IBM Corporation Financial Profile Recent Highlights: July 2012 2Q'12 Performance reflects the strength of IBM's business model Continued strong performance across IBM's growth initiatives Expanded Operating (Non-GAAP) gross, pre-tax and net margins Delivered 14% Yr/Yr Operating (Non-GAAP) EPS growth Generated $3.7B of Free Cash Flow, +9% YtY, $18B over the last 12 months Increased FY'12 Operating (Non-GAAP) EPS expectations to at least $15.10 ($ in Billions, except per share amounts) ($ in Billions) P&L Highlights Revenue @ constant currency FY 2011 B/(W) Yr/Yr 2Q YTD B/(W) Yr/Yr $106.9 7% 3% $50.5 (2%) 1% Pre-Tax Income - Operating $21.6 9% $9.5 6% Net Income - Operating $16.3 9% $7.3 9% $13.44 15% $6.29 14% EPS (Diluted) - Operating Free Cash Flow* $16.6 Assets Cash & Marketable Securities Global Financing Assets Non-Global Financing Assets* $5.5 Key P&L Metrics - Operating Gross Profit Margin Expense / Revenue % * Pre-Tax Income Margin Tax Rate Net Income Margin 47.2% 27.0% 20.2% 24.5% 15.3% Jun 2012 $11.9 $35.1 $69.4 $116.4 $11.2 $32.5 $70.2 $113.8 $23.3 $8.0 $64.9 $96.2 $22.6 $9.8 $60.8 $93.3 $20.2 $20.6 Liabilities Global Financing Debt Non-Global Financing Debt* Other Liabilities Equity * Includes eliminations of inter-company activity * Net Cash from Ops excl GF Receivables, less Capital Expenditures FY 2011 Dec 2011 Balance Sheet B/(W) Yr/Yr 1.1 pts (0.8 pts) 0.3 pts (0.1 pts) 0.2 pts 2Q YTD B/(W) Yr/Yr 47.0% 28.1% 18.9% 23.1% 14.6% 1.3 0.0 1.3 1.9 1.4 Dec 2011 Jun 2012 32% 7.2 1.6% Aa3, A+ 36% 7.0 1.7% Aa3, AA- Key Metrics pts pts pts pts pts Non GF Debt/Cap Global Financing Leverage Dividend Yield Credit Rating (Moody's, S&P) * Total Operating Expense & Other Income / Revenue 2011 Revenue by Geography (excludes OEM) 2011 Revenue by Business Segment U.S. 33% 2011 Pre-Tax (Operating) Profit by Business Segment Systems & Financing Systems & Financing Services 20% Asia Pacific 24% Can/ LA 16% 41% Services 10% Software Software 57% EMEA 23% 43% 33% Five Year Summary Operating (Non-GAAP) Margins 50% Operating (Non-GAAP) EPS (1) Free Cash Flow ($B) (2) 42.6% 43.9% 45.7% $16.6 '10 '11 $14.3 $13.44 40% $16.3 $15.1 Gross Profit Margin 46.1% 47.2% $12.4 $11.67 $10.03 $8.86 30% $7.46 Pre-Tax Income Margin PureSystems 20% 10% 15.4% 16.0% '07 '08 18.9% 19.9% 20.2% '09 '10 '11 0% '07 '08 '09 '10 (1) From Continuing Operations '07-'08 reflects the adoption of amendments to ASC 260, "Earnings Per Share" '11 '07 '08 '09 (2) Net Cash from Operations excluding GF Receivables, less Capital Expenditures In an effort to provide additional and useful information regarding the company’s results as determined by generally accepted accounting principles (GAAP), these materials contain certain non-GAAP financial measures. For reconciliation to GAAP and other information about 1Q 2012 non-GAAP measures and the March 2012 non GF debt-to-capital ratio, see Non-GAAP Supplemental Materials and related information in the Form 8-K submitted to the SEC on April 17, 2012. For reconciliation to GAAP and other information about (i) FY 2011 non-GAAP measures (ii) December 2011 non GF debt-to-capital ratio, (iii) FY 2010 operating gross profit margin and operating pre-tax income margin, and (iv) 2007-2010 operating EPS, see Non-GAAP Supplementary Materials and related information in the Form 8K submitted to the SEC on January 19, 2012. For reconciliation to GAAP and other information about 2007 - 2010 free cash flow, see Non-GAAP Supplementary Materials and related information in the Form 8K submitted to the SEC on March 8, 2011. For reconciliation to GAAP and other information about 2007 to 2009 operating gross profit margin and operating pre-tax margin, see IBM Form 10Q (page 62) submitted to the SEC on April 26, 2011. IBM Corporation Key Segment Profiles 2011 Revenue Profile 2015 Roadmap Global Services Initiatives and Objectives Revenue = $60.2B, +7% yr/yr (2% @cc) Global Business Services $19.3B, +6% yr/yr (1% @cc) Global Technology Services $40.9B, +7% yr/yr (3% @cc) GBS Outsourcing GTS Outsourcing Global Business Services • Align skills and capabilities with IBM strategy to capture high-growth markets • Use standard, scalable intellectual property to drive margin expansion and client value • Deliver margin expansion through: - Operational Excellence - Enterprise Productivity - Optimized delivery GBS C&SI Global Technology Services • Capture global demand driven by IT complexity - Growth Markets: infrastructure build-out - Major Markets: high-value solutions - Making markets in Security, Mobile, Big Data • Leverage integrated delivery structure to expand opportunity and margin - Expand delivery footprint - Infuse IBM Research - Make the market for enterprise cloud GTS Maintenance GTS Integrated Technology Services Providing value through global reach, skills and technology-infused capabilities Growth Markets continue to drive ~50% of incremental revenue by 2015 Operating Pre-tax income long-term growth model: 8% - 10% Software Initiatives and Objectives Revenue = $24.9B, +11% yr/yr (8% @cc) • Invest in higher value / higher growth areas to capture new market opportunities - Business Analytics and Optimization - Smarter Planet - Big Data Other Operating Systems Branded Middleware WebSphere Information Mgmt Tivoli Lotus Rational Other Middleware • Software enabled Cloud Computing - Business Services - Platform - Infrastructure • Acquire and integrate to extend capabilities Revenue growth faster than the market Contribute ~50% of IBM's segment profit by 2015 Operating Pre-tax income long-term growth model: 12% - 15% Systems & Technology Initiatives and Objectives Revenue = $19.0B, 6% yr/yr (3% @cc) • Differentiate through integration and optimization - Workload optimized systems - Integrated server, storage and network stacks Retail Store Solutions * Microelectronics OEM Servers Storage System z Power Systems System x • Deliver client value through expert integrated systems starting with PureSystems • Execute Go-To-Market strategy aligned with new offerings and routes Sustained investments in innovation drive differentiation and value Growth Markets to drive 40% of Revenue by 2015 Operating Pre-tax income long-term growth model: 6% - 8% * Announced sale of Retail Store Solutions April 2012