IBM REPORTS 2013 FOURTH-QUARTER AND FULL-YEAR RESULTS Fourth-Quarter 2013: o Diluted EPS: - GAAP: $5.73, up 12 percent; - Operating (non-GAAP): $6.13, up 14 percent; o Net income: - GAAP: $6.2 billion, up 6 percent; - Operating (non-GAAP): $6.6 billion, up 8 percent; o Pre-tax income: - GAAP: $7.0 billion, down 11 percent; - Operating (non-GAAP): $7.4 billion, down 8 percent; o Gross profit margin: - GAAP: 51.7 percent, down 0.1 points; - Operating (non-GAAP): 52.6 percent, up 0.3 points; o Revenue of $27.7 billion, down 5 percent, down 3 percent adjusting for currency; – Software, Services and Global Financing each grew, adjusting for currency: -- Software up 3 percent, up 4 percent adjusting for currency; -- Services down 2 percent, up 1 percent adjusting for currency; -- Global Financing revenue flat, up 3 percent adjusting for currency; - Systems and Technology revenue declined 26 percent, down 25 percent adjusting for currency; o Services backlog of $143 billion, up 2 percent, up 5 percent adjusting for currency; o Free cash flow of $8.4 billion. Full-Year 2013: o Diluted EPS: - GAAP: $14.94, up 4 percent; - Operating (non-GAAP): $16.28, up 7 percent; - Operating (non-GAAP)excluding second-quarter workforce rebalancing charges, $16.99; o Net income: - GAAP: $16.5 billion, down 1 percent; - Operating (non-GAAP): $18.0 billion, up 2 percent; o Pre-tax income: - Software, Services and Global Financing each increased segment profit: -- Software: $11.1 billion, up approximately $300 million; -- Services: $10.2 billion, up more than $250 million; -- Global Financing: $2.2 billion, up more than $100 million; - Systems and Technology segment profit declined $1.7 billion, to a loss of more than $500 million; o Revenue of $99.8 billion, down 5 percent, down 2 percent adjusting for currency; o Business Analytics revenue of $15.7 billion, up 9 percent; o Smarter Planet revenue up approximately 20 percent; o Cloud revenue of $4.4 billion, up 69 percent: – Fourth-quarter annual revenue run rate of more than $2 billion delivered as a service; o Free cash flow of $15.0 billion. Full-Year 2014 Expectation: o GAAP EPS of at least $17.00. Operating (non-GAAP) EPS of at least $18.00 compared with $16.28 for 2013, an increase of more than 10 percent. ARMONK, N.Y., January 21, 2014 . . . IBM (NYSE: IBM) today announced fourthquarter 2013 diluted earnings of $5.73 per share, compared with diluted earnings of $5.13 per share in the fourth quarter of 2012, an increase of 12 percent. Operating (non-GAAP) diluted earnings were $6.13 per share, compared with operating diluted earnings of $5.39 per share in the fourth quarter of 2012, an increase of 14 percent. Fourth-quarter net income, which includes benefits from tax audit settlements, was $6.2 billion compared with $5.8 billion in the fourth quarter of 2012, an increase of 6 percent. Operating (non-GAAP) net income was $6.6 billion compared with $6.1 billion in the fourth quarter of 2012, an increase of 8 percent. Total revenues for the fourth quarter of 2013 of $27.7 billion decreased 5 percent (down 3 percent adjusting for currency) from the fourth quarter of 2012. "We continued to drive strong results across much of our portfolio and again grew earnings per share in 2013. While we made solid progress in businesses that are powering our future, in view of the company’s overall full year results, my senior team and I have recommended that we forgo our personal annual incentive payments for 2013,” said Ginni Rometty, IBM chairman, president and chief executive officer. ”As we enter 2014, we will continue to transform our business and invest aggressively in the areas that will drive growth and higher value. We remain on track toward our 2015 roadmap for operating EPS of at least $20, a step in our long-term strategy of industry leadership and continuous transformation.”” Fourth-Quarter GAAP - Operating (non-GAAP) Reconciliation Fourth-quarter operating (non-GAAP) diluted earnings exclude $0.40 per share of net charges: $0.25 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.15 per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance. Full-Year 2014 Expectation IBM said that it expects to deliver full-year 2014 GAAP earnings per share of at least $17.00; and operating (non-GAAP) earnings per share of at least $18.00. The 2014 operating (non-GAAP) earnings exclude $1.00 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirementrelated items driven by changes to plan assets and liabilities primarily related to market performance. Software Revenues from the Software segment were $8.1 billion, an increase of 3 percent (up 4 percent, adjusting for currency) from the fourth quarter of 2012. Software pre-tax income of $4.2 billion increased 6 percent year over year. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Social Workforce Solutions and Rational products, were $5.8 billion, an increase of 5 percent (up 6 percent, adjusting for currency) versus the fourth quarter of 2012. Operating systems revenues of $687 million were down 3 percent (down 2 percent, adjusting for currency) compared with the prior-year quarter. Revenues from the WebSphere family of software products increased 14 percent year over year. Information Management software revenues increased 5 percent. Revenues from Tivoli software increased 1 percent. Revenues from Social Workforce Solutions increased 2 percent, and Rational software was flat. Services Global Technology Services segment revenues decreased 4 percent (down 1 percent adjusting for currency) to $9.9 billion, from the fourth quarter of 2012. Global Business Services segment revenues were up 1 percent (up 4 percent, adjusting for currency) to $4.7 billion. Pre-tax income from Global Technology Services decreased 2 percent; pre-tax margin increased to 19.5 percent. Global Business Services pre-tax income increased 12 percent; pre-tax margin increased to 19.1 percent. The estimated services backlog at December 31 was $143 billion, up 2 percent (up 5 percent, adjusting for currency). Financing Global Financing segment revenues were flat (up 3 percent, adjusting for currency) in the fourth quarter at $534 million. Pre-tax income for the segment increased 14 percent to $589 million. Hardware Revenues from the Systems and Technology segment totaled $4.3 billion for the quarter, down 26 percent from the fourth quarter of 2012. Systems and Technology pre-tax income was $0.2 billion, a decrease of $768 million. Total systems revenues decreased 25 percent. Revenues from System z mainframe server products decreased 37 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 26 percent versus the prior year. Revenues from Power Systems decreased 31 percent compared with the 2012 period. Revenues from System x decreased 16 percent. Revenues from System Storage decreased 13 percent. Revenues from Microelectronics OEM decreased 33 percent. Geographic Regions The Americas’ fourth-quarter revenues were $12.2 billion, down 3 percent (down 2 percent, adjusting for currency) from the 2012 period. Revenues from Europe/Middle East/Africa were $9.2 billion, up 1 percent (down 2 percent, adjusting for currency). Asia-Pacific revenues decreased 16 percent (down 6 percent, adjusting for currency) to $5.9 billion. OEM revenues were $452 million, down 33 percent compared with the 2012 fourth quarter. Growth Markets Revenues from the company’s growth markets decreased 9 percent (down 6 percent, adjusting for currency). Revenues in the BRIC countries — Brazil, Russia, India and China — decreased 14 percent (down 11 percent, adjusting for currency). Gross Profit The company’s total gross profit margin was 51.7 percent in the 2013 fourth quarter compared with 51.8 percent in the 2012 fourth-quarter period. Total operating (non-GAAP) gross profit margin was 52.6 percent in the 2013 fourth quarter compared with 52.3 percent in the 2012 fourth-quarter period, driven by an increase in Services and a mix to Software. Expense Total expense and other income was flat at $7.4 billion compared with the prioryear period. S,G&A expense of $6.0 billion increased 1 percent year over year compared with prior-year expense. R,D&E expense of $1.6 billion decreased 1 percent compared with the year-ago period. Intellectual property and custom development income decreased to $201 million compared with $227 million a year ago. Other (income) and expense was income of $113 million compared with prior-year income of $47 million. Interest expense increased to $113 million compared with $109 million in the prior year. Total operating (non-GAAP) expense and other income decreased 1 percent to $7.1 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $5.8 billion was flat compared with prior-year expense. Operating (non-GAAP) R,D&E expense of $1.6 billion decreased 2 percent compared with the year-ago period. *** Pre-tax income decreased 11 percent to $7.0 billion; total operating (non-GAAP) pre-tax income decreased 8 percent to $7.4 billion. Pre-tax margin was 25.1 percent, down 1.6 points; total operating (non-GAAP) pre-tax margin was 26.8 percent, down 0.8 points. IBM’s tax rate was 11.2 percent, down 14.3 points year over year; total operating (non-GAAP) tax rate was 11.0 percent, down 13.5 points compared to the year-ago period, due to discrete period tax items, including benefits from tax audit settlements. Net income margin increased 2.4 points to 22.3 percent; total operating (non-GAAP) net income margin was 23.9 percent, an increase of 3.0 points. The weighted-average number of diluted common shares outstanding in the fourth-quarter 2013 was 1.08 billion compared with 1.14 billion shares in the same period of 2012. In the quarter, IBM generated free cash flow of $8.4 billion excluding Global Financing receivables, down $1.1 billion year over year. Full-Year 2013 Results Net income for the year ended December 31, 2013 was $16.5 billion compared with $16.6 billion in the prior year, a decrease of 1 percent. Operating (non-GAAP) net income was $18.0 billion compared with $17.6 billion in 2012, an increase of 2 percent. Diluted earnings were $14.94 per share compared with $14.37 per diluted share in 2012, an increase of 4 percent. Operating (non-GAAP) diluted earnings were $16.28 per share, compared with operating diluted earnings of $15.25 per share in 2012, an increase of 7 percent. Operating (non-GAAP) diluted earnings per share, excluding second-quarter workforce rebalancing charges, were $16.99. Revenues for 2013 totaled $99.8 billion, a decrease of 5 percent (down 2 percent adjusting for currency), compared with $104.5 billion in 2012. GAAP - Operating (non-GAAP) Reconciliation Operating (non-GAAP) diluted earnings for the year exclude $1.34 per share of net charges: $0.68 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.66 per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance. Geographic Regions From a geographic perspective, the Americas’ full-year revenues were $43.2 billion, a decrease of 3 percent (down 2 percent adjusting for currency) from the 2012 period. Revenues from Europe/Middle East/Africa were $31.6 billion, flat year to year (down 2 percent, adjusting for currency). Asia-Pacific revenues decreased 12 percent to $22.9 billion (down 3 percent adjusting for currency). OEM revenues were $2.0 billion, down 13 percent compared with 2012 (down 12 percent adjusting for currency). Growth Markets Revenues from the company’s growth markets decreased 5 percent (down 2 percent, adjusting for currency), and represents 23 percent of IBM’s total geographic revenue. Revenues in the BRIC countries — Brazil, Russia, India and China — decreased 8 percent (down 6 percent, adjusting for currency). Segments Software segment revenues in 2013 totaled $25.9 billion, an increase of 2 percent (up 3 percent, adjusting for currency). Total Global Services revenues decreased 3 percent (flat adjusting for currency). Revenues from the Global Technology Services segment totaled $38.6 billion, a decrease of 4 percent (down 1 percent, adjusting for currency) compared with 2012. Revenues from the Global Business Services segment were $18.4 billion, down 1 percent (up 3 percent, adjusting for currency). Global Financing segment revenues totaled $2.0 billion, flat year to year (up 3 percent, adjusting for currency). Systems and Technology segment revenues were $14.4 billion, a decrease of 19 percent (down 18 percent, adjusting for currency). *** The company’s total gross profit margin was 48.6 percent in 2013 compared with 48.1 percent in 2012. Overall gross profit margins improved year over year for the 10th consecutive year. Total operating (non-GAAP) gross profit margin was 49.7 percent in the 2013 period compared with 48.7 percent in the 2012 period, with an increase in Services and a mix to Software. The weighted-average number of diluted common shares outstanding in 2013 was 1.10 billion compared with 1.16 billion shares in 2012. As of December 31, 2013, there were 1.05 billion basic common shares outstanding. Debt, including Global Financing, totaled $39.7 billion, compared with $33.3 billion at year-end 2012. From a management segment view, Global Financing debt totaled $27.5 billion versus $24.5 billion at year-end 2012, resulting in a debt-toequity ratio of 7.2 to 1. Non-global financing debt totaled $12.2 billion, an increase of $3.4 billion since year-end 2012, resulting in a debt-to-capitalization ratio of 39.0 percent, up from 36.1 percent. IBM ended 2013 with $11.1 billion of cash on hand and generated free cash flow of $15.0 billion excluding Global Financing receivables, down approximately $3.2 billion year over year. The company returned $17.9 billion to shareholders through $4.1 billion in dividends and $13.9 billion of gross share repurchases. The company’s balance sheet remains strong and is well positioned to support the business over the long term. 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; cybersecurity and data privacy considerations; fluctuations in financial results 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; impacts of relationships with critical suppliers and business with government clients; 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-Qs, 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 and expectations – • presenting operating (non-GAAP) earnings per share amounts and related income statement items; • presenting non-global financing debt-to-capitalization ratio; • adjusting for free cash flow; • adjusting for currency (i.e., at constant currency); • adjusting for workforce rebalancing. The rationale for management’s use of non-GAAP measures is included as part of the supplementary materials presented within the fourth-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. EST, today. The Webcast may be accessed via a link at http://www.ibm.com/investor/events/4q13.phtml. Presentation charts will be available 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 (Dollars in millions except per share amounts) Three Months Ended December 31, Percent 2013 2012 Change ------- ------- ------- Twelve Months Ended December 31, Percent 2013 2012 Change ------- ------- ------- REVENUE Global Technology Services Gross profit margin $9,917 38.8% $10,284 37.6% -3.6% $38,551 38.1% $40,236 36.6% -4.2% Global Business Services Gross profit margin 4,747 30.7% 4,720 29.9% 0.6% 18,396 30.9% 18,566 30.0% -0.9% Software Gross profit margin 8,140 90.5% 7,915 90.6% 2.8% 25,932 88.8% 25,448 88.7% 1.9% System and Technology Gross profit margin 4,261 38.6% 5,763 44.1% -26.1% 14,371 35.6% 17,667 39.1% -18.7% Global Financing Gross profit margin 534 43.3% 535 43.8% -0.1% 2,022 45.6% 2,013 46.5% 0.4% Other Gross profit margin 100 -234.8% 87 -73.2% 15.2% 478 -195.6% 577 -71.6% -17.1% TOTAL REVENUE 27,699 29,304 -5.5% 99,751 104,507 -4.6% GROSS PROFIT Gross profit margin 14,315 51.7% 15,167 51.8% -5.6% 48,505 48.6% 50,298 48.1% -3.6% S,G&A Expense to revenue 5,989 21.6% 5,921 20.2% 1.2% 23,502 23.6% 23,553 22.5% -0.2% R,D&E Expense to revenue 1,566 5.7% 1,580 5.4% -0.9% 6,226 6.2% 6,302 6.0% -1.2% Intellectual property and custom development income (201) (227) -11.5% (822) (1,074) -23.5% Other (income) and expense (113) (47) 142.5% (327) (843) -61.2% 113 109 3.6% 402 459 -12.5% TOTAL EXPENSE AND OTHER INCOME Expense to revenue 7,353 26.5% 7,336 25.0% 0.2% 28,981 29.1% 28,396 27.2% 2.1% INCOME BEFORE INCOME TAXES Pre-tax margin 6,962 25.1% 7,831 26.7% -11.1% 19,524 19.6% 21,902 21.0% -10.9% Provision for income taxes Effective tax rate 777 11.2% 1,998 25.5% -61.1% 3,041 15.6% 5,298 24.2% -42.6% $6,185 ====== 22.3% $5,833 ====== 19.9% 6.0% $16,483 ======= 16.5% $16,604 ======= 15.9% -0.7% EXPENSE AND OTHER INCOME Interest expense NET INCOME Net income margin EARNINGS PER SHARE OF COMMON STOCK: ASSUMING DILUTION BASIC WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's): ASSUMING DILUTION BASIC $5.73 $5.77 $5.13 $5.19 1,080.0 1,072.5 1,136.4 1,124.7 11.7% 11.2% $14.94 $15.06 $14.37 $14.53 1,103.0 1,094.5 1,155.4 1,142.5 4.0% 3.6% INTERNATIONAL BUSINESS MACHINES CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Dollars in Millions) At December 31, 2013 ------------ At December 31, 2012 ------------ $10,716 350 $10,412 717 10,465 10,667 19,787 18,038 1,584 1,873 444 1,866 -------2,310 1,651 4,488 -------51,350 475 1,812 -------2,287 1,415 4,024 -------49,433 40,475 26,654 -------13,821 40,501 26,505 -------13,996 12,755 5,551 3,051 31,184 3,871 4,639 -------$126,223 ======== 12,812 945 3,973 29,247 3,787 5,021 -------$119,213 ======== $4,633 6,862 7,461 3,893 12,557 4,748 -------40,154 $4,948 9,181 7,952 4,745 11,952 4,847 -------43,625 ASSETS: Current Assets: Cash and cash equivalents Marketable securities Notes and accounts receivable - trade (net of allowances of $291 in 2013 and $255 in 2012) Short-term financing receivables (net of allowances of $308 in 2013 and $288 in 2012) Other accounts receivable (net of allowances of $36 in 2013 and $17 in 2012) Inventories, at lower of average cost or market: Finished goods Work in process and raw materials Total inventories Deferred taxes Prepaid expenses and other current assets Total Current Assets Property, plant and equipment Less: Accumulated depreciation Property, plant and equipment - net Long-term financing receivables (net of allowances of $80 in 2013 and $66 in 2012) Prepaid pension assets Deferred taxes Goodwill Intangible assets - net Investments and sundry assets Total Assets LIABILITIES: Current Liabilities: Taxes Short-term debt Accounts payable Compensation and benefits Deferred income Other accrued expenses and liabilities Total Current Liabilities Long-term debt Retirement and nonpension postretirement benefit obligations Deferred income Other liabilities Total Liabilities 32,856 24,088 16,242 4,108 9,934 -------103,294 20,418 4,491 7,607 -------100,229 51,594 130,042 (137,242) (21,602) -------22,792 50,110 117,641 (123,131) (25,759) -------18,860 137 -------22,929 -------$126,223 ======== 124 -------18,984 -------$119,213 ======== EQUITY: IBM Stockholders' Equity: Common stock Retained earnings Treasury stock -- at cost Accumulated other comprehensive income/(loss) Total IBM stockholders' equity Noncontrolling interests Total Equity Total Liabilities and Equity INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS Three Months Ended Twelve Months Ended December 31, December 31, 2013 2012 2013 2012 ----------------------- (Dollars in Millions) Net Cash from Operating Activities per GAAP: $6,528 $6,346 $17,485 $19,586 (4,151) ------- (1,304) ------- (2,906) ------- 10,497 18,789 22,492 (1,059) (981) (3,768) (4,307) 8,401 9,515 15,021 18,185 (495) 50 (1,025) (5,797) 1,637 (1,455) 13 (957) (3,006) (1,571) (3,056) 297 (4,058) (13,859) 3,193 (3,722) 599 (3,773) (11,995) 713 (1,937) (3,664) 2,400 (802) $834 ======== ($1,125) ======= ($63) ======= ($794) ======= Less: the change in Global Financing (GF) Receivables (2,932) ------Net Cash from Operating Activities (Excluding GF Receivables) 9,460 Capital Expenditures, Net Free Cash Flow (Excluding GF Receivables) Acquisitions Divestitures Dividends Share Repurchase Non-GF Debt Other (includes GF Receivables, and GF Debt) Change in Cash, Cash Equivalents and Short-term Marketable Securities INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA FOURTH-QUARTER 2013 ----------------------------------------------Pre-tax --------- Revenue --------Income/ Pre-tax External Internal Total (Loss) Margin -------- -------- --------------- ------- (Dollars in Millions) SEGMENTS Global Technology Services Y-T-Y change $9,917 -3.6% $262 -11.9% $10,179 -3.8% $1,989 -1.9% 19.5% Global Business Services Y-T-Y change 4,747 0.6% 169 -7.0% 4,915 0.3% 940 11.7% 19.1% Software Y-T-Y change 8,140 2.8% 878 7.7% 9,018 3.3% 4,239 5.5% 47.0% 4,261 -26.1% 170 -8.4% 4,431 -25.5% 206 -78.8% 4.7% 534 -0.1% 654 15.1% 1,188 7.7% 589 13.8% 49.6% $27,599 -5.5% $2,133 4.2% $29,732 -4.9% $7,964 -4.9% 26.8% 100 (2,133) (2,033) (1,002) $27,699 -5.5% $0 $27,699 -5.5% $6,962 -11.1% Systems and Technology Y-T-Y change Global Financing Y-T-Y change TOTAL REPORTABLE SEGMENTS Y-T-Y change Eliminations / Other TOTAL IBM CONSOLIDATED Y-T-Y change 25.1% FOURTH-QUARTER 2012 ----------------------------------------------Pre-tax --------- Revenue --------Income/ Pre-tax External Internal Total (Loss) Margin -------- -------- --------------- ------- (Dollars in Millions) SEGMENTS Global Technology Services $10,284 $297 $10,581 $2,027 19.2% Global Business Services 4,720 181 4,901 841 17.2% Software 7,915 815 8,730 4,017 46.0% Systems and Technology 5,763 186 5,949 974 16.4% 535 568 1,103 518 46.9% $29,217 $2,048 $31,265 $8,377 26.8% 87 (2,048) (1,961) (546) $29,304 $0 $29,304 $7,831 Global Financing TOTAL REPORTABLE SEGMENTS Eliminations / Other TOTAL IBM CONSOLIDATED 26.7% INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Dollars in Millions) TWELVE-MONTHS 2013 ----------------------------------------------Pre-tax --------- Revenue --------Income/ Pre-tax External Internal Total (Loss) Margin -------- -------- --------------- ------- SEGMENTS Global Technology Services Y-T-Y change $38,551 -4.2% $1,063 -8.8% $39,615 -4.3% $6,983 0.3% 17.6% Global Business Services Y-T-Y change 18,396 -0.9% 714 -0.8% 19,109 -0.9% 3,214 7.7% 16.8% Software Y-T-Y change 25,932 1.9% 3,191 -2.5% 29,123 1.4% 11,106 2.7% 38.1% Systems and Technology Y-T-Y change 14,371 -18.7% 593 -12.4% 14,964 -18.4% (507) -141.3% -3.4% 2,022 0.4% 2,282 10.8% 4,304 5.7% 2,171 6.8% 50.4% $99,273 -4.5% $7,843 -0.7% $107,115 -4.2% $22,967 -4.4% 21.4% 478 (7,843) (7,365) (3,443) $99,751 -4.6% $0 $99,751 -4.6% $19,524 -10.9% Global Financing Y-T-Y change TOTAL REPORTABLE SEGMENTS Y-T-Y change Eliminations / Other TOTAL IBM CONSOLIDATED Y-T-Y change (Dollars in Millions) 19.6% TWELVE-MONTHS 2012 ----------------------------------------------Pre-tax --------- Revenue --------Income/ Pre-tax External Internal Total (Loss) Margin -------- -------- --------------- ------- SEGMENTS Global Technology Services $40,236 $1,166 $41,402 $6,961 16.8% Global Business Services 18,566 719 19,286 2,983 15.5% Software 25,448 3,274 28,722 10,810 37.6% Systems and Technology 17,667 676 18,343 1,227 6.7% 2,013 2,060 4,073 2,034 49.9% $103,930 $7,896 $111,826 $24,015 21.5% 577 (7,896) (7,319) (2,113) $104,507 $0 $104,507 $21,902 Global Financing TOTAL REPORTABLE SEGMENTS Eliminations / Other TOTAL IBM CONSOLIDATED 21.0% INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING RESULTS RECONCILIATION (Dollars in millions except per share amounts) Gross Profit FOURTH-QUARTER 2013 ----------------------------------------------Acquisition- RetirementRelated Related Operating GAAP Adjustments* Adjustments** (Non-GAAP) -------- ------------ --------------------$14,315 $105 $154 $14,574 Gross Profit Margin 51.7% 0.4Pts 0.6Pts 52.6% S,G&A 5,989 (101) (90) 5,798 R,D&E 1,566 0 (14) 1,552 Other (Income) & Expense (113) (8) 0 (121) Total Expense & Other (Income) 7,353 (109) (104) 7,140 Pre-Tax Income 6,962 213 258 7,434 Pre-Tax Income Margin 25.1% 0.8Pts 0.9Pts 26.8% 777 (55) 94 817 Effective Tax Rate 11.2% -1.1Pts 0.9Pts 11.0% Net Income 6,185 268 164 6,617 Net Income Margin 22.3% 1.0Pts 0.6Pts 23.9% Diluted Earnings Per Share $5.73 $0.25 $0.15 $6.13 Provision for Income Taxes*** FOURTH-QUARTER 2012 ----------------------------------------------Acquisition- RetirementRelated Related Operating GAAP Adjustments* Adjustments** (Non-GAAP) -------- ------------ --------------------$15,167 $100 $60 $15,327 Gross Profit Gross Profit Margin 51.8% 0.3Pts 0.2Pts 52.3% S,G&A 5,921 (91) (29) 5,801 R,D&E 1,580 0 6 1,586 (47) (7) 0 (54) Total Expense & Other (Income) 7,336 (98) (23) 7,215 Pre-Tax Income 7,831 198 83 8,112 Pre-Tax Income Margin 26.7% 0.7Pts 0.3Pts 27.7% Provision for Income Taxes*** 1,998 (45) 30 1,983 Effective Tax Rate 25.5% -1.2Pts 0.1Pts 24.4% Net Income 5,833 243 53 6,129 Net Income Margin 19.9% 0.8Pts 0.2Pts 20.9% Diluted Earnings Per Share $5.13 $0.21 $0.05 $5.39 Other (Income) & Expense * Includes amortization of acquired intangible assets and other acquisition-related charges. ** Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance. *** Tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results. INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING RESULTS RECONCILIATION (Dollars in millions except per share amounts) Gross Profit Gross Profit Margin TWELVE-MONTHS 2013 ----------------------------------------------Acquisition- RetirementRelated Related Operating GAAP Adjustments* Adjustments** (Non-GAAP) -------- ------------ --------------------$48,505 $394 $629 $49,527 48.6% 0.4Pts 0.6Pts 49.7% S,G&A 23,502 (394) (376) 22,731 R,D&E 6,226 0 (57) 6,170 Other (Income) & Expense (327) (16) 0 (343) Total Expense & Other (Income) 28,981 (410) (433) 28,137 Pre-Tax Income 19,524 804 1,062 21,390 Pre-Tax Income Margin 19.6% 0.8Pts 1.1Pts 21.4% Provision for Income Taxes*** 3,041 57 333 3,431 Effective Tax Rate 15.6% -0.3Pts 0.8Pts 16.0% 16,483 747 729 17,959 16.5% 0.7Pts 0.7Pts 18.0% $14.94 $0.68 $0.66 $16.28 Net Income Net Income Margin Diluted Earnings Per Share Gross Profit Gross Profit Margin TWELVE-MONTHS 2012 ----------------------------------------------Acquisition- RetirementRelated Related Operating GAAP Adjustments* Adjustments** (Non-GAAP) -------- ------------ --------------------$50,298 $376 $264 $50,938 48.1% 0.4Pts 0.3Pts 48.7% S,G&A 23,553 (349) (294) 22,910 R,D&E 6,302 0 20 6,322 Other (Income) & Expense (843) (13) 0 (857) Total Expense & Other (Income) 28,396 (363) (274) 27,760 Pre-Tax Income 21,902 739 538 23,179 Pre-Tax Income Margin 21.0% 0.7Pts 0.5Pts 22.2% Provision for Income Taxes*** 5,298 98 156 5,552 Effective Tax Rate 24.2% -0.4Pts 0.1Pts 24.0% 16,604 641 381 17,627 15.9% 0.6Pts 0.4Pts 16.9% $14.37 $0.55 $0.33 $15.25 Net Income Net Income Margin Diluted Earnings Per Share * Includes amortization of acquired intangible assets and other acquisition-related charges. ** Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance. *** Tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results. Contact: IBM Mike Fay, 914-525-8476 [email protected] John Bukovinsky, 732-618-3531 [email protected]