Consolidated Statement of Earnings

62

International Business Machines Corporation and Subsidiary Companies

($ in millions except per share amounts) For the year ended December 31: Notes 2010 2009 2008

Revenue: Services Sales Financing Total revenue Cost: Services Sales Financing Total cost Gross profit Expense and other income: Selling, general and administrative Research, development and engineering Intellectual property and custom development income Other (income) and expense Interest expense Total expense and other income Income before income taxes Provision for income taxes Net income Earnings per share of common stock: Assuming dilution Basic Weighted-average number of common shares outstanding: Assuming dilution Basic
The accompanying notes on pages 68 through 130 are an integral part of the financial statements.

$56,868 40,736 2,267 99,870 38,383 14,374 1,100 53,857 46,014 21,837 Q 6,026 (1,154) (787) K&L 368 26,291 19,723 P 4,890 $14,833 R R $ 11.52 $ 11.69

$55,128 38,300 2,331 95,758 37,146 13,606 1,220 51,973 43,785 20,952 5,820 (1,177) (351) 402 25,647 18,138 4,713 $13,425 $ 10.01 $ 10.12

$ 58,892 42,156 2,582 103,630 40,937 15,776 1,256 57,969 45,661 23,386 6,337 (1,153) (298) 673 28,945 16,715 4,381 $ 12,334 $ $ 8.89 9.02

1,287,355,388 1,341,352,754 1,387,797,198 1,268,789,202 1,327,157,410 1,369,367,069

Consolidated Statement of Financial Position

International Business Machines Corporation and Subsidiary Companies
63

($ in millions except per share amounts) At December 31: Notes 2010 2009

Assets Current assets: Cash and cash equivalents Marketable securities Notes and accounts receivable trade (net of allowances of $324 in 2010 and $217 in 2009) Short-term financing receivables (net of allowances of $342 in 2010 and $438 in 2009) Other accounts receivable (net of allowances of $10 in 2010 and $15 in 2009) Inventories Deferred taxes Prepaid expenses and other current assets Total current assets Plant, rental machines and other property Less: Accumulated depreciation Plant, rental machines and other property net Long-term financing receivables (net of allowances of $58 in 2010 and $97 in 2009) Prepaid pension assets Deferred taxes Goodwill Intangible assets net Investments and sundry assets Total assets Liabilities and equity Current liabilities: Taxes Short-term debt Accounts payable Compensation and benefits Deferred income Other accrued expenses and liabilities Total current liabilities Long-term debt Retirement and nonpension postretirement benefit obligations Deferred income Other liabilities Total liabilities Contingencies and commitments Equity: IBM stockholders equity: Common stock, par value $.20 per share and additional paid-in capital Shares authorized: 4,687,500,000 Shares issued (2010 2,161,800,054; 2009 2,127,016,668) Retained earnings Treasury stock, at cost (shares: 2010 933,806,510; 2009 821,679,245) Accumulated other comprehensive income/(loss) Total IBM stockholders equity Noncontrolling interests Total equity Total liabilities and equity
The accompanying notes on pages 68 through 130 are an integral part of the financial statements.

$ 10,661 E G F P 990 10,834 16,257 1,134 2,450 1,564 4,226 48,116 H H H G U P J J I 40,289 26,193 14,096 10,548 3,068 3,220 25,136 3,488 5,778 $113,452

$ 12,183 1,791 10,736 14,914 1,143 2,494 1,730 3,946 48,935 39,596 25,431 14,165 10,644 3,001 4,195 20,190 2,513 5,379 $109,022

P K&L

4,216 6,778 7,804 5,028 11,580 5,156 40,562

3,826 4,168 7,436 4,505 10,845 5,223 36,002 21,932 15,953 3,562 8,819 86,267

K&L U M O N

21,846 15,978 3,666 8,226 90,279

45,418

41,810

92,532 (96,161) (18,743) 23,046 A 126 23,172 $113,452

80,900 (81,243) (18,830) 22,637 118 22,755 $109,022

Consolidated Statement of Cash Flows

64

International Business Machines Corporation and Subsidiary Companies

($ in millions) For the year ended December 31: 2010 2009 2008

Cash flow from operating activities: Net income Adjustments to reconcile net income to cash provided by operating activities: Depreciation Amortization of intangibles Stock-based compensation Deferred taxes Net (gain)/loss on asset sales and other Change in operating assets and liabilities, net of acquisitions/divestitures: Receivables (including financing receivables) Retirement related Inventories Other assets/other liabilities Accounts payable Net cash provided by operating activities Cash flow from investing activities: Payments for plant, rental machines and other property Proceeds from disposition of plant, rental machines and other property Investment in software Purchases of marketable securities and other investments Proceeds from disposition of marketable securities and other investments Non-operating finance receivables net Divestiture of businesses, net of cash transferred Acquisition of businesses, net of cash acquired Net cash used in investing activities Cash flow from financing activities: Proceeds from new debt Payments to settle debt Short-term (repayments)/borrowings less than 90 days net Common stock repurchases Common stock transactions other Cash dividends paid Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at January 1 Cash and cash equivalents at December 31 Supplemental data: Income taxes paid net of refunds received Interest paid on debt Capital lease obligations
The accompanying notes on pages 68 through 130 are an integral part of the financial statements.

$ 14,833

$ 13,425

$ 12,334

3,657 1,174 629 1,294 (801) (489) (1,963) 92 949 174 19,549 (4,185) 770 (569) (6,129) 7,877 (405) 55 (5,922) (8,507) 8,055 (6,522) 817 (15,375) 3,774 (3,177) (12,429) (135) (1,522) 12,183 $ 10,661 $ 3,238 $ $ 951 30

3,773 1,221 558 1,773 (395) 2,131 (2,465) 263 319 170 20,773 (3,447) 330 (630) (5,604) 3,599 (184) 400 (1,194) (6,729) 6,683 (13,495) (651) (7,429) 3,052 (2,860) (14,700) 98 (558) 12,741 $ 12,183 $ 1,567 $ 1,240 $ 15

4,140 1,310 659 1,900 (338) 274 (1,773) (102) 1,268 (860) 18,812 (4,171) 350 (716) (4,590) 6,100 (16) 71 (6,313) (9,285) 13,829 (10,248) (6,025) (10,578) 3,774 (2,585) (11,834) 58 (2,250) 14,991 $ 12,741 $ 2,111 $ 1,460 $ 41

Consolidated Statement of Changes in Equity

International Business Machines Corporation and Subsidiary Companies
65

($ in millions) Common Stock and Additional Paid-in Capital Accumulated Other Comprehensive Income/ (Loss)

Retained Earnings

Treasury Stock

Total IBM Stockholders Equity

Noncontrolling Interests

Total Equity

2008 Equity, January 1, 2008 Net income plus other comprehensive income/(loss): Net income Other comprehensive income/(loss), net of tax: Net unrealized gains/(losses) on cash flow hedge derivatives (net of tax expense of $79) Foreign currency translation adjustments (net of tax benefit of $153*) Retirement-related benefit plans: Prior service (credits)/costs (net of tax benefit of $86) Net (losses)/gains (net of tax benefit of $8,436) Curtailments and settlements (net of tax expense of $9) Amortization of prior service (credits)/ costs (net of tax benefit of $73) Amortization of net gains/(losses) (net of tax expense of $358) Net unrealized gains/(losses) on marketable securities (net of tax benefit of $207) Total other comprehensive income/(loss) Subtotal: Net income plus other comprehensive income/(loss) Cash dividends declaredcommon stock Common stock issued under employee plans (39,374,439 shares) Purchases (1,505,107 shares) and sales (5,882,800 shares) of treasury stock under employee plans net Other treasury shares purchased, not retired (89,890,347 shares) Changes in other equity Changes in noncontrolling interests Equity, December 31, 2008

$35,188

$60,640

$(63,945)

$ (3,414)

$ 28,470

$145

$ 28,615

12,334

12,334

12,334

301 (3,552)

301 (3,552)

301 (3,552)

(136) (15,245) 16 (132) 640

(136) (15,245) 16 (132) 640

(136) (15,245) 16 (132) 640

(324)

(324) (18,431) $ (6,097)

(324) (18,431) $ (6,097) (2,585) 3,919

(2,585) 3,919

(2,585) 3,919

(36) 54 (33) $39,129 $70,353

391 (10,618)

355 (10,563) (33) (26)

355 (10,563) (33) (26) $ 13,584 $119

$(74,171)

$(21,845)

$ 13,465

* Foreign currency translation adjustments are presented gross except for associated hedges which are presented net of tax. The accompanying notes on pages 68 through 130 are an integral part of the financial statements.

Consolidated Statement of Changes in Equity

66

International Business Machines Corporation and Subsidiary Companies

($ in millions) Common Stock and Additional Paid-in Capital Accumulated Other Comprehensive Income/ (Loss)

Retained Earnings

Treasury Stock

Total IBM Stockholders Equity

Noncontrolling Interests

Total Equity

2009 Equity, January 1, 2009 Net income plus other comprehensive income/(loss): Net income Other comprehensive income/(loss), net of tax: Net unrealized gains/(losses) on cash flow hedge derivatives (net of tax benefit of $256) Foreign currency translation adjustments (net of tax benefit of $57*) Retirement-related benefit plans: Prior service costs/(credits) (net of tax expense of $146) Net (losses)/gains (net of tax expense of $439) Curtailments and settlements (net of tax benefit of $33) Amortization of prior service (credits)/ costs (net of tax benefit of $55) Amortization of net gains/(losses) (net of tax expense of $402) Net unrealized gains/(losses) on marketable securities (net of tax expense of $71) Total other comprehensive income/(loss) Subtotal: Net income plus other comprehensive income/(loss) Cash dividends declaredcommon stock Common stock issued under employee plans (30,034,808 shares) Purchases (1,550,846 shares) and sales (6,408,265 shares) of treasury stock under employee plans net Other treasury shares purchased, not retired (68,650,727 shares) Changes in other equity Changes in noncontrolling interests Equity, December 31, 2009

$39,129

$70,353

$(74,171)

$(21,845)

$13,465

$119

$13,584

13,425

13,425

13,425

(556) 1,732

(556) 1,732

(556) 1,732

229 994 (93) (107) 704

229 994 (93) (107) 704

229 994 (93) (107) 704

111

111 3,015 $16,440

111 3,015 $16,440 (2,860) 3,011

(2,860) 3,011

(2,860) 3,011

(19)

462 (7,534)

443 (7,534) (330) (1)

443 (7,534) (330) (1) $22,755 $118

(330) $41,810 $80,900 $(81,243) $(18,830)

$22,637

* Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. The accompanying notes on pages 68 through 130 are an integral part of the financial statements.

Consolidated Statement of Changes in Equity

International Business Machines Corporation and Subsidiary Companies
67

($ in millions) Common Stock and Additional Paid-in Capital Accumulated Other Comprehensive Income/ (Loss)

Retained Earnings

Treasury Stock

Total IBM Stockholders Equity

Noncontrolling Interests

Total Equity

2010 Equity, January 1, 2010 Net income plus other comprehensive income/(loss): Net income Other comprehensive income/(loss), net of tax: Net unrealized gains/(losses) on cash flow hedge derivatives (net of tax expense of $188) Foreign currency translation adjustments (net of tax expense of $69*) Retirement-related benefit plans: Prior service costs/(credits) (net of tax expense of $8) Net (losses)/gains (net of tax benefit of $1,016) Curtailments and settlements (net of tax expense of $3)

$41,810

$80,900

$(81,243)

$(18,830)

$ 22,637

$118

$ 22,755

14,833

14,833

14,833

385 643

385 643

385 643

20 (1,712) 7 (116) 808

20 (1,712) 7 (116) 808

20 (1,712) 7 (116) 808

Amortization of prior service (credits)/costs (net of tax benefit of $67) Amortization of net gains/(losses) (net of tax expense of $441) Net unrealized gains/(losses) on marketable securities (net of tax expense of $27) Total other comprehensive income/(loss) Subtotal: Net income plus other comprehensive income/(loss) Cash dividends declaredcommon stock Common stock issued under employee plans (34,783,386 shares) Purchases (2,334,932 shares) and sales (7,929,318 shares) of treasury stock under employee plans net Other treasury shares purchased, not retired (117,721,650 shares) Changes in other equity Changes in noncontrolling interests Equity, December 31, 2010 $45,418 $92,532 $(96,161) 28 3,579 (3,177)

51

51 87 $ 14,920 (3,177) 3,579

51 87 $ 14,920 (3,177) 3,579

(24)

501 (15,419)

477 (15,419) 28 8 $(18,743) $ 23,046 $126

477 (15,419) 28 8 $ 23,172

* Foreign currency translation adjustments are presented gross except for any associated hedges which are presented net of tax. The accompanying notes on pages 68 through 130 are an integral part of the financial statements.