55 slides from International Business Machines's earnings presentation, Jan 22, 2013
Slide 1: 4Q 2012 Earnings Presentation
® 4Q 2012 Earnings Presentation January 22, 2013 www.ibm.com/investor
Slide 2: Forward Looking Statements and Non-GAAP Information
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 f
Slide 3: 2012 Summary
2012 Summary 4Q12 FY12 $ Yr/Yr $ Yr/Yr Revenue $29.3B (1%) $104.5B (2%) @CC excl. RSS divestiture +1% Flat Operating Pre-Tax Income $8.1B +10% $23.2B +7% Operating (Non-GAAP) EPS $5.39 +14% $15.25 +13% Free Cash Flow $9.5B +$0.6B $18.2B +$1.6B 4Q Segment highlights: • Software growth across the po
Slide 4: Key Financial Metrics
Key Financial Metrics $ in Billions, except EPS P&L Highlights P&L Ratios B/(W) B/(W) (Operating) 4Q12 Yr/Yr 4Q12 Yr/Yr Revenue $29.3 (1%) GP Margin 52.3% 2.1 pts @CC Flat PTI Margin 27.7% 2.6 pts @CC excl. RSS 1% Tax Rate 24.4% Flat PTI – Operating $8.1 10% NI Margin 20.9% 1.9 pts EPS – Operating $
Slide 5: Revenue by Geography
Revenue by Geography $ in Billions B/(W) Yr/Yr 4Q12 Rptd @CC Americas $12.5 Flat 1% Canada/ Europe/ME/A 9.1 (5%) (3%) LA Asia Pacific 7.0 4% 5% EMEA U.S. Total Geographies $28.6 (1%) Flat -1% excl. Retail Store Solutions Flat 1% Japan APac IBM $29.3 (1%) Flat +5% excl. Retail Store Solutions Flat 1%
Slide 6: Revenue and Gross Profit Margin by Segment
Revenue and Gross Profit Margin by Segment Operating Revenue Gross Profit Margin $ in Billions B/(W) Yr/Yr B/(W) 4Q12 Rptd @CC 4Q12 Yr/Yr Pts Global Technology Services $10.3 (2%) Flat 37.6% 1.1 pts Global Business Services 4.7 (3%) (2%) 29.9% 0.7 pts Software 7.9 3% 4% 90.6% 0.8 pts Systems & Techn
Slide 7: Expense Summary
Expense Summary B/(W) B/(W) Yr/Yr Drivers $ in Billions 4Q12 Yr/Yr Currency Acq.* Base SG&A – Operating $5.8 3% 1 pts (2 pts) 4 pts RD&E – Operating 1.6 (1%) 0 pts (3 pts) 2 pts IP and Development Income (0.2) (10%) Other (Income)/Expense (0.1) 17% Interest Expense 0.1 4% Operating Expense & Other I
Slide 8: Services Segments
Services Segments Global Technology Services (GTS) Global Business Services (GBS) B/(W) Yr/Yr $ in Billions B/(W) Yr/Yr $ in Billions 4Q12 Rptd @CC 4Q12 Rptd @CC Revenue (External) $10.3 (2%) Flat Revenue (External) $4.7 (3%) (2%) Gross Margin (External) 37.6% 1.1 pts Gross Margin (External) 29.9% 0
Slide 9: Full Year Services Backlog Run Out
Full Year Services Backlog Run Out +2 pts yr/yr (1 pt) yr/yr Projected 2012 Revenue Gross profit dollar 2013 Revenue from Opening contribution to from Opening Backlog Services Backlog 2013 Revenue from Backlog +1% yr/yr* 2012 Outsourcing Rest of 2013 Contract Portfolio Restructuring * @ consistent f
Slide 10: Software Segment
Software Segment B/(W) Yr/Yr $ in Billions 4Q12 Rptd @CC Revenue (External) $7.9 3% 4% Gross Margin (External) 90.6% 0.8 pts Pre-Tax Income $4.0B 8% PTI Margin 46.0% 2.4 pts 4Q12 Revenue Yr/Yr 4Q12 Revenue Rptd @CC (% of Total Software) WebSphere Family 11% 11% Information Management 2% 3% Tivoli 4%
Slide 11: Systems & Technology Segment
Systems & Technology Segment B/(W) Yr/Yr $ in Billions 4Q12 Rptd @CC Revenue (External) – including RSS $5.8 (1%) (1%) excluding RSS 4% 4% Gross Margin (External) 44.1% 3.6 pts Pre-Tax Income $1.0 23% PTI Margin 16.4% 3.2 pts 4Q12 Revenue 4Q12 Revenue Yr/Yr (% of Total Sys & Tech) Rptd @CC System z
Slide 12: Growth Initiatives
Growth Initiatives Smarter Planet 2012 Revenue up >25% yr/yr Growth Markets Business Analytics 2012 Revenue 2012 Revenue up 7% yr/yr @CC up 13% yr/yr Cloud 2012 Revenue up 80% yr/yr Continued strength in our key growth initiatives supports shift to higher value 12 www.ibm.com/investor 12
Slide 13: Cash Flow Analysis
Cash Flow Analysis B/(W) B/(W) $ in Billions 4Q12 Yr/Yr FY12 Yr/Yr Net Cash from Operations $6.3 ($0.8) $19.6 ($0.3) Less: Global Financing Receivables (4.2) (1.2) (2.9) (2.1) Net Cash from Operations 10.5 0.5 22.5 1.8 (excluding GF Receivables) Net Capital Expenditures (1.0) 0.1 (4.3) (0.2) Free Ca
Slide 14: Balance Sheet Summary
Balance Sheet Summary $ in Billions Dec. 11 Dec. 12 Cash & Marketable Securities $11.9 $11.1 Non-GF Assets* 69.4 70.6 Global Financing Assets 35.1 37.5 Total Assets 116.4 119.2 Other Liabilities 64.9 67.0 Non-GF Debt* 8.0 8.8 Global Financing Debt 23.3 24.5 Total Debt 31.3 33.3 Total Liabilities 96.
Slide 15: Operating EPS Bridge – 4Q11 to 4Q12
Operating EPS Bridge – 4Q11 to 4Q12 $0.24 $5.39 $0.47 $4.71 ($0.03) 4Q11 Revenue Growth Margin Share 4Q12 Operating EPS @ Actual Expansion Repurchases Operating EPS www.ibm.com/investor 15
Slide 16: Operating EPS Bridge – FY11 to FY12
Operating EPS Bridge – FY11 to FY12 $0.73 $15.25 $1.38 $13.44 ($0.30) FY11 Revenue Growth Margin Share FY12 Operating EPS @ Actual Expansion Repurchases Operating EPS www.ibm.com/investor 16
Slide 17: FY 2012 Summary
2015e At least $20 FY 2012 Summary Continued momentum in growth initiatives • Growth markets +7% yr/yr @CC; 24% of IBM’s geographic revenue • Business Analytics +13%, Cloud +80%, Smarter Planet +>25% 2013e $16.70+ 2012 $15.25 Invested in innovation and continued portfolio transformation • Introd
Slide 18: IBM Transformation Continues
IBM Transformation Continues At Least Operating PTI / EPS * $20 At Least Segment Operating PTI $16.70 Operating EPS $15.25 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13e '14e '15e Hardware / Financing Services Software * Non-GAAP: Excludes acquisition-related charges and non-operating reti
Slide 19: www.ibm.com/investor
www.ibm.com/investor 19
Slide 20: Supplemental Materials
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, S
Slide 21: Currency – Year/Year Comparison
Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $ 1/18 Yr/Yr @ 1/18 Spot 3Q12 Yr/Yr 4Q12 Yr/Yr Spot 1Q13 2Q13 3Q13 4Q13 FY13 Euro 0.80 (13%) 0.77 (4%) 0.75 1% 3% 6% 2% 3% Pound 0.63 (2%) 0.62 2% 0.63 1% 0% 0% (1%) 0% Yen 79 (1%) 81 (5%) 90 (13%) (12%) (14%) (11%) (13
Slide 22: Supplemental Segment Information – 4Q 2012
Supplemental Materials Supplemental Segment Information – 4Q 2012 Global Services Revenue Global Services Backlog / Signings Revenue Growth $ in Billions Backlog Yr/Yr @CC 4Q12 Yr/Yr @CC GTS Outsourcing (3%) (2%) Total Backlog $140 Flat 1% Integrated Tech Services 2% 3% Change in Backlog due to Curr
Slide 23: Supplemental Segment Information – 4Q 2012
Supplemental Materials Supplemental Segment Information – 4Q 2012 Systems & Technology Software Revenue Growth Revenue Growth Yr/Yr @CC GP% Share Yr/Yr @CC System z 56% 56% WebSphere Family 11% 11% Power Systems (19%) (19%) Information Management 2% 3% = Tivoli 4% 5% System x (2%) (3%) = Lotus 9% 9%
Slide 24: Global Financing Portfolio
Supplemental Materials Global Financing Portfolio 4Q12 – $30.3B Net External Receivables Investment Grade Non-Investment Grade 40% 60% 40% 38% 30% 20% 22% 20% 10% 12% 6% 2% 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 Ba3-B1 B2-B3 Caa-D 4Q12 3Q12 4Q11 Identified Loss Rate 0.8% 0.9% 0.8% Anticipated Loss Rate 0.4% 0.
Slide 25: Key Financial Metrics – FY 2012
Supplemental Materials Key Financial Metrics – FY 2012 $ in Billions, except EPS P&L Highlights P&L Ratios B/(W) B/(W) (Operating) FY12 Yr/Yr FY12 Yr/Yr Revenue $104.5 (2%) GP Margin 48.7% 1.5 pts @CC Flat PTI Margin 22.2% 2.0 pts PTI – Operating $23.2 7% Tax Rate 24.0% 0.5 pts EPS – Operating $15.2
Slide 26: Revenue by Geography – FY 2012
Supplemental Materials Revenue by Geography – FY 2012 $ in Billions B/(W) Yr/Yr FY12 Rptd @CC Americas $44.6 (1%) Flat Canada/ Europe/ME/A 31.8 (6%) (1%) LA Asia Pacific 25.9 3% 3% EMEA U.S. Total Geographies $102.3 (2%) Flat -1% excl. Retail Store Solutions (1%) 1% Japan APac IBM $104.5 (2%) Flat -
Slide 27: Revenue by Segment – FY 2012
Supplemental Materials Revenue by Segment – FY 2012 $ in Billions B/(W) Yr/Yr FY12 Rptd @CC Global Global Technology Services $40.2 (2%) 1% Business Systems Services & Global Business Services 18.6 (4%) (2%) Technology Software 25.4 2% 4% Global Technology Systems & Technology 17.7 (7%) (6%) Softwar
Slide 28: Revenue by Key Industry Sales Unit – 4Q & FY 2012
Supplemental Materials Revenue by Key Industry Sales Unit – 4Q & FY 2012 $ in Billions B/(W) Yr/Yr B/(W) Yr/Yr 4Q12 Rptd @CC FY12 Rptd @CC Financial Services $9.0 4% 6% $30.7 (1%) 2% Public 4.2 1% 1% 15.3 Flat 2% Industrial 2.6 (3%) (2%) 9.7 (2%) Flat Distribution 2.5 (9%) (8%) 9.2 (7%) (5%) Communi
Slide 29: Gross Margins by Segment – FY 2012
Supplemental Materials Gross Margins by Segment – FY 2012 External Gross Profit Margins B/(W) FY12 Yr/Yr Pts Global Technology Services 36.6% 1.6 pts Global Business Services 30.0% 1.2 pts Software 88.7% 0.2 pts Systems & Technology 39.1% (0.7 pts) Global Financing 46.5% (3.3 pts) Total IBM - Operat
Slide 30: Expense Summary – FY 2012
Supplemental Materials Expense Summary – FY 2012 B/(W) B/(W) Yr/Yr Drivers $ in Billions FY12 Yr/Yr Currency Acq.* Base SG&A – Operating $22.9 2% 3 pts (2 pts) 1 pts RD&E – Operating 6.3 Flat 2 pts (3 pts) 2 pts IP and Development Income (1.1) (3%) Other (Income)/Expense (0.9) nm Interest Expense 0.
Slide 31: Pre-Tax Income by Segment – FY 2012
Supplemental Materials Pre-Tax Income by Segment – FY 2012 Segment PTI $ Segment PTI Margin $ in Billions B/(W) Yr/Yr B/(W) Yr/Yr B/(W) w/o Wkfrce B/(W) w/o Wkfrce PTI $ Yr/Yr Rebal.* PTI % Yr/Yr Rebal.* Global Technology Services $7.0 11% 13% 16.8% 1.9 pts 2.2 pts Global Business Services 3.0 (1%)
Slide 32: Cash Flow (FAS 95)
Supplemental Materials Cash Flow (FAS 95) $ in Billions 4Q12 4Q11 FY12 FY11 Net Income from Operations $5.8 $5.5 $16.6 $15.9 Depreciation / Amortization of Intangibles 1.2 1.2 4.7 4.8 Stock-based Compensation 0.2 0.2 0.7 0.7 Working Capital / Other 3.3 3.1 0.5 (0.7) Global Financing A/R (4.2) (2.9)
Slide 33: Retirement-Related Charges
Supplemental Materials Retirement-Related Charges Funded Status* Expected ROA Actual ROA Discount Rate US WW WW WW WW YE 2011 98% 96% 7.3% 6.1% 4.2% YE 2012 98% 94% 7.3% 11.1% 3.4% Operating Non-Operating Pre-Tax Retirement-Related (Cost) / Income ($B) $0.5 $0.4 $0.1 ($0.1) ($0.5) ($0.6) ($1.1) ($1.
Slide 34: Retirement-Related Charges
Supplemental Materials Retirement-Related Charges Funded Status* Expected ROA Actual ROA Discount Rate US WW WW WW WW YE 2011 98% 96% 7.3% 6.1% 4.2% YE 2012 98% 94% 7.3% 11.1% 3.4% Upside 7.3% 14.0% 3.9% Downside 7.3% 0.0% 2.9% Operating Non-Operating Pre-Tax Retirement-Related (Cost) / Income ($B)
Slide 35: Retirement-Related Charges
Supplemental Materials Retirement-Related Charges Non-Operating Retirement-Related ($B) Pre-tax (Cost) / Income $0.5 $0.4 $0.1 ($0.1) ($0.5) ($0.6) ($1.1) B/(W) Y/Y ($0.1) ($0.3) ($0.6) ($0.6) $0.6 $0.5 2009 2010 2011 2012 2013 2014 2015 Cash Drivers ($1.1) ($1.2) ($1.7) ($1.5) ($1.4) ($1.6) ($1.4)
Slide 36: Non-GAAP Supplemental Materials
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 m
Slide 37: Non-GAAP Supplemental Materials
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 cas
Slide 38: Reconciliation of Operating Earnings Per Share
Supplemental Materials Non-GAAP Supplemental Materials Non-GAAP Reconciliation of Operating Earnings Per Share 2013 Expectations IBM GAAP EPS $15.53+ IBM Operating EPS (Non-GAAP) $16.70+ Adjustments Acquisition-Related Charges * $0.48 Amortization of Purchased Intangibles $0.47 Other Acquisition-Rel
Slide 39: GAAP to Operating (Non-GAAP) Bridge – 4Q 2012
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2012 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $15,167 $100 $60 $15,327 SG&A 5,921 (91) (29) 5,801 RD&E 1,580 0 6 1
Slide 40: GAAP to Operating (Non-GAAP) Bridge – 4Q 2011
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2011 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $14,722 $81 ($10) $14,793 SG&A 6,076 (82) 2 5,996 RD&E 1,555 0 23 1,
Slide 41: GAAP to Operating (Non-GAAP) Bridge – FY 2012
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – FY 2012 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $50,298 $376 $264 $50,938 SG&A 23,553 (349) (294) 22,910 RD&E 6,302
Slide 42: GAAP to Operating (Non-GAAP) Bridge – FY 2011
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – FY 2011 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $50,138 $341 $2 $50,481 SG&A 23,594 (309) (13) 23,272 RD&E 6,258 0 8
Slide 43: GAAP to Operating (Non-GAAP) Bridge – 4Q 2012 and 4Q 2011 Margins
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2012 and 4Q 2011 Acquisition- Retirement- related related Operating 4Q 2012 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin 51.8% 0.3 pts 0.2 pts 52.3% PTI Margin 26.7% 0.7 pts 0.3 pts 27.
Slide 44: GAAP to Operating (Non-GAAP) Bridge – FY 2012 and FY 2011 Margins
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – FY 2012 and FY 2011 Acquisition- Retirement- related related Operating FY 2012 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin 48.1% 0.4 pts 0.3 pts 48.7% PTI Margin 21.0% 0.7 pts 0.5 pts 22.
Slide 45: Reconciliation of Expense Drivers – 4Q12
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – 4Q12 Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 1 pts 0 pts 1 pts Acquisitions (2 pts) 0 pts (2 pts) Base 4 pts 0 pts 4 pts RD&E Currency 0 pts 0 pts 0 pts Acquisitions (3 pts) 0
Slide 46: Reconciliation of Expense Drivers – FY12
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – FY12 Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 3 pts 0 pts 3 pts Acquisitions (2 pts) 0 pts (2 pts) Base 0 pts 1 pts 1 pts RD&E Currency 2 pts 0 pts 2 pts Acquisitions (3 pts) 0
Slide 47: Reconciliation of Free Cash Flow (excluding GF Receivables)
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow (excluding GF Receivables) $ in Billions 12 months 12 months 12 months ended ended ended 12/31/12 12/31/11 12/31/02 Net Cash from Operations $19.6 $19.8 $13.8 Less: Global Financing Receivables (2.9) (0.8) (3.3)
Slide 48: Reconciliation of Free Cash Flow (excluding GF Receivables)
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow (excluding GF Receivables) 3 months 3 months $ in Billions ended ended 12/31/12 12/31/11 Net Cash from Operations $6.3 $7.1 Less: Global Financing Receivables (4.2) (2.9) Net Cash from Operations (excluding 10.5
Slide 49: Reconciliation of Debt-to-Capital Ratio
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Debt-to-Capital Ratio FY 12 FY 11 Non-Global Financing Debt / Capital 36% 32% IBM Consolidated Debt / Capital 64% 61% The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary” dis
Slide 50: Reconciliation of Operating EPS Bridge 4Q11 to 4Q12
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Operating EPS Bridge 4Q11 to 4Q12 Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) 4Q11 EPS $4.62 $0.10 ($0.01) $4.71 Revenue growth @ actual (0.03) 0.00 0.00 (0.03) Margin expansion
Slide 51: Reconciliation of Operating EPS Bridge FY11 to FY12
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Operating EPS Bridge FY11 to FY12 Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) FY11 EPS $13.06 $0.41 ($0.03) $13.44 Revenue growth @ actual (0.29) (0.01) 0.00 (0.30) Margin expan
Slide 52: Reconciliation of Revenue Growth
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Revenue Growth 4Q12 Yr/Yr 4Q11 Yr/Yr As Rptd @CC As Rptd @CC Japan Flat 5% OEM (5%) (5%) Canada (6%) (9%) 12% 13% Latin America 13% 18% Growth Markets GTS Outsourcing 6% 8% Tivoli Storage Software 12% 13% Tivoli Security 16% 16
Slide 53: Reconciliation of Consolidated EPS
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Consolidated EPS Non-Operating EPS Acquisition- Retirement- Operating (As Reported) Related Related EPS 2000 $3.88 $0.05 ($0.62) $3.32 2001 3.94 0.04 (0.72) 3.26 2002 2.43 0.07 (0.68) 1.81 2003 3.76 0.13 (0.48) 3.41 2004 4.39 0
Slide 54: Reconciliation of Segment Pre-Tax Income and Margin Growth
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Segment Pre-Tax Income and Margin Growth FY12 Yr/Yr 3Q Workforce As Rptd Rebalancing Normalized Pre-Tax Income Growth Total Global Services 7% 3 pts 10% Pre-Tax Margin Growth Total Global Services 1.5 pts 0.4 pts 1.9 pts The ab
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