Notes to consolidated financial statements (audited)

International Business Machines Corporation and Subsidiary Companies

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N. Stockholders’ equity activity (audited)

The authorized capital stock of IBM consists of 4,687,500,000 shares of common stock, $.20 par value, of which 1,573,979,761 shares were outstanding at December 31, 2005 and 150,000,000 shares of preferred stock, $.01 par value, none of which were outstanding at December 31, 2005.

From time to time, the Board of Directors authorizes the company to repurchase IBM common stock. The company repurchased 90,237,800 common shares at a cost of $7,671 million, 78,562,974 common shares at a cost of $7,275 million and 49,994,514 common shares at a cost of $4,403 million in 2005, 2004 and 2003, respectively. The company issued 2,594,786 treasury shares in 2005, 2,840,648 treasury shares in 2004 and 2,120,293 treasury shares in 2003, as a result of exercises of stock options by employees of certain recently acquired businesses and by non-U.S. employees. At December 31, 2005, $5,015 million of Board-authorized repurchases was still available. The company plans to purchase shares on the open market or in private transactions from time to time, depending on market conditions. In connection with the issuance of stock as part of the company’s stock-based compensation plans, 606,697 common shares at a cost of $52 million, 422,338 common shares at a cost of $38 million and 291,921 common shares at a cost of $24 million in 2005, 2004 and 2003, respectively, were remitted by employees to the company in order to satisfy minimum statutory tax withholding requirements. Such amounts are included in the Treasury stock balance in the Consolidated Statement of Financial Position and the Consolidated Statement of Stockholders’ Equity.