® 4Q 2012 Earnings Presentation January 22, 2013 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 supplemental materials entitled “Non-GAAP Supplemental Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/4q12/ The Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s Form 8-K dated January 22, 2013. www.ibm.com/investor 2 2012 Summary Revenue @CC excl. RSS divestiture Operating Pre-Tax Income Operating (Non-GAAP) EPS Free Cash Flow 4Q12 $ Yr/Yr $29.3B (1%) +1% $8.1B +10% $5.39 +14% $9.5B +$0.6B FY12 Yr/Yr (2%) Flat $23.2B +7% $15.25 +13% $18.2B +$1.6B $ $104.5B 4Q Segment highlights: • Software growth across the portfolio • Services revenue growth fairly consistent with 3Q, strength in growth initiatives • Systems led by successful mainframe ramp Expanded operating gross, pre-tax and net margins for 4Q and full year 10th consecutive year of double-digit EPS growth Expect at least $16.70 of Operating EPS in 2013 www.ibm.com/investor 3 Key Financial Metrics $ in Billions, except EPS P&L Highlights Revenue 4Q12 B/(W) Yr/Yr $29.3 (1%) Flat @CC @CC excl. RSS 1% PTI – Operating $8.1 10% EPS – Operating $5.39 14% P&L Ratios (Operating) 4Q12 B/(W) Yr/Yr GP Margin 52.3% 2.1 pts PTI Margin 27.7% 2.6 pts Tax Rate 24.4% Flat NI Margin 20.9% 1.9 pts 4Q12 Last 12 Mos. $9.5 $18.2 Share Repurchase (Gross) 3.0 12.0 Dividends 1.0 3.8 Cash Highlights Free Cash Flow (excl GF Receivables) Cash Balance @ Dec. 31 11.1 www.ibm.com/investor 4 Revenue by Geography $ in Billions Americas 4Q12 $12.5 B/(W) Yr/Yr Rptd @CC Flat 1% Europe/ME/A 9.1 (5%) (3%) Asia Pacific 7.0 4% 5% Total Geographies excl. Retail Store Solutions IBM excl. Retail Store Solutions Major Markets Growth Markets BRIC Countries $28.6 $29.3 (1%) Flat Flat 1% (1%) Flat Flat 1% (3%) (2%) 7% 7% 11% 14% Canada/ LA EMEA U.S. -1% Japan APac +5% @CC OEM -5% Growth Markets outpace Major Markets by 9 points www.ibm.com/investor 5 Revenue and Gross Profit Margin by Segment Operating Gross Profit Margin Revenue $ in Billions 4Q12 B/(W) Yr/Yr Rptd @CC 4Q12 B/(W) Yr/Yr Pts $10.3 (2%) Flat 37.6% 1.1 pts Global Business Services 4.7 (3%) (2%) 29.9% 0.7 pts Software 7.9 3% 4% 90.6% 0.8 pts Systems & Technology 5.8 (1%) (1%) 44.1% 3.6 pts 4% 4% 0.5 (2%) (1%) 43.8% (5.9 pts) $29.3 (1%) Flat 52.3% 2.1 pts Flat 1% Global Technology Services excl. Retail Store Solutions Global Financing Total Revenue & Op. GP Margin excl. Retail Store Solutions Broad-based margin expansion www.ibm.com/investor 6 Expense Summary 4Q12 B/(W) Yr/Yr SG&A – Operating $5.8 RD&E – Operating 1.6 $ in Billions Currency Acq.* Base 3% 1 pts (2 pts) 4 pts (1%) 0 pts (3 pts) 2 pts 1 pts (2 pts) 3 pts IP and Development Income (0.2) (10%) Other (Income)/Expense (0.1) 17% Interest Expense Operating Expense & Other Income 0.1 $7.2 B/(W) Yr/Yr Drivers 4% 2% * 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 4Q12 $10.3 37.6% $2.0 19.2% Revenue (External) Gross Margin (External) Pre-Tax Income PTI Margin 4Q12 Revenue Global Business Services (GBS) B/(W) Yr/Yr @CC Rptd (2%) Flat 1.1 pts 5% 1.2 pts $ in Billions Revenue (External) Gross Margin (External) Pre-Tax Income PTI Margin Yr/Yr GTS GTS Outsourcing Integrated Technology Services Maintenance Rptd (3%) 2% (2%) @CC (2%) 3% Flat (4%) (3%) (2%) (2%) Flat 1% GBS GBS Outsourcing Consulting & Systems Integration Services Backlog 4Q12 $140B 4Q12 $4.7 29.9% $0.8 17.2% B/(W) Yr/Yr @CC Rptd (3%) (2%) 0.7 pts Flat 0.6 pts 4Q12 Revenue (% of Total Services) Maint. 12% GTS Outsourcing 40% GBS Outsourcing 7% ITS 17% GBS C&SI 24% Continued margin expansion www.ibm.com/investor 8 Full Year Services Backlog Run Out +2 pts yr/yr (1 pt) yr/yr 2012 Revenue from Opening Backlog Projected 2013 Revenue from Opening Backlog Gross profit dollar contribution to Services 2013 Revenue from Backlog +1% yr/yr* 2012 Outsourcing Contract Restructuring Rest of Portfolio 2013 * @ consistent foreign exchange rates yr/yr www.ibm.com/investor 9 Software Segment $ in Billions 4Q12 $7.9 90.6% $4.0B 46.0% Revenue (External) Gross Margin (External) Pre-Tax Income PTI Margin Yr/Yr Rptd @CC 4Q12 Revenue 11% 11% Information Management 2% 3% Tivoli 4% 5% Lotus 9% 9% 12% 12% Key Branded Middleware 5% 6% Total Middleware 4% 5% Total Software 3% 4% WebSphere Family Rational B/(W) Yr/Yr Rptd @CC 3% 4% 0.8 pts 8% 2.4 pts 4Q12 Revenue (% of Total Software) Key Branded Middleware 69% Other Middleware 15% Operating Systems Other 9% 7% Performance led by Branded Middleware www.ibm.com/investor 10 Systems & Technology Segment B/(W) Yr/Yr $ in Billions Revenue (External) – including RSS 4Q12 Rptd @CC $5.8 (1%) (1%) 4% 4% excluding RSS Gross Margin (External) Pre-Tax Income PTI Margin 4Q12 Revenue System z Power Systems System x Storage Total Systems excl. RSS Microelectronics OEM Total Systems & Technology excl. RSS 44.1% $1.0 16.4% Yr/Yr Rptd 56% (19%) (2%) (5%) 4% 4% 4% @CC 56% (19%) (3%) (5%) 4% 4% 4% 3.6 pts 23% 3.2 pts 4Q12 Revenue (% of Total Sys & Tech) Servers 71% Storage 19% M i cr o OE 1 0% M System z strength; profit growth driven by new products www.ibm.com/investor 11 Growth Initiatives Smarter Planet 2012 Revenue up >25% yr/yr Growth Markets Business Analytics 2012 Revenue up 7% yr/yr @CC 2012 Revenue up 13% yr/yr Cloud 2012 Revenue up 80% yr/yr Continued strength in our key growth initiatives supports shift to higher value 12 www.ibm.com/investor 12 Cash Flow Analysis $ in Billions Net Cash from Operations Less: Global Financing Receivables 4Q12 B/(W) Yr/Yr FY12 B/(W) Yr/Yr $6.3 ($0.8) $19.6 ($0.3) (4.2) (1.2) (2.9) (2.1) 10.5 0.5 22.5 (1.0) 0.1 (4.3) 9.5 0.6 18.2 Acquisitions (1.5) 0.1 (3.7) (1.9) Divestitures 0.0 0.0 0.6 0.6 Dividends (1.0) (0.1) (3.8) (0.3) Share Repurchases (Gross) (3.0) 0.6 Non-GF Debt (1.6) (2.2) 0.7 (1.0) Other (includes GF A/R & GF Debt) (3.7) (0.8) (0.8) (3.1) ($1.1) ($1.7) ($0.8) ($1.1) Net Cash from Operations (excluding GF Receivables) Net Capital Expenditures Free Cash Flow (excluding GF Receivables) Change in Cash & Marketable Securities www.ibm.com/investor (12.0) 1.8 (0.2) 1.6 3.1 13 Balance Sheet Summary Dec. 11 Dec. 12 $11.9 $11.1 Non-GF Assets* 69.4 70.6 Global Financing Assets 35.1 37.5 116.4 119.2 Other Liabilities 64.9 67.0 Non-GF Debt* 8.0 8.8 23.3 24.5 31.3 33.3 Total Liabilities 96.2 100.2 Equity 20.2 19.0 32% 36% 7.2 7.0 $ 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 14 Operating EPS Bridge – 4Q11 to 4Q12 $0.24 $5.39 $0.47 $4.71 ($0.03) 4Q11 Operating EPS Revenue Growth @ Actual Margin Expansion www.ibm.com/investor Share Repurchases 4Q12 Operating EPS 15 Operating EPS Bridge – FY11 to FY12 $0.73 $15.25 $1.38 $13.44 ($0.30) FY11 Operating EPS Revenue Growth @ Actual Margin Expansion www.ibm.com/investor Share Repurchases FY12 Operating EPS 16 2015e At least $20 2013e $16.70+ 2012 $15.25 2011 $13.44 2010 $11.67 FY 2012 Summary Continued momentum in growth initiatives • Growth markets +7% yr/yr @CC; 24% of IBM’s geographic revenue • Business Analytics +13%, Cloud +80%, Smarter Planet +>25% Invested in innovation and continued portfolio transformation • Introduced new mainframe, storage, Power7, Pure Systems • #1 in US patents for 20th consecutive year • Acquired 11 companies, @$4B spend • Divested Retail Store Solutions business Leveraged growth in high value areas and productivity initiatives to expand margin and grow profit • Operating net margin +1.6 points yr/yr — above model level • Operating EPS +13% yr/yr Strong balance sheet and cash generation • Generated $18.2B free cash flow • Returned value to shareholders: $12B share repurchase, $3.8B dividends Operating EPS Expect at least $16.70 of Operating EPS in 2013 www.ibm.com/investor 17 IBM Transformation Continues At Least $20 Operating PTI / EPS * At Least $16.70 Segment Operating PTI Operating EPS $15.25 '00 '01 '02 '03 '04 '05 '06 Hardware / Financing '07 '08 '09 '10 Services '11 '12 '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 2012 operating presentation Sum of external segment pre-tax income not equal to IBM pre-tax income www.ibm.com/investor 18 www.ibm.com/investor 19 Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding Currency – Year/Year Comparison Supplemental Segment Information – Global Services Supplemental Segment Information – Systems & Technology, Software Global Financing Portfolio Key Financial Metrics – FY 2012 Revenue by Geography – FY 2012 Revenue by Segment – FY 2012 Revenue by Key Industry Sales Unit – 4Q and FY 2012 Gross Margins by Segment – FY 2012 Expense Summary – FY 2012 Pre-Tax Income by Segment – FY 2012 Cash Flow (FAS 95) Retirement-Related Charges Retirement-Related Charges Retirement-Related Charges Non-GAAP Supplemental Materials • Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency • Cash Flow, Debt-to-Capital Ratio, Workforce Rebalancing, Retail Store Solutions (RSS) Divestiture • Reconciliation of Operating Earnings Per Share • GAAP to Operating (Non-GAAP) Bridge – 4Q 2012 • GAAP to Operating (Non-GAAP) Bridge – 4Q 2011 • GAAP to Operating (Non-GAAP) Bridge – FY 2012 • GAAP to Operating (Non-GAAP) Bridge – FY 2011 • GAAP to Operating (Non-GAAP) Bridge – 4Q 2012 and 4Q 2011 • GAAP to Operating (Non-GAAP) Bridge – FY 2012 and FY 2011 • Reconciliation of B/(W) Yr/Yr Expense Drivers – 4Q12 • Reconciliation of B/(W) Yr/Yr Expense Drivers – FY12 • Reconciliation of Free Cash Flow (excluding GF Receivables) – 12 months ended 2012, 2011, 2002 • Reconciliation of Free Cash Flow (excluding GF Receivables) – 3 months ended 2012, 2011 • Reconciliation of Debt-to-Capital Ratio • Reconciliation of Operating EPS Bridge 4Q11 to 4Q12 • Reconciliation of Operating EPS Bridge FY11 to FY12 • Reconciliation of Revenue Growth • Reconciliation of Consolidated EPS • Reconciliation of Segment Pre-Tax Income and Margin Growth www.ibm.com/investor 20 Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $ Yr/Yr @ 1/18 Spot 2Q13 3Q13 4Q13 3Q12 Yr/Yr 4Q12 Yr/Yr 1/18 Spot Euro 0.80 (13%) 0.77 (4%) 0.75 1% 3% 6% 2% 3% Pound 0.63 (2%) 0.62 2% 0.63 1% 0% 0% (1%) 0% 79 (1%) 81 (5%) 90 Yen IBM Revenue Impact (4 pts) Revenue As Reported Currency Impact Revenue @CC (1 pts) (US$B) Yr/Yr $29.3 (1%) 1Q13 (13%) (12%) (14%) ~(1 pts) 0 pts (11%) FY13 (13%) 0 pts ~(0-1 pts) ~(0-1 pts) (0.3) (1 pts) Flat www.ibm.com/investor 21 Supplemental Materials Supplemental Segment Information – 4Q 2012 Global Services Revenue Global Services Backlog / Signings Revenue Growth Yr/Yr @CC (3%) (2%) 2% 3% (2%) Flat (2%) Flat GBS Outsourcing (4%) (2%) GBS C&SI (3%) (2%) (3%) (2%) GTS Outsourcing Integrated Tech Services Maintenance Total GTS Total GBS Total Outsourcing (3%) (2%) Total Transactional (1%) Flat Maintenance (2%) Flat $ in Billions Total Backlog Backlog 4Q12 Yr/Yr @CC $140 Flat 1% (3%) (2%) Change in Backlog due to Currency Quarter-to-Quarter ($1) Year-to-Year ($1) Outsourcing Backlog $89 Signings Outsourcing 4Q12 Yr/Yr @CC $8.3 (28%) (27%) - GTS O/S, GBS O/S (AMS) Transactional 9.5 9% 9% - ITS, Consulting & AMS SI (incl. US Federal) Total Signings $17.9 (12%) (12%) Note: Actual backlog calculated using December 31 currency spot rates www.ibm.com/investor 22 Supplemental Materials Supplemental Segment Information – 4Q 2012 Systems & Technology Software Revenue Growth Revenue Growth Yr/Yr @CC 56% 56% (19%) (19%) System x (2%) (3%) Storage (5%) (5%) Total Systems excl. RSS 4% 4% Microelectronics OEM 4% 4% Total Sys & Tech excl. RSS 4% 4% System z Power Systems GP% Yr/Yr @CC 11% 11% Information Management 2% 3% Tivoli 4% 5% Lotus 9% 9% 12% 12% 5% 6% Share WebSphere Family = = = Rational Key Branded Middleware Other Middleware Total Middleware (1%) Flat 4% 5% Flat 1% Other Software/Services 1% 1% Total Software 3% 4% Operating Systems www.ibm.com/investor 23 Supplemental Materials Global Financing Portfolio 4Q12 – $30.3B Net External Receivables 40% Investment Grade 60% Non-Investment Grade 40% 38% 30% 20% 22% 20% 10% 12% 6% 2% B2-B3 Caa-D 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 4Q12 3Q12 4Q11 Identified Loss Rate 0.8% 0.9% 0.8% Anticipated Loss Rate 0.4% 0.5% 0.5% Reserve Coverage 1.2% 1.3% 1.3% 2.5 2.9 1.9 $22M $36M $37M Client Days Delinquent Outstanding Commercial A/R > 30 days 24 Ba3-B1 www.ibm.com/investor 24 Supplemental Materials Key Financial Metrics – FY 2012 $ in Billions, except EPS P&L Highlights FY12 Revenue $104.5 @CC B/(W) Yr/Yr P&L Ratios (Operating) FY12 B/(W) Yr/Yr (2%) GP Margin 48.7% 1.5 pts Flat PTI Margin 22.2% 2.0 pts Tax Rate 24.0% 0.5 pts NI Margin 16.9% 1.6 pts PTI – Operating $23.2 7% EPS – Operating $15.25 13% Cash Highlights FY12 Free Cash Flow (excl GF Receivables) Share Repurchase (Gross) Dividends $18.2 12.0 3.8 Cash Balance @ Dec. 31 www.ibm.com/investor 11.1 25 Supplemental Materials Revenue by Geography – FY 2012 $ in Billions Americas FY12 B/(W) Yr/Yr Rptd @CC $44.6 (1%) Flat Europe/ME/A 31.8 (6%) (1%) Asia Pacific 25.9 3% 3% Total Geographies excl. Retail Store Solutions IBM excl. Retail Store Solutions Major Markets Growth Markets BRIC Countries $102.3 $104.5 (2%) (1%) Flat 1% (2%) (2%) Flat Flat (4%) (1%) 4% 7% 7% 12% www.ibm.com/investor Canada/ LA EMEA U.S. -1% Japan APac -2% @CC OEM -18% 26 Supplemental Materials Revenue by Segment – FY 2012 FY12 B/(W) Yr/Yr Rptd @CC Global Technology Services $40.2 (2%) 1% Global Business Services 18.6 (4%) (2%) Software 25.4 2% 4% Systems & Technology 17.7 (7%) (6%) Global Financing 2.0 (4%) (1%) $104.5 (2%) Flat $ in Billions Total IBM www.ibm.com/investor Global Business Systems & Services Technology Global Technology Services Software Global Financing 27 Supplemental Materials Revenue by Key Industry Sales Unit – 4Q & FY 2012 $ in Billions 4Q12 B/(W) Yr/Yr Rptd @CC FY12 B/(W) Yr/Yr Rptd @CC (1%) 2% Flat 2% $9.0 4% 6% $30.7 Public 4.2 1% 1% 15.3 Industrial 2.6 (3%) (2%) 9.7 (2%) Flat Distribution 2.5 (9%) (8%) 9.2 (7%) (5%) Communications 2.6 (7%) (7%) 9.5 (6%) (4%) General Business 6.8 (1%) (1%) 24.2 Flat 3% $29.3 (1%) Flat (2%) Flat Financial Services Total IBM www.ibm.com/investor $104.5 28 Supplemental Materials Gross Margins by Segment – FY 2012 External Gross Profit Margins FY12 B/(W) Yr/Yr Pts Global Technology Services 36.6% 1.6 pts Global Business Services 30.0% 1.2 pts Software 88.7% 0.2 pts Systems & Technology 39.1% (0.7 pts) Global Financing 46.5% (3.3 pts) Total IBM - Operating 48.7% 1.5 pts www.ibm.com/investor 29 Supplemental Materials Expense Summary – FY 2012 FY12 B/(W) Yr/Yr SG&A – Operating $22.9 2% 3 pts (2 pts) 1 pts RD&E – Operating 6.3 Flat 2 pts (3 pts) 2 pts 5 pts (2 pts) 2 pts $ in Billions IP and Development Income (1.1) (3%) Other (Income)/Expense (0.9) nm 0.5 (12%) Interest Expense Operating Expense & Other Income $27.8 4% B/(W) Yr/Yr Drivers Currency Acq.* Base * Includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges www.ibm.com/investor 30 Supplemental Materials Pre-Tax Income by Segment – FY 2012 Segment PTI $ PTI $ B/(W) Yr/Yr B/(W) Yr/Yr w/o Wkfrce Rebal.* $7.0 11% PTI % B/(W) Yr/Yr B/(W) Yr/Yr w/o Wkfrce Rebal.* 13% 16.8% 1.9 pts 2.2 pts (1%) 3% 15.5% 0.5 pts 1.1 pts 8% 9% 37.6% 2.3 pts 2.6 pts (1.5 pts) (1.3 pts) 49.9% 2.0 pts 2.0 pts 22.2% 2.0 pts $ in Billions Global Technology Services Global Business Services Software 3.0 10.8 Systems & Technology 1.2 Global Financing 2.0 1% $23.2 7% Total Operating PTI Segment PTI Margin (25%) (22%) 1% 6.7% * 3Q12 Workforce Rebalancing charge of $407M, 3Q11 Workforce Rebalancing charge of $21M www.ibm.com/investor 31 Supplemental Materials Cash Flow (FAS 95) $ in Billions 4Q12 4Q11 FY12 FY11 Net Income from Operations $5.8 $5.5 $16.6 $15.9 Depreciation / Amortization of Intangibles 1.2 1.2 4.7 4.8 Stock-based Compensation 0.2 0.2 0.7 0.7 Working Capital / Other 3.3 3.1 0.5 (0.7) (4.2) (2.9) (2.9) (0.8) 6.3 7.1 19.6 19.8 (1.0) (1.1) (4.3) (4.1) 0.0 0.0 0.6 0.0 Acquisitions, net of cash acquired (1.5) (1.6) (3.7) (1.8) Marketable Securities / Other Investments, net (1.7) (0.9) (1.6) 1.5 Net Cash used in Investing Activities (4.1) (3.5) (9.0) (4.4) Debt, net of payments & proceeds (0.2) 1.2 2.3 2.4 Dividends (1.0) (0.9) (3.8) (3.5) Common Stock Repurchases (Gross) (3.0) (3.6) (12.0) (15.0) Common Stock Transactions - Other 0.3 0.4 (3.8) (2.8) (12.0) (13.7) 0.0 (0.2) (0.1) (0.5) 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 Financing Activities Effect of Exchange Rate changes on Cash Net Change in Cash & Cash Equivalents ($1.5) www.ibm.com/investor $0.6 1.5 ($1.5) 2.5 $1.3 32 Supplemental Materials Retirement-Related Charges YE 2011 YE 2012 Funded Status* US WW 98% 96% 98% 94% Expected ROA WW 7.3% 7.3% Actual ROA WW 6.1% 11.1% Operating Discount Rate WW 4.2% 3.4% Non-Operating Pre-Tax Retirement-Related (Cost) / Income ($B) $0.5 $0.4 $0.1 ($0.5) ($1.1) ($1.9) ($1.8) ($1.9) 2009 2010 2011 ($1.9) ($1.9) 2012 2013 ($1.9) ($1.9) 2014 2015 2010 2011 2012 2013 2014 ($1.1) ($1.2) 2013 2014 ($0.1) 2015 Retirement-Related Cash Drivers ($B) ($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9) 2009 2010 2011 2012 2013 2014 Actual 2015 * Tax-qualified plans 2009 ($0.6) ($1.7) ($1.5) ($1.4) ($1.6) 2009 2010 2011 2012 Projection based on Dec ‘12 assumptions www.ibm.com/investor ($1.4) 2015 33 Supplemental Materials Retirement-Related Charges YE 2011 YE 2012 Upside Downside Funded Status* US WW 98% 96% 98% 94% Expected ROA WW 7.3% 7.3% 7.3% 7.3% Actual ROA WW 6.1% 11.1% 14.0% 0.0% Operating Discount Rate WW 4.2% 3.4% 3.9% 2.9% Non-Operating Pre-Tax Retirement-Related (Cost) / Income ($B) $0.5 $0.4 $0.1 ($0.5) ($1.1) ($1.9) ($1.8) ($1.9) ($1.9) ($1.9) 2009 2010 2011 2012 ($1.9) ($1.8) ($1.9) 2009 2010 2011 2012 Actual * Tax-qualified plans 2013 ($1.9) ($1.9) 2014 2015 2009 2010 2011 2012 ($0.6) 2013 2014 ($1.1) ($1.2) ~$1B ($0.1) Range 2015 Retirement-Related Cash Drivers ($B) ($1.9) ($1.9) ($1.9) ($1.9) ($1.7) 2013 2014 2015 2009 Projection based on Dec ‘12 assumptions ($1.5) ($1.4) 2010 www.ibm.com/investor ($1.6) 2011 2012 Upside Case 2013 ($1.4) 2014 2015 Downside Case 34 Supplemental Materials Retirement-Related Charges Non-Operating Retirement-Related ($B) Pre-tax (Cost) / Income $0.5 $0.4 $0.1 ($0.5) ($1.1) B/(W) Y/Y ($0.1) 2009 2010 ($0.3) ($0.6) ($0.6) 2011 2012 2013 ($0.6) ($0.1) $0.6 $0.5 2014 2015 Cash Drivers ($1.7) B/(W) Y/Y ($1.5) ($1.4) $0.2 2009 Actual 2010 $0.1 2011 ($1.1) ($1.2) ($0.2) $0.5 ($0.0) ($0.3) 2012 2013 2014 2015 ($1.6) ($1.4) Projection based on Dec ‘12 assumptions * Tax-qualified planswww.ibm.com/investor 35 Supplemental Materials Non-GAAP Supplemental 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. 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 36 Supplemental Materials Non-GAAP Supplemental 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 profitgenerating 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. Workforce Rebalancing Management presents certain financial results excluding the effects of charges in connection with workforce rebalancing actions. Management believes that presenting financial information regarding pre-tax income, pre-tax income margin, and SG&A expense 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 to investors. Retail Store Solutions (RSS) Divestiture On April 17, 2012, the company announced that it had signed a definitive agreement with Toshiba Tec for the sale of its RSS business to Toshiba Tec. In the fourth quarter of 2012, the company completed the latest phase of the sale of its RSS business. Management presents certain financial results excluding the effects of the RSS divestiture. Management believes that presenting financial information regarding 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 to investors. www.ibm.com/investor 37 Supplemental Materials Non -GAAP Supplemental Materials Non-GAAP Reconciliation of Operating Earnings Per Share 2013 Expectations IBM GAAP EPS $15.53+ IBM Operating EPS (Non-GAAP) $16.70+ Adjustments Acquisition-Related Charges * $0.48 Amortization of Purchased Intangibles $0.47 Other Acquisition-Related Charges $0.01 Non-Operating Retirement-Related Items $0.69 * Includes acquisitions through December 31, 2012 The above serves to reconcile the Non-GAAP financial information contained in “2012 Summary” and “FY 2012 Summary” discussions 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 38 Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2012 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $15,167 $100 $60 $15,327 SG&A 5,921 (91) RD&E 1,580 Gross Profit (29) 5,801 0 6 (47) (7) 0 Total Operating Expense & Other Income 7,336 (98) (23) 7,215 Pre-Tax Income 7,831 198 83 8,112 Tax *** 1,998 (45) 30 1,983 Net Income 5,833 243 53 6,129 Diluted Earnings Per Share $5.13 $0.21 Other Income & Expense $0.05 1,586 (54) $5.39 * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges. ** 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 “2012 Summary,” “Key Financial Metrics” and “Expense Summary” discussions 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 39 Supplemental Materials Non-GAAP Supplemental 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 (82) 0 (44) (2) 0 (46) Total Operating Expense & Other Income 7,448 (85) 25 7,388 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, 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 “2012 Summary” and “Key Financial Metrics” discussions 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 40 Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – FY 2012 $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $50,298 $376 $264 $50,938 (349) (294) SG&A 23,553 RD&E 6,302 Other Income & Expense (843) (13) Total Operating Expense & Other Income 28,396 (363) (274) 27,760 Pre-Tax Income 21,902 739 538 23,179 5,298 98 156 5,552 Net Income 16,604 641 381 17,627 Diluted Earnings Per Share $14.37 $0.55 $0.33 $15.25 Tax *** 0 20 22,910 6,322 0 (857) * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges. ** 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 “2012 Summary” and “Key Financial Metrics – FY 2012” discussions 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 41 Supplemental Materials Non-GAAP Supplemental 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 (309) 0 (13) 88 23,272 6,345 (20) (25) 0 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 Net Income 15,855 495 (32) 16,318 Diluted Earnings Per Share $13.06 $0.41 Tax *** ($0.03) (45) $13.44 * 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 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 “2012 Summary” and “Key Financial Metrics – FY 2012” discussions 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 42 Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2012 and 4Q 2011 4Q 2012 GAAP Acquisitionrelated Adjustments* Retirementrelated Adjustments ** Operating (Non-GAAP) Gross Profit Margin 51.8% 0.3 pts 0.2 pts 52.3% PTI Margin 26.7% 0.7 pts 0.3 pts 27.7% Tax Rate *** 25.5% (1.2 pts) 0.1 pts 24.4% Net Income Margin 19.9% 0.8 pts 0.2 pts 20.9% 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% 4Q 2011 * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges ** 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”2012 Summary” and “Key Financial Metrics” discussions 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 43 Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – FY 2012 and FY 2011 FY 2012 GAAP Acquisitionrelated Adjustments* Retirementrelated Adjustments ** Operating (Non-GAAP) Gross Profit Margin 48.1% 0.4 pts 0.3 pts 48.7% PTI Margin 21.0% 0.7 pts 0.5 pts 22.2% Tax Rate *** 24.2% (0.4 pts) 0.1 pts 24.0% Net Income Margin 15.9% 0.6 pts 0.4 pts 16.9% 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% FY 2011 * Includes amortization of purchased Intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges ** 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 “2012 Summary” and “Key Financial Metrics” discussions 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 44 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – 4Q12 GAAP Non-GAAP Adjustments Operating (Non-GAAP) 1 pts 0 pts 1 pts (2 pts) 0 pts (2 pts) 4 pts 0 pts 4 pts 0 pts 0 pts 0 pts (3 pts) 0 pts (3 pts) 1 pts 1 pts 2 pts 1 pts 0 pts 1 pts (2 pts) 0 pts (2 pts) 3 pts 1 pts 3 pts SG&A Currency Acquisitions Base RD&E Currency Acquisitions Base Operating Expense & Other Income Currency Acquisitions Base The above serves to reconcile the Non-GAAP financial information contained in the “Expense 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 45 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – FY12 GAAP Non-GAAP Adjustments Operating (Non-GAAP) 3 pts 0 pts 3 pts (2 pts) 0 pts (2 pts) 0 pts 1 pts 1 pts 2 pts 0 pts 2 pts (3 pts) 0 pts (3 pts) 1 pts 1 pts 2 pts 5 pts 0 pts 5 pts (3 pts) 0 pts (2 pts) 0 pts 1 pts 2 pts SG&A Currency Acquisitions Base RD&E Currency Acquisitions Base Operating Expense & Other Income Currency Acquisitions Base The above serves to reconcile the Non-GAAP financial information contained in the “Expense Summary – FY 2012” 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 46 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow (excluding GF Receivables) $ 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) 12 months ended 12/31/12 12 months ended 12/31/11 12 months ended 12/31/02 $19.6 $19.8 $13.8 (2.9) (0.8) (3.3) 22.5 20.7 10.5 (4.3) (4.1) (4.6) $18.2 $16.6 $5.9 The above serves to reconcile the Non-GAAP financial information contained in the “2012 Financial Highlights,” and “Key Financial Metrics” discussion in the company’s earnings presentation. See Slide 37 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 47 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow (excluding GF Receivables) $ 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) 3 months ended 12/31/12 3 months ended 12/31/11 $6.3 $7.1 (4.2) (2.9) 10.5 10.0 (1.0) (1.1) $9.5 $9.0 The above serves to reconcile the Non-GAAP financial information contained in the “2012 Financial Highlights,” and “Key Financial Metrics” discussion in the company’s earnings presentation. See Slide 37 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 48 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Debt-to-Capital Ratio FY 12 FY 11 Non-Global Financing Debt / Capital 36% 32% IBM Consolidated Debt / Capital 64% 61% 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 37 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 49 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Operating EPS Bridge 4Q11 to 4Q12 GAAP Acquisitionrelated Adjustments* Retirementrelated Adjustments** Operating (Non-GAAP) 4Q11 EPS $4.62 $0.10 ($0.01) $4.71 Revenue growth @ actual (0.03) 0.00 0.00 (0.03) Margin expansion 0.31 0.10 0.06 0.47 Share repurchases 0.23 0.01 0.00 0.24 $5.13 $0.21 $0.05 $5.39 4Q12 EPS * Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges. ** 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 – 4Q11 to 4Q12” 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 Supplemental Materials Reconciliation of Operating EPS Bridge FY11 to FY12 FY11 EPS Revenue growth @ actual GAAP Acquisitionrelated Adjustments* Retirementrelated Adjustments** Operating (Non-GAAP) $13.06 $0.41 ($0.03) $13.44 (0.29) (0.01) 0.00 (0.30) Margin expansion 0.91 0.13 0.34 1.38 Share repurchases 0.69 0.02 0.02 0.73 $14.37 $0.55 $0.33 $15.25 FY12 EPS * Includes amortization of purchased intangibles, in process R&D, severance cost for acquired employees, vacant space for acquired companies, deal costs and acquisition integration tax charges. ** 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 – FY11 to FY12” 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 51 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Revenue Growth 4Q12 Yr/Yr Japan OEM Canada Latin America Growth Markets GTS Outsourcing Tivoli Storage Software Tivoli Security @CC 5% (5%) (9%) 18% 8% 13% 16% As Rptd Flat (5%) (6%) 13% 6% 12% 16% FY12 Yr/Yr OEM Japan As Rptd (18%) (2%) @CC (18%) (2%) 4Q12 Total IBM Revenue excluding RSS divestiture As Rptd (1%) Flat @CC Flat 1% 4Q11 Yr/Yr As Rptd @CC 12% 13% FY11 Yr/Yr @CC (3%) (7%) As Rptd (2%) 2% As Rptd (5%) (5%) 3Q12 @CC (2%) (1%) The above serves to reconcile the Non-GAAP financial information contained in the “Key Financial Metrics,” “Revenue by Geography,” “Services Segments,” “Software Segment,” “Systems and Technology Segment,” “Growth Initiatives,” “Revenue by Geography – FY 2012,” “2012 Summary,” and “Full Year 2012 Summary” discussions in the company’s earnings presentation. See Slides 36-37 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 52 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Consolidated EPS EPS (As Reported) AcquisitionRelated Non-Operating RetirementRelated Operating EPS 2000 $3.88 $0.05 ($0.62) $3.32 2001 3.94 0.04 (0.72) 3.26 2002 2.43 0.07 (0.68) 1.81 2003 3.76 0.13 (0.48) 3.41 2004 4.39 0.13 (0.19) 4.33 2005 2006 4.91 6.05 0.14 0.14 0.13 0.12 5.18 6.31 2007 7.15 0.17 0.14 7.46 2008 8.89 0.29 (0.32) 8.86 2009 10.01 0.27 (0.25) 10.03 2010 11.52 0.34 (0.20) 11.67 2011 13.06 0.41 (0.03) 13.44 2012 $14.37 $0.55 $0.33 $15.25 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 36 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 53 Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Segment Pre-Tax Income and Margin Growth FY12 Yr/Yr As Rptd 3Q Workforce Rebalancing Normalized 7% 3 pts 10% 1.5 pts 0.4 pts 1.9 pts Pre-Tax Income Growth Total Global Services Pre-Tax Margin Growth Total Global Services The above serves to reconcile the Non-GAAP financial information contained in the “Services Segments” discussion in the company’s earnings presentation. See Slide 37 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