margin (External)
33.6%
(3.6 pts)
Pre-Tax Income
($0.2)
nm
PTI Margin
(4.9%)
Revenue (External)
(7.9 pts)
3Q13 Revenue
3Q13 Revenue
System z
Power Systems
System x
Storage
Total Systems
Microelectronics OEM
Total Systems & Technology
Yr/Yr
Rptd
6%
(38%)
(18%)
(11%)
(19%)
1%
(17%)
@CC
7%
(37%)
(16%)
(10%)
(18%)
1%
(16%)
(% of Total Sys & Tech)
Servers
65%
Storage
20%
System z driven by double-digit growth in major markets; other brands declined
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10
Cash Flow Analysis
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
3Q13
B/(W)
Yr/Yr
YTD
3Q13
B/(W)
Yr/Yr
$3.8
($0.8)
$11.0
($2.3)
0.5
0.2
1.6
0.4
3.3
(0.9)
9.3
(2.7)
(1.0)
0.0
(2.7)
0.6
2.2
(0.9)
6.6
(2.0)
Acquisitions
(2.4)
(2.0)
(2.6)
(0.3)
Divestitures
0.2
(0.3)
0.2
(0.3)
Dividends
(1.0)
(0.1)
(3.0)
(0.2)
Share Repurchases (Gross)
(1.9)
1.1
(8.1)
0.9
Non-GF Debt
1.4
0.7
1.6
(0.7)
Other (includes GF A/R & GF Debt)
1.4
0.4
4.3
1.5
Net Cash from Operations
(excluding
GF Receivables)
Net Capital Expenditures
Free Cash Flow (excluding GF Receivables)
Change in Cash & Marketable Securities
($0.1)
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($1.2)
($0.9)
($1.2)
11
Balance Sheet Summary
Sept. ‘12
Dec. ‘12
Sept. ‘13
$12.3
$11.1
$10.2
Non-GF Assets*
71.2
70.6
73.0
Global Financing Assets
32.3
37.5
34.7
115.8
119.2
117.8
Other Liabilities
60.4
67.0
61.7
Non-GF Debt*
10.3
8.8
10.4
Global Financing Debt
23.3
24.5
25.8
33.7
33.3
36.2
Total Liabilities
94.1
100.2
97.8
Equity
21.7
19.0
20.0
36%
36%
39%
7.1
7.0
7.1
$ in Billions
Cash & Marketable Securities
Total Assets
Total Debt
Non-GF Debt / Capital
Global Financing Leverage
* Includes eliminations of inter-company activity
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12
Operating EPS Bridge – 3Q12 to 3Q13
$3.62
($0.15)
3Q12
Operating EPS
Revenue Growth
@ Actual
$0.35
Margin
Expansion
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$0.17
Share
Repurchases
$3.99
3Q13
Operating EPS
13
3Q 2013 Summary
At Least
$20
Operating PTI / EPS *
At Least
$16.25
Segment Operating PTI
Operating EPS
$15.25
$3.32
'00
'01
'02
'03
'04
'05
'06
Hardware / Financing
'07
'08
'09
'10
Services
'11
'12
'13e
'14e
'15e
Software
* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related charges
2000 & 2001 segments not restated for stock based compensation; 2000-2010 Segment PTI is reclassified to conform with 2012 operating presentation
Sum of external segment pre-tax income not equal to IBM pre-tax income
Continue to expect 2013 Operating EPS of at least $16.25,
$16.90 excluding 2Q Workforce Rebalancing charge
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14
www.ibm.com/investor
15
Supplemental Materials
Supplemental Materials
Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding
Currency – Year/Year Comparison
Supplemental Segment Information – Global Services
Supplemental Segment Information – Systems & Technology, Software
Pre-Tax Income by Segment
Global Financing Portfolio
Revenue by Key Industry Sales Unit
Cash Flow (FAS 95)
Non-GAAP Supplemental Materials
•
•
•
•
Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency
Cash Flow, Debt-to-Capital Ratio, Retail Store Solutions (RSS) Divestiture, Workforce Rebalancing
Reconciliation of Operating Earnings Per Share
GAAP to Operating (Non-GAAP) Bridge – 3Q 2013
•
•
•
•
GAAP to Operating (Non-GAAP) Bridge – 3Q 2012
Reconciliation of Operating EPS Bridge – 3Q 2012 to 3Q 2013
GAAP to Operating (Non-GAAP) Bridge – 3Q 2013 and 3Q 2012
Reconciliation of B/(W) Yr/Yr Expense Drivers – 3Q 2013
•
•
Reconciliation of Free Cash Flow (excluding GF Receivables) – 12 months ended 9/30/13,
3 months ended 9/30/12
Reconciliation of Revenue Growth
•
•
•
Reconciliation of Debt-to-Capital Ratio
Global Financing Return on Equity – 3Q 2013
Reconciliation of Consolidated EPS
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16
Supplemental Materials
Currency – Year/Year Comparison
Quarterly Averages per US $
1Q13
Yr/Yr
2Q13
Yr/Yr
3Q13
Yr/Yr
Euro
0.76
1%
0.77
2%
0.75
6%
Pound
0.65
(1%)
0.65
(3%)
0.64
(2%)
Yen
Impact
92
(16%)
99
(2 pts)
(23%)
(2 pts)
3Q13
Revenue As Reported
Currency Impact
Revenue @CC
99
(26%)
10/15
Spot
4Q13
FY13
0.74
4%
0.63
99
(2.5 pts)
(US$B)
Yr/Yr
$23.7
(4%)
10/15 Spot
1Q14
2Q14
3%
2%
3%
(1%)
(2%)
3%
4%
(21%)
(22%)
(7%)
0%
~(2 pts) (2 pts) ~(1 pts) 0-1 pts
(0.6) (2.5 pts)
(2%)
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17
Supplemental Materials
Supplemental Segment Information – 3Q 2013
Global Services Revenue
Global Services Backlog / Signings
Revenue Growth
Yr/Yr
@CC
GTS Outsourcing
(6%)
(3%)
Integrated Tech Services
(1%)
2%
Maintenance
(2%)
Flat
(4%)
(1%)
Total GTS
$ in Billions
Total Backlog
GBS C&SI
Total GBS
(2%)
3%
1%
5%
Flat
5%
3Q13
Yr/Yr
@CC
$141
2%
6%
1%
4%
Change in Backlog due to Currency
Quarter-to-Quarter
Year-to-Year
Outsourcing Backlog
GBS Outsourcing
Backlog
$3
($4)
$90
Signings
3Q13
Outsourcing
$6.1
Yr/Yr
@CC
(17%)
(14%)
- GTS O/S, GBS O/S (AMS)
Total Outsourcing
(6%)
(2%)
Total Transactional
Flat
4%
(2%)
Flat
Maintenance
Transactional
6.2
5%
8%
(7%)
(4%)
- ITS, Consulting & AMS SI
(incl. US Federal)
Total Signings
$12.3
Note: Actual backlog calculated using September 30 currency spot rates
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18
Supplemental Materials
Supplemental Segment Information – 3Q 2013
Systems & Technology
Software
Revenue Growth
Revenue Growth
System z
Yr/Yr
@CC
6%
7%
GP%
(38%)
(37%)
System x
(18%)
(16%)
Storage
(11%)
(10%)
(19%)
(18%)
Total Systems
Microelectronics OEM
Total Sys & Tech
1%
(17%)
=
=
@CC
Flat
1%
Information Management
2%
3%
Tivoli
2%
3%
Social Workforce Sols.
14%
15%
Rational
12%
14%
3%
4%
(5%)
(3%)
1%
2%
(4%)
(2%)
Other Software/Services
1%
2%
Total Software
1%
2%
WebSphere Family
=
Power Systems
Yr/Yr
Share
Key Branded Middleware
Other Middleware
1%
(16%)
Total Middleware
Operating Systems
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19
Supplemental Materials
Pre-Tax Income by Segment
Segment PTI $
Segment PTI Margin
$ in Billions
3Q13
PTI $
B/(W)
Yr/Yr
$1.9
12%
Global Business Services
0.9
28%
Software
2.4
Global Technology Services
Systems & Technology
Global Financing
(0.2)
0.5
B/(W) Yr/Yr
Excl. WFR*
3Q13
PTI %
B/(W)
Yr/Yr
B/(W) Yr/Yr
Excl. WFR*
3%
19.4%
2.8 pts
1.4 pts
12%
20.0%
4.4 pts
2.0 pts
2%
(1%)
36.8%
1.2 pts
(0.2 pts)
nm
nm
(4.9%)
(7.9 pts)
(9.0 pts)
4%
3%
48.7%
(0.7 pts)
(1.0 pts)
* Yr/Yr excludes Workforce Rebalancing from both years for comparison purposes
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20
Supplemental Materials
Global Financing Portfolio
3Q13 – $27.9B Net External Receivables
50%
Investment Grade
59%
Non-Investment Grade
41%
40%
38%
30%
20%
21%
20%
10%
12%
7%
2%
B to B-
CCC+ to D
0%
AAA to A-
BBB+ to BBB-
BB+ to BB
3Q13
2Q13
3Q12
Identified Loss Rate
1.0%
0.8%
0.9%
Anticipated Loss Rate
0.3%
0.4%
0.4%
Reserve Coverage
1.3%
1.2%
1.3%
3.0
3.4
2.9
$ 44 M
$ 67 M
$ 36 M
Client Days Delinquent Outstanding
Commercial A/R > 30 Days
21
BB- to B+
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21
Supplemental Materials
Revenue by Key Industry Sales Unit
$ in Billions
3Q13
Financial Services
B/(W) Yr/Yr*
Rptd
@CC
$6.4
(1%)
3%
Public
2.9
(2%)
(2%)
Industrial
1.8
(2%)
2%
Distribution
1.6
(6%)
(5%)
Communications
1.7 (13%)
(12%)
General Business
8.1
(5%)
(3%)
$23.7
(4%)
(2%)
Total IBM
Industrial
Distribution
Public
Comms
Financial
Services
General
Business
* Reclassified to conform with 2013 presentation; reflects coverage model change in certain geographies
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22
Supplemental Materials
Cash Flow (FAS 95)
$ in Billions
QTD
3Q13
QTD
3Q12
YTD
3Q13
YTD
3Q12
Net Income from Operations
$4.0
$3.8
$10.3
$10.8
Depreciation / Amortization of Intangibles
1.2
1.2
3.5
3.5
Stock-based Compensation
0.1
0.2
0.5
0.5
(2.1)
(1.0)
(4.9)
(2.8)
0.5
0.3
1.6
1.2
3.8
4.5
11.0
13.2
(1.0)
(1.0)
(2.7)
(3.3)
0.2
0.6
0.2
0.6
(2.4)
(0.3)
(2.6)
(2.3)
0.6
(0.2)
0.6
0.1
(2.5)
(1.0)
(4.4)
(4.9)
2.0
1.2
3.4
2.4
Dividends
(1.0)
(1.0)
(3.0)
(2.8)
Common Stock Repurchases
(1.9)
(3.0)
(8.1)
(9.0)
0.2
0.3
0.8
1.2
(0.8)
(2.5)
(6.9)
(8.2)
0.1
0.0
0.0
(0.2)
$0.5
$1.0
Working Capital / Other
Global Financing A/R
Net Cash provided by Operating Activities
Capital Expenditures, net of payments & proceeds
Divestitures, net of cash transferred
Acquisitions, net of cash acquired
Marketable Securities / Other Investments, net
Net Cash used in Investing Activities
Debt, net of payments & proceeds
Common Stock Transactions - Other
Net Cash used in Financing Activities
Effect of Exchange Rate changes on Cash
Net Change in Cash & Cash Equivalents
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($0.3)
$0.0
23
Supplemental Materials
Non-GAAP Supplemental Materials
In an effort to provide investors with additional information regarding the company's results as determined by generally
accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation
materials, the following Non-GAAP information which management believes provides useful information to investors.
Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items
Management presents certain financial measures excluding the effects of certain acquisition-related charges, non-operating
retirement-related costs, and any related tax impacts. Management uses the term "operating" to describe this view of the
company's financial results and other financial information. For acquisitions, these measures exclude the amortization of
purchased intangible assets and acquisition-related charges such as in-process research and development, transaction
costs, applicable restructuring and related expenses, and tax charges related to acquisition integration. For retirementrelated costs, the company has characterized certain items as operating and others as non-operating. The company
includes service cost, amortization of prior service cost and the cost of defined contribution plans in its operating results.
Non-operating retirement-related costs include interest cost, expected return on plan assets, amortized actuarial
gains/losses, the impacts of any plan curtailments/settlements, multi-employer plan costs, pension insolvency costs, and
other costs. Non-operating costs primarily relate to changes in pension plan assets and liabilities which are tied to market
performance, and management considers these costs to be outside the operational performance of the business.
Management’s calculation of these operating measures, as presented, may differ from similarly titled measures reported
by other companies.
Overall, management believes that providing investors with an operating view as described above provides increased
transparency and clarity into both the operational results of the business and the performance of the company’s pension
plans, improves visibility to management decisions and their impacts on operational performance, enables better
comparison to peer companies, and allows the company to provide a long term strategic view of the business going
forward. For the 2015 earnings per share roadmap, the company is utilizing an operating view to establish its objectives
and track its progress. The company’s segment financial results and performance reflect operating earnings, consistent
with the company’s management and measurement system.
Constant Currency
Management refers to growth rates at constant currency or adjusting for currency so that certain financial results can be
viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period
comparisons of the company's business performance. Financial results adjusted for currency are calculated by translating
current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is
used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or
weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower
than growth reported at actual exchange rates.
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24
Supplemental Materials
Non-GAAP Supplemental Materials
Cash Flow
Management uses a free cash flow measure to evaluate the company’s operating results, plan share repurchase levels,
evaluate strategic investments and assess the company’s ability and need to incur and service debt. The entire free cash
flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash
from operating activities less the change in Global Financing receivables and net capital expenditures, including the
investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and
increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profitgenerating 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.
Retail Store Solutions (RSS) Divestiture
On April 17, 2012, the company announced that it had signed a definitive agreement with Toshiba Tec for the sale of its
RSS business to Toshiba Tec. Management presents certain financial results excluding the effects of the RSS divestiture.
Management believes that presenting financial information regarding 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 to investors.
Workforce Rebalancing
On April 18, 2013, the company announced it expected to take most of its workforce rebalancing actions for 2013 in the
second quarter as compared to 2012 when these actions were distributed across the four quarters of the year. The
company took a $1 billion workforce rebalancing charge in the second quarter. Management believes that presenting certain
financial information without this item is most indicative of operational trajectory.
www.ibm.com/investor
25
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Operating Earnings Per Share
2013
Expectations
IBM GAAP EPS
$15.01+
IBM Operating EPS (Non-GAAP)
$16.25+
2013
Expectations excl.
2Q Workforce Rebal.
$16.90+
Adjustments
Acquisition-Related Charges *
$0.58
Amortization of Purchased Intangibles
$0.57
Other Acquisition-Related Charges
$0.01
Non-Operating Retirement-Related Items
$0.66
* Includes acquisitions through September 30, 2013
The above serves to reconcile the Non-GAAP financial information contained in “ 3Q 2013” and “3Q 2013 Summary” discussions in the company’s
earnings presentation. See Slides 24-25 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
26
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – 3Q 2013
$ in Millions, except EPS
Gross Profit
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
$11,380
$102
$154
$11,636
SG&A
5,255
RD&E
1,468
Other Income & Expense
(62)
(111)
0
(1)
(89)
5,055
(14)
1,454
0
(63)
Total Operating Expense &
Other Income
6,567
(112)
(103)
6,352
Pre-Tax Income
4,812
214
257
5,284
772
48
77
897
Net Income
4,041
166
181
4,387
Diluted Earnings Per Share
$3.68
$0.15
$0.16
$3.99
Tax ***
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and
acquisition integration tax charges.
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements,
curtailments, multi-employer plans and insolvency insurance.
***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under
ASC 740, which employs an annual effective tax rate method to the results.
The above serves to reconcile the Non-GAAP financial information contained in the “3Q 2013”, “Key Financial Metrics” and “Expense Summary”
discussions in the company’s earnings presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP
financial measures.
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27
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – 3Q 2012
$ in Millions, except EPS
Gross Profit
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
$11,732
$95
$67
$11,894
SG&A
5,908
RD&E
1,534
Other Income & Expense
(606)
(88)
(196)
0
5
(5)
0
Total Operating Expense &
Other Income
6,657
(92)
Pre-Tax Income
5,074
Tax ***
5,625
1,539
(611)
(191)
6,374
188
258
5,520
1,251
47
67
1,364
Net Income
3,824
141
191
4,155
Diluted Earnings Per Share
$3.33
$0.12
$0.17
$3.62
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and
acquisition integration tax charges.
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements,
curtailments, multi-employer plans and insolvency insurance.
***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under
ASC 740, which employs an annual effective tax rate method to the results.
The above serves to reconcile the Non-GAAP financial information contained in the “3Q 2013”, “Key Financial Metrics” and “Expense Summary”
discussions in the company’s earnings presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP
financial measures.
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28
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Operating EPS Bridge – 3Q 2012 to 3Q 2013
Retirement-related
Adjustments**
GAAP
Acquisitionrelated
Adjustments*
3Q12 EPS
$3.33
$0.12
$0.17
$3.62
Revenue growth
@ actual
(0.14)
(0.00)
(0.01)
(0.15)
Margin expansion
0.33
0.02
0.00
0.35
Share
repurchases
0.16
0.01
0.00
0.17
$3.68
$0.15
$0.16
$3.99
3Q13 EPS
Operating
(Non-GAAP)
* Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs
and acquisition integration tax charges.
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other
settlements, curtailments, multi-employer plans and insolvency insurance.
The above serves to reconcile the Non-GAAP financial information contained in the “Operating EPS Bridge – 3Q12 to 3Q13” discussion in the
company’s earnings presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures.
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29
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – 3Q 2013 and 3Q 2012
3Q 2013
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments **
Operating
(Non-GAAP)
Gross Profit Margin
48.0%
0.4 pts
0.6 pts
49.1%
PTI Margin
20.3%
0.9 pts
1.1 pts
22.3%
Tax Rate ***
16.0%
0.3 pts
0.7 pts
17.0%
Net Income Margin
17.0%
0.7 pts
0.8 pts
18.5%
Gross Profit Margin
47.4%
0.4 pts
0.3 pts
48.1%
PTI Margin
20.5%
0.8 pts
1.0 pts
22.3%
Tax Rate ***
24.6%
0.0 pts
0.1 pts
24.7%
Net Income Margin
15.5%
0.6 pts
0.8 pts
16.8%
3Q 2012
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and
acquisition integration tax charges
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other
settlements, curtailments, multi-employer plans and insolvency insurance
***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income
under ASC 740, which employs an annual effective tax rate method to the results.
The above serves to reconcile the Non-GAAP financial information contained in the “Key Financial Metrics” , “Operating non-GAAP results” and “PreTax Income’ discussions in the company’s earnings presentation. See Slide 24 of this presentation for additional information on the use of these NonGAAP financial measures.
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Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of B/(W) Yr/Yr Expense Drivers – 3Q 2013
GAAP
Non-GAAP
Adjustments
Operating
(Non-GAAP)
SG&A
Currency
2 pts
0 pts
2 pts
Acquisitions
(2 pts)
0 pts
(2 pts)
Base
12 pts
(1 pts)
10 pts
RD&E
Currency
Acquisitions
Base
0 pts
0 pts
0 pts
(2 pts)
0 pts
(2 pts)
7 pts
1 pts
8 pts
1 pts
0 pts
1 pts
(2 pts)
0 pts
(2 pts)
3 pts
1 pts
2 pts
Operating Expense & Other Income
Currency
Acquisitions
Base
The above serves to reconcile the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings
presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures.
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31
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Free Cash Flow (excluding GF Receivables)
$ 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)
12 months
ended
9/30/13
3 months
ended
9/30/12
$17.3
$4.5
(2.5)
0.3
19.8
4.2
(3.7)
$16.1
(1.0)
$3.1
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 25 of this presentation for additional information on the use of these Non-GAAP financial measures.
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32
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Revenue Growth
2Q13 Yr/Yr
Americas
Europe/ME/A
As Rptd
@CC
(3%)
(3%)
Flat
(1%)
Japan
Major Markets
(5%)
3Q13 Yr/Yr
As Rptd
@CC
(17%)
5%
(2%)
China
(20%)
(22%)
3Q13 Yr/Yr
China S&T Segment contribution to:
As Rptd
@CC
IBM Growth Rate
(1.1 pts)
(1.2 pts)
Growth Markets Growth Rate
(4.3 pts)
(4.9 pts)
The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography,” “Software Segment,” and
“Systems & Technology Segment” discussions in the company’s earnings presentation. See Slide 24 of this presentation for additional
information on the use of these Non-GAAP financial measures.
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33
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Debt-to-Capital Ratio
Sept. 2013
Dec. 2012
Sept. 2012
Non-Global Financing Debt / Capital
39%
36%
36%
IBM Consolidated Debt / Capital
64%
64%
61%
The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet 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.
www.ibm.com/investor
34
Supplemental Materials
Non-GAAP Supplemental Materials
Global Financing Return on Equity – 3Q 2013
Numerator:
Global Financing after tax income*
Annualized after tax income (A)
$333
$1,331
Denominator:
Annualized Global Financing equity (B)**
$3,543
Global Financing return on equity (A)/(B)
37.6%
* 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 the ending equity for Global Financing for the three months ended September 30, 2013.
The above serves to reconcile the Non-GAAP financial information contained in the “Revenue and Gross Profit Margin by Segment” discussion in the
company’s earnings presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures.
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35
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Consolidated EPS
EPS
(As Reported)
AcquisitionRelated
Non-Operating
RetirementRelated
2000
$3.88
$0.05
($0.62)
2012
14.37
0.55
0.33
Operating
EPS
$3.32
15.25
The above serves to reconcile the Non-GAAP financial information contained in the “3Q 2013 Summary” discussion in the company’s earnings
presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
36
www.ibm.com/investor
37