1Q 2015 Earnings Presentation April!20,!2015! 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/events/earnings/1q15.html The Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s Form 8-K dated April 20, 2015. www.ibm.com/investor 2 1Q15 Summary Revenue ($B) Yr/Yr As Reported Operating (Non-GAAP) EPS 1Q15 Yr/Yr $19.6 0%* (12%) 9% $2.91 * Revenue growth rate @CC and excluding divested businesses ! Revenue performance improved to flat yr/yr • Strategic imperatives growth accelerated to >30% yr/yr • Core portfolio performance consistent with second half of 2014 • Systems Hardware driven by strong System z and return to growth in Power ! Margin expansion reflects ongoing shift to higher value ! Shifting investments and resources to address long-term opportunities www.ibm.com/investor 3 Key Financial Metrics $ in Billions, except EPS P&L Highlights 1Q15 Yr/Yr P&L Ratios (Operating) $19.6 0% PTI – Operating $3.6 NI – Operating 1Q15 B/(W) Yr/Yr GP Margin 49.3% 0.8 pts 3% PTI Margin 18.4% 2.7 pts $2.9 4% Tax Rate 20.0% 0.5 pts $2.91 9% NI Margin 14.8% 2.2 pts 1Q15 Last 12 Mos. $1.1 $12.8 Share Repurchase (Gross) 1.2 6.7 Dividends 1.1 4.4 Cash Balance @ March 31 8.8 Revenue EPS – Operating Revenue growth rate @CC and excluding divested businesses Cash Highlights Free Cash Flow (excl. GF Receivables) www.ibm.com/investor 4 Revenue by Geography $ in Billions Americas 1Q15 $9.3 Yr/Yr Europe/ME/Africa 6.1 (2%) Asia Pacific 4.1 (2%) IBM $19.6 Major Markets Growth Markets BRIC Countries Canada/!!!!! LA!!! 2% 0% 0% U.S.! +2%!! EMEA!!!!!! Japan! AP! ex.!Japan! +4%! (1%) (3%) Revenue growth rates @CC and excluding divested businesses www.ibm.com/investor 5 Revenue and Gross Profit Margin by Segment $ in Billions Revenue 1Q15 Operating Gross Profit Margin Yr/Yr 1Q15 $7.9 (1%) 37.4% (1.4 pts) Global Business Services 4.3 (4%) 27.4% (1.8 pts) Software 5.2 (2%) 86.6% (0.9 pts) Systems Hardware 1.7 30% 44.5% 10.5 pts Global Financing 0.5 (1%) 49.6% 3.5 pts 0% 49.3% 0.8 pts Global Technology Services Total Revenue & Op. GP Margin $19.6 Yr/Yr Pts Revenue growth rates @CC and excluding divested businesses www.ibm.com/investor 6 Expense Summary $ in Billions 1Q15 B/(W) Yr/Yr SG&A – Operating $5.0 18% RD&E – Operating 1.3 9% IP and Development Income (0.2) (17%) Other (Income)/ Expense (0.1) 12% Interest Expense 0.1 Operating Expense & Other Income $6.1 (3%) 17% Drivers B/(W) Yr/Yr Currency 8 pts System x Divestiture 2 pts Divestiture Gains (1Q14) (1 pts) Workforce Rebalancing 7 pts Operating Expense & Other Income 17% www.ibm.com/investor 7 Services Segments Global!Technology!Services!(GTS)! $ in Billions 1Q15 Yr/Yr $7.9 (1%) Gross Margin (External) 37.4% (1.4 pts) PTI Margin 12.3% (1.1 pts) Revenue (External) GTS 1Q15 Revenue Yr/Yr GTS Outsourcing Integrated Technology Services Maintenance GBS 1Q15 Revenue GBS Outsourcing Consulting & Systems Integration (2%) (1%) 2% Global!Business!Services!(GBS)! $ in Billions 1Q15 Yr/Yr $4.3 (4%) Gross Margin (External) 27.4% (1.8 pts) PTI Margin 13.4% (1.4 pts) Revenue (External) (1%) (5%) 1Q15 Backlog $121B 0% 1Q15!Revenue! (%!of!Total!Services)! Maint.!!! 13%! GTS! Outsourcing!!! 35%!! ITS! 17%! GBS!C&SI!!!!!!!!! 25%! GBS! Outsourcing!!! 10%!! Revenue and Backlog growth rates @CC and excluding divested businesses www.ibm.com/investor 8 Software Segment $ in Billions Revenue (External) Gross Margin (External) PTI Margin 1Q15 Revenue Yr/Yr WebSphere 1% Information Management 0% Tivoli 4% Workforce Solutions Rational Key Branded Middleware 10% (10%) 1% Total Middleware (1%) Total Software (2%) 1Q15 Yr/Yr $5.2 86.6% 31.4% (2%) (0.9 pts) 2.3 pts 1Q15!Revenue!!!!!!!!!!!!! (%!of!Total!SoUware)! Key!!!!!!! Branded! Middleware!! 67%!! Other! Middleware!! 17%! OperaYng! Systems!!!!!!! 8%! Other!!!!!!!!! 8%! Revenue growth rates @CC www.ibm.com/investor 9 Systems Hardware Segment $ in Billions Revenue (External) Gross Margin (External) PTI Margin 1Q15 Yr/Yr $1.7 44.5% 1.4% 30% 10.5 pts 21.2 pts 1Q15 Revenue Yr/Yr System z Power Systems 1Q15!Revenue! (%!of!Total!Sys!Hardware)! 130% 1% Storage (2%) Total Systems Hardware 30% Revenue growth rates @CC and excluding divested business www.ibm.com/investor Servers!!!!!!! 69%!! Storage!!!!!!! 28%!! Other! 10 Cash Flow Summary $ in Billions Net Cash from Operations Less: Global Financing Receivables 1Q15 B/(W) Yr/Yr FY14 $3.6 $0.3 $16.9 1.6 (0.2) 2.0 0.5 16.2 (0.9) 0.0 (3.8) 1.1 0.4 12.4 Acquisitions (0.1) 0.1 (0.7) Divestitures 0.0 (0.4) 2.4 Dividends (1.1) (0.1) (4.3) Share Repurchases (Gross) (1.2) 7.0 Non-GF Debt 0.4 (3.3) (1.3) Other (includes GF A/R & GF Debt) 1.3 (2.1) 2.6 Net Cash from Operations (excluding GF Receivables) Net Capital Expenditures Free Cash Flow (excluding GF Receivables) Change in Cash & Marketable Securities $0.3 www.ibm.com/investor $1.7 0.7 (13.7) ($2.6) 11 Balance Sheet Summary Mar. 14 $ in Billions Dec. 14 Mar.15 Cash & Marketable Securities $9.7 $8.5 $8.8 Non-GF Assets* 76.7 71.7 70.8 Global Financing Assets 36.2 37.3 32.5 122.6 117.5 112.0 Other Liabilities 61.9 64.7 60.9 Non-GF Debt* 15.7 11.7 12.6 Global Financing Debt 28.3 29.1 26.2 44.0 40.8 38.8 Total Liabilities 105.9 105.5 99.7 Equity 16.7 12.0 12.3 55.3% 59.4% 59.6% 7.1 7.2 7.0 Total Assets Total Debt Non-GF Debt / Capital Global Financing Leverage * Includes eliminations of inter-company activity www.ibm.com/investor 12 Summary ! 1Q performance reflects progress in transformation • Acceleration in strategic imperatives • Strength in high-end systems • Margin expansion reflects high-end strength and portfolio actions • Shifting investments and resources to address long-term opportunities ! Maintaining expectations for full year 2015 • Operating EPS of $15.75 to $16.50 • Free Cash Flow flat yr/yr • Exit 2015 as a higher value, higher margin business www.ibm.com/investor 13 www.ibm.com/investor 14 Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding ! ! ! ! ! ! Currency – Year/Year Comparison Supplemental Segment Information – Global Services Supplemental Segment Information – Systems Hardware, Software Global Financing Portfolio Cash Flow (FAS 95) Non-GAAP Supplemental Materials • Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency • Cash Flow, Debt-to-Capital Ratio, Customer Care Outsourcing and System x Business Divestiture • Reconciliation of Operating Earnings Per Share • GAAP to Operating (Non-GAAP) Bridge – 1Q 2015 • GAAP to Operating (Non-GAAP) Bridge – 1Q 2014 • GAAP to Operating (Non-GAAP) Bridge – 1Q 2015 and 1Q 2014 • Reconciliation of B/(W) Yr/Yr Expense Drivers – 1Q 2015 • Reconciliation of Free Cash Flow (excluding GF Receivables) – 12 months ended 3/31/15 • Reconciliation of Debt-to-Capital Ratio • Reconciliation of Revenue Growth • Reconciliation of Revenue Growth • Reconciliation of Revenue Growth • Reconciliation of Revenue Growth www.ibm.com/investor 15 Supplemental Materials Currency – Year/Year Comparison Quarterly!Averages!per!US!$! 2Q15 Yr/Yr @ 4/17 Spot 3Q15 4Q15 1Q15 Yr/Yr 4/17 Spot Euro 0.89 (22%) 0.93 (27%) (23%) (16%) (22%) Pound 0.66 (9%) 0.67 (13%) (12%) (6%) (10%) Yen 119 (16%) 119 (17%) (14%) (4%) (12%) (8 pts) (9 pts) (8 pts) (5 pts) ~(7 pts) (6-7 pts) (7 pts) (6 pts) (3 pts) (5-6 pts) IBM Revenue Impact Prior View (Jan. 2015) Revenue As Reported Currency Impact Revenue @CC (US$B) Yr/Yr $19.6 (12%) (1.7) FY15 (8 pts) (4%) www.ibm.com/investor 16 Supplemental Materials Supplemental Segment Information – 1Q 2015 Global Services Revenue Global Services Backlog / Signings $!in!Billions! Revenue!Growth! Yr/Yr! Backlog! 1Q15! Yr/Yr! GTS Outsourcing (2%) Total Backlog $121 0% Integrated Tech Services (1%) Change in Backlog due to Currency Maintenance Total GTS Quarter-to-Quarter 2% Year-to-Year (1%) GBS Outsourcing (1%) GBS C&SI (5%) Outsourcing Backlog (4%) ! Signings! Total Outsourcing (2%) Outsourcing - GTS O/S, GBS O/S Total Transactional (3%) Total GBS Maintenance Transactional - ITS, Consulting & AMS SI (incl. US Federal) 2% Total Signings Revenue and Total Backlog growth rates @CC and excluding divested businesses ($6) ($17) $76 2% ! 1Q15! Yr/Yr! @CC! $5.5 11% 5.1 $10.7 (1%) 5% Actual backlog calculated using March 31 currency spot rates www.ibm.com/investor 17 Supplemental Materials Supplemental Segment Information – 1Q 2015 Systems Hardware Revenue!Growth! System z Power Systems Storage Total Sys Hardware* Yr/Yr! Software Revenue!Growth! GP%! 130% 1% (2%) WebSphere 1% Information Management 0% Tivoli 4% Workforce Solutions 30% Yr/Yr! Rational Key Branded Middleware Other Middleware 10% (10%) 1% (7%) Total Middleware (1%) Operating Systems (9%) Other Software/Services (6%) Total Software (2%) * Revenue growth rates @CC and excludes divested business www.ibm.com/investor 18 Supplemental Materials Global Financing Portfolio 1Q15 – $25.8B Net External Receivables 40% Investment Grade 56% 35% 30% 20% Non-Investment Grade 44% 22% 21% 10% 12% 8% 2% 0% Aaa to A3 Baa1 to Baa3 Ba1 to Ba2 B2 to B3 Caa1 to D 1Q15 4Q14 1Q14 Identified Loss Rate 1.9% 1.6% 1.0% Anticipated Loss Rate 0.4% 0.3% 0.4% Reserve Coverage 2.3% 1.9% 1.4% 4.2 4.1 3.6 $93M $26M $36M Client Days Delinquent Outstanding Commercial A/R > 30 days 19 Ba3 to B1 www.ibm.com/investor 19 Supplemental Materials Cash Flow (FAS 95) $ in Billions 1Q15 1Q14 $2.3 $2.4 Depreciation / Amortization of Intangibles 1.0 1.1 Stock-based Compensation 0.1 0.1 (1.4) (2.1) 1.6 1.8 3.6 3.3 (0.9) (0.9) 0.0 0.4 (0.1) (0.3) 1.6 0.8 0.6 0.0 Debt, net of payments & proceeds (1.3) 4.2 Dividends (1.1) (1.0) Common Stock Repurchases (Gross) (1.2) (8.2) Common Stock Transactions - Other 0.2 0.3 Net Cash used in Financing Activities (3.4) (4.7) Effect of Exchange Rate changes on Cash (0.4) 0.0 Net Change in Cash & Cash Equivalents $0.3 Net Income from Operations Working Capital / Other Global Financing A/R Net Cash provided by Operating Activities Capital Expenditures, net of payments & proceeds Divestitures, net of cash transferred Acquisitions, net of cash acquired Marketable Securities / Other Investments, net Net Cash used in Investing Activities www.ibm.com/investor ($1.3) 20 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 from continuing operations excluding the effects of certain acquisitionrelated 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 retirement-related 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 its earnings per share guidance, 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 21 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. Customer Care Outsourcing and System x Business Divestiture On September 10, 2013, the company announced that it had signed a definitive agreement with SYNNEX for the sale of IBM’s worldwide customer care process outsourcing services business and on January 23, 2014, the company announced that it had signed a definitive agreement with Lenovo for the sale of IBM’s x86 server business. Management presents certain financial results excluding the effects of the customer care process outsourcing services business and/or the x86 server business divestitures. Management believes that presenting financial information without either or both of these items 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 22 Supplemental Materials Non-GAAP Supplemental Materials ReconciliaYon!of!OperaYng!Earnings!Per!Share! 2015 Expectations IBM GAAP EPS $14.17 - $14.92 IBM Operating EPS (Non-GAAP) $15.75 - $16.50 Adjustments Acquisition-Related Charges * $0.74 Amortization of Purchased Intangibles $0.72 Other Acquisition-Related Charges $0.02 Non-Operating Retirement-Related Items $0.84 * Includes acquisitions through March 31, 2015 The above serves to reconcile the Non-GAAP financial information contained in Full Year 2015 Expectations and “Summary” discussions in the company s earnings presentation. See Slide 21 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 23 23 Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!OperaYng!(NoncGAAP)!Bridge!–!1Q!2015! $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $9,452 $91 $121 $9,664 (79) (308) 4,975 (13) 1,285 SG&A 5,362 RD&E 1,298 Other Income & Expense (143) 0 Total Operating Expense & Other Income 6,451 (79) Pre-Tax Income from Continuing Operations 3,001 Tax *** Net Income from Continuing Operations Diluted Earnings Per Share from Continuing Operations - (143) (321) 6,051 170 442 3,612 585 28 109 722 2,415 142 333 2,890 $2.44 $0.14 $0.33 $2.91 *""Includes"amor/za/on"of"purchased"Intangibles,"in"process"R&D,"severance"cost"for"acquired"employees,"vacant"space"for"acquired"companies,"deal"costs"and" acquisi/on"integra/on"tax"charges" **"Includes"re/rement"related"interest"cost,"expected"return"on"plan"assets,"recognized"actuarial"losses"or"gains,"amor/za/on"of"transi/on"assets,"other"se@lements," curtailments,"mul/Aemployer"plans"and"insolvency"insurance" ***The"tax"impact"on"the"Opera/ng"(NonAGAAP)"PreATax"Income"from"con/nuing"opera/ons"is"calculated"under"the"same"accoun/ng"principles"applied"to"the"As" Reported"PreATax"Income"under"ASC"740,"which"employs"an"annual"effec/ve"tax"rate"method"to"the"results." " The above serves to reconcile the Non-GAAP financial information contained in the “1Q15 Summary”, Key Financial Metrics and Expense Summary discussions in the company’s earnings presentation. See Slide 21 of this presentation for additional information on the use of these NonGAAP financial measures. www.ibm.com/investor 24 Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!OperaYng!(NoncGAAP)!Bridge!–!1Q!2014! $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $10,627 $104 $52 $10,783 SG&A 6,272 (97) (87) 6,087 RD&E 1,402 - 17 1,419 Other Income & Expense (127) 0 - (128) Total Operating Expense & Other Income 7,444 (98) (70) 7,276 Pre-Tax Income from Continuing Operations 3,183 201 123 3,507 653 40 25 717 2,530 161 98 2,790 Tax *** Net Income from Continuing Operations Diluted Earnings Per Share from Continuing Operations $2.43 $0.16 $0.09 $2.68 *""Includes"amor/za/on"of"purchased"Intangibles,"in"process"R&D,"severance"cost"for"acquired"employees,"vacant"space"for"acquired"companies,"deal"costs"and" acquisi/on"integra/on"tax"charges." **"Includes"re/rement"related"interest"cost,"expected"return"on"plan"assets,"recognized"actuarial"losses"or"gains,"amor/za/on"of"transi/on"assets,"other"se@lements," curtailments,"mul/Aemployer"plans"and"insolvency"insurance." ***The"tax"impact"on"the"Opera/ng"(NonAGAAP)"PreATax"Income"from"con/nuing"opera/ons"is"calculated"under"the"same"accoun/ng"principles"applied"to"the"As" Reported"PreATax"Income"under"ASC"740,"which"employs"an"annual"effec/ve"tax"rate"method"to"the"results." " The above serves to reconcile the Non-GAAP financial information contained in the “1Q15 Summary”, Key Financial Metrics and Expense Summary discussions in the company’s earnings presentation. See Slide 21 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 25 Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!OperaYng!(NoncGAAP)!Bridge!–!1Q!2015!and!1Q!2014! 1Q 2015 GAAP Acquisitionrelated Adjustments* Gross Profit Margin from Continuing Operations 48.2% 0.5 pts 0.6 pts 49.3% PTI Margin from Continuing Operations 15.3% 0.9 pts 2.3 pts 18.4% Tax Rate *** 19.5% (0.2 pts) 0.7 pts 20.0% Net Income Margin from Continuing Operations 12.3% 0.7 pts 1.7 pts 14.8% Gross Profit Margin from Continuing Operations 47.8% 0.5 pts 0.2 pts 48.5% PTI Margin from Continuing Operations 14.3% 0.9 pts 0.6 pts 15.8% Tax Rate *** 20.5% 0.0 pts 0.0 pts 20.5% Net Income Margin from Continuing Operations 11.4% 0.7 pts 0.4 pts 12.5% Retirement-related Adjustments ** Operating (Non-GAAP) 1Q 2014 *""Includes"amor/za/on"of"purchased"Intangibles,"in"process"R&D,"severance"cost"for"acquired"employees,"vacant"space"for"acquired"companies,"deal"costs"and" acquisi/on"integra/on"tax"charges" **"Includes"re/rement"related"interest"cost,"expected"return"on"plan"assets,"recognized"actuarial"losses"or"gains,"amor/za/on"of"transi/on"assets,"other" se@lements,"curtailments,"mul/Aemployer"plans"and"insolvency"insurance" ***The"tax"impact"on"the"Opera/ng"(NonAGAAP)"PreATax"Income"from"con/nuing"opera/ons"is"calculated"under"the"same"accoun/ng"principles"applied"to"the"As" Reported"PreATax"Income"under"ASC"740,"which"employs"an"annual"effec/ve"tax"rate"method"to"the"results." " "The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics and “Revenue and Gross Profit Margin by Segment” discussions in the company’s earnings presentation. See Slide 21 of this presentation for additional information on the use of these NonGAAP financial measures. www.ibm.com/investor 26 Supplemental Materials Non-GAAP Supplemental Materials ReconciliaYon!of!B/(W)!Yr/Yr!Expense!Drivers!–!1Q!2015! GAAP Non-GAAP Adjustments Operating (Non-GAAP) Currency 9 pts (1 pts) 8 pts System x Divestiture 2 pts 0 pts 2 pts (1 pts) 0 pts (1 pts) 7 pts 0 pts 7 pts Operating Expense & Other Income Divestiture Gains (1Q14) Workforce Rebalancing The above serves to reconcile the Non-GAAP financial information contained in the Expense Summary discussions in the company’s earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 27 Supplemental Materials Non-GAAP Supplemental Materials ReconciliaYon!of!Free!Cash!Flow!(excluding!GF!Receivables)! 12 months ended 3/31/15 $ 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) $17.2 0.5 16.6 (3.8) $12.8 The above serves to reconcile the Non-GAAP financial information contained in the Key Financial Metrics discussions in the company s earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 28 28 Supplemental Materials Non-GAAP Supplemental Materials ReconciliaYon!of!DebtctocCapital!RaYo! March 2015 Dec. 2014 March 2014 Non-Global Financing Debt / Capital 59.6% 59.4% 55.3% IBM Consolidated Debt / Capital 76.0% 77.3% 72.4% The above serves to reconcile the Non-GAAP financial information contained in the Balance Sheet Summary discussions in the company’s earnings presentation. See Slide 22 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 29 Supplemental Materials Non-GAAP Supplemental Materials ReconciliaYon!of!Revenue!Growth!! 3Q14 Yr/Yr IBM GAAP (4%) At Constant Currency (4%) 4Q14 Yr/Yr At Constant Currency excl. Divested Businesses (2%) GAAP (12%) At Constant Currency (8%) At Constant Currency excl. Divested Businesses (2%) The above serves to reconcile the Non-GAAP financial information contained in the “Key Financial Metrics” discussions in the company s earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 30 Supplemental Materials Non-GAAP Supplemental Materials ReconciliaYon!of!Revenue!Growth!! 1Q15 Yr/Yr Americas U.S. Europe/ME/A Asia Pacific Japan Major Markets Growth Markets BRIC Countries GAAP (3%) (1%) (19%) (18%) (13%) (11%) (16%) (21%) At Constant Currency 0% (1%) (5%) (10%) 1% (3%) (10%) (16%) At Constant Currency excl. Divested Businesses 2% 2% (2%) (2%) 4% 0% (1%) (3%) The above serves to reconcile the Non-GAAP financial information contained in the Revenue by Geography” discussions in the company s earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 31 Supplemental Materials Non-GAAP Supplemental Materials ReconciliaYon!of!Revenue!Growth!! 1Q15 Yr/Yr Global Services Global Technology Services (GTS) Global Business Services (GBS) GTS Outsourcing Integrated Technology Services Maintenance GBS Outsourcing Consulting & Systems Integration Total Outsourcing Total Transactional GAAP (12%) (11%) (13%) (12%) (9%) (10%) (13%) (13%) (12%) (12%) At Constant Currency (3%) (2%) (5%) (2%) (1%) (2%) (6%) (5%) (3%) (3%) At Constant Currency excl. Divested Businesses (2%) (1%) (4%) (2%) (1%) 2% (1%) (5%) (2%) (3%) The above serves to reconcile the Non-GAAP financial information contained in the Revenue and Gross Profit Margin by Segment” , “Services Segment” and “Supplemental Segment Information-1Q 2015” discussions in the company s earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 32 Supplemental Materials Non-GAAP Supplemental Materials ReconciliaYon!of!Revenue!Growth!! 1Q15 Yr/Yr GAAP (4%) (6%) (3%) 1% (16%) (7%) (14%) (12%) WebSphere Information Management Tivoli Workforce Solutions Rational Total Middleware Other Middleware Other Software/Services At Constant Currency 1% 0% 4% 10% (10%) (1%) (7%) (6%) 1Q15 Yr/Yr Systems Hardware Segment GAAP (23%) At Constant Currency (18%) At Constant Currency excl. Divested Businesses 30% The above serves to reconcile the Non-GAAP financial information contained in the Revenue and Gross Profit Margin by Segment”, “Software Segment”, “Systems Hardware Segment” and “Supplemental Segment Information-1Q 2015” discussions in the company s earnings presentation. See Slides 21-22 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 33 www.ibm.com/investor 34