Mark Loughridge on Thursday dispensed with the introductory pleasantries; the IBM CFO dived right into the Q2 earnings per share with his second sentence. Considering how that sentence panned out, analysts probably would have forgiven him for prefacing his prepared statement with booya!

IBM blasted past expectations, delivering earnings of $2.32 per share -- a company-best EPS for a first, second, or third quarter (adjusting for stock splits), and up 35 cents year-over-year. Q2 net income was $3.1 billion, up 12% year-over-year -- impressive considering total revenues were off 13%, or 7% adjusting for currency fluctuations. Public-sector spending was once again the fastest-growing business sector at 7%.

The company's got free cash flow of $3.4 billion and a cash balance of $12.5 billion. Debt levels dropped $1.6 billion over the past two quarters, to $22.8 billion. IBM returned $2.4 billion to shareholders -- $732 million in dividends, $1.7 billion in share repurchases.

In his remarks, Loughridge said it's all about the improvement in company margins, as IBM's decade-long push to drop commodity products in favor of higher-value products pays off with the highest gross margins since 1992. The company's gross profit margin stands at 45.5%, up 2.3 points; of the last 20 quarters, this is the 19th with an increase.

As margins on old-guard IBM products (printers, computers, etc.) declined through the '90s, IBM rethought its approach, says Loughridge. "We exited commoditizing businesses, including HDD's in 2002, PCs in 2005, and printers in 2007, which represent nearly $15 billion of annual revenue. In that same time, we acquired over 100 companies for about $20 billion. This has clearly accelerated our shift to higher value capabilities. This disciplined focus on shifting our business mix, and our business model, has driven this turnaround in margins."

In a prepared statement, CEO Samuel Palmisano (not on the call) looked ahead. "We have continued our strategic investments in Smarter Planet solutions, business analytics and next generation data centers. As a result we are optimistic about how IBM is positioned to make the most of current growth opportunities as well as those that emerge as the economy recovers. We are well ahead of pace for our 2010 roadmap of $10 to $11 per share." For full-year 2009, the company raised its EPS from $9.20 to $9.70.