- --------------------------------------------------------------------------------
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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, 1993
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
VOTING SHARES OUTSTANDING NAME OF EACH EXCHANGE
TITLE OF EACH CLASS AT FEBRUARY 10, 1994 ON WHICH REGISTERED
- --------------------------- ------------------------- ------------------------
Capital stock, par value 582,112,340 New York Stock Exchange
$1.25 per share Midwest Stock Exchange
Pacific Stock Exchange
Depositary shares each New York Stock Exchange
representing one-fourth
of a share of 7 1/2%
Preferred stock, par
value $ .01 per share
6 3/8% Notes due 1997 New York Stock Exchange
9% Notes due 1998 New York Stock Exchange
6 3/8% Notes due 2000 New York Stock Exchange
7 1/4% Notes due 2002 New York Stock Exchange
7 1/2% Debentures due 2013 New York Stock Exchange
8 3/8% Debentures due 2019 New York Stock Exchange
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. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant at February 10, 1994 was $30.8 billion.
Documents incorporated by reference:
Portions of IBM's Annual Report to Stockholders for the year ended
December 31, 1993 into Parts I and II of Form 10-K.
Portions of IBM's definitive Proxy Statement dated March 14, 1994 into
Part III of Form 10-K.
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<PAGE>
PART I
ITEM 1. BUSINESS:
IBM develops, manufactures and sells advanced information processing
products, including computers and microelectronic technology, software,
networking systems and information technology-related services. IBM offers value
worldwide through its United States, Canada, Europe/Middle East/Africa, Latin
America, and Asia/Pacific business units, by providing comprehensive and
competitive product choices.
The value of unfilled orders is not a meaningful indicator of future
revenues due to the significant proportion of revenue from services, the volume
of products delivered from shelf inventories, and the shortening of product
delivery schedules. Therefore, the Company believes that backlog information is
not material to an understanding of its business.
IBM owns or is licensed under a number of patents relating to its products.
Licenses under patents owned by IBM have been and are being granted to others.
IBM believes its business as a whole is not materially dependent upon any
particular patent or license, or any particular group of patents or licenses.
The following information is included in IBM's 1993 Annual Report to
Stockholders and is incorporated herein by reference:
1. Segment information and revenue by classes of similar products or
services--Pages 59 and 60
2. Financial information by geographic areas--Pages 61 and 62
3. Amount spent during each of the last three years on research and
development activities--Page 45
4. The number of persons employed by the registrant--Page 31
5. Management discussion overview --Pages 20 and 21
ITEM 2. PROPERTIES:
At December 31, 1993, IBM's manufacturing and development facilities in the
United States had aggregate floor space of 57.4 million square feet, of which
46.6 million was owned and 10.8 million was leased. Of these amounts, 4.3
million square feet was vacant and .7 million square feet was being leased to
non-IBM businesses. Similar facilities in 15 other countries totaled 21.8
million square feet, of which 18.3 million was owned and 3.5 million was leased.
Of these amounts, .6 million square feet was vacant and .3 million square feet
was being leased to non-IBM businesses.
Although improved production techniques, productivity gains, and
restructuring 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 and other property, refer to page 27
(Investments) of IBM's 1993 Annual Report to Stockholders which is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS:
No material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
1
<PAGE>
PART I (CONTINUED)
EXECUTIVE OFFICERS OF THE REGISTRANT (AT MARCH 28, 1994):
<TABLE><CAPTION>
OFFICER
AGE SINCE
----------- -----------
<S> <C> <C>
Chairman of the Board of Directors and Chief Executive Officer
Louis V. Gerstner, Jr.(1)....................................................................... 52 1993
Vice Chairman of the Board of Directors
Paul J. Rizzo(1)................................................................................ 66 1993
Senior Vice Presidents
James A. Cannavino, Strategy and Development.................................................... 49 1988
Gerald M. Czarnecki, Human Resources and Administration......................................... 54 1993
Donato A. Evangelista, General Counsel.......................................................... 61 1983
Ellen M. Hancock, Group Executive............................................................... 50 1985
Robert J. LaBant, Group Executive............................................................... 48 1989
Ned C. Lautenbach, Group Executive.............................................................. 50 1987
G. Richard Thoman, Group Executive.............................................................. 49 1993
John M. Thompson, Group Executive............................................................... 51 1989
Patrick A. Toole, Group Executive............................................................... 56 1984
Jerome B. York, Chief Financial Officer......................................................... 55 1993
Vice President and Controller
Lawrence A. Zimmerman........................................................................... 51 1991
Vice President and Treasurer
Frederick W. Zuckerman.......................................................................... 59 1993
</TABLE>
- ------------
(1) Member of the Board of Directors.
All 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 officer named above, with the exception of
Gerald M. Czarnecki, Louis V. Gerstner, Jr., Paul J. Rizzo, G. Richard Thoman,
Jerome B. York, and Frederick W. Zuckerman has been an officer or an executive
of IBM or its subsidiaries during the past five years.
Mr. Czarnecki was the chairman of the board and chief executive officer, of
Bank of America-Hawaii from 1992 until joining IBM in 1993. From 1987 to 1992,
he was chairman of the board and chief executive officer of HonFed Bank in
Honolulu, Hawaii.
Mr. Gerstner was the chairman of the board and chief executive officer of
RJR Nabisco Holdings Corporation from 1989 until joining IBM in 1993. From 1985
to 1989, he was chairman and chief executive officer of American Express Travel
Related Services Co., Inc.
Mr. Rizzo was the Dean of the Kenan-Flagler Business School at the
University of North Carolina-Chapel Hill from 1987 to 1992. He then became a
partner in Franklin Street Partners, a Chapel Hill investment firm. He rejoined
IBM in 1993, having previously retired in 1988.
Mr. Thoman was the president of Nabisco International from 1992 until
joining IBM in 1993. From 1985 to 1989, he was president of American Express
Travel Related Services International, and co-CEO of American Express Travel
Related Services Co., and CEO of American Express International from 1989 to
1992.
Mr. York was the executive vice president-finance and chief financial
officer of Chrysler Corporation from 1990 until joining IBM in 1993. From 1979
to 1990, he had also served as vice president and controller at Chrysler, vice
president in charge of the company's Dodge car and truck division, and managing
director of its operations in Mexico.
Mr. Zuckerman was the senior vice president and treasurer of RJR Nabisco
from 1991 until joining IBM in 1993. From 1981 to 1991, he was the corporate
vice president and treasurer of Chrysler Corporation.
2
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS:
Refer to page 63 and the inside back cover of IBM's 1993 Annual Report to
Stockholders which are incorporated herein by reference solely as they relate to
this item.
There were 738,948 common stockholders of record at February 10, 1994.
ITEM 6. SELECTED FINANCIAL DATA:
Refer to page 63 of IBM's 1993 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 20 through 31 of IBM's 1993 Annual Report to Stockholders
which are incorporated herein by reference.
On March 1, 1994, Loral Corporation completed its acquisition of the
Federal Systems Company for $1.503 billion in cash. The amount of any gain
resulting from this sale may be dependent on future performance of the Advanced
Automation System contract for the Federal Aviation Authority and certain other
open matters.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Refer to pages 18 and 19 and 32 through 62 of IBM's 1993 Annual Report to
Stockholders which are incorporated herein by reference. Also refer to the
Financial Statement Schedules on pages S-1 to S-5 of this Form.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Refer to pages 2 through 4 and 7 of IBM's definitive Proxy Statement dated
March 14, 1994 which are incorporated herein by reference solely as they relate
to this item. Also refer to the Item entitled "Executive Officers of the
Registrant" in Part I of this Form.
ITEM 11. EXECUTIVE COMPENSATION:
Refer to pages 9 through 16 of IBM's definitive Proxy Statement dated March
14, 1994, 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 "Stock Ownership" appearing on pages 7
and 8 of IBM's definitive Proxy Statement dated March 14, 1994, which
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Refer to page 7 (Other Relationships) of IBM's definitive Proxy Statement
dated March 14, 1994, which is incorporated herein by reference.
3
<PAGE>
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 1993 ANNUAL REPORT TO STOCKHOLDERS
WHICH ARE INCORPORATED HEREIN BY REFERENCE:
Report of Independent Accountants (page 19).
Consolidated Statement of Operations for the years ended December 31,
1993, 1992 and 1991 (page 32).
Consolidated Statement of Financial Position at December 31, 1993 and
1992 (page 33).
Consolidated Statement of Cash Flows for the years ended December 31,
1993, 1992 and 1991 (page 34).
Consolidated Statement of Stockholders' Equity at December 31, 1993, 1992
and 1991 (page 35).
Notes to Consolidated Financial Statements (pages 36 through 62).
2. FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED BY ITEM 8 OF
THIS FORM:
<TABLE><CAPTION>
SCHEDULE
PAGE NUMBER
- ----------- -----------
<S> <C> <C>
7 Report of Independent Accountants on Financial Statement Schedules.
S-1 V-- Plant, Rental Machines and Other Property.
S-2 VI-- Accumulated Depreciation of Plant, Rental Machines and Other Property.
S-3 VIII-- Valuation and Qualifying Accounts.
S-4 IX-- Short-Term Borrowings.
S-5 X-- Supplementary Income Statement Information.
</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
financial statements or the notes thereto.
3. EXHIBITS:
INCLUDED IN THIS FORM 10-K:
<TABLE>
<S> <C>
I-- Computation of Fully Diluted Earnings Per Share.
II-- Parents and Subsidiaries.
III-- Consent of Independent Accountants.
IV-- Additional Exhibits
(a) Quarterly Consolidated Statement of Operations--Restated 1993.
V-- The By-laws of IBM as amended through November 30, 1993.
VI-- The Certificate of Incorporation of IBM as restated April 27, 1992, and
filed May 27, 1992, as amended through May 28, 1993.
VII-- IBM's 1993 Annual Report to Stockholders, certain sections of which have
been incorporated herein by reference.
VIII-- Powers of Attorney.
</TABLE>
4
<PAGE>
PART IV (CONTINUED)
NOT INCLUDED IN THIS FORM 10-K:
-- A copy of the IBM 1989 Long-Term Performance Plan, a management
compensatory plan, is contained in Registration Statement No.
33-29022 on Form S-8, filed on May 31, 1989, and is hereby
incorporated by reference.
-- Board of Directors compensatory plans, as described under Directors'
Compensation on page 7 of IBM's definitive Proxy Statement dated
March 14, 1994, which is incorporated herein by reference.
-- The instruments defining the rights of the holders of the 6 3/8%
Notes due 1997 and the 7 1/4% Notes due 2002 are Exhibits 4(a)
through 4(1) 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 9% Notes
due 1998 are Exhibit 4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1985, and Exhibit 4(b) to Registration
Statement No. 33-6889 on Form S-3, filed on July 1, 1986, and are
hereby incorporated by reference.
-- The instruments defining the rights of the holders of the 6 3/8%
Notes due 2000 and the 7 1/2% Debentures due 2013 are Exhibits 4(a)
through 4(1) 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 3/8%
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.
-- IBM's definitive Proxy Statement dated March 14, 1994, certain
sections of which have been incorporated herein by reference.
(B) REPORTS ON FORM 8-K:
-- No reports on Form 8-K were filed during the last quarter of 1993.
5
<PAGE>
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.
INTERNATIONAL BUSINESS MACHINES
CORPORATION
(Registrant)
By: LOUIS V. GERSTNER, JR.
..................................
(LOUIS V. GERSTNER, JR.
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER)
Date: March 28, 1994
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
- -------------------------------------------- ------------------ ------------------------------------------
<S> <C> <C>
JEROME B. YORK Senior Vice March 28, 1994
............................................ President
(JEROME B. YORK) and
Chief
Financial
Officer
LAWRENCE A. ZIMMERMAN Vice President March 28, 1994
............................................ and
(LAWRENCE A. ZIMMERMAN) Controller
HAROLD BROWN Director
JAMES E. BURKE Director
THOMAS F. FRIST, JR. Director
FRITZ GERBER Director
JUDITH RICHARDS HOPE Director
NANNERL O. KEOHANE Director
CHARLES F. KNIGHT Director
THOMAS S. MURPHY Director By: JOHN E. HICKEY
...............................
(JOHN E. HICKEY)
JOHN R. OPEL Director ATTORNEY-IN-FACT
PAUL J. RIZZO Vice Chairman March 28, 1994
of the Board
JOHN B. SLAUGHTER Director
LODEWIJK C. VAN WACHEM Director
EDGAR S. WOOLARD, JR. Director
</TABLE>
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Our audits of the consolidated financial statements referred to in our report
dated February 16, 1994 (which refers to the changes in the methods of
accounting for postemployment benefits in 1993, income taxes in 1992, and
nonpension postretirement benefits in 1991) appearing on page 19 of the 1993
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 Schedules listed in Item 14(a)2 of this Form 10-K. In our
opinion, these Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, N.Y. 10036
February 16, 1994
7
<PAGE>
SCHEDULE V
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
PLANT, RENTAL MACHINES AND OTHER PROPERTY
FOR THE YEAR ENDED DECEMBER 31:
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
BALANCE
AT RETIREMENTS, BALANCE
BEGINNING ADDITIONS SALES AND TRANSLATION AT END
DESCRIPTION OF PERIOD AT COST RECLASSIFICATIONS ADJUSTMENTS OF PERIOD
- ----------------------------------------- ----------- ----------- ----------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1993
Land and land improvements............. $ 1,477 $ 12 $ 59 $ (8) $ 1,422
Buildings.............................. 13,839 278 641 (162) 13,314
Plant, laboratory and office
equipment................................ 34,500 2,147 6,480 (338) 29,829
----------- ----------- -------- ------------- -----------
49,816 2,437 7,180 (508) 44,565
Rental machines and parts.............. 2,970 795 801 (25) 2,939
----------- ----------- -------- ------------- -----------
Total......................... $ 52,786 $ 3,232 $ 7,981 $ (533) $ 47,504
----------- ----------- -------- ------------- -----------
----------- ----------- -------- ------------- -----------
1992
Land and land improvements............. $ 1,604 $ 15 $ 71 $ (71) $ 1,477
Buildings.............................. 14,281 477 389 (530) 13,839
Plant, laboratory and office
equipment................................ 36,490 3,721 4,549 (1,162) 34,500
----------- ----------- -------- ------------- -----------
52,375 4,213 5,009 (1,763) 49,816
Rental machines and parts.............. 3,303 485 714 (104) 2,970
----------- ----------- -------- ------------- -----------
Total......................... $ 55,678 $ 4,698 $ 5,723 $ (1,867) $ 52,786
----------- ----------- -------- ------------- -----------
----------- ----------- -------- ------------- -----------
1991
Land and land improvements............. $ 1,645 $ 19 $ 64 $ 4 $ 1,604
Buildings.............................. 13,792 833 361 17 14,281
Plant, laboratory and office
equipment................................ 35,155 4,508 3,216 43 36,490
----------- ----------- -------- ------------- -----------
50,592 5,360 3,641 64 52,375
Rental machines and parts.............. 3,067 1,142 922 16 3,303
----------- ----------- -------- ------------- -----------
Total......................... $ 53,659 $ 6,502 $ 4,563 $ 80 $ 55,678
----------- ----------- -------- ------------- -----------
----------- ----------- -------- ------------- -----------
</TABLE>
DEPRECIATION: Plant, rental machines and other property are carried at cost
and depreciated over their estimated useful lives using the straight-line
method.
With minor exceptions, the estimated useful lives of depreciable properties
are as follows:
Land improvements....................................... 20 years
Buildings and building equipment........................ 5 to 50 years
Plant, laboratory and office equipment.................. 2 to 16 years
Rental machines......................................... 1 to 7 years
S-1
<PAGE>
SCHEDULE VI
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
ACCUMULATED DEPRECIATION OF PLANT, RENTAL MACHINES AND OTHER PROPERTY
FOR THE YEAR ENDED DECEMBER 31:
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
ADDITIONS DEDUCTIONS
------------------ -----------------
BALANCE AT CHARGED TO COSTS, RETIREMENTS, BALANCE
BEGINNING EXPENSES AND SALES AND TRANSLATION AT END
DESCRIPTION OF PERIOD OTHER ACCOUNTS RECLASSIFICATIONS ADJUSTMENTS OF PERIOD
- ------------------------------ ----------- ------------------ ----------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1993
Land improvements........... $ 260 $ 101 $ 21 $ (11) $ 329
Buildings................... 6,301 713 353 (108) 6,553
Plant, laboratory and office
equipment..................... 23,228 4,381 5,627 (288) 21,694
----------- -------- -------- ------------- -----------
29,789 5,195 6,001 (407) 28,576
Rental machines............. 1,402 583 561 (17) 1,407
----------- -------- -------- ------------- -----------
Total.............. $ 31,191 $ 5,778(A) $ 6,562 $ (424) $ 29,983
----------- -------- -------- ------------- -----------
----------- -------- -------- ------------- -----------
1992
Land improvements........... $ 289 $ 23 $ 38 $ (14) $ 260
Buildings................... 4,848 1,837 157 (227) 6,301
Plant, laboratory and office
equipment..................... 21,480 6,819 4,322 (749) 23,228
----------- -------- -------- ------------- -----------
26,617 8,679 4,517 (990) 29,789
Rental machines............. 1,483 542 573 (50) 1,402
----------- -------- -------- ------------- -----------
Total.............. $ 28,100 $ 9,221(B) $ 5,090 $ (1,040) $ 31,191
----------- -------- -------- ------------- -----------
----------- -------- -------- ------------- -----------
1991
Land improvements........... $ 272 $ 25 $ 8 $ -- $ 289
Buildings................... 4,474 524 151 1 4,848
Plant, laboratory and office
equipment..................... 20,170 4,146 2,848 12 21,480
----------- -------- -------- ------------- -----------
24,916 4,695 3,007 13 26,617
Rental machines............. 1,502 454 481 8 1,483
----------- -------- -------- ------------- -----------
Total.............. $ 26,418 $ 5,149(C) $ 3,488 $ 21 $ 28,100
----------- -------- -------- ------------- -----------
----------- -------- -------- ------------- -----------
</TABLE>
- ------------
(A) Includes charge for accelerated depreciation due to restructuring actions
taken in 1993 of $1,068 million.
(B) Includes charge for accelerated depreciation due to restructuring actions
taken in 1992 of $4,185 million.
(C) Includes charge for accelerated depreciation due to restructuring action
taken in 1991 of $378 million.
S-2
<PAGE>
SCHEDULE VIII
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31:
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
BALANCE AT BALANCE AT
BEGINNING END
DESCRIPTION OF PERIOD NET CHANGE(A) OF PERIOD
- ---------------------------------------------------------------------- ------------- ----------------- -------------
<S> <C> <C> <C>
1993
]Account deducted from assets:
Allowance for doubtful accounts
--Current........................................................ $ 578 $ 105 $ 683
------ ------ ------
------ ------ ------
--Non-current.................................................... $ 209 $ (22) $ 187
------ ------ ------
------ ------ ------
1992
Account deducted from assets:
Allowance for doubtful accounts
--Current........................................................ $ 414 $ 164 $ 578
------ ------ ------
------ ------ ------
--Non-current.................................................... $ 196 $ 13 $ 209
------ ------ ------
------ ------ ------
1991
Account deducted from assets:
Allowance for doubtful accounts
--Current........................................................ $ 389 $ 25 $ 414
------ ------ ------
------ ------ ------
--Non-current.................................................... $ 119 $ 77 $ 196
------ ------ ------
------ ------ ------
</TABLE>
- ------------
(A) Includes additions charged to costs and expenses less accounts written off
and translation adjustments.
Note--
The receivables upon which the above allowances are based are highly
diversified by geography, industry, and individual customer. The allowances for
receivable losses for the year ended 1993, approximate less than three and
one-half percent of the company's current receivables and less than two percent
of the company's non-current receivables. The allowances for the year ended
1992, approproximate less than three percent of the company's current
receivables and less than two percent of the company's non-current receivables.
The allowances for the year ended 1991, approximate less than two percent in
both categories of receivables.
S-3
<PAGE>
SCHEDULE IX
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
SHORT-TERM BORROWINGS
FOR THE YEAR ENDED DECEMBER 31:
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
WEIGHTED WEIGHTED
AVERAGE MAXIMUM AVERAGE
BALANCE AT INTEREST OUTSTANDING INTEREST RATE
END RATE AT DURING THE AVERAGE DURING THE
OF PERIOD YEAR END YEAR BALANCE PERIOD
----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1993
Commercial Paper................................... $ 3,735 3.9% $ 8,357 $ 6,295 3.6%
Short-Term Loans................................... 4,356 5.9% 6,815 5,652 7.4%
1992
Commercial Paper................................... 7,869 3.5% 7,869 5,325 3.9%
Short-Term Loans................................... 5,342 13.3% 6,793 5,767 16.2%
1991
Commercial Paper................................... 3,426 5.1% 3,426 2,485 6.3%
Short-Term Loans................................... 5,927 18.6% 7,955 5,316 22.5%
</TABLE>
- ------------
Note--
The balance at end of period excludes the current portion of long-term debt
of $4,006 million, $3,256 million, and $4,363 million for the years 1993, 1992,
and 1991, respectively.
Effective 1993, short-term loan amounts in subsidiaries where the economic
environment is highly inflationary, were primarily denominated in U.S. dollars.
In prior years, these loans were denominated in local currencies, and the high
interest rates in those operations were largely offset by the effects of
inflation on funds borrowed. If the inflationary effects of these loans were
excluded, the weighted average interest rate at year-end would have been 7.5%
and 8.7% for the years 1992 and 1991, respectively, and the weighted average
interest rate during the year would have been 7.8% and 9.0% for 1992 and 1991,
respectively.
The average amount outstanding during the year and the weighted average
interest rate during the year were calculated by averaging the quarterly
balances and rates.
S-4
<PAGE>
SCHEDULE X
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEAR ENDED DECEMBER 31:
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
ITEM 1993 1992 1991
- ---------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Maintenance and repairs(A)...................................... $ 1,871 $ 2,260 $ 2,376
--------- --------- ---------
--------- --------- ---------
Taxes, other than payroll and income taxes(A)................... $ 702 $ 800 $ 795
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------
(A) Includes amounts charged to all accounts, including inventories and
fixed assets.
S-5
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
REFERENCE NUMBER EXHIBIT
PER ITEM 601 OF NUMBER IN
REGULATION S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K
- --------------------- -------------------------------------------------------------------------- -----------------
<S> <C> <C>
(3) Certificate of Incorporation and By-laws.
The Certificate of Incorporation of IBM as restated April 27, 1992, and VI
filed May 27, 1992, as amended through May 28, 1993.
The By-laws of IBM as amended through November 30, 1993. V
(4) Instruments defining the rights of security holders.
The instruments defining the rights of the holders of the 6 3/8% Notes due
1997 and the 7 1/4% Notes due 2002 are Exhibits 4(a) through 4(1) 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 9% Notes due
1998 are Exhibit 4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1985, and Exhibit 4(b) to Registration
Statement No. 33-6889 on Form S-3 filed on July 1, 1986, and are hereby
incorporated by reference.
The instruments defining the rights of the holders of the 6 3/8% Notes due
2000 and the 7 1/2% Debentures due 2013 are Exhibits 4(a) through 4(1)
to Registration Statement No. 33-49475(1) on Form S-3, file May 24,
1993, and are hereby incorporated by reference.
The instruments defining the rights of the holders of the 8 3/8%
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.
(9) Voting trust agreement. Not applicable
(10) Material contracts.
A copy of the IBM 1989 Long-Term Performance Plan is contained in
Registration Statement No. 33-29022 on Form S-8, filed on May 31, 1989,
and is hereby incorporated by reference.
Board of Directors compensatory plans, as described under Director's
Compensation on page 7 of IBM's definitive Proxy Statement dated March
14, 1994, which is incorporated herein by reference.
(11) Statement re computation of per share earnings. I
(12) Statement re computation of ratios. Not applicable
(13) Annual report to security holders. VII
(18) Letter re change in accounting principles. Not applicable
(19) Previously unfiled documents. Not applicable
(21) Subsidiaries of the registrant. II
(22) Published report regarding matters submitted to vote of security holders. Not applicable
(23) Consents of experts and counsel. III
(24) Powers of attorney. VIII
(27) Financial Data Schedules IX
(28) Information from reports furnished to state insurance regulatory Not applicable
authorities.
(29) Additional exhibits. IV
</TABLE>
CERTIFICATE
OF INCORPORATION
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Restated April 27, 1992
Filed May 27, 1992
As Amended through May 28, 1993
<PAGE>
TABLE OF CONTENTS
Page
Article One
Name......................... 1
Article Two
Purposes & Powers............ 1
Article Three
Capital....................... 1
Article Four
Shares....................... 1
Article Five
Office....................... 9
Article Six
Directors.................... 9
Article Seven
Committees, Account Books, 10
Dividends, Qualification of
Directors, Payment of Directors
Article Eight
Contracts, Ratification...... 10
Article Nine
Agent for Service............ 11
Article Ten
Preemptive Rights............ 11
Article Eleven
Liability of Directors....... 11
<PAGE>
Certificate of Incorporation
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
ONE: The name of the corporation (hereinafter called "the Corporation") is
International Business Machines Corporation.
TWO: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized and to exercise powers
granted under the Business Corporation Law of the State of New York,
provided that the Corporation shall not engage in any act or activity
requiring the consent or approval of any state official, department, board,
agency, or other body without such consent or approval first being
obtained.
THREE: The aggregate number of shares that the Corporation shall have
authority to issue is 900,000,000 shares, consisting of 750,000,000 shares
of the par value of $1.25 per share, which shall be designated "capital
stock" and 150,000,000 shares of the par value of $.01 per share, which
shall be designated "preferred stock."
FOUR: (1) Subject to the provisions of the By-laws, as from time to time
amended, with respect to the closing of the transfer books and the fixing
of a record date, each share of the capital stock of the Corporation shall
be entitled to one vote on all matters requiring a vote of the stockholders
and, subject to the rights of the holders of any outstanding shares of
preferred stock issued under this Article FOUR, shall be entitled to
receive such dividends, in cash, securities, or property, as may from time
to time be declared by the Board of Directors. In the event of any
liquidation, dissolution, or winding up of the Corporation, either
voluntary or involuntary, after payment shall have been made to the holders
of preferred stock of the full amount to which they shall be entitled under
this Article FOUR, the holders of capital stock shall be entitled, to the
exclusion of the holders of the preferred stock of any series, to share
ratably, according to the number of shares held by them, in all remaining
assets of the Corporation available for distribution.
(2) The Board of Directors is authorized, at any time or from time to time,
to issue preferred stock and (i) to divide the shares of preferred stock
into series; (ii) to determine the designation for any such series by
number, letter, or title that shall distinguish such series from any other
series of preferred stock; (iii) to determine the number of shares in any
such series (including a determination that such series shall consist of a
single share); and (iv) to determine with respect to the shares of any
series of preferred stock:
(a) whether the holders thereof shall be entitled to cumulative,
noncumulative, or partially cumulative dividends and, with respect to
shares entitled to dividends, the dividend rate or rates, including without
limitation the methods and procedures for determining such rate or rates,
and any other terms and conditions relating to such dividends;
1.
<PAGE>
(b) whether, and if so to what extent and upon what terms and conditions,
the holders thereof shall be entitled to rights upon the liquidation of, or
upon any distribution of the assets of, the Corporation;
(c) whether, and if so upon what terms and conditions, such shares shall be
convertible into, or exchangeable for, other securities or property;
(d) whether, and if so upon what terms and conditions, such shares shall be
redeemable;
(e) whether the shares shall be subject to any sinking fund provided for
the purchase or redemption of such shares and, if so, the terms of such
fund;
(f) whether the holders thereof shall be entitled to voting rights and, if
so, the terms and conditions for the exercise thereof, provided that the
holders of shares of preferred stock (i) will not be entitled to more than
the lesser of (x) one vote per $100 of liquidation value or (y) one vote
per share, when voting as a class with the holders of shares of capital
stock, and (ii) will not be entitled to vote on any matter separately as a
class, except, to the extent specified with respect to each series, (x)
with respect to any amendment or alteration of the provisions of this
Certificate of Incorporation that would adversely affect the powers,
preferences, or special rights of the applicable series of preferred stock
or (y) in the event the Corporation fails to pay dividends on any series of
preferred stock in full for any six quarterly dividend payment periods,
whether or not consecutive, in which event the number of directors may be
increased by two and the holders of outstanding shares of preferred stock
then similarly entitled shall be entitled to elect the two additional
directors until full accumulated dividends on all such shares of preferred
stock shall have been paid; and
(g) whether the holders thereof shall be entitled to other preferences or
rights and, if so, the qualifications, limitations, or restrictions of such
preferences or rights.
(3) Provisions relating to the Series A 7-1/2% Preferred Stock.
(a) Designation, Number, and Liquidation Preference. A series of
-----------------------------------------------
preferred stock is hereby designated "Series A 7-1/2% Preferred Stock".
The number of Shares constituting the Series A 7-1/2% Preferred Stock is
12,000,000. Shares of the Series A 7-1/2% Preferred Stock shall have a par
value of $.01 and a liquidation preference of $100 per share. The number
of authorized shares of the Series A 7-1/2% Preferred Stock may be
increased or decreased, in the discretion of the Board of Directors, by
amending this paragraph.
(b) Dividend Rate.
-------------
(i) Shares of the Series A 7-1/2% Preferred Stock shall be entitled to
receive dividends at a fixed annual rate of $7.50 per share. Such
2.
<PAGE>
dividends shall be cumulative from the date of original issue of such
shares and shall be payable, when and as declared by the Board of
Directors, quarterly for each of the quarters ending March, June, September
and December of each year, in arrears on the first business day of each
April, July, October and January, commencing July 1, 1993. Each such
dividend shall be paid to the holders of record of shares of the Series A
7-1/2% Preferred Stock as they appear on the stock register on the
applicable record date, which shall be the 15th day prior to the payment
date thereof. Dividends on account of arrears for any past dividend
periods may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on such date as may be
fixed by the Board of Directors which shall not exceed 30 days preceding
such dividend payment date thereof.
(ii) No dividends shall be declared or paid or set apart for payment on any
shares of any class or classes of stock of the Corporation or any series
thereof ranking, as to dividends, on a parity with or junior to the Series
A 7-1/2% Preferred Stock for any period unless full cumulative dividends
have been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof set apart for such payment, on the
Series A 7-1/2% Preferred Stock for all dividend payment periods
terminating on or prior to the date of payment of such full cumulative
dividends. When dividends are not paid in full, as aforesaid, upon the
shares of the Series A 7-1/2% Preferred Stock and any other shares of any
class or classes of stock or series thereof ranking on a parity as to
dividends with the Series A 7-1/2% Preferred Stock, all dividends declared
upon shares of the Series A 7-1/2% Preferred Stock and any other shares of
such class or classes or series thereof ranking on a parity as to dividends
with the Series A 7-1/2% Preferred Stock shall be declared pro rata so that
the amount of dividends declared per share on the Series A 7-1/2% Preferred
Stock and such other shares shall in all cases bear to each other the same
ratio that accrued dividends per share on the shares of the Series A 7-1/2%
Preferred Stock and such other shares bear to each other. Holders of
shares of the Series A 7-1/2% Preferred Stock shall not be entitled to any
dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Series A 7-1/2% Preferred
Stock. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Series A 7-1/2%
Preferred Stock which may be in arrears.
(iii) So long as any shares of the Series A 7-1/2% Preferred Stock are
outstanding, no dividend (other than a dividend in capital stock or in any
other shares ranking junior to the Series A 7-1/2% Preferred Stock as to
dividends and upon Liquidation (as defined in subsection (f)(i) and other
than as provided in paragraph (ii) of this subsection (b)) shall be
declared or paid or set aside for payment or other distribution declared or
made upon the shares of capital stock or upon any other shares ranking
junior to or on a parity with the Series A 7-1/2% Preferred Stock as to
dividends or upon Liquidation, nor shall any of the shares of capital stock
or any other shares of the Corporation ranking junior to or on a parity
with the Series A 7-1/2% Preferred Stock as to dividends or upon
3.
<PAGE>
Liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any such shares) by the Corporation (except by
conversion into or exchange for shares of the Corporation ranking junior to
the Series A 7-1/2% Preferred Stock as to dividends and upon Liquidation)
unless, in each case, the full cumulative dividends on all outstanding
shares of the Series A 7-1/2% Preferred Stock shall have been or
contemporaneously are declared and paid, or declared and a sum sufficient
for payment thereof is set apart for payment, for all past dividend payment
periods.
(iv) Dividends payable on the Series A 7-1/2% Preferred Stock for any
period less than a full quarterly dividend period, and for the dividend
period beginning on the date of issuance of the shares of the Series A
7-1/2% Preferred Stock, shall be computed on the basis of a 360-day year
consisting of 12 30-day months. The amount of dividends payable on shares
of the Series A 7-1/2% Preferred Stock for each full quarterly dividend
period shall be computed by dividing by 4 the annual rate per share set
forth above in subsection (b)(i).
(c) Redemption.
----------
(i) The shares of the Series A 7-1/2% Preferred Stock shall not be
redeemable prior to July 1, 2001. On and after July 1, 2001, the
Corporation, at its option, may redeem shares of the Series A 7-1/2%
Preferred Stock, as a whole or in part, at any time or from time to time,
at a redemption price per share of $100 plus, in each case, accrued and
unpaid dividends thereon to the date fixed for redemption.
(ii) In the event that fewer than all the outstanding shares of the Series
A 7-1/2% Preferred Stock are to be redeemed, the number of shares to be
redeemed shall be determined by the Board of Directors and the shares to be
redeemed shall be determined by lot or pro rata as may be determined by the
Board of Directors or by any other method as may be determined by the Board
of Directors in its sole discretion to be equitable.
(iii) In the event the Corporation shall redeem shares of the Series A
7-1/2% Preferred Stock, notice of such redemption shall be given by first
class mail, postage prepaid, mailed not less than 35 nor more than 60 days
prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the stock
register of the Depositary (as provided in subsection (j)(iii) below).
Each such mailed notice shall state: (v) the redemption date; (w) the
number of shares of the Series A 7-1/2% Preferred Stock to be redeemed and,
if fewer than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder; (x) the redemption
price; (y) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (z) that dividends on
the shares to be redeemed will cease to accrue on such redemption date. No
defect in the notice of redemption or in the mailing thereof shall affect
the validity of the redemption proceedings, and the failure to give notice
4.
<PAGE>
to any holder of shares of the Series A 7-1/2% Preferred Stock to be so
redeemed shall not affect the validity of the notice given to the other
holders of shares of the Series A 7-1/2% Preferred Stock to be so redeemed.
(iv) Notice having been mailed as aforesaid, then, notwithstanding that the
certificates evidencing the shares of the Series A 7-1/2% Preferred Stock
shall not have been surrendered, from and after the redemption date (unless
default shall be made by the Corporation in providing money for the payment
of the redemption price) dividends on the shares of the Series A 7-1/2%
Preferred Stock so called for redemption shall cease to accrue, and said
shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders (including dividend and voting rights) of
the Corporation (except the right to receive from the Corporation the
redemption price) shall cease. Upon surrender in accordance with said
notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors shall so require and the
notice shall so state), such shares shall be redeemed by the Corporation at
the redemption price aforesaid. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares without cost to the holder
thereof.
(v) Any shares of the Series A 7-1/2% Preferred Stock which shall at any
time have been redeemed shall, after such redemption, have the status of
authorized but unissued shares of preferred stock, without designation as
to series until such shares are once more designated as part of a
particular series by the Board of Directors.
(vi) Notwithstanding the foregoing provisions of this subsection (c), if
any dividends on the Series A 7-1/2% Preferred Stock are in arrears, no
shares of the Series A 7-1/2% Preferred Stock shall be redeemed unless all
outstanding shares of the Series A 7-1/2% Preferred Stock are
simultaneously redeemed, and the Corporation shall not purchase or
otherwise acquire any shares of the Series A 7-1/2% Preferred Stock;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of the Series A 7-1/2% Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all
outstanding shares of the Series A 7-1/2% Preferred Stock.
(d) Conversion. The holders of shares of the Series A 7-1/2% Preferred
----------
Stock shall not have any rights herein to convert such shares into or
exchange such shares for shares of any other class or classes or of any
other series of any class or classes of stock of the Corporation.
(e) Voting. The shares of the Series A 7-1/2% Preferred Stock shall not
------
have any voting powers either general or special, except as required by law
and except that:
(i) So long as any of the shares of the Series A 7-1/2% Preferred Stock
are outstanding, the consent of the holders of at least two-thirds of all
the shares of the Series A 7-1/2% Preferred Stock at the time outstanding,
5.
<PAGE>
given in person or by proxy, either in writing or by a vote at a meeting
called for the purpose at which the holders of shares of the Series A
7-1/2% Preferred Stock shall vote together as a separate class, shall be
necessary for authorizing, effecting or validating the amendment,
alteration or repeal of any of the provisions of the Certificate of
Incorporation or of any certificate amendatory thereof or supplemental
thereto (including any certificate of amendment or any similar document
relating to any series of preferred stock) which would adversely affect the
powers, preferences or special rights of the Series A 7-1/2% Preferred
Stock, including the creation or authorization of any class of stock that
ranks senior to the Preferred Stock with respect to dividends or upon
Liquidation. Any amendment or any resolution or action of the Board of
Directors which would create or issue any series of preferred stock out of
the authorized shares of preferred stock, or which would authorize, create
or issue any shares or class of stock (whether or not already authorized),
ranking junior to or on a parity with the Series A 7-1/2% Preferred Stock
with respect to the payment of dividends and distributions and
distributions upon any Liquidation, shall not be considered to affect
adversely the powers, preferences or special rights of the outstanding
shares of the Series A 7-1/2% Preferred Stock;
(ii) In the event that the Corporation shall have failed to declare and pay
or set apart for payment in full the dividends accumulated on the
outstanding shares of the Series A 7-1/2% Preferred Stock for any six
quarterly dividend payment periods, whether or not consecutive, and all
such preferred dividends remain unpaid (a "Preferred Dividend Default"),
the number of directors of the Corporation shall be increased by two and
the holders of outstanding shares of the Series A 7-1/2% Preferred Stock,
voting together as a class with all other series of preferred stock then
entitled to vote on the election of such directors, shall be entitled to
elect such two additional directors until the full dividends accumulated on
all outstanding shares of the Series A 7-1/2% Preferred Stock have been
declared and paid in full. Upon the occurrence of a Preferred Dividend
Default, the Board of Directors shall within 10 business days (any day
other than a day which is a Saturday, Sunday or legal holiday on which
banks are open for business in New York, New York) of such default call a
special meeting of the holders of shares of the Series A 7-1/2% Preferred
Stock and all other holders of a series of preferred stock who are then
entitled to participate in the election of such directors for the purpose
of electing the additional directors provided by the foregoing provisions;
provided that, in lieu of holding such meeting, the holders of record of a
majority of the outstanding shares of the Series A 7-1/2% Preferred Stock
and all other series of preferred stock who are then entitled to
participate in the election of such directors may, by action taken by
written consent as permitted by law and this Certificate of Incorporation
and the By-laws of the Corporation, elect such additional directors. If and
when all accumulated dividends on the shares of the Series A 7-1/2%
Preferred Stock have been declared and paid or set aside for payment in
full, the holders of shares of the Series A 7-1/2% Preferred Stock shall be
divested of the special voting rights provided by this paragraph, subject
to revesting in the event of each and every subsequent Preferred Dividend
6.
<PAGE>
Default. Upon termination of such special voting rights attributable to
all holders of shares of the Series A 7-1/2% Preferred Stock and any other
series of preferred stock, the term of office of each director elected by
the holders of shares of the Series A 7-1/2% Preferred Stock and such
parity stock (hereinafter referred to as a "Preferred Stock Director")
pursuant to such special voting rights shall forthwith terminate and the
number of directors of the Company shall, without further action, be
reduced by two, subject always to the increase in the number of directors
pursuant to the foregoing provisions in case of a future Preferred Dividend
Default. Any Preferred Stock Director may be removed at any time with or
without cause by, and shall not be removed otherwise than by, the vote of
the holders of record of a majority of the outstanding shares of the Series
A 7-1/2% Preferred Stock and all other series of preferred stock who were
entitled to participate in such Preferred Stock Director's election, voting
as a separate class, at a meeting called for such purpose or by written
consent as permitted by law and this Certificate of Incorporation and the
By-laws of the Corporation. So long as a Preferred Dividend Default shall
continue, any vacancy in the office of a Preferred Stock Director may be
filled by written consent of the Preferred Stock Director remaining in
office or, if none remains in office, by vote of the holders of record of a
majority of the outstanding shares of the Series A 7-1/2% Preferred Stock
and all other series of preferred stock who are then entitled to
participate in the election of such Preferred Stock Directors as provided
above. As long as a Preferred Dividend Default shall continue, holders of
shares of the Series A 7-1/2% Preferred Stock shall not, as such
stockholders, be entitled to vote on the election or removal of directors
other than Preferred Stock Directors, but shall not be divested of any
other voting rights provided to such stockholders by law with respect to
any other matter to be acted upon by the stockholders of the Corporation.
The Preferred Stock Directors shall each be entitled to one vote per
director on any matter.
(f) Liquidation Rights.
------------------
(i) Upon the dissolution, liquidation or winding up of the affairs of the
Corporation, whether voluntary or involuntary (collectively, a
"Liquidation"), after payment or provision for payment has been made of the
debts and other liabilities of the Corporation and payment or provision for
payment has been made on all amounts required to be paid in respect of all
outstanding shares of any class or classes of stock of the Corporation or
series thereof ranking senior to the shares of the Series A 7-1/2%
Preferred Stock, the holders of the shares of the Series A 7-1/2% Preferred
Stock shall be entitled, subject to paragraph (iv) of this subsection (f),
to receive out of the assets of the Corporation, before any payment or
distribution shall be made on capital stock or on any other class of stock
ranking junior to preferred stock upon Liquidation, the amount of $100 per
share, plus a sum equal to all dividends (whether or not earned or
declared) on such shares accrued and unpaid thereon to the date of final
distribution.
7.
<PAGE>
(ii) Neither the sale, transfer or lease of all or any part of the property
or business of the Corporation, nor the merger or consolidation of the
Corporation into or with any other corporation or the merger or
consolidation of any other corporation into or with the Corporation, shall
be deemed to be a Liquidation for the purposes of this subsection (f).
(iii) After the payment to the holders of the shares of the Series A
7-1/2% Preferred Stock of the full preferential amounts provided for in this
subsection (f), the holders of the Series A 7-1/2% Preferred Stock as such
shall have no right or claim to any of the remaining assets of the
Corporation and the shares of the Series A 7-1/2% Preferred Stock shall no
longer be deemed to be outstanding or be entitled to any other powers,
preferences, rights or privileges, including voting rights, and such shares
shall be surrendered for cancellation to the Corporation.
(iv) In the event the assets of the Corporation available for distribution
to the holders of shares of the Series A 7-1/2% Preferred Stock upon any
Liquidation shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to paragraph (i) of this subsection (f), no
such distribution shall be made on account of any shares of any series of
preferred stock ranking on a parity with the shares of the Series A 7-1/2%
Preferred Stock upon such Liquidation unless proportionate distributive
amounts shall be paid on account of the shares of the Series A 7-1/2%
Preferred Stock, ratably, in proportion to the full distributable amounts
for which holders of all such parity shares are respectively entitled upon
such Liquidation.
(g) Priority. Any shares of any class or classes of the Corporation or
--------
series thereof shall be deemed to rank:
(i) prior to the shares of the Series A 7-1/2% Preferred Stock, either as
to dividends or upon Liquidation, if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts distributable
upon Liquidation of the Corporation, in preference or priority to the
holder of shares of the Series A 7-1/2% Preferred Stock;
(ii) on a parity with shares of the Series A 7-1/2% Preferred Stock, either
as to dividends or upon Liquidation, whether or not the dividend rates,
dividend payment dates or redemption or Liquidation prices per share or
sinking fund provisions, if any, be different from those of the Series A
7-1/2% Preferred Stock, if the holders of such shares shall be entitled to
the receipt of dividends or of amounts distributable upon Liquidation of
the Corporation, in proportion to their respective dividend rates or
Liquidation prices, without preference or priority, one over the other, as
between the holders of such shares and the holders of shares of the Series
A 7-1/2% Preferred Stock; and
(iii) junior to shares of the Series A 7-1/2% Preferred Stock, either as to
dividends or upon Liquidation, if such class is capital stock or if the
holders of shares of the Series A 7-1/2% Preferred Stock shall be entitled
to receipt of dividends or of amounts distributable upon Liquidation of the
8.
<PAGE>
Corporation, in preference or priority to the holders of shares of such
class or classes.
(h) Sinking or Retirement Fund. The shares of the Series A 7-1/2%
--------------------------
Preferred Stock shall not be entitled to the benefit of a sinking or
retirement fund to be applied to the purchase or redemption of such shares.
(i) Distribution to Capital Stock Holders. Distribution of any of the
-------------------------------------
Series A 7-1/2% Preferred Stock or any other series of preferred stock may,
in the discretion of the Board of Directors, be made to the holders of
shares of capital stock.
(j) Miscellaneous.
-------------
(i) Subject to paragraph (iii) of subsection (c) above, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt thereof or three
business days after the mailing thereof if sent by registered mail (unless
first-class mail shall be specifically permitted for such notice under the
terms of this Certificate of Incorporation) with postage prepaid,
addressed: if to the Corporation, to its offices at Old Orchard Road,
Armonk, New York 10504 (Attention: Secretary), if to the Depositary (as
defined in paragraph (iii) below), to such holder at the address of such
holder as listed in the stock book (which may include the records of the
Depositary if appropriate); or to such other address as the Corporation or
holder, as the case may be, shall have designated by notice similarly
given.
(ii) In the event a holder of shares of the Series A 7-1/2% Preferred
Stock shall not by written notice designate the name to whom payment upon
redemption of any shares of the Series A 7-1/2% Preferred Stock should be
made or the address to which the certificate or certificates representing
such shares, or such payment, should be sent, the Corporation shall be
entitled to register such shares, and make such payment, in the name of the
holder of such shares as shown on the records of the Corporation and to
send the certificate or certificates representing such shares, or such
payment, to the address of such holder shown on the records of the
Corporation.
(iii) First Chicago Trust Company of New York shall be appointed the
depositary (the "Depositary") for the shares of the Series A 7-1/2%
Preferred Stock. The Depositary shall act as transfer agent, registrar and
dividend disbursing agent for the shares of the Series A 7-1/2% Preferred
Stock.
FIVE: The town and county within the State of New York in which the office
of the Corporation is to be located is the Town of North Castle, County of
Westchester.
SIX: The number of directors of the Corporation shall be provided in its
By-laws, but not less than 9 nor more than 25.
9.
<PAGE>
SEVEN: The Board of Directors may designate from their number an executive
committee and one or more other committees, each of which shall consist of
three or more directors. All such committees, in the intervals between
meetings of the Board of Directors and to the extent provided in the By-
laws or the resolution of the Board of Directors establishing such a
committee, shall have all the authority and may exercise all the powers of
the Board of Directors in the management of the business and affairs of the
Corporation to the extent lawful under the Business Corporation Law of the
State of New York.
The Board of Directors shall from time to time decide whether and to what
extent and at what times and under what conditions and requirements the
accounts and books of the Corporation, or any of them, except the stock
book, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any books or documents of the
Corporation except as conferred by statute of the State of New York or
authorized by the Board of Directors.
The Board of Directors may from time to time fix, determine, and vary the
amount of the working capital of the Corporation; may determine what part,
if any, of surplus shall be declared in dividends and paid to the
stockholders; may determine the time or times for the declaration and
payment of dividends, the amount thereof, and whether they are to be in
cash, securities, or properties; may direct and determine the use and
disposition of any surplus or net profits over and above the capital, and
in its discretion may use or apply any such surplus or accumulated profits
in the purchase or acquisition of bonds or other pecuniary obligations of
the Corporation to such extent, and in such manner and upon such terms as
the Board of Directors may deem expedient.
Directors shall be stockholders, subject to the power of the Board of
Directors from time to time to prescribe a reasonable time after
qualification within which newly elected directors must become
stockholders.
Each director, in consideration of serving as such, shall be entitled to
receive from the Corporation such amount per annum or such fees for
attendance at meetings of the stockholders or of the Board of Directors or
of committees of the Board of Directors, or both, as the Board of Directors
shall from time to time determine, together with reimbursement for the
reasonable expenses incurred in connection with the performance of duties.
Nothing herein contained shall preclude any director from serving the
Corporation or its subsidiaries in any other capacity and receiving
compensation therefor.
EIGHT: In the absence of fraud, any director of the Corporation
individually, or any firm or association of which any director is a member,
or any corporation of which any director is an officer, director,
stockholder, or employee, or in which such director is pecuniarily or
otherwise interested, may be a party to, or may be pecuniarily or otherwise
interested in, any contract, transaction, or act of the Corporation, and
10.
<PAGE>
(1) Such contract, transaction, or act shall not be in any way invalidated
or otherwise affected by that fact,
(2) Any such director of the Corporation may be counted in determining the
existence of a quorum at any meeting of the Board of Directors or of any
committee thereof that shall authorize any such contract, transaction, or
act, but may not vote thereon, and
(3) No director of the Corporation shall be liable to account to the
Corporation for any profit realized by such director from or through any
such contract, transaction, or act;
provided, however, that if any such director of the Corporation is so
interested either individually or as a member of a firm or association, or
as the holder of a majority of the stock of any class of a corporation, the
contract, transaction, or act shall be duly authorized or ratified by a
majority of the Board of Directors who are not so interested and who know
of such director's interest therein.
To the extent permitted by law, any contract, transaction, or act of the
Corporation or of the Board of Directors or of any committee thereof that
shall be ratified, whether before or after judgment rendered in a suit with
respect to such contract, transaction, or act, by the holders of a majority
of the stock of the Corporation having voting power at any annual meeting
or at any special meeting called for such purpose, shall be as valid and as
binding as though ratified by every stockholder of the Corporation and
shall constitute a complete bar to any such suit or to any claim of
execution in respect of any such judgment; provided, however, that any
failure of the stockholders to approve or ratify such contract,
transaction, or act, when and if submitted, shall not be deemed in any way
to invalidate the same or to deprive the Corporation, its directors,
officers, or employees of its or their right to proceed with such contract,
transaction, or act.
NINE: The Secretary of State of the State of New York is designated as the
agent of the Corporation upon whom process in any action or proceeding
against it may be served, and the address within the State to which the
Secretary of State shall mail a copy of process in any action or proceeding
against the Corporation that may be served upon the Secretary of State is
Armonk, New York 10504.
TEN: The holders of shares of the Corporation shall have no preemptive or
preferential right to subscribe for or purchase any shares of the
Corporation or any rights or options to purchase shares of the Corporation
or any shares or other securities convertible into or carrying rights or
options to purchase shares of the Corporation.
ELEVEN: Pursuant to Section 402(b) of the Business Corporation Law of the
State of New York, the liability of the Corporation's directors to the
Corporation or its stockholders for damages for breach of duty as a
director shall be eliminated to the fullest extent permitted by the
11.
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Business Corporation Law of the State of New York, as it exists on the date
hereof or as it may hereafter be amended. No amendment to or repeal of
this Article shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or
repeal.
_______________________________________
This Restated Certificate of Incorporation was approved by the Board of
Directors of the Corporation and on April 27, 1992 by the stockholders and,
pursuant to their authority, was executed on May 19, 1992 by Robert Ripp
and John E. Hickey, and was filed with the Department of State of the State
of New York on May 27, 1992.
INTERNATIONAL BUSINESS MACHINES CORPORATION
I, John E. Hickey, Secretary of International Business Machines
Corporation, do hereby certify that the foregoing is a true and complete
copy of the Restated Certificate of Incorporation of said Corporation as
amended through May 28, 1993, and it remains in full force and effect on
this date.
IN WITNESS WHEREOF, I have signed my name and affixed the seal of
International Business Machines Corporation this 28th day of
March, 1994.
J.E. HICKEY
-----------------
Secretary
12.
BY-LAWS
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Adopted April 29, 1958
As Amended Through
November 30, 1993
<PAGE>
TABLE OF CONTENTS
ARTICLE I PAGE
Definitions........................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
SEC. 1. Place of Meetings........ 1
SEC. 2. Annual Meetings.......... 1
SEC. 3. Special Meetings......... 2
SEC. 4. Notice of Meetings....... 2
SEC. 5. Quorum................... 2
SEC. 6. Organization............. 3
SEC. 7. Items of Business........ 3
SEC. 8. Voting................... 3
SEC. 9. List of Stockholders..... 4
SEC. 10. Inspectors of Election... 4
ARTICLE III
BOARD OF DIRECTORS
SEC. 1. General Powers........... 5
SEC. 2. Number; Qualifications;
Election; Term of
Office................. 5
SEC. 3. Place of Meetings........ 5
SEC. 4. First Meeting............ 5
SEC. 5. Regular Meetings......... 5
SEC. 6. Special Meetings......... 5
SEC. 7. Notice of Meetings....... 5
SEC. 8. Quorum and Manner of
Acting................. 6
SEC. 9. Organization............. 6
SEC. 10. Resignations............. 6
SEC. 11. Vacancies................ 6
SEC. 12. Retirement of
Directors................ 7
<PAGE>
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SEC. 1. Executive Committee...... 7
SEC. 2. Powers of the Executive
Committee.............. 7
SEC. 3. Meetings of the Executive
Committee.............. 8
SEC. 4. Quorum and Manner of
Acting of the Executive
Committee.............. 8
SEC. 5. Other Committees......... 8
SEC. 6. Changes in Committees;
Resignations; Removals;
Vacancies.............. 9
ARTICLE V
OFFICERS
SEC. 1. Number and Qualifications.. 9
SEC. 2. Resignations............. 9
SEC. 3. Removal.................. 10
SEC. 4. Vacancies................ 10
SEC. 5. Chairman of the Board.... 10
SEC. 6. Vice Chairman of the
Board.................. 10
SEC. 7. President................ 10
SEC. 8. Designated Officers...... 11
SEC. 9. Executive Vice
Presidents, Senior Vice
Presidents and Vice
Presidents............. 11
SEC. 10. Treasurer................ 11
SEC. 11. Secretary................ 12
SEC. 12. Controller............... 13
SEC. 13. Compensation............. 13
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS,
BANK ACCOUNTS, ETC.
SEC. 1. Execution of Contracts... 13
SEC. 2. Loans.................... 13
SEC. 3. Checks, Drafts, etc...... 14
SEC. 4. Deposits................. 14
SEC. 5. General and Special Bank
Accounts............... 14
SEC. 6. Indemnification.......... 14
<PAGE>
ARTICLE VII
SHARES
SEC. 1. Stock Certificates....... 15
SEC. 2. Books of Account and
Record of
Stockholders........... 15
SEC. 3. Transfers of Stock....... 15
SEC. 4. Regulations.............. 16
SEC. 5. Fixing of Record Date.... 16
SEC. 6. Lost, Destroyed or Mutilated
Certificates..... 16
SEC. 7. Inspection of Records.... 17
SEC. 8. Auditors................. 17
ARTICLE VII
OFFICES
SEC. 1. Principal Office......... 17
SEC. 2. Other Offices............ 17
ARTICLE IX
Waiver of Notice..................... 18
ARTICLE X
Fiscal Year.......................... 18
ARTICLE XI
Seal................................. 18
ARTICLE XII
Amendments........................... 18
<PAGE>
BY-LAWS
OF
INTERNATIONAL BUSINESS
MACHINES CORPORATION
-------
ARTICLE I
DEFINITIONS
In these By-laws, and for all purposes hereof, unless there be something
in the subject or context inconsistent therewith:
(a) 'Corporation' shall mean International Business Machines
Corporation.
(b) 'Certificate of Incorporation' shall mean the restated Certificate
of Incorporation as filed on May 27, 1992, together with any and all
amendments and subsequent restatements thereto.
(c) 'Board' shall mean the Board of Directors of the Corporation.
(d) 'stockholders' shall mean the stockholders of the Corporation.
(e) 'Chairman of the Board', 'Vice Chairman of the Board', 'Chairman of
the Executive Committee', 'Chief Executive Officer,' 'Chief Financial
Officer', 'Chief Accounting Officer', 'President', 'Executive Vice
President', 'Senior Vice President', 'Vice President', 'Treasurer',
'Secretary', 'Controller', 'Assistant Treasurer', 'Assistant Secretary', or
'Assistant Controller', as the case may be, shall mean the person at any
given time occupying the particular office with the Corporation.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. Meetings of the stockholders of the
Corporation shall be held at such place either within or outside the State
of New York as may from time to time be fixed by the Board or specified or
fixed in the notice of any such meeting.
SECTION 2. Annual Meetings. The annual meeting of the stockholders of
the Corporation for the election of directors and for the transaction of
such other business as may properly come before the meeting shall be held
on the last Monday of April of each year, if not a legal holiday, or, if
such Monday shall be a legal holiday, then on the next succeeding day not a
legal holiday. If any annual meeting shall not be held on the day
designated herein, or if the directors to be elected at such annual meeting
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shall not have been elected thereat or at any adjournment thereof, the
Board shall forthwith call a special meeting of the stockholders for the
election of directors to be held as soon thereafter as convenient and give
notice thereof as provided in these By-laws in respect of the notice of an
annual meeting of the stockholders. At such special meeting the
stockholders may elect the directors and transact other business with the
same force and effect as at an annual meeting of the stockholders duly
called and held.
SECTION 3. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called at any time by the Chairman
of the Board or by the Board.
SECTION 4. Notice of Meetings. Notice of each meeting of the
stockholders, annual or special, shall be in writing and given in the name
of the Chairman of the Board, a Vice Chairman of the Board or the President
or a Vice President or the Secretary or an Assistant Secretary. Such notice
shall state the purpose or purposes for which the meeting is called and the
date and hour when and the place where it is to be held. A copy thereof
shall either be served personally upon, or sent by mail, postage prepaid,
to all stockholders of record entitled to vote at such meeting, and all
stockholders of record who, by reason of any action proposed to be taken at
such meeting, would be entitled to have their stock appraised if such
action were taken, not less than ten or more than fifty days before the day
on which the meeting is called to be held. If mailed, such copy shall be
directed to each stockholder at the address listed on the record of
stockholders of the Corporation, or if the stockholder shall have filed
with the Secretary a written request that notices be mailed to some other
address, it shall be mailed to the address designated in such request.
Nevertheless, notice of any meeting of the stockholders shall not be
required to be given to any stockholder who shall waive notice thereof as
hereinafter provided in Article IX of these By-laws. Except when expressly
required by law, notice of any adjourned meeting of the stockholders need
not be given nor shall publication of notice of any annual or special
meeting thereof be required.
SECTION 5. Quorum. Except as otherwise provided by law, at all meetings
of the stockholders, the presence of holders of record of a majority of the
outstanding shares of stock of the Corporation having voting power, in
person or represented by proxy and entitled to vote thereat, shall be
necessary to constitute a quorum for the transaction of business. In the
absence of a quorum at any such meeting or any adjournment or adjournments
thereof, a majority in voting interest of those present in person or
represented by proxy and entitled to vote thereat, or, in the absence of
all the stockholders, any officer entitled to preside at, or to act as
secretary of, such meeting, may adjourn such meeting from time to time
without further notice, other than by announcement at the meeting at which
such adjournment shall be taken, until a quorum shall be present thereat.
At any adjourned meeting at which a quorum shall be present any business
may be transacted which might have been transacted at the meeting as
originally called.
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SECTION 6. Organization. At each meeting of the stockholders, the
Chairman of the Board, or in the absence of the Chairman of the Board, the
President, or in the absence of the Chairman of the Board and the
President, a Vice Chairman of the Board, or if the Chairman of the Board,
the President, and all Vice Chairmen of the Board shall be absent
therefrom, an Executive Vice President, or if the Chairman of the Board,
the President, all Vice Chairmen of the Board and all Executive Vice
Presidents shall be absent therefrom, a Senior Vice President shall act as
chairman. The Secretary, or, if the Secretary shall be absent from such
meeting or unable to act, the person (who shall be an Assistant Secretary,
if any of them shall be present) whom the Chairman of such meeting shall
appoint secretary of such meeting shall act as secretary of such meeting
and keep the minutes thereof.
SECTION 7. Items of Business. The items of business at all meetings
of the stockholders shall be, insofar as applicable, as follows:
-- Call to order.
-- Proof of notice of meeting or of waiver thereof.
-- Appointment of inspectors of election, if necessary.
-- A quorum being present.
-- Reports.
-- Election of directors.
-- Other business specified in the notice of the meeting.
-- Voting.
-- Adjournment
Any items of business not referred to in the foregoing may be taken up at
the meeting as the chairman of the meeting shall determine. The chairman of
the meeting shall determine all matters relating to the efficient conduct
of the meeting, including but not limited to the maintenance of order and
decorum.
SECTION 8. Voting. Except as otherwise provided by law, each holder of
record of shares of stock of the Corporation having voting power shall be
entitled at each meeting of the stockholders to one vote for every share of
such stock standing in the stockholder's name on the record of stockholders
of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 5 of
Article VII of these By-laws as the record date for the determination of
the stockholders who shall be entitled to vote at such meeting, or
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(b) If such record date shall not have been so fixed, then at the close
of business on the day next preceding the day on which notice of such
meeting shall have been given, or
(c) if such record date shall not have been so fixed and if no notice
of such meeting shall have been given, then at the time of the call to
order of such meeting.
Any vote on stock of the Corporation at any meeting of the stockholders
may be given by the stockholder of record entitled thereto in person or by
proxy appointed by an instrument in writing, subscribed by such stockholder
or by the stockholder's attorney thereunto duly authorized and delivered to
the secretary of such meeting at or prior to the time designated in the
order of business for turning in proxies. At all meetings of the
stockholders at which a quorum shall be present, all matters (except where
otherwise provided by law, the Certificate of Incorporation or these By-
laws) shall be decided by the vote of a majority in voting interest of the
stockholders present in person or represented by proxy and entitled to vote
thereat. Unless required by law, or determined by the chairman of the
meeting to be advisable, the vote on any question need not be by ballot. On
a vote by ballot, each ballot shall be signed by the stockholder voting, or
by the stockholder's proxy as such, if there be such proxy.
SECTION 9. List of Stockholders. A list, certified by the Secretary, of
the stockholders of the Corporation entitled to vote shall be produced at
any meeting of the stockholders upon the request of any stockholder of the
Corporation pursuant to the provisions of applicable law, the Certificate
of Incorporation or these By-laws.
SECTION 10. Inspectors of Election. Prior to the holding of each
annual or special meeting of the stockholders, two inspectors of election
to serve thereat shall be appointed by the Board, or, if the Board shall
not have made such appointment, by the Chairman of the Board. If there
shall be a failure to appoint inspectors, or if, at any such meeting, any
inspector so appointed shall be absent or shall fail to act or the office
shall become vacant, the chairman of the meeting may, and at the request of
a stockholder present in person and entitled to vote at such meeting shall,
appoint such inspector or inspectors of election, as the case may be, to
act thereat. The inspectors of election so appointed to act at any meeting
of the stockholders, before entering upon the discharge of their duties,
shall be sworn faithfully to execute the duties of inspectors at such
meeting, with strict impartiality and according to the best of their
ability, and the oath so taken shall be subscribed by them. Such inspectors
of election shall take charge of the polls, and, after the voting on any
question, shall make a certificate of the results of the vote taken. No
director or candidate for the office of director shall act as an inspector
of an election of directors. Inspectors need not be stockholders.
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board. The Board may exercise all such authority
and powers of the Corporation and do all such lawful acts and things as are
not by law, the Certificate of Incorporation or these By-laws, directed or
required to be exercised or done by the stockholders.
SECTION 2. Number; Qualifications; Election; Term of Office. The number
of directors of the Corporation shall be fourteen, but the number thereof
may be increased to not more than twenty-five, or decreased to not less
than nine, by amendment of these By-laws. The directors shall be elected at
the annual meeting of the stockholders. At each meeting of the stockholders
for the election of directors at which a quorum is present, the persons
receiving a plurality of the votes at such election shall be elected. Each
director shall hold office until the annual meeting of the stockholders
which shall be held next after the election of such director and until a
successor shall have been duly elected and qualified, or until death, or
until the director shall have resigned as hereinafter provided in Section
10 of this Article III.
SECTION 3. Place of Meetings. Meetings of the Board shall be held at
such place either within or outside State of New York as may from time to
time be fixed by the Board or specified or fixed in the notice of any such
meeting.
SECTION 4. First Meeting. The Board shall meet for the purpose of
organization, the election of officers and the transaction of other
business, on the same day the annual meeting of stockholders is held.
Notice of such meeting need not be given. Such meeting may be held at any
other time or place which shall be specified in a notice thereof given as
hereinafter provided in Section 7 of this Article III.
SECTION 5. Regular Meetings. Regular meetings of the Board shall be
held at times and dates fixed by the Board or at such other times and dates
as the Chairman of the Board shall determine and as shall be specified in
the notice of such meetings. Notice of regular meetings of the Board need
not be given except as otherwise required by law or these By-laws.
SECTION 6. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board.
SECTION 7. Notice of Meetings. Notice of each special meeting of the
Board (and of each regular meeting for which notice shall be required)
shall be given by the Secretary as hereinafter provided in this Section 7,
in which notice shall be stated the time, place and, if required by law or
these By-laws, the purposes of such meeting. Notice of each such meeting
shall be mailed, postage prepaid, to each director, by first-class mail, at
least four days before the day on which such meeting is to be held, or
shall be sent by facsimile transmission or comparable medium, or be
delivered personally or by telephone, at least twenty-four hours before the
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<PAGE>
time at which such meeting is to be held. Notice of any such meeting need
not be given to any director who shall waive notice thereof as provided in
Article IX of these By-laws. Any meeting of the Board shall be a legal
meeting without notice thereof having been given, if all the directors of
the Corporation then holding office shall be present thereat.
SECTION 8. Quorum and Manner of Acting. A majority of the Board shall
be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting. Participation in a
meeting by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each
other shall constitute presence in person at a meeting. Except as otherwise
expressly required by law or the Certificate of Incorporation and except
also as specified in Section 1, Section 5, and Section 6 of Article IV, in
Section 3 of Article V and in Article XII of these By-laws, the act of a
majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board. In the absence of a quorum at any
meeting of the Board, a majority of the directors present thereat may
adjourn such meeting from time to time until a quorum shall be present
thereat. Notice of any adjourned meeting need not be given. At any
adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
called. The directors shall act only as a Board and the individual
directors shall have no power as such.
SECTION 9. Organization. At each meeting of the Board, the Chairman
of the Board, or in the case of the Chairman's absence therefrom, the
President, or in the case of the President's absence therefrom, a Vice
Chairman, or in the case of the absence of all such persons, another
director chosen by a majority of directors present, shall act as chairman
of the meeting and preside thereat. The Secretary, or if the Secretary
shall be absent from such meeting, any person (who shall be an Assistant
Secretary, if any of them shall be present at such meeting) appointed by
the chairman, shall act as secretary of the meeting and keep the minutes
thereof.
SECTION 10. Resignations. Any director of the Corporation may resign at
any time by giving written notice of resignation to the Board or the
Chairman of the Board or the Secretary. Any such resignation shall take
effect at the time specified therein, or if the time when it shall become
effective shall not be specified therein, then it shall take effect
immediately upon its receipt; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Any vacancy in the Board, whether arising from
death, resignation, an increase in the number of directors or any other
cause, may be filled by the Board.
SECTION 12. Retirement of Directors. The Board may prescribe a
retirement policy for directors on or after reaching a certain age,
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provided, however, that such retirement shall not cut short the annual term
for which any director shall have been elected by the stockholders.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. Executive Committee. The Board, by resolution adopted by a
majority of the Board, may designate not less than four of the directors
then in office to constitute an Executive Committee, each member of which
unless otherwise determined by resolution adopted by a majority of the
whole Board, shall continue to be a member of such Committee until the
annual meeting of the stockholders which shall be held next after
designation as a member of such Committee or until the earlier termination
as a director. The Chief Executive Officer shall always be designated as a
member of the Executive Committee. The Board may by resolution appoint one
member as the Chairman of the Executive Committee who shall preside at all
meetings of such Committee. In the absence of said Chairman, the Chief
Executive Officer shall preside at all such meetings. In the absence of
both the Chairman of the Executive Committee and the Chief Executive
Officer, the Chairman of the Board shall preside at all such meetings. In
the absence of the Chairman of the Executive Committee and the Chief
Executive Officer and the Chairman of the Board, the President shall
preside at all such meetings. In the absence of all such persons, a
majority of the members of the Executive Committee present shall choose a
chairman to preside at such meetings. The Secretary, or if the Secretary
shall be absent from such meeting, any person (who shall be an Assistant
Secretary, if any of them shall be present at such meeting) appointed by
the chairman, shall act as secretary of the meeting and keep the minutes
thereof.
SECTION 2. Powers of the Executive Committee. To the extent permitted
by law, the Executive Committee may exercise all the powers of the Board in
the management of specified matters where such authority is delegated to it
by the Board, and also, to the extent permitted by law, the Executive
Committee shall have, and may exercise, all the powers of the Board in the
management of the business and affairs of the Corporation (including the
power to authorize the seal of the Corporation to be affixed to all papers
which may require it; but excluding the power to appoint a member of the
Executive Committee) in such manner as the Executive Committee shall deem
to be in the best interests of the Corporation and not inconsistent with
any prior specific action of the Board. An act of the Executive Committee
taken within the scope of its authority shall be an act of the Board. The
Executive Committee shall render in the form of minutes a report of its
several acts at each regular meeting of the Board and at any other time
when so directed by the Board.
SECTION 3. Meetings of the Executive Committee. Regular meetings of the
Executive Committee shall be held at such times, on such dates and at such
places as shall be fixed by resolution adopted by a majority of the
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Executive Committee, of which regular meetings notice need not be given, or
as shall be fixed by the Chairman of the Executive Committee or in the
absence of the Chairman of the Executive Committee the Chief Executive
Officer and specified in the notice of such meeting. Special meetings of
the Executive Committee may be called by the Chairman of the Executive
Committee or by the Chief Executive Officer. Notice of each such special
meeting of the Executive Committee (and of each regular meeting for which
notice shall be required), stating the time and place thereof shall be
mailed, postage prepaid, to each member of the Executive Committee, by
first-class mail, at least four days before the day on which such meeting
is to be held, or shall be sent by facsimile transmission or comparable
medium, or be delivered personally or by telephone, at least twenty-four
hours before the time at which such meeting is to be held; but notice need
not be given to a member of the Executive Committee who shall waive notice
thereof as provided in Article IX of these By-laws, and any meeting of the
Executive Committee shall be a legal meeting without any notice thereof
having been given, if all the members of such Committee shall be present
thereat.
SECTION 4. Quorum and Manner of Acting of the Executive Committee. Four
members of the Executive Committee shall constitute a quorum for the
transaction of business, and the act of a majority of the members of the
Executive Committee present at a meeting at which a quorum shall be present
shall be the act of the Executive Committee. Participating in a meeting by
means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other shall
constitute presence at a meeting of the Executive Committee. The members of
the Executive Committee shall act only as a committee and individual
members shall have no power as such.
SECTION 5. Other Committees. The Board may, by resolution adopted by a
majority of the Board, designate members of the Board to constitute other
committees, which shall have, and may exercise, such powers as the Board
may by resolution delegate to them, and shall in each case consist of such
number of directors as the Board may determine; provided, however, that
each such committee shall have at least three directors as members thereof.
Such a committee may either be constituted for a specified term or may be
constituted as a standing committee which does not require annual or
periodic reconstitution. A majority of all the members of any such
committee may determine its action and its quorum requirements and may fix
the time and place of its meetings, unless the Board shall otherwise
provide. Participating in a meeting by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other shall constitute presence at a meeting of such
other committees.
In addition to the foregoing, the Board may, by resolution adopted by a
majority of the Board, create a committee of indeterminate membership and
duration and not subject to the limitations as to the membership, quorum
and manner of meeting and acting prescribed in these By-laws, which
committee, in the event of a major disaster or catastrophe or national
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emergency which renders the Board incapable of action by reason of the
death, physical incapacity or inability to meet of some or all of its
members, shall have, and may exercise all the powers of the Board in the
management of the business and affairs of the Corporation (including,
without limitation, the power to authorize the seal of the Corporation to
be affixed to all papers which may require it and the power to fill
vacancies in the Board). An act of such committee taken within the scope of
its authority shall be an act of the Board.
SECTION 6. Changes in Committees; Resignations; Removals; Vacancies.
The Board shall have power, by resolution adopted by a majority of the
Board, at any time to change or remove the members of, to fill vacancies
in, and to discharge any committee created pursuant to these By-laws,
either with or without cause. Any member of any such committee may resign
at any time by giving written notice to the Board or the Chairman of the
Board or the Secretary. Such resignation shall take effect upon receipt of
such notice or at any later time specified therein; and, unless otherwise
specified therein, acceptance of such resignation shall not be necessary to
make it effective. Any vacancy in any committee, whether arising from
death, resignation, an increase in the number of committee members or any
other cause, shall be filled by the Board in the manner prescribed in these
By-laws for the original appointment of the members of such committee.
ARTICLE V
OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation
shall include the Chairman of the Board, the President, one or more Vice
Presidents (one or more of whom may be designated as Executive Vice
Presidents or as Senior Vice Presidents or by other designations), the
Treasurer, the Secretary and the Controller, and may include one or more
Assistant Treasurers, one or more Assistant Secretaries, and one or more
Assistant Controllers. Such officers shall be elected from time to time by
the Board, each to hold office until a successor shall have been duly
elected and shall have qualified, or until death, or until resignation as
hereinafter provided in Section 2 of this Article V, or until removed as
hereinafter provided in Section 3 of this Article V. The officers of the
Corporation may include one or more Vice Chairmen of the Board and the
Board may from time to time elect such officers.
SECTION 2. Resignations. Any officer of the Corporation may resign
at any time by giving written notice of resignation to the Board, the
Chairman of the Board, the Chief Executive Officer or the Secretary. Any
such resignation shall take effect at the time specified therein, or, if
the time when it shall become effective shall not be specified therein,
then it shall become effective upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
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<PAGE>
SECTION 3. Removal. Any officer of the Corporation may be removed,
either with or without cause, at any time, by a resolution adopted by a
majority of the Board at any meeting of the Board.
SECTION 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of office which shall be vacant, in the
manner prescribed in these By-laws for the regular election or appointment
to such office.
SECTION 5. Chairman of the Board. The Chairman of the Board shall, if
present, preside at each meeting of the stockholders and of the Board and
shall perform such other duties as may from time to time be assigned by the
Board. The Chairman may sign certificates representing shares of the stock
of the Corporation pursuant to the provisions of Section 1 of Article VII
of these By-laws; sign, execute and deliver in the name of the Corporation
all deeds, mortgages, bonds, contracts or other instruments authorized by
the Board, except in cases where the signing, execution or delivery thereof
shall be expressly delegated by the Board or these By-laws to some other
officer or agent of the Corporation or where they shall be required by law
otherwise to be signed, executed and delivered; and affix the seal of the
Corporation to any instrument which shall require it. The Chairman of the
Board shall in the absence or incapacity of the President, perform all the
duties and functions and exercise all the powers of the President.
SECTION 6. Vice Chairman of the Board. Each Vice Chairman of the Board
shall assist the Chairman of the Board and have such other duties as may be
assigned by the Board or the Chairman of the Board. The Vice Chairman may
sign certificates representing shares of the stock of the Corporation
pursuant to the provisions of Section 1 of Article VII of these By-laws;
sign, execute and deliver in the name of the Corporation all deeds,
mortgages, bonds, contracts or other instruments authorized by the Board,
except in cases where the signing, execution or delivery thereof shall be
expressly delegated by the Board or these By-laws to some officer or agent
of the Corporation or where they shall be required by law otherwise to be
signed, executed and delivered; and affix the seal of the Corporation to
any instrument which shall require it.
SECTION 7. President. The President shall perform all such duties as
from time to time may be assigned by the Board or the Chairman of the
Board. The President may sign certificates representing shares of the stock
of the Corporation pursuant to the provisions of Section 1 of Article VII
of these By-laws; sign, execute and deliver in the name of the Corporation
all deeds mortgages, bonds, contracts or other instruments authorized by
the Board, except in cases where the signing, execution or delivery thereof
shall be expressly delegated by the Board or these By-laws to some other
officer or agent of the Corporation or where they shall be required by law
otherwise to be signed, executed and delivered, and affix the seal of the
Corporation to any instrument which shall require it; and, in general,
perform all duties incident to the office of President. The President shall
in the absence or incapacity of the Chairman of the Board, perform all the
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duties and functions and exercise all the powers of the Chairman of the
Board.
SECTION 8. Designated Officers. (a) Chief Executive Officer.
Either the Chairman of the Board, or the President, as the Board of
Directors may designate, shall be the Chief Executive Officer of the
Corporation. The officer so designated shall have, in addition to the
powers and duties applicable to the office set forth in Section 5 or 7 of
this Article V, general and active supervision over the business and
affairs of the Corporation and over its several officers, agents, and
employees, subject, however, to the control of the Board. The Chief
Executive Officer shall see that all orders and resolutions of the Board
are carried into effect, be an ex officio member of all committees of the
Board (except the Audit Committee and committees specifically empowered to
fix or approve the Chief Executive Officer's compensation or to grant or
administer bonus, option or other similar plans in which the Chief
Executive Officer is eligible to participate), and, in general, shall
perform all duties incident to the position of Chief Executive Officer and
such other duties as may from time to time be assigned by the Board.
(b) Other Designated Officers. The Board of Directors may designate
officers to serve as Chief Financial Officer, Chief Accounting Officer and
other such designated positions and to fulfill the responsibilities of such
designated positions in addition to their duties as officers as set forth
in this Article V.
SECTION 9. Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents. Each Executive and Senior Vice President shall perform all such
duties as from time to time may be assigned by the Board or the Chairman of
the Board or a Vice Chairman of the Board or the President. Each Vice
President shall perform all such duties as from time to time may be
assigned by the Board or the Chairman of the Board or a Vice Chairman of
the Board or the President or an Executive or a Senior Vice President. Any
Vice President may sign certificates representing shares of stock of the
Corporation pursuant to the provisions of Section 1 of Article VII of these
By-laws.
SECTION 10. Treasurer. The treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, and may invest the same in any
securities, may open, maintain and close accounts for effecting any and all
purchase, sale, investment and lending transactions in securities of any
and all kinds for and on behalf of the Corporation or any employee pension
or benefit plan fund or other fund established by the Corporation, as may
be permitted by law;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
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(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board or the
Executive Committee;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds, taking proper vouchers therefor;
(f) render to the Board, whenever the Board may require, an account of
all transactions as Treasurer; and
(g) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned by the
Board or the Chairman of the Board or a Vice Chairman of the Board or the
President or an Executive or Senior Vice President.
In case one or more Assistant Treasurers shall be elected, the Treasurer
may delegate to them the authority to perform such duties as the Treasurer
may determine.
SECTION 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the Executive Committee
and other committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation and
affix and attest the seal to all other documents to be executed on behalf
of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned by the
Board or the Chairman of the Board or a Vice Chairman of the Board or the
President or an Executive or Senior Vice President.
In case one or more Assistant Secretaries shall be elected, the Secretary
may delegate to them authority to perform such duties as the Secretary may
determine.
SECTION 12. Controller. The Controller shall:
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(a) have control of all the books of account of the Corporation;
(b) keep a true and accurate record of all property owned by it, of its
debts and of its revenues and expenses;
(c) keep all accounting records of the Corporation (other than the
accounts of receipts and disbursements and those relating to the deposits
of money and other valuables of the Corporation, which shall be kept by the
Treasurer);
(d) render to the Board, whenever the Board may require, an account of
the financial condition of the Corporation; and
(e) in general, perform all the duties incident to the office of
Controller and such other duties as from time to time may be assigned by
the Board or the Chairman of the Board or a Vice Chairman of the Board or
the President or an Executive or Senior Vice President.
In case one or more Assistant Controllers shall be elected, the
Controller may delegate to them authority to perform such duties as the
Controller may determine.
SECTION 13. Compensation. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board; provided,
however, that the Board may delegate to a committee the power to fix or
approve the compensation of any officers. An officer of the Corporation
shall not be prevented from receiving compensation by reason of being also
a director of the Corporation; but any such officer who shall also be a
director shall not have any vote in the determination of the amount of
compensation paid to such officer.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS,
BANK ACCOUNTS, ETC.
SECTION 1. Execution of Contracts. Except as otherwise required by law
or these By-laws, any contract or other instrument may be executed and
delivered in the name and on behalf of the Corporation by any officer
(including any assistant officer) of the Corporation. The Board or the
Executive Committee may authorize any agent or employee to execute and
deliver any contract or other instrument in the name and on behalf of the
Corporation, and such authority may be general or confined to specific
instances as the Board or such Committee, as the case may be, may by
resolution determine.
SECTION 2. Loans. Unless the Board shall otherwise determine, the
Chairman of the Board or a Vice Chairman of the Board or the President or
any Vice President, acting together with the Treasurer or the Secretary,
may effect loans and advances at any time for the Corporation from any
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<PAGE>
bank, trust company or other institution, or from any firm, corporation or
individual, and for such loans and advances may make, execute and deliver
promissory notes, bonds or other certificates or evidences of indebtedness
of the Corporation, but in making such loans or advances no officer or
officers shall mortgage, pledge, hypothecate or transfer any securities or
other property of the Corporation, except when authorized by resolution
adopted by the Board.
SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange
or other orders for the payment of money out of the funds of the
Corporation, and all notes or other evidences of indebtedness of the
Corporation, shall be signed in the name and on behalf of the Corporation
by such persons and in such manner as shall from time to time be authorized
by the Board or the Executive Committee or authorized by the Treasurer or
any Assistant Treasurer, acting together with either the General Manager of
an operating unit or a nonfinancial Vice President of the Corporation,
which authorization may be general or confined to specific instances.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositaries as the
Board or the Executive Committee may from time to time designate or as may
be designated by any officer or officers of the Corporation to whom such
power of designation may from time to time be delegated by the Board or the
Executive Committee. For the purpose of deposit and for the purpose of
collection for the account of the Corporation, checks, drafts and other
orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer,
employee or agent of the Corporation.
SECTION 5. General and Special Bank Accounts. The Board or the
Executive Committee may from time to time authorize the opening and keeping
of general and special bank accounts with such banks, trust companies or
other depositaries as the Board or the Executive Committee may designate or
as may be designated by any officer or officers of the Corporation to whom
such power of designation may from time to time be delegated by the Board
or the Executive Committee. The Board or the Executive Committee may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these By-laws, as it may deem
expedient.
SECTION 6. Indemnification. The Corporation shall, to the fullest
extent permitted by applicable law as in effect at any time, indemnify any
person made, or threatened to be made, a party to an action or proceeding
whether civil or criminal (including an action or proceeding by or in the
right of the Corporation or any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, for which any director or officer of the
Corporation served in any capacity at the request of the Corporation), by
reason of the fact that such person or such person's testator or intestate
was a director or officer of the Corporation, or served such other
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<PAGE>
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees actually and
necessarily incurred as a result of such action or proceeding, or any
appeal therein. Such indemnification shall be a contract right and shall
include the right to be paid advances of any expenses incurred by such
person in connection with such action, suit or proceeding, consistent with
the provisions of applicable law in effect at any time. Indemnification
shall be deemed to be 'permitted' within the meaning of the first sentence
hereof if it is not expressly prohibited by applicable law as in effect at
the time.
ARTICLE VII
SHARES
SECTION 1. Stock Certificates. Each owner of stock of the Corporation
shall be entitled to have a certificate, in such form as shall be approved
by the Board, certifying the number of shares of stock of the Corporation
owned. The certificates representing shares of stock shall be signed in the
name of the Corporation by the Chairman of the Board or a Vice Chairman of
the Board or the President or a Vice President and by the Secretary or an
Assistant Secretary and sealed with the seal of the Corporation (which seal
may be a facsimile, engraved or printed); provided, however, that where any
such certificate is signed by a registrar, other than the Corporation or
its employee, the signatures of the Chairman of the Board, a Vice Chairman
of the Board, the President, the Secretary, or Assistant Secretary, and
transfer agent or a transfer clerk acting on behalf of the Corporation upon
such certificates may be facsimiles, engraved or printed. In case any
officer, transfer agent or transfer clerk acting on behalf of the
Corporation ceases to be such officer, transfer agent, or transfer clerk
before such certificates shall be issued, they may nevertheless be issued
by the Corporation with the same effect as if they were still such officer,
transfer agent or transfer clerk at the date of their issue.
SECTION 2. Books of Account and Record of Stockholders. There shall be
kept at the office of the Corporation correct books of account of all its
business and transactions, minutes of the proceedings of stockholders,
Board, and Executive Committee, and a book to be known as the record of
stockholders, containing the names and addresses of all persons who are
stockholders, the number of shares of stock held, and the date when the
stockholder became the owner of record thereof.
SECTION 3. Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made on the record of stockholders of the Corporation
only upon authorization by the registered holder thereof, or by an attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary or with a transfer agent or transfer clerk, and on surrender of
the certificate or certificates for such shares properly endorsed or
accompanied by a duly executed stock transfer power and the payment of all
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<PAGE>
taxes thereon. The person in whose name shares of stock shall stand on the
record of stockholders of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation. Whenever any transfers of
shares shall be made for collateral security and not absolutely and written
notice thereof shall be given to the Secretary or to such transfer agent or
transfer clerk, such fact shall be stated in the entry of the transfer.
SECTION 4. Regulations. The Board may make such additional rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates for shares
of stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer
clerks and one or more registrars and may require all certificates of stock
to bear the signature or signatures of any of them.
SECTION 5. Fixing of Record Date. The Board shall fix a time not
exceeding fifty nor less than ten days prior to the date then fixed for the
holding of any meeting of the stockholders or prior to the last day on
which the consent or dissent of the stockholders may be effectively
expressed for any purpose without a meeting, as the time as of which the
stockholders entitled to notice of and to vote at such meeting or whose
consent or dissent is required or may be expressed for any purpose, as the
case may be, shall be determined, and all persons who were holders of
record of voting stock at such time, and no others, shall be entitled to
notice of and to vote at such meeting or to express their consent or
dissent, as the case may be. The Board may fix a time not exceeding fifty
days preceding the date fixed for the payment of any dividend or the making
of any distribution or the allotment of rights to subscribe for securities
of the Corporation, or for the delivery of evidences of rights or evidences
of interests arising out of any change, conversion or exchange of capital
stock or other securities, as the record date for the determination of the
stockholders entitled to receive any such dividend, distribution,
allotment, rights or interests, and in such case only the stockholders of
record at the time so fixed shall be entitled to receive such dividend,
distribution, allotment, rights or interests.
SECTION 6. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost or destroyed or which shall
have been mutilated, and the Corporation may, in its discretion, require
such owner or the owner's legal representatives to give to the Corporation
a bond in such sum, limited or unlimited, and in such form and with such
surety or sureties as the Board in its absolute discretion shall determine,
to indemnify the Corporation against any claim that may be made against it
on account of the alleged loss or destruction of any such certificate, or
the issuance of such new certificate. Anything to the contrary
notwithstanding, the Corporation, in its absolute discretion, may refuse to
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issue any such new certificate, except pursuant to legal proceedings under
the laws of the State of New York.
SECTION 7. Inspection of Records. The record of stockholders and
minutes of the proceedings of stockholders shall be available for
inspection, within the limits and subject to the conditions and
restrictions prescribed by applicable law.
SECTION 8. Auditors. The Board shall employ an independent public or
certified public accountant or firm of such accountants who shall act as
auditors in making examinations of the consolidated financial statements of
the Corporation and its subsidiaries in accordance with generally accepted
auditing standards. The auditors shall certify that the annual financial
statements are prepared in accordance with generally accepted accounting
principles, and shall report on such financial statements to the
stockholders and directors of the Corporation. The Board's selection of
auditors shall be presented for ratification by the stockholders at the
annual meeting. Directors and officers, when acting in good faith, may rely
upon financial statements of the Corporation represented to them to be
correct by the officer of the Corporation having charge of its books of
account, or stated in a written report by the auditors fairly to reflect
the financial condition of the Corporation.
ARTICLE VIII
OFFICES
SECTION 1. Principal Office. The principal office of the Corporation
shall be at such place in the Town of North Castle, County of Westchester
and State of New York as the Board shall from time to time determine.
SECTION 2. Other Offices. The Corporation may also have an office or
offices other than said principal office at such place or places as the
Board shall from time to time determine or the business of the Corporation
may require.
ARTICLE IX
WAIVER OF NOTICE
Whenever under the provisions of any law of the State of New York, the
Certificate of Incorporation or these By-laws or any resolution of the
Board or any committee thereof, the Corporation or the Board or any
committee thereof is authorized to take any action after notice to the
stockholders, directors or members of any such committee, or after the
lapse of a prescribed period of time, such action may be taken without
notice and without the lapse of any period of time, if, at any time before
or after such action shall be completed, such notice or lapse of time shall
be waived in writing by the person or persons entitled to said notice or
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<PAGE>
entitled to participate in the action to be taken, or, in the case of a
stockholder, by an attorney thereunto authorized. Attendance at a meeting
requiring notice by any person or, in the case of a stockholder, by the
stockholder's attorney, agent or proxy, shall constitute a waiver of such
notice on the part of the person so attending, or by such stockholder, as
the case may be.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall end on the thirty-first day of
December in each year.
ARTICLE XI
SEAL
The Seal of the Corporation shall consist of two concentric circles with
the IBM logotype appearing in bold face type within the inner circle and
the words 'International Business Machines Corporation' appearing within
the outer circle.
ARTICLE XII
AMENDMENTS
These By-laws may be amended or repealed or new By-laws may be adopted by
the stockholders at any annual or special meeting, if the notice thereof
mentions that amendment or repeal or the adoption of new By-laws is one of
the purposes of such meeting. These By-laws, subject to the laws of the
State of New York, may also be amended or repealed or new By-laws may be
adopted by the affirmative vote of a majority of the Board given at any
meeting, if the notice thereof mentions that amendment or repeal or the
adoption of new By-laws is one of the purposes of such meeting; provided,
however, that if any By-law regulating an impending election of directors
is adopted or amended or repealed by the Board, there shall be set forth in
the notice of the next meeting of the stockholders for the election of
directors the By-law so adopted or amended or repealed, together with a
concise statement of the changes made.
INTERNATIONAL BUSINESS
MACHINES CORPORATION
I, the undersigned, Secretary of International Business Machines
Corporation, do hereby certify that the foregoing is a true and complete
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<PAGE>
copy of the By-laws of said Corporation, including all amendments thereto,
and the same is in force at the date hereof.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said Corporation, this March 28th day of 1994.
J.E. HICKEY
....................
Secretary
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EXHIBIT I
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
UNDER TREASURY STOCK METHOD SET FORTH IN
ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31:
------------------------------------------------------------------------------
1993* 1992* 1991* 1990 1989
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares on which
published earnings per share
is based:
Average outstanding during
year........................... 573,239,240 570,896,489 572,003,382 572,647,906 581,102,404
Add--Incremental shares under
stock option and stock
purchase plans................. -- -- -- 1,665,262 1,488,455
--Incremental shares
related to 7 7/8% con-
vertible debentures
(average)...................... -- -- -- 8,162,976 8,161,799
--Incremental shares
related to 5 3/4% CGI
convertible bonds
(average)...................... -- -- -- -- --
-------------- -------------- -------------- -------------- --------------
Number of shares on which fully
diluted earnings per share is
based.......................... 573,239,240 570,896,489 572,003,382 582,476,144 590,752,658
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Net (loss) earnings applicable
to common shareholders
(millions)..................... $(8,148) $(4,965) $(2,861) $5,967 $3,722
Add--Net (loss) earnings effect
of interest on 7 7/8%
convertible debentures
(millions)..................... -- -- -- 65 66
--Net (loss) earnings
effect of interest on 5 3/4%
CGI convertible bonds
(millions)..................... -- -- -- -- --
-------------- -------------- -------------- -------------- --------------
Net (loss) earnings on which
fully diluted earnings per
share is based (millions).... $(8,148) $(4,965) $(2,861) $6,032 $3,788
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Fully diluted (loss) earnings
per share...................... $(14.22) $(8.70) $(5.01) $10.36 $6.41
Published (loss) earnings per
share.......................... $(14.22) $(8.70) $(5.01) $10.42 $6.41
</TABLE>
- ---------------
* In 1993, 1992, and 1991, incremental shares under stock plans and the effect
of the convertible debentures and bonds were not considered for the fully
diluted earnings per share calculation due to their antidilutive effect. As
such, the amounts reported for primary and fully diluted earnings per share
are the same. The 7 7/8% convertible debentures were called and redeemed on
November 21, 1992.
FINANCIAL REPORT
18 Report of Management
19 Report of Independent Accountants
20 Management Discussion
32 Consolidated Financial Statements
Operations
Financial Position
Cash Flows
Stockholders' Equity
36 Notes to Consolidated Financial Statements
A Significant Accounting Policies
B Accounting Changes
C Marketable Securities
D Inventories
E Plant, Rental Machines and Other Property
F Investments and Sundry Assets
G Short-Term Debt
H Long-Term Debt
I Preferred Stock
J Taxes
K Research, Development and Engineering
L Restructuring Actions
M Interest on Debt
N Other Liabilities
O Environmental
P Customer Financing
Q Rental Expense and Lease Commitments
R Long-Term Performance Plan
S Stock Purchase Plan
T Retirement Plans
U Nonpension Postretirement Benefits
V Lines of Credit
W Sales and Securitization of Receivables
X Financial Instruments
Y Segment Information
Z Geographic Areas
63 Five-Year Comparison of Selected Financial Data
63 Selected Quarterly Data
<PAGE>
Financial Highlights
International Business Machines Corporations and Subsidiary Companies
- --------------------------------------------------------------------------------
(Dollars in millions except per share amounts) 1993 1992
For the Year:
Revenue $ 62,716 $ 64,523
Loss before income taxes $ (8,797) $ (9,026)
Income taxes $ (810) $ (2,161)
Net loss before changes in accounting principles $ (7,987) $ (6,865)
Per share of common stock $ (14.02) $ (12.03)
Effect of changes in accounting principles * $ (114) $ 1,900
Per share of common stock $ (.20) $ 3.33
Net loss $ (8,101) $ (4,965)
Per share of common stock $ (14.22) $ (8.70)
Cash dividends paid on common stock $ 905 $ 2,765
Per share of common stock $ 1.58 $ 4.84
Investment in plant, rental machines and other
property $ 3,232 $ 4,698
Average number of common shares outstanding (in
millions) 573 571
At End of Year:
Total assets $ 81,113 $ 86,705
Net investment in plant, rental machines and other
property $ 17,521 $ 21,595
Working capital $ 6,052 $ 2,955
Total debt $ 27,342 $ 29,320
Stockholders' equity $ 19,738 $ 27,624
Number of regular, full-time employees 256,207 301,542
Number of stockholders 741,047 764,630
*1993, cumulative effect of Statement of Financial Accounting Standards (SFAS)
112, "Employers' Accounting for Postemployment Benefits"; and 1992, cumulative
effect of SFAS 109, "Accounting for Income Taxes."
IBM develops, manufactures and sells advanced information processing products,
including computers and microelectronic technology, software, networking systems
and information technology-related services. We offer value worldwide--through
our United States, Canada, Europe/Middle East/Africa, Latin America and Asia
Pacific business units--by providing comprehensive and competitive product
choices.
<PAGE>
International Business Machines Corporation and Subsidiary Companies 18
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with IBM management. The accompanying
financial statements have been prepared in conformity with generally accepted
accounting principles, applying certain estimates and judgments as required.
IBM maintains an effective internal control structure. It consists, in part, of
organizational arrangements with clearly defined lines of responsibility and
delegation of authority, and comprehensive systems and control procedures. We
believe this structure 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 control environment is an ongoing 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 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.
Price Waterhouse, independent accountants, are retained to examine IBM's
financial statements. Their accompanying report is based on an examination
conducted in accordance with generally accepted auditing standards, including a
review of the internal control structure and tests of accounting procedures and
records.
The Audit Committee of the Board of Directors is composed solely of outside
directors, and is responsible for recommending to the Board the independent
accounting firm to be retained for the coming year, subject to stockholder
approval. The Audit Committee meets periodically and privately with the
independent accountants, with our internal auditors, as well as with IBM
management, to review accounting, auditing, internal control structure, and
financial reporting matters.
/s/ Louis V. Gerstner, Jr. /s/ Jerome B. York
Louis V. Gerstner, Jr. Jerome B. York
Chairman of the Board Senior Vice President
and Chief Executive Officer and Chief Financial Officer
<PAGE>
International Business Machines Corporation and Subsidiary Companies 19
To the Stockholders and Board of Directors of International Business Machines
Corporation:
In our opinion, the accompanying consolidated financial statements, appearing
on pages 32 through 62, present fairly, in all material respects, the financial
position of International Business Machines Corporation and its subsidiaries at
December 31, 1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits on these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in the note on accounting changes on pages 37 and 38, the company
changed its methods of accounting for postemployment benefits in 1993, income
taxes in 1992 and nonpension postretirement benefits in 1991. We concur with
these changes.
/s/ Price Waterhouse
Price Waterhouse
1177 Avenue of the Americas
New York, NY 10036
February 16, 1994
<PAGE>
International Business Machines Corporation and Subsidiary Companies 20
The following table sets forth selected income and expense items:
Percentage of Total Revenue Percentage Changes*
- --------------------------------------------------------------------------------
1991 1992 1993 Income and Expense Items 1993-92 1992-91
Revenue:
57.3% 52.3% 48.8% Hardware sales (9.4)% (9.0)%
16.2 17.2 17.5 Software (1.4) 5.8
8.6 11.4 15.5 Services 32.1 31.7
11.4 11.8 11.6 Maintenance (4.4) 3.0
6.5 7.3 6.6 Rentals and financing (10.9) 11.9
- --------------------------------------------------------------------------------
100.0 100.0 100.0 Total revenue (2.8) (0.4)
49.5 54.4 61.5 Total cost 10.0 9.3
- --------------------------------------------------------------------------------
50.5 45.6 38.5 Gross profit (18.0) (9.9)
- --------------------------------------------------------------------------------
Expenses:
33.0 30.3 29.2 Selling, general and administrative (6.4) (8.7)
Research, development
10.3 10.1 8.9 and engineering (14.8) (1.8)
5.8 18.0 14.3 Restructuring charges -- --
- --------------------------------------------------------------------------------
49.1 58.4 52.4 Total operating expenses -- --
- --------------------------------------------------------------------------------
0.9 0.9 1.8 Other Income, principally interest 94.2 (4.8)
2.2 2.1 2.0 Interest expense (6.4) (4.4)
- --------------------------------------------------------------------------------
Net Earnings:
Before restructuring charges and
3.5 2.2 0.0 accounting changes -- --
(4.4) (7.7) (12.9) Net loss -- --
- --------------------------------------------------------------------------------
* Percentage changes displayed as (--) are not meaningful.
Overview
IBM has continued to aggressively restructure its worldwide business operations
to improve its competitive position within a rapidly changing market for
information technology products and services. Industry demand has slowed in
recent years, and the industry continues to suffer from excess capacity and
sluggish economic growth, particularly in Europe and Japan. The company's
recent business results reflect these realities, as well as an ongoing revenue
shift to offerings with lower gross profit margins, such as services and
personal computers.
During 1993, a number of actions were announced to "right-size" the company.
These actions, including reductions in the company's worldwide work force,
office space, capacity and related expenses, are intended to bring the
company's cost and expense structure in line with industry levels. They were
based on the company's assumptions of future industry demand and revenue
growth. If these assumptions prove correct, the company believes it will be
able to absorb, without resorting to additional special charges, the costs
associated with any future productivity improvements. If the company's current
view of future industry revenue and demand proves incorrect, the company will
have to take further actions. The company's management strategy also shifted in
1993 from the establishment of increasingly autonomous business units--an
emerging federation of companies--to remaining an integrated provider of
information technology.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 21
Overall, the company's hardware offerings remain under price and gross profit
margin pressure. Mainframe processor revenue and margins declined significantly
in the last year, and this trend may continue. Revenue and volume trends were
positive for personal computers and RISC System/6000* over the last year.
However, personal computers compete in a relatively low margin,
price-competitive environment, and the company expects this trend to continue.
Other hardware areas are also expected to remain under competitive pressure
consistent with recent experience. The company's services offerings, while
growing rapidly, are at lower margins than the company's traditional hardware
offerings. Due to the changing mix of revenue and gross profit margins, it is
uncertain when pressure on the company's cost structure will be diminished.
Results of Operations
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
Revenue $ 62,716 $ 64,523 $ 64,766
Cost 38,568 35,069 32,073
- --------------------------------------------------------------------------------
Gross profit $ 24,148 $ 29,454 $ 32,693
Gross profit margin 38.5% 45.6% 50.5%
- --------------------------------------------------------------------------------
Income before restructuring charges $ 308 $ 3,406 $ 4,673
Operating (loss) income after restructuring
charges (8,637) (8,239) 939
- --------------------------------------------------------------------------------
Net earnings before restructuring charges
and accounting changes 9 1,417 2,277
Net loss after restructuring charges and
accounting changes $ (8,101) $ (4,965) $ (2,861)
- --------------------------------------------------------------------------------
Revenue in the United States was $25.7 billion, an increase of 4.3 percent
above 1992, following a .8 percent increase in 1992 over 1991. Non-U.S.
operations generated revenue of $37.0 billion, a 7.2 percent decrease from
1992, following a decline of 1.1 percent in 1992 from 1991.
Gross profit margins, driven by hardware pricing pressures and the company's
shift to services revenue, have declined each year from 1991 to 1993. Although
the gross profit margin declined 7.1 points in 1993 from 1992, the last five
quarters' aggregate gross profit margin has been relatively stable at
approximately 38 percent.
The company generated $148 million of earnings before taxes and restructuring
charges in 1993. After preferred stock dividends, the company had a loss,
before restructuring charges and accounting changes, of $.07 per common share.
Prior to restructuring charges and the cumulative effect of $114 million ($.20
decrease in earnings per common share) as a result of the company's adoption of
Statement of Financial Accounting Standards (SFAS) 112, "Employers' Accounting
for Postemployment Benefits," after-tax results were essentially break-even.
Including restructuring but prior to the effect of accounting changes, the
company had a net, after-tax loss of $8.0 billion ($14.02 per common share)
compared with a net, after-tax loss of $6.9 billion in 1992 ($12.03 per common
share) and a net, after-tax loss of $.6 billion in 1991 ($1.05 per common
share). After restructuring and accounting changes, the company reported, for
1993, 1992, and 1991 respectively, losses of $8.1 billion ($14.22 per common
share), $5.0 billion ($8.70 per common share), and $2.9 billion ($5.01 per
common share).
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 22
Revenue and Gross Profit
The company continued to experience a change in the makeup of its revenue as
more of its revenue, 51.2 percent, came from non-hardware sales sources versus
47.7 percent in 1992 and 42.7 percent in 1991. Further, within hardware sales,
the mix of revenue from personal systems, which carry a lower margin, increased
to 31.7 percent in 1993, versus 23.3 percent in 1992 and 22.9 percent in 1991.
This changing mix, as well as continuing price pressures, have driven margins
down over the last three years.
Hardware sales
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
Total revenue $ 30,591 $ 33,755 $ 37,093
Total cost 20,696 19,698 18,571
- --------------------------------------------------------------------------------
Gross profit $ 9,895 $ 14,057 $ 18,522
- --------------------------------------------------------------------------------
Gross profit margin 32.3% 41.6% 49.9%
- --------------------------------------------------------------------------------
Worldwide revenue from hardware sales decreased 9.4 percent from 1992,
following a decrease of 9.0 percent in 1992 from 1991. Hardware sales revenue
from U.S. operations declined 1.4 percent in 1993, compared to a 5.1 percent
decline in 1992 from 1991. Hardware sales revenue from non-U.S. operations
reflect a decrease of 14.2 percent in 1993, following an 11.2 percent decline
in 1992 from 1991.
Worldwide gross profit dollars from hardware sales decreased 29.6 percent from
1992, following a decrease of 24.1 percent in 1992 from 1991. Hardware sales
gross profit dollars from U.S. operations decreased 28.8 percent in 1993,
compared to a 20.7 percent decline in 1992 from 1991. Hardware sales gross
profit dollars from non-U.S. operations reflect a decrease of 30.0 percent in
1993, following a 25.9 percent decline in 1992 from 1991. Total cost of
hardware sales was higher, primarily due to increased volumes associated with
personal systems products.
Revenue from processors decreased 27.6 percent in 1993 compared with 1992 and
6.9 percent in 1992 from 1991. These decreases were primarily due to declines
in System/390 processor revenue, resulting from price pressures. Application
System/400 product revenue declined slightly over the past two years, primarily
in Europe, due to lower volumes.
Personal systems revenue increased 23.3 percent in 1993 compared with 1992,
following a decrease of 7.3 percent in 1992 from 1991. The increase resulted
from strong demand for the company's personal computers, offset by price
actions. In addition, RISC System/6000 revenue increased, but at a lower rate
than in the previous year, reflecting lower growth in demand, particularly in
Europe. The decline in 1992 from 1991 reflected the severe price competition
experienced by personal computers, partially offset by strong growth in RISC
System/6000. On a volume basis, 1993 personal computer shipments were
approximately 4.3 million units, a growth of more than 1.0 million units over
1992, and a growth of more than 1.4 million units over 1991.
Storage products revenue decreased 18.2 percent in 1993, following a decrease
of 12.9 percent in 1992 from 1991. These declines were a result of continuing
price competition across most storage products.
Other hardware sales revenue increased 68.1 percent in 1993 over the previous
year, following an increase of 10.3 percent in 1992 from 1991. These increases
were primarily a result of higher original equipment manufacturer (OEM)
revenue.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 23
Information on industry segments and classes of similar products or services is
included on pages 59 and 60. The product revenue trends demonstrated in this
discussion and in that disclosure are indicative, in all material respects, of
hardware sales activity.
Hardware sales gross profit margin decreases reflect the continuing price
competition for high-end products and personal computers; in addition, personal
computer revenues, which carry a lower gross profit margin, were a
proportionally larger part of hardware sales.
Software
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
Total revenue $ 10,953 $ 11,103 $ 10,498
Total cost 4,310 3,924 3,865
- --------------------------------------------------------------------------------
Gross profit $ 6,643 $ 7,179 $ 6,633
Gross profit margin 60.7% 64.7% 63.2%
- --------------------------------------------------------------------------------
Software revenue declined 1.4 percent in 1993 from 1992, following an increase
of 5.8 percent in 1992 over 1991. The decline was primarily a result of lower
one-time-charge revenue which followed decreased AS/400 computer placements.
Software gross profit dollars decreased 7.5 percent in 1993 from 1992,
following an increase of 8.2 percent in 1992 over 1991. The decrease in gross
profit margin in 1993 from 1992 was partially a result of lower one-time-charge
revenue as denoted above and a higher level of program product write-downs that
were recorded as a result of the continuing review of the company's portfolio
of software offerings. Increased amortization of program product costs
resulting from new offerings and shortened amortization periods instituted by
the company in 1992 also contributed to the decline in gross profit margin.
Services
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
Services $ 7,648 $ 5,530 $ 4,144
Federal Systems Company 2,063 1,822 1,438
- --------------------------------------------------------------------------------
Services revenue excluding maintenance $ 9,711 $ 7,352 $ 5,582
Cost 8,279 6,051 4,531
- --------------------------------------------------------------------------------
Gross profit $ 1,432 $ 1,301 $ 1,051
Gross profit margin 14.7% 17.7% 18.8%
- --------------------------------------------------------------------------------
Maintenance revenue $ 7,295 $ 7,635 $ 7,414
Cost 3,545 3,430 3,379
- --------------------------------------------------------------------------------
Gross profit $ 3,750 $ 4,205 $ 4,035
Gross profit margin 51.4% 55.1% 54.4%
- --------------------------------------------------------------------------------
Total services revenue $ 17,006 $ 14,987 $ 12,996
Cost 11,824 9,481 7,910
- --------------------------------------------------------------------------------
Gross profit $ 5,182 $ 5,506 $ 5,086
Gross profit margin 30.5% 36.7% 39.1%
- --------------------------------------------------------------------------------
Services revenue, excluding maintenance, continued to show overall strong
growth, increasing 32.1 percent in 1993 over 1992, following an increase of
31.7 percent in 1992 over 1991.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 24
Services gross profit dollars, excluding maintenance, increased 10.1 percent
but the margin decreased 3.0 points from 1992. As a result of ongoing reviews
of contract profitability, it was determined that cost adjustments in the
current period were required on certain older contracts that were not expected
to be profitable. This was the primary cause of the margin decline. Without the
Federal Systems Company, which is expected to be sold during the first quarter
of 1994, the services gross profit margins, excluding maintenance, were 16.5
percent, 21.3 percent, and 22.7 percent, in 1993, 1992, and 1991, respectively.
Maintenance revenue decreased 4.4 percent from 1992, after increasing 3.0
percent in 1992 over 1991. The 1993 decline is primarily due to competitive
pressures and lower hardware placements. Maintenance gross profit dollars
decreased 10.8 percent year-over-year, following an increase of 4.2 percent in
1992 from 1991. The decreases in gross profit dollars and margin percent
reflect the increasingly competitive nature of the business. This trend is
expected to continue.
Rentals and financing
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
Total revenue $ 4,166 $ 4,678 $ 4,179
Total costs 1,738 1,966 1,727
- --------------------------------------------------------------------------------
Gross profit $ 2,428 $ 2,712 $ 2,452
Gross profit margin 58.3% 58.0% 58.7%
- --------------------------------------------------------------------------------
Rentals and financing revenue decreased 10.9 percent from 1992, following an
increase of 11.9 percent in 1992 over 1991. Rentals and financing gross profit
dollars decreased 10.5 percent, following a 10.6 percent increase in 1992 over
1991. The decline in revenue and gross profit dollars in 1993 is a result of a
decline in high-end hardware placements in 1993 as compared with 1992.
Operating Expenses
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
Selling, general and administrative $ 18,282 $ 19,526 $ 21,375
Percentage of revenue 29.2% 30.3% 33.0%
- --------------------------------------------------------------------------------
Research, development and engineering $ 5,558 $ 6,522 $ 6,644
Percentage of revenue 8.9% 10.1% 10.3%
- --------------------------------------------------------------------------------
Selling, general and administrative (SG&A) expense decreased 6.4 percent from
1992, which follows a decrease of 8.7 percent in 1992 from 1991. These
decreases reflect the results of the company's focus on productivity,
restructuring programs, and expense controls. Work force related SG&A decreased
11.7 percent from 1992, which followed a decrease of 7.3 percent from 1991.
The other charges component of SG&A increased primarily as a result of exchange
losses from currency revaluations of cash in countries with highly inflationary
environments. These exchange losses are largely offset by higher interest
income as a result of higher interest rates in those countries. Research,
development and engineering expense decreased 14.8 percent in 1993, following a
decrease of 1.8 percent in 1992 from 1991. The reduction in research,
development and engineering expense reflects the company's reprioritization of
development efforts to growth areas as well as a focus on productivity,
restructuring programs, and expense controls.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 25
Restructuring Charges
Restructuring charges were $8.9 billion in 1993, $11.6 billion in 1992, and
$3.7 billion in 1991. These charges include expenses associated with work force
reductions, facility consolidations, capacity reductions, and other related
actions to streamline the company. These charges are discussed further on pages
45 and 46.
Other Income
Other income, principally interest, was $1.1 billion in 1993, almost double
that of 1992. This increase reflects higher levels of available cash and higher
interest rates in countries whose economic environment is highly inflationary.
Although Other income increased, exchange losses from currency revaluations of
cash largely offset this increase. Exchange losses are reflected in SG&A
expense.
Provision For Income Taxes
The provision for income taxes resulted in a benefit of $810 million in 1993, a
benefit of $2,161 million in 1992, and a charge of $716 million in 1991. The
effective tax rates of (9) percent in 1993, (24) percent in 1992, and 607
percent in 1991 were principally due to limited tax benefits on restructuring
charges, along with a high effective tax rate on earnings in certain non-U.S.
operations. Excluding the effects of restructuring charges, the effective tax
rates were 94 percent in 1993, 46 percent in 1992, and 41 percent in 1991. The
high effective tax rate in 1993 resulted from earnings in non-U.S. operations
of $1.3 billion at an average tax rate of 50.2 percent, offset by a loss before
taxes in the U.S. of $1.1 billion at a tax rate of 44.5 percent.
The company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes," which provides for recognition of deferred tax assets if realization of
such assets is more likely than not. In assessing the likelihood of
realization, management considered estimates of future taxable income. The
total amount of U.S. federal taxable income needed to realize U.S. federal
deferred tax assets, net of valuation allowances, is approximately $15.0
billion. In estimating the amount of U.S. taxable income that may be available
to the company to utilize as many deferred tax assets as possible, the last
three years' taxable income was considered. This was approximately $(3.0)
billion (estimated loss) for 1993, $4.4 billion for 1992, and $6.4 billion for
1991. The company also considered the impact on past and future taxable income
of restructuring actions already announced. If, in the future, it should become
advantageous, the company can again capitalize and amortize research and
development expenditures for tax purposes, which would increase current taxable
income.
Changes in Accounting Principles
In the fourth quarter of 1993, the company implemented SFAS 112, "Employers'
Accounting for Postemployment Benefits," effective January 1, 1993. The
cumulative effect of adopting this statement, which is discussed further on
page 37, resulted in a one-time charge of $114 million (net of approximately
$61 million of income tax benefits). Most of this charge was included in U.S.
operations.
Effective January 1, 1992, the company implemented SFAS 109. The cumulative
effect of adopting this statement resulted in a one-time benefit to net
earnings of $1,900 million for recognition of previously unrecognized tax
benefits.
In the first quarter of 1991, the company implemented SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The transition
effect of adopting this statement resulted in a one-time charge of $2,263
million to net earnings (net of approximately $350 million of income tax
benefits).
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 26
Fourth Quarter
For the quarter ended December 31, 1993, the company announced earnings of $382
million ($.62 per common share) compared with a net loss of $45 million ($.08
per common share) before restructuring charges in the fourth quarter of 1992.
After restructuring charges in the fourth quarter of 1992, the company had
posted a loss of $5.5 billion ($9.57 per common share). Revenue for the fourth
quarter of 1993 totaled $19.4 billion, down one percent compared with the same
period of 1992.
U.S. revenue grew by 9.0 percent in the fourth quarter compared with the same
period of 1992, continuing a quarterly improvement trend. Revenue from Europe
and Asia, after currency adjustments, declined in the fourth quarter by 1.0
percent and 4.0 percent, respectively, compared with 1992's fourth quarter.
The company's hardware sales revenue was $10.4 billion in the fourth quarter, a
decline of 5.4 percent compared with the same period of 1992. Services revenue
was $3.2 billion in fourth quarter 1993, up 31.9 percent from 1992. Software
revenue declined by 3.8 percent, largely due to a decline in one-time-charge
software, principally AS/400 software. Maintenance, rentals and financing
revenue also decreased year-over-year.
Within specific hardware product areas, personal computer revenue rose strongly
in the quarter, compared with 1992's fourth quarter, and RISC System/6000
revenue increased. AS/400 revenue fell primarily due to sluggish European
demand. Mainframe and high-end disk drive revenue also declined.
The company's overall gross margin was down about one point in the fourth
quarter compared to the same period of 1992. Hardware sales margins improved in
the fourth quarter, and software, maintenance and services margins declined.
Total expenses, including net interest expense and excluding restructuring
charges, declined 9.0 percent in the fourth quarter compared with the same
period of 1992.
Financial Condition
The Consolidated Statement of Financial Position was significantly impacted by
actions taken by the company during 1993, including work force and capacity
reductions, and issuance of new debt and equity instruments.
Working Capital
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992
Current assets $ 39,202 $ 39,692
Current liabilities 33,150 36,737
- --------------------------------------------------------------------------------
Working capital $ 6,052 $ 2,955
Current ratio 1.18:1 1.08:1
- --------------------------------------------------------------------------------
Current assets decreased $.5 billion because of declines in receivables of $2.2
billion and inventories of $.8 billion, offset by increases in cash, cash
equivalents and marketable securities of $1.5 billion and prepaid expenses and
other current assets of $1.0 billion. The decline in accounts receivable is
primarily attributable to the company's securitization of assets and lower
year-to-year volumes in financing activities. The increase in prepaid expenses
and other current assets is due to an increase in deferred tax assets ($2.8
billion from $2.5 billion), and the net assets of the Federal Systems Company
($.7 billion), which have been reclassified to current assets being held for
sale.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 27
Current liabilities decreased $3.6 billion because of a reduction of $4.4
billion in short-term debt, reflecting the company's ongoing efforts to reduce
its overall outstanding debt obligations, offset by a net increase of $.8
billion in other current liabilities (increases in taxes, accounts payable,
deferred income, and other accrued expenses and liabilities and a decrease in
accrued compensation and benefits).
Investments
The company's capital expenditures for plant and other property were
approximately $2.5 billion for the year ended December 31, 1993, a decrease of
approximately $2.1 billion from 1992. The net book value of plant, rental
machines and other property decreased $4.1 billion from year-end 1992,
primarily due to capacity reduction reserves recorded in the second quarter,
and depreciation exceeding current levels of capital additions.
In addition to software development expense included in research, development
and engineering expense, the company capitalized $1.5 billion of software costs
during 1993, versus the $1.8 billion capitalized in 1992. Ongoing amortization
of capitalized software costs for the same period amounted to $2.0 billion, an
increase of $.5 billion compared to 1992. In 1992, the company incurred an
additional $.7 billion in accelerated amortization of capitalized software
costs, which were charged to restructuring in the third quarter.
Debt and Equity
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992
Short-term debt $ 12,097 $ 16,467
Long-term debt 15,245 12,853
- --------------------------------------------------------------------------------
Total Debt $ 27,342 $ 29,320
Stockholders' equity $ 19,738 $ 27,624
Long-term debt/Equity 77.2% 46.5%
- --------------------------------------------------------------------------------
In June 1993, the company issued $1,250 million of 6 3/8 percent notes due June
15, 2000, and $550 million of 7 1/2 percent debentures due June 15, 2013. The
net proceeds from the issuance of these debt instruments were used for general
corporate purposes, including restructuring actions.
Other non-current liabilities increased $3.5 billion from December 31, 1992,
due primarily to restructuring actions announced in the second quarter of 1993,
and increases in nonpension postretirement benefits.
The company accrued for environmental matters, including estimated costs of
cleanup of Superfund and other waste sites. Estimated environmental costs are
not expected to materially affect the company's financial position or results
of operations in future periods. Further discussion of these accruals appears
on pages 46 and 47.
Stockholders' equity decreased from $27.6 billion at December 31, 1992, to
$19.7 billion at December 31, 1993, resulting from the 1993 net loss
principally reflecting the restructuring charge, partially offset by an
increase of $1.1 billion from the issuance in June 1993 of depositary shares
representing ownership of Series A 7 1/2 percent preferred stock. Net proceeds
from the preferred stock issuance were used for general corporate purposes,
including restructuring actions.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 28
Currency Rate Fluctuations
The majority of worldwide currencies weakened versus the U.S. dollar in 1993
with the major exception being the Japanese yen. Approximately 85 percent of
the company's non-U.S. business is conducted in local currency environments.
Assets and liabilities denominated in local currencies translate into fewer
U.S. dollars as those local currencies weaken. Changes in net worth arising
from these currency fluctuations are accumulated in the equity translation
adjustments component of Stockholders' Equity. As of December 31, 1993, the
cumulative translation adjustment was $1.7 billion, which includes a decline in
this component of $.3 billion in 1993.
In the high inflation environments of Latin America, translation adjustments
are reflected in period income, as required by SFAS 52, "Foreign Currency
Translation." Wherever possible, the company minimizes currency risk in these
countries by linking prices and contracts to dollars and by financing
operations locally.
The company is, to a great degree, protected from currency risk in its business
operations by manufacturing and developing a significant portion of its product
line in non-U.S. countries, so that costs reflect local economic conditions.
Also, financial hedging instruments are used to minimize currency risks related
to the repatriation of dividends and royalties from non-U.S. subsidiaries.
Currency rate variations did not have a material effect on the company's
operating results in 1993, 1992, or 1991.
Liquidity
Management expects that the funds required to continue the level of investments
necessary to ensure the company's competitiveness, as well as funds used to pay
for restructuring actions and dividends, will be generated primarily from
operations.
The company continued to take actions during 1993 to further enhance its
liquidity. The company's Board of Directors approved management's plan to
issue, instead of purchase on the open market, stock to be sold to employees
under the IBM Employees Stock Purchase Plan. During 1993, approximately 3.3
million shares of IBM common stock were issued for this purpose. The company's
Board of Directors also authorized up to 15 million shares of IBM common stock
for contribution to the IBM U.S. Retirement Plan Trust Fund (the "Fund")
through 1994. On September 9, 1993, the company registered up to 6.5 million
shares of IBM common stock with the Securities and Exchange Commission for
contribution to the fund. The company contributed approximately 5.8 million of
those shares to the fund. Approximately 9.2 million shares of IBM common stock
remain available for contribution to the fund through 1994.
During 1993, as part of the company's worldwide program of securitizing assets
and improving its liquidity, the company received net cash proceeds from the
sale and securitization of trade and financing receivables to investors of
approximately $2.5 billion. Sales and securitization of trade receivables
accelerate the collections of such receivables, which typically range between
30-60 days. Sales of financing receivables accelerates collection by up to five
years.
In December 1993, the company entered into a $10.0 billion committed global
credit facility as part of the company's ongoing efforts to ensure appropriate
levels of liquidity. This subject is discussed further on pages 56 and 57.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 29
In July of 1993, Standard & Poor's changed its Senior Long-Term Debt Rating of
the company and its rated subsidiaries from AA- to A, and its Short-Term Debt
Rating from A-1+ to A-1. Standard & Poor's also changed its Preferred Stock
Rating of the company from A+ to A-. Standard & Poor's has a negative rating
outlook on the company. In August, Moody's changed its Senior Long-Term Debt
Rating of the company and its rated subsidiaries from A1 to A3, and its
Short-Term Debt Rating from Prime-1 to Prime-2. Moody's also changed its
Preferred Stock Rating of the company from A2 to Baa1.
In September, Duff & Phelps changed its Senior Long-Term Debt Rating of the
company and its rated subsidiaries from AA- to A and assigned initial ratings
of Duff 1 for the company and its rated subsidiaries' Short-Term Debt and A-
for the company's Preferred Stock. In addition, Fitch Investors Service
assigned initial ratings for the company and its rated subsidiaries of A for
Senior-Long-Term Debt and F-1 for Short-Term Debt and A- for the company's
Preferred Stock.
The following table summarizes the company's cash flows from operating,
investing, and financing activities as prescribed by Generally Accepted
Accounting Principles (GAAP), as reflected in the Consolidated Statement of
Cash Flows on page 34:
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
Net cash provided from (used in):
Operating activities $ 8,327 $ 6,274 $ 6,725
Investing activities (4,202) (5,878) (7,686)
Financing activities (1,914) 654 1,368
Effect of exchange rate changes
on cash and cash equivalents (796) (549) (315)
- --------------------------------------------------------------------------------
Net change in cash and cash equivalents $ 1,415 $ 501 $ 92
- --------------------------------------------------------------------------------
While the company had a net loss in 1993, principally as a result of
restructuring charges, the positive cash flow from operating activities was
primarily driven by the company's activities relative to securitization of
assets and restructuring charges taken, which had no current period cash
effect. There will, however, be cash outflows in future periods related to
these restructuring charges.
The period-to-period improvement in cash flow used in investing activities is
primarily attributable to the company's reduced, more focused investment in
plant, rental machines and other property.
In June 1993, the company issued $1.8 billion of new notes and debentures and
$1.1 billion of preferred stock. The net proceeds from these new debt and
equity financings, and the reduction in quarterly dividends as announced in
January and July of 1993, had a positive effect on financing cash flow from the
1992 period, which was more than offset by payments to settle short-term debt.
The company's "mainline" business involves the sales of information technology
products and services as distinct from its customer financing and certain other
activities. The company believes it is important to understand the different
dynamics of these two businesses. Therefore, the company has derived a model
for separately measuring cash flow of the "mainline" business. The model is
not, however, intended to replace the GAAP cash flow above, but is
supplementary in nature. Under this model, mainline cash flow from
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 30
operations was approximately $.8 billion in 1993. Operations includes operating
and investing activities, but excludes the impacts of changes in customer
financing assets and net cash proceeds from securitization of trade accounts
receivable, which are viewed as financing in nature.
Financing Risks
Customer financing is an integral part of the company's total worldwide
offerings. Financial results of customer financing can be found on pages 47
through 50. Inherent in customer financing are certain risks: credit, interest
rate, currency and residual value. The company manages credit risk through
comprehensive credit evaluations and pricing practices. Although the company's
position is slightly on the short-funded side to take advantage of lower
short-term interest rates, the company generally strives to match liability and
asset maturities, as well as currencies, and insures that the current cost of
funding is reflected in pricing of new transactions in order to minimize
interest and currency risk.
Residual value risk is managed by developing projections of future equipment
values at lease inception, reevaluating these projections periodically, and
effectively deploying remarketing capabilities to recover residual values, and
potentially earn a profit. In 1993 and 1992, the remarketing effort generated
profits. The following table depicts an approximation of the unguaranteed
residual value maturities for the company's sales-type leases, as well as a
projection of net book value of operating leases at the end of the lease terms
as of December 31, 1993. The following schedule excludes approximately $100
million of estimated residual value associated with non-IBM equipment.
- --------------------------------------------------------------------------------
(Dollars in millions) Total 1994 1995 1996 1997
Sales-type leases $ 760 $ 240 $ 250 $ 200 $ 70
Operating leases 250 175 50 20 5
- --------------------------------------------------------------------------------
Total residual value $ 1,010 $ 415 $ 300 $ 220 $ 75
- --------------------------------------------------------------------------------
Federal Systems Company
On December 13, 1993, IBM and Loral Corporation jointly announced the signing
of a definitive agreement for the purchase of the Federal Systems Company (FSC)
by Loral for $1.575 billion in cash. The transaction is effective January 1,
1994, and is expected to close during the first calendar quarter of 1994. The
amount of any gain, and ultimate cash proceeds, resulting from this sale may be
dependent on future performance of the Advanced Automation System (AAS)
contract for the Federal Aviation Authority (FAA) and certain other open
matters. The FAA is conducting a re-examination of the AAS contract, and
congressional hearings are scheduled with regard to air traffic control and the
future role of the FAA.
FSC markets specialized products and services to the defense, space, and other
agencies of the U.S. government and several non-U.S. governments. Federal
Systems Marketing, which sells the company's standard products to government
agencies, is not part of the transaction. In 1993, FSC had net earnings of $58
million on revenues of $2.3 billion. It had net assets of $751 million and
approximately 10,000 employees as of December 31, 1993.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 31
Employees Percentage Changes
- --------------------------------------------------------------------------------
1993 1992 1991 1993-92 1992-91
IBM/Wholly owned subsidiaries 256,207 301,542 344,396 (15.0)% (12.4)%
Not Wholly owned subsidiaries 10,989 6,468 157 69.9% --
Complementary 35,000 29,000 33,000 20.7% (12.1)%
- --------------------------------------------------------------------------------
As of December 31, 1993, "full-time" employees were down 45,335 from 1992,
88,189 from 1991, and more than 150,000 from the peak level reached in 1986.
The company continues to form business entities to enhance efficiencies and
some of these entities, while not wholly owned, are consolidated into the
company's financial statements. The increase in employees in the not wholly
owned subsidiaries category since 1991 results primarily from the formation of
the following IBM business ventures: Advantis (2,876), Information Systems
Management Corporation (1,931), and Advanced Management Services Unit (1,089).
The company's complementary work force comprises various other workers hired
under temporary, part-time, and limited-term-employment arrangements to meet
specific business needs in a flexible and cost-effective manner.
Looking Forward
Although the company returned to profitability in the fourth quarter of 1993,
it was a difficult year and significant challenges remain. In 1994, the company
will continue to reduce its expenses as restructuring and other productivity
programs progress. By 1996, it is expected those actions, begun in 1993, to
reduce expense structure will yield approximately $7.0 billion in annual
savings.
The company will continue to develop a comprehensive set of strategies to meet
its long-term-growth objectives and expects the results of this strategic work
to begin to emerge in 1994.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 32
Consolidated Statement of Operations
(Dollars in millions except per share amounts)
- --------------------------------------------------------------------------------
For the year ended December 31: Notes 1993 1992 1991
Revenue:
Hardware sales $ 30,591 $ 33,755 $ 37,093
Software 10,953 11,103 10,498
Services 9,711 7,352 5,582
Maintenance 7,295 7,635 7,414
Rentals and financing P 4,166 4,678 4,179
- --------------------------------------------------------------------------------
Total Revenue 62,716 64,523 64,766
- --------------------------------------------------------------------------------
Cost:
Hardware sales 20,696 19,698 18,571
Software 4,310 3,924 3,865
Services 8,279 6,051 4,531
Maintenance 3,545 3,430 3,379
Rentals and financing 1,738 1,966 1,727
- --------------------------------------------------------------------------------
Total Cost 38,568 35,069 32,073
- --------------------------------------------------------------------------------
Gross profit 24,148 29,454 32,693
Operating Expenses:
Selling, general and
administrative 18,282 19,526 21,375
Research, development and
engineering K 5,558 6,522 6,644
Restructuring charges L 8,945 11,645 3,735
- --------------------------------------------------------------------------------
Total Operating Expenses 32,785 37,693 31,754
- --------------------------------------------------------------------------------
Operating (Loss) Income (8,637) (8,239) 939
Other income, principally
interest 1,113 573 602
Interest expense M 1,273 1,360 1,423
- --------------------------------------------------------------------------------
(Loss) Earnings before Income
Taxes (8,797) (9,026) (118)
(Benefit) provision for income
taxes J (810) (2,161) 716
- --------------------------------------------------------------------------------
Net loss before changes
in accounting principles (7,987) (6,865) (598)
Effect of changes in accounting
principles B (114) 1,900 (2,263)
- --------------------------------------------------------------------------------
Net Loss (8,101) (4,965) (2,861)
Preferred stock dividends 47 -- --
- --------------------------------------------------------------------------------
Net loss applicable
to common shareholders $ (8,148) $ (4,965) $ (2,861)
- --------------------------------------------------------------------------------
Per Share of Common Stock Amounts:
Before changes in accounting
principles $ (14.02) $ (12.03) $ (1.05)
Effect of changes in accounting
principles B (.20) 3.33) (3.96)
- --------------------------------------------------------------------------------
Net loss applicable to common
shareholders $ (14.22) $ (8.70) $ (5.01)
- --------------------------------------------------------------------------------
Average Number of Common Shares Outstanding:
1993--573,239,240; 1992--570,896,489; 1991--572,003,382
The notes on pages 36 through 62 are an integral part of this statement.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 33
Consolidated Statement of Financial Position
(Dollars in millions)
- --------------------------------------------------------------------------------
At December 31: Notes 1993 1992
Assets
- --------------------------------------------------------------------------------
Current Assets:
Cash $ 873 $ 1,090
Cash equivalents 4,988 3,356
Marketable securities, at cost, which approximates
market C 1,272 1,203
Notes and accounts receivable--trade, net of
allowances 11,676 12,829
Sales-type leases receivable 6,428 7,405
Other accounts receivable 1,308 1,370
Inventories D 7,565 8,385
Prepaid expenses and other current assets 5,092 4,054
- --------------------------------------------------------------------------------
Total Current Assets 39,202 39,692
- --------------------------------------------------------------------------------
Plant, Rental Machines and Other Property E 47,504 52,786
Less: Accumulated depreciation 29,983 31,191
- --------------------------------------------------------------------------------
Plant, Rental Machines and Other Property--Net 17,521 21,595
- --------------------------------------------------------------------------------
Investments and Other Assets:
Software, less accumulated amortization
(1993, $10,143; 1992, $8,531) 3,703 4,119
Investments and sundry assets f 20,687 21,299
- --------------------------------------------------------------------------------
Total Investments and Other Assets 24,390 25,418
- --------------------------------------------------------------------------------
Total Assets $ 81,113 $ 86,705
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Current Liabilities:
Taxes $ 1,589 $ 979
Short-term debt G 12,097 16,467
Accounts payable 3,400 3,147
Compensation and benefits 2,053 3,476
Deferred income 3,575 3,316
Other accrued expenses and liabilities 10,436 9,352
- --------------------------------------------------------------------------------
Total Current Liabilities 33,150 36,737
- --------------------------------------------------------------------------------
Long-term debt H 15,245 12,853
Other liabilities N 11,177 7,461
Deferred income taxes J 1,803 2,030
- --------------------------------------------------------------------------------
Total Liabilities 61,375 59,081
- --------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, par value $.01 per share--shares
authorized: 150,000,000 Shares Issued:
1993--11,250,000; 1992--None i 1,091 --
Common stock, par value $1.25 per share--shares
authorized: 750,000,000 Shares Issued:
1993--581,388,475; 1992--571,791,950 6,980 6,563
Retained earnings 10,009 19,124
Translation adjustments 1,658 1,962
Treasury stock, at cost (shares: 1993--2,679;
1992--356,222) -- (25)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 19,738 27,624
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 81,113 $ 86,705
- --------------------------------------------------------------------------------
The notes on pages 36 through 62 are an integral part of this statement.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 34
(Dollars in millions)
- -------------------------------------------------------------------------------
For the year ended December 31: 1993 1992 1991
Cash Flow from Operating Activities:
Net loss $ (8,101) $ (4,965) $ (2,861)
Adjustments to reconcile net loss to cash
provided from operating activities:
Effect of changes in accounting principles 114 (1,900) 2,263
Effect of restructuring charges 5,230 8,312 2,793
Depreciation 4,710 4,793 4,772
Amortization of software 1,951 1,466 1,564
Loss (gain) on disposition of investment
assets 151 54 (94)
Other changes that provided (used) cash:
Receivables 1,185 1,052 (886)
Inventories 583 704 (36)
Other assets (10) (3,396) 5
Accounts payable 359 (311) 384
Other liabilities 2,155 465 (1,179)
- -------------------------------------------------------------------------------
Net cash provided from operating
activities 8,327 6,274 6,725
- ------------------------------------------------------------------------------
Cash Flow from Investing Activities:
Payments for plant, rental machines
and other property (3,154) (4,751) (6,497)
Proceeds from disposition of plant,
rental machines and other property 793 633 645
Investment in software (1,507) (1,752) (2,014)
Purchases of marketable securities and
other investments (2,721) (3,284) (4,848)
Proceeds from marketable securities and
other investments 2,387 3,276 5,028
- -------------------------------------------------------------------------------
Net cash used in investing activities (4,202) (5,878) (7,686)
- -------------------------------------------------------------------------------
Cash Flow from Financing Activities:
Proceeds from new debt 11,794 10,045 5,776
Payments to settle debt (8,741) (10,735) (4,184)
Short-term borrowings less than 90 days
-- net (5,247) 4,199 2,676
Proceeds from preferred stock 1,091 -- --
Common stock transactions net 122 (90) 67
Payments to purchase and retire common stock -- -- (196)
Cash dividends paid (933) (2,765) (2,771)
- -------------------------------------------------------------------------------
Net cash (used in) provided from financing
activities (1,914) 654 1,368
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (796) (549) (315)
- -------------------------------------------------------------------------------
Net change in cash and cash equivalents 1,415 501 92
- -------------------------------------------------------------------------------
Cash and cash equivalents at January 1 4,446 3,945 3,853
- -------------------------------------------------------------------------------
Cash and cash equivalents at
December 31 $ 5,861 $ 4,446 $ 3,945
- -------------------------------------------------------------------------------
Supplemental Data:
Cash paid during the year for:
Income taxes $ 452 $ 1,297 $ 2,292
Interest $ 2,410 $ 3,132 $ 2,617
- -------------------------------------------------------------------------------
The notes on pages 36 through 62 are an integral part of this statement.
<PAGE>
Management Discussion
International Business Machines Corporation and Subsidiary Companies 35
<TABLE> <CAPTION>
(Dollars in millions)
Preferred Common Retained Translation Treasury
Stock Stock Earnings Adjustments Stock Total
<S> <C> <C> <C> <C> <C> <C>
1991
Stockholders' Equity, January 1, 1991 $ -- $ 6,357 $ 32,912 $ 3,309 $ (25) $ 42,553
Net loss (2,861) (2,861)
Cash dividends declared--common stock (2,771) (2,771)
Common stock issued under employee
plans (1,857,904 shares) 172 172
Purchases (7,306,058 shares) and sales
(7,201,997 shares) of treasury stock
under employee plans--net (125) (6) (131)
Common stock purchased and retired
(2,127,400 shares) (24) (172) (196)
Tax reductions--employee plans 26 26
Translation adjustments (113) (113)
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity, December 31, 1991 -- 6,531 26,983 3,196 (31) 36,679
1992
Net loss (4,965) (4,965)
Cash dividends declared--common stock (2,765) (2,765)
Common stock issued under employee
plans (442,581 shares) 26 26
Purchases (8,097,681 shares) and sales
(8,073,124 shares) of treasury stock
under employee plans--net (129) 6 (123)
Tax reductions--employee plans 6 6
Translation adjustments (1,234) (1,234)
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity, December 31, 1992 -- 6,563 19,124 1,962 (25) 27,624
1993
Net loss (8,101) (8,101)
Cash dividends declared--common stock (905) (905)
Cash dividends declared--preferred stock (47) (47)
Preferred stock issued (11,250,000 shares) 1,091 1,091
Common stock issued under employee
plans (3,765,854 shares) 159 159
Common stock issued to U.S. pension
plan fund (5,828,970 shares) 258 258
Purchases (6,099,023 shares) and sales
(6,452,566 shares) of treasury stock
under employee plans--net (62) 25 (37)
Translation adjustments (304) (304)
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity,
December 31, 1993 $ 1,091 $ 6,980 $ 10,009 $ 1,658 $ -- $ 19,738
- ------------------------------------------------------------------------------------------------------------
The notes on pages 36 through 62 are an integral part of this statement.
</TABLE>
<PAGE>
International Business Machines Corporation and Subsidiary Companies 36
a Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of International
Business Machines Corporation and its majority owned subsidiary companies.
Investments in business entities in which IBM does not have control, but has
the ability to exercise significant influence over operating and financial
policies (generally 20 percent ownership), are accounted for by the equity
method. Other investments are accounted for by the cost method.
Revenue
Revenue is recognized from hardware sales or sales-type leases when the product
is shipped; from software when the program is shipped, as monthly license fees
accrue, or over the term of the post-contract customer support arrangement;
from maintenance and services over the contractual period, or as the services
are performed; from rentals under operating leases in the month in which they
accrue; and from financing at level rates of return over the term of the lease
or receivable. Reserves are established to provide for instances where customer
acceptance does not take place and for other potential price adjustments.
Selling Expenses
Selling expenses are charged against income as incurred.
Income Taxes
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes reflect the impact of temporary differences between the amounts of
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes. In accordance with Statement of Financial
Accounting Standards (SFAS) 109, these deferred taxes are measured by applying
currently enacted tax laws. In years prior to 1992, deferred taxes were
accounted for in accordance with SFAS 96.
Translation of Non-U.S. Currency Amounts
For non-U.S. subsidiaries that operate in a local currency environment, assets
and liabilities are translated to U.S. dollars at year-end exchange rates.
Income and expense items are translated at average rates of exchange prevailing
during the year. Translation adjustments are accumulated in a separate
component of stockholders' equity. For non-U.S. subsidiaries and branches that
operate in U.S. dollars or whose economic environment is highly inflationary,
inventories and plant, rental machines and other property are translated at
approximate rates prevailing when acquired. All other assets and liabilities
are translated at year-end exchange rates. Inventories charged to cost of sales
and depreciation are translated at historical rates. All other income and
expense items are translated at average rates of exchange prevailing during the
year. Gains and losses that result from translation are included in earnings.
Cash Equivalents
All highly liquid investments with a maturity of three months or less at date
of purchase are considered to be cash equivalents.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 37
Inventories
Raw materials, work in process, and finished goods are stated at the lower of
average cost or market.
Depreciation
Plant, rental machines and other property are carried at cost, and depreciated
over their estimated useful lives using the straight-line method.
Software
Costs related to the conceptual formulation and design of licensed programs are
expensed as research and development. Costs incurred subsequent to
establishment of technological feasibility to produce the finished product are
generally capitalized. The annual amortization of the capitalized amounts is
the greater of the amount computed based on the estimated revenue distribution
over the products' revenue-producing lives, or the straight-line method, and
generally over periods from two to six years. Periodic reviews are performed to
ensure that the unamortized program costs remain recoverable over future
revenues. Costs to support or service licensed programs are charged against
income as incurred, or when related revenue is recognized, whichever occurs
first.
Retirement Plans and Nonpension Postretirement Benefits
Current service costs of retirement plans and postretirement healthcare and
life insurance benefits are accrued in the period. Prior service costs
resulting from amendments to the plans are amortized over the average remaining
service period of employees expected to receive benefits.
Goodwill
Goodwill is charged to earnings on a straight-line basis over the periods
estimated to be benefited, currently not exceeding five years.
Common Stock
Common stock refers to the $1.25 par value capital stock, as designated in the
company's Certificate of Incorporation. Earnings (loss) per common share
amounts are computed by dividing earnings (loss) after deduction of preferred
stock dividends by the average number of common shares outstanding.
b Accounting Changes
In the fourth quarter of 1993, the company implemented Statement of Financial
Accounting Standards (SFAS) 112, "Employers' Accounting for Postemployment
Benefits," effective as of January 1, 1993. While the company has generally
been in compliance with the standard, a charge was taken to recognize the cost
of certain benefits which are primarily healthcare for employees on disability.
The company's previous practice was to recognize these costs as incurred. The
company's practice is to accrue the cost of benefits when it becomes probable
that such benefits will be paid and the amounts can be estimated. The cost of
benefits provided to other former and inactive employees has been recognized on
an accrual basis and are not affected by this change. The cumulative effect of
adopting this statement resulted in a one-time charge of $114 million (net of
approximately $61 million of income tax benefits). The ongoing annual impact of
this change is not expected to have a material effect on future earnings. Prior
years' consolidated financial statements have not been restated to reflect this
change.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 38
In 1992, the company implemented SFAS 109, "Accounting for Income Taxes." This
statement superseded the previous accounting standard for income taxes, SFAS
96, which the company adopted in 1988. Under SFAS 109, the company recognizes
deferred tax assets if it is more likely than not that a benefit will be
realized. The cumulative effect of this accounting change, which resulted in
recognizing previously unrecognized tax benefits for years prior to January 1,
1992, increased net earnings for 1992 by $1,900 million, or $3.33 per common
share. Income taxes for 1991 have not been restated for this change. Further
discussion is included on pages 42 through 44.
The company implemented SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," on the immediate recognition basis effective as
of January 1, 1991. This statement requires that the cost of these benefits,
which are primarily healthcare benefits, be recognized in the financial
statements during the employee's active working career. The company's previous
practice was to accrue these costs principally at retirement. Further
discussion is included on pages 54 through 56.
In May 1993, the Financial Accounting Standards Board issued SFAS 114,
"Accounting by Creditors for Impairment of a Loan." Under SFAS 114, creditors
should evaluate the collectibility of both contractual interest and principal
of all receivables when assessing the need for a loss accrual. Additionally,
SFAS 114 requires creditors to measure all loans that are restructured in a
troubled debt restructuring involving a modification of terms to reflect the
time value of money. This statement is effective for fiscal years beginning
after December 15, 1994. In May 1993, the Financial Accounting Standards Board
issued SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," which prescribes the accounting for debt and equity securities
held as assets. This statement is effective for fiscal years beginning after
December 15, 1993. It is expected that the implementation of these statements
will not result in a material charge to the results of operations in the year
of adoption.
c Marketable Securities
At December 31:
(Dollars in millions) 1993 1992
U.S. government securities $ 702 $ 698
Time deposits and other bank obligations 515 435
Non-U.S. government securities and
other fixed-term obligations 55 70
Total $ 1,272 $ 1,203
Market value $ 1,272 $ 1,203
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 39
d Inventories
At December 31:
(Dollars in millions) 1993 1992
Current inventories:
Finished goods $ 1,906 $ 2,100
Work in process 5,539 6,115
Raw materials 120 170
Total current inventories 7,565 8,385
Work in process included in plant, rental
machines and other property 715 805
Total $ 8,280 $ 9,190
e Plant, Rental Machines and Other Property
At December 31:
(Dollars in millions) 1993 1992
Land and land improvements $ 1,422 $ 1,477
Buildings 13,314 13,839
Plant, laboratory and office equipment 29,829 34,500
44,565 49,816
Less: Accumulated depreciation 28,576 29,789
15,989 20,027
Rental machines and parts 2,939 2,970
Less: Accumulated depreciation 1,407 1,402
1,532 1,568
Total $ 17,521 $ 21,595
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 40
f Investments and Sundry Assets
At December 31:
(Dollars in millions) 1993 1992
Net investment in sales-type leases* $ 17,518 $ 20,875
Less: Current portion (net) 6,428 7,405
11,090 13,470
Deferred taxes 4,521 2,886
Prepaid pension cost 532 905
Installment payment receivables 703 683
Investments in business alliances 650 691
Goodwill, less accumulated amortization
(1993, $462; 1992, $288) 646 274
Other investments and sundry assets 2,545 2,390
Total $ 20,687 $ 21,299
*These leases relate to IBM equipment and are for terms generally ranging from
three to five years. Net investment in sales-type leases includes unguaranteed
residual values of approximately $760 million and $1,110 million at December
31, 1993 and 1992, and is reflected net of unearned income at these dates of
approximately $3,100 million and $4,000 million, respectively. Scheduled
maturities of minimum lease payments outstanding at December 31, 1993,
expressed as a percentage of the total, are approximately as follows: 1994, 39
percent; 1995, 31 percent; 1996, 19 percent; 1997, 8 percent; 1998 and after,
3 percent.
g Short-Term Debt
At December 31:
(Dollars in millions) 1993 1992
Commercial paper $ 3,735 $ 7,869
Short-term loans 4,356 5,342
Long-term debt: Current maturities 4,006 3,256
Total $ 12,097 $ 16,467
The weighted average interest rates for commercial paper at December 31, 1993
and 1992, were 3.9 percent and 3.5 percent, respectively.
The weighted average interest rates for short-term loans at December 31, 1993
and 1992, were 5.9 percent and 13.3 percent, respectively.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 41
h Long-Term Debt
At December 31:
(Dollars in millions) 1993 1992
Maturities
U.S. Dollars:
Debentures:
71/2% 2013 $ 550 $
83/8% 2019 750 750
Notes:
53/4% to 75/8% 1994-2002 4,267 3,196
73/4% to 87/8% 1994-1997 102 646
9% to 101/4% 1994-2000 692 694
Medium-term note program: 3.4% to 19.0% 1994-2008 1,734 1,429
Other U.S. dollars: 3.9% to 19.8% 1994-2012 1,765 1,189
9,860 7,904
Other Currencies (average interest rate
at December 31, 1993, in parentheses):
Japanese yen (5.0%) 1994-2014 5,057 3,446
Swiss francs (5.9%) 1994-1996 699 833
European currency units (9.1%) 1994-1995 1,044 1,248
Canadian dollars (10.5%) 1994-1997 852 1,044
French francs (7.6%) 1994-2001 809 645
Australian dollars (8.2%) 1994-1996 253 326
Other (10.1%) 1994-2017 696 675
19,270 16,121
Less: Net unamortized discount 19 12
19,251 16,109
Less: Current maturities 4,006 3,256
Total $ 15,245 $ 12,853
Annual maturity and sinking fund requirements in millions of dollars on
long-term debt outstanding at December 31, 1993, are as follows: 1994, $4,006;
1995, $3,978; 1996, $2,703; 1997, $2,288; 1998, $2,098; 1999 and beyond,
$4,197.
I Preferred Stock
On June 7, 1993, the company issued 11.25 million shares of Series A Preferred
Stock, represented by 45 million depositary shares. The preferred stock is not
convertible into, or exchangeable for, shares of any other class or classes of
stock of the company. The preferred stock will have priority as to dividends
over the company's common stock. Dividends on the preferred stock are
cumulative and accrue from the date of original issue at a rate of $7.50 per
share (equivalent to $1.875 per depositary share). The preferred stock is not
redeemable prior to July 1, 2001. Thereafter, the company, at its option, may
redeem the preferred stock, in
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 42
whole or in part, at any time at a redemption price per share of $100 ($25 per
depositary share), plus accrued and unpaid dividends. Upon any dissolution,
liquidation or winding up of the affairs of the company, holders of the
preferred stock will be entitled to receive $100 per share ($25 per depositary
share) plus accrued and unpaid dividends before any distribution to holders of
the company's common stock.
J Taxes
(Dollars in millions) 1993 1992 1991
(Loss) earnings before income taxes:
U.S. operations $ (6,073) $ (7,678) $ (3,379)
Non-U.S. operations (2,724) (1,348) 3,497
$ (8,797) $ (9,026) $ 118
The (benefit) provision for income taxes by geographic
operations is as follows:
U.S. operations $ (505) $ (2,179) $ (857)
Non-U.S. operations (305) 18 1,573
Total (benefit) provision for income taxes $ (810) $ (2,161) $716
The components of the (benefit) provision for income
taxes by taxing jurisdiction are as follows:
U.S. federal:
Current $ (4) $ (115) $ 226
Deferred (890) (2,390) (799)
Net deferred investment tax credits (51) (54) (68)
(945) (2,559) (641)
U.S. state and local:
Current 26 (14) 29
Deferred 23 3 (139)
49 (11) (110)
Non-U.S.:
Current 554 1,378 1,787
Deferred (468) (969) (320)
86 409 1,467
Total (benefit) provision for income taxes $ (810) $ (2,161) $716
Social security, real estate, personal property, and other taxes 2,614
3,067 3,082
Total taxes $ 1,804 $ 906 $ 3,798
The impact of tax law changes on deferred tax assets and liabilities in 1993
was a benefit of $170 million, of which $71 million related to the U.S. and $99
million related to the non-U.S.
In 1992, the company implemented Statement of Financial Accounting Standards
(SFAS) 109, "Accounting for Income Taxes." This statement superseded the
previous accounting standard for income taxes, SFAS 96,
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 43
which the company
adopted in 1988. Both SFAS 96 and SFAS 109 require the use of the liability
method for recording deferred income taxes.
However, under SFAS 96, deferred tax assets could not be recognized unless they
offset reversals of deferred tax liabilities or could be recovered as income
tax refunds through existing loss carryback provisions. Under SFAS 109, the
company recognizes deferred tax assets if it is more likely than not that a
benefit will be realized.
The cumulative effect of this accounting change, which resulted in recognizing
previously unrecognized tax benefits for years prior to January 1, 1992,
increased net earnings for 1992 by $1,900 million, or $3.33 per common share.
Income taxes for 1991 have not been restated for this change.
<PAGE>
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes.
The significant components of deferred tax assets and liabilities included on
the balance sheet were as follows:
(Dollars in millions) 1993 1992
Deferred Tax Assets
Restructuring charges $ 5,253 $ 3,882
Retiree medical benefits 1,961 1,691
Capitalized R&D 1,739 0
U.S. federal tax loss carryforwards 1,093 0
Foreign tax loss carryforwards 989 430
Foreign tax credits 885 1,490
Alternative minimum tax credits 729 663
Inventory 621 697
State and local tax loss carryforwards 566 384
Doubtful accounts 480 410
General business credits 452 438
Intracompany sales and services 440 390
Depreciation 234 421
Software costs deferred 186 285
Retirement benefits 124 212
Other 3,435 2,622
Gross deferred tax assets $ 19,187 $ 14,015
Less: Valuation allowance 5,035 1,976
Total deferred tax assets $ 14,152 $ 12,039
Deferred Tax Liabilities
Sales-type leases $ 3,118 $ 3,785
Software costs deferred 1,824 1,659
Depreciation 1,537 1,541
Retirement benefits 1,069 941
Other 1,379 1,103
Gross deferred tax liabilities $ 8,927 $ 9,029
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 44
The valuation allowance applies to U.S. federal tax credit and net operating
loss carryforwards, state and local net deferred tax assets and net operating
loss carryforwards, and net operating losses in certain foreign jurisdictions
that may expire before the company can utilize them. The net change in the
total valuation allowance for the year ended December 31, 1993, was an increase
of $3,059 million and for the year ended December 31, 1992, was an increase of
$1,647 million.
The estimated reversal periods for the largest deductible temporary differences
are: Restructuring 2 years; Retiree Medical 1-30 years.
The consolidated effective income tax rate was (9) percent in 1993, (24)
percent in 1992, and 607 percent in 1991.
A reconciliation of the company's effective tax rate to the statutory U.S.
federal tax rate is as follows:
Year ended December 31 1993 1992 1991
Statutory rate (35)% (34)% 34%
U.S. valuation allowance related to restructuring 20 6 332
Foreign tax differential 7 5 325
State and local, net (62)
Other (1) (1) (22)
Effective rate (9)% (24)% 607%
For tax return purposes, the company has available tax credit carryforwards of
approximately $2,432 million, of which $48 million expire in 1995, $461 million
expire in 1996, $712 million expire in 1998, and the remainder thereafter. No
tax credit carryforwards expire in 1997. The company also has federal, state
and local, and foreign tax loss carryforwards, the tax effect of which is
$2,648 million. Most of these carryforwards are available for fifteen years.
Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $10,915 million at December 31, 1993, $12,182
million at December 31, 1992, and $13,991 million at December 31, 1991. These
earnings, which reflect full provision for non-U.S. income taxes, are
indefinitely reinvested in non-U.S. operations or will be remitted
substantially free of additional tax. Accordingly, no material provision has
been made for taxes that might be payable upon remittance of such earnings nor
is it practicable to determine the amount of this liability.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 45
K Research, Development and Engineering
Research, development and engineering expenses amounted to $ 5,558 million in
1993, $6,522 million in 1992, and $6,644 million in 1991.
Included in these amounts were expenditures of $4,431 million in 1993, $5,083
million in 1992, and $5,001 million in 1991 for a broad program of research and
development activities covering basic scientific research in a variety of
fields and the application of scientific advances to the development of new and
improved products and their uses. Of these amounts, software-related activities
were $1,097 million, $1,161 million, and $994 million in 1993, 1992, and 1991,
respectively. In addition, expenditures for product-related engineering
amounted to $1,127 million, $1,439 million, and $1,643 million for the same
three years.
L Restructuring Actions
The company has taken a series of actions since 1985 to streamline and reduce
resources utilized in the business. During 1993 and 1992, the company recorded
restructuring charges of $8.9 billion before taxes ($8.0 billion after taxes or
$14.02 per common share) and $11.6 billion before taxes ($8.3 billion after
taxes or $14.51 per common share), respectively. These charges are summarized
in the table below:
(Dollars in billions) Reserve to be
Utilized in
Charges to Operations Charges Future
1993 1992 Total Utilized Periods
Work-force-related $ 6.0 $ 5.4 $ 11.4 $ 6.9 $ 4.5
Manufacturing capacity 1.4 4.7 6.1 2.2 3.9
Excess space 1.5 .8 2.3 .4 1.9
Other .7 .7 .7
Total restructuring charges $ 8.9 $ 11.6 $ 20.5 $ 10.2 $
10.3*
* $5.1 billion included in Other accrued expenses and liabilities, $1.6 billion
included in Other liabilities, and $3.6 billion included in Plant, Rental
Machines and Other Property in the Consolidated Statement of Financial Position
at December 31, 1993.
During 1991, the company also recorded a restructuring charge of $3.7 billion
before taxes ($2.9 billion after taxes or $5.03 per common share). The actions
contemplated in the 1991 charge were associated with work force reductions and
relocations, facility consolidations, and other related items, which have been
essentially completed.
The company records restructuring charges against operations and provides a
reserve based upon the best information available at the time the decision is
made to undertake the restructuring action. The reserves are subsequently
utilized when specific restructuring criteria are met, indicating the planned
restructuring action has occurred. Work-force-related reserves are considered
utilized at payment for either termination or acceptance of other contractual
arrangements. Manufacturing capacity reserves are considered utilized based on
execution of planned actions at each affected location. The reserve for excess
space is utilized when the remaining lease obligations are settled, or the
space has been vacated and subleased.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 46
It is the company's policy to continue to charge normal depreciation, rent and
other operating costs relating to manufacturing capacity and excess space to
the ongoing cost of operations while they remain in business use.
The $11.4 billion of work-force-related reserves taken in 1992 and 1993
contemplated worldwide staff reductions of approximately 110,000 people.
Through 1993 approximately 75,000 people have left the company under these
programs. Although work-force-related restructuring actions through 1993 have
affected all parts of the company worldwide, the reductions have been more
heavily weighted toward positions in the United States. Remaining staff
reductions are expected to occur primarily during 1994 and be more heavily
weighted toward positions outside the United States. Included in the 1993
charge, and considered utilized, is $1.4 billion relating to the company's
pension and other postretirement plans, referred to as a "curtailment loss."
This loss is the recognition in the current period of actuarial charges that
otherwise might have been amortized over future periods.
Cash outlays associated with unutilized work-force-related reserves are
expected to be expended substantially in 1994 and 1995, except for the
curtailment portion of the charge which will be expended as required for
funding appropriate pension and other postretirement plans in future years. The
required manufacturing capacity charges will not involve substantial cash
outlays. Cash requirements related to excess space charges are expected to be
expended as follows: $575 million in 1994, $325 million in 1995, $240 million
in 1996, and $700 million in 1997 and beyond.
M Interest on Debt
Interest on borrowings of the company and its subsidiaries amounted to $2,298
million in 1993, $2,698 million in 1992, and $2,667 million in 1991. Of these
amounts, $46 million in 1993, $101 million in 1992, and $143 million in 1991
were capitalized. The remainder was charged to cost of rentals and financing,
and interest expense.
N Other Liabilities
Other liabilities consists principally of accruals for nonpension
postretirement benefits, indemnity and retirement plan reserves for non-U.S.
employees, and restructuring charges.
O Environmental
The company continues to participate in environmental assessments and cleanups
at a number of locations, including operating facilities, previously owned
facilities, Superfund and other waste sites. The company accrues for all known
environmental liabilities for remediation cost when a cleanup program becomes
probable and costs can be reasonably estimated. The amounts accrued were $77
million and $36 million at December 31, 1993 and 1992, respectively.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 47
The amounts accrued do not cover sites which are in the preliminary stages of
investigation where neither the company's percentage of responsibility nor the
extent of cleanup required have been identified. It also excludes the cost of
internal environmental protection programs which are primarily preventive and
abatement related. While the company has received and expects to receive
insurance recoveries which offset a portion of the company's cost, the accrual
reflects gross estimated liability. Estimated environmental costs are not
expected to materially impact the financial position or results of the
company's operations in future periods. However, environmental cleanup periods
are protracted in length and earnings in future periods are subject to changes
in business conditions.
P Customer Financing
The primary focus of IBM's worldwide customer financing offerings is to support
customers in their acquisitions of IBM's products and services. This support is
provided in certain countries through financing subsidiaries, and from
operations in those countries where the company does not maintain a separate
financing subsidiary, such as Canada, Germany, Italy, and Japan. For purposes
of this note, the results of customer financing in all countries are presented
in a consistent manner.
Total assets for financing subsidiaries at December 31, 1993, were $14,661
million, compared to $16,205 million at year-end 1992. These assets were
financed by $9,728 million of debt at December 31, 1993, compared to $11,288
million at December 31, 1992. Total financing and other income from financing
subsidiaries was $2,875 million, $2,701 million, and $2,250 million for 1993,
1992, and 1991, respectively. Net earnings from financing subsidiaries for
1993, 1992, and 1991 were $322 million, $286 million, and $231 million,
respectively. These wholly owned subsidiaries are consolidated in the company's
financial statements, and are reflected in the following financial schedules in
addition to the financial results of those countries that do not have a
financing subsidiary.
For comparability purposes, the following schedules reflect the financial
position, results of operations, and cash flows for customer financing in
comparison to the company's consolidated results with customer financing
results reflected on the equity basis. This involves presenting the investment
and related return from customer financing as reflected in the company's
consolidated financial statements, within a single line item. For the statement
of financial position, customer financing's assets net of related liabilities,
and after elimination of applicable intracompany transactions, are shown
separately as a single line item, investment in customer financing.
Eliminations primarily pertain to internal mark-ups to fair value on equipment
held on operating leases, and the normal elimination of intracompany payables
and receivables. With respect to the statement of earnings, net earnings for
customer financing before applicable taxes and after elimination of related
intracompany transactions are included in the line description, Other income.
For the statement of cash flows, certain cash flow activities are reclassified
to be consistent with the classification of such activities reflected in the
company's Consolidated Statement of Cash Flows. Such reclassifications
primarily pertain to cash flow activity related to financing receivables.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 48
Because customer financing is different in nature from the company's
manufacturing and services businesses, management believes that the
aforementioned type of comparative disclosure enhances an understanding and
analysis of the consolidated financial statements.
Statement Of Financial Position
(Dollars in millions) IBM with Customer
At December 31: Customer Financing on an
Financing Equity Basis
1993 1992 1993 1992
Assets:
Cash and cash equivalents $ 2,096 $ 1,103 $ 3,765 $
3,343
Notes and accounts receivable 8,177 8,674
Net investment in sales-type leases 17,518 20,875
Working capital financing receivables 1,898 1,581
Loans receivable 3,615 3,999
Inventories 143 138 7,466 8,263
Plant, rental machines and other
property, net of accum. depreciation 2,627 2,910 15,788
19,962
Other assets 2,551 1,765 16,679 15,399
Investment in customer financing 5,524 5,417
Total Assets $ 30,448 $ 32,371 $ 57,399 $ 61,058
Liabilities and Stockholders' Equity:
Taxes and accrued expenses $ 2,592 $ 3,249 $ 14,895 $
13,705
Other liabilities 3,825 3,413 16,555 12,806
Debt 21,131 22,397 6,211 6,923
27,548 29,059 37,661 33,434
Stockholders' equity/invested capital 2,900 3,312 19,738 27,624
Total Liabilities and Stockholders' Equity $ 30,448 $ 32,371 $
57,399 $ 61,058
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 49
Statement Of Earnings
(Dollars in millions) IBM with Customer
For the year ended December 31: Customer Financing on an
Financing Equity Basis
1993 1992 1993 1992
Finance and Other Income:
Finance income $ 2,485 $ 2,699 $ $
Rental income, net of depreciation 285 337 692 962
Sales 1,391 1,384 57,483 58,646
Other income 850 505 1,184 955
Total Finance and Other Income 5,011 4,925 59,359 60,563
Interest and other cost and expenses 3,994 3,947 68,156 69,589
Net Earnings (Loss) Before Income Taxes 1,017 978 (8,797) (9,026)
Provision (benefit) for income taxes 443 406 (810) (2,161)
Net earnings (loss) before changes in
accounting principles 574 572 (7,987) (6,865)
Effects of changes in accounting principles (114)
1,900
Net Earnings (Loss) $ 574 $ 572 $ (8,101) $ (4,965)
Statement Of Cash Flows
(Dollars in millions) IBM with Customer
For the year ended December 31: Customer Financing on an
Financing Equity Basis
1993 1992 1993 1992
Net cash provided from operating activities $ 3,004 $ 3,414 $
2,044 $ 2,864
Net cash used in
investing activities (284) (4,176) (639)
(1,706)
Net cash (used in) provided from
financing activities (1,680) 1,094 (234) (440)
Effect of exchange rate changes
on cash and cash equivalents (47) (21) (749) (528)
Net change in cash and cash
equivalents 993 311 422 190
Cash and cash equivalents at
January 1 1,103 792 3,343 3,153
Cash and cash equivalents at
December 31 $ 2,096 $ 1,103 $ 3,765 $ 3,343
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 50
Customer financing debt at December 31, 1993, consisted of borrowings directly
with external financial institutions of $17,562 million and intracompany
borrowings of $3,569 million at market rates of interest. Intracompany
borrowings are made pursuant to loan agreements between the parties.
Other liabilities represents amounts due to affiliates, and primarily consists
of trade payables arising from purchases of equipment for term leases,
installment payment agreements, and software licenses, with payment terms
comparable to those offered to IBM's external customers.
The earnings yielded a return on average invested capital of 18.4 percent in
1993, compared to 17.1 percent for the same 1992 period. Included within these
results are intracompany services and fees received for tax benefits provided
to the company resulting from tax deferrals generated by financing
transactions. Such fees are eliminated from the consolidated Statement of
Earnings.
The provision for income taxes for customer financing is based on the statutory
income tax rate of each country, calculated on a separate return basis.
Q Rental Expense and Lease Commitments
Rental expense, including amounts charged to inventories and fixed assets,
excluding amounts charged to restructuring, were $1,686 million in 1993, $2,108
million in 1992, and $2,056 million in 1991. Gross minimum rental commitments,
in millions of dollars, under non-cancellable leases for 1994, and thereafter,
are as follows: 1994, $1,395; 1995, $1,158; 1996, $1,053; 1997, $858; 1998,
$864; and after 1998, $3,256. Included in these amounts are leases for vacant
space that the company had reserved for in restructuring charges. These lease
commitments, valued in millions of dollars, are: 1994, $288; 1995, $267; 1996,
$209; 1997, $183; 1998, $174; and after 1998, $432. The company has entered
into sublease commitments, but the amounts were insignificant at December 31,
1993. These leases are principally for the rental of office premises.
R Long-Term Performance Plan
The IBM 1989 Long-Term Performance Plan provides for incentive awards to be
made to officers and other key employees. The plan is administered by the
Executive Compensation and Management Resources Committee of the Board of
Directors. The Committee determines the type of award to be granted, which may
include stock, a stock option, a Stock Appreciation Right (SAR), cash, or any
combination thereof. The number of shares made available for granting in the
year was .85 percent of IBM's projected outstanding common stock as of December
31, 1993. Prior to 1989, stock options were issued under the IBM 1986 and
predecessor Stock Option Plans.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 51
Options allow the purchase of IBM's common stock at 100 percent of the market
price on the date of grant and have a maximum duration of 10 years. Payment by
the optionee upon exercise of an option may be made using IBM stock as well as
cash.
SARs offer eligible optionees the alternative of electing not to exercise the
related stock option, but to receive payment in cash and/or stock, equivalent
to the difference between the option price and the average market price of IBM
stock on the date of exercising the right.
The following table summarizes option activity during 1993 and 1992:
Number of shares under option 1993 1992
Balance at January 1 35,621,963 27,382,266
Options granted 13,744,772 9,723,804
Options exercised -- (461,202)
Options terminated (20,106,011) (980,494)
Options cancelled - SARs exercised -- (42,411)
Balance at December 31 29,260,724 35,621,963
Exercisable at December 31 14,636,324 21,372,943
In April 1993, the committee of the Board of Directors then responsible for
administering the plan, the Nominating and Executive Compensation Committee,
approved management's plan to allow optionees, other than executive officers,
to voluntarily forfeit all of their existing IBM stock options, granted from
1984 through 1992, in exchange for a fewer number of new stock option grants.
Under this program, 18,054,615 options, at average prices ranging from $66.94
to $159.50, were terminated and 7,405,090 new options at a price of $47.88 were
granted.
There were no options exercised in 1993. The options exercised in 1992 were at
an average option price of $62.25 per share. The shares under option at
December 31, 1993, were at option prices ranging from $43.00 to $159.50 per
share. The shares under option at December 31, 1992, were at option prices
ranging from $50.37 to $159.50 per share.
There were 6,011,858 and 1,362,687 unused shares carried forward and made
available for granting in the subsequent year as of December 31, 1993 and 1992,
respectively.
S Stock Purchase Plan
The IBM Employees Stock Purchase Plan (the "Plan") enables employees who are
not participants in IBM's stock option programs to purchase IBM common stock
through payroll deductions of up to 10 percent of eligible compensation. The
price an employee pays for a share of stock is 85 percent of the average market
price on the date the employee has accumulated enough money to buy a share.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 52
In July 1993, the Board of Directors approved management's plan to issue,
instead of purchase on the open market, stock to be sold to employees under the
Plan.
During 1993, employees purchased 9,796,460 shares, including 6,451,066 treasury
shares, for which $419 million was paid to IBM. There were 21,702,501 reserved
unissued shares available for purchase under the Plan at December 31, 1993.
T Retirement Plans
The company and its subsidiaries have retirement plans covering substantially
all employees. The total cost of all plans for 1993, 1992, and 1991 was $1,525
million, $838 million, and $527 million, respectively.
Net periodic pension cost of the U.S. retirement plan and selected non-U.S.
plans for the years ended December 31 included the following components:
U.S. Plan Non-U.S. Plans
1993 1992* 1991* 1993 1992 1991
Expected long-term rate of
return on plan assets 9.5% 9.5% 9.0% 5-10% 5-12% 5-12%
(Dollars in millions)
Service cost:
Benefits earned during the period $ 571 $ 586 $ 569 $ 576
$ 603 $ 664
Termination incentive expenses 263 355 122 -- -- --
Interest cost on the projected
benefit obligation 1,909 1,671 1,488 1,064 1,060 924
Return on plan assets:
Actual (3,990) (1,216) (4,044) (3,036) (998) (1,269)
Deferred 1,605 (1,047) 1,961 1,891 (166) 210
Net amortizations (62) (88) (162) 12 24 3
Curtailment losses 431 -- -- 215 -- --
Net periodic pension cost $ 727 $ 261 $ (66) $ 722 $ 523
$ 532
Total net periodic pension
cost for all non-U.S. plans $ 798 $
577 $ 593
* Restated to conform with 1993 presentation.
Annual cost is determined using the Projected Unit Credit actuarial method.
Prior service cost is amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits. An
assumption is made for modified career average plans such that the average
earnings base period will be updated to the years prior to retirement.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 53
Termination incentive expenses represent the cost of special retirement
benefits offered to employees for a short period of time in exchange for
voluntary termination of service. Curtailment losses reflect the significant
reductions in the expected years of future service caused by 1993 termination
programs and represent the immediate recognition of associated prior service
cost and a portion of previously unrecognized actuarial losses.
In the Consolidated Statement of Operations, the curtailment losses and
termination expenses, referred to above, are included in restructuring charges.
The table below provides information on the status of the U.S. retirement plan,
and selected non-U.S. plans that represent approximately 97 percent of the
total non-U.S. accumulated benefit obligations.
The funded status at December 31 was as follows:
U.S. Plan Non-U.S. Plans
1993 1992 1993 1992
Assumptions:
Discount rate 7.25% 8.5% 5-9.25% 5-10%
Long-term rate of
compensation increase 5.0% 5.0% 2.8-6.6% 3-7.5%
(Dollars in millions)
Actuarial present value of
benefit obligations:
Vested benefit obligation $ (24,736) $ (19,550) $ (12,342)
$ (11,205)
Accumulated benefit obligation $ (26,325) $ (19,588) $
(13,544) $ (12,508)
Projected benefit obligation $ (29,024) $ (22,700) $ (16,129)
$ (15,603)
Plan assets at fair value 28,198 25,196 16,159 13,682
Projected benefit obligation (in excess of)
less than plan assets (826) 2,496 30 (1,921)
Unrecognized net loss (gain) 1,550 (1,032) (1,184) 649
Unrecognized prior service cost 1,282 1,782 304 333
Unrecognized net asset established
at January 1, 1986 (1,474) (2,341) (145) (132)
Prepaid (accrued) pension cost
recognized in the statement of
financial position $ 532 $ 905 $ (995) $ (1,071)
The U.S. plan's vested benefit obligation, accumulated benefit obligation and
projected benefit obligation increased in 1993 primarily as a result of a
change in the discount rate and the curtailment. The projected benefit
obligation increased $3,938 million from the change in discount rate and $1,105
million as a result of the curtailment.
It is the company's practice to fund amounts for pensions sufficient to meet
the minimum requirements set forth in applicable employee benefit and tax laws,
and such additional amounts as the company may determine
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 54
to be appropriate from time to time. In July 1993, the Board of Directors
authorized the issuance of up to 15 million shares of IBM common stock to be
contributed to the U.S. Pension Plan Fund through 1994. There were 9,171,030
shares remaining of that authorization at December 31, 1993. The assets of the
various plans include corporate equities, government securities, corporate debt
securities, and income-producing real estate.
U.S. Plan: U.S. regular, full-time, and part-time employees are covered by a
noncontributory plan which is funded by company contributions to an irrevocable
trust fund, which is held for the sole benefit of employees. Monthly retirement
benefits generally represent the greater of a fixed amount per year of service,
or a percent of career compensation. For plan purposes, effective April 1,
1993, annual compensation before January 1, 1994, is defined as the average
annual compensation paid for the years 1989 through 1993. Benefits become
vested upon the completion of five years of service. The company introduced
plan amendments in 1991 including the elimination of all retirement age
reduction factors for employees who retire with 30 or more years of service,
and a new provision that provides additional income in a tax-deferred manner to
employees at retirement. The number of individuals receiving benefits at
December 31, 1993 and 1992, was 77,664 and 69,153, respectively.
Non-U.S. Plans: Most subsidiaries and branches outside the United States have
retirement plans covering substantially all employees, under which funds are
deposited under various fiduciary-type arrangements, annuities are purchased
under group contracts, or reserves are provided. Retirement benefits are based
on years of service and the employee's compensation, generally during a fixed
number of years immediately prior to retirement. The ranges of assumptions used
for the non-U.S. plans reflect the different economic environments within the
various countries.
U Nonpension Postretirement Benefits
The company and its U.S. subsidiaries have defined benefit postretirement plans
that provide medical, dental, and life insurance for retirees and eligible
dependents. In 1993, the company applied plan cost maximums to those who
retired prior to January 1, 1992. These maximums will take effect beginning
with the year 2001. Plan cost maximums were established in 1990 for those
employees retiring after December 31, 1991.
Effective January 1, 1991, the company and its subsidiaries implemented on the
immediate recognition basis, Statement of Financial Accounting Standards (SFAS)
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
This statement requires that the cost of these benefits, which are primarily
for healthcare, be recognized in the financial statements during the employee's
active working career. The company's previous practice was to accrue these
costs principally at retirement.
The transition effect of adopting SFAS 106 on the immediate recognition basis,
as of January 1, 1991, resulted in a charge of $2,263 million to 1991 earnings,
net of approximately $350 million of income tax benefits. This charge includes
a previously unrecognized accumulated postretirement benefit obligation of
approximately $4.8 billion, offset by $2.2 billion related to plan assets and
accruals under the company's previous accounting practice. This obligation was
determined by application of the terms of medical, dental, and life insurance
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 55
plans, including the effects of established maximums on covered costs, together
with relevant actuarial assumptions and healthcare cost trend rates projected
at annual rates ranging ratably from 14 percent in 1991 to 6 percent through
the year 2007.
The healthcare cost trend rate was 13 percent in 1993. The effect of a 1
percent annual increase in these assumed cost trend rates would increase the
accumulated postretirement benefit obligation by approximately $70 million; the
annual costs would not be materially affected.
Net periodic postretirement benefit cost for the years ended December 31
included the following components:
1993 1992* 1991*
Expected long-term rate of return on plan assets 9.5% 9.5% 9.0%
(Dollars in millions)
Service cost:
Benefits attributed to service during the period $ 53 $ 78 $94
Termination incentive expenses -- 71 38
Interest cost on the accumulated
postretirement benefit obligation 566 485 389
Return on plan assets:
Actual (201) (67) (325)
Deferred 84 (59) 198
Net amortizations and other 29 (61) --
Curtailment loss 732 -- --
Net periodic postretirement benefit cost $ 1,263 $ 447 $ 394
*Restated to conform with 1993 presentation.
In the Consolidated Statement of Operations, the curtailment loss and
termination expenses referred to above are included in restructuring charges.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 56
The table below provides information on the status of the plans.
The funded status at December 31 was as follows:
1993 1992
Assumed discount rate 7.25% 8.5%
(Dollars in millions)
Accumulated postretirement benefit obligation:
Retirees $ (5,761) $ (5,194)
Fully eligible active plan participants (673) (739)
Other active plan participants (927) (988)
Total (7,361) (6,921)
Plan assets at fair value 1,366 1,453
Accumulated postretirement benefit obligation in
excess of plan assets (5,995) (5,468)
Unrecognized net loss 1,431 1,098
Unrecognized prior service cost (828) 241
Accrued postretirement benefit cost recognized
in the statement of financial position $ (5,392) $ (4,129)
In 1993, the accumulated postretirement benefit obligation increased $830
million as a result of the change in the assumed discount rate and $675 million
from the curtailment. The plan change allowing the company to limit the amount
it contributes for providing retiree healthcare benefits reduced the
accumulated postretirement benefit obligation $1,011 million.
It is the company's practice to fund amounts for postretirement benefits with
an independent trustee, as deemed appropriate from time to time. The plan
assets include corporate equities and government securities. The accounting for
the plan is based on the written plan.
Certain of the company's non-U.S. subsidiaries have similar plans for retirees.
However, most retirees outside the United States are covered by
government-sponsored and administered programs, and the obligations and cost of
these programs are not significant to the company.
V Lines of Credit
As part of the company's ongoing efforts toward greater centralization of its
treasury activities and to ensure appropriate liquidity levels, in December
1993 the company entered into a $10.0 billion committed global credit facility
with 81 banks worldwide. This global credit facility will replace most of the
existing committed credit facilities and some of the uncommitted credit
facilities currently in place throughout the world. Unused lines of credit from
previously existing credit arrangements for those geographies which have not
been replaced as of December 31, 1993, by the worldwide credit facility, were
$5,707 million. Consequently,
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 57
total available committed and uncommitted lines of credit at December 31, 1993,
were $15,707 million, compared to $6,950 million at December 31, 1992. Interest
rates on borrowings vary from country to country depending on local market
conditions.
W Sales and Securitization of Receivables
During 1993, total cash proceeds from the sale and securitization of trade and
financing receivables to investors were $6.8 billion, as part of the company's
worldwide program of securitizing assets and improving its liquidity. Of the
total proceeds of $6.8 billion, approximately $2.5 billion represents the net
year-over-year increase in securitized receivables. During 1993, no material
gain or loss resulted from these transactions. Recourse amounts associated with
the aforementioned sales and securitization activities are expected to be
minimal, and adequate reserves are in place to cover potential losses.
Prepaid expenses and other current assets on the Consolidated Statement of
Financial Position include $751 million of net assets that have been
reclassified pending the sale of FSC, as discussed on page 30.
X Financial Instruments
In assessing the fair value of financial instruments, at December 31, 1993, the
company has used a variety of methods and assumptions, which were based on
estimates of market conditions and risks existing at that time. For certain
instruments, including cash and cash equivalents, non-trade accounts payable
and accruals, and short-term debt, it was assumed that the carrying amount
approximated fair value for the majority of these instruments because of their
short maturity. Quoted market prices or dealer quotes for the same or similar
instrument were used for the majority of marketable securities, long-term
investments and long-term debt. Other techniques, such as option pricing
models, estimated discounted value of future cash flows, replacement cost, and
termination cost, have been used to determine fair value for the remaining
financial instruments. These values merely represent a general approximation of
possible value and may never actually be realized.
The estimated fair values of the company's financial instruments, both on and
off the balance sheet, are summarized on the following page.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 58
At December 31, 1993
(Dollars in millions) Carrying Estimated
Amount Fair Value
Cash and cash equivalents $ 5,861 $ 5,861
Marketable securities 1,272 1,272
Non-trade receivables and loans 4,120 4,153
Long-term investments 179 178
Non-trade accounts payable and accruals (3,027) (2,889)
Short-term debt (12,097) (12,096)
Long-term debt (15,245) (15,840)
Forward exchange contracts 2 (45)
Option contracts 36 43
Interest rate and currency swap agreements (37) (147)
Financial guarantees -- (749)
Some of the foregoing financial instruments have off-balance-sheet risk. In the
normal course of business, the company enters into a variety of forward
contracts, options, and swaps in order to limit its exposure to loss resulting
from adverse fluctuations in foreign currency exchange and interest rates.
The company receives significant dividends and intracompany royalties from its
non-U.S. subsidiaries. Due to the volatility of the currency markets, it is
prudent to employ the use of financial hedging instruments to minimize the
company's potential exposure on these cash flows.
In addition, in order to raise funds on a more cost-effective basis, the
company centrally borrows to meet the consolidated financing requirements of
its subsidiaries. The central financing facility in turn provides local
currency denominated debt to the individual subsidiaries via currency and
interest rate swap agreements.
These instruments are executed with credit-worthy financial institutions, and
virtually all foreign currency contracts are denominated in currencies of major
industrial countries. Gains and losses on these contracts serve as hedges in
that they offset fluctuations that would otherwise impact the company's
financial results. Costs associated with entering into such contracts are
generally amortized over the life of the instruments and are not material to
the company's financial results.
In assessing financial instruments with off-balance-sheet risk, the following
summary of contract or notional (face) amounts outstanding at year-end provides
an indication of the extent of the company's involvement in such instruments.
The company does not anticipate any material adverse effect on its financial
position resulting from its involvement in these instruments, nor does it
anticipate non-performance by any of its counterparties.
(Dollars in millions) 1993 1992
Forward exchange contracts $ 320 $ 490
Option contracts 538 1,914
Interest rate and currency swap agreements 17,244 13,690
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 59
The company does not have any significant concentrations of credit risk.
IBM has guaranteed certain loans and commitments of various ventures to which
it is a party. Additionally, the company is contingently liable for certain
receivables sold with recourse. These commitments, which in the aggregate are
approximately $2 billion, are not expected to have a material adverse effect on
the company's financial results.
Y Segment Information
IBM is in the business of helping customers solve problems through the use of
advanced information technologies. The company operates primarily in the single
industry segment that creates value by offering services, software, systems,
products, and technologies. This segment represents more than 90 percent of
consolidated revenue, operating profit, and identifiable assets. The following
schedule shows revenue by classes of similar products or services within the
information technology segment.
Financial information by geographic area is summarized on pages 61 and 62.
Revenue by Classes of Similar Products or Services
(Dollars in millions) Consolidated U.S. Only
1993 1992+ 1991+ 1993 1992+ 1991+
Information technology:
Processors* $ 10,071 $ 13,916 $ 14,954 $ 3,179 $
4,818 $ 4,717
Personal systems* 9,728 7,887 8,505 4,417 3,033
3,210
Other workstations* 2,006 2,671 3,216 689 874 1,040
Storage* 5,122 6,259 7,184 2,101 2,554 2,825
Other peripherals* 2,262 3,026 3,294 971 1,244 1,424
Software 10,953 11,103 10,498 3,898 3,883 3,760
Maintenance 7,295 7,635 7,414 2,726 2,809 2,884
Services 9,711 7,352 5,582 5,100 3,546 2,697
Financing and other 5,568 4,674 4,119 2,622 1,872
1,870
Total $ 62,716 $ 64,523 $ 64,766 $ 25,703 $
24,633 $ 24,427
+ Reclassified to conform with 1993 presentation.
* Hardware only, includes applicable rental revenue, excludes functions not
embedded, software, and maintenance.
For purposes of classifying similar information technology products, user
programmable equipment having the capability of manipulating data
arithmetically or logically and making calculations, in a manner directly
addressable by the user through the operation of a stored program, has been
classified as processors. Processors includes high-end and midrange products.
Personal systems includes personal computers and RISC System/6000 products.
Other workstations includes display-based terminals and consumer and financial
systems. Other peripherals consists of advanced function printers,
telecommunication devices, and revenue from the computer workstation printer
product line sold in 1991 to Lexmark International, Inc.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 60
These hardware classes of products represent groupings that perform similar
functions, as opposed to the complete spectrum of products associated with
IBM's product divisions. Accordingly, they do not represent the full range of
any division's offerings, which could include related peripherals, software,
and maintenance.
Software includes both applications and systems software. Maintenance consists
of separately billed charges for maintenance. Services represent a wide range
of service offerings including consulting, education, systems development,
managed operations, and availability services. Financing and other is composed
primarily of financing revenue and products and supplies not otherwise
classified.
Some products logically fit in more than one class and are assigned to a
specific class based on a variety of factors. Over time, products tend to
overlap, merge into, or split from existing classes as a result of changing
technologies, market perceptions, and/or customer use. For example, market
demand may create requirements for technological enhancements to permit a
peripheral product to be functionally integrated with a display, a
telecommunication device, and a processor to form a workstation. Such
interchangeability and technological progress tend to make year-to-year
comparisons less valid than they would be in an industry less subject to rapid
change.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 61
Z Geographic Areas
(Dollars in millions) 1993* 1992* 1991*
United States
Revenue - Customers $ 25,703 $ 24,633 $ 24,427
Interarea transfers 7,297 7,524 7,668
Total $ 33,000 $ 32,157 $ 32,095
Net loss (5,566) (5,545) (2,443)
Assets at December 31 38,333 42,109 43,417
Europe/Middle
East/Africa
Revenue - Customers $ 21,779 $ 24,971 $ 26,114
Interarea transfers 1,071 1,154 838
Total $ 22,850 $ 26,125 $ 26,952
Net (loss) earnings (1,695) (1,728) 1,256
Assets at December 31 24,566 26,770 30,725
Asia Pacific
Revenue - Customers $ 10,020 $ 9,672 $ 9,275
Interarea transfers 1,452 1,875 1,680
Total $ 11,472 $ 11,547 $ 10,955
Net (loss) earnings (443) 126 469
Assets at December 31 12,778 12,837 13,241
Americas
Revenue - Customers $ 5,214 $ 5,247 $ 4,950
Interarea transfers 3,458 3,452 3,932
Total $ 8,672 $ 8,699 $ 8,882
Net (loss) earnings (251) 157 204
Assets at December 31 7,359 6,990 7,121
Eliminations
Revenue $ (13,278) $ (14,005) $ (14,118)
Net (loss) earnings (32) 125 (84)
Assets (1,923) (2,001) (2,031)
Consolidated
Revenue $ 62,716 $ 64,523 $ 64,766
Net loss (7,987) (6,865) (598)
Assets at December 31 81,113 86,705 92,473
*Net (loss) earnings before effect of changes in accounting for postemployment
benefits (1993), income taxes (1992), and nonpension
postretirement benefits (1991).
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 62
Marketing and services in the United States and Canada are managed as a single
enterprise. However, in compliance with Statement of Financial Accounting
Standards 14, "Financial Reporting for Segments of a Business Enterprise," the
United States is reported as a separate geographic area. Canadian operations
are included in the "Americas" area.
Non-U.S. subsidiaries operating in local currency environments account for
approximately 85 percent of the company's non-U.S. revenue. The remaining 15
percent is from subsidiaries and branches operating in U.S. dollars or in
highly inflationary environments.
In the Europe/Middle East/Africa area, European operations accounted for
approximately 95 percent of revenue in 1993, 1992, and 1991.
Interarea transfers consist principally of completed machines, subassemblies
and parts, and software. Machines, subassemblies and parts are generally
transferred at an intracompany selling price. Software transfers represent
license fees paid by non-U.S. subsidiaries. The intracompany selling price that
relates to fixed asset transfers is capitalized and depreciated by the
importing area.
<PAGE>
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 63
Five-Year Comparison of Selected Financial Data
(Dollars in millions except per share amounts) 1993 1992 1991 1990 1989
For the Year:
Revenue $ 62,716 $ 64,523 $ 64,766 $ 68,931 $
62,654
Net (loss) earnings before
changes in accounting principles (7,987) (6,865) (598) 5,967
3,722
Per share of common stock (14.02) (12.03) (1.05) 10.42 6.41
Effect of accounting changes* (114) 1,900 (2,263) -- --
Per share of common stock (.20) 3.33 (3.96) -- --
Net (loss) earnings (8,101) (4,965) (2,861) 5,967 3,722
Per share of common stock (14.22) (8.70) (5.01) 10.42 6.41
Cash dividends paid on common stock 905 2,765 2,771 2,774
2,752
Per share of common stock 1.58 4.84 4.84 4.84 4.73
Investment in plant, rental machines
and other property 3,232 4,698 6,502 6,548 6,410
Return on stockholders' equity -- -- -- 14.8% 9.6%
At End of Year:
Total assets $ 81,113 $ 86,705 $ 92,473 $ 87,568 $
77,734
<PAGE>
Net investment in plant, rental machines
and other property 17,521 21,595 27,578 27,241 24,943
Working capital 6,052 2,955 7,018 13,313 13,875
Total debt 27,342 29,320 26,947 19,545 16,717
Stockholders' equity 19,738 27,624 36,679 42,553 38,252
*1993, postemployment benefits; 1992, income taxes; 1991, nonpension
postretirement benefits.
Selected Quarterly Data
(Dollars in millions Net Per Share Common Stock
except per share Gross (Loss) (Loss) Stock Prices
and stock prices) Revenue Profit Earnings Earnings Dividends High Low
1993 First quarter $ 13,058 $ 5,162 $ (399)* $ (.70)*$
.54 $ 57.13 $ 45.88
Second quarter 15,519 5,974 (8,036) (14.10) .54
54.38 47.13
Third quarter 14,743 5,602 (48) (.12) .25
49.75 40.63
Fourth quarter 19,396 7,410 382 .62 .25
59.88 42.13
Total $ 62,716 $ 24,148 $ (8,101) $ (14.22)** $ 1.58
1992 First quarter $ 14,037 $ 7,133 $ 2,542+ $ 4.45+$
1.21 $ 98.13 $ 83.13
Second quarter 16,224 7,863 734 1.29
1.21 98.63 81.63
Third quarter 14,702 6,779 (2,778) (4.87)
1.21 100.38 80.00
Fourth quarter 19,560 7,679 (5,463) (9.57)
1.21 81.13 48.75
Total $ 64,523 $ 29,454 $ (4,965) $ (8.70) $ 4.84
* Includes charge of $114 million, or $.20 per common share, cumulative
effect of change in accounting for postemployment benefits.
** The sum of the quarters' earnings per share does not equal the
year-to-date earnings per share due to changes in average shares calculations.
<PAGE>
This is in accordance with prescribed reporting requirements.
+ Includes benefit of $1,900 million, or $3.33 per share, cumulative effect
of change in accounting for income taxes.
There were 741,047 common stockholders of record at December 31, 1993. During
1993, common stockholders received $905 million in cash dividends. The regular
quarterly common stock cash dividend payable March 10, 1994, will be at the
rate of $.25 per share. This dividend will be IBM's 316th consecutive quarterly
cash dividend. The stock prices reflect the high and low prices for IBM's
common stock on the New York Stock Exchange composite tape for the last two
years.
EXHIBIT II
PARENTS AND SUBSIDIARIES
<TABLE><CAPTION>
PERCENTAGE OF
STATE OR COUNTRY VOTING SECURITIES
OF INCORPORATION OWNED BY ITS
OR ORGANIZATION IMMEDIATE PARENT
-------------------- ---------------------
<S> <C> <C>
Registrant:
International Business Machines Corporation....................... New York
Subsidiaries:
IBM Credit Corporation............................................ Delaware 100
Integrated Systems Solutions Corp................................. Delaware 100
Altium............................................................ California 100
Metaphor.......................................................... Delaware 100
IBM World Trade Corporation....................................... Delaware 100
IBM Americas/Far East Systems Corporation...................... Delaware 100
IBM Asia Pacific Service Corporation........................... Japan 100
IBM China/Hong Kong Corporation................................ Delaware 100
IBM World Trade Venture Corporation............................ Delaware 100
IBM World Trade Asia Corporation............................... Delaware 100
WTC Insurance Corporation, Ltd. ............................... Bermuda 100
IBM Foreign Sales Corporation, Ltd. ........................... Jamaica 100
IBM Argentina, S.A. ........................................... Argentina 100(F)
IBM Australia Ltd. ............................................ Australia 100
IBM Bahamas Ltd. .............................................. Bahamas 100
IBM de Bolivia, S.A. .......................................... Bolivia 100
IBM Brasil-Industria, Maquinas e Servicos Ltda................. Brazil 100(F)
IBM Canada Limited--IBM Canada Limitee......................... Canada 100
IBM China Company Limited...................................... China 100
IBM de Chile S.A.C............................................. Chile 90(I)
IBM de Colombia, S.A. ......................................... Colombia 90(E)
IBM del Ecuador, C.A........................................... Ecuador 100
IBM Southeast Asia Services Ltd. .............................. Hong Kong 100
IBM Japan, Ltd. ............................................... Japan 100
IBM Korea, Inc. ............................................... Korea (South) 100
IBM de Mexico, S.A. ........................................... Mexico 100(B)
IBM New Zealand Ltd. .......................................... New Zealand 100
IBM del Peru, S.A. ............................................ Peru 100
IBM Latin American Region S.A. ................................ Peru 100
IBM World Trade Asia-Pacific Corp.............................. Philippines 100(B)
IBM Philippines, Incorporated.................................. Philippines 100(B)
IBM Singapore Pte. Ltd. ....................................... Singapore 100
IBM Taiwan Corporation......................................... Taiwan 100
IBM Thailand Company Ltd. ..................................... Thailand 100(B)
IBM del Uruguay, S.A. ......................................... Uruguay 100
IBM de Venezuela, S.A. ........................................ Venezuela 100
IBM World Trade Europe/Middle East/
Africa Corporation.......................................... Delaware 100
IBM Trade Development Inc. ................................. Delaware 100
IBM Eastern Europe Inc. .................................... Delaware 100
IBM Oesterreich, Internationale Bueromaschinen Gesellschaft
m.b.H. ..................................................... Austria 100
</TABLE>
<PAGE>
PARENTS AND SUBSIDIARIES--(CONTINUED)
<TABLE><CAPTION>
PERCENTAGE OF
STATE OR COUNTRY VOTING SECURITIES
OF INCORPORATION OWNED BY ITS
OR ORGANIZATION IMMEDIATE PARENT
-------------------- ---------------------
<S> <C> <C>
IBM World Trade Europe/Middle East/
Africa Corporation (continued)
International Business Machines of Belgium S.A. ............ Belgium 100(B)
IBM Ceska Republika spol. s.r.o. ........................... Czech Republic 100
IBM Slovensko spol. s.r.o. ................................. Slovak Republic 100
IBM Danmark A/S............................................. Denmark 52(G)
Oy International Business Machines Ab....................... Finland 75(G)
Compagnie IBM France, S.A. ................................. France 100(B)
IBM Eurocoordination, S.A. ................................. France -- (C)
IBM Distribution and Support, S.A. ......................... France 100(B)
IBM Europe, S.A. ........................................... France 100(B)
IBM Trade Development, S.A. ................................ France 100(B)
IBM Beteiligungs GmbH....................................... Germany 100
IBM Deutschland GmbH........................................ Germany 72(H)
International Business Machines Corporation Magyarorszagi
Kft......................................................... Hungary 100
IBM Ireland Ltd. ........................................... Ireland 100(D)
IBM SEMEA S.p.A. ........................................... Italy 100
IBM Hellas Information Handling Systems S.A. ............ Greece 100(D)
IBM Israel Ltd. ......................................... Israel 100(D)
Companhia IBM Portuguesa, S.A. .......................... Portugal 100(B)
IBM (International Business Machines) Turk Ltd.
Sirketi.................................................. Turkey 100(A)
IBM Nederland, N.V. ........................................ Netherlands 100
IBM International Finance N.V............................ Netherlands 100
IBM Polska Sp. z.o.o. ...................................... Poland 100
International Business Machines A/S......................... Norway 60(G)
IBM East Europe/Asia Ltd. .................................. Russia 100(D)
IBM Slovenija d.o.o. ....................................... Slovenia 100
International Business Machines, S.A. ...................... Spain 100(B)
IBM Nordic Aktiebolag....................................... Sweden 100
IBM Svenska Aktiebolag................................... Sweden 100
IBM (Schweiz)--IBM (Suisse)--IBM (Svizzera)--
IBM (Switzerland)........................................ Switzerland 100
IBM United Kingdom Holdings Ltd. ........................... United Kingdom 100
</TABLE>
- ---------------
<TABLE>
<S> <C>
(A) Minor percentage owned by IBM World Trade Europe/Middle East/Africa Corporation.
(B) Minor percentage held by other shareholders, subject to repurchase option.
(C) IBM Eurocoordination, S.A. is owned approximately 14% each by subsidiaries located in France, Germany, Italy
and the United Kingdom and approximately 4% each by subsidiaries located in Austria, Belgium, Denmark,
Finland, Ireland, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland and by six other minority
shareholders.
(D) Minor percentage owned by IBM World Trade Corporation.
(E) Remaining percentage owned by IBM World Trade Asia Corporation.
(F) Minor percentage owned by IBM Americas/Far East Systems Corporation.
(G) IBM Nordic Aktiebolag (100% owned by IBM World Trade Europe/Middle East/Africa Corporation) owns the
remaining percentage.
(H) IBM World Trade Corporation owns 10% and IBM Beteiligungs GmbH owns 18%.
(I) Remaining percentage owned by IBM Americas/Far East Systems Corporation.
</TABLE>
EXHIBIT III
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 2-77235,
2-77236, 33-5224, 33-2225, 33-29022, 33-33458 and 33-34406) and Form S-3 (No.
33-50537) of International Business Machines Corporation of our report dated
February 16, 1994 appearing on page 19 of the 1993 Annual Report to Stockholders
which is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedules,
which appears on page 7 of this Form 10-K.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, N.Y. 10036
March 28, 1994
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ HAROLD BROWN
______________________________
Harold Brown
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ JAMES E. BURKE
______________________________
James E. Burke
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ THOMAS F. FRIST, JR.
______________________________
Thomas F. Frist, Jr.
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ FRITZ GERBER
______________________________
Fritz Gerber
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ LOUIS V. GERSTNER, JR.
______________________________
Louis V. Gerstner, Jr.
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ JUDITH RICHARDS HOPE
______________________________
Judith Richards Hope
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ NANNERL O. KEOHANE
______________________________
Nannerl O. Keohane
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ CHARLES F. KNIGHT
______________________________
Charles F. Knight
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ THOMAS S. MURPHY
______________________________
Thomas S. Murphy
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ JOHN R. OPEL
______________________________
John R. Opel
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ PAUL J. RIZZO
______________________________
Paul J. Rizzo
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ JOHN B. SLAUGHTER
______________________________
John B. Slaughter
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ LODEWIJK C. VAN WACHEM
______________________________
Lodewijk C. Van Wachem
<PAGE>
POWER OF ATTORNEY OF IBM DIRECTOR
KNOW ALL PERSONS BY THESE PRESENTS, that the
undersigned director of International Business Machines
Corporation, a New York corporation, which will file with the
Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Law, an Annual Report for 1993 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner,
Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and
Robert S. Stone his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the
others, for him or her and in his or her name, place and stead,
in any and all capacities, to sign said 10-K Annual Report and
any and all amendments thereto, and to file them so signed, with
all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power
of Attorney this 22nd day of February 1994.
/s/ EDGAR S. WOOLARD, JR.
______________________________
Edgar S. Woolard, Jr.
DATA STATED IN MILLIONS
<TABLE>
IBM CORPORATION - VOLUNTARY SCHEDULE-CERTAIN FINANCIAL INFORMATION
<CAPTION>
FOURTH QTR FOURTH QTR YEAR TO DATE
REGULATION STATEMENT CAPTION 1993 1992* 1993 1992
- ---------- ----------------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
5-02(1) Cash and Cash Equivalents $ 5,861 $ 4,446 --
5-02(2) Marketable Securities 1,272 1,203 --
5-02(3)(a)(1) Notes and Accounts Receivable-Trade 11,676 12,829
5-02(6) Inventory 7,565 8,385 --
5-02(9) Total Current Assets 39,202 39,692 --
5-02(13) Property, Plant and Equipment 47,504 52,786
5-02(14) Accumulated Depreciation 29,983 31,191
5-02(18) Total Assets 81,113 86,705 --
5-02(21) Total Current Liabilities 33,150 36,737 --
5-02(22) Long-term Debt 15,245 12,853 --
5-02(24) Other Liabilities 12,980 9,491 --
5-02(29) Preferred Stock 1,091 0
5-02(30) Capital Stock 6,980 6,563 --
5-02(31)(a)(3)(ii) Retained Earnings 11,667 19,124 --
5-03(b)(1)(a) Gross Income: Sales 10,371 10,966 $30,591 $ 33,755
5-03(b)(1)(c)(d) Gross Income: Services and Rentals 9,025 8,595 32,125 30,768
5-03(b)(2)(a) Cost of Sales 6,543 7,251 20,696 19,698
5-03(b)(2)(c)(d) Cost of Services and Rentals 5,442 4,631 17,872 15,371
5-03(b)(8) Interest Expense 301 365 1,273 1,360
5-03(b)(10) Earnings Before Income Taxes 663 (6,948) (8,797) (9,026)
5-03(b)(11) Provision for Income Taxes 281 (1,485) (810) (2,161)
5-03(b)(18) Effect of Changes in Accounting - - (114) 1,900
Principles
5-03(b)(19) Net Earnings 382 (5,463) (8,148) (4,965)
<FN>
* Reclassified to conform with 1993 presentation
</TABLE>
EXHIBIT IV
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
ADDITIONAL EXHIBITS
In the fourth quarter of 1993, the Company implemented Statement of
Financial Accounting Standards 112, "Employers' Accounting for Postretirement
Benefits," effective as of January 1, 1993. The cumulative effect of adopting
this standard resulted in a one-time charge of $114 million (net of
approximately $61 million of income tax benefits), which was recorded against
first quarter results. The 1993 quarterly Consolidated Statement of Operations
are restated in Exhibit IVa. The accounting change is discussed on page 37 of
IBM's 1993 Annual Report to Stockholders.
EXHIBIT IV(A)
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
QUARTERLY CONSOLIDATED STATEMENT OF OPERATIONS-RESTATED*
1993
<TABLE><CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER+ QUARTER+ QUARTER+ QUARTER+ FULL YEAR
----------- ----------- ----------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenue:
Hardware Sales...................................... $ 5,737 $ 7,526 $ 6,957 $ 10,371 $ 30,591
Software............................................ 2,521 2,715 2,648 3,069 10,953
Services............................................ 1,909 2,352 2,289 3,161 9,711
Maintenance......................................... 1,804 1,857 1,823 1,811 7,295
Rentals and financing............................... 1,087 1,069 1,026 984 4,166
----------- ----------- ----------- ----------- ---------
13,058 15,519 14,743 19,396 62,716
Cost:
Hardware Sales...................................... 4,072 5,222 4,858 6,544 20,696
Software............................................ 937 1,033 1,026 1,314 4,310
Services............................................ 1,497 1,998 1,986 2,798 8,279
Maintenance......................................... 919 862 854 910 3,545
Rentals and financing............................... 471 430 417 420 1,738
----------- ----------- ----------- ----------- ---------
7,896 9,545 9,141 11,986 38,568
Gross Profit.......................................... 5,162 5,974 5,602 7,410 24,148
Operating Expenses:
Selling, general and administrative................. 4,076 4,487 4,259 5,460 18,282
Research, development and engineering............... 1,356 1,376 1,372 1,454 5,558
Restructuring charges............................... -- 8,945 -- -- 8,945
----------- ----------- ----------- ----------- ---------
5,432 14,808 5,631 6,914 32,785
Operating (Loss) Income............................... (270) (8,834) (29) 496 (8,637)
Other Income, principally interest.................... 195 158 293 467 1,113
Interest Expense...................................... 305 322 346 300 1,273
----------- ----------- ----------- ----------- ---------
(Loss) Earnings before Income Taxes................... (380) (8,998) (82) 663 (8,797)
(Benefit) Provision for Income Taxes.................. (95) (962) (34) 281 (810)
----------- ----------- ----------- ----------- ---------
Net (Loss) Earnings before change in accounting
principle............................................. (285) (8,036) (48) 382 (7,987)
Cumulative effect of change in accounting
for postretirement benefits......................... (114) -- -- -- (114)
----------- ----------- ----------- ----------- ---------
Net (Loss) Earnings................................... (399) (8,036) (48) 382 (8,101)
Preferred Stock Dividends............................. -- 5 22 20 47
----------- ----------- ----------- ----------- ---------
Net (Loss) Earnings Applicable to common
shareholders.......................................... $ (399) $ (8,041) $ (70) $ 362 $ (8,148)
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
- ---------------
* See text in Exhibit IV
+ Unaudited
