IBM REPORTS 2011 FOURTH-QUARTER AND FULL-YEAR RESULTS Fourth-Quarter 2011: o Diluted EPS: - GAAP: $4.62, up 11 percent; - Operating (non-GAAP): $4.71, up 11 percent; o Net income: - GAAP: $5.5 billion, up 4 percent; - Operating (non-GAAP): $5.6 billion, up 5 percent; o Gross profit margin: - GAAP: 49.9 percent, up 0.9 points; - Operating (non-GAAP): 50.2 percent, up 1.1 points; o Revenue of $29.5 billion, up 2 percent as reported, 1 percent adjusting for currency; o Software revenue up 9 percent; o Global Technology Services revenue up 3 percent; o Global Business Services revenue up 3 percent, 2 percent adjusting for currency; o Services backlog of $141 billion, up $4 billion as reported, up $5 billion adjusting for currency, quarter to quarter; o Systems and Technology revenue down 8 percent. Full-Year 2011: o Diluted EPS, up double-digits for 9th consecutive year; - GAAP: $13.06, up 13 percent; - Operating (non-GAAP): $13.44, up 15 percent; o Net income: - GAAP: $15.9 billion, up 7 percent; - Operating (non-GAAP): $16.3 billion, up 9 percent; o Revenue of $106.9 billion, up 7 percent, up 3 percent adjusting for currency; o Free cash flow of $16.6 billion, up $300 million; o Growth markets revenue up 16 percent, up 11 percent adjusting for currency; o Business analytics revenue up 16 percent; o Smarter Planet revenue up 47 percent; o Cloud revenue more than tripled 2010 revenue. Full-Year 2012 Expectation: o GAAP EPS of at least $14.16 and operating (non-GAAP) EPS of at least $14.85. ARMONK, N.Y., January 19, 2012 . . . IBM (NYSE: IBM) today announced fourth-quarter 2011 diluted earnings of $4.62 per share, compared with diluted earnings of $4.18 per share in the fourth quarter of 2010, an increase of 11 percent. Operating (non-GAAP) diluted earnings were $4.71 per share, compared with operating diluted earnings of $4.25 per share in the fourth quarter of 2010, an increase of 11 percent. Fourth-quarter net income was $5.5 billion compared with $5.3 billion in the fourth quarter of 2010, an increase of 4 percent. Operating (non-GAAP) net income was $5.6 billion compared with $5.4 billion in the fourth quarter of 2010, an increase of 5 percent. Total revenues for the fourth quarter of 2011 of $29.5 billion increased 2 percent (1 percent, adjusting for currency) from the fourth quarter of 2010. While currency provided a benefit to revenue growth of approximately 25 basis points in the quarter, currency movements since the company announced its third-quarter earnings in October impacted fourth-quarter revenue by approximately one point of growth, or $300 million. "We had a strong fourth-quarter performance, capping a year of record earnings per share, revenue, profit and free cash flow," said Ginni Rometty, IBM president and chief executive officer. "We delivered outstanding results in all four of our strategic initiatives for the quarter and the year, as we continued to realize the benefit of our long-term investments in growth markets, business analytics, Smarter Planet solutions and cloud. We are well on track toward our long-term roadmap for operating earnings per share of at least $20 in 2015.”” Fourth-Quarter GAAP - Operating (non-GAAP) Reconciliation Fourth-quarter operating (non-GAAP) diluted earnings exclude $0.09 per share of net charges: $0.10 per share for the amortization of purchased intangible assets and other acquisition-related charges, offset by ($0.01) per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance. Full-Year 2012 Expectation IBM said that it expects to deliver full-year 2012 GAAP earnings per share of at least $14.16; and operating (non-GAAP) earnings per share of at least $14.85. The 2012 operating (non-GAAP) earnings exclude $0.69 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related items driven by changes to plan assets and liabilities primarily related to market performance. Geographic Regions The Americas’ fourth-quarter revenues were $12.5 billion, an increase of 3 percent (3 percent, adjusting for currency) from the 2010 period. Revenues from Europe/Middle East/Africa were $9.6 billion, up 1 percent (1 percent, adjusting for currency). Asia-Pacific revenues increased 2 percent (down 1 percent, adjusting for currency) to $6.7 billion. OEM revenues were $714 million, down 9 percent compared with the 2010 fourth quarter. Growth Markets Revenues from the company’s growth markets increased 7 percent (8 percent, adjusting for currency). Revenues in the BRIC countries — Brazil, Russia, India and China — increased 10 percent (11 percent, adjusting for currency). Services Global Technology Services segment revenues increased 3 percent (3 percent, adjusting for currency) to $10.5 billion. Global Business Services segment revenues were up 3 percent (2 percent, adjusting for currency) at $4.9 billion. Pre-tax income from Global Technology Services increased 18 percent; pre-tax margin increased to 18.0 percent. Global Business Services pre-tax income increased 14 percent; pre-tax margin increased to 16.6 percent. The estimated services backlog at December 31 was $141 billion, up $4 billion as reported ($5 billion, adjusting for currency), quarter to quarter, and down $2 billion as reported (flat, adjusting for currency), year over year. Services backlog at the end of a quarter measures the current value of work under contract expected to be recognized as revenue in future quarters. Software Revenues from the Software segment were $7.6 billion, an increase of 9 percent (9 percent, adjusting for currency). Software pre-tax income of $3.7 billion increased 12 percent year over year. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $5.2 billion, an increase of 11 percent (11 percent, adjusting for currency) versus the fourth quarter of 2010. Operating systems revenues of $710 million increased 3 percent (3 percent, adjusting for currency) compared with the prior-year quarter. Revenues from the WebSphere family of software products increased 21 percent year over year. Information Management software revenues increased 9 percent. Revenues from Tivoli software increased 14 percent. Revenues from Lotus software decreased 2 percent, and Rational software increased 4 percent. Hardware Revenues from the Systems and Technology segment totaled $5.8 billion for the quarter, down 8 percent (8 percent, adjusting for currency) from the fourth quarter of 2010. Systems and Technology pre-tax income was $790 million, a decrease of 33 percent. Total systems revenues decreased 7 percent (7 percent, adjusting for currency). Revenues from Power Systems increased 6 percent compared with the 2010 period. Revenues from System z mainframe server products decreased 31 percent compared with the year-ago period which was the first full quarter after a new product introduction. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 4 percent. Revenues from System x decreased 2 percent. Revenues from System Storage decreased 1 percent, and revenues from Retail Store Solutions increased 9 percent year over year. Revenues from Microelectronics OEM decreased 11 percent. Financing Global Financing segment revenues decreased 13 percent (13 percent, adjusting for currency) in the fourth quarter to $548 million. Pre-tax income for the segment decreased 9 percent to $514 million. *** The company’s total gross profit margin was 49.9 percent in the 2011 fourth quarter compared with 49.0 percent in the 2010 fourth-quarter period. Total operating (non-GAAP) gross profit margin was 50.2 percent in the 2011 fourth quarter compared with 49.1 percent in the 2010 fourth-quarter period, with increases in Services and Software. Total expense and other income increased 2 percent to $7.4 billion compared with the prior-year period. S,G&A expense of $6.1 billion increased 2 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 $253 million compared with $318 million a year ago. Other (income) and expense was income of $44 million compared with prior-year income of $42 million. Interest expense increased to $113 million compared with $102 million in the prior year. Total operating (non-GAAP) expense and other income increased 2 percent to $7.4 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense of $6.0 billion increased 2 percent year over year 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 increased 5 percent to $7.3 billion; total operating (non-GAAP) pre-tax income increased 6 percent to $7.4 billion. Pre-tax margin was 24.7 percent, up 0.7 points; total operating (non-GAAP) pre-tax margin was 25.1 percent, up 0.9 points. IBM’s tax rate was 24.5 percent, up 0.1 points year over year; total operating (non-GAAP) tax rate was 24.4 percent, up 0.7 points. Net income margin increased 0.5 points to 18.6 percent; total operating (non-GAAP) net income margin was 19.0 percent, an increase of 0.5 points. The weighted-average number of diluted common shares outstanding in the fourth-quarter 2011 was 1.19 billion compared with 1.26 billion shares in the same period of 2010. In the quarter, IBM generated free cash flow of $9.0 billion excluding Global Financing receivables, up approximately $300 million year over year. Full-Year 2011 Results Net income for the year ended December 31, 2011 was $15.9 billion compared with $14.8 billion in the year-ago period, an increase of 7 percent. Operating (non-GAAP) net income was $16.3 billion compared with $15.0 billion in 2010, an increase of 9 percent. Diluted earnings were $13.06 per share compared with $11.52 per diluted share in 2010, an increase of 13 percent. Operating (non-GAAP) diluted earnings were $13.44 per share, compared with operating diluted earnings of $11.67 per share in 2010, an increase of 15 percent. This was the company’s 9th consecutive year of double-digit EPS growth. Revenues for 2011 totaled $106.9 billion, an increase of 7 percent (3 percent, adjusting for currency), compared with $99.9 billion in 2010. GAAP - Operating (non-GAAP) Reconciliation Operating (non-GAAP) diluted earnings for the year exclude $0.38 per share of net charges: $0.41 per share for the amortization of purchased intangible assets and other acquisition-related charges, offset by ($0.03) 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 $44.9 billion, an increase of 7 percent (6 percent, adjusting for currency) from the 2010 period. Revenues from Europe/Middle East/Africa were $34.0 billion, an increase of 7 percent (2 percent, adjusting for currency). Asia-Pacific revenues increased 9 percent (2 percent, adjusting for currency) to $25.3 billion. OEM revenues were $2.7 billion, down 2 percent (3 percent, adjusting for currency) compared with 2010. Growth Markets Revenues from the company’s growth markets increased 16 percent (11 percent, adjusting for currency), and represents 22 percent of IBM’s total geographic revenue. Revenues in the BRIC countries — Brazil, Russia, India and China — increased 19 percent (16 percent, adjusting for currency). Segments Total Global Services revenues increased 7 percent (2 percent, adjusting for currency). Revenues from the Global Technology Services segment totaled $40.9 billion, an increase of 7 percent (3 percent, adjusting for currency) compared with 2010. Revenues from the Global Business Services segment were $19.3 billion, up 6 percent (1 percent, adjusting for currency). Software segment revenues in 2011 totaled $24.9 billion, an increase of 11 percent (8 percent, adjusting for currency). Systems and Technology segment revenues were $19.0 billion, an increase of 6 percent (3 percent, adjusting for currency). Global Financing segment revenues totaled $2.1 billion, a decrease of 6 percent (9 percent, adjusting for currency). *** The company’s total gross profit margin was 46.9 percent in 2011 compared with 46.1 percent in 2010. Overall gross profit margins improved year over year for the 8th consecutive year. Total operating (non-GAAP) gross profit margin was 47.2 percent in the 2011 period compared with 46.1 percent in the 2010 period, with increases in Services, Software, and Systems and Technology. The weighted-average number of diluted common shares outstanding in 2011 was 1.21 billion compared with 1.29 billion shares in 2010. As of December 31, 2011, there were 1.16 billion basic common shares outstanding. Debt, including Global Financing, totaled $31.3 billion, compared with $28.6 billion at year-end 2010. From a management segment view, Global Financing debt totaled $23.3 billion versus $22.8 billion at year-end 2010, resulting in a debt-to-equity ratio of 7.2 to 1. Non-global financing debt totaled $8.0 billion, an increase of $2.2 billion since year-end 2010, resulting in a debt-to-capitalization ratio of 32.0 percent from 22.6 percent. IBM ended 2011 with $11.9 billion of cash on hand and generated free cash flow of $16.6 billion excluding Global Financing receivables, up approximately $300 million year over year. The company returned $18.5 billion to shareholders through $3.5 billion in dividends and $15.0 billion of share repurchases. The balance sheet remains strong, and the company 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; breaches of data security; 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-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 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). 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. Investors may participate by viewing the Webcast at www.ibm.com/investor/4q11. 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 (Dollars in millions except per share amounts) Three Months Ended December 31, Percent 2011 2010* Change ------- ------- ------- Twelve Months Ended December 31, Percent 2011 2010* Change ------- ------- ------- REVENUE Global Technology Services Gross margin $10,452 $10,165 36.6% 34.5% 2.8% $40,879 $38,201 35.0% 34.5% 7.0% Global Business Services Gross margin 4,877 29.3% 4,758 28.0% 2.5% 19,284 28.8% 18,223 28.0% 5.8% Software Gross margin 7,648 89.8% 7,039 89.6% 8.7% 24,944 88.5% 22,485 87.9% 10.9% Systems and Technology Gross margin 5,803 40.5% 6,277 43.6% -7.6% 18,985 39.8% 17,973 38.1% 5.6% 548 49.7% 628 51.8% -12.9% 2,102 49.8% 2,238 51.3% -6.1% 159 -11.0% 151 10.3% 4.7% 722 -54.5% 750 -8.6% -3.8% Global Financing Gross margin Other Gross margin TOTAL REVENUE 29,486 29,019 1.6% 106,916 99,870 7.1% GROSS PROFIT Gross margin 14,722 49.9% 14,227 49.0% 3.5% 50,138 46.9% 46,014 46.1% 9.0% EXPENSE AND OTHER INCOME S,G&A % of revenue 6,076 20.6% 5,951 20.5% 2.1% 23,594 22.1% 21,837 21.9% 8.0% R,D&E % of revenue 1,555 5.3% 1,578 5.4% -1.5% 6,258 5.9% 6,026 6.0% 3.8% (318) -20.4% (1,108) (1,154) -4.0% (42) 102 4.9% 11.6% (20) 411 (787) 368 -97.4% 11.6% Intellectual property and custom development income (253) Other (income) and expense (44) Interest expense 113 TOTAL EXPENSE AND OTHER INCOME % of revenue 7,448 25.3% 7,271 25.1% 2.4% 29,135 27.3% 26,291 26.3% 10.8% INCOME BEFORE INCOME TAXES Pre-tax margin 7,274 24.7% 6,956 24.0% 4.6% 21,003 19.6% 19,723 19.7% 6.5% 1,784 1,698 5.1% 5,148 4,890 5.3% Provision for income taxes Effective tax rate 24.5% 24.4% $5,490 ====== 18.6% $5,257 ====== 18.1% $4.62 $4.68 $4.18 $4.24 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's): ASSUMING DILUTION 1,188.7 BASIC 1,172.2 1,258.4 1,240.1 NET INCOME Net margin EARNINGS PER SHARE OF COMMON STOCK: ASSUMING DILUTION BASIC * 24.5% 4.4% $15,855 ======= 14.8% 10.5% 10.4% 24.8% $14,833 ======= 14.9% 6.9% $13.06 $13.25 $11.52 $11.69 13.4% 13.3% 1,213.8 1,197.0 1,287.4 1,268.8 Segment gross profit margins in 2010 reclassified to conform with 2011 presentation. INTERNATIONAL BUSINESS MACHINES CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Dollars in Millions) At December 31, 2011 ------------ At December 31, 2010 ------------ $11,922 -- $10,661 990 11,179 10,834 16,901 16,257 1,481 1,134 589 2,007 -----------2,595 1,601 5,249 -----------50,928 432 2,018 -----------2,450 1,564 4,226 ------------48,116 ASSETS Current Assets: Cash and cash equivalents Marketable securities Notes and accounts receivable - trade (net of allowances of $256 in 2011 and $324 in 2010) Short-term financing receivables (net of allowances of $311 in 2011 and $342 in 2010) Other accounts receivable (net of allowances of $11 in 2011 and $10 in 2010) 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 $38 in 2011 and $58 in 2010) Prepaid pension assets Deferred taxes Goodwill Intangible assets - net Investments and sundry assets Total Assets 40,124 26,241 -----------13,883 40,289 26,193 -----------14,096 10,776 2,843 3,503 26,213 3,392 4,895 -----------$116,433 ============ 10,548 3,068 3,220 25,136 3,488 5,778 -----------$113,452 ============ $3,313 8,463 8,517 5,099 12,197 4,535 -----------42,123 $4,216 6,778 7,804 5,028 11,580 5,156 -----------40,562 22,857 21,846 18,374 3,847 8,996 -----------96,197 15,978 3,666 8,226 -----------90,279 48,129 104,857 (110,963) (21,885) -----------20,138 45,418 92,532 (96,161) (18,743) -----------23,046 97 -----------20,236 -----------$116,433 ============ 126 -----------23,172 -----------$113,452 ============ LIABILITIES AND EQUITY 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 Contingencies and commitments 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 (Dollars in Millions) Three Months Ended December 31, Twelve Months Ended December 31, 2011 ------ 2010 ------ 2011 ------- 2010 ------- Net Cash from Operating Activities per GAAP: $7,097 $6,795 $19,846 $19,549 (2,991) ------ (817) ------- (734) ------- 9,786 20,663 20,283 (1,059) (1,103) (4,059) (3,984) 8,965 8,683 16,604 16,299 (1,588) 10 (880) (3,581) 599 (2,928) 55 (808) (3,601) 745 (1,811) 14 (3,473) (15,046) 1,692 (5,922) 55 (3,177) (15,375) 2,279 (2,906) (1,582) 2,291 3,518 Less: the change in Global Financing (GF) Receivables (2,927) -----Net Cash from Operating Activities (Excluding GF Receivables) 10,024 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 $619 ======= $564 ======= $271 ======= ($2,322) ======= INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Dollars in Millions) FOURTH-QUARTER 2011 ------------------------------------------------------- Revenue --------- Pre-tax Pre-tax External Internal Total Income Margin -------- -------- -------------------- SEGMENTS Global Technology Services Y-T-Y change $10,452 2.8% $299 0.2% $10,751 2.7% $1,930 18.0% 18.0% Global Business Services Y-T-Y change 4,877 2.5% 193 -3.4% 5,069 2.3% 841 14.4% 16.6% Software Y-T-Y change 7,648 8.7% 851 9.9% 8,499 8.8% 3,710 12.5% 43.7% Systems and Technology Y-T-Y change 5,803 -7.6% 186 -19.8% 5,989 -8.0% 790 -32.6% 13.2% Global Financing Y-T-Y change 548 -12.9% 569 -1.1% 1,116 -7.2% 514 -9.1% 46.1% $29,328 1.6% $2,098 0.9% $31,425 1.5% $7,786 5.1% 24.8% (2,098) (1,939) (512) TOTAL REPORTABLE SEGMENTS Y-T-Y change Eliminations / Other 159 TOTAL IBM CONSOLIDATED Y-T-Y change $29,486 1.6% $0 $29,486 1.6% $7,274 4.6% 24.7% (Dollars in Millions) FOURTH-QUARTER 2010 ------------------------------------------------------- Revenue --------Pre-tax Pre-tax External Internal Total Income* Margin* -------- -------- -------------------- SEGMENTS Global Technology Services $10,165 $299 $10,464 $1,635 15.6% Global Business Services 4,758 199 4,957 735 14.8% Software 7,039 774 7,813 3,299 42.2% Systems and Technology 6,277 232 6,509 1,173 18.0% 628 575 1,203 566 47.0% $28,867 $2,079 $30,947 $7,408 23.9% Global Financing TOTAL REPORTABLE SEGMENTS Eliminations / Other 151 TOTAL IBM CONSOLIDATED $29,019 (2,079) $0 (1,928) $29,019 (452) $6,956 24.0% * Reclassified to conform with 2011 presentation. INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Dollars in Millions) TWELVE-MONTHS 2011 ------------------------------------------------------- Revenue --------Pre-tax Pre-tax External Internal Total Income Margin -------- -------- -------------------- SEGMENTS Global Technology Services Y-T-Y change $40,879 7.0% $1,242 -5.3% $42,121 6.6% $6,284 14.3% 14.9% Global Business Services Y-T-Y change 19,284 5.8% 797 -0.2% 20,081 5.6% 3,006 18.1% 15.0% Software Y-T-Y change 24,944 10.9% 3,276 11.0% 28,219 10.9% 9,970 5.3% 35.3% Systems and Technology Y-T-Y change 18,985 5.6% 838 4.3% 19,823 5.6% 1,633 12.2% 8.2% 2,102 -6.1% 2,092 13.6% 4,195 2.8% 2,011 2.8% 47.9% $8,246 $114,440 7.0% 7.1% $22,904 9.5% 20.0% Global Financing Y-T-Y change TOTAL REPORTABLE SEGMENTS Y-T-Y change Eliminations / Other $106,194 7.1% 722 (8,246) (7,524) (1,901) TOTAL IBM CONSOLIDATED Y-T-Y change (Dollars in Millions) $106,916 7.1% $0 $106,916 7.1% $21,003 6.5% 19.6% TWELVE-MONTHS 2010 ------------------------------------------------------- Revenue --------Pre-tax Pre-tax External Internal Total Income* Margin* -------- -------- -------- -------------- SEGMENTS Global Technology Services $38,201 $1,313 $39,514 $5,499 13.9% Global Business Services 18,223 798 19,021 2,546 13.4% Software 22,485 2,950 25,436 9,466 37.2% Systems and Technology 17,973 804 18,777 1,456 7.8% 2,238 1,842 4,080 1,956 48.0% $99,120 $7,707 $106,827 $20,923 19.6% Global Financing TOTAL REPORTABLE SEGMENTS Eliminations / Other TOTAL IBM CONSOLIDATED 750 (7,707) $99,870 $0 (6,956) $99,870 (1,200) $19,723 19.7% * Reclassified to conform with 2011 presentation. INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING RESULTS RECONCILIATION (Dollars in millions except per share amounts) Gross Profit Gross Profit Margin FOURTH-QUARTER 2011 ----------------------------------------------Acquisition- RetirementRelated Related Operating GAAP Adjustments* Adjustments** (Non-GAAP) -------- ------------ --------------------$14,722 $81 ($10) $14,793 49.9% 0.3Pts -0.0Pts 50.2% S,G&A 6,076 (82) 2 5,996 R,D&E 1,555 0 23 1,578 (2) 0 Other (Income) & Expense (44) (46) Total Expense & Other (Income) 7,448 (85) 25 7,388 Pre-Tax Income 7,274 166 (35) 7,405 Pre-Tax Income Margin Provision for Income Taxes*** 24.7% 1,784 0.6Pts 47 -0.1Pts (24) 25.1% 1,808 Effective Tax Rate Net Income 24.5% 5,490 Net Income Margin 18.6% Diluted Earnings Per Share $4.62 0.1Pts -0.2Pts 119 0.4Pts $0.10 (12) -0.0Pts ($0.01) 24.4% 5,597 19.0% $4.71 FOURTH-QUARTER 2010 ----------------------------------------------Acquisition- RetirementRelated Related Operating GAAP Adjustments* Adjustments** (Non-GAAP) -------- ------------ --------------------$14,227 $82 ($60) $14,249 Gross Profit Gross Profit Margin 49.0% 0.3Pts -0.2Pts 49.1% S,G&A 5,951 (95) 28 5,884 R,D&E 1,578 0 33 1,611 (2) 0 Other (Income) & Expense (42) (44) Total Expense & Other (Income) 7,271 (98) 61 7,235 Pre-Tax Income 6,956 180 (121) 7,015 Pre-Tax Income Margin Provision for Income Taxes*** Effective Tax Rate Net Income 24.0% 1,698 24.4% 5,257 Net Income Margin 18.1% Diluted Earnings Per Share $4.18 0.6Pts -0.4Pts 10 -0.5Pts (47) -0.3Pts 170 0.6Pts $0.14 (74) -0.3Pts ($0.06) 24.2% 1,661 23.7% 5,354 18.5% $4.25 * 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) TWELVE-MONTHS 2011 ----------------------------------------------Acquisition- RetirementRelated Related Operating Gross Profit Gross Profit Margin GAAP Adjustments* Adjustments** (Non-GAAP) -------- ------------ --------------------$50,138 $341 $2 $50,481 46.9% S,G&A 23,594 R,D&E 6,258 Other (Income) & Expense (20) 0.3Pts (309) 0.0Pts 47.2% (13) 23,272 0 88 6,345 (25) 0 (45) Total Expense & Other (Income) 29,135 (334) 74 28,875 Pre-Tax Income 21,003 675 (72) 21,605 Pre-Tax Income Margin Provision for Income Taxes*** Effective Tax Rate Net Income Net Income Margin Diluted Earnings Per Share Gross Profit Gross Profit Margin 19.6% 5,148 24.5% 15,855 14.8% $13.06 179 0.1Pts 495 0.5Pts $0.41 -0.1Pts (40) -0.1Pts (32) -0.0Pts ($0.03) 20.2% 5,287 24.5% 16,318 15.3% $13.44 TWELVE-MONTHS 2010 ----------------------------------------------Acquisition- RetirementRelated Related Operating GAAP Adjustments* Adjustments** (Non-GAAP) -------- ------------ --------------------$46,014 $260 ($204) $46,070 46.1% S,G&A 21,837 R,D&E 6,026 Other (Income) & Expense 0.6Pts (787) 0.3Pts (294) 0 -0.2Pts 46.1% 84 21,628 126 6,152 (4) 0 (791) Total Expense & Other (Income) 26,291 (298) 210 26,202 Pre-Tax Income 19,723 558 (414) 19,867 Pre-Tax Income Margin Provision for Income Taxes*** Effective Tax Rate Net Income Net Income Margin Diluted Earnings Per Share 19.7% 4,890 24.8% 14,833 14.9% $11.52 0.6Pts 116 -0.1Pts 443 0.4Pts $0.34 -0.4Pts (162) -0.3Pts (253) -0.3Pts ($0.20) 19.9% 4,844 24.4% 15,023 15.0% $11.67 * 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, 914-499-6107 [email protected] John Bukovinsky, 732-618-3531 [email protected]