UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1995
1-2360
______________________
(Commission file number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
____________________________________________________
(Exact name of registrant as specified in its charter)
New York 13-0871985
______________________ __________________________________
(State of incorporation) (IRS employer identification number)
Armonk, New York 10504
______________________________________ ________
(Address of principal executive offices) (Zip Code)
914-765-1900
_____________________________
(Registrant's telephone number)
The registrant has 568,723,203 shares of common stock outstanding at
June 30, 1995.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
1934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
______ ______.
<PAGE>
INDEX
_____
Page
____
Part I - Financial Information:
Item 1. Consolidated Financial Statements
Consolidated Statement of Operations for the three and six
months ended June 30, 1995 and 1994 ................ 1
Consolidated Statement of Financial Position at
June 30,1995 and December 31, 1994 ..................... 2
Consolidated Statement of Cash Flows for the six months
ended June 30, 1995 and 1994 ........................... 4
Notes to Consolidated Financial Statements ............... 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ..... 6
Part II - Other Information .................................... 14
<PAGE>
ITEM 1. INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY
COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
___________________ __________________
1995 1994 1995 1994
Revenue: __________ _______ ________ _______
Hardware sales $ 8,659 $ 7,695 $16,386 $13,963
Software 3,072 2,726 5,945 5,309
Services 3,041 2,293 5,486 4,128
Maintenance 1,877 1,796 3,698 3,564
Rentals and financing 882 841 1,751 1,760
_______ _______ _______ _______
Total revenue 17,531 15,351 33,266 28,724
Cost:
Hardware sales 5,190 5,137 9,985 9,517
Software 1,066 1,021 2,071 2,281
Services 2,386 1,844 4,360 3,400
Maintenance 868 904 1,768 1,775
Rentals and financing 390 341 787 707
_______ _______ _______ _______
Total cost 9,900 9,247 18,971 17,680
_______ _______ _______ _______
Gross profit 7,631 6,104 14,295 11,044
Operating expenses:
Selling, general and
administrative 3,883 3,935 7,516 7,084
Research, development and
engineering 974 1,091 1,887 2,192
_______ _______ _______ _______
Total operating expenses 4,857 5,026 9,403 9,276
Operating income 2,774 1,078 4,892 1,768
Other income, principally interest 238 479 484 887
Interest expense 188 364 368 777
_______ _______ _______ _______
Earnings before income taxes 2,824 1,193 5,008 1,878
Income tax provision 1,108 504 2,003 798
_______ _______ _______ _______
Net earnings 1,716 689 3,005 1,080
Preferred stock dividends and
transaction costs 5 21 52 42
_______ _______ _______ _______
Net earnings applicable to
common shareholders $ 1,711 $ 668 $ 2,953 $ 1,038
======= ======= ======= =======
Net earning per share of
common stock $ 2.97 $ 1.14 $ 5.09 $ 1.78
Average number of common
shares outstanding (millions) 575.4 584.0 580.3 583.1
Cash dividends per common share $ .25 $ .25 $ .50 $ .50
(The accompanying notes are an integral part of the financial statements.)
- 1 -
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY
COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
ASSETS
<TABLE><CAPTION>
At June 30 At December 31
(Dollars in millions) 1995 1994
__________ ______________
<S> <C> <C>
Current assets:
Cash $ 1,300 $ 1,240
Cash equivalents 8,593 6,682
Marketable securities - at cost, which
approximates market 636 2,632
Notes and accounts receivable -
net of allowances 14,790 15,182
Sales-type leases receivable 6,321 6,351
Inventories, at lower of average cost or market
Finished goods 629 1,442
Work in process 5,115 4,636
Raw materials 418 256
_______ _______
Total inventories 6,162 6,334
Prepaid expenses and other current assets 3,899 2,917
_______ _______
Total current assets 41,701 41,338
Plant, rental machines and other property 45,605 44,820
Less: Accumulated depreciation 28,761 2,156
_______ _______
Plant, rental machines and other property - net 16,844 16,664
Investments and other assets:
Software, less accumulated
amortization (1995, $10,808; 1994, $10,793) 2,654 2,963
Investments and sundry assets 20,402 20,126
_______ _______
Total investments and other assets 23,056 23,089
_______ _______
Total assets $81,601 $81,091
======= =======
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
- 2 -
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY
COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE><CAPTION>
At June 30 At December 31
(Dollars in millions) 1995 1994
____________ ______________
<S> <C> <C>
Current liabilities:
Taxes $ 2,085 $ 1,771
Accounts payable and accruals 15,166 17,885
Short-term debt 11,278 9,570
____________ ____________
Total current liabilities 28,529 29,226
Long-term debt 11,749 12,548
Other liabilities 14,330 14,023
Deferred income taxes 2,147 1,881
____________ ____________
Total liabilities 56,755 57,678
Stockholders' equity:
Preferred stock - par value $.01 per share 253 1,081
Shares authorized: 150,000,000
Shares issued: 1995 - 2,610,711
1994 - 11,145,000
Common stock- par value $1.25 per share 7,195 7,342
Shares authorized: 750,000,000
Shares issued: 1995 - 570,193,873
1994 - 588,180,244
Retained earnings 13,478 12,352
Translation and other adjustments 3,920 2,638
____________ ____________
Total stockholders' equity 24,846 23,413
____________ ____________
Total liabilities and shareholders' equity $ 81,601 $ 81,091
============ ============
</TABLE>
- 3 -
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY
COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30: (UNAUDITED)
(Dollars in millions) 1995 1994*
________ _______
Cash flow from operating activities:
Net earnings $ 3,005 $ 1,080
Adjustments to reconcile net earnings to cash
provided from operating activities:
Effect of restructuring charges (1,381) (1,449)
Depreciation 1,960 2,146
Amortization of software 792 1,189
Changes in operating assets and liabilities 334 1,918
Gain on disposition of investment assets (68) (373)
_______ _______
Net cash provided from operating activities 4,642 4,511
_______ _______
Cash flow from investing activities:
Payments for plant, rental machines
and other property, net of proceeds (1,202) (812)
Investment in software (482) (635)
Purchases of marketable securities and
other investments (786) (1,496)
Proceeds from marketable securities and
other investment 2,561 1,620
Proceeds from sale of Federal Systems Company -- 1,503
_______ _______
Net cash provided from investing activities 91 180
_______ _______
Cash flow from financing activities:
Proceeds from new debt 2,845 3,554
Payments to settle debt (4,515) (5,943)
Short-term borrowings less
than 90 days - net 1,460 (456)
Preferred stock transactions - net (854) --
Common stock transactions - net (1,829) 168
Cash dividends paid (301) (327)
_______ _______
Net cash (used in) provided from financing
activities (3,194) (3,004)
_______ _______
Effect of exchange rate changes
on cash and cash equivalents 432 (167)
_______ _______
Net change in cash and cash equivalents 1,971 1,520
Cash and cash equivalents at January 1 7,922 5,861
_______ _______
Cash and cash equivalents at June 30 $ 9,893 $ 7,381
======= =======
* Reclassified to conform with 1995 presentation.
(The accompanying notes are an integral part of the financial statements.)
- 4 -
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------
1. In the opinion of management of International Business Machines Corporation
(the company), all adjustments necessary to a fair statement of the results for
the unaudited three and six month periods have been made. In the first quarter
of 1994, in addition to the adjustments for normal recurring accruals, the
company recorded charges of $296 million for software writedowns and an
after-tax gain of $248 million for the sale of its Federal Systems Company
(FSC).
2. The translation and other adjustments line of stockholders' equity includes
equity translation adjustments of $3,959 million at June 30, 1995, and $2,672
million at December 31, 1994.
3. The Consolidated Statement of Financial Position at June 30, 1995 includes
balances relative to restructuring programs in Accounts payable and accruals of
approximately $.3 billion, and $.6 billion in Plant, rental machines and other
property. At December 31, 1994, the approximate restructuring balances were $1.3
billion in Accounts payable and accruals, $.1 billion in Other liabilities, and
$.9 billion in Plant, rental machines and other property. Although utilization
of restructuring reserves in the first half of 1995 was slightly lower than
anticipated, the company has determined that the restructuring reserve balances
are adequate to cover committed restructuring actions and will be fully utilized
prior to December 31, 1995.
4. A supplemental Consolidated Statement of Operations schedule has been
provided for informational purposes only, to exclude the effects of the FSC sale
and software writedowns recorded in the first quarter of 1994. The supplemental
statement is shown in exhibit 99 on page 21. This information is presented
voluntarily and is provided solely to assist in understanding the effects of
these items on the Consolidated Statement of Operations.
5. Subsequent Event: On July 5, 1995, the company announced that it successfully
completed its tender offer to acquire the common stock of Lotus Development
Corporation at $64 per share. Please refer to pages 16 and 17 (Item 5) for
additional information regarding this acquisition. The financial results
reported for the six months of 1995, do not reflect any impacts of this
acquisition.
6. Subsequent Event: On July 25, 1995, the IBM Board of Directors authorized the
company to purchase up to an additional $2.5 billion of IBM common stock. The
company plans to purchase the shares on the open market from time to time,
depending on market conditions. On January 31, 1995, the IBM Board of Directors
authorized the company to repurchase up to $2.5 billion of IBM common shares. As
of July 21, 1995, the company had repurchased $2.1 billion of the company's
common stock under the January authorization.
- 5 -
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
------------------------------------------------
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------------
The company's second quarter results were strong as revenue, earnings, and
earnings per share showed significant improvement over the second quarter of
1994. The overall gross profit margin strengthened to 43.5 percent and the
balance sheet remained strong. Cash balances held at first quarter levels of
$10.5 billion after $1.4 billion of stock repurchases and $500 million in cash
restructuring costs. Although the second quarter results are encouraging, the
company's business improved each quarter last year, which will make
year-over-year financial comparisons more difficult in the second half of 1995.
Also, demand is slowing for some offerings and price pressures are increasing in
the United States and a number of key European countries remain sluggish.
Results of Operations
- ---------------------
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
__________________ ________________
1995 1994 1995 1994
________ _______ ________ ______
Revenue $17,531 $15,351 $33,266 $28,724
Cost 9,900 9,247 18,971 17,680
_______ _______ _______ _______
Gross profit $ 7,631 $ 6,104 $14,295 $11,044
Gross profit margin 43.5% 39.8% 43.0% 38.4%
Net earnings $ 1,716 $ 689 $ 3,005 $ 1,080
The company recorded second quarter 1995 earnings of $2.97 per common
share, compared with $1.14 per common share, in the second quarter of last year.
Total revenue increased 14.2 percent over the same period of 1994 to $17.5
billion. The average number of common shares outstanding for the period was
575.4 million in 1995 versus 584.0 million in 1994.
Net earnings for the six months ended June 30, 1995, were $5.09 per common
share, compared with earnings of $1.78 per common share in the first six months
of 1994. The company's first quarter 1994 results include an after-tax gain of
$248 million ($.43 per common share) from the sale of the FSC and an after tax
writedown of $192 million ($.33 per common share) relating to a change in
software amortization periods. Excluding these items, the company's adjusted
earnings per common share was $1.68 for the first six months of 1994. Total
revenue for the six months ended June 30, 1995 were up 15.8 percent from the
prior year. The average number of common shares outstanding for the period was
580.3 million in 1995 versus 583.1 million in 1994.
- 6 -
<PAGE>
Results of Operations - (continued)
Reported revenue grew in all geographic areas in the second quarter when
compared with last year's second quarter. Revenue from the United States totaled
$6.4 billion, an increase of 8.4 percent from the same period of last year.
Revenue from Europe/Middle East/Africa totaled $6.1 billion, up 11.5 percent
year-over-year, while Asia-Pacific revenue was $3.6 billion, an increase of 30.9
percent. Revenue from Latin America was $742 million, up 19.7 percent, while
revenue from Canada grew 13.6 percent to $659 million when compared with the
same period of 1994.
Currency had about a 7 percent point favorable impact on the company's
revenue results in the second quarter. Excluding the effects of currency, sales
growth in the United States, Canada, Latin America, and Asia-Pacific ranged from
satisfactory to strong, while results in Europe were disappointing.
Total expenses fell $104 million in the second quarter from the comparable
period of 1994.
Hardware Sales
- --------------
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
___________________ ___________________
1995 1994 1995 1994
_______ _______ _______ _______
Total revenue $ 8,659 $ 7,695 $16,386 $13,963
Total cost 5,190 5,137 9,985 9,517
_______ _______ _______ _______
Gross profit $ 3,469 $ 2,558 $ 6,401 $ 4,446
Gross profit margin 40.1% 33.2% 39.1% 31.8%
Revenue from hardware sales for the second quarter and first six months of
1995 increased 12.5 percent and 17.4 percent, respectively, over comparable
periods in 1994. The second quarter and first six-months revenue had a benefit
of about 7 points and 6 points, respectively, from currency in 1995.
The hardware sales revenue increase was driven by continued strong growth
in AS/400* and RISC/6000* products on both a second-quarter and six-month basis
when compared to the same periods in 1994.
Personal computers revenue increased year-over-year for both the second
quarter and first six months of 1995 and were particularly strong in
Asia-Pacific and Latin America, while weak in Europe.
Storage products had good revenue growth, when compared to 1994
second-quarter and six-months results, driven by high-end shipments of RAMAC
product. Original Equipment Manufacturer (OEM) products continued to show growth
in both the second-quarter and first six-months results when compared to the
same periods of 1994.
- 7 -
<PAGE>
Results of Operations - (continued)
- ----------------------------------
System/390* revenue declined in the second quarter of 1995 but showed an
increase for the first six months of 1995, when compared to the same periods of
the prior year. Although second quarter revenue decreased from the same period
last year due to price reductions, mainframe demand remained strong, as measured
in MIPS (millions of instructions per second).
Hardware sales gross profit dollars for the second quarter and first six
months of 1995, increased 35.6 percent and 44.0 percent, respectively, over
comparable periods in 1994. The increases were driven by cost improvements as a
result of prior restructuring actions, reengineering activities, and increased
revenue growth in key product areas. Although margins increased, they continue
to be affected by competitive pricing pressures on high-end products and
personal computers.
Software
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
___________________ ___________________
1995 1994 1995 1994
________ ________ ________ ________
Total revenue $3,072 $2,726 $5,945 $5,309
Total cost 1,066 1,021 2,071 2,281
______ ______ _____ _____
Gross profit $2,006 $1,705 $3,874 $3,028
Gross profit margin 65.3% 62.5% 65.2% 57.0%
Revenue from software for the second quarter and first six months of 1995,
increased 12.7 percent and 12.0 percent, respectively, over comparable periods
in 1994. The second-quarter and first-six months results had a benefit of about
8 points and 7 points, respectively, from currency in 1995. These increases were
primarily driven by higher one-time-charge revenue in distributed software
associated with strong AS/400 shipments and strong sales of desktop software
during 1995.
Software gross profit dollars for the second quarter and six months of 1995
increased 17.7 percent and 28.1 percent, respectively, versus the same periods
in 1994. The 1994 six-month gross profit dollars and margin were affected by the
accounting charges relating to the change in software amortization periods
implemented in the first quarter of 1994. Excluding the effects of this change,
1995 gross profit dollars would have increased 16.5 percent and the gross profit
margin would have increased 2.6 points from the first six months of 1994.
- 8 -
<PAGE>
Results of Operations - (continued)
- ----------------------------------
Services Other Than Maintenance
- -------------------------------
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
___________________ ___________________
1995 1994 1995 1994
______ ______ ______ ______
Total revenue $3,041 $2,293 $5,486 $4,128
Total cost 2,386 1,844 4,360 3,400
______ ______ ______ ______
Gross profit $ 655 $ 449 $1,126 $ 728
Gross profit margin 21.5% 19.6% 20.5% 17.6%
Services revenue increased 32.6 percent and 32.9 percent, respectively, in
the second quarter and first six months of 1995, when compared to the same
period of last year. Services revenue benefited by about 9 points and 8 points,
respectively, from currency in the second quarter and first six months of 1995.
The revenue increases were primarily driven by continued growth in managed
operations for both system and networking activity.
Services gross profit dollars increased in the second quarter and first six
months of 1995, 45.9 percent and 54.7 percent, respectively, when compared to
year-ago periods.
Maintenance
- -----------
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
__________________ __________________
1995 1994 1995 1994
______ ______ ______ ______
Total revenue $1,877 $1,796 $3,698 $3,564
Total cost 868 904 1,768 1,775
______ ______ ______ _______
Gross profit $1,009 $ 892 $1,930 $1,789
Gross profit margin 53.8% 49.7% 52.2% 50.2%
Maintenance revenue for the second quarter and first six months of 1995
increased 4.5 percent and 3.8 percent, respectively, over comparable periods in
1994. The second-quarter and six-months revenue had a benefit of about 8 points
and 7 points, respectively, from currency in 1995. Maintenance revenue continues
to be affected by the competitive environment and resulting pricing pressures on
maintenance offerings. Maintenance gross profit dollars increased 13.1 percent
and 7.9 percent, respectively, in the second quarter and first six months of
1995, when compared to the same periods of 1994.
- 9 -
<PAGE>
Results of Operations - (continued)
- -----------------------------------
Rentals and financing
- ---------------------
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
___________________ __________________
1995 1994 1995 1994
_______ _______ ________ ________
Total revenue $ 882 $ 841 $ 1,751 $ 1,760
Total cost 390 341 787 707
_______ _______ ________ ________
Gross profit $ 492 $ 500 $ 964 $ 1,053
Gross profit margin 55.7% 59.4% 55.0% 59.8%
Rentals and financing revenue increased in the second quarter 4.9 percent
and decreased .5 percent for the first six months of 1995, when compared to the
same periods of 1994. The second quarter and six months revenue had a benefit of
about 5 points and 6 points, respectively, from currency in 1995. The 1995
results reflect a substantial increase in new financing originations versus
1994.
Rentals and financing gross profit dollars declined 1.6 percent and 8.5
percent, respectively, for the second quarter and first six month's of 1995,
when compared to the same periods of the prior year. These decreases are a
reflection of declining prices on high-end products and the rental business over
the past few years and to changing country mix.
Expenses
- --------
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
___________________ _____________________
1995 1994 1995 1994
________ ________ ________ _______
Selling, general and
administrative $ 3,883 $ 3,935 $ 7,516 $ 7,084
Percentage of revenue 22.2% 25.6% 22.6% 24.7%
Research, development and
engineering $ 974 $ 1,091 $ 1,887 $ 2,192
Percentage of revenue 5.6% 7.1% 5.7% 7.6%
Selling, general and administrative expense decreased 1.3 percent in the
second quarter of 1995, and increased 6.1 percent for the first six months of
1995, when compared to the same periods in 1994. Excluding the effects of
currency, the second quarter results would have shown a decrease of about 7
percent from 1994 levels. The first six-months results of 1994 included the $382
million gain from the sale of FSC. Excluding this gain and the effects of
currency (about $400 million), selling, general and administrative expense would
have decreased by about 5.4 percent.
Research, development and engineering expense, which is primarily performed
in the United States, decreased 10.7 percent and 13.9 percent, respectively for
the second quarter and first six months of 1995, when compared to the same
periods of 1994. These decreases reflect the company's focus on productivity and
expense controls.
- 10 -
<PAGE>
Results of Operations - (continued)
- ----------------------------------
Other income, principally interest and interest expense decreased from 1994
second quarter and first six month levels due primarily to the switch to the
REAL currency in Brazil in July, 1994. This change reduced the company's
interest income and interest expense, as well as the exchange gains and losses
associated with the local currency cash deposits and borrowings, which are a
component of selling, general and administrative expense.
Interest on total borrowings of the company and its subsidiaries, which
includes interest expense and interest costs associated with rentals and
financing, amounted to $413 million and $802 million for the second quarter and
first six months of 1995, respectively. Of these amounts, $6 million for the
second quarter and $10 million for the first six months were capitalized.
The effective tax rate for the quarter ended June 30, 1995, was 39.2
percent, versus 42.3 percent for the same period in 1994. The decrease is
primarily the result of the mix of earnings and corresponding weighting of tax
rates on a country-by-country basis.
The effective tax rate for the first six months of 1995 was 40.0 percent,
versus a 42.5 percent for the same period in 1994. The change is a result of the
same factors that impacted the second quarter effective tax rate.
Financial Condition
- -------------------
The company's financial condition continued to strengthen during the first
half of 1995. The total of cash, cash equivalents, and marketable securities at
June 30, 1995 was virtually flat from year-end levels of $10.5 billion, despite
spending $2.7 billion for common and preferred stock buybacks and $1.4 billion
in restructuring costs.
Working Capital
- ---------------
(Dollars in millions) At June 30 At December 31
1995 1994
__________ ______________
Current assets $ 41,701 $ 41,338
Current liabilities 28,529 29,226
_________ ________
Working capital $ 13,172 $ 12,112
Total current assets increased $.4 billion from year-end 1994 with an
increase in prepaid expenses of $1.0 billion, offset by decreases in accounts
receivable of $.4 billion and $.2 billion in inventories. The increase in
prepaid expenses results primarily from the seasonal increase in deferred
account and prepaid activity from year-end levels. The decrease in accounts
receivable largely results from continued improvement in accounts receivable
collections worldwide. The decline in inventories reflects the company's
continuing efforts to improve management of inventories, particularly personal
computer inventories.
- 11 -
<PAGE>
Financial Condition - (continued)
- ---------------------------------
Current liabilities declined $.7 billion from December 31, 1994, due to a
decrease in accounts payable and accruals of $2.7 billion, offset by increases
in taxes of $.3 billion and short-term debt of $1.7 billion. The decrease in
accounts payable and accruals relates to the normal seasonal decline in accounts
payable from their year-end levels, as well as lower restructuring accrual
balances resulting from implementation of the company's restructuring programs.
The increase in taxes payable results from the improvement in earnings, as well
as the impact of currency fluctuations on these balances from December 31, 1994.
The increase in short-term debt is attributable to the reclassification of
long-term debt current maturities to short-term, as well as the effect of
currency on these balances.
Investments
- -----------
The company's capital expenditures for plant, rental machines and other
property were approximately $1.7 billion for the first half of 1995, an increase
of $.5 billion from the comparable 1994 period.
In addition to software development expense included in research,
development and engineering expense, the company capitalized $.5 billion of
software costs during the first half of 1995, down $.1 billion from the
comparable 1994 period. Amortization of capitalized software costs amounted to
$.8 billion in the first half of 1995 and $1.1 billion for the comparable 1994
period (including $.3 billion in accelerated amortization resulting from the
software amortization change implemented in the first quarter of 1994).
Long-Term Debt and Equity
- -------------------------
Long-term debt was $11.7 billion at June 30, 1995, a decrease of $.8
billion from year-end 1994. Other non-current liabilities at $14.3 billion
increased $.3 billion from December 31, 1994, principally the result of the
currency impact of a weaker U.S. dollar versus the majority of worldwide
currencies.
Stockholders' equity increased from $23.4 billion at December 31, 1994 to
$24.8 billion as a result of increases in net retained earnings of $1.1 billion,
and equity translation adjustments of $1.3 billion due to the majority of
worldwide currencies strengthening versus the U.S. dollar during the period.
Preferred and common stock balances declined $1.0 billion due to implementation
of the stock buyback programs announced in January of 1995.
- 12 -
<PAGE>
Financial Condition - (continued)
- ---------------------------------
Cash Flow
- ----------
(Dollars in millions)
Six Months Ended
June 30
_________________
1995 1994
_______ _______
Net cash provide from (used in):
Operating activities $ 4,642 $ 4,511
Investment activities 91 180
Financing activities (3,194) (3,004)
Effect of exchange rate changes
on cash and cash equivalents 432 (167)
_______ _______
Net change in cash and cash equivalents $ 1,971 $ 1,520
For the six months ended June 30, 1995, the company had an overall net
increase in cash and cash equivalents of $2.0 billion compared to a net increase
of $1.5 billion for the same period in 1994.
Net cash provided from operating activities was $4.6 billion for the first
six months of 1995, versus $4.4 billion in the comparable 1994 period. The
period-to-period improvement in cash flow from operations is mainly driven by
improvement in net earnings and lower accounts receivable balances, offset by a
decrease in liabilities resulting from implementation of the company's
restructuring plans.
Net cash provided from investing activities was $.1 billion for the first
six months of 1995, compared to a net source of funds in the amount of $.2
billion in the same period of 1994. The decreased cash flow from investing
activities compared to the 1994 period is attributable to the proceeds derived
from the sale of FSC in March 1994, partially offset by cash inflows during the
first half of 1995 from the sale of marketable securities.
Net cash used in financing activities amounted to $3.2 billion for the six
months ended June 30, 1995, an increase of $.2 billion from the comparable 1994
period, principally the result of the company's buyback of preferred and common
stock on the open market, partially offset by decreased net cash outflows
relative to the company's outstanding debt.
Liquidity
- ---------
At June 30, 1995, the company had a net balance of $1.0 billion in assets
under management from the securitization of lease and trade receivables.
- 13 -
<PAGE>
Financial Condition - (continued)
- ---------------------------------
On January 11, 1995, the company commenced a tender offer to purchase for
cash any and all of the Series A 7 1/2 percent preferred stock represented by
44.6 million outstanding depositary shares for a price of $25.00 net per
depositary share. Through February 8, 1995, the company purchased 34.1 million
depositary shares under this offer.
On February 28, 1995, the company's Board of Directors authorized IBM to
repurchase any of its remaining outstanding Series A 7 1/2 percent preferred
stock depositary shares from time to time in the open market and in private
transactions, depending on market conditions. During the first half of 1995, the
company repurchased 57 thousand of its preferred depositary shares under this
authorization. As of June 30, 1995, 10.4 million depositary shares remained
outstanding.
On January 31, 1995, the Board of Directors authorized the company to
repurchase up to $2.5 billion of IBM common shares on the open market. The
company plans to purchase the shares from time to time, depending on market
conditions. Through June 30, 1995, the company repurchased approximately 21.3
million shares of IBM common stock for approximately $1.9 billion under this
program.
Part II - Other Information
----------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
The Annual Meeting of Stockholders of International Business Machines
Corporation was held on April 25, 1995.
(1) Each of the eleven nominees to the Board of Directors was
elected for a one-year term by the stockholders:
DIRECTOR FOR WITHHELD
H. Brown 468,055,387 4,234,974
F. Gerber 468,409,862 3,880,499
L. V. Gerstner, Jr. 468,462,105 3,828,256
N. O. Keohane 468,099,683 4,190,678
C. F. Knight 468,608,134 3,682,227
L. A. Noto 468,472,151 3,818,210
J. B. Slaughter 468,173,534 4,116,827
A. Trotman 468,539,026 3,751,335
L. C. van Wachem 468,563,244 3,727,117
C. M. Vest 468,255,489 4,034,872
J. B. York 468,394,409 3,895,952
- 14 -
<PAGE>
Part II - Other Information
----------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders - (continued)
-------------------------------------------------------------------------
(2) The appointment of Price Waterhouse LLP as independent auditors
of the company was ratified:
For 457,452,313
Not For 2,238,299
Abstain 12,599,749
Total 472,290,361
(3) The stockholders approved the adoption of the IBM 1995
Employees Stock Purchase Plan:
For 438,146,354
Not For 18,839,447
Abstain 15,304,560
Total 472,290,361
(4) The stockholders approved the adoption of the IBM Non-
Employee Directors Stock Option Plan to replace annual
stock awards:
For 377,138,880
Not For 76,523,251
Abstain 18,628,230
Total 472,290,361
(5) The stockholders approved annual incentive compensation terms
for certain executives:
For 426,210,225
Not For 28,657,382
Abstain 17,422,754
Total 472,290,361
(6) The stockholders approved long-term performance incentive
compensation terms for certain executives:
For 432,402,895
Not For 22,655,103
Abstain 17,232,363
Total 472,290,361
(7). A. The stockholders defeated a proposal recommending that IBM
affirm its political non-partisanship:
For 25,960,870
Not For 330,905,767
Abstain 25,002,114
Broker No Vote 90,421,610
Total 472,290,361
- 15 -
<PAGE>
Part II - Other Information
----------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders - (continued)
-------------------------------------------------------------------------
B. The stockholders defeated a proposal recommending the
elimination of awards or bonuses upon completion of
service:
For 33,121,847
Not For 330,274,469
Abstain 18,282,237
Broker No Vote 90,611,808
Total 472,290,361
C. The stockholders defeated a proposal recommending variable
executive and other compensation:
For 26,716,273
Not For 338,714,799
Abstain 16,447,835
Broker No Vote 90,411,454
Total 472,290,361
D. The stockholders defeated a proposal recommending the
withdrawal of retirement plan for non-employee directors:
For 94,553,375
Not For 269,437,780
Abstain 17,859,766
Broker no Vote 90,439,440
Total 472,290,361
E. The stockholders defeated a proposal recommending stock
payments to non-employee directors:
For 26,586,435
Not For 336,349,803
Abstain 18,933,764
Broker No Vote 90,420,359
Total 472,290,361
ITEM 5. Other Information
- -------------------------
On June 5, 1995, IBM announced plans to make a tender offer for all of the
outstanding common shares and preferred share purchase rights of Lotus
Development Corporation, a leading software developer located in Cambridge,
Massachusetts. The tender offer was at a price of $60 per common share, and was
initiated by a subsidiary of IBM, White Acquisition Corporation, which was
created for this transaction.
- 16 -
<PAGE>
ITEM 5. Other Information - (continued)
- ---------------------------------------
On June 12, 1995, IBM and Lotus Development Corporation announced a
definitive merger agreement under which IBM would pay $64 per Lotus share in
cash for all Lotus' outstanding shares and preferred share purchase rights. The
transaction has a total equity value of approximately $3.5 billion. IBM financed
the offer from its approximately $10 billion in cash on hand.
On July 5, 1995, IBM announced that it successfully completed its tender
offer to acquire the common stock of Lotus Development Corporation at $64 per
share. Approximately 97 percent of the 47.4 million outstanding Lotus shares had
been accepted for payment following completion of the tender offer on July 3.
Under the terms of the merger, each share which was not tendered pursuant to the
tender offer was converted into the right to receive $64 in cash.
The financial results of the Lotus Development Corporation when
consolidated will not have a material effect on IBM's results or financial
position. However, this acquisition will result in a significant one-time,
non-cash charge against IBM's earnings. The charge will involve accounting
writedowns of the amounts to be assigned to research and development of Lotus
software under development. The charge will be taken in the third quarter of
1995. The specific amount of the charge cannot be determined at this time based
on currently available information. However, the company expects that the charge
will have a significant effect on net earnings of IBM in the third quarter of
1995, and on net earnings for the year.
On July 25, 1995, the company announced that Cathleen Black, president and
chief executive officer, Newspaper Association of America, had been elected to
the company's Board of Directors.
ITEM 6 (a). Exhibits
- --------------------
Exhibit Number
11 Statement re: computation of per share earnings.
23 The company's proxy statement dated March 14, 1995,
containing the full text of the proposals referred to
in Item 4, which was previously filed electronically,
is hereby incorporated by reference.
99 Supplemental Consolidated Statement of Operations schedule.
ITEM 6 (b). Reports on Form 8-K
- --------------------------------
No reports on Form 8-K were filed during the second quarter of 1995.
- 17 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
International Business Machines Corporation
___________________________________________
(Registrant)
Date: August 3, 1995
_____________________
By:
J. B. York
___________________________________________
J. B. York
Senior Vice President and
Chief Financial Officer
* RISC System/6000, Application System/400, and System/390 are trademarks or
registered trademarks of the International Business Machines Corporation.
- 18 -
EXHIBIT 11
COMPUTATION OF FULLY
DILUTED EARNINGS PER SHARE UNDER TREASURY STOCK METHOD SET FORTH
IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
For Quarter Ended
___________________________________
June 30, 1995 June 30, 1994
_____________ _____________
Number of shares on which earnings
per share is based:
Average outstanding during period 575,354,667 584,041,605
Add - Incremental shares under stock
option and stock purchase plans 8,582,886 3,432,312
- Incremental shares related to
5 3/4% CGI convertible bonds 7,669,727 7,715,388
___________ ___________
Number of shares on which fully diluted
earnings per share is based 591,607,280 595,189,305
=========== ===========
Net earnings available to common
shareholders (millions) $ 1,711 $ 668
- Net earnings effect of
interest on 5 3/4% CGI convertible
bonds (millions) 5 5
___________ ___________
Net earnings on which fully
diluted earnings per share
is based (millions) $ 1,716 $ 673
=========== ===========
Fully diluted earnings per share $ 2.90 $ 1.13
Published earnings per share $ 2.97 $ 1.14
- 19 -
<PAGE>
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE UNDER
TREASURY STOCK METHOD SET FORTH
IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15 - (CONTINUED)
For Six Months Ended
______________________________
June 30, 1995 June 30, 1994
_____________ _____________
Number of shares on which earnings
per share is based: Average outstanding
during period 580,290,595 583,054,388
Add - Incremental shares under stock
option and stock purchase plans 7,806,924 2,696,239
- Incremental shares related to
5 3/4% CGI convertible bonds 7,684,947 7,715,388
____________ ____________
Number of shares on which fully diluted
earnings per share is based 595,782,466 593,466,015
============ ============
Net earnings available to common
shareholders (millions) $ 2,953 $ 1,038
- Net earnings effect of
interest on 5 3/4% CGI convertible
bonds (millions) 9 9
____________ ____________
Net earnings on which fully
diluted earnings per share
is based (millions) $ 2,962 $ 1,047
============ ============
Fully diluted earnings per share $ 4.97 $ 1.76
Published earnings per share $ 5.09 $ 1.78
- 20 -
EXHIBIT 99
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS(1)
SUPPLEMENTAL SCHEDULED (UNAUDITED)
<TABLE><CAPTION>
(Dollars in millions) Three Months Ended Six Months Ended
June 30 June 30
___________________ ____________________
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue: _______ _______ _______ _______
Hardware sales $ 8,659 $ 7,695 $16,386 $13,963
Software 3,072 2,726 5,945 5,309
Services 3,041 2,293 5,486 4,128
Maintenance 1,877 1,796 3,698 3,564
Rentals and financing 882 841 1,751 1,760
_______ _______ _______ ________
Total revenue 17,531 15,351 33,266 28,724
Cost:
Hardware sales 5,190 5,137 9,985 9,517
Software 1,066 1,021 2,071 1,985
Services 2,386 1,844 4,360 3,400
Maintenance 868 904 1,768 1,775
Rentals and financing 390 341 787 707
_______ _______ _______ ________
Total Cost 9,900 9,247 18,971 17,384
_______ _______ _______ ________
Gross profit 7,631 6,104 14,295 11,340
Operating expenses:
Selling, general and
administrative 3,883 3,935 7,516 7,466
Research, development and
engineering 974 1,091 1,887 2,192
_______ _______ _______ ________
Total operating expenses 4,857 5,026 9,403 9,658
Operating income 2,774 1,078 4,892 1,682
Other Income, principally interest 238 479 484 887
Interest expense 188 364 368 777
_______ _______ _______ ________
Earnings before income taxes 2,824 1,193 5,008 1,792
Income tax provision 1,108 504 2,003 768
_______ _______ _______ ________
Net earnings 1,716 689 3,005 1,024
Preferred stock dividends and
transaction costs 5 21 52 42
_______ _______ _______ ________
Net earnings applicable to
common shareholders $ 1,711 $ 668 $ 2,953 $ 982
======= ======= ======= =======
Net earning per share of
common stock $ 2.97 $ 1.14 $ 5.09 $ 1.68
Average number of common
shares outstanding (millions) 575.4 584.0 580.3 583.1
</TABLE>
(1) Supplemental information provided for comparative purposes.
1994 excludes effects of the sale of FSC and writedown of software.
- 21 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
IBM CORPORATION'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 9,893
<SECURITIES> 636
<RECEIVABLES> 13,326
<ALLOWANCES> 0
<INVENTORY> 6,162
<CURRENT-ASSETS> 41,701
<PP&E> 45,605
<DEPRECIATION> 28,761
<TOTAL-ASSETS> 81,601
<CURRENT-LIABILITIES> 28,529
<BONDS> 0
<COMMON> 7,195
0
253
<OTHER-SE> 17,398
<TOTAL-LIABILITY-AND-EQUITY> 81,601
<SALES> 16,386
<TOTAL-REVENUES> 33,266
<CGS> 9,985
<TOTAL-COSTS> 18,971
<OTHER-EXPENSES> 9,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 368
<INCOME-PRETAX> 5,008
<INCOME-TAX> 2,003
<INCOME-CONTINUING> 3,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,005
<EPS-PRIMARY> 5.09
<EPS-DILUTED> 4.97
</TABLE>
