Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Ms. Patricia Murphy, Vice President of Investor Relations. Ma'am, you may begin.

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM. I'm here with Mark Loughridge, IBM's Senior Vice President and CFO, Finance and Enterprise Transformation. Thank you for joining our third quarter earnings presentation. The prepared remarks will be available in roughly an hour, and a replay of this webcast will be posted to our Investor Relations website by this time tomorrow. Our presentation includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with SEC rules. You will find reconciliation charts at the end, and in the Form 8-K submitted to the SEC. Let me remind you that certain comments made in this presentation may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM website, or from us in Investor Relations. Now, I'll turn the call over to Mark Loughridge.

In the third quarter, we reported $23.7 billion in revenue, expanded gross and net operating margins and increased operating earnings per share by 10% to $3.99. For the year, we’re maintaining our full year 2013 expectation for operating EPS of at least $16.25 on an all in basis, or $16.90 excluding the second quarter workforce rebalancing charge. Looking at the results by business, our total services business returned to modest revenue growth at constant currency, led by 5% growth in GBS. Our backlog was up 2% or 6% at constant currency with another strong performance from GBS. Software delivered mid-single digit growth at constant currency in key branded middleware. In hardware, growth in System z mainframe was more than offset by declines in Power Systems apps and storage. Two-thirds of the overall hardware decline was driven by the growth market. Across IBM we delivered strong performance in our growth initiatives, that addressed key market trends, smarter planet, business analytics and cloud, leveraging both organic investments and acquisitions. Our Smarter Planet solutions are up more than 20% through September and Business Analytics is up 8% year-to-date. In cloud, we closed the acquisition of SoftLayer in July which significantly improves our capabilities in public and hybrid cloud. For the first time we delivered more than a $1 billion of cloud revenue in a quarter of which $460 million is delivered as a cloud service. To the first three quarters our cloud revenue was up more than 70% year-to-year. From a geographic perspective our challenge this quarter was in growth markets, where revenue was down 9% or 5% at constant currency. Our performance in growth markets has historically outpaced major markets by 8 to 10 points. But this quarter for the first time the growth markets trailed the majors. I will get into…

Thank you, Mark. Before we begin the Q&A, I’d like to remind you of a couple of items. First, we have supplemental charts at the end of the deck that complement our prepared remarks. And second, I’d ask you to refrain from multipart questions. When we conclude the Q&A, I'll turn the call back to Mark for final comments. Operator, please open it up for questions.

Thank you. At this time, we’d like to begin the question-and-answer session of the conference. (Operator Instructions) The first question comes from Steve with UBS. You may ask your question. Steven M. Milunovich – UBS Securities LLC: …pipeline and maybe mid-single digit revenue growth and return to growth and services…

Sorry, Steve. Steve, can you start with the beginning. We missed the beginning of your question. Steven M. Milunovich – UBS Securities LLC: Can you hear me?

Now we can, yes. Steven M. Milunovich – UBS Securities LLC: Okay. Sorry about that. Coming into the quarter, Mark, you talked about mid-single digit revenue growth in software and so much stronger services growth than you posted. So even aside from the hardware issues in China, it seems like things are a bit weaker. What you attribute that to, is it just demand as we’re hearing at a lot of enterprise companies. How much of this execution because in the third quarter last year you had some software execution problems, you’re talking about some growth market execution problems. I guess how much is under your control, how much isn’t?

Okay. Well, let me answer your question in stages just as you asked us. So let’s start with software. I agree we did not have the software quarter we’re looking for. If you look historically both for the IBM corporation and certainly for the software business third quarters tend to be difficult for us. Fourth quarters tend to be strong. So I would expect based on all of the work we’ve done to look at their pipeline going into the fourth that we would maintain that relative characteristic and see our key branded middleware with growth rates in kind of mid-single digits and double-digit profitability in the fourth quarter. If you look at the characteristics, once we get to the end of the year obviously quarters close out December 31. So there’s an off lot energy in the sales organization as we close the year, but we have typically had the same pattern as you have seen if you go back to the last number of years with a difficult third followed by a stronger fourth quarter and I think that has a lot to do with our overall software performance. Now when you go to the services organization, however, I would say that first of all with backlog up 6%, that’s pretty good performance. And if you look at the GTS business, I mean GTS did improve revenue albeit on a more marginal base, but the GTS are long extended contract that is kind of the battleship, the turn here. On the other hand, GBS at 5%, I think that’s pretty good. And if we look back on the GBS profile over the last four quarters, they have taken that business from minus two to a plus five and as we look at their strength as they have built that backlog, we see close at a plus seven as we go into the fourth quarter and in both cases returning services, as we have said, to grow in the third quarter and both third and fourth generating double-digit profitability. So I do think we saw the kind of cadenced improvement on our services business. I think on the software side, we wrestled with this kind of typically weaker third followed by a, what we are looking to be a stronger fourth.

Thanks, Steve. Can we go to the next question, please.

The next question comes from Toni Sacconaghi with Sanford Bernstein. You may ask your question. Toni M. Sacconaghi – Sanford C. Bernstein & Co. LLC: Yes, thank you. I wanted to follow-up on the first question bit more broadly. I understand some of the specific issues this quarter around China, but if we kind of step back and think about what’s been happening with IBM. Over a longer period recently you’ve had six straight quarters were revenue growth has been negative. You’ve missed consensus revenue expectations for seven straight quarters. If it weren’t for a huge tax benefit this quarter, it would have been a very significant EPS miss, which has occurred to IBM in the last couple of quarters and hadn’t occurred in seven or eight years. So if we step back beyond the current quarter, we see a pattern of financial performance that is way out of whack with your historical model, lower revenue growth and operating profit growth that is dramatically lower but it’s been buttress by tax rate and not including workforce rebalancing charge. So my simple question is what’s changed in the last six or seven quarters? Has there been a – I mean, less of a focus on execution that had to deal with the change in leadership at the top? Are you seeing new secular forces? I think it’s very easy to explain away a given quarter, but six, seven, eight quarters in a row begins to make a trend. And so perhaps you can try and address what you think is happening more broadly and whether we should be thinking about a financial model that is more like 0% revenue growth and something less than double digit earnings growth on a sustained basis.

Okay, Toni, it’s always a very good question. Let me answer your question by giving you a framework for how I would look at that in 2013, then moving into 2014 to give a framework for that dynamics and how we intend to deal with them. So, first of all to state the obvious, I mean we never said that the roadmap aggression would be the straight line and we are accessing our progress on a year-to-year basis. First is the 16, 25 at least for the year. I will say that to me and I think we have stated this repeatedly, the tax and shares are operational cadence for us. But I do not debate your point that we have had some very discrete difficulties as we’re down through the quarters which I want to address now. Now I would say broadly that plus or minus in software and services, a portion of our business has been marching down the field and kind of the structure that we’re looking for at, we talked a little bit earlier, GBS has made very good progress. We got backlog up, at 6% of constant currency we did get some lift in our GTS business both generating profitability. So I don’t think that the services business have shown a substantially different vector and in fact are improving as we go forward. Software, I agree with the point, difficult third quarter. I got to say, in that software organization just like for the broader IBM we tend to have more difficulty in third quarters and stronger fourth quarters. But to be specific to your question, what’s changed? We had two major headwinds that really hit us hard this year. So on a year-to-date basis, we had a $1 billion of year-to-date decline in profitability…

Thanks Toni, let’s go to the next question.

The next question comes from Bill Shope with Goldman Sachs. You may ask you question. Bill C. Shope – Goldman Sachs & Co.: Okay, great. Thanks. On the growth market challenges, I think you’ve been very clear on the macro drivers in the government issues within China. But by looking at the execution component you mentioned, as we think about the normalization process here, could you give us some more granularity on exactly what the execution issues are. And I think when we look at this longer-term given how sharp some of the downturn are, how sharp some of the shortfalls are in this segment for you. What gives you confidence that the problems in Asia-Pac and the growth market specifically aren’t secular in nature for IBM?

Yes, I think, let me give this framework for the explanation. First of all, if you look at the performance that we saw this quarter in growth markets, revenue at constant currency down 5% compared to the IT growth rate and growth markets are plus 5. We’ve had about 10 point gap there. So we did very kind of simple back of the envelope analysis on that to distinguish what was macro and what was execution and we said, well if we took that big STG erosion that we saw in China that we would conclude is highly related to the process of developing the Chinese economic policy. If we snap that out, the growth markets would have been flat. And so to us that sounds like about 5 of that 10 point gap to the industry are coming from a macro environment issue. The other five we think it’s pure execution. Now I would argue that you’re seeing our ability to put leadership teams on the ground to turn our performance in geographic. Now the hallmark in that was that for us is Japan. Japan has really turned around in a very big way under the leadership of Martin Jetter and his team got engaged by broadly and we’ve seen that perform quarter after quarter with that leadership capability. So in the growth market organization the leadership team that established that to begin with and drove that organization is now back in the cockpit led by Bruno Di Leo and his leadership team. They know how to get this done. They helped build this to begin with. So I think that’s an explanation on the macro environment impact that we saw that we would say accounted for about half that differential to the industry as well as the leadership differential and the action that IBM has taken to address those on the execution element.

Thanks, Bill. Can we go to the next question, please.

The next question comes from David Grossman with Stifel Nicolaus. You may ask your question. David M. Grossman – Stifel, Nicolaus & Co., Inc.: Thank you. I wondered if you can just turn to free cash flow for me Mark. Is the free cash flow year-to-date in your view a good proxy for the 2013 decline or do you think you go up or down in the fourth quarter? And then secondly, are you still comfortable given where we are and where the fundamentals of the business are with the free cash flow target outlined in the 2015 roadmap?

Yes, a very, very good point. Let me address that starting with where we see ourselves in 3Q and year-to-date basis. So year-to-date, we are down $2 billion in free cash flow, and if you look at the drivers behind that that would be broken down into the operational performance obviously of the business, our performance on sales cycle, working capital. Those two, I would say are execution base and then the complement being the impact that we’ve seen on cash tax. We do see that now as more and a little over $1 billion range. We originally thought more like $2 billion, we now think it’s more like a $1 billion. In the cash side of our workforce rebalancing, but that’s only the elements of that year-to-date performance, I think more importantly it’s how we see that full year 2013 free cash flow, which will be down on the year-to-year basis, how we see that moving through the roadmap to 2014 and 2015. So in 2014, based on that same kind of structured model that I described to you, we would see our free cash flow accepting the impact of cash taxes, growing at a rate of about 15% to 20%. Now cash taxes, we believe now in 2014 will be a headwind of about $2 billion, but even including cash taxes, we would see our free cash flow growing by a little over $1 billion. So the operational profile within that in that 15% to 20% range and on that basis, free cash flow growing faster than net income. Going to 2015, we would see that free cash flow – the inclusion of cash taxes, growing at about 15% to 20%, again free cash flow growing more rapidly than net income, and in 2015 that cash taxes should…

Thanks David, can we go to the next question please.

The next question comes from Ben Reitzes with Barclays. You may ask your question.

Yes, thanks, I appreciate it. Mark, I wanted to ask you about the $20 roadmap and the philosophy behind it, I think what our challenge tonight is going to be, when we go back to investors and we look at the base of 2013 and we exclude all the tax benefits, and you were talking about a number that might be around $16 and we are talking about trailing free cash flow around $14 and $0.60 so, eventually free cash flow and earnings tend to migrate to each other and then, let’s just forget free cash flow and started to 16 base. You got to grow 12% each year to get to 20%. And I’m just thinking with the acceleration that we got to convince people that you are getting there so, I’m wondering what is the confidence level in the $20 based on that based on that kind of a conversation that we need to have with investors to get you there and how do you get in there, and what your confidence level as of today. Thanks. Barclays Capital, Inc.: Yes, thanks, I appreciate it. Mark, I wanted to ask you about the $20 roadmap and the philosophy behind it, I think what our challenge tonight is going to be, when we go back to investors and we look at the base of 2013 and we exclude all the tax benefits, and you were talking about a number that might be around $16 and we are talking about trailing free cash flow around $14 and $0.60 so, eventually free cash flow and earnings tend to migrate to each other and then, let’s just forget free cash flow and started to 16 base. You got to grow 12% each year to get to 20%. And I’m just thinking with the acceleration that we got to convince people that you are getting there so, I’m wondering what is the confidence level in the $20 based on that based on that kind of a conversation that we need to have with investors to get you there and how do you get in there, and what your confidence level as of today. Thanks.

Yes, really the basis for that trajectory to 2015 involves; number one, in 2014 stabilizing our STG or hardware business on a profitability basis to be relatively flat on a year-to-year basis. We have absorbed this year that $1 billion decline on a year-to-year basis and I showed how I thought that really did correlate based on the work the team has done to the issues we had in China, but we believe it should be a very reasonable objective to stabilize on a year-to-year basis relatively flat profitability with STG. And what we are able to do that the vehicle for that being new product announcements across our STG businesses as well as returning growth market to mid single-digit growth on a constant currency basis once we get through this process surrounding China’s development of a broad based economical full plan. Those two capabilities are the primary elements to stop the erosion and profitability and that part of our business. And then had the operational profile for software and services fell through the bottom line. Additionally this impact that we wrestled with on currency again then on a year-to-date basis of $500 million headwind that kind of it’s theoretical limit, that should reverse and actually be a tailwind in the second quarter of next year. And then lastly, if you look at the compliment to help offset the year-to-year headwind from the discrete tax benefit we have in 2013 really the flow through of the workforce rebalancing yield that we’ve already completed should be more than enough to neutralize that. And allow us to take really the financial flexibility, the strength of balance sheet, to complement that operational performance and maintain that trajectory in 2014 on our way to at least 25 up to 2015.

Thanks, Ben. Let’s go to the next question please.

The next question comes from Keith Bachman with Bank of Montreal. You may ask your question. Keith F. Bachman – BMO Capital Markets: Hi, thank you. My question is also, how do you get there in terms of 2015. And Mark was hoping you could specifically address how you are thinking about revenue growth which has been not only from a currency perspective from an absolute dollar perspective. How are you thinking about next year? And if we focus on services for the second, how does the pipeline and the backlog you mentioned is up 6%. If you’re thinking about services for FY 2014, if you can provide any dimensions about how you are thinking about the growth profile there? Is it 1%, 2% or is it small single digits? And the second part of that question is can hardware really be a flat revenue numbers you think about CY 2014 because it seems like there still be extraordinary pressure on the market overall. And even with normal products just curious if you think that can be a flat number with all the currency assumptions that you’ve already outlined.

Yes. First of all on the hardware base, my point was to drive the STG hardware business to flat profitability. I agree with you – I don’t’ think that is going to be necessarily flat revenue but flat profitability base… Keith F. Bachman – BMO Capital Markets: Okay.

All the works that we’ve done. Now I will say in the next Q, 2014 for hardware business that would probably be driving in the first half down a couple of hundred million and the second half up a couple of hundred million, but relatively flat profitability, not revenue on the STG side of the business. Keith F. Bachman – BMO Capital Markets: Okay.

As pointed out that’s a relatively low bar given the level of profitability that the hardware business will generate in 2013. On the services side, I do think it’s worth clearly recognizing the real contribution that the GBS team has driven by constantly improving that backlog performance and then yielding that backlog performance right in the revenue line and let’s go back on that four quarter march that they have been on. They have been kind of methodically driving a couple of points improving over quarter, that’s why we feel it’s a very confident basis for us to look at 7% revenue growth for GBS in the fourth quarter. And if we have 7% revenue growth for that platform with ongoing improvement in backlog given the momentum they’ve been able to drive with the faster take up of backlog to revenue for GBS that should really assist us as we go into 2014. But I think within that, the lynchpin assumption that we need to drive for 2014 and 2014 being the platform for moving into 2015 is stabilize that STG business at the low level profitability we see this year, return GMU back to mid single digit growth as we get through the process surrounding China’s development as a broad based economic reform plan, allowing the improving momentum we see on the services business as well as a return to their more consistent profile in software business help drive that operational performance.

Thanks Keith. Can we take the next question please?

The next question comes from Amit Daryanani with RBC Capital Market. You may ask your question. Amit Daryanani – RBC Capital Markets LLC: Yeah, yep, thanks a lot. When I think about the implied December quarter expectations you have and given the commentary you made about the growth market headwind. Do you meet the execution issues to get resolved and see normal seasonality to achieve the implied December quarter expectations or could you get one of those two events do not happen. And then specifically just in the software side, I think it was up 1%, I would have thought it would be up more like 4%, 5%. Was there any China centric headwind on the software side as well for you this quarter?

Well, the way I would frame the software performance is not around China. The China issue was predominantly an impact to our hardware business. The software issue I think is this ongoing challenge that we typically have in third quarters going into a stronger fourth quarter. So that’s the way I would look at this. Now if you look at the magnitude of improvement that we’re looking at for our growth markets content, going to the fourth quarter and then into next years that profile going into 2014 remember about half of it we said we thought was macro driven that should resolve itself we believe as China establishes this broad based economical reform plan in March of 2014. And the second half of that really driven by the leadership and we do need to see that trajectory improve as of going to the fourth quarter to get back to mid single digit performance in 2014 consistent with the industry.

Thanks Amit. Can we take the next question please?

The next question comes from Rob Cihra with Evercore. You may ask your question. Robert Cihra – Evercore Partners Inc: Hi, thanks very much. If I could ask kind of a more strategic question particularly in services, if you look at your, you’re just closing the SoftLayer acquisition this quarter, and beyond adding whatever point of revenue or whatever the GTS. What does that mean for you to go-to-market strategy, does it change the look of GTS and particularly given that it’s coming at the same time. You also announced the planned divestiture anyway of the customer care BPO business for relatively low multiple. I mean when you combine those two things, are you sort of driving a more aggressive change to the look of GTS or is it just the fact that once high growth high multiple, once low growth, low multiple? Thanks.

Well, let’s separate those two. I mean the divestiture that was complementary to IBM and to the partner that we’re working with for us it was an area that we thought we could get better capability of the partner, and the partner’s capability and then we would apply our energies to broader intellectual property capability. If you look at the cloud content and the software content that we see are within cloud. We cross kind of a milestone for us this quarter worth of $1 billion of cloud revenue, the content within that about 610 million of it was the hardware and software and implementation services for us to establish cloud based operations within our customer set and then $460 million of that was cloud delivered services and solutions including software. Now if you look underneath the dynamics in that, in that cloud delivered services and solutions content most of those customer engagement, for us, turned out to be incremental. And you remember when we started the roadmap content to drive cloud to be about $7 billion by 2015 we said that we thought only about $3 billion of that would be incremental due to the cannibalization of base. And so we’re always using that as kind of a checkpoint. Actually we didn’t see that in our own profile. Most of that content was indeed new and incremental. So it does provide a very strong platform for us within GTS and a platform for moving to the market for other business units. I will tell you that since we’ve made that acquisition, I have heard nothing but very positive statements from our business units on the capability and the added dimension that it applies to IBM and to GTS.

Thanks Rob. Can we go to the next question please?

The next question comes from Katy Huberty with Morgan Stanley. You may ask your question. Katy Huberty – Morgan Stanley & Co. LLC: Thanks Mark for your comments about growth and execution improving in the fourth quarter, consider the risk of delayed U.S. Federal spending and any impact that may have on the enterprise sales cycles in the U.S.?

Sure. Let me talk about that explicitly. So if you look at our U.S. federal business, Katy, our U.S. Federal business is a little less than 3% of our total revenue mix. So as you look at the risk within that 3%, it turns out that really the bulk of our Federal business is either or not exposed or even if isn’t a category that is exposed has been deemed essential. So as we look at it, it’s kind of a time dimension. So if we close on that issue in October, there really shouldn’t be much of an impact for IBM. If it extends through to November then it will be an issue, but something we ought to be able to deal with and manage through. If this extends in to December then it’s going to get to be a meaningful number, say around a nickel that we will probably not be able to contain. But it is kind of a time based exposure that we are tracking quite carefully. The advantage that we do have to keep that total down is how much of our business is in fact being the central.

Thanks Katy. Operator, can we take one more question please?

The last question comes from Jim Suva with Citigroup. You may ask your question. Jim Suva – Citigroup: Thank you very much Mark and Patricia for your details. I have a quick clarification, you’d mentioned tax rate of 23%, is that what you mean going forward for every quarter or it’s kind of for the full year which means that Q4 they have to go up to something like 30%. Now the bigger question is following up on the last question about the Federal Government. Does that also impact your signings and booking in new businesses coming in, also as I would imagine there is kind of big pause there of new business being handed out?

Yes, let’s take the bookings issue first. If you look at the business unit that would be most impacted by that exposure, it would be our GBS business. But I have nothing but very positive observations of their performances both on driving performance on a global basis generating profitability from that growth and increasing their backlog. So though that would be the area most exposed you sure wouldn’t see it in the results. As far as the tax rate, what I’m referencing is the average tax rate that we would assume before discrete items and that tax rate would be the tax rate for the year and for the quarter. Going forward for 2013 as well as 2014, but again that’s tax rate before discrete items. So let me now just take the opportunity to wrap up or thank you for the questions and the time on the call. Obviously this was a tough quarter for us, especially in the STG and the growth market, but we’re on track to deliver at least $16.25 for the year on an all-in basis and we believe with the actions we are taking, we’ll have stronger operational performance as we go into 2014. In STG we’re going to wrestle with the mainframe wrap in the first half of next year, but should return to profit growth in the second half and stabilized hardware profit on a year-to-year basis for year. That’s the game plan. And in growth markets, we’ll improve the trajectory to get back to mid-single digit performance for the 2014 full year, especially after we get to the broad based economic reform plan that’s developing in China, consistent I think on that trajectory basis for growth markets, consistent with the overall industry. We’ll continue to use the overall flexibility of our financial model, including productivity and share repurchase and I think we are going to see that ongoing operational performance in our software and services business show through then to drive the bottom line. So this keeps us on track to our 2015 objective of at least $20 of operating EPS. I want to thank you again for joining us and now as always it’s back to work.

Operator, can I turn the call back to you to close it out.