UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report: October 19, 2015

(Date of earliest event reported)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

 

1-2360

 

13-0871985

(State of Incorporation)

 

(Commission File Number)

 

(IRS employer Identification No.)

 

ARMONK, NEW YORK

 

10504

(Address of principal executive offices)

 

(Zip Code)

 

914-499-1900

(Registrant’s telephone number)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02.   Results of Operations and Financial Condition.

 

The registrant’s press release dated October 19, 2015, regarding its financial results for the periods ended September 30, 2015, including consolidated financial statements for the periods ended September 30, 2015, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Martin Schroeter’s third quarter earnings presentation on October 19, 2015, as well as certain reconciliation and other information (“Non-GAAP Supplemental Materials”) for information in Attachment I (press release), Attachment II (slides) and in Mr. Schroeter’s presentation. All of the information in Attachment I and II is hereby filed.

 

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/).  IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

 

Date: October 19, 2015

 

 

 

 

 

 

By:

/s/ Stanley J. Sutula III

 

 

 

 

 

 Stanley J. Sutula III

 

 

 Vice President and Controller

 

3



 

ATTACHMENT I

 

IBM REPORTS 2015 THIRD-QUARTER RESULTS

 

·                  Diluted EPS from continuing operations:

·                  Operating (non-GAAP): $3.34, down 9 percent;

·                  GAAP: $3.02, down 13 percent;

·                  Net income from continuing operations:

·                  Operating (non-GAAP): $3.3 billion, down 11 percent;

·                  GAAP: $3.0 billion, down 14 percent;

·                  Gross profit margin from continuing operations:

·                  Operating (non-GAAP): 50.0 percent, up 80 basis points;

·                  GAAP: 48.9 percent, up 40 basis points;

·                  Revenue from continuing operations: $19.3 billion:

·                  Down 1 percent adjusting for currency (9 points) and the divested System x business (4 points); down 14 percent as reported;

·                  Strategic imperatives revenue:

·                  Up 27 percent year-to-year, adjusting for currency and divested business; up 17 percent as reported;

·                  Up more than 30 percent year-to-date adjusting for currency and divested business; up 20 percent as reported:

·             Cloud revenue up more than 65 percent year-to-date adjusting for currency and divested business; up more than 45 percent as reported;

·                        Total cloud revenue of $9.4 billion over trailing 12 months;

·                        For cloud delivered as a service, annual run rate of $4.5 billion vs. $3.1 billion in third-quarter 2014;

·             Business analytics revenue up 19 percent year-to-date adjusting for currency; up 9 percent as reported;

·                  Services backlog of $118 billion, up 1 percent adjusting for currency;

·                  Free cash flow of $13.6 billion over trailing 12 months;

·                  Total capital return to shareholders of $8.7 billion over trailing 12 months; dividends of $4.7 billion and gross share repurchases of $4.0 billion;

·                  Expect full-year 2015 operating (non-GAAP) EPS of $14.75 to $15.75;

·                  Expect full-year 2015 free cash flow to be relatively flat.

 

ARMONK, N.Y., October 19, 2015 . . . IBM (NYSE: IBM) today announced third-quarter 2015 diluted earnings from continuing operations of $3.02 per share, down 13 percent year-to-year.  Operating (non-GAAP) diluted earnings from continuing operations were $3.34 per share, compared with operating diluted earnings of $3.68 per share in the third quarter of 2014, a decrease of 9 percent.

 

“In the third quarter we again made progress in the transformation of our business to higher value, with strong growth in our strategic imperatives and expanded operating margins,” said Ginni Rometty, IBM chairman, president and chief executive officer.  “We are continuing to make significant investments to build platforms around analytics, cloud, mobility and security that lay the foundation for a new era of cognitive business — where we see long-term value for our clients and shareholders.”

 

Third-quarter net income from continuing operations was $3.0 billion compared with $3.5 billion in the third quarter of 2014, a decrease of 14 percent.  Operating (non-GAAP) net income was $3.3 billion compared with $3.7 billion in the third quarter of 2014, a decrease of 11 percent, impacted by currency.

 



 

Total revenues from continuing operations for the third quarter of 2015 of $19.3 billion were down 14 percent (down 1 percent, adjusting for currency and the divested System x business) from the third quarter of 2014.

 

Third-Quarter GAAP — Operating (non-GAAP) Reconciliation

 

Third-quarter operating (non-GAAP) diluted earnings exclude $0.32 per share of charges: $0.18 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.14 per share for non-operating retirement-related charges driven by changes to plan assets and liabilities primarily related to past market performance.

 

Full-Year 2015 Expectations

 

IBM expects full-year 2015 GAAP diluted earnings per share of $13.25 to $14.25, and operating (non-GAAP) diluted earnings per share of $14.75 to $15.75.  IBM expects free cash flow to be relatively flat year-to-year.  The 2015 operating (non-GAAP) earnings expectation excludes $1.50 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges.

 

Strategic Imperatives

 

Revenues from the company’s strategic imperatives — cloud, analytics, and engagement — increased 17 percent year-to-year (up 27 percent adjusting for currency and the divested System x business); increased 20 percent year-to-date (up more than 30 percent adjusting for currency and the divested System x business).  Total cloud revenues (public, private and hybrid) increased more than 45 percent (more than 65 percent adjusting for currency and the divested System x business) year-to-date, and is $9.4 billion over trailing 12 months.  The annual run rate for cloud delivered as a service — a subset of the total cloud revenue — increased to $4.5 billion from $3.1 billion in the third quarter of 2014.  Revenues from business analytics increased 9 percent year-to-date (19 percent adjusting for currency).  Revenues year-to-date from mobile more than quadrupled, from security increased 6 percent (12 percent adjusting for currency) and from social increased 32 percent (about 40 percent adjusting for currency).

 

Geographic Regions

 

The Americas’ third-quarter revenues were $9.1 billion, a decrease of 10 percent (down 3 percent adjusting for currency and the divested System x business) from the 2014 period.  Revenues from Europe/Middle East/Africa were $6.1 billion, down 16 percent (up 1 percent adjusting for currency and the divested System x business).  Asia-Pacific revenues decreased 19 percent (down 1 percent adjusting for currency and the divested System x business) to $4.1 billion.  Revenues from the BRIC countries

 



 

were down 30 percent as reported (down 7 percent adjusting for currency and the divested System x business).

 

Services

 

Global Technology Services segment revenues were down 10 percent (up 1 percent adjusting for currency and the divested System x business) to $7.9 billion.  Global Business Services segment revenues were down 13 percent (down 5 percent adjusting for currency) to $4.2 billion.

 

The estimated services backlog as of September 30 was $118 billion, up 1 percent year-to-year adjusting for currency.

 

Software

 

Revenues from the Software segment were down 10 percent to $5.1 billion (down 3 percent adjusting for currency) compared with the third quarter of 2014.

 

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $3.4 billion, down 7 percent (down 1 percent adjusting for currency) year-to-year.  Operating systems revenues of $0.4 billion were down 14 percent (down 7 percent adjusting for currency) year-to-year.

 

Hardware

 

Revenues from the Systems Hardware segment totaled $1.5 billion for the quarter, down 39 percent (down 2 percent adjusting for currency and the divested System x business) year-to-year.

 

Revenues from z Systems mainframe server products increased 15 percent compared with the year-ago period (up 20 percent adjusting for currency).  Total delivery of z Systems computing power, as measured in MIPS (millions of instructions per second), increased 18 percent.  Revenues from Power Systems were down 3 percent compared with the 2014 period (up 2 percent adjusting for currency).  Revenues from System Storage decreased 19 percent (down 14 percent adjusting for currency).

 

Financing

 

Global Financing segment revenues decreased 8 percent (up 7 percent, adjusting for currency) in the third quarter at $0.4 billion.

 

Gross Profit

 

The company’s total gross profit margin from continuing operations was 48.9 percent in the 2015 third quarter compared with 48.6 percent in the 2014 third quarter.  Total operating (non-GAAP) gross profit margin from continuing operations was 50.0 percent in the 2015 third quarter compared with 49.2 percent in the 2014

 



 

third quarter, with an increase in Hardware and an improving segment mix partially offset by declines in Services.

 

Expense

 

Total expense and other income from continuing operations decreased to $5.8 billion, down 11 percent compared to the prior-year period, primarily due to the impact of currency.  S,G&A expense of $4.7 billion decreased 10 percent year over year.  R,D&E expense of $1.3 billion decreased 5 percent year-to-year; the related expense-to-revenue ratio increased to 6.7 percent compared with 6.0 percent in the year-ago period.  Intellectual property and custom development income increased to $188 million compared with $145 million a year ago.  Other (income) and expense was income of $133 million compared with prior-year income of $103 million.  Interest expense decreased to $117 million compared with $126 million in the prior year.

 

Total operating (non-GAAP) expense and other income from continuing operations decreased to $5.7 billion, down 12 percent compared with the prior-year period.  Operating (non-GAAP) S,G&A expense of $4.6 billion decreased 11 percent compared with prior-year expense.  Operating (non-GAAP) R,D&E expense of $1.3 billion decreased 7 percent year-to-year; the related expense-to-revenue ratio increased to 6.6 percent compared with 6.1 percent in the year-ago period.

 

Pre-Tax Income

 

Pre-tax income from continuing operations decreased 17 percent to $3.6 billion.  Pre-tax margin from continuing operations decreased 0.7 points to 18.8 percent.  Operating (non-GAAP) pre-tax income from continuing operations decreased 14 percent to $4.0 billion and pre-tax margin was 20.7 percent, flat year to year.

 

***

 

IBM’s tax rate from continuing operations was 18.2 percent, down 2.6 points year over year; the operating (non-GAAP) tax rate was 18.0 percent, down 2.8 points compared to the year-ago period.

 

Net income margin from continuing operations is essentially flat at 15.4 percent.  Total operating (non-GAAP) net income margin from continuing operations increased 0.6 points to 17.0 percent.

 

The weighted-average number of diluted common shares outstanding in the third-quarter 2015 was 979 million compared with 998 million shares in the same period of 2014.  As of September 30, 2015, there were 970 million basic common shares outstanding.

 

Debt, including Global Financing, totaled $39.7 billion, compared with $40.8 billion at year-end 2014.  From a management segment view, Global Financing debt totaled $26.0 billion versus $29.1 billion at year-end 2014.  The debt-to-equity ratio is 7.0 to 1.  Core (non-global financing) debt totaled $13.7 billion, an increase of $2.0 billion since year-end 2014 and a decrease of $3.4 billion from the

 



 

third quarter of 2014.  IBM ended the third-quarter 2015 with $9.6 billion of cash on hand.

 

The company generated free cash flow of $2.6 billion, excluding Global Financing receivables, up $0.4 billion year over year.  The company returned $2.8 billion to shareholders through $1.3 billion in dividends and $1.5 billion of gross share repurchases.  The balance sheet remains strong, and is well positioned to support the business over the long term.

 

Year-To-Date 2015 Results

 

Net income from continuing operations for the nine months ended September 30, 2015 was $8.9 billion compared with $10.2 billion in the year-ago period, a decrease of 13 percent.  Diluted earnings per share from continuing operations were $9.03, down 11 percent compared to the 2014 period.

 

Consolidated net income was $8.7 billion compared to $6.5 billion, including operating net losses in discontinued operations related to the divested Microelectronics business.  Consolidated diluted earnings per share were $8.85 compared to $6.44, up 37 percent year-to-year.  Revenues from continuing operations for the nine-month period totaled $59.7 billion, a decrease of 13 percent (down 1 percent year to year, adjusting for currency and divested businesses) compared with $68.7 billion for the first nine months of 2014.

 

Operating (non-GAAP) net income from continuing operations for the nine months ended September 30, 2015 was $10.0 billion compared with $10.9 billion in the year-ago period, a decrease of 9 percent.  Operating (non-GAAP) diluted earnings per share from continuing operations were $10.09 compared with $10.76 per diluted share for the 2014 period, a decrease of 6 percent.

 

Forward-Looking and Cautionary Statements

 

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of 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.  These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and client spending budgets; the company’s failure to meet growth and productivity objectives, a failure of the company’s innovation initiatives; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls;

 



 

the company’s use of accounting estimates; the company’s ability to attract and retain key personnel and its reliance on critical skills; impacts of relationships with critical suppliers and business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels; the company’s ability to successfully manage acquisitions, alliances and dispositions; risks from legal proceedings; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Qs, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference.  Any forward-looking statement in this release speaks only as of the date on which it is made.  The company assumes no obligation to update or revise any forward-looking statements.

 

Presentation of Information in this Press Release

 

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

 

IBM results and expectations —

 

·                  presenting operating (non-GAAP) earnings per share amounts and related income statement items;

·                  adjusting for free cash flow;

·                  adjusting for currency (i.e., at constant currency);

·                  adjusting for the divestiture of the System x and the customer care outsourcing businesses.

 

The rationale for management’s use of non-GAAP measures is included as part of the supplemental materials presented within the third-quarter earnings materials.  These materials are available via a link on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II (“Non-GAAP Supplemental Materials”) to the Form 8-K that includes this press release and is being submitted today to the SEC.

 

Conference Call and Webcast

 

IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EDT, today.  The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/3q15.html.  Presentation charts will be available shortly before the Webcast.

 



 

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

 

 

 

 

Percent

 

 

 

 

 

Percent

 

 

 

2015

 

2014

 

Change

 

2015

 

2014

 

Change

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services *

 

$

7,937

 

$

8,837

 

-10.2

%

$

23,891

 

$

26,696

 

-10.5

%

Gross profit margin

 

38.1

%

39.0

%

 

 

37.3

%

38.9

%

 

 

Global Business Services *

 

4,206

 

4,840

 

-13.1

%

12,869

 

14,742

 

-12.7

%

Gross profit margin

 

29.7

%

30.9

%

 

 

28.2

%

30.0

%

 

 

Software

 

5,136

 

5,708

 

-10.0

%

16,165

 

17,857

 

-9.5

%

Gross profit margin

 

86.4

%

87.6

%

 

 

87.0

%

88.0

%

 

 

Systems Hardware

 

1,492

 

2,434

 

-38.7

%

5,209

 

7,590

 

-31.4

%

Gross profit margin

 

44.7

%

33.9

%

 

 

46.0

%

36.3

%

 

 

Global Financing

 

447

 

487

 

-8.1

%

1,386

 

1,502

 

-7.7

%

Gross profit margin

 

48.4

%

47.8

%

 

 

47.5

%

49.6

%

 

 

Other

 

60

 

92

 

-34.4

%

162

 

292

 

-44.4

%

Gross profit margin

 

-260.4

%

-143.8

%

 

 

-237.0

%

-162.5

%

 

 

TOTAL REVENUE

 

19,280

 

22,397

 

-13.9

%

59,682

 

68,680

 

-13.1

%

GROSS PROFIT

 

9,436

 

10,874

 

-13.2

%

29,278

 

33,545

 

-12.7

%

Gross profit margin

 

48.9

%

48.6

%

 

 

49.1

%

48.8

%

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

4,731

 

5,281

 

-10.4

%

15,273

 

17,146

 

-10.9

%

Expense to revenue

 

24.5

%

23.6

%

 

 

25.6

%

25.0

%

 

 

R,D&E

 

1,287

 

1,354

 

-4.9

%

3,885

 

4,117

 

-5.6

%

Expense to revenue

 

6.7

%

6.0

%

 

 

6.5

%

6.0

%

 

 

Intellectual property and custom development income

 

(188

)

(145

)

29.2

%

(489

)

(543

)

-10.0

%

Other (income) and expense

 

(133

)

(103

)

29.5

%

(578

)

(433

)

33.6

%

Interest expense

 

117

 

126

 

-7.2

%

340

 

367

 

-7.3

%

TOTAL EXPENSE AND OTHER INCOME

 

5,815

 

6,513

 

-10.7

%

18,431

 

20,654

 

-10.8

%

Expense to revenue

 

30.2

%

29.1

%

 

 

30.9

%

30.1

%

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

3,621

 

4,361

 

-17.0

%

10,846

 

12,891

 

-15.9

%

Pre-tax margin

 

18.8

%

19.5

%

 

 

18.2

%

18.8

%

 

 

Provision for income taxes

 

659

 

906

 

-27.2

%

1,943

 

2,655

 

-26.8

%

Effective tax rate

 

18.2

%

20.8

%

 

 

17.9

%

20.6

%

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

2,962

 

$

3,455

 

-14.3

%

$

8,904

 

$

10,237

 

-13.0

%

Net margin

 

15.4

%

15.4

%

 

 

14.9

%

14.9

%

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

(12

)

(3,437

)

 

 

(176

)

(3,698

)

 

 

NET INCOME

 

$

2,950

 

$

18

 

NM

 

$

8,727

 

$

6,539

 

33.5

%

EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

3.02

 

$

3.46

 

-12.7

%

$

9.03

 

$

10.09

 

-10.5

%

Discontinued Operations

 

$

(0.01

)

$

(3.44

)

 

 

$

(0.18

)

$

(3.65

)

 

 

TOTAL

 

$

3.01

 

$

0.02

 

NM

 

$

8.85

 

$

6.44

 

37.4

%

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

3.04

 

$

3.48

 

-12.6

%

$

9.07

 

$

10.15

 

-10.6

%

Discontinued Operations

 

$

(0.01

)

$

(3.46

)

 

 

$

(0.18

)

$

(3.67

)

 

 

TOTAL

 

$

3.03

 

$

0.02

 

NM

 

$

8.89

 

$

6.48

 

37.2

%

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s):

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

979.0

 

997.7

 

 

 

986.0

 

1,014.9

 

 

 

Basic

 

975.1

 

991.8

 

 

 

981.8

 

1,008.9

 

 

 

 


*Reclassified to conform with 2015 presentation.

NM — Not Meaningful

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

 

 

 

At

 

At

 

 

 

September 30,

 

December 31,

 

(Dollars in Millions)

 

2015

 

2014

 

ASSETS:

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,480

 

$

8,476

 

Marketable securities

 

88

 

0

 

Notes and accounts receivable - trade
(net of allowances of $362 in 2015 and $336 in 2014)

 

7,987

 

9,090

 

Short-term financing receivables
(net of allowances of $488 in 2015 and $452 in 2014)

 

16,195

 

19,835

 

Other accounts receivable
(net of allowances of $53 in 2015 and $40 in 2014)

 

931

 

2,906

 

Inventories, at lower of average cost or market:

 

 

 

 

 

Finished goods

 

388

 

430

 

Work in process and raw materials

 

1,224

 

1,674

 

Total inventories

 

1,613

 

2,103

 

Deferred taxes

 

1,660

 

2,044

 

Prepaid expenses and other current assets

 

4,158

 

4,967

 

Total Current Assets

 

42,112

 

49,422

 

Property, plant and equipment

 

29,229

 

39,034

 

Less: Accumulated depreciation

 

18,568

 

28,263

 

Property, plant and equipment - net

 

10,661

 

10,771

 

Long-term financing receivables
(net of allowances of $121 in 2015 and $126 in 2014)

 

9,517

 

11,109

 

Prepaid pension assets

 

4,033

 

2,160

 

Deferred taxes

 

3,690

 

4,808

 

Goodwill

 

30,275

 

30,556

 

Intangible assets - net

 

2,775

 

3,104

 

Investments and sundry assets

 

5,586

 

5,603

 

Total Assets

 

$

108,649

 

$

117,532

 

LIABILITIES:

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Taxes

 

$

2,883

 

$

5,084

 

Short-term debt

 

7,538

 

5,731

 

Accounts payable

 

5,166

 

6,864

 

Compensation and benefits

 

3,785

 

4,031

 

Deferred income

 

10,458

 

11,877

 

Other accrued expenses and liabilities

 

3,902

 

6,013

 

Total Current Liabilities

 

33,732

 

39,600

 

Long-term debt

 

32,122

 

35,073

 

Retirement and nonpension postretirement benefit obligations

 

17,012

 

18,261

 

Deferred income

 

3,593

 

3,691

 

Other liabilities

 

8,739

 

8,892

 

Total Liabilities

 

95,198

 

105,518

 

EQUITY:

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

Common stock

 

53,220

 

52,666

 

Retained earnings

 

141,898

 

137,793

 

Treasury stock — at cost

 

(154,669

)

(150,715

)

Accumulated other comprehensive income/(loss)

 

(28,155

)

(27,875

)

Total IBM stockholders’ equity

 

13,294

 

11,868

 

Noncontrolling interests

 

157

 

146

 

Total Equity

 

13,450

 

12,014

 

Total Liabilities and Equity

 

$

108,649

 

$

117,532

 

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(Dollars in Millions)

 

2015

 

2014

 

2015

 

2014

 

Net Cash from Operating Activities per GAAP:

 

$

4,235

 

$

3,904

 

$

11,729

 

$

10,809

 

Less: the change in Global Financing (GF) Receivables

 

749

 

719

 

1,962

 

2,223

 

Net Cash from Operating Activities
(Excluding GF Receivables)

 

3,487

 

3,185

 

9,767

 

8,587

 

Capital Expenditures, Net

 

(934

)

(1,008

)

(2,764

)

(2,803

)

Free Cash Flow
(Excluding GF Receivables)

 

2,553

 

2,177

 

7,003

 

5,783

 

Acquisitions

 

(112

)

(47

)

(821

)

(650

)

Divestitures

 

(568

)

81

 

(488

)

489

 

Dividends

 

(1,271

)

(1,090

)

(3,636

)

(3,176

)

Share Repurchase

 

(1,542

)

(1,719

)

(3,846

)

(13,547

)

Non-GF Debt

 

379

 

(483

)

770

 

4,536

 

Other (includes GF Receivables, and GF Debt)

 

1,370

 

925

 

2,108

 

5,065

 

Change in Cash, Cash Equivalents and Short-term Marketable Securities

 

$

808

 

$

(156

)

$

1,091

 

$

(1,501

)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

THIRD-QUARTER 2015

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

7,937

 

$

190

 

$

8,127

 

$

1,274

 

15.7

%

Y-T-Y change

 

-10.2

%

-24.6

%

-10.6

%

-21.6

%

 

 

Global Business Services

 

4,206

 

120

 

4,326

 

673

 

15.6

%

Y-T-Y change

 

-13.1

%

-11.5

%

-13.0

%

-21.8

%

 

 

Software

 

5,136

 

785

 

5,921

 

1,899

 

32.1

%

Y-T-Y change

 

-10.0

%

-8.9

%

-9.9

%

-18.6

%

 

 

Systems Hardware

 

1,492

 

121

 

1,613

 

(24

)

-1.5

%

Y-T-Y change

 

-38.7

%

-33.9

%

-38.3

%

NM

 

 

 

Global Financing

 

447

 

584

 

1,031

 

562

 

54.5

%

Y-T-Y change

 

-8.1

%

-2.3

%

-4.9

%

18.1

%

 

 

TOTAL REPORTABLE SEGMENTS

 

$

19,219

 

$

1,800

 

$

21,019

 

$

4,384

 

20.9

%

Y-T-Y change

 

-13.8

%

-11.3

 

-13.6

%

-15.6

%

 

 

Eliminations / Other

 

60

 

(1,800

)

(1,739

)

(763

)

 

 

TOTAL IBM CONSOLIDATED

 

$

19,280

 

$

0

 

$

19,280

 

$

3,621

 

18.8

%

Y-T-Y change

 

-13.9

%

 

 

-13.9

%

-17.0

%

 

 

 



 

 

 

THIRD-QUARTER 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services *

 

$

8,837

 

$

252

 

$

9,089

 

$

1,625

 

17.9

%

Global Business Services *

 

4,840

 

135

 

4,975

 

861

 

17.3

%

Software

 

5,708

 

862

 

6,570

 

2,333

 

35.5

%

Systems Hardware

 

2,434

 

182

 

2,616

 

(99

)

-3.8

%

Global Financing

 

487

 

598

 

1,084

 

475

 

43.9

%

TOTAL REPORTABLE SEGMENTS

 

$

22,305

 

$

2,029

 

$

24,334

 

$

5,195

 

21.3

%

Eliminations / Other

 

92

 

(2,029

)

(1,937

)

(835

)

 

 

TOTAL IBM CONSOLIDATED

 

$

22,397

 

$

0

 

$

22,397

 

$

4,361

 

19.5

%

 


*Reclassified to conform with 2015 presentation.

NM = Not Meaningful

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

NINE-MONTHS 2015

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

23,891

 

$

589

 

$

24,480

 

$

3,516

 

14.4

%

Y-T-Y change

 

-10.5

%

-20.3

%

-10.8

%

-22.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

12,869

 

380

 

13,249

 

1,926

 

14.5

%

Y-T-Y change

 

-12.7

%

-8.6

%

-12.6

%

-26.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

16,165

 

2,519

 

18,684

 

6,107

 

32.7

%

Y-T-Y change

 

-9.5

%

-5.0

%

-8.9

%

-11.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems Hardware

 

5,209

 

320

 

5,529

 

255

 

4.6

%

Y-T-Y change

 

-31.4

%

-40.9

%

-32.0

%

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

1,386

 

1,874

 

3,261

 

1,690

 

51.8

%

Y-T-Y change

 

-7.7

%

-1.4

%

-4.2

%

1.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

59,520

 

$

5,683

 

$

65,203

 

$

13,494

 

20.7

%

Y-T-Y change

 

-13.0

%

-9.0

%

-12.6

%

-12.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

162

 

(5,683

)

(5,520

)

(2,647

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

59,682

 

$

0

 

$

59,682

 

$

10,846

 

18.2

%

Y-T-Y change

 

-13.1

%

 

 

-13.1

%

-15.9

%

 

 

 

 

 

NINE-MONTHS 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income

 

 

 

 

 

 

 

 

 

 

 

(Loss)/

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services *

 

$

26,696

 

$

739

 

$

27,435

 

$

4,509

 

16.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services *

 

14,742

 

416

 

15,158

 

2,633

 

17.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

17,857

 

2,652

 

20,508

 

6,935

 

33.8

%

 

 

 

 

 

 

 

 

 

 

 

 

Systems Hardware

 

7,590

 

541

 

8,131

 

(354

)

-4.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

1,502

 

1,900

 

3,403

 

1,664

 

48.9

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

68,387

 

$

6,248

 

$

74,635

 

$

15,386

 

20.6

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

292

 

(6,248

)

(5,955

)

(2,495

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

68,680

 

$

0

 

$

68,680

 

$

12,891

 

18.8

%

 


*Reclassified to conform with 2015 presentation.

NM = Not Meaningful

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

THIRD-QUARTER 2015

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

9,436

 

$

89

 

$

118

 

$

9,643

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

48.9

%

0.5

Pts

0.6

Pts

50.0

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

4,731

 

(76

)

(74

)

4,581

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,287

 

 

(12

)

1,275

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(133

)

0

 

 

(133

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

5,815

 

(76

)

(86

)

5,652

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

3,621

 

165

 

204

 

3,991

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

18.8

%

0.9

Pts

1.1

Pts

20.7

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

659

 

(5

)

64

 

718

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

18.2

%

-0.9

Pts

0.7

Pts

18.0

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

2,962

 

170

 

140

 

3,272

 

 

 

 

 

 

 

 

 

 

 

Income Margin from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

15.4

%

0.9

Pts

0.7

Pts

17.0

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

3.02

 

$

0.18

 

$

0.14

 

$

3.34

 

 

 

 

THIRD-QUARTER 2014

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

10,874

 

$

106

 

$

43

 

$

11,023

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

48.6

%

0.5

Pts

0.2

Pts

49.2

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,281

 

(96

)

(48

)

5,137

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,354

 

 

19

 

1,373

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(103

)

0

 

 

(103

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

6,513

 

(96

)

(29

)

6,389

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

4,361

 

202

 

71

 

4,634

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

19.5

%

0.9

Pts

0.3

Pts

20.7

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

906

 

42

 

14

 

963

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

20.8

%

0.0

Pts

0.0

Pts

20.8

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

3,455

 

159

 

57

 

3,671

 

 

 

 

 

 

 

 

 

 

 

Income Margin from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

15.4

%

0.7

Pts

0.3

Pts

16.4

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

3.46

 

$

0.16

 

$

0.06

 

$

3.68

 

 


* Includes amortization of acquired intangible assets and other acquisition-related charges.

** Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

*** Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

NINE-MONTHS 2015

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

29,278

 

$

268

 

$

350

 

$

29,896

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

49.1

%

0.4

Pts

0.6

Pts

50.1

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

15,273

 

(230

)

(445

)

14,598

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

3,885

 

 

(36

)

3,849

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(578

)

(5

)

 

(583

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

18,431

 

(235

)

(481

)

17,715

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

10,846

 

503

 

831

 

12,181

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

18.2

%

0.8

Pts

1.4

Pts

20.4

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

1,943

 

52

 

234

 

2,228

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

17.9

%

-0.3

Pts

0.7

Pts

18.3

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

8,904

 

452

 

597

 

9,953

 

 

 

 

 

 

 

 

 

 

 

Income Margin from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

14.9

%

0.8

Pts

1.0

Pts

16.7

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

9.03

 

$

0.46

 

$

0.60

 

$

10.09

 

 



 

 

 

NINE-MONTHS 2014

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

33,545

 

$

315

 

$

141

 

$

34,001

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

48.8

%

0.5

Pts

0.2

Pts

49.5

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

17,146

 

(291

)

(162

)

16,693

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

4,117

 

 

56

 

4,173

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(433

)

0

 

 

(433

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

20,654

 

(292

)

(106

)

20,257

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

12,891

 

607

 

246

 

13,744

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

18.8

%

0.9

Pts

0.4

Pts

20.0

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

2,655

 

123

 

49

 

2,827

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

20.6

%

0.0

Pts

0.0

Pts

20.6

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

10,237

 

483

 

197

 

10,917

 

 

 

 

 

 

 

 

 

 

 

Income Margin from

 

 

 

 

 

 

 

 

 

Continuing Operations

 

14.9

%

0.7

Pts

0.3

Pts

15.9

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

10.09

 

$

0.48

 

$

0.19

 

$

10.76

 

 


*  Includes amortization of acquired intangible assets and other acquisition-related charges.

**  Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

***  Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.

 

Contact:

IBM

 

Ian Colley, 914-434-3043

 

colley@us.ibm.com

 

John Bukovinsky, 732-618-3531

 

jbuko@us.ibm.com

 



 

ATTACHMENT II

 

3Q 2015 Earnings Presentation October 19, 2015

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2 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/3q15.html The Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s Form 8-K dated October 19, 2015.

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3 3Q Overview * Revenue growth rate @CC and excluding divested System x business Continued strength in Strategic Imperatives YTD revenue growth > 30% yr/yr Expanded gross and net margins Reflects shift to higher value Investing and adding capabilities Building platforms and ecosystems Continued progress in transformation of business 3Q15 Yr/Yr Revenue ($B) 19.3 $ (1%)* Yr/Yr As Reported (14%) Operating (Non-GAAP) EPS 3.34 $ (9%)

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4 Key Financial Metrics Revenue growth rate @CC and excluding divested System x business $ in Billions, except EPS P&L Highlights 3Q15 Yr/Yr Revenue $ 19.3 (1%) PTI – Operating $ 4.0 (14%) NI – Operating $ 3.3 (11%) EPS – Operating $ 3.34 (9%) P&L Ratios B/(W) (Operating) 3Q15 Yr/Yr GP Margin 50.0% 0.8 pts PTI Margin 20.7% 0.0 pts Tax Rate 18.0% 2.8 pts NI Margin 17.0% 0.6 pts Cash Highlights 3Q15 Last 12 Mos. Free Cash Flow (excl. GF Receivables) $ 2.6 $ 13.6 Share Repurchase (Gross) 1.5 4.0 Dividends 1.3 4.7 Cash Balance @ September 30 9.6

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Revenue by Geography $ in Billions AP ex. Japan U.S. -4% EMEA Canada/ LA Japan +7% 5 Revenue growth rate @CC and excluding divested System x business 3Q15 Yr/Yr Americas $9.1 (3%) Europe/ME/Africa 6.1 1% Asia Pacific 4.1 (1%) IBM $19.3 (1%) (1%) (3%) (7%) Major Markets Growth Markets BRIC Countries

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6 Revenue and Gross Profit Margin by Segment $ in Billions Operating Gross Profit Margin Revenue Revenue growth rates @CC and excluding divested System x business 3Q15 Yr/Yr 3Q15 Yr/Yr Pts Global Technology Services $ 7.9 1% 38.1% (1.0 pts) Global Business Services 4.2 (5%) 29.7% (1.3 pts) Software 5.1 (3%) 86.4% (1.2 pts) Systems Hardware 1.5 (2%) 44.7% 10.8 pts Global Financing 0.4 7% 48.4% 0.6 pts Total Revenue & Op. GP Margin $19.3 (1%) 50.0% 0.8 pts

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7 Expense Summary $ in Billions Drivers B/(W) Yr/Yr Currency 9 pts System x Divestiture 2 pts Workforce Rebalancing (2 pts) B/(W) Yr/Yr SG&A – Operating $4.6 11% RD&E – Operating 1.3 7% IP and Development Income Other (Income)/Expense (0.1) 30% Interest Expense 0.1 7% Operating Expense & Other Income 12% $5.7 3Q15 (0.2) 29%

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8 Services Segments Global Technology Services (GTS) Global Business Services (GBS) 3Q15 Revenue (% of Total Services) $ in Billions $ in Billions GTS Outsourcing 35% GBS C&SI 25% Maint. 12% ITS 18% GBS Outsourcing 10% Revenue growth rates @CC and excluding divested System x business; Backlog @CC GTS 3Q15 Revenue Yr/Yr GTS Outsourcing Flat Integrated Technology Services 4% Maintenance 1% GBS 3Q15 Revenue GBS Outsourcing 1% Consulting & Systems Integration (7%) 3Q15 Backlog $118B 1% 3Q15 Yr/Yr Revenue (External) $7.9 1% Gross Margin (External) 38.1% (1.0 pts) PTI Margin 15.7% (2.2 pts) 3Q15 Yr/Yr Revenue (External) $4.2 (5%) Gross Margin (External) 29.7% (1.3 pts) PTI Margin 15.6% (1.7 pts)

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9 Software Segment 3Q15 Revenue (% of Total Software) Key Branded Middleware 67% Operating Systems 9% Other Middleware 17% Other 8% $ in Billions Revenue growth rates @CC 3Q15 Yr/Yr Revenue (External) $5.1 (3%) Gross Margin (External) 86.4% (1.2 pts) PTI Margin 32.1% (3.4 pts) 3Q15 Revenue Yr/Yr WebSphere 1% Information Management 1% Tivoli (2%) Workforce Solutions (3%) Rational (11%) Key Branded Middleware (1%) Total Middleware (2%) Total Software (3%)

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10 Systems Hardware Segment $ in Billions 3Q15 Revenue (% of Total Sys Hardware) Other Servers 63% Storage 34% Revenue growth rates @CC and excluding divested System x business 3Q15 Revenue Yr/Yr z Systems 20% Power Systems 2% Storage (14%) Total Systems Hardware (2%) 3Q15 Yr/Yr Revenue (External) $1.5 (2%) Gross Margin (External) 44.7% 10.8 pts PTI Margin (1.5%) 2.3 pts

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11 Cash Flow Summary $ in Billions B/(W) YTD B/(W) Yr/Yr 3Q15 Yr/Yr Net Cash from Operations $4.2 $0.3 $11.7 $0.9 Less: Global Financing Receivables 0.7 0.0 2.0 (0.3) Net Cash from Operations (excluding GF Receivables) 3.5 0.3 9.8 1.2 Net Capital Expenditures (0.9) 0.1 (2.8) 0.0 Free Cash Flow (excluding GF Receivables) 2.6 0.4 7.0 1.2 Acquisitions (0.1) (0.1) (0.8) (0.2) Divestitures (0.6) (0.6) (0.5) (1.0) Dividends (1.3) (0.2) (3.6) (0.5) Share Repurchases (Gross) (1.5) 0.2 (3.8) 9.7 Non-GF Debt 0.4 0.9 0.8 (3.8) Other (includes GF A/R & GF Debt) 1.4 0.4 2.1 (3.0) Change in Cash & Marketable Securities $0.8 $1.0 $1.1 $2.6 3Q15

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12 Balance Sheet Summary $ in Billions * Includes eliminations of inter-company activity Sept. 14 Dec. 14 Sept. 15 Cash & Marketable Securities $9.6 $8.5 $9.6 Non-GF Assets* 74.5 71.7 67.5 Global Financing Assets 34.8 37.3 31.5 Total Assets 118.9 117.5 108.6 Other Liabilities 58.8 64.7 55.5 Non-GF Debt* 17.1 11.7 13.7 Global Financing Debt 28.6 29.1 26.0 Total Debt 45.7 40.8 39.7 Total Liabilities 104.5 105.5 95.2 Equity 14.4 12.0 13.5 Non-GF Debt / Capital 62% 59% 58% Global Financing Leverage 7.4 7.2 7.0

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13 Summary Strong performance in Strategic Imperatives Margin expansion reflects shift to higher value Investing and adding capabilities 2015 Full Year Expectations Operating EPS of $14.75 - $15.75 Free Cash Flow relatively flat yr/yr Continued progress in transformation of the business

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14

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15 Supplemental Materials 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 – 3Q 2015 GAAP to Operating (Non-GAAP) Bridge – 3Q 2014 GAAP to Operating (Non-GAAP) Bridge – 3Q YTD 2015 GAAP to Operating (Non-GAAP) Bridge – 3Q YTD 2014 GAAP to Operating (Non-GAAP) Bridge – 3Q 2015 and 3Q 2014 Reconciliation of Free Cash Flow (excluding GF Receivables) – 12 months ended 9/30/15 Reconciliation of Debt-to-Capital Ratio Reconciliation of Revenue Growth Reconciliation of Revenue Growth Reconciliation of Revenue Growth Reconciliation of Revenue Growth Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding Supplemental Materials

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16 Currency – Year/Year Comparison Quarterly Averages per US $ Supplemental Materials 10/16 Yr/Yr @ 10/16 Spot 1Q15 Yr/Yr 2Q15 Yr/Yr 3Q15 Yr/Yr Spot 4Q15 FY15 1Q16 2Q16 Euro 0.89 (22%) 0.90 (24%) 0.90 (19%) 0.88 (10%) (18%) 1% 3% Pound 0.66 (9%) 0.65 (10%) 0.65 (8%) 0.65 (2%) (7%) 2% 1% Yen 119 (16%) 121 (19%) 122 (17%) 119 (4%) (14%) 0% 2% IBM Revenue Impact (8 pts) (9 pts) (9 pts) ~(5 pts) ~(7-8 pts) ~(1pts) ~(0-1 pts) Prior View (July 2015) (8-9 pts) (5-6 pts) (7-8 pts) (US$B) Yr/Yr Revenue As Reported $19.3 (14%) Currency Impact (1.9) (9 pts) Revenue @ CC (5%)

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$ in Billions Backlog 3Q15 Yr/Yr Total Backlog $118 1% Change in Backlog due to Currency Quarter-to-Quarter ($2) Year-to-Year ($11) Outsourcing Backlog $74 4% Signings 3Q15 Yr/Yr Outsourcing - GTS O/S, GBS O/S $3.9 (15%) Transactional - ITS, Consulting & AMS SI (incl. US Federal) 5.4 (1%) Total Signings $9.3 (7%) Revenue Growth Yr/Yr GTS Outsourcing Flat Integrated Tech Services 4% Maintenance 1% Total GTS 1% GBS Outsourcing 1% GBS C&SI (7%) Total GBS (5%) Total Outsourcing Flat Total Transactional (2%) Maintenance 1% 17 Supplemental Segment Information – 3Q 2015 Global Services Revenue Global Services Backlog / Signings Supplemental Materials Actual backlog calculated using Sept 30 currency spot rates Growth rates @CC and excluding divested System x business

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18 Supplemental Segment Information – 3Q 2015 Revenue Growth Yr/Yr GP% z Systems 20% Power Systems 2% Storage (14%) Total Systems Hardware (2%) Supplemental Materials Systems Hardware Software Revenue Growth Yr/Yr WebSphere 1% Information Management 1% Tivoli (2%) Workforce Solutions (3%) Rational (11%) Key Branded Middleware (1%) Other Middleware (7%) Total Middleware (2%) Operating Systems (7%) Other Software/Services (10%) Total Software (3%) Revenue growth rates @CC and excluding divested System x business

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3Q15 2Q15 3Q14 Identified Loss Rate 2.1% 2.1% 1.5% Anticipated Loss Rate 0.3% 0.3% 0.3% Reserve Coverage 2.4% 2.4% 1.8% Client Days Delinquent Outstanding 4.2 3.8 4.0 Commercial A/R > 30 days $33M $45M $28M 19 19 19 Global Financing Portfolio 3Q15 – $25.2B Net External Receivables Non-Investment Grade 45% Investment Grade 55% Supplemental Materials 21% 34% 22% 13% 8% 2% 0% 10% 20% 30% 40% Aaa to A3 Baa1 to Baa3 Ba1 to Ba2 Ba3 to B1 B2 to B3 Caa1 to D

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20 Cash Flow (FAS 95) $ in Billions Supplemental Materials QTD QTD YTD YTD 3Q15 3Q14 3Q15 3Q14 Net Income from Operations $3.0 $0.0 $8.7 $6.5 Depreciation / Amortization of Intangibles 0.9 1.1 2.9 3.4 Stock-based Compensation 0.1 0.2 0.4 0.4 Working Capital / Other (0.5) (1.5) (2.2) (5.2) Global Financing A/R 0.7 0.7 2.0 2.2 Loss on Microelectronics Business Disposal 0.0 3.3 0.0 3.3 Net Cash provided by Operating Activities 4.2 3.9 11.7 10.8 Capital Expenditures, net of payments & proceeds (0.9) (1.0) (2.8) (2.8) Divestitures, net of cash transferred (0.6) 0.1 (0.5) 0.5 Acquisitions, net of cash acquired (0.1) (0.0) (0.8) (0.6) Marketable Securities / Other Investments, net 0.3 0.2 1.4 1.2 Net Cash used in Investing Activities (1.3) (0.8) (2.7) (1.8) Debt, net of payments & proceeds 0.9 (0.2) (0.6) 6.4 Dividends (1.3) (1.1) (3.6) (3.2) Common Stock Repurchases (1.5) (1.7) (3.8) (13.5) Common Stock Transactions - Other 0.1 0.1 0.3 0.5 Net Cash used in Financing Activities (1.8) (2.8) (7.8) (9.8) Effect of Exchange Rate changes on Cash 0.0 (0.4) (0.2) (0.4) Net Change in Cash & Cash Equivalents 1.1 (0.2) 1.0 (1.2)

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21 21 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 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 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. Supplemental Materials

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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 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. Customer Care Outsourcing and System x Business Divestiture With respect to the sale of IBM's worldwide customer care outsourcing services business to SYNNEX, the initial closing date was January 31, 2014. With respect to the sale of IBM’s x86 server business to Lenovo, the initial closing date was October 1, 2014. 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. Supplemental Materials 22

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23 Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share IBM Operating EPS (Non-GAAP) Acquisition-Related Charges * Non-Operating Retirement-Related Items IBM GAAP EPS Adjustments 2015 Expectations $13.25 - $14.25 $14.75 - $15.75 $0.70 $0.80 The above serves to reconcile the Non-GAAP financial information contained in the “Full-Year 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. Supplemental Materials * Includes acquisitions through September 30, 2015 23

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24 24 Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q 2015 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) Gross Profit $9,436 $89 $118 $9,643 SG&A 4,731 (76) (74) 4,581 RD&E 1,287 - (12) 1,275 Other Income & Expense (133) 0 - (133) Total Operating Expense & Other Income 5,815 (76) (86) 5,652 Pre-Tax Income from Continuing Operations 3,621 165 204 3,991 Tax *** 659 (5) 64 718 Net Income from Continuing Operations 2,962 170 140 3,272 Diluted Earnings Per Share from Continuing Operations $3.02 $0.18 $0.14 $3.34 * 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 from continuing operations 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 “3Q Overview”, “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. Supplemental Materials

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25 25 Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q 2014 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) Gross Profit $10,874 $106 $43 $11,023 SG&A 5,281 (96) (48) 5,137 RD&E 1,354 - 19 1,373 Other Income & Expense (103) 0 - (103) Total Operating Expense & Other Income 6,513 (96) (29) 6,389 Pre-Tax Income from Continuing Operations 4,361 202 71 4,634 Tax *** 906 42 14 963 Net Income from Continuing Operations 3,455 159 57 3,671 Diluted Earnings Per Share from Continuing Operations $3.46 $0.16 $0.06 $3.68 * 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 from continuing operations 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 “3Q Overview”, “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. Supplemental Materials

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26 26 Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q YTD 2015 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) Gross Profit $29,278 $268 $350 $29,896 SG&A 15,273 (230) (445) 14,598 RD&E 3,885 - (36) 3,849 Other Income & Expense (578) (5) - (583) Total Operating Expense & Other Income 18,431 (235) (481) 17,715 Pre-Tax Income from Continuing Operations 10,846 503 831 12,181 Tax *** 1,943 52 234 2,228 Net Income from Continuing Operations 8,904 452 597 9,953 Diluted Earnings Per Share from Continuing Operations $9.03 $0.46 $0.60 $10.09 * 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 from continuing operations 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 “Year-To-Date 2015 Results” 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. Supplemental Materials

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27 27 Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q YTD 2014 $ in Millions, except EPS GAAP Acquisition-related Adjustments* Retirement-related Adjustments** Operating (Non-GAAP) Gross Profit $33,545 $315 $141 $34,001 SG&A 17,146 (291) (162) 16,693 RD&E 4,117 - 56 4,173 Other Income & Expense (433) 0 - (433) Total Operating Expense & Other Income 20,654 (292) (106) 20,257 Pre-Tax Income from Continuing Operations 12,891 607 246 13,744 Tax *** 2,655 123 49 2,827 Net Income from Continuing Operations 10,237 483 197 10,917 Diluted Earnings Per Share from Continuing Operations $10.09 $0.48 $0.19 $10.76 * 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 from continuing operations 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 “Year-To-Date 2015 Results” 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. Supplemental Materials

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28 28 3Q 2015 GAAP Acquisition- related Adjustments* Retirement-related Adjustments ** Operating (Non-GAAP) Gross Profit Margin from Continuing Operations 48.9% 0.5 pts 0.6 pts 50.0% PTI Margin from Continuing Operations 18.8% 0.9 pts 1.1 pts 20.7% Tax Rate *** 18.2% -0.9 pts 0.7 pts 18.0% Net Income Margin from Continuing Operations 15.4% 0.9 pts 0.7 pts 17.0% 3Q 2014 Gross Profit Margin from Continuing Operations 48.6% 0.5 pts 0.2 pts 49.2% PTI Margin from Continuing Operations 19.5% 0.9 pts 0.3 pts 20.7% Tax Rate *** 20.8% 0.0 pts 0.0 pts 20.8% Net Income Margin from Continuing Operations 15.4% 0.7 pts 0.3 pts 16.4% * 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 from continuing operations 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 ”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 Non-GAAP financial measures. Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q 2015 and 3Q 2014 Supplemental Materials

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29 Non-GAAP Supplemental Materials 12 months ended 9/30/15 Net Cash from Operations $17.8 Less: Global Financing Receivables 0.5 Net Cash from Operations (excluding GF Receivables) 17.3 Net Capital Expenditures (3.7) Free Cash Flow (excluding GF Receivables) $13.6 $ in Billions Reconciliation of Free Cash Flow (excluding GF Receivables) 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. Supplemental Materials 29

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30 30 Reconciliation of Debt-to-Capital Ratio Sept. 2015 Dec. 2014 Sept. 2014 Non-Global Financing Debt / Capital IBM Consolidated Debt / Capital 58% 75% 59% 77% 62% 76% 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. Non-GAAP Supplemental Materials Supplemental Materials

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31 GAAP @CC @CC excl. Divested Businesses IBM (13%) (5%) (1%) 3Q YTD 2015 Yr/Yr Non-GAAP Supplemental Materials Reconciliation of Revenue Growth The above serves to reconcile the Non-GAAP financial information contained in the “Strategic Imperatives” and “Year-To-Date 2015 Results” 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. Supplemental Materials GAAP @CC @CC excl. Divested Business Total Strategic Imperatives 17% 25% 27% 3Q 2015 Yr/Yr

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32 32 Non-GAAP Supplemental Materials Americas U.S. Europe/ME/Africa Asia Pacific Japan Major Markets Growth Markets BRIC Countries Brazil China Growth Markets BRIC Countries GAAP (10%) (7%) (16%) (19%) (11%) (11%) (22%) (30%) (35%) (35%) GAAP (21%) (35%) @CC (5%) (7%) (3%) (8%) 4% (3%) (11%) (18%) (6%) (34%) @CC (13%) (28%) @CC excl. Divested Business (3%) (4%) 1% (1%) 7% (1%) (3%) (7%) (4%) (17%) @CC excl. Divested Business (5%) (18%) Reconciliation of Revenue Growth 3Q15 Yr/Yr 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. Supplemental Materials 2Q15 Yr/Yr

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33 33 Non-GAAP Supplemental Materials GTS Outsourcing Integrated Technology Services GBS Outsourcing Consulting & Systems Integration Total Outsourcing Total Transactional Global Technology Services (GTS) Maintenance GAAP (11%) (6%) (8%) (15%) (11%) (11%) GAAP (10%) (13%) @CC Flat 4% 1% (7%) Flat (2%) @CC 1% (3%) @CC excl. Divested Business 1% 1% Reconciliation of Revenue Growth 3Q15 Yr/Yr 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-3Q 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. Supplemental Materials 3Q15 Yr/Yr

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34 34 Non-GAAP Supplemental Materials WebSphere Information Management Tivoli Workforce Solutions Rational Total M