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IBM International Business Machines News Story

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REG-Intnl Bus. Mach: Half-year Report

IBM RELEASES SECOND QUARTER RESULTS

Growth Across Key Segments Led by Hybrid Cloud Adoption; Solid Cash and Profit
Generation

ARMONK, N.Y., July 19, 2022 /PRNewswire/ -- IBM (NYSE: IBM
(http://www.ibm.com/investor)) today announced second-quarter 2022 earnings
results.

"In the quarter we delivered good revenue performance with balanced growth
across our geographies, driven by client demand for our hybrid cloud and AI
offerings. The IBM team executed our strategy well," said Arvind Krishna, IBM
chairman and chief executive officer. "With our first half results, we
continue to expect full-year revenue growth at the high end of our mid-single
digit model."

Second-Quarter Highlights
* Revenue
 - Revenue of $15.5 billion, up 9 percent, up 16 percent at constant currency
(about 5 points from sales to Kyndryl)
 - Software revenue up 6 percent, up 12 percent at constant currency (about 7
points from sales to Kyndryl)
 - Consulting revenue up 10 percent, up 18 percent at constant currency
 - Infrastructure revenue up 19 percent, up 25 percent at constant currency
(about 7 points from sales to Kyndryl)
 - Hybrid cloud revenue, over the last 12 months, of $21.7 billion, up 16
percent, up 19 percent at constant currency
* Cash Flow
 - On a consolidated basis, year to date, net cash from operating activities
of $4.6 billion; free cash flow of $3.3 billion 
                              SECOND QUARTER 2022 INCOME STATEMENT SUMMARY                               
                                                              Pre-tax                                    
                                     Gross        Pre-tax      Income            Net         Diluted     
                    Revenue         Profit         Income      Margin          Income          EPS       
 GAAP from        $    15.5B      $    8.3B     $     1.7B        11.1 %     $    1.5B     $     1.61    
 Continuing                                                                                              
 Operations                                                                                              
 Year/Year                 9 %*           6 %           89 %       4.7 Pts          81 %           79 %  
 Operating                        $ 8.5B        $     2.5B        16.2 %     $    2.1B     $     2.31    
 (Non-GAAP)                                                                                              
 Year/Year                                5 %           48 %       4.2 Pts          45 %           43 %  
 *16% at constant currency                                                                               

"We are a faster-growing, focused, disciplined company with sound business
fundamentals," said James Kavanaugh, IBM senior vice president and chief
financial officer. "Our recurring revenue stream and solid cash generation
position us well to continue to invest in R&D, acquire new companies, and
strengthen our talent in every part of the business, while also returning
value to shareholders through our dividend."

Segment Results for Second Quarter
* Software (includes Hybrid Platform & Solutions, Transaction Processing)— 
revenues of $6.2 billion, up 6.4 percent, up 11.6 percent at constant currency
(about 7 points from sales to Kyndryl):
 - Hybrid Platform & Solutions up 4 percent, up 9 percent at constant currency
(about 1.5 points from sales to Kyndryl):
    -- Red Hat up 12 percent, up 17 percent at constant currency
    -- Automation up 4 percent, up 8 percent at constant currency
    -- Data & AI flat, up 4 percent at constant currency
    -- Security flat, up 5 percent at constant currency
 - Transaction Processing up 12 percent, up 19 percent at constant currency
(about 22 points from sales to Kyndryl)
 - Software segment hybrid cloud revenue up 14 percent, up 18 percent at
constant currency
  
* Consulting (includes Business Transformation, Technology Consulting and
Application Operations)— revenues of $4.8 billion, up 9.8 percent, up 17.8
percent at constant currency:
 - Business Transformation up 9 percent, up 16 percent at constant currency
 - Technology Consulting up 14 percent, up 23 percent at constant currency
 - Application Operations up 9 percent, up 17 percent at constant currency
 - Consulting segment hybrid cloud revenue up 20 percent, up 29 percent at
constant currency
  
* Infrastructure (includes Hybrid Infrastructure, Infrastructure
Support)— revenues of $4.2 billion, up 19.0 percent, up 25.4 percent at
constant currency (about 7 points from sales to Kyndryl):
 - Hybrid Infrastructure up 34 percent, up 41 percent at constant currency
(about 7 points from sales to Kyndryl)
    -- IBM z Systems up 69 percent, up 77 percent at constant currency
    -- Distributed Infrastructure up 11 percent, up 17 percent at constant
currency
 - Infrastructure Support down 2 percent, up 5 percent at constant currency
(about 8 points from sales to Kyndryl)
 - Infrastructure segment hybrid cloud revenue up 24 percent, up 30 percent at
constant currency
  
* Financing (includes client and commercial financing)— revenues of $0.1
billion, down 29.9 percent, down 26.6 percent at constant currency
Cash Flow and Balance Sheet
On a consolidated basis, in the second quarter, the company generated net cash
from operating activities of $1.3 billion or $2.6 billion excluding IBM
Financing receivables. IBM's free cash flow was $2.1 billion. The company
returned $1.5 billion to shareholders in dividends in the second quarter.

On a consolidated basis, for the first six months of the year, the company
generated net cash from operating activities of $4.6 billion or $4.2 billion
excluding IBM Financing receivables. IBM's free cash flow was $3.3 billion,
which includes cash impacts from the company's structural actions initiated at
the end of 2020.

IBM ended the second quarter with $7.8 billion of cash on hand (which includes
marketable securities), up $0.2 billion from year-end 2021. Debt, including
IBM Financing debt of $12.3 billion, totaled $50.3 billion, down $1.4 billion
since the end of 2021.

Full-Year 2022 Expectations
* Revenue growth: The company continues to expect constant currency revenue
growth at the high end of its mid-single digit model. The company also expects
an additional 3.5 point contribution from incremental sales to Kyndryl. At
mid-July 2022 foreign exchange rates, currency is expected to be about a
six-point headwind.
  
* Free Cash Flow: The company now expects about $10 billion in consolidated
free cash flow.
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, but not limited to, the following: a
downturn in economic environment and client spending budgets; a failure of the
company's innovation initiatives; damage to the company's reputation; 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; the company's ability to successfully
manage acquisitions, alliances and dispositions, including integration
challenges, failure to achieve objectives, the assumption of liabilities, and
higher debt levels; fluctuations in financial results; impact of local legal,
economic, political, health and other conditions; the company's failure to
meet growth and productivity objectives; ineffective internal controls; the
company's use of accounting estimates; impairment of the company's goodwill or
amortizable intangible assets; the company's ability to attract and retain key
employees and its reliance on critical skills; impacts of relationships with
critical suppliers; product quality issues; impacts of business with
government clients; reliance on third party distribution channels and
ecosystems; cybersecurity and data privacy considerations; adverse effects
related to climate change and environmental matters, tax matters; legal
proceedings and investigatory risks; the company's pension plans; currency
fluctuations and customer financing risks; impact of changes in market
liquidity conditions and customer credit risk on receivables; potential
failure of the separation of Kyndryl Holdings, Inc. to qualify for tax-free
treatment; 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 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. Except as required by law, the company assumes no obligation to
update or revise any forward-looking statements.

Presentation of Information in this Press Release
On November 3, 2021, IBM completed the separation of Kyndryl. Unless otherwise
specified, results are presented on a continuing operations basis. All
references to revenue impacts from sales to Kyndryl are incremental sales
post-separation.

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 —
* adjusting for currency (i.e., at constant currency);
* presenting operating (non-GAAP) earnings per share amounts and related
income statement items;
* consolidated free cash flow;
* consolidated cash from operating activities excluding IBM Financing
receivables;
The rationale for management's use of these non-GAAP measures is included in
Exhibit 99.2 in 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 https://www.ibm.com/investor/events/earnings-2q22. 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).

Contact:       IBM
                    Sarah Meron, 347 891 1770
                    sarah.meron@ibm.com 
    
                    Tim Davidson, 914 844 7847
                    tfdavids@us.ibm.com  

     INTERNATIONAL BUSINESS MACHINES CORPORATION  COMPARATIVE FINANCIAL RESULTS  (Unaudited; Dollars in millions except per share amounts)     
                                                                                                                                               
                                                                      Three Months Ended                        Six Months Ended               
                                                                           June 30,                                 June 30,                   
                                                                   2022                2021*                2022                2021*          
 REVENUE                                                                                                                                       
 Software                                                          $   6,166           $   5,795            $  11,938           $  10,933      
 Consulting                                                            4,809               4,378                9,637               8,641      
 Infrastructure                                                        4,235               3,560                7,453               6,853      
 Financing                                                               146                 209                  300                 417      
 Other                                                                   180                 277                  404                 561      
 TOTAL REVENUE                                                        15,535              14,218               29,732              27,405      
                                                                                                                                               
 GROSS PROFIT                                                          8,290               7,852               15,625              14,879      
                                                                                                                                               
 GROSS PROFIT MARGIN                                                                                                                           
 Software                                                               79.2 %              79.7 %               79.0 %              78.8 %    
 Consulting                                                             24.2 %              27.6 %               24.3 %              27.7 %    
 Infrastructure                                                         53.8 %              57.1 %               52.4 %              56.7 %    
 Financing                                                              35.3 %              29.9 %               36.5 %              32.7 %    
                                                                                                                                               
 TOTAL GROSS PROFIT MARGIN                                              53.4 %              55.2 %               52.6 %              54.3 %    
                                                                                                                                               
 EXPENSE AND OTHER INCOME                                                                                                                      
 S,G&A                                                                 4,855               4,849                9,452               9,536      
 R,D&E                                                                 1,673               1,641                3,352               3,257      
 Intellectual property and custom development income                   (176)               (133)                (297)               (278)      
 Other (income) and expense                                             (81)                 302                  166                 647      
 Interest expense                                                        297                 281                  607                 561      
 TOTAL EXPENSE AND OTHER INCOME                                        6,568               6,940               13,280              13,724      
                                                                                                                                               
 INCOME/(LOSS) FROM CONTINUING OPERATIONS                                                                                                      
 BEFORE INCOME TAXES                                                   1,722                 912                2,345               1,155      
 Pre-tax margin                                                         11.1 %               6.4 %                7.9 %               4.2 %    
 Provision for/(Benefit from) income taxes                               257                 101                  218                (58)      
 Effective tax rate                                                     14.9 %              11.1 %                9.3 %             (5.0) %    
                                                                                                                                               
 INCOME FROM CONTINUING OPERATIONS                                 $   1,465           $     810            $   2,127           $   1,213      
                                                                                                                                               
 DISCONTINUED OPERATIONS                                                                                                                       
 Income/(Loss) from discontinued operations, net of taxes               (73)                 515                  (2)               1,067      
                                                                                                                                               
 NET INCOME                                                        $   1,392           $   1,325            $   2,125           $   2,280      
                                                                                                                                               
 EARNINGS/(LOSS) PER SHARE OF COMMON STOCK                                                                                                     
 Assuming Dilution                                                                                                                             
 Continuing Operations                                             $    1.61           $    0.90            $    2.34           $    1.34      
 Discontinued Operations                                           $  (0.08)           $    0.57            $    0.00           $    1.18      
 TOTAL                                                             $    1.53           $    1.47            $    2.34           $    2.52      
                                                                                                                                               
 Basic                                                                                                                                         
 Continuing Operations                                             $    1.62           $    0.91            $    2.36           $    1.36      
 Discontinued Operations                                           $  (0.08)           $    0.57            $    0.00           $    1.19      
 TOTAL                                                             $    1.54           $    1.48            $    2.36           $    2.55      
                                                                                                                                               
 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's)                                                                                    
 Assuming Dilution                                                     910.7               904.2                910.0               903.0      
 Basic                                                                 901.5               895.0                900.4               894.3      
 ____________________                                                                                                                          
 * Recast to conform with 2022 presentation.                                                                                                   

   

 INTERNATIONAL BUSINESS MACHINES CORPORATION  CONDENSED CONSOLIDATED BALANCE SHEET  (Unaudited) 
                                                                                          
                                                         At                   At          
                                                      June 30,           December 31,     
 (Dollars in Millions)                                  2022                 2021         
 ASSETS:                                                                                  
 Current Assets:                                                                          
 Cash and cash equivalents                             $      7,034          $      6,650 
 Restricted cash                                                220                   307 
 Marketable securities                                          524                   600 
 Notes and accounts receivable - trade, net                   5,867                 6,754 
 Short-term financing receivables, net                        7,233                 8,014 
 Other accounts receivable, net                                 909                 1,002 
 Inventories                                                  1,684                 1,649 
 Deferred costs                                               1,010                 1,097 
 Prepaid expenses and other current assets                    3,414                 3,466 
 Total Current Assets                                        27,896                29,539 
                                                                                          
 Property, plant and equipment, net                           5,275                 5,694 
 Operating right-of-use assets, net                           2,848                 3,222 
 Long-term financing receivables, net                         5,316                 5,425 
 Prepaid pension assets                                       9,930                 9,850 
 Deferred costs                                                 865                   924 
 Deferred taxes                                               7,073                 7,370 
 Goodwill                                                    55,039                55,643 
 Intangibles, net                                            11,571                12,511 
 Investments and sundry assets                                1,689                 1,823 
 Total Assets                                          $    127,503          $    132,001 
                                                                                          
 LIABILITIES:                                                                             
 Current Liabilities:                                                                     
 Taxes                                                 $      1,742          $      2,289 
 Short-term debt                                              5,981                 6,787 
 Accounts payable                                             3,707                 3,955 
 Deferred income                                             12,522                12,518 
 Operating lease liabilities                                    884                   974 
 Other liabilities                                            7,008                 7,097 
 Total Current Liabilities                                   31,844                33,619 
                                                                                          
 Long-term debt                                              44,328                44,917 
 Retirement related obligations                              13,118                14,435 
 Deferred income                                              3,069                 3,577 
 Operating lease liabilities                                  2,182                 2,462 
 Other liabilities                                           13,486                13,996 
 Total Liabilities                                          108,026               113,005 
                                                                                          
 EQUITY:                                                                                  
 IBM Stockholders' Equity:                                                                
 Common stock                                                57,802                57,319 
 Retained earnings                                          153,298               154,209 
 Treasury stock — at cost                                 (169,522)             (169,392) 
 Accumulated other comprehensive income/(loss)             (22,169)              (23,234) 
 Total IBM Stockholders' Equity                              19,409                18,901 
                                                                                          
 Noncontrolling interests                                        67                    95 
 Total Equity                                                19,476                18,996 
                                                                                          
 Total Liabilities and Equity                          $    127,503          $    132,001 

   

                                             INTERNATIONAL BUSINESS MACHINES CORPORATION  CASH FLOW ANALYSIS  (Unaudited)                                             
                                                                                                                                                                      
                                                                                                                                                    Trailing Twelve   
                                                                              Three Months Ended                     Six Months Ended                Months Ended     
                                                                                   June 30,                              June 30,                      June 30,       
 (Dollars in Millions)                                                     2022                 2021             2022                 2021               2022         
 Consolidated Net Cash from Operations per GAAP                           $    1,321           $    2,625       $    4,569           $    7,539           $     9,826 
                                                                                                                                                                      
 Less: change in IBM Financing receivables                                   (1,264)                  900              367                3,763                   511 
 Capital Expenditures, net                                                     (494)                (688)            (871)              (1,217)               (2,035) 
                                                                                                                                                                      
 Consolidated Free Cash Flow                                                   2,091                1,037            3,331                2,559                 7,279 
                                                                                                                                                                      
 Acquisitions                                                                  (260)              (1,747)            (958)              (2,866)               (1,385) 
 Divestitures                                                                  1,207                 (10)            1,268                 (25)                 1,408 
 Dividends                                                                   (1,488)              (1,467)          (2,963)              (2,924)               (5,907) 
 Non-Financing Debt                                                          (2,934)                (586)            1,740              (2,331)                 2,880 
 Other (includes IBM Financing net receivables and debt)                     (1,607)                (335)          (2,197)                (522)               (4,661) 
                                                                                                                                                                      
 Change in Cash, Cash Equivalents, Restricted Cash and Short-term         $  (2,991)           $  (3,108)       $      221           $  (6,110)           $     (387) 
 Marketable Securities*                                                                                                                                               
 ____________________                                                                                                                                                 
 * Cash flows are presented on a consolidated basis.                                                                                                                  

   

                                  INTERNATIONAL BUSINESS MACHINES CORPORATION  CASH FLOW  (Unaudited)                                   
                                                                                                                                        
                                                                      Three Months Ended                     Six Months Ended           
                                                                           June 30,                              June 30,               
 (Dollars in Millions)                                             2022                 2021             2022                 2021      
 Net Income from Operations                                       $    1,392           $    1,325       $    2,125           $    2,280 
 Depreciation/Amortization of Intangibles                              1,245                1,680            2,501                3,352 
 Stock-based Compensation                                                254                  243              488                  457 
 Working Capital / Other                                               (307)              (1,524)            (912)              (2,313) 
 IBM Financing A/R                                                   (1,264)                  900              367                3,763 
 Net Cash Provided by Operating Activities                        $    1,321           $    2,625       $    4,569           $    7,539 
 Capital Expenditures, net of payments & proceeds                      (494)                (688)            (871)              (1,217) 
 Divestitures, net of cash transferred                                 1,207                 (10)            1,268                 (25) 
 Acquisitions, net of cash acquired                                    (260)              (1,747)            (958)              (2,866) 
 Marketable Securities / Other Investments, net                        (281)                (227)            (625)                (562) 
 Net Cash Provided by/(Used in) Investing Activities              $      172           $  (2,671)       $  (1,186)           $  (4,671) 
 Debt, net of payments & proceeds                                    (2,514)              (1,500)              434              (5,799) 
 Dividends                                                           (1,488)              (1,467)          (2,963)              (2,924) 
 Financing - Other                                                     (195)                (163)            (290)                (190) 
 Net Cash Provided by/(Used in) Financing Activities              $  (4,197)           $  (3,131)       $  (2,819)           $  (8,914) 
 Effect of Exchange Rate changes on Cash                               (262)                   69            (267)                 (65) 
 Net Change in Cash, Cash Equivalents and Restricted Cash*        $  (2,965)           $  (3,108)       $      297           $  (6,110) 
 ____________________                                                                                                                   
 * Cash flows are presented on a consolidated basis.                                                                                    

   

                                   INTERNATIONAL BUSINESS MACHINES CORPORATION  SEGMENT DATA  (Unaudited)                                   
                                                                                                                                            
                                                                                                                                            
                                                                              Three Months Ended June 30, 2022                              
                                                                                                                                            
 (Dollars in Millions)                                  Software            Consulting            Infrastructure            Financing       
 Revenue                                                  $   6,166             $   4,809               $     4,235            $     146    
 Pre-tax Income/(Loss) from Continuing Operations         $   1,375             $     343               $       757            $     102    
 Pre-tax Margin                                                22.3 %                 7.1 %                    17.9 %               69.7 %  
 Change YTY Revenue                                             6.4 %                 9.8 %                    19.0 %             (29.9) %  
 Change YTY Revenue - constant currency                        11.6 %                17.8 %                    25.4 %             (26.6) %  
                                                                                                                                            
                                                                                                                                            
                                                                              Three Months Ended June 30, 2021*                             
                                                                                                                                            
 (Dollars in Millions)                                  Software            Consulting            Infrastructure            Financing       
 Revenue                                                  $   5,795             $   4,378               $     3,560            $     209    
 Pre-tax Income/(Loss) from Continuing Operations         $   1,059             $     270               $       489            $     131    
 Pre-tax Margin                                                18.3 %                 6.2 %                    13.7 %               63.0 %  
 ____________________                                                                                                                       
 * Recast to conform with 2022 presentation.                                                                                                
                                                                                                                                            
                                                                                                                                            
                                                                               Six Months Ended June 30, 2022                               
                                                                                                                                            
 (Dollars in Millions)                                  Software            Consulting            Infrastructure            Financing       
 Revenue                                                  $  11,938             $   9,637               $     7,453            $     300    
 Pre-tax Income/(Loss) from Continuing Operations         $   2,509             $     691               $       956            $     186    
 Pre-tax Margin                                                21.0 %                 7.2 %                    12.8 %               62.0 %  
 Change YTY Revenue                                             9.2 %                11.5 %                     8.8 %             (28.0) %  
 Change YTY Revenue - constant currency                        13.4 %                17.6 %                    13.4 %             (25.5) %  
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                               Six Months Ended June 30, 2021*                              
                                                                                                                                            
 (Dollars in Millions)                                  Software            Consulting            Infrastructure            Financing       
 Revenue                                                  $  10,933             $   8,641               $     6,853            $     417    
 Pre-tax Income/(Loss) from Continuing Operations         $   1,717             $     547               $       780            $     229    
 Pre-tax Margin                                                15.7 %                 6.3 %                    11.4 %               55.0 %  
 ____________________                                                                                                                       
 * Recast to conform with 2022 presentation.                                                                                                

   

                 INTERNATIONAL BUSINESS MACHINES CORPORATION  U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION  (Unaudited; Dollars in millions except per share amounts)                  
                                                                                                                                                                                                   
                                                                                                              Three Months Ended June 30, 2022                                                     
                                                                                                                   Continuing Operations                                                           
                                                                                 Acquisition-                 Retirement-                Tax                Kyndryl-                               
                                                                                    Related                     Related                 Reform               Related               Operating       
                                                                GAAP           Adjustments ((1))           Adjustments ((2))           Impacts            Impacts ((3))           (Non-GAAP)       
 Gross Profit                                                   $  8,290              $        180                $          —           $      —              $        —             $   8,470    
 Gross Profit Margin                                                53.4 %                     1.2 pts.                      — pts.             — pts.                  — pts.             54.5 %  
 S,G&A                                                          $  4,855              $      (279)                $          —           $      —              $      (0)             $   4,576    
 Other (Income) & Expense                                           (81)                       (1)                       (192)                  —                   (145)                 (418)    
 Total Expense & Other (Income)                                    6,568                     (280)                       (192)                  —                   (145)                 5,952    
 Pre-tax Income from Continuing Operations                         1,722                       460                         192                  —                     145                 2,518    
 Pre-tax Income Margin from Continuing Operations                   11.1 %                     3.0 pts.                    1.2 pts.             — pts.                0.9 pts.             16.2 %  
 Provision for/(Benefit from) Income Taxes ((4))                $    257              $        115                $         46           $    (4)              $        —             $     413    
 Effective Tax Rate                                                 14.9 %                     1.8 pts.                    0.7 pts.         (0.2) pts.              (0.9) pts.             16.4 %  
 Income from Continuing Operations                              $  1,465              $        345                $        146           $      4              $      145             $   2,105    
 Income Margin from Continuing Operations                            9.4 %                     2.2 pts.                    0.9 pts.           0.0 pts.                0.9 pts.             13.5 %  
 Diluted Earnings/(Loss) Per Share: Continuing Operations       $   1.61              $       0.38                $       0.16           $   0.00              $     0.16             $    2.31    
                                                                                                                                                                                                   
                                                                                                              Three Months Ended June 30, 2021                                                     
                                                                                                                   Continuing Operations                                                           
                                                                                 Acquisition-                 Retirement-                Tax                Kyndryl-                               
                                                                                    Related                     Related                 Reform               Related               Operating       
                                                                GAAP           Adjustments ((1))           Adjustments ((2))           Impacts            Impacts ((3))           (Non-GAAP)       
 Gross Profit                                                   $  7,852              $        179                $          —           $      —              $        —             $   8,031    
 Gross Profit Margin                                                55.2 %                     1.3 pts.                      — pts.             — pts.                  — pts.             56.5 %  
 S,G&A                                                          $  4,849              $      (294)                $          —           $      —              $        —             $   4,555    
 Other (Income) & Expense                                            302                       (1)                       (317)                  —                       —                  (16)    
 Total Expense & Other (Income)                                    6,940                     (294)                       (317)                  —                       —                 6,329    
 Pre-tax Income/(Loss) from Continuing Operations                    912                       474                         317                  —                       —                 1,702    
 Pre-tax Income Margin from Continuing Operations                    6.4 %                     3.3 pts.                    2.2 pts.             — pts.                  — pts.             12.0 %  
 Provision for/(Benefit from) Income Taxes ((4))                $    101              $        105                $         53           $   (14)              $        —             $     246    
 Effective Tax Rate                                                 11.1 %                     3.1 pts.                    1.0 pts.         (0.8) pts.                  — pts.             14.5 %  
 Income from Continuing Operations                              $    810              $        368                $        264           $     14              $        —             $   1,456    
 Income Margin from Continuing Operations                            5.7 %                     2.6 pts.                    1.9 pts.           0.1 pts.                  — pts.             10.2 %  
 Diluted Earnings/(Loss) Per Share: Continuing Operations       $   0.90              $       0.41                $       0.29           $   0.01              $        —             $    1.61    
 ____________________                                                                                                                                                                              
 (1) Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. 
 (2) Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/ settlements and pension insolvency costs and other costs. 
 (3) Primarily relates to the fair value changes in the retained Kyndryl common stock and the related cash-settled swap.                                                                           
 (4) Tax impact on 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. 

   

                  INTERNATIONAL BUSINESS MACHINES CORPORATION  U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION  (Unaudited; Dollars in millions except per share amounts)                   
                                                                                                                                                                                                     
                                                                                                                Six Months Ended June 30, 2022                                                       
                                                                                                                    Continuing Operations                                                            
                                                                                  Acquisition-                 Retirement-                 Tax                Kyndryl-                               
                                                                                     Related                     Related                 Reform                Related               Operating       
                                                                 GAAP           Adjustments ((1))           Adjustments ((2))            Impacts            Impacts ((3))           (Non-GAAP)       
 Gross Profit                                                   $  15,625              $        361                $          —           $       —              $        —             $  15,986    
 Gross Profit Margin                                                 52.6 %                     1.2 pts.                      — pts.              — pts.                  — pts.             53.8 %  
 S,G&A                                                          $   9,452              $      (565)                $          —           $       —              $      (0)             $   8,887    
 Other (Income) & Expense                                             166                       (1)                       (394)                   —                   (367)                 (596)    
 Total Expense & Other (Income)                                    13,280                     (566)                       (394)                   —                   (367)                11,953    
 Pre-tax Income from Continuing Operations                          2,345                       928                         394                   —                     367                 4,033    
 Pre-tax Income Margin from Continuing Operations                     7.9 %                     3.1 pts.                    1.3 pts.              — pts.                1.2 pts.             13.6 %  
 Provision for/(Benefit from) Income Taxes ((4))                $     218              $        224                $        104           $     112              $        —             $     657    
 Effective Tax Rate                                                   9.3 %                     3.4 pts.                    1.7 pts.            2.8 pts.              (0.8) pts.             16.3 %  
 Income from Continuing Operations                              $   2,127              $        704                $        290           $   (112)              $      367             $   3,376    
 Income Margin from Continuing Operations                             7.2 %                     2.4 pts.                    1.0 pts.          (0.4) pts.                1.2 pts.             11.4 %  
 Diluted Earnings/(Loss) Per Share: Continuing Operations       $    2.34              $       0.77                $       0.32           $  (0.12)              $     0.40             $    3.71    
                                                                                                                                                                                                     
                                                                                                                Six Months Ended June 30, 2021                                                       
                                                                                                                    Continuing Operations                                                            
                                                                                  Acquisition-                 Retirement-                 Tax                Kyndryl-                               
                                                                                     Related                     Related                 Reform                Related               Operating       
                                                                 GAAP           Adjustments ((1))           Adjustments ((2))            Impacts            Impacts ((3))           (Non-GAAP)       
 Gross Profit                                                   $  14,879              $        353                $          —           $       —              $        —             $  15,232    
 Gross Profit Margin                                                 54.3 %                     1.3 pts.                      — pts.              — pts.                  — pts.             55.6 %  
 S,G&A                                                          $   9,536              $      (582)                $          —           $       —              $        —             $   8,954    
 Other (Income) & Expense                                             647                       (1)                       (649)                   —                       —                   (3)    
 Total Expense & Other (Income)                                    13,724                     (583)                       (649)                   —                       —                12,491    
 Pre-tax Income from Continuing Operations                          1,155                       936                         649                   —                       —                 2,741    
 Pre-tax Income Margin from Continuing Operations                     4.2 %                     3.4 pts.                    2.4 pts.              — pts.                  — pts.             10.0 %  
 Provision for/(Benefit from) Income Taxes ((4))                $    (58)              $        238                $         86           $       6              $        —             $     272    
 Effective Tax Rate                                                 (5.0) %                    10.4 pts.                    4.3 pts.            0.2 pts.                  — pts.              9.9 %  
 Income from Continuing Operations                              $   1,213              $        699                $        563           $     (6)              $        —             $   2,469    
 Income Margin from Continuing Operations                             4.4 %                     2.5 pts.                    2.1 pts.          (0.0) pts.                  — pts.              9.0 %  
 Diluted Earnings/(Loss) Per Share: Continuing Operations       $    1.34              $       0.77                $       0.62           $  (0.01)              $        —             $    2.73    
 ____________________                                                                                                                                                                                
 (1) Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. 
 (2) Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs. 
 (3) Primarily relates to the fair value changes in the retained Kyndryl common stock and the related cash-settled swap.                                                                             
 (4) Tax impact on 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. 



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