International Business Machines (IBM) 10-Q 2006 Q3 Quarterly report

EXHIBIT 12

COMPUTATION OF RATIO OF INCOME FROM
 CONTINUING OPERATIONS TO FIXED CHARGES
FOR NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)

(Dollars in millions)	2006		2005
Income from continuing operations before income taxes(1)	$	8,508	$	7,668
Add: Fixed charges, excluding capitalized interest	1,049		907
Income as adjusted before income taxes	$	9,557	$	8,575
Fixed charges:
Interest expense	$	716	$	562
Capitalized interest	9		10
Portion of rental expense representative of interest	333		345
Total fixed charges	$	1,058	$	917
Ratio of income from continuing operations to fixed charges	9.03		9.35

(1)Income from continuing operations before income taxes excludes (a) amortization of capitalized interest and (b) the company’s share in the income and losses of less-than-fifty percent-owned affiliates.

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SEGMENT INFORMATION - ON CONTINUING OPERATIONS BASIS
(UNAUDITED)

	Global Services
	Global			Global			Systems and
	Technology			Business			Technology
(Dollars in millions)	Services			Services			Group
Three Months Ended September 30, 2006:
External revenue	$	8,058		$	3,959		$	5,466
Internal revenue	428			337			255
Total revenue	$	8,486		$	4,295		$	5,721
Pre-tax income	$	814		$	405		$	413
Revenue year-to-year change	2.1		%	1.2		%	8.8		%
Pre-tax income year-to-year change	(6.4		)%	40.8		%	13.1		%
Pre-tax income margin	9.6		%	9.4		%	7.2		%
Three Months Ended September 30, 2005:
External revenue	$	7,787		$	3,910		$	4,988
Internal revenue	526			335			268
Total revenue	$	8,313		$	4,245		$	5,256
Pre-tax income	$	871		$	288		$	365
Pre-tax income margin	10.5		%	6.8		%	6.9		%

Reconciliations to IBM as Reported:

	Three Months Ended			Three Months Ended
(Dollars in millions)	September 30, 2006			September 30, 2005
Revenue:
Total reportable segments	$	24,391		$	23,247
Eliminations/other	(1,774		)	(1,719		)
Total IBM Consolidated	$	22,617		$	21,529
Pre-tax income:
Total reportable segments	$	3,268		$	3,017
Eliminations/other	(94		)	(101		)
Total IBM Consolidated	$	3,174		$	2,915

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						Personal
			Global			Computing		Total
Software			Financing			Division		Segments
$	4,406		$	587		$	—	$	22,476
559			337			—		1,916
$	4,965		$	924		$	—	$	24,391
$	1,302		$	335		$	—	$	3,268
9.2		%	4.0		%	nm		4.9		%
15.2		%	(7.9		)%	nm		8.4		%
26.2		%	36.2		%	nm		13.4		%
$	4,059		$	599		$	—	$	21,343
486			289			—		1,904
$	4,545		$	888		$	—	$	23,247
$	1,130		$	363		$	—	$	3,017
24.9		%	40.9		%	nm		13.0		%

nm - not meaningful

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SEGMENT INFORMATION - ON CONTINUING OPERATIONS BASIS
(UNAUDITED)

	Global Services
	Global			Global			Systems and
	Technology			Business			Technology
(Dollars in millions)	Services			Services			Group
Nine Months Ended September 30, 2006:
External revenue	$	23,732		$	11,746		$	14,900
Internal revenue	1,328			1,023			807
Total revenue	$	25,061		$	12,769		$	15,706
Pre-tax income	$	2,445		$	1,168		$	582
Revenue year-to-year change	(0.2		)%	(1.5		)%	5.4		%
Pre-tax income year-to-year change	61.5		%	207.5		%	(13.7		)%
Pre-tax income margin	9.8		%	9.1		%	3.7		%
Nine Months Ended September 30, 2005:
External revenue	$	23,481		$	11,926		$	14,132
Internal revenue	1,636			1,032			763
Total revenue	$	25,117		$	12,958		$	14,895
Pre-tax income/(loss)	$	1,514		$	380		$	674
Pre-tax income margin	6.0		%	2.9		%	4.5		%

Reconciliations to IBM as Reported:

	Nine Months Ended			Nine Months Ended
(Dollars in millions)	September 30, 2006			September 30, 2005
Revenue:
Total reportable segments	$	70,490		$	72,042
Eliminations/other	(5,323		)	(5,335		)
Total IBM Consolidated	$	65,166		$	66,707
Pre-tax income:
Total reportable segments	$	8,741		$	6,340
Eliminations/other	(239		)	1,319		*
Total IBM Consolidated	$	8,503		$	7,658

*Includes the gain from the sale of the company’s Personal Computing business to Lenovo, the gain related to the legal settlement with the Microsoft Corporation, and unallocated charges related to the company’s incremental restructuring actions in the second quarter of 2005.

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						Personal
			Global			Computing			Total
Software			Financing			Division			Segments
$	12,554		$	1,744		$	—		$	64,676
1,616			1,039			—			5,814
$	14,170		$	2,784		$	—		$	70,490
$	3,478		$	1,068		$	—		$	8,741
6.1		%	(1.0		)%	nm			(2.2		)%
22.3		%	(2.3		)%	nm			37.9		%
24.5		%	38.4		%	nm			12.4		%
$	11,930		$	1,798		$	2,876		$	66,143
1,423			1,013			33			5,899
$	13,353		$	2,811		$	2,909		$	72,042
$	2,844		$	1,092		$	(165	)	$	6,340
21.3		%	38.8		%	nm			8.8		%

nm - not meaningful

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