4Q 2009 Earnings Presentation - IBM · Application Outsourcing 2.8 Total GBS Signings $7.4...

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4Q 2009 Earnings PresentationJanuary 19, 2010

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Forward Looking StatementsForward Looking Statements

Certain comments made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995.

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.

These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together.


2009 Financial Highlights2009 Financial Highlights

77thth consecutive year of doubleconsecutive year of double--digit EPS growth in 2009digit EPS growth in 2009Expect at least $11.00 EPS in 2010Expect at least $11.00 EPS in 2010

4Q 20094Q 2009 Full YearFull Year

EPS $3.59 +10% yr/yr

Hardware / Software Share Gains•POWER, System x, Blades, Storage •WebSphere, Tivoli, Branded MW

EPS $10.01 +13% yr/yr

Hardware / Software Share Gains•POWER, System x, Blades, Storage, Total Servers

•Middleware, WebSphere, Tivoli, Rational

Services Signings $18.8B @ Actual

PTI Margin +1.9 pts yr/yr

Signings $57B @ Actual, Backlog $137B•Outsourcing +9% yr/yr, 11% @CC

PTI Margin +2.8 pts yr/yr

$7.2B Free Cash Flow* $15.1B Free Cash Flow* +$800M yr/yr* Excluding GF Receivables


$4

$6

$8

$10

$12

$14

$16

$18

$20

$22

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pre

-tax

Inco

me

& F

ree

Cas

h Fl

ow (

$B)

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

EP

S

Pre-tax income

Free Cash Flow*

EPS

IBM Financial Performance HistoryIBM Financial Performance History

Revenue

* Excluding GF ReceivablesNote: 2005-2008 EPS reflects the adoption of amendments to ASC 260, “Earnings Per Share”

Divested Revenue


Transformational Impact on Profit MixTransformational Impact on Profit Mix

2000** 2009Hardware Financing Services Software

24%

11%

40%

25%

7%9%

42%

42%

% of Segments

$1.4B$1.7B

$8.1B

$8.1B

$2.7B

$1.2B

$4.5B

$2.8B

Segment Pre-tax Income *

** Stock-based compensation expense was not recorded at the segment level

* Sum of external segment pre-tax income not equal to IBM pre-tax income

% of Segments


Transformational DriversTransformational DriversInitiativeInitiative 2009 Result2009 Result

Shifting to Higher Value Areas

Improving Operating Leverage through Productivity

Investing for Growth

Software $8B PTI 42% of total segmentsServices $8B PTI 42% of total segmentsContinued acquisitions; 108 companies since 2000

$3.7B cost & expense savings9% operational expense improvementExpanded margins

Growth Markets revenue +8 pts > Major Markets#1 patents for 17th consecutive yearBusiness Analytics acquisitions +9% revenue growth @CC


4Q / FY 2009 Financial Summary4Q / FY 2009 Financial Summary

4Q09B/(W)Yr/Yr FY09

B/(W)Yr/Yr

Revenue $27.2 1% $95.8

45.7%

$25.6

$18.1

PTI Margin 23.4% 1.9 pts 18.9% 2.8 pts

26.0%

$13.4

1,341.4

$10.01

@CC (5%)

(8%)

(5%)

1.7 pts

11%

9%

0.2 pts

9%

3%

GP % 48.3% 0.4 pts

Expense $6.8 5%

Pre-Tax Income $6.4 10%

13%

Tax Rate 24.6% (0.8 pts)

Net Income $4.8 9%

Shares (Diluted) (M) 1,340.7 1%

EPS $3.59 10%

$ in Billions, except EPS

Strong margins drive record profit performanceStrong margins drive record profit performance


Revenue by GeographyRevenue by Geography

4Q09B/(W) Yr/Yr

Rptd @CC

Americas $11.1 (3%) (6%)

Europe/ME/A 9.7 2% (7%)

Major Markets (2%) (7%)Growth Markets 14% 2%

BRIC Countries 18% 7%

Total Geographies $26.6 1% (6%)

IBM $27.2 1% (5%)

Asia Pacific 5.8 6% (3%)

$ in Billions

APac+3% @CC

OEM +5%

U.S.-8%

EMEA

Canada/ LA

Japan-9%

@CC

Growth markets outpace major markets by 8 points in 2009Growth markets outpace major markets by 8 points in 2009


Revenue and Gross Margin by SegmentRevenue and Gross Margin by Segment

4Q09B/(W) Yr/Yr

Rptd @CC 4Q09

35.8%

30.3%

87.7%

42.5%

52.0%

49.1%

48.3%

B/(W)Yr/Yr Pts

0.9 pts

1.7 pts

Flat

2.6 pts

2.0 pts

1.3 pts

0.4 pts

Software 6.6 2% (4%)

Global Technology Services $10.1 4% (3%)

Global Business Services 4.6 (3%) (9%)

Systems & Technology 5.2 (4%) (9%)

Global Financing 0.6 (6%) (12%)

Total Segments $27.0 1% (6%)

Total IBM $27.2 1% (5%)

$ in Billions

Gross Profit MarginRevenue

Margin expansion in 21 of last 22 quartersMargin expansion in 21 of last 22 quarters


Expense SummaryExpense Summary

4Q09B/(W)Yr/Yr Currency Acq.* Ops

13 pts

8 pts

15 pts

SG&A $5.6 5% (7 pts) (1 pts)

RD&E 1.5 4% (3 pts) (1 pts)

IP and Development Income (0.3) (5%)

Other (Income)/Expense 0.0 nm

Interest Expense 0.1 58%

Total Expense & Other Income $6.8 5% (9 pts) (1 pts)

* Includes acquisitions made in the last twelve months

$ in Billions

B/(W) Yr/Yr Drivers

Improving operating leverage through productivityImproving operating leverage through productivity


4Q09B/(W)

Yr/Yr Pts 4Q09B/(W)

Yr/Yr Pts

15.0% 0.6 pts

1.1 pts

Software 87.7% Flat 41.5% 2.4 pts

Systems & Technology 42.5% 2.6 pts 15.4% 2.6 pts

5.5 pts

1.9 pts

1.9 pts

16.0%

43.6%

23.0%

23.4%

Global Technology Services 35.8% 0.9 pts

Global Business Services 30.3% 1.7 pts

Global Financing 52.0% 2.0 pts

Total Segments 49.1% 1.3 pts

Total IBM 48.3% 0.4 pts

Margins by SegmentMargins by Segment

External Gross Profit Margins

Total Pre-Tax Margins

BroadBroad--based margin expansionbased margin expansion


B/(W) Yr/Yr4Q09 Rptd @CC

Revenue (External) $10.1 4% (3%)

Gross Margin (External) 35.8% 0.9 pts

PTI Margin 15.0% 0.6 pts

Services SegmentsServices Segments

Strategic Outsourcing

36% Global Business

Services 31%

Integrated Technology

Services 16% Maint.

13%

BTO 4%

$ in Billions

Global Technology Services (GTS) Global Business Services (GBS)

Services profit +7% yr/yr, growth in both GTS and GBSServices profit +7% yr/yr, growth in both GTS and GBS

4Q09 Revenues (% of Total Services)

(Growth @CC)

(2%) Yr/Yr

(9%) Yr/Yr

+1% Yr/Yr

(1%) Yr/Yr

(7%) Yr/YrGTS Signings

$ in Billions

4Q09 Yr/Yr @CC

(3%) (10%)

(1%)

(4%)

@CC

(3%)

55%

13%

2%

5%

3%

Yr/Yr

3%

65%

20%

9%

GTS Outsourcing 8.6

Total GTS Signings $11.4

GBS Signings 4Q09

Total Global Services Signings $18.8

Consulting & Systems Integ. $4.6

Application Outsourcing 2.8

Total GBS Signings $7.4

Integrated Technology Svcs $2.7

B/(W) Yr/Yr4Q09 Rptd @CC

Revenue (External) $4.6 (3%) (9%)




Software SegmentSoftware SegmentB/(W) Yr/Yr

4Q09 Rptd @CC

Revenue (External) $6.6 2% (4%)

Gross Margin (External) 87.7% Flat


4Q09 Revenue Yr/Yr

Rptd @CC

6%

1%

1%

(11%)

(10%)

Flat

(3%)

(4%)

Lotus (5%)

Rational (4%)

Key Branded Middleware 6%

Total Middleware 4%

Total Software 2%

WebSphere Family 13%

Information Management 7%

Tivoli 7%

4Q09 Revenue (% of Total Software)

Key Branded

Middleware 63% Operating

Systems 9%

Other Middleware

19%

Other 9%

$ in Billions

Share gain in Branded Middleware, 10% yr/yr profit growthShare gain in Branded Middleware, 10% yr/yr profit growth


Systems & Technology SegmentSystems & Technology SegmentB/(W) Yr/Yr

4Q09 Rptd @CC

Revenue (External) $5.2 (4%) (9%)



$ in Billions

4Q09 Revenue(% of Total Sys & Tech)

Servers 66%

Storage 21%

Micro OEM 9%

RSS

4Q09 Revenue Yr/Yr

Rptd @CC

(31%)

(18%)

31%

(4%)

(9%)

(10%)

2%

(9%)

Converged System p (14%)

System x Servers 37%

Storage 1%

Retail Store Solutions (5%)

Total Systems (5%)

Microelectronics OEM 2%

Total Systems & Technology (4%)

System z (27%)

Share gains in System x, System p and Storage; 15% yr/yr profit Share gains in System x, System p and Storage; 15% yr/yr profit growthgrowth


Cash Flow AnalysisCash Flow Analysis

4Q09B/(W)Yr/Yr FY09

B/(W)Yr/Yr

$20.8 $2.0

1.9

0.0

0.8

0.8

5.1

0.3

(0.3)

3.1

(1.5)

(3.3)

$4.3

1.9

18.9

(3.7)

15.1

(1.2)

0.4

(2.9)

(7.4)

(4.7)

1.7

Change in Cash & Marketable Securities $2.5 ($0.7) $1.1

Net Capital Expenditures (1.1) (0.1)

Free Cash Flow (excluding GF Receivables) 7.2 (0.6)

Acquisitions (1.1) (0.8)

Divestitures 0.0 0.0

Dividends (0.7) (0.1)

Share Repurchases (3.1) (2.3)

Non-GF Debt 1.5 3.3

Other (includes GF A/R & GF Debt) (1.4) (0.1)

Net Cash from Operations $6.4 ($0.2)

Less: Global Financing Receivables (1.9) 0.3

Net Cash from Operations (excluding GF Receivables)

8.4 (0.5)

$ in Billions


Dec. 08 Dec. 09

$14.0

61.7

33.3

109.0

60.2

3.7

22.4

26.1

86.3

22.8

16%

7.1

$12.9

61.8

34.9

109.5

62.0

Non-GF Debt* 9.6

Global Financing Debt 24.4

Total Debt 33.9

Total Liabilities 95.9

Equity 13.6

49%

Global Financing Leverage 7.0

Total Assets

Other Liabilities

Non-GF Debt / Capital

Cash & Marketable Securities

Non-GF Assets*

Global Financing Assets

Balance Sheet SummaryBalance Sheet Summary$ in Billions

* Includes eliminations of inter-company activity


4Q08 EPS* Revenue Growth @ Actual

Gross Margin Expense Productivity

Share Repurchases

4Q09 EPSTaxRate

$3.27

EPS Bridge EPS Bridge –– 4Q08 to 4Q094Q08 to 4Q09

$0.03$0.06

$0.24 ($0.04) $0.03 $3.59

Operating Leverage

* Reflects the adoption of amendments to ASC 260, “Earnings Per Share”


2008 EPS* Revenue Growth @ Actual

Gross Margin Expense Productivity

Share Repurchases

2009 EPSTaxRate

$8.89

EPS Bridge EPS Bridge –– FY08 to FY09FY08 to FY09

($0.68)$0.85

$0.58 $0.03$0.34 $10.01

Operating Leverage

* Reflects the adoption of amendments to ASC 260, “Earnings Per Share”


WellWell--Positioned for 2010Positioned for 2010

Expect EPS of at least $11.00 in 2010Expect EPS of at least $11.00 in 2010EPS

2006

2010

$6.05

$11.00+

2007 $7.15

2008 $8.89

Shifting portfolio to higher value spaces

Improving operating leverage through productivity

Investing in skills and capabilities to drive future growth

2009 $10.01

Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “Earnings Per Share”


Supplemental MaterialsSupplemental Materials

Currency – Year/Year ComparisonSupplemental Segment Information – Global ServicesSupplemental Segment Information – Systems & Technology, SoftwareGlobal Financing PortfolioRevenue by Key Industry Sales Unit – 4Q and FY 2009 Revenue by Geography – FY 2009Revenue by Segment – FY 2009Expense Summary – FY 2009Margins by Segment – FY 2009Summary and Selected Items – FY 2009Cash Flow (FAS 95)Computation of 2009 Global Financing Return on EquitySupplemental EPS Information – Acquisition-Related ActivityNon-GAAP Supplementary Materials

• Constant Currency, Cash Flow, Debt-to-Capital Ratio• Reconciliation of Free Cash Flows (excluding GF Receivables)• Reconciliation of Acquired Business Revenue Growth• Reconciliation of Geography Revenue Growth• Reconciliation of Software Segment Revenue Growth• Reconciliation of Debt-to-Capital Ratio

Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding


Currency Currency –– Year/Year ComparisonYear/Year Comparison

3Q09 Yr/Yr 4Q09 Yr/Yr1/18Spot 1Q10 2Q10 3Q10 4Q10

1% (3%)

0%

(1%)

~(1)-0 pts

(US$B) Yr/Yr

$27.2 1%

1.7 6 pts

$25.5 (5%)

0%

3%

~1-2 pts

9%

12%

3%

0.70

~6-7 pts

5%

5%

7%

~4-5 pts

0.61

91

11%

4%

6%

6 pts

0.68

0.61

90

(5%)

(15%)

13%

(2 pts)

Euro 0.70

Pound 0.61

Yen 94

IBM Revenue Impact

Yr/Yr @ 1/18 Spot

Quarterly Averages per US $

Negative Yr/Yr growth signifies a translation hurt

IBM hedges its major cross-border cash flows to mitigate the effect of currency volatility. The impact of these hedging programs is principally reflected in Other Income and Expense, as well as Cost of Goods Sold.

Revenue As Reported

Currency Impact

Revenue @CC


Supplemental Segment Information Supplemental Segment Information –– 4Q 20094Q 2009Revenue Growth

Global Services Yr/Yr @CC

Backlog $137B

Change in Backlog due to Currency

Quarter-to-Quarter ($1B)

Year-to-Year $6B

Maintenance 6% (1%)

Global Technology Services 4% (3%)

Global Business Services (3%) (9%)

Strategic Outsourcing 6% (2%)

Business Transformation Outsourcing

7% 1%

Integrated Tech Services Flat (7%)

(1%)

55%

8%

(10%)

(3%)

(6%)

@CC

15%$11.4Global Services Outsourcing

Signings ($B)

5%8.6GTS (SO & BTO)

65%2.8GBS (App. Outsourcing)

Yr/Yr4Q09Global Services

(3%)2.7GTS (ITS)

3%4.6GBS (C&SI)

1%$7.4Global Services (C&SI / ITS)


Supplemental Segment Information Supplemental Segment Information –– 4Q 20094Q 2009

Revenue Growth

Systems & Technology Yr/Yr @CC GP% Share

(31%)

(18%)

31%

(4%)

(9%)

(10%)

2%

(9%)

=

=

=

System x Servers 37%

Storage 1%

Retail Store Solutions (5%)

Total Systems (5%)

Microelectronics OEM 2%

Total Systems & Technology (4%)

System z (27%)

Converged System p (14%)

Revenue Growth

Software Yr/Yr @CC

Lotus (5%) (11%)

Rational (4%) (10%)

Key Branded Middleware 6% Flat

Other Middleware (4%) (10%)

Total Middleware 4% (3%)

Operating Systems Flat (1%)

Other Software/Services (4%) (10%)

Total Software 2% (4%)

WebSphere Family 13% 6%

Information Management 7% 1%

Tivoli 7% 1%


Global Financing PortfolioGlobal Financing Portfolio

4Q09 3Q09 4Q08Identified Loss Rate 1.6% 1.7% 1.4%Anticipated Loss Rate 0.5% 0.6% 0.6%Reserve Coverage 2.1% 2.3% 2.0%

Client Days Delinquent Outstanding 2.4 3.1 3.2Commercial A/R > 30 Days $28M $34M $41M

24%35%

22%11% 5% 3%

0%5%

10%15%20%25%30%35%40%

Aaa-A3 Baa1-Baa3 Ba1-Ba2 Ba3-B1 B2-B3 Caa-D

Investment Grade59%

Non-Investment Grade41%

4Q09 4Q09 –– $25.0B Net External Receivables $25.0B Net External Receivables


4Q09B/(W) Yr/Yr

Rptd @CC

Financial Services $7.9 1% (6%)

Public 4.3 5% Flat

Industrial 2.8 (9%) (15%)

Distribution 2.6 (1%) (6%)

Communications 2.6 (3%) (9%)

Total IBM $27.2 1% (5%)

General Business 5.6 5% (2%)

All Sectors $26.7 1% (6%)

Revenue by Key Industry Sales UnitRevenue by Key Industry Sales Unit

$ in BillionsFY09

B/(W) Yr/Yr Rptd @CC

$27.2 (6%) (4%)

15.6 1% 4%

10.1 (17%) (15%)

9.0 (10%) (8%)

9.4 (8%) (5%)

$95.8 (8%) (5%)

19.1 (8%)

$93.6 (7%) (5%)

(5%)


Revenue by Geography Revenue by Geography –– FY 2009FY 2009

FY09B/(W) Yr/Yr

Rptd @CC

Americas $40.2 (6%) (5%)

Europe/ME/A 32.6 (12%) (6%)

Major Markets (8%) (6%)Growth Markets (3%) 1%

BRIC Countries 1% 4%

Total Geographies $93.5 (7%) (5%)

IBM $95.8 (8%) (5%)

Asia Pacific 20.7 (2%) (4%)

$ in Billions

APac+3% @CC

OEM -15%

U.S.-6%

EMEA

Canada/ LA

Japan-10% @CC


Revenue by Segment Revenue by Segment –– FY 2009FY 2009

FY09B/(W) Yr/Yr

Rptd @CC

Global Technology Services $37.3 (5%) (2%)

Global Business Services 17.7 (10%) (8%)

Software 21.4 (3%) (1%)

Systems & Technology 16.2 (16%) (15%)

Global Financing 2.3 (10%) (7%)

Total Segments $94.9 (8%) (5%)

Total IBM $95.8 (8%) (5%)

$ in Billions

Revenue

Global Technology

Services

Global Business Services

Systems &

Technology

Software

Global Financing


Expense Summary Expense Summary –– FY 2009FY 2009

FY09B/(W)Yr/Yr Currency Acq.* Ops

9 pts

8 pts

9 pts

SG&A $21.0 10% 3 pts (1 pts)

RD&E 5.8 8% 2 pts (2 pts)

IP and Development Income (1.2) 2%

Other (Income)/Expense (0.4) 18%

Interest Expense 0.4 40%

Total Expense & Other Income $25.6 11% 4 pts (1 pts)

* Includes acquisitions made in the last twelve months

$ in Billions

B/(W) Yr/Yr Drivers


FY09B/(W)

Yr/Yr Pts FY09B/(W)

Yr/Yr Pts

14.3% 3.0 pts

0.8 pts

Software 86.0% 0.6 pts 33.6% 5.2 pts

Systems & Technology 37.8% (0.2 pts) 8.3% 0.6 pts

6.1 pts

3.1 pts

2.8 pts

13.8%

42.4%

18.9%

18.9%

Global Technology Services 35.0% 2.4 pts

Global Business Services 28.2% 1.5 pts

Global Financing 47.5% (3.8 pts)

Total Segments 46.0% 1.7 pts

Total IBM 45.7% 1.7 pts

Margins by Segment Margins by Segment –– FY 2009FY 2009

External Gross Profit Margins

Total Pre-Tax Margins


Summary and Selected Items Summary and Selected Items –– FY 2009FY 2009

FY09B/(W)Yr/Yr

Revenue $95.8 (8%)

EPS $10.01 13%

Pre-Tax Income $18.1 9%


Net Income $13.4 9%

$ in Billions, except EPS

Pre-Tax Income

Retirement-Related Benefits (1.4)

Stock-Based Compensation (0.6)

Amort. of Purchased Intangibles (0.5)

Workforce Rebalancing (0.5)

Includes:

Reported results include almost $3B PTI impact from selected iteReported results include almost $3B PTI impact from selected itemsms


Cash Flow (FAS 95)Cash Flow (FAS 95)4Q09 4Q08 FY09

$13.4

5.0

0.6

(0.1)

1.9

20.8

(3.7)

0.4

(1.2)

(2.2)

(6.7)

(7.5)

(2.9)

(7.4)

3.1

(14.7)

0.1

($0.6)

FY08

$4.4 $12.3

5.4

0.7

0.4

0.0

18.8

(4.5)

0.1

(6.3)

1.5

(9.3)

(2.4)

(2.6)

(10.6)

3.8

(11.8)

0.1

($2.2)

1.3

0.2

3.0

(2.3)

6.6

(1.0)

0.0

(0.3)

0.4

(0.9)

(1.6)

(0.7)

(0.7)

0.1

(2.9)

0.1

$3.0

$4.8

1.3

0.1

2.2

(1.9)

6.4

(1.1)

0.0

(1.1)

(0.3)

(2.5)

1.0

(0.7)

(3.1)

1.5

(1.2)

(0.1)

$2.7

Depreciation / Amortization of Intangibles

Stock-based Compensation

Working Capital / Other

Global Financing A/R

Net Cash provided by Operating Activities

Capital Expenditures, net of payments & proceeds

Divestitures, net of cash transferred

Acquisitions, net of cash acquired

Marketable Securities / Other Investments, net

Net Cash used in Investing Activities

Debt, net of payments & proceeds

Dividends

Common Stock Repurchases

Common Stock Transactions - Other

Net Cash used in Financing Activities

Effect of Exchange Rate changes on Cash

Net Change in Cash & Cash Equivalents

Net Income from Operations

$ in Billions


Computation of 2009 Global Financing Return on EquityComputation of 2009 Global Financing Return on Equity

Numerator:

(a)

(b)

(a)/(b)

Global Financing After Tax Income*

Denominator:

Average Global Financing Equity**

Global Financing Return on Equity

$1,138

$3,312

34%*

FY 2009

* Calculated based upon an estimated tax rate principally based on Global Financing’s geographic mix of earnings as IBM’s provision for income taxes is determined on a consolidated basis.

** Average of ending equity for the Global Financing Segment for the last five quarters.

$ in Billions

The following are details on the computation of IBM’s Global Financing Return on Equity. The Global Financing segment is in the business of providing financing to IBM’s clients and its business partners, and is measured as if it were a standalone entity. A financing business is managed on a leveraged basis and therefore, we measure the profitability of a financing entity based on its after-tax earnings in relation to the equity employed in the business.


Supplemental EPS Information Supplemental EPS Information –– AcquisitionAcquisition--Related ActivityRelated Activity

The company is including a view of the impact of certain acquisition-related charges on IBM’s earnings results.

Management’s view is that this supplemental information provides additional insight into the company’s ongoing operations and enables a more meaningful comparison to other companies in the technology sector who present similar information.


Supplemental EPS Information Supplemental EPS Information –– AcquisitionAcquisition--Related Activity Related Activity -- 20092009$ in Millions, except EPS 1Q09 2Q09 3Q09 4Q09 FY09

As Reported

Pre-Tax Income $3,122 $4,262 $4,373 $6,381 $18,138

Net Income $2,295 $3,103 $3,214 $4,813 $13,425

EPS $1.70 $2.32 $2.40 $3.59 $10.01

Adjustments

Pre-Tax Income Total $125 $122 $124 $127 $498

Amortization of Acquired Intangibles 125 122 122 120 489

In Process R&D 0 0 0 0 0

Acquisition-Related Charges 0 0 2 7 9

Net Income $90 $88 $89 $91 $357

EPS $0.07 $0.07 $0.07 $0.07 $0.27

Results excluding Acquisition-Related Activity

Pre-Tax Income $3,247 $4,384 $4,496 $6,507 $18,635

Net Income $2,385 $3,191 $3,303 $4,904 $13,781

EPS $1.77 $2.39 $2.47 $3.66 $10.27


NonNon--GAAP Supplementary MaterialsGAAP Supplementary MaterialsIn 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/or earnings presentation materials, the following Non-GAAP information which management believes provides useful information to investors.

Constant Currency Management refers to growth rates at constant currency or adjusting for currency so that the business 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. Constant currency revenue results are calculated by translating current period revenue in local currency using the prior year's currency conversion rate. This consistent approach is based on the pricing currency for each country which is typically the functional 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.

Cash FlowManagement includes presentations of both cash flow from operations and free cash flow that exclude the effect of Global Financing Receivables. For a financing business, increasing receivables is the basis for growth. Receivables are viewed as an investment and an income-producing asset. Therefore, management presents financing receivables as an investing activity. Management’s view is that this presentation gives the investor the best perspective of cash available for new investment or for distribution to shareholders.

Debt-to-Capital RatioManagement 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.


NonNon--GAAP Supplementary MaterialsGAAP Supplementary Materials

2000 2001 2002 2003 2004

$14.5 $15.3

2.5

12.9

(3.7)

9.1

1.9

12.6

(3.9)

8.7

$13.8

3.3

10.5

(4.6)

5.9


Free Cash Flow (excluding GF Receivables) 6.7 6.8

Net Cash from Operations $8.6 $13.7

Less: Global Financing Receivables (2.5) 2.0

Net Cash from Operations (excluding GF Receivables) 11.1 11.7

$ in Billions

2005 2006 2007 2008 2009

$18.8 $20.8

1.9

18.9

(3.7)

15.1

0.0

18.8

(4.5)

14.3

$16.1

(1.3)

17.4

(5.0)

12.4


Free Cash Flow (excluding GF Receivables) 9.6 10.5

Net Cash from Operations $14.9 $15.0

Less: Global Financing Receivables 1.8 (0.3)

Net Cash from Operations (excluding GF Receivables) 13.1 15.3

Reconciliation of Free Cash Flows (excluding GF Receivables)

The above serves to reconcile the Non-GAAP financial information contained in the discussion regarding Cash Flow in the company’s earnings presentation. See Slide 36 of this presentation for additional information on the use of these Non-GAAP financial measures.


NonNon--GAAP Supplementary MaterialsGAAP Supplementary MaterialsReconciliation of Acquired Business Revenue Growth

As Rptd @CC

Business Analytics Acquisitions – Software 7% 9%

FY09 Yr/Yr

The above serves to reconcile the Non-GAAP financial information contained in the “Transformational Drivers”discussion regarding revenue growth of acquired businesses in the company’s earnings presentation. See Slide 36 of this presentation for additional information on the use of these Non-GAAP financial measures.


NonNon--GAAP Supplementary MaterialsGAAP Supplementary MaterialsReconciliation of Geography Revenue Growth

As Rptd @CC

Asia Pacific, other than Japan

Japan

China

Asia Pacific, other than Japan

Japan

14%

(3%)

As Rptd11%

(2%)

(1%)

3%

(9%)

@CC10%

3%

(10%)

4Q09 Yr/Yr

The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography”discussion regarding revenue growth in certain geographies/countries in the company’s earnings presentation. See Slide 36 of this presentation for additional information on the use of these Non-GAAP financial measures.

FY09 Yr/Yr


NonNon--GAAP Supplementary MaterialsGAAP Supplementary MaterialsReconciliation of Software Segment Revenue Growth

As Rptd @CC

Enterprise Asset Management –Emerging Markets

63% 40%

4Q09 Yr/Yr

The above serves to reconcile the Non-GAAP financial information contained in the “Software Segment”discussion regarding revenue growth in certain products in the company’s earnings presentation. See Slide 36 of this presentation for additional information on the use of these Non-GAAP financial measures.


Reconciliation of Debt-to-Capital Ratio

FY08 FY09

16%

53%

Non-GF Debt / Capital

IBM Consolidated Debt / Capital

49%

71%

The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary”discussion regarding the non-GF debt to capital ratio in the company’s earnings presentation. See Slide 36 of this presentation for additional information on the use of these Non-GAAP financial measures.

NonNon--GAAP Supplementary MaterialsGAAP Supplementary Materials

4Q 2009 Earnings Presentation - IBM · Application Outsourcing 2.8 Total GBS Signings $7.4...

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