The International Business Machines Corporation is an American IT and consulting company based in Armonk, New York. IBM is one of the world's leading companies for hardware, software and services in the IT sector and one of the largest consulting companies.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1999 1-2360 (Commission File Number) INTERNATIONAL BUSINESS MACHINES CORPORATION (Exact name of registrant as specified in its charter) <TABLE> <S> <C> NEW YORK 13-0871985 (State of incorporation) (IRS employer identification number) ARMONK, NEW YORK 10504 (Address of principal executive offices) (Zip Code) </TABLE> 914-499-1900 (Registrant's telephone number) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: <TABLE> <CAPTION> VOTING SHARES OUTSTANDING NAME OF EACH EXCHANGE TITLE OF EACH CLASS AT MARCH 1, 2000 ON WHICH REGISTERED - ------------------- ------------------------- ----------------------- <S> <C> <C> Capital stock, par value $.20 per share 1,793,760,770 New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Depositary shares each representing one-fourth of a New York Stock Exchange share of 7 1/2% preferred stock, par value $.01 per share 6.375% Notes due 2000 New York Stock Exchange 7.25% Notes due 2002 New York Stock Exchange 6.45% Notes due 2007 New York Stock Exchange 5.375% Notes due 2009 New York Stock Exchange 7.50% Debentures due 2013 New York Stock Exchange 8.375% Debentures due 2019 New York Stock Exchange 7.00% Debentures due 2025 New York Stock Exchange 6.22% Debentures due 2027 New York Stock Exchange 6.50% Debentures due 2028 New York Stock Exchange 7.00% Debentures due 2045 New York Stock Exchange 7.125% Debentures due 2096 New York Stock Exchange </TABLE> Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the voting stock held by non-affiliates of the registrant at March 1, 2000 was $179.8 billion. Documents incorporated by reference: Portions of IBM's Annual Report to Stockholders for the year ended December 31, 1999 into Parts I, II and IV of Form 10-K. Portions of IBM's definitive Proxy Statement dated March 13, 2000 into Part III of Form 10-K. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PART I ITEM 1. BUSINESS: International Business Machines Corporation (IBM) was incorporated in the State of New York on June 15, 1911, as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation of the Computing Scale Co. of America, the Tabulating Machine Co., and The International Time Recording Co. of New York. In 1924, C-T-R adopted the name International Business Machines Corporation. IBM uses advanced information technology to provide customer solutions. The company operates primarily in a single industry using several segments that create value by offering a variety of solutions that include, either singularly or in some combination, technologies, systems, products, services, software and financing. Organizationally, the company's major operations comprise three hardware product segments -- Technology, Personal Systems and Server; a Global Services segment; a Software segment; a Global Financing segment and an Enterprise Investments segment. The segments are determined based on several factors, including customer base, homogeneity of products, technology and delivery channels. IBM offers its products through its global sales and distribution organizations. The sales and distribution organization has both a geographic focus (in the Americas, Europe/Middle East/Africa, and Asia Pacific) and a specialized and global industry focus. In addition, this organization includes a global sales and distribution effort devoted exclusively to small and medium businesses. IBM also offers its products through a variety of third party distributors and resellers, as well as through its on-line channels. While the company's various proprietary intellectual property rights are important to its success, IBM believes its business as a whole is not materially dependent on any particular patent or license, or any particular group of patents or licenses. IBM owns or is licensed under a number of patents, which vary in duration, relating to its products. Licenses under patents owned by IBM have been and are being granted to others under reasonable terms and conditions. These protections may not prevent competitors from independently developing products and services similar to or duplicative of the company's nor can there be any assurance that these protections will adequately deter misappropriation or improper use of the company's technology. Also, there can be no assurances that IBM will be able to obtain from third parties the licenses it needs in the future. IBM's businesses employ a wide variety of components, supplies and raw materials from a substantial number of suppliers around the world. To date, the company has found that the components, supplies and raw materials that are necessary for the manufacture, production and delivery of its products have been available in the quantities that are required. Certain of the company's businesses rely on a single or limited number of suppliers, although the company makes every effort to assure that alternative sources are available if the need arises. The failure of the company's suppliers to deliver components, supplies and raw materials in sufficient quantities and in a timely manner could adversely affect the company's business. IBM's revenues are affected by such factors as the introduction of new products, the length of the sales cycles and the seasonality of technology purchases. As a result, the company's results are difficult to predict. These factors historically have resulted in lower revenue in the first quarter than in the immediately preceding fourth quarter. The value of unfilled orders is not a meaningful indicator of future revenues from the company's product offerings due to the significant proportion of revenue from services, the volume of products delivered from shelf inventories, and the shortening of product delivery schedules. With respect to the company's Global Services segment, in 1999 the company signed contracts totaling over $38 billion, which contributed to a services backlog at December 31, 1999 in excess of $60 billion, compared with $51 billion at the end of 1998. 1
The company operates in businesses that are subject to intense competitive pressures. The company's businesses face a significant number of competitors, ranging from Fortune 50 companies to an increasing number of relatively small, rapidly growing and highly specialized organizations. The company believes that its combination of technology, performance, quality, reliability, price and the breadth of products and service offerings are important competitive factors. Intense competitive pressures could affect prices or demand for the company's products and services, resulting in reduced profit margins and/or loss of market opportunity. Unlike many of its competitors, the company has a portfolio of businesses and must allocate resources across these businesses while competing with companies that specialize in one or more of these product lines. As a result, the company may not fund or invest in certain of its businesses to the same degree that its competitors do and these competitors may have greater financial, technical and marketing resources available to them than the businesses against which they compete. The company operates in more than 150 countries worldwide and derives more than half of its revenues from sales outside the United States. Changes in the laws or policies of the countries in which the company operates could affect the company's business in that country and the company's results of operations. The company's results of operations also could be affected by economic and political changes in those countries and by macroeconomic changes, including recessions and inflation. For example, weakness in the Asian and Latin American economies had an adverse effect on the company's business in 1998. The following information is included in IBM's 1999 Annual Report to Stockholders and is incorporated herein by reference: Segment information and revenue by classes of similar products or services--Pages 89 through 93. Financial information by geographic areas--Page 93. Amount spent during each of the last three years on research and development activities--Page 82. Financial information regarding environmental activities--Page 77. The number of persons employed by the registrant--Page 63. The management discussion overview--Page 52. Forward-looking and Cautionary Statements: Certain statements contained in this Annual Report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("Reform Act"). The company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to stockholders and in press releases. In addition, the company's representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as "anticipates," "believes," "expects," "estimates," "intends," "plans," "projects," and similar expressions, may identify such forward-looking statements. In accordance with the Reform Act, set forth below are cautionary statements that accompany those forward-looking statements. Readers should carefully review these cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. The following cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Annual Report, in the company's filings with the Securities and Exchange Commission or in materials incorporated therein by reference. New Products and the Pace of Technological Change: The company's results of operations depend on the continued successful development and marketing of new and innovative products and services. The development of new products and services requires significant capital investments by the company's 2
various businesses and the success of these products and services depends on their acceptance by customers and business partners. Further, the company's businesses are characterized by rapid technological changes and corresponding shifts in customer demand, resulting in unpredictable product transitions and shortened life cycles and increasing emphasis on being first to market with new products and services. There can be no assurance that the company will successfully introduce new products and services, that these products and services will be accepted by customers, or that the company's businesses will recoup or realize a return on their capital investments. In addition, from time to time the company may experience difficulties or delays in the development, production or marketing of new products and services. Volatility of Stock Prices: The company's stock price is affected by a number of factors, including quarterly variations in results, the competitive landscape, general economic and market conditions and estimates and projections by the investment community. As a result, like other technology companies, the company's stock price is subject to significant volatility. Dependence on Key Personnel: Much of the future success of the company depends on the continued service and availability of skilled personnel, including technical, marketing and staff positions. Experienced personnel in the information technology industry are in high demand and competition for their talents is intense. There can be no assurance that the company will be able to successfully retain and attract the key personnel it needs. Currency and Customer Financing Risks: The company derives a significant percentage of its non-U.S. revenues from its affiliates operating in local currency environments and its results are affected by changes in the relative values of non-U.S. currencies and the U.S. dollar. Further, inherent in the company's customer financing business are risks related to the concentration of credit risk and the creditworthiness of the customer, interest rate and currency fluctuations on the associated debt and liabilities and the determination of residual values. The company employs a number of strategies to manage these risks, including the use of derivative financial instruments. Derivatives involve the risk of non-performance by the counterparty. In addition, there can be no assurance that the company's efforts to manage these risks will be successful. Distribution Channels: The company offers its products directly and through a variety of third party distributors and resellers. Changes in the financial or business condition of these distributors and resellers could subject the company to losses and affect its ability to bring its products to market. Acquisitions and Alliances: The company has made and expects to continue to make acquisitions or enter into alliances from time to time. Acquisitions and alliances present significant challenges and risks relating to the integration of the business into the company, and there can be no assurances that the company will manage acquisitions and alliances successfully. ITEM 2. PROPERTIES: At December 31, 1999, IBM's manufacturing and development facilities in the United States had aggregate floor space of 41.6 million square feet, of which 33.3 million was owned and 8.3 million was leased. Of these amounts, 2.8 million square feet was vacant and 2.1 million square feet was being leased to non-IBM businesses. Similar facilities in 15 other countries totaled 16.1 million square feet, of which 11.1 million was owned and 5.0 million was leased. Of these amounts, .3 million square feet was vacant and .4 million square feet was being leased to non-IBM businesses. Although improved production techniques, productivity gains and infrastructure reduction actions have resulted in reduced manufacturing floor space, continuous upgrading of facilities is essential to maintain technological leadership, improve productivity, and meet customer demand. For additional information on expenditures for plant, rental machines and other property, refer to "Investments" on page 60 of IBM's 1999 Annual Report to Stockholders which is incorporated herein by reference. 3
EXECUTIVE OFFICERS OF THE REGISTRANT (AT MARCH 13, 2000): <TABLE> <CAPTION> OFFICER AGE SINCE -------- -------- <S> <C> <C> Chairman of the Board of Directors and Chief Executive Officer Louis V. Gerstner, Jr.(1)................................... 58 1993 Senior Vice Presidents J. Thomas Bouchard, Human Resources......................... 59 1994 Nicholas M. Donofrio, Group Executive....................... 54 1995 Douglas T. Elix, Group Executive............................ 51 1999 William A. Etherington, Group Executive..................... 58 1998 J. Bruce Harreld, Strategy.................................. 49 1995 Paul M. Horn, Research...................................... 53 1996 John R. Joyce, Chief Financial Officer...................... 46 1999 Abby F. Kohnstamm, Marketing................................ 46 1998 Samuel J. Palmisano, Group Executive........................ 48 1997 Lawrence R. Ricciardi, General Counsel...................... 59 1995 David M. Thomas, Group Executive............................ 50 1998 John M. Thompson, Group Executive........................... 57 1989 Vice Presidents Mark Loughridge, Controller................................. 46 1998 Daniel E. O'Donnell, Secretary.............................. 52 1998 Robert F. Woods, Treasurer.................................. 44 2000 </TABLE> - ------------------------ (1) Member of the Board of Directors. All executive officers are elected by the Board of Directors and serve until the next election of officers in conjunction with the annual meeting of the stockholders as provided in the By-laws. Each executive officer named above, with the exception of J. Bruce Harreld, Lawrence R. Ricciardi and Robert F. Woods has been an executive of IBM or its subsidiaries during the past five years. Mr. Harreld was president of Boston Chicken, Inc., a company which operates and franchises foodservice stores, from 1993 until joining IBM in 1995. Prior to that he was senior vice president, marketing and information services, at Kraft General Foods, Inc. where he also served as the company's chief information officer from 1989 to 1992. Mr. Ricciardi was president of RJR Nabisco, Inc., an international consumer products company, from 1993 until joining IBM in 1995. From 1989 to 1993, he also served as executive vice president and general counsel at RJR Nabisco, Inc. Prior to 1989, he was executive vice president and general counsel of American Express Travel Related Services Company, Inc. Mr. Woods was with E.I. du Pont de Nemours and Company, a global science company focused on chemical and material and biological sciences, as Vice President and Managing Director--DuPont Asia Pacific Ltd. from 1994 until joining IBM in 1995. From 1992 to 1994, he was Director--Industrial Films--U.S. and prior to that from 1989 to 1992 he was Vice President-Finance, DuPont Mexico. From 1979 to 1989 he held a number of financial positions with DuPont. ITEM 3. LEGAL PROCEEDINGS: Refer to note O "Contingencies" on page 79 of IBM's 1999 Annual Report to Stockholders which is incorporated herein by reference. 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS: Refer to pages 94 and 95 of IBM's 1999 Annual Report to Stockholders which are incorporated herein by reference solely as they relate to this item. IBM common stock is listed on the New York Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange. There were 646,147 common stockholders of record at March 1, 2000. ITEM 6. SELECTED FINANCIAL DATA: Refer to page 94 of IBM's 1999 Annual Report to Stockholders which is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Refer to pages 52 through 63 of IBM's 1999 Annual Report to Stockholders which are incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS: Refer to the section titled "Market Risk" on pages 61 and 62 of IBM's 1999 Annual Report to Stockholders which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: Refer to pages 50 and 51 and 64 through 93 of IBM's 1999 Annual Report to Stockholders which are incorporated herein by reference. Also refer to the Financial Statement Schedule on page S-1 of this Form. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: Not applicable. 5
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: Refer to pages 5 through 7 of IBM's definitive Proxy Statement dated March 13, 2000, which are incorporated herein by reference. Also refer to Item 2 entitled "Executive Officers of the Registrant" in Part I of this Form. ITEM 11. EXECUTIVE COMPENSATION: Refer to pages 12 through 20 of IBM's definitive Proxy Statement dated March 13, 2000, which are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: (a) Security Ownership of Certain Beneficial Owners: Not applicable. (b) Security Ownership of Management: Refer to the section entitled "Ownership of Securities--Common Stock and Total Stock-Based Holdings" appearing on pages 10 and 11 of IBM's definitive Proxy Statement dated March 13, 2000, which are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: Refer to the section entitled "Other Relationships" appearing on page 9 of IBM's definitive Proxy Statement dated March 13, 2000, which is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K: (a) The following documents are filed as part of this report: 1. Financial statements from IBM's 1999 Annual Report to Stockholders which are incorporated herein by reference: Report of Independent Accountants (page 51). Consolidated Statement of Earnings for the years ended December 31, 1999, 1998 and 1997 (page 64). Consolidated Statement of Financial Position at December 31, 1999 and 1998 (page 65). Consolidated Statement of Cash Flows for the years ended December 31, 1999, 1998 and 1997 (page 68). Consolidated Statement of Stockholders' Equity at December 31, 1999, 1998 and 1997 (pages 66 and 67). Notes to Consolidated Financial Statements (pages 69 through 93). 6
2. Financial statement schedules required to be filed by Item 8 of this Form: <TABLE> <CAPTION> SCHEDULE PAGE NUMBER - ---- -------- <S> <C> <C> 10..... Report of Independent Accountants on Financial Statement Schedules. S-1.... II Valuation and Qualifying Accounts and Reserves. </TABLE> All other schedules are omitted as the required matter is not present, the amounts are not significant or the information is shown in the consolidated financial statements or the notes thereto. 3. Exhibits: Included in this Form 10-K: I -- Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends. II -- Parents and Subsidiaries. III -- Consent of Independent Accountants. IV -- IBM's 1999 Annual Report to Stockholders, certain sections of which have been incorporated herein by reference. V -- Powers of Attorney. VI -- Financial Data Schedule. VII -- IBM Supplemental Executive Retention Plan. Not included in this Form 10-K: -- The Certificate of Incorporation of IBM is Exhibit (3)(i) to Form 8-K filed April 28, 1999, and is hereby incorporated by reference. -- The By-laws of IBM as amended through October 27, 1998, is Exhibit 3 to Form 10-Q for the quarter ended September 30, 1998, and is hereby incorporated by reference. -- The IBM 1999 Long-Term Performance Plan, a compensatory plan, is contained in Registration Statement No. 333-30424 on Form S-8, filed on February 15, 2000, and is hereby incorporated by reference. -- The IBM 1997 Long-Term Performance Plan, a compensatory plan, is contained in Registration Statement No. 333-31305 on Form S-8, filed on July 15, 1997, and is hereby incorporated by reference. -- The IBM 1994 Long-Term Performance Plan, a compensatory plan, is contained in Registration Statement No. 33-53777 on Form S-8, filed on May 24, 1994, and is hereby incorporated by reference. -- Board of Directors compensatory plans, as described under "Directors' Compensation" on pages 9 and 10 of IBM's definitive Proxy Statement dated March 13, 2000, which is incorporated herein by reference. -- IBM Board of Directors Deferred Compensation and Equity Award Plan is Exhibit X to Form 10-K for the year ended December 31, 1996, and is hereby incorporated by reference. 7
-- The IBM Non-Employee Directors Stock Option Plan is Appendix B to IBM's definitive Proxy Statement dated March 14, 1995, and is hereby incorporated by reference. -- The IBM Extended Tax Deferred Savings Plan is Exhibit X to Form 10-K for the year ended December 31, 1994, and is hereby incorporated by reference. -- The Employment Agreement for L.V. Gerstner, Jr. is Exhibit 19 to Form 10-Q dated March 31, 1993, and is hereby incorporated by reference. -- Amendment to Employment Agreement for L.V. Gerstner, Jr. dated as of January 1, 1996, is Exhibit XI to Form 10-K for the year ended December 31, 1995, and is hereby incorporated by reference. -- Second Amendment to Employment Agreement for L.V. Gerstner, Jr. dated as of November 17, 1997, is Exhibit VI to Form 10-K for the year ended December 31, 1997, and is hereby incorporated by reference. -- The instruments defining the rights of the holders of the 7.25% Notes due 2002 are Exhibits 4(a) through 4(l) to Registration Statement No. 33-33590 on Form S-3, filed on February 22, 1990, and are hereby incorporated by reference. -- The instruments defining the rights of the holders of the 6.375% Notes due 2000 and the 7.50% Debentures due 2013 are Exhibits 4(a) through 4(l) to Registration Statement No. 33-49475(1) on Form S-3, filed May 24, 1993, and are hereby incorporated by reference. -- The instruments defining the rights of holders of the 8.375% Debentures due 2019 are Exhibits 4(a)(b)(c) and (d) to Registration Statement 33-31732 on Form S-3, filed on October 24, 1989, and are hereby incorporated by reference. -- The instruments defining the rights of holders of the 7.00% Debentures due 2025 and the 7.00% Debentures due 2045 are Exhibit 2 and 3 to Form 8-K, filed on October 30, 1995, and are hereby incorporated by reference. -- The instrument defining the rights of holders of the 7.125% Debentures due 2096 is Exhibit 2 to Form 8-K/A, filed on December 6, 1996, and is hereby incorporated by reference. -- The instruments defining the rights of the holders of the 6.45% Notes due 2007 and the 6.22% Debentures due 2027 are Exhibits 2 and 3 to Form 8-K, filed on August 1, 1997, and is hereby incorporated by reference. -- The instruments defining the rights of the holders of the 6.50% Debentures due 2028 is Exhibit 2 to Form 8-K, filed on January 8, 1998, and is hereby incorporated by reference. -- The instruments defining the rights of the holders of the 5.375% Notes due 2009 is Exhibit 2 to Form 8-K, filed on January 29, 1999, and is hereby incorporated by reference. -- The IBM Extended Tax Deferred Savings Plan is Exhibit X to Form 10-K for the year ended December 31, 1994, and is hereby incorporated by reference. -- IBM's definitive Proxy Statement dated March 13, 2000, certain sections of which have been incorporated herein by reference. (b) Reports on Form 8-K: The company filed Form 8-K on October 21, 1999, with respect to the company's financial results for the periods ended September 30, 1999 and included unaudited Consolidated Statement of Earnings, Consolidated Statement of Financial Position and Segment Data for the periods ended September 30, 1999. 8
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. <TABLE> <S> <C> <C> INTERNATIONAL BUSINESS MACHINES CORPORATION (Registrant) By: /s/ LOUIS V. GERSTNER, JR. ------------------------------------------- (Louis V. Gerstner, Jr.) CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER </TABLE> Date: March 13, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. <TABLE> <CAPTION> SIGNATURE TITLE DATE --------- ----- ---- <C> <S> <C> /s/ JOHN R. JOYCE ------------------------------------------- Senior Vice President, March 13, 2000 (John R. Joyce) Chief Financial Officer /s/ MARK LOUGHRIDGE ------------------------------------------- Vice President and March 13, 2000 (Mark Loughridge) Controller </TABLE> <TABLE> <S> <C> <C> <C> CATHLEEN BLACK Director KENNETH I. CHENAULT Director JUERGEN DORMANN Director NANNERL O. KEOHANE Director CHARLES F. KNIGHT Director MINORU MAKIHARA Director By: /s/ DANIEL E. O'DONNELL ------------------------------------------ LUCIO A. NOTO Director (Daniel E. O'Donnell) JOHN B. SLAUGHTER Director ATTORNEY-IN-FACT ALEX TROTMAN Director LODEWIJK C. VAN WACHEM Director March 13, 2000 </TABLE> 9
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Stockholders and Board of Directors of International Business Machines Corporation Our audits of the consolidated financial statements referred to in our report dated January 19, 2000, appearing on page 51 of the 1999 Annual Report to Stockholders of International Business Machines Corporation, (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, this Financial Statement Schedule present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP New York, New York January 19, 2000 10
SCHEDULE II INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31: (DOLLARS IN MILLIONS) <TABLE> <CAPTION> ADDITIONS BALANCE AT CHARGED BALANCE AT BEGINNING TO COSTS END DESCRIPTION OF PERIOD AND EXPENSES WRITEOFFS OTHER (A) OF PERIOD - ----------- ---------- ------------ --------- --------- ---------- <S> <C> <C> <C> <C> <C> ALLOWANCE FOR DOUBTFUL ACCOUNTS 1999 --Current............................... $794 $285 $202 $(23) $854 ==== ==== ==== ==== ==== --Non-current........................... $195 $ 34 $ 28 $(43) $158 ==== ==== ==== ==== ==== 1998 --Current............................... $775 $165 $188 $ 42 $794 ==== ==== ==== ==== ==== --Non-current........................... $164 $ 42 $ 18 $ 7 $195 ==== ==== ==== ==== ==== 1997 --Current............................... $787 $277 $267 $(22) $775 ==== ==== ==== ==== ==== --Non-current........................... $164 $ 30 $ 21 $ (9) $164 ==== ==== ==== ==== ==== ALLOWANCE FOR INVENTORY LOSSES 1999...................................... $723 $644 $514 $ 16 $869 ==== ==== ==== ==== ==== 1998...................................... $791 $761 $847 $ 18 $723 ==== ==== ==== ==== ==== 1997...................................... $942 $697 $778 $(70) $791 ==== ==== ==== ==== ==== </TABLE> - ------------------------ (A) PRIMARILY COMPRISES CURRENCY TRANSLATION ADJUSTMENTS. S-1
EXHIBIT INDEX <TABLE> <CAPTION> REFERENCE NUMBER PER ITEM 601 OF EXHIBIT REGULATION NUMBER IN S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K - --------------------- ----------------------- -------------- <S> <C> <C> Plan of acquisition, reorganization, arrangement, (2) liquidation or succession. Not applicable (3) Certificate of Incorporation and By-laws. The Certificate of Incorporation of IBM is Exhibit (3)(i) to Form 8-K filed April 28, 1999, and is hereby incorporated by reference. The By-laws of IBM as amended through October 27, 1998, is Exhibit 3 to Form 10-Q for the quarter ended September 30, 1998, and is hereby incorporated by reference. (4) Instruments defining the rights of security holders. The instruments defining the rights of the holders of the 7.25% Notes due 2002 are Exhibits 4(a) through 4(l) to Registration Statement No. 33-33590 on Form S-3, filed February 22, 1990, and are hereby incorporated by reference. The instruments defining the rights of the holders of the 6.375% Notes due 2000 and the 7.50% Debentures due 2013 are Exhibits 4(a) through 4(l) to Registration Statement No. 33-49475(1) on Form S-3, filed on May 24, 1993, and are hereby incorporated by reference. The instruments defining the rights of the holders of the 8.375% Debentures due 2019 are Exhibits 4(a)(b)(c) and (d) to Registration Statement No. 33-31732 on Form S-3, filed on October 24, 1989, are hereby incorporated by reference. The instruments defining the rights of the holders of the 7.00% Debentures due 2025 and the 7.00% Debentures due 2045 are Exhibits 2 and 3 to Form 8-K, filed on October 30, 1995, and are hereby incorporated by reference. The instrument defining the rights of the holders of the 7.125% Debentures due 2096 is Exhibit 2 to Form 8-K/A, filed on December 6, 1996, and is hereby incorporated by reference. The instruments defining the rights of the holders of the 6.45% Notes due 2007 and the 6.22% Debentures due 2027 are Exhibit 2 and 3 to Form 8-K, filed on August 1, 1997, and is hereby incorporated by reference. The instruments defining the rights of the holders of the 6.50% Debentures due 2028 is Exhibit 2 to Form 8-K, filed on January 8, 1998, and is hereby incorporated by reference. The instrument defining the rights of the holders of the 5.375% Notes due 2009 is Exhibit 2 to Form 8-K, filed on January 29, 1999, and is hereby incorporated by reference. (9) Voting trust agreement. Not applicable </TABLE>
<TABLE> <CAPTION> REFERENCE NUMBER PER ITEM 601 OF EXHIBIT REGULATION NUMBER IN S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K - --------------------- ----------------------- -------------- <S> <C> <C> (10) Material contracts. The IBM 1999 Long-Term Performance Plan, a compensatory plan, is contained in Registration Statement No. 333-30424 on Form S-8, filed on February 15, 2000, and is hereby incorporated by reference. The IBM 1997 Long-Term Performance Plan, a compensatory plan, is contained in Registration Statement No. 333-31305 on Form S-8, filed on July 15, 1997, and is hereby incorporated by reference. The IBM 1994 Long-Term Performance Plan, a compensatory plan, is contained in Registration Statement No. 33-53777 on Form S-8, filed on May 24, 1994, and is hereby incorporated by reference. Board of Directors compensatory arrangements as described under "Directors' Compensation" on pages 9 and 10 of IBM's definitive Proxy Statement dated March 13, 2000, and is hereby incorporated by reference. The IBM Supplemental Executive Retention Plan. VII The IBM Extended Tax Deferred Savings Plan is Exhibit X to Form 10-K for the year ended December 31, 1994, and is hereby incorporated by reference. The IBM Board of Directors Deferred Compensation and Equity Award Plan is Exhibit X to Form 10-K for the year ended December 31, 1996, and is hereby incorporated by reference. The IBM Non-Employee Directors Stock Option Plan is Appendix B to IBM's definitive Proxy Statement dated March 14, 1995, and is hereby incorporated by reference. The Employment Agreement for L.V. Gerstner, Jr. is Exhibit 19 to Form 10-Q dated March 31, 1993, and is hereby incorporated by reference. Amendment to Employment Agreement for L.V. Gerstner, Jr. dated as of January 1, 1996, is Exhibit XI to Form 10-K for the year ended December 31, 1995, and is hereby incorporated by reference. Second Amendment to Employment Agreement for L.V. Gerstner, Jr., dated as of November 17, 1997, is Exhibit VI to Form 10-K for the year ended December 31, 1997, and is hereby incorporated by reference. (11) Statement re computation of per share earnings. The statement re computation of per share earnings is note T "Earnings Per Share of Common Stock" on page 83 of IBM's 1999 Annual Report to Stockholders, which is incorporated herein by reference. (12) Statement re computation of ratios. I </TABLE>
<TABLE> <CAPTION> REFERENCE NUMBER PER ITEM 601 OF EXHIBIT REGULATION NUMBER IN S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K - --------------------- ----------------------- -------------- <S> <C> <C> (13) Annual report to security holders. IV (18) Letter re change in accounting principles. Not applicable (19) Previously unfiled documents. Not applicable (21) Subsidiaries of the registrant. II Published report regarding matters submitted to vote of (22) security holders. Not applicable (23) Consents of experts and counsel. III (24) Powers of attorney. V (27) Financial Data Schedule. VI Information from reports furnished to state insurance (28) regulatory authorities. Not applicable (99) Additional exhibits. Not applicable </TABLE>