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IBM RELEASES FOURTH-QUARTER RESULTS

1. IBM's Software revenue grew 10% in Q4 2024, driven by Red Hat. 2. Generative AI business reached $5 billion, rising $2 billion in one quarter. 3. Free cash flow for 2024 is projected to be $13.5 billion. 4. Total revenue for 2024 was $62.8 billion, increasing 1% year-over-year. 5. CEO expects at least 5% revenue growth and strong profitability for 2025.

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Why Bullish?

The strong growth in Software and AI initiatives suggests positive future prospects, similar to IBM's past performance when focusing on emerging technologies.

How important is it?

Strong quarterly and annual financial results indicate a solid performance, impacting investor confidence.

Why Long Term?

The continued investment in AI and expected revenue growth indicate sustainable, long-term resilience for IBM.

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Double-digit Software revenue growth; Free cash flow well-exceeds full-year expectation , /PRNewswire/ -- IBM (NYSE: IBM) today announced fourth-quarter 2024 earnings results. "We closed the year with double-digit revenue growth in Software for the quarter, led by further acceleration in Red Hat. Clients globally continue to turn to IBM to transform with AI. Our generative AI book of business now stands at more than $5 billion inception-to-date, up nearly $2 billion quarter over quarter," said Arvind Krishna, IBM chairman, president and chief executive officer. "Three years ago, we laid out a vision for a faster-growing, more-profitable IBM. I'm proud of the work the IBM team has done to meet or exceed our commitments. With our focused strategy, enhanced portfolio, and culture of innovation, we're well-positioned for 2025 and beyond and expect revenue growth of at least five percent and free cash flow of about $13.5 billion this year."  Fourth-Quarter Highlights Revenue- Revenue of $17.6 billion, up 1 percent, up 2 percent at constant currency- Software revenue up 10 percent, up 11 percent at constant currency- Consulting revenue down 2 percent, down 1 percent at constant currency- Infrastructure revenue down 8 percent, down 6 percent at constant currency Profit- Gross Profit Margin: GAAP: 59.5 percent, up 40 basis points; Operating (Non-GAAP): 60.6 percent, up 50 basis points Full-Year Highlights Revenue- Revenue of $62.8 billion, up 1 percent, up 3 percent at constant currency- Software revenue up 8 percent, up 9 percent at constant currency- Consulting revenue down 1 percent, up 1 percent at constant currency- Infrastructure revenue down 4 percent, down 3 percent at constant currency Profit- Gross Profit Margin: GAAP: 56.7 percent, up 120 basis points; Operating (Non-GAAP): 57.8 percent, up 130 basis points Cash Flow- Net cash from operating activities of $13.4 billion; free cash flow of $12.7 billion FOURTH-QUARTER 2024 INCOME STATEMENT SUMMARY GAAP results include impact of one-time, non-cash pension settlement charge (1) Revenue Gross Profit Gross Profit Margin Pre-tax Income (1) Pre-tax Income Margin (1) Net Income (1) Diluted Earnings Per Share (1) GAAP from Continuing Operations $   17.6 B $ 10.4 B 59.5 % $    3.3 B 18.8 % $     2.9 B $     3.11 Year/Year 1 %(2) 2 % 0.4 Pts (12) % -2.8 Pts (11) % (12) % Operating (Non-GAAP) $ 10.6 B 60.6 % $    4.3 B 24.3 % $     3.7 B $     3.92 Year/Year 2 % 0.5 Pts 2 % 0.4 Pts 3 % 1 % (1)  2024 GAAP results include the impact of a one-time, non-cash pension settlement charge of $0.4 billion related to the transfer of a        portion of the company's Non-U.S. defined benefit pension obligations and related plan assets to third-party insurers in October 2024. (2)  2% at constant currency. "With strong performance across our Software portfolio, we continue to drive solid fundamentals within our business," said James Kavanaugh, IBM senior vice president and chief financial officer. "As a result, we generated $12.7 billion in free cash flow, far-outpacing our expectation for the year. Continued strength in operating profitability and free cash flow fuels our ability to invest for the future while returning value to shareholders through dividends." Segment Results for Fourth Quarter Software — revenues of $7.9 billion, up 10.4 percent, up 11.5 percent at constant currency:- Hybrid Platform & Solutions up 11 percent, up 12 percent at constant currency      -- Red Hat up 16 percent, up 17 percent at constant currency      -- Automation up 15 percent, up 16 percent at constant currency      -- Data & AI up 4 percent, up 5 percent at constant currency      -- Security up 4 percent, up 5 percent at constant currency- Transaction Processing up 10 percent, up 11 percent at constant currency Consulting — revenues of $5.2 billion, down 2.0 percent, down 1.1 percent at constant currency:- Business Transformation up 1 percent, up 2 percent at constant currency- Technology Consulting down 7 percent, down 6 percent at constant currency- Application Operations down 4 percent, down 3 percent at constant currency Infrastructure — revenues of $4.3 billion, down 7.6 percent, down 6.0 percent at constant currency:- Hybrid Infrastructure down 10 percent, down 8 percent at constant currency      -- IBM Z down 21 percent, down 20 percent at constant currency      -- Distributed Infrastructure flat, up 2 percent at constant currency- Infrastructure Support down 2 percent, flat at constant currency Financing — revenues of $0.2 billion, down 2.5 percent, down 0.5 percent at constant currency Cash Flow and Balance Sheet In the fourth quarter, the company generated net cash from operating activities of $4.3 billion, down $0.1 billion year to year. IBM's free cash flow was $6.2 billion, up $0.1 billion year to year. The company returned $1.5 billion to shareholders in dividends in the fourth quarter. For the year, the company generated net cash from operating activities of $13.4 billion, down $0.5 billion year to year. Net cash from operating activities excluding IBM financing receivables was $13.9 billion, up $1.2 billion. IBM's free cash flow was $12.7 billion, up $1.5 billion year to year. IBM ended the fourth quarter with $14.8 billion of cash, restricted cash and marketable securities, up $1.3 billion from year-end 2023. Debt, including IBM Financing debt of $12.1 billion, totaled $55.0 billion, down $1.6 billion since year-end 2023. Full-Year 2024 Results FULL-YEAR 2024 INCOME STATEMENT SUMMARY GAAP results include impacts of one-time, non-cash pension settlement charges (1) Revenue Gross Profit Gross Profit Margin Pre-tax Income (1) Pre-tax Income Margin (1) Net Income (1) Diluted Earnings Per Share (1) GAAP from Continuing Operations $   62.8 B $ 35.6 B 56.7 % $    5.8 B 9.2 % $     6.0 B $     6.42 Year/Year 1 %(2) 4 % 1.2 Pts (33) % -4.8 Pts (20) % (21) % Operating (Non-GAAP) $ 36.3 B 57.8 % $ 11.2 B 17.9 % $     9.7 B $   10.33 Year/Year 4 % 1.3 Pts 9 % 1.2 Pts 9 % 7 % (1)  2024 GAAP results include the impacts of one-time, non-cash, U.S. and non-U.S. pension settlement charges of $3.1 billion ($2.4 billion        net of tax). (2)   3% at constant currency Full-Year 2025 Expectations Revenue: The company expects full-year constant currency revenue growth of at least 5 percent. At current foreign exchange rates, currency is expected to be about a two-point headwind to growth for the year. Free cash flow: The company expects about $13.5 billion in free cash flow for the full year. 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; 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. Statements in this communication regarding the strategic acquisition that are forward-looking may include projections as to closing date for the transaction, the extent of, and the time necessary to obtain, the regulatory approvals required for the transaction, the anticipated benefits of the transaction, the impact of the transaction on IBM's business, the synergies from the transaction, and the combined company's future operating results. 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 For generative AI, book of business includes Software transactional revenue, SaaS Annual Contract Value and Consulting signings. The generative AI book of business is further defined within Exhibit 99.2 in the Form 8-K that includes 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 — adjusting for currency (i.e., at constant currency); presenting operating (non-GAAP) earnings per share amounts and related income statement items; free cash flow; net cash from operating activities excluding IBM Financing receivables; adjusted EBITDA. 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. ET, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-4q24. 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                    [email protected]                     Tim Davidson, 914-844-7847                    [email protected]  INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts) Three Months EndedDecember 31, Year EndedDecember 31, 2024 2023 (1) 2024 2023 (1) REVENUE BY SEGMENT Software $                   7,924 $                   7,179 $                27,085 $                25,011 Consulting 5,175 5,283 20,692 20,884 Infrastructure 4,256 4,604 14,020 14,593 Financing 170 175 713 741 Other 29 141 243 632 TOTAL REVENUE 17,553 17,381 62,753 61,860 GROSS PROFIT 10,439 10,267 35,551 34,300 GROSS PROFIT MARGIN Software 85.0 % 84.1 % 83.7 % 82.9 % Consulting 28.0 % 28.1 % 27.0 % 26.8 % Infrastructure 56.9 % 60.8 % 55.8 % 56.1 % Financing 46.9 % 50.2 % 47.9 % 48.1 % TOTAL GROSS PROFIT MARGIN 59.5 % 59.1 % 56.7 % 55.4 % EXPENSE AND OTHER INCOME S,G&A 4,866 4,791 19,688 19,003 R,D&E 1,967 1,748 7,479 6,775 Intellectual property and custom development income (301) (242) (996) (860) Other (income) and expense (2) 177 (193) 1,871 (914) Interest expense 424 405 1,712 1,607 TOTAL EXPENSE AND OTHER INCOME 7,133 6,509 29,754 25,610 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,306 3,759 5,797 8,690 Pre-tax margin 18.8 % 21.6 % 9.2 % 14.0 % Provision for/(Benefit from) income taxes (2) 379 474 (218) 1,176 Effective tax rate 11.5 % 12.6 % (3.8) % 13.5 % INCOME FROM CONTINUING OPERATIONS $                   2,927 $                   3,285 $                   6,015 $                   7,514 DISCONTINUED OPERATIONS Income/ (loss) from discontinued operations, net of taxes (12) 3 8 (12) NET INCOME (2) $                   2,915 $                   3,288 $                   6,023 $                   7,502 EARNINGS PER SHARE OF COMMON STOCK (2) Assuming Dilution Continuing Operations $                      3.11 $                      3.54 $                      6.42 $                      8.15 Discontinued Operations $                     (0.01) $                      0.00 $                      0.01 $                     (0.01) TOTAL $                      3.09 $                      3.55 $                      6.43 $                      8.14 Basic Continuing Operations $                      3.16 $                      3.59 $                      6.53 $                      8.25 Discontinued Operations $                     (0.01) $                      0.00 $                      0.01 $                     (0.01) TOTAL $                      3.15 $                      3.59 $                      6.53 $                      8.23 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's) Assuming Dilution 942.4 927.3 937.2 922.1 Basic 926.0 914.7 921.8 911.2 ____________________ (1)    Recast to reflect January 2024 segment changes. (2)    2024 results include the impacts of one-time, non-cash pension settlement charges in the third quarter of $2.7 billion ($2.0 billion net of tax) in the U.S. and         fourth quarter of $0.4 billion in the non-U.S. INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (Dollars in Millions) At December 31,2024 At December 31,2023 ASSETS: Current Assets: Cash and cash equivalents $                    13,947 $                    13,068 Restricted cash 214 21 Marketable securities 644 373 Notes and accounts receivable - trade, net 6,804 7,214 Short-term financing receivables, net 7,159 6,793 Other accounts receivable, net 947 640 Inventories 1,289 1,161 Deferred costs 959 998 Prepaid expenses and other current assets 2,520 2,639 Total Current Assets 34,482 32,908 Property, plant and equipment, net 5,731 5,501 Operating right-of-use assets, net 3,197 3,220 Long-term financing receivables, net 5,353 5,766 Prepaid pension assets 7,492 7,506 Deferred costs 788 842 Deferred taxes 6,978 6,656 Goodwill 60,706 60,178 Intangibles, net 10,660 11,036 Investments and sundry assets 1,787 1,626 Total Assets $                  137,175 $                  135,241 LIABILITIES: Current Liabilities: Taxes $                      2,033 $                      2,270 Short-term debt 5,089 6,426 Accounts payable 4,032 4,132 Deferred income 13,907 13,451 Operating lease liabilities 768 820 Other liabilities 7,313 7,022 Total Current Liabilities 33,142 34,122 Long-term debt 49,884 50,121 Retirement-related obligations 9,432 10,808 Deferred income 3,622 3,533 Operating lease liabilities 2,655 2,568 Other liabilities 11,048 11,475 Total Liabilities 109,783 112,628 EQUITY: IBM Stockholders' Equity: Common stock 61,380 59,643 Retained earnings 151,163 151,276 Treasury stock - at cost (169,968) (169,624) Accumulated other comprehensive income/(loss) (15,269) (18,761) Total IBM Stockholders' Equity 27,307 22,533 Noncontrolling interests 86 80 Total Equity 27,393 22,613 Total Liabilities and Equity $                  137,175 $                  135,241 INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited) Three Months EndedDecember 31, Year EndedDecember 31, (Dollars in Millions) 2024 2023 2024 2023 Net Income from Operations $                     2,915 $                     3,288 $                     6,023 $                     7,502 Pension Settlement Charges 388 - 3,113 - Depreciation/Amortization of Intangibles (1) 1,112 1,152 4,667 4,395 Stock-based Compensation 345 291 1,311 1,133 Operating assets and liabilities/Other, net (2) 1,824 1,619 (1,238) (332) IBM Financing A/R (2,255) (1,887) (431) 1,233 Net Cash Provided by Operating Activities $                     4,330 $                     4,463 $                  13,445 $                  13,931 Capital Expenditures, net of payments & proceeds (3) (422) (263) (1,127) (1,488) Divestitures, net of cash transferred (7) - 698 (4) Acquisitions, net of cash acquired (541) (137) (3,289) (5,082) Marketable Securities / Other Investments, net (409) 3,236 (1,218) (496) Net Cash Provided by/(Used in) Investing Activities $                  (1,379) $                     2,837 $                  (4,937) $                  (7,070) Debt, net of payments & proceeds (103) (122) (880) 4,497 Dividends (1,546) (1,518) (6,147) (6,040) Financing - Other (26) 26 (52) (226) Net Cash Provided by/(Used in) Financing Activities $                  (1,675) $                   (1,615) $                  (7,079) $                  (1,769) Effect of Exchange Rate changes on Cash (330) 128 (359) 9 Net Change in Cash, Cash Equivalents and Restricted Cash $                      946 $                    5,814 $                   1,071 $                   5,101 ____________________ (1)  Includes operating lease right-of-use assets amortization. (2)  The year ended December 31, 2024 includes a $0.7 billion tax effect associated with a one-time, non-cash, U.S. pension settlement        charge in the third-quarter 2024. (3)  The year ended December 31, 2024 includes proceeds of $0.4 billion from the sale of certain QRadar SaaS assets in third-quarter 2024. INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP NET INCOME TO ADJUSTED EBITDA RECONCILIATION (Unaudited) Three Months Ended December 31, Year Ended December 31, (Dollars in Billions) 2024 2023 Yr/Yr 2024 2023 Yr/Yr Net Income as reported (GAAP) (1) $           2.9 $           3.3 $         (0.4) $           6.0 $           7.5 $         (1.5) Less: Income/(loss) from discontinued operations, net of tax 0.0 0.0 0.0 0.0 0.0 0.0 Income from continuing operations 2.9 3.3 (0.4) 6.0 7.5 (1.5) Provision for/(Benefit from) income taxes from continuing ops. 0.4 0.5 (0.1) (0.2) 1.2 (1.4) Pre-tax income from continuing operations (GAAP) 3.3 3.8 (0.5) 5.8 8.7 (2.9) Non-operating adjustments (before tax) Acquisition-related charges (2) 0.5 0.4 0.1 2.0 1.7 0.3 Non-operating retirement-related costs/(income) (1) 0.5 0.0 0.5 3.5 0.0 3.5 Operating (non-GAAP) pre-tax income from continuing ops. 4.3 4.2 0.1 11.2 10.3 0.9 Net interest expense 0.3 0.3 0.0 1.0 0.9 0.0 Depreciation/Amortization of non-acquired intangible assets 0.7 0.7 0.0 2.8 2.8 0.1 Stock-based compensation 0.3 0.3 0.1 1.3 1.1 0.2 Workforce rebalancing charges 0.0 0.0 0.0 0.7 0.4 0.3 Corporate (gains) and charges (3) 0.0 0.0 0.0 (0.6) (0.1) (0.6) Adjusted EBITDA $           5.6 $           5.5 $           0.1 $        16.4 $        15.5 $           0.9 ____________________ (1)    2024 results include the impacts of one-time, non-cash pension settlement charges in the third quarter of $2.7 billion ($2.0 billion net of tax) in the U.S. and fourth          quarter of $0.4 billion in the non-U.S. (2)    Primarily consists of amortization of acquired intangible assets. (3)    Corporate (gains) and charges primarily consists of unique corporate actions such as gains on divestitures and asset sales (e.g., certain QRadar SaaS assets). INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) Three Months Ended December 31, 2024 (Dollars in Millions) Software Consulting Infrastructure Financing Revenue $                       7,924 $                        5,175 $                       4,256 $                            170 Segment Profit $                       3,102 $                           606 $                       1,063 $                              94 Segment Profit Margin 39.2 % 11.7 % 25.0 % 55.0 % Change YTY Revenue 10.4 % (2.0) % (7.6) % (2.5) % Change YTY Revenue - Constant Currency 11.5 % (1.1) % (6.0) % (0.5) % Three Months Ended December 31, 2023 (1) (Dollars in Millions)  Software Consulting Infrastructure Financing Revenue $                       7,179 $                        5,283 $                       4,604 $                           175 Segment Profit $                       2,649 $                           654 $                       1,299 $                           117 Segment Profit Margin 36.9 % 12.4 % 28.2 % 67.0 % ____________________ (1)    Recast to reflect January 2024 segment changes. Year Ended December 31, 2024 (Dollars in Millions) Software Consulting Infrastructure Financing Revenue $                     27,085 $                     20,692 $                     14,020 $                           713 Segment Profit $                       8,684 $                       2,054 $                       2,450 $                           348 Segment Profit Margin 32.1 % 9.9 % 17.5 % 48.8 % Change YTY Revenue 8.3 % (0.9) % (3.9) % (3.7) % Change YTY Revenue - Constant Currency 9.0 % 0.6 % (2.7) % (2.5) % Year Ended December 31, 2023 (1) (Dollars in Millions)  Software Consulting Infrastructure Financing Revenue $                     25,011 $                     20,884 $                     14,593 $                           741 Segment Profit $                       7,499 $                       2,130 $                       2,828 $                           373 Segment Profit Margin 30.0 % 10.2 % 19.4 % 50.3 % ____________________ (1)    Recast to reflect January 2024 segment changes. INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts) Three Months Ended December 31, 2024 Continuing Operations GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts Operating (Non-GAAP) Gross Profit $       10,439 $                              191 $                                  — $                       — $           10,630 Gross Profit Margin 59.5 % 1.1 pts — pts — pts 60.6 % S,G&A $         4,866 $                            (305) $                                  — $                       — $             4,561 Other (Income) & Expense 177 (2) (467) — (291) Total Expense & Other (Income) 7,133 (307) (467) — 6,359 Pre-tax Income from Continuing Operations 3,306 498 467 — 4,271 Pre-tax Income Margin from Continuing Operations 18.8 % 2.8 pts 2.7 pts — pts 24.3 % Provision for/(Benefit from) Income Taxes (3) $            379 $                              123 $                                  58 $                      21 $                581 Effective Tax Rate 11.5 % 1.5 pts 0.1 pts 0.5 pts 13.6 % Income from Continuing Operations $         2,927 $                              375 $                                408 $                    (21) $             3,690 Income Margin from Continuing Operations 16.7 % 2.1 pts 2.3 pts (0.1) pts 21.0 % Diluted Earnings Per Share: Continuing Operations $           3.11 $                             0.40 $                               0.43 $                 (0.02) $               3.92 Three Months Ended December 31, 2023 Continuing Operations GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts Operating (Non-GAAP) Gross Profit $      10,267 $                             172 $                                 — $                     — $          10,439 Gross Profit Margin 59.1 % 1.0 pts — pts — pts 60.1 % S,G&A $        4,791 $                           (271) $                                 — $                     — $            4,520 Other (Income) & Expense (193) 12 22 — (159) Total Expense & Other (Income) 6,509 (259) 22 — 6,272 Pre-tax Income from Continuing Operations 3,759 431 (22) — 4,167 Pre-tax Income Margin from Continuing Operations 21.6 % 2.5 pts (0.1) pts — pts 24.0 % Provision for/(Benefit from) Income Taxes (3) $          474 $                              91 $                                19 $                     (4) $              580 Effective Tax Rate 12.6 % 0.9 pts 0.5 pts (0.1) pts 13.9 % Income from Continuing Operations $       3,285 $                            339 $                              (41) $                      4 $           3,587 Income Margin from Continuing Operations 18.9 % 2.0 pts (0.2) pts — pts 20.6 % Diluted Earnings Per Share: Continuing Operations $         3.54 $                           0.37 $                           (0.04) $                    — $             3.87 ____________________ (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. 2023 also includes a $12 million gain recognized on foreign exchange derivative contracts entered into by the company prior to the acquisition of StreamSets          and webMethods from Software AG. (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. 2024 also includes the impact of a one-time, non-cash, non-U.S. pension settlement charge of $0.4 billion. (3)    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. INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts) Year Ended December 31, 2024 Continuing Operations GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts (3) Operating (Non-GAAP) Gross Profit $     35,551 $                          724 $                                  — $                   — $        36,275 Gross Profit Margin 56.7 % 1.2 pts — pts — pts 57.8 % S,G&A $     19,688 $                     (1,159) $                                  — $                   — $        18,529 Other (Income) & Expense 1,871 (70) (3,457) — (1,656) Total Expense & Other (Income) 29,754 (1,229) (3,457) — 25,068 Pre-tax Income from Continuing Operations 5,797 1,953 3,457 — 11,207 Pre-tax Income Margin from Continuing Operations 9.2 % 3.1 pts 5.5 pts — pts 17.9 % Provision for/(Benefit from) Income Taxes (4) $        (218) $                         497 $                               790 $                455 $         1,523 Effective Tax Rate (3.8) % 5.1 pts 8.2 pts 4.1 pts 13.6 % Income from Continuing Operations $      6,015 $                      1,456 $                            2,668 $              (455) $         9,684 Income Margin from Continuing Operations 9.6 % 2.3 pts 4.3 pts (0.7) pts 15.4 % Diluted Earnings Per Share: Continuing Operations $        6.42 $                        1.55 $                              2.85 $             (0.49) $         10.33 Year Ended December 31, 2023 Continuing Operations GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts Operating (Non-GAAP) Gross Profit $    34,300 $                         631 $                                 — $                   — $       34,931 Gross Profit Margin 55.4 % 1.0 pts — pts — pts 56.5 % S,G&A $    19,003 $                    (1,039) $                                 — $                   — $       17,964 Other (Income) & Expense (914) 10 39 — (866) Total Expense & Other (Income) 25,610 (1,029) 39 — 24,620 Pre-tax Income from Continuing Operations 8,690 1,660 (39) — 10,311 Pre-tax Income Margin from Continuing Operations 14.0 % 2.7 pts (0.1) pts — pts 16.7 % Provision for/(Benefit from) Income Taxes (4) $      1,176 $                         368 $                                 (8) $                 (95) $         1,441 Effective Tax Rate 13.5 % 1.4 pts — pts (0.9) pts 14.0 % Income from Continuing Operations $      7,514 $                      1,292 $                               (30) $                  95 $         8,870 Income Margin from Continuing Operations 12.1 % 2.1 pts 0.0 pts 0.2 pts 14.3 % Diluted Earnings Per Share: Continuing Operations $        8.15 $                        1.40 $                            (0.03) $               0.10 $           9.62 ____________________ (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. 2024 and 2023 also include a $68 million loss and a $12 million gain, respectively, recognized on foreign exchange derivative contracts entered into by the company          prior to the acquisition of StreamSets and webMethods from Software AG. (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. 2024 also includes the impacts of one-time, non-cash, U.S. and non-U.S. pension settlement charges of $3.1 billion ($2.4 billion net of tax). (3)    2024 includes a net benefit from income taxes due to the resolution of certain tax audit matters. (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. INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP OPERATING CASH FLOW TO FREE CASH FLOW RECONCILIATION (Unaudited) Three Months EndedDecember 31, Year EndedDecember 31, (Dollars in Millions) 2024 2023 2024 2023 Net Cash from Operations per GAAP $            4,330 $            4,463 $         13,445 $         13,931 Less: change in IBM Financing receivables (2,255) (1,887) (431) 1,233 Net cash from operating activities excl. IBM Financing receivables 6,584 6,350 13,876 12,699 Capital Expenditures, net (422) (263) (1,127) (1,488) Free Cash Flow 6,163 6,087 12,749 11,210 INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP OPERATING CASH FLOW TO ADJUSTED EBITDA RECONCILIATION (Unaudited) Three Months EndedDecember 31, Year EndedDecember 31, (Dollars in Billions) 2024 2023 2024 2023 Net Cash Provided by Operating Activities $           4.3 $             4.5 $        13.4 $        13.9 Add: Net interest expense 0.3 0.3 1.0 0.9 Provision for/(Benefit from) income taxes from continuing operations 0.4 0.5 (0.2) 1.2 Less change in: Financing receivables (2.3) (1.9) (0.4) 1.2 Other assets and liabilities/other, net (1) 1.7 1.6 (1.8) (0.7) Adjusted EBITDA $           5.6 $             5.5 $        16.4 $        15.5 ____________________ (1)    Other assets and liabilities/other, net mainly consists of operating assets and liabilities/Other, net in the Cash Flow chart,          workforce rebalancing charges, non-operating impacts and corporate (gains) and charges. 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