® 4Q 2011 Earnings Presentation January 19, 2012 www.ibm.com/investor Forward Looking Statements and Non-GAAP Information 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. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including "operating earnings" and other "operating" financial measures. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information are included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/4q11/ The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated January 19, 2012. www.ibm.com/investor 2 2011 Summary Revenue Operating Pre-Tax Income Operating (Non-GAAP) EPS 4Q11 $ Yr/Yr $29.5B +2% $7.4B +6% $4.71 +11% FY11 $ $106.9B $21.6B $13.44 Yr/Yr +7% +9% +15% ¾ 4Q Segment highlights: • Continued momentum in Software: Revenue +9%, Profit +12% • Services revenue led by growth markets +13% @CC; Services Profit +17% • Continued strength and share gain in Power ¾ Expanded operating margins: gross (+1.1 pts), pre-tax (+0.9 pts), net (+0.5 pts) ¾ 9th consecutive year of double-digit EPS growth ¾ Generated $9B of Free Cash Flow in the quarter, $16.6B for the year Expect at least $14.85 of Operating EPS in 2012 www.ibm.com/investor 3 Key Financial Metrics $ in Billions, except EPS P&L Highlights Revenue 4Q11 B/(W) Yr/Yr $29.5 2% GP Margin 50.2% 1.1 pts 1% PTI Margin 25.1% 0.9 pts NI Margin 19.0% 0.5 pts Tax Rate 24.4% (0.7 pts) @CC PTI – Operating $7.4 6% EPS – Operating $4.71 11% Cash Highlights P&L Ratios (Operating) 4Q11 B/(W) Yr/Yr 4Q11 Last 12 Mos. $9.0 $16.6 Share Repurchase 3.6 15.0 Dividends 0.9 3.5 Free Cash Flow (excl GF Receivables) Cash Balance @ Dec. 31 11.9 www.ibm.com/investor 4 Revenue by Geography $ in Billions 4Q11 Americas B/(W) Yr/Yr Rptd @CC $12.5 3% 3% Europe/ME/A 9.6 1% 1% Asia Pacific 6.7 2% (1%) OEM 0.7 (9%) (9%) IBM $29.5 2% 1% Major Markets Flat Flat Growth Markets 7% 8% 10% 11% BRIC Countries Canada/ LA U.S. +1% EMEA Japan APac - 9% @CC OEM Performance led by Growth Markets www.ibm.com/investor 5 Revenue and Gross Profit Margin by Segment Operating Gross Profit Margin Revenue $ in Billions 4Q11 Global Technology Services B/(W) Yr/Yr Rptd @CC 4Q11 B/(W) Yr/Yr Pts $10.5 3% 3% 36.6% 2.1 pts Global Business Services 4.9 3% 2% 29.3% 1.3 pts Software 7.6 9% 9% 89.8% 0.2 pts Systems & Technology 5.8 (8%) (8%) 40.5% (3.1 pts) Global Financing 0.5 (13%) (13%) 49.7% (2.1 pts) 50.2% 1.1 pts Total Revenue & Operating GP Margin $29.5 2% 1% Revenue growth led by Software; GP Margin driven by Services and Mix www.ibm.com/investor 6 Expense Summary $ in Billions 4Q11 B/(W) Yr/Yr SG&A – Operating $6.0 RD&E – Operating 1.6 IP and Development Income (0.3) Currency Acq.* Base (2%) 0 pts (1 pts) (1 pts) 2% 0 pts (2 pts) 3 pts 0 pts (1 pts) (1 pts) (20%) Other (Income)/Expense 0.0 Interest Expense 0.1 (12%) $7.4 (2%) Operating Expense & Other Income B/(W) Yr/Yr Drivers 5% * Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges www.ibm.com/investor 7 Services Segments Global Technology Services (GTS) $ in Billions 4Q11 Revenue (External) Gross Margin (External) $10.5 36.6% Pre-Tax Income $1.9 PTI Margin 18.0% B/(W) Yr/Yr Rptd @CC 3% 2.1 pts 3% $ in Billions Revenue (External) GBS GBS Outsourcing Consulting & Systems Integration 4Q11 $141B 2.3 pts PTI Margin Rptd 3% 5% (1%) @CC 3% 4% (1%) 5% 2% 4% 1% ($2B) $4.9 Pre-Tax Income Yr/Yr GTS GTS Outsourcing Integrated Technology Services Maintenance 4Q11 Gross Margin (External) 18% 4Q11 Revenue Services Backlog Global Business Services (GBS) Flat B/(W) Yr/Yr Rptd @CC 3% 29.3% 1.3 pts $0.8 14% 16.6% 1.8 pts 2% 4Q11 Revenue (% of Total Services) Maint. 12% GTS Outsourcing 40% GBS Outsourcing 7% ITS 16% GBS C&SI 25% Strong profit growth and margin expansion www.ibm.com/investor 8 Total Services Backlog Run Out 2011 Revenue (% of Total Services) Services Run Out 60 Revenue from base growth and new signings 50 ($B) 40 Transactional 40% Outsourcing 47% 30 70% Revenue from 12/31/10 Backlog Projected Revenue from 12/31/11 Backlog Revenue from Backlog 20 +3% Yr/Yr * 10 Maint. 13% 0 2011 2012 Revenue from New Signings Revenue from Base Growth Revenue from Backlog * @ consistent foreign exchange rates yr/yr www.ibm.com/investor 9 Software Segment $ in Billions 4Q11 $7.6 89.8% $3.7 43.7% Revenue (External) Gross Margin (External) Pre-Tax Income PTI Margin 4Q11 Revenue Yr/Yr Rptd @CC 21% 21% 9% 9% Tivoli 14% 14% Lotus (2%) (3%) 4% 4% Key Branded Middleware 11% 11% Total Middleware 10% 10% 9% 9% WebSphere Family Information Management Rational Total Software B/(W) Yr/Yr Rptd @CC 9% 9% 0.2 pts 12% 1.4 pts 4Q11 Revenue (% of Total Software) Key Branded Middleware 68% Other Middleware 16% Operating Systems Other 9% 7% Fifth consecutive quarter of double-digit growth in Branded Middleware www.ibm.com/investor 10 Systems & Technology Segment $ in Billions Revenue (External) Gross Margin (External) Pre-Tax Income PTI Margin 4Q11 Revenue System z Power Systems System x Storage Retail Store Solutions Total Systems Microelectronics OEM Total Systems & Technology 4Q11 B/(W) Yr/Yr Rptd @CC $5.8 (8%) 40.5% (3.1 pts) $0.8 (33%) 13.2% (4.8 pts) Yr/Yr Rptd (31%) 6% (2%) (1%) 9% (7%) (11%) (8%) @CC (31%) 6% (3%) (1%) 9% (7%) (11%) (8%) (8%) 4Q11 Revenue (% of Total Sys & Tech) Servers 66% Storage 20% RSS Micr o OE 10% M Power Systems extend Unix leadership with record competitive displacements www.ibm.com/investor 11 Cash Flow Analysis $ in Billions Net Cash from Operations Less: Global Financing Receivables 4Q11 B/(W) Yr/Yr FY11 B/(W) Yr/Yr $7.1 $0.3 $19.8 $0.3 (2.9) 0.1 (0.8) 10.0 0.2 20.7 (1.1) 0.0 (4.1) 9.0 0.3 16.6 0.3 Acquisitions (1.6) 1.3 (1.8) 4.1 Divestitures 0.0 0.0 0.0 0.0 Dividends (0.9) (0.1) (3.5) (0.3) Share Repurchases (3.6) 0.0 0.6 (0.1) 1.7 (0.6) (2.9) (1.3) 2.3 (1.2) $0.6 $0.1 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 (15.0) $0.3 (0.1) 0.4 (0.1) 0.3 $2.6 12 Balance Sheet Summary Dec. 10 Dec. 11 $11.7 $11.9 Non-GF Assets* 67.3 69.4 Global Financing Assets 34.5 35.1 113.5 116.4 Other Liabilities 61.7 64.9 Non-GF Debt* 5.8 8.0 22.8 23.3 28.6 31.3 Total Liabilities 90.3 96.2 Equity 23.2 20.2 23% 32% 7.0 7.2 $ in Billions Cash & Marketable Securities Total Assets Global Financing Debt Total Debt Non-GF Debt / Capital Global Financing Leverage * Includes eliminations of inter-company activity www.ibm.com/investor 13 Operating EPS Bridge – 4Q10 to 4Q11 $0.26 $4.25 $0.07 $4.71 $0.13 Gross Margin 0.19 Expense E/R (0.02) Tax (0.04) 4Q10 Operating EPS Revenue Growth @ Actual Margin Expansion www.ibm.com/investor Share Repurchases 4Q11 Operating EPS 14 Operating EPS Bridge – FY10 to FY11 $0.82 $11.67 $0.77 $13.44 Share Repurchases 2011 Operating EPS $0.18 Gross Margin 0.68 Expense E/R (0.49) Tax (0.01) 2010 Operating EPS Revenue Growth @ Actual Margin Expansion www.ibm.com/investor 15 2015e At least $20 FY 2011 Summary ¾ Continued strength in growth initiatives • Growth markets +11% @CC yr/yr, 22% of Geo revenue • Business analytics +16% yr/yr 2012e $14.85+ • Smarter Planet +47% yr/yr 2011 $13.44 • Cloud >3x yr/yr 2010 $11.67 ¾ Expanded margins in line with the model • Operating gross profit margin +1.1 pts • Operating pre-tax margin +0.3 pts ¾ Generated $16.6B Free Cash Flow ¾ Leveraging cash generation to return value to shareholders • $15B share repurchases; $3.5B dividends Operating EPS Expect at least $14.85 of Operating EPS in 2012 www.ibm.com/investor 16 IBM Transformation Continues At Least $20 Operating PTI / EPS * Segment Operating PTI Operating EPS At Least $14.85 $13.44 '00 '01 '02 '03 '04 '05 '06 Hardware / Financing '07 '08 '09 '10 Services '11 '12e '13e '14e '15e Software * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related charges 2000 & 2001 segments not restated for stock based compensation; 2000-2010 Segment PTI is reclassified to conform with 2011 operating presentation Sum of external segment pre-tax income not equal to IBM pre-tax income www.ibm.com/investor 17 www.ibm.com/investor 18 Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ Currency – Year/Year Comparison Supplemental Segment Information – Global Services Supplemental Segment Information – Systems & Technology, Software Global Financing Portfolio Key Financial Metrics – FY 2011 Revenue by Geography – FY 2011 Revenue by Segment – FY 2011 Revenue by Key Industry Sales Unit – 4Q and FY 2011 Gross Margins by Segment – FY 2011 Expense Summary – FY 2011 Pre-Tax Income by Segment – FY 2011 Cash Flow (FAS 95) Retirement-Related Charges Retirement-Related Charges Retirement-Related Charges Non-GAAP Supplementary Materials • Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency • Cash Flow, Debt-to-Capital Ratio, Other Items • Reconciliation of Operating Earnings Per Share • GAAP to Operating (Non-GAAP) Bridge – 4Q 2011 • GAAP to Operating (Non-GAAP) Bridge – 4Q 2010 • GAAP to Operating (Non-GAAP) Bridge – FY 2011 • GAAP to Operating (Non-GAAP) Bridge – FY 2010 • GAAP to Operating (Non-GAAP) Bridge – 4Q 2011 • GAAP to Operating (Non-GAAP) Bridge – 4Q 2010 • GAAP to Operating (Non-GAAP) Bridge – FY 2011 • GAAP to Operating (Non-GAAP) Bridge – FY 2010 • Reconciliation of Revenue Growth – Geographies • Reconciliation of GBS Revenue Growth • Reconciliation of B/(W) Yr/Yr Expense Drivers – 4Q11 • Reconciliation of B/(W) Yr/Yr Expense Drivers – FY11 • Reconciliation of Debt-to-Capital Ratio • Reconciliation of Operating EPS Bridge 4Q10 to 4Q11 • Reconciliation of Operating EPS Bridge FY10 to FY11 • Reconciliation of Consolidated EPS • Reconciliation of Segment Pre-Tax Income and Margin Growth www.ibm.com/investor 19 Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $ 1Q12 Yr/Yr @ 1/18 Spot 2Q12 3Q12 4Q12 FY12 3Q11 Yr/Yr 4Q11 Yr/Yr 1/18 Spot Euro 0.71 8% 0.74 (1%) 0.78 (7%) (12%) (10%) (5%) (8%) Pound 0.62 4% 0.64 (1%) 0.65 (4%) (6%) (4%) (2%) (4%) 78 9% 77 6% 77 7% 6% 1% 1% 4% Yen IBM Revenue Impact 5 pts 0 pts Vs. 10/14 View - Pts B/(W) (1 pts) - $B B/(W) ($0.3) Revenue As Reported Currency Impact Revenue @CC (US$B) Yr/Yr $29.5 2% 0.1 $29.4 ~(1 pts) ~(3 pts) ~(3 pts) ~(1 pts) ~(2 pts) 0 pts 1% www.ibm.com/investor 20 Supplemental Materials Supplemental Segment Information – 4Q 2011 Supplemental Revenue Information Supplemental Backlog / Signings Information Revenue Growth $ in Billions Yr/Yr @CC Global Services 4Q11 Yr/Yr @CC GTS Outsourcing 3% 3% Total Backlog $141 ($2) Flat Integrated Tech Services 5% 4% Change in Backlog due to Currency (1%) (1%) 3% 3% ($4) ($3) GBS Outsourcing 5% 4% $ in Billions GBS C&SI 2% 1% Global Services 4Q11 Yr/Yr @CC 3% 2% Outsourcing $11.6 (16%) (15%) Global Services Maintenance Total GTS Total GBS Backlog Quarter-to-Quarter ($1) Year-to-Year ($2) Outsourcing Backlog $93 Signings - GTS O/S, GBS O/S (AMS) Total Outsourcing 4% 3% Total Transactional 3% 2% (1%) (1%) Maintenance Transactional 8.8 5% 4% (8%) (8%) - ITS, Consulting & AMS SI (incl. US Federal) Total Signings $20.4 Note: Actual backlog calculated using December 31 currency spot rates www.ibm.com/investor 21 Supplemental Materials Supplemental Segment Information – 4Q 2011 Revenue Growth Revenue Growth Systems & Technology System z Power Systems Yr/Yr @CC GP% (31%) (31%) Share Software Yr/Yr @CC 21% 21% 9% 9% Tivoli 14% 14% (2%) (3%) 4% 4% 11% 11% 3% 3% 10% 10% Operating Systems 3% 3% Other Software/Services 6% 6% Total Software 9% 9% WebSphere Family Information Management 6% 6% System x (2%) (3%) = Lotus Storage (1%) (1%) = Rational 9% 9% (7%) (7%) (11%) (11%) (8%) (8%) Retail Store Solutions Total Systems Microelectronics OEM Total Systems & Technology Key Branded Middleware Other Middleware Total Middleware www.ibm.com/investor 22 Supplemental Materials Global Financing Portfolio 4Q11 – $27.0B Net External Receivables Invest ment Grade 63% N o n- Invest ment Grade 3 7% 50% 40% 30% 20% 10% 39% 24% 20% 10% 5% 2% Ba1-Ba2 Ba3-B1 B2-B3 Caa-D 0% Aaa-A3 Baa1-Baa3 4Q11 3Q11 4Q10 Identified Loss Rate 0.8% 1.0% 1.1% Anticipated Loss Rate 0.5% 0.3% 0.4% Reserve Coverage 1.3% 1.3% 1.5% Client Days Delinquent Outstanding 1.9 2.7 2.4 $37M $46M $20M Commercial A/R > 30 Days 23 www.ibm.com/investor 23 Supplemental Materials Key Financial Metrics – FY 2011 $ in Billions, except EPS P&L Highlights Revenue FY11 $106.9 @CC B/(W) Yr/Yr P&L Ratios (Operating) FY11 B/(W) Yr/Yr 7% GP Margin 47.2% 1.1 pts 3% PTI Margin 20.2% 0.3 pts NI Margin 15.3% 0.2 pts Tax Rate 24.5% (0.1 pts) PTI – Operating $21.6 9% EPS – Operating $13.44 15% Cash Highlights Free Cash Flow FY11 (excl GF Receivables) Share Repurchase Dividends $16.6 15.0 3.5 Cash Balance @ Dec. 31 www.ibm.com/investor 11.9 24 Supplemental Materials Revenue by Geography – FY 2011 $ in Billions Americas FY11 B/(W) Yr/Yr Rptd @CC $44.9 7% 6% Europe/ME/A 34.0 7% 2% Asia Pacific 25.3 9% 2% (2%) (3%) 7% 3% 5% 2% 16% 11% 19% 16% OEM 2.7 IBM $106.9 Major Markets Growth Markets BRIC Countries www.ibm.com/investor Canada/ LA U.S. +4% EMEA Japan APac - 7% @CC OEM 25 Supplemental Materials Revenue by Segment – FY 2011 $ in Billions FY11 Global Technology Services B/(W) Yr/Yr Rptd @CC $40.9 7% 3% Global Business Services 19.3 6% 1% Software 24.9 11% 8% Systems & Technology 19.0 6% 3% (6%) (9%) 7% 3% Global Financing Total IBM 2.1 $106.9 www.ibm.com/investor Global Business Services Global Technology Services Systems & Technology Software Global Financing 26 Supplemental Materials Revenue by Key Industry Sales Unit – 4Q & FY 2011 B/(W) Yr/Yr Rptd @CC B/(W) Yr/Yr Rptd @CC FY11 $8.9 Flat (1%) $31.8 9% 5% Public 4.4 Flat Flat 16.1 3% Flat Industrial 2.9 3% 2% 10.6 5% 1% Distribution 2.9 6% 6% 10.3 7% 4% Communications 2.8 5% 6% 10.5 9% 6% General Business 6.1 7% 7% 21.6 12% 8% $29.5 2% 1% $106.9 7% 3% $ in Billions Financial Services Total IBM 4Q11 www.ibm.com/investor 27 Supplemental Materials Gross Margins by Segment – FY 2011 External Gross Profit Margins FY11 B/(W) Yr/Yr Pts Global Technology Services 35.0% 0.5 pts Global Business Services 28.8% 0.7 pts Software 88.5% 0.5 pts Systems & Technology 39.8% 1.6 pts Global Financing 49.8% (1.5 pts) Total IBM - Operating 47.2% 1.1 pts www.ibm.com/investor 28 Supplemental Materials Expense Summary – FY 2011 $ in Billions FY11 B/(W) Yr/Yr SG&A – Operating $23.3 RD&E – Operating IP and Development Income Currency Acq.* Base (8%) (3 pts) (3 pts) (2 pts) 6.3 (3%) (2 pts) (4 pts) 2 pts (1.1) (4%) (4 pts) (3 pts) (3 pts) Other (Income)/Expense 0.0 (94%) Interest Expense 0.4 (12%) $28.9 (10%) Operating Expense & Other Income B/(W) Yr/Yr Drivers * Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges www.ibm.com/investor 29 Supplemental Materials Pre-Tax Income by Segment – FY 2011 Segment PTI $ Segment PTI Margin PTI $ B/(W) Yr/Yr B/(W) Yr/Yr w/o Unique Items* PTI % B/(W) Yr/Yr B/(W) Yr/Yr w/o Unique Items* $6.3 14% 11% 14.9% 1.0 pts 0.6 pts 3.0 18% 14% 15.0% 1.6 pts 1.1 pts 10.0 5% 12% 35.3% (1.9 pts) 0.2 pts Systems & Technology 1.6 12% 9% 8.2% 0.5 pts 0.3 pts Global Financing 2.0 3% 3% 47.9% 0.0 pts 0.0 pts $21.6 9% 20.2% 0.3 pts $ in Billions Global Technology Services Global Business Services Software Total Operating PTI * 1Q11 Workforce Rebalancing charge of $221M 1Q10 PLM gain of $591M (Software) and Workforce Rebalancing charge of $557M www.ibm.com/investor 30 Supplemental Materials $ in Billions Cash Flow (FAS 95) 4Q11 4Q10 FY11 FY10 $5.5 $5.3 $15.9 $14.8 Depreciation / Amortization of Intangibles 1.2 1.2 4.8 4.8 Stock-based Compensation 0.2 0.2 0.7 0.6 Working Capital / Other 3.1 3.1 (0.7) 0.0 (2.9) (3.0) (0.8) (0.7) 7.1 6.8 19.8 19.5 (1.1) (1.1) (4.1) (4.0) 0.0 0.1 0.0 0.1 Acquisitions, net of cash acquired (1.6) (2.9) (1.8) (5.9) Marketable Securities / Other Investments, net (0.9) (0.1) 1.5 1.3 (3.5) (4.1) (4.4) (8.5) 1.2 1.4 2.4 2.3 Dividends (0.9) (0.8) (3.5) (3.2) Common Stock Repurchases (3.6) (3.6) (15.0) (15.4) 0.4 1.1 Net Cash used in Financing Activities (2.8) (1.9) (13.7) (12.4) Effect of Exchange Rate changes on Cash (0.2) (0.1) (0.5) (0.1) Net Change in Cash & Cash Equivalents $0.6 $0.8 $1.3 Net Income from Operations Global Financing A/R 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 www.ibm.com/investor 2.5 3.8 ($1.5) 31 Supplemental Materials Retirement-Related Charges Funded Status* US WW 101% 99% 98% 96% YE 2010 YE 2011 Actual ROA Expected ROA US WW WW 13.6% 11.7% 7.3% 8.4% 6.1% 7.3% Discount Rate WW 4.7% 4.2% Non-Operating Operating Pre-Tax Retirement-Related (Cost) / Income ($B) $0.5 $0.4 $0.1 ($0.4) ($0.8) ($0.4) ($0.0) ($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9) 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 Retirement-Related Cash Drivers ($B) ($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9) 2009 2010 * Tax-qualified plans 2011 2012 2013 2014 Actual 2015 ($1.4) ($1.4) ($1.4) ($1.4) ($1.5) ($1.7) ($1.5) 2009 2010 2011 2012 2013 2014 2015 Projection based on Dec ‘11 assumptions www.ibm.com/investor 32 Supplemental Materials Retirement-Related Charges YE 2010 YE 2011 Upside Downside Funded Status* US WW 101% 99% 98% 96% Expected ROA WW 7.3% 7.3% 7.3% 7.3% Actual ROA WW 11.7% 6.1% 14.0% 0.0% Discount Rate WW 4.7% 4.2% 4.7% 3.7% Operating Non-Operating Pre-Tax Retirement-Related (Cost) / Income ($B) $0.5 $0.4 $0.1 ($0.4) ($0.8) ($0.4) ($0.0) ~$2B Range ($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9) 2009 2010 2011 2012 2013 2014 2015 * Tax-qualified plans 2010 2011 Actual 2012 2010 2011 2012 2013 2014 2015 Retirement-Related Cash Drivers ($B) ($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9) 2009 2009 2013 2014 2015 ($1.4) ($1.4) ($1.4) ($1.4) ($1.5) ($1.7) ($1.5) 2009 2010 Projection based on Dec ‘11 assumptions www.ibm.com/investor 2011 2012 Upside Case 2013 2014 2015 Downside Case 33 Supplemental Materials Retirement-Related Charges Non-operating Retirement-Related ($B) Pre-tax (Cost) / Income $0.5 $0.4 $0.1 ($0.4) ($0.8) ($0.4) ($0.1) ($0.3) ($0.5) ($0.4) $0.4 B/(W) Y/Y 2009 2010 2011 2012 2013 2014 ($0.0) $0.4 2015 Cash Drivers ($1.4) ($1.4) ($1.4) ($1.4) ($1.5) ($1.7) ($1.5) B/(W) Y/Y $0.2 2009 Actual 2010 $0.1 ($0.0) ($0.0) $0.0 ($0.1) 2011 2012 2013 2014 2015 Projection based on Dec ‘11 assumptions www.ibm.com/investor 34 Supplemental Materials 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 earnings presentation materials, the following Non-GAAP information which management believes provides useful information to investors. Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items Management presents certain financial measures excluding the effects of certain acquisition-related charges, non-operating retirement-related costs, and any related tax impacts. Management uses the term "operating" to describe this view of the company's financial results and other financial information. For acquisitions, these measures exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable restructuring and related expenses, and tax charges related to acquisition integration. For retirementrelated costs, the company has characterized certain items as operating and others as non-operating. The company includes service cost, amortization of prior service cost and the cost of defined contribution plans in its operating results. Non-operating retirement-related costs include interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements, multi-employer plan costs, pension insolvency costs, and other costs. Non-operating costs primarily relate to changes in pension plan assets and liabilities which are tied to market performance, and management considers these costs to be outside the operational performance of the business. Management’s calculation of these operating measures, as presented, may differ from similarly titled measures reported by other companies. Overall, management believes that providing investors with an operating view as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans, improves visibility to management decisions and their impacts on operational performance, enables better comparison to peer companies, and allows the company to provide a long term strategic view of the business going forward. For the 2015 earnings per share roadmap, the company is utilizing an operating view to establish its objectives and track its progress. Effective January 1, 2011, the company’s segment financial results and performance reflect operating earnings, consistent with the company’s management and measurement system. Constant Currency Management refers to growth rates at constant currency or adjusting for currency so that certain financial 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. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local 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. www.ibm.com/investor 35 Supplemental Materials Non-GAAP Supplementary Materials Cash Flow Management uses a free cash flow measure to evaluate the company’s operating results, plan share repurchase levels, evaluate strategic investments and assess the company’s ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and cash flow from operations that exclude the effect of Global Financing receivables. 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. Other Items Management presents certain financial results excluding the effects of the following items: (1) certain income tax settlement payments, (2) the PLM divestiture (representing the March 2010 sale of IBM activities associated with the sales and support of Dassault Systemes’ product lifecycle management (PLM) software, including customer contracts and related assets, to Dassault), (3) workforce rebalancing charges, and (4) Japan and Public Sector results. Management believes that presenting certain financial information without these items is more representative of the company’s 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 36 Supplemental Materials Non -GAAP Supplementary Materials Non-GAAP Reconciliation of Operating Earnings Per Share 2012 Expectations IBM GAAP EPS $14.16+ IBM Operating EPS (Non-GAAP) $14.85+ Adjustments Acquisition-Related Charges * $0.43 Amortization of Purchased Intangibles $0.41 Other Acquisition-Related Charges $0.02 Non-Operating Retirement-Related Items $0.26 * Includes acquisitions closed as of 12/31/2011 The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary” and “FY 2011 Summary” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 37 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2011 $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $14,722 $81 ($10) $14,793 2 5,996 23 1,578 SG&A 6,076 RD&E 1,555 Other Income & Expense (44) (82) 0 (2) 0 (46) 25 7,388 Total Operating Expense & Other Income 7,448 (85) Pre-Tax Income 7,274 166 (35) 7,405 Tax *** 1,784 47 (24) 1,808 Net Income 5,490 119 (12) 5,597 Diluted Earnings Per Share $4.62 $0.10 ($0.01) $4.71 * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary,” “Key Financial Metrics” and “Expense Summary” discussions in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 38 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2010 $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $14,227 $82 ($60) $14,249 SG&A 5,951 RD&E 1,578 Other Income & Expense (42) (95) 0 28 5,884 33 1,611 (2) 0 61 (44) Total Operating Expense & Other Income 7,271 (98) Pre-Tax Income 6,956 180 (121) 7,015 Tax *** 1,698 10 (47) 1,661 Net Income 5,257 170 (74) 5,354 Diluted Earnings Per Share $4.18 $0.14 ($0.06) 7,235 $4.25 * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary,” “Key Financial Metrics” and “Expense Summary” discussions in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 39 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – FY 2011 $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $50,138 $341 $2 $50,481 SG&A 23,594 RD&E 6,258 Other Income & Expense (20) (309) 0 (13) 88 (25) 0 23,272 6,345 (45) Total Operating Expense & Other Income 29,135 (334) 74 28,875 Pre-Tax Income 21,003 675 (72) 21,605 5,148 179 (40) 5,287 15,855 495 (32) 16,318 ($0.03) $13.44 Tax *** Net Income Diluted Earnings Per Share $13.06 $0.41 * Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary,” “FY 2011 Summary”, “Key Financial Metrics – FY 2011” and “Expense Summary – FY 2011” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 40 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – FY 2010 $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $46,014 $260 ($204) $46,070 84 21,628 126 6,152 SG&A 21,837 RD&E 6,026 Other Income & Expense (787) (294) 0 (4) 0 (791) Total Operating Expense & Other Income 26,291 (298) 210 26,202 Pre-Tax Income 19,723 558 (414) 19,867 4,890 116 (162) 4,844 14,833 443 (253) 15,023 $0.34 ($0.20) $11.67 Tax *** Net Income Diluted Earnings Per Share $11.52 * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary,” “FY 2011 Summary”, “Key Financial Metrics – FY 2011” and “Expense Summary – FY 2011” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 41 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2011 GAAP Acquisitionrelated * adjustments Retirementrelated ** adjustments Operating (Non-GAAP) Gross Profit Margin 49.9% 0.3 pts (0.0 pts) 50.2 % PTI Margin 24.7% 0.6 pts (0.1 pts) 25.1 % Tax Rate *** 24.5 % 0.1 pts (0.2 pts) 24.4 % Net Income Margin 18.6 % 0.4 pts (0.0 pts) 19.0% * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary” and “Key Financial Metrics” discussions in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 42 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2010 GAAP Acquisitionrelated * adjustments Retirementrelated ** adjustments Operating (Non-GAAP) Gross Profit Margin 49.0% 0.3 pts (0.2 pts) 49.1 % PTI Margin 24.0% 0.6 pts (0.4 pts) 24.2 % Tax Rate *** 24.4 % (0.5 pts) (0.3 pts) 23.7 % Net Income Margin 18.1 % 0.6 pts (0.3 pts) 18.5 % * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary” and “Key Financial Metrics” discussions in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 43 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – FY 2011 GAAP Acquisitionrelated * adjustments Retirementrelated ** adjustments Operating (Non-GAAP) Gross Profit Margin 46.9% 0.3 pts 0.0 pts 47.2% PTI Margin 19.6% 0.6 pts (0.1 pts) 20.2% Tax Rate *** 24.5% 0.1 pts (0.1 pts) 24.5% Net Income Margin 14.8 % 0.5 pts (0.0 pts) 15.3% * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary”, “FY 2011 Summary” and “Key Financial Metrics – FY 2011” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 44 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – FY 2010 GAAP Acquisitionrelated * adjustments Retirementrelated ** adjustments Operating (Non-GAAP) Gross Profit Margin 46.1% 0.3 pts (0.2 pts) 46.1 % PTI Margin 19.7% 0.6 pts (0.4 pts) 19.9 % Tax Rate *** 24.8% (0.1 pts) (0.3 pts) 24.4 % Net Income Margin 14.9 % 0.4 pts (0.3 pts) 15.0 % * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, and deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance ***The tax impact on the Operating (Non-GAAP) Pre-Tax Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results. The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary”, “FY 2011 Summary” and “Key Financial Metrics – FY 2011” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 45 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Revenue Growth 4Q11 Yr/Yr Japan Canada Germany UK Spain Growth Markets - Services As Rptd @CC (3%) 12% 3% 8% 8% 11% (9%) 13% 4% 9% 9% 13% FY11 Yr/Yr Japan As Rptd 2% @CC (7%) The above serves to reconcile the Non-GAAP financial information contained in the “2011 Summary,” “Revenue by Geography” and “Revenue by Geography – FY 2011” discussions in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 46 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of GBS Revenue Growth As Rptd As Rptd (Excl. Japan and Public Sector) @CC (Excl. Japan and Public Sector) 4Q11 3% 8% 9% FY11 6% 12% 8% The above serves to reconcile the Non-GAAP financial information contained in the “Services Segment” discussion in the company’s earnings presentation. See Slides 35-36 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 47 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – 4Q11 GAAP Non-GAAP Adjustments Operating (Non-GAAP) 0 pts 0 pts 0 pts Acquisitions (1 pts) 0 pts (1 pts) Base (1 pts) 0 pts (1 pts) 0 pts 0 pts 0 pts (2 pts) 0 pts (2 pts) 3 pts 1 pts 3 pts 0 pts 0 pts 0 pts Acquisitions (1 pts) 0 pts (1 pts) Base (1 pts) 0 pts (1 pts) SG&A Currency RD&E Currency Acquisitions Base Operating Expense & Other Income Currency The above serves to reconcile the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 48 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – FY11 GAAP Non-GAAP Adjustments Operating (Non-GAAP) Currency (3 pts) 0 pts (3 pts) Acquisitions (3 pts) 0 pts (3 pts) Base (2 pts) 0 pts (2 pts) Currency (2 pts) 0 pts (2 pts) Acquisitions (4 pts) 0 pts (4 pts) 2 pts 1 pts 2 pts Currency (4 pts) 0 pts (4 pts) Acquisitions (3 pts) 0 pts (3 pts) Base (3 pts) 0 pts (3 pts) SG&A RD&E Base Operating Expense & Other Income The above serves to reconcile the Non-GAAP financial information contained in the “Expense Summary – FY 2011” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 49 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Debt-to-Capital Ratio FY11 FY10 Non-Global Financing Debt / Capital 32% 23% IBM Consolidated Debt / Capital 61% 55% The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary” discussion in the company’s earnings presentation. See Slide 36 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 50 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Operating EPS Bridge 4Q10 to 4Q11 GAAP Acquisitionrelated Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) 4Q10 EPS $4.18 $0.14 ($0.06) $4.25 Revenue growth @ actual 0.07 0.00 0.00 0.07 Margin expansion Gross Margin Expense Tax 0.16 (0.04) (0.01) 0.00 0.00 (0.04) 0.03 0.02 0.00 0.19 (0.02) (0.04) Share repurchases 0.26 0.00 0.00 0.26 4Q11 EPS $4.62 $0.10 ($0.01) $4.71 * Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance The above serves to reconcile the Non-GAAP financial information contained in the “Operating EPS Bridge – 4Q10 to 4Q11” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 51 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Operating EPS Bridge FY10 to FY11 GAAP Acquisitionrelated Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $11.52 $0.34 ($0.20) $11.67 0.81 0.02 (0.01) 0.82 Margin expansion Gross Margin Expense Tax 0.51 (0.58) 0.05 0.04 0.01 (0. 02) 0.13 0.09 (0.04) 0.68 (0.49) (0.01) Share repurchases 0.75 0.02 0.00 0.77 $13.06 $0.41 ($0.03) $13.44 FY10 EPS Revenue growth @ actual FY11 EPS * Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs ** Includes retirement related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency insurance The above serves to reconcile the Non-GAAP financial information contained in the “Operating EPS Bridge – FY10 to FY11” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 52 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Consolidated EPS 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 EPS (As Reported) $3.88 $3.94 $2.43 $3.76 $4.39 $4.91 $6.05 $7.15 $8.89 $10.01 $11.52 $13.06 Acquisition Related $0.05 $0.04 $0.07 $0.13 $0.13 $0.14 $0.14 $0.17 $0.29 $0.27 $0.34 $0.41 Non-Operating Retirement Related ($0.62) ($0.72) ($0.68) ($0.48) ($0.19) $0.13 $0.12 $0.14 ($0.32) ($0.25) ($0.20) ($0.03) Operating EPS $3.32 $3.26 $1.81 $3.41 $4.33 $5.18 $6.31 $7.46 $8.86 $10.03 $11.67 $13.44 The above serves to reconcile the Non-GAAP financial information contained in the “IBM Transformation Continues” discussion in the company’s earnings presentation. See Slide 35 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 53 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Segment Pre-Tax Income and Margin Growth FY11 Yr/Yr As Rptd Workforce Rebalancing 14% 18% 5% 12% 3% (3 pts) (4 pts) (1 pt) (3 pts) 0 pts PLM Gain Normalized Pre-Tax Income Growth Global Technology Services Global Business Services Software Systems & Technology Global Financing 0 0 7 0 0 pts pts pts pts pts 11% 14% 12% 9% 3% Pre-Tax Margin Growth Global Technology Services Global Business Services Software Systems & Technology Global Financing 1.0 pt 1.6 pts (1.9 pts) 0.5 pts 0.0 pts (0.4 (0.4 (0.2 (0.2 0.0 pts) pts) pts) pts) pts 0.0 0.0 2.3 0.0 0.0 pts pts pts pts pts 0.6 1.1 0.2 0.3 0.0 pts pts pts pts pts The above serves to reconcile the Non-GAAP financial information contained in the “Pre-Tax Income by Segment – FY 2011” discussion in the company’s earnings presentation. See Slide 36 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 54 www.ibm.com/investor 55