International Business Machines 8K Results of Operations and Financial Condition

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report: October 18, 2004

(Date of earliest event reported)

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

New York	1-2360	13-0871985
(State of Incorporation)	(Commission File Number)	(IRS employer Identification No.)

ARMONK, NEW YORK		10504
(Address of principal executive offices)		(Zip Code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

The registrant’s press release dated October 18, 2004, regarding its financial results for the periods ended September 30, 2004, including unaudited consolidated financial statements for the periods ended September 30, 2004 is Attachment I of this Form 8-K. All of the information in Attachment I is hereby filed under this Item 2.02 except for the following information that is furnished but not filed:

•	The following sentence from the second paragraph of page 1: “Without the one-time charge, IBM’s third-quarter income from continuing operations would have been $2.00 billion, an increase of 12 percent.”

•	The following sentence from the sixth full paragraph of page 2: “Before the charge, the rate would have been 30.0 percent, the same as the third quarter of 2003.”

•	In the chart titled “FINANCIAL SUMMARY - SUPPLEMENTAL DATA”, all the data in both columns under “Excl. Charge” except for the data in the rows identified as “Revenue”, “Gross profit”, “Gross profit margin” and “Earnings Per Share of Common Stock assuming dilution”.

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Date: October 18, 2004

	By:	/s/ Timothy S. Shaughnessy

		(Timothy S. Shaughnessy)
		Vice President and Controller

ATTACHMENT I

IBM REPORTS 2004 THIRD-QUARTER RESULTS

COMPANY POSTS DILUTED EPS AS REPORTED OF $1.06

EPS OF $1.17 BEFORE ONE-TIME $320 MILLION CHARGE TO SETTLE PENSION CLAIMS

ARMONK, N.Y., October 18, 2004 . . . IBM today announced third-quarter 2004 diluted earnings per common share of $1.06 from continuing operations as reported, compared with diluted earning s of $1.02 per share in the same period of 2003, an increase of 4 percent. In September, the company agreed to a one-time, pre-tax charge of $320 million (or 11 cents per diluted share) for the partial settlement of legal claims against IBM’s pension plan. Without the one-time charge, IBM’s earnings per diluted common share would have been $1.17, an increase of 15 percent.

Third-quarter income from continuing operations was $1.80 billion, an increase of 1 percent compared with $1.79 billion a year ago. Without the one-time charge, IBM’s third-quarter income from continuing operations would have been $2.00 billion, an increase of 12 percent. Revenues from continuing operations for the third quarter were $23.4 billion, up 9 percent co mpared with the third quarter of 2003 revenues of $21.5 billion (and up 1 percent sequentially from $23.2 billion in the second quarter of this year).

Samuel J. Palmisano, IBM chairman and chief executive officer, said: “In what is normally a challenging quarter for the technology industry, IBM delivered one of our strongest third quarters in revenue and earnings growth in recent years. IBM has been gaining momentum throughout the year, and the strength of our integrated business model gives us confidence as we look toward 2005.

“We continue to see robust growth in key initiatives. Business Performance Transformation Services revenue grew more than 45 percent year-to-date. We saw more than 30 percent combined growth in the emerging markets of Brazil, China, India and Russia. And we’re seeing more and more clients move toward becoming on demand businesses, which is driving demand across our portfolio.”

Third-quarter revenue growth of 9 percent (5 percent, adjusting for currency) was driven by growth across all geographies, as reported. In the Americas, third-quarter revenues from continuing operations were $10.1 billion, up 8 percent (7 percent, adjusting for currency) from the 2003 period. Revenues from Europe/Middle East/Africa were $7.3 billion, an increase of 8 percent (essentially flat, adjusting for currency). Asia-Pacific revenues grew 11 percent (6 percent, adjusting for currency) to $5.3 billion. OEM revenues increased 13 percent to $726 million compared with the third quarter of 2003.

Revenues grew at a solid pace in all of IBM’s five industry sectors in the third quarter with particularly strong growth from the Communications sector and Public sector, as well as good growth in sales to Small and Medium Businesses.

Revenues from Global Services, includi ng maintenance, increased 10 percent (5 percent, adjusting for currency) to $11.4 billion in the third quarter. Global Services revenues, excluding maintenance, increased 11 percent (6 percent, adjusting for currency). IBM signed services contracts totaling nearly $10 billion and ended the quarter with an estimated services backlog, including Strategic Outsourcing, Business Consulting Services, Integrated Technology Services and Maintenance, of $110 billion.

Hardware revenues from continuing operations increased 12 percent (9 percent, adjusting for currency) to $7.5 billion in the third quarter versus the third-quarter 2003. In the current quarter, revenues from the Systems and Technology Group totaled $4.1 billion, up 9 percent due to eServer revenue i ncreases for xSeries Intel-based servers, which had particularly strong results, and zSeries servers. The total

delivery of zSeries computing power as measured in MIPS (millions of instructions per second) increased 17 percent in the quarter compared with the third quarter of 2003. Revenues for the eServer pSeries UNIX servers increased as well, while revenues for the iSeries midrange servers decreased significantly, in part, due to transition to new POWER5 architecture. Storage Systems revenues increased due to good demand for external midrange disk and tape products, and revenues from OEM Technology increased. Personal Systems Group revenues increased 17 percent to $3.3 billion, led by strong growth in mobile personal computers.

Revenues from Software were $3.6 billion, an increase of 5 percent (1 percent, adjusting for currency) compared with the third quarter of 2003. Revenues from IBM’s middleware brands, which include WebSphere, DB2, Rational, Tivoli and Lotus products, were $2.9 billion, up 6 percent versus the third quarter of 2003. Operating systems revenues decreased 2 percent to $600 million compared with the third quarter of 2003.

Revenues for WebSphere software, which facilitates customers’ ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems, increased 14 percent. Revenues for Data Management increased 11 percent including revenues for DB2 database software, which increased 15 percent. Revenues from Tivoli software (infrastructure software that enables customers to centrally manage networks and storage) increased 19 percent, and revenues for Lotus software, which enables customers to communicate, collaborate and learn effectively, decreased 6 percent. Revenues from Rational (comprehensive software development tools) increased 6 percent compared with the third quarter of 2003.

Global Financing revenues declined 11 percent (14 percent, adjusting for currency) in the third quarter to $638 million. Revenues from the Enterprise Investments/Other area, which includes industry-specific IT solutions such as product life-cycle management software, increased 4 percent (2 percent, adjusting for currency) to $277 million compared with the third quarter of 2003.

The company’s total gross profit margin from continuing operations was 36.9 percent in the 2004 third quarter, compared with 36.3 percent in the third quarter of 2003.

In the third quarter of 2004, total expense and other income from continuing operations of $6.1 billion, including the one-time $320 million charge to settle certain pension claims, increased 16 percent over the year-earlier period, of which 6 points is associated with the charge. The company’s selling, general and administrative expense including the charge increased 16 percent to $5.0 billion. Research, development and engineering expense increased 9 percent to $1.4 billion. Intellectual property and custom development income declined to $259 million compared with $406 million a year ago. Other (income) and expense was $55 million of net income in the third quarter of 2004 versus $26 million of net expense in the same period last year.

IBM’s effective tax rate from continuing operations in the third-quarter 2004, including the effect of the one-tim e charge relating to pension claims, was 28.9 percent. Before the charge, the rate would have been 30.0 percent, the same as the third quarter of 2003.

IBM ended the quarter with $9.7 billion of cash on hand and low debt levels for the non-financing business. The balance sheet remains strong, and the company is well positioned to take advantage of opportunities.

Share repurchases totaled approximately $1.3 billion in the third quarter. The weighted-average number of diluted common shares outstanding in the quarter w as 1.70 billion compared with 1.76 billion shares in the same period of 2003. As of September 30, 2004, there were 1.66 billion basic shares outstanding.

Debt, including Global Financing, totaled $22.0 billion, compared with $23.6 billion at year-end 2003. From a management segment view, the

non-global financing debt-to-capitalization ratio was 1.0 percent as of September 30, 2004, and Global Financing debt declined $1.6 billion from year-end 2003 to a total of $21.7 billion, resulting in a debt-to-equity ratio of 6.8 to 1.

Year-To-Date 2004 Results

Income from continuing operations for the nine months ended September 30, 2004, including the one-time $320 million pre-tax charge to settle certain pension claims, was $5.4 billion compared with $4.9 billion for the same period of 2003, an increase of 10 percent. Diluted earnings per common share from continuing operations was $3.14 compared with $2.78 per diluted share for the 2003 period, an increase of 13 percent. Revenues from continuing operations for the nine months ended September 30, 2004, totale d $68.8 billion, up 9 percent (4 percent, adjusting for currency) compared with $63.2 billion for the nine months of 2003.

For total operations, net income for the nine months of 2004, including a loss from discontinued operations of $3 million, was $5.4 billion, or $3.14 per diluted common share, compared with the nine months of 2003 net income of $4.9 billion, or $2.77 per diluted share, which included a loss from discontinued operations of $23 million.

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed in the company’s filings with the U.S. Securities and Exchange Commission (SEC).

Presentation of Information in this Press Release

In an effort to provide investors with additional information regarding the company 6;s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

• effect of one-time charge to settle certain pension claims on certain financial results

• adjusting for currency

The rationale for management’s use of non-GAAP measures is included as part of the supplementary materials presented within the third-quarter earnings materials. These materials are available on the IBM investor relations Web site at www.ibm.com/investor and will be included in a subsequent filing of a Form 8-K with the SEC.

Conference Call and Webcast

IBM’s regular quarterly earnings conference call is scheduled to begin at 4:30 p.m. EDT, today. Investors may participate by viewing the Webcast at www.ibm.com/investor/3q04.

Financial Results Attached

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

	Three Months Ended September 30,										Nine Months Ended September 30,
	2004				2003				Percent Change		2004				2003			Percent Change
REVENUE

Global Services	$	11,392			$	10,383			9.7	%	$	33,818			$	31,187		8.4	%
Gross margin	25.0			%	25.1			%			24.9			%	25.3		%

Hardware	7,501				6,697				12.0	%	21,659				19,118			13.3	%
Gross margin	28.4			%	25.2			%			28.1			%	26.2		%

Software	3,621				3,461				4.6	%	10,545				10,061			4.8	%
Gross margin	87.3			%	85.8			%			86.6			%	85.6		%

Global Financing	638				715				-10.9	%	1,951				2,092			-6.8	%
Gross margin	60.1			%	57.7			%			60.0			%	57.1		%

Enterprise Investments/ Other	277				266				4.3	%	859				760			13.1	%
Gross margin	44.3			%	53.4			%			43.4			%	44.1		%

TOTAL REVENUE	23,429				21,522				8.9	%	68,832				63,218			8.9	%

GROSS PROFIT	8,646				7,812				10.7	%	25,180				23,043			9.3	%
Gross margin	36.9			%	36.3			%			36.6			%	36.4		%

EXPENSE AND OTHER INCOME

S,G&A	4,978				4,303				15.7	%	14,094				12,978			8.6	%
% of revenue	21.2			%	20.0			%			20.5			%	20.5		%

R,D&E	1,419				1,307				8.6	%	4,212				3,728			13.0	%
% of revenue	6.1			%	6.1			%			6.1			%	5.9		%

Intellectual property and custom development income	(259			)	(406			)	-36.1	%	(871			)	(887		)	-1.7	%
Other (income) and expense	(55			)	26				nm		(19			)	114			nm
Interest expense	32				33				-3.3	%	100				114			-12.8	%

TOTAL EXPENSE AND OTHER INCOME	6,115				5,263				16.2	%	17,516				16,047			9.2	%
% of revenue	26.1			%	24.5			%			25.4			%	25.4		%

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	2,531				2,549				-0.7	%	7,664				6,996			9.5	%
Pre-tax margin	10.8			%	11.8			%			11.1			%	11.1		%

Provision for income taxes	731				764				-4.4	%	2,271				2,099			8.2	%
Effective tax rate	28.9			%	30.0			%			29.6			%	30.0		%

INCOME FROM CONTINUING OPERATIONS	$	1,800			$		1,785		0.9	%	$		5,393		$	4,897		10.1	%
Net margin	7.7			%	8.3			%			7.8			%	7.7		%

DISCONTINUED OPERATIONS
Loss from discontinued operations	0				0						3				23

NET INCOME	$		1,800		$		1,785		0.9	%	$		5,390		$	4,874		10.6	%

EARNINGS/(LOSS)PER SHARE OF COMMON STOCK:

ASSUMING DILUTION
CONTINUING OPERATIONS	$		1.06		$		1.02		3.9	%	$		3.14		$	2.78		12.9	%
DISCONTINUED OPERATIONS	(0.00			)	(0.00			)			(0.00			)	(0.01		)
TOTAL	$		1.06		$		1.02		3.9	%	$		3.14		$	2.77		13.4	%
BASIC
CONTINUING OPERATIONS	$		1.08		$		1.04		3.8	%	$		3.21		$	2.84		13.0	%
DISCONTINUED OPERATIONS	(0.00			)	(0.00			)			(0.00			)	(0.01		)
TOTAL	$		1.08		$		1.04		3.8	%	$		3.21		$	2.82	*	13.8	%


WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
ASSUMING DILUTION	1,700.4				1,756.4						1,714.6				1,759.5
BASIC	1,669.6				1,722.6						1,680.3				1,725.9

nm - not meaningful

* Does not total due to rounding.

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

(Dollars in millions)	At September 30, 2004		At December 31, 2003		Percent Change
ASSETS

Cash, cash equivalents, and marketable securities	$	9,671	$	7,647	26.5	%

Receivables - net, inventories, prepaid expenses	32,759		37,351		-12.3	%

Plant, rental machines, and other property - net	14,608		14,689		-0.6	%

Investments and other assets	43,638		44,770		-2.5	%

TOTAL ASSETS	$	100,676	$	104,457	-3.6	%

LIABILITIES AND STOCKHOLDERS’ EQUITY

Short-term debt	$	8,427	$	6,646	26.8	%
Long-term debt	13,524		16,986		-20.4	%
Total debt	21,951		23,632		-7.1	%

Accounts payable, taxes, and accruals	26,740		31,254		-14.4	%

Other liabilities	22,283		21,707		2.7	%
TOTAL LIABILITIES	70,974		76,593		-7.3	%

STOCKHOLDERS’ EQUITY	29,702		27,864		6.6	%
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	100,676	$	104,457	-3.6	%

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

	THIRD QUARTER 2004
	Revenue									Pre-tax Income (Loss) From Continuing Operations			Pre-tax Margin
(Dollars in millions)	External			Internal			Total
SEGMENTS

Global Services	$	11,392		$	791		$	12,183		$	1,157		9.5	%
% change	9.7		%	14.5		%	10.0		%	-4.4		%

Systems and Technology Group	4,117			265			4,382			417			9.5	%
% change	8.9		%	24.4		%	9.7		%	32.4		%

Personal Systems Group	3,261			52			3,313			54			1.6	%
% change	16.6		%	20.9		%	16.7		%	nm

Software	3,621			433			4,054			1,011			24.9	%
% change	4.6		%	17.0		%	5.8		%	17.8		%

Global Financing	634			309			943			351			37.2	%
% change	-11.1		%	16.2		%	-3.7		%	20.2		%

Enterprise Investments	257			2			259			(55		)	-21.2	%
% change	0.0		%	0.0		%	0.0		%	-1.9		%

TOTAL REPORTABLE SEGMENTS	23,282			1,852			25,134			2,935			11.7	%
% change	8.8		%	16.8		%	9.4		%	14.2		%

Eliminations / Other	147			(1,852		)	(1,705		)	(404		)

TOTAL IBM CONSOLIDATED	$	23,429		$	0		$	23,429		$	2,531		10.8	%
% change	8.9		%				8.9		%	-0.7		%

nm - not meaningful

	THIRD QUARTER 2003
	Revenue								Pre-tax Income (Loss) From Continuing Operations			Pre-tax Margin
(Dollars in millions)	External		Internal			Total			Pre-tax Income (Loss) From Continuing Operations			Pre-tax Margin
SEGMENTS

Global Services	$	10,383	$	691		$	11,074		$	1,210		10.9	%

Systems and Technology Group *	3,781		213			3,994			315			7.9	%

Personal Systems Group	2,796		43			2,839			(50		)	-1.8	%

Software	3,461		370			3,831			858			22.4	%

Global Financing	713		266			979			292			29.8	%

Enterprise Investments	257		2			259			(54		)	-20.8	%

TOTAL REPORTABLE SEGMENTS	21,391		1,585			22,976			2,571			11.2	%

Eliminations / Other	131		(1,585		)	(1,454		)	(22		)

TOTAL IBM CONSOLIDATED	$	21,522	$	0		$	21,522		$	2,549		11.8	%

* 2003 Technology Group and Systems Group segment results have been reclassified to conform with current reporting structure.

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

	NINE MONTHS 2004
	Revenue									Pre-tax Income (Loss) From Continuing Operations			Pre-tax Margin
(Dollars in millions)	External			Internal			Total
SEGMENTS

Global Services	$	33,818		$	2,312		$	36,130		$	3,237		9.0	%
% change	8.4		%	10.9		%	8.6		%	-3.7		%

Systems and Technology Group	12,047			777			12,824			1,190			9.3	%
% change	10.8		%	31.7		%	11.9		%	62.1		%

Personal Systems Group	9,252			115			9,367			70			0.7	%
% change	17.0		%	-6.5		%	16.6		%	nm

Software	10,545			1,291			11,836			2,823			23.9	%
% change	4.8		%	12.6		%	5.6		%	20.3		%

Global Financing	1,951			875			2,826			1,073			38.0	%
% change	-6.9		%	0.8		%	-4.6		%	24.6		%

Enterprise Investments	801			6			807			(153		)	-19.0	%
% change	10.5		%	50.0		%	10.7		%	26.4		%

TOTAL REPORTABLE SEGMENTS	68,414			5,376			73,790			8,240			11.2	%
% change	8.8		%	11.6		%	9.0		%	18.3		%

Eliminations / Other	418			(5,376		)	(4,958		)	(576		)

TOTAL IBM CONSOLIDATED	$	68,832		$	0		$	68,832		$	7,664		11.1	%
% change	8.9		%				8.9		%	9.5		%

nm - not meaningful

	NINE MONTHS 2003
	Revenue								Pre-tax Income (Loss) From Continuing Operations			Pre-tax Margin
(Dollars in millions)	External		Internal			Total			Pre-tax Income (Loss) From Continuing Operations			Pre-tax Margin
SEGMENTS

Global Services	$	31,187	$	2,085		$	33,272		$	3,361		10.1	%

Systems and Technology Group *	10,875		590			11,465			734			6.4	%

Personal Systems Group	7,909		123			8,032			(127		)	-1.6	%

Software	10,061		1,147			11,208			2,347			20.9	%

Global Financing	2,095		868			2,963			861			29.1	%

Enterprise Investments	725		4			729			(208		)	-28.5	%

TOTAL REPORTABLE SEGMENTS	62,852		4,817			67,669			6,968			10.3	%

Eliminations / Other	366		(4,817		)	(4,451		)	28

TOTAL IBM CONSOLIDATED	$	63,218	$	0		$	63,218		$	6,996		11.1	%

* 2003 Technology Group and Systems Group segment results have been reclassified to conform with current reporting structure.

INTERNATIONAL BUSINESS MACHINES CORPORATION

FINANCIAL SUMMARY - SUPPLEMENTAL DATA

Three Months Ended September 30, 2004

(Unaudited; Dollars in millions except per share amounts)

	As Reported					Charge* 3Q’04			Excl. Charge
	3Q’04			Yr/Yr		Charge* 3Q’04			3Q’04			Yr/Yr
Continuing Operations

Revenue	$	23,429		8.9	%				$	23,429		8.9	%

Gross profit	8,646			10.7	%				8,646			10.7	%

Gross profit margin	36.9		%						36.9		%

Total expense and other income	6,115			16.2	%	$	320		5,795			10.1	%

Expense to revenue	26.1		%						24.7		%

Income from continuing operations before income taxes	2,531			(0.7	)%	(320		)	2,851			11.8	%

Pre-tax margin	10.8		%						12.2		%

Provision for income taxes	731					(125		)	856

Effective tax rate	28.9		%						30.0		%

Income from continuing operations	$	1,800		0.9	%	$	(195	)	$	1,995		11.8	%

Net margin	7.7		%						8.5		%

EARNINGS PER SHARE OF COMMON STOCK:

Assuming dilution	$	1.06		3.9	%	$	(0.11	)	$	1.17		14.7	%

* One-time, pre-tax charge of $320 million for the partial settlement of legal claims against IBM’s pension plan.

International Business Machines (IBM) 8-KResults of Operations and Financial Condition