IBM Corporation Financial Profile Recent Highlights: September 2010 3Q'10 Improved revenue growth driven by Growth Markets, Systems & Technology and Global Business Services Continued margin expansion; Gross Margin +0.2pts, Pre-Tax Margin +0.7pts, and Net Income Margin +1.1pts Delivered 18% Yr/Yr EPS growth, 31st consecutive quarter of growth Year to date, generated $7.6B of Free Cash Flow and returned over $14B to shareholders; strong Balance Sheet Raised FY'10 EPS expectations to at least $11.40 ($ in Billions) ($ in Billions) FY 2009 INCOME STATEMENT Yr/Yr 3Q10 YTD Yr/Yr (8%) (5%) 3% 2% Revenue @ constant currency $95.8 Gross Profit Gross Profit Margin $43.8 45.7% (4%) 1.7 pts 4% 0.2 pts Expense / Revenue % 26.8% (1.1 pts) (0.7 pts) Pre-Tax Income Pre-Tax Income Margin $18.1 18.9% 9% 2.8 pts 9% 0.9 pts Tax Rate 26.0% (0.2 pts) (1.7 pts) Dec 2009 BALANCE SHEET Assets Cash & Marketable Securities Global Financing Assets Non-Global Financing Assets* Liabilities Global Financing Debt Non-Global Financing Debt* Other Liabilities Equity Sept 2010 $14.0 $33.3 $61.7 $109.0 $11.1 $30.4 $65.7 $107.2 $22.4 $3.7 $60.2 $86.3 $22.0 $5.5 $57.4 $84.8 $22.8 $22.4 * Includes eliminations of inter-company activity Net Income Net Income Margin EPS (Diluted) Average Shares (Diluted) Free Cash Flow $13.4 14.0% 9% 2.1 pts 11% 0.9 pts $10.01 1,341 13% (3%) 15% (3%) $15.1 6% (4%) KEY METRICS Non GF Debt/Cap Global Financing Leverage Dividend Yield Credit Rating (Moody's, S&P) Dec 2009 Sept 2010 16% 7.1 1.6% A1, A+ 22% 7.1 1.9% A1, A+ (Net Cash from Ops excl GF Receivables, less Capital Expenditures) 2009 Revenue by Geography (excludes OEM) 2009 Revenue by Business Segment U.S. Comm's 34% Asia Pacific 22% Systems & Financing Services 19% Services 58% 9% Can/ 42% Software 23% LA EMEA 2009 Pre-Tax Profit by Business Segment Systems & Financing 16% Software 42% 35% Five Year Summary Margins 50% Earnings Per Share Free Cash Flow ($B) (2) Gross Profit Margin 40% 40.1% 41.9% 42.2% 44.1% $14.3 $15.1 '08 '09 $12.4 $10.01 $8.89 45.7% $9.6 $10.5 $7.15 30% $6.05 $4.90 Pre-Tax Income Margin 20% 10% (1) 13.4% 14.6% 14.7% '05 '06 '07 16.1% 18.9% 0% '08 '09 '05 '06 '07 '08 '09 (1) From Continuing Operations 2005-2008 reflects the adoption of amendments to ASC 260, "Earnings Per Sha '05 '06 '07 (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), this information contains the following non-GAAP financial measures: (i) revenue at constant currency, (ii) Free Cash Flow, and (iii) non GF debt-to-capital ratio. For reconciliation to GAAP and other information about each of these measures for (a) FY2009, see Non-GAAP Supplementary Materials in the Form 8K submitted to the SEC on January 19, 2010 and (b) 3Q10 and 3Q10 YTD, see Non-GAAP Supplementary Materials in the Form 8K submitted to the SEC on October 18, 2010. IBM Corporation Key Segment Profiles 2009 Revenue Profile 2015 Roadmap Global Services Initiatives and Objectives Revenue = $55.0B, -7% yr/yr (-4% @cc) Global Technology Services $37.3B, +-5% yr/yr (-2% @cc) Global Business Services $17.7B, -10% yr/yr (-8% @cc) Maintenance Consulting Application Management (SI & Outsourcing) Integrated Technology Services Global Technology Services Global Business Services • Invest in higher value offerings -leveraging growth markets • Differentiated Solutions -leveraging growth markets • Globally Integrated Capabilties • Globally Integrated Capabilties • Quality and Productivity Improvements • Operational Excellence • Innovate through Cloud Computing GTS Outsourcing Revenue growth faster than the market 2 to 3 points margin expansion Operating Pre-tax income long-term growth model: 8% - 10% Software Initiatives and Objectives Revenue = $21.4B, -3% yr/yr (-1% @cc) • Invest in higher value / higher growth areas -including Business Analytics and Optimization PLM (Divested 2010) Other Operating Systems • Acquire to extend capabilities Branded Middleware WebSphere Information Mgmt Tivoli Lotus Rational • Leverage development efficiency and global reach Other Middleware Revenue growth faster than the market Contribute 49% of IBM's profit by 2015 Operating Pre-tax income long-term growth model: 12% - 15% Initiatives and Objectives Systems & Technology Revenue = $16.2B, -16% yr/yr (-15% @cc) • Extend leadership with new product introductions - Power7 - Next Generation System z Retail Store Solutions Microelectronics OEM • Workload optimized systems Servers Storage System z Power Systems System x • Stack Integration and Optimization +4 points Revenue Share in Servers +6 points Revenue Share in Storage Operating Pre-tax income long-term growth model: 6% - 8%