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Document 2249476
2Q 2013 Earnings Presentation
July 17, 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/2q13.phtml The Non-GAAP Supplemental Materials are
also included as Attachment II to the Company’s Form 8-K dated July 17, 2013.
www.ibm.com/investor
2
2Q 2013 Highlights
Revenue
$24.9B
Operating (Non-GAAP) EPS
Excl. Workforce Rebalancing*
$3.22
$3.91
-3%, -1% yr/yr @CC
-8% yr/yr
+8% yr/yr
Ø Software Key Branded Middleware grew double-digits @CC with share gains
across the portfolio
Ø Global Business Services returned to revenue growth @CC
Ø Services backlog +3% yr/yr or 7% @CC
Ø Hardware performance mixed; strength in System z mainframe
Ø Strong performance across Smarter Planet, Analytics and Cloud
Ø Expanded gross profit margins
Ø Pre-tax and net margins include $1B charge for workforce rebalancing
* 2Q13 excludes $1B charge for Workforce Rebalancing; yr/yr excludes WFR from both years for comparison purposes
www.ibm.com/investor
3
2013 Expectations
FY 2013 Operating EPS Expectations
April “At Least” Expectations
Rebalancing Charge without Offsetting Gain
All In
Excluding
$1B 2Q Workforce
Rebalancing Charge
$16.70
$16.70
~(0.65)
Operational Performance
0.20
0.20
July “At Least” Expectations
$16.25
$16.90
Ø No longer expect significant gain in second half to offset 2Q rebalancing charge;
reduces “All In” view
Increasing expecta4ons for opera4onal performance by $0.20 www.ibm.com/investor
4
$ in Billions, except EPS
Key Financial Metrics
P&L Highlights
Revenue
@CC
PTI – Operating
Excludes WFR*
NI – Operating
Excludes WFR*
EPS – Operating
Excludes WFR*
2Q13
$24.9
$4.6
$5.6
$3.6
$4.3
$3.22
$3.91
B/(W)
Yr/Yr
(3%)
(1%)
(16%)
Flat
(12%)
3%
(8%)
8%
P&L Ratios
(Operating)
GP Margin
2Q13
49.7%
B/(W)
Yr/Yr
1.4 pts
PTI Margin
18.4%
(2.7 pts)
NI Margin
14.4%
(1.5 pts)
Tax Rate
22.0%
3.0 pts
Excludes WFR*
Excludes WFR*
22.5%
17.4%
0.8 pts
1.1 pts
* 2Q13 excludes $1B charge for Workforce Rebalancing;
yr/yr excludes WFR from both years for comparison purposes
Cash Highlights
Free Cash Flow (excl GF Receivables)
Share Repurchase (Gross)
Dividends
Cash Balance @ June 30
2Q13
$2.7
3.6
1.0
10.4
www.ibm.com/investor
Last
12 Mos.
$17.0
12.1
3.9
5
Operating EPS Bridge – 2Q12 to 2Q13
$3.91
$3.51
($0.12)
$0.24
($0.59)
$0.18
$3.22
2Q13 Workforce Rebalancing Charge WF Rebal
2Q13
($0.69)
2Q12
($0.10)
Margin Expansion 2Q12 Revenue Growth Margin Opera4ng EPS @ Actual Expansion Excl. WFR Workforce Share 2Q13 Rebalancing Repurchases Opera4ng EPS www.ibm.com/investor
6
Revenue by Geography
$ in Billions
Americas
2Q13
B/(W) Yr/Yr
Rptd
@CC
$10.7
(3%)
(3%)
Europe/ME/A
7.8
Flat
(1%)
Asia Pacific
5.8
(8%)
Flat
Total Geographies
excl. Retail Store Solutions
IBM
excl. Retail Store Solutions
Major Markets
Growth Markets
BRIC Countries
$24.4
$24.9
(4%)
(3%)
(1%)
(1%)
(3%)
(3%)
(1%)
(1%)
(5%)
(2%)
Flat
1%
Flat
1%
www.ibm.com/investor
Canada/ LA U.S. -­‐4% EMEA Japan APac +3% @CC OEM +5% 7
Revenue and Gross Profit Margin by Segment
Operating
Gross Profit Margin
Revenue
$ in Billions
B/(W) Yr/Yr
Rptd
@CC
2Q13
B/(W)
Yr/Yr Pts
$9.5
(5%)
(2%)
37.8%
1.5 pts
Global Business Services
4.6
(1%)
2%
31.2%
0.4 pts
Software
6.4
4%
5%
88.8%
0.4 pts
Systems & Technology
3.8
36.7%
(1.6 pts)
2Q13
Global Technology Services
(12%)
(11%)
(8%)
(7%)
0.5
(6%)
(4%)
46.3%
0.4 pts
$24.9
(3%)
(1%)
49.7%
1.4 pts
excl. Retail Store Solutions
Global Financing
Total Revenue & Op. GP Margin
excl. Retail Store Solutions
(3%)
(1%)
Con4nued margin expansion in Services and SoYware www.ibm.com/investor
8
Expense Summary
$ in Billions
SG&A – Operating
Excl. Workforce Rebalancing**
2Q13
B/(W)
Yr/Yr
$6.5
(14%)
5.5
1 pts
(1 pts)
1%
1 pts
(1 pts)
1 pts
4%
0 pts
(2 pts)
6 pts
1 pts
(1 pts)
1 pts
(1 pts)
RD&E – Operating
1.5
IP and Development Income
(0.2)
(15%)
Other (Income)/Expense
(0.1)
(31%)
0.1
16%
Interest Expense
Operating Expense & Other Income
Excl. Workforce Rebalancing**
$7.8
$6.8
B/(W) Yr/Yr Drivers
Currency
Acq.*
Base
(11%)
1%
(14 pts)
(10 pts)
2 pts
* Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges
** 2Q13 excludes $1B charge for Workforce Rebalancing; yr/yr excludes WFR from both years for comparison purposes
www.ibm.com/investor
9
Services Segments
Global Technology Services (GTS) $ in Billions
2Q13
$9.5
37.8%
$1.5
$1.9
15.4%
19.0%
Revenue (External)
Gross Margin (External)
Pre-Tax Income
excluding WFR
PTI Margin
excluding WFR
Global Business Services (GBS) B/(W) Yr/Yr
Rptd
@CC
(5%)
(2%)
1.5 pts
(14%)
3%
(1.7 pts)
1.3 pts
2Q13 Revenue
$ in Billions
Revenue (External)
Gross Margin (External)
Pre-Tax Income
excluding WFR
PTI Margin
excluding WFR
2Q13 Revenue Yr/Yr
GTS
GTS Outsourcing
Integrated Technology Services
Maintenance
Rptd
(6%)
(2%)
(4%)
@CC
(3%)
1%
(2%)
(1%)
(1%)
3%
2%
3%
7%
GBS
GBS Outsourcing
Consulting & Systems Integration
Services Backlog
2Q13
$141B
2Q13
$4.6
31.2%
$0.6
$0.9
13.0%
17.9%
B/(W) Yr/Yr
Rptd
@CC
(1%)
2%
0.4 pts
(22%)
2%
(3.6 pts)
0.5 pts
(% of Total Services) Maint. 13% GTS Outsourcing 39% ITS 16% GBS C&SI 25% GBS Outsourcing 7% Con4nued backlog growth and gross margin expansion www.ibm.com/investor
10
Software Segment B/(W) Yr/Yr
$ in Billions
2Q13
$6.4
88.8%
$2.4
$2.7
34.1%
37.2%
Revenue (External)
Gross Margin (External)
Pre-Tax Income
excluding WFR
PTI Margin
excluding WFR
2Q13 Revenue
Yr/Yr
Rptd
@CC
WebSphere Family
9%
10%
Information Management
5%
6%
Tivoli
13%
14%
Social Workforce Solutions
22%
23%
Rational
12%
13%
Key Branded Middleware
9%
10%
Total Middleware
5%
7%
Total Software
4%
5%
Rptd
4%
0.4 pts
(2%)
6%
(1.8 pts)
0.9 pts
@CC
5%
2Q13 Revenue (% of Total SoYware) Key Branded Middleware 67% Other Middleware 16% Opera4ng Systems 9% Other 8% Broad-­‐based strength across Key Branded Middleware www.ibm.com/investor
11
Systems & Technology Segment
$ in Billions
2Q13
Revenue (External) – including RSS
excluding RSS
Gross Margin (External)
Pre-Tax Income
excluding WFR
PTI Margin
excluding WFR
2Q13 Revenue
$3.8
36.7%
($0.1)
$0.1
(3.6%)
1.6%
Yr/Yr
System z
Power Systems
System x
Storage
Total Systems excl. RSS
Microelectronics OEM
Total Systems & Technology excl. RSS
Rptd
10%
(25%)
(11%)
(7%)
(10%)
6%
(8%)
@CC
11%
(24%)
(10%)
(6%)
(9%)
6%
(7%)
B/(W) Yr/Yr
Rptd
@CC
(12%)
(8%)
(1.6 pts)
(160%)
(76%)
(8.9 pts)
(4.3 pts)
(11%)
(7%)
2Q13 Revenue (% of Total Sys & Tech) Servers 67% Storage 21% Micr
o OE
12% M Strong performance in System z www.ibm.com/investor
12
Cash Flow Analysis
$ in Billions
Net Cash from Operations
Less: Global Financing Receivables
2Q13
B/(W)
Yr/Yr
YTD
2Q13
B/(W)
Yr/Yr
$3.2
($1.3)
$7.2
($1.5)
(0.5)
0.1
1.1
0.2
3.6
(1.3)
6.1
(1.8)
(0.9)
0.3
(1.7)
0.6
2.7
(1.0)
4.4
(1.1)
Acquisitions
(0.1)
0.5
(0.2)
1.7
Divestitures
0.0
0.0
0.0
0.0
Dividends
(1.0)
(0.1)
(2.0)
(0.1)
Share Repurchases (Gross)
(3.6)
(0.6)
(6.1)
(0.1)
0.9
0.0
0.2
(1.4)
(0.5)
0.7
2.9
1.0
Net Cash from Operations
(excluding GF Receivables)
Net Capital Expenditures
Free Cash Flow (excluding GF Receivables)
Non-GF Debt
Other (includes GF A/R & GF Debt)
Change in Cash & Marketable Securities
($1.6)
www.ibm.com/investor
($0.5)
($0.8)
$0.0
13
Balance Sheet Summary
June 12
Dec. 12
June 13
$11.2
$11.1
$10.4
Non-GF Assets*
70.2
70.6
70.1
Global Financing Assets
32.5
37.5
34.7
113.8
119.2
115.2
Other Liabilities
60.8
67.0
63.1
Non-GF Debt*
9.8
8.8
9.3
22.6
24.5
24.9
32.4
33.3
34.1
Total Liabilities
93.3
100.2
97.3
Equity
20.6
19.0
17.9
36%
36%
39%
7.0
7.0
7.2
$ in Billions
Cash & Marketable Securities
Total Assets
Global Financing Debt
Total Debt
Non-GF Debt / Capital
Global Financing Leverage
* Includes eliminations of inter-company activity
www.ibm.com/investor
14
2015e
At least
$20
2013e*
2012
$16.90+
$15.25
2011
$13.44
2010
$11.67
2Q 2013 Summary
Ø Solid performance in higher margin Software and
System z mainframe businesses
Ø Continued strength in Smarter Planet, Cloud and
Business Analytics
Ø Services backlog growth driven by significant new
business in 1H
Ø 2Q actions better position business for the future
•  Workforce rebalancing action
•  SoftLayer acquisition
Operating EPS
* Excludes $1B 2Q Workforce Rebalancing charge;
base for operational trajectory into 2014
Increasing expecta4ons for 2013 Opera4ng EPS to at least $16.90 excluding 2Q Workforce Rebalancing charge 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
Ø 
Ø 
Ø 
Ø 
Ø 
Ø 
Ø 
Ø 
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 – 2Q 2013
•  GAAP to Operating (Non-GAAP) Bridge – 2Q 2012
•  GAAP to Operating (Non-GAAP) Bridge – 2Q YTD 2013
•  GAAP to Operating (Non-GAAP) Bridge – 2Q YTD 2012
•  Reconciliation of Operating EPS Bridge – 2Q 2012 to 2Q 2013
•  GAAP to Operating (Non-GAAP) Bridge – 2Q 2013 and 2Q 2012
•  Reconciliation of B/(W) Yr/Yr Expense Drivers – 2Q 2013
•  Reconciliation of Free Cash Flow (excluding GF Receivables) – 12 months ended 6/30/13,
3 months ended 6/30/12
•  Reconciliation of Revenue Growth
•  Reconciliation of Debt-to-Capital Ratio
•  Reconciliation of Consolidated EPS
www.ibm.com/investor
17
Supplemental Materials
Currency – Year/Year Comparison
Quarterly Averages per US $
Yr/Yr @ 7/16 Spot
3Q13
4Q13
FY13
1Q13
Yr/Yr
2Q13
Yr/Yr
7/16
Spot
Euro
0.76
1%
0.77
2%
0.76
5%
1%
2%
Pound
0.65
(1%)
0.65
(3%)
0.66
(4%)
(6%)
(4%)
(26%)
(22%)
(22%)
(2 pts)
~(3 pts)
~(3 pts)
(2-3 pts)
~(1-2 pts)
~(1-2 pts)
~(2 pts)
~(2 pts)
Yen
92
IBM Revenue Impact
(16%)
99
(23%)
(2 pts)
April 17 View
2Q13
Revenue As Reported
Currency Impact
Revenue @CC
(US$B)
Yr/Yr
$24.9
(3%)
(0.5)
99
(2 pts)
(1%)
www.ibm.com/investor
18
Supplemental Materials
Supplemental Segment Information – 2Q 2013
Global Services Revenue
Global Services Backlog / Signings
Revenue Growth Yr/Yr @CC GTS Outsourcing
(6%)
(3%)
Integrated Tech Services
(2%)
1%
Maintenance
(4%)
(2%)
(5%)
(2%)
GBS Outsourcing
(1%)
3%
GBS C&SI
(1%)
2%
(1%)
2%
Total GTS
Total GBS
Total Outsourcing
(5%)
(2%)
Total Transactional
(1%)
1%
Maintenance
(4%)
(2%)
$ in Billions Total Backlog
Backlog 2Q13 Yr/Yr @CC $141
3%
7%
3%
7%
Change in Backlog due to Currency
Quarter-to-Quarter
($3)
Year-to-Year
($5)
Outsourcing Backlog
$90
Signings Outsourcing
2Q13 Yr/Yr @CC $8.9
31%
31%
7.5
9%
14%
$16.4
20%
22%
- GTS O/S, GBS O/S (AMS)
Transactional
- ITS, Consulting & AMS SI
(incl. US Federal)
Total Signings
Note: Actual backlog calculated using June 30 currency spot rates
www.ibm.com/investor
19
Supplemental Materials
Supplemental Segment Information – 2Q 2013
Systems & Technology
Software
Revenue Growth Revenue Growth Yr/Yr @CC 10%
11%
Power Systems
(25%)
(24%)
System x
(11%)
(10%)
(7%)
(6%)
(10%)
(9%)
System z
Storage
Total Systems excl. RSS
Microelectronics OEM
Total Sys & Tech excl. RSS
Yr/Yr @CC WebSphere Family
9%
10%
Information Management
5%
6%
Tivoli
13%
14%
Social Workforce Sols.
22%
23%
Rational
12%
13%
9%
10%
GP% Share Key Branded Middleware
Other Middleware
6%
6%
(8%)
(7%)
(8%)
(6%)
5%
7%
Operating Systems
(4%)
(2%)
Other Software/Services
Flat
1%
4%
5%
Total Middleware
Total Software
www.ibm.com/investor
20
Pre-Tax Income by Segment
Segment PTI $
Segment PTI Margin
PTI $
B/(W)
Yr/Yr
PTI %
B/(W)
Yr/Yr
B/(W) Yr/Yr
Excl. WFR*
$1.5
(14%)
3%
15.4%
(1.7 pts)
1.3 pts
Global Business Services
0.6
(22%)
2%
13.0%
(3.6 pts)
0.5 pts
Software
2.4
(2%)
6%
34.1%
(1.8 pts)
0.9 pts
(3.6%)
(8.9 pts)
(4.3 pts)
$ in Billions
Global Technology Services
Systems & Technology
Global Financing
Total Operating PTI
(0.1)
0.6
$4.6
(160%)
4%
(16%)
B/(W) Yr/Yr
Excl. WFR*
(76%)
5%
51.8%
0.7 pts
0.8 pts
Flat
18.4%
(2.7 pts)
0.8 pts
* 2Q13 excludes $1B charge for Workforce Rebalancing; yr/yr excludes WFR from both years for comparison purposes
www.ibm.com/investor
21
Supplemental Materials
Global Financing Portfolio
2Q13 – $27.9B Net External Receivables
50%
Investment Grade
61%
Non-Investment Grade
39%
40%
39%
30%
20%
22%
20%
10%
12%
6%
1%
B to B-
CCC+ to D
0%
AAA to A-
BBB+ to BBB-
BB+ to BB
2Q13
1Q13
2Q12
Identified Loss Rate
0.8%
0.8%
0.8%
Anticipated Loss Rate
0.4%
0.4%
0.5%
Reserve Coverage
1.2%
1.2%
1.3%
3.4
3.2
2.6
$67M
$42M
$33M
Client Days Delinquent Outstanding
Commercial A/R > 30 days
22
BB- to B+
www.ibm.com/investor
22
Supplemental Materials
Revenue by Key Industry Sales Unit
$ in Billions
Financial Services
B/(W) Yr/Yr*
Rptd
@CC
2Q13
$7.0
1%
4%
Public
3.3
(6%)
(5%)
Industrial
2.3
Flat
3%
Distribution
1.9
(6%)
(5%)
Communications
2.0
(8%)
(7%)
General Business
7.1
(3%)
(2%)
$24.9
(3%)
(1%)
Total IBM
Public Industrial Distribu4on Financial Services Comms General Business * Reclassified to conform with 2013 presentation
www.ibm.com/investor
23
Supplemental Materials
$ in Billions
Cash Flow (FAS 95)
QTD
2Q13
QTD
2Q12
YTD
2Q13
YTD
2Q12
$3.2
$3.9
$6.3
$6.9
Depreciation / Amortization of Intangibles
1.1
1.2
2.3
2.3
Stock-based Compensation
0.2
0.2
0.3
0.3
Working Capital / Other
(0.9)
(0.3)
(2.8)
(1.8)
Global Financing A/R
(0.5)
(0.5)
1.1
0.9
3.2
4.4
7.2
8.7
(0.9)
(1.3)
(1.7)
(2.3)
0.0
0.0
0.0
0.0
(0.1)
(0.6)
(0.2)
(1.9)
0.2
0.2
0.0
0.3
(0.9)
(1.7)
(1.9)
(3.9)
1.0
0.3
1.4
1.3
Dividends
(1.0)
(1.0)
(2.0)
(1.8)
Common Stock Repurchases
(3.6)
(3.0)
(6.1)
(6.0)
0.3
0.3
0.7
0.9
(3.3)
(3.4)
(6.0)
(5.7)
0.0
(0.4)
(0.1)
(0.2)
($1.0)
($0.9)
($1.1)
Net Income from Operations
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
($1.0)
www.ibm.com/investor
24
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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25
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.
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26
Supplemental Materials
Non-GAAP Supplemental Materials
Reconcilia4on of Opera4ng Earnings Per Share 2013
Expectations
IBM GAAP EPS
$15.08+
IBM Operating EPS (Non-GAAP)
$16.25+
2013
Expectations excl.
2Q Workforce Rebal.
$16.90+
Adjustments
Acquisition-Related Charges *
$0.51
Amortization of Purchased Intangibles
$0.50
Other Acquisition-Related Charges
$0.01
Non-Operating Retirement-Related Items
$0.66
* Includes acquisitions through June 30, 2013
The above serves to reconcile the Non-GAAP financial information contained in “2013 Expectations” discussion in the company’s earnings
presentation. See Slides 25-26 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 Opera4ng (Non-­‐GAAP) Bridge – 2Q 2013 $ in Millions, except EPS
Gross Profit
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
$12,132
$91
$156
$12,379
SG&A
6,680
RD&E
1,548
Other Income & Expense
(91)
(91)
0
(0)
Total Operating Expense &
Other Income
7,988
(91)
Pre-Tax Income
4,144
(93)
6,496
(13)
1,535
0
(91)
(106)
7,791
182
262
4,588
918
9
82
1,009
Net Income
3,226
173
180
3,579
Diluted Earnings Per Share
$2.91
$0.15
$0.16
$3.22
Tax ***
* Includes amor/za/on of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisi/on integra/on tax charges. ** Includes re/rement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amor/za/on of transi/on assets, other seAlements, curtailments, mul/-­‐employer plans and insolvency insurance. ***The tax impact on the Opera/ng (Non-­‐GAAP) Pre-­‐Tax Income is calculated under the same accoun/ng principles applied to the As Reported Pre-­‐Tax Income under ASC 740, which employs an annual effec/ve tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2013 Highlights,” “Key Financial Metrics” and “Expense
Summary” discussions 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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28
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q 2012 $ in Millions, except EPS
Gross Profit
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
$12,281
$93
$66
$12,440
(87)
(33)
SG&A
5,837
RD&E
1,587
Other Income & Expense
(132)
0
5
(1)
0
Total Operating Expense &
Other Income
7,120
(88)
Pre-Tax Income
5,161
Tax ***
5,717
1,592
(133)
(28)
7,004
181
94
5,436
1,280
49
30
1,359
Net Income
3,881
132
64
4,077
Diluted Earnings Per Share
$3.34
$0.11
$0.06
$3.51
* Includes amor/za/on of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisi/on integra/on tax charges. ** Includes re/rement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amor/za/on of transi/on assets, other seAlements, curtailments, mul/-­‐employer plans and insolvency insurance. ***The tax impact on the Opera/ng (Non-­‐GAAP) Pre-­‐Tax Income is calculated under the same accoun/ng principles applied to the As Reported Pre-­‐Tax Income under ASC 740, which employs an annual effec/ve tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2013 Highlights,” “Key Financial Metrics” and “Expense
Summary” discussions 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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29
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q YTD 2013 $ in Millions, except EPS
Gross Profit
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
$22,810
$186
$320
$23,316
(183)
(197)
11,878
(29)
3,163
SG&A
12,257
RD&E
3,193
Other Income & Expense
Total Operating Expense &
Other Income
(151)
15,060
0
(7)
0
(190)
(226)
(158)
14,644
Pre-Tax Income
7,750
376
546
8,672
Tax ***
1,492
63
162
1,717
Net Income
6,258
313
384
6,955
Diluted Earnings Per Share
$5.60
$0.28
$0.35
$6.23
* Includes amor/za/on of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisi/on integra/on tax charges. ** Includes re/rement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amor/za/on of transi/on assets, other seAlements, curtailments, mul/-­‐employer plans and insolvency insurance. ***The tax impact on the Opera/ng (Non-­‐GAAP) Pre-­‐Tax Income is calculated under the same accoun/ng principles applied to the As Reported Pre-­‐Tax Income under ASC 740, which employs an annual effec/ve tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “Year-To-Date 2013 Results” discussions 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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30
Supplemental Materials
Non-GAAP Supplemental Materials
GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q YTD 2012 $ in Millions, except EPS
Gross Profit
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments**
Operating
(Non-GAAP)
$23,400
$181
$137
$23,718
SG&A
11,723
RD&E
3,188
Other Income & Expense
Total Operating Expense &
Other Income
(190)
14,403
(171)
0
(2)
(172)
(69)
10
0
(60)
11,483
3,197
(192)
14,171
Pre-Tax Income
8,997
354
197
9,547
Tax ***
2,049
96
60
2,205
Net Income
6,948
258
137
7,342
Diluted Earnings Per Share
$5.95
$0.22
$0.12
$6.29
* Includes amor/za/on of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisi/on integra/on tax charges. ** Includes re/rement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amor/za/on of transi/on assets, other seAlements, curtailments, mul/-­‐employer plans and insolvency insurance. ***The tax impact on the Opera/ng (Non-­‐GAAP) Pre-­‐Tax Income is calculated under the same accoun/ng principles applied to the As Reported Pre-­‐Tax Income under ASC 740, which employs an annual effec/ve tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “Year-To-Date 2013 Results” discussions 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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31
Supplemental Materials
Non-GAAP Supplemental Materials
Reconcilia4on of Opera4ng EPS Bridge – 2Q 2012 to 2Q 2013 Retirement-related
Adjustments**
GAAP
Acquisitionrelated
Adjustments*
2Q12 EPS
$3.34
$0.11
$0.06
$3.51
Revenue growth
@ actual
(0.11)
(0.01)
(0.00)
(0.12)
Margin expansion
(0.45)
0.04
0.10
(0.31)
0.13
0.01
0.00
0.14
$2.91
$0.15
$0.16
$3.22
Share
repurchases
2Q13 EPS
Operating
(Non-GAAP)
* Includes amor/za/on of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisi/on integra/on tax charges. ** Includes re/rement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amor/za/on of transi/on assets, other seAlements, curtailments, mul/-­‐employer plans and insolvency insurance. The above serves to reconcile the Non-GAAP financial information contained in the “Operating EPS Bridge – 2Q12 to 2Q13” 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
GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q 2013 and 2Q 2012 2Q 2013
GAAP
Acquisitionrelated
Adjustments*
Retirementrelated
Adjustments **
Operating
(Non-GAAP)
Gross Profit Margin
48.7%
0.4 pts
0.6 pts
49.7%
PTI Margin
16.6%
0.7 pts
1.1 pts
18.4%
Tax Rate ***
22.1%
(0.7 pts)
0.6 pts
22.0%
Net Income Margin
12.9%
0.7 pts
0.7 pts
14.4%
Gross Profit Margin
47.6%
0.4 pts
0.3 pts
48.2%
PTI Margin
20.0%
0.7 pts
0.4 pts
21.1%
Tax Rate ***
24.8%
0.1 pts
0.1 pts
25.0%
Net Income Margin
15.1%
0.5 pts
0.2 pts
15.8%
2Q 2012
* Includes amor/za/on of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisi/on integra/on tax charges ** Includes re/rement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amor/za/on of transi/on assets, other seAlements, curtailments, mul/-­‐employer plans and insolvency insurance ***The tax impact on the Opera/ng (Non-­‐GAAP) Pre-­‐Tax Income is calculated under the same accoun/ng principles applied to the As Reported Pre-­‐Tax Income under ASC 740, which employs an annual effec/ve 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 25 of this presentation for additional information on the use of these NonGAAP financial measures.
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33
Supplemental Materials
Non-GAAP Supplemental Materials Reconcilia4on of B/(W) Yr/Yr Expense Drivers – 2Q 2013 GAAP
Non-GAAP
Adjustments
Operating
(Non-GAAP)
SG&A
Currency
Acquisitions
Base
1 pts
0 pts
1 pts
(1 pts)
0 pts
(1 pts)
(14 pts)
1 pts
(14 pts)
RD&E
Currency
Acquisitions
Base
0 pts
0 pts
0 pts
(2 pts)
0 pts
(2 pts)
4 pts
1 pts
6 pts
1 pts
0 pts
1 pts
(2 pts)
0 pts
(1 pts)
(11 pts)
1 pts
(10 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 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
Reconcilia4on 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
6/30/13
3 months
ended
6/30/12
$18.1
$4.4
(2.7)
20.7
(3.7)
$17.0
(0.5)
4.9
(1.3)
$3.7
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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35
Supplemental Materials
Non-GAAP Supplemental Materials
Reconcilia4on of Revenue Growth 1Q13 Yr/Yr
Europe/ME/A
Japan
Tivoli Security software
Tivoli Storage software
Global Business Services
Power Systems
As Rptd
(4%)
@CC
(4%)
(3%)
(32%)
Flat
(31%)
2Q13 Yr/Yr
As Rptd
@CC
(16%)
19%
16%
3%
20%
17%
1Q13 Yr/Yr vs. 2Q13 Yr/Yr
As Rptd
2 pts
IBM
@CC
2 pts
The above serves to reconcile the Non-GAAP financial information contained in the “Key Financial Metrics,” “Revenue by Geography,”
“Services Segments,” “Software Segment,” “Systems & Technology Segment,” discussions 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
Supplemental Materials
Non-GAAP Supplemental Materials
Reconcilia4on of Debt-­‐to-­‐Capital Ra4o June 2013
Dec. 2012
June 2012
Non-Global Financing Debt / Capital
39%
36%
36%
IBM Consolidated Debt / Capital
66%
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 26 of this presentation for additional information on the use of these Non-GAAP financial
measures.
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37
Supplemental Materials
Non-GAAP Supplemental Materials
Reconcilia4on 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
2012
14.37
0.55
0.33
15.25
Operating
EPS
The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2013 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
38
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