# Report of Management

Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with IBM management. The financial statements contained herein have been prepared in conformity with generally accepted accounting principles, applying certain estimates and judgments as required.

IBM maintains a highly-developed system of internal accounting control. It consists, in part, of organizational arrangements with clearly defined lines of responsibility and delegation of authority. We believe this system provides reasonable assurance that transactions are executed in accordance with management authorization, and that they are appropriately recorded, in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify and maintain accountability of assets. An important element of the system is a continuing and extensive internal audit program.

To assure the effective administration of internal control, we carefully select and train our employees, develop and disseminate written policies and procedures, provide appropriate communication channels, and foster an environment conducive to the effective functioning of controls. We continue to believe that it is essential for the company to conduct its business affairs in accordance with the highest ethical standards, as set forth in the IBM Business Conduct Guidelines. These guidelines, translated into numerous languages, are distributed to employees throughout the world, and reemphasized through internal programs to assure that they are understood and followed.

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# Report of Independent Accountants

## To the Stockholders and Board of Directors of International Business Machines Corporation

In our opinion, the accompanying consolidated financial statements, appearing on pages 22 through 31, present fairly the financial position of International Business Machines Corporation and its subsidiary companies at December 31, 1978 and 1977, and the results of their operations and changes in financial position for the years then ended, in conformity with generally accepted accounting principles consistently applied. Also, in our opinion, the five-year comparative consolidated summary of operations presents fairly the financial information included therein. Our examinations of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

January 30, 1979
New York, N.Y.
Price Waterhouse & Co.