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International Business Machines 8-K 2010

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report: July 19, 2010

(Date of earliest event reported)

 

INTERNATIONAL BUSINESS MACHINES
CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

 

1-2360

 

13-0871985

(State of Incorporation)

 

(Commission File Number)

 

(IRS employer Identification No.)

 

ARMONK, NEW YORK

 

10504

(Address of principal executive offices)

 

(Zip Code)

 

914-499-1900

(Registrant’s telephone number)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02.   Results of Operations and Financial Condition.

 

The registrant’s press release dated July 19, 2010, regarding its financial results for the periods ended June 30, 2010, including consolidated financial statements for the periods ended June 30, 2010, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Mark Loughridge’s second quarter earnings presentation on July 19, 2010, as well as certain reconciliation and other information (“Non-GAAP Supplementary Materials”) for information in Attachment I (press release), Attachment II (slides) and in Mr. Loughridge’s presentation. All of the information in Attachment I and II is hereby filed.

 

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/).  IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

Date: July 19, 2010

 

 

 

 

 

 

By:

/s/ James J. Kavanaugh

 

 

 

 

 

       James J. Kavanaugh

 

 

 Vice President and Controller

 

3



 

ATTACHMENT I

 

IBM REPORTS 2010 SECOND-QUARTER RESULTS

 

·                       Diluted earnings per share of $2.61, up 13 percent;

·                       30 consecutive quarters of EPS growth, 12 of last 14 at double digits;

·                       Full-year 2010 EPS expectations raised to at least $11.25;

·                       Net income of $3.4 billion, up 9 percent;

·                       Pre-tax income of $4.6 billion, up 7 percent;

·                       Pre-tax margin of 19.3 percent, up 1 point;

·                       Revenue of $23.7 billion, up 2 percent, as reported and adjusting for currency;

·                       Growth markets revenue up 14 percent; first-half revenue as large as total Euro zone revenue;

·                       BRIC countries revenue up 22 percent;

·                       Business Analytics revenue up 14 percent;

·                       Software revenue up 2 percent, 6 percent excluding divested PLM operations;

·                       Systems and Technology revenue up 3 percent;

·                       Services revenue up 2 percent;

·                       Services backlog of $129 billion, up $1 billion, adjusting for currency.

 

ARMONK, N.Y., July 19, 2010 . . . IBM (NYSE: IBM) today announced second-quarter 2010 diluted earnings of $2.61 per share compared with diluted earnings of $2.32 per share in the second quarter of 2009, an increase of 13 percent.

 

Second-quarter net income was $3.4 billion compared with $3.1 billion in the second quarter of 2009, an increase of 9 percent.  Total revenues for the second quarter of 2010 of $23.7 billion increased 2 percent (2 percent, adjusting for currency) from the second quarter of 2009.  The impact of changes in currency rates since IBM’s first-quarter earnings report in April reduced revenue by approximately $500 million in the second quarter.

 

“In the second quarter we again delivered double-digit earnings-per-share growth, increased margins, as well as improving constant-currency revenue performance in our on going software, services and hardware businesses, and in all geographies,” said Samuel J. Palmisano, IBM chairman, president and chief executive officer.

 

“With the benefit of our strategic growth investments, our mix of higher-value business and the introduction of new System z and Power Systems, we are confident of our ability in the second half of the year to continue our strong business performance, grow profit and drive shareholder returns.  As a result, we expect full-year 2010 diluted earnings per share of at least $11.25.”

 

From a geographic perspective, the Americas’ second-quarter revenues were $10.2 billion, an increase of 3 percent (2 percent, adjusting for currency) from the 2009 period.  Revenues from Europe/Middle East/Africa were $7.4 billion, down 6 percent (1 percent, adjusting for currency).  Asia-Pacific revenues increased 9 percent (3 percent, adjusting for currency) to $5.4 billion.  OEM revenues were $677 million, up 26 percent compared with the 2009 second quarter.  Revenues from the company’s growth markets organization increased 14 percent (9 percent, adjusting for currency) and represented 20 percent of IBM’s total geographic revenue in the quarter.  In the first half, revenue for the growth markets organization was as large as the total revenue of the Euro zone countries for the first time.

 

Total Global Services revenues increased 2 percent (1 percent, adjusting for currency). Global Technology Services segment revenues increased 1 percent (flat, adjusting for currency) to $9.2 billion.  Global Business Services segment revenues were up 3 percent (3 percent, adjusting for currency) at $4.5 billion.

 

IBM signed services contracts totaling $12.3 billion, at actual rates, a decrease of 12 percent (12 percent, adjusting for currency).  In the quarter, 15 services contracts greater than $100 million were signed compared with 13 contracts last quarter.

 



 

Total Outsourcing services (GTS Outsourcing and Application Management Outsourcing) signings decreased 19 percent (19 percent, adjusting for currency) to $6.5 billion.  Signings of larger new-business outsourcing services contracts, which result in more immediate revenue than contract extensions, had strong growth.

 

Signings in Transactional services (Consulting, Integrated Technology Services and Application Management Systems Integration) were $5.8 billion, a decrease of 3 percent (3 percent, adjusting for currency).

 

The estimated services backlog at June 30 was $129 billion at actual rates, down $2 billion year over year (up $1 billion, adjusting for currency).

 

Revenues from the Software segment were $5.3 billion, an increase of 2 percent (2 percent, adjusting for currency), or 6 percent excluding the first-quarter divestiture of the Product Lifecycle Management operations (PLM), compared with the second quarter of 2009.  Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.3 billion, an increase of 9 percent (10 percent, adjusting for currency) versus the second quarter of 2009.  Operating systems revenues of $544 million increased 3 percent (2 percent, adjusting for currency) compared with the prior-year quarter.

 

Revenues from the WebSphere family of software products, which delivers capabilities that enable clients to integrate and manage business processes across the organization, increased 17 percent year over year.  Revenues from Information Management software, which enables clients to integrate, manage and use information to gain business value, increased 7 percent.  Revenues from Tivoli software, which helps clients manage technology and business assets by providing visibility, control and automation across the organization, increased 18 percent, and revenues from Lotus software, which connects people and processes for more effective communication and increased productivity through collaboration, messaging and social networking software, decreased 6 percent.  Revenues from Rational software, which supports software development for both IT and embedded system solutions, increased 1 percent.

 

Revenues from the company’s Business Analytics operations within Global Business Services and Software increased 14 percent.

 

Revenues from the Systems and Technology segment totaled $4.0 billion for the quarter, up 3 percent (4 percent, adjusting for currency) from the second quarter of 2009.  Systems revenues increased 1 percent (2 percent, adjusting for currency).  Revenues from the System x increased 30 percent.  Revenues from Power Systems decreased 10 percent compared with the 2009 period. Revenues from System z mainframe server products decreased 24 percent compared with the year-ago period.  Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 14 percent.  Revenues from System Storage increased 5 percent, and revenues from Retail Store Solutions increased 31 percent.  Revenues from Microelectronics OEM increased 23 percent.

 

Global Financing segment revenues decreased 4 percent (5 percent, adjusting for currency) in the second quarter to $544 million.

 

The company’s total gross profit margin was 45.6 percent in the 2010 second quarter compared with 45.5 percent in the 2009 second-quarter period, led by improving margins in Software and Global Business Services.

 

Total expense and other income decreased 1 percent to $6.2 billion compared with the prior-year period.  SG&A expense of $5.1 billion decreased 1 percent year over year compared with prior-year expense.  RD&E expense of $1.5 billion increased 3 percent compared with the year-ago period.  Intellectual property and custom development income decreased to $297 million compared with $302 million a year ago. Other (income) and expense was income of $95 million compared with prior-year income of $28 million.  Interest expense decreased to $90 million compared with $101 million in the prior year.

 

IBM’s tax rate in the second-quarter 2010 was 26.0 percent compared with 27.2 percent in the second quarter of 2009.

 

The weighted-average number of diluted common shares outstanding in the

 



 

second-quarter 2010 was 1.30 billion compared with 1.34 billion shares in the same period of 2009.  As of June 30, 2010, there were 1.26 billion basic common shares outstanding.

 

Debt, including Global Financing, totaled $26.7 billion, compared with $26.1 billion at year-end 2009.  From a management segment view, Global Financing debt totaled $21.2 billion versus $22.4 billion at year-end 2009, resulting in a debt-to-equity ratio of 7.1 to 1.  Non-global financing debt totaled $5.5 billion, an increase of $1.7 billion since year-end 2009, resulting in a debt-to-capitalization ratio of 23.1 percent from 16.0 percent.

 

IBM ended the second-quarter 2010 with $12.2 billion of cash on hand and generated free cash flow of $3.0 billion, down approximately $400 million year over year.  Free cash flow for the first half of the year was $4.4 billion, flat year over year.  The company returned $4.9 billion to shareholders through $0.8 billion in dividends and $4.1 billion of share repurchases.  The balance sheet remains strong, and the company is well positioned to support its full-year objectives.

 

Year-To-Date 2010 Results

 

Net income for the six months ended June 30, 2010 was $6.0 billion compared with $5.4 billion in the year-ago period, an increase of 11 percent.  Diluted earnings per share were $4.57 compared with $4.02 per diluted share for the 2009 period, an increase of 14 percent.  Revenues for the six-month period totaled $46.6 billion, an increase of 4 percent (1 percent, adjusting for currency) compared with $45.0 billion for the six months of 2009.

 

Forward-Looking and Cautionary Statements

 

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of 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.  These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and corporate IT spending budgets; the company’s failure to meet growth and productivity objectives, a failure of the company’s innovation initiatives; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; breaches of data security; fluctuations in revenue and purchases, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key personnel and its reliance on critical skills; impact of relationships with critical suppliers; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels; the company’s ability to successfully manage acquisitions and alliances; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Q, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference.  Any forward-looking statement in this release speaks only as of the date on which it is made.  The company assumes no obligation to update or revise any forward-looking statements.

 

Presentation of Information in this Press Release

 

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

 



 

IBM Results —

 

·             presenting non-global financing debt-to-capitalization ratio;

·             adjusting for free cash flow;

·             adjusting for currency (i.e., at constant currency);

·             excluding divested PLM operations.

 

The rationale for management’s use of non-GAAP measures is included as part of the supplementary materials presented within the second-quarter earnings materials.  These materials are available on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II (“Non-GAAP Supplementary Materials”) to the Form 8-K that includes this press release and is being submitted today to the SEC.

 

Conference Call and Webcast

 

IBM’s regular quarterly earnings conference call is scheduled to begin at 4:30 p.m. EDT, today.  Investors may participate by viewing the Webcast at www.ibm.com/investor/2q10.  Presentation charts will be available on the Web site shortly before the Webcast.

 

Financial Results Below  (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

 

 

 

Three Months

 

Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

 

 

 

 

 

 

Percent

 

 

 

 

 

Percent

 

 

 

2010

 

2009

 

Change

 

2010

 

2009

 

Change

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,234

 

$

9,108

 

1.4

%

$

18,540

 

$

17,862

 

3.8

%

Gross margin

 

34.6

%

34.8

%

 

 

34.5

%

34.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,483

 

4,338

 

3.3

%

8,893

 

8,736

 

1.8

%

Gross margin

 

28.5

%

27.2

%

 

 

27.9

%

26.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

5,277

 

5,166

 

2.1

%

10,296

 

9,705

 

6.1

%

Gross margin

 

87.1

%

85.9

%

 

 

85.9

%

85.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

3,985

 

3,855

 

3.4

%

7,370

 

7,083

 

4.1

%

Gross margin

 

36.1

%

37.1

%

 

 

34.9

%

35.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

544

 

568

 

-4.1

%

1,081

 

1,146

 

-5.6

%

Gross margin

 

50.1

%

47.1

%

 

 

49.9

%

46.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

200

 

215

 

-7.0

%

400

 

429

 

-6.8

%

Gross margin

 

17.7

%

47.4

%

 

 

-8.9

%

50.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

23,724

 

23,250

 

2.0

%

46,581

 

44,962

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

10,809

 

10,581

 

2.2

%

20,785

 

20,012

 

3.9

%

Gross margin

 

45.6

%

45.5

%

 

 

44.6

%

44.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S, G&A

 

5,061

 

5,115

 

-1.1

%

10,737

 

10,379

 

3.5

%

% of revenue

 

21.3

%

22.0

%

 

 

23.1

%

23.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R, D&E

 

1,475

 

1,434

 

2.9

%

2,984

 

2,914

 

2.4

%

% of revenue

 

6.2

%

6.2

%

 

 

6.4

%

6.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intellectual property and custom development income

 

(297

)

(302

)

-1.8

%

(558

)

(570

)

-2.1

%

Other (income) and expense

 

(95

)

(28

)

nm

 

(640

)

(331

)

93.2

%

Interest expense

 

90

 

101

 

-11.1

%

172

 

237

 

-27.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL EXPENSE AND OTHER INCOME

 

6,234

 

6,319

 

-1.4

%

12,695

 

12,628

 

0.5

%

% of revenue

 

26.3

%

27.2

%

 

 

27.3

%

28.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

4,575

 

4,262

 

7.3

%

8,090

 

7,385

 

9.6

%

Pre-tax margin

 

19.3

%

18.3

%

 

 

17.4

%

16.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

1,190

 

1,159

 

2.6

%

2,103

 

1,986

 

5.9

%

Effective tax rate

 

26.0

%

27.2

%

 

 

26.0

%

26.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

3,386

 

$

3,103

 

9.1

%

$

5,987

 

$

5,398

 

10.9

%

Net margin

 

14.3

%

13.3

%

 

 

12.9

%

12.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

$

2.61

 

$

2.32

 

12.5

%

$

4.57

 

$

4.02

 

13.7

%

BASIC

 

$

2.65

 

$

2.34

 

13.2

%

$

4.64

 

$

4.04

 

14.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s):

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSUMING DILUTION

 

1,296.7

 

1,336.9

 

 

 

1,309.2

 

1,343.2

 

 

 

BASIC

 

1,278.6

 

1,326.1

 

 

 

1,289.9

 

1,335.2

 

 

 

 

nm - not meaningful

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

 

 

 

At June 30,

 

At December 31,

 

(Dollars in Millions)

 

2010

 

2009

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

10,325

 

$

12,183

 

Marketable securities

 

1,916

 

1,791

 

Notes and accounts receivable - trade

 

 

 

 

 

(net of allowances of $291 in 2010 and $217 in 2009)

 

9,051

 

10,736

 

Short-term financing receivables

 

 

 

 

 

(net of allowances of $376 in 2010 and $438 in 2009)

 

13,301

 

14,914

 

Other accounts receivable

 

 

 

 

 

(net of allowances of $11 in 2010 and $15 in 2009)

 

1,140

 

1,143

 

Inventories, at lower of average cost or market:

 

 

 

 

 

Finished goods

 

493

 

533

 

Work in process and raw materials

 

2,102

 

1,960

 

 

 

 

 

 

 

Total inventories

 

2,595

 

2,494

 

Deferred taxes

 

1,444

 

1,730

 

Prepaid expenses and other current assets

 

5,124

 

3,946

 

Total Current Assets

 

44,895

 

48,935

 

 

 

 

 

 

 

Plant, rental machines, and other property

 

38,292

 

39,596

 

Less: Accumulated depreciation

 

24,758

 

25,431

 

 

 

 

 

 

 

Plant, rental machines, and other property - net

 

13,534

 

14,165

 

Long-term financing receivables

 

 

 

 

 

(net of allowances of $84 in 2010 and $97 in 2009)

 

9,185

 

10,644

 

Prepaid pension assets

 

3,575

 

3,001

 

Deferred taxes

 

3,122

 

4,195

 

Goodwill

 

20,544

 

20,190

 

Intangible assets - net

 

2,526

 

2,513

 

Investments and sundry assets

 

6,038

 

5,379

 

Total Assets

 

$

103,420

 

$

109,022

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Taxes

 

$

2,895

 

$

3,826

 

Short-term debt

 

5,633

 

4,168

 

Accounts payable

 

7,233

 

7,436

 

Compensation and benefits

 

4,022

 

4,505

 

Deferred income

 

10,671

 

10,845

 

Other accrued expenses and liabilities

 

4,539

 

5,223

 

Total Current Liabilities

 

34,993

 

36,002

 

 

 

 

 

 

 

Long-term debt

 

21,017

 

21,932

 

Retirement and nonpension postretirement benefit obligations

 

14,598

 

15,953

 

Deferred income

 

3,341

 

3,562

 

Other liabilities

 

8,295

 

8,819

 

Total Liabilities

 

82,244

 

86,267

 

 

 

 

 

 

 

Contingencies and Commitments

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

Common stock

 

43,522

 

41,810

 

Retained earnings

 

85,323

 

80,900

 

Treasury stock — at cost

 

(89,276

)

(81,243

)

Accumulated other comprehensive income/(loss)

 

(18,510

)

(18,830

)

 

 

 

 

 

 

Total IBM stockholders’ equity

 

21,059

 

22,637

 

 

 

 

 

 

 

Noncontrolling interests

 

117

 

118

 

Total Equity

 

21,176

 

22,755

 

Total Liabilities and Equity

 

$

103,420

 

$

109,022

 

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(Dollars in Millions)

 

2010

 

2009

 

2010

 

2009

 

Net Cash from Operations

 

$

3,766

 

$

4,741

 

$

8,203

 

$

9,127

 

 

 

 

 

 

 

 

 

 

 

Less: Global Financing (GF) Accounts Receivable

 

(218

)

430

 

1,883

 

3,014

 

 

 

 

 

 

 

 

 

 

 

Net Cash from Operations

 

 

 

 

 

 

 

 

 

(Excluding GF Accounts Receivable)

 

3,985

 

4,311

 

6,320

 

6,113

 

 

 

 

 

 

 

 

 

 

 

Net Capital Expenditures

 

(970

)

(864

)

(1,873

)

(1,624

)

 

 

 

 

 

 

 

 

 

 

Free Cash Flow

 

 

 

 

 

 

 

 

 

(Excluding GF Accounts Receivable)

 

3,015

 

3,447

 

4,446

 

4,490

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(185

)

(79

)

(1,009

)

(100

)

Divestitures

 

0

 

0

 

0

 

356

 

Share Repurchase

 

(4,104

)

(1,670

)

(8,121

)

(3,436

)

Dividends

 

(833

)

(732

)

(1,551

)

(1,407

)

Non-GF Debt

 

920

 

(266

)

1,261

 

(2,181

)

Other (including GF Accounts Receivable, GF Debt)

 

(548

)

(469

)

3,241

 

1,898

 

 

 

 

 

 

 

 

 

 

 

Change in Cash and Marketable Securities

 

$

(1,736

)

$

231

 

$

(1,732

)

$

(381

)

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SECOND-QUARTER 2010

 

 

 

Revenue

 

Pre-tax

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Income

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,234

 

$

332

 

$

9,566

 

$

1,422

 

14.9

%

Y-T-Y Change

 

1.4

%

-3.0

%

1.2

%

1.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,483

 

197

 

4,680

 

683

 

14.6

%

Y-T-Y Change

 

3.3

%

-12.0

%

2.6

%

12.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

5,277

 

690

 

5,967

 

1,988

 

33.3

%

Y-T-Y Change

 

2.1

%

12.4

%

3.2

%

7.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

3,985

 

202

 

4,187

 

221

 

5.3

%

Y-T-Y Change

 

3.4

%

-16.9

%

2.2

%

-33.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

544

 

431

 

975

 

463

 

47.4

%

Y-T-Y Change

 

-4.1

%

-3.5

%

-3.9

%

-0.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

23,523

 

1,852

 

25,376

 

4,777

 

18.8

%

Y-T-Y Change

 

2.1

%

-0.9

%

1.9

%

2.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

200

 

(1,852

)

(1,652

)

(202

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

23,724

 

$

0

 

$

23,724

 

$

4,575

 

19.3

%

Y-T-Y Change

 

2.0

%

 

 

2.0

%

7.3

%

 

 

 



 

 

 

SECOND-QUARTER 2009

 

 

 

Revenue

 

Pre-tax

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Income

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

9,108

 

$

343

 

$

9,451

 

$

1,405

 

14.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,338

 

223

 

4,562

 

608

 

13.3

%

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

5,166

 

614

 

5,780

 

1,852

 

32.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

3,855

 

244

 

4,098

 

333

 

8.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

568

 

447

 

1,014

 

465

 

45.8

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

23,035

 

1,870

 

24,905

 

4,663

 

18.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

215

 

(1,870

)

(1,655

)

(401

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

23,250

 

$

0

 

$

23,250

 

$

4,262

 

18.3

%

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

SIX-MONTHS 2010

 

 

 

Revenue

 

Pre-tax

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Income

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

18,540

 

$

652

 

$

19,192

 

$

2,387

 

12.4

%

Y-T-Y Change

 

3.8

%

-4.7

%

3.5

%

-4.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

8,893

 

400

 

9,293

 

1,128

 

12.1

%

Y-T-Y Change

 

1.8

%

-12.2

%

1.1

%

-0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

10,296

 

1,448

 

11,743

 

4,040

 

34.4

%

Y-T-Y Change

 

6.1

%

18.0

%

7.4

%

26.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

7,370

 

376

 

7,746

 

51

 

0.7

%

Y-T-Y Change

 

4.1

%

-10.5

%

3.2

%

-85.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

1,081

 

834

 

1,916

 

890

 

46.5

%

Y-T-Y Change

 

-5.6

%

-0.3

%

-3.4

%

7.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

46,181

 

3,710

 

49,891

 

8,496

 

17.0

%

Y-T-Y Change

 

3.7

%

2.4

%

3.6

%

6.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

400

 

(3,710

)

(3,310

)

(406

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

46,581

 

$

0

 

$

46,581

 

$

8,090

 

17.4

%

Y-T-Y Change

 

3.6

%

 

 

3.6

%

9.6

%

 

 

 



 

 

 

SIX-MONTHS 2009

 

 

 

Revenue

 

Pre-tax

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Income

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

17,862

 

$

685

 

$

18,547

 

$

2,509

 

13.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

8,736

 

456

 

9,191

 

1,130

 

12.3

%

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

9,705

 

1,227

 

10,933

 

3,186

 

29.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Systems and Technology

 

7,083

 

420

 

7,503

 

361

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

1,146

 

836

 

1,982

 

825

 

41.6

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

44,533

 

3,624

 

48,156

 

8,011

 

16.6

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

429

 

(3,624

)

(3,195

)

(627

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

44,962

 

$

0

 

$

44,962

 

$

7,385

 

16.4

%

 

Contact:

IBM

 

Mike Fay, 914/499-6107

 

mikefay@us.ibm.com

 

 

 

John Bukovinsky, 732/618-3531

 

jbuko@us.ibm.com

 



 

ATTACHMENT II

 

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 2Q 2010 Earnings Presentation July 19, 2010

 


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Forward Looking Statements 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.

 


2Q 2010 Highlights Increasing EPS expectations to at least $11.25 in 2010 Revenue growth rate improved in all brands and all geographies @CC Growth markets +9% yr/yr @CC, led by BRICs +16% yr/yr @CC Power7 +11% yr/yr Business analytics +14% yr/yr Continued margin expansion Led by Software and Global Business Services Focus on productivity Cash flow generation supports ongoing investments and shareholder returns Announced >$3B of acquisitions in first half $8B share repurchase and almost $2B dividends in first half +13% yr/yr $2.61 EPS

 


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Financial Summary 1.0 pts 19.3% PTI Margin 13% $2.61 EPS 3% 1,296.7 Shares (Diluted) (M) 9% $3.4 Net Income 1.2 pts 26.0% Tax Rate 7% $4.6 Pre-Tax Income 1% $6.2 Expense 0.1 pts 45.6% GP % 2% @CC 2% $23.7 Revenue B/(W) Yr/Yr 2Q10 $ in Billions, except EPS Improving revenue growth and margin expansion drive profit performance

 


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Revenue by Geography +3 pts +1 pts +1 pts +2 pts +8 pts +2 pts +1 pts +2 pts (1%) (1%) Major Markets 9% 14% Growth Markets 16% 22% BRIC Countries (1%) (6%) 7.4 Europe/ME/A 26% 26% 0.7 OEM 2% 2% $23.7 IBM 2Q10 3% 9% 5.4 Asia Pacific 2% 3% $10.2 Americas Rptd @CC $ in Billions APac +7% @CC OEM +26% U.S. +1% EMEA Canada/ LA Japan -1% @CC Growth markets now as large as Euro-based business B/(W) Yr/Yr 2Q10 Yr/Yr vs. 1Q10 Yr/Yr @CC

 


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Revenue by Segment @CC +2 pts +7 pts +2 pts +1 pts* +8 pts +<1 pts 6%* 6%* 5.3 Software 2Q10 2% 2% $23.7 Total IBM (5%) (4%) 0.5 Global Financing 4% 3% 4.0 Systems & Technology 3% 3% 4.5 Global Business Services Flat 1% $9.2 Global Technology Services Rptd $ in Billions Broad-based improvement in revenue growth rate * Revenue growth excluding PLM Global Technology Services Global Business Services Systems & Technology Software Global Financing B/(W) Yr/Yr 2Q10 Yr/Yr vs. 1Q10 Yr/Yr @CC

 


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Expense Summary 5 pts (1 pts) 4 pts Ops (2 pts) (2 pts) 1% $6.2 Total Expense & Other Income 11% 0.1 Interest Expense nm (0.1) Other (Income)/Expense (2%) (0.3) IP and Development Income (1 pts) (1 pts) (3%) 1.5 RD&E (2 pts) (1 pts) 1% $5.1 SG&A Acq.* Currency B/(W) Yr/Yr 2Q10 * Includes acquisitions made in the last twelve months $ in Billions B/(W) Yr/Yr Drivers 8th consecutive quarter of operational expense improvement

 


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(2.9 pts) 5.3% (1.0 pts) 36.1% Systems & Technology 1.3 pts 33.3% 1.2 pts 87.1% Software 1.0 pts 1.6 pts 1.3 pts Flat B/(W) Yr/Yr Pts 19.3% 47.4% 14.6% 14.9% 2Q10 2Q10 0.1 pts 45.6% Total IBM 3.0 pts 50.1% Global Financing 1.3 pts 28.5% Global Business Services (0.2 pts) 34.6% Global Technology Services B/(W) Yr/Yr Pts Margins by Segment External Gross Profit Margins Total Pre-Tax Margins Margin expansion led by Global Business Services and Software

 


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Flat 14.9% PTI Margin @CC Rptd 2Q10 (0.2 pts) 34.6% Gross Margin (External) Flat 1% $9.2 Revenue (External) B/(W) Yr/Yr Services Segments GTS Outsourcing 39% Global Business Services 33% Integrated Technology Services 15% Maint. 13% $ in Billions Global Technology Services (GTS) Global Business Services (GBS) Return to revenue growth with positive trends 2Q10 Revenues (% of Total Services) (Growth @CC) Flat Yr/Yr 3% Yr/Yr 3% Yr/Yr (2%) Yr/Yr @CC Rptd 2Q10 (12%) (12%) $12.3 Total Signings (3%) (3%) 5.8 Transactional - ITS, Consulting, AMS SI (19%) (19%) $6.5 Outsourcing - GTS O/S, Appl. O/S (AMS) B/(W) Yr/Yr Global Services Signings $ in Billions 1.3 pts 14.6% PTI Margin @CC Rptd 2Q10 1.3 pts 28.5% Gross Margin (External) 3% 3% $4.5 Revenue (External) B/(W) Yr/Yr $ in Billions

 


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Software Segment 2% 2% $5.3 Revenue (External) incl. PLM @CC Rptd 2Q10 1.3 pts 33.3% PTI Margin 1.2 pts 87.1% Gross Margin (External) 6% 6% $5.3 Revenue (External) excl. PLM B/(W) Yr/Yr @CC Rptd 6% 6% 10% 2% (6%) 19% 7% 16% 6% Total Software excl. PLM 6% Total Middleware 9% Key Branded Middleware 1% Rational (6%) Lotus Yr/Yr 2Q10 Revenue 18% Tivoli 7% Information Management 17% WebSphere Family 2Q10 Revenue (% of Total Software) Key Branded Middleware 62% Operating Systems 10% Other Middleware 21% Other 7% $ in Billions Continued share gains in Branded Middleware

 


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Systems & Technology Segment @CC Rptd 2Q10 (2.9 pts) 5.3% PTI Margin (1.0 pts) 36.1% Gross Margin (External) 4% 3% $4.0 Revenue (External) B/(W) Yr/Yr $ in Billions 2Q10 Revenue (% of Total Sys & Tech) Servers 62% Storage 20% Micro OEM 13% RSS 12% 11% Midrange 14% 12% Disk Yr/Yr 2Q10 Revenue 4% 23% 2% 33% 6% 30% (10%) (22%) @CC (10%) Power Systems 1% Total Systems 3% Total Systems & Technology 23% Microelectronics OEM 31% Retail Store Solutions 5% Storage 30% System x Rptd (24%) System z New System z and Power7 high-end in 3Q

 


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12 Cash Flow Analysis 2Q10 B/(W) Yr/Yr YTD 1H10 B/(W) Yr/Yr Net Cash from Operations $3.8 ($1.0) $8.2 ($0.9) Less: Global Financing Receivables (0.2) (0.6) 1.9 (1.1) Net Cash from Operations (excluding GF Receivables) 4.0 (0.3) 6.3 0.2 Net Capital Expenditures (1.0) (0.1) (1.9) (0.2) Free Cash Flow (excluding GF Receivables) 3.0 (0.4) 4.4 0.0 Acquisitions (0.2) (0.1) (1.0) (0.9) Divestitures 0.0 0.0 0.0 (0.4) Dividends (0.8) (0.1) (1.6) (0.1) Share Repurchases (4.1) (2.4) (8.1) (4.7) Non-GF Debt 0.9 1.2 1.3 3.4 Other (includes GF A/R & GF Debt) (0.5) (0.1) 3.2 1.3 Change in Cash & Marketable Securities ($1.7) ($2.0) ($1.7) ($1.4) $ in Billions

 


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7.1 23% 21.2 82.2 26.7 21.2 5.5 55.6 103.4 29.5 61.6 $12.2 June 10 7.1 16% 22.8 86.3 26.1 22.4 3.7 60.2 109.0 33.3 61.7 $14.0 Dec. 09 15.5 Equity 88.2 Total Liabilities 29.4 Total Debt 22.8 Global Financing Debt 6.6 Non-GF Debt* 6.9 Global Financing Leverage 35% 58.8 103.7 30.9 60.2 $12.5 June 09 Non-GF Debt / Capital Other Liabilities Total Assets Global Financing Assets Non-GF Assets* Cash & Marketable Securities Balance Sheet Summary $ in Billions * Includes eliminations of inter-company activity

 


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2Q09 EPS Revenue Growth @ Actual Operating Leverage Share Repurchases 2Q10 EPS $0.05 $0.16 $0.08 EPS Bridge – 2Q09 to 2Q10 $0.11 $0.04 $0.01 Tax Rate Expense Productivity Gross Margin $2.32 $2.61

 


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2Q 2010 Summary Double-digit earnings growth off strong base Steady improvement in the business Investing for growth Superior shareholder returns Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “Earnings Per Share” 2006 2007 2008 2009 2010 At Least $11.25 $6.05 $7.15 $8.89 $10.01 Dow indexed to IBM 2006 EPS, excludes Financials and GM for all periods. Data Source: Bloomberg Increasing EPS expectations to at least $11.25 in 2010 2Q EPS

 


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[LOGO]

 


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Supplemental Materials Currency – Year/Year Comparison Supplemental Segment Information – Global Services Services Transactional Signings Trends Supplemental Segment Information – Systems & Technology, Software Global Financing Portfolio Revenue by Key Industry Sales Unit Cash Flow (FAS 95) Supplemental Information – Operating Earnings Non-GAAP Supplementary Materials Constant Currency, Cash Flow Debt-to-Capital Ratio, PLM Sale Reconciliation of Total Revenue Growth Rates Reconciliation of Revenue Growth Rates - Segments, Geographies Reconciliation of Geography Revenue Growth Reconciliation of Services Segment Revenue Growth Rates Reconciliation of Debt-to-Capital Ratio Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding

 


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18 Currency – Year/Year Comparison 1Q10 Yr/Yr 2Q10 Yr/Yr 7/16 Spot 3Q10 4Q10 FY10 Euro 0.72 6% 0.79 (7%) 0.77 (11%) (14%) (6%) Pound 0.64 8% 0.67 (4%) 0.65 (7%) (6%) (2%) Yen 91 3% 92 5% 87 7% 3% 5% Revenue Impact - Pts 5 pts 0 pts ~(1 pts) (3-4 pts) ~0 pts @ 7/2/10 Rates - $B $1.2 $0.1 Vs. 4/19 View - Pts B/(W) (2 pts) (1 pts) (1 pts) (1 pts) - $B B/(W) ($0.5) ($0-0.5) ($0-0.5) ~($1.0) Vs. 1/19 View - Pts B/(W) (1-2 pts) (4 pts) (2-3 pts) (3 pts) (3 pts) - $B B/(W) ($0.3) ($0.9) ~($0.5) ($0.5-1.0) ~($3.0) Yr/Yr @ 7/16 Spot Quarterly Averages per US $

 


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Supplemental Segment Information – 2Q 2010 @CC Yr/Yr Global Services 3% 3% Global Business Services Flat 1% Global Technology Services 3% 5% Maintenance Revenue Growth (2%) (2%) Integrated Tech Services Flat 2% GTS Outsourcing $129B Backlog Backlog 2Q10 Global Services ($3B) Year-to-Year ($4B) Quarter-to-Quarter Change in Backlog due to Currency

 


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Services Transactional Signings Trends Services Transactional Signings Yr/Yr Growth @CC -7% -5% -12% -10% -5% -1% -4% -8% -18% -3% -7% -4% -5% -7% -15% -6% -6% -3% -20% -15% -10% -5% 0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 GTS Transactional GBS Transactional Services Transactional

 


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Supplemental Segment Information – 2Q 2010 Share GP% @CC Yr/Yr Systems & Technology 4% 23% 2% 33% 6% 30% (10%) (22%) = = 3% Total Systems & Technology 23% Microelectronics OEM 1% Total Systems 31% Retail Store Solutions 5% Storage 30% System x Revenue Growth (10%) Power Systems (24%) System z * 2% 2% Total Software incl. PLM Revenue Growth 6% 6% Total Software excl. PLM (28%) (28%) Other Software/Services 2% 2% Operating Systems 6% 6% Total Middleware (4%) (3%) Other Middleware 10% 9% Key Branded Middleware 2% 1% Rational (6%) (6%) Lotus @CC Yr/Yr Software 19% 18% Tivoli 7% 7% Information Management 16% 17% WebSphere Family * MIPS down 14% yr/yr

 


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 2Q10 1Q10 2Q09 Identified Loss Rate 1.8% 1.9% 1.7% Anticipated Loss Rate 0.3% 0.4% 0.6% Reserve Coverage 2.1% 2.3% 2.3% Client Days Delinquent Outstanding 3.7 3.3 3.4 Commercial A/R > 30 Days $27M $49M $48M Global Financing Portfolio 2Q10 – $21.9B Net External Receivables 24% 40% 17% 11% 5% 3% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Aaa-A3 Baa1-Baa3 Ba1-Ba2 Ba3-B1 B2-B3 Caa-D Investment Grade 64% Non-Investment Grade 36%

 


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2% 2% $23.7 Total IBM 5% 5% 4.7 General Business 2Q10 1% 2% $23.1 All Sectors (2%) (1%) 2.3 Communications 5% 5% 2.4 Distribution (3%) (3%) 2.4 Industrial (2%) (2%) 3.9 Public 3% 4% $6.7 Financial Services B/(W) Yr/Yr Rptd @CC Revenue by Key Industry Sales Unit $ in Billions General Business Comms Distribution Industrial Public Financial Services

 


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Cash Flow (FAS 95) ($1.9) (0.3) (7.1) 1.8 (8.1) (1.6) 0.7 (2.6) 0.2 (1.0) 0.0 (1.9) 8.2 1.9 (2.4) 0.3 2.4 $6.0 YTD 1H10 ($1.1) 0.0 (8.3) 0.5 (3.4) (1.4) (4.0) (1.9) (0.5) (0.1) 0.4 (1.6) 9.1 3.0 (2.0) 0.3 2.5 $5.4 YTD 1H09 ($0.6) 0.2 (3.7) 0.3 (1.7) (0.7) (1.6) (1.8) (0.9) (0.1) 0.0 (0.9) 4.7 0.4 (0.2) 0.1 1.2 $3.1 QTD 2Q09 ($2.1) (0.2) (3.7) 0.9 (4.1) (0.8) 0.2 (1.9) (0.8) (0.2) 0.0 (1.0) 3.8 (0.2) (0.7) 0.2 1.2 $3.4 QTD 2Q10 Net Change in Cash & Cash Equivalents Working Capital / Other Effect of Exchange Rate changes on Cash Net Cash used in Financing Activities Common Stock Transactions - Other Common Stock Repurchases Dividends Debt, net of payments & proceeds Net Cash used in Investing Activities Marketable Securities / Other Investments, net Acquisitions, net of cash acquired Divestitures, net of cash transferred Capital Expenditures, net of payments & proceeds Net Cash provided by Operating Activities Global Financing A/R Stock-based Compensation Depreciation / Amortization of Intangibles Net Income from Operations $ in Billions

 


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Supplemental Information – Operating Earnings The company is including a view of the impact of certain acquisition- related charges and certain retirement-related elements on IBM's earnings results (Operating Earnings). The company believes that providing investors with a view of operating earnings will provide better transparency into the operational results of the business; improve visibility to management decisions and their impacts on operational performance; enable better comparison to peer companies; and, allow the company to provide a long-term strategic view of the business going forward.

 


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Supplemental Information – Operating Earnings - 2010 $2.62 $2.00 EPS $3,402 $2,638 Net Income $4,584 $3,556 Pre-Tax Income Operating (Non-GAAP) $0.01 $0.03 EPS $17 $37 Net Income 7 ($4) Tax Impact*** 122 116 Acquisition-Related Charges** (113) (76) Non-Operating Pension* $9 $41 Pre-Tax Income Total Adjustments $2.61 $1.97 EPS $3,386 $2,601 Net Income $4,575 $3,515 Pre-Tax Income As Reported 2Q10 1Q10 $ in Millions, except EPS * Includes Retirement Related Interest Cost, Expected ROA, Recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ** Includes Amortization of Purchased Intangibles, In Process R&D, Severance Cost for Acquired employees, vacant space for acquired companies, deal costs *** The tax impact on the Operating (Non-GAAP) Pre Tax Income will be calculated under the same accounting principles applied to the As Reported Pre Tax Income under ACS 740, which employs an annual effective tax rate concept to the results.

 


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Supplemental Information – Operating Earnings - 2009 $10.03 $3.59 $2.41 $2.31 $1.72 EPS $13,452 $4,810 $3,224 $3,094 $2,324 Net Income $18,126 $6,359 $4,375 $4,239 $3,153 Pre-Tax Income Operating (Non-GAAP) $0.02 $0.00 $0.01 ($0.01) $0.02 EPS $27 ($3) $10 ($9) $29 Net Income $39 $19 $8 $14 ($2) Tax Impact*** 498 127 124 122 125 Acquisition-Related Charges** (509) (149) (121) (145) (94) Non-Operating Pension* ($12) ($22) $3 ($23) $31 Pre-Tax Income Total Adjustments $10.01 $3.59 $2.40 $2.32 $1.70 EPS $13,425 $4,813 $3,214 $3,103 $2,295 Net Income $18,138 $6,381 $4,373 $4,262 $3,122 Pre-Tax Income As Reported FY09 4Q09 3Q09 2Q09 1Q09 $ in Millions, except EPS * Includes Retirement Related Interest Cost, Expected ROA, Recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ** Includes Amortization of Purchased Intangibles, In Process R&D, Severance Cost for Acquired employees, vacant space for acquired companies, deal costs *** The tax impact on the Operating (Non-GAAP) Pre Tax Income will be calculated under the same accounting principles applied to the As Reported Pre Tax Income under ACS 740, which employs an annual effective tax rate concept to the results.

 


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Supplemental Information – Operating Earnings - 2008 $8.86 $3.20 $2.04 $2.01 $1.65 EPS $12,293 $4,330 $2,821 $2,817 $2,325 Net Income $16,569 $5,642 $3,897 $3,839 $3,191 Pre-Tax Income Operating (Non-GAAP) ($0.03) ($0.07) $0.00 $0.04 $0.00 EPS ($41) ($97) ($3) $52 $7 Net Income $105 $70 ($5) $27 $13 Tax Impact*** 544 130 134 165 115 Acquisition-Related Charges** (691) (297) (132) (140) (121) Non-Operating Pension* ($147) ($167) $2 $24 ($6) Pre-Tax Income Total Adjustments $8.89 $3.27 $2.04 $1.97 $1.64 EPS $12,334 $4,427 $2,824 $2,765 $2,319 Net Income $16,715 $5,808 $3,895 $3,814 $3,198 Pre-Tax Income As Reported FY08 4Q08 3Q08 2Q08 1Q08 $ in Millions, except EPS * Includes Retirement Related Interest Cost, Expected ROA, Recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ** Includes Amortization of Purchased Intangibles, In Process R&D, Severance Cost for Acquired employees, vacant space for acquired companies, deal costs *** The tax impact on the Operating (Non-GAAP) Pre Tax Income will be calculated under the same accounting principles applied to the As Reported Pre Tax Income under ACS 740, which employs an annual effective tax rate concept to the results.

 


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Non-GAAP Supplementary 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/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 Flow Management 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.