® 2Q 2010 Earnings Presentation July 19, 2010 www.ibm.com/investor Forward Looking Statements Certain comments made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Forwardlooking 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. www.ibm.com/investor 2 2Q 2010 Highlights EPS $2.61 +13% yr/yr ¾ Revenue growth rate improved in all brands and all geographies @CC • Growth markets +9% yr/yr @CC, led by BRICs +16% yr/yr @CC • Power midrange +11% yr/yr • Business analytics +14% yr/yr ¾ Continued margin expansion • Led by Software and Global Business Services • Focus on productivity ¾ 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 Increasing EPS expectations to at least $11.25 in 2010 www.ibm.com/investor 3 Financial Summary $ in Billions, except EPS Revenue 2Q10 B/(W) Yr/Yr $23.7 2% @CC GP % 2% 45.6% 0.1 pts Expense $6.2 1% Pre-Tax Income $4.6 7% PTI Margin 19.3% 1.0 pts Tax Rate 26.0% 1.2 pts Net Income Shares (Diluted) (M) EPS $3.4 1,296.7 $2.61 9% 3% 13% Improving revenue growth and margin expansion drive profit performance www.ibm.com/investor 4 Revenue by Geography $ in Billions 2Q10 Americas $10.2 B/(W) Yr/Yr Rptd @CC 2Q10 Yr/Yr vs. 1Q10 Yr/Yr @CC 3% 2% +2 pts Europe/ME/A 7.4 (6%) (1%) +1 pts Asia Pacific 5.4 9% 3% +2 pts OEM 0.7 26% 26% +8 pts $23.7 2% 2% +2 pts Major Markets (1%) (1%) +1 pts Growth Markets 14% 9% +1 pts 22% 16% +3 pts IBM BRIC Countries Canada/ LA EMEA U.S. +1% APac Japan +7% -1% @CC @CC OEM +26% Growth markets now as large as Euro-based business www.ibm.com/investor 5 Revenue by Segment B/(W) Yr/Yr Rptd @CC 2Q10 Yr/Yr vs. 1Q10 Yr/Yr @CC $9.2 1% Flat +<1 pts Global Business Services 4.5 3% 3% +8 pts Software 5.3 6%* 6%* +1 pts* Systems & Technology 4.0 3% 4% +2 pts Global Financing 0.5 (4%) (5%) +7 pts 2% 2% +2 pts $ in Billions 2Q10 Global Technology Services Total IBM $23.7 Global Business Systems & Services Technology Global Technology Services * Revenue growth excluding PLM Software Global Financing Broad-based improvement in revenue growth rate www.ibm.com/investor 6 Expense Summary $ in Billions 2Q10 B/(W) Yr/Yr SG&A $5.1 RD&E B/(W) Yr/Yr Drivers Currency Acq.* Ops 1% (1 pts) (2 pts) 4 pts 1.5 (3%) (1 pts) (1 pts) (1 pts) IP and Development Income (0.3) (2%) Other (Income)/Expense (0.1) nm 0.1 11% $6.2 1% (2 pts) (2 pts) 5 pts Interest Expense Total Expense & Other Income * Includes acquisitions made in the last twelve months 8th consecutive quarter of operational expense improvement www.ibm.com/investor 7 Margins by Segment External Gross Profit Margins Total Pre-Tax Margins 2Q10 B/(W) Yr/Yr Pts 2Q10 B/(W) Yr/Yr Pts Global Technology Services 34.6% (0.2 pts) 14.9% Flat Global Business Services 28.5% 1.3 pts 14.6% 1.3 pts Software 87.1% 1.2 pts 33.3% 1.3 pts Systems & Technology 36.1% (1.0 pts) Global Financing 50.1% 3.0 pts 47.4% 1.6 pts Total IBM 45.6% 0.1 pts 19.3% 1.0 pts 5.3% (2.9 pts) Margin expansion led by Global Business Services and Software www.ibm.com/investor 8 Services Segments Global Technology Services (GTS) $ in Billions Global Business Services (GBS) 2Q10 B/(W) Yr/Yr Rptd @CC $9.2 1% Gross Margin (External) 34.6% (0.2 pts) PTI Margin 14.9% Flat Revenue (External) Flat Global Services Signings $ in Billions 2Q10 Outsourcing - GTS O/S, Appl. O/S (AMS) Transactional - ITS, Consulting, AMS SI Total Signings $6.5 5.8 $12.3 B/(W) Yr/Yr Rptd @CC (19%) (3%) (12%) $ in Billions 2Q10 B/(W) Yr/Yr Rptd @CC $4.5 3% Gross Margin (External) 28.5% 1.3 pts PTI Margin 14.6% 1.3 pts Revenue (External) 2Q10 Revenues (% of Total Services) (Growth @CC) (19%) (3%) Flat Yr/Yr (12%) GTS Outsourcing 39% 3% (2%) Yr/Yr Integrated Technology Services 15% Maint. 13% Global Business Services 33% 3% Yr/Yr 3% Yr/Yr Return to revenue growth with positive trends www.ibm.com/investor 9 Software Segment $ in Billions Revenue (External) excl. PLM 2Q10 $5.3 B/(W) Yr/Yr Rptd @CC 6% 6% Revenue (External) incl. PLM $5.3 2% Gross Margin (External) 87.1% 1.2 pts PTI Margin 33.3% 1.3 pts Yr/Yr 2Q10 Revenue Rptd @CC 17% 16% 7% 7% Tivoli 18% 19% Lotus (6%) (6%) 1% 2% Key Branded Middleware 9% 10% Total Middleware 6% 6% Total Software excl. PLM 6% 6% WebSphere Family Information Management Rational 2% 2Q10 Revenue (% of Total Software) Key Branded Middleware 62% Other Middleware 21% Operating Systems Other 10% 7% Continued share gains in Branded Middleware www.ibm.com/investor 10 Systems & Technology Segment $ in Billions Revenue (External) Gross Margin (External) PTI Margin 2Q10 Revenue 2Q10 B/(W) Yr/Yr Rptd @CC $4.0 3% 36.1% (1.0 pts) 5.3% (2.9 pts) 4% Yr/Yr System z Power Systems Midrange System x Storage Disk Retail Store Solutions Total Systems Microelectronics OEM Total Systems & Technology Rptd (24%) (10%) 11% 30% 5% 12% 31% 1% 23% 3% @CC (22%) (10%) 12% 30% 6% 14% 33% 2% 23% 4% 2Q10 Revenue (% of Total Sys & Tech) Storage 20% Servers 62% RSS Micr o OE 13% M New System z and Power7 high-end in 3Q www.ibm.com/investor 11 Cash Flow Analysis 2Q10 B/(W) Yr/Yr YTD 1H10 B/(W) Yr/Yr $3.8 ($1.0) $8.2 ($0.9) (0.2) (0.6) 1.9 (1.1) 4.0 (0.3) 6.3 0.2 (1.0) (0.1) (1.9) (0.2) 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) 0.9 1.2 1.3 3.4 (0.5) (0.1) 3.2 1.3 ($1.7) ($2.0) $ in Billions Net Cash from Operations Less: Global Financing Receivables Net Cash from Operations (excluding GF Receivables) Net Capital Expenditures Free Cash Flow (excluding GF Receivables) Non-GF Debt Other (includes GF A/R & GF Debt) Change in Cash & Marketable Securities www.ibm.com/investor ($1.7) ($1.4) 12 Balance Sheet Summary $ in Billions Cash & Marketable Securities June 09 Dec. 09 June 10 $12.5 $14.0 $12.2 Non-GF Assets* 60.2 61.7 61.6 Global Financing Assets 30.9 33.3 29.5 103.7 109.0 103.4 Other Liabilities 58.8 60.2 55.6 Non-GF Debt* 6.6 3.7 5.5 22.8 22.4 21.2 29.4 26.1 26.7 Total Liabilities 88.2 86.3 82.2 Equity 15.5 22.8 21.2 Total Assets Global Financing Debt Total Debt Non-GF Debt / Capital Global Financing Leverage 35% 16% 23% 6.9 7.1 7.1 * Includes eliminations of inter-company activity www.ibm.com/investor 13 EPS Bridge – 2Q09 to 2Q10 $2.61 $0.08 $0.16 $2.32 $0.05 $0.01 Gross Margin $0.11 Expense Productivity $0.04 Tax Rate 2Q09 EPS Revenue Growth @ Actual Operating Leverage www.ibm.com/investor Share Repurchases 2Q10 EPS 14 2Q 2010 Summary At Least $11.25 $10.01 $8.89 $7.15 $6.05 2Q EPS 2006 2007 2008 2009 2010 Dow indexed to IBM 2006 EPS, excludes Financials and GM for all periods. Data Source: Bloomberg Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “Earnings Per Share” ¾ Double-digit earnings growth off strong base ¾ Steady improvement in the business ¾ Investing for growth ¾ Superior shareholder returns Increasing EPS expectations to at least $11.25 in 2010 www.ibm.com/investor 15 www.ibm.com/investor 16 Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding ¾ Currency – Year/Year Comparison ¾ Supplemental Segment Information – Global Services ¾ Services Transactional Signings Trends ¾ Supplemental Segment Information – Systems & Technology, Software ¾ Global Financing Portfolio ¾ Revenue by Key Industry Sales Unit ¾ Cash Flow (FAS 95) ¾ Supplemental Information – Operating Earnings ¾ 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 www.ibm.com/investor 17 Currency – Year/Year Comparison Quarterly Averages per US $ Yr/Yr @ 7/16 Spot 1Q10 Yr/Yr 2Q10 Yr/Yr 7/16 Spot Euro 0.72 6% 0.79 (7%) 0.77 (11%) (14%) (6%) Pound 0.64 8% 0.67 (4%) 0.65 (7%) (6%) (2%) 91 3% 92 5% 87 7% 3% 5% Yen Revenue Impact - Pts 5 pts 0 pts @ 7/2/10 Rates $1.2 $0.1 - $B 3Q10 4Q10 FY10 ~(1 pts) (3-4 pts) ~0 pts 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) (1-2 pts) (4 pts) (2-3 pts) (3 pts) (3 pts) ($0.3) ($0.9) ~($0.5) ($0.5-1.0) ~($3.0) Vs. 1/19 View - Pts B/(W) - $B B/(W) www.ibm.com/investor 18 Supplemental Segment Information – 2Q 2010 Revenue Growth Global Services Backlog Yr/Yr @CC Global Services 2Q10 2% Flat Backlog $129B (2%) (2%) 5% 3% Quarter-to-Quarter ($4B) Global Technology Services 1% Flat Year-to-Year ($3B) Global Business Services 3% 3% GTS Outsourcing Integrated Tech Services Maintenance Change in Backlog due to Currency www.ibm.com/investor 19 Services Transactional Signings Trends Services Transactional Signings Yr/Yr Growth @CC 0% -1% -3% -5% -4% -5% -3% -4% -5% -5% -6% -7% -6% -7% -8% -7% -10% -10% -12% -15% -15% -18% -20% 1Q09 2Q09 GTS Transactional 3Q09 4Q09 GBS Transactional www.ibm.com/investor 1Q10 2Q10 Services Transactional 20 Supplemental Segment Information – 2Q 2010 Revenue Growth Revenue Growth Systems & Technology Yr/Yr @CC System z * (24%) (22%) Power Systems (10%) (10%) 30% 30% 5% 6% 31% 33% 1% 2% 23% 23% 3% 4% System x Storage Retail Store Solutions Total Systems Microelectronics OEM Total Systems & Technology * MIPS down 14% yr/yr GP% Yr/Yr @CC 17% 16% 7% 7% Tivoli 18% 19% = Lotus (6%) (6%) = Rational 1% 2% 9% 10% Share Software WebSphere Family Information Management Key Branded Middleware (3%) (4%) Total Middleware 6% 6% Operating Systems 2% 2% Other Middleware Other Software/Services (28%) (28%) Total Software excl. PLM 6% 6% Total Software incl. PLM 2% 2% www.ibm.com/investor 21 Global Financing Portfolio 2Q10 – $21.9B Net External Receivables Investm ent Grade 64% Non-Investm ent Grade 36% 45% 40% 35% 30% 25% 20% 40% 15% 10% 24% 17% 5% 11% 5% Ba3-B1 B2-B3 3% 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 Identified Loss Rate Anticipated Loss Rate Reserve Coverage Client Days Delinquent Outstanding Commercial A/R > 30 Days Caa-D 2Q10 1.8% 0.3% 2.1% 1Q10 1.9% 0.4% 2.3% 2Q09 1.7% 0.6% 2.3% 3.7 $27M 3.3 $49M 3.4 $48M www.ibm.com/investor 22 Revenue by Key Industry Sales Unit $ in Billions Financial Services 2Q10 $6.7 B/(W) Yr/Yr Rptd @CC 4% 3% Public 3.9 (2%) (2%) Industrial 2.4 (3%) (3%) Distribution 2.4 5% 5% Communications 2.3 (1%) (2%) General Business 4.7 5% 5% All Sectors $23.1 2% 1% Total IBM $23.7 2% 2% www.ibm.com/investor Public Financial Services Industrial Distribution Comms General Business 23 $ in Billions Cash Flow (FAS 95) QTD 2Q10 QTD 2Q09 YTD 1H10 YTD 1H09 $3.4 $3.1 $6.0 $5.4 Depreciation / Amortization of Intangibles 1.2 1.2 2.4 2.5 Stock-based Compensation 0.2 0.1 0.3 0.3 Working Capital / Other (0.7) (0.2) (2.4) (2.0) Global Financing A/R (0.2) 0.4 1.9 3.0 3.8 4.7 8.2 9.1 (1.0) (0.9) (1.9) (1.6) 0.0 0.0 0.0 0.4 Acquisitions, net of cash acquired (0.2) (0.1) (1.0) (0.1) Marketable Securities / Other Investments, net (0.8) (0.9) 0.2 (0.5) (1.9) (1.8) (2.6) (1.9) 0.2 (1.6) 0.7 (4.0) Dividends (0.8) (0.7) (1.6) (1.4) Common Stock Repurchases (4.1) (1.7) (8.1) (3.4) 0.9 0.3 1.8 0.5 Net Cash used in Financing Activities (3.7) (3.7) (7.1) (8.3) Effect of Exchange Rate changes on Cash (0.2) 0.2 (0.3) 0.0 Net Income from Operations Net Cash provided by Operating Activities Capital Expenditures, net of payments & proceeds Divestitures, net of cash transferred Net Cash used in Investing Activities Debt, net of payments & proceeds Common Stock Transactions - Other Net Change in Cash & Cash Equivalents ($2.1) www.ibm.com/investor ($0.6) ($1.9) ($1.1) 24 Supplemental Information – Operating Earnings The company is including a view of the impact of certain acquisitionrelated 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. www.ibm.com/investor 25 Supplemental Information – Operating Earnings - 2010 1Q10 2Q10 Pre-Tax Income $3,515 $4,575 Net Income $2,601 $3,386 EPS $1.97 $2.61 $ in Millions, except EPS As Reported Adjustments Pre-Tax Income Total $41 Non-Operating Pension* (76) Acquisition-Related Charges** 116 Tax Impact*** ($4) Net Income $37 EPS $9 (113) 122 7 $17 $0.03 $0.01 Pre-Tax Income $3,556 $4,584 Net Income $2,638 $3,402 EPS $2.00 $2.62 Operating (Non-GAAP) * 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. www.ibm.com/investor 26 Supplemental Information – Operating Earnings - 2009 1Q09 2Q09 3Q09 4Q09 FY09 Pre-Tax Income $3,122 $4,262 $4,373 $6,381 $18,138 Net Income $2,295 $3,103 $3,214 $4,813 $13,425 EPS $1.70 $2.32 $2.40 $3.59 $10.01 $ in Millions, except EPS As Reported Adjustments Pre-Tax Income Total $31 ($23) Non-Operating Pension* (94) (145) Acquisition-Related Charges** 125 Tax Impact*** Net Income EPS $3 ($22) ($12) (121) (149) (509) 122 124 127 498 ($2) $14 $8 $19 $39 $29 ($9) ($3) $27 $10 $0.02 ($0.01) $0.01 $0.00 $0.02 Pre-Tax Income $3,153 $4,239 $4,375 $6,359 $18,126 Net Income $2,324 $3,094 $3,224 $4,810 $13,452 EPS $1.72 $2.31 $2.41 $3.59 $10.03 Operating (Non-GAAP) * 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. www.ibm.com/investor 27 Supplemental Information – Operating Earnings - 2008 1Q08 2Q08 3Q08 4Q08 FY08 Pre-Tax Income $3,198 $3,814 $3,895 $5,808 $16,715 Net Income $2,319 $2,765 $2,824 $4,427 $12,334 EPS $1.64 $1.97 $2.04 $3.27 $8.89 $ in Millions, except EPS As Reported Adjustments Pre-Tax Income Total Non-Operating Pension* Acquisition-Related Charges** Tax Impact*** Net Income EPS ($6) $24 $2 ($167) ($147) (121) (140) (132) (297) (691) 115 165 134 130 544 $13 $27 ($5) $70 $105 $7 $52 ($3) ($97) ($41) $0.00 $0.04 $0.00 ($0.07) ($0.03) Pre-Tax Income $3,191 $3,839 $3,897 $5,642 $16,569 Net Income $2,325 $2,817 $2,821 $4,330 $12,293 EPS $1.65 $2.01 $2.04 $3.20 $8.86 Operating (Non-GAAP) * 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. www.ibm.com/investor 28 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. www.ibm.com/investor 29 Non-GAAP Supplementary Materials Debt-to-Capital Ratio Management presents its debt-to-capital ratio excluding the Global Financing business. A financing business is managed on a leveraged basis. The company funds its Global Financing segment using a debt-to-equity ratio target of approximately 7 to 1. Given this significant leverage, the company presents a debt-to-capital ratio which excludes the Global Financing segment debt and equity because the company believes this is more representative of the company’s core business operations. PLM Sale Management presents certain financial results excluding the effects of the PLM sale. In March 2010, the company completed the sale of its activities associated with the sales and support of Dassault Systemes’ (Dassault) product lifecycle management (PLM) software, including customer contracts and related assets to Dassault. Given this sale, management believes that presenting financial information regarding revenue and software segment revenue without this item is more representative of operational performance and provides additional insight into, and clarifies the basis for, historical and/or future performance, which may be more useful for investors. www.ibm.com/investor 30 Non-GAAP Supplementary Materials Reconciliation of Revenue Growth Rates 2Q10 Yr/Yr vs. 4Q09 Yr/Yr Total Revenue As Rptd @CC 1 pts 7 pts The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2010 Financial Highlights” discussion regarding revenue growth in the company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 31 Non-GAAP Supplementary Materials Reconciliation of Revenue Growth Rates 2Q10 Yr/Yr vs. 1Q10 Yr/Yr As Rptd @CC Global Technology Services (5 pts) <1 pts 3 pts 8 pts Software (8 pts) (3 pts) Software, excluding PLM Sale (4 pts) 1 pts Systems & Technology (1 pts) 2 pts 3 pts 7 pts (3 pts) 2 pts 1 pts 2 pts (11 pts) 1 pts Asia Flat 2 pts OEM 8 pts 8 pts Major Markets (3 pts) 1 pts Growth Markets (6 pts) 1 pts BRIC (1 pts) 3 pts Global Business Services Global Financing Total Revenue Americas EMEA The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2010 Financial Highlights,” “Revenue by Segment” and “Revenue by Geography” discussion regarding segment revenue growth in the company’s earnings presentation. The above reconciles the sequential change from 1Q10 to 2Q10. See Slide 29 and 30 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 32 Non-GAAP Supplementary Materials Reconciliation of Geography Revenue Growth 2Q10 Yr/Yr As Rptd @CC Asia Pacific, other than Japan 14% 7% Japan 5% (1%) UK 6% 11% The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography” discussion regarding revenue growth in certain geographies/countries in the company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 33 Non-GAAP Supplementary Materials Reconciliation of Services Segment Revenue Growth 2Q10 Yr/Yr As Rptd @CC Growth Markets – GTS Outsourcing 19% 8% Growth Markets - ITS 13% 8% North America – Consulting & AMS 10% 8% The above serves to reconcile the Non-GAAP financial information contained in the “Services Segment” discussion regarding revenue growth in certain segments in the company’s earnings presentation. See Slide 29 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 34 Non-GAAP Supplementary Materials Reconciliation of Debt-to-Capital Ratio 2Q10 FY09 2Q09 Non-Global Financing Debt / Capital 23% 16% 35% IBM Consolidated Debt / Capital 56% 53% 65% The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary” discussion regarding the non-Global Financing debt to capital ratio in the company’s earnings presentation. See Slide 30 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 35 www.ibm.com/investor 36