SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 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 1,722,641,927 shares of common stock outstanding at
September 30, 2001.
<Page>
INDEX
Page
----
PART I - FINANCIAL INFORMATION:
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Earnings for the three and nine
months ended September 30, 2001 and 2000 .......................... 1
Consolidated Statement of Financial Position at
September 30, 2001 and December 31, 2000 .......................... 3
Consolidated Statement of Cash Flows for the nine months
ended September 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 ............... 10
PART II - OTHER INFORMATION ............................................... 22
<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 Nine Months Ended
per share amounts) September 30, September 30,
--------------------- ---------------------
2001 2000* 2001 2000*
------- -------- ------- --------
REVENUE:
Global Services $ 8,682 $ 8,230 $25,895 $ 23,966
Hardware 7,479 9,451 24,678 26,314
Software 3,201 2,918 9,155 9,027
Global Financing 822 859 2,499 2,494
Enterprise Investments/Other 244 323 813 979
------- -------- ------- --------
Total revenue 20,428 21,781 63,040 62,780
COST:
Global Services 6,214 6,042 18,854 17,603
Hardware 5,685 6,815 17,715 19,062
Software 591 549 1,705 1,690
Global Financing 403 501 1,279 1,411
Enterprise Investments/Other 144 170 450 513
------- -------- ------- --------
Total cost 13,037 14,077 40,003 40,279
------- -------- ------- --------
GROSS PROFIT 7,391 7,704 23,037 22,501
EXPENSE:
Selling, general and administrative 3,741 3,726 11,314 11,299
Research, development and
engineering 1,261 1,261 3,743 3,702
Other income 73 (173) 143 (492)
Interest expense 54 86 184 245
------- -------- ------- --------
TOTAL EXPENSE 5,129 4,900 15,384 14,754
INCOME BEFORE INCOME TAXES 2,262 2,804 7,653 7,747
Income tax provision 667 841 2,263 2,324
------- -------- ------- --------
NET INCOME 1,595 1,963 5,390 5,423
Preferred stock dividends -- 5 10 15
------- -------- ------- --------
NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS $ 1,595 $ 1,958 $ 5,380 $ 5,408
======= ======== ======= ========
</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 Nine Months Ended
September 30, September 30,
------------------ ---------------
2001 2000 2001 2000
---- ---- ---- ----
EARNINGS PER SHARE OF COMMON
STOCK:
Assuming dilution $ 0.90 $ 1.08 $ 3.03 $ 2.97
Basic $ 0.92 $ 1.11 $ 3.10 $ 3.06
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING: (MILLIONS)
Assuming dilution 1,767.9 1,809.8 1,775.6 1,819.3
Basic 1,731.8 1,758.1 1,737.0 1,767.6
Cash dividends per common share $ 0.14 $ 0.13 $ 0.41 $ 0.38
</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 September 30,
(Dollars in millions) 2001 At December 31,
(Unaudited) 2000
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,715 $ 3,563
Marketable securities -- at fair value,
which approximates market 297 159
Notes and accounts receivable -- trade, net of
allowances 9,350 10,447
Short-term financing receivables 16,045 18,705
Other accounts receivable 1,282 1,574
Inventories, at lower of average cost or net
realizable value
Finished goods 1,451 1,446
Work in process and raw materials 3,387 3,319
------- -------
Total inventories 4,838 4,765
Deferred taxes 2,387 2,701
Prepaid expenses and other current assets 2,395 1,966
------- -------
Total current assets 40,309 43,880
Plant, rental machines and other property 39,075 38,455
Less: Accumulated depreciation 22,255 21,741
------- -------
Plant, rental machines and other property -- net 16,820 16,714
Long-term financing receivables 12,246 13,308
Investments and sundry assets 15,719 14,447
------- -------
TOTAL ASSETS $85,094 $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 September 30,
(Dollars in millions except 2001 At December 31,
Per Share Amounts) (Unaudited) 2000
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Taxes $ 3,589 $ 4,827
Accounts payable and accruals 18,380 21,374
Short-term debt 10,907 10,205
--------- ---------
Total current liabilities 32,876 36,406
Long-term debt 17,654 18,371
Other long-term liabilities 12,587 12,948
--------- ---------
TOTAL LIABILITIES 63,117 67,725
Stockholders' equity:
Preferred stock - par value $.01 per share -- 247
Shares authorized: 150,000,000
Shares issued and outstanding:
2000 - 2,546,011
Common stock - par value $.20 per share 13,852 12,400
Shares authorized: 4,687,500,000
Shares issued: 2001 - 1,906,928,246
2000 - 1,893,940,595
Retained earnings 28,116 23,784
Treasury stock - at cost (19,444) (13,800)
Shares: 2001 - 184,286,319
2000 - 131,041,411
Employee benefits trust -- (1,712)
Shares: 2000 - 20,000,000
Accumulated gains and losses not
affecting retained earnings (547) (295)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 21,977 20,624
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,094 $ 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 NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<Table>
<Caption>
(Dollars in millions) 2001 2000
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 5,390 $ 5,423
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation 3,199 3,285
Amortization of software 456 346
Loss/(gain) on disposition of fixed and other assets 178 (710)
Changes in operating assets and liabilities 210 (3,796)
------- -------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 9,433 4,548
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for plant, rental machines
and other property, net of proceeds (3,559) (2,501)
Investment in software (486) (406)
Acquisition of Informix (889) --
Purchases of marketable securities and other
investments (716) (850)
Proceeds from marketable securities and other
investments 549 1,335
------- -------
NET CASH USED IN INVESTING ACTIVITIES (5,101) (2,422)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from new debt 4,208 7,719
Payments to settle debt (5,583) (6,711)
Short-term borrowings less than 90 days -- net 1,370 377
Common stock transactions-- net (3,171) (4,817)
Preferred stock transactions (247) --
Cash dividends paid (725) (694)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (4,148) (4,126)
------- -------
Effect of exchange rate changes on
cash and cash equivalents (32) (163)
------- -------
Net change in cash and cash equivalents 152 (2,163)
Cash and cash equivalents at January 1 3,563 5,043
------- -------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 3,715 $ 2,880
======= =======
</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 necessary to a fair statement of the
results for the unaudited three- and nine-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 Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2000 2001 2000
------- ------- ------- -------
Net Income $ 1,595 $ 1,963 $ 5,390 $ 5,423
------- ------- ------- -------
Gains and losses not affecting
retained earnings (net of tax):
Foreign currency translation 37 (243) (479) (536)
Net unrealized gains/(losses) on
marketable securities 19 (29) 65 (785)
Net unrealized (losses)/gains on
cash flow hedge derivatives (318) -- 162 --
------- ------- ------- -------
Total losses not affecting
retained earnings (262) (272) (252) (1,321)
------- ------- ------- -------
Net income plus gains and losses
not affecting retained earnings $ 1,333 $ 1,691 $ 5,138 $ 4,102
======= ======= ======= =======
</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. Under the
previous rules, the company was required to use the purchase method, so this
aspect of the new rules will not have an impact on the company's financial
results. SFAS No. 141 also expands 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 beginning on July 1, 2001.
SFAS No. 142 eliminates the amortization of goodwill, requires annual
impairment testing of goodwill and introduces the concept of indefinite life
intangible assets. It must be adopted on January 1, 2002. The new rules also
prohibit the amortization of goodwill associated with business combinations that
close after June 30, 2001.
These new requirements will impact future period net income by an amount
equal to the amount of goodwill amortization that has been discontinued 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
reviewing the provisions of these standards and based on current conditions does
not expect to incur a material transition goodwill impairment charge as of
January 1, 2002.
In August 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS. SFAS No. 143 provides accounting and reporting guidance
for legal obligations associated with the retirement of long-lived assets and
the associated asset retirement costs. The retirement obligations included are
those that an entity cannot avoid as a result of either the acquisition,
construction or normal operation of a long-lived asset. The standard is
effective January 1, 2003. The company is reviewing the provisions of this
standard and its adoption is not expected to have a material effect on the
consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISCLOSURE OF LONG-LIVED ASSETS. SFAS No. 144 addresses
significant issues relating to the implementation of SFAS No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, develops a single accounting model, based on the framework established in
SFAS No. 121 for long-lived assets to be disposed of by sale, whether previously
held and used or newly acquired. The company is currently reviewing the
provisions of this standard, which must to be implemented no later than January
1, 2002.
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 20 and 21 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
- 7 -
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. Third-quarter and first-nine months 2000 results have been
reclassified to conform with the 2001 presentation.
7. The company is exposed to equity price changes relating to certain employee
compensation obligations. These exposures are primarily related to market value
movements in certain broad equity market indices and in the company's own stock.
Changes in the value of these employee compensation obligations are recorded in
Selling, general, and administrative expense in the Consolidated Statement of
Earnings. At the end of the third quarter of 2001, although not formally
designated as accounting hedges, the company entered into futures contracts
linked to the total return of specific market indices designed to economically
hedge the exposure relating to a portion of these employee compensation
obligations. These derivatives are recorded at fair value with gains or losses
also reported in Selling, general, and administrative expense in the
Consolidated Statement of Earnings. As of September 30, 2001, the net fair value
of these derivative positions and related net gains (losses) for the period were
not material.
8. 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 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 did not 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.
9. 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
- 8 -
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 the
redemption date for each Depositary Share. Dividends on Preferred Stock,
represented by the Depositary Shares ceased to accrue on the redemption date.
10. 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 is $8 billion. In addition, a new $4 billion,
364-day committed global credit facility was established.
11. 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
(Dollars in millions) 12/31/2000 Payments Other Adj.(c) 9/30/2001
---------- -------- ------------- ---------
Current:
Workforce (a) $148 $107 $ 65 $106
Space (b) 91 62 48 77
---- ---- ----- ----
Total $239 $169 $ 113 $183
Non-current:
Workforce (a) $470 $ -- $ (76) $394
Space (b) 384 -- (101) 283
---- ---- ----- ----
Total $854 $ -- $(177) $677
</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.
12. 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. Under the
terms of the purchase, the company has paid $889 million of the purchase price
and will pay the remaining amount in 2002. The Informix acquisition provides the
company with a database software system used in data warehousing, business
intelligence and transaction-handling systems by more than 100,000 customers. In
addition, the acquisition significantly increased the size of the company's Unix
database business. The transaction was completed and the results of this
acquisition are included in the company's consolidated financial statements in
the third quarter of 2001. The following presents the allocation of the purchase
price:
- 9 -
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<Table>
<Caption>
(Dollars in millions)
Purchase Price $ 1,000
Tangible net assets 79
Current technology 140
Other identifiable intangible assets 230
Goodwill 551
</Table>
The acquisition was accounted for as a purchase transaction, and
accordingly the assets and liabilities were recorded at their estimated fair
value at the date of the acquisition.
The tangible net assets are primarily comprised of accounts receivable,
deferred income and other assets. The current technology represents software
that has reached technological feasibility and has future economic value. The
other identifiable intangible assets are primarily comprised of customer
relationships and trademarks. The identifiable intangible assets will be
amortized on a straight-line basis, generally not to exceed five years.
12. On October 31, 2001, the Board of Directors authorized the company to
repurchase up to an additional $3.5 billion of IBM common shares. The company
plans to repurchase the shares in the open market from time to time based on
market conditions.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
The third quarter financial results continued to demonstrate the strong
resilience of the company as services, high-end servers and software revenue
grew despite the current environment. In addition, the company benefited from
the strength of its broad portfolio and its business model with its core of
annuity-like businesses.
A major shift is underway in customer buying patterns in favor of
powerful, fully integrated servers, software and services. This shift plays
directly to the strength of the company's product, services and technology
portfolio. Even though customers may have slowed their investment in information
technology (IT) in this economic environment, they remain focused on this shift
towards integration. This customer shift is helping the company even during
these difficult times, in terms of revenue growth in key segments. The company
believes these trends will continue to accelerate in its favor once the economy
begins to improve.
- 10 -
<Page>
RESULTS OF OPERATIONS
<Table>
<Caption>
(Dollars in millions) Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenue $20,428 $21,781 $63,040 $62,780
Cost 13,037 14,077 40,003 40,279
------- ------- ------- -------
Gross profit $ 7,391 $ 7,704 $23,037 $22,501
Gross profit margin 36.2% 35.4% 36.5% 35.8%
Net income $ 1,595 $ 1,963 $ 5,390 $ 5,423
Earnings per share of
common stock:
Assuming dilution $ 0.90 $ 1.08 $ 3.03 $ 2.97
Basic $ 0.92 $ 1.11 $ 3.10 $ 3.06
</Table>
The average number of common shares outstanding assuming dilution was
lower than the third quarter of 2000 by 41.9 million and lower than the first
nine months of 2000 by 43.7 million primarily as a result of the company's
repurchase program. The average number of shares assuming dilution was 1,767.9
million in the third quarter of 2001 and 1,775.6 million for the first nine
months of 2001. There were 1,722.6 million shares outstanding at September 30,
2001.
Revenue for the three months ended September 30, 2001 decreased 6.2
percent versus the same period last year (3 percent at constant currency).
Revenue from Global Services, including maintenance, grew 5.4 percent (9 percent
at constant currency).
Hardware revenue decline 20.9 percent (18 at constant currency) from the
third quarter of 2000. Revenue from z900 mainframe servers grew strongly.
Revenue from the iSeries mid-market servers increased in all geographies, while
pSeries revenue declined. Personal computer revenue declined significantly,
reflecting continued weakness and price pressures in the market. Revenue from
the company's high-end storage product family (Shark) increased year over year.
Microelectronics revenue decreased substantially, as expected, principally due
to the cyclical downturn that is affecting the worldwide semiconductor and
original equipment manufacturer (OEM) markets.
Software revenue grew 9.7 percent (14 percent at constant currency)
compared to the prior year's third quarter. Middleware revenue, which comprises
approximately 80 percent of the company's overall software revenue, grew 14
percent (18 percent at constant currency) and operating systems revenue declined
1 percent (up 3 percent at constant currency) year over year. See the Software
section below for the impact of the Informix acquisition.
Global Financing revenue decreased 4.3 percent (2 percent at constant
currency) and Enterprise Investment revenue declined 24.2 percent (21 percent at
constant currency) versus the third quarter of 2000.
- 11 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
In the Americas, third quarter revenue was $9.1 billion, a decline of 6.2
percent (5 percent increase at constant currency) compared with the same period
last year. Revenue from Europe/Middle East/Africa was $5.7 billion, up 0.8
percent (4 percent at constant currency). Asia-Pacific revenue declined 4.6
percent (up 5 percent at constant currency) to $4.1 billion. OEM (Original
Equipment manufacturer) revenue across all geographies was $1.5 billion, a 28.0
percent decline (27 percent at constant currency) compared with the third
quarter of 2000.
The company's overall gross profit margin improved to 36.2 percent in the
third quarter of 2001 from 35.4 percent in the third quarter of last year.
Third-quarter expense was 5.1 billion, up 4.7 percent compared with the
year-earlier period. Selling, general and administrative expense was essentially
flat. Research, development and engineering expense was also flat. Other income
declined primarily due to writedowns of certain equity investments.
The company's tax rate was 29.5 percent in the third quarter compared with
30.0 percent in the third quarter of last year.
Net income for the nine months ended September 30, 2001 was $5.4 billion,
or $3.03 per diluted common share, compared with net income of $5.4 billion, or
$2.97 per diluted common share, in the year-earlier period. Revenue for the nine
months ended September 30, 2001 was $63.0 billion, flat (up 5 percent in
constant currency) compared with $62.8 billion for the nine months of 2000.
GLOBAL SERVICES
<Table>
<Caption>
(Dollars in millions) Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $8,682 $8,230 $25,895 $23,966
Total cost 6,214 6,042 18,854 17,603
------ ------ ------- -------
Gross profit $2,468 $2,188 $ 7,041 $ 6,363
Gross profit margin 28.4% 26.6% 27.2% 26.5%
</Table>
Global Services revenue including maintenance, increased 5.4 percent (9
percent at constant currency) and 8.0 percent (13 percent at constant currency),
respectively, in the third quarter and first nine months of 2001, when compared
with the same periods of last year. Global Services revenue excluding
maintenance, increased 7.1 percent (11 percent at constant currency) and 10.1
percent (16 percent at constant currency), respectively, for the third quarter
and first nine months of 2001 versus the comparable periods of last year.
Maintenance revenue declined 3.4 percent (up 1 percent at constant currency) in
the third quarter of 2001 and declined 3.0 percent (up 2 percent at constant
currency) for the first nine months of 2001 when compared to the same periods of
2000.
Strategic Outsourcing Services revenue increased in both the third quarter
and first nine months of 2001 versus last year with continued strong growth in
the Asia/Pacific and E/ME/A
- 12 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
regions. Integrated Technology Services revenue, excluding maintenance,
increased in both the third quarter and the first nine months 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. In addition, third-quarter 2001 business continuity and recovery
services revenue increased. Business Innovation Services revenue grew in both
the third quarter and first nine months of 2001 versus the comparable periods 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. The events of September 11 further affected an already
weak consulting and integration environment. Total new contract signings for
Global Services in the third quarter were approximately $10 billion and the
backlog at September 30, 2001 is $97 billion. Those signings included seven
contracts over $100 million each.
Global Services gross profit dollars increased 12.8 percent and 10.7
percent, respectively, in the third quarter and first nine months of 2001, when
compared with year-ago periods. The Global Services gross profit margin
increased 1.8 points and 0.7 points, respectively, from the prior year periods.
The increase in both the gross profit dollars and gross profit margin was a
result of cost reduction actions in Strategic Outsourcing Services and reduced
labor and parts costs across all geographies for maintenance offerings.
HARDWARE
<Table>
<Caption>
(Dollars in millions) Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $7,479 $9,451 $24,678 $26,314
Total cost 5,685 6,815 17,715 19,062
------ ------ ------- -------
Gross profit $1,794 $2,636 $ 6,963 $ 7,252
Gross profit margin 24.0% 27.9% 28.2% 27.6%
</Table>
Revenue from hardware decreased 20.9 percent (18 percent at constant
currency) and 6.2 percent (3 percent at constant currency), respectively, in the
third quarter and first nine 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 pages 7 and 8. All amounts
disclosed herein for all years have been reclassified to conform with these
changes.
Enterprise Systems revenue declined for the third quarter and increased
for the first nine months of 2001 versus the same periods of last year. The
zSeries mainframe servers had good revenue growth for both the third quarter and
first nine months of 2001 when compared to the same periods of 2000. MIPS
(millions of instructions per second) grew 42 percent in the third quarter of
2001 versus the third quarter of 2000 and have grown over 40 percent in each
quarter of 2001 versus the same periods of 2000. Storage products had revenue
growth for both the third quarter and first nine months of 2001 versus the
comparable periods in 2000. These increases
- 13 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
were driven by strong disk subsystem (primarily Shark) and tape subsystem
products. The UNIX-based pSeries revenue declined in the third quarter of 2001
and showed growth for the first nine months of 2001 versus the same periods last
year. The decline in pSeries revenue in the third quarter was primarily a result
of customers waiting for the new high-end "Regatta" server, which was announced
in early October. The iSeries revenue increased for the third quarter and
declined for the first nine months of 2001 versus the same periods last year.
The xSeries (Intel-based) servers revenue declined for both the third quarter
and first nine months of 2001 versus the comparable periods of 2000. This
Intel-based server market continues to be under intense pressures.
Technology revenue declined for the third quarter and increased for the
first nine months of 2001 when compared with year-ago periods. The decline in
the third quarter was driven by the semiconductor industry's severe downturn
which began impacting the company in the second quarter of 2001. In addition,
the company's HDD revenue declined in the third quarter and first nine months of
2001, as 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. The company continues to evaluate
various alternatives to mitigate the impact of HDDs on the results of the
company. These alternatives include, among other actions, rebalancing sources of
supply and reexamining manufacturing efficiencies.
Personal and Printing Systems revenue declined for the third quarter and
first nine months of 2001 versus the same periods in 2000 due to lower revenue
from personal computers, retail stores solutions and printing system products.
The personal computer revenue decline was primarily driven by demand weakness
and 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
October 2001, the company refreshed its entire personal computer line bringing
new wireless, security and management capabilities to its Thinkpads and desktop
products.
Hardware sales gross profit dollars for the third quarter and first nine
months of 2001 decreased 31.9 percent and 4.0 percent, respectively, from
comparable periods in 2000. The hardware gross profit margin decreased 3.9
points and improved 0.6 points for the third quarter of 2001 and the first nine
months of 2001 versus the prior year periods, respectively. These decreases were
primarily due to lower volumes in the company's Technology Group and pricing
pressures in personal computers and HDDs. These decreases were partially offset
by higher gross profit margins for zSeries servers and disk subsystem products.
SOFTWARE
<Table>
<Caption>
(Dollars in millions) Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $3,201 $2,918 $9,155 $9,027
Total cost 591 549 1,705 1,690
------ ------ ------ ------
Gross profit $2,610 $2,369 $7,450 $7,337
Gross profit margin 81.5% 81.2% 81.4% 81.3%
</Table>
- 14 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
Revenue from software for the third quarter and first nine months of 2001
increased 9.7 percent (14 percent at constant currency) and 1.4 percent (6
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 increased 14
percent (18 percent at constant currency) in the third quarter of 2001 and grew
3 percent (8 percent at constant currency) for the first nine months of 2001
versus comparable periods of 2000. The third quarter revenue included additional
revenue from the acquisition of the Informix database business which was
completed in the third quarter of 2001. This acquisition accounted for almost
half of the third quarter middleware revenue increase. In addition, the increase
was driven by strong growth in WebSpere, DB2 database and MQ Series offerings.
These same factors led to the increase in revenue for the first nine months of
2001 versus the same period in 2000.
Operating-systems software revenue declined 1 percent (up 3 percent at
constant currency) in the third quarter and 3 percent (up 2 percent at constant
currency) for the first nine months of 2001 when compared with year-ago periods.
The declines in revenue were primarily driven by lower revenue from zSeries and
pSeries offerings, partially offset by higher revenue from iSeries offerings.
Software gross profit dollars for both the third quarter and first nine
months of 2001 increased 10.2 percent and 1.5 percent, respectively, versus the
same periods in 2000. The gross profit margin increased 0.3 points and 0.1
points, respectively, for the third quarter and first nine months of 2001,
versus the comparable periods in 2000. The increase in gross profit dollars and
gross profit margin was primarily due to higher software revenue in the third
quarter and first nine months of 2001 versus the same periods in 2000.
GLOBAL FINANCING
<Table>
<Caption>
(Dollars in millions) Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $822 $859 $2,499 $2,494
Total cost 403 501 1,279 1,411
---- ---- ------ ------
Gross profit $419 $358 $1,220 $1,083
Gross profit margin 51.0% 41.7% 48.8% 43.4%
</Table>
Global Financing revenue declined 4.3 percent (2 percent at constant
currency) for the third quarter and was essentially flat (up 3 percent at
constant currency) for the first nine months of 2001 when compared with the same
periods of 2000. The decline in third quarter revenue was primarily driven by
lower used equipment sales.
Global Financing gross profit dollars increased 17.0 percent and 12.7
percent, respectively, for the third quarter and first nine months of 2001,
versus the same periods of 2000. The gross profit margin increased 9.3 points
and 5.4 points, respectively, for the third quarter and first nine
- 15 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
months of 2001, versus the same periods of 2000. The increases in gross profit
dollars and gross profit margin are primarily driven by lower borrowing costs
related to the current interest rate environment. In addition, a mix away from
used equipment sales toward financing revenue benefited the overall gross profit
margin. 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.
ENTERPRISE INVESTMENTS / OTHER
<Table>
<Caption>
(Dollars in millions) Three Months Ended Nine Months Ended
September 30, september 30,
--------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Total revenue $244 $323 $813 $979
Total cost 144 170 450 513
---- ---- ---- ----
Gross profit $100 $153 $363 $466
Gross profit margin 40.8% 47.5% 44.6% 47.6%
</Table>
Revenue from Enterprise Investments/Other decreased 24.2 percent (21
percent at constant currency) and 16.9 percent (12 percent at constant
currency), respectively, for the third quarter and first nine months of 2001,
versus comparable periods in 2000. The decreases were primarily a result of the
company's strategy to shift development and distribution of certain products to
third-party companies. In addition, CATIA related products had lower revenue in
the third quarter and first nine months of 2001 versus the same periods in 2000.
The Enterprise Investments/Other gross profit dollars decreased 34.6
percent in the third quarter and 22.1 percent for the first nine months of 2001,
versus the same periods of 2000. The Enterprise Investments/Other gross profit
margin decreased 6.7 points and 3.0 points for the third quarter of 2001 and the
first nine months of 2001 versus the prior year periods, respectively. These
declines were primarily a result of the lower revenue in the third quarter and
first nine months of 2001 versus last year periods.
EXPENSES
<Table>
<Caption>
(Dollars in millions) Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Selling, general and administrative $ 3,741 $ 3,726 $ 11,314 $ 11,299
Percentage of revenue 18.3% 17.1% 17.9% 18.0%
Research, development and engineering $ 1,261 $ 1,261 $ 3,743 $ 3,702
Percentage of revenue 6.2% 5.8% 5.9% 5.9%
</Table>
Selling, general and administrative (SG&A) expense for the third quarter
and first nine months of 2001 was essentially flat (up 3 percent at constant
currency), from the same periods in 2000. SG&A expense benefited from the lower
goodwill amortization for the third quarter and
- 16 -
<Page>
RESULTS OF OPERATIONS - (CONTINUED)
first nine months of 2001. This benefit was offset by lower gains associated
with asset sales in 2001 versus 2000 and charges taken as a result of
workforce-balancing actions. The company continues to reduce its expense by
using technology to improve its efficiency. The increased use of e-procurement,
IBM.com, e-Care for customer support and other actions related to the company's
ongoing e-business transformation continued to improve the company's
productivity. These improvements enable the company to reduce its expense while
increasing investments in key areas where the company can gain competitive
advantages.
Research, development and engineering expense was flat for the third
quarter of 2001 and increased 1.1 percent for the first nine months of 2001,
when compared with the same periods of 2000.
Interest on total borrowings of the company and its subsidiaries, which
includes interest expense and interest costs associated with rentals and
financing, amounted to $310 million and $995 million for the third quarter and
first nine months of 2001, respectively. Of these amounts, the company
capitalized $10 million for the third quarter and capitalized $24 million for
the first nine months of 2001. See pages 20 and 21 for a discussion regarding
the classification of interest expense in the Consolidated Statement of
Earnings.
Other income declined 141.8 percent and 128.9 percent, respectively, for
the third quarter and first nine months of 2001 versus the same periods of 2000.
These declines were primarily due to the write-downs ($156 million in the third
quarter and $378 million in the first nine 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.
Included in the company's cost and expense was approximately $153 million
of benefit for retirement-related plans, including pension plans and nonpension
postretirement benefit plans, for the third quarter of 2001. The comparable
amount for the third quarter of 2000 was approximately $88 million. The
comparable amounts for the first nine months of 2001 and 2000 were $383 million
and $259 million, respectively. The company realized cost and expense reductions
of approximately $349 million due to the funded status of its pension plans for
the third quarter of 2001. The comparable amount for the third quarter of 2000
was approximately $291 million. The comparable amounts for the first nine months
of 2001 and 2000 were $1,053 million and $897 million, respectively. The third
quarter of 2001 and first nine months of 2001 cost and expense reductions are
net of approximately $25 million and $75 million, respectively, 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 September 30, 2001, was 29.5
percent versus 30.0 percent for the same period in 2000. The effective tax rate
for the first nine 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.
- 17 -
<Page>
FINANCIAL CONDITION
During the first nine months 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 $4,157 million for Research,
development and engineering, $4,371 million for Plant, rental machines and other
property and $4,329 million for the repurchase of the company's common shares.
In addition, the company acquired the database software business of the Informix
Corporation for $1.0 billion in the third quarter of 2001. The company had
$4,012 million in Cash and cash equivalents and Marketable securities at
September 30, 2001.
CASH FLOW
<Table>
<Caption>
(Dollars in millions) Nine Months Ended
September 30,
---------------------
2001 2000
---- ----
Net cash provided from (used in):
Operating activities $ 9,433 $ 4,548
Investing activities (5,101) (2,422)
Financing activities (4,148) (4,126)
Effect of exchange rate changes on cash
and cash equivalents (32) (163)
------- -------
Net change in cash and cash equivalents $ 152 $(2,163)
======= =======
</Table>
Cash flows from operating activities in the first nine months of 2001
increased $4,885 million from the comparable 2000 period. This primarily
resulted from collection of accounts receivable relating to 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 $2,679 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. In addition, the company
acquired the database software business of the Informix Corporation during the
third quarter of 2001. Proceeds from marketable securities and other investments
declined from the 2000 period.
Cash flows used in financing activities in the first nine months of 2001
increased slightly by $22 million from the comparable 2000 period due primarily
to a slight increase in cash dividends paid and the redemption of preferred
stock in the third quarter of 2001, partially offset by decreases in common
stock repurchases and lower debt financing.
- 18 -
<Page>
FINANCIAL CONDITION - (CONTINUED)
WORKING CAPITAL
<Table>
<Caption>
(Dollars in millions) At September 30, At December 31,
2001 2000
---------------- ---------------
Current assets $40,309 $43,880
Current liabilities 32,876 36,406
------- -------
Working capital $ 7,433 $ 7,474
Current ratio 1.23:1 1.21:1
</Table>
Current assets decreased $3,571 million from year-end 2000 primarily due
to decreases of $4,049 million in Accounts receivable ($2,660 million in
Short-term financing receivables, $1,097 million in Notes and accounts
receivable and $292 million in Other accounts receivable) and $314 million in
Deferred taxes. These decreases were partially offset by increases of $429
million in Prepaid expenses and other current assets, $73 million in Inventories
and $290 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 and Enterprise
Systems Group offset by a decline in Personal and Printing Systems Group
inventories.
Current liabilities decreased $3,530 million from year-end 2000 with
declines of $2,994 million in Accounts payable and accruals, and $1,238 million
in Taxes payable (resulting primarily from declines in these balances from
typically higher year-end levels), offset by an increase of $702 million in
Short-term debt.
INVESTMENTS
During the first nine months of 2001, the company invested $4,371 million
in Plant, rental machines and other property, an increase of $601 million from
the comparable 2000 period. The company's investments were in its services
business, primarily related to the strategic outsourcing business , as well as
in manufacturing capacity for microelectronics.
In addition to software development expense included in Research,
development and engineering expense, the company capitalized $486 million of
software costs during the first nine months of 2001, an increase of $80 million
from the comparable period in 2000. Amortization of capitalized software costs
was $456 million during the first nine months of 2001, an increase of $110
million from the comparable 2000 period.
Investments and sundry assets were $15,719 million at September 30, 2001,
an increase of $1,272 million from year-end 2000, resulting primarily from an
increase in prepaid pension assets and Goodwill (attributable to the purchase of
Informix), partially offset by declines in alliance investments including the
write-down of certain equity investments for other-than-temporary market
declines.
- 19 -
<Page>
FINANCIAL CONDITION - (CONTINUED)
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 September 30, 2001 is $1,841 million of IBM common
shares. On October 31, 2001, the Board of Directors authorized the company to
repurchase up to an additional $3.5 billion of IBM common shares. The company
plans to repurchase the shares in the open market based on market conditions.
DEBT AND EQUITY
GLOBAL FINANCING
<Table>
<Caption>
(Dollars in millions) At September 30, At December 31,
2001 2000
---------------- ---------------
Assets* $36,344 $40,822
Debt ** 26,411 27,514
Equity 3,963 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 September
30, 2001, Global Financing debt to equity ratio is 6.7x, which is within
management's acceptable target range.
NON-GLOBAL FINANCING
<Table>
Debt* $ 2,150 $ 1,062
Debt/Capitalization 10.7% 6.1%
</Table>
* Non-global financing debt is the company's total external debt less the
Global Financing debt described in the Global Financing table above.
The increase in non-global financing debt in the first nine months of 2001
was primarily attributable to the purchase of Informix Corporation's database
software business in the third quarter of 2001.
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.
- 20 -
<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 the three- and nine-month
periods ended September 30, 2001 is as follows:
(Dollars in millions)
<Table>
<Caption>
Global Non-global Consolidated
Financing Financing Eliminations Results
--------- --------- ------------ -------
Three Months
Cost of financing $ 289 $ -- $ (44) $ 245
Interest expense -- 10 44 54
Nine Months
Cost of financing $ 929 $ -- $(142) $ 787
Interest expense -- 42 142 184
</Table>
Stockholders' equity increased $1,353 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 is $8 billion. In addition, a new $4 billion,
364-day committed global credit facility was established. As of September 30,
2001, $7,238 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 fluctuations and customer
financing risks; dependence on certain suppliers; changes in the financial or
business condition
- 21 -
<Page>
FORWARD LOOKING AND CAUTIONARY STATEMENTS - (CONTINUED)
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.
PART II - OTHER INFORMATION
ITEM 6 (a). EXHIBITS
EXHIBIT NUMBER
11 Statement re: computation of per share earnings.
12 Statement re: computation of ratios.
ITEM 6 (b). REPORTS ON FORM 8-K
The company filed Form 8-K on July 18, 2001, with respect to the company's
financial results for the periods ended June 30, 2001 and included the unaudited
Consolidated Statement of Earnings, Consolidated Statement of Financial Position
and Segment Data for the periods ended June 30, 2001. In addition, IBM's Chief
Financial Officer, John R. Joyce's second-quarter earnings presentation to
security analysts on Wednesday, July 18, 2001, was filed as Attachment II of the
Form 8-K.
The company filed Form 8-K on September 26, 2001, to incorporate by
reference into Registration Statement No. 333-37034 on Form S-3, effective June
20, 2000, the Underwriting Agreement dated September 20, 2001, among
International Business Machines Corporation, J. P. Morgan Securities Inc.,
Salomon Smith Barney Inc., ABN Amro Incorporated, Banca IMI S.p.A., Credit
Suisse First Boston Corporation, Deutsche Banc Alex. Brown Inc., Fleet
Securities Inc., Merrill Lynch Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated, Royal Bank of Scotland plc., UBS Warburg LLC,
Utendahl Capital Partners, L.P., and The Williams Capital Group, L.P. In
addition, the Form of 4.875% Note due 2006 was also filed. No financial
statements were filed with this Form 8-K.
- 22 -
<Page>
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: NOVEMBER 14, 2001
By: Mark Loughridge
----------------------------------
Mark Loughridge
Vice President and Controller
- 23 -