UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1994
1-2360
----------------------
(Commission file number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-0871985
---------------------- ----------------------------------
(State of incorporation) (IRS employer identification number)
Armonk, New York 10504
-------------------------------------- --------
(Address of principal executive offices) (Zip Code)
914-765-1900
-----------------------------
(Registrant's telephone number)
The registrant has 584,863,940 shares of common stock outstanding
at June 30, 1994.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act
of 1934 during the preceding l2 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been sub-
ject to such filing requirements for the past 90 days.
YES X NO
-------- --------.
<PAGE>
INDEX
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Page
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Part I - Financial Information:
Item 1. Consolidated Financial Statements
Consolidated Statement of Operations for the three and six
months ended June 30, 1994 and 1993 . . . . . . . . . . 1
Consolidated Statement of Financial Position at
June 30, 1994 and December 31, 1993 . . . . . . . . . . 3
Consolidated Statement of Cash Flows for the six months
ended June 30, 1994 and 1993 . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition . . 6
Part II - Other Information . . . . . . . . . . . . . . . . . . 14
<PAGE>
<TABLE> <CAPTION>
ITEM 1. INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
------------------- --------------------
1994 1993 1994 1993
Revenue: -------- -------- -------- --------
<S> <C> <C> <C> <C>
Hardware sales $ 7,695 $ 7,526 $ 13,963 $ 13,263
Software 2,726 2,715 5,309 5,236
Services 2,293 2,352 4,128 4,261
Maintenance 1,796 1,857 3,564 3,661
Rentals and financing 841 1,069 1,760 2,156
-------- -------- -------- --------
15,351 15,519 28,724 28,577
Cost:
Hardware sales 5,137 5,222 9,517 9,294
Software 1,021 1,033 2,281 1,970
Services 1,844 1,998 3,400 3,495
Maintenance 904 862 1,775 1,781
Rentals and financing 341 430 707 901
-------- -------- -------- --------
9,247 9,545 17,680 17,441
-------- -------- -------- --------
Gross Profit 6,104 5,974 11,044 11,136
Operating Expenses:
Selling, general and
administrative 3,935 4,487 7,084 8,563
Research, development and
engineering 1,091 1,376 2,192 2,732
Restructuring charges -- 8,945 -- 8,945
-------- -------- -------- --------
5,026 14,808 9,276 20,240
Operating Income (Loss) 1,078 (8,834) 1,768 (9,104)
Other Income, principally interest 479 158 887 353
Interest Expense 364 322 777 627
-------- -------- -------- --------
Earnings (Loss) before Income Taxes 1,193 (8,998) 1,878 (9,378)
Income Tax Provision (Benefit) 504 (962) 798 (1,057)
-------- -------- -------- --------
Net Earnings (Loss) before change in
accounting principle 689 (8,036) 1,080 (8,321)
Cumulative effect of change in
accounting for postemployment
benefits -- -- -- 114
-------- -------- -------- --------
Net Earnings (Loss) 689 (8,036) 1,080 (8,435)
Preferred stock dividends 21 5 42 5
-------- -------- -------- --------
Net Earnings (Loss) applicable to
common shareholders $ 668 $ (8,041) $ 1,038 $ (8,440)
======== ======== ======== ========
- 1 -
</TABLE>
<PAGE>
<TABLE> <CAPTION>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS - (CONTINUED)
(UNAUDITED)
(Dollars in millions except Three Months Ended Six Months Ended
for per share amounts) June 30 June 30
------------------- --------------------
1994 1993 1994 1993
-------- -------- --------- -------
<S> <C> <C> <C> <C>
Per share of common stock amounts
after preferred stock dividend:
Before change in accounting
principle $ 1.14 $(14.10) $ 1.78 $(14.60)
Cumulative effect of change in
accounting for income taxes -- -- -- (.20)
------- ------- ------- -------
Net Earnings (Loss) $ 1.14 $(14.10) $ 1.78 $(14.80)
======= ======= ======= =======
Average number of common
shares outstanding (millions) 584.0 570.2 583.1 570.4
Cash dividends per common share $ .25 $ .54 $ .50 $ 1.08
(The accompanying notes are an integral part of the financial statements.)
</TABLE>
- 2 -
<PAGE>
<TABLE> <CAPTION>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
ASSETS
At June 30 At December 31
(Dollars in millions) 1994 1993
----------- --------------
<S> <C> <C>
Current Assets:
Cash $ 1,090 $ 873
Cash equivalents 6,291 4,988
Marketable securities - at cost, which
approximates market 1,190 1,272
Notes and accounts receivable -
net of allowances 12,123 12,984
Sales-type leases receivable 6,715 6,428
Inventories, at lower of average cost or market
Finished goods 1,545 1,906
Work in process 5,331 5,539
Raw materials 276 120
-------- -----------
Total Inventories 7,152 7,565
Prepaid expenses and other current assets 4,334 5,092
-------- -----------
Total Current Assets 38,895 39,202
Plant, Rental Machines and Other Property 47,760 47,504
Less: Accumulated depreciation 31,024 29,983
-------- -----------
Plant, Rental Machines and Other Property - Net 16,736 17,521
Investments and Other Assets:
Software, less accumulated
amortization (1994, $10,921; 1993, $10,143) 3,149 3,703
Investments and sundry assets 19,821 20,687
-------- -----------
Total Investments and Other Assets 22,970 24,390
-------- -----------
Total Assets $ 78,601 $ 81,113
======== ===========
(The accompanying notes are an integral part of the financial statements.)
</TABLE>
- 3 -
<PAGE>
<TABLE> <CAPTION>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
At June 30 At December 31
(Dollars in millions) 1994 1993
----------- --------------
Current Liabilities:
<S> <C> <C>
Taxes $ 1,210 $ 1,589
Accounts payable and accruals 17,058 19,464
Short-term debt 10,357 12,097
-------- --------
Total Current Liabilities 28,625 33,150
Long-Term Debt 14,892 15,245
Other Liabilities 11,662 11,177
Deferred Income Taxes 1,854 1,803
-------- --------
Total Liabilities 57,033 61,375
Stockholders' Equity:
Preferred stock - par value $.01 per share 1,091 1,091
Shares authorized: 150,000,000
Shares issued: 1994 - 11,250,000
1993 - 11,250,000
Common stock - par value $1.25 per share 7,148 6,980
Shares authorized: 750,000,000
Shares issued: 1994 - 584,863,940
1993 - 581,388,475
Retained earnings 10,755 10,009
Translation and other adjustments 2,574 1,658
-------- --------
Total Stockholders' Equity 21,568 19,738
-------- --------
Total Liabilities and Stockholders' Equity $ 78,601 $ 81,113
======== ========
</TABLE>
- 4 -
<PAGE>
<TABLE> <CAPTION>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30:
(UNAUDITED)
(Dollars in millions) 1994 1993
-------- -------
<S> <C> <C>
Cash Flow from Operating Activities:
Net Earnings (Loss) $ 1,080 $ (8,321)
Adjustments to reconcile net earnings (loss) to cash
provided from operating activities:
Effect of restructuring charges (1,449) 6,165
Depreciation 2,146 2,461
Amortization of software 1,189 881
Changes in operating assets and liabilities 1,853 213
Gain on disposition of investment assets (373) (4)
------- -------
Net cash provided from operating activities 4,446 1,395
------- -------
Cash Flow from Investing Activities:
Payments for plant, rental machines
and other property, net of proceeds (747) (1,270)
Investment in software (635) (703)
Purchases of marketable securities and
other investments (1,496) (1,080)
Proceeds from marketable securities and
other investments 1,620 1,475
Proceeds from sale of Federal Systems Company 1,503 --
------- -------
Net cash provided from (used in) investing
activities 245 (1,578)
------- -------
Cash Flow from Financing Activities:
Proceeds from new debt 3,554 6,272
Payments to settle debt (5,943) (3,599)
Proceeds from preferred stock -- 1,091
Short-term borrowings less
than 90 days - net (456) (1,141)
Common stock transactions - net 168 (63)
Cash dividends paid (327) (616)
------- -------
Net cash (used in) provided from financing
activities (3,004) 1,944
------- -------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (167) (173)
------- -------
Net Change in Cash and Cash Equivalents 1,520 1,588
Cash and Cash Equivalents at January 1 5,861 4,446
------- -------
Cash and Cash Equivalents at June 30 $ 7,381 $ 6,034
======= =======
(The accompanying notes are an integral part of the financial statements.)
</TABLE>
- 5 -
<PAGE>
Notes to Consolidated Financial Statements
- - - ------------------------------------------
1. In the opinion of management of International Business Machines Corpo-
ration (the company), all adjustments necessary to a fair statement of the
results for the unaudited three and six month periods have been made. In
addition to the adjustments for normal recurring accruals, the company re-
corded charges of $.3 billion for software writedowns and an after-tax
gain of $248 million for the sale of its Federal Systems Company (FSC) in
the first quarter of 1994 and restructuring charges of $8.9 billion in the
second quarter of 1993.
2. The translation and other adjustments line of Stockholders' Equity in-
cludes equity translation adjustments of $2,574 million at June 30, 1994,
and $1,658 million at December 31, 1993. Other adjustments are included,
but amount to less than $1 million for both periods.
3. The Consolidated Statement of Financial Position at June 30, 1994 in-
cludes balances relative to restructuring programs of approximately $2.4
billion in Accounts Payable and Accruals, $1.2 billion in Other Liabil-
ities, and $3.3 billion in Plant, Rental Machines and Other Property pro-
vided for capacity related actions. At December 31, 1993, the approximate
restructuring balances were $5.1 billion in Accounts Payable and Accruals,
$1.6 billion in Other Liabilities, and $3.6 billion in Plant, Rental Ma-
chine and Other Property. The company continues to make progress in im-
plementing specific restructuring plans and utilizing the associated
reserves as the plans are implemented and completed. On an on-going ba-
sis, the company reviews the adequacy of these reserves against the asso-
ciated restructuring plans.
4. A supplemental Consolidated Statement of Operations schedule has been
provided for informational purposes only, to exclude the effects of the
FSC sale and software writedowns recorded in the first quarter of 1994.
The second quarter and first six months of 1993 excludes the effects of
the $8.9 billion restructuring charge, the cumulative effect of implement-
ing Statement of Financial Accounting Standards (SFAS) 112, "Employers'
Accounting for Postemployment Benefits," and FSC results. These supple-
mental statements are shown in exhibit 99 on pages 19 and 20. This infor-
mation is presented voluntarily and is provided solely to assist in
understanding the effects of these items on the Consolidated Statement of
Operations.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
------------------------------------------------
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994
------------------------------------------------
While much work remains to be done, the company has made steady
progress in reducing expenses and improving its competitiveness. In the
second quarter, the company's total expenses declined 18 percent from the
second quarter of 1993, revenues increased for the second consecutive
quarter, and gross profit margins held steady for the seventh quarter in a
row.
- 6 -
<PAGE>
In addition, as a result of progress in several significant re-
engineering projects currently underway, the company plans to reduce its
expenses by $8 billion from 1992 year-end levels by 1996, an increase of
$1 billion over its previously stated goal. As of June 30, 1994, expenses
have been reduced by a cumulative $4.8 billion toward this goal. Re-
engineering projects include almost all material business processes within
the company.
The company's hardware offerings continue to remain under price and
gross profit margin pressure, particularly high-end products and personal
computers. Services revenues, other than maintenance, continue to show
strong growth. However, these service offerings yield lower gross profit
margins than the company's traditional hardware products. As a result of
both these factors, the company's cost structure remains under continued
pressure.
Although the company is operating in a strengthening U.S. environment,
the business environments in Europe and Japan remain uncertain. The com-
pany must continue to focus on executing its product transitions, improv-
ing time to market, and completion of planned capacity and headcount
reductions.
RESULTS OF OPERATIONS
- - - ---------------------
The company's second-quarter 1994 earnings were $689 million, and
$1.14 per share of common stock. During the same period of last year, the
company posted a loss of $40 million ($.08 per common share) before re-
structuring charges and $8.0 billion ($14.10 per common share) after re-
structuring charges. Second-quarter 1994 revenues were $15.4 billion, a
decrease of 1.1 percent from the second quarter of 1993. Second-quarter
1994 revenues increased three percent after adjusting for the sale of FSC.
The average number of common shares outstanding for the period was 584.0
million in 1994 versus 570.2 million in 1993.
Net earnings for the six months ended June 30, 1994 were $1,038
million ($1.78 per common share), including the FSC sale and the effect of
accounting charges for the change in software amortization periods re-
corded in the first quarter of 1994. This compares to a net loss of $372
million ($.66 per common share) before restructuring charges and the cumu-
lative effect of SFAS 112 for the comparable period of last year ($8.4
billion and $14.80 per share after restructuring charges and the cumula-
tive effect of SFAS 112). Net earnings, when adjusted for the FSC sale
and the effect of the software amortization change were $982 million
($1.68 per common share).
Revenue for the six months ended June 30, 1994 was $28.7 billion, up
.5 percent from the prior year's $28.6 billion. Adjusted for the FSC
sale, revenue increased four percent year over year. The average number
of shares outstanding for the six-month period was 583.1 million in 1994
and 570.4 million in 1993.
The company's second-quarter 1994 revenues were flat in the United
States, Europe, and Latin America at $5.9 billion, $5.5 billion, and $620
million, respectively, compared with the second quarter of 1993. Asia-
Pacific revenues were $2.8 billion, and Canada revenues were $580 million;
an increase of 14 percent and 13 percent, respectively, over the compara-
ble period of last year. Currency had a slight adverse effect on revenues
in the second quarter of 1994.
- 7 -
<PAGE>
RESULTS OF OPERATIONS - (CONTINUED)
- - - -----------------------------------
Hardware Sales
- - - --------------
Revenues from hardware sales were $7.7 billion and $14.0 billion for
the second quarter and first six months of 1994, respectively, an increase
of 2.3 percent and 5.3 percent when compared to the same periods in 1993.
When adjusted for the FSC sale, hardware sales revenues increased 3.2 per-
cent for the second quarter and 6.2 percent for the six months of 1994
over comparable periods in 1993.
The hardware sales revenue increases were driven by continued growth
in RISC System/6000*, Original Equipment Manufacturer (OEM) products and
personal computers on both a second-quarter and six-months basis. Per-
sonal computer revenues grew in the second quarter of 1994, year over
year, but at a slower rate, which was primarily a result of sluggish U.S.
demand.
AS/400* hardware sales revenues declined on a second-quarter and six-
month basis when compared to the same periods of 1993. Revenues were im-
pacted as a result of transitions to newly introduced AS/400 models in the
second quarter of 1994.
High-end mainframe volumes increased while revenues decreased on both
a second-quarter and six-month basis as a result of year-to-year price re-
ductions, although the rate of price decline has been decreasing over the
last few quarters. The company's storage products revenues declined, when
compared to 1993's second-quarter and six-months results, due to continued
pricing pressures and lower volumes.
Hardware sales gross profit amounted to $2.6 billion and $4.4 billion
for the second quarter and first six months of 1994, respectively, re-
flecting an increase of $.3 billion or 11.0 percent and $.5 billion or
12.0 percent over the same periods in 1993. The hardware gross profit
margin for the second quarter and first six months of 1994 was 33.2 per-
cent and 31.8 percent, respectively. The increase in gross profit was
driven by cost improvements from high-end mainframes, offset by lower per-
sonal computer margins. Although the margin increased, it continues to be
impacted by competitive pricing pressures on high-end products and per-
sonal computers.
Software
- - - --------
Software revenues were $2.7 billion for the second quarter and $5.3
billion for the first half of 1994, an increase of .4 percent and 1.4 per-
cent, respectively, from a year ago. Software gross profit was $1.7
billion and $3.0 billion, for the second quarter and first half of 1994,
respectively, an increase of 1.3 percent and a decrease of 7.3 percent
versus the second quarter and first six months of 1993. The software
gross profit margin was 62.5 percent for the second quarter of 1994 and
57.0 percent for the first six months of 1994, respectively, an increase
of .5 points and a decrease of 5.4 points from comparable periods in 1993.
The six months gross profit and gross profit margin were impacted by the
accounting charges related to the software amortization change implemented
in the first quarter of 1994. Excluding the effects of this change, gross
profit would have increased 1.8 percent and gross profit margin would have
been 62.6 percent for the first six months of 1994.
- 8 -
<PAGE>
RESULTS OF OPERATIONS - (CONTINUED)
- - - -----------------------------------
Services Other Than Maintenance
- - - -------------------------------
Services revenues were $2.3 billion and $4.1 billion for the second
quarter and first six months of 1994, respectively, a decrease of 2.5 per-
cent and 3.1 percent when compared to the same periods of 1993. Services
gross profit amounted to $.4 billion and $.7 billion for the second quar-
ter and first six months of 1994, respectively, reflecting an increase of
26.8 percent and a decrease of 4.9 percent from comparable periods in
1993. The services gross profit margin was 19.6 percent for the second
quarter of 1994 and 17.6 percent for the first six months of 1994, an in-
crease of 4.6 points and a decrease of .4 points, respectively, from the
same periods last year. The second quarter and six months of 1994 results
do not include operational results from FSC, which were included in the
comparable 1993 results. When adjusted for the effects of the sale, ser-
vices revenues increased 23.7 percent and 22.6 percent, respectively, ver-
sus the same periods in 1993. Services gross profit increased 41.0
percent and 4.2 percent, respectively, versus comparable periods in 1993
after adjustments for the FSC sale, and the gross profit margins increased
2.4 points for the second quarter and decreased 3.1 points for the first
six months of 1994.
Other Revenues
- - - --------------
Revenues from maintenance were $1.8 billion and $3.6 billion for the
second quarter and first six months of 1994, respectively, a decrease of
3.3 percent and 2.6 percent when compared to the same periods of 1994.
Gross profit amounted to $.9 billion and $1.8 billion for the second quar-
ter and first six months of 1994, respectively, a decrease of 10.4 percent
and 4.8 percent from a year ago. The gross profit margin was 49.7 percent
and 50.2 percent for the second quarter and first half of 1994, respec-
tively, a decrease of 3.9 points and 1.2 points from the same periods in
1993. Maintenance revenue and gross profit margins are expected to con-
tinue to be adversely affected by the competitive environment and result-
ing pricing pressures on maintenance offerings.
Rentals and financing revenues were $.8 billion and $1.8 billion for
the second quarter and first six months of 1994, respectively, a decrease
of 21.3 percent and 18.4 percent from comparable periods in 1993. Gross
profit was $.5 billion and $1.1 billion for the second quarter and first
six months of 1994, respectively, a decrease of 21.8 percent and 16.1 per-
cent when compared to comparable periods of 1993. The rentals and financ-
ing gross profit margin were 59.4 and 59.8 percent for the second quarter
and first half of 1994, respectively, a decrease of .4 points and an in-
crease of 1.6 points over the same periods of 1993. The decline in re-
venue and gross profit in 1994 is a continuing result of lower high-end
hardware placements and lower revenue streams being financed when compared
to 1993.
- 9 -
<PAGE>
RESULTS OF OPERATIONS - (CONTINUED)
- - - -----------------------------------
Expenses
- - - --------
Selling, general and administrative expense was $3.9 billion for the
second quarter of 1994, a decrease of 12.3 percent from $4.5 billion in
the second quarter of 1993. For the six months ended June 30, 1994, this
expense was $7.1 billion, a decrease of 17.3 percent from the same period
in 1993. The six month decrease includes the before-tax gain from the FSC
sale. Without this gain, selling, general and administrative expense de-
clined 12.7 percent from the first six-months of 1993. These decreases
reflect the company's continued focus on productivity and process re-
engineering, restructuring programs, and expense controls.
Research, development and engineering expense amounted to $1.1 billion
for the second quarter and $2.2 billion for the six months of 1994, re-
presenting a decrease of 20.7 percent and 19.8 percent, respectively, when
compared to the same periods in 1993. These decreases reflect the compa-
ny's actions to scrutinize development efforts and reprioritize them to
growth areas, as well as the company's continued focus on productivity and
process re-engineering, restructuring programs, and expense controls.
Other Income, principally interest, amounted to $.5 billion and $.9
billion for the second quarter and first six months of 1994, respectively,
an increase of $.3 billion and $.5 billion when compared to the same peri-
ods in 1993. The increases were due primarily to higher levels of cash
and higher interest rates notably in Brazil, whose economic environment is
highly inflationary. Although Other Income increased, exchange losses
from currency revaluations of cash largely offset this increase.
Interest expense not included as cost of financing was $.4 billion and
$.8 billion for the second quarter and first six months of 1994, respec-
tively, an increase of 13.1 percent and 24.0 percent when compared to the
same periods in 1993. The increase was primarily as a result of higher
levels of local currency debt, notably in Brazil whose economic environ-
ment is highly inflationary, where interest rates are high. Although in-
terest expense increased, this increase is substantially offset by
exchange gains resulting from revaluations of the associated debt. Inter-
est on total borrowings of the company which includes interest expense and
interest costs associated with rentals and financing, amounted to $551
million and $1,175 million for the second quarter and first six months of
1994, respectively. Of these amounts, $5 million for the second quarter
and $9 million for the first six months were capitalized.
Exchange gains and losses are recorded as part of selling, general and
administrative expense.
- 10 -
<PAGE>
RESULTS OF OPERATIONS - (CONTINUED)
- - - -----------------------------------
The company has substantial business interests in Brazil where the
government converted to a new currency (REAL) effective July, 1994. The
new currency is tied to the U.S. dollar as part of the government's eco-
nomic plan intended to reduce inflation and stabilize the currency. The
introduction of this economic plan has had no effect on current business
results. However, we continue to monitor the implementation closely. If
these changes in Brazil are successful, it is anticipated that the eco-
nomic plan will have the effect of lowering interest income and interest
expense, as well as the exchange gains or losses associated with the local
currency cash deposits and borrowings.
The effective tax rate for the quarter ended June 30, 1994, was 42.3
percent, versus 10.7 percent tax benefit for the same period in 1993. The
increase is primarily the result of the restructuring charges recorded in
the second quarter of 1993 not being fully tax effected, as well as the
mix of earnings and corresponding weighting of tax rates on a country-by-
country basis.
The effective tax rate for the first six months of 1994 was 42.5 per-
cent, versus an 11.3 percent tax benefit from the same period in 1993.
The change is a result of the same factors that impacted the second quar-
ter effective tax rate.
Employees
- - - ---------
As of June 30, 1994, the company has approximately 235,000 employees,
down 21,000 from December 31, 1993. As a result of the FSC sale, approxi-
mately 10,000 people either transferred to Loral, retired, or are on a
preretirement leave from the company. The 1994 year-end objective is
215,000, with many of the reduction programs taking place in the fourth
quarter. The company may fall short of reaching the year-end objective,
due to increased volumes in certain product areas, such as mainframes,
that will drive additional employee requirements. In addition, there has
been an increase in employees due to outsourcing businesses taken over
during 1994. If the company misses its employee objective, it is still
confident it can achieve the 1994 expense reduction targets.
FINANCIAL CONDITION
- - - -------------------
The Consolidated Statement of Financial Position at June 30, 1994 re-
flects continued improvement in the company's financial condition from De-
cember 31, 1993, with increases in cash and stockholders' equity, and
decreases in total assets, outstanding debt, and total liabilities.
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<PAGE>
FINANCIAL CONDITION - (CONTINUED)
- - - ---------------------------------
Working Capital
- - - ---------------
Working capital at June 30, 1994, was $10.3 billion compared to $6.0
billion at December 31, 1993. Current assets decreased $.3 billion from
year-end 1993 levels, with decreases in accounts receivable of $.6
billion, prepaid expenses of $.7 billion, and inventories of $.4 billion,
offset by an increase of $1.4 billion in cash, cash equivalents, and
marketable securities. The increase in cash and cash equivalents is pri-
marily attributable to cash generated from operations, and proceeds from
the sale of FSC, offset by payments to settle outstanding debt. The de-
crease in accounts receivable largely results from lower volumes normally
associated with the first half of the year.
Current liabilities decreased $4.5 billion from December 31, 1993 due
to declines in accounts payable and accruals of $2.4 billion, short-term
debt of $1.7 billion, and taxes payable of $.4 billion. The decrease in
accounts payable and accruals is due to the normal seasonal decline of ac-
counts payable balances from their year-end levels, as well as lower re-
structuring accrual balances resulting from separation payments to
employees associated with the company's ongoing work force reduction pro-
grams. The decline in short-term debt is driven by the company's ongoing
efforts to reduce its overall debt obligations.
Investments
- - - -----------
The company's capital expenditures for plant and other property were
approximately $.9 billion for the first half of 1994, a decrease of $.2
billion from the same period in 1993, continuing the recent trend of re-
duced capital expenditures.
In addition to software development expense included in research, de-
velopment and engineering expense, the company capitalized $.8 billion of
software costs during the first half of 1994, down $.1 billion from the
amount capitalized in the comparable 1993 period. Ongoing amortization of
capitalized software costs amounted to $.8 billion in the first half of
both 1994 and 1993. Additionally, the company incurred $.3 billion in ac-
celerated amortization of capitalized software costs resulting from the
software amortization change implemented in the first quarter of 1994.
Long-Term Debt and Equity
- - - -------------------------
Long-term debt declined slightly from $15.2 billion at year-end 1993
to $14.9 billion at June 30, 1994.
Stockholders' equity increased from $19.7 billion at December 31,
1993, to $21.5 billion at June 30, 1994 as a result of increases in net
retained earnings of $.7 billion, capital stock of $.2 billion, and equity
translation adjustments of $.9 billion due to the majority of worldwide
currencies strengthening versus the U.S. dollar during the period.
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<PAGE>
FINANCIAL CONDITION - (CONTINUED)
- - - ---------------------------------
Cash Flow
- - - ---------
For the six months ended June 30, 1994, the company had an overall net
increase in cash and cash equivalents of $1.5 billion compared to a net
increase of $1.6 billion for the same period in 1993.
Net cash provided from operating activities was $4.4 billion for the
first six months of 1994, versus $1.4 billion in the comparable 1993 pe-
riod. The period-to-period improvement in cash flow from operations is
mainly driven by improved earnings and lower accounts receivable balances,
offset by a decrease in liabilities primarily resulting from lower re-
structuring accrual balances due to separation payments to employees.
Net cash provided from investing activities was $.2 billion for the
first six months of 1994, compared to a net use of funds in the amount of
$1.6 billion in the same period of 1993. The increased cash flow from in-
vesting activities compared to the 1993 period is primarily attributable
to the proceeds derived from the sale of FSC in the first quarter of 1994.
Net cash used in financing activities amounted to $3.0 billion for the
six months ended June 30, 1994, compared to a $1.9 billion net source of
cash for the comparable 1993 period, principally the result of the compa-
ny's ongoing efforts to reduce its overall outstanding debt obligations.
Liquidity
- - - ---------
During the first half of 1994, the company received total cash pro-
ceeds of approximately $6.7 billion from the sale and securitization of
primarily trade receivables. The cash impact from these activities was
not material since the majority of such receivables are related to exist-
ing revolving securitization programs. Additionally, during the first six
months of 1994, the company issued, in lieu of purchasing on the open mar-
ket, 3.4 million shares of common stock to be sold to employees under the
IBM Employee Stock Purchase Plan.
Part II - Other Information
---------------------------
ITEM 1. Legal Proceedings
- - - -------------------------
Beginning on June 10, 1994, plaintiffs' counsel in the class action
described below sent notices of pendency of class action to persons and
entities who purchased IBM stock during the period of September 30, 1992
through December 14, 1992. The notice describes the lawsuit and informs
the recipients of their right to request exclusion from the class.
Requests for exclusion are required by the terms of the notice to be
postmarked on or before August 19, 1994.
- 13 -
<PAGE>
Part II - Other Information
---------------------------
ITEM 1. Legal Proceedings - (continued)
- - - ---------------------------------------
The consolidated and amended class action complaint was filed against
IBM on February 25, 1993 in the United States District Court for the
Southern District of New York alleging violations of Section 12 of the
Securities Act of 1933 and Section 10 of the Securities Exchange Act of
1934. The complaint alleges, among other matters, that IBM disseminated
false and misleading statements concerning IBM's financial condition and
dividends during certain periods in 1992, as a result of which plaintiffs
were injured in connection with their purchases of IBM stock during the
period of September 30, 1992 through December 14, 1992.
The plaintiffs seek unspecified money damages. IBM believes it has
good defenses to the allegations raised in the consolidated complaint and
intends to defend itself vigorously.
ITEM 4. Submission of Matters to a Vote of Security Holders
- - - -----------------------------------------------------------
The Annual Meeting of Stockholders of International Business Machines
Corporation was held on April 25, 1994.
(1) Each of the eleven nominees to the Board of Directors was
elected for a one-year term by the stockholders:
DIRECTOR FOR WITHHELD
H. Brown 455,707,319 11,482,099
J. E. Burke 455,916,825 11,272,593
F. Gerber 456,061,995 11,127,423
L. V. Gerstner, Jr. 456,119,436 11,069,982
N. O. Keohane 455,769,617 11,419,801
C. F. Knight 455,827,380 11,362,038
T. S. Murphy 455,949,989 11,239,429
P. J. Rizzo 455,979,211 11,210,207
J. B. Slaughter 455,843,053 11,346,365
L. C. van Wachem 456,177,269 11,012,149
E. S. Woolard, Jr. 456,018,074 11,171,344
(2) The appointment of Price Waterhouse as independent auditors
of the company was ratified:
For 452,020,888
Not For 2,598,041
Abstain 12,570,489
Total 467,189,418
(3) The stockholders approved the adoption of the IBM 1994 Long-
Term Performance Plan:
For 392,234,245
Not For 59,976,726
Abstain 14,978,447
Total 467,189,418
- 14 -
<PAGE>
Part II - Other Information
---------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders - (continued)
- - - -------------------------------------------------------------------------
(4) The stockholders defeated a proposal recommending that IBM
affirm its political non-partisanship:
For 32,194,266
Not For 286,359,024
Abstain 28,053,350
Broker No Vote 120,582,778
Total 467,189,418
ITEM 5. Other Information
- - - -------------------------
On June 28, 1994, the company announced that Dr. Charles M. Vest,
president, Massachusetts Institute of Technology, had been elected to the
company's Board of Directors.
ITEM 6 (a). Exhibits
- - - --------------------
Exhibit Number
- - - --------------
11 Statement re: computation of per share earnings.
23 The company's proxy statement dated March 14, 1994, containing
the full text of the proposals referred to in Item 4, which
was previously filed electronically, is hereby incorporated
by reference.
99 Supplemental Consolidated Statement of Operations schedules.
ITEM 6 (b). Reports on Form 8-K
- - - --------------------------------
No reports on Form 8-K were filed during the second quarter of 1994.
- 15 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its be-
half by the undersigned thereunto duly authorized.
International Business Machines Corporation
-------------------------------------------
(Registrant)
Date: August 11, 1994
- - - ---------------------
By:
J. B. York
-------------------------------------------
J. B. York
Senior Vice President and
Chief Financial Officer
* RISC System/6000 and Application System/400 are trademarks or registered
trademarks of the International Business Machines Corporation.
- 16 -
EXHIBIT 11
COMPUTATION OF FULLY DILUTED EARNINGS PER
SHARE UNDER TREASURY STOCK METHOD SET FORTH
IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
For Quarter Ended
------------------------------
June 30, 1994 June 30, 1993*
------------- -------------
Number of shares on which earnings
(loss) per share is based:
Average outstanding during period 584,041,605 570,188,653
Add - Incremental shares under stock
option and stock purchase plans 3,432,312 --
- Incremental shares related to
5 3/4% CGI convertible bonds 7,715,388 --
----------- -----------
Number of shares on which fully diluted
earnings (loss) per share is based 595,189,305 570,188,653
=========== ===========
Net earnings (loss) available to
common shareholders (millions) $ 668 $(8,041)
- Net earnings (loss) effect of
interest on 5 3/4% CGI convertible
bonds (millions) 5 --
----------- -----------
Net earnings (loss) on which fully
diluted earnings per share
is based (millions) $ 673 $(8,041)
=========== ===========
Fully diluted earnings (loss) per share $ 1.13 $(14.10)
Published earnings (loss) per share $ 1.14 $(14.10)
* In 1993, incremental shares under stock plans and the effect of the
convertible bonds were not considered for the fully diluted earnings
(loss) per share calculation due to their antidilutive effect.
As such, the amounts reported for published and fully diluted earnings
(loss) per share are the same.
- 17 -
<PAGE>
COMPUTATION OF FULLY DILUTED EARNINGS PER
SHARE UNDER TREASURY STOCK METHOD SET FORTH
IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15 - (CONTINUED)
For Six Months Ended
------------------------------
June 30, 1994 June 30, 1993*
------------- -------------
Number of shares on which earnings
(loss) per share is based:
Average outstanding during period 583,054,388 570,373,922
Add - Incremental shares under stock
option and stock purchase plans 2,696,239 --
- Incremental shares
related to 5 3/4% CGI convertible
bonds 7,715,388 --
------------- -----------
Number of shares on which fully diluted
earnings (loss) per share is based 593,466,015 570,373,922
============= ===========
Net earnings (loss) available to
common shareholders (millions) $ 1,038 $(8,440)
- Net earnings (loss) effect of
interest on 5 3/4% CGI convertible
bonds (millions) 9 --
------------- -----------
Net earnings (loss) on which fully
diluted earnings per share
is based (millions) $ 1,047 $(8,440)
============= =========
Fully diluted earnings (loss) per share $ 1.76 $(14.80)
Published earnings (loss) per share $ 1.78 $(14.80)
* In 1993, incremental shares under stock plans and the effect of the
convertible bonds were not considered for the fully diluted earnings
(loss) per share calculation due to their antidilutive effect.
As such, the amounts reported for published and fully diluted earnings
(loss) per share are the same.
- 18 -
EXHIBIT 99
<TABLE><CAPTION>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS(1)
SUPPLEMENTAL SCHEDULE (UNAUDITED)
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Hardware sales $ 7,695 $ 7,459 $ 13,963 $ 13,145
Software 2,726 2,715 5,309 5,236
Services 2,293 1,853 4,128 3,368
Maintenance 1,796 1,857 3,564 3,661
Rentals and financing 841 1,069 1,760 2,156
-------- -------- -------- --------
15,351 14,953 28,724 27,566
Cost:
Hardware sales 5,137 5,153 9,517 9,181
Software 1,021 1,033 1,985 1,969
Services 1,844 1,535 3,400 2,670
Maintenance 904 862 1,775 1,781
Rentals and financing 341 429 707 901
-------- ------- -------- --------
9,247 9,012 17,384 16,502
-------- ------- -------- --------
Gross Profit 6,104 5,941 11,340 11,064
Operating Expenses:
Selling, general and
administrative 3,935 4,480 7,466 8,556
Research, development and
engineering 1,091 1,376 2,192 2,732
Restructuring charges -- -- -- --
-------- ------- -------- -------
5,026 5,856 9,658 11,288
Operating Income (Loss) 1,078 85 1,682 (224)
Other Income, principally interest 479 154 887 345
Interest Expense 364 322 777 627
-------- ------- -------- -------
Earnings (Loss) before Income Taxes 1,193 (83) 1,792 (506)
Income Tax Provision (Benefit) 504 (24) 768 (134)
-------- ------- -------- -------
Net Earnings (Loss) before change in
accounting principle 689 (59) 1,024 (372)
Cumulative effect of change in
accounting for postemployment
benefits -- -- -- --
-------- ------- -------- -------
Net Earnings (Loss) 689 (59) 1,024 (372)
Preferred stock dividends 21 5 42 5
-------- ------- -------- -------
Net Earnings (Loss) applicable to
common shareholders $ 668 $ (64) $ 982 $ (377)
======== ======= ======== =======
</TABLE>
- 19 -
<PAGE>
EXHIBIT 99
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS - (CONTINUED)(1)
SUPPLEMENTAL SCHEDULE (UNAUDITED)
<TABLE><CAPTION>
(Dollars in millions except Three Months Ended Six Months Ended
for per share amounts) June 30 June 30
------------------- --------------------
1994 1993 1994 1993
-------- -------- --------- -------
<S> <C> <C> <C> <C>
Per share of common stock amounts
after preferred stock dividend:
Before change in accounting
principle $ 1.14 $ (0.11) $ 1.68 $ (0.66)
Cumulative effect of change in
accounting for income taxes -- -- -- --
------- ------- ------- -------
Net Earnings (Loss) $ 1.14 $ (0.11) $ 1.68 $ (0.66)
======= ======= ======= =======
Average number of common
shares outstanding (millions) 584.0 570.2 583.1 570.4
</TABLE>
(1) Supplemental information provided for comparative purposes.
1994 excludes effects of the sale of FSC and writedown of software.
1993 excludes $8.9 billion restructuring charges, cumulative
effect of implementing SFAS 112, and FSC results.
Printed on Recycled Paper
- 20 -
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
PAGE 1
DATA STATED IN MILLIONS EXCEPT PER SHARE AMOUNTS
IBM CORPORATION - FINANCIAL DATA SCHEDULE
SECOND QTR SECOND QTR YEAR TO DATE
REGULATION STATEMENT CAPTION 1994 1993 1994 1993
- - - ---------- ----------------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
5-02(1) Cash and Cash Equivalents $ 7,381 $ 6,034 -- --
5-02(2) Marketable Securities 1,190 737 -- --
5-02(3)(a)(1) Notes and Accounts Receivable - Trade 12,123 13,190
5-02(6)(a)(1) Inventory 7,152 8,261 -- --
5-02(9) Total Current Assets 38,895 40,865 -- --
5-02(13) Property, Plant and Equipment 47,760 52,020
5-02(14) Accumulated Depreciation 31,024 32,505
5-02(18) Total Assets 78,601 86,141 -- --
5-02(21) Total Current Liabilities 28,625 37,794 -- --
5-02(22) Long-term Debt 14,892 14,563 -- --
5-02(24) Other Liabilities 13,516 13,972 -- --
5-02(29) Preferrred Stock-No Mandatory Redemption 1,091 1,091
5-02(30) Common Stock 7,148 6,558 -- --
5-02(31) Other Stockholders' Equity 13,329 12,163 -- --
5-02(32) Total Liabilities and Stockholders' Equity 78,601 86,141
5-03(b)(1)(a) Gross Income: Hardware Sales 7,695 7,526 $ 13,963 $ 13,263
5-03(b)(1) Total Revenues 15,351 15,519 28,724 28,577
5-03(b)(2)(a) Cost of Hardware Sales 5,137 5,222 9,517 9,294
5-03(b)(2) Total Cost Applicable to Revenue 9,247 9,545 17,680 17,441
5-03(b)(3) Other Costs and Expenses 5,026 14,808 9,276 20,240
5-03(b)(8) Interest Expense 364 322 777 627
5-03(b)(10) Earnings Before Income Taxes 1,193 (8,998) 1,878 (9,378)
5-03(b)(11) Provision for Income Taxes 504 (962) 798 (1,057)
5-03(b)(14) Income Loss From Continuing Operations 689 (8,036) 1,080 (8,321)
5-03(b)(18) Effect of Changes in Accounting -- -- -- 114
Principles
5-03(b)(19) Net Earnings or (Loss) 668 (8,041) 1,038 (8,440)
5-03(b)(20) Earnings Per Share - Primary 1.14 (14.10) 1.78 (14.80)
- 21 -
</TABLE>
