UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
ANNUAL REPORT
pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 20032006

1-2360
(Commission file number)

INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)

914-499-1900
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer ý    Accelerated filer o    Non-Accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ýo    No oý

        The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was $142.7$116.9 billion.

Documents incorporated by reference:

        Portions of IBM's Annual Report to Stockholders for the year ended December 31, 20032006 into Parts I, II and IV of Form 10-K.

        Portions of IBM's definitive Proxy Statement to be filed on or about March 8, 2004with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 24, 2007 are incorporated by reference into Part III of Form 10-K.

PART I

Item 1. Business:

        International Business Machines Corporation (IBM)(IBM or the company) was incorporated in the State of New York on June 16, 1911, as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation of the Computing Scale Co. of America, the Tabulating Machine Co., and The International Time Recording Co. of New York. Since that time, IBM has focused on the intersection of business insight and technological invention, and its operations and aims have been international in nature. This was signaled over 80 years ago, in 1924, when C-T-R changed its name to International Business Machines Corporation. And it continues today: IBM is a globally integrated innovation company, serving the largest information technology company inneeds of enterprises and institutions worldwide. To help clients achieve growth, effectiveness, efficiency and the world,realization of greater value through innovation, IBM draws upon the world's largest businessleading systems, software and technology services company, the world's largest consulting services organization, the world's largest information technology research organization, and the world's largest financier of information technology.capabilities.

* * *

        OverDescription of Business

        IBM is a globally integrated innovation company, serving the past decade,needs of enterprises and institutions worldwide. The company seeks to be a partner in its clients' success by enabling their own capacity to innovate, so that they may differentiate themselves for competitive advantage in a globalized economy. IBM has beenviews enterprise innovation not only in terms of products and services, but across all dimensions of a leaderbusiness: its business processes, business model, management systems, culture and role in society. To help clients achieve growth, effectiveness, efficiency and the IT market's shiftrealization of focus from selling hardware,greater value through innovation, IBM draws upon the world's leading systems, software and services capabilities.

IBM's Strategy

        The company has divested low growth commoditizing product lines and acquired higher value opportunities to leverage IBM's infrastructure.

        In IBM's view, the future of business is being shaped by the forces of global integration and innovation. They are foundational and intimately related to one another. A globally integrated enterprise is a new institutional form that shapes its strategy, management and operations globally, based on economics, expertise and open business environments. It is optimized for innovation in a worldwide economy and society that are increasingly integrated and specialized. IBM's strategic moves over the past several years—from divestitures and acquisitions, to areas of focus for innovation, to the creationtransformation of solutionsits core lines of business—have been shaped by this vision.

        IBM's strategic priorities to clients' business problems. During the early years of the Internet's entry into mainstream commerce, communications and business operations in the mid-to late-1990s, value was created first through providing widespread access and then through the integration of business processes, such as supply chain, customer relationships and human resources. Today, IBM is once again leading the industry toward the more fundamental, industry-specific transformations of on demand business.

In its relationships with its clients, IBM has found that a majority of enterprises are concerned with four main issues:pursue this vision include:

•

DemandOffering enterprises in the global economy innovative, high-value solutions based on IBM's ability to integrate technology and business model innovation to deliver measurable results for faster innovationIBM and its clients;



•

Reducing expensesLeading in the delivery of business value by providing business and information technology consulting and implementation services; building, running and maintaining cross-industry and industry-specific business process services; leveraging leadership technology and engineering services; and accelerating increased business value through Service Oriented Architectures (SOA) and Information on Demand;



•

Integration acrossLeading in the organization's "value chain" (representing every transaction or interaction within andelivery of advanced infrastructure through enterprise with other enterprises,SOA and with individuals)



•

Demand for predictable return on investment

        By redesigning their business processesinfrastructure software and organizational structure, supported byservices; increased share leadership in servers; driving to leadership in storage; and enabled by new systems operating environments, these clients are seekingleading the transition to become "On Demand" businesses.

        IBM defines an on demand business as an enterprise whose business processes are:

•

Responsive to any client demand, market opportunity, or external threat;



•

Integrated end-to-end across the company;standardized services offerings; and



•

Making IBM the premier Globally Integrated across industry value nets,Enterprise—lowering costs and increasing effectiveness by integrating the interconnected chainscompany's decision-making at the point of partners, suppliers and clients.

        An essential aspectclient contact ("lowering IBM's center of an On Demand Operating Environment is that its infrastructuregravity"); moving work to where it can best be based on industry-wide standards (commonly referredperformed; focusing IBM's resources to as "open standards"). In IBM's view, an investment in such an infrastructure providescreate the greatest returns, rather than relying on proprietary control by a single company or affiliation of companies. One positive developmentvalue; and excelling in this regard is the emergence of "open source"business collaboration.

IBM's Capabilities

        To execute its strategy, IBM's business comprises three principal business segments:

•

Systems and Financing



•

Software



•

Services

SYSTEMS AND FINANCING

Systems

Servers.    IBM systems using IBM operating systems (System z and programming languages that benefit from further development by the business and information technology (IT) communities, as in the case of the Linux operating system or the Java programming language.

        However, to realize the full benefits of an on demand environment, solutions with the highest returns also require the transformation and integration of business processes within and among institutions.

        IBM's clients include many different kinds of enterprises, from sole proprietorships to the world's largest organizations, governments and companies, representing every major industry and endeavor.

1

        To the extent demand for hardware products sharply and unexpectedly declines, the company may be left with excess or obsolete inventory (which could result in write-downs to cost of goods sold and therefore, in lower gross margins). Management attempts to mitigate this risk by careful forecasting and through the supply chain initiatives discussed above. Part of the supply chain initiatives is the reduction of inventory levels on hand. Conversely, a sudden and unexpected rise in demand may result in supply constraints (which could reduce revenue and gross margins to the extent there are stranded fixed costs). Again, the company minimizes this risk through its supply chain initiatives that convert traditionally fixed cost and inflexible aspects of the supply chain into a variable and flexible source of supply: one of the pillars of an on demand business.open standards.

        Internal Business Transformation and EfficiencyGlobal Integration Initiatives:    Key to the success of IBM's strategy are its ongoing effortsIBM continues to drive greater productivity, flexibility and cost savings asby transforming and globally integrating its own business processes and functions. In addition to eliminating redundancies and overhead structures to drive productivity, this integration has improved IBM's capacity to innovate by providing greater clarity of key priorities around shared goals and objectives and leads to a sharper focus for the company on learning, development and knowledge sharing. As IBM continues to transform itselfdrive higher levels of automation and integration into anits business, IBM's dependency on demand enterprise. Integral to these efforts will be the internal supply chain initiatives discussed above as well the company's efforts to manage the cost of its resources worldwide. These efforts will continue to include the rebalancing of skills, developing the most cost-effective workforce structure, and continuing to make company's compensation programs competitive and aligned with organizational units. The degree of continued success in this area will impact the amount of company expense and cost structure improvements, as well as the amount of competitive leverage it can apply by passing such savings along to clients.IT systems also increases.

        Technology Innovations:Innovation Initiatives:    IBM invests forto improve its ability to help its clients innovate. Investment may occur in the research and development of new and innovative products and services.services, as well as in the establishment of new collaborative and co-creation relationships with developers, other companies and other institutions. To deliver value that helps clients differentiate themselves for competitive advantage, IBM has been moving away from commoditized categories of the IT industry and into areas wherein which it can differentiate

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itself through innovation and by leveraging its investments in R&D. Examples include IBM's leadership position in the design and fabrication of Application Specific Integrated Circuits (ASICs); the design of smaller, faster and energy-efficient semiconductor devices (using industry-leading innovations such as copper technology, silicon on insulator, silicon germanium, low-K dielectric, and nanotechnology); the design of "autonomic" or self-managing computing systems and "grid" computing networks that allow computers to share processing power; and the company's efforts to advance open technology standards such as Linux. In the highly competitive IT industry, with large diversified competitors as well as smaller and nimble single-technologysingle technology competitors, IBM's ability to continue its cutting-edge innovation is absolutely critical to maintaining and increasing market share. IBM is managing this risk by more closely linking its R&D organization to industry-specific and client-specific needs, as discussed on page 7 of this Form 10-K.needs.

        Open Standards:    The broad adoption of open standards is essential to the computing model for e-business on demand.demand business and is a significant driver of collaborative innovation across all industries. Without the open standards that enableinteroperability among all manner of computing platforms, to communicate and work with one another, the integration of any client's internal systems, applications and processes remains a monumental and expensive task. The broad-based acceptance of open standards—rather than closed, proprietary architectures—also allows the computing infrastructure to more easily absorb (and thus benefit from) new technical innovations. IBM is committed to fostering open standards because they benefit clients, because they are vital to the on demand computing model,On Demand Operating Environment, and because their acceptance will expand growth opportunities across the entire business services and IT industry. IBM's supportThere are a number of competitors in the IT industry with significant resources and investments who are committed to closed and proprietary platforms as a way to lock customers into a particular architecture. This competition will result in increased pricing pressure and/or IP claims and proceedings.

        Investing in Growth Opportunities:    The company is evidenced bycontinuing to refocus its business on the enablinghigher value segments of its productsenterprise computing—providing technology and transformation services to support open standardsclients' businesses. Consistent with that focus, the company continues to significantly invest in growth opportunities, as a way to drive revenue growth and market share gains. IBM continues to invest in emerging growth countries such as Linux, as well as its recent acquisitionChina, Russia, India and Brazil. The developing nature of Rational. Rational's software development tools can be usedthese countries presents political, social and economic risks to developIBM's business, including the potential for inadequate infrastructure and upgrade any other company's software products. Accordingly, this acquisition is a critical part of IBM's open standards strategy.labor disruptions.

        Protection of Intellectual Property:    While the company's various proprietary intellectual property rights are important to its success, IBM believes its business as a whole is not materially dependent on

any particular patent or license, or any particular group of patents or licenses. IBM owns or is licensed under a number of patents, which vary in duration, relating to its products. Licenses under patents owned by IBM have been and are being granted to others under reasonable terms and conditions. These protections may not prevent competitors from independently developing products and services similar to or duplicative to the company's nor can there be any assurance that these protections will adequately deter misappropriation or improper use of the company's technology. Also, there can be no assurances that IBM will be able to obtain from third parties the licenses it needs in the future.

        Relationships with Critical Suppliers:    IBM's business employs a wide variety of components, supplies, services and raw materials from a substantial number of suppliers around the world. Certain of the company's businesses rely on single or limited number of suppliers, although the company makes every effort to assure that alternative sources are available if the need arises. The failure of the company's suppliers to deliver components, supplies, services and raw materials in sufficient quantities and in a timely manner could adversely affect the company's business.

        Seasonality of Revenues:Revenues and Purchases:    IBM's revenues are affected by such factors as the introduction of new products and services, the length of the sales cycles and the seasonality of technology purchases. As a result, the company's results are difficult to predict. These factors historically have resulted in lower revenue in the first quarter than in the immediately preceding fourth quarter. In addition, the high volume of products ordered at the end of each quarter, especially at the end of the fourth quarter, may affect IBM's ability to successfully ship all orders before the end of the quarter.

        Local Legal, Economic and EconomicHealth Conditions:    The company operates in more than 160 countries worldwide and derivesderived more than half of its revenues from sales outside the United States. Changes in the laws or policies of the countries in which the company operates could affect the company's business in that country and the company's results of operations. The company's results of operations also could be affected by economic and political changes in those countries and by macroeconomic changes, including recessions and inflation. In addition, any widespread outbreak of an illness or other health issue, such as severe acute respiratory syndrome (SARS), avian influenza (bird flu) or any other pandemic, or local or global health issues, could adversely affect the company's operations, its ability to source and deliver products and services to its customers and customer demand.

10        Insurance:    The company maintains third party insurance coverage against various liability risks and risks of property loss. While we believe these arrangements are an effective way to insure against liability and property damage risks, the potential liabilities associated with those risks or other events could exceed the coverage provided by such arrangements.

        Environmental Matters:    The company is subject to various federal, state, local and foreign laws and regulations concerning the discharge of materials into the environment or otherwise related to environmental protection, including the U.S. Superfund law. The company could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury, if it were to violate or become liable under environmental laws and regulations. Compliance with environmental laws and regulations is not expected to have a material adverse effect on the company's capital expenditures, results of operations and competitive position.

        Tax Matters:    The company is subject to income taxes in both the United States and numerous foreign jurisdictions. IBM's provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact the company's results of operations and financial condition in future periods. In addition, IBM is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities. The company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on the company's provision for income taxes and cash tax liability.

        Internal Controls:    Effective internal controls are necessary for the company to provide reasonable assurance with respect to its financial reports and to effectively prevent fraud. If the company cannot provide reasonable assurance with respect to its financial reports and effectively prevent fraud, the company's operating results could be affected. Pursuant to the Sarbanes-Oxley Act of 2002, the company is required to furnish a report by management on internal control over financial reporting, including management's assessment of the effectiveness of such control. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If the company fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if the company experiences difficulties in their implementation, the company's business and operating results could be harmed, the company could fail to meet its financial reporting obligations, and there could be a material adverse effect on the company's stock price.

        Use of Estimates:    In connection with the application of GAAP and the preparation of the Consolidated Financial Statements, the company uses certain estimates and assumptions, which are based on historical experience and management's knowledge of current events and actions that the company may undertake in the future. The company's most critical accounting estimates are described in the Management Discussion on pages 45 to 47 of IBM's 2006 Annual Report to Stockholders. In addition, as discussed in note O, "Contingencies and Commitments" on pages 89 to 92 of IBM's 2006 Annual Report to Stockholders, the company makes certain estimates under the provisions of SFAS No. 5 "Accounting for Contingencies", including decisions related to legal proceedings and reserves. While management believes that these estimates and assumptions are reasonable under the circumstances, by definition they involve the use of judgment and the exercise of discretion, and therefore, actual results may differ.

        Competitive Conditions:    The company operates in businesses that are subject to intense competitive pressures. The company's businesses face a significant number of competitors, ranging from Fortune 50 companies to an increasing number of relatively small, rapidly growing and highly specialized organizations. The company believes that its combination of technology, performance, quality, reliability, price and the breadth of products and service offerings are important competitive factors.

Intense competitive pressures could affect prices or demand for the company's products and services, resulting in reduced profit margins and/or loss of market opportunity. Unlike many of its competitors, the company has a portfoliobroad set of capabilities and businesses and must allocate resources across these businesses while competing with companies that specialize in one or more of these product lines. As a result, the company may not fund or invest in certain of its businesses to the same degree that its competitors do, and these competitors may have greater financial, technical and marketing resources available to them than the businesses against which they compete.

        Volatility of Stock Prices:Price:    The company's stock price is affected by a number of factors, including quarterly variations in financial results, the competitive landscape, general economic and market conditions and estimates and projections by the investment community. As a result, like other technology companies, the company's stock price is subject to significant volatility.

        Dependence on and Compensation of Key Personnel:    Much of the future success of the company depends on the continued service, availability and availabilityintegrity of skilled personnel, including technical, marketing and staff positions.resources. Experienced personnel in the information technology industry are in high demand and competition for their talents is intense. There can be no assurance that the companyIBM will be

able to successfully retain and attract the key personnel it needs. ManyIn addition, companies in the information technology and services industry whose employees accept positions with IBM may claim that IBM has interfered with noncompete obligations of their former employees, engaged in unfair hiring practices or that the company'semployment of these persons by IBM would involve the disclosure or use of trade secrets. Any such claims could limit or prevent IBM from hiring employees or cause it to incur liability for damages or substantial costs in defending the company or its employees against these claims, whether or not they have merit. Further, many of IBM's key personnel receive a total compensation package that includes stock options and other equity awards. New regulations, volatility in the stock market and other factors could diminish the company's use, and the value, of the company's equity awards, putting the company at a competitive disadvantage or forcing the company to use more cash compensation.

        Relationships with Critical Suppliers:    IBM's business employs a wide variety of components, supplies, services and raw materials from a substantial number of suppliers around the world. Certain of the company's businesses rely on single or a limited number of suppliers, although the company makes every effort to assure that alternative sources are available if the need arises. The failure of the company's suppliers to deliver components, supplies, services and raw materials in sufficient quantities and in a timely manner could adversely affect the company's business.

        Currency and Customer Financing Risks:    The company derives a significant percentage of its non-U.S. revenues from its affiliates operating in local currency environments and itsthose results are affected by changes in the relative values of non-U.S. currencies and the U.S. dollar. Further, inherent in the company's customer financing business are risks related to the concentration of credit risk, and the creditworthiness of the client, interest rate and currency fluctuations on the associated debt, and liabilities and the determination of residual values.values, and the financing of other than traditional IT assets. The company employs a number of strategies to manage these risks, including the use of derivative financial instruments. Derivatives involve the risk of non-performance by the counterparty. In addition, there can be no assurance that the company's efforts to manage these risks will be successful.

        Customer Credit Risk on Trade Receivables:    The company's diversified client base includes a large number of worldwide enterprises, from small and medium businesses to the world's largest organizations, companies and governments. Most of the company's sales are on an open credit basis and the company performs ongoing credit evaluations of its clients' financial conditions. The company maintains reserves that it believes are adequate to cover exposure for any uncollectible trade receivables and regularly reviews such reserves by considering factors such as write-off history, aging analysis and any specific, known troubled accounts. Customer credit risk is mitigated due to the large number of clients constituting the company's worldwide client base and their dispersion across many different industries and geographies. If the company becomes aware of additional information related to the credit worthiness of a major customer, or, if future actual default rates on trade receivables in general differ from those currently anticipated, the company may have to adjust its reserves, which could affect the company's consolidated net income in the period the adjustments are made.

        Distribution Channels:    The company offers its products directly and through a variety of third party distributors and resellers. Changes in the financial or business condition of these distributors and resellers could subject the company to losses and affect its ability to bring its products to market.

        Acquisitions and Alliances:    The company has made and expects to continue to make acquisitions or enter into alliances from time to time. Acquisitions and alliances present significant challenges and risks relating to the integration of the business into the company, and there can be no assurances that the company will manage acquisitions and alliances successfully. The related risks include the company failing to achieve strategic objectives and anticipated revenue improvements and cost savings, as well as the failure to retain key personnel of the acquired business and the assumption of liabilities related to litigation or other legal proceedings involving the acquired business.

        Backlog:Risk Factors Related to IBM Securities:    The company issues debt securities in the worldwide capital markets from time to time, with a variety of different maturities and in different currencies. The value of unfilled ordersour debt securities fluctuates based on many factors, including changes in interest rates, the methods employed for calculating principal and interest, the maturity of the securities, the aggregate principal amount of securities outstanding, the redemption features for the securities, the level, direction and volatility of interest rates, changes in exchange rates, exchange controls, governmental and stock exchange regulations and other factors over which the company has little or no control. The company's ability to pay interest and repay the principal for its debt securities is not a meaningful indicatordependent upon its ability to manage its business operations, as well as the other risks described under Item 1A. entitled "Risk Factors". There can be no assurance that the company will be able to manage any of future revenuesthese risks successfully.

        The company also issues its common stock from time to time in connection with various compensation plans, contributions to its pension plan and certain acquisitions. The market price of IBM common stock is subject to significant volatility, due to factors described under Item 1A. entitled "Risk Factors", including the section entitled "Volatility of Stock Price", as well as economic and geopolitical conditions generally, trading volumes, speculation by the press or investment community about our financial condition, and other factors, many of which are beyond the company's product offerings duecontrol. Since the market price of IBM's common stock fluctuates significantly, stockholders may not be able to sell our stock at attractive prices.

        In addition, changes by any rating agency to the significant proportioncompany's outlook or credit ratings can negatively impact the value and liquidity of revenue from services, the volume of products delivered from shelf inventories,both our debt and the shortening of product delivery schedules. Withequity securities. The company does not make a market in either its debt or equity securities and cannot provide any assurances with respect to the company's Global Services segment, in 2003 the company signed contracts totaling $55 billion, which contributed to a services backlog at December 31, 2003liquidity or value of $120 billion, compared with $112 billion at the end of 2002.such securities.

Item 1B. Unresolved Staff Comments:

11        Not applicable.

        The following information is included in IBM's 2003 Annual Report to Stockholders and is incorporated herein by reference:

Segment information and revenue by classes of similar products or services—pages 117 to 121.

Financial information by geographic areas—page 121.

Amount spent during each of the last three years on R&D activities—page 104.

Financial information regarding environmental activities—pages 99 and 100.

The number of persons employed by the registrant—page 69.

The management discussion overview—pages 43 to 44.

Available information—inside back cover.

Item 2. Properties:

        At December 31, 2003,2006, IBM's manufacturing and development facilities in the United States had aggregate floor space of 3320 million square feet, of which 2416 million was owned and 94 million was leased. Of these amounts, 42 million square feet was vacant and 21 million square feet was being leased to non-IBM businesses. Similar facilities in 158 other countries totaled 106 million square feet, of which 63 million was owned and 43 million was leased. Of these amounts, 1 million square feet was being leased to non-IBM businesses.

        Although improved production techniques, productivity gains and infrastructure reduction actions have resulted in reduced manufacturing floor space, continuous maintenance and upgrading of facilities is essential to maintain technological leadership, improve productivity and meet customer demand.

Executive Officers of the Registrant (at March 8, 2004):

(1)

Member of the Board of Directors.

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        All executive officers are elected by the Board of Directors and serve until the next election of officers in conjunction with the annual meeting of the stockholders as provided in the By-laws. Each executive officer named above, with the exception of J. Randall MacDonald and Jesse J. Greene, Jr. have been an executive of IBM or its subsidiaries during the past five years.

        Mr. MacDonald was with GTE (now Verizon Communications), a telecommunications company, as executive vice president of human resources and administration until joining IBM in 2000. He was with GTE for 17 years holding positions of increasing responsibility. Before joining GTE, Mr. MacDonald held human resources positions at Ingersoll-Rand Corporation and Sterling Drug, Inc.

        Mr. Greene was with Compaq Computer Corporation (now a part of Hewlett-Packard Company), a computer company, as Senior Vice President and Chief Financial Officer until joining IBM in 2002. He was with Compaq for two years. Before joining Compaq, Mr. Greene served as Corporate Senior Vice President and Director of Business Strategy and Information Technology at Eastman Kodak Company. During six years at Kodak, Mr. Greene held a number of financial positions including Vice President of Finance and Treasurer. Before joining Kodak, Mr. Greene spent 23 years at IBM in a variety of financial positions including Assistant Treasurer.

Item 3. Legal Proceedings:

        Refer to note O, "Contingencies and Commitments" on pages 10189 to 10392 of IBM's 20032006 Annual Report to Stockholders which is incorporated herein by reference.

Item 4. Submission of Matters to a Vote of Security Holders:

        Not applicable.

PART II

Item 5. Market for the Registrant's Common Equity, and Related Stockholder Matters:
Matters and Issuer Purchases of Equity Securities:

        Refer to page 123pages 117 and the inside back cover121 of IBM's 20032006 Annual Report to Stockholders which are incorporated herein by reference solely as they relate to this item.

        IBM common stock is listed on the New York Stock Exchange Chicago Stock Exchange and PacificChicago Stock Exchange. There were 673,607609,928 common stockholders of record at February 10, 2004.9, 2007.

        Refer to Item 12, under the caption "Equity Compensation Plan Information" on pages 17 and 18, for additional information on the company's equity compensation plans.

        The following table provides information relating to the company's repurchase of common stock for the fourth quarter of 2006.

(1)

On April 25, 2006, the IBM Board of Directors authorized up to $4.0 billion in funds for use in the company's common stock repurchase program. On October 31, 2006, the Board of Directors authorized an additional $4.0 billion in funds for use in such programs. IBM has announced that under its repurchase program, it will repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase program does not have an expiration date. This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.

Item 6. Selected Financial Data:

        Refer to pages 122116 and 123117 of IBM's 20032006 Annual Report to Stockholders which are incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations:

        Refer to pages 4312 through 7353 of IBM's 20032006 Annual Report to Stockholders which are incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks:

        Refer to the section titled "Market Risk" on page 68pages 47 and 48 of IBM's 20032006 Annual Report to Stockholders which is incorporated herein by reference.

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Item 8. Financial Statements and Supplementary Data:

        Refer to pages 42 and 7454 through 121115 of IBM's 20032006 Annual Report to Stockholders which are incorporated herein by reference. Also refer to the Financial Statement Schedule on page S-1 of this Form.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:

        Not applicable.

Item 9A. Controls and Procedures:

        The company's management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report.

        Refer to "Report of Management" and "Report of Independent Registered Public Accounting Firm" on pages 54 and 55 of IBM's 2006 Annual Report to Stockholders, which are incorporated herein by reference. There has been no change in the company's internal control over financial reporting that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to material affect, the company's internal control over financial reporting.

Item 9B. Other Information:

        Not Applicable.

PART III

Item 10. Directors, and Executive Officers of the Registrant:and Corporate Governance:

        Refer to pages 5 through 7the information under the captions "Election of Directors for a Term of One Year," "General Information—Committees of the Board," "Audit Committee" and "Section 16(a) Beneficial Ownership Reporting Compliance" in IBM's definitive Proxy Statement to be filed on or about March 8, 2004,with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 24, 2007, all of which areinformation is incorporated herein by reference. Also refer to Item 2 entitled1 of this Form 10-K under the caption "Executive Officers of the Registrant" in Part I of this Form. Also refer to the sections titled "Committees of the Board" and "Audit Committee" on pages 8 and 9 of IBM's definitive Proxy Statement filed on or about March 8, 2004, and the section titled "Section 16(a) Beneficial Ownership Reporting Compliance"Registrant (at February 27, 2007)" on page 10 of such Proxy Statement, which sections are incorporated herein by reference. IBM's website (www.ibm.com/investor/corporategovernance) contains IBM's Business Conduct Guidelines (BCGs), which is9 for additional information on the company's code of business conduct and ethics for its directors, executive officers and employees. Any amendment to the BCGs that applies to the company's directors or executive officers will be disclosed on IBM's website, and any waiver of the BCGs for directors or executive officers may be made only by the IBM Board of Directors or a Board committee and will be disclosed on IBM's website. The BCGs are available in print to any stockholder who requests them.officers.

Item 11. Executive Compensation:

        Refer to pages 12 through 20the information under the captions "General Information—2006 Director Compensation Narrative," "2006 Director Compensation Table," "2006 Compensation Discussion and Analysis," "2006 Summary Compensation Table Narrative," "2006 Summary Compensation Table," "2006 Grants of Plan-Based Awards Table," "2006 Outstanding Equity Awards at Fiscal Year-End Narrative," "2006 Outstanding Equity Awards at Fiscal Year-End Table," "2006 Option Exercises and Stock Vested Table," "2006 Retention Plan Narrative," "2006 Retention Plan Table," "2006 Pension Benefits Narrative," "2006 Pension Benefits Table," "2006 Nonqualified Deferred Compensation Narrative," "2006 Nonqualified Deferred Compensation Table," "2006 Potential Payments Upon Termination Narrative," and "2006 Potential Payments Upon Termination Table," "Compensation Committee Interlocks and Insider Participation" and "2006 Report of the Executive Compensation and Management Resources Committee of the Board of Directors" in IBM's definitive Proxy Statement to be filed on or about March 8, 2004,with the Securities and Exchange Commission and delivered to stockholders in connection with

the Annual Meeting of Stockholders to be held April 24, 2007, all of which areinformation is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters:

        Refer to the section titledinformation under the caption "Ownership of Securities" appearing on pages 10Securities—Common Stock and 11Total Stock-Based Holdings of Management" in IBM's definitive Proxy Statement to be filed onwith the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 24, 2007, all of which information is incorporated herein by reference.

Equity Compensation Plan Information

(1)

In connection with 25 acquisition transactions, 3,246,399 additional options are outstanding as a result of the company's assumption of options granted by the acquired entities. The weighted average exercise price of these options is $77. The company has not made, and will not make, any future grants or about March 8, 2004,awards of equity securities under the plans of these acquired companies. In addition, columns (a) and (b) of the table above do not include 12,691,999 restricted stock units, including restricted stock units payable under outstanding performance stock units assuming 100% of the performance objectives are achieved.

        The table does not include 71,080 Promised Fee Shares that are outstanding under the Directors Deferred Compensation and Equity Award Plan ("DCEAP")—see "General Information—2006 Director Compensation Narrative" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 24, 2007, all of which information is incorporated herein by reference. Also referThe company has issued 57,918 shares of IBM common stock under the DCEAP through 2006, and 705,196 shares remain available for issuance thereunder.

        The material features of each equity compensation plan under which equity securities are authorized for issuance that was adopted without stockholder approval are described below:

2001 LONG-TERM PERFORMANCE PLAN

        The 2001 Long-Term Performance Plan (the "2001 Plan") is used to fund awards for employees other than senior executives of the Company. Awards for senior executives of the company will continue to be funded from the stockholder-approved 1999 Long-Term Performance Plan (the "1999 Plan"). Otherwise, the provisions of the 2001 Plan are identical to the section titled "Equity1999 Plan, including the type of

awards that may be granted under the plan (stock options, restricted stock and unit awards and long-term performance incentive awards).

        The 2001 Plan is administered by the Executive Compensation and Management Resources Committee of the Board of Directors, and that committee may delegate to officers of the Company certain of its duties, powers and authority. Payment of awards may be made in the form of cash, stock or combinations thereof and may be deferred with committee approval. Awards are not transferable or assignable except (i) by law, will or the laws of descent and distribution, (ii) as a result of the disability of the recipient, or (iii) with the approval of the committee.

        If the employment of a participant terminates, other than as a result of the death or disability of a participant, all unexercised, deferred and unpaid Awards shall be canceled immediately, unless the Award Agreement provides otherwise. In the event of the death of a participant or in the event a participant is deemed by the company to be disabled and eligible for benefits under the terms of the IBM Long-Term Disability Plan Information" appearing(or any successor plan or similar plan of another employer), the participant's estate, beneficiaries or representative, as the case may be, shall have the rights and duties of the participant under the applicable Award Agreement. In addition, unless the Award Agreement specifies otherwise, the committee may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred Awards at any time if the participant is not in compliance with all applicable provisions of the Award Agreement and the Plan. In addition, Awards are cancelled if the participant engages in any conduct or act determined to be injurious, detrimental or prejudicial to any interest of the company.

PWCC ACQUISITION LONG-TERM PERFORMANCE PLAN

        The IBM PWCC Acquisition Long-Term Performance Plan (the "PWCC Plan") was adopted by the Board of Directors in connection with the Company's acquisition of PricewaterhouseCoopers Consulting ("PwCC") from PricewaterhouseCoopers LLP, as announced on page 24October 1, 2002. The PWCC Plan has been and will continue to be used solely to fund awards for employees of IBM's definitive Proxy Statement filed on or about March 8, 2004, which is incorporated herein by reference.PwCC who have come over to the company as a result of the acquisition. Awards for senior executives of the company will not be funded from the PWCC Plan. The terms and conditions of the PWCC Plan are substantively identical to the terms and conditions of the 2001 Plan, described above.

14

Item 13. Certain Relationships and Related Transactions:Transactions, and Director Independence:

        Refer to the section entitled "Otherinformation under the captions "General Information—Board of Directors" and "General Information—Certain Transactions and Relationships" appearing on page 9 ofin IBM's definitive Proxy Statement to be filed on or about March 8, 2004,with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 24, 2007, which information is incorporated herein by reference.

Item 14. Principal AccountantAccounting Fees and Services:

        Refer to the section entitledinformation under the captions "Report of the Audit Committee of the Board of Directors" and "Audit and Non-Audit Fees" appearing on page 21 ofin IBM's definitive Proxy Statement to be filed on or about March 8, 2004,with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 24, 2007, all of which information is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:Schedules:

(a)

The following documents are filed as part of this report:



1.

Financial statements from IBM's 20032006 Annual Report to Stockholders which are incorporated herein by reference:

Report of Independent AuditorsRegistered Public Accounting Firm (page 42)55).

Consolidated Statement of Earnings for the years ended December 31, 2003, 20022006, 2005 and 20012004 (page 74)56).

Consolidated Statement of Financial Position at December 31, 20032006 and 20022005 (page 75).

Consolidated Statement of Stockholders' Equity at December 31, 2003, 2002 and 2001 (pages 76 through 78)57).

Consolidated Statement of Cash Flows for the years ended December 31, 2003, 20022006, 2005 and 20012004 (page 79)58).

Consolidated Statement of Stockholders' Equity at December 31, 2006, 2005 and 2004 (pages 59 through 61).

Notes to Consolidated Financial Statements (pages 8062 through 121)115).

2.

Financial statement schedules required to be filed by Item 8 of this Form:

        All other schedules are omitted as the required matter is not present, the amounts are not significant or the information is shown in the Consolidated Financial Statements or the notes thereto.

15

3.

Exhibits:

Included in this Form 10-K:

16

        Not included in this Form 10-K:

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

19

REPORT OF INDEPENDENT AUDITORS REGISTERED PUBLIC ACCOUNTING FIRM
ON
FINANCIAL STATEMENT SCHEDULE

To the Stockholders and Board of Directors of
International Business Machines Corporation:

        Our audits of the consolidated financial statements, of management's assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated January 15, 2004February 27, 2007 appearing on page 42 ofin the 20032006 Annual Report to StockholdersShareholders of International Business Machines Corporation (which report, and consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 15(a)2(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
New York, New York
January 15, 2004February 27, 2007

20

REPORT OF INDEPENDENT AUDITORSReport of Independent Registered Public Accounting Firm

TO THE BOARD OF DIRECTORS OFTo the Board of Directors of
INTERNATIONAL BUSINESS MACHINES CORPORATION:International Business Machines Corporation:

        We have audited the statement of assetsrevenues and liabilitiesexpenses of the Business Consulting Services Reporting Unit (the "Reporting Unit") (a reporting unit as defined in Statement of Financial Accounting Standards No. 142), of International Business Machines Corporation (the "Company") as offor the year ended December 31, 2003 and the related statement of revenues and expenses (collectively, the "statements"2004 (the "statement") for the three months then ended (not separately presented herein). These statements areThe statement is the responsibility of the Company's management. Our responsibility is to express an opinion on these statementsthe statement based on our audit.

        We conducted our audit in accordance with auditing standards generally accepted inof the United States.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements arestatement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements.statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statements.statement. We believe that our audit provides a reasonable basis for our opinion.

        The statements werestatement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for use by the Company in connection with its various filings with the Commission). Certain corporate assets, liabilities and corporate expenses, that are not the responsibility of the Reporting Unit, and which have not been allocated, have been excluded from the statements.statement. Accordingly, these statements arethe statement is not intended to be a complete presentation of the financial position or results of operations of the Reporting Unit.

        In our opinion, the statementsstatement referred to above present fairly, in all material respects, the assets and liabilities and the revenues and expenses of the Reporting Unit as offor the year ended December 31, 2003 and for the three months then ended,2004, in conformity with accounting principlesU.S. generally accepted in the United States.accounting principles.

		/s/ Ernst & Young LLP Ernst & Young LLP Ernst & Young LLP
New York, New York February 22, 2005

SCHEDULE II

INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31:
(Dollars in Millions)

(A)*

Additions for Allowance for Doubtful Accounts and Allowance for Inventory Losses are charged to cost and expense accounts, while Revenue Based Provisions are charged to revenue accounts.

**

Primarily comprises currency translation adjustments.

S-1

EXHIBIT INDEX

*

Management contract or compensatory plan or arrangement.

**

The Performance Graphs, set forth on pages 118 and 119 of IBM's 2006 Annual Report to Stockholders, are deemed to be furnished but not filed.

QuickLinks

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Market for the Registrant's Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information

Item 10. Directors, and Executive Officers of the Registrantand Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal AccountantAccounting Fees and Services

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

SCHEDULE II