4Q13 charts (pdf, 2022 KB)

4Q 2013 Earnings Presentation
January 21, 2014
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
posted on the Company’s investor relations web site at http://www.ibm.com/investor/4q13/
The Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s
Form 8-K dated January 21, 2014.
www.ibm.com/investor
2
2013 Summary
Revenue
@CC
Operating (Non-GAAP) EPS
4Q13
$
Yr/Yr
$27.7
(5%)
(3%)
$6.13
14%
FY13
$
$99.8
$16.28
Yr/Yr
(5%)
(2%)
7%
Momentum in key growth areas drives mix to higher value Software and GBS
• Software growth across the portfolio
• Services revenue performance stable, growth led by GBS
Hardware impacted by product cycle and business model challenges
Maintained high investment level, targeted to key growth areas
Expanded gross and net margins
• Improving business mix
• Ongoing productivity initiatives
• Lower tax rate
Significant shareholder returns
Continue to expect at least $20 Operating EPS in 2015
www.ibm.com/investor
3
Key Financial Metrics
$ in Billions, except EPS
P&L Highlights
Revenue
4Q13
B/(W)
Yr/Yr
$27.7
(5%)
@CC
P&L Ratios
(Operating)
4Q13
B/(W)
Yr/Yr
GP Margin
52.6%
0.3 pts
(3%)
PTI Margin
26.8%
(0.8 pts)
PTI – Operating
$7.4
(8%)
Tax Rate
11.0%
13.5 pts
NI – Operating
$6.6
8%
NI Margin
23.9%
3.0 pts
$6.13
14%
EPS – Operating
Cash Highlights
4Q13
Last
12 Mos.
$8.4
$15.0
Share Repurchase (Gross)
5.8
13.9
Dividends
1.0
4.1
Free Cash Flow (excl GF Receivables)
Cash Balance @ Dec. 31
11.1
www.ibm.com/investor
4
Revenue by Geography
$ in Billions
4Q13
Americas
$12.2
Europe/ME/A
9.2
Asia Pacific
5.9
B/(W) Yr/Yr
Rptd
@CC
(3%)
1%
(16%)
(2%)
(2%)
(6%)
Total Geographies
$27.2
(5%)
(3%)
IBM
$27.7
(5%)
(3%)
Major Markets
(3%)
(2%)
Growth Markets
(9%)
(6%)
(14%)
(11%)
BRIC Countries
Canada/
LA
www.ibm.com/investor
EMEA
U.S.
-3%
Japan
APac
+4%
@CC
OEM
-33%
5
Revenue and Gross Profit Margin by Segment
Operating
Gross Profit Margin
Revenue
$ in Billions
4Q13
Global Technology Services
$9.9
B/(W) Yr/Yr
Rptd
@CC
4Q13
B/(W)
Yr/Yr Pts
(4%)
(1%)
38.8%
1.2 pts
Global Business Services
4.7
1%
4%
30.7%
0.7 pts
Software
8.1
3%
4%
90.5%
(0.1 pts)
Systems & Technology
4.3
(26%)
38.6%
(5.5 pts)
Global Financing
0.5
Flat
3%
43.3%
(0.4 pts)
(3%)
52.6%
0.3 pts
Total Revenue & Op. GP Margin
$27.7
(5%)
(25%)
Margin expansion driven by Services and mix to Software
www.ibm.com/investor
6
Expense Summary
B/(W) Yr/Yr Drivers
4Q13
B/(W)
Yr/Yr
Currency
Acq.*
Base
SG&A – Operating
$5.8
Flat
2 pts
(2 pts)
0 pts
RD&E – Operating
1.6
0 pts
(2 pts)
3 pts
2 pts
(2 pts)
1 pts
$ in Billions
2%
IP and Development Income
(0.2)
(12%)
Other (Income)/Expense
(0.1)
126%
Interest Expense
Operating Expense & Other Income
0.1
$7.1
(4%)
1%
* Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges
Within base expense, productivity savings reinvested to growth areas
www.ibm.com/investor
7
Services Segments
Global Technology Services (GTS)
$ in Billions
4Q13
$9.9
38.8%
$2.0
19.5%
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
Global Business Services (GBS)
B/(W) Yr/Yr
Rptd
@CC
(4%)
(1%)
1.2 pts
(2%)
0.4 pts
4Q13 Revenue
$ in Billions
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
Yr/Yr
GTS
GTS Outsourcing
Integrated Technology Services
Maintenance
Rptd
(4%)
(3%)
(2%)
@CC
(1%)
Flat
Flat
(7%)
3%
(2%)
6%
2%
5%
GBS
GBS Outsourcing
Consulting & Systems Integration
Services Backlog
4Q13
$143B
4Q13
$4.7
30.7%
$0.9
19.1%
B/(W) Yr/Yr
Rptd
@CC
1%
4%
0.7 pts
12%
2.0 pts
4Q13 Revenue
(% of Total Services)
Maint.
12%
GTS
Outsourcing
39%
GBS
Outsourcing
7%
ITS
17%
GBS C&SI
25%
Continued margin expansion
www.ibm.com/investor
8
Software Segment
$ in Billions
4Q13
$8.1
90.5%
$4.2
47.0%
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
4Q13 Revenue
Yr/Yr
Rptd
@CC
14%
15%
Information Management
5%
5%
Tivoli
1%
1%
Social Workforce Solutions
2%
3%
Flat
1%
Key Branded Middleware
5%
6%
Total Middleware
4%
4%
Total Software
3%
4%
WebSphere Family
Rational
B/(W) Yr/Yr
Rptd
@CC
3%
4%
(0.1 pts)
6%
1.0 pts
4Q13 Revenue
(% of Total Software)
Key
Branded
Middleware
71%
Other
Middleware
14%
Operating
Systems
Other 9%
6%
Growth across the Branded Middleware portfolio
www.ibm.com/investor
9
Systems & Technology Segment
B/(W) Yr/Yr
$ in Billions
Revenue (External)
Gross Margin (External)
Pre-Tax Income
PTI Margin
4Q13 Revenue
System z
Power Systems
System x
Storage
Total Systems
Microelectronics OEM
Total Systems & Technology
4Q13
Rptd
@CC
$4.3
38.6%
$0.2
4.7%
(26%)
(5.5 pts)
(79%)
(11.7 pts)
(25%)
Yr/Yr
Rptd
(37%)
(31%)
(16%)
(13%)
(25%)
(33%)
(26%)
@CC
(37%)
(31%)
(15%)
(12%)
(25%)
(33%)
(25%)
4Q13 Revenue
(% of Total Sys & Tech)
Servers
69%
Storage
22%
System z product cycle; business model challenges in other brands
www.ibm.com/investor
10
Cash Flow Analysis
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
4Q13
B/(W)
Yr/Yr
FY13
B/(W)
Yr/Yr
$6.5
$0.2
$17.5
($2.1)
(2.9)
1.2
9.5
(1.0)
18.8
(1.1)
(0.1)
(3.8)
8.4
(1.1)
15.0
Acquisitions
(0.5)
1.0
(3.1)
0.7
Divestitures
0.1
0.0
0.3
(0.3)
Dividends
(1.0)
(0.1)
(4.1)
(0.3)
Share Repurchases (Gross)
(5.8)
(2.8)
(13.9)
(1.9)
1.6
3.2
3.2
2.5
(1.9)
1.7
2.4
3.2
Net Cash from Operations
(1.3)
1.6
(3.7)
(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
$0.8
www.ibm.com/investor
$2.0
($0.1)
0.5
(3.2)
$0.7
11
Balance Sheet Summary
Dec. 12
Dec. 13
$11.1
$11.1
Non-GF Assets*
70.6
76.5
Global Financing Assets
37.5
38.7
119.2
126.2
Other Liabilities
67.0
63.6
Non-GF Debt*
8.8
12.2
24.5
27.5
33.3
39.7
100.2
103.3
19.0
22.9
36%
39%
7.0
7.2
$ in Billions
Cash & Marketable Securities
Total Assets
Global Financing Debt
Total Debt
Total Liabilities
Equity
Non-GF Debt / Capital
Global Financing Leverage
* Includes eliminations of inter-company activity
www.ibm.com/investor
12
2015e
At least
$20
FY 2013 Summary
Continued momentum in key growth areas
2014e
$18.00+
2013
$16.28
2012
$15.25
2011
$13.44
2010
• Smarter Planet ~20% yr/yr
• Business Analytics +9% yr/yr
• Cloud 69% yr/yr
Delivered profit growth in Software, Services and Financing,
while Hardware declined
$11.67
Invested in innovation and continued portfolio transformation
• Maintained high levels of investment
– R&D $6B, Capital $4B, Acquisitions $3B
– Strengthened capabilities in analytics, social, mobile, cloud, security
• Announced divestiture of customer care BPO business
Significant shareholder returns
• Share repurchase (gross) $14B, Dividends $4B
Operating EPS
Expect at least $18.00 Operating EPS in 2014
www.ibm.com/investor
13
www.ibm.com/investor
14
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
Global Financing Portfolio
Operating EPS Bridge – 4Q12 to 4Q13 and FY12 to FY13
Key Financial Metrics – FY 2013
Revenue by Geography – FY 2013
Revenue and Gross Profit Margin by Segment – FY 2013
Revenue by Key Industry Sales Unit – 4Q and FY 2013
Expense Summary – FY 2013
Cash Flow (FAS 95)
Retirement-Related Charges
Retirement-Related Charges
Non-GAAP Supplemental Materials
• Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency
• Cash Flow, Debt-to-Capital Ratio, Workforce Rebalancing, Retail Store Solutions (RSS) Divestiture
• Reconciliation of Operating Earnings Per Share
• GAAP to Operating (Non-GAAP) Bridge – 4Q 2013
• GAAP to Operating (Non-GAAP) Bridge – 4Q 2012
• GAAP to Operating (Non-GAAP) Bridge – FY 2013
• GAAP to Operating (Non-GAAP) Bridge – FY 2012
• GAAP to Operating (Non-GAAP) Bridge – 4Q 2013 and 4Q 2012
• GAAP to Operating (Non-GAAP) Bridge – FY 2013 and FY 2012
• Reconciliation of B/(W) Yr/Yr Expense Drivers – 4Q13
• Reconciliation of B/(W) Yr/Yr Expense Drivers – FY13
• Reconciliation of Operating EPS Bridge 4Q12 to 4Q13
• Reconciliation of Operating EPS Bridge FY12 to FY13
• Reconciliation of Debt-to-Capital Ratio
• Reconciliation of Free Cash Flow (excluding GF Receivables) – 3 months ended 9/30/13
• Reconciliation of Revenue Growth
• Reconciliation of Consolidated EPS
www.ibm.com/investor
15
Supplemental Materials
Currency – Year/Year Comparison
Quarterly Averages per US $
Yr/Yr @ 1/17 Spot
2Q14
3Q14
4Q14
3Q13
Yr/Yr
4Q13
Yr/Yr
1/17
Spot
Euro
0.75
6%
0.73
5%
0.74
3%
4%
2%
0%
2%
Pound
0.64
(2%)
0.62
1%
0.61
6%
7%
6%
2%
5%
(26%)
100
(6%)
(5%)
(4%)
(7%)
Yen
99
IBM Revenue
Impact
(2.5 pts)
Revenue As Reported
Currency Impact
Revenue @CC
(24%)
(2 pts)
(US$B)
Yr/Yr
$27.7
(5%)
104
1Q14
(13%)
FY14
~(2 pts) ~(0-1 pts) ~0 pts ~(1 pts) ~(1 pts)
(0.6) (2 pts)
(3%)
www.ibm.com/investor
16
Supplemental Materials
Supplemental Segment Information – 4Q 2013
Global Services Revenue
Global Services Backlog / Signings
Revenue Growth
Yr/Yr
@CC
GTS Outsourcing
(4%)
(1%)
Integrated Tech Services
(3%)
Flat
Maintenance
(2%)
Flat
(4%)
(1%)
Total GTS
$ in Billions
Total Backlog
GBS C&SI
Total GBS
(7%)
(2%)
3%
6%
1%
4%
4Q13
Yr/Yr
@CC
$143
2%
5%
1%
5%
Change in Backlog due to Currency
Quarter-to-Quarter
($1)
Year-to-Year
($4)
Outsourcing Backlog
GBS Outsourcing
Backlog
$91
Signings
Outsourcing
4Q13
Yr/Yr
@CC
$9.3
11%
15%
8.2
(14%)
(11%)
$17.5
(2%)
- GTS O/S, GBS O/S (AMS)
Total Outsourcing
(5%)
(1%)
Total Transactional
Flat
4%
(2%)
Flat
Maintenance
Transactional
- ITS, Consulting & AMS SI
(incl. US Federal)
Total Signings
1%
Note: Actual backlog calculated using December 31 currency spot rates
www.ibm.com/investor
17
Supplemental Materials
Supplemental Segment Information – 4Q 2013
Systems & Technology
Software
Revenue Growth
Revenue Growth
Yr/Yr
@CC
GP%
System z
(37%)
(37%)
Power Systems
(31%)
(31%)
System x
(16%)
(15%)
Storage
(13%)
(12%)
Total Systems
(25%)
(25%)
Microelectronics OEM
(33%)
(33%)
Total Sys & Tech
(26%)
(25%)
Yr/Yr
@CC
14%
15%
Information Management
5%
5%
Tivoli
1%
1%
Social Workforce Sols.
2%
3%
Flat
1%
5%
6%
(5%)
(4%)
4%
4%
(3%)
(2%)
Other Software/Services
1%
2%
Total Software
3%
4%
Share
WebSphere Family
=
Rational
Key Branded Middleware
Other Middleware
Total Middleware
Operating Systems
www.ibm.com/investor
18
Supplemental Materials
Global Financing Portfolio
4Q13 – $31.9B Net External Receivables
Investment Grade
59%
Non-Investment Grade
41%
40%
30%
20%
10%
38%
21%
20%
7%
12%
2%
0%
AAA to A-
BBB+ to BBB-
BB+ to BB
B to B-
CCC+ to D
4Q13
3Q13
4Q12
Identified Loss Rate
0.8%
1.0%
0.8%
Anticipated Loss Rate
0.4%
0.3%
0.4%
Reserve Coverage
1.2%
1.3%
1.2%
3.3
3.0
2.5
$ 43 M
$ 44 M
$ 22 M
Client Days Delinquent Outstanding
Commercial A/R > 30 Days
19
BB- to B+
www.ibm.com/investor
19
Supplemental Materials
Operating EPS Bridge
4Q12 to 4Q13
$5.39
($0.29)
$0.73
4Q12
Operating EPS
Revenue Growth
@ Actual
Margin
Expansion
FY12 to FY13
$15.25
($0.69)
$0.98
FY12
Operating EPS
Revenue Growth
@ Actual
Margin
Expansion
www.ibm.com/investor
$0.30
Share
Repurchases
$0.74
Share
Repurchases
$6.13
4Q13
Operating EPS
$16.28
FY13
Operating EPS
20
Supplemental Materials
Key Financial Metrics – FY 2013
$ in Billions, except EPS
P&L Highlights
Revenue
FY13
B/(W)
Yr/Yr
$99.8
(5%)
@CC
P&L Ratios
(Operating)
FY13
B/(W)
Yr/Yr
GP Margin
49.7%
0.9 pts
(2%)
PTI Margin
21.4%
(0.7 pts)
PTI – Operating
$21.4
(8%)
Tax Rate
16.0%
7.9 pts
EPS – Operating
$16.28
7%
NI Margin
18.0%
1.1 pts
Cash Highlights
FY13
Free Cash Flow (excl GF Receivables)
Share Repurchase (Gross)
Dividends
$15.0
13.9
4.1
Cash Balance @ Dec. 31
www.ibm.com/investor
11.1
21
Supplemental Materials
Revenue by Geography – FY 2013
$ in Billions
FY13
Americas
$43.2
B/(W) Yr/Yr
Rptd
@CC
(3%)
(2%)
Europe/ME/A
31.6
Flat
(2%)
Asia Pacific
22.9
(12%)
(3%)
$97.8
(4%)
(2%)
Total Geographies
(5%)
(2%)
Major Markets
(4%)
(2%)
Growth Markets
(5%)
(2%)
(8%)
(6%)
IBM
$99.8
BRIC Countries
www.ibm.com/investor
Canada/
LA
EMEA
U.S.
-3%
Japan APac
+4%
@CC
OEM
-13%
22
Supplemental Materials
Revenue and Gross Profit Margin by Segment – FY 2013
Operating
Gross Profit Margin
Revenue
FY13
B/(W) Yr/Yr
Rptd
@CC
$38.6
(4%)
Global Business Services
18.4
Software
25.9
Systems & Technology
14.4
$ in Billions
Global Technology Services
Global Financing
Total IBM
2.0
$99.8
FY13
B/(W)
Yr/Yr Pts
(1%)
38.1%
1.5 pts
(1%)
3%
30.9%
0.9 pts
2%
3%
88.8%
0.1 pts
35.6%
(3.5 pts)
3%
45.6%
(0.9 pts)
(2%)
49.7%
0.9 pts
(19%)
(18%)
Flat
(5%)
www.ibm.com/investor
23
Supplemental Materials
Revenue by Key Industry Sales Unit – 4Q & FY 2013
B/(W) Yr/Yr
Rptd
@CC
FY13
B/(W) Yr/Yr
Rptd
@CC
$7.8
(3%)
1%
$26.8
(1%)
2%
Public
3.1
(7%)
(6%)
11.6
(5%)
(5%)
Industrial
2.0
(7%)
(4%)
7.6
(4%)
(1%)
Distribution
1.8
(6%)
(5%)
6.6
(7%)
(5%)
Communications
1.8 (15%)
(13%)
7.0
(11%)
(10%)
General Business
9.7
(3%)
(1%)
34.7
(4%)
(2%)
$27.7
(5%)
(3%)
$99.8
(5%)
(2%)
$ in Billions
4Q13
Financial Services
Total IBM
* Reclassified to conform with 2013 presentation; reflects coverage model change in certain geographies
www.ibm.com/investor
24
Supplemental Materials
Expense Summary – FY 2013
B/(W) Yr/Yr Drivers
Currency
Acq.*
Base
FY13
B/(W)
Yr/Yr
SG&A – Operating
$22.7
1%
1 pts
(1 pts)
1 pts
RD&E – Operating
6.2
2%
0 pts
(2 pts)
4 pts
1 pts
(2 pts)
(1 pts)
$ in Billions
IP and Development Income
(0.8)
(23%)
Other (Income)/Expense
(0.3)
(60%)
0.4
12%
Interest Expense
Operating Expense & Other Income
$28.1
(1%)
* Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges
www.ibm.com/investor
25
Supplemental Materials
Cash Flow (FAS 95)
$ in Billions
4Q13
4Q12
FY13
FY12
Net Income from Operations
$6.2
$5.8
$16.5
$16.6
Depreciation / Amortization of Intangibles
1.2
1.2
4.7
4.7
Stock-based Compensation
0.2
0.2
0.6
0.7
Working Capital / Other
1.9
3.3
(3.0)
0.5
(2.9)
(4.2)
(1.3)
(2.9)
6.5
6.3
17.5
19.6
(1.1)
(1.0)
(3.8)
(4.3)
0.1
0.0
0.3
0.6
Acquisitions, net of cash acquired
(0.5)
(1.5)
(3.1)
(3.7)
Marketable Securities / Other Investments, net
(1.4)
(1.7)
(0.8)
(1.6)
(2.9)
(4.1)
(7.3)
(9.0)
3.6
(0.2)
7.0
2.3
Dividends
(1.0)
(1.0)
(4.1)
(3.8)
Common Stock Repurchases (Gross)
(5.8)
(3.0)
(13.9)
(12.0)
Common Stock Transactions - Other
0.2
0.3
1.1
(3.0)
(3.8)
(9.9)
0.0
0.0
0.0
(0.1)
$0.3
($1.5)
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
Net Cash used in Financing Activities
Effect of Exchange Rate changes on Cash
Net Change in Cash & Cash Equivalents
$0.6
www.ibm.com/investor
($1.5)
1.5
(12.0)
26
Supplemental Materials
Retirement-Related Charges
YE 2012
YE 2013
Funded Status*
US WW
98% 94%
109% 102%
Expected ROA
WW
7.3%
7.2%
Actual ROA
WW
11.1%
7.1%
Operating
Discount Rate
WW
3.4%
3.9%
Non-Operating
Pre-Tax Retirement-Related (Cost) / Income ($B)
$0.5
$0.4
$0.1
$0.1
($0.3)
($0.5)
($1.1)
($1.9) ($1.8) ($1.9) ($1.9) ($1.8) ($1.8) ($1.8)
2009
2010
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
Retirement-Related Cash Drivers ($B)
($1.9) ($1.8) ($1.9) ($1.9) ($1.8) ($1.8) ($1.8)
2009
2010
* Tax-qualified plans
2011
2012
2013
2014
Actual
2015
($1.4) ($1.6)
($1.7) ($1.5)
2009
2010
2011
Projection based on Dec ‘13
assumptions
www.ibm.com/investor
2012
($0.9) ($1.1)
($1.3)
2013
2014
2015
27
Supplemental Materials
Retirement-Related Charges
YE 2012
YE 2013
Upside
Downside
Funded Status*
US WW
98% 94%
109% 102%
Expected ROA
WW
7.3%
7.2%
7.2%
7.2%
Actual ROA
WW
11.1%
7.1%
14.0%
0.0%
Operating
Discount Rate
WW
3.4%
3.9%
4.4%
3.4%
Non-Operating
Pre-Tax Retirement-Related (Cost) / Income ($B)
$0.5
$0.4
$0.1
$0.1
($0.5)
~$1B
Range
($0.3)
($1.1)
($1.9) ($1.8) ($1.9) ($1.9) ($1.8) ($1.8) ($1.8)
2009
2010
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
Retirement-Related Cash Drivers ($B)
($0.9)
($1.9) ($1.8) ($1.9) ($1.9) ($1.8) ($1.8) ($1.8)
2009
2010
* Tax-qualified plans
2011
2012
Actual
2013
2014
2015
Projection based on Dec ‘13
assumptions
($1.4)
($1.6)
($1.7) ($1.5)
2009
2010
www.ibm.com/investor
2011
2012
Upside Case
2013
($1.1) ($1.3)
2014
2015
Downside Case
28
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.
www.ibm.com/investor
29
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.
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 $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
30
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Operating Earnings Per Share
2014
Expectations
IBM GAAP EPS
$17.00
IBM Operating EPS (Non-GAAP)
$18.00+
Adjustments
Acquisition-Related Charges *
$0.76
Amortization of Purchased Intangibles
$0.73
Other Acquisition-Related Charges
$0.03
Non-Operating Retirement-Related Items
$0.24
* Includes acquisitions through December 31, 2013
The above serves to reconcile the Non-GAAP financial information contained in “FY 2013 Summary” discussion in the company’s earnings
presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
31
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – 4Q 2013
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$14,315
$105
$154
$14,574
SG&A
5,989
RD&E
1,566
Other (Income) & Expense
(113)
(101)
0
(8)
(90)
5,798
(14)
1,552
0
(121)
Total Operating Expense & Other (Income)
7,353
(109)
(104)
7,140
Pre-Tax Income
6,962
213
258
7,434
94
817
Tax ***
777
(55)
Net Income
6,185
268
164
6,617
Diluted Earnings Per Share
$5.73
$0.25
$0.15
$6.13
* 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
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 “2013 Summary” ,“Key Financial Metrics” and ”Expense
Summary” discussions in the company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these NonGAAP financial measures.
www.ibm.com/investor
32
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – 4Q 2012
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$15,167
$100
$60
$15,327
SG&A
5,921
RD&E
1,580
Other (Income) & Expense
(47)
(91)
(29)
0
6
(7)
0
Total Operating Expense & Other (Income)
7,336
(98)
Pre-Tax Income
7,831
Tax ***
5,801
1,586
(54)
(23)
7,215
198
83
8,112
1,998
(45)
30
1,983
Net Income
5,833
243
53
6,129
Diluted Earnings Per Share
$5.13
$0.21
$0.05
$5.39
* 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 “2013 Summary,” “Key Financial Metrics” and “Expense
Summary” discussions in the company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these NonGAAP financial measures.
www.ibm.com/investor
33
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – FY 2013
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$48,505
$394
$629
$49,527
(394)
(376)
22,731
(57)
6,170
SG&A
23,502
RD&E
6,226
Other (Income) & Expense
(327)
0
(16)
Total Operating Expense & Other (Income)
28,981
(410)
Pre-Tax Income
19,524
Tax ***
Net Income
Diluted Earnings Per Share
0
(343)
(433)
28,137
804
1,062
21,390
3,041
57
333
3,431
16,483
747
729
17,959
$0.68
$0.66
$14.94
$16.28
* Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs
** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements,
curtailments, multi-employer plans and insolvency insurance
***The 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 “2013 Summary” , “Key Financial Metrics- FY 2013” and “FY
2013 Summary” discussions in the company’s earnings presentation. See Slide 29 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
GAAP to Operating (Non-GAAP) Bridge – FY 2012
$ in Millions, except EPS
Gross Profit
GAAP
Acquisition-related
Adjustments*
Retirement-related
Adjustments**
Operating
(Non-GAAP)
$50,298
$376
$264
$50,938
(349)
(294)
SG&A
23,553
RD&E
6,302
Other (Income) & Expense
(843)
0
(13)
20
0
22,910
6,322
(857)
Total Operating Expense & Other (Income)
28,396
(363)
(274)
27,760
Pre-Tax Income
21,902
739
538
23,179
5,298
98
156
5,552
Net Income
16,604
641
381
17,627
Diluted Earnings Per Share
$14.37
$0.55
$0.33
$15.25
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 “2013 Summary”, “ Key Financial Metrics – FY 2013” and “FY
2013 Summary” discussions in the company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these
Non-GAAP financial measures.
www.ibm.com/investor
35
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – 4Q 2013 and 4Q 2012
4Q 2013
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments **
Operating
(Non-GAAP)
Gross Profit Margin
51.7%
0.4 pts
0.6 pts
52.6%
PTI Margin
25.1%
0.8 pts
0.9 pts
26.8%
Tax Rate ***
11.2%
(1.1 pts)
0.9 pts
11.0%
Net Income Margin
22.3%
1.0 pts
0.6 pts
23.9%
Gross Profit Margin
51.8%
0.3 pts
0.2 pts
52.3%
PTI Margin
26.7%
0.7 pts
0.3 pts
27.7%
Tax Rate ***
25.5%
(1.2 pts)
0.1 pts
24.4%
Net Income Margin
19.9%
0.8 pts
0.2 pts
20.9%
4Q 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 ”2013 Summary” and “Key Financial Metrics” discussions in the company’s
earnings presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
36
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Operating (Non-GAAP) Bridge – FY 2013 and FY 2012
FY 2013
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments **
Operating
(Non-GAAP)
Gross Profit Margin
48.6%
0.4 pts
0.6 pts
49.7%
PTI Margin
19.6%
0.8 pts
1.1 pts
21.4%
Tax Rate ***
15.6%
(0.3 pts)
0.8 pts
16.0%
Net Income Margin
16.5%
0.7 pts
0.7 pts
18.0%
Gross Profit Margin
48.1%
0.4 pts
0.3 pts
48.7%
PTI Margin
21.0%
0.7 pts
0.5 pts
22.2%
Tax Rate ***
24.2%
(0.4 pts)
0.1 pts
24.0%
Net Income Margin
15.9%
0.6 pts
0.4 pts
16.9%
FY 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 “2013 Summary” and “Key Financial Metrics –FY 2013” discussions in the
company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
37
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of B/(W) Yr/Yr Expense Drivers – 4Q13
GAAP
Non-GAAP
Adjustments
Operating
(Non-GAAP)
2 pts
0 pts
2 pts
Acquisitions
(2 pts)
0 pts
(2 pts)
Base
(1 pts)
1 pts
0 pts
0 pts
0 pts
0 pts
(2 pts)
0 pts
(2 pts)
2 pts
1 pts
3 pts
2 pts
0 pts
2 pts
(2 pts)
0 pts
(2 pts)
0 pts
1 pts
1 pts
SG&A
Currency
RD&E
Currency
Acquisitions
Base
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 29 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
38
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of B/(W) Yr/Yr Expense Drivers – FY13
GAAP
Non-GAAP
Adjustments
Operating
(Non-GAAP)
1 pts
0 pts
1 pts
(2 pts)
0 pts
(1 pts)
1 pts
0 pts
1 pts
0 pts
0 pts
0 pts
(2 pts)
0 pts
(2 pts)
3 pts
1 pts
4 pts
1 pts
0 pts
1 pts
Acquisitions
(2 pts)
0 pts
(2 pts)
Base
(1 pts)
0 pts
(1 pts)
SG&A
Currency
Acquisitions
Base
RD&E
Currency
Acquisitions
Base
Operating Expense & Other Income
Currency
The above serves to reconcile the Non-GAAP financial information contained in the “Expense Summary – FY 2013” discussion in the company’s
earnings presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
39
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Operating EPS Bridge 4Q12 to 4Q13
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
4Q12 EPS
$5.13
$0.21
$0.05
$5.39
Revenue growth @ actual
(0.28)
(0.01)
0.00
(0.29)
Margin expansion
0.60
0.04
0.09
0.73
Share repurchases
0.28
0.01
0.01
0.30
$5.73
$0.25
$0.15
$6.13
4Q13 EPS
* 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 – 4Q12 to 4Q13” discussion in the
company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
40
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Operating EPS Bridge FY12 to FY13
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
$14.37
$0.55
$0.33
$15.25
(0.65)
(0.03)
(0.01)
(0.69)
Margin expansion
0.54
0.13
0.31
0.98
Share repurchases
0.68
0.03
0.03
0.74
$14.94
$0.68
$0.66
$16.28
FY12 EPS
Revenue growth @ actual
FY13 EPS
* 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 – FY12 to FY13” discussion in the
company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
41
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Debt-to-Capital Ratio
FY 13
FY 12
Non-Global Financing Debt / Capital
39%
36%
IBM Consolidated Debt / Capital
63%
64%
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 30 of this presentation for additional information on the use of these Non-GAAP financial
measures.
www.ibm.com/investor
42
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Free Cash Flow (excluding GF Receivables)
3 months
ended
9/30/13
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
$3.8
0.5
Net Cash from Operations
(excluding GF Receivables)
3.3
Net Capital Expenditures
(1.0)
Free Cash Flow (excluding GF
Receivables)
$2.2
The above serves to reconcile the Non-GAAP financial information contained in the “Cash Flow Analysis” discussion in the company’s
earnings presentation. See Slide 30 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
43
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Revenue Growth
4Q13 Yr/Yr
Japan
China
Key Branded Middleware
Latin America
As Rptd
(16%)
(22%)
@CC
4%
(23%)
FY13 Yr/Yr
As Rptd
(15%)
5%
@CC
4%
6%
4Q12 Yr/Yr
As Rptd
@CC
13%
18%
The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography,” “Software Segment” and
“Revenue by Geography – FY 2013,” discussions in the company’s earnings presentation. See Slide 29 of this presentation for
additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
44
Supplemental Materials
Non-GAAP Supplemental Materials
Reconciliation of Consolidated EPS
EPS
(As Reported)
AcquisitionRelated
Non-Operating
RetirementRelated
2010
$11.52
$0.34
($0.20)
$11.67
2011
13.06
0.41
(0.03)
13.44
Operating
EPS
The above serves to reconcile the Non-GAAP financial information contained in the “FY 2013 Summary” discussion in the company’s earnings
presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures.
www.ibm.com/investor
45
www.ibm.com/investor
46