SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2001
1-2360
------
(Commission file number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-0871985
-------- ----------
(State of incorporation) (IRS employer identification number)
Armonk, New York 10504
---------------- -----
(Address of principal executive offices) (Zip Code)
914-499-1900
------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
1934 during the preceding l2 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 |X| No |_|
The registrant has 1,736,659,530 shares of common stock outstanding at
June 30, 2001.
<Page>
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION:
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Earnings for the three and six
months ended June 30, 2001 and 2000 ............................ 1
Consolidated Statement of Financial Position at
June 30, 2001 and December 31, 2000 ............................ 3
Consolidated Statement of Cash Flows for the six months
ended June 30, 2001 and 2000 ................................... 5
Notes to Consolidated Financial Statements .......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION ............... 9
PART II - OTHER INFORMATION ............................................... 21
<Page>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<Table>
<Caption>
(Dollars in millions except Three Months Ended Six Months Ended
per share amounts) June 30, June 30,
---------------------- -----------------------
2001 2000* 2001 2000*
------- -------- ------- --------
REVENUE:
Global Services $ 8,742 $ 8,184 $17,213 $ 15,736
Hardware 8,652 9,151 17,199 16,863
Software 3,036 3,182 5,954 6,109
Global Financing 845 819 1,677 1,635
Enterprise
Investments/Other 293 315 569 656
------- -------- ------- --------
Total revenue 21,568 21,651 42,612 40,999
COST:
Global Services 6,329 5,964 12,640 11,561
Hardware 6,061 6,654 12,030 12,247
Software 535 557 1,114 1,141
Global Financing 438 449 876 910
Enterprise
Investments/Other 167 164 306 343
------- -------- ------- --------
Total cost 13,530 13,788 26,966 26,202
------- -------- ------- --------
GROSS PROFIT 8,038 7,863 15,646 14,797
EXPENSE:
Selling, general and
administrative 3,765 3,867 7,573 7,573
Research, development and
engineering 1,279 1,269 2,482 2,441
Other income 34 (130) 70 (319)
Interest expense 58 84 130 159
------- -------- ------- --------
TOTAL EXPENSE 5,136 5,090 10,255 9,854
INCOME BEFORE INCOME TAXES 2,902 2,773 5,391 4,943
Provision for income taxes 857 832 1,596 1,483
------- -------- ------- --------
NET INCOME 2,045 1,941 3,795 3,460
Preferred stock dividends 5 5 10 10
------- -------- ------- --------
NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS $ 2,040 $ 1,936 $ 3,785 $ 3,450
======= ======== ======= ========
</Table>
* Reclassified to conform with 2001 presentation.
(The accompanying notes are an integral part of the financial statements.)
- 1 -
<Page>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS - (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
---- ---- ---- ----
EARNINGS PER SHARE OF COMMON
STOCK:
Assuming dilution $ 1.15 $ 1.06 $ 2.13 $ 1.89
Basic $ 1.17 $ 1.10 $ 2.18 $ 1.95
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING: (MILLIONS)
Assuming dilution 1,777.7 1,818.0 1,779.5 1,824.0
Basic 1,738.2 1,767.6 1,739.6 1,772.4
Cash dividends per common share $ 0.14 $ 0.13 $ 0.27 $ 0.25
</Table>
(The accompanying notes are an integral part of the financial statements.)
- 2 -
<Page>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
<Table>
<Caption>
At June 30,
(Dollars in millions) 2001 At December 31,
(Unaudited) 2000
------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,691 $ 3,563
Marketable securities -- at fair value,
which approximates market 89 159
Notes and accounts receivable -- trade, net of
allowances 9,381 10,447
Short-term financing receivables 15,906 18,705
Other accounts receivable 1,318 1,574
Inventories, at lower of average cost or net
realizable value
Finished goods 1,520 1,446
Work in process and raw materials 3,338 3,319
-------- --------
Total inventories 4,858 4,765
Deferred taxes 2,414 2,701
Prepaid expenses and other current assets 2,917 1,966
-------- --------
Total current assets 40,574 43,880
Plant, rental machines and other property 38,338 38,455
Less: Accumulated depreciation 21,727 21,741
-------- --------
Plant, rental machines and other property -- net 16,611 16,714
Long-term financing receivables 12,290 13,308
Investments and sundry assets 14,465 14,447
-------- --------
TOTAL ASSETS $ 83,940 $ 88,349
======== ========
</Table>
(The accompanying notes are an integral part of the financial statements.)
- 3 -
<Page>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
At June 30,
(Dollars in millions except 2001 At December 31,
per share amounts) (Unaudited) 2000
------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Taxes $ 3,916 $ 4,827
Accounts payable and accruals 17,497 21,374
Short-term debt 8,536 10,205
-------- --------
Total current liabilities 29,949 36,406
Long-term debt 18,770 18,371
Other liabilities 12,630 12,948
-------- --------
TOTAL LIABILITIES 61,349 67,725
STOCKHOLDERS' EQUITY:
Preferred stock - par value $.01 per share 247 247
Shares authorized: 150,000,000
Shares issued and outstanding:
2001 and 2000 - 2,546,011
Common stock - par value $.20 per share 13,701 12,400
Shares authorized: 4,687,500,000
Shares issued: 2001 - 1,905,303,701
2000 - 1,893,940,595
Retained earnings 26,824 23,784
Treasury stock - at cost (17,896) (13,800)
Shares: 2001 - 168,644,171
2000 - 131,041,411
Employee benefits trust -- (1,712)
Shares: 2000 - 20,000,000
Accumulated gains and losses not
affecting retained earnings (285) (295)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 22,591 20,624
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 83,940 $ 88,349
======== ========
</Table>
(The accompanying notes are an integral part of the financial statements.)
- 4 -
<Page>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<Table>
<Caption>
(Dollars in millions) 2001 2000
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 3,795 $ 3,460
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation 2,144 2,246
Amortization of software 290 220
Loss/(gain) on disposition of fixed and other assets 57 (425)
Changes in operating assets and liabilities (899) (3,016)
------- -------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 5,387 2,485
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for plant, rental machines
and other property, net of proceeds (2,420) (1,571)
Investment in software (306) (262)
Purchases of marketable securities and other
investments (406) (453)
Proceeds from marketable securities and other
investments 458 880
------- -------
NET CASH USED IN INVESTMENT ACTIVITIES (2,674) (1,406)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from new debt 2,102 4,796
Payments to settle debt (2,191) (4,048)
Short-term (repayments)/borrowings less than
90 days -- net (323) 290
Common stock transactions -- net (1,650) (3,624)
Cash dividends paid (482) (458)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (2,544) (3,044)
------- -------
Effect of exchange rate changes on
cash and cash equivalents (41) (91)
------- -------
Net change in cash and cash equivalents 128 (2,056)
Cash and cash equivalents at January 1 3,563 5,043
------- -------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 3,691 $ 2,987
======= =======
</Table>
(The accompanying notes are an integral part of the financial statements.)
- 5 -
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the management of International Business Machines
Corporation (the company), all adjustments, which are of a normal recurring
nature, necessary to a fair statement of the results for the unaudited three-
and six-month periods have been made.
2. The following table summarizes Net income plus gains and losses not affecting
retained earnings.
<Table>
<Caption>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Net Income $ 2,045 $ 1,941 $ 3,795 $ 3,460
------- ------- ------- -------
Gains and losses not affecting
retained earnings (net of tax):
Foreign currency translation
adjustments (142) (184) (516) (293)
Net unrealized gains/(losses) on
marketable securities 47 (363) 46 (756)
Net unrealized (losses)/gains on
cash flow hedge derivatives (27) -- 480 --
------- ------- ------- -------
Total (losses) and gains not
affecting retained earnings (122) (547) 10 (1,049)
------- ------- ------- -------
Net income plus gains and losses
not affecting retained earnings $ 1,923 $ 1,394 $ 3,805 $ 2,411
======= ======= ======= =======
</Table>
3. On January 1, 2001, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, as amended by SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments.
Specifically, SFAS No. 133 requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and to
measure those instruments at fair value. Additionally, the fair value
adjustments will affect either stockholders' equity or net income depending on
whether the derivative instrument qualifies as a hedge for accounting purposes
and, if so, the nature of the hedging activity. As of January 1, 2001, the
adoption of the new standard resulted in a cumulative effect net-of-tax increase
of $219 million to Accumulated gains or losses not affecting retained earnings
in the stockholders' equity section of the Consolidated Statement of Financial
Position and a cumulative effect net-of-tax charge of $6 million included in
Selling, general and administrative expense in the Consolidated Statement of
Earnings.
4. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, BUSINESS COMBINATIONS and SFAS No. 142, GOODWILL AND INTANGIBLE ASSETS.
SFAS No. 141 requires the use of the purchase method of accounting for business
combinations and prohibits the use of the pooling of interests method. The
company has not qualified for using the pooling of interest method and
therefore, this aspect of the new rules will not have an impact on the company's
financial results. SFAS No. 141 also changes the definition of intangible assets
acquired in a purchase business combination. As a result, the purchase price
allocation of future
- 6 -
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
business combinations may be different than the allocation that would have
resulted under the old rules. Business combinations must be accounted for using
SFAS No. 141 starting on July 1, 2001.
SFAS No. 142 eliminates the amortization of goodwill, requires annual
impairment testing of goodwill, introduces the concept of indefinite life
intangible assets, and must be adopted on January 1, 2002. The new rules also
prohibit companies from amortizing any goodwill associated with business
combinations that close after June 30, 2001.
These new requirements will impact future period net income equal to the
amount of disallowed goodwill amortization offset by goodwill impairment
charges, if any, and adjusted for any differences between the old and new rules
for defining goodwill and intangible assets on future business combinations. An
initial impairment test must be performed in 2002 as of January 1, 2002. Any
resulting impairment charge from this initial test will be reported as a change
in accounting principle, net of tax. The company is currently reviewing the
provisions of these standards to determine any impact that might result from
adoption.
5. Effective January 1, 2001, interest expense is presented in Cost of Global
Financing in the Consolidated Statement of Earnings if the related external
borrowings to support the Global Financing business were issued by either the
company or its Global Financing units (see pages 19 and 20 for a discussion of
Global Financing debt and interest expense). In prior periods, the caption only
included interest related to direct external borrowings of Global Financing
units. Prior period results have been reclassified to conform with the current
period presentation.
6. The tables on pages 27 through 30 of this Form 10-Q reflect the results of
the company's segments consistent with its management system used by the
company's chief operating decision maker. These results are not necessarily a
depiction that is in conformity with generally accepted accounting principles,
e.g., employee retirement plan costs are developed using actuarial assumptions
on a country-by-country basis and allocated to the segments on headcount. A
different result could occur for any segment if actuarial assumptions unique to
each segment were used. Performance measurement is based on income before income
taxes (pre-tax income). These results are used, in part, by management, both in
evaluating the performance of, and in allocating resources to, each of the
segments.
Effective in the first quarter of 2001, the segment results reflect
changes the company made in the organization of its hardware business segments.
These changes include the transfer of the xSeries (Intel-based) servers from the
Personal Systems Group to the Enterprise Systems Group - server division, and
the transfer of the printing systems division from the Technology Group to the
newly formed Personal and Printing Systems Group, consisting of the realigned
personal computer division, retail store solutions division and the printing
systems division. Second-quarter and first-half 2000 results have been
reclassified to conform with the 2001 presentation.
7. In 1997, the company created an employee benefits trust to which the company
contributed 10 million shares of treasury stock. The company was authorized to
instruct the trustee to sell such shares from time to time and to use the
proceeds from such sales, and any dividends paid or earnings received on such
stock, toward the partial satisfaction of the
- 7 -
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
company's obligations under certain of its compensation and benefit plans. The
shares held in trust were not considered outstanding for earnings per share
purposes until they were committed to be released. The company did not commit
any shares for release from the trust during its existence nor were any shares
sold from the trust. The trust would have expired in 2007. Due to the fact that
the company has not used the trust, nor is it expected to need the trust prior
to its expiration, the company dissolved the trust, effective May 31, 2001, and
all of the shares (20 million on a split-adjusted basis) were returned to the
company as treasury shares. Dissolution of the trust will not affect the
company's obligations related to any of its compensation and employee benefit
plans or its ability to settle the obligations. In addition, the dissolution is
not expected to have any impact on net income. At this time, the company plans
to fully meet its obligations for the compensation and benefit plans in the same
manner as it does today; using cash from operations.
8. The following table provides the liability balances for restructuring actions
that the company took through 1993 and special actions in 1999:
<Table>
<Caption>
Liability Liability
as of as of
12/31/2000 Payments Other Adj.(c) 6/30/2001
---------- -------- ------------- ---------
Current:
Workforce (a) $148 $ 84 $ 43 $107
Space (b) 91 43 40 88
---- ---- ----- ----
Total $239 $127 $ 83 $195
Non-current:
Workforce (a) $470 $ -- $ (91) $379
Space (b) 384 -- (75) 309
---- ---- ----- ----
Total $854 $ -- $(166) $688
</Table>
(a) Workforce accruals relate to terminated employees who are no longer
working for the company, but who were granted annual payments to
supplement their state pensions in certain countries. These contractually
required payments will continue until the former employee dies.
(b) Space accruals are for ongoing obligations to pay rent for vacant space
that could not be sublet or space that was sublet at rates lower than the
committed lease arrangement. The length of these obligations varies by
lease with the longest extending through 2012.
(c) Principally represents reclassification of non-current to current and
currency translation adjustments.
9. Subsequent Events: On April 24, 2001, the company announced it would pay $1
billion in cash for the net assets of Informix Corporation's database software
business. On July 2, 2001, the company completed the U.S. portion of the
acquisition, as well as a number of non-U.S. countries. The Informix acquisition
provides the company with a leading database system used in data warehousing,
business intelligence and transaction-handling systems by more than 100,000
customers. The transaction is expected to be completed in the third quarter of
2001. The purchase method will be used to account for the acquisition.
In 1993, the company issued 11.25 million shares of Series A 7-1/2%
Preferred Stock, represented by 45 million Depositary Shares. On May 18, 2001,
the company announced it would redeem all outstanding shares of its Series A
7-1/2% Preferred Stock, represented by the outstanding Depositary Shares
(10,184,043 shares). The Depositary Shares represent ownership of one-fourth of
a share of Preferred Stock. Depositary Shares were redeemed as of July 3, 2001,
the redemption date, for cash at a redemption price of $25 plus accrued and
unpaid dividends to
- 8 -
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the redemption date for each Depositary Share. Dividends on Preferred Stock,
represented by the Depositary Shares ceased to accrue on the redemption date.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001
Despite the extremely difficult industry conditions, as well as dismal
results posted by many IT companies, the company achieved strong second-quarter
and first-half results. The company had $21.6 billion in revenue, (up 5 percent
at constant currency), improving profitability ($2 billion in net income) and
diluted earnings per share of $1.15, up 8.4 percent over last year.
The company recognizes that it is not immune to some of the problems that
affected many of its competitors in the second quarter. The company experienced
ongoing weakness in its personal computer and hard disk drive (HDD) businesses
and it continued to be hurt by the negative effects of currency translation. The
company expects that these factors will continue to work against it in the
second half of this year. Additionally, the company is experiencing signs of
slowing in its Microelectronics business as its original equipment manufacturer
(OEM) customers reduce purchases.
Beyond the near-term issues, it is important to understand that the
company's performance results from strategic decisions the company made years
ago and from its technological leadership in both hardware and software.
Management believes that customers are increasingly placing value on solutions
over products as their buying behavior foretells an industry driven by services,
built on an infrastructure dominated by powerful, secure servers, with the
application integration provided by middleware software. Management also
believes that the company is uniquely positioned to lead in this new
environment, regardless of economic conditions.
RESULT OF OPERATIONS
<Table>
<Caption>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenue $21,568 $21,651 $42,612 $40,999
Cost 13,530 13,788 26,966 26,202
------- ------- ------- -------
Gross profit $ 8,038 $ 7,863 $15,646 $14,797
Gross profit margin 37.3% 36.3% 36.7% 36.1%
Net income $ 2,045 $ 1,941 $ 3,795 $ 3,460
Earnings per share of
common stock:
Assuming dilution $ 1.15 $ 1.06 $ 2.13 $ 1.89
Basic $ 1.17 $ 1.10 $ 2.18 $ 1.95
</Table>
- 9 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
The average number of common shares outstanding assuming dilution was
lower by 40.3 million than the second quarter in 2001 and by 44.5 million than
the first six months of 2001, primarily as a result of the company's share
repurchase program. The average number of shares assuming dilution was 1,777.7
million in the second quarter of 2001 and 1,779.5 million for the first six
months of 2001. There were 1,736.7 million shares outstanding at June 30, 2001.
Revenue for the three months ended June 30, 2001 was essentially flat (up
5 percent in constant currency) versus the same period last year. Revenue from
Global Services increased 6.8 percent in the quarter (13 percent at constant
currency) which continued to benefit from contracts signed over the past year.
Hardware revenue declined 5.5 percent (1 percent at constant currency) driven by
lower personal computer and HDD revenue partially offset by higher revenue from
Microelectronic products, zSeries mainframes and storage subsystem products.
Software revenue decreased 4.6 percent (flat at constant currency) as middleware
software and operating systems revenue declined year-over-year. Revenue from
Global Financing increased 3.1 percent (7 percent at constant currency) and
revenue from Enterprise Investments/Other declined 7.0 percent (flat at constant
currency) year-over-year.
In the Americas, the second-quarter revenue was $9.6 billion, a decrease
of 1.4 percent (flat at constant currency) from the 2000 period. Revenue from
Europe/Middle East/Africa was $5.8 billion, down 1.2 percent (up 7 percent at
constant currency). Asia-Pacific revenue declined 1.6 percent (up 10 percent at
constant currency) to $4.3 billion. OEM revenue was $1.9 billion, a 10.9 percent
increase (12 percent in constant currency) compared with the second quarter of
2000.
The company's overall gross profit margin improved to 37.3 percent in the
2001 second quarter compared with 36.3 percent in the 2000 second quarter. The
increase in gross profit margin was primarily driven by improved margins in
high-end servers, storage subsystems and Global Services.
The company's second-quarter expense was $5.1 billion and the expense to
revenue ratio was 23.8 percent compared with 23.5 percent in the year earlier
period. Operating expense and interest expense-to-revenue improved, while other
income declined due to writedowns of certain equity investments. The company
continued to reduce its expense through its ongoing focus on productivity.
The company's tax rate was 29.5 percent in the second quarter compared
with 30.0 percent in the year-earlier period.
- 10 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
GLOBAL SERVICES
<Table>
<Caption>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $8,742 $8,184 $17,213 $15,736
Total cost 6,329 5,964 12,640 11,561
------ ------ ------- -------
Gross profit $2,413 $2,220 $ 4,573 $ 4,175
Gross profit margin 27.6% 27.1% 26.6% 26.5%
</Table>
Global Services revenue including maintenance, increased 6.8 percent (13
percent at constant currency) and 9.4 percent (15 percent at constant currency),
respectively, in the second quarter and first six months of 2001, when compared
with the same periods of last year. Global Services revenue excluding
maintenance, increased 8.6 percent (15 percent at constant currency) and 11.7
percent (18 percent at constant currency), respectively, for the second quarter
and first half of 2001 versus the comparable periods of last year. Maintenance
revenue declined 2.8 percent (up 3 percent at constant currency) in the second
quarter of 2001 and declined 2.7 percent (up 2 percent at constant currency) for
the first six months of 2001 when compared to the same periods of 2000.
Strategic Outsourcing Services revenue increased in both the second
quarter and first six months of 2001 versus last year with continued strong
growth in the Asia/Pacific region. Business Innovation Services revenue grew in
both the second quarter and first six months of 2001 versus the comparable
period of 2000. Despite a slowdown in this market, particularly in the United
States, customers continued to deploy e-business applications such as supply
chain management and to perform e-business integration of their business
processes and multiple applications. Integrated Technology Services revenue,
excluding maintenance, increased in both the second quarter and the first half
of 2001 versus the prior year periods, as demand for the company's expertise in
e-business infrastructure services has continued and due to the growth in OEM
alliance revenue. Total new contract signings for Global Services in the second
quarter were approximately $16 billion and the backlog at June 30, 2001 is over
$95 billion. Those signings included ten deals over $100 million, including
three deals greater than $1 billion.
Global Services gross profit dollars increased 8.7 percent and 9.5
percent, respectively, in the second quarter and first six months of 2001, when
compared with year-ago periods. The Global Services gross profit margin
increased 0.5 points and 0.1 points, respectively, from the prior year periods.
The increase in both the gross profit dollars and gross profit margin was a
result of improvements in Strategic Outsourcing Services margins and reduced
costs across all geographies for maintenance offerings. These increases were
partially offset by lower gross profit margins in Business Innovation Services
and Integrated Technology Services due to the rebalancing of skills and
resources to meet the new needs of e-business.
- 11 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
HARDWARE
<Table>
<Caption>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $8,652 $9,151 $17,199 $16,863
Total cost 6,061 6,654 12,030 12,247
------ ------ ------- -------
Gross profit $2,591 $2,497 $ 5,169 $ 4,616
Gross profit margin 29.9% 27.3% 30.1% 27.4%
</Table>
Revenue from hardware decreased 5.5 percent (1 percent at constant
currency) and increased 2.0 percent (6 percent at constant currency),
respectively, in the second quarter and first six months of 2001 versus the same
periods of 2000.
Effective in the first quarter of 2001, the segment results reflect
changes the company made in the organization of its hardware business segments.
These changes are more fully discussed in Note 6 on page 7. All amounts
disclosed herein for all years have been reclassified to conform with these
changes.
Enterprise Systems revenue increased for both the second quarter and first
six months of 2001 versus the same periods of last year. The zSeries mainframe
servers had good revenue growth for both the second quarter and first six months
of 2001 when compared to the same periods of 2000. MIPS (millions of
instructions per second) grew 43 percent in the second-quarter 2001 versus the
second quarter of 2000. Storage products had strong revenue growth for both the
second quarter and first six months of 2001 versus the comparable periods in
2000. These increases were driven by strong disk subsystem (primarily Shark) and
tape subsystem products. The UNIX-based pSeries and the PC-based xSeries revenue
declined in the second quarter of 2001 and showed growth for the first six
months of 2001 versus the same periods last year. The iSeries revenue declined
for both the second quarter and first six months of 2001 versus the same periods
last year.
Technology revenue increased for the second quarter and the six months of
2001 when compared with year-ago periods. The increases were driven by the
company's advanced technologies being utilized in three fast growing areas;
networking, pervasive and enterprise IT. During the second quarter the company
began to experience a slowdown in its Microelectronics business as demand for
less complex products has been effected by the industry slowdown. Further, these
increases in Technology revenue were partially offset by lower HDD revenue. The
company's ability to sell HDDs is highly dependent on the personal computer
industry. The uncertainty in this industry is effecting both the company's HDD
and personal computer results. There is extreme price pressure, excess inventory
and manufacturing capacity in this industry.
Personal and Printing Systems revenue declined for the second quarter and
first six months of 2001 versus the same periods in 2000 due to lower revenue
from personal computers, retail
- 12 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
stores solutions and printing system products. The personal computer revenue
decline was primarily driven by price erosion across all product lines. The
company continues to focus on reducing cost and expense in the personal computer
business as well as achieving the maximum utilization through the company's
direct fulfillment channel. In the second quarter of 2001, 40 percent of the
company's personal computer sales were fulfilled through the direct channel
versus 24 percent in the second quarter of 2000.
Hardware sales gross profit dollars for the second quarter and first six
months of 2001 increased 3.8 percent and 12.0 percent, respectively, from
comparable periods in 2000. The hardware gross profit margin increased 2.6
points and 2.7 points, respectively, from the prior year periods. These
increases were primarily due to improved gross profit margins for pSeries,
iSeries and zSeries servers, as well as disk subsystem products and continued
benefit from higher-margin custom logic sales in Technology. The increases were
partially offset by lower gross profit margins associated with HDDs, printing
system and retail stores solutions products.
SOFTWARE
<Table>
<Caption>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $3,036 $3,182 $5,954 $6,109
Total cost 535 557 1,114 1,141
------ ------ ------ ------
Gross profit $2,501 $2,625 $4,840 $4,968
Gross profit margin 82.4% 82.5% 81.3% 81.3%
</Table>
Revenue from software for the second quarter and first six months of 2001
decreased 4.6 percent (flat at constant currency) and 2.5 percent (up 2 percent
at constant currency), respectively, over comparable periods in 2000. The
company's middleware products (which comprise data management, transaction
processing, Tivoli systems management, and Lotus Notes messaging and
collaboration across both IBM and non-IBM platforms) revenue declined 4 percent
(flat at constant currency) and 2 percent (up 3 percent at constant currency),
respectively, for the second quarter and first six months of 2001 versus
comparable periods of 2000. While the company felt the effect of the general
slowdown in the industry in the second quarter, revenue from WebSphere and DB2
database offerings experienced strong growth for the second quarter and first
half of 2001 versus the same periods last year. These increases were partially
offset by lower revenue from Tivoli products as a result of continuing
transitions in this unit's product line.
Operating-systems software revenue declined 4 percent (up 1 percent at
constant currency) and 3 percent (up 1 percent at constant currency) for the
second quarter and first six months of 2001, when compared with year-ago
periods. The declines were primarily associated with lower revenue from server
products.
- 13 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
The company made progress in the second quarter with alliance partners,
signing 13 new Independent Software Vendors (ISV) alliances. As of June 30,
2001, the company has 68 of these strategic partnerships, all of whom have
committed to lead with IBM middleware, eServers and services as the company
works with them to help the company's customers build the next-generation
applications.
Software gross profit dollars for the second quarter and first six months
of 2001 declined 4.7 percent and 2.6 percent, respectively, versus the same
periods in 2000. The gross profit margin declined 0.1 points and was flat,
respectively, for the second quarter and first six months of 2001, versus the
same periods of 2000. The declines in gross profit dollars and gross profit
margin were primarily driven by lower software revenue in the second quarter and
first six months of 2001 versus the same periods in 2000.
GLOBAL FINANCING
<Table>
<Caption>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $845 $819 $1,677 $1,635
Total cost 438 449 876 910
---- ---- ------ ------
Gross profit $407 $370 $ 801 $ 725
Gross profit margin 48.2% 45.2% 47.7% 44.3%
</Table>
Global Financing revenue increased 3.1 percent (7 percent at constant
currency) and 2.6 percent (6 percent at constant currency), respectively, for
the second quarter and first six months of 2001, when compared with the same
periods of 2000. The increases in revenue were primarily driven by growth in
used equipment sales, commercial and customer financing.
Global Financing gross profit dollars increased 10.0 percent and 10.5
percent, respectively, for the second quarter and first six months of 2001,
versus the same periods of 2000. The gross profit margins improved 3.0 points
and 3.4 points, respectively, for the second quarter and first six months of
2001, versus the same periods of 2000. The increases in gross profit dollars and
gross profit margins were primarily driven by improved margins for used
equipment sales and higher financing margins due to lower interest rates. See
Note 5 on page 7 for additional information regarding Cost of Global Financing
reclassification effective January 1, 2001. All amounts disclosed herein for all
years presented have been reclassified to conform with these changes.
- 14 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
ENTERPRISE INVESTMENTS/OTHER
<Table>
<Caption>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $293 $315 $569 $656
Total cost 167 164 306 343
---- ---- ---- ----
Gross profit $126 $151 $263 $313
Gross profit margin 43.3% 47.9% 46.3% 47.7%
</Table>
Revenue from Enterprise Investments/Other decreased 7.0 percent (flat at
constant currency) and 13.4 percent (7 percent at constant currency),
respectively, for the second quarter and first six months of 2001, versus
comparable periods in 2000. These declines were primarily due to lower CATIA
related product revenue versus the same periods in 2000.
The Enterprise Investments/Other gross profit dollars decreased 16.6
percent and 16.0 percent, respectively, in the second quarter and first six
months of 2001, versus the same periods of 2000. The gross profit margins
declined 4.6 points and 1.4 points, respectively, for the second quarter and
first six months of 2001 versus the year ago periods. The declines in gross
profit dollars and gross profit margin were primarily due to lower CATIA related
product revenue in the second quarter and first half of 2001 versus last year
periods.
EXPENSES
<Table>
<Caption>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Selling, general and administrative $ 3,765 $ 3,867 $ 7,573 $ 7,573
Percentage of revenue 17.5% 17.9% 17.8% 18.5%
Research, development and engineering $ 1,279 $ 1,269 $ 2,482 $ 2,441
Percentage of revenue 5.9% 5.9% 5.8% 6.0%
</Table>
Selling, general and administrative (SG&A) expense declined 2.6 percent
(up 1 percent at constant currency) for the second quarter of 2001 compared to
the second quarter of 2000 and was flat (up 3 percent at constant currency) for
the first six months of 2001 versus the same period in 2000.
SG&A expense benefited from the effects of currency and lower goodwill
amortization for the second quarter and first six months of 2001. This benefit
was offset by lower benefits from licensing of intellectual property and
increased compensation-related spending. The company continues to reduce its
expense through increased use of e-procurement, on-line learning and other
actions related to the company's ongoing e-business transformation.
Research, development and engineering expense increased 0.8 percent and
1.7 percent, respectively, for the second quarter and first six months of 2001,
when compared with the same
- 15 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
periods of 2000.
Other income declined 125.9 percent and 121.9 percent, respectively, for
the second quarter and first six months of 2001 when compared to the same
periods of 2000. The declines were primarily due to the write-downs ($106
million in the second quarter and $222 million in the first six months) of
certain equity investments for other-than-temporary market declines. In
addition, lower realized gains from sales of available-for-sale securities in
2001 contributed to the declines in Other income.
Interest on total borrowings of the company and its subsidiaries, which
includes interest expense and interest costs associated with Global Financing,
was $317 million and $685 million for the second quarter and first six months of
2001, respectively. Of these amounts, the company capitalized $7 million for the
second quarter and $14 million for the first six months of 2001. See pages 19
and 20 for a discussion regarding the classification of interest expense in the
Consolidated Statement of Earnings.
Included in the company's cost and expense was approximately $146 million
of benefit for retirement-related plans, including pension plans and nonpension
postretirement benefit plans, for the second quarter of 2001. The comparable
amount for the second quarter of 2000 was approximately $113 million. The
comparable amounts for the first six months of 2001 and 2000 were $230 million
and $171 million, respectively. The company realized cost and expense reductions
of approximately $365 million due to the funded status of its pension plans for
the second quarter of 2001. The comparable amount for the second quarter of 2000
was approximately $351 million. The comparable amounts for the first six months
of 2001 and 2000 were $704 million and $606 million, respectively. The second
quarter of 2001 cost and expense reduction is net of approximately $25 million
associated with the improvement in pension benefits for certain retirees
participating in the U.S. Plan, effective January 1, 2001. The first six months
of 2001 cost and expense reduction is net of approximately $50 million
associated with the improvement in pension benefits for certain retirees
participating in the U.S. Plan, effective January 1, 2001. Future effects of
retirement-related plans on the operating results of the company depend on
economic conditions, employee demographics, mortality rates and investment
performance.
The effective tax rate for the quarter ended June 30, 2001, was 29.5
percent versus 30.0 percent for the same period in 2000. The effective tax rate
for the first six months of 2001 was 29.6 percent versus 30.0 percent for the
same period in 2000. The declines in the tax rates were primarily the result of
the source of earnings and corresponding weighting of tax rates on a
country-by-country basis.
FINANCIAL CONDITION
During the first half of 2001, the company's continued strong financial
performance enabled it to make significant investments to fund its future growth
and increase shareholder value. Investments included expenditures of $2,748
million for Research, development and engineering, $2,949 million for Plant,
rental machines and other property and $2,536 million for the
- 16 -
<Page>
FINANCIAL CONDITION - (CONTINUED)
repurchase of the company's common shares. The company had $3,780 million in
Cash and cash equivalents and Marketable securities at June 30, 2001.
CASH FLOW
<Table>
<Caption>
(Dollars in millions) Six Months Ended
June 30,
---------------------
2001 2000
---- ----
Net cash provided from (used in):
Operating activities $ 5,387 $ 2,485
Investing activities (2,674) (1,406)
Financing activities (2,544) (3,044)
Effect of exchange rate changes on cash
and cash equivalents (41) (91)
------- -------
Net change in cash and cash equivalents $ 128 $(2,056)
======= =======
</Table>
Cash flows from operating activities in the first half of 2001 increased
$2,902 million from the comparable 2000 period. This primarily resulted from the
company's improvement in net income, as well as the collection of accounts
receivable which reflected strong year-end 2000 business volumes, offset by a
decline in cash flows for accounts payable and other accruals.
Cash flows used in investing activities increased $1,268 million from the
comparable 2000 period. Payments for plant, rental machines and other property
net of proceeds drove the increase from the comparable 2000 period, primarily
for investments in the company's Global Services business and in manufacturing
capacity for microelectronics and storage products. Proceeds from marketable
securities and other investments declined from the 2000 period.
Cash flows used in financing activities in the first half of 2001
decreased $500 million from the comparable 2000 period due primarily to
decreases in stock repurchases partially offset by net cash flows from debt
financing.
WORKING CAPITAL
<Table>
<Caption>
(Dollars in millions) At June 30, At December 31,
2001 2000
----------- ---------------
Current assets $40,574 $43,880
Current liabilities 29,949 36,406
------- -------
Working capital $10,625 $ 7,474
Current ratio 1.35:1 1.21:1
</Table>
Current assets decreased $3,306 million from year-end 2000 primarily due
to decreases of $4,121 million in Accounts receivable ($2,799 million in
Short-term financing receivables, $1,066 million in Notes and accounts
receivable and $256 million in Other accounts receivable) and $287 million in
deferred taxes partially offset by an increases of $951 million in Prepaid
- 17 -
<Page>
FINANCIAL CONDITION - (CONTINUED)
expenses and other current assets, $93 million in Inventories and $58 million in
Cash and cash equivalents and Marketable securities. The decline in Accounts
Receivable was attributable to the collection of typically higher year-end
accounts receivable balances. The increase in Prepaid expenses and other current
assets primarily resulted from the recognition of derivative instrument assets
relative to the company's January 1, 2001 adoption of SFAS No. 133. Inventories
increased primarily within the Technology Group, Enterprise Systems Group and
storage systems offset by a decline in Personal and Printing Systems Group
inventories.
Current liabilities decreased $6,457 million from year-end 2000 with
declines of $3,877 million in Accounts payable and accruals, and $911 million in
Taxes payable (resulting primarily from declines in these balances from
typically higher year-end levels), and $1,669 million in Short-term debt.
INVESTMENTS
During the first half of 2001, the company invested $2,949 million in
Plant, rental machines and other property, an increase of $577 million from the
comparable 2000 period. The company's investments were in its services business,
primarily in the management of customers' information technology, as well as in
manufacturing capacity for HDDs and microelectronics.
In addition to software development expense included in Research,
development and engineering expense, the company capitalized $306 million of
software costs during the first half of 2001, an increase of $44 million from
the comparable period in 2000. Amortization of capitalized software costs was
$290 million during the first half of 2001, an increase of $70 million from the
comparable 2000 period.
Investments and sundry assets were $14,465 million at June 30, 2001, an
increase of $18 million from year-end 2000, resulting primarily from an increase
in prepaid pension assets, partially offset by declines in alliance investments
including the write-down of certain equity investments for other-than-temporary
market declines.
On April 24, 2001, the Board of Directors increased its authorized amount
of IBM common shares that the company may repurchase in the open market by an
additional $3.5 billion of IBM common shares. The company's total remaining
authorized amount as of June 30, 2001 is $3,784 million of IBM common shares.
- 18 -
<Page>
FINANCIAL CONDITION - (CONTINUED)
DEBT AND EQUITY
GLOBAL FINANCING
<Table>
<Caption>
(Dollars in millions) At June 30, At December 31,
2001 2000
----------- ---------------
Assets* $36,368 $40,822
Debt ** 26,109 27,514
Equity 3,880 4,142
Debt/Equity 6.7x 6.6x
</Table>
* Global Financing assets include cash, financing receivables, intercompany
assets, rental machine fixed assets and other assets.
** Global Financing debt includes debt of the company and of Global Financing
units that support the Global Financing business.
The Global Financing segment is a financial services business and is,
therefore, more debt dependent than the company's other businesses. At June 30,
2001, Global Financing debt to equity ratio increased to 6.7x, which is within
management's acceptable target range.
NON-GLOBAL FINANCING
<Table>
Debt* $ 1,197 $ 1,062
Debt/Capitalization 6.0% 6.1%
EBITDA/Interest Expense** 26x 24x
</Table>
* Non-global financing debt is the company's total external debt less the
Global Financing debt described in the Global Financing table above.
** EBITDA is earnings before interest and taxes, plus depreciation and
amortization, adjusted for minimum rental commitments. The interest
expense used in the denominator represents the company's total interest
expense less the interest expense associated with the Global Financing
debt in the table above.
The increase in non-global financing debt in the first half of 2001 is
based on seasonal patterns of the company's cash flows. The level of non-global
financing debt is generally low at year-end periods due to strong fourth quarter
cash flows. Non-global financing debt increases in the first half of the year
due to weaker cash flows and increased requirements for cash in the first half
period.
Global Financing provides financing predominately for the company's
external customers but also provides financing for the company including the
funding to support the Global Services business' long-term customer services
contracts. All of these financing arrangements are at arms-length rates based
upon market conditions. The company manages and measures the Global Financing
business as if it approximates a stand-alone business that includes both the
external financing and related company financing described above. Accordingly,
the Global Financing debt above and Global Financing Cost of financing below
support both of these Global Financing activities.
- 19 -
<Page>
FINANCIAL CONDITION - (CONTINUED)
All intercompany transactions are eliminated in the Consolidated Statement
of Earnings and therefore, the financing revenue associated with the financing
provided by Global Financing to the company is eliminated in consolidation.
Accordingly, the interest expense from the company's external borrowings that
supports such financing revenue is classified in the Interest expense caption of
the Consolidated Statement of Earnings as opposed to the Cost of financing
caption. The reconciliation of these amounts for three-and six-month periods
ended June 30, 2001 is as follows:
(Dollars in millions)
<Table>
<Caption>
Global Non-Global Consolidated
Financing Financing Eliminations Results
--------- ---------- ------------ ------------
Three Months
Cost of financing $ 296 $ -- $ (44) $ 252
Interest expense -- 14 44 58
Six Months
Cost of financing $ 639 $ -- $ (98) $ 541
Interest expense -- 32 98 130
</Table>
Stockholders' equity increased $1,967 million from December 31, 2000,
primarily due to the increase in the company's retained earnings partially
offset by the company's ongoing stock repurchase program.
LIQUIDITY
Effective May 31, 2001, the company renewed its committed global credit
facility. The former $10 billion facility was due to mature in February 2002.
The amount of the new facility was reduced from $10 billion to $8 billion. In
addition, a new $4 billion, 364-day committed global credit facility was
established. As of June 30, 2001, $7,556 million of the $8 billion facility and
all of the $4 billion facility remained unused and available for use.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
Except for the historical information and discussions contained herein,
statements contained in this Form 10-Q 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, including the
company's failure to continue to develop and market new and innovative products
and services and to keep pace with technological change; competitive pressures;
failure to obtain or protect intellectual property rights; quarterly
fluctuations in revenues and volatility of stock prices; the company's ability
to attract and retain key personnel; currency and customer financing risks;
dependence on certain suppliers; changes in the financial or business condition
of the company's distributors or resellers; the company's ability to
successfully manage acquisitions and alliances; legal, political and economic
changes and other risks, uncertainties and factors discussed elsewhere in this
Form 10-Q, in the company's other filings with the Securities and Exchange
Commission or in materials incorporated therein by reference.
- 20 -
<Page>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The International Business Machines Corporation held its Annual Meeting
of Stockholders on April 24, 2001. For more information on the following
proposals, see the company's proxy statement dated March 12, 2001, the relevant
portions of which are incorporated herein by reference.
(1) The stockholders elected each of the fifteen nominees to the Board of
Directors for a one-year term:
<Table>
<Caption>
DIRECTOR FOR WITHHELD
----------------- ------------- --------
C. Black 1,421,831,804 19,003,383
K. I. Chenault 1,419,641,674 21,193,513
J. Dormann 1,422,083,639 18,751,548
L. V. Gerstner, Jr 1,420,061,864 20,773,323
N. O. Keohane 1,421,199,408 19,635,779
C. F. Knight 1,335,167,484 105,667,703
M. Makihara 1,421,132,068 19,703,119
L. A. Noto 1,421,641,981 19,193,206
S. J. Palmisano 1,422,026,752 18,808,435
J. B. Slaughter 1,420,870,825 19,964,362
S. Taurel 1,420,342,238 20,492,949
J. M. Thompson 1,422,026,453 18,808,734
A. Trotman 1,421,422,509 19,412,678
L. C. van Wachem 1,419,944,913 20,890,274
C. M. Vest 1,420,016,783 20,818,404
</Table>
(2) The stockholders ratified the appointment of PricewaterhouseCoopers LLP as
independent accountants of the company:
<Table>
For 1,402,139,439
Against 28,279,400
Abstain 10,416,348
-------------
Total 1,440,835,187
</Table>
(3) The stockholders defeated a shareholder proposal on Board Service:
<Table>
For 57,588,526
Against 1,043,466,665
Abstain 34,039,201
Broker No Vote 305,740,795
-------------
Total 1,440,835,187
</Table>
- 21 -
<Page>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - (CONTINUED)
(4) The stockholders defeated a shareholder proposal on Pension and Retirement
Medical:
<Table>
For 159,172,103
Against 925,456,501
Abstain 50,465,788
Broker No Vote 305,740,795
-------------
Total 1,440,835,187
</Table>
ITEM 6 (a). EXHIBITS
EXHIBIT NUMBER
11 Statement re: computation of per share earnings.
12 Statement re: computation of ratios.
22 The company's proxy statement dated March 12, 2001, containing the
full text of the proposals referred to in Item 4, which was
previously filed electronically, is hereby incorporated by
reference.
ITEM 6 (b). REPORTS ON FORM 8-K
The company filed Form 8-K on April 18, 2001, with respect to the
company's financial results for the period ended March 31, 2001, and included
the unaudited Consolidated Statement of Earnings, Consolidated Statement of
Financial Position and Segment Data for the period ended March 31, 2001. In
addition, IBM's Chief Financial Officer, John R. Joyce's first-quarter earnings
presentation to security analysts on Wednesday, April 18, 2001, was filed as
Attachment II of the Form 8-K.
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 thereunto duly authorized.
International Business Machines Corporation
-------------------------------------------
(Registrant)
Date: August 14, 2001
- ---------------------
By:
/s/ Mark Loughridge
----------------------------------
Mark Loughridge
Vice President and Controller
- 22 -