Feb 23, 2021 — The financial section of the International Business Machines Corporation (IBM or the company) 2020 Annual Report includes the.

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Dear IBM Investor: Today your company is positioned to lead as we enter the era of hybrid cloud and AI. As I write to you, the world is still experiencing disruption as a result of the global pandemic. What we have witnessed over the past year is an acceleration of digital transformation. Every company in every industry wants to build a much stronger digital foundation to fundamentally change the way its business works. There is no going back. In the next two to three years, we expect to see digital transformation at a rate that, before 2020, we thought would take 5 to 10 years. Perhaps the most profound and exciting change our clients are experiencing is the adoption of new business models based on digital technologies that IBM is building. This is evident whether you look at the use of AI-powered assistants to offset the massive increase of requests fl ooding call centers, the meteoric rise of telemedicine, or the use of hybrid cloud to build rich, personalized and secure experiences in areas like digital banking. As I will describe to you in this letter, we have made decisive moves to help our clients thrive by tapping into the immense power of hybrid cloud and AI. My confi dence in our ability to exit this turbulent period stronger is grounded in the strength of our strategy, the progress of our transformation, and the talent and resilience of IBMers around the world. 2020 performance For the year, we generatef revenue, a decline ofercent excluding the impact of currency and divestitures. Much of this refl ects the broader uncertainty ovironment, which also affects our clients. ency for digital transformation continues to fuel momentum for our business. Our cloud-related revenue grew ercxcluding the impact of currency and divestitures, and now represents over one-third of our enue. Ret was a key driver with normalized revenue growth ofercent in 2020 and a b for the fi rst time at year end. Ret, together with our modernized Cloud Pak solutions, delivered overall software revenue growth for the year. Global Business Servic) cloud revenue grew at a double-digit rate as we focused on modernizing clients’ applications and reimagining their workfl ows with AI. Global Technology Services helped clients navigate the unprecedented volatility in their own business volumes, ending the year with strong contract renewals and new client additions. Wstems, as always, performance refl ects product cycles. Even with a very successful new product introduction in the second half ofenue grew in 2020, with the z15 now shipping the largest capacity in the platform’s history.

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The fundamentals across our business continue to be strong. Our operating gross profi t margin expandeasis points to overcent, an indication of the value our clients derive from our offerings. Operating net income was , even after a signifi cant charge for structural actions to improve our go-forward position. In this environment we also took actions to enhance our balance sheet and liquidity, resulting in a stronger fi nancial position. Free cash fl ow is the fuel for our growth, and for the year we generatef net cash from operations and free cash fl ow of. We focused our captive fi nancing business on our hybrid cloud and AI strategy, reducing our external fi nancing needs. We continued to return capital to our shareholders in the form of. We raised the dividend for the 25th consecutive year in an uninterrupteears of paying a dividend, while continuing to invest in technologies, skills, and ecosystems to expand our capabilities and accelerate future growth. The right strategy for digital transformation Hybrid cloud and AI are the two next great shifts in the technology landscape, and IBM is positioning itself to play a key role in this swift and massive transformation. We see the hybrid cloud opportunity at $1 trillion. Most of it is still ahead of us, as lesercent of workloads have moved to public clouds thus far. Meanwhile, the current enterprise deployment rate of AI is only in the single digits. To seize the immense opportunity that this represents, our approach is platform-centric. Linux, Containers and Kubernetes are the foundation of our hybrid cloud platform with Ret OpenShift as our core product, delivering all of these attributes and more. We have a vast software portfolio modernized to run cloud-native anywhere. Our GBS expertise is a key factor in driving consumption and is currently helping hundreds of major clients on their hybrid cloud journeys. All of these capabilities are supported by our systems and cloud infrastructure, which allows us to build industry-specifi c clouds. Based on this foundation, we are successfully leveraging Ret as a unique platform to address what our global, complex and highly regulated clients need: a hybrid cloud platform that is open, fl exible and secure. Our hybrid cloud approach lets clients connect their back offi ce to their front offi ce, modernize mission-critical workloads, build cloud-native apps, and securely deploy and manage data and applications across various IT environments. Everywhere you look today, businesses have an acute need for speed to market, fl exibility and nimbleness, and continuous innovation. On these, hybrid cloud delivers. In fact, clients fi nd that choosing a hybrid cloud appro valuable than relying on public cloud alone. Gaining momentum One of the best indicators of progress is to look at the pace of client consumption. On that front, we are making good headway. We now have more than 2,800 clients using our hybrid cloud platformercent over the past year, as they leverage it to accelerate their own digital transformation journeys. Energy industry services, software and equipment leader Schlumberger is expanding customer access to its AI- powered exploration and production solutions and making its data platform hybrid cloud-friendly, exclusively through OpenShift. This engagement is also driving business for aks, IBM Cloud and GBS. Delta Air Lines is using OpenShift, Cloud Paks and GBS expertise to modernize its digital customer experience. IBM has built two industry clouds designed to tackle the specifi c needs of mission-critical and highly regulated industries. Our Cloud for Financial Services added key partners in 2020, such as Adobe, Infosys Finacle, Persistent Systems and many others. Some of the world’s largest banks signed on, including Bank of America, BNP Paribas and MUF. In 2020, we launched our Cloud for Telecommunications. So far, more than 35 partners have joined. As a strategic partner, Samsung is working with IBM and Ret to develop next-generation 5G and mobile edge device solutions for private networks. Separately, we are helping companies like Vodafa, Verizon and Bhartel transform their IT and telecom network operations. Clients are moving to deploy AI at scale. More than 40,000 clients have turned to IBM to unlock value from their data. IBM’s AI platform is differentiated by automation, natural language processing and trust. It is the only AI platform that can run anywhere—on premise, private cloud and public cloud. Clients across industries are using it to infuse AI into their core business processes, such as hiring, supply chains and customer service. Putting Watson Assistant, natural language processing and enterprise AI search capabilities to work as multilingual virtual agents, IBM helped Children’s Healthcare of Atlanta create the “COVID-19 Pediatric Assessment Tool” for parents. 2 IBM 2020 Annual Report

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Using the OpenPages with Watson platform, we are helping clients to manage risk more effectively and effi ciently across their global operations by consolidating audit, risk, and control processes and procedures. Trust is table stakes for the expansion of data and AI in daily business processes. IBM clients’ data is their data, and their insights are their insights. That commitment and our industry-leading encryption technology differentiate our AI in the marketplace. Decisive moves for future growth Over the past year, we have made a series of decisive moves to support our hybrid cloud and AI strategy. We announced the separation of our managed infrastructure services business in October 2020. In a business where scale matters, “NewCo” will be the biggest in its fi eld, with more than 4,600 clients at the start,ercent of the Fortune 100. Our two companies will continue to share a strong bond as NewCo will remain IBM’s preferred partner for infrastructure management. In 2020, we closed seven strategic acquisitions. All are designed to strengthen our hybrid cloud and AI portfolio. They enhance our software, expand our GBS capabilities in implementation and consulting, augment our security offerings, and support our go-to-market to drive hybrid cloud consumption. To accelerate consumption of our hybrid cloud platform, we have elevated the role of partners and also rapidly expanded our ecosystem by adding hundreds of new partnerships with global system integrators, independent software vendors and major third-party software partners. We are investing osystem so that our partners can play a much bigger role in fulfi lling the many needs of our clients. Partners are helping broaden the reach of our software portfolio. For example, we collaborated with Salesforce to build our Digital Health Pass, which incorporates data such as temperature checks, COVID-19 test results and vaccine status to help organizations safely reopen. The Digital Health Pass is combined with the power of Salesforce’s customer relationship management solutions and IBM’s technologies, such as hybrid cloud, AI and Blockchain. Together we are also building a new vaccine management platform for Ireland’s Health Service Executive. Our partnership with ServiceNow on Watson AIOps supports our continued leadership in transformative AI by helping clients automate IT operations and reduc. Thank you to former Executive Chairman Ginni Rometty. Under her leadership we laid the foundation for the hybrid cloud and AI strategy that will drive the engine of our clients’ success. Arvind Krishna Chairman and Chief Executive Offi cer 3

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In an effort to provide additional and useful information regarding the company’s fi nancial results and other fi nancial information, as determined by generally accepted accounting principles (GAAP), these materials contain non-GAAP fi nancial measures on a continuing operations basis, including revenue adjusted for divested businesses and constant currency, free cash flow, and other “operating” fi nancial measures including operating gross profi t margin, operating earnings, operating earnings per share and operating net income. The rationale for management’s use of this non-GAAP information is included on pages 18, 19, and 57 of the company’s 2020 Annual Report, which is Exhibit 13 to the Form 10-K submitted with the SEC on February 23, 2021. For reconciliation of these non-GAAP fi nancial measures to GAAP and other information, please refer to pages 21, 45, and 58 of the company’s 2020 Annual Report. These materials also contain year-to-year change in revenue for Red Hat, normalized for historical comparability. The rationale for management’s use of this non-GAAP fi nancial measure and its reconciliation to GAAP are respectively included as Exhibits 99.2 and 99.1 to the company’s Form 8-K submitted with the SEC on January 21, 2021. In addition, we are aligning our go-to-market model with our hybrid cloud and AI approach, implementing a simplifi ed client segmentation, putting IBM Garage at the center of our experiential sales process and working more closely with ecosystem partners so they can deliver more value to clients. Responsible stewardship Being a responsible steward of technology is core to IBM culture and has never been more important than it was in 2020. We saw how our commitment to Good Tech can make a difference during a global emergency. We organized the High-Performance Computing Consortium to put our fastest computers at the disposal of scientists around the world working to understand and combat COVID-19. IBM’s Watson Assistant for Citizens helped dozens of governments at all levels disseminate information about COVID-19 testing and best practices. As protesters took to the streets to condemn systemic racism, we sent a letter to Congress explaining our decision to abandon facial recognition software, prompting other tech companies to follow suit. Internally we launched several social justice initiatives including Emb(race), a program highlighting the experiences of Black IBMers, and a program increasing our partnerships with historically Black colleges and universities (HBCUs). We created the position of SVP of Transformation and Culture, strengthening our transparency around and commitment to fostering the culture of diversity and inclusion that is the foundation of IBM’s success. The climate crisis is one of the most urgent issues of our time. IBM has been a leader in corporate sustainability for half a century. Our fi rst corporate environmental policy statement dates back to 1971. Since 1990, we have shared our progress in managing waste, conserving energy, using renewable electricity and reducing carbon dioxide emissions. We are taking other steps to advance our environmental leadership. We are setting a new goal to reach net zero greenhouse gas emissions by 2030 to help address the climate crisis. As a founding member of the Climate Leadership Council, we also support a carbon tax that will reduce carbon emissions globally through market- based incentives. Trust is our license to operate, and for more than a century IBM has earned the trust of our clients and society. We continue to earn it through projects such as our work with the Vatican to develop principles for ethical AI, and our leadership role in data privacy reinforced by the IBM Policy Lab. Emerging stronger I am proud of the work IBMers have done to bring us to this point, and I am grateful to you, our shareholders, for your support on our journey. As I look back, for me as for so many other IBMers, 2020 has put the spotlight on IBM’s essential role for our clients. IBM is the backbone of some of the most critical systems that keep the world running. Our technologies and services help banks process credit card transactions, businesses run supply chains, telcos connect customers, healthcare providers improve patient care, and companies and cities tackle cyber threats. IBM’s essential and transformative role in the world is a reminder that few companies have the trust, talent and ingenuity to help clients solve their greatest challenges the way that your company can. IBM is reshaping its future as a hybrid cloud and AI platform company. I am excited about our ability to emerge s tronger as the world recovers from the effects of the global public health crisis, and the possibilities ahead as our clients accelerate their digital transformation journeys. Arvind Krishna Chairman and Chief Executive Offi cer 4 IBM 2020 Annual Report

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At the beginning of 2020, lesent of mission-critical workloads had moved to the cloud. As companies sought to equip their employees to work remotely during the pandemic, many sped up the pace of their technological changes. They’ve realized the sooner they can make the jump to cloud and cloud-enabled AI, the better. This trend will continue until the cent of workloads that were left behind migrate to hybrid cloud. IBM is doubling down on its investment in hybrid cloud and AI because we see it as the best way to help our customers on this journey. They want the speed, effi ciency and innovation that comes with moving to the cloud, without having to reinvent their entire IT infrastructure. That’s what hybrid cloud is all about. IBM is uniquely qualifi ed to deliver what our clients need and want. In R we have the leading open source hybrid cloud platform. Add our Cloud Paks, and we can transform complex leg acy architecture into a completely secure int egrated platform. Our clients benefi t from the seamless automation, data mining and analysis, development of cloud- native applications and multicloud management our platform provides. Our services team brings the expertise to make migration to the hybrid cloud easy and a custom fi t for each client. Our combined offerings are the recipe for our clients’ success and IBM’s growth. Our industry- leading security makes the hybrid cloud safe and compliant for heavily regulated enterprises like banks, telcos and energy companies. Our automation frees up people for business transformation. Our cloud-native AI integrates data from across the IT infrastructure, generating new insights into processes and outcomes that create real business value. IBM’vices team has the industry and technological expertise to help our clients reinvent themselves using our platform and the applications that run on it, from banking to telecoms to retail to energy to just about anything. Hybrid cloud and AI are IBM’s clear path trowth “Over the last decade, IBM has transformed itself to meet the mission-critical needs of our clients. Today, IBM is laser- focused on open hybrid cloud— rillion market opportunity. Our hybrid cloud platform provides a full stack of capabilities to clients including our AI-enabled software portfolio, cloud transformation services, systems, security and the IBM public cloud.” Jim Whitehurst President, IBM 5

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Navigating the pandemic with Watson Assistant Organizations turned to Watson Assistant, IBM’s AI-powered virtual agent for business, to fi eld COVID-related questions from customers, employees and the general public. Use of Watson Assistant surgent between February and November 2020. Burger King Brazil customized Watson Assistant to connect 16,000 employees across 800 restaurants to information on HR with speed, reliability and security. Using Watson Assistant and Watson Discovery, GlaxoSmithKline launched sistants that answered 83,000 questions in a single three-month span. GM Financial used Watson Assistant to managent of live chat requests when the pandemic hit.IBM trained Watson Assistant to answer COVID-related questions, and offered it free of charge to hospitals, governments and other organizations for 90 days. The Royal Marsden, a leading London-based cancer center, used its virtual agent to give employees consistent information about the virus and related workplace guidance. The Government of Colombia created a virtual agent that facilitated over 11,000 queries per month on travel guidance and virus prevention. And ahead of the November elections, the Idaho Secretary of State used Watson Assistant to answer logistical questions from its 900,000-plus voters. “We want to help clients transform their businesses— leveraging our hybrid cloud and AI software to modernize their applications, improve customer service and dramatically cut costs. We’ll continue working across our ecosystem to increase adoption of our platform, and help our clients fi nd innovative ways to fuel their digital transformations.” Rob Thomas Senior Vice President, IBM Cloud and Data Platform Unlocking the power of client data Throughout 2020, IBM helped organizations unlock the power of their data to drive measurable results at scale. Clients deployed our hybrid cloud software to modernize their IT landscapes, use data to predict and shape future out comes, automat e workflows, enhance customer service and secure their organizations against cyber threats. AI for business requires mastery of automation, natural language processing and trust. New Watson Natural Language Understanding capabilities from Project Debater will help businesses analyze linguistic nuances, while new AI FactSheets for Watson Studio in Cloud Pak for Data will increase the transparency and explainability of AI models. Trust is critical to AI adoption. We help our clients understand how AI models make decisions, provide transpar ency into how AI technology is built, and govern and champion the responsible use of AI. Additionally, the introduction of Watson AIOps and the acquisitions of WDG Automation and Instana expanded our AI-powered automation capabilities. Partnerships with Box, Cloudera, MongoDB and ServiceNow grew our AI ecosystem. We have more than 40,000 Watson client engagements across tries, where market leaders are using IBM Watson to work smarter. EY is using IBM Watson Discovery to transform M&A due diligence with a custom natural language processing model that delivers insights into competitive deal processes. Deutsche Lufthansa AG is using IBM Watson Studio, atson Machine Learning and IBM Cloud Pak for Data to achieve operational excellence and enhance customer and employee experiences. And with our business partner EquBot, we helped HSBC develop the AI-powered US equity index AiPEX, a fi rst-of-its-kind tool that analyzes vast amounts of publicly available data—from company announcements to satellite images of store parking lots—to identiftocks. 7

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Creating intelligent workflows IBM Global Business Services (GBS) helps organizations reinvent the way they work. With intel ligent workflows, businesses can reshape core functions across their organizations—from supply chains to recruitment and bill processing. Running on the hybrid cloud and powered by IBM’s leading AI automation software and analytics, intelligent workflo ws connect data from disparate systems, streamline proces ses and generate actionable insights. For example, 12 of Europe’s largest banks worked with IBM consultants to co-create a blockchain-based trade fi nance platform called we.trade. Small- and medium-sized businesses benefi t from being able to col laborate and trade across a transparent and secure environment. Transaction information is authorized and shared only with the appropriate parties across the platform via smart contracts. Along with reduced risk and increased regulatory compliance f or all users, we.trade has ent savings in transaction processing. In just fi ve days, IBM helped TSB Bank dom launch its web-based TSB Smart Agent to allow immediate customer access to applications for repayment deferrals on mortgages and loans during the pandemic. The AI-driven Tent complemented employee actions to respond to more than 40,000 customer requests during the fi rst several weeks of operation. Rising to strategic needs and multiple challenges caused by brushfi res and COVID-19, leading telecommunications company Telstra and IBM co-created a cognitive supply chain control tower, an integr ated supply chain platform and agile work protocols to serve its operations reliably. “An open, fl exible, hybrid approach to cloud gives businesses the freedom to choose from multiple providers to best meet their business and IT needs. As we help clients shift to hybrid cloud, we see tremendous benefi ts from open innovation. Build once, run anywhere. Innovate anywhere with anyone’s technology. That’s the beauty of a hybrid cloud platform.” John Granger Senior Vice President, Hybrid Cloud Services and Chief Operating Offi cer, IBM Global Business Services “2020 was one of the most challenging periods in history for businesses, with 6 out of 10 organizations accelerating their digital transformations. Recognizing that future disruptions are inevitable and unpredictable, now is the time to create intelligent workfl ows that streamline processes and help people manage these tectonic shifts.” Mark Foster Senior Vice President, IBM Services Mikhel Ruia, Managing Director of Glenmuir, a British golf clothing manufacturer and member of we.trade via its bank, HSBC. 8 IBM 2020 Annual Report

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Driving innovation and resilience Maintaining business continuity, enabling remote workforces and strengthening virtual customer engagement were all critical in 2020. In response, IBM Global Technology Services (GTS) rallied for go-to-market coverage—taking client service to the next level to keep businesses up and running while facilitating their migrations to hybrid cloud. As GTS focused its service offerings to support hybrid cloud and AI, industry analysts took notice. NelsonHall gave IBM top marks for addressing both immediate and future client needs. Everest joined all analy sts in naming IBM “a leader in delive ry automation through intelligent automation.” And Forrester ranked IBM as a leader in disaster recovery as a service.* For example, National Telecom Public Co., Ltd. is using IBM open-source software support services to help hotels control virus spread as Thailand reopens its borders. But outstanding client services is what really defi ned GTS in 2020. Hybrid cloud technology allows manufacturers, logistics companies, governments, retailers and ser vice providers, to work together across a multitude of different computing environments. As a result, GTS saw signifi cant demand for a hybrid cloud approach to reinventing supply chains in 2020. Fxample, IBM signed a multi-year agreement with Coca-Cola European Partners , to use the power of the open hybrid cloud, combined with the expertise of IBM Services, to transform its soft drink suppl Adopting a hybrid cloud strategy, South Korean credit card issuer Lotte Card turned to GTS to migrate and manage its mission- critical enterprise systems. Using cloud-native technology from IBM and Red Hat OpenShift, Lotte Card accelerated customer workload processing by 300 percent. As the speed of digital transformation increases, the flexibility of cloud technologies over traditional IT infrastructures wil l allow Lotte Card to respond with greater agility to rapidly changing market conditions, and to better serve its customers in near real time. “The spin-off of NewCo is an opportunity that presents exciting potential. We are already the number one managed infrastructure services provider in the world. Our unmatched talent, the breadth of our services, our ecosystem of partners and our deep global client relationships should position us well for the future.” Martin Schroeter CEO, NewCo * The Forrester Wave™: Disaster Recovery-As-A-Service Providers, Q2 2019 by Naveen Chhabra with Glenn O’Donnell, Amanda Lipson and Bill Nagel. April 2019. “NewCo”: a trusted partner to the world’s global enterprises To clarify our approach to the $1 trillion market opportunity for hybrid cloud growth, IBM announced the spin-off of our market- leading managed infrastructure services unit, “NewCo” (to be named later). The spin-off will create two market-leading companies focused on what they do best. For IBM that means concentrating on its hybrid cloud platform, AI capabilities and consulting services to help clients on their digital transformation journeys. NewCo will lion market opportunity in managed infrastructure services. NewCo—with more than 4,600 t echnology-intensive, highly regulated clients in 115 countries, a backlog of more than twice the scale of its nearest competitor—will have greater agility to design, run and modernize the infrastructures of the world’s most important organizations. Both companies will be on an improved growth trajectory with greater abilities to partner and capture new opportunities— creating value for clients and shareholders. Operating independently, IBM and NewCo will capitalize on their respective strengths. 9

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Enhancing the client experience through ecosystems Uniting the developer ecosystem to solve global problemsSince its inception in 2018, the annual Call for Code competition to create open source t echnology to help tackle the world’s biggest challenges has scaled to engage more than 400,000 developers and problem solvers acros The 2020 challenge focused on managing the effects of climate change and fi ghting COVID-19. The winning application from Agrolly is buile,atson atson Assistant. It connects small farmers to personalized, real-time data from The Weather Company (an IBM business) to help them cope with climate change. The competition also yielded promising COVID-19 solutions, some of which may be going to market. As the need for digital transformation accelerated in 2020, it became clear that businesses benefi ted the most when they were supported by an ecosystem of partners that continually provided the best technologies and industry expertise. That’s why IBM has commitvestment in its hybrid cloud ecosystem over the next three years. This investment has already begun supporting a coalition of best- of-breed global system integrators and independent software vendors that are helping clients migrate their mission-critical workloads to IBM’s hybrid cloud platform. More than 85 new partners from a wide range of technology and industry backgrounds joined the ecosystem in 2020— reflecting IBM’s ability to leverage long-standing relationships in the technology community. A key part of this ecosystem, R Marketplace provides clients with gr eater scale, resources and capabilities, reinforcing the value of the OpenShift hybrid form. “We’re dedicated to fostering a culture of openness and collaboration among our ecosystem partners while ensuring that their data is not compromised. By investing in our partners and working together, we will drive success for our clients, for our partners and for IBM.” Bob Lord Senior Vice President, Worldwide Ecosystems and Blockchain 10 IBM 2020 Annual Report

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