® 2Q 2011 Earnings Presentation July 18, 2011 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/2q11/ The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated July 18, 2011. www.ibm.com/investor 2 2Q 2011 Highlights Revenue $26.7B +12%, 5% yr/yr @CC Operating (Non-GAAP) EPS $3.09 +18% yr/yr ¾ 12% revenue growth driven by: • Key Branded Middleware +21% yr/yr • Systems +20% yr/yr, strong performance across all three server lines • Services +10% yr/yr, led by growth markets +22% (+10% @CC) ¾ Momentum in all four growth initiatives: • Growth Markets • Business Analytics • Cloud • Smarter Planet ¾ Double-digit growth in Operating Net Income ¾ Returned $5B to shareholders Increasing 2011 Operating (Non-GAAP) EPS expectations to at least $13.25 www.ibm.com/investor 3 Key Financial Metrics $ in Billions, except EPS P&L Highlights Revenue 2Q11 B/(W) Yr/Yr $26.7 12% @CC 5% P&L Ratios (Operating) 2Q11 B/(W) Yr/Yr GP Margin 46.8% 1.2 pts PTI Margin 18.9% (0.4 pts) PTI – Operating $5.0 10% NI Margin 14.2% (0.2 pts) EPS – Operating $3.09 18% Tax Rate 25.0% Cash Highlights 2Q11 Last 12 Mos. $3.4 $16.0 Share Repurchase 4.0 15.3 Dividends 0.9 3.3 Free Cash Flow (excl GF Receivables) Cash Balance @ June 30 0.8 pts 11.8 www.ibm.com/investor 4 Revenue by Geography 2Q11 B/(W) Yr/Yr Rptd @CC $11.2 10% 8% Europe/ME/A 8.6 16% 3% Asia Pacific 6.2 14% 3% OEM 0.7 Flat (1%) $26.7 12% 5% Major Markets 10% 3% Growth Markets 23% 13% 27% 21% $ in Billions Americas IBM BRIC Countries Canada/ LA EMEA U.S. +6% APac Japan +12% - 5% @CC @CC OEM -1% Performance led by Growth Markets and North America www.ibm.com/investor 5 Revenue and Gross Profit Margin by Segment Revenue $ in Billions Gross Profit Margin 2Q11 B/(W) Yr/Yr Rptd @CC 2Q11 B/(W) Yr/Yr Pts $10.2 11% 3% 34.0% (0.3 pts) Global Business Services 4.9 9% 1% 28.9% 0.6 pts Software 6.2 17% 10% 88.4% 0.4 pts Systems & Technology 4.7 17% 12% 40.6% 4.9 pts Global Financing 0.5 (5%) (11%) 48.7% (1.4 pts) 46.8% 1.2 pts Global Technology Services Total Revenue & Operating GP Margin $26.7 12% 5% Transaction businesses drove revenue performance Margin expansion led by Systems & Technology www.ibm.com/investor 6 Expense Summary $ in Billions 2Q11 B/(W) Yr/Yr SG&A – Operating $5.9 RD&E – Operating IP and Development Income Currency Acq.* Base (18%) (8 pts) (4 pts) (7 pts) 1.6 (6%) (3 pts) (5 pts) 2 pts (0.3) (1%) (10 pts) (4 pts) (6 pts) Other (Income)/Expense 0.1 nm Interest Expense 0.1 (8%) $7.4 (20%) 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 7 Services Segments Global Technology Services (GTS) $ in Billions 2Q11 Revenue (External) Gross Margin (External) $10.2 34.0% Pre-Tax Income $1.4 PTI Margin 13.4% Global Business Services (GBS) B/(W) Yr/Yr @CC Rptd 11% (0.3 pts) 3% (1.2 pts) PTI Margin B/(W) Yr/Yr Rptd @CC 9% 28.9% 0.6 pts $0.8 11% 14.8% 0.3 pts 1% 2Q11 Revenues (% of Total Services) Rptd 12% 11% 7% @CC 3% 3% Flat GBS GBS Outsourcing Consulting & Systems Integration 12% 7% 4% Flat +$15B $4.9 Pre-Tax Income GTS GTS Outsourcing Integrated Technology Services Maintenance Services Backlog Revenue (External) Yr/Yr 2Q11 $144B 2Q11 Gross Margin (External) 1% 2Q11 Revenue $ in Billions +$2B Maint. 13% GTS Outsourcing 40% GBS Outsourcing 7% ITS 15% GBS C&SI 25% Growth Markets backlog up 50% over last two years www.ibm.com/investor 8 Software Segment $ in Billions 2Q11 $6.2 88.4% $2.3 33.2% Revenue (External) Gross Margin (External) Pre-Tax Income PTI Margin 2Q11 Revenue Yr/Yr Rptd @CC WebSphere Family 55% 47% Information Management 18% 11% Tivoli 9% 3% Lotus 12% 4% Rational 4% (2%) Key Branded Middleware 21% 14% Total Middleware 17% 10% Total Software 17% 10% B/(W) Yr/Yr Rptd @CC 17% 10% 0.4 pts 12% (1.4 pts) 2Q11 Revenue (% of Total Software) Key Branded Middleware 64% Other Middleware 18% Operating Systems Other 10% 8% Branded Middleware grew 21%, represents 64% of total Software www.ibm.com/investor 9 Systems & Technology Segment $ in Billions 2Q11 Revenue (External) $4.7 Gross Margin (External) B/(W) Yr/Yr Rptd @CC 17% 40.6% 4.9 pts Pre-Tax Income $0.4 112% PTI Margin 8.0% 3.6 pts 2Q11 Revenue Yr/Yr System z Power Systems System x Storage Retail Store Solutions Total Systems Microelectronics OEM Total Systems & Technology Rptd 61% 12% 15% 10% 8% 20% 4% 17% @CC 53% 7% 9% 4% 3% 13% 4% 12% 12% 2Q11 Revenue (% of Total Sys & Tech) Storage 19% Servers 65% RSS Micr o OE 12% M Strong growth in revenue, profit and margin www.ibm.com/investor 10 Cash Flow Analysis 2Q11 B/(W) Yr/Yr YTD 1H11 B/(W) Yr/Yr $4.3 $0.5 $8.1 ($0.1) 0.0 0.2 1.9 0.0 4.3 0.3 6.2 (0.2) (1.0) 0.0 (2.0) (0.1) 3.4 0.3 4.2 (0.3) Acquisitions (0.1) 0.1 (0.2) 0.9 Divestitures 0.0 0.0 0.0 0.0 Dividends (0.9) (0.1) (1.7) (0.1) Share Repurchases (4.0) 0.1 (8.0) 0.1 Non-GF Debt 0.0 (0.9) 1.0 (0.3) Other (includes GF A/R & GF Debt) 0.2 0.7 4.8 1.6 $0.3 $0.1 $1.8 $ 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) Change in Cash & Marketable Securities ($1.5) www.ibm.com/investor 11 Balance Sheet Summary June 10 $ in Billions Cash & Marketable Securities Dec. 10 June 11 $12.2 $11.7 $11.8 Non-GF Assets* 61.6 67.3 68.8 Global Financing Assets 29.5 34.5 32.9 103.4 113.5 113.5 Other Liabilities 55.6 61.7 60.5 Non-GF Debt* 5.5 5.8 6.4 21.2 22.8 23.4 26.7 28.6 29.8 Total Liabilities 82.2 90.3 90.3 Equity 21.2 23.2 23.2 Total Assets Global Financing Debt Total Debt Non-GF Debt / Capital Global Financing Leverage 23% 23% 24% 7.1 7.0 7.0 * Includes eliminations of inter-company activity www.ibm.com/investor 12 Operating EPS Bridge – 2Q10 to 2Q11 $0.18 $0.33 ($0.04) Revenue Growth @ Actual Margin Expansion $3.09 $2.62 2Q10 Operating EPS www.ibm.com/investor Share Repurchases 2Q11 Operating EPS 13 2015 At least $20 2Q 2011 Summary ¾ Revenue growth driven by transaction businesses ¾ Momentum in growth initiatives • Growth markets +13% yr/yr @CC for 2Q and YTD, half of geographic revenue growth 2010 $11.67 • 1st half business analytics revenue up >20% yr/yr • Cloud revenue on track to double in 2011 • 1st half Smarter Planet revenue up >50% yr/yr ¾ Double-digit growth in Operating Net Income ¾ Leveraging strong cash generation to return value to shareholders Operating EPS Increasing 2011 Operating (Non-GAAP) EPS expectations to at least $13.25 www.ibm.com/investor 14 www.ibm.com/investor 15 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 Currency – Year/Year Comparison Supplemental Segment Information – Global Services Supplemental Segment Information – Systems & Technology, Software Global Financing Portfolio Revenue by Key Industry Sales Unit Cash Flow (FAS 95) Non-GAAP Supplementary Materials • Operating (Non-GAAP) Earnings Per Share and Related Income Statement Items, Constant Currency • Cash Flow, Debt-to-Capital Ratio, Current Item (Workforce Rebalancing) • Reconciliation of Operating Earnings Per Share • GAAP to Operating (Non-GAAP) Bridge – 2Q 2011 • GAAP to Operating (Non-GAAP) Bridge – 2Q 2010 • Reconciliation of Free Cash Flow (excluding GF Receivables) • Reconciliation of Revenue Growth Rates – Geographies • Reconciliation of Revenue Growth Rates – Segments • Reconciliation of Revenue Growth – Growth Markets vs. Major Markets • Reconciliation of Yr/Yr Expense Drivers • Reconciliation of Debt-to-Capital Ratio • Reconciliation of Operating EPS Bridge 2Q10 to 2Q11 www.ibm.com/investor 16 Currency – Year/Year Comparison Quarterly Averages per US $ Yr/Yr @ 7/15 Spot 3Q11 4Q11 FY11 1Q11 Yr/Yr 2Q11 Yr/Yr 7/15 Spot Euro 0.73 (1%) 0.69 12% 0.71 9% 4% 7% Pound 0.62 3% 0.61 9% 0.62 4% 2% 5% 82 9% 82 79 8% 4% 8% ~5-6 pts 3 pts ~4-5 pts Yen IBM Revenue Impact Revenue As Reported Currency Impact Revenue @CC 3 pts 11% 7 pts (US$B) Yr/Yr $26.7 12% 1.7 7 pts $24.9 5% www.ibm.com/investor 17 Supplemental Materials Supplemental Segment Information – 2Q 2011 Supplemental Revenue Information Supplemental Backlog / Signings Information Revenue Growth $ in Billions Yr/Yr @CC Global Services 2Q11 Yr/Yr @CC GTS Outsourcing 12% 3% Total Backlog $144 +$15 +$2 Integrated Tech Services 11% 3% Outsourcing Backlog 96 +8 (1) 7% Flat 11% 3% 12% 4% 7% Flat 9% 1% Global Services Maintenance Total GTS GBS Outsourcing GBS C&SI Total GBS Total Outsourcing 12% 3% Total Transactional 9% 1% Maintenance 7% Flat Backlog $ in Billions Global Services Outsourcing Signings 2Q11 Yr/Yr @CC $7.1 17% 8% 7.1 15% 7% $14.3 16% 8% - GTS O/S, GBS O/S (AMS) Transactional - ITS, Consulting & AMS SI (incl. US Federal) Total Signings Note: YTY signings growth reflects 2010 signings categories consistent with 2011 www.ibm.com/investor 18 Supplemental Materials Supplemental Segment Information – 2Q 2011 Revenue Growth Revenue Growth Systems & Technology Yr/Yr @CC System z 61% 53% Power Systems 12% 7% System x 15% 9% Storage 10% 4% 8% 3% 20% 13% 4% 4% 17% 12% Retail Store Solutions Total Systems Microelectronics OEM Total Systems & Technology GP% Yr/Yr @CC WebSphere Family 55% 47% Information Management 18% 11% Tivoli 9% 3% = Lotus 12% 4% = Rational Share = Software Key Branded Middleware 4% (2%) 21% 14% 5% Flat Total Middleware 17% 10% Operating Systems 16% 9% Other Software/Services 19% 12% Total Software 17% 10% Other Middleware www.ibm.com/investor 19 Global Financing Portfolio 2Q11 – $24.4B Net External Receivables Investm ent Grade 65% Non-Investm ent Grade 35% 50% 40% 30% 20% 10% 40% 25% 19% 10% 4% 2% Ba3-B1 B2-B3 Caa-D 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 2Q11 1Q11 2Q10 Identified Loss Rate 1.0% 1.2% 1.8% Anticipated Loss Rate 0.3% 0.3% 0.3% Reserve Coverage 1.3% 1.5% 2.1% 2.4 3.3 3.7 $32M $25M $27M Client Days Delinquent Outstanding Commercial A/R > 30 Days 20 www.ibm.com/investor 20 Supplemental Materials Revenue by Key Industry Sales Unit $ in Billions Financial Services 2Q11 B/(W) Yr/Yr Rptd @CC $7.8 17% 8% Public 4.0 6% Flat Industrial 2.6 9% 1% Distribution 2.6 9% 3% Communications 2.7 16% 10% General Business 5.4 16% 8% $26.7 12% 5% Total IBM www.ibm.com/investor Public Financial Services Industrial Distribution Comms General Business 21 $ in Billions Cash Flow (FAS 95) QTD 2Q11 QTD 2Q10 YTD 1H11 YTD 1H10 $3.7 $3.4 $6.5 $6.0 Depreciation / Amortization of Intangibles 1.2 1.2 2.4 2.4 Stock-based Compensation 0.2 0.2 0.3 0.3 (0.7) (0.7) (3.1) (2.4) 0.0 (0.2) 1.9 1.9 4.3 3.8 8.1 8.2 (1.0) (1.0) (2.0) (1.9) 0.0 0.0 0.0 0.0 (0.1) (0.2) (0.2) (1.0) 0.5 (0.8) 2.1 0.2 Net Cash used in Investing Activities (0.6) (1.9) (0.1) (2.6) Debt, net of payments & proceeds (0.7) 0.2 1.0 0.7 Dividends (0.9) (0.8) (1.7) (1.6) Common Stock Repurchases (4.0) (4.1) (8.0) (8.1) 0.7 0.9 1.6 1.8 (4.9) (3.7) (7.2) (7.1) 0.2 (0.2) 0.3 (0.3) ($2.1) $1.1 ($1.9) 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 Common Stock Transactions - Other Net Cash used in Financing Activities Effect of Exchange Rate changes on Cash Net Change in Cash & Cash Equivalents ($1.0) www.ibm.com/investor 22 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 23 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. Current Item (Workforce Rebalancing) Management presents certain financial results excluding the effects of certain charges in connection with workforce rebalancing actions. Management believes that presenting certain financial information without this item 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 24 Supplemental Materials Non -GAAP Supplementary Materials Non-GAAP Reconciliation of Operating Earnings Per Share 2011 Expectations IBM GAAP EPS $12.87+ IBM Operating EPS (Non-GAAP) $13.25+ Adjustments Acquisition-Related Charges * $0.40 Amortization of Purchased Intangibles $0.39 Other Acquisition-Related Charges $0.01 Non-Operating Retirement-Related Items ($0.02) * Includes acquisitions as of 6/30/2011 The above serves to reconcile the Non-GAAP financial information contained in the “2Q 2011 Highlights” and “2Q 2011 Summary” discussion in the company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 25 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – 2Q 2011 $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $12,385 $87 $6 $12,477 (76) (5) 5,950 24 1,593 SG&A 6,030 RD&E 1,569 Other Income & Expense 0 97 (1) 0 96 Total Operating Expense & Other Income 7,500 (77) 18 7,441 Pre-Tax Income 4,885 163 (12) 5,036 Tax *** 1,221 38 Net Income 3,664 126 (13) 3,777 Diluted Earnings Per Share $3.00 $0.10 ($0.01) $3.09 0 1,259 * 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 “2Q 2011 Highlights,” “Key Financial Metrics” and “Expense Summary” discussion in the company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these NonGAAP financial measures. www.ibm.com/investor 26 Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – 2Q 2010 $ in Millions, except EPS Gross Profit GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) $10,809 $58 ($56) $10,811 SG&A 5,061 RD&E 1,475 Other Income & Expense (95) (62) 25 5,024 0 32 1,507 (3) 0 (97) 57 6,227 Total Operating Expense & Other Income 6,234 (64) Pre-Tax Income 4,575 122 (113) 4,584 Tax *** 1,190 38 (45) 1,183 Net Income 3,386 84 (68) 3,402 Diluted Earnings Per Share $2.61 $0.06 ($0.05) $2.62 * 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 “2Q 2011 Highlights,” “Key Financial Metrics” and “Expense Summary” discussion in the company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these NonGAAP financial measures. www.ibm.com/investor 27 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Free Cash Flow (excluding GF Receivables) $ in Billions 12 months ended 6/30/11 Net Cash from Operations $19.4 Less: Global Financing Receivables Net Cash from Operations (excluding GF Receivables) Net Capital Expenditures (0.7) 20.1 (4.1) Free Cash Flow (excluding GF Receivables) $16.0 The above serves to reconcile the Non-GAAP financial information contained in the “Key Financial Metrics” discussion in the company’s earnings presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 28 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Geography Revenue Growth 2Q11 Yr/Yr As Rptd @CC Canada Japan Asia Pacific, other than Japan 18% 7% 22% 11% (5%) 12% Growth Markets Hardware WebSphere Services 30% 50% 22% 24% 39% 10% The above serves to reconcile the Non-GAAP financial information contained in the "Revenue by Geography” discussion in the company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 29 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Segment Revenue Growth 2Q11 Yr/Yr As Rptd @CC Global Technology Services Outsourcing – Growth Markets Integrated Technology Services – Growth Markets 23% 23% 10% 14% Global Business Services Growth Markets Major Markets 21% 7% 10% (1%) Systems and Technology Growth Markets Major Markets System x – Growth Markets 29% 12% 35% 24% 7% 27% The above serves to reconcile the Non-GAAP financial information contained in the “Services Segments,” and “Systems and Technology Segment” discussion in the company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 30 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Revenue Growth Average 1Q 2008 to 2Q 2011 @CC As Rptd Growth Markets vs. Major Markets 9% 9% The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography” discussion in the company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 31 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Yr/Yr Expense Drivers GAAP Non-GAAP Adjustments Operating (Non-GAAP) Currency (8 pts) 0 pts (8 pts) Acquisitions (4 pts) 0 pts (4 pts) Base (7 pts) 0 pts (7 pts) Currency (3 pts) 0 pts (3 pts) Acquisitions (5 pts) 0 pts (5 pts) 2 pts 1 pt 2 pts Currency (10 pts) 0 pts (10 pts) Acquisitions (5 pts) 0 pts (4 pts) Base (6 pts) 0 pts (6 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” discussion in the company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 32 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Debt-to-Capital Ratio 2Q11 FY10 2Q10 Non-Global Financing Debt / Capital 24% 23% 23% IBM Consolidated Debt / Capital 56% 55% 56% The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet” discussion regarding the non-Global Financing debt to capital ratio in the company’s earnings presentation. See Slide 24 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 33 Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Operating EPS Bridge 2Q10 to 2Q11 GAAP Acquisitionrelated Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) 2Q10 EPS $2.61 $0.06 ($0.05) $2.62 Revenue growth @ actual 0.32 0.01 0.00 0.33 Margin expansion (0.10) 0.02 0.04 (0.04) Share repurchases 0.17 0.01 0.00 0.18 2Q11 EPS $3.00 $0.10 ($0.01) $3.09 * 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 – 2Q10 to 2Q11” discussion in the company’s earnings presentation. See Slide 23 of this presentation for additional information on the use of these Non-GAAP financial measures. www.ibm.com/investor 34 www.ibm.com/investor 35